Dodd goes all Trump on us

Tightening credit conditions have been the main culprit of the weakness in the market. I wish I'd seen it as clearly as I do now. Just as the market cracked when multiple bidders couldn't get together financing for a purchase of United Airlines in 1989, this market was a sale when the private equity sector had to start cancelling deals because of financing problems. The aftermath of the junk bond and Savings and Loan crisis hung over the economy for multiple years afterward. This should be no different.

The mortgage market was poorly regulated and the Fed made rates extremely accommodative. In the stock market, you have to put up 50% leverage to go home with your positions. In the real estate market, you had to put down 10% -- but even that wasn't enough. Banks could sell a mortgage on one side and sell the loan on the other. Inflated home values only added to the value of the real estate loan portfolios they resold. Not surprisingly as it generates a return all around, this became popular.

At any rate, the banks have been the main root of the weakness as the piper has come to call. They staged an impressive recovery yesterday, rallying 10%.



Senator Dodd proposed the government go into the private equity business, suggesting a $20 billion fund should be created to take the other side of the ailing real estate market and soak up some of the excess troubled loans. Not surprising... also not really a solution. Not even close. There's a trillion dollars worth of ARMs out there.

Dodd proposes buying out troubled loans