Bank Fiction

Last week the Financial Times ran an excellent article called "Chronicle of a Decline Foretold" by Niall Ferguson in their FTWeekend section. It was a work of fiction, an imaginary year-end summary of the economic events of 2009. You should have a look.

In it, he notes:
In 2008, the Bank of England had estimated total losses on toxic assets at about $2.8 trillion. Yet total bank writedowns by the end of 2008 were little more than $583bn, while total capital raised was just $435bn. Losses, in other words, were either being massively understated, or they had been incurred outside the banking system.

He later invents a quote from an "indignant Michigan lawmaker":
"Nobody wants to face the fact that these institutions [the banks] are bust. Not only have they lost all of their capital ... If we genuinely marked their assets to market, they would have lost it twice over."

As I noted in an earlier post, banks are lying about the amounts of unmarketable mortgage securities on their books. Existing law requires banks to mark them to market prices at each quarterly or annual earnings filing. While there is expanded wiggle room covering securities for which there is no efficient market to trade them, the banks still must make a good faith effort to value them and offer an explanation of the valuation methodology. They are simply not valuing hard-to-sell securities at what they're truly worth and they're not facing any pressure from financial regulators to do so.

You can see my earlier post for what I think ought to be done about it.

Mr. Ferguson's story also contains an amusing and accurate title for the economic event of which we are in the midst: The Great Repression, because no one wants to believe it is going to be as bad as it really will be.

posted 15:42:54 on 01/04/09 by blucas - Economy - comments

What's Wrong with Rich Rodriguez

University of Michigan football coach Rich Rodriguez has to alter at least three behaviors if he's ever going to win over U-M football fans.

1) Quit publicly laying the blame on the players after losses. Take it on yourself and mean it, Coach. You may know that if certain players had eliminated certain mistakes, the outcome may have been different, but that is something to be worked out between your staff and the players at the next practice, not after the game at the press conference.

2) Quit with the whiny faces on the sidelines during the game. It's embarrassing to the University. Try to maintain some composure and self-control. You want to set an example for these kids, not give them an excuse to draw their own unsportsmanlike conduct penalties down the line.

3) Respect (and play) the upperclassmen. When you're 3-7 and in the final home game, play your god-damned seniors! If you don't play them even in that situation, you're sending a signal to the underclassman that loyalty will get them nothing. You want your student athletes to believe that staying in the program will be rewarding, not a waste of four years of practice.

I don't believe he can change, which means he probably won't last the length of his contract.

posted 21:25:36 on 01/02/09 by blucas - General - comments

New Sidewalk Sport in Toronto

Torontonians have taken up a new sport on their downtown sidewalks: chicken. They walk straight toward you as you head in the opposite direction and do not indicate at all that they intend to move over before colliding with you.

Normally, especially in a city as nice as Toronto, people coming toward you allow you "your" half of the sidewalk and will indicate so by angling over to the side as they approach. In a December visit, however, I noticed several twenty- and thirty-somethings seemingly intending to walk right into me on crowded sidewalks. I did not move over, of course, as I was already on "my" half and I had my wife right next to me. Maybe because I'm 6'4" and was wearing the 1930s-Chicago-motorcycle-cop-style leather jacket I got at Export Leather on Spadina a couple years earlier (also preferred by Tie Domi), all of the opposing walkers eventually moved over before running into me. Interestingly, most were looking me right in the eyes as they approached, as if they were consciously looking for a flinch. That's why I think it's a game right now. If they were really going to obnoxiously run into other pedestrians as someone in New York City might, they would look past you as if you didn't exist and would not move out of the way at the last second.

They last time I encountered sidewalk chicken regularly was in Boston in the 1980s, where the rich people in furs would walk a straight line down the sidewalk expecting the plebes to get out of the way. There it was more ingrained in the psyche - it was "their" sidewalk. In Toronto it's just a sophomoric phase, I'm guessing.

posted 21:04:45 on 01/02/09 by blucas - General - comments

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