Atkin’s Hypothesis

It is no longer business as usual for the financial industry.  The euphoria of cheap credit and outrageous profits from highly leveraged and risky positions has crashed.  We spoke the unspeakable – “we aren’t going to get repaid for our risky bets.”  And humans don’t respond in an orderly way during crisis.  Instead, they take what they can get and the rest be damned.  A classic “run on the bank” multiplied by mutual funds, individual investors, institutional investors, etc. all around the globe.  That’s why it is a crisis.  It was a near death experience for many and a RIP experience for some. 

In light of these circumstances, we can either let the marketplace operate (ugly and brutal) or we can look to our government to bail us out (entity of last resort).  And while I’m not a policy wonk, it appears that the least painful path to survival is to be bailed out by the government.  Financial institutions need to get these bad assets off their books if they are going to continue to be the financing engine of our economy (and we need them). 

US Treasury Secretary Hank Paulson said it best when he called for "further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses."  He said the federal government must implement a program to remove illiquid mortgage assets that are weighing down financial institutions and threatening the economy.

So – game is up.  We all got overly greedy.  We cooked our models and ignored correlations to support what we wanted to hear.  It’s like lying to your doctor (you get away with it in the immediate term, but you do damage to yourself in the process).  And now we need the government to bail us out.  Think of it as being taken out to the wood shed by Uncle Sam.  And in the short term,