So when is it going to be dollar pitcher night? I used to do my quantum homework at a pizza bar that specialized in 'dollar pitchers'... it was a race to see which I would finish first, the problem sets or the beer. If the beer won - the sets didn't get finished. Schroedinger's cat would just have to wait...
great post, as always. if anyone has insight into the current events in the CP market, that would be most insightful. from the last 2 posts i cited from the FT (one on the prior thread), LIBOR is a continuing big problem. and, if it isnt corrected soon, it will freeze up the whole system, i believe.
Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.
Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.
More good news for the economy, who cares if the unemployment rate goes up to 10% , Apple is rumored to be announcing something to do with the iPhone!
please excuse bacon dreamz from today's quiz, as he experienced an unfortunate incident involving mescaline and ether while attending a conference in las vegas this past weekend. the long-term effects remain indeterminate, but rest assured, i will keep you updated!
Dryfly, if your quantum homework was anything like mine, the problems ended up making more sense the more you drank. I wonder if the same thing could be said for economics?
Funny how much of the world seems to drive one to drink. - In vino, veritas.
and, in re: the number of economists needed to fill up Jackson Hole, does that have a constant relationship to the number of holes it takes to fill the Albert Hall?
I have a gut feeling that this may be relevant somehow.
-- Hiding out
According to the uncertainty principle, if you know exactly where a particle is, you have no idea how fast it is moving, and if you know exactly how fast it is moving, you have no idea where it is. This principle has profound effects on the way we can think about the world. It casts a shadow of doubt on many long-held assumptions: that every cause has a clearly defined effect, that observation has no influence upon experimental results, and so on. For SAT II Physics, however, you neednt be aware of the philosophical conundrum Heisenberg posedyou just need to know the name of the principle, its meaning, and the formula associated with it.
Leamer log:
"We economists have a deep dislike of predictive narratives. Economics, Unlike the other social sciences, is a self-consciously interventionist discipline. We think that we are designing the best way for our governments to influence the outcomes. For that purpose, of course, we must have causal beliefs. Thus, so as not to confuse our intiates, our introductory textbooks rarely mention predictive stories, but instead indoctrinate our students with the causal narrative of the IS-LM model or the equivalent. For some, the force of the causal story of the IS-LM model has been offset completely by the power of the predictive narrative of the Lucas Critique. For most economists, the knowledge assumptions of the Lucas Critique make that story more than a little farfetched. Thus IS-LM thinking is very much alive.
So there you have it: It's faith-based decision making, which is much influenced by the rhetorical skills of the advocates. I would be conveying accurately the scientific validity of the opinions expressed here if, in the printed version, about 50% of the pixels were removed so you could hardly read what I have writted, and, in the spoken version, if I slurred my speech to the point that you could hardly understand what I have said."
So. Um. Leamer log. Essentially says the Fed is full of beans with buying into the RBC modelling.
The other great one is "The Fed can either stimulate now, or later, but not both." (bold by Leamer, who can also do commas, unlike my grammatically challenged self) I also note that I had to strip the copy protection from this doc just to get a nice fair use quote. Ugh. Ugh. Ugh.
Inflation on the half shell if they try to save the housing economy, or deflation in Ma and Pa Kettle's main baby boomer asset just before retirement sets in. Could this Hobson's choice get any better?
Okay, so now that we admit we are flying blind, is everybody happy?
The economists gathered at Jackson Hole have not addressed the global elitist paradox. To wit: Any money created and injected into the banking system is automatically sucked into a black hole and never heard from again. Any money injected into assets via leverage is immediately taken out by the sheeple, spent and simultaneously winds up deposited into a foreign bank account. From there it is caught in the gravitational pull of the twin black holes of Wall Street and Treasury Bills, where it gets stuck in a delicate equilibrium and cannot be released back into normal space, lest it cause a matter + anti-matter chain reaction of galactic proportions.
100ea $100,000 mortgages of differing risks due to differing credit histories, proven or unproven incomes and differing down payments, and differing rates, etc, become a single:
$10,000,000 total principal MBS
Some of the mortgages are 20% down, proven income, 5.5% fixed 30 years
Some are flakey 1.5% for two years, reset to 2% plus prime for remaining 28 years.
And many other mixes.
Who is to say which group of mortgages will produce the best return over say the next ten years. Let alone say what the MBS will return in total, except for some very complicated computer program.
If real estate prices continue to rise and interest rates maybe decline a little, there is a nice profit to be made with little risk on the total MBS.
But if housing prices decline and rates go up, the flakey mortgages produce a loss of principal and a loss of some of the higher income streams.
