As the financial rescue plan went the way of the Titanic today, it is important to realize that comparing this current situation to ANYTHING in financial history may be a damaging fallacy. What worked in the Great Depression might work here - but it also might not work at all...
I think we can all agree that the "bailout" plan is probably nothing more than a weak and ultimately ineffective patch. The image that comes to mind is slitting someone's throat and trying to patch it up with a Snoopy band-aid.
Sadly, I support the bailout - but for reasons that haven't been so popular in the Main Stream Media.
First, when you look behind the mortgage crisis, you can find some reports that this toxic crap is wrapped up in car loans, credit cards, student loans, and a variety of other forms. The truth is, we cannot possibly know the extent of the damage. The economy is having a Grand Mal seizure. Anyone that understands seizure disorder knows that Grand Mal seizures lack a definite focus. You can't operate to stop them. Some tumors cause seizures due to compression. When these are benign, you can cut them out and seizures generally stop. But we have a malignancy of sorts - and I hate to call up this image, especially with the lion of the senate, Ted Kennedy, suffering from a similar malady.
The reality is, the bailout will kick the problem down the road a bit, but won't solve it. Maybe, if Obama gets in, they can do some inventive calculus to stem the transfer of wealth from some to a few.
Let's take a look at what happened to Japan:
Japanese Stock Market Crash 1989
In May 1989 the Bank of Japan began to raise its discount rate from 2.5% to counter a perceived threat of inflation. The original rate had helped propel the Nikkei 225 index from 11,500 as recently as 1984 to about 38,900 by 1989. The discount rate stood at 6.0% by the end of 1990, and the Nikkei index fell below 9,000 by 2002, shedding over 75% of its peak value.
Ok, so Japan went 75% in the tank and they haven't ever regained their value. It can be argued, quite easily, that the problems that plague our economic system are probably sufficiently worse than the circumstances in Japan, or the Great Depression for that matter.
Here's the real elephant in the room - forget Freddie and Fanny for a moment - those institutions have a role in all this....but here's Dumbo
Credit Default Swap - from Time Magazine http://www.time.com/...
The CDS market exploded over the past decade to more than $45 trillion in mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market (which is valued at about $22 trillion and falling) and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market, notes Harvey Miller, senior partner at Weil, Gotshal & Manges. "It could be another — I hate to use the expression — nail in the coffin," said Miller, when referring to how this troubled CDS market could impact the country's credit crisis.
Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft.
Except that it doesn't. Banks and insurance companies are regulated; the credit swaps market is not. As a result, contracts can be traded — or swapped — from investor to investor without anyone overseeing the trades to ensure the buyer has the resources to cover the losses if the security defaults. The instruments can be bought and sold from both ends — the insured and the insurer.
WOAH - let's examine this. The credit default swaps are in the bond markets as well. This is the scary part.
Read this: http://www.marketoracle.co.uk/...
It was written Dec. 18 2006. Pretty spot on if you ask me...
Where is the elephant? What are we feeding it? Why is nobody talking about it?