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 It’s Henry Paulson’s MovePosted on Oct 10, 2008By David Sirota Is Henry Paulson a crony communist or a businessman? The answer could be the difference between economic disaster and recovery. Understanding Paulson’s role in stopping—or fueling—the credit crisis requires a review of two axioms from Economics 101: (1) A credit crisis occurs when banks stop lending and (2) The amount banks can lend is a multiple of the capital in their vaults. Therefore, ending a credit crisis means prompting new lending—and that means maximally increasing bank capital. Enter Paulson, the former Goldman Sachs executive and current treasury secretary. The bailout he fear-mongered through Congress aims to waste almost a trillion taxpayer dollars buying banks’ bad mortgages—a scheme all but ensuring a disastrous outcome. If Paulson pays banks exactly what their mortgages are worth, he will not increase banks’ capital (or their lending ability)—he will merely convert one asset (mortgages) into another (cash), making no impact on the credit crisis. If, to protect taxpayers, he buys mortgages at lower prices than banks list them, banks will have to write down their capital and consequently contract lending—and the credit crisis will worsen. If Paulson overpays for mortgages, he may marginally augment bank capital, but also incur massive taxpayer losses when he later resells the mortgages at their real price. The silver lining is a little-noticed provision in the bailout bill allowing Paulson—if he chooses—to buy ownership stakes in banks. According to Robert Johnson, the Senate Banking Committee’s former chief economist, this would cost roughly $375 billion less than the mortgage-buying plan—and, better yet, more aggressively attack the credit crisis. Mortgages may be underpriced today, but they retain some value on banks’ books. So rather than purchasing mortgages (a capital-neutral transaction), Paulson could buy bank stock, infusing banks with new capital on top of their mortgages. That would exponentially increase lending capacity, prevent taxpayers from buying toxic assets, give the public a share of future profits and grant regulators ownership leverage to restructure bank management. This is where Paulson’s personal proclivities come in. A crony communist looking to socialize risk and privatize gain would consider these options and choose to buy mortgages—that is, choose to ignore the credit crisis, reward discredited executives and permit banks to keep any subsequent profits—all while inhibiting a potential government-mandated housecleaning of Wall Street. Indeed, the Financial Times’ Wolfgang Munchau says Paulson’s mortgage-buying program is driven by “a wish to benefit the investment banks he once chaired, and which stand to gain handsomely from such a package.” A businessman, by contrast, would limit taxpayers’ exposure, give us a stake in future gains and demand management control. He would, in short, treat taxpayers like Warren Buffett treats his Berkshire Hathaway shareholders when buying banks with their money. This is how Sweden successfully confronted its banking crisis in 1992, and how England is addressing its own meltdown today. In fact, world leaders are citing our crony communism as a cautionary tale. “This is not the American plan,” said British Prime Minister Gordon Brown in announcing his bank rescue. “We will have a stake in the banks—we are not simply giving money.” The bailout bill’s failure to make this course of action mandatory should have killed the legislation in Congress. But banking CEOs and their lobbyists turned “should have” into “didn’t.” They love crony communism and hate government ownership stakes because, as financial analyst Luigi Zingales says, “Nobody likes to pay for their own mistakes—it is much better to have the taxpayers pay.” Considering the opposition, then, it is a miracle any ownership stake language slipped into law. Whether Paulson now uses that language will signal how deep Washington corruption runs. David Sirota is a bestselling author whose newest book is “The Uprising.” He is a fellow at the Campaign for America’s Future and a board member of the Progressive States Network, both nonpartisan organizations. © 2008 Creator’s Syndicate Inc. SHARE THIS TRUTHDIG ARTICLE:
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Bush the Infallible
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By Inherit The Wind, October 13 at 7:13 pm #
Paulsen in a Republican, a Bush Republican. That automatically should disqualify him.
The British Plan was finally adopted by the other Euro powers. Paulsen and the US reluctantly brought up the rear.
