主题：03/20/2009 Market View -- 宁子

With the sanctity of contract abrogated, a decent idea in TALF has few subscribers thanks to Congress.

TALF was the Fed's response to the Paulson bastardization of the TARP when Paulson opted to give banks billions versus buy bad assets, or at least considered bad due to the required mark to market accounting rules. Recall that LIBOR was falling until Paulson's ploy. The Fed had to step in to do something to start the credit thaw again. It worked as the Fed was going directly to mortgages, small business loans, credit debt, etc.

Wednesday the Fed stepped up the game, putting TALF in bold letters with its extra $1.1T for buys of mortgage backed securities and indeed direct purchases of US treasuries, all under TALF.

To this point, however, something in the neighborhood of 3 15 private institutions have signed on with dozens and dozens saying they will absolutely not participate and others under TARP saying they will pay back the TARP money and get out from under the tarp as soon as possible.

Why? Because the sanctity of contract and the basic rule of law the US is known for is broken. With the actions of Congress this past week where it violated multiple sections of the Constitution with its punitive 90% tax on workers that had contracted for these bonuses and would receive them IF they stayed on and helped cut the losses of AIG in half. They did just that but are now getting burned at the stake. The law the House passed is a constitutionally prohibited Bill of Attainder. It is a prohibited ex-post facto law. It abrogates legal contracts that are not against public policy and were in fact approved by Congress. The law also violates equal protection in singling out a specific group and goes a step further with calls by the socialist Barney Frank to publish the names of the recipients. If one of those people is hurt it is on Frank's head.

The perception in the private sector is the government is a loose cannon that will pass whatever 'law' it wants at the moment without any constitutional considerations. With that hanging out there no one is signing up for the TALF if there is any possible way to avoid it. Thus a relatively decent idea (given the position the Fed is placed in) has the look of failure even before it gets off the ground.

Fed really steps up the gambit, but the Administration and the Congress give it no choice.

THE PROBLEM: We all know what the Fed did Wednesday, i.e. making bold never been done before Treasury purchases. Why was it compelled to add another $1.2T into the trillions already in the kitty even before TALF has really kicked off?

First, there is NO plan, YET, from Treasury with respect to the bank bailout. With no appointees to help out Geithner hammer one out, the Fed realizes that no real plan is coming. There is talk of a 'private/public' partnership to get the job done, but as discussed above and more below, the private side has no interest in participating given what the federal government is doing.

Second, Congress is out of control, governing by vendetta or the feud versus truly tackling the problems of overspending, by trillions, in areas far, far removed from its constitutional authority. Ex-post facto laws, bills of attainder, violations of equal protection, all banned by the Constitution, are getting overwhelming support by House reps. Congress is using the Constitution as a liner for the bottom of the bird cage as it abrogates contract law and shreds the Bill of Rights in case anyone wants to call them on it.

So the Fed, realizing Washington is broken and won't be able to fix this problem or any others, is trying to get the public/private melding on its own by expanding TALF over $1T on Wednesday. No big mystery. Congress is off on a $165M witch hunt while it authorizes trillions in spending and the likes of Schumer chide those complaining of a 'measly' $2B in earmarks. The bonuses, while unsavory, are not the problem. As President Reagan noted and as is so painfully clear once more, the problem is out of control government. I never thought I would witness what I saw this past week in Congress, and what I saw was truly disturbing.

THE RUB. The Fed's dilemma is the same as the problem that prompted it to act. Because Congress is constitutionally AWOL from its duty to uphold the Constitution it is not getting the private participation needed to make the plan work, i.e. get the money out in the market and getting it loaned out. After all, how can any elected official tasked under oath with upholding the Constitution pass an $800B spending bill without reading it? Any congressman that voted for the bill without reading it should be recalled or impeached immediately for failing to uphold their primary sworn duty of holding office. Period. The end.

The result is that no private entity is willingly participating in TALF. All companies in TARP want out as soon as they can get out. Why? They don't want the government on their necks or attacking them after the fact with more bills of attainder or ex post facto laws. Businesses need to conduct business in these very difficult times with the best employees they can attract and not have government calling them to hearings if they pay bonuses to good honest works for doing the job the bonus was contracted for. What has happened is a travesty on all sides, but mountains of government oversight (there I go again) is not the answer. Many congressional leaders cannot even pay their taxes correctly (no surprise given the tax law) or keep budgets in line so what do they know about operating businesses?

So, those not in are not getting in and those that are in are getting out. That means they are not going to take part in the facilities and thus the government money will not get disseminated through the through the country and credit markets. That means failure, despite all of the insanely spendthrift (another oxymoron?) ways of Congress and the Administration. Congress has driven away the private sector with its witch hunts designed to distract us all from its poor performance. No one can blame the private sector for hunkering down and just trying to survive until different winds start blowing.

Unless there is some different route taken it is hard to see the economy getting much better and indeed it without credit getting fixed it will not get better. Sweeping tax incentives for investing in the US are needed. Not just money giveaways that are squirreled away, but incentives that say 'use it or don't get it.' Then it will be used and the money will get into the economy. Instead we are taxing money from businesses and individuals, sending it to Washington, and Washington is sending it back to the states (after taking its hefty 50% cut for overhead and favorite federal spending programs) to spend on museums and Frisbee parks. Sure there are some roads and bridges, but that is a small part of the bill. Most of this is a preparation for federalization of many extra-constitutional matters and not stimulus.

We need to reward risk taking to start businesses and to invest in America. Instead Congress and the Administration are working to punish those trying to put risk capital into play and create profitable businesses. Thus the money won't be spent and there is no help to the economy. It is a bleak picture unless things change significantly, but alas, because the powers that be are motivated by social restructuring it is not going to change course. The economy may improve some, but it will not surge and grow as it did in the early 1960's, the 1980's and 1990's, and again after the 2003 investment tax cuts. Of course, if no one participates we suppose Congress could pass a law forcing them to do so or get fined or taxed even more . . .