The Unsinkable brian cork™

Brian Patrick Cork is living the Authentic Life

bad (idea) bank

February4

Even the leftish-economist (and born-again attack dog for the Democratic Party) Paul Krugman is disappointed with the Obama Administation’s hints that it will continue the Bush team’s strategy of feeding (our) money to Wall Street until it is again fat and happy.

Mind you…  I might be all for this because I believe our economy can only work if Wall Street “works” (just not necessarily the way Sarbanse Oxley was designed). /1 

OK, I’ve been doing more homework on the “bad” or “aggregator” bank idea that seems to be gaining ground. And, here’s what I am thinking:

It’s mainly based on a false analogy.

What (other) people are thinking about (it’s pretty clear to me) is the Resolution Trust Corporation (RTC), which (they THINK) cleaned up the savings and loan mess.

That’s a good role model, as far as it goes.

However, the creation of the RTC did not rescue the Savings and Loans (S&Ls). The S&Ls were rescued by:

(1) having the Federal Savings and Loan Insurance Corporation (FSLIC) seize them, cleaning out the stockholders;

(2) having FSLIC pay down enough debt to make them viable; and,

(3) reselling them to new investors.

You see, the RTC’s takeover of the bad assets was just a way for taxpayers to reclaim some of the cost of recapitalizing the banks.

What’s being contemplated now, if Sheila Bair’s interview is any indication, is the creation of an RTC-like entity without the rest of the process. The “bad bank” will pay “fair value” (whatever that is) for the assets.

But, how does that help the situation?

It looks as if we’re back to the idea that toxic waste is really, truly worth much more than anyone is willing to pay for it – and, that if only we get the price “right”, the banks will turn out to be solvent after all.

In other words, we’re still in Super-SIV territory; the belief that fancy financial engineering can create value out of nothing.

Deep breath.

Color me skeptical… I hope the buzz is wrong, and that something more substantive is being planned. Otherwise, we’re looking at Hankie Pankie II: Paulson may be gone (Wall Street hack), but officials are still determined to believe in financial magic.

Peace be to my Brothers and Sisters.

Brian Patrick Cork

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1/ Are you familiar with the theory of “flawed design”?

News Flash

December2

So…

A headline from yesterday: “Dow plunges on news recession began in Dec. 2007”

…Fascinating.

Where was Bernarke a year ago?  What was Paulson thinking about? What happened to all of those financial pundits?

Oh… now I remember… They were touting stocks to include mortgage companies and banks (many of which no longer exist).

Meanwhile…  Lets stop and carefully consider the following tidbits of ironic information derived from related news articles…

“The National Bureau of Economic Research, a group of academic economists, concluded Monday that the country has been suffering through a recession since December 2007.”

But, this really got my attention:

“The bracing impact of the Fed’s aggressive rate reductions, however, has been somewhat stymied by the credit and financial crises, Bernanke said. Despite lower borrowing costs, skittish banks have been reluctant to lend money to people and businesses, a vicious cycle that has seriously hobbled the U.S. economy.”

Isn’t this why we lent billions to the banks – so they can make loans to stimulate the economy?

Instead, the banks are apparently hoarding cash and/ or using the money to (I can’t breathe) acquire the assets of other banks.

Was all of this a scam in order to facilitate the United States finally building a world bank candidate?

More later.

Peace be to my Brothers and Sisters.

Brian Patrick Cork

World War III – The War Against Financial Chaos

October11

“WASHINGTON (AP) – Financial officials from the world’s wealthiest industrial countries are pledging decisive action to deal with the biggest upheavals to hit the global financial system since the Great Depression.”     – Martin Crutsinger, an AP Economics Writer /1

In an effort to expand the firepower the United States is bringing to the problem, Treasury Secretary Henry Paulson announced Friday that it had decided to go forward with a plan to buy a part ownership in a broad array of American banks.  NOTE:  It would be the first time the U.S. government has employed such a program since the 1930s. /2

I am advised that President Bush invited Paulson and Federal Reserve Chairman Ben Bernanke and their counterparts from the other G-7 countries to come to the White House Saturday morning for a meeting that the administration hoped would demonstrate global resolve in attacking (action word) the current crisis.

The G-7 officials wrapped up three hours of closed-door talks Friday with one of the shortest joint communiques in the history of the group.  It was also the most direct in its promise to take “all necessary steps to unfreeze credit and money markets” to end a severe credit crisis that began in the U.S. a year ago but since has spread worldwide and has grown in furiosity.

Who would have dreamed that World War II would be a unified fight against global financial chaos?

A big question currently being bandied about on Capital Hill, Wall Street and of course posed by the bozos on MSNBC) is: 

Whether the standing one-page action plan will be enough to stop the bleeding as investors watch trillions of dollars of wealth melt away?

One simple answer is: 

Certainly not.

My question today is why didn’t the Fed suspend short-selling to protect American savings accounts (like they did with Fannie Mae six weeks ago)?

By the way… The DJIA finished at 8456 Friday. On Wednesday the 8th I predicted 8400.

Brian Cork Was Spot On

Brian Cork Was Spot On

This coming week will likely be better.

This is because its likely part of “the plan”.

On the other hand, most market insiders will tell you that support for the bottom of the market is actually at 7200. /3

Peace be to my Brothers and Sisters.

 

Brian Patrick Cork

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1/  Also known as a “Rag” writer and/ or rumor monger.

2/ So… A partial solution to shoring up a Democratic-inspired capitalistic marketplace is socialism?

3/ This is just an FYI.

Lending Banks Money

October2

The “Paulson Plan” essentially means we give the banks money to bail them out of their bad decision-making. 

However, many banks may not participate in the Troubled Asset Relief Program portion of the plan because they haven’t had to write down as much assets under accounting rules -meaning decisions to sell into the program would cause them to lose capital. /1

“Its benefits, in its current form, will be largely limited to investment banks and other banks that have aggressively written down the value of their holdings and have already recognized the attendant capital impairment,” /2

– Jeffrey Rosenberg, Bank of America’s head of Credit Strategy Research

Ironically, Investment Banks like Goldman Sachs Group Inc. and Morgan Stanley may be among the biggest beneficiaries of the $700 billion U.S. plan to buy assets from financial companies, while many banks see limited aid (according to Bank of America Corp.).

This feels like a ruse to indirectly rescue Wall Street (which remains our biggest problem).

In any event…

The Plan that failed Tuesday called for each tax payer will be saddled with approximately $2300 in debt after we cough-up $700 billion.  After interest it looks more like $6900.

I don’t run my personal or business finances this way, and I don’t like the notion of having this debt shoved down my throat.

I would prefer to lend the banks (okay… the investment banks) money, and have them pay me back with an interest that equates to the Dow Jones Industrial Average’s performance over the same period.  Or, give me DJI stock (better yet – options).  This means we directly share in the profits that the investment banks will certainly derive from this strategy. /3

Peace be to me Brothers and Sisters.

Brian Patrick Cork

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1/ Designed to remove “illiquid assets” clogging the financial system, reverse declining asset values and prevent the freezing of lending for U.S. financial firms, companies and consumers.

2/ I think Rosenberg assumes the government will use a reverse auction in which banks submit the lowest prices they are willing to sell certain types of assets for and then the government buys the cheapest ones, with the goal of “protecting the taxpayers”.

3/  There have not been this many market opportunities in almost seven (7) years

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