This looks like it will be a footnote to history as Congress will probably pass the bailout bill from yesterday perhaps with a modification or two. Still good to have the plan by the progressive Democrats who voted against the bill, including DeFazio of California. Is this all that is needed? 1. Require the Securities and Exchange Commission (SEC) to require an economic value standard to measure the capital of financial institutions. This bill will require SEC to implement a rule to suspend the application of fair value accounting standards to financial institutions, which marks assets to the market value, no matter the conditions of the market. When no meaningful market exists, as is the current market for mortgage backed securities, this standard requires institutions to value assets at fire-sale prices. This creates a capital shortfall on paper. Using the economic value standard as bank examines have traditionally done will immediately correct the capital shortfalls experienced by many institutions. 2. Require the Securities and Exchange Commission to restricting naked short sells permanently This bill will require SEC to implement a rule that blocks naked selling, selling a stock short without first borrowing the shares or ensuring the shares can be borrowed. Such practices many times harm the companies represented in the sales and hurt their efforts to raise capital. There is no economic value produced by naked short sales, but significant negative effects. 3. Require the Securities and Exchange Commission to restore the up-tick rule permanently. This bill will require SEC to implement a rule that blocks short sales without an up-tick in the market. On September 19, 2008, the SEC approved a temporary pause of short selling in financial companies "to protect the integrity and quality of the securities market and strengthen investor confidence." This rule prevents market crashes brought on by irrational short term market behavior. 4. "Net Worth Certificate Program" This bill will require FDIC to implement a net worth certificate program. The FDIC would determine banks with short-term capital needs and the ability to financially recover in the foreseeable future. For those entities that qualify, the FDIC should purchase net worth certificates in these institutions. In exchange, these institutions issue promissory notes to repay the FDIC, counting the amount "borrowed" as capital on their balance sheets. This exchange provides short term capital, with not cash outlay. Interest rates on the certificates and the FDIC notes should be identical so no subsidy is necessary. Participating banks must be subject to strict oversight by the FDIC including oversight of top executive compensation and if necessary the removal of poor management. Financial records and business plans should be subject to scrutiny while participating in the program. In 1982, Congress approved a program, known as the Net Worth Certificate Program, that allowed banks and thrifts to apply for immediate capital assistance. From 1982 to 1993, banks with total assets of $40 billion participated in the program. The majority of these banks, 75%, required no further assistance beyond the certificate program. 5. Increase the FDIC Insurance limit from $100,000 to $250,000. The bill will require the FDIC raise its limit to provide depositors confidence that their money is safe and help eliminate runs on banks which are destabilizing to the industry. http://www.dailykos.com/story/2008/9/30/141113/931/593/615703
traders and people more familiar with these locked up markets have consistently put forth the idea that the govt should work to create an exchange in order for these securities to be traded rather than repeal mark to market. i don't think i like the idea of these corrupt companies being able to "value" the assets on their own terms. this creates more problems and it is like sticking your head in the sand if these securities are actually worth what the current market is pricing. from my understanding this is what japan did and it was a significant contributor to their 20 year malaise. any other input would be great. the negative effects of this are debatable but this is something that should have been done by the SEC since it has been on the books for a long time. they need to enforce their regulations. again very questionable what this would actually accomplish other than making ourselves feel like we are doing something when we are doing nothing. let's say i had skin cancer it's not like i am going to fix it by just putting a bandaid over it. also...last time i checked we had the uptick rule in 87. i haven't heard any commentary on an idea like this before but at first glance it seems a little shaky just mainly because the FDIC is undercapitalized as it stands. perhaps we should be regulating the FDIC more closely and ensuring that they are charging the proper insurance rates. from my understanding they are in the position they are in now (aka needing backing from the treasury) because their rates had been too low all these years. that's fine but we have to increase insurance premiums. i think a better option would be the govt coming out and putting on a blitz of advertising stating that everyone's money is safe and is guaranteed by the full faith and credit (albeit fading quickly) of the us govt. the govt has done a TERRIBLE pr job with this credit market freeze up. if they had come out strong with great speeches from bush (fail) or from bush teaming up with warren buffett for fireside chats to explain things. also, explanations from paulson and bernanke as to why we needed to create a market for these illiquid securities thru nationally televised 5-10 minute spots. they have done a great job trying to get some sort of plan organized but they haven't been great at explaing the why and why they feel the govt will lose a minimal amount of the funds invested in this creation of liquidity for locked up credit markets. i dunno....i hope that made some sense.
Forgive my ignorance, but is Barney Frank in the Progessive Caucus? Isn't he like Captain Progress? Why are the Progressives against one of their most powerful's own plan? It's pretty damn Progressive.
This bailout has wrecked all previous allegiances. If it weren't such a serious issue, it would be amusing. Bush/Pelosi/Reid are on the same side, the House GOP is a mess, etc.
If we make it essentially impossible for the banks that are in better shape to fail and make it so that $250k is FDIC insured, how does this not address the central problem of banks being afraid to lend money and the freezing up of credit? It also prevents runs on the banks or banks failing due to short selling. How is the plan in Congress better?
Does it really? The 250K limit can have several effects: 1. Encourages retail investors to put more money in federally backed cash than in equities or money market funds - this could lead to another stock market tumble 2. This would mean that the FDIC is now on the hook for up to 2.5 trillion in deposits, measured against 40-50bb in cash on hand, so if there were a bank run, the FDIC would collapse that much faster. 3. I don't know how this alone would encourage banks to be freer with credit - remember the 250k insurance policy isn't payable to the banks but to the depositors. Granted it would in theory increase available capital for lending if people shifted money into banks, but if they're shifting it out of the stock market or other places this might be a wash at best.
you don't really understand things if think this will do anything. there is nothing you posted that would address the banks not wanting to lend money to each other. further short selling is simply not an issue. bad balance sheets are the issue. no bank has failed due to short selling.
Don't the "networth certificates" help with the banks not wanting to lend to each other. Those banks that are shaky, but get these certificates will then be not risky to lend to and will be more willing to lend. I agree that you have to get banks lending to each other at a low rate. How does the current bill help so much better?
