Friday, September 19, 2008

When Owners Dream

WASHINGTON — The head of the Treasury and the Federal Reserve began discussions on Thursday with team owners on what could become the biggest bailout in Major League Baseball history. While details remain to be worked out, the plan is likely to authorize the government to buy unreasonable player contracts at deep discounts from owners.

The proposal could result in the most direct commitment of taxpayer funds so far in a player salary landscape officials say is the worst they have ever seen.

"What we are working on now is an approach to deal with systemic risks and stresses in the labor markets," said Commissioner Bud Selig. "And we talked about a comprehensive approach that would require legislation to deal with the illiquid assets on ballclubs' balance sheets," he added.

One model for the proposal could be the Resolution Trust Corporation, which bought up and eventually sold hundreds of billions of dollars’ worth of real estate in the 1990s from failed savings-and-loan companies. In this case, however, the government is expected to take over only albatross-like contracts, not entire team payrolls.

The bailout discussions came on a day when Barry Zito was scheduled to start his 31st game of the season against the Los Angeles Dodgers.

Rumors about the Bush administration’s new stance on baseball contracts swept through the fantasy leagues Thursday afternoon. By the end of trading, ownership of potential buyout targets such as Eric Byrnes, Andruw Jones, and Gary Matthews, Jr. sunk to near zero from already-historic lows.

"The fantasy owners voted, and they liked the proposal," said Laurence H. Meyer, vice chairman of Macroeconomic Advisers.

The scale and complexity of the project are almost certain to create huge philosophical differences among baseball fans, which could make barrom conversations difficult to say the least. Still, lawmakers said the goal was to work through the coming weekend and to have both the House and Senate vote on a measure by the end of next week.

(inspiration found here)


bigcatasroma said...

I'm going to be sick to my stomach . . .

Nice parody, Craig. Seriously, I think it points out the ABSURDITY of the government's plan.

Why can't the government, meaning tax players like you, bail me out of my decision to by those expensive non-stick cooking pans that stick, a bigscreen tv that isn't a flat screen, and a car that goes 8/mi a gallon? Doesn't anyone want these products???? Or am I stuck with them, eating the losses, without tax payer bailout? You know, Craig, that's just not fair to me . . .

Jason @ IIATMS said...

Dude, that rocks.

charlie said...

You guys know the Federal Reserve isn't owned by the US government, right? You can thanks President Wilson for signing away your freedom.

Peter said...
This comment has been removed by the author.
Peter said...

I hear you guys on bailouts in general, but I haven't heard an argument against creating another Resolution Trust Corporation that doesn't revolve around moral hazard. That is, I haven't heard anyone informed say "The world economy will be fine if we let these banks fail."

Everyone on CNBC seems to be saying that we're in serious trouble without this. And didn't the RTC actually turn a profit for taxpayers the last time around?

I can't claim to be a guru on this topic, but it seems to me that there is an awful lot of blame to go around on this. The SEC was incredibly lax in enforcing rules on short selling, the government pushed banks to make loans to people who wouldn't qualify otherwise, financial institutions overextended themselves, and, of course, people bought more house than they could afford.

Don't get me wrong...these bailouts bother me a lot...but in the context of our big-government culture they're basically par for the course, and as long as we're gonna give everyone else a pass on this, we might as well finish the deal and not risk serious damage to the world economy just because we've decided that, now that Wall Street is in the crosshairs, we suddenly care about moral hazard.

tHeMARksMiTh said...

I'm so confused ... This makes no sense to me. Even the real story makes no sense. I just don't understand what's going on.

Rob said...

Let me just say that one advantage of the bail-out is that the government would then have the power to renegotiate the mortgages to terms that might actually prevent (or at least reduce) the foreclosures.

Peter said...

MarkSmith: My understanding is that the problem is the short-term survival of the institutions: they can't raise money because their stocks have plummeted and nobody is sure they'll be around tomorrow.

Because of the uncertainty in the market, investors have flocked to treasury bills, which are the safest investment around because they're backed by the US government. Basically, the banks can't raise money to stave off failure but the government can.

The idea of a resolution trust corporation is that the government would buy the bad debt from these banks at a discount rate (Jim Cramer said 30 cents on the dollar yesterday) which would alleviate the pressure on the banks by allowing them to get rid of bad debt.

As Rob mentioned, it would also allow the government to renegotiate terms to allow people to stay in their homes and make good on their loans.

Ted Spradlin said...

Bud and the owners found their perfect storm. Wall Street exploited housing, now lets get them to exploit bad baseball contracts.

The owners can sell their crummy contracts (Zito, Andruw, Sarge Jr, Wells, Rios, etc) to the surviving Wall Street banks at par or even at a premium. Wall Street can take $1bb in contracts and turn it into $3bb in new SIV's, Derivatives, Credit Default Swaps, Options, ETF's, Contract Backed Securities, etc.

The GM's get to experience Brian Cashman's luxury of wasting money on over the hill players with no recourse. Ned Colleti and Brian Sabean don't look so stupid after all.

The owners already got the money for selling off the contract and don't have to pay Lloyd's for contract insurance.

Players and agents are thrilled with the unprecedented salary boom. "Miguel Cairo is a premium utility player and the market recognizes that," said Scott Boras at the press conference introducing Miguel Cairo as the highest paid utility player in history at $12,500,000/yr.

Bud has a great new revenue source and "new media" explosion on He can create a Fantasy Contract Derivative League where people can trade all these new fancy financial instruments of crummy players, just like a real Wall Street trader. MLBTV airs 2-3 hours of "Fast Contracts" and "Squawk Box Baseball," ala CNBC. Jim Kramer was rumored as a host, but loses out to Erin Andrews, which turns out to be a ratings bonanza.

This opens up an entirely new world of quantitative analysis for Sabermetricians as well. Rob Neyer never saw it coming. VORP and OPS are a thing of the past.

Bud Selig needs to pounce on this opportunity. Baseball needs it and Wall Street needs it. The infrastructure is already in place. If something goes wrong, march to Congress for taxpayer relief because these institutions are "too big to fail."

ang said...

I think the bailout plan would actually raise the market prices on Byrnes et. al., since somebody is actually willing to pay for these "toxic" assets now.