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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (40171)	9/20/2008 7:55:50 PM
From: koan	Read Replies (1) \| Respond to of 218026

Too many variables to figure out what will happen, IMO. koan: Another Krugman thought. I love the fact this brillant man says there is something I do not understand. Why is it always the brillant ones like Plato and Einstein and freud who are the ones who question their own thinking constantly. While the likes of Bush, MCCain, Cheney and the neo cons never have any doubts about their ideas-lol? September 20, 2008, 1:23 pm Doubts about the rescue There’s something I don’t quite understand about how the big rescue plan is supposed to work. Maybe this is naive; but let me put it out there. So, here’s my problem: what we have now are a bunch of financial institutions in trouble, because they’re highly leveraged, and have mortgage-related assets on their books. And they can’t raise cash because nobody wants to buy those assets. The Paulson plan will in effect create a market for toxic paper, thereby supposedly unfreezing the markets. But what if the institutions are fundamentally broke, even if the liquidity squeeze is relieved? I think of a hypothetical institution, which tradition says we should call Capital Decimation Partners. CDP’s balance sheet looks like this: Decimation doubtsNow, obviously CDP is in trouble if it can’t sell the toxic waste at all. But suppose that Hank Paulson does his reverse auction, and it turns out that the Treasury’s price for toxic waste is 40 cents on the dollar. Even so, CDP is still underwater. So what does Treasury do then? One answer, I suppose, is that we think that there aren’t too many firms in that position — and that those that will still fail, even with the Paulson Plan, aren’t going to disrupt the markets too much when they go down. But do we know that? What I haven’t heard anything about is how Treasury might recapitalize firms that will be bankrupt even with the purchase facility, yet need to be kept in being. So I’m starting to worry. Is this the son of MLEC, another attempt to create something out of nothing through fancy financial footwork? Add a Comment E-mail this Share Del.icio.us Digg Facebook Newsvine Permalink