Tuesday, March 24, 2009

Let The Games Begin


The Government’s plan to auction off the so called toxic assets needs to be given a chance. To have the banks sit with mortgage-backed bonds in their portfolios and wait for them to work their way out of the system will take years and will delay the economic recovery.

The sad truth is that we, our country, needs some of these players that helped to get us in this financial mess in the first place. While analogies are never quite perfect, this is like needing the bomb maker to now take apart the bomb.

Portfolio managers and traders that maintain a position using their own capital, their company’s capital or a combination of the two, put their abilities on the line each second of the day that the markets are open for trading. That is why they are paid the big bucks. Trading investment securities is nothing more than a high stakes poker game.

Getting these mortgage-backed bonds to start trading again will be no easy trick. However, if I was Paul Krugman or anyone else with little actual experience as a bond trader in New York or any other large capital market, I would keep quiet on this point. You do not know what is possible when it comes to bond traders and the bond market. Having been involved at one time, and knowing the kind of people that take those jobs, I would not bet against them.

Nothing is perfect when it comes to working the country out of a mess that our Congress had a hand in creating. Let us not worry about who is going to make money. Let us keep our eyes and our minds on our own resources and continue to manage them as best we can. If the toxic asset program is successful, it will be good for the nation as a whole. Yes, some people will make money, but no one takes risk without the possibility of making money. That is just how markets work. Stepping on the gas pedal may in itself be fun, but unless the car moves forward as a result of pushing on the pedal, the novelty would quickly wear off.

I think that there is a good chance this toxic asset program that the Treasury has put forth has a good chance for success. The alternative to it is to do nothing and that would certainly cost us another ten years or more of no growth in our economy. The risk is worth the rewards. Let the games begin.

Stay tuned.

2 comments:

LceeL said...

What? You mean the games haven't started already - and haven't been going on for a long, long time?

Does this mean that now, NOW, greed is good?

moneythoughts said...

Some times greed gets the job done. As a society or country we can not legislate greed out of existence. At least I don't think you can. Anymore than you can legislate holding from football. Players will hold and flags will be thrown and penalties will be stepped off. That is about as much as the Federal Government can do to regulate bad or too high of risk behavior in the market. But, thanks to Congress, both Dems and Republicans, the laws that were on the books were weakened or eliminated by a philosophy that deregulation was the right way to go. Unfortunately the members of Congress did not have enough knowledge to answer the challenge and money from Wall Street that wanted a more deregulated industry. Wall Street with the help of Congress got the playing field they wanted, but it was not a level playing field as we all now can see. The bailout that the taxpayers are being asked to finance should have never happened. I would like to hang those individuals responsible, but in this country we don't hang people that sell us out. That is, unless, it is to our enemies.

Greed or whatever you want to call it will get the job done of cleaning up the toxic assets, the bonds that no one wants to own, except perhaps at a real cheap price. Let's see if this plan works. If it does work, it will speed up the recovery of the whole economy for everyone, not just the people on Wall Street. Think of these guys as the bacteria in the digestive system that aids in the whole process of nutrition. These guys don't smell very good, but they get the job done. I think you know what I mean.