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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

One Response to “Robert Herz on Large Bank Insolvency”

1. sourcethree Says:
   March 14th, 2009 at 1:48 pm

   the problem is the application of the rule and the consequences – it wrecks GAAP accounting capital (tangible common equity for example), even though regulatory capital (which actually takes into account the ‘riskiness’ of those assets) is fine

   there are sick institutions, yes

   but there are also plenty of healthy institutions that are being forced to take hits to their capital from the unrealized losses that M2M forces them to take – this means TAXPAYERS have to either come in to shore up the bank with a capital infusion, or else we let an otherwise healthy bank fail

   some people choose to define such a bank as ‘insolvent’ – taking that at face value and closing the bank down doesn’t really benefit the banking system or society, unto which further costs are imposed – allowing these banks to mark the good assets as they would their loans (cash flow/expected economic loss basis) prevents the needless destruction of these banks

   modification of M2M is not a distortion of facts any less than marking loans to model is a distortion of facts – Grayson does invent some pretty funny examples, but he’s missing the point, as is Hertz who is more worried about the purity of a rule his board created rather than what is in the best interests of the system/taxpayers