Fix the bankers; its not the banks that need to be fixed. Dick Fuld took “full responsibility” and now his lawyer argues that in fact he has no responsibility. In a way that is true; Wall Street is irresponsible. Your experts pundited that the job of the SEC in not to police fraud and lack of transparency and unfair markets; I agree with David Gergen who questioned that and mentioned that that is EXACTLY what the SEC was organized to do. Maybe your “experts” would care to state what the SEC IS supposed to do? Probably they would prefer Chris Cox style nothing. As someoine said, ofaten the scandal is not what is illegal but what is wrong and legal.
The price of a bank’s stock reflects investors confidence in the bank as an ongoing, profit generating entity. When the price falls it has no immediate impact on the bank or its balance sheet. Even if they hold their own stock they cannot show it as an asset. The only impact would be if the bank was issuing new stock or selling off shares it holds in itself. If this is the case, a low price means they cannot raise as much cash as they could if the price was high. But what would they do with this cash? Give the executives more bonuses? Buy jet planes?
If we want to get into fixing things, fixed the underlying assets with a trouble mortgage relief program. Much has been said about accounting rules requiring financial institutions to write down their troubled assets to market. The thing that prevents them from offering mortgage relief on the underlying properties is a hope that the values will recover, in which case the same accounting rules would require them to write-up the assets to market. If the holders of the assets would offer meaningful mortgage relief program is that it would mean the write downs were permanent, but we would certainty.
When you ask, do banks need to be fixed I think you are really asking if the federal Government should buy their “toxic assets” at exorbitant prices (if they remove these assets at something close to market price it does the banks no good). The American public was incensed when this idea was put forward last September. That was a terrible idea then and will always be a terrible idea.
When the Geovernment injected capital into troubled banks it borrowed money at 0.5% to 2.5% and invested it at 6%. On the face of things this looks like a very good business decision, especially since we have declared that these banks are too important for us to allow them to fail.
On the other hand, if by fixing the banks you mean a stockholder rebellion where they fire the people who got them into this mess, I am all for it. We should throw them out without any severance packages or golden parachutes, in fact we should be looking to get the enormous salaries and bonus back from them.
It is not the institutions but its CEOs, board of directors and shareholders greed! People need to change. It seems that there is a generation out there only interested in their own self. What a sad history!
Yes. When a building is in flames you put out the fire before installing the new sprinkler system. The real question is how. Capital injections in ‘08 didnt work and nothing is more frustrating than politicians trying to write in completely irrelevant issues into large economic stimulus packages. I think the bad bank has potential.
In terms of asset pricing, I have no sympathy for cost-value accounting firms that are presently marking their toxic assets above market value and will have to report loses when they sell. The markets for structured credit products a year ago were inflated—who is to say they will ever make it back up there? Cost accounting for mtg backed securities is just one aspect of this crisis that necesitates stronger regulation alongside short term aid.
Bottom line: we need banks to be in a healthy position to lend again. Banks need to start helping the economy rather than hurting it or else we’ll be stuck watching the dow and employment drop—-which is a lot worse than listening to “I’ve Got You Babe” every morning.
Thanks Paul, good to know you are a real person.
I too am a real person, a father of six, and I see my children and grand children being enslaved by the size of the tax burden being laid out before them.
I say let the banks fail if they can not survive, have the Government do what they are charged to do, and protect those citizens from aggression and harm produced from the economic crisis.
Too many businesses are deemed too big to fail; I say our Government should have never allowed any business to be too big to fail. That is a monopoly and we should have none of that after the last depression in the thirties.
I say we need to accept the pain of this crisis, and have consequences for those who were irresponsible. The word now is the one and only arrest of Mr. Maddoff is going into plea bargaining and he will never see any jail time.
This is why I’m mad as Hell, and I’m not going to take it any more, it is my freedom that is being sold out from under me.
No, the crisis facing the banks is not at the heart of the problem. i.e. this was not caused by failing banks.
The same thing that is causing the banking crisis is causing the general economic crisis and until it is fixed, not only will fixing the banking situation not “fix” the economy, but the banking situation can not be fixed.
And what that “thing” is is complete and total irrationality. Doing things that don’t make any sense and pretending they do. Being short sited and greedy. Until we fix that, this wont be fixed.
All of the options given to help the banks seem irrational, short sited, greedy, and don’t make a lick of sense. So IMO, they wont work.
What is long sited and rational?
The first step is living the life style we actually support. (As individuals and as a nation.)
The second is allowing consequences.
The third is to stop being so full of ourselves. (You know, stop reporting someone having to actually eat their left overs like it is a crisis.)
You know, get a grip.
