Shiv139

Resolution Meeting - Fast Money Recap (9/18/08)

Will more steps be needed beyond the US Congress plans for a financial fix?

A purchase of paper from solvent entities with a view to an eventual sale back to the market through an auction process is good. Read more about the Congress plans here.

An available buyer will mean (a) improved liquidity (b) higher confidence (c) arrest in accelerating mark to market losses.

This is a good first step because it will ebb the flow of insolvencies caused by liquidity & confidence crisis. One can assume that following an acquisition of distressed debt, the asset acquired will be "off market" until stability returns, otherwise it defeats the purpose. An incidental side benefit will be profitable dispositions which will significantly reduce budget deficits.

Still, this does not entirely address the solvency issue. The risk of disorderly unwinding of insolvents remains high. To prevent a disorderly unwinding it is possible that additional steps might be required. These could include:

1. An RTC type vehicle to hold and sell assets of failed banks.
2. Nationalization as in the case of SWF's.
3. Combination to create a stronger entity post acquisition.
4. Active marketing of new capital requirements to SWF's and nations with budget surplus.

Everyone has a responsibility to act; this crisis may have started out in the US, but its impact has and will continue to be felt the world over. How bad it gets depends on how early and how actively the world engages in seeking a solution.

Escalating deficits from the rescue packages will cause an elevation of inflation; this will hurt the world. In my view nations which can look at risk from a multi-decade perspective will need to engage in providing a solution.