Sunday, January 25, 2009

Fw: A Better Way to Bailout Banks

Here something to think about. 
Sent: Saturday, January 24, 2009 8:00 AM
Subject: A Better Way to Bailout Banks

Dear Colleagues:

I thought you would be interested in reading my latest essay published in the Financial Times. I critique the way it appears the government intends to spend the second tranche of TARP funding and propose an alternative.

George Soros

The Right and Wrong Way to Bail Out the Banks
By George Soros

According to reports in Washington, the Obama administration may be close to devoting as much as $100bn of the second tranche of the troubled asset relief programme funds to creating an "aggregator bank" that would remove toxic securities from the balance sheets of banks. The plan would be to leverage this amount up 10-fold, using the Federal Reserve's balance sheet, so that the banking system could be relieved of up to $1,000bn (€770bn, £726bn) worth of bad assets.

Although the details have not yet been decided, this approach harks back to the approach originally taken - but eventually abandoned - by Hank Paulson, the former US Treasury secretary. The proposal suffers from the same shortcomings: the toxic securities are, by definition, hard to value. The introduction of a significant buyer will result, not in price discovery, but in price distortion.

Moreover, the securities are not homogeneous, which means that even an auction process would leave the aggregator bank with inferior assets through adverse selection. Even with artificially inflated prices, most banks could not afford to mark their remaining portfolios to market so they would have to be given some additional relief. The most likely solution is to "ring-fence" their portfolios, with the Federal Reserve absorbing losses that extend beyond certain limits.

These measures - if enacted - would provide artificial life support for the banks at considerable expense to the taxpayer, but would not put the banks in a position to resume lending at competitive rates. The banks would need fat margins and steep yield curves for a long time to rebuild their equity.

In my view, an equity injection scheme based on realistic valuations, followed by a cut in minimum capital requirements for banks, would be much more effective in restarting the economy. The downside is that it would require significantly more than $1,000bn of new capital. It would involve a good bank/bad bank solution, where appropriate. That would heavily dilute existing shareholders and risk putting the majority of bank equity into government hands.

The hard choice facing the Obama administration is between partially nationalising the banks, or leaving them in private hands but nationalising their toxic assets. Choosing the first course would inflict great pain on a broad segment of the population - not only on bank shareholders but also on the beneficiaries of pension funds. However, it would clear the air and restart the economy.

The latter course would avoid recognising and coming to terms with the painful economic realities, but it would put the banking system into the same quandary that proved the undoing of the government sponsored enterprises (GSEs) - Fannie Mae and Freddie Mac. The public interest would dictate that the banks should resume lending on attractive terms. However, this lending would have to be enforced by government diktat because the self-interest of the banks would lead them to focus on preserving and rebuilding their own equity.

Political realities are pushing the Obama administration towards the latter course. It cannot go to Congress and ask for the authorisation to spend an additional $1,000bn on recapitalising the banks because Mr Paulson has poisoned the well in the way he demanded and then spent the money for Tarp. Even the second tranche of Tarp - the remaining $350bn - could only be pried loose by a congressional manoeuvre. That is what is leading the Obama administration to contemplate reserving up to $100bn of that tranche for the "aggregator bank" solution.

The stock market is pressing for an early decision by putting pressure on financial stocks. But the new team should avoid repeating the mistakes of the previous one and announcing a programme before it has been thoroughly thought out. The choice between the two courses is momentous; once made, it will become irreversible. It should be based on a careful evaluation of the alternatives.

President Barack Obama can fulfil his promise of a bold new approach only by establishing a discontinuity with the previous team. Congress and the public are right in feeling that too much has been done for the banks and not enough for beleaguered householders. The government ought to take the GSEs out of limbo and use them more actively to stabilise the housing market. Having done so, it could go back to Congress for authorisation to recapitalise the banking system the right way.

The writer is chairman of Soros Fund Management

Copyright The Financial Times Limited 2009

Click here to read the entire article.

More articles and essays by George Soros can be found at

re saving tax on super

Here's some advice from smh money, 
however I think if your super shares have dropped from high of 12.00 to 3.33 such as has BSL,  that salary sacrificing is a waste. A 15% tax benefit, does not balance against a 70% or more  loss.
Don't sell, but you should put money into something. Especially something solid and which gives a tax benefit. Like a rental property, although here beware of bank finance clauses detailing up to 20,000 dollars if you want to sell or settle early..
Oh the banks.. they caused all this and now they have free rein...
see the reference here..  
David Potts
December 14, 2008
Page 1 of 2 | Single page

Worried about shrinking super? The tax man can ease the strain, writes David Potts.

