One wave of Henry’s magic wand and debt disappears

Quoth the AP:

Wall Street rallied in a stunning late-session turnaround Thursday, shooting higher and hurtling the Dow Jones industrials up 400 points following a report that the federal government might create an entity to absorb banks’ bad debt. The report also cooled investors’ fervor for safe investments like government debt that were in demand for much of the day.

The report that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s left previously solemn investors ebullient. Wall Street hoped a huge federal intervention could help financial institutions jettison bad mortgage debt and stop the drain on capital that has already taken down companies including Bear Stearns Cos. and Lehman Brothers Holdings Inc.

It is sadly amusing that those that made fortunes on deregulated markets are now pushing for socialism (and tax payer money) to save their investments. The issue here is not capital. The issue is insolvency.

As a side note, the article says that the report cooled the fervor for govt debt. Some seem to think this is a good thing, that people aren’t harboring cash in “safe” investments. But I see it slightly differently. Would you buy bonds from an instituation that wants to use its customer’s money to buy the worst assets of other companies? Once again, insolvency seems to come to mind.

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