Getridofthemnow's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/162932/comments http://seekingalpha.com/article/105469-banks-worried-about-fdic-debt-guarantees?source=feed#comment-303700 303700
Is the flat 75b is sensible? Well of course its not. It's an arbitrary # that will help Sheila replenish her DIF and plucked out of thin air.

The fee should be risk based, not flat rate. FDIC should base the insurance fee on CAMELS ratings and other safety and soundness indicators. ]]> Wed, 12 Nov 2008 00:45:25 -0500
Is the flat 75b is sensible? Well of course its not. It's an arbitrary # that will help Sheila replenish her DIF and plucked out of thin air.

The fee should be risk based, not flat rate. FDIC should base the insurance fee on CAMELS ratings and other safety and soundness indicators. ]]> http://seekingalpha.com/article/99592-paulson-finally-doing-the-right-thing?source=feed#comment-281027 281027 Mon, 13 Oct 2008 01:07:13 -0400 http://seekingalpha.com/article/99457-g-7-nothing-new?source=feed#comment-281014 281014
Placing losses relative to GDP, especially nominal GDP, is crazy. Losses and nominal gross domestic product are two very separate things. The only thing in common is that they both represent big numbers, but placing two "big numbers" side by side is nothing more than, well, placing two big numbers side by side.

What we should focus on is the amount of expected loss in the system. To do this, I urge you to stretch your mind on the simple calculation:

* On average, banks have 35% of their assets in mortgage-related instruments
* On average, there has been a 15% declined in home prices
* On average banks have 10% capital to be considered "well capitalized" under PCA (do you know what PCA means?)
* If we assume that bank mortgage assets are down 15%, this means a $5.25 loss in value
* Thus, on average, most banks have seen their solvency hit by 50% remark
* Thus, there are many wounded and many "dead" banks

In order to save these wounded banks, we need to recapitalize them. How much will it cost? As a simple estimate, consider using the average decline in value (15%) against the volume of mortgages outstanding. This brings us to a $2 trillion bailout, approximately.

Thus, if the point is to criticize the $700 billion as being insufficient....vrspac... couldn't agree more. It's at least 2.8x that amount that is needed.

If, however, there is a suggestion that it's $12 trillion....well....th... bar the door. Dow will be 500 before we are done. That's an absurd number.

]]> Mon, 13 Oct 2008 00:56:12 -0400
Placing losses relative to GDP, especially nominal GDP, is crazy. Losses and nominal gross domestic product are two very separate things. The only thing in common is that they both represent big numbers, but placing two "big numbers" side by side is nothing more than, well, placing two big numbers side by side.

What we should focus on is the amount of expected loss in the system. To do this, I urge you to stretch your mind on the simple calculation:

* On average, banks have 35% of their assets in mortgage-related instruments
* On average, there has been a 15% declined in home prices
* On average banks have 10% capital to be considered "well capitalized" under PCA (do you know what PCA means?)
* If we assume that bank mortgage assets are down 15%, this means a $5.25 loss in value
* Thus, on average, most banks have seen their solvency hit by 50% remark
* Thus, there are many wounded and many "dead" banks

In order to save these wounded banks, we need to recapitalize them. How much will it cost? As a simple estimate, consider using the average decline in value (15%) against the volume of mortgages outstanding. This brings us to a $2 trillion bailout, approximately.

Thus, if the point is to criticize the $700 billion as being insufficient....vrspac... couldn't agree more. It's at least 2.8x that amount that is needed.

If, however, there is a suggestion that it's $12 trillion....well....th... bar the door. Dow will be 500 before we are done. That's an absurd number.

]]> http://seekingalpha.com/article/99457-g-7-nothing-new?source=feed#comment-280239 280239 Sun, 12 Oct 2008 00:05:16 -0400 http://seekingalpha.com/article/99457-g-7-nothing-new?source=feed#comment-280055 280055 Sat, 11 Oct 2008 18:26:49 -0400 http://seekingalpha.com/article/99443-quitting-the-hedge-fund-game-mark-sellers?source=feed#comment-279823 279823
oversight.house.gov/st...

The "Regulation of Hedge Funds" hearing scheduled for October 16th ought to be very interesting, especially given recent "talking head fodder" that the "hedge funds" are to blame for the wild intra-day swings....

....first it was the short-sellers....now we are again on hedge funds....next it is the regulators....

...when will we learn that the problem was "easy credit" provided by the FRB, irresponsible lending (the bankers themselves and mal-aligned incentive plans) by the banks, and poor decisions by the INDIVIDUALS (i.e., those that took out the loans).]]> Sat, 11 Oct 2008 12:00:17 -0400
oversight.house.gov/st...

The "Regulation of Hedge Funds" hearing scheduled for October 16th ought to be very interesting, especially given recent "talking head fodder" that the "hedge funds" are to blame for the wild intra-day swings....

....first it was the short-sellers....now we are again on hedge funds....next it is the regulators....

...when will we learn that the problem was "easy credit" provided by the FRB, irresponsible lending (the bankers themselves and mal-aligned incentive plans) by the banks, and poor decisions by the INDIVIDUALS (i.e., those that took out the loans).]]> http://seekingalpha.com/article/99441-look-what-we-ve-had-all-along-the-paulson-plan-to-purchase-bank-equities?source=feed#comment-279816 279816
= .35*(.16+.08) = .084

That's 8.4%. Most banks are "well capitalized" at 10%. Thus, on average, 8.4% of banks capital is wiped out. This implies that there are a whole lot of "zombies" in the market right now. The only way to fix them is to recapitalize, as I have been saying since at least March-08 and the BSC bailout.

