On MTM, insolvency, and market over-corrections

[jpinpb]

The question I have is once the banks sell their assets to private companies (backed by taxpayers) will they start to sort through their box of goodies? At that point, they have little to lose, since the taxpayers are taking the hit.

Does that mean if they have assets that include properties being defaulted, that they’ll finally foreclose on those who have been squatting for free for a year?

I mean, the interview made it sound that the banks don’t want it on the books, so if they don’t foreclose, the asset won’t be a loss. So they sell their assets to the privated tax-payer backed group.

Now the new holder has to decide what to do. Are they going to foreclose? Are they going to reduce principle? Are they re-working all the loans? Basically, they can do just about anything they feel like, b/c the buck stops w/the taxpayer

[davelj]

[quote=barnaby33]

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn’t even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk.

There is no free lunch davelj.

Josh[/quote]

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won’t. Because I don’t really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…

…which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back… some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you’re on the right track. As you point out, there’s no free lunch.

Personally, I’d rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank’s investors – debt and equity holders – would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don’t get me wrong, most of the few-hundred smaller banks that are in trouble can’t earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but… as a taxpayer I’d like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

[davelj]

[quote=barnaby33]

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn’t even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk.

There is no free lunch davelj.

Josh[/quote]

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won’t. Because I don’t really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…

…which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back… some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you’re on the right track. As you point out, there’s no free lunch.

Personally, I’d rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank’s investors – debt and equity holders – would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don’t get me wrong, most of the few-hundred smaller banks that are in trouble can’t earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but… as a taxpayer I’d like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

[davelj]

[quote=barnaby33]

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn’t even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk.

There is no free lunch davelj.

Josh[/quote]

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won’t. Because I don’t really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…

…which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back… some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you’re on the right track. As you point out, there’s no free lunch.

Personally, I’d rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank’s investors – debt and equity holders – would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don’t get me wrong, most of the few-hundred smaller banks that are in trouble can’t earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but… as a taxpayer I’d like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

[davelj]

[quote=barnaby33]

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn’t even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk.

There is no free lunch davelj.

Josh[/quote]

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won’t. Because I don’t really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…

…which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back… some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you’re on the right track. As you point out, there’s no free lunch.

Personally, I’d rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank’s investors – debt and equity holders – would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don’t get me wrong, most of the few-hundred smaller banks that are in trouble can’t earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but… as a taxpayer I’d like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

[davelj]

[quote=barnaby33]

I may be solvent someday, but if I stop making my mortgage payments today, they take my house away. The difference with the banks (citi bofa wells etc) is they are politically well connected.

Our elected leadership doesn’t even bother to lay out the case of WHY allowing these banks to either go bankrupt, or be taken under poses a systemic risk.

There is no free lunch davelj.

Josh[/quote]

Have any of the big banks stopped making payments to creditors or depositors? Even without the TARP funds they would still be current on such payments, although dramatically undercapitalized. My point is that your analogy is a poor one. (Although, yes, they are politically well-connected.)

I could argue that the bankruptcy of these Big Uglies would pose a systemic risk but I won’t. Because I don’t really care that much. My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…

…which gets to your issue of there being no free lunch. I agree completely. Your preference is to shut the Big Uglies down and liquidate them ASAP. This would, of course, cause a HUGE loss to the FDIC insurance fund which is, of course, backed by the Treasury (that is, We the People). Ultimately the taxpayers and bank customers (via higher rates and fees) would eat these massive losses making the depositors whole (although the taxpayers would get paid back… some day). And the PE (and like) firms would make a fortune buying assets from the FDIC. If that sounds attractive to you, then by all means you’re on the right track. As you point out, there’s no free lunch.

Personally, I’d rather have these banks shrink and earn their way out of their self-imposed holes. That way, in essence, the bank’s investors – debt and equity holders – would pay the price. And taxpayers would be spared to the greatest degree possible. I WANT to zombify these Big Uglies and keep them focused on digging out of their holes. You want to liquidate ASAP, thereby screwing bank customers and taxpayers (including that middle class you talk about), and enriching the folks buying assets from the FDIC.

