New accounting standards for banks...

[Mvic]

an interesting read.


http://www.federalreserve.gov/newsevents/speech/duke20090914a.htm

The recent G20 agreement calls for a retention of risk, or "skin-in-the-game" approach for asset securitizations. It also calls for higher capital standards and a leverage ratio for all banks. If the risk retention requirements, combined with accounting standards governing the treatment of off-balance-sheet entities, make it impossible for firms to reduce the balance sheet through securitization and if, at the same time, leverage ratios limit balance sheet growth, we could be faced with substantially less credit availability. I'm not arguing with the accounting standards or the regulatory direction. I am just saying they must be coordinated to avoid potentially limiting the free flow of credit.

 

[pitz]

Why have credit at all? Businesses have enough infrastructure and capability that most of them can easily self-fund their own growth, without leverage. Look at the tech sector, extremely little, if not any debt there, and they do just fine (if anything, the tech sector hasn't been aggressive enough in spending!).

Sure, with reduced levels of debt, we might not get shopping centres springing up everywhere like weeds -- but would that be a problem? Can't we just save to build those things, instead of pulling ahead demand from the future?

Can't people save to buy their houses, paying all-cash, instead of 30-year loans? What's wrong with living in a rental until one is in their early-mid 30s anyways? It should be that way -- because practically nobody before they're 30 has a stable career in one location anyways, so ownership really isn't appropriate.

 

[piezoe]

Quote from Mvic:

an interesting read.


http://www.federalreserve.gov/newsevents/speech/duke20090914a.htm

The recent G20 agreement calls for a retention of risk, or "skin-in-the-game" approach for asset securitizations. It also calls for higher capital standards and a leverage ratio for all banks. If the risk retention requirements, combined with accounting standards governing the treatment of off-balance-sheet entities, make it impossible for firms to reduce the balance sheet through securitization and if, at the same time, leverage ratios limit balance sheet growth, we could be faced with substantially less credit availability. I'm not arguing with the accounting standards or the regulatory direction. I am just saying they must be coordinated to avoid potentially limiting the free flow of credit.

Many would say that there was too much easy credit before, and that contributed to the financial collapse. So perhaps if we get a little tightening via the rules it is not that bad. We need "free flow" as you note, and that implies liquidity of credit instruments, but we probably don't need easy credit and lax standards.

 

[aegis]

Quote from pitz:

Can't people save to buy their houses, paying all-cash, instead of 30-year loans

Unless you live in the middle of Wyoming or something, it's highly unlikely that anybody could afford to do that, except for doctors.

The 20% minimum down payment would be fine and worked very well for a long time. Require 100% cash and real estate prices would plunge. It'd get pretty ugly.

 

[Renegen]

Quote from pitz:

Why have credit at all? Businesses have enough infrastructure and capability that most of them can easily self-fund their own growth, without leverage. Look at the tech sector, extremely little, if not any debt there, and they do just fine (if anything, the tech sector hasn't been aggressive enough in spending!).

Sure, with reduced levels of debt, we might not get shopping centres springing up everywhere like weeds -- but would that be a problem? Can't we just save to build those things, instead of pulling ahead demand from the future?

Can't people save to buy their houses, paying all-cash, instead of 30-year loans? What's wrong with living in a rental until one is in their early-mid 30s anyways? It should be that way -- because practically nobody before they're 30 has a stable career in one location anyways, so ownership really isn't appropriate.

Every dollar is debt, remember. Those who can self fund are always the minority. That cash on someone's balance sheet is a liability on someone else's balance sheet. So credit growth is essential.

This new BW story also talks about some regulations.

http://www.businessweek.com/investo...report+--+the+meltdown+--+one+year+later+2009

 

[pitz]

Quote from aegis:

Unless you live in the middle of Wyoming or something, it's highly unlikely that anybody could afford to do that, except for doctors.

Why can't they? If all the debt was wrung out of real estate (which it may very well be...eventually), then prices would be such that someone could save up for a few years and make a purchase, just like they can for any other consumer item.

The 20% minimum down payment would be fine and worked very well for a long time. Require 100% cash and real estate prices would plunge. It'd get pretty ugly.

What's wrong with real estate prices plunging or being low?? We all like low prices at Wal-Mart on consumer items. A house is just another consumer item -- why shouldn't it price be low? Why are we trying to fight the trend of lower prices on one particular consumer good, versus another?

 

[Random.Capital]

Quote from aegis:

The 20% minimum down payment would be fine and worked very well for a long time.

I'm ok with 20% down, but I want the state out of the mortgage interest game. No more Fannie or anything like it - let the market determine mortgage rates that actually reflect the risk of lending money for 30 years.

Current policy in the US is effectively a massive subsidy and IMO should be eliminated.

 

[Trendytrader]

Quote from Random.Capital:

I'm ok with 20% down, but I want the state out of the mortgage interest game. No more Fannie or anything like it - let the market determine mortgage rates that actually reflect the risk of lending money for 30 years.

Current policy in the US is effectively a massive subsidy and IMO should be eliminated.

I agree. Most "modern" 1st world countries do not have government buying of mortgages.