One need only read "Fifty Billion Dollars" (the book, read Chapter 2) to understand what "must" happen. Unfortunately, Paulson's plan doesn't accomplish what is needed. Moreover, as a politician and "power hungry POS" he wants to subsume the power into UST. This is stupid and inefficient. We already have the infrastructure to accommodate what's needed in terms of resolution teams in the FDIC, OCC, OTS, and FRB. Instead, he is appointing a 35 year old Neel Kashkari? Are you serious? Use the infrastructure that is ALREADY in place and be FAST.

One of the lessons of the Great Depression was that "slow" and ineffectual moves made the situation a lot worse. Sadly, Paulson's "power grab" is jeopardizing the success of the program. Rather than cooperating with Agencies ALREADY IN PLACE that can very aptly handle the problem, he is building his own "universe" in order to increase the power and clout of UST. Paulson, as has been said in NUMEROUS other forums, should be fired - YESTERDAY. UST should be solving fiscal, budget, and similar issues, not bank regulation, supervision, and market oversight. This should be vested with "others". Even the OCC should be pushed into a separately funded and "arms-length" (from gov't) entity, which I trust will be the nature of the reg reform law that is passed next year.

Immediate need:

1) FDIC handles "ABC" banks. "A" are basically sound but may need capital; "B" are in need of help, and should be immediate focus; "C" are dead and should be shut-down ASAP.

2) Asset sales of mortgage related product is coordinated, via the FDIC structure, with FNMA na dFHLMC. All "other" asset sales handled by FDIC (and their existing contract arrangements) with current loan and asset sales (i.e., workout) partners.

3) FRB handles, only as needed, systemic issues. FDIC and FRB coordinate much more closely.

4) We need to launch, as was done in 1930's, more infrastructure projects

5) We need to launch, as was done in the 1930's, direct corporate lending where it is a systemic issue (like the FRB's CPFF...good move)

6) Etc....(the list is long)]]> Sat, 11 Oct 2008 11:52:22 -0400
= .35*(.16+.08) = .084

That's 8.4%. Most banks are "well capitalized" at 10%. Thus, on average, 8.4% of banks capital is wiped out. This implies that there are a whole lot of "zombies" in the market right now. The only way to fix them is to recapitalize, as I have been saying since at least March-08 and the BSC bailout.

One need only read "Fifty Billion Dollars" (the book, read Chapter 2) to understand what "must" happen. Unfortunately, Paulson's plan doesn't accomplish what is needed. Moreover, as a politician and "power hungry POS" he wants to subsume the power into UST. This is stupid and inefficient. We already have the infrastructure to accommodate what's needed in terms of resolution teams in the FDIC, OCC, OTS, and FRB. Instead, he is appointing a 35 year old Neel Kashkari? Are you serious? Use the infrastructure that is ALREADY in place and be FAST.

One of the lessons of the Great Depression was that "slow" and ineffectual moves made the situation a lot worse. Sadly, Paulson's "power grab" is jeopardizing the success of the program. Rather than cooperating with Agencies ALREADY IN PLACE that can very aptly handle the problem, he is building his own "universe" in order to increase the power and clout of UST. Paulson, as has been said in NUMEROUS other forums, should be fired - YESTERDAY. UST should be solving fiscal, budget, and similar issues, not bank regulation, supervision, and market oversight. This should be vested with "others". Even the OCC should be pushed into a separately funded and "arms-length" (from gov't) entity, which I trust will be the nature of the reg reform law that is passed next year.

Immediate need:

1) FDIC handles "ABC" banks. "A" are basically sound but may need capital; "B" are in need of help, and should be immediate focus; "C" are dead and should be shut-down ASAP.

2) Asset sales of mortgage related product is coordinated, via the FDIC structure, with FNMA na dFHLMC. All "other" asset sales handled by FDIC (and their existing contract arrangements) with current loan and asset sales (i.e., workout) partners.

3) FRB handles, only as needed, systemic issues. FDIC and FRB coordinate much more closely.

4) We need to launch, as was done in 1930's, more infrastructure projects

5) We need to launch, as was done in the 1930's, direct corporate lending where it is a systemic issue (like the FRB's CPFF...good move)

6) Etc....(the list is long)]]> http://seekingalpha.com/article/99415-where-we-go-from-here-best-and-worst-cases?source=feed#comment-279555 279555 RFC) from 1932-1945:

"Despite all these efforts, as fast as one situation was improved, several others got worse. It became increasingly evident to us that loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure." (page 22, Chapter 2, "Aid to Banks" )

The book the provides what amounts to "instructions" for how to handle widespread insolvency, beginning with the "A-B-C" bank plan and the use of preferred stock. Sadly Jesse wrote the text so in the future leaders could learn from the RFC experiences - what worked and what didn't work.

If Ben Bernanke is such am "expert" on the Great Depression, I truly wonder what he and the Hankster have been thinking. Maybe Ben needs to re-read some of these old texts, as the only smart thing they have done so far seems to be the suggestion of direct capital injections into the banks.

