Bailout CNBC Video: Will Suspending Mark To Market Suspend Reality? With Former Fed Governor Robert McTeer And Jon Najarian. Kudos to Michelle Caruso Cabrera
To lie or not to lie. That is the question.
This is a very difficult issue. I've been reading and thinking about it for almost 12 months and I admit that it's not a slam dunk 'no' as I wish it were. But it actually becomes less complicated for me when a Keynesian like McTeer advocates its removal.
Side note: On the 2nd video inside McTeer admits to buying Citigroup last fall at $15 per share. How could the former President of the Dallas Federal Reserve be so blind as to not realize the end game for Citi., you wonder? Firstly, because he's a failed Keynesian who believes in miracles. And secondly, it's a perfect demonstration that even former Fed Presidents don't do their homework, and, more damningly, don't understand the extent of the problems at some of our banks. I say it all the time, but I can show you tens of thousands of people who have known since at least last Spring that Citi would eventually find a home in the land of nada, home of the zeros. Why were we so smart? Because we read every single piece of research out there both positive and negative, and we don't subscribe to the investment philosophy of hopes, dreams and sugar-coated rainbows.
Back to the point. By nature, I am vehemently opposed to any suspension of reality. That's pretty much how we got into this mess in the first place. All the players packed on the leverage year after year, all of them convinced they could safely unload assets worth 35 times their capital base at or near par as soon as the music stopped. Trillions in assets.
Did no one stop to consider that every investment bank was dancing the same death waltz?
Just who the hell did they think they were going sell to, when all the natural buyers for securitized assets would also be looking to sell?
The answer is that no one was thinking. Reality had been suspended back in 2001 by reprobate Alan Greenspan when he dropped rates to 1% in an attempt to re-inflate the punctured technology bubble. The same irrational exuberance that he feared back in 1996, he was now stoking mightily to keep the embers hot. It worked for about 5 years, and then one day it didn't.
The winners were the bankers with in excess of $100 billion in bonuses paid on ficticious profits in a very short span. And the losers are now you, the American taxpayers who are being asked to clean up the banker party at a cost of trillions. There's $1.2 trillion of Citigroup vomit in that corner. Over on your left, please ignore the $500 billion in Fannie and Freddie trash left lying around. And to your right, see that drunk, disgusting passed-out fucker, Cassano from AIG. He was doing shots of tequila until 4 am with the bankers from Barclays, Deutsche Bank, UBS and Goldman. Ken Griffith and his Citadel punks left early this morning and took all the remaining booze with them, so you can't even have a drink while you clean up.
How did all this happen. Suspension Of Reality.
And now the players want to do it again, only officially this time. I don't see how it will help except to gut one of the most important principles in valuing assets. Truth about price.
Do we really want to change the rules so that these characters can start dancing again? It would be much simpler to simply allow certain banks forbearance on their current regulatory capital requirements. It could be done most effectively on a case-by-case basis.
I admit it's a very nuanced issue. Convince me in comments that I'm wrong but I'm sticking with guns Cabrera on this one. Might as well give her the shout-out she deserves. Excellent work the last 12 months on behalf of taxpayers, Michelle. It has not gone un-noticed.
Chanos had some great insight into mark to market yesterday. Take a look.
DailyBail
updated with additional commentary and the 2nd video
Reader Comments (11)
Yowza. You are like UCLA in the John Wooden era beating up on Tallahassee State. These people are no match for your keyboard. I think you are the most entertaining financial writer I read all day. Keep me laughing whle I cry.
It's appreciated.
Where the hell were teh regulators during all this mess. Oh yeah, having lunch with the bankers and playing twiddle me dick.
I am one of those people who has known since 2006 in my case that C would go bankrupt. I have been short the stock since it was jsut over $30 per share and I have not covered it yet.
No. Mark to market is rarely even applied. They ignore it and stick assets in level 2 and level3 categories, anyway. I agree that regulatory forebearance on capital ratios is the better solution.
Are we still under the illusion that we have any choice with the present paradigm?
'Are we still under the illusion that we have any choice with the present paradigm?'
Only as long as the suspension of reality holds. I think that will be gone here Real Soon Now. For those who don't realize the 20th Centrury was a sham, a bubble of welfare and warfare paid for with funny-money, when the reversion to reality and real money happens *because people won't accept ANYTHING else*, it's going to hurt a lot of people's head.
Since last summer, Newt Gingrich has continually advocated for the suspension of mark to market.
But I agree with you, Daily Bail, that it's a horrible idea.
Don't forget that Newt is a huge advocate for this as an instant simple fix, as he gains conservative popularity in the coming months/years.
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