How can you tell if a hedge fund is in trouble? You can't, they freeze redemptions. Funny you never hear the rich complaining in the letters to the editor. Dear editor I put 2 million into XYZ and they'll only let me take out 10 large per month. I can barely fuel the Hummer on that.

The rich appreciate how selling assets tends to devalue them. We're still in the zone where the asset value isn't as important as how far you leverage those assets.

Jim Willie thinks that Treasury Bonds will default. I tend to think they'll take a page from the hedge funds and freeze assets.

But first Dow 14K. Then the real trouble.

When I read Doug Nolands comments at Prudent Bear, I thought this guy gets it. There's nothing extraordinary about the level of the DOW, despite its recent volatility, its doing just fine, and the Death Spiral in the financials? GoldSachs shares were all the way down to 120? Somebody got an itchy trigger finger, and per the Feds/PPT/government interventionist actions, moved in ahead of options expirations. Would AIG have survived another month? Probably. The real problems relate to the dollar, not to the mortgage business. Remember a mortgage is collateral, the problem the banks have is servicing these mortgages. Have you heard any more about plunging house prices? No...

How much of this came to a head because the political season is at hand. Remember when GS rejiggered the commodity futures index, and drove gasoline traders out of the market. Gas prices dropped, just in time for the midterm elections. When Americans were polled they said they thought it was an election year trick. So much for that, are they getting a double dose of the Republican magic again this time?

Then the Pakistan government warned the US not to make military strikes inside the country, and in a recent incident fired at and repelled US helicopters. The next day terrorists attack the Marriott?? It has all the hallmarks of Al Qaida they said before the smoke had cleared.

The media hasn't touched the far side of the Pakistan problem. My own guess is that some people in the administration want to sow the seeds of chaos, put boots on the ground, and confiscate their nuclear weapons, before the election. The last days of an interventionist regime are winding down, and its not going to be pretty.

This bailout helps the foreign holders of this paper, and is therefore a dollar issue, not a mortgage issue. As someone here said, these people are talking about the bonds written against these mortgages, not the mortgages themselves. Why should the Congress bail out these foreign investors, let's make them take their share of the responsibility, they assumed the ratings were sound, they didn't do their due diligence.

Now Bernanke is trying to convince the Congress that they can reinstate the failed pricing models that put Wall Street in this fix in the first place. There is no market for these things, unless the Fed exchanges Treasury bills for toxic mortgage paper. More of same.

What they should do is buy this paper, repackeage them, orphan these bonds, and then put in place a hyperinflationary policy.

So the Bush Economic team goes before Congress asking for 700 billion, holding a magic bean in their hand, and demanding absolution from any responsibility. The magic bean remains in their hand. At last the Congress has a chance to demonstrate their neural synapses still function.

But the interventionists are early, and everyone knows it, the sky is not falling, markets are still working, and Congressional reputation for foot-dragging seems to fit nicely into the whole process. This is just the first round of bargaining.

Take a clue from the lack of partisan wrangling. When that starts up again we are close to something.

Why should the Congress take a flyer on the debt paper, unless the counterparties can deliver the mortgages? If Congress took control of the mortgages, they could set up a debt servicing agency, like FHA, and take control of the long term value of the collateral, their constituents collateral.

How effective Paulson et al can be in this shell game will determine how much of a Socialist system we create. The alternative is a bailout of the capitalist miscreants (an oxymoron). In the end it will a lot more sense if the mortgages are retreived from limbo, and cleared of all encumberances, if we have to bankrupt everyone on Wall Street. Wall Street is trying to hold the taxpayers hostage, and they don't own the deed anyway.

Treasury, an agent of Wall Street, doesn't have the power to deliver the paper, all they can do is placate the (foreign) bond holders. Congress could set up the agency, take over the mortgages and make payment to the bondholders, in a bankruptcy style sale.

the administration inserting itself into the process, only demonstrates their concern for Wall Street. The real problem is clearing these mortgages to avoid further litigation, and free up the foreclosure process when needed. The Paulson solution guarantees years of court room battles. Their solution would put a moratorium on existing homes sales (good for the homebuilding industry of course, as demand will assert itself, and no one will want to enter the sticky world of titles which cannot be guaranteed). In the end the mortgage bond industry has to be liquidated.