Nationalize Insolvent Banks

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">yes </div></div>Well it does appear as if you advocated Federal Takeover via a Bankruptcy/Receivership, however your reference to FINSAC style is no good.
FINASAC destroyed assets in a Bankruptcy relationship assets are not destroyed.

I do not advocate Nationalization I continue to advocate restructuring based on a Government backed sale to the Private Market of revalued assets. A take over of the National Banking System of the USA in today’s day and age will be disastrous.

[RichD]

Re: Nationalize Insolvent Banks

what do you mean by FINSAC destroyed assets?

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">what do you mean by FINSAC destroyed assets? </div></div>
Under FINSAC there was no proper quantification of the wholesale value of the assets under its consideration, the GOJ simply took an axe to the various portfolios then handed them over to this body to sell and/or collect as it chose to.

But my real argument is not about FINSAC the Solution, but what led to FINSAC. I see FINSAC as another AMC or Lend Lease Program where the PNP Government not getting what it wants out businesspersons simply uses the State to attack and destroy the offending entities. Once this train was set in motion it took down many diverse institutions.
So FINSAC the Instrument was merely the culmination of the ongoing plan to destroy assets of certain businesses in Jamaica.

[RichD]

Re: Nationalize Insolvent Banks

putting aside the specifice FINSAC implementation and look at t more as a concept can you see soem value in the gov stepping in a taking over these troubles assets ..for institution that are solvent the gov woudl simply buythese assets formthem at FMV for insolvent institutions it would mean regulators coming in and wrapping them up.

how many banks have folded since last september?

[evanovitch]

Nationalization by autumn, bank on it


February 13th, 2009
Nationalization by autumn, bank on it
– <span style="font-weight: bold">James Saft is a Reuters columnist. The opinions expressed are his own –</span>

<span style="font-style: italic">Like it or not the United States will be forced to nationalize large swathes of its banking system by the time the leaves fall from the trees in Washington.</span>

The tragedy is that we will have to wait that long and that the costs will mount.

The plan to rescue the banks, or, er, the people, as enunciated by Treasury Secretary Geithner, <span style="font-weight: bold">is no plan, only an apparent set of contradictory principles: an ideological one not to nationalize and a political one not to subsidize too obviously.</span>

<span style="font-weight: bold">The plan will fail unless the administration comes out in favor of either subsidy or seizure of failing banks.</span> Either the United States will be forced to nationalize when that becomes apparent or perhaps it is waiting until that failure makes nationalization more politically palatable.

<span style="font-weight: bold">In either event</span>, it is a terrible mistake and the cost will only grow, both in direct terms for taxpayers and more broadly for the growing number of people with too little income to pay tax.

Geithner laid out a plan to apply stress tests to large banks and require those that do not pass either to raise capital (from whom exactly, I hear you ask) or to accept an injection of convertible securities from the government on terms that have not been defined. Banks that take government coin will have limits placed on their compensation and other actions.

There is $500 billion to $1 trillion to fund an aggregator bank which will “partner” with private capital and set prices for distressed bank assets, presumably with some sort of insurance wrapper to limit private capital’s downside. There are also measures intended to generate lending directly to consumers, house buyers and businesses.

All in all, it’s a bit like watching a man trying to eat a steak without using his teeth.

“The financial system needs at least $1 trillion in tangible common equity to be sufficiently capitalized — the capital holes on financial balance sheets are just too large to be plugged with convertible securities with vague terms,” Paul Miller, an analyst at FBR Capital Markets who has been very prescient, wrote in a note to clients.

“<span style="font-weight: bold">Another concern</span> … is that it does not adequately address the toxic assets on bank balance sheets. It does include a variation of a public/private aggregator bank, but private investors will want to buy assets at distressed prices and the banks will only sell assets at above-market prices.”

<span style="font-style: italic">Those two points form the crux of the issue</span>; for the banking system to work without widespread failure and nationalization we either have to hand out huge subsidies to banks directly, in the form of cheap capital, or indirectly, by giving a subsidy to investors who will pass on part of it to banks as a condition of getting their share. The first is unfair, the second unfair and inefficient.

