Thanks for the comments – very much appreciated.
Alex: The reason that people like me, Boswell, Seidman, etc have a simple view isn’t because we don’t understand the issues – we were there in the S&L crisis, and yes they had derivatives too (IOs, POs, CMOs, etc). Its because the issue is very simple.
Banking is a tough industry and sometimes banks fail when they make poor decisions and then hit a rough patch in the economy. It’s happened before and it’ll happen again. The job of the government is not to keep the banks from failing by giving them a blank check, but instead to make sure they fail quickly and with limited damage so that healthy institutions can take their place.
It doesn’t matter whether a bank loses money on bad loans, bad investments, bad derivatives, or a bad day at the dog races. The effect is the same – if it doesn’t have enough reserve capital to meet requirements, then it shouldn’t be making more loans and investments with government guaranteed deposits. Shut it down. Same principal applies to any financial institution.
And has anyone noticed that the people that are trying to make the situation seem the most complex are the ones asking for the most money? “But you don’t understand derivatives, mark to market, or liquidity… we need to give banks a trillion dollars to take all those toxic assets off the books… maybe we can make a ‘bad bank’ or nationalize the banks…” No, actually I do understand all of those things, and you still haven’t convinced me how your bad loans and bad investments suddenly became my problem.
- Tristan Yates, author Enhanced Indexing Strategies
