This Amendment No. 4 (this Amendment) amends and supplements Item 4 in the Tender Offer Statement on Schedule TO, filed on June 19, 2007 (the Schedule TO) with the Securities and Exchange Commission by LSF5 Accredited Merger Co., Inc., a Delaware corporation (Purchaser) and LSF5 Accredited Investments, LLC, a Delaware limited liability company, as amended on July 3, 2007, July 17, 2007 and July 30, 2007.
Except as otherwise indicated in this Amendment, the information set forth in the Schedule TO remains unchanged. Capitalized terms used but not defined herein have the meanings ascribed to them in the Schedule TO.
Item 4. Terms of the Transaction
The information set forth in the section of the Offer to Purchase entitled Terms of the Offer is hereby amended and supplemented as follows:
On August 10, 2007, Lone Star informed the Chairman of the Special Committee of the Board of Directors of the Company that, in light of the drastic deterioration in the financial and operational condition of the Company, among other things, as of today, the Company would fail to satisfy the conditions to the closing of the tender offer. Accordingly, Purchaser does not expect to be accepting Shares tendered as of the end of the current offer period ending at 12:00 midnight, New York City time, on August 14, 2007.
cnbc just reported that the Ft is reporting that Citigroup had 500 mill in credit card losses in the last few weeks, but, i can find it. anybody else see this?
Average Joe, that is defintely what it sounds like - the deal is off.
bacon dreamz, exactly. These standards should have been tightened 3+ years ago - not months ago.
OT (special for readers of the comments): Goldman just lowered their estimate for the trough of housing starts to ... 1.1 million SAAR. That matches my forecast.
Why is everyone saying this is a liquidity crisis? The holders of the bad paper have bids, dont they? It's just that the bids are 40 cents on the dollar? If so it is just like spoiled rich kids throwing a fit, refusing to accept thier losses? Are there really no bids at any price?
They are hoping for an interest rate cut to keep the RE bubble at least partialy inflated to increase the vale of their collateral? Am I wrong on this?
The yen did not fall, the dollar fell. Conventional contrarian wisdom says that the carry trade is slowly reversing, causing the dollar to fall vs the yen, but the Bank of Japan keeps intervening to keep the value of the yen down. This keeps Japanese exports to the US competitive with Chinese goods.
I think you are right. The hedge funds long on RE are like the card player who has realizes he has a terrible hand, but refuses to fold until he has no other choice.
So basically, OFHEO is like a couple of clueless, easy going parents who discovered last year that the latch-key kids Junior plays with have been getting up to some shenanigans they don't approve of. They've tried the gentle reasoning bit and have just realized it didn't quite have the desired effect. So now they're finally getting around to saying, "I said 'no' and I meant 'no'. I don't care if 'everybody is doing it'. I want you in by nine, young man, and no excuses!"
"If the Fed is having trouble holding the current interest rate it would be harder to hold a lower one, not easier."
I believe you are missing the big picture, the market has in effect, seized up, this is deflationary.
Deflation has always been the primary concern, don't ever forget it. The Fed has continuously claimed vigilence in regard to the inflationary threat, they allowed the speculation to reach its current levels & allowed the leverage currently present in the system causing the inflation currently present. Why, because "deflation" is breathing down our necks, is already evident, and is a cancer.
The injection of liquidity was to make sure that markets operate smoothly and that the liquidity that is needed is available for productive activity.
This action was a very temporary fix, will likely be repeated, and yes, they will need to cut.
My opinion at this point is 2 50bps moves by the end of 2007.
So basically the scammers got to privatize the mortgage system into a giant ponzi, rake off the profits, and then watch the gubbermint fix the mess while they count their bonuses. Great system you have there. As always, I lose, whether I play or not.
And the kids had cleaned up their act a bit, for a year or so and now wants to start staying out again, so the parents say: "You still have to long way to go before you are mature enough to be out on your own"
"with investors in a near panic over rising defaults on mortgages, Countrywide has more immediate priorities. It must shore up its own finances and reassure investors that it has plenty of cash to survive the storm. The company's stock fell 2.8% Friday after it warned late Thursday that "unprecedented disruptions" in credit markets would have an "unknown" effect on its business. Countrywide's debt is trading at junk levels, despite investment-grade ratings."
"Countrywide and most other lenders count on selling the bulk of their loans. For years, big investors were happy to snap up bundles of home loans packaged into bonds. Now, investors are panicky over falling house prices and rising defaults, and they're refusing to buy many home loans. Even AAA-rated bonds backed by subprime loans to borrowers with poor credit are deeply out of favor. Such bonds are now trading for 91 cents on the dollar, down from 99 cents a month ago, according to an index that tracks them."
"By law, Fannie Mae and Freddie Mac are restricted to dealing with mortgages with loan amounts at or below their statutory loan purchase limit. The Fannie Mae and Freddie Mac loan purchase limit is increased annually on the basis of the October-to-October percent change in the average home price reported in the Federal Housing Finance Boards (FHFB) monthly survey of terms on conventional home mortgages. The loan limit ceiling is 50 percent higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands to account for higher home prices in these areas. In 2004, the Office of Federal Housing Enterprise Oversight (OFHEO) began calculating and announcing the annual loan limit adjustment to insure that any methodological changes in the FHFB index were incorporated in the ceiling adjustment."
So I'd have thought they can/have ask/ed OFHEO to raise the limit but apart from adminstering the formula annually, for anything more, they'd just point to the law and punt it back to Congress, no ?
NEW YORK, Aug 10 (Reuters) - Citigroup Inc has lost more than $500 million in "credit business" in recent weeks, the Financial Times said on its Web site on Friday, citing an unnamed person briefed on the situation.
The loss was largely in Citigroup's structured credit business, the newspaper said, and is in addition to potential losses from the bank's lending commitments related to leveraged buyouts.
New York-based Citigroup did not immediately return calls seeking comment. (Reporting by Jonathan Stempel)
Fed funds rate is 5.25 percent but a few years ago we moved to the Lombard system and the banks who borrow from the Fed at the discount window must pay 6.25% -- a full point above the fed funds rate.
Yen fluctuations could be western hedge funds covering their Yen shorts (ie, unwinding the trades) causing the Yen to strengthen.
Then the BOJ intervening to adjust the Yen downward...or Japanese retail traders using the temporary Yen strength to create some short-term carry trades of their own. See this interesting article. (mentioned here a day or two ago by a commenter)
sk, that is my understanding too - there has to be a change in the law ot change the conforming limit. I just wanted to be clear that there was no mention of the conforming limit here, because earlier this week we were discussing proposed changes to the conforming limit - and this rejection only regards changes in the portfolio cap.
Given that the Fed & ECB are having to go to such lengths just to defend the current FFR (and just for the weekend at that), can you imagine what kind of pumping it would take to push it down another 50bp as you suggest? That kind of intervention will not inspire confidence in the markets when reported.
p.s.: Reminds me of that Titanic scene wherein the engineer informs the captain that the ship is doomed; that no amount of pumping will keep the water from eventually overwhelming all the bulkheads.
It looks to me that credit market conditions are pushing for higher rates.
I am not advocating higher rates as they might have adverse effects on growth, but the ones we have are requiring quite a lot of effort to prevent from rising.
OT but,
"Every generation is the first to think that it is the first to discover the power of leverage."
Does anyone remember the post a while back that gave that quote? I can't help but think about all of my high flying B-school friends that have to be sitting around wondering how this could all happen. The multiple layers of leverage are a great idea right up until the point where it isn't. I just don't have any faith that my 30-something comrades who think they have the tiger by the tail have ANY idea about what a down market really looks like. The sad thing is that they will relly think that they are victims as opposed to the cause.
The holders of the bad paper have bids, dont they? It's just that the bids are 40 cents on the dollar?
No I don't think that is true. For lots of this stuff right now there is NO BID. Very few folks believe they will be rewarded for taking on those sorts of risks. good piece of shorethand for the credit markets is the new issue market. When nothing is happening on that front...
risk,
Potential? POTENTIAL?
To the rest of you jokers (and I say that with limited respect )
Does anyone else have a creepy feeling this was a "get us to the weekend so we can have some time" move by the Fed? I have no information to support this at all, but why do I think I'll be reading something bad in the NYT sunday?
I got the same feeling Banker... it was touched off by the late buying surge at the end of the day...just what was needed to give a small lift to the DJIA for the week. And then as usual, the disaster news starts trickling in. (eg. LEND)
You might be right, but the first two moves by the Fed while extremely unusual in magnitude and unusual, but not unprecedented, in taking MBS's were just the Fed doing ti's job. That is making sure the real rate is the target rate.
Now, the third move I hear is suspicious and moved the rate to 5.10%.
So, doing it's job= no eery feeling but suspicious about the scale.
Third move, apparently Fed not doing ti's job= what the hell is going on?
risk capital, I have to agree that the the SEC looking for losses with big banks is huge. I will not be surprised if a scandal like Enron show up sooner or later.
tj was saying that given the current credit market conditions, it would be extremely hard to have the rate 50bp lower even if that were to be desirable for other reasons.
Analysts at Merrill Lynch said Friday that the firm (Countrywide) has the financial strength and management talent to survive what's a difficult market.
"We think CFC has the financial strength and management acumen to succeed, and we think Monday's disclosure that it would buy retail branches from a small lender for pennies on the dollar suggests it is not overwhelmed by the secondary-market gymnastics that is wreaking havoc on weaker names," Merrill told clients. See related story.
