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$2 trillion bailout?

by henrycopeland
Monday, March 17th, 2008

Try this thought experiment and see if your head (or wallet) explodes:

Hedge funds use borrowed money to finance their nearly $2 trillion in assets. With no way to value those securities and with banks refusing to lend against anything but gold and treasuries, many of those hedge funds will soon be forced to liquidate. The Fed can’t let that happen, so it volunteers to take all those securities as collatoral.

The taxpayer ends up owning $100 million worth of ugly securities that it has effectively “bought” for $2 trillion.

And we thought the Savings and Loan crisis of the late 80s, in which taxpayers ate a $90 billion loss, was ugly.

No wonder gold is at $1000 an ounce. It’s looking like the only way out of this mess is 15% annual inflation for 5 years.

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