‘Bad Bank’ versus ‘Insurance Wrap’
Some people are suggesting that the bad idea of a bad bank is gaining momentum in the Obama administration; Others are suggesting that an insurance wrap around the toxic assets is the better approach:
“The Obama administration, aiming to overhaul the $700 billion financial-rescue program, is refocusing on an effort to guarantee illiquid assets against losses without taking them off banks’ balance sheets.
Treasury Secretary Timothy Geithner is skeptical of setting up a so-called bad bank to hold the toxic securities, an option that still may form part of the final package, people familiar with the matter said. Senator Charles Schumer yesterday said debt guarantees are becoming “a favorite choice” of options because a bad bank would be too costly.
The debate comes as some former officials warn against measures that stop short of stripping banks of the illiquid investments tied to mortgages and related securities. Government protection for $400 billion of Citigroup Inc. and Bank of America Corp. assets hasn’t sparked investor confidence in the firms’ viability.
“The tough decisions need to be made,” Frederic Mishkin, a former Federal Reserve governor and research collaborator with Fed Chairman Ben S. Bernanke, said in a Bloomberg Television interview. “You have to make sure that when all is said and done, you actually have financial firms that are either healthy and the ones that are not healthy can’t stay in business.”
These both remain misguided attempts to rescue the banks instead of the financial sector and the economy.
Bad ideas . . .
>
Source:
Toxic-Asset Guarantees Gain Momentum in U.S. Bank-Rescue Talks
Robert Schmidt
Bloomberg, Feb. 4 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=arG13cCBPnHY&
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February 4th, 2009 at 9:16 am
I fully expected this to happen, but at the same time it still galls me. I think of myself as a through and through capitalist, which means I believe:
1) If you make a lot of money for you stakeholders, then good for you; buy all the private jets and Cristal you want. Just pay your taxes and we’re square
AND
2) If you f%$# up, the f%$# you, TOO F%CKIN’ bad. You rolled the dice and lost…
They are both two sides of the same coin. Reward without risk (or achievement for that matter) is perverse and terrible to any fair system. We have a multi-tiered capital structure for a reason.
I don’t think we the public (as theoretically represented by the government) should touch any toxic assets, unless common shareholders are wiped out. If there still isn’t money left, the wipe out preferred, then senior management, then unsecured debt, or something of that sort…
At the top of the pyramid should be
1) Taxpayer
2) Counter parties
3) Senior, secured debt
I don’t see why the Federal government doesn’t understand this. Doesn’t every elementary school kid get taught that every action has consequences, and you have to take responsibility and live with it?
HCF
February 4th, 2009 at 9:27 am
Note Schumer’s comment that troubled asset pricing under a bad bank solution could be so low as to bankrupt all other banks. Nice sophistry Senator. If the assets are worthless then the banks are insolvent NOW.
February 4th, 2009 at 9:29 am
The bad bank proposal is more or less the original TARP I proposal, which Mr. Ritholtz supported and which I opposed so violently that I became a blogger. One wonders what has changed that he opposes the current bad bank momentum. Mr. Ritholtz also was a vocal supporter of Mr. Obama, who voted for TARP I, the feckless BofA-written legislation last summer, and who doesn’t mind putting tax evaders in key positions in the Govt. The truth is that the Establishment chose the unknown and unaccomplished vehicle of Barack Obama to represent their interests in part to be better PR w the rest of the world. He has faithfully represented their interests to date.
IMHO, a better proposal is that of Nassim Nicholas Taleb (Black Swan author). Treat depository institutions (what we used to call banks, as opposed to gambling financial institutions) as regulated utilities, so that they always function just as electricity and water/sewer are always on; let the gamblers do what they want.
I support Mr. Ritholtz’s call for prepack bankruptcy where appropriate.
~~~
BR: I supported the TARP ?
Do you have a URL or an excerpt for that? I’ve been a vocal critic of the TARP for quite a while . . .
