The Only Bailout Thread I'll Start

Quote from ScottD:

Excellent post Pabst.

In your opinion, are high quality US banks such as JP Morgan, US Bancorp, and Wells Fargo at significant risk without the bailout?

As a consequence of your thinking, have you moved your cash to protective asset classes such as gold/silver?
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My money is in over the top crap places.

1. The brokerage arm of a too big to fail money center bank.

2. A small uninsured Chicago FCM.

3. A residance in South Florida.

4. A condo in Chicago.


I'm a d-bag of the highest order by not owning a bunch of gold but if there is indeed any type of currency collapse I'd expect my RE to at least hold some semblance of global purchasing parity. Of course I'd rather be at parity with Paris instead of Bogotá but.......
 
Quote from Pa(b)st Prime:


Fact: The media plays upon YOUR tendency to blame others

Fact: Forcing folks to reflectively view their own actions through a mirror is a futile endeavor.

Fact: Lack of depth, self awareness and yes basic intelligence is why most of you are unable to trade profitably.
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yes - but you did not have to start this thread to figure this out :)

i said it in a different thread on this topic; people are monkeys - they like it simple. that's why we have so many tragedies in 20th century after all... And 21st is not going to be any different...

p.s. by the way - still short ZBs?
 
Pabst,

Great Summary.

What do you think about this whole cap execs pay. It looks great on paper, but if it is implemented, what would be their incentive to stay to help clean up the mess.

But if you do not hit people at their wallets, how will they learn not to do stupid things again.

A true Gordian Knot.

Regards,
redduke
 
...anyone who keeps money in a bank account or in a CD presumably is earning a higher rate of interest than if we invested those funds directly into Treasury securities.
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If your figures of deposits to reserves are correct than banks are operating at around 25:1 leverage.

Explain to me how a CD earning around 4% APY is a true reflection of the risk that sort of leverage carries?

Same goes with people building houses in high-risk areas. Fine with me, but I sure as hell don't agree that I should have to subsidize rebuilding it after it gets destroyed if I'm not offered the opportunity to use it.

I agree with you that the bailout is required. But, it's got to carry the price of people being held accountable for their actions instead of being given a mulligan after violating the public's trust.
 
Quote from RedDuke:

Pabst,

Great Summary.

What do you think about this whole cap execs pay. It looks great on paper, but if it is implemented, what would be their incentive to stay to help clean up the mess.

But if you do not hit people at their wallets, how will they learn not to do stupid things again.

A true Gordian Knot.

Regards,
redduke
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Hey bro! Thank's for the kind words.

A couple of points. Notice how these investment banks started to take increased risk only after they became public corporations? The shareholder dilution has been extreme and it's an unheralded reason for why share prices across the board have been hit to such extremes.

Also as we've all know all along: Execs, managers and traders at IB's and hedge funds are long a free call on performance while investors and stock owners are short a naked put. I don't suppose that dynamic will change per se' but I'd expect to see a lot less cash compensation going forward.

The answer: Pay folks with out of the money call options.
 
CD's are woefully mis priced. Risk across the board is STILL priced too cheap. We didn't dodge a bullet here. We're shot and I suspect wounded on the brink of mortal danger.

A lot of guys will be thinking good "shut the bastards down." Sounds prudent until they face the day in a year or two when they can't buy or sell a used car because ain't no one there to provide the loans.....
Quote from jprad:

If your figures of deposits to reserves are correct than banks are operating at around 25:1 leverage.

Explain to me how a CD earning around 4% APY is a true reflection of the risk that sort of leverage carries?

Same goes with people building houses in high-risk areas. Fine with me, but I sure as hell don't agree that I should have to subsidize rebuilding it after it gets destroyed if I'm not offered the opportunity to use it.

I agree with you that the bailout is required. But, it's got to carry the price of people being held accountable for their actions instead of being given a mulligan after violating the public's trust.
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Quote from Pa(b)st Prime:

The answer: Pay folks with out of the money call options.
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not so fast. it depends more on maturity of options than on how much otm they are. in fact short dated otm are the worst you can have. but they are piles of books written on this and changes still did not happen...
 
Quote from dhpar:

not so fast. it depends more on maturity of options than on how much otm they are. in fact short dated otm are the worst you can have. but they are piles of books written on this and changes still did not happen...
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I shouldn't have said "answer" dhpar. Just an idea and you rightfully exposed one of its major perils. :)
 
Quote from Pa(b)st Prime:

You guys want to talk about leveraged bets? Here's some numbers:

There is $6.84 Trillion in bank deposits.
$2.60 Trillion of that is uninsured.
Total cash on hand at banks is $273.7 Billion
FDIC reserves are around 50 billion.

Anyone with a double digit IQ can do the math. The FDIC is levered at about 85-1. Even Lehman's Dick Fuld would blush at the exposure.
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Comparing the "leverage" of the FDIC vs LEH vs Allstate misses a fundamental point - not all leverage is equivalent, it depends on the risk of the investment. By just looking at the ratios you are comparing apples to oranges.
 
I'd just point out that without a fractional-reserve system in the first place, this would be a non issue. There would be no FDIC insurance and no need for it. Banks would just take deposits and make loans - end of story.

This bailout is an attempt to save the system. But when the system stinks in the first place, and is the reason for every crisis since 1913, why bother?

Anyone chasing yield in bank accounts or CDs deserves whatever losses they take. Are prudent savers going to be compensated for 15 years of high yield backpayments for actually doing the work to ensure their funds are diversified and in sound *low leverage* assets and institutions? No. So fuck Joe Public - he took the risk, got the reward, now he can take the downside.
 
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