25w100k+_IHB
New member
Makes perfect sense to me. And isn't one fo the problems with the economy have to do with the fact that banks aren't writing bad mortgages down *enough*, yet now they want to get rid fo mark to market?
Why is Mark to Market bad???
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IrvineRenter_IHB
New member
I just posted this on the other thread, but...
There was one provision of the bill the Republicans were pushing that would help things: implement mark-to-market accounting immediately. If the banks were to reveal just what crap they own and value it accordingly, we would immediately know who was doomed and who was healthy. The market would quickly push the insolvent institutions into bankruptcy, and the ?crisis of confidence? would be over. The problem with the credit markets seems to be that nobody knows who is solvent and who is not. Fix that problem, and the credit markets would likely calm down.
BTW, the reason it is "bad" is because it will bankrupt a significant number of banks. The FED doesn't want to see that happen.
There was one provision of the bill the Republicans were pushing that would help things: implement mark-to-market accounting immediately. If the banks were to reveal just what crap they own and value it accordingly, we would immediately know who was doomed and who was healthy. The market would quickly push the insolvent institutions into bankruptcy, and the ?crisis of confidence? would be over. The problem with the credit markets seems to be that nobody knows who is solvent and who is not. Fix that problem, and the credit markets would likely calm down.
BTW, the reason it is "bad" is because it will bankrupt a significant number of banks. The FED doesn't want to see that happen.
muzie_IHB
New member
I think the FED is worried most, or all banks will ultimately be proven insolvent through this. Simultaneous collapse of several banks is likely to bring other banks along, and so forth.
Bernanke studied the depression. Apparently the great depression happened partly because the government did not take any corrective action. Bernanke must be thinking he'll fix this thing or die trying.
Bernanke studied the depression. Apparently the great depression happened partly because the government did not take any corrective action. Bernanke must be thinking he'll fix this thing or die trying.
graphrix_IHB
New member
[quote author="IrvineRenter" date=1222836181]I just posted this on the other thread, but...
There was one provision of the bill the Republicans were pushing that would help things: implement mark-to-market accounting immediately. If the banks were to reveal just what crap they own and value it accordingly, we would immediately know who was doomed and who was healthy. The market would quickly push the insolvent institutions into bankruptcy, and the ?crisis of confidence? would be over. The problem with the credit markets seems to be that nobody knows who is solvent and who is not. Fix that problem, and the credit markets would likely calm down.
BTW, the reason it is "bad" is because it will bankrupt a significant number of banks. The FED doesn't want to see that happen.</blockquote>
Too funny, <a href="http://online.wsj.com/article/SB122264844037784117.html">I read a WSJ op/ed article about JP Morgan</a>, and how he did that in 1907.
<em>
In the fall of 1907, it took J.P. Morgan just eight weeks to resolve a credit crisis similar to ours. Several years of buoyant growth and too much risk-taking in poorly understood investments led to needs for capital that could not be met. Morgan, then 70, locked the nation's top bankers into the ornate library at his home for late-night confession sessions. He asked them to lay bare their balance sheets, keeping himself alert with endless Havana cigars.</em>
http://s.wsj.net/public/resources/images/ED-AI290_infoag_D_20080928193829.jpg
<em>The bankers reviewed one another's assets and liabilities. Morgan then decided which financial institutions had to go and which would live, getting commitments from the survivors and from the U.S. Treasury for infusions of capital. This Panic of 1907 had rattled the New York Stock Exchange and the markets for gold and municipal bonds, ruined several banks and trust companies, and nearly bankrupted New York City. Share prices fell by half. But once Morgan was done knocking banking heads together, markets swiftly recovered.
In other words, Morgan was more effective in his day than the combination of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have been in ours. We're now well over a year into this credit crisis. One big difference is that each of the bankers in Morgan's smoke-filled room actually knew the details of his bank's respective assets and liabilities. Today, financial instruments are so complex that banks are still trying to unravel the different pieces of mortgage-related securities.</em>
There was one provision of the bill the Republicans were pushing that would help things: implement mark-to-market accounting immediately. If the banks were to reveal just what crap they own and value it accordingly, we would immediately know who was doomed and who was healthy. The market would quickly push the insolvent institutions into bankruptcy, and the ?crisis of confidence? would be over. The problem with the credit markets seems to be that nobody knows who is solvent and who is not. Fix that problem, and the credit markets would likely calm down.
