Making sense of the bailout and Vote against it

Sep.30, 2008 in Market Outlook

Making sense of the bailout:

Hello People. I am trying to make sense of this bailout and I have a thought process. Please correct me if I am wrong. So here it goes:

Say I am a financial institution with $500 worth of assets of which $400 are my Level 3 assets. Now suddenly I find counterparties questioning the true value of my $400 because no body knows how to price them.

Government launches a bailout plan and puts $200 as bailout and uses $100 to buy $100 worth of my L3 paper (As I priced it and not based on the fair market value). Now that I just sold $100 worth of L3 for $100… I am free to asses that my remaining $300 worth of L3 are also worth true $300. Suddenly my balance sheet looks golden.

So I believe this bailout is at least in part to salvage the balance sheets of these financial institutions. The bad thing it does to the market is that there is a false perception of strong foundations of the financial markets.

1. We are using $700 billion to just push the inevitable for some other day in future… .
2. Neither market nor people decide who gets to sell their trash to us.
3. Financial institution just sold part of their trash to you for a hefty sum
4. Used that money to buy a better entity in the down market
5. You and I are stuck with the trash.

I say NO BAILOUT at any cost in ANY SHAPE OR FORM

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