Tax every single share of stock that is bought and sold 10 cents per transaction. One dime. If you buy a share of stock, your brokerage pays a 10c tax. If you sell a share, your brokerage pays a 10c tax. 1 share, 100 million shares. Its 10 cents per share.

Of course the  tax will be paid for by those of us who are buying and selling stocks. So what. Here is the reality. If you are a true investor. Someone who wants to own a share of stock in a company you believe in, then its an amount that is not going to impact your investment decision making process.

If you are a professional trader or an institutional trader that trades continuously, then it may impact your decision making process, but only to the point of reducing your returns by a minimal amount. Its not going to change your inclination to trade. If you make 9.9pct instead of 10pct, you aren’t going to stop trading.

Whats the economic impact ?

If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day, thats $ 200 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 52 Billion dollars a year.

Thats real money.

Of course there has to be some fine print. You could reduce the tax per share for stocks under $5 dollars to 5cents. But i would leave it at 5cents even for stocks priced at pennies per share or less. This tax would act as a protection for investors and traders who get pitched unregulated penny stocks and who are more often than not the victims of rip off artists.

Take this $52 Billion Dollars and ????. I will open it to the floor for suggestions and save my conclusion for a later post.

5 dollar and under stocks

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What the stock market does today or any day  until short selling is restored, will tell us NOTHING.

The pundits are going on CNBC, Fox, Fox Business, Bloomberg, etc and trying to give us some historic reference and relevance of the big declines in the market yesterday.  They are comparing apples to oranges.

Without short sellers, we have no idea what shares are actually worth.

Short Sellers keep markets honest.

A market without honesty, what can that tell us ? Nothing.

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Sec Paulson has asked for authority to spend what he needs to save our financial, and possibly the world’s financial system. There is only one problem. Sec Paulson may not be in charge of the Treasury for that much longer. So in essence we are giving  carte blance spending authority to some unidentified person.

If the Sen Obama wins, then the Democrats will have the Presidency and the Congress under their control. Which will give them the right to appoint just about anyone they want to run the Treasury.

Let me say that again.  A Democratic win could give them the right to appoint the King of the Financial World and let that person spend whatever they want, up to 700 Billion dollars. Have you heard anything scarier in your adult life ?

Now our politicians would reference the Oversight Boards that were appointed as part of this bill. Well let me be the first to write and say it outloud. The OVERSIGHT BOARD IS A JOKE.

Its not to say that the people that have initially been appointed aren’t smart people. They are. Thats not the problem. The first problem is that 2 of the seats, the Secretary of Treasury and the head of the SEC will probably change in the next 6 months. So we have no idea where that will go beyond them probably being Democrats. Thats not the worse of it.

The worse of it is that for Oversight of the biggest Bailout and privatization of assets in the history of this country, the appointees are not full time. They aren’t even part time. They all have other full time jobs. Important full time jobs . There is no way they can assure that the Fund is managed correctly and there is transparency and no corruption meeting 1x a month.

How in the world can you have people who only meet 1x a month overseeing the spending of 700B dollars ?

This legislation needs to be modified with a requirement that Sen Paulson is asked and agrees to stay on the job for at least 1 more year

The legislation needs to be modified so that the primary Oversight committe  is made up of full time business people who report publicly on a DAILY basis what is happening with our money and how the fund is performing.

Let me put it this way. Who in their right mind would invest money in a company where there is a darn good chance that the CEO will leave in a few months, and there is no known replacement ?

And one more importantly critical issue. The companies making all the banking acquisitions, JP Morgan and CItibank and Bank of America, they are basing the quality of these acquisitions on their ability to project failure rates and home prices.  Literally, how well they predict the future of these markets has more impact on the future of our financial systems than anything happening in the Bill.

The FDIC is  trying to use private money to minimize the public exposure to bank failures. That could be a very good thing, but they are making JP Morgan, CIti and B of A SO BIG, that after the BailOut if any of the 3 are wrong in their projections, we could create a far greater problem than the FDIC is trying to solve.