BTW, the reason it is "bad" is because it will bankrupt a significant number of banks. The FED doesn't want to see that happen.</blockquote>
Too funny, <a href="http://online.wsj.com/article/SB122264844037784117.html">I read a WSJ op/ed article about JP Morgan</a>, and how he did that in 1907.
<em>
In the fall of 1907, it took J.P. Morgan just eight weeks to resolve a credit crisis similar to ours. Several years of buoyant growth and too much risk-taking in poorly understood investments led to needs for capital that could not be met. Morgan, then 70, locked the nation's top bankers into the ornate library at his home for late-night confession sessions. He asked them to lay bare their balance sheets, keeping himself alert with endless Havana cigars.</em>
http://s.wsj.net/public/resources/images/ED-AI290_infoag_D_20080928193829.jpg
<em>The bankers reviewed one another's assets and liabilities. Morgan then decided which financial institutions had to go and which would live, getting commitments from the survivors and from the U.S. Treasury for infusions of capital. This Panic of 1907 had rattled the New York Stock Exchange and the markets for gold and municipal bonds, ruined several banks and trust companies, and nearly bankrupted New York City. Share prices fell by half. But once Morgan was done knocking banking heads together, markets swiftly recovered.
In other words, Morgan was more effective in his day than the combination of Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have been in ours. We're now well over a year into this credit crisis. One big difference is that each of the bankers in Morgan's smoke-filled room actually knew the details of his bank's respective assets and liabilities. Today, financial instruments are so complex that banks are still trying to unravel the different pieces of mortgage-related securities.</em>
Daedalus_IHB
New member
Marked to market may not reflect fair value in an illiquid market. In an illiquid market transactions occur at distressed values, and they have a snowball effect. Something of a catch-22 right now. The confidence and liquidity of transparency would be good. Transparency at distressed values would be bad.
awgee_IHB
New member
[quote author="Daedalus" date=1222848691]Marked to market may not reflect fair value in an illiquid market. In an illiquid market transactions occur at distressed values, and they have a snowball effect. Something of a catch-22 right now. The confidence and liquidity of transparency would be good. Transparency at distressed values would be bad.</blockquote>
To paraphrase Ron Paul: Illiquid bonds are illiquid because they are not worth anything.
To paraphrase Ron Paul: Illiquid bonds are illiquid because they are not worth anything.
No_Such_Reality_IHB
New member
If comparable rents are $3000 and nobody can get a mortgage because of the credit crisis, how much is your townhome worth?
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.
Nude_IHB
New member
[quote author="No_Such_Reality" date=1222858522]If comparable rents are $3000 and nobody can get a mortgage because of the credit crisis, how much is your townhome worth?
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.</blockquote>
Which is the inverse of the bubble phenomenon: When the bubble was forming, prices eventually rose so high that people couldn't afford even the entry level home. We can't fully recover until we let the whole cycle finish, but the last 60 years have been filled with political mandates and efforts to prevent the downward part of the cycle. Eventually, it becomes impossible to prevent and all the downward pressure is applied at once. I say let's get it over with.
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.</blockquote>
Which is the inverse of the bubble phenomenon: When the bubble was forming, prices eventually rose so high that people couldn't afford even the entry level home. We can't fully recover until we let the whole cycle finish, but the last 60 years have been filled with political mandates and efforts to prevent the downward part of the cycle. Eventually, it becomes impossible to prevent and all the downward pressure is applied at once. I say let's get it over with.
morekaos_IHB
New member
The New York Times
"? S.E.C. Move May Relax Asset Rule: Under pressure from banks and legislators, the Securities and Exchange Commission issued an interpretation of an accounting standard that could make it easier for banks to report smaller losses, or perhaps even profits, when they announce results for the third quarter, which ended Tuesday. The move on Tuesday drew praise from the American Bankers Association, which had complained to the S.E.C. that auditors were forcing banks to value assets at unrealistically low ?fire sale? prices, rather than at the higher values the banks believe the assets should be worth in an orderly market. The S.E.C. said it was interpreting, not changing, the mark-to-market rule. Nonetheless, the immediate praise from the bankers could reduce the pressure to drop the rule and make it easier for some legislators to change their votes."
