Collateral, Confidence, Credit
September 23, 2008
The three "Cs" of collateral, confidence and credit are the basic drivers of the U.S. economy. Right at the moment all of these are in jeopardy. The Treasury Department under the leadership of Henry Paulson has acted swiftly to stem a collapse of the financial system. Only time will tell whether their actions were sufficient or appropriate.
I listened with interest this morning to the Senators who are members of the Senate Banking Committee. Some had short remarks, others had long remarks. One of the Senators who was very succinct mentioned these three "C" words, recognizing that they are being challenged by the markets. Attending the hearing were Fed Chairman Bernanke, Stock Exchange Chairman Cox and Treasury Secretary Paulson. I had to leave for work so I did not hear the Senator's questions to these three men.
Collateral - that is what is appraised for value, and is pledged in order to receive credit. Confidence is what is necessary for this equation to work. Confidence that the worth of the asset is what it is purported to be. Confidence that the person or institution that offers the collateral in exchange for credit has the capability to repay. And for all of this to function at all, there must be individuals or institutions who are willing to put up the necessary funds in order to offer credit.
In the 1930s, the federal government believed the runs on the banks were problems for the states. I read that it was not until state governments had closed all banks in 36 of the then 48 states that the federal government recognized that local solutions were not adequate. This time around, the federal government has acted swiftly to avert such a disaster. Whether the congress will spend the next few days trying to lay blame or whether the legislators will recognize that time would be better spent fleshing out the Treasury's plan I believe will be crucial to the stability of the credit markets.
The three "Cs" of collateral, confidence and credit are the basic drivers of the U.S. economy. Right at the moment all of these are in jeopardy. The Treasury Department under the leadership of Henry Paulson has acted swiftly to stem a collapse of the financial system. Only time will tell whether their actions were sufficient or appropriate.
I listened with interest this morning to the Senators who are members of the Senate Banking Committee. Some had short remarks, others had long remarks. One of the Senators who was very succinct mentioned these three "C" words, recognizing that they are being challenged by the markets. Attending the hearing were Fed Chairman Bernanke, Stock Exchange Chairman Cox and Treasury Secretary Paulson. I had to leave for work so I did not hear the Senator's questions to these three men.
Collateral - that is what is appraised for value, and is pledged in order to receive credit. Confidence is what is necessary for this equation to work. Confidence that the worth of the asset is what it is purported to be. Confidence that the person or institution that offers the collateral in exchange for credit has the capability to repay. And for all of this to function at all, there must be individuals or institutions who are willing to put up the necessary funds in order to offer credit.
In the 1930s, the federal government believed the runs on the banks were problems for the states. I read that it was not until state governments had closed all banks in 36 of the then 48 states that the federal government recognized that local solutions were not adequate. This time around, the federal government has acted swiftly to avert such a disaster. Whether the congress will spend the next few days trying to lay blame or whether the legislators will recognize that time would be better spent fleshing out the Treasury's plan I believe will be crucial to the stability of the credit markets.
posted by shirley harry at 8:05 AM
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