Crooks and Liars! Lend me your ears! Now is the time to rally around our ailing brethren. We must lift them up, that they might not fail. Otherwise the we are all well and truly known (in the biblical sense!) by our deeds.
AS IF $100 billion might be enough to make a difference! It inspires something in me, but it's not confidence in the 'world market'.
I wonder...will Fidelity's money market fund clients be happy with this announcement? I certainly wouldn't be.
Reminds me of the lemon-pricing model in economics. If you don't know which car being sold is a lemon, you'll only pay lemon prices for ANY car. The geniuses at Treasury are establishing a similar model for money market funds -- you won't know what's in them or whether its accurately valued, so why would you have confidence that the NAV won't "break the buck".
A better solution is to let the bad banks swallow their SIV's, fail and "ring fence" them. It worked with the RTC back in the '90's, but those were different times, when government officials like Bill Siedman actually had cojones (or maybe they just lacked the now-ubiquitous urge to keep their cronies happy).
The harder Paulsen pushes this thing, the more worried I get. It has the feel of utter, untempered desperation--as if he knows massive failures are the eventual outcome.
They're getting into this because there is money to be made and the rest of of don't know about it. All the effers who read this blog neeed to jump in with both feet and take advantage of this one time opportunity.
I said it the other day. The M-bLECh Super Sewer is about putting the drain plug back. Everything is circling the vortex. Stag Mark's charts show the disruption nicely. It's like surfing a black hole.
They're getting into this because there is money to be made and the rest of of don't know about it. All the effers who read this blog neeed to jump in with both feet and take advantage of this one time opportunity.
fatsacca
You truly believe that? I think it's a sign of pure desperation.
HP: "Join us now or all is lost."
Financials: "OK. But the treasury and fed is behind this sewer, right?"
HP: "Yeah sure, whatever. How many raffle tickets do you want?"
It offers a quick and easy solution to immediate problems and provides an excellent distraction for those who would contemplate genuine long-term solutions (which, alas, are neither quick nor easy).
Somebody tell me how the Super Fund promotes foresight, responsibility, discipline, education, cooperation, and the long-term pursuit of sound economic structure.
Again, this whole thing is only superficially a financial and economic problem. Fundamentally it is a cultural problem - especially in the business world.
Wealth ruined Spain by numbing human passions, not by creating economic or financial turmoil. Productivity wasted away amidst complacency and contentment.
Until we address the real issues, nothing really gets better.
This mess is emblematic of the times we live in, and the utter lack of accountability that has become ingrained in our leaders, be they financial or political. The hypocrisy, above all else, is what is really galling. But can anyone say they are surprised? I think this really just kills any credibility anyone can have in this country. Politically, it was gone a few years ago, but now, this is the coup de grace for the financial world. I was cynical before this - is there another word which we can create that can add a dose of contempt to the cynicism? I'm beyond disgust.
It offers a quick and easy solution to immediate problems..."
ac
Well, it keeps wealth transfers from us peasants to the pig men...but their problems ain't mine. Slaughter the pigs. Sure we all hurt, but these P.O.S.es live in $100M playgrounds. Let them fall. I can defend myself...Can they without their wealth???
JMHO This may be a good thing. If assets are restricted to particular AA and AAA securities with modest default/loss risks (if held to maturity) and backed by lots of equity or junior debt; commercial paper issued will be of good quality.
This may reduce bank/investor losses when SIV's are liquidated without adding any system risk.
Unfortunatly, it does nothing for the housing market and will not reduce losses for institutions holding lots of lousy quality MBS or CDO's.
No, they are lifting them up because if they fail these clowns go down with them and take a lot of OPM with them. If you owe the bank a 1k you have a problem, if you owe the bank 1bil the bank has a problem. These clowns are up to their neck in junk paper is my guess.
"JMHO This may be a good thing. If assets are restricted to particular AA and AAA securities with modest default/loss risks (if held to maturity) and backed by lots of equity or junior debt; commercial paper issued will be of good quality.
This may reduce bank/investor losses when SIV's are liquidated without adding any system risk."
Vicjim |
See...this is a con job. They say no sub prime shit is going into the Super Sewer...but what they're peddling is ABCP. Now the ABCP may be BASED on subprime mortgage paper, but the ABCP derivative is so, like, totally AAA. So it's so totally cool to go into the M-bLECh. I mean it's all AAA.
I really fail to msee what all the hoo-ha is about on this one. This is only going to work if
1) The securities really are worth more than the current, arguably damaged market says;
2) If outsiders provide incremental financing not otherwise available, which will only happen if; and
3) The outsiders either get a) greater protections (i.e. joint and several guarantees) or b) enhanced returns or some combination thereof.
In any case there is no way for the current securities holders to avoid the ultimate, long-term valuation of the securities. They are going to have to own MLEC and account for it in some manner (equity method or otherwise) and they are effecitvely ging to provide, at minimum, some kind of first loss.
Me? I don't expect FIDO, PIMCO or anyother outsider to act against there economc interests If they feel they are being gamed? They won't be in and M-LEC won't happen. In short, these securities holders are likely trading off incremental financing costs for enhanced liquidty.
I would be fine with any heroic or desperate measures they wanted to take to prop up the house of cards -- IF -- there was some real reform being worked out at the same time.
I haven't heard anything about reforming this system of private gains and socialized losses. These guys have been allowed to leverage so irresponsibly and sell MBSs and CDOs which are defacto unregulated securities, all without any government oversight. No oversight for a huge public interest, the financial system?
They put the whole global financial system at risk with their greed and incompetence. And now the government is waiting in the wings to further bail them out after already lowering rates and devalueing the currency.
Where is the outrage? Where is the reform? The hijacking of the public interest via money contributions to politicians has gone over the edge.
"Me? I don't expect FIDO, PIMCO or anyother outsider to act against there economc interests If they feel they are being gamed? They won't be in and M-LEC won't happen. In short, these securities holders are likely trading off incremental financing costs for enhanced liquidty."
Banker.
So you can't see this as a desperation hail mary move? Push it off for a bit cloying with hope that the market turns around. Knowing you're just as toast as C if C goes teats up. Just askling...
Sorry the tone's a bit aggressive...I'm kinda PO'd.
So you can't see this as a desperation hail mary move?
How about third and ten?
What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example.
Push it off for a bit cloying with hope that the market turns around.
I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns.
Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing.
I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?
Another clue to the size and destructive nature of this financial meteor pending towards these financial firms. Armagedonic atributes exposed by the need to throw HUGE amounts of liquidity to
stave off this event of actually marking these to market, choosing to instead conspire, dishonestly marking these to mystery and delayed misery.
"A "beard" is a person of the opposite sex who marries or dates a closeted lesbian or gay person to cover up their homosexuality. In the past, often lesbians married gay men so that both could "pass" as straight, either for work or for their families."
As I responded to yopu in another thread several days ago, what I sai was that by the end of September we would see significant progress or look out. In response to a specific query I pointed to the financing of some LBO's as a benchmark things were going in the right direction (or not). The First Data transactions are, or example very good news as are the series of high yield deals done recently. Are the credit markets out of the woods? Probaby not, we'll see some ups and downs. But are the credit markets off the mat and puching back? Yup.
"What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example."
I'm not so sure. And honestly, I don't have my Caribean bank stuff at my finger tips...but well...I give you the point without any ev.
"I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns."
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
"Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing."
OK, maybe it's just jobs...Correct me if I'm wrong but Pimco's boss doesn't go anywhere unless Pimco fails?
"I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?"
Yes and I "Voluntarily" pay my income tax. The LTCM bailout went like this IMHO
Gangreen: "Guys, either pony up or we have cross cascading defaults."
Pigmen: "You mean the Fed ain't gonna buy it all?!"
Gangreen: "Nope, but will help you out interest rate wise with this Y2K thing."
Pigmen: "OK we're on board."
Not to mention this thing is huger than huge compared to LTCM.
I read in the NYT or WSJ (I forget) that T.Rowe Price had some of this junk and was also considering getting involved. I will be calling them on Monday to make sure (recorded call) that NONE of my money goes into this crap!
Banker, short, these securities holders are likely trading off incremental financing costs for enhanced liquidty.
My attempt to google "incremental financing" failed Can you please tell me what it is or point me to an online resource where i can read more about it?
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
Because without him, you have at least five guys who want it done their way and there is no way to break "ties," the group is simply too complex. HP is the adult in the room if you will. He pulls people aside when things get heated and Dutch Uncles them. If the Fed guarantees anything, I'll join you at the barricades!
As for voluntary, BSC didn't participate in the LTCM eal and did so in front of everyone.
As I understand it, the theory behind M-LEC is to take only high-quality assets, in order to create an entity that can issue commercial paper and actually find a buyer. (Since the problem is that investors are suspicious of all of the collateral in many of the SIVs.)
If it is backed by multiple major banks and accepted by Fidelity and PIMCO, that should increase the confidence of other investors to buy the CP.
In other words, the plan is not to dump the toxic waste in the M-LEC; it's exactly the opposite, in order to help get the CP market flowing again.
"What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example."
I'm not so sure. And honestly, I don't have my Caribean bank stuff at my finger tips...but well...I give you the point without any ev.
"I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns."
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
"Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing."
OK, maybe it's just jobs...Correct me if I'm wrong but Pimco's boss doesn't go anywhere unless Pimco fails?
"I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?"
Yes and I "Voluntarily" pay my income tax. The LTCM bailout went like this IMHO
Gangreen: "Guys, either pony up or we have cross cascading defaults."
Pigmen: "You mean the Fed ain't gonna buy it all?!"
Gangreen: "Nope, but will help you out interest rate wise with this Y2K thing."
Pigmen: "OK we're on board."
Not to mention this thing is huger than huge compared to LTCM.
Though I wonder if it isn't more apt to see PIMCO and FIDO's participation in a different light - as managers of huge money market operations, they are holding serious amounts of SIV paper somewhere in their operations. Per the CNN article posted by someone else on a prior thread:
FIDO money market fund exposure to SIVs: $7BN (2.3%)
BofA (through Columbia): $640 million exposure in its largest MM fund (gee, guess maybe this is why they're one of the lead sponsors)
Wachovia: forced to put $40M into an Evergreen MM fund to make it whole on SIV losses
JPM: 5% of its $103BN MM fund invested in SIV paper...
The reputational risk to these firms in breaking the buck is massive - couldn't we also see The Entity as an owner-financed workout? In other words, rather than Paulson offering a profit carrot, he could well be brandishing the stick of...ack, couldn't torture that metaphor any further. Anyway, hopefully that wasn't too rambling.
One thing I forgot, PIMCO'S CEO gets the axe long before they go BK. Prince and O'Neal, for example, had better get some pretty good returns pretty quick or else. he Company surviving isn't nearly enough to keep those kinds of jobs.
On another topic, I had the pleasure of working for a long time with Tom Meharas of Citi. If anyone is looking for a whip smart, stand up guy. He's it. Randy Barker is smart as well, but his ego needs its own parking space.
The reputational risk to these firms in breaking the buck is massive - couldn't we also see The Entity as an owner-financed workout?
Absolutely yes. The one caveate is that in a workout, generally the balance sheet gets "fixed" and the only question is do the operations still make sense. In this case, I'm not sure this "fixes" the balance sheets.
Banker
As for voluntary, BSC didn't participate in the LTCM eal and did so in front of everyone.
Must be why they've been punished. LTCM is way smaller than this...
Just a thought. Also
"Because without him, you have at least five guys who want it done their way and there is no way to break "ties,""
The guys who refuse to give have a stronger position..so why give. Something implicit from Treasury or Fed MUST be there to break the ice, outside of the vodka tonics, so to speak. No?
But the financials have lagged badly, with Financial Select SPDR exchange-traded fund up just 1.3% over that span despite the best efforts of the Fed, and now the Treasury. SIVs, or structured investment products, and off-balance sheet investments continue to hang over the credit market despite the proposed Treasury-backed superfund to clean up this mess, the master liquidity Enhancement Conduit, or MLEC.
(end quote)
Pimpco and inFidelity are a bunch of pussies that were told if don't join they would lose their sieve investments and would likely have to be the first to drop their NAV's below $1.00.
Can't be the first to do that, got to wait till someone else bites that big one. Once it's politically correct, Pimpco and Infidelity will be more than happy to boost confidence in a sub $1.00 NAV and follow suit.
The oil companies are gonna own everything. After the crash, they will buy everything, pennies on the dollar.
