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Is the Fed gonna decide that CFC is too big to fail? As was mentioned in the earlier post about the run on the CFC bank (a very reasonable thing to do right now - I know if I had an account there I'd yank it out ASAP) perhaps that's what motivated the Fed to act today.
What do you think, Tanta? Should there be dramatic intervention?
Bet the board wishes they had Mozilo's $420m+ in "compensation" over the past two years back.
Big surprise nobody wants loans backed by overvalued collateral that is very difficult to move if the loan goes bad.
I have great difficulty understanding why the the majority of the media can not grasp the real problem is that homes are overvalued and thus aren't good collateral. The credit markets have finally figured this out.
Too damn bad if Countywide goes belly up. They clearly took on too much risk. A bailout will only encourage more risk taking in the future.
Marcell said. "We're going to have to get some relief some place to keep companies like this still in business."
What do you mean "we" Kemosabe?
at the bottom of the marketwatch page there is an article:
Use your IRA to buy your first home.
Can't wait for the next article in the series: "How to use your kids lunch money to buy PUTs on CFC"
Tanta-
Any thoughts on the loan portfolio disclosure of E-trade?
https://investor.etrade.com/common/download/download.cfm?companyid=ET&fileid=126866&filekey=fa653b20-facf-4bdd-80a9-2ed222204a1d&filename=Credit%20Presentation%20FINAL.pdf
thoth, I have no particular objection to the Fed stopping the music for a minute so we have time to see where the chairs are.
If, in fact, what's happening here is a bunch of hedge funds burning down CFC in a desperate attempt to clean up their own booboos, then eff the hedge funds.
If, in fact, CFC is really insolvent, then I'm sending my resume to the FDIC and you taxpayers are going to faint when you see what you'd have to pay me to go take possession of CFC.
I'm just kidding, of course. Ha. Ha.
I wonder what we think we have to "intervene" with besides FedDollars. That big army of bank examiners?
Ask Mozzilo for the loan to bail them out.
Is this mortgage fraud:
Mortgage Grapevine: Very tough deal, I need a miracle.
Monkey in Chief said:
"I have great difficulty understanding why the the majority of the media can not grasp the real problem is that homes are overvalued and thus aren't good collateral"
This is the key point.
Houses are not worth what anyone buying now is paying (assuming they can still buy)
CFC is lending a dollar to buy 70 cents and so is every other lender. Until this is fixed, everything else is just posturing.
"How to use your kids lunch money to buy PUTs on CFC"
meanwhile as collateral send your child to china
thats so old, these days you need to leverage, lets say your kid will earn 1m$ in life, so borrow from the chinese and invest
The 417 limit:
Mortgage Grapevine: Option One's middle of the night changes
it looks like everyone now wants to do these loans. Does this means FNM FRE will buy those ? no way they have portfolio cap limits.
so who will buy all those "conforming" loans ?
Maybe they're America's leading lender because they lent money to anyone regardless of their financial health?
I just do not get how anyone will be willing to do biz with CFC. Let's say I am the guy who ran their janitorial service - I would like to be paid in advance.
Yal,
Maybe the NAR should start pushing all the sellers in the bubble markets to price at or below 417k?
NAR - "Now is the time to sell, as long as its for $417,000 or less"
Countrywide going out of business might be a good thing for brokers.
The Countrywide retail operation was gaining market share against brokers. If they go out of business they put 15-20 percent of the origination business up for grabs.
This is how sub-prime looks like from today:
http://www.oomc.com/post/_marketing/phaseVII/phase7pg.html
Hide now Buy Later:
Business & Financial News, Breaking US & International News | Reuters.com
Ya think?
Yal,
There are portfolio caps, but no caps on securitization. As long as they can sell those loans on the secondary market (which seems to still be functioning for Fannie and Freddie loans and not much else) they will be fine.
i still think liquidity is getting worse, not better.
Clearly the Fed has now deemed that the financial meltdown we're seeing to have crossed over from merely burning hyper-speculators to now having the potential to be a knock-out blow to the economy.
What's truly refreshing is that the only segment of the mortgage markets that are still functioning are only doing so by virtue of the implicit guarantees of quasi-government institutions that are incapable of producing rudimentary financial statements or knowing what their interest rate risk is, and the Fed beginning to monetize this mess. And we're only in the 2nd inning now...
so who will buy all those "conforming" loans ?
Yal, Fannie and Freddie do not have to put every loan they buy in their own retained portfolio.
They do issue MBS with a lot of them. That's kind of their usual business model.
As long as someone will invest in GSE MBS, the GSEs can buy loans from originators to back them.
Since they don't put the icky alt-a and the subprime stuff in their own MBS, they have been keeping that stuff in the retained portfolio to earn income. But as long as people are originating conforming dollar loans with documentation and decent FICOs and LTVs and so on, the GSEs can take those in the MBS program all day long.
CR/Others,
Does this rate cut/ Discount window opening allow Country Wide and other exotic mortgage lenders to blow past credit tightening we saw in the past 3-4 months? Reason, they can now bank on the Feds to buy (or loan) all the MBSs they create.
CFC can now go back to 100% LTV because by fed loan maturity time (a year from now ?) the housing market would have bottomed out and the risk premium in the secondary market would have returned to 2006 levels.
