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alstry (35.76)

Biggest MELTDOWN in American History

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September 28, 2008 – Comments (6)

WASHINGTON (CNN) -- Billionaire Warren Buffett told congressional negotiators that if they can't agree on a proposed financial bailout, the nation will face "its biggest financial meltdown in American history," two sources familiar with the talks said.

Yes we know Mr. Buffett.  Alstry and others have been warning about it for over six months on CAPS.

If the situation is soooo urgent..instead of buying the toxic crap from your buddies....do you think the American people can simply get the same deal you got with Goldman Sachs.  If so, I will be willing to fly to Washington at my expense and lobby on the American Peoples' behalf at no charge.

If the Deal is good enough for Buffett...shouldn't America get similar terms????

Otherwise...can you please explain how loaning a few hundred billion to some banks to relieve them of some exotic residential mortgage debt will solve the trillions in toxic municipal debt, corpororate debt, commercial RE debt, consumer revolver debt and much much more????

Further, how will it assist Americans to qualify for taking out new credit???

Maybe a good honest to goodness controlled restructuring would be good for America in the long run.....look at what happend to Japan in the last sixties which set the foundation for decades of prosperity.

6 Comments – Post Your Own

#1) On September 28, 2008 at 12:29 PM, columbia1 wrote:

Interesting point! Use the 700B (money that the American people adamantly agree should not be used for a bail-out) to purchase quality companies, for example:

54B for GS

165B for JBM

167B for BAC

109B for C

the other 200B spread around in oil stocks

I like this plan much better than the governments! You could use the dividends to pay down the national debt,

Privatizing the profits and socializing the losses is not what the founding fathers intended when they wrote the Constitution, but if we are going to use tax payers dollars to invest in the stock market, at least buy something with value! (I only used the better banks as examples, to help get money available to those seeking it) 

But throwing money at the problem, the way Congress wants to, only weakens the dollar and does not address the under laying problem! Just lets it fester and grow larger.

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#2) On September 28, 2008 at 12:49 PM, btown819 (95.04) wrote:

If the Deal is good enough for Buffett...shouldn't America get similar terms????

American taxpayers' priority is not to make business deals.  American's priorities are to make sure that they have a viable economic system.  Individual Americans can make deals for themselves or through other entities in which they have some sort of economic interest. 

Otherwise...can you please explain how loaning a few hundred billion to some banks to relieve them of some exotic residential mortgage debt will solve the trillions in toxic municipal debt, corpororate debt, commercial RE debt, consumer revolver debt and much much more????

The proposed $700B "bailout" is not intended to relieve them of trillions of dollars of "toxic" assets.  It is intended to allow financial institutions to remove enough of their "toxic" assets so that confidence can be restored as to their solvency and ability to operate normally.  When solvency is no longer in doubt they can operate normally and properly carry out their market function.  It is like fixing a cog in the machine so that the machine works again.  This cog has an estimated $700B repair cost.  Something similar was setup a few decades ago called the RTC.  Although the situation is a little different this time around, I think it is similar enough for this bailout to work. 

Further, how will it assist Americans to qualify for taking out new credit??? 

Cash is king.  Dysfunctional financial institutions are hoarding cash assets to compensate for exposure to other asset types that may be "written down".  Large cash holdings also help to assuage any doubt about their solvency.  With such high internal demand for cash, their is less available to lend to others, such as "Americans" (I use quotes because the term is so broadly used in the question).  The "average American" must then pay a higher interest rate because demand is high.  Jittery financial institutions also tend to add higher risk premiums (i.e. more interest) onto the loan (if it is made at all) due to their experience with more recent loan performance data.  Removing toxic assets and restoring confidence in the system will reduce the financial institutions' internal demand for cash, thus allowing free market forces of supply and demand to normalize (i.e. lower) interest rates and encourage an adequate level of lending activity to those which includes "Americans".

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#3) On September 28, 2008 at 2:18 PM, alstry (35.76) wrote:

If banks are undercapitalized...inject capital via direct equity offerings....just like Buffett did.....by buying toxic assets at market value will only exacerbate the undercapitalization issue if they haven't been properly valued.

Further, buying toxic assets does nothing to restore credibility....the banks need to be recapitalized and the assets made transparent so all can see what is backing  our deposits. 

After this blog was written, Roubini came out with a good discussion on the issue. 

In the end , all we are told is there will be a massive finanicial meltdown if we don't buy the toxic assets.  BS...yes, if we don't do SOMETHING clearly there will be a finanicial meltdown.....most experts in this area have known this day was coming for at least six months or longer.

Now I will tell you what will happen if the bill is approved as represented and what Buffett and the politicians are NOT telling you................

We are going to have the biggest ECONOMIC contraction in American History!!!!!!!!!!!!!!!!

And guess who will be sitting with your $$$$ to buy up your assets on the cheap?????

At this point...you can either believe Alstry or believe Paulson....who has told you the truth for the past six months?

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#4) On September 28, 2008 at 3:53 PM, btown819 (95.04) wrote:

Theoretically, injecting capital via direct offerings would sound good, but I there is one problem.  How do you figure out if banks are undercapitalized?  Are you going to use the accounting value of the assets?  The market doesn't seem to believe in that valuation of those assets, and I probably wouldn't either. 

Assets are defined as having future economic benefit.  How can you properly value all of these assets when you can't always accurately predict the future?  There is great disparity in many of the loan/mortgage backed assets out there.  There are two methods I can think of to value these.  #1.) Wait and collect on all of these mortgages/loans and see who pays and who doesn't.  Considering many asset backed loans have 5 - 30 year repayment terms, it could take years until you get more assurance in the probably value of their worth.  #2.) Get an efficient and transparent market for these securities so that they are properly valued in an efficient market (easier said than done, but quite possible).

Injecting more capital isn't going to fix the market's inability to properly value assets (i.e.loans/mortgages).  The market doesn't properly value these assets because so many bad apples bundled together have ruined the bunch.  Adding more good apples in with rotten ones isn't going to get rid of the rotten apples spoiling the bunch.  Or, in other words, injecting cash into institutions with improperly valued assets isn't going to fix the valuation problem.  Those same problem assets will remain there.  Removing most of these bad apples by buying up "toxic" or problem assets will go a long way in restoring credibility in the solvency of these institutions.  As a side note, even under this plan I still would not be surprised to see more financial institutions fail.  

Are you really thinking you are better than Buffett based on your six months of history vs. his decades of performance?  I'm not even going to comment any further on that one... 

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#5) On September 28, 2008 at 4:23 PM, alstry (35.76) wrote:

Buffett didn't warn you about the crisis six months ago.

Alstry did.

Ask yourself why didn't he and is he profiting from the "crisis" right now?

The facts speak for themselves.

Now get ready for the biggest ECONOMIC crisis in American History now that we have "fixed" the financial crisis.....

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#6) On September 28, 2008 at 4:49 PM, btown819 (95.04) wrote:

Hahaha.  Being 1 for 1 in a baseball game does not give you the right to call yourself a 1.000 hitter, even if your one hit was a homerun.  Buffett may be profiting from this crisis if the bailout happens, but you, Alstry, are certainly benefiting by tooting your own horn in these blog posts. 

Admittedly, I am disappointed in Buffett for not warning us earlier.  It looks like we won't have to continue paying him his regular financial adviser fee. Hahahaha.

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