The possibility for a government bailout of the banks is gaining momentum. Hank Paulson and most of the Bush Administration continue resist the calls for a bailout but a new administration, whether it is Republican or Democratic, may be more sympathetic. None of the probable major party candidates are particularly animated by a free-market philosophy.
Today’s Wall Street Journal carries an article revealing the Myron Scholes supports a form of bailout. He wants the government to consider direct capital injections into the banks. Forget these Federal Reserve deals to lend against risky paper. Why not just hand over cash?
The great fear, apparently, is that banks will reduce lending and sell assets. “But that market solution could destroy value and produce a crippling credit crunch,” David Wessel writes. Of course that’s nonsense. Selling assets does not “destroy value” it reveals it, by providing a market price for the assets sold. All of the bailout solutions basically amount to attempts to avoid this price discovery.
Brainstorming About ‘Bailouts’ [Wall Street Journal]
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Carney, look up Irving Fisher, debt default, and the 1930s. I’m as much opposed to bailing out the dumbasses who blindly took all these turds onto their balance sheets as you are, but mark to market accounting is just going to lead to more forced sales. Unless you are a purist with regards to efficient market theory, you would acknowledge that sometimes markets get in wrong. Every bank in the US is probably technically insolvent on a true mark to market basis right now. What would the consequences be if we forced them all into bankruptcy?
um who cares? more importantly, recap of last nights hh pls
Check out Bear’s plummeting again…
BSC heading to zero!! yes! Hope JC wasn’t planning on paying for the apt w options
Is that Myron of Long Term Capital “Mis”-Management fame? He should just STFU. He should just stay in his Stanford ivory tower and keep it theoretical. As for actual practice, he’s lost more money than I or most people will EVER see. Even Timmay is smarter than this guy. See, Timmay has returns that are POSITIVE. Myron, not so much. Flame away training program interns and finance class “I know everything about finance” students.
What incentive is there for large banks to make good decisions if their failure would bring about Great Depression-like conditions, which the government refuses to allow to happen?
Do banks have any incentive to not go along w/ the “fad” instrument of the moment? Regulation is rarely the answer, but what other solution could there be, when “rational investor” actions lead to unacceptable business cycles?
Looks like tax payers have to come to the rescue so the big bounuses can return in time for Christmas?
@10:50 – In fairness to Scholes, he was the one guy at LTCM that didn’t plow every dime he ever earned into LTCM.
While we’re on the topic of LTCM – What is going on with BSC? BSC credit default swaps up to 700!
Are they facing margin calls a la Carlyle? After LTCH, it’ll be sweet schadenfreude will it be if BSC needs a “bail out”…
I also hear puts on Bear at 30 were selling like hotcakes yesterday. Today it might be 20.
can we please have some commentary about BSC being down 21% in 2 days
Bailouts wouldnt have anything to do with the Bush family close relationship to the Carlyle Group.
@10:59 I’m not anti-Myron – he has done notable finance research. But having HIM talking about bailouts is like a drug user asking for free coke from the government – JUST A BAD IDEA. Whatever happened to free markets and Darwin? Then again, whatever happened to the Republican idea of small government? Anybody seen how big the government has gotten over the past few years?
10:51 – good question. But I’m pretty sure a democratically elected government is never going to say, “you know what, lets screw the bankers and let them fail, sorry to everyone else for the ensuing shitstorm.”
For your dancing pleasure:
http://www.youtube.com/watch?v=FJ3oHpup-pk
If every bank in the US is insolvent, if the true price of their balance sheets were to be exposed at M2M fire sales, then one would have to assume that “ze Germans” (sorry Deutsche Bank) or “Oy vay ze Chews” (sorry Goldmans) will buy all their sorry ass groups a deep discount prices.
All except Bear of course ;-) those loosers can just sink….
$30 strikes actually are yesterday’s news.
Far and away highest volume in Bear puts today? $25 strikes.
Feel bad for some of the good guys over there. But senior management brought it on themself (still looking at you Warren Specter and Ralph Cioffi — the arrogance of a fucking IPO of those turds; what a douche bag).
Cayne was right to walk away from the pricks at LTCM. But when the tome of this recent credit crunch is written, remember the canary in the mine shaft were the BSAM funds blowing up and BSC not stepping in to bail them out.
Karma’s a bitch Jimmy.
– Dave Chappelle
@11:04 – Yeah I agree… I’d like to read a bit more on BSC. If “the ship be sinking” at Bear, then Dealbreaker owes its faithful readership a full account of its swan song.
