Econ 2009

[__HRB__]

Originally Posted by cheesehead

Which proposals are that, exactly? In reality, that is, not your imagination.

Oh dear. It look like someone hasn't been taking his meds...

Originally Posted by cheesehead

Just heard two interesting ideas:...
1) Proposal for government bailouts: Instead of handing out cash, issue vouchers to banks that can be redeemed only after they are used to grant new loans. The idea is to give the banks ability to make new loans without allowing the funds to be diverted to any other purpose (e.g., bonuses, mergers). (You know -- like the school vouchers beloved by conservatives, so it should be welcomed by them.) Also, put an expiration date on the vouchers -- so the banks have to use 'em or lose 'em.
...

Or have I missed something and "interesting" is the new word for: "really stupid, and not worth considering"? I bet his next post is going to be about the difference between HIS proposals, and proposals he only posted, but aren't really HIS proposals.

[cheesehead]

Originally Posted by __HRB__

Or have I missed something and "interesting" is the new word for, "really stupid, and not worth considering"?

Do you think that "interesting" means "it was my idea"? It doesn't.

I simply thought the proposal I heard (not made) might be of interest to those discussing the economic problems, and might have some merit.

NEWS FLASH !!!!

I THINK LOTS OF IDEAS ARE INTERESTING!

THAT DOESN'T MEAN I"M THE ONE WHO FIRST THOUGHT OF THEM, THAT I NECESSARILY ENDORSE THEM, NOR EVEN THAT I CONTINUE TO FIND THEM INTERESTING AFTER FURTHER CONSIDERATION!!

We return you now to our regularly-scheduled reality.

Now, again, HRB, to which of MY proposals (as distinguished from someone else's proposals that I merely quote or comment on) did you refer in "But as soon as your proposals are made law ..."? If there were actually none, and you are capable of giving a straight answer to a straight question, please say so and that will answer my question.

[cheesehead]

Originally Posted by cheesehead

2) There's a bank

< snip >

collateral for its loan to a major cheese producer.

Another instance of out-of-the-ordinary collateral that's doing well lately:

http://www.iht.com/articles/2009/02/...24artloans.php

"That Old Master? It's down at the pawnshop"

. . . At a time when stock portfolios are plunging and many homes, even grand ones, have no equity left to borrow against, an increasing number of art owners are realizing that an Old Master or a prime photograph, when used as collateral, can bring in much-needed cash.

"It's very discreet," said Ian Peck, a co-owner of Art Capital.

This little-known corner of the art business is lightly regulated and highly litigious. But this has not dissuaded clients who have included rich collectors like Veronica Hearst, art galleries and prominent artists themselves, including [Annie] Leibovitz and Julian Schnabel.

Art Capital's headquarters in the former Sotheby's building on Madison Avenue looks at first glance like an art gallery. Two Warhols, a pair of Rubens portraits of Roman emperors and a pink nude by the contemporary Mexican painter Victor Rodriguez hang on the cool white walls. A sculpture of a faun by Rembrandt Bugatti sits on a windowsill in a conference room where transactions are discussed.

But it would be more accurate to describe the airy space as something far less genteel: a pawnshop.

Art Capital issues loans of $500,000 or more at interest rates from 6 percent to 16 percent. Fail to pay and you lose your Rubens; several of the works on display in Art Capital's office on Madison became subject to sale after their owners defaulted.

. . .

When I was in school in Tulsa, every couple of years we'd be bused to either Philbrook (http://www.philbrook.org/) or Gilcrease Museum (http://www.gilcrease.org/) for a tour. It was explained that during the Great Depression, some oil multimillionaires had plenty of cash flow to purchase works of art that were for sale at bargain prices by owners who'd been wiped out in the stock market. Gilcrease also collected historical documents, including an "original copy" (they were all handwritten, you see) of the United States' Articles of Confederation, predecessor of the U.S. constitution.

There are times when Cash is King.

