Comments on: How the Government Can Fix the Credit Crisis http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/ Wed, 15 Feb 2012 23:15:08 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Jeff http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-218711 Jeff Tue, 10 Mar 2009 17:32:30 +0000 http://pajamasmedia.com/?p=48340#comment-218711 Today, March 10, Barney Frank advocated bringing back the uptick rule, and changing mark to market. Today, March 10, Barney Frank advocated bringing back the uptick rule, and changing mark to market.

]]> By: Jack http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-214878 Jack Wed, 04 Mar 2009 04:31:57 +0000 http://pajamasmedia.com/?p=48340#comment-214878 Suspending dividends arbutrarily is a bad idea, but based on what "dontreadonme" said I'd say that the drive to provide dividends is a short term incentive that is not always a good indicator of long term gains (i.e. it can be a lure) so I'd not want to rely on that alone. Let the lender fail, prop up the borrower where it makes sense. The borower may be dumb, but the lender needs to learn to be accountable. Jack Suspending dividends arbutrarily is a bad idea, but based on what “dontreadonme” said I’d say that the drive to provide dividends is a short term incentive that is not always a good indicator of long term gains (i.e. it can be a lure) so I’d not want to rely on that alone. Let the lender fail, prop up the borrower where it makes sense. The borower may be dumb, but the lender needs to learn to be accountable.

Jack

]]> By: Marc Malone http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-214610 Marc Malone Tue, 03 Mar 2009 19:29:55 +0000 http://pajamasmedia.com/?p=48340#comment-214610 This sort of thing is the proper role of government in the marketplace. Its job is to keep the playing field level. The uptick rule is a good one. It helps keep people from gaming the system; exploiting a loophole. What idiot repealed it in the first place? Mark-to-market was a bad reaction to the Enron mess. Fail. Repeal it. Suspending dividends is a really BAD idea. There is an avenue for that already: bankruptcy court. If a bank misses its payment, and the market can't respond because such a suspension rule makes the value instantly zero, you have essentially seized the stockholders' assets. Really, really bad idea. This sort of thing is the proper role of government in the marketplace. Its job is to keep the playing field level.

The uptick rule is a good one. It helps keep people from gaming the system; exploiting a loophole. What idiot repealed it in the first place?

Mark-to-market was a bad reaction to the Enron mess. Fail. Repeal it.

Suspending dividends is a really BAD idea. There is an avenue for that already: bankruptcy court. If a bank misses its payment, and the market can’t respond because such a suspension rule makes the value instantly zero, you have essentially seized the stockholders’ assets. Really, really bad idea.

]]> By: donttreadonme http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-214520 donttreadonme Tue, 03 Mar 2009 17:51:20 +0000 http://pajamasmedia.com/?p=48340#comment-214520 I agree with the uptick rule idea - it would provide a little more order in the market. With the decimal system being used, it won't have quite the salutary effect as it would under the fractional share system; but less volatility in this environment would certainly help. Mark-to-market standards being revised at the Tier 3 level would help a bit as well - especially help the more fundamentally sound (and collaterally damaged) institutions ride the storm out. The last idea is a bit daft. Cash flow is the best arbiter of dividend-paying ability. Dividends are the last bit of "honesty" on Wall St. That being said, if a bank is receiving significant gov't assistance, at the very least the dividends should be payable to the "US Treasury." I agree with the uptick rule idea – it would provide a little more order in the market. With the decimal system being used, it won’t have quite the salutary effect as it would under the fractional share system; but less volatility in this environment would certainly help. Mark-to-market standards being revised at the Tier 3 level would help a bit as well – especially help the more fundamentally sound (and collaterally damaged) institutions ride the storm out. The last idea is a bit daft. Cash flow is the best arbiter of dividend-paying ability. Dividends are the last bit of “honesty” on Wall St. That being said, if a bank is receiving significant gov’t assistance, at the very least the dividends should be payable to the “US Treasury.”

]]> By: Bob http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213281 Bob Mon, 02 Mar 2009 04:21:14 +0000 http://pajamasmedia.com/?p=48340#comment-213281 The government should suspend ALL divident payments. GE will save $9B next year by cutting its dividend by 75%. This would bolster all companies balance sheets, but ultimately undermine the intrinsic value of their securities. Gotta go, 2 hour Brothers and Sisters 2nite. The government should suspend ALL divident payments. GE will save $9B next year by cutting its dividend by 75%. This would bolster all companies balance sheets, but ultimately undermine the intrinsic value of their securities. Gotta go, 2 hour Brothers and Sisters 2nite.