What happened? The Dow recovered nearly 1,000 points today.
There is no “American Plan”. There is a British Plan, and it’s working.
Report thisBy P. T., October 13 at 8:44 am #
John (Keating Five) McCain used to say that deregulation of the financial industry was so successful, he wanted to do it for the health care industry. He has dropped that line like a hot potato.
Report thisBy RightWing, October 13 at 7:20 am #
In 2003, Barney Frank said nothing was wrong with Fannie and Freddie, in 2006 he said we saw it coming all along,a couple of months ago he saw nothing wrong, then he blames Alan Greenspan, come on Barney ,you big gay dinosaur, take credit.Nothing like taking trust and throwing it out the window.If the fairness doctrine comes into being, the shit will hit the fan.
Report thisBy RightWing, October 13 at 7:13 am #
Obama Sued Citibank Under CRA to Force it to Make Bad Loans Posted on 03 October 2008 Do you remember how we told you that the Democrats and groups associated with them leaned on banks and even sued to get them to make bad loans under the Community Reinvestment Act which was a factor in causing the economic crisis (see HERE and HERE ) … well look at what some fellow bloggers have dug up while researching Obama’s legal career. Looks like a typical ACORN lawsuit to get banks to hand out bad loans.
In these lawsuits, ACORN makes a bogus claim of Redlining (denying poor people loans because of their ethnic heritage). They protest and get the local media to raise a big stink. This stink means that the bank faces thousands of people closing their accounts and get local politicians to lobby to stop the bank from doing some future business, expansions and mergers. If the bank goes to court, they will win, but the damage is already done because who is going to launch a big campaign to get the bank’s reputation back?
It is important to understand the nature of these lawsuits and what their purpose is. ACORN filed tons of these lawsuits and ALL of them allege racism.
Case Name
Buycks-Roberson v. Citibank Fed. Sav. Bank Fair Housing/Lending/Insurance
Docket / Court 94 C 4094 ( N.D. Ill. ) FH-IL-0011
State/Territory Illinois
Case Summary
Plaintiffs filed their class action lawsuit on July 6, 1994, alleging that Citibank had engaged in redlining practices in the Chicago metropolitan area in violation of the Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691; the Fair Housing Act, 42 U.S.C. 3601-3619; the Thirteenth Amendment to the U.S. Constitution; and 42 U.S.C. 1981, 1982. Plaintiffs alleged that the Defendant-bank rejected loan applications of minority applicants while approving loan applications filed by white applicants with similar financial characteristics and credit histories. Plaintiffs sought injunctive relief, actual damages, and punitive damages.
U.S. District Court Judge Ruben Castillo certified the Plaintiffs’ suit as a class action on June 30, 1995. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 322 (N.D. Ill. 1995). Also on June 30, Judge Castillo granted Plaintiffs’ motion to compel discovery of a sample of Defendant-bank’s loan application files. Buycks-Roberson v. Citibank Fed. Sav. Bank, 162 F.R.D. 338 (N.D. Ill. 1995).
The parties voluntarily dismissed the case on May 12, 1998, pursuant to a settlement agreement. Plaintiff’s Lawyers Alexis, Hilary I. (Illinois)
Report thisFH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000 Childers, Michael Allen (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000 Clayton, Fay (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000 Cummings, Jeffrey Irvine (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Love, Sara Norris (Virginia)
FH-IL-0011-9000
Miner, Judson Hirsch (Illinois)
FH-IL-0011-7500 | FH-IL-0011-9000
Obama, Barack H. (Illinois)
FH-IL-0011-7500 | FH-IL-0011-7501 | FH-IL-0011-9000
Wickert, John Henry (Illinois)
FH-IL-0011-9000
By RightWing, October 13 at 7:12 am #
Sen. John McCain’s 2006 demand for regulatory action on Fannie Mae and Freddie Mac could have prevented current financial crisis, as HUMAN EVENTS learned from the letter shown in full text below.
