September 25, 2008: Lawmakers
reach nearly reach deal on $700,000,000,000 bailout*
The guards waved me through the access gate – wearing remaindered TSA uniforms from the summer of ’11 with the silver skulls on the epaulets – and I swiped my access card outside the express elevator. A ninety second ride conveyed me to the sub-basement, and from there a quick walk to the Rumpus Room.
The gang was there already.
“Hey, gang,” I said. “Let’s get started.”
Two hours later, I was sorting my massive stack of chips while Bush tried to talk Bernanke out of buying in for the fifth time. I didn’t know why these guys insisted on playing blackjack, rather than stud poker or hold’em or any game that they had a chance of winning. Maybe the Clinton years had given them an inferiority complex – always on the outside, looking in – and they felt a constant need to stake their luck against The House. I always returned all their money at the night’s end, anyway. They were still using ’09 greenbacks, which wouldn’t buy me a stick of gum on the outside.
“Why do you guys always play blackjack?” I finally asked.
“Bobby gave us the idea,” Bush said, indicating former AIG chief executive Robert Willumstad with a jerk of his head. “We had that Kevin Spacey movie 21 on the DVD and we thought we’d try our luck at counting cards.”
“Really? You’ve been counting cards this whole time?”
Bernanke nodded. “It’s a four-deck shoe, so we worked it out that …”
I shook my head to cut him off. “I always deal out of a seven-deck shoe.”
The room fell silent.“So you thought I had more high cards left in the deck,” I explained, pouring myself a drink, “than I actually did. So you started bidding more aggressively, because high cards are good for the player. But then you started losing hands – because you were wrong about the future composition of the deck. And then you did that stupid Martingale thing where you double your bet after each loss, which only got you farther into hock.
“And besides,” I continued, “successful card counting is usually done in teams. It doesn’t work if you’re all counting cards against each other. Because then one player’s success is another player’s failure.”
Henry Paulson scratched his head.
“This is the same way you got in trouble with mortgage securities,” I told Herb Allison, former CEO of Fannie Mae. “You thought that there were more high housing prices in the future. You were wrong about the future composition of the deck. And because you were already investing in mortgage securities on credit, you had to keep raising your bets in order to make up your losses.
“And the rest of you …” – here I turned to the former CEOs of Merrill, Goldman, Lehman, Bear Stearns and Washington Mutual – “… all had to keep him in the game. Because if he folded, then all of those bad cards – meaning, all of those toxic mortgage debts – would start coming to your hands. And the process would repeat.”
“Not for me,” Willumstad of AIG said.
“No,” I agreed. “But you wrote credit default swaps – insurance contracts on those bad bonds. These contracts only paid off in the event that the holder went bankrupt. And when lenders started going bankrupt left and right, you owed more money than you could pay.”
“It could have been a catastrophe!”, Paulson exclaimed. “Think about it – trillions of dollars of wealth, vanishing overnight. All because of some greedy bankers …”
“Don’t go blaming us for this!” said Richard Fuld, former CEO and chairman of Lehman. “We wouldn’t have bought so heavily into these mortgage securities if Moody’s hadn’t rated them AAA – as safe as government bonds!”
“Like this is our fault!” shrieked Ray McDaniel, former CEO of Moody’s. “Those brokers bundled junk mortgages together into a single package that looked like a safe investment. If they hadn’t been after those thousand-dollar commissions …”
Angelo Mozilo, former CEO of Countrywide Financial, made a jerk-off motion with his leathery hands. “Puh-lease. What, am I gonna be the guy who turns down some poor schmoe from getting a home? When he can just go to a competitor down the street and get the same no-income, no-assets, adjustable-rate loan? Let the FHA investigate me for discriminatin’ against blacks and Hispanics and what-not …”
The shouting rose to a general din.
“Guys, guys,” I yelled, “no single one of you takes the blame.”
“Exactly!” Paulson squealed. “Because I solved it.”
“None of you take the blame,” I continued, ignoring him, “because the problem isn’t personal. It’s institutional. Suffering never comes from a few people conspiring to do evil; it comes from a million people with no incentive to do good.“Consumers had no incentive to be honest about their loan applications – not with loans available that didn’t even require you to state income. Lenders had no incentive to be honest with the consumers – not with the new lowered standards for credit. Brokers had no incentive to investigate the loans that they bought from lenders and bundled into tradable securities – not with the heavy demand from investors. And investors had no incentive to question the riskiness of the securities they bought – not with the generous rate of return they were seeing.”
