Good News for Real Economic Reform

Replies to This Discussion

Permalink Reply by Lawrence Murray on February 1, 2009 at 1:56pm

Because of the accounting problems we have had the government set up new rules to value assets. The problem is not all assets have the same value. Like I said if a home sells for far less-like the guy that just sold his million dollar home to his wife for $100 and then that sets the vaule of the assets in the neighborhood by this rule. If some one distories their home before forcloslure the value of all the homes in the group falls. The banks used these rules to take some of the homes in California. They called the loand and sold the assets to friends.

http://en.wikipedia.org/wiki/Mark_to_market

Mark-to-market is an accounting methodology of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would currently fetch in the open market.

Permalink Reply by Lawrence Murray on February 1, 2009 at 10:21pm

Appraisers use comps to "sell" the bank on a higher price or reduce your work because it is not comparable with the neighborhood. How is work now? I am an electrical contractor and we have seen much better times. So if the appraiser had to lower your price-that meant the bank could not value the asset above the market price set without understanding. And that is our problem! Assets have value and some of it can not be seen right now but it is there. Even the stock market is going through this. And bond. And if you think we have problems Russia drilled for oil and to continue production it cost $85 per barrel. As I have said they can not afford to stop as the h*** could seal up. There only hope is for a short recession and to join OPEC and get the price going up. So our job is to do renewables and get to set back…

