Fleck on Structured Investment Vehicles
Submitted by
CalculatedRisk on Tue, 09/11/2007 - 5:35pm (44 comments)
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SIV = "you suck" when I was growing up. Little has changed.
Fleck and CR,
unbeatble duo
CR,
Please keep us updated on this.
It's difficult to keep on open mind when thinking about how this all unfolds. On the one hand, you think "maybe this won't be as bad as I think, I'm too pessimistic. But then something like this comes along, and makes you think I better push out the doom parameters.
From borkafatty's prior link:
"Citigroup backs up 30% of all the SIV's and conduits in the world, a 2 trillion dollar bank is facing blistering expansion in reserve requirements as the ABCP markets contine to CRASH." Anybody recall my 'crazy' Citi comments from weeks ago? Citi will fail, however FDIC will bail it out.
Fingers V : Financial Meltdown, aka Systemic Heart Attack ! by Ty Andros
Not that the comments you excerpted from Mr. Fleckenstein's numerous commentaries on the subprime mess don't seem prescient now, but it is important to note that Fleck is just talking his book.
I thought we learned this lesson from Enron: if it presents a potential financial liability to a company, it should be on-balance-sheet.
Interesting comments, yet, nary a peep is uttered by any of the financial institutions with many predicting record earnings for GS. Go figure.
F. Frederson,
Enron wasn't all by itself. Banks were deep into off balance sheet vehicles as much then as they are now. There is more regulation now, but there are some 'smart' guys out there who are true to the letter of law. Nobody cares much about the spirit if there is any left.
LondonTimesOnline SIV update
Barclays Capital injects $1.5bn into Golden Key - Times Online
what's the connection, that michael landon's anonymous sources are reliable?
MarketWatch
LBO uncertainty remains for Citi
J.P. Morgan: "The main impact is a very slight reduction in earnings."
LBO uncertainty remains for Citigroup, analyst says - MarketWatch
It is out of topic but I think that the NFIB report is worth reading:
The CEOs of Countrywide, Crysler and Ford are publicly warning that the Federal Reserve must cut rates to save the economy. On Main Street, there does not seem to be a problem. Lending to finance the normal production of Gross Domestic Product is still running smoothly...
More economy watchers are using the R word to describe prospects for the economy in spite of a solid 4 percent GDP growth rate in the second quarter. True, August job creation was virtually 0 (as this survey antecipated), but the unemployment rate was 4.6 percent most people who want jobs have them ant the percent of the adult population with a job reamains around 63 percent, among the highest readings in history. If we have a recession, the media will have played a major role in talkings us into it.
Although there were a few more storm clouds in the outlook, job market indicators improved...
NFIB | Small Business Association
FFDIC - if Citi fails its 100% lock it gets bailed out. Stockholders probably take a hit but no way they let that one fail. There are too big to fail and then there are the oh-hell-ya-its-too-big-to-fail... Citi comes in there.
FFDIC: Citi will fail, however FDIC will bail it out.
Any way to get word to Sheila Bair to make any bailout contingent on getting the Glass-Steagall repeal pen back from those Gilded Age 2 Captains of Industry?
Chuck Prince better hury up and grab a chair now that the music is winding down. Looks like there is a huge number of unaccounted guests dancing at their party.
Any way to get word to Sheila Bair to make any bailout contingent on getting the Glass-Steagall repeal pen back from those Gilded Age 2 Captains of Industry?
Strange - wouldn't you bet if there was a bail out of that scope that shit would have to be bad enough we'd see a significant revival of New Deal type stuff including a possible Glass-Steagall v 2.0?
I can't see Citi just... hummmdy dumm... failing. It would have to be pretty ugly, drawn out & really catch folks attention. Major media event. I mean if Countrywide is this messy - just imagine Citi teetering & wobbling for a couple months. Shudder
Serious legislation would come out of that - bank on it.
gm - Don't forget the accounting firms.
The source of my irritation is that I thought GAAP or SarbOx or something was supposed to force the beancounters to ignore what the lawyers said and put questionable stuff on the balance sheet. I guess I was wrong.
