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HomeGames 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.
Putting the Genie Back Inside the Bottle
Posted by Larry Doyle on April 5th, 2009 11:43 AM |
The genie, in the form of the Federal Reserve, has granted the markets a lot more than three wishes over the course of these challenging economic times. What are some of the wishes granted so far? Let’s review:
1. cutting the Federal Funds rate to a range of 0-.25%.
2. backstopping a wide array of short term funding operations, including the Commercial Paper market, Money Market funds, and Swaps market.
3. opening the Federal Reserve discount window for investment banks prior to their conversion to commercial banks.
4. utilizing a massive Quantitative Easing program to purchase government, mortgage-backed, and government agency securities in an attempt to bring interest rates down and jumpstart borrowing by consumers and corporations.
5. working in concert with the Treasury and FDIC to implement the TARP (Troubled Asset Recovery Program), TALF (Term Asset-Backed Lending Facility) and PPIP (Public-Private Investment Program).
In the process of implementing all of these activities, this genie, the Federal Reserve, in the person of chairman Ben Bernanke, has gone places no genie has ever gone before.
The question before the court is whether the free market can ever get the genie back in the bottle. Additionally, aside from getting the genie back in the bottle, these wishes granted by the genie aren’t exactly free. How so? (more…)
Wall Street: Moving Business or Storage Business?
Posted by Larry Doyle on March 29th, 2009 11:39 AM |
A standing joke on Wall Street trading desks was a question posed by sales management to trading management.
Sales Manager, looking to sell products and generate commissions, would ask Trading Manager, looking to manage risk and maximize profits or minimize losses, “Are we here at Bank (fill in the blank) in the “moving” business or “storage” business?” Meaning, would the trading desk be competitive in pricing so as to allow the sales desk an opportunity to sell product (stocks, bonds, loans, et al).
This very question is at the heart of a rapidly developing conflict in the PPIP (Public-Private Investment Program) and an expectation of relaxing the FASB’s (Federal Accounting Standard Board) mark to market. (more…)
