The Davidian Post

It seems the $700 billion bailout is being used by the companies to bail themselves out. It hasn’t thus far cured the liquidity issues in the credit world.

http://www.reuters.com/article/forexNews/

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So what happens now? It is really very simple logic to me. If prices are being supported and are maintained artificially higher then their true market value, then the same conditions will exist that created the crash in the first place. Does this mean the death of Capitalism? No, in fact we have never had Capitalism, our markets have never been allowed to be capitalist, they are controlled and coddled by our governments, and manipulated through bought up  politicians. In a true capitalist economy the prices would automatically adjust to the consumers level of income. Prices should plummet as the oil prices have.

This entire fiasco is directly related to the Housing market. The banks don’t want to adjust principles of loans to reflect their true values. Why should they, now thanks to Paulson and his crew, they are being secured. As a commercial agent I see properties which are over leveraged by in some case over 50% of market value.The loans are greater then the value of the property. These properties aren’t going to be purchased unless they make sense. Thus to service the debts rent basis have to be pushed higher. This puts further pressure on tenants. As you can see this is a vicious cycle and one which can only be resolved if the insolvent properties are adjusted to current markets. This isn’t being allowed to happen. In real Capitalism this would happen as matter of course. Yes, someone will loose. That is what happens when bad business decisions are made. There is no guarantee of gain. It is after all a risk. The property is worth what the market is willing to pay for it, only the market can decide that, but this is being impeded by the moves of the Fed. In the end it will be what the markets dictate, Fed or no Fed. This is what we all know instinctively that is why we are seeing markets jump all over the press. Imagine if values were true, then transactions would be happening in blinding speeds. The markets would be healthy, people could buy homes that they actually can comfortably afford.

The true ugliness of the current system is how it has warped the entire industrial base. As I had written in an earlier piece we managed to destroy our economic base no thanks to market manipulations. We are in for a difficult time of it. I can’t see that just additional paper by which I mean money can even begin to solve our problems, it is a lot deeper then a credit freeze. The intransigence of banks and their inability or willingness to re-adjust principle will be their own downfall. Some should close as they are not profitable nor run properly. When prices will fall and they will it will be due to the function of Capitalism. It will create better and healthier economy, a true economy. The markets always rule regardless of all the meddling of the peanut gallery.  The cure is real Capitalism not the genuine fake kind we have now.

Filed under: Opinion, Uncategorized