The tornado of financial events is ongoing.
As I write this, the United States congress is preparing a bailout response of some kind for the US economy. If I can put aside my normal cynicism, I can allow myself to believe that the confluence of the greatest financial opinions should result in a solution that will sustain the US and world economies until the market straightens all this out.
I’ve heard a lot of propositions, but the one I like most is the idea of not having the US government “buy” the 700 billion of bad debt, but to have them guarantee the debt (or the notes created to pay that debt) at some later date. The difficulty there is to establish an actual value for the depleted assets. But assuming a number can be arrived at, these “bad debts” can be packaged and sold and a future value could be guaranteed by the Federal government at a future maturity date. Kind of like an FDIC situation.
I prefer that to any solution that requires the US to borrow more money from the international community (read oil countries and China). We have already started to see the hints of that foreign influence on US policy. It has been reported elsewhere that the US was “reluctant” to publicly chastise the Chinese about human rights issues because they had recently lent several billion dollars to shore up US markets. Ditto the Darfur situation. It would have “displeased” the Chinese government if the US had come down too strongly against a government supported by the Chinese. There are many out there more cynical than I who believe that the Saudis were consulted every step of the way before Bush attacked Iraq. The billions the Arabs have invested in the US makes the Chinese investment look like pocket change. I had this conversation recently with a client I met through Blue Water Partners. He doubted that influence was being used as I described it. I proposed that if he had a house that needed renovations, and he did not have the money to make these renovations and I agreed to foot the bill, did he not think that I would have a say in what he did with that house in the future? I don’t know why people think money lending governments somehow loose that “human” element of greed, or at least, quid pro quo. Having the government back the value of the packaged notes eliminates the pressing need for capital, and the need to go with hands out to the wealthy oil countries of the world.