I know it's faulty plan but it's doable.
Marcell said. "We're going to have to get some relief some place to keep companies like this still in business."
What about the fu@king relief for the family's in the street you fu@king loser...sorry for the profanity..but give me a break..poor country wide....screw them...they made a killing on the backs of stupid people and now we have ass holes saying we cant lose a company like this...pisses me off
On the planet I come from, adults aren't allowed to have 'do overs'. Sadly, that planet seems far, far away today.
CFC should be allowed to fail. The failure would be a sterling example to any entity contemplating such shenanigans in the future.
Re Brokers loove countrwide? Hmmm...
Why should companies like CFC be kept in business if they've made so many bad loans? Countless people have warned about how bad these loans were, but it was just too convenient for CFC and the other lenders, especially subprime and Alt-A, to just keep ignoring the warnings and reality and just keep pumping up the bad debt.
It's apalling to see all these calls to bail out borrowers and bail out lenders, when it was so obvious the loans were bad.
Hey if I go to Vegas to try to make money and get burnt, despite all my friends telling me it's a bad bet, can I get all you guys, the Fed, FNM, the government, et all to bail me out when I come back broke?
I cannot believe that an organisation as big as Country wide is going to be allowed to fail. It must be a line in the sand for the feds.
If they are going to fail then massive amounts of their business will have to be transferred to other corporations before any statement they are failing is disclosed or it will result surely in a total market meltdown.
This market needs to believe that order will be restored and needs to see that things are being processed in a thought out manner rather than reacting after the fact.
Countrywide can go bust later when normal service is resumed if it has to go bust.
Let CFC go under,
Chapter 11 doesn't mean the end of operations, at least not in and of itself. Let the equity holders get wiped. Sorry guys, you bet wrong.
Finally, we see the result of repealing Glass-Steagal in 1999.
A trading platform masquerading as a "bank", with effectively no collateral.
Someone should be interviewing Dodd, Lieberman, and Rubin.
Hi Tanta,
Off-topic, but I think that this comment by Mikhail Orlov in Brad Setser blog explains a lot of things:
"Let me get this straight. There is an overnight REPO inter-bank rate, set at 5.25%. There is a Fed discount window that used to be 6.25% and now 5.75%. Why someone in their right mind would pay more if cheaper overnight rate is available? Why any prime broker-dealer would ever use discount window?
Now, REPO apparently requires hard collateral such as US treasuries. Fed now is willing to accept MBS, which other banks refuse to lend against! That means we do not have a liquidity crisis! If that was the case REPO rates must have been higher than Fed discount window rates. We have a crisis of banks not having enough good collateral and not trusting each other with all this MBS junk.
That perfectly explains why effective overnight rate has been well below Fed target rate. There is no demand for the inter-bank funds, demand that can be backed with required collateral!
With that, even if Fed lowers rate to zero it is not going to help at all. Banks will not be willing to lend to each other because there is no collateral to lend against! "
What do you think? Any comment?
REBear, in a word, no.
The Fed Discount Window is not a source of long-term capital to make loans with. It's a source of short-term increases in bank's cash reserves.
Honestly, I think the Tangerine Man would be a little worried about Bill Poole catching him using Discount Window advances to make goofball loans with.
Hi
Countrywide, you can stick a fork in it because it's done stealing. CEO to Loan Officers belong in Jail. If they give it money to stay afloat, they'll just steal it on the way out the door. That's what the Fed did today, put off for 30 days instead of 3. Next it will be 180 days or until the regime change happens in the beltway.
jo6pac
CFC can now go back to 100% LTV because by fed loan maturity time (a year from now ?) the housing market would have bottomed out and the risk premium in the secondary market would have returned to 2006 levels.
Aren't these Fed loans only good for 30 days? And of course, there's no guarantee that the Fed will accept just any old junk that CFC wants to use as collateral...
IMHO, the Discount Window rate cut was a brilliant move by the Fed. Give Wall Street just a little of what they want. Notice how oil shot up and the dollar went down right away? Perfect news for the Fed to maintain its inflationary bias at the next meeting...
SOOOOOO... how long does everyone think it'll be before the markets figure out the Fed's action won't amount to a hill of beans?
I wouldn't be surprised to see the markets close flat today, although it'll more likely be Monday before the knee-jerk euphoria evaporates.
Honestly, I think the Tangerine Man would be a little worried about Bill Poole catching him using Discount Window advances to make goofball loans with.
Plus the secondary won't buy them - that's the whole problem. So CFC is going to originate loans with window money only to turn back around and then use those same loans as collateral to borrow more at the same rate?
Where's the gearing to make that work?
Its an attempt at perpetual motion in a world that includes friction (overhead & origination cost)... won't work.
This is nothing more than CFC visiting the pawn shop & buying time to figure out what happens next.
I agree, CFC wrote bad paper, let them die as a result of it. If they were responsible they would not be in this mess, if they were criminal in their actions then lock them up. They are responsible for alot of ruined lives IMO.
I want countrywide to fail, and someone said the CEO made over $400 Million in the past two years.
Get the money from him.
Can we have Willian Shatner sing a round of "Hey Mr. Tangerine Man...".
