FlyingAfrican

Ben Bernanke Will Bring Back the 70s Inflationary Economy

with all the crises in the USA (credit, debt, manufacturing, etc), the one thing that still made this country great was its 'free markets', and open political system.

That now is slowly eroding too. Starting with the patriot act and moving towards government control of the markets and money.

Obama's stated goal is to HALVE the deficit by 2011... HALVE? even half will still be over $500BILLION. government needs to be run like a company, lean, mean and efficient, not wasteful welfare.

I'm buying TIPS

PPIP Killed the 2008 Bear

Bot, we, as taxpayers are indeed paying for this.

Maybe not 'directly' (since it's funded through government debt), but three things WILL happen, due to Bernake's 'quantitative easing':
1. Inflation (inflation is a tax, it reduces your purchasing power)
2. Interest rates will rise
3. Direct taxes will rise

Inflation is an entirely monetary phenomenon. The government, for now, has discovered there's no (short term) consequences of printing as much currency as you want when it is the reserve currency. While the world has a long way to go to wean itself off the US $, the first step has been taken... other countries are talking about NOT using the US$. It might take a while, but the first step has been taken.

The Fed's 'trust us' policy has me tossing at turning at night. The Fed's asleep at the switch, they won't raise interest rates or reduce the money supply fast enough. They didn't see a recession until a year after it started... they won't see inflation until its double digits.

Remember.. Zimbabwe's quantitative easing resulted in 1^112% annual inflation, a $10 TRILLION note that can't buy a loaf of bread (imagine if their national debt was $14 TRILLION Zim, they could pay it off with 2 bank notes and get change back) and social unrest. And this occurred in the space of < 5 years.

The Big Banking Emperors' New Clothes

Robert... your points are pretty valid.

I wonder if the Fed / Treasury just took the $750 BILLION and opened the National Bank of America (not 'nationalising' a bank, actually OPENING a government owned bank), and then use that $750 billion to issue car and auto loans, buy mortgages (not MBS, just straight mortgages) etc. it would have been a way more effective solution.

Who would run this? NOT Congress. Instead of the government building branches, they just buy (at the liquidation sale) branches, data centers, etc. of whatever banks go under (no federal support for the banks).

Run on the bank? well those banks that go under can transfer their customer deposits to the national bank of america.

Mike... you're 100% correct, all they doing by changing the rules is delaying the pain, but making the eventual outcome even worse. If we say its not a recession and close our eyes long enough this wouldn't have happened is the current thinking it seems.

FASB Softens Mark-to-Market Rules: Better Late than Never

As an accountant, the relaxation of mark-to-market rules is a travesty.

These were trading assets, and should be valued as such.

Amortised cost should only be used if the asset is being held to maturity.

Already using discounted cash flow, while a valid valuation model, only works if the certainty of the cash flows is known. In the case of MBS and CDOs the default risk is unknown.

At best, the FASB / SEC should allow / recommend banks to state their estimated value and the model they use in the disclosure notes, along with their intention (i.e. to hold to maturity) and their financial ability to hold such assets to maturity (ie. no forced sale).

In addition the Fed should temporarily just relieve the banks of their capital requirements (and lower it to say a negative amount... hahaha).

It makes no sense that the market rallies off the relaxation of mark to market rules. People think this will stop the nationalisation and bankruptcy of banks, it won't. When these ARMs reset this quarter the bloodbath will continue. Discounted cashflow when cashflow = 0... results in a $0 value.

Remember an asset is only worth what someone is willing to pay for it