Don’t get me wrong, most of the few-hundred smaller banks that are in trouble can’t earn their way out of it. And they are not systemically important. They should be shut down ASAP. And eventually the Big Uglies should face new regulations regarding capital and concentrations, but… as a taxpayer I’d like to impose these new restrictions a few years down the road. Either way, the common equity holders (and potentially the preferred holders as well) are basically screwed.

[patientrenter]

[quote=davelj]…My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…[/quote]

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I’d prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what’s the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

[patientrenter]

[quote=davelj]…My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…[/quote]

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I’d prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what’s the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

[patientrenter]

[quote=davelj]…My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…[/quote]

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I’d prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what’s the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

[patientrenter]

[quote=davelj]…My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…[/quote]

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I’d prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what’s the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

[patientrenter]

[quote=davelj]…My issue as a taxpayer and bank customer is that I want the least costly resolution to these huge problem banks…[/quote]

DaveLJ, for some of us, fairness is one of the most important goals of any resolution of this mess. I would prefer a very fair $15 trillion solution to an unfair $10 trillion solution. I’d prefer a solution that costs $5 trillion dollars more and administers lots more pain to the people who bought assets or goodies liberally on borrowed money or who assisted professionally in reckless lending, and delivers much less pain to the people who were restrained and refused to try to ride leverage to riches.

Otherwise, what’s the point in exercising self-restraint and good sense in the future? It just makes you a loser, an easy mark.

[Chris Scoreboard Johnston]

Dave

I for one appreciate your summaries on these issues due to the fact that I do not have the depth of knowledge that you do in these areas, and do not pretend to be a paper champion like so many who read a few things then start challenging you. That is generally embarassing to the challengers.

I have openly written in my blog that I do not believe we have seen the low in stocks based on my ongoing analysis of the COT report and what the big money has been doing. I also wrote in there for anybody who read it, that the rally in stocks would start March 13th or within a few days of that, I wrote this at the end of Feb and again at the very beginning of March.

I do not like being in agreement with so many amateurs who think we are going way lower, but my analysis is what it is, 5500 appears to be a fair value for the Dow and a good place to start buying for long term hold purposes. Commercials are selling this rally which has historically led to selloffs and rallies failing.

You are right about the reversion from extended moves. My research has told me over the years that often when you get an extended move in one direction, you actually should initially go with it because it is an underlying sign of strength. When the reversion takes place, it rarely overshoots in the opposite direction. Comments like that are made by people with no real experience with real money at stakes in these swings. It is merely a possibility not a probability. That is not to say it cannot happen, but it is not a high probability. Often the retracements are sharp and short, again markets will defy the masses. Even in the commodities markets with the massive reversals we had, they have not overcorrected by anywhere near the same degree they rose. What everyone waits for rarely happens. I do sense the masses buying the media hype about this rally, that is not good. My sentiment indicators are over 70 now which is bearish and are rising almost daily.

Cramer may have had his moments in the past but he has not been very good recently when I have come across his comments. He is just way too emotional to trade well.

Also, I hear all this crap about markets rising on increasing volume being bullish etc. If you study this in detail you will find there is no such correlation at all. I have no idea how so many smart peoople have been suckered into that notion.

[Chris Scoreboard Johnston]

Dave

I for one appreciate your summaries on these issues due to the fact that I do not have the depth of knowledge that you do in these areas, and do not pretend to be a paper champion like so many who read a few things then start challenging you. That is generally embarassing to the challengers.

I have openly written in my blog that I do not believe we have seen the low in stocks based on my ongoing analysis of the COT report and what the big money has been doing. I also wrote in there for anybody who read it, that the rally in stocks would start March 13th or within a few days of that, I wrote this at the end of Feb and again at the very beginning of March.

I do not like being in agreement with so many amateurs who think we are going way lower, but my analysis is what it is, 5500 appears to be a fair value for the Dow and a good place to start buying for long term hold purposes. Commercials are selling this rally which has historically led to selloffs and rallies failing.

