Delay of Game

There comes a Time when all Good Men must take a Side. Where do you stand on the Issue? Be sure to read the three Open Letters linked in the article. I once wrote, maybe back in April, that the greatest determinant of the Crisis would fall on the willingness of the Banking structure to Write Down losses. Investors could endure losses, but the Markets and Investment could not withstand non-disclosure. Management, though, would not adopt honesty in their failure because of the Risk to their own positions. The Credit markets have now frozen to great degree, and the Question now revolves on How to Restart them. We basically have Three positions: the fundamentalists, the so-called Realists, and the Bankers. None of the positions possess a naturally consistent, pro-Active position of definite value. I am basically a fundamentalist, believing that economic policy will only cloud the Issue and delay the Write Down of losses; an effect which must be accomplished before there is progress to loosen up the Credit.

It is indicative of the real Problem behind the Bailout that there is great Doubt that it is sufficiently funded. The Concept of Government Underwriting inevitably and immediately brings to the fore every Claimant who could possibly gain some amount of the largesse. Any Threat to solid Credit will be entertained equally because of the fear of Public Denouncement, and 80% of the Credit losses could be handled by the Private Sector adaption far better than any Government control. Normative measures to discount Risk will be abandoned for the pursuit of Government Cash. The expansion of the declared Crisis to obtain Government backing will frighten Banker, Borrower, Investor, and Depositor. The Panic of the Herd will start to stampede.

The drop in the Dow since the Signature of the Bailout is almost Self-Explanatory: It brought immediate discussion of how much each Participant could bring forward to obtain the Government welfare; Stock Analysts and Stock Holders were listening in the Wings, suddenly, an initial Threat of a Year’s loss of Profits on the Company books turned into a life-threatening Scenario which doomed Stock values. The entire Market systems are now Gun-shy, after losing major segments of their equity. No one is calm, and decisions made are only worsening the Situation. It does not help that the entrusted officials of the Bailout have no idea what should be done, never having charted these shoals before. lgl