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Wednesday, October 01, 2008


David - Maybe what is needed is some disintermediation. For example, I might be willing to lend some $ to a fuel oil distributor if I could review the books, talk to references, etc, and get a decent interest rate. It strikes me that it is much easier for an investor to assess the risks of a tangible business like an oil distributor than to assess the risks of a bank.

Yes, but traditionally the banks have been those who do this. Person to person loans are a nice idea, but it is hard to match up and hard to collect if things go bad. Investor to small business direct loans present an order of magnitude more difficulty. How is the distributor going to find the investor? It's easy for a large concern to find private money, but nearly impossible for the smaller and small businesses to find it. Normally, this would be a banking function.

Anon#971 - Can I ask you what you do for a career? I have been wondering for about half a year now.

An interesting article for you and your readers. fed balance sheet
Oh, agony! Banks and banking for new and smaller banks.

Thanks for the link. I thought it was very interesting. In particular, this captures the quandary:
Right now, the US is relying a bit too heavily on the Fed to keep this crisis from spiraling truly out of control. That avoids hard political choices –notably hard choices about how best to recapitalize the financial system — but it also creates some long-term risks for the Fed.

I fully recognize the risk that the US government eventually could flood the market with unwanted Treasuries, driving interest rates up — and thus there are limits on how much support the US government can supply the financial system. But as of now, there isn’t much evidence that there is a shortage of demand for Treasuries — indeed, recent market moves suggests a shortage of Treasury bills in the market rather than a surplus. And that certainly is not because the US government has been scaling back its bill issuance.
Right now there is a scramble for dollars. In and of itself, that is a symptom of imbalance, but it does mean that we don't have a cash-flow problem. However it would be foolish to assume that this will last forever, and that is why I think that taking assets and equity might be better than just throwing money at the problem. The issue of an exit strategy for the Fed ought to be preoccupying a lot of minds.

David Pearson -
Its not really clear how the TARP will bail out the money markets. The mechanism which you have cited -- buying and restructuring whole mortgage pools -- would take too much time. Also, the $700b has to be arrayed against mortgages, CDO's, CDS, Credit Card ABS, Heloc's, etc. Is it enough? I doubt it.
No, it's not enough. It's just a means to diminish uncertainty. Right now some financial institutions are cash-flowing, but they are draining big chunks of current revenue into their reserves. This is effectively withdrawing a lot of money from circulation. I suspect that Wachovia was put to sleep for that precise reason, the theory being that sure it could stagger along for a while, but all the while it would be an economic drain. After all, a public charter is a public charter.

If the Fed buys the loans, the Fed has the time to handle the unwind. As a wild guess, I think some of that task will
end up at FDIC.

It seems that the TARP is a way to accomplish a stealth recap of the banking industry. If so, the amount of overpayment for assets would have to be on the order of $500b -- difficult to achieve and politically explosive.

I have not seen a good case made for why the TARP will accomplish its task. Bernanke seems to think that making "irrational" (fire-sale) pricing rational (HTM) is all you need. This is a typically academic point of view.
The agency paper does probably have a holding value worth more than its current market value. Other stuff probably not. There is a bunch of Alt-A non-agency investment-graded stuff that's going to end up as toxic waste.

A plan that works by overpaying for assets, and by giving one man decision-making power for that overpayment, should be a political non-starter. (Hah, I agree, but who else is there? Chuck Schumer? Only the FDIC.)

BTW, I agree that in a sense the job will end up being the Fed's, and that it will be accomplished by paying interest on reserves. Fine. Now someone please explain how the Fed will disintermediate itself from the banking system, someday, without crashing it.
I don't have a full answer for how the Fed can untangle itself, but my guess is that the Fed has to take assets and equity in order to have a way to unwind itself later. Otherwise, won't the taxpayers have to cover it all? I am comforted that you are taking the long view and worrying about this.

The bottom line is that Bernanke is trying to stop the backlash of this blizzard of stupid lending from contracting the real economy purely as a function of diminished money circulating. Since the money circulates through banks, banks can and will drain it into their reserves. If enough of them do, it will prove fatal for the economy; we won't have a recession, we will have a depression.

We need the recession. We can't afford the depression. I'm pretty certain that the plan is to kill the weaker banks quickly, force contraction and consolidation of the financial industry and ensure that the viable banks are able to keep lending by clearing dicey assets
. The mistake Japan made is that it allowed the dicey assets to be carried while the banks rebuilt their reserves, which drained money from the domestic economy.

Bond Girl - the blog is not about politics and not about economics. It's about what interests me. I realize that it is not everyone's cup of tea. Since someone bitched at me on Calculated Risk for the content of this blog, I stopped commenting on Calculated Risk because I like that blog as it is and I didn't want the comments to degenerate further.

There is something wrong IMO with people who walk into other people's houses and feel the need to rearrange them. You don't live here, I do. If I feel like having magenta walls and and a tank of piranhas by the bathtub, your distaste is understandable, but expecting me to change my decor is not. I'm puzzled and a bit amused by your comment.