THe FDIC, as part of the brokering process, in addition to getting warrants/debt as they did in the Wachovia deal, needs to get the acquirer to agree to real time transparency standards . We have to be proactive in managing these mega banks. All surprises regarding the liquidity of these banks are bad surprises and we need to have in place dramatic means of monitoring them.

In addition, the banks need to agree to a date when  the short selling limits are lifted.  Short sellers are needed to show us any red flags in these new massive banks. We are placing a great responsibility on these mega banks. We cant just trust, we need to verify

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No question the bailout is necessary. We need the liquidity. But just like Botox, the impact of the Bailout will wear off very quickly. Its lipstick on bank balance sheets. The biggest mistake any taxpayer, shareholder or employee can make is to the think the Bailout solves the crisis. It doesn’t.

So Post Bailout what has really changed ?

1. Are there new limitations on debt leverage ratios ? No. The big investment banks are gone, but there are plenty of smaller ones ready and happy to take their place. Which is exactly where all the big brains of GS, AIG  and Morgan Stanley will go

2. Will the economy improve  ? No. The Bailout hopefully saved the economy from collapse, it didn’t improve any fundamentals. The bankers who got us into this mess got a reprieve and a few of their jobs saved. The Bailout didn’t make them any smarter. Taxpayers with good or better credit will have a chance to get loans. Same for businesses. Everyone else, the people who overspent their earnings and propelled the housing and retail economy the past several years, will not be able to refinance and will have to…….spend no more than what they can afford to pay off on their credit cards.  Which means the economy will contract to a smaller level and then start to grow again as people are able to save money and then spend those savings.

If people actually do save money, the contraction will be tough, but it will be shorter . This is still the USA and once people see money in their savings accounts (however and wherever they are held), they wont be able to resist the hole that is being burned in their pockets.

3. Are there any limits on credit or other derivatives products ?Hell No. All the fancy financial instruments that caused AIG and others  to go belly up or get bought are still unregulated. Unregulated and ready to be bought and sold by everyone who bought and sold them before. Do you really think those people are going to be willing to make less money in 2009/10 and beyond than they did last year because of what the world financial system is going through now ? Hell no.

They will invent new versions of the same instruments that supposedly avoid the pitfalls of the previous generations that got us into this mess.  They will attract huge amounts of cash and without regulation, the “Next AIG” will overleverage, the system will deleverage and we will have Deja Financial Vu all over again.

Remember this. The 1.25 Trillion Dollars plus lost in this crisis, IS MORE THAN THE HAS BEEN MADE IN THE ENTIRE HISTORY OF BANKING . Worse yet, its not the first time they have lost everything they have made in the history of banking.

4.There is a new sucker at the Table.  One of my favorite sayings is that when you sit at the table to do a business deal, you look for the sucker. If you don’t see the sucker, its you.  Well there is a new sucker at the business table, The US Government. There will be an untold number of  vulture deals put together  to leverage the anxiety of politicians who want to prove the Bailout can make a profit and quickly get taxpayer money back. Don’t be shocked to see the XY Morgan BailOut Opportunity Fund being sold in commercials on CNBC and Fox Business Network.

5. Transparency ? So how will we know how the assets purchased by the BailOut are doing ? We won’t. We will be told by our politicians how they are doing. Which means they will spin numbers they don’t understand into soundbites they hope will get them elected. Unless we move the purchased assets and the resulting transactions they create into a fully transparent fund that trades on a major exchange, we will NEVER know how well the assets have done. They will go into the general budget and be lost in the sauce.

Just try to understand the national debt and the accounting behind it and you will see how impossible it will be to track the success or failure of the Bailout.

Putting the assets into an ETF, as I suggested in my last post, will allow every taxpayer to see just how the assets are performing on a tick by tick basis, just as we follow the performance of any stock or fund we own. Because an ETF allows for the exchange of assets with Shareholders, it will also insure that the assets are managed properly. In addition, because the shares owned by the US Treasury  can be sold into a  liquid market, the money “invested” in to these assets could be returned far more quickly.