See The Terrible Lessons of TARP
February 4th, 2009 at 9:34 am
Mr. Ritholtz? Are we in court?
February 4th, 2009 at 9:36 am
Here is my theory why they do not want to do nationalization.
If you start indiscriminately wiping out shareholders left and right you will never get private capital to come back to the financial sector. And eventually I think we all agree that we want all the financial institutions to be private.
I think, rightly or wrongly, that is the line of thinking they are taking.
February 4th, 2009 at 9:39 am
Uncle Stupid to the rescue in classic form. I think the ‘kick me’ sign he usually wears has been tattooed to his forehead to complement the one taped to his back. So, who will be running this program, a thief or a mental defective? Maybe the cost will be buried on the Fed balance sheet. Nobody looks there.
Or maybe it’s the way Uncle Stupid plans to prop up real estate prices. Banks will claim distressed assets are worth a lot more now that Uncle Stupid has entered the picture. See… the price tags have all changed … positive proof of a recovery. Of course, if Uncle Stupid doesn’t play along, the price tags will be marked down and PEOPLE WILL SUFFER.
Is there a limit to the stupidity of Uncle Stupid, or are we looking at hyperbolic negative inflation between his ears?
February 4th, 2009 at 9:47 am
For years now, I’ve wrestled with the following question:
If my significant other should morph into a zombie, but I heard that a cure was only a few months away, what would I do?
1. “Sorry Baby. It’s been a great run and I’m gonna miss you. But…say hello to my little Louisville Slugger!”
2. “I’m gonna let you go. Try not to kill anybody; and for godsakes–show a little self-discipline and refrain from dining on human brains! Then, if you do recover, come on home!”
3. “Let’s just chain you in the cellar and wait this one out”
I always kept the answer to myself…as I didn’t want to cause any friction—but the answer is #1.
Since I am willing to make that sacrifice of a loved one to prevent the spread of this insidious disease, I think it’s not asking too much to demand that Team Obama do the same with our infected banks:
It’s time to go Barry Bonds on a ‘roid rage HGH bender, channelling Robert Dinero as Al Capone in The Untouchables and bring these banker boys in to The Board Room.
“It’s never to late to liquidate!”
It’s either that…or we all might consider arming ourselves along with trusted family members in our respective locations. Then, each group should travel to a nearby mall. Gather all the food and block off the doors. Wait for the zombies to leave in order to find easier prey… or attempt to leave in a fortified car or bus.
Godspeed to all of you.
February 4th, 2009 at 10:26 am
BR: Who can say what side of the fence they will down upon. Personally I think it will be a mix of bad bank and insurance. Apparently you disapprove of both and prefer a wholesale nationalisation of the banks which is allegedly going to be “short term.” Would that be short term as in AIG? I think we have as good a team as the country could assemble working on this. With due respect they are in possession of much more info and feedback from financial institutions and other central banks than you, me or any other of the self appointed experts, so we should leave them to get on with the job.
@ Machiavelli999 Says:
And yes I’m sure this is one of the major reasons although it’s by no means the only one. If you want to scare away private capital from the entire financial sector and that’s way beyond banks I can think of no better way to do it than by wiping out the banks common stockholders. It may come that but its a last resort.
February 4th, 2009 at 10:30 am
DoctoRx Says:
February 4th, 2009 at 9:29 am
Why don’t you check your political agenda at the door. This is not about politics it’s about finding the best way out of an appalling set of economic dilemmas.
February 4th, 2009 at 10:43 am
Apparently Mr. Market is liking whatever is leaking out of Washington’s back rooms…
So Andy T, after your post yesterday
“the market SHOULD NOT be able to decisively break 841. I’ll give it the benefit of the doubt up to 849 (61.8%), but if we take out 849, then I’ll have to change my shorter term models around. I’ll still be medium/longer term bearish, but my short term bias will change.”
Twice over 850 so far, has your short term bias changed?
