Double Oh-Oh

[73Zeppelin]

I really think ratings agencies should be held accountable to somebody or another.

[Lost User]

won't fix economy according to the head of the World Bank. From [^] "If you don't take on the banking issue, the stimulus is just like a sugar high. It pushes some energy into the system but then you get the letdown unless you reopen the credit markets." What will be necessarily to force bank lending to resume to a level that satisfies as a fix if not a solution. Sugar High ???? Surely the stimulus is more than that?

[Oakman]

73Zeppelin wrote:

really think ratings agencies should be held accountable to somebody or another

I am afraid you are terribly old-fashioned, John. Next you will be claiming that "Generally Accepted Accounting Practices" shouldn't include throwing feces up against the wall to see if they stick.

Jon Smith & Wesson: The original point and click interface

[Oakman]

Richard A. Abbott wrote:

What will be necessarily to force bank lending to resume to a level that satisfies as a fix if not a solution.

I'm not sure that it's either wise or proper to force banks to lend money. There is, after all, one prime reason for not loaning someone money - you don't think they'll pay it back. Bernanke has tried to encourage Banks to lend again by saying that he'll lend them the money at virtually no interest so they can lend it out at interest and make money. But that only sounds attractive if you can be reasonably assured that you'll get both the principle and the interest from the guy who gets the loan. That's why some Keynesians want to nationalize the banks - so they can make loans to people who are probably not credit worthy in the hope that if everybody starts spending money, then these people will become credit worthy. I personally think that we need to help people become credit worthy by spending money on things that are good for America. Like new roads, new bridges, Grid2.0, etc. (We do not need to spend money removing tatoos from gang members or getting whores off the street in New Orleans.) Most folks who rail against FDR's policies seem to forget that a fair amount of the infrastructure of the US was created during his terms of office. If people are credit worthy, I imagine that banks will be delighted to lend them money. However if their job is digging 6x6x6 holes and then filling them up again, i.e. makework, then the bank will rightly see that sooner or later that so-called job will disappear.

Richard A. Abbott wrote:

Sugar High ???? Surely the stimulus is more than that?

I wouldn't know. So little of the bill that was passed without being read has anything to do with stimulus as I understand it, that I'm not sure we've seen what one could do.

Jon Smith & Wesson: The original point and click interface

[73Zeppelin]

Oakman wrote:

I am afraid you are terribly old-fashioned, John.

My wife tells me I'm an old guy in a young guy's body. Now you tell me the same thing. Maybe I should start listening to her... But seriously, like the CEOs of the investment banks, the ratings agencies have what my buddy Taleb calls a "free option". That is, there is no downside risk for them. If a ratings agency gives a poor rating when it isn't deserved, how are they punished for it? If a CEO of an investment bank loses the clients money, how is his salary affected? Answer: in neither case are they affected. It's like a stock option that never loses.

[Lost User]

Oakman wrote:

I'm not sure that it's either wise or proper to force banks to lend money.

If collateral can be provided and the business plan is both sensible and workable, then why not, it is in everybody's interest. Even if collateral is absent, if the business plan is viable, then, it could be done, albeit with conditions attached. Those people or companies who have previously been considered as a bad risk should retain that status until such time that they can prove themselves. If a business plan, with or without accompanying collateral, is viable and can be demonstrated to be viable, banks should be persuaded rather than just poo-pooing the concept perhaps dispatching the applicants towards some venture capitalist whose terms are likely to be detrimental to the applicant's control of the business.

Oakman wrote:

nationalize the banks

If that's what it takes then so be it, but, for only as long as it is deemed necessary.

Oakman wrote:

Like new roads, new bridges, Grid2.0, etc.

An investment in the infrastructure of a country is always to be welcomed but as you will know, this kind of investment is medium to long term. Roads etc, no doubt, will be built. Unemployment may indeed fall a bit in and for the building of such roads. Tax revenue will be collected from employees and the businesses doing the construction. But it won't happen tomorrow. It may not happen until all necessary planning and other statutory inquiries etc locally and by state and by the relevant federal authority are conducted. So I suggest this kind of expenditure, as welcome as it is, will do nothing in and for the immediate short term.

[Lost User]

73Zeppelin wrote:

no downside risk for them

Surely the downside is one of credibility. If the rating is wrong and can be demonstrated to be wrong then the credibility of the ratings agency is called into account and thus has the potential for future ratings to be viewed with some degree of suspicion. Then salaries will suffer.