Permalink Reply by Lawrence Murray on February 3, 2009 at 8:03am

Not yet they went up again

Permalink Reply by Larry M. Aden on February 7, 2009 at 9:27pm

TO AMASS OUR WEALTH IS TO AMASS OUR POWER
Folks, I must interject myself, here, to reiterate a few points that I have made many times before, but it just hasn't seemed to sink in to the minds of those reading it in the way I had hoped. Perhaps I do not do a very good job of communicating these ideas.
I will try one more time.
I would urge each of you to join AMASS, go to www.amass.us, or http://push.pickensplan.com/group/amass, read the description of AMASS, consider serving on the Board of Directors of AMASS, send me your application (including your résumé or CV, and your answers to the questions posed), and imagine the possibilities of capitalizing this mutual for financing a sustainable society with just $1 per day ($30 per month) from every environmentally and socially conscious citizen of the world.
Tho' I have fully supported both the savings bond and the credit union concepts for accomplishing our desired green developments from the beginning, there are huge limitations to each of these that should lead us all to realize that even more creative solutions are required for impelling truly sustainable developments.
Government savings bonds will wait for the government to act, probably till hell freezes over, but cooperative financing of all types, including bonds, we can start, today!
Joseph Chiang is very well focused upon the difficulties of bringing products to market, both technical and financial, and he is so right about the financial backing being the biggest impediment to all of us having the cheap, clean, renewable energy developments that most of us have been dreaming of since our last energy crisis 35 years ago.
Can you imagine the venture capital investment fund that we would control, today, if we had each invested just $1 per day for that entire 35 years? Nobody could stop us from producing the energy systems and the renewable energy we want!
But, of course, production is only half the equation, so consumption of that production is equally important to complete the wealth creation cycle. It does no good to produce something, if you can’t sell it to somebody that has the money, or the credit, to buy it!
Most bankers only lend money to people who don’t need it, and most of those people don’t care what energy costs, because they have plenty of money to buy it, or how much of it they waste, because they feel entitled to waste whatever they can buy.
We must build a new kind of cooperative financing organization that is able to support sustainable consumer spending as well as sustainable production, both value-added and primary, not just in America, but on a global scale.
This is a global crisis of unsustainable development. Because we are all in this muck, together, we must all climb out of this deep dark abyss, together.
Our problems are similar to the problems of people all over the world; the sustainable solutions will be, also.
Likewise, we Americans do not have a monopoly on good ideas. If someone in India, Australia, South Africa or Argentina has a good idea that could be a solution for all of us, we need to be able to funnel seed money to them for that development.
We will need to work with people in the Bahamas and Russia to develop the hydro-kinetic power of the Gulf Stream and Bering Strait, just as we do, now, with Canada to maximize hydro-electric generation at Niagara Falls. There can be many other examples of international cooperation that will be mutually beneficial for all, if we just stop trying to limit the scope of our development to only that which interests us personally.
We should think big, plan big, and act big!
Small plans are for small-minded people who will make little difference when they are here, and even less when they are gone!
Right now, we do not need some-ONE to send our little donations or investments to, we need a fully-functional 50 member Board of Directors of this legally founded mutual assurance association to create a new international cooperative banking structure that will create green jobs, and permit each one of us to pay our dues, insurance premiums, utility bills, donations, investments and savings installments, or to borrow from as needed.
Why do we all continue to support the unsustainable power structure that enslaves us with every dollar we spend, when we should be spending our money to support each other in our common quest to build a better world?
We should make our regular monthly dues and any additional insurance payments into a general revolving loan fund account that the Board will invest in the least risky and fastest return consumer loans, pay operating expenses, and pay out the members' universal AD&D, or other, insurance claims from.
Then, we should open a separate account for each different type of renewable energy, so the members can vote with their savings and investment dollars to support the types of developments that they want to see funded.
Savings account funds should be invested only in support of fully functioning renewable energy, energy-saving and energy-producing product production.
Our savings bonds could fund investment in renewable energy production installations, or market-ready energy-saving and energy-producing product manufacturing facilities.
The investment funds could go to support the riskier initial stages of any energy developments.
The Board should appoint study committees to assess technical, social and financial viability of each project and advise the full Board of those that pass the scrutiny of all three committees for final approval of funding.
Eventually, we can have physical franchise offices for providing all financial services in every political district of the world where we have members, but to start, we should operate on-line with each Director wearing a few different hats, marketing our services, facilitating deposits, accepting loan applications and insurance claims, acting as a loan officer and insurance adjuster, filing the signed paperwork for completed loans and policies, and over-seeing the progress of funded projects. We can have a secure access virtual Board Room on-line to review the documents and do the voting from home.
(I am beginning to get some offers, now, of help to set up our website in such a way.)
Our most profound dreams of how the world should work can be made to come true, if we stop waiting for others to solve our problems for us, band together, amass our wealth, communicate our vision, project our power, and solve our own individual problems by effecting sensible common solutions!
We can do this kind of private development, together, and really change the way this old world works, for the better, or we can just sit back, rely on our politicians to actually vote the way they promised and give us what we have been asking for, in which case, we will be dreaming for another 35 years with no more to show for it than we got in the past 35!

Permalink Reply by Lainey Howard on February 19, 2009 at 7:12pm

I am weary of politicians that blow smoke and put mirrors to say that this is so complicated they have to pay off people and make bribes to get us out of this mess. It is simple...build on a solid foundation. Invest in your country...invest in green technologies...this is our way out of our economic meltdown.

Permalink Reply by Lawrence Murray on February 20, 2009 at 7:48am

Wish we had kept it simple, but they did not! We suffer! We have what it takes, we lack the leadership! so far

Permalink Reply by Lainey Howard on February 20, 2009 at 11:16am

Yep...

Permalink Reply by Lawrence Murray on February 28, 2009 at 11:47am

But Jon Najarian, president of OptionMonster.com, says there are some simple steps policymakers can take to at least alleviate the crisis and give the stock market a big boost:

