RTC II

[quote author="ipoplaya" date=1221880523][quote author="optimusprime" date=1221880035][quote author="skek" date=1221879889]This morning I bumped into an old friend at Starbucks. He works for a top tier investment house and has forgotten more about the financial markets than I'll ever know. I asked him how he was holding up. He said that his firm was doing fine, in part because they made some bets against mortgage backed securities awhile back. Then he paused, and said: <strong>"You know, skek, this week we came closer to total systemic collapse than any time since the Great Depression. It was like the Cuban Missile Crisis for the financial markets. When AIG went down, we weren't sure if the banking system would survive the next 24 hours. We're OK now, but it was touch and go there for a while."</strong>



Yikes. I'm an optimist about America and her future. I still think we'll pull through this in the end (although not without some pain), but it's hard for me personally to process that here we are on Friday after a week that is going to end up written about in economic textbooks for future generations to study. Pretty amazing, really. "Historic" was the word he used, too.</blockquote>


And why some here think this "Bailout" was the worst possible outcome still perplexes me. I guess some prefer street wide looting and lines around the corner of their local banks? :down:</blockquote>


I do, as long as the FDIC makes good on my money, no one gets hurt in the looting, and it meant the cost of housing, stocks, etc. came spiraling down. Sadly, that will not be the case and a golden buying opportunity will not materialize.</blockquote>


Funny how you feel this collapse would only take down housing prices, the stock market, and the levered financial institutions.



Ever consider the debt market? It would be decimated and you do realize the debt market is relied upon by thousands (if not millions) of companies to finance and grow their business, right?



Everything is connected .... take a look at George Soros's theory of reflexivity.
 
[quote author="optimusprime" date=1221881060][quote author="ipoplaya" date=1221880523][quote author="optimusprime" date=1221880035][quote author="skek" date=1221879889]This morning I bumped into an old friend at Starbucks. He works for a top tier investment house and has forgotten more about the financial markets than I'll ever know. I asked him how he was holding up. He said that his firm was doing fine, in part because they made some bets against mortgage backed securities awhile back. Then he paused, and said: <strong>"You know, skek, this week we came closer to total systemic collapse than any time since the Great Depression. It was like the Cuban Missile Crisis for the financial markets. When AIG went down, we weren't sure if the banking system would survive the next 24 hours. We're OK now, but it was touch and go there for a while."</strong>



Yikes. I'm an optimist about America and her future. I still think we'll pull through this in the end (although not without some pain), but it's hard for me personally to process that here we are on Friday after a week that is going to end up written about in economic textbooks for future generations to study. Pretty amazing, really. "Historic" was the word he used, too.</blockquote>


And why some here think this "Bailout" was the worst possible outcome still perplexes me. I guess some prefer street wide looting and lines around the corner of their local banks? :down:</blockquote>


I do, as long as the FDIC makes good on my money, no one gets hurt in the looting, and it meant the cost of housing, stocks, etc. came spiraling down. Sadly, that will not be the case and a golden buying opportunity will not materialize.</blockquote>


Funny how you feel this collapse would only take down housing prices, the stock market, and the levered financial institutions.



Ever consider the debt market? It would be decimated and you do realize the debt market is relied upon by thousands (if not millions) of companies to finance and grow their business, right?



Everything is connected .... take a look at George Soros's theory of reflexivity.</blockquote>


Yeah, I know, and my company, industry, my position and income stream would likely be adversely affected if a bailout were not to occur. I just hate being in a position where I, or my offspring, will be subjected to higher taxes and/or hyper-inflation to bail out people and companies that over-extended themselves. That sucks large... The prudent and conservative investor/saver/earner is footing the bill for this.



We all need to save and create as much wealth as possible now because the future is looking bleak on the economic front.
 
Also, I must add that the other nations that hold dollars would get PISSED if this was implemented. They know what this entails and it would cause a run on the dollar. All it takes is someone like China to say "F' this" and unleash billions on the market by gobbling up assets or dumping it on the foreign exchange.
 
[quote author="skek" date=1221881199]I just received this from our Congressman, John Campbell:



<blockquote><strong>Friday, September 19, 2008



Financial Crisis:</strong> There have been other things going on in Washington this week, but nothing is as important or urgent as the financial crisis. The situation has deteriorated significantly in the last few weeks. Basically, the markets for virtually all forms of cash or debt are frozen and non-functional worldwide. There is simply a lack of confidence or, more accurately, fear about who can meet their commitments and who can?t. That has locked up normal trading. This is not just a Wall Street problem. If this situation continues, every single American and probably every single citizen of any industrialized nation will be affected?..and not in a good way. The value of your savings account, your pension plan, your stocks or your mutual funds, depends on a functioning, transparent and liquid market. The market, right now, is arguably none of these things.



Yesterday, John McCain blamed SEC Chairman Christopher Cox. Nancy Pelosi blamed President Bush. A group of Republicans held a press conference to blame President Clinton and Democratic leadership. Barack Obama seemed to blame every Republican office holder in the last 14 years.



They are all wrong. And they are all right. Virtually no one saw this situation becoming this severe until the last few months. If they had, they would have proposed something that would have forestalled the problem. No one, including me, did that. As you know, I do not hesitate to blame Democratic leadership when I believe the problem can be laid at the foot of their policies. In this case, neither Republicans nor Democrats got it right. None of them caused this, but none of us had the solution that would have prevented it either until it was too late.



So, what now? The problem is very, very severe. We must take action that is substantial, complete and immediate to restore confidence to markets. The problem is still caused by the incredible mistakes and excesses of the subprime lending wave and the related drop in housing prices. The Treasury is proposing that the federal government basically buy all the bad loans (mortgage backed securities) that exist out there and take all of that uncertainty out of the markets. The details of this proposal are still being worked out. This could easily amount to $500 billion which would have to be financed through the issuance of more Treasury Bills. Eventually, the government would recover most and perhaps all of this money if the economy stopped deteriorating and people paid their mortgages or home values stabilized.



All you regular readers of this missive know how fiscally conservative I am. But this is an extraordinary situation. I believe that we as a society have no option but to do this. And it must be done at such a magnitude that it completely solves the problem. We had all hoped that the Fannie/Freddie rescue would fix the problem. It didn?t. We need to make sure that this is big enough to do it.



And then, the entire regulatory structure of the financial markets worldwide will need to be blown up and rebuilt. We are living with a regulatory structure that was set up after the depression. Let?s hope that we can avoid more financial calamity before we change this outdated system.</blockquote>


I appreciate the non-partisan tone of it -- at this point, it's a pointless waste of time trying to allocate blame. We need to come together and find a solution. As to whether or not RTC, The Sequel is the right solution ... well, that's what we are here to discuss.</blockquote>


Skek, thanks for sharing that with us.



While I agree that taking action is far more productive than pointing fingers, the action itself is what bothers me. If we are going to relieve the pain caused by the stupidity of the last 10 years in one fell swoop, we should get something more than just the toxic paper and some pipe dream of future appreciation IF the housing market stabilizes immediately. There should be some sort of equity sharing arrangement, or an agreement to pay the difference between what the government pays for paper in the rescue and what the government gets for that paper plus interest that accounts for the risk being taken on.



Anything less is simply a continuation of the policies that created the problem in the first place. This country may not survive if the Greenspan Put continues to survive.
 
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