Its amazing. Only in America does a CEO loose 10b... walk away with a severence package of 8 million, retirement benefits, and a stock option package worth 135+. In return the stockholders loose 50% of market cap, new CEO gets a huge signing bonus, and employees get a merry christmas pink slip.
Whatever the ceo had nothing to do with the loss. He is the figurehead and scapegoat. Just as we ascribe management acumen to skill rather than luck, so too should we judge his mismanagement as being in the wrong place at the wrong time.
Greed is the cause the boomers and the businessmen, and greed has its own reward.
Self interest: will the new CEO really be able to get too aggressive with write-downs without impairing ML's ability to quickly drive earnings (versus competitors who are much slower to 'mark to market')?
It will be interesting to see who decides to captain a ship that is taking on substantial water in the middle of a storm that appears to be getting worse...
Its depressing to see this. Banks had a very important choice in 3Q earnings. They could take the high road and try to give an honest estimate of the losses so that every one could move onto trying to lessen its impact or at least prepare for the worst. Alternatively, they could take the low road, hide everything and hope something come along and if it doesn't then everything collapses together so nobody in particular can e held to blame. Countrywide's results were an outrageous example of the low road approach, massively optimistic estimates of losses are put together with ridiculously optimistic guidance and A DIVIDEND!!. That will be funded from special lines of credit!
At least Merrill tried to move the ball forward. If we all follow Mozillo's line then there is no problem so there's nothing to fix until it all collapses.
Of course guess which one gets sent off the island. I don't have a lot of sympathy for the individuals involved, after all they are well paid. I just think the system is rewarding irresponsibility right now and we'll all pay big for that in the near future.
Forbes.com lists Stanley O'Neal's compensation as $22.41M. If he's not responsible for Merrill Lynch's financial results, why does (did) he receive that level of compensation?
I hope it's not for giving money to people without knowing or caring whether they could repay it. (What's the difference between ignorance and apathy?)
I had to look up that proverb-- I can't remember hearing it ever in my life. Am I the only one? Maybe I should have read more British novels in college?
The full version is:
"A new broom sweeps clean, but the old one knows all the corners."
Over at the "House of Misery Blog", er ..., I mean the "Housing Bubble Blog" people are claiming that investors are preventing mortgage mods to collect insurance:
This will indeed be interesting. The new CEO will have to balance (i) the desire to wipe the slate (completely) clean for his new regime ("That past, crazy stuff was all O'Neal's fault") with (ii) the need to keep up the appearance of the firm's solvency. Not an easy balancing act. Should be fun to watch.
Are these folks talking out of their hats? Does this actually ring true?
Thanks in advance for any insights you may choose to share.
Hmmm
it may work for the first few, but it will eventually come to pass that those who sold cds will be insolvent themselves... as that market is fairly thi
I think the biggest factors in Stan having to go do not relate directly to the losses. My read:
1) Announcing $5 billion, then only two weeks later having to raise that over 50% demonstrated a lack of systems or management or the relationship with the auditors
2) The approach to Wachovia showed some panic, again raising the spectre of systems and management and going around the board to do it? Simply not excusable.
I do not agree with all the complaining about CEO compensation. Anyone who buys stock knows the score. The executives make huge temporary gains, borrow excessively, take huge bonuses and stock options, then run the company into the ground. If you buy stock or bonds you are a sucker and deserve what you get. Everyone, and I mean anyone and everyone, knows that Wall Street is a screw job. Quit whining, the maggots are doing what they always do.
ML's board is now in a box. They are going to do a large search. That is going to take time. Greg Fleming, the only internal guy possible, isn't yet ready. Laurence Fink of Blackrock? Maybe, don't know the guy.
So over the weeks it takes to do this, who runs the show? Who makes the decisions? You are hugely vulnerable to losing your best people. There is now a leadership vacuum, a risk management vaccum etc. Every day is a problem. At this point selling the biz may be the best option.
When a company projects $5 billion in losses for the quarter just closed, then has it come in at $8 billion, my first reaction is "big bath quarter". Do you think there is any chance that is what happened here? Why or why not?
What, if anything, do you think O'Neal getting the boot implies for Chuck Prince? Or Jimmy Cayne? You think they are a) pleased because it redirects media attention; b) worried because it sets a precedent; or c) indifferent?
When a company projects $5 billion in losses for the quarter just closed, then has it come in at $8 billion, my first reaction is "big bath quarter". Do you think there is any chance that is what happened here? Why or why not?
