Media Appearance: CNBC’s Fast Money (1/29/09)
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Tonite I will be on Fast Money with Dylan Ratigan on CNBC at 5:30pm discussing with the crew on the problems with the Bad Bank idea.
My suggestions:
1. Stop interfering with the Markets! Nationalizing banks isn’t market interference, keeping these mortally wounded banks alive is! Stop pussyfooting around and admit the truth. The market knows it, investors know it.
Let the FDIC do its job. That is:
2. Temporarily Nationalize the Banks We know they are insolvent, and cannot survive without taxpayer money. Spending a 150% of their market cap for an 8% share is absurd.
Wipe out the debt, liquidate bad common holders, fire the Board and management, appoint new competent, risk sensitive management. They have 6 months to spin out a 10% stake in each of their holdings, followed by the rest within 5 years (10 at most);
3. Taxpayer owned: Once nationalized, that 10% spin out of the components parts would be in the form of prefered to taxpayers! For BAC, you would spin out Bank of America, Merrill Lynch, Countrywide, plus the “B/A Toxic Holdings I & II” For Citi, it would be Travelers, Citi, Smith Barney, Citi Toxic 1 & 2, etc.
4. Now Recapitalize: With the toxic waste off of the books, you can easily recapitalize the banks. Give the old creditors a “sweetheart” deal — they get a 10% stake also, but only if they buy a matching amount in the new bank.
5. Align Compensation with Long Term Profitability: Stop rewarding traders for short term gains despite long term losses. Stop paying taxpayer monies out as dividends. Bonuses must be a function of the long term health of the company — not monthly violatility.
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UPDATE Here is the Video:
click for video
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January 29th, 2009 at 3:15 pm
Harvard Finance Expert Stein Joins Obama Team
Harvard University economist Jeremy Stein is leaving to take a job with the Obama administration, working for Larry Summers. The move brings one of the country’s leading finance experts to Washington D.C. — one who’s had some strong opinions about how the government has handled the financial crisis so far.
Mr. Stein had strong reservations about the Treasury’s original plan for buying banks toxic assets, complaining that it would entail paying over-the-market prices without getting anything in return. And he bristled when the Treasury’s revised plan, which entailed banks giving the government preferred stock, didn’t include a suspension of dividends.
“Simply put, the government should force the banks to suspend all dividend payments,” he told The Wall Street Journal in October. “It makes absolutely no sense for the government to put money into the banks, only to see a significant fraction of it flow out again as dividends to shareholders, and in many cases, bank executives with large equity stakes.”
Earlier this month, Mr. Stein was among the economists the Journal asked for prescriptions on how to get out of the economic crisis.
He advocated aggressive government audits of banks, aimed at separating solvent ones from insolvent ones. Once that was done, insolvent banks would be forced into closure or sale while solvent ones would be pushed to raise more private capital. In addition to dealing with the bad bank problem, putting the plan in place would remove much of the uncertainty in financial markets that the government’s ad hoc approach to banks thus far has helped instill.
In the longer run, Mr. Stein thought that there needed to be a new mechanism for resolving financial distress in financial firms that keeps some of the features of bankruptcy but avoids the problem of runs that can make one firm’s troubles metastasize across the financial system. –Justin Lahart
January 29th, 2009 at 3:54 pm
Germany Favors Creating Decentralized Bad Banks, Lawmakers Say
2009-01-29 11:43:29.800 GMT
Bloomberg
By Brian Parkin and Rainer Buergin
Jan. 29 (Bloomberg) — The German government and lawmakers in parliament, studying ways to kick-start bank lending, favor the creation of individual “bad banks” that share the lenders’
risks with taxpayers.
“That’s the proposal in the ascendancy right now,” Otto Bernhardt, the ruling Christian Democrats finance spokesman in parliament, said in an interview in Berlin today. “The one- size-fits-all ‘bad bank’ approach won’t fly; we need to put the banks back in the driving seat for solving their problems.”
Finance Ministry officials and lawmakers are closer to agreeing on extended help for Germany’s biggest banks after a 480 billion-euro ($627 billion) rescue failed to spark lending.
Lawmakers, guardians of the budget, reject creating a central bad bank as a conduit for cleaning banks’ books as too expensive and politically explosive in an election year.
“We cannot ‘socialize’ this debt by passing it all to the country’s citizens,” Alexander Bonde, an opposition Green Party lawmaker who is a member of a parliamentary group that supervises the bank rescue fund, said in an interview. “Banks must take responsibility for the mess. Tackling the problem of toxic debt bank by bank would seem the most rational approach.”
Germany’s biggest banks may hold as much as 300 billion euros of debt generated by subprime investments, according to a survey conducted on behalf of the BaFin financial-services supervisor.
January 29th, 2009 at 4:08 pm
Barry, go get ‘em. It is getting close to triage time. Some of these banks need to be euthanized.
Obama has had little time to evaluate his economic team for this situation. He was forced to keep Geithner because of his operational knowledge (the alternative was Paulson!). Obama is so smart that I am sure he realized that he badly needed to bring in some outsiders with fresh views to make sure that Uncle Hank isn’t out there pulling the strings on Tiny Tim. Summers and company are part of the problem, so I am delighted to see some new blood.
