A “Resolution Trust” for Credit Markets? Too late!!

We are now hearing plenty of discussion about the need for a modern version of the Resolution Trust Company.We think that this is way too late, given the lag in getting anything through Congress.  We are also approaching the traditional election recess.

We recommend that readers review our article from January, where we explained the need for timely action and Presidential leadership.  TheStreet.com kindly moved this to the public site.

Perhaps they will do the same with some of my recent commentary.

Meanwhile, here is the key takeaway:

The US brand of democracy is reactive, not anticipatory.  It requires strong Presidential leadership to succeed.

As regular readers of “A Dash” know, we feel that the current President, hamstrung by an unpopular war and low ratings, cannot provide the needed leadership.

It is an unfortunate intersection of a major problem with a lame-duck President.  A Parliamentary system might have avoided this problem.  Or a stronger President.

Conclusion

Astute citizens are belatedly realizing that bailouts are not just about the companies in question.  The impacts affect us all.  Nearly everyone owns real estate or stocks in a retirement program.  Even if you do not, there are issues relating to local tax revenues — money for schools and public safety.

We are about to discover whether the patchwork of incremental solutions, with heavy reliance on the Fed, can meet the test.

Investment Implications

The normal relationships between stock prices and company fundamentals has been suspended.  In our conversations with fellow professionals there was a consistent theme:

No one cares about the normal metrics.  No one believes any earnings forecasts.  There is widespread fear about the economy.

While our official posture (via the TickerSense sentiment survey) is bearish, we are nibbling and looking to do more.

If and when this changes, history suggests that the move will be sharp and swift.  Art Cashin has often used the analogy of a cattle stampede.  We shall see.


Originally published at A Dash of Insight and reproduced here with the author’s permission.

3 Responses to "A “Resolution Trust” for Credit Markets? Too late!!"

  1. Sage of Obama   September 19, 2008 at 4:14 am

    Prepare a solution, then create a crisis and impose the solution.This is what has happened. Thesis, anti-thesis, synthesis, except you already have the synthesis in advance which you already planned.Paulson, former Goldman Sachs director has known about the problems, as he was one of those insiders who created toxic waste, not accidentally was he made the Treasury secretary. All was well planned. Now he will transfer huge amounts of taxpayer monies to the speculators and fraudsters.The greatest theft in the history of the world is taking place and the sheeple are silent.

  2. VegasRage   September 19, 2008 at 8:46 am

    Their only is answer is to expand the dollar and let everyone pay for it in debt. Elf’n Magic! So what happens when the baby boomers panic at loosing their ERISA mutual fund retirement money and start pulling all it out no later than 2016?

  3. Guest   September 19, 2008 at 1:37 pm

    they start the dollar depreciation strategy, savers convert to CHF and JPY. Then US will ban foreign accounts…