Tuesday, September 23, 2008


(Courtesy of UpsideTrader)

LOL! Who's that?

You're kidding me, right? This sounds like something I read out of David Einhorn's book:

Yahoo! Finance -- Bernanke suggested buying the assets at a "hold-to-maturity" price, which would be based on an estimate of what the securities would eventually be worth as payments came in over the years. (That's right, it's all assumed)

"If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits," Bernanke said. "First, banks will have a basis for valuing those assets and will not have to use fire-sale prices. Their capital will not be unreasonably marked down."

In contrast, if banks use existing "mark-to-market" rules that require them to value the holdings at what similar securities have recently sold for — in some cases pennies on the dollar — it could make the whole bailout futile because it would hurt many banks' balance sheets, causing some to fail. "This creates something of a vicious circle," he said.


Marked-to-marked = market value of a security. That's the equilibrium between a buyers willingness to pay and the seller's price. So, Bernanke wants to give these securities an "assigned value" and completely disregard market value. To avoid fire-sale prices, we'll just give them a value. Isn't that wrong?

This also means that Bernanke is suggesting that the Federal Government purchase these fake-valued securities at a disproportionately higher price, well above market value (or true value). What does that do to the taxpayer?

But, this doesn't mean I don't support it. It may be highly necessary for this to go through unless we want 1929 again.


Anonymous said...

What the Hell is Ben thinking??? I thought he was a student of the Great Depression??? He is throwing everything he knows out the window because he is suffering from the irrational, short minded mentality of the herd who act like this stuff has never happened before. To me it sounds just like the S&L scandals from the 80's?? Let the market decide when it wants to assume the risk on these securities and they will buy them.

Isn't his job to ensure price stability and be a seperate from the Government????

Anyways what do you think about XLV?

John C. Lee said...

You should have heard him today on CNBC...he got GRILLED.

I'll profile XLV later today on my blog as a reader's request feature.