Tuesday, March 31, 2009
Monday, March 30, 2009
Saturday, March 28, 2009
Friday, March 27, 2009
- Highly regulated – indeed price fixed – banking did not visibly hinder economic growth in Hong Kong.
- Highly indebted countries with highly oligopolistic banking systems and quite a lot of financial regulation are doing relatively well at the moment – see Australia, Canada, possibly Israel.
- Fannie and Freddie may have made huge and seemingly formidable lobbying efforts – but those lobbying efforts failed miserably – with Fannie and Freddie combined profits never going about $10 billion for carrying about half of all mortgages in the United States. This number seems large but is trivial relative to the size of the exposure or the stated profits of competitors.
- The collapse of mortgage margins in the UK simply resulted in banks maintaining returns on equity by increasing leverage. Bank profits did not fall – but bank risk – and system risk
Thursday, March 26, 2009
Wednesday, March 25, 2009
Tuesday, March 24, 2009
Fund Managers will be pre-qualified based upon criteria that are anticipated to include:• Demonstrated capacity to raise at least $500 million of private capital.• Demonstrated experience investing in Eligible Assets, including through performance track records.• A minimum of $10 billion (market value) of Eligible Assets currently under management.• Demonstrated operational capacity to manage the Funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers.• Headquarters in the United States.
The status quo, absent any Treasury proposal, is basically the Hempton plan: let profitable-but-insolvent banks work their way slowly back to solvency by making large operating profits and not paying dividends. But the problem with the Hempton plan is that it only works on a kind of don't-ask-don't-tell basis: the banks can't be publicly insolvent, since then they need to be taken over by the government.
Monday, March 23, 2009
- Remember that Paul Krugman is right.
- If your analysis leads you to conclude that Paul Krugman is wrong, refer to rule #1.
Hempton's point is well taken. As he comments to one of his readers, "If I set up a new bank and borrow with brokered deposits I can lever 12 times non-recourse. If I win I keep the profit. If I lose the FDIC pays the losses. ... Geithner lends the money to the special purpose fund. Not against the pool of purchased assets - but with private capital pitched in. Sounds like banking to me." So Hempton objects to what he sees as Krugman's inconsistency.But Hempton's analogy isn't quite right. Krugman wants big banks nationalized, giving taxpayers the equity upside. The Geithner plan is at best an inefficient way of bolstering bank capital because some of the taxpayer funds go not to bank capital, but to bank shareholders and hedge funds.
Saturday, March 21, 2009
Friday, March 20, 2009
Tuesday, March 17, 2009
Monday, March 16, 2009
Friday, March 13, 2009
Thursday, March 12, 2009
Wednesday, March 11, 2009
Tuesday, March 10, 2009
BUFFETT: Yeah, the interesting thing is that the toxic assets [of American banks is] if they're priced at market, are probably the best assets the banks has, because those toxic assets presently are being priced based on unleveraged buyers buying a fairly speculative asset. So the returns from this market value are probably better than almost anything else, assuming they've got a market-to-market value, you know, they have the best prospects for return going forward of anything the banks own. The problems of the banks are overwhelmingly not toxic assets, you know. They may have been one or two at the top banks, but they are not going to do in--if you take those 20 banks that are subject to the stresses, they're not going to do those banks in. Those banks have the earning power which has never been better on new business going out of this to build capital positions if they pay low dividends which they're starting to do now.JOE: Hm.BUFFETT: Toxic assets really are not the problem they were. Now, when I said it was contingent--I didn't remember being exactly contingent on TARP, but it was contingent on the government jumping in.JOE: Right.BUFFETT: The government needed to act big time in September, I will tell you that.JOE: So...BUFFETT: And they did act big time.JOE: So you are OK with the shift to providing the banks with capital as opposed to the original intention of the TARP for actually getting the toxic assets off the books?BUFFETT: Yeah, and interestingly enough, they don't need to supply the banks, in my view, with lots of capital. They need to let almost all of--I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital. The government has needed to say--what the government needs to say is nobody's going to lose a dime by having their deposits in these banks. They're going to make lots of money with the deposits.JOE: Hm.BUFFETT: The spreads have never been wider. This is a great time to be in banking, you know, if you just get past the past and they are getting past the past. I mean, right now every time a loan is made to somebody to buy a house--and we're making, you know, making millions of loans--four and a half million houses will change hands this year out of a total stock of less than 80 million. So those people are making good mortgages. You want those assets on your books and you get a great spread in putting them on now. So it's a great time to be in banking, but you do have to get past this past. But the toxic assets, in my view, you know, if they've been written down to market, I'd rather buy those assets from the bank than any other assets they've got.JOE: Hm. OK...
The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.