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Playing hocus-pocus, where’s my bonus?

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By Jim Flynn

At this writing Washington has spent $60 billion of the $787 billion of recovery stimulus money. The White House says it is pleased with the pace.

Despite the slow start, Washington’s economic gurus say the stimulus is sufficiently established to inflate a recovery balloon any time now. We suspect they’re seeing tea leaves in their coffee grounds.

Despite rising unemployment, people have begun saving money again. Some think that’s a sign of rising consumer confidence. More likely folks recognize that things could get worse, and they want what little money they have left in a government-insured bank account.

Another omen is the parade of investment houses wanting to pay back government loans. Isn’t that a good sign? It is if you’re an investment brokerage executive who wants to restart the game of hocus-pocus, hide my bonus?

Investment brokerages aren’t really banks, but they like to pretend they are, because “bank” sounds more respectable. Investment brokerages raise money for mergers and acquisitions, and they deal in exotic securities. They were major players in our current economic meltdown.

Investment brokerages want government to have no say about salaries and bonuses, but they’ll suffer a temporary indignity of federal examiners snooping in their books if that’s what it takes to get an infusion of taxpayer money.

We don’t think investment gamblers should be bailed out unless they agree to a constant colonoscopy of supervision. We’ll suffer their whining and bonus baloney attitudes until we get our money back.

While investment brokerages seem to be making a miraculous comeback, less attention has been focused on hundreds of commercial and savings banks. Those are real banks at which citizens and small businesses keep their accounts, and from which they seek loans. 

The Treasury Department recently had a fantasy that toxic assets owned by regular banks may be worth more than they guessed originally, even though they have no idea what the assets will sell for. Treasury intends to loan cheap money to prospective buyers of the banks’ toxic assets. Investors and banks get a share of the profits, but they won’t have to bear the losses if the assets turn out to be worth less or worthless.

Despite Treasury’s crystal ball optimism, many commercial and savings banks continue to post losses. More than 250 are in serious trouble at this writing. The Fed has been “stress testing” the regular banks to see whether their arteries are strong enough to survive a financial TIA (a terrible implosion attack).

Stuck with its philosophy that some banks are too big to fail, Washington has focused most of its attention on Citibank, Wells Fargo, and Bank of America.

The other fixation of current economic thinking is that government must keep spending until a recovery is well established. Since there is no agreement as to which constellation of tea leaves confirms a recovery, Congress and the White House can indulge in their favorite sport of unlimited spending indefinitely.

Japan is an example of where we’re headed. Ever since the Japanese real estate bubble collapsed in 1990, they’ve been doing all the things we’re now doing. Because they are culturally polite, the Japanese didn’t force banks to take their losses for worthless assets, and they didn’t let sick companies collapse, which is what capitalism is all about. Instead, they adopted socialistic capitalism – capitalists keep the profits; taxpayers buy the losses.

We’re not as polite as the Japanese, but we’re just as gullible. We’ve committed to reinflating the collapsed economic bubble. Nothing could make the players who caused the collapse any happier. Their game of hocus-pocus where’s my bonus will be restored at huge public expense which will never be paid back.

Recently the Financial Accounting Standards Board gave in to bank whining by loosening their requirement that toxic mortgage assets be valued at what they would sell for. It’s called mark to market. The banks insist that because nobody is buying their toxic assets, there isn’t any market.

A more realistic view is that the free market is saying their toxic assets aren’t worth anything right now. Business and banks love to talk “free market” as long as it’s going their way. Now that the hot-air market has deflated, they say it just ain’t fair. Well boo-hoo.

Jim Flynn was formerly a corporate counsel, served in military intelligence during the Korean War, and once aspired to be a newspaper columnist.