Blindside
hmmm... who control's the body question...debatable
When the body was first made, all the parts wanted to be Boss. The brain said, "I should be Boss because I control the whole body's responses and functions." The feet said, " We should be Boss as we carry the brain about and get him to where he wants to go." The hands said, "We should be the Boss because we do all the work and earn all the money." And so it went on and on with the heart, the lungs and the eyes until finally the asshole spoke up. All the parts laughed at the idea of the asshole being the Boss. So the asshole went on strike, blocked itself up and refused to work. Within a short time the eyes became crossed, the hands clenched, the feet twitched, the heart and lungs began to panic and the brain fevered.Eventually they all decided that the asshole should be the Boss.
Management Lesson: You don't need brains to be a Boss - any asshole will do
"Pimpco and inFidelity are a bunch of pussies that were told if don't join they would lose their sieve investments and would likely have to be the first to drop their NAV's below $1.00.
Can't be the first to do that, got to wait till someone else bites that big one. Once it's politically correct, Pimpco and Infidelity will be more than happy to boost confidence in a sub $1.00 NAV and follow suit.
Zoidberg"
I've speculating alot now..but do you have any evidence to confirm. Not being a jerk...just would like to see it.
MLEC may be attracting more banks to pour money into the superfund being formed to buy the high-quality assets of SIVs (structured investment products) and help bolster the asset-backed commercial paper market, on which these off-balance sheet investment vehicles depend. But MLEC also is eliciting lots of skepticism about its methods and motives.
MLEC's clear aim is to avoid having to sell assets held by the SIVs, off-balance sheet contrivances that recall the worst of Enron. But, as Joan McCullough of East Shore Partners acidly observes, that's exactly what the Americans criticized Japanese regulators for doing during the 1990s.
And when U.S. officials pushed the Japanese to take the hit for their bad loans, many of which were real-estate-related, who led the American charge? Then-Treasury Secretary Robert Rubin, now a major mucky-muck at Citi, the biggest SIV sponsor and MLEC beneficiary.
"Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Markets rarely are offended by hypocrisy. Free-market champions cleaned up in the government-sponsored clean-up of bad real-estate loans in the early 1990s.
But, with the worst of interest-rate resets on adjustable-rate mortgages yet to come, it's ludicrous to think the credit crunch is over. Wednesday's markets attest to that.
"Incremental financing" isn't a new type. All I meant was that certain institutions who might not lend directly to say Citi, might be willing to lend to a consortium. Sorry I was unclear.
Misean,
The guys who refuse to give have a stronger position..so why give. Something implicit from Treasury or Fed MUST be there to break the ice, outside of the vodka tonics, so to speak. No?
There are at least five high powered CEO's involved, the best NYC lawyers etc. That group couldn't agree on where to eat lunch without some outside prodding. If you are seeking a "deal," that is simply too many parties without someone arbitrating.
Some large investors have publicly taken a dim view of the scheme, and their concerns have been echoed privately among bankers and investors all week. Bill Gross, chief investment officer at Pimco, called it lame. Alan Greenspan, former Federal Reserve chairman and an adviser to Pimco, said he sees more risks than benefits.
To be clear, I'm not convinced that, over time, this structure accomplishes much other than buying time for the current securities holders, I just don't see the ethical issue you do.
Zoidberg - you could be right, but knowing those folks I'd say it's far more likely that they're circling each other, waiting for someone else to start falling so they can scoop up the assets.
On another level, it seems outrageous that Citigroup should be allowed to protect its bottom line in this way. Didn't Ernest Saunders go to jail for something similar? By propping up the price, bankers ensure that the damage isn't quite so bad when the assets are marked-to-market on being reabsorbed on to the balance sheet. But please don't call it market abuse.
"To be clear, I'm not convinced that, over time, this structure accomplishes much other than buying time for the current securities holders, I just don't see the ethical issue you do.
Banker "
Agreed on time thing. Ethically I find it repugnant, They're mostly playing with OPM, but they're salaries don't reflect that. IMHO. If I'm wrong I shall retract.
Washington, avoid doing favours for Wall Street
By John Gapper
Published: October 19 2007 19:22 | Last updated: October 19 2007 19:22
There was something troubling about this weeks initiatives by Hank Paulson, the US Treasury secretary, to address the countrys deteriorating housing market and the credit and liquidity problems that this is still causing for banks.
His speech in Washington on Tuesday, predicting that the subprime mortgage crisis would spread further, unnerved markets. Mr Paulsons close-cropped hair, bald pate and intense manner, combined with his gloomy message, made him look like Dr Doom. His hobby is bird-watching, but I would not care to be the bird that he stares at through a pair of binoculars.
Mr Paulson has another appearance problem. Before going to Washington he was a powerful figure on Wall Street as chairman and chief executive of Goldman Sachs, the investment bank. And, under him, the Treasury has taken an unusually active role in promoting the $75bn superfund intended to ease commercial paper problems affecting some big US banks.
Governments usually avoid getting involved in such plans, for fear of being seen to be bailing out private-sector financial institutions. Yet Mr Paulson and Robert Steel, the under-secretary for domestic finance (and another Goldman Sachs alumnus), have waded in over the past month. The Treasury convened meetings and encouraged banks to sign up.
The Treasurys backing for the superfund is not a public bail-out like the UK governments guarantees to depositors in Northern Rock. It has not offered any money to the structured investment vehicles (SIVs) that could benefit from the idea. Mr Paulson emphasised that when investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes.
For all that, there is a whiff of Wall Streeters in Washington doing their chums a favour a variety of what is known as moral hazard.
There are alot of smart folk here who are trying to overcomplicate things. It's simple really. Let's say that the dreck trip-A MBS that is to be bought by MLEC is trading, by comittee, at 50 cents on the dollar right now.
Citi, Pimco or whoever put up the money and the dreck is moved into the conduit at 60 cents on the dollar. OMG, dreck is up 20%!!! Liquidity is back!!! Market is flooded with opportunists looking to make a quick killing....or not. Either that, or more likely, nobody buys the scam.
The real incentive for MLEC partcipants is that the discount window will be open at some point to "loan" MLEC the 60 cents back. At some point the loan is frgiven and it becomes a taxpayer bailout.
NEW YORK (Fortune) -- A large Bank of America money market fund has over $600 million of exposure to Cheyne Finance, the structured investment vehicle (SIV) that recently defaulted on its obligations.
As of Oct. 12, Bank of America's $67-billion Columbia Cash Reserves fund had approximately $640 million - or just under 1% of its assets - invested in Cheyne, according to Jon Goldstein, a Bank of America spokesman. "Up until now, Cheyne has been paying its maturities as they come due," Goldstein said. He added that Deloitte, the firm acting as receiver for Cheyne, said this week that it was pleased with the progress of efforts to refinance and shore up the troubled SIV.
If I had $100 billion I wouldn't invest it in underperforming RMBS. That puts me one up on the Penatgram Consortia. Thing is these guys don't have $100 billion either and they are investing in RBMS.
NEW YORK (Fortune) -- A large Bank of America money market fund has over $600 million of exposure to Cheyne Finance, the structured investment vehicle (SIV) that recently defaulted on its obligations.
"As of Oct. 12, Bank of America's $67-billion Columbia Cash Reserves fund had approximately $640 million - or just under 1% of its assets - invested in Cheyne, according to Jon Goldstein, a Bank of America spokesman. "Up until now, Cheyne has been paying its maturities as they come due," Goldstein said. He added that Deloitte, the firm acting as receiver for Cheyne, said this week that it was pleased with the progress of efforts to refinance and shore up the troubled SIV.
ron"
Ironical I think Paulson has done just the opposite of what was intended, instead of calming the markets this may turn into full fledged fear. [Anonymous]
Good point. They're not going to get many more shots at such gestures before the credibility well runs dry (my entry in Mixed Metaphor sweepstakes). Already, the "Fed" is losing credibility as savior via interest rate cuts...
Interesting that the MSM is now getting a good wiff of this problem. How about a nice run on Fidelity money market funds next week, LOL and Fidelity not able to come up with the cash.
From one of the unwashed perspective with HP & US treasury involved, it feels much more like fascism than free markets. I am sure I can get Ol Hank on the line if I am laid up and have trouble with my cash flow.
Well, I'm glad Hank has not gone off to China to let them know that their banking system is seriously in need of an overhaul --esp the investment banking side of it.
Seriously...they have >$ 1.5T just sitting there "rotting away", as we were once fond of saying. The fact that no overtures went that way, (or Japan's way) strikes me as odd...even odder than Pimco and Fidelity agreeing (according to an Italian...who could have been drinking...Just sayin...I have too (been drinkin)...so that's why I can entertain this rumor, you?) to this "solution".
How much has the dollar slid in the last quarter? More than the GDP growth I would bet. How many years before Real Estate climbs back in your ordinary housing recovery? So as Robert points out, why would you invest now in RMBS?
So, PIMCO haven't as yet said anything about joining this deeply unethical scheme.
The organizers of this unethical scheme has said nothing about about PIMCO joining them (yet).
Our Hank hasn't said anything publicly about PIMCO joining in in his hanky-panky ( yet).
With the advent of the European bank what stature does the Bank of Italy governor have - and why is HE talking about it ( when I researching the German SIV bust I noticed that Italy dominated the hits I got in non-UK European SIVs so that could be reason).
The management of the news around this Super-Siv is shambolic - it gives me some hope that this deeply unethical scheme is constructed in a similarly shoddy manner and founders on the rock of public sneers and derision - o yeah - after the potential participants find the risk/reward ratio insufficient.
Did anybody else find Hank's speech and Q/A , as shown on Kudlow distinctly odd ? Lots of errrs, ummms, repetition, deviation, quite unfocused. He seemed to have lost it.
Can someone please tell me why buying time is a good thing? In case no one noticed, for going on two years now we have been chasing the housing market down and still not catching it. What is to make you think that how bad we expect the collateral to get isn't again underestimating things? Buying time now seems like the last thing we'd want to do. There is no avoiding eventually pricing this stuff (or am I missing something) so I would think the sooner you take the hit the better. Buying time just seems more like buying your own grave. I mean, just think about the recent housing news, and how much those massive sales drop offs and foreclosure issues are going to affect market pyschology? This thing has a major way to run downhill and there is no one out there yet that I can tell has gotten out in front of it on their estimates, so you can pretty much assume that the value of the collateral behind the toxic waste floating out in space is going down.
What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook.
Geoff,
Buying time is a good thing IF one believes that the highest quality tranches are being unfairly tarnished by the sub-prime fear and that most people will stay current on their mortgages. Otherwise, um, not so much
If you don't think this is going to work it is a good time to take your money and run like hell if you haven't already done so. In that case the fact that they are buying time is a good thing.
This "buying time" sounds suspiciously like home sellers taking their homes off the market and renting them out (at a loss) because they refuse to "just give them away".
Just guarantees bigger losses further down the road.
"What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook."
Well at best the banksters (sorry) are conspiring to keep this toxic crud off then books. At worst they're setting up a conduit to sell to the treasury and Fed to bail them out. I know you don't believe that, but I do.
Banker
"Buying time is a good thing IF one believes that the highest quality tranches are being unfairly tarnished by the sub-prime fear and that most people will stay current on their mortgages."
Yes IF. Don't see it. That's all short term paper backing 30 yr paper. IMHO ain't gonna happen. I'm seeing too many friends in So. Cal. who didn't listen to me in '05/06 going teats up to believe this.
As I said above, if this somehow makes its way back to the Fed I agree with you. But this stuff isn't ultimately "off the books." Someone has to own MLEC and account for it. If these securitites end up being junk, the current holders are STILL going to take a major earnings hit.
TIAA MM fund is, last I saw, about 88% in commercial paper. I don't know the quality of the commerical paper but I didn't wait to find out; I just got out.
You don't have sloooowww locked up in a gimp suit in the BankerDome, do you?
Haven't seen him around either.
My complaint on the Superfund (and again, am I the only one who appreciates what an ironic name that is?) is that it will be used to defer and hide losses.
The hail mary analogy is pretty close . . . except it's a hail mary that stays in the air for months or quarters and gives everybody a chance to confess only a bit at a time.
Sorry - but I have trouble understanding the difference between collusion and price fixing and market forces.
If I get together with a few folks and we conspire to determine the value of a commodity and then book this "market" value. It is collusion and anti-competitive.
This Superfund, while in spirit seems innocent enough, is creating false markets to justify a value and price.
"A "beard" is a person of the opposite sex who marries or dates a closeted lesbian or gay person to cover up their homosexuality. In the past, often lesbians married gay men so that both could "pass" as straight, either for work or for their families."
Notice that the "beard" does not have to go to bed with the "beardee". They are merely there to provide cover.
