On Mar 10, 2009, at 12:42 PM, Chris Gehlker wrote:
On Mar 10, 2009, at 8:03 AM, Charles Bennett wrote:
I think, it's just tough shit. It all needs to be public if they
intend to use public funds.
Amen
well I tend to disagree here. Not everything needs to be immediately
public.
When the government wants to use my money to bail out a private
institution then they damn well tell me who, how much and why.
"You can't handle the truth", is not an acceptable excuse no matter
their fear of the public's reaction.
It's not acceptable and it doesn't make sense. The banks can't be
afraid that there will be a run when we find out they're insolvent.
The already admitted they were insolvent when they took the TARP
money. What they are hiding is what they did with the money. It's
likely that they paid it out in various forms of executive
compensation, paid it to foreign financial institutions who they had
insured against defaults[1], or used it to prop up their stock prices
by buying their own shares. What they didn't do was lend it to small
business. Their refusal to disclose what happened to the money tells
us almost as much as disclosure would.
No, they are hiding two things. One is who got the money. The other
is what happened to it. The latter will be harder to pin down I am
guessing because my hunch is it was poorly accounted.
Might it cause a run on the bank? Perhaps. OTOH, that may be
just what SHOULD happen if the bank is near failure anyway and we
could save the tax payers money
for FDIC coverage.
This is the core issue. The banks and the government maintain that the
'toxic assets' are undervalued. No one argues that they are worth what
the banks paid for them but they do argue that they are worth way more
than what they would sell for now. So their solution is to keep the
banks afloat with public money until the market for 'toxic assets'
recovers. The market itself and a remarkable consensus of liberal and
conservative economists outside the government think that the current
market value of the toxic assets is about as high as it's going to go.
This implies that the only reasonable course of action is to shut down
the big banks and make new, smaller banks from the parts that weren't
involved with gambling on derivatives.
Except you cannot just do that. You really need to see how
intertwined this has become in many places. It's not just some bad
investments. It's a confluence of things that has caused this.
An example it looks like AIG was helping some european banks skirt
capital restrictions by loopholing. This has caused further
ramifications as AIG started having trouble.
The day wamu went down a lot of ppl went to pull their money out.
Considering the current structure of the banking system you can't just
break up the larger banks into pieces so simply. It's a lot more than
the toxic assets.
You really had a number of factors causing this including sub-prime,
cds (the larger problem), liquidity issues, and a bunch of
shennanigans regarding risk.
This is a great quote from the site you mentioned that brings home the
point.
"n short, this is what has been going on during the last few weeks.
The key characteristic of such a crisis is that banks can be hit by
bank runs - and go bankrupt - even if their assets are worth more than
their liabilities. The Fed has vastly expanded the amount of money it
is willing to lend to banks and the range of collateral it is willing
to take in an effort to provide the short-term funding banks need to
fend off bank runs. In the longer term, though, the Fed is a
relatively small player combined to the entire market for short-term
credit, and the problem will not go away completely until that market
is working properly again."
This is why saying who got what publicly at this time can be a bad
thing. If anything the little confidence that may be present for the
system has to be maintained. I think eventually the information does
need to be made public, I am just not sure now is the best time.
There is a lot going on behind the scenes as it is to deal with this.
Most of it people will not understand and this could lead to panic
reactions. Examples of what they are doing is the fact they are
releasing repo funds twice a week now instead of just on Thursdays.
Also there is now a 7 year bond out, and there may be more coming.
I've heard talk of anything from a 1 year to a 40 year bond. I do
like his take on CDS btw. It's pretty much a clear example of why
things have happened regarding CDS. But now you are seeing all the
other crap coming out from the ponzi schemes, to the creative
accounting, to the pure ignoring of problems (socgen and the one
merrill trader).
--Larry
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