January 29th, 2009 at 4:10 pm
Love it. I would add one suggestion: claw back the absurd bonuses that were paid this year. Everyone agrees with your view…everyone except those in charge and those on TV.
Dylan Ratigan is one of the only announcers on CNBC that I like.
January 29th, 2009 at 4:13 pm
I don’t like it when the Fast Money regurgitators cut you off in mid sentence and talk over you and each other. I want to slap them. Since you and Dylan will be the only two people with a brain in head (oh, yeah, Finerman has a brain).
Dont let them interrupt you.
January 29th, 2009 at 4:16 pm
Barry,
I agree wholeheartedly with all your suggestions. I hope you get a hot line into the White House grape vine soon. It could help our country survive this mess.
Thanks again for your wisdom and tenacity.
January 29th, 2009 at 4:24 pm
I totally agree Barry. It’s ridiculous that we keep propping up the zombie banks. We’re only making things worse in the long run. You might be interested in this: pragcap.com/the-aggregator-bank-will-fail
This whole idea is predicated on keeping the zombie banks alive. We need to stop rewarding those who f’ed up!
January 29th, 2009 at 4:28 pm
Barry,
To whom can you send your recommendations? Whose ear can you get? Would love to see this horrific state begin to repair.
January 29th, 2009 at 4:28 pm
Go get them. Drive home the question of where is the Treasury going to get the money from to fund all the trillions it needs. Don’t let anybody off he hook with a sly, evasive answer. This is THE question people need to clue into.
January 29th, 2009 at 4:41 pm
Makes you wonder what they’re really up to when they will not do the most sensible thing. Even Jon Stewart had a way out that did not involve all this complex maneuvering: Simply use the trillions to mail a check to everyone in the United States. They would either deposit in their bank (so the bank gets the deposits) or they would spend it, which would juice the economy.
When politicians, corrupt to the fiber of their being, complicate things, you know there is only one thing going on and that is steering the trillions in ways that are harmful to the people but manna for their contributors.
January 29th, 2009 at 5:15 pm
11. How Washington will pay for it all
DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.
Mr. Zedillo, who remembers how Mexico was forced to tighten its belt when it received billions from Washington to keep its economy from collapsing in 1994, was even more blunt.
“People are not stupid,” Mr. Zedillo said. “They see the huge deficit, the huge spending, and wonder what comes next.”
January 29th, 2009 at 5:19 pm
Your #1 idea is tops. But also, there is a lot of bloat in the banking industry. 8000 banks doing the work that 4500 can do. Consolidation is a must. 8000 banks is too much to sustain or ask others to sustain.
National trust is in crisis, because consumers are worried about having to support bloat.
Federal Reserve needs to get busy consolidating the industry (should have started last year). I know they want to protect their friends in association with them over the years, but the kissing-cousin affair has to come to an end. As long as things were good, people could over look it. But now that people’s patient is being tested, the cousin love affairs banks have with each other, have got to come to an end.
Consolidate the sector. If this means reducing the number of banks in our nation then by all means, get busy.
You mention in your comments that Jeremy Stein will help cut the dividends. That was not part of your numbering in the main presentation for this thread. The dividend should have been cut by Paulson if he was not such a softy. It was the prudent thing to do (last year). By all means claw the dividend payment back because no one voted yes for banks to route money from taxpayer custodial fund, through banks, so they could continue paying their dividend. And dont forget Peter Boockvar of Miller Tabak – when talking about dividends.
http://www.youtube.com/watch?v=zP7ZvzDqaTM
Otherwise, please understand, the way to help the market and wall street regain trust, is to clip out the number of banks overall. Get rid of the bloat.
ty
January 29th, 2009 at 5:29 pm
Just a quick note Barry. Citi doesn’t own Travelers and hasn’t for some time. Even the umbrella logo was sold back to them. Smith Barney is now part of a partnership with Morgan Stanley so gone as well leaving you with Citi and Toxic Asset 1 and 2.
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BR: Yeah, I know — I totally blew that.
Its live TV, and sometimes your brain freezes.
I should have used BAC as the better example
January 29th, 2009 at 5:36 pm
Give it to me straight Doc. I can hanle it.
January 29th, 2009 at 5:38 pm
Just curious, but since I have an account with Merrill, it is my understanding that if BAC were to be nationalized, my account holdings (mostly money market accounts with Blackrock & Merrill) would be completely safe as they are within the brokerage unit which is required to segregate assets. My mutual funds and other minor positions (mostly short ETF’s and WFC) would also be safe and secure.
Anyone know anything different?
TIA
January 29th, 2009 at 5:38 pm
Also one other thing. The discussion I keep hearing is that we must align long-term results and bonuses. That’s fine if you have long-term job security. Last time I checked I was employed “at will”. So if I generate great business this year and get laid off but it turns outthat business was fabulous 5 years down the road (working on trying to do that these days) – do I get a check 5 years from now? Of course not. Just something to think about – like what everyone at Merrill is thinking right now.
January 29th, 2009 at 5:45 pm
“Temporarily Nationalize the Banks”
Your lips to god’s ears Barry.
If comparisons are being made to RTC (and they are, so far erroneously)
then give the “banks” RTC like terms…..Take them over (for NOTHING), sell off the good bits (if any) at market prices, zero the shareholders , fire management etc and VOI-frickin-LA!!
