With the current system there is a good chance the continued, necessary, drop in housing prices in many areas of the country will simply generate more toxic waste securities and more froze up credit markets over the next couple of years.

A Home Owners Loan Corporation style program could help with that problem. It would be nice to see Ian’s mortgag plan coupled with real Scandinavian/Nordic reckoning for financial institutions: partial natioanlization of troubled institutions, triage, program for oderly liquitidations and restructurings as appropriate. With preffered stocks and warrants in firms that can survive for the taxpayer.

Picking apart the Citi deal is a little bit humorous. First, Citi has already gotten $25 Billion from the TARP just recently which turned out to have been less than a band aid. In this deal Citi will get a backstop of about $250 Billion for its CDO portfolio and as I understand it this is only for their “on balance sheet assets”, their “off balance sheet assets” dwarf what they show on the books. Citi will also get $27 Billion in exchange for warrants at $10.61 and 8% preferred stock. Citi closed on Friday with a market value of about $20 Billion after receiving $25 Billion just recently so this first $25 Billion has already been flushed, now the government put $27 Billion more and goes on the hook for an additional $250 Billion in guarantees? I don’t get it, the government has put together a $300 Billion package for a company that the market said was worth $20 Billion [and that was Friday before a bailout]. I guess they’ll deal with the bigger problem later [the off balance sheet black hole]

OK so let’s look at this from OUR standpoint, the citizens who are putting up the money. Treasury and the Fed have just put up $27 Billion for a 7.8% stake in a company that was valued at $20 Billion? This is paying 12.8 times the value of the $27 Billion, another way to look at it is the government is on the hook potentially for $306 Billion or 15 times Citi’s market cap. I am not a rocket scientist but with this type of deal I wouldn’t get in a car to the end of my driveway with the Treasury or Fed driving! What about the off balance sheet debacle? The on balance sheet goo was supposed to be “the good stuff”, what happens to the “bad stuff”?

AND AS ALWAYS, WHERE DOES THE MONEY COME FROM??? answer…out of thin air, the government can only borrow it. Well actually they do have another option. Once they can no longer borrow in the capital markets they will have only one option left, this option is always the last one used by every government in history that went bankrupt. THEY WILL PRINT, PRINT, PRINT! There are no other options left. I don’t know how long it will take for the masses to do the math on this but when they do, the “value of a Dollar” will be so far from the old saying “as good as Gold” as black is to white. There will be continued efforts at spin, forget it, the system we knew and loved is toast. Actually toast is too polite, after this fire there will only be ashes remaining.

Thanks for the great updates Ian

now that budgets/bailouts/rescues etc. are priced in Trillions (with a “T”) can we now dispense with
the *&^%$#! PENNY ?
(to save a Billion (with a ‘B’)or two each year?)

I think that the bottom line that no one will face is that there is no solution to this problem. It’s not fixable. Period.

The tragedy is that it was both avoidable and even after it happened it remained eminently fixable. But it will not be fixed as long as we have the idiots who created the problem (and this covers both Bush’s and Obama’s economic advisers) calling the shots on it.