Countrywide upgraded as analysts say lender can weather the storm - MarketWatch
this is CFC breakout value.
he had price trgt of 31 and upgraded them to.... 21
with breakup value of 7.5
I wouldn't be surprised to see the markets close flat today
I was thinking the same thing. But I also thought that yesterday when the market opened down a bunch...
If I was an institutional trader & had very low transaction costs - I'd try to get to cash everyday before I went home... at least on those accounts where volatility was highest.
Bears make money. Bulls make money. Pigs lose money.
Having said that - those that hold their positions and are right will do VERY well... those who are wrong will get smoked.
Oh well its only money - even Tan Man can't take it with him.
Meanwhile, in Papua, New Guinea, a cannibal tribe apologizes for eating four Methodist missionaries.
I wonder if CFC going BK would shake loose all those REOs they're sitting on? Certainly those "assets" would have to be re-evaluated.
Meanwhile, in Papua, New Guinea, a cannibal tribe apologizes for eating four Methodist missionaries.
Frozen turkeys sound better. The Methodists I know are all tough bony old birds.
If Countrywide gets a bailout it ABSOLUTELY MUST be painful for the shareholders.
I am thinking that in return for any bailout, the company should have to issue new shares amounting to at least 200% of existing shares. This would dilute the shares & share price by 66%, making the government majority shareholder. If it survives the stock can be sold on the open market to recover some of the costs.
If the shareholders are not willing to accept that much pain, then let's just let the share price go to zero and see how they like that. No free bailouts!!!!!!!!!
I am angry, can't you tell?
I realize that this whole Fed Funds repos discount window stuff is high bank accounting and confusing for a lot of people.
Let's get back to earth for a bit. It might help you to think of discount window borrowing like an overdraft protection plan or a cash advance on your VISA. That's a very expensive way to borrow money. You would only do that if, say, you had to pay rent on Wednesday but you wouldn't get your paycheck until Friday. You could probably handle this for two or three days.
The thing is, these banks own these MBS assets that are getting mark-to-market hits. Those hits will only get worse if you force those banks to sell that stuff.
Why would they want to sell? Well, they might need or want cash reserves. But they'll just get stuck in a downward spiral if they start trying to sell off MBS to raise cash.
So there are a number of ways banks can borrow cash to shore up reserves: from each other, through Fed repos, or--worst case--through the Discount window. It's just a way of tiding them over until the panic stops. It isn't a source of lending capital for long-term operations.
Certainly it is a kind of government intervention. I would characterize it more as a stop-gap than a true bailout.
High Commissioner Ratu Isoa Tikoca said, "We at this juncture are deeply touched and wish you the greatest joy of forgiveness as we finally end this record disagreement."
Anyone have an idea whether the customers' run on Countrywide is still happening today?
If I were a Countrywide customer, I don't think this fed news would cheer me one bit (well, maybe I'd figure I'd have 30 days to cash out, instead of 1-3)
Hey! Mr. Tangerinine Man, make a loan to me,
I'm not wealthy and there is no place I'm going to.
Hey! Mr. Tangerinine Man, make a loan to me,
In the jingle loaded commercial I'll come followin' you.
Though I know that Mozillo's empire has returned into sand,
Vanished from my hand,
Left me housepoor here to stand but still not paying.
Perhaps Tanta or some other person smarter than me can figure out the answer to this question:
Say the Fed slashes interest rates at the next meeting even 75-100bps, I fail to see how that is going to motivate anyone anywhere to then pile in and buy up all this toxic sludge? I am I missing something? Can interest rates even help at this point?
How about if countrywide gets a bailout they have to re-write 30%-40% of the Toxic crap the doled out...that would work as a nice penalty indeed.
I wonder if CFC going BK would shake loose all those REOs they're sitting on? Certainly those "assets" would have to be re-evaluated.
I think that depends on who got control of them & where the properties are... in flyover I think you'd see a major dump - drop price & move them. In areas with higher base demand - not so much.
Right now in my area properties are moving briskly but prices are low - a nice 3BR goes for say... $150K. Why even try to hold out on higher REO values here - dump city.
In Coastal Cali where prices are higher & folks move to retire as well as 'live'... not as likely. No ones moving to my hood to retire unless they like the movie 'Grumpy Old Men' & ice fishing.
The problem is that the panic is only getting started. Those MBS (as with housing overall) will only decline further in value. No amount of payday lending will stop the downward spiral towards financial implosion.
Temporary feel-good measure at best.
I wouldn't be surprised to see the markets close flat today
Yeah. It'll be interesting to see if investors are willing to hold these stocks over the weekend.
It could be a good indicator of confidence unless we get a squeeze toward the end.
koteli, you have touched on a key point. One of the reasons for the length of the real estate downturn in Japan and also the long amount of time that the Bank of Japan has left rates there near zero is that effectively there is no demand for funds because banks can't see anything worth lending against there.
So, as you say it doesn't necessarily matter what the Fed's discount rate or funds rate are if the banks don't trust the collateral being offered in the short term markets.
But, Dryfly--The institutional investors often need to take days or weeks to get into or out of positions without changing the price, except for really big caps. This is the advantage of us little guys.
