" Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
I wonder if there are any suspicious-looking folks standing outside C-Wide's branch offices waiting for people to come out with bulging duffel bags. Not a pretty thought.
Gee, I am so confused. Is this the same Countrywide that was UPGRADED today since they can "weather the storm?" Maybe they think a "run on the bank" means everyone is running to the bank to take out Option ARMS, Negative amortization loans, and other toxic waste.
How confusing it all is - I'd almost think that somebody was trying to lie to the public, but that can't be, right? Argh!
Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."
The part about Impac's CEO being harangued by his wife to pull out their savings is poetic (or is it poetic justice?). I can't believe he would speak to the Times, the reporter must have recognized him in line.
"Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
I think the elephant in the corner has to be the practice of booking neg-am and option-ARM monthly payments as if being fully amortized and current. When one of these blows up they'll have to back out all those imaginary payments from past quarters.
I just looked up the "Consolidated Deposit Information" on Countrywide Financial for 6/30/2007 using the FDIC website.
First time I'd ever looked at anything like that, kind of interesting.
They show 387,720 deposit accounts with a balance $100k. Do those 81,547 accounts account for the "uninsured" deposits? Or does that mean something else?
Doh! The angle brackets in my last post are missing. I meant to say:
They show 387,720 accounts with a balance less then 100,000, and 81,547 accounts with a balance greater then 100,000. Are the "uninsured deposits" from those 81,547 accounts, or something else?
They show 387,720 deposit accounts with a balance $100k. Do those 81,547 accounts account for the "uninsured" deposits? Or does that mean something else?
I believe that is an indication of the FDIC's potential liability.
" Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Remember this is important because CFC's plan was to merge their mortgages into the banking end so that they could get federal funding..
Now we have a run on banking deposits..
But CFC has basically obtained a 30 note from the fed now that they say they will take Sprime and other Mortgage backed securities as 30 day collateral
Every hour this apprears to just be a move to save the largest lender in the world..
But common folks in line to get their money from the banks, may end up killing them anyway..the irony vfor every dollar taken out in cash, means one less dollar liquid asset...
Surely I'm displaying an amazing naivete, but suppose Countrywide is staving off the bank run with Fed money to give to depositors who will--as our friend at IMPAC has just demonstrated--take it to other banks. How is Countrywide going to come up with the cash 30 days from now to redeem their collateral?
Or is the Fed going to end up 30 days from now the proud new owner of a quarter-trillion dollars of GSE mortgage debt? (And somebody better PLEASE tell me that's all they're taking.)
Or should I be paying more attention to the "renewable" clause in the press release?
Not all accounts over 100K are uninsured. If it is a joint account, the limits are higher. I found this out because I checked on my joint account with my wife this week. The FDIC has a tool you can use to check your accounts:
""Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Interestingly enough, that bit has disappeared from the original LA Times story, which has been heavily updated. Glad you caught it at another site.
Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."
Anonymous | 08.17.07 - 11:40 am | #
This guy was probably a Countrywide conduit as many of the mid to small tier lenders are. He saw the writing on the wall and blamed "his wife". Talk about using "cover"- and we thought only the FED did that, LOL.
I dont think the fed and CFC conceived of the run..
I think the fed had to give the morgtage backed paper as collateral and lower rates and give them 30 days to find the billions they need just to operate.
the run is just a run, ironically bad timing because i bet they lose more liquid today and tomorrow than theywere looking for from the 30 day notes (that it could get every day)
essentially 30-30 day notes starting today... and when its time for the fed to cut rates, their first note will be due..
and BSB will talk to the boys, and call Kramer and Kudlow and ask their opinion..
then realize everythings f'd and not lower rates or realize CFC could turn some crappy paper liquid and drop rates...
Yes, it's very possible to have a lot more than $100K in a bank and have it all FDIC-insured, especially if you're married; just a matter of whose name you put each account in, and of course joint accounts can be covered to $200K.
But not everything thinks to do all that, or can. And I think that the FDIC figures for Countrywide show just how many don't do that.
Dumb question: if CFC needs funds that badly (and I'm sure they do), is there really that much of a difference in using the discount window at 6.25 vs 5.75??
This guy was probably a Countrywide conduit as many of the mid to small tier lenders are. He saw the writing on the wall and blamed "his wife". Talk about using "cover"- and we thought only the FED did that, LOL
I hope he has a comfortable couch - he'll need it this weekend.
""Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
I doubt this matters. correct me if I'm wrong, but in the BIGGEST bailouts (such as Continental Illinois) the FDIC and/or the Fed covered ALL deposits, not just the FDIC insurable deposits.
OT: Russia to resume combat flights across the country. Putin continued. "Combat duty has begun."
Ah yes the Bush admin. has done a wonderful job setting up US for domestic internal strife, global economic warfare, geopolitic warfare, and restoration of cold war.
CFC raised their rates on savings accounts. Yesterday it listed 5.25% on accounts above $50,000, if I remember correctly. Today it is 5.35% on accounts above $10,000.
Is there any concern about conforming mortgages? I am curious if the full faith in GSE backed debt is misplaced.
Tanta, I don't know if this was posted on yet, but it seems like Paul Krugman of the NYT has picked up on your meme of a while ago on how do you do adjust a loan to do a workout for a borrower (as would have been done by banks in the past) when the loan has been sliced and diced into MBS and CDOs. He dislikes bailouts and recommends the old fashioned workouts, suggesting that federal intervention could be used to by the loan at a discount from the owner and arrange the workout with the borrower.
Meanwhile, its becoming clear that the mortgage problem is anything but contained. ... Many on Wall Street are clamoring for a bailout for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust it would be saving bad actors from the consequences of their misdeeds.
For it is becoming increasingly clear that the real-estate bubble of recent years, like the stock bubble of the late 1990s, both caused and was fed by widespread malfeasance."
...
"Yet our desire to avoid letting bad actors off the hook shouldnt prevent us from doing the right thing, both morally and in economic terms, for borrowers who were victims of the bubble."
...
"What we need at this point is a policy to deal with the consequences of the housing bust.
Consider a borrower who cant meet his or her mortgage payments and is facing foreclosure. In the past, ... the bank that made the loan would often have been willing to offer a workout, modifying the loans terms to make it affordable, because what the borrower was able to pay would be worth more to the bank than its incurring the costs of foreclosure and trying to resell the home. That would have been especially likely in the face of a depressed housing market.
Today, however, the ... mortgage was bundled with others and sold to investment banks, who in turn sliced and diced the claims to produce artificial assets that Moodys or Standard & Poors were willing to classify as AAA. And the result is that theres nobody to deal with.
This looks to me like a clear case for government intervention: theres a serious market failure, and fixing that failure could greatly help thousands, maybe hundreds of thousands, of Americans. The federal government shouldnt be providing bailouts, but it should be helping to arrange workouts. ...
The mechanics ... would need a lot of work, from lawyers as well as financial experts. My guess is that it would involve federal agencies buying mortgages not the securities conjured up from these mortgages, but the original loans at a steep discount, then renegotiating the terms. But
What's the old saying? The captain always abandons his ship first?
Outsider | 08.17.07 - 12:08 pm
What ever happened to the good old days when the captain went down with his ship.
The Tan Man will be in Davey Jones locker instead of heaven for what he's doing
at a steep discount, then renegotiating the terms. But Im happy to listen to better ideas.
The point, however, is that doing nothing isnt the only alternative to letting the parties who got us into this mess off the hook. Say no to bailouts but lets help borrowers work things out."
The terms of each of the credit agreements are substantially similar. Each requires the Company to maintain a Consolidated Net Worth (as defined in each agreement) of at least $7,680,000,000, restricts the ability of the Company and its subsidiaries to engage in certain mergers, acquisitions and asset sales, or to incur certain liens, and limits the amount of indebtedness that may be incurred by subsidiaries owning mortgage servicing rights to $100 million. In the event of a default under any of the credit agreements, the Company and its subsidiaries would be subject to additional restrictions, including an inability to pay dividends or make other distributions to its stockholders
Mortgage workouts would only help a very few, unless it included a reduction in pricinple. The fact that fixed rates were at historic lows and people got option arms anyway, means by definition a workout using a fixed rate solution is still unaffordable to someone in a house 5x their income, or to an investor who owns three houses that won't rent for half the mortgage.
The problem can only be fixed with a reduction in the price of homes and a reduction in the supply of homes.
Professor - the Fed said that the 30 day was renewable by borrower. There will be no call at the end of the 30 days.
MaxedOutMama | Homepage | 08.17.07 - 12:12 pm | #
Door number 3!
