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Biggest Economic Decision in a century in the next hour.

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    #32
    mumhaabu
    Closed Accounts Posts: 1,031 ✭✭✭mumhaabu


    I wonder is it time we all took Bertie Ahern's advice. I am thinking of opening a suicide booth in the IFSC, advance booking recommended and no queue jumping either.


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    #33
    jd
    Registered Users Posts: 5,680 ✭✭✭jd


    leninbenjamin wrote: »
    they already are. many businesses have begun to have difficulties in this regard since the northern Rock fallout.
    I suspected that for businesses, but how about for the average punter? In other words, I don't think people who have money on deposit have much to worry about, it is those who are using their overdrafts/credit cards (half the country??)


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    #34
    EGaffney
    Closed Accounts Posts: 288 ✭✭EGaffney


    I'm not too worried, each whip needs to twist five arms on his or her side and this thing is passed as is. Add some sweeteners and it passes even more easily.


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    #35
    Économiste Monétaire
    Closed Accounts Posts: 2,208 ✭✭✭Économiste Monétaire


    They (members of the house of representatives) have gone on a break, as far as I know. They have elections very soon so Paulson et al better come up with something quick. They need to explain to regular Joe and Jane that although bailing out companies, who have put themselves in this situation, is the wrong thing to do in in theory (Moral Hazard), there are ramifications for the whole country - not just the 'fat cats'.


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    #36
    asdasd
    Closed Accounts Posts: 3,185 ✭✭✭asdasd


    The house reconvenes on Thursday. I think that stocks will come back as people anticipate it will be passed. ( The democrats can win this on their own).

    I presume it needs the senate as well.


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    #37
    EGaffney
    Closed Accounts Posts: 288 ✭✭EGaffney


    To call it a "bail-out" is a PR victory for its opponents. It should have been pushed as protection for depositors, to underline the benefit to voters. Calling it a "bail-out" makes it sound like a transfer to bankers, and nothing more, which misses the point about why it needs to be passed.


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    #38
    eamonnm79
    Closed Accounts Posts: 459 ✭✭eamonnm79


    EGaffney wrote: »
    To call it a "bail-out" is a PR victory for its opponents. It should have been pushed as protection for depositors, to underline the benefit to voters. Calling it a "bail-out" makes it sound like a transfer to bankers, and nothing more, which misses the point about why it needs to be passed.

    Yeah I agree the, minister of propaganda in Bushes government must have been on holidays. The Poulson bill being so blatant in its language was also a propaganda failing. I guess they were just complacent cos its so long since they have been challanged.


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    #39
    mike65
    Closed Accounts Posts: 88,978 ✭✭✭✭mike65


    Its good to see the gravity of the situation is being reflected by the urgency of the US political establishment as they take a day off

    http://www.allheadlinenews.com/articles/7012480842

    Mike


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    #40
    Minder
    Registered Users Posts: 2,774 ✭✭✭Minder


    EGaffney wrote: »
    To call it a "bail-out" is a PR victory for its opponents. It should have been pushed as protection for depositors, to underline the benefit to voters. Calling it a "bail-out" makes it sound like a transfer to bankers, and nothing more, which misses the point about why it needs to be passed.

    Why does it need to be passed?

    Changes to marked to market accounting or changes to capital requirements could go a long way to alleviate the problem of illiquid MBS. Changing the rules about bank deposits and capital requirements involves greater risk - but risk is manageable. Buying MBS from banks is final - the money is spent and the debt is real.

    You have to wonder at the ability of the people who put together this rescue plan. Paulson and Bernanke had months to come up with a plan - and the best they could do was a three page document that said "Give us $700b or the sky will fall on your head". Maybe they didn't believe it had the remotest chance of passing, and so didn't waste any effort on it.

    The point is that there are dozens of alternative solutions kicking around blogsphere that don't involve immediately spending hundreds of billions of dollars.

    Republicans blamed the failure of the financial rescue bill partly on remarks by the Democratic speaker of the House of Representatives, Nancy Pelosi. Here is the full text of her speech


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    #41
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    Minder wrote: »
    Why does it need to be passed?

