One Way or the Other, Uncle Sam Will Bail Out Mortgages
Marc, Mishu has it right: the thing is that selling off their assets won’t make them less insolvent. Bankruptcy doesn’t work the same with a bank as with anyone else either; when FDIC intervenes, that’s effectively how a bank goes bankrupt.
Mishu, thanks. I agreee with you completely: mark-to-market is really the “seed crystal” that set this all off. Along the same lines, Scott, I think the MBS/CDO/CDS thing is more effect than cause; they were needed to let people forced by the government into writing high-risk mortgages at the same rates as lower-risk mortgages (qv the Community Reinvestment Act, as I was writing in October). There’s nothing inherently conplicated about the idea, although figuring out an appropriate premium for a CDS is hairy; the thing is, in the combination of mark-to-market, something that was a non-financial event, the change in credit ratings of the big firms, triggered forces markdowns of trillions of dollars of securities that probably have much greater residual value.
Chuck, you might be interested in my recent piece on newspaper zombies down the hall at Edgelings. I am planning on being at the Friday thing, gods willing.
