Good interview

[Lurker]

Stiglitz is apparently an idiot.

"Academic economist" is an oxymoron in the business world. Not enough sigmas, apparently.

 

(those damn rocket science derivative geeks should be banished from the 'real' world as well)

[GG]

Because when you own preferred stock, you actually own a senior piece of the company, so when they do well so do you. Conversely, when you own debt, you have no interest in the company's performance.

 

Apparently. And let's not forget that the bailout plan isn't about owning these companies' debt anyway. It's buying securities from them that they're carrying on the books. The plan isn't to loan Wall Street money, it's to BUY ASSETS FROM THEM. The idea that buying preferred shares with warrants while leaving those assets on the books is laughable. Stiglitz is apparently an idiot.

 

Obviously, you weren't supposed to respond, because you support the plan. I'd like to hear from the other side how the alternative proposals are more palatable.

 

ps - the govt will end up holding debt, as those are the assets they're buying from the financials.

[Chef Jim]

Well ye he can be an optimist he has plenty of Billions of dollars to throw at the bargains in the market right now.

 

An an optimist sees them as that....a bargain. A pessimist says "I'll wait until the go down further." Reason one why the average individual investor averages roughly 4% return annually.

[In-A-Gadda-Levitre]

IMO, an excellent interview. He says some astounding things, like the capital gains tax should be higher (than payroll taxes). The heart attack patient and Pearl Harbor examples are spot on. Also he put the bailout ROI in perspective for me, meaning the fed has super low costs of borrowing, etc., and while there's no guarantees, he pretty much says it would be hard not to make money down the road.

[DC Tom]

Obviously, you weren't supposed to respond, because you support the plan. I'd like to hear from the other side how the alternative proposals are more palatable.

 

ps - the govt will end up holding debt, as those are the assets they're buying from the financials.

 

But not holding debt in the companies they're buying it from, which is an important distinction when you're comparing the seniority of preferred stock to debt. If the government buys mortgages bonds out of Citi's portfolio, and Citi goes under, that's not the same as the government buying Citi bonds.

 

And the reason I'd like to respond is that I'd like the other side to actually understand the difference between purchasing an asset and lending money.

[TPS]

I'm just a simple guy working in finance, but can someone please, please explain to me how owning preferred stock is better than owning debt when you're looking at a troubled company? (Bankruptcy lawyers need not reply, as it would defeat the purpose of obfuscation)

 

The Stiglitz article has more holes in it than the proverbial swiss cheese.

Ahh yes, our resident experts who have all of the answers, but the only person here who correctly called the extent of this crisis was the Drane. You fellas act as if your OPINIONS are biblical pronouncements. Hey, you guys rule (literally)...PPP. go team!

[Lurker]

ps - the govt will end up holding debt, as those are the assets they're buying from the financials.

ps - holding debt is an asset to any investor/lender...whether it's the Treasury or the neighborhood bank.

[Lurker]

the only person here who correctly called the extent of this crisis was the Drane.

U his pimp?

[GG]

But not holding debt in the companies they're buying it from, which is an important distinction when you're comparing the seniority of preferred stock to debt. If the government buys mortgages bonds out of Citi's portfolio, and Citi goes under, that's not the same as the government buying Citi bonds.

 

In effect, they're accomplishing the same thing by buying the mortgage backed assets. To me, the bond risk of a financial firm today is the same as the risk of the underlying assets. Equity is under water.

[GG]

Ahh yes, our resident experts who have all of the answers, but the only person here who correctly called the extent of this crisis was the Drane. You fellas act as if your OPINIONS are biblical pronouncements. Hey, you guys rule (literally)...PPP. go team!

 

Yeah, nothing like a trader parroting a self-fulfilling prophecy. If you get enough chicken littles shouting on a trading floor, you can bring down major houses. How else would you explain $20 bn of liquidity evaporating from BS in a week? Each of the collapses were undone by a run on the bank, which usually manifests from a panic.

 

Here's an academic exercise professor, would the financials have circled the drain if everyone remained calm in February?

[TPS]

U his pimp?

The question to you and anyone else: who has been the most accurate poster about this crisis since it began last year?

 

And for those who think this particular bill has to pass, are you willing to state that it will solve the crisis? If yes, I'd like to make a little wager; if no, then why do you support it?

[Lurker]

The question to you and anyone else: who has been the most accurate poster about this crisis since it began last year?

Well, I'm still waiting for his "James Hardy's gonna off someone" prediction to come true...

 

p.s. So he's a trader, huh?

[GG]

The question to you and anyone else: who has been the most accurate poster about this crisis since it began last year?

 

If I had inside information from FDIC, I'd be right too...

 

And for those who think this particular bill has to pass, are you willing to state that it will solve the crisis? If yes, I'd like to make a little wager; if no, then why do you support it?

 

Define solve, and I'll wager.

[X. Benedict]

The question to you and anyone else: who has been the most accurate poster about this crisis since it began last year?

 

And for those who think this particular bill has to pass, are you willing to state that it will solve the crisis? If yes, I'd like to make a little wager; if no, then why do you support it?

 

A wager on a $700 billion gamble?

