That was a very intelligent and well said post meil. Extremely accurate advice which I myself have only recently come to adopt. I made outstanding profits with AVF on a bond
fund which AIG sponsors but did not take the nearly 300% profit I once had. However, I am sticking with it because of the high yield and the good chance that the yield of 58% on my holdings will pay off over the next 40 years or so. Good job and again....this is very sage advice as I too have won big and lost big for believing in face to face chats with CEO's.
JD UNC School of Law
martingale
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September 26, 2008, 9:49 am Link to This E-mail This Topics Investment BankingIndustries Financial ServicesThe seizure of Washington Mutual may be the largest bank failure in United States history, but unfortunately, there’s nothing new about a national banking crisis.
In fact, a just-released report from the International Monetary Fund counts 124 banking crises in the last 27 years, in countries like Japan, Argentina and Britain.
Economists at Merrill Lynch looked at the report and summed up some of its most interesting findings. Among other things, it showed that the average fiscal cost — net of any recoveries down the road — related to managing a banking crisis is a substantial 13.3 percent of a country’s gross domestic product.
That doesn’t bode well for the idea, floated this week by Warren E. Buffett, among others, that United States taxpayers might actually see a profit on the current proposal to use $700 billion to buy troubled assets from financial firms.
“The government is highly unlikely to make a profit on any recapitalization program,” Alex Patelis, the Merrill economist, wrote in the report.
The average recovery rate in a banking crisis averaged just 18 percent of the gross costs.
A look at Japan’s financial crisis in the 1990s is instructive, the Merrill report said. Like the current American crisis, Japan’s banking turmoil included the rescue and disposal of home-loan companies and the bankruptcy of a big securities firm — although the crisis in the United States seems to be unfolding much faster than Japan’s, possibly accelerated by the magic of securitization.
Judging from previous crises, Merrill’s economists suggest that the United States should move quickly to declare certain banks “survivors” and put the others out of their misery.
Doing so, they said, would end the “who’s next?” game that has gummed up the credit markets:
The Asian crisis teaches us that it is imperative that U.S. policy makers tell us which financial institutions will survive; and which not. This could possibly involve blanket government guarantees to unfreeze money markets. Until this uncertainty is resolved, financial institutions will be reluctant to deal with each other.
15 comments so far...
1.September 26th,
2008
10:43 am I think todays stock market action, should make law makers question the need for this bailout. We have been told time and again that without tarp, the market would implode. Yet, today, after a night filled with headlines suggesting talks were far from conclusion, the dow jones is only down 50 pts.
Everyday this week a major financial institution has successfully sold billions of dollars of stock (Goldman Sachs, Capital One, Morgan Stanley, JPMorgan). Clearly there is interest in owning financial names. JPMorgans purchase of Wamu is a perfect example of a self-funded solution for the industry.
Yes bad banks will fail, but the stronger banks will rush in to purchase their deposits. That is how a market works. Any bailout without warrants if just simply stupid.
— Posted by Dave
2.September 26th,
2008
11:07 am Is the problem that those who hold the big money are freezing the flow of that money out of lack of confidence (read: fear of lack of profit)? Have these same players benefitted in huge proportion by the market operating as it has been in recent times? Have these players amassed money in a market shaped by successive deregulations and shady/risky assumptions and the creation of several fantasy financial instruments? Have major players had a field day using the average Joe’s home or dream of home ownership in a big fantasy poker game? (Who can explain–and now justify–these complex derivative financial instruments? (Not even Warren Buffet, he has said.) It would be helpful to define who is freezing the money versus who caused the crisis. If the answer is: a lot of the same people, perhaps the government can assist them in unfreezing the money by other means than a big cash donation. Is the money there already? How can the government promote or enforce a no-freeze, other than by begging for confidence bought with the consequence of American taxpayers’ increasing debt and increasing loss of access to the American Dream? Have we heard from the right economic experts? Nothing about this crisis is simple. I do wonder at what point a crisis calls for criminal investigation of the actions that have led us to the brink. Not yet, apparently. There’s only time now for big, blank checks and placating of the anonymous (to the average observer) “markets.” Instead of breeding fear and shock in a time of crisis, perhaps we could stand to hear from people with ideas other than what we’ve heard. There is one idea I do have that is pretty straightforward about the folks who have so efficiently brought us to this miserable economic point through misguided policies and selective deregulation (and some might say profiteering) for the past eight years. How’s this idea: Throw the bums out.
— Posted by commonsense
3.September 26th,
2008
11:17 am Yes, finally some correct thoughts are eminating out into the public. The answer is so simple. The USA zoombie banks, financial institutions, mortgage instruments, defaulted mortgages, impossible debtors and related distressed assets as well as bubble real estate and asset values of all types must be……
put to rest as soon as is possible without regard to stability, feelings, job losses and most importantly political donations. (I too have lived through, read and studied the history of financial and bank failures. The big common mistake is to try and save the dead.)