How would it work  ? The Treasury would buy the assets , apparently 250B to get started, and put those assets and the costs to manage them into the ETF. It would then issue 250B of shares, probably 2.5B shares at $100 each to themselves.

They would then immediately begin to sell shares to the market. So people like me, you , institutions, anyone who thought that this is a good deal, could buy the shares initially at $100 ea. From this initial offering, the market would take over.  If investors thought the assets were being well managed, the price would go up. If not, it would go down.

If demand was strong enough for the shares, and the price went up, the Treasury could issue more of the shares they own into the market, there by IMMEDIATELY REDUCING THE COST TO TAXPAYERS.

As a frame of reference, the marketcap of the fund, based on a 250B initial bailout, would of course be $250B dollars to start, which just happens to be the same marketcaps as MicroSoft and the same marketcap as General Electric. So this is far from being too big for the market to handle.

I promise you, this would work far better than the current plan to keep the assets behind the veil of the government, with no transparency beyond the listing of transactions and assets on government website.

6. Wall Street Will be a Barometer of the Bailout: No Longer. Far too many of our politicians think that the Stock Market, in particular, the Dow Jones is and will be a good barometer of how smart the Bailout is and how well it will do. WRONG.  There has been this big push to get the Bailout done before markets open. They lost all that sleep for nothing.

The minute the SEC suspended short selling on the 900 or so stocks they wanted to protect, they killed the value of the Dow as an index on the economy and the success of the Bailout.  We saw a big selloff last week as short sellers and hedges conformed to the new rules and adjusted their portfolios. Since that point, we no longer have an efficient market. Short Sellers keep optimism in check. The lack of short sellers mean that its hard for the market to be honest. We will hear more proclamations by companies that “there are no problems” and days or weeks later hear the same CEO comment that the failure of the company was “unforseeable and caused by dire market forces”.  It certainly will not be a true indication of financial performance.

Short Sellers serve a very valuable service to shareholders and taxpayers. Losing that has and will make the market unstable and unreliable. Always remember that it was short sellers that uncovered Enron, and all the biggest frauds on Wall Street.

With a Bailout in place, the market will go up. There will certainly be a post bailout placebo effect. How could there not be, there are no shortsellers to keep it down. But once the momentum stalls because there is no real capital left to buy stocks, then it will start to fall. Those who bought in the runup, the momentum players, will rush to cash and out of stocks to protect their portfolios.

Where will the market be in 6 months. No idea, but my guess is that it will be lower than it is today.

When the SEC allows shorts again, and it will have to, then it will fall lower. BUt thats good news. We will be able to trust stock valuations and we all can consider buying stocks with stable dividends again.

7. Main Street Hustles: If you think there were too many “buy homes at foreclosure” and “buy cars from the government” scams before, you aint seen nothing yet. It should immediately become illegal for anyone or any company to advertise the sale of individual assets sold to non qualified investors.

8. JP Morgan seems to be buying everything, are they being watched more closely now ? Of course not. They are the winners, and to the winners goes the Wizard of Oz Curtain. This is where we all pray that the assumptions that JPM is basing their acquisitions hold true. Read this to see the assumptions they are making on their purchase. If they are materially wrong, No one will be able to bailout that failure.

JP Morgan also is already in bed with taxpayer money. The Treasury will cover up to $29B in losses from Bear Stearns assets. Has any taxpayer seen any disclosure or transparency on this ? Of course not.

JPMorgan is a company trying to integrate the asset and debt base of two HUGE failed companies, Washington Mutual and Bear Stearns. It had to raise $8B just to get their equity to assets ratio in line. It needed the Treasury to backstop 29B in Bear Assets. Don’t get me wrong, I think JPMorgan is a very good company. But so was AIG. Its not so amazing any more  what execs will allow to happen on their watch to push earnings and stock prices.  Make sure you ask your representatives in Congress to keep an eye on JP Morgan.