Cut taxes by 10% across the board for corporations and individuals alike: Najarian is a big believer in the healing power of tax cuts but admits it's highly unlikely any tax cuts will be enacted beyond what's in the stimulus bill.
Raise the FDIC insurance limit to $1 million per account: FDIC insurance was temporarily raised to $250,000 per depositor in October. Najarian says raising it further will bring more capital into the banks - and out from under mattresses - both helping shore up the banks and providing them a base in which to lend. He also advocates for SIPC insurance on cash in security accounts to be raised above the current $100,000 limit.
Suspend mark-to-market accounting: Critics say suspending mark-to-market accounting would reward banks for their bad behavior, and send a message that toxic assets are merely "temporarily" depressed vs. permanently damaged. Supporters say it will give the banks "breathing room" to sell those assets at something other than rock-bottom prices. Najarian does believe Secretary Geithner will announce an at least temporary suspension of mark-to-market sometime in 2009, spurring a huge rally in beleaguered bank stocks. (Personally, I think the government should put insolvent banks into receivership; but since it appears that's not in the cards, suspending mark-to-market makes sense in order to give banks some balance sheet relief and get more bang for out bailout bucks.)
Reinstate the uptick rule: Because stocks trade in penny increments, reinstating the prohibition against shorting a stock on a downtick might not have much practical impact, Najarian says. But there was no good reason to get rid of the rule and reinstating it could do wonders to revive confidence in the market, which may be more than half the battle.

Permalink Reply by Lawrence Murray on March 12, 2009 at 7:03pm

Finally some very good news
After a modest decline Monday, three days of buying, the markets are up almost 10 percent adding 1 trillion dollars back into the wealth that has shrank for over a year. The markets are seeing levels not seen since ‘97 or even 1996.
The Securities and Exchange Commission said it was considering reinstating the "Uptick Rule." The rule, eliminated in 2007, aimed at curbing short-selling by only allowing it when a stock edged higher. Investors are well aware of these rules and much of this week's rebound can be attributed to covering short positions as traders have been covering short bets by buying stocks.
The House Financial Services subcommittee on capital markets after much talk the past weeks over mark-to-market accounting rules announced that the independent Financial Accounting Standards Board "could have the guidance in three weeks".
As with most recessions with 6 months to a year to end, the Commerce Department said retail sales dipped by a modest 0.1 percent in February and the Labor Department reported that first time claims for unemployment benefits rose last week to 654,000 from 639,000 the week before.

Permalink Reply by Lawrence Murray on March 13, 2009 at 7:56am

We could see a retail sales number bigger than expected as consumers spend tax rebates and the economic stimulus kicks in.

Permalink Reply by Lawrence Murray on March 16, 2009 at 8:09am

See Ben agreed with me!

Permalink Reply by Lawrence Murray on March 29, 2009 at 8:09pm

Here is the best story I have read about pure gambling on the markets and how some peolpe got rich at our expence, even the tax payer got ripped. but we allow some to make big money.