It seems to this somewhat ignorant observer, that it would not take much to wipe out short term profits, result in panic fire sales, and provide an excellent opportunity for those investment banks that personally know the details of particular MBS to buy back profitably what they once overrated and sold?
Just as everyone had stated last year they they were weening themselves off of fleet sales, GM decides to "goose" the numbers one more time-
"GM, the world's biggest automaker, surprised analysts by posting a 6 percent increase in sales, led by a 16.6 percent increase in truck sales. Part of that was due to a 24 percent increase in sales to rental car companies, which GM and other U.S. automakers have been trying to cut back on because they hurt brand image and resale values. Ballew said August was a one-time increase and GM will reduce sales to rental fleets through the rest of the year."
All this talk about physics and unexplained behavior... A 50bpt ease by the Fed is all but fully priced into equities now and yet the yen weakened against the dollar.
Maybe the dollar with get even stronger if the fed lowers 150bpts?
last line of Green & Wachter's conclusion is worth the time.
"No am't of sophisticated finance structurd finance can overcome the lack of sound underwriting. The absense of underwriting means investors face uncertainty, rather than risk, making informed investor choice impossible."
"All this talk about physics and unexplained behavior... A 50bpt ease by the Fed is all but fully priced into equities now and yet the yen weakened against the dollar."
The yen clearly is being manipulated by policymakers to accomplish twin objectives: 1) stimulus for Japanese exporters; and 2) stimulus for U.S. stocks. But I don't think the manipulation is sustainable. As hedge funds start to implode, I think the carry trade will unwind, although maybe slowly. Japanese banks eventually will end this party.
I think you are right rich. I am expecting the yen to be devalued for the purpose of the BOJ raising rates shortly. At that point I could see another crisis as asset and equity valuations get hit.
The euphoria over Fed rate cuts and "massive liquidity injections" is something to behold. I've heard even normally smart and rational Wall Street types just slobbering over it. So, I've tried to deconstruct what's behind it.
Clearly, part of it is desperation. But the hope component actually has two parts, I think: 1) One is the stimulative power of the rate cuts themselves; 2) the other is a conviction that policymakers will work us out of this mess.
Whether or not #1 will have much impact, it's really hard for me to believe in #2. For one, I don't think policymakers have their hearts in it. For another, they don't have the vision or talent. We really are in a "bad policy" era, aren't we?
No am't of sophisticated finance structurd finance can overcome the lack of sound underwriting. The absense of underwriting means investors face uncertainty, rather than risk, making informed investor choice impossible."
Bailey: perfect quote,thanks: here is a quote from C.K. Liu who has been discussing this issue for awhile now:
In a short period of weeks, the subprime time bomb that had been ticking unnoticed for half a decade suddenly exploded into a system-wide liquidity crisis which then escalated into a credit crisis in the entire money market dominated by the non-bank financial system that threatens to do permanent damage to the global economy.
As an economist, Ben Bernanke, the new Chairman of the US Federal Reserve, no doubt understands that the credit market through debt securitization has in recent years escaped from the funding monopoly of the banking system into the non-bank financial system. As Fed Chairman, however, he must also be aware that the monetary tools at his disposal limit his ability to deal with the fast emerging market-wide credit crisis in the non-bank financial system. The Fed can only intervene in the money market through the shrinking intermediary role of the banking system which has been left merely as a market participant in the overblown credit market.
Thus the Fed is forced to fight a raging forest fire with a garden hose. One of the reasons the Fed shows reluctance in cutting the Fed Funds rate target may be the fear of exposing its incapacity in dealing with the credit crisis at hand in the non-bank financial system. What if after the Fed fires its heavy artillery and the credit crisis persists or even further deteriorates?
Rich, I think the yen will go down in value in the short term as the BOJ manipulates the currency so they can get to a point to raise interest rates. I would expect the markets to rally with the added liquidity until the BOJ actually raises and then their will be more action from the central banks to keep the markets from locking up. From what I see the central banks want to remove excess liquidity in a slow and somewhat orderly fashion. I don't know if that can be achieved with the frankenmarkets we have now.
The best part of Gm's fleet sales to rental companies is that when you head to Fl on vacation, you can scoop up a car for $16 a day... midsize , at that.
Just make sure you fill up before getting close to the return lot.
I don't get all the "non-bank financial system" rhetoric. AG won the TOTAL deregulation of the banking sector when he pressured Congress into repealing Glass-Steagall w/o updating regulatory oversight.
In the past, the Treasury Secretary & the FED Chairman would each try to act for different interests (Securities industry vs. Banks), balancing each's power. NOW they're on the same side & NO ONE is around to hold them in check.
short-term "discount note" issues rose by $82 billion in August to $249 billion outstanding. Longer-term debt issues increased by $28 billion to $838 billion.