Are there other motives at work? Did they really not perceive the situation as being that desperate? Do they think its a OTC and NYC problem, rather than a real banking crisis?

Let me add that this crisis is no where near over. There remains a woeful lack of a systematic program to address the banking crisis in a way that allows the separation of the true healthy, from the sick but recoverable, and the walking dead. There are no plans for such effort. Thus, we are destined to watch more banks fail - large and small - and customer and others lose more and more faith and trust in our financial leadership. ]]> Fri, 10 Oct 2008 22:39:03 -0400 RFC) from 1932-1945:

"Despite all these efforts, as fast as one situation was improved, several others got worse. It became increasingly evident to us that loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure." (page 22, Chapter 2, "Aid to Banks" )

The book the provides what amounts to "instructions" for how to handle widespread insolvency, beginning with the "A-B-C" bank plan and the use of preferred stock. Sadly Jesse wrote the text so in the future leaders could learn from the RFC experiences - what worked and what didn't work.

If Ben Bernanke is such am "expert" on the Great Depression, I truly wonder what he and the Hankster have been thinking. Maybe Ben needs to re-read some of these old texts, as the only smart thing they have done so far seems to be the suggestion of direct capital injections into the banks.

Are there other motives at work? Did they really not perceive the situation as being that desperate? Do they think its a OTC and NYC problem, rather than a real banking crisis?

Let me add that this crisis is no where near over. There remains a woeful lack of a systematic program to address the banking crisis in a way that allows the separation of the true healthy, from the sick but recoverable, and the walking dead. There are no plans for such effort. Thus, we are destined to watch more banks fail - large and small - and customer and others lose more and more faith and trust in our financial leadership. ]]> http://seekingalpha.com/article/99265-seeking-the-fix-that-will-finally-work?source=feed#comment-278484 278484
Total Assets = $100 (but recorded at $130 using "GAAP" and "held to maturity" pricing)

Total Liabilities = $115

Net Worth = ($15)

Ben Bernanke, who should be and likely will be fired before long (if Congress and/or next President finally wakes up), along with Daddy Warbucks (ooops...I mean Hank Paulson), told Congress and the world that to correct this negative net worth situation, we merely need to increase the limit on the poor saps credit card.

Ben: Here Mr. Banker. I know you are insolvent, but please take this money and grant more loans.

Banker: But Ben, I need to reduce my liabilities and find some way to recapitalize.

Ben: No...no. Just use the cash. Make loans. The market won't know you are insolvent because you don't have to mark anything to market. We will worry about capital later. This is a liquidity crisis, not a solvency crisis.

Banker: Ben, with all due respect, I don't think you learned much up there at Princeton. The reason my depositors are leaving, wholesale and large uninsured CD, is they have kind of figured out my assets aren't worth $130. They are a bit freaked about that. If I solve the capital issue and recognize the losses - that is "repair" the REAL hole in my balance sheet - they won't leave.

Ben: Don't worry. We will insure ALL depositors.

Banker: Ben...that doesn't solve the hole in my balance sheet.

Ben: Don't worry. Be happy. Trust me...I've studied these things.

Banker: And was it a water bong or a pipe you were smoking during those studies?
]]> Fri, 10 Oct 2008 01:12:39 -0400
Total Assets = $100 (but recorded at $130 using "GAAP" and "held to maturity" pricing)

Total Liabilities = $115

Net Worth = ($15)

Ben Bernanke, who should be and likely will be fired before long (if Congress and/or next President finally wakes up), along with Daddy Warbucks (ooops...I mean Hank Paulson), told Congress and the world that to correct this negative net worth situation, we merely need to increase the limit on the poor saps credit card.

Ben: Here Mr. Banker. I know you are insolvent, but please take this money and grant more loans.

Banker: But Ben, I need to reduce my liabilities and find some way to recapitalize.

Ben: No...no. Just use the cash. Make loans. The market won't know you are insolvent because you don't have to mark anything to market. We will worry about capital later. This is a liquidity crisis, not a solvency crisis.

Banker: Ben, with all due respect, I don't think you learned much up there at Princeton. The reason my depositors are leaving, wholesale and large uninsured CD, is they have kind of figured out my assets aren't worth $130. They are a bit freaked about that. If I solve the capital issue and recognize the losses - that is "repair" the REAL hole in my balance sheet - they won't leave.

Ben: Don't worry. We will insure ALL depositors.

Banker: Ben...that doesn't solve the hole in my balance sheet.

Ben: Don't worry. Be happy. Trust me...I've studied these things.

Banker: And was it a water bong or a pipe you were smoking during those studies?
]]> http://seekingalpha.com/article/97826-fear-goes-hand-in-hand-with-drama?source=feed#comment-268712 268712 ]]> Mon, 29 Sep 2008 14:35:34 -0400 ]]> http://seekingalpha.com/article/97702-3-things-america-needs-to-do-to-get-the-economy-back-on-track?source=feed#comment-268432 268432 Mon, 29 Sep 2008 11:06:06 -0400 http://seekingalpha.com/article/97663-the-deal-s-getting-done-but-will-it-work?source=feed#comment-267996 267996
Then Paulson plan part deux does even more. It says, essentially, that we are unwilling to let banks fail because of their dumb decisions. We will buy assets at prices that, as Bernanke says, are "held to maturity" (HTM) prices.