Which brings me to my next question: doesn't this effectively, if not legally, make the Fed the owners of these securities--since if CW doesn't have the money now, why do we expect them to do anything but roll over the debt indefinitely?
"Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Ouch. Folks, bank runs are no joke. Panic spreads fast. Due to the inflation we can all agree to, $100k isn't anything anymore. The FDIC limits need to be raised to $250k or so.
We want a correction to normalcy; not a true depression. I strongly believe the collapse of the banking system for the middle class makes part of the difference between a recession and depression.
Do I care about CFC? No. Spreading panic in the banking system? Yes. I've read too many books on the depression and the big lesson learned is that once the 3rd bank run gets going, they get progressively more expensive and disruptive to stop. So love or hate CFC, saving the bank system must be a priority. Note: I hope the FDIC hands them over to another bank for management.
Bloomberg-
"Policy makers dropped language indicating their bias toward fighting inflation, and instead highlighted a rising threat to economic growth."
Yep, it's a 30-day lifeline to Countrywide. What happens at the end of 30-days is potentially very interesting but that's a lifetime away at this point.
CR - I do NOT think the Fed will take any old rotten mortgage paper - it HAS TO BE triple-AAA rated, at least that's my best intelligence at the moment
Fed follownig standard operating procedure from W. Bagehot onward.
"In a crisis, the lender of last resort should lend freely, at a penalty rate, on good collateral."
So the Fed is doing part of what he prescribed. The questions that need to be asked are, "is the Fed only accepting good collateral?" and "Why reduce the penalty rate?"
Several people have suggested Fed only accepting GSE paper, which is good. But why the reduction in the penalty rate?
Professor, I think that is the point. The Fed is a non-economic player that can take non-economically based actions in this market, their goal isn't to make a profit, but to stabilize the system. I'd be curious if a similar behaviour by the Fed and FDIC/FSLDIC happened in the S&L crisis of the 80's before the RTC was set-up to liquidate the accumulated assets.
CR, last I checked I couldn't find anyone who remembered where the discount window was.
It's important to remember that Countrywide refuses to substantively reprice its reo inventory to reflect even a slow deflation of the housing bubble. Instead it adds to its housing inventory like its got VERY deep pockets.
And, it's important to remember that Countrywide chose to move its borrowing to the bank LONG BEFORE this fiasco. It should be an understood that it knows very well how to build enormous clout & how to leverage that clout.
I'm sure some interests beyond r.e. related ones have been squeezed & hurt, but this is playing out like a simple power play led by our deregulated money center monoliths to force the FED back into line - they make the rules, not the FED.
In a deregulated economy who cares about economic soundness, let's get out there & make some trade!
As far as I know, in the modern economic era the Gov't has always made depositors in FDIC-insured institutions whole regardless of amount (Bank of New England in 1991, Continental Illinois in 1984, etc), if that's the policy why not make it formal, public and official?
Would take the edge of rich people leading runs on the bank . . . .
revro - that depends on the country: 10% coinsurance is left at the discretion of national authorities according to EU law. And the 20,000 is only a minimum requirement. In some EU states it's much higher (over 100,000 in Italy IIRC).
To Robert Coté's point earlier about booking all the neg-am stuff as paid regularly...how long are they allowed to do this before they HAVE to reconcile their books?
Does it go on until the borrower goes belly up? Until all the borrowers go belly up?
I have an inkling of what the "yen carry trade" is about, but I'd like to know more. With such big moves in currency markets, especially the yen, perhaps the whole country is going to learn about this part of the world economy and how it is connected to the price of corn and whatever else.
FWIW as a data point (per Kevin Drum), during the repos last week, only GSE RMBS was accepted. I've no idea if the discount collateral is being done the same way.
The actual composition of the repos can be found at the NY FED web site.
Expansion of Collateral Accepted by FRBNY in Repurchase Transactions
The FOMC voted, at its August 24 meeting, to approve a temporary expansion of the securities eligible as collateral in the repurchase transactions undertaken by the FRBNY in the management of banking system reserves. The principal effect of this expansion will be the inclusion of pass-through mortgage securities of GNMA, FHLMC and FNMA, STRIP securities of the U.S. Treasury and "stripped" securities of other government agencies.
I believe this is still in effect (temporary, ha!) but some around here likely know better than I.
And, it's important to remember that Countrywide chose to move its borrowing to the bank LONG BEFORE this fiasco. It should be an understood that it knows very well how to build enormous clout & how to leverage that clout
Bailey and others correct me if i am wrong but i believe that CFC only announced their intent/plan was to move to banks, I do not believe they did that
i do not believe they did that because they did not have time...
they move to bank was to make access to window but now they can go to window with 30 recurring terms...
More Bagehot - probably the best summation you will read on what is happening:
"At first, incipient panic amounts to a kind of vague conversation: Is A. B. as good as he used to be? Has not C. D. lost money? and a thousand such questions. A hundred people are talked about, and a thousand think,'Am I talked about, or am I not?' Is my credit as good as it used to be, or is it less?' And every day, as a panic grows, this floating suspicion becomes both more intense and more diffused; it attacks more persons; and attacks them all more virulently than at first. All men of experience, therefore, try to strengthen themselves,' as it is called, in the early stage of a panic; they borrow money while they can; they come to their banker and offer bills for discount, which commonly they would not have offered for days or weeks to come. And if the merchant be a regular customer, a banker does not like to refuse, because if he does he will be said, or may be said, to be in want of money, and so may attract the panic to himself....Especially is this the case with what may be called the auxiliary dealers in credit. Under any system of banking there will always group themselves about the main bank or banks (in which is kept the reserve) a crowd of smaller money dealers, who watch the minutae of bills, look into special securities which busy bankers have not time for, and so gain a livelihood. As business grows, the number of such subsidiary persons augments. The various modes in which money may be lent have each their peculiarities, and persons who devote themselves to one only lend in that way more safely, and therefore more cheaply. In time of panic, these subordinate dealers in money will always come to the principal dealers....But in times of incipient panic, the minor money dealer always becomes alarmed. His credit is never very established or very wide; he always fears that he may be the person on whom current suspicion will fasten, and often he is so. Accordingly he asks the larged dealer for advances. And then the plain problem before the great dealers comes to beHow shall we best protect ourselves? No doubt the immediate advance to these second-class dealers is annoying, but may not the refusal of it even be dangerous? A panic grows by what it feeds on; if it devours these second-class men, shall we, the first class, be safe?'
A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them.
To Robert Coté's point earlier about booking all the neg-am stuff as paid regularly...how long are they allowed to do this before they HAVE to reconcile their books?
hence one of the reasons they ended up not going to bank...now they conrol the books still.
You people worry too much. So what if the Fed suddenly decides to run a payday lender operation out of the discount window? So what if the Fed announces they won't loosen unless there is a calamity, and then they loosen the next day, which happens to be option expiration day? So what if I've been withdrawing the max on my Wells Fargo ATM card every day this week?
Has anyone noticed that of the holders of CFC stock, the largest holder 42.6 % is "mutual funds" of which 1,561 holders with a value of almost 9 T dollars
"In west Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the ONE clerk who could help them."
Classic stuff, Cramer interviewing (praising) Mozillo. Mozillo explains that the other guys had a "bad business model". "End of the day, even though it's a little painful we are going to be in an extremely dominate position."
CFC just qualified for an "tricky option arm" loan from the fed.
The fed is the borrower of last resort.
When the levees broke, the fed threw money at it.
When CFC broke, the fed threw money at it.
The Fed is buying time.
Average Joe | 08.17.07 - 12:28 pm | #
Again, my naivete here, since I've never followed any such crisis closely, so I've not seen enough to know what happens. But what is the Fed going to do with this time that it has bought?
Is the Fed basically going to knock heads together to look for a cash-rich buyer for CWC? I.e. someone who will offer the shareholders $7.25 a share, and the Fed cash for redemption of the collateral?
Perhaps the other clerks were waiting on line? Another classic trick during bank runs - after the ONE clerk counts out the cash (slowly) and gives it to the employee, the employee exits, goes in through the back door and puts the cash back into the vault!
If this rate cut slows the unwinding of the carry trade by boosting us markets does this strengthe the Dollar against the Yen and Help out the Japanese markets as well? At least for the short term?
I'd really like to see the Cramer bit in a Jimmy Stewart voice.
"You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of his houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your house, did you? Do you think Potter would have let you keep it? Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains. Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other."
Yeah, it wouldn't exactly help matters if the Fed opened up the discount window, lowered the penalty rate, and then said, Oh, yeah, and we've decided to rescind all ratings today, so you can't use AAA rated securities for collateral unless you can prove that the underlying loans are GSE-eligible.