Lonely Libertarian, for one, I am not on the side of fat cats. I am on the side of fixing the economy for everyone. I agree with you that those who committed crimes should be punished. There’s a big difference between calling for the government to try and resolve the financial crisis and advocating for a return of easy money, greed is good, no need to police Wall Street practices. I am not doing that.
Also, as for your comments on CNN censors. I moderate this blog when I have the time. I approve almost all posts. The only times I do not do so is if there is profanity, if they are off-topic or if they go too far in name-calling and are not actually offering something intelligent to add to the dialogue. But that’s it. I don’t censor anything. As you’ll see, there are often many more comments from people who disagree with me. And that makes for a healthy debate. I can assure you that I (and none of my colleagues) are censoring comments.
Take care and please keep reading and posting.
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Paul how come whenever you pose a question, and make a stand on an issue, you’re on the wrong side? How come you’re always in favor of the rich fat cats, giving your opinions that support so the rich fat cat can keep their perks, and bonuses, and wasting taxpayer money?
Paul why is it you are never of the opinion of helping the average American citizens? Your question brings to mind so many questions I would like to have answered. Like.. Why are PACs raising millions and billions of dollars to elect or re-elect Government officials, when food banks can not find funding to feed the ever increasing hungry, or why does my public school need to have bake sales for every little thing to help educate my children and grandchildren?
I tell you I’m one of the biggest capitalist ever, I believe in capitalism working for the better of everyone who is willing to work. But when irresponsible management of the banks puts profits and bonuses ahead of operating a value added business, you end up with what we have here a depression.
So I ask you Paul instead of wasting all of our taxpayer money to shore up the same failed management of this economy, why are we NOT investing into the investigation, prosecution, and incarceration of the criminals that made this happen?
The next bailout plan is going to be delayed? And just how many bailout plans are the American taxpayers going to be responsible for?
We are paying for bailout I since November 2008, the Senate is going to rubber stamp another trillion dollars this week for bailout II, and the week after we will be hearing about bailout plan III.
No more bailouts! Stop this madness; stop giving the taxpayer’s hard earned money to the wealthy.
This bill will do nothing to stop the mass layoffs; it will do nothing to help the main street American Citizen. This will not stop the losses of small businesses, it does nothing but put the American taxpayer in debt for many generations into the future. What do we do in a few months from now, bail the economy out again and again?
I know the CNN censors will not allow my comment through, but maybe I can get someone at CNN to see this is outrageous, our Government really does not have a clue in how to correct the situation.
I say instead of increasing spending, do just the opposite, and decrease government spending in a radical fashion.
I say if you’re going to spend taxpayer money, spend it on the investigations, convictions, and incarcerations of the criminals that caused this crisis. I believe that every irresponsible business executive will receive complete transparency sitting in a prison cell.
Helping banks should at best be part of a coordinated effort to save the economy (’save’ is a relative term considering vast damage already done). When Lehman failed, markets got shook. But when other banks were saved and taxpayers put on the hook, there has not been an equal and opposite positive reaction. If consumers are too ripped up to borrow or spend, the banks will not be much help. Help the middle class first. The H— with the banks.
No. The failing banks have to be allowed to fail in order for the markets to recover. If not, we’re either China or the Soviet Union, not kapitalists.
We must stop propping up failing banks, as it’s hurting the entire finance sector, markets, and economy by scaring everyone, and rightfully so. We’ve put hundreds of billions of $$$ into them; if that’s not enough, we have to stop throwing good money after bad and close them down via FDIC.
Any bank with a stock price below $10 is suspect (most mutual funds can’t own them, and they have to sell the stocks) and below $5 is definitely going down (no mutual funds can own them, and they have to sell the stocks). Less than $1 means delisting.
We don’t need a ‘bad bank’; we already have lots of them: AIG, BAC, C, etc. Force them to write the toxic assets down to zero and see if they survive. We need a good bank, probably the FHA, who writes only affordable, assumable, fixed-rate loans. They securitize their loans as GNMA bonds; these are very safe and in high demand. This is the housing solution.
Direct government stimulus will bring the economy roaring back, with or without the banks. As people go back to work, they will spend their incomes, putting even more people back to work. It’s human nature.
no the banks do not have to be fixed. first, there are plenty of well run financial institutions, lending banks, small banks that did not make mistakes and have proven competent. Do the banks have to be fixed to reflate a credit bubble of even more epic proportions so that we can lend and spend like idiots? Sure.
Look around the world, coming out of WEF, it was estimated 40 trillion dollars of wealth has been destroyed. How is that coming back? There won’t be a recovery this decade, maybe next decade. That being the case, what’s the rush?
probably, but whu is it important that stocks recover? the way the market runs, people buy on credit until the credits gone and then pop. why “fix” the banks just to let them build another bubble collecting commision, fees, big salaries etc?