Posted by Left of Boom, a resident of Another Palo Alto neighborhood, on Sep 19, 2008 at 7:20 am
Left of Boom is a member (registered user) of Palo Alto Online
The Federal Deficit has more than doubled in the last two weeks because the U.S. Gov't now guarantees the debt of Freddie Mac and Fannie Mae, not to mention the unspecified costs of AIG and now offer to buy "toxic" debt. While I'm happy to avoid the Republican induced depression, it makes no sense to attack either candidate for a lack of a plan. This is a very fast moving meltdown with obscure, illiquid assets brought about by unwinding unregulated derivatives of risky debts. At a minimum there needs to be a transparent, regulated market for these derivatives. Clearly, Wall Street did not understand the systemic risk of their creations.
There will be still more bailouts after today's actions.
This is a quote from Dr. Doom article (Roubini) in August 15.
Roubini argues that the Fed’s actions averted catastrophe, though he says he believes that future bailouts should focus on mortgage owners, not investors. Accordingly, he sees the choice facing the United States as stark but simple: either the government backs up a trillion-plus dollars’ worth of high-risk mortgages (in exchange for the lenders’ agreement to reduce monthly mortgage payments), or the banks and other institutions holding those mortgages — or the complex securities derived from them — go under. “You either nationalize the banks or you nationalize the mortgages,” he said. “Otherwise, they’re all toast.”
But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”
Posted by Still in trouble, a resident of Another Palo Alto neighborhood, on Sep 19, 2008 at 11:04 am
Don't worry the Feds just print ever more U.S. Dollars and devalue the currency.
This is all the fault of Alan Greenspan and the Feds reducing the interest rate to 1% so money could be loaned to borrowers who haven't got a hope in hell of repaying it.