You can't do the "big bath" in two steps. It demonstrates a lack of a handle on things. Another poster (I forget whom) had the best explanation I think. ML ended up losing a debate with their auditors and had to announce the bigger loss.
What, if anything, do you think O'Neal getting the boot implies for Chuck Prince? Or Jimmy Cayne?
My WAG? Bad news for Prince. He was already vulnerable and now there is going to be no taint to firing the CEO. Jimmy Cayne has taken major steps and fired his biggest internal threat. I don't think it matters for him.
"Ounce upon a time (last week), there was a Wall Street Icon firm, a household name in every financial home. Its name was so famous that it eclipsed the Buttonwood Tree.
This firm found a great Golden Hen (over the counter derivatives) that earned them billions of dollars. Then along came the Grinch of Reality, and it was required that this Icon firm properly value the product of their Golden Hen (OTC derivatives) which when no market was found laid a giant rotten egg. You see, there is no market for these special performance contracts named OTC derivatives, nor has there ever been. Therefore they have been revalued, yet not properly valued, as the value is still value-less. The loss was Icon firm shaking.
The CEO of this Icon firm knows that there is another mountain of OTC derivatives in the firm that will eclipse the meltdown cost of the discredited credit derivatives. They are called Default Derivatives. He opened talks with a firm made up of Wall Street kids with significant capital, but not an Icon of Old Blue Blood Wall Street. He knows that the next wind that blows will take the Icon firm into a net deficit capital entity, which equals broke.
The Board of Directors of the derivative blasted Icon firm was very, very upset that the CEO would open takeover talks with some street kids. They would never approve of these less than blue bloods. You see, the trophy board of directors knows a lot about many things, but less than nothing about OTC derivative as they have been praised for years by a parade of professors and mathematicians as the mother and apple pie of profit centers.
The Board of Directors in their self righteous New England religious fever of a group of wronged people fired the CEO, not realizing his attempt was to save at least the name of the Icon firm. The now unemployed CEO knows that in time the Default Derivatives exposure way exceeds the remaining capital of the Icon firm. For all intents and purposes this Icon is busted, but the Blue Blood Trophy Board has no clue. If you tried to explain why there is risk to the blue bloods of the trophy board their eyes would glass over. Some of the older members of the blue blood boards of directors of the Icon firm would not be concerned as they would be asleep before the explanation, only waking up as the Chairman declares the meeting concluded, for that is what old blue bloods do.
So the snobs have thrown out a man who never created the problem, probably didnt understand the risk, and got blamed after the fact.
This trophy board of directors is quite satisfied with themselves this weekend. They have no idea they blew it and there is a short fused financial nuclear event about to appear in this Icon firms blue blood board of directors room, because they would never let some street kids take them over, and have thrown out the man who tried to save their bacon.
Now if Icons ..... of Wall Street finance can go belly up, what is to say that your bank or broker cannot?
If Japan can protect their defunct bankers for twenty years, what makes you think hot paulson and spanky bernanke can't do the same thing? All the central bankers are in cahoots.
Last week some $75 million of "fed funds" (that is, interbank overnight credit) was transacted at a rate of 15%, and "a bunch" went through in the low to mid 7s.
No, I didn't mistype that. You can find the actual data at this link.
Originally I, and everyone else, assumed that the "high" was an error. A bad print. That there was no chance this was "real".
It was.
Yes, "EFF" (effective fedfunds) was right where "it should be" according to The Fed - across all transactions.
Now let's think about this one for a minute here folks.
"Someone" transacted a $75 million overnight loan that they needed to meet reserve requirements at an absolutely outrageous interest rate - about what you pay for credit card money. A bunch of "someone else's" transacted a bunch at 7-7.5%.
They had the discount window available to them at 50 bips of penalty to EFF, which is a direct overnight loan from The Fed, but didn't use it.
Are you going to try to tell me that some banks actually paid nearly 10% more as an interest rate than they had to?
On what planet are we having this discussion?
There is only one possible explanation for this particular behavior - The Fed would not take the alleged "collateral" these institutions tried to put up, and the market didn't think it was worth much either, even on an overnight basis, and as such "the market" priced the interest rate similar to how Guido would for your "short-term" loan!
This raises the spectre of something truly terrifying in the credit markets -
The Fed may be inches away from losing control over the FF Rate entirely!
Indeed, for those transactions, they already have!
The implications of this, if it spreads, are truly terrifying. We are not talking about a three sigma event, a four sigma, or a five sigma.
We are talking about the equivalent of Financial Armageddon in the credit markets.