In a filing Thursday with the Securities and Exchange Commission, Countrywide said that while it plans to retain more loans until investor demand improves, it warned that a prolonged period of poor conditions "could have an adverse impact" on future profits and its financial condition.
"Based on our review of the risk section [of the filing], the aftermarket move seems to be an overreaction and we would recommend investors to accumulate stock on share price weakness," Merrill wrote.
dis- that is not the way I took it, been reading his stuff for awhile, he is definitely in the deflationary camp, far more than myself, I believe we will have a scare, but, manageable, this time.
I am not inflationary or deflationary. I do think the housing troubles will be deflationary.
But the credit market troubles of the last few days have been about lending rates going above the targeted rates of the central banks and the Fed. The way to bring back down is to provide cash and lend at the targeted rate as much as it is needed.
Now, the third injection by the Fed was fishy as the rate was at the targeted rate. I am not sure what was this about.
Yeah, you might be reading something bad in the Times -- that will be 'balanced' by an article in the Real Estate section sending an implicit message that now is the best time to buy. Usually, it works out that the worse the news, the more the Real Estate section puffs itself up into a happy balloon of optimism.
P.S. Is Optimistic Joe still around? For no good reason, I have been craving a rockblog caption contest that goes a little like this:
Hey, O-Joe, whereya goin' with that ______ in your hand?
Published: August 11 2007 00:18 | Last updated: August 11 2007 00:18
Citigroup has lost more than $500m in credit business in recent weeks, making it one of the biggest casualties of the crisis, according to a person briefed on the situation.
The scale of the losses is not a serious problem for a company that earned more than $20bn last year and bankers believe some Wall Street rivals have lost more.
But it will be acutely embarrassing for Chuck Prince, chairman and chief executive, who has been widely criticised for saying last month that Citi was still dancing in the credit markets.
The losses will undermine his efforts to restore investor confidence in the worlds largest financial services company and revive its flagging share price.
They will also be a blow for Tom Maheras, head of Citigroups capital markets business, who recently told the Financial Times that its growth had caught up with rivals after three years of under-performance.
The losses were made largely in the structured credit business run by Michael Raynes, hired from Deutsche Bank in London last summer.
They are in addition to those Citi faces from lending commitments to leveraged buy-outs.
Mr Prince told the FT on July 10 that the lending party would end but there was so much liquidity at the time that it would not be disrupted by the turmoil in the US subprime mortgage market.
When the music stop, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing.
I think the 15th will be very interesting with the redemption period pening for the hedge funds.I wonder if the hedgies have staffed up to handle the mail,and also whether anyone will be lining up on the 14th to make sure they get in the door at 8:01 am on the 15th.I would sure consider paying someone to be there in person and get a receipt if i had any substantial sum invested in this garbage
"But the credit market troubles of the last few days have been about lending rates going above the targeted rates of the central banks and the Fed."
Ask yourself why this happened? If allowed to persist, what are the consequences? Knowing the economic backdrop at this time, will temp measures lead to the long-term desired result?
I do get the picture,I once had the pleasure of being fired by a harvard MBA because i refused to personally guarantee $30MM in recievables...but somehow i also have a vision of the TV camera panning down the line of well dressed retirees standing at the door of bare sterns while GW's speech assuring everyone that the markets are working,and real estate will have a soft landing comes out of the speakers...just a romantic at heart,I admit.
"Does anyone else have a creepy feeling this was a "get us to the weekend so we can have some time" move by the Fed? I have no information to support this at all, but why do I think I'll be reading something bad in the NYT sunday?
Banker | 08.10.07 - 8:36 pm | # "
With a three calendar day repo, you bet.
What's really scary is that we haven't even begun to realize significant RE valuation declines! Anyone with the capability to extrapolate economically is more concerned than in February. It's actually worse than I expected.
Dustdevil,
How's that elementary school education working out for you?
Pissed off because construction is slow perhaps?
Muhahahahahahahahahah
Just kidding. Thought I'd fire back from the dis you hit me with earlier.
I'm not saying the problems your talking about aren't the problem. I'm just saying these FED actions are to prevent systemic risk.
They are needed I believe cuz of the world of hurt the problems (mtg etc) have caused.
Thank you risk capital,I needed that.GW is shameful.I registered republican when i turned 18,and became an independent during the "frogman case" in the 80's...when the DOJ returned about $20MM to the cocaine importers because they were supporting the contras.the late gary webb wrote an excellent book that covers this,and there is always mccoys "politics of heroin in southeast asia" for those who are interested in how sausage is made.
Re: August 15 Deadline for Fourth Quarter Hedge Fund Redemptions.
I understand that Wednesday will be the deadline for many HF investors to request redemptions. However, is there any reason that the HFs actually have to take action on that day or any day in the near future because of redemption requests? Is it possible that they could hold their positions until October?
look at the 36 in door in the room in which you are sitting, imagine 9000 26 year-old hedgie-quasi-indexers going through it at the same time....
I think more than a few of those hedgies will be going out the window instead.
Maybe this is an ünternerd question, but what consists of a banks "reserves"? Big piles of cash? GSE backed mortgages? GSE backed MBSs? CDOs of mostly GSE backed MBSs with a little alt A spice?
I know that banks are taking their sweet time complying with Basel II and the Euros probably had their liquidity injection for this reason and I wat to look it up, but I'm thumbing this on my phone somewhere under the southern cross and don't have ready access to these interwebs all the time.
At this point whe I get back my first job is to start piling thru various county historical tax reciepts to see if there's a chance of default for any of my munis.
Don't know about bank reserves but do know about brokerage net capital. In the olden days illiquid non-public OTC securities were valued at zero for net capital computation purposes. Those days are now gone and risk management modeling is all the rage for the large IBs. Us old folks who did the computations by hand and eyeballed the underlying collateral are retired and the new kids rely on computer information provided by IBs. Blogged here weeks ago that the old SEC would have been inside Bear Stearns the minute the funds tanked; but Cox decided to "monitor" things.
dis had it pretty much right -- the Fed is tilting at windmills. How big will the repos need to be Monday? If the target rate goes to 5 or less next week, how much more will be necessary then? The knee-jerk reaction to lower rates may be positive, but may also be more than offset by the psychological impact on J6P of the necessarily huge open interventions.
Heck, the business update on the radio said something akin to "the Fed saved the banking system for the weekend". Not good.
p.s.: I'm not exclusively deflation/hyperinflation; I believe we'll see both -- KaPOOM! (iTulip)
the longer they play this temp game, the more they will have to cut, might surprise everyone (ie two 50 bps moves). Listening to various parties recent statements it should be soon.
That said, a little fear never hurt either, they are walking a fine line.
All due respect, is there really NO BID? Are the same people not bidding because they are also sellers of other similar securitues and holding? Is it some big conspiracy to freeze the market to get the Fed or Feds to cave to a bailout?
I'll put in a freakin, bid, 1 dollar per trillion of assets for all outstanding. Now there's a bid, the market is liquid again. Oh no one wants to sell? See, it's not that there is no liquidity, the crap is near worthless, and they don't want to go BK or even take losses.
I just had a bit of an realization about the whole Fed repo thing. Everyone's probably already had it, but here goes:
What the fed actually did wasn't unusual. What was unusual was the way the fed described what they did. Sort of like how if, instead of drinking a couple cups of coffee and going through blogs when I arrived at work in the morning, I instead sent out an email to all of my co-workers letting them know that I had survived my perilous morning commute and had safely arrived at the office to facilitate whatever it is I do.
So what was the point of publicizing the repo thingy so dramatically? Were they winking at the knowldgeable people (the CRs and Tantas of the world)? Were they trying to reassure the "ZOMG!!! I just lost money! DANGIT, IT MUST BE THE PPT AND THE MASONS!!" crowd? Were they trying to keep Joe Sixpack sedate?
Come on. Don't make me write pedantically, please? Many of these guys own lots of the same kinds of things and don't want any more. Period. Not interested, won't take your call if they know that's what you are talking about. Now if you are serious about your bid and are backing it with $100 million to take a position, we might have something to talk about.
I have seen this before. Picture this, a HY trading desk of maybe three traders and ten salespeople sitting around reading research reports, magaizines, taking the occasional phone call to listen to thew latest off-color joke making the rounds and watching the clock. Just nothing going on. It ain't pretty but it happens.
Banker,
Might be a good time to take that cash dividend. Between today's headlines and the proposed (John Edwards' 28%) and assumed (Hillary and Obama "raise to 20%" a.k.a. 28%) cap gains rates. I don't like the looks of those dice.
Just needling you.
"Picture this, a HY trading desk of maybe three traders and ten salespeople sitting around reading research reports, magazines, taking the occasional phone call to listen to thew latest off-color joke"
When I finished grad school I still thought I wanted to work in a bank so I spent a summer on the emerging market debt trading floor at Paribas. It was 1997. I think that describes most of my time there, except for the occasional shouts of FOCUS by the head trader when he realised he was about to lose his job. Oh, you left out the sales guys getting there shoes shined while they read the Post.
Banker - how is it fundamentally different from a stock that won't trade because there is a differene between the bid and ask with no market orders. Sellers won't take less than say $95, and the biggest bid is what $40 or $10 or my bid of 0.00000000000001?
Fundamental economics says the market may be imperfect, the seller can refuse to sell, and declare it's worth to be $90, but by definition the thing is worth $40 if that is all the market wants to pay.
