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Wednesday, December 17, 2008

The seventh seal

Denninger's question:

With the $7 trillion dollars we have committed we could have literally given every homeowner with a mortgage a fifty percent reduction in the principal outstanding.

This would have instantaneously stopped all of the foreclosures by putting all (essentially) homes into positive equity - overnight!

So why wasn't this done?

His answer: the government is trying to cover the staggering bets of the derivatives market. With borrowed money. The Treasury has swallowed the grenade and put its fingers in its ears.

This is the fourth horseman of the financial apocalypse that Michael Panzner predicted, as summarized here on Bearwatch on May 10, 2007.

UPDATE: Jesse comments on another fresh sum - tens of billions - needed to cover AIG's losses. As he says, there is an air of expectancy; but also of unreality, like the announcement of a major war.

3 comments:

Anonymous said...

This is all very interesting, but of more interest is what the new administration will get up to. With Paul Volker at the wheel things could be very different. He eventually hit the big reset button on debt creation and purged all the bad debt from the system. Short term, it was very painful but it was necessary to purge all the funny money from the system and let the real economy rise to the surface from underneath it.

Sackerson said...

If they do it, good. Doubtless hated, like Thatcher.

Paddington said...

The problem, as I said elsewhere, is that Bernanke and the others aren't just corrupt, they appear to be 'true believers'. They just don't get that the collapse is an inevitable result of the structure of the system.