$1 trillion

[ExiledInIllinois]

Form this past week's sermon... Get to know it!:

 

For the kingdom of heaven is like unto a man that was a householder, who went out early in the morning to hire laborers into his vineyard. And when he had agreed with the laborers for a shilling a day, he sent them into his vineyard. And he went out about the third hour, and saw others standing in the marketplace idle; and to them he said, Go ye also into the vineyard, and whatsoever is right I will give you. And they went their way. Again he went out about the sixth and the ninth hour, and did likewise. And about the eleventh hour he went out, and found others standing; and he saith unto them, Why stand ye here all the day idle? They say unto him, Because no man hath hired us. He saith unto them, Go ye also into the vineyard. And when even was come, the lord of the vineyard saith unto his steward, Call the laborers, and pay them their hire, beginning from the last unto the first. And when they came that were hired about the eleventh hour, they received every man a shilling. And when the first came, they supposed that they would receive more; and they likewise received every man a shilling. 11And when they received it, they murmured against the householder, saying, These last have spent but one hour, and thou hast made them equal unto us, who have borne the burden of the day and the scorching heat. But he answered and said to one of them, Friend, I do thee no wrong: didst not thou agree with me for a shilling? Take up that which is thine, and go thy way; it is my will to give unto this last, even as unto thee. Is it not lawful for me to do what I will with mine own? or is thine eye evil, because I am good? So the last shall be first, and the first last.

~Matthew 20:1-16

[GG]

Another take on the current crisis. Consider that the author is a professor of finance at the University of Chicago. His point is that the oft-repeated statement that toxic debts are the root of the current financial crisisis wrong:

 

http://www.ft.com/cms/s/0/13a60574-862b-11...00779fd18c.html

 

I don't know if FT posted the op-ed as a joke. Of course undercapitalization is the problem. But, it's not like the banks didn't raise new capital in the last year. Lehman raised $6 bn in a rights issue in June. They raised a lot more capital before June. They tried to raise more equity in September. Nothing worked. No one was going to put up more equity until they had a good sense that the write-downs would stop. he Chicago professor's view is bindboggling considering what just happened in the last week.

[bills_fan]

I wouldn't say it was the match. Just another stick on the kindling. Good to see GS & MS finally kill the investment banking anachronism. Step one to recovery is admitting to a problem.

 

 

We'll have to disagree on the "match" analogy.

 

GS/MS had that ready to go for a few weeks, no way they could continue in present form. True investment banks no longer existed in the bulge bracket form, although they exist (and IMHO, the model works) in the botique and middle market.

 

There will be a place for the Lazard/Fox Pitt/Sandler ONeal/Thomas Weisels of the world.

[GG]

We'll have to disagree on the "match" analogy.

 

Mark to market was the operative rule on the trading floors forever. What changed in the last decade was the IB's principal transactions started resembling traditional banking. That was the match. Everyone underestimated the true extent of the risk of combining the domino effect of securitizations and mark to market.

 

There will be a place for the Lazard/Fox Pitt/Sandler ONeal/Thomas Weisels of the world.

 

Correct, as long as they only stay on the advisory side or in specialized trading.

[TPS]

It is a 3 minute read. This is the bill as of Saturday morning. It has now been "ENHANCED" to add ANY type of debt, including credit card debt, car loans, student loans, etc. Like casino credit, they are limited to clean it out $700 billion at a time, but with the Fed and swaps, they can reload on an unlimited basis. Why do you think Paulson has been on every TV screen saying "We need to do this as fast as possible or else the system will collapse." ????

 

Hmmm...kind of like "The Patriot Act" after 911...

 

Btw, how much trust can you put in a guy who will probably go back to ceo of GS in January..?

[Fan in Chicago]

I don't know if FT posted the op-ed as a joke. Of course undercapitalization is the problem. But, it's not like the banks didn't raise new capital in the last year. Lehman raised $6 bn in a rights issue in June. They raised a lot more capital before June. They tried to raise more equity in September. Nothing worked. No one was going to put up more equity until they had a good sense that the write-downs would stop. he Chicago professor's view is bindboggling considering what just happened in the last week.

Joke ?

 

I take it you dis-agree with these two other columnists also who are proposing different solutions to the lack of capital:

http://blogs.ft.com/wolfforum/

http://blogs.ft.com/wolfforum/2008/09/a-ma...tance/#more-186

[GG]

Joke ?

