Dear Jack DeSantis and your $1,000,000.00 bonus

Dear Mr Jake DeSantis,

I am writing in response to your recent Op-Ed published in the New York Times that was thinly veiled as a resignation letter.

I am proud of everything I have done for the commodity and equity divisions of A.I.G.-F.P.

What did you do? It must have been a pretty awesome year to receive a seven figure bonus. You are aware that most CEOs outside of the hyperinflated finance industry make less than that, right?

In response to this, I will now leave the company and donate my entire post-tax retention payment to those suffering from the global economic downturn. My intent is to keep none of the money myself.

Did you ever consider that perhaps you could afford to forgo your bonus this year because you received ridiculous unwarranted bonuses every year for the past 11 years? That is quite noble of you to make such a grim sacrifice.

I take this action after 11 years of dedicated, honorable service to A.I.G.

Wait. You worked in finance, right? Honorable service? I’m sure the troops in Iraq and Afghanistan appreciate that. What makes you think you are entitled to describe yourself as honorable? Who are you trying to kid?

I can no longer effectively perform my duties in this dysfunctional environment

Yeah, when things get tough and the money machine stops pumping, it’s time to head for exit. It’s the only honorable thing to do.

Like you, I was asked to work for an annual salary of $1, and I agreed out of a sense of duty to the company and to the public officials who have come to its aid.

I think you might have done well for yourself by reading your letter out loud one time before publishing it. Do you see how ridiculous this is? “Honorable service” ? “Duty”? Come on, man. You got rich milking pension funds and university endowments. Don’t try coming off as a hero. You are no hero.

Having now been let down by both, I can no longer justify spending 10, 12, 14 hours a day away from my family for the benefit of those who have let me down.

Does that include the commute time to your mansion in Greenwich? How many days, really, in the past 11 years were you in the office more than 12 hours? The markets open at 9:30am and close at 4:oopm.  That is 6.5 hours, what were you doing the rest of the time? Just so you know, drinks after the closing bell doesn’t count as “work”.

The profitability of the businesses with which I was associated clearly supported my compensation.

Really? What special skills did you bring to the table? What did you do that someone else could not have done? Were you personally responsible for bringing in all that money? Should the guy on the assembly line make seven figure bonuses too because of the business he is associated with?

I never received any pay resulting from the credit default swaps that are now losing so much money. I did, however, like many others here, lose a significant portion of my life savings in the form of deferred compensation invested in the capital of A.I.G.-F.P. because of those losses. In this way I have personally suffered from this controversial activity — directly as well as indirectly with the rest of the taxpayers.

Are you seriously asking us to feel sympathy for you? What is your net worth now? How many tens of millions? Do you think you honestly deserve to make 20 times what your parents made? Were you really adding that much more value to the economy than a couple of teachers? Wake up. You were a truck driver driving a truck loaded with gold and got paid based on the value of the cargo. Anyone could have done what you did.

I know that because of hard work I have benefited more than most during the economic boom and have saved enough that my family is unlikely to suffer devastating losses during the current bust.

It is this sense of entitlement coming from you and others like you that contributes to the brewing outrage felt by Americans. Keep it up.

Mr. Liddy, I wish you success in your commitment to return the money extended by the American government, and luck with the continued unwinding of the company’s diverse businesses — especially those remaining credit default swaps. I’ll continue over the short term to help make sure no balls are dropped, but after what’s happened this past week I can’t remain much longer — there is too much bad blood. I’m not sure how you will greet my resignation, but at least Attorney General Blumenthal should be relieved that I’ll leave under my own power and will not need to be “shoved out the door.”

Don’t let the door hit you on the way out.

Geithner’s Plan: Initial Thoughts

Here are my initial thoughts while they are still fresh. From the Wall Street Journal:

No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk. Those decisions have caused enormous suffering, and much of the damage has fallen on ordinary Americans and small-business owners who were careful and responsible. This is fundamentally unfair, and Americans are justifiably angry and frustrated.

So far so good. But why did we borrow too much? Because we could. Why could we? Because the Fed held rates too low on the short end and oil exporting countries and Asian savers (supposedly) kept longer maturity rates anchored. When he says “we borrowed to much”, he must be referring to his predecessors at the Treasury as well as the Fed.

The depth of public anger and the gravity of this crisis require that every policy we take be held to the most serious test: whether it gets our financial system back to the business of providing credit to working families and viable businesses, and helps prevent future crises.

