that s written on the piece of paper hidden in these toxic assets.

They are not toxic but partially non-existing. There therefore are no toxic banks at all. All we can argue here about is their” existing” and “non-existing” part.

Their value thus depends on probability that
a) no one discovers that piece of paper
b) we can overprint to such an extent that this vacuum gets refilled
c) that b) can in fact not be done due to the current »environment« we find ourselves in
d) we ll lock in the needed total amount of fresh greenbacks on a huge but partial but regular and sustainable quarterly basis through congress for years to come to keep up the cash flow required for that picture to emanate to sink in the bottomless pit called »banking« these days
e) foreign CBs don t wake up as to what constitutes a “reserve” or can be scared/persuaded enough not to remember (e.g. appreciation)

but not on
a) any model even those not yet invented that derive their result (value) from the underlying asset “happening”

We re ok at the a) and the e) for now tho shaky, c) then scratched b) away, d) might take its dive along somewhere. That s exactly what the markets have lately been trying to say here

Even if the banks make no money, writing off a 5.2 percent loss on this stuff over a year is well within the current scope of what we are facing and the banks actually have an incentive to make this work because it works like a loss leader to get the credit market moving again. Hell they should toss in some gold ticket assets randomly just to spice up the pot.

He tried to. The trouble is that if things get worse, and private equity doesn’t buy, you are stuck with these assets. If you haven’t hedged them, then you have large problems.

Observer: So I’m confused by this statement. David Goldman doesn’t advocate everyone buying these assets, just those who have the stable financing and are not constrained by capital requirements.

Except that no one has stable financing and everyone has capital requirements.

You have a chicken and egg problem here. Hedge funds and private equity need financing and loans from banks to buy these securities, but banks aren’t going to provide hedge funds and private equity with that financing because they have these assets on their books.

Observer: Now that these assets have hit a floor in pricing, and that banks have plenty of liquidity to releverage, it’s the perfect time to earn those cash flows.

It’s not a good time right now, while we have massive job losses each month. The assets haven’t hit bottom and banks don’t have plenty of liquidity.

Karen: Proper valuation is needed for toxic asset purchases or proper mortgage modifications. This platform addresses both and protects the taxpayer, and un-biased on valuation.

This sounds like a press release that got injected into the system, and it sounds pretty bogus to me.

Valuation is essentially a very subjective process, and trying to pretend that it isn’t will get you into a lot of trouble.

Ultimately a lot of finance depends on staring someone in the eye, and trying to figure out if you can trust them or not.

But they are matched by short term deposits to provide money to buy the loans.

Observer: First of all, if you got a piece of security in your hands that nets interest in the double digits, why would you want to ‘monetize’ it.

Because you have lots of interest rate and default risk that you need to manage. One way of doing this that can be a lot safer than holding loans is to make money off origination and servicing fees. You immediately sell off the loans, make money from the origination and servicing fees and then use the cash to make new loans.

If you aren’t reselling loans, then the loan volume goes way down, which is what has happened.

Observer: Second of all, you are talking about a theoretical situation where there’s a run on bank deposits.

It’s not a theoretical situation. There were massive bank runs on the investment banks and money market funds after Lehman, and a bank run is what killed Washington Mutual. Banks have very little cash on hand, and even a small drop in deposits can be a huge problem. Since now everything is FDIC insured, it’s not a huge problem for depositors, but it is one for the government.

You haven’t seen people line up in front of banks demanding their money, but that’s because all of this is happening over the internet.

Observer: That certainly can happen, but in this discussion of bank’s cash flow, that’s neither here nor there.

It did happen. Bear-Stearns, Lehman, and Washington Mutual, and the investment banking model were all killed by bank runs.

Banking would be easy if you didn’t have to worry about bank runs, but you do. Part of the reason that finance has changed so much is that a lot of “let’s not worry about these events” have actually happened.

Observer: Now that these assets have hit a floor in pricing, and that banks have plenty of liquidity to releverage, it’s the perfect time to earn those cash flows.

They haven’t hit a floor in pricing, and banks don’t have plenty of liquidity. If you can get a situation in which the unemployment rate stabilizes *then* people will start purchasing those assets, but until unemployment stabilizes, people aren’t going to be too interesting in buying.

The question should be weather to do nationalization, government bailout of private firms or some sort of public private hybrid?

For my understanding, a public private hybrid model has demonstrated tremendous problems in the past. Examples include Freddie and Fannie, rating agencies, to Public Private Partnership infrastructure model, Commercial banks (in some sense).
It is extremely complicated to spell out the responsibilities of each partner. Lots of resources went to figure out what is the right amount of true asset value, who should get what etc.

Government job is to maintain a healthy economy for Americans. Taxpayer’s money bailout of private firms is not justified.

The only option left is nationalize its banking sector. Given the severity of the crisis, the speed and simplicity of the action will bring, this option should be seriously considered right now.

Federal regulators should seize the assets of all the MD’s, Executives and CEO’s.

A part of taxpayer money should be allocated to Trials and Indictments. Why is Stanley O’neal NOT INDICTED? Why is Dick Fuld NOT IN JAIL? Why is HERB GREENBERG not under ARREST?

Why did some highly paid Bankers who sold and packaged MBS and CDO’s quit in 2007 and then with personal funds SHORT the FIRMS who bought them? Making more money on way DOWN than on the way UP!

I’m appalled and disgusted with Wall Street. I will never invest a dime in U.S. financials and I’m sure I’m not alone. Majority of my neighborhood is just as outraged as myself.

Thank you!