I know most everyone (including President Obama) minds are on the economy,
and how to stop the bleeding of lost jobs and houses.
But the financial crisis is not getting better, indeed it is just there
waiting for the other shoe to drop.
And if something positive is not done soon, a tipping point may be reached where the choices available to our leaders will vanish.
Much good commentary and information can be found about our country's
status and fate here at http://theautomaticearth.blogspot.com
Ilargi there talks about the bad bank plan, and how it too is slated to
failure.
Basically in this mess our leaders have three basic options.
- Do nothing except pray.
- Make a "Bad Bank" which would place all the bad assets outside the financial institutions which technically would allow them to become healthy and lend again.
- Nationalize the banks, go over their books and revalue all assets according to reality and current market conditions, or near future conditions, wiping out any bad debts or assets, recapitize them with taxpayer funds and then sell the restored banks to new investors to try and recoup some of the cost of fixing them.
The problem of waiting is that of reaching a tipping point, not so much in America but in another country. This is a global crisis and other counries are not dragging their feet as is going on here. If one or more
countries nationaize their own banks and write off all the swaps and options, that in turn will put enormous pressure on other banks and countries to do the same thing. Iceland and Spain come to mind, as well as Ireland. And quite frankly if I lived there I would be all for fixing our own country and problems and say screw the rest of them.
Especially when I or my family members are out of a job and hurting.
That being said, there may be precious little time for President Obama and his team to start unravelling the snakes nest called wall street.
I really don't think there will be a bad bank tried, for the simple reason that Obama will have sane people look at the assets and reach
some sort of value for them, and it will be much lower than the bankers
will accept. Thw wall streeters will balk (and bitch and moan like they now are doing about bonuses). Complaining that they should get their garbage marked to imagination rather than marked to market.
In truth if some accord actually is reached and the banks do get to dump their worthless paper onto taxpayers for 25 cents on the dollar (or higher) it will be the biggest fleecing of Americans ever.
The banks will dump the absolutely worst paper onto the taxpayers, it is
their best interest, and as has been shown time and time again wall street has no problem with screwing over their fellow Americans as long
as it makes them powerful and rich.
The other option, to nationalize the banks will mostly wipe out investors
and bond holders (rich folks mostly) this option will be greatly fought
by Republicans and banks alike. This however may happen anyway, for the simple fact that even the biggest of them are precariously perched on a cliff of debt and cannot survive without the government throwing money at them.
Go to this document (from the Treasury)
http://www.occ.treas.gov/...
And read Table 1.
ALL the major banks are hundreds of TRILLIONS of dollars in debt, mostly Swaps and Options, way, way beyond what their assets are.
And actually way beyond what the US Government could cover, ever!
Swaps and options on JUST the top 25 banks in the US alone are
175 TRILLION dollars!
How much of our future GDP do we as a people want to pledge to cover Wall
streets bad bets?
The titans of finance have beggared their souls for magical paper worth
trillions of dollars of nothing.
And now they still want to sell it, to you and your grand children.
And they are stuck in a debt trap, they have all that paper that they cannot sell or even trade in a market because if they actually sold it
at market face value, it would crash their books by devaluing all that other paper.
one way or another all those assets will be valued, and either sold, traded or simply be written off as worthless, but it will happen.
And if our leaders don't deal with this crisis soon, they may lose the ability to choose How that happens.
And that will not be good for any of us.