Margin Call on America

The question on lock or no lock depends on how others respond rather than an inventory of the word “political”. My last lock was not arbitrary and the notation was based solely on how the thread was turning into political.

Well, for one, I think the public promises need to be realized for what they are: false promises.  If they were terminated immediately, many of the budget problems would also terminate.  Perhaps the fire sale of American financial institutions would also stop.

However, that said, I have to say that for over a decade now I have been lamenting the fact that American realestate was way over priced.  I believe it is the unrealistic pricing of American realestate that is the culprit of the fire sale, not the deficit or any of the other factors being listed.

Another method of reducing the deficit would be to retail our energy reserves.  The United States of America (and Canada) holds almost a third of the world’s coal reserves and almost 15% of the world’s oil reserves (Colorado alone has more oil than all of Saudi Arabia) and, adding Canada to the mix, that number is even higher.

If we were to cash in on the unrealistic prices of oil right now, I wager the United States could easily see a negative deficit in a matter of a few short years.

As for the value of the American currency, it will remain strong.  It may not be uber right now, but it is strong.  That’s because the value of American holdings, resources and institutions back up the currency.  People know that the US Dollar is worth one US Dollar and that it will be worth one US Dollar tomorrow and the day after and the day after that for as long as one can speculate life will exist barring any serious acts of god(s).

I must admit that the current financial buyout packages (both passed and proposed) worry me greatly.  I, for one, would have been much happier had AIG, Fannie Mae and Freddie Mac gone out of business, liquidated their assets and let smarter men and women take control of those assets and fix the problems.

What problems?  Honestly, I think it started in the 1980s when people were taught to become Bungee CEOs.  A Bungee CEO is one that flies in, fires a third of the staff, makes the P and E ratio look great, increases stock prices, cashes out and leaves with millions of dollars in personal profits and a company gutted and unable to function as they did before.

What has the solution been recently?  Give them their golden parachutes and bail the company out with public money.  What’s my idea of a solution?  Put them in bankruptcy, sell all their assets to other companies, let their stocks dry up and cinch your belt for a while until you can recover.  Why won’t it happen?  Americans are cry babies.  They gambled, they lost, now they want “Mommy and Daddy” to come bail them out.

Let’s take some of the points you made, the ones I can argue without going into the political realm.

1)  US real-estate, not everywhere, but in a very large segment of the country, was incredibly over priced.  Starter homes in San Francisco, CA topped half a million dollars.  How many eighteen year olds can afford those prices?  The same in Chicago, New York, Los Angeles, Dallas and other places, just not to that extreme. Many of the suburbs of those cities also had starter homes starting in the quarter million dollar range, again way over priced given the median income of the population.

2)  Health care insurance really is not a crisis.  There are plenty of organizations advertising on American television offering discount health insurance coverage.  Many of them are a lot cheaper than the plans offered at work, some even cheaper than the plans offered to the United States Congress. (Not political, just their health insurance plan, not what plans they may or may not want to legislate.)

For instance, iCan insurance is offering insurance for someone in Chicago, for a family of 4 (2 adults, 2 children) in relatively good health (non-smokers that means) for as little as $127.00 a month.  That’s less than many people have to pay for car insurance.  So I really don’t see healthcare as a crisis of epic proportions, if you know what I mean.

3)  Social Security:  Many of the older generation (the first generation to collect Social Security) do in fact have the false idea that they are drawing on the savings they paid into a fictitious lock box.  In reality, many of these people collected over 100% of the amount paid into the program in the first 5 years.

Part of the reason for this is that the program was only designed for 1/10th of 1% of the population to ever collect.  Now we have over 90% of the population living until they can collect Social Security due to the incredibly good healthcare programs this nation has.  If we wanted to restore solvency to the program, it would be realistic to increase the age a person can collect Social Security to 108 years old, up 43 years from the current 65 years old.  But the older generation will never go for it, neither will the younger generation (who is currently waiting with baited breath for their parents to retire so they can get the good jobs.)

Another part of the reason that the elderly think they are collecting the money they put into the program is because they are being told that the money went into a numbered account (their social security number) and that the checks they are receiving are drawn from that account.  This is patently untrue.  You cannot go to the Bank of the United States of America and write a check on your account, say 123-45-6789 and have it deducted from your savings account there because no account exists for you.  The money was dumped into a slush fund and used to fund various projects and back filled with IOUs.

