CaptainJJack

Was the AIG Bailout a Goldman Bailout by Proxy?

I had also heard that some very big beneficiaries were European Banks, and I wonder if International Central Bank relations did not have a very important influence.

All I remember was that after Freddie and Fannie collapsed, things started to come apart very, very fast. In the banks, the standing orders were to collect from all the other banks before paying out any money. In other words, make sure you got paid, first, before releasing any money.

Obviously, this led to things seizing up, and LIBOR spreads blew out.

From what I remember, the Bear Stearns came apart, then the GSEs, then the AIG bailout, and the final straw was Lehman, where they simply ran out of money and/or viable buyers.

That is when TARP was born, and although the initial rational, buying toxic assets, was poorly reasoned and driven by ideology more than anything else, the driving force was that they needed more funding.

I love these 20/20 hindsight criticisms of this and TARP. With the benefit of 20/20 hindsight, I could have been a billionaire.

From where I sit, Ben Bernanke and Hank Paulson should get the Freedom Medal for saving the world from a financial collapse.

Why the S&P 500's EPS Calculation Method Is Wrong

I have commented on this before, but I think Seigel is essentially correct.

To me, the problem is similar to other "singularity" problem in math (i.e. dividing by zero, discontinuities, etc).

In short, you should never be able to assign meaning to a sum of numbers that have no meaning individually, such as P/E ratios where the E is negative or zero.

The only reason this is arising now is that there are so many companies in the index with meaningless P/Es this year, and it is just more visible.

Geithner's Plan: A Look at the Options

I have a number of problems with this analysis.

First, it is not at all clear to me that the banking system, in total, is lending significantly less. They HAVE tightened lending standards, but I do not think ANY program to deal with their bad loans will change this much.

I have seen no data to support the idea that banks have significantly cut back on "good" loans. This is especially true at the 1800 smaller banks.

What HAS changed is the securitization market. Further, bond spreads are very high --- but this is not part of Geithner's new program.

Second, the banking system has been in worse shape than this. After the Latin American default in the early 1980s, ALL of the major banks would have been insolvent. The things that "saved" them was forbearance by the Fed, there were no mark to market rules, and the fact that their regular business was very profitable.

Third, banks are making boatloads of money on their regular business right now. I have seen estimates that the top four banks will make something on the order of $250 billion, operating pretax. This is compared to estimated losses of $250 billion to $500 billion.

Finally, you are suggesting that banks won't sell, but I believe that the whole purpose of the stress tests is to deal with this. If the bank does not pass, it will get more capital AND there will be a discussion about the carrying values of their assets.

I believe the banks will be forced to reflect the true value (write down) of at least their marketable assets, and if I am right, I expect they will be much more amenable to an attractive bid.