Thursday, September 25, 2008


The more I hear and read, the more convinced I am that the 700 Billion Bail-Out is not needed. The current problem is with the mark to market rules dictated by the Sarbanes-Oxley Legislation. A regular reader mentioned Dave Ramsey's solution. I looked him up and found an interview with Brian Wesbury. Brian and a few local bankers all agree that the mark to market rules are causing the freeze up. Changing these rules would go a long way toward solving the problem.

For now, we need not concern ourselves with how we got into this mess. It is important to fix the problem in the least destructive way. Newt Gingrich has suggested that a three year moving average be used to mark to market values. So far, I still like the 5 year loss amortization plan the best, but Newt's idea would work well.

To the extent necessary, the FOMC should make soft payment collateralized loans at extra interest spreads while easing up on capital ratios. This plan is nothing but an extension of the process that has already been underway. It is not high interest rates that is killing the market but the availability of credit at any price. Under this plan, the FOMC would make money for the taxpayers while leaving management decisions to the managers. The plan on the table gives the power to pick winners and losers to the treasury department.

The back and forth between Obama and McCain has been a site to behold. The win-win for the country would be for a negotiated compromise plan to be substituted for the current plan. Should the candidates help solve the issue, each could take credit.


A small divergence seems to be developing between the value of the dollar and the price of oil. Finished product supplies will remain tight until the rest of the shut down refineries come back on line, but crude prices should trend down. Gasoline prices should move down substantially as the refineries come back.