Replies

The problem is that the poisoned assets, or securitized mortgage debt obligations are clogged in the system and no amount of injection of capital will bring value to this paper so that it can move and therefore allow the billions and trillions of related assets to move.

I certainly don't dispute this. And time is of the essence in the attempt to address the crisis. But one can surely have serious misgivings with a plan that, in order to address the underlying cancer of certain derivatives, must supply value to mortgages that essentially have come a cropper.

The currently proposed approach, or bailout, that is being undertaken by the government may be all that we have. I have heard from a constant succession of sources, from Sec. Paulson on down to my next door neighbor, that it is the least dangerous path. However, a potential fix that has taxpayers underwriting failed mortgages and makes the promise of better regulation in the long run, does not warm the cockles of my heart. It's a fine line, to be sure; but there needs to be a generous helping of financial pain, not just regulation, served up to those who have engaged in the "Casino Capitalism" of derivatives.

And, other than an imminent economic collapse, my greatest fear is the potential for an even greater disaster down the road as a result of conditioning freebooters to believe that the government will step in to remove the risk of failure. It is a knowledge of the real possibility of failure as a result of risky behavior that does more to hold financial termites in check than any government regulator. This is a moral and financial dilemma of historic proportions.

I appreciate your insights, today.

but there needs to be a generous helping of financial pain, not just regulation, served up to those who have engaged in the "Casino Capitalism" of derivatives.

Oh there will be! Even if this works like a charm, there is at least another trillion in writedowns that will have to work their way through. A Trillion has already been taken, and there will still be many failures. These institutions are going to be required to bite it, and many of them cannot do that. They can't take anymore, and the Fed will as they have in the past, let most fail as the Fed has already done a lot to boost liquidity. The FDIC is already short of funds. They are not out, but their balance sheet is below the recommended numbers, and they will have to be funded with some more billions.

The pain is nowhere near over.