 

I take it you dis-agree with these two other columnists also who are proposing different solutions to the lack of capital:

http://blogs.ft.com/wolfforum/

http://blogs.ft.com/wolfforum/2008/09/a-ma...tance/#more-186

 

I don't disagree with the fact that the banks are now undercapitalized. I just laughed at the professor's take because it's devoid of reality. It's like the armchair analysts acknowledging that Bills' OL sucked in the first half yesterday. Shocking, no? The trick is what do you do in real time to fix it?

 

Yeah, banks should try rights issues to raise needed equity. Yeah, banks need to be very inventive in how they raise money. But, how in the world are they going to raise that money, when some of the smartest investors in the world just lost billions in a matter of months betting on banks' balance sheets? Lehman collapsed within days after failing to get Korea to invest. AIG's banks refused to fund a contractual obligation. It's not an easy fix in real time, in real life.

[Fan in Chicago]

I don't disagree with the fact that the banks are now undercapitalized. I just laughed at the professor's take because it's devoid of reality. It's like the armchair analysts acknowledging that Bills' OL sucked in the first half yesterday. Shocking, no? The trick is what do you do in real time to fix it?

 

Yeah, banks should try rights issues to raise needed equity. Yeah, banks need to be very inventive in how they raise money. But, how in the world are they going to raise that money, when some of the smartest investors in the world just lost billions in a matter of months betting on banks' balance sheets? Lehman collapsed within days after failing to get Korea to invest. AIG's banks refused to fund a contractual obligation. It's not an easy fix in real time, in real life.

 

And my take is that panicking in a short-term window, getting too scared of this 'collapse of the financial institutions', pumping money into these sectors and then professing future regulation is a recipe for disaster eventually. I still stick to my point of view (since the Bear Stearns crisis) that these failed institutions should crash and burn. Let whatever pain follows, come through. We will be a much more prudent society after we claw back up again.

[GG]

And my take is that panicking in a short-term window, getting too scared of this 'collapse of the financial institutions', pumping money into these sectors and then professing future regulation is a recipe for disaster eventually. I still stick to my point of view (since the Bear Stearns crisis) that these failed institutions should crash and burn. Let whatever pain follows, come through. We will be a much more prudent society after we claw back up again.

 

By no means is this a short term situation. If it was, the industry would have been back on its feet after the first round of outside capital injections in October 2007.

 

If you let every financial institution crash & burn, you will claim a Pyrrhic victory for the free markets that don't really exist in the financial industry.

 

But let's talk about the pain that will follow all over the world. Without a back stop, you will have a cascade of banks & insurance companies failing. Then someone has to replace the capital that these companies provided to businesses and consumers. But just the opposite will happen because the surviving companies' own balance sheets will be weak, and they will refrain from lending and total credit will be frozen. As companies' existing loans and bonds still have to be repaid, and credit totally cut off, bankruptcies will multiply, unemployment will sky rocket, tax revenues will plummet, and governments will have to issue more currency to pay off obligations, starting an inflationary spiral. Then, after you finally hit bottom after five years, where people feel confident to return to the markets, it takes you another five years to get back to where you started. (And I didn't venture into the nightmare that would occur in less fundamentally sound developing countries with unstable regimes)

 

But at least you would have taught Wall Street a lesson...

[ExiledInIllinois]

By no means is this a short term situation. If it was, the industry would have been back on its feet after the first round of outside capital injections in October 2007.

 

If you let every financial institution crash & burn, you will claim a Pyrrhic victory for the free markets that don't really exist in the financial industry.

 

But let's talk about the pain that will follow all over the world. Without a back stop, you will have a cascade of banks & insurance companies failing. Then someone has to replace the capital that these companies provided to businesses and consumers. But just the opposite will happen because the surviving companies' own balance sheets will be weak, and they will refrain from lending and total credit will be frozen. As companies' existing loans and bonds still have to be repaid, and credit totally cut off, bankruptcies will multiply, unemployment will sky rocket, tax revenues will plummet, and governments will have to issue more currency to pay off obligations, starting an inflationary spiral. Then, after you finally hit bottom after five years, where people feel confident to return to the markets, it takes you another five years to get back to where you started. (And I didn't venture into the nightmare that would occur in less fundamentally sound developing countries with unstable regimes)

 

But at least you would have taught Wall Street a lesson...