This is really another way of saying, "Hey, I think Americans are dumb. Let's use an "accounting" label, then they won't 'get it' and will believe there really is some 'price' that is different from the 'economic' price".

Bernanke is a criminal, as is Paulson, for even suggesting that there is something called a "held to maturity price". Google HTM price. You will not find anything.

What he should say is:

"We, Ben Bernanke and Hank Paulson, think that the intrinsic value of the cash flows are worth more than the current market value. We are willing to place the bet that the financial markets are wrong and we are right, and we are willing to bet your tax dollars on it."

He, and Paulson, Pelosi, Dodd, Frank, and others (except some House Republicans) believe that if we hold onto these assets for a few years, that Americans debtors will repay and that the present value of those cash flows are worth more than the market price today. They may be "somewhat" correct, but not altogether correct. There likely is some distressed value that is lower than the real intrinsic value, but it is nowhere near the levels Hank&Co believe (i.e., around 70-75% of face).

The reality is that many of these mortgage loans shouldn't have been made, and the losses are going to be realized - by someone.

No "waiting game" is going to make it better and, in fact, the government interference is working in perverse ways to, in some cases, make the situation far worse (as in the Sheila Bair and Indy Mac example above). We think these bureaucrats are heros? No. They need to go back and take Econ 101.

This is why I say: Americans don't understand what is happening. It is too complex, and most Americans have the attention span of a gnat.

Let us ask the right questions. It is really very basic.

1) What is the ability and willingness of the debtors to repay?
2) What is the value of the collateral?

#1 is being sabotaged by all the effort to "shore up" the system
#2 continues to be crushed by inventory on the market

Paulson is trying to solve #2 by buying up inventory at off-market prices before the loans even hit the "market", and thus artificially prop up price.

But it is all smoke and mirrors. The losses are real and need to be recognized. This is a capital and solvency issue, at the core. Read the article at:

us1.institutionalriska...

Right on the money.]]> Sun, 28 Sep 2008 21:37:03 -0400
Then Paulson plan part deux does even more. It says, essentially, that we are unwilling to let banks fail because of their dumb decisions. We will buy assets at prices that, as Bernanke says, are "held to maturity" (HTM) prices.

This is really another way of saying, "Hey, I think Americans are dumb. Let's use an "accounting" label, then they won't 'get it' and will believe there really is some 'price' that is different from the 'economic' price".

Bernanke is a criminal, as is Paulson, for even suggesting that there is something called a "held to maturity price". Google HTM price. You will not find anything.

What he should say is:

"We, Ben Bernanke and Hank Paulson, think that the intrinsic value of the cash flows are worth more than the current market value. We are willing to place the bet that the financial markets are wrong and we are right, and we are willing to bet your tax dollars on it."

He, and Paulson, Pelosi, Dodd, Frank, and others (except some House Republicans) believe that if we hold onto these assets for a few years, that Americans debtors will repay and that the present value of those cash flows are worth more than the market price today. They may be "somewhat" correct, but not altogether correct. There likely is some distressed value that is lower than the real intrinsic value, but it is nowhere near the levels Hank&Co believe (i.e., around 70-75% of face).

The reality is that many of these mortgage loans shouldn't have been made, and the losses are going to be realized - by someone.

No "waiting game" is going to make it better and, in fact, the government interference is working in perverse ways to, in some cases, make the situation far worse (as in the Sheila Bair and Indy Mac example above). We think these bureaucrats are heros? No. They need to go back and take Econ 101.

This is why I say: Americans don't understand what is happening. It is too complex, and most Americans have the attention span of a gnat.

Let us ask the right questions. It is really very basic.

1) What is the ability and willingness of the debtors to repay?
2) What is the value of the collateral?

#1 is being sabotaged by all the effort to "shore up" the system
#2 continues to be crushed by inventory on the market

Paulson is trying to solve #2 by buying up inventory at off-market prices before the loans even hit the "market", and thus artificially prop up price.

But it is all smoke and mirrors. The losses are real and need to be recognized. This is a capital and solvency issue, at the core. Read the article at:

us1.institutionalriska...

Right on the money.]]> http://seekingalpha.com/article/97245-don-t-panic?source=feed#comment-264392 264392
For the record (for those that haven't been paying attention for the last 60+ years:

America is NOT a free market.

We are a highly regulated, manipulated, socialized market.

If anyone suggests that we have a free-market system, please send me a note so I can pass along some reading recommendations.

There are numerous flaws with our current system, not the least of which is manipulation of incentives by more than a few government agencies. Reform is needed, but oddly enough the reform is to get government further REMOVED from tinkering with incentives and creating poor signals of proper/improper investment choice, and work to increase market transparency (we live in an information age, so this shouldn't be so hard).

