Countrywide should have been permitted to go under.

I leave to to your imagination what induced BofA to step up…..

There are a lot of difficulties to assessing the value of some of the mortgage instruments. And the default rates keep rising well beyond anyone’s forecast.

You probably won’t have the opportunity for reasonable clearing until banks and investors believe we’ve hit the high water mark for defaults,

Also, a dirty secret about the RTC: a lot of the assets went for huge bargains, in part because they were under pressure to get the job done quickly, Had they stretched out the timetable a bit (a year, we’re not talking a huge amount of additional time) they would have realized better prices.

Anons of 12:28 and 8:36 PM:

We already have a not-functioning credit market due to mere impairment of investment banks. Vanguard has a Ginnie Mae fund, 2.8 year duration. It’s yielding nearly 5.3%. Unlike Freddie and Fannie, Ginnie are full faith and credit obligations.

The Bank of England, in its April 2007 Financial Stability report (before things started falling apart) identified 16 large complex financial institutions as being critical to the global financial system functioning, If any went down or several were damaged, the saw it as a source of systemic risk.

Well, now all save Goldman are damaged, many badly, The sovereign wealth funds are not willing to invest more. Once burned, twice shy. You might see some exceptions around the margin, but for the most part, funds to recapitalize the banks (they will be taking more losses) will come from domestic sources.

Who is going to invest if Citi goes under? And if you think the credit markets are dislocated now, you have no idea how bad things will get if that happens. You’d see payment failure,s counterparty failures, knock-on collapses, forced liquidations leading to further writedowns at the banks and thus further contractions of lending and intermediation capacity.

And you mss another key point: some of the “routine” and essential businesses, like mortgage servicing, are hemorrhaging cash like now. I heard one is losing a billion a quarter. Buffett certainly won’t.

Citi has $122 billion in equity and a balance sheet of $2,020 billion. No matter who does what, you need more or less that level of equity to support that level of assets.

Berkshire has equity of $108 billion and a total balance sheet of $248 billion. And Warren likes being diversified. Prudence says the max he should have in any position is 5%.

$12 billion from Warren would be a drop in the bucket for Citi.

Now keep in mind this is a sanity check, not a serious economic analysis.

there is nothing “too big to fail”, because if the failure of Citi or UBS makes it harder to get from “point A to point B”, the resulting market inefficiency will create enough profit motive for others to take the place of the fallen. It’s not like we’re going to sit on our collective asses and say “Gee, it’s became hard to get from point A to point B, well, too bad, because only Citi and UBS were qualified to provide”. Routine day-to-day finances is not rocket surgery, even more likely, Citi and UBS still profitable businesses will be bought by the likes of Buffet.

What say you?

What additional effect, if any, on this situation is had by the lack of transparency and legal morass related to these securities? I get the mark-to-market point. But, I’m wondering if potential buyers also sit on the sidelines because there’s no way for them to (1) know what they are buying; and, (2) be confident they can clear legal obstacles to reaping value.