So now the next plan to avoid certain financial armageddon is for the world's biggest central banks to open up their gold vaults Errrr, I mean turn on the lexmarks, and to buy massive amounts of mortgage-backed securities (MBS) so as to "shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets."
This seems like a perfectly reasonable plan if you think about it. Okay, no it doesn't.
We are supposed to believe that The U.S. Government's true intention is to help out the poor homeowners who can't pay their mortgage payments because they were duped by vicious and malicious mortgage brokers and lenders...that these homeowners are somehow the truest of victims and without government help they will become homeless? That Ben Bernanke & Bank of England Governor Mervyn King care so much about the peeps, that they are willing to buy up 100's of billions (maybe a cool Tril) of mortgage securities and the underlying collateral?
Let me tell you something, El Capitan, THIS IS BULLSHIT! Plain and simple.
The obvious reason for this plan is so that ABC Investment Bank and XYZ Hedge Fund (and the hundreds of other similar worldwide firms) won't have to mark-to-market their toxic mortgage backed excrement-sandwich portfolios. This brilliant ostrich-philosophy will keep those companies from becoming "officially" bankrupt, so long as they don't properly give value to the MBS holdings that they are carrying on some Enronesque shell company HQ'd out of the Cayman Islands.
The leverage these firms employed on the ride up booked amazing gains. That same leverage threatens to destroy each and every firm who gambled in these.
And memo to Ben Bernanke et al, do you think the Florida Pension Fund wants to touch these investment products ever again? What about foreign municipalities in Norway? What about the banks who are desperately trying to offload their MBS holdings? I'd say, the cat is out of the bag on the quality of this investment.
This bailout of Big Banks will not restore any amount of confidence into the market. I'd argue that it will only prolong the misery.
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Precisely. That's why Helicopter Ben can't let Bear go bankrupt. The bankruptcy judge would oversee an auction of Bear's assets and establish market values for the mortgage backed securities. Then Citicorp, et. al. would find it more difficult to avoid writedowns.
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