If the seller wants to make the case for a $90 price, they are welcome to talk up their product.... but we all know the product is pure sh** at this point.
No theory of market economics guarantees that anyone can sell a bad or worthless product at a good price with plenty of interest. The market has looked at the product, decided it is worth much less than the seller is asking, and walked away. Now the seller is complaining the market is not working. T
The market is working and it has rationally valued these products. When you are selling a product which is composed of 'risk' there is no 'correct' current price except in retrospect. Risk is always subjective and can never be removed from any product.
I don't know how many different ways I can say it. What has happened is a buyers strike. It isn't that they want things 10 points cheaper. Thjey have hung out a gone fishing sign and left. They'll come back when they come back.
The big question is how does one mark things when the buyside isn't answering the phone?
Banker, the price is then zero. Accouting has never been so easy They are worth nothing. Take a total loss, or put a low ball ask out there at 2 cents on the dollar, maybe the market will take the price up to 5 cents on the dollar.
Banker,
In the "old" days all high risk loans were "portfolio". In other words they held it to maturity and collected Payments. They reported delinquencies on their reports but didn't "have to" go to the market and sell. This ended up probably being "safer" on the financial system- go figure as they thought the "new way" was better.
It's rare, but finally a game when the score is - bears 6 bulls 1. 4th inning and this one is going to be a wipeout. The fed may call the game or send in some ringers. They hate it when the bears are winning.
I don't know how far back you are going, but by the time I started in 1985 that wasn't true. Insurance companies were in the buy and hold biz because they had match funded liabilities they had recently sold. It actually wan't unusual for us to get a call from Met or TIAA or John Hancock saying "We need $100 million of a seven year, non-call life at 175 over," and we'd make outgoing calls to relationship bankers to try to get someone to issue.
But even in those days many/most buyers were trying to buy a 10% bond in a company that was likely to improve its credit to a 9% risk, sell the bond at 105 (or whatever), realize a 13% return (or whatever), outperform their peers, get more assets under management, earn more fees etc.
M-F,
That is the logical, though obviously foolish, conclusion isn't it? The problem is that when the market is disrupted, very weird things happen. Like in 1989-1990, immediately post-Drexel pre-return of the market you had rapidly growing cable TV companies whose bonds were trading in the 50's, actually trading there. At the same time the publically traded equities of these companies reflected a value in the billions. Now how was that possible? Only because the junk market was disrupted. Leon Black figured out that those bonds had great intrinsic value, raped the RTC knuckleheads and made billions.
There is no bid because the potential bidders don't have any money. Their portfolios have been marked down and if not already facing margin calls they're worried about them and are not going to add any more leverage. To say nothing of needing to build cash for redemptions.
Agreed slowmo, that is another option. Maybe with time you can remove some risk ad prove these things to be worth 60 cents on the dollar.
If you can't hold your position, then what were you thinking getting yourself into that position? That is why the market cheerfully provides BK laws. Any time you are selling 'risk' as a major component of your product you have to expect that the market is not going to act the way YOU think it ought to act.
There is still someone out there putting their money in a safe or mattress instead of an FDIC insured account. (And today who's to say they are wrong LOL) Too much risk avoidance will likely not produce optimal results, but when it comes to risk there is no 'correct' appetite. The market is what it is, and the market is working, it's the sellers that won't accept the markets low low prices.
Question: How does an electronics store offer 18 months no payments? Do they actually hold the debt or is it sold to investors? Oh and by the way, who the hell buys all of these $3000-5000 plasma TVs?
Stores that finance their inventory are paying the same if it sits on the shelf or in your house. Especially with electronics, they have to keep fresh product on the self or mark down prices more than the cost of 18 months of financing.
Plasmas have realy come down though Was in BJs the other day and 42 plasma is now $999, I think 2 years ago they were still 1799 or 1999 for a 42. Probably made in China.
I can see you boiling something on the stove while you reach up and re-affix a BBB- CDO to the wall you have papered. Just like the old movie of the German woman with her weimar currency.
My take on this action is that we're at the terminal end of the crack up boom.
Essentially the Fed has loaned at mark to model caish to the wounded holders of Shite so they can make payments. You know to keep markets from completely seizing. A can't pay B so B can't pay C....etc. Systemic seize up. LTCM writ LARGE IMHO.
Collender is well wrapped in LEAD foil, and bunker is stocked. Heading into it Sunday night after, perhaps, one more beautiful August Sunday in socal.
Good post from over at the big picture in the comments...left the tag line.
Spikes in the Fed Funds rate (FFR%) come when there are specific banks that are in
an overdraft situation in the interbank
clearinghouse system and are forced to
borrow from banks with surplus funds. This
problem results from late payments and/or
defaults from bank clients. There can be
systemwide overdrafts as occured in 1982
when many of the old LDC and OPEC blocs
defaulted on the old CHIP system. The Fed
then added reserves and directed major US
banks to put up funds since overdrafts cannot be carried overnight. I imagine there
could be worldwide fund redemptions and
some liquidations which could be straining
the banking system, forcing the central bankers to pony up enough in reserves to
cover all the overdrafts and keep individual
banks from dumping investments and/or calling in loans. These large reserve
injections by central banks are temporary
and stop gap and cannot be made routine.
The size of the pot created thus far
suggests to me that the central banks need
to come forth and spell out clearly the
difficulties the banking system is
experiencing and further to say precisely
what can be done about it.
The problems are centered in the financial
services area around structured debt and
hedge positions that cannot be unwound in
an orderly fashion because the low quality
assets involved are receiving no bids.
Investors who have money in a variety of
funds that use leverage especially do not
know the real net asset values of their
investments in troubled funds.
If confidence is not soon restored via
other investors who see value in deeply
oversold assts, central bankers and
country regulators will have to decide
whether to provide long term financial
facilities that accumulate the very
distressed assets and restructure them over time.
The best thing now is for Bernanke, Trichet
et al to come public and discuss what they
are facing in terms as specific as possible,
and to make a case for whether market
forces can successfully carry the day and/
or whether new protective facilities will be needed.
Hey, weekend is here. Time to inject some serious liquidity into your system - in the form of Bass Ale, Guinness Draught, or strawberry daiquiris, if that's the way you swing.
I have gng's question after looking through some of the data at this nice Fed link CR posted. "Fairly ordinary" doesn't do the action justice. Downright pedestrian in every way, except for the exclusive MBS focus. Did you know that nearly every Thursday in 2006, at least till Thanksgiving, saw two operations, one of which was usually for $70b or $80b with a 14-day term?
The authorities can ratchet up the action way way beyond what they have so far done. So far they are just lending over the weekend.
Probably the debt will have to be entirely purchased by the CB's. But so what? Back in 2001 they made the decision to reinflate and they are happy with the outcome.
I have kept quiet about your writing for some time - but just the fact that some of us are now bears does not mean that we have to take your permabears anti-captilasit BS any more.
Yes captialsm - the unresponsible branch of practiced now - has problems but communism is even worse and when comunist start using foul mouth i guess we don't have to take any more.
I must say when insider sales/purchases topped 70/1 last year, I drew very different conclusions. More statistics which are not understood by the layman?
Yeah, leave dotcommunist alone - Banker wasn't exactly innocent in the matter ( smiley or no smiey ).
This arrogance and contempt for the fellow man that is not part of your 'chosen' class is as common amongst conviction capitalists as it is amongst commies. The common thread that binds them is their revolutionary ardor. One side says "running dogs of capitalism" and "revolutions are not tea parties", the other says....I'll skip the quotes as the quotes I can
come up with come from Europe in the '30s and mentioning them usually inflames things even more rather than informs.
In the early nineties Citibank refused to market their Latin American loan book to "market". They fed their sovereign clients fresh loans so the clients could pay interest on the old loans. For a while it worked. Then the market began to do its own assessment. Not book, so how much of a haircut? 10%? 20%? Eventually it got down, if I remember correctly, to half of book, at which time that Saudi Prince came in to keep them afloat.
The moral: when you don't give the market information, it eventually assumes the worst possible outcome will happen. This market is taking a little longer, but it will get there.
" Question: How does an electronics store offer 18 months no payments? Do they actually hold the debt or is it sold to investors?"
There are not that many that actually hold the debt, most are financed by third party finance companies. The retailer eats the cost of the financing upfront, but, receives the balance right away, the cost could be as little as 1% and as high as 9% depending on the offer, ie 90 days or 36 to 48 months interest free financing (large purchases like furniture). Some companies will actually have multiple finance companies available to address various levels of credit quality with a change of terms as the credit quality deteriorates.
No better eptitath for Gaussian (bell curve) models:
"Wednesday is the type of day people will remember in quant-land for a very long time," said Mr. Rothman, a University of Chicago Ph.D. who ran a quantitative fund before joining Lehman Brothers. "Events that models only predicted would happen once in 10,000 years happened every day for three days."
Paper from Dean Baker on housing market, forecasting recession to 'severe' recession, and complete with very interesting tables (on p. 5-6) about how much more the media quoted mkt bulls than bears in the housing runup:
So, basically, this whole repo thing is sound and fury signifying nothing? My guess is, then, that the Fed wanted to look like it was doing something and publicized a pedestrian move.
Why did the Fed have to intervene this way, by liquifying MBS? Normally the Home Loan Banks liquify MBS for their members, via Advances. Did the Fed need to liquify the portfolio of some big buy who doesn't belong to a Home Loan Bank, or are the FHLBs becoming afraid to touch this stuff without big haircuts?
