On MTM, insolvency, and market over-corrections

[davelj]

[quote=barnaby33]I’ll bite, how are my two statements mutually exclusive? Deposits are insured by the FDIC and taxpayers. The CDS book upon which the bank has either sold or bought insurance to have “money good” assets is not. If Citi were to go through bankruptcy, yes there would be a sale of assets, fire sale I don’t know about, since I doubt any Citi bk could be quick. So if citi has X billion in deposits those are going to get paid back to investors. If however they have XXX billion in outstanding CDS liability (bought or sold) why are we on the hook for that? If so what you are saying is that the taxpayer is on the hook for all that leverage as opposed to the stock and then bond holders.

Josh[/quote]

This is quite simple. If you don’t know what the CDS exposure is, then you don’t really know what the assets are worth. If you don’t know what the assets are worth then you don’t know how big the hole is for the FDIC (that is, “We the People”) – that is, you don’t know “what it will cost to make the depositors whole.” Therefore, your prior statements are incompatible with each other:

“The problem is we can pretty accurately know what it will cost to make depositors whole, but the stealth bailouts with no transparency have no practical upper limit.

… as taxpayers we don’t have any idea how big the CDS books of these banks are, or how many banks the Fed is going to bailout.”

[davelj]

[quote=patientrenter]

The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

[/quote]

PR, I don’t believe you. It’s that simple. Why don’t I believe you? Because I could do the same thing myself (as could many others) and yet choose not to. Why? Because I have a conscience and like to sleep soundly at night. I suspect you do too. And, frankly, financial upheaval – even if you come out on the other side in tact or ahead – is unpleasant and disconcerting. Enough such that most folks will go out of their way to avoid it.

So, while I see your point, I just don’t believe that everyone in our economic system is so corrupt that it’s rotten to the core, which is what you suggest.

As I’ve posted before, the biggest problem is one of incentives. And I think such incentives need to be changed dramatically throughout the system via regulation. And I think they will be. I’m not so naive as to believe that we are the only ones capable of identifying the roots of what got us here.

I want fairness and pain, as I’ve said before. And we’ve gotten a fair amount of the latter. But I’m willing to sacrifice a bit of both in the name of pragmatism if it helps prevent Great Depression II. Apparently this is where our opinions diverge.

[davelj]

[quote=patientrenter]

The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

[/quote]

PR, I don’t believe you. It’s that simple. Why don’t I believe you? Because I could do the same thing myself (as could many others) and yet choose not to. Why? Because I have a conscience and like to sleep soundly at night. I suspect you do too. And, frankly, financial upheaval – even if you come out on the other side in tact or ahead – is unpleasant and disconcerting. Enough such that most folks will go out of their way to avoid it.

So, while I see your point, I just don’t believe that everyone in our economic system is so corrupt that it’s rotten to the core, which is what you suggest.

As I’ve posted before, the biggest problem is one of incentives. And I think such incentives need to be changed dramatically throughout the system via regulation. And I think they will be. I’m not so naive as to believe that we are the only ones capable of identifying the roots of what got us here.

I want fairness and pain, as I’ve said before. And we’ve gotten a fair amount of the latter. But I’m willing to sacrifice a bit of both in the name of pragmatism if it helps prevent Great Depression II. Apparently this is where our opinions diverge.

[davelj]

[quote=patientrenter]

The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

[/quote]

PR, I don’t believe you. It’s that simple. Why don’t I believe you? Because I could do the same thing myself (as could many others) and yet choose not to. Why? Because I have a conscience and like to sleep soundly at night. I suspect you do too. And, frankly, financial upheaval – even if you come out on the other side in tact or ahead – is unpleasant and disconcerting. Enough such that most folks will go out of their way to avoid it.

So, while I see your point, I just don’t believe that everyone in our economic system is so corrupt that it’s rotten to the core, which is what you suggest.

As I’ve posted before, the biggest problem is one of incentives. And I think such incentives need to be changed dramatically throughout the system via regulation. And I think they will be. I’m not so naive as to believe that we are the only ones capable of identifying the roots of what got us here.

I want fairness and pain, as I’ve said before. And we’ve gotten a fair amount of the latter. But I’m willing to sacrifice a bit of both in the name of pragmatism if it helps prevent Great Depression II. Apparently this is where our opinions diverge.