    Changes to marked to market accounting or changes to capital requirements could go a long way to alleviate the problem of illiquid MBS. Changing the rules about bank deposits and capital requirements involves greater risk - but risk is manageable. Buying MBS from banks is final - the money is spent and the debt is real.

    You have to wonder at the ability of the people who put together this rescue plan. Paulson and Bernanke had months to come up with a plan - and the best they could do was a three page document that said "Give us $700b or the sky will fall on your head". Maybe they didn't believe it had the remotest chance of passing, and so didn't waste any effort on it.

    The point is that there are dozens of alternative solutions kicking around blogsphere that don't involve immediately spending hundreds of billions of dollars.

    Republicans blamed the failure of the financial rescue bill partly on remarks by the Democratic speaker of the House of Representatives, Nancy Pelosi. Here is the full text of her speech


    There are a number of members of the Congress calling for the SEC to change the marked to market rule. There are also calls to raise the FDIC insurance ceiling. Funds moved from WaMu is what sealed the demise of that bank. Had all deposits been fully insured, the bank might not have run into problems. There are definitely other fixes that can, at least, buy time.

    I think that there is a failure of leadership in the House. I am a fan of Nancy Pelosi, but her actions in the last few days have been disappointing. She hasn't signaled a bipartisan approach, which is something that is needed.


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    #42
    eamonnm79
    Closed Accounts Posts: 459 ✭✭eamonnm79


    Correct me if I am wrong, and I very well could be but doesnt the Mark to Market rule mean that bank have to value their assets at current market values?
    Isnt this a good thing?
    Acceptance of doddgy numerics is part of what got america into the trouble they are in at the moment.
    Enron accounting, Hedonics in GDP. They need to start reporting with greater accuracy, not less.


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    #43
    asdasd
    Closed Accounts Posts: 3,185 ✭✭✭asdasd


    Changes to marked to market accounting or changes to capital requirements

    Can you explain in more detail what you mean? Ta


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    #44
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    eamonnm79 wrote: »
    Correct me if I am wrong, and I very well could be but doesnt the Mark to Market rule mean that bank have to value their assets at current market values?
    Isnt this a good thing?
    Acceptance of doddgy numerics is part of what got america into the trouble they are in at the moment.
    Enron accounting, Hedonics in GDP. They need to start reporting with greater accuracy, not less.

    It's not clear what you're talking about here.

    The concept of historical cost is a time honored idea in accounting; that is, the cost for the resources of an entity is recorded at its acquisition price rather than its market or replacement price. This approach has been widely applied in accounting for years. The criticism of the concept of historical cost is that it often undervalues assets.

    Mark to market, as it is normally applied, means correcting the cost of financial assets to market price. FASB 157, which dates to late 2007, is the application of the mark to market concept for public companies. Changing this rule, if it applied every company, would not affect transparency.

    I don't know what the term "doddgy numerics" means.

    The Enron issue is separate and distinct in that it predated the market o market rule; it also involved off balance sheet activities and criminal activity.

    I have no idea what the term "Hedonics in GDP" means.

    The historical concept isn't at variance with accurate reporting.


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    #45
    Minder
    Registered Users Posts: 2,774 ✭✭✭Minder


    The mark to market rule as I understand it causes banks to mark down the value of their mortgage backed securities - the low market value of these assets shows on the banks balance sheet as a shortage of capital - now the bank must raise capital to comply with the rules or be declared insolvent. Another way for the bank to preserve its capital is to avoid lending.

    By avoiding the marked to market rule, banks could value their MBS at something other than an illiquid market value - say a value based on the intrinsic value of the underlying product. That balance sheet valuation avoids shortages in capital.

    FDIC insure deposits in banks with a limit of (i think) $100,000 - so if you have a greater sum than $100k in a bank, your deposit (in excess of $100k) is at risk if that bank fails. Raise the limit to say $250k and that goes some way to ensuring that depositors leave their money in the bank - again preserving the capital of the bank.


