Power And Dollar

What about the bank insolvencies?

No, not a bank insolvency but bank insolvencies.  It is not just Indymac, but also Freddie and Fannie.  


Taking over will also create more national debt, by 1/3.  This will make USD fall even further; gas goes higher; imports more expensive.  Euro is getting lower.  TSE is also falling.  This latest hit in the US may start a domino effect (finally) of global correction.


It is likely 2009 will see more government involvement, possibly through tax dollars.


With the collapse of Indymac, this may make the legislature get into the speed of passing the appropriate housing bill.  The sign is that house republicans are likely to pass anything democrats ask for to save their seats, although bush wants to have advantages for banks and investors, rather than retail consumers and mortgagors.  However, the house democrats may want to drag it longer for the presidential election. 


Frank-Dodd bill is looking at a higher likelihood of passage into law. The bill would provide a federal guarantee for refinanced mortgages where the principal had been written down below the value of the underlying property.


If the question is if there will be mortgage relief bill, then the answer rests with House Speaker Nancy Pelosi.  The only way to see that a good bill passed ASAP is the house democrats see the urgency of showing their homework to voters.  News on Monday is that Pelosi wants to get this done.  If indeed the case, then this should be done in weeks.  This cannot get drawn into the election.  Else, this legislation will get too much volatility into the race, and thus more tubulence int he market as well.  The draw will be the effect on the next administration.  Which fix will be considered handicapping the next President?  Is the neighbourhood item too fiscally expensive for a Republican president?  Or too “Democratic” to provoke more right wing votes?  Will the item of bank’s consent to write down as too Republican?  It will become too difficult for any candidate to get a grip on this issue. 


Where should money go? 

Consumer is down.  Financials are also down.  Manufacturers are getting beaten up by Chinese manufacturers who are also closing down due to the down turn in the US.  That leads back to the necessities: commodities. 


If the question is if the economy will get over soon, then the answer is the same as stated before in this blog, not yet.  Will more banks close?  Treasury does not want to bail any one any more.  He would rather see insolvencies than bail.  His famous line is going to be this one: “For market discipline to effectively constrain risk, financial institutions must be allowed to fail.”  Well, read his press release hereThere are many reasons banks will close, but there will be very few reasons this year, since the government regulator is unlikely to force more closures by anything other than insolvency.


July 14, 2008 - Posted by | banking, Barack Obama, business, Current Events, Democrats, economics, election, Election 2008, John McCain, legislation, mccain, obama, politics, Republican, stock, US politics


  1. isn’t some failure good ?

    Comment by Alfie | July 15, 2008 | Reply

  2. some failure is always good. that is natural selection. and you probably don’t want a Bruce Willis’ Armageddon in real life.

    if you are someone who monitors (to monitor the risks on your $) the development of this meltdown story, then the impact of that news is actually the impact on Frank-Dodd and the newly found pressure on Pelosi.

    Comment by royho | July 17, 2008 | Reply

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