TARP has lost 40% since inception

[CA renter]

Allan wrote:

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.
———————-

But much of this paper **has** traded, and there is a market price, even though it’s far below book value.

There are banks that did not participate in fraudulent or risky loans, and have fairly healthy balance sheets, relatively-speaking. Instead of having the govt support the a$$holes who got us into this mess, why not nationalize them, sell of what we can, and work with the institutions that tried to do the right thing? They are being punished via unfair competition from govt-funded/backed banks.

How is buying worthless paper NOT a misallocation of resources? Exactly what would happen if we let the big boys fail? If we simply need to keep credit flowing, we can do that through the healthier banks that took fewer risks.

Personally, I think this story has much more to do with political and financial connections than it does with what’s good for the nation.

[TheBreeze]

[quote=Allan from Fallbrook]

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.

[/quote]

Mr. Mortgage, who knows a lot more about this subject than you, says there are buyers for the bad paper, but it is below the level the banks are willing to sell at. If they were to sell at the market price, they would be insolvent. This is the same reason the big banks want to get rid of mark-to-market.

[quote=Allan from Fallbrook]
You contradict yourself by talking about a “massive misallocation of capital”. How do you think capital gets allocated? Through banking. If banking and credit are frozen, then what? Banking, by necessity, needs to get fixed first and fast.
[/quote]

Banking and credit aren’t frozen. We’re barely back to early 2000 standards. Interest rates are below market due to the Fed’s shenanigans and anyone with a reasonable down payment can get a loan. However, if by ‘frozen’, you mean that 110% NINJA loans are no longer available, then yes, on that basis, you could argue that credit is ‘frozen’.

From the above paragraph, I take it you are in favor of the Fed’s buying of $1.25 trillion in mortgage-backed assets?

http://latimesblogs.latimes.com/money_co/2009/03/fed-inflation-r.html

This is essentially communistic, centralized planning and is the Federal government allocating capital to assets that the free market would not. So you are in favor of economic central planning? I’m kind of surprised as I thought you were in favor of free markets.

[quote=Allan from Fallbrook]
As far as AIG and similar players: The notional value of the derivatives market is $600Trn (yeah, trillion). AIG is positioned, along with other key players, right in the middle, in terms of how large their derivatives portfolio is. If they crash, then their leveraged derivatives position crashes as well, creating a massive ripple effect and possibly systemic failure. Or, what we balance sheet reading accountants refer to as a Bad Thing. [/quote]

I’m not saying that government doesn’t have a role to play, but from what I can see, all that the government is doing is attempting to reflate the bad assets in order to save the politically well-connected.

Instead of continuing to pump money into AIG so that AIG can pay off it’s counter-parties (at full value no less), what the government should be doing is liquidating AIG in as orderly a fashion as possible. If that leads to other institutions failing, then those institutions should be liquidated as well. Printing trillions in order to buy bad assets is bad policy that can only lead to bad things.

And that $600 trillion number is misleading as most of the derivative contracts cancel each other out. The value of all stocks in the world is on the order of a few tens of trillions, so in no way does the market believe that there is $600 trillion in actual derivatives value out there.

Derivatives are just contracts and contracts are broken all the time. If I write a contract and say that I will pay someone $1 billion upon the occurrence of some event, $1 billion has not been created and would never be created unless the government steps in and makes it so (which is what the government is doing so far in the case of AIG).

[TheBreeze]

[quote=Allan from Fallbrook]

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.

[/quote]

Mr. Mortgage, who knows a lot more about this subject than you, says there are buyers for the bad paper, but it is below the level the banks are willing to sell at. If they were to sell at the market price, they would be insolvent. This is the same reason the big banks want to get rid of mark-to-market.

