Opinion

The Great Debate

Accounting change won’t save banking

James Saft Great Debate —James Saft is a Reuters columnist. The opinions expressed are his own. –

By all means reform accounting, but for pity’s sake take your time and keep your expectations low.

Suspending mark-to-market accounting immediately as a means of levitating banks out of peril simply won’t work. While transparency may or may not be the foundation of banking, trust undoubtedly is.

“Adjusting” or suspending fair value accounting, even if you swear up and down that this time it’s even more fair will erode rather than build trust and repel rather than attract capital.

The House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, led by Congressman Paul Kanjorski of Pennsylvania today is holding a hearing on mark-to-market and already the industry knives are out.

A group of 31 industry groups and financial institutions, including the American Bankers Association, Mortgage Bankers Association and U.S. Chamber of Commerce, have petitioned the committee to take “immediate action” to stop the “spiral of accounting-driven financial losses,” according to the Los Angeles Times.

Let sleeping shadow banking systems lie

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Rather than vainly trying to refloat the shadow banking system, the U.S. would be better off grappling with the inevitable ultimate solution — debt destruction and inflation.

The common denominator of policies like the Term Asset-Backed Loan Facility (TALF) that was detailed on Tuesday, is that they try to solve fundamental problems with indebtedness by attempting to float asset prices high enough that they are back in proportion with the debt.

Don’t bet on Asians imitating Americans

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Asia’s calamity is that Americans are imitating frugal Asians a lot faster than Asians can become free-spending Americans.

The old economic model — that Asia exports to the U.S., saves its earnings and lends the money back to Americans to buy more stuff — is broken and no one can say what will arise in its place.

Americans are not willingly becoming savers, cultural change is being forced on them by the credit crunch and their own busted balance sheets.

Redefining the sacred in the banking rescue

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Another week, another set of protestations that U.S. banks will remain in private hands, apparently almost regardless of the consequences.

It is clear that nationalization violates a sacred value for U.S. policymakers, or perhaps they believe it to be a sacred value held by voters. As we know from behavioral economics, when people are confronted by a conflict between material advantage and their ideas of the sacred, they tend to opt surprisingly often for the sacred.

A revenue and legalization lesson from FDR

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own. –

(Correcting name of academic to Peter Reuter on Feb 27)

Want to help fund the bank bailout, ease California’s budget crisis and shore up strained U.S. finances? Legalize drugs, tax the trade and save on interdiction, domestic enforcement and the prison and court system.

I’m only partly joking.

It won’t solve all of the U.S.’s problems and lord knows will cause some new ones, but the money is undeniably big enough to make a dent.

Let housing find its clearing price

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

The U.S. government should just get out of the way and allow the crash in U.S. housing; the market is too big, has too far to fall and Americans’ finances are too strained.

President Barack Obama’s measures, unveiled on Wednesday, are part of a $275 billion plan to try and stabilize the housing market and prevent foreclosures. It aims to encourage lenders and their agents to cut repayments for homeowners in difficulties to lower, more affordable levels as well as other steps.

Geithner’s hair of the dog plan for banks

jimsaftcolumn– James Saft is a Reuters columnist. The opinions expressed are his own. –

U.S. plans for a public-private fund to buy up toxic assets are likely to amount to a fig leaf with which to hide subsidies to failing banks.

It is also, inevitably, an entirely new subsidy to outside investors, who by definition will only participate if they get better terms than now available in what we formerly thought of as the free market.

Goodbye bonuses, hello hedge funds

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

The argument about bank bonus payments is as sterile as it is backward looking; compensation at government insured institutions is going nowhere but down.

The real action will be at those places like hedge funds, private equity houses and boutiques, which will try and trade less insurance for more autonomy and which will capture more market share, take on more risk and offer more reward. The question is how will they be regulated, how will they fund themselves and how will the rest of us be protected from the systemic risk they could easily represent.

Saving the economy from our brains

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Our brains are wired for bubbles, it would appear, and regulation and tight external controls are the only way to save ourselves from ourselves.

Bankers, traders and investors effectively became addicted to the pleasure that comes from making money, while at the same time increasingly losing touch with just how much risk they were taking.

Play by the rules, close failing banks

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Why not just play by the existing rules and rescue the economy, rather than the banks and their foolish shareholders and counterparties?

The choice for the Obama administration comes down to this: pay a subsidy to weak banks and reward failure and self-dealing or shut them down and start over again.

  •