I suspect the next President of the United States will be explaining SIVs to ripped-off Americans before long. Great Saturday post and visual as usual CR. Thanks you.
Marvelous - not only witty, funny but accurate and true. As good an explanation of all this as any I've read. Wherever did you find these guys ? Can we get access to more and collaterize them into a tranched set of offerrings ?
Jumping from mortgage to mortgage in the skyscrapers of New York, the Giant Bear Stearns, the Mighty Merrill Lynch, the beautiful Paulson, the exotic Deutsche Bank, the naughty Lehman Brothers of Manhattan, the Goldmanus Sachus var. companigus,
With my best portfolio by my side, Id sing:
I'm an investment banker and I'm OK
I sleep all night and I work all day.
Chorus:
He's an investment banker and he's OK
He sleeps all night and he works all day.
I cut up mortgages, I slice my SIVs
I go to the Dow.
On Wednesdays I go trading and have butchered securities for tea
Regulators:
He cuts up mortgages, he slices his SIVs
He goes to the Dow.
On Wednesdays he goes trading and has butchered securities for tea.
Chorus
I cut up mortgages, I lie and steal
I like to push lipsticked pigs.
I put on a poor man's clothing and hang around with Ben.
Regulators:
He cuts up mortgages, he lies and steals
He likes to push lipsticked pigs.
He puts on poor man's clothing and hangs around with Ben?!
Chorus
I cut up mortgages, I wear RMBSs
CDOs and an SIV.
I wish I'd been a Fed Chair, just like my dear Ed-pa!!
Regulators:
I cut up mortgages, I wear RMBS?!
CDOs...and a SIV?!...
I wish I'd been a Fed Chair, just like my dear Ed-pa!!
On a serious note, does anyone have a better idea than the proposed M-LEC?
Seems like some people here are kind of pissed off at the whole M-LEC stall tactic, but do we really want to see a possible complete financial systemic meltdown?
Not only don't I have a better idea, I'm not sure that by the time MLEC actually gets organized, that its ability to be effective will have been rendered moot by time and another 60 days of events.
The banks are playing a game of chicken, and they want a bailout now or the depths of their problems will be revealed. This could have serious consequences for public trust in the banking system.
so, we know that all the people on wall street go to the best schools and have good manners and can do double polar integrals (ok, i doubt that last one). Smart lads they are. So, if these two old muppet dudes can make this so simple we must then agree that the people on wall street knew they were selling junk, ruining average peoples lives and don't care one bit. I really wish I didn't care about ruining others lives because I'm good at tests and can get into one of those b-schools that churns out these souless vultures but i always have the problem with being bothered by ruining normal peoples lives. You know, people who don't say "tranche" more than once a day. Or people who correct their children and say, "its ABC, not ABX".
I'll have to settle for compound interest, common sense and making far more money than i can ever hope to spend.
12th, I hear you. I'm excellent at tests, interview well, and very amiable. I could make a mint selling this crap if I had only been born without a conscience.
Following up on last night's comments, you stated that you find the MLEC kosher with the following caveat: "Of course there is the lingering (though currently unsupported) concern among some here that this entity will have the Fed standing behind it. I agree that would be unsupportable."
In another step aimed at unfreezing the commercial paper market, the Federal Reserve Bank of New York clarified its discount window rules with the effect of enabling banks to pledge a broader range of commercial paper as collateral.
Under the clarification, issued verbally by New York Fed officials to market participants in the last day, banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit.
"This strikes us as a very big deal," said Lou Crandall, chief economist at Wrightson-ICAP LLC. Traditionally, he said, banks did not pledge paper that they guaranteed"
Is it okay with you if MLEC paper is acceptable at the discount window? Because it sounds like it will be.
Is my writing that unclear? Is the following really ambiguous?
"Of course there is the lingering (though currently unsupported) concern among some here that this entity will have the Fed standing behind it. I agree that would be unsupportable."
I'll be polite.The Fed can clearly authorize MLEC (or anything or anyone else for that matter) to use the window. I have a HUGE problem if they so designate MLEC, or any other banks sponsored SIV as I think about it. My reasoning is simple. Waht is being done now via this structure is a private (in the non-governmental sense) event. I have no policy/ethical issues with that. But I don't like the idea of this entity having the same access as a bank, when tha banks already have such access. If they need the window? Go use it directly so investors/customers know about it.
banker,
here is the crux of the problem. i make a crappy investment, lack the capital to keep it afloat (even though in my heart of hearts i KNOW it will pay off in the future) and guess what, i am off to see the bankruptcy judge. Bank makes crappy investment, lacks the capital to keep it afloat and they call up the Fed and get a loan at the discount window. If the investment works out, bankers repay Fed low rate loan, then cash out the investment and retire on banker beach, sipping pina colada's. If the investment doesn't work out, the taxpayers foor the bill, and the bankers get a new gig down the block.
Seriously, businesses alter their balance sheets all the time, mergers, acquisitions, spinoffs, buybacks, equity issuance etc. and finance business lines through joint ventures, minority investments, non-recourse financing etc. Nothing new or problematic with any of that in and of themselves. BTW, the idea that any of the major banks is insolvent seems a real stretch to me based on what we know.
If you think the Fed window should be abolished, then make that argument, but the idea that somehow MLEC is the trigger for that notion seems silly to me.
Seems like some people here are kind of pissed off at the whole M-LEC stall tactic, but do we really want to see a possible complete financial systemic meltdown?
It's called "having a balance sheet."
$100 billion in turd grade paper isn't going to result "complete financial systemic meltdown." That sounds pretty hyperventialtory. If anything it will slash equity prices from their ridiculous overvalues and force these CEOs from feeding themselves face first at the pig trough of executive compensation in 2007 America.
How about the market prices this stuff and that thingee called transparency? It's great food for free market economies.
These banks not owning up to their debts with this off balance sheet -- man, smells like Enron. Skeptics (a.k.a. the winners in the markets) will see right past the smoke and mirrors. Again. And if these clowns are getting Gram and Gramps worried about money market accounts...
Bank makes crappy investment, lacks the capital to keep it afloat and they call up the Fed and get a loan at the discount window.
Banker counterposes this:
You're just noticing there is a Fed window NOW?
Seriously, businesses alter their balance sheets all the time, mergers, acquisitions, spinoffs, buybacks, equity issuance etc. and finance business lines through joint ventures, minority investments, non-recourse financing etc. Nothing new or problematic with any of that in and of themselves....
If you think the Fed window should be abolished, then make that argument, but the idea that somehow MLEC is the trigger for that notion seems silly to me.
And the rest is just irrelevant to the question posed and the argument style is no doubt defined somewhere in the following: A List Of Fallacious Arguments
But its Saturday and of course Monty Python stated it very well, in their "5 Minute Argument sketch"
Thank you for the extended reply. I do find it helpful. I also strongly support the use of the discount window by the Fed.
