Charlie Rose

NeilMacCallister  06/02/2010 03:03 AM Report

What? ..No takers on raising the margin rate? ..and reducing the questionable practice of allowing "investors" to buy "financial instruments" on 50% credit, and then requiring the American taxpayer to "bail them out" at 100% if they happen to deliver themselves into a loss position?

***

Well, ..here's my suggestion:

Let's tether the margin rate to the percent rate at which the U.S. Senate is allowed to "bailout" those "entrepreneurial" Wall Street, and Union Street, investors.

If the margin rate is held at the current 50%, then any tax-payer supplied "recovery of loss" (..to prevent a "systemic collapse", of course. LOL!) the Congress supplied "bail-out" can not be allowed to repay those players anything over 50% of their "investment losses".

If the margin rate is raised to a much more edified 80%, ..then Congress may be allowed, ..in its own "good judgment", ..to repay those patriotic Americans up to a corresponding 80% of their "back-breaking losses".

Doesn't that seem fair????

***

I notice today's WSJ editorial noting that a pension plan is considered "endangered" if it is not funded to at least an 80% rate, ..and that a plan which is not funded to at least a 65% portion, is classified by the U.S. Labor Department as "critical".

Yet Congress allows "investors" to gamble on stocks with only a 50% funding of the stocks they are "purchasing".

Can that be a healthy business or governmental practice???

***

Such a practice allows a company like Shearson-Lehman or Goldman-Sachs to sell $200 billion dollars worth of bundled mortgage securities to a group of speculators who only had but a $100 billion dollars of cash and collateral among themselves.

Does that sound like a healthy business practice?? ..or more like the absolute brick-and-mortar foundation for the next housing bubble and corresponding round of investment failures?

And then to promise that our Congress will "cover everybody's losses to 100%" when those obviously inflationary gamblings foreseeably turn sour?

Does that sound like a responsible Congress????

Isn't that exactly what Steve Pearlstein is here saying that our current administration wants to do??

**

Please!! .. a first and easy step against such ill-considered behavior would be to tether the margin requirement to the percentage amount of allowable government supplied "insurance" return.

A next step might be to tether that rate to something even more substantial, ..like a factor of the GNP.

***

Lastly, as evidence of an "unreasonable" margin-rate history, ..shouldn't we just consider whether it seems reasonable that we now continue an absolutely unchanged "buy-securities-on-credit" practice, after we just experienced a devastating world-wide economic crisis brought on primarily by inflationary investment speculations?

Wouldn't we be better to consider an actual, important, and necessary, "Change"???

NeilMacCallister  05/31/2010 04:35 PM Report

ANDREW ROSS SORKIN: The biggest distinction between the House and Senate bills, is whether FDIC-insured banks can play in the derivatives and swap markets.

***

CHARLIE ROSE: What does the Senate bill say about too big to fail?

ANDREW ROSS SORKIN: It gives power to the government to close a failing bank or investment house without putting it into the traditional bankruptcy process.

STEVE PEARLSTEIN: The Senate doesn’t want regular bankruptcy process because they want to be able to pay certain unsecured creditors 100 cents on the dollar for every dollar they are owed. That’s a bailout.

CHARLIE ROSE: The consumer protection aspect of this, how important is it?

ANDREW ROSS SORKIN: It’s not the most important piece of this bill at all.

***

CHARLIE ROSE: The Federal Reserve maintains its power.

STEVE PEARLSTEIN: The Fed has proven itself to be a very bad day-to-day bank supervisor. The Fed doesn’t question Wall Street’s risk models -- which proved to be terrible in 2008. They have not changed that.

ANDREW ROSS SORKIN: One point this legislation doesn’t address is capital and capital ratios, and how much money these banks have to actually keep on hand at any given time.

CHARLIE ROSE: Yes, the issues of leverage and risk.

ANDREW ROSS SORKIN: Virtually none of that is taken care of in this bill.

CHARLIE ROSE: A lot of the bankers say that credit is way overdone, and that capital requirements would cure that problem to a degree.

______________

Will all this talk about "leverage" end up seeing the margin rate raised above 50%? ..maybe to 80%???

(THOMAS HOENIG: When we favor credit, we facilitate a bubble.)

SReed  05/24/2010 04:53 PM Report

I'm a bit concerned about the agreement of your guests that adjusting capitalization levels at banks will address leverage and credit quality issues - because at the end of the day it's a liquidity issue, not a capitalization issue. My guess is that the level of capital required to backstop the derivatives would greatly exceed all foreseeable profit margins, to put it mildly. Indeed, would it not exceed asset levels as reflected on the balance sheet? And...the absurdity of putting a AAA rating on the derivatives has to be addressed as well. Finally, taking comfort from allowing banks to trade derivatives in a subsidiary ignores the reality that the problem child at AIG was a subsidiary, a small subsidiary that took down an otherwise solidly capitalized and conservatively run company.

Thanks -

S. Reed

REMant  05/24/2010 02:58 PM Report

I agree with Steven generally about this bill, but not what he and the Post have been writing about Europe the past few weeks. Just as it is inconsistent to argue that there was poor credit regulation prior to 2008, but then demand more credit creation, it is inconsistent to fault Germany for being successful like China and Japan, and yet demand more "stimulus." Stimulus is not what made them successful, nor, surely, its lack what is behind this crisis. If this notion isn't simply permissiveness, completely ignoring the moral hazard, then I can't imagine what it could be. And if, as I feel, it is the Fed's success in pushing our debt onto others, which has caused the European problem, it is perverse as well. He seems to understand this okay when discussing capital requirements, so why not in this? The naked short-selling prohibition is moot, as little if any occurs in Germany, and I doubt it has had any influence on the mkts, except perhaps to underscore that the Germans do not intend to give in to financial blackmail as we have. As a result a lot of institutions are probably dumping the European holdings they acquired when the dollar depreciated earlier in the decade. It is not a stretch to view the world wars of the past century as the result of an Anglo-American attempt to contain and profit from the emergence of Germany and Japan - turning around the way we usually want to think about it - and if we continue in this vein we may just find ourselves at odds with not only them once more, but China, Brazil and several other countries, as well. In any case, I do not consider this an administration victory, as the Post inserted into its story Friday, because it falls far short of what many Republicans, and a couple Democrats at least, wanted, but the paper, of course, takes every opportunity to boost Obama, and no doubt will be doing more of the same. Issues still exist with respect to prop trading and reserve requirements, because these strike at the heart of what Wall St has been up to, and I fear, like health care, we will end up with less than we need, despite greater unanimity.

robdverity  05/24/2010 01:51 PM Report

Whatever they come up with in the end, the financial wise-guys will have given tacit approval. Rubin and Summers still hold the Obama receipt, legally purchased in a corrupt system during his campaign. Moral hazard institutionalized.