An opportunity for longs to get out while the getting is good?
February 4th, 2009 at 10:47 am
Commercial, as opposed to investment, banks have been, since the advent of the FDIC in the ’30′s, quasi-governmental agencies. The dollars they accept as deposits, upon which their fortunes ride, are priced by the government, and their return to the depositors is insured by the government.
Complete nationalization of the commercial banks would not have to progress very far from where things stand now.
But it wouldn’t solve anything. Just like the postal service loses money every day (about $2.8 b in ’08), so too would the banks.
Fannie and Freddie have been effectively nationalized. That’s working out real well, as they both are coming back to the trough for more, and sooner than expected.
The only way to provide a healthy foundation for renewed growth is to let the banks fail. No bad bank/good bank bullshit–just let ‘em go bankrupt–wipe out the shareholders and write off any other investors for whom there is not enough money to pay from auctioning of the assets.
If we don’t allow this now, we will be in for a long, slow grind to the bottom, where we’ll stay for years, if not decades.
Just like a good fire can renew the vigor of a land suffocated by the detritis of dead and dying life, so too can a financial conflagration renew the vigor of a maturing and ossified economy. Let it burn. Let the banks fail.
February 4th, 2009 at 10:47 am
In response to BR’s question of providing written proof, I do not find this site to have searchable archives. If so, I would be willing to go back to late September, just before the vote, to check.
Does anyone have the following recollection: that BR, before the first vote on TARP, stated in TBP that despite his many criticisms of it, he was reluctantly for it? Memories can be flawed, so I apologize sincerely if mine is incorrect, but I was a twice-daily (at least) TBP reader back then and kind of hung on every BR word of wisdom in those scary times . . .
~~~
BR: There is a big search box dead center below the header/Nav bar, with the word SEARCH and the blue box GO . . .
February 4th, 2009 at 10:52 am
if nobody likes the bad bank idea because there is no way to price the ‘assets’ to be bought and put into it. and if we are so opposed to nationalization of the banks because its bad, its a culture problem (?), and it will scare of private capital (seems like that has already happened). and we can’t let them fail with out them taking us down with them (they are to ingrained into the economy. note just the credit freeze that happened last year is just a small taste of what could happen as they failed). and we know they are are all essentially bankrupt (but we can’t let fail. see credit freeze). maybe the next best thing is to have the banks put their ‘assets’ on consignment to the bad bank. they get a percentage of the amount up front, and if their ‘asset’ sells for more, well and good, they get a percentage of that. if not, too bad, they have to write off that loss. the down side is that the banks are still under capitalized, and private capital isn’t about to invest in them, so tax payers might have to invest in them, but we need to get a better deal than before. tax payers aren’t raked over the coals as badly as they could have been with just a bad bank, and the insurance deal is also a big loser for the same reason. but we might get an upside based on asset sales (if any) with less of a down side (wasted money on really worthless assets) and we actually get some equity in the banks.
February 4th, 2009 at 11:04 am
My recollection is that the only banks receiving attention are the TBTF Wall Street banks, why regional and local banks appear to be functioning well. IMHO allowing the big banks to fail replaces them with the regional and local banks as attractive sinks for capital investment knowing full well that they can then quickly fill the banking system void and become TBTF. Sound familiar? Remember how all the big banks are a conglomeration of big fish swallowing smaller regional fish over the last three decades? Payback.
February 4th, 2009 at 11:05 am
“Why” should be “while”: “while regional banks …” Sorry about that. More coffee.
February 4th, 2009 at 11:09 am
@usphoenix: SOME of the local and regional banks are performing well NOW (we think) but many are going down this year and next year as commercial RE loans default in large numbers. Many of these banks participated in this bubble via the commercial RE industry. Some of them are going to be OK but hundreds could fail in the coming years as commercial RE goes in the tank.