I'm having difficulty with the distinction you seem to be drawing between the MLEC having direct access to the discount window and banks being told before they form the MLEC that if they sponsor such an SIV, their debts to the SIV will be accepted by the discount window as collateral.
In one off cases I have no problem with the Fed accepting dead dogs as collateral at the window. I have huge problem with the Fed making it standard policy to accept hard to price assets as collateral at the window. What's wrong with saying: "We will always accept Treasuries and agencies as collateral, but anything else is just a maybe?"
This could have serious consequences for public trust in the banking system.
Could have? Two bubble in less then a decade which a prudent CB could have stopped, a government that is highly in debt in a country running a huge trade deficit which seems to think the road to prosperity is by debasing the currency. I've seen enough. TTFN
Heck of a clip. Thanks CR. The South Bank show was never like this when I watched it way back and Melywn Bragg was quite arty-farty back then. Based on this clip, both have improved a great deal. I must mention the Long Johns/Last Laugh / George Parr in my phone calls to the UK ( Xmas is coming after all ).
Thanks once again for your value added commentary. Very enlightening on ad hom coming from you given your comments of yesterday. Well done! LOL Also, your humor meter needs an adjustment. Moving on...
Anon,
I'm having difficulty with the distinction you seem to be drawing between the MLEC having direct access to the discount window and banks being told before they form the MLEC that if they sponsor such an SIV, their debts to the SIV will be accepted by the discount window as collateral.
I think we may be talking past one another. I am drawing no such distinction. MLEC shouldn't have access to the window period. If the banks want to keep/put the assets on their balance sheets and go directly? I have no problem with that. The distinction is that MLEC will be private and as such has no public reporting requirements (happy to be shown I'm wrong), the banks are public companies and shouldn't be able to avoid the public knowing they are accessing the window. Does that make sense?
Suppose the M-LEC had sufficient reporting requirements. Would you still object to letting them access the discount window?
The purpose of the discount window is to implement Bagehot's dictum to respond to liquidity crises by lending freely against collateral that would be good in normal times, but at a penalty rate.
In modern times, depository institutions are not the principal source of liquidity. The Fed can pump dollars into the system and it will just wind up back in T-Bills, instead of commercial paper where it is needed.
So why not extend the discount window to provide liquidity directly where it is needed, which is not the banks themselves but the SIVs? (Again, accepting the same collateral at the same penalty a bank would have to pay.) This seems like a perfectly reasonable response to a liquidity crisis.
I guess my question is, do you have a problem with this in principle, or only because you are concerned about insufficient oversight/regulation/transparency of the M-LEC?
Why do perma-bears only think the market is efficient when it is going down?
Perhaps the ABX indices are collapsing not because the market is finally realizing the "true worth" of the ABSes. Perhaps they are going down because the underlyings are being forcibly liquidated by SIVs under duress.
Evidence: Cheyne and IKB SIVs in default... There is never just one cockroach... Lots of these things are probably having trouble rolling their CP and may be dumping.
Evidence 2: T-Bill rates collapsing suggests MM funds running away from CP and into "safe" government debt.
I think this is where we stand: Under current Fed policy SIVs have indirect access through their bank sponsors to the Fed's discount window. I find this objectionable and you don't.
You feel that as long as banks have to bear the stigma of using the discount window, the Fed's indirect guarantee of support to SIVs is not a big deal.
T-bill yields collapsed almost a week after the ABX plunge started. Probably the events are due to separate causes.
If the ABX collapse is a bad thing, and not the market finally getting close to equilibrium, why has it coincided with Libor absolutely plummetting? (One months from 5.12 to 4.95 yesterday and three-month from 5.24 to 5.15 yesterday)
===============================
Very funny... but what does "black" have to do with anything? Right, other races didn't take advantage and/or always pay their mortgage.
I'm sure there's no "unemployed black men" getting mortgages in the UK
Unknown Unknown
They actually use the phrase "unemployed black man from Alabama" - I wondered whether the fact they say its AL is a let out - I just checked the pop. ratios in AL, and the ethnic composition of the unemployed there.
You are right. They should have found a better phrasing to make the point. Thanks for the reminder about stereotypes. ( You seen the stuff that's got Watson( not of Sherlock Holmes fame but just as ancient ) into well-deserved tour cancellation and job suspension ? )
Insolvency is a financial condition experienced by a person or business entity when their assets no longer exceed their liabilities, commonly referred to as 'balance-sheet' insolvency, or when the person or entity can no longer meet its debt obligations when they come due, commonly referred to as 'cash-flow' insolvency.
any of the major banks is insolvent seems a real stretch to me based on what we know.
does'nt seem like so much of a stretch at all
80 billion is two years worth of EPS...XOM
a banks margin's are usually fairly thin, but predictable.
now there non-existent, and unkown...that's what we know now
Am I getting the old SIV's confused? The banks (theoretically) had no assets in the SIV's, they just sold the concept and the servicing, and while they bear a moral and ethical responsibility, the putative owners of the assets, the "investors" have the exposure. So what we're trying to save is the faith and credibility of Money Market Funds (who are the only ones I've seen listed as investors.)
The MLEC is going to get assets from the banks,which shouldn't be from the SIV's, even though the assets of the SIV's are backed by these AAA bonds.
I suppose I'll have wait for the next installment of the Long Johns to make this clear.
The MLEC-Super SIV has a very specific purpose: buy time
The coming wave of delinquencies will create losses over the next 1+ year.
Some of the SIV's are hurting right now, some are not. But the whole lot of them are sitting trying to payout expiring short term commercial paper which needs money NOW. They can't borrow any new commercial paper to pay off the expiring paper, so they have to find a buyer willing to take the paper. But, there's no buyer.
These SIV's need time (because of significant duration mismatch) to find out which one of these damn things is going to lose money, and which ones are not.
Selling now means they take the lowest price in a panicking market, probably leading to cascading bankruptcies.
The only way a buyer is going to even look at these loans if there is loan level due diligence on billions of mortgages.
Barclays & Royal Bank of Scotland have lined up emergency funds of up to $30B from the US Fed to bail out American clients caught up in the global credit crunch. What next? Barclays and RBS line up Fed for £15bn - Telegraph
Fed letter dated 10/12/07 to RBS granting temporary exemption from section 23A of the Federal Reserve Act
Suppose the M-LEC had sufficient reporting requirements. Would you still object to letting them access the discount window?
Yes. It isn't the lack of public reporting that bothers me (it is after all a private vehicle), it is the bank sponsorship.
So why not extend the discount window to provide liquidity directly where it is needed, which is not the banks themselves but the SIVs? (Again, accepting the same collateral at the same penalty a bank would have to pay.) This seems like a perfectly reasonable response to a liquidity crisis.
