I attended a class taught by a Ph.D. in Credit Management from I think, a college in Chicago.

The point is that you can do anything with data. And you can append any number of fields that are required, via data entry, or program. Anyone ever merge systems?

Probably it’s not that these investments can’t be valued, it’s that someone might lose their job, or the institution might have to mark what’s in the portfolio to market.

Gauging the value of the loans would be relatively easy as the segregated (by geographical region), measurement of the local market declines, are fairly accurate. I.e., zip codes in California & Florida would be marked down more than Kansas, etc.

This, of course, doesn't measure the credit worthiness of the borrower, rather the value of the debt instrument (house).

Presumably, the type of loan made by the lender, or their payment history, could be used to stratify anticipated mortgage payment returns.

I just can't believe that defaults, credit ratings, etc. can't be quantified.

‘‘SEC. 5143. REDUCTION OF CAPITAL.
‘‘(a) IN GENERAL.—Subject to the approval of the Comptroller
of the Currency, a national banking association may, by a vote
of shareholders owning, in the aggregate, two-thirds of its capital stock, REDUCE IT’S CAPITAL.

Obviously the credit worthiness of the borrower is more important.

After Roosevelt became President, the RFC was permitted to invest its funds directly in commercial banks.

Between 1933 and 1935, the RFC purchased more than $1.7 billion in preferred stock in individual banks.

To gauge the significant size of this agency’s activity, in 1935 the total book value of equity capital (including the RFC investment) for all commercial banks was $3.6 billion.

New RFC bank investment effectively ended by late 1935, and banks gradually repurchased the government’s stock out of their earnings when the banks subsequently returned to profitability.”

Of course, in 1932-1933, the entire economy had been shuttered, from business to agriculture, to real estate and banks. That is not so today. Congress in 2008 have at least begun to respond at a time prior to the collapse of the rest of the economy.

The most striking parallel between the two crises however, is the delayed response by the government to get involved when they are the only one left to do any spending after the consumer and business investment are no longer able to do the heavy lifting.

In this 2008 instance, it should be noted that the bulk of this crisis climaxed in September after Lehman was allowed to fail. The market response to that failure and its contagious effects was swift, decisive and devastating.

Flipping back to the creation of the RFC, Jesse Jones noted in his memoirs that President Hoover’s response was a year too late. The RFC, which eventually whipped the devastating forces of the Great Depression “that wrenched the well-being of almost every inhabitant of the earth,…was a year too late.”

Had a few billion dollars been “boldly but judiciously lent” by an agency such as the RFC in 1931-1932, Jones believed the entire breakdown of business, agriculture and industry could have been avoided and “saved the fortunes [and] morale and self respect of thousands of Americans who had never before bowed their heads in adversity.”

In the struggle against the depression, the Corporation used $10.5 billion dollars, but eventually without a loss to the taxpayers said Mr. Jones. To the contrary, that money was all returned to the Treasury with approximately $500 million [in net profits after operating expenses]… Looking back, I don’t see how we accomplished all the myriad things we did,” said Jones.

Unfortunately, agencies like the RFC tend to never get created in the first place unless precipitated by a crisis spiraling out of control. Never-before-thought-of homeland security measures were implemented only after 9/11. When Hurricane Katrina hit four years later our government response proved wholly inadequate. Plans and provisions to evacuate residents of the city of New Orleans were be both delayed and insufficient. As a result, many residents suffered a fate much worse than was necessary as a result.

And why? The simple answer is that governments can not pre-plan for every unforeseen disaster or for the magnitude of their potential devastation. Time and again, by the time our government safety nets are eventually cast and drawn around a disaster, the collateral damage has already proven to be quite extensive.

That is an interesting excerpt. It describes a solvency/liquidity confusion and some duff policy that didn’t fix the problem. Sounds familiar.

I wonder if Jesse Jones’s account of the crisis is anything like Bernanke’s. That would be sad. Bernanke’s historical perspective was supposed to help avoid the policy mistakes of the 30s. That excerpt makes the last year look more like a rerun.

"Each day," relates Jesse H. Jones chairman of the RFC,"it had become increasingly clear that the banks needed investment capital [and not loans] which we had no authority to provide. Despite the restraint enforced by law, during the first seven months, [they] pumped loans into almost one out of every four banks in the country…Despite all these efforts, as fast as one situation was improved, several others got worse. Loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure.

Obviously a distressed country could not support an unsound banking system, but a sound banking system could support a distressed country. It was not however until the nation-wide collapse of 1933 that Congress became convinced that a new sound foundation should be put under America's credit structure. Five days after Roosevelt's inauguration, [and 4 days into the banking moratorium] a bill authorizing the RFC to invest into the preferred stock of commercial banks was rushed through the special session of Congress which had assembled only that morning.

The Act was promptly signed by [FDR]. He then told the people in a memorable broadcast that only sound banks would be permitted to reopen. In one stroke Congress had turned the tide toward recovery.