That'd be a long line at the teller window for sure. "Well, now, let me see . . . loan 8,467 has a 619 FICO . . . better haircut that . . ."
Dis - When the fed cuts rates to %1 a few years ago it did not cause hyper-inflation. And I believe Japan cut their cats to almost 0% without inflation.
I know that the conventional wisdom is that lower rates increases inflation. But there are a couple of examples in which this does not appear to be the case.
Professor, as I understand it the Fed's job is just to stabilize the situation, providing the cash that CFC needs to meet demands. If, after that, CFC is insolvent, the FDIC would then move to take over the bank, kick out the management, clean it up and make whole the depositors up to the $100k limit. It would then seek to sell CFC or the assets to another bank or qualified investor. The buyer would decide whether to run the restored CFC or merge it in with their own operations. I'm sure the other's here who know better will correct anything I missed.
Chris: I repeat, NONE of the depositors in Continental Illinois (bankruptcy Summer 1994) or Bank of New England (January 1991) lost a single PENNY regardless of size.
YOU ARE NOT ON YOUR OWN AND I think won't ever be on your own in an FDIC insured institution regardless of size - so why not make the unofficial policy official?
"Clarification of Collateral Tranches on Desk RP Operations
August 10, 2007
Typically, when the Desk arranges RPs it accepts propositions from dealers in three collateral tranches.
In the first tranche, dealers may pledge only Treasury securities.
In the second tranche, dealers have the option to pledge federal agency debt in addition to Treasury securities.
In the third tranche, dealers have the option to pledge mortgage-backed securities issued or fully guaranteed by federal agencies in addition to federal agency debt or Treasury securities.
From time to time, for operational simplicity, the Desk has arranged RPs just in the third tranche, under which dealers have the option to pledge either mortgage-backed securities issued or fully guaranteed by federal agencies, federal agency debt, or Treasury securities. "
This reminds me more of the Japan's bank run in the early 1990's than the U.S.'s bank run in the 1930's. Either way, history repeats itself once again.
Fed is now in the market exchanging paper for dollars. Fine.
But the banking accounting rules have changed. No longer can the balance sheet be smoothed for lingering defaults. Mark to market is the new rule giving us a better picture of the financial health of a bank.
So the Fed takes $100 worth of paper and gives a bank one hundred dollars and the term was, say for example, 364 days.
On the 364th day the Fed then says okay folks pony up the cash $100 (plus i) and we will deliver to you the paper. However for the past 364 days the value of the paper had decreased (sound familiar?) and the banks baulk at the idea of taking back paper that is worth less today, maybe by 30%, that it was on day one of the transaction.
But the Fed insists. So the banks take back the paper (now marked as an asset less 30%) and handover cash (which was an asset, and the interest was a liability). But since it gets marked to market, a loss appears.
How is this loss captured on the rest of the financials?
What are the customs for treating cash/paper as a depreciating asset?
OT - An interesting article from Bloomberg's Caroline Baum on Bernanke's study of the Great Depression, stating he'll probably concentrate on maintaining market liquidity over money supply and rates.
" Bernanke, for one, wasn't satisfied that the Friedman- Schwartz analysis -- with causation running from a contraction in the money supply to falling prices and output -- completely explained the financial sector-aggregate output connection,'' as he wrote in a 1983 paper for the National Bureau of Economic Research (Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression'').
Instead, he theorized that ``the financial crisis of 1930-33 affected the macroeconomy by reducing the quality of certain financial services, primarily credit intermediation.''
Translation: Many commercial banks, considered efficient at allocating credit (they have a knack for differentiating good'' frombad'' credits), failed. The ones that remained solvent wanted to hold liquid assets or, if they were willing to make loans, charged a higher rate of interest.
Then and Now
``It was reported that the extraordinary rate of default on residential mortgages forced banks and life insurance companies to 'practically stop making mortgage loans, except for renewals,''' Bernanke said, citing the work of the late economist A.G. Hart.
Sound familiar? The rate of default isn't extraordinary just yet, but the mortgage market is contracting in leaps and bounds, starting with originations and ending with securitizations. The tentacles of the home-loan market are starting to strangle portions of the debt, equity and even the normally staid money market.
Bernanke is fully sensitized to the collateral damage damaged collateral can cause. Over and over in speeches during his stint as Fed governor from 2002 to 2005, he returned to the subject of the Great Depression, detailing where the Fed went wrong and what the Fed could have done to ameliorate the problems of the banks (provide liquidity or lower interest rates).
Back to the Future?
``He is certainly attuned to how financial problems can spill over and affect the real economy,'' said Mark Gertler, a professor of economics at New York University, a frequent collaborator and personal friend of Bernanke's.
So far, Bernanke is making sure funds flow smoothly,'' he said.He's standing ready to adjust the funds rate if the stress is spilling over to the economy.'' "
...
"Some economists who have studied the Great Depression challenge Bernanke's premise that the credit squeeze played a role separate and distinct from that of money."
Professor Is the Fed basically going to knock heads together to look for a cash-rich buyer for CWC? I.e. someone who will offer the shareholders $7.25 a share, and the Fed cash for redemption of the collateral?
Countrywide does little lending that's subprime at this point, and many of their loans may be sold to Freddie. But regardless of whether the loans are sold to agency or another buyer, there is real value in its held loans, but value that is currently illiquid.
60-90 days will probably allow Countrywide to start originating mortgages under the bank, use the Federal Home Loan system perhaps for funds, and find buyers for loans that are really worth something. Okay, it may have to sell them at a discount compared to the value six weeks ago, but they are still worth a great deal of money.
I think the Fed is not going to get stuck. Remember that Freddie said it would buy Alt-A on August 15th. It will be picky about which ones, but it will buy them.
In order to get a reasonable price for its loans in this environment, Countrywide is going to have to undergo a careful due diligence review of them, and that takes time. This really is a liquidity issue rather than a solvency issue.
These systems were set up to address exactly these situations - panic. Such moves are meant to allow the market time to figure out what assets are worth and to settle. They prevent unreasonable devaluation of assets and turmoil.
Dumb question: if CFC needs funds that badly (and I'm sure they do), is there really that much of a difference in using the discount window at 6.25 vs 5.75??
As far as I know, in the modern economic era the Gov't has always made depositors in FDIC-insured institutions whole regardless of amount (Bank of New England in 1991, Continental Illinois in 1984, etc), if that's the policy why not make it formal, public and official?
It's possible for a couple to get up to 1.2 million in FDIC insurance in a single bank by structuring their accounts correctly. Setting up accounts as totten trust of POD can increase the insurance.
The simplest way to get up to 400K of insurance is for a couple to have a joint account with 200K, and a separate account for both husband and wife with 100K each (still need to pull out interest each month).
Bankers will sometimes imply that FDIC takes "ages" to pay out. Usually they tell you this when making vauge references to the stability of competing banks or to justify their crappy savings rates. But, FDIC pays out insured deposits usually the next business day. People with "complex" setups (trusts, etc) may take longer.
If you have more than 100k to put in cd's, etc, and are worried about deposit insurance, you can just open an account with Fidelity, etc and buy Tbills and short treasuries directly. Minimal fees, pretty much the same rate as a bank depo, totally liquid, and the least risky product a US investor can buy. Basic financial education really should be taught as a high school course.
Visited my local Pasadena branch. Sorry folks, not much to see. It was pretty orderly. There was one very old couple who I overheard was closing out their account. Nobody had pitch forks and torches.
Is there any publically accessible place that documents the daily usage of the Fed discount window, as there is for TOMOs? Do we mortals get to know that?
FDIC insured bank accounts are less risk than Fidelity T-Bills. There's always a chance that your broker can walk away with your securites. Of course the SIPC offers insurance against that, but the SIPC isn't the Fed.
Most retail investors are better off in FDIC insured accounts anyway. Zero risk and better rates than T-bills pay. It's the high net worth individuals and corporations that have balances in excess of FDIC that are bailing to treasuries in large numbers (and paying a steep penalty in interest for the security).
Not to get all conspiracy theory like, but I think CFC has carefully orchestrated its press releases and probably put out the bankruptcy rumor specifically to panic people so that the Fed felt the need to open the discount window. Images of a bank run are not good for economic sentiment.
Why would the LA Times know who Impac's President was and that he was at the bank branch at the time? Moreover, if he had a B of A account, why wasn't Ashmore just EFT'ing the money from home? Why was he telling the reporter how much money he had in his pocket?
