I don’t know, golfgal, I have to politely disagree. The notion that there are two sides, that positives offset the negatives, a buyer for every seller — I think this is a little bit of a misguided understanding of what’s occurring right now.
It’s not balanced. If a large enough amount of an available commodity in a given market were to exchange hands on a given day, then it’s arguable that pricing would be perfectly efficient and wealth would be transferred not lost. It doesn’t happen that way. Prices decrease in low transaction environments. Asset values are falling, revenue streams are diminishing, securities aren’t performing, and wealth is disappearing — in the absence of transactions.
This is especially true for market positions based on leverage and restructuring. The gains were amplified through financial engineering, the losses are so on the downside. Funds that were valuable yesterday are worth pennies on the dollar today, not because of transactions in the main, but because market performance and investor perceptions have changed. A tremendous amount of wealth created in the past few years is going away in the near-term future. There is no getting around this.
Meantime, significant aspects of the ‘real’ economy have been marked to market against unsustainably high real estate prices and secondary finance instruments. ‘Real-world’ pain is going to occur as the economy adjusts. Pension funds, University endowments, Joe and Jane Homeowner, Main Street Bank, Mortgage Brokers, Home/Furniture/Retail, etc. The impacts of the changes ahead are overwhelmingly negative. Why else would banks be setting up a $100B ‘superfund’ to plug the leaks?
My view, they’ll continue to work the margins, looking to stretch the ‘cycle’, monetize the bad paper, deflating existing obligations, etc. and otherwise defer needed market adjustments — until after the elections I would assume, as Raybyrnes suggested. I agree with him, it’s a ‘Greenspan Put’ for the rest of 2007-08, otherwise known as stick it to the Dems. (Notions of civic responsibility, as well as a healthy fear of risk, do seem lost on the baby boomer set.)
