Ok, I think I have my head wrapped around this. The problem is the banks are under enormous pressure having to immediately write down the value of real estate and mortgages (they claim) so by not forcing them to evaluate the asset on current market value that means they would immediately up their balance books and the theory is that would immediately unfreeze the credit markets.
Then, the next wage of the warrants looks like it would work to get the assets plain off the books with another type of exchange.
In terms of unfreezing the credit markets, I mean anything sounds more plausible than Paulson's "give me gobs of money to do with as I see fit", which is still the crux of the bill.
Republicans had another one, which is a tax holiday to repatriate offshore capital (which is massive because multinationals have it all offshore to avoid taxes)...
that was actually part of an old plan which was defeated but they also wanted to change the tax law to no longer give tax incentives to keep capital offshore in order to lower their global (US) tax bill.
I don't know if that would have any real effect in the credit crunch but it sure beats giving Paulson gobs of money and also spreads the actions over a large sector vs. this one Goldman Sachs ex-Ceo.
I think to get something through immediately they should simply pass a combo of recommendations as a temporary fix to buy time to get a true solution that's long term through.
Obviously getting any policy that is based in any reality from any expert is impossible with this Administration and Congress so mixing it up to me isn't a bad idea.
And speaking of mark-to-market, this accounting issue once considered to be obscure played a prominent role in the House floor debate. Louie Gohmert (R-Texas), Darrell Issa (R-Calif.) and Jeff Fortenberry (R-Neb.) all correctly noted that if Treasury Secretary Hank Paulson and regulators would simply let these securities be valued at the price Paulson wanted the government to pay for them — instead of the last fire sale price per mark-to-market rules — it would largely do what the bailout intends without putting taxpayers on the line
I mean which is worse, letting corporations over value an asset on the books or let Paulson plain outright buy them way overvalued and now the US taxpayer is stuck with them.
I'll go for suspension as a temporary fix if it works and then work on the real solution once the credit markets unfreeze.
I also thought it's per asset. There are so many saying this will work, if you know corporate accounting methods to a level you could write a blog post on it...please do...
talk about being out of my depth!
I'm going off of what other experts are saying.
The main point is to just unfreeze the credit markets that's the immediate goal.
If they can value each asset on a 3 yr rolling average instead of immediately today I think that gives them more assets on the books in order to loan against.
That's how I understand it but if you know corporate accounting that is one topic I'll bet 0.00005% of the population understand in the least.
mark to market only works if there is a "market". These toxic assets are all level 3 stuff for the most part. There is no true market for these, and so the prices reflected on a mortgage-backed security is completely out of whack to what they are worth. You have essentially good mortages being slapped with the same price as the bad ones. Now for a bargain hunter, who doesn't mind gobbling up some of the bad loans, this may seem like a great thing. But to the holder this is a nightmare.
Perhaps these banks should get together, look at what they have in terms of securities and see if they can standardize them. Once this is done, they can try and setup an exchange. At least this way, we could have price discovery.
here (pdf). I don't know who this group is, although clearly working in corporate accounting methods.
They have a very good point on transparency but I think they should temporarily lift them simply to unfreeze the credit markets but not permanently at all.
Maybe study it after the fact and see what kind of adjustments can be made to ensure transparency yet not cause this sudden decline spike in asset values.
It does look like it would work for the moment and something like a home, a 3 yr. rolling average normally doesn't sound that bad to me or maybe a 24 month one.
The accounting body who overseas accounting methods is meeting tomorrow to consider these.
I hope they plain do it. Somehow I don't think Enron cost the US taxpayer $1 trillion bucks and if it's temporary lift...no way can it.
I'm by no means an accounting expert of course but that's the real issue it appears the credit markets are frozen.
Hopefully the video is working. Cspan man, they are just not with the program but at least they are working on making streams more available...(it's only our government!)
definition: Mark to market: The act of placing a fixed price on an asset, even if no sale is imminent. Businesses are required to employ "fair value" accounting, but in recent months some banks affixed fire-sale prices to their assets.