The Wall Street Journal:
Andy Kessler Thursday, March 26, 2009
Opinion: Have We Seen the Last of the Bear Raids?
The short-sellers probably saved us five to 10 years of poor bank earnings
So is that it? Is the downturn over? After bouncing off of 6500, or more than half its peak value, and with Citigroup briefly breaking $1, the Dow Jones Industrial Average has rallied back more than 1200 points. So, is it safe to go back in the water? Best to figure out what went wrong first -- what I like to call a bear-raid extraordinaire.
The Dow clearly got a boost from Treasury Secretary Tim Geithner's new and improved plan, announced on Monday, to rid our banks of those nasty toxic assets. The idea is to form a "Public-Private Investment Fund" to buy up $500 billion to $1 trillion worth of bad assets -- mostly mortgage backed securities (MBSs) and collateralized debt obligations (CDOs).
While it's true that private interests can conceptually help establish the right market price for these assets, the reality is Mr. Geithner's public-private scheme won't work. Why? Because the pricing paradox remains -- private parties won't overpay, yet banks believe these assets are extremely undervalued by the market. As Edward Yingling, president of the American Bankers Association, said recently on CNBC, "You have to go into the securities, examine the securities, examine the cash flow. I've seen it done, and the market is so far below what they're really worth."
The Treasury can't just keep throwing money at the problem, but needs instead to figure out what's really been going on -- the aforementioned bear-raid extraordinaire that's crushed Citigroup and Bank of America and General Electric, among others. Only then can Mr. Geithner craft a real plan to fight back.
In a typical bear raid, traders short a target stock -- i.e., borrow shares and then sell them, hoping to cover or replace them at a cheaper price. Once short, traders then spread bad news, amplify it, even make it up if they have to, to get a stock to drop so they can cover their short.
This bear raid was different. Wall Street is short-term financed, mostly through overnight and repurchasing agreements, which was fine when banks were just doing IPOs and trading stocks. But as they began to own things for their own account (MBSs, CDOs) there emerged a huge mismatch between the duration of their holdings (10- and 30-year mortgages and the derivatives based on them) and their overnight funding. When this happens a bear can ride in, undercut a bank's short-term funding, and force it to sell a long-term holding.
Since these derivatives were so weird, if you wanted to count them as part of your reserves, regulators demanded that you buy insurance against the derivatives defaulting. And everyone did. The "default insurance" was in the form of credit default swaps (CDSs), often from AIG's now infamous Financial Products unit. Never mind that AIG never bothered reserving for potential payouts or ever had to put up collateral because of its own AAA rating. The whole exercise was stupid, akin to buying insurance from the captain of the Titanic, who put the premiums in the ship's safe and collected a tidy bonus for his efforts.
Because these derivatives were part of the banks' reserve calculations, if you could knock down their value, mark-to-market accounting would force the banks to take more write-offs and scramble for capital to replace it. Remember that Citigroup went so far as to set up off-balance-sheet vehicles to own this stuff. So Wall Street got stuck holding the hot potato making them vulnerable to a bear raid.
You can't just manipulate a $62 trillion market for derivatives. So what did the bears do? They looked and found an asymmetry to exploit in those same credit default swaps. If you bid up the price of swaps, because markets are all linked, the higher likelihood (or at least the perception based on swap prices) of derivative defaults would cause the value of these CDO derivatives to drop, thus triggering banks and financial companies to write off losses and their stocks to plummet.
General Electric CEO Jeff Immelt famously complained that "by spending 25 million bucks in a handful of transactions in an unregulated market" traders in credit default swaps could tank major companies. "I just don't think we should treat credit default swaps as like the Delphic Oracle of any kind," he continued. "It's the most easily manipulated and broadly manipulated market that there is."
Complain all you want, it worked. In early March, Citigroup hit $1 and Bank of America dropped to $3 and GE bottomed at $6.66 from $36 not much more than a year ago. Same for Lloyds Banking Group in the U.K. dropping from 400 to 40. Citi CEO Vikram Pandit recently announced that the bank was profitable in January and February. (How couldn't they be? With short-term rates close to zero, any loan could be profitable). Never mind they still had squished CDOs, it was enough to get some of the pressure off, for now.
Oddly, with the new Treasury plan, these same bear raiders are still incentivized to manipulate the price of swaps to depress toxic derivative prices, especially so with the government's help to get hedge funds to turn around and buy them. Perversely, they may get rewarded for their own shenanigans.
This week's Treasury announcement of private buyers isn't going to magically change the depressed prices of these toxic derivatives. The Treasury needs to fight fire with fire. If I were Mr. Geithner, I'd pull off a bull run -- i.e., pile into the CDS market and sell as many swaps as I could, the opposite of a bear raid. If the bears are buying, I'd be selling, using the same asymmetry against them. Sensing the deep pockets of Uncle Sam, the bears will back off. Worst case, the Fed is on the hook for defaults, which they are anyway!
With the pressure of default assumptions easing, prices of CDOs should rise, which not only gives breathing room to banks, but may actually get these derivatives to a price where banks would be willing to sell them, replacing toxic assets in their reserves with cash or short term Treasurys, which ought to stimulate lending.
So are hedge funds villains? Not especially. The bear raid probably saved us five to 10 years' of bank earning disappointments as they worked off these bad loans. Those that mismatched duration set themselves up to be clawed. Under cover of a Treasury bull run, banks should raise whatever capital they can and dump as many bad loans before the bear raiders come back. Let the bears find others to feast on, like autos, cellular, cable and California.
Mr. Kessler, a former hedge-fund manager, is the author of "How We Got Here" (Collins, 2005).

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