[Fusion_power]

Cheesehead, I made a point of not attacking you for your views. I posted clear and logical statements re my position on this banking mess. You defended both the 'vouchers' concept and your position re them numerous times in the last 20 posts and then decided that you were just posting ideas that you didn't own anyway. Let it rest. We aren't here to take you apart, we are discussing a problem that affects us all. If you don't like heat, stay out of the kitchen. Now, the rest of this post is NOT directed at you.



AIG is now asking Uncle Sam to take operating divisions of the company instead of cash repayment. This is IMNSHO a total ripoff to the taxpayer who put up the funds to buy them breathing room to unwind operations and sell things off in an orderly manner.

Taxpayer money has been plowed into the major banks to the point that we infused 3 times more money than the banks market cap for some of them. This is a total farce. When a business is that far gone, it is time to close the doors, take down the name, put up a new shingle, and open a shiny new business tomorrow morning. This is what FDIC has been doing for years. CITI is not viable, it won't become viable any time soon, and it is dragging huge segments of the economy down the drain. It is time to stop the bleeding.

I'm hardheaded in my position on this because I learned a valuable lesson years ago. It is far better to take your medicine and get it over with. We need solid measures taken to restore confidence in this economy. Halfbaked and halfhearted attempts such as have been used to date are not resolving the problem, they are just letting things deteriorate further.

I asked earlier if anyone could give a good reason why the banks could not set up their own 'bad' bank without government intervention. There are several reasons they WON'T do this.

1. The bad assets are a combination of mortgage backed securities and business loans secured by real estate plus credit default swaps.
2. They used these securities in complex leveraging actions to allow them to borrow more money to buy more securities.
3. They can't 'dispose' of the securities because they are tied up in financial agreements that would be abrogated by transferring them to another entity.
4. The underlying property securing these dogs is realistically worth only 25% of the loan value in present day conditions.
5. Transferring the assets to another entity would involve writing down hundreds of millions of "assets" that the banks are using to prop up their balance sheets. This is defacto bankruptcy for the banks!
6. The $5 trillion I mentioned earlier was a reference to the sum total of bank liability as a result of both MBS, property secured business loans, and credit default swaps.
7. For the entire positions to be unwound, that $5 trillion has to be dealt with in an appropriate manner. Just closing the positions down will totally destabilize the entire world economy.
8. FDIC is NOT capable of liquidating even one of the major banks like CITI much less the probable need to kill 6 or 8 of them. FDIC does not have enough money or enough access to borrowed money to do the job.

What the banks can do is a complicated split procedure where they split off the profitable divisions into one bank and the doggy doo into another 'bad' bank. The problem with this and you can see it coming is that we the taxpayers get shafted if they do this. This would mean each of say the top 12 banks would make its own 'bad' bank. Then there would be 12 piles of dog mess to unwind which would be an accounting nightmare given the interconnectedness via credit default swaps. It makes more sense for the government to step in, close the banks, consolidate the trash into one pile, and then sell whatever can be salvaged.

DarJones

[__HRB__]

Originally Posted by Fusion_power

Transferring the assets to another entity would involve writing down hundreds of millions of "assets" that the banks are using to prop up their balance sheets. This is defacto bankruptcy for the banks!

I think this is the most important argument for shutting down bad banks immediately. If a bank knows it's going to go bankrupt anyway, it is rational to take any liquidity it can get a hold of, leverage the position by 800% through the Fed, and hope to be lucky.

Banks will be in collusion by making risky deals among each other, in essence transforming two bad banks with zero assets, into one with assets and one with debt, that is socialized through the FDIC.

[R.D. Silverman]

Originally Posted by __HRB__

I think this is the most important argument for shutting down bad banks immediately. If a bank knows it's going to go bankrupt anyway, it is rational to take any liquidity it can get a hold of, leverage the position by 800% through the Fed, and hope to be lucky.

Banks will be in collusion by making risky deals among each other, in essence transforming two bad banks with zero assets, into one with assets and one with debt, that is socialized through the FDIC.

People might want to read:

http://www.dailyfinance.com/2009/02/...unning-that-b/

[__HRB__]

Originally Posted by R.D. Silverman

People might want to read:

http://www.dailyfinance.com/2009/02/...unning-that-b/

If we could rely on bank-execs to just 'take the money and run' we'd be laughing. At least then they wouldn't be allocting resources to projects which have a high-variance and negative-expectancy in payoff.

