Hi Lou
I really look forward to your reports on AM640
Is the possible US Government financial bailout much more serious than the one that took place during the saving and loans crisis? If so why?
Looking forward to your comments.
Regards
Paul

Hi Paul,

To my thinking the Resolution Trust Corp was handed damaged mortgages and institutions to patch up and resell into the market.

The Paulson Plan is plagued by the fact that the government will be buying the assets and then reselling them. But at what price will they be buying and selling? Valuation and visibility is what has the market frozen now so it will be difficult to imagine the true value of these toxic instruments. In a no bid market the value is zero.

I am also concerned about the order of magnitude of the problem. Every cost estimate that has been issued by the Bush Administration has been so low as to be laughable. Early last week the estimated cost according to Paulson was hundreds of billions, on Friday $500B was bandied about; by Monday we were up to $750B. It’s like catching a greased pig!

The Resolution Trust Corp solution to the Savings and Loan problem was estimated to cost $20B. The final cost was $122B. As everyone knows I am not that bright but having seen the original version of this farce I think the total cost will be much higher. Earlier in the week I mentioned a $3-4 Trillion cost estimate. I hope I am wrong but with the past as prologue I’m prepared to be less optimistic about cost containment.
Happy Capitalism!