"CC: There’s loss-sharing to encourage write-downs of mortgages. It was done in Mexico in 1995. If holders can arrive at a write-down in lieu of foreclosure that leads to sustainable mortgage, we as taxpayers would sustain the rest. It lets the market work the problem out and creates the motivation for doing it quickly. You could also have the government offer to buy any mortgage for 40 cents on the dollar. It would create immediate liquidity, because mortgage backed securities would rise on that scenario, all would be truncated at 40 cents. Third, we could refinance all healthy mortgages at 5%, at 30-year fixed financing. Allan Meltzer has idea about giving tax credits for buying homes, they’re all good ideas. The problem with what we’re hearing from Paulson does not have much to do with any of this." - Peng-Toh
via Bookmarklet
At the end of the video, he says China will be hit worse than the US. Still amazes me why Jim Rogers is still pro-china and commodities. - Peng-Toh
via Bookmarklet
You got to read this. I think things are going to get a lot worse in the export driven Asian countries. On the other hand, the US may well fair comparatively well. - Peng-Toh
via Bookmarklet
"Back in the old days (pre-1980s), the term systemic risk did not refer to contagion of illiquidity within the financial sector alone. Back then, when the real economy was much more important than low margin, unglamorous banking, it was understood that the really scary systemic risk was the risk of contagion of illiquidity from the financial sector to the real economy of trade in real goods and real services.
When central bankers back in the old days argued that banks were “special” – and therefore demanded higher capital, strict limits on leverage, tight constraints on business activity, and superior integrity of management – it was because they appreciated the harm that a bank failure would have in undermining the supply chain for business in the real economy for real people causing real joblessness and real hunger if any bank along the chain should be unable to perform" - Peng-Toh
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Brokers in London can essentially use your securities to fund their own business -- meaning if they go bankrupt you stand a chance of losing _your_ securities. - Private Sanjeev
Yep, not putting my money there! Same for Australia! - Peng-Toh
"First, you must understand that without the government's actions, the collapse of AIG could have caused every major bank in the world to fail.
Second, without the credit default swap market, there's no way banks can report the true state of their assets – they'd all be in default of Basel II. That's why the government will push through a measure that requires the suspension of mark-to-market accounting. Essentially, banks will be allowed to pretend they have far higher-quality loans than they actually do. AIG can't cover for them anymore.
And third, and most importantly, without the huge fraud perpetrated by AIG, the mortgage bubble could have never grown as large as it did. Yes, other factors contributed, like the role of Fannie and Freddie in particular. But the key to enabling the huge global growth in credit during the last decade can be tied directly to AIG's sale of credit default swaps without collateral. That was the barn door. And it was left open for nearly a decade." - Peng-Toh
via Bookmarklet
I like Blodget's comment from one of the tech ticker videos (IIRC). "The market will drop 30% and you'll buy on the dip. Then it will drop another 30% and you'll buy some more. Finally it will drop another 30% and everyone will sell. That will be the bottom." - Private Sanjeev
