Post #306,103
3/24/09 10:51:28 AM
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Johnson and Kwak on Geithner's plan.
They run BaselineScenario and have an OpEd in the LA Times.
http://www.latimes.c...4,0,1446613.story
We believe the best mechanism for solving the banking-sector crisis is government-supervised bankruptcy, also known as receivership. However, the Obama administration has made it abundantly clear that it will not consider this option, except perhaps as a last resort.
Without receivership, financial institutions can't be forced to sell toxic assets unless they choose to, nor can they be forced to lower prices that are unreasonably high. The problem in the market today is that the prices demanded by the banks are much higher than the prices that private buyers (hedge funds, private equity firms, sovereign wealth funds) are willing to pay.
The government has no way to bring down the banks' minimum sale prices, especially without the threat of receivership. So the only option is to induce buyers to pay more than they think the assets are worth in today's generally risky climate, and the only way to do this is through subsidies.
[...]
Yup.
Maybe it'll all work out in the end, but given the way the big banks' management has acted thus far, I'm not willing to bet a lot on it...
Cheers,
Scott.
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Post #306,104
3/24/09 10:54:40 AM
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Interesting, though.
that the large banks have written off a huge portion of the "toxic" assets...and are actually operating at a profit...and people are saying the only way to "fix" things is for them to be bankrupt.
I will choose a path that's clear. I will choose freewill.
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Post #306,105
3/24/09 10:59:36 AM
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They only show a profit before writedowns.
Let's see what their profits for the full quarter are before we count those chickens, 'K? ;-)
http://money.cnn.com...i.pandit.fortune/
With a few weeks left in the first quarter, Pandit stopped short of predicting that Citi would make money for the entire period. But he implied he expects Citi to return to at least modest, sustained profitability soon.
Pandit's turnaround optimism isn't widely shared on Wall Street. Analysts polled by Thomson Reuters expect the company to lose 17 cents a share in the first quarter and 74 cents a share for the year.
Cheers,
Scott.
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Post #306,108
3/24/09 11:23:21 AM
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And?
If they are making a profit without taxpayer money and without fraud, they why would anybody wish to bankrupt them? If they are taking taxpayer money, they are not making a profit. If they are making money through fraud, while admittedly business as usual and all, it does have to stop. It is the governments responsibility to check for fraud. Government DOES have a constitutional requirement to regulate commerce. I suspect I'm missing something in your statement.
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Post #306,110
3/24/09 11:35:01 AM
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The predictions of their demise
are being vastly overstated.
The writedowns were on the derivatives based on mortgages. Thats what killed the investment houses. The remaining underlying securities will mature..and they will mature at MORE than the current market price being offered.
This is why the banks don't want to sell...because the forced sale of these at a loss based on a depressed market is simply bad business.
Right now they are stuck in a self fullfilling prophecy of accounting rules..they have to value these maturities at current market...the current market values them at nearly zero..so they must continue to right them down to below what the banks feel their true value is...they show poor performance, people pull >real assets< based on this paper performance...and then the banks actually do have liquidity issues.
Just to clarify...the initial post gave the ONLY solution to the crisis as receivership. Not only isn't that the only solution, its likely not even close to being the right one.
I will choose a path that's clear. I will choose freewill.
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Post #306,111
3/24/09 12:01:28 PM
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So what *is* the right solution?
--
Drew
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Post #306,112
3/24/09 12:16:12 PM
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If the Fed failed so miserably at a rescue...
...trusting them to run the industry entirely just doesn't seem to be the right call, does it?
I would rather the Fed concentrate their efforts on changing the rules so that this doesn't happen again...as their track record so far re: "fixing" is questionable.
I will choose a path that's clear. I will choose freewill.
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Post #306,113
3/24/09 12:25:08 PM
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So, one vote for the Japanese solution, then?
