John Cordes

Obama's Donut Economics

So?

More Turmoil - Not International Regulation - Needed

How much self regulation has greed supplied the industry? Poretz is quite right, there is outrage and loss of confidence, and why shouldn't there be. Better to restore the confidence and quell the anger. At this point in time a little over regulation is hardly the thing to be overly fearful of. Protectionism, and political upheaval are good deal more threatening. Or to put it another way, get over it!

The Latest on Bank Nationalization

Very nice article, thanks.

Accounting Rule Changes Creating False Rally in Financials

"Mark-to-market has neither forced banks to sell assets at prices they consider too low nor has it forced them to raise capital or sell other liquid assets to meet capital demands."
Really, so AIG and CITI are making voluntary choices when they sell their remaining profitable businesses, and the Bond rating analysts don't care if the quarter was profitable because the write downs just nuked their bottom lines and the bond rating is coming down anyway. Get your head out of. M2M is like "gun to the head" accounting principles. Today you are underwater on your, (house, car, rent properties, etc.) pay up or sell into an illiquid market. A seller that doesn't want to sell to a buyer who doesn't want to buy. Time to not only think out of the box but to get out of it as well.

M2M may have been a boon to leverage at one time, but that doesn't justify burning down the house now. It was a poor idea then, still a poor idea.

Mark-to-Market Marches Towards Extinction

If my small company is trying to get a loan or sell itself to a buyer, I attempt to put the best light on my assets, my financial statement. I look for the highest valuations on inventory, fixtures, property and goodwill. If, on the other hand I am preparing information to argue my property or inventory tax, or income tax, I am looking for the lowest valuations (depreciaton) on these same assets.

Is it very hard to imagine that these same tangible items may end up with notably different valuations courtesy of two different accountants or appraisers, (or perhaps even the same ones). Now try to imagine selling your small business. Your proposed selling price is at one end, the buyers at another and the outside audit will place it at another. If everyone is satisfied with the final figures, the sell takes place. If it doesn't the sell is cancelled and another buyer is sought, or perhpaps the original will compromise on the enterprise value, the goodwill value, or some other component of sell valuation.

In a third scenario, you are told that every week, or every month you have to value your entire business based on these asset assessments. From time to time, as circumstances fluctuate, your business is variously valued higher and lower, and in rare difficult times your business shows an extreme devaluation. Now lets say that this is all happening with a gun to your head, by which I mean, that you are told that you must be prepared to liquidate your business each week or else have the rug pulled out from under you by your bank. Doesn't look too good, nor fair. Your customers, for the most part are paying, you made a modest profit last quarter, but the accountant just told you to write down you Real Estate and inventory anyway and to call your bank and tell them your broke. Hmm. Not a very rational way to plan your next move.

It was recently said that mark to market endeavors to value assets in a market condition in which the seller doesn't want to sell and the buyer doesn't want to buy. As with most things in life, it's not black or white, it's mostly gray. Just try raising a teenager or owning a small business and you'll get the point.

Nationalization the Ayn Rand Way

Ayn Rand, the neo-con's apologist, Gordon Gecko's wet dream, the darling of the social Darwinist. So what are your fears, that Corporate Socialism might morph into a bolstering of the safetynet? Apparently you haven't noticed that the public investment stake in a private Citi and AIG is all that has saved them from collapse. Yet your concern is to trot out the tired arguement that our Government is going to nationalize them, as opposed to say, allowing them to collapse altogether.

Reagan and George W. Bush did more to undermine this society by formenting economic inequality, middle class destruction, and dis-regulation than any army of bureaucrats could in a hundred years.

Let's review one more time. It was the failure of regulation to understand or care, the unbridled ethical failure and greed of several investment banks (Bear, Lehman etc.), and the impaired judgement of the rest, which created the toxic asset commonly referred to as the Default Swap which was feasted on by AIG among others, and knowingly sold by the crooks on Wall Street on behalf of companies like WAMU, Country Wide and Wachovia to unsuspecting buyers from Asia to Iceland. These liar loan portfolios were created out of greed and complete disregard of fiduciary requirements and obviously with a complete ethical collapse. Aided and abetted by a zombie SEC and an entire industry of complicit loan officers, appraisers, and analysts. Greenspans cheap money may have inevitably led to this, but it took a willing failure of regulation and thousands of unethical greed heads to make it happen.

In conclusion: What a laugh! As you return from your CFA society branch meeting, whose stated purpose is to encourage ethical standards within the investment and banking industries, your conclusion is that we need to hark back to Ayn Rand and Ronald Reagan. Typical, hindsight justification based on a simplistic fairytale glorifying pseudo facist values of social Darwinism on the one hand, and the debunked Laffer model on the other. There are currently over 340 bankrupt or suspended mortgage entities, dozens of hedge funds under investigation or charged with fraud and Ponzi scheme, trillions of dollars evaporated and billions more given out to the fraudsters like Thane and Richard Fuld and their ilk.

To be sure the middle class has shrunk and been assualted by the implosion of their 401K's, home values, 529's and job loss. While very wealthy still have their vacation homes and their diminished portfolios. (Save for the ones fallen victim to those non-reporting and virtually unregulated hedge fund con men, Madoff, Standford, Lincoln.) And of course the poor simply have fewer options and a geometrical increase in insecurity and depravation as their disposable jobs dissapear. So please quit whining about Socialism and nationalism and start thinking about the concept of national survival, global political stability and the well being of millions of displaced and jobless fellow citizens.

I would normally say you suffer from the usual shortcomings of self interested elitism, but that would be giving too much credit. I think you just lack insight and intelligence. Why else would you trot out Ayn Rand and blame problems eight years in the making on an Administration thats been in office a total of 36 days for attempting to plug the dikes. The marginal 5% increase on income in excess of 250K must certainly be hard to take after the orgy of the last eight years. God forbid you may have to fly coach class 1/3 of the times you travel now. And I'm sure your prediction that the onerous tax rate increases will stifle the recovery is dead on. Those 340 failed mortgage and banking businesses are just a footnote.

I wouldn't predict class warfare, just warfare on greedy shortsighted fools.

Is Nationalization Contagious?

It"s rather amazing to see how many people think that a cataclysm is a viable option. It's almost as though there is a perverse vengence or subtext of hoped for melt down in which all those who are underserving malefactors and the elite will suffer and set the stage for the survivors to ascend. Too many movies and armagedon dwellers I think. It's a particularly American characteristic perhaps, wipe the slate clean, start over, the losers deserve it mentality. I think it's a product of social darwinism and a culture that has insufficient experience with humanistic philosophies and spiritualism. Not a plug for religion, just an observation.

By the way, nationalization is tantamount to a collapse, just more costly to the public. As one poster noted, Obama's team is too smart to do either. Distasteful as it is, we will preserve the big three banks for the sake of the economy, which could not endure another psychological blow of this magnitude nor the financial bomb it would set off. Think of it as you like, either a spider web, a cancer, a root rhizome that goes everywhere and is tangled up with hundreds of corporations and businesses. A bankruptcy of such magnitude is like an emt explosion that frys the infrastructure of everything it touches. Look at what Lehman's collapse did to dozens of otherwise innocent corporations and funds. Magnify that by 50 in the case of CITI or BAC.

So grow up people, it's not a Mad Max movie, it's your society and economy as you know it. No fuzzy, grainy black and white newsreels of hobos and soup lines, but a modern day catastrophy that would produce havoc and wealth destruction that would last for years and most likely change world order politics and our own social fabric. Unless that's what you Mad Maxers think we need.