Posted on 09/19/2008 8:27:07 PM PDT by B-Chan
It also sounds like some California (and Nevada and Florida) house prices are perhaps three or four times (down from five or six times) what they should be.
I guess that's better than some bad neighborhoods in Detroit, where you can buy a so-called home for $50, negotiable.
This does not fix the problem of the hundreds of trillions of dollars of outstanding derivatives (CDS) outstanding. It only fixes (well, tries to fix) the primary market on which those CDS's are based, the U.S. mortgage market.
Here is Mish's comment:
The idea behind the above statement is to allow for a continual dumping ground such that there will always be $700 billion in toxic garbage held under this program. As soon as any asset can be unloaded by the Treasury at cost, another toxic loan is eligible to be assumed on the books of the Treasury. This process can last for as long as two years.
It's time to Weep For The Free Market (or rather what little free market the US had left).
At taxpayer expense, Bernanke and Paulson are willing to bail out their banking buddies at enormous expense to the average taxpayer of this country. Bernanke and Paulson should both should be fired. Instead Congressional sheep will baa yes to this bailout and Bush will baa yes when he signs it. It is a sickeningly sad that day for America that Congress will go along with this proposal that makes the US Taxpayer A Giant Dumpster For Illiquid Assets.
$700 billion will be wasted by this program and it is $700 billion the US does not have to waste. I ask that everyone vote against any congressman who votes for the passage of this bill.
I live in Champaign, Il. There is plenty of farm land around. You can go out and build a 3 bedroom home with an unfinished basement for ~$200K in one of the nearby bedroom communities.
All those terrible things are going to happen anyway. We've just kicked the can far enough down the road to last until the election is over.
What we're seeing here, I believe, is the "Banker Consolidation Act of 2008". For most banks to sell their bad mortgage paper to this new Rescue Bank (or whatever it's called) the bank will have to mark the asset to market value. That will bankrupt perhaps a thousand banks.
The big banks hate competition. Now and then, they drive out all the little competitors. This happened in the 1930's, in the Savings & Loan crisis, and now.
The few favored big banks, such as JPMorgan Chase, will be able to pick up the failed banks, minus their toxic waste. This will strengthen the balance sheets of the surviving banks.
We saw the rehearsal of this with Bear Stearns. The Feds got the toxic waste (guaranteeing $30 Billion of it) and JPMorgan got the rest of it.
Not all this was a grand plot. Much of it, such as some of the growth in hedge funds and unregulated complex derivatives that only a computer program could understand, is just plain greed, writ large. Nothing new there, except the Bigger Font used this time (more zeros before the decimal point.)
And some of this will conveniently play into the larger, looming crisis of Social Security, Medicare and Medicaid, whose unfunded liabilities dwarf this current bailout by nearly a 100 times! The only way out of that mess, short of national default or the widespread breakdown of society (and the Second American Revolution) will be inflation. We are off to a great start on this round of inflation with the current bailouts.
Over the next decade, I'm betting on inflation reducing the value of a dollar by perhaps 10 percent per year. Some years, inflation may peak at 20% or 30%.
When the foreign countries (China, Russia, Saudi Arabia, Japan) holding vast piles of dollars and Treasuries decide to send that paper back home, to us, it could get painful. The dollar will cease being the world's currency, and weaken further relative to some other currencies. This will continue to unfold (China has already stopped growing its dollar reserves) over the next few years.
Shorter term (next year or three) I'm betting that we continue in a bear market, with significant bear market rallies. We likely entered a bear market rally on Thursday this week, through the first month or two of 2009 (though it will have its ups and downs.)
We will be in a serious recession, with rising unemployment, for the first couple years of the next Presidential term.
The survivors of this financial crisis will include JPMorgan Chase and Goldman Sachs (whose former CEO Henry Paulson is now conveniently running Treasury, for a few more months.)
The survivors will also include many small banks that minded their P's and Q's (Pints and Quarts -- old nautical term) and present no threat, nor much of a target, to the fat cats.
When Warren Buffet commented that derivatives were weapons of mass destruction, he was right. These weapons are now being used, as we speak, by the fat cats against their doomed competitors.
I think that the fat cats honestly do want to pull off this theft of vital body organs without killing the host (our country ;). So far, they seem to be succeeding.
However, free market capitalism, personal liberty and respect for our Constitution are not high on their list of priorities.
Needless to say, there is little risk of that ;).
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.