[73Zeppelin]

Richard A. Abbott wrote:

Surely the downside is one of credibility. If the rating is wrong and can be demonstrated to be wrong then the credibility of the ratings agency is called into account and thus has the potential for future ratings to be viewed with some degree of suspicion. Then salaries will suffer.

I'm not so sure about that Richard. For example, how does the average investor check if the rating is wrong? Do you know how Moody's, for example, determines their ratings? Most people look at how ratings agencies produce their ratings as a kind of black box. And besides, there are so few agencies that there is really no alternative to turn to. Which, now that I think about it, is also part of the problem. Most of the ratings agencies were basically in bed with Wall St. firms anyways. And then there's the accountability issue...to who are they accountable? At the moment - nobody.

[Chris Austin]

It seems now they are getting aggressive about honest ratings now. But who knows. I've always had problems trusting these guys since I worked at a part of Bear Sterns that did wholesale purchases on non performing assets. We were buying billions of dollars worth of these bad notes on credit. Yet, the rating never seemed to get affected. It was mind boggling to see a company of that size pissing itself away while everyone tried to pretend that everything was good and happy. I think pretty much halfway through my tour of duty there I stopped owning any stock, closed my 401k, and began options trading via my self directed IRA.

Sovereign ingredient for a happy marriage: Pay cash or do without. Interest charges not only eat up a household budget; awareness of debt eats up domestic felicity. --Lazarus Long Avoid the crowd. Do your own thinking independently. Be the chess player, not the chess piece. --?

[Oakman]

Richard A. Abbott wrote:

If collateral can be provided and the business plan is both sensible and workable, then why not, it is in everybody's interest.

Richard, what you did in the above sentence is define one version of the creditworthiness I talked about. There are others, but they all boil down to the bank having reasonable assurance that the money will come back. You are writing as if you believe that banks are not lending money to anyone. That's not the case. Plenty of people and plenty of businesses can still get loans, can still get mortgages, etc. They may have to provide more security or pay a higher interest rate, but they can do it. However, a number of people who used to get credit even though they weren't very good credit risks have stopped paying their loans back. (Is that a surprise? Apparently.) Banks used to think they were insured against that kind of loss, but they wrote so many bad mortgages and then insured the mortgage for more than it was worth, that the insurance companies can't pay off and/or are refusing to insure those loans anymore.

Richard A. Abbott wrote:

If a business plan, with or without accompanying collateral, is viable and can be demonstrated to be viable, banks should be persuaded rather than just poo-pooing the concept.

Again you talk as if banks don't want to lend money. They do want to lend it out, they just want a reasonable assurance that the loan will be paid back. That's why it is called a loan and not a gift. If a business plan can be demonstrated to be viable - and that plan has to include paying back the loan or it is no plan - then the banks will lend the money.

Richard A. Abbott wrote:

If that's what it takes then so be it, but, for only as long as it is deemed necessary.

Back in 1917, the Congress of the US instituted the income tax - but only for so long as it was deemed necessary. :laugh: :laugh: :laugh:

Richard A. Abbott wrote:

So I suggest this kind of expenditure, as welcome as it is, will do nothing in and for the immediate short term.

When it comes to infrastructure, in most cases in the U.S., feasability studies are done, permits are gotten and plans are drawn up before funding is sought - simply because those things are required before anyone will consider funding the project. So at any ti

[Lost User]

Don't get me wrong Jon, I know that banks are lending but I also know that they are not lending nowhere near enough. The vast quantity of money that has been thrown at banks over the last 5 months should by now have been making a positive effect on the state of our respective nation's economic condition. But that positive effect hasn't yet started to shine through and there are not many hints that it will in the very near future. But there are very profitable businesses throughout the whole of the UK that are being starved of necessary funds that is threatening their very existence. This is equally true of businesses in the United States. I know full well that banks need to ascertain that any loan made will be paid back. The banks are in the business of risk. Albeit a lower risk than venture capitalists but risk nonetheless. Gone are the days of recklessness. Banks in this respect have learned a valuable lesson as long as that lesson does not cause a paralysis in good business ventures. And paralysis is what businesses are facing which if unchecked will force a business into unnecessary administration and bankruptcy. And most business lending is by way of overdrafts where an agreed credit limit exists, or should I say existed. Many overdrafts have been slashed and without access to adequate cashflow no matter what the profit & loss balance shows, no matter what the order book shows, thus, cashflow is the life blood of a business and without it, it fails quickly. This is my main complaint where I comment that banks are not lending enough.

