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How NOT To Cure The Great Depression Of 2009



February 12, 2009 – Comments (0)


Everyone likes tax cuts, and I am one, especially if it occurs with a reduction in gov’t spending. However, the previous occupant of the Oval Office already tried this, to no avail.


Even “shovel-ready” gov’t programs will not get paychecks flowing till the summer, and subsidiary effects not till the fall or winter. Healthcare and Unemployment $$$ are nice palliatives, but will not increase the % of people with jobs.


Banks have plenty of liquidity, to the point of depositing $800B with the Treasury. They are just scared of lending it out to anyone.


It seems that people who qualify for these relief measure, 50% still default on their mortgages. So, those who are being foreclosed should be as such; they clearly bought more home than they can afford, and should lose their homes. In fact, home foreclosures should be increased, to quickly get them off of MBS.


It was easy to criticize Paulson as being a wind-up tinker toy that constantly bumped up against the wall. Still, his replacement seems to be even more clueless.


On Tuesday, the House Financial Services Committee had the CEO’s of 8 mega-banks at the same table at the same time in the same place. They had people who could have solved the financial problem in one afternoon gathered together. Did they say “OK, guys, put your thinking caps on: how do we get out of this financial mess?”. Course not: they vented, they castigated, and they made happy clips for the evening news broadcasts. For those who care, here is the link:

There was only one comment that seemed to be relevant from GS:

“Capital, credit and underwriting standards should be subject to more “dynamic regulation”. Regulators should consider the regulatory inputs and outputs needed to ensure a regime that is nimble and strong enough to identify and appropriately constrain market excesses, particularly in a sustained period of economic growth. Just as the Federal Reserve adjusts interest rates up to curb economic frenzy, various benchmarks and ratios could be appropriately calibrated. To increase overall transparency and help ensure that book value really means book value, regulators should require that all assets across financial institutions be similarly valued. Fair value accounting gives investors more clarity with respect to balance sheet risk.”

OK, this was about as inscrutable as it gets. To be fair, the CEO’s where as disingenuous as were Congress.


What piqued my curiosity, not to mention this post, was a newswire story that after Geithner’s vague plan, GS held their own bull session. What emerged: curing the securitization thing. Wait: wasn’t this Paulson’s original idea for TARP?


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