Problems today include:

1) GSE models (government's fault; flawed; read former Governor Poole's comments on the GSE problem)
2) Allowing TBTF firms - read Alan Greenspan's confirmation hearing and try to internalize all that William Proxmire had to say to the "Maestro". If only we had listened to poor, ignored William.
3) FHLB System - a disaster waiting to happen
4) US Government gtys - like FHA - are you serious? Shoot it
5) Cash basis accounting, not GAAP
6) Of course, the FRB's "fine tuning" operations. Read Friedman. Not that I am a monetarist, but I agree with the "remove the punch bowl" philosophy, which isn't today's FRB (bring back Volker!!!)
7) FDIC insurance - should be paid for as a direct adjustment to amount the CUSTOMER decides they want to insure. Adjustment to rate. No insurance = higher rate; more insurance = lower rate. Make the customer responsible for his/her risk taking
8) Bank ratings - CAMELS? How about rating risk management, disclosure, concentrations, etc. Make them public. Assess higher fees for higher risk.
9) Regulatory arbitrage - not the rules, but the Agencies. Under GLBA, functional regulators created. Congress screwed up. Don't allow "Divide and conquer." Bring the regulators under one roof. Keep the state charters. Push insurance to the FRB. Keep supervision separate from the FRB. Similar to Paulson's plan. Reform needed, but perhaps more regulation isn't, just recalibration.
10) Etc...I could go on and on, but you would get bored, and it's 1:30am.
]]> Thu, 25 Sep 2008 01:30:16 -0400
For the record (for those that haven't been paying attention for the last 60+ years:

America is NOT a free market.

We are a highly regulated, manipulated, socialized market.

If anyone suggests that we have a free-market system, please send me a note so I can pass along some reading recommendations.

There are numerous flaws with our current system, not the least of which is manipulation of incentives by more than a few government agencies. Reform is needed, but oddly enough the reform is to get government further REMOVED from tinkering with incentives and creating poor signals of proper/improper investment choice, and work to increase market transparency (we live in an information age, so this shouldn't be so hard).

Problems today include:

1) GSE models (government's fault; flawed; read former Governor Poole's comments on the GSE problem)
2) Allowing TBTF firms - read Alan Greenspan's confirmation hearing and try to internalize all that William Proxmire had to say to the "Maestro". If only we had listened to poor, ignored William.
3) FHLB System - a disaster waiting to happen
4) US Government gtys - like FHA - are you serious? Shoot it
5) Cash basis accounting, not GAAP
6) Of course, the FRB's "fine tuning" operations. Read Friedman. Not that I am a monetarist, but I agree with the "remove the punch bowl" philosophy, which isn't today's FRB (bring back Volker!!!)
7) FDIC insurance - should be paid for as a direct adjustment to amount the CUSTOMER decides they want to insure. Adjustment to rate. No insurance = higher rate; more insurance = lower rate. Make the customer responsible for his/her risk taking
8) Bank ratings - CAMELS? How about rating risk management, disclosure, concentrations, etc. Make them public. Assess higher fees for higher risk.
9) Regulatory arbitrage - not the rules, but the Agencies. Under GLBA, functional regulators created. Congress screwed up. Don't allow "Divide and conquer." Bring the regulators under one roof. Keep the state charters. Push insurance to the FRB. Keep supervision separate from the FRB. Similar to Paulson's plan. Reform needed, but perhaps more regulation isn't, just recalibration.
10) Etc...I could go on and on, but you would get bored, and it's 1:30am.
]]> http://seekingalpha.com/article/97001-money-market-funds-chutzpah-banking?source=feed#comment-264380 264380 Thu, 25 Sep 2008 01:04:54 -0400 http://seekingalpha.com/article/97268-you-can-t-handle-the-truth?source=feed#comment-264377 264377 Thu, 25 Sep 2008 00:58:04 -0400 http://seekingalpha.com/article/96583-treasury-s-plan-is-breathtakingly-awful?source=feed#comment-262118 262118 Tue, 23 Sep 2008 00:22:44 -0400 http://seekingalpha.com/article/96583-treasury-s-plan-is-breathtakingly-awful?source=feed#comment-262055 262055
Bottom-line: Paulson is a salesman. He wants to do the big deal. He has a head the size of a planet. He wants to go down in history as a "savior". I hope he is checked by "We the People." If not, we deserve this new socialism. I refer readers to Friedman who has stated that (paraphrased but sentiment intact):

"...there is an intimate connection between political freedom and economic freedom. Those that believe such a connection doesn't exist are, I submit, delusional."
]]> Mon, 22 Sep 2008 22:05:22 -0400
Bottom-line: Paulson is a salesman. He wants to do the big deal. He has a head the size of a planet. He wants to go down in history as a "savior". I hope he is checked by "We the People." If not, we deserve this new socialism. I refer readers to Friedman who has stated that (paraphrased but sentiment intact):

"...there is an intimate connection between political freedom and economic freedom. Those that believe such a connection doesn't exist are, I submit, delusional."
]]> http://seekingalpha.com/article/96497-we-ve-crossed-the-line-from-capitalism-to-socialism?source=feed#comment-261056 261056
Let me start by stating that I believe Hank “Warlord” Paulson is out of control. Whether his intentions are good or bad, I need not confront. The fact is that his actions are far against the moral standing of my (our) collective conscience. We are a nation that will not tolerate totalitarianism; we will not be subject to a “financial market Warlord” who uses current market fears and dramatic, and unfortunate, circumstances to buttress his own agenda. Fear is never the proper motivation for sound action. Action based on fear is action doomed to failure. Fear is a device of the weak. Fear is a device of predators. Let us not be afraid.

Thankfully, at least historically, America - indeed all Americans - are not a fearful lot. We the People, in order to preserve this Union, are more than happy to take the downside risk of systemic failure if, in the extreme, the alternative is systemic nationalism. A system that expunges the small, the weak, the masses for the sake of the few. These are the people, the Union, that won’t tolerate a socialization of losses and a privatization of gains, such as those enjoyed by you and your family Secretary Paulson.

