On The Bailout aka The Panic of 08, Part 20: The Good, The Bad, and The Ugly

So how is the USGOV Bailout Coming?

GOOD: The FDIC is insuring all non-interest bearing deposits.

GOOD: The USGOV has not bought an MBS or other derived complex securities

BAD: …yet.

BAD: Nobody is talking about changing bank deposit capital requirements to allow banks to loan more (which could be done right away without taxpayer money).

BAD: USGOV is not using impartial Bank Examiners to determine proper capitalization levels (from the Soros plan)

GOOD: USGOV is increasing the capitalization Banks some $250billion…

BAD: … 1/2 to 9 large banks (whch 9 and why those 9)  and 1/2 small banks

SO-SO: Instead of using secured loans (my prefered plan) or secured loans plus warrants,they are using Preferred Shares.

UGLY: The prefered shares are below market rates (meaning taxpayers are coming in after stock holders to some extent). The lender-of-last resort should have a higher dividend rate.

BAD: The president says we are not nationalizing the banks, but I fear USGOV will pressure the banks to do things that have nothing to do with the short-term or long-term problem.

DOUBLEPLUS UGLY: The one-man capitalism wrecking crew has the bailout at $2.25trillion for his buddies. We knew this was going to happen.

GOOD: NY Times thought: “Banks that are loudly demanding that mark-to-market rules be suspended should receive special attention, for the same reason that the police are suspicious of people who hurriedly hide something as a cop approaches. Banks that want government cash should have to prove they are providing accurate market values of the assets they own.”

WTF UGLY: The confusion coming from USGOV and pundits is creating much uncertainty and causing the problem to spread. Uncertainty worsens panics by delaying investors. This has happened before. Banks will also be slow to act.

Other Ref: NY Times (also here)

6 Responses

  1. The big 9 match up closely to to big 10 … being the 10 most exposed to Lehman and WaMu’s great unwind.

    I have never in my life seen so many idiots in the market. I mean real, actual, lifelike idiots. No sense whatsoever.

    FWIW, “confusion” isn’t whats causing this to spread. Lack of transparency. I’m not confused that there is at least one more big insurance company that is going to massively fail. What I’d like is for EVERYONE to know it.

    Oh, and I’d like to be able to short that stock. But I can’t, because the world’s free markets are actually not free, and not working as a result.

    One more thing, if they seriously push back mark to market accounting, this is going to get MUCH WORSE. No more mark to fantasy. A little reality isn’t a bad thing.

  2. I agree 100% on mark-to-market. Getting rid of that just allows balance sheets to be distorted and investors to be fooled.

    Transparency and information availability is of great importance to investors.

    Agreed: Shorting should be allowed. Short sellers are not villains. Their actions add to the pool of knowledge and signals available to all.

    The confusion comers from not knowing what bad move USGOV will make next. In “Forgotten Man” the author shows how this lengthened out the great depression.

  3. A theoretical question for you…

    When extremely successful traders “give up” the market, not because they are losing money, but because they are simply sick of it, and they do this in mass numbers, what is the correct systemic analysis?

    What I mean by this… if you look at successful traders as “value to market” and you notice that the market is attracting a lot of this value all of a sudden over a period of years, and then you notice one day, all of the value starts to leave, don’t you have to wonder about the incentives the market is offering to preserve value (qua system)?

    These are people who can and do make money, lots of money, even in this market. And yet, they are leaving in droves right now.

    What does that mean? Is money no longer enough? Or is there some sort of paradigm shift going on in our economic system?

    Last week, I tried to talk a very successful hedge fund manager out of leaving the market altogether. I couldn’t. No one could. He just had enough. He was tired of seeing the aristocracy always ending up on the right side of trade, even after they were on the wrong side for so long so consistently. He started seeing it as all rigged. And therefore there was always a limit to what smart, able people could achieve without the right connections.

    A lot of us have those very same thoughts… but I’m not sure if they all make sense. Can we zoom out here and provide a little perspective? What do you 5GW people think about what’s going on today?

  4. FedX, I am working on a thoughtful reply that is growing in length.

  5. well don’t make it too long 🙂

    Here’s a funny quote from an analyst at a somewhat well-pedigreed desk…

    “Arbitrage investors continue with difficulties in securing non-correlated trades in these waters.”


    This is a perfect example of some of the moronic musings that pass as “investment advice” today.

  6. Heh…I just haven’t had much time to blog anything other short quickies.

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