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Archive for September, 2008

Out of Their Elements

Andy Spero | September 30, 2008 | 0 Comment(s) |

Has President Bush, Secretary Paulson, Chairman Bernanke, or Speaker Pelosi taken a single action or spoken a single phrase during the past month to inspire confidence in their ability–not to solve the problem–but to simply comprehend it and characterize it?

By “it,” of course, we mean the current liquidity crisis facing certain institutions that seem to have lax boards and managements that encouraged excessive risking-taking behavior that led to over-concentrations of holdings in certain (nearly worthless) asset classes.

Perhaps, that question is too harsh; so, we shall ask a different… Read the rest

Bigger Is Not Necessarily Better.

Andy Spero | September 30, 2008 | 0 Comment(s) |

Today’s (September 30) Wall Street Journal contains a front-page article, Industry Is Remade in a Wave of Mergers, which reports that the three largest banks now control over 30% of the nation’s deposits.

We’re writing because we take issue with the paper edition’s blurb: “For the economy and government officials, the very size of these banks means they should be better insulated from big shocks…”  In our mind, there seems to be an implicit, but unjustified, diversification-benefit argument behind such statements.

We see no evidence that massive… Read the rest

Beyond the Financial Crisis: a Theological Question

Andy Spero | September 30, 2008 | 0 Comment(s) |

On Monday in a post, A Better Solution (than a government takeover), we proposed a serious, alternative solution to the financial liquidity crisis that is decentralized and free-market oriented.  In addition, it could quickly be implemented with a few changes to the tax code.  The main idea: permit private buyers of distressed securities to immediately expense the purchase price and pay low tax rates of subsequent sales or recoveries.

At the end of that post, we mentioned that we had a… Read the rest

A Better Solution (than a government takeover)

Andy Spero | September 29, 2008 | 0 Comment(s) |

Update: the House failed to pass the first bailout bill.  Here is a serious and efficient alternative that could be implemented very quickly…

But first a bit of our usual criticism: while dismayed, we were not surprised by the political response to the financial crisis surrounding the issuance and holding of suspect mortgages and mortgage-related securities.

We’re peeved at Republicans because many of them claim to be conservatives, yet propose no serious free market solutions.  Their insurance plan seemed lame and little… Read the rest

The Financial Bailout, Reverse Auctions and Marking to "Market"

Andy Spero | September 29, 2008 | 0 Comment(s) |

During the past week, we have criticized the President’s and Congress’s proposed financial bailout on principle and for what we will call strategic and tactical reasons.  The title of this post pertains to some of the tactics, which we’ll mention later in the post.  However, we’ll take a moment to reiterate our primary opposition.

First, we disagree in principle with the proposed bailout/subsidization of financial firms that either (1) recklessly lent money for mortgages to unqualified borrows or (2) recklessly purchased mortgages, mortgage-backed securities, or CDOs without sufficient analysis.  By “recklessly” we mean that lax… Read the rest

Best Line That We've Read in a While

Andy Spero | September 28, 2008 | 0 Comment(s) |

Is from an article, Bailout Plan Gains Key Support, at The Wall Street Journal‘s web site today, Sunday, September 28.  U.S. Representative Mark Udall speaking about his constituents’ phone calls regarding the proposed financial bailout: “My calls are mixed between people who say no and people who say hell, no.”

We’re not a constituent of the rep from Colorado, but we think that we fall into both groups.

What Will Wachovia's Presumed Demise Mean for B of A?

Andy Spero | September 28, 2008 | 0 Comment(s) |

We’d bet that Bank of America is too busy swallowing Merrill Lynch and attempting to identify its own problem assets to ask (and answer) our question, but we really hope that is not the case.

It would be a shame because B of A should have asked it before the Merrill Lynch acquisition rather than now when, now, when its capital is scarcer.  We know that the purchase price of Merrill was relatively small compared to B of A’s massive asset size, but that’s not our point today as we’ll explain below.

Of course, we… Read the rest

A Sign of the Economy's Strength

Andy Spero | September 26, 2008 | 0 Comment(s) |

We view the huge sums spent on advertising various causes and issues to be a sign of the economy’s general health–or at least a sign that some folks have more money than they need. 

We’re not talking about the politicians.  We’re talking about AARP and One and the rest of the groups and alliances that have supplanted failed banks and failing auto manufacturers as major advertisers this fall.

The one we like best: the call, nay the demand, for the equivalent of a perpetual motion machine within ten years.  Hey, no one… Read the rest

The First Presidential Debate

Andy Spero | September 26, 2008 | 0 Comment(s) |

As a test of our will and discipline, we attempted to watch tonight’s debate.  We are weak, and we failed the test, or perhaps we weren’t sufficiently self-loathing to fully appreciate the event.  On the other hand, perhaps we place a unreasonably high value on wit, and therefore the disappointment was ours and ours alone.

Regardless, we found all parties lacking, particularly the execrable Mr. Jim Lehrer.  Did we hear him say something about the next President being the ruler of the country?  Yes, unfortunately, we did.

May we suggest a civics class before his… Read the rest

Moral Hazard and Another Problem with Illiquid Assets

Andy Spero | September 26, 2008 | 0 Comment(s) |

in a Mark-to-Market Accounting Regime.

Here’s a couple of related issues that we can discuss in the context of today’s The Wall Street Journal article, Bailout Proposal Gets Hung Up Over Central Issue: Will It Work?

We’re deeply concerned about the moral hazard implications of any government bailout, and we doubt that we are the only observer to harbor such dark thoughts.  However, we also think that those implications could be realized immediately rather than, say, during the “next” downturn in some far distant time.  Thus… Read the rest

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