Submitted by Edward Harrison of the site Credit Writedowns
Edward Harrison here. I wanted to begin my series of posts here on naked capitalism with my thoughts regarding the policy response to the banking crisis in the United States. I believe Yves would agree that the response to date has lacked the necessary urgency to move us forward in a sustainable way and that, consequently, downside risks remain for economic growth and asset markets.
In any banking crisis, the central question always is: which financial institutions now operating are insolvent, how can we identify them and remove them from the system, and how can we recapitalize the remaining institutions in a way that restores confidence to the system generally? Therefore, any response by policy makers must address three separate issues:
- Confidence in the system. This is the first question to be addressed because no fractional reserve banking system can function without confidence in its integrity. Is Citigroup going to be nationalized? Are the regionals sitting on massive commercial real estate time bombs? Does Wells Fargo have a fatally large exposure to California-based HELOCs? If BofA goes bust will I get my money back at the ATM? No one knows the answer to these questions definitively. As a result, each and every institution in America is subject to suspicion about its solvency by depositors, debt holders, commercial paper investors, and transaction counterparties. The whole system comes under a cloud. In short, doubt breeds fear and fear creates systemic risk.
- Identification of insolvent institutions. This is the tricky bit for a number of reasons. First, I should note that Warren Buffett has said Wells Fargo has a pre-tax earnings power of $40 billion. That is enormous. While one should be suspicious whether Buffett is talking his own book, it points out the fact that any bank can ‘earn its way out of insolvency’ if given enough time. Nationalization is but one option. (John Hempton has noted that the Japanese banks actually did not have the benefit of time as their spread margin was so small due to the infamous zero-interest rate policy – you need a steep yield curve). But, ultimately, it is liquidity that is at issue for many bankrupt financial institutions – a loss of depositor or creditor faith. Their credit lines are pulled (Bear Stearns) or bank customers flee (Northern Rock). So, when we ask whether an institution is insolvent or bankrupt, it is a trick question because many failed financial institutions suffer a lack of liquidity — a circumstance which presages insolvency (see my take on this issue here). Identifying whether an institution is fundamentally insolvent depends crucially on the true value of its asset base as well as future loan losses and credit writedowns.
- Recapitalization of solvent companies. Once one determines whether a financial institution is insolvent, the remaining solvent institutions might still be so fragile as to succumb to liquidity pressures. They must be adequately recapitalized in order to preserve confidence in the system as a whole. How one goes about doing so is less important than doing so. Moreover, it is crucial that government not recapitalize insolvent institutions lest they be confused with solvent entities, re-creating the loss of confidence which created the panic and crisis to begin with.
Set against these criteria, the response to date by U.S. regulators and government officials is thoroughly lacking. Let’s look a little more in depth at each step in the process to see why.
Confidence
I see confidence as the key to the entire problem. Think about it this way: one day you were walking around under the assumption that you could get money from the ATM, invest in your IRA, move money from account to account, and take out a mortgage pretty much at will. Then you woke up to news that your friend’s bank was bust and lines were forming. Then you hear that your friend can’t get his money back because he had ‘unsecured deposits.’ Suddenly, you think, “wait a minute, maybe my money is not so safe after all. How do I know that my bank isn’t next?”
The fact is you don’t know. And normally this does not matter because the integrity of the banking system is not in doubt. However, when a credit crisis emerges, psychology changes drastically and everyone — and every bank — comes under suspicion. People start yanking their money. Since banks borrow short and lend long, they don’t have all the deposits to hand. Any institution would be illiquid and forced into insolvency if enough creditors and depositors withdrew their support. This is why confidence must be restored at all costs. The question is: how do you do that?
Bankrupt institutions
You shut down bankrupt institutions. If financial institution creditors and counterparties are reasonably sure that any institution which is potentially insolvent will be immediately shut down and liquidated, merged, sold, or nationalized by regulators and that they will be made whole, instantly confidence would be restored in the banking system as a whole. Yes, I am suggesting that senior debtholders receive substantially all funds in a re-organization
Now, the banking system is a cartel. That means the banking authority — state or national – excludes those it deems lacking in capital and credibility from sullying the system. As a result, banks operate in an environment of limited competition, garnering them larger profits. In return, they promise to uphold the rules set out by the regulator, the penalty being asset seizure and closure by the FDIC. This system operates because we all assume it has inherent integrity.
By the way, I would argue that a large part of why this system broke down has to do with de-regulation and its introduction of competition from unregulated sources, which pressured banks into seeking more risk in order to earn a decent return, fatally undermining the system’s integrity (but that is a topic for a different post).
The problem in the United States today is that it is unclear that all insolvent institutions are, in fact being shut down in a timely fashion. Is Citi insolvent? Is BofA bankrupt? How about Fifth Third or Zions? Moreover, as a creditor, you have no idea whether you are going to get paid in full. Remember what happened to the holders of preferred at Fannie and Freddie? Why would you lend to any financial institution if you are not sure that you are going to get your money back? The same is true for depositors, which is why WaMu was seized by the FDIC in my opinion — there was a run on deposits at the bank. Equity holders are a different situation as they should bear all the risk.
This is disastrous for the economy because banks must then deleverage and cut credit as their funding sources disappear, further weakening the economy and banking system until somebody fails and then we have another panic. We have had six months since the last panic began. One would think the Obama Administration might have a solution in hand.
The vague and delayed plan presented by Tim Geithner is not going to get it done. It has been widely panned and has not instilled confidence in the system. Moreover, as originally proposed it allowed the banks themselves to value their assets in order to meet the tangible common equity stress test criteria. This is self regulation in the extreme. And as Willem Buiter has said, “Self-regulation is to regulation as self-importance is to importance.”
I have come up with a number of proposals in the last few months, as have any number of pundits from Willem Buiter to Nouriel Roubini. In fact, I pointed out the Swedish model as a potential framework for the U.S. as far back as August – 7 months ago (and this has been dismissed out of hand by the Obama Administration for, what I believe, are ideological — and not substantive — reasons). Yet, the Obama Administration continues to dither. Certainly, the mechanics (FDIC seizure, merger, break up and sale, pre-privatization) are daunting given the size and scope of America’s larger institutions. And we have some frightening examples in government ownership (AIG and Fannie and Freddie), in bankruptcy (Lehman Brothers), and in merger (Bear Stearns, Merrill Lynch). However, putting off the problem is not an effective solution, as doubt grows in such an environment and this increases the need for both deleveraging and restricting credit.