<span style="font-style: italic">PLAYING THE LONG GAME IN A SHORT LIFE</span>
Of course, it could have been worse. We seem to have escaped calls to magic solvency up by suspending mark-to-market accounting, which would have worked as well as making “six” the new “zero.”

And in fairness we don’t know how the stress tests will work or if it is possible to fail one. But President Obama did tell ABC News that nationalization “wouldn’t make sense” because of the scale and complexity of the U.S. economy and capital markets would make it too tough to manage and oversee. He’s right and government will do a terrible job of managing banks, but it will be forced to and may as well get on with it. They seem now to be hoping that the economy turns and bails them and the banks out of their pickle, but that is a dangerous bet.

By the time we figure out that it’s not working, when whatever capital we have injected is swamped by falls in asset prices — and remember deleveraging and asset price falls go hand in hand — things will be that much bleaker and the United States will have less room to maneuver.

But ironically, maybe the most hopeful sign yesterday was the negative way in which the stock market and shares in banks reacted. Bank investors clearly thought that this raises the chances of them having their equity extinguished or at the very least their share of future profits diminished.

And Obama is not FDR coming in after a depression was already entrenched, he is leading a country which is only beginning to wake up and to suffer. It is just possible, though not likely, that <span style="font-weight: bold">the administration realizes it will have to take more drastic steps but needs more time to prepare the ground and make that politically possible.</span>

<span style="font-style: italic">One factor which may come into play</span> is international pressure not to nationalise. What is just about possible in the United States would be far harder in economies such as Britain’s with larger banking systems relative to their size and borrowing power.

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">putting aside the specifice FINSAC implementation and look at t more as a concept can you see soem value in the gov stepping in a taking over these troubles assets ..for institution that are solvent the gov woudl simply buythese assets formthem at FMV for insolvent institutions it would mean regulators coming in and wrapping them up.

how many banks have folded since last september? </div></div>

I did say months ago that <span style="font-weight: bold">all</span> the banks are in trouble.... yesterday I saw it in print...they were described as Zombies.
Here is my solution repost from above:

<span style="font-family: 'Book Antiqua'">I do not advocate Nationalization I continue to advocate restructuring based on a Government backed sale to the Private Market of revalued assets. A take over of the National Banking System of the USA in today’s day and age will be disastrous.</span>

Further I don't think Citizens of the USA want to wake up tomorrow and discover all their marquee banks gone, no matter what problems they had.

[RichD]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">

<span style="font-family: 'Book Antiqua'">I do not advocate Nationalization I continue to advocate <span style="font-weight: bold">restructuring based on a Government backed sale to the Private Market of revalued assets</span>. A take over of the National Banking System of the USA in today’s day and age will be disastrous.</span>

</div></div> what exactly does that mean?

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">

<span style="font-family: 'Book Antiqua'">I do not advocate Nationalization I continue to advocate <span style="font-weight: bold">restructuring based on a Government backed sale to the Private Market of revalued assets</span>. A take over of the National Banking System of the USA in today’s day and age will be disastrous.</span>

</div></div> what exactly does that mean? </div></div>The Private sector value the toxic assets...they are trained to do so, they do it daily. The Government provides a space for them...Bad Bank or Virtual backing at an under/over price.
You buy it drops under you lose.
You buy it rises over the Fed Compensate.
These revalued assets are offered on this basis to the Private Sector, freeing to banks to continue to do business.

[RichD]

Re: Nationalize Insolvent Banks

so what happens if there are no buyers right now?

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">so what happens if there are no buyers right now? </div></div>
There is no valuation and no understanding of how far the underwriting of these assets will go so no smart buyer will step into that mess at this time. Plus it safe to say the price will be lower the longer you wait.

I am confident that once the toxic assets are determined and valued they will be snapped up.