February 4th, 2009 at 11:10 am
A very entertaining and to the point write up here on the bank bank idea. This with Barry’s post is a good tandem.
http://www.nakedcapitalism.com/2009/02/bad-bank-assets-proposal-worse-than-you.html
February 4th, 2009 at 11:34 am
Barry — I’m curious as to your thougths as to why, if this is such a bad idea (I’m not saying it isn’t), we’re not hearing alternate theories from the likes of Summers and Geitner(sp?). I know the former to be brilliant, and I’d suspect that if he has Obama’s ear, he’d be proposing a solid, workable solution.
Do you think he’s in the same tank as Paulson and just interested in keeping bankers’ pockets lined?
February 4th, 2009 at 11:35 am
Agree totally with HCF, the top of the pyramid should be
1) Taxpayer
2) Counter parties
3) Senior, secured debt
Then, “the tough decisions need to be made,” said Frederic Mishkin, a former Federal Reserve governor, “You have to make sure that when all is said and done,… the ones that are not healthy can’t stay in business.”
Underscore that: “the ones that are not healthy can’t stay in business.”
Isn’t the whole purpose and mission of the FDIC to see that “the ones that are not healthy can’t stay in business”?
FDIC goes in, sorts the wheat from the chaff, puts “not healthy ones” on the block.
IF there are not enough healthy ones to buy up the pieces, then inject sufficient taxpayer capital (see 1 above) into those least impaired and/or which were the least of the f#*k-ups.
A. Could it be that the morass is so wide and deep that is beyond the capabilities of the FDIC to drain the swamp in a ‘reasonable’ time?
B. Could it be that counter-parties (see 2 above), in the form of SWFs (China et. al. ?), have let it be known that they won’t settle for the No. 2 spot?
February 4th, 2009 at 11:39 am
Can we even trust those who are to regulate and oversee whatever comes out. The Markopolos testimony on C-SPAN3 detailing the Madoff fraud is ripping a new one into the SEC and the entire Wall Street financial community. This guy better be under the witness protection program. I’m questioning whether we can trust the integrity of the system given his testimony. It’s stunning. No words.
February 4th, 2009 at 11:40 am
Let’s face it: they don’t want to make the likes of the Saudi Prince (and others in the monied class abroad) take his/their lumps, so obviously the anti-nationalization stance is highly political. However, the way I look at it, making the Saudi Prince take his lumps on his Citi stake would be some (small) form of payback for their home growing 15 of the 19 9/11 hijackers. Payback’s a bitch, Prince.
February 4th, 2009 at 11:40 am
A given – “(Summers) in the same tank as Paulson and just interested in keeping bankers’ pockets lined.”
This is not about “saving” the banking system, but about pulling certain banks’ nuts out of the fire.
February 4th, 2009 at 11:42 am
If investors are not already afraid of the financial sector, then they need their heads examined. Note the prices of Citi, BofA, GE.
And as far as the “best minds” being assembled for the task at hand goes, I’ll repeat myself and say there’s a big difference between a technically correct ivory-tower solution and what is politically feasible.
Unlike FDR and Lincoln, I am becoming convinced that Obama is over-reluctant to make enemies. That’s a fatal flaw IMO for a crisis presidency.
Ain’t no happy feel-good win-win expanding-pie solution coming out of this mess.
February 4th, 2009 at 11:43 am
@ Mannwich
“some (small) form of payback for their home growing 15 of the 19 9/11 hijackers. Payback’s a bitch, Prince.”
an inequivalence and dangerous at that – don’t start down that road.
February 4th, 2009 at 11:44 am
In response to ottovbvs, unfortunately in this financial crisis, it’s all politics all the time.
February 4th, 2009 at 11:52 am
I have a sneaking suspicion (am hoping) that the new pay caps rule is going to hasten us towards some form of nationalization/bk’ing the bad banks. News on CNBC just broke that several Merrill bankers leaving for Deutsche where there are no pay caps. Could it be that’s what O is trying to do here with the pay caps, separate the strong from the weak and get on with putting the weak down? Or am I way off base here?
