A Modest Proposal (CRAP)

I recently spent a long weekend in Hot Springs Arkansas. Why you might ask, and that would not be a bad question. Arkansas is one of the saddest, backwards ass States in the union. But Hot springs (Bill Clinton’s boyhood home) has a special place in my heart. We have been going down there for over 26 years to Oaklawn Race Track. Thoroughbreds. I got engaged in a liquor store parking lot there. I bonded with my wife’s family in ways that have lasted a life time. I learned to gamble there. For the last 23 or so years we have gone down for the opening weekend of the track every year. It used to be in late February but it crept up, and crept up and now it is in mid January. We go down with a group of men and now those men and their sons for an intergenerational weekend of drinking, gambling and copious consumption.

The group I go down with can best be described.... as nazis. not actual brown shirt, shaved head people but really, really conservative people. On the way home, discussing the possibilities of the Obama administration. in the Little Rock airport, in between NFL playoff games I had an epiphany.

We are all concerned about the government bail out program. Even congress is concerned about how to use the second half of the TARP funds. The idea was originally to buy the banks troubled (no called and trademarked as “TOXIC”) assets which seem to consist of derivatives related to sub-prime mortgage lending. This morphed into a plan to give the banks money to shore up balance sheets and perhaps have private banks who were healthy, better able to acquire their troubled brethren. Of course Congress claims they thought that this money was for the banks to lend, even though they put no such restrictions on the money.

The Banks have not resumed lending. The banks have not stopped their hemorrhaging losses and are going to ask for more money. Meanwhile the sub-prime housing bubble has morphed into an over all economic meltdown meaning that the banks will have... more losses. The logic was that the big “money-center” banks were “too big to fail”. Well guess what... they are going to fail. This should be a foregone conclusion. Bank of America and Citi Group will be gone or nationalized by year end. And they deserve to be. Along with the whole lot of them that turned banks into casinos.

A BRIEF HISTORY LESSON

When I grew up, banks lent money to people who did not need it. This was boring. Banks took in deposits and paid interest on them (say 3%) and made loans to people who had ample assets to repay at a higher rate (say 6%). the difference between what they paid on deposits and what they received in interest on loans was the spread. It was all boring and bankers made a living and were above all things safe.... and boring. But we decided we needed loser money to fuel economic growth. I don’t know who “we” is that decided this but banks started to get into speculative lending. First they started lending money to people who needed it, turning their “loans” into risk capital. Bankers were not trained in risk. This was stupid. Then the big banks, envious of their investment banking brethren started to “invest” in these complex derivatives and loan pools and trade them back and forth. This was great because it generated profits without really needing to deal with the public to make loans. It was kind of like... standing at the craps table with other people’s money. And when the economy turned.... it was like 7 coming up when they had all their bets placed. Ooops.

So... these guys bet all our money and lost and now they want more. They say that they have learned their lesson but I want to pose a modest suggestion that perhaps banks are not needed anymore. Even if they are perhaps these institutions are not worthy of being given another chance. If you or I would have done what was done with investor and depositor money, we would have gone to jail. Instead I propose the following.

If we want to fuel economic growth through risk taking with other peoples money... how about letting the pros do it. Casino and Race track owners have been doing this for years, very successfully. Why don’t we take the second have of the Tarp money and instead of wasting it on the banks let put in the hands of the pros. For this reason I propose The Casino and Racetrack Assistance Program (CRAP). Lets take 350 Billion dollars and give it to the race tracks and casinos. We will attach some strings to this money and their are going to have to be more then I put here but for starters:

1. Use the money to takeover (and shut down) the current banks
2. Bet the money on our behalf. If Charlie Cella from Oaklawn likes a horse called Neja in the 7th... why shouldn’t the US people be allowed to put 50 million or so on the horse, across the board of course.
3. Put small casinos in the shuddered banks.
4. Free up credit by establishing a national system of odds on borrowers and their proposed projects. Why should risk capital pay prime interest. Instead it could pay off at whatever the odds were, say even money for a fairly safe investment and longer odds the more speculative the risk is. The bookies (lenders) would set the original odds on a loan and then open it up for the market to evaluate the risk.

Right now we deposit our money and then let the bankers bet it for us. I would rather make my own bets or at least have professional oddsmakers working on it. Think Robert Di Nero in “Casino”. These guys know what they are doing. You would never catch these guys betting on a Bernie Madoff. You would never get one of the guys betting on a “credit rate default swap”. These guys would rather hedge a bet on a horse with a bet on a craps table. Think on this. This is a good idea. But ultimately if we are going to piss away another 350 billion dollars....this will be a lot more amusing. Lets have some fun. It is a new day in America.