You are right about the reversion from extended moves. My research has told me over the years that often when you get an extended move in one direction, you actually should initially go with it because it is an underlying sign of strength. When the reversion takes place, it rarely overshoots in the opposite direction. Comments like that are made by people with no real experience with real money at stakes in these swings. It is merely a possibility not a probability. That is not to say it cannot happen, but it is not a high probability. Often the retracements are sharp and short, again markets will defy the masses. Even in the commodities markets with the massive reversals we had, they have not overcorrected by anywhere near the same degree they rose. What everyone waits for rarely happens. I do sense the masses buying the media hype about this rally, that is not good. My sentiment indicators are over 70 now which is bearish and are rising almost daily.

Cramer may have had his moments in the past but he has not been very good recently when I have come across his comments. He is just way too emotional to trade well.

Also, I hear all this crap about markets rising on increasing volume being bullish etc. If you study this in detail you will find there is no such correlation at all. I have no idea how so many smart peoople have been suckered into that notion.

[Chris Scoreboard Johnston]

Dave

I for one appreciate your summaries on these issues due to the fact that I do not have the depth of knowledge that you do in these areas, and do not pretend to be a paper champion like so many who read a few things then start challenging you. That is generally embarassing to the challengers.

I have openly written in my blog that I do not believe we have seen the low in stocks based on my ongoing analysis of the COT report and what the big money has been doing. I also wrote in there for anybody who read it, that the rally in stocks would start March 13th or within a few days of that, I wrote this at the end of Feb and again at the very beginning of March.

I do not like being in agreement with so many amateurs who think we are going way lower, but my analysis is what it is, 5500 appears to be a fair value for the Dow and a good place to start buying for long term hold purposes. Commercials are selling this rally which has historically led to selloffs and rallies failing.

You are right about the reversion from extended moves. My research has told me over the years that often when you get an extended move in one direction, you actually should initially go with it because it is an underlying sign of strength. When the reversion takes place, it rarely overshoots in the opposite direction. Comments like that are made by people with no real experience with real money at stakes in these swings. It is merely a possibility not a probability. That is not to say it cannot happen, but it is not a high probability. Often the retracements are sharp and short, again markets will defy the masses. Even in the commodities markets with the massive reversals we had, they have not overcorrected by anywhere near the same degree they rose. What everyone waits for rarely happens. I do sense the masses buying the media hype about this rally, that is not good. My sentiment indicators are over 70 now which is bearish and are rising almost daily.

Cramer may have had his moments in the past but he has not been very good recently when I have come across his comments. He is just way too emotional to trade well.

Also, I hear all this crap about markets rising on increasing volume being bullish etc. If you study this in detail you will find there is no such correlation at all. I have no idea how so many smart peoople have been suckered into that notion.

[Chris Scoreboard Johnston]

Dave

I for one appreciate your summaries on these issues due to the fact that I do not have the depth of knowledge that you do in these areas, and do not pretend to be a paper champion like so many who read a few things then start challenging you. That is generally embarassing to the challengers.

I have openly written in my blog that I do not believe we have seen the low in stocks based on my ongoing analysis of the COT report and what the big money has been doing. I also wrote in there for anybody who read it, that the rally in stocks would start March 13th or within a few days of that, I wrote this at the end of Feb and again at the very beginning of March.

I do not like being in agreement with so many amateurs who think we are going way lower, but my analysis is what it is, 5500 appears to be a fair value for the Dow and a good place to start buying for long term hold purposes. Commercials are selling this rally which has historically led to selloffs and rallies failing.

You are right about the reversion from extended moves. My research has told me over the years that often when you get an extended move in one direction, you actually should initially go with it because it is an underlying sign of strength. When the reversion takes place, it rarely overshoots in the opposite direction. Comments like that are made by people with no real experience with real money at stakes in these swings. It is merely a possibility not a probability. That is not to say it cannot happen, but it is not a high probability. Often the retracements are sharp and short, again markets will defy the masses. Even in the commodities markets with the massive reversals we had, they have not overcorrected by anywhere near the same degree they rose. What everyone waits for rarely happens. I do sense the masses buying the media hype about this rally, that is not good. My sentiment indicators are over 70 now which is bearish and are rising almost daily.

Cramer may have had his moments in the past but he has not been very good recently when I have come across his comments. He is just way too emotional to trade well.

Also, I hear all this crap about markets rising on increasing volume being bullish etc. If you study this in detail you will find there is no such correlation at all. I have no idea how so many smart peoople have been suckered into that notion.

[Author]

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