Hold on one second. Working families and viable businesses do have access to credit. Just not at ridiculously unreasonably low yields that do not incorporate risk premia. Anyone who can put 20% down payment on a house should have no problem getting a mortgage even today. Businesses that need a loan may need to pay higher rates that are dependent on what the lender perceives the risk to be. That is how it should be. What he seems to be saying is that we want to give away free credit as if risk premia is a thing of the past. That is precisely what Greenspan and Bernanke have done for the past 20 years and is a primary reason why we are in the situation we are in. I’m worried. I hope it gets better from here.

We launched a broad program to stabilize the housing market by encouraging lower mortgage rates and making it easier for millions to refinance and avoid foreclosure.

My gut is beginning to twist. You have got it wrong Mr Geithner. You are not “stabilizing the housing market”, you are using taxpayer money to keep house prices artificially inflated and out of reach of responsible people who chose not to purchase because it was obvious to them house prices were ridiculously high. Now those same people are subsidizing your flawed ideas. Someone please save us from you and your cronies.

By providing confidence that banks will have a sufficient level of capital even if the outlook is worse than expected, more credit will be available to the economy at lower interest rates today — making it less likely that the more negative economy they fear will take place.

Why are lower interest rates the objective? Interest rates can be decomposed roughly into a primary “risk free” rate, a “credit risk” premium, and “inflation” premium. By keeping rates low, which of these are you ignoring? You are already manipulating the “risk free” component through quantitative easing and now you are trying to manipulate the “credit risk” component. That credit risk component is critical for the healthy functioning of the credit markets. Without it, you are just going to create another bubble. You are not even thinking about inflation risk. Sorry if I seem to be losing my patience, but I am.

Just this month, we saw a 30% increase in refinancing of mortgages, which means millions of Americans are taking advantage of the lower rates.

And you are also seeing another spike in borrowers who fail to even make their first mortgage payments. Refinancing mortgages at low rates completely ignores credit and inflation risk (you will learn about that soon enough). Mortgage rates should not be artificially lowered. If anything, you should reduce the principal and face the reality that home prices are unsustainably inflated. Oh wait. You cannot do that because principal reductions would impact the senior tranches of those CDOs your friends on Wall Street own so much of. What was I thinking?

This is good for homeowners, and it’s good for the economy.

That may or may not be, I think not, but those that will benefit with absolute certainty are the big banks and hedge funds. Nice try.

The new joint lending program with the Federal Reserve led to almost $9 billion of new securitizations last week, more than in the last four months combined.

Please someone help us. President Obama. Please. Help us. The last thing the Federal Reserve should be doing is encouraging more securitizations. Securitizations are a massive sink hole of economic health. It enriches the middle man and has the potential to lead to irresponsible lending and credit bubbles. Imagine that. Please consider going back to the good old days of responsible banking, where loans stay with the lender. If you ask one of your advisers whether securitizations are detrimental, they are likely going to say “No. Of course not.” Once they say “No” ask them, “Did you foresee this crisis?” If they say “Yes” and can verify it, then perhaps you should listen to them. Otherwise, take it from me. Securitization is not something the Fed should be encouraging right now.

However, the financial system as a whole is still working against recovery.

Maybe I’m just upset now and automatically disagreeing with everything you say, but I even disagree with this statement. What if it is you that are working against recovery? What if the markets are trying to find a sustainable equilibrium? What if markets are actually correcting themselves and prices should be lower? When you artificially try to keep rates unsustainably low and consequently try to keep prices artificially high, maybe it is you that is working against recovery. Think about that.

Market prices for many assets held by financial institutions — so-called legacy assets — are either uncertain or depressed.

No. No. No. If you want a market price, there is a certain way to get it. Try to sell it. The price you get is the market price. What does it even mean for a market price to be depressed? Based on what? If anyone is depressed, it is me after reading this. President Obama. I beg you. Help us. Get rid of these people.

With these pressures at work on bank balance sheets, credit remains a scarce commodity, and credit that is available carries a high cost for borrowers.

I would say the credit that is available carries an appropriately high cost due to the risk involved with lending in this environment. That is as it should be and trying to change that is unnatural.

The funds established under this program will have three essential design features. First, they will use government resources in the form of capital from the Treasury, and financing from the FDIC and Federal Reserve, to mobilize capital from private investors.

Who do you think you are trying to fool? My goodness! The FDIC is begging for money. Where are they going to get it from? You of course. The Federal Reserve is quickly turning into a sovereign wealth fund. The money is coming from you. And you are us, remember? The capital is coming from taxpayers who had nothing to do with this mess. I’m sure they will be happy to learn about that. Believe me, I will do what I can to inform them.