Sensing this possibility, a whole bunch of someones put on a bunch of options on the FF Futures contracts that are so far out of the "mainstream" of conventional thinking that they have zero chance of paying off unless a major dislocation event occurs.
These weren't just "idle speculators" either - they were risk management desks, repo desks"
perhaps i missed these prints, but i've got fed funds versus target rate alerts set on my machine during the day and i never saw anything like what's described in that blog entry. in fact, i saw nothing close to the volatility in fed funds that was seen prior to the september cut.
(quote)
.....On Friday, the Office of the Comptroller of the Currency released their latest Qrtrly. Derivative Fact Sheet for Q2/07. In the latest reporting period [Q2/07], J.P. Morgan Chases derivatives book has swelled by a cool 10 Trillion in notional:
[Source: table 2 on page 23 of pdf doc Quarterly Derivatives Report]
In case any of you are wondering how big new growth of 10 Trillion in notional really is:
10,000,000,000,000 / 66 business days = 151 Billion per day [NEW BUS]
Can anyone tell me how or where it is possible to generate 151 Billion in new business per day for 66 straight business days - in ANYTHING?
J.P. Morgan Chase is widely viewed to be the Federal Reserves proxy institution in the marketplace.
Instead of a ticker-tape-parade, perhaps there should be a National Holiday named for this disingenuous feat like, maybe a permanent bank holiday?
JBR, the 15% mark on 10/25 is a bit odd. It still seems more likely that it is a misprint or some other kind of mistake rather than the mother of all credit market blowups (MOACMB) if for no other reason that you will encounter a lot more misprints than MOACMBs in the course of everyday business.
The wheels are already off. Just skidding the plane down the runway trying to keep it from crashing into the terminal. Too bad it's the largest jumbo jet ever and the runway is real short!
My understanding from reading the posts there is that this lend did not go to the Fed window. Why? Would the fed not lend?
This rate is the rate that banks lend to one and other and it completely disconnected from the FFR so it would not have shown up on your alerts as I understand it.
But if a financial institution is so deep in it that it has to borrow at 15% to meet it's daily reserve requirement then there is reason to be worried.
If all of that is true I wonder why the Fed itself would even bother cutting rates. How would it help?
(As I said in my last comment here I've changed my mind and have decided to post links to my blog again unless either CR or Tanta wishes me to stop (and I would very much encourage them to tell me if it does bother them!). I'm honestly not just trying to drum up traffic to my site or I'd be spamming the entire Internet.)
My understanding from reading the posts there is that this lend did not go to the Fed window. Why? Would the fed not lend?
The kind of securities accepted at the discount window as collateral is still very strict. People said that Bernspan lifted a lot of restrictions back in August. This is untrue. The rules are still very strict, just not so strict as before.
Over the last few week I've noticed that the stuff that we've been digesting for months is starting to show up in places outside the econ blog sphere with increasing regularity. For example:
Mitsubishi UFJ Financial Group Inc Japan's largest bank, said on Monday it would have to write down the value of its subprime-related investments by as much as 30 billion yen ($260 million), or six times more than previously announced.
MUFG becomes the latest of several Tokyo financial institutions to announce greater-than-expected losses from subprime investments in the last week.
Stagflationary Mark - why not add the links? If people don't want to click, they don't have to. You've been posting on CR for a long time, so it's not as if you're some newcomer coming out of nowhere hyping your site.
Gold is $5 away from $800. $900 by the end of the week?
If Benny baby give us 50bps Wednessday it will. If he only passes out 25 it will do it December when he cuts another 25, Oil to 100 ho ho ho go Benny go.
oboy..........rumour has it the US Fed is going to cut 75-100 basis points....this will be interesting!! Bond prices already demonstrate a 50 point cut....Hello Moto! Wanna see a US dollar dip a bit?
India stock market touched 20k, it was 3k in May 03. Indian Rupee also appreciated from 46 to 39.4 during this period. Imagine the gains made by US investors. Why should they care about US economy?
"rumour has it the US Fed is going to cut 75-100 basis points"
What the hell this Bernanke is trying to do? Living expenses and raw material costs are rising fast and this idiot is trying to jumpstart the economy with even more devaluation?!?! This is pure madness.
Everybody is getting out of dollars and he is basically just adding more fuel to that fire.
EU still has 150 BILLION dollar trade surplus with US even after Euro has risen from way below parity to 1.44!
That is about 50-60 percent devaluation in five years and even that is not affecting trade surplus at all.
The only explanation for this is the all-out decimating of US manufacturing base. There is nothing to export.
