Thursday, October 16, 2008

UBS: A bank that was actually rescued

UBS will now total over $50 billion of writedowns, and was headed for more. But the Bank of Switzerland injected $5.3 billion of cash, and took $60 billion of toxic assets off their balnce sheet:

After transferring $60 billion in subprime, Alt-A and other assets to the SNB, UBS is left with a mere $4.3 billion in monoline-related exposure, and $4.7 billion in leveraged buyout loans, the bank said. "This is in line with what has happened in other countries, but more final, definitive and comprehensive," Mr. Rohner said.

Switzerland faced reality. Our Government hasn't. The root of the problem in this financial crisis, are the declining values of homes, and the underwater mortgages. This isn't being addressed, so more homes go into foreclosure, and these foreclosure sales push down home values, so more people walk away from their homes, and it constantly affects more and more prime borrowers; of which these losses haven't been provisioned for, because the bankers don't yet see it, while Main Street does. Do these officials think that selling doesn't beget selling? Just look at Wall Street for that answer! You won't get stabilization in home prices, until mortgages get affordable. It has to be more cost effective to pay a mortgage, than to rent, and you either have to modify mortgages or drastically slash rates on them so they can stay in their home, without worrying that the policy will offend the neighbor who has never taken a risk in his life, or ever missed a payment. Is that the neighbor who will start a new company and employ people?

The point is, we need both neighbors. The neighbor that take risks to get his neighbor jealous, and then the neighbor who falls on his face so his neighbor can tell his wife, "I told you so." And modifications of mortgages will help the neighborhood and the neighborhood's 401K plans and the neighborhood's home prices. The "I told you so" forgets that the greatest good is "loving thy neighbor as thyself." At least Sheila Bair, the head of the FDIC gets it. We give $125 billion to banks, and not a penny for modifications.

WASHINGTON -- Federal Deposit Insurance Corp. Chairman Sheila Bair on Wednesday criticized the federal government for failing to take more aggressive steps to prevent Americans from losing their homes, highlighting a rift between her and other senior U.S. officials over terms of the $700 billion rescue package.

The government plan will help stabilize financial markets but it doesn't do enough to address home foreclosures, the root of the crisis, she said in an interview with The Wall Street Journal.
"Why there's been such a political focus on making sure we're not unduly helping borrowers but then we're providing all this massive assistance at the institutional level, I don't understand it," she said. "It's been a frustration for me."

"I support all the measures; I've been a part of all the measures that have been taken," she said. "But we're attacking it at the institution level as opposed to the borrower level, and it's the borrowers defaulting. That is what's causing the distress at the institution level. So why not tackle the borrower problem?"

UBS which was down 9% to $16.10 in Zurich can now be bought. Because Switzerland addressed the problem at UBS. American mortgages.

Maybe that lesson can be learned here.

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