Ricard

50 Four-Day September Expiration Option Ideas

If I were you, I would exit C now.

online.wsj.com/article...

Good luck with your trades.

Banks Negotiate Watered Down Stress Results

John,

Thanks again for highlighting another point of interest in studying the aggregate 'U.S. corporation'. Admittedly I've found your last two articles difficult to read, but this latest summation proves that perhaps I need to bite the bullet and suck it up a bit.



"We are currently at an historic low of marginal return on new debt."

I find that this statement succinctly explains why 'this time it's different' regarding recessions. IMHO, it would take a sea-change in how we do business (say, mass adoption of non-fossil fuel energy sources, or another technological breakthrough rivaling the computer) to prevent a prolonged Japanese style 'balance sheet recession' as explained by Richard Koo.

Either that, or the powers-that-be wave their magic wand again, and delay (not eliminate) and magnify the painful effects of a recession out to a later date, much like how they did in 2002. 'What asset class is left to exploit?' would be the only question I'd ask. Given your point about business ventures utilizing leverage becoming less and less productive, maybe people will just start digging holes in the ground and buying gold to put in them. Maybe this is the final stage of the bubble before it blows up in our faces.

The Banker's Choice

Lastly, to all those that would harp about how all this is being billed to the taxpayer, the taxpayer is hardly innocent - how many PRIME borrowers are now in trouble with their mortgages? People really should have known better, at least in the hot zones in the West, New England, and Florida. No one forced them to mortgage their grossly overvalued home to the hilt.

The Banker's Choice

Hmmm...in defense of the banker's greed, I must make one point:

Maybe what banks are doing today mirrors what telcos went through after the deregulation disaster 5-10 years ago. Ma Bell is nearly whole again, and the result is 1) less competition, and 2) lower costs of doing business, due to the squeeze on equipment vendors. Things changed for the telcos, and they reacted quickly to adapt. Banks would as well, but their heavy regulation and capital structures make them different from most businesses in how they can react to change.

My guess for the consolidation would be 1) less competition, of course, and 2) lower costs of doing business, due to the closure of branches and white-collar infrastructure. The TARP allows for the banks to make the massive write-offs required for 2) without raising even more private capital in this dismal environment. I think in the long run, it will play out as a positive. I suppose the counterpoint to my argument would be "What does bank consolidation have to do with troubled asset relief?" Well, nothing's perfect.

Remember that the TARP has nothing to do with preventing the leveraged excesses of the past 5 years...only legislation can do that. It was designed for one purpose - an emergency fund to save the financial system, or as Paulson put it, "breaking the glass" in the case of a fire. In that sense, the TARP is all about saving the system, regardless if it's through asset sales, capitalization projects, or consolidation.

Maybe all this means is that the downturn still has very far to go.