Chronicles Of Depression 2.0: #217: Do Over!

US Weighing Plan to Set Up Facility to Hold Bad Debts

Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.

The facility would be similar to the Resolution Trust Corporation, which was set up in 1989 to take on all the failed thrift assets during the savings and loan crisis, these sources said.

They're applying the Bush Doctrine to this crisis. They're pulling a pre-emptive DO-OVER!!!

Such a move, according to its advocates, would allow banks to shovel bad debt off their balance sheets and allow the firms to go back to business as usual. It would also eliminate the need for individual company bailouts.

In turn, that could allow the housing market to recover because it would restore banks willingness to lend.

Emphasis added by me.

What are the international ramifications of this?

What will Japan especially think of this? Japan "lost" a decade because of a property values bubble. They were told by us to take their medicine. Now we're going to pull a Do-Over on them?!! What do you think the Japanese will tell the Chinese on the Mainland, and Korea, and Hong Kong?

I'm unconvinced this is going to work.

Finance is international. Do you think our firms can simply reset their balance sheets like that when the balance sheets in other countries are running with blood too? This has to have revenge effects.

This could be the unknown factor I've been awaiting.

How exactly is this going to work in the real world?

And why can't we the people get any profits that accrue if this Do-Over works and the value of what's being held appreciates? Why should the risk be our burden and the profit be private property?

I'm unconvinced this is going to work.

And what about the millions who have already been thrown out of their homes because of phony property values and fraudulent mortgages? Why couldn't they have gotten Do-Overs too?

I'm damned unconvinced this is going to work.

All prior Chronicles of Depression 2.0 posts. Read them before you must.