Posted On: November 12, 2008, 4:49 pm CST

Posted By: mvp@123.com

Two very critical excerpts from this article:

"It's a $150 billion gamble"

and

"The Fed doesn't believe it will suffer losses because it is hopeful the market for such distressed investments will recover "


We switched from all Fed funds to part Fed, part Treasury funds, lowered the interest rate, & lengthened the term of the loan.

But, when all is said and done, what we truly did was double down on our bet that housing prices will recover. The problem is, peak values were a direct result of exotic mortgage programs, no-doc loans, & allowing neg. amortization through "Pay Option ("pick-a-pay") ARMs" and interest-only loans. People on $50,000 incomes were in $500,000 houses. People on $80,000 incomes were in $800,000 houses. The market will never and more importantly should never return to such ridiculously inflated values.

I think in many years when we look back on this, we will find major problems in 1) the undying assumption that housing prices always go up, and 2) valuations Treasury & Fed puts on the assets they're buying--in some cases they're paying 50 cents on the dollar for assets which were marked by other banks at 10 cents on the dollar -- this is a gift, not a bail out.