Mark to market?...not so much
"? S.E.C. Move May Relax Asset Rule: Under pressure from banks and legislators, the Securities and Exchange Commission issued an interpretation of an accounting standard that could make it easier for banks to report smaller losses, or perhaps even profits, when they announce results for the third quarter, which ended Tuesday. The move on Tuesday drew praise from the American Bankers Association, which had complained to the S.E.C. that auditors were forcing banks to value assets at unrealistically low ?fire sale? prices, rather than at the higher values the banks believe the assets should be worth in an orderly market. The S.E.C. said it was interpreting, not changing, the mark-to-market rule. Nonetheless, the immediate praise from the bankers could reduce the pressure to drop the rule and make it easier for some legislators to change their votes."
Mark to market?...not so much
IrvineRenter_IHB
New member
<a href="http://bigpicture.typepad.com/comments/2008/10/mark-to-market.html">Understanding the Significance of Mark-to-Market Accounting</a>
Misinformation, bad dope, and spin seem to be dominating the current discussion on Mark-to-Market accounting. Let's see if we cannot simplify the arcane complexity of the accounting rules regarding FASB 157.
Understand why this is even an issue: Many banks, brokers, and funds chose to invest in certain "financial products" that were difficult to value and were at times thinly traded. If you are looking for the underlying cause of why some arcane accounting rule is an issue, this is it.
In my office, we don't buy our clients beanie babies or Star Wars collectibles or 1964 Ferrari 275GTBs. We purchase stocks and ETFs and bonds and preferreds for them (some clients also own options and commodities). Why? Because we believe -- and our clients have insisted upon -- the need for instant liquidity. Nothing we have purchased cannot be liquidated on a moments notice. We know what the fair value of these holdings are second by second.
While we may have been tempted by potential greater returns that some of these other products offered, we simply could not justify the risk of owning hard to value, thinly traded, hard to sell items. And, we never had to rely on the models of the individuals who created and sold us these products in the first place, to determine an actual price. If ever a product was rife with self-interested conflicts of interest, this one is it.
That is one of the key elements of the current situation. A decision was made to bypass the broad, deeply traded traditional markets (Equities, Fixed Income, Commodities and Currency) and instead create new markets for new products. No one should be surprised that the net result was a flawed system of garbage paper, with too little room at the exits in case of emergency.
Let's puts this into some context:
"Accounting is a way of portioning economic results by time periods. It doesn?t affect the cash flows, but tries to allocate economic profits proportional to release from risk. If we were back in an era where the financial instruments were simple, then the old rules would work. But once you introduce derivatives, and securities that are called bonds, but are more akin to equity interests, you need to mark them to market."
-David Merkel
Exactly. Otherwise, you are left with public companies, who have made capital allocation and investment decisions that are hidden from their owners (shareholders) and the investing public.
Now that the garbage is on the books, no one wants to admit the original error of purchasing this class of assets. Its not just that the trade has gone bad, its the original buying decision was so flawed even if the trades were not such giant losers.
Recent actions of corporate titans in the financial sector are essentially an admission that their business model was deeply flawed. No one would invest any capital for a ROI of 50 bps per year. They of course knew this -- so they leveraged up that 50 bps 35X or so, creating the false appearance of more attractive returns. This higher risk, potentially higher return paper was part of that misleading process.
Suspending FASB 157 amounts to little more than an attempt to hide this broken business model from investors, regulators and the public. Its not just getting through the next few quarters that matters; Rather, its allowing the market place to appropriately reallocate this capital to where it will serve its investors best. That is what free market capitalism is, including Schumpeter's creative destruction. (A WSJ OpEd today get this issue precisely wrong).
I have been steadfast over the past 2 years about why I did not want to own any of the financials that held this paper on its books. The key was that we could not figure out what the liabilities were relative to the assets. That is investing 101.
If FASB 157 is suspended, I would advise our clients and the investing public that owning any financials that failed to disclose their holdings accurately were no longer investments -- they were pure speculations, with more in common to spinning a roulette wheel than owning Berkshire Hathaway (BRK) or Apple (AAPL) or Google (GOOG). Indeed, I know of no faster way to end up on the DO NOT OWN list than to hide from your shareholders what is on your books.
If investors cannot trust the valuations of what is on a firms books, they simply cannot invest in these firms PERIOD.
