Welcome Yves, thanks so much for being here today. Can you talk a little bit about confidence in the system (or lack thereof), and what you think needs to be done to restore it?

Big question I know, but I have been very curious to know what you think.

yves, first just want to say thank you for the time you put into your blog. it’s been one of the most helpful to me in trying to understand what is happening, and i especially appreciate the wide net you cast for links to other blogs.

There is this ongoing kabuki that if the government, the media, and the financial community pretend the banks aren’t insolvent then they aren’t. How can transparency have any meaning as long as this fiction is maintained?

Welcome Yves. I’m a big fan of your blog. Can you comment on Bill Gross of Pimco influence on the Fed and Treasury actions on the bailout? Thanks.

Do you think the Fed will provide the necessary transparency? If not, what’s the next move?

All appeals for FRB transparency fall on deaf ears. Bernanke won’t even respond to congress. And other ideas?

My friend Debi turned me onto your blog and have been reading ever since. I
wish you were on tv instead of idiots like Cramer.

what are you thoughts on nationalizing the banks?

Welcome to Firedoglake – glad you could join us!

Great to be here, working on the answer to Jane’s large opening question. Thanks for the kind words about the blog!

My comment? I’m not ill-educated, but I’ve never even had to deal with the concept of a trillion anything. But trillions of dollars? trillions??? and we don’t knwo where it’s going? I, I, I.. I’m just honestly speechless. How can this be?

That’s okay, take your time. We’re very glad to have you.

Thanks so much. The confidence question is indeed a biggie. There are several reasons it has been difficult to restore. First is that the biggest financial firms, the former investment banks and the large banks like Citi and UBS have large operations that trade in instruments that even in the best of circumstances are hard to value. When the markets soured, these were a big source of losses, via writedowns.

The conundrum is that if the banks were to mark them to market (which since they are trading inventory for many firms, they ought to be), they would be revealed to be insolvent. The old commercial banks like Citi and UBS are believed to have at least in some cases played games by reclassifying them so as to relieve them from this obligation.

The accounting rules were relaxed to relieve these firms from mark to market, the logic being that markets were artificially depressed, the prices would come back.

But that leaves investors and the greater public not trusting the financial statements, particularly since the outlook for housing and employment is poor. Things are likely to get worse before they get better.

A lot of people (this humble blogger included) argue that trying to hide or finesse the losses just won’t work, that the first step needs to be price discovery, then the authorities can figure out how sick the banks are and take remedial steps with the ones that look terminal.

Second is that the whole process has looked to be bending over backwards to favor bank management and shareholders at the expense of taxpayers. That creates the impression of cronyism and unfair dealing. It also gives banks the incentive to swing for the fences using taxpayer money.

dumb question, but……

….if the banks were to mark them to market (which since they are trading inventory for many firms, they ought to be), they would be revealed to be insolvent.

why is that bad? not being a wise guy. i don’t get that.

and welcome, Ms. Smith

Hugh,

Agreed, but with a caveat. Many of the smaller banks are fine, and even some of the large banks may be fine (for instance, US Bank) even thought their earnings are depressed and they are taking writeoffs. There are also some banks that reportedly have very honest accounting (Fifth Third) and are well managed but are in simply awful geographies (Michigan, Florida, Ohio). Fifth Third may not make it, but at least it is making a more honest presentation than most

But many of the big banks that hold most of the deposits and loans look pretty wobbly. And you point it right. The doubts about them are tainting the perception of every bank.

I’m 63 years old and have no more confidence in the system than in my own infallibility. [snort] Moved to Taos, NM 10 years ago, took an 80 percent family income cut (OUCH!), have barely crawled back to maybe half of what we used to live on. But this is par for the course in Taos. I moved here to get as far away from the USA as possible without leaving America, haha, and it mostly worked. Too bad I had the financial acumen of a goat, but there you go.

Point is: everyone with gobs of money simply can’t think outside the box, because they’re too much invested IN the box. The system is buggered and it’s not coming back. We built a lifestyle — emulated by all developing nations — based on grabbing most of the world’s resources, unsustainable from the git-go, and hardly anyone is facing up to basic truths.

I read “Naked Capitalism” because Yves comes closer than most, which I deeply appreciate. And now to see what else is being said here…

Hiding losses = Japanese plan? With same outcome?

Depressed markets as an excuse for not marking to market is a Catch-22, as markets cannot recover until magnitude of losses is known.

What do you think of the continued allocation of trillions to the most rotten and unproductive sectors of the economy (the banks) while the rest of the economy, the real economy, is left to languish or survive on nickles and dimes.