So, the question is "Short term liquidity sqeeze?" versus "solvency problems." I guess that the Fed move bought some time and is even justified to keep companies from going under when it's just timing and not fundamental problems. However, most of us on this blog see fundamental problems--including increasing rates of foreclosure and home price decline.
Meanwhile, in Papua, New Guinea, a cannibal tribe apologizes for eating four Methodist missionaries.
For some reason, that reminds me of this.
But then, everything reminds me of this today:
(Warning: not work safe)
YouTube - Blazing Saddles - Harvey Korman
Let's get back to earth for a bit. It might help you to think of discount window borrowing like an overdraft protection plan or a cash advance on your VISA.
Can I use the discount window to buy stock options like I do with my MasterCard cash advances?
Good historical account of what happened in the previous real estate "crisis," along with a clear, concise explanation of the current one.
http://www.platinum.com.au/images/us-finance.pdf
BTW, after the smoke cleared bank stocks turned out to be great investments.
Sebastia
Can I use the discount window to buy stock options like I do with my MasterCard cash advances?
Only if you collateralize it with a post-dated check.
Today's FED action should reinforce Bulls & paralyze Bears, at least until Global investors chime in on the subject.
Countrywide's engineered its own cash squeeze via an internal policy to continue to buy all foreclosures in front of them while refusing to discount any of them to allow for current market conditions to unload them.
If that's their plan, fine, but WHY should the FED intervene to see Countrywide (& how many hedge funds?) have access to an unlimited source of low cost funds to execute corp. strategies?
Meanwhile, in Papua, New Guinea, a cannibal tribe apologizes for eating four Methodist missionaries.
Frozen turkeys sound better. The Methodists I know are all tough bony old birds.
Those Methodist from the Midwest tend to be beef fed.
State loses a net 8,600 jobs during July - Los Angeles Times
California lost jobs in july
JJL asked: "Say the Fed slashes interest rates at the next meeting even 75-100bps, I fail to see how that is going to motivate anyone anywhere to then pile in and buy up all this toxic sludge?..."
Two things. Even the worst of it will have some value to someone at some price, once it starts trading again.
Second, some of it may not stay "toxic sludge." If interest rates come down it will have a positive impact on the housing market, reducing some of the stress. It won't solve everything, of course, but it will ease conditions (home valuations won't be so depressed, foreclosure levels fall, etc.)
Sebastia
dryfly said "If I was an institutional trader"
Based on your comments and knowledge I assumed that you and several other commenters were either trading or running money.
This blog and the comments have been a wealth of knowledge and analysis during all of the excitement.
Thank you
The problem is that the panic is only getting started.
I think the panic was dampened... now the 'realization' starts to sink in. I've said it on an earlier thread - I don't think the Fed cares if the market retreats a bunch or not... just as long as it remains orderly. The Barrons link from rcryan on a previous thread...
Bernanke's Rate Cut Restores Volcker Tradition - Barrons.com
I think that explains where we are now & what BB really did. It isn't the end game nor even intended to be... it was a 'push'.
So... the 'Greenspan Put' has become the 'Bernanke Push'...
There was a long period in Japan where interest rates were 0 and nobody wanted to borrow or lend.
Sebastian
What this market needs is confidance. If you are here to provide confidance you need to behave in a credible manner.
You cannot surely be claiming that there is no crisis?
Maybe your links are worth a read but so far you are sounding completely unbelievable
Based on your comments and knowledge I assumed that you and several other commenters were either trading or running money.
This blog and the comments have been a wealth of knowledge and analysis during all of the excitement.
Not me - I pay people to trade for me (called 'fees'). I wouldn't trust myself to trade places on the bus let alone my money... I'm just observing what they do (and am amazed they make me money).
But some of what is happening now is surprisingly transparent - some of the story we'll probably never know.
And I'm learning way more form others than they learn from me.
Interesting.
Worried said: "What this market needs is confidence. If you are here to provide confidance you need to behave in a credible manner..."
My experience here has taught me that the bears wouldn't care if Jesus himself was making the bullish case, with Moses flipping the charts for him.
Sebastia
I want to make a prediction. Original not copied from anyhwere else.
My guess is that the Fed next move would be another cut in...(drum role) the Discount Rate.
I would venture to say that they can drive this rate further down until it is equal to the Fed Funds rate and maybe even below it.
This way this keep the rate high for everyone and help the banks that can not get credit (CFC included)
If Jesus was so shallow in his thought processes then maybe you'd have a point.
Here's interesting question: even if Countrywide is bailed out, where would that leave equity holders?
A government bailout or even a bailout through private investors may not leave equity holders with much if anything, right?
My guess is that the Fed next move would be another cut in...(drum role) the Discount Rate.
I would venture to say that they can drive this rate further down until it is equal to the Fed Funds rate and maybe even below it.
This way this keep the rate high for everyone and help the banks that can not get credit (CFC included)
You have good company. That's what the Barrons article says.
If, in fact, what's happening here is a bunch of hedge funds burning down CFC in a desperate attempt to clean up their own booboos, then eff the hedge funds.
i don't understand what you're saying here. why eff the hedge funds?
Tanta offers: "Only if you collateralize it with a post-dated check."
The check is in the mail and I promise to not ... [PG-13 rating imposed].
