Tom Jacobs

The Five Most Effective Bailouts

Your inclusion of Fan and Fred really makes the Too Big To Fail case and thus, should be on your other list. They repeatedly abused the system through lobbying to take on more risk and generate higher remuneration for senior management, often through accounting deception and fraud. They went well beyond their mandate to increase liquidity in the primary mortgage market through providing insurance for successful securitization to buying secondary market securities with huge leverage. Thus they made themselves so big they would require a bailout when they got in trouble. Now, FHA is stepping in where they have backed out and is gaining on them for losses we will all have to make good on. I don't see how you can associate the bailout as a good thing. If AIG and Bear Stearns were bad because they ensured the gains of private individuals over fears of public consequences to their failure, how can you possibly find a different result for Fan and Fred?

Fed Finds a Way to Use Stress Tests to Screw Bank Shareholders One More Time

You seem to write from a vacuum. These very banks negotiated to lower the bar on these supposed stress tests. Further, they have succeeded in watering down the "market values" at which they carry their assets. Finally, they generated their earnings in the first quarter from a combination of AIG using tax payer money to buy out various CDOs at par as opposed to anything like market value as well as some such as Citi booking gains buying back their own debt. Now you object to requiring that the banks not get to include their own internally generated profit projections. Again, I don't know where you are coming from...

How CDS Spreads Affect Equity

You should probably differentiate between levels of seniority when you do your comparison. Two firms with CDS at the same level of seniority, etc. Further, the CDS spread is effectively Probability of Default * Loss in the event of default, so adjusting for loss in event of default, CDS is a proxy for default likelihood, etc. Thanks for the post.

JPMorgan, Amex Issue Non-FDIC Backed Debt

You are not comparing apples to apples here. A 120 bp spread for CDS needs to be added to the TED spread equivalent at term to compare to an issue over Treasury. On Friday per the H15 statistical release,

www.federalreserve.gov...

the difference was 46bp using CMT for 5 Year Treasury, lowering your balance sheet cost to about 110bp for the JP Morgan placement. Still a big number.

FDIC Regulation: Reason for Alarm

Thanks to Alan for making the point on the differing means of government handout. The Wells Fargo deal will actually cost us more as taxpayers than the proposed Citi offer, an unclear conclusion from the link shared by Alan. The original story along with the unconstitutional nature of the administrative law change enabling Wells to proceed was broken by the Washington Post:

www.washingtonpost.com...

Setting the Record Straight: Taxpayers Not Funding JP Morgan's Bear Buyout

I agree with prior two posters that revenue not received is a cost to taxpayers. Further, the moral hazard created lets investors ride on the government and taxpayers in charging less for debt instruments in the market for similar firms since there is now "quasi-insurance" in the form of an expectation that firms with no regulatory mandate within the banking system such as MS, GS, MER, LEH, etc. can expect "help" if needed. While the shareholders of Bear only received $10 all debt holders were fully covered as a result of the help. That is, investors will pay too much for debt of these entities due to the implicit government and, therefore, taxpayer subsidy.