CFC's crisis management team deserves big kudos for pulling this off.
What's scary is CFC has now said it's robbing Peter to pay Paul: "Countrywide said it planned to fund more mortgages through Countrywide Bank and have the bank invest in certain loans that Fannie Mae and Freddie Mac won't buy, such as 'jumbo' mortgages, which in California are defined as those over $417,000." If CFC can't get a bailout outright, it sure looks like they are setting themselves up for a statutorily required one.
Doesn't look like a rate cut will be much help to CFC if everyone is pulling out their money. The Fed will have to do better.
The Fed just needs to disperse the crowds in front of the banks. This has nothing to do with the ultimate fate of CFC.
Ashmore probably got a kick out of pulling cash out of a competitor. Who is to say HE didn't seek out the reporter?
This is all (well mostly) for show. No different from the actions which have brought us to this place. If the market were truly transparent then things would be different. Actually, there would have been a run on torches and pitchforks and bus tickets to Connecticut long ago.
I would bet a wooden nickel that they now wish they hadn't spent all the money they did on the "Rose Retreat" for employees at the Bellagio in Vegas, Baby! What a bunch of morons!
Once a bank fails employees of the FDIC charge their time (via payroll timesheets) to that bank and slowly deplete any remaining cash the bank might have. The FDIC often takes years to settle D&O litigation and other professional liability litigation. While this litigation is ongoing all of these legal costs both inside the FDIC and expensive outside attorneys and experts hired by the FDIC are charged to the failed bank's books. This depletes what is eventually paid out to depositors who received FDIC certificates instead of cash at the time of failure. When Superior Bank (Chicago area) failed in the summer of 1991 just before 9/11 I recall that a doctor or dentist lost a huge amount of uninsured money which got some local media attention. Eventually the owners of the bank - the Pritzker clan settled with the FDIC and depositors were paid more. I don't recall if they were paid in full but it can be researched in media reports and thru FDIC. The way FDIC pays insured deposits is unfair. Yes, bigger banks often get full deposit coverage while smaller banks almost never do. There is the rub.
No skill for linking to sources, but as I understand it, repos at the NY Fed (with only the 22 primary dealers) can be Treasury, Agency or Agency MBS only. No subprime, no corporate bonds, no commercial paper.
At the discount window (rate cut 50 bp there today), banks and thrifts can borrow with a much broader set of collateral, including corporate bonds, commercial paper, bank-qualified tax-exempt municipals, whole loans (not securitized), as well as everything the broker/dealers can do at the NY Fed TOMO (above).
Note that most people quoted in the LA Time story were just the lazy/stupid ones who had more than the FDIC limit at one bank.
It is suspicious that a V.P. at Impac mortgage got quoted, but maybe that's just the reporter recognizing the irony, particularly him driving a Porsche. Hope that car's paid for...
A Google search of "bank run" plus "Countrywide" in blogs for the past day returns over 50 hits. The same search run in Google News returns only two hits actually referring to the Friday run on Countrywide--and one of those claims it was "not quite a bank run." I guess that's like being "not quite pregnant."
Of course, we all know there's no propaganda machine in place that makes Orwell's 1984 look like an authorized history of the Boy Scouts.
I wonder if Angelo Mozilo was calming the panicked crowd like Jimmy Stewart?
Wow. What are the odds C-Wide is going to have all that money for the depositors, ahem, withdrawers? I think slim.
BANK RUN!
Ah, probably most of their depositors only have 50 dollars in their savings accounts. "Whatdya mean I can't buy a CD for $22.95?"
Do CFC banks have tanning booths in their lobbies?
The bank doesn't have any money, since we've foreclosed on your house, and your house, and your house...
Wow. What are the odds C-Wide is going to have all that money for the depositors, ahem, withdrawers? I think slim.
Ben's got plenty.
I just called the CFC banking 800 number...I got a busy signal...
I called again and was told that my wait time would be between 1 hr 26 mins and 2 hrs 10 mins from now!
From the LA Times article:
" Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Oboy.
I wonder if there are any suspicious-looking folks standing outside C-Wide's branch offices waiting for people to come out with bulging duffel bags. Not a pretty thought.
Gee, I am so confused. Is this the same Countrywide that was UPGRADED today since they can "weather the storm?" Maybe they think a "run on the bank" means everyone is running to the bank to take out Option ARMS, Negative amortization loans, and other toxic waste.
How confusing it all is - I'd almost think that somebody was trying to lie to the public, but that can't be, right? Argh!
A CFC run will make a pretty sight on national news tonight.
Takes one to know one
Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."
Bob Dobbs, do you have a link for that nugget?
The part about Impac's CEO being harangued by his wife to pull out their savings is poetic (or is it poetic justice?). I can't believe he would speak to the Times, the reporter must have recognized him in line.
So this is why the Fed cut the primary rate? To provide CFC with emergency funding to cope with a run on the bank? Is that possible?
And CFC already took down its credit facility yesterday.
I'll second that Oboy.
"Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Topic Galleries -- chicagotribune.com
I bet CFC is at the discount window, with subprime mortgages as collarteral, asking for some green stuff.
This reminds me of J.P. Morgan stopping a bank run 100 years ago.
Best to all.
I think the elephant in the corner has to be the practice of booking neg-am and option-ARM monthly payments as if being fully amortized and current. When one of these blows up they'll have to back out all those imaginary payments from past quarters.
Lets see Commerical Paper market is charging 12% for CFC (FMV) or FED at 5.75??
Which window would you choose.
I wonder if Bernanke just bought my mortgage for 30 days? Althought its not subprime or alt-a.
I just looked up the "Consolidated Deposit Information" on Countrywide Financial for 6/30/2007 using the FDIC website.
First time I'd ever looked at anything like that, kind of interesting.
They show 387,720 deposit accounts with a balance $100k. Do those 81,547 accounts account for the "uninsured" deposits? Or does that mean something else?
Cote, that is right on. Phantom profits on an Enron/Qwest/internet bubble scale have been booked.
Funny money every where even in their underwear.
Doh! The angle brackets in my last post are missing. I meant to say:
They show 387,720 accounts with a balance less then 100,000, and 81,547 accounts with a balance greater then 100,000. Are the "uninsured deposits" from those 81,547 accounts, or something else?
They show 387,720 deposit accounts with a balance $100k. Do those 81,547 accounts account for the "uninsured" deposits? Or does that mean something else?
I believe that is an indication of the FDIC's potential liability.
From the LA Times article:
" Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Remember this is important because CFC's plan was to merge their mortgages into the banking end so that they could get federal funding..
Now we have a run on banking deposits..
But CFC has basically obtained a 30 note from the fed now that they say they will take Sprime and other Mortgage backed securities as 30 day collateral
Every hour this apprears to just be a move to save the largest lender in the world..
But common folks in line to get their money from the banks, may end up killing them anyway..the irony vfor every dollar taken out in cash, means one less dollar liquid asset...
Surely I'm displaying an amazing naivete, but suppose Countrywide is staving off the bank run with Fed money to give to depositors who will--as our friend at IMPAC has just demonstrated--take it to other banks. How is Countrywide going to come up with the cash 30 days from now to redeem their collateral?
Or is the Fed going to end up 30 days from now the proud new owner of a quarter-trillion dollars of GSE mortgage debt? (And somebody better PLEASE tell me that's all they're taking.)
Or should I be paying more attention to the "renewable" clause in the press release?
gng -
Not all accounts over 100K are uninsured. If it is a joint account, the limits are higher. I found this out because I checked on my joint account with my wife this week. The FDIC has a tool you can use to check your accounts:
The deposit insurance calculator
Liv
""Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Interestingly enough, that bit has disappeared from the original LA Times story, which has been heavily updated. Glad you caught it at another site.
A rush to pull out cash -- latimes.com
WOW,
Takes one to know one
Bill Ashmore drove his Porsche Cayenne to Countrywide's Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.
"It's because of the fear of the bankruptcy," said Ashmore, president of Irvine's Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.
"It's got my wife totally freaked out," he said. "I just don't want to deal with it. I don't care about losing 90 days' interest, I don't care if it's FDIC-insured -- I just want it out."
Anonymous | 08.17.07 - 11:40 am | #
This guy was probably a Countrywide conduit as many of the mid to small tier lenders are. He saw the writing on the wall and blamed "his wife". Talk about using "cover"- and we thought only the FED did that, LOL.
professor,
IMHO FWIW,
I dont think the fed and CFC conceived of the run..
