Notes on "the crisis"

[SeattleUte]

Investment bankers who recklessly destroyed their august institutions want a super priority for their golden parachutes.

The same firms getting the handouts are bidding for the government contracts to oversee the bail outs. (The Wall Street Journal has always had this crazy blind spot calling lawyers a class of thieves, while believing bankers can do no wrong. At least we know what a confict of interest is.)

Democrats (including their presidential candidate) are generally fine with Bernenke and Paulsen helping out their buddies on Wall Street. They want to tweak teh bail out so that defaulting home owners get a piece of the action.

Republicans (including their presidential candidate) are angry and skeptical about the socialization of much of the financial and insurance sectors.

Only 2.8% of American mortgage debtors are in default. The problem is that this has caused a panic in the market rendering mortgage backed securities nearly unsaleable and therefore of little value. Merrill had to unload mortgage backed securities with mostly sound underlying credit for 22 cents on the dollar. (This wasn't foreseeable?) Most of these bonds are likely worth a lot more in the long run that what they're selling for now.

Nobody really understands the contours of this "crisis" or what will happen if nothing is done. Congress is being asked to take the Fed Chairman's and the Treasury Sec's word at face value.

[Ceteris Paribus]

Originally Posted by SeattleUte

Only 2.8% of American mortgage debtors are in default....Nobody really understands the contours of this "crisis" or what will happen if nothing is done. Congress is being asked to take the Fed Chairman's and the Treasury Sec's word at face value.

Granted the media feeds us pablum regarding the real who, why and what of this crisis; and some investment bankers are greedy. The 2.8% default metric has deeper implications. It is at least 200% greater than what analysts consider "reasonable" parameters; and does not take into consideration the significant amount of upside down mortgages. For example, it is estimated that in parts of Stockton and Sacramento CA, up to 90% of the homeowners hold mortgages that exceed the value of their property. That phenomenon repeats itself in varying degrees throughout the U.S.

Last week's meltdown was a crisis of capital and confidence. The only valid criticism of the solution is that it came late in the game.