February 4th, 2009 at 12:00 pm
The distinction between saving a sector and saving large, individual players in that sector would probably not be easy even if they weren’t intensely cross connected as the main financial sector players almost surely are. It just looks like a zugzwang, a situation where something must be done but all moves are ‘bad’ even though some will likely prove worse than others; wish I had a better sense of what the less worse moves might be but I really don’t.
What I do sense is a reluctance in Washington and Wall Street (and probably the wealthy generally) to accept that the financial sector can not return to its former glory no matter what happens: It is not just going to become more regulated it needs to become smaller and less powerful and very probably stay that way; when you sweep away the ideological cob webs then the real fight seems to be how much of all that is going to happen.
February 4th, 2009 at 12:02 pm
Some commenters (HCF & Curmudgeon) and BR have argued that the free market solution is best. For example Curmudgeon @ 10:47 said “The only way to provide a healthy foundation for renewed growth is to let the banks fail. …If we don’t allow this now, we will be in for a long, slow grind to the bottom, where we’ll stay for years, if not decades. ”
I agree! We don’t need another Japan. Unfortunately what is best for the country is not necessarily best for those who will be making the decisions. I supported Obama & contributed to his campaign. So far my opinion of him is still in flux. However, it is cooling as I observe and read about events such as the appointment and then defense of Geithner. all the trial balloons and position twisting over what to do with the 4 big, greedy banks, the amount & priorities the House Democratic supported stimulus program. The high ground is obvious . The time for Obama to choose is NOW. Is he aligned with the people or his major NY contributors? If Obama chooses a Paulsonesque path favored by the NY industry rather than cutting of the taxpayer’s blood supply to the zombie banks, we, the people will KNOW.
February 4th, 2009 at 12:07 pm
All of this talk from Obama about how we have to limit CEO pay suggests to be that he is planning on really taking the taxpayers to the cleaners so that the banks can benefit.
He thinks that as long as he limits CEO pay, the “sheeple” will gladly fork over a few trillion dollars.
February 4th, 2009 at 12:13 pm
I’m actually having an “Insurance Wrap” for lunch….
February 4th, 2009 at 12:14 pm
I hope you’re wrong, DL, but fear you might be right. More window-dressing, which is what our gov’t and corporate malefactors do best these days. If that’s the case, I don’t think it will work though. The cat is out of the bag already and people are slowing waking up from their 100-year slumber.
February 4th, 2009 at 12:18 pm
What’s the big deal about one more bad bank when there are so many already?
February 4th, 2009 at 12:24 pm
1) I agree with those who say let the free market decide their fates. No government assistance (taxpayers money). You break it, you buy it.
2) Couldn’t they use the original selling price of the homes with approximately a 3.5% increase in the value (yearly) to figure out how much the MBS’s are currently worth? The 3.5% is the long term average increase in the price of homes (I believe).
February 4th, 2009 at 12:39 pm
“The bad bank proposal is more or less the original TARP I proposal, which Mr. Ritholtz supported and which I opposed so violently that I became a blogger.
….
In response to BR’s question of providing written proof, I do not find this site to have searchable archives. If so, I would be willing to go back to late September, just before the vote, to check. Does anyone have the following recollection: that BR, before the first vote on TARP, stated in TBP that despite his many criticisms of it, he was reluctantly for it? Memories can be flawed, so I apologize sincerely if mine is incorrect,”
DoctoRx, failing the obvious (which BR has already suggested; the search box at the top of the page), you can also search through the old site: http://bigpicture.typepad.com/
I suspect that, if such statement was ever made by BR, you have neglected to take into account any qualifying statements (such as this hypothetical eg. : given the passage of TARP is inevitable, I support the passage of this 2 stage approach, as opposed to any form a one time blank check). If this is the case, you have indeed grossly misrepresented BR’s position on the matter. Context is everything.