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Post #306,115
3/24/09 12:35:20 PM
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yup
Japanese banks started writing off their bad debts in the mid-1990s, but the government's bail-out did not take hold until 1999, when the Resolution and Collection Corporation was formed to handle the disposal of bad loans. you cant carry bad paper on the books, it needs to be removed and sold
same way we did the savings and loan problem
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Post #306,116
3/24/09 12:58:54 PM
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A: Change which rules? B: What about the current problem?
C: Finance isn't an industry. An industry creates value. Finance enables actual industry to create value.
--
Drew
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Post #306,117
3/24/09 1:51:39 PM
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Re: A: Change which rules? B: What about the current problem
collateral rules, rules governing derivatives and investment creation, there are alot of them.
if you don't think the financial sector adds value...then I don't know why we're bothering to discuss anything...let it die.
I will choose a path that's clear. I will choose freewill.
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Post #306,120
3/24/09 2:43:40 PM
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Industry != business
Finance is a business, but it's not an industry. Still, this is to be expected... after all, we call retail an industry now too.
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Post #306,121
3/24/09 2:53:11 PM
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industry is making bricks, trade is
Selling
futures on bricks
bricks wholesale
bricks retail
options on bricks
bricks short sales
and if it wasnt for the above no one would bother to make bricks
thanx,
bill
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Post #306,124
3/24/09 6:12:41 PM
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Question for you
If the only sector of the economy that's showing a profit is finance, but they're showing enough profit to make up for everything else, is that economy productive or not?
--
Drew
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Post #306,129
3/24/09 7:00:55 PM
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no bricks for you :-)
you will have to define the boundries of the economy you speak of
take walmart who controls the supply chain from the farmer, to the packer to the frozen food display, they can earn a profit by sqeezing every dime out of the labor of the people in between because they own all of the other pieces. That is their strength, if a walmart store is profitable is it productive?
Your question doesnt have a binary answer because of the scale of what you are measuring isnt clearly defined
example during the dot com craze where financiers and stock investors oversubscribed the market 100-1000 times the actual value if any of the companies behind the stock, where those companies productive? Right until they shut the door they were. Were they valued correctly? No fucking way, just like google today.
The profit that one man gains in finance is the bet minus the cost against another player in the trade with an opposite bet. People bet up huge pots by borrowing against what they had already won and it wasnt until the first guy who couldnt back his call that everyone tried to cash in at once. It doesnt work that way in a card room where everyone bets using borrowed money and it doesnt work on wall street either.
thanx,
bill
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Post #306,162
3/25/09 8:26:06 AM
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Answer for you
it depends on what they are deriving their profit from and which sector of the business you are talking about.
If its banking, and they are turning a profit..is that profit derived from loans to the businesses that are allowing them to expand? Allowing them to continue to pay workers through a down cycle? If yes, then the answer is "yes, this is a productive economy".
I will choose a path that's clear. I will choose freewill.
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Post #306,179
3/25/09 12:48:27 PM
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That doesn't sound like the last several years
--
Drew
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Post #306,180
3/25/09 1:11:25 PM
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Its certainly more complicated
and there is a lot of equating "wall street" to banks...which can't be done anymore in a straight fashion...but it certainly is a core function of the entities themselves...and getting clarity around rules (and certainly about what constitutes a "security" and its creation re: derivatives from CDOs etc) is part of what I was speaking of before that needs to be reworked by the Fed to clean things up.
I will choose a path that's clear. I will choose freewill.
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Post #306,161
3/25/09 8:22:26 AM
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Ok...does the "business" add value?
semantics doesn't change the base question.
I will choose a path that's clear. I will choose freewill.
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Post #306,164
3/25/09 9:50:22 AM
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No.
However, what it does do is allow some things to be possible that weren't.
Value comes from making things. If you're not actually making things and are just shuffling numbers, you're not adding value. All value basically comes from labour, when you get right down to it... it's the addition of labour to raw materials to make goods that create value.
Capitalism isn't about creating value. What it IS about is organizing labour to make value possible on a larger scale, by allowing people to more efficiently pool resources to do so, and making apportioning the rewards from the created value easy to figure out.