REBear: "Come Wednesday, european banks may have to cough up 350B euros?"
Yes.
Just that the 290 billions are the routine main refinancing operation.
Also, the initial emergency 90 billion, as it was with a one-day maturity, has already disappered (to the best of my understanding).
The 60 billion of the 3-day operation due on monday will be the interesting thing. We'll see whether that amount can be drained smoothly, or whether it will push up rates once more.
No, dotcommunist ia an A-hole, many of his comments drip with the arrogance of his false pseudo-intellectual superiority complex.
I would suggest he re-locate to a Worker's Paradise like North Korea or Cuba where he can gather with like-minded individuals to eat lawn grass and drink sewage water.
I have been reading this blog for a while, Banker and others actually make a contribution and help to enlighten people. dotcommunist, not so much.
the arrogance of his false pseudo-intellectual superiority complex.
I believe you've mistaken me for the Ponzi architect cheerleader capitalist faction. You know, the thieves who dismiss any evidence that the capitalist model is a hollow shell, built to reward the financiers and money pushers more than the producers and workers.
What is the most irritating from you capitalist defenders is that most of you know nothing of Lenin or Marx or Rosa Luxemburg, as you have been brainwashed by the American propaganda machine. At the same time that you ridicule the former attempted communist countries as having only dictatorial media control, you ignore that exact flaw in your own societies (American or Euro or Australian).
You deserve sand in your ointment.
As for banker, he started the disrespect game with me months ago. I guess my responding in kind is unacceptable to you hypocrites, eh?
Take your damn medicine. And you better get used to it, cause this mess is only going to make you take more and more for a long while to come. (and I don't mean from me, but from the disillusioned masses that are only now waking up from their hypnosis)
Investment bankers are the source of all the problems.
Yal: I have kept quiet about your writing for some time
Yes, you kept quiet after you shilled Ken Fisher's BS and I explained very succinctly why it was shill BS. I can understand that you're a little upset about my spoiling your ulterior motive.
Actually, the point was that you would do well not to indulge yourself in the vacuous supposition that you are the only one to have leafed through the pages of political history. But tell you what, Dotty: should I find myself with world enough and time to address the fatuities of Marxist ideology, I'll look you up over on democraticunderground.
I haven't mistaken you for anything. You are what you are, a nasty, small-minded person who has to belittle others who don't agree with you in the nastiest, most personal insult kind of way. To me you seem like an 8 year old trying to debate with adults.
I care not what your personal or philosophical beliefs are, it is the sneering personal attack manner in which you express them that gets me annoyed.
I am no defender of capitalism. I just don't see how other forms of societal organization have done any better, and almost all have done far worse, like Communism. That doesn't make me anything except a contrarian, I am the last person to buy anything the MSM says, and I hate GWB.
Ask all the people who were killed by authoritarian Communist leaders like say, Stalin, if they think it is the highest and best form of government. As someone who has lost several family members to Eastern European post WWII Communist oppression, I find your views offensive and naive in the extreme.
Banker has provide many insights with his insider knowledge. You have not contributed anything I would call meaningful or that has enriched the debate. Some of your comments are humorous, that's about it. If you feel you have to insult him because of something he said months ago (!?), that just proves my case. Maybe I missed his personal attack on you, I don't always get to every post here, but at some point, just forgive and forget.
As IB said above, you crossed the line with your comment above, but I have been thinking along these lines for a while. You remind me of the lefty professors I have had, who could not walk upright because of their philosophical tilt.
Go start your own blog, so we don't have to read your comments anymore. You detract from the experience here in a big way.
END OF RANT. I am not going to waste anymore perfectly good electrons debating this with you.
Marx was a supporter of what he termed "Revolutionary Terror". Sounds a bit Taliban-esqe if you ask me. Additionaly atheism is part of the foundation of Marxism and therefore unpalatable for 98% of the world, be they Christians, Jews, Muslim, Buddhist, Jain's, Hindu's, etc. Let's leave Marx out of an economics blog, shall we. Talking about Marx belongs on the my-father-beat-me-and-my-mother-drinks-too-much-angry-hatred-anarchists blog. Pop a Prozac and relax... wealth transfer in prrrrrrrogress. Should benefit many on this blog!!!
Poor sod. so he wrote Das Kapital Vol1, 2, 3 - Theories of Surplus Value, vols 1, 2, 3, 4?(I'm too lazy to go to the basement to check); his exchange value, use value theories all for nothing ?
Actually, I'm half-kidding. I agree his theories of political economy are so 1860s, but if his theories don't deserve a mention in an economics blog, then where, apart from being mentioned on Cramer's Mad Money???? no don't answer that
You're too smart to bother with Marx. Just because he wrote some books and garnered some unwarranted attention doesn't mean we should continue talking about him. I'm sure you'd agree that Efficient Market Theory is a bunch of crap (the WHOLE point of this blog basically) and yet some very "esteemed" individuals are still teaching it as fact as the venerable U of Chicago down the road from me. Both belong in the garbage next to Cramer's picks.
Gamma - RE: Marxist Economic Theory into the garbage.
Heyyy - that's a hit ! that's exactly the phrase I was hinting at - In a different context that's what Trotsky told the Mensheviks to do - " go where you belong - to the dustbins /( USSR idiom - "ash heaps") of history" when they split off from the Bolsheviks a few months before the October 17 revolution.
It's been a while since I read Marx, but couldn't his theories on class struggle pretty much worked out and wouldn't employees owning shares of the companies they workforce a step towards the proletariat controlling the means of production alongside the capitalists(the current maladminstration taking us back to the 1890s aside?)
first- I hope!
But but....who is going to bail out the morgage market???
LEND is down over 50% in afterhours on rumor that Lonestar won't be buying them. Anyone have the official news?
Average Joe, from an SEC filing:
This Amendment No. 4 (this Amendment) amends and supplements Item 4 in the Tender Offer Statement on Schedule TO, filed on June 19, 2007 (the Schedule TO) with the Securities and Exchange Commission by LSF5 Accredited Merger Co., Inc., a Delaware corporation (Purchaser) and LSF5 Accredited Investments, LLC, a Delaware limited liability company, as amended on July 3, 2007, July 17, 2007 and July 30, 2007.
Except as otherwise indicated in this Amendment, the information set forth in the Schedule TO remains unchanged. Capitalized terms used but not defined herein have the meanings ascribed to them in the Schedule TO.
Item 4. Terms of the Transaction
The information set forth in the section of the Offer to Purchase entitled Terms of the Offer is hereby amended and supplemented as follows:
On August 10, 2007, Lone Star informed the Chairman of the Special Committee of the Board of Directors of the Company that, in light of the drastic deterioration in the financial and operational condition of the Company, among other things, as of today, the Company would fail to satisfy the conditions to the closing of the tender offer. Accordingly, Purchaser does not expect to be accepting Shares tendered as of the end of the current offer period ending at 12:00 midnight, New York City time, on August 14, 2007.
BTW, I was told Cramer recommended LEND today.
Best to all.
good work OFHEO, u've been recommending tightened underwriting standards for MONTHS? way to get on top of it early.
Good find CR.
Expected nothing less though.
Do you agree that it means the deal is off?
cnbc just reported that the Ft is reporting that Citigroup had 500 mill in credit card losses in the last few weeks, but, i can find it. anybody else see this?
Average Joe, that is defintely what it sounds like - the deal is off.
bacon dreamz, exactly. These standards should have been tightened 3+ years ago - not months ago.
OT (special for readers of the comments): Goldman just lowered their estimate for the trough of housing starts to ... 1.1 million SAAR. That matches my forecast.
Best to all.
slightly OT:
did anyone notice that the yen fell off a cliff?
USDJPY=X: Summary for USD/JPY- Yahoo! Finance
any insights?
that pattern has come up in previous days (take a look at the 5 day chart.) It often reverses first thing the next day. A bit odd I'd say.
Thanks CR,
Cramer knows how to get attention if nothing else.
Why is everyone saying this is a liquidity crisis? The holders of the bad paper have bids, dont they? It's just that the bids are 40 cents on the dollar? If so it is just like spoiled rich kids throwing a fit, refusing to accept thier losses? Are there really no bids at any price?
They are hoping for an interest rate cut to keep the RE bubble at least partialy inflated to increase the vale of their collateral? Am I wrong on this?
johnnym,
The yen did not fall, the dollar fell. Conventional contrarian wisdom says that the carry trade is slowly reversing, causing the dollar to fall vs the yen, but the Bank of Japan keeps intervening to keep the value of the yen down. This keeps Japanese exports to the US competitive with Chinese goods.
M-F,
I think you are right. The hedge funds long on RE are like the card player who has realizes he has a terrible hand, but refuses to fold until he has no other choice.
So basically, OFHEO is like a couple of clueless, easy going parents who discovered last year that the latch-key kids Junior plays with have been getting up to some shenanigans they don't approve of. They've tried the gentle reasoning bit and have just realized it didn't quite have the desired effect. So now they're finally getting around to saying, "I said 'no' and I meant 'no'. I don't care if 'everybody is doing it'. I want you in by nine, young man, and no excuses!"
Is that a fair characterization?
dis-
"If the Fed is having trouble holding the current interest rate it would be harder to hold a lower one, not easier."