[quote=Allan from Fallbrook]
You contradict yourself by talking about a “massive misallocation of capital”. How do you think capital gets allocated? Through banking. If banking and credit are frozen, then what? Banking, by necessity, needs to get fixed first and fast.
[/quote]

Banking and credit aren’t frozen. We’re barely back to early 2000 standards. Interest rates are below market due to the Fed’s shenanigans and anyone with a reasonable down payment can get a loan. However, if by ‘frozen’, you mean that 110% NINJA loans are no longer available, then yes, on that basis, you could argue that credit is ‘frozen’.

From the above paragraph, I take it you are in favor of the Fed’s buying of $1.25 trillion in mortgage-backed assets?

http://latimesblogs.latimes.com/money_co/2009/03/fed-inflation-r.html

This is essentially communistic, centralized planning and is the Federal government allocating capital to assets that the free market would not. So you are in favor of economic central planning? I’m kind of surprised as I thought you were in favor of free markets.

[quote=Allan from Fallbrook]
As far as AIG and similar players: The notional value of the derivatives market is $600Trn (yeah, trillion). AIG is positioned, along with other key players, right in the middle, in terms of how large their derivatives portfolio is. If they crash, then their leveraged derivatives position crashes as well, creating a massive ripple effect and possibly systemic failure. Or, what we balance sheet reading accountants refer to as a Bad Thing. [/quote]

I’m not saying that government doesn’t have a role to play, but from what I can see, all that the government is doing is attempting to reflate the bad assets in order to save the politically well-connected.

Instead of continuing to pump money into AIG so that AIG can pay off it’s counter-parties (at full value no less), what the government should be doing is liquidating AIG in as orderly a fashion as possible. If that leads to other institutions failing, then those institutions should be liquidated as well. Printing trillions in order to buy bad assets is bad policy that can only lead to bad things.

And that $600 trillion number is misleading as most of the derivative contracts cancel each other out. The value of all stocks in the world is on the order of a few tens of trillions, so in no way does the market believe that there is $600 trillion in actual derivatives value out there.

Derivatives are just contracts and contracts are broken all the time. If I write a contract and say that I will pay someone $1 billion upon the occurrence of some event, $1 billion has not been created and would never be created unless the government steps in and makes it so (which is what the government is doing so far in the case of AIG).

[TheBreeze]

[quote=Allan from Fallbrook]

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.

[/quote]

Mr. Mortgage, who knows a lot more about this subject than you, says there are buyers for the bad paper, but it is below the level the banks are willing to sell at. If they were to sell at the market price, they would be insolvent. This is the same reason the big banks want to get rid of mark-to-market.

[quote=Allan from Fallbrook]
You contradict yourself by talking about a “massive misallocation of capital”. How do you think capital gets allocated? Through banking. If banking and credit are frozen, then what? Banking, by necessity, needs to get fixed first and fast.
[/quote]

Banking and credit aren’t frozen. We’re barely back to early 2000 standards. Interest rates are below market due to the Fed’s shenanigans and anyone with a reasonable down payment can get a loan. However, if by ‘frozen’, you mean that 110% NINJA loans are no longer available, then yes, on that basis, you could argue that credit is ‘frozen’.

From the above paragraph, I take it you are in favor of the Fed’s buying of $1.25 trillion in mortgage-backed assets?

http://latimesblogs.latimes.com/money_co/2009/03/fed-inflation-r.html

This is essentially communistic, centralized planning and is the Federal government allocating capital to assets that the free market would not. So you are in favor of economic central planning? I’m kind of surprised as I thought you were in favor of free markets.

[quote=Allan from Fallbrook]
As far as AIG and similar players: The notional value of the derivatives market is $600Trn (yeah, trillion). AIG is positioned, along with other key players, right in the middle, in terms of how large their derivatives portfolio is. If they crash, then their leveraged derivatives position crashes as well, creating a massive ripple effect and possibly systemic failure. Or, what we balance sheet reading accountants refer to as a Bad Thing. [/quote]

I’m not saying that government doesn’t have a role to play, but from what I can see, all that the government is doing is attempting to reflate the bad assets in order to save the politically well-connected.