Recapitalization
And that brings us to the last of the three pillars here – recapitalization. If and when Geithner and Summers decide who is insolvent and how to deal with them, they will need to present a model for recapitalizing the remaining solvent institutions. Now, for a moment, let’s assume Citigroup is in fact solvent, and that this is why it is being propped up. Even in such a circumstance, it is not a very good model for further recapitalization. The Citigroup solution has been — in a word – ad-hoc. And ad-hoc is poison because it creates doubt about how the same solution will be re-applied for other institutions. And when creditors and borrowers doubt that they will be paid in full, they do not lend or deposit their funds.
And I should point out is far from clear that Citigroup is in fact solvent at all. The propping up of potentially insolvent institutions that may eventually be seized undermines confidence in the entire system.
Now, my own site is called “Credit Writedowns” in large part because I see writedowns as the key to finance and this banking crisis. Basically, any solution for recapitalization must address future writedowns and loan losses of assets already on the books if it is to be successful. One reason that this crisis has been so protracted is because there has been a painful drip, drip of writedowns after each and every capital injection into America’s financial institutions. Clearly, investors and policy makers alike have seriously underestimated the scale of writedowns. So, Job 1 is to get a grip on the future losses, write those assets down and recapitalize institutions accordingly. Getting this done quickly is important. The mechanics, while tricky, are less important.
In my view, much of this seems axiomatic. For months, various credible economists have offered this advice and I have been puzzled as to why Paulson, Bernanke and now Geithner and Summers have not moved in this direction. I can only assume it is because they still believe the U.S. banking system can be salvaged with a minimum of invasive surgery. However, a prudent approach, a cautious approach, would recognize the need for swifter and bolder action lest the patient die on the operating table.
My advice is to pick a credible comprehensive solution quickly (there are many). Garner legislative approval and set up a bi-partisan, non-politicized process. And then stick to your game plan in each and every case – regardless of size or influence of the institution.
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is that all edward has to say at the moment?
they are all insolvent… thats why…
Thank you, an excellent and succinct summary of the current situation in the banking industry. As a retired banking analyst, I very much agree with you comments.
“Identifying whether an institution is fundamentally insolvent depends crucially on the true value of its asset base as well as future loan losses and credit writedowns.”
Its nice to seem some contrary views, but I disagree. There are no “true values” – only market values (otherwise, I want the gubermint to buy my Amazon at 400$ a share – that’s its “true” value). And “future loan losses” are why we are in this mess. No matter all the financial legerdermain, people want a “real” return, and people lack “confidence” precisely because they fear not getting paid back. Principal has to be paid back, as well as interest – otherwise, why lend?
1): "And ad-hoc is poison because it creates doubt about how the same solution will be re-applied for other institutions."
2):"For months, various credible economists have offered this advice and I have been puzzled as to why Paulson, Bernanke and now Geithner and Summers have not moved in this direction. I can only assume it is because they still believe the U.S. banking system can be salvaged with a minimum of invasive surgery."
I agree with quote one. The past year has been largely wasted from a policy response perspective. At the cost of a few trillion and loss of trust in the system.
As regards quote no. 2, this puzzles me too. Commentators on NC have said that the Government's refusal to get a full grip on the situation is because of DC eating out of Wall Street's hand, i.e. corruption. That is in my view possibly the explanation, but not an excuse. Krugman & Co. should thus get organised and create pressure groups or whatever works in the U.S. In the absence of an effective political opposition in the U.S., society has to step in an fill that vacuum.
Krugman's latest NYT column about Japan's lost decade not being that bad after all however suggests that he has thrown in the towel.
@fresno dan said….There are no “true values” – only market values…
I agree but would add, at which point in time would the market accept value and not at their discretion.
….
fresno said…Principal has to be paid back, as well as interest – otherwise, why lend?
….
To risk on the forethought of gain, realizing the potential for loss with out the use of your back and break a sweat.
Btw you played and lost on Amazon, give it up mate, as I’ve said before were all in the cannibals pot. That’s the problem with the IBs and party boys, they got drunk and befouled the joint and now no one will accept responsibility, let alone clean up their own gastronomic bile covering both their shoes and the floor we all work on. They like so many that feel privileged wait upon the maids (tax payers) to clean up their mess.
Skippy…nothing personal fresno
Edward’s article in fact begs for a deeper question: aren’t there any alternatives to fractional reserve banking? Since we seem predisposed to consider even radical reforms at the moment, one might as well consider that possibility.
It would be technically possible to have only one single central monetary authority accept deposits with absolute guarantee that they will stay whole. This would be the equivalent of having digital money that is as safe as banknotes, an obvious pre-requisite for any modern monetary system. Relying on defaultable entities to be the depositary institution for modern digital money is madness.
Freezing up deposits and forbidding their use for the purpose of issuing loans is not a new idea. It is actual cast in ston in the ancient Roman Codex which is at the base of modern legal systems, except that the portion on deposits for some misterious reason has been replaced with the failed Basel Accord in modern times.
By turning deposits into pure custody contracts, one would obviously dry up money used for credit lines. However, new money can always be explicitly created for that purpose. Private banks could remain private and run a business out of issuing loans while obtainining a possibly substantial portion of their financing directly from the central monetary authority. This would entail that they keep only a fraction of the credit risk for each loan that is issued. Instead of being fractional reserve banking, this would be fraction credit banking.
What I am outlining here is not really so different from what we already have. From a certain viewpoint, there is just a formal difference in the way accounting for banking institutions is carried out.
The advantage of an accounting paradigm of this sort is that it would point at a much simpler solution to credit crisis. Instead of overloading governments with unpayable debt, with the risk of tax revolts while at the same time jeopardizing deposits and savings, one could simply have the monetary autorithy restructure its loans in aggregate by reducing the notional amount to reflect asset deflation. Banks would still be on the hook for the portion of credit risk they carry, which is only a fraction of the total, while restructuring would be subsidized by monetary fiat.
Opening the way to aggregate loan restructuring from a central authority would also provide the means for controlling asset bubbles. By the same token that notionals can be reduced if asset deflation occurs, whenever one witnesses asset price inflation the central bank could instead increase notionals of loans to reflect the changed mark to market of the collateral, thus effectively sterilizing a fraction of the monetary base and reducing asset price inflation.
One more nice thing about this sort of accounting reform, is that it would enhance and not reduce the role of mark-to-market. It would also increase transaparency in the loan issuance process as a portion of the process would be centralized and in public hands.
Am I talking heresy here?
Our elected leaders should have learned how important COMPETENT government regulation is from the Savings and Loans Crisis.
If you want to help poor people and middle class people, support policies that are likely to grow the economy.
If you want banks and other financial institutions to do better, support policies that are likely to grow the economy.