[cheesehead]

Originally Posted by Fusion_power

Cheesehead, I made a point of not attacking you for your views.

DarJones,

You are, of course, correct. I owe you an apology for having written post #200 without taking care to make clear whom I was referring to with each of my uses of "you" and "your".

In particular, when I wrote

(1) when you've used a phrase directly crediting me with the voucher plan, your criticisms of the plan have tended to morph into personal attacks on me,

(2) when you restrain yourselves to factually-correct attributions, you are less likely to erroneously veer into inappropriate off-the-track comments about me personally,

my intent that in that section "you" and "your" were to apply to only those who had strayed into personal attacks was not communicated, and so it was quite justifiable for a reader to interpret it as applying to all those whom I had quoted earlier in the post. I will try to remember not to make this error in the future. I regret having seemingly accused you, DarJones/Fusion_power, of having made a personal attack.

(I'm already aware that I tend not to notice, or tend to make, mistakes similar to that one when I experience sudden strong emotions, in more contexts than just online forums. I'm working on a way to avoid such mistakes, but failed to apply it in this case.)

Originally Posted by Fusion_power

I posted clear and logical statements re my position on this banking mess.

Yes.

You defended both the 'vouchers' concept and your position re them numerous times in the last 20 posts

Yes, I defended the general concept of vouchers. I tried to explain their proposed specific use to provide funds to banks for making loans, but that is properly characterized as clarification, not defense, of that specific proposal.

and then decided that you were just posting ideas that you didn't own anyway.

No, I didn't decide something I had not previously decided. I was not disavowing something I had previously favored. I had made efforts to explain the proposed plan that I heard, including the explanation I had heard for their superiority to direct cash payments, in order to clarify what had been proposed. I responded critically to posted objections that were not (in my mind) properly directed to the actual proposed plan I had described. I never claimed to have owned the voucher proposal idea, nor did I ever think of it as mine.

I have not communicated the preceding as clearly as it should have been or as clearly as I possibly could have, in my earlier posts, but a careful reading of those posts will not find contradiction of what I state here.

Had there not been any off-track (to my mind) responses to the proposal, I would not have complained about uses of the phrase "your voucher proposal", or similar, because I would have been willing to consider those to be abbreviated versions of "the voucher proposal that you described to us". Indeed, I did not object to that usage when replying to the first use of "your 'vouchers'".

It was only because some criticisms included comments that were apparently based on the proposal having been attributed to me personally that I later objected as I did.

Let it rest.

[xilman]

Originally Posted by cheesehead

Sorry, Ernst, but all his uses of "you" and "your" in that post before the last line are clearly directed to me, and there's no justification in any intervening words for supposing that the final one is different.

Without taking a position one way or the other in this particular case, I observe that the impersonal pronoun is "one" in some dialects of English; "you" in others and "they" in yet others. For example: 'To perform some action you first do this' or 'To perform some action one first does this' or 'To perform some action, they first do this'.

It is apparently so much less ambiguous in French or German. Note the sly incorporation of a fourth impersonal pronoun in the previous sentence.


Paul

[ewmayer]

Originally Posted by Fusion_power

8. FDIC is NOT capable of liquidating even one of the major banks like CITI much less the probable need to kill 6 or 8 of them. FDIC does not have enough money or enough access to borrowed money to do the job.

Given how many trillions the Fed and Treasury have already thrown at the insolvent Zombie Megabanks (either by way of capital injections or backstopping of their toxic assets), it would not be a radical step for the government to vastly expand FDIC's capital base in preparation for unwind of a megabank. Similar amount of taxpayer money involved, but this time with a clear endpoint in sight, rather than this neverending "We thought X billion dollars was enough, but just realized we need more ... remember, we're Too Big To Fail" black money hole. Sure, there might be significant wider "financial repercussions" from making official what is already a poorly-veiled fact, namely that most of the U.S. financial system is insolvent. I say get it over with, stop wasting huge sums of money delaying the inevitable. Folks like Bernanke and Geithner should look at the positive aspect of this: they could finally stop lying every time they open their mouths.