One cannot succesfully pass if everyone at your party is as queer as you are.
"Someone has to own MLEC and account for it. If these securitites end up being junk, the current holders are STILL going to take a major earnings hit.
Banker"
But then, doesn't somebody already own the SIV's? So how do3es transfering ownership change a dang thing....
And if the Super Sewer only eats the good stuff, doesn't that push the worst shite to the balance sheet, thus increasing massivley capital reserveres.
I can't help but think this whole Super-SIV thing is doing much more harm than good.
I mean, if everything is so damned great why do all the biggest financial institutions have to get together for a monster game of three-card monte? Markets are all about psychology -- "liquidity is confidence" -- and this can't possibly be instilling confidence in anyone.
Correct me if I'm wrong, but didn't the ABX's start diving again just about the same time the MLEC talks were first reported?
What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook.
I see this repeatedly - that delaying, stalling, avoiding is OK. Its not - its unethical. You should 'fess up, take yer lumps and get the restoration process going as quickly as possible. Time is precious - by delaying, one is denying the injured party(and there is certainly an injured party here ) a prompt recourse. Time is money, literally in this instance.
To overstate the case a little - but to posit the case pithily - "Justice delayed is Justice denied" - some Victorian PM said that - Gladstone or Disraeli.
Suppose, with analgous facts, this whole SIV setup were taking place in oh, I dunno, some place like, Indonesia, Malaysia, Taiwan, Argentina, Russia, or even Japan. All the big banks and even the government actively collaborating to thwart the market, to hide problems and paper them over?
Wouldn't all the newspapers be hopping mad and sneering over that sleazy "Crony Capitalism"?
With the insufferable arrogance of "thank Ayn Rand that we're not like that!"
"The real incentive for MLEC partcipants is that the discount window will be open at some point to "loan" MLEC the 60 cents back. At some point the loan is forgiven and it becomes a taxpayer bailout."
A banana republic isn't characterized only by a rotten political system, ruled by a small, wealthy, and corrupt clique usually put in power or supported by foreign interests (in the 20th century, in the case of several Central and Latin American countries, by the US), but also by huge wealth and income inequities, poor infrastructure, backwardness in many sectors of the economy, low capital spending, a reliance on foreign capital, money printing and budget deficits, and of course a weakening currency.
A banana republic is also characterized by a ruling class that curtails people's personal freedoms and is moving towards a heavy-handed military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn't a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.
One dumb question I have is why aren't the derivative people screaming bloody murder?
Somebody is betting on these things going down... and somebody is betting on them NOT going down.
Wouldn't you expect those on the 'wrong side' of Uncle Hanks bet be screaming 'market manipulation' about now? If I bet they were going down & Hank plan shows up an' rescues them I'd be a bit miffed.
How come so much silence - other than the ranting of Club Tin Hat (card carrying member here, thank you very much)?
How exactly are losses being "hidden?" Someone has to own the vehicle and take their share of any losses back through the parent owners one way or another. Delayed? Maybe. Avoided? Nope.
But then, doesn't somebody already own the SIV's? So how do3es transfering ownership change a dang thing....
It changes the liquidity picture, maybe. On the earnings side, over time, I don't think it matters much.
And if the Super Sewer only eats the good stuff, doesn't that push the worst shite to the balance sheet, thus increasing massivley capital reserveres.
No. The shite is already having to be dealt with. By separating the wheat from the chaff they are hoping to gain incremental liquidity.
SK,
I see this repeatedly - that delaying, stalling, avoiding is OK. Its not - its unethical. You should 'fess up, take yer lumps and get the restoration process going as quickly as possible.
Nonsense. Unless you think diplomacy (given just one obvious example) is unethical. Time, by itself, is a tool and should be used accordingly. This ain't a civil rights court.
Time is precious - by delaying, one is denying the injured party(and there is certainly an injured party here )
Bullpoopie. Who exactly is the injured party here? Is someone prevented from freely selling their positions in any company or vehicle? ook upthread how people here are reacting, by acting. MLEC may be unethical, but certainly not for the reasons you've posited.
The derivatives question is a good one. I suspect the reason is that most derivative books remian relatively balanced. That is, that while counterparties take sides on individual trades, most really do try to "hedge" themselves on their overall book.
Of course Treasury could have all of them locked up in area 51 along with Elvis, JFK's brain and incontrovertible proof that the Trilateral Commission runs the world.
Is someone prevented from freely selling their positions in any company or vehicle?
Yup, when ethical behavior is lacking then in some instances this will get resolved in that famous court of property rights - the market - unless of course the delay and shenanigans continue to such an extent that it brings THAT court down.
Banker, they transfer all this crap into another, remote, off-balance sheet entity. How do they value it all?
They value it at a level that allows them to avoid taking huge(r) writedowns today. Push the problem out further, avoid panic, so the losses seem more manageable when spread out over time.
Maybe they're hoping for some wonderful turnaround to happen in the meantime and save their bacon . . . but I think it's really about burying losses as long as possible, and then accepting them in digestible chunks.
I can't prove this (right now) . . . but that is my hunch.
One more thing: if some of these entities, e.g. Citi, had to take all their lumps at once, it could call their solvency into question, which becomes it's own self-fulfilling prophecy, and which they will do almost anything to avoid.
For me, as long as all parties are acting consensually, GAAP is used, law is followed especially re: dislcosure and the securities are sold to MLEC at some approximation of fair market (whatever that is in this case) then I see no ethical issues.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
Exactly who is being prevented from buying or selling what they wish when they wish? Nobody as near as I can see.
Gary,
Banker, they transfer all this crap into another, remote, off-balance sheet entity. How do they value it all?
Well, Citi has sold $20 billion of this stuff in the last month, that provides some market basis for pricing.
They value it at a level that allows them to avoid taking huge(r) writedowns today. Push the problem out further, avoid panic, so the losses seem more manageable when spread out over time.
Maybe, but I don't think it's quite that clean. Again, the top level stuff has had a market over the past few weeks, so they will struggle to invent a price.
Maybe they're hoping for some wonderful turnaround to happen in the meantime and save their bacon . . . but I think it's really about burying losses as long as possible, and then accepting them in digestible chunks.
I think both things are likely true. But I've gotta say, a AAA tranche of seasoned, non-subprime RMBS dopping 8-10 points in a stable rate environment sounds like a panic, not a rational, long term assessment to me. I think they genuinely believe the former is going to happen, but are worried about liquidity in the interim.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
I have a problem with the total lack of transparency of what is in these, Print it out on the front page and put it in front of ALL investors not just a select few and expecaly when the ones that do get a peak are playing with OPM. Hopfully not MY money.
Exactly who is being prevented from buying or selling what they wish when they wish? Nobody as near as I can see.
I dunno who's saying that either - at the present time at least. I AM saying that relying on the buy/sell aka market aka "you know where the door is", "didya read the small print", "there was full disclosure" metaphor of business transactions - especially large ones with few parties on either side - is way below how I've seen and done business. Ethics guides most stages of business transactions in my world. The style of "sell and move on" is an end point of a deal when its gone bad. And no, before this gets too convoluted, I'm NOT saying that all sells in a transaction are as a result of a deal gone bad.
Transparency among the owners of MLEC, I agree. All investors in MLEC will be contractually promised to get quarterly financials etc.
Tom Stone,
In most Wall Street companies, the bonus year is Oct 1 to the following September 30. Bonuses are determined, argued about allocated etc. during the fourth quarter, announced in December and paid in January. So from a bonus perspective, this is already "next year."
This stuff is big boy investing. We aren't talking widows and orphans here. These are private placements sold to full-time, highly educated professional money managers. They can sell anyhting they want and buy something else at any time, including the stock of C or BoA etc. They are not impaired IN ANY WAY by the creation of MLEC.
What concerns me and others: The SIV Superfund prevents banks from having to increase capital contributions because as I understand it these funds remain off book for now. This exposes the FDIC deposit insurance which is only $50B to potential losses because there is less bank capital protection. Once the FDIC's deposit insurance fund is depleted it takes an act of Congress to restore the fund. Deposit insurance is NOT funded by taxpayers as some of you often write. It is funded by the banks via FDIC assessments. However, once the fund is depleted or in non-compliance with its minimum balance mandates Congress will turn to the public's taxes to bail out the FDIC depleted deposit insurance fund and will also increase amounts that banks must pay into the fund as it has done before. Substantial bank capital increases should be mandated before the SIV Superfund gets approved in my view.
Thanks for all the input Banker. Is MLEC even big enough to make a difference? Based on the treatment the plan has gotten in the press, it might have caused more harm than any potential benefits.
This stuff is big boy investing. We aren't talking widows and orphans here. These are private placements sold to full-time, highly educated professional money managers. They can sell anyhting they want and buy something else at any time, including the stock of C or BoA etc.
Funny, that's what I said, in different words..viz, "especially large ones with few parties on either side". And in such transactions, business ethics is vital.
What is with this super SIV? As a bitter renter trying to save up a downpayment, to have my finance company I save with turn around and bail out overpriced mortgages for people who can't afford them and put my downpayment at risk is just downright awful.
I usually don't join in boybotts of companies, but this time, I just might. It's downright offensive.
Paulson also said that Pacific Investment Management Co., manager of the world's largest bond fund, and Fidelity Investments, the world's largest mutual-fund company, are involved in discussions on the fund, Bank of Italy Governor Mario Draghi told reporters in Washington.
"discussions" is quite different from "have joined".
FT - Paulson hits back at superfund critics
"The concept is not to buy bad assets" that have credit problems, Mr. Paulson told the FT. "The concept is for the end investors working with the banks to buy assets that are not credit impaired." FT.com / US / Economy & Fed - Paulson hits back at ‘superfund’ critics
The SIV Superfund prevents banks from having to increase capital contributions because as I understand it these funds remain off book for now.
A couple of things, first these assets sit on the books of these banks already and second, each of the major banks have Tier I Capital Ratios well above the 6% that defines Well Capitalized. So I don't think they are avoiding an increase in regulatory capital through this vehicle. Happy to be persuaded otherwise.
Is this thing big enough? I have no clue. I really do question the overall impact this vehicle can have. This won't be up and running until after year-end is my guess. That means repricings between now and then that may make this whole thing moot and likely means all these assets remain on the banks books through year-end.
Do we have any accountants participating here? I'd love an expert's inpout as to how the banks will account for MLEC, who will own it, how earnings and losses will be distributed and acounted for. Such a discussion would, I think, clarify a lot of things.
Towards the end of "Confessions of an Economic Hit Man", John Perkins makes the casual observation that; while he was completely clear that the "development" loans he was promoting in the third world countries were actually designed to enslave them, that most of the generation that followed him were not. John intentionally wrote the flowery academic reports that justified it as a cover. Unfortunately that line became the orthodoxy and the next generation believed it and internalized the lessons and gleefully promoted and replicated the process at home.
I think the problem is that this particular Jim Jones Kool-Aid is a slow poison, so the masses drank when the first tasters didn't keel over straight away. Blowback indeed.
Actually, I thought the point of these things was that the banks would make money off the financing, but the assets would be retained by some one else and if the short term paper couldn't be sold, the "other" owner of the assets (not the bank) would be taking the hit, and that's why they were off-balance
i.e., the assets weren't owned by the bank.
Banker - I kindly disagree but lets continue our research on it and discuss again later. SIVS are off-balance sheet funds that make money issuing short term debt to buy long term, higher yielding assets. Demand for the short term debt evaporated this summer, as investors were unwilling to buy debt that might be backed by bad mortgages. Warren Buffet advocates bringing SIVs on bank's balance sheets which to me indicates massive capital infusions. Buffett also advocates more transparency in pricing. "Some marks can be pretty imaginative," he says. "They call it 'marking to market,' but it's really marking to myth." Thanks for your input.
You are correct about existing SIV's(of course). I have been presuming, perhaps incorrectly, that many,and perhaps most of the assets which will be purchased are coming off the banks balance sheets.
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
But...It seems to me there are three possibilities here.
Banks have securities MLEC will buy on their balance sheets. Ethical concerns would include pricing of securities upon transfer. Mitigating factor would be that managament of MLEC will be accountable to people beyond a single bank due to the consortium approach and therefore unlikely to offer "sweetheart" pricing to any particular seller. Another concern would be what "participants" are vulnerable to writedowns and where do we find that data? Mitigating factor. Someone has to own MLEC and it seems unlikely a third party not currently involved would bring the equity...unless the sponsor banks basically guaranteed a return...in which case why would the banks want that? (Here's where we need an accountant's input)
Securities are currently held by an SIV "sponsored" by a particular bank. Similar situation to #1 from an ethical perspective.
