Comments on: Regulators Institute Tinkerbell Rules: “If Only We Believe Banks Are Solvent They Will Survive!”

By: ubetchaiam

ubetchaiam — Fri, 19 Sep 2008 03:05:59 +0000

And because of CDS’s, no one really knows who owes what to whom, so assuming ‘all’ basically says it is completely unknown -and would forever be- exactly what the amount is.

I still can’t find where public comment is solicited by “The agencies that issued the proposal — the Federal Deposit Insurance Corporation, the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve — indicated that it would be adopted after only 30 days of public comment”

I do see where the FDIC has a bunch of real estate for sale.

By: Ian Welsh

Ian Welsh — Fri, 19 Sep 2008 01:55:26 +0000

Nobody’s paying any attention to the laws right now. The Fed has seized a ton of power it has no statutory right to already.

By: Ian Welsh

Ian Welsh — Fri, 19 Sep 2008 01:53:04 +0000

Just a business with a lot of money that buys bad debt (probably at higher prices than it should) then sells them again. The idea is to set a price for the debt, as well as to get it off banks balance sheets so you know what situation they’re actually in. Right now no one knows how bad things are, because no one knows what price to give these things.

By: Ian Welsh

Ian Welsh — Fri, 19 Sep 2008 01:51:47 +0000

thanks Jim. Really depends on the details. I would buy the mortgages, reset them to 30 or 50 year fixed, add in some caveats (government gets half of sale price over the amount the mortgage was bought for) and so on.

Ann: sounds about right, yes. The price will matter a lot, and breaking them up could prove to be very complicated. You could buy them whole, I guess…

By: Ann in AZ

Ann in AZ — Fri, 19 Sep 2008 00:36:02 +0000

I suppose I should expand on what I am saying to include the fact that the new Fed agency buys the bad loans at bargain basement prices, fire sale prices, whatever you want to call it. That adds to the bank’s capital formation and takes away much of their worst exposure to liabilities. At this point, the financial institutions are on their own, sink or swim, either survival or bankruptcy. If this doesn’t make them more solvent, that’s between them and their legal team.

If the bad loans still have occupants, the new agency renegotiates loans with the owners; otherwise they sell the properties just as the FHA or VA do. In either case, they must mark the properties down to market values at this point, and they must give buyers or refinancers fixed loans at reasonable rates that the buyers or occupants can afford. Fixes the financial markets; helps determine the floor for the real estate market, which helps to fix that market, too. I think this would minimize losses all the way around.

Main problem, I understand that the loan had something to do with derivatives, which I know nothing about, so…

By: Ann in AZ

Ann in AZ — Fri, 19 Sep 2008 00:16:25 +0000

I’m anxious to see Ian’s reaction to the proposal to form another entity to take and then ultimately dispose of their bad debt without absorbing the entire financial institution. The way I envision this is that they have the entities unbundle the loans that they bought, determine which are the problem loans, bundle them up and off to the government’s newly formed entity, leaving the seller with all their remaining performing assets. Would this concept be wrong?

By: ShotoJamf

ShotoJamf — Fri, 19 Sep 2008 00:13:03 +0000

I don’t work for the giant “big boys”, but big enough, I think, to make such observations. To put it bluntly: There are plenty of idiots pulling the levers out there, and this assertion may be made no matter the size of the institution. Basically, both the mindset and regulatory constraints are the same. As for the giants in the industry, the old axiom holds true: The bigger they are, the harder they fall.

By: ubetchaiam

ubetchaiam — Thu, 18 Sep 2008 23:44:11 +0000

I’m way late but hoping Ian will catch this. First , how DOES the public comment on this crap?

Secondly, I read this:
“Stocks surge on report of entity for bad debt

“The big comeback followed a report that the federal government may create an entity that will take over banks’ bad debt. “
http://news.yahoo.com/s/ap/200.....all_street

Another RTC is NOT what is needed; comment Ian? What is the ‘entity’ referenced?

By: wmd1961

wmd1961 — Thu, 18 Sep 2008 23:41:20 +0000

Financials were down a lot up until about 1 PM EST. I was able to sell another put before then, $265 purchase, $450 sale. End of the day the option closed at $281. I’ve still got one contract I think it will sell for more than $450 sometime in the next 3 weeks. At this point it’s all house money, as I’ve sold the first two contracts for more than I initially paid for all 3.

I’ve noticed a lot of comment in the blogosphere that the DOW is basically where it was when Clinton left office. That’s true, but it misses a very important point - those dollars are worth significantly less.

Here’s what the Fed says: something costing $1.00 in 2000 costs $1.25 in 2008.

US Dollar index lost value from Jan 2001 value of 125.275 to 78.21 today. This indicates a greater loss of purchasing power abroad - the dollar buys fewer euros, yen, etc. (Historical data from the Fed, current data from yahoo).

Both the CPI and dollar index mean that we’ve lost purchasing power. There’s a little silver lining to the dollar index dropping - foreign purchasers of US goods and investors in the US are using cheaper (to the foreign buyer) dollars.

I’ll go out on a limb and suggest the dollar index could break below 70 in the near future, central bank intervention notwithstanding. One factor is S&P talking about downgrading US Treasury debt. If that happens the dollar should drop quickly (and bond yields increase at the same time).

By: foothillsmike

foothillsmike — Thu, 18 Sep 2008 23:11:19 +0000

Thanks for that observation. If you don’t mind my asking do you work for the big boys?