Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : The *NEW* Frank Coluccio Technology Forum -- Ignore unavailable to you. Want to Upgrade?

To: Peter Ecclesine who wrote (28118)	9/25/2008 11:27:19 PM
From: Peter Ecclesine	Read Replies (1) \| Respond to of 46821

Bailout's Flaw of Large Numbers By PETER EAVIS and DAVID REILLY WSJ Berkshire Hathaway's investment in Goldman Sachs Group provides a template for how to get the financial system back on its feet. The problem is, the Bush administration's $700 billion bailout plan ignores some of the key lessons of Warren Buffett's deal. Most notably: Capital, or lack of it, is at the heart of the crisis. The proposed bailout only goes a certain distance in addressing that, so it mightn't spark the sort of quick confidence rebound its proponents are hoping for. That explains Wednesday's renewed stress in debt markets. The realism of the Goldman/Buffett deal is instructive. The market was getting nervous about funding Goldman's highly leveraged balance sheet. The bank had to adjust and raise expensive capital quickly. First, Goldman agreed to become a bank-holding company Sunday, giving it greater access to Federal Reserve credit. Then it reduced leverage markedly by raising $10 billion in fresh capital from Berkshire and other investors. It did so even though it meant diluting shareholders by as much as 20%. In contrast, the government's bailout plan contains no explicit demands that banks raise capital. If Goldman needed to, others surely do. Instead, the government plan aims to repair balance sheets just by taking large amounts of distressed assets from the banks. True, this could allow banks to reverse losses, depending on the price at which the government buys them. That would boost capital to an extent. But, on its own, not by enough to soothe credit markets, which want to see balance sheets cleaned up more definitively. Indeed, Mr. Buffett likely made a bet on Goldman because he felt comfortable with the valuations on its balance sheet. Investors looking at the U.S. financial system overall need to feel the same level of comfort before things return to anything like normal. The bailout plan might not achieve that if the government buys bad assets at prices higher than they would fetch in the market. This would allow banks to maintain inflated valuations for the assets they retain. The possible result: continued mistrust of banks' balance sheets. The alternative -- buying at conservative mark-to-market levels -- could trigger further financial losses in the system, exacerbating the need for capital. A multipronged approach could address that dilemma. Like Mr. Buffett, the government needs to focus its resources on shoring up institutions that can survive the crisis. This could take the form of asset purchases, equity investments or a combination. Meanwhile, it should leave the weakest to be euthanized by the Federal Deposit Insurance Corp., beefed up by a portion of the bailout funding. A big number, by itself, won't restore confidence. Any solution that doesn't directly address the capital shortfall is likely to fail. == Govt. Action Prevented Disaster, Doesn't Fix Economy, Schwab's Sonders Says Posted Sep 22, 2008 02:02pm EDT by Aaron Task in Investing, Recession, Banking finance.yahoo.com Between the wild swings in the stock market and the unraveling of Wall Street, it's easy to forget this time-tested parable: It's the economy, stupid. The governments proposal to bailout banks from their bad debt positions was "not a fix for the economy" but an effort to prevent "shock and awe" in the credit markets from turning into a serious economic rout, says Liz Ann Sonders, chief investment strategist at Charles Schwab. Last Wednesday, she notes, the credit markets froze so badly investors Treasury bills were yielding less-than zero, meaning investors were so scared they preferred a defined loss and the safety of Treasuries to the unquantifiable losses elsewhere. From an economic perspective, that meant corporations were unable to access lines of credit and/or cash parked in presumably safe money market accounts. GM for example, drew down a $3.5 billion credit line last week "because it was growing increasingly concerned about the health of its banks," The Wall Street Journal reports.