Many poor people and middle class people have 401(k) plans. Many businesses match employee contributions some.
People should be allowed to remove their contributions from 401(k) plans tax free and penalty free whenever they want.
People should be allowed to remove interest from 401(k) plans tax free and penalty free whenever they want. Many people may only want to have money in accounts that pay interest.
People should be allowed to remove capital gains and dividends from their 401(k) plans tax free and penalty free whenever they want.
These changes to 401(k) plans may make it easier for people to make mortgage payments, reduce their debts, buy things, and improve consumer confidence. If consumer confidence improve, many businesses may fire fewer people and many businesses may hire more people.
I discuss sales taxes I would like the federal government to have, other topics dealing with the financial crisis, and other things on http://www.newgeography.com/users/kenstremsky
If you like my ideas dealing with 401(k) plans, I hope you will consider telling others the ideas.
If you like some of my ideas on newgeography, I hope you will consider telling people those ideas you like.
Clearly, investors and policy makers alike have seriously underestimated the scale of writedowns. So, Job 1 is to get a grip on the future losses, write those assets down and recapitalize institutions accordingly.
But is that so easily done? Don’t future writedowns depend on the value of the underlying assets that collateralize those loans? And who has a crystal ball so they can peer into the future and answer the question of, for instance, where residential housing prices will be in two years? In five years?
And won’t the future prices of houses depend on the availability and cost of future credit? It seems to me like the gears in this machine are all interlocking.
DownSouth,
There is a certain circularity to all of this, isn’t there. However, the JPMorgan takeover of Washington Mutual provides a reasonable case of what I mean regarding marking down asset values.
One needs to make a prediction as to reasonable worst case scenarios and mark down assets to reflect some of that downside risk, the point being to demonstrate that no further major writedowns will occur.
In my view, it is the drip drip of continual credit writedowns which is critically undermining the global banking system. UBS today just released horrific losses for 2008. Not a shocker, but clearly another case of more writedowns to come as they have considerable Eastern European exposure.
“If financial institution creditors and counterparties are reasonably sure that any institution which is potentially insolvent will be immediately shut down and liquidated, merged, sold, or nationalized by regulators [b]and that they will be made whole[/b], instantly confidence would be restored in the banking system as a whole. Yes, I am suggesting that senior debtholders receive substantially all funds in a re-organization.”
And then a few paragraphs down…
“Equity holders are a different situation as they should bear all the risk.”
I’m sorry, but I just can’t stomach this. Where is it written that bondholders must never bear any credit risk and must always be “made whole”? If anything, it is THIS MISTAKEN BELIEF that is behind much of our present woes. There’s a reason the debt of lower rated institutions bears a higher rate than that of higher rated institutions. There’s a reason unsecured debt bears a higher rate than secured debt. There’s a reason corporate bonds bear a higher rate than government bonds. It’s called a risk premium. People who can’t bear ANY principal loss should be invested in short term Treasuries and FDIC insured bank deposits. Period. End of story. Harrison is in effect calling for a direct subsidy to bondholders (in the form of a guarantee) and bond issuers (in the form of lower borrowing costs relative to true risk).
Some more questions:
Integrating your post with a couple of other items in this morning’s NY Times:
http://opinionator.blogs.nytimes.com/2009/03/10/maybe-the-banks-are-all-right/?ref=opinion
and
http://www.nytimes.com/2009/03/11/business/economy/11bailout.html?hp
Historically, are we not confronted by a situation similar to this?:
…a final example: the founding of United States Steel Corporation in 1901. Viewed through Veblen’s eyes, the steel combine was a vast social machine for producing steel, an assemblage of plants, furnaces, rail lines, and mines under a common management for their more efficient coordination. But this was only a minor consideration in the eyes of the men who “made” U.S. Steel. The eventual monster company had real assets of some $682 million, but against this had been sold $303 million of bonds, $510 million of preferred stock, and $508 million of common stock. The financial company, in other words, was twice as “big” as the real one, and nothing more lay behind its common stock than the intangible essense of “good will.” In the process of creating these intangibles, however, J.P. Morgan and Company had earned a fee of $12.5 million, and subscription profits to underlying promoters had come to $50 million. Altogether, it cost $150 million to float the venture. All this might have been condoned had the new monopoly been used for the purpose Veblen had in mind–as an enormously efficient machine for the provision of steel. It was not. For thirteen years steel rails were quoted at $28 per ton, whereas it cost less than half of that to make them. In other words, the whole gain in technological unfication was subverted to the end of maintaining a structure of make-believe finance.
–Robert L. Heilbroner, The Worldly Philosophers
It seems the solution favored by Buffet, Eric Etheridge and John Hampton (from the NY Times article) is a modified U.S. Steel solution, combining a new twist–big “bank liabilities should simply be guaranteed at this point and that guarantee should carry the personal weight of the President”, with the old twist–implementing policies whereby the large banks can make outsized (essentially monopoly) profits for years to come so that they can “earn” enough to pay back all the money that the Golden Boys of Finance stole.
Undoubtedly this solution stands a good chance of saving the “too big to fail” insolvent banks, and making Buffet a lot of money in the process. But:
Is this fair to people like my elderly mother who loan their savings to the banks at 2% so they can turn around and loan them out at much higher rates?
Is it fair to U.S. taxpayers who are coerced to channel money to big banks at ridiculously low interest rates so that the big banks can then turn around and loan it to American households and businesses at rates that are kept artifically high?
Is it fair to those businesses and households that must borrow money at interest rates kept artifically high?
And what about the double standard applied to smaller insolvent banks, who immediately get liquidated but “big” banks get a life line?
Is it fair to solvent banks, who must compete on an unequal playing field with insolvent banks who are on the government dole?
Is it fair that the Golden Boys of Finance should not only get to keep their ill-gotten gains, but get to salvage their egos and reputations at the expense of millions of other Americans?
Is it fair to those who are solvent, who have or have access to private money, who can buy up the insolvent bank’s distresed assets at market value? If those assets prove to be worth more than their current market value, who should profit? Those who were prudent and now have private money? Or those who have the politcal muscle to tap into the U.S. Treasury?
ruetheday,
you are right. I take this view reluctantly, I must admit. In fact, I added the part about making senior debt holders substantially whole later. Barry Ritholtz has a different view, which he expressed today:
http://www.ritholtz.com/blog/2009/03/haircuts-for-bond-holders/
Until recently, I would have agreed that significant haircuts were necessary for bondholders and I have said as much. But, I have come to see this as a problem because it will kill the appetite for new capital – I’m talking here about the massive amounts of debt that financial institutions must roll over.
