The AIG Outrage
By Lawrence Kudlow
March 19, 2009
Page 2 of 2
Many experts believe mortgage-backed securities and other toxic assets are being serviced in a timely cash-flow manner for at least 70 cents on the dollar. This is so important. Under mark-to-market, many of these assets were written down to 20 cents on the dollar, destroying bank profits and capital. But now banks can value these assets in economic terms based on positive cash flows, rather than in distressed markets that have virtually no meaning.
Actually, when the FASB rules are adopted in the next few weeks, it will be interesting to see if a pro forma re-estimate of the last year reveals that banks have been far more profitable and have much more capital than this crazy mark-to-market accounting would have us believe.
Sharp-eyed banking analyst Dick Bove has argued that most bank losses have been non-cash -- i.e., mark-to-market write-downs. Take those fictitious write-downs away, and you are left with a much healthier banking picture. This is huge in terms of solving the credit crisis.
In a column last week, I suggested that not one more dime of government money is necessary for the banks. Instead, the marriage of the cash-flow valuation of bank assets and the upward-sloping Treasury yield curve will do the trick. Net interest margins are rising as banks purchase money for near-zero interest and loan it out at profitable rates. And the new mark-to-market reform will allow banks to hold their toxic assets for several more years and work them out -- just as they did back in the 1990s.
We don't need more TARP. We don't need to take over more big banks. And we don't need to have the government run things it simply isn't capable of running.
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To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
COPYRIGHT 2009 CREATORS SYNDICATE INC.
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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA. >> Back -- Page 1 2
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