On Sat, Oct 16, 2010 at 1:34 PM, Dan Minette danmine...@att.net wrote:
I'm not sure why you think the main argument against letting banks fail is
false. It is that the financial system as a whole could have collapsed if
there was no intervention.
Maybe he thinks it is false because it IS false. A lot of financial
company fat cats screamed for help to their cronies in Washington, and
of course, their old chums came to their rescue. What's a trillion in
taxpayer dollars between friends?
By the way, he said corporations. Why do you immediately assume he
was referring to banks? I know it is hard to keep track of all the
handouts the politicians gave to their cronies during their bailout
spree, but off the top of my head:
Fannie Mae
Freddie Mac
AIG
Bear Stearns
Citigroup
BoA
GM
Chrysler
Are you seriously going to argue that the failure to bailout all of
those would have led to disaster?
The politicians and their advisors have no clue about what would have
happened without the bailouts. He is an example of the predictive
ability of Obama's financial advisor:
The paper concludes that the probability of default by the GSEs is
extremely small. Given this, the expected monetary costs of exposure to
GSE insolvency are relatively small -- even given very large levels of
outstanding GSE debt and even assuming that the government would bear
the cost of all GSE debt in the case of insolvency. For example, if the
probability of the stress test conditions occurring is less than one in
500,000, and if the GSEs hold sufficient capital to withstand the stress
test, the implication is that the expected cost to the government of
providing an explicit government guarantee on $1 trillion in GSE debt is
less than $2 million.
--Peter R. Orszag, et al. Implications of the New Fannie Mae and
Freddie Mac Risk-based Capital Standard, in Fannie Mae Papers, Volume
1, Issue 2, March 2002.
Dan Minette wrote:
As it stands, the estimate of the bailout costs are now
down to $50 billion, as the government sells some of the assents it got in
the bailout at bargain prices at a higher price.
Still drinking the Kool-aid, I see. I know there is little hope of you
seeing the truth, but I will give it a shot anyway.
The Fed has purchased over $1.5 Trillion in MBSs from Fannie and
Freddie, a large fraction of which are delinquent mortgages and
valued on the books significantly higher than the amount at which the
properties can be liquidated. And there are more big foreclosure waves
coming in late 2010 and in 2011. The FASB has helpfully suspended
rule 157, mark-to-market valuation, until at least 2013, allowing
substantial discretion in asset valuation. In other words, the asset
values currently on the books are pure fiction. You can get a decent
idea of the market value of many mortgages by checking the FDIC auctions
of mortgages it obtained from bank takeovers. Most of them are selling
well below 50 cents on the dollar. What happens after 2012 when the
Treasury backing of the bad GSE loans goes away?
If a corporation engaged in this sort of fraud, the board and officers
would have been put in jail. But when the politicians do it, the gullible
think they are heroes saving the public!
Dan Minette wrote:
I'm honestly curious what you think would have happened if the government
did nothing and just let the chips fall where they may.
As I have explained to you before, there is a difference between
allowing the bad companies to fail, and doing nothing. Congress should
have passed emergency legislation streamlining the process for the bad
shareholder and bondholder debt to be stripped away, allowing the
solvent operating portion of the companies to be sold off, thus
allowing the useful portions of the companies to continue operating,
while properly penalizing the shareholders and bondholders who
imprudently allocated their capital.
I'll conclude with an excerpt from Ben Bernanke's Humphrey-Hawkins
testimony before Congress in July. He was questioned by New Jersey
Congressman Scott Garrett of the House Financial Services Committee.
SCOTT GARRETT: You bought over a trillion dollars of GSE debt, and to
that point, under normal circumstances, on the Fed's balance sheet
what you have on there are Treasuries, or if you had anything else on
there, I assume you would have a repurchase agreement for those
securities on your balance sheet. Now of course around two-thirds of
that are in GSE debt.
BEN BERNANKE: Correct.
GARRETT: So right now, those are guaranteed - whether they're
sovereign debt or not, we don't know - but they're guaranteed by the
U.S. government. But they're only guaranteed to when? 2012, right?
After that, Congress may in its wisdom make another decision, and at
that point in time, you may be holding on your balance sheet - two
thirds of your balance sheet - something that is not guaranteed by the
Federal government. First of all, you don't have a ... do you have a
repurchase agreement on those with anyone? No.