In my view, as soon as senior bondholders – I’m not talking subordinated or preferreds – take huge haircuts, the next time these companies go to market to issue bonds, they are going to find no demand. Such a lack of liquidity would bankrupt some institutions in my view.
So, as much as I would like to see bond holders get stuffed — after all that is a free market solution – I don’t think it is practical.
“Is it fair…?”
Life’s not fair. Get over it.
The fair thing would be to confiscate all the property of all the bankers and hedgies. But it ain’t going to happen. So that only leaves unfair solutions.
Well, let’s start off that they are DEBT-writedowns.
The path back to economic progress MUST include a repudiation of the insane debt-instruments that were created by the IBs and traded freely throughout the world on a AAA-rated ticket.
Having said that, there is still the slight matter of the cause of the whole problem.
And that is debt-money.
Can we just do the math?
We create increasingly VAST quantities of money first, repayable with interest, and then we NEVER create the interest money to pay on the money,
Then we create non-money money things(SIVs) that are denominated in the currency of the nation, requiring a dividend or chit-type payment, and never create the dividend money to pay on the SIVs.
And we wonder why we are INSOLVENT.
The debt-money system is insolvent.
As Volcker says – we do not have the money to make our debt-service payments.
So, debt-repudiation IS essential.
And we can either do it according to the Summers-Geithner-Bair model of having the taxpayers TEMPORARILY support the banking system, with TRILLIONS of new government debt, in order to restore credit flows, or we can do what JP Morgan would do, which is to put ALL those SIV counrterparties in a room, lock the door and let them out when they have the answer, which we all know is 18.3 percent at the max.
And do it NOW.
Debt-writedown.
Mega-trillions gone from whence they came.
In its place, a new debt-free money system.
Greenbacks.
We’re back on the road.
a said…
“Is it fair…?”
Life’s not fair. Get over it.
Spoken like a true neoclassical ideologue.
But I would argue that questions of fairness and morality are very much on the minds of a majority of rank and file Americans. The United States is not Mexico, despite all the wishful thinking of the neoliberals.
The Golden Boys of Finance not only operate from a very small political base, but that base is shrinking rapidly as we speak. They may find a couple of big ugly brutes–politics and society–barging in upon their pleasant little afternoon garden party.
$40 billion? The only reason a bank like say Citigroup can make any money is interest rate suppression. If we had no Fed and market interest rates, I estimate short rates would be 6-7%. How much would Wells make in that environment? Banking as it currently exists is a parasitical industry. Kill it.
Of course there are alternatives to fractional reserve banking. Mencius Moldbug, who is generally more cynical than I, yes he proves its possible, has written about them at his Unqualified Reservations. So have I at my Skeptical CPA. They are based on that four-letter word, GOLD!
Downsouth:
I write to you from Houston, south of the Mason-Dixon line. People down here want bankers hung. Or at the very least sent to prison for life. And have all their assets seized. Really. The talk gets nastier every day. I await John Mack or Lloyd Blankfein’s getting on television saying “Let them eat cake”.
Edward Harrison said: “In my view, as soon as senior bondholders – I’m not talking subordinated or preferreds – take huge haircuts, the next time these companies go to market to issue bonds, they are going to find no demand. Such a lack of liquidity would bankrupt some institutions in my view.
So, as much as I would like to see bond holders get stuffed — after all that is a free market solution – I don’t think it is practical.”
You are effectively admitting that the banking industry cannot operate profitably without massive federal subsidies and would collapse in their absence. Fine. We all recognize that a modern economy requires a financial sector. Thus, the only logical solution is to turn it into a highly regulated utility industry, like electrical power generation. That implies no more wild west mentality, no more 7 and 8 figure bonuses, and anything not explictly permitted by the regulations is prohibited. Problem solved.
Obama will dally,
Obama will dither,
As the gullible submit plans,
While their bank accounts wither …
When are all the marks living in la la land going to wake up and realize that tendering remedial plans to a disingenuous non responsive government that has been hijacked by the wealthy elite golden collar crowd is a waste of precious time.
Who do you think is listening? These wasted efforts are beginning to look like the ignored baby tantrum – just crying and whining in the crib.
The ‘rule of law’ in scamerica is a selectively enforced farce that is owned and controlled by the gangsters that bought it from the crooked politicians.
It is the middle class bubble that is intentionally being popped right now as we speak. And there are other rationales for this intentionally created crisis, and darker forces at work, that need investigative attention.
Stop crying and start roaring! Start planning the demonstrations, protests and the new banker-less America that will return money to its basic utility function and provide a level competitive playing field. Shun the corrupt system and its sell out twits that got us all here. Be more skeptical!
Deception is the most powerful political force on the planet.
i on the ball patriot
W-e-e-e-l-l:
“”””
Garner legislative approval and set up a bi-partisan, non-politicized process.
“””
Translation: And then, a miracle occurs!
And I’m not so sure that in a democracy, a “non-politicized process” can or should exist. The same guys that got us into this mess own most of the political process, and I imagine they’d own more or all of a putatively non-politicized process. I can see a Grand Bargain where Social Security is made available for looting as a perfectly plausible outcome of such a process, for example. “Shared sacrifice,” and all that.
The financial sector isn’t the only part of the system with trust issues, you know.
@RueTheDay
You are right, of course, but forcing the megabanks into exclusively low-risk, low-margin, utility-like business models then nullifies their ability to “earn their way out” of their current insolvent state.
Likewise, is all the sick banks take their subsidized funds and compete with each other pursuing higher-risk, higher-margin business, some may succeed but some will likely fail and be worse off for having doubled-down, exposing the taxpayer to loss.
Then, of course, there’s Fannie and Freddie, out there adding risk to its book at government mandated low margins, which is really the worst of all worlds.
There really is no clever solution to this.
However, putting off the problem is not an effective solution,
But it IS a more effective solution than an ineffective solution.
"Until recently, I would have agreed that significant haircuts were necessary for bondholders and I have said as much. But, I have come to see this as a problem because it will kill the appetite for new capital – I'm talking here about the massive amounts of debt that financial institutions must roll over."
I disagree with this, and others above have rightly taken you to task for it. It is not the American Taxpayer's fault that risk was mispriced during the credit bubble. The only way risk can be correctly priced in the future is for the consequences of the mispricing to be felt keenly – a total loss for the stockholders of the insolvent banks, and a substantial haircut for the bondholders. Anything else endorses the fraud and looting that we've had so far, and will get us more of the same.
