The American Spectator

J David| 12.12.08 @ 1:17PM

Too bad you are a Pelosi-posing, Gaia-worshiping Bailout fan, there Newtster, I might read your article and give a rat's rosy red rear-end what a RINO like you has to say...

Zach| 12.12.08 @ 1:30PM

Newt, I'm a little let down after learning about the $400k you received from Fannie and Freddie (see yesterday's WSJ).

J David| 12.12.08 @ 2:00PM

"...Having a form of godliness but denying the power thereof..."

Roger McKinney| 12.12.08 @ 2:57PM

Before we plunge deeper into solutions for the financial crisis, maybe we should consider that there was and is no crisis. That’s what one research company says:

By Brian Love PARIS (Reuters) - The credit crunch is not nearly as severe as the U.S. authorities appear to believe and public data actually suggest world credit markets are functioning remarkably well, a report released on Thursday says.
As a result, governments are pumping masses of public money into the economy across the world because of the difficulties of a few big, vocal banks and industries such as car manufacturing, which would be in difficulty anyway, according to the report published by Celent, a financial services consultancy.
"It's just stabbing in the dark with trillions of dollars," Octavio Marenzi, report author and head of Celent, told Reuters in a telephone interview where he questioned the depth of the analysis that preceded numerous fiscal stimulus packages.

Bob| 12.12.08 @ 3:48PM

Newt knows a lot about history, but precious little about accounting and the market. MtM means that you value assets at their current market price and not what you purchased them for years ago (i.e., historical accounting). The SEC/Cox did this so that investors would know the true value of the companies holding these securities -- it's something called "transparency". If you are not going to regulate these companies in terms of capital requirements/leverage and financial reporting (the conservative free market approach), then MtM makes a lot of sense. The problem is that this was the wrong decision. They should have increased regulation/financial reporting and left MtM alone. The problem is that these underlying securities called derivatives, are virtually impossible to value properly because of their complexity and ownership. Thus, they show an exaggerated response in the market. When they look good, they go way too high and when they look bad, the bottom drops out because no one can calculate the bottom.

These politicians (and journalists) who don't know what they're talking about should keeps their mouths shut.

Regarding the severity of the credit crunch, the fact is that no one really knows. We do know that money is not flowing to consumer debt because we get loan origination data every month.

Credit markets are performing well for those who have a solid business and good credit. The problem is not the best customers (it never is), but for the marginal customers. The banks do not have the capital necessary to take the risks with marginal customers. No matter how much we give them, these people should not get loans which means the economy suffers.

The underlying weakness of the housing market is what needs to be address as when that stabilizes, so will the derivatives and other mortgage backed securities. The only individual who has shown good judgment here is Sheila Bair of the FDIC. She's unbelievably smart and has a good plan. She should be promoted. I probably would have made her Treasury secretary.

Todd Showalter| 12.12.08 @ 5:26PM

Bob,
I agree with you that Newt is not the most credible source to write about accounting issues but there are some credible points to consider about how this money is being used by the banks. It seems to me some of this money is being used by larger banks to buy up smaller struggling competitors and I don't think anyone would agree with being told we had to pass this bailout for the money to be used in this way. Henry Paulson sold us a bill of goods that is for damn sure.

You seem to be forgetting the onerous regulations of Sarbanes Oxley Bob, the reason why IPO's have basically dried up in US Markets in recent years due to the enormous costs imposed by said regulations. MtM sounded like a good idea after the Enron debacle (which Robert Rubin had his involvement in along with the meltdown at Citigroup) but has proven to be a disaster in the situation we find ourselves in with valuing these complex derivatives as you point out.

I think you make a very valid point on the credit situation, banks should not be making loans to risky customers or be forced to because after all that is what got us in this mess. Time to separate the wheat from the chaff as there has not been enough of that in recent years. I know our family business is not having any problems getting credit so I think that has been overblown about credit not being available. Bad credit not being readily available is a good thing but will be tough medicine for the economy in the short-run but will be much better in the long-run to stabilize the banking system.

I am curious as to how you believe the housing market should be stabilized, should we bailout those foolish people who borrowed more than they could pay? About Sheila Bair, you may want to check this article in the WSJ about the FDIC plan before you go overboard about how great her plan is. It seems to me we will be throwing much more good money after bad with this plan to prop up mortgage's for people that really have no intention to pay.

http://online.wsj.com/article/SB122887023605293223.html

Bob| 12.12.08 @ 6:44PM

Todd

I agree the bank bailout was poorly handled. The problem is that Paulson is nothing more than a highly paid day trader -- that's what he did at GS -- he made deals. He's not an economist and doesn't know a lot about financial controls. I don't think he sold us a bill of goods, I just don't think he knew what he was doing to target the money. Obama's guys will be much better at this as they have a strong economics background. As to the use of the money, it's all comingled anyway to its really difficult to tell which dollar went where. In any event, in the big scheme of things, it's not a bad thing for a strong outfit to buy a weaker one although some people will become richer from it.

Regulations are a funny thing. Some are good and others are bad. You can have too many of the bad ones and not enough of the good ones. Capital requirements for banks has been good -- the fact that investment banks and insurance companies don't have the same is a problem. "Skin in the game" regulations requiring the initiating entities to have a portion of the risk is good, being able to securitize 100% is not.

IPO's have dried up not because of Sarbanes Oxley, but because the market is weak right now. There is plenty of venture capital out there waiting on the sidelines for the market to turn and consumers to start buying again. Remember that my background was in business development and I'm familiar with venture capital, IPO's, and regulatory limitations.