Securities to be purchased are held by an independent SIV. Arms length transaction, not much to worry about there.
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 don't think that major investment companies can lower the NAV on money market accounts without blowing their credibility. In other words, they would cover the difference from their own funds.
That said (MY wife and I have two brokerage accounts, two Roths, and a 403b at Fidelity) you can transfer money from Fidelity Cash Reserves to Fidelity Federal Money Market (I have not checked but it must invest in short term Government securities). Perhaps this would have its own issues, but would avoid partcipation in this new scheme if Fidelity in fact joins.
Isn't Alan Greenspan (anyone remember him???) with Pimco in an advisory role?
Does anyone else think he might have had some input as to Pimco joining this little shell game - being how it was AG's Fed that initiated the LTCM unwind?
Note also that unlike LTCM (which was only one company), this unwind is for an entire asset class. Moral hazard squared and cubed.
Good morning Banker,
After perusing the thread it would appear that you don't sleep nearly enough....
While I can not claim to speak for the rest of the tin hats on this board I'll iterate my own position, and at least posit why there is some amount of anger brewing within the ranks of the unwashed. The system we have in place, with a Federal Reserve and fractional reserve banking, confers unlimited financial power on a privileged class, namely bankers and their financial brethren. (that's with a small b, so present company may yet be excluded). If you are hooked into the system, you have the possibility of 'creating' fantastic riches for yourself, while placing an enormous amount of the risk on people who will not get a dime from your endeavors should you succeed. Were this power not concentrated in political hands but instead doled out by the market, it is highly unlikely we would find ourselves in what is undoubtedly a colossal screw up.
Sadly, as someone up-thread opined, the likely reaction to this is going to be more creeping socialism. glorious.
Isn't Alan Greenspan (anyone remember him???) with Pimco in an advisory role?
Does anyone else think he might have had some input as to Pimco joining this little shell game - being how it was AG's Fed that initiated the LTCM unwind?
Greenspan questions superfund
By Krishna Guha in Washington and David Wighton in New York
Published: October 19 2007 17:12 | Last updated: October 20 2007 01:51
Alan Greenspan on Friday raised serious doubts over the plan to create a $75bn-plus investment fund to buy the assets of troubled investment vehicles, warning that it could prevent the market from establishing true clearing prices for asset-backed securities.
You people who are disparaging MLEC, what do you want? Do you want the man in the street to know the truth? Do you want fear, panic and bank runs? Give me obfuscation over chaos, anytime. The world already has one Iraq.
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
A. Why are they off balance sheet and B. Isn't that the same kind of crap Enron did. These guy's make their money by sell this crap not by keeping it, if it was all the great they should be more then happy to have such quality assets on their books. Wall Street is one big pump & dump and when stuff blows up it was like we didn't foresee that but it is Mom & Pops pension fund that takes the hit. Looks to me like Mom & Pop will have a lot of this crap on their books when she blows along with what is currently already on them.
MLEC is not a 'conduit'. It is a club in which members tell each other how great they all look. The intent is to circle around the weak to avoid a few kills from the outside. It is all based on the notion that somehow there really is a currently unrecognized value to securities that are now apparently near worthless. That is ONLY going to be true if US housing prices can be held at a price-to-income ratio that is way out of historical limits, because that ratio establishes the size of the market and the availability of mortgages.
Common sense and hard numbers say this is impossible. The other issue is that the US leads the world in this: the whole show is coming soon to local theaters everywhere.
A prerequisite for MLEC to work is compromise and swift action, without questions. If some big institutions are against it and Paulson himself says it will take a while, MLEC is either (a) not going to be helpful or (b) not going to matter at all. And we know this superfund is important to many people. So I think disaster is coming. LTCM was a swift deal. This is not. In the coming 2-3 months, more problems will come.
I remember in 2005 I spoke with an investment banker and asked him about derivatives and hedge funds. He told me he doesn't think there would be a huge derivatives collapse but there would be a large number or smaller manageable collapses. What is going on right now is that because the credit bubble affected many parts of the economy at once, we are seeing correlation of blowups. The Bear Stearns funds prompted an LTCM-like series of meetings and compromises, but so does the SIV crisis, and so will other crises. IB's are having to deal with SIVs, pier loans, mortgage books, a decelerating economy, all at once. That's the correlation factor. It's too much at once. I predict the superSIV is simply not going to be a low-hanging-fruit problem, and eventually they'll have to give up on trying to save everything the fake way.
Every statement by Paulson et. al. (never mind the name itself) makes it clear the purpose of M-LEC is to improve liquidity, not solvency.
M-LEC's purpose is to assume the good assets, not the bad, in order to improve investor confidence about which is which (liquidity problem).
Should M-LEC fail, the logical next step would be for the Fed to open the discount window to the SIVs directly, accepting the same collateral -- at the same penalty rates -- that the banks themselves could obtain if the assets were on-balance-sheet.
No conspiracies. No shell game. Just the government intervening in a liquidity crisis, exactly as they are supposed to do.
Hey, it'a a theory. It follows from the assumption that Hank Paulson is, you know, telling the truth. If anyone can produce a shred of evidence to the contrary, I'd love to see it.
Wally, I think you are right, but isn't that a circular definition - the stuff that sold is saleable?
All this frantic restructuring seems to me to indicate that, this time, there won't be a fed cut - and that the players know that - and that they are trying to work something out in advance to prevent the market from a free fall when that comes.
There won't be a fed cut because Bernanke has to save something for the upcoming election year and because it isn't addressing the underlying problems.
The Bush administration has the habit of focusing on, magnifying, and distorting any positive data it can find, just to enable it to ignore the darkness all around. Thus, the definition of "the economy" has been contracted to the stock market. At all costs, that positive territory must be supported.
For me, as long as all parties are acting consensually, GAAP is used, law is followed especially re: dislcosure and the securities are sold to MLEC at some approximation of fair market (whatever that is in this case) then I see no ethical issues.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
Banker | 10.20.07 - 1:18 am | #
Actually it was me who made the claim.
While nobody can be sure of the methods involved, does anyone seriously doubt that the taxpayer will eventually be on the hook if this doesn't work out for MLEC participants?
I am SURE that Hank and the Fed have winked to all MLEC participants...the upside is that maybe these highly rated MBS come back in price and you make a windfall...
The downside? Ummmmmm there is no downside 'cuz Hank says so.
This is not rocket science folks. Are we going to read about this "promise" in te prospectus for MLEC?? There's not going to be one.
"This super SIV idea has reminded people that this credit problem is deeper and more fundamental than they had thought, and it isn't going away anytime soon,'' said Bob Janjuah, the global credit strategist at Royal Bank of Scotland Group Plc in London."
This super-fund idea is becoming a financial nuke.
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.
Banker | 10.20.07 - 5:19 am | #
If "lingering" is a synonym for unquestionable, please count me in this camp
"the whole show is coming soon to local theaters everywhere."
No, the whole show is already in the theaters, the public is just not watching it. Did anybody read the TIC reports? The end is here. How may people realize that most large US companies, that rely on ABCP financing, have pretty much given up on hedging the falling USD a year ago, and are spending much of their time restating quaterly statements to account for their derivative dependency? Sarbanes-Oxley is forcing many publicly traded companies to slip under the cloak of private equity, where the public isn't allowed to see $hit. If investors really knew what was happening, the Dow would be 50% lower.
The MLEC, or The Entity, will allow the banks to offload the AAA mortgage-backed securities in the SIVs that are the most illiquid. The theory is that the trimmed down SIV sans the most illiquid mortgages will entice buyers of SIV commercial paper to return to the market.
There are so many problems with this proposal that I do not know where to begin. After the demise of Enron due to off balance sheet financing, I thought that we had played a requiem for this type of investment for just cause. Enrons machinations taught us that the opacity of off balance sheet funding makes it impossible to discern a proper valuation.
So how is it once again another corporation with an off-the-books problem is singing Someone save me if you will? I have to respond with lyrics from the same Shinedown song, The hardest question to answer is why.
I am not sure how the MLEC will work. To instill confidence, the MLEC or The Entity can only accept AAA bonds. The first problem will be determining which bonds gain entrance and at what price. After the sub-prime meltdown, the AAA rating does not carry the same weight. Coffee mugs will be flying in the air during these discussions.
I see storm clouds ahead. Wall Street is many things but it is definitely not a philanthropic organization. If it has banded together to the tune of $100 billion to save SIVs, then the situation at Citicorp and the other issuers must be dire.
The additional anecdotal confirms that. Treasury Secretary Hank Paulson, a member of the administration that swept into office criticizing Clintons bailouts of the Asian countries, has been lighting fast to take credit for orchestrating this bailout. Although no public funds were used, it seems that the fund would not have been created without a nudge from the Treasury. So it is a de facto bailout.
To be a true Bushie, you have to swear on a stack of Newt Gingrich autobiographies that you will not bailout regardless of need. So Paulson would not have instigated MLEC unless it was absolutely necessary.
It seems that an MLEC will only delay the inevitable. Let the issuers of SIVs take the write downs now. Then the rest of us can deal with the consequences. William Gross of bond giant Pimco is correctly calling the creation of The Entity lame.
As Kenny Rogers sang You got to know when to hold 'em, know when to fold 'em, know when to walk away. Until Ben Bernanke can figure out the value of mortgage back securities, I am staying out of the market except for a few tech stocks. The market may continue to rally. But if I wanted to throw my money away, I would go to the race track. It would be more fun.
Maybe I am spooked because this week is the twentieth anniversary of the 1987 market crash. Financials also led the market down back then.
(Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own inv
Hank is telling the truth and trying to make sure their is enough feed for all but he keeps collaborating with his buddies at the trough. Nothing illegal just some are more equal than others
I actually overheard people talking about this at the Safeway store this morning.the fragment i heard clearly was "these banks are just like enron".friskies and milk,if you must know.
You don't think "sweetheart" pricing will occur?!? The entire scheme is a "sweetheart" club!
it is meant to establish "prices", i.e. favorable prices for assets that cannot be sold at "true value" because of the risk averse nature of financial markets at this time.
I believe some of the provisions will allow buyers' to recoup any losses and sellers to recoup gains if repricing occurs in the future!! Arguably, a transaction has not even taken place?
At best, yes, some "institutions" . . . strike that, let's call them what they are . . some GAMBLERS need cash and cannot sell some true AAA & AA paper at "proper" prices at this time. This will allow them to get full value because of the SWEETHEART / NOT ARMS LENGTH nature of this club.
A question:
This may be too basic, but what is the accounting rule / convention that allows this to be held off-balance sheet? SIVs are wholly owned, controlled by, and debt guaranteed by the banks and/or funds.
(I follow non-financials outside the US and my naive accounting skills are behind the times I guess?)
. . . and lastly, Banker, considering the above, do you seriously think sorting out the accounting will be a concern? Geez.
"MLEC's clear aim is to avoid having to sell assets held by the SIVs, off-balance sheet contrivances that recall the worst of Enron. But, as Joan McCullough of East Shore Partners acidly observes, that's exactly what the Americans criticized Japanese regulators for doing during the 1990s.
And when U.S. officials pushed the Japanese to take the hit for their bad loans, many of which were real-estate-related, who led the American charge? Then-Treasury Secretary Robert Rubin, now a major mucky-muck at Citi, the biggest SIV sponsor and MLEC beneficiary.
"Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Unless greater amounts of new liquidity are repeatedly injected, the cracks in the global financial system will reappear somewhere in the world as asset prices continue to decline. New paradigmers will define this gradual, global systemic failure as the efficient dispersion of risk. The reality is that a systemic rot is infecting the entire global financial system, and it is being concealed continually by the excess liquidity that has either been dormant on the sidelines or is being newly created by governments to combat the crises. The result can be either a very quick unwinding of the debt if markets are allowed to freely adjust without intervention, or instead, if the government moves to protect the bad debt and stabilize asset prices, the result can be a gradual erosion of the efficient allocation of capital, as society must continually designate good resources to prevent the failure of its bad investments....
COLLATERAL DAMAGE
The Inevitable Unwinding of Assets and the
Impending Governmental Intervention
by Bill Laggner with George Karahalios
Bearing Asset Management
October 18, 2007
As I understand it, MLEC will buy only top rated securities: Treasuries? Agencies? Investment grade corporates? All of those are already liquid. What does that leave?
Top rated CDO's
Top rated non-agency ABS tranches
Top rated CLO's
All rated by the ratings agencies. None with clear market prices.
The Superconduit itself will be a form of CDO. It will 'pay' for securities in part with equity-like junior debt. So again, we have more creation of "first loss" instruments.