Who? Neither of those boys is a patch on good ol' Mammon.
I heard something about David going back to Van Halen. Morse coding reception here is a little bit spotty. So everything should be OK there?!
I just re-read this and thought about that this might be a hint:
"to narrow the SPREAD between the primary credit rate and the Federal Open Market Committee's target federal funds rate to 50 basis points"
(from Fed words today)
Alec said: "If Jesus was so shallow in his thought processes then maybe you'd have a point."
I've also discovered that when the bears have to resort to name-calling and insults, that means they can't win the debate on merit.
I don't know if that's because of the poor example set by the Bush Administration, or just human nature.
Sebastian
The moral to this story: If you invest in public companies you deserve to get screwed.
A government bailout or even a bailout through private investors may not leave equity holders with much if anything, right?
Depends on what a bailout is... if CFC is in BK then 'yes' equity will lose out & not have much say.
But if NOT in BK then equity could scuttle a bailout if unfavorable.
I don't see how this can not be viewed as at least a short term bailout. I don't believe there is currently a credit problem with CFC. I see a profitability problem. They can get money they need in the private sector at apparently unprofitable interest rates. The discount window offers preferential loan terms that are not warranted by the market. This is a bailout. IMHO
Let's get back to earth for a bit. It might help you to think of discount window borrowing like an overdraft protection plan or a cash advance on your VISA. That's a very expensive way to borrow money. You would only do that if, say, you had to pay rent on Wednesday but you wouldn't get your paycheck until Friday. You could probably handle this for two or three days.
Boldly putting my naivete on display again...
a) When is payday for CFC?
b) Compared to floating commercial paper at 12%, isn't this actually a very cheap way to get tided over?
c) Given the renewal clause in the announcement, can't this be rolled over indefinitely? And if so why shouldn't CFC treat it as a source of long-term capital? (I'm sure there's some very good reason here not to--like the fact that the Feds may decide one day to stop letting it renew. But I don't know what the reason is.)
Yal sed, " I just do not get how anyone will be willing to do biz with CFC. Let's say I am the guy who ran their janitorial service - I would like to be paid in advance."
Yal. I work for a good size mortgage banking company, and we just pulled all of CFC's ALT-A products off the rate sheet. Here's what the CEo said..."This means that if CW is not able to fund their ALT-A commitments that we would be forced to retain loans which would be very expensive and unprofitable.
"
Sebastian:
"BTW, after the smoke cleared bank stocks turned out to be great investments."
Keep an eye on the interest rate risk. I think interest rates will raise long-term and for decades to come. This will put banks under pressure relative to other stocks. That said, the big banks have better control of interest rate risk and some could be dividend plays as well. Early-mid September I'll shop again.
O-Joe
You know I try not to be a tin Foil hatter but I feel the conspiracy theroist are winning me over.
Economic Expert: We Are Already In An Engineered Recession « noworldsystem.com
Oh! Sebastian...
Seb
Your credibility just took another hit:
You just rather smugly said:
"I've also discovered that when the bears have to resort to name-calling and insults, that means they can't win the debate on merit.:)"
But moments before you said:
"My experience here has taught me that the bears wouldn't care if Jesus himself was making the bullish case, with Moses flipping the charts for him.:)"
Effectively your argument seems to now amount to "I am right and you are all wrong"
Lets hope you are right.
From Yahoo,
"The Fed's job, you see, isn't to protect you and me and our retirement portfolios, or even many of the nation's largest companies and biggest employers. The Fed's job is to protect the financial system."
Period
Allan Sloan on socialism for the rich, bankruptcy for the poor:
Expired
Well, asset-backed commercial paper rates continue to escalate.
Still, CW has some good loans on its books. It's just that right now no one can know what they are getting. People will always buy good loans, but now to sell them you will have to go through due diligence, and that takes time. This is a measure designed to allow rational judgments about value to be made.
Remember Thornburg? It isn't just Countrywide. No one wants to buy packaged-up stuff any more.
Yal
"I would venture to say that they can drive this rate further down until it is equal to the Fed Funds rate and maybe even below it."
No they won't. As Tanta explains, the whole point of the discount window is to prevent a liquidity crisis. You can borrow from it, but you're going to pay a penalty. This is good policy. What it does is that it slows down the crisis, allowing the market to seperate solvency problems from liquidity problems. If Countrywide wrote tons of bad loans, they are going bust regardless of today's actions. If it's just a case of people panicking and not giving credit (even though CFC's book is fine) then the window opening allows them time to survive this storm.
My guess - lowering the rate gives a superficial reason for banks to borrow money. There's a stigma to using the window (implies you have problems). I bet the Feds and a bunch of bankers are having talks, the result of which is that if things get really bad, everyone uses the window together. It's the middleages theory of hygene -if everyone stinks, nobody stinks.
California is in recession. Since June or so.
Sebastian "after the smoke cleared, banks turned out to be good investments."
Banks are in steep down trends and, on a relative strength basis are still the worst part of the market (along with home builders and department stores). This is likely to have been a short covering bounce from too far over sold. I'm looking for banks to continue to lead the way down as the RE (residential and commercial) continue to get much worse.
At a minimum, we need a marked change in the US economy before banks are out of the woods.