McCain’s letter—signed by nineteen other senators—said that it was “...vitally important that Congress take the necessary steps to ensure that [Fannie Mae and Freddie Mac]...operate in a safe and sound manner.[and]..More importantly, Congress must ensure that the American taxpayer is protected in the event that either...should fail.”
Sen. Obama did not sign the letter, nor did any other Democrat.
When is the left look at themselves and except some responsibility?
When the war started to turn around, all of a sudden the left says yea that was our plan from the start.
Report thisBy Outraged, October 12 at 11:14 pm #
Re: WriterOnTheStorm
Your comment: ”we should demand a public debate, before Paulson unilaterally decides to dole the handouts to his pals.”
You are avoiding an extremely pertinent fact here, and that is, that the American Citizenry.... from EVERY political persuasion already did that. There were bi-partisan demonstrations, letters to congress and the generic PUBLIC OUTRAGE. Yet, there wasn’t any response in the sense of FACTUAL OUTCOME.
Your assertion that this isn’t about venting or placing blame, is only that....your assertion. This NEVER had to happen, and that should not be thrown aside, marginalized, nor forgotten. In essence, I would challenge you on your assumption that we shouldn’t “look back”, since that is what it appears you are claiming.
History, has NO PURPOSE if we do not use it. What place would history take if we should erroneously decide that “we should only look to the future” as is the rhetoric of the day? History is our savior, and we should use it’s lesson, lest we be found willfully ignorant.
As an aside, do you truly believe that now that the money is in the pocket of the corrupt Paulson, given to him by a corrupt menagerie of congress and our candidates, that “with our demand” he will suddenly succumb to our wishes...? I find your supposition without merit.
In my mind the voices of “Supertramp” say it best:
”Dreamer, you know you are a dreamer
Report thisWell can you put your hands in your head, oh no!
I said dreamer, you’re nothing but a dreamer
Well can you put your hands in your head, oh no!
OH NO!”
By samosamo, October 12 at 6:26 pm #
Well, I am going to vent as I don’t see any other related article that I have for these comments.
When and only when the people act on this for exactly what it is, an actual terrorist attack on the U.S.A, will there ever be any kind of measures taken to correct and fix this act of aggression by the financial terrorists that our own government is supporting and are trying to keep in control of this blatant robbery of our treasury for the few crooks bound and determined to create their own world that the many will have no part of except for paying for it. GRAND LARCENY is all it is and after all these 8 years or so of instilling the fear of the threat to our national security into the vegged out population, it all comes from within which is where I have been told for many years that that is where the down fall of our country will come.
There is only the simple loss of our country and our democracy our founding fathers created for us to lose. The heads of our government, financial institutions, religious zealots, neocons and just down right irresponsible and criminal people are totally to blame and action should be started now to stop and hold these people accountable, otherwise don’t worry about it and give it up. I don’t know about the rest of you but I would think that what these terrorists from within have done and are continuing to do has far far surpassed the horror and destruction and also death from whatever they allowed to happen on September 11, 2001.
Bernanke, Greenspan, Paulson all need to be arrested and the Federal Reserve, World Bank and the IMF need to be kicked our of our country and forbidden from having any kind of say so in the economy of the USA.
Report thisBy WriterOnTheStorm, October 12 at 3:07 pm #
The point of this article is not vent nor to set blame, as many of the responses might indicate. It is to explain that there are still some options on the bailout table, and that public pressure may make the difference.
With most professors of economics agreeing that stock infusion is potentially far more beneficial to Joe Taxpayer than buying up toxic mortgage securities, we should demand a public debate, before Paulson unilaterally decides to dole the handouts to his pals.
Report thisBy P. T., October 12 at 1:46 pm #
Phil and Wendy Gramm have a significant part of the blame for the mess.