If the SIV was NOT bank sponsored, that's a pretty good argument.
I guess my question is, do you have a problem with this in principle, or only because you are concerned about insufficient oversight/regulation/transparency of the M-LEC?
In general I prefer to let markets work, but I have already lost the battle for there to be no Fed In this case, if the banks wish to access the window, I want them to do it directly, publically and to be stigmatized for doing so to whatever degree the market desires.
Anon,
Under current Fed policy SIVs have indirect access through their bank sponsors to the Fed's discount window. I find this objectionable and you don't.
Correct. Unless the Fed suddenly changes the rules so that they must approve "use of proceeds" from window borrowings, it sounds like having an issue with SIV's is a new and arbitrary standard.
You feel that as long as banks have to bear the stigma of using the discount window, the Fed's indirect guarantee of support to SIVs is not a big deal.
A little simplified, but generally yes. BTW, my apologies. If both you and Nemo couldn't make heads or tales out of what I was saying, then the fault lies in my crummy writing.
the Fed's indirect guarantee of support to SIVs is not a big deal.
Money is fungible, so the Fed is only indireclty supporting SIV's to the same degree as it is indirectly supporting all other banking functions, stock issuance, stock trading, back office, junk bonds, margin loans, cash management and lockbox services etc
========================
OT- sk you have a minor misspelling on your homepage: If you need is for
sdtfs
Many thanks. I just went in to fix it but all I got was "HTML/Text error" from the framework software - and since I pay somebody else to host the site I just have to email( given the problem size and the time that's the appropriate response ) - them to fix the edit access. ( I'm in the biz so this is just an annoyance as opposed to OSHT, WHICH FCKER screwed it up ( Its usually yourself))
Its fascinating to me that the daily evening hourly updates of the pollution levels and the daily gas prices are so automated and they just chug, chug, chug along - then I come to edit the free text by hand as and when I want to and bang - the computing business/technical model fails.
Gordian Knot hedge fund is reportedly in trouble. Given the 'James Bond' party it held in Morocco for 150 I can understand why its funds might be a little depleted.
Why do perma-bears only think the market is efficient when it is going down?
Perhaps the ABX indices are collapsing not because the market is finally realizing the "true worth" of the ABSes. Perhaps they are going down because the underlyings are being forcibly liquidated by SIVs under duress.
You mean the supply is markedly greater than the demand at a certain price level?
Shocked! Shocked am I that price discovery might be going on in this establishment!
This could have serious consequences for public trust in the banking system.
Yeah?
Perhaps "trust in the banking system" is already radically attenuated in a credit society that has no savings to speak of.
The relationship between our vast debtor class and the corporate bank outpost in their neighborhood will be one somewhat less endearing than that between Bedford Falls and the Bailey Building and Loan Association.
In this case, if the banks wish to access the window, I want them to do it directly, publically and to be stigmatized for doing so to whatever degree the market desires.
But the banks are not the having the liquidity problem; the SIVs are.
Please correct the following if it is wrong. I am still trying to understand this stuff.
As I understand it, the assets in the SIVs are technically "off balance sheet". They are only a liability to the bank because when investors lose money in a "Citigroup-serviced, safe as houses" SIV, their lawyers will come after Citigroup and might win.
The reason these assets are off balance sheet in the first place is to allow the bank to earn servicing fees without increasing their reserve requirements.
For the bank to borrow from the discount window against assets in the SIV, they would first have to buy those assets from the SIV; i.e., bring them "on balance sheet". But this would clobber their reserve requirements and lead to tightening of other lending -- hardly helpful when you already have a liquidity crisis.
The only solution, assuming this really is a crisis of liquidity and not of solvency, is to allow the SIVs themselves to access the discount window. And better to do that for a single well-understood "master SIV" that only holds good collateral than for every Tom, Dicked, and Hairy SIV in the world...
AMSTERDAM, Oct 20 (Reuters) - Dutch bank Rabobank [RABN.UL] said on Saturday its structured investment vehicle (SIV) Tango Finance, jointly managed with Citigroup (C.N: Quote, Profile, Research), was selling some assets as it could not attract sufficient funds to refinance debt.
The International Monetary Fund's policy-setting committee on Saturday noted rising food and oil prices and other indications of inflation in urging finance ministers and central bankers to stay focused on achieving price stability as well as on smoothing global financial market turbulence.
Last month you said the credit crisis was a blip on the screen and it would likely resolve itself by the end of September.
You recently reappear and you are flogging MLEC like a Kirby vacuum saleman.
What is in it for you?
Are you just a concerned citizen who doesn't want a "meltdown" at Citi or other banks that made poor off-books investment decisions?
Or is, as you claim, no big deal because these sort of things are done all of the time to maintain market liquidity.
After several hundered vociferous posts by you over the last few days don't you think it is time that you express clearly and succinctly your reason for wanting MLEC so badly?
I certainly agree that the "doom and gloom" is over done. My guess is a fifty fifty chance that the major stocks indexes will be up from here by year's end. However, I also think that the FED is trying its best to put off the recession until the democrats are in control of the Whitehouse and that the housing bust will eventually lead to a recession.
Ben Stein argues that losses from the housing decline are expected to much less than was lost on the dot com bust. The same argument was used at the time of the dot.com bust, namely that these "high flying high tech" companies were only a very small part of the whole market. The housing bust and related consumer downturn and credit tighening are enough to cause a recession.
This is not investing advice--my retirement accounts are 80% stocks overweight foreign and energy. My brokerage accounts emphasize puts on home builders, lenders, banks and retail. Last week was my best week in the market since August. Gains in the bearish options were up over 50K, much greater than the losses in the retirment accounts, which are doing fine yoy.
Roach] notes that the bursting of the dot-com bubble seven years ago caused a mild recession but, more importantly, a collapse in business capital spending both in the U.S. and abroad. The subprime-mortgage fiasco, he warns, is only the tip of a much larger iceberg.
The consumer, who has indulged in the greatest spending binge in modern history, now accounts for 72% of our GDP. Steve reckons that's five times the share of capital spending seven years ago. Reason enough to suspect the impact of a sharp contraction in consumer spending could be considerably more pronounced than the damage wrought by the end of the capital- investment boom at the turn of the century.
Of the two forces that spark consumer demand, wealth and income, it's no contest which has provided the impetus for the mighty surge in Jane and John Q.'s spending. Since the mid-1990s, Steve points out, income has taken a back seat: In the past 69 months, Steve reports, private-sector compensation has edged up a mere 17%, after inflation, which "falls nearly $480 billion short of the 28% average increase of the past four business cycle expansions."
If somebody does not want something why is it a liquidity issue? If another manufactured product had a decreased demand and suppliers got together to restrict supply to maintain price/profit would it be simple collusion? Or is it OK because it happened in the free market?