]]> By: Bob http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213280 Bob Mon, 02 Mar 2009 04:19:38 +0000 http://pajamasmedia.com/?p=48340#comment-213280 Your comments are completely accurate and enacted in totality, might have mitigated some of the effects of the meltdown, but don't offer much in the way of remedy for our current predicament. Preventing people from selling short stocks or writing short options isn't going to increase the value of those stocks in the marketplace in the long run. ... Read MoreThere are plenty of bottom pickers and value investors out there to pick up that slack. Lack of buyers is more closely related to lack of confidence, deserved or not. Shooing out the sellers may rally a market in the short run, but, as in the case of oil, look out below. I agree that the mark-to-market accounting standard has put undue stress on banks and caused many to go under, I question the effect of suspending that system now. Where will that leave their balance sheets and how will they evaluate their portfolios? It doesn't address the systemic root of their problem, falling housing values and rising loan defaults. Your comments are completely accurate and enacted in totality, might have mitigated some of the effects of the meltdown, but don’t offer much in the way of remedy for our current predicament. Preventing people from selling short stocks or writing short options isn’t going to increase the value of those stocks in the marketplace in the long run. … Read MoreThere are plenty of bottom pickers and value investors out there to pick up that slack. Lack of buyers is more closely related to lack of confidence, deserved or not. Shooing out the sellers may rally a market in the short run, but, as in the case of oil, look out below.
I agree that the mark-to-market accounting standard has put undue stress on banks and caused many to go under, I question the effect of suspending that system now. Where will that leave their balance sheets and how will they evaluate their portfolios? It doesn’t address the systemic root of their problem, falling housing values and rising loan defaults.

]]> By: M.C.Chan http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213236 M.C.Chan Mon, 02 Mar 2009 02:45:00 +0000 http://pajamasmedia.com/?p=48340#comment-213236 There is no such thing as hard to priced toxic assets if there is loss compensation agreement from bank which sells the toxic assets, and the bank has financial ability to make the compensation, plus government guarantee the bank has financial ability to honor the loss compensation agreement, by guaranteeing the timely interest and principal repayment if the bank defaults. Toxic assets can also be sold at hold to maturity price, i.e. the present value of expected cash flow of the toxic assets, with the government guarantee and bank guarantee. For example, the Public-private Investment Fund purchases toxic mortgage backed securities at cost of $500 billion with the loss compensation agreement from banks. If the investment fund finds that expected cash flow of the toxic assets worth $300 billion one year later, the banks will compensate $200 billion, plus interest, to the Investment Fund. The Fund, or taxpayers, will not lose any money in the purchase arrangement, and earns interest on the principal invested in the toxic assets. The banks sell the toxic assets at high price, but realize the actual loss based on the actual write-off rate of the mortgages, and do not suffer from selling toxic assets at distressed or unreasonable low prices. The Public-private Investment Fund injects $500 billion into the banking system and induces initial credit flow of $500 billion in the process. This is a win-win situation for the government, the purchasers of toxic debt securities, the banks, the taxpayers, and the economy. Government can ensure taxpayers will not lose any money in offering guarantee of the banks' financial ability to make compensation to purchasers of toxic assets, by charging insurance premium to cover the risk, reserving the right to raise premium in the future when the default risk of the toxic assets increase, requiring the bank to place collaterals of 5% of the value of sold toxic assets at central bank, by AAA rated securities, and adjusts the amount of collaterals in accordance with the risk of default in the toxic assets. Hence, government can ensure the banks selling toxic assets with government guarantee can have financial ability to make compensation by controlling the amount of toxic assets sale, risk premium, amount of collaterals required, and will not lose any taxpayers' money in offering the guarantee. The stress test to be done by the Treasury Department and Federal Reserve can ensure that only banks with financial ability to honor the loss compensation agreement to be eligible for the sale of toxic assets. If a bank is viable, this bank should have financial ability to make compensation to government or purchasers who purchase the toxic assets with price higher than the hold to maturity price. Any loss incurred by government in offerring guarantee or purchase of toxic assets will mean that banks are subsidized by taxpayers and are not viable. There is no such thing as hard to priced toxic assets if there is loss compensation agreement from bank which sells the toxic assets, and the bank has financial ability to make the compensation, plus government guarantee the bank has financial ability to honor the loss compensation agreement, by guaranteeing the timely interest and principal repayment if the bank defaults.

Toxic assets can also be sold at hold to maturity price, i.e. the present value of expected cash flow of the toxic assets, with the government guarantee and bank guarantee.

For example, the Public-private Investment Fund purchases toxic mortgage backed securities at cost of $500 billion with the loss compensation agreement from banks. If the investment fund finds that expected cash flow of the toxic assets worth $300 billion one year later, the banks will compensate $200 billion, plus interest, to the Investment Fund. The Fund, or taxpayers, will not lose any money in the purchase arrangement, and earns interest on the principal invested in the toxic assets. The banks sell the toxic assets at high price, but realize the actual loss based on the actual write-off rate of the mortgages, and do not suffer from selling toxic assets at distressed or unreasonable low prices. The Public-private Investment Fund injects $500 billion into the banking system and induces initial credit flow of $500 billion in the process. This is a win-win situation for the government, the purchasers of toxic debt securities, the banks, the taxpayers, and the economy.

