Thursday, April 09, 2009

The Emperor's New Mutual Fund

You have to admire the sheer moronic audacity of it. Treasury takes public money and buy fundamentally worthless assets, driving up their "value." Then you encourage the public to make "private" investments in these same assets at their new, artificially inflated, but still low prices. If you're lucky, pooled public investment temporarily further inflates the prices of the assets. More small private investors buy into them, seeing rising valuations and looking to get in on the action. Meanwhile, large institutions divest themselves of these same assets because they are worthless, toxic, Satanic, etc. Then "Main Street" is left with a big pile of fundamentally worthless assets that in fact still represent unrecoverable debt notes and big banks and investment companies have purged themselves and everyone lives happily ever after inshallah.

Not that anyone involved gives a damn, and not that younz don't already know n'at, but it yet bears repeating: the "troublesome assets" are worthless. Investing in them guarantees loss.

Posted by IOZ at 11:11 AM | email »
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21 comments:

Mr.Fundamental said...

would somebody please tell Jon Stewart not to buy these things.

12:00 PM
Solar Hero said...

Do any of IOZ's circle have student loans? I have about $66,000 (principal) and I just don't pay them. I get lots of robo- and real people calls that I don't answer, and I guess at some point they will garnish my wages but first they have to go through a long arbitration process where I can continously slow things down, and these loans, like mortgages, got cut-up and tranched, so I'm not even sure who owns my loan, and the collectors certainly don't.

Anyway, I'm just wondering, could anyone give me a moral argument to pay my student loans back to these banks receiving all these public goodies? Sure, I can't personally get a loan from a bank, but I've got plenty of good friends with good credit, I'm not really concerned.

Is there anything more revolutionary right now than getting all your assets out of corporate banks and refusing to pay back loans?

12:25 PM
A Different Matt said...

Solar Hero:

"Anyway, I'm just wondering, could anyone give me a moral argument to pay my student loans back to these banks receiving all these public goodies?"

Um... two wrongs don't make a right?

I don't know, what can you live with?

12:45 PM
bill said...

I think the "moral argument" for repaying your student loans is pretty clear: you promised to do it. Whether you find that argument compelling is another matter; it doesn't stir me too much. Also, IOZ, how can you say those assets are worthless? Is it established that none of the mortgagees will make their payments? Or, if they don't make them, that none of their homes could be resold for any amount? The underlying assets -- the mortgages and the houses which secure them -- have some value (unless they're in or around Detroit, say), just not enough to make the earlier investors anything close to whole.

1:19 PM
Brian said...

Heck, just like one promised to pay one's drug dealer for the crack cocaine. Excess easy credit is the same thing (I'm just justifying my own horrible addiction to overspending). You are "immoral" for not paying them back, but maybe the educational establishment was immoral for raising education costs two or three times faster than inflation and the banks were immoral for making the money easily available and, heck, maybe society was immoral for making an expensive college degree "necessary" to obtain a middle class life???? I don't know.

1:46 PM
IOZ said...

Brian's is basically the case - given a choice between poverty or usurious indebtedness, most will choose the latter on the promise of some kind of modest prosperity. There is an ethical case to repaying one's personal debts, but there's hardly a moral case for the person at the wrong end of indenture to live up to his end of the bargain.

2:35 PM
NutellaonToast said...

IOZ is right, though he exaggerates. Yeah, they're not "worthless" but they're so convaluted and the future of the economy is so uncertain that their risk is enormous. The only people who should even think about investing in this are those that have the time to look at the details AND are willing to take on a hell of a lot of risk, eg, NOT AT ALL your average individual investor. Sell em to China or the Saudis or something like we've always done with out worthless debt. I say we just keep doing that until they stop falling for it, and then say "Fuck it, we ain't paying you back. Whatcha gonna do?"

I mean, what else is the worlds largest military good for if not robbing other nations outright? If we do it this way, no American gets killed and BAM, no dang Cindy Sheehan to rain on the parade. No one here will care that the brown people got shafted. They never do.

Neocons think way too small, man.

Oh, then we invade Canada and Venezuela after the oil embargo or something. I dunno. Maybe Mexico, too. Don't they have a lot of oil?

2:42 PM
Brian said...

Nutella: Bravo, man, Bravo! Great post. I am signing up for the Mexican Expeditiary Force as we speak!

2:46 PM
tooearly said...

moronic?
Rediculous!
Highly profitable to those dumping this on the taxpayer
It will work In Spades for those that cAn do so

3:06 PM
David Chappell said...

The whole scheme is reminiscent of the 18th Century South Sea Bubble, which, when it collapsed, "A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames".

Invest in snakes

3:10 PM
Anonymous said...

Well, if they sell um at the Mall, they have to be OK!

3:52 PM
Solar Hero said...

OK, so the depths of bourgeious sentiment that I've received is that "two wrongs don't make a right."

The largest transfer of wealth has just happened, from my country's coffers to the people who own my student loans, and if I refuse to pay back those recipients of my govenment's largesse, that is "two wrongs don't make a right."

Well, my friends, hitting the bully back is always a "wrong." Guess I know where to find you guys when the shit really hits the fan.

5:27 PM
g-nome said...

