Friday morning, to-do list:
- -It's really okay to rely on foreign capital. However, to do so, you have to act like you understand that it means keeping the confidence going. Volker overdid it a little, last night, on Charlie Rose; but you cannot fault him. He's been warning of our unsustainable ways for a long while, now ... Nevertheless, today is not the day that that piper will be paid, if he is going to be.
- -The bottom-up approach, rather than the Paulson slush-fund approach, is not just Keyensian "welfare". It's a sensible approach to putting a floor under valuations of mortgage securities, by offering up what only the government can in these circumstances, something very, very valuable to Wall Street: certainty / guarantees.
Yes, it costs something, maybe something "un-recoverable". Better to pay, than to guess that there is enough capital to "solve" the problems that the banks are in (especially when we have no true accounting of their problems, currently or prospectively!).
Dishing out breaks to flunky mortgage holders is no more outrageous than dishing out massive amounts of capital to Wall Street screw-ups.
No, it won't take a lot of time to do. Once the terms are known about what the Government will do, valuations will move immediately, even before the Government has actually done it. - -Over-interpreting market moves is a pitfall when markets are 'moving fast'. When buyers and sellers compete for price at such times, it's seldom wise to take cues from that about what the 'market is saying' about long-term fundamentals, etc.
- It was okay to let Lehman go. We are learning how to restructure the system to avoid "too big to fail" in the future. In other words, the workout from Lehman's failure is pointing the way toward how to re-regulate the industry (IMHO). Watch and learn. (Or, think of it as Ben Bernanke's very clever clinical trial...).
