[patientrenter]

[quote=davelj]….
If mark-to-market accounting were required of most US citizens, a large percentage of them would be in “receivership” (re: bankrupt) as well. (That is, their liabilities are greater than their assets on a liquidation basis.)

To use an obvious example, consider just about every college student that graduates with a student loan…[/quote]

For the recent graduates with a student loan, their major asset is their future earnings. Hopefully, even a conservative estimate of those earnings far exceeds their debt. If not, then there is a bad debt issue.

For the banks, aren’t some of the future earnings capitalized, at least on a conservative basis? If not, it seems reasonable to do that. Why? To separate those that should be shut down from those that should be allowed to live, and in a transparent way that can be subjected to questioning. (It doesn’t have to be radical, just add and publish the calcs to the normal reports that don’t capitalize any future earnings.)

[patientrenter]

[quote=davelj]….
If mark-to-market accounting were required of most US citizens, a large percentage of them would be in “receivership” (re: bankrupt) as well. (That is, their liabilities are greater than their assets on a liquidation basis.)

To use an obvious example, consider just about every college student that graduates with a student loan…[/quote]

For the recent graduates with a student loan, their major asset is their future earnings. Hopefully, even a conservative estimate of those earnings far exceeds their debt. If not, then there is a bad debt issue.

For the banks, aren’t some of the future earnings capitalized, at least on a conservative basis? If not, it seems reasonable to do that. Why? To separate those that should be shut down from those that should be allowed to live, and in a transparent way that can be subjected to questioning. (It doesn’t have to be radical, just add and publish the calcs to the normal reports that don’t capitalize any future earnings.)

[patientrenter]

[quote=davelj]….
If mark-to-market accounting were required of most US citizens, a large percentage of them would be in “receivership” (re: bankrupt) as well. (That is, their liabilities are greater than their assets on a liquidation basis.)

To use an obvious example, consider just about every college student that graduates with a student loan…[/quote]

For the recent graduates with a student loan, their major asset is their future earnings. Hopefully, even a conservative estimate of those earnings far exceeds their debt. If not, then there is a bad debt issue.

For the banks, aren’t some of the future earnings capitalized, at least on a conservative basis? If not, it seems reasonable to do that. Why? To separate those that should be shut down from those that should be allowed to live, and in a transparent way that can be subjected to questioning. (It doesn’t have to be radical, just add and publish the calcs to the normal reports that don’t capitalize any future earnings.)

[patientrenter]

[quote=davelj]….
If mark-to-market accounting were required of most US citizens, a large percentage of them would be in “receivership” (re: bankrupt) as well. (That is, their liabilities are greater than their assets on a liquidation basis.)

To use an obvious example, consider just about every college student that graduates with a student loan…[/quote]

For the recent graduates with a student loan, their major asset is their future earnings. Hopefully, even a conservative estimate of those earnings far exceeds their debt. If not, then there is a bad debt issue.

For the banks, aren’t some of the future earnings capitalized, at least on a conservative basis? If not, it seems reasonable to do that. Why? To separate those that should be shut down from those that should be allowed to live, and in a transparent way that can be subjected to questioning. (It doesn’t have to be radical, just add and publish the calcs to the normal reports that don’t capitalize any future earnings.)

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[patientrenter]

[quote=CA renter]…limiting collateral calculations to a LT average…[/quote]

Thanks, CA renter. The period used for the long term average is hard to pick perfectly, but it should be long enough to always cover at least the full length of the last upswing and the last downswing. In So Cal, that tends to be 10-20 years, so I chose 15.

Of course, my suggestion will not be implemented. Why? Because it would be very effective in limiting bubbles, and it would limit the upswing profits of the finance and RE industries, and would give homeowners no hope of big future gains on their live-in money generators.

[patientrenter]

Thoughtful response, ucodegen. You’ve spurred me to add two further thoughts:

1. I think TBTF does need to be ended, and an increasing capital requirement could accomplish this effectively and efficiently.

You pointed out that entities could game this by having holding companies that run several smaller banks. True, but I think this could be counteracted by combining the controlled entities for capital calculations, much as is done today for taxes.

2. You pointed out that the banks and regulators lost sight of systemic risk caused by broad asset price bubbles (the reliance on the greater fool).

To counteract this for RE, I suggest limiting CLTV to 80%. It’s crude and imperfect, but it’s a big step in the right direction. Limit FHA and VA and other exceptions to no more than 10% of the overall US market in any one year, or 20% of a state’s (or some other rule that makes some allowances for Barney Frank’s goals whilst limiting the system-wide damage he can do to the economy). One more adjustment: Limit the V in CLTV for loan collateral calculations to a long term average. For example, use the average market value over the last 15 years, indexed to price or wage inflation. That way bubbles lose steam very quickly as the down payments increase with the increase in market prices.