[davelj]

[quote=patientrenter]

The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

[/quote]

PR, I don’t believe you. It’s that simple. Why don’t I believe you? Because I could do the same thing myself (as could many others) and yet choose not to. Why? Because I have a conscience and like to sleep soundly at night. I suspect you do too. And, frankly, financial upheaval – even if you come out on the other side in tact or ahead – is unpleasant and disconcerting. Enough such that most folks will go out of their way to avoid it.

So, while I see your point, I just don’t believe that everyone in our economic system is so corrupt that it’s rotten to the core, which is what you suggest.

As I’ve posted before, the biggest problem is one of incentives. And I think such incentives need to be changed dramatically throughout the system via regulation. And I think they will be. I’m not so naive as to believe that we are the only ones capable of identifying the roots of what got us here.

I want fairness and pain, as I’ve said before. And we’ve gotten a fair amount of the latter. But I’m willing to sacrifice a bit of both in the name of pragmatism if it helps prevent Great Depression II. Apparently this is where our opinions diverge.

[davelj]

[quote=patientrenter]

The lesson I personally am learning from the bubble and the unwind, and the way the unwind is being managed, is that reckless behavior, executed carefully to maximize my personal upside and to socialize as much downside as possible, will pay off handsomely.

If I buy a home in the future, I will make sure to do so using government-subsidized loans that require next to no downpayment. As home prices eventually start on their next up cycle, I will buy many homes with little or no money down, signing whatever the mortgage broker says about my living in each of the homes to get the best deal, and when prices eventually become frothy again, I will HELOC the hell out of each one, and walk when prices start to go down again.

And that is just the beginning. Knowing that the whole game is driven by selfish populism, I owe no moral allegiance to the rest of the population. All that scrupulous paying of taxes, regardless of how easily I could avoid some if I tried? Gone.

[/quote]

PR, I don’t believe you. It’s that simple. Why don’t I believe you? Because I could do the same thing myself (as could many others) and yet choose not to. Why? Because I have a conscience and like to sleep soundly at night. I suspect you do too. And, frankly, financial upheaval – even if you come out on the other side in tact or ahead – is unpleasant and disconcerting. Enough such that most folks will go out of their way to avoid it.

So, while I see your point, I just don’t believe that everyone in our economic system is so corrupt that it’s rotten to the core, which is what you suggest.

As I’ve posted before, the biggest problem is one of incentives. And I think such incentives need to be changed dramatically throughout the system via regulation. And I think they will be. I’m not so naive as to believe that we are the only ones capable of identifying the roots of what got us here.

I want fairness and pain, as I’ve said before. And we’ve gotten a fair amount of the latter. But I’m willing to sacrifice a bit of both in the name of pragmatism if it helps prevent Great Depression II. Apparently this is where our opinions diverge.

[davelj]

[quote=Allan from Fallbrook]
Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…[/quote]

Bwahaha… one of my favorite expressions, in fact.

[davelj]

[quote=Allan from Fallbrook]
Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…[/quote]

Bwahaha… one of my favorite expressions, in fact.

[davelj]

[quote=Allan from Fallbrook]
Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…[/quote]

Bwahaha… one of my favorite expressions, in fact.

[davelj]

[quote=Allan from Fallbrook]
Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…[/quote]

Bwahaha… one of my favorite expressions, in fact.

[davelj]

[quote=Allan from Fallbrook]
Is Obama the guy to lead us out? I don’t know. I hope he is, but there’s a crass expression about shit in one hand and hope in the other…[/quote]

Bwahaha… one of my favorite expressions, in fact.

[davelj]

[quote=TheBreeze]For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:

http://www.pbs.org/moyers/journal/04032009/watch.html

It’s a half-hour interview, but there’s so much good stuff in there it’s well worth listening to. His comments on zombification start at about the 20-minute mark.