Paulson comes up with a 3 page plan to spend $700 billion on the financial industry. Meanwhile the auto industry has to beg and undergo ritualized humiliation for a tiny fraction of that.

Congress has big battles over a too small and ineffective $787 billion stimulus. And Geithner comes up with what can’t even be called an outline to spend $2 trillion more on the banks.

Days after Lehman failed, Paulson had his plan and was rushing to get it through Congress. 18 months after the housing crisis blew up, we see Obama’s pitiful $75 billion mortgage program, and even there the primary goal looked like avoiding cramdowns so banks can continue to overvalue their crap assets.

It just seems to me all the priorities are completely inverted.

There has been some talk that if banks are TBTF, they should be broken up.
Can we have your thoughts on this?

what are you thoughts on nationalizing the banks?

my question for yves is also on nationalization.

yves, your post from a few weeks ago, William Black: “There Are No Real Stress Tests Going On,” made me wonder if any of the issues you and black discussed re the requirements for a real stress test are also issues when it comes to nationalization. from your post:

I also asked him about the fact that bank examiners examine banks (duh) and would not have much (any?) experience in the capital markets operations or sophisticated products that the big investment bank, now banks, participated in. Goldman and Morgan Stanley ought to be subject to these exams; Citi, JP Morgan, and Bank of America have large capital markets operations. These firms are where the biggest risks and exposures lie. Do the examiners what to look for in a even the low-risk operations, like repo desks, much the less derivatives and proprietary trading books? He agreed (as presented below) that it was a near certainty that this was beyond their skill level.

what, if anything, does the lack of people and expertise required for stress testing mean when it comes to nationalizing the biggest banks? citi i think has operations in about 100 countries, does that make a difference in how it should be nationalized if it comes to that? do we have the number of people with the appropriate experience to pull it off? basically what would it take to do it right and prevent run on other banks?

we’ve been discussing that here and people have weighed in with anything from, paraphrasing, “it could be done by fax” to “it would take thousands just for citi.” i don’t know what to think because i don’t really understand how a big multinational investment-type bank should be nationalized (as compared to the small banks the FDIC has been doing). the only thing i can find that might be a little bit comparable was BCCI (ok, that was a criminal enterprise, but i’m not so sure citi et al aren’t also).

ekunin,

The Fed seems determined not to provide for transparency. Bernanke’s remarks at various points suggest that he believes the bad assets on bank balance sheets are misvalued, that they are underpriced due to irrational pessimism.

Now it may well be true that some of the assets are worth more than their current market prices. But there is still a very big gap between how the banks are carrying them on their books and market prices. Bernanke appears to be engaging in wishful thinking, that in due course, the prices the banks are using now will in many cases be validated in the market later. I wouldn’t base policy on such an optimistic view, but that is where we are.

Thus the Fed thinks the lack of transparency is warranted. No reason to spook people over a situation they think will largely remedy itself, between supposed irrational pessimism lifting and government intervention.

Yes you have made that point often and well, that the current situation — where banks that are “too big to fail” know they will always be bailed out — are incentified to take huge risks, because there is no down side. The longer that the government fails to act, the bigger the problem becomes.

Yesterday the WSJ says that Citi may now need a “bad bank” to absorb their toxic assets. What do you make of that?

Why is no one talking about the INTERE$T?
The Federal Re$erve has been i$$uing money for almost a hundred years now, and all at intere$t, which is never printed, issued, or created. So every DOLLAR in the $y$tem is owed, at INTER$T, to the Federal Re$erve. Only now, the INTER$T is a significant fraction of the GNP. The present $timulu$ package, if left at say 840 billion, will result, according to the Congressional Budget Office, in INTERE$T of $347.1 BILLION….BILLION DOLLARS. All of that debt will be collected by the Justice Department, and more significantly, the Bankruptcy Courts. How can introducing 347.1 billion NEGATIVE DOLLARS into a failing $y$tem, be a good idea?
Thank you very much.

Welcome Ms. Smith:

“The accounting rules were relaxed to relieve these firms from mark to market, the logic being that markets were artificially depressed, the prices would come back.”

Does this statement suggest that the FASB is (essentially) bending to the whims of the large players? If so, then why should the market place any reliance in the audited statements being presented?

Will irrational pessimism remedy itself the same way that irrational exhuberance did? /s

cybermone1207,

People use the word “nationalization” to mean a lot of things. FDIC receivership is a form of nationalization, but the press doesn’t describe ti that way.

The regulators should have a regime for putting the very big banks with large trading operations (those trading operations make putting them in a form of bankruptcy very tricky) into some form of receivership/bankruptcy. That is a type of nationalization. The bad asset could be sold, and the banks should be broken into smaller entities to reduce systemic risk. That is not trivial, it would take time, but smaller chunks would be much easier to reprivatize.

