tag:blogger.com,1999:blog-14963913.post1448590325161101966..comments2023-10-27T20:27:57.900-04:00Comments on Kid Dynamite's World: Another Guaranteed Box Full of Crap - via FDICKid Dynamitehttp://www.blogger.com/profile/17475987512856310577noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-14963913.post-73831012834393570622010-07-25T12:04:07.634-04:002010-07-25T12:04:07.634-04:00Well, yes I agree. It is a mess. And yes, the bank...Well, yes I agree. It is a mess. And yes, the banks should be paying for it as long as they show an official profit. Which means the problem starts here.<br /><br />As a side note, Germany has several strange insurance schemes where the banks are supposed to pay for each other. I forgot the details, but there is a small one which has been overwhelmed by claims and people are not getting their money back. And as it is too small and happened before the crisis, the government never intervened.<br /><br />But most of the big banks are supposed to guarantee each other. It is understood that if a big one goes down, this will immediately take down all. So why is this guarantee worth something? People know it is not worth anything on its own, but assume the government will backstop (which indeed Angela has promised). Bingo, profits for banks!<br /><br />All this goes back to the point where one can't allow the individual banksters to loot for profit. Unfortunately it is too late to nudge the institutions with some small insurance fees. And the looting seem to keep doing as long as the FDIC pays the tab for them while they show a "profit" (your main point). Hey, they call it "too big to fail" for a reason. But even if one keeps the zombie banks around as organizations (a choice that seems to be fixed in stone), the individual bankers should not be too well connected to avoid jail. I am still waiting for indictments, sentences, new structures in Guantanamo etc.IFnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-82667649033454453022010-07-25T07:29:37.339-04:002010-07-25T07:29:37.339-04:00IF - first of all, i think the FDIC is necessary -...IF - first of all, i think the FDIC is necessary - yes, to avoid bank runs. but i don't think it was like this for the last 77 years - it's kinda like an SRO - self regulating organization - in the sense that its own members are supposed to be the ones paying the fees that allow it to provide the confidence to the industry so that said members can operate!<br /><br />the banks are putting up big profit numbers. why don't they fund their underwater insurance agency? <br /><br />i see no reason, and no logical defense for the government stepping in to provide this guarantee (note: the gov't seems certain to have to pay out on this guarantee - it's not just a case of them providing a seal of approval so that more debt can be sold and default avoided - this is a case of selling assets that are almost certain to default) - UNLESS, of course, the banks can't provide the insurance - which is PROBABLY the truth, DESPITE the fact that we've been fed the bullshit line by everyone involved for the last 18 months that the banks are fine. this again proves that they are NOT fine.Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-48400677447871170422010-07-24T23:56:38.331-04:002010-07-24T23:56:38.331-04:00So, I guess we mostly agree on that point. But isn...So, I guess we mostly agree on that point. But isn't that how the FDIC is supposed to work (for the last 77 years)? It seems nothing has changed recently.<br /><br />The final point seems to be<br /><br />“Our operating budget does not come from taxpayers,” Bair said during the meeting. “We are completely self-funded in that regard.”<br /><br />Which everybody knew and knows to be a lie. But a noble lie if there is any. I wouldn't have minded the tax payer eating some bigger losses after the FDIC took over Shittibank et al. Of course this way there is an illusion that the loss recognition is being pushed further out into the future and that congress is not being asked. But again, this was the plan (and law) all along for 77 years, this is what the FDIC guarantee really means in practice. E.g. this is the cost society bears for avoiding bank runs.IFnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-21694237810666210282010-07-24T23:17:00.468-04:002010-07-24T23:17:00.468-04:00IF - no - i don't think that's it at all. ...IF - no - i don't think that's it at all. I"m assuming that these assets are correctly priced by the market - in other words, they will return between 10c and 50c on the dollar. well, once the government slaps a GUARANTEE on them, they trade like treasuries - say, 90c on the dollar... then the government eats the difference when it makes the purchaser whole on the losses from defaults. get it? so, the government's guarantee (which the government eats the loss on) induces the purchaser to vastly overpay (the purchaser doesn't care of course, since the gov't guarantees it!) and the FDIC (and hence: THE BANKS!) are the beneficiary - since the banks are the ones who are supposed to be funding the FDIC - not the taxpayers.Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-17127501440122900892010-07-24T23:05:18.069-04:002010-07-24T23:05:18.069-04:00I still don't see the problem. It all depends ...I still don't see the problem. It all depends on the price this stuff gets "resold". You seem to assume it will be too low. But as long as it conforms with treasuries, there is nothing wrong with it. Lets say there were 100 dollars worth of mortgages paying 6 percent for 30 years. Bank folds. FDIC takes over. The mortgages (at whatever discount or failure rate) would not fetch more than 10 dollars right now. Hence FDIC guarantees them and sells them at 134 dollars (discounted to be comparable to 30 year treasuries at 4 percent). No money left on the table! The outrage would only be understandable if they would guarantee *and* sell at 10 dollars. That would be criminal. But the damage due to the loss of the bank already happened when the FDIC took over. Too late to complain.IFnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-68545171435085917182010-07-24T15:56:49.107-04:002010-07-24T15:56:49.107-04:00This is totally hilarious. I wonder how they have ...This is totally hilarious. I wonder how they have chosen to define 'getting away' with this? Surviving until 2011?Wilsonhttps://www.blogger.com/profile/10404364470490685508noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-89700404637316033892010-07-24T15:18:03.227-04:002010-07-24T15:18:03.227-04:00This "liquididty" crisis sure looks more...This "liquididty" crisis sure looks more and more like a solvency one but those in charge will never admit it. I wonder what will be the story in 5 years when the crap is still worthless.EconomicDisconnecthttps://www.blogger.com/profile/02802078645713106743noreply@blogger.com