I believe you are missing the big picture, the market has in effect, seized up, this is deflationary.
Deflation has always been the primary concern, don't ever forget it. The Fed has continuously claimed vigilence in regard to the inflationary threat, they allowed the speculation to reach its current levels & allowed the leverage currently present in the system causing the inflation currently present. Why, because "deflation" is breathing down our necks, is already evident, and is a cancer.
The injection of liquidity was to make sure that markets operate smoothly and that the liquidity that is needed is available for productive activity.
This action was a very temporary fix, will likely be repeated, and yes, they will need to cut.
My opinion at this point is 2 50bps moves by the end of 2007.
So basically the scammers got to privatize the mortgage system into a giant ponzi, rake off the profits, and then watch the gubbermint fix the mess while they count their bonuses. Great system you have there. As always, I lose, whether I play or not.
re: sarah
I'd extend that to:
And the kids had cleaned up their act a bit, for a year or so and now wants to start staying out again, so the parents say: "You still have to long way to go before you are mature enough to be out on your own"
-K
I agree with you Ignorant Bystander.
I do think that the hedge funds long on RE will have to show their hand.
For the foreseeable future long RE has no future.
Well, it's pretty clear the door is SHUT on Jumbos. Say goodbye to CA home values. TOL might take a hit.
Here's more on Countrywide
No. 1 Company In Mortgages Faces Turbulence - WSJ.com
"with investors in a near panic over rising defaults on mortgages, Countrywide has more immediate priorities. It must shore up its own finances and reassure investors that it has plenty of cash to survive the storm. The company's stock fell 2.8% Friday after it warned late Thursday that "unprecedented disruptions" in credit markets would have an "unknown" effect on its business. Countrywide's debt is trading at junk levels, despite investment-grade ratings."
More from the same article
"Countrywide and most other lenders count on selling the bulk of their loans. For years, big investors were happy to snap up bundles of home loans packaged into bonds. Now, investors are panicky over falling house prices and rising defaults, and they're refusing to buy many home loans. Even AAA-rated bonds backed by subprime loans to borrowers with poor credit are deeply out of favor. Such bonds are now trading for 91 cents on the dollar, down from 99 cents a month ago, according to an index that tracks them."
In my opinion, this is one of the largest risks in the marketplace. A potential crisis of confidence.
CNNMoney.com: 404 Page Not Found
CR - re conforming loan limit..
My understanding was that the limit was subject to a statutory formula - the formula to be adminstered by OFHEO. From the NAHB site I find this:
National Association of Home Builders
"By law, Fannie Mae and Freddie Mac are restricted to dealing with mortgages with loan amounts at or below their statutory loan purchase limit. The Fannie Mae and Freddie Mac loan purchase limit is increased annually on the basis of the October-to-October percent change in the average home price reported in the Federal Housing Finance Boards (FHFB) monthly survey of terms on conventional home mortgages. The loan limit ceiling is 50 percent higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands to account for higher home prices in these areas. In 2004, the Office of Federal Housing Enterprise Oversight (OFHEO) began calculating and announcing the annual loan limit adjustment to insure that any methodological changes in the FHFB index were incorporated in the ceiling adjustment."
So I'd have thought they can/have ask/ed OFHEO to raise the limit but apart from adminstering the formula annually, for anything more, they'd just point to the law and punt it back to Congress, no ?
-K
NEW YORK, Aug 10 (Reuters) - Citigroup Inc has lost more than $500 million in "credit business" in recent weeks, the Financial Times said on its Web site on Friday, citing an unnamed person briefed on the situation.
The loss was largely in Citigroup's structured credit business, the newspaper said, and is in addition to potential losses from the bank's lending commitments related to leveraged buyouts.
New York-based Citigroup did not immediately return calls seeking comment. (Reporting by Jonathan Stempel)
Business & Financial News, Breaking US & International News | Reuters.com
Fed funds rate is 5.25 percent but a few years ago we moved to the Lombard system and the banks who borrow from the Fed at the discount window must pay 6.25% -- a full point above the fed funds rate.
Yen fluctuations could be western hedge funds covering their Yen shorts (ie, unwinding the trades) causing the Yen to strengthen.
Then the BOJ intervening to adjust the Yen downward...or Japanese retail traders using the temporary Yen strength to create some short-term carry trades of their own. See this interesting article. (mentioned here a day or two ago by a commenter)
InquiringMind
sk, that is my understanding too - there has to be a change in the law ot change the conforming limit. I just wanted to be clear that there was no mention of the conforming limit here, because earlier this week we were discussing proposed changes to the conforming limit - and this rejection only regards changes in the portfolio cap.
Best Wishes.
rc,
Given that the Fed & ECB are having to go to such lengths just to defend the current FFR (and just for the weekend at that), can you imagine what kind of pumping it would take to push it down another 50bp as you suggest? That kind of intervention will not inspire confidence in the markets when reported.
p.s.: Reminds me of that Titanic scene wherein the engineer informs the captain that the ship is doomed; that no amount of pumping will keep the water from eventually overwhelming all the bulkheads.
tj & the bear that is exactly my point.
It looks to me that credit market conditions are pushing for higher rates.
I am not advocating higher rates as they might have adverse effects on growth, but the ones we have are requiring quite a lot of effort to prevent from rising.
OT but,
"Every generation is the first to think that it is the first to discover the power of leverage."
Does anyone remember the post a while back that gave that quote? I can't help but think about all of my high flying B-school friends that have to be sitting around wondering how this could all happen. The multiple layers of leverage are a great idea right up until the point where it isn't. I just don't have any faith that my 30-something comrades who think they have the tiger by the tail have ANY idea about what a down market really looks like. The sad thing is that they will relly think that they are victims as opposed to the cause.
M-F,
The holders of the bad paper have bids, dont they? It's just that the bids are 40 cents on the dollar?
No I don't think that is true. For lots of this stuff right now there is NO BID. Very few folks believe they will be rewarded for taking on those sorts of risks. good piece of shorethand for the credit markets is the new issue market. When nothing is happening on that front...
risk,
Potential? POTENTIAL?
To the rest of you jokers (and I say that with limited respect
)
Does anyone else have a creepy feeling this was a "get us to the weekend so we can have some time" move by the Fed? I have no information to support this at all, but why do I think I'll be reading something bad in the NYT sunday?
Banker-
lol,
you know when you sometimes are thinking to yourself that "potential" is the appropriate lead in to what you are really thinking?
I got the same feeling Banker... it was touched off by the late buying surge at the end of the day...just what was needed to give a small lift to the DJIA for the week. And then as usual, the disaster news starts trickling in. (eg. LEND)
I weep for the future.
Banker,
You might be right, but the first two moves by the Fed while extremely unusual in magnitude and unusual, but not unprecedented, in taking MBS's were just the Fed doing ti's job. That is making sure the real rate is the target rate.
Now, the third move I hear is suspicious and moved the rate to 5.10%.
So, doing it's job= no eery feeling but suspicious about the scale.
Third move, apparently Fed not doing ti's job= what the hell is going on?
tj- I think dis missed your point and yes I agree, they will move this temp bullcrap won't last long.
risk capital, I have to agree that the the SEC looking for losses with big banks is huge. I will not be surprised if a scandal like Enron show up sooner or later.
what did i miss risk capital?
dis- I'll let tj answer, don't want to put exact words in his mouth.
dis- I'll let tj answer, don't want to put exact words in his mouth.
tj was saying that given the current credit market conditions, it would be extremely hard to have the rate 50bp lower even if that were to be desirable for other reasons.
Wasn't he?
MoT-
you need to rephrase your point and use the the term "potentially".
Dis,
Re: CFC & MER
Analysts at Merrill Lynch said Friday that the firm (Countrywide) has the financial strength and management talent to survive what's a difficult market.
"We think CFC has the financial strength and management acumen to succeed, and we think Monday's disclosure that it would buy retail branches from a small lender for pennies on the dollar suggests it is not overwhelmed by the secondary-market gymnastics that is wreaking havoc on weaker names," Merrill told clients. See related story.
In a filing Thursday with the Securities and Exchange Commission, Countrywide said that while it plans to retain more loans until investor demand improves, it warned that a prolonged period of poor conditions "could have an adverse impact" on future profits and its financial condition.
"Based on our review of the risk section [of the filing], the aftermarket move seems to be an overreaction and we would recommend investors to accumulate stock on share price weakness," Merrill wrote.
There is something amiss.
dis- that is not the way I took it, been reading his stuff for awhile, he is definitely in the deflationary camp, far more than myself, I believe we will have a scare, but, manageable, this time.
risk capital,
I am not inflationary or deflationary. I do think the housing troubles will be deflationary.
But the credit market troubles of the last few days have been about lending rates going above the targeted rates of the central banks and the Fed. The way to bring back down is to provide cash and lend at the targeted rate as much as it is needed.
Now, the third injection by the Fed was fishy as the rate was at the targeted rate. I am not sure what was this about.
I was not advocating inflation or deflation.
Yeah, you might be reading something bad in the Times -- that will be 'balanced' by an article in the Real Estate section sending an implicit message that now is the best time to buy. Usually, it works out that the worse the news, the more the Real Estate section puffs itself up into a happy balloon of optimism.
P.S. Is Optimistic Joe still around? For no good reason, I have been craving a rockblog caption contest that goes a little like this:
Hey, O-Joe, whereya goin' with that ______ in your hand?
