Great disasters in branding

Granted, I would be less scared of this gentleman as Treasury Secretary than, say, Tim Geithner, but it doesn’t exactly inspire a “Wow! I’m completely sure that the Council of People’s Commissars won’t be rounding me up if they seize power” sort of confidence in the movement…


18 thoughts on “Great disasters in branding”

  1. Ah, I believe he is a fellow badger. We have plenty of communists still in Wisconsin. Some call themselves Communists, or Troskites, or Socialists or Maoist. Most just call themselves “Activists” or “Progressives” nowadays to hide among (and somewhat co-opt) the Euro-Social-Democrat types.

  2. Unfortunately for all of you, the market is saying otherwise. I know, a moment of monumental irrationality.

    Timothy Geithner is going to go down as the greatest treasury secretary in history. Unlike me, a fool who thought the investors were vultures just waiting for sure signs of death, Geithner recognized these capitalist carnivores were actually frightened little field mice who needed to be coaxed out of their hovels in order to get them to feast upon the spoils.

  3. I figure his crowning moment will be the day when the last of the field mice capitulate and rush in to buy Citigroup for $25, or AIG for $15.

  4. purpleslog,

    Relatedly, scenes from the 1948 pro-Dewey rallies in Beijing [1,2,3]


    Unfortunately for all of you, the market is saying otherwise.

    Don’t tell me your adopting the CNBC school of market analysis: “whatever causes a rally is good”?

    So I guess we should criticize the house for rejecting and accepting the bailout, as the market fell on both days!

    Please. Give me this trillion no-risk dollars, and you’ll see all sorts of great things happening.

    By your logic, anything that keeps zombies alive is great, as the seizure of the zombies would result in their share price dropping to $0.


  5. sonofsamphm1c

    I figure his crowning moment will be the day when the last of the field mice capitulate and rush in to buy Citigroup for $25, or AIG for $15.

    I’m not sure what your point is. Obviously, if the Treasury decides to recapitalize a company by transferring billions or assets to the company, it can do so.

    By your logic, the Treasury should institute permanent quarterly no-strings checks to every publicly traded company, as this would increase stock valuations across the board.

  6. citi going vulture on us.

    we were beginning to feel like it was something we did. i mean, no major bank has announced vulture plans since the “crisis” … and we really thought they had failed just because we stink.

    but now they’re in.

    “come on kids, water’s warm.” ha!

    expect distressed paper to start getting crazy today and stay that way through the end of the year. the big boys are coming to the feast.

  7. If I understand Geithner’s plan — Citi can buy from itself (at auction), and when Citi sells to itself it gets 100% of the purchase price, pays 1/7th of the purchase price (because of government financing), and can’t lose anything beyond that 1/7th premium (as the rest are federal loans without recall)?

  8. two different things. for timmy g plan, PPIP, i dn’t think banks can bid on their own paper. i doubt any tarpers will want to participate on bidding for each others shit either. what citi is doing in that article is putting together a fund to go after other bank’s corp. debt. which if you think about it, is really just a way to increase the price of corp bank debt for all banks.

    you know, though i think its a good idea (PPIP i mean). but i don’t think its a great idea. they need to be careful for what they wish for. the discounts they are ballparking are way off from what i think most of would be willing to pay. think 20-30 cents, intsead of 70-80 cents. and thats WITH fed dollars.

  9. So Fed X, how are the “zombies” going to do in the 1st and 2nd 1/4s?

    tdaxp, Fed X may disagree, but I can see no advantage to C to buy back its own CDOs. If they believe the Geithner plan will work, then C would be far better off borrowing FDIC money at a low interest rate so they could buy the artificially distressed assets of others. The part of their portfolio they want to keep will get written up in value. The artificially distressed assets they might mange to carve away from unwitting Krugman followers would add to that built-in performance.

    On the other hand, if they believe Krugman, they would best off unloading their distressed assets to the fools who are borrowing good government money and overpaying for assets that are truly worth the Lehman Brothers fire-sale prices. That way they would have clear-and-free cash when we fall into the next cycle of blood in the streets.

  10. Fed X,

    Thanks for the comment. it is helpful.


    Fed X may disagree, but I can see no advantage to C to buy back its own CDO

    You’ve made a point simlar to this for a while: large banks should be subjected to no risk, or alternatively, they have consistently made risk-free decisions.

    Those who believe that banks are subjected to risk — which I am sure incldues bank leadership — on the other hand, would wish to reduce that risk. Keeping most of the upside for themselves (if they actually believe the face-value valuations they have been pushing) while avoiding the risk of downside (which they are subjected for some reason) is a rational business decision.

  11. Where on earth have I suggested large banks should be subjected to no risk, or they have made risk-free decisions?

    I have suggested that accounting pricipals should be reality based instead of instead of incredibly destructive ethereal flimflam, and it appears that FASB, rather late to the table, agrees.

    Bnaks have been hammered twice. One was fully deserved. C saw their stock collapse from 58 to 10 to 20. That is a significant priceto pay for stupidity.

    Then they got hammered again – by their accountant. That one was wholly undeserved.

