Thursday, April 9, 2009

Yes We Can Go Broke Together!


The New York Times this morning is reporting that the Obama Administration is encouraging banks and other large investment houses to create bond instruments very similar to the war bonds sold in both World Wars; but these Bailout Bonds will be used instead to assist in the bailout of the financial industry. I thought bailout bonds are what you posted when your Uncle Manny got in trouble for talking to those painted ladies by the bridge?

Anyway, the conventional wisdom here is that banks will create these instruments, or funds, that will buy up other banks’ troubled assets. It is assumed that the bond holder will eventually profit once the funds sell the investments for a profit. Also built into this assumption is that these legacy assets are worth more than currently valued. If the opposite holds true, there are considerable risks for investors.

I’m having a hard time understanding how this Ponzi scheme differs from the one that got us into trouble the first time.

1 comment:

Uncle Manny said...

I thought that was going to be our little secret, Nephew.