While I too am fundamentally opposed to the bailouts, (many of which, if we’re totally honest, would more aptly be called “takeovers,”" it doesn’t seem to me that in the eleventh hour of the crisis, there was much alternative.

While the earlier post about FDR’s approach to economic crisis in his presidency was insightful, Hoover’s initial, laissez-faire approach to the crash is widely thought to have made a bad situation worse — and not just for the bankers and speculators — but for the entire nation.

At the time, FDR was called a socialist for his reforms, but in retrospect, do we regard him as such? Doesn’t the socialist model require redistribution of profits as well as risks and losses? Does anyone see the taxpayers — or the masses — receiving any sort of redistribution of wealth as a result of this crisis? In terms of historic paradigms, this falls closer to the definition of fascism to me.

Given our protections under the U.S. Constitution, I lack confidence that some of these seemingly arbitrary, last-ditch efforts on the part of the Fed to stem Wall Street’s bleeding are legal because they appear to exceed the Fed’s Constitutional authority, however “necessary.”

Where was the Fed before last week? Sleeping off a regulatory coma? How can we expect meaningful reforms when the rules and regs we have, however antiquated they may be, aren’t enforced?

By taking over these businesses, the Fed is becoming a player in fields it knows nothing about. Once the Fed warehouses all the bad paper, its attempts to sell off trillions in debt likely will be so mired in red tape that it’ll take a financial eternity to get it all sorted out. And what will happen to the dollar in the meantime? As the dollar declines, consumer prices rise and the job markets shrink, it seems likely that foreclosures could continue at a disruptive pace.

I’ve followed many of the recent developments in state legislative policy that are designed to curtail the businesses of real estate investors. Some of the changes are reasonable, but others seem to target us as scapegoats for the crisis. In the wake of all this economic hardship, state and federal legislators, who clearly lack a solid understanding of how this business works, are likely to proffer even more restrictions at a time when the nation and the economy really need us most to expedite the recovery process.

At the same time, who’s going to get the leading role in squeezing some liquid out of this financial dung heap?

No one can yet say for certain. But on March 24, I blogged about an interesting development we’ve heard little about since the initial press release announcement. Here is a :

“Money management firm BlackRock Inc., and hedge fund Highfields Capital Management are backing a new firm that will buy up distressed mortgages, betting that investors are ready to snap up bargains in the beaten down sector.

“The new company, Private National Mortgage Acceptance Company, which will be known as PennyMac, plans to raise capital from private investors and will help borrowers restructure loans to avoid foreclosure. Penny Mac will star Stanford Kurland, who spent 27 years at mortgage giant Countrywide Financial Corp., as its chief executive officer and Morgan Stanley global residential mortgage veteran David Spector as its chief investment officer.”

The next update on Penny Mac came from Housing wire and a blurb in the Wall Street Journal I covered on July 9:

“Penny Mac currently has $2 billion in its “war chest” to buy discounted, distressed mortgages, and will fund its own in-house servicing platform. in May, Penny Mac backer Black Rock reportedly negotiated a deal to buy $15 billion in subprime mortgage exposure from UBS, the Swiss bank that has been floundering since its boom-time tango with Countrywide Financial and other problematic U.S. lenders.”

It’ll be interesting, to see what role Penny Mac plays in the migation of losses its leaders worked so hard to generate before either loosing their jobs or moving on their own volition to even greener pastures.

As FDR said, “All we have to fear is fear itself.” Indeed.

Good RTC2 points. I hope that the government put aside its interests long enough to attempt to do RTC2 correctly from a fairness and efficiency angle.

As to how we got to this point…
After years of anti-free market activity or partially deregulated activity a crisis always seems inevitable. It always seems a bit humorous to me that we then hear “the question”, “OK all you smart free market guys how ya gonna fix this one?” Cute, but it smacks of insincerity and lack of a full understanding of how we got stuck in oncoming traffic. A legitimate free market where parties know there is no such fiction as “too big to fail” eliminates a lot of stupid behavior. While free markets are not perfect it is my estimation that it would likely prevent a multi-trillion dollar crisis.

It is my understanding that the California electricity crisis came from deregulating one side of the supply/demand equation. I heard suggestions that the CA crisis was proof that “deregulation” doesn’t work. Seems more like our elected officials don’t work but I suppose they have a lot of us convinced it is truly “rocket science”. If we are talking about successful central planning by the government I would agree it is truly “rocket science” and we need some benevolent geniuses. Or we could give actual free markets a try.

Should GSEs be a taxpayer liability while not permitting the taxpayer to share in the profits? It appears our elected believe so. I am not so sure that “for the common good” is working well in our time of need.

Here’s hoping the government takes advantages of the readily available free-market resources to help resolve the crisis. I believe Investors can and should play a significant role in getting us back to some feeling of market comfort.