7 comments

  • yes, very good.
    we need some specifics now/ options on the kinds of firewalls that can be proposed.

  • Great piece… the question remains whether governments are willing to take the steps needed to fix a very broken system.

    President Sarkozy seems to think re-regulating capitalism is the way to go:

    http://www.ft.com/cms/s/0/3dadac32-89b9-11dd-8371-0000779fd18c.html

    Who knows, maybe this momentum can open a window on some IFI reform as well

    And speaking of the roots of this mess, Barry Eichengreen has an enlightening post here:

    http://dailystaregypt.com/article.aspx?ArticleID=16596

    I don’t really buy into his ‘unintended consequences of basically sensible policy decisions’ thesis, but it does shed some light of how a little too much competition in the banking sector helped get us to where we are now.

  • Sarkozy is probably referring to the FSF package which Carney also endorses, which seems to merely prolong and intensify suffering for the majority of the earth’s inhabitants.

    Eichengreen seems to read life from the perspective of those who profit from other people’s bank deposits. Glass Steagall should not have been repealed, as many have said, and if, as the Globe noted, it was too easy for bankers to ‘get around it’, then new, stronger firewalls are needed.

    None of this deals with the bigger problem, which, as Duncan and Andrew and others note, is the floating global debt, (which is probably mostly private ?).

    No one seems to know where exactly this debt sits, yet the prevailing rationale is that the ‘global economy will collapse’ if the public sector does not get further intertwined.

    Some have suggested a kind of ‘Jubillee’ for global debt, but this obviously would have to be accompanied by major restructuring in the public/ecological interest, so that the same scenario doesn’t develop again.

    We’d need to propose more creative alternatives, perhaps hybrid versions of existing diverse options.

  • I’ve posted further alternatives from various circles under Bob Chernomas’ bailout critique at http://www.rabble.ca , and noted our window of opportunity given that overnight trading globally dumped on Paulson’s plan, as reported by CBC radio.

    also noted that Harper’s lack of oversight of the BofC and the financial sector makes him no fiscal conservative.

  • Knowledge, Not Money, Is The Solution To The Financial Crisis

    The previous Savings and Loan Crisis and the current Subprime Woe are both due to over-valuation of real estates. Thus, incorrect valuation is the root cause of both financial crises.

    In particular, current valuation methods based on market comparison is the main cause of financial crises. The past financial crises are evidences that the market price is often incorrect. Market comparison is the blind following the blind and should not be used in the determination of the correct price. A correct valuation method should be based on future cash return.

    Since the cash flow generally extends to infinity in time, a correct valuation method must be consider the cash flow to infinity in time. Furthermore, for commodities with similar functionality, such as cars and houses, the supply and demand model, which sums up all the quantities supplied and demanded, is needed. Bonds and mortgage are backed by the values of assets and of real estates. Credit crisis, thus, stems from incorrect values. Financial leverages amplifies the financial crises.

    A correct solution of valuation is the solution to financial crises. Money, on the other hand, can distort value. If all the market participants, including especially the government, had used correct valuation methods, both the Savings and Loan Crisis and the Subprime Woe would not have occurred.

  • Subject: Knowledge-Centered Bailout Plan Based On Solution Of Value

    The knowledge-based bailout plan involves three parts:
    1. Reduce foreclosures by restructuring the foreclosure (and bankruptcy) regulations.
    2. Keep money supply from contracting.
    3. Require all investments be valued by the solution of value.

    The mortgage payment should be reduced to a level that the homeowner can afford, even to an amount less than the interest-only payment (the principal will grow). And to be fair, the mortgage interest rate should be raised proportionally. Also, there should be a fine for “littering” the housing market with foreclosed property by a homeowner, just as there is a fine for littering by a driver on the highway.

    The $700 billion bailout proposal should be used efficiently to prevent the contraction of money supply. But, a “reverse” tax and loans to small business might be more efficient than a “reverse” auction and loans to mature corporations in pumping money into the economy.

    Financial crises will no longer occur, if all the market participants, including the government, observe the non-violable laws of nature based on the solution of value. A valuation project can be within just 1% of the cost of the proposed $700 billion bailout plan. Knowledge will be the solution to all our problems.

    The foundation of economics is value. For example, every transaction is intended to increase value. Thus, the solution of value should be the foundation of a rational bailout plan.

    The solution of value can be describe in one sentence: “The cash flow equation {Total Cash Return = Sum of Cash Flow + Cash From Resale} is satisfied for the price and all the resale prices to infinity in time.” The solution is mathematically rigorous and a non-violable law of nature in social science.

    The solution of value can quantify the supply and demand model for multiple commodities with similar functionality, such as cars, houses, currencies, money supply, etc.

    The bailout plan satisfies two non-violable laws of nature, derivable from the solution of value. The first is the solution of value, and the second is the quantity theory of money, Quantity x Price = Velocity of Circulation of Money x Money Supply. Milton Friedman proposes that the Velocity is an approximate time-invariant, and, thus, Money Supply would be the key to preventing Great Depress. With sufficient effort, the money supply can be determined from a quantitative supply and demand model based on the solution of value.

    The solution of value can detect over-valuation and, thus, can prevent all the recent financial crises. But, since the current crisis has not been detected and prevented by the solution of value, the quantity theory of money needs to be observed to save the US economy from another potential Great Depression due to the chain reaction of bank failures. The current bailout plan is designed to stop the chain reaction.

  • “There are parts of Paulson’s Emergency Economic Stabilization Act of 2008 that every US taxpayer should understand, even though the media is keeping those facts obscured. In sections 128 and 132; the proposed bill would have suspend “mark to market” accounting. This means that the banks would no longer be required to assess the worth of their assets according to what similar assets fetched on the open market. For example, Merrill Lynch just sold $31 billion of mortgage-backed securities for $6 billion, which means that similar bonds should be similarly priced. Simple; right? The banks need to adjust the value of those assets on their balance sheet accordingly. This gives investors and depositors the ability to know whether their bank is in bad shape or not. But Paulson’s bill lifted this requirement and allowed the banks to assign their own arbitrary value to these assets, which is the same old Enron-style accounting scam.”

    http://www.alternet.org/workplace/100829/house_votes_%27no%27_on_paulson%27s_bailout_–_but_is_the_financial_meltdown_averted/?page=2

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