Picture someone buying an ounce of fools gold with an ounce of gold coin chocolates, all at the price of real gold, and you will understand the rationale behind the MLEC.
It seems to me that much of the concern is over the potential for a future taxpayer bailout after organizing this single point of failure - as many have observed, this is an industry of LTCM's rather than one fund - if one holds the perspective this is a genuine insolvency problem rather than a liquidity problem. Has quite a bit more spinnability as a responsible attempt to stabilize the financial system, that will be the storyline anyways...
Blah...Someone get the liscence of the truck that hit me last night...
Anywho...the M-bLECh Super Sewer goes like this:
"No sub-prime MBS" (shouldn't it be m "BS")
Right, cuz, it only holds AAA rated ABCP. Now, the ABCP may be a derivative of m"BS" but SHHHH!!! you'll scare the sheeple. So we're only "selling" ABCP to the Super Sewer. And the Super Sewer is only going to pay "market" prices. So we'll tell the sewer to buy at $.975 on the dollar...you know, give ourselves a "REAL" hair cut to make it look all legite and stuff.
"California housing slump worsening state budget picture "
California tax revenue dropped precipitously in September as the slumping housing market pushed up unemployment and home sales slid for the sixth straight month.
California collected $809 million less than expected. The drop, about 7 percent below projections, nearly doubles the cash shortfall the state recorded for all of last year.
Contrary to Banker's take (that hedge funds have hedged both ways and are hence complacent about the workout), I suspect differently.
Hedge funds model potential losses, but only within what they consider to be reasonable ranges. The current deterioration far exceeds anything they expected. So even if they were betting on an instrument dropping, any loss past the amount of "insurance" they bought, is actually their loss.
If the above is true, they may expect to have sufficient losses that the SIV's work out in their favor too.
This week we learned that Structured Investment Vehicles or SIVs should more properly be termed SIGs or Structured Investment Garbage. Several SIVs worth over $20 billion are closing shop, and investors will lose money. More SIVs are selling assets to meet loan demands. SIVs had issued at the peak about $400 billion worth of asset-backed commercial paper. The total of asset-backed commercial paper was $1.2 trillion. Since July, that has plummeted, nose-dived, crashed to $888 billion, and is on its way to a small fraction of that. In effect, we are taking a trillion dollars of financing for a wide variety of things we need, like credit cards, autos, homes, and corporate loans out of the credit market. That is going to have an impact.
Neal- "Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Misean, this relates to what was being discussed the other night. It is more likely, thanks to MLEC, that the US financial system is headed for a prolonged credit crunch-and possibly a liquidity trap-than a hyperinflation.
For me the disturbing thing about M-LEC is that it continues bad behavior, and with the encouragement of the regulators. The whole SIV/ ABCP crisis has exposed two big problems hat regulator should be trying to fix. One, the SIVs borrowed short to invest long -- something that long has been known to carry the risk of destabilizing the financial sector, and hence when banks do it they face certain capital requirements. By doing it off the books banks have avoided this requirement in SIVs, but M-LEC proposes to issue short-term debt, to buy longer term paper, thus perpetuating the problem. The second problem is that banks have been allowed to create SIVs and keep them off the books, thus hiding risk from investors and regulators. The inability of SIVs to rollover short term debt, could force these assets and liabilities back on banks books, but M-LEC is a way to again perpetuate keeping risk off balance sheets. To me it not ethical for the regulators to support the continuation of bad practices rather than ending them. Then of course this vehicle which includes SIV sponsors funding an entity to buy SIV assets, means transactions are not truly arm's length. The participation of many parties may offer some sense that in fact they are arm's length, but when all parties have an interest in maintaining asset prices, then it would appear that collusion is just as as likely a possibility, which further reduces transparency and competition, which regulators should also be supporting not hindering.
"Misean, this relates to what was being discussed the other night. It is more likely, thanks to MLEC, that the US financial system is headed for a prolonged credit crunch-and possibly a liquidity trap-than a hyperinflation.
mp for Conjure Bag "
Oh my, Conjure bag this early into this hangover. Well morning Conjure...this is for you:
I think that the M-bLECh is an attempt by TPTB to go Japanese. Problem is the Japanese have savings and make stuff. We don't. Well except for printing press stuff. So to "fund" this puss, Fed's gonna hafta print, IMHO.
I'm really kinda 50/50 on deflation-hyper inflation thingy. Well maybe 48/52.
--
" Crooks and Liars! Lend me your ears! Now is the time to rally around our ailing brethren. We must lift them up, that they might not fail."
I feel better and better about my observation about the American econo-political system -- A system of the Crooks, by the Crooks, and for the Crooks.
An American faithful has nothing other than denial to comfort him, or her.
The Scam Market TOP is in. Economys top is in. Nothing but down hill for American economy and political system. There are consequences of abuses for decades, stupidity, and being ruled over by certifiable Crooks.
Yes, I wish I could figure out deflation v hyper-inflation, which way is it going to go eventually? A question for the ages. And my future financial security.
I am seeing a lot of comments that make the point that it is in every bank's interest to make sure that Citi does not go belly up, but I'm not so sure. If Citi were to fail, or at least be damaged, wouldn't that mean there would be more business for the other banks?
"I am seeing a lot of comments that make the point that it is in every bank's interest to make sure that Citi does not go belly up, but I'm not so sure. If Citi were to fail, or at least be damaged, wouldn't that mean there would be more business for the other banks?
jonny"
SIVs, structured investment vehicles, that Mauldin suggests might better be tagged "SIGs", structured investment garbage...might be over-looking "structured".
Consider David Pearson's structured comment above and invest in those sentiments (rated AAA by calmo) [So superior to S&P's, Moody's and other dogs'...mongrels really. Don't let your pedigree get you down: recognize this is part of the "structure".] rather than the windier, more desperate pleas, suspended whateverittakes forchrisakesamen.
Review the AG line about "the distermediation of risk" by new financial instruments and know that these clowns (ok, you're right: heisters) have knocked themselves out.
Banker, disabuse yourself of the idea you are a thread hogger.
Given the quality of your posts, and your willingness to engage a wide spectrum of viewpoints/assertions, please entertain the idea that, rather than hogging, you need to increase post quantity. Please think of yourself as an underachiever and, therefore, obligated to post more.
"Review the AG line about "the distermediation of risk" by new financial instruments and know that these clowns (ok, you're right: heisters) have knocked themselves out.
calmo "
Uh, if I were the owner of some of the current SIV commercial paper*, I'd be mad as hell at any attempt to transfer out of them the "high-quality" assets to MLEC, leaving me with the junk. Why isn't this seen as just an attempt to transfer the few remaining valuable assets out near-failing enterprises into a NEW enterprise owned by the banks (or some new investors), but no longer me, leaving me with something from a firm even more likely to go belly-up.
(If Banker is right in his assumption that MLEC is for the banks assets, not the SIVs assets, other questions arise, no less troubling, but for another comment. Do we know for sure which it is?)
DCRogers
Oops, just checked my BofA and Fidelity accounts... I am the owner of some of this paper! Sht.
Maybe my view is naive on this but it looks like to me that this M-LEC thing is simply creating the illusion of a market as the members sell unsalable crap to each other. They mark their books to this value and pray that the real market recovers to a point will it will buy the stuff at something close to those prices.
Now, that it only takes highly rated securities says to me they are just abandoning everything lower and salvaging what they can. In other words, the situation is very dire.
A number of people have suggested a public funded bailout is inevitable. Well, it is obviously going to have to be a huge bailout and there are political consequences to consider. Most people after all are not investment bankers. So let's see, what kind of things an aspiring politician might say:
"I feel your pain people of #####! You can't get health insurance, your mortgage is adjusting, and your house is worth 25 % less!!! The economy is in recession and YOUR services are being cut and those bought and paid for politicians are asking for 100s of BILLIONS of bailout money for those 100-million-dollar-bonus enron CEOs!!"
I think big bailouts are not a foregone conclusion and I am really really interested to hear the political rhetoric come 2008.
"Maybe my view is naive on this but it looks like to me that this M-LEC thing is simply creating the illusion of a market as the members sell unsalable crap to each other....
Red Pill "
a line that would be called on only if the S.I.V. could not borrow and a German bank could not meet its promise to make the loan. That happened, so Citi forked over the cash and immediately put the loan on nonperforming status. That's a neat trick.
OK. First, I'm not an expert, just an interested 'little guy' who's been following these events - reading as much as I can to understand.
Can we officially declare a state of denial now??
""Right now we have a market failure. We have assets that we all agree are worth much more over the long term than one can get today. There has been a freeze-up in the market because of the great uncertainty over what the value in the long term of these assets is going to be," he said." - Jonathan Fiechter, deputy director of the monetary and capital markets department of the International Monetary Fund
Key word , I think, is believe. Isn't this really hope masquerading as conviction (dbl entendre intended)? What if what they 'all' believe turns out to be wrong? What happpens to the first person to admit it, ala John Reed at Citi when he decided to part with the fiction and start selling his South American bonds?
I'm not the first to say it, but I'm convinced it's all about trust - which has been lost, and deservedly so. This doesn't get fixed until folks start parting the curtain and accurately disclosing what their trashed securities exposure really is. The first to do so will have the least losses, be made a pariah, and trigger an avalanche of selling off. Painful in the extreme, but completely necessary. Until it happens, there is no hope for liquidity to ease.
It is worth noting that Citigroup expanded its balance sheet by $133bn during Q3, a 24% annualized rate. Amazingly, Citi's asset have ballooned $608bn during the past four quarters, or almost 35%. Despite the poor and deteriorating outlook, Bank of America's Assets increased at an 11.6% pace during the quarter, exceeded by Wachovia's 19.0%. Big Five (Citi, BofA, JPMorgan, Wachovia and Wells Fargo) Total Assets expanded $243bn during Q3 - a 15.1% growth rate. Big Five Assets have inflated 20% over the past year.
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
Banker
Uhhh, maybe because the worthless crap has to be brought back onto the balance sheets when the SIV defaults and collapses.
El SUPER-SIEVE is the newest latest greatest SHELL GAME to avoid the surfacing of these losses.
In other words, it is UNETHICAL.
Why does this non-banker understand this obviousness and the Banker does not? Maybe sk was right when stating Banker wouldn't.
The ethical and moral areas of the brain are removed before reaching the 33rd level of Banker.
We have assets that we all agree are worth much more over the long term than one can get today."
And let me say Banker...even if this is true (which I doubt) Then perhaps the banksters need to be taught a lesson about lending long (30 yrs) and borrowing short (30 days to 1yr).
Nothing can make that risk go away. And that was what made me angry yesterday...and now it's back under my craw.
Picture someone buying an ounce of fools gold with an ounce of gold coin chocolates, all at the price of real gold, and you will understand the rationale behind the MLEC.
David Pearson
I'm not the first to say it, but I'm convinced it's all about trust - which has been lost, and deservedly so.
Yup, its about trust alright. An ancient business relationships training ( Integro I think ) emphasized that - though why one needs TRAINING in this stuff is puzzling. And the larger the deal, the fewer the players, the more complicated the scheme, the more important trust is in decision making.
And if you lose in once, just once, then you'll only regain it with some very public donning of sackcloth and ashes. That, or the passage of time when memories of your conduct fade and fail, or Old Man Time reaps your fellow wheelers and dealers or heaven forbid, reaps YOU.
I see Hank as a Tony Soprano Boss dealing with a crisis, meeting with Fidelity, Pimco and the 23A Gang:
"I'm concerned about your health. You guys gotta kick in to the payoff fund, or it might take a permanent turn for the worse. If we don't help out the C Gang, all the Mobs could be threatened."
(stunned silence)
"I expect your check by Monday 9 AM at my office. I don't think I have to explain what's gonna happen if it isn't there on time."
The shrewd banksters who could see criminal enterprises as easy money cannot see a rational solution out of their criminal enterprise.
Allowing me a bit of liberty here:
The SIV's were continuing criminal enterprises, RICCO activities. They were illegal for the banks to conduct themselves. But bank officers and employees created and managed them.
Criminal activities are always lucrative... in this case better than pimping ho's or dealing drugs because the fees were larger.
In this case, just like drug dealers, the RICCO banksters were flipping money for product and product for money, taking commissions just like every continuing criminal enterprise normally does.
The US Dept of Justice was just gutted by Sanchez/Gomez/whatever the jerk's name was, in yet another of the Bush family of political psychophants appointed to leadership. So, this RICCO act violation instead of being prosecuted, is being led by a man who was one of the RICCO profiteers, Paulson.