What Americans are going to export when all the new jobs created in recent years have been in domestic nontradable sectors. Big Macs with UPS delivery?!
The wheels are already off. Just skidding the plane down the runway trying to keep it from crashing into the terminal. Too bad it's the largest jumbo jet ever and the runway is real short!
dr strangemoney
Wow, look at those sparks!! Is that a cut fuel line?
If B2 Ben cuts by that much (0.75 to 1.00 percentage points), it is over.
We'll see $4 to $5 a gallon gas within 6-months to a year, and whatever is left of this economy will go crashing off a cliff. No doubt there will be much "confusion" because "nobody could have predicted this." Right!
"rumour has it the US Fed is going to cut 75-100 basis points"
I'll third the request for a source on this...
I haven't heard anyone saying this. The market is pricing in 25-50bps... but 75-100bps would be seen as a panic move.
There would be NO upside to it.
with 50bps you would see:
-increased inflation in commodity/gold prices
-fall in dollar
but
-a probable stock market rally (however brief)
-feeling that "the Fed is on the ball" by market participants (no matter how erroneous)
with 75-100 however
-you don't get any more of a stock bump
and
-you get higher commodity/gold inflation, probably out of control
-the Fed will be seen as being in panic mode.
-international investors will pull out of the Treasury market.
"Out with the old and in with the new.." Pure window dressing. Hmm, since some here seem to fancy literature call me when the "old CEO" leaves a pound of flesh on the mahogany as he departs, after all, that's what his ilk used to require from the borrower.
Sounds like this will be exciting!
I wonder if this is Wall Street's way of sending a warning to anyone who might start telling the truth. Just mark to model dummies.
Here's an early warning sign- when a business sells its Canadian arm, there's trouble down the road. Texaco did it and so did Merrill.
Its amazing. Only in America does a CEO loose 10b... walk away with a severence package of 8 million, retirement benefits, and a stock option package worth 135+. In return the stockholders loose 50% of market cap, new CEO gets a huge signing bonus, and employees get a merry christmas pink slip.
Whatever the ceo had nothing to do with the loss. He is the figurehead and scapegoat. Just as we ascribe management acumen to skill rather than luck, so too should we judge his mismanagement as being in the wrong place at the wrong time.
Greed is the cause the boomers and the businessmen, and greed has its own reward.
Self interest: will the new CEO really be able to get too aggressive with write-downs without impairing ML's ability to quickly drive earnings (versus competitors who are much slower to 'mark to market')?
It will be interesting to see who decides to captain a ship that is taking on substantial water in the middle of a storm that appears to be getting worse...
Agreed, 99.9999% not the CEO's fault (unless some data comes out that proves otherwise).
We all know where the lion's share of greed and responsibility lies in this mess, and it's not with any business entities.
Hint: who signed the dotted line, agreeing they were "willing and able" to repay their loans?
I bet Merrill could get a big cash infusion from China if it begged for it with stock.
Its depressing to see this. Banks had a very important choice in 3Q earnings. They could take the high road and try to give an honest estimate of the losses so that every one could move onto trying to lessen its impact or at least prepare for the worst. Alternatively, they could take the low road, hide everything and hope something come along and if it doesn't then everything collapses together so nobody in particular can e held to blame. Countrywide's results were an outrageous example of the low road approach, massively optimistic estimates of losses are put together with ridiculously optimistic guidance and A DIVIDEND!!. That will be funded from special lines of credit!
At least Merrill tried to move the ball forward. If we all follow Mozillo's line then there is no problem so there's nothing to fix until it all collapses.
Of course guess which one gets sent off the island. I don't have a lot of sympathy for the individuals involved, after all they are well paid. I just think the system is rewarding irresponsibility right now and we'll all pay big for that in the near future.
Forbes.com lists Stanley O'Neal's compensation as $22.41M. If he's not responsible for Merrill Lynch's financial results, why does (did) he receive that level of compensation?
I hope it's not for giving money to people without knowing or caring whether they could repay it. (What's the difference between ignorance and apathy?)
I had to look up that proverb-- I can't remember hearing it ever in my life. Am I the only one? Maybe I should have read more British novels in college?
The full version is:
"A new broom sweeps clean, but the old one knows all the corners."
Much more at
The antiquity of proverbs: fifty ... - Google Books
Folks,
He's leaving because of the talks with Wachovia.
Tanta,
Over at the "House of Misery Blog", er ..., I mean the "Housing Bubble Blog" people are claiming that investors are preventing mortgage mods to collect insurance:
The Housing Bubble Blog » There Are HUGE Losses That Have Not Been Disclosed
Are these folks talking out of their hats? Does this actually ring true?