Report thisBy Outraged, October 12 at 12:34 pm #
The conditions which created this fiasco WERE known and warned against. Look at the instigators, protectorates and the players. From Common Dreams, originally published in The Nation by Katrina vanden Heuvel:
”But more than a decade ago, a woman you’re likely never to have heard of, Brooksley Born, head of the Commodity Futures Trading Commission-- a federal agency that regulates options and futures trading--was the oracle whose warnings about the dangerous boom in derivatives trading just might have averted the calamitous bust now engulfing the US and global markets. Instead she was met with scorn, condescension and outright anger by former Federal Reserve Chair Alan Greenspan, former Treasury Secretary Robert Rubin and his deputy Lawrence Summers. In fact, Greenspan, the man some affectionately called “The Oracle,” spent his political capital cheerleading these disastrous financial instruments.
On Thursday, the New York Times ran a masterful and revealing front page article exposing the culpability of Greenspan, Rubin and Summers for the era of dangerous turbulence we live in.....”
“.....Instead of heeding this oracle’s warnings, Greenspan, Rubin & Summers rushed to silence her. As the Times story reveals, Born’s wise warnings “incited fierce opposition” from Greenspan and Rubin who “concluded that merely discussing new rules threatened the derivatives market.” Greenspan deployed condescension and told Born she didn’t know what she doing and she’d cause a financial crisis....”
...."In early 1998, according to the Times story, one of the guys, Larry Summers, called Born to “chastise her for taking steps he said would lead to a financial crisis. But Born kept at it, unwilling to let arrogant men undermine her good judgment. But it got tougher out there. In June 1998, Greenspan, Rubin and the then head of the SEC, Arthur Levitt, Jr., called on Congress “to prevent Ms. Born from acting until more senior regulators developed their own recommendations.”
http://www.commondreams.org/view/2008/10/10-15
Summers and Rubin are Obama advisors. What is he thinking...? What is he doing...? We also know there were others attempting to sound the alarm. Rubin, Summers and Greenspan attacked Brooksley Born and stopped her from preventing this catastrophe, yet Obama chooses these two as advisors, something is not right.
Report thisBy dihey, October 12 at 7:48 am #
It is amazing that nobody has yet asked the question: where in the world can we find customers which have enough funds to buy more American goods and services? A quick scan of “the world” shows that these customers are not in our own country where the majority of adults are up to their necks in debt, primarily on credit cards.
Report thisA scan of the world reveals that the most likely customers are some foreign governments and not their citizens.
Let me sort of ignore our old customers Saudi Arabia and its neighborhood. They will continue to buy albeit at a slower pace.
Let us therefore consider the most potent of these customers, the Russian government. In order to induce it to help our job market (as distinct from stock/financial markets)candidates Obama and McCain must stop their stupid anti-Russian rhetoric and, instead, demand that Russia be admitted immediately to the G7 group.
China is potentially the next good customer. Its government is still awash in dollars. Once again, all silly China-bashing must stop. The provocative, permanent basing of an American aircraft carrier in Japan must be undone. Our negotiators must sit down with China and ask: “what goods and services are you interested in buying from us?” Deny only the most sensitive military items.
The third potentially helpful customer is Iran but we have a lot of work to do to induce them to switch from Russia to us. We must pronto establish an embassy in Tehran. We must scrap the whole embargo policy. Both are simply punitive actions for the occupation of our embassy many years ago. We must ask the Iranians the same question we ask the Chinese:"what goods and services are you interested in buying from us?”
Because of its oil-and gas wealth, Iraq is a potential customer some years downstream. Here it is absolutely necessary that all foreign civilian and military people leave the country within the next year. Will the Iraq government collapse? Possibly, but it will still collapse any number of years from now because it is perceived as a collaborator with foreigners. Will a dictator arise? Possibly but we have dealt with dictators before and a dictator that buys from us is better now than a “democrat” who cannot buy anything now or in the next few years.
