Bailout

US Banks Need a Bigger Lifeboat

By USLaw.com

Ben Bernacke’s must have been to Blockbuster this weekend to catch up on his classic American cinema.

First AIG received $85 Billion in September. That later swelled to more than $150 billion earlier this month.

Then Citigroup received $25 Billion in cash from the TARP last month. Now, the bank has received another $20 Billion and a guarantee on $306 billion of debt.

And yesterday the Federal Reserve commits to the outright buying of, for the first time ever, $600 Billion worth of mortgages and consumer loans from bank and GSE balance sheets.

We witness the shift of yet another multi-hundred billion dollar run from US printing presses to the country’s largest mismanaged banks with no assurance more will not be needed to accomplish the stated goal of avoiding another Lehman-sized bankruptcy. After being outfitted by Congress in the light of day to a $700 Billion lifeboat, these continued allocations of capital by the Fed far over and above this amount leaves us in awe of the Fed’s willingness to back more large rescue plans, but not knowing for certain if another major bank will need to be bailed out.

And leaves open the question of whether brilliant Ben Bernacke will do to the US Dollar what Stephen Spielberg’s mechanical fish did to man-of-the-people Captain Quinn:

Or whether Ben can out do a humble Cape Cod sheriff:

The allegory between “Jaws”, the film, and the Bailout, which we can only wish was merely the creation of a Hollywood screenwriter, can reasonably be carried quite far. Just as veteran working fisherman Captain Quinn had little patience with oceanographer Matt Hooper’s (Richard Dreyfus’s character) overly analytical, scientifically grounded suggestions, the American people may soon get the feeling the Fed Chairman and Treasury Secretary are over engineering a needless interventionist solution to the crisis. Hooper was the first to realize the mysterious wreckage found in the bay “was no boating accident”, that there was indeed a menacing shark in the water. Yet Quinn, who survived the storied sinking of the USS Indianapolis, was spectacularly eaten by the shark from the deck of his own boat.

Paulson and his Goldman Sachs partners put plenty of fish in their baskets when the fishing was good. Will they figure out how to fish another day with all the bait they cajoled out of the Congressional bait shop? Well, while the gross of Jaws IV was less than 10% of the original film, the franchise did survive three sequels… each with successively lower grosses.

Full post as published by Bailout Report on November 26, 2008 (boomark / email).