My post yesterday talked about the problem of the credit default swaps, and the role they have played in the catastrophe on Wall Street. This Reuters story does a great job explaining the market and how it has contributed to the melt down.
Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke are expected to work through the weekend with Congressional leaders to assembled the details of the bailout. This will be radically different that the Resolution Trust Corporation bailout of the 1990s, in which the assets were mainly commercial real estate. Nobody knows what assets are involved in this bailout, but it will no doubt be a toxic brew.
As a taxpayer I am livid. This is moral hazard writ large. And by the way, all of those news reports suggesting the taxpayer will make money on this new version of the RTC are absurdly optimistic at best. I’ve even heard some say the taxpayer made money on the RTC in the 1990s. Not according to FDIC research, which pegs the cost at more than $150 billion. (Click the “Resolution Trust Corporation” link above to find a link to the research.)