The UK does have a special insolvency regime, The fact that we don’t, and didn’t even look into implementing one after the Bear collapse, is a real failure.

Beefart,

That is why there was so much opposition to the TARP, even $700 billion is a huge number.

I’ve found myself aghast at the economically illiteracy of the US Congress. I’m no economist, but watching some of the hearings, I can only assume that the Congressional conversation is using the economic and social structures of 1840s.

So Question 1: what are the odds that Congress would be able to organize Tutorials for topics like “Econ 101 in a Global Environment” or Cram Sessions on “How Offshore Tax Havens Screw Your Constitutents” in much the same way that other large organizations keep their members up to date on current knowledge so that they make better decisions based on up-to-date info. (Actually, last weeks Energy Summit was one such example, IMHO, of how Congress could do this.)

Question 2: is there a ‘truth and accuracy meter’ anywhere on the Web that helps people assess the relevance and/or accuracy of the comments and claims of Congresscritters? (Is there any way to figure out fairly rapidly which members of Congress are actually reasonably economically literate…?)

Quick thank you to Jane, FDL, and Yves Smith; I will have to catch up on the rest of the thread later today. Deeply appreciate what you do.

But many of the big banks that hold most of the deposits and loans look pretty wobbly.

I agree some of the smaller banks probably are fiscally sound but as you say it is the big ones with most of the deposits, representing most of the financial system, that are bust.

I have brought this up in other places. But I don’t see much on deflation as an obstacle to the re-initiation of normal lending. The original rationale was that banks were afraid to lend because they were afraid that other lenders were as insolvent as they were and so the system froze up. The response was to pump money into them although this resulted in a liquidity trap. But now I think that deflation favors banks holding on to cash as the value of everything else deflates.

Welcome to FDL, and thank you for your time.

One question re: Bank of America specifically I haven’t seen discussed is how could the federal govt. beg BofA to take Countrywide and Merrill, knowing each institution was loaded with crap assets, then turn around and potentially wipe out the common stock through nationalization?

If they hadn’t done those deals, wouldn’t their balance sheet be in much better shape?

Banks are back to lending: for pharma mergers.

eCAHNonomics,

The irony is as you suggest, we are looking an awful lot like Japan, and the funny/sad bit is economists used to criticize the Japanese for not doing enough, both stimulus and cleaning up their banks.

I wouldn’t call it a plan. Both the Bush and Obama administrations have set up certain constraints that push them this way. One biggie is they really do not want to nationalize/take out the big banks. Both Paulson and Geithner believe that government can’t run banks. Yet the government has been outsourcing lots of operations for a while and there are many good bank managers/executives who are retired, some because they opposed the crazy practices of the last few years and were forced out.

Yves: Does this sound about right? NYT columnist David Leonhart picks up on the “looting” theme.

http://www.nytimes.com/2009/03…..f=business

Main point is that the “looting” already happened in prior years, with the expectation the bailouts would happen when the party ended; the bailouts are replacing the money already looted.

I am fond of saying the one thing nationalized banks wouldn’t do is create toxic assets.

Hugh,

There hasn’t been enough consternation of the treatment of big auto v. banks. GM and Chrysler are asking for a ton less money, they had to come up with plans to show they’d be viable, they are expected to win concessions from suppliers, bondholders, dealers, the unions. Why aren’t the banks asked, at a minimum, to produce a plan too? Better yet, a second plan as to how they need to be restructure or change their operating procedures so they no longer poses a systemic risk?

Hi my question is payday loans with credit on credit cards being scaled back are more people being forced to use payday loans at higher rates?
Also what if any connection do payday loan companies have with the banks?

I am all for transparency.
I do wonder; however, if translucence, engineered or just because, isn’t worse than opacity.

Does anyone know how is Regions Financial Corporation doing these days?

Yves, I just wanted to say thank you. I’m a huge fan of your site. You do fantastic work!

Is there any, actually good reason for the inadequate transparency and overt obfuscation we see?

My take on the whole mess is that the big guys are deathly afraid of being found to be insolvent because then the game’s over.

They will do anything to hide the fact that they’re broke, including dragging our whole country down with them as they try desperately to tread water while holding onto the leaden weight of their failure.

If it means that they have to steal our’s and our children’s futures on the slim chance that they can somehow, magically pull themselves back from the brink, fat chance then so be it.

That and the old-fashioned “Get it while the getting’s good.” thing, which is so preposterous under the circumstances that it’s hard to believe.