9. Will more banks fail and what should I do ? Yes. Absolutely. If you have less than 100k dollars in the bank, do nothing. You are protected by the FDIC. If you have more, ask your bank about CDARS. CDARS is a distribution service that banks participate in that allows the bank that holds your deposits to distribute them among different banks to keep each of your accounts under 100k and as a result protected by the FDIC. This is what I did for foundation accounts I have.

In addition, there is something called the Right of Offset.  If you owe the bank money for any reason, business, mortgage, whatever , and the bank fails, then you can offset the money you lost in the failure against any money you owe the bank.  So if you have a mortgage, call the bank and confirm that you have the right of offset and move the money you have in accounts to that bank.

Remember to make sure which accounts match which debt. Your bank can confirm what matches and explain to you how the right of offset works.

For brokerage accounts, check with your broker to see what is insured, and what is not. Ask him/her what happens if the broker or institution that you bought your funds from fails. Make sure you get it in writing/email. This will be your protection to make sure that what you hear and what he/she is saying is the same thing.

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As you can tell by the number of the posts on this subject, I think we are in a very serious financial situation in this country. It’s bad for everyone and like many others while I think the Bailout is necessary, I would prefer any solution that doesn’t involve the government. Unfortunately, I don’t think a pure market based solution is possible.

That said, I considered what it would take for me to part with my money to provide liquidity into the banking system.

I will not just write a check to the Treasury. Thats like handing it to Ted Stevens. I’m not going to voluntarily give a year’s supply of crack to the junkies.

Here is what I will invest in:

If Treasury Secretary Paulson were to create an ETF to buy all the assets the bailout was planning to buy, along with all the warrants and shares of stocks in the bailout companies it can get, and then have any receipts generated by those assets, whether by sale, or regular income such as rent or mortgage payments or servicing them,  go into the fund, I would buy at least $50,000,000.00 of shares in The Fund.

It would not be difficult to do. Whatever funding that the Treasury Secretary says is necessary for the Bailout would first try to be raised privately from other Funds and individuals by selling them shares in The Fund.

If the amount of shares sold falls short of what the Treasury has defined as being need, the underfunded amount would be funded by the purchase of shares in The Fund by the treasury.

The ETF would initially be valued at the total amount raised and then trade based on its financial results and the trust the American people and international markets have in the job the Fund is doing to monetize the assets.  If the fund is making money, the ETF will trade up. If not, not. Either way, the share price and the transparency required of the ETF  will make it obvious to taxpayers  just how well their taxpayer dollars are performing.

If The Fund is as successful as some think it could be, it could pay dividends. Those dividends will be paid to investors, and to the US Treasury.

In addition, once the assets purchased by the ETF are aggregated and documented, and hopefully the economy has improved, it would be possible to trade out baskets of assets with institutional shareholders. This is a process that will help keep the  fund honest in how it manages the assets. If the Fund is not doing a good job of monetizing the assets, Institutional shareholders will look to exchange their shares for baskets of assets in hopes of better monetizing them.

This fund, like every other, would have investment guidelines. The same guidelines that the Treasury would use to work out the assets it would have purchased directly.  The fund, like every other, will have analysts and accountants and the same type of people that the Treasury would have hired to work out the assets, except hopefully it would be run more efficiently as a publicly traded fund.

I can’t think of any reason why this wouldn’t work, and why it wouldn’t be a better idea than the current Bailout options that I have heard discussed.

If they need someone to  help put it together and/or run it, I’m happy to help.

Tell me what you think

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If enough people talk about it, it must be important, right ? Well the Bailout is important. It can provide needed liquidity into financial markets.

Unfortunately, it is now more important than it ever should have been because THE BAILOUT has passed from being a financial response by the Treasury, which it would have been had it been passed and played in 2 days to a completely different level. THE BAILOUT has now become THE BAILOUT: THE MYTH, THE LEGEND, THE BESTSELLER.