Finally, the entire idea of Social Security was a scam on the American people in an effort to make them feel better about their situation during the Great Depression.  President Roosevelt’s mother knew this, this is why she refused to pay the Social Security Taxes which resulted in the President himself having to pay her taxes to keep her out of jail.

3)  I believe that if America were to open drilling everywhere in the country, allow American companies to buy the resources from the Government and sell them to the world, the price at the pump would seriously slacken.  We would probably not see $0.87/gallon prices again, but realistically, I think the price of oil could drop to $65/barrel and the pump prices to $2.15/gallon.  The trick here is to have energy companies pay the government (city, state, federal) XX% based on their production.  The resources belong too the people, not too the government, therefore, the tax would go to offset income taxes and restore the deficit (which has never been zero in any of our lifetimes.)

4)  In regards to the strength of American currency, the US Dollar is strong compared to the currency of many nations.  It may or may not be stronger than the Canadian Dollar or the British Pound or the Euro.  That’s not what I was attempting to say anyway.  But it is strong enough that everyone on the planet knows that the dollar will be worth a dollar for as long as anyone can realistically imagine.  The same could be said for the Euro, maybe even the British Pound or the Canadian Dollar (though I believe the Canadian Dollar fluctuates more often than the US Dollar has in the past century.)

5)  Yes, companies are assets in many mutual funds and personal stocks.  It’s called gambling.  You are not guarenteed a return in the stock market.  If you buy into a company and their leadership destroys the company making bad loans, or bad products or whatever, then you lose.  That company should not, in my mind, be bought by the tax payers just to save you from your poor decisions.

It’s like I’ve been saying to Switch for years now.  He’s lamented the fact that he’s lost a lot of money in the market.  Personally, I’ve been making money left and right, except the past two weeks (and even then, with the ultra volatile nature of the market lately, I’m only down pennies on the dollar, perhaps 2 or 3%.)

Now, if I have done my homework, used the brain God gave me and made the right investments so I don’t lose my money, why should I be punished by bailing out those who did not use the brains they were given or did not do their homework or worse, relied on others only to tell them what to buy?

Should my neighbor across the street be able to walk up to me and say: “Hey, you earned $40 today, but my boss stiffed me.  Give me $20 of what you earned.”  Is that the society we want to live under?

Now lets expand that microcosm to the national level.  If Bank of America refrained from making risky loans because they did not want the exposure, they kept the federally required assets in reserve to cover their debts and they invested wisely, why should we punish their success by buying out Freddie Mac and Freddie Mae?  Why not let those two banks go under and allow Bank of America or Citigroup or another bank buy their notes instead?

To answer your last question: Yes and Yes.  It is both political and correct that the bailout would happen regardless of if an election was occurring this year.  The American people are a bunch of spoiled little rich kids running home to Mommy and Daddy when they got a bloody nose in the school yard of Wall Street, and like the mollycoddles they are, they will get all the sympathy their parents can dish out and none of life’s lessons they so desperately need.

To the original question…

I honestly do not believe the US can quickly or easily recover from this.  I think this is the first salvo of what is going to be a year-after-year series of bad news for the US Economy.

Not going to repeat the issues with the “false promises” of Medicare and Social Security and the tens of trillions in unfunded mandates they represent.  The simple fact is that there is no way in hell that those liabilities are ever going to materialize… they will be legislated out of existence in order for the nation to continue to survive.

But I will add the other factors, that I have posted on previously, that is also an impending 800 pound gorilla in the room…  Baby Boomer 401(k)s.

Since the 1980’s, the Boomers have been pouring hundreds of millions of dollars every month into stocks.  Up market, down market, it did not matter.  Their payroll checks were deducted, their plan administrator bought the requested funds.  That is hundreds of millions of dollars every month of BUY pressure on the market, driving prices ever upward.

The Boomers have started to retire.  That means that 2 things are starting to happen…
1.  They are no longer contributing to the buy pressure from their payroll deductions as they stop working.
2.  They are creating SELL pressure as they begin to either cash out, or redistribute their portfolios.

You take hundreds of millions in stock PURCHASE orders and revers that to hundreds of millions in stock SELL orders and you get one thing… a MASSIVE Bear Market of historic proportions.

And it is a self-feeding bear.  As the sell pressure increases, more and more people try to cash out to preserve what they have left, only adding to the sell pressure.