Yves,

What is your opinion of the job Kashkari and his team are doing in monitoring (or failing to monitor) the bailout disbursements? It seems to be that a lot of his actions and decisions are based around his desire (and the desire of his superiors) to avoid antagonizing the big (and probably insolvent) banks.

Re pricing, I often use 3 prices: the face value, mark to market, and pre-bubble. I have thought this last would be the most accurate for valuing bank real estate assets, although I think a further generalized deflating factor might have to be used, so around 50-55% of the face value depending on the local market.

Scarecrow,

I was writing about that Akerlof and Romer paper a long time ago, and how it applied to our situation now.

Investment banking has always been about extracting a lot of pay for the employees and top dogs. But in the old days, when the firms were privately owned, it was the owners’ capital that was being put at risk. We now have them running on what the Street describes as OPM, other people’s money.

There has been a big shift, much higher pay on average, much much more trading risk assumed. And we now know that the pay was based on inadequate reserves for losses. This sure does look like looting, and there isn’t any will to try to claw it back (there are some legal theories that would allow for that to be done, but the firms would need to be declared bankrupt, which is what the authorities refuse to do).

Will Obama cut Social Security and Medicare to pay for more bank bailouts and keep the Dollar at its present buying power?
Would ending the wars in Iraq and Afghanistan give us enough cash?
Would a 20% cut in military spending added on do it?

Banks are back to lending: for pharma mergers.

Oil was down today to $43/bbl but it should be trading in the $30-35 range given the state of the economy and high supplies so I think that there is speculative money sloshing around in there again. But that’s the thing what money is out there does not seem to be used productively. As soon as the banks have any, they go back to their old ways.

What do you think of Greenspan’s attempts to avoid blame for the housing bubble and our current economy?

STTP,

Good point, the Countrywide deal was a real abortion. However, BofA at least initially (recall it was a two stage deal) was keen to buy that garbage barge AND Countrywide had borrowed a ton from the Federal Home Loan Banks. So a sale was in part to save the government from having to bail out the FHLB.

The Merrill deal was done in haste, BofA was really keen to have those retail brokers. But all the dreck was attached. And it looks like the authorities overestimated how strong BofA and Merrill were (or more likely, engaged in wishful thinking due to lack of other easy options at the time).

pleasure folling the work and conversation of Ms. Smith.

I would like to ask, since the bailout was “supposed” to be for the purpose of enhancing liquidity, I am wondering why the banks were given money at all.

Why weren’t they simply given a pool of money to be used for lending and just lending, with the possibility of the bank or firm applying to use a particular fund for a particular documented program

I have no idea how anyone could think giving money to the very people and institutions that caused the problem would be a good idea

If Citi, for example, were declared insolvent would it be possible for the govt to use TARP or other funds to guarantee the deposits of large account holders such as pension funds, city/state govts, etc, rather than try to bail out the banks and their shareholders?

ThingsCome,

The payday lenders (for the most part) are independent of larger banks. They are coming under pressure from a lot of states to restrict their activities and some states (Ohio) have put ceilings in place.

You may see some increase in payday lending. but I think the bigger effect is people will continue to cut back on spending, and (if they have them) raid their retirement accounts in case of emergency.

As soon as the banks have any, they go back to their old ways.

Wrong. The banks don’t go back to their old ways. They invent new ways that are even worse than the old.

I second your question 1:)

I would also like to find out why they aren’t talking about “nationalizing banking” instead of “nationalizing banks”

if we nationalize banks we take on their toxic debt paying dollars on the penny, if we nationalize banking they eat their debt and future banking transactions would be conducted at a set commission

Blub,

Kashkari is a bag carrier, the process has been chaotic, there were big failings in reporting and controls. The Congressional Oversight Panel reports have been critical and Treasury is (slowly) being brought to heel on the procedures.

bingo, this is because they have payed no social price for their depravity and in most cases they were rewarded handsomely for sociopathic behavior

Thank You for answering my question. Next Question then who is raking in the cash from the payday loan companies? For poor people this is their last line of legal credit they are not getting any bailouts.
Who is clouting them in Congress?

Why is the head of Countrywide still working buying homes?

ThingsComeUndone,

Greenspan did at least admit his ideology was wrong, and looked really rattled in some Congressional hearings. That is more of an admission of responsibility than I can recall seeing from any of the main actors, or even the economists who were big deregulation proponents. But yes, Greenspan is trying hard to salvage his reputation, and I doubt his protests will pass the test of history.

Two different topics.

First, how come bondholders seem to be getting a pass in all this. Taxpayers can be put on the hook. Investors can be wiped out. But the bondholders seem untouchable. And how does PIMCO figure into all this?

