First, thanks to all who have spent many hours attempting to find a solution for this problem. Even greater thanks to those who have been soul searching rather than trying to make this just another money grab.
Ipsism's position has been that this is a liquidity problem caused by Federal Regulations. It is imperative to FIX THE REGULATIONS, not throw money at the problem. Sure, some of the more onerous and socialist provisions of the initial bailout plan have been ameliorated. But, $700 Billion is NOT going to solve the problem.
This is a regulatory crisis causing illiquidity in the markets. The solution is to fix the regulations. Throwing money at the problem of systemic illiquidity is not going to correct the system. Here's why: The debt burden facing the system is between 50 and 80 TRILLION dollars . These debt swap obligations have grown over the past thirty to forty years. Even a number as large as $700 Billion is only about ONE (1%) PERCENT of the debt swap obligation. That means 99% of this debt iceberg is below the surface. The bailout (and, NO, Nancy, this is not a buy-in investment) is the Titanic attempting to be an ice breaker. It's NOT going to work.
What the bailout is going to do: perpetuate the problem.
The bailout is going to allow the banking system to continue playing the same game that's been going on for forty years. For the derivative gamblers, it's just going to be clearing the table and allowing them to roll the dice with a new bankroll. And, allowing the banking system to have 100 to 1 leverage, bet on the the banking system to require another, larger, bailout at some point in the future.
What must be done is correct the regulations. The mark-to-market rules may seem like a good idea but the current crisis shows that the regulation has not worked. Mark-to-market is the primary cause of the current illiquidity problem. It is, therefore, the quick fix to the problem. The long term solution is to return to traditional accounting standards. Ever wonder how something gets to be a tradition? It works. Over and over, traditions work. The tradition is to make sound investments and turn a profit. You make bad investments and you lose money. And,if you can't cover your losses and you have a co-signer (debt swap obligation) the co-signer loses, too.
With $50 to $80 TTTRILLION in debt swap obligations outstanding, NO government, NO entity is capable of saving the system. The system has to correct itself. There can be a gradual workout that is not painful and will allow the system to right itself. This is going to take years of fiscal restraint or there will be system wide bank failure for those who assume too much risk. Down home, we used to call this 'biting off more than you can chew.' You have to spit it out or choke to death.
Mark-to-Market seemed like a good idea a few years ago. It was a tourniquet applied to stop the hemorrhage of loss after failures like Enron. Funny thing about tourniquets -- if left in place too long, they not only stop the bleeding but kill the extremity where the tourniquet is applied. That's where we are today. The tourniquet has stopped the bleeding; at the expense of killing the extremity, causing illiquidity of funds. The solution is to relax the tourniquet, allow some bleeding (banking failures) so that the extremity (banking system) can survive. Simply forcing a transfusion ($700 Billion bailout) into the tourniqueted extremity may delay death of the extremity but will not repair the problem.
The bailout (NO, Nancy, it's not a buy-in) is not going to work. It's a transfusion that will postpone the inevitable. The solution is to relax the tourniquet. Fix the regulations. Remove mark-to-market. Fix the cause of the bleeding by returning to traditional accounting. But, for the love of our children, grandchildren and great-grandchildren, don't burden them with a $700 Billion bailout. It's NOT going to solve the problem. It's just a money grab to allow a drunken derivative system to keep gambling.
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