The premise assumes rational pricing. As volatility continues to be present, this seems far from the case. Panicked, investors make less than rational decisions. Take the cases where some financial companies are being unfairly targeted (as in the case of Goldman Saks and Morgan Stanley). Now add the fact that in buying these derivatives of cash starved institutions, requires a tight balancing act. This then becomes a receipt for disaster. I agree that the pricing of will continue to get better as pointed out by your article. But all these adjustments will take time to work through the markets, even if mandated by government.

They raised the effective interest rate by 8% over last year, just to cover the risk of corporate failure. Pass that through the system and you get 14% mortgages, 27% credit card interest, and 20% CCC rated or junk corporate debt.

That’s the unregulated, free market working. Making up for past excesses or accurately pricing in risk?

1) First you assume that deregulation was the cause of this mess. I have little doubt that the bankers acted with reckless abandon using mortgage-backed securities and credit default swaps (which are 2 different type of paper). These derivatives were fairly new in a financial sense. These things we are also very complex and hard to understand. How can you regulate something you don’t understand? Does this mean they should be banned? No. But when you play with fire, and burn not just yourself but others as well, you will learn a lesson from the experience. Take a look a the dot com results. Many major tech companies keep little to no debt because they have learned over time this breeds trouble. It took pain to get them to learn. Sarbanes-Oxley was a direct result of other failures. You cannot legislate out problems out of financial failure.

The second problem is, 55 other economists wrote to congress and told them that a $700 billion dollar buyout was not necessary. Economist don’t seem to be able to agree on anything that is this complex. It simply because of how complex the financial system is and you must accept you are taking an “educated guess”. The only way to know is to do it.

While the House Republican plan is just as risky, it less expensive and an easier pill for constituents to take. And right now, even by Senate and Representative admission, the response they are getting is an emphatic HELL NO on the $700 billion bailout.

Wall Street investment houses fled an unregulated market last week for the less risky waters of “commercial bank status”. Up until then, they were free to get all the capital investment the world wanted to give. However, their vault was full of rotting fish.

Boehner/Cantor’s root cause is whole seven days old, if that. If the God of the Old and New Testament were as interventional, the earth would open and swallow this pair.