Spending money you don't have (credit) has become the American way of life. It's ingrained and for a long time it accelerated, creating illusory real GDP growth.
It only takes a small slowdown in credit spending to produce big damage to the economy. There is a ripple effect, a multiplier.
Over the next 2-3 years, almost all Americans will slow down credit spending. Some because they want to; others because they have to. The result will be a meaningful recession with a one-time, permanent adjustment downward in personal debt, consumer spending, corporate earnings and equity valuations. Defaults will be rampant, municipalities will default and municipal bond insurers will go bust. The FDIC will have to be refunded and revamped.
From a lower base purged of bad debt, the economy then will be in position to move forward in aobut 2011, although slower (1-2% real GDP growth) and with the drag of higher taxes.
Bill, you can keep believing in U.S. equities if you want. But it's foolish and you'll pay for it.
Two points--if I get a strong technical sell signal, I will reduce my US stock holdings in retirement accounts. I realize that this is risky, since stocks can go down quickly. However, the stock market always climbs a "wall of worry." On the other hand, since stock options are highly leaveraged, my put options in the weak sectors (housing, finance, etc.), in terms of numbers of shares and taking into account option delta's" are much larger than my and my wife's retirement accounts. The option accounts are also up over 250% ytd.
I gotta say, this is at least the third thread where you have misrepresented my thoughts on the credit markets in August before I left for a while. I have responded clearly the first two times and will not waste my (and everyone else's) by acknowledging your errors (if they really are inadvertant which I am coming to doubt).
As for "wanting MLEC so badly" since this is the first time you have misrepresented THAT particular view of mine, I will respond.
I have no ETHICAL issues with MLEC as structured, or at least as I understannd its structure. I will have ethical issues if MLEC gains access to the Fed window for funding in the future. OPERATIONALLY, as I have stated earlier, it is unclear to me that MLEC can have the impact its sponsors hope for due to both the extended period before/if it becomes functional and the likelihood of material exogenous events in that time period.
Your suggestion that I might be something other than an interested onlooker is absurd. Please stop misrepresenting my views. Thank you.
You have been a model of patience in this particular bit of byplay, thanks for helping to set and keep the bar for dialogue at CR lofty. Your insights are appreciated by myself and others.
Disclaimer - please note I have significantly more heartburn than Banker on MLEC as I see it as the camel's nose to eventual taxpayer bailout by organizing a single point of failure.
I, probably like youself, would welcome deflation and a low interest rate environment as my portfolio is positioned as such. But to sit here and chastise anyone who is defending the M-LEC proposal and encouraging a possible financial Mad Max scenario is somewhat demented.
If the system breaks down and locks up, so will all your cash positions if those will even be considered positions after a possible revaluation and new system/currency is implemented.
An orderly unwinding is best for all right now including you and me. Patience is key right now. We've already waited this long haven't we? My guess is that within two years there will be phenomenal values on many assets until the reflation of the next bubble which I believe will be infrastructure, alternative energy and nano technology.
The only way a buyer is going to even look at these loans if there is loan level due diligence on billions of mortgages. dingdingding for the win.
First, they pool a bunch of mortgages together. "See, they're MBSs. Fannie and Freddie have been doing this for years, only ours pay more interest. Safe as houses." Then people discover that the bondholders never look at the actual, underlying mortgages, so you can put ANYTHING in there. Yes, pooling risk is a GOOD thing for most investors. But if nobody is insuring that only meat goes into the sausage, the lack of transparency means that brains and everything else will get in there. Before you know it, BSE is all the rage.
Fantastic !!!
very funny...
A model of clarity and concision.Nothing is funnier than honesty.
On a different note, it looks like the SEC has finally woken up to Mozilo's dumping of CountryWide stock.
How the World Works - Salon.com
Funny with a prophetic close...
Hey, it's those guys from the Muppets intro. Nice find!
There is waaaay too much truth in that
...thought I'm not sure the muppets were racist.
Fantastic find!
Spot on.
There is waaaay too much truth in that
Yup, pretty funny until they got to the bottom line at the end.
hilarious!
I suspect the next President of the United States will be explaining SIVs to ripped-off Americans before long. Great Saturday post and visual as usual CR. Thanks you.
Spot on! Loved it, especially since it does ring so true.
every time brits say dodgy, it's funny...
Awesome!! ROFL as my kids type.
ROFL indeed!
Marvelous - not only witty, funny but accurate and true. As good an explanation of all this as any I've read. Wherever did you find these guys ? Can we get access to more and collaterize them into a tranched set of offerrings ?
I, I, Ive never wanted to be a CNBC host,
Ive always wanted to be An investment banker!
YouTube - Monty Python- I'm a lumberjack THE BEST VERSION by Eric Idle
Jumping from mortgage to mortgage in the skyscrapers of New York, the Giant Bear Stearns, the Mighty Merrill Lynch, the beautiful Paulson, the exotic Deutsche Bank, the naughty Lehman Brothers of Manhattan, the Goldmanus Sachus var. companigus,
With my best portfolio by my side, Id sing:
I'm an investment banker and I'm OK
I sleep all night and I work all day.
Chorus:
He's an investment banker and he's OK
He sleeps all night and he works all day.
I cut up mortgages, I slice my SIVs
I go to the Dow.
On Wednesdays I go trading and have butchered securities for tea
Regulators:
He cuts up mortgages, he slices his SIVs
He goes to the Dow.
On Wednesdays he goes trading and has butchered securities for tea.
Chorus
I cut up mortgages, I lie and steal
I like to push lipsticked pigs.
I put on a poor man's clothing and hang around with Ben.
Regulators:
He cuts up mortgages, he lies and steals
He likes to push lipsticked pigs.
He puts on poor man's clothing and hangs around with Ben?!
Chorus
I cut up mortgages, I wear RMBSs
CDOs and an SIV.
I wish I'd been a Fed Chair, just like my dear Ed-pa!!
Regulators:
I cut up mortgages, I wear RMBS?!
CDOs...and a SIV?!...
I wish I'd been a Fed Chair, just like my dear Ed-pa!!
These guys are hilarious.
On a serious note, does anyone have a better idea than the proposed M-LEC?
Seems like some people here are kind of pissed off at the whole M-LEC stall tactic, but do we really want to see a possible complete financial systemic meltdown?
Quincy,
Not only don't I have a better idea, I'm not sure that by the time MLEC actually gets organized, that its ability to be effective will have been rendered moot by time and another 60 days of events.
The banks are playing a game of chicken, and they want a bailout now or the depths of their problems will be revealed. This could have serious consequences for public trust in the banking system.
The one and only comment I saw at the youtube site:
"My company is in this business. Best explanation that I have heard so far!"
I would like to know what those damn things are worth.
