Folks, we think it is appropriate at this time to take a hard look at the "toxic assets" question. Government and Federal Reserve officials -- from the White House, the Federal Reserve, the Treasury, and the Congress, on down -- have set up a continuous and obfuscatory barrage about the true nature of the problem of banks' "toxic assets." (These are the selfsame "assets" which were rated AAA a mere 12 months ago, and some of which have been pledged as collateral for Federal Reserve -- i.e. taxpayer-financed -- loans to the greedy, short-sighted, cynical, and intellectually incompetent banks which accumulated them with abandon, with the implicit blessing of the Greenspan/Bernanke Federal Reserve). This government/Wall Street barrage of verbiage insists that the central problem is the extreme difficulty, if not impossibility, of valuing these assets. The problem, it would seem, is that there is no market for these complex creations of Wall Street "rocket scientists." (i.e., the math Ph.D.'s Wall Street houses employed and rewarded for developing the toxic assets which now threaten a global meltdown perhaps greater than that of the 1930s). By implication, the government/Wall Street line is that, jeepers, if only we could value these things accurately all would be well. Our first observation is just this: there is a REASON these assets cannot be valued. Since there are NO BUYERS, there exists NO MARKET. Now it is our perhaps somewhat naive understanding that the "value" of any asset is the price you can get for it in the market. If there is NO MARKET -- i.e., if no one is willing to buy it -- then you can get nothing for it. Therefore, it's true value is: ZERO. Now is this too difficult a concept for the great intellects at the Federal Reserve, the Treasury, the Congress, the White House?? We think NOT. We think they get it quite well: they just ain't tellin". Of course, the true problem of valuing the "toxic assets" at their market value is that the mere act of doing so would constitute a public declaration of the BANKRUPTCY OF THE ENTIRE BANKING SYSTEM. The centrality of the issue of the "toxic assets" was raised, inadvertently we would assume, by the reported comments of a prominent Eastern senator. This senator said that the banks must be relieved of these toxic assets, while the taxpayer must get full value so that the taxpayer does not suffer any loss. This formula, it seems to this, is akin to requiring that an elephant both fly and swim at the same time. The central point which government/Federal Reserve/bank/politician/Wall Street obfuscation seeks to conceal is the most obvious and the most decisive: there is MULTI-TRILLION DOLLAR LOSS in these toxic "assets." These monstrous losses MUST BE TAKEN BY SOMEONE. If the banks take them, then they are bankrupt, and the government must take over the banks while either allowing them to default against their creditors and depositors, OR the government must print up trillions of additional dollars. This latter course equates to sticking the MULTI-TRILLION DOLLAR COST on creditors generally, who will receive interest payment and prinicpal repayment (if they are lucky) in DEBASED DOLLARS worth far less than their original value. Alternatively, a vaster deficit would stick the next generation with the tab, in the form of higher taxes, reduced entitlements, or higher inflation -- or some combination thereof. The government/Wall Street/Federal Reserve line is an all-out effort to HOODWINK those who will be stuck with the bill for the government's determination to bail out the banking system in an IRRESPONSIBLE WAY -- i.e., by NOT cutting government spending and/or increasing taxes, and by NOT PLEDGING SOLID COLLATERAL -- government-owned property and other assets, for example -- to secure new debt flotations. The great problem that the government/Wall Street faces is that it is extremely difficult to hoodwink the MARKETS, though it is pretty easy to hoodwink the masses. Moneysage - copyright 2009 |
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