citetez

A Proposed Admirable Response to the Crisis

The true problem in the credit crunch seems to be the accounting rule requiring mark to market. By making people write down assets because there is a temporary market lock up is ridiculous. Any asset priced a s if it must be sold tomorrow rather than in an orderly fashion (hold to maturity value discounted for market interest expectaions) causes the stated "value" to crater. Once the process starts, it snowballs. CDOs and similar products can not be valued because the market dried up. There is no market because everyoe is afraid of what the "mark to market" requirement will do to their balance sheets. If we get rid of the "mark to market" rule, the market will return, and stabiltiy will come back to the financial markets. Such an approach avoids the need to have the government create and finance a market.

Puts Instead of Shorts? Today's Activity

There may be a greater use of puts, but that vehicle does not damage a stock the way shorting does. Shorts had three weapons (1) recognizing a truly overvalued co; (2) spreading rumors regardless of a company's intrinsic value and (3) mercilessly selling regardless of a company's intrinsic value in an attempt to drive down the shares. Only the fist weapon is appropriate, but the other two still existed and were, in my opinion used. Puts still permit bets based on the first approach, can still permit the second approach, but remove the ability to sell shares as part of a coordinated effort to drive th co down. Accordingly, I think the new rules are appropriate. The short sellers are screaming, but to teh extent they serve a legot purpose in identifying problem companies, they can contiue to do so and rely on puts. Barring the shorts prevents bear raids on otherwise solid companys.
My HO only.

Fed Continues to Discourage Regular Joe Americans from Saving

The truth is that the whole system is staked against savings. We hear that the US at all levels has to increase its savings rate, then we have an "estate tax" which penalizes you for saving. Proponents say it hits only the "rich", but unfortunately that is untrue. The rich know how to struture thier holdings in Trusts, family LPs and the like to legally avoid most of the estate tax bite. THe ones who get hit are the small farm and business owners, or those who, between their homes appreciation and life insurance proceeds never realized that they were "rich" enough to need tax planning. The rich escape the tax; middle to upper middle class taxpayers get crunched.

The Inevitable Derivative Meltdown

I just came out of the backyard bunker I entered immediately before the inevitable Y2K collapse. I was surprised to find society intact, but now learn that a new inevitable crisis is upon us. TIme to stock up on essentials and go back to safety. I'll see you again in another 7 years or so.