Congress should also suspend the mark-to-market accounting rules that have deceptively devalued the assets of many financial institutions. The rule requires companies to value the assets on their balance sheets based on what those assets can be sold for today, even if the companies have no intention of selling them and can reasonably expect the values to rise again
My understanding is currently they must value the asset at what it is worth today. If they do a 3 year rolling average that would immediately boost their assets because currently as we know house values have plummeted.
don't start the revolution without me.
It appears lobbyists are now trying to get people to call to say "oh pass the Paulson plan" trying to claim the public outrage is just a few "loud voices in the minority".
Hot damn, I go and get outpatient surgery, and my pal Robert Oak has to start an economic reformation movement! Kudos, RO, glad to see at least one politician listen to us. It looks like a good bill, though I still have to examine it further. Nothing on exec comps or the establishment of a mortgage exchange? Mark-to-market only works when there's a viable exchange medium, like say for corn or stocks or oil. There already is a futures product, well not exactly, but one that could offset risk as well.
I've heard that on other shows where they are just railroading this through without any hearings, any experts testifying and even their own CBO has said it's simply impossible to estimate the costs and clearly questions Paulson's plan.
I think that's what DeFazio are trying to do, they know a few things are bi-partisan, they will work, already vetted (notice they are taking the plan from the expert who managed the S&L crisis) and get those through but to not even based a plan on a consensus of experts or at least discover cause and effect....well, they also shut out all but a few even in "negotiations" (read obfuscation) of the bill.
Naked shorts are supposed to be illegal as it is...but they are not attacking shorts generally. So they are saying you cannot sit there and not buy the underlying stock you're shorting, thus allowing more shorts than shares out there...
Then, they are saying to restore the uptick rule, which they removed due to the super fast trades coming from multiple places...but hey, I can fix this just thinking about it so not reinstating the rule is important.
If you were to listen to financial news, a la Bloomberg, as 99% of Wall Street does, you may have heard the show "On The Economy" were alternatives are discussed by the 'best minds on Wall Street'...there you would have heard Charles Calomiris, a professor at Columbia speak intelligently about the equity purchase solution. His approach is generally supported by others in the field (http://www.voxeu.org/index.php?q=node/1683) At the time of the interview on Bloomberg he had not been contacted by a single member of Congress regarding potential alternatives to the Paulson plan. The Calomiris plan minimizes the taxpayer risk (along the lines of a Warren Buffett type of investment) and leaves the debt in the private sector to unwind.
I suppose the net worth certificate program might be useful, and it might be good to raise the FDIC insurance limit, but I don't really see the point of the rest of it. Why should financial institutions be able to avoid mark-to-market accounting? That risks insolvency, which can force a large FDIC bailout. Why are they attacking short sellers? Short sellers are just the scapegoat in all of this.
Is the SEIU has already came out and endorsed the DeFazio Bill. I really don't like the SEIU because they have no problems through Professional workers, labor under the bus.
The SEIU has been at war with the UHW and the California Nurses for a while. The SEIU model can be flawed, and anti-democratic. Here's an article on that.
is no longer enough- even though these older workers are likely to work so much smarter than the younger workers- saving the company FAR more than their wages are worth.
Yes, it'll be hard. Yes, you might be leaving the city and your "safe" job to forage for food in the countryside for a while. But I'm not sure that an economy based on credit is worth saving- at all.
I say, set usury rates at one half of the CPI. Anybody charging more than that for a loan, the government takes the extra money and gives it back to the debtor to pay off the loan faster.
And leave the usury rate there. With NO real profit for loaning money, nobody will do it. With no way to get loans, people will HAVE to save up to buy things again. Massive deflation and unemployment will set in for a while, until the immutable law of supply and demand lowers the prices until supply=demand at the new level. Foreign goods will become more expensive as prices fall compared with what is already in our warehouses.
Businesses based on fraud and credit will fail, businesses based on providing real value for cash and investing that cash into labor and product will survive.