This will all be OBE.
so, we know that all the people on wall street go to the best schools and have good manners and can do double polar integrals (ok, i doubt that last one). Smart lads they are. So, if these two old muppet dudes can make this so simple we must then agree that the people on wall street knew they were selling junk, ruining average peoples lives and don't care one bit. I really wish I didn't care about ruining others lives because I'm good at tests and can get into one of those b-schools that churns out these souless vultures but i always have the problem with being bothered by ruining normal peoples lives. You know, people who don't say "tranche" more than once a day. Or people who correct their children and say, "its ABC, not ABX".
I'll have to settle for compound interest, common sense and making far more money than i can ever hope to spend.
12th, I hear you. I'm excellent at tests, interview well, and very amiable. I could make a mint selling this crap if I had only been born without a conscience.
Reminds me somehow of Louis Ruhkeyser(?). Wonder what he would say about all this.
Banker,
Following up on last night's comments, you stated that you find the MLEC kosher with the following caveat: "Of course there is the lingering (though currently unsupported) concern among some here that this entity will have the Fed standing behind it. I agree that would be unsupportable."
Do you remember this WSJ article?
New York Fed Takes Step To Bolster Credit Market - WSJ.com
In another step aimed at unfreezing the commercial paper market, the Federal Reserve Bank of New York clarified its discount window rules with the effect of enabling banks to pledge a broader range of commercial paper as collateral.
Under the clarification, issued verbally by New York Fed officials to market participants in the last day, banks may pledge asset-backed commercial paper for which they also provide the backup lines of credit.
"This strikes us as a very big deal," said Lou Crandall, chief economist at Wrightson-ICAP LLC. Traditionally, he said, banks did not pledge paper that they guaranteed"
Is it okay with you if MLEC paper is acceptable at the discount window? Because it sounds like it will be.
That was part 2. I like to see part 1 as well.
Anon,
Is my writing that unclear? Is the following really ambiguous?
"Of course there is the lingering (though currently unsupported) concern among some here that this entity will have the Fed standing behind it. I agree that would be unsupportable."
OK Anon,
I'll be polite.The Fed can clearly authorize MLEC (or anything or anyone else for that matter) to use the window. I have a HUGE problem if they so designate MLEC, or any other banks sponsored SIV as I think about it. My reasoning is simple. Waht is being done now via this structure is a private (in the non-governmental sense) event. I have no policy/ethical issues with that. But I don't like the idea of this entity having the same access as a bank, when tha banks already have such access. If they need the window? Go use it directly so investors/customers know about it.
banker,
here is the crux of the problem. i make a crappy investment, lack the capital to keep it afloat (even though in my heart of hearts i KNOW it will pay off in the future) and guess what, i am off to see the bankruptcy judge. Bank makes crappy investment, lacks the capital to keep it afloat and they call up the Fed and get a loan at the discount window. If the investment works out, bankers repay Fed low rate loan, then cash out the investment and retire on banker beach, sipping pina colada's. If the investment doesn't work out, the taxpayers foor the bill, and the bankers get a new gig down the block.
great way to run a country.
david in ct,
You're just noticing there is a Fed window NOW?
Seriously, businesses alter their balance sheets all the time, mergers, acquisitions, spinoffs, buybacks, equity issuance etc. and finance business lines through joint ventures, minority investments, non-recourse financing etc. Nothing new or problematic with any of that in and of themselves. BTW, the idea that any of the major banks is insolvent seems a real stretch to me based on what we know.
If you think the Fed window should be abolished, then make that argument, but the idea that somehow MLEC is the trigger for that notion seems silly to me.
Seems like some people here are kind of pissed off at the whole M-LEC stall tactic, but do we really want to see a possible complete financial systemic meltdown?
It's called "having a balance sheet."
$100 billion in turd grade paper isn't going to result "complete financial systemic meltdown." That sounds pretty hyperventialtory. If anything it will slash equity prices from their ridiculous overvalues and force these CEOs from feeding themselves face first at the pig trough of executive compensation in 2007 America.
How about the market prices this stuff and that thingee called transparency? It's great food for free market economies.
These banks not owning up to their debts with this off balance sheet -- man, smells like Enron. Skeptics (a.k.a. the winners in the markets) will see right past the smoke and mirrors. Again. And if these clowns are getting Gram and Gramps worried about money market accounts...
Short bank stocks.
Muppets? Brits? Markets? Mortgages?
Sorry, THIS is the video you want to see:
YouTube -
so dave_in_ct poses this question:
Bank makes crappy investment, lacks the capital to keep it afloat and they call up the Fed and get a loan at the discount window.
Banker counterposes this:
You're just noticing there is a Fed window NOW?
Seriously, businesses alter their balance sheets all the time, mergers, acquisitions, spinoffs, buybacks, equity issuance etc. and finance business lines through joint ventures, minority investments, non-recourse financing etc. Nothing new or problematic with any of that in and of themselves....
If you think the Fed window should be abolished, then make that argument, but the idea that somehow MLEC is the trigger for that notion seems silly to me.
Banker | 10.20.07 - 10:26 pm | #
That stuff about noticing Fed NOW is classic ad-hominem.
Ad hominem - Wikipedia, the free encyclopedia
And the rest is just irrelevant to the question posed and the argument style is no doubt defined somewhere in the following:
A List Of Fallacious Arguments
But its Saturday and of course Monty Python stated it very well, in their "5 Minute Argument sketch"
YouTube -
-K
RE: Monty Python 5 Minute Argument sketch
sh*t.. linked to the bad rendition of that skit. Here's a better one:
YouTube -
-K
Banker,
Thank you for the extended reply. I do find it helpful. I also strongly support the use of the discount window by the Fed.
I'm having difficulty with the distinction you seem to be drawing between the MLEC having direct access to the discount window and banks being told before they form the MLEC that if they sponsor such an SIV, their debts to the SIV will be accepted by the discount window as collateral.
In one off cases I have no problem with the Fed accepting dead dogs as collateral at the window. I have huge problem with the Fed making it standard policy to accept hard to price assets as collateral at the window. What's wrong with saying: "We will always accept Treasuries and agencies as collateral, but anything else is just a maybe?"
This could have serious consequences for public trust in the banking system.
Could have? Two bubble in less then a decade which a prudent CB could have stopped, a government that is highly in debt in a country running a huge trade deficit which seems to think the road to prosperity is by debasing the currency. I've seen enough. TTFN
Oops. This "their debts to the SIV will be accepted by the discount window as collateral" came out wrong.
I meant:
the debts the SIV owes to them will be accepted as collateral
Heck of a clip. Thanks CR. The South Bank show was never like this when I watched it way back and Melywn Bragg was quite arty-farty back then. Based on this clip, both have improved a great deal. I must mention the Long Johns/Last Laugh / George Parr in my phone calls to the UK ( Xmas is coming after all ).
-K
Roubini talks about the super-SIV.
RGE - Nouriel Roubini's Global EconoMonitor
Here's a little something to brighten your weekend.
