Here is something that you may not think about often enough: Taking losses.
Its something that every rookie trader must learn to do — and all of the TBTF banks refuse to do. Even sovereign nations seem unwilling to accept this simple fact of financial life.
There will be losses. How you handle them determines your fortune, your fate and your future.
Seeing how people handle losses is revealing of their character and integrity. Hiding losses is what rogue traders do. Its also what rogue banks do, and apparently, rogue nations.
$2.3 Billion in losses hidden from UBS sights by a rogue trader is chicken feed. But ponder how many $100s of billions of dollars in mortgage losses are hidden from view? The real rogues are America’s largest banks, and their enablers in Congress. .
When the TBTF banks (via their purchased Congressman) forced the Financial Accounting Standards Board to pass a rule allowing them to hide their mortgage losses — FASB 157 — it showed the dishonest nature of these entities. It was revealing of the lack of integrity of all of the institutions involved — from Congress to the banks to FASB.
When Bear Stearns first began to wobble in 2007, the initial error in this era of bailouts was in rescuing their bondholders. Instead, in 2008, they should have been forced to take the loss.
Its the same for creditors of Citi, Bank of America et. al. — instead of rescue packages, their creditors should have had to take the loss.
Mortgage delinquencies growing? More and more defaults in the pipeline? We can extend & pretend, or we can take the loss.
Note that via the FDIC, some bank lenders did take the loss. Washington Mutual’s collapse led it to being bought by JPM. Wells Fargo picked up Wachovia. Other examples abound, In each case where losses were forced to be realized, we ended up with a healthier few banks, and no moral hazard.
Zombie banks get created when they do not take the loss.
Now we have the European crisis, wherein all of the parties involved refuse to (say it with me) take the loss.
Greek debt piling up? You can restructure, renegotiate, reneg, or you can take the loss. Portugal’s balance sheet a problem? Well, the ECB can kick the can down the road, or they can force lenders to take the loss.
The model for not taking the loss has to be Japan. Look at their stock market since 1989 and you will see the net result of not taking the loss. The Japanese have suffered through lost decades as a result of their refusal to take any write-downs, propping up their Keiretsu.
Until we purge the bad debt from the financial system, we will be stuck with a long and painful de-leveraging.
Please, won’t someone in Washington or Brussels or Tokyo understand the importance of this simple trading rule? Take The Loss already!
This post originally appeared at The Big Picture and is reproduced with permission.
28 Responses to “Take the Loss”
I am extremely impressed with your writing skills and also with the layout on your weblog. Is this a paid theme or did you customize it yourself? Anyway keep up the excellent quality writing, it is rare to see a great blog like this one these days..
I donâ€™t even know how I ended up here, but I thought this post was good. I don’t know who you are but definitely you are going to a famous blogger if you aren’t already ;) Cheers!
I was recommended this website by my cousin. I’m not sure whether this post is written by him as nobody else know such detailed about my difficulty. You are wonderful! Thanks!
Hi, I think that I saw you visited my website so I came to â€œreturn the favorâ€?.I am trying to find things to enhance my website!I suppose its ok to use some of your ideas!!
I have been browsing online more than three hours today, yet I never found any interesting article like yours. Itâ€™s pretty worth enough for me. Personally, if all website owners and bloggers made good content as you did, the web will be much more useful than ever before.
Pretty section of content. I just stumbled upon your blog and in accession capital to assert that I get actually enjoyed account your blog posts. Any way Iâ€™ll be subscribing to your augment and even I achievement you access consistently rapidly.
Pretty section of content. I just stumbled upon your blog and in accession capital to assert that I acquire in fact enjoyed account your blog posts. Any way Iâ€™ll be subscribing to your feeds and even I achievement you access consistently quickly.
Undeniably believe that which you said. Your favorite justification seemed to be on the internet the easiest thing to be aware of. I say to you, I definitely get annoyed while people think about worries that they plainly don’t know about. You managed to hit the nail upon the top and defined out the whole thing without having side-effects , people could take a signal. Will probably be back to get more. Thanks
Raggs article is about the 50 billions bailout and I brought up AZ when I heard yesterday about the Drug Cartel seizing 80 miles of park land in AZ and were doing nothing. The wall was designed and engineered to be about 50bil and so I said to use it to secure our border because until its secured, deportation wont work as theyll just come back again and againwatch this video..the fact that we have to post signs for American Citizens to BEWARE on our own soil for fear of being murdered by foreigners galled me so my vote is Yes to the 50 billion but for the wall!
Very nice post. I just stumbled upon your weblog and wanted to say that I have truly enjoyed browsing your blog posts. After all Iâ€™ll be subscribing to your rss feed and I hope you write again very soon!
And not only does Sanchez have no power, ( a sub .350 SLG is about what you expect from a relief pitcher) he has no speed, (10 stolen bases in 7 years, and only 2 walks in 107 plate appearances this year. He has 38 freeking homeruns in 7 years topping out at 11 4 seasons ago!
Wonderful goods from you, man. I’ve understand your stuff previous to and you’re just extremely fantastic. I actually like what you’ve acquired here, really like what you are stating and the way in which you say it. You make it enjoyable and you still take care of to keep it sensible. I cant wait to read far more from you. This is really a terrific web site.
Great Presentation of Money and its history and current internal workings.
LOL at Chris ODonnells head on Lantern pic.
allowing me to speak my mind!
Hey There. I found your blog using msn. This is an extremely well written article. Iâ€™ll be sure to bookmark it and come back to read more of your useful information. Thanks for the post. Iâ€™ll definitely return.
There is obviously sooo much more to know about this. I think you made some o.k points in Features also. Keep working, excellent post! los angeles carpet cleaning
I have been surfing online more than 3 hours today, yet I never found any interesting article like yours. Itâ€™s pretty worth enough for me. Personally, if all site owners and bloggers made good content as you did, the web will be a lot more useful than ever before.
I think this is among the most significant info for me. And i’m glad reading your article. But should remark on some general things, The site style is perfect, the articles is really excellent : D. Good job, cheers
I think this is among the most important info for me. And i am glad reading your article. But should remark on few general things, The web site style is ideal, the articles is really nice : D. Good job, cheers
This is my second visit to your website. Were starting a new move within the similar niche as this site. Your weblog provided us significant information and facts to work with. You have done a splendid job.
The lessons of Machiavelli were not lost on Hitler and Stalin, who used cruelty and shrewdness. Trotsky, an opponent of Stalin, said, â€œJoseph Stalin is a mediocrity, but he is not a nonentity.
1993 49ers – highest SRS in league, but 10-6 record was nothing to write home about.
I would love to surprise my fiancee with tickets to such a great sounding party!We both love Halloween and our first one together last year was a horrendous flop!This would be a fantastic opportunity to make up for it!!
I conceive this website holds some very great information for everyone. ¡°Je veux que les paysans mettent la poule au pot tous les dimanches.¡± by King Henry IV of France.
[...]one of our visitors recently recommended the following website[...]……
I just couldn’t depart your web site before recommending that I actually liked the standard information a person provide for your potential customers? Is definitely going to be back often to check up on new posts.