Wednesday, November 12, 2008

What TARP Program?

Our treasury secretary announced mid summer, when things were very calm relative to where we are now, that he would be guaranteeing the debt on Fannie Mae and Freddie Mac. He told the country that this is not a cause for concern because just by guaranteeing the debt it would mean that no money would be necessary.

Two weeks later he announces that the companies have been nationalized. Hundreds of billions have been poured into the companies to cover losses and hundreds of billions more will be needed.

About a month ago he lined up in front of Congress to ask for the TARP program. He told our leaders that he would need a blank check for $700 billion but far less than that would be needed. The goal of the TARP program was to buy mortgage securities from banks at attractive prices to make a market for these securities. Once the government started buying them, then everyone else would, and banks would start lending again. The government could then sell those assets back into the market and make a profit for the taxpayers.

A week after getting his blank check, Paulson says he must first send the investment banks $125 billion in direct cash, momentarily pushing aside the original plan. The next day he announces that he will send another $125 billion directly to smaller banks once again pushing back the original goal of the taxpayers money.

This morning it was announced that the government may now buy zero mortgage securities with the money. None. This means they have done nothing to help the credit markets other than send hundreds of billions of dollars to banks who are now just sitting on the cash to cover losses.

With the wiff of what is going on, lobbyist have lined up in front of Washington to take a piece of the bailout pie. Companies in all shapes and sizes are now standing in line to get some free money.

Originally called the TARP, we can now call it the IBFE. (Inflation Bill For Everyone)

To counter that ongoing insanity, they have also redirected focus toward modifying additional home loans. Any outcome from this is going to be a disaster. Any home owners that are still making payments that can qualify for the new program will immediately stop. Many will come up with ways of rearranging their finances to qualify for modification. This will have a horrific effect on our economy as a whole.

In order to pay for the ongoing bail out support, I would keep your eyes open for new government programs to raise additional money. One such program may be to have 3-5% deducted from workers pay checks that would be placed into an "investment fund." The government would tell the country that they will be helping them invest for their future and the money will be returned with a strong return.

The money, however, will immediately be spent and replaced with treasury bonds. (IOU's) This is the way that medicare and social security work when it is deducted from your pay every month. The government spends that money instantly and replaces it with IOU's.

It is important to remember the final outcome of all this, which will be the collapse of our currency and our country declaring bankruptcy. We move closer to that point every day, and the majority of Americans will have their entire life savings wiped out in the blink of an eye. Not in the amount of money they have, but with what that money will purchase, their true wealth.

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