Financial Crisis Legislation - Details

[IHateMyJob2004]

Originally posted by: mshan
http://www.cnbc.com/id/26976554

Note how Warren Buffet keeps saying if they buy at market prices...

That is a link to GE.

 

[mshan]

Watch the video.

Becky Quick starts asking if he is interested in buying up the stuff the Fed / Treasury is supposedly intends to buy, and he keeps saying only "at market prices"

Only way Paulson plan works as they purport it is supposed to (recapitalization, not just cutting out dead wood) is if they vastly OVERPAY for what they are getting...

 

[smack Down]

Originally posted by: IHateMyJob2004
When Warren Buffet says this bailout is needed (to prevent VERY bad things from happening), why do so many here think they know more and that this is rooted in some sort of conspiracy?

Also, when does this vote start?

Warren buffet is a fucking banker. They have no credibility.

 

[smack Down]

Originally posted by: Fern

Originally posted by: smack Down

Originally posted by: Fern
-snip-

It really has nothing to do with the problem. The right just has to blame regulations that is what they do.

Actually, I think it does.

SOX has bothered me in the past (professionally), but for different reasons (raising money in an IPO).

While I'm not in the banking profession, I am somewhat aware of their regulations, the write-downs required by SOX are universally (both Libs & Conservatives) recognized as a problem here.

My point is that if we all recognize that is a major part of the problem (declining real estate values the other), WHY after correcting it must we still buy $700B of their crappy assets to rescue their a@@es?

Fern

The write down are not the problem. Getting ride of Market to market is just another wall street scam.

 

[IHateMyJob2004]

Originally posted by: smack Down

Originally posted by: IHateMyJob2004
When Warren Buffet says this bailout is needed (to prevent VERY bad things from happening), why do so many here think they know more and that this is rooted in some sort of conspiracy?

Also, when does this vote start?

Warren buffet is a fucking banker. They have no credibility.

You are either joking or ignorant. So, what is it?

 

[IHateMyJob2004]

Originally posted by: smack Down

Originally posted by: Fern

Originally posted by: smack Down

Originally posted by: Fern
-snip-

It really has nothing to do with the problem. The right just has to blame regulations that is what they do.

Actually, I think it does.

SOX has bothered me in the past (professionally), but for different reasons (raising money in an IPO).

While I'm not in the banking profession, I am somewhat aware of their regulations, the write-downs required by SOX are universally (both Libs & Conservatives) recognized as a problem here.

My point is that if we all recognize that is a major part of the problem (declining real estate values the other), WHY after correcting it must we still buy $700B of their crappy assets to rescue their a@@es?

Fern

The write down are not the problem. Getting ride of Market to market is just another wall street scam.

What does that mean. I'm assuming market to market was a typo. my fear is that you don't realize that your terminology is incorrect. But that would confirm that you don't understand what is happening right now.

 

[Fern]

Originally posted by: smack Down

Originally posted by: Fern
-snip-

The write down are not the problem. Getting ride of Market to market is just another wall street scam.

Mark-to-market kills your financials.

Crappy financials means no credit for you (or if a bank, you can't make any loans).

Because no one will touch MBS (mortgage backed securities) their value is substantially reduced. But if you looked at all the underlying assets (real estate) would their cumulative/aggregate value exceed the value of the MBS?

Everybody says *YES

So, which value should be reflected on the finacials?

I.e., we have an financial presentation problem; and that impacts things in a very significant way.

Fern

 

[Pliablemoose]

Now over 400 pages. From 3.

 

[IHateMyJob2004]

Originally posted by: mshan

"Buffett is buying $3 billion of General Electric Co. preferred shares. The perpetual preferred stock carries a dividend of 10 percent, similar to the terms Buffett struck with Goldman Sachs."

Link

Interesting that it sounds like Paulson wants to buy up the absolute worst crap off balance sheet Special Investment Vehicles (SIV) tucked away in the Cayman Islands from investment banks that didn't even bother attempting to try and sell this stuff because it was so crappy, and yet he won't follow Buffet's lead and inject capital through purchase of preferred shares, ahead of any and all current shareholders. This may be the crap that marks to market at $0.20 on the dollar, and from some off hand comments I've seen on CNBC, really might only be worth say $0.30 - $0.35 even at fair value. I bet they even let all of the private vulture fund money waiting on the sidelines swoop in and take the stuff that is really worth $0.65 on the dollar and make off like bandits down the road.

