December 29, 2008

No... here's what you're really pissed about.

The Statesman has an editorial up admonishing the government not to bail out commercial real estate investors and owners. Because you can't bail out everyone.

Actually, as a matter of fact, you really can because you NEVER bail out everyone, you bail out enough to stabilize the system. The most stunning thing to me is that the TARP and TAF have not spurred the banks to lend. There was always a chance that might not happen, but in the end I put the odds on that happening at pretty low because, after all, banks need spread income which they can't get without lending.

Of course, on the upside and the downside, that hasn't happened. So, the Fed and Treasury should use one of their other tools. Nationalization.

This needn't be a painful or difficult process, reminiscent of Chavez or the commies. All they have to do is put the banks into the hands of the FDIC and then FDIC can transfer to the Treasury. However, it has to be done in an obvious, deliberate way. And it needs to be done with the full knowledge of the boards and senior management at all the large banks in the US. They need to understand with absolute clarity that the government will continue this process until they start providing liquidity again.

The reality is that people, even with the intervention of the Government and the sure and certain knowledge that the game is fixed, are still nervous. The only way to get them past that nervousness is to give them something to really be scared about.

And then you won't have to bail out commercial real estate owners and investors. They'll be able to refinance which will help stop the vicious fire sale cycle and allow stability to set into the system.

All this is going to happen. There is a time limit to how far a bear market can run and we're approaching the end, especially with this much cash on the sidelines.

Posted by mcblogger at December 29, 2008 12:06 PM

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