Citigroup faces the $500m music
By David Wighton in New York
Published: August 11 2007 00:18 | Last updated: August 11 2007 00:18
Citigroup has lost more than $500m in credit business in recent weeks, making it one of the biggest casualties of the crisis, according to a person briefed on the situation.
The scale of the losses is not a serious problem for a company that earned more than $20bn last year and bankers believe some Wall Street rivals have lost more.
But it will be acutely embarrassing for Chuck Prince, chairman and chief executive, who has been widely criticised for saying last month that Citi was still dancing in the credit markets.
The losses will undermine his efforts to restore investor confidence in the worlds largest financial services company and revive its flagging share price.
They will also be a blow for Tom Maheras, head of Citigroups capital markets business, who recently told the Financial Times that its growth had caught up with rivals after three years of under-performance.
The losses were made largely in the structured credit business run by Michael Raynes, hired from Deutsche Bank in London last summer.
They are in addition to those Citi faces from lending commitments to leveraged buy-outs.
Mr Prince told the FT on July 10 that the lending party would end but there was so much liquidity at the time that it would not be disrupted by the turmoil in the US subprime mortgage market.
When the music stop, in terms of liquidity, things will be complicated. But as long as the music is playing, youve got to get up and dance. Were still dancing.
Citigroup on Friday declined to comment.
Yeh, I'd be declining comment too.
I think the 15th will be very interesting with the redemption period pening for the hedge funds.I wonder if the hedgies have staffed up to handle the mail,and also whether anyone will be lining up on the 14th to make sure they get in the door at 8:01 am on the 15th.I would sure consider paying someone to be there in person and get a receipt if i had any substantial sum invested in this garbage
dis-
"But the credit market troubles of the last few days have been about lending rates going above the targeted rates of the central banks and the Fed."
Ask yourself why this happened? If allowed to persist, what are the consequences? Knowing the economic backdrop at this time, will temp measures lead to the long-term desired result?
Tom-
look at the 36 in door in the room in which you are sitting, imagine 9000 26 year-old hedgie-quasi-indexers going through it at the same time....
get the picture?
I believe we've been talking about "containment."
YouTube -
banker-
UPDATE 1-ITG shares drop on credit worries
| Reuters
I do get the picture,I once had the pleasure of being fired by a harvard MBA because i refused to personally guarantee $30MM in recievables...but somehow i also have a vision of the TV camera panning down the line of well dressed retirees standing at the door of bare sterns while GW's speech assuring everyone that the markets are working,and real estate will have a soft landing comes out of the speakers...just a romantic at heart,I admit.
tom-
YouTube -
"Does anyone else have a creepy feeling this was a "get us to the weekend so we can have some time" move by the Fed? I have no information to support this at all, but why do I think I'll be reading something bad in the NYT sunday?
Banker | 08.10.07 - 8:36 pm | # "
With a three calendar day repo, you bet.
What's really scary is that we haven't even begun to realize significant RE valuation declines! Anyone with the capability to extrapolate economically is more concerned than in February. It's actually worse than I expected.
C
and bankers believe some Wall Street rivals have lost more.
That is some classic Sun TZu
DEfray, minimalize, and attack
Dustdevil,
How's that elementary school education working out for you?
Pissed off because construction is slow perhaps?
Muhahahahahahahahahah
Just kidding. Thought I'd fire back from the dis you hit me with earlier.
I'm not saying the problems your talking about aren't the problem. I'm just saying these FED actions are to prevent systemic risk.
They are needed I believe cuz of the world of hurt the problems (mtg etc) have caused.
Olive branch extended now.
Thank you risk capital,I needed that.GW is shameful.I registered republican when i turned 18,and became an independent during the "frogman case" in the 80's...when the DOJ returned about $20MM to the cocaine importers because they were supporting the contras.the late gary webb wrote an excellent book that covers this,and there is always mccoys "politics of heroin in southeast asia" for those who are interested in how sausage is made.
productive activity.
Beginning to be an Oxymoron... as it relates to liquidity injections
Re: August 15 Deadline for Fourth Quarter Hedge Fund Redemptions.
I understand that Wednesday will be the deadline for many HF investors to request redemptions. However, is there any reason that the HFs actually have to take action on that day or any day in the near future because of redemption requests? Is it possible that they could hold their positions until October?
Still have my money on BK although C is first out of the box.
look at the 36 in door in the room in which you are sitting, imagine 9000 26 year-old hedgie-quasi-indexers going through it at the same time....
I think more than a few of those hedgies will be going out the window instead.
Maybe this is an ünternerd question, but what consists of a banks "reserves"? Big piles of cash? GSE backed mortgages? GSE backed MBSs? CDOs of mostly GSE backed MBSs with a little alt A spice?
I know that banks are taking their sweet time complying with Basel II and the Euros probably had their liquidity injection for this reason and I wat to look it up, but I'm thumbing this on my phone somewhere under the southern cross and don't have ready access to these interwebs all the time.
At this point whe I get back my first job is to start piling thru various county historical tax reciepts to see if there's a chance of default for any of my munis.
That'd be Unternerd with an umlat, not A1/4nerd, though techically I'm 1/2 nerd because pops is a mchanical engineer.
Don't know about bank reserves but do know about brokerage net capital. In the olden days illiquid non-public OTC securities were valued at zero for net capital computation purposes. Those days are now gone and risk management modeling is all the rage for the large IBs. Us old folks who did the computations by hand and eyeballed the underlying collateral are retired and the new kids rely on computer information provided by IBs. Blogged here weeks ago that the old SEC would have been inside Bear Stearns the minute the funds tanked; but Cox decided to "monitor" things.
rc et al,
Sorry, had to step out.
dis had it pretty much right -- the Fed is tilting at windmills. How big will the repos need to be Monday? If the target rate goes to 5 or less next week, how much more will be necessary then? The knee-jerk reaction to lower rates may be positive, but may also be more than offset by the psychological impact on J6P of the necessarily huge open interventions.
Heck, the business update on the radio said something akin to "the Fed saved the banking system for the weekend". Not good.
p.s.: I'm not exclusively deflation/hyperinflation; I believe we'll see both -- KaPOOM! (iTulip)
tj-
the longer they play this temp game, the more they will have to cut, might surprise everyone (ie two 50 bps moves). Listening to various parties recent statements it should be soon.
That said, a little fear never hurt either, they are walking a fine line.
The wildcard is this SEC look-see.
Wanderer:
"Every generation is the first to think that it is the first to discover the power of leverage."
I believe it's from "The Great Crash--1929" by John Kenneth Galbraith. An informative and entertaining read.
banker,
All due respect, is there really NO BID? Are the same people not bidding because they are also sellers of other similar securitues and holding? Is it some big conspiracy to freeze the market to get the Fed or Feds to cave to a bailout?
I'll put in a freakin, bid, 1 dollar per trillion of assets for all outstanding. Now there's a bid, the market is liquid again. Oh no one wants to sell? See, it's not that there is no liquidity, the crap is near worthless, and they don't want to go BK or even take losses.
Somebody said earlier "interesting times". Pay attention folks -- there's history in the making!!!
p.s.: banker, how's that new wing coming along?
Johnnym,
Perhaps the Yen is being bouyed by the fact that there are a lot of people positioning for the unwind.
I just had a bit of an realization about the whole Fed repo thing. Everyone's probably already had it, but here goes:
What the fed actually did wasn't unusual. What was unusual was the way the fed described what they did. Sort of like how if, instead of drinking a couple cups of coffee and going through blogs when I arrived at work in the morning, I instead sent out an email to all of my co-workers letting them know that I had survived my perilous morning commute and had safely arrived at the office to facilitate whatever it is I do.
So what was the point of publicizing the repo thingy so dramatically? Were they winking at the knowldgeable people (the CRs and Tantas of the world)? Were they trying to reassure the "ZOMG!!! I just lost money! DANGIT, IT MUST BE THE PPT AND THE MASONS!!" crowd? Were they trying to keep Joe Sixpack sedate?
What?
M-F,
Come on. Don't make me write pedantically, please? Many of these guys own lots of the same kinds of things and don't want any more. Period. Not interested, won't take your call if they know that's what you are talking about. Now if you are serious about your bid and are backing it with $100 million to take a position, we might have something to talk about.
I have seen this before. Picture this, a HY trading desk of maybe three traders and ten salespeople sitting around reading research reports, magaizines, taking the occasional phone call to listen to thew latest off-color joke making the rounds and watching the clock. Just nothing going on. It ain't pretty but it happens.
TJ,
Trying to figure out if I need to dig it a little deeper
gng,
All of the above IMO.
Banker,
Might be a good time to take that cash dividend. Between today's headlines and the proposed (John Edwards' 28%) and assumed (Hillary and Obama "raise to 20%" a.k.a. 28%) cap gains rates. I don't like the looks of those dice.
Just needling you.
"Picture this, a HY trading desk of maybe three traders and ten salespeople sitting around reading research reports, magazines, taking the occasional phone call to listen to thew latest off-color joke"
When I finished grad school I still thought I wanted to work in a bank so I spent a summer on the emerging market debt trading floor at Paribas. It was 1997. I think that describes most of my time there, except for the occasional shouts of FOCUS by the head trader when he realised he was about to lose his job. Oh, you left out the sales guys getting there shoes shined while they read the Post.
Banker - how is it fundamentally different from a stock that won't trade because there is a differene between the bid and ask with no market orders. Sellers won't take less than say $95, and the biggest bid is what $40 or $10 or my bid of 0.00000000000001?