I don't think the problem can be limited to mortgage companies, originators, borrowers or any combination of the 3. Wall Street made these risky loans attractive at every level by buying them up like wildfire. The ratings companies made them feel good about it by giving subprime MBS tiered rating systems that may or may not have been flawed...I don't care. Now, the same rating companies are downgrading the investments, therefore the wall street investors are calling for their money back. Take a risk, accept the risk. That goes for everyone from borrowers to wall street. Borrowers are stuck in their bad loans or losing their homes because they can't get credit like they could before. They have to pay prepayment penalties if they can get out, most likely. Does anyone on wall street have to pay a prepayment penalty when they send a margin call that bankrupts a lender? That kind of regulation and equality at all levels of the market may help prevent crap like this in the future. Can't claim to be an expert, but I'm tired of the media blowing this out of proportion and scaring more investors into margin calls.
Worried said: "Effectively your argument seems to now amount to "I am right and you are all wrong."
No, it's never been "I'm right and everyone else is wrong." It's been "the facts are right and everyone else's opinions are wrong."
If the facts were clearly bearish, I'd be bearish. Why wouldn't I be? What does it profit me to be wrong?
Sebastia
California is in recession. Since June or so.
theroxylandr
When the USA catches a cold the world catches the flu.
When California catches a cold the USA does too (Ca= 7th largest economy in THE WORLD)
My experience here has taught me that the bears wouldn't care if Jesus himself was making the bullish case, with Moses flipping the charts for him.
I'm not a religious person, but I think it is fairly safe to assume Jesus wouldn't tell us all to invest in bank stocks.
John 2:14-15 (King James Version)
14 And found in the temple those that sold oxen and sheep and doves, and the changers of money sitting:
15 And when he had made a scourge of small cords, he drove them all out of the temple, and the sheep, and the oxen; and poured out the changers' money, and overthrew the tables;
It reminds me a bit of Countrywide actually.
Teller: This guy wants his money just like all the ones before him.
Manager: Jesus Christ! What are we going to do?
Teller: I don't know. Why don't you ask him. He's next in line.
Financial calamity will be avoided thanks to the FED if it stays on this path but the Market...
Even a dead cat bounces when you drop it.
Get your facts straight. There is no line in there about mortgage brokers. It clearly only applies to currency traders and commodities.
Jesus was just making room for an In-temple mortage center.
Enough inflation and the non performing loans become good.
Hey, ya'all don't you want to pay 7 dollars a gallon for gas?
It would be good for them, and their chauffeurs only know that gas went up.
The paper is the problem and only solution out side of default is inflation.
No, it's never been "I'm right and everyone else is wrong." It's been "the facts are right and everyone else's opinions are wrong."
That has to be the most arrogant thing I've read all month. I think you won the award last month too though.
I absolutely agree with you that this is a problem of refusal to acknowledge clear trends and what their likely effects will be. - Sebastian on Containment, July 18, 2007
The Dow was 14,000 that day. I remembed the quote. It nearly inspired me to start a book on arrogance titled...
When Clear Trends Break
I just felt that with a book titled "When Genius Failed" already on the market I'd have too much competetion, lol.
Press Release Source: Countrywide Bank
Statement by Countrywide Bank on Its Depository Franchise
Friday August 17, 3:40 pm ET
CALABASAS, Calif., Aug. 17 /PRNewswire/ -- In light of recent media attention, Countrywide Bank, FSB today made the following statement regarding its depository franchise.
"It is important for Countrywide Bank's valued customers to know that the highly publicized issues related to the mortgage market do not impact the safety of FDIC insured deposits at Countrywide Bank," said Tim Wennes, president of Countrywide Bank.
Key facts about Countrywide Bank:
-- Countrywide Bank is a federal savings bank with more than $107 billion
in assets
-- Countrywide Bank offers depository products that are FDIC insured
-- Bank representatives are trained experts in helping customers structure
their accounts to maximize the FDIC protections available to them
-- Countrywide Bank continues to receive "investment-grade" ratings by the
three major credit rating agencies
-- Countrywide Bank offers high-yield depository products for retail and
commercial customers.
-- The Bank currently has 105 financial centers throughout the U.S.
Countrywide Bank provides a wide array of consumer finance products,
including high-yield CDs, and the Bank's high-yield online savings
account called SavingsLink(SM).
I keep reading in the comments that one buyer bought 80 million shares of CFC yesterday afternoon. That's roughly 15% of their outstanding shares.
Wouldn't that require an SEC filing disclosing the identity of the purchaser? I thought purchasers of something like over 5% of outstanding shares are required to make a filing? Am I incorrect? Thanks.
Jesus was just making room for an In-temple mortage center.
Crazy Jesus's Mortgage Center
Come on down! We're flippin' tables and pourin' money!
Fed has to bail out CFC to keep RE ponzi scheme going so houses like this can sell
For Sale: Most Expensive VC Home in Country
Paul Kedrosky: For Sale: Most Expensive VC Home in Country
gatsby,
If you become beneficial owner of over 5% of the voting stock in a public company, you have to file a 13d. But you have 10(?) days to do so.
Radian Group Inc., one of the nation's largest mortgage insurers, has drawn down half its credit line and faces shareholder lawsuits accusing the company of securities violations.