I would rather count a week of my life in the embrace of independence and freedom than in the embrace of a wicked sort of market manipulation and control as proposed by Hank “Warlord” Paulson. I would rather myself, and my family, eat in soup kitchens for a decade than submit to a top-down takeover of the entire free-market system by the former CEO of Goldman Sachs.

Why are so many so silent? If you want to save this system, you cannot trust the likes of Paulson. Bring a special council of experts to address the systemic issues. Real men of integrity, rather than snakes in the grass like Paulson, or imbeciles like Bernanke.

Convene a council of experts like Volker, Gross, Buffett, Soros, Rubin, and – yes- even Greenspan (even with his culpability). Let them propose a meaningful solution. Let us weigh and measure, and determine an action of appropriate strength and depth. Do not cave into the dictums of those seeking political expediency. Stand firm. Be strong. Bear the faith. We will overcome, but this nation needs leaders, not managers. We need leaders, not politicians. We need leaders, not zealots.
]]> Mon, 22 Sep 2008 00:18:32 -0400
Let me start by stating that I believe Hank “Warlord” Paulson is out of control. Whether his intentions are good or bad, I need not confront. The fact is that his actions are far against the moral standing of my (our) collective conscience. We are a nation that will not tolerate totalitarianism; we will not be subject to a “financial market Warlord” who uses current market fears and dramatic, and unfortunate, circumstances to buttress his own agenda. Fear is never the proper motivation for sound action. Action based on fear is action doomed to failure. Fear is a device of the weak. Fear is a device of predators. Let us not be afraid.

Thankfully, at least historically, America - indeed all Americans - are not a fearful lot. We the People, in order to preserve this Union, are more than happy to take the downside risk of systemic failure if, in the extreme, the alternative is systemic nationalism. A system that expunges the small, the weak, the masses for the sake of the few. These are the people, the Union, that won’t tolerate a socialization of losses and a privatization of gains, such as those enjoyed by you and your family Secretary Paulson.

I would rather count a week of my life in the embrace of independence and freedom than in the embrace of a wicked sort of market manipulation and control as proposed by Hank “Warlord” Paulson. I would rather myself, and my family, eat in soup kitchens for a decade than submit to a top-down takeover of the entire free-market system by the former CEO of Goldman Sachs.

Why are so many so silent? If you want to save this system, you cannot trust the likes of Paulson. Bring a special council of experts to address the systemic issues. Real men of integrity, rather than snakes in the grass like Paulson, or imbeciles like Bernanke.

Convene a council of experts like Volker, Gross, Buffett, Soros, Rubin, and – yes- even Greenspan (even with his culpability). Let them propose a meaningful solution. Let us weigh and measure, and determine an action of appropriate strength and depth. Do not cave into the dictums of those seeking political expediency. Stand firm. Be strong. Bear the faith. We will overcome, but this nation needs leaders, not managers. We need leaders, not politicians. We need leaders, not zealots.
]]> http://seekingalpha.com/article/96014-buffett-warned-us-in-2003?source=feed#comment-259286 259286 Fri, 19 Sep 2008 13:44:13 -0400 http://seekingalpha.com/article/96012-america-s-ad-hoc-fiscal-and-monetary-policy?source=feed#comment-257650 257650
All top banks in the U.S. are GSEs, just like FNMA and FHLMC. That's the essence of TBTF doctrine. You think the Paulson&Bernanke Inc. will let BAC go down? JPM? Citi? Not a chance. These are public utilities, and as a public policy matter we really ought to be debating if an oligopolistic financial system is what the American capital market end-game should look like. ]]> Thu, 18 Sep 2008 01:21:35 -0400
All top banks in the U.S. are GSEs, just like FNMA and FHLMC. That's the essence of TBTF doctrine. You think the Paulson&Bernanke Inc. will let BAC go down? JPM? Citi? Not a chance. These are public utilities, and as a public policy matter we really ought to be debating if an oligopolistic financial system is what the American capital market end-game should look like. ]]> http://seekingalpha.com/article/95789-depressionary-tales?source=feed#comment-256621 256621
>>Prohibit short selling.

Bad idea. Naked shorts...yes. But short-selling? You probably need to read Chairman Cox's own comments on this. Short-selling provide critical information. Naked short-selling via "distort and short" schemes are the problem.

Also - 100% correct by other postings that the corruption must be up-rooted. I would refer interested readers to Washington-Post's "How Washington Failed to Rein In Fannie, Freddie" article posted 9/14/08, by Binyamin Appelbaum, Carol D. Leonnig and David S. Hilzenrath. Until this sort of self-dealing is "dealt" with, and the American people WAKE UP, we might as well face that fact that we live in a socialized (U.K.) model of government. All we need is to anoint a king. Wait...that would be Paulson or Bernanke. My mistake.]]> Wed, 17 Sep 2008 01:25:13 -0400
>>Prohibit short selling.

Bad idea. Naked shorts...yes. But short-selling? You probably need to read Chairman Cox's own comments on this. Short-selling provide critical information. Naked short-selling via "distort and short" schemes are the problem.