I think the fed had to give the morgtage backed paper as collateral and lower rates and give them 30 days to find the billions they need just to operate.
the run is just a run, ironically bad timing because i bet they lose more liquid today and tomorrow than theywere looking for from the 30 day notes (that it could get every day)
essentially 30-30 day notes starting today... and when its time for the fed to cut rates, their first note will be due..
and BSB will talk to the boys, and call Kramer and Kudlow and ask their opinion..
then realize everythings f'd and not lower rates or realize CFC could turn some crappy paper liquid and drop rates...
Lance McDude
Yes, it's very possible to have a lot more than $100K in a bank and have it all FDIC-insured, especially if you're married; just a matter of whose name you put each account in, and of course joint accounts can be covered to $200K.
But not everything thinks to do all that, or can. And I think that the FDIC figures for Countrywide show just how many don't do that.
I bet CFC is at the discount window, with subprime mortgages as collarteral, asking for some green stuff. - CR
Ya and all they got was money. What a bunch of buzz killers.
A bank run in 2007!! who would have thunk.
Dumb question: if CFC needs funds that badly (and I'm sure they do), is there really that much of a difference in using the discount window at 6.25 vs 5.75??
This guy was probably a Countrywide conduit as many of the mid to small tier lenders are. He saw the writing on the wall and blamed "his wife". Talk about using "cover"- and we thought only the FED did that, LOL
I hope he has a comfortable couch - he'll need it this weekend.
He can always sleep in the Porsche...
Mozilo can't get unload his stock options quick enough. He is exercising and selling as if there were no tomorrow.
I wonder how such ceo behaviors influence the employee morale...
Need a vid of any line ups on YouTube?
What's the old saying? The captain always abandons his ship first?
""Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
I doubt this matters. correct me if I'm wrong, but in the BIGGEST bailouts (such as Continental Illinois) the FDIC and/or the Fed covered ALL deposits, not just the FDIC insurable deposits.
it is pure BS.
Professor - the Fed said that the 30 day was renewable by borrower. There will be no call at the end of the 30 days.
OT: Russia to resume combat flights across the country. Putin continued. "Combat duty has begun."
Ah yes the Bush admin. has done a wonderful job setting up US for domestic internal strife, global economic warfare, geopolitic warfare, and restoration of cold war.
Heckuva job dumbass Bush and Darth Cheney !
This reminds me of J.P. Morgan stopping a bank run 100 years ago.
Now, when I write things like that, I get a bunch of wits wanting to know how old I really am.
Funny money every where even in their underwear
Semper ubi sub ubi.
This should be a working link to LA Times' article
A rush to pull out cash -- latimes.com
CFC raised their rates on savings accounts. Yesterday it listed 5.25% on accounts above $50,000, if I remember correctly. Today it is 5.35% on accounts above $10,000.
Is there any concern about conforming mortgages? I am curious if the full faith in GSE backed debt is misplaced.
OT..
Tanta, I don't know if this was posted on yet, but it seems like Paul Krugman of the NYT has picked up on your meme of a while ago on how do you do adjust a loan to do a workout for a borrower (as would have been done by banks in the past) when the loan has been sliced and diced into MBS and CDOs. He dislikes bailouts and recommends the old fashioned workouts, suggesting that federal intervention could be used to by the loan at a discount from the owner and arrange the workout with the borrower.
Economist's View: Paul Krugman: Workouts, Not Bailout
...
"And if historical relationships are any guide, home prices are still way too high. The housing slump will probably be with us for years, not months.
Meanwhile, its becoming clear that the mortgage problem is anything but contained. ... Many on Wall Street are clamoring for a bailout for Fannie Mae or the Federal Reserve or someone to step in and buy mortgage-backed securities from troubled hedge funds. But that would be like having the taxpayers bail out Enron or WorldCom when they went bust it would be saving bad actors from the consequences of their misdeeds.
For it is becoming increasingly clear that the real-estate bubble of recent years, like the stock bubble of the late 1990s, both caused and was fed by widespread malfeasance."
...
"Yet our desire to avoid letting bad actors off the hook shouldnt prevent us from doing the right thing, both morally and in economic terms, for borrowers who were victims of the bubble."
...
"What we need at this point is a policy to deal with the consequences of the housing bust.
Consider a borrower who cant meet his or her mortgage payments and is facing foreclosure. In the past, ... the bank that made the loan would often have been willing to offer a workout, modifying the loans terms to make it affordable, because what the borrower was able to pay would be worth more to the bank than its incurring the costs of foreclosure and trying to resell the home. That would have been especially likely in the face of a depressed housing market.
Today, however, the ... mortgage was bundled with others and sold to investment banks, who in turn sliced and diced the claims to produce artificial assets that Moodys or Standard & Poors were willing to classify as AAA. And the result is that theres nobody to deal with.
This looks to me like a clear case for government intervention: theres a serious market failure, and fixing that failure could greatly help thousands, maybe hundreds of thousands, of Americans. The federal government shouldnt be providing bailouts, but it should be helping to arrange workouts. ...
The mechanics ... would need a lot of work, from lawyers as well as financial experts. My guess is that it would involve federal agencies buying mortgages not the securities conjured up from these mortgages, but the original loans at a steep discount, then renegotiating the terms. But
What's the old saying? The captain always abandons his ship first?
Outsider | 08.17.07 - 12:08 pm
What ever happened to the good old days when the captain went down with his ship.
The Tan Man will be in Davey Jones locker instead of heaven for what he's doing
at a steep discount, then renegotiating the terms. But Im happy to listen to better ideas.
The point, however, is that doing nothing isnt the only alternative to letting the parties who got us into this mess off the hook. Say no to bailouts but lets help borrowers work things out."
Here's an insurance estimator for the NCUA in case you use a credit union. I just checked it myself.
NCUA: Electronic Share Insurance Calculator (E-SIC) – Online Version
MOM good catch on my comments to professor...
damn i glossed right over that..
so Professor the fed is indefinatly propping up CFC...that is unless the bank run kills them for sure..
Belay my last
My understanding is the Fed only allows GSE backed MBS in its repo operations. Is that still correct?
Comments were made about non-GSE being accepted and I am thinking that is either a joke or incorrect.
"Semper ubi sub ubi"
Reflections and Refractions From the Fragmented Cranium of a Physics Prof in Northeast Iowa
Semper Ubi Sub Ubi
"391 Visitors Online" - A new record?
Conditions of the 11.48 or 11.5 B. in Funding:
As per the 8k which was filed:
The terms of each of the credit agreements are substantially similar. Each requires the Company to maintain a Consolidated Net Worth (as defined in each agreement) of at least $7,680,000,000, restricts the ability of the Company and its subsidiaries to engage in certain mergers, acquisitions and asset sales, or to incur certain liens, and limits the amount of indebtedness that may be incurred by subsidiaries owning mortgage servicing rights to $100 million. In the event of a default under any of the credit agreements, the Company and its subsidiaries would be subject to additional restrictions, including an inability to pay dividends or make other distributions to its stockholders
Mortgage workouts would only help a very few, unless it included a reduction in pricinple. The fact that fixed rates were at historic lows and people got option arms anyway, means by definition a workout using a fixed rate solution is still unaffordable to someone in a house 5x their income, or to an investor who owns three houses that won't rent for half the mortgage.
The problem can only be fixed with a reduction in the price of homes and a reduction in the supply of homes.
Professor - the Fed said that the 30 day was renewable by borrower. There will be no call at the end of the 30 days.
MaxedOutMama | Homepage | 08.17.07 - 12:12 pm | #
Door number 3!
Which brings me to my next question: doesn't this effectively, if not legally, make the Fed the owners of these securities--since if CW doesn't have the money now, why do we expect them to do anything but roll over the debt indefinitely?
Erich Riesenberg
30 day can be backed with them yes
"Nearly 40% of the bank's $57.7 billion in deposits were not insured by the Federal Deposit Insurance Corp. as of March 31, according to the FDIC website."
Ouch. Folks, bank runs are no joke. Panic spreads fast. Due to the inflation we can all agree to, $100k isn't anything anymore. The FDIC limits need to be raised to $250k or so.
We want a correction to normalcy; not a true depression. I strongly believe the collapse of the banking system for the middle class makes part of the difference between a recession and depression.
Do I care about CFC? No. Spreading panic in the banking system? Yes. I've read too many books on the depression and the big lesson learned is that once the 3rd bank run gets going, they get progressively more expensive and disruptive to stop. So love or hate CFC, saving the bank system must be a priority. Note: I hope the FDIC hands them over to another bank for management.
Got popcorn?
Neil
Bloomberg-
"Policy makers dropped language indicating their bias toward fighting inflation, and instead highlighted a rising threat to economic growth."