Instead of continuing to pump money into AIG so that AIG can pay off it’s counter-parties (at full value no less), what the government should be doing is liquidating AIG in as orderly a fashion as possible. If that leads to other institutions failing, then those institutions should be liquidated as well. Printing trillions in order to buy bad assets is bad policy that can only lead to bad things.

And that $600 trillion number is misleading as most of the derivative contracts cancel each other out. The value of all stocks in the world is on the order of a few tens of trillions, so in no way does the market believe that there is $600 trillion in actual derivatives value out there.

Derivatives are just contracts and contracts are broken all the time. If I write a contract and say that I will pay someone $1 billion upon the occurrence of some event, $1 billion has not been created and would never be created unless the government steps in and makes it so (which is what the government is doing so far in the case of AIG).

[TheBreeze]

[quote=Allan from Fallbrook]

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.

[/quote]

Mr. Mortgage, who knows a lot more about this subject than you, says there are buyers for the bad paper, but it is below the level the banks are willing to sell at. If they were to sell at the market price, they would be insolvent. This is the same reason the big banks want to get rid of mark-to-market.

[quote=Allan from Fallbrook]
You contradict yourself by talking about a “massive misallocation of capital”. How do you think capital gets allocated? Through banking. If banking and credit are frozen, then what? Banking, by necessity, needs to get fixed first and fast.
[/quote]

Banking and credit aren’t frozen. We’re barely back to early 2000 standards. Interest rates are below market due to the Fed’s shenanigans and anyone with a reasonable down payment can get a loan. However, if by ‘frozen’, you mean that 110% NINJA loans are no longer available, then yes, on that basis, you could argue that credit is ‘frozen’.

From the above paragraph, I take it you are in favor of the Fed’s buying of $1.25 trillion in mortgage-backed assets?

http://latimesblogs.latimes.com/money_co/2009/03/fed-inflation-r.html

This is essentially communistic, centralized planning and is the Federal government allocating capital to assets that the free market would not. So you are in favor of economic central planning? I’m kind of surprised as I thought you were in favor of free markets.

[quote=Allan from Fallbrook]
As far as AIG and similar players: The notional value of the derivatives market is $600Trn (yeah, trillion). AIG is positioned, along with other key players, right in the middle, in terms of how large their derivatives portfolio is. If they crash, then their leveraged derivatives position crashes as well, creating a massive ripple effect and possibly systemic failure. Or, what we balance sheet reading accountants refer to as a Bad Thing. [/quote]

I’m not saying that government doesn’t have a role to play, but from what I can see, all that the government is doing is attempting to reflate the bad assets in order to save the politically well-connected.

Instead of continuing to pump money into AIG so that AIG can pay off it’s counter-parties (at full value no less), what the government should be doing is liquidating AIG in as orderly a fashion as possible. If that leads to other institutions failing, then those institutions should be liquidated as well. Printing trillions in order to buy bad assets is bad policy that can only lead to bad things.

And that $600 trillion number is misleading as most of the derivative contracts cancel each other out. The value of all stocks in the world is on the order of a few tens of trillions, so in no way does the market believe that there is $600 trillion in actual derivatives value out there.

Derivatives are just contracts and contracts are broken all the time. If I write a contract and say that I will pay someone $1 billion upon the occurrence of some event, $1 billion has not been created and would never be created unless the government steps in and makes it so (which is what the government is doing so far in the case of AIG).

[TheBreeze]

[quote=Allan from Fallbrook]

The market hasn’t made any determination as to the value of the assets in question and that’s the crux of the problem: Institutions aren’t lending because they don’t know who is holding what assets, bad or good. Thus, the credit market froze.

[/quote]

Mr. Mortgage, who knows a lot more about this subject than you, says there are buyers for the bad paper, but it is below the level the banks are willing to sell at. If they were to sell at the market price, they would be insolvent. This is the same reason the big banks want to get rid of mark-to-market.

