Smarty_Pants

How Do You Recapitalize $1.8 Trillion in Bank Loan Losses?

Sadly Geithner's error, like all gub'mint bureaucrats, is misdiagnosing the problem in the first place.

The root cause of the 'crisis' has been the extensive use of credit as a foundation for growing the economy.

The only sustainable solution is to shrink the economy back to a size that is capable of supporting itself without credit. That's what recessions are all about. People who borrowed and did foolish things lose, and those who didn't borrow get a chance to buy the foolish mistakes at a discount using savings instead of credit.

The 'most forceful course' is only a bandaid on a sucking chest wound. It won't help for long, if at all.

The Dividend Dilemma

Anybody who still has money in a financial sector stock need to have their head examined, IMHO.

There are plenty of solid, well run companies whose dividend payments are now providing a very good yield and who are outside the financial sector. Some natural resource trusts have yields above 15% at current prices.

Not only will they generate a lot more income (relative to financials), but their prices are beaten down to extreme levels and there is a very good chance that sizeable capital gains might be realized in the next few years.

The Banker's Choice

"The next question is what choice will the banker make for the investment of the increased reserves?"

Executive bonuses of course. Mustn't forget those bonuses. Is this not the most productive use of the money (as seen by executives)?


On another note, I have not seen much in the way of commentary on the fact that all the acquisitions being carried out with TARP money are concentrating larger and larger chunks of the banking industry under the control of the people who made the biggest mess of banking in history.

Can such a grand exercise in moral hazard be a prudent move?

Just wondering ...

What's a Super-Senior Tranche?

Good explanation of all the behind the scenes wangling and how even so called professionals can become so full of themselves that they overplay their hand.


The flip side of the hedging transactions were companies like AIG who figured that "real estate always goes up" and so their risk model figured that they couldn't ever get whacked by levering up on issuing insurance for all those junk mortgage tranches.

Oops indeed.

A Restoration of Confidence in the Markets Means Everything

"To those economists who argue against the fundamental impact of stimulus, I would say you don't understand the necessity of confidence." - Jason 'Pangloss' Schwarz

But I DO understand that reality has a nasty habit of interrupting financial delusions of "confidence". I for one am pretty 'confident' that most of the big wall street banks would go under if the reality of their actions were allowed to unfold without a government bailout at my expense.

Financial Crisis: Not Hitting Brokers

I'm thinking that bonus payments should reflect the amount of money made for their clients.

Given the recent large decline in the market, only those who were recommending moving entirely to cash or bonds should be eligible for bonus payments.

But then again, that's not exactly the goal of Merrill Lynch is it?

Remember that to a big brokerage firm 'sell' is a four letter word.

Moody's Sees Stress on Credit Card Industry Through 2009

They say that money makes the world go 'round. What they don't tell you is that shortly there-after the world goes down the drain.

Moody's Sees Stress on Credit Card Industry Through 2009

Auto loans will begin crunching in earnest soon too.

Don't worry about paying for gas to drive your $45,000 leased SUV. The FED will be repossessing it soon after you stop making the monthly lease payments.

Several local new car dealers are having very hard times lately. Some have already closed down. Not enough buyers to cover their cost of carrying inventory. Some of the remaining ones have sparsely populated car lots.

Remember, this is at the beginning of the recession. More to follow as the impacts ripple through the supply chain.

Bigger is Not Better in Banking

"Never spend your money before you have it. "

Thomas Jefferson


Kinda the exact opposite of our banking system.

Credit Card Defaults Are Just Beginning

PS. dozer:

My car only cost me $3500 about 2 1/2 years ago. And that included the cost of a new radiator. I self-financed the purchase by going to my wallet and paying in full.

The only car payments I have are insurance and fuel. Well within my budget.

There are still some of us out here that live by the old rules.

Credit Card Defaults Are Just Beginning

Let's not forget that bankruptcy laws were recently re-written to be more strict on the filer. Some will be surprised to find out that their unbacked credit card debt is in fact still backed by bankruptcy court imposed wage garnishings.

The fun is just getting started.

The Paulson Plan: Compelling Banks to Lend at Bazooka Point

Crass?

I believe it would take years of concerted effort for most Congress-critters to improve their morals to the level of 'crass'.

The Paulson Plan: Compelling Banks to Lend at Bazooka Point

Those who choose to ignore the wisdom found throughout Proverbs usually wind up regretting it.

If our country had not done so (in aggregate) we would not be in anywhere near as big a mess as we are in now.

The Paulson Plan: Compelling Banks to Lend at Bazooka Point

And the mouse lived un-happily ever after,
loathing the builder of the maze.

The End

The Paulson Plan: Compelling Banks to Lend at Bazooka Point

Past Tense:

With a tapped out consumer and a slowing economy most businesses are going to be hunkering down. The first item that shrinks after slowing sales is the bottom line.

If profit shrinks too much the business goes under and the game is over. Prudent businesses will put off purchases or upgrades until the effect of the slowdown is known and revised plans can be made. Once that loan is taken the payment becomes a long term burden that claims just that much more of the company's working cash.

Even loans for new equipment that generate savings in operations are a burden if the necessary volume for realizing those savings doesn't materialize or if they are too small. While saving $1000/month over 30 years is great, what if the loan payment is $3000/month for 5 years? It may be good in the long run, but first you have to survive that first 5 years in an environment where income is shrinking and your monthly expenses are $3000 higher.

Businesses without a very large cash cushion will be looking to cut costs first and foremost just to make sure they can survive until conditions improve. They won't be looking for many loans.