shopyield.com

Paul Wilkenson wrote one of the best posts I’ve read recently… see here…

~~~~Who Will Sponsor Transparency for Troubled Assets?

The previously blogged ideas — broadening the SEC’s XBRL requirement and using an industry standard computer language to create a more efficient 21st century version of the RTC — would require a sponsor to implement. A smart post from Chris Whalen helps explain why major holders of troubled assets aren’t falling out of the woodwork to volunteer.

(Note to Paul… this is the first creative, useful solution I’ve seen proposed for the credit crisis… the underlying cause of locked markets… lack of transparency could be addressed… your proposal for a electronic RTC is brilliant… )

Chris studied the numbers and concluded, “we cannot see how the creditors of the parent holding companies will avoid a haircut.” If math forces creditors to take a haircut, that can’t be good news for equity holders. Chris elaborated at an American Enterprise Institute meeting on Jan. 28, noting the good news that only the shares of a handful of large banks are fully at risk.

(Note to Paul2… everyone know that shareholders should be zeroed out… and that creditors, in a perfect world, would be doing debt restructuring… it just such a massive bundle of debt holders, servicers, fiduciaries, etc… that traditional workout structures would be overwhelmed… that is why your idea could be very cool…)

My hypotheses has been that it would be relatively easy to use an industry standard computer language to make troubled assets transparent enough to price in the market. As one experienced fixed income trader explained it to me, it’s “only a plumbing problem.”

(Paul3… it would be a MASSIVE plumbing project… but it’s doable if it had a sponsor… and it would set the standard for industry/government/legal cooperation… giant problems do require giant solutions) 

But whether to call the plumber depends on whether the benefits of the work exceed the cost. So it’s no surprise, reading the IRA numbers, that Roto-Rooter isn’t on asset holders’ speed dials. Asset holders whose equity holders would get wiped out by transparency have plenty of reason to tolerate the status quo.

(Paul4… yes… it’s natural for equity holders to want to maintain the status quo… its the Japanese model…)

If the problem of wiping out shareholders is overcome — alas a political problem now — the question then becomes what effect would asset transparency have on creditors. If troubled assets holders can force taxpayers to pay inflated prices for assets, transparency hurts holders. But if Congress rules out subsidies — or at least mandates transparency and finds a way to force compliance — then there’s a way out of the crisis.

(Paul5… your experience in Washington shines through in this comment… please write some more on this topic… go slow… you have got a lot of threads coming together here…)

At a minimum, having the assets data tagged with an industry standard computer language would make bankruptcy trustee jobs easier. And while transparency might initially create more jobs in the bankruptcy industry, it would also help get the securitization industry back on its feet sooner — this time without the opacity and with attributes to support efficient markets.

(Paul6… YES… YES… YES)

Will Congress step up? More good news: Transparency is up for debate. Let’s hope it wins.

(Paul7… Praise be!… AMAZING)