About a year ago, in a now defunct area of these boards, there was a discussion about the record stock market level of more than 14,000.  Where are we now?  We are hovering around 11,000, and have been in the mid 10’s.  Looks like I was right in that old thread about the long term outlook, though it is happening faster than even I feared.

Now add in the new factors…  The US government plans to buy $700,000,000,000.00 in “Bad Mortgage Debt” in order to shore up the banks.  What are the Feds going to do with this bad debt?  Write it off?  OK, then lets increase the annual federal deficit this year from a little less than $500 billion to $1.2 TRILLION (more than the entire annual federal budget until late in the Bush 41 Admin).  Central bansk are pouring hundreds of billions in cash into the markets to increase liquidity…  Can you say STAGFLATION?

The indications of a MASSIVE downturn in the US and global economy are so numerous that I could write a book about them.  The short version is that Stagflation (that economic impossibility that first occurred during the Carter Admin) is BACK, and if it were not for the fact that current standards do not adjust GDP for inflation in the Energy and Food sectors, then the US would be in its THIRD QUARTER of recession right now.

What can we do?  Sit back and hang on…  There is no escape from this ride.  We either pull through by a miracle, or by economic legerdemain; or civilization ends.  I am betting on the economic legerdemain aspect, but I also have a few hundred rounds of ammunition just in case it IS a worst case scenario…

The question must get asked, is America’s system broken? If so what reforms are needed?

My wife is looking for a job. We no longer can live “comfortable” with out a second income source. We could if we issued beans and rice for the menu.

I answer you with a few questions of my own…

1.  If some unknown guy showed up on your doorstep offered you X product that was allegedly worth Y dollars, and the product ended up being with ZERO dollars, would that guy end up in jail for fraud?  The answer is YES, they would end up in jail.  So tell me why CEO’s and CFO’s that are offering X company stock that is allegedly worth Y dollars but in reality is worth ZERO dollars get hundreds of millions in Golden Parachute pay instead of prison time (hell, I am STILL waiting for my own company’s former CEO to be arrested for SEC violations… he is safe in Canada, and he gets regular cash infusions from the former COO in the Caymans, but neither the cash nor the people are in US jurisdiction, and neither Canada nor Caymans will extradite, so they both are living large on $268 million that they pilfered from the company from 1997 to 2000)

2.  In almost every state in the union, the cost of essentials of life are regulated by the State.  In virtually every state this includes the price of basic telephone service, the price of basic cable service, the price of natural gas service, the price of electricity, the price of auto insurance, the price of homeowners insurance…  In my home state of Pennsylvania this also includes the price of bread, the price of milk, the price of a pack of cigarettes, and the price of a can of beer.  So riddle me this… if CABLE service is a “life necessity” with the price regulated by the PUC, when why in the hell is GASOLINE a “market price” commodity that skyrockets with every interruption of supply, and MAY come down sometime later?

3.  The US Government has a history over the past century of aiding US businesses that are in economic distress.  What distress is Exxon Mobile under with an all time USA corporation record profit of $50 BILLION last year that would require that they get $17 BILLION in tax credits as a business in distress?

YES… the system is broken.

Solutions…
1.  Consumption tax… you only pay taxes on what you USE UP (Business or Individual)
2.  Criminal Penalties…  You engage in fraud, you go to jail. This needs to be true of the fraudulent door-to-door solicitor that is selling bogus magazine subscriptions AND of the CEO offering stocks in a company with a “massaged” prospectus.
3.  GOLD STANDARD.  Take away the option of the government creating inflation by printing cash.  Require that all cash be backed by an equivalent value of gold and Inflation no longer exists.

Those will do for a start…

Yes, there is a difference.

Stagflation is the condition of money losing value rapidly while at the same time the economy is in modest negative real growth.

The Great Depression in the US had only negative net growth while the purchasing power of the cash that people had was pretty constant.

If you combine massive negative net growth AND rapid uncontrolled loss of purchasing power of the cash that people currently hold, you end up with something more akin to Germany circa 1924.

don’t buy stocks, commodities, metals, or foreign currency. Its not stable right now.
Buy income properties with no rent control and nothing else. People losing homes move to apartments. People losing 401 and stock value move into apartments. People who cant meet the debt service move into apartments. Right now the inventory in large cities is drying up because 1) large cities know they are growing and need to meet the needs of growing population and install rent control in many buildings, while this has the effect of making buildings that are still not rent control have much more value. 2) the cost of construction is higher and also tied to allocate low income housing to get permits. This drives up non-rent control buildings.

the window will close in the fall of next year, so use the time wisely.