What should Paulson do? Blow up his reputation? Expose his old and soon enough again customers to criminal investigation?
Would the president who said, "show me corruption and I'll root it out", but who desperately clings to people under the tent of loyalty, recognize this criminal activity and protect the people and the institutions of the people of the USA?
The markets are speaking out. The US equity markets IMO have started major crashes. The world's private and public risk takers now understand the crime and know the product is unsafe and has already caused the deaths of dozens of fellow economic entities.
Instead of prosecuting the criminals... instead of exposing the crimes to the economic marks who were the victimless participants in this enterprise... instead of protecting whatever is really left of the stores of value in the SIV portfolios and, as in all bankruptcies, allocating them to the creditors and equity holders... instead of causing the contract to be enforced, and the insurers to pay the claims, those insurers being the very banks themselves who loaned their reputations and their stockholders' wealth to the criminal enterprises via guarantees... instead of telling the world's public that a major mistake of judgment occurred and the public institutions will defend the people first, via the FIDC and every other legally responsible agency and entity, and that the the rest of the losses will resolve painfully, possibly even to the public themselves, the innocent depositors... instead of all of this, we are now witnessing a collusion to avoid exposing those losses to the light of day.
It appears the fear of losing CITIBANK as a going concern, and the tidal wave of consequential losses are both politically perceived by Paulson of Treasury, himself a prior conspirator, to be worth destroying more economic value, the store of value symbolized by the US Dollar than to admit the error and accept the expectedly very painful punishme
I am not sure how this fits in the SIV's and M-LEC's etc.
But I really believe that the assets that Paulson and others are most afraid of liquidating now are the houses owned by the banks (present and future). There is a good argument that these homes will be worth more later than now in that, as the builders slow or go BK, the supply will drop and inventory will slowly come down over time. At the same time inflation will help bring the home values up. (I think that they are overly optomistic about how long this will take by the way).
In any case, unlike stocks or other assets, when you liquidate homes quickly it has two major implications.
First, because they are virtually all bought on debt, i.e. margin....the more the prices drop due to banks liquidating, the bigger the problem actually becomes as the resets hit and more and more people wont have the equity to even qualify for a loan. In other words, the quicker the banks liquidate houses to raise cash, the more houses they get back.
Second, and probably the reason that those in power feel that a continuation of the mistakes that caused this mess are justified, is that there is a real and social cost to rapid home price drops: people lose their houses and must move. This doesn't happen when you "bite the bullet" and just take you losses on other assets like stocks.
This social problems this causes are outside the normal, strictly financial, considerations that most CEO's consider when making book decisions.
This is bigger than just a financial disaster.
If you combine a rapid liquidation of homes with a credit crunch and a recession, you can get one heck of a perfect storm. If they can hold off or delay any of these ingredients so they mix with the timing of the other they figure it's worth a try (I think it's unavoidable for the record).
well, as my posting was truncated without prior notice to amend or rewrite, I will cut to the chase here.
The people of the first world, the savers of the world, have been damaged economically. The leadership must protect itself.
Why, truly, would anyone who is comfortable economically anywhere else in the world choose to be an American at this time other than to retain the right to vote in the next election?
Once again the rating agencies seem to be getting a free pass here. Many of these SIV programs continue to be highly so that money funds can still buy/hold them. How is this possible when these programs hold assets that are not currently enough to support them? This just a giant collusion to keep banks and funds whole as so many of them made the wrong credit call. Funds are being held hostage by the banks right now as theyre forced to roll their maturities or risk default. Notice that S&P only dropped their rating on Cheyne to D after they defaulted. The agencies are supposed to be inside of these ABS programs and monitoring their performance. Of course if they actually applied true market valuations, all types of triggers would be hit and many programs would have to unwind.
Once again the rating agencies seem to be getting a free pass here. Many of these SIV programs continue to be highly so that money funds can still buy/hold them. How is this possible when these programs hold assets that are not currently enough to support them? This just a giant collusion to keep banks and funds whole as so many of them made the wrong credit call. Funds are being held hostage by the banks right now as theyre forced to roll their maturities or risk default. Notice that S&P only dropped their rating on Cheyne to D after they defaulted. The agencies are supposed to be inside of these ABS programs and monitoring their performance. Of course if they actually applied true market valuations, all types of triggers would be hit and many programs would have to unwind.
Anonymous
Because no MSM calls them on it. My feelings can be found here:
Don't go nocking the hat...I have several models..the best is a metal collander wrapped lovingly with lead foil, the a rather generous wrapping of tin foil, followed by several turns of copper wire, connected to a battery pack. Guarenteed to keep signals out.
The whole thing stinks to high heaven, but it presents a great opportunity for those folks investing if the haircut is deep enough. The number of jingle mailers aren't gonna be that many, so if there's an arbitrage opportunity, go for it.
I just want 1 point when they start trying to organize a Pier Investment Vehicle.
I am really angry. During the bust, my 401-k (which was in the money market) yielded negative after they took out their 1.5 or 2% fees. I reasoned, well, at least I am not losing it in the market.
The hedgies and other well-connected financiers profited directly from shafting folks like us. Now that the shit is hitting the fun, guess what? They want to shaft us again.
I am a capitalist (own a small business), but I can tell you that this is how revolutions are seeded.
Don't go nocking the hat...I have several models..the best is a metal collander wrapped lovingly with lead foil, the a rather generous wrapping of tin foil, followed by several turns of copper wire, connected to a battery pack. Guarenteed to keep signals out.
Speaking of TIAA-CREF, over 80% of it's 200 BILLION in equity is parked in garbage like agencies and c.p. The implications for millions of boomers nearing retirement will be an imperative that will result in events (e.g. election of Ron Paul as our next President) few could predict just 6 months ago.
Don agree I never keep more than 10% of my net-worth in funds like IRA, 403(b), etc... Even CREF's Bond fund is 80+% toxic waste, which explains why folks like Hussman have been accumulating TIPS this year.
Getting time to teach my 5 month old how to operate a 45 noting the hoard of physical p.m.'s out back in my bunker....
Heard an interesting theory, rather than the MLEC taking the toxic waste from the SIVs, the idea is to extract the few things of value from the SIVs leaving them to fail. The trick is going to be how to remove the "good" assets without triggering margin calls, debt accelerations, and other such bad things. Kinda like Jenga....Three Mile Island edition.
So the holders of SIV CP are the suckers left with nothing and the banks will be left holding the good paper. Remember "SIVs...[don't]...require banks to cover fully the fund's debts if the commercial-paper market dried up." What a country!
It makes sense that the SIVs have been selling the higher quality, most liquid paper. In a leveraged situation, a hypothetical 95-99 cent average could move down considerably. Oops...
Crooks and Liars! Lend me your ears! Now is the time to rally around our ailing brethren. We must lift them up, that they might not fail. Otherwise the we are all well and truly known (in the biblical sense!) by our deeds.
AS IF $100 billion might be enough to make a difference! It inspires something in me, but it's not confidence in the 'world market'.
WaMu said on the conference call they would only join if it made them money! Hopefully some enterprising lawyer taped the call!
My next question: Since this seems to be private affair, I would assume it is outside the perview of the SEC. Yes?
I wonder...will Fidelity's money market fund clients be happy with this announcement? I certainly wouldn't be.
Reminds me of the lemon-pricing model in economics. If you don't know which car being sold is a lemon, you'll only pay lemon prices for ANY car. The geniuses at Treasury are establishing a similar model for money market funds -- you won't know what's in them or whether its accurately valued, so why would you have confidence that the NAV won't "break the buck".
A better solution is to let the bad banks swallow their SIV's, fail and "ring fence" them. It worked with the RTC back in the '90's, but those were different times, when government officials like Bill Siedman actually had cojones (or maybe they just lacked the now-ubiquitous urge to keep their cronies happy).
Yes, that's my retirement money there, Fidelity.
I agree about Fidelity... I think I need to look into this some more. I don't like it at all.
The harder Paulsen pushes this thing, the more worried I get. It has the feel of utter, untempered desperation--as if he knows massive failures are the eventual outcome.
I'm off to move some money around...
They're getting into this because there is money to be made and the rest of of don't know about it. All the effers who read this blog neeed to jump in with both feet and take advantage of this one time opportunity.
Hey, I'm stuck in the super-sewer, too. Thanks, Fidelity! (not)
And today would have been a great day to get back into energy... maybe Monday will be better.
PIMCO!
-hangs head in shame-
This must be bigger than big.
I said it the other day. The M-bLECh Super Sewer is about putting the drain plug back. Everything is circling the vortex. Stag Mark's charts show the disruption nicely. It's like surfing a black hole.
YouTube - ? v=ssgJ5ruuKH4
Cheers,
Richard Suttmeir estimates a 1 trillion hit to the economy.
1/12= 8% hit
How is 100 billion gonna help?
Before you write him off, understand
he was in the recession camp, about the same time as CR. To me that gives him credibility.
They're getting into this because there is money to be made and the rest of of don't know about it. All the effers who read this blog neeed to jump in with both feet and take advantage of this one time opportunity.
fatsacca
You truly believe that? I think it's a sign of pure desperation.
HP: "Join us now or all is lost."
Financials: "OK. But the treasury and fed is behind this sewer, right?"
HP: "Yeah sure, whatever. How many raffle tickets do you want?"
Cheers,
I repeat: It's hard out there for a PIMCO.
From previous thread due to increased releveance:
Man you never know what you can find on the web. I have found a video of the Super Sewer M-bLECh meeting.
Enjoy:
YouTube - ? v=lI_whOzMu1c
Cheers,
I like this Super Fund.
It offers a quick and easy solution to immediate problems and provides an excellent distraction for those who would contemplate genuine long-term solutions (which, alas, are neither quick nor easy).
Somebody tell me how the Super Fund promotes foresight, responsibility, discipline, education, cooperation, and the long-term pursuit of sound economic structure.
Again, this whole thing is only superficially a financial and economic problem. Fundamentally it is a cultural problem - especially in the business world.
Wealth ruined Spain by numbing human passions, not by creating economic or financial turmoil. Productivity wasted away amidst complacency and contentment.
Until we address the real issues, nothing really gets better.
This mess is emblematic of the times we live in, and the utter lack of accountability that has become ingrained in our leaders, be they financial or political. The hypocrisy, above all else, is what is really galling. But can anyone say they are surprised? I think this really just kills any credibility anyone can have in this country. Politically, it was gone a few years ago, but now, this is the coup de grace for the financial world. I was cynical before this - is there another word which we can create that can add a dose of contempt to the cynicism? I'm beyond disgust.
"I like this Super Fund.
It offers a quick and easy solution to immediate problems..."
ac
Well, it keeps wealth transfers from us peasants to the pig men...but their problems ain't mine. Slaughter the pigs. Sure we all hurt, but these P.O.S.es live in $100M playgrounds. Let them fall. I can defend myself...Can they without their wealth???
Cheers,
JMHO This may be a good thing. If assets are restricted to particular AA and AAA securities with modest default/loss risks (if held to maturity) and backed by lots of equity or junior debt; commercial paper issued will be of good quality.
This may reduce bank/investor losses when SIV's are liquidated without adding any system risk.
Unfortunatly, it does nothing for the housing market and will not reduce losses for institutions holding lots of lousy quality MBS or CDO's.
We must lift them up, that they might not fail.
No, they are lifting them up because if they fail these clowns go down with them and take a lot of OPM with them. If you owe the bank a 1k you have a problem, if you owe the bank 1bil the bank has a problem. These clowns are up to their neck in junk paper is my guess.
The oil companies are gonna own everything. After the crash, they will buy everything, pennies on the dollar.
"The oil companies are gonna own everything. After the crash, they will buy everything, pennies on the dollar."
Yeah and then congress will pull don't cry for me Argentina and nationalize them.
"JMHO This may be a good thing. If assets are restricted to particular AA and AAA securities with modest default/loss risks (if held to maturity) and backed by lots of equity or junior debt; commercial paper issued will be of good quality.
This may reduce bank/investor losses when SIV's are liquidated without adding any system risk."
Vicjim |
See...this is a con job. They say no sub prime shit is going into the Super Sewer...but what they're peddling is ABCP. Now the ABCP may be BASED on subprime mortgage paper, but the ABCP derivative is so, like, totally AAA. So it's so totally cool to go into the M-bLECh. I mean it's all AAA.
Again I say:
YouTube - ? v=Drkh0YLF8rI
Cheers,
I really fail to msee what all the hoo-ha is about on this one. This is only going to work if
1) The securities really are worth more than the current, arguably damaged market says;
2) If outsiders provide incremental financing not otherwise available, which will only happen if; and
3) The outsiders either get a) greater protections (i.e. joint and several guarantees) or b) enhanced returns or some combination thereof.
