Since the inception of this blog in mid-August we have repeatedly maintained that one of the two indispensable actions necessary to resolve the sub-prime crisis and the derivative credit contraction was a government-sponsored bailout of the banking system. As we noted in our very first post, on August 12th 2007 ("The Sub-Prime Crisis: Made in Washington") the Federal Reserve, or some other government modality, would have to purchase from the banks their sub-prime infected mortgage-backed securities at par, in order to remove them from the banks' balance sheets where they were choking off the banks' supply of lendable capital.
Over the past 4 months we have not seen anywhere A SINGLE comment, assessment, or analysis even remotely resembling this.
UNTIL December 23rd, when an economics writer carried by AP penned a piece entitled "Government Tries to Contain Mortgage Crisis." In this piece, the writer noted that: "Gaining some currency it the idea of a government agency modeled after the Resolution Trust Corp. of the S & L days that would buy up mortgage-backed securities as a way of delaing with bad loans....if the government spent $150 billion to $200 billion to purchase mortgage-backed securities, the thinking goes, it would prevent a fire-sale that would drive prices of these securities even lower."
Our intention at MoneySage has been to provide our readers with forward-thinking, heads-up analysis and forecasts way before same become common wisdom.
We believe we have accomplished this objective with regard to our mid-summer analysis of the sub-prime crisis and our assessment of the steps which need to be taken to resolve same.
We will continue in our efforts to provide such forward-looking analysis and prognostication on a variety of economic and financial issues we deem likely to be important for our readers.
MoneySage