The reason why I read WorldNetDaily is because it is written from very different points of view than one usually finds in the US press.I don't get to read it all the time, but I do try to stop in there at least once a week. I read several Lebanese newspapers for the same reason. I read Jerusalem Post. I read Arab News. I read Turkish Press EVERY day. I at least skim three foreign language newspapers EVERY DAY, although not the same ones. I read a lot. I seek out different viewpoints. I also rotate through a bunch of trade journals just to make sure I have not developed tunnel vision on some important topic. Maybe, just maybe, my odd and eclectic reading patterns might have some relationship to the relative accuracy of most of my observations and predictions compared to those of some people who don't keep the information bandwidth as broad as I try to do. It's worth a thought!

YT - Any way you can post IPs of spammers?

I won't do that. I don't want to possibly expose someone in some way to unpleasantness - there are literal nuts out there. I can block the ISPs, and I might after I figure out what's really going on here. But I do find the pattern interesting. When I get more time I'll actually go back and read the comments. Right now I can read the real comments on email very quickly. I am a very curious person, and when I encounter something like this I find it interesting.

Charles - you don't have to answer, but I have never understood the mindset of people who vote straight one ticket for a number of years. Why DID YOU VOTE REPUBLICAN FOR 36 YEARS? Didn't you ever feel that swapping things around might help a bit?

"I read several Lebanese newspapers for the same reason. I read Jerusalem Post. I read Arab News. I read Turkish Press EVERY day. I at least skim three foreign language newspapers EVERY DAY, although not the same ones. I read a lot. I seek out different viewpoints."


And yet you haven't had time to view the Couric interviews of Palin.


You don't lie well.

"There is something wrong IMO with people who walk into other people's houses and feel the need to rearrange them. You don't live here, I do."

A house has doors and walls. A house connotes privacy, barriers.

In what sense is a public blog that allows anonymous comments like a house?

If you can't stand the heat, get out of the blog business.

Thanks for the thoughtful responses. In general I'm not against a "rescue" -- not a liquidationist, if you will. Its just that the various bailouts are being passed off as no-cost solutions. Bernanke, who should know better, never talks about the downside of his actions, doesn't treat the American people like adults, and is himself unaccountable to them. There needs to be more honesty, more accountability, and less coddling of Wall Street. The reason they get away with it is because they are holding us hostage -- do as they say or we have a Depression. In the long term, being held hostage, as a people, is probably worse than taking the pain.
1) This is a good idea, taking some of the more intelligent bits of reader response and commenting on them. Some of your comments to comment served to clarify your original posting...very nice.
2) The reason I comment as anonymous but use my blog name is that I just cannot get Blogger to work for me. In itself, this may be a comment on my intelligence.
3) As a house owner, I suggest that you slam the door in the face of some commentators. Example: the author of the insulting first piece in this series. He or she is just a boor that happens to be a sophomoric political junkie. Caliente6whatever and lower case teri are other prime examples.
4) As for this blog, it is an intellectual treat for me, giving me some insight about things that, alas, will affect my life. Keep it comin', gal.
5) For the curious, my real life name is Charles Goebel, aging boy scientist. However I sign myself
Good Ole Charlie
A century and a half ago, the fields of politics, economics, sociology, and (to a certain extent) group psychology were still one field -- called political economy. At the national scale, the division of those fields from each other has led to some wrongheaded notions of likely outcomes on the part of those more narrowly focused than you. You also bring up underlying data that otherwise doesn't get prominent mention in terms of prognostications about the economy. I keep coming back because I like those two things.

Trolls, I don't like so much; but signal processing is just a fact of life on the Internet. There's always a certain amount of useless noise.
MoM, I feel that your responses are always with such dignity and class.

I agree with John, there will always be some useless noise.

Thanks for your hard work!
"As for this blog, it is an intellectual treat"

Intellectual treat? OK.

So, you intellectuals won't mind it if the prevailing opinions on this blog are challenged? Right?


Game on.

Let's have some intellectual discussion!

You first, Charles. Then you, Who Struck John.

Let's get this salon going!

You'll do what you will do but, in my view, CR loses some of its flavor and value when you're not contributing. I think you're pure signal and zero noise.

But I can come here. And do.
1)MOM, maybe you've posted on this before and I missed it, but what do you think about the mark-to-market debate?

2)What should the bank of the future look like? (Other than being solvent, which would be nice.) Is the current model, which involves spending kazillions on branches on every corner--but delegating very little decision-making to these branches--really sustainable?
I notice that a lot of the trolls who make personal attacks refuse to debate on any real level.

Those trolls, who seem to be from the left, are not doing their cause any help by such actions.

Maxed-out-Mama, you come across as a class act. Those who attack you, seem for the most part to be mentally unbalanced
It is clear by your content that you are well-versed with foreign issues/perspectives/economics. It is something I appreciate.
Hey MOM,

I don't share your views of politics, but appreciate you taking the time to explain them nonetheless. Hey, it's your blog and I don't have to read every post you put up.