Thanks in advance for any insights you may choose to share.
This will indeed be interesting. The new CEO will have to balance (i) the desire to wipe the slate (completely) clean for his new regime ("That past, crazy stuff was all O'Neal's fault") with (ii) the need to keep up the appearance of the firm's solvency. Not an easy balancing act. Should be fun to watch.
Would not a new broom sweep only where the board deigns that it may sweep, and only up to the point where to sweep further would render a mortal blow?
http://thehousingbubbleblog.com/?p=3641
Are these folks talking out of their hats? Does this actually ring true?
Thanks in advance for any insights you may choose to share.
Hmmm
it may work for the first few, but it will eventually come to pass that those who sold cds will be insolvent themselves... as that market is fairly thi
Sorry OT, but first of many bagholders found: Connecticut Investment Pool Holds Defaulted Cheyne SIV Notes - Bloomberg.com
I think the biggest factors in Stan having to go do not relate directly to the losses. My read:
1) Announcing $5 billion, then only two weeks later having to raise that over 50% demonstrated a lack of systems or management or the relationship with the auditors
2) The approach to Wachovia showed some panic, again raising the spectre of systems and management and going around the board to do it? Simply not excusable.
My guess was #2 was the bigger issue.
I do not agree with all the complaining about CEO compensation. Anyone who buys stock knows the score. The executives make huge temporary gains, borrow excessively, take huge bonuses and stock options, then run the company into the ground. If you buy stock or bonds you are a sucker and deserve what you get. Everyone, and I mean anyone and everyone, knows that Wall Street is a screw job. Quit whining, the maggots are doing what they always do.
More thoughts,
ML's board is now in a box. They are going to do a large search. That is going to take time. Greg Fleming, the only internal guy possible, isn't yet ready. Laurence Fink of Blackrock? Maybe, don't know the guy.
So over the weeks it takes to do this, who runs the show? Who makes the decisions? You are hugely vulnerable to losing your best people. There is now a leadership vacuum, a risk management vaccum etc. Every day is a problem. At this point selling the biz may be the best option.
Hey Banker! Some quick questions:
When a company projects $5 billion in losses for the quarter just closed, then has it come in at $8 billion, my first reaction is "big bath quarter". Do you think there is any chance that is what happened here? Why or why not?
What, if anything, do you think O'Neal getting the boot implies for Chuck Prince? Or Jimmy Cayne? You think they are a) pleased because it redirects media attention; b) worried because it sets a precedent; or c) indifferent?
Nemo,
When a company projects $5 billion in losses for the quarter just closed, then has it come in at $8 billion, my first reaction is "big bath quarter". Do you think there is any chance that is what happened here? Why or why not?
You can't do the "big bath" in two steps. It demonstrates a lack of a handle on things. Another poster (I forget whom) had the best explanation I think. ML ended up losing a debate with their auditors and had to announce the bigger loss.
What, if anything, do you think O'Neal getting the boot implies for Chuck Prince? Or Jimmy Cayne?
My WAG? Bad news for Prince. He was already vulnerable and now there is going to be no taint to firing the CEO. Jimmy Cayne has taken major steps and fired his biggest internal threat. I don't think it matters for him.
A neat little story from Jim Sinclair.
Try and figure out who he's referring too.
"Ounce upon a time (last week), there was a Wall Street Icon firm, a household name in every financial home. Its name was so famous that it eclipsed the Buttonwood Tree.
This firm found a great Golden Hen (over the counter derivatives) that earned them billions of dollars. Then along came the Grinch of Reality, and it was required that this Icon firm properly value the product of their Golden Hen (OTC derivatives) which when no market was found laid a giant rotten egg. You see, there is no market for these special performance contracts named OTC derivatives, nor has there ever been. Therefore they have been revalued, yet not properly valued, as the value is still value-less. The loss was Icon firm shaking.
The CEO of this Icon firm knows that there is another mountain of OTC derivatives in the firm that will eclipse the meltdown cost of the discredited credit derivatives. They are called Default Derivatives. He opened talks with a firm made up of Wall Street kids with significant capital, but not an Icon of Old Blue Blood Wall Street. He knows that the next wind that blows will take the Icon firm into a net deficit capital entity, which equals broke.
The Board of Directors of the derivative blasted Icon firm was very, very upset that the CEO would open takeover talks with some street kids. They would never approve of these less than blue bloods. You see, the trophy board of directors knows a lot about many things, but less than nothing about OTC derivative as they have been praised for years by a parade of professors and mathematicians as the mother and apple pie of profit centers.
