tag:blogger.com,1999:blog-3046628493283608233.post4317678960508593530..comments2023-10-29T05:29:58.599-04:00Comments on Right-Side-of-Lowell: The Forgotten ManUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3046628493283608233.post-45420604963107287492009-03-04T10:23:00.000-05:002009-03-04T10:23:00.000-05:00UPDATEI think the last para of my comment should h...UPDATE<BR/><BR/>I think the last para of my comment should have read:<BR/><BR/>For all the hope I had in Larry Summers, it appears this Administration is no wiser than FRD's Team was at this point their first 100 days. I wish it was wiser and more effective. Otherwise it could be a long, dismal time.<BR/><BR/>Regards -- CliffC R Kriegerhttps://www.blogger.com/profile/10563658418464959198noreply@blogger.comtag:blogger.com,1999:blog-3046628493283608233.post-41228621004980196592009-03-04T10:21:00.000-05:002009-03-04T10:21:00.000-05:00I am not as optimistic as "the other cliff&qu...I am not as optimistic as "the other cliff" that the Office of the Comptroller of the Currency will get us through this bad patch quickly enough to get the economy back on a roll before things go really bad. People are beginning to use the "D" word. It is not the objective part of that that worries me, but the subjective.<BR/><BR/>Once people think that we are in or on the rim of a depression, their actions change. They stop buying and start hoarding. Then we do get a depression. The numbers for <A HREF="http://www.washingtonpost.com/wp-dyn/content/article/2009/03/03/AR2009030302540.html" REL="nofollow">auto sales in February</A> are an indication of the approaching problem. GM was down 53%. Even Ford, which was claiming it could make it on its own, was down 48%.<BR/><BR/>For all the hope I had in Larry Summers, it appears this Administration is no wiser than FRD's Team at this point in first 100 days. I wish it was wiser and more effective. Otherwise it could be a long, dismal time.<BR/><BR/>Regards -- CliffC R Kriegerhttps://www.blogger.com/profile/10563658418464959198noreply@blogger.comtag:blogger.com,1999:blog-3046628493283608233.post-74737413086150587582009-02-28T23:27:00.000-05:002009-02-28T23:27:00.000-05:00What exactly do you propose to do about "failed ba...What exactly do you propose to do about "failed banks" to get credit flowing again? It seems to me that the problem with the "failed banks" is that, well, they failed! What I mean is that the banks that are in danger of collapse (or "supervised merger" as they call it) are in that trouble because they do not have enough cash reserves to meet the rules that were set in the wake of the Great Depression.<BR/><BR/>Allow me to digress for a second, I don't know the exact numbers, but a bank must maintain a certain amount of case on hand at the end of the day that is a percentage of their deposits. Suppose a bank is right at the margin and someone defaults on their mortgage payment or writes a large check on their home equity line of credit. That night, when they report their numbers to the Office of the Comptroller of the Currency (OCC), they will be below their margin. In that even, they will arrange to borrow some money from a bank with an excess. This is where the "overnight rate" that you often hear of comes from.<BR/><BR/>So, the problem with the "failed banks" that are still operating is not that they are below the margin, but that they are in danger of becoming chronically below the margin either because they have a portfolio of bad debt that makes it likely that they will suddenly fall below the margin, and/or that no other bank wants to lend them money because of their bad debt portfolio.<BR/><BR/>So, when the OCC and other regulators, which receives reports from every bank, every night, decides that a bank is going too far in that direction, they arrange for a larger bank with some excess margin to take it over. They will supervise the merger and may even provide some assistance.<BR/><BR/>Now, back to my question, exactly what is wrong with this scenario that we need to do something? They current failure system is working well. This is not the 1930s where a failed bank took your money with it. When a bank is forced into a merger in this day and age, it is before it gets insolvent, so the depositors are not losing their money. In the rare instance where the bank is too far gone, there is still insurance.<BR/><BR/>You mention that banks need to start lending again. Sure they do, after all, they don't make money by paying interest; they make money by collecting interest. Once we get rid of the deadwood banks, the strong ones will have more depositors and will have a strong incentive to lend since they have to do something with those deposits.<BR/><BR/>I say let the banks fail. The government's responsibility is to help it happen in an orderly, but expeditious, fashion.<BR/><BR/>What about all the complex accounting issues, such as mark to market and whatnot, you ask? Do nothing. Stop trying to assist homeowners who bought too much house. They will not be able to afford it even with reduced rates. I'm not speculating on that, they recent evidence is that those people that have already benefited from adjusted mortgages, are still failing. Let them fail. Let the houses foreclose. Let the lenders find out what the house is really worth by selling it. By delaying the inevitable you merely prolong the ancillary problems, such as those involving the accounting rules. <BR/><BR/>Let the markets work, and give them some gentle assistance in doing so, then get out of the way.<BR/><BR/>rant off<BR/><BR/>the other cliffAnonymousnoreply@blogger.com