Basically, I'm a Marxist, in that his analysis was bang on... it was just his prescription that was completely messed up, seeing as it relied on magic to make it happen (worker's consciousness blah blah blah). I have yet to see anyone make a convincing refutation of his argument about the end state of capitalism.
All that said... I like capitalism, but I understand what it is, and what it is not. What it is is a method for organizing labour, raw materials, and tools. What it is not is a magical place where good results (or even efficient results) are guaranteed, nor an evil system that enslaves people. It is simply a system of organisation, no more nor less.
It is reasonable to give some of the value created by labour to the people that put capital in place to do things because of the gains in efficiency... but all wealth comes from making things. I have thought for several decades now that industrial policy in English-speaking North America (yeah, there are French people in there too, but you know what I mean) has been insane for deeply advantaging the people that organise the money over the people that do the work, because when all is said and done all wealth comes from making things, and that is something that is done by people. The only thing that capitalism is good at is making it easier for people to do that.
Once we stopped making things here, it was only a matter of time before we became poor. Shuffling the paper around to paper over that fact was rearranging the deck chairs on the Titanic. This crash was inevitable once we stopped creating actual wealth in North America. The particular mechanism that did so (CDSs and CDOs yadda yadda yadda) is strictly circumstantial to that central truth.
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Post #306,174
3/25/09 12:04:30 PM
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Then we disagree
on the definition of value and its creation.
If the "business" of banking allows more goods/services to be created by its existence, then it does add value. That value being the incremental difference in what can be done with and without them.
I don't disagree that there was a tremendous amount of non-value added crap going on as well..but the basic underpinning does indeed add real value to the system.
I also don't disagree that moving to the service economy and away from core manufacturing is a serious problem. I don't think its made us poor, simply because the migration is not yet complete...and actually shows some signs of reversal in some areas. But we, as a country, are not going to survive long term on the intellectual property alone...we have to create as well.
I will choose a path that's clear. I will choose freewill.
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Post #306,184
3/25/09 1:40:30 PM
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You're talking about banking
I was talking about capitalism. Also, just because they don't create value doesn't mean that they don't deserve some of the value created... and I have not said so. However, without value created through labour, they would have nothing to work with... the opposite is not true.
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Post #306,191
3/25/09 5:53:33 PM
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Let me try another angle
At these bastions of value creation, who got the 7-figure bonuses? Was it the guy running their email system? No. Why not? Ask anyone and they'll tell you that there are people who create value, and people who are overhead. They couldn't function the way they do without email, but the guy maintaining it is overhead.
Same for the finance sector. It doesn't create value, it's overhead. Yes, it's necessary overhead to sustain the economy at the level we'd like, but still overhead.
--
Drew
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Post #306,192
3/25/09 6:10:38 PM
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most of them were NOT at the banks
they were in wall street investment houses.
You're mixing targets.
I will choose a path that's clear. I will choose freewill.
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Post #306,195
3/25/09 7:56:37 PM
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Where did I say "bank"?
--
Drew
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Post #306,196
3/25/09 8:08:10 PM
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When you got sarcastic
and went from my post into "bastions"..
I will choose a path that's clear. I will choose freewill.
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Post #306,197
3/25/09 8:34:57 PM
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Okay, two things
First, I don't see the word "bank" until it appears in your subject line.
Second, to an outsider like me the groups "banks" and "investment houses" aren't as distinct from each other as they may appear to finance people. And even if I didn't feel that way before, the consolidation that's been going on the last decade has blurred the lines.
You can say (again) that of course there were some firms that did that, and that it was never a good idea. That "well run" banks or investment houses didn't. Let's assume that when I'm talking about who broke the economy I'm talking about the ones that weren't run well.
--
Drew
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Post #306,198
3/25/09 8:51:54 PM
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Lets just assume
that the folks in congress in 99 that voted overwhelmingly to allow it were more guilty than most.
generalities won't fix whats broken...and blaming the wrong people won't get it done either.
I will choose a path that's clear. I will choose freewill.
