ClydeDNA

Banking Uncertainty - It's Back

The problem still facing us is that the banks and the bond markets are not lending to anyone but the A or higher rated companies. The ones that need the money can't get a dime. I don't want the TARP funds spent on bonuses, so Uncle Sam has a difficult job balancing interfering with the banks' management and at the same time trying to get them to do what they don't want to do (e.g. loan to those folks that can only afford to pay a low interest rate at this time.) If Uncle Sam owns the banks via common and/or preferred stock they have some say. Plus the interest collected and profits made come back to Uncle Sam. What's wrong with that? I realize the bank's current stockholders get squeezed by this, but come on, they have invested in insolvent banks, what do they expect--profits? Uncle Sam is sharing the risk so someday shareholders at least have a chance to make a comeback, other wise their holdings will go worthless. This is real uncertainty! Uncle Sam's gyrations are not helping at the current moment, but it seems to me that removing the uncertainty is what they are trying to do. More than anything I hope Uncle Sam gets it correct eventually, and doesn't mess up yet again.

The Mark-to-Market Myth

Isn't it bad timing to change the Mark to Market rules now? I thought the rule was a big factor that accelerated the rapid asset value decline and resultant credit squeeze. Since things seem to be getting a bit better this year I had expected Mark to Market to have the reverse effect, giving the bear a helping hand. But now I'm going to attribute any "surprise" increases on asset value games.

Research Primer: The Story of the Credit Crisis

Dear Drs. Sabry and Okongwu,

I think your history starts to late and projections are still way too simplistic. This little movie that I cited above was made several years ago explains to me (at least), that because the way our world’s economic system works, a credit crunch was the inevitable outcome. This crunch was caused by the way the world has created money over the last 300 years and collected interest. You did a nice job showing the details of how it actually played out. Clearly the banks, with the co-operation of Governments, screwed-up big time -- exacerbating and hastening this inevitable outcome. But why wasn't this system changed? Why didn't Governments buy out the banks so this couldn't happen? Why are Governments paying interest to Banks when they could have been paying it to themselves?

What I really don't understand AT ALL is why in the world do they give Nobel prizes to economists?

Research Primer: The Story of the Credit Crisis

If NERA Economic Consulting is going to chronicle the history of the credit crisis, they must start right here:
video.google.com/video...

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

Great analysis but NOW what do we do?

A) Let Citi and BofA go under, taking down with them all that infrastructure, and fire all the wonderful folks that work there.
B) Have Uncle Sam buy their "toxic assets" with TARP mooola, and save their bottom line.
C) If these guys want and need Uncle Sam's money, then recapitalize them, and get preferred shares that pay dividends, and put that in Uncle Sam's back pocket.

Idea C) is my choice. Buy the banks, not the toxic assets. Because of the way banks will work the system, buying toxic assets will just create more toxic assets. I think this is a once in a lifetime opportunity for Uncle Sam, and he should take it! Here is why:

video.google.com/video...

How the Crash Will Reshape America

On Dec 13 12:21 PM Loeb wrote:

"hey, didn't the failure of AIG to put up funding by a certain date trigger a conversion to equity, and doesn't that mean that the U.S. now owns a large marjority of AIG? if we own it and we're putting money in, that is money we are paying to ourselves, perhaps simply buying GM is the way to go."

On Feb 14 11:29 AM Loeb wrote:

"whoah! [NITRAM] that was nasty. let me say that NITRAM appears to be unable to make distinctions between those who caused the calamity and those who are trying to fix it."

Loeb, I think the same goes for the banks!

You will love these movies! The first is the most important 47 min you or Nitram will ever spend. It was made several years ago, long before the present crisis. The second is a 7 min update.

video.google.com/video...

paulgrignon.netfirms.c...

The question at the end of the second 7 min video is a tough one!

As Paul Kedrosky points out with these quotes -- the situation is dire. I think the Government needs to take on the "toxic" assets (mortgages etc.), but DO NOT buy them. Buy the banks instead. The number one problem is that buying the toxic assets will just create more toxic assets.

It seems to me that there are three categories of banks, lending organizations etc.:

(Group one) These guys are doing fine, they have good balance sheets, they didn't take on a lot a bad debt, their stock price is high, they don't need any cash infusion, and they don't want to be run by Uncle Sam. I'll bet the new plan will leave these guys basically alone and their stockholders might have some value left next year.

(Group two) A second group is way underwater and being taken over by the FDIC. The shareholders lose everything; their assets (good n' toxic) are added to the more stable banks..