Whether or not I "craft an argument" to justify paying back my student loans--and lord knows it sucks having the burden of paying back the money I used to live for three blissful, book-saturated post-course-work years--the fact remains I borrowed it, and the fact remains I said I would pay it back.

Usury used to be a sin (for some.) Then again, so used to be eating shellfish (for some.) And our lumbering postmodernity has been and will continue to be characterized by its own case of bad clams. Whether or not I craft an argument about my personally-assented-to obligations will not change at all the stomach cramps they are bound to induce. Perhaps I'm fearful of the consequences of not paying my student loans. Maybe I don't have a battalion of affluent friends to bail my ass out should "shit get real" (as I believe the Ivy Leaguers around here like to talk).

I've found it useful in the course of paying back my loan--whose existence I surely regret but whose temporary luxury-enabling I certainly enjoyed--to pretend that, rather than being a faceless holding corporation, Sallie Mae is in fact a scampish orphan with a giant magnifying glass who jetsets around the world (with my money) solving international crimes. This month, for me, she's breaking up a Cambodian child-prostitution ring.

Fuck all the "two wrongs don't make a right" bullshit. Who's trying to make something right? Certainly not some happily hedged sophist trying to justify his own refusal to pay back his loans. I say don't justify yourself--you'll do what you wanted to anyway, regardless of your after-the-fact explanations.

5:56 PM
bleh said...

Near as I can figure out what they're doing now is this.

Millions of people signed papers that nobody really understood -- certainly they didn't -- and in return they got money that they bought lots of stuff with -- Hummers, Sub-Zeros, Virgin Island vacations, etc.

The banksters took a healthy skim -- as always -- and given the size of the money river, that was a river on its own. They ain't givin' a penny of it back.

Now that shit's gotta be paid for with money instead of signatures.

So, the plan is to suck as much of the money back from the millions as possible. Some of it is just being taken, via taxes, but they're tryin' to Hoover up more of it through "investment" vehicles.

The hope is that maybe some banksters will be suckered too -- and some of them are pretty dim, believe me -- so it might work. To the extent it does, the taxpayer has to fork out a little less.

But in the end, we're paying for it, one way or another. People got their Sub-Zeros, and the banksters got their skim, and all that paper is worth less than fertilizer.

(BTW, who actually wants a Sub-Zero or a Hummer? Or A McMansion? Yeeech.)

7:23 PM
A Squirrel said...

Bill,

An awful lot of this crap isn't backed by any underlying asset. They're synthetic. Basically, they are bets on whether the mortgagor will default or not. In case of default, there is no claim on the property.

It's just high-stakes gambling.

7:44 PM
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4:31 AM
Mike said...

I think Anon4:31 hit it out of the park.

We got a saying here in Texas, you probably have it there in Plattsburgh too, it goes like this:
'Fool me once, shame on me, fool me twice...'

7:15 AM
Anonymous said...

what the fuck did i know about debt, etc., when i was 20 yrs old and going to school? it was a con job then, it's a con job now. "but you promised to pay it back." are you joking?

so now your taxes are going to citibank, and you are paying your student loans off to citibank as well?

seisiachtheia, year of jubilee and all that. get some balls here and tell citibank (and the gov't?) to go fuck itself.

12:21 PM
Mr.Fundamental said...

I just have to laugh at people that think they know what's best for themselves. you must be living quite the examined life, I honestly don't know how you find time to comment here.

I think the sentiment we're looking for here is similar to the feeling of sorrow for policemen coming to a domestic disturbance call that get shot and killed by a psychopath lying in wait. what can you do? I did not ask for this, I am just here; none of this was chosen. reason is such a pitiful tool. we're all complicit and entangled within this society, so relax and try not to take yourself so seriously. if not paying back your student loans in protest is compelling to you, that's fine. draw your line somewhere. drive slow in the fast lane if you must.

personally, I blame Crispin Sartwell.

2:34 PM
Anonymous said...

solar hero,
you probably shouldn't have gone to school if you couldn't afford it. now that you have, i'm affraid you've shit the bed. betting that the right hand won't know what the left hand is doing is not smart, especially when it's your future that you're betting with.
if you'd like to keep your computer/house/car/whatever you own, you should pay the bankers, because they will hunt you down and take the money anyway (it's their only job).
this is not "a moral argument" as you requested. it's a dumb thing to ask for. i'm giving you a practical argument. pay off your debts, or your life will turn to shit.
alternately, you could go back in time and skip the whole higher education thing. if you're only out 66 grand, you and your degree should really be able to make that up. if you can't, your education wasn't even the scam it promised to be.

or, why don't you just sell your senior thesis. that has to be valuable to SOMEONE, right?

2:07 PM
Anonymous said...

You know, I've got like 16k in debt, live abroad, and have been seriously thinking I'll just renege on the whole fucking thing and never go back. But I think anon207pm is right: student debt is serious: they garnish wages and take tax returns and hire collectors. And you can't bankrupt your way out of it. Well, you might say, fuck all that--the US is tanking, the banks are evil. But then there's the always looming what-if. I say: hedge your bets, save your money, pay your debts. Fuck the 'em when you can, but in the circumstances, they got you. In the future consider Polonius: neither a borrower nor a lender be.

2:47 PM

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