LET’S DO IT!
January 29th, 2009 at 5:45 pm
Theoretically, if public opinion is moved far enough, the politicians will take it into account.
One can hope.
January 29th, 2009 at 5:48 pm
Myr @ 4:10
“Dylan Ratigan is one of the only announcers on CNBC that I like”
Yes, well he was an enthusiastic supporter of the original TARP (back in September), and loved the idea of increasing government debt for the purpose of helping the fat cat bankers.
January 29th, 2009 at 6:07 pm
I thought that Stein article was referring to the now legendary economic moron, Ben….But then I remembered that he was only smart enough to get into columbia….
January 29th, 2009 at 6:11 pm
Amen Barry. Maybe, just maybe this is a step in the right direction.
January 29th, 2009 at 6:18 pm
DL,
I hear you. My point with Ratigan is that he actually seems like a fair and reasonable listener/debater unlike the other screaming, idiot ideologues on CNBC.
FYI, I was also in favor of the original TARP except that I wanted the government to take direct stakes in the banks which is what they ended up doing with the TARP. I also wanted the private sector along with shareholders and creditors to participate in the recap process- this didn’t happen. The essence of my argument being that the government should help the market in the recap process. The problem is that a $20b investment in Citi(or whatever the amount was) kept getting larger and larger and suddenly we started hearing that the govt had guaranteed $290b of Citi’s assets! At this point it was clear to all that these banks are actually deeply insolvent. All the while, Citi’s $200b of public corporate debt is trading at 200 over. Debt holders, not tax payers, need to take the losses.
January 29th, 2009 at 6:23 pm
Barry,
Great job. Short and to the point.
One thing I might have added is to mention the actual total amount of public corporate debt outstanding at some of these institutions(Citi has $200b) and how it was the creditors who stood idly by as these institutions leveraged themselves to the hilt. And who owns this debt? A: PIMCO et al. I’m dying to hear someone make the argument on TV that we are bailing out Bill Gross. PIMCO’s moves on GMAC debt make me ill and now he’s doing the same with the financials. It’s time for these fat cats to stop raping the public.
January 29th, 2009 at 6:39 pm
It’s only a start, but O has to start somewhere. Now he needs to go beyond populist tongue lashings and follow it up with action…..
http://www.nytimes.com/2009/01/30/business/30obama.html?_r=1&hp
January 29th, 2009 at 6:41 pm
jdamon
just make sure your money market is insured, then from there you’ve got SIPC. You should be fine.
January 29th, 2009 at 6:49 pm
I like Jon Stewart’s trickle-up solution. For every dollar the banks get, a dollar is deleted from the nation’s mortgages. So, $100 billion to the banks means every US mortgage gets $1000 knocked off the remaining principle.
Stimulative, provides the banks with capital, and likely to be politically popular.
See, the economy needs to be run by TeeVee comedians, they’d do a better job.
January 29th, 2009 at 6:50 pm
The zero hour approaches for holders of common stock in many of the banks, especially C. Eliminate dividends first, and then figure out the haircuts for the bondholders. The problem with this scenario is the bondholders are the same pension funds and other institutional investors that have been eviscerated during 2008. But this has to be done eventually or the taxpayer will simply be taking on an overwhelming debt for little possible reward.
Prince Al-Waleed is going to be pissed, but it will be tough noogies.
January 29th, 2009 at 7:00 pm
“I like Jon Stewart’s trickle-up solution. For every dollar the banks get, a dollar is deleted from the nation’s mortgages.”…..and put on the National fucking tab or “run off” at Treasury.
aint no goddamn money tree in D.C.! I’ll bet you pay off your credit card debts with other credit cards don’t you Broke(n)?
love,
an “uncharitable” renter
January 29th, 2009 at 7:04 pm
OMG !!
Shareholders of banks are being “Gasparioned” right now…
BAD BANK STALLED. WEEKS AWAY. MAY NOT HAPPEN….
What goes around, comes around.
Look for a massive puke tomorrow.
Disclosure: Schadenfreude Asset Management has a position in FAZ.
January 29th, 2009 at 7:05 pm
Maybe optimistically we are watching Barack build a team to take on Wall Street.
January 29th, 2009 at 7:40 pm
Won’t work…if GDP falls to 14 trillion, the economy should only carry about 21 T in total credit…we have 52 T…that’s about 30 trillion too much credit in the US alone…I’m guessing that there is maybe 50 T globally in excess credit. This is real, real bad. The world is insolvent. The macroeconomics of this are fascinating…it was caused by a moral hazard that led to gross misallocation of capital into financial products and McMansions instead of maybe green energy and curing cancer.
January 29th, 2009 at 7:46 pm
Exactly… Take control. Stop stringing us all along while mortgaging our future! Good to hear the Obama team reached out to Stein and his expertise. Had to work today so I will catch the rerun later.
January 29th, 2009 at 7:47 pm
and the capital was also misallocated to excess consumption…we blew it on vacations, fancy meals, flat-screens, heating the McMansions, driving Hummers, etc.
January 29th, 2009 at 7:52 pm
Chill out Steve. Buy hard assets. When they blow up our money a NEW political system in this country will evolve. We will pick ourselves up and dust ourselves off but the people will be in control again just as it was designed. We can then deal with everything else.
