Commercial Second Mortgage Blog

I just read the entire text of President Bush’s address last night and I grade his effort "D" at best. He did not make the case that needs making.

Here’s the real skinny and what I think President Bush should have said and one —

My Fellow Americans:

The annual yield on treasury bills fell yesterday to 44 basis points. at times yesterday, it was negative. This shows that companies and people with more money than FDIC insurance covers aren’t willing to deposit it at the banks, nor are they willing to buy commercial paper with it.

Without funds from deposits or commercial paper, the banks don’t have the money to make ordinary loans to their regular customers, even if the regular customer’s credit is good. I’m thinking of the local grocery store that borrows on Friday to pay their employees and repays the bank each Monday from the weekend’s receipts.

Without funds available to the banks, they can’t make even good loans to regular customers.

Many people think the bank’s executives and managers should be fired for making all these bad mortgage loans and thus they want to deny this bailout program until the banks are being run better.

America does not have the time to wait for that to happen.

Booting the bank managers would require us to let the banks fail first. It is illegal to simply take over the banks unless and until they stop functioning.

If the banks stop functioning, America’s payments mechanism would stop.

That means that your credit cards, your debit card, and your atm card would not work. No one would take your check because they couldn’t know if your bank will be able to pay it tomorrow.

If that happened, you would not be able to buy groceries or gas or anything unless you had actual cash. This would cause the total volume of sales to plunge, perhaps to only 1/3rd or less of regular levels.

And then employees would be laid off, and every business that couldn’t withstand a huge decline in sales would go bankrupt.

If you and your extended family has four workers in all, I’m talking about one of them losing his job and a second being told her wages are now 1/3rd less than what they were, or she loses her job too.

This is what we must prevent — America’s payments mechanism must continue to operate.

If this means that we have to accept that some executives and managers who deserve to lose their jobs get to keep them because they are also the payments mechanism, that is a price we simply have to pay.

Loans whose value is unknown must be reduced to less than the amount of capital each and every bank has on hand. Since the financial markets have already shown that they will not provide more capital to the banks, someone has to remove the questionable loans from the banks’ assets.

This is what the program my administration has proposed will do.

And the only entity with enough size to do that for the entire economy is the Federal government.

To make sure there is enough time for Congress to act, I have asked the Securities and Exchange Commission and Federal Reserve to immediately declare a banking holiday. They have agreed to do this.

All banks, stock markets, futures markets, stock brokerages, and similar enterprises all across America will be closed tomorrow. They’ll stay closed until Congress acts.

It is very likely that your credit cards will not work tomorrow. Your debit cards and atm cards probably will not work either. And stores may refuse to take your check.

Banks and markets will re-open when there is reasonable assurance for their depositors and ordinary creditors that these weak assets will not cause the banks to fail and take away their deposits and short term lendings.

Our prayers are with America tonight and every night,

thank you and good night.

***
Well, that’s what I think the President should have said and done –

what’s your opinion?
I started working in banking in 1970. along the way, I earned MBA and CPA. I’ve seen economic booms and busts related to real estate lending since my first bust in 1973.

This is by far the worst situation since then.

Great insights. I agree except it’s not the bank managers that are all at fault, everyone was greedy along the line (those making the mortgages telling people they could get bigger mortgages then they could really afford, the rating companies that overrated the mortgages (so they could be competitive so they could be more profitable and competitive), and the investment banks for not doing their due diligence to research the loan packages they were actually buying and determining their real worth. Perhaps we should go back to the old days where people paid for most of their home in cash and investment firms don’t buy these huge bundled mortgages.