You also have this article from a fomer chief economist of the International Monetary Fund:

http://www.theatlantic.com/doc/200905/imf-advice

It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.
[/quote]

Eh, I like Bill Black and the interview was ok. Basically he’s pointing out things that are obvious, however. Regarding his thoughts on Zombie banks he – like many others – trots out the “Japan Argument” without also noting the MANY ways in which our situation is much different than Japan’s. For just one example, we have already charged off almost $800 billion in loans in our domestic financial system. It took Japan almost 8 years to address its bank losses and start recapitalizing. Also, Japan’s loan losses ultimately ended up amounting to almost 22% of its pre-crisis GDP. If we end up at $1.5 trillion in realized losses (domestic alone – which would translate into maybe $3 trillion in global credit losses), we’ll be at around 10% of (reduced) GDP. Finally, Japan’s bubble was 2.5x the size of our bubble relative to GDP and almost all domestic, while over a quarter of our “losses” will be realized by foreigners. I could go on.

It’s funny, it seems like a lot of folks think that if we don’t shut down every bank tomorrow then “we’re going down the same path as Japan.” We’ve been far more proactive with respect to realizing losses, using fiscal policy, and easing monetary policy than Japan was. BUT… clearly the Officialdom doesn’t want to take all of the medicine at once. So, while we’re not exactly racing down the “clean out the dreck” track, we’re FAR ahead of where Japan was at the same point in their crisis. There is a middle ground, after all.

Regarding Black’s interview, I don’t like to pit “expert against expert” in these discussions because it’s pointless – you can always find someone smart who’s on the other side of an argument. That’s what makes a market.

Your final statement – “It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it” – is kind of absurd. Who is defining “good regulators”? You? And I know “banking insiders” that would be happy to see Citi and BofA disappear. So, this is pure conjecture on your part. A more defensible statement would be that “some” or “many” are against zombification, etc. I would agree with that. Reasonable people can disagree.

[davelj]

[quote=TheBreeze]For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:

http://www.pbs.org/moyers/journal/04032009/watch.html

It’s a half-hour interview, but there’s so much good stuff in there it’s well worth listening to. His comments on zombification start at about the 20-minute mark.

You also have this article from a fomer chief economist of the International Monetary Fund:

http://www.theatlantic.com/doc/200905/imf-advice

It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.
[/quote]

Eh, I like Bill Black and the interview was ok. Basically he’s pointing out things that are obvious, however. Regarding his thoughts on Zombie banks he – like many others – trots out the “Japan Argument” without also noting the MANY ways in which our situation is much different than Japan’s. For just one example, we have already charged off almost $800 billion in loans in our domestic financial system. It took Japan almost 8 years to address its bank losses and start recapitalizing. Also, Japan’s loan losses ultimately ended up amounting to almost 22% of its pre-crisis GDP. If we end up at $1.5 trillion in realized losses (domestic alone – which would translate into maybe $3 trillion in global credit losses), we’ll be at around 10% of (reduced) GDP. Finally, Japan’s bubble was 2.5x the size of our bubble relative to GDP and almost all domestic, while over a quarter of our “losses” will be realized by foreigners. I could go on.

It’s funny, it seems like a lot of folks think that if we don’t shut down every bank tomorrow then “we’re going down the same path as Japan.” We’ve been far more proactive with respect to realizing losses, using fiscal policy, and easing monetary policy than Japan was. BUT… clearly the Officialdom doesn’t want to take all of the medicine at once. So, while we’re not exactly racing down the “clean out the dreck” track, we’re FAR ahead of where Japan was at the same point in their crisis. There is a middle ground, after all.

Regarding Black’s interview, I don’t like to pit “expert against expert” in these discussions because it’s pointless – you can always find someone smart who’s on the other side of an argument. That’s what makes a market.

Your final statement – “It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it” – is kind of absurd. Who is defining “good regulators”? You? And I know “banking insiders” that would be happy to see Citi and BofA disappear. So, this is pure conjecture on your part. A more defensible statement would be that “some” or “many” are against zombification, etc. I would agree with that. Reasonable people can disagree.

[davelj]

[quote=TheBreeze]For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:

http://www.pbs.org/moyers/journal/04032009/watch.html

It’s a half-hour interview, but there’s so much good stuff in there it’s well worth listening to. His comments on zombification start at about the 20-minute mark.