One of your other points gives me a chance to re-iterate:
"While one should be suspicious whether Buffett is talking his own book, it points out the fact that any bank can 'earn its way out of insolvency' if given enough time. Nationalization is but one option. (John Hempton has noted that the Japanese banks actually did not have the benefit of time as their spread margin was so small due to the infamous zero-interest rate policy – you need a steep yield curve)."
Let me say first that you may be able to produce an example of a bank that did "earn its way out of insolvency", and I would be glad to hear about it – I am not a banking or finance expert. But you admit this did not happen in the case of the Japanese banking crisis. Also, I assert it did not happen for the large frauds in the S&L crisis, where William K. Black has made a strong case that regulatory forebearance simply allowed the massive control fraud banks like Lincoln Savings to grow larger. When these S&Ls finally collapsed due to the remaining pressure that had not been eviscerated or suspended by compliant legislators and regulators, they were far more expensive to resolve than they would have been if Black and his like minded co-workers had been allowed to intervene in years prior.
In other words, suspending mark-to-market (for example, although you don't mention it directly) or any other sort of stalling is just going to create a more epic failure when our current large frauds – Citi, BofA, Wells Fargo, etc. – collapse.
Banking must again become a highly regulated, staid, boring, modestly profitable business – not a fantasy casino on the taxpayer's dime.
– StewPDX
Am I talking heresy here?
No, but you beg a similar questions fresno dan raised: Why deposit if it is purely for custody? Why even use a form of money that can’t be loaned?
Alan Greenspan made the argument today that he lost control of rates and correlations prove it (irony emphasis added). His sin of omission is that he was on the receiving end of the gift that kept on giving. Hence correlations didn’t matter. Now they do.
Now for the Greenspan encore. The Fed can’t possibly suppress interest rates by Greenspan’s logic. Buffet, PIMCO, Faber, Julian Robertson and a host of others are not buying the deflation meme. Mish has a piece up debunking the myth that Bernanke can somehow control this daisy chain. Stigilitz adds further fuel to the fire that the dollar as a reserve currency doesn’t work and is not sustainable. The UK false flag treasury op is a dry run for the US auction fails. China’s trade numbers (and Japan), not to mention German exports (and exports and industrial production tankage globally – see fist full euros blog for charts), argue that day grows nearer and nearer.
While it is axiomatic that fractional reserve requires confidence, it is not lost confidence in banking so much as confidence in the US (global) business model. The unbridled enthusiasm of the narrowing and delusional herd that pimp the boundless opportunities embedded in the “we are different” meme is waning. Until we start to talk about the failed US paradigm, there can be no rebirth.
Consider a few foreign policy headlines from yesterday: Intel head Blair says yesterday halting Iran’s march to nukes is not likely. China harasses a ship in the South China Sea. The former head of the SAS in Afghanistan says the war is useless and in summary “the idea that we control anything more than the 500 meters outside our bases is ridiculous.” India tells Holbrooke he has no role in the Pakistan and India (Kashmir linkage/dispute).
Between the benevolent as opposed to malevolent (Swiss) swap lines, the bankrupt race to zero (which has to be a short term anomaly if Greenspan is to be believed) and the propaganda memes like we may be bad they are worse hence dollar strength, the Fed engages in a death struggle to keep the US as the fulcrum of the global payments system. Economics is politics. This is the forest.
What are the key players doing? The UK is lined up behind bankrupt US policies. It may be a nativist response to their Bloomsbury beginnings perhaps but more likely a last gasp to sustain its above weight punching power. France rejoins NATO out of vanity but its Gaullist traditions run deep. Under its bullying the EU rejects the Summers blather about more stimulus and pushes its commitment to multilateral action –and the IMF as centerpiece for banking resolution. Read those maneuverings as dissolution of US power via a more multilateral regime as in the spider and its web (ICC issues Sudan warrant, etc.). German looks askance at the Keynesian depravity showing its Austrian bias. China harasses a US navy ship in the SCS after last week’s parade of congratulatory administration rhetoric on the reopening of military to military talks (US/China). Japan joins the chorus of lunacy and says it will print more money and buy equities. The Asian tigers have seen exports shrinking on average 30-40%. Industrial production around the world is declining 10-40% Y|Y, and yet inventory to sales ratios are rising. And then there is Russia.
The entire globalization paradigm of vendor financing collapsed (not is collapsing, not will collapse, rather past tense). Little Tim and his oligopolists are desperate to keep the system afloat, seeing the current regime as the only mechanism for the US to maintain its stranglehold on fiat dominance. Perhaps the ends justify the means? But somehow history says that line of reasoning doesn’t end well; Marie Antoinette case and point. There is a reason Paulson was in China what 40 times or whatever the number. Geithner and the rest are fighting a rearguard action at best ignoring the maxim that you win the battle before it’s fought.
While the US enshrines a public hedge fun in keeping with the private to public “partnership,” the German calls for harnessing the locusts look prescient. This from mathematician and economist Eric Weinstein (h/t http://www.Powerlineblog.com):
“Many of us who work in finance are even more horrified by what we see than the lay public appears to be. Some of us spoke publicly for years about the dangers posed. Others published papers or books to spread the word. Curiously, however, our country’s laws would not even permit average families to voluntarily invest in those hedge funds that profited from this crisis by, for example, shorting subprime mortgages.
Accordingly, we don’t believe that citizenship in the United States should now hurriedly be converted into forced participation in an unaccountable secretive national hedge fund which buys lousy assets at inflated prices from banks mismanaged for personal profit by multi-millionaires, and makes non-consensual capital calls on uninformed, captive, financially unsophisticated families.
Oddly, that’s not hyperbole. That’s a description of what has taken place. It’s the reality that’s objectively outrageous.”
This crisis is far graver than dissolution of Bank of America (see: Tainter, Diamond). The proper analogy is pre civil war America, not Sweden.
I have no idea what to make of Chuck Norris and his mass following in the war zones of Iraq and Afghanistan. But his instincts tap into something pulsating below the surface outside the greenzones housing the administration, the politicians and the intellgenzia, across the Northeast and the left coast. Theses constitnuencies remian dangerously captive to their OODA loop.
From Chuck:
“From the East Coast to the “Left Coast,” America seems to be moving further and further from its founders’ vision and government.
George Washington advised, “The great rule of conduct in regard to foreign nations is in extending our commercial relations [and] having with them as little political connection as possible.” Yet the Obama administration just pledged $900 million in U.S. taxpayer-funded aid to Hamas-controlled Gaza and Mahmoud Abbas’ Palestinian Authority.
Thomas Jefferson counseled us, “We must not let our rulers load us with perpetual debt.” Yet the Feds have just skyrocketed our national deficit and debt by trillions of dollars, and it plans much more fiscal expansion with few expectations of resistance. Despite that George Washington admonished, “To contract new debts is not the way to pay for old ones,” we keep borrowing and bailing, while we watch the stock market plunge further every time we do.
