Alan Stewart Carl, a moderate blogger, opines: “Obama, I think, understands the importance and superiority of the free market system, but he consistently gravitates towards solutions which rely on the powers of big government. Part of that is because….

Good summing-up of what’s been difficult to verbalize. It seems that Obama actually pivots right in the middle of saying something – you can watch him think aloud. There was talk about his thoughtfulness and grasp of the situation again at the G-20 meeting from people who don’t even agree with this administrations’ policies. He is the antithesis of the previous president, and for me, and evidently the rest of the world, that is a good thing.

As for his policies in dealing with the inherited problems in the economy and foreign diplomacy, and….etc, etc, we need to give it time and stop focusing so much on the idiology of the opposition. What’s the definition of a fool? Keep doing the same things over and over again and expect different results!

What concerns me about the banking situation is the future concussions yet to come. We will certainly see the decline of additional holding involving banks and related financial entities. We’ll see them as the value of commercial real estate decline substantially over the next year. Further, we will see more “time bombs” go off in the form of the bursting bubbles of 2 newer types of mortgage loans whose origination peaks occurred during the very last stages of the real estate bubble. (these 2 types of loans are loans w/o income verification, and negative amortization loans with built in balloon payments). Exacerbating this is the fact that they were written when RE values were highest. This mean more rounds of defaults and more insolvent banks.

This calls into extremely serious question the tactic of government recapitalization of banks to keep them private and defend the banks investors, largely institutional. I find it an extremely compelling argument that going forward the government will have little choice but to make the stock and bondholders of these banks shoulder the burden of these losses. This is true even though many of those investors are pension funds and other institutional investors. I’ll cherefully admit that when we reach the bottom of the hill, this debate may amount to little more than figuring out the way in which taxpayers will get left holding the bag. Left hand or right?

The government (IOW taxpayers) will be left on the hook for these losses wherever gov’t pension guarantees exist. Nationalizing the banks, even if temporary, may not be optional within the next year. IMO, the most important things the government will have to do is

1) come up with a workable way to rapidly facilitate renegotations of underwater loans

and 2) be the makers of the credit market to whatever extent banks can’t or won’t.

Whether #2 is achieved by”nationalizing” banks or by become the giant first national bank of “here’s a loan 4U” doesn’t matter.

If anyone wants to know more about these notions, I can’t take much credit for them, by and large. See this long and challenging but very useful article at Hussman funds. I highly recommend printing it out and taking the half hour or more necessary to try to digest it. I don’t say it’s gospel, I say it’s useful.