There are other alternatives for the institutions that now must deal with this discounted, thinly traded hard to value junk paper. They can sell it for whatever price a the market will bear, they can spin it off into a separate holding company, they can write it down to zero and reap the rewards of mark ups in future quarters.
But suspending the proper accounting of this paper is the refuge of cowards. It reflects a refusal to admit the original error, it hides the mistake, and it misleads shareholders. I find it to be totally unacceptable solution to the current crisis.
As Japan learned, not taking the write downs only delays the day of reckoning. They propped up insolvent banks, and suffered a decade long recession for it. That way disaster lay . . .
Misinformation, bad dope, and spin seem to be dominating the current discussion on Mark-to-Market accounting. Let's see if we cannot simplify the arcane complexity of the accounting rules regarding FASB 157.
Understand why this is even an issue: Many banks, brokers, and funds chose to invest in certain "financial products" that were difficult to value and were at times thinly traded. If you are looking for the underlying cause of why some arcane accounting rule is an issue, this is it.
In my office, we don't buy our clients beanie babies or Star Wars collectibles or 1964 Ferrari 275GTBs. We purchase stocks and ETFs and bonds and preferreds for them (some clients also own options and commodities). Why? Because we believe -- and our clients have insisted upon -- the need for instant liquidity. Nothing we have purchased cannot be liquidated on a moments notice. We know what the fair value of these holdings are second by second.
While we may have been tempted by potential greater returns that some of these other products offered, we simply could not justify the risk of owning hard to value, thinly traded, hard to sell items. And, we never had to rely on the models of the individuals who created and sold us these products in the first place, to determine an actual price. If ever a product was rife with self-interested conflicts of interest, this one is it.
That is one of the key elements of the current situation. A decision was made to bypass the broad, deeply traded traditional markets (Equities, Fixed Income, Commodities and Currency) and instead create new markets for new products. No one should be surprised that the net result was a flawed system of garbage paper, with too little room at the exits in case of emergency.
Let's puts this into some context:
"Accounting is a way of portioning economic results by time periods. It doesn?t affect the cash flows, but tries to allocate economic profits proportional to release from risk. If we were back in an era where the financial instruments were simple, then the old rules would work. But once you introduce derivatives, and securities that are called bonds, but are more akin to equity interests, you need to mark them to market."
-David Merkel
Exactly. Otherwise, you are left with public companies, who have made capital allocation and investment decisions that are hidden from their owners (shareholders) and the investing public.
Now that the garbage is on the books, no one wants to admit the original error of purchasing this class of assets. Its not just that the trade has gone bad, its the original buying decision was so flawed even if the trades were not such giant losers.
Recent actions of corporate titans in the financial sector are essentially an admission that their business model was deeply flawed. No one would invest any capital for a ROI of 50 bps per year. They of course knew this -- so they leveraged up that 50 bps 35X or so, creating the false appearance of more attractive returns. This higher risk, potentially higher return paper was part of that misleading process.
Suspending FASB 157 amounts to little more than an attempt to hide this broken business model from investors, regulators and the public. Its not just getting through the next few quarters that matters; Rather, its allowing the market place to appropriately reallocate this capital to where it will serve its investors best. That is what free market capitalism is, including Schumpeter's creative destruction. (A WSJ OpEd today get this issue precisely wrong).
I have been steadfast over the past 2 years about why I did not want to own any of the financials that held this paper on its books. The key was that we could not figure out what the liabilities were relative to the assets. That is investing 101.
If FASB 157 is suspended, I would advise our clients and the investing public that owning any financials that failed to disclose their holdings accurately were no longer investments -- they were pure speculations, with more in common to spinning a roulette wheel than owning Berkshire Hathaway (BRK) or Apple (AAPL) or Google (GOOG). Indeed, I know of no faster way to end up on the DO NOT OWN list than to hide from your shareholders what is on your books.
If investors cannot trust the valuations of what is on a firms books, they simply cannot invest in these firms PERIOD.
There are other alternatives for the institutions that now must deal with this discounted, thinly traded hard to value junk paper. They can sell it for whatever price a the market will bear, they can spin it off into a separate holding company, they can write it down to zero and reap the rewards of mark ups in future quarters.
But suspending the proper accounting of this paper is the refuge of cowards. It reflects a refusal to admit the original error, it hides the mistake, and it misleads shareholders. I find it to be totally unacceptable solution to the current crisis.