What constituted sufficient soundness to permit a bank to open was not left to the determination of the men who managed it. The decisions were made by the Comptrollers office, the Treasury, and the RFC. Our work week became one of seven days and seven nights. In literally thousands of cases, in those feverish days and nights, it was difficult to decide whether a band was truly sound. The plunge in market values made one man's guess as good or bad as another's in assessing the probably worth of many a bank's portfolio. Mistakes were inevitably [and] a great many banks were allowed to resume business. [Many firms were only allowed to] resume operations on a limited basis. It was up to the RFC to make them sound with additional capital.

Hundreds of banks wee placed in the hands of conservators.

To take care of bank closings which were beginning to occur in woeful wholesale lots, I realized as did various others that some drastic new legislation would be necessary.

[Walter Wyatt, from the Federal Reserve and his staff began working on the Bank Conservation Act and the preferred stock amendment. Both the Bank conservation Act and the preferred stock amendment went before Congress for a vote at 11.15 pm on March 8 1933. The bull passed ]"unanimously after 35 minutes discussion. With cries of 'Vote, vote' the chamber howled down the efforts of sevearl speakers to be heard, and the measure was approved by acclamation. It was an unprecedented expression of confidence in the new admin to go forward with the program of revival.

During th arduous days and nights of the bank holiday, all national banks were classified into three categories A B and C. A banks were those whose capital was sound. B banks were those whose capital had largely disappeared, but which had assets considered sufficient to pay the depositors in full. C banks were those in which the capital was completely gone and there was an indication of loss to depositors.

A banks reopened immediately. B banks were opened as quickly as they could be got into shape. C banks were placed in the hands of conservators for reorganization and ultimate liquidation."

Yves, what a wonderful forum you have here at NC.

This morsel was excerpted from Jesse H Jones 1951 book entitled "Fifty Billion Dollars" in his own words speaking to us about how the banking crisis of 1933 was finally resolved.

I think it especially noteworthy that it was not until the nationwide collapse that Congress legislated drastic measures to restore soundness and safety to our banking system in 1933. In this regard, things are entirely the same today as only after the chain reaction or domino effect that shuttered our entire credit system did our legislators and regulators take drastic and unpleasant measures proposed by P&B to shore up the financial system.

Without the entire freezing of our banking system, legislation of this nature would never have been politically feasible in the first place.
congressinal action No, the RFC did not nationalize the banks as Sweden did.

The current growing uncertainties as to what value is, and how to measure it and balance it, will be a great challenge to capitlaism. IMHO, the solution is to not re-engineer a new subprime loan crisis — or to fuel a new Dotcom Bubble or reinvent The South Sea Bubble with a new patchwork quilt package of synthetic capital injections for the casinos that ran outta dough.

This is now a time to preach the gospel of restructuring, i.e, structure that bridges truth and integrity to a new foundation of confidence. Soros is part of the old system that relies on dogma that is disconnected from this new era we are rapidly entering — where new economic voices need to be heard.

IMHO, the current failure of Capitalism is an opportunity to burn down the faulty structures and begin re-building something better for a new generation of people that want changes now.

This is an era not unlike 1905, when Einstein had strange new ideas that were radical departures from the familiar theories held by many of that days finest physicists — who dismissed his originality as being irrelevant. The upper echelon of the science world refused to be challenged by notions that Newton might be wrong and that someone outside their circle might be right.

Hence, here we go again, with dogma from Soros, Bernanke, Paulson and all the old financial guard that put forth old established ideas on how to save the reputation of their Newtonian brethren. These well connected, well heeled elitists offer solutions to bail out their good old friends that belong to their country clubs, who wish to bailout their sons and daughters, who intermingle in a wonderful world of socialized nepotism, looping around in full circle dances, digging deeper holes for the rest of us — who just want something better than the same ol shit!

In being critical, I should probably provide a solution and all I can offer is the suggestion that structured synthetic derivatives should be taken out of this financial cathedral and all the crooks that have played games and bloated themselves on greed should be disgorged of their ill-gotten treasures and then many of them should simply go to prison.

These new plans don’t need to be complex and filled with supercomputer incomprehensibilities — quite the opposite is true, in this situation, i.e, a return to simplicity, as in It’s A Wonderful Life, where local accountability at your bank is something you don’t have to worry about, because they gain your trust by being honest — not some other madness where a string of swindlers rip apart your mortgage into slices, which get chopped into fractional pools that get laundered like drugs in Bermuda, which are then used to supercharge clouds of chaos that we are currently spinning in and smoking like … aaaahhck, how many sermons is this gonna take here??

See: On 7 November 1919, leading British newspaper The Times printed a banner headline that read: “Revolution in Science – New Theory of the Universe – Newtonian Ideas Overthrown”

Just for fun, see: In January 2003 Trichet was put on trial with 8 others charged with irregularities at Credit Lyonnais, one of France’s biggest banks. Trichet was in charge of the French treasury at that time. He was cleared in June 2003 which left the way clear for him to move to the ECB…