Say it isn't so!
Yep, it's a 30-day lifeline to Countrywide. What happens at the end of 30-days is potentially very interesting but that's a lifetime away at this point.
CR - I do NOT think the Fed will take any old rotten mortgage paper - it HAS TO BE triple-AAA rated, at least that's my best intelligence at the moment
Think this is interesting ? Just wait 'till people start hitting WaMu in droves... Stay Tuned....
(Moving this from other thread)
Fed follownig standard operating procedure from W. Bagehot onward.
"In a crisis, the lender of last resort should lend freely, at a penalty rate, on good collateral."
So the Fed is doing part of what he prescribed. The questions that need to be asked are, "is the Fed only accepting good collateral?" and "Why reduce the penalty rate?"
Several people have suggested Fed only accepting GSE paper, which is good. But why the reduction in the penalty rate?
Neil, in europe we have only 90% from up to 20k euro, so having more than 22k euro is already risky
http://msnbcmedia1.msn.com/j/msnbc/Components/Photos/040203/040202_wonderful_hmed_630a.hmedium.jpg
"The money's not in a safe...it's in Joe's house...the Kennedy House and Mr. Macann's
house and a hundred others."
CFC just qualified for an "tricky option arm" loan from the fed.
The fed is the borrower of last resort.
When the levees broke, the fed threw money at it.
When CFC broke, the fed threw money at it.
The Fed is buying time.
anarchus is right, it has to be AAA subprime and Alt A..
now who will raise the rating...
well dang the begging was theis AM when CFC got upgraded...
jeez this is so apparently inside is indefensable to not say otherwise..
BSB needs to say CFC protection, not bailout,
CFC will need to start cutting operating expenses to pay back anything
Lance MC
Professor, I think that is the point. The Fed is a non-economic player that can take non-economically based actions in this market, their goal isn't to make a profit, but to stabilize the system. I'd be curious if a similar behaviour by the Fed and FDIC/FSLDIC happened in the S&L crisis of the 80's before the RTC was set-up to liquidate the accumulated assets.
CR, last I checked I couldn't find anyone who remembered where the discount window was.
It's important to remember that Countrywide refuses to substantively reprice its reo inventory to reflect even a slow deflation of the housing bubble. Instead it adds to its housing inventory like its got VERY deep pockets.
And, it's important to remember that Countrywide chose to move its borrowing to the bank LONG BEFORE this fiasco. It should be an understood that it knows very well how to build enormous clout & how to leverage that clout.
I'm sure some interests beyond r.e. related ones have been squeezed & hurt, but this is playing out like a simple power play led by our deregulated money center monoliths to force the FED back into line - they make the rules, not the FED.
In a deregulated economy who cares about economic soundness, let's get out there & make some trade!
RTC now thats a way back pull from the past....
Lance Mc
As far as I know, in the modern economic era the Gov't has always made depositors in FDIC-insured institutions whole regardless of amount (Bank of New England in 1991, Continental Illinois in 1984, etc), if that's the policy why not make it formal, public and official?
Would take the edge of rich people leading runs on the bank . . . .
BoA said CFC break-up value: $7.25 a share.
revro - that depends on the country: 10% coinsurance is left at the discretion of national authorities according to EU law. And the 20,000 is only a minimum requirement. In some EU states it's much higher (over 100,000 in Italy IIRC).
To Robert Coté's point earlier about booking all the neg-am stuff as paid regularly...how long are they allowed to do this before they HAVE to reconcile their books?
Does it go on until the borrower goes belly up? Until all the borrowers go belly up?
I have an inkling of what the "yen carry trade" is about, but I'd like to know more. With such big moves in currency markets, especially the yen, perhaps the whole country is going to learn about this part of the world economy and how it is connected to the price of corn and whatever else.
FWIW as a data point (per Kevin Drum), during the repos last week, only GSE RMBS was accepted. I've no idea if the discount collateral is being done the same way.
The actual composition of the repos can be found at the NY FED web site
.
Also, here is the Fed's 1999 statement on acceptable collateral, from which one reads:
I believe this is still in effect (temporary, ha!) but some around here likely know better than I.
And, it's important to remember that Countrywide chose to move its borrowing to the bank LONG BEFORE this fiasco. It should be an understood that it knows very well how to build enormous clout & how to leverage that clout
Bailey and others correct me if i am wrong but i believe that CFC only announced their intent/plan was to move to banks, I do not believe they did that
i do not believe they did that because they did not have time...
they move to bank was to make access to window but now they can go to window with 30 recurring terms...
no need to go to banks
Lance McD
Yal a question:
Is that before or after executive/managment comp?
More Bagehot - probably the best summation you will read on what is happening:
"At first, incipient panic amounts to a kind of vague conversation: Is A. B. as good as he used to be? Has not C. D. lost money? and a thousand such questions. A hundred people are talked about, and a thousand think,'Am I talked about, or am I not?' Is my credit as good as it used to be, or is it less?' And every day, as a panic grows, this floating suspicion becomes both more intense and more diffused; it attacks more persons; and attacks them all more virulently than at first. All men of experience, therefore, try to strengthen themselves,' as it is called, in the early stage of a panic; they borrow money while they can; they come to their banker and offer bills for discount, which commonly they would not have offered for days or weeks to come. And if the merchant be a regular customer, a banker does not like to refuse, because if he does he will be said, or may be said, to be in want of money, and so may attract the panic to himself....Especially is this the case with what may be called the auxiliary dealers in credit. Under any system of banking there will always group themselves about the main bank or banks (in which is kept the reserve) a crowd of smaller money dealers, who watch the minutae of bills, look into special securities which busy bankers have not time for, and so gain a livelihood. As business grows, the number of such subsidiary persons augments. The various modes in which money may be lent have each their peculiarities, and persons who devote themselves to one only lend in that way more safely, and therefore more cheaply. In time of panic, these subordinate dealers in money will always come to the principal dealers....But in times of incipient panic, the minor money dealer always becomes alarmed. His credit is never very established or very wide; he always fears that he may be the person on whom current suspicion will fasten, and often he is so. Accordingly he asks the larged dealer for advances. And then the plain problem before the great dealers comes to beHow shall we best protect ourselves? No doubt the immediate advance to these second-class dealers is annoying, but may not the refusal of it even be dangerous? A panic grows by what it feeds on; if it devours these second-class men, shall we, the first class, be safe?'
A panic, in a word, is a species of neuralgia, and according to the rules of science you must not starve it. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them.
LBux and Robert?
To Robert Coté's point earlier about booking all the neg-am stuff as paid regularly...how long are they allowed to do this before they HAVE to reconcile their books?
hence one of the reasons they ended up not going to bank...now they conrol the books still.
IMHO assuming previous comment is true
Lance McD
You people worry too much. So what if the Fed suddenly decides to run a payday lender operation out of the discount window? So what if the Fed announces they won't loosen unless there is a calamity, and then they loosen the next day, which happens to be option expiration day? So what if I've been withdrawing the max on my Wells Fargo ATM card every day this week?
All,
Has anyone noticed that of the holders of CFC stock, the largest holder 42.6 % is "mutual funds" of which 1,561 holders with a value of almost 9 T dollars
Lance McD
and here i thought people had no cash savings to withdraw.
CR said:
"I bet CFC is at the discount window, with subprime mortgages as collarteral (sic), asking for some green stuff.
This reminds me of J.P. Morgan stopping a bank run 100 years ago."
The Fed does not accept the above as collateral. Others have touched on this upthread.
Semper ubi sub ubi..
The phrase is nonsensical in Latin, but the English translation is a pun on "always wear underwear".
-- Hiding out
"In west Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the ONE clerk who could help them."
CR - I do NOT think the Fed will take any old rotten mortgage paper - it HAS TO BE triple-AAA rated...
HAHAHAHAHAHA!!!
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Rated triple A by whom?
HAHAHAHAHAHA!!!
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To gab's point - worth a pause of reflection:
Causes of the Stock Market Crash and Great Depression
Yes, Hiding, but you have to say it really fast so it sounds like "Semper ubi's a booby."
Never try to teach Latin to children. It just encourages them.
Yal-
Were the depositors paid entirely in singles or in change? Takes an awful long time for one person to count out $50,000 in singles.
Just as a thought experiment:
What would happen if the Fed should cut rates back down to 1%? Would that re-inflate the housing bubble?
Classic stuff, Cramer interviewing (praising) Mozillo. Mozillo explains that the other guys had a "bad business model". "End of the day, even though it's a little painful we are going to be in an extremely dominate position."