February 4th, 2009 at 12:50 pm
Machiavelli999 @ 9:36
“If you start indiscriminately wiping out shareholders left and right you will never get private capital to come back to the financial sector”.
And what do suppose happens in a bankruptcy?
This is not about what’s best for the country in the long run.
This is primarily about the political power of the bankers, and to a lesser extent, about what’s good for the careers of the politicians in the short run.
February 4th, 2009 at 1:26 pm
Ahhh…. where does it end???
This is a very important discussion, but I’ve been hesitant to comment. I-Man been soul searching on this heavily for a week at least…
First I was for the bad bank, then the Sweden idea… “temporary” nationalization… but how well has that worked out for them? Whats the alternative? Japan? It just goes round and round.
And I’m pretty much falling into the temporary nationalization camp but where the hell does that end? How do we propose to call when enough is enough? Do we really want our banking experience to be like the DMV? Like healthcare is going to be in no time flat?
Who makes these decisions? Geithner? Summers? Obama? These cats are way smarter than they are acting right now. I’m getting pretty sick to my stomach knowing that I voted for Obama, betting on the more moderate of his intentions, hoping that the infrastructure campaign would put the masses to work and lift us out of this mess… Now I’m just thinking I helped sweep in the first Socialist president in the history of the US… that is going to destroy capitalism. But its sick… we have no choice BUT to nationalize them it seems.
Nationalizing the banks looks like a great first step to Socialism to the pessimist in me. Its hard to separate the political from this discussion… and I hate politics. But its politics and influence that are keeping us from making the hard decisions of wiping out these banks. Instead, we’re propping them up.
Now we’re attacking the bonus structure and going on a Wall St witch hunt… and most of it justified… the Street is a meritocracy, if you kick ass and make money for the firm you get paid well. If you drop the ball you’re cut. Period. These jack asses giving out billions in bonuses to peeps who are responsible for losses in the billions because they “feel bad” and know that the end is near for their careers SHOULD have been shitcanned the second they went crawling to the Feds for money to save their ass. But we havent done that. WHY NOT? Thats the real question. Instead we’re attacking “the excesses” of Wall Street in some generalized bullshit way that screams to me of entitlement and socialist wealth distribution.
What a mess of shit we have tangled ourselves in here.
February 4th, 2009 at 1:40 pm
Tyler K: couldn’t search though tried “Search” various ways. If you can help me, that would be appreciated.
As per my last comment, my recollection is that BR reluctantly came out for the measure after vigorously objecting. I don’t see that it’s a big deal in any case at this point. What does matter is what Mr. Obama believed then and what he believes now. Can we move on? Barry has already disclaimed supporting it.
February 4th, 2009 at 1:58 pm
DoctoRx Says:
February 4th, 2009 at 11:44 am
In response to ottovbvs, unfortunately in this financial crisis, it’s all politics all the time.
Obviously there’s a political dimension to this but I don’t think it’s the prime driver in finding a solution that works. Summers/Geithner/Volcker/Bair/Orzag I’m sure give it minimal consideration except inasmuch as it impacts their ability to get the ok from congress when they need it. If they come up with a solution that works the politics will take care of themselves and the Obama admin will be heroes although it sounds like that wouldn’t make you too happy.
February 4th, 2009 at 2:37 pm
@ottovbvs:
“If they come up with a solution that works the politics will take care of themselves…”
A solution that works. Works for whom? Bankers? Taxpayers? The EU? China? Russia? Everyone (Kumbaya)?
Explain to me how a group of political appointees come up with a non-political solution. This I really want to hear.
February 4th, 2009 at 2:47 pm
Am I getting this right? Congress won’t do good bank – bad bank merely to protect the taxpayers from spending a few extra dollars on bad assets?
If half the country (i.e., Democrats) supports Congress and a pork-laden stimulus bill that has almost no immediate stimulus and leaves taxpayers with a huge bill, then it follows that these people don’t really give a crap about higher future taxes and overpaying.
