Ronald Pires

John Hussman: It's Not Over Yet

I much prefer the term "equity kicker" to "property appreciation rights". It so better captures how the homeowner is going to feel if he subsequently finds himself forced to sell his property for any reason.

Bank of America Bombshell Illustrates Why Government Shouldn't Be in Free Markets

So maybe the government doesn't belong in the free market, but does Bank of America? Remember, Lewis is talking here about BREAKING the deal that he had already made. Huh? BoA can't even do due diligence? And of course there's always the matter of Countrywide.

Sorry, but the "government doesn't belong" argument is a bit rediculous at this point. These companies all killed themselves quite nicely well before USam waddled its clumsy hands into the picture.

Will the PPIP Bankrupt the FDIC?

Note how it was said: "no NET losses". The key word is "net".

Bair is telling the truth, except that we are not doing the same "net" calculation that she is. If the net calculation is actually the difference between this program and putting these banks into receivership, then yes, of course there is "no net loss".

See? It's all in how you define your terms.

Open Letter to FDIC: Please, No Legacy Loans

Of course, using FDIC funds is a way for Geithner&Co to avoid getting the necessary funds allocated from Congress, something which would likely not be possible if this thing had to be explained out to them in depth. In THAT process, comments like this article and others of similar mind would have a far better chance of entering the decision process, and could possibly sway the vote. In that sense, PPIP might better be called the "Congress Avoidance Plan". While probably legal in a technical sense, it is certainly not within the INTENT of the law.

But let's extend all of this out into one possible future, which I find horrifying. The FDIC becomes insolvent, and asks Congress for additional funding. Congress's hand are tied. They know if they refuse, the largest global bank run in history begins, and the global economy collapses. So they vote the funds.

At this point, China balks. It is one thing, they say, for the US to sell its own future down the river, but now they are selling China's future also, and that can no longer be accepted. The dollar crashes, and with no immediate reserve currency to replace it, international settlements grind to a screaching halt along with trade.

Welcome to the new Dark Ages.

No wonder Mr. Geithner's answer to Rep Gresham Barrett's question, "What's the backup plan?" He didn't have one ... because there isn't any.

What Consequence Will FASB's Expected Approval Have on Mark-to-Market Accounting?

This rule change will end up artificially inflating the value of thinly-traded assets. Their new values will now include a premium for the luxury of being able to play with their booked values when things get rough.

Of course, honest bankers would never do this.

Fair-Value Accounting Instills Exactly the Wrong Mindset in Bankers

Has anyone bothered to notice that fair value accounting will itself distort market pricing by driving banks TOWARDS thinly-traded assets, especially when the system is showing signs of stress? Why would I want to hold price-obvious assets if I thought I was facing a downturn, when the "fair value" accounting of thinly-traded assets would allow me so much more room to hide my real financial condition? Heck, this crap is sweet enough to make even an honest banker crooked.

John Hussman: The Danger of Inaction

Seriously good analysis. Folks should really read the entire article over on your site. It's definitely worthwhile.

You make one point in particular that I've long believed but have not really seen written up elsewhere. That is, that the effort to save banks is misguided, and instead should be to identify and save critical investments (such as pension funds) within those banks. Certainly far less money, and much better directed towards general economic stability.

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Unfortunately all of this appears to be completely legal, which gives credence to those naysayers who suggest that the laws can never catch up with the markets. I'm afraid the only way we will get any justice here is to go after the individuals involved with an IRS sledgehammer. As many of the Obama nominations suggest, it is quite dificult to make this much money without inadvertantly doing something illegal. Many of us will not see this however, as it is difficult to read the financial pages while selling apples on streetcorners.

A Look at a World with 90% Tax Rates

I'm with you, Alex. And port for lunch? What a novel idea. I thought that wasn't allowed until after dinner.

Derivatives and Bank Collapse - The Scam That Went Largely Unreported

I don't have any problem with the general thrust of your article, but tossing around notional amounts of derivatives is pretty much useless (and potentially quite misleading) as a measure of the ultimate exposure (potental losses) in the market. See "Everything You Wanted to Know about Credit Default Swaps--but Were Never Told" by Peter J. Wallison for a good explanation of this.

www.rgemonitor.com/glo...

Would the New Legislation Kill the CDS Market?

Sensible reserve requirements, Briggsy? But that would make it insurance, and everyone knows that Wall Street doesn't want this stuff considered as insurance. That would lead to all sorts of horrible things like (gulp!) regulation.

Everything You Ever Wanted to Know about Credit Default Swaps (via RGE Monitor)

This was actually published last month by the American Enterprise Institute, where author Peter Wallison hangs his hat. In spite of Wallison's hard right economic philosophy, this article is mostly free of any ideology and is quite good. Worth reading if only for his explanation of notional value and the misuse of notional value numbers in the press.

Florida's Health Insurance Deception

The Florida plan is truly pathetic, and in the case of its preventative-only option, isn't even insurance. But to be fair, Governor Crist did set out some very ambitious cost limits for the program, and got exactly what can be expected when trying to play doctor on the cheap. At least he's proven that there is no such thing as cheap medical insurance that's worth anything.

My worry now is that state agencies currently providing health access for Florida's poor will not start redirecting "qualified buyers" to these new plans. People will die if they do.

Origins of the Economic Crisis in One Chart

Pretty reasonable for an admittedly simplified chart. I have some problems with the "Excessive Complexity" box however, as I see that as a far too convenient excuse (not on your part) to avoid addressing real problems.

First, predatory lending is not complex. It is simply loansharking dressed up with a storefront. As we have learned from (the now shunned) Eliot Spitzer, the states were quite well aware of these abuses, but were barred federally from acting. Embarassing, but hardly complex.

Second, CDOs are not complex. They are merely insurance policies written (like all others) on assets. The only difference is that they were (again federally) barred from the oversight routine to other insurance products. Because of this, several mistakes were made and went unaddressed:

1) Inadequate reserves were kept to pay for future claims. This was not due to complexity however, but rather to the fact that there was insufficient experience data available from which to properly develop this component of their rates. As we have learned from Eliot Smith (Bloomberg News), this was a known fact when these rates were developed, and conscious decisions were made at the highest levels to ignore this problem. Again, not complex. Merely embarassing.

2) Thrid party policies were not only allowed but were written with abandon. (A third party policy, an insurance no-no, occurs when the purchaser of insurance does not own the underlying insured asset. These are shunned by insurance companies because they involve anti-selection, an anathema to all serious underwriters.) There is nothing complex about this either; it was a lack of insurance knowledge coupled with simple greed.

Otherwise, a good chart which I will keep handy.

Ten Reasons to Hate Mortgage Modifications

Interesting. I was skeptical when I saw the title, but the list seems pretty fair.

Of course, a simlar list can easily be made for why they should be done, but I guess that's why "the powers" have not yet set a clear direction on this.