(Group three) Then there is group three (Citi, BoA, Wells, Morgan, and maybe even GS) . "Nationalizing"? Maybe that's a bad connotation. Many of these banks made a lot of bad choices, but others have adsorbed the bad banks at the behest of the Government. Some, through no fault of their own, were doing just what the Government and Fed wanted them to do, are they are now in trouble.

It's like some are in a Congo line, the FDIC and Fed deciding which halfway strong bank gets to go home with the next clunker coming down the line. I can hear the groans from here. At this point these guys are "too big to fail", but unfortunately they already have, not to a small degree because of Uncle Sam. He got a lot of these banks in trouble.

The market cap of these "Group three" banks has been crushed. The long-term stockholders and mutual funds that like bank stocks have already lost most everything. The infrastructures of these banks are huge, but their near term and likely future profits are dismal, thus their market cap now sucks big time since investors have fled. The specter of Uncle Sam's cash infusion, and recapitalization comes with a big price. What's left of those Bank's adoring investors stock holdings will unfortunately go to zero. Uncle Sam will have bought the "Group three" banks for exactly what they are worth, NADA. The mortgages and other "toxic" assets that the banks willingly bought for way too much mooola, will now be owned by the kind old screw-up named "Uncle Sam". But he's probably the best landlord there is right now. Let him buy the banks and take over the toxic assets -- BUT DO NOT BUY THEM!

Everyone keeps saying that they were so disappointed with Mr. Geithner last week. Think about this. Maybe he wanted to talk about a plan like this to the American people that day. Everyone was primed to hear the new great idea! Uncle Sam's PR types would have made him try out his speech on a "focus group". If that group contained the nice folks that do not understand anything about where money comes from and where it goes. They probably ran out of the room screaming hysterically -- with good reason. We need to understand where money comes from in order to understand how an idea like this might work out.

I think there is a chance the American people can save the world's economy, but we have to think this through a lot better.

The WSJ Is Right - U.S. Should Return to a Gold Standard

paulgrignon.netfirms.c...

Bank Nationalization: It's Just Plain Wrong

paulgrignon.netfirms.c...

The WSJ Is Right - U.S. Should Return to a Gold Standard

Going back to gold would be great? Pass this movie on to your children so they can expain this to you!
video.google.com/video...

Bank Nationalization: It's Just Plain Wrong

You're very strident Aristophanes,

Some of these folks have a point though. It seems to me that there are three categories of banks, lending organizations and financial institutions that are in the system. A lot are doing fine, they have good balance sheets, they didn't take on a lot a bad debt, their stock price is high, they don't need any cash infusion, and they don't want to be run by Uncle Sam. I'll bet the new plan will leave these guys basically alone and their stockholders might have some value left next year. A second group is way underwater and being taken over by the FDIC. The shareholders lose everything; the assets are added to the more stable banks..

Then there is group three. These are the ones we are talking about "nationalizing". Maybe that's a bad connotation. These are the Banks you listed and others like them. Many of them made a lot of bad choices, but others have adsorbed the bad banks at the behest of the Government. Some, through no fault of their own, doing just what the Government and Fed wanted them to do, are now in trouble.

It's like some are in a Congo line, the FDIC and Fed deciding which halfway strong bank gets to go home with the next one coming down the line. I can hear the groans from here. At this point these guys are "too big to fail", but unfortunately they already have, not to a small degree because of Uncle Sam. He got a lot of these banks in trouble.

The market cap of these "group three" banks has been crushed. The long-term stockholders and mutual funds that like bank stocks have already lost most everything. The infrastructures of these banks are huge, but their near term and likely future profits are dismal, thus their market cap now sucks big time since investors have fled. The specter of Uncle Sam's cash infusion, and recapitalization comes with a big price. What's left of those Bank's adoring investors stock holdings will unfortunately go to zero. Uncle Sam will have bought the "group three" banks for exactly what they are worth, NADA. The "toxic" assets that the banks willingly bought for way too much mooola, will now be owned by the kind old screw-up named "Uncle Sam".

For us, the number one thing is that buying the toxic assets will just create more toxic assets. We can not do that! Dr. Baker's idea, if followed, will be an absolute total disaster.

Everyone keeps saying that they were so disappointed with Mr. Geithner last week. Think about this. Maybe he wanted to talk about a plan like this to the American people that day. Everyone was primed to hear the new great idea! Uncle Sam's PR types would have made him try out his speech on a "focus group". If that group contained the nice folks like those writing on the blog, they probably ran out of the room screaming hysterically -- with good reason. We need to understand where money comes from in order to understand how idea like this might work.

I think there is a chance the American people can save the world's economy, but we have to think this through a lot better.