I am not convinced that Sarbanes-Oxley was either good or bad. Clearly Enron, Tyco and WorldCom presented regulatory problems. I believe that SO gets used more as a political football than it should be. Since I used to work at AIG after that passed, I can tell you that we really didn't think it was that bad and certainly that onerous.

MtM was a good idea for transparency, but was never designed for radical changes in securities valuation.

I have no magic bullets on stabilizing the housing market. IMO, all we can do is work at the fringes. There is a financial tradeoff between refinancing mortgages at lower interest rates and lower principals, and letting the market slide. It may be wise to only attack certain geographical markets rather than treat all off them. We should forgive the extra taxes on lowered principals, however. I have a number of ideas, but have no data driven way to evaluate them. Until I could run the mathematical models, I couldn't see what kind of sensitivity exists..

The FDIC plan operates on the fringes. It has good theory. You don't throw all of the money at once, but you start with a distributed test case, evaluate the results, and roll out. It's easy to be negative on a plan, it's much harder to make one work. I've done so many start ups that I know you start with a basic idea and then react and modify as you learn. The same should be done here. I'm a big supporter of taking several different concepts, trying each of them in smaller venues, learning and then implementing the best.

Socialism is for the Rich| 12.12.08 @ 8:56PM

Apparently you people haven't received word:

The Republicans in the Senate of the United States protect the interests of the social class they perceive to be keeping them in power.

The masters will be flattered, AIG will receive its billions.

Unionized industrial base? Screw you, brothers and sisters.

rc whalen| 12.13.08 @ 10:06AM

The implementation of FVA is an example of unintended consequences run amok. For fair value to work, markets must be efficient, transparent and complete -- none of which are ever true. So obviously FVA was a bad idea, yet nobody asked the questions. Why not?

When you apply the dreams of global unity of design held by the mathematician or scientist to the real world, things like FVA are what happens. The truth is that there is no perfect accounting system, no single perspective that gives you an optimal view of a financial statements or quantum physics. Whether you are talking about FVA or XBRL, the pursuit of "perfection" when it comes to financial reporting is the problem, not the rules themselves. If we ask real world questions about such rules, like how does it impact legal, financial and business practices, then we'll realize that the imperfection is part of the design and then we'll have the start of sanity.

Kingfish| 12.13.08 @ 10:19AM

So if an asset is overvalued by fifty percent, it should NOT be reflected on the balance sheet?

If I'm in investor looking to buy stocks or bonds in a bank that holds a bunch of Florida properties, should the balance sheet state a value that was $50 million three years ago or the more accurate $20 million today?

This is why no one is really investing, because they don't trust the balance sheets. As the Market Ticker pointed out, one bank announced in its earnings it was worth $50 bilion. It sold less than A WEEK later for $14 billion. THAT is why investors aren't investing and banks aren't lending. An asset shouldn't fluctuate on a daily basis on the balance sheet either but come on, we need some reality in these asset valuations.

Kingfish| 12.13.08 @ 10:23AM

and Mr. Speaker, start reading the websites of Mish, Schiff, and Denninger. They've been much more accurate than Stein, Varney, The Money Honey, and that nut with a goatee.

Don| 12.13.08 @ 11:35AM

The US economy depends on "credit" to function.
The Auto Industry is reeling because their clients and customers cannot get "credit"...
Don't believe it? Stop into a showroom and see how you do.
Minimum credit score required: 700
Until this breaks, we will continue to spiral downward in recession, and it will likely feed upon itself.
This will continue until individuals re-liquify their personal balance sheets and can afford to put 50% down on purchases, show a long term employment record, and have a stellar credit score.
We as a nation have been on a spending/credit spree for 20 years.
The bills have come due. The hangover will be long and un-pleasant. We are in a classic "liquidity trap". There is tremendous stimulus being applied with low rates and fiscal measures by the Government, but no one will lend, and consumers are beginning to save and not even apply to borrow. A Liqudity trap...Not good...

Peter Forbes| 12.13.08 @ 12:11PM

So Newt, you either believe in prices or you don't. Mark to historical prices (or model) is just a way to prop up portfolio cadavers and subsidize the flawed risk-taking of failed institutions. Sounds like socialism to me.

Perhaps we are discovering that public markets with "efficient market" real-time prices are inherently unstable- leveraging when prices are on the way up, collapsing on the way down. All that easy credit and IPO money is like giving liquor to an alcoholic. But when times are good, every drunk looks like a genius.

The "risk managers " and morons running financial institutions hide behind simplistic Nobel MPT and Black-Scholes; and they wonder what happened when the Black Swans swooped in like Hitchock's birds. These people should be purged from the system, because without suffering enough pain, they and their 1000's of minions (Pandit the Puppet to start) will return with the same envy-driven and reckless business models.

I left the Republican party and became an Independent because people like Newt do not have the courage to talk about real markets but merely ways to blame others and keep themselves in power (or at least in print).

The more complex the system, the less we really know, and the slower, not faster(!) we need to drive. That is true conservatism.

The illusions of "knowledge" are equally endemic on the left as well as right. See Hayek's 1974 Nobel address "Pretence of Knowledge".

http://nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lecture.html

Time to WAKE UP| 12.13.08 @ 12:23PM

Check out BUSH NAZI PAST, google it you have a right to know. Check out TIME TO FLEE AMERICA. Don't let them gass you.

Alan Brooks| 12.13.08 @ 7:08PM

as long as Newt doesnt give us futurist nonsense.

biggest mistake i ever made was listening to that garbage.

Jimmy Z| 12.14.08 @ 8:31AM

One thing Newt is not is a RINO. That's preposterous.

Santosh| 12.17.08 @ 6:57AM

wather we are in a position to measure exact loss incured by banks du to crisis? we need to develop some acconting procesures to estimate this also