Been talking to Uncle Alfredo..he owns a grocery store..about CDOs, C3POs and all dat mortgage paper dat got packaged every witch way.

He sez nut’ing really wrong wid doing dat and he do it all de time in de grocery biz.

Reason being is da “price point” is very important in de grocery biz ’cause dat whad de customer sees look’en at all dem sales and coupons.

So’s like wid eggs what Uncle Alfredo does is he puts 3 eggs from da medium size carton inta de extra large carton, ana gets more extra large cartons for de same price point.

Capice?

He sez Wall Streets been do’en de same ting, and de CICS got nut’ing to worry about. It ain’t toxic at all!

So’s all we needs to do is give da CICS all 799 finincial service companies, rename da company Bank of CICS, den close de Fed so’s dey can’t get no more of our tax money.

Den we go back to doing what we was doing, instead of worry’en about dumb stuff like if’n yous can loose yous whole roll in a money market account.

we have deficits: how the hell can we pay 700b? answer: they will, they being swf’s that intended to buy intel and boeing and long beach, will now get toxic cmbs and mbs because they are dictatorial paper-tigers and can’t ride out a real depression like the US can.

Ie: nationalize. Grasp the nettle. Lending to is not nationalizing. Buying mortgages is not nationalizing. Dear Hank: embrace your inner Bolshevik! Don’t let those nasty economic royalists bother you. We’re going there one way or another, so why not do it in one step?

Nationalizing the financial industry – a step that other OECD countries would probably have to follow – may not be the only way to allow the free market to work out the correct price of MBS. But it is the only way I can think of.

(In particular, a reverse auction as proposed at present seems unlikely to succeed – it will have the same problem as the MLEC, a paucity of willing sellers. The markets for MBS are frozen for a reason: the holders of these goods would be insolvent if they accepted the present market price. But a reverse auction is a way to generate very low prices for these goods. It creates the incentive for banks which hold the toxic sludge to insist that the particular barrels of sludge they hold are “good sludge,” not “bad sludge.” They can sustain this insistence only by declining to sell their sludge on the bad-sludge market – which is exactly what the TARP will become, I fear.)

I have not done the math, but I am pretty sure a full nationalization of the financial would “cost” – ie, require the issuance of – a lot more than 700 billion dollars. But these dollars already existed, albeit in the form of informal contingency options. USG needs to find all these shadow dollars and swap them for actual securities.

I also wish people would stop talking about the “cost” to the “taxpayer.” If Paulson issues 700 billion dollars to buy mortgages, the IRS will not compensate by increasing its collections correspondingly. While diluting the dollar is always a zero-sum game, nationalizing the financial system is better seen as a way to avoid antidilution – ie, deflation.

Exchanging genuine dead presidents for unstable, informal and contingent promises of dollars is, if implemented properly, (a) dilution-neutral, (b) portfolio-neutral, and most importantly (c) fair to everyone. It is also very unlikely to happen, but c’est la guerre.

I am not sure China has been wanting to diversify away from treasuries. rhetorically, yes — but my take on the FRBNY and Tic data is that it shows an increase in Chinese demand for treasuries. certainly v agencies. but presumably v all risk assets.

The problem I have with a structure that allows the CIC to put money into wachovia and MS while limiting the CIC’s risk of a second blackstone or morgan stanley is that the risk that the CIC doesn’t want would effectively be assumed by us taxpayers. And if that is the case, why shouldn’t us taxpayers rather than the Chinese taxpayers get the upside?

I understand China’s desire for equity exposure. Call me old fashioned but I think that desire should be met with a lot index funds, transparently disclosed — not be taking a potentially controlling stake in an institution with an enormous leveraged portfolio of us assets. China, remember, already holds about $1.4 trillion of us assets (my estimate). And in the long-run, i would like to see a reduction in Chinese (state) demand for US assets, not ever rising purchases …

Tough luck.