milkchaser

How Bernanke Stunned Congress with the Truth

So much scaremongering. What explains the meltdown that you all are so afraid of? You say how bad it is. That there is no solution. That somebody in power should have been listening to "the blogs" all this time. But where is the proposed alternate solution that you supposed geniuses have in mind? You are just a bit light on detail.

I agree that W showed his mettle on this. Laugh if you will. Deride my opinion if you will. Derision is no substitute for a convincing counter-argument.

My understanding is that Congress overreacted to Enron by requiring companies to mark their assets to market. In a tumbling market, when no one knows the value of an asset, buyers are scarce. That makes the current market value zero. Hence, assets that might have significant value in time are marked as zero present value.

RTC 2.0 fixes this by buying such assets -- assigning conservative non-zero value to them -- but valuing them above zero. This stops the slide in asset values. Since the assets are covered by collateral that will almost certainly have significant future value (after the panic subsides).

Since the RTC is acquiring these assets for a song, and since these assets are ultimately owned by the taxpayers, this is actually going to end up enriching the Treasury (not necessarily the taxpayers). True, this requires taking on debt in the meantime, but in a panic, people seem to be happy buying US gov't debt as it seems pretty stable in comparison even to money market accts.

I am going to work on Monday, as usual. I expect close to 94% of those eligible to work are also going to work on Monday. The great, ultimate money machine that is our economy is going to continue its massive momentum.

But squirm and panic if it makes you feel better.

As for this being a transfer from poor to rich -- that constitutes one of the most bizarre misstatements I have read in a long time. If the taxpayer is actually being put on the hook for this to the tune of trillions of dollars, then it is high-income earners (aka "the rich") who would pay 90% of such tax. Hence, this is no help at all to the vast majority of wealthy. But, as has been pointed out, this is probably not going to be a net drain on gov't coffers, as these assets are being bought at low prices and will eventually be liquidated at a profit (not a profit for the current owners of the asset, who will take a bath, but these private asset holders prefer something rather than nothing).