During the Great Depression, Franklin Roosevelt established the Work Projects Administration (WPA) to create work -- such as constructing public buildings, projects and roads and operating large arts, drama, media and literacy projects -- for Americans of all stripes.
Now the W Administration has its own WPA -- but this one only applies to the very wealthiest of Wall Street who are looking for more to do. The three million homeowners who are going through foreclosure won't get that $810 billion ($700 billion is earmarked for buying financial toxic waste and the other $110 billion went to buy the additional votes -- through tax cuts -- needed to get the House to pass the bill).
How will W's Wall Street WPA (WSWPA) program work? It will hire firms such as Bill Gross's PIMCO and Blackrock (NYSE: BLK) to manage a reverse auction to buy that toxic waste. Bill Gross bought $500 billion of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) bonds at distressed prices, "advised" the administration on its $200 billion program to nationalize Fannie and Freddie, and then profited handily when the bailout boosted the value of Gross's bonds. Blackrock is already enjoying our tax dollars as the manager of the $29 billion in Bear Stearns assets which the Fed took on back in March. In total, WSWPA could generate $7 billion in fees (1% of the $700 billion to be spent) for Wall Street.
Poor Wall Street! It faces the impossible task of running this reverse auction -- an idea which is dead on arrival. How so? Such an auction gives our tax dollars to the bank willing to sell its toxic waste at the lowest price. If the bank has those assets on its books at 60 cents on the dollar and it sells them for 20 cents to us, then the bank must reduce its capital by 40 cents. And its CEO must take a massive pay cut. This will create zombie banks that can't lend because they won't have any luck raising the capital they need to make up for the loss.
Or WSWPA could buy the assets for 70 cents, then the bank would profit -- by 10 cents -- but taxpayers would take a huge hit -- 50 cents -- because the 20 cent market value of the assets is so much less. The best hope for preserving our tax dollars is that the troubled holders of toxic waste decide that they're better off not taking the money due to the CEO pay cut and the capital hit.
WSWPA is reverse-Robin-Hood-economics at its best. Wall Street made trillions in fees lending money to people who can't afford to pay it back. The global economy collapses. Then the Administration uses hundreds of billions of our tax dollars to employ Wall Street in a WPA program to keep them busy during a period when hundreds of thousands of regular people are thrown out of work thanks to that collapse.
Not only that, but passage of the $810 billion WSWPA plan could not even reverse the $1.3 trillion in stock market value lost on Monday when the House voted it down. After W signed the WSWPA this Friday, the Dow lost an additional $70 billion -- closing 818 points lower than where it stood last Friday when Wall Street was convinced it would pass.
But wait -- there's more -- next month you can vote to keep this going for another four years.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
10-04-2008 @ 10:04AM
scole said...
This article is the kind of gargage that keeps getting the american public in situations that were in. If any person on the face of this earth beleives that George W single handedly made this mess, there stupid.
When will you stupid hacks that write this crap STOP? Start doing the kind of research that you should to tell a complete story instead of your bias bull s**t and if you can't then tell the readers that your a chump working for the goons on the other side.
I don't agree with any of this bailout bull but the democrats are equily guilty if not more so that George W.
How much did you get paid for this crap Peter Cohan or are you just a dam uninformed liar.
10-04-2008 @ 11:19AM
JCH said...
Singlehandedly? No. Inside government he had the help of Alphonso Jackson, Karl Rove, his Secretaries of the Treasury, his party's Chairmen of the banking and finance committees, Allyn GreenRandSpam, etc. There were no Democrats in the room when this lunacy was hatched.
You are suggesting people who had no power hornswoggled these poor domineering, type-A white dudes into doing this crap for 6 full years. A truly laughable contention.
Outside government he had all his buddies in the housing industry, who showered money on Republicans.
Your side refuses to be accountable.
Bill O'Lielly blaming Barney Frank, who had no position of authority until January 31, 2007, is idiotic. That is less than two years ago. The Republican led house ruled as though the democrats were not in the room. They cut them entirely out of the process. Their arrogant management of the House of Representatives contributed mightily their butt kicking in 2006.
The CRA was managed for more than 20 years without causing a credit crisis. It makes a difference who you hire to manage, and you hired GWB - the worst President in history. You're incompetent at selecting competency.
Doesn't matter, a political rookie is poised to smash the Neocon reign into smithereens.
On jobs, I suggest they hire a squad of four Americans to hold 24 and 7 open houses in each of the empty houses. That's millions of jobs that require no concrete or any real skill. Even McBush could handle one.
10-04-2008 @ 1:07PM
scole said...
I have no problem with the fact that all of our government is corrupt and out of control but to suggest that one party is less responsible, give me a brake. You sound like all the rest of uninformed numb skulls in this country. The problem is that democrats just have a different way to take it to the public (socialism). Barney Frank you have to be joking. It would be nice for some truth about the millions that were given to your democrats that run fanny and freddie including your beloved Obama. They are all crooks and your out of touch with reality.
10-04-2008 @ 3:15PM
william lindblad said...
Peter, sometimes I do wonder. If you want to promote politics you should really go on the stump - run yourself.
Mort Zuckerman is a liberal leaning Democrat and he is not picking sides, however he does think that the bill stinks also. So do I. I guess we all agree on something. I think that the cost is really going to much higher - you forgot Amtrack, the wooden arrows, mental health and the rest of the 2 billion or so add ins.
You keep extolling all the virtues of a candidate by innuendo so why not just say that Barrack is the man? Let's not forget he is running for office and had little to do with this mess. Neither did McCain and Dubya is not in charge of this part of domestic policy.
You should go up to Mass, run with Barney Frank, or at least work his campaign.
Before I quit on all of these clowns, I would like to hear from Mr. Lockhart. I want to hear him give testimony to the House Finance Committee. If you don't know his function - go find out - I see that he is conveniently absent from all discussion and I damn well wonder why?
They replace the heads of F"o"nie and Fraudie, so why does the lad have a "halo".?
Interesting? They really should call this legislation the fornication bill.