Dan Schmeidler

Earnings Preview: Bank of America

oops ... unconscionable of course

Earnings Preview: Bank of America

The federal government has made so many mistakes recently, it is becoming unconsnoiable to just be thinking about it. We had a perfectly free and efficient market system in place until the federal government decided that it is single-handedly going to determine the outcome of this credit crises and force their determination on the outcome upon the market place. I believe that there was no crises to begin with, only a shift in credit. The intervention of the feds and the central bankers is now more apparent than ever, and this only adds to the instability in the markets. This is because at the core of the problem are all those securitizations of mortgages that originated in the US (including those recycled and repackaged by FNM and FRE) and that ended up as debt held by foreign governments or even US pension funds. These institutions and governments that hold this debt are now questioning the dubious policies of the US government and its central bank. As a massive debtor nation, the US has so far been able to keep its creditors happy. This recent trend by the feds can lead this crises into an even more dangerous and treacherous path.

Earnings Preview: Bank of America

The government was foolish to interfer in the financial equity markets of the banks. To me, that was the give-away. At first I almost broke my skull by hitting my head against the wall because I could not for the life of me figure out why the feds are attempting to rescue the value for the shareholders and investors in these companies. Wouldn't it be wiser to allow the equities to go to zero and then just sell off the assets to the debtors. I mean, that is kind of what is going on right now, except that the companies themselves are doing it. Bancruptcies would at least preserve the credibility of the US as a debtor nation and save our dollar. The sooner we allow the debtors to take over, the sooner we will come out of the recession. Capitalizing these companies over and over again only allows these companies to continue to write-down their inflated balance sheets. Such erosion of capital (from the balance sheets of these companies) contributes to the contraction in the credit markets. The write-offs do not result in the ability of the financials to generate all sort of income producing assets. Capital infusion only serves to pump life into the equity section of the companiy so that it can continue to function or just "live". We should not allow these companies to continue with those write-offs because it also erodes the value of the debt that we owe as a nation, (as is the case with FNM and FRE, assuming explicity), and also eroding our standing as a debtor nation (and that we certainly are). The better solution is to bring this nonsense to an end and let the debtor call the shots so that we can move on with capital expansion. Let all 19 institutions recently protected by the government from naked short selling all come to zero equity. Have a fire sale on their assets. The proceeds of every dollar generated from such a sale would be worth significantly more then the value of the dollars currently being infused into these entities.