C.M.O. 4.3.2009
Credit Market Overview
April 3, 2009
April 3, 2009
One of the lead articles in this weeks Economist is titled “Only halfway there”, “Saving America’s banks”. In it the author cites and justifies his arguments for why the plan to relieve the banking system of its toxic-assets will not truly be effective unless the loans as well as securities that fall into this category are removed.
If any further clarification is needed here then one only need to ask themselves whether they would believe they were cured if they underwent surgery to remove a malignant tumor from one organ but forbade the doctor to do the same to an equally destructive growth on another organ.
If you are following so far then let’s take the example one step further. How well could you truly feel if, after being diagnosed as above, the doctor opened you up, saw the two neoplasm’s, sowed you back up and told you that they were indeed life threatening but not to think about them as such?
An article earlier this week in the WSJ discussed the effects of allowing the banks to keep the toxic assets on there books. Robert Willens, who writes the eponymously named “Report” was asked his impression of the FAS 157 rule change by the reporter and thinks “There is a disconnect there between the two plans. Arguably, this new FASB rule will actually inhibit people from doing what the Treasury secretary would like them to do, which is sell the toxic assets. There is a little bit of the lack of coordination between the two concepts.”
A counter to Mr. Willens’ opinion was voiced by Christopher Hoeffel, president of the Commercial Mortgage Securities Association who heard “Some bankers are saying, ‘I don’t want sell these assets, because the loan might still be good – and if I hold it to maturity, I might get my money back.’” As they saying goes “every argument has at least three sides” and yes, when you flip a coin there is the chance, albeit small, that it will land on its edge and stay there.
Given, however, what we have been lead to believe regarding the immediacy of the problems in the financial system; which has resulted in the pouring of billions of tax payer dollars into the institutions themselves and billions more into stimulus packages, which the taxpayers of the future will be responsible for paying, to revive an economy hobbled by the anxiety surrounding a financial system which the country perceives as is still being in the I.C.U.; does it make sense to wait until maturity because the banks might get their money back?
I don’t know, I’m just asking.
Enjoy the weekend.
Jim Delaney
If any further clarification is needed here then one only need to ask themselves whether they would believe they were cured if they underwent surgery to remove a malignant tumor from one organ but forbade the doctor to do the same to an equally destructive growth on another organ.
If you are following so far then let’s take the example one step further. How well could you truly feel if, after being diagnosed as above, the doctor opened you up, saw the two neoplasm’s, sowed you back up and told you that they were indeed life threatening but not to think about them as such?
An article earlier this week in the WSJ discussed the effects of allowing the banks to keep the toxic assets on there books. Robert Willens, who writes the eponymously named “Report” was asked his impression of the FAS 157 rule change by the reporter and thinks “There is a disconnect there between the two plans. Arguably, this new FASB rule will actually inhibit people from doing what the Treasury secretary would like them to do, which is sell the toxic assets. There is a little bit of the lack of coordination between the two concepts.”
A counter to Mr. Willens’ opinion was voiced by Christopher Hoeffel, president of the Commercial Mortgage Securities Association who heard “Some bankers are saying, ‘I don’t want sell these assets, because the loan might still be good – and if I hold it to maturity, I might get my money back.’” As they saying goes “every argument has at least three sides” and yes, when you flip a coin there is the chance, albeit small, that it will land on its edge and stay there.
Given, however, what we have been lead to believe regarding the immediacy of the problems in the financial system; which has resulted in the pouring of billions of tax payer dollars into the institutions themselves and billions more into stimulus packages, which the taxpayers of the future will be responsible for paying, to revive an economy hobbled by the anxiety surrounding a financial system which the country perceives as is still being in the I.C.U.; does it make sense to wait until maturity because the banks might get their money back?
I don’t know, I’m just asking.
Enjoy the weekend.
Jim Delaney
Labels: CDS, CEC Strategy, correlation, credit, cross asset, equity, Jim Delaney
posted by Jim Delaney at
2:35 AM
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