Saturday, September 27, 2008

For “illiquid assets” read “worthless assets”

The Ron Paul solution

Bill Steigerwald talked to Paul by phone from Washington early Thursday evening as the Beltway political powers were still meeting and trying to agree on how to fix the problem.

Posted by gardeniadotnet @ 08:11 AM (769 views)
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5 thoughts on “For “illiquid assets” read “worthless assets”

  • Now he’s not pushing the Gold Standard as the solution ,he’s making more sense.The figures estimated for the number of American homes in foreclosure multiplied by the average debt ($100,000) are interesting.

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  • Many of the assets to which he refers are neither worthless nor illiquid. There is a market for them. The problem is that the market price (or prices offered for them) is below what the banks will accept (often only 15-20% below). Given banks’ leverage they’d become insolvent (shareholder value destroyed) if they sold at market price or marked to market. So the banks say the assets are difficult to value given the ‘temporary’ turbulence in the markets, so please inject liquidity (give us the money) and eventually things will come back to normal, the assets will recover their value and everybody will be paid back.

    Pure hokum of course. As Ron Paul says, let them go bankrupt, write off the rubbage, sell off the good stuff, and markets will recover.

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  • What Icarus says. Ron Paul seems to be back on the commonsense trail.

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  • I agree, a bailout will prolong the disaster not cure it.
    If we save and pay for things we will have more money ultimately as there won’t be any interest to pay.
    Agreed we might not buy half the rubbish we didn’t need but as an example I’d rather pay 35p for 1 kit kat that I actually wanted than pay £1.20 for 4 of them which I will end up eating. (ok not the best example, I don’t need a credit card to buy kit kats but you get my drift).

    Not funding a bailout will result in house prices plummiting but who is actually harmed by this. The only people harmed as I see it are people who bought after the period to which house prices return. IE purchasers post 2001 if that’s the level prices settle back to.

    Now these people haven’t actually lost anything as they’ve talken out mortgages they can offord to pay and as long as they do they’ll keep their house. Any people in this group who are moving up the ladder (currently snake) will in actual fact gain. Many who thought they were in their last house may in actual fact make an additional move with the ‘next step’ gap closer.

    And basically anyone below the age of 40 will definately gain.

    (If there is any sort of a bailout it should be provided by the B o E direct to consumers to temporarily make up realised negative equity that has been realised due to house sale/re-purchase if indeed it’s proved to be required once the dust has settled in 2-3 years time)

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  • I always got the idea that Ron Paul supports gold because of the implied constraints on government, and his opposition to the Federal reserve’s role of money creator. Even without gold money he has always been against monetary high jinks.
    One point, when people talk about letting the banks fail in order to avoid the costs of a bailout, what about the costs of the insured deposits? Changing one compensation mechanism for another only. I do think they should be allowed to fail personally but I fail to see how deposits can be covered should there be a large amount of mortgage repayment failure. This is the 100K winners problem. For all the bad debts that were made, the money -DID- end up in somebody account in full. The total of the increased prices since 2002 is sitting in somebodies account somewhere and this money isn’t backed up.
    I feel that this is why the depositors should take a hit. I cannot see that if I sell a 1989 skoda to some idiot for a million pounds, then surprise surprise, they can’t pay, that the government should step in and fulfill the obligation. For me this is the whole problem.

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