January 29th, 2009 at 8:05 pm
Barry,
Nationalizing the banks might not have good media spin-How ’bout starting a new phrase that might be media friendly My submission “The banks will go through a soft receivership”
January 29th, 2009 at 8:10 pm
Barry,
Nice job tonight. It’s so nice to see someone on TV with some common sense. Oddly enough it seems like one of the only people on CNBC (besides you) with some common sense has been Dylan Ratigan….Too bad he’s just a reporter.
January 29th, 2009 at 8:25 pm
Barry, wouldnt the nationalization of Citi and BAC blow up the CDS market and cause a chain reaction….on a side note in hearing you talk I am suprised you didnt like Ron Paul more, after all the he was the only candidate wanting to get govt involvement out of the markets. On a side note, Cramer did it again yesterday, screaming how this was the most bullish fed he had ever seen, only to get the rug pulled out from him 24 hours later. GE deserves everything they get if they are that idiotic to put a clown like Cramer on the air night in and night out and advertise him as some stock guru. My goodness their is so much low hanging fruit still in these markets.
January 29th, 2009 at 8:28 pm
I am happy that the climate has changed to the point where the discussion of clawbacks of fraudulently obtained bonuses and the punishment of malfeasance is now acceptable. Now let’s see someone put this into practice.
Andrew Cuomo just might turn out to be the AG that Eliot Spitzer could have been – if he hadn’t been obsessed with power and its associated trappings. The Democrats need someone to step up who has a bit more understanding of the issues. Barney Frank seems confused and Nancy Pelosi has no idea. Obama and Biden have to behave in a statesmanlike manner but we need someone in the administration to be an enforcer and kick some banker ass.
Keep on venting anger Barry, a lot of the I-Bankers think this is all just a game and they can take the piss out of the taxpayers and then everything is going to go back to the way it was. But it’s not. This government has some people who have teeth and they are going to go after the worst excesses. Rep Elijah Cummings (D-Md) is no chump.
January 29th, 2009 at 8:29 pm
….or “shotguns to the chest for bad zombie banks”??
or “rogue banks stopped at the Potomac”?
or “Guillotine sales see sharp increase”?
very media friendly……
January 29th, 2009 at 8:29 pm
Looks like Schiff just responded to Mish…
Http://www.pragcap.com
Cat fight!!!!
January 29th, 2009 at 8:34 pm
@lb: Barney Frank doesn’t even know how to use a computer (seriously). He needs to step aside for new leadership. Ditto for Pelosi AND Reid. Time for the Dems to clean house in Congress.
January 29th, 2009 at 8:37 pm
The public is more than ready for some high profile perp walks in ’09. Who do we start with?
Mozillo
Fuld
Stan O’Neill
Killinger
Thompson
Thain
I think someone should start a pool here.
January 29th, 2009 at 8:44 pm
Although Obama slams Wall Street for the bonuses, yet he has Geitner by his side .
January 29th, 2009 at 8:47 pm
Mozillo’s gotta be the first to go. I’ve gotta add ken lewis for making the two worst acquisitions of all time…
January 29th, 2009 at 8:53 pm
BAD BANK STALLED. WEEKS AWAY. MAY NOT HAPPEN….
wut the hell?
are they all just “trial balloons” (i almost typed buffoons) competing for Obama’s vulcan ears??
January 29th, 2009 at 8:58 pm
Quick note for those who follow the Dollar Index and gold….
I’m not a big fan of gold at all, but I can easily make a case for gold going to 990-1016, which would be a good selling point. Too many Gold bugs out there and too many gold commercials. Sentiment is too bullish…specs are too long, but we can see a decent rally coming….
The Dollar Index looks very bearish to me right here….
I’m short at 86 on tonights overnight session. Won’t want to be short on a break of 87.40….I see a “potential” head and shoulder on the intraday action. If we can fall tomorrow and take out 84 then we’re heading to at least 80.60….could see a pretty swift decline on the DX.
I’m guess the GDP report tomorrow may be the triggering event….
Trade at your own peril.
- AT
January 29th, 2009 at 8:59 pm
@bruerr
“8000 banks doing the work that 4500 can do. Consolidation is a must. ”
BAD idea! Too big to fail is what got us in this mess.
January 29th, 2009 at 9:01 pm
@Mannwich Says:
January 29th, 2009 at 8:37 pm
“The public is more than ready for some high profile perp walks in ‘09. Who do we start with?
Mozillo
Fuld
Stan O’Neill
Killinger
Thompson
Thain”
Cox and Paulson…
January 29th, 2009 at 9:02 pm
Given my above stated bias on weak dollar next several days, I’m out of the SP500 shorts now. Market wants a weak dollar.
January 29th, 2009 at 9:16 pm
AT – Karen pointed out the same head and shoulders forming in the USD, and I agree.
I am massively bearish on the $, but I think tomorrow may well see a flight to safety trade into Treasuries and the $/yen. If and when we complete the double top at USD 87-88 then I agree we will probably see a swift decline, although the timing may be affected by political activity. I am net short equities.
I am long GDX from here into USD 80, which should be $1000 gold, that will probably trigger a pull-back again into a sideways market until something really inflationary happens.
