The scene: The White House Oval Office
The Players: President Obama, David Axelrod, Rahm Emanuel, Tim Geithner, Larry Summers, Sheila Bair, Peter Orzag.
All to the President: "Congratulations sir! The "2009 Health Insurance Reform Act" is a smashing success!
Emanuel: "Sir, thanks for finally letting me take the gloves off and crack some skulls. I know you don't like or approve of the bare knuckle stuff, but it had to be done."
Axelrod: "Simply incredible sir. The Clintons must be fuming with jealousy. I bet you anything that Bubba's face is a dark shade of purple right now!
Orzag: " Sir, you strong armed the big pharma guys into promising to not be greedy anymore AND to sponsor a nationwide run of "The Best of Rogers and Hammerstein" for the seniors in exchange for our promise that Medicare won't use its size as leverage to negotiate lower prices!"
Emanuel: "Let's not forget the deal we rammed up the insurers asses! In exchange for us dropping the public option the insurers promised to make their process more transparent and hold weekly lotteries for the poor. The lucky winner gets a yearly $5,000 deductible, $10,000 max out of pocket health plan!
Summers: "I hope you realize the lottery was MY idea. My research shows the poor LOVE lotteries."
President Obama: "Now now, take it easy fellas. I had a lot of help from all you. No way I get this landmark piece of legislation without you guys. Ok, lets not revel in our successes. There's still a lot of work to do. Tim, you had something on General Motors you wanted to discuss?"
Geithner: "Yes Mr. President. It seems General Motors Acceptance Corporation, GMAC needs about a $2 billion capital infusion."
Emanuel: "Jesus Tim, $2 billion? Why don't you just come up here and ask the President of the United States to validate your parking?
Orzag: "Seriously Tim. Welcome to 2009. If isn't at least $50 billion, handle that weak sh*t at your shop! Don't bring it up in here."
Summers: "Listen you two neanderthals, the only one around here who gets to bitch-slap Tim is me!"
President Obama: "Alright fellas, take it easy. Go ahead Tim. What is the story with GMAC?"
Geithner: "Well sir, remember Cash for Clunkers"?
Summers: "You mean the best stimulus idea since the Chinese built the Great Wall? Duh, I think so!"
Geithner: "Anyway sir, it seems that the 100,000 or so customers that participated in the program with GM essentially traded in a paid off vehicle for a new car."
Geithner: "Well, essentially almost all these folks used the $4,500 Clunker Credit as a down-payment for the new vehicle and then borrowed the balance from GMAC at 0% for 72 months. It appears that nearly 50% of those loans are already delinquent!"
President Obama: "Well that's bit odd isn't it? It almost sounds like the subprime problem doesn't it David?"
Axelrod: "It certainly does.
Geithner: "You both are correct there. It turns out that many of the borrowers are the same people. Now the loans GMAC made to the Clunker borrowers are coming up delinquent. And once these these folks go delinquent, they usually don't get things straightened out.
President Obama: "Wow, who knew right? Now, many of other car companies have been selling lots of vehicles. Are they experiencing the same thing?"
Geithner: "Yes Mr. President. In fact, this is where it gets tricky. See, remember all those neat lending facilities we set up with the Fed.......the Term Asset Backed Lending Facility or TALF?" That is where we tried to help jump-start consumer financing by lending money at very generous terms to investors to buy the securities collateralized by things such as auto loans."
President Obama: "Okay..?
Geithner: "Well the defaults on these Clunker loans are really starting to clobber those new securities that the Fed lent money on and the FDIC backstopped losses. It looks like the FDIC may be taking some sizable losses as a result." Additionally, a lot of this paper is ending up in money market mutual funds. Last year we threw a government wrap on this market too. So the FDIC may be on the hook for that as well.
President Obama: "Hmm, major bummer. Sheila, what do you think?
Bair: "Umm, I suppose this isn't a good time to bring up that our FDIC reserve fund is out of money?"
President Obama: "I wonder if President Bush would let me clear some brush out at Crawford?"