I haven't had time to analyze it. I do know most experts said the insurance idea simply will not work and on the repatriations of overseas capital.....well, I think that just might work and is also a common Democratic idea too.
On the tax code changes, well, that still reduces revenues (i.e. indirectly the taxpayer pays) but considering a $700B giveaway, might not be such a bad way to do it.
On the change in accounting...hmmm....I'd suggest a temporary suspension and demand hearings from various accounting, economic, fiscal experts be held for I am unsure of the real effects.
Ok here is the deal what actually needs to happen is we need to instead of the 700 billion bailout they need to give so to say another stimulus to the American people, lets say just a round number 150k and allow us to spend it as we see fit, not only will this help bail out the middle and lower class Americans with bill paying but it will also surge the economy because of the cash flow that it will be getting. I know there are people who would abuse it but honestly what is it to them if they cant help us by giving us the money instead of the sentate
This is a copy of a letter that I have sent to Sen. Obama:
I agree with most of your policies, however I do not agree with any type of bailout for Wall Street because:
1. It will increase our national debt and make it harder to achieve the goals that you want during your term in office.
2. It will weaken the Dollar, cause inflation, and could hurt our credit rating.
3. It will not restore confidence. It will only show people how bad things are.
4. Our tax money should not be used in such a manner.
5. This problem manifested itself in the lower & middle class; and a bailout would be trying to repair it by giving money to the upper class.
I don't want to just complain without offering a potential solution. I suggest that instead of another stimulus package; that the $700 Billion be spent on GREEN Energy. Fill the empty abandon factories with workers making wind turbines, solar parts, electric cars, etc. This will create jobs; stimulate investments; and curb global warming. Lenders will be more likely to lend to these projects if the U.S. is involved. You could also sell "Energy Bonds" instead of war bonds. A free check from the government is nice, but the money doesn't go too far. People want to stand on their own two feet; not receive handouts. It would give people a sense of accomplishment; a common united cause. Once workers started making money, credit would once again free up. The problem with the bailout is that if it does not work, we are out of bullets! It could be the straw that broke the camel's back!
The $700B sent to citizens would be used to buy foreign goods. Citizens are a pass through. That is why FDR like programs are so much less effective today than in the 1930's when the money stayed in the U.S.
SEC rule clarification.
Ok, I think I have my head wrapped around this. The problem is the banks are under enormous pressure having to immediately write down the value of real estate and mortgages (they claim) so by not forcing them to evaluate the asset on current market value that means they would immediately up their balance books and the theory is that would immediately unfreeze the credit markets.
Then, the next wage of the warrants looks like it would work to get the assets plain off the books with another type of exchange.
In terms of unfreezing the credit markets, I mean anything sounds more plausible than Paulson's "give me gobs of money to do with as I see fit", which is still the crux of the bill.
Republicans had another one, which is a tax holiday to repatriate offshore capital (which is massive because multinationals have it all offshore to avoid taxes)...
that was actually part of an old plan which was defeated but they also wanted to change the tax law to no longer give tax incentives to keep capital offshore in order to lower their global (US) tax bill.
I don't know if that would have any real effect in the credit crunch but it sure beats giving Paulson gobs of money and also spreads the actions over a large sector vs. this one Goldman Sachs ex-Ceo.
I think to get something through immediately they should simply pass a combo of recommendations as a temporary fix to buy time to get a true solution that's long term through.
Obviously getting any policy that is based in any reality from any expert is impossible with this Administration and Congress so mixing it up to me isn't a bad idea.
here's another summary:
I mean which is worse, letting corporations over value an asset on the books or let Paulson plain outright buy them way overvalued and now the US taxpayer is stuck with them.
I'll go for suspension as a temporary fix if it works and then work on the real solution once the credit markets unfreeze.
I also thought it's per asset. There are so many saying this will work, if you know corporate accounting methods to a level you could write a blog post on it...please do...
talk about being out of my depth!
I'm going off of what other experts are saying.
The main point is to just unfreeze the credit markets that's the immediate goal.