SK,
Thanks once again for your value added commentary. Very enlightening on ad hom coming from you given your comments of yesterday. Well done! LOL Also, your humor meter needs an adjustment. Moving on...
Anon,
I'm having difficulty with the distinction you seem to be drawing between the MLEC having direct access to the discount window and banks being told before they form the MLEC that if they sponsor such an SIV, their debts to the SIV will be accepted by the discount window as collateral.
I think we may be talking past one another. I am drawing no such distinction. MLEC shouldn't have access to the window period. If the banks want to keep/put the assets on their balance sheets and go directly? I have no problem with that. The distinction is that MLEC will be private and as such has no public reporting requirements (happy to be shown I'm wrong), the banks are public companies and shouldn't be able to avoid the public knowing they are accessing the window. Does that make sense?
Very funny... but what does "black" have to do with anything? Right, other races didn't take advantage and/or always pay their mortgage.
I'm sure there's no "unemployed black men" getting mortgages in the UK
Yep, I just did some research on the web, it was all "unemployed black men" that caused foreclosures here in Phoenix. Disregard my previous comment.
wawawa,
Perhaps this is part one:
YouTube -
Pretty good as well.
The abuse room is Rm 12. Arguments are in 12A.
-K
I wonder why these guys are making fun of Rednecks... they should know it's the unemployed black men.
YouTube - Subprime Meltdown
Banker --
Suppose the M-LEC had sufficient reporting requirements. Would you still object to letting them access the discount window?
The purpose of the discount window is to implement Bagehot's dictum to respond to liquidity crises by lending freely against collateral that would be good in normal times, but at a penalty rate.
In modern times, depository institutions are not the principal source of liquidity. The Fed can pump dollars into the system and it will just wind up back in T-Bills, instead of commercial paper where it is needed.
So why not extend the discount window to provide liquidity directly where it is needed, which is not the banks themselves but the SIVs? (Again, accepting the same collateral at the same penalty a bank would have to pay.) This seems like a perfectly reasonable response to a liquidity crisis.
I guess my question is, do you have a problem with this in principle, or only because you are concerned about insufficient oversight/regulation/transparency of the M-LEC?
As a slightly off-topic aside...
Why do perma-bears only think the market is efficient when it is going down?
Perhaps the ABX indices are collapsing not because the market is finally realizing the "true worth" of the ABSes. Perhaps they are going down because the underlyings are being forcibly liquidated by SIVs under duress.
Evidence: Cheyne and IKB SIVs in default... There is never just one cockroach... Lots of these things are probably having trouble rolling their CP and may be dumping.
Evidence 2: T-Bill rates collapsing suggests MM funds running away from CP and into "safe" government debt.
Just a thought.
Banker,
I think this is where we stand: Under current Fed policy SIVs have indirect access through their bank sponsors to the Fed's discount window. I find this objectionable and you don't.
You feel that as long as banks have to bear the stigma of using the discount window, the Fed's indirect guarantee of support to SIVs is not a big deal.
Does it sound like I've got this right?
Nemo,
T-bill yields collapsed almost a week after the ABX plunge started. Probably the events are due to separate causes.
If the ABX collapse is a bad thing, and not the market finally getting close to equilibrium, why has it coincided with Libor absolutely plummetting? (One months from 5.12 to 4.95 yesterday and three-month from 5.24 to 5.15 yesterday)
sk
calls out a shill...
well done..
one former-banker banker basher
===============================
Very funny... but what does "black" have to do with anything? Right, other races didn't take advantage and/or always pay their mortgage.
I'm sure there's no "unemployed black men" getting mortgages in the UK
Unknown Unknown
They actually use the phrase "unemployed black man from Alabama" - I wondered whether the fact they say its AL is a let out - I just checked the pop. ratios in AL, and the ethnic composition of the unemployed there.
You are right. They should have found a better phrasing to make the point. Thanks for the reminder about stereotypes. ( You seen the stuff that's got Watson( not of Sherlock Holmes fame but just as ancient ) into well-deserved tour cancellation and job suspension ? )
-K
I just got back from CVS buying Astroglide for Monday. What did I miss?
Astroglide Personal Lubricant
Insolvency is a financial condition experienced by a person or business entity when their assets no longer exceed their liabilities, commonly referred to as 'balance-sheet' insolvency, or when the person or entity can no longer meet its debt obligations when they come due, commonly referred to as 'cash-flow' insolvency.
any of the major banks is insolvent seems a real stretch to me based on what we know.
does'nt seem like so much of a stretch at all
80 billion is two years worth of EPS...XOM
a banks margin's are usually fairly thin, but predictable.
now there non-existent, and unkown...that's what we know now
Jean-Claude "Van Damme" Trichet proposes airing of laudry:
European regulators not keen for new rules for banking system - MarketWatch
Am I getting the old SIV's confused? The banks (theoretically) had no assets in the SIV's, they just sold the concept and the servicing, and while they bear a moral and ethical responsibility, the putative owners of the assets, the "investors" have the exposure. So what we're trying to save is the faith and credibility of Money Market Funds (who are the only ones I've seen listed as investors.)
The MLEC is going to get assets from the banks,which shouldn't be from the SIV's, even though the assets of the SIV's are backed by these AAA bonds.
I suppose I'll have wait for the next installment of the Long Johns to make this clear.
aked capitalism - The SIV Plan: Does the Math Work Even for Citi? Let me guess? HELL NO!
The SIV Bailout Plan: Does the Math Work Even for Citi? (Revised) « naked capitalism
Gretchen Morgenson - Get Ready for the Big [Bank] Squeeze
FAIR PLAY; Get Ready For the Big Squeeze - NY Times
The MLEC-Super SIV has a very specific purpose: buy time
The coming wave of delinquencies will create losses over the next 1+ year.
Some of the SIV's are hurting right now, some are not. But the whole lot of them are sitting trying to payout expiring short term commercial paper which needs money NOW. They can't borrow any new commercial paper to pay off the expiring paper, so they have to find a buyer willing to take the paper. But, there's no buyer.
These SIV's need time (because of significant duration mismatch) to find out which one of these damn things is going to lose money, and which ones are not.
Selling now means they take the lowest price in a panicking market, probably leading to cascading bankruptcies.
The only way a buyer is going to even look at these loans if there is loan level due diligence on billions of mortgages.
That's not going to get resolved quickly.
Ben Stein - The Gloomsayers Should Look Up (excellent article from Ben this time around)
EVERYBODY'S BUSINESS; The Gloomsayers Should Look Up - NY Times
Barclays & Royal Bank of Scotland have lined up emergency funds of up to $30B from the US Fed to bail out American clients caught up in the global credit crunch. What next?
