Bailout

Naysayer Report: Weiss Research says it?s Too Little, Too Late

By Admin

The latest in the Bailout Report’s rolling log of economists not in favor of the Federal Baiilout plan as enacted by Congress.

Martin D. Weiss and Michael D. Larson of Weiss Research, an investment research firm focused on “safe investments” and publsher of daily investment e-letter “Money and Markets”:

New data and analysis demonstrate that the proposal before Congress for a $700 billion financial industry bailout is too little, too late to end the massive U.S. debt crisis; and, at the same time, too much, too soon for the U.S. Government bond market where most of the funds would have to be raised.

Congress should:

1. Disregard data based on the list of troubled banks maintained by the Federal Deposit Insurance Corporation (FDIC). The FDIC?s list currently has 117 institutions with $78 billion in assets. However, based on a broader analysis of recent FDIC call report data, we find that institutions at risk of failure include 1,479 FDIC member banks and 158 thrifts with total assets of $3.6 trillion, or 36 times the assets of banks on the FDIC?s list.
2. Think twice before providing a broad bailout for U.S. debts given the wide diversity of mortgage holders and the great magnitude of the total debts outstanding in the United States. Just-released Federal Reserve Flow of Fundsdata show that, beyond mortgages, there are another $20.4 trillion in privatesector consumer and corporate debts, plus $2.7 trillion in municipal securities outstanding.
3. Recognize that, among banks and thrifts with $5 billion or more in assets, there are 61 banks and 25 thrifts that are heavily exposed to nonperforming mortgages.
4. Get a better handle on the enormous build-up of derivatives held by U.S. commercial banks.
5. Base any legislation on (a) realistic estimates of the loan amounts already delinquent or in default, and (b) reasonable forecasts of how many more are likely to go bad in a continuing recession.
6. Recognize the inadequacies in already-established safety nets, such as the FDIC for bank depositors, Securities Investor Protection Corporation (SIPC) for brokerage customers, and state guarantee associations for insurance policyholders.

There should be no illusion that the $700 billion estimate proposed by the Administration will be enough to end the debt crisis. It could very well be just a drop in the bucket.

White Paper

Full post as published by Bailout Report on October 10, 2008 (boomark / email).