Radian, facing massive losses in subprime investments, said it's getting $200 million from a $400 million unsecured revolving credit facility expiring in 2011, according to a filing late Thursday with the Securities and Exchange Commission.
Radian said it doesn't need the funds now, but given volatile market conditions, it decided to tap the credit line for "greater financial flexibility and adequate liquidity" in the long run. The Philadelphia-based company, which insures mortgages and other debt, said it has no current plans to further use the credit line.
The paper is the problem and only solution out side of default is inflation.
That's what I keep thinking. While I sympathize strongly with the deflationist case (and some things certainly will in real terms), it requires that the value of freely printed money actually goes up in value (relative to everything else).
So I ask you. If money is simply a commodity like everything else and there is, in theory, an infinite supply of it readily available if the government chooses, why would its value go up (especially in the long-term)?
Is there not a benefit in creating some visibility ergo comfort that would allow the financial sector to take short term risks? Rather than worrying about what the Fed will or will not do tomorrow?
On the other hand where I disagree with Thornburg; prior to this intervention the market was essentially shutting down nonbank resi mtg lending and I don't think that is a bad thing.
If you do not have a deposit base on which to depend in times of crisis then every time there is a systemic event you will likely face your repo lines getting cut off. See Crimini Mae.
Unless Thornburg originates, they are a leveraged bond fund. So is Annally. And who is to say that the day will never come when no one wants to lend against agency paper? Maxim ain't Hustler; implicit ain't explicit. Or maybe the repo lender's house will really be on fire, so to speak.
If I was at the Fed I'd tell Thornburg maybe he should have operated as a thrift. Or sold out like Mike Sawyer of Saxon did.
That's what I keep thinking. While I sympathize strongly with the deflationist case (and some things certainly will in real terms), it requires that the value of freely printed money actually goes up in value (relative to everything else).
Value of money go up in inflation? I guess I don't understand.
Is it just me, or is the frequency of Sebastian posts highly correlated to the stock market being up on the day?
CFC is insolvent. It does not have enough value in its assets to pay off its liabilities, and income is plunging, I should probably say losses are skyrocketing. What happened to arguments agains Moral Hazard and "Too Big Too Fail". This pause only buys time to work out a plan for the orderly disposition of CFC and future failures (there will be many).
Since its Friday:
"If it keeps on raining the Levy's gonna break.
If it keeps on raining the Levy's gonna break.
Some people don't know,
Which road to take." B. Dyla
Stagflationary Mark,
The inflationary model I see most often presented presumes an increase in the money supply - and obviously that depends to a great extent on what the Fed does or fails to do.
I have to ask you if you think Bernanke & Co. have behaved lately as the inflationists insisted they would. And I think an honest answer would be 'No, not really.'
I begin to suspect both sides (inflation/deflation) may be making too many assumptions about what is possible or unavoidable.
Blowncue-
concur. Buying even great assets leveraged 20 to 1 and funded by short-term funds is idiotic. Once-in a galaxy's lifetime events occur every decade, and markets close to borrowers.
As for CFC's press release, this part is worrying for anyone who followed the S&L crisis.
"Our current 5.65%(1) rate on a 12-month CD is among the highest in the nation and demonstrates our commitment to meeting the needs of consumers eager to maximize their savings"
Seems to demonstrate a need for capital rather than meeting the needs of consumers.
Meet those needs!
Value of money go up in inflation? I guess I don't understand.
I was talking about the "deflationist case" in that paragraph. You took me somewhat out of context. Perhaps I was not all that clear. Let me rephrase it.
In order to be a deflationist, you have to believe the value of money will go up.
I sympathize with the deflationist case (some things may very well deflate), but I am still a stagflationist. I tend to believe that the value of paper dollars will continue to decline no matter what happens. I also tend to believe that if times turn really bad, the value of paper dollars may decline faster (1970s).
Countrywide execs still set on expansion plan | Real Estate and Technology News for Agents, Brokers and Investors | Inman News
"Countrywide execs still set on expansion plan
Shifting lending to bank division won't curtail growth strategy"
Countrywide says they will still grow through this thing, boy they really cant take a hint.
burnside,
I tend to agree with you. Rather than banter on about my beliefs let me just refer you to a recent post I made on TIPS. You'll see plenty of deflationist AND inflationist in me. Stagflation in some ways is just a cop out (a mixture of the two).
Yahoo! Message Boards -
Money Flow today:
Money Flows: Selling on Strength - Markets Data Center - WSJ.com
apparently fannie mae is looking at buying litton...why don't they buy CFC's servicing unit while they're at it?
Tanta & bofiz
Thanks for answering my question.
Florida's in recession too.
Yup. Florida, CA probably, Michigan, Ohio, probably Wisconsin. I know there are a few others that are teetering. Just how many do you think we need to add before we make the national call? This is beginning to remind me of the argument about no national housing bubble. SUREEEEEEEEEE there's only little regional bubbles, yeh. Mhm. Just like only a few regional recessions, which, oddly enough, seem to be in some of the biggest regional economies, just like their housing bubbles held some of the biggest market capitalization of US housing bubbles. How thoroughly droll.
Seb--
Nice, well written link you posted.
