It seems to be obvious that the lesson from the afternoon rally in the stock markets is this: Politics matter, Washington matters, and sensible legislation in the midst of a crisis matters. How hard is this? The Resolution Trust model has been out there since the S&L crisis; it's also been in the papers over the last few days, taking a little luster from CNBC's "scoop." But it's hardly a new, or wild-eyed, idea (hell, it was started under Bush Sr.), though it requires some capital. The mortgage crisis has been grinding folks down, both at the homeowner level and at the Wall Street level, for over a year. And yet it took a veritable meltdown of the global financial system, the overextension of the federal government and the near-total destruction of what we once thought of as Wall Street to get anyone in Washington to offer it up as a sensible proposal. Boom: Stocks take off.
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What's worse here is that the logic of the RTC is so obvious. The underlying problem driving all these crises is a ton of bad mortgages losing value by the hour. The RTC is the first federal plan that would actually tackle the primary disease, not the secondary symptoms (I'm not counting giving away money to folks as a real plan or even the "we'll-help-the-poor-homeowner-program"). Maybe it's not perfect. But it's an idea. The real indictment of both the Bush administration and a Democratic Congress is that an RTC-type of solution hasn't been seriously suggested, or debated, until now. That's the definition of political gridlock. - Robert Teitelman
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Here's a question:
How do you deal with all the leverage that is currently being used to "own" these toxic assets? Is the US going to make all of the debt holders whole as well?
Why not do the exact opposite - salvage the "good" assets and let those who created this mess deal with it through the markets. Or maybe pitching what is left of the US monetary system into this quagmire is the right idea? Really, who am I to say?
This gets sillier and sillier by the day