The coming US dollar crisis Message Board

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Strategies & Market Trends : The coming US dollar crisis

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From: NOW	3/31/2009 8:12:04 PM
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Steps to Stability - Needed Legislation 1) Enable the receivership of distressed bank and non-bank financial institutions (including bank holding companies), encouraging voluntary debt-equity swaps as an alternative to the receivership / conservatorship of insolvent institutions. 2) Stabilize insolvent financial institutions through receivership if the bondholders of the institution are unwilling to swap debt for equity. In virtually all cases, the liabilities of these companies to their own bondholders are capable of fully absorbing all losses without the need for public funds to defend those bondholders. Receivership involves defending the customer assets, changing the management, wiping out the common stock and a portion of the bondholders' claims, continuing the operation of the institution in receivership, and eventually selling or reissuing the company to private ownership, leaving the bondholders with the residual. Massive bailouts using public funds are unnecessary, as are disorganized Lehman-style failures. 3) Allow “toxic asset” purchases using public funds only to the extent that the entire issuance of various securitized mortgage pools can be purchased “all or none” at a moderate percentage of face value. This would allow the underlying mortgages to be restructured - ideally writing them down to a similar percentage of face - reducing their foreclosure risk, and increasing the likelihood that public funds will be recovered. 4) Act quickly on foreclosure mitigation. Establish a Treasury conduit to administer (but not guarantee) property appreciation rights on restructured mortgages, again encouraging voluntary restructuring, using the Treasury conduit as a coordinating mechanism (additional details below). 5) Allow bankruptcy judges to substitute a portion of foreclosed mortgage obligations with equivalent claims on subsequent property appreciation. “Push-down” of mortgage principal without offsetting compensation rights to lenders should be emphatically avoided. Hussman hussmanfunds.com

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