IMO, all of this talk that we'll make money is bs. If you listen carefully to what politicians say, it sounds like we'll may get most of our money back (Barney Frank may have slipped on PBS last week when he specifically used that word "most"), or possibly with warrants nominally break even (Is this, in the best case, essentially going to be a $700 billion interest free loan to take the absolute crappiest stuff from investment banks that were central facilitators in this whole fiasco?).

Ahhh, another person that thinks the gov't is pulling $700 billion dollars out of their wallet.

As for the second paragraph, go read hte Warren Buffet thread in its entirety.

 

[smack Down]

Originally posted by: Fern

Originally posted by: smack Down

Originally posted by: Fern
-snip-

The write down are not the problem. Getting ride of Market to market is just another wall street scam.

Mark-to-market kills your financials.

Crappy financials means no credit for you (or if a bank, you can't make any loans).

Because no one will touch MBS (mortgage backed securities) their value is substantially reduced. But if you looked at all the underlying assets (real estate) would their cumulative/aggregate value exceed the value of the MBS?

Everybody says *YES

So, which value should be reflected on the finacials?

I.e., we have an financial presentation problem; and that impacts things in a very significant way.

Fern

Like I said getting rid of mark to market is a scam so that the next Enron can claim it is worth more then it really is.

Mark to market doesn't kill your fincials it just makes them honest.

 

[Fern]

Originally posted by: mshan
-snip-
IMO, all of this talk that we'll make money is bs.

I think you're quite likely correct.

The underlying assets of these securities are residential real estate.

Even if Paulson buys them from the troubled institutions at a true FMV, how they perform afterwards depends on the real estate market and the economy.

How does Paulson propose to prop up the real estate market?

With a great economy creating demand for housing?

And sales of existing houses must compete with sales of new housing.

How can we expect a surging economy with increasing energy prices?

I.e., IMO he's betting on a surging home market. I just don't see that happening very soon given that the bubble has just burst. I think it's gonna take a while to recover

Fern

 

[mshan]

My take is that there are two basic problems:

1) a lot of these banks have these hidden Level 3 assets that they don't want to reveal because they know it will destroy their stock price. They don't want to lend to other banks because they quite rightfully assume those institutions have the same crap off balance sheet. This stuff needs to be cleared so we don't end up in a quasi - Japan situation (though we are consumate spenders, Japanese apparently consumate savers). Dilemma is how to get these institutions to all "raise the kimono" in a controlled manner that doesn't destroy their stock price. Sounds like Paulson wants to buy this absolute worst of the worst toxic waste, but wants to vastly overpay for it, other wise there isn't really any injection of new capital. It will help, but not solve the problem, and is probably going to be a very costly way of going about it (I think some CNBC Asia webstream commentator said we would be spending $700 billion to get about $100 billion in effect).

2) other issue, macrowise, is that there needs to be new pools of capital injected so institutions meet minimum capital requirements so they can lend again and economy can grow. If they can't borrow more money to lend, then they have to sell assets to meet capital requirements (de-leveraging); a lot of September stock market turmoil may have been due to this painful process, along with lots of redemptions and margin calls on hedge funds and mutual funds. There is plenty of private vulture funds waiting on the sides, but they don't want to go first because previous entities (sovereign wealth funds, etc) that did this either got completely wiped out or significantly diluted when next wave of writedowns occur and more stock has to be issued. Buffett is injecting new capital through preferred shares (he doesn't lose a penny till all stock shareholders have been wiped out, I believe), and this is what WSJ editorial and many economists have also recommended.

Housing prices have actually appeared to correct quite significantly in many areas. We need reasonably priced, readily available mortgages so first time home buyers can buy, and upgraders can sell their current house to buy a new one. Buyers sitting on sidelines basically need media to start blaring that home prices have stopped going down so they are comfortable to buy again.

Ultimately, we need real transparency in the credit markets so various institutions know exactly how much risk they are taking on when they lend money to another institution, or whether not to even lend a penny to particular institutions.

(I am not a banker, but I think the gist of what I am saying is correct)

 

[Fern]

Originally posted by: smack Down

Originally posted by: Fern
-snip-

Like I said getting rid of mark to market is a scam so that the next Enron can claim it is worth more then it really is.

Mark to market doesn't kill your fincials it just makes them honest.

The underlying assets in Enron's case was completely different. In fact, there was no underlying asset, it was just bad debt moved off Enron's books and transferred to (foreign) partnerships which under SEC rules at the time didn't need to be consolidated with Enron's financials or marked-to-market.

