Posted on 09/26/2008 5:42:27 PM PDT by supercat
“SEC. 132. AUTHORITY TO SUSPEND MARK-TO-MARKET ACCOUNTING.
(a) AUTHORITY.—The Securities and Exchange Commission shall have the authority under the securities laws
(as such term is defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)) to suspend, by rule, regulation, or order, the application of
Statement Number 157 of the Financial Accounting
Standards Board for any issuer (as such term is defined
in section 3(a)(8) of such Act) or with respect to any class
or category of transaction if the Commission determines
that is necessary or appropriate in the public interest and
is consistent with the protection of investors. “
This would create havoc in the markets if they do this because it would directly affect a ton of CDS contracts. It's basically 'lose if you win and lose if you lose'.
The economy will not outright fail if we allow the market to go it's natural way. It is when we artificially prop up the weak links that we endanger the citizens in the long term.
The only interference we need is to eliminate the obviously too loose credit rules for borrowers. Large and small.
Start at the base with the little stuff and the large stuff will fall in line.
Also make the executives of large financing liable for performance. When their livelihood is on the line like every citizen with a job (except government employees) is subject to.
Start with the small stuff, apply rules equally, and the large stuff will fall in to line.
We do NOT need the government to bail out businesses for self created problems. That is so anti-capitalistic and not at all what the founders wanted to be involved in.
Many types of qualitative predictions and judgments in economics can be made without any special expertise. One doesn't have to have a PhD to realize that if something that's worth $100,000 is divided into 1,000 shares, the shares can't be worth $1,000 each no matter what the market price for them happens to be, nor to understand that a sudden drop of share price to $100 would not represent any real loss of wealth.
If you dispute any of my reasoning, kindly explain your specific objections. I've tried to be simple and straightforward, but I may have missed something.
Only the US Government had enough power to cause this problem. Witness the CRA.
Only the US Government has deep enough pockets to clear the markets of these “toxic assets” and get credit markets moving again.
Only the US Government has deep enough pockets to hold the “toxic assets” long enough to determine which deserve the label toxic and which can recover in value.
“Let the markets sort it out” rings flat somehow when one realizes that it was a violent distortion of the market (the sub-prime mandates of the CRA) that started this problem.
I will refer you to the Resolution Trust Corporation as a model.
I will refer you to the Resolution Trust Corporation as a model.
I see no way for any of that to work unless the government forcibly consolidates the mortgages that comprise MBS's. If the government will not do so, then it's guaranteed to pay too much to buy those assets, since the last shareholder of a tranche to sell will have the power to prevent the government from holding any of the mortgages free and clear. If forcible consolidation is allowed, I would think that allowing it to be done privately (e.g. allow shareholders whose shares of a tranche add up to at least one whole mortgage to exchange a mortgage worth of shares for a mortgage selected at random from the tranche (the exchanged shares would be divvied up among the other shareholders, so that instead of e.g. 100 people each holding 1/100 of 100 mortgages, there would be one person holding a whole mortgage and 99 holding 1/99 shares of 99 mortgages.
If the shares are divided up differently, things may be a little more complicated, but there shouldn't be any fundamental problem. For example, if there are 20 mortgages divided 30 ways, then a person would have to get two shares to consolidate. Prior to consolidation, each share would hold 1/30 of 20 mortgages; the two shares being consolidated would together hold 1/15 of 20 mortgages, i.e. (1/20 + 1/60) of 20 mortgages. After consolidation, every 1/30 share of a property would become 2/57 and the 1/60 shares would become 1/57. So one person would hold a loose mortgage and 1/57 shares of 19 properties, while everyone else would hold 2/57 shares of 19 properties.
If the distribution were done by a clean provably random method (possibly a published pseudo-random generator seeded by state lottery drawings), there shouldn't be any problems with fraudulent valuations. Someone who asked to consolidate his shares might get a good mortgage or might get a worthless mortgage for a house that was never even built, but the probabilistic expected value would be the same as the average value in the tranche. There would be no cherry-picking allowed, but holders of a dubious tranche might still decide that a 10% chance of getting something good outweighed the 100% chance of having a piece of paper that nobody wanted.
BS! I'm in the market now and people that can't afford the loan don't get the loan. Good Grief. Grow up and know how PC damaged America. There is plenty of money.
What a typically ignorant response.
If you don’t see something, hear something, experience something, then it must NOT exist.
Okay then! Have a nice time.....in the market. Whatever that means.
P.S. Don’t bother to tell me! Because by your reasoning, if I’m not in the market, then the market doesn’t exist.
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