Also, it is one thing for run-of-the-mill companies or non-banks-playing-banks like Enron to have SIVs out the wazoo, but Citi? Anything that is "too big to fail" needs to subjected to the most anal-rententive accounting standards around, IMHO - which obviously counts for nothing.
bacon dreamz, I just wanted to give Fleck (and his sources) some credit for their calls earlier this year. Note that the current sources appear to be different than his "subprime" insider - so maybe there won't be as big a problem.
I don't know how good his source on commercial mortgage back securities is - but it fits with what I've been posting on CRE.
Best Wishes.
Relationship between stocks and bonds in Kondratieff context
The UCLA Anderson Forecast
UCLA Forecast to be released tmw.
Thanks, CR; great stuff, keep up the good work!
bacon dreamz,
You get +5 Amusing for the "Michael Landon" comment. I read Fleck daily, but, man, his headshots sure are wild.
Either way, his sources generally seem to be right on... especially with respect to the debt markets this year.
Great info. Here is another perspective on this that may be useful.
Coming Bank Themes: Whispers From the Confessional-Minyanville
12:04 a.m. 09/12/2007
TOKYO (Dow Jones)--Japan Prime Minister Shinzo Abe offered his resignation to executives of the ruling Liberal Democratic Party on Wednesday...
Nikkei popped more than 140, , and now at +78.
WSJ
Small Banks Risk Catching Credit Ills
Heard on the Street - WSJ.com
WSJ - Commentary
Liquidity Now!
By Martin Feldstein
Liquidity Now! - WSJ.com
Feldstein's rant reminds me of Santelli's comments in (Cramer vs Santelli)
Main st is way better off than the portfolio's of WS and GrCT.
He makes it seem as it's the borrower's fault... with the lender being the victim.
Good FDIC dirt from Bank Lawyer's Blog
Bank Lawyer's Blog: Yeah, But They Have A Great "Spiritual Nature"
Wow, Feldstein may have been someone one day in the distant past, but right now, he's a complete putz. Every other sentence is so thoroughly wrong that you can't see him as anything but a bought and sold hack at this point. Figures this screed would show up on the only place it is fit for print.
If Citi is too big to fail - then what happens when JPM, BAC, et al who also have levered up and have their fair share of SIVs/conduits also need bailouts?
Does it ever get to too big to bail? And as a result all depositors get up to their 100K but the rest including bondholders and stockholders go poof!
Nah! Losses will get socialized in our crony capitalism. Chuck Prince will get fired with a $1 billion severance.
It's funny to see the NAR and Fleckenstein posts together. I bet 100 million Americans read the NAR articles in their local papers, and most thought them completely credibible.
Probably 100 thousand read Fleck, and most thought him a whack job.
A change in market psychology, with Fleck-style skepticism gaining converts, could be as powerful as lending woes.
This is the best Feldstein line : "Today's 5.25% federal funds rate is relatively tight in comparison to the historic average of a 2% real rate"
Hmm, let's see, today's real FF rate is what? Uh, I didnt dew too well in my edumacation. Can you subtract (or is it multiply?) that for me?
Fellow Bloggers:
Here is the amended & certified class action complaint against FDIC known now as Aliotta et al v. FDIC.
I am one of the 48 plaintiffs, however at least 2 male plaintiffs died since 2005. The FDIC continues to hire and projects 248 additional staff by year end 2007.
Sadly, it has received no media attention to date.
http://roselawyers.com/docs/amendedcomplaint.pdf
dryfly: Strange - wouldn't you bet if there was a bail out of that scope that shit would have to be bad enough we'd see a significant revival of New Deal type stuff including a possible Glass-Steagall v 2.0?
I was going to write a trailer for Glass Steagall II: Regulation Day but I didn't have the time to do it justice.
I think New Deal stuff is inevitable. Don't ya know? A lot of bridges need to be replaced.