Second, at the same time hedge funds are said to be sitting on all this money. OTOH they have tightened up on withdrawals. So I can’t help thinking that if anyone looked at their books they would find a lot of insolvency there as well. And what money they do have how much of it is coming from the government paying off AIG bets?

Does anybody think that CitiGroup and AIG will actually weather this storm, and if they do, is that an unquestioningly good thing?

It seems we’re being asked to cheer for the robbers?

I am curious as to your sense of why all the 401-k victims and all the others who were robbed by Madoff and etc. have not started some kind of revolt?

I was not vested in the market and have old real estate instead. But I have so many friends and know there are other millions of people who have seriously had their retirements compromised, if not destroyed.

And of course there are the very wealthy who have also lost tons of money. They still go on with the Republican talking points?

Where is the outrage?

Just what did Tom Friedman’s wife of the New York Times invest in that lead to a 99% loss.
Did Tom invest his wife’s money in his globalization ideas?

which leads us to believe greenspan wasn’t an ideologue, he thought he was basing his decisions on sound economic principles, when he found out they were not only unsound but irresponsible he had to take a look in the mirror

I have to say, all the others are either ideologues or enjoy cognitive dissonance, greenspan I believe does not

background reading from naked capitalism, two akerlof and romer (looting) post links:

from november: AIG: The Looting Continues (Banana Republic Watch)

When the TARP was announced, we called it “Mussolini-Style Corporatism in Action.”

still really like that line.

and from friday: Bank Rescue Programs: Setting the Stage for More Looting?

, and I doubt his protests will pass the test of history.

Good News Thank You!

I don’t think they should whether the storm, just as the car companies have to shed devisions, these companies need to be broken up so we can see failure and success where they lie withut the buffer of corporate insulation

perris,

Some like Stiglitz have suggested the US should have just created a big new bank as you suggest. However, the problem is operational. It would take time to hire people, get offices and branches in place, put systems in. Would probably take a year if not two. And the powers that be keep thinking the problem will be largely past by then.

There is a problem in that a lot of people did get loans in the bubble years that shouldn’t have, so some contraction of lending is in order. But the banks look to be going into overshoot, which is what they usually do when the economy is bad. And even worse, they don’t even have the borrower knowledge to make good decisions. I’m sure you all know credit card lines are being cut, and prices on balances being raised when they were already high before. The cut in lines is often completely unscientific, often based on deterioration in real estate prices in your ZIP code. Doesn’t matter if you largely paid off your mortgage or rent, you get whacked too.

Greenspan doesn’t even tough the part where he told people that housing prices would never go down. There are a lot of people with underwater mortgages now who believe him, and lived to regret it.

Welcome Ms. Smith:

“The accounting rules were relaxed to relieve these firms from mark to market, the logic being that markets were artificially depressed, the prices would come back.”

Does this statement suggest that the Financial Accounting Standards Board (FASB) is (essentially) bending to the whims (and thus in the pocket) of the large players? If so, then why should the market place any reliance in the audited statements being presented? Or does it?

and why are banks allowed to bid on foreclosures?

I wouldn’t mind if banks were given the option for a buy after the dweller has first option at the price bid and the public has second option at the price bid

Because he’s not in jail yet?

ThingsComeUndone,

This is not on the Congressional radar. too many other fires. States taking the main action here (write your state rep!)

perris,

Most of them don’t recognize the degree to which the “free markets” belief system IS ideology. That’s the scary part.

Ms. Smith,
It seems like a big piece of the mess was created by eliminating Glass-Steagall. Some people say that those days are gone forever, but ISTM the problems today are due to commingling traditional banking operations with aggressive risky venture capitalism seeking ever higher rates of return. Into this unregulated/deregulated mix came a phantasmogorical “insurance” ponzi scheme where batches of mortgages were “insured” without any reasonable collateral to back them up, and then sliced and diced some more, and resold (Credit Default Swaps?)

ISTM the way back is to tell the riverboat gamblers dabbling in mortgage backed securities with insufficient or imaginary collateral to go take a bath. What effect would that have? Would it create a cascading domino effect that would cause our financial system to collapse? Or would it clear the decks of the monkey-business that has our economy by the throat and restore confidence in the system? Would there be dangerous international consequences? Is there any way to restore the old Glass-Steagall firewall?

Thanks,
Bob in HI

No interest in INTERE$T, I see…

I remember reading where BoA submitted a schedule, or economic need for $700B in Feb. 2008, so TARP was not a knee jerk reaction, but rather a bullet waiting for a trigger finger.