When The Most Powerful Man in the World Hank Paulson requested 700B to quickly reflate our banking system, it was merely a news story that Wall Street was following closely but Main Street had not begun to focus on. Way back then, Wall Street was willing to recognize that although they didn’t fully understand the scope of the problem, they could suspend belief and let the Fed do its thing. Wall Street trusted The Most Powerful Man in the World, and understood that this was the only chance that their business had to get back to normal.

Then politics happened. Regardless of why politics happened, the deal has  not gotten done. The delay gave MainStreet, now known as every taxpayer in America, the opportunity to realize that 700B was coming out of their pockets, again. That recognition caused all  of us taxpayers  to actually pay attention and read about or watch highlights of the hearings, at which point it became painfully clear that more than a few  of our esteemed politicians were fundamentally financial illiterate and had absolutely no idea what was going on.  Some of the questions were as painful for anyone with a mortgage or oustanding loan to listen to or read as it was for the Most Powerful Man in the World to respond to.

That led to the blowing up of the phones, inboxs and fax machines of every member of Congress. Instead of this being done quickly and turned over to the spindoctors, the Bailout became the number one story in the country. I have no doubt everyone in this country with a bank account asked someone whether or not their money was safe, including me. It was at this point the BailOut went from being a financial issue to being The Myth, The Legend, The BestSeller, The Bailout.

That is not good news. Forget the timing aspect of the Bailout and whatever fiscal costs may result from delays. The Bailout: The Myth, The Legend, The BestSeller has now become part of each us.

EVERY SINGLE AMERICAN with a bank account, savings account and/or retirement account has become fundamentally more conservative about their finances. We all inherently trust the entire system less today than we did last week. Our own individual Volatility Indexs have hit 51pct, and could go much higher. There is a growing amount of uncertainty among businesses and individuals and that is a very bad thing.

When uncertaintly levels get this high, businesses and individuals do the same thing: We hoard. Like the approaching bad storm, our survival instincts take over. Instead of bread and water, we hoard our savings.Our propensity to take chances declines dramatically.  We don’t spend. We save. We also try to gather as much cash as we can. That might be through selling assets. It might also be through asking for money from whatever sources of cash we can find, including banks.

None of which are good for the economy.

The BIGGEST PROBLEM is that now that the Bailout has become the Myth, The Legend, The BestSeller, even when the Bailout is passed and the money introduced into the system, it will be too little too late to get us back to “normal” anytime soon.

The people who run Banks will treat their banking assets much like they treat their personal assets. They will hoard. Yes, they will make some loans where they need to make their best customers happy and to keep their biggest customers afloat, but I doubt that much of that money will be loaned to MainStreet.

Why ? Because of uncertainty. The bankers who got us into this mess, those that still have jobs and those who used to work at Investment Banking Companies and took over or became banks, will be afraid to loan out much money for fear of running into liquidity problems again. They don’t want to go through this again anymore than you or I do.

On the flipside, once the Bailout happens, every John and Sally on MainStreet is going to run to the bank to first make sure their money is there and 2nd, to see if they can get a loan. After all, their taxmoney paid for the Bailout, they should be able fix their problems or improve their situation. From each according to their ability, to each according to their ability to ask for something. That is becoming the new American way , isnt it ?

The combination of lack of lending and an increase in asking will lead to a lot of disappointment and further uncertainty.  Which probably means that it wont be a good Christmas season for retailers and who knows what will happen in the financial markets.

Then the phones, inboxes and fax machines will blow up again as we hopefully are only in a slightly extended recession as the new President takes over and the discussion begins  about the next Bailout.

The BailOut could have worked well if it had happened quickly. Now, because its taken on mythological proportions,when it does happen, it probably won’t be big enough. And thats before we take into consideration the possibility of Oil prices running up again.

You never want to ask how hot dogs or Bailouts are made.

The good news is that we Americans are resiliant. We have an entrepreneurial spirit that has  overcome worse, and we will take on this challenge and beat it

What happens when the

and what happens re Oil, that problem has not gone away. if oil prices hit 140 again or higher ?

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One candidate thinks he can add value to solving the greatest financial crisis since the Great Depression. The other candidate thinks he can’t add value and that its a better idea to campaign.