[quote=Allan from Fallbrook]
You contradict yourself by talking about a “massive misallocation of capital”. How do you think capital gets allocated? Through banking. If banking and credit are frozen, then what? Banking, by necessity, needs to get fixed first and fast.
[/quote]

Banking and credit aren’t frozen. We’re barely back to early 2000 standards. Interest rates are below market due to the Fed’s shenanigans and anyone with a reasonable down payment can get a loan. However, if by ‘frozen’, you mean that 110% NINJA loans are no longer available, then yes, on that basis, you could argue that credit is ‘frozen’.

From the above paragraph, I take it you are in favor of the Fed’s buying of $1.25 trillion in mortgage-backed assets?

http://latimesblogs.latimes.com/money_co/2009/03/fed-inflation-r.html

This is essentially communistic, centralized planning and is the Federal government allocating capital to assets that the free market would not. So you are in favor of economic central planning? I’m kind of surprised as I thought you were in favor of free markets.

[quote=Allan from Fallbrook]
As far as AIG and similar players: The notional value of the derivatives market is $600Trn (yeah, trillion). AIG is positioned, along with other key players, right in the middle, in terms of how large their derivatives portfolio is. If they crash, then their leveraged derivatives position crashes as well, creating a massive ripple effect and possibly systemic failure. Or, what we balance sheet reading accountants refer to as a Bad Thing. [/quote]

I’m not saying that government doesn’t have a role to play, but from what I can see, all that the government is doing is attempting to reflate the bad assets in order to save the politically well-connected.

Instead of continuing to pump money into AIG so that AIG can pay off it’s counter-parties (at full value no less), what the government should be doing is liquidating AIG in as orderly a fashion as possible. If that leads to other institutions failing, then those institutions should be liquidated as well. Printing trillions in order to buy bad assets is bad policy that can only lead to bad things.

And that $600 trillion number is misleading as most of the derivative contracts cancel each other out. The value of all stocks in the world is on the order of a few tens of trillions, so in no way does the market believe that there is $600 trillion in actual derivatives value out there.

Derivatives are just contracts and contracts are broken all the time. If I write a contract and say that I will pay someone $1 billion upon the occurrence of some event, $1 billion has not been created and would never be created unless the government steps in and makes it so (which is what the government is doing so far in the case of AIG).

[Allan from Fallbrook]

Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?

Also, your assertion that these hundreds of trillions of dollars worth of derivatives cancel each other out is false. Again, part of the problem. No one is entirely sure what’s out there, as it’s a largely unregulated market with little to no oversight, which has created a massive amount of uncertainty.

No, I’m not advocating the return of NINJA loans, and don’t be so insipid as to throw that pitiful strawman my way. Just because I don’t agree with you, doesn’t mean I’m agitating for a return to the stupidity that got us here.

Nope. All I was saying was this: The price of inaction in this crisis is potential systemic collapse. That doesn’t mean I agree with everything that’s going on. To the contrary, I think Obama’s team is bungling things badly, as evidenced by the AIG bonus fiasco and the fact that key players on his side were fully aware of that situation and then tried to salvage it with their phony cries of outrage.

And, I’m sorry, but the credit market remains pretty much a wreck, and on a world-wide basis. That’s the gravest danger we face right now, and where the strongest lessons of the Great Depression remain.

I’m sure your personal Oracle at Delphi, Mr. Mortgage and the inestimable Mike Shedlock have much to say on the subject, but remember this: They have the luxury of opining from the safety of their offices, while officials the world over have to handle this situation, and in real-time. That’s the telling difference.

Lastly, if all of this is being done for no other reason than to provide political cover for various cronies and evildoers, well, what does that say about your guy, Obama? Wouldn’t that, in essence, make him the biggest conspirator of them all?

[Allan from Fallbrook]

Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?

Also, your assertion that these hundreds of trillions of dollars worth of derivatives cancel each other out is false. Again, part of the problem. No one is entirely sure what’s out there, as it’s a largely unregulated market with little to no oversight, which has created a massive amount of uncertainty.

