Saturday, June 06, 2009

Next Generation Bailout Acronyms

To turn around this economy, the government has expended a lot of money through a couple of programs know as the Troubled Asset Relief Program (TARP), and the Term Asset-Back Securities Loan Facility (TALF). These were followed by American Recovery and Reinvestment Act (ARRA) of 2009,which was passed to provide a stimulus to the economy but contains a lot non economic (a.k.a pork and earmark) items.

In my opinion, these plans have been plagued by high costs, low transparency, and biased political agendas. With the trillions of dollars spent, it appears that the politicians have not let this crisis go to waste. The worst part, I see relatively little gain resulting from spending all this money. The financial institutions still have virtually all the toxic assets the had in October, 2008. Housing prices are still declining. And sustainable new jobs are still not being created

Which means, we'll probably need another round of bailouts. I expect that the Obama administration and the Treasury will soon realize the shortcomings of the current bailouts and create next generation bailouts as needed. Here are a couple new programs that I think may be considered for the economic situation. Of course, the government will likely use different acronyms than I have assigned :-)
  • Special Creative Accounting Methods (SCAM) - The illiquidity of Collateralized Debt Obligations (CDO) have made it difficult for financial institutions to value their CDO holdings. As a result, the equity of many financial institutions was decimated when these assets were valued at fire sale prices. Neither the Treasury or the FDIC have implemented their proposed programs to create a market for these toxic assets by purchasing them.

    Through SCAM, financial institutions will be able able to better assign a value to these assets, further convincing investors that the financial systems are stable.

  • President Obama's Oversight Program (POOP) - "Let there be no doubt, " President Obama will say when introducing this new program, "that the American people deserve to know how taxpayer fund are being used in the bailout. I personally will oversee making sure Americans get the truth."

    POOP will quickly become the standard that taxpayers expect from our government. When the program is fully implemented, the government will be full of POOP.
  • Hopefully, the economy will recover faster because I wouldn't want to see the government giving taxpayers POOP or allowing financial institutions to use SCAM.

    For more on Reflections and Musings , check back every Saturday for a new segment.

    This is not financial or economic advice. Please consult a professional advisor.

    Copyright © 2009 Achievement Catalyst, LLC


    pfstock said...

    This post is hilarious! Unless you object, I'd like to post a link to this post from my blog. ROFL

    Brad Castro said...

    Very funny - and not as easy as it looks. I struggled for 20 minutes trying to fill in the details on the CRAP program - but it's still too early here.