Finally Some Real Solutions
It is so refreshing to turn on the TV and actually hear some rational strategy to help clean up this financial mess. Federalized accounting rules and Clinton era loan programs for the underprivileged fueled the car that hit the Wall Street. Not to say greed didn’t play a major role and the confidence in the US housing markets and the loan portfolios a key to the meltdown, but Mark to Market rules understated much of the value of mortgage portfolios that resided on the balance sheets of our major institutions. This required them to set very low and unrealistic values for mortgage portfolios that cause a major reserve problem, devalue businesses, and broke the back of companies like Merrill Lynch, Lehman Brothers and many banks. This one requirement has caused so much turmoil and forcing banks to lend money to risky home owners under laws passed under Clinton created a large part of our perfect storm.
Was Newt Gingrich correct in his idea to remove the Mark to Market provision? You can bet the farm on that one. With all the problems in our markets and the worst decline on Wall Street in history did the Lawmakers make the right choice by killing a bill, all be it very necessary, to shore up the economy? YES! The bill was laden with such a heavy burden that even the Democrats with their hold on power in the House couldn’t get a huge swath of their own team to pass it. The issue then of course became political as Democrats blamed Republicans for the debacle while the public was outraged and the markets collapsed. The Republicans since the beginning have a much better plan that would have made the bill solid and financially attractive.
Mark to Market reform would alone shore up many banks’ asset positions by valuing those portfolios on the books properly, not at a hugely depressed value, allowing their reserve requirements to be met as their balance sheets would became more healthy. This would free up hundreds of billions of liquidity for banks and other institutions almost overnight. Also, repealing the forced laws on banks to lend to under privileged home owners would also change bank requirements to lend to risky homeowners that was also at the root of the financial meltdown. So what the heck is going on in Washington?
My conclusion is that this Bill will pass but not before some compelling financial strategies are in place. Lending not buying and insuring can relieve a lot of the problem although some portfolios need to be bought. Also, it is critical that this includes removal of the Mark to Market and federal home loan programs that force banks to do risky lending. I believe simply removing mark to Market provisions alone would hugely advantage our institutions and thus bring huge liquidity back into the market. If lawmakers can’t see this as a major piece of the legislation and ongoing reform then we are going to remain in financial jail so to speak held captive by the undervalued assets that the banks and financial institutions hold. Washington better be listening because this one move can turn the economy around despite the meltdown.
It is so refreshing to turn on the TV and actually hear some rational strategy to help clean up this financial mess. Federalized accounting rules and Clinton era loan programs for the underprivileged fueled the car that hit the Wall Street. Not to say greed didn’t play a major role and the confidence in the US housing markets and the loan portfolios a key to the meltdown, but Mark to Market rules understated much of the value of mortgage portfolios that resided on the balance sheets of our major institutions. This required them to set very low and unrealistic values for mortgage portfolios that cause a major reserve problem, devalue businesses, and broke the back of companies like Merrill Lynch, Lehman Brothers and many banks. This one requirement has caused so much turmoil and forcing banks to lend money to risky home owners under laws passed under Clinton created a large part of our perfect storm.
Was Newt Gingrich correct in his idea to remove the Mark to Market provision? You can bet the farm on that one. With all the problems in our markets and the worst decline on Wall Street in history did the Lawmakers make the right choice by killing a bill, all be it very necessary, to shore up the economy? YES! The bill was laden with such a heavy burden that even the Democrats with their hold on power in the House couldn’t get a huge swath of their own team to pass it. The issue then of course became political as Democrats blamed Republicans for the debacle while the public was outraged and the markets collapsed. The Republicans since the beginning have a much better plan that would have made the bill solid and financially attractive.
Mark to Market reform would alone shore up many banks’ asset positions by valuing those portfolios on the books properly, not at a hugely depressed value, allowing their reserve requirements to be met as their balance sheets would became more healthy. This would free up hundreds of billions of liquidity for banks and other institutions almost overnight. Also, repealing the forced laws on banks to lend to under privileged home owners would also change bank requirements to lend to risky homeowners that was also at the root of the financial meltdown. So what the heck is going on in Washington?
My conclusion is that this Bill will pass but not before some compelling financial strategies are in place. Lending not buying and insuring can relieve a lot of the problem although some portfolios need to be bought. Also, it is critical that this includes removal of the Mark to Market and federal home loan programs that force banks to do risky lending. I believe simply removing mark to Market provisions alone would hugely advantage our institutions and thus bring huge liquidity back into the market. If lawmakers can’t see this as a major piece of the legislation and ongoing reform then we are going to remain in financial jail so to speak held captive by the undervalued assets that the banks and financial institutions hold. Washington better be listening because this one move can turn the economy around despite the meltdown.
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