Barclays and RBS line up Fed for £15bn - Telegraph
Fed letter dated 10/12/07 to RBS granting temporary exemption from section 23A of the Federal Reserve Act
Fed letter dated 10/11/07 to Barclays granting temporary exemption from section 23A of the Federal Reserve Act.
http://www.federalreserve.gov/boarddocs/legalint/FederalReserveAct/2007/20071011/20071011.pdf
http://www.federalreserve.gov/boarddocs/legalint/FederalReserveAct/2007/20071012/20071012.pdf
OT- sk you have a minor misspelling on your homepage: If you need is for
Nemo,
Suppose the M-LEC had sufficient reporting requirements. Would you still object to letting them access the discount window?
Yes. It isn't the lack of public reporting that bothers me (it is after all a private vehicle), it is the bank sponsorship.
So why not extend the discount window to provide liquidity directly where it is needed, which is not the banks themselves but the SIVs? (Again, accepting the same collateral at the same penalty a bank would have to pay.) This seems like a perfectly reasonable response to a liquidity crisis.
If the SIV was NOT bank sponsored, that's a pretty good argument.
I guess my question is, do you have a problem with this in principle, or only because you are concerned about insufficient oversight/regulation/transparency of the M-LEC?
In general I prefer to let markets work, but I have already lost the battle for there to be no Fed
In this case, if the banks wish to access the window, I want them to do it directly, publically and to be stigmatized for doing so to whatever degree the market desires.
Anon,
Under current Fed policy SIVs have indirect access through their bank sponsors to the Fed's discount window. I find this objectionable and you don't.
Correct. Unless the Fed suddenly changes the rules so that they must approve "use of proceeds" from window borrowings, it sounds like having an issue with SIV's is a new and arbitrary standard.
You feel that as long as banks have to bear the stigma of using the discount window, the Fed's indirect guarantee of support to SIVs is not a big deal.
A little simplified, but generally yes. BTW, my apologies. If both you and Nemo couldn't make heads or tales out of what I was saying, then the fault lies in my crummy writing.
Fewlesh,
The MLEC-Super SIV has a very specific purpose: buy time
Yup.
Anon,
One more thought.
the Fed's indirect guarantee of support to SIVs is not a big deal.
Money is fungible, so the Fed is only indireclty supporting SIV's to the same degree as it is indirectly supporting all other banking functions, stock issuance, stock trading, back office, junk bonds, margin loans, cash management and lockbox services etc
========================
OT- sk you have a minor misspelling on your homepage: If you need is for
sdtfs
Many thanks. I just went in to fix it but all I got was "HTML/Text error" from the framework software - and since I pay somebody else to host the site I just have to email( given the problem size and the time that's the appropriate response ) - them to fix the edit access. ( I'm in the biz so this is just an annoyance as opposed to OSHT, WHICH FCKER screwed it up ( Its usually yourself))
Its fascinating to me that the daily evening hourly updates of the pollution levels and the daily gas prices are so automated and they just chug, chug, chug along - then I come to edit the free text by hand as and when I want to and bang - the computing business/technical model fails.
Thanks again.
-K
Gordian Knot hedge fund is reportedly in trouble. Given the 'James Bond' party it held in Morocco for 150 I can understand why its funds might be a little depleted.
Prufrock: Not drowning but waving his licence to thrill - Times Online
Why do perma-bears only think the market is efficient when it is going down?
Perhaps the ABX indices are collapsing not because the market is finally realizing the "true worth" of the ABSes. Perhaps they are going down because the underlyings are being forcibly liquidated by SIVs under duress.
You mean the supply is markedly greater than the demand at a certain price level?
Shocked! Shocked am I that price discovery might be going on in this establishment!
The MLEC-Super SIV has a very specific purpose: buy time
Visualize a really big present sitting under the Xmas tree, wrapped in Hello Kitty paper.
There's a note on top:
"TO: Hillary"
"FROM: your secret RNC admirers"
"DO NOT OPEN UNTIL 1/20/2009!!!!!!"
It's also ticking. And smells funny.
But don't worry, it's Hello Kitty! and it will be Hello Kitty OK! Would Larry Kudlow lie on TV?
The funniest are those jokes about the names of BS funds.
Great show.
Of the money lenders, for the money lenders, and by the money lenders.
Welcome to the United States.
Notice that the yen led the market by several days which I interpret is the presage to a fairly big move out of equities by a ton of players.
Stay out of American equities.
And, I guess, the Fed will ease again, but we may have reached pushing on a string world.
This could have serious consequences for public trust in the banking system.
Yeah?
Perhaps "trust in the banking system" is already radically attenuated in a credit society that has no savings to speak of.
The relationship between our vast debtor class and the corporate bank outpost in their neighborhood will be one somewhat less endearing than that between Bedford Falls and the Bailey Building and Loan Association.
Banker --
In this case, if the banks wish to access the window, I want them to do it directly, publically and to be stigmatized for doing so to whatever degree the market desires.
But the banks are not the having the liquidity problem; the SIVs are.
Please correct the following if it is wrong. I am still trying to understand this stuff.
As I understand it, the assets in the SIVs are technically "off balance sheet". They are only a liability to the bank because when investors lose money in a "Citigroup-serviced, safe as houses" SIV, their lawyers will come after Citigroup and might win.
The reason these assets are off balance sheet in the first place is to allow the bank to earn servicing fees without increasing their reserve requirements.
For the bank to borrow from the discount window against assets in the SIV, they would first have to buy those assets from the SIV; i.e., bring them "on balance sheet". But this would clobber their reserve requirements and lead to tightening of other lending -- hardly helpful when you already have a liquidity crisis.
The only solution, assuming this really is a crisis of liquidity and not of solvency, is to allow the SIVs themselves to access the discount window. And better to do that for a single well-understood "master SIV" that only holds good collateral than for every Tom, Dicked, and Hairy SIV in the world...
AMSTERDAM, Oct 20 (Reuters) - Dutch bank Rabobank [RABN.UL] said on Saturday its structured investment vehicle (SIV) Tango Finance, jointly managed with Citigroup (C.N: Quote, Profile, Research), was selling some assets as it could not attract sufficient funds to refinance debt.
Rabobank, Citigroup SIV fund has funding difficulty
| Reuters
P.S. Banker --
In general I prefer to let markets work, but I have already lost the battle for there to be no Fed
Maybe you should change your name to "I-Banker" to avoid any confusion
IMF Warns of Inflation Risks in Advanced Countries
Expired
The International Monetary Fund's policy-setting committee on Saturday noted rising food and oil prices and other indications of inflation in urging finance ministers and central bankers to stay focused on achieving price stability as well as on smoothing global financial market turbulence.
Ignore food, water and energy cost says Mishkin.
Mishkin Says Inflation Minus Food, Energy Is a `Better Guide' - Bloomberg.com
BRILLLLIANT!!!!!