If the purpose of TARP was really to help the man in the street, and to get credit flowing, why didn’t ‘they’ utilize a procedure similar to reverse mortgages, so that at least the equity, if there was any, in the homes could help the mortgage holder hold on, at least until some relief appeared, on the economic horizon? Instead, we read anout the need for more bankruptcy judges…

Please call me TCU everyone else does ThingsComeUndone is a lot to type:)

Greenspan’s speech yesterday seemed to be saying that the Fed didn’t create the housing bubble, it was mortgage interest rates, which the Feds couldn’t control well enough. But that seems to beg the question: why didn’t you tell anyone that the tools the Fed had were ineffective in dealing with a massive threat?

We seem to be living through an era of zero accountability, following massive looting, whether it’s the wealth in the economy or the structures/rights of the constitution, etc. And though we finally have an Administration intelligent enough to see that, it seems equally committed not to “look back.”

Where is the precedent for this policy succeeding of not hold people accountable?

No

From Vanity Fair;

“That’s because the author’s wife, Ann (née Bucksbaum), is an heir to the General Growth fortune. In the past year, the couple—who live in an 11,400-square-foot mansion in Bethesda, Maryland—have watched helplessly as General Growth stock has fallen 99 percent, from a high of $51 to a recent 35 cents a share. The assorted Bucksbaum family trusts, once worth a combined $3.6 billion, are now worth less than $25 million.”

Not to be cruel, but it couldn’t have happened to a stupider guy.

As a staunch supporter of Rand’s free market ideas and Friedman’s free market theories I would think Greenspan could be termed an ideologue of the highest order.

Nowadays, I talk about depression not as a possibility but as a condition we are already in. Do you have any thoughts as to how bad things will have to get before Obama, his Administration, and Congressional Democrats and Republicans begin to responding seriously to the economic mess we are in? Because I just am not seeing it. The Republicans are crazy and the Democrats are ineffective, and, as a result, the economy just keeps getting worse.

Yves, thank you for visiting FDL, I hope you might do so often.

Rep. Alan Grayson was here yesterday and promised that there will be investigations of war profiteering.

This will be interesting as there is no question that a least a few in Congress are ‘invested’ in the Military-Industrial-(Congressional) Complex.

By the same ‘token’, beyond their legislative complicity in the current state of economic ‘affairs’, might it be reasonable to assume that a least a few members of Congress have other ‘investments’ in what has gone on regarding the financial ‘melt-down’?

And, should that be the case, how may we imagine that such Congress-persons will honestly and sincerely seek to discover and report to us what has happened?

How shall we have an accounting?

thank you for answering my question, I do have a follow up;

Some like Stiglitz have suggested the US should have just created a big new bank as you suggest. However, the problem is operational. It would take time to hire people, get offices and branches in place, put systems in. Would probably take a year if not two. And the powers that be keep thinking the problem will be largely past by then.

I believe the institutions could do the work at commission, the infrastructure is already there, they would be allowed to make a point or some figure above government cost but that’s it, they would not be able to use the money for anything but a government approved application

therefore no infrastructure would be necessary, the institution could take that commission or be de-certified.

ShotoJamf,

Personally, the FASB has been way too accommodating, but that is the subject of a LONG discussion.

The opacity and doubt about the financial statements is one of the reasons bank stocks have fallen so much.

What I found really disturbing was how big the losses to unsecured creditors were when Lehman failed, The number I saw was $100 billion relative to a $600 billion balance sheet. For the losses to be that big says the financials were fraudulent, but no one seems to be talking up that issue.

he no longer believes in the free market though, he has seen proof the principle does not work and he has adjusted somewhat, I have no idea if he’s adjusted enough, Ms. Smith would have a better idea of that

I hope you are right any word he’s being investigated?

they’re still worth 25 million plus their hard assets, I think that is about as much as an individual should be allowed to acquire before forcing them to invest back into the economy with what remains after taxes

If the purpose of TARP was really to help the man in the street, and to get credit flowing, why didn’t ‘they’ utilize a procedure similar to reverse mortgages, so that at least the equity, if there was any, in the homes could help the mortgage holder hold on, at least until some relief appeared, on the economic horizon? Instead, we read anout the need for more bankruptcy judges…

My bold I second the question.

SouthernDragon,

There is a really nasty political problem here. Citi has a lot of foreign deposits, over $500 billion. If Citi were declared insolvent, there might not be the need for much of the way in additional funds IF the bondholders and/or the unsecured depositors took haircuts. But that would make a lot of foreign governments upset and could lead to foreign depositors taking their money out of banks (really they should have if they are not covered by the local deposit guarantee regime).

The reluctance to whack bondholders is that bank bonds are 25% of all corporate bonds, it would hurt a lot of pensions and insurance companies. But bonds are SUPPOSED to be risk capital.

So instead the taxpayer takes the hit.

