Occupy Wall Street: "Get a Haircut"

By Todd Gibson

As the OWS movement trucks on, many folks are commenting that many of the protesters need to take a shower and get a haircut. I want to talk about haircuts. I don't have hair, or much of it, so haircuts are not a big deal. Get the razor, mirror, ten minutes it's done. However, these are not the haircuts that I want to talk about.

On the eve of the European Bailout, HAIRCUTS, are all the rage. What is a haircut? Well, like a spelling bee, I will use it in a sentence first, "Bond holders need to take a 60% haircut." This means that the bond holders need to take a 60% loss. Now, as I have mentioned before, banks which hold bad sovereign bonds do not like to take losses. They would much rather invent some "smoke and mirrors" solution and pass that loss on to the taxpayers. A real life example, let's say you bought your house for $200,000 and now it is worth $150,000, you need to take a $50,000 haircut when you sell.

So what is the big deal? When banks take a "haircut", it is bad for the banks but eventually they get back to business, right? Nope. Our financial world has something called a Credit Default Swap (remember those from the housing mess?). A CDS is a bet that a country will default. Many financial institutions own CDS on these European countries, for example Greece. If banks take a large Haircut, let's say 50%, this will in fact: 1. Make them insolvent and 2. Trigger the CDS, because this will be classified a credit event, a default, even if it seems voluntary. So, where does this lead us......

Bailout. The Europeans are in a box. They have no way out. The only way to kick the can a bit further down the road is to institute help from the IMF. This sounds good right? Wrong again. The United States makes up about 17% of the funds and 16% of the voting rights. This means if Europe cannot figure out a solution and goes to the IMF for help, we, as taxpayers, will pony up 17% of the bailout funds. No Congressional vote, no commission, no collecting $200 for passing go. Just step up and eat the haircut the banks don't want to take.

OWS needs to focus on this issue. At some point we (as taxpayers) need to stop bailing out the financial system. The financial system will survive, and we as taxpayers shouldn't have to risk our tax dollars in the process. Not all banks made bad financial decisions with their bond portfolios. Some were smart but many abused the system and knew if their assets went bad they wouldn't have to take that dreaded.......HAIRCUT.

because WE the PEOPLE would be there to take the loss.