Bailout Suggestions to Hanky Bernanke from a Banker

[CA renter]

Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?

[davelj]

[quote=CA renter]Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?
[/quote]

Works for me. But will it fly? Who knows…

[davelj]

[quote=CA renter]Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?
[/quote]

Works for me. But will it fly? Who knows…

[davelj]

[quote=CA renter]Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?
[/quote]

Works for me. But will it fly? Who knows…

[davelj]

[quote=CA renter]Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?
[/quote]

Works for me. But will it fly? Who knows…

[davelj]

[quote=CA renter]Underwrite every loan as if it’s a rental. Obviously, most of the loans that would quality would be foreclosures and short sales which are by definition closer to the “bottom.” This would alleviate, although not eliminate, a large part of the “further decline” issue.
——————–

That sounds fairly reasonable to me. To clarify:

1. Underwrite mortgages/appraise houses based on market rents (I’d suggest long-term averages to help keep short-term distortions from having too much influence).

2. Require at least 10% down, and it cannot be seller-financed.

How about that?
[/quote]

Works for me. But will it fly? Who knows…

[Allan from Fallbrook]

davelj/CA_renter: One of the most important aspects of this crisis, and one that certainly merits discussion on this thread, is the role of “off book” investments and derivatives.

Dave, I know your background is banking and thus the thrust of your posts. Mine is accounting and that informs mine. You astutely pointed out in another thread that the liquidity crisis had virtually nothing to do with actual liquidity, and everything to do with crappy assets.

Until such time as there is an acknowledgment as to the true nature of the liabilities riding on balance sheets throughout the world, we won’t have an actual picture as to how bad the potential threat (in terms of losses) truly is.

The notional value of potential derivatives (in terms of trading value) is somewhere north of $500 trillion. Granted, a huge amount of that is offset by swaps and other risk limiting vehicles, but AIG’s exposure to counterparty capital calls and reserve calls illustrates that virtually none of the commercial and investment banks, insurance companies, pension funds, hedgies, etc that dove into this market and leveraged themselves to the hilt to do so, has the capital base necessary to survive a margin call by trading partners or counterparties.

Full transparency is required as is accountability (in the form of proper due diligence, not this 11th hour shotgun wedding kind of crap that we saw with Bear Stearns/JPM). Right now, the balance sheets are opaque and therefore so is the risk. While systemic collapse is certainly worth averting, we’re just playing a shell game because we have no idea how many of those SIVs and off book investments are just waiting to explode.

[Allan from Fallbrook]

davelj/CA_renter: One of the most important aspects of this crisis, and one that certainly merits discussion on this thread, is the role of “off book” investments and derivatives.

Dave, I know your background is banking and thus the thrust of your posts. Mine is accounting and that informs mine. You astutely pointed out in another thread that the liquidity crisis had virtually nothing to do with actual liquidity, and everything to do with crappy assets.

Until such time as there is an acknowledgment as to the true nature of the liabilities riding on balance sheets throughout the world, we won’t have an actual picture as to how bad the potential threat (in terms of losses) truly is.

The notional value of potential derivatives (in terms of trading value) is somewhere north of $500 trillion. Granted, a huge amount of that is offset by swaps and other risk limiting vehicles, but AIG’s exposure to counterparty capital calls and reserve calls illustrates that virtually none of the commercial and investment banks, insurance companies, pension funds, hedgies, etc that dove into this market and leveraged themselves to the hilt to do so, has the capital base necessary to survive a margin call by trading partners or counterparties.

Full transparency is required as is accountability (in the form of proper due diligence, not this 11th hour shotgun wedding kind of crap that we saw with Bear Stearns/JPM). Right now, the balance sheets are opaque and therefore so is the risk. While systemic collapse is certainly worth averting, we’re just playing a shell game because we have no idea how many of those SIVs and off book investments are just waiting to explode.

[Allan from Fallbrook]

davelj/CA_renter: One of the most important aspects of this crisis, and one that certainly merits discussion on this thread, is the role of “off book” investments and derivatives.

Dave, I know your background is banking and thus the thrust of your posts. Mine is accounting and that informs mine. You astutely pointed out in another thread that the liquidity crisis had virtually nothing to do with actual liquidity, and everything to do with crappy assets.

Until such time as there is an acknowledgment as to the true nature of the liabilities riding on balance sheets throughout the world, we won’t have an actual picture as to how bad the potential threat (in terms of losses) truly is.