Let me pose a question to the JacksonHole Gang. Why would banks be under-reserving in this environment? Hussman does not give an opinion on that question, but he does make some pungent observations:
Hussman Funds - Weekly Market Comment: September 3, 2007 - The Problem With Financials Consider, for example, the latest FDIC Banking Profile, which was published based on June 30, 2007 data (before the recent liquidity crisis emerged). In that report, the FDIC noted that the ratio of loan loss reserves to total loans remains at a 32 year low. As for the portion of those loans that are in trouble, the FDIC notes for the fifth quarter in a row, reserves failed to keep pace with the increase in non-current loans. The industry's coverage ratio of reserves to non-current loans fell to the lowest level since the third quarter of 2002, while non-current loans posted the largest quarterly increase since the fourth quarter of 1990. Recall that 1990 and 2002 were periods when recessions were already well underway. If we're already seeing these signs of credit stress at the peak of an economic expansion, the figures we observe in a recession are likely to be a lot worse.
James Grant put it this way Benjamin Graham and David L. Dodd, in the 1940 edition of their seminal volume Security Analysis,' held that the acid test of a bond or a mortgage issuer is its ability to discharge its financial obligations under conditions of depression rather than prosperity.' Today's mortgage market can't seem to weather prosperity.
The issue that troubles me the most is the hidden losses at every level of what is supposed to be the most transparent markets on earth. Maybe Japan's fate awaits us.
Muellbauer's charts paint an interesting picture. You can also find an interesting one (US home prices adjusted for inflation for the past 130 years) here:
Chinas reserve managers the State Administration of Foreign Exchange recently reported that they have exactly zero exposure to US subprime mortgages.
"China's official forex reserves don't include [the US subprime securities]," Wei Benhua, deputy director of the State Administration of Foreign Exchange, said on the sidelines of a financial industry meeting in Beijing
With all respect to Hussman, whoever he is, in the post-Enron world banks managements lost their ability to exercise prudence in reserving for potential bad loans. Here's why:
Under GAAP accounting, businesses of all sorts have to try to match expenses to revenues. This is done through accrual rather than cash accounting. For example, a company that pays its CEO a $1.2 million bonus every year on Dec 31 will have to accrue or charge to expenses $100k every month of the year.
The key to good earnings management (which the post-Enron SEC and auditors sought to banish) is to OVERACCRUE expenses when times are good and then UNDERACCRUE when times are bad. It may sound simplistic or even devious but Wall Street really likes "predictable" earnings. Anyway, the bottom line is that banks by natures are highly accrual oriented.
In the boom times of 2004, 2005 and the first half of 2006, many/most regional banks saw their non-performing assets fall dramatically to almost negligible levels. While common sense and prudence should have dictated that banks add to reserves (by provisioning for not-yet-existent losses on the income statement as expenses), the auditors simply wouldn't allow it because the recent loss experience had been so good. Got that?
Fortunately, contrary to Hussman's opinion, it doesn't really matter, strange as that sounds, because banks' ability to absorb credit losses is determined by the strength of their total balance sheet which is measured by shareholders equity PLUS Reserves for Credit Losses. If banks had been prudently reserving heavily for losses, their Reserves for Credit Losses would be larger but their Shareholder's Equity would be smaller by the same amount. And this one isn't even the bankers fault!!
My God. I made what seemed like a perfectly reasonable suggestion to extend discussion on the Leamer paper and end up receiving a reading list. Conjure Bag saw it and went comatose.
Russ Winter's thoughts on the papers presented... Winter (Economic and Market) Watch » Pom Poms Discarded at Jackson Hole
, thinks Europe (Issing) is telling the Feds to clean up their act, ie, "the tide is
turning"....stop blowing bubbles. Interesting, Russ refers to Bloomberg Fed, Blamed for Asset-Price Inaction, Is Told `Tide Is Turning' - Bloomberg.com
for some scoop on the Jackson Hole goings on over the weekend. Mike Bloomberg's
recent break with the Republicans and Bloomberg.com's shift towards candor in
their reporting of things financial suggests to me Mike Bloomberg is siding with the
Europeans on this.....
We're getting closer to Russ's "fork in the road" ......clean up our act or blow more bubbles....my guess....tide or no tide, bubbles, until we're so far under water there's no more air to blow more bubbles.
We're getting closer to Russ's "fork in the road" ......clean up our act or blow more bubbles....my guess....tide or no tide, bubbles, until we're so far under water there's no more air to blow more bubbles.
I think the US Fed still has the capacity to bring this to a quick end, but I think foreign central banks and governments now bear more and more of the responsibility. This isn't just about US subprime loans.
