R. Richard Schweitzer

More from the SEC IG's report (.pdf): "The branch chief assigned to the Madoff Enforcement investigation took an instant dislike to (whistleblower Harry) Markopolos and declined to even pick up the 'several inch thick file folder on Madoff' that Markopolos offered." Also, the SEC was tipped in March 2008 that Madoff kept two sets of records, but refused to investigate.

This is what "Government" is; people operating a mechanism of many parts.

It's just people, not some real organic entity.

More from the SEC IG's report (.pdf): "The branch chief assigned to the Madoff Enforcement investigation took an instant dislike to (whistleblower Harry) Markopolos and declined to even pick up the 'several inch thick file folder on Madoff' that Markopolos offered." Also, the SEC was tipped in March 2008 that Madoff kept two sets of records, but refused to investigate.

This is what "Government" is; people operating a mechanism of many parts.

It's just people, not some real organic entity.

The CFTC Is Needlessly Breaking Good Products

What we may observe is the continuing infusion (and confusion) of the political "class" into the various corporate and financial structures, similar but more complex than the sytematic use of corporate structures by the italian political powers (the Mussolini "fascists."); enforced by thuggery, some of which is beginning to surface now to advance "policy."

We have to become aware of HOW corporate structures are infiltrated by the political in such a way as to make it appear that the corporate structures are "using" the government. Actually, the reverse is occurring.

We are well on the road to the New Totalitarianism, which while it will appear to be beneficial to commerce and finance initially, will shortly have all the aspects of socialism.

Apologies for this "political" digression, but the financial world in the U.S. is being altered for some time to come by political rather than commercial or private transaction forces.

R. Richard Schweitzer

Buffett: I Wouldn't Buy Newspapers 'At Any Price'

Missing from consideration :

Much of the information regarded as "news," no longer has much significance or "use" to the individual member of the U S public.

Much of the content presented in the print media (and in much of the TV network media) is no longer information (observed facts) . The content has become "contructs" to influence audience conduct (holding viewer or listener attention, e.g.).

The evolution and declines of periodicals (magazines) has tracked the demographics of American "reading patterns."

Printing by "printers" (who originated "papers" from "broadsides") will continue in geographic, economic and social areas where the audiences (such as a school campus) provide reception. However, "printers" will be expanded to include other modes of making words and pictures available to those for whom they may have some use.

Others can probably expand on these observations with examples from radio (oral information), Email exchanges, etc.

The 'Good Bank' Proposal

Here is a "public-private" mechanism that can be used to work out the problem of developing markets for assets that are frozen out of the market.
The Federal Government should not BUY anything more than it has already. It may use the guarantee function instead (with a limited exposure as set forth below)..
This is a highly simplified form for possible use.:
In former times, it was often called a "barrelhead agreement."
The U.S. should cause the formation of a type of quasi-mutual “bank” (Barrelhead Bank [BB]) that would be owned by all the participating banks, but structured along the lines of the FRS, but definetly not part of the FRS. This will be the basis of the “public” aspect supported by other action detailed below.
Each bank wishing to participate in "shedding" some classes of assets would transfer those assets to BB at a tentative valuation set by the participant and would receive a number (subject to future adjustment) of shares in Barrelhead Bank [BB]. In addition, the participant would purchase for CASH (pay to play) an additional number of shares (not subject to adjustment) equal to at least 3% of the valuation initially assigned to assets transferred.
Immediately upon establishment and completion of transfers, the participants would be entitled to claim the BB shares as assets in place of those transferred, but should set a reserve for adjustments. A Board would be established to review and set initial arbitrary prices on the assets received in accord with uniform standards uniformally applied to all transfers. While the U.S. could be a subscriber to a special class of shares, to provide greater capital depth, that is NOT recommended, but may turn out to be propitious.
Upon the establishment of the initial arbitrary price of assets transferred, the number of shares issued will be adjusted (up or down) from those set by the participants own valuation. If a participant is dissatisfied with the price, it can withdraw a particular asset and surrender the matching BB shares and reduce the 3% cash purchase proportionately. If any participant is dissatisfied with the prices set for assets contributed by another they may withdraw from the program. All will fall within time schedules.
BB will then issue bonds based upon a percentage of the aggregate prices assigned to the assets retained, which will be either insured or guaranteed by the U.S. as to principal and interest. The amount of bonds issued will conform to provide the payment of interest at 4% available from the net earnings (after BB expenses) on the capital raised from the cash purchases of BB shares by participants, but not from any capital provided by the U.S.