As I spoke, I dealt cards from the deck to everyone still sitting at the table, punctuating each sentence with a face-up card.
“No one had an incentive to look,” I concluded, still dealing. “Everyone was looking the other way. And that’s when the train hit.”
I dealt a final card to James Cayne, ex-CEO of Bear Stearns: the grinning Joker.
“Did I leave that in the deck again?” Bush asked, peering over Cayne’s shoulder. “Shoot. Always forget that one.”
“The Professor’s right,” Paulson said, sidling up behind me and clapping me on the shoulder. “It’s silly to talk about who’s to blame. That’s all in the past. Especially since I solved the credit crisis with that massive bailout.”
“We solved it,” Bernanke insisted. “And a fat lot of thanks we got for it, too.”
“Have you seen what it’s like upstairs?” I asked. “People are burning dollar bills to heat their homes. Typhoid’s sweeping through the Midwest. I have yet to meet someone who’s traveled more than ten miles from their home in the last year. You didn’t solve shit.”
“Obviously, it’s a time of hardship for the nation,” Bush admitted. “After the 2008 election …”
“Don’t blame this on him,” I interrupted, referring to Bush’s successor. “This is only partly his fault. You’re the ones who gave the Secretary of the Treasury absolute power – power that couldn’t be questioned in court – to control the economy. Given the idiot he appointed, this is only common sense.
“You started this when you spent seven hundred billion dollars – more than the budgets of the Departments of Defense, Education and Health & Human Services combined – to buy up bad mortgages. You sank seven hundred billion dollars into investments that would never pay off. Where would you get that $700,000,000,000 from?”
“New Treasury bonds,” Bernanke offered.
“But who would buy them? Treasury bonds are supposed to be a riskless return, but you just sank seven hundred billion in the same shit that crippled Stearns, Lehman, Merrill, Goldman and Fannie Mae. So since those debts are never going to pay off, the only way to honor those bonds is by printing worthless paper.“Why do you think mothers stuff their children’s jackets with dollar bills? Why do you think customers at bars buy their drinks six at a time, before the price goes up at the end of the evening? How is it I can make a living gathering five dollar bills off the street, stitching them into a wallet, and selling the wallet for more than the currency it’s made of?”
They didn’t get it, of course. They never got it.
“Inflation,” I said, trying not to scream. “Inflation on a level that’s making Mugabe laugh at us all the way from the Hague. Inflation that bankrupted everyone on a fixed income – including the huge generation of Baby Boomers. Inflation that penalized savers and rewarded borrowers, turning America into a nation where everyone was in debt to everyone else. Consumers borrowed from corporations, corporations borrowed from banks, banks borrowed from the Treasury, and the Treasury just kept printing money to oblige.
“You returned America to serfdom. Nice work, guys.”
My voice had grown hoarse from lecturing, so I took a sip of my drink. A muffled pounding slowly filtered into the room from seven stories above.
“What’s that?” Paulson asked.
“Oh,” I said. “I might have forgot to lock the door behind me. Sorry.”
“It’s all right,” Bernanke said. “The guards will protect us.”
“I don’t think so. I paid them off on the way down here. As stocked as you’ve kept your bunker, there’s one thing you can’t provide them.”
“Porn!” Bush said, striking his palm with his open fist. “Curse our fundamentalism!”
“But who is it?” Paulson asked. “Who could want to hurt us?”
“Well, that’s the thing of it,” I said, palming the smoke bomb I’d hidden behind my belt buckle. “Remember how I said Treasury bonds used to be a riskless investment? The kind of investment that was typically only bought by large institutions looking for absolutely safe places to store money? Like pension funds? Like the New Jersey local of the Brotherhood of Maintenance of Way Employees’ pension fund?”
“Oh, hell,” Bush swore, fumbling for his cyanide capsule. “It’s the Teamsters!”
“Wait!” Paulson yelled, sweating and grabbing at the deck of cards scattered across the table. “What do the rest of us do?”
“I don’t know,” I said, dropping the smoke bomb. “Bail out?”
* I’ve had this post on the spike since Tuesday; I’ll miss the news cycle if I wait any longer. We all know the bill’s going to pass.