I believe we've got a fairly big financial panic developing. Tough sledding for a whole slew of asset classes. We've seen a huge pick up in volatility in the currency markets as well as a continous expansion of the reprising of markets with them moving risk premiums up.
I really believe we've got to get some of the really seasoned global statesmen such as Former Secretary of Treasury and Sec of State James Baker III to create a cosponsered initiative where the FED, the Bank of England, the ECB, the Bank of Japan create a program which will create a structured approach to the manadatory recall or purchase of CDO's that are sold back to a new multinational RTC-Resolution Tust Corporation)type trust supernational Monetary Authority. They will be called back on a mandatory participation basis on a discounted basis that will have an element of LIFO last created first recalled at the larger discount and also a counter percentage approach where a FIFO, first created first called in that will create a percentage discount that is proportional to the percentage premium the securities were interest rate and mapped out discounted cash flows that were lower in yield and higher in price due to the higher credit rating that was placed the CDO or in a more egregious case the CPDO (Continous Proportioned Debt Securities) that I belive ABN Amro Pioneered in the fall of 2006 and were profiled by Randall Forsythe of Barron's and which I discused a fair bit in Nov of 2006.
Concommitant with this will be the work out basis where the FED, the IRS and the various key countries Central Banks and Tax Authorities work out an 8 year work out period where hits to earnings and balance sheets can be deferred over a 32 quarter basis that will provide a punitive and also a workable tax relief/ penalization basis that will be a drag on the next 8 years of quarterly earnings, profit margins, bonuses and compensation. This will enable even severe write offs and balance sheet deterioration to unfold on a longer term time table that will prevent a mass of unwarranted financial firm implosions even as we calculate the overall effects of CDO and other asset price write downs. By recalling and repurchasing CDO Tranches and mixes of various tranches, they are called in and uncoupled and the actual component parts valued on a mark to market basis.
We'll see a downward pricing of anticipated PE ratio's and bank and security firms valuations, however the firms that are most effective in unwinding these financial structuring creations will be given both Performance points and tax advantages/ reduced penalties based on reaching percentage participation mandates and exceeding the those operational and efficacy objectives that will be defined and promulgated by the New Global Coordinated Oversight Agency. This agency will have representational voting percentages based on 3 components of Global Presence in the Global Debt and Equity components that the leading countries represent. First would be percentage of Global GNP, Second would be the percentage of The Monetary and Currency Aggregates that are priced in the currency of the various key member nations. The Third would be a look at the global flow of trading, focusing on how the country's currency is reflecting the true macroeconomic trade flows and determining that member countries currency values are accurately reflecting the purchasing power of the currency. It would also be used as a gauge as to cases in which a currency's lack of optimal or unimpeded free and floating rate pricing was demonstrating a globally GDP and monetary aggregate and currency reserve rates of change that were incongrous with the Standards that the Valuation committee of this agency would establish. And review on a semi annual basis.
(would love ideas and critque of this)
(posted this to Lazarus on the Epic Credit Bubble thread).
I've got a few areas to expand on, this is an early round draft but, I've been thinking as we've seen the credit crisis of 2007 unfold.)
John |