As a wise man said, "Too big to fail, means too big to exist".

Barry Ritholz has an article on this topic today, titled The New N Word: Nationalization. Recommended reading.

-------------------------------

Small Biz Loan Defaults Surge: Bank lending to small businesses has dried up in recent months. One reason credit has grown scarce: They're risky loans. A new analysis of Small Business Administration-backed loans found that the failure rate has hit the double digits, with 11.9% of the SBA's loans last year going into default.

Last year's failure rate is a sharp increase over past years. In 2004, the SBA loan failure rate was 2.4%, but it has increased each year since, rising to 8.4% in 2007, according to Coleman's calculations. The 2008 failure rate of nearly 12% covers the fiscal year that ended on Sept. 30. In that year, the SBA's 7(a) and 504 programs approved 78,324 loans, totaling $18.2 billion.

My Comment: Interesting that the trend already started in 2004...perhaps an early harbinger of the fallout of Greenspan`s post-dotcom-bust EZ-Credit policies?


Georgia furloughs 25,000 workers: Since September, state agencies have required employees to take days off without pay in a bid to close budget gap.

My Comment: They should just do like California (except for the two-thirds-majority-required-to-pass-a-budget part, that is) and "borrow against future state lottery proceeds" [On top of jacking up already-sky-high state taxes]. I`m contemplating paying my tax bill this year by giving the IRS a voucher "borrowing against future killer stock market trades" - think they`ll accept that in lieu of cash?

The furloughs, which require workers to take days off without pay, apply to 27% of Georgia's total workforce of nearly 90,000. News of the furloughs was first reported by the Atlanta Journal-Constitution.

Chris Schrimph, a spokesman for Georgia governor Sonny Perdue, said the furloughs have been in place since September and will result in "significant" savings for the cash-strapped state.

The duration of the furloughs varied from agency to agency, but most were limited to one day off per month, Schrimph said.

My Comment: Here in CA, state workers average a whopping 10 days more holidays-off than private-sector workers, but of course they are screaming about the furloughs - giving up an undeserved perquisite is always painful, innit?

[Aside: Can`t resist a sophomoric pun on the Georgia spokesman`s name ... "Georgia finds itself Schrimphing and Schaving in order to make ends meet".]


Bernanke Tells Congress U.S. Doesn't Plan `Anything Like' Nationalization: Federal Reserve Chairman Ben S. Bernanke said the U.S. government doesn’t plan “anything like” a nationalization of banks that would wipe out stockholders.

My Comment: I`m sure they didn`t "plan anything like that" with Fannie, Freddie or AIG, either.


China Stimulus Spending May Double, Spurring Investment Boom, Nomura Says: China’s fiscal stimulus plan may be doubled over the next three years, creating an investment boom similar to the one triggered by Deng Xiaoping in the early 1990s, said Sun Mingchun, an economist with Nomura International.

My Comment: Alas, we`re not in the early 1990s anymore, ya dipshit market pimp. Your prospective scam victims clients might want to look at the actual *news* from other large (and not completely government-controlled) Asian economies like, oh, say Japan, which just announced that its exports plunged by nearly half in January compared to one year ago. Things are little better in Europe. Stimulate that.

[__HRB__]

Originally Posted by xilman

Without taking a position one way or the other in this particular case, I observe that the impersonal pronoun is "one" in some dialects of English; "you" in others and "they" in yet others. For example: 'To perform some action you first do this' or 'To perform some action one first does this' or 'To perform some action, they first do this'.

It is apparently so much less ambiguous in French or German. Note the sly incorporation of a fourth impersonal pronoun in the previous sentence.

To avoid ambiguity, leaving out pronouns altogether is also possible. Not being allowed to swear when standing on a soap box is bad enough, but does this necessitate the rephrasing of a known expression as

"The End is near. Only repenting sins is left to do and therefore the suggested course of action."

to avoid every cheesehead from taking things personally?

Note the sly omission of personal pronouns in this post. Also note the sly use of "cheesehead" as a generalization.