This would not be the fabulous "Bad Bank." It would be a bank with assets in marketing flux, exempt from "mark to market," limited in operational scope and period of existence (unless extended). It would be a Private Bank for Banks only, with a limited time for subscriptions and transfers. Small banks could be accommodated as well, which might provide the most direct regional benefits.
It's obligations could have "sweeteners" (tax exempt, IRA benefited, etc.). BB shares would be transferrable only amongst participants and their values would be taken at their stated book value for participants balance sheets.
After the principal functions of "asset clearing" from the books of BB, the particpants could be required to purchase (on a proportionate basis) any shares originally taken by the U.S.; or the BB could be required to redeem them.
In that fashion the banks, privately, with public assistance, can work through their own problem resolutions.
I might add this proposal could be extended to insurors as well.
R. Richard Schweitzer
[e-mail]

AFLAC (AFL) -3.85%. Morgan Stanley notes AFL owns $583M of Fortis debt, and could take a hit if Fortis collapses or is nationalized.

But, In the case of AFLAC, you have to consider that its reserves are in YEN; it's business is principally in Japan - big time

Graham's Net Current Asset Value Method in Today's Market Turmoil

It has been over 60 years since I studied G,D &B; but, as I remember, there was also a context of observing any definitive trend in NCAV (e.g., has that measure been declining or rising, changes in the rates of decline or rise, correlation of that trend to revenues).

Is my recollection correct?

What to Buy and Why: Barron's 2009 Roundtable, Part II

Ah! But Gross, or at least Pimco has started buying U.S. Bonds!!!

Buffett's Import Certificates Plan Could Pilot the Economy to a Safe Landing

Seems to me there may be a conflict with U.S. obligations at the WTO.

My guess is the ICs would be a violation of our treaty obligations.

What If the Economic Model Is Wrong?

See the recent essay by Daron Acemoglu (MIT) on the failure of models. Much more incisive than the "pop"writers.

Why AIG Was in the CDS Business

Though it has been touched on obliquely elsewhere, there has been a "multiplier effect" in the impact of CDS that were essentially "insurance." That is, that much of the exposure came about by selling to parties who had "no insurable interest;" particularly when the "premiums" were low.

Sellers of latter day forms of CDS (where actually there was no true "swap" of "my risk for your risk," resulting in a comparative risk exchange) were "betting" with a third party against the "death" of a specific party with no requirement that the insured had any relation that might result in a loss from that "death."

When epidemics began, the costs of "deaths" went far beyond the losses payable to those who incurred actual losses.

Secretary Paulson Does the Right Thing, Again

Consider: If Treasury [T] were to buy (through some complex "auction" system - with its delays and snags) from a bank 100 mil of unpriceable assets (paper), the T would then have the entire risk of further loss on that paper. If the paper is left in the bank and T becomes an equity participant, then the risk of further loss (or write down/off) will be spread over the entire equity base of which T's share is only part, not entire.

Also, a $ of added equity, will have more effect on viable credit extensions by a bank (subject to further reductions in assets values by write down/off) than a $ of bad asset removal.

What was the rationale for removing "toxic" assets and replace them with auction derived prices. To increase the viable equity, of course. Direct investment does that.

The next step in "pricing" consumer debt, will provide a benchmark (really a surveyor's monument) for valuing a major segment of bank and financial organizations' holdings. Consider how "credit card balances" have come to equal the "demand deposits" (checking accounts) in monetary measurements. Checking accounts are now largely used as "clearing accounts" for credit transactions and settlements, not for holding "money" balances. People no longer hold cash balances to the previous extents.

Fire Hank Paulson Now

Why is it so difficult to understand the shift from taking losses off the books of banks (by buying "toxic" assets) and thus bearing the entire loss thereon, as opposed to leaving the loss in the banks to be shared by the original capital structure along with new capital injected?

Why has it not been seen that there are cases of "Too big to Manage," as well as "Too big to Fail?"

Several Firms Come to Defense of Fannie, Freddie

Changing the dressing of the store windows does not chnage the quality of the merchandise inside.

Recommending PriceSmart in Light of Sustained Store Momentum

One may be reminded of Peter Drucker's caveats about placing too much on the meaning of EPS.

Expand this article by analysis of inventory growth related to sales volume; changes in G&A; cash flow[?], etc.