Whack a Mole (Fed bailout post)

The Fed and Treasury's massive and unprecedented bailout of the financial industry has given momentary respite to the American economic system, but the assumption of over a trillion dollars in new public debt has now raised the specter of national insolvency and runaway inflation. The economy is still in decline and the only way that the government will "pay" for these bad loans is by printing money. Accordingly, the price of gold has jumped in the past week from the mid-$700's per ounce to $910, including a $45 per ounce jump today alone. The dollar has fallen over 2% against the Euro, meaning that we are effectively poorer relative to the world economy. In the meantime, oil has returned to being an alternative to the U.S. dollar - combined with the belief that an economy that doesn't outright collapse will again return absorb all available oil production - resulting in a rise in the price of oil as high as $23 to $127 bbl. Having prevented one crisis, we are fueling (no pun intended) the next crisis, particularly a reinflation of commodity prices and a corresponding drop in the purchasing power of Americans. Pick your poison - insolvency through financial collapse or commodity inflation.

While the drop in oil prices was interpreted by many as a passing of the insanity and the harbinger of a return to modest gas prices of previous decades, the fact remains that the long-term trend in oil prices is up - and way up. An article on today's Fortune/CNN website discusses oil investor and 2001 Cheney Energy Commission member Matthew Simmons educated view on the matter, who foresees a not-too-distant price of $500 bbl.

Question: Where are these policies?????? Where are the reserves and premiums???? Which companies hold the risk???

http://www.themoneyalert.com/mortgageinsurance.html

For many homebuyers, private mortgage insurance may not be the most celebrated form of insurance, but,
for some, it’s an absolute must. For those individuals who wouldn’t typically be able to afford a large 20
percent down payment, it’s a “foot in the door,” allowing for homeownership with as little as a 0-5 percent
down payment.

Private Mortgage Insurance (PMI) is insurance that protects your lender against non-payment should you
default on your loan. It’s important to understand that the primary and only real purpose for mortgage
insurance is to protect your lender—not you. As the buyer of this coverage, you’re paying the premiums, so
that your lender is protected. PMI is often required by lenders due to the higher level of default risk that’s
associated with low down payment loans. Consequently, it’s sole and only benefit to you is a lower down
payment mortgage.

Yes, this is difficult to comprehend and very distasteful, but they really did not have a choice. When the banks stopped lending over night to each other and the system is “frozen”, the downside risk is just too great.

What I think happened is the banks finally said enough. They said we have $700B in non performing loans, we cannot absorb these, you made us write these loans, so you Feds either step up or we take everyone down.

They have played hot potato with this junk (sub prime MBS) for the last year or more. It was really just a matter of time. The real culprits are the Congress and regulators who wrote the laws and regulations that forced banks to write the loans that are worthless.

schu

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