Next on the list is Venezuela. I’m not going to repeat the litany of what we need to do because it is obvious.
I end with admonishing Senator Obama a truth that he seems to have forgotten: “it is the job-market, not the stock-market idiot!”
By Trigger finger, October 12 at 7:26 am #
(Unregistered commenter)
The question was:
Is Henry Paulson a crony communist or a businessman? The answer could be the difference between economic disaster and recovery.
This seems like a multiple choice question so I would like to add a third choice:
C. None of the above.
My answer is ‘C’ None of the above.
The correct answer is: He is a common “congressionally approved”
thief.
There will be no deep depression for this man or for any of his cronies.
Point 2.
Report thisWarren Buffet is for Warren Buffet.
T. Boone is for T.boone.
Michael Bloomberg is for Michael Bloomberg
We should start taxing these people.
By P. T., October 11 at 10:54 am #
Preferred shares of stock are not voting shares. But the taxpayers would stand in front of the line to get repaid before the common shareholders. And the government can set whatever conditions it wants for banks to participate.
Report thisBy altara, October 11 at 7:38 am #
(Unregistered commenter)
FINANCIAL CRISIS SOLUTION
Unlike prior responses to crises, the Bush administration has been making a valiant effort to solve massive financial meltdown we are facing. Although the remedies make some sense, the stock market has continued to plunge and the economy is suffering.
This weekend, the G-7 foreign ministers are meeting in Washington to address this world wide problem with a world wide solution. Based on prior experiences, prospects are not good.
The solution? Get Warren Buffet, Michael Bloomberg, and T. Boone Pickins together and do whatever they say.
homer http://www.altara.blogspot.com
Report thisBy Andy, October 11 at 6:19 am #
(Unregistered commenter)
This morning , a floor trader on Wall street said on ABC “it seems that everytime the president got on TV, the price dropped.” The good news is Bush-Paulson is a few months away. The bad news is the stock market operated on confidence. Allelujah.
Report thisBy bg1, October 10 at 6:21 pm #
(Unregistered commenter)
Paulson said the government’s stock purchases would be of nonvoting shares so that the government will not have power to run the companies.
Then why bother buying shares if not to just bail out the thieves? These guys (Paulson et al) still don’t seem to get it. The only way the government can rescue the financial system is to force the banks to lend to each other, and then manage the unwinding and disposing of all of the complex obligations such as complicated derivatives. Until this happens the financial markets will remain locked-up. See http://www.ft.com/cms/s/0/3c29a40a-9617-11dd-9dce-0000 77b07658.html
Maybe it’s just too much to expect from the former head of Goldman Sachs and his band of Free Marketeers. Perhaps these guys are just angling to save themselves, while everybody else gets thrown to the curb in the name of “free markets”.
Report thisBy dr wu, October 10 at 1:42 pm #
God is punishing the world for the sins of George Bush, Alan Greenspan and Milton Friedman.
Report thisHowever, we can be saved! Read on:
First, we go with the Treasury Secretary we got. Henry lead us to the promised land: The New New Deal. Dethrone Milton Friedman/Arnold Greenspan (Markets work; governments don’t), install John Maynard Keynes/FDR (they helped save capitalism the last time).
Memo to Obama: Drop Robert Rubin and Larry Summers and the rest of the free market deregulators on your team.
Just like Nixon who found peace with China, Paulson can lead to us to a caring socialism/capitalism. It’s possible: we could become a loving Scandinavian country.
Dr Wu, the last of the big-time thinkers
By dr wu, October 10 at 1:39 pm #
God is punishing the world for the sins of George Bush, Alan Greenspan and Milton Friedman.
However, we can be saved! Read on:
First, we go with the Treasury Secretary we got. Henry lead us to the promised land: The New New Deal. Dethrone Milton Friedman/Arnold Greenspan (Markets work; governments don’t), install John Maynard Keynes/FDR (they helped save capitalism the last time).
