Let's Play "You Figure it Out"!
I actually had a post in mind today after I saw an article but I am out of time to do a full review. Given that, I know my readers are the best out there so I think you can figure a few things out for yourself.
First, the section in question comes from a review of a John Hussman piece by Pragmatic Capitalism where Hussman writes:
The global financial system continues to be unsound in the same way that a Ponzi scheme is unsound: there are not enough cash flows to ultimately service the face value of all the existing obligations over time. A Ponzi scheme may very well be liquid, as long as few people ask for their money back at any given time. But solvency is a different matter – relating to the ability of the assets to satisfy the liabilities.Regular readers may remember a missive I wrote a while back which stated:
It is a strange phenomena at work here. Unless a major world event occurs where there is a scramble for hard assets and hard money the US will continue to get away with this stuff. I actually have a fleshed out theory on this big picture wise, but I do not want to be called a conspiracy nut. If interested, email me and I will serve it up!And of course I was saying what Hussman did, as long as nobody needs all the cash up front, this game can go on. If they do, it's over. See, I am not crazy! Well, at least not about this! Yes, this is an Illusion of Prosperity ripoff job!
Now to the game.
I have made the argument time and again that it is policy to keep blowing bubbles and hope it works. It is not more complicated than that. Don't believe me? Well, you figure it out! Here is what Brian "The Potato" Sack and then John Snow had to say about FED policy of supporting bubbles, I mean "asset" prices:
The idea behind quantitative easing is you buy government paper that’s held by financial institutions or individuals. And then they have the money. And then they go out and buy some other financial assets, stocks. And they drive up the value of those other financial assets so we get an increase in the value of financial assets which means an increase in the value of lots of peoples’ household wealth. And the idea is if household wealth goes up, then that will be a spur to spending.We will side step the idea that QE is a mere "swap", the guys running the show think this is the way it works. I think you can figure it out from here what the "plan" is.
Next up, I have written plenty that a monster government backed housing bailout/black hole is in the works. Everyone wants results immediately but some things take time. A 2 trillion dollar hole takes time to set up. We may be there. I submit some quotes/references and you figure it out!
Via Naked Capitalism:
The next question is “what does this mean for MBS investors?” If you are a Fannie and Freddie investor, there will probably be no obvious consequences, even thought there ought to be. The government is not going to want to raise doubts about the integrity of such an important market. Servicers will continue to pay advances on delinquent accounts.
Via Zero Hedge:
Ultimately, if these issues do in fact escalate, the Administration may try to broker some sort of settlement. If such deal brokering does take place, Levitin believes that “some payment” will be exacted from the lenders and servicers. The Administration could bargain for more mortgage principal write downs." In other words, the endgame will likely end up being the extraction of material concession from the banking syndicate, in the form of systemic mortgage writedowns, with Obama's blessing, which will likely put the 25% of homeowners who are underwater on equal footing with the other 75%. It may turn out that this was the plan all along. And people naively wonder why banks have hundreds of billions in cash stashed on the sidelines. . .Leave aside the Obama jab (like McCain would have been different??) the matter at hand is who pays going forward for all of this. I trust you can figure it out!
Have a good night.