Here is the question I would ask the Senator: “How is it Senator Obama, that with Wall Street burning, you thought it was a better use of your time to campaign ?. You make it clear that one of your greatest skillsets is promoting consensus. Has there ever been a time when promoting consensus was more important to the financial health of the American people than today ?”

Even if all either Senator did  did was go to the meetings and shut up and listen, that would put both  in a position to offer help if needed.

Remember this. 90pct of being successful is showing up. The other 10pct is being prepared to  know what to do while you are there.

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The bailout is a given. Its needed to introduce liquidity into the system. I wonder why no one is defining what happens after the 700B of mortgage and other assets are purchased by the Fed.

Has everyone forgotten that we didnt trade in last year’s bankers for a new team. The bankers that we hope will reflate the economy with loans to the people and companies who need it ARE THE SAME BANKERS THAT GOT US INTO THIS MESS. These are bankers that dont know how to bank the right way .

Not only are they the same bankers, but they now work for companies in an industry that has been completely turned upside down. WHAT MAKES ANYONE THINK THEY ARE ACTUALLY GOING TO MAKE LOANS TO MAINSTREET CONSUMERS ? What makes anyone think they are going to set standards that any normal American can meet, and then actually loan them money at terms they can afford ?

They wont. No chance, no how unless the Fed sets standards that makes them lend to Mainstreet America

You heard it here first. If the BailOut has not requirements for how the money is used, this is how its going to go down:

1. The Bailout Hits. Euphoria on Wall Street. Stock Market goes up.

2. Banking Balance Sheets improve, Banks of all types say the problem is solved. They loan money to their biggest corporate and very rich clients. They have to, they dont want to lose their business. Of course, those corporate and rich clients borrow as much as they possibly can because they dont know when and if credit will dry up.

3. Wall Street Analysts say they are optimistic that retail sales will be stable with last year, and possibly even up as consumer confidence has shown increases

4. We start to hear complaints from consumers and small businesses that loans are not available to them , or when they are, the terms are unreasonable.

5. Dec sales for retailers are below last year and below analyst expectations. Retailers say its due to lack of credit availability to consumers.

6. Mortgage default rates start to increase

7. Stocks fall hard

8. The Treasury Department says it underestimated the amount of money that needed to be pumped into the system in order to create liquidity for MainStreet. They announce they will use the ANTICIPATED profits from the 1st bailout to fund the next 500B of bailout

9. They time the 2nd 500B “investment for the taxpayers” to be on the 101st day of the new administration.

10. The Recession grinds on and on and on

Bottom line is this. If the 1st Bailout doesn’t set standards for allocation of proceeds so that corporate clients dont consume all the liquidity from the BailOut, those corporate clients will consume all the credit. They would be stupid not to try and take all the credit extended to them.

In addition, there must be credit standards set so consumers know what will allow them to qualify for loans (assuming there is any cash available for consumers) . The last thing we need is the redlining and redzoning of consumers. It may be 20pct down for a home and a given credit score. 10pct down for a car and a minimum credit score. But there needs to be some minimum standards so that consumers know if they are being taken advantage of, and banks feel the pressure to loan the money to qualified consumers. This needs to happen

I dont know why anybody thinks that the Bankers who got us into this mess are going to take 700B of taxpayer money and know how to loan us out of this mess. It makes no sense at all. We need to set standards for how the money will be used by banks

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This is what I wrote in my Presidential Endorsement Post:

In the meantime, because the economic future of this country depends on the funding of the plan Secretary Paulsen has proposed, I will set aside my campaigning and work with my colleagues in the Senate and across my party to quickly get this bill passed. The future of our economy depends on it”

The following has just been reported

SAN FRANCISCO (MarketWatch) – Republican presidential candidate John McCain said Wednesday he will suspend his campaign to return to Washington to deal with the current bailout debate. McCain also called for a delay of Friday’s debate with Barack Obama, the first of three scheduled debates, to focus on the current financial crisis.

Good for you Senator McCain. Thanks for reading my blog

Senator Obama ?