    Fed X, I don’t think you will get your wish. When the accountants apply their new wizardry, there could be a significant change in the perception of value.

  12. What is the purpose of accounting for these assets?

    I have asked this before, without response.

    Is it to allow banks to bad their valuations with the inflated prices produced by mark-to-market accounting? [1]

    Is to to allow them to avoid risk, by valuing assets based on what they paid for them (that is, some discount below what they wish they are worth), which is even more inflated?

    Is to to meet a regulatory requirement to test ability to rapidly raise capital?


  13. the new acronym for today is timmy g’s new insolvency regime for pre-packaged TBTF entities. see his testimony at house today for details.

    the word is: “SIV”

    Special Insolvency Vehicle


  14. SOS: i dunno. i actually don’t follow the financials that much. i suppose they will put as brave a face on as possible. maybe even show that they made money. refis gotta be helping the bottomline. we’ll know at tax time right?

    i like the slow drum beat of good news and good sense we’re seeing. nothing is perfect of course. but it does appear that they are doing everything they can in a rational, deliberate sort of way and i do say we will see some results soon.

    what we’re worried about now at our long only desk is a severe, protracted double dip.

  15. tdaxp, the purpose of the valuation adjustment is to present accurate financial statements for managers and investors so they have useful information for their decisions.

    In a healthy market, the market price is thought to be a very accurate estimate – the independent consensus opinion of a large number of savvy buyers and savvy sellers.

  16. sonofsamphm1c,

    If Citi’s complain is soley informational, it could have simply created pro forma statements indicating the valuation of assets under its preferred accounting method, yes?

    As I recall, Citi (and other zombies) complain about mark-to-market because regulations require them to be safe, to be able to raise sufficient cash at any given time to meet some fraction of their debt. Is this correct?

  17. tdaxp, financial statements not prepared according to accepted accounting principles would probably have a negative impact on investors.

    Investors would, of course, be free to make adjustments to those statements if they thought an asset was either undervalued or overvalued.

    Mark to market cuts both ways – a mark up would allow the banker more flexibility in lending – freeing capital by improving regulated ratios. I think versions of it have been used for a very long time. I doubt that it was ever the case the a MBS was put on in the asset total and simply left at its purchase price. For a long time accountants have adjusted bonds to an estimate of present or market value. A CDO is essentially a bond.

    The real complaint here, the one that was persuasive to FASB, was the impossibility of having a useful market price in a frozen market. Think of mark to market as a compass that points to true value just as a compass points to true north. If the compass needle is frozen on true north, walking in that direction could be straight south – right off the cliff. In such a situation falling back to methods of figuring out directions that were used before the invention of the compass would be prudent. That was the failure of FASB. Lifting market to market won’t allow the bankers to pick their price. The public accountants, by other means, will make that estimate.

    Of course, older/alternative methods could indicate an even more dire situation, but I doubt that is the case here. In 2008 C booked 108 billion in interest income. It’s down, but not, IMO, by an amount that would justify $58 to 97 cents. I would assume that C’s position has been damaged at least as much by the loss of commission income on their trading of CDOs – because the market on them is frozen.

    I’m oil and gas – I should shut up about banks. I’ve never owned a single share. In my lifetime these banks have caused more catastrophes than I care to count. In a way it shocks me that me is defending the JAs.

  18. sonofsamphm1c,

    tdaxp, financial statements not prepared according to accepted accounting principles would probably have a negative impact on investors.

    I am not sure you understand my question. Let me ask it again.

    You said that “the purpose of the valuation adjustment is to present accurate financial statements for managers and investors so they have useful information for their decisions.” However, from time to time, a company may believe that GAAP does not accurately capture the company’s ongoing operations. For that reason, companies are able to release, in addition, “pro forma” statements.

    For example, take an individual who bought bottles of coca-cola at $3/bottle, believes they are worth $5, and who believes he unfairly suffers from mark-to-market accounting that forces him to account for these bottles at $1.

    GAAP Income Statement
    Bottle Expense: -$3
    Bottle Acquisition: $3
    Bottle Depreciation: $-2
    GAAP Net Income: $-2

    Pro Forma Income Statement
    Bottle Expense: -$3
    Bottle Acquisition: $3
    Bottle Appreciation: $2
    Pro Forma Net Income: $2

    If the company believes its Pro Forma accounting, it is free to release both. Therefore, managemers, investors, and other parties can consider the company’s finances under both GAAP and valuations that the company believes is more realistic.

    If, as you say, the problem with FASB’s GAAP guidlines is simply informational — and that investors would cheer the company’s /real/ finances if only they heard what the company believed it was — Citi, AIG, and others should simply release Pro Forma statements which demonstrate that they are in terrific state.

    It is my understanding, however, that
    (a) the number of investors who believe Citi is very slow, perhaps limited to you
    (b) GAAP accounting is also used to measure a company’s ability to achieve certain regulatory requirements. For instance, banks have to be “sound,” and Citi’s inability to convert its pro forma wealth into cash means that it cannot list in GAAP when it might list in pro forma statements

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