Consequences Begin
Well, here are the first consequences of the proposed $700 Billion bailout. The dollar tumbled in overnight trading. Quoting from The Wall Street Journal:
As this trend continues the economics are very difficult to predict. Inflation? Deflation? Depression? Short term? Long term? I can paint a myriad of different scenarios. I may be all wet, but I just don't see any positive outcome. And yet, if we learned anything from "The Great Depression", it is that doing nothing a la Herbert Hoover, doesn't work either.
FDR, even if some of his programs were ineffective and it took the war to eventually end the depression, saved capitalism from public riots and a potential Communist takeover. It is a lesson that the right has never learned.
Our politicians dear not say the above because they will be crucified by the public. I have nothing to lose but some friends who may think I am off the deep end.
In any event it is more important to try something. Whatever we try there will be inequalities and manipulations by some to take advantage of any government intervention. However, the goal should be that the intervention be effective even if imperfect. One thing most people agree upon is that the current plan is unacceptable. It is unacceptable because as I have said in previous postings it puts too much power into the hands of a single individual. But there are other reasons that make it unacceptable.
The plan proposes to let the Government buy the problem mortgages, taking them off of the books of the financial institutions. If the price is too high, it will artificially inflate the financial condition of the financial institutions, reward their greed and malfeasance and transfer the potential loss to the Government at taxpayers expense. If too low, then the financial institutions will still have to write off the loss artificially affecting their earnings and their balance sheet and therefor their market value, their liquidity and their ability to make future loans, which is the purpose of the bailout.
So, who determines the price? Real estate is a true free market valued asset, albeit the Government can affect demand by manipulating the interest rates and the money supply. The value of the property depends upon what someone is willing to pay for it. But in this case, there is only a single buyer, a monopoly by the Government, and the sellers who are in distress.
As was said in the King and I: "'tis a puzzlement".
Pay attention to this situation for it will have a significant impact on your future.
Michael Yanofsky
The dollar and long-dated Treasury prices took a hit as traders fretted that the vast spending necessary to aid the financial industry will make the government itself a somewhat less attractive borrower.
º º º
Oil prices soared more than $25 at their intra day high and finished with a gain of $16.37, or 16%, at $120.92 a barrel as the dollar was hammered.
As this trend continues the economics are very difficult to predict. Inflation? Deflation? Depression? Short term? Long term? I can paint a myriad of different scenarios. I may be all wet, but I just don't see any positive outcome. And yet, if we learned anything from "The Great Depression", it is that doing nothing a la Herbert Hoover, doesn't work either.
FDR, even if some of his programs were ineffective and it took the war to eventually end the depression, saved capitalism from public riots and a potential Communist takeover. It is a lesson that the right has never learned.
Our politicians dear not say the above because they will be crucified by the public. I have nothing to lose but some friends who may think I am off the deep end.
In any event it is more important to try something. Whatever we try there will be inequalities and manipulations by some to take advantage of any government intervention. However, the goal should be that the intervention be effective even if imperfect. One thing most people agree upon is that the current plan is unacceptable. It is unacceptable because as I have said in previous postings it puts too much power into the hands of a single individual. But there are other reasons that make it unacceptable.
The plan proposes to let the Government buy the problem mortgages, taking them off of the books of the financial institutions. If the price is too high, it will artificially inflate the financial condition of the financial institutions, reward their greed and malfeasance and transfer the potential loss to the Government at taxpayers expense. If too low, then the financial institutions will still have to write off the loss artificially affecting their earnings and their balance sheet and therefor their market value, their liquidity and their ability to make future loans, which is the purpose of the bailout.
So, who determines the price? Real estate is a true free market valued asset, albeit the Government can affect demand by manipulating the interest rates and the money supply. The value of the property depends upon what someone is willing to pay for it. But in this case, there is only a single buyer, a monopoly by the Government, and the sellers who are in distress.
As was said in the King and I: "'tis a puzzlement".
Pay attention to this situation for it will have a significant impact on your future.
Michael Yanofsky
posted by Michael | 9:15 AM
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