The Board of Directors in their self righteous New England religious fever of a group of wronged people fired the CEO, not realizing his attempt was to save at least the name of the Icon firm. The now unemployed CEO knows that in time the Default Derivatives exposure way exceeds the remaining capital of the Icon firm. For all intents and purposes this Icon is busted, but the Blue Blood Trophy Board has no clue. If you tried to explain why there is risk to the blue bloods of the trophy board their eyes would glass over. Some of the older members of the blue blood boards of directors of the Icon firm would not be concerned as they would be asleep before the explanation, only waking up as the Chairman declares the meeting concluded, for that is what old blue bloods do.
So the snobs have thrown out a man who never created the problem, probably didnt understand the risk, and got blamed after the fact.
This trophy board of directors is quite satisfied with themselves this weekend. They have no idea they blew it and there is a short fused financial nuclear event about to appear in this Icon firms blue blood board of directors room, because they would never let some street kids take them over, and have thrown out the man who tried to save their bacon.
Now if Ico
Dollar plunges to record low tonight ($index breaks through 77). Oh the humanity.
INO Equities Stocks Indexes - US DOLLAR INDEX (NYBOT:DX) Price Chart and Quote
http://www.weblinks247.com/indexes/idx24_usd_en_2.gif
Another day, another devalued dollar.
deggjr, to answer your question, I don't know and I don't care . . . Hey-o!
Sturat,
You trunkaked the piece by Jim Sinclair after the word ICONS so here is the rest of the piece.
Surely Jim is refering to ML?
Now if Icons ..... of Wall Street finance can go belly up, what is to say that your bank or broker cannot?
Ladies and gentlemen, prepare to defend yourselves!
THIS IS IT!
Now if Icons ..... of Wall Street finance can go belly up, what is to say that your bank or broker cannot?
If Japan can protect their defunct bankers for twenty years, what makes you think hot paulson and spanky bernanke can't do the same thing? All the central bankers are in cahoots.
There should be consequences in corporate America for losing lots of money. Why did these clowns risk all this money in crappy paper?
Do any of these guys have a historical memory longer than a few days?
Unknown,
I was thinking the same. O'Neal did the mistake of not joining the super conduit.
HaloScan.com - Comments
You guys should check this it. It's downright frightening:
The Market Ticker
Last week some $75 million of "fed funds" (that is, interbank overnight credit) was transacted at a rate of 15%, and "a bunch" went through in the low to mid 7s.
No, I didn't mistype that. You can find the actual data at this link.
Originally I, and everyone else, assumed that the "high" was an error. A bad print. That there was no chance this was "real".
It was.
Yes, "EFF" (effective fedfunds) was right where "it should be" according to The Fed - across all transactions.
Now let's think about this one for a minute here folks.
"Someone" transacted a $75 million overnight loan that they needed to meet reserve requirements at an absolutely outrageous interest rate - about what you pay for credit card money. A bunch of "someone else's" transacted a bunch at 7-7.5%.
They had the discount window available to them at 50 bips of penalty to EFF, which is a direct overnight loan from The Fed, but didn't use it.
Are you going to try to tell me that some banks actually paid nearly 10% more as an interest rate than they had to?
On what planet are we having this discussion?
There is only one possible explanation for this particular behavior - The Fed would not take the alleged "collateral" these institutions tried to put up, and the market didn't think it was worth much either, even on an overnight basis, and as such "the market" priced the interest rate similar to how Guido would for your "short-term" loan!
This raises the spectre of something truly terrifying in the credit markets -
The Fed may be inches away from losing control over the FF Rate entirely!
Indeed, for those transactions, they already have!
The implications of this, if it spreads, are truly terrifying. We are not talking about a three sigma event, a four sigma, or a five sigma.
We are talking about the equivalent of Financial Armageddon in the credit markets.
Sensing this possibility, a whole bunch of someones put on a bunch of options on the FF Futures contracts that are so far out of the "mainstream" of conventional thinking that they have zero chance of paying off unless a major dislocation event occurs.
These weren't just "idle speculators" either - they were risk management desks, repo desks"
ovasold,
perhaps i missed these prints, but i've got fed funds versus target rate alerts set on my machine during the day and i never saw anything like what's described in that blog entry. in fact, i saw nothing close to the volatility in fed funds that was seen prior to the september cut.
Link to the Fed Funds Data... Misinterpretation or ???
