Saturday, September 20, 2008

I Think It is Time to Get Nervous

Updated below with some later comments from Paul Krugman

Here’s the source of my uneasiness: the underlying premise behind the buyout seems, still, to be that this is mainly a liquidity problem. So if the government stands ready to buy securities at “fair value”, all will be well.

I keep hearing that this is all a liquidity problem and that if the government steps in and provides some liquidity then everything is all right. More and more it seems the problem is more fundamental and that is a lot of these banks and other financial institutions are just flat out insolvent in that their liabilities outweigh their assets. It is not so much that they are unable to provide for demands for cash by selling assets but that there is no market for their assets.

Fundamentally the problem is that huge numbers of bad loans were made and in turn lots of people made highly leveraged investments in those bad loans. Even worse, still more people bet on those loans by insuring them. The loans are bad and were from the get go and that means that the mortgages are not going to be repaid in full. Nothing is going to happen to housing prices in the near term except them going down further(that's why it's known as a bubble)and here the Democratic Congress is talking about buying all this toxic paper from the banks at "fair market" prices. What the fuck are they thinking? A lot of people have made a lot of money off this scam and I mean a lot of money and now we are just supposed to take all the liabilities...just like that? No thank you!

I don't have the details of whatever plan is being hammered out but if what I know so far is any indication of where it is going them I am against it 100%. Any Democrat who votes for this is insane. If you want to know the truth I think this is an opportunity for Barack Obama to step in as the current leader of the Democratic party and tell Congress that George Bush and his cronies are not going to cripple and Obama administration with another couple of trillion dollars in debt. Bush is already leaving an unbelieveable mess to clean up and another couple of trillion in debt will cripple any chance of Obama inacting any positive progressive reform. Thanks but no thanks.

George Bush and the rest of the crowd have already robbed the American people to the tune of 3 or 4 trillion bucks. War, oil, lost jobs, and screwed economy and we are just about ready to give them the last crumb from the cookie jar? Who has made all the profits off the mortage business and the derivatives? Not the American taxpayer that's for sure and now we are just supposed to casually accept the premise that unless we whip out our credit cards one more time and pay for all the stupidity and greed everything will come down around our heads? I say let the dice fall where they may it's about time the American taxpayer got something for their money except a "thank you for allowing us to screw you one more time".

Update: from Krugman
I hate to say this, but looking at the plan as leaked, I have to say no deal. Not unless Treasury explains, very clearly, why this is supposed to work, other than through having taxpayers pay premium prices for lousy assets.
I hope I’m wrong about this. But let me say it again: Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

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