Comments on: US Considering Backing Bank Debt

By: "Kingfish" Slaney Black

"Kingfish" Slaney Black — Fri, 10 Oct 2008 14:42:00 +0000

Every day, a new strategy gets floated by the treasury. Maybe we’ll do this. Maybe we’ll do that. Maybe we’ll just sit on our hands and suck lemons.

This is not the way to reassure markets.

By: Anonymous

Anonymous — Fri, 10 Oct 2008 13:15:00 +0000

9:11, the answer to that is that the government can print as much money as is necessary to make good on its insurance. The government cannot guarantee the purchasing power of your deposits, but it can certainly guarantee the nominal value.

By: Anonymous

Anonymous — Fri, 10 Oct 2008 13:13:00 +0000

By the way, as banks stocks collapse, every share that is being sold is being bought. Who do you suppose those buyers are? Stupid retail investors who are unaware there happens to be trouble in the banking sector?

By: Anonymous

Anonymous — Fri, 10 Oct 2008 13:11:00 +0000

Call me naive, but at some point doesn’t the average person, using common sense, start to doubt the trustworthiness of the Federal promise to insure trillions of deposits? At some point, won’t this alone start to cause bank runs? If the feds are the ultimate bank, why can’t there also be a run on this ultimate bank?

By: tompain

tompain — Fri, 10 Oct 2008 13:09:00 +0000

The calls for wiping out bank equity holders are astonishing and foolish. Government seizure of private property without compensation is illegal, and for good reason: capital flight makes economic success impossible. If bank shareholders lose money on their investments in the normal course of business, so be it, that’s the risk/reward of capitalism. Wiping them out pre-emptively “for the greater good” is wrong and will prove to be counterproductive. To date, every confiscation or signal of increasing likelihood of confiscation has been followed by a sharp move downward not only in bank stocks but in the entire stock market. Why? Two reasons come immediately to mind. One, if the government decides to confiscate banks for the greater good, why assume it will stop there? Airlines, auto manufacturers, drug companies, HMOs, oil companies – let’s seize them all, it’s for the greater good. Two, contrary to the posts here, LOTS of people own banks stocks. Everyone who owns any passive index fund owns a lot of bank stocks. Pension funds hold bank stocks. Insurance companies hold bank stocks. Other companies hold bank stocks. Foreigners and foreign banks own banks stocks. Look at who lost money when GSE equity was wiped out. Look at who lost money when LEH collapsed. Lots and lots and lots of people. Some of the posters on this board who want to wipe out bank equity probably lost money and don’t even realize it.

You think you’ve seen a market crash already? You think the economy is headed for a severe recession. Wait and see what happens if common equity continues to be arbitrarily wiped out. Smoot Hawley will look like an act of brilliance.

By: ciccocicco

ciccocicco — Fri, 10 Oct 2008 08:25:00 +0000

Looking at investments ideas here.
Dollar/Euro, we know some exogenous elements are impactting it. How clear is the understanding of these elements, why hedge funds are not jumping in?

Are we sure that after all this mess is over (or after the world as we knoe is over) the dollar will be kaputt?

Is Europe in better shape (I think yes?

This can be a major trading opportunity, have you seen any detailed analysis?

By: Anonymous

Anonymous — Fri, 10 Oct 2008 07:34:00 +0000

“It’s stone incompetence”

Exactly. What should have been handled by private sector merger, asset sales, default, BK has been snowballed by govt into global disaster. Why on earth would anyone wish to put politicians and bureaucrats in charge of anything by fiat and diktat?

By: Anonymous

Anonymous — Fri, 10 Oct 2008 07:33:00 +0000

All these plans are US$ negative and burden the taxpayer with debt I really don't think they deserve by any stretch of the imagination and a positive outcome that can't be guaranteed.

Greed for the most part, lost your house, life savings and retirement with no prospect for a job plus ruining the neighbors in the process who have acted responsibly.

Be awhile before trust returns.

By: doc holiday

doc holiday — Fri, 10 Oct 2008 07:27:00 +0000

Great info Yves!

What hits me though is the concept of this being a multi-front war, which divides limited and finite resources. The FDIC and this battle are all about immediate money stability for depositors -- but yet the derivative battle rages on without regulation or a clear plan of attack, as how to manage the Trillions of dollars in uncertainties that threaten to engulf the entire system (which FDIC vows to protect with its systemic risk powers).

Meanwhile, all this chaos is overshadowing the subprime foreclosure bombardment and the shocks from those battles, which contribute to on-going cumulative chaos which is fueling stock market crashes globally. These crashes are destabilizing as they move like a pathogen from market to market, or a cancer mutating out of control. These steps for guaranteeing billions of dollars in bank debt, are good steps, but the real focus is to follow the money cancer and see if there is any type of containment of the derivative mess.

The derivatives that consume cash seem to be like metaphorical financial hurricanes that draw fuel from hot money flows that spin massive amounts of cash as in a giant money laundry operation. The chaos of the derivatives at this point are as unpredictable as betting on how long it will take for the casino to burn down and then spread to the rest of town -- while the authorities look on with dropped jaws. This is madness!

By: baychev

baychev — Fri, 10 Oct 2008 07:00:00 +0000

The FDIC has coverage for only 0.8% of all deposits, now the gov’t will back debt that probably exceeds GDP. How is this going to soothe any sane investor?
And what happens to the CDSs written on this debt? Cancelled, default is triggered, or the protection sellers get a free ride from the gov’t?