No doubt that plenty of these assets comprise a variety of CDS which exacerbate the implied leevrage.

Your point about the “renewal of defaulted loans” is a VERY good one. In speaking with a former colleague he has informed me that institutional investors have largely stopped buying mortgage private label (Jumbo, ALT-A, and the like) because of fears of “principal reduction”.

Unintended consequences are enormous and unknown.

I am going to attach my January 2009 Market Review, which highlights my market calls.

http://www.noquarterusa.net/blog/2009/01/30/january-2009-review/

Happy Friday!!

This approach prolongs the entire flushing process, leaves the assets on the banks books, and leaves bank management in charge of the situation.

Time….time…time…

As a result, I think future growth and the speed with which the economy may turn are diminished.

A government guarantee may actually cloud a title. Who did it guarantee value, on what basis, etc. Someone who looses may want to come back later and sue against the loss based on the previous guarantee if this or that or if they feel they had damages. I think a government guarantee against loss of value is a problem for any title holder down the line. It may be a panacea for lawyers. You would definitely need to hire a lawyer if you buy a property with a previous government issued market value guarantee.

The best thing to me is for the government to guarantee that the toxic properties are disposed off in an orderly and determined way.

If the bank sold short, do they not clear the title of this stuff? It’s been 25 years since I bought my current house. I am interested in your point as I expect to down size and certainly might encounter something of this nature.

The other unknown factor is, for those that the government purchases, how will the government handle the renewal of the defaulting loans in the securities. Writing down principle can increase losses.

I sure hope some day, some one writes a book about what went on in this mess. The story could be as bad as the SEC Madow fiasco.

Another question. A large part of the credit defaults were nonsence bets. I wonder if the government has nullified them because of the underwriters not having the capital to pay for the nonsense event default. Again – so much going on and after watching the SEC hearing yesterday, one cannot have a comfortable feeling that anything right is being done.

I would be against bringing all the assets at once or in a disorderly and disarrayed manner. But truthfully and with conviction. The government must not allow for the banking and institutional system to manage the process on their own or to manipulate the process to their own benefit. The process must be fair and balanced but the benefits must fall on those who bid and have the cash to buy those assets.

The most important duty of the government is to see that ownership or title be conveyed legally, honestly and fairly from those who auction them to those who buy them. Because many shenanigans can appear to damage the conveyance of title. So government must insist on a well managed and transparent method of conveying title.

That’s the role of government. That’s what I advocate. Nothing more, nothing less.