Toxic Debt Bailout by Wall Street?

Wall Street was instrumental in producing the global economic crisis as well as the economic crisis at home. Now the Obama administration is looking for private investment to bail out U.S. banking with a U.S. Federal Guarantee. In exchange for a guaranteed bottom dollar value on toxic derivatives and bank assets, the federal government wants to entice buyers like private investors and investment entities: hedge funds, private equity funds, insurance companies and the like.

The federal government has stubbornly insisted that toxic banking instruments that have brought the global economy crashing down still maintain some value and will increase in value some day. In the bailout last year, the federal government paid almost double the estimated value of toxic debts purchased from banks. The value of securities and toxic debt tied to subprime mortgages and other dubious loans has plunged as the financial crisis has intensified. To avoid similar criticism in the future, the federal government wants to establish guarantees for investment. The Obama administration is depending on Timothy Geitner to get the job done with a workable approach.

In a federal bailout, toxic asset valuation is questionable at best, raising political questions about whether purchase prices are fair to both banks and taxpayers. The system is ‘too big too fail.’ As toxic assets remain on the bank balance sheets, they continue to decline in value, producing more multi-billion dollar losses for banks. Bank securities are complex and hard to evaluate. There is little information about which assets are owned by each bank. To make matters worse, banks have refused to cooperate with outside buyers. The Obama administration expects that federal investment guarantees will be a good short-term fix that is worth the risk of declining assets even though the U.S. taxpayer will be left holding the bag. The government stands ready to absorb losses at a base value, while providing some of the financing for the purchases as an incentive.Transparency is still the #1 issue behind the whole idea making the actual workability of any plan questionable.

Lap dog economists are finally admitting that the U.S. doesn’t have a functioning banking system, a measured requirement for a future ‘self-sustaining capitalist economy.’ The lack of trust has destroyed the system. The government hopes to restore that trust. As far as a functioning banking system, lap dog economists and government specialists haven’t determined that the American people can’t continue to borrow their way to economic health with stagnant wages, job losses and inflated prices. The credit bubble for the U.S. economy has burst with the result that millions of formerly prosperous Americans no longer can qualify for loans. Now, the Feds are hoping on investors to make the difference. ~ E. Manning

Bad Economic News on Election Night

The Economic Cycle Research Institute in New York doesn’t have good economic news, but are sharing that news before U.S. elections close this evening. A fairly strong industrial sector, propelled by a formerly cheap dollar and strong economies overseas, helped to keep the U.S. recession mild. According to the experts that compile the Journal of Commerce data, that situation has collapsed with the likelihood for a more severe and protracted recession in the United States. The data indicates a recession on at least the same scale as when Ronald Reagan took office back in 1980. Indications are that the current recession will be much worse.

The sharp decline in commodities such as oil and metals are a trouble sign rather than a positive one. Some say this is caused by hedge fund investments being dumped on the open market. Who care? This is part of the cycle. Investments in commodities are no longer in vogue because of downward trends.

Coupled with sales declines and corporate stalls in around the globe, predicting a global recession is “tricky” according to some experts. This expert votes that we get the bad news out of the way so that we can focus on better news down the road instead of debating the obvious. We need to consider the process of rebuilding. Obviously, this is not immediate. However, the sooner stronger minds prevail, the sooner the nation can start to see a notable improvement of business prospects, perhaps as early as the summer of 2010. What the U.S. government and world leaders do in the meantime will dictate the speed and breadth of any improvement. Government policy can also spur new growth, especially in the small business sector. Let’s get crackin’. Real people are doing too much suffering already. ~ E. Manning

FBI Begins Kicking Booty in Banker Fraud

The Federal Bureau of Investigation isn’t wasting time. America needs some fall guys. Who better than lying and scheming financial salesmen? Finally, crooked bankers, financial gurus and investment brokers should be shaking in their boots. The FBI is on the stick and hasn’t been wasting much time. Obviously, the preponderance of evidence is huge or the government wouldn’t moving this quickly. Previously, the FBI stated that the first arrests could have taken two years or more.

The first criminal cases of the credit crunch are two former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin. The men allegedly misled investors in two funds that collapsed last summer on mortgage-backed securities.

Why fall guys you ask? The FBI will have to be up on their numbers

U.S. Mortgage Economic Analysis

It’s different in the United States. This time in history is different. The Federal Reserve won’t let deflation happen. Belief in the Federal Reserve and the avoidance of economic pain is nearly universal. The Fed is a legend in their time. The Federal Reserve won’t suffer. The U.S. economy and citizens will.

There are a handful of realistic economist-type people that see deflation coming. The sophisticates laugh aloud: “For almost thirty years people like you have predicted that our economy will collapse and it hasn’t happened.”