Diane Ritter

The G7 Put vs. the Greenspan Put

"we are not going to return to the days of yore, with too many banks, too much leverage, and too much consumer debt. "

I truly hope you are right. But could you expand on why you don't think so?

The U.S. Economy After the Bailout

That's funny. The think I don't like most about the plan is that it doesn't require Bush and Paulson to get any kind of downside protection for the taxpayers money. Tuesday's takeover of Wachovia shows us what we can expect: The FDIC got 12B dollars worth of stock options in exchange for an absolute guarantee on $270B dollars worth of bad debt. That is just exactly 4 cents on the dollar. And Bush and Paulson both personally signed off on the deal. Tough negotiators, huh? I figure that is just about what we should expect to get back on the $700B Congress is gearing up to give him right now.
Bush is going to turn this 700B into the biggest slush fund in the history of the world. What do you bet he can spend the whole thing before he leaves office? And what do you bet he manages to funnel ALL of it to his pals and cronies? 4 cents on the dollar to us, 96 cents on the dollar to them. Such a deal.

Looking for Hope

We don't need to nationalize the banks. The only way to solve this problem is to deal with all banks too weak to lend in the exact same way that the FDIC dealt with Washington Mutual. Anything else than that is going to condemn us to repeat Japan's 10 long years (and counting) of slow/no growth. Until the government stops trying to prop up banks that are to weak to lend, the economy, and the stock market are going to continue going down or sideways. As soon as the weak banks are forced into bankruptcy, and their assets are placed in the hands of strong banks with responsible management, the economy will get going again. Anything else than that is going to condemn us to repeat Japan's 10 long years (and counting) of slow/no growth.

Fear Goes Hand in Hand with Drama

Of course it is going to be an L shaped recovery. Until the government stops propping up banks that are to weak to lend, the economy, and the stock market are going to continue going down or sideways. The only way to solve this problem is to deal with all banks too weak to lend in the exact same way that the FDIC dealt with Washington Mutual. As soon as the banking assets are placed in the hands of strong banks with responsible management, the economy will get going again. Anything else than that is going to condemn us to repeat Japan's 10 long years (and counting) of slow/no growth.

Fear Goes Hand in Hand with Drama

Hooray!!! The people have spoken. I talked to a congressional aide. He said the calls and letters had been running about 100 to 1 against.

Global Stock Markets: The Deleveraging Process Continues

Call your Congressman and Senator's people, or reap the consequences. Rumor has it that the vote on the Bailout is going to be Monday in the House, and Wednesday in the Senate. You need to call now if you want to have any influence on their votes.

Time Not for a Bailout, But for Nationalization

How about "the WaMu option"? That seemed to work stunningly well. The stockholders and bondholders lost a lot of money, but everyone else came out smelling like a rose. All of the real assets of the bank were transferred unimpared to another bank. No lose there, in fact a clear gain, since they will now be managed by someone competent and prudent. No loss to the depositors, thanks to the FDIC. No loss to the economy, in fact, again, a clear gain, since JPMorgan's balance sheet is healthy enough that they are still making loans. No loss to the taxpayer. No loss to anyone at all than the stock holders and bond holders. They got left holding the bad, which is exactly who should have been left holding the bag. End of story.

Why shouldn't the exact same approach be used for all the other banks who balance sheets smell to high heaven? Why do we need a bailout and mega taxpayer funds to re-capitalize these banks? Let them die, and more prudent and competent managers will come in and pick up the pieces immediately. Just like magic the bad debt is no longer a problem. It isn't a problem because it has been repriced by the bankrupty right down to what someone is willing to pay for it.

All we need to do is to tell the FDIC to get the lead out, instead of waiting month after excruciating months for the problem banks to slowly, slowly die. Get it over with. As soon as they do, the economy will start to recover.

Or we can use the Japanese approach and spend ten years propping up these dying banks with larger and larger infusions of public money. We all know how well that worked out.

Should You Write Off September?

That's a very misleading chart. At first glance, it seems to show that Sept is HALF as likely to be an up month as Oct, and ONE THIRD as likely to be an up month as Nov, and only ONE FOURTH as likely to be an up month as Dec. In actually truth, Sept is an up month 40% of the time, Oct is an up month 50% of the time, Nov is an up month 60% is the time, and Dec is an up month 70% of the time. By cutting off THE BOTTOM THIRD of the chart, the chart visually misleads anyone looking at it.