January 29th, 2009 at 9:22 pm
A simple, no-nonsense proposal.
Barry Ritholtz for Treasury Secretary.
January 29th, 2009 at 9:29 pm
Steve Barry @ 7:40
I think your assessments and predictions will be vindicated in the long run.
But I have enormous faith in the propensity of politicians to postpone the day of reckoning.
Japan has a government debt-to-GDP ratio of almost 2:1. Ours is maybe 0.75:1.
We ostriches can dig ourselves a much deeper hole before we have to face reality.
January 29th, 2009 at 9:32 pm
@ventura:
“GE deserves everything they get if they are that idiotic to put a clown like Cramer on the air night in and night out and advertise him as some stock guru. My goodness their is so much low hanging fruit still in these markets.”
And tonight, CNBC introduced the 8PM show with this tagline, said by an enthusiastic voiceover:
“The war on the wealthy is finally here!…Obama declares war on Wall Street.”
I expect nothing less from the propaganda arm of GE…I am eagerly awaiting the next exclusive interview with Jeff Immelt.
January 29th, 2009 at 9:37 pm
Change of topic. Now that Wall Street bonuses are in decline, we may come to view these videos as the last documentary evidence of an extinct species: the young investment banker tool. Enjoy:
http://www.minyanville.com/articles/UBS-Wall-Street-aleksey-vayner-douchebags/index/a/20855
January 29th, 2009 at 9:38 pm
@DL or anybody…
The US currently has 359% total credit per GDP, way off the charts of the last 100 years…what was that figure for Japan before their deflation? Was it tracked?
January 29th, 2009 at 9:40 pm
The next war has only begun: Wall St. (and their enablers) v. Main Street coming to a town and theater near you.
If O decides to really take on these interests in earnest, watch for the vitriol and vicious propaganda attacks from these powerful interests. They won’t go down without a big fight (see health insurance industry for reference).
January 29th, 2009 at 9:44 pm
@ Mannwich: The commander-in-chief is going to hold his fire for now but he has Wall Street under observation. The thing is, they have already blown themselves up with derivatives and leverage and they have no more power.
Or cash.
January 29th, 2009 at 9:59 pm
I agree, lb, but their enablers like GE (via CNBC) and other corporate behemoths are going to be on the attack with the likes of Rush and others who want to see O fail. The attacks on him by these monied interests are going to be vicious if/when he ratchets up the heat on Wall Street/Corporate America. It’s coming. I hope he can stand the heat.
January 29th, 2009 at 10:17 pm
@ Andy Tabbo
If you look at it sentiment was very bullish among the Gold bugs at 680, 750 800 and has been for a long time.
The usual money managers have just turned or are turning to Gold , so if you track their sentiment its just started getting bullish.By the time they jump on the bandwagon , I see Gold breaking the old highs just above 1000.
FWIW
January 29th, 2009 at 10:35 pm
Lefty:
Held onto my TBT today.
Appears the globe doesn’t think the Fed can do it…
January 29th, 2009 at 11:15 pm
Steve Barry @ 9:38
I don’t have a good answer. But the following sources suggest that household debt in Japan is, and has been, a bit higher than in the U.S. (I haven’t yet looked for information on corporate debt):
Household debt as a % of disposable income for various countries (including U.S. and Japan) in the years 1993 and 2003
http://infoproc.blogspot.com/2005/02/household-debt.html
………………………………….
Page 52 of the following PDF file has a graph of household debt –to- income ratio for several countries (including U.S. and Japan) over the last 30 years:
http://www.bis.org/publ/qtrpdf/r_qt0403e.pdf
…………………..
Page 9 of the following PDF file has a graph of household debt –to- income ratio for several countries (including U.S. and Japan) over the last 30 years:
http://www.marubeni.com/dbps_data/_material_/maruco_en/data/research/pdf/0407.pdf
January 29th, 2009 at 11:29 pm
News circulating the bad bank idea is dead, or at least on hold as it would precipitate bank failures. Jay Leno couldn’t make up better stuff. Whether nationalized or under bad bank scenario, the question remains where does Uncle Sam get the funds to cover these losses as it’s coming clear that in one way or another they’re going to pick up the tab. Besides the obvious that isn’t this a tacit admission that therefore the banks are already bankrupt if they cannot afford a market valuation, does it really matter much anymore. The cat’s been let out of the bag. “They can’t handle the truth” and we just announced that to the whole world tonight.
January 30th, 2009 at 12:10 am
@vaughn :
Sorry to disillusion you, but I have no debts, credit card or otherwise. I’ve lived quite happily off my investments for the last dozen years.
But as I said, it is sad when one of the more plausible banking solutions I ‘ve heard comes from Jon Stewart.
January 30th, 2009 at 1:04 am
plausible? =sad
January 30th, 2009 at 1:27 am
Barry:
You did a damn fine job on CNBC this afternoon.
Taking out the Investment Banks is essential, you didn’t get caught up in extraneous arguments. Ratigan is so angry he often loses himself in side issues. How far will the wall street treasury take us down before they capitulate? Could Obama play a trump card?
Do you have any insight into Volkers’s input?
