Bailout Bonanza

[Dinner]

That would be George.

[Impaler[WrG]]

I'm telling Obama and my Congressman to support the new DeFazio, Edwards proposal. What do the rest of the Poly-prognosticators think of it? Here is the Draft summary thats been released. I think this bill can be passed by the coalition that defeated the Paulson plant (an alliance of the extreme left and extreme right) and hopefully go on to pass the Senate if one or more presidential candidates endorse it and the Paulson plan is re-rejected by the house. The word is that the senate is tacking the Paulson bill onto an unrelated piece of legislation as an end run around the constitutions provision that spending bills originate in the house, they will probably pass it and send it back to the house which should strip it out again.

No BAILOUTS Act

Bringing Accounting, Increased Liquidity, Oversight and Upholding Taxpayer Security

1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions.

This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions.

2. Require the Securities and Exchange Commission to restricting naked short sells permanently

This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects.

3. Require the Securities and Exchange Commission to restore the up-tick rule permanently.

This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior.

4. "Net Worth Certificate Program"

This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary.

Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program.

In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program.

5. Increase the FDIC Insurance limit from $100,000 to $250,000.

The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

[Dinner]

I started a thread about naked short selling about a week ago and it is hard to imagine the SEC turns a blind eye to such a flagrantly illegal practice which is frightening common. Also the up tick rule was an excellent rule designed to prevent the serial shorting of a company like what happened to Lehman Brothers.

I like what that bill says and it does fix some things which needed to be fixed but let's not kid ourselves. That bill will not solve the current credit crunch which is getting so bad regular businesses are being effected.

[Unimatrix11]

My newspaper today titled ´capitalism on the edge´ - how long have i been waiting for this, hahaha... Now let´s push hard everyone !

It´s like we jumped off a high building, and were amazed, that things got ever faster and what a fun ride it was - now that the first limbs hit the ground, some of us start to wonder what´s happening...

[Colonâ„¢]

Originally posted by Impaler[WrG]
5. Increase the FDIC Insurance limit from $100,000 to $250,000.

The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry.

NO BAILOUTS, except for deposits-holders.

[Colonâ„¢]

Originally posted by Oerdin
I started a thread about naked short selling about a week ago and it is hard to imagine the SEC turns a blind eye to such a flagrantly illegal practice which is frightening common. Also the up tick rule was an excellent rule designed to prevent the serial shorting of a company like what happened to Lehman Brothers.

There actually is very little evidence banning short-selling does anything to support share prices, as was evident last monday...

Originally posted by DanS
Sovereign down 53%. National City down 47%. First Horizon down 36%. Fifth-Third down 36%.

[Aeson]

If the short selling loophole Oerdin was talking about does exist, it should be closed. It seems an artifact of days gone by... these days there should be virtually instantaneous exchange of stock and funds, and if one or the other is lacking, the transaction should just not go through.

Uptick rule is stupid. If people want to sell they can sell. If people want to buy they can buy. That's the ****ing free market... yes it's "irrational" sometimes, yes it can be gamed sometimes... but it works both ways. If they were proposing the uptick rule along with a downtick rule (for margin buying) then I'd at least respect the opinion.

I don't think raising the FDIC insurance limit achieves anything positive, and probably ends up a negative as far as depositor confidence. Raising the limit actually raises the risk to almost everyone that they'll lose their savings, since it raises the overall liability the FDIC potentially faces, and so raises the chance it can't cover those liabilities. Besides, qnyone with more than $100k in an account at a single bank is an idiot and/or has way more money than they need.

I tend to be on the other side of the mark-to-market debate. I think the problems stem from institutions leveraging up on hard to move assets, not that those assets are marked to market. It's a fundamental principal of our economy that something is worth what someone is willing to pay for it. And mark to market can avoid a whole host of problems with balance sheet transparency (for investors to feel confident) and unnecessary complexity of financial instruments (again, so investors can feel confident in assessing the value of a company). But I can see the other side of the argument, and would prefer an accounting change either way. So this bill at least has a +1 (even if it's not my preferred) to the "fix" column. Up from the 0 of Paulson's highway robbery bill.

#4 sounds like a much better plan than either insurance or buying securities. Though a lot will depend on what exactly is meant by, "Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program."

[Kidlicious]

The thing about marking securities to market is that financial institutions have cash requirements that they have to meet. If they are just able to say their securities are worth what they are on the books(historical cost) and not what they could sell them for this will affect their cash holdings negatively and that might make things worse down teh road for the whole system.

[Dinner]

Originally posted by Colonâ„¢


There actually is very little evidence banning short-selling does anything to support share prices, as was evident last monday...

The problem isn't short selling per say but naked short selling. Where an actual stock doesn't change hands just an IOU issued by the broker and creating all those IOUs which act as stock really artificially increase the supply of stock thus lowering prices.

The IOUs are only supposed to last a couple of days at most but sometimes they last for years without getting resolved and sometimes the number of IOUs gets up to 10%-33% of the total outstanding stock on some companies. Are you honestly telling me that isn't going to effect prices by artificially creating 1/3 more stock?

[Kidlicious]

Purposefully overstating the value of assets is a violation of the prudent principle in accounting.

Prudent principle: when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked.

[Dinner]

About naked short selling.

http://www.businessjive.com/

[Colonâ„¢]

Originally posted by Oerdin


The problem isn't short selling per say but naked short selling.

Banned by the SEC since the 17th of September...

And please refer to academic studies rather than some equivalent of 911truth.org.

[Impaler[WrG]]

Raising the limit actually raises the risk to almost everyone that they'll lose their savings, since it raises the overall liability the FDIC potentially faces, and so raises the chance it can't cover those liabilities

My understanding is that the FDIC guarantee is "to the hilt" as you might say, the FDIC has an unlimited line of credit, aka the US government will literally print the money to pay cover the costs it comes to that, of course theirs a fund that exists now that is of some fixed size and which collects money from banks but its not like their is any real chance of FDIC insured accounts not being covered, that would require the US to default which has never *crosses fingers* happened.

The increased insurance limit is entirely a confidence builder for the general public and will reduce the desire for people to withdraw any money over the current limit. Keep in mind that limit has been raised many times before to keep pace with inflation.

With respect to Short selling my understanding is Naked short selling has "always" been illegal but poorly enforced. Good kosher short selling is normally allowed when ever stocks rise in value but not when they fall, that was the rule since the Depression but all shorting was allowed in 2007, then as of last week all shorting was banned so this provision is basically "Return to the system that worked for two generations", looks reasonable to me.

[Aeson]

Originally posted by Colonâ„¢
Banned by the SEC since the 17th of September...

That's temporary isn't it, they said for about a month IIRC?

[Aeson]

Originally posted by Impaler[WrG]
My understanding is that the FDIC guarantee is "to the hilt" as you might say, the FDIC has an unlimited line of credit, aka the US government will literally print the money to pay cover the costs it comes to that, of course theirs a fund that exists now that is of some fixed size and which collects money from banks but its not like their is any real chance of FDIC insured accounts not being covered, that would require the US to default which has never *crosses fingers* happened.

Yah, but it does increase the risk.

Probably if there was a failure bad enough that $250k crashed the system, $100k would too. But that's for right now when most people (who have that much) are careful not to exceed the insured limit (at least per name per bank). If a good share of those accounts that could be were at $250k (and they would tend towards it if passed), a smaller failure could crash the system.

In any case, it's not like the US Gov needs more liabilities. $100k is fine.