Thanks very much. The first thing I think of is the Enron debacle. The AA partner was not going to walk away from a $52M annual billing, so (basically) he got the lawyers to put up a shitload of window-dressing and then looked the other way. I’m sure the same game is being played at all the big firms. They should have their licenses stripped…

As a staunch supporter of Rand’s free market ideas and Friedman’s free market theories I would think Greenspan could be termed an ideologue IDIOT of the highest order.

Fixed it for you:)

perris,

You do need a lot of documentation, controls, and computer systems. And you need a payments system, that is a biggie. With all due respect this isn’t like setting up a retail store.

Haven’t heard a thing. If there were any justice in the world, however…

So, why does anybody with half a brain think that putting even one more dime into their pockets makes any sense?

There’s no rationality left in this discussion, it’s like we’re all waiting for the stuff to hit the fan, we all seem to know it’s going to happen, but we wake up every morning to the same news, they’re still flushing money down the toilet because they can’t help themselves?

Boy, it is hard to decide who was a worse Fed chairman Greenspan or Bernanke. I would have to give it to Greenspan on points just because he screwed up the financial system for so long and in so many ways. But Bernanke is closing on him fast.

The proposal I like best along the lines is Dean Baker’s “own to rent”. The homeowner gives up the deed but stays if he pays a market rent.

In the bernake wishful thinking scenario, isn’t that just using lack of tranparency to prop up a hollow fraud structure?

Have you heard any details about a second Stimulus plan and what it might look like?

Sounds good to me :)

Watt4Bob,

That is why receivership of some sort would be better, at least it puts a floor under the process. Look how Merrill had a lot of trading losses in December. Speculative activity should be cut to the bare minimum needed to function in the capital markets (there is always some risk).

Any idea how much all this spending will affect inflation and the buying power of the dollar? Any time frames?

Thanks, it’s amazing what you can learn from a simple answer.

Thanks for being here today.

Didn’t you read Greenspan’s self defense? It’s not his fault! He says so. He says that monetary policy and finance have split and that nothing he did inflated any bubbles.

He says so, it must be true. He’s the Maestro!

Yves,

Any thoughts on the CNBC, Jon Stewart dustup?

As an aside, I just saw Maria B. expressing how impressive Citi’s 30% move up yesterday was.

That would be from $1 to $1.30.

Do these people know how ridiculous they sound?

Thanks so much, I really enjoyed the chance to chat here, but I am afraid I must go now! Best to all!

Hey, no fair putting things into perpective.

I want a transaction tax. ALL stock trades (buying or selling), ALL bond trades, ALL securities, etc, are subject to a 0.25% transaction tax. I want these Wall Streeters and bankers and “wizards” of high finance to be FORCED to invest longer-term and pay their upkeep in taxes.

I also want to shut down short selling (naked shorts, at least) and kill off day-traders.

The proposal I like best along the lines is Dean Baker’s “own to rent”. The homeowner gives up the deed but stays if he pays a market rent.

..depending on the equity involved, this is still sheep shearing. Please remember that ALL this is being done on the taxpayers dime…so please… the system should be attempting to protect the assets of the guy paying for the dinner.

thank you and good luck with your book.

Thank you for being here. This was a very informative discussion.

Thank you for answering that. It seems the taxpayer is going to take the hit regardless.

Thank you for being here. I will certainly be paying more attention to your blog.

“Do these people know how ridiculous they sound?”

Evidently not. Mr. Stewart skewered Cramer again last night. Cramer is so stupid he doesn’t understand that the more energy he expends trying to dismiss Stewart as a “comedian”, the uglier it’s going to get for him. Dumb shit.

Yves, thanks so much for coming to FireDogLake.

Cramer’s gonna be on TDS tomorrow night I think.

The TARP money given to so many banks pays an interest rate of 5%. Prime is 3.25%, Fed Funds go for .25%.

It’s hard to see how a bank can make money lending it when the rates are so out of sync. I have asked a couple of banks why they took the money, and they said they thought their shareholders would be angry if they didn’t.

Look how Merrill had a lot of trading losses in December. Speculative activity should be cut to the bare minimum needed to function in the capital markets

Oh yeah, that was rich!

Or as the song says “Go down gamblin’, you may never have to go!”

Another candidate for the large sac award would be the Morgan (I think) folks that took TARP money and rented tankers to store oil offshore until prices go higher; in essence using taxpayer money to screw taxpayers!

All his Wife’s cash was in General Growth stock all of it? For being married to such a Hugh believer in Globalization his wife seems to not have been willing to put her money behind her husbands words.
The word Diversify Never were mentioned to her by her financial planners, tax lawyers, accountants? and when you are that rich you don’t have people you have entire firms working for you on this.

crammer must never have watched that episode of crossfire with stewart or he’d be worried right now.