[Morpheous]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body">

<span style="font-family: 'Book Antiqua'">I do not advocate Nationalization I continue to advocate <span style="font-weight: bold">restructuring based on a Government backed sale to the Private Market of revalued assets</span>. A take over of the National Banking System of the USA in today’s day and age will be disastrous.</span>

</div></div> what exactly does that mean? </div></div>The Private sector value the toxic assets...they are trained to do so, they do it daily. The Government provides a space for them...Bad Bank or Virtual backing at an under/over price.
You buy it drops under you lose.
You buy it rises over the Fed Compensate.
These revalued assets are offered on this basis to the Private Sector, freeing to banks to continue to do business.
</div></div>
Along the same theme of restructuring but without government backed sale to private sector is to split the banks into two distinctive roles/parts.

<span style="font-weight: bold">1:</span> High street banks are not allowed to use high street customers money for risky investments. They stick to old fashion traditional banking where they protect customers money.

<span style="font-weight: bold">2:</span> A separate investment arm of banks are created (like independent dedicated investment companies). Money invested here doesn't come from normal high street clients without their say so. Such clients would invest only if they choose to and they would be well aware of the risks of the particular investment. This way if investments/assets become toxic the investment arm bears the fall and normal high street banks do not callapse as result like a dominoe effect.

The crisis is due to banks invovling themselves in risky investment deals world wide with shareholders/cleints money without them knowing the full extent of the risks involved.

[RichD]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">so what happens if there are no buyers right now? </div></div>
There is no valuation and no understanding of how far the underwriting of these assets will go so no smart buyer will step into that mess at this time. Plus it safe to say the price will be lower the longer you wait.

I am confident that once the toxic assets are determined and valued they will be snapped up.
</div></div>but isn't time of the essence? what about banks which after sale of the assent as still not solvent?

[Dr.Dudd]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">so what happens if there are no buyers right now? </div></div>
There is no valuation and no understanding of how far the underwriting of these assets will go so no smart buyer will step into that mess at this time. Plus it safe to say the price will be lower the longer you wait.

I am confident that once the toxic assets are determined and valued they will be snapped up.
</div></div>Don'tt that is literally what happened to the FINSAC assets that Joslyn bought up, and decide to make a killing because if the bankrupsy laws of Jamaica,that does not allow people to walk away from debts??

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">so what happens if there are no buyers right now? </div></div>
There is no valuation and no understanding of how far the underwriting of these assets will go so no smart buyer will step into that mess at this time. Plus it safe to say the price will be lower the longer you wait.

I am confident that once the toxic assets are determined and valued they will be snapped up.
</div></div>but isn't time of the essence? what about banks which after sale of the assent as still not solvent? </div></div>I thought you said a while back that the USA Government was moving too fast with regards to the Bail out and they should deliberate more carefully? Sure time is of the essence, but this is the USA it is going to take a great leap of faith for everyone at the table to accept a mass write down of their assets and accompanying wiping out of their investments.

As for banks and institutions that will remain insolvent? The POTUS addressed that last week…. he explicitly said some banks wouldn’t make it.

[Tuff Gong]

Re: Nationalize Insolvent Banks

<div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Dr.Dudd</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: Tuff Gong</div><div class="ubbcode-body"><div class="ubbcode-block"><div class="ubbcode-header">Originally Posted By: RichD</div><div class="ubbcode-body">so what happens if there are no buyers right now? </div></div>
There is no valuation and no understanding of how far the underwriting of these assets will go so no smart buyer will step into that mess at this time. Plus it safe to say the price will be lower the longer you wait.

I am confident that once the toxic assets are determined and valued they will be snapped up.
</div></div>Don'tt that is literally what happened to the FINSAC assets that Joslyn bought up, and decide to make a killing because if the bankrupsy laws of Jamaica,that does not allow people to walk away from debts?? </div></div>
Nope the Government of Jamaica decided to destroy certain business, the virus spread and took out whole swaths of the economy.
The GOJ made no moves and had no intention of going about a fair valuation of assets. The GOJ bailout its friends, the rest they to Dennis Joslin for pennies on the dollar, without even making an attempt to offer it to the Jamaican Investors at the same deal.

I would like to see the USA Government try that. Let see the results. The only resemblance to FINSAC is bad governance and bumbling, stumbling response to the crises.