Robert
Washington, DC
— Posted by Robert
4.September 26th,
2008
1:38 pm Agreed. This is common sense approach avoiding throwing good money after bad. Anytime Washington tells the us how much money we are being saved, the US Tax Payer better hide their wallet.
Let the markets settle themselves by reaching their own level and move on from there. It may be painful but it will be fast, it will be done, and the survivors can rebuild.
Atlanta, GA
— Posted by Gary
5.September 26th,
2008
2:08 pm Given that 1.739 trillion dollar is 13.3% of 13 trillion dollar US Economy, Congress only needs to fund F.D.I.C around 1.7 trillion doors to repossess to zombie banks.
Mike
KC, MO
— Posted by Mike Pomeroy
6.September 26th,
2008
2:42 pm The above states succinctly why the $700B package will not work out. Banks will try to sell their most toxic assets at ridiculous prices and our politicians will oversee that Uncle Sam is generous to their constituent banks and brokers. Thus, those banks having unloaded their problems on to the taxpayers are free to generate more toxic loans and securities to sell to Uncle Sam instead of some Chinese state bank. Let’s put out of misery those banks that have engaged in shoddy business practices and when only the strong remain, our banking infrastructure will be based upon a solid foundation and not be a house of cards.
Ben
Bellevue, WA
— Posted by Benjamin Lee
7.September 26th,
2008
3:01 pm Can anyone tell me if the Swedish response to their bad real estate loans would be a viable way for us to proceed? Or if it isn’t, why it isn’t?
— Posted by Ray Poggi
8.September 26th,
2008
4:09 pm WHERE IS THE ACCOUTABILITY ?????
Why is no one asking how we got into this mess, and hold the many factions accountable. There obviously are MANY entities responsible, and they should share in the cost to get us out of it.
1. The CEOs, who were compensated many millions for NOT doing their job, should return much of their loot.
2. The bond rating agencies, who gave AAA ratings to junk should be severely penalized.
3. The regulators, paid to oversee the various institutions, and at a minimum sound the alarm, should be held responsible.
4. Congressional and Fed Reserve members, charged to
prevent this calamity should be voted out of office.
5. Finally, the people who signed up for loans, they knew they could not afford, should pay a severe penalty.
Accountability for one’s actions, in the many facets of our life, should be made a major factor. ‘Lets Party Today and Don’t Worry About Tomorrow’ should be history.
— Posted by Ralph Pincus
9.September 26th,
2008
4:31 pm When any “bubble” bursts there is pain, misery, and a scramble to pick up the pieces. Remember the .com bubble burst, the real estate bubble burst and savings and loan failures on the 1980’s. Does anyone else think it is ironic that much of our dept is held by communist China, as the capitalist US government is preparing enormous bail out plans for Wall Street?
— Posted by David
10.September 26th,
2008
4:51 pm A look a the foreign banks to be bought out.
Case in point BARKLEYS — Cost 20 Billion Dollars.
The claimed reason is that they employ 30,000 US citizens.
Divide 20 Billion by 30,000 ===>>>>>>>
It will cost an average of $666,666 to save each of these
jobs!
Can anyone in DC do simple division anymore.
The US can ill afford to spend such funds, when its own
highway fund is also bankrupt.
— Posted by Dan Deeks
11.September 26th,
2008
5:31 pm I dont think things is as bad as bush and
company say.
1. no loans not true homes are being bought.
2.no fall out today market up.
3.only thing happing is company’s want to save money so there laying off (then work the people they keep long hours six day’s
a week.
4.Real Estate loans are to high and they
dont want to close any deal’s.
5.no bail out fund the F.D.I.C. and that is all
let them work out there on mess.
5.
— Posted by R.L. Halterman
12.September 26th,
2008
6:09 pm Wachovia is DOA. Citi is a dying bison that needs to be shot in the head. We are about to emancipate ourselves from the Capitalist bugger!!
— Posted by TuffeNuff
13.September 26th,
2008
6:41 pm The Republican Party has been preaching the benefits of the free market for decades; let’s call their bluff. No bailout, allow the large banks and financial institutions to fail and enable a more prudent financial system to grow in its place.
— Posted by Bob
14.September 26th,
2008
7:18 pm Silly question:
Would it be possible to ballpark how much would it cost to use Gov. money to ensure the loans taken by the people in the subprime category? If the default in the mortgages is avoided the stocks related to the subprime market would rebound.
Maybe that would be chipper than the 700bn?
— Posted by Vlad
15.September 26th,
2008
9:31 pm The Swedish resolution to their banking, real estate problem is based on having a common culture and outlook for a country, which the United States does not.
All the political might in Sweden worked together even though they did not agree on all terms of the situation BUT did agree that letting the country’s future go down the drain was not something anyone wanted.
In the United States that mutual feeling of citizenship does not exist.
— Posted by Warren
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