WC Varones

Don't lend your hand to raise no flag atop no ship of fools

Hussman on fire

We linked to John Hussman's market outlook over the weekend.

Now check out his plan for financial system reform:
1) Immediately vest the FDIC (or other regulator that has a strict consumer-protection mandate) with the authority to take receivership / conservatorship of distressed bank and non-bank financial institutions, including bank holding companies, in the event of insolvency.

2) Require a significant portion of the capital of bank and non-bank financial institutions to be in the form of convertible debt (contingent capital).

3) Abandon the misguided and dangerous notion of "too big to fail" by making regulatory receivership / conservatorship a credible threat, and encouraging insolvent financial institutions to exercise the option of voluntary debt-equity swaps as an alternative to regulatory intervention.

4) Approve the Volcker Rule.

5) Prohibit the use of credit default swaps except for bona-fide hedging purposes.

6) Require the originator or arranger of securitized mortgage loans to retain a substantial unhedged equity exposure to every securitization deal.

7) Recognize that "toxic assets" remain on bank balance sheets. They have merely (and most probably temporarily) been written up, in an environment where FASB rules provide "significant discretion" in the valuation of these assets, and where "off balance sheet" assets will not be required to be brought onto balance sheets until first quarter reports are released.

8) Discharge and replace Ben Bernanke and Timothy Geithner.

Anybody got a problem with any of that? Click on over and read the whole thing.


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