If you haven't heard already, the Government announced a plan to buy up bad bank assets and help banks remove as much as $1 trillion from their books.
Naturally, Wall Street responded with a rally (so far). But isn't that obvious? Of course you're going to be in a buying mood when the Government essentially announces a plan to absorb the things that have been holding you down.
The headline below is from an MSNBC article but similar ones have appeared on FOX, CNN and the WSJ.
I suggest a rewrite. Something like "Wall street rallies on another plan to help themselves."
Express your anger or approval of this latest billion dollar scheme with any thoughts that come to your mind.
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This is what we signed on for when we elected obama i guess.
Let the liberals loose with the budget and you have to expect this sort of thing.
Dudes, I bought stock in 1 potato chip and Wall street went up 10 fold.
The market is in such a state that any non-negative day appears as a rally.
I love how major news operations jump on the "WERE SAVED, WERE SAAAAAVED!! *tears of joy*" ship because of an announcement to buy up debt. Why not wait for a couple months at least - when unemployment drops below the 10 year average - before ushering in the Dom Perignon served by gold plated, chocolate dipped, silicon enhanced strippers aboard luxury space shuttles (at the cost of the tax-payers)?
Shit, just because this bad debt is off the shoulders of the banks, don't think for one hot second that it is gone. Oh no. Were going to be paying for it over the next 50 years. And why not.. this will give plenty of time for the fund babies to fudge their Huggies, drop out of high school, go to Harvard, rape a co-ed, dodge the system, inherit millions of dollars (snarfed from tax payers 3 generations ago), write another $50 trillion in bad bonds, teeter on the brink of collapse, and open their bottomless pockets for the tax payer dollars to fill up again. That's the American dream people! Quit fucking it up for the top .0001% Just do your jobs, pay for their vacations, and shut the fuck up.
Thank you MSNBC.com for letting us know that all is well on Wall street.
If it wasn't for the idiotic mark-to-market accounting rules and archaic Sarbanes-Oxley legislation, none of this would have been necessary. It isn't any more fair for banks to be forced to price (or sell) their assets at a ridiculously low price just because the securities market is broken than it is for a creditor to force me to sell my house for a ridiculously low price just because the housing market is broken.
Everybody calm down. Nobody is getting screwed with this move. It should have been done a long time ago. This is very similar to the RTC setup that we used in the late 80's to recover from the bank failures. The government is the only entity that has the clout to step in and re-establish confidence in the secondary markets.
But, Jimbo is still spot on ... the economy and job situation is no different than yesterday. This helps the banks stay solvent, but that is about it. Show me signs of a jobs recovery and then we can breathe easier.
RTC. Thanks for the memories Tim. Kind of similar situation. S&L's instead of banks but you had a housing bubble there too. Corrupt lending practices.
I'm not sure I blame mark to market per se. Accounting shenanigans can make the numbers look good no matter what system you use see WorldCom.
Of course, Bernie Madoff was just a thief. Kind of surprised so many seemingly sophisticated people were suckered.
On second thought, I gather your point about mark to market was different that what I originally thought. However, the banks still bought garbage no?
Your point is well-taken, E ... but I'm not talking about the crooks. They will always find a way to get what they want, regardless of the legislation.
But that really is the point. So much legislation is put into place to prevent the corruption that occurs without really looking at the long term effects of the legislation on the legitimate companies. Sarbanes-Oxley put some companies out of business on the accounting overhead costs alone.
As far as mark to market is concerned, you are right that it is definitely not the whole of the problem. In my opinion, it is a big part of it ... though I don't have an accounting solution that could be used as a reasonable replacement.
I recall when SO - Sarbanes Oxley (not Sarcastic One) came out. It was post Enron/Wcom and Arthur Anderson was just signing off on anything. I guess we still have some of the same problems.
I heard in Vegas housing prices were going up 40% in a year, at least in some places. And people were buying CDO's with that shit in there. They should be burned cause that's just plain stupid. Course so many were doing it and everyone else shouldn't get screwed.
Uck.
The banks bought basically the same securities instruments and mortgage portfolios that they always have; or at least thought they were buying the same stuff. To me, the crimes here are with 1) the people that originated the bad loans, packaged them with good loans and sold them on the secondary market with well-hidden risks, and 2) those that leveraged themselves beyond reasonable practice. The SEC deserves an assist in letting things get so out of hand.
To me, the criminals aren't employed at Citibank and Bank of America. They are employed with the firms that package all the securities, assign the risk and set the pricing. From there, good old-fashioned competition (for high returns) and greed helped things get way out of hand. Once all that leveraging started to unravel, we were doomed.
Shouldn't the buyers have been able to evaluate the securities their buying? (I'm not disputing the culpability of the rating agencies or others either though).
"From there, good old-fashioned competition (for high returns) and greed helped things get way out of hand." True dat.
I'm a little fuzzy on exactly how that happens, E ... but I think that the overall risk and rating is set by external ratings agencies that are policed by the SEC and/or FINRA. Sure, the buyer reserves the right to audit and assess risk on their own, but I have never heard of a buyer breaking down the entire loan portfolio, evaluating each financial asset and re-assessing the overall risk. Maybe things have changed.
Even in the RTC days, we had a hard time re-evaluating every financial asset in each portfolio. (I wrote automated systems for this very purpose back in 1990-1991, but they could never really replace an experienced auditor sitting down and looking at each loan ... which also was not practical.)
I heard of one outfit, might have been Lehman's, that had a computer model to calculate CDO value and it couldn't take negative values as a possible input for housing value - ie, prices couldn't go down ever. Oops.
The fact that it's so difficult to price these things seems like a good reason not to buy them.
Tim, E. As always it's an education reading your economic responses. My real motive for posting this piece. To get you to explain it better to me.
I know Pablo. Those liberals. Blowing up deficits, throwing money at a crisis they didn't create. If only they could be as fiscally responsible as the previous administration.
Yet not participating in the very market that is allowing your competitors to make such huge margins and keeping their shareholders happy will create nothing but doubt in your ability to lead your company.
In other words, damned if you do ... damned if you don't.
That being said, there are a few companies that knew when to get in and when to get out. (aka the rich keep getting richer.)
Their shareholders probably aren't happy now. I see what you mean though. Gotta think long term peeps!
"I can haz credit default swaps?"
Anyone read the article in Wired last month.
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all
Formula that brought down wall street.
It's been sitting on my shelf ,waiting to be read.
Yeah. The article is about a formula that this guy Li came up with that people thought could evaluate the risk associated with CDO's. Pretty interesting reading.