Money & Investing - Banks.com

Things are getting “to that point” of absolute bailout.

Back in the late 1980s, the Resolution Trust Corporation was formed to help get us out of the savings and loan crisis. And we may be getting to where the government is considering something similar in order to relieve the stress caused right now by current investment bank debacle. CNBC has reported that Henry Paulson, the Secretary of the Treasury, is mulling over the idea of creating a company that would buy the debt that is threatening to take down the entire financial sector. (Anyone else notice that this sort of socialized capitalism is coming toward the end of another eight years of deregulation and “free markets” under a Republican administration?)

However, as the Wall Street Journal reports, something just like the RTC isn’t expected:

Any eventual plan isn’t expected to mirror the Resolution Trust Corp., which was created during the savings and loan crisis to hold and sell off the assets of failed banks. Rather, a new entity might purchase assets at a steep discount from solvent financial institutions and then eventually sell them back into the market.

But the sentiment is this: The government should do something to prevent a complete and utter dissolution into chaos.

Of course, the stock market is jubilant on the news.  Forbes reports on the rather immediate and stunning reaction by the market:

The Dow Jones industrial average spiked nearly 400 points on the news, and the broader market surged, led by the bank stocks that earlier in the week sank the index to its lowest levels in more than five years.

Wow. I mean, shares of WaMu are all the way up to $2.99 on the news.

At any rate, this idea of buying up bad assets (in whatever form) has probably been kicked around in back rooms and muttered about by various economists since Monday. But now it’s getting official attention. RTC resulted in huge budget deficits in the early 1990s (that we recovered from, only to be plunged into again). I’m not sure, however, whether we could recover as well from the deficits this time. After all, we’ve already got a ridiculous deficit now, and taking on more government debt will only dig the hole deeper.

On the other hand, though, the economy may not survive if this doesn’t happen. And the stock market could really crash.  Right now the stock market is bouyed up on “confidence.” Just the idea that the government may take the debt and “save” the market has investors giddy with excitement. Because what it means is more personal profit as risk is socialized.

Will this simply set the stage for another, similar, debacle down the road?

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Tags: stock market, stock market news, investing blog, Resolution Trust Corporation,
economy, investments, socialized capitalism