Other Important Issues and News

The international Monetary Fund has floated the idea that the US should set up a taxpayer funded bailout for the banks that are stuck with all the bad paper causing the credit / trust problems all ove the globe.

You might have caught it on NPR yesterday (I did), well the little known fact is this idea is being pushed by the G7 actually, although they are doing it in an underhanded way so they won’t get the heat for the idea.

Basically what they are saying is to set up a RTC (Resolution Trust Corp) EXACTLY like the savings and loan debacle from the 80’s, where the US taxpayers got stuck with the bill for the bad choices made by bankers back then.

The problem with this is that it would have to be an international fund, because even in Iceland, Austrailia and New Zealand banks are experiencing problems and there are mortgage defaults going on there as well, not to mention other countries.

AND - the fact that this pile of debt is too large for even the US to buy up in total.

But OUR Fed is trying, they have bought up MASSIVE amounts of this crap over the last 4 months, http://www.dailykos.com/story/2008/4/10/202233/415/811/493461
(Thanks to GJOHNSIT for that)

The Fed does not have the resources to buy up all the bad mortgage paper that is out there, no single body does.

It is devaluing its resources with every purchase of bad mortgage debt, which is a pretty perilous road to be going down if you are the lender of last resort.

We, the taxpayers, are actually underwriting that debt, so, when it goes bad (which a lot of it already has), the budget deficit increases, so more money is printed and borrowed to cover it. This further devalues the currency and causes more inflation.

The Fed is playing Chicken with the countries that own our debt and betting they will buy the Dollar and keep it afloat at more or less the same rate as the Fed devalues it. The Fed is right in this, they have little or no choice but to buy the Dollar right now. At some point, however, the law of diminishing returns kicks in and they will decide to cut their losses, which is where you get a currency crisis.

The sub-prime crisis can only be turned around by making the sub-prime debt viable. The only way to do that is to fix distressed mortgages at low enough interest rates for the next couple of years so that the mortgage holders will not default, which will reduce the number of repossessions and lead to a housing market recovery.

The fastest and BEST way for our elected Representatives in DC to help fix this mess would be to do two things.

1. Pass a law stopping ALL foreclosures for 9 months, and require all hybrid and adjustable loans to reissued as fixed rate loans at lower interst rates with a cap on the upper rates of say 8 percent. This would have the effect of keeping people in their houses
and would stop the bleeding in the housing sector. It would also set a bottom for the securities issued as debt so they could be valued more easily, to something closer to reality.

2. Stop the Fed from assuming the extraordinary powers they seem to be asking for, and remind the FED and the Bankers that money coming from the FED is a LOAN and must be paid back with interest. The financial wizards on wall street will scream bloody murder about it
because right now they are doing everything possible to offload their steaming piles of bad paper onto the US taxpayers as fast as possible.

The problem with where these snake oil salesmen are taking us, is a massive devaluation of the US dollar if the FED (Which is our US Central Bank) keeps buying this crap to prop up
the house of cards Wall street built.

But the Fed is running out of money and idea’s really fast, and nothing has been done to stop the housing meltdown, or even slow it.

So in effect our government is just juggling all that debt keeping it in play until the balls drop and someone pays the bottom line price for this mess.

Of course George Bush wants the next person occupying the White House to deal with it,
that and the GOP is scared as hell the economy will tank before the November elections
meaning they will be hammered at the ballot box for their grossly bad stewardship of the last 8 years.

And DC keeps juggling, hoping to keep the status quo for a little while longer anyway.

Stay tuned in for more about the FED and the Dollar, none of which will be good news, well
unless you are rich and all your money is in Euro’s.

Paul