Patrick Henry taught that, “Our Constitution is … an instrument for its people to restrain the government.” Yet our Congress and president stampede that founding document, overlook its explicitness and manipulate its words to abandon a balance of power and accommodate their own desires, partisan politics and runaway spending.
John Adams declared that, “Our Constitution was made only for a moral and religious people.” Yet we’ve bastardized the First Amendment, reinterpreted America’s religious history and secularized our society until we ooze skepticism and circumvent religion on every level of public and private life.
How much more will Americans take? When will enough be enough? And, when that time comes, will our leaders finally listen or will history need to record a second American Revolution? We the people have the authority according to America’s Declaration of Independence, which states:
That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience has shown that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
When I appeared on Glenn Beck’s radio show, he told me that someone had asked him, “Do you really believe that there is going to be trouble in the future?” And he answered, “If this country starts to spiral out of control and Mexico melts down or whatever, if it really starts to spiral out of control, before America allows a country to become a totalitarian country (which it would have under I think the Republicans as well in this situation; they were taking us to the same place, just slower), Americans won’t stand for it. There will be parts of the country that will rise up.” Then Glenn asked me and his listening audience, “And where’s that going to come from?” He answered his own question, “Texas, it’s going to come from Texas. Do you agree with that Chuck?” I replied, “Oh yeah!” Definitely.
It was these types of thoughts that led me to utter the tongue-n-cheek frustration on Glenn Beck’s radio show, “I may run for president of Texas!”
I’m not saying that other states won’t muster the gumption to stand and secede, but Texas has the history to prove it. As most know, Texas was its own country before it joined the Union as its 28th state. From 1836 to 1846, Texas was its own Republic. Washington-on-the-Brazos (river) served as our Philadelphia, Pa. It was there, on March 2, 1836, where a band of patriots forged the Texas Declaration of Independence. (We just celebrated these dates last week.) “
“…it points out the fact that any bank can ‘earn its way out of insolvency'”
The evidence of experience shows that this is untrue. In fact, during the boom times banks “earned” their way to disaster. And now the same people who did that are being preserved in their jobs because they are “essential” to the “system”. This is really, really, really not good.
Former Wall St. Journal editor savages the mainstream media
Today reporters write the stories that their masters want to hear, or they are out. The function of editors is to make certain that no uncomfortable information reaches the public.
“In my view, as soon as senior bondholders – I’m not talking subordinated or preferreds – take huge haircuts, the next time these companies go to market to issue bonds, they are going to find no demand.”
An excellent development, in my view.
Until we ‘writedown’ the toxic assets and restructure, the economy cannot grow because banks can’t lend…
Wrong! If we can’t get protection from these banking fraudsters from Congress then, by all means, do not lance these banker’s boils! Sure, we are probably going to reach 1 million/mn. jobs lost per month. That is only bad, if Gov. can’t tax the rich, to feed the poor. (I suspect Galbraith is behind Obama’s strategy.}
Obama’s hand will be real strong when soccer mom’s are selling their SUV’s and you see them on bicycles along the road, just like the next bag lady.
The GOP is doing their best to destroy America. Bush stuck a 4in knife in her heart. People are going to die. Lots of people are going to die. Obama only responsibility, as leader, is to make damn sure that they don’t die in vain.
Only the craven have something to fear, now. Only ones who have honed their greed into the only motivating force in their lives are in trouble, now.
If you are a member of a community, suddenly the future becomes far more benign. But, you “individuals,” you backstabbing, teammate betraying, libertarians out there are right, you are in serious trouble. Bush was you last hope. Now, your libertarian dreams are being replaced by a resurgent and many-multiplied demon horde that only frightens YOU!
Edward,
Did you really mean to shut down any institution which is “potentially Insolvent”? Would you shut down Wells Fargo with earning capacity of $40 bn a year (according to Buffet)?
You mention confidence as one of the keystones. More specifically, you talk about the confidence that depositors and creditors must have that they will be repaid in full. Yet, isn’t this what the Fed and Treasury have done by expanding FDIC’s deposit insurance limits and Geither saying that the US Government will do whatever it takes to honor committments? Is your real contention that the current set of governmental actions may be effective but not the most efficient in terms of time, price and risk to taxpayer?
Buffett never said that Wells has pre-tax earnings power of $40 billion! That is his PRE-PROVISION (ie, before normal credit losses) income – much, much more like revenue.
Taking the low end of his estimated losses/provissions, you get to pre-tax GAAP (not cash, crucially – you make a lot of money figuring out cash vs GAAP earnings at financials) income of 30B.
That, of course, is his guess – a guess predicated on the extraordinarily low cost of funds today. If you get massive inflation (which Buffett himself concedes there is a huge chance for) and the Fed has to jack rates up, everybody who depends on cheap money is dead. Try running a book of assets that returns 2-3% (like Wells; even GE has barely 5% ROA potential) with the fed funds rate at 5% to see what earnings power is.
“Let me say first that you may be able to produce an example of a bank that did “earn its way out of insolvency”, and I would be glad to hear about it – I am not a banking or finance expert.”
All the big American moneycenter banks earned themselves out of insolvency in the early 1980s and the early 1990s. By today’s standards, the moneycenter banks were insolvent in 1982, and again in 1990-1991, but as interest rates fell and the yield curve steepened, they earned their way out. There’s no reason to think the same thing wouldn’t happen today if they had enough time.
"By today's standards, the moneycenter banks were insolvent in 1982, and again in 1990-1991, but as interest rates fell and the yield curve steepened, they earned their way out. There's no reason to think the same thing wouldn't happen today if they had enough time."
—
Interest rates took a similar favorable turn during the S&L crisis. It did not save the fraudlent criminal banks.
I believe the current banks in trouble closely resemble the S&L frauds in type, even if the current scale dwarfs them. Stalling just increases the chance of US soverign default.
Thanks for the response.
– StewPDX
"I believe the current banks in trouble closely resemble the S&L frauds in type"
There's just no reason to think this. Whatever the big banks' problems, they have massive depositor bases, hundreds of billions of dollars of good loans, (still) valuable brands, and potentially enormous earnings power. None of those things was true of the S&Ls, which is why they took such crazy risks when they headed into insolvency.
If you want to predict how today's big banks will act in a crisis, it doesn't make sense to look back at the S&Ls or even at Japan. Look at the way these same banks acted in the past two banking crises: they hunkered down, took a conservative approach to lending, and let the massive spreads do their work, earning their way back to solvency. Why would we expect it to be different this time around?