I hope the Daily Show picks on Greenspan next:)

Hello Ms. Smith, thank you for visiting FDL.

Investment banking has always been about extracting a lot of pay for the employees and top dogs. But in the old days, when the firms were privately owned, it was the owners’ capital that was being put at risk. We now have them running on what the Street describes as OPM, other people’s money.

This is very similar to a lot of the action in Silicon Valley back during the Bubble Days. Young kids showing up with biz plans getting VC or OPM and spending like drunk sailors. They had no skin in the game. Then one or two years later, poof!

My father started his own business with his own money, his partner’s money, and a folding table, chairs and a phone. They rented the smallest office they could find in the busyiest part of town for the networking. They built their success, they didn’t succeed by stealing.

As one of my family members says “it’s easy to win when you cheat.”

I want a transaction tax. ALL stock trades (buying or selling), ALL bond trades, ALL securities, etc, are subject to a 0.25% transaction tax.

Why this wasn’t done months ago is waaaay beyond me.

Far be it from these cretins to actually help pay for the mess they’ve created.

No offense to cretins, btw.

Thanks for answering my questions please come back anytime:)

WIth respect to your commnets about Lehman’s unsecured debt ratio suggesting fraudulent balance sheets,

Do you think criminal prosecutions are in order, and do you think the deterrent effect of convictions and meaningful sentences will provide the wake up call to the industry that might make industry buy-in to meaningful regulation a real possibility.

SHorter LHP: If bank industry opascity is leading to lack of depositor/investor confidence in banks, but banks are currently in a state of denial and won’t mend their ways to improve confidence, would a smack upside the head from DOJ focus their attention in the right way?

I wonder if the return on the $25M that’s left is enough to pay the heating bill for their McMansion.

I’m sure all his advertisers are reassured when he says he isn’t going anywhere and they should buy more time on his show…

:]

Yves thanks so much for all your time. Let me echo readeroftealeaves and say that you do indeed perform a valuable service and we are all in your debt.

So any guesses how bad it will have to get before our political classes decide they need to stop screwing around and really fix this thing?

Go get ‘em, LHP.

Gotta say it: GOOD.

I love to watch the rich and (self)entitled fall low. Only thing better would be to see them forclosed upon and have to live in a REGULAR apartment and shop at a Pay-Less or Wal-Mart.

Bwahahaha! Marion from Savanah called Tom the Moustache of Wisdom him and the wife can keep warm by burning his moustache!

In addition to a transaction fee I’d like to see a graduated tax on capital gains when shares are sold. The shorter term the shares were held the higher the tax. Make it really painful to be a speculator in the market.

I would like to add my thanks too for Yves’ visit today.

Adding my thanks, Yves, greatly appreciating your visit here, today, and like Southern Dragon, I shall be paying much more attention (time ‘factors’ aside) to your blog.

DWB

When there is no money left for campaign contributions?
IE when money stops flowing into [fill in the blank] pockets?

Then it’s a problem.

Interesting!!!

Seconded!

Besides forcing them to actually pay their way (no writeoffs), it would bring in HUGE amounts of money for the government. So much that middle class taxes could truly be cut more significantly than $15/ a week. Of course, the top marginal tax rates should be increased just to help rejigger the system so that those that benefit the most from society (and workers actually WORKING for a living) have to pay more of their fair share for NOT working (shuffling paper isn’t work, neither is being born into a trust fund).

I’ve had plenty of time the last couple days. Got a really nasty bug that kept me in the horizontal position 36+ hours. Feel like I gotta get better to die.

thanks to Yves and all…
first time here
thanks again.

I’ve been calling him the stupidest man in the world for almost two years.

I feel vindicated!

hope you feel better soon.

It has been rumored that the ‘2 by 4′ … ‘approach’ or ‘method’ has had considerable ’success’ with mules and other critters of that ilk, LHP.

It is certainly worth a ‘try’!

;~D

I like the idea of a tranaction fee and have suggested it be correlated to volume. The more trades the higher the fee. On a daily basis, most trades are made by hedge funds. I don’t see that all this activity provides any real benefit to most of us.

Works well with cattle. Bout the only thing that does.

New post: AIG Loses $100 Billion and Counterparties get $50 Billion — Really?

Hope you’re on the mend … I had noticed your lessened ‘presence’ hereabouts these last few days, SD.

So, I’m very glad (and, even, relieved) to ’see’ you, once again.

Be kindly to your-own-self, my friend.

David

He’s still got enough left to buy an expresso in the afternoon.