In any case there is no way for the current securities holders to avoid the ultimate, long-term valuation of the securities. They are going to have to own MLEC and account for it in some manner (equity method or otherwise) and they are effecitvely ging to provide, at minimum, some kind of first loss.
Me? I don't expect FIDO, PIMCO or anyother outsider to act against there economc interests If they feel they are being gamed? They won't be in and M-LEC won't happen. In short, these securities holders are likely trading off incremental financing costs for enhanced liquidty.
I would be fine with any heroic or desperate measures they wanted to take to prop up the house of cards -- IF -- there was some real reform being worked out at the same time.
I haven't heard anything about reforming this system of private gains and socialized losses. These guys have been allowed to leverage so irresponsibly and sell MBSs and CDOs which are defacto unregulated securities, all without any government oversight. No oversight for a huge public interest, the financial system?
They put the whole global financial system at risk with their greed and incompetence. And now the government is waiting in the wings to further bail them out after already lowering rates and devalueing the currency.
Where is the outrage? Where is the reform? The hijacking of the public interest via money contributions to politicians has gone over the edge.
Ah... a serious foil:
"Me? I don't expect FIDO, PIMCO or anyother outsider to act against there economc interests If they feel they are being gamed? They won't be in and M-LEC won't happen. In short, these securities holders are likely trading off incremental financing costs for enhanced liquidty."
Banker.
So you can't see this as a desperation hail mary move? Push it off for a bit cloying with hope that the market turns around. Knowing you're just as toast as C if C goes teats up. Just askling...
Sorry the tone's a bit aggressive...I'm kinda PO'd.
Cheers, and good to see you again.
M-F
Second that
Cheers,
They threatened Pimco to take Greenspan back to Fed. That worked.
They threatened Pimco to take Greenspan back to Fed. That worked.
theroxylandr
Pfffftttlllpppt...
OK before you do that again give a warning. I have spit take beer all over my monitor.
Cheers,
Misean,
So you can't see this as a desperation hail mary move?
How about third and ten?
What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example.
Push it off for a bit cloying with hope that the market turns around.
I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns.
Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing.
I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?
I don't expect FIDO, PIMCO or anyother outsider to act against there economc interests If they feel they are being gamed?
They have already been gamed, now they are trying to save what's left of their skin is my guess. So yes it is in their intrest.
BTW Misean, thanks for the greeting
Hey Banker, weren't you saying this was going to be over by the end of September? (If not, it was going to be ugly, or something to that effect?)
Hello, Banker. Nice to hear from you.
Another clue to the size and destructive nature of this financial meteor pending towards these financial firms. Armagedonic atributes exposed by the need to throw HUGE amounts of liquidity to
stave off this event of actually marking these to market, choosing to instead conspire, dishonestly marking these to mystery and delayed misery.
Good to see ya Banker!
PIMCO and Fidelity meet the definition of "beard"
"A "beard" is a person of the opposite sex who marries or dates a closeted lesbian or gay person to cover up their homosexuality. In the past, often lesbians married gay men so that both could "pass" as straight, either for work or for their families."
Straight eye for the queer guys.
Neal,
As I responded to yopu in another thread several days ago, what I sai was that by the end of September we would see significant progress or look out. In response to a specific query I pointed to the financing of some LBO's as a benchmark things were going in the right direction (or not). The First Data transactions are, or example very good news as are the series of high yield deals done recently. Are the credit markets out of the woods? Probaby not, we'll see some ups and downs. But are the credit markets off the mat and puching back? Yup.
"How about third and ten? :)"
I see 3rd and 20 but OK
"What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example."
I'm not so sure. And honestly, I don't have my Caribean bank stuff at my finger tips...but well...I give you the point without any ev.
"I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns."
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
"Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing."
OK, maybe it's just jobs...Correct me if I'm wrong but Pimco's boss doesn't go anywhere unless Pimco fails?
"I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?"
Yes and I "Voluntarily" pay my income tax. The LTCM bailout went like this IMHO
Gangreen: "Guys, either pony up or we have cross cascading defaults."
Pigmen: "You mean the Fed ain't gonna buy it all?!"
Gangreen: "Nope, but will help you out interest rate wise with this Y2K thing."
Pigmen: "OK we're on board."
Not to mention this thing is huger than huge compared to LTCM.
Cheers,
I read in the NYT or WSJ (I forget) that T.Rowe Price had some of this junk and was also considering getting involved. I will be calling them on Monday to make sure (recorded call) that NONE of my money goes into this crap!
Hi Back everyone!
BTW Misean, thanks for the greeting
Banker
Good to hear from you again. Your analysis helps keep the better tin foilhats in the closet.
Cheers,
Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch.
Might be a stretch but I bet it would leave a hell of pock mark on their butt.
Banker,
short, these securities holders are likely trading off incremental financing costs for enhanced liquidty.
My attempt to google "incremental financing" failed
Can you please tell me what it is or point me to an online resource where i can read more about it?
Thank you.
Misean,
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
Because without him, you have at least five guys who want it done their way and there is no way to break "ties," the group is simply too complex. HP is the adult in the room if you will. He pulls people aside when things get heated and Dutch Uncles them. If the Fed guarantees anything, I'll join you at the barricades!
As for voluntary, BSC didn't participate in the LTCM eal and did so in front of everyone.
(Banker, great to see you.)
As I understand it, the theory behind M-LEC is to take only high-quality assets, in order to create an entity that can issue commercial paper and actually find a buyer. (Since the problem is that investors are suspicious of all of the collateral in many of the SIVs.)
If it is backed by multiple major banks and accepted by Fidelity and PIMCO, that should increase the confidence of other investors to buy the CP.
In other words, the plan is not to dump the toxic waste in the M-LEC; it's exactly the opposite, in order to help get the CP market flowing again.
Banker
Repost...didn't Identify...
"How about third and ten? :)"
I see 3rd and 20 but OK
"What I am missing is the reason for the anger. I don't see evidence this new entity can go to the Fed for example."
I'm not so sure. And honestly, I don't have my Caribean bank stuff at my finger tips...but well...I give you the point without any ev.
"I think that is EXACTLY what this is about, but so what? Nobody has to finance this vehicleand I presume they will only do so out of a conviction of enhanced risk adjusted returns."
And that's where I have a real problem. I think AT LEAST the treasury is putting lipstick on this pig, and implicitly guarenteeing them. If this was just a group of buds getting together to launder somecaish, why does ol' HP need to be involved?
"Knowing you're just as toast as C if C goes teats up. Just askling...
I think that's a bit of a stretch. But I do think a series of CEO's are worried about their job standing."
OK, maybe it's just jobs...Correct me if I'm wrong but Pimco's boss doesn't go anywhere unless Pimco fails?
"I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?I have no moral issue here because I see everyone acting voluntarily...with some encouragement certainly, but why isnt the analog once again the LTCM bailout?"
Yes and I "Voluntarily" pay my income tax. The LTCM bailout went like this IMHO
Gangreen: "Guys, either pony up or we have cross cascading defaults."
Pigmen: "You mean the Fed ain't gonna buy it all?!"
Gangreen: "Nope, but will help you out interest rate wise with this Y2K thing."
Pigmen: "OK we're on board."
Not to mention this thing is huger than huge compared to LTCM.
Cheers,
Welcome back Banker!
Though I wonder if it isn't more apt to see PIMCO and FIDO's participation in a different light - as managers of huge money market operations, they are holding serious amounts of SIV paper somewhere in their operations. Per the CNN article posted by someone else on a prior thread:
FIDO money market fund exposure to SIVs: $7BN (2.3%)
BofA (through Columbia): $640 million exposure in its largest MM fund (gee, guess maybe this is why they're one of the lead sponsors)
Wachovia: forced to put $40M into an Evergreen MM fund to make it whole on SIV losses
JPM: 5% of its $103BN MM fund invested in SIV paper...
Some money market funds are invested in risky SIVs - Oct. 19, 2007
The reputational risk to these firms in breaking the buck is massive - couldn't we also see The Entity as an owner-financed workout? In other words, rather than Paulson offering a profit carrot, he could well be brandishing the stick of...ack, couldn't torture that metaphor any further. Anyway, hopefully that wasn't too rambling.
Ooops Misean,
One thing I forgot, PIMCO'S CEO gets the axe long before they go BK. Prince and O'Neal, for example, had better get some pretty good returns pretty quick or else. he Company surviving isn't nearly enough to keep those kinds of jobs.
On another topic, I had the pleasure of working for a long time with Tom Meharas of Citi. If anyone is looking for a whip smart, stand up guy. He's it. Randy Barker is smart as well, but his ego needs its own parking space.
ajw,
Excellent thoughts.
The reputational risk to these firms in breaking the buck is massive - couldn't we also see The Entity as an owner-financed workout?
Absolutely yes. The one caveate is that in a workout, generally the balance sheet gets "fixed" and the only question is do the operations still make sense. In this case, I'm not sure this "fixes" the balance sheets.
Banker
As for voluntary, BSC didn't participate in the LTCM eal and did so in front of everyone.
Must be why they've been punished. LTCM is way smaller than this...
Just a thought. Also
"Because without him, you have at least five guys who want it done their way and there is no way to break "ties,""
The guys who refuse to give have a stronger position..so why give. Something implicit from Treasury or Fed MUST be there to break the ice, outside of the vodka tonics, so to speak. No?
Cheers,
Steven Sears, Barrons 10/19:
(quote)
But the financials have lagged badly, with Financial Select SPDR exchange-traded fund up just 1.3% over that span despite the best efforts of the Fed, and now the Treasury. SIVs, or structured investment products, and off-balance sheet investments continue to hang over the credit market despite the proposed Treasury-backed superfund to clean up this mess, the master liquidity Enhancement Conduit, or MLEC.
(end quote)
....the proposed Treasury-backed superfund...
Fast and loose with the word "backed"?
Pimpco and inFidelity are a bunch of pussies that were told if don't join they would lose their sieve investments and would likely have to be the first to drop their NAV's below $1.00.
Can't be the first to do that, got to wait till someone else bites that big one. Once it's politically correct, Pimpco and Infidelity will be more than happy to boost confidence in a sub $1.00 NAV and follow suit.
"Randy Barker is smart as well, but his ego needs its own parking space."
Gohmer Pile
Surprise Surprise,
Cheers,
The oil companies are gonna own everything. After the crash, they will buy everything, pennies on the dollar.
Blindside
hmmm... who control's the body question...debatable
When the body was first made, all the parts wanted to be Boss. The brain said, "I should be Boss because I control the whole body's responses and functions." The feet said, " We should be Boss as we carry the brain about and get him to where he wants to go." The hands said, "We should be the Boss because we do all the work and earn all the money." And so it went on and on with the heart, the lungs and the eyes until finally the asshole spoke up. All the parts laughed at the idea of the asshole being the Boss. So the asshole went on strike, blocked itself up and refused to work. Within a short time the eyes became crossed, the hands clenched, the feet twitched, the heart and lungs began to panic and the brain fevered.Eventually they all decided that the asshole should be the Boss.
Management Lesson: You don't need brains to be a Boss - any asshole will do
i think it'll be the farmer
shoulda bot wheat
"Pimpco and inFidelity are a bunch of pussies that were told if don't join they would lose their sieve investments and would likely have to be the first to drop their NAV's below $1.00.
Can't be the first to do that, got to wait till someone else bites that big one. Once it's politically correct, Pimpco and Infidelity will be more than happy to boost confidence in a sub $1.00 NAV and follow suit.
Zoidberg"
I've speculating alot now..but do you have any evidence to confirm. Not being a jerk...just would like to see it.
Cheers,
i think it'll be the farmer
Better hope those tractor run on subsidized ethanol.
Randall Forsythe, Barrons 10/19:
(quote)
MLEC may be attracting more banks to pour money into the superfund being formed to buy the high-quality assets of SIVs (structured investment products) and help bolster the asset-backed commercial paper market, on which these off-balance sheet investment vehicles depend. But MLEC also is eliciting lots of skepticism about its methods and motives.
MLEC's clear aim is to avoid having to sell assets held by the SIVs, off-balance sheet contrivances that recall the worst of Enron. But, as Joan McCullough of East Shore Partners acidly observes, that's exactly what the Americans criticized Japanese regulators for doing during the 1990s.