Much of the bubble blowing occurs in foreign markets now.
More people and organizations throughout the world have blood on their hands as the financial and psychological infrastructure of what has thus far been a genuine worldwide advancement, begin to rot in a sea of single-minded avarice and easy money.
I've become much more pessimistic recently in the face of what appears to be intensely willful ignorance for the sake of personal gain.
I believe long-term global economic prospects grow dimmer by the day.
Much of the bubble blowing occurs in foreign markets now.
Absolutely. I am not absolving the Fed by any means but I really question how much 'control' they have over our own money supply with all the FCB currency manipulation and private carry trade going on.
The ECB seems pretty 'tight' - at least this week - but the Asians, no way.
And this from Polonius...
Chinas reserve managers the State Administration of Foreign Exchange recently reported that they have exactly zero exposure to US subprime mortgages.
Don't you just love the acronym - SAFE. You just can't make stuff up like that.
The Green & Wachter was really good. First clear explanation of the S&L crisis, and the historical origin of US ARMs, I've read. I was going to paste in the final sentences to warm Tanta's heart but bailey beat me to it So the second best:
It is of course the case that as a security becomes more diversified, unsystematic risk will get smaller, but mortgages with ten percent default rates will continue to carry such probabilities, regardless of the securities into which they are packaged.
Commercial Real Estate in U.S. Poised for 15 Percent Price Drop
U.S. commercial real estate prices may fall as much as 15 percent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales...
I won't believe the Chinese claim until there's some external confirmation of it. Chinese officials can lie just as well as American officials, and it seems to me that in this case, they would have a strong incentive to do so.
I think it would be much more fun if we had the quiz earlier.
Ok I read them all, now what are your questions?
FT: sense of crisis growing in interbank market
FT.com / Capital Markets - Sense of growing crisis over interbank deals
Oh great back to school required reading.
So when is it going to be dollar pitcher night? I used to do my quantum homework at a pizza bar that specialized in 'dollar pitchers'... it was a race to see which I would finish first, the problem sets or the beer. If the beer won - the sets didn't get finished. Schroedinger's cat would just have to wait...
Ok I read them all, now what are your questions?
Double quiz. First guess questions and then answers.
CR,
great post, as always. if anyone has insight into the current events in the CP market, that would be most insightful. from the last 2 posts i cited from the FT (one on the prior thread), LIBOR is a continuing big problem. and, if it isnt corrected soon, it will freeze up the whole system, i believe.
Looks like my sources were correct -
Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.
PER: Nationalmortgagenews.com
and if dryfly manages to drink all that beer, I think we'll have a double blind study framework. Can I be assigned to his group? ..... wetfly?
Thanks, CR! Great resource!
wally, wally, wally ...
Double quiz. First guess questions and then answers.
It would be like playing Jeopardy - Jackson Hole Edition...
The answers would be all the same - cut federal funds rate - only the questions would vary.
:::::::
"Alex, I'll take famous Fed Chairman for $400.."
Cut Federal Funds Rate.
[DING,DING,DING]
"What would Alan Greenspan do?"
Correct! And your next category?
"'Market Movers' for $200..."
Cut Federal Funds Rate.
[DING,DING,DING]
"Things that make the market go higher..."
I'm sorry, that has to be presented as a question...
[DING,DING]
"What makes markets go higher?"
Correct!
i can't write the quiz, i have a doctor's note...
My dad warned me to never ask questions you didn't know the answers to ahead of time in situations like this.
You'd think there was no downside to lowering rates.
Symposium. From the Greek sympotein, to drink together.
Seems about right to me.
Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.
More good news for the economy, who cares if the unemployment rate goes up to 10% , Apple is rumored to be announcing something to do with the iPhone!
Laissez les bons temps roulez!
Bonus question!
How many economists does it take to fill Jackson Hole?
-- Hiding Out
please excuse bacon dreamz from today's quiz, as he experienced an unfortunate incident involving mescaline and ether while attending a conference in las vegas this past weekend. the long-term effects remain indeterminate, but rest assured, i will keep you updated!
signed,
Dr Gonzo
Dryfly, if your quantum homework was anything like mine, the problems ended up making more sense the more you drank. I wonder if the same thing could be said for economics?
Funny how much of the world seems to drive one to drink. - In vino, veritas.
and, in re: the number of economists needed to fill up Jackson Hole, does that have a constant relationship to the number of holes it takes to fill the Albert Hall?
I have a gut feeling that this may be relevant somehow.
