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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Jim McMannis who wrote (102245)	9/20/2009 3:38:44 PM
From: Hawkmoon	Respond to of 116555

How much went to foreign central banks and then into the pockets of foreigners? Yep.. they purchased a good portion of that securitized mortgage debt, especially Chinese and European banks. I recall one analyst suggesting that the biggest reason for bailing out AIG was due to the CDS contracts they had written to European banks owning securitized mortgage debt. And, of course, GS certainly profited handsomely as well. Again.. I recognize the dubious rational for bailing out many of the banks and assisting them to hide/hold many of their toxic assets. But I also suggest that the key to resolving the matter lies more in effectively restoring some semblance of demand in order to sop up that excess supply. But restoring demand (jobs) has to be done in an intelligent manner where the government focuses on other than "make work" projects. We need government to focus on innovative technology in areas where private market profit motive is lacking. Without demand, and borrowers that can the wherewithal to qualify for the new, and justly, restrictive lending standards, unloading a huge quantity of excess housing supply will only drag down the values of existing homes with performing loans. It took years to create this mess. It's insanity to attempt to resolve it overnight because the cure will be worse than the current disease. I accept the theoretical premise of washing out all of this debt and starting over. But the collateral damage that will be inflicted upon many people who did do things the right way, but were forced to buy into this market disarticulated by cheap Foreign Capital and liar loans, is also something that should be mitigated. We certainly have to be aware that dumping toxic properties into a market with weak demand is going to be the tipping point that motivates current home owners to walk away from homes that might be only 10-20% negative Loan to Value. It's just going to take time and we gotta get people working again, preferably in areas that promote future technological innovation and productivity. Hawk