I truly appreciate your perspective and deep financial knowledge. I maintain a couple of blogs myself and know how much effort it is to do so; I want to make sure you know how much I appreciate the time you take.

Your response makes me a sad panda :(

I'll keep reading your blog though!

And yet you haven't had time to view the Couric interviews of Palin.


You don't lie well.

doubleplusgoodthink, comrade anonymous!
doubleplusgood doubleplusduckspeak!
doubleplusgood doubleplusbellyfeel OBAMASOC!

You know what the problem is with Palin? According to our usually-nasty morning drive-time radio talk-show host, it's not because she's incompetent; she's been over-coached. Her handlers have hammered her on talking points and ONLY specific talking points to the point she's as hemmed in with dos and don'ts as Robocop in Robocop II. If they'd just let her be herself, she'd probably make a much better presentation.

Palin is more charismatic than McCain but less so than Obama; if she let her charisma get past her over-coaching, she'd probably look a lot better. After all, this is the woman who cleaned up what had been a very dirty state government in Alaska.

Whereas Obama just has to raise His hands in Blessing and the whole crowd falls to their knees in fanboy orgasm, the men shouting "THE VOICE OF A GOD, NOT OF A MAN!" and the women shrieking "I WANT TO HAVE YOUR CHILD!" (I can't help but think this is going to come back to bite Obama in the future; somebody who's gotten this far on raw charisma and adoration of the masses usually doesn't have much else in their personality. Like a girl in a woman's body who's been able to charm her way into anything she wants, what happens at the first MAJOR reality check? Scream, pout, and fall to pieces?)
Wow. Called out on the front page. I'm flattered.

I'll make this quick, and I'll make this my last post on the blog.

"There is something wrong IMO with people who walk into other people's houses and feel the need to rearrange them. You don't live here, I do."

Point #1: Then why do you allow comments? Run a blog, grow a thick skin. (Or whine.)

Point #2: You write things like:

- "But last night Obama looked like such a fool . . . "

- "Maybe he's not very bright."

- "Anyone who watched last night's debate and can still consider voting for Obama loses my respect. There's a limit to how far one can defy reality and live. That man is currently outside the parameters of the land of the living."

And then people like Clemente come out of the woodwork, and your fans attack back.

It's so predictable and pathetic and tiresome.

But you started the ball rolling. You were disrespectful. You threw out ad hominem after ad hominem, and then you and your fans are shocked, yes shocked, that people hammer right back.

Grow up.

Point #3: "The reason why I read WorldNetDaily is because it is written from very different points of view than one usually finds in the US press."

I'm looking at WND right now. The first 16 news items are anti-Obama screeds. Seriously. Sixteen. Right in a row. (Gwen Ifill - evil incarnate. Weathermen terrorists! Did you hear me?! Terrorists!!!)

The usual mix I see on WND is:

- Obama bad or evil?
- Israel great but threatened by evil
- Bible gear for sale

Different point of view? Yeah, that's one way to describe it.

I guess my basic problem with WND is similar to my problem with Rush, Pravda under the Soviets and Michael Moore: they don't give a damn about the truth of the matter, they just want to push -- no hammer -- their point of view.

I guess my basic problem with WND is I believe that the pursuit of truth is a noble goal, and I find dogma, of any political persuasion, revolting.

But hey, if you dig it, it's your blog, er, I mean house.
Re: Blog = House analogy

It doesn't work.

The equivalent of a private residence on the web would be a private site that requires an invitation (and a password to enter -- i.e., the host(ess) grants access).

A blog is more like a publicly available store. Anybody can find it, anybody can walk inside and look around.

So what MoM is doing at her store, which is open to the public, is running messages on the big billboard on top of the store. People can see it from the street.

And on that billboard, she sometimes writes, "Fortis Bailout in Progress." And sometimes she writes, "Obama sucks."

And when she writes "Obama sucks", some people take offense and walk right into the store and say "screw you."

It's not very complicated.

Now, bond girl's suggestion seemed to be, "hey, you might want to stick with the "Fortis" suff and stay away from the "sucks" stuff.

But MoM says, hey, this is my store. Who are you to tell me what to do?

Perfectly reasonable.

But if you write "Obama sucks", then be prepared for things to get ugly. You've only got yourself to blame.


Or here's another analogy.

MoM invites guests to her house. Bill and Marge arrive in their new Lexus. MoM say, "I hate Japanese cars. People who buy foreign cars are traitors."

Marge says, "Really, MoM? Thank you for your kind Christian advice. Let me return the favor. I saw your husband down on Jackson Street last weekend with a beautiful young blond. I didn't know you had a daughter."
I thought bond girl was exaggerating the 16 anti-obama articles on World Net Daily.

Nope. Sixteen. right there.

(To be fair, there is one non-Obama article at #2, but I don't know if it was there two hours ago.)

Words pass through your mind: wacko, scary, bizarre, silly.

But I think the one that sticks with me is pathetic.
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