Wednesday, October 1, 2008

As the Bush, Paulson, Bernanke and crew scramble to make another attempt at passing a bailout bill, one wonders why passing the risk and potential reward (unlikely, that) of these mortgage-based assets to the Government would solve the problem.

Yes, the U.S. Treasury has deeper pockets than private parties. But with a 350B$ price tag, or 700 B$, even the U.S. fisc will have indigestion. If the assets can only be liquated by the Treasury (or by as-yet-unnamed fiduciary) at a steep discount from the purchase prices, the shortfall will be monetized in deficits that will exact the cost from the economy. The burden of the bad assets will be only shifted from the current mortgage-based asset holders to other shoulders.

How the bailout might work to the benefit of all? First there is the considerable benefit of remaking a market for these assets again…. even if they must sell at a loss.

Next would be by avoiding (or quelling) a panic. The panic avoided would be the overreaction by the markets to the souring housing market and the mortgage-derivative securities.

But is it an overreaction? The Nakedcapitalist suggests otherwise.

At any rate, the lack of transparency makes the extent of the problem very difficult to gage

Sunday, September 28, 2008

Mounting frustrations over the slow motion train wreck that emerged as
"the Sub-Prime Lending Crisis" drives this writer to comment ,
as an alternative to screaming.

I thought the Congress and Administration did a Yeoman job in banging out a response to the market crisis. They generally put aside, for the moment, the question of "WHO CAUSED THIS BUBBLE?". They addessed a quick solution, rather than underlying causes. The recriminations will come later.

The current proposal, which narrowly failed this morning in the house vote,
had some input from all the main parties: Putting up cash though the Treasury, as the Administration had proposed. Limits on Golden Parachutes and equity stakes in any saved companies, as demanded by the Democrates. Some attempt at protections for taxpayers' money, demanded by both parties in the House. The transparency
requirements were a good feature.

Whether the proposed bailout would have worked, long term, was problematic.
It would be been effective in quelling the panic in the Markets. The ultimate
outcome would have been dependent on the scope of the problems in the
mortgage markets. This is still playing out.

If the Markets continue to swoon, the lawmakers will be obliged to
fashion a revised bill that can pass.