[patientrenter]

Thoughtful response, ucodegen. You’ve spurred me to add two further thoughts:

1. I think TBTF does need to be ended, and an increasing capital requirement could accomplish this effectively and efficiently.

You pointed out that entities could game this by having holding companies that run several smaller banks. True, but I think this could be counteracted by combining the controlled entities for capital calculations, much as is done today for taxes.

2. You pointed out that the banks and regulators lost sight of systemic risk caused by broad asset price bubbles (the reliance on the greater fool).

To counteract this for RE, I suggest limiting CLTV to 80%. It’s crude and imperfect, but it’s a big step in the right direction. Limit FHA and VA and other exceptions to no more than 10% of the overall US market in any one year, or 20% of a state’s (or some other rule that makes some allowances for Barney Frank’s goals whilst limiting the system-wide damage he can do to the economy). One more adjustment: Limit the V in CLTV for loan collateral calculations to a long term average. For example, use the average market value over the last 15 years, indexed to price or wage inflation. That way bubbles lose steam very quickly as the down payments increase with the increase in market prices.

[patientrenter]

Thoughtful response, ucodegen. You’ve spurred me to add two further thoughts:

1. I think TBTF does need to be ended, and an increasing capital requirement could accomplish this effectively and efficiently.

You pointed out that entities could game this by having holding companies that run several smaller banks. True, but I think this could be counteracted by combining the controlled entities for capital calculations, much as is done today for taxes.

2. You pointed out that the banks and regulators lost sight of systemic risk caused by broad asset price bubbles (the reliance on the greater fool).

To counteract this for RE, I suggest limiting CLTV to 80%. It’s crude and imperfect, but it’s a big step in the right direction. Limit FHA and VA and other exceptions to no more than 10% of the overall US market in any one year, or 20% of a state’s (or some other rule that makes some allowances for Barney Frank’s goals whilst limiting the system-wide damage he can do to the economy). One more adjustment: Limit the V in CLTV for loan collateral calculations to a long term average. For example, use the average market value over the last 15 years, indexed to price or wage inflation. That way bubbles lose steam very quickly as the down payments increase with the increase in market prices.

[patientrenter]

Thoughtful response, ucodegen. You’ve spurred me to add two further thoughts:

1. I think TBTF does need to be ended, and an increasing capital requirement could accomplish this effectively and efficiently.

You pointed out that entities could game this by having holding companies that run several smaller banks. True, but I think this could be counteracted by combining the controlled entities for capital calculations, much as is done today for taxes.

2. You pointed out that the banks and regulators lost sight of systemic risk caused by broad asset price bubbles (the reliance on the greater fool).

To counteract this for RE, I suggest limiting CLTV to 80%. It’s crude and imperfect, but it’s a big step in the right direction. Limit FHA and VA and other exceptions to no more than 10% of the overall US market in any one year, or 20% of a state’s (or some other rule that makes some allowances for Barney Frank’s goals whilst limiting the system-wide damage he can do to the economy). One more adjustment: Limit the V in CLTV for loan collateral calculations to a long term average. For example, use the average market value over the last 15 years, indexed to price or wage inflation. That way bubbles lose steam very quickly as the down payments increase with the increase in market prices.

[patientrenter]

Thoughtful response, ucodegen. You’ve spurred me to add two further thoughts:

1. I think TBTF does need to be ended, and an increasing capital requirement could accomplish this effectively and efficiently.

You pointed out that entities could game this by having holding companies that run several smaller banks. True, but I think this could be counteracted by combining the controlled entities for capital calculations, much as is done today for taxes.

2. You pointed out that the banks and regulators lost sight of systemic risk caused by broad asset price bubbles (the reliance on the greater fool).

To counteract this for RE, I suggest limiting CLTV to 80%. It’s crude and imperfect, but it’s a big step in the right direction. Limit FHA and VA and other exceptions to no more than 10% of the overall US market in any one year, or 20% of a state’s (or some other rule that makes some allowances for Barney Frank’s goals whilst limiting the system-wide damage he can do to the economy). One more adjustment: Limit the V in CLTV for loan collateral calculations to a long term average. For example, use the average market value over the last 15 years, indexed to price or wage inflation. That way bubbles lose steam very quickly as the down payments increase with the increase in market prices.

[patientrenter]

[quote=davelj]the regulations and capital requirements should change….[/quote]

I agree, but I’d tweak by making the step-up in capital smooth instead of having breakpoints. Why? ‘Cos there’s a lot of mischief done in trying to get just under the wire. And I’m a former mathematician, so what the hell, I love nonlinear formulas 🙂

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