The notional value of potential derivatives (in terms of trading value) is somewhere north of $500 trillion. Granted, a huge amount of that is offset by swaps and other risk limiting vehicles, but AIG’s exposure to counterparty capital calls and reserve calls illustrates that virtually none of the commercial and investment banks, insurance companies, pension funds, hedgies, etc that dove into this market and leveraged themselves to the hilt to do so, has the capital base necessary to survive a margin call by trading partners or counterparties.

Full transparency is required as is accountability (in the form of proper due diligence, not this 11th hour shotgun wedding kind of crap that we saw with Bear Stearns/JPM). Right now, the balance sheets are opaque and therefore so is the risk. While systemic collapse is certainly worth averting, we’re just playing a shell game because we have no idea how many of those SIVs and off book investments are just waiting to explode.

[Allan from Fallbrook]

davelj/CA_renter: One of the most important aspects of this crisis, and one that certainly merits discussion on this thread, is the role of “off book” investments and derivatives.

Dave, I know your background is banking and thus the thrust of your posts. Mine is accounting and that informs mine. You astutely pointed out in another thread that the liquidity crisis had virtually nothing to do with actual liquidity, and everything to do with crappy assets.

Until such time as there is an acknowledgment as to the true nature of the liabilities riding on balance sheets throughout the world, we won’t have an actual picture as to how bad the potential threat (in terms of losses) truly is.

The notional value of potential derivatives (in terms of trading value) is somewhere north of $500 trillion. Granted, a huge amount of that is offset by swaps and other risk limiting vehicles, but AIG’s exposure to counterparty capital calls and reserve calls illustrates that virtually none of the commercial and investment banks, insurance companies, pension funds, hedgies, etc that dove into this market and leveraged themselves to the hilt to do so, has the capital base necessary to survive a margin call by trading partners or counterparties.

Full transparency is required as is accountability (in the form of proper due diligence, not this 11th hour shotgun wedding kind of crap that we saw with Bear Stearns/JPM). Right now, the balance sheets are opaque and therefore so is the risk. While systemic collapse is certainly worth averting, we’re just playing a shell game because we have no idea how many of those SIVs and off book investments are just waiting to explode.

[Allan from Fallbrook]

davelj/CA_renter: One of the most important aspects of this crisis, and one that certainly merits discussion on this thread, is the role of “off book” investments and derivatives.

Dave, I know your background is banking and thus the thrust of your posts. Mine is accounting and that informs mine. You astutely pointed out in another thread that the liquidity crisis had virtually nothing to do with actual liquidity, and everything to do with crappy assets.

Until such time as there is an acknowledgment as to the true nature of the liabilities riding on balance sheets throughout the world, we won’t have an actual picture as to how bad the potential threat (in terms of losses) truly is.

The notional value of potential derivatives (in terms of trading value) is somewhere north of $500 trillion. Granted, a huge amount of that is offset by swaps and other risk limiting vehicles, but AIG’s exposure to counterparty capital calls and reserve calls illustrates that virtually none of the commercial and investment banks, insurance companies, pension funds, hedgies, etc that dove into this market and leveraged themselves to the hilt to do so, has the capital base necessary to survive a margin call by trading partners or counterparties.

Full transparency is required as is accountability (in the form of proper due diligence, not this 11th hour shotgun wedding kind of crap that we saw with Bear Stearns/JPM). Right now, the balance sheets are opaque and therefore so is the risk. While systemic collapse is certainly worth averting, we’re just playing a shell game because we have no idea how many of those SIVs and off book investments are just waiting to explode.

[CA renter]

Let’s assume we go along with the above bailout (FDIC, MM funds, SIPC, PBGC, etc.) and let the rest fall.

What do you two think the consenquences will be? Who, exactly, will be hurt, and for how long?

[CA renter]

Let’s assume we go along with the above bailout (FDIC, MM funds, SIPC, PBGC, etc.) and let the rest fall.

What do you two think the consenquences will be? Who, exactly, will be hurt, and for how long?

[CA renter]

Let’s assume we go along with the above bailout (FDIC, MM funds, SIPC, PBGC, etc.) and let the rest fall.

What do you two think the consenquences will be? Who, exactly, will be hurt, and for how long?

[CA renter]

Let’s assume we go along with the above bailout (FDIC, MM funds, SIPC, PBGC, etc.) and let the rest fall.

What do you two think the consenquences will be? Who, exactly, will be hurt, and for how long?

[Author]

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