Congress caused this mess, Congress needs to let the
President fix it.
Paulson is not proposing a ‘bailout’, he and the President are
proposing the purchase - at a discount - of working assets that are
unsaleable in the current market and therefore unavailable as capital
for financial firms to use in computing regulatory capital limits.
The ‘mark-to-market’ nonsense Congress foisted on the system in 2002
has failed. Soon, perhaps as soon as Monday, bank runs could start.
When that happens the President will have to shut down the banking
system in a Bank Holiday. This is serious and those who oppose the
President simply do not understand the issue, nor do they understand
the crisis at hand.
Let me be clear, failure could mean the collapse of the banking
system. The remediation of that could mean total nationalization of
all banks and even wars as the international system fails in a
collateral collapse.
Thank God adults in DC will get a deal done today and the above end
of the world as we know it scenario will be avoided. Sadly the
economic illiterates in Congress will probably get reelected. These
are the same as the inumerates who gave us the straight-jacket called
Sarbanes-Oxley (2002) and the Gramm-Leach-Blyley Act (1998).
Warmest regards,
If the market for some type of financial instruments (like credit default swaps) is in imminent danger of collapse, that's a pretty strong sign that the assets are fundamentally not worth anything close to market price. The only way someone who holds such an asset can avoid 'losing' the difference between its current market price and its real value is to sell it to someone else for more than its real worth, in which case every dollar of loss not incurred the previous holder will be passed on to the new one.
Fundamentally, huge unacknowledged losses have already occurred. How can the market possibly function sensibly without acknowledging the losses (thus devaluing the assets that incurred the losses)? How can markets function effectively and realistically in a land of make-believe where nobody knows what anything's worth and nobody knows how the rules are going to change?