MANY WAYS TO SKIN A CAT, NONE ARE FUN FOR THE CAT

This morning, I mentioned that the bail out of banks could be accomplished without spending a nickel. Most banks have the cash flow to survive, if they were not being hit by the extra capital requirements caused by the mark to market rules. A change in the rules to allow the mark to market to be amortized over 5 years would unfreeze balance sheets and allow the mortgage market to get back to normal.


This afternoon, I read a neat plan offered by Allan Meltzer. He notes that Chile went through a similar crisis and solved it by having the government loan dollars to the banks. The loans accrued interest and acceptance of a government loan required the suspension of all dividends and company bonuses. The great majority of the loans were repaid and dividends and bonuses were resumed.


John McCain has asked Obama to suspend the Presidential debate, scheduled for Friday, so the Senators can participate in a bi-partisan debate on the crisis. McCain does not believe the bail out will pass in its present form. He believes that level heads can work out a plan that will pass.


The real solution to the problem will be a healthy real estate market. This market is being severely pounded as this debate drags forward.


Cats have nine lives, as does real estate. Real estate increases in value over time. The banks simply need time for the market to move forward. The administrations plan is one of setting up the big banks to buy lots of assets cheap.