Former SEC Chairman Arthur Levitt: Ban SIVs, Use Mark-To-Market Accounting, & Force Bank Bondholders To Take Losses

Several caveats to Levitt's otherwise headline-positive testimony this morning before the House: currently, he is a well-paid consultant to the Carlyle Group and to Goldman Sachs; he doesn't believe in limiting the size of financial institutions (see below); and during his tenure at the SEC, he did nothing to further the safety and transparency of markets, unless you consider granting Enron the off-balance flexibility to blow itself to smithereens to have been a positive experience.

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Levitt:

• I would like to suggest that the more critical question is whether any regulator or groups of regulators can have the same impact as well as a resolution authority created explicitly to impose discipline on those with the most power to influence the level of risk taking: the holders of both equity and debt of the institutions which may be too big to fail.

• And so in my view the discussion over the proper authority to oversee and regulate systemic risk, while critical, is secondary to the powers given to a resolution authority to impose discipline through the process of sending these institutions to their demise and thus severely impacting holders of the debt and equity.

• Clearly, a series of other rules - banning the use of off-balance sheet vehicles, to name just one - would move information about major institutions into the public sphere, making it possible for market participants to price risk appropriately and for a systemic risk regulator to demand fresh infusions of liquidity or higher margin requirements if needed.

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Prepared Remarks from Paul Volcker and Arthur Levitt:

Levitt Testimony

volcker

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Comments

[Evil Henry Paulson]

different day, same bullshit. levitt is a stooge. volcker comes off better.

[DailyBail]

HSBC bids farewell to dollar supremacy

The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6211858/HSBC-bids-farewell-to-dollar-supremacy.html

[DailyBail]

America Digs Deeper Into Debt
http://www.deltaga.com/market-commentaries/america-digs-deeper-into-debt.html

[DailyBail]

So much for the green shoots in housing...
http://www.marketwatch.com/story/existing-home-sales-drop-27-to-510-million-2009-09-24

[DailyBail]

GAO Gives Stimulus Mixed Reviews
http://www.scribd.com/doc/20162132/GAO-Stimulus-Report

[DailyBail]

"The Shoals Of Depression Have Been Avoided, But The Economy Still Faces Strong Headwinds"
http://www.scribd.com/doc/20138231/Northern-Trust-On-Economy-September-2009

* The recovery is off to a nice start
* The odds of a double dip are low
* The recovery will NOT be v-shaped, because consumer spending will not recover strongly (too much debt)
* The financial system is still not lending aggressively and won't until it repairs its own balance sheets
* The unemployment rate will keep rising until the middle of next year, peaking at 10.5%
* The Fed's "money printing" is not CURRENTLY inflationary, but it has the potential to be if the Fed doesn't handle the recovery right

[DailyBail]

An HIV Vaccine that works?
http://online.wsj.com/article/SB125377232802336889.html?mod=djemalertNEWS

[mark mchugh]

Just remember, there's still plenty of room for total opacity ON the balance sheet. Last time I checked, GE carries on it's balance sheet as assets a $389B black box labeled "stuff worth money" (or something like that).

[James H]

"Just remember, there's still plenty of room for total opacity ON the balance sheet. Last time I checked, GE carries on it's balance sheet as assets a $389B black box labeled "stuff worth money" (or something like that). "

If you mean the box called "financing receivables," then no worries. It's all safe stuff like commercial lending, real estate, auto and aircraft loans, plus various, unspecified "revolving credit." It looks like they've provisioned at least 1% of the total for losses -- way more than enough for this kind of stuff. Take real estate, for example -- only about "26% of this portfolio comprised loans with introductory, below-market rates that are scheduled to adjust at future dates; with high loan-to-value ratios at inception; whose terms permitted interest-only payments; or whose terms resulted in negative amortization."

Lenny Dykstra knows a thing or two about neg am -- he'd say it's "all good in the hood." What could possibly go wrong?

[DailyBail]

"What could possibly go wrong? "


Gulp...

[mark mchugh]

James H,

If laughter's the best medicine, I won't be needing a flu shot this year!