1) Any ideas put forward should help revive the economy short term while advancing systemic solutions long term. No other suggestions should be entertained.
2) The writedowns of the last 6-12 months have resulted from the devaluation of what are now value-free securities (ie. those for which there are illiquid markets), backed by an unknown mix of mortages of varying underlying value, including many sub-prime, etc.
3) The banks have already taken the hit on these and either recapitalized or taken TARP or other govt infusions. Ie if these the securities ever regain any significant value, the banks holding them will make money…
4) Since the outcome of 3 is unlikely to happen soon, pass on the loss to the underlying instruments. Yes, I do mean that. Devalue the debt owed, so that If the nominal value of an MBS is $100M but it is currently (over?) valued at $20M and has not market, reduce the obligation of the underlying mortages by 80% accross the board. That will almost certainly ensure that the homeowners concerned will be able to pay the balance offs, will improve their credit ratings, andwill have more disposable income to spend and stimulate the economy. It will also guarantee the new $20m face value of the MBS.
5) note that 4 costs both the taxpayer and the banks exactly $0.

(I have been considering airing this for a while, then I heard that John Stuart was proposing that the TARP money be given to the debtors so that they could pay down their mortgages, which would still not solve the liquidy and credit problems.)

http://www.nakedcapitalism.com/2009/02/japan-on-edge-of-abyss.html

Japan is imploding. The strong Yen and Global Depression has caused some of the large industrial output drops ever recorded in modern economic times….just a guess.

For anyone holding length, I would use 810, 800 and 780 on the CASH S&P as some round stop loss levels. I.e. Break of 810 should be Code Yellow, 800 should be Code Orange and 780 should be your Red Threat Level….i.e. Get the F*&k out the Market.

Stand out of the way and let the chips fall where they may.

http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx

2/4/09 06:50 PM Japan Buying Foreign Bonds (Yen) JAN 30 ¥ 457.4 B – ¥ 54.2 B Japan
2/4/09 06:50 PM Japan Buying Foreign Stocks (Yen) JAN 30 ¥ 482.2 B – ¥ 90.7 B Japan
2/4/09 06:50 PM Foreigners Buying Japan Bonds (Yen) JAN 30 ¥ -341.7 B – ¥ -92.5 B Japan
2/4/09 06:50 PM Foreigners Buying Japan Stocks (Yen) JAN 30 ¥ -328.9 B – ¥ -376.3 B Japan

From page 3…

It appears the rest of the globe is getting out of the Japanese stock market and that Japan is buying foreign bonds and getting out of their bond market…

I am not interested much in stocks here, but I am interested in bonds…Mannwich, Lefty, Karen, Crummy?

any reasons??

The loss rates on the top banks are going to be multiples of Tier One Risk Based Capital, INCLUDING THE TARP. The TARP preferred in C, BAC, JPM and probabaly WFC is toast, IMHO. So any discussion that does not include a proposal for a pre-pack deal to haircut the debt is not credible, again my view.

How about this? We stop out the loss rates for the $1.5 trillion in bank bond holders at 50% of par, but they must agree to accept only token equity participation in the new bank and rely on the bad bank outlined above to recover above 50%. For C bond holders, that may not be a bad deal.

Q: When are the C and other money center bondholders going to organize so that they can discuss good proposals like this. Whether or not this precise outline is the ticket, this is the type of conversation that need occur.

Chris

It just incentivizes the already stupid acquisitions of banks, large and small, everywhere. Just like a the saying goes about a bank debtor– if failing costs the government a million dollars, the government owns you. If failing costs it a billion, you own the government.