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HomeBoard of Health Condemns Due to Moral Hazards
Posted by Larry Doyle on April 13th, 2009 11:05 AM |
The best organizations are managed not only for today but for tomorrow. What do I mean by that? Great organizations assess risks, develop talent, diversify products, and grow market share. Aside from those basic business tenets, the best organizations respond well in times of crisis.
Every business and organization is ultimately a reflection of its people. To that end, the depth and quality of the people are the single greatest factors in the long term success of the organization.
Any individual or organization would relish developing a system that generates untold success and then automates the process. Neither business nor life works that way. Change is constant. How organizations proactively stay ahead of change and respond to change is paramount in succeeding in business and life.
The best sports organizations have developed a deep bench of talent both on and off the field. When players or executives leave – as they always do – the general manager moves another body in and the team does not miss a beat. The same scenario occurs in the best companies. This transition process is part of the culture of the organization. (more…)
Mum’s the Word
Posted by Larry Doyle on April 10th, 2009 12:40 PM |
The movie Goodfellas provides a wealth of material for comparative analysis of the markets. The “insider activity,” the “fooling around,” “the payoffs,” and “the gambling” all make for great drama on the screen. Truth be told, one does not have to look all that hard to find striking similarities to certain activities in the world of Wall Street, and for that matter, Washington.
One of my favorite scenes in the movie occurs after the boys make the big heist. Immediately, the word is put out to keep your mouths shut and no indications of newfound wealth.
Back to reality. In terms of “putting the fix” into the world of our major money center banks, isn’t the relaxation of the mark-to- market the “newfound wealth”? Isn’t the “keep your mouths shut” the equivalent of the Treasury telling the banks not to comment on results of the Bank Stress Test? Speaking of the Bank Stress Tests, Bloomberg reports:
The U.S. Federal Reserve has told Goldman Sachs Group Inc., Citigroup Inc. and other banks to keep mum on the results of “stress tests” that will gauge their ability to weather the recession, people familiar with the matter said.
The Fed wants to ensure that the report cards don’t leak during earnings conference calls scheduled for this month. Such a scenario might push stock prices lower for banks perceived as weak and interfere with the government’s plan to release the results in an orderly fashion later this month.
Clearly the Fed and Treasury are trying to keep their “boys” quiet and lay low while the real regulators of the market, that being honest investors, are walking the beat.
If any of the boys talk, then the leaders of the family won’t be able to coordinate the stories and hoodwink the public.
Whatever happened to, “as long as you tell the truth, you don’t have to worry about having a bad memory”?
It seems we are operating much more in the realm of, “well, I can tell you but . . . ”
The Goodfellas: Henry Hill, Jimmy Conway, Paul Cicero, and Tommy DeVito
Henry . . . Jimmy . . . Paulie . . . Tommy . . .
Please let me know who in our government and world of finance are most appropriate to play each of these individuals? Let’s have some fun.
Games of Chance: TALF, PPIP, TARP, FDIC, FASB
Posted by Larry Doyle on April 7th, 2009 2:40 PM |
In thinking about the economy, markets, and our banking system, my memory brings me back to my early days in New York. While working my way along 8th Avenue back to my apartment in Hell’s Kitchen, I would happen upon numerous versions of the classic NYC “hustle.” The shell game (also 3 card monte) was rampant in NYC in the ’80s. Mayor Giuliani cleared out this game, along with a host of other street scenes. For those not familiar with this game, there was a constant need for new players with new money to keep the game alive.
Why do these games remind me of our current banking system? The similarities are scary. Let’s access the most recent piece from John Mauldin’s site to “view the games.”
Mauldin’s guest, John Hussman, comments on these various “games” (TALF, PPIP, TARP, FDIC, FASB), in which taxpayers bear the brunt of the risk in the government’s engagement with financial institutions. Hussman writes of the PPIP:
this is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC’s balance sheet, which exists to protect ordinary depositors, not bank bondholders.
Refinancing Risk Runs Rampant…Get To Higher Ground!
Posted by Larry Doyle on April 6th, 2009 10:27 AM |
The key for the global markets and economy is the ability to refinance outstanding debt. In the absence of a viable asset securitization market, will banks provide financing for current loans to be refinanced as they come due? Please remember the asset securitization market represented approximately 40% of total lending, so we are talking about a MAJOR segment of the market.
As banks assess applications for loan refinancings, they will impose ever more stringent underwriting standards as they will most likely put these loans on their books. Consumers, small businesses, and major corporations that do not have solid balance sheets and income statements will NOT get new financing. What happens to the existing loans that can’t get refinanced? The process is as such:
1. loan becomes delinquent
2. loan defaults
3. lender forecloses and takes possession of asset
4. lender attempts to liquidate asset via sale, pressuring valuation of assets in that sector.
5. original lender books loss on non-performing asset
What does it all mean? Losses on asset classes across the board. Can government programs plug the holes in the refinancing markets? Well, the Federal Reserve is known as the lender of last resort but their loans extend primarily to the banks themselves to plug holes in their balance sheets. The other governmental programs (TALF, PPIP) will hopefully restart the asset securitization markets and bring liquidity back in for refinancing. Will these programs hold the waves behind the dike? To a certain extent, but my recommendation is . . . get to higher ground. (more…)
32 Bid/84 Ask
Posted by Larry Doyle on April 3rd, 2009 11:14 AM |
Will banks sell toxic assets? This question is being asked ad nauseum. Investors have indicated a willingness to purchase at the right price. That price has moved up somewhat given the assistance of government financing (read this as taxpayer financing) and government assumption of losses (read this as taxpayer assumption of losses). Bank executives have indicated a willingness to sell, “at the right price.” Ken Lewis, CEO of Bank of America, made that assertion again this morning.
What’s the right price? Well, a Bloomberg survey of investors and banks provided indicated levels of interest as to what the right price for certain of these toxic assets might be. Investors are willing to pay 32 cents on the dollar. Banks are willing to sell at 84 cents on the dollar. In Wall street parlance, between those levels one can drive many Mack trucks!!
Aside from the disparity in perceived value, banks now are further incentivized not to sell given the reprieve they received just yesterday in the relaxation of the mark to market. (more…)
