DISQUS

dfriedman · 8 months ago

This is an excellent post. (Minor quibble: you mean liquidate, not liquefy.) In any event, you hit upon perhaps the key issue here: accounting rules have become politicized. I will repeat here the point that I have made many times before: politicians follow the path that their incentives forge. In situations such as this, politicians are attuned to two salient facts: (1) most of their constituents haven't the first clue about mark-to-market accounting and the arguments for and against it; (2) in the face of constituent ignorance, these same politicians are free to court favor with lobbyists and so politicization of accounting rules occurs.

Few of their constituents will be any the wiser, and the result we have is the muddled mess you describe in your post.

dfriedman · 8 months ago

For what it's worth, here is a paper by the (liberal) Brookings Institution which examines many of the ineffective responses of the government to the economic crisis: http://www.brookings.edu/economics/bpea/~/media...

Anyone concerned about the government's ineffectiveness should be reading this paper.

Mike in the Midwest · 8 months ago

Roger, One of your best posts to date on the government's mismanagement of bailouts. I will certainly spread the word. Hope everyone else who reads your blog does the same.

One issue of particular concern for me is that if PPIP doesn't work at what point do Bernanke, Geithner and Obama lose credibility with Main St.? It seems like this was their "go-for-broke" strategy and if it doesn't work I fear that bailout fatigue will finally set in. In other words consumers and business will not have confidence that government will solve the crisis and spending will collapse. My 2 cents.

howard lindzon · 8 months ago

in the meantime, it feels like I may be too early shorting. amazing how short term the thinking has gotten and wild the steering is getting. scary.

Kenosha_Kid · 8 months ago

This is one of your best yet.

Two interesting points you bring up, which lead me to wonder... 1) that the exec comp issue is a PR smokescreen, and 2) that the recent market rally makes the administration look really good. If you combine these two thoughts, is it possible that the recent market rally is itself a PR smokescreen? I mean, there are a few TARP-supported institutions out there with capital and trading desks that could certainly move the needle, especially if encouraged to do so by the new primary stakeholder. I hate to get all conspiratorial, but is this far-fetched?

fredwilson · 8 months ago

this is excellent roger in every regard. i share your enthusiasm for the prescription you outline.

my favorite quote is the one about intention to hold to maturity is different than the ability to do so.

i reblogged that at fredwilson.vc

Zhi Liu · 8 months ago

clear, logical, concise work - excellent stuff

the most frustrating thing is that to work all this out requires only a rational mind and a basic level understanding of macroeconomics, something seemingly beyond the "cognitively captured" minds of Summers/Greitner/Obama

gregorylent · 8 months ago

too intelligent ... i think the main efforts of government are in the arena of managing public perception, and they know there really is no solution apart from changing the entire system ... which will be avoided at all costs

dfriedman · 8 months ago

Here is a (longish) response to this post and others of its ilk: http://www.opinionatedraconteur.com/government-...

MDR · 8 months ago

Interesting proposals. The biggest problem I see with them is that this proposal assumes that there is a plethora of talented management teams that can come in and clean under performing institutions up. If this crisis has taught us anything, it is that banks on wall st. are run by financiers, not managers. Most of the management teams come from within the client facing, revenue producing side of the business with little (or no) regard for controlling costs or mitigating risk. Only one management team has proven worthy thus far, so when the government seizes an ailing institution, who will come in and run it?

Rayster · 8 months ago

I only hope that in time, the truth will out and reason and ethic will prevail. may your work serve as a beacon of light in these dark times. excellent work.

PETER · 8 months ago

PROTEST 'TOO BIG TOO FAIL' http://www.anewwayforward.org See the 50 cities where demonstrations are planned and help spread the word

David_Merkel · 8 months ago

Well done again.

Ingolf · 8 months ago

Excellent post. Thanks.

One question. dfriedman linked to a paper by Phillip Swagel which stated categorically that "there is no mechanism to make [debt-for-equity] swaps happen." This was certainly a surprise to me since I'd understood all that was lacking was the political will.

Can you (or anyone else here) shed light on this issue?

Ingolf · 8 months ago

Excellent post. Thanks.

One question. dfriedman links to a paper by Phillip Swagel in which he states "there is no legal mechanism to make [debt-for-equity swaps] happen." My understanding has been that only the political will is missing.

Can you (or anyone here) clear up this issue?

hmf284 · 8 months ago

This is so well written & thought out. Thank you, as always, for taking time to share your analysis. Needless to say, I wish you were part of the Obama economic team.

ooni · 8 months ago

Given the benefits of customization of OTC derivatives to clients, do you really think that the bulk of this volume will move on to an exchange? Or will exchanges simply provide a hedging venue for risks primarily taken on OTC? Not necessarily a bad thing.

Assuming that substantial volume remains off exchanges what other opportunities do you see to create transparent and consistent marks and processes around inherently non- standard products?

I am afraid of the law of unintended consequences where OTC products on exchanges are viewed as the solution but instead become a false altimeter.

Pat · 7 months ago

The Obama administration should be rewarding companies not registered in DE, not those that are.

The DE-business code has always been unfriendly to America, but never hostile and tyrannical as it is today.

Ending that tyranny may call for a boycott of DE-registered companies or politely asking DE to secede from the Union of American States that identify with the American ideals.

Boycotting DE-registered companies might provide some measure of recognition that Americans do not want to be undone by government, or by deceitful intergovernmental corporate governance systems that work against their interests like those of DE who promise and promote asset protection without liability, and privacy so that foreigners can relieve Americans of 400 years of consumer protection laws that become defunct under the Delaware State Corporate laws.

Undue influence by DE-registered companies is all it takes to undo America, driven by predatory corporations rather than its own American Constitution and Bill of Rights. That DE has chosen its own Corporate Bill of Rights as sovereign to the American Bill of Rights is sufficient to question both its loyalty and its fairness in American business.