As Japan learned, not taking the write downs only delays the day of reckoning. They propped up insolvent banks, and suffered a decade long recession for it. That way disaster lay . . .
No_Such_Reality_IHB
New member
[quote author="Nude" date=1222872427][quote author="No_Such_Reality" date=1222858522]If comparable rents are $3000 and nobody can get a mortgage because of the credit crisis, how much is your townhome worth?
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.</blockquote>
Which is the inverse of the bubble phenomenon: When the bubble was forming, prices eventually rose so high that people couldn't afford even the entry level home. We can't fully recover until we let the whole cycle finish, but the last 60 years have been filled with political mandates and efforts to prevent the downward part of the cycle. Eventually, it becomes impossible to prevent and all the downward pressure is applied at once. I say let's get it over with.</blockquote>
I don't think Mark to Market is bad. It's a distress sale, just like a house that is a distress sale. Unfortunately, the banks are insolvent just like the homeowners they profited off of.
I too, feel like you that the banks are holding us hostage to their ability to create financial disaster.
That's the mark to market crush.
In the current market, to an owner occupant with reasonable income and down, it's close to $480K.
In environment with only investors, closer to $300,000.
In a credit strapped environment of only investors being able to pony up all cash... even less.</blockquote>
Which is the inverse of the bubble phenomenon: When the bubble was forming, prices eventually rose so high that people couldn't afford even the entry level home. We can't fully recover until we let the whole cycle finish, but the last 60 years have been filled with political mandates and efforts to prevent the downward part of the cycle. Eventually, it becomes impossible to prevent and all the downward pressure is applied at once. I say let's get it over with.</blockquote>
I don't think Mark to Market is bad. It's a distress sale, just like a house that is a distress sale. Unfortunately, the banks are insolvent just like the homeowners they profited off of.
I too, feel like you that the banks are holding us hostage to their ability to create financial disaster.
IrvineRenter_IHB
New member
The more I think about this, the more I am convinced that a bailout with any mark-to-fantasy provision is not going to solve our short term problem with the credit markets. In fact, I believe it will make the problem worse. Banks are not willing to lend to each other precisely because they don't know if the counterparty is solvent. The only way we can sort out who should get a loan from who shouldn't is by making their balance sheets transparent. If banks are not required to mark-to-market, the credit markets will continue to be in disarray, and none of the banks will be able to raise any capital. What investor would invest in the banking industry when there is no transparency? How can any bank raise money with this shroud over their balance sheets? Perhaps the solvent banks (if there are any) will do this voluntarily in order to attract investor capital. The ones that don't will be called out as the insolvent ones on their way to bankruptcy. In the end, the markets will sort out the good from the bad; there will be a method from evaluating who is solvent from who is not. The mark-to-fantasy idea simply delays the inevitable and makes the work of the markets that much more difficult. This will drag out the credit crisis and plunge our economy deeper into recession.
Nude_IHB
New member
IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.
Anonymous_IHB
New member
From the perspective of someone employed at a bank ... why mark to market & go under, when you could pretened everything is fine while you draw salary and wait for your stock to vest...
IrvineRenter_IHB
New member
[quote author="Nude" date=1222913040]IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.
alan_IHB
New member
Mr Mortgage had an interesting counter take on this today.
"Instead of doing away with mark-to-market they should be mandating that all banks and raters use a universal modeling system in which Home Price Indexing was done on a zip code basis. This way everybody?s securities and loans are priced using the same valuation methods and metrics"
<a href="http://mrmortgage.ml-implode.com/">http://mrmortgage.ml-implode.com/</a>
"Instead of doing away with mark-to-market they should be mandating that all banks and raters use a universal modeling system in which Home Price Indexing was done on a zip code basis. This way everybody?s securities and loans are priced using the same valuation methods and metrics"
<a href="http://mrmortgage.ml-implode.com/">http://mrmortgage.ml-implode.com/</a>
no_vaseline_IHB
New member
[quote author="Nude" date=1222913040]IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
Post of the week.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
Post of the week.
No_Such_Reality_IHB
New member
So the real plan is the secret plan where Paulson replays JP Morgan in 1907.
I don't buy it.
Unfortunately, the US Senate grabbed my checkbook.
I don't buy it.
