mplaut

Nothing Suggests We're Anywhere Near the Bottom

A lot of the "green shoots" crowd are encouraged by the fact that the DECLINE is SLOWING, not that there is any upturn yet. For example the fact that we "only" lost 500,000 jobs in the most recent month and not more than 600,000 like we had been doing for several months, is a sign that the decline is slowing and that a bottom is NEAR, not that it has been reached. The stock market is supposed to be forward looking and that crowd is trying to help it to do its job. They are not arguing that we have bottomed, but only that the bottom is in sight and we are no longer in free fall.

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

All this may well be true, but additionally, with zero interest rates the banks loan books should be very profitable. The spreads should be very good and should contribute to their profitability.

Added Debt Won't Rescue the Great American Ponzi Scheme

All of this is superbly rational, but one should remember the famous observation by Lord Keynes: The market can stay irrational longer than you can stay solvent.

Don't Blame Mark-to-Market for This Crisis

When pundits like Forbes come out against Mark to Market they are not saying that it was BEHIND the crisis. What they are saying is that it is a cheap and effective way to fix the crisis going FORWARD. Even though it is clear to me that it was greed and irresponsibility that brought about these conditions, I can see a strong argument that a suspension of the M2M requirements is a relatively easy way out of the crisis.

Sure M2M is proper and suspending it will bring about an improper, less-than-optimal situation. But so is spending trillions to support the banks, or nationalizing them (temporarily). Everyone agrees that the situation is so serious that something has to be done even if it involves bending or suspending some of the usual prudent rules.

Why rule out M2M?

If there is a need (and there is a need) to punish those whose greed got us to where we are, then we could seek a way to link suspension of M2M to the continuation of previous management.

But let us not confuse an awareness of how we got to where we are with the search for the best method to get us out of the mess.

Did Merrill's Trading Desk Blow Up in Q4?

Note the following quote from the NYT Dealbook blog (dealbook.blogs.nytimes.../):

"But after Merrill appeared to be safely in Bank of America’s arms, Merrill’s traders began buying risky mortgage assets, thinking that the market had bottomed out, The Times said, citing two people familiar with the firm’s trading. Merrill also began to run up losses on equity derivatives and other instruments, they told The Times.

"By the end of 2008, Merrill had lost an additional $5 billion in the markets, marking the first time since Mr. Thain’s arrival that the firm’s losses had moved beyond the mortgage investments that predated his tenure."

--------------- MORAL HAZARD?

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

"I look forward to an announcement, soon, of something big, coherent, consistent, and transparent."

IMO this would be the most important change (in the financial area) that the new administration could bring.

If you reflect on the events of the past few months, you will see that in each case there is no way at all to predict in advance what the response will be to a new problem that pops up. You have to wait until the issue is generally recognized, and then see what Paulson et al will do.

Markets always like predictability and hate uncertainty. If there were policies in place that defined how things were dealt with, it would go a long way to healing things, and with ZERO cost.