Government can ensure taxpayers will not lose any money in offering guarantee of the banks’ financial ability to make compensation to purchasers of toxic assets, by charging insurance premium to cover the risk, reserving the right to raise premium in the future when the default risk of the toxic assets increase, requiring the bank to place collaterals of 5% of the value of sold toxic assets at central bank, by AAA rated securities, and adjusts the amount of collaterals in accordance with the risk of default in the toxic assets. Hence, government can ensure the banks selling toxic assets with government guarantee can have financial ability to make compensation by controlling the amount of toxic assets sale, risk premium, amount of collaterals required, and will not lose any taxpayers’ money in offering the guarantee. The stress test to be done by the Treasury Department and Federal Reserve can ensure that only banks with financial ability to honor the loss compensation agreement to be eligible for the sale of toxic assets.

If a bank is viable, this bank should have financial ability to make compensation to government or purchasers who purchase the toxic assets with price higher than the hold to maturity price. Any loss incurred by government in offerring guarantee or purchase of toxic assets will mean that banks are subsidized by taxpayers and are not viable.

]]> By: Jack http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213165 Jack Mon, 02 Mar 2009 00:41:11 +0000 http://pajamasmedia.com/?p=48340#comment-213165 You don't help an addict kick the dependancy until you pull away the supports. Let the banks fail, and support the borrower (under appropriate circumstances). Regulating the ability of banks (which is necessary in part, but not...) to give dividends is not the answer...it punishes the good with the bad. The free market needs to stay free, but with punishments for those that focus on short term vs. long term gains. Housing bubble for example, proper regulations could have prevented banks and investors from crossing the solvency line. Banks wouldn't lend to someone who had a debt to asset ratio that was out of line...take the commonly accepted standard, add a few points, and mandate/regulate it (at least for now). We have regulations to keep banks from lending more money than they actually have in the vault (well, a ratio of such), and this is no different. Don't stiffle business and banking, but keep it within GAAP and lending standards...capitalism is fantastic, but it can overreach itself and we've seen it hundreds of times. Give them flex, but not to the point of becoming an AIG or Citi that can fall into the "too big to fail, but enough latitude to fail" category. Jack You don’t help an addict kick the dependancy until you pull away the supports. Let the banks fail, and support the borrower (under appropriate circumstances). Regulating the ability of banks (which is necessary in part, but not…) to give dividends is not the answer…it punishes the good with the bad. The free market needs to stay free, but with punishments for those that focus on short term vs. long term gains. Housing bubble for example, proper regulations could have prevented banks and investors from crossing the solvency line. Banks wouldn’t lend to someone who had a debt to asset ratio that was out of line…take the commonly accepted standard, add a few points, and mandate/regulate it (at least for now). We have regulations to keep banks from lending more money than they actually have in the vault (well, a ratio of such), and this is no different. Don’t stiffle business and banking, but keep it within GAAP and lending standards…capitalism is fantastic, but it can overreach itself and we’ve seen it hundreds of times. Give them flex, but not to the point of becoming an AIG or Citi that can fall into the “too big to fail, but enough latitude to fail” category.

Jack

]]> By: eburchelli http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213151 eburchelli Mon, 02 Mar 2009 00:17:39 +0000 http://pajamasmedia.com/?p=48340#comment-213151 I don't see how the government can fix much of anything. Dabbling in the private sector by politicans, compounds problems. If politicians were so good at handling money, we wouldn't have a deficit. The government has run amuk with our tax dollars, trying to invest in programs not intended to be run by politicians. Most of them are not trained in anything but the law and most of them never really worked at it much but became politicians instead. Putting the government in charge of banks is no different than having a politician do heart or brain surgery. How would you expect that to turn out? I don’t see how the government can fix much of anything. Dabbling in the private sector by politicans, compounds problems. If politicians were so good at handling money, we wouldn’t have a deficit.

The government has run amuk with our tax dollars, trying to invest in programs not intended to be run by politicians. Most of them are not trained in anything but the law and most of them never really worked at it much but became politicians instead.

Putting the government in charge of banks is no different than having a politician do heart or brain surgery. How would you expect that to turn out?

]]> By: whyyeseyec http://pjmedia.com/blog/how-the-government-can-fix-the-credit-crisis/#comment-213055 whyyeseyec Sun, 01 Mar 2009 22:10:46 +0000 http://pajamasmedia.com/?p=48340#comment-213055 Obama Pelosi and Reid should be brought up on criminal charges for cruel and usual punishment against the American people for what they will do in the next two years..... They are actively usurping our Constitution as the Supreme Court and the Republicans stand idley by and do nothing Obama Pelosi and Reid should be brought up on criminal charges for cruel and usual punishment against the American people for what they will do in the next two years…..

They are actively usurping our Constitution as the Supreme Court and the Republicans stand idley by and do nothing

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