http://www.hussmanfunds.com/wmc/wmc090209.htm"...The heart of this problem continues to be the need to restructure the payment obligations of borrowers. For the better part of a year now, I have repeatedly (and increasingly urgently) advocated the restructuring of mortgage obligations by a variety of methods (collecting the pieces of securitized mortgages through “all or nothing” auctions, writing down principal in return for “property appreciation rights”, etc). Frankly, I had expected more progress on this from both Congress and the Treasury, considering the obvious urgency. But evidently, only perhaps $50 billion of TARP funds will be directed toward foreclosure abatement. On Tuesday, we'll find out to what extent they've got it right...
...This week's issue of Barron's includes an interview with Ray Dalio, who runs Bridgewater Associates, and also emphasizes the urgency of debt restructuring. It's an extremely good interview with an exceptionally smart guy, and it should not be missed. Here are some excerpts:
...“What the Federal Reserve has done and what the Treasury has done, by and large, is to take an existing debt and say they will own it or lend against it. But they haven't said they are going to write down the debt and cut debt payments each month. There has been little in the way of debt relief yet. Very, very few actual mortgages have been restructured. Very little corporate debt has been restructured. The reason it hasn't actually produced increased credit activity is because the debtors are still too indebted and not able to properly service the debt.
“If you think that restructuring the banks is going to get lending going again and you don't restructure the other pieces -- the mortgage piece, the corporate piece, the real-estate piece -- you are wrong, because they need financially sound entities to lend to, and that won't happen until there are restructurings.
“By the way, in the bear market from 1929 to the bottom, stocks declined 89%, with six rallies of returns of more than 20% -- and most of them produced renewed optimism. But what happened was that the economy continued to weaken with the debt problem. The Hoover administration had the equivalent of today's TARP in the Reconstruction Finance Corp. The stimulus program and tax cuts created more spending, and the budget deficit increased..."
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