Thank you for your ideas this afternoon.
dunnage
January 30th, 2009 at 3:39 am
@Steve Barry Says: January 29th, 2009 at 7:40 pm
Won’t work…if GDP falls to 14 trillion, the economy should only carry about 21 T in total credit…we have 52 T…that’s about 30 trillion too much credit in the US alone…I’m guessing that there is maybe 50 T globally in excess credit. This is real, real bad. The world is insolvent.
Not quite insolvent but definitely at the top end of being able to pay the interest payments on their debt. That is why everything is grinding to a halt. The question is does the world want to continue to pay the majority of their hard earned discretionary income to those who hold all the debt cards? I’m not talking the morality of paying what you owe but the reality of people not wanting to be debt slaves to those who would rather lend than borrow. I think people have finally come to the end of their debt binge and are getting wise. Savings rates will be the tell and I don’t think they care what it does to the economy.
Of course the bankers want to tie more debt ox carts onto their beasts of burden. They can’t do it through the willful acquiescence of the public so now they are resorting to trying to do it through the public binging mechanism and THAT is why people are beginning to get angry
January 30th, 2009 at 6:25 am
F’n B – silly bad bank plan reminds me of the following MP skit:
http://www.youtube.com/watch?v=grbSQ6O6kbs
January 30th, 2009 at 6:40 am
Bravo Barry, a simple, sensible solution delivered in your lilting Long Island voice.
Most of the proposed solutions are inscrutable – and inscutable for a reason. I like Liebsman but when he was talking about creation of a bad bank that would pay “slightly more than market” based on a model I knew the taxpayers were being lined up for a gang banging. These inscrutable models are part of the pwobwem, not the solution.
The only thing I would like to see more emphasis is breaking the good banks into enough pieces that any of them could fail in the future without undermining the whole system. And your hypothetical discussions of CITI and BOA weren’t hypothetical, Lewis’ swashbuckling risktaking has moved BOA into the zombie bank league, I think a true accounting of Wells would reveal them to be a zombie with a Wachovia head growing out of their shoulder a la Ray Milland’s The Thing With Two Heads, co-starring Rosie Grier as Wachovia.
January 30th, 2009 at 6:45 am
The Intrade depression contract is now up to 75%, it was only 15% early Nov prior to the election.
http://data.intrade.com/graphing/jsp/timeAndSalesForm.jsp?contractId=647817&tradeURL=https://www.intrade.com
I like Liebsman but he really seemed to be pimping the bad bank plan a few days ago. The best part was when Kernan asked him – how much will it cost and how will we pay for it and Liebsman answered that part hadn’t been worked our yet!
January 30th, 2009 at 6:47 am
Spenvis says:
Simple solutions for and by simple people. Place a 1% or 2% tax on ALL loans made in the US to be used to rectify the bad loans. It will take some time, but the burden will be on the ones who borrow; not the taxpayer per se. Businesses will howl; but who cares? As it is now the gains are privatized and the losses socialized. That loaf of bread in the supermarket will be more in line with normal costs rather than $8 per loaf.
January 30th, 2009 at 6:49 am
Barry,
Why did they all seem so skeptical about people buying assets after banks get taken over and cleaned out? Isn’t this basically what happened with IndyMac, I thought I had heard John Paulson then went in and started buying things up.
Anyway, good job, … purple tie.
January 30th, 2009 at 6:55 am
@Steve Barry,
Jeremy Grantham has some numbers on Japan’s figures in his Q4 letter to investors. I basically understood him to say that Japan was actually in worse shape than us in some respects. For example, I believe he says something along the lines of in the mid or late 80′s land in Japan was going at a rate of 10 x current rates in Manhattan.
He then says though that the Japanese consumer entered this phase with a much cleaner personal balance sheet than the average consumer here in the states.
Then you consider, by the time we get out of this, with all the stimulus were are printing debt to gdp is probably going to be closer to about 500% and you’ve got a spent up consumer that is getting unemployed and is having a harder time getting credit.
We don’t manufacture anything for the most part, consumer can’t spend, only one way to grow and that’s no growth.
They peaked at 39k and trade around 8k today, it may seem hard to believe that we could go to 4k on the DOW but if Japan is our guide it is reasonable to expect to see that and the sad part is possibly over the next decade.
Buy and hold right?
January 30th, 2009 at 7:37 am
High dive into the toxic pool from WSJ, talks about 40% bad loan rate on bank loans, be much more informative if they showed the various rates at different unemployment levels
http://online.wsj.com/article/SB123328162860331981.html?mod=djemheard#articleTabs%3Darticle
January 30th, 2009 at 9:01 am
Barry,
Yeah, wipe the shareholders, but can the debt really be “wiped”? Won’t that start a chain reaction of bankruptcies? Maybe you can explain to me (and others who need education on this) what the bank debt is comprised of. Isn’t much of this debt obligations to pay back depositors?
January 30th, 2009 at 9:26 am
Barry,
It seems like you just want the phony economy to start all over so our grandchildren can find themselves in the exact same mess.
What about first nationalizing the Federal Reserve? Let the Treasury take it over, back the Dollar with something real (e.g., goose feathers, red clay from Mars, maybe a precious metal?), stop spreading our fascism around the world by bringing our soldiers home, cut frivolous spending, then finally fire the IRS–and 2/3 of Washington!!!!
