Why Paulson is wrong

VOX EU ^ | Luigi Zingales

[dalereed]

“Long term, yes, deflate assets, or inflate money.”

Their stinking baikout will probably do both.

If they print the money, the minute it hits the banks it becomes 7 trillion at a minimum which will bring on wholesale inflatiom.

If they sell the property they bought for what they paid for it we still actually take a 50% loss because if the depreciated dollar rhat they sold it for.

I guess it’s time to turn money into hard assets that will follow the value of the dollar in purchasing power.

[supercat]

But what about the immediate problem of the monetary system that nearly froze last week, and remains at risk of such?

The monetary system is frozen because if someone thinks a potential creditor might end up repaying only pennies on the dollar for its debt, the person isn't going to want to risk having his money pooled with all the other pennies-on-the-dollar debt. If the government were to, as expeditiously as possible, announce that much of the bad debt was simply written off (tough luck to the existing creditors) then new creditors would be able to invest with much more confidence.

From what I understand, the situation is somewhat like personal bankruptcy. Someone who has just declared bankruptcy will hardly be regarded as a good credit risk, but will have a much easier time getting honest credit than someone who is clearly imminently facing bankruptcy.

Pop the bubble and the markets will recover.

[Revel]

“It is also quite possible that a lot of those mortgages could become good and the Feds could sell them for a profit. It is entirely possible to recover the whole $700 billion over time and maybe even a small profit could be had.”

These MBS’s are already full of defaulted mortgages. How can they become good? I wish I could find the charts I have seen somewhere showing the defaults in the actual packages. They are high. Here are some links with information.

http://mrmortgage.ml-implode.com/

Older stuff
http://mrmortgage.typepad.com/blog/

Here is a treasure trove of videos
http://www.tickerforum.org/cgi-ticker/akcs-www?forum=Presentations&page=2
Mr Mortgage is Hedgefundmanip for the videos.
Genesis is Karl Denninger

[ThePythonicCow]

I guess it’s time to turn money into hard assets that will follow the value of the dollar in purchasing power.

That's what I'd recommend, and what I've been doing myself.

[ThePythonicCow]

Pop the bubble and the markets will recover.

True enough. This just happens to be the biggest bubble in the history of human civilization; it should be a fun ride.

[supercat]

True enough. This just happens to be the biggest bubble in the history of human civilization; it should be a fun ride.

Unfortunately, I suspect (though I really hope I'm wrong) that Paulson et al. will inflate it to twice its present size before it bursts.

Further, even if the bubble would be the same size when it bursts as it is today, and even if the bail-out magically cost nothing, trying to delay the burst would still be a bad idea. It won't be long before the Social Security bomb hits. If the markets crash now, they may have recovered enough to survive the SSB. If we wait before letting them crash, disaster.

[ThePythonicCow]

I'm figuring that the Social Security problem can be dealth with by arranging for the monthly checks to be worth perhaps half what they promise to be worth now.

They can do this with a combination of not indexing the increases as rapidly as real inflation (which they are doing now, by stealth suppression of the Consumer Price Index), by delaying the "full retirement age" further, and by other such adjustments. In short -- inflation must increase more, for Social Security and all this other debt, over the next few years.

Medicare is a bigger problem; that is handled by further socializing medical care -- it all becomes "free" and that's about what it's worth (though it costs the taxpayer far more.)

[wideawake]

Yoou are all nuts. this thing is a sham

Please explain why, genius.