No, I’m not advocating the return of NINJA loans, and don’t be so insipid as to throw that pitiful strawman my way. Just because I don’t agree with you, doesn’t mean I’m agitating for a return to the stupidity that got us here.

Nope. All I was saying was this: The price of inaction in this crisis is potential systemic collapse. That doesn’t mean I agree with everything that’s going on. To the contrary, I think Obama’s team is bungling things badly, as evidenced by the AIG bonus fiasco and the fact that key players on his side were fully aware of that situation and then tried to salvage it with their phony cries of outrage.

And, I’m sorry, but the credit market remains pretty much a wreck, and on a world-wide basis. That’s the gravest danger we face right now, and where the strongest lessons of the Great Depression remain.

I’m sure your personal Oracle at Delphi, Mr. Mortgage and the inestimable Mike Shedlock have much to say on the subject, but remember this: They have the luxury of opining from the safety of their offices, while officials the world over have to handle this situation, and in real-time. That’s the telling difference.

Lastly, if all of this is being done for no other reason than to provide political cover for various cronies and evildoers, well, what does that say about your guy, Obama? Wouldn’t that, in essence, make him the biggest conspirator of them all?

[Allan from Fallbrook]

Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?

Also, your assertion that these hundreds of trillions of dollars worth of derivatives cancel each other out is false. Again, part of the problem. No one is entirely sure what’s out there, as it’s a largely unregulated market with little to no oversight, which has created a massive amount of uncertainty.

No, I’m not advocating the return of NINJA loans, and don’t be so insipid as to throw that pitiful strawman my way. Just because I don’t agree with you, doesn’t mean I’m agitating for a return to the stupidity that got us here.

Nope. All I was saying was this: The price of inaction in this crisis is potential systemic collapse. That doesn’t mean I agree with everything that’s going on. To the contrary, I think Obama’s team is bungling things badly, as evidenced by the AIG bonus fiasco and the fact that key players on his side were fully aware of that situation and then tried to salvage it with their phony cries of outrage.

And, I’m sorry, but the credit market remains pretty much a wreck, and on a world-wide basis. That’s the gravest danger we face right now, and where the strongest lessons of the Great Depression remain.

I’m sure your personal Oracle at Delphi, Mr. Mortgage and the inestimable Mike Shedlock have much to say on the subject, but remember this: They have the luxury of opining from the safety of their offices, while officials the world over have to handle this situation, and in real-time. That’s the telling difference.

Lastly, if all of this is being done for no other reason than to provide political cover for various cronies and evildoers, well, what does that say about your guy, Obama? Wouldn’t that, in essence, make him the biggest conspirator of them all?

[Allan from Fallbrook]

Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?

Also, your assertion that these hundreds of trillions of dollars worth of derivatives cancel each other out is false. Again, part of the problem. No one is entirely sure what’s out there, as it’s a largely unregulated market with little to no oversight, which has created a massive amount of uncertainty.

No, I’m not advocating the return of NINJA loans, and don’t be so insipid as to throw that pitiful strawman my way. Just because I don’t agree with you, doesn’t mean I’m agitating for a return to the stupidity that got us here.

Nope. All I was saying was this: The price of inaction in this crisis is potential systemic collapse. That doesn’t mean I agree with everything that’s going on. To the contrary, I think Obama’s team is bungling things badly, as evidenced by the AIG bonus fiasco and the fact that key players on his side were fully aware of that situation and then tried to salvage it with their phony cries of outrage.

And, I’m sorry, but the credit market remains pretty much a wreck, and on a world-wide basis. That’s the gravest danger we face right now, and where the strongest lessons of the Great Depression remain.

I’m sure your personal Oracle at Delphi, Mr. Mortgage and the inestimable Mike Shedlock have much to say on the subject, but remember this: They have the luxury of opining from the safety of their offices, while officials the world over have to handle this situation, and in real-time. That’s the telling difference.

