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Politics : Politics of Energy -- Ignore unavailable to you. Want to Upgrade?

To: TimF who wrote (2592)	9/23/2008 1:37:23 PM
From: Road Walker	Read Replies (1) \| Respond to of 86356

The main problem with the assets isn't low valuations (although that obviously hurts banks and other institutions that own them with borrowed money), but there uncertain valuations. Since there isn't much of a market for them no one really knows what they are worth. The Fed and the Treasury don't know either. To the extent that the owners of these bad investments have any idea how much they are worth they have an incentive to unload the worst of them on the Fed, the ones least likely to ever increase in value, while keeping some of the ones with a chance for themselves. There is likely to be a lot of adverse selection for the government going on here. Exactly. And I worry about the Bush admin, with their love of big business (and looking to make the banks stable), being over-generous with the taxpayers $'s. Agreed. The standard economics and finance term is "moral hazard"... Does it allow the housing market to decline, and also force people who can't pay out of their houses, or does it run the assets for political purposes rather than sound financial ones, and keep the market from really settling out. Well the "sound financial" stuff is out the window with the bail out, so the moral hazard that is good for the goose is good for the gander. If they bail out the banks, including overseas, they are almost certain to have to bail out, on some less level, the feckless home owners. It's pretty ugly... but could get much worse. If this doesn't work, and we go into a steep recession, which I personally think is a good bet, then the collateralized credit card debt will start to fall apart. And frankly I don't think we can survive another shoe dropping... not without a something like a repeat of 1929 to 'clear the books' and unwind the debt.