Thursday, September 25, 2008

My thoughts on the financial mess as it is now

First off, I'm one of the ones not drinking the Warren Buffett koolaid. I don't really think he's betting on Goldman or the economy per se. Here is a great post that describes the math of what's really happening, and don't forget to read the comments section, also filled with some very good information and views.
And given the fact that Buffett has written some US$40billion worth of S&P puts, it helps him to seem like he's confident about the economy.

As for this "bailout", it's really quite awful. The market's been overleveraged for some time now and there has not been real deleveraging except for Lehman's implosion. A bank selling leveraged bets/assets to another bank does not take it out of the system, it merely moves it around. So what happened? Basically we started with X amount of money, and in a few years, we borrowed and leveraged it so that on paper, we all had Y>>X amount of money. Those who were smart enough to take it off the table, they can retire now. Those pension funds or big mutual funds that don't just get in and out of the market, they watched Y turn back down towards X. But Y didn't really exist in the first place. This bailout sounds like it's basically going to hold onto Y until a time when it might actually become Y. A real RTC would be much more useful. Force these banks to sell off the assets, liquidate when necessary, and kill a couple banks in the process. This may be more likely to cause the implosion we need to get back away from this non-existant Y amount of money. Instead, we're going to pay Y to all these financial institutions, and Bush/Paulsson have used this "we must act now" bullshit to scare Congress into this. Not only that, but this is an election year, and for some reason "recession" sounds like death to too many people. The economy is cyclic. We need recessions. Let's just get ours over with.

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