IsThisRight

Paulson's Plan Fails to Understand the Problem; Madoff Is a Perfect Example

I agree with the conclusion of this theme, but for different rational. My conclusion is as follow : Mr Paulson understands the problem but has not told us, therefore we cannot comprehend Treasury n Fed actions since we donot agree on the problem that we have to address.

My view of the problem and actions :
The $7-10 trillion "invested" by Treasury ( and they have insisted that they are investing not spending) is MOSTLY A REPLACEMENT FOR PAST DEBTS held by US corporations, and/or to REPLACE LOST FUNDS ALREADY INCURRED BY SOME BANKS. So these TARP and Fed transactions are just recognizing these debts ( corp and banks) onto the US balance sheets. The market is not allowing any corporation and banks to expand their debt levels, while these Treasury and Fed actions are underway.
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We need to to look at the total basket of corp debts and bank Tier 1 assets as the balance sheet of the U.S nation. As the fed lowers rate, the banks earn more. As the corporations log profits each quarter or sell assets to foreign companies, they will be deleveraging. So as a nation, the bank earnings and the corporation profits will help to deleverage the U.S. balance sheet.

At the personal budget level, from our salary, we will also be either saving more or paying back debt. This will also help in the deleveraging process.

Oh yeah, these pesky CDS ( 50 Trilliion liability). Look at it this way, by minimizing corp and banks going bankrupt, the CDS liability goes down as time elapses. The CDS buyers will be fatigue or they with an upswing they will panic and liquidate some of their bets.

Liongterm:
When the fed gets to lend NET NEW MONEY to the banks n corporations, without taking any old debt instruments or bank shares, then these steps would be growth stocking actions. But until now, the "Treasury investments" are just buying U.S. time to deleverage. Paulson did tell us : "we need to delverage" and that is what he and the WW market is driving U.S. to do.


So for now, let's try
1 to tally how much total debt we have
2 estimate our total earnings each quarter
3 assume that we use 80% of our colletive profits to pay down debt
4- estimate how much assets that we can sell externally - at right time at the right price
5- By adding 3 and 4 above, we can estimate the time needed to deleverage the US balance sheet.

Once we can see the end-date for deleverage, then we plan to grow the pie again SLOWLY by controllng both our spending and debt growth rates.