I don’t trade for a living, as you do (and neither, I might add, does Mr Bernanke).

One observation though – from all that I’ve read, “The danger with the Treasury bailout proposals is that they will waste money by buying assets at levels above what the market will bear” is a feature, not a bug, as far as B/P are concerned.

This is an attempt to do a stealth recapitalization of the financial sector, nominally via the US taxpayer. What’s really odd is that the Treasury was recently writing stimulus checks to said taxpayer, courtesy of the kindness of foreigners. The taxpayer can’t afford the recapitalization from his own pocket, and once bitten, twice shy by foreign equity investors.

So the plan, such as it is, is a replacement for SWF investments, albeit at a cost of increased external debt rather than equity (which they won’t give us now).

So in a sense, I guess it’s an attempt to keep Bretton Woods II going, at least until the election gets here. What happens afterwards, of course, is someone else’s problem.

But that’s as far as I’ll go — just yet, anyhow. I haven’t been able to glue to the toob all week, but I don’t get that anybody’s asked my $64Trillion question: how can mortgage derivatives stabilize when the mortgage instruments themselves look like they’re covered with maggots?

You can soak up all the outstanding bad MBSs, but look at the components of a mortgage valuation model: defaults get driven by real income and loan-to-current-value; not a pretty sight as one is sliding and the other is in free-fall. Next, interest rates that might tease the new buyer; anybody want to guess what sort of mortgage rates we’ll see when Uncle Sam is trying to float another oh, trillion dollars of agencies?

At least we can discount accelerated pre-pays.

Oh, the equation above doesn’t allow for abnormal risk appetite? You mean no matter how much Mr. Bernanke’s flashlight goes in search of a good price, it won’t help the underlying mortgages, or those sitting unsecuritized on small banks’ books?

Oh, too bad. Well, Mr. Paulson’s successor can always come back for more.

It seems to me Merkel raises a very good point. We’ve seen this sort of thing before. This too shall pass. There are lots of very bright people with lots of money to throw at this if assets get cheap.

No doubt markets are becoming disfunctional, but that’s not surprising given that the rules of the game are being changed on an almost daily basis. One financial lives and another dies on a whim? Government officials quite obviously and deliberately juice markets?

Just a few months ago we were told the economy was strong and the mortgage problems contained, and now the secretary of the treasury needs to spend 3/4 of a trillion by Tuesday or surely the apocalypse shall follow?

Who’s being naive here?

The government has already acted on the money market funds. The problem is outside that, unless they doubt the government’s ability/willingness to act.

My main point is that we do not have to be rushed into a deal; let the next administration deal with it. If we have to do “one off” deals between then and now, fine. Set up RTC 2 — but don’t do a proactive bailout, unless it costs the companies dearly to avoid bankruptcy.

Right. When money markets start failing, it’s time to poke your head up and see whats what.

Surprised Merkel is this niave.

Last week after seeing LEH go and Mer submit to a shot gun wedding, the reality was MS/GS/WM/WB were on the fringe and action had to be done. The Ban on Short Selling as well as the Treasuries actions are ex.

And because of them we now have the moment to take a breath. But make no mistake, never confuse a temporay splice that is intended to buy time with a permanent splice. Meaning, those who get to cute at this time risk the failure of that splice and the system shutting down but NOT in a sequential order.

The Buffet move comes as a RESULT of last weeks moves.

So I’d sumbit to move forward and as it is done, implement forced buy ins, increase margins for short selling, FIX the DTCC or replace it. A inventory list is worthless if the starting counts are false.

Put the liars/cheats and thieves and those who are complict and front running in jail and as all this is occuring yes consider other ways to fix things AFTER the system is up and running. IF NOT, and this comes from one who has been involved in some of the most sophisticated startups in the world. FAILURE WILL OCCUR. NOT IF!
There’s a time to talk and a time to ACT. We should have been ACTING YEARS ago re NAKED SHORT SELLING when the real patriots were out there imploring ENFORCE THE LAW and DELIVER THE SHARES. Patrick Byrne/Budd Burrel/Mark Faulk/Gary Aguirre are but a few who were warning us as many ridiculed and mocked them. And NOW we listen to those who ask HOW could this happen? I’d ask, NO why didn’t many in position DO THEIR JOBS? And why are we still listening and hearing from the same gang that didn’t ACT?