Unfortunately, the US Senate grabbed my checkbook.
awgee_IHB
New member
[quote author="IrvineRenter" date=1222924282][quote author="Nude" date=1222913040]IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.</blockquote>
If that were the intention, would it not be easier, more direct, and less expensive to pass a much simpler piece of legislation saying that all the financial institutions have to open their books to Paulson, Bernanke, et al., for the purposes of finding out who is solvent and who is not? And then shut down the banks that are insolvent. The FDIC already has the authority to do this.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.</blockquote>
If that were the intention, would it not be easier, more direct, and less expensive to pass a much simpler piece of legislation saying that all the financial institutions have to open their books to Paulson, Bernanke, et al., for the purposes of finding out who is solvent and who is not? And then shut down the banks that are insolvent. The FDIC already has the authority to do this.
Nude_IHB
New member
[quote author="awgee" date=1222947683][quote author="IrvineRenter" date=1222924282][quote author="Nude" date=1222913040]IR, I think the plan is to allow mark-to-fantasy until the Treasury can get it's new facility up and running to purchase the toxic stuff. Then Paulson can pay just enough to ensure survival of just those banks that will cause a systemic crash if they fail. Raising the FDIC insurance limit to $250k keeps the withdrawals down and protects the smaller businesses as the rest of the insolvent banks are allowed to fail.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.</blockquote>
If that were the intention, would it not be easier, more direct, and less expensive to pass a much simpler piece of legislation saying that all the financial institutions have to open their books to Paulson, Bernanke, et al., for the purposes of finding out who is solvent and who is not? And then shut down the banks that are insolvent. The FDIC already has the authority to do this.</blockquote>
Actually, awgee, no it wouldn't. Forcing everyone to open their books at the same time would only ensure insolvency of every institution, leaving no one behind to fill the void. They don't want a panic that would result in a total destruction of the system.
But creating mega-banks via shotgun weddings, preventing short-sellers from forcing their hand, increasing the FDIC insurance coverage, redefining FAS rules, and passing this bailout bill gives them time to maneuver. If they can make a few key insitutions viable, even if only a skeleton crew, it might prevent the entire system from being taken down by cascading cross defaults. Look at the institutions that have been helped: AIG, WaMu, Countrywide, Wachovia, F&F, and recently both Goldman and General Electric have been endorsed by Warren Buffett. I think Bear Sterns caught them off guard, sent them a wake up call, if you will. I think Lehman was allowed to fail to test the weaknesses, see where the fault lines lay in the overall structure. It's just a theory, I admit, but the actions being taken by a number of different agencies makes me believe it is co-ordinated dismantling. I know you attribute the worst motives to their actions, and you may be right. But I don't have any evidence of that, so I am going to withhold judgement.
If that is indeed the plan, then it appears that there is no avoiding a collapse. They seem to be attempting the control the size of the event rather than preventing it.</blockquote>
I hadn't thought of it that way. If this is simply part of a controlled implosion, perhaps this isn't a bad way to do it.</blockquote>
If that were the intention, would it not be easier, more direct, and less expensive to pass a much simpler piece of legislation saying that all the financial institutions have to open their books to Paulson, Bernanke, et al., for the purposes of finding out who is solvent and who is not? And then shut down the banks that are insolvent. The FDIC already has the authority to do this.</blockquote>
Actually, awgee, no it wouldn't. Forcing everyone to open their books at the same time would only ensure insolvency of every institution, leaving no one behind to fill the void. They don't want a panic that would result in a total destruction of the system.
But creating mega-banks via shotgun weddings, preventing short-sellers from forcing their hand, increasing the FDIC insurance coverage, redefining FAS rules, and passing this bailout bill gives them time to maneuver. If they can make a few key insitutions viable, even if only a skeleton crew, it might prevent the entire system from being taken down by cascading cross defaults. Look at the institutions that have been helped: AIG, WaMu, Countrywide, Wachovia, F&F, and recently both Goldman and General Electric have been endorsed by Warren Buffett. I think Bear Sterns caught them off guard, sent them a wake up call, if you will. I think Lehman was allowed to fail to test the weaknesses, see where the fault lines lay in the overall structure. It's just a theory, I admit, but the actions being taken by a number of different agencies makes me believe it is co-ordinated dismantling. I know you attribute the worst motives to their actions, and you may be right. But I don't have any evidence of that, so I am going to withhold judgement.