glassbox

A Solution for the Bad Asset Pricing Problem

Hi Tom! I completely agree with you that those who have made money shorting stocks and deploying destructive practices have withheld capital. In fact, I'm of the opinion that all shareholders (and regulators will have to be the initial sponsor of this movement) should impose a much higher cost of borrowing scrips for shortsellers.

In my opinion, short selling in the current environment is highly lucrative - only because it cost so little to borrow and there is no need for one with a short position to disclose his position (with the excuse that it would make it unprofitable for hedge fund managers and the likes to do their research - what an excuse!). In times like these, capital should be deployed constructively, not destructively.

The US government should not allow the same hedge fund managers who made tonnes of money so called 'cleverly' shorting stocks and buying CDS that created this huge imbalance and putting jobs and stability at risk to be allowed to buy anything at the distressed prices they want.

I firmly believe money should only be made, and cleanly made by creating value, real value that comes in hard work, belief and faith and resilence...not by exploiting a market abberation or inefficiency that these 'intelligent' people know that by doing so, will result in a depression like scenario.



On Feb 09 07:21 AM Tom Armistead wrote:

> This is a bad proposal.
>
> For over a year, those who expect to profit from the destruction
> of the US economy have spread news of doom and gloom, shorted finaincial
> stocks into oblivion, spread rumors and manipulated CDS spreads.
> Meanwhile they have withheld their capital from constructive uses,
> in the expectation of gorging on the proceeds of fire sales.
>
> I am at a loss to understand why the US Government should spend taxpayer
> money to line the pockets of these vultures by agreeing to fund their
> feast.
>
> Better to deprive them of their prey by creating a fair price for
> these assets, many of which are worth far more than what the market
> will pay. I am a small time investor and I can't see why the hedge
> funds should be funded to buy AAA debt at distressed prices. It's
> not supposed to work that way.
>
>
>

Financials: How - And When - We Reached the Bottom

Tom, this is one of the best articles I've seen on this site and I do appreciate your blow by blow account around July 15 - although I must point out that you failed to mention SEC's move on the short sellers. Whether that had impact on the capitualation, nobody really knows but the results did speak for itself.

I'm long XLF and ABK - with at least 1 year horizon. XLF - am expecting US$25-30 by 1 year and as for ABK - I hope to see it go back to US$25, maybe not in a year but perhaps in the next 2 years... I'm sure if that happens, its worth the wait.

Time to Exempt Mortgage Securities from Mark-to-Market Rules

Yes, we are indeed in for the long haul. And the best we can do is to support our regulators to get rid of the non-value adders, the pests in the way of real restructuring.


On Jul 15 05:24 PM icandoitdon wrote:

> yes, the accounting contributes to the problem but that is not the
> only issue. it's like blaming short sellers for the decline in financial
> stocks. they have an impact but banning short sales won't help solve
> their structural problems.
>
> the core problem is excess leverage, cheap credit and too much of
> it. we're in for a very tough haul. the best we can hope for is protecting
> capital until the dust settles. and hope that our regulators have
> learned something from the experience.

Time to Exempt Mortgage Securities from Mark-to-Market Rules

dougnhi, in case you don't know - everyone knew that these companies were leveraged anyway to those levels for the last umpteen years. And it just happens that the markets (at this point largely short sellers) chose to use now to sell, and justify it by saying that 'sooner we take the medicine, the sooner we can recover'. Why now, and not years ago. Because now is easier for shortist to profit from shouting 'fire' as there is so much fear around. Shortists were never interested in making money from the leverage level, they are only interested in making money when the leverage level somehow creates a fear that can start a price spiral downwards. Note that they make money only when there is a momentum downwards. There are no long term shortists around - LT shortists don't short the stocks - they have a choice to ignore the stock. And all shortists know that in the longer run, companies and their shareholder will somehow work out their efficiency. Shortists are only interested in short term issues. Hence, whilst I would say excessive leverage is one of the reasons in this instance, its not necessarily the trigger to it.


On Jul 15 04:37 PM dougnhi wrote:

> The key to this failure is excessive leverage. It only takes a 10
> percent hit to wipe out a fund that has levered 10 to 1. Marking
> to make believe encourages moral hazard, and the banks played this
> game much higher than 10 to 1. Look at the ABX...it tells the story.
> Even if you don't believe the markings there are right, they're not
> as wrong as they are right. Add to this gearing at 25 or 30 to one
> (industry average), and you see that the banks are insolvent (no
> matter what Bernanke and Paulson have said). Hiding losses will only
> make matters worse.... didn't your parents teach you anything about
> this kind of crap? The sooner we take the medicine of truth, the
> sooner we can recover. Until then, we can only guess how bad it is,
> and we'll probably guess it's much worse because the banks keep on
> hiding from the truth! There's the clue that it actually is much
> worse! If it were not that bad, they'd have already written off the
> level 2 and level 3 assets.

Time to Exempt Mortgage Securities from Mark-to-Market Rules

Jason, agree with your view on the use of MTM.