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October 07, 2008

Comments

John

Perhaps it's time to relax, some. Wall Street is tumbling because they're now reading the Emergency Economic Stabilization Act and realizing that it doesn't bail anybody out except some high-stakes gamblers.

The problem is that banks claim their assets are worth one price, when the market is unwilling to pay so much. The Act helps make up the difference, which is not smart at all.

I have two suggestions:

First, wait for Thursday (I believe) and I recommend watching the story closely. What's left of Lehman is going to see its Credit Default Swaps (the bets on the success of subprime mortgages--the core of this mess) valued and sold. That'll be the beginning of the end of the crisis, for good or ill, because it'll show how solvent the banks are.

Second, just a few months back, we were berated by reporters, economists, bankers, and government officials, telling us that we use too much credit/debt. Slowing down the credit might be the best thing to happen to this country in a while.

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