The problem CC is that Inflation is NOT as low in the US as your Canada figures.  It is not even as low as our own figures.

According to most financial folks I have heard figures from, the true rate of inflation in the US is nearly 10%.  Wages are flat.  And the GDP is in an inflation adjusted decline for 3 consecutive quarters.

The dollar has been in freefall against foreign currencies for quite some time, with recent record lows against the Canadian Dollar, the Euro, or just about any other currency you can name.  And that is automatic inflation for a nation with such a massive trade imbalance.

Add in the recent moves by the Fed to pump billions of dollars in new cash into the markets to increase liquidity, and you get a further surge of inflation.

And the final hit… the Fed normally uses interest rates to help control inflation.  But if no one is borrowing, then it doe not matter what rate the Federal Reserve sets, and that rate loses its power to have an impact on inflation.

We probably will not see interest rates on investments in double digits like we did in the late 1970’s.  But all of the rest of it is already here and happening…  not yet to that degree, but increasing steadily.  And it is happening even in areas that have previously been virtually immune to previous downturns.

So basically the whole thing is imploding? Collapsing under its own weight to put it another way.

Coke’s only real means of increasing business are to get those who haven’t picked a brand (kids) or convert Pepsi’s customers (the reason I assume the soft drink aisle is filled with such variety- each side competing for smaller and smaller shares of those who consume soda.)

Geico for instance all their ads encourage you to ditch your current provider.

I can’t see that as being sustainable.

You know, Switch raises an interesting point.  When the boomers retire they will be drawing down on their funds, not adding too their funds and that should result in an over all down market until their generation dies off to a point the balance of power can shift to the next generation. (I believe the World War Generation is a 4th the size of the Boomer generation and the Generation X generation is like half the size of the Boomer generation.)

I also agree with Switch that there needs to be some massive investigations into how these regulations came into being, who collected kick backs and in what amounts since 1997 (the last major shift in Mortgage Laws was passed in 1997, since then there have been many attempts to establish a new regulatory committee to reign in the major Mortgage banks that have been voted down.)  I’m talking investigations into politicians that voted against regulation, wrote the 1997 mortgage laws as well as the upper level managers (CFOs, CEOs, regional managers, etc) into their lending practices.  We need to see perp walks, lots of them, and I’m talking at all levels here.  The only ones who can’t be blamed are the local branch managers and that’s because they had no power to approve or not approve, they just punched numbers into the computer and waited for the function to spit out a response.

I disagree with Switch’s assertion that inflation is higher than reported.  It FEELS worse than it is, but I think that in a decade when we look back at this, we’ll realize it was worse than we wanted, but no where near as bad as we were told.

For instance, the price of milk at my local grocery store in 2003 was $3.19/gallon.  It is currently $3.41/gallon.  Percent wise it seems really large, but real money wise, it’s only 22 cents more, not even a quarter.

Gasoline is much worse, but this is all artificial.  Once the word gets out that America will start drilling off our shores (and thank the Lord the government has finally allowed drilling to start as of today!) and if we get ANWR going as well as drilling in Colorado, etc the people will realize that the market has shifted and speculators will drive the price back down.

Now, factor out things like milk and oil and look at the rest of the market place.  Plasma TVs are down 50% in price and sales are up significantly.  A television similar to my 46" that cost me $1500 last year is being sold for $699 and it has slightly better technology!  So are we facing massive deflation of currency?  Of course not!  It’s just one aspect of the over all economy!  But it’s not one we see every day and not one that the broadcast and printed news harps on.

I mentioned before how home prices were over priced, CC asked me if it was really so.  This is what the head of the Illinois Realtor Association said to me in an interview for the Northern Star (NIU Newspaper)

1)  Start home prices used to be worth 5 times 1/3rd the annual income of the people in that geographic area.

What does that mean?  A starter home in the NW Suburbs of Chicago, median income of $48,000 give or take, should cost $79,200 sticker price.  But what do they really cost? (2 bedroom, 1 bathroom, single family home)  The cheapest home for sale in Hoffman Estates, my hometown, is $167,900.  That’s significantly more than the $79,200 it should be selling for if the same function that Boomers had when buying a home was being used today.

2)  Family home prices used to be worth 15 times 1/3rd the annual income of the people in that geographic area.