Fundamental economics says the market may be imperfect, the seller can refuse to sell, and declare it's worth to be $90, but by definition the thing is worth $40 if that is all the market wants to pay.
If the seller wants to make the case for a $90 price, they are welcome to talk up their product.... but we all know the product is pure sh** at this point.
No theory of market economics guarantees that anyone can sell a bad or worthless product at a good price with plenty of interest. The market has looked at the product, decided it is worth much less than the seller is asking, and walked away. Now the seller is complaining the market is not working. T
The market is working and it has rationally valued these products. When you are selling a product which is composed of 'risk' there is no 'correct' current price except in retrospect. Risk is always subjective and can never be removed from any product.
M-F,
I don't know how many different ways I can say it. What has happened is a buyers strike. It isn't that they want things 10 points cheaper. Thjey have hung out a gone fishing sign and left. They'll come back when they come back.
The big question is how does one mark things when the buyside isn't answering the phone?
Banker, the price is then zero. Accouting has never been so easy
They are worth nothing. Take a total loss, or put a low ball ask out there at 2 cents on the dollar, maybe the market will take the price up to 5 cents on the dollar.
Banker,
In the "old" days all high risk loans were "portfolio". In other words they held it to maturity and collected Payments. They reported delinquencies on their reports but didn't "have to" go to the market and sell. This ended up probably being "safer" on the financial system- go figure as they thought the "new way" was better.
It's rare, but finally a game when the score is - bears 6 bulls 1. 4th inning and this one is going to be a wipeout. The fed may call the game or send in some ringers. They hate it when the bears are winning.
sloooow,
I don't know how far back you are going, but by the time I started in 1985 that wasn't true. Insurance companies were in the buy and hold biz because they had match funded liabilities they had recently sold. It actually wan't unusual for us to get a call from Met or TIAA or John Hancock saying "We need $100 million of a seven year, non-call life at 175 over," and we'd make outgoing calls to relationship bankers to try to get someone to issue.
But even in those days many/most buyers were trying to buy a 10% bond in a company that was likely to improve its credit to a 9% risk, sell the bond at 105 (or whatever), realize a 13% return (or whatever), outperform their peers, get more assets under management, earn more fees etc.
M-F,
That is the logical, though obviously foolish, conclusion isn't it?
The problem is that when the market is disrupted, very weird things happen. Like in 1989-1990, immediately post-Drexel pre-return of the market you had rapidly growing cable TV companies whose bonds were trading in the 50's, actually trading there. At the same time the publically traded equities of these companies reflected a value in the billions. Now how was that possible? Only because the junk market was disrupted. Leon Black figured out that those bonds had great intrinsic value, raped the RTC knuckleheads and made billions.
There is no bid because the potential bidders don't have any money. Their portfolios have been marked down and if not already facing margin calls they're worried about them and are not going to add any more leverage. To say nothing of needing to build cash for redemptions.
Agreed slowmo, that is another option. Maybe with time you can remove some risk ad prove these things to be worth 60 cents on the dollar.
If you can't hold your position, then what were you thinking getting yourself into that position? That is why the market cheerfully provides BK laws. Any time you are selling 'risk' as a major component of your product you have to expect that the market is not going to act the way YOU think it ought to act.
There is still someone out there putting their money in a safe or mattress instead of an FDIC insured account. (And today who's to say they are wrong LOL) Too much risk avoidance will likely not produce optimal results, but when it comes to risk there is no 'correct' appetite. The market is what it is, and the market is working, it's the sellers that won't accept the markets low low prices.
Question: How does an electronics store offer 18 months no payments? Do they actually hold the debt or is it sold to investors? Oh and by the way, who the hell buys all of these $3000-5000 plasma TVs?
OT, but here is a Calculated Risk piece for August 30,2006. A little foreshadowing!?
Calculated Risk: Dow Jones: Subprime mortgages see early defaults
make that 'from' not 'for'.
Oh and by the way, who the hell buys all of these $3000-5000 plasma TVs?
Hey that new wing in the Bankerdome is gonna need seven or eight of those! At this rate who knows when I'll be leaving that place?
Stores that finance their inventory are paying the same if it sits on the shelf or in your house. Especially with electronics, they have to keep fresh product on the self or mark down prices more than the cost of 18 months of financing.
Plasmas have realy come down though
Was in BJs the other day and 42 plasma is now $999, I think 2 years ago they were still 1799 or 1999 for a 42. Probably made in China. 
Lee Adler/The Wall Street Examiner (taken from Winter Watch comments):
The wheels are coming off.
I bet you have actually sketched out a bankerdome.
LEND:
Expired
I can see you boiling something on the stove while you reach up and re-affix a BBB- CDO to the wall you have papered. Just like the old movie of the German woman with her weimar currency.
WAMU exec is not going to appear and take questions!!!!
Washington Mutual Executive Won't Make Planned Appearance - WSJ.com
mp,
What's the conjure bag saying is in store for Monday???
My take on this action is that we're at the terminal end of the crack up boom.
Essentially the Fed has loaned at mark to model caish to the wounded holders of Shite so they can make payments. You know to keep markets from completely seizing. A can't pay B so B can't pay C....etc. Systemic seize up. LTCM writ LARGE IMHO.
Collender is well wrapped in LEAD foil, and bunker is stocked. Heading into it Sunday night after, perhaps, one more beautiful August Sunday in socal.
GL all
OK, if there are only two of us online here tonight, who is the other person?
Good post from over at the big picture in the comments...left the tag line.
Spikes in the Fed Funds rate (FFR%) come when there are specific banks that are in
an overdraft situation in the interbank
clearinghouse system and are forced to
borrow from banks with surplus funds. This
problem results from late payments and/or
defaults from bank clients. There can be
systemwide overdrafts as occured in 1982
when many of the old LDC and OPEC blocs
defaulted on the old CHIP system. The Fed
then added reserves and directed major US
banks to put up funds since overdrafts cannot be carried overnight. I imagine there
could be worldwide fund redemptions and
some liquidations which could be straining
the banking system, forcing the central bankers to pony up enough in reserves to
cover all the overdrafts and keep individual
banks from dumping investments and/or calling in loans. These large reserve
injections by central banks are temporary
and stop gap and cannot be made routine.
The size of the pot created thus far
suggests to me that the central banks need
to come forth and spell out clearly the
difficulties the banking system is
experiencing and further to say precisely
what can be done about it.
The problems are centered in the financial
services area around structured debt and
hedge positions that cannot be unwound in
an orderly fashion because the low quality
assets involved are receiving no bids.
Investors who have money in a variety of
funds that use leverage especially do not
know the real net asset values of their
investments in troubled funds.
If confidence is not soon restored via
other investors who see value in deeply
oversold assts, central bankers and
country regulators will have to decide
whether to provide long term financial
facilities that accumulate the very
distressed assets and restructure them over time.
The best thing now is for Bernanke, Trichet
et al to come public and discuss what they
are facing in terms as specific as possible,
and to make a case for whether market
forces can successfully carry the day and/
or whether new protective facilities will be needed.
PR
It is me from Europe...i.e. The other one online. And I am....
Hey, weekend is here. Time to inject some serious liquidity into your system - in the form of Bass Ale, Guinness Draught, or strawberry daiquiris, if that's the way you swing.
Holy moly what happened in the yen at around 9:15AM GMT? That chart goes asymptotic for a bit there
To the rest of you jokers (and I say that with limited respect
)
Don't worry, Banker, I'll have even less respect for your corpse.
& me too.
Good night.
Whoops, that was directed at "it is me from europe"
Where is everybody? what time is it anyway?
I have gng's question after looking through some of the data at this nice Fed link CR posted
. "Fairly ordinary" doesn't do the action justice. Downright pedestrian in every way, except for the exclusive MBS focus. Did you know that nearly every Thursday in 2006, at least till Thanksgiving, saw two operations, one of which was usually for $70b or $80b with a 14-day term?
My god, is the Chairman crazy enough to have done this to get at least some of us in the Great Uninformed to look at the website!?
I know economists tend to be a dry lot, but
I think you guys are over reacting.
The authorities can ratchet up the action way way beyond what they have so far done. So far they are just lending over the weekend.
Probably the debt will have to be entirely purchased by the CB's. But so what? Back in 2001 they made the decision to reinflate and they are happy with the outcome.
This is not the Titanic.
Don't worry, Banker, I'll have even less respect for your corpse.
dotcommunist | Homepage | 08.11.07 - 3:00 am | #
Nice one, scum. Go back to anarchy blogs, please. Seriously.
dotcomunist: This was disgusting.
I have kept quiet about your writing for some time - but just the fact that some of us are now bears does not mean that we have to take your permabears anti-captilasit BS any more.
Yes captialsm - the unresponsible branch of practiced now - has problems but communism is even worse and when comunist start using foul mouth i guess we don't have to take any more.
International Herald Tribune's Mark Hulbert has issued a sleeping pill for the worried:
Time to sell or what? Maybe check an 'insider' index - The New York Times
I must say when insider sales/purchases topped 70/1 last year, I drew very different conclusions. More statistics which are not understood by the layman?
Dotcommunist is not so bad.
He was responding to Bankers:
"To the rest of you jokers (and I say that with limited respect
)"
Yeah, leave dotcommunist alone - Banker wasn't exactly innocent in the matter ( smiley or no smiey ).