 

Cliff Note version:

 

Wall Street has everyone by the short ones. They are the first born brat that gets what they want and are the apple of their parent's eye. No matter how much they phuck up, we got to love them unconditionally.

 

And we complain about "social welfare."

 

[GG]

And we complain about "social welfare."

 

 

Let's at least apply the proper usage of "welfare" Generally, welfare is a contribution of something to someone who doesn't contribute. Is that what corporate welfare is?

[bills_fan]

Mark to market was the operative rule on the trading floors forever. What changed in the last decade was the IB's principal transactions started resembling traditional banking. That was the match. Everyone underestimated the true extent of the risk of combining the domino effect of securitizations and mark to market.

 

 

But would any trading floor mark the asset to zero if there was no liquid market for it? Doubtful.

 

Mark-to-market forced firms to either mark securities to zero with no liquid market (and the SEC was watching for accomodation quotes, so that didn't work) or use a formula. But, if you used a formula, you had to be prepared to defend the formula, with support from your public accountants. Since the Big 8 accounting firms has dwindled to, I believe 3, nobody wanted to defend any formulas in any possible litigation. Hence zero valuations.

 

Now, the securities themselves were far from worthless, with many paying decent cash flows and on time. But since they had no liquid market, they were worth "zero."

[ExiledInIllinois]

Let's at least apply the proper usage of "welfare" Generally, welfare is a contribution of something to someone who doesn't contribute. Is that what corporate welfare is?

 

Keep telling yourself that.

 

Hey the way I see it, the bum on the street is contributing more. At least they are cleaning my windows after they spit on it!

 

[GG]

But would any trading floor mark the asset to zero if there was no liquid market for it? Doubtful.

 

Hypothetically, yes. Realistically, the trader would dump the position before it became totally illiquid (ie - stock in a bankrupt company)

 

Mark-to-market forced firms to either mark securities to zero with no liquid market (and the SEC was watching for accomodation quotes, so that didn't work) or use a formula. But, if you used a formula, you had to be prepared to defend the formula, with support from your public accountants. Since the Big 8 accounting firms has dwindled to, I believe 3, nobody wanted to defend any formulas in any possible litigation. Hence zero valuations.

 

Now, the securities themselves were far from worthless, with many paying decent cash flows and on time. But since they had no liquid market, they were worth "zero."

 

But the point is, securitization was used to create a synthetic product that resembled a bank loan that didn't have to pass regulatory muster and capital requirements of a bank loan.

[ExiledInIllinois]

This is why you have to raise the taxes on the top 1% an additional 10%.

 

Hit these top tier moneymen hard and raise the taxes on the bums.

[ExiledInIllinois]

Too bad Spitzer was out whoring faster than you can say: "I'll take one of LA's Russian babes and a diet Sprite."

 

[bills_fan]

This is why you have to raise the taxes on the top 1% an additional 10%.

 

Hit these top tier moneymen hard and raise the taxes on the bums.

 

 

You are, of course, wrong on this.

 

I want you to read this article about NYS raising taxes, then exacerabte the problem to the rest of the country. If we do raise the taxes, we will have a depression. I don't think that is even open for much debate.

 

Article on Taxes

[erynthered]

You are, of course, wrong on this.

 

I want you to read this article about NYS raising taxes, then exacerabte the problem to the rest of the country. If we do raise the taxes, we will have a depression. I don't think that is even open for much debate.

 

Article on Taxes

 

 

So what would you like to see regarding the Bush tax cuts?

[bills_fan]

So what would you like to see regarding the Bush tax cuts?

 

 

I certainly would not raise taxes into the teeth of a recession. This rescue package puts a floor under the problem and will save the system. It is not a panacea curing all that ails the system.

 

I would extend the Bush cuts indefinately, proportionally cutting spending (unlike the abhorrant Bush administration and Republican Congress). But then, I am a tax cutter and spending reducer.

[molson_golden2002]

I certainly would not raise taxes into the teeth of a recession. This rescue package puts a floor under the problem and will save the system. It is not a panacea curing all that ails the system.

 

I would extend the Bush cuts indefinately, proportionally cutting spending (unlike the abhorrant Bush administration and Republican Congress). But then, I am a tax cutter and spending reducer.

Cutting spending would undercut consumer spending