Confidence is more than just an abstract belief. Sometimes it is justified to lose confidence in something.
“””
Confidence is more than just an abstract belief. Sometimes it is justified to lose confidence in something.
“””
C’mon, anonymous. If there’s no confidence, how can you play a confidence game? Let’s be reasonable, here.
There was an interesting article this morning about how the FDIC did not collect their premiums from banks FDIC and Premiums from 1996 to 2006. “…The federal agency that insures bank deposits, which is asking for emergency powers to borrow up to $500 billion to take over failed banks, is facing a potential major shortfall in part because it collected no insurance premiums from most banks from 1996 to 2006.
The Federal Deposit Insurance Corporation, which insures deposits up to $250,000, tried for years to get congressional authority to collect the premiums in case of a looming crisis. But Congress believed that the fund was so well-capitalized – and that bank failures were so infrequent – that there was no need to collect the premiums for a decade, according to banking officials and analysts….” http://www.boston.com/news/nation/washington/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/
S @ 11:37
On your John Adams quote about our constitutional govt only being operable/sustainable by a moral and religious people…
You too heavily confuse morality with religion. The latter surely jogs the former in a fair number of people, but at best a society steeped in religion just muzzles the ambition.. and that sounds more like the pressure of enforced social norms, more than any overwhelming morality.
“Religion” is enjoying a greater space in the public dialogue (squawkfest) than it has since the 60s, probably. So its there, its just not inspiring morality or even adequate peer pressure.
Look to technology (TV and Pavlovian advertising, the Internet) if you’re hunting for the source — it has bred isolation, atomization, expectation of immediate satisfaction, and a sense of entitlement and inadequacy.
When you suggest injecting religion into our governing, it just sounds like you’re advocating taking a further step away from reason and discourse, to rest on a more static belief system… and all the unaccountable unelected people and institutions that package and push it. Even if their brand had been known to take the bite out of the ambitious, it doesn’t seem worth it when it comes at the cost of our greater ability to exercise critical thinking.
Ed Harrison wrote:
Why would you lend to any financial institution if you are not sure that you are going to get your money back?
Ummm… because the institution promises a higher return than treasuries? It’s understood that there is risk involved. Seriously, Mr. Harrison, why should bond holders that made poor bets be made whole?
Guest post by Harrison should have been titled ‘Whistling Past The Graveyard’
Factional reserve banking is the problem and is running its course. You can’t stop it from imploding. Has to do with basic math and interest attached to the debt (compounding).
Playing pretend, doesn’t help much.
Another key factor in climbing out of this mess is how our most reputable economists have attacked our national intellect by perpetrating (lying) to us on behalf of the fraudsters.
There must be justice with the most reputable of economists who have committed criminality. The #1 economist on my list who not only has spearheaded the great fraudsters (oil thugs) financial mailaise but is complicit in the destruction of our women and men from the Iraq military mess (never had credibility to go-in -weapons of mass destruction and Al-Qaeda being in Iraq before the onset of the military engagement – what lies those are).
Below is two Businessweek articles authored by Gary S. Becker (University of Chicago Economist – Nobel Laureate). The first appeared in November of 2002 and second in February 2003 [our young women and men went in in March 2003). Pay special attention at the 1st article. You will see the word “Al Qaeda” mentioned. This ‘insight’ was given by Gary before we ‘knew about it as a nation??’. Do you think any egghead at the most reputable economic department in the world (University of Chicago) is willing to admit that the price of oil has been monopolistic (manipulated) these past eight years? (oil has reached $11/barrel in the 90’s – real free market power). Anything above $20/barrel should be construed as monopolistic and be punished.
Article #1 – Gary discussed Al Qaeda possibly destroying pipelines and such in Iraq?? How does he know that Al Qaeda was in Iraq??
http://www.businessweek.com/magazine/content/02_47/b3809036.htm
Article #2
http://www.businessweek.com/magazine/content/03_11/b3824043_mz007.htm
Today Gary has an institution at the University of Chicago in his honor. That institution did more with the nasty oil/GOP conduct in the last eight years than you might at first think.
This must be criminally punished or we will continue to get these MIT, Chicago, and such economic PhD’s to do more intellectual obfuscation to our unknowing and trusting public. If Gary would come before a Federal court other behavior like that revealed above would be curbed substantially.
America’s redemption must begin in our educational institutions first before proceeding to former Presidents of Bush and Bush.
(I am a University of Chicago alumnus – business school).
"If you want to predict how today's big banks will act in a crisis, it doesn't make sense to look back at the S&Ls or even at Japan. Look at the way these same banks acted in the past two banking crises: they hunkered down, took a conservative approach to lending, and let the massive spreads do their work, earning their way back to solvency. Why would we expect it to be different this time around?"
—
This seems disingenuous to me. The scale of the derivative bets gone bad are in the trillions – I've read 1.5 quadrillion. Black was relived the damage from the S&L was contained to the mere billions. These institutions are hopeless insolvent and the amounts needed to reflate them from the public treasure would be fiscal and political suicide for the US. (Not that the banks won't try, mind you – one injection at a time.)
In all this back and forth, I hear the desire to replace the criminal taint with more neutral rhetoric. I find that perspective difficult if not impossible to accept – honest regulators would have used criminal statues against these institutions already.
– StewPDX
Ego is thinking ‘what can I do?’
Obama, messiah or no messiah, should stop thinking like that.
Let the market decide.
Here is a hint – Like there is no ‘i’ in the word ‘team,’ there is no ‘i’ in the word ‘run,’ as in running a country.
If you put an ‘i’ in ‘run,’ that would be ‘ruin.’
Take out your ego so you don’t RUIN the country.
Or just be a woman from Venus – listen and empathize but don’t try to do something about it like a typical man from Mars.
Mr. Obama, Mr. Bin Lackey, or is it Bernanke, Mr. Geithner – Please just stop it!!!!!!
Stop thinking ‘I can do it,’ or ‘I can do that.’
Don’r ruin the country or the world.
Remove the ‘i.’
You lost all credibility when you said:
Job 1 is to get a grip on the future losses, write those assets down and recapitalize institutions accordingly
as though it is so simple. Just get a grip! Sure, predicting the future is no problem at all. Apparently you forgot that you wrote just a few paragraphs earlier:
Identification of insolvent institutions. This is the tricky bit
Indeed it is. Come back when you have something interesting to say, Mr. Guest Columnist. Post this pablum on your own site, which I have never visited and now know I don’t need to.