This arrogance and contempt for the fellow man that is not part of your 'chosen' class is as common amongst conviction capitalists as it is amongst commies. The common thread that binds them is their revolutionary ardor. One side says "running dogs of capitalism" and "revolutions are not tea parties", the other says....I'll skip the quotes as the quotes I can
come up with come from Europe in the '30s and mentioning them usually inflames things even more rather than informs.
-K
too bad, the GSE would have been the perfect dumping ground. Buried for a while, then govt bailout when everyone had forgotte
In the early nineties Citibank refused to market their Latin American loan book to "market". They fed their sovereign clients fresh loans so the clients could pay interest on the old loans. For a while it worked. Then the market began to do its own assessment. Not book, so how much of a haircut? 10%? 20%? Eventually it got down, if I remember correctly, to half of book, at which time that Saudi Prince came in to keep them afloat.
The moral: when you don't give the market information, it eventually assumes the worst possible outcome will happen. This market is taking a little longer, but it will get there.
w-
" Question: How does an electronics store offer 18 months no payments? Do they actually hold the debt or is it sold to investors?"
There are not that many that actually hold the debt, most are financed by third party finance companies. The retailer eats the cost of the financing upfront, but, receives the balance right away, the cost could be as little as 1% and as high as 9% depending on the offer, ie 90 days or 36 to 48 months interest free financing (large purchases like furniture). Some companies will actually have multiple finance companies available to address various levels of credit quality with a change of terms as the credit quality deteriorates.
ECB: Open market operations
It looks like ECB still has about 200B euros available for repos operations.
ECB has allocated 292 + 61 = 353B Euros for repos operations. Maturity dates are 08/15 and 08/13.
Ami reading this correctly?
Come Wednesday, european banks may have to cough up 350B euros?
No better eptitath for Gaussian (bell curve) models:
"Wednesday is the type of day people will remember in quant-land for a very long time," said Mr. Rothman, a University of Chicago Ph.D. who ran a quantitative fund before joining Lehman Brothers. "Events that models only predicted would happen once in 10,000 years happened every day for three days."
Paper from Dean Baker on housing market, forecasting recession to 'severe' recession, and complete with very interesting tables (on p. 5-6) about how much more the media quoted mkt bulls than bears in the housing runup:
http://www.cepr.net/documents/publications/meltdown_2007_08.pdf
So, basically, this whole repo thing is sound and fury signifying nothing? My guess is, then, that the Fed wanted to look like it was doing something and publicized a pedestrian move.
RE-bear: they will revolve those for a while. I wonder where the next wave will arrive - end of September redumptions ?
Events that models only predicted would happen once in 10,000 years happened every day for three days."
David Pearson | 08.11.07 - 8:40 am | #
and so , what exactly was said event?
Why did the Fed have to intervene this way, by liquifying MBS? Normally the Home Loan Banks liquify MBS for their members, via Advances. Did the Fed need to liquify the portfolio of some big buy who doesn't belong to a Home Loan Bank, or are the FHLBs becoming afraid to touch this stuff without big haircuts?
REBear: "Come Wednesday, european banks may have to cough up 350B euros?"
Yes.
Just that the 290 billions are the routine main refinancing operation.
Also, the initial emergency 90 billion, as it was with a one-day maturity, has already disappered (to the best of my understanding).
The 60 billion of the 3-day operation due on monday will be the interesting thing. We'll see whether that amount can be drained smoothly, or whether it will push up rates once more.
This is so yesterday, but if anyone still cares Housing Doom (my Homepage) has a complete transcript of the letter up now.
No, dotcommunist ia an A-hole, many of his comments drip with the arrogance of his false pseudo-intellectual superiority complex.
I would suggest he re-locate to a Worker's Paradise like North Korea or Cuba where he can gather with like-minded individuals to eat lawn grass and drink sewage water.
I have been reading this blog for a while, Banker and others actually make a contribution and help to enlighten people. dotcommunist, not so much.
But don't you admire his exquisite Prometheus-figure posing?
the arrogance of his false pseudo-intellectual superiority complex.
I believe you've mistaken me for the Ponzi architect cheerleader capitalist faction. You know, the thieves who dismiss any evidence that the capitalist model is a hollow shell, built to reward the financiers and money pushers more than the producers and workers.
What is the most irritating from you capitalist defenders is that most of you know nothing of Lenin or Marx or Rosa Luxemburg, as you have been brainwashed by the American propaganda machine. At the same time that you ridicule the former attempted communist countries as having only dictatorial media control, you ignore that exact flaw in your own societies (American or Euro or Australian).
You deserve sand in your ointment.
As for banker, he started the disrespect game with me months ago. I guess my responding in kind is unacceptable to you hypocrites, eh?
Take your damn medicine. And you better get used to it, cause this mess is only going to make you take more and more for a long while to come. (and I don't mean from me, but from the disillusioned masses that are only now waking up from their hypnosis)
Investment bankers are the source of all the problems.
The Revolution is here. It is just waiting for participants.
Yal: I have kept quiet about your writing for some time
Yes, you kept quiet after you shilled Ken Fisher's BS and I explained very succinctly why it was shill BS. I can understand that you're a little upset about my spoiling your ulterior motive.
Actually, I revere the nameless vereran who dumped Rosa into the Elbe.
RE: NIL
"Actually, I revere the nameless vereran who dumped Rosa into the Elbe.
Nil"
You say nameless veteran, I say FreiCorps.
Freikorps - Wikipedia, the free encyclopedia
This particular spin is interesting.
So I'd say Nazi and you'd say nationalists with socialist leanings, right ?
-K
Dotcommunist, you crossed over the line with your corpse comment. Go away.
Actually, the point was that you would do well not to indulge yourself in the vacuous supposition that you are the only one to have leafed through the pages of political history. But tell you what, Dotty: should I find myself with world enough and time to address the fatuities of Marxist ideology, I'll look you up over on democraticunderground.
I haven't mistaken you for anything. You are what you are, a nasty, small-minded person who has to belittle others who don't agree with you in the nastiest, most personal insult kind of way. To me you seem like an 8 year old trying to debate with adults.
I care not what your personal or philosophical beliefs are, it is the sneering personal attack manner in which you express them that gets me annoyed.
I am no defender of capitalism. I just don't see how other forms of societal organization have done any better, and almost all have done far worse, like Communism. That doesn't make me anything except a contrarian, I am the last person to buy anything the MSM says, and I hate GWB.
Ask all the people who were killed by authoritarian Communist leaders like say, Stalin, if they think it is the highest and best form of government. As someone who has lost several family members to Eastern European post WWII Communist oppression, I find your views offensive and naive in the extreme.
Banker has provide many insights with his insider knowledge. You have not contributed anything I would call meaningful or that has enriched the debate. Some of your comments are humorous, that's about it. If you feel you have to insult him because of something he said months ago (!?), that just proves my case. Maybe I missed his personal attack on you, I don't always get to every post here, but at some point, just forgive and forget.
As IB said above, you crossed the line with your comment above, but I have been thinking along these lines for a while. You remind me of the lefty professors I have had, who could not walk upright because of their philosophical tilt.
Go start your own blog, so we don't have to read your comments anymore. You detract from the experience here in a big way.
END OF RANT. I am not going to waste anymore perfectly good electrons debating this with you.
Marx was a supporter of what he termed "Revolutionary Terror". Sounds a bit Taliban-esqe if you ask me. Additionaly atheism is part of the foundation of Marxism and therefore unpalatable for 98% of the world, be they Christians, Jews, Muslim, Buddhist, Jain's, Hindu's, etc. Let's leave Marx out of an economics blog, shall we. Talking about Marx belongs on the my-father-beat-me-and-my-mother-drinks-too-much-angry-hatred-anarchists blog. Pop a Prozac and relax... wealth transfer in prrrrrrrogress. Should benefit many on this blog!!!
David Pearson -
I like your posts and the way you think. Thanks for sharing.
BTW, I'm guessing you're a hunter. Probably for grey swans.
Leave Marx out of an economics blog ?
Poor sod. so he wrote Das Kapital Vol1, 2, 3 - Theories of Surplus Value, vols 1, 2, 3, 4?(I'm too lazy to go to the basement to check); his exchange value, use value theories all for nothing ?
Actually, I'm half-kidding. I agree his theories of political economy are so 1860s, but if his theories don't deserve a mention in an economics blog, then where, apart from being mentioned on Cramer's Mad Money???? no don't answer that
-K
sk!
You're too smart to bother with Marx. Just because he wrote some books and garnered some unwarranted attention doesn't mean we should continue talking about him. I'm sure you'd agree that Efficient Market Theory is a bunch of crap (the WHOLE point of this blog basically) and yet some very "esteemed" individuals are still teaching it as fact as the venerable U of Chicago down the road from me. Both belong in the garbage next to Cramer's picks.
Gamma - RE: Marxist Economic Theory into the garbage.
Heyyy - that's a hit ! that's exactly the phrase I was hinting at - In a different context that's what Trotsky told the Mensheviks to do - " go where you belong - to the dustbins /( USSR idiom - "ash heaps") of history" when they split off from the Bolsheviks a few months before the October 17 revolution.
-K
It's been a while since I read Marx, but couldn't his theories on class struggle pretty much worked out and wouldn't employees owning shares of the companies they workforce a step towards the proletariat controlling the means of production alongside the capitalists(the current maladminstration taking us back to the 1890s aside?)