If they can value each asset on a 3 yr rolling average instead of immediately today I think that gives them more assets on the books in order to loan against.
That's how I understand it but if you know corporate accounting that is one topic I'll bet 0.00005% of the population understand in the least.
then set up a regulated exchange with a clearing house. You'll be able to get proper price discovery.
mark to market only works if there is a "market". These toxic assets are all level 3 stuff for the most part. There is no true market for these, and so the prices reflected on a mortgage-backed security is completely out of whack to what they are worth. You have essentially good mortages being slapped with the same price as the bad ones. Now for a bargain hunter, who doesn't mind gobbling up some of the bad loans, this may seem like a great thing. But to the holder this is a nightmare.
Perhaps these banks should get together, look at what they have in terms of securities and see if they can standardize them. Once this is done, they can try and setup an exchange. At least this way, we could have price discovery.
here (pdf). I don't know who this group is, although clearly working in corporate accounting methods.
They have a very good point on transparency but I think they should temporarily lift them simply to unfreeze the credit markets but not permanently at all.
Maybe study it after the fact and see what kind of adjustments can be made to ensure transparency yet not cause this sudden decline spike in asset values.
It does look like it would work for the moment and something like a home, a 3 yr. rolling average normally doesn't sound that bad to me or maybe a 24 month one.
The accounting body who overseas accounting methods is meeting tomorrow to consider these.
I hope they plain do it. Somehow I don't think Enron cost the US taxpayer $1 trillion bucks and if it's temporary lift...no way can it.
I'm by no means an accounting expert of course but that's the real issue it appears the credit markets are frozen.
Hopefully the video is working. Cspan man, they are just not with the program but at least they are working on making streams more available...(it's only our government!)
definition: Mark to market: The act of placing a fixed price on an asset, even if no sale is imminent. Businesses are required to employ "fair value" accounting, but in recent months some banks affixed fire-sale prices to their assets.
From Congress should suspend the mark-to-market rule:
My understanding is currently they must value the asset at what it is worth today. If they do a 3 year rolling average that would immediately boost their assets because currently as we know house values have plummeted.
don't start the revolution without me.
It appears lobbyists are now trying to get people to call to say "oh pass the Paulson plan" trying to claim the public outrage is just a few "loud voices in the minority".
Hot damn, I go and get outpatient surgery, and my pal Robert Oak has to start an economic reformation movement! Kudos, RO, glad to see at least one politician listen to us. It looks like a good bill, though I still have to examine it further. Nothing on exec comps or the establishment of a mortgage exchange? Mark-to-market only works when there's a viable exchange medium, like say for corn or stocks or oil. There already is a futures product, well not exactly, but one that could offset risk as well.
I've heard that on other shows where they are just railroading this through without any hearings, any experts testifying and even their own CBO has said it's simply impossible to estimate the costs and clearly questions Paulson's plan.
I think that's what DeFazio are trying to do, they know a few things are bi-partisan, they will work, already vetted (notice they are taking the plan from the expert who managed the S&L crisis) and get those through but to not even based a plan on a consensus of experts or at least discover cause and effect....well, they also shut out all but a few even in "negotiations" (read obfuscation) of the bill.
Naked shorts are supposed to be illegal as it is...but they are not attacking shorts generally. So they are saying you cannot sit there and not buy the underlying stock you're shorting, thus allowing more shorts than shares out there...
Then, they are saying to restore the uptick rule, which they removed due to the super fast trades coming from multiple places...but hey, I can fix this just thinking about it so not reinstating the rule is important.
If you were to listen to financial news, a la Bloomberg, as 99% of Wall Street does, you may have heard the show "On The Economy" were alternatives are discussed by the 'best minds on Wall Street'...there you would have heard Charles Calomiris, a professor at Columbia speak intelligently about the equity purchase solution. His approach is generally supported by others in the field (http://www.voxeu.org/index.php?q=node/1683) At the time of the interview on Bloomberg he had not been contacted by a single member of Congress regarding potential alternatives to the Paulson plan. The Calomiris plan minimizes the taxpayer risk (along the lines of a Warren Buffett type of investment) and leaves the debt in the private sector to unwind.
