Why the Government Can't Fix It

Geithner Seeks Private Investment for Toxic Assets (Update1)

“We have to reach a point where investors and consumers have greater confidence in our financial system,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview. “Without that, these institutions will not be able to attract new capital or be able to fully resume their important role in providing credit.”

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The FDIC is expected to play a role either running or financing some bad bank type of unit that takes on illiquid securities, which may sell its own government-backed debt, the people said.

I know what I am about to suggest might seem a bit crazy and outlandish, but bear with me. I'm about to go way out on the limb here and I would appreciate some support.

Has the government given any thought to dropping two terms that tend to not inspire confidence? "Bad bank" and "toxic assets" just doesn't seem like things I'd ever want to invest in.

Couldn't the government at least attempt to slap some lipstick on the pigs? I mean really, you have to admire the honesty but enough is enough. We're in a crisis right now.

Why not "not so good bank" and "really not all that good for you assets"? That would at least be a start. We could then move to structured investment loss vehicles (SILVs) and undercapitalized debt obligations (UDOs). I still wouldn't invest, but at least somebody might.

If we don't get this ponzi scheme restored soon, we may never get it restored. Then where will we be? Abandoning retirement? Don't answer that. It's a rhetorical question.

Madoff victim, aged 90, abandons retirement

(Reuters) -- Ian Thiermann, age 90, has abandoned retirement and now works the aisles of a grocery store to make ends meet after losing his life savings of $750,000 to Madoff. He now hands out fliers hawking avocados and pork ribs at a supermarket in Ben Lomond, California. Thiermann, owner of a pest-control company in Los Angeles before retiring 25 years ago, enjoyed returns of 10 to 12 percent each year on his savings for about 15 years...

Isn't 10 to 12 percent each year roughly what the financial experts told us that we would make in the stock market over the long-term? You guessed it. That's another rhetorical question.

September 30, 2008
Your Money and the Stock Market

Investors planning to keep their money in the stock market for the long term have come to expect returns in the region of 10 percent, the historical average for the 20th century. But since 2000, returns have been significantly lower. From the start of 2000 through the end of this past May, annual returns for the S&P 500 Index were 1.1 percent. Since then, things have only gotten worse.

The S&P 500 closed at 1,398.26 on May 29, 2008.
The S&P 500 closed at 1,164.74 on September 30, 2008 (16% loss).
The S&P 500 closed at 869.89 on February 9, 2009 (38% loss).