These funds will be open to investors of all types, such as pension funds, so that a broad range of Americans can participate.

That is wonderful. You are going to raid pension funds now. If you are a retiring baby boomer, all I can say is too bad for you. Sorry mom! I hope pension funds learned their lesson to stay away from structured products. If you do not understand something, do not invest in it. Pension funds, for your own sake and for those who depend on you, please do not participate in this monster.

Third, private-sector purchasers will establish the value of the loans and securities purchased under the program, which will protect the government from overpaying for these assets.

Curioser and curioser. What rabbit hole are you living in? How can you say that with a straight face? Of course the government is going to end up overpaying for these assets. Hopeless.

The new Public-Private Investment Program will initially provide financing for $500 billion with the potential to expand up to $1 trillion over time, which is a substantial share of real-estate related assets originated before the recession that are now clogging our financial system. Over time, by providing a market for these assets that does not now exist, this program will help improve asset values, increase lending capacity by banks, and reduce uncertainty about the scale of losses on bank balance sheets.

By creating a market that does not exist now, you are playing Market God and unnaturally selecting those who will survive and those who do not. Maybe there is a good reason the market does not exist now. Maybe the market should not exist. The market sets asset values, not you. Let the market continue to dictate prices. If the markets says the asset values are lower than you think they should be, so be it. Who do you think you are?

The ability to sell assets to this fund will make it easier for banks to raise private capital, which will accelerate their ability to replace the capital investments provided by the Treasury.

It will also allow banks to throw hail Mary passes with taxpayer dollars.

The Public-Private Investment Program is better for the taxpayer than having the government alone directly purchase the assets from banks that are still operating and assume a larger share of the losses.

Are those the only two options? Whatever happened to Pre-Privatization or Receivership or whatever you want to call it? This entire farce is insulting.

Simply hoping for banks to work these assets off over time risks prolonging the crisis in a repeat of the Japanese experience.

Has anyone actually proposed “hoping banks … work these assets off over time”? I would have some nice words for such a person. Don’t you see that your proposal will have the same result as the Japanese experience? You are artificially propping up insolvent institutions with special funds. The outcome will be the same. Let them perish and level the playing field so that healthier species can replace them.

Moving forward, we as a nation must work together to strike the right balance between our need to promote the public trust and using taxpayer money prudently to strengthen the financial system, while also ensuring the trust of those market participants who we need to do their part to get credit flowing to working families and businesses — large and small — across this nation.

I believe he is sincere here. I believe that Tim Geithner may not actually be sinister, but hell is full of people with good intentions. This proposal is a colossal mistake and should be rejected. If President Obama will not see it, then I hope the fury taking root across this country will force Congress to do something to stop this debacle.

We have already seen that where our government has provided support and financing, credit is more available at lower costs.

What makes you think this should be the motivation? Credit at unsustainably low costs was the cause of this mess. I fail to see how it will get us out of it.

Our nation deserves better choices than, on one hand, accepting the catastrophic damage caused by a failure like Lehman Brothers

Do you really believe this? I mean, really? I suppose you do, which is scary. Scary!  There was no catastrophic damage caused by Lehman Brother’s failure. If anything good has happened to date, it is that Lehman and Bear Stearns failed. The damage was there already done. The disease (of excess credit) was already coursing through the veins of the entire financial system. The death of one organ did not cause the damage. The death of one organ was a symptom of the disease. Purging these decaying organs was necessary to prevent gangrene from setting in. What you are suggesting is analogous to an embalming. Konnichiwa zombi ginkou!

In conclusion…

I am extremely disappointed.

The common theme and the common error throughout Geithner’s proposal is that credit is too expensive, rates are too high, and asset values are too depressed. The reality is that asset values are what they are. If no one wants an asset, its price goes down until it becomes attractive enough to reconsider. Throwing billions of dollars at unattractive assets with the purpose of artificially inflating their price is completely irresponsible and wasteful on a grand scale.

America, you need to care about this. You are surely facing your own problems like we all are and I understand the last thing you want to think about is some yahoos in Washington D.C., but these guys are hurting you. They are hurting your children and more than likely they are hurting your grandchildren. Both born and unborn. Take notice and if you are as upset about this as I am, then do something. Let your representatives know how unhappy you are. At this point, I think they are the only ones who can put a road block down before this train leaves the station.