We used to not like mark-to-market because it could artificially inflate a company's finanicals when the stock market was rising. In effect, recognizing unrealized gains.

Also goes to the age old accounting controversy of historical (book value) cost versus current FMV.

They need to tweak the rules IMO.

Fern

 

[Fern]

Economic/finance Experts Don't Like Plan; Enumerate Doubts:

Link

?I suspect it?s not going to solve our problem,? said Charles Jones, a finance professor at Columbia University.

?I think what we really have to do is repair bank balance sheets," said Jones, of Columbia. "This moves in that direction, but it doesn't seem to me to be an efficient use of our money. It seems like we could do a whole lot more if we invested in direct equity stakes.?

?The question in my mind is what happens after the auctions?" said Chester Spatt, a Carnegie Mellon economics professor and former chief economist for the Securities and Exchange Commission. "Will the market forces be able to sustain those higher price levels? I don?t think the policymakers have done a particularly good job articulating why the prices are going to stay at the level the government pays.?

Economists have many more questions. Who will be eligible to sell troubled assets? Who will choose which bids to accept? Will the money be spent all at once or in smaller installments? Treasury officials have deflected these questions from reporters.

?The main concern is that there is not enough specificity about several things,? said Thomas Cooley, dean of the Stern School of Business at New York University. ?One is: How are the prices of these assets going to determined??

The question is more than academic. If the government pays too little for these troubled assets, it could force banks to assign an even lower market value for their holdings of bad debts, forcing them to take further write-downs and book more losses. On the other hand, if the government pays too much, it will amount to a bank subsidy paid with tax dollars.

There?s also skepticism among economists about whether the government needs to move as quickly as the White House has insisted, and whether, by taking more time to work out the details, the plan could be improved.

?We've seen pretty clearly that all the bad things that were promised to happen if the bill didn't pass by Monday, or by Tuesday, or by whatever particular day of the week it might have been ?they haven't happened,? said David Levine, an economics professor at Washington University. ?If they do happen, they won't happen immediately. There's time to deliberate over a good plan. This is a bad plan..."

?Nobody's talking about addressing the underlying problem. which is all these people defaulting on the mortgages,? said Jonathan Kappell, a professor at the Yale School of Management. ?You need to do something to deal with that problem, or six months from now we are going to be sitting here having another debate about the next bailout package when the wave of foreclosures expected in California, Florida, Michigan and Massachusetts comes due."

Kappell thinks the government should use the money to refinance loans in delinquency to levels that homeowners can afford.

Fern

 

[daishi5]

Originally posted by: Craig234

Originally posted by: mshan

"Buffett is buying $3 billion of General Electric Co. preferred shares. The perpetual preferred stock carries a dividend of 10 percent, similar to the terms Buffett struck with Goldman Sachs."

Link

Interesting that it sounds like Paulson wants to buy up the absolute worst crap tucked away off balance sheet Special Investment Vehicles (SIV) in the Cayman Islands from investment banks that didn't even bother attempting to try and sell this stuff because it was so crappy, and yet he won't follow Buffet's lead and inject capital through purchase of preferred shares, ahead of any and all current shareholders. This may be the crap that marks to market at $0.20 on the dollar, and I'm from some off hand comments I've seen on CNBC, really might only be worth say $0.30 - $0.35 even at fair value. I bet they even let all of the vulture fund money waiting on the sidelines swoop in and take the stuff that is really worth $0.65 on the dollar and make off like bandits down the road.

IMO, all of this talk that we'll make money is bs. If you listen carefully to what politicians say, it sounds like we'll may get most of our money back (Barney Frank may have slipped on PBS last week when he specifically used that word "most"), or possibly with warrants nominally break even (Is this, in the best case, essentially going to be a $700 billion interest free loan to take the absolute crappiest stuff from investment banks that were central facilitators in this whole fiasco?).

Why is there so much assumption Paulson is not the fox guarding the henhouse, when all the evidence suggests he is? That his agenda isn't to give tax dollars to his cronies?

I have no idea why people suddenly trust Bush and his administration's behavior. I would think we would have learned that when they tell us we cannot take time to think, that we desperately need to take time and think.

 

[ChunkiMunki]

I agree with daishi5, we have already been down the "scary path" we just can't afford it. If we hadn't spent all our money in Iraq, we might be able to do something. I say let the chips fall, and we will dig ourselves out. It may be tough but we can do it.