"What would happen if the Fed should cut rates back down to 1%? Would that re-inflate the housing bubble?"
Slices of toilet paper would be worth ... oohhh about 3 dollar bills.
CFC just qualified for an "tricky option arm" loan from the fed.
The fed is the borrower of last resort.
When the levees broke, the fed threw money at it.
When CFC broke, the fed threw money at it.
The Fed is buying time.
Average Joe | 08.17.07 - 12:28 pm | #
Again, my naivete here, since I've never followed any such crisis closely, so I've not seen enough to know what happens. But what is the Fed going to do with this time that it has bought?
Is the Fed basically going to knock heads together to look for a cash-rich buyer for CWC? I.e. someone who will offer the shareholders $7.25 a share, and the Fed cash for redemption of the collateral?
Yal-
Perhaps the other clerks were waiting on line? Another classic trick during bank runs - after the ONE clerk counts out the cash (slowly) and gives it to the employee, the employee exits, goes in through the back door and puts the cash back into the vault!
Hey, I got some AAA-rated bridges to sell at very reasonable prices!
If this rate cut slows the unwinding of the carry trade by boosting us markets does this strengthe the Dollar against the Yen and Help out the Japanese markets as well? At least for the short term?
I'd really like to see the Cramer bit in a Jimmy Stewart voice.
"You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of his houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your house, did you? Do you think Potter would have let you keep it? Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains. Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other."
gab, re: Subprime as collateral.
I believe the Fed can accept certain subprime mortgage as collateral at the discount window. Remember the
GSEs will buy some subprime loans too.
Quoting the WSJ:
"For example, banks may submit mortgage loans, including subprime loans that arent impaired, as collateral, and many probably will."
I might be wrong, but I think the Fed will accept some subprime mortgages.
Best to all.
FED will accept soon also frozen turkeys ...
Today is a manifastation of a new sub-prime issue:
Those banks that can borrow from the FED now have to pony up 5.75% at the discount window (albeit with less "prime" collateral).
Before (if they had good colaterls) they were doing REPOS at below 5.25% - This is virtually a rate hike!
Abelson defends Fed move as a restoration of Volker tradition:
Bernanke's Rate Cut Restores Volcker Tradition - Barrons.com
I think Abelson nails it.
Yeah, it wouldn't exactly help matters if the Fed opened up the discount window, lowered the penalty rate, and then said, Oh, yeah, and we've decided to rescind all ratings today, so you can't use AAA rated securities for collateral unless you can prove that the underlying loans are GSE-eligible.
That'd be a long line at the teller window for sure. "Well, now, let me see . . . loan 8,467 has a 619 FICO . . . better haircut that . . ."
Dis - When the fed cuts rates to %1 a few years ago it did not cause hyper-inflation. And I believe Japan cut their cats to almost 0% without inflation.
I know that the conventional wisdom is that lower rates increases inflation. But there are a couple of examples in which this does not appear to be the case.
Anarchus
The FDIC guarantee stops at 100 thousand. Above that and you are on your own.
Professor, as I understand it the Fed's job is just to stabilize the situation, providing the cash that CFC needs to meet demands. If, after that, CFC is insolvent, the FDIC would then move to take over the bank, kick out the management, clean it up and make whole the depositors up to the $100k limit. It would then seek to sell CFC or the assets to another bank or qualified investor. The buyer would decide whether to run the restored CFC or merge it in with their own operations. I'm sure the other's here who know better will correct anything I missed.
FED will accept soon also frozen turkeys ...
onemore | 08.17.07 - 12:56 pm | #
Maybe they can take that turkey Mozillo as colateral, he is already basted and browned.
Chris: I repeat, NONE of the depositors in Continental Illinois (bankruptcy Summer 1994) or Bank of New England (January 1991) lost a single PENNY regardless of size.
YOU ARE NOT ON YOUR OWN AND I think won't ever be on your own in an FDIC insured institution regardless of size - so why not make the unofficial policy official?
FED will accept soon also frozen turkeys ...
onemore | 08.17.07 - 12:56 pm | #
Maybe they can take that turkey Mozillo as colateral, he is already basted and browned.
Ministry of Truth | 08.17.07 - 1:04 pm | #
And stuffed.......with cash
LOL I completely forgot about the turkeys until you mentioned it!!
A great big LOL, here. Thanks!!
(Folks - it is a true story!!)
LOL
Do you think CFC can stay in business long enough for this?
Angelo Mozilo Unplugged - CNBC
If you are not getting the frozen turkey jokes . . .
Calculated Risk: A Story: Write Your Own Moral
Regarding the Fed acceptance of non GSE MBS, this is the official word I have found. Curious if it has changed or is different.
Clarification of Collateral Tranches on Desk RP Operations - Operating Policy - Federal Reserve Bank of New York
"Clarification of Collateral Tranches on Desk RP Operations
August 10, 2007
Typically, when the Desk arranges RPs it accepts propositions from dealers in three collateral tranches.
In the first tranche, dealers may pledge only Treasury securities.
In the second tranche, dealers have the option to pledge federal agency debt in addition to Treasury securities.
In the third tranche, dealers have the option to pledge mortgage-backed securities issued or fully guaranteed by federal agencies in addition to federal agency debt or Treasury securities.
From time to time, for operational simplicity, the Desk has arranged RPs just in the third tranche, under which dealers have the option to pledge either mortgage-backed securities issued or fully guaranteed by federal agencies, federal agency debt, or Treasury securities. "
Well of course the real word isn't sub ubi, but SUBLIGACULUM.
This reminds me more of the Japan's bank run in the early 1990's than the U.S.'s bank run in the 1930's. Either way, history repeats itself once again.
OT- Is anyone going to comment on First Magnus?
SUBLIGACULUM !!!!!
this is a family oriented site!!!!
Anyone hearing anything of value about CFC that we don't yet know ?
At somepoint, everyone that does biz with them need to decide if to extend to them even the smallest amount of credit.
Yal,
Mozillo can always lend it to them, he has almost $400 million in cash he has excercised.
I have an accounting question:
Fed is now in the market exchanging paper for dollars. Fine.
But the banking accounting rules have changed. No longer can the balance sheet be smoothed for lingering defaults. Mark to market is the new rule giving us a better picture of the financial health of a bank.
So the Fed takes $100 worth of paper and gives a bank one hundred dollars and the term was, say for example, 364 days.
On the 364th day the Fed then says okay folks pony up the cash $100 (plus i) and we will deliver to you the paper. However for the past 364 days the value of the paper had decreased (sound familiar?) and the banks baulk at the idea of taking back paper that is worth less today, maybe by 30%, that it was on day one of the transaction.
But the Fed insists. So the banks take back the paper (now marked as an asset less 30%) and handover cash (which was an asset, and the interest was a liability). But since it gets marked to market, a loss appears.
How is this loss captured on the rest of the financials?
What are the customs for treating cash/paper as a depreciating asset?
Forget CDOs! Now introducing Collateralized Frozen Turkeys (CFT)!
OT - An interesting article from Bloomberg's Caroline Baum on Bernanke's study of the Great Depression, stating he'll probably concentrate on maintaining market liquidity over money supply and rates.
Bernanke Sees Lesson in the Depression: Caroline Baum (Update1) - Bloomberg.com
" Bernanke, for one, wasn't satisfied that the Friedman- Schwartz analysis -- with causation running from a contraction in the money supply to falling prices and output -- completely explained the financial sector-aggregate output connection,'' as he wrote in a 1983 paper for the National Bureau of Economic Research (Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression'').
Instead, he theorized that ``the financial crisis of 1930-33 affected the macroeconomy by reducing the quality of certain financial services, primarily credit intermediation.''
Translation: Many commercial banks, considered efficient at allocating credit (they have a knack for differentiating good'' frombad'' credits), failed. The ones that remained solvent wanted to hold liquid assets or, if they were willing to make loans, charged a higher rate of interest.
Then and Now
``It was reported that the extraordinary rate of default on residential mortgages forced banks and life insurance companies to 'practically stop making mortgage loans, except for renewals,''' Bernanke said, citing the work of the late economist A.G. Hart.
Sound familiar? The rate of default isn't extraordinary just yet, but the mortgage market is contracting in leaps and bounds, starting with originations and ending with securitizations. The tentacles of the home-loan market are starting to strangle portions of the debt, equity and even the normally staid money market.
Bernanke is fully sensitized to the collateral damage damaged collateral can cause. Over and over in speeches during his stint as Fed governor from 2002 to 2005, he returned to the subject of the Great Depression, detailing where the Fed went wrong and what the Fed could have done to ameliorate the problems of the banks (provide liquidity or lower interest rates).
