Get a signature, create a meaningless debt, levy the taxpayer.

Cashflows for a Credit Default Swap.

Image via Wikipedia

Capture a stiff’s signature. The stiff can be poor or an earner, but all were unable to pay the inflated value of the loans (not all were mortgages, some were credit cards, cars, Harleys). When houses, in particular, get too pricey, and wages stagnate, even working people can’t afford them, their down money, or their normal schedule of amortization.

Now sell the debt. Syndicate it. Sell it upstream. Insure it with nothing in the pool to pay out on the defaults. The bank isn’t holding the paper – they don’t give a crap. The investment bank sold the bond, they don’t give a crap. The CDS issuer never gave a crap – for whatever reason.

Who was the only party that gives a crap and can do nothing to stop the locomotive? You, the taxpayer. Believe me people, this was robbery and blackmail of the highest order. You are threatened with financial meltdown, lockup of the credit markets. “if we don’t do this….’

You can’t pay your health insurance, or you have none to begin with. Tough shit. We can’t afford a national plan like oh….(you think I’m going to say, Canada? Wrong) Federal Employees like Senators and Congressmen? You can’t send your kid to college, a good school, because it’s unaffordable and financial aid has been cut to the bone (and you ain;t seen nothin’ yet). Tough shit, we can’t afford it.

The mortgage banking system and the investment banking system are insolvent? That, that we can afford.

Suckers, suckers, ha ha, jokes on you. 15B a month in Iraq plus the aftermath of veterans care for a generation. 80B for Fredfan. 85+B for AIG, and on and on and 700B for all them and no one in particular.

We all could have had the best health care and free higher education. The free market would have been forced into CDS defualt (the best medicine for illiquid paper), house prices would have crashed and burned, and become once more affordable for the middle class working stiff.

Commercial paper, short term working debt, would have become tight for a while. We could have borne the pain. We are in for 40 years of much worse.

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Too Big to Fail, too stupid to succeed.

AIG TowerImage via Wikipedia

I would direct America’s small business owners, the bulwarks of our economy of whom most have never taken a dime of government money, to consider my hero, Tom Kloza’s article. Read it, and notice the last line. He is being polite.

Now, our Federal Bank, just as the Reichsbank in 1936, is nationalizing a private insurance behemoth because, ahem, ‘it is too big and important to fail. The US Government’s 79% stake in AIG signals an unprecedented nationalization of private capital – stupid capital that could not succeed on it’s own merits.

You, the now teetering or already gone mid-range American manufacturer of specialized, technical durable goods, are shit out of luck. You were not helped when the government subsidized and deregulated the financial industry, overlooked dirty deeds, and directed capital towards do nothing instruments, rather than incentivizing and strengthening the industries that really create things. You dumb stiffs, you salt of the earth family business that saw the greatest expansion of post WWII wealth. Gone.

You can go out of business, and many of you are long gone and will never read this missive. America was the lender to the world, now we are the debtor. America was the world’s manufacturer, now we mostly have all manufacturing outsourced. Rather than investment and R&D tax credits for streamlining manufacturing for mid-range specialized high-end goods, we pished the incentives away by deregulating and letting the financial industry take all the air out of the market.

Good night America; we have privatized gain, and socialized debt and failure while the base of American small business is burdened, while engineering universities are priced beyond all but the wealthy and the impoverished (one or the other).

Get ready for the breadlines, read, “The Grapes of Wrath”, and get your mind right.

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A Fairy Tale of Mountain View

It was a silent 4:00PM in Mountain View, CA, the artificial city of the Silicon Peninsula. I ended my funding pitch with a quote from Jonathan Swift. I had no idea it would be so poorly received:
“When a true genius enters the world, you may know him by this sign: the Dunces are all aligned in confederacy against him.”

So I quoted with a smile at the VC meeting where my baby, ThruDispatch, was pitched.

One of the Senior Partners hurled a stentorian barb in my direction.”You are calling yourself a genius and we are the Dunces? ”

“Not at all. I am merely saying that many valley equity investors seem to be throwing capital at just so many duplicate social media and video sharing plans”, I said, almost ready to mace these suits if it wasn’t for the consequences. Don’t they see the mess in cloned business models ruining this wonderful valley?

One of the Juniors looked at me with withering scorn and vomited his invective in my general direction, “Everyone in this room makes seven figures, we are placing the next sub-round in Facebook Apps…good day Mr. Wilensky and, good luck with your….plan”.

As I left, I passed a famous ‘Silicon Valley undertaker’, a reaper of VC capital, walking confidently into the conference room. He had a track record of raising capital and burning down (so to speak) any number of here and gone startups, few of which ever became profitable. Indeed, he seemed more notorious for NOT making equity pay. What was his secret?

“How do you do it?”. I hissed, “how, how?” He barely glanced backwards at me as his Patek Philipe Minute Repeating watch chimed a quarter past the hour.

“I hire friends, I am hired by friends, I make sure that the first order of business when receiving a placement of equity is to find a way to compensate the VC partners”, he said, his suit was impeccable.

Hmm, leather sandals with a suit in such Bay Area cold.

Clammy and faint, I staggered towards the elevator – Ping….Bing…bong..softer as the conference room door clicked closed….fainter voices from behind…”hey guys…good to see you again….(Ping!)

It was 4:30PM in Mountainview.

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