the bailout could be seen as a ponzi scheme! (credit score, lending, debt)

[floridasandy]

the bailout, I mean rescue plan, can be seen as nothing less than a new Ponzi scheme. It works like this:
Fed as only lender, in an attempt to keep the financial system from imploding;

TARP needed to keep Fed balance sheet intact so that it can continue as only lender;

Treasury will need to significantly increase the amount of Ts (public money) auctioned to fund TARP;

Panic serves to encourage T. buyers, especially for bills;

This represents a liquidity trap: TARP recipients of Ts will hoard cash to buy Ts: rinse and repeat.

This results in drying up of lending to corporations/crowding out private capital - no new credit lines;

The Fed becomes a holder of private capital, the later of which is now frozen to protect that capital from deteriorating, The rollover scheme will restrict even more lending in the private sphere for purposes of keeping the financial sphere on life support, but with the consequence of furthering the deterioration of the 'real' economy.

The counterargument is that the TARP will end the fear, breaking the Treasury-hoarding. But with banks (presumably) able to use the new phony prices paid by the TARP as marks for asset valuation purposes (whether they sold to the TARP or not), you get less transparency and hence less faith in bank balance sheets.

[Woof Woof Woof!]

The bailout is not a ponzi scheme. Our debt burden FIRE economy is a ponzi scheme and the buyout extends the game into another inning.

[Philip T]

Does not really matter what it is.

It is just intended to keep the wheels on the car until after the election.

Then it is screw US.

[baystater]

Originally Posted by Philip T

Does not really matter what it is.

It is just intended to keep the wheels on the car until after the election.

Then it is screw US.

I think the wheels will stay semi on until spring. I think oddly enough the wheels may come off when 2009 house selling season will comes. I know this is more of a credit crisis at this point BUT really a lot of this mess stems from the housing decline in value. I expect this spring and summer to be horrific. And as people that have to sell cut their throats, the people that will want to buy (even at the cheap price) probably still won't have the credit score to buy a that home. Which will drive the housing prices down even further. And creating even further wealth destruction.

Basically to steal a line from old Red Sox fans before we won our first world series in 86 years.........."This is the year!"

By the way if you want a visual of what it should look like....here.