Thread: "It's going to get worse before it gets worse."

"It's going to get worse before it gets worse."

John Schettler

- Doug Roberts, chief investment strategist for Channel Capital Research.com.

Let’s not kid ourselves any longer about the economy, because ‘facts’ as John Adams was fond of saying ‘are stubborn things.’ And the facts are fairly plain that this is no run-of-the-mill recession, not your common economic cold that comes round once every season. No, this is a full blown outbreak of killer flu that is spreading rapidly to pandemic proportions, and we have yet to come up with any vaccine. The Tamiflu TARP program rolled out by Bush, Paulson, and Bernanke had little effect. It prolonged the lives of a few banks and insurance companies, and allowed some of our larger institutions to absorb the first phase of the collapse. JP Morgan Chase picked up Bear Stearns and WaMu, Wells Fargo took on Wachovia, BofA rescued Countrywide and Merrill Lynch. Now these banks, once thought healthy enough to give blood transfusions to their failing brethren, are suddenly swept up with the same mortal fever. Stock in Citigroup and BofA is withering away day by day as the market continues it’s vote of no confidence.

The problem has been dissected, injected, and bandaged up with bailout money, but the basic illness of the banks has never been addressed—they are carrying trillions of toxic securities that no one knows how to value. The solution to that is simple: just offer them for sale. The market will tell you what the value is in a heartbeat, for a thing is only worth what someone else is willing to pay you for it. The banks, however, don’t want to hear the voice of the market, preferring instead their own foolish dream that the securities they hold are still worth something close to their nominal values. With housing values down over 40% in California, and defaults and foreclosures still rising, how can a bank think their mortgage backed securities still retain their nominal values? That’s like a stubborn homeowner in Lee County Florida refusing to lower the price on his home because he paid $250,000 for it in 2005, even though it would still have trouble selling at $50,000 today. Here’s another stubborn fact. Because of the incredible leveraging the banks foolishly engaged in, even a modest decline in the value of these “securitiesâ€

BTTT