-- Hiding out
According to the uncertainty principle, if you know exactly where a particle is, you have no idea how fast it is moving, and if you know exactly how fast it is moving, you have no idea where it is. This principle has profound effects on the way we can think about the world. It casts a shadow of doubt on many long-held assumptions: that every cause has a clearly defined effect, that observation has no influence upon experimental results, and so on. For SAT II Physics, however, you neednt be aware of the philosophical conundrum Heisenberg posedyou just need to know the name of the principle, its meaning, and the formula associated with it.
Leamer log:
"We economists have a deep dislike of predictive narratives. Economics, Unlike the other social sciences, is a self-consciously interventionist discipline. We think that we are designing the best way for our governments to influence the outcomes. For that purpose, of course, we must have causal beliefs. Thus, so as not to confuse our intiates, our introductory textbooks rarely mention predictive stories, but instead indoctrinate our students with the causal narrative of the IS-LM model or the equivalent. For some, the force of the causal story of the IS-LM model has been offset completely by the power of the predictive narrative of the Lucas Critique. For most economists, the knowledge assumptions of the Lucas Critique make that story more than a little farfetched. Thus IS-LM thinking is very much alive.
So there you have it: It's faith-based decision making, which is much influenced by the rhetorical skills of the advocates. I would be conveying accurately the scientific validity of the opinions expressed here if, in the printed version, about 50% of the pixels were removed so you could hardly read what I have writted, and, in the spoken version, if I slurred my speech to the point that you could hardly understand what I have said."
So. Um. Leamer log. Essentially says the Fed is full of beans with buying into the RBC modelling.
The other great one is "The Fed can either stimulate now, or later, but not both." (bold by Leamer, who can also do commas, unlike my grammatically challenged self) I also note that I had to strip the copy protection from this doc just to get a nice fair use quote. Ugh. Ugh. Ugh.
Inflation on the half shell if they try to save the housing economy, or deflation in Ma and Pa Kettle's main baby boomer asset just before retirement sets in. Could this Hobson's choice get any better?
Okay, so now that we admit we are flying blind, is everybody happy?
Someday this war's gonna end...
The economists gathered at Jackson Hole have not addressed the global elitist paradox. To wit: Any money created and injected into the banking system is automatically sucked into a black hole and never heard from again. Any money injected into assets via leverage is immediately taken out by the sheeple, spent and simultaneously winds up deposited into a foreign bank account. From there it is caught in the gravitational pull of the twin black holes of Wall Street and Treasury Bills, where it gets stuck in a delicate equilibrium and cannot be released back into normal space, lest it cause a matter + anti-matter chain reaction of galactic proportions.
From http://www.kansascityfed.org/publicat/sympos/2007/PDF/2007.08.03.Leamer.pdf
Just to keep the footnoters happy.
Somedya this war's gonna end...
Trying to keep it simple but make a point.
100ea $100,000 mortgages of differing risks due to differing credit histories, proven or unproven incomes and differing down payments, and differing rates, etc, become a single:
$10,000,000 total principal MBS
Some of the mortgages are 20% down, proven income, 5.5% fixed 30 years
Some are flakey 1.5% for two years, reset to 2% plus prime for remaining 28 years.
And many other mixes.
Who is to say which group of mortgages will produce the best return over say the next ten years. Let alone say what the MBS will return in total, except for some very complicated computer program.
If real estate prices continue to rise and interest rates maybe decline a little, there is a nice profit to be made with little risk on the total MBS.
But if housing prices decline and rates go up, the flakey mortgages produce a loss of principal and a loss of some of the higher income streams.
It seems to this somewhat ignorant observer, that it would not take much to wipe out short term profits, result in panic fire sales, and provide an excellent opportunity for those investment banks that personally know the details of particular MBS to buy back profitably what they once overrated and sold?
Just as everyone had stated last year they they were weening themselves off of fleet sales, GM decides to "goose" the numbers one more time-
"GM, the world's biggest automaker, surprised analysts by posting a 6 percent increase in sales, led by a 16.6 percent increase in truck sales. Part of that was due to a 24 percent increase in sales to rental car companies, which GM and other U.S. automakers have been trying to cut back on because they hurt brand image and resale values. Ballew said August was a one-time increase and GM will reduce sales to rental fleets through the rest of the year."
Expired
A B C D
1) x
2)x
3) x
4) x
5) x
6)x
7) x
8) x
9) x
10) x
All this talk about physics and unexplained behavior... A 50bpt ease by the Fed is all but fully priced into equities now and yet the yen weakened against the dollar.
Maybe the dollar with get even stronger if the fed lowers 150bpts?
last line of Green & Wachter's conclusion is worth the time.