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According to some pundits, the simplest solution to our economic crisis is to suspend or abolish the mark to market accounting rules.

For those unfamiliar. Mark to market is where a company reprices their assets on a daily basis to the most recent market transaction price. If asset prices are falling, this means that the total value of assets on a banks or other company’s books falls. When the total value of assets fall, then those who have lent them money get worried. They are worried because the assets they lent them money against now are worth less. If the borrower cant pay them back, that leaves the lender SOL. SO, the lender demands that the borrower raise cash immediately or add assets to make their asset total higher. If the borrower does not, the lender will either take back enough assets to cover their loan, or find some other way to get their money back.

In a normal market, that wouldn’t necessarily be bad because the borrower could refinance the asset and pay off the original lender. In this market, with credit tight or not available at all, that is not possible. So the borrower ends up selling assets at far below market value to raise cash quickly.

This type of desperation sale is happening everywhere, the latest example is Goldman Sachs sale to Warren Buffet. If enough assets are being sold at firesale prices, the market for those assets collapses, as we have seen with housing prices. This creates a vicious circle. Asset prices are sold at firesale prices. That forces more mark to market writedowns, which in turn forces more firesales. etc, etc.

To some the resolution is to end or suspend mark to market accounting rules. Their logic is obvious. If there is no need to mark to market, then assets are not written down. Banks and other companies are not forced to have firesales to generate capital and prices of assets are not pushed down by the firesales. All good, right ?

Not so fast.

The other side of the coin is that because assets are not being marked to market, shareholders and potential investors have no real idea what the assets on the bank/companies balance sheet are really worth.  When prices are going up, shareholders and investors don’t care. Prices are going up.

When prices are going down, as in this market, cash is dear, and investors and shareholders do not want to take any chances that the asset values on the balance sheets have fallen dramatically. No mark to market, no trust in the balance sheet, which means shareholders run to the exits and there is no one there to buy their shares. Which means banks have to go out and find someone way to raise capital from people who dont know the real value of their assets.

Both routes get us to where we are today: A 700B bailout from you and I the friendly taxpayer

Which leads to my proposal which solves both sides of the coin.

First, let me say that its about time we take advantage of the fact that we live in a broadband enabled society. Our society is now educated to go online for information. We are digital information consumers. Its time we recognize that fact and integrate it into our decision making process.

My proposal is that we suspend mark to market rules, but require complete asset transparency for any company that chooses not to mark to market.  If a company avoids mark to market accounting,  Every asset that  company owns should be required to be listed on their website and updated in REAL TIME on their website. A full asset description, original cost or loan value, value on the books, and latest transaction for this class of asset, or an actual transaction price for the asset.

This means that investors will have the same information available as if the company had marked to market, but their actual balance sheet would not change. The best of both worlds.

I would recommend that every company be required to post this accounting information in a standardized format on a web page, AND to also post a complete comma delineated file that includes all that assets and required info.

Standardization is important as is this asset list. Why ? Because in this digital age, it wont be long till a very smart capatilist, takes all the data and creates a business out of consolidating and publishing the data and possibly even creating an exchange for the data.

If this is done, it allows for several alternatives to the current bailout plan to happen. It allows for what some call the “SwedishPlan” (from the 1992 Swedish bank bailout), but should probably now be called the Warren Buffet Plan or the 3P Plan. It  is the direct purchase of equity from the banks/organizations that need it, in the form of preferred stock and warrants in a 10 plus 10 format. (10pct Perferred, in Perpetuity, callable at 10pct Premium, ie the 3P Plan)

A combination of a 3P plan and the Virtual Mark to Market gives the government a chance to  make money back for taxpayers. It solves the banks problem of liquidity, and it stops the firesale of assets, while most importantly, increasing market transparency and in turn confidence in the market

It allows for the straight purchase of assets, by the Treasury or anyone else. I would of course recommend that any assets sold by institutions to the government then be updated with the price paid , date and who the buyer is. Transparency is king

tell me what you think about this idea.

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