Lastly, if all of this is being done for no other reason than to provide political cover for various cronies and evildoers, well, what does that say about your guy, Obama? Wouldn’t that, in essence, make him the biggest conspirator of them all?

[Allan from Fallbrook]

Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?

Also, your assertion that these hundreds of trillions of dollars worth of derivatives cancel each other out is false. Again, part of the problem. No one is entirely sure what’s out there, as it’s a largely unregulated market with little to no oversight, which has created a massive amount of uncertainty.

No, I’m not advocating the return of NINJA loans, and don’t be so insipid as to throw that pitiful strawman my way. Just because I don’t agree with you, doesn’t mean I’m agitating for a return to the stupidity that got us here.

Nope. All I was saying was this: The price of inaction in this crisis is potential systemic collapse. That doesn’t mean I agree with everything that’s going on. To the contrary, I think Obama’s team is bungling things badly, as evidenced by the AIG bonus fiasco and the fact that key players on his side were fully aware of that situation and then tried to salvage it with their phony cries of outrage.

And, I’m sorry, but the credit market remains pretty much a wreck, and on a world-wide basis. That’s the gravest danger we face right now, and where the strongest lessons of the Great Depression remain.

I’m sure your personal Oracle at Delphi, Mr. Mortgage and the inestimable Mike Shedlock have much to say on the subject, but remember this: They have the luxury of opining from the safety of their offices, while officials the world over have to handle this situation, and in real-time. That’s the telling difference.

Lastly, if all of this is being done for no other reason than to provide political cover for various cronies and evildoers, well, what does that say about your guy, Obama? Wouldn’t that, in essence, make him the biggest conspirator of them all?

[TheBreeze]

[quote=Allan from Fallbrook]Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?
[/quote]

Did you read what I wrote? I said that the value of STOCKS (as in the stock market; as in the DJIA or the S&P or the Nikkei) is only worth a few tens of trillions. So obviously the stock market does not believe that these derivatives are worth anything near $600 trillion.

GDP is essentially a measure of revenue, not net income. Net income may be negative on that GDP number as the value of goods may be dropping below the cost of production. Do you value companies based on their revenues or their net incomes?

[TheBreeze]

[quote=Allan from Fallbrook]Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?
[/quote]

Did you read what I wrote? I said that the value of STOCKS (as in the stock market; as in the DJIA or the S&P or the Nikkei) is only worth a few tens of trillions. So obviously the stock market does not believe that these derivatives are worth anything near $600 trillion.

GDP is essentially a measure of revenue, not net income. Net income may be negative on that GDP number as the value of goods may be dropping below the cost of production. Do you value companies based on their revenues or their net incomes?

[TheBreeze]

[quote=Allan from Fallbrook]Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?
[/quote]

Did you read what I wrote? I said that the value of STOCKS (as in the stock market; as in the DJIA or the S&P or the Nikkei) is only worth a few tens of trillions. So obviously the stock market does not believe that these derivatives are worth anything near $600 trillion.

GDP is essentially a measure of revenue, not net income. Net income may be negative on that GDP number as the value of goods may be dropping below the cost of production. Do you value companies based on their revenues or their net incomes?

[TheBreeze]

[quote=Allan from Fallbrook]Breeze: Did you read what you wrote about the derivatives market being only a few tens of trillions of dollars? You do realize the ENTIRE U.S. GDP clocks in at around $14.5Trn, right?
[/quote]

Did you read what I wrote? I said that the value of STOCKS (as in the stock market; as in the DJIA or the S&P or the Nikkei) is only worth a few tens of trillions. So obviously the stock market does not believe that these derivatives are worth anything near $600 trillion.

GDP is essentially a measure of revenue, not net income. Net income may be negative on that GDP number as the value of goods may be dropping below the cost of production. Do you value companies based on their revenues or their net incomes?

[Author]

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