What does that mean?  A family home (4 bedrooms, 2 bathrooms, basement, dining room, central air, half acre lot) should cost $240,000.  But what do they really cost?  (realtor.com) = $349,900.  Again, incredibly more than it should cost!

Note, I am excluding ridiculous salaries from the median salary for my region.  The CEO of Boeing should not count, nor should the Mayor of Chicago.  I’m talking ONLY working middle class salaries.  (if you include the ridiculous ones, where only one or two people in the entire region can have it, then the median income soars to over $100k per year.)

Some things, like electronics, are coming down in price for other factors, like changing technology, more efficient manufacturing techniques, etc.  And that has been true FOREVER in the electronics market.  It is unique due to rapid obsolescence and incredibly rapid change.

But take CORE purchases that the typical homeowner makes every day, and look at what has happened to those prices over the past couple of years.

Gasoline:  Price has tripled since 2000
Rib-Eye Steaks:  50% price increase since 2006
Little Debbie Swiss Cake Rolls up 20% since 2007
Coffee, Folgers Columbian:  Up 60% since 2006
Chicken Broth, canned:  Up 100% since 2007
Strawberries, fresh:  Up 25% since 2007
Rainier Cherries, fresh:  up 70% since 2007
Car Battery, 12v:  up 30% since 2005
Newcastle, 12 pack:  up 25% since 2007
Firestead Pinot Noir:  up 240% since 2005
Time Warner Cable TV service, standard package:  Up 17% in 1 year
Progress Energy, electricity:  up 27% since July
McDonalds non-value menu:  Up 10% this year
Applebees Pick Three Combo:  Up 20% since 2007
Coke and Pepsi:  Up 22% since 2007

One rare exception:
PSNC, natural gas:  down 17% since last year (based on their pricing that goes into effect 1 OCT)

Truth be told, based on the things that I buy, it looks more like inflation might be around 15% annual rate…  But I will trust the experts who say it is only 10% overall for all goods and services offered in the US (including food and energy which are the two things that EVERYONE has to buy almost every day).

I also am going to agree whole heartedly with Jen regarding over-priced real estate.  There are a lot of areas where real estate is WAY overpriced.  You do not need to go any further than HGTV and a few episodes of House Hunters to see what is going on in some of these markets even after the bubble burst, or a few episodes of “My house is worth what?” to see the massive declines in home values in the bubble markets (SoCal especially).

Wow, life really sucks where you live.

Other than gasoline, almost none of the others have gone up like they have for you, Switch.  Maybe I just have the worlds best market or something.

Cable Television went down, at least 33%. (I used to pay $180/month for TV/Cable/Premium Channels, now I pay $110/month for the same thing, except I don’t have Stars anymore, but I have the others)

My steak price went up, but only a few pennies.  Instead of $3.99/pound I pay $4.19/pound, obviously I am referring to ground meat, I only buy steaks for special occasions because red meat is really bad for the body.

My coffee prices went way down and I switched from self-brewed to McDonalds.

Strawberries (fresh) are stagnate for me.  Last year I payed $5/bucket, this year I paid $5/bucket.  (Bucket contains as much as you can get in it.)

Coke I still pay $3.33/case 24 (AKA 3 for $10.00) at Jewel-Osco on a routine basis.

So either I am the luckiest woman in North America, and my inflation was only a mere 4-5% including gasoline, or you are the most unluckiest man alive. (Then again, you DO live on the east coast….)

PS:  This is not saying you are wrong.  This is only comparing my reality to the reality you stated you are experiencing.  Considering I live about as far away from you as Berlin is from Moscow, it is perfectly considerable that the price ranges on foods (mine grown locally, yours perhaps imported) is accurate.  After all, Wisconsin dairy is a 90 minute drive from here.  Berry farms (including wineries and peaches and other fruits) are spitting distance from me.  I have a HUGE corn field across the street that still lets me buy corn at $0.05/ear along with a number of other fresh vegetables.

Now, that said, my fish prices have gone up.  $8/pound for Walleye up from $7/pound last year. (I’ve been tracking in Excel because I want to keep my budget in tact.)

However, I am glad that the Switchmeister, and the goddess of radiance (me) have found common ground in the ridiculousness of over priced real estate in this country.

My personal opinion on the matter is that a starter home should be affordable to anyone who can rent a luxury apartment and a family home should be affordable for any family with two children (or less) and one working adult who has a bachelor’s degree and is in his or her mid to late thirties (or older.)