Bank Nationalization: It's Just Plain Wrong

Dr. Baker, I hope I'm not one of those pain in the neck posters that keep on arguing the same points and that I'm adding to this ardent discussion (please excuse my dyslexia - I can't spell or type).

There is no "clamor" for nationalizing the banks. Today, the total market cap for the USA's top 100 banks and financial institutions is about $650 billion. This is totally dwarfed by the credit markets. Neither the USA nor anyone else has enough money to buy all the "Toxic" assets. There is no way we can "fix" the financial system, but I think to goal is to keep it from causing a worldwide catastrophe. Yes the governments here and around the world were complicit with the worldwide private banking industry, and now together have screwed-up big time. The last US administration to fight private banking was that of Andrew Jackson. He beat the crap out of them, and for his efforts he got his face on our $20 bill. I know it's very cathartic to play the blame game, fine go ahead it's fun, but it is ultimately not productive.

Dr. Baker, my question to you has still not been addressed. A few weeks ago I found this video by Paul Grignon that was made several years ago. Long before this crisis took off. You, nor any of these nearly 50 posters have commented on this "Money as Debt" movie, nor did anyone say they understood where the money in world comes from. That must be because nobody took the time to view it, or after they did they went into shock. This has been available on the internet for some time I guess. With this version from "google" I got rid of the links to the people that want to blow up the banks and go back to the good old days of "beads and shells".

video.google.com/video...

If you understand where money comes from you will agree that "nationalizing" the banks is a GREAT idea. But how do we do it? The ideas so far seem to me to be a little half baked. I like the information posted by "goldenhinde". The idea is not to try and take the Toxic assets off the books of all those screwed up banks, but buy the banks instead. The bad debts would belong to the people, but we wouldn't have to buy them! The idea of funding the social security system with the revived banks earnings sounds pretty good, but that would that be a bit risky. What if the banks still didn't make any mooola? How about a big mutual fund that we could all participate in? We could help Uncle Sam buy the banks! That would be risky for me but more appropriate for our senior citizens.

There was a brief discussion about an admitted half-baked "nationalizing the banks" idea on abcnews.go.com/thiswee... "Graham Open to Bank 'Nationalizing'" Let's talk about it Dr. Baker!

Bank Nationalization: It's Just Plain Wrong

Bookkeeper, Thanks this Moyers interview is really good. I agree with him. I wish I was as articulate.

www.pbs.org/moyers/jou...

I was hoping to make my ideas more questions than answers. I think the Grignon video is a great place to start. Maybe I took some of Grignon's questions further than I should. That video was made several years ago, long before the current crisis. For me, thanks to Grignon, I think I can understand the MIT proferssor I lot better. (I was an MIT Postdoc years ago).

Again the idea of Uncle Sam buying the bank's shares as "preferred shares" would say to me that the old shares are going to end up worthless. Some of the banks are doing well, those shares are higher priced. Uncle Sam doesn't need those, those banks probably don't need new capital anyway. The insovent banks are the ones FDIC can take out of the system and off the market, like IndyMac (although I don't think they were actually that bad off).

It's the inbetween banks that I talking about. They have no real value right now, but they serve a purpose, they have useful infrastructure. Let's have Uncle Sam buy them on the cheap and get these "preferred shares", the other shares will go to 0 like they had a bankrupcy. The MIT Prof was saying something just like this. The exisiting and new CEOs would have some sort of Government pay grade and the Bank's Board of directors would be Uncle Sam's people.

My second idea is that I would like to get some of those shares that the governerment would be getting. How about some Mutual Fund made up of the shares that Uncle Sam just got. I'd like in on that.

Here you have it, a rocky yet doable transition to Government banks rather than taking on the Toxic assests. I think we should leave those on the books of the banks we bought. But be nice to the people that hold all those loans. Figure out a way to save the ones the are in real need, but look out for all the crooks out there. If Uncle Sam starts to fiddle with the toxic assests, they will grow like crazy, because there are thousand and thousands of people that will try to work the system.

Bank Nationalization: It's Just Plain Wrong

Genie. I hate to tell you this but the innocent investors already lost their money, Citi for example who merged with the Wacos, is mostly owned by the commies (i.e. USA). I'm just kidding, but you know of course that Russia and China are not communistic at all. Those countries are run by capitalist dictators. Our country is a democracy with our leaders chosen by the people. It's too bad that human beings on the average are such a bunch of crap, otherwise getting rid of the Kings and Queens would have been fantastic! We replaced them almost world-wide with a bunch of nincompoops. Human beings need to do a better job at choosing leaders and then getting involved.

Nitram. I know you want to punish those CEO that still have jobs, but except for Madoff, nobody is going to even pay a fine.