Federal Funds Rate Data - Federal Reserve Bank of New York
Rob Kirby, Financial Sense 10/28:
(quote)
.....On Friday, the Office of the Comptroller of the Currency released their latest Qrtrly. Derivative Fact Sheet for Q2/07. In the latest reporting period [Q2/07], J.P. Morgan Chases derivatives book has swelled by a cool 10 Trillion in notional:
[Source: table 2 on page 23 of pdf doc Quarterly Derivatives Report]
In case any of you are wondering how big new growth of 10 Trillion in notional really is:
10,000,000,000,000 / 66 business days = 151 Billion per day [NEW BUS]
Can anyone tell me how or where it is possible to generate 151 Billion in new business per day for 66 straight business days - in ANYTHING?
J.P. Morgan Chase is widely viewed to be the Federal Reserves proxy institution in the marketplace.
Instead of a ticker-tape-parade, perhaps there should be a National Holiday named for this disingenuous feat like, maybe a permanent bank holiday?
(end quote)
Think the wheels are starting to come off?
Neal, I saw that. J.P. Morgan Chase is a very powerful bank. I'm sure they know what they are doing.
Page not found : Welcome To Jim Sinclair’s MineSet
JBR, the 15% mark on 10/25 is a bit odd. It still seems more likely that it is a misprint or some other kind of mistake rather than the mother of all credit market blowups (MOACMB) if for no other reason that you will encounter a lot more misprints than MOACMBs in the course of everyday business.
Neal: Think the wheels are starting to come off?
The wheels are already off. Just skidding the plane down the runway trying to keep it from crashing into the terminal. Too bad it's the largest jumbo jet ever and the runway is real short!
Doom:
My understanding from reading the posts there is that this lend did not go to the Fed window. Why? Would the fed not lend?
This rate is the rate that banks lend to one and other and it completely disconnected from the FFR so it would not have shown up on your alerts as I understand it.
But if a financial institution is so deep in it that it has to borrow at 15% to meet it's daily reserve requirement then there is reason to be worried.
If all of that is true I wonder why the Fed itself would even bother cutting rates. How would it help?
No, it's not a mistake at all, but I'm not sure it's a ground to panic. Let wait until someone with his head deep into this shitboiler explain us.
Neal,
Can anyone tell me how or where it is possible to generate 151 Billion in new business per day for 66 straight business days - in ANYTHING?
pulls out envelope and a pen for some serious what if calculations
Let's say 151 million people need $1,000 charged on their credit cards each day for 66 days. That's $66,000. Why are they doing it?
The Phantasmatron
(As I said in my last comment here I've changed my mind and have decided to post links to my blog again unless either CR or Tanta wishes me to stop (and I would very much encourage them to tell me if it does bother them!). I'm honestly not just trying to drum up traffic to my site or I'd be spamming the entire Internet.)
The kind of securities accepted at the discount window as collateral is still very strict. People said that Bernspan lifted a lot of restrictions back in August. This is untrue. The rules are still very strict, just not so strict as before.
Over the last few week I've noticed that the stuff that we've been digesting for months is starting to show up in places outside the econ blog sphere with increasing regularity. For example:
THE CUNNING REALIST: Damn The Torpedoes!
Too bad billmon left the whiskey bar...
Mitsubishi UFJ Financial Group Inc Japan's largest bank, said on Monday it would have to write down the value of its subprime-related investments by as much as 30 billion yen ($260 million), or six times more than previously announced.
MUFG becomes the latest of several Tokyo financial institutions to announce greater-than-expected losses from subprime investments in the last week.
Business & Financial News, Breaking US & International News | Reuters.com
Um hum
Billmon leaving was a huge loss.
Stagflationary Mark - why not add the links? If people don't want to click, they don't have to. You've been posting on CR for a long time, so it's not as if you're some newcomer coming out of nowhere hyping your site.
Just my rapidly devaluating USD0.02
Sorry for the repeated postings, but the MUFG thingy made me crack up - only $260 million? Give me a break. That will hardly be the last announcement.
Just my rapidly devaluating USD0.02
The US0.02 is made of actual metal which is worth a hell of a lot more then the paper 1.00
Gold is $5 away from $800. $900 by the end of the week?
stag,
what ajw said.
more data acess = good
Gold is $5 away from $800. $900 by the end of the week?
If Benny baby give us 50bps Wednessday it will. If he only passes out 25 it will do it December when he cuts another 25, Oil to 100 ho ho ho go Benny go.
iceman,
Gold isn't exactly screaming deflation, is it?
On the other hand:
Gold peaked in January, 1980.
