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easier, better, cheaper than a huge bad bank

Started by humble1 , Jan 31 2009 10:52 AM

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#1 humble1

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Posted 31 January 2009 - 10:52 AM

the next few weeks will make financial history as all cannons are to be fired. here is an easy one, which saves the powder for use against other targets. i think it will happen:

with a stroke of the pen president O can override the accounting rule which requires banks to mark-to-market esoteric and toxic assets and permit mark-to-maturity. many of these packages are paying their income streams within the expected default parameters. the others, the damaged ones, would still have a much greater mark-to-maturity value.

bingo!

the banks can still manage the portfolios; bank balance sheets immediately increase by $800 billion; the appetite for lending surges.

Edited by humble1, 31 January 2009 - 10:53 AM.

#2 Iblayz

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Posted 31 January 2009 - 11:31 AM

Now that I agree with.....I cannot understand why this has not been done. Was it not a part of the Enron, knee-jerk reaction that led to Sarbanes-Oxley. While transparency is always important, it is my opinion that requiring banks to mark paper to market that they purchased in order to hold to maturity....is part of the problem....especially when the paper is panic-priced in the secondary market. They are having to mark losses of twenty, thirty percent (or more) on stuff that if held to maturity in a worst case historical average basis....would only yield losses of five to eight percent.

#3 U.F.O.

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Posted 31 January 2009 - 11:46 AM

Banks and other depositories have 2 ways to book securities, in their HTM (held to maturity) accounts and their MTM (mark to market) accounts. If they sell anything out of their HTM account the entire account has to be marked to market. They're free to trade out of the MTM account with no further ramifications. Once a security in placed in the MTM account it can't be moved over to HTM by current accounting rules. If that one rule was changed to allow them to move ALL their junk over to HTM and carry it at face value to maturity a lot of this problem would go away. The downside is they wouldn't be able to sell it if/when the market for this product improves. U.F.O.
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#4 IndexTrader

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Posted 31 January 2009 - 12:14 PM

It's important to note that a bank loans based on their assets. One of the purposes of market to market was to make sure that banks had the equity to extend loans, so that they were not overleveraged. You can change the requirement to mark to market, but in the end it doesn't change the value of the underlying assets, nor the fact that as the value of the assets drops, the bank's equity drops, and therefore the bank becomes ever more leveraged. Changing the accounting treatment is kinda like shoving the dirt under the rug. Or perhaps, you get into a bad trade, you don't take your loss, eventually the margin clerk gives you a margin call. But rather than pony up more equity, or sell the security, we lower the equity requirement.....or better yet, we simply change the rules, we don't look at the value anymore. Changing that rule will simply confirm that we have entered the period where a spade is no longer a spade. IT

#5 selecto

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Posted 31 January 2009 - 01:04 PM

I disagree. When I am dealing with you, I want to be sure of my security, and of your assets able to be deployed to pay me back. I also want to know about how much the sherrif is going to be able to put his hands on if it comes to that. Its just a pencil whipping that won't work. If your assets include securities at cost, I can't trust the conclusions I reach about risk, because I don't really know what your working with.

#6 humble1

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Posted 31 January 2009 - 01:33 PM

selecto: when you are dealing with a bank which is willing and able to lend you $$$ you don't care about that, LOL. YOU are not a counterparty in that regard. and, as the FED ahs made clear, it is guaranteeing counterparty risks.

Edited by humble1, 31 January 2009 - 01:35 PM.

#7 humble1

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Posted 31 January 2009 - 01:45 PM

p.s. underestimating tim geithner (OR harvard law school, law journal editor: obama) is a BIG mistake. geithner is intelligent, experienced, aggressive, and tough: he is not one of these milk toast time-for-the-rocking-chair guys like snow or one of the other political appointees.

Edited by humble1, 31 January 2009 - 01:46 PM.

#8 selecto

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Posted 31 January 2009 - 01:54 PM

Has he a tool other than the printing press? What's the success rate on that?

#9 humble1

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Posted 31 January 2009 - 02:04 PM

selecto: geithner is at treasury, not the FED. but, when you have a fractional reserve system in a fiat currency regime fighting a deflationary spike: you need to print and stimulate! and that is what they can do and will do: they get it!

#10 colion

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Posted 01 February 2009 - 12:04 AM

The new SEC will do the deed sooner rather than later. Obama and company have already sent out those signals. Whether mark-to-the-market is repealed or morphs into Berneke's mark-to-maturity or something else is probably the only thing being debated by the wizards in DC.
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