Back to the Future?
``He is certainly attuned to how financial problems can spill over and affect the real economy,'' said Mark Gertler, a professor of economics at New York University, a frequent collaborator and personal friend of Bernanke's.
So far, Bernanke is making sure funds flow smoothly,'' he said.He's standing ready to adjust the funds rate if the stress is spilling over to the economy.'' "
...
"Some economists who have studied the Great Depression challenge Bernanke's premise that the credit squeeze played a role separate and distinct from that of money."
Professor Is the Fed basically going to knock heads together to look for a cash-rich buyer for CWC? I.e. someone who will offer the shareholders $7.25 a share, and the Fed cash for redemption of the collateral?
Countrywide does little lending that's subprime at this point, and many of their loans may be sold to Freddie. But regardless of whether the loans are sold to agency or another buyer, there is real value in its held loans, but value that is currently illiquid.
60-90 days will probably allow Countrywide to start originating mortgages under the bank, use the Federal Home Loan system perhaps for funds, and find buyers for loans that are really worth something. Okay, it may have to sell them at a discount compared to the value six weeks ago, but they are still worth a great deal of money.
I think the Fed is not going to get stuck. Remember that Freddie said it would buy Alt-A on August 15th. It will be picky about which ones, but it will buy them.
In order to get a reasonable price for its loans in this environment, Countrywide is going to have to undergo a careful due diligence review of them, and that takes time. This really is a liquidity issue rather than a solvency issue.
These systems were set up to address exactly these situations - panic. Such moves are meant to allow the market time to figure out what assets are worth and to settle. They prevent unreasonable devaluation of assets and turmoil.
They will borrow many billions... Yes.
It appears that not too many Wall Street types have accounts at CountryWide Bank, since CFC is up 10%, for today anyway. Perhaps Sebastian is buying?
You're doing a heckava job, Bennie!
NOBODY could have predicted that the levee would break!
Coming next week: DEAN is coming to spank theather near you! You won't miss it!
As far as I know, in the modern economic era the Gov't has always made depositors in FDIC-insured institutions whole regardless of amount (Bank of New England in 1991, Continental Illinois in 1984, etc), if that's the policy why not make it formal, public and official?
Tell that to Raymond Przybilinski...
A lifetime of saving evaporates with bank's collapse Lawrenceville bank closes, one customer is short $321,573.
It's possible for a couple to get up to 1.2 million in FDIC insurance in a single bank by structuring their accounts correctly. Setting up accounts as totten trust of POD can increase the insurance.
The simplest way to get up to 400K of insurance is for a couple to have a joint account with 200K, and a separate account for both husband and wife with 100K each (still need to pull out interest each month).
Bankers will sometimes imply that FDIC takes "ages" to pay out. Usually they tell you this when making vauge references to the stability of competing banks or to justify their crappy savings rates. But, FDIC pays out insured deposits usually the next business day. People with "complex" setups (trusts, etc) may take longer.
Kicker:
I agree with you that the FDIC hasn't paid up all accounts for all bank failures.
however, for all major bank failures (e.g. Continental Illinois) EVERY account was paid... even the non-FDIC insured accounts.
Today most significant news:
Asset-Backed CP Yields Rise in Face of Fed Rate Cut (Update2) - Bloomberg.com
If you have more than 100k to put in cd's, etc, and are worried about deposit insurance, you can just open an account with Fidelity, etc and buy Tbills and short treasuries directly. Minimal fees, pretty much the same rate as a bank depo, totally liquid, and the least risky product a US investor can buy. Basic financial education really should be taught as a high school course.
Visited my local Pasadena branch. Sorry folks, not much to see. It was pretty orderly. There was one very old couple who I overheard was closing out their account. Nobody had pitch forks and torches.
Is there any publically accessible place that documents the daily usage of the Fed discount window, as there is for TOMOs? Do we mortals get to know that?
FDIC insured bank accounts are less risk than Fidelity T-Bills. There's always a chance that your broker can walk away with your securites.
Of course the SIPC offers insurance against that, but the SIPC isn't the Fed.
Most retail investors are better off in FDIC insured accounts anyway. Zero risk and better rates than T-bills pay. It's the high net worth individuals and corporations that have balances in excess of FDIC that are bailing to treasuries in large numbers (and paying a steep penalty in interest for the security).
Doesn't look like a rate cut will be much help to CFC if everyone is pulling out their money. The Fed will have to do better.
Not to get all conspiracy theory like, but I think CFC has carefully orchestrated its press releases and probably put out the bankruptcy rumor specifically to panic people so that the Fed felt the need to open the discount window. Images of a bank run are not good for economic sentiment.
Why would the LA Times know who Impac's President was and that he was at the bank branch at the time? Moreover, if he had a B of A account, why wasn't Ashmore just EFT'ing the money from home? Why was he telling the reporter how much money he had in his pocket?
CFC's crisis management team deserves big kudos for pulling this off.
What's scary is CFC has now said it's robbing Peter to pay Paul: "Countrywide said it planned to fund more mortgages through Countrywide Bank and have the bank invest in certain loans that Fannie Mae and Freddie Mac won't buy, such as 'jumbo' mortgages, which in California are defined as those over $417,000." If CFC can't get a bailout outright, it sure looks like they are setting themselves up for a statutorily required one.
ELS, sometimes there are things in life which are NOT orchastrated by a PR team. I know that's rare but it does occur.
The Fed just needs to disperse the crowds in front of the banks. This has nothing to do with the ultimate fate of CFC.
Ashmore probably got a kick out of pulling cash out of a competitor. Who is to say HE didn't seek out the reporter?
This is all (well mostly) for show. No different from the actions which have brought us to this place. If the market were truly transparent then things would be different. Actually, there would have been a run on torches and pitchforks and bus tickets to Connecticut long ago.
many years ago the Fed had a way to buy T-Bill directly - is this still exist ?
I think it was called "Treasury direct."
Yal, yes I am pretty sure you can use Treasury Direct to buy T-Bills directly (online).
I have only used it to buy I-Bonds, but I'm pretty sure it offers all types of Treasurys too.
I would bet a wooden nickel that they now wish they hadn't spent all the money they did on the "Rose Retreat" for employees at the Bellagio in Vegas, Baby! What a bunch of morons!
Once a bank fails employees of the FDIC charge their time (via payroll timesheets) to that bank and slowly deplete any remaining cash the bank might have. The FDIC often takes years to settle D&O litigation and other professional liability litigation. While this litigation is ongoing all of these legal costs both inside the FDIC and expensive outside attorneys and experts hired by the FDIC are charged to the failed bank's books. This depletes what is eventually paid out to depositors who received FDIC certificates instead of cash at the time of failure. When Superior Bank (Chicago area) failed in the summer of 1991 just before 9/11 I recall that a doctor or dentist lost a huge amount of uninsured money which got some local media attention. Eventually the owners of the bank - the Pritzker clan settled with the FDIC and depositors were paid more. I don't recall if they were paid in full but it can be researched in media reports and thru FDIC. The way FDIC pays insured deposits is unfair. Yes, bigger banks often get full deposit coverage while smaller banks almost never do. There is the rub.
Make that summer of 2001 for the failure of Superior Bank/Chicago.
I'm trying to watch Crazy Cramer and type.
"Semper ubi sub ubi"
Ha! Four years of Latin and that is all I remember. Well, almost. Quid tempore est?
Re: collateral for Fed borrowings:
No skill for linking to sources, but as I understand it, repos at the NY Fed (with only the 22 primary dealers) can be Treasury, Agency or Agency MBS only. No subprime, no corporate bonds, no commercial paper.
At the discount window (rate cut 50 bp there today), banks and thrifts can borrow with a much broader set of collateral, including corporate bonds, commercial paper, bank-qualified tax-exempt municipals, whole loans (not securitized), as well as everything the broker/dealers can do at the NY Fed TOMO (above).
Note that most people quoted in the LA Time story were just the lazy/stupid ones who had more than the FDIC limit at one bank.
It is suspicious that a V.P. at Impac mortgage got quoted, but maybe that's just the reporter recognizing the irony, particularly him driving a Porsche. Hope that car's paid for...
A Google search of "bank run" plus "Countrywide" in blogs for the past day returns over 50 hits. The same search run in Google News returns only two hits actually referring to the Friday run on Countrywide--and one of those claims it was "not quite a bank run." I guess that's like being "not quite pregnant."
Of course, we all know there's no propaganda machine in place that makes Orwell's 1984 look like an authorized history of the Boy Scouts.