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    #46
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    Minder wrote: »
    The mark to market rule as I understand it causes banks to mark down the value of their mortgage backed securities - the low market value of these assets shows on the banks balance sheet as a shortage of capital - now the bank must raise capital to comply with the rules or be declared insolvent. Another way for the bank to preserve its capital is to avoid lending.

    By avoiding the marked to market rule, banks could value their MBS at something other than an illiquid market value - say a value based on the intrinsic value of the underlying product. That balance sheet valuation avoids shortages in capital.

    FDIC insure deposits in banks with a limit of (i think) $100,000 - so if you have a greater sum than $100k in a bank, your deposit (in excess of $100k) is at risk if that bank fails. Raise the limit to say $250k and that goes some way to ensuring that depositors leave their money in the bank - again preserving the capital of the bank.

    That's it; it only affects financial assets. In the current turmoil the mark to market rule could make some banks vulnerable to predatory attacks. Of course, it only affects the weakest banks and like accelerates what should occur anyway.

    FDIC insures IRAs for $250k. Some people argue that, at least temporarily, all deposits should be insured for the full amount. It would definitely help banks.


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    #47
    Minder
    Registered Users Posts: 2,774 ✭✭✭Minder


    SoCal90046 wrote: »
    The concept of historical cost is a time honored idea in accounting; that is, the cost for the resources of an entity is recorded at its acquisition price rather than its market or replacement price. This approach has been widely applied in accounting for years. The criticism of the concept of historical cost is that it often undervalues assets.

    If I'm not mistaken, it was the correction of this mechanism that was proposed by the Jubilee 2000 organisation as a way to cancel the third world debt held by US and European banks - the gold reserves on the balance sheets of central banks are recorded at historical cost, not marked to market. By marking to market the gold price - the resultant positive adjustment would be used to cancel out the debt.

    Here is a Statistical release from the Federal Reserve detailing US Reserve Assets. See the footnote
    Gold stock is valued at $42.22 per fine troy ounce.

    Incidentally adjusting the gold price to a current valuation would improve the balance sheet at the Federal Reserve by $300b.


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    #48
    EGaffney
    Closed Accounts Posts: 288 ✭✭EGaffney


    Minder wrote: »
    Why does it need to be passed?

    Hmm. I must say that I don't necessarily think it's a good plan, and I was looking at it from the perspective of its proponents, who have done nothing to make it sound good to the public. It was more analysis than opinion. Now having said that, I do think the administration needs some powers to finance some banks in trouble, if the impact of a collapse on society as a whole is grave enough, but buying only the least productive assets of any firm (including financials) seems like a bad way to do that.


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    #49
    EGaffney
    Closed Accounts Posts: 288 ✭✭EGaffney


    Incidentally, Barack Obama agrees with me that "bailout" is a poor choice of words, according to a speech he just made.


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    #50
    SoCal90046
    Closed Accounts Posts: 192 ✭✭SoCal90046


    Minder wrote: »
    If I'm not mistaken, it was the correction of this mechanism that was proposed by the Jubilee 2000 organisation as a way to cancel the third world debt held by US and European banks - the gold reserves on the balance sheets of central banks are recorded at historical cost, not marked to market. By marking to market the gold price - the resultant positive adjustment would be used to cancel out the debt.

    True, but the Fed doesn't use mark to market accounting. Nor for that matter does the Federal Government. If the Treasury assumes non-performing loans, it won't be burdened with the same accounting requirements as are banks.

    The comment about third world debt is interesting, because if you go back to the 1980s, banks in the US had serious potential problems with third world debt. Then, before mark to market or fair value accounting, for many banks the debt was worth at most ten cents on the dollar. Had fair value accounting been in place, it's likely that over half of US banks would have been forced to fail.

    There's an argument to be made that fair value accounting, in the current environment of what appears to be fire sale pricing, tends to exacerbate the situation rather than provide decision-useful information: the ultimate goal of accounting.


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