@11:05 – I don’t disagree all that much. I like Myron, but I think his direct infusion scheme is far fetched… given how slow the fed has moved to realize the depth of this crisis, it’s also probably unlikely.
How many hedge funds are going to sink with BSC? Mr. Margin is making a lot of calls.
If Bear hits 15 I can buy it in my small cap fund.
@11:13 – Aren’t the European banks even more screwed? Under Basel II I thought they can technically identify AAA assets holdings as capital for the purpose of capital/asset ratios…. My understanding (and this may be inaccurrate) is that any downgrades in AAA would destroy the Euro banks much more quickly that US Banks.
I could be wrong about that…
Check that – if it hits 15 I can short it.
Please no more propaganda on free markets and Ron Paul.
Ron who?
@ 11:11 – seriously, you have too much free time. I had to stop the video because I thought the guy’s eyes were going to pop out. but that video is a partial explanation of the sub prime mess we’re in right now…
@ 10:34 – last night’s hh confirmed that bess does not exist. she is carney’s alter ego. that said, free beer is free beer and there was a good turnout for a bunch of people who like to hide behind a monitor all day.
@ dave chapelle – I see the BSC puts have doubled in value today at across just about every strike price, I’d start to cover before one of the buyout funds comes to their rescue.
Investorcluzo,
funny you say that as I am actually a big SELLER of puts at that level. Easy trade on “panic” days. Go to it bitches . . .
– Dave Chappelle
PS: Was it really free beer? I’ll still whore myself out for free booze. Damnit.
Dred
many yes… but DB is pretty unscathed on a relative basis… and i hear may be feeling hungry..
We should just nationalize all the banks. We can pay government salaries to all of the banker geniuses.
the beer was indeed free and copious (like 1-2′s johnson?) and i don’t blame bess for not going. the first thing some guy said/shouted was a loud “WHERE’S BESS!?!?”
@investorcluzo
some more info pls– were there any girls? were there any hookups? did carney punch anyone?? i think it’s VERY shady that if there is a BL, that she doesn’t show for her own “company” hh. I also think it’s odd that carney creates a character of a jewish girl from jersey who got busted in collge for downloading music as his alter ego, but carney is no bowie, so i guess thats the best he can come up with. I KNEW THOSE HANDS WERE MAN HANDS in the pic with the cupcakes from Fast Money.
put a foreclosure style moratorium on margin calls
why not a bailout with Uncle taking back a bundle of equity (a basket of options at market at a fixed rate of shares per $100 million for participating banks) a la Chrysler for the taxpayers’ account. Money was made when these were cashed in, even though Chrysler lobbied to have the deal nullified after the fact.
Dave C,
I’ve got all your videos – even the early one’s where you look like jimmy walker. And yes, the beer was flowing freely – carney gets to write it off as a business expense.
the hands holding the cupcakes were those of a 14 yo girl, this was established.
Carney, see Akerlof’s paper on lemons and market collapse, for which he won the 2001 Nobel prize in economics. In a market with asymmetrical information (swaps sold to Alabama towns), when the percentage of goods that are crap surpass a certain threshold level, the market no longer works to “discover prices.” It collapses. Good and bad securities alike stop being traded. Pretty contrary to what you learn in undergrad economics. Myron Scholes knows more than you.
11:56 – For sure the gov has got to get some upside and some seniority if it puts money into the banks.
rumor in the market is that BSC is going for Ch. 11
@ golden girl, free and copius? interesting. btw missed you by the time i arrived, what a shame. we could have compared notes.
Investor Cluzo- cool meeting you.
Carney thanks again !! I’m an even bigger fan.
i almost wrote “like my johnson” but thought i’d spice it up a bit. would have loved to meet you as well, we’ll have to have a part deux chez 1-2 or at tom and jerrys sometime soon. don’t think i met cluzo either?
@ golden girl: we didn’t meet because you were running out as I was sitting down. next time you should stay a little longer.
@ girl: pleasure meeting you
@ 1_2: good luck with the new gig
@ 11:53: yes, there were girls (attractive ones). while the ratio was better than a frat party, I wouldn’t call it a spring cotillion either. if you want details, you should have come. suffice it to say, it was well worth the trip – even if I didn’t get to meet “man hands levin”…
can’t believe i missed out on free booze, and girl, sigh…
also Bess does, in fact, exist btw
@ cluzo…seen the hands in person–small, smooth, very adroit.
I just had 50 bags of junk silver shipped to my bunker in Montana.