Waldo, like I said before at LALand months ago, Harvard and Yale should apologize to the American people for producing leaders who are not ready/qualified to lead.
How to give Bank Bondholders a perfectly predictable haircut (and thus increase confidence in future investing):
http://findingourdream.blogspot.com/2009/03/add-some-nuance-to-bank-restructuring.html
This blog is slow. Yves come back!
absolutely on the money. Fantastic post. Yves, your guest bloggers are fabulous.
Great post, but the more I learn about this whole situation, it seems that the reality of “too big to fail” is actually that the federal government is simply not capable taking over one of these major money center banks, much less the whole lot of them. The bill for that could run into the trillions within days, and what in the hell happens with the international operations?
Also, how in the hell do you find out what the “future losses and write downs” are going to be when the collapse in asset values and the economy in general are both accelerating by the month?
Thanks again to Yves, for posting the best thinking around … Your blog has been a god send to those of us seeking the truth and the answers unadulterated with political and self interested spin.
“Waldo, like I said before at LALand months ago, Harvard and Yale should apologize to the American people for producing leaders who are not ready/qualified to lead.”
Bull sh*t. Just punish the felons (regardless of their academic status or affiliation). Simple. No apology required. Ted Bundy never apologized (did not have to). Capital punishment for the capitalism thieves (murderers).
Ralph Waldo Emerson is a Harvard University graduate (I say his is not only Harvard’s greatest graduate but he is America’s greatest).
Waldo, no bullSh*t. You can punish people if you want. The universities themselvs can’t be put in jail. Apologies are enough for me. Now, the people associated with the universities, you do whatever you want. I never said I agreed or disagreed.
I’m pretty confident the US is a banana republic.
@Waldo : it’s not a matter of what school these people came from. Madoff came from Hofstra I think.
Mario Cuomo is doing good work using real investigative technique to hold these people to standards. Many will fall short and I hope they are exposed to the full force of the law.
Otherwise this country will hate and resent its banks, and the national spirit will be diminished in a permanant way. People just won’t like doing business with these banks, and that means they’ll work less hard and cut back. That will be the new national ethos.
Unless you claw back all the ill gotten gains from these clowns and let them sweat for a living like their former social inferiors.
it continues to amaze me that the so called experts, economist, guru investors are still stuck in their rut with blinders on.
these are smart boys making decisions. do you think they have not considered doing what Harrison suggest?
“One reason that this crisis has been so protracted is because there has been a painful drip, drip of writedowns after each and every capital injection into America’s financial institutions. Clearly, investors and policy makers alike have seriously underestimated the scale of writedowns. So, Job 1 is to get a grip on the future losses, write those assets down and recapitalize institutions accordingly. Getting this done quickly is important. The mechanics, while tricky, are less important.”
so why haven’t they done this? they haven’t underestimated anything. they know what the problem is. if they told us (the truth), that the problem is bigger than any solvent government could fix/backstop, all markets would panic and the doom that many are calling for will occur immediately. bang!! getting this done quickly is impossible. the problem is too big. the strategy they are employing — biding time (or the drip-drip method)—is the only chance of avoiding the big bang. their drip-drip method (including hiding details, taking actions bordering on illegality, manipulating congress etc.) is the only hope to save fractional reserve banking, the dollar from crashing, the stock market going down 90%, defaulting on our debt. their only hope is to bide time, avoiding a run on the bank(s) while they recapitalize by borrowing at .25% and lending at 7-25% (what a sham), and bleeding the bad debt out of the system. there is no other way.
in my opinion, its not going to work either way, but time gives them hope.
prepare yourself.
Vinny Goldberg here. We need to find out once and for all which of these institutions are insolvent. Consequently, I propose the following Five Step Stress Test (heretofore known as the “FiSteSTest”). But I suggest you make this a family activity. Get your kids involved. And, don’t pass up on any educational opportunities, so explain to the kids that you’re testing the stability of the scoundrel American banking system. Draw easy-to follow colorful diagrams for them. Illustrate with your their favorite Disney characters like Mickey Mouse as the good ripped-off consumer, and the Big Bad Wolf as your friendly banker son of a bitch (wolf bitch, that is).
Here is the Five Step Stress Test (FiSteSTest):
Step 1. Over the next 7 days, starting on Monday, March 16th, “We, The People,” show up at our favorite neighborhood bank’s ATM at 12 PM, 6 PM, and 9 PM Eastern Time, and withdraw our maximum allowed.
Step 2. After the first 7 days, we continue the process for 7 more days, however this time we show up 6 times per day, at 12 PM, 2 PM, 4 PM, 6 PM, 7 PM, and 8 PM Eastern Time.
Step 3. Finally, on the 14th day, if you still have anything left in your account, set up an appointment with your bank manager, and withdraw the remaining balance in small bills (20s or less).
Step 4. Invest the cash you now have in gold, guns, and canned food. Buy some second-hand toys for the kids too. And, pick up a couple of cheap beachfront foreclosures for investment.
Step 5. Wait a few months to see if your friendly bank goes bust. If it does, you’ll be glad it didn’t’ with your money. If it does not, well, who cares – your money is safe, and that’s what matters.
Spread the word. Copy this post and email it to all your friends who still have a bank account and are not yet homeless. See you on Monday at noon at your bank’s ATM machine.
Vinny Goldberg
The real need for bank creditors is to create certainty and predictability, not simply make them 100% whole. Here’s a way to give that certainty that is more fair to taxpayers:
http://findingourdream.blogspot.com/2009/03/add-some-nuance-to-bank-restructuring.html
S said: “Texas, it’s going to come from Texas.”
Riiiiiiight! And, the whole revolution will be lead by another corrupt Southern Baptist preacher trying to reestablish “America’s religious history,” right? And once another born again moron like Bush will be in office again, they’ll start bombing a few more Muslim nations, along with a few Budhist ones, and a few Catholic European countries unwilling to be baptized the “proper” way. And then sign up Halliburton for the reconstruction job. All the while doing God’s mighty works, eh?…LOL
Snap out of it, buddy!
Vinny
“Today reporters write the stories that their masters want to hear, or they are out. The function of editors is to make certain that no uncomfortable information reaches the public.”
Who cares what the editors want to publish anymore. They are irrelevant. Most people get their info from blogs like this one nowadays. Only morons still believe WSJ, Fox News, CNN, and the likes. Trust me, when somenody like me can post something like my Five Step Stress Tester (see above) for self-amusement purposes, the WSJ’s power is worthless.
Vinny
@Vinny,3:05…..ROFL, To what you said, and Cube it for me.
But that will be where the tear starts if thing get ugly.
Skippy…Go you good thing Vinny.