Also - 100% correct by other postings that the corruption must be up-rooted. I would refer interested readers to Washington-Post's "How Washington Failed to Rein In Fannie, Freddie" article posted 9/14/08, by Binyamin Appelbaum, Carol D. Leonnig and David S. Hilzenrath. Until this sort of self-dealing is "dealt" with, and the American people WAKE UP, we might as well face that fact that we live in a socialized (U.K.) model of government. All we need is to anoint a king. Wait...that would be Paulson or Bernanke. My mistake.]]> http://seekingalpha.com/article/95810-federal-reserve-buys-aig?source=feed#comment-256606 256606
What we have called a "liquidity" crisis is not completely accurate. Liquidity is available if there is confidence in the counterparty. Money waits on the sidelines, but when faced with a system and leadership gone amok, it must surely wait for a stabilizing force, or forces; forces yet to arrive. For many, there is simply no longer any confidence; not only in counterparties, but in the "system" itself (read: "How Washington Failed to Rein In Fannie, Freddie" at the Washington Post). Can you hear me now? The SYSTEM is broken.

For those that think FRB and Bernanke are heros, you need to go back and study economics 101. Markets react to incentives. In fact EVERYONE acts on incentives. This is as old as Adam Smith and the Wealth of Nations. The TBTF "incentive" is a very poor one to give teeth to. I am afraid both Ben and Hank have a "savior" complex that needs checking.

This particular crisis was created, regardless of the arguments to the contrary, through a woeful lack of understanding about market incentives, a failure of leadership in the private and public sectors (large commercial banks, GSEs, Congress, and market watchdogs), and a complete lack of understanding for what constitutes the credit and leverage creating process in modern markets. This lack of understanding permitted a "super-bubble" to form that, ultimately, couldn't be anything but confidence eroding. Under former "leadership" massive incentives were created to take spread income into GAAP earnings - particularly over the period of Dec-00 through June-04.

When the curve intermediation (i.e., borrow short and lend long) became more difficult (once the "slow" and measured rate increases began), the intermediation moved en masse off-balance sheet through SIVs and other funding vehicles, an effort to mask the real economic and financial leverage. Commissions were paid, of course, up front, as well as CEO bonuses tied to aforesaid GAAP earnings, not true value creation (and of course, Wall Street mistakes accrual earnings for value creation every day, which explains Warren Buffett's success).

Bernanke, unfortunate for him, inherited this mess, has little real-world experience to handle it (which explains the abdication of FRB financial leadership to Paulson), and has taken steps that, in hindsight, has allowed the TBTF doctrine to become a very tangible reality. I agree with a former post that a study of the Austrian economic school of thought would be helpful (Human Action, by VonMises), and Minsky's text (Stabilizing an Unstable Economy) wouldn't hurt either.

In order to correct the problems, we need less government intervention, not more. We seem to forget this fundamental truth, and instead look to financial market uber-"re-regulators” to "save us". Thank GOD that we have FINALLY (with the Lehman action) decided to let the market start to understand that TBTF isn't a clear-cut proposition, and have begun to unwind the moral hazard problem.

We need to permit failures, and more rapidly, and we need an orderly system for unwinding the bad bets and de-leveraging; however, equity holders (and even hybrid debt holders) may need to suffer, and so it should be. This will require a federal bridge bank organization to be established, a la RTC.

The prescription to for resolving this crisis - more long-term - includes (but is not limited to):

• Smaller, not larger, financial intermediaries. No single firm should imperil the "system"
• Privatized deposit insurance, or a much more risk sensitive public system (I refer reader to "A Mandate for Change", written by FDIC economists many years ago)
• A less aggressive FRB and UST. Non-trivial restraints need to be added, as should now be evident
• A less "fractured" regulatory system, but quite a bit different from Paulson's "blueprint"
• Eradication of the GSE model
• Massively increased transparency and data collection/distributio... could be tied to a "systemic risk" score. More systemically important and potentially risky firms have much more aggressive disclosure requirements
• A totally reformed SEC. Historically, all they care about is compliance, not risk management. This has been a disaster.
• Rapid moves toward international harmonization of accounting rules. FASB/IASB need to come together.
• Debate/reconsideration of GLBA
• Private sector governance of a central OTC clearinghouse. Non-exchange markets HEAVILY regulated and "taxed" via massively increased reg capital. Force business flow to exchanges, daily MTM and settlement, and standard contracts
]]> Wed, 17 Sep 2008 01:00:19 -0400
What we have called a "liquidity" crisis is not completely accurate. Liquidity is available if there is confidence in the counterparty. Money waits on the sidelines, but when faced with a system and leadership gone amok, it must surely wait for a stabilizing force, or forces; forces yet to arrive. For many, there is simply no longer any confidence; not only in counterparties, but in the "system" itself (read: "How Washington Failed to Rein In Fannie, Freddie" at the Washington Post). Can you hear me now? The SYSTEM is broken.

For those that think FRB and Bernanke are heros, you need to go back and study economics 101. Markets react to incentives. In fact EVERYONE acts on incentives. This is as old as Adam Smith and the Wealth of Nations. The TBTF "incentive" is a very poor one to give teeth to. I am afraid both Ben and Hank have a "savior" complex that needs checking.