I think the SIV issue is systemic and the clock is about to strike midnight. It undermines the entire safety and soundness of the system. Hopefully the scale of the problem is small. The Gini coefficient is worsening on the back of shady maneuvers like this? Good thing for the bankers it is all too complicated for average joe to understand just how bad he is going to be cheated with the socialization of this one. But the clever little bankers better be careful because it is almost getting so bad that the average joe might finally start voting for a rowdy form of populism. I think fighting and dying for SIVs is starting to wear a little thin.
Yep, backed by the full faith and credit of SIVs. Ben's got a lot of work left to do to spin those federal reserve notes into gold.
Perversions of a fiat currency.
FFDIC: I guess the FDIC was too busy evolving itself into a young, innovative, dynamic corporate vision through RIF'ing to notice an out of control banking system. Good luck with the case. As for media coverage, if only Britney Spears were over 50 and worked for the FDIC...
RPT-BarCap Throws $1.5 Bln Lifeline to 3rd Fund -Paper
Wed Sep 12, 2007 8:01 AM BST
LONDON (Reuters) - Barclays Capital has thrown a $1.5 billion lifeline to a third, highly geared fund that ran into trouble because of the global liquidity squeeze, the Times newspaper said on Wednesday.
Golden Key, which has $5 billion of assets under management, is a structured investment vehicle designed by Barclays Capital, the investment banking arm of Britain's Barclays bank, and managed by Geneva-based asset manager Avendis, the paper said.
Golden Key said in a statement that it had been working with a leading investment bank to develop a restructuring proposal, the Times said.
It cited unnamed sources as saying the investment bank was Barclays Capital.
Barclays was not immediately available for comment.
I can't see Citi just... hummmdy dumm... failing. It would have to be pretty ugly, drawn out & really catch folks attention.
dryfly
Normally I'd say Citi's too big to fail, but they've waded so deeply into so many bad bets($150b+ of PE paper and bridge equity, SIV god knows what else) that it may overwhelm a bank with a trillion dollars in assets. Will they het bailed out? As much as fiscally possible. Broken up as part of the process? Even money.
JPMorgan and BofA don't worry me nearly as much. But all this will mean in the end is greater consolidation in the banking industry.
"RPT-BarCap Throws $1.5 Bln Lifeline to 3rd Fund... NUREG"
Barclays Capital injects $1.5bn into Golden Key - Times Online
Re: Citi
Also:
"New York-based Citigroup is more than a lender to GMAC. It was part of the group led by Cerberus Capital Management LP that bought a 50.1 percent stake in GMAC last year from GM."
...and on top of that they now have lent GMAC another $21B.
GMAC Gets $21 Billion in Citigroup Funding for Auto, Home Loans - Bloomberg.com
Re fleck talking his book, I used to subscribe to his site and while he had a NEW position on practically forever, he generally doesn't have many short positions on and other than INTC, which he seems fixated on, doesn't talk his book much.
He's so cautious and conservative I decided it wasn't worth paying for.
Moin,
here is more on Citigroup´s SIV
via the WSJ
In a letter seen by the WS Journal, Citigroups SIV overseers, Paul Stephens and Richard Burrows, said that:
"Quite simply, portfolio quality is extremely high and we have no credit concerns about any of the constituent assets SIVs remain robust and their asset portfolios are performing well"
Now the FT
But look at the filings with the London Stock Exchange, and you will see that Citis SIVs have seen declines in portfolio net asset value of 17-20 per cent in the past few months, which doesnt quite sit comfortably with Stephens and Burrows assertion that asset portfolios are performing well.
WSJ
Small Banks Risk Catching Credit Ills
What would someone look for to see signs of a regional bank with potential problems ?
Locally, we have two regional banks (Ameris and Capitol Cities) plus two state chartered semi-local banks (they have small branch distribution both in numbers and geography). There may be one BoA branch about 20 miles away, but thats it for local banking.
The Ameris branch used to be locally owned and had excellent fillings for a bank of such small size.
Snowball notes
FT Alphaville » Blog Archive » Chemical finance? Snowball notes
SIVs repo what they sow
SIVs repo what they sow