"No am't of sophisticated finance structurd finance can overcome the lack of sound underwriting. The absense of underwriting means investors face uncertainty, rather than risk, making informed investor choice impossible."
Enough said?
rescap-
Business & Financial News, Breaking US & International News | Reuters.com
fhlb increases funding-
Business & Financial News, Breaking US & International News | Reuters.com
FHLB Des Moines Provides Increased Funding During Mortgage Crisis
Federal Home Loan Bank of San Francisco Increases Loans to Members by $53 Billion in July and August
Digital50: Page Not Found
credit index-
MarketWatch.com
So, on one side is Mishkin & on the other is EVERYONE else? I can only hope this is a barometer of the FED's apprehension to do Paulson's bidding!
"All this talk about physics and unexplained behavior... A 50bpt ease by the Fed is all but fully priced into equities now and yet the yen weakened against the dollar."
The yen clearly is being manipulated by policymakers to accomplish twin objectives: 1) stimulus for Japanese exporters; and 2) stimulus for U.S. stocks. But I don't think the manipulation is sustainable. As hedge funds start to implode, I think the carry trade will unwind, although maybe slowly. Japanese banks eventually will end this party.
RC,
Are FHLB loans short term?
I think you are right rich. I am expecting the yen to be devalued for the purpose of the BOJ raising rates shortly. At that point I could see another crisis as asset and equity valuations get hit.
The euphoria over Fed rate cuts and "massive liquidity injections" is something to behold. I've heard even normally smart and rational Wall Street types just slobbering over it. So, I've tried to deconstruct what's behind it.
Clearly, part of it is desperation. But the hope component actually has two parts, I think: 1) One is the stimulative power of the rate cuts themselves; 2) the other is a conviction that policymakers will work us out of this mess.
Whether or not #1 will have much impact, it's really hard for me to believe in #2. For one, I don't think policymakers have their hearts in it. For another, they don't have the vision or talent. We really are in a "bad policy" era, aren't we?
edgar | 09.04.07 - 6:35 pm |
That made more sense than anything I've read outside of T+CR's work ... for 5 years
Is it an original work of yours?
Ministry of Truth,
Don't you mean you expect the yen to be appreciated, not devalued?
No am't of sophisticated finance structurd finance can overcome the lack of sound underwriting. The absense of underwriting means investors face uncertainty, rather than risk, making informed investor choice impossible."
Bailey: perfect quote,thanks: here is a quote from C.K. Liu who has been discussing this issue for awhile now:
In a short period of weeks, the subprime time bomb that had been ticking unnoticed for half a decade suddenly exploded into a system-wide liquidity crisis which then escalated into a credit crisis in the entire money market dominated by the non-bank financial system that threatens to do permanent damage to the global economy.
As an economist, Ben Bernanke, the new Chairman of the US Federal Reserve, no doubt understands that the credit market through debt securitization has in recent years escaped from the funding monopoly of the banking system into the non-bank financial system. As Fed Chairman, however, he must also be aware that the monetary tools at his disposal limit his ability to deal with the fast emerging market-wide credit crisis in the non-bank financial system. The Fed can only intervene in the money market through the shrinking intermediary role of the banking system which has been left merely as a market participant in the overblown credit market.
Thus the Fed is forced to fight a raging forest fire with a garden hose. One of the reasons the Fed shows reluctance in cutting the Fed Funds rate target may be the fear of exposing its incapacity in dealing with the credit crisis at hand in the non-bank financial system. What if after the Fed fires its heavy artillery and the credit crisis persists or even further deteriorates?
Liquidity Bust Bypasses the Banking System
ResCap Deal
to be evaluated by third party.
under the Shade tree, that is...
REBear-
reading the release, it looks as if there was a combination.
Here is a sheet on fhlbNY current rates-
FHLBNY Rates: Advances
Rich, I think the yen will go down in value in the short term as the BOJ manipulates the currency so they can get to a point to raise interest rates. I would expect the markets to rally with the added liquidity until the BOJ actually raises and then their will be more action from the central banks to keep the markets from locking up. From what I see the central banks want to remove excess liquidity in a slow and somewhat orderly fashion. I don't know if that can be achieved with the frankenmarkets we have now.
The best part of Gm's fleet sales to rental companies is that when you head to Fl on vacation, you can scoop up a car for $16 a day... midsize , at that.
Just make sure you fill up before getting close to the return lot.
I don't get all the "non-bank financial system" rhetoric. AG won the TOTAL deregulation of the banking sector when he pressured Congress into repealing Glass-Steagall w/o updating regulatory oversight.
In the past, the Treasury Secretary & the FED Chairman would each try to act for different interests (Securities industry vs. Banks), balancing each's power. NOW they're on the same side & NO ONE is around to hold them in check.