To: Peter Ecclesine who wrote (28118)	9/26/2008 12:26:21 AM
From: axial	Respond to of 46821

Thanks Peter - A fine piece of work, with thinking from a different perspective. Some of stated the antecedents are debatable, but their failings don't detract from the conclusion with which I largely agree. The history of economic justifications advanced by different proponents in successive governments - many of them little more than dressed-up ideology - deserves more attention than possible in such a short piece. I'm referring to this statement: "This was likely done, although the mechanism is unclear, under the assumption that the discipline of capital markets produced better investment decisions than individuals." There was a wide array of diverse contributors to what evolved; extremists even argue conspiracy among global oligarchies. The coincidence of events assisted the birth of new streams of thought. One particularly strong influence was the persistence of stagflation, which defied conventional thinking and traditional methods to overcome it. Regardless, that last paragraph says it all. Jim

To: Peter Ecclesine who wrote (28118)	9/26/2008 1:45:57 AM
From: Frank A. Coluccio	Read Replies (1) \| Respond to of 46821

I had read Robb's take on the matter earlier and was struck by his assertion about decentralized decision-making by capital markets, which I happen to agreed with. Yet, I was also taken, at about the same time, by an another analysis I had watched on Bloomberg TV portraying the world's regional stock exchanges and central banks as very-tightly integrated, hence the fear of the domino effect, which was beginning to occur. So while the trading between different types of instruments may have been taking place under decentralized controls and loosely linked to one another (but only superficially, as became evident only when it was too late) according to the types of securities that are being traded, the underlying market exchanges nonetheless remain tightly bound to one another, and to all other forms of trading instruments as well. ------

To: Peter Ecclesine who wrote (28118)	10/3/2008 8:52:50 PM
From: axial	Read Replies (1) \| Respond to of 46821

[Frank, my read of global reaction to the bailout is: not good enough. That means we're still in crisis. For that reason, the following...] Peter, this piece dovetails nicely with your linked article. Monday's outlook is uncertain; many believe the Plunge Protection Team will be at work over the weekend. --- -[SNIP]- "(What we are avoiding is the downsizing of a financial sector that is still remarkably oversized, and a capital allocation system that is an unsustainable mutation of a free market. We can waste resources recapitalizing banks but without systemic reform we have accomplished nothing except to feed the instrument of our duress. - Jesse)" The Coming Collapse of US Treasuries and the Dollar and the Role of the G7 jessescrossroadscafe.blogspot.com Jim

To: Peter Ecclesine who wrote (28118)	2/3/2011 9:25:45 AM
From: axial	1 Recommendation Read Replies (2) \| Respond to of 46821

Bill Gross slams financiers: ‘This is not God’s work’ '“Financiers have lost their high ground and, if truth be told, we began to lose it a long time ago when we figured out that money was more than a medium of exchange or a poor substitute for a store of value. We figured out a turbocharged way to make money with money and proclaimed ourselves geniuses in the process. Well, we’re not. We may be categorized as ‘opportunists,’ to be generous, but society’s ‘paragons’ and a legitimate destination for a significant percentage of college graduates? Hardly.” “This country desperately requires a rebalancing of priorities. After readjusting the compensation scales via regulation and/or free market common sense, America needs to anoint a new set of Mensans who can create something more than a cash machine and make this country competitive again in the global marketplace. We need to find a new economic Keynes or at least elect a chastened Congress that can take our structurally unemployed and give them a chance to be productive workers again ... America requires more than a makeover or a facelift. It needs a heart transplant absent the contagious antibodies of money and finance filtering through the system.”' theglobeandmail.com --- Three years ago, from your post: "As of this year, the final results of this American experiment in financial decision making are in. The allocation of this capacity exclusively to capital markets, rather than sharing that decision making with hundreds of millions of Americans, has produced a horrible result. Instead of investing the accumulated wealth of America in productive assets that yielded long term benefits, the money was invested in derivatives (illusory financial products) that yielded nothing of tangible value. In short, the narrow group of actors that operate within the capital markets made the decision to forgo the long and difficult process of growing investments in the tangible world in favor of the outsized returns available through investments in virtual products. That investment is now evaporating." Jim