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Posts Tagged ‘Game Theory’

America does nice things all the time all around the world, and we are rewarded with contempt, hatred, and hostility.  We are like the “Nice Guy” who gets to be alternately a sucker and an emotional punching bag, while the “Bad Boys” get to do what (and whom) they want. 

Today, an Albanian Muslim terrorist was arrested in my neck of the woods. He’s from Kosovo, a criminal neighborhood that the Serbs were cleaning up until NATO decided to align with the Albanian terrorists in 1999 and bombed the hell out of the Serbs.  The false pretenses of the war were soon exposed; indeed, they were many times flimsier than the WMD claims in Iraq.  But it’s all down the memory hole now.
 
Thanks to American airpower, these Albanian clients run prostitution and drugs through the Balkans with little interference.  Even their criminal leader Hacim Thaci  is in on the act.  Sometimes we get to harvest the fruits of their civilization, as in today’s terrorist bomb scare in Tampa.  One of the worst consequence of Humanitarian Wars is that we often get a flood of refugees, even though these wars themselves are supposed to render fleeing from atrocities obsolete.  We have Somalis, Haitians, Palestinians, Egyptians, Kurds, Iraqis, and every other people from the planet Earth living here on various asylum and refugee visas, often engaged in menial work at best and criminal terorrism at worst. We stupidly think the Muslim newcomers will be greatful for us “helping them” or for being exposed to our wonderful way of life, but let’s look at the record.  We’ve helped them in Afghanistan it the 80s, in the entire Israeli-Palestinian peace process, today in Egypt and Afghanistan, yesterday in Somalia and Kuwait and Kosovo, and it makes no difference.  We are hated.  And sometimes we are killed.  Let’s not forget Mohammad Atta and Khalid Sheikh Mohammad both spent a lot of time in the West.  They hated the place too.  Sami Osmakac’s ingratitude and hostility is not new. 

Of course, not all Muslims are terrorists.  Indeed, the vast majority are not.  But Muslims are probably 100X more likely to be terrorists. When they’re not terrorists, they often obfuscate and make excuses for terrorism.  They often are hostile to our country, even if they are nonviolent and do not formally endorse terrorism.  Their marginal contributions to our collective life make their presence in our country a luxury (and more like a liability) that we simply cannot afford.  Indeed, when the US acted tougher–as in bombing Libya to smithereens in 1986–its tough and unapologetic actions have paid much better dividends than our Nice Guy routine today in Iraq and Afghanistan.  And when we acted tougher at home, such as in our rough treatment of Japanese and German agents and supporters in World War II, we found relatively little sabotage and domestic terrorism.

To deal with militant Islam we don’t necessarily need to do any favors for Muslims in Muslim lands.  But whether we shoudl be activist or isolationist, we certainly don’t need to add to the Muslim threat at home by inviting “refugees” and others from the most alien and hostile civilization on earth.  We must live in reality to remain an independent nation, just as we must learn about and master reality to live as self-respecting individual men.

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There are probably a million ways to game the Geithner bailout plan, just as the TARP has already led to various unintended consequences, such as the continued provision of generous bonuses by AIG and the Merrill Lynch purchase by BofA. James Galbraith has a good article on this today.

The whole premise of the bailout is that these “toxic” assets comprised of various tranches of bonds secured by mortgages are worth a lot more than the market will presently pay for them.  Is this true?  Yes, their cash flows are in order for now, but there are impending waves of foreclosures and defaults as these loans reset in the next few years. 

The Geithner plan amounts to a bribe to investors.  Invest 7.5 cents, TARP will invest 7.5 cents, and the remaining 85 cents will come from the FDIC. Yes, that FDIC, it being the most important component of stability in our banking system that is supposed to be rock solid in all circumstances. If things go wrong, the 15 cents from the private investors and the TARP are wiped out in the manner of equity, but the FDIC has no recourse other than managing, foreclosing, and then unloading these properties. The FDIC will be in the position of foreclosing upon hapless homeowners, but it will face obvious political pressures to play ball with doomed workouts to help the unlucky. We’ll get to see how good of a landlord Obama is when his role is not “community organizin’” but salvaging value from broke people for the FDIC. My guess: not a very good one.

Under the Geithner plan, banks will sell their “toxic” assets at whatever price they want. Under this scheme, the hope is that somewhere above today’s 30 cents or less in value. The idea is that they’re “really” worth somewhere closer to 60 or 70 cents on the dollar, and that having the banks now take 70 cent (as opposed to 30 cent) losses would be an unnecessary and short-sighted exercise with systemic consequences.

But banks and investors like to make money and avoid losses. That’s in their blood. Why wouldn’t a bank take 7.5 cents of its own deposits to buy certain assets from itself at the requisite 60 or 70 cents, in spite of the fact though the assets are in fact only worth 30 cents, when 85% of the bid price is nonrecouse pain absorbed by the FDIC?  I mean, why not bid 100% if it’s just a question of minimizing losses. That way they can still reduce their collective exposure to 10% or less of what it was, because they would take no losses now and push them off into the future. At most, the gap of 70 cents from actual (i.e., 30 cents) to the $1.00 par value would only cost 7.5 cents to wipe out, and the cost of 92.5% of that shift would be borne on a nonrecouse basis by the FDIC with the remainder by the TARP? Why wouldn’t bank A and bank B do this for one another on a handshake if the self-purchase was too unseemly or prohibited?  What rules would prevent that?

Tim Geithner’s and Obama’s bullishness in general and their talk about the real value of the assets ignores all the impending defaults on the underlying mortgages.  As I already stated, they are probably worth 30 cents at most, and that generous estimate too depends on the continued vitality of home buyers on the scene who will set the market price for the various overpriced and oversupplied 2004-2006 homes. This whole plan shifts the worst banks’ risks on to the most responsible banks and ultimately the taxpayers by giving the FDIC and the Treasury the bill: specifically, at least 92.5 cents of exposure on this plan for every dollar of losses avoided by the banks. Who knew Obama would become the worst banks’ best friend?

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