By affordable, I mean that with a 7.5% APR mortgage (a full 2.5% higher than I was offered today by Bank of America) the family can afford the principle payment, the interest payment, the mortgage insurance payment, the home insurance payment, the flood insurance payment, any other insurance payments and the property tax payments without exceeding 33% of the family income.  (PS, that 33% is not a number I am just pulling out of my arse here, from what I’m told, it used to be standard that you figured what you could afford in a home by taking 33% of your POST tax paycheck (aka that is what you have after the government takes their share.))

LOL, it may indeed be regional…

My SEAFOOD prices are DOWN big time, thanks in large part to an influx of southeast Asia imports.  Shrimp prices are down about 20% (about a buck a pound less on 30 count shrimp).  Prices for things like Spots have fallen through the floor (down about 70% in 3 years).  Tillapia is HALF what it was 2 years ago.

Though the problem with that is that the Eastern NC economy has a huge fisheries component, and the price drop is putting a lot of folks out of business, so in a couple of years my seafood prices are going to rise dramatically due to lack of domestic supply unless there is some stability in the market soon.

@Cmdr:

Well, for one, I think the public promises need to be realized for what they are: false promises.  If they were terminated immediately, many of the budget problems would also terminate.  Perhaps the fire sale of American financial institutions would also stop.

What false promises?

However, that said, I have to say that for over a decade now I have been lamenting the fact that American realestate was way over priced.  I believe it is the unrealistic pricing of American realestate that is the culprit of the fire sale, not the deficit or any of the other factors being listed.

A decade ago, it was a buyer’s market. In 2000, I bought my house in Southern California for $86 a square foot- a steal.  Homes have always been expensive in New York, San Francisco, Monteray, Santa Barbra, etc.

In 1998, the Median Price for a San Diego home was $195,000. That’s doable on $50,000 a year (close to median income back then), with a 10% down payment. In 2003, the median price had jumped to $420,000. In 2004, it was $525,000. The bubble didn’t start until around 2001.

http://www.signonsandiego.com/sdhomes/area_homesales/pastyears-2000.php

Another method of reducing the deficit would be to retail our energy reserves.  The United States of America (and Canada) holds almost a third of the world’s coal reserves and almost 15% of the world’s oil reserves (Colorado alone has more oil than all of Saudi Arabia) and, adding Canada to the mix, that number is even higher.

If we were to cash in on the unrealistic prices of oil right now, I wager the United States could easily see a negative deficit in a matter of a few short years.

We should definitely become an oil exporting nation again. But it would mean putting a floor tax on gasoline ($3 or $4 a gallon) to create demand. Nobody wanted an electric, CNG, or fuel cell car when gas was $1.50.

As for the value of the American currency, it will remain strong.  It may not be uber right now, but it is strong.  That’s because the value of American holdings, resources and institutions back up the currency.  People know that the US Dollar is worth one US Dollar and that it will be worth one US Dollar tomorrow and the day after and the day after that for as long as one can speculate life will exist barring any serious acts of god(s).

The dollar is worth whatever investors think its worth. If America starts to look like a bad investment, investors start cashing in their dollars for other currencies or hard commodities. It’s our luck that Britain, Germany, and Japan are having their own tough times, so the dollar looks relatively good stacked up against those currencies.

I must admit that the current financial buyout packages (both passed and proposed) worry me greatly.  I, for one, would have been much happier had AIG, Fannie Mae and Freddie Mac gone out of business, liquidated their assets and let smarter men and women take control of those assets and fix the problems.

Fannie and Freddie hold over five TRILLION in mortgage securities. Letting them go under was unthinkable. They had reached TBTF status (too big to fail). But I would love to read an economist’s paper suggesting they should have gone under…

What has the solution been recently?  Give them their golden parachutes and bail the company out with public money.  What’s my idea of a solution?  Put them in bankruptcy, sell all their assets to other companies, let their stocks dry up and cinch your belt for a while until you can recover.  Why won’t it happen?  Americans are cry babies.  They gambled, they lost, now they want “Mommy and Daddy” to come bail them out.

That’s true to some extent, but another problem is a failure of the market itself to fix a price on all these bundles of mortgage securities. When the govt. approves the bailout (which they will), there’s a chance (probably small) that some of these mortgage securities are seriously UNDERvalued, and we could actually make a profit on them if housing goes up.