The Great Republican Hope

[Riot]

Originally Posted by pgardn

I guess I was getting back to the original post.

The Great GOP Hope.

My take that the Republicans
should have is they dont need one.
Obama is going way too far using
government instead of at present,
while things are looking a little more
hopeful, getting out of the way and letting
a little more capitalism step in and take over.
Kind of, "you can step away now..."

Stuff like that has been in the news of the past couple of weeks, about some banks being approved as stable enough so they will start paying back billions in TARP funds, about the G8 meeting covering exactly that ("getting out of the way").

[dalakhani]

Originally Posted by Riot

Stuff like that has been in the news of the past couple of weeks, about some banks being approved as stable enough so they will start paying back billions in TARP funds, about the G8 meeting covering exactly that ("getting out of the way").

Its such a bullshit. The stress tests were about the dumbest thing you could do. First of all, there wasn't enough stress. Second of all, the bogus results were a false signal of a bottoming out.

Wells fargo, b of A and citi are in no better position now than they wee 120 days ago.

Originally Posted by dalakhani

Its such a bullshit. The stress tests were about the dumbest thing you could do. First of all, there wasn't enough stress. Second of all, the bogus results were a false signal of a bottoming out.

Wells fargo, b of A and citi are in no better position now than they wee 120 days ago.

so this is Republican fodder...
They supposedly have to do another round
of stress tests. So Obama's people, some of
whom were with the Republicans with Bush,
have not solved anything in the banking sector
or might have even made things worse by "hiding" failure.

I thought the Democrats were going to be
more transparent.

[hi_im_god]

Originally Posted by dalakhani

Its such a bullshit. The stress tests were about the dumbest thing you could do. First of all, there wasn't enough stress. Second of all, the bogus results were a false signal of a bottoming out.

Wells fargo, b of A and citi are in no better position now than they wee 120 days ago.

actually, the dumbest thing was changing accounting rules away from mark to market so that bank balance sheets can now be what they imagine an asset will be worth when things are all better vs. what the market tells you it's worth.

i'm not an accountant and i don't have a fully developed grasp of the issue but other than "it's a category 5 sh*t storm if we don't do this", i haven't seen a good explanation for why imaginary numbers are better than real ones.

i don't know how anyone can have any faith in the numbers coming out of financial institutions after this. they're basically made up.

[dalakhani]

Originally Posted by hi_im_god

actually, the dumbest thing was changing accounting rules away from mark to market so that bank balance sheets can now be what they imagine an asset will be worth when things are all better vs. what the market tells you it's worth.

i'm not an accountant and i don't have a fully developed grasp of the issue but other than "it's a category 5 sh*t storm if we don't do this", i haven't seen a good explanation for why imaginary numbers are better than real ones.

i don't know how anyone can have any faith in the numbers coming out of financial institutions after this. they're basically made up.

I can see both sides of the issue. Let me give you an example of where mark to market accounting can put unfair stress on a financial institution. Lets say we have 80 million dollars of AAA loans marked "held for sale" in our warehouse line and we value the assets that are backing those PERFORMING loans at 100 million. ABC bank down the street just had a builder default on a big loan and they need money NOW. They sell a similar book of assets as the ones we have on our line except there is no demand right now for even AAA loans. They have no choice but to sell the 100 million dollars worth of assets off 70 million dollars. Now a new market has been set for 70 million dollars over night. Sucks doesnt it?

Whats worse? Our warehouse lender will call us the next morning for whats called an "equity call". We have to have skin in the game and our 80 million dollars in loans on the warehouse is now being backed by assets valued at 70 million dollars. We have to pay down our line until its 80% of 70 million. Thats a 24 million dollar check. On top of that, we have to have a certain amount of cash on hand. So now we need money. So what do we do? We have to sell assets QUICKLY to raise the cash and the cycle repeats.

It really is not this simple but Im trying to give you a basic understanding of what happens during a credit crunch, why banks horde cash and how mark to market can be devastating to the system.

[hi_im_god]

Originally Posted by dalakhani

I can see both sides of the issue. Let me give you an example of where mark to market accounting can put unfair stress on a financial institution. Lets say we have 80 million dollars of AAA loans marked "held for sale" in our warehouse line and we value the assets that are backing those PERFORMING loans at 100 million. ABC bank down the street just had a builder default on a big loan and they need money NOW. They sell a similar book of assets as the ones we have on our line except there is no demand right now for even AAA loans. They have no choice but to sell the 100 million dollars worth of assets off 70 million dollars. Now a new market has been set for 70 million dollars over night. Sucks doesnt it?

Whats worse? Our warehouse lender will call us the next morning for whats called an "equity call". We have to have skin in the game and our 80 million dollars in loans on the warehouse is now being backed by assets valued at 70 million dollars. We have to pay down our line until its 80% of 70 million. Thats a 24 million dollar check. On top of that, we have to have a certain amount of cash on hand. So now we need money. So what do we do? We have to sell assets QUICKLY to raise the cash and the cycle repeats.

It really is not this simple but Im trying to give you a basic understanding of what happens during a credit crunch, why banks horde cash and how mark to market can be devastating to the system.

that was good.

it's an unending cycle with no circuit breaker. i hadn't completely understood that. makes sense.

i'm less doctrinaire now.

i still have a huge problem with believing a profit/loss statement where the cfo has wiggle room deciding what the assets are worth but i can see why people smarter than i am might see this was needed.

[Riot]

Originally Posted by dalakhani

Its such a bullshit. The stress tests were about the dumbest thing you could do. First of all, there wasn't enough stress. Second of all, the bogus results were a false signal of a bottoming out.

Wells fargo, b of A and citi are in no better position now than they wee 120 days ago.

I'm not talking about the stress tests.

Edit: and I'm waiting for the personal credit card crash yet to come, and a friend reminded me of the pending commercial real estate crash

[dalakhani]

Originally Posted by Riot

I'm not talking about the stress tests.

Edit: and I'm waiting for the personal credit card crash yet to come, and a friend reminded me of the pending commercial real estate crash

Commercial is so incredibly screwed...trust me on this. People that are going long on financials right now need to seriously have their heads examined.

On the subject of stress tests, they needed to be done with some REAL stress. Stress like 15% unemployment.

Do people ever wonder if the FED could pass a stress test with 15% unemployment?

[Riot]

That's scary. Thanks!