Thursday, September 18, 2008

A Resolution Trust Corp? A Rumor? Either way, We Lose

Posted by willyloman on September 18, 2008

By Scott Creighton

(As you read this, think about this recent article published today by MSNBC about the rise of Tent Cities all across America, spawned by the failing economy and the morgage crisis.)

A late day 450 point rally of the stock market today, fueled by the rumor that the government may create an entity to dump bad debt in, pushed the Dow back up over the 11,000 mark to close 401 points up. The talk is about another RTC, Resolution Trust Corp., type entity being created like that which helped paper over the Savings and Loan debacle of the late 80’s. The idea is that they will, once again, use the power of the government (read “tax-payer”) dime to cover the bad debt of the housing crisis loans that no other banks want to touch right now. This will be in essence a massive bailout for numbers of institutions, where they can just dump off their over extended paper without penalty. The question is, whether or not this is something that they are really working on, or if it is just a rumor floated out there to artificially inflate the market temporarily while certain well-connected banks (read “Federal Reserve”) dump unstable liquidity.

This comes one day after I heard Chris Dodd and one of the architects of the $80 billion AIG bailout both claim on NPR that they weren’t going to start some en-masse government bailouts for any other banks or institutions. If this new RTC talk is true, that means they only stuck with that lie for one day.

In 1989 when the RTC was established, they targeted to “resolve” upwards of $560 billion in bad debt. The estimate for what is expected today, given the scope of the housing market crash and all the bank loans and mutual funds affected by it, might be 2 or 3 times that.

So of course Wall Street rallied. It’s the “no loss” era for them right now. No matter what they do, no matter how greedy they get, they can’t possibly lose. Because you and I will be there to socialize their losses; not their profits. Hell, if it works for China, why not here, huh?

This guy thinks it might be a ruse as well, and he has allot more insight than I do.

Let’s see; one way it’s really bad news for us, and the other way it’s bad news for us and Wall Street. Either way… you guessed it. We lose.

***UPDATE*** If you think congress is going to jump into the fray and help figure this out… guess again:

“According to Bloomberg: “The Democratic-controlled Congress, acknowledging that it isn’t equipped to lead the way to a solution for the financial crisis and can’t agree on a path to follow, is likely to just get out of the way.” Gather


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