The collateral that underwrote all those $trillions in loans is going down in value. The banks are broke! Hang the banker CEOs! …that's not going to help. What do we do now?

First I want you to cheer up and face the future in a positive manner. Unless you got a car with a Flux capacitor, we are going forward. You know, this is the very first time that everyone I voted for actually won. I've voted a lot of times over the years. I'm going to stay involved as much as I can and hope for the best rather than worry about the worst. I'm going to stay positive about my life going forward, even though as Yogi once said "the future is not as good as it used to be".

And I'm going to try to figure where all the money came from so I can figure where it's going -- and get some.

video.google.com/video...

Bank Nationalization: It's Just Plain Wrong

What we should do is buy the Banks not their assests. There is not enough money to buy the toxic assests anyway. We couldn't put a dent in the problem with $3 trillion. But the Banks are going cheep.

This little movie is absolutely incredible. If you are interested in this topic at all, you MUST learn about where money comes from!

video.google.com/video...

It starts out black but hang on to your seats!

then AFTER you see it ask yourself this:

Why not let the US Government buy into the banks big time then share the profits with the people? Right now Uncle Sam is not only stimulating but capitalizing the banks and getting lots and lots of shares in return. This is happening right now. Today the bank's stock values are lower than they have ever been. Let Uncle Sam BUY LOW. Grab the banks that are insolvent then add them to the banks that the US owns a high percentage of. Over time the people (Government), could own the banks and share the interest and profits with us (put it back in the treasury), so our kids can be taken out of debt (at least Government debt anyway), and the people that work in banks could keep their jobs.

I like the kind of bank shares our government is buying right now. They are preferred shares that pay 5% dividend. I wouldn't buy the old ones but I'd love to buy into the ones our government is getting. Maybe they could set up a huge mutual fund that we could participate in. In the end the people would own our banks and those terrible bankers would not.

This is the ideal time to do this. This movie needs to be seen by everyone then you will all agree with me!

Think about it. Uncle Sam capitalizes the banks and takes their shares. With the money the banks buy treasury bills so Uncle Sam can pay for this stimulus. if Uncle Sam owned the banks, then the interest and bank profits would be shared with the people since the interst payments would go back into the treasury, eventually so will the principle. The more money the banks loan to Uncle Sam the more money there is right now. If the banks charge high interest rates later rather than sooner, our government will be out of debt. Ask yourself, why are we paying interest to bankers when we could be paying it to ourselves?

But believe it or not: Uncle Sam's borrowing is the answer to the credit crunch. As long as it's from Government owned banks that is.

You will only understand how this is posible if you have seen this movie.
video.google.com/video...

Proposed Solution for Toxic Assets Plaguing Banks

Buying the toxic assests is not the answer. There is not enough cash in the world to do that now. Buy the banks instead!

This little movie is absolutely incredible. If you are interested in gold and money you MUST learn about where money comes from!

video.google.com/video...

It starts out black but hang on to your seats!

then AFTER you see it ask yourself this:

Why not let the US Government buy into the banks big time then share the profits with the people? Right now Uncle Sam is not only stimulating but capitalizing the banks and getting lots and lots of shares in return. This is happening right now. Today the bank's stock values are lower than they have ever been. Let Uncle Sam BUY LOW. Grab the banks that are insolvent then add them to the banks that the US owns a high percentage of. Over time the people (Government), could own the banks and share the interest and profits with us (put it back in the treasury), so our kids can be taken out of debt (at least Government debt anyway), and the people that work in banks could keep their jobs.

I like the kind of bank shares our government is buying right now. They are preferred shares that pay 5% dividend. I wouldn't buy the old ones but I'd love to buy into the ones our government is getting. Maybe they could set up a huge mutual fund that we could participate in. In the end the people would own our banks and those terrible bankers would not.

This is the ideal time to do this. This movie needs to be seen by everyone then you will all agree with me!

Think about it. Uncle Sam capitalizes the banks and takes their shares. With the money the banks buy treasury bills so Uncle Sam can pay for this stimulus. if Uncle Sam owned the banks, then the interest and bank profits would be shared with the people since the interst payments would go back into the treasury, eventually so will the principle. The more money the banks loan to Uncle Sam the more money there is right now. If the banks charge high interest rates later rather than sooner, our government will be out of debt. Ask yourself, why are we paying interest to bankers when we could be paying it to ourselves?

But belive it or not: Uncle Sam's borrowing is the answer to the credit crunch. As long as it's from Government owned banks that is.

The idea of fixing mortages to 2% is a good one expect the banks would never ever go for that. But if Uncle Sam owned the banks he could say "2% sounds fine to me".

You will only understand how this is posible if you have seen this movie.
video.google.com/video...