[DC Tom]

In effect, they're accomplishing the same thing by buying the mortgage backed assets. To me, the bond risk of a financial firm today is the same as the risk of the underlying assets. Equity is under water.

 

I'd agree if the pressing issue weren't one of liquidity. Given that the market value of these assets is so drastically out of sync with the long-term returns on them, I'd dispute that there's that much equivalence right now between the bond risk and underlying asset risk...I'd actually suggest the bond risk is GREATER, since if a financial company goes under due to illiquidity of the underlying asset, the bondholder is likely to get screwed even though the illiquid assets still have some long-term value.

 

Which would therefore imply that, in buying the assets, the government would not only be taking the less risky course, but also reducing the bond risk by increasing liquidity and making near-term bankruptcy much less likely.

[DC Tom]

And for those who think this particular bill has to pass, are you willing to state that it will solve the crisis? If yes, I'd like to make a little wager; if no, then why do you support it?

 

Yes, a single act of Congress is going to fix thirty years of government and industry mismanagement.

 

 

It will take at least two more years (probably four) for the housing markets to shake themselves out. In that time, we're probably talking about a prolonged recession. This bailout package, I support as a measure to try to restore the credit markets and keeping that prolonged recession from being an even longer and deeper economic depression.

[KD in CA]

Ahh yes, our resident experts who have all of the answers, but the only person here who correctly called the extent of this crisis was the Drane. You fellas act as if your OPINIONS are biblical pronouncements. Hey, you guys rule (literally)...PPP. go team!

 

 

Hasn't Drane practically been predicting the end of Western civilization? He's like the guy who overbids on the showcase showdown by $50K.

[GG]

I'd agree if the pressing issue weren't one of liquidity. Given that the market value of these assets is so drastically out of sync with the long-term returns on them, I'd dispute that there's that much equivalence right now between the bond risk and underlying asset risk...I'd actually suggest the bond risk is GREATER, since if a financial company goes under due to illiquidity of the underlying asset, the bondholder is likely to get screwed even though the illiquid assets still have some long-term value.

 

Which would therefore imply that, in buying the assets, the government would not only be taking the less risky course, but also reducing the bond risk by increasing liquidity and making near-term bankruptcy much less likely.

 

I think we're saying the same thing, in a different way.

 

There's a reason I said that the risks are the same today. If you buy a bond from a financial and leave the illiquid (bad) assets on the books, your probability of default is still tied to the performance of those bad assets. If the financial defaults, the bondholder recovery will equal the value of the illiquid (bad) assets, as everything else will evaporate prior to the recovery for the bond holders.

 

Obviously, if you buy a bond from a financial after the bad assets are gone, then the risk is totally different.

[TPS]

Yeah, nothing like a trader parroting a self-fulfilling prophecy. If you get enough chicken littles shouting on a trading floor, you can bring down major houses. How else would you explain $20 bn of liquidity evaporating from BS in a week? Each of the collapses were undone by a run on the bank, which usually manifests from a panic.

 

Here's an academic exercise professor, would the financials have circled the drain if everyone remained calm in February?

So you are blaming the Dranes of the world for "causing panic?" Otherwise you would've been correct, that the problem was resolved back then (with B-S)?

 

Maybe it wasn't necessarily "panic." Maybe a few "players" holding bets (CDS) against the firms began shorting in order to realize their bets? As Bears' capital faded, they faced margin calls. Even if this is not a possible scenario, we're still talking trillions of $s of liabilities out there that can not be paid; so yes, it's a panic driven by insiders alright, because they all know who's on the wrong side of the bets.

 

Btw, guess what Billionaire investor bought a huge stake in Lehman mid-year? Hint: he's no frienf of Bush.

 

And in response to another post: I'd define "solve" as they won't need to beg for anymore taxpayer money after this $700 billion.

 

Last thing G, nice pun.

[GG]

So you are blaming the Dranes of the world for "causing panic?" Otherwise you would've been correct, that the problem was resolved back then (with B-S)?

 

Maybe it wasn't necessarily "panic." Maybe a few "players" holding bets (CDS) against the firms began shorting in order to realize their bets? As Bears' capital faded, they faced margin calls. Even if this is not a possible scenario, we're still talking trillions of $s of liabilities out there that can not be paid; so yes, it's a panic driven by insiders alright, because they all know who's on the wrong side of the bets.

 

Btw, guess what Billionaire investor bought a huge stake in Lehman mid-year? Hint: he's no frienf of Bush.

 

It was a combination of shorts, but more importantly counterparties suspending commercial transactions with BS & LEH. Once customers flee an investment bank, it's toast. The counterparties run for he hills, because they think that traders know something they don't and don't want their assets stranded inside a bankrupt IB. Neither BS nor LEH were technically insolvent at their demise.

 

 

And in response to another post: I'd define "solve" as they won't need to beg for anymore taxpayer money after this $700 billion.

 

Sucker bet with that definition, as they're very likely to increased FDIC funding. How about no more extraordinary intervention which will require another law. I'll take that for $50.

 

Last thing G, nice pun.

 

I'm ran out of biblical analogies.