The unlikely hero for those close to retirement whose super has shrunk is an old foe: the tax office.

It won't bring the market back to life or solve all your financial problems but, surprisingly, it can ease the pain.

"Even if you can't do anything else at least pay less tax," First State Super Financial Planning's Geoff Lawley says.

For starters salary sacrificing into super is not only the pre-eminent way of saving for retirement, it's better than ever.

True, if you'd been salary sacrificing over the past six or 12 months you'd have less super than you started with since the market has been going backwards faster than your contributions can keep up.

Pumping money into an aggressive share fund at the top of the market might have been a mistake but just as bad would be shunning it at the bottom.

Salary sacrificing stretches further in a bear market because you can afford more units in your super fund than before.

"In a sense, regular contributions are just like dollar cost averaging into the sharemarket," says executive director of Macquarie Adviser Services David Shirlow.

Remember not only is your marginal tax rate cut to 15 per cent on super contributions but if it also pulls you down the scale you'll pay less tax on everything else as well.

Admittedly while the market is weak this isn't going to make much difference to your super short term. If you were about to retire, you can't.

But there's a compromise offered by the tax system. Why not cut back your hours, which will also give you a taste of what retirement will be like?

Under the transition to retirement rules, known by various acronyms such as TRIP, TRAP and TRIS, you can draw down some of your super while still working.

It pays for itself because while there's some leakage from your super, you're still earning an income and contributing some of it back through your boss's 9 per cent contribution.

But it can be made much better by combining salary sacrificing with it.

Yep, put money in with one hand that you're taking out with the other.

A pinball-like succession of tax breaks TRIP, TRAP and TRIS their way into your super, especially if you've turned 60. On top of the stand-alone tax breaks of salary sacrificing the new ones are zero tax on your super fund (because it's moved to pension phase) and a 15 per cent rebate on the pension; or if you're 60 no tax at all.


Thursday, January 22, 2009

tips and newsletter

The gloom and doom goes on and on

but FMS Flinders diamonds

and ABY Aditya are both rising.. both earlier under ten cent stars.

I'm still an optimist and I see heaps of bargains lying on the sharemarket floor.

What I don't like is RBY Rockeby Biomed ltd, making a comsolidation just after a share offering and now my 60,000 are only 2000..... I should have sold.. the shareholders are basically funding the lifestyle of the Directors... NIo did the same last year...
a consolidation is one hting, finding your new shares trading at the same amount as before is worse... I'd rather have 60,000 at 2 cents so if they rise to 3 cents I've made a 50% profit..but right now downhill all the way with RBY.

Please note that we are not financial advisors..
Sampson management Services (SMS) educate and inform only...We are Assett Management Consultants- we teach you about risk and how to measure that risk according to the international standards on Quality, Environment, OHS, and Risk management in an integrated approach. Remember you trade at your own risk. you can subscribe to our weekly newsletter and tips as they arise. The newsletter costs less than 50 cents a day or less than a cup of coffee per week....6mths fee is $190.00, one year $350.00 we will help you make money on the sharemarket.
Ref standards:
AS/NZS/ISO 9001, AS/NZS/ISO 14001, AS/NZS/ISO 4804, AS/NZS/ISO 4360.

Monday, January 12, 2009

the Australian sharemarket recovery is about to

Here are a few statistics I have found which may support a far more enjoyable year for the stock market.

1. Goldman Sachs JBWere has calculated that an investor who is fully invested at a market low will on average gain 37% over the next 12 months,
whereas an investor who stays in cash for the first six months of the recovery before committing to equities for the final six months will see an average first-year return of only 6.8%.

2.The All Ords has declined 19 times since 1945, and the average decline has been 14.4% (compared to a massive 45% in 2008). In the first year following a decline, the market rebounds on average by 13.5% and rebounds 80% of the time.

If the sharemarket recovery is about to happen, and current prices are at all time lows..then why wouldn't you invest ?(with a minimal amount with a considerd approach and by doing some research) This year. 2009 , presents sharemarket opportunities. you just have to look for them..

Remember we are not financial advisors..
Sampson management Services (SMS) educate and inform only...We are Assett Management Consultants- we teach you about risk and how to measure that risk according to the international standards on Quality, Environment, OHS, and Risk management in an integrated approach.
Ref standards:
AS/NZS/ISO 9001, AS/NZS/ISO 14001, AS/NZS/ISO 4804, AS/NZS/ISO 4360.