Leverage by the numbers

[w¡n9Nµ7 §£@¥€r 123]

So then these bailout loans (liabilities) are doing nothing more than increasing the leverage ratio, right?

And the government will be the one doing the write-downs, and taking the losses.

The federal government can increase their assets using tools at their disposal, tools banks don't have.

By borrowing money from the Fed? That only creates more liability. My understanding is that the equity is what needs to be increased. As that would lower the leverage ratio.

Yes, assets can be acquired at little or no cost above the existing budget allocations using another tool available to the Federal government.

[mRx 16]

So then these bailout loans (liabilities) are doing nothing more than increasing the leverage ratio, right?

And the government will be the one doing the write-downs, and taking the losses.

The federal government can increase their assets using tools at their disposal, tools banks don't have.

By borrowing money from the Fed? That only creates more liability. My understanding is that the equity is what needs to be increased. As that would lower the leverage ratio.

Yes, assets can be acquired at little or no cost above the existing budget allocations using another tool available to the Federal government.

Taxation and legal plunder?

[w¡n9Nµ7 §£@¥€r 123]

Taxation is one tool, yes.

Another tool, where the real bang for the buck is, to do what the British did a few centuries ago. Go abroad and forcibly acquire what isn't ours.

[mawilson 2,133]

So I've been thinking about this.

The government has taken (or is taking) depreciating assets off the hands of the banks.

But the losses continue to come and will continue to come.

So what does the government do? If I'm reading this correctly, they have to increase the value of the asset side of the equation.

They can also increase the equity side of the equation by making sure the banks have plenty

of capital and encouraging them to continue the process of recognizing losses and selling

these assets, which is the approach that Paulson ultimately opted for.

Of course this week he agreed to provide a very large guarantee for Citi assets - which is

very close to the asset purchases that only last week he said he would NOT do. The asset

guarantee approach is going to be difficult to repeat multiple times (for other major banks)

because of much larger contingent liabilities (trillions of dollars.)

The problem with the equity injection approach is that it effectively leads to nationalization

if the government buys common equity at market prices.

[MrsCat 6]

Taxation is one tool, yes.

Another tool, where the real bang for the buck is, to do what the British did a few centuries ago. Go abroad and forcibly acquire what isn't ours.

wasn't that the purpose of Iraq . . . . . oh wait . . . . . . . the US was overthrowing a dictator. Never mind.

[w¡n9Nµ7 §£@¥€r 123]

Taxation is one tool, yes.

Another tool, where the real bang for the buck is, to do what the British did a few centuries ago. Go abroad and forcibly acquire what isn't ours.

wasn't that the purpose of Iraq . . . . . oh wait . . . . . . . the US was overthrowing a dictator. Never mind.

We didn't take the oil. We should have. Just outright taken the oilfields. Who cares if it's right or wrong?

[mawilson 2,133]

Actually, nationalizing the banks would be one way to fix the problem once and for all,

while at the same time ensuring that the taxpayer gets a decent return.

[w¡n9Nµ7 §£@¥€r 123]

They can also increase the equity side of the equation by making sure the banks have plenty of capital and encouraging them to continue the process of recognizing losses and selling these assets, which is the approach that Paulson ultimately opted for.

Of course this week he agreed to provide a very large guarantee for Citi assets - which is very close to the asset purchases that only last week he said he would NOT do. The asset guarantee approach is going to be difficult to repeat multiple times (for other major banks) because of much larger contingent liabilities (trillions of dollars.)

The problem with the equity injection approach is that it effectively leads to nationalization if the government buys common equity at market prices.

But injecting equity involves printing more money, doesn't it?

Don't we need actual, tangible, real assets? And given that we don't have enough, why not steal it from someone else?

[mRx 16]

Ah yes.

But is America actually acquiring any assets over there? I think individuals are, but not on the behalf of America. They want it for themselves.

Like the oil contracts, going to big business, not America. Will no doubt benefit certain politicians, but not America.

Unless of course, we seized the oil. But that would start WWIII.

[MrsCat 6]

Taxation is one tool, yes.

Another tool, where the real bang for the buck is, to do what the British did a few centuries ago. Go abroad and forcibly acquire what isn't ours.

wasn't that the purpose of Iraq . . . . . oh wait . . . . . . . the US was overthrowing a dictator. Never mind.

We didn't take the oil. We should have. Just outright taken the oilfields. Who cares if it's right or wrong?

As a completely amoral person, I don't care one way or the other. I'm about rationality. If someone has something that I want and can take reasonable means to get it, I'll take it. No reason the future/current administration shouldn't operation in a similar fashion.

PS: I should add that the only reason I didn't like the Iraq war was because it was a blatant lie. If they'd said we're going there for oil, I could support that. Lie to me and call it Iraqi Freedom and we've got problems.

Edited November 27, 2008 by MrsCat

[w¡n9Nµ7 §£@¥€r 123]

Unless of course, we seized the oil. But that would start WWIII.

Why would it start WW3? America has 'taken' stuff before. A fair number of our 50 states were 'taken'.

[William33 110]

Unless of course, we seized the oil. But that would start WWIII.

Why would it start WW3? America has 'taken' stuff before. A fair number of our 50 states were 'taken'.

Seriously AJ? The USA has always stopped short of Saddam tactics for personal gain.

Besides, gas can be had now for $1.46 a gallon in most places.

[w¡n9Nµ7 §£@¥€r 123]

The USA has always stopped short of Saddam tactics for personal gain.

Oh?

Much of this continent was taken by force.

[MrsCat 6]

The USA has always stopped short of Saddam tactics for personal gain.

Oh?

Much of this continent was taken by force.

Yeah everyone. Tomorrow is Thanksgiving, which should otherwise be known as Hug an Indian Day.

Ahem. You can all start lining up at my door at 8am sharp to express your love for my brethren's benevolence and not letting you all die from scurvy.

[William33 110]

The USA has always stopped short of Saddam tactics for personal gain.

Oh?

Much of this continent was taken by force.

That was then, this is now. I believe that the passing years have brought this country (and others) to a civilized level. As an example, the independence of the 30 + countries under colonization. The US included (PI).