So, why quibble over whether a toxic asset is worth .50 or .60 cents on the dollar. Just over-pay and get credit moving again. Then, these government investments will surely pay off for the taxpayer as private buyers want a piece of the action and bid for them or, the Treasury just holds them and makes a killing on the cash flows.
February 4th, 2009 at 3:08 pm
batmando: February 4th, 2009 at 10:43 am
Usually I’m referring to SP futures…849 was the 61.8% of the march futures…which held today, almost perfectly. The 61.8 on the cash was 854. The market reversed 1 pt in front of the 61.8. Sorry for any confusion.
February 4th, 2009 at 3:10 pm
sorry. 61.8% of most recent leg down was 852.91 on CASH S&P. Market reversed at 851.85. But of course technicals are only important because they’re self-fulfilling prophecies….ha.
February 4th, 2009 at 3:14 pm
To ottovbvs: Any solution that works would make me ecstatic. I consider myself a loyal American and am heavily invested psychologically and financially in the success of this country. The problem is that I agree w Barry that the trial balloons, if you want to call them that, emanating from Team Obama are ones that have lots of problems.
Thematically I would like to see a focus on savings and equity rather than debt, but the Bush-Paulson-Bernanke solution was to keep the Merchants of Debt in business at the expense of the citizenry. I am not seeing that as President, Mr. Obama is breaking from that theme. But till he actually makes a proposal, we’re just guessing.
Rather than suggesting that a fellow commenter is rooting for economic failure, perhaps it would be better to put forward your POV and leave it at that. I’m not criticizing or guessing at any other commenter’s POV.
February 4th, 2009 at 3:24 pm
Please forgive my complete ignorance about how these toxic assets are created/traded, but I have a question- why can’t the gov’t obtain the toxic assets (CDO’s and mortgage-backed securities, right?) from the banks, and then put them through some form of “securities dialysis” where the underperforming mortgage slices (or other underlying debt instruments) that have contaminated the assets are stripped away, leaving healthy assets behind that can be re-sold to the banks? Is it possible to re-slice and re-dice the toxic assets, and then re-combine the individual pieces into healthier securities, while at the same time taking the shittiest remnants and combining them into super-toxic assets that the gov’t retains? Does this question even make sense?
February 4th, 2009 at 3:38 pm
TruthTeller @ 2:47
“So, why quibble over whether a toxic asset is worth .50 or .60 cents on the dollar. Just over-pay and get credit moving again”.
I have no problem with that…. as long as the “quibble” is over the question of whether the assets are worth $.20 or $.30.
February 4th, 2009 at 3:53 pm
Sorry but if the future owners of financial stocks have not been scared off by a loss of 90% why would they be scared by the loss of the remaining 10%? The risk of complete loss of your investment (to incompetent management or nationalization) has always been there and never before scared anybody away as long as the profit potential looked good. The “we can’t nationalize because then all the little pussy-cats on wall street will get scared and hide under a pillow” meme is ideological bull-s**t. Has never happened in the world and will not happen now – in the end gread always beat out fear.
February 5th, 2009 at 1:47 pm
I have not seen yet, in any article or discussion about bank bailouts, govt insurance, or bad bank formation, the acknowledgment that the housing bubble WAS INDEED a bubble. Yes, people do still purchase tulip bulbs, but who would argue that eventually tulips will reach the peak valuations they reached at the top of the tulip mania bubble?
Pretending that housing valuations (or oil, tulips or any other bubble) were driven by underlying demand rather than speculation driven by those who exploited loopholes in the financial system is…worse than useless. It’s criminal.
For those who argue otherwise, a viewing of “Enron: The Smartest Guys in the Room (2005)” will be highly instructive. Precisely the same events happened (and will happen) less than 10 years ago.
What Obama needs around him are not the smartest guys in the room, but the most ethical, copassionate guys in the room. Unfortunately, the current cadre does not meet that standard.