(Untitled)

[guns_n_butter]

Paul Krugman says it so I don't have to.
"So what we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.
As a friend said last night, we’ve become a banana republic with nukes."

Comments

[jr_bee]

Haines picked up on the central nerve of our conversation it seems. The real problem with people understanding the spirit of this 'bailout' (bad term for it from the get-go) is that this is really about liquidity and matters of scale. The government has such liquidity capacity that the transfer of these assets to it's balance sheet doesn't come anywhere close to threatening it's solvency, simply because of the scale and capacity of the government. The banks, on the other hand, cannot hold these non-liquid assets any longer because it is impossible for them to have access to further credit (to grant, a.k.a sell) to us once they become too leveraged. They are simply over-leveraged right now. It's not reasonable or desirable to say 'well let 'em be crushed under the weight of their own folly' for what should be obvious reasons to those who grasp the credit market and how it works and allows our economy to function.

I'm not saying that the legislation is perfect or passable yet, but Paulson's concept is not what people are making it out to be. These assets are only 'worthless' right now because they are non-liquid. At somepoint, perhaps after proper modification of the underlying loan instruments and external economic improvement, the assets will become more liquid and when that happens their value will return. The idea is to transfer them at a price-point that allows the tax payer to profit as soon as possible on that swing. The problem is no one knows how long this will take and by what degree it will occur. The reason the banks can't continue to hold illiquid assets is because they don't have the time or capacity to at this point, if we want them to continue to perform their basic economic functions, which at the end of the day does include being able to use your credit card to buy gas. Or for small businesses to access their lines of credit to make payroll. The rubber hits the road when that shit stops working. I have a feeling congress will have to wait for that to start happening in greater numbers (CNBC reported today that the first wave of small business is already reporting this problem) before we see a passable bill and the will to pass it.

[owen_luvs_beru]

Is it ok if I only get the "jist" of what you guys are saying here? I'm glad some folks understand what's going on. I care what's going on, but when I hear it on NPR, or whatever news source I am listening to, and it just passes through my ears. I'm not what you'd call any auditory learner. ; ) So thanks friends.