Memo to Obama: Drop Robert Rubin and Larry Summers and the rest of the free market deregulators on your team.
Just like Nixon who found peace with China, Paulson can lead to us to a caring socialism/capitalism. It’s possible: we could become a loving Scandinavian country.
Dr Wu, the last of the big-time thinkers
Report thisBy SteveL, October 10 at 12:55 pm #
Trickle down works only for dogs and fire plugs.
Report thisBy P. T., October 10 at 8:34 am #
Henry Paulson is not a crony communist, as the banks are privately owned and he wants them to remain so. He instead is a crony capitalist.
Furthermore, selling bad mortgages to the government does give banks more money to lend because they cannot lend bad mortgages. They can lend money.
And even if the government does buy equity stakes in the banks, the government will end up owning some of the banks’ toxic assets.
All that said, the equity route is the way to go. The government can have its bank examiners look at what is actually going on at these banks and what new rules need to be implemented.
Report thisBy Purple Girl, October 10 at 8:03 am #
All Organized and LEGAL Like, Of Course!
Report thisBut then it will be time to Look Over seas… to a region which has been Deafeningly Silent....UAE? Afghanistan was not the Primodial Oooze which produced these sociopathic mass murders- it was merely the College Campus! Certian M.E Countries have Contracted out work to Corps to do their dirty Work - literally running their fields, figuratively by economically oppresing their native workers (still a Cast system), and subvertly by playing the ‘Muscle’ to their orgnaized Crime syndicate land Grab.
It is not the citizens of these countries we have a Problem with, so large scale tactics are unnecessary. And many of their own citizens know far better who has been complicit in this Well foreseen, well executed global Meltdown- economic, International relations, environmentally,and Humanitarianly!
When taken in totality in a review of about the last 35 yrs....The factors precipitating this apex of disasters warrant the disregard of the excuse of coincidental blunders. They not only SAW it coming, They’ve been working Towards it.
When you have a Lean and Hungry Population, you have the World by the balls! Take away their savings, and they must continue to work, increasing the number of competitors (Pro Birther’s Breeders for the Corps?)for fewer job openings- Wages, benny’s, Rights go Down.Profits go up due to the supply lopsided Commodity called Human Labor.
It is not as though humankind has no Previous knowledge or experience with such Sociopathic meglomania to draw from! Why are we not Just Failing, But Ignoring the gift of Memory and Education..What History has Taught Us and HAS Warned Us About!
It is Truely disturbing how indoctrinated some people are to turning a blind eye to reality and facts- F’cking Amazing and Terrifying at the same time! Ridin’ the Wild Tiger into the New Millenia- Yepee!
By The Beej, October 10 at 8:03 am #
I was angry at the Bailout in the first place. Why should I as a taxpayer pay for the Vegas-like gambling that occurred by Hedge-funds and others in the realestate industry? FYI, the 700 Billion that is being given to the rich, would be about $9,100 in every taxpayers (not tax filer...) pocket. Hmm…
So now McCain wants to allow anyone in forclosure, even if the equity in their home is greater than their mortgage, to have thier mortgage re-written (i.e. the debt forgiven). That’s bull. You as a responsible person, who has paid your mortgage on time and didn’t buy into what you could afford don’t qualify.
There are 3 groups that are responsible and need to be held accountable:
1. The homeowner that over-bought;
2. The Lender (or current owner of the mortgage) that allowed the individual to be over leveraged;
3. And the regulators (Government) that allowed all of this to happen.
It doesn’t make sense to not allow anyone to be accountable. I agree something has to be done. The best way to help the homeowner is to work with them, but not without consequences. A better plan, that holds all 3 parties accountable would be:
1. Allow re-negotiating on mortgages, but the difference gets taxed as income to the homeowner. This can be amoritized over 3, 10, 30 years; whatever is deemed responsible.