You also have this article from a fomer chief economist of the International Monetary Fund:

http://www.theatlantic.com/doc/200905/imf-advice

It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.
[/quote]

Eh, I like Bill Black and the interview was ok. Basically he’s pointing out things that are obvious, however. Regarding his thoughts on Zombie banks he – like many others – trots out the “Japan Argument” without also noting the MANY ways in which our situation is much different than Japan’s. For just one example, we have already charged off almost $800 billion in loans in our domestic financial system. It took Japan almost 8 years to address its bank losses and start recapitalizing. Also, Japan’s loan losses ultimately ended up amounting to almost 22% of its pre-crisis GDP. If we end up at $1.5 trillion in realized losses (domestic alone – which would translate into maybe $3 trillion in global credit losses), we’ll be at around 10% of (reduced) GDP. Finally, Japan’s bubble was 2.5x the size of our bubble relative to GDP and almost all domestic, while over a quarter of our “losses” will be realized by foreigners. I could go on.

It’s funny, it seems like a lot of folks think that if we don’t shut down every bank tomorrow then “we’re going down the same path as Japan.” We’ve been far more proactive with respect to realizing losses, using fiscal policy, and easing monetary policy than Japan was. BUT… clearly the Officialdom doesn’t want to take all of the medicine at once. So, while we’re not exactly racing down the “clean out the dreck” track, we’re FAR ahead of where Japan was at the same point in their crisis. There is a middle ground, after all.

Regarding Black’s interview, I don’t like to pit “expert against expert” in these discussions because it’s pointless – you can always find someone smart who’s on the other side of an argument. That’s what makes a market.

Your final statement – “It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it” – is kind of absurd. Who is defining “good regulators”? You? And I know “banking insiders” that would be happy to see Citi and BofA disappear. So, this is pure conjecture on your part. A more defensible statement would be that “some” or “many” are against zombification, etc. I would agree with that. Reasonable people can disagree.

[davelj]

[quote=TheBreeze]For those of you who like to rely on experts, Bill Black is an expert from the S&L scandal and he disagrees with the policy of bank zombification:

http://www.pbs.org/moyers/journal/04032009/watch.html

It’s a half-hour interview, but there’s so much good stuff in there it’s well worth listening to. His comments on zombification start at about the 20-minute mark.

You also have this article from a fomer chief economist of the International Monetary Fund:

http://www.theatlantic.com/doc/200905/imf-advice

It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it.
[/quote]

Eh, I like Bill Black and the interview was ok. Basically he’s pointing out things that are obvious, however. Regarding his thoughts on Zombie banks he – like many others – trots out the “Japan Argument” without also noting the MANY ways in which our situation is much different than Japan’s. For just one example, we have already charged off almost $800 billion in loans in our domestic financial system. It took Japan almost 8 years to address its bank losses and start recapitalizing. Also, Japan’s loan losses ultimately ended up amounting to almost 22% of its pre-crisis GDP. If we end up at $1.5 trillion in realized losses (domestic alone – which would translate into maybe $3 trillion in global credit losses), we’ll be at around 10% of (reduced) GDP. Finally, Japan’s bubble was 2.5x the size of our bubble relative to GDP and almost all domestic, while over a quarter of our “losses” will be realized by foreigners. I could go on.

It’s funny, it seems like a lot of folks think that if we don’t shut down every bank tomorrow then “we’re going down the same path as Japan.” We’ve been far more proactive with respect to realizing losses, using fiscal policy, and easing monetary policy than Japan was. BUT… clearly the Officialdom doesn’t want to take all of the medicine at once. So, while we’re not exactly racing down the “clean out the dreck” track, we’re FAR ahead of where Japan was at the same point in their crisis. There is a middle ground, after all.

Regarding Black’s interview, I don’t like to pit “expert against expert” in these discussions because it’s pointless – you can always find someone smart who’s on the other side of an argument. That’s what makes a market.

Your final statement – “It appears that the good regulators are against zombification whereas most banking insiders and politicians are for it” – is kind of absurd. Who is defining “good regulators”? You? And I know “banking insiders” that would be happy to see Citi and BofA disappear. So, this is pure conjecture on your part. A more defensible statement would be that “some” or “many” are against zombification, etc. I would agree with that. Reasonable people can disagree.

[Author]

Posts