At the end though, the writer makes his case for banks not facing credit risk, etc. Bank stocks will get hammered but the banks will be fine, etc.
Then you realize the writer wrote the piece on June 4.
Ouch.
Big "A" Ben would have mo better street cred with da public if he made a sweet deal wit da tan man for his sleazy hot custom made suits cause he ain't gonna need 'em in his new crib. Why you gotta hate?
Mr. MO
"Business is great .... "
Said the dung merchant,
"we've never had so much poo to scoop, ever....!!"
It's just that it smells SOOO BAD
Get the money from him.
boy band fetish | 08.17.07 - 2:28 pm | #
have no data for 2 yrs, but since Nov 2006, Mozilo exercised options for $59,654,369 (5,114,999 shares), and sold them in the market for $258,237,258 for net gain of $198,582,889.00.
Another interesting fact, from May 25, 2006 to Oct 30, 2006, he exercised options for only 6,805 shares. Shares sold during the same period-none. He began dumping his shares in Nov 2006. It appears his trust in the future of the company evaporated in Nov 2006.
It seems like extending the discount window to 30 days should allow "borrowing lenders" to get to the next real drop of the funds rate without too much pain. If we really do get a 25-50 basis drop, then it seems a good idea to take that bet so you can 'hold it' till the next stop when people might not think it stinks quite so bad. It's not clear to me that it really makes the market clear any faster though, unless the banks have so much of 'it' on their books that they couldn't otherwise lend.
Couldn't the liquidity also make it easier for those nasty hedgers to keep playing their games? If you're big enough to push markets (and have the inside scoop), wouldn't you also have some access to the discount window?
Stag-Mark:
It seems like the spread on TIPS had been very tight over the last few years (like people thought there might be real inflation) relative to when they were first offered. I've also worried that manipulation of the CPI (undestating true inflation) would hurt effective returns.
I've invested that money in foriegn treasury funds, mostly european (some asian) to get the inflation hedge without being in a non-performing asset. If I had balls I guess I could buy Jap bond/yen futures, or puts on the lenders, but my wife took those away years ago.
"they made a killing on the backs of stupid people"
Must be a lot of borrowers commenting on this site.
joeblow,
It seems like the spread on TIPS had been very tight over the last few years (like people thought there might be real inflation) relative to when they were first offered. I've also worried that manipulation of the CPI (undestating true inflation) would hurt effective returns.
I thought there might be real inflation. I kept/keep bracing for it anyway, lol. I owned gold and silver from 2004 to 2006. I sold when the metals started turning parabolic and the shoes I buy at Costco hadn't so much risen by a nickel. They are STILL $14.99, just like always.
I'm not all that worried about the CPI understating inflation. I'm not in the camp that believes inflation in consumer prices is running anywhere near 8-10% right now (as some of the fear mongering sites would have me believe). Inflation in the things I spend money on is still relatively tame (and that's all that really matters to me). I track every penny. I'm therefore reasonably confident that if prices do rise substantially, we'll be seeing it in the CPI.
Warren Buffett gave the thumbs up on TIPS a few years ago, for those worried about inflation anyway. He of all people wouldn't have said it if he didn't see value there. Note the disclaimer though. He's stated that he's been overly concerned about inflation for decades, if not more. I read his shareholder letters from the 70s. It's enough to make nearly anyone fearful of inflation.
Heck, even Dick Cheney had a chunk of his money in a TIPS bond fund in 2006. Don't know if he still does. Clearly he's not worried about how the CPI is calculated.
Are Dick Cheney's Money Managers Betting on Bad News?
In my opinion, we have an irresistable force (inflationary printing press) meeting an immovable object (deflationary debt bubble). Now that's some serious "leverage". Anyone who thinks they know for sure how it will play out is probably trying to sell you something. There are a LOT of people betting on it though. Figures. I'd rather just avoid the casino entirely and avoid leverage as best I can. I believe that TIPS will do fine as long as we don't get hyperinflation (taxes would kill me each year if nothing else).
And lastly, if the 1970s are any indicator, if we do get serious inflation so too will the world. It probably won't be good enough to just have money parked in foreign bonds. They better have some sort of inflation protection more than likely (or at least be short-term in duration). If people lose faith in the US dollar big time, I doubt they'll actually gain faith in any other fiat currency.
And lastly, if we are planning on importing deflation for the next 100 years, this can't be a very good sign.
China inflation surges, but not yet a global peril
JPMorgan economist Grace Ng estimated that China's export prices, in doll
joeblo,
Apologies for typing your name wrong.
and blushing
Freud would be so proud of me today, lol.
I am afraid that the government is going to bail out the mortgage companies and banks involved in the housing market crisis. We the tax payers will pay for again like in the S&L crisis in the 1980's. The mortgage companies and banks knew what they were doing. They took risks on home buyers with little financial documentation and little or no money down. Then if the defaults increased significantly, they would bundled these very bad debts and sell them to financial hedge companies who then well sell them to investors with no knowledge about these risky, non-transparent investment vehicles.
The second plan is to have our respresentatives have the tax-payers bail them out. The mortgage companies and bankers took their cut and past the debt to investors and possible in the future to tax-payers.
If we the tax-payers bail out the mortgage companies and banks, then they know they can get away with it again in the future.