I do not want federal dollars spent for psychological reasons.

[Joanne98]

Why?

My problem with this whole affair is the complete lack of any meaningful explanation of why Wall Street (or the banks) are in trouble, and how the bailout money would be spent.

For instance. An investment bank bundles and slices and dices mortgages and packages them as an MBS. But then it sells it to someone else. So how is the investment bank impacted if the mortgages go bust?

As far as bailout money is concerned, will it purchase MBS, and from who? Is the investment bank effectively an intermediate who will bail out the purchaser of the MBS?

That goes double for Credit Default Swaps. As I understand it, those are insurances against problems with the MBS. So they default. How does that affect the credit market?

It's smelling more like the bailout isn't to actually rectify balance sheets, but more as a psychological salve for the credit market.

I do not want federal dollars spent for psychological reasons.

If anybody can provide a link to a solid report on the situation, I'm eager to read it. But it had better not have bromides about how "Wall Street can't function".

Over at Calculated Risk, I see that the TED spread (and the A2/P2 spread) is off the charts, and that the credit market is therefore frozen. Let me be clear:

That spread is not in any way the result calculations of numbers on balance sheets. The "spread number" is simply market mood.

If market mood is the problem, then Prozac is the solution. Not tons of money.

(I'm aware of the irony of inserting an Unhappy Face in a post ranting about how billions of dollars are going to spent so that investor confidence gets a boost.)



posted by Quiddity at 9/25/2008 01:44:00 PM

http://uggabugga.blogspot.com/2008/09/todays-outlook-why-my-problem-with-this.html