“you have ignored me(reality) for too long.” by compsult

	compsult	NEW 8/12/2007 8:54:57 AM
Thecurrent value of debt is validated when it is called. The future valueof debt can only be estimated, using the likelihood of repayment as aguide. Debt has been given a cosmetic (but not structural)enhancement by the ratings agencies. That enhancement has beeneffective because there were no reality tests of the quality of thedebt. The power of the subprime defaults was not in the value of thelosses themselves, but that those defaults pierced the perception ofcredit quality. The losses they caused forced price discovery and thatprice discovery broke the illusion of high credit quality. Perhaps the markets will, once again, be seduced by the hypnotic beliefin the omnipotence of the Fed. But if these attempts at liquefyingilliquid markets fail, there will be no illusions left. It is obviousthat people still want to believe and that motivation may keep themsteadfast in unwise investments. I have seen purpose,willfulness and optimism lead to success. But it will always fail inthe face of the truly impossible. However determined, a man will nevercrush diamonds in his hands. Borrowing against theoretical productionin the future to trade for actual production today has been taken to anunsustainable extreme. America believed, and wanted to believe in our ability to manage such extraordinary debt. Reality, in her impartial and dispassionate way, has come to inform belief “you have ignored me for too long.”