Thanks RC
Missed this section on first read.
short-term "discount note" issues rose by $82 billion in August to $249 billion outstanding. Longer-term debt issues increased by $28 billion to $838 billion.
Let me pose a question to the JacksonHole Gang. Why would banks be under-reserving in this environment? Hussman does not give an opinion on that question, but he does make some pungent observations:
Hussman Funds - Weekly Market Comment: September 3, 2007 - The Problem With Financials
Consider, for example, the latest FDIC Banking Profile, which was published based on June 30, 2007 data (before the recent liquidity crisis emerged). In that report, the FDIC noted that the ratio of loan loss reserves to total loans remains at a 32 year low. As for the portion of those loans that are in trouble, the FDIC notes for the fifth quarter in a row, reserves failed to keep pace with the increase in non-current loans. The industry's coverage ratio of reserves to non-current loans fell to the lowest level since the third quarter of 2002, while non-current loans posted the largest quarterly increase since the fourth quarter of 1990. Recall that 1990 and 2002 were periods when recessions were already well underway. If we're already seeing these signs of credit stress at the peak of an economic expansion, the figures we observe in a recession are likely to be a lot worse.
James Grant put it this way Benjamin Graham and David L. Dodd, in the 1940 edition of their seminal volume Security Analysis,' held that the acid test of a bond or a mortgage issuer is its ability to discharge its financial obligations under conditions of depression rather than prosperity.' Today's mortgage market can't seem to weather prosperity.
The issue that troubles me the most is the hidden losses at every level of what is supposed to be the most transparent markets on earth. Maybe Japan's fate awaits us.
I found "The Housing Finance Revolution" to be very insightful and appreciate the link here.
Libor and the cp conundrum-
Why Libor Defies Gravity - WSJ.com
couple good charts with accompanied commentary, "State of the Corporate Credit Markets"-
http://mediaserver.fxstreet.com/Reports/9e76dcd5-7f65-458d-b639-ee70b27301f6/TopFiveDistressGraph_20070904031258.gif
http://mediaserver.fxstreet.com/Reports/9e76dcd5-7f65-458d-b639-ee70b27301f6/ProportionOfBondsGraph_20070904030028.gif
The State of the Corporate Credit Markets
referencing the above charts, looks as if as long as you're not consumer related, things are hunky-dory.
Muellbauer's charts paint an interesting picture. You can also find an interesting one (US home prices adjusted for inflation for the past 130 years) here:
DailyWealth: A Surprising Look at 100+ Years of Home Prices
I think the entire story, as well as a little foreshadowing of what's to come, is in these charts.
Tanta-
this one's for you-
FDIC: Press Releases - PR-74-2007 09/04/2007
Hussman is one of the few mutual fund managers that has it right. His performance in 2000, 2001, and 2002 tell it all.
Maybe Japan's fate awaits us.
Oh we should be so lucky. Japan had a huge trade surplus, we dont.
My answers to the quiz are as follows:
touche,
I don't think we want 10 years of deflation here, trade surplus or no, that is a lot of pain.
Close to $500b of debt purchased over the last 18 months, and not a cent of subprime ...
Brad Setser | Sep 04, 2007
RGE - Close to $500b of debt purchased over the last 18 months, and not a cent of subprime ...
Chinas reserve managers the State Administration of Foreign Exchange recently reported that they have exactly zero exposure to US subprime mortgages.
"China's official forex reserves don't include [the US subprime securities]," Wei Benhua, deputy director of the State Administration of Foreign Exchange, said on the sidelines of a financial industry meeting in Beijing
With all respect to Hussman, whoever he is, in the post-Enron world banks managements lost their ability to exercise prudence in reserving for potential bad loans. Here's why:
Under GAAP accounting, businesses of all sorts have to try to match expenses to revenues. This is done through accrual rather than cash accounting. For example, a company that pays its CEO a $1.2 million bonus every year on Dec 31 will have to accrue or charge to expenses $100k every month of the year.
The key to good earnings management (which the post-Enron SEC and auditors sought to banish) is to OVERACCRUE expenses when times are good and then UNDERACCRUE when times are bad. It may sound simplistic or even devious but Wall Street really likes "predictable" earnings. Anyway, the bottom line is that banks by natures are highly accrual oriented.
In the boom times of 2004, 2005 and the first half of 2006, many/most regional banks saw their non-performing assets fall dramatically to almost negligible levels. While common sense and prudence should have dictated that banks add to reserves (by provisioning for not-yet-existent losses on the income statement as expenses), the auditors simply wouldn't allow it because the recent loss experience had been so good. Got that?
