"In the late 1980s, Washington created the Resolution Trust Corp. to restructure the mortgages held by 750 insolvent savings and loans. By selling off assets over time rather than in a fire sale, the RTC lessened the cost of the crisis to taxpayers."
- 2008 -2009 Creation of a kind ot Resolution Mortgage Corporation?
"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution.
Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression."
The US Government plan to deal with banking industry "toxic assets" is clearly a positive move, and welcome by the market.
One has to understand, that this is more complex than the 1989 U.S. rescue operation. It will not solve the problem overnight. As matter of fact, in the last crisis, the RTC was dissolved in 1996.
So you will see a temporalry rise in stock market, which I think will soon fade. The reason is that banks need to deleverage. When I say banks it's all over the world, they have taken far too much risks and need to rebuild their capital base.
Is it a good time to invest in stock market? well it's your decision not mine ;->, but personnaly I will rather wait until the economy pick up gain, sometime in late 2009, 2010. The stock market will react earlier so let's say mid 2009. Although it doesn't mean that some stocks were not hammered by the prospect of the U.S. depression. So if you want to trade short term, it could be an opportunity.
Now what about the housing market? well even with this action, the U.S. real estate price will continue to fall for another 12-18 month.
What about Finland housing market? well you know you got to make housing price affordable to first time buyer, so you will see as well a correction as said previously. Price will drop from next quarter amid a falling transaction volume and a declining housing starts.
In order to find a quick floor to this housing decline. Few factors can help. Lower interest rates and readjustment of housing price. Both will happen from 2009.
In the past in order to make housing affordable, wages were rising faster than inflation. Today it's an utopie to think such event will happen and that's the reason why the ECB has not cut interest rates.
Think about it - Finnair decided to cut wage by 5% or lay off people. Union finally decided no to go for a cut. So job will be lost and wage won't rise.
Union have lost their power. They were, finally, the collateral damage of the globalization.