Finally, what’s up with “Fast Money?” Is that a sports show or a financial program? The name and the show’s atmosphere should be kept on record, or in a time capsule, to let future generations see exactly the type of environment that got us to where we currently are….
Sorry Barry, but that show is hideous. Is it sponsored by Mountain Dew and Burton Snowboards???
January 30th, 2009 at 9:36 am
Barry, you looked well composed and considerate. I was impressed how you let announcer interupt you and you kept your pace. Do you have a publicist that advises you in how to deal with these appearances or is this just natural talent? LOL
Have a good weekend.
+=-)
January 30th, 2009 at 9:41 am
Blackhalo:
The better solution is to:
1)
Negate option ARM language in loans. Render it null and void and insert fixed rate. This could help curb the number of defaults and late payments and people walking away from a situation they feel they cannot win. Also keeps some cash flow going in banks that need cash flow.
2)
Get Federal Reserve out of the stock markets.
3)
Ask Federal Reserve to liquidate insolvent banks and find stronger banks to take over their customer base. Instead of 8000 banks, we end up with fewer banks, approximately 5800 or 6200.
This allows for some of the bloat to be trimmed out of the problem, which is healthy. Consumers will react positively to this decision and the results. When it is complete, spending will resume again.
This is the other half of the problem, how to get consumers to spend. That is an answer with potential to do two important things, with one focus. Benefit by trimming the sector. Benefit by showing consumers focus in doing important work.
Consumers do not like paying for debt obligations of others, and they like it even less, if they feel there is a lot of bloat in the banking industry (paying bonuses they did not get, continuing dividend payouts they did not get, share buy backs they did not get, 80,000$ rug they never saw, exorbitant salaries like for a top athlete). These guys are NOT top athletes, they only pretend to be. They are more like high school athletes who went to college and flunk out.
Consumers don’t like the lie of paying top salary for people who are originating or bundling toxic assets and redistributing them into our economy, selling toxic to other Americans, like a poison pill being given to a neighbor. This is not top-athlete behavior, it is actually criminal and many top athletes if they did such things during a war time economy, would be sent to jail whereas bankers are presumed (by Federal Reserve and Paulson/Geithner) to be above accountability. Therefore the overpay for people who ruin the economy does not fly.
Its a lie. The consumer knows this and when taking it all in, they said ‘no sale’ and have stopped spending.
The main course to regaining trust, is to get rid of this bloat.
4)
Dont create a bad bank. Punish bad bankers. Stop trying to shelter offenders. It should be the other way around, shelter and protect the nation from offenders and financial terrorists.
The one thing Bush/Paulson authored and initiated that has seemed to linger, is that no one in the American Banking Association or connected with the Bush administration, should be held accountable for falsely presenting toxic bundles as good assets for some American businesses to buy.
Can’t be ignored and then presume to try to stimulate spending. If this was an extremist in our country, or extremist association selling assets under a false pretense, that caused systemic problems in our economy – our leaders would be pontificating about how we are going to find them and bring them to justice. When bankers who are friendly to the Bush administration do this, well, it is something to overlook.
Again, it cant be ignored, and then presume to provide stimulus to spending in other regards.
5)
Keep with what has worked: We are accustomed to capitalism. There are basic principals that are also familiar. If a business makes money it should be able to manage that profit. And on the other side of that, if they loose money, they are accountable for their own debts. They do not get to offload debt obligations on their neighbors.
In years past, when consumer makes mistake in financial matters, they are penalized two or three times over, encumbered in other ways, sometimes resulting in dings against their credit worthiness or foreclosure and bankruptcy proceedings; blacklisting that lasts many years to warn other lenders not to loan money to that person or entity. Bankruptcy carries with it scorn from loved ones, parents and in-laws, even business associates, so there is an additional burden.
When bankers screw up on financial matters, the government opens the check book and routes money from tax payer custodial fund, into their accounts. This is a rather grotesque deviation from the norm.
Even when tax payer says “NO,” the funds are taken out of a custodian fund, meant for tax payers, and redistributed to banks.
6)
Take one step back to go forward: Much of the spending/stimulus problem comes from representatives not listening to consumers who said “NO” to bank bailouts. When representatives and congresspersons turned a deaf ear (many instances, not all), this caused consumers to immediately pull back. Consumers have since responded by falling back to a posture of not spending. Here is the disconnect: People on Capital Hill and in the Fed do not realize such action of ignoring many people in the nation, who are prudent and do not default on their loans, have little debt and have good credit scores, you ignore those people — and they will stop spending.
The people with buying power in our nation, stopped spending because they are being told by the Federal Reserve and former president and Paulson, that they do not matter. Had they listened to “NO,” they would have then been required to consider a different course of action.
Failure to listen, and then taking funds out of U.S. custodianship, is actually tyrannical behavior. As a direct result consumers in American have stopped spending.
No spending = “NO” bank bailouts. We need to go back to what solutions remain available, after the nation said no to bank bailouts. See item 5 above.