Fortunately, contrary to Hussman's opinion, it doesn't really matter, strange as that sounds, because banks' ability to absorb credit losses is determined by the strength of their total balance sheet which is measured by shareholders equity PLUS Reserves for Credit Losses. If banks had been prudently reserving heavily for losses, their Reserves for Credit Losses would be larger but their Shareholder's Equity would be smaller by the same amount. And this one isn't even the bankers fault!!
My God. I made what seemed like a perfectly reasonable suggestion to extend discussion on the Leamer paper and end up receiving a reading list. Conjure Bag saw it and went comatose.
CR, Tanta, things keep getting better here.
Close to $500b of debt purchased over the last 18 months, and not a cent of subprime ...
Chinas reserve managers
They have been reading these blogs. Hopefully they have been using the Tip Jar.
(scratching head)"Iknew it was here yesterday"-
Page expired - MSN Money
- Scotsman.com Business
(scratching head)"Iknew it was here yesterday"-
Page expired - MSN Money
- Scotsman.com Business
Russ Winter's thoughts on the papers presented...
Winter (Economic and Market) Watch » Pom Poms Discarded at Jackson Hole
, thinks Europe (Issing) is telling the Feds to clean up their act, ie, "the tide is
turning"....stop blowing bubbles. Interesting, Russ refers to Bloomberg
Fed, Blamed for Asset-Price Inaction, Is Told `Tide Is Turning' - Bloomberg.com
for some scoop on the Jackson Hole goings on over the weekend. Mike Bloomberg's
recent break with the Republicans and Bloomberg.com's shift towards candor in
their reporting of things financial suggests to me Mike Bloomberg is siding with the
Europeans on this.....
We're getting closer to Russ's "fork in the road" ......clean up our act or blow more bubbles....my guess....tide or no tide, bubbles, until we're so far under water there's no more air to blow more bubbles.
Is it an original work of yours?
Stellar | 09.04.07 - 7:31 pm | #
Yeah, I'm glad you liked it.
citigroup and SIVs!!!:
Debt 'Conduits' Are Hovering Over Citigroup - WSJ.com
We're getting closer to Russ's "fork in the road" ......clean up our act or blow more bubbles....my guess....tide or no tide, bubbles, until we're so far under water there's no more air to blow more bubbles.
I think the US Fed still has the capacity to bring this to a quick end, but I think foreign central banks and governments now bear more and more of the responsibility. This isn't just about US subprime loans.
Much of the bubble blowing occurs in foreign markets now.
More people and organizations throughout the world have blood on their hands as the financial and psychological infrastructure of what has thus far been a genuine worldwide advancement, begin to rot in a sea of single-minded avarice and easy money.
I've become much more pessimistic recently in the face of what appears to be intensely willful ignorance for the sake of personal gain.
I believe long-term global economic prospects grow dimmer by the day.
Much of the bubble blowing occurs in foreign markets now.
Absolutely. I am not absolving the Fed by any means but I really question how much 'control' they have over our own money supply with all the FCB currency manipulation and private carry trade going on.
The ECB seems pretty 'tight' - at least this week - but the Asians, no way.
And this from Polonius...
Chinas reserve managers the State Administration of Foreign Exchange recently reported that they have exactly zero exposure to US subprime mortgages.
Don't you just love the acronym - SAFE. You just can't make stuff up like that.
The Green & Wachter was really good. First clear explanation of the S&L crisis, and the historical origin of US ARMs, I've read. I was going to paste in the final sentences to warm Tanta's heart but bailey beat me to it
So the second best:
It is of course the case that as a security becomes more diversified, unsystematic risk will get smaller, but mortgages with ten percent default rates will continue to carry such probabilities, regardless of the securities into which they are packaged.
I hear there is a quiz tommorrow anyone got the cheat sheet?
Ruh-oh...
Commercial Real Estate in U.S. Poised for 15 Percent Price Drop
U.S. commercial real estate prices may fall as much as 15 percent over the next year in the broadest decline since the 2001 recession as rising borrowing costs force property owners to accept less or postpone sales...
Commercial Real Estate in U.S. Poised for Price Drop (Update2) - Bloomberg.com
Reuters
Federal Home Loan bank mortgage advances surge at 'unprecedented' rate
Federal Home Loan bank mortgage 'advances' surge
| Reuters
houston | 09.04.07 - 10:53 pm |
This may sound trite, but houston, we have a problem.
That article on Citi and the extent of their SIVs and Conduits tells me this could get very ugly before it's over.
I won't believe the Chinese claim until there's some external confirmation of it. Chinese officials can lie just as well as American officials, and it seems to me that in this case, they would have a strong incentive to do so.