I suppose the net worth certificate program might be useful, and it might be good to raise the FDIC insurance limit, but I don't really see the point of the rest of it. Why should financial institutions be able to avoid mark-to-market accounting? That risks insolvency, which can force a large FDIC bailout. Why are they attacking short sellers? Short sellers are just the scapegoat in all of this.
Is the SEIU has already came out and endorsed the DeFazio Bill. I really don't like the SEIU because they have no problems through Professional workers, labor under the bus.
The SEIU has been at war with the UHW and the California Nurses for a while. The SEIU model can be flawed, and anti-democratic. Here's an article on that.
I wrote on this almost 4 years ago.
is no longer enough- even though these older workers are likely to work so much smarter than the younger workers- saving the company FAR more than their wages are worth.
And move back to the farm, than be on the hook for my share of this bailout.
Yes, it'll be hard. Yes, you might be leaving the city and your "safe" job to forage for food in the countryside for a while. But I'm not sure that an economy based on credit is worth saving- at all.
I say, set usury rates at one half of the CPI. Anybody charging more than that for a loan, the government takes the extra money and gives it back to the debtor to pay off the loan faster.
And leave the usury rate there. With NO real profit for loaning money, nobody will do it. With no way to get loans, people will HAVE to save up to buy things again. Massive deflation and unemployment will set in for a while, until the immutable law of supply and demand lowers the prices until supply=demand at the new level. Foreign goods will become more expensive as prices fall compared with what is already in our warehouses.
Businesses based on fraud and credit will fail, businesses based on providing real value for cash and investing that cash into labor and product will survive.
And in the end, we'll all be better off.
Plan (pdf).
I haven't had time to analyze it. I do know most experts said the insurance idea simply will not work and on the repatriations of overseas capital.....well, I think that just might work and is also a common Democratic idea too.
On the tax code changes, well, that still reduces revenues (i.e. indirectly the taxpayer pays) but considering a $700B giveaway, might not be such a bad way to do it.
On the change in accounting...hmmm....I'd suggest a temporary suspension and demand hearings from various accounting, economic, fiscal experts be held for I am unsure of the real effects.
More later.
Ok here is the deal what actually needs to happen is we need to instead of the 700 billion bailout they need to give so to say another stimulus to the American people, lets say just a round number 150k and allow us to spend it as we see fit, not only will this help bail out the middle and lower class Americans with bill paying but it will also surge the economy because of the cash flow that it will be getting. I know there are people who would abuse it but honestly what is it to them if they cant help us by giving us the money instead of the sentate
This is a copy of a letter that I have sent to Sen. Obama:
I agree with most of your policies, however I do not agree with any type of bailout for Wall Street because:
1. It will increase our national debt and make it harder to achieve the goals that you want during your term in office.
2. It will weaken the Dollar, cause inflation, and could hurt our credit rating.
3. It will not restore confidence. It will only show people how bad things are.
4. Our tax money should not be used in such a manner.
5. This problem manifested itself in the lower & middle class; and a bailout would be trying to repair it by giving money to the upper class.
I don't want to just complain without offering a potential solution. I suggest that instead of another stimulus package; that the $700 Billion be spent on GREEN Energy. Fill the empty abandon factories with workers making wind turbines, solar parts, electric cars, etc. This will create jobs; stimulate investments; and curb global warming. Lenders will be more likely to lend to these projects if the U.S. is involved. You could also sell "Energy Bonds" instead of war bonds. A free check from the government is nice, but the money doesn't go too far. People want to stand on their own two feet; not receive handouts. It would give people a sense of accomplishment; a common united cause. Once workers started making money, credit would once again free up. The problem with the bailout is that if it does not work, we are out of bullets! It could be the straw that broke the camel's back!
The $700B sent to citizens would be used to buy foreign goods. Citizens are a pass through. That is why FDR like programs are so much less effective today than in the 1930's when the money stayed in the U.S.
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