Tuesday, February 10, 2009

Financial Stability Plan

I've been patiently waiting the last few days for today's announcements that carry enormous implications for our economy.

The day started with Geithner's press conference announcing the new "Financial Stability Plan." Only a few days ago it appeared certain that there would be a "Bad Bank" that would take the toxic assets off the investment banks balance sheets. It appears that plan has been scrapped, and we're now back to where we started which is to give around $500 Billion in additional capital to troubled banks. That money, just as before, is as good as flushing it down the toilet.

The second part of the plan involves the Fed expanding its original $200 billion asset purchase program to $1 Trillion. This program involves the purchase of student loans, car loans, commercial real estate loans, and residential mortgages.

Both these programs will be a fraction of the total costs needed to make these markets whole, and as the economy continues to deteriorate you can expect for them to announce larger and larger stimulus projects.

As the market plunged today on these new programs of mass destruction, we got a call from Obama down in Ft. Myers letting us know that we will have a foreclosure program in place to look forward to in the next few weeks.

As his call came through, we also received word that the Senate has approved his $838 billion stimulus plan. This is Obama's new program to create jobs using government money. The only problem with the plan is that the government does not have any money. In order for it to create jobs it must take it away from other business opportunities, and this usually equals an even greater total job loss.

I was talking to my friend the other day about how I watched the financial crisis build for years and years before the entire system collapsed in one month in October last year. All the bad loans and decisions were created, packaged, and leveraged onto the banks balance sheets back in 2004-2007. But it took until October of 2008 before the entire system collapsed on itself.

I think it will be a similar event with our currency. Many people understand what is happening right now and what the final outcome will be, but you just have to wait and wait for something to trigger the collapse. It will happen quickly and when it does we can begin the true crisis. What we have seen thus far is just the opening act.

No comments:

Post a Comment