2. The Lender or paper holder must assume a loss on 50% of the difference in the re-negotiated value. Sorry, you made a bad choice and over extended. Besides, they’ve gotten so many breaks already. I mean AIG gets a 85 billion dollar loan and then ask for and receive another 37 billion dollar loan and then spends $400,000 on a resort retreat. That is a blatant lack of ethics and morals. Can anyone say: “Sense of entitlement?” Hmm… worse than Welfare!
3. Finally, the government takes their 50% and puts a lien on the property (adjusted with inflation) for the next 20-50 years. This would be no different than another assessment on your property tax. One difference would be that the lien would be transferable with the property. The market will vet these properties out. Selling prices my be lower on some properties, but they also will be somewhat more stable. Since the property has a mortgage, the taxes can be tied to an escrow account that would better help to budget those dollars.
The net result would be a zero cost to the taxpayer over time. If you think this is a good idea, please inform your elected officials and make sure they put it into action. You can find out who they are by going to http://www.veteranreportcard.org/ and entering your address or zip code.
I recommend that you cut and paste this message or use the email link to share it.
Report thisBy pducky, October 10 at 7:40 am #
(Unregistered commenter)
Thank you, Mr. Sirota, for a clear explanation of what’s taking place. I’m quite sick of the mainstream press constantly evoking how complicated the financial crisis is as a means to swindle the public. We’re getting robbed, absolutely robbed.
Report thisBy Madeleine, October 10 at 7:35 am #
(Unregistered commenter)
Thank you for this column. I hope it gets a lot of attention.
I learned of the possibility of this provision allowing the purchase of equity instead of bad loans listening to This American Life. (This show is currently available to listen to free at thisamericanlife.org) The show explains credit default swaps to dummies like me as well. I hope this provision and option for taxpayers gets a lot of press.
Report thisBy dean cycon, October 10 at 6:29 am #
(Unregistered commenter)
Hey Fahrenheit 451, I feel your pain. It is almost impossible to follow all of this (and I have more degrees than a thermometer!). But here is an interesting fact I dug up that sheds a little light on why the bailout may not be as baleful as David says (and I would really appreciate some feedback from David or anyone who understands this stuff). Apparently, under the FASB standards (Financial Accounting Standards Board, the pencil geeks who make the rules on how to account for assets, set their value on your books...snore, but wait!) when a bank has an underperforming asset in real estate, it must be booked at zero value, regardless of the fact that there is a real house, or a real commercial unit that receives rents. Thus, the banks get hamstrung on the book values and therefore what money they must have in order to receive interbank loans and stay in the game. So buying the assets and getting them off the books in return for cash actually replaces the zero valued assets on their books with cash values. That would be immensely helpful for the banks to get lending again. At the same time, this part (BIG) of the problem could be fixed by changing the FASB rule, and a lot of people are suggesting that. The rule worked when asset values were climbing but it is creaming the banks now.
Report thisAgain, I don’t have enough expertise in this to understand the complexities and to know who is yanking who’s chain here. I am naught but a humble fair trade coffee roaster. But if there is some merit to this, it would undercut David’s claim that there is no meaning to cashing out the assets, as David says that it makes no difference on the bank’s books.
Any help out there?
By Fahrenheit 451, October 10 at 3:24 am #
My head hurts from reading all of the supposed experts on what will fix this global economic meltdown. As I write this the European markets are all down more than 5% AGAIN.
The one guy I do believe is Nouriel Roubini. He warned of this years ago and was ridiculed as naively pessimistic. Well, he has since become the one to go to for advice. He says we’re basically looking at a long term recession at best and if we don’t do it right, a downright depression. This is a link to his latest blog. IMO it is a must read. Your/our future depends on knowing.
http://www.rgemonitor.com/roubini-monitor/253973/the_w orld_is_at_severe_risk_of_a_global_systemic_financial_meltd own_and_a_severe_global_depression
Report this