Don't Socialize the Losses -- Liquidate the Losers

[steven johnson]

After the Bush 'privatize the gains, socialize the losses' policy, I think we should follow the Japanese solution: Ruthlessly audit, break up losers and liqiudate them.

Apr 03 07:59
Nassim Taleb Says Geithner’s Bank Plan Will Fail

U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets. Leaders from the Group of 20 nations meeting in London this week are unprepared to fix the global financial system because they don’t grasp how markets work or the root causes of the credit crisis that has led to $1.2 trillion in losses and asset writedowns, Taleb said.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market, Taleb said.

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets,” he said. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”




Nassim Taleb Says Geithner’s Bank Plan Will Fail

[ixion]

1. "difficult-to-value" assets

:eyes:

I think they meant to say: "assets we don't want to value (because they're worthless)"

[annabanana]

2. yup. . See? It's not that hard to explain. Too bad the press isn't

up to the job.

[yurbud]

8. those assets are worth: all their houses, trust funds, foundations, off-shore accounts

which we should seize

[Lucky Luciano]

11. They are definitely worth more than zero.

Many of these assets may be worth 60 cents on the dollar...trouble is that they may be marked at 80 cents on the dollar and the banks may have $100B notional of the garbage so there could be a $20B writedown in the works...also, while they may be worth 60 cents on the dollar, nobody is bidding for any of them at any reasonable price - does not mean they are worth zero.

[notesdev]

3. On the Japanese solution

They only arrived at that solution after trying everything else imaginable, including everything Bernanke proposes to do, managing to accumulate 180% of GDP in debt (by far, the highest debt load in the world) before arriving at the conclusion that - gasp! - those who took bad risks ought to eat the losses.

[yurbud]

7. those who took the bad losses ought to be EATEN

http://professorsmartass.blogspot.com/2009/02/wall-st-execs-bankers-feed-those-they.html

[yurbud]

4. gets a rec for title alone. Can we liquidate them in a blender?

[infidel dog]

5. Up against a wall works for me.

[yurbud]

6. or poetic justice--make them pay back the damage they caused with a 29% APR

[Babel_17]

9. Warning of the Global Banking Crisis

In 2006, in The Black Swan

http://en.wikipedia.org/wiki/Nassim_Taleb

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ....I shiver at the thought.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely".

Success during the 2007-2008 Financial Crisis

Taleb appeared to be vindicated against statisticians in 2008, as he reportedly made a multi-million dollar fortune during the Financial crisis of 2007–2008, a crisis which he attributed to the failure of statistical methods in finance <18><19>. Universa, where Taleb is advisor, made returns of 65% to 115% in October 2008 in its approximately $2 billion “Black Swan Protection Protocol.” <20>

Taleb's financial success coupled with his earlier predictions have seen him catapulted to prominence. He has appeared on numerous magazine covers and television shows to discuss his views <21> <22> Taleb started being treated as a "rock star" in Davos 2009 in which he had harsh words for bankers <23> <24>.

In an article in The Times, Bryan Appleyard described Taleb as "now the hottest thinker in the world". <25> The Nobel Laureate Daniel Kahneman proposed the inclusion of Taleb's name among the world's top intellectuals, citing "Taleb has changed the way many people think about uncertainty, particularly in the financial markets. His book, The Black Swan, is an original and audacious analysis of the ways in which humans try to make sense of unexpected events." <26>

[Vidar]

10. Great idea.

[AZ Criminal JD]

12. The auto industry must be included

Liquidate the losers.