Happy "Unwinding" Mr Paulson

Ah finally US Congress had agreed on the draft for the US700billion mother of all bailout, at the hearts of this problems is the mortgage backed securities derivatives. How to unwind this multi billion derivatives? Well you can ask Warren Buffet, this is what he said after unwinding General Re couple of years back ,

" long ago, Mark Twain said: " A man who tries to carry a cat home by it's tail will learn a lesson that can be learned in no other way." If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats!" ( Cost of unwinding General Re is US400million )."

The problems is not in the US700billion bailout plan but it's in the underlying derivatives assets which had questionable values as, Buffet once said, " mark to market; no it's mark to myth".
How much it's the values of this mortgage backed securities assets worth it's the biggest headache, buy at too cheap the bank will suffer; buy at too high the tax payer will suffer. this problem was highlighted by the Director of Congressional Budget Office Mr Orszag, read below:-

The director of the Congressional Budget Office said yesterday that the proposed Wall Street bailout could actually worsen the current financial crisis.
During testimony before the House Budget Committee, Peter R. Orszag -- Congress's top bookkeeper -- said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.
"Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values," Orszag said in his testimony. "Establishing clearer prices might reveal those institutions to be insolvent."
In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X's real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.
Such companies "look solvent today only because it's kind of hidden," Orszag said. "They actually are insolvent" already, he said. Read in full.


So whether the mother of all bailout works or not ultimately is not the concern at the moment, the most pressing issues right now it's by bringing those toxic assets out in the open it will reveal even more underlyin problems instead of solving it, a reverse effects of blowing up the banking financial problems even further. The scary parts it's they have no values, their values are like Buffet said, "mark to myth"!

Well let's opt for cats .......................... buy gold because the hidden values it's stronger then the Rock Of Gibraltar!


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