.
A recession started in January, 1980
Perhaps the stars are aligning again. Who knows?
(Seems safer to play both sides of the inflationary/deflationary fence when not making predictions!)
Rumour has it Fleming to be announced CEO tomorrow.
I'm assuming that Wall Street abhors a vacuum in times like this.
Still, they say he walks w/ $150M in his pocket...not a bad jig!! God bless Amerika that rewards the truth, justace, and fredum for all!!
oboy..........rumour has it the US Fed is going to cut 75-100 basis points....this will be interesting!! Bond prices already demonstrate a 50 point cut....Hello Moto! Wanna see a US dollar dip a bit?
Got popcorn and gold!
Hell I thought I saw a wheel go by thanks Neal
I also saw Wiley Coyote falling off a cliff with a US Dollar in his arms.
On the bright side you can burn dollars cheaper than heating oil this winter.
guess I'm gonna have to buy that import before the Bavarians start pricing their cars in gold or something.
.rumour has it the US Fed is going to cut 75-100 basis points
WTF?!? Barley, do tell!!!
http://www.bis.org/publ/qtrpdf/r_qt0709.pdf
sept bis report
lotsa cool cdo charts, spreads , assumptions
I'm looking for the "losses from credit derivatives are always near zero" comments
PG 11 of above report...
phuggin funny abcp/cp spread chart...
talk about high stickin...put'em in the penalty box for that
oh, yeah
pg 22
"the matrix"
this may qualify as uber-nerd maximus matierial
"rumour has it the US Fed is going to cut 75-100 basis points"
Spill the beans or you'll be accused of talking your book!
India stock market touched 20k, it was 3k in May 03. Indian Rupee also appreciated from 46 to 39.4 during this period. Imagine the gains made by US investors. Why should they care about US economy?
"rumour has it the US Fed is going to cut 75-100 basis points"
What the hell this Bernanke is trying to do? Living expenses and raw material costs are rising fast and this idiot is trying to jumpstart the economy with even more devaluation?!?! This is pure madness.
Everybody is getting out of dollars and he is basically just adding more fuel to that fire.
Impending Credit Market Supercriticality?
The Market Ticker
EU still has 150 BILLION dollar trade surplus with US even after Euro has risen from way below parity to 1.44!
That is about 50-60 percent devaluation in five years and even that is not affecting trade surplus at all.
The only explanation for this is the all-out decimating of US manufacturing base. There is nothing to export.
What Americans are going to export when all the new jobs created in recent years have been in domestic nontradable sectors. Big Macs with UPS delivery?!
The wheels are already off. Just skidding the plane down the runway trying to keep it from crashing into the terminal. Too bad it's the largest jumbo jet ever and the runway is real short!
dr strangemoney
Wow, look at those sparks!! Is that a cut fuel line?
If B2 Ben cuts by that much (0.75 to 1.00 percentage points), it is over.
We'll see $4 to $5 a gallon gas within 6-months to a year, and whatever is left of this economy will go crashing off a cliff. No doubt there will be much "confusion" because "nobody could have predicted this." Right!
"rumour has it the US Fed is going to cut 75-100 basis points"
I'll third the request for a source on this...
I haven't heard anyone saying this. The market is pricing in 25-50bps... but 75-100bps would be seen as a panic move.
There would be NO upside to it.
with 50bps you would see:
-increased inflation in commodity/gold prices
-fall in dollar
but
-a probable stock market rally (however brief)
-feeling that "the Fed is on the ball" by market participants (no matter how erroneous)
with 75-100 however
-you don't get any more of a stock bump
and
-you get higher commodity/gold inflation, probably out of control
-the Fed will be seen as being in panic mode.
-international investors will pull out of the Treasury market.
ZIRP plaza accord II... 125 bps reduction, oct31,2007
Plaza Accord - Wikipedia, the free encyclopedia
"Out with the old and in with the new.." Pure window dressing. Hmm, since some here seem to fancy literature call me when the "old CEO" leaves a pound of flesh on the mahogany as he departs, after all, that's what his ilk used to require from the borrower.
Let me get this straight. As the housing bubble bursts and hedge funds implode and banks' balance sheets are a mess, then:
Realtors earn no commissions because sales dry up
Appraisers lose business
Mortgage holders go in to foreclosure
Government tax collections plummet
Mortgage companies go bankrupt
AND
99.9% of Wall Street keeps their job and CEOs get a $160bil pink slip
If the financial world was really "free market" then why hasn't everyone associated with SIVs and MBSs lost their jobs?