Help Me I've Fallen & Written a 642 Page Law

I spent most of last night attempting to read the latest monstrosity from Congress, Representative Barney Frank's (D) supposed "Save the Housing Business...." bill. Needless to say, it was not a fun night.

What strikes me the most about this 642-page epic is that it effectively bails out the hedge funds masquerading as mortgage securitization entities - our good friends, Fannie and Freddie, with a nice blank check.

So, it seems that U.S. Treasury Secretary Henry Paulson and Rep. Frank have achieved the miraculous, creating an infinite amount of money for the bailout from thin air.

What started as having the U.S. Treasury (Mr. Paulson's domain) buy $2.5 billion of equity in the corporations, if needed, has now become "undefined" -- meaning an infinite amount of money.

(Note to Mr. Paulson, why not simply buy the foreclosed, bank owned homes for ten cents on the dollar and give them away in a lottery to Americans that earn less than $50,000 per year?)

The only thing I can image that's better than this trick would be for American Express to mail every U.S. citizen a new "Blue" card with no spending limit and no repayments ever required.

(Hint to "W", this would be an awesome stimulus package to hand out before you leave town.)

But, back to the bill. It provides $300 billion to refinance and insure loans through the government-sponsored enterprises (GSEs). Being experts at the art of the understatement, Paulson and Frank have told us that only a fraction of that sum will actually be needed, but they don't know what the final number will be.

I was laughing out loud imagining me going into my bank, asking for a new, unlimited credit line, and offering no collateral other than my good name, and watching the bank VP react to the request.

And, I can't seem to figure out how this bill will help more than a small handful of hapless homeowners facing imminent foreclosure.

The GSEs are now holding more than 1 trillion dollars worth of insured mortgages, and a staggering $7 billion worth of Real Estate Owned (REO). Foreclosures are now running at better than 4,000 a day across the U.S. and are climbing upward faster than a scared monkey in an Indiana Jones movie. Also, with the collapse of the mortgage finance markets, the GSEs are now responsible for 80% (and growing) of loans originated in 2008 .

The amount of money needed to support this broken system during a period of financial stress and decreasing real estate values is at least staggering, and at most wildly understated.

Since the U.S. Government is flat broke, the only way to fund this Frankenstein is to sell even more record levels of Federal debt. (I know, this is completely illogical, but it is government finance.) And, the sale of debt will increase dramatically as the cost of all this support and stimulus comes due.

The primary buyers of our IOUs are now foreign banks (Oil kingdoms, China, and Japan), and their appetite for our paper will be tested. So, presto, interest rates are jumping up to entice them to buy our (what may soon become junk) paper.

(FYI, we now borrow $1 billion a day of money from the middle east and then immediately give it back to them for their daily profit and add interest due on top of it. Is this rational?)

There is no way this type of free spending is not going to break the the pocketbooks of us American taxpayers.

So, let's all send Mr. Paulson and Rep. Frank a nice thank you note for bailing out their rich friends once again while burying us with more debt. Please include the following, "YOU'RE FIRED".

The Best Money Guy.

P.S. Watch for my future post on how to really get us of this mess and turn lemons into lemonade.