This particular crisis was created, regardless of the arguments to the contrary, through a woeful lack of understanding about market incentives, a failure of leadership in the private and public sectors (large commercial banks, GSEs, Congress, and market watchdogs), and a complete lack of understanding for what constitutes the credit and leverage creating process in modern markets. This lack of understanding permitted a "super-bubble" to form that, ultimately, couldn't be anything but confidence eroding. Under former "leadership" massive incentives were created to take spread income into GAAP earnings - particularly over the period of Dec-00 through June-04.

When the curve intermediation (i.e., borrow short and lend long) became more difficult (once the "slow" and measured rate increases began), the intermediation moved en masse off-balance sheet through SIVs and other funding vehicles, an effort to mask the real economic and financial leverage. Commissions were paid, of course, up front, as well as CEO bonuses tied to aforesaid GAAP earnings, not true value creation (and of course, Wall Street mistakes accrual earnings for value creation every day, which explains Warren Buffett's success).

Bernanke, unfortunate for him, inherited this mess, has little real-world experience to handle it (which explains the abdication of FRB financial leadership to Paulson), and has taken steps that, in hindsight, has allowed the TBTF doctrine to become a very tangible reality. I agree with a former post that a study of the Austrian economic school of thought would be helpful (Human Action, by VonMises), and Minsky's text (Stabilizing an Unstable Economy) wouldn't hurt either.

In order to correct the problems, we need less government intervention, not more. We seem to forget this fundamental truth, and instead look to financial market uber-"re-regulators” to "save us". Thank GOD that we have FINALLY (with the Lehman action) decided to let the market start to understand that TBTF isn't a clear-cut proposition, and have begun to unwind the moral hazard problem.

We need to permit failures, and more rapidly, and we need an orderly system for unwinding the bad bets and de-leveraging; however, equity holders (and even hybrid debt holders) may need to suffer, and so it should be. This will require a federal bridge bank organization to be established, a la RTC.

The prescription to for resolving this crisis - more long-term - includes (but is not limited to):

• Smaller, not larger, financial intermediaries. No single firm should imperil the "system"
• Privatized deposit insurance, or a much more risk sensitive public system (I refer reader to "A Mandate for Change", written by FDIC economists many years ago)
• A less aggressive FRB and UST. Non-trivial restraints need to be added, as should now be evident
• A less "fractured" regulatory system, but quite a bit different from Paulson's "blueprint"
• Eradication of the GSE model
• Massively increased transparency and data collection/distributio... could be tied to a "systemic risk" score. More systemically important and potentially risky firms have much more aggressive disclosure requirements
• A totally reformed SEC. Historically, all they care about is compliance, not risk management. This has been a disaster.
• Rapid moves toward international harmonization of accounting rules. FASB/IASB need to come together.
• Debate/reconsideration of GLBA
• Private sector governance of a central OTC clearinghouse. Non-exchange markets HEAVILY regulated and "taxed" via massively increased reg capital. Force business flow to exchanges, daily MTM and settlement, and standard contracts
]]> http://seekingalpha.com/article/95129-fdic-insurance-fund-it-doesn-t-actually-exist?source=feed#comment-254177 254177
The FDIC insurance fund should clearly charge higher premiums when risk increases. This is fundamental to insurance, but clearly history shows that Vernon doesn't understand fundamentals. Risk-based pricing of insurance is necessary and needed. To suggest otherwise is nonsense. The real failure of the FDIC isn't that it is increasing fees now, only that it failed to assess them for years when times were good (something Vernon suggested was "good" policy back during the boom-time). FDIC needs to be reformed, true enough. But this article says nothing about what matters, or what makes sense. ]]> Sun, 14 Sep 2008 13:52:00 -0400
The FDIC insurance fund should clearly charge higher premiums when risk increases. This is fundamental to insurance, but clearly history shows that Vernon doesn't understand fundamentals. Risk-based pricing of insurance is necessary and needed. To suggest otherwise is nonsense. The real failure of the FDIC isn't that it is increasing fees now, only that it failed to assess them for years when times were good (something Vernon suggested was "good" policy back during the boom-time). FDIC needs to be reformed, true enough. But this article says nothing about what matters, or what makes sense. ]]> http://seekingalpha.com/article/95177-let-lehman-fail?source=feed#comment-253297 253297 Sat, 13 Sep 2008 02:49:23 -0400 http://seekingalpha.com/article/71617-the-greenspan-defense?source=feed#comment-147338 147338
If Bear is now a public utility, what the h*ll is Citi, JPM, CFC, WM, etc? The bottom line: Bankers are rational economic actors and respond to incentives; that is, the slope of the curve. You give me an opportunity to get an average 2.5% margin from June 2001 through June 2004, what do you think I will do? Greenie create the bubble, not just the subprime bubble. Feel no remorse in telling him, and the rest of the rational "Miltonian" economists what he has become: a socialist economic planner who thinks the central bank can "plan" its way out of problems. No. And again, no. ]]> Tue, 08 Apr 2008 22:02:22 -0400
If Bear is now a public utility, what the h*ll is Citi, JPM, CFC, WM, etc? The bottom line: Bankers are rational economic actors and respond to incentives; that is, the slope of the curve. You give me an opportunity to get an average 2.5% margin from June 2001 through June 2004, what do you think I will do? Greenie create the bubble, not just the subprime bubble. Feel no remorse in telling him, and the rest of the rational "Miltonian" economists what he has become: a socialist economic planner who thinks the central bank can "plan" its way out of problems. No. And again, no. ]]>