A question or two, Banker:
Last month you said the credit crisis was a blip on the screen and it would likely resolve itself by the end of September.
You recently reappear and you are flogging MLEC like a Kirby vacuum saleman.
What is in it for you?
Are you just a concerned citizen who doesn't want a "meltdown" at Citi or other banks that made poor off-books investment decisions?
Or is, as you claim, no big deal because these sort of things are done all of the time to maintain market liquidity.
After several hundered vociferous posts by you over the last few days don't you think it is time that you express clearly and succinctly your reason for wanting MLEC so badly?
Re: Ben Stein's article for NYT
I certainly agree that the "doom and gloom" is over done. My guess is a fifty fifty chance that the major stocks indexes will be up from here by year's end. However, I also think that the FED is trying its best to put off the recession until the democrats are in control of the Whitehouse and that the housing bust will eventually lead to a recession.
Ben Stein argues that losses from the housing decline are expected to much less than was lost on the dot com bust. The same argument was used at the time of the dot.com bust, namely that these "high flying high tech" companies were only a very small part of the whole market. The housing bust and related consumer downturn and credit tighening are enough to cause a recession.
This is not investing advice--my retirement accounts are 80% stocks overweight foreign and energy. My brokerage accounts emphasize puts on home builders, lenders, banks and retail. Last week was my best week in the market since August. Gains in the bearish options were up over 50K, much greater than the losses in the retirment accounts, which are doing fine yoy.
The Big Picture
Roach] notes that the bursting of the dot-com bubble seven years ago caused a mild recession but, more importantly, a collapse in business capital spending both in the U.S. and abroad. The subprime-mortgage fiasco, he warns, is only the tip of a much larger iceberg.
The consumer, who has indulged in the greatest spending binge in modern history, now accounts for 72% of our GDP. Steve reckons that's five times the share of capital spending seven years ago. Reason enough to suspect the impact of a sharp contraction in consumer spending could be considerably more pronounced than the damage wrought by the end of the capital- investment boom at the turn of the century.
Of the two forces that spark consumer demand, wealth and income, it's no contest which has provided the impetus for the mighty surge in Jane and John Q.'s spending. Since the mid-1990s, Steve points out, income has taken a back seat: In the past 69 months, Steve reports, private-sector compensation has edged up a mere 17%, after inflation, which "falls nearly $480 billion short of the 28% average increase of the past four business cycle expansions."
If somebody does not want something why is it a liquidity issue? If another manufactured product had a decreased demand and suppliers got together to restrict supply to maintain price/profit would it be simple collusion? Or is it OK because it happened in the free market?
Spending money you don't have (credit) has become the American way of life. It's ingrained and for a long time it accelerated, creating illusory real GDP growth.
It only takes a small slowdown in credit spending to produce big damage to the economy. There is a ripple effect, a multiplier.
Over the next 2-3 years, almost all Americans will slow down credit spending. Some because they want to; others because they have to. The result will be a meaningful recession with a one-time, permanent adjustment downward in personal debt, consumer spending, corporate earnings and equity valuations. Defaults will be rampant, municipalities will default and municipal bond insurers will go bust. The FDIC will have to be refunded and revamped.
From a lower base purged of bad debt, the economy then will be in position to move forward in aobut 2011, although slower (1-2% real GDP growth) and with the drag of higher taxes.
Bill, you can keep believing in U.S. equities if you want. But it's foolish and you'll pay for it.
Sign the Petition!!!!
Congress - Repair Our Financial System!
Rich:
Two points--if I get a strong technical sell signal, I will reduce my US stock holdings in retirement accounts. I realize that this is risky, since stocks can go down quickly. However, the stock market always climbs a "wall of worry." On the other hand, since stock options are highly leaveraged, my put options in the weak sectors (housing, finance, etc.), in terms of numbers of shares and taking into account option delta's" are much larger than my and my wife's retirement accounts. The option accounts are also up over 250% ytd.
Neal,
I gotta say, this is at least the third thread where you have misrepresented my thoughts on the credit markets in August before I left for a while. I have responded clearly the first two times and will not waste my (and everyone else's) by acknowledging your errors (if they really are inadvertant which I am coming to doubt).
As for "wanting MLEC so badly" since this is the first time you have misrepresented THAT particular view of mine, I will respond.
I have no ETHICAL issues with MLEC as structured, or at least as I understannd its structure. I will have ethical issues if MLEC gains access to the Fed window for funding in the future. OPERATIONALLY, as I have stated earlier, it is unclear to me that MLEC can have the impact its sponsors hope for due to both the extended period before/if it becomes functional and the likelihood of material exogenous events in that time period.
Your suggestion that I might be something other than an interested onlooker is absurd. Please stop misrepresenting my views. Thank you.
Banker,
You have been a model of patience in this particular bit of byplay, thanks for helping to set and keep the bar for dialogue at CR lofty. Your insights are appreciated by myself and others.
Disclaimer - please note I have significantly more heartburn than Banker on MLEC as I see it as the camel's nose to eventual taxpayer bailout by organizing a single point of failure.
Banker --
You are by far the most interesting contributor here, possibly even including CR and Tanta.
Please do not let any of the crackpot conspiracy theorists get to you.
Neal,
I, probably like youself, would welcome deflation and a low interest rate environment as my portfolio is positioned as such. But to sit here and chastise anyone who is defending the M-LEC proposal and encouraging a possible financial Mad Max scenario is somewhat demented.
If the system breaks down and locks up, so will all your cash positions if those will even be considered positions after a possible revaluation and new system/currency is implemented.
An orderly unwinding is best for all right now including you and me. Patience is key right now. We've already waited this long haven't we? My guess is that within two years there will be phenomenal values on many assets until the reflation of the next bubble which I believe will be infrastructure, alternative energy and nano technology.
energyecon,
Thanks for your thoughts and I must admit that this
more heartburn than Banker on MLEC as I see it as the camel's nose to eventual taxpayer bailout by organizing a single point of failure.
has really made me think. Hmmmmmm...Thanks for that.
more heartburn than Banker on MLEC as I see it as the camel's nose to eventual taxpayer bailout by organizing a single point of failure.
Re-containment.
The only way a buyer is going to even look at these loans if there is loan level due diligence on billions of mortgages.
ding ding ding for the win.
First, they pool a bunch of mortgages together. "See, they're MBSs. Fannie and Freddie have been doing this for years, only ours pay more interest. Safe as houses." Then people discover that the bondholders never look at the actual, underlying mortgages, so you can put ANYTHING in there. Yes, pooling risk is a GOOD thing for most investors. But if nobody is insuring that only meat goes into the sausage, the lack of transparency means that brains and everything else will get in there. Before you know it, BSE is all the rage.
I'm just doing research on SIVs now.
This stuff is scary. What he didn't talk about was how this stuff is OFF BALANCE sheet. Can you say Enron?
Frank