7)
Stick with what works (part 2). Americans have become accustomed over the years to legal precedence, if you have a debt you cannot offload it on your neighbour and like a drunken sailer exclaim “we are all in this together.” In fact “we are all in this together” with regard to another person or entity’s debt obligation, that is not often true during the years 1965-2007. Why do we focus on these years of legal precedence? This is when most the people with spending power in this country, saw and became accustomed to seeing, business entities and individuals who could not make good on their debts, being foreclosed upon and close up shop. During those years, many thousands of foreclosures occurred and became somewhat unfortunate, but familiar in a sense. During those foreclosure proceedings involving colleagues in rotary, real estate agents in the news, uncles and relatives, in-laws or other business entities, no one was saying from a bank “we are all in this together.”
Federal Reserve officers and Capital Hill representatives are sort of acting like high-school kids who are new to power, trying to figure it out and do not seem to understand what works (want to experiment with their way of doing things, etc).
Now they want to try assuring people in the country to spend again, yet they do not realize people in the nation are waiting for mass foreclosure/liquidation to occur and consolidation in the banking sector.
They just don’t see it yet: What they are accustomed to seeing. Thus they are not spending.
8)
Stop trying to con American consumers. Federal Reserve and Treasury think they can suddenly change the rules in the 8th hour of the Bush administration (by any means necessary) whiplash, surprise we are in an economic crisis?
Consumers do not believe that no one saw it coming. They think they are being lied to so that bankers can evade responsibility for their debt obligations.
Consumers have seen how a shell game works. They see Fed speak about sudden economic emergency as type of con: There is a commotion or sudden event that presents itself, and then someone emerges asking for money. Quickly. They want you to open your wallet or write a check on the spot.
Stop trying to deceive the nation, and get busy liquidating insolvent banks and consolidating the industry.
9)
Do what you are paid to do.
This is the thing Paulson tried to not do. Liquidate insolvent banks, protect consumer funds and find stronger banks to take over customers. Consolidate the sector and do so with power of the Federal Reserve.
It is telling of his character, for it is the important work, that he sought not to do.
Even worse, Paulson tried to distract attention from this important work. He did this under direction of former president.
Conclusion: Negate option ARM loans immediately. Replace them with fixed rate.
There is too much bloat. Use the “by any means necessary” mantra to get rid of it.
Liquidate insolvent banks and consolidate. Spend greatest focus to protect businesses and customer accounts. Find stronger banks, with better planning and management skill. Let them take position of leadership. Use funds to aid them in transition.
Do the important work. Trim out bloat from the banking sector.
People with buying power will be relieved and start spending again. Private enterprise will start swooping and darting like birds to build nests again or pick up valuable assets that fortify and provide sustenance; whatever they have been eying from high above the fracas.
January 30th, 2009 at 9:45 am
BR:Saw you and you argued your case well but it’s very unlikely to happen I’d say. Sorry to disappoint the majority of the crowd here with their pitchforks, ropes and torches. At the end of the day all these assets worth we’re not quite sure what aren’t going to magically disappear. And just throwing a giant firesale would create worldwide panic. They need a harbor for them until the storm passes and it’s possible to do this without nationalizing the banks which could have all kinds of anticipated(scaring off private capital and a cascade effect) and unintended consequences. The Journal has a piece up this morning suggesting the latest idea is a mix of bad bank and insurance. We’ll have to see but nationalization is way down the down the likely options.
January 30th, 2009 at 9:53 am
@ hangtime79; 5:38
What you should get is stocks that are locked up for 5 years (or more) with criminal penalty for selling or borrowing on your ownership of that stock. So yes 5 years later you get a nice little letter with your bonus and reward for good job done.
January 30th, 2009 at 10:25 am
The banking industry should be quivering from having seen the might and power of the Federal Reserve in action; brushing close or feeling the force of it going to a bank next door.
The sector should already be 10-12 percent smaller than it was in the 3rd quarter 2008.
Insolvent banks are suppose to be dealt with rapidly and with force. This is how consumerism is protected along with capitalism.
January 30th, 2009 at 10:26 am
good post Bruerr
January 30th, 2009 at 11:47 am
@ flipspiceland @
“Even Jon Stewart had a way out that did not involve all this complex maneuvering: Simply use the trillions to mail a check to everyone in the United States. They would either deposit in their bank (so the bank gets the deposits) or they would spend it, which would juice the economy.”
Believe Jon’s suggestion was more restrictive, taxpayers would be required to use the checks first to pay down existing credit card / mortgage debt. Those with little or no debt (moi) might or might not spend it.
@ Pete @ 8:44 p.m.
“Although Obama slams Wall Street for the bonuses, yet he has Geitner by his side .”
Can only hope it’s a case of keep your friends (Volcker?) close, keep your enemies (Geithner) closer.
DL @ 11:15 p.m.
How do you track down all these data sources? good research!
January 30th, 2009 at 12:16 pm
Steve Barry wrote: “This is real, real bad. The world is insolvent.”
How the Common Man Sees It replied: “Not quite insolvent but definitely at the top end of being able to pay the interest payments on their debt. ”
To whom are these debts owed? The Greys? To whom are the interest payments being made? The Zeta Reticulans?
No; obviously we owe the debts to one another, and make the payments to one another. Any cycles in those debts could be identified, and the whole cycle zeroed out, improving equally the position of everyone in the cycle (but also raising the question of just what economic benefit such cyclic borrowing produced).
What’s left will be a flow graph, pointing to the few individuals and corporations that are net creditors. That will be an interesting list to peruse…