[John Carson]

Oakman wrote:

I'm not sure that it's either wise or proper to force banks to lend money. There is, after all, one prime reason for not loaning someone money - you don't think they'll pay it back. Bernanke has tried to encourage Banks to lend again by saying that he'll lend them the money at virtually no interest so they can lend it out at interest and make money. But that only sounds attractive if you can be reasonably assured that you'll get both the principle and the interest from the guy who gets the loan.

There is another reason for not lending money: that the bank is insolvent or nearly so and is therefore trying to either: 1. [legitimate] hold onto all the cash it can as a provision to meet short term demands on it. 2. [illegitimate] strip cash out of the business (as bonuses, dividends etc.) while it is still possible before the bank is declared bankrupt.

Oakman wrote:

That's why some Keynesians want to nationalize the banks - so they can make loans to people who are probably not credit worthy in the hope that if everybody starts spending money, then these people will become credit worthy. I personally think that we need to help people become credit worthy by spending money on things that are good for America. Like new roads, new bridges, Grid2.0, etc. (We do not need to spend money removing tatoos from gang members or getting whores off the street in New Orleans.) Most folks who rail against FDR's policies seem to forget that a fair amount of the infrastructure of the US was created during his terms of office.

I would agree that forcing banks to make reckless loans is not the way to approach things. The correct way is to restore solvency to the banking system and encourage responsible banking practices. As you say, an effective stimulus package is the way to increase the number of credit worthy borrowers. I earlier quoted Stiglitz (an advocate of temporary bank nationalization) as follows:

What is required is not rocket science. Banks simply need to get back to what they were supposed to do: lending money, on a prudent basis, to businesses and households, based not just on collateral but on a good assessment of the use to which borrowers will put the money and their ability to repay it.

John Carson

[Lost User]

Yes, I hear of, or see examples of, conflicts of interest almost daily.

[Oakman]

John Carson wrote:

that the bank is insolvent or nearly so

Garrrgh! I knew that but it totally escaped my mind. :-O Thanks for detailing it. I have heard that some banks are, indeed, just trying to sit quietly and not be noticed until they figure out what to do with their bad loans or the economy turns around and they aren't so bad after all. Mark to Market is something they like when houses are selling like hotcakes, but now: not so much.

John Carson wrote:

Banks simply need to get back to what they were supposed to do: lending money, on a prudent basis, to businesses and households, based not just on collateral but on a good assessment of the use to which borrowers will put the money and their ability to repay it.

He certainly said it more succinctly than I did, didn't he? My unwillingness to sign off on what he said was with his trust in the supervisory powers of the government, not in what you quote above - which makes great good sense.

Jon Smith & Wesson: The original point and click interface

[Oakman]

Richard A. Abbott wrote:

Many overdrafts have been slashed and without access to adequate cashflow no matter what the profit & loss balance shows, no matter what the order book shows, thus, cashflow is the life blood of a business and without it, it fails quickly.

John C just below here offers a perfect reasonable explanation of why a bank wouldn't be lending money even to creditworthy individuals. I suppose that there's no reason in the world why an insolvent bank shouldn't be nationalized - not necessarily to continue in the business of banking but to pay off its account holders. On the other hand, perhaps it would be possible to keep it afloat with funny money and thus allow it to start lending again.

Jon Smith & Wesson: The original point and click interface

[Oakman]

73Zeppelin wrote:

My wife tells me I'm an old guy in a young guy's body.

Better you hear that than the reverse!

73Zeppelin wrote:

If a CEO of an investment bank loses the clients money, how is his salary affected?

I was under the impression that "bonuses" were actually that only for tax purposes and had nothing to do with performance. If I was right then it looks like the accountants were too clever by half since monstrous salaries might have created outrage, but not the cold fury that "bonuses" paid a month early have.

Jon Smith & Wesson: The original point and click interface

[Vikram A Punathambekar]

Well, the CEOs sometimes (admittedly, not every time) get shown the door. Stan O'Neal, for instance. It's the ratings agencies that I find disturbing.

Cheers, Vıkram.

Carpe Diem.

[Oakman]

Vikram A Punathambekar wrote:

Stan O'Neal, for instance.

Of course. How could anyone trust an Irishman named "Stan?"

Jon Smith & Wesson: The original point and click interface

[Vikram A Punathambekar]

Are you sarcastic as usual, or do you really not know? Stan O'Neal is black; his grandfather was a slave.

Cheers, Vıkram.

Carpe Diem.

[Christian Graus]

Richard A. Abbott wrote:

Annual rich list shows the world’s billionaires lost 2-trillion in global credit crunch.

Well, in terms of current worth, but they'll hold the stocks and get that back in time, I am sure.

Christian Graus Driven to the arms of OSX by Vista.