Facing Reality

First, it ain't just the short sellers. And you can bet everyone will find a scapegoat for all this and then walk away.

The term
used is "business model" a reasonably accurate label to describe exactly how a business is built. Now most existing "models" are ashes. NG. Trash. Say goodby to all broker dealers other than Goldman Sachs. Say goodbye to all the investment banks and a lot of retail banks. Real Problem is debt. All debt: government (Federal State Local), consumer debt (real estate, auto, and credit card), and much business debt like the hedge fund type where a bank uses borrowed money to lend to Hedge Funds which creates a mountain (never borrow short and lend long). All this debt has to "unwind" and a government corporation will have to be formed to take over real estate. All our "concepts" of borrowing have to be reexamined and in this country we have been spending money we don't have since WWII. This is the real rub because we have built an entitlement empire and I don't know if we can unwind all the freeloaders without a revolution. Try cutting Medicare, the new Drug Benefit, Welfare, the literal cobweb of benefits within the basic social security system, and our method of using bonds in order to build public projects, and there is a hell of a lot more.

Most professionals are surpisingly uniform in stating that we have to have a resolution trust vehicle in order to take real estate off the table, which means another mountain of debt which, while separated cannot be hidden.

Then we have the horrible fact that foreigners have bought most of our debt and we have bought their debt, and all of it on borrowed money. England borrows money to build a railroad line, somebody else borrows money so they can buy the "debt" England has incurred to build their railroad, then another entity borrows money in order to buy a "package" of loans, and the bonds are paid off with borrowed money.

Well, nobody is going to be able to borrow anything til we face reality and that reality is Cox and the SEC; read the above posting and follow the link..


Anonymous said...

Why is AIG at $2 not a good investment? or is it?

Howard said...

So far as I know AIG does not exist any more. Their insurance business has been separated from the rest. It also may be untradable until the loan is on the books