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Post #306,209
3/26/09 2:09:57 AM
3/26/09 2:26:27 AM
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Re that '99 Triumph of Lobbying-via intentional obfuscation
as Planned Strategy: through the math sleight-of-Many-hands. That event was today dissected with Terry Gross, on Fresh Air.
Frank Partnoy, author of the '97 book, Fiasco: The Inside Story of a Wall Street Trader.
(Not to be confused with recent book of same Title re Iraq. Lately.. Fiascoes R'US.)
http://www.amazon.co...der/dp/0140278796
The very incongruity of the 'instruments' spawned by The International Swaps and Derivatives Assn -- was employed to ridicule any in Congress who opposed their aim of separating all such [Vegas gambling, pure and simple] from regulation: Successfully. While various letters between Regulators and the Regulated had given indications of laissez-faiire in their Unregistered gambling avocations:
The head of ISDA, one Mark Brickel (sp?) wanted an 'official' Act to remove any chance of later litigation, should something er, happen to go awry(?) Brickel + a critical mass of Very-Interested lobbyists -- formulated the tactics to be used. And Applied Them.
That which has now become common knowledge: that these er, Tarballs Could NOT be unravelled (so as to track those liabilities so intentionally sliced/diced and expertly concealed-by-Design) was their prime means of intimidation! This bogus MO was presented to the recalcitrant, as argument that, "the complaining Congresscritter must simply lack ECON KNOWLEDGE cha cha cha".
Repeat: the ruse worked perfectly: psychologically Successful.
The rule change (per author) was midnight insertion in that Huge Bill, via ___ One of the Gramms; (Phil?)
Aside: the only reason Partnoy Could write his '97 exposé was: an apparent oversight, when he resigned from one of the big Investment Banking Houses! They neglected to ask him to sign an NDA -- then Required ~100% in that nascent scam-Industry. (Partnoy recounted "shaking hands, etc." on day of his departure.)
POINT: This. was. 12. Years. Ago.
How Many MBA-mills ever mentioned him, his book -- and the math-scam of these intricately-crafted derivatives? Obviously: Not enough. (If.. a single one?) Partnoy is now teaching at San Diego UC, IIRC and has certainly not kept silent Since 1997. Are financial types evidently as inept as any other biz-Suit? (not just about math and ethics.) Case made.
He's reprinting the '97 book and has a new one: Ivar Kruger, The Match King: the Man Behind a Century of Wall St. Scandals
http://www.amazon.co...als/dp/1586487434
But like the Doomsday Bomb in Strangelove
Of what use is discovering and writing about:
an entire er, (formerly-) 'Financial Community' renegade group, transformed; now absorbed in making multiple insurance-bets ('multiple': re any Single transaction! then multipy by n) and gambling under cover of darkness, Trillions - - - -
IF Econ-types, 'Professionals' from the MBA-mills across the academic board - DON'T EVER GET THE WORD ??
Is it that their reading habits are the same as Shrub's? Or is Theory ever so much more fun than Observation? (which needs all that work and stuff.)
'ECON': it's whatever you think you can make of it, if you have the Gift-of-Gab.
And (YAN new book reviewed en passant) Infectious Greed
Sadly, Beep -- it seems that many of your cohorts are either Bush-grade dumb, Cheney-grade criminal or both. Didn't your mother warn you about hanging with the wrong crowd?
[PS:]
Next I'd like to run down the exact moment when the word usury was removed from any reference to Our Next Scandal: the bestiality that is: the Unlimited invention of 'fees' not-to-be confused with Usurious Interest Rates (a 'technical term': when you Want it it be): ie the Entire Credit Card Scam (right up to today.)
I think That One will be Loverly, when a New Admin finally turns the spotlights on their floating crap game.
R e g u l a t i o n -- Oooh I LIKE the mellifluous sound of that word.
(And it will Sooo piss off all the Reactionaries (who even lie about their actual philosophy (masquerading as 'Conservatives'.))
Obama: >KILL< the Obfuscators with your S(w)inging Sword of truthiness!
Edited by Ashton
March 26, 2009, 02:26:27 AM EDT
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