And when U.S. officials pushed the Japanese to take the hit for their bad loans, many of which were real-estate-related, who led the American charge? Then-Treasury Secretary Robert Rubin, now a major mucky-muck at Citi, the biggest SIV sponsor and MLEC beneficiary.
"Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Markets rarely are offended by hypocrisy. Free-market champions cleaned up in the government-sponsored clean-up of bad real-estate loans in the early 1990s.
But, with the worst of interest-rate resets on adjustable-rate mortgages yet to come, it's ludicrous to think the credit crunch is over. Wednesday's markets attest to that.
(end quote)
Thanks Banker,
I need to open up my laptop and check some stuff. I still disagree...but maybe not as harshly.
Still it will take a lot to get me out of 4 months cash, the rest in gold and silver.
Have a great weekend.
Cheers,
RE Bear,
"Incremental financing" isn't a new type. All I meant was that certain institutions who might not lend directly to say Citi, might be willing to lend to a consortium. Sorry I was unclear.
Misean,
The guys who refuse to give have a stronger position..so why give. Something implicit from Treasury or Fed MUST be there to break the ice, outside of the vodka tonics, so to speak. No?
There are at least five high powered CEO's involved, the best NYC lawyers etc. That group couldn't agree on where to eat lunch without some outside prodding. If you are seeking a "deal," that is simply too many parties without someone arbitrating.
Markets rarely are offended by hypocrisy.
Some large investors have publicly taken a dim view of the scheme, and their concerns have been echoed privately among bankers and investors all week. Bill Gross, chief investment officer at Pimco, called it lame. Alan Greenspan, former Federal Reserve chairman and an adviser to Pimco, said he sees more risks than benefits.
FT.com / Investor's notebook - On Wall Street: Out of frying pan but fire sale is on hold
We'll see, I would want my money with these clowns.
Misean,
To be clear, I'm not convinced that, over time, this structure accomplishes much other than buying time for the current securities holders, I just don't see the ethical issue you do.
Zoidberg - you could be right, but knowing those folks I'd say it's far more likely that they're circling each other, waiting for someone else to start falling so they can scoop up the assets.
Jeremy Warner, Independent 10/19:
(quote)
On another level, it seems outrageous that Citigroup should be allowed to protect its bottom line in this way. Didn't Ernest Saunders go to jail for something similar? By propping up the price, bankers ensure that the damage isn't quite so bad when the assets are marked-to-market on being reabsorbed on to the balance sheet. But please don't call it market abuse.
(end quote)
"To be clear, I'm not convinced that, over time, this structure accomplishes much other than buying time for the current securities holders, I just don't see the ethical issue you do.
Banker "
Agreed on time thing. Ethically I find it repugnant, They're mostly playing with OPM, but they're salaries don't reflect that. IMHO. If I'm wrong I shall retract.
Cheers,
I just don't see the ethical issue you do.
Washington, avoid doing favours for Wall Street
By John Gapper
Published: October 19 2007 19:22 | Last updated: October 19 2007 19:22
There was something troubling about this weeks initiatives by Hank Paulson, the US Treasury secretary, to address the countrys deteriorating housing market and the credit and liquidity problems that this is still causing for banks.
His speech in Washington on Tuesday, predicting that the subprime mortgage crisis would spread further, unnerved markets. Mr Paulsons close-cropped hair, bald pate and intense manner, combined with his gloomy message, made him look like Dr Doom. His hobby is bird-watching, but I would not care to be the bird that he stares at through a pair of binoculars.
Mr Paulson has another appearance problem. Before going to Washington he was a powerful figure on Wall Street as chairman and chief executive of Goldman Sachs, the investment bank. And, under him, the Treasury has taken an unusually active role in promoting the $75bn superfund intended to ease commercial paper problems affecting some big US banks.
Governments usually avoid getting involved in such plans, for fear of being seen to be bailing out private-sector financial institutions. Yet Mr Paulson and Robert Steel, the under-secretary for domestic finance (and another Goldman Sachs alumnus), have waded in over the past month. The Treasury convened meetings and encouraged banks to sign up.
The Treasurys backing for the superfund is not a public bail-out like the UK governments guarantees to depositors in Northern Rock. It has not offered any money to the structured investment vehicles (SIVs) that could benefit from the idea. Mr Paulson emphasised that when investors are relieved of the cost of bad decisions, they are more likely to repeat their mistakes.
For all that, there is a whiff of Wall Streeters in Washington doing their chums a favour a variety of what is known as moral hazard.
FT.com / Columnists / John Gapper - Washington, avoid doing favours for Wall Street
There are alot of smart folk here who are trying to overcomplicate things. It's simple really. Let's say that the dreck trip-A MBS that is to be bought by MLEC is trading, by comittee, at 50 cents on the dollar right now.
Citi, Pimco or whoever put up the money and the dreck is moved into the conduit at 60 cents on the dollar. OMG, dreck is up 20%!!! Liquidity is back!!! Market is flooded with opportunists looking to make a quick killing....or not. Either that, or more likely, nobody buys the scam.
The real incentive for MLEC partcipants is that the discount window will be open at some point to "loan" MLEC the 60 cents back. At some point the loan is frgiven and it becomes a taxpayer bailout.
Capice?
=================
I just don't see the ethical issue you do.
No, you wouldn't.
-K
Someguy,
If MLEC can go to the Fed, then I absoluitely agree. I see no evidence of that.
SK,
Thanks for your usual value added approach to discourse.
ah come on sk...bankers a good guy.
He may be wrong..but don't dis him. He brings really good data to the table.
Cheers,
Friday late CNN money, news about the money market is starting to creep into the MSM press
Some money market funds are invested in risky SIVs - Oct. 19, 2007
NEW YORK (Fortune) -- A large Bank of America money market fund has over $600 million of exposure to Cheyne Finance, the structured investment vehicle (SIV) that recently defaulted on its obligations.
As of Oct. 12, Bank of America's $67-billion Columbia Cash Reserves fund had approximately $640 million - or just under 1% of its assets - invested in Cheyne, according to Jon Goldstein, a Bank of America spokesman. "Up until now, Cheyne has been paying its maturities as they come due," Goldstein said. He added that Deloitte, the firm acting as receiver for Cheyne, said this week that it was pleased with the progress of efforts to refinance and shore up the troubled SIV.
If I had $100 billion I wouldn't invest it in underperforming RMBS. That puts me one up on the Penatgram Consortia. Thing is these guys don't have $100 billion either and they are investing in RBMS.
NEW YORK (Fortune) -- A large Bank of America money market fund has over $600 million of exposure to Cheyne Finance, the structured investment vehicle (SIV) that recently defaulted on its obligations.
"As of Oct. 12, Bank of America's $67-billion Columbia Cash Reserves fund had approximately $640 million - or just under 1% of its assets - invested in Cheyne, according to Jon Goldstein, a Bank of America spokesman. "Up until now, Cheyne has been paying its maturities as they come due," Goldstein said. He added that Deloitte, the firm acting as receiver for Cheyne, said this week that it was pleased with the progress of efforts to refinance and shore up the troubled SIV.
ron"
I'll keep reposting until somebody comments:
YouTube - "I've Got A Bad Feeling About This!"
Cheers,
Ironical I think Paulson has done just the opposite of what was intended, instead of calming the markets this may turn into full fledged fear.
OK Misean,
I'll bite.
YouTube -
Ironical I think Paulson has done just the opposite of what was intended, instead of calming the markets this may turn into full fledged fear. [Anonymous]
Good point. They're not going to get many more shots at such gestures before the credibility well runs dry (my entry in Mixed Metaphor sweepstakes). Already, the "Fed" is losing credibility as savior via interest rate cuts...
Anon,
Ironical I think Paulson has done just the opposite of what was intended, instead of calming the markets this may turn into full fledged fear.
Certainly possible.
Interesting that the MSM is now getting a good wiff of this problem. How about a nice run on Fidelity money market funds next week, LOL and Fidelity not able to come up with the cash.
Certainly possible.
It would be for me if I had money at Pimco or Fidelity it would be looking for a new home.
Welll, ok I would like a week of weak DJIA to support that position.
Banker,
Feelings??????
oh no, it's more like this
M-bLECh meeting
YouTube -
Cheers,
From one of the unwashed perspective with HP & US treasury involved, it feels much more like fascism than free markets. I am sure I can get Ol Hank on the line if I am laid up and have trouble with my cash flow.
Well, I'm glad Hank has not gone off to China to let them know that their banking system is seriously in need of an overhaul --esp the investment banking side of it.
Seriously...they have >$ 1.5T just sitting there "rotting away", as we were once fond of saying. The fact that no overtures went that way, (or Japan's way) strikes me as odd...even odder than Pimco and Fidelity agreeing (according to an Italian...who could have been drinking...Just sayin...I have too (been drinkin)...so that's why I can entertain this rumor, you?) to this "solution".
How much has the dollar slid in the last quarter? More than the GDP growth I would bet. How many years before Real Estate climbs back in your ordinary housing recovery? So as Robert points out, why would you invest now in RMBS?
it feels much more like fascism than free markets.
Don't worry after the next election we'll give socialism a try.
Misean,
Hard to argue with THAT!
it feels much more like fascism than free markets.
Don't worry after the next election we'll give socialism a try.
Anonymous
Names without a difference...whoopee!
Cheers,
Banker,
I can see that 20x a night and still laugh...not really but point taken.
Cheers,
So, PIMCO haven't as yet said anything about joining this deeply unethical scheme.
The organizers of this unethical scheme has said nothing about about PIMCO joining them (yet).
Our Hank hasn't said anything publicly about PIMCO joining in in his hanky-panky ( yet).
With the advent of the European bank what stature does the Bank of Italy governor have - and why is HE talking about it ( when I researching the German SIV bust I noticed that Italy dominated the hits I got in non-UK European SIVs so that could be reason).
The management of the news around this Super-Siv is shambolic - it gives me some hope that this deeply unethical scheme is constructed in a similarly shoddy manner and founders on the rock of public sneers and derision - o yeah - after the potential participants find the risk/reward ratio insufficient.
Did anybody else find Hank's speech and Q/A , as shown on Kudlow distinctly odd ? Lots of errrs, ummms, repetition, deviation, quite unfocused. He seemed to have lost it.
-K
Can someone please tell me why buying time is a good thing? In case no one noticed, for going on two years now we have been chasing the housing market down and still not catching it. What is to make you think that how bad we expect the collateral to get isn't again underestimating things? Buying time now seems like the last thing we'd want to do. There is no avoiding eventually pricing this stuff (or am I missing something) so I would think the sooner you take the hit the better. Buying time just seems more like buying your own grave. I mean, just think about the recent housing news, and how much those massive sales drop offs and foreclosure issues are going to affect market pyschology? This thing has a major way to run downhill and there is no one out there yet that I can tell has gotten out in front of it on their estimates, so you can pretty much assume that the value of the collateral behind the toxic waste floating out in space is going down.
Names without a difference...whoopee!
Under feudalism, you have two cows. Your lord takes some of the milk.
Under fascism, you have two cows. The government seizes both, hires you to take care of them and sells you the milk
Under Socialism, you have two cows. You must take care of them, but the government owns all the milk.
SK,
What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook.
Geoff,
Buying time is a good thing IF one believes that the highest quality tranches are being unfairly tarnished by the sub-prime fear and that most people will stay current on their mortgages. Otherwise, um, not so much
Buying time is a good thing
If you don't think this is going to work it is a good time to take your money and run like hell if you haven't already done so. In that case the fact that they are buying time is a good thing.
This "buying time" sounds suspiciously like home sellers taking their homes off the market and renting them out (at a loss) because they refuse to "just give them away".
Just guarantees bigger losses further down the road.
Banker:
"What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook."
Well at best the banksters (sorry) are conspiring to keep this toxic crud off then books. At worst they're setting up a conduit to sell to the treasury and Fed to bail them out. I know you don't believe that, but I do.
Banker
"Buying time is a good thing IF one believes that the highest quality tranches are being unfairly tarnished by the sub-prime fear and that most people will stay current on their mortgages."
Yes IF. Don't see it. That's all short term paper backing 30 yr paper. IMHO ain't gonna happen. I'm seeing too many friends in So. Cal. who didn't listen to me in '05/06 going teats up to believe this.
Cheers,
I took my savings out of MM funds some time ago and spread them around bank accounts covered by FDIC.
Foreign Policy Magazine
Have We Learned the Lessons of Black Monday? By Nouriel Roubini (also posted on his blog)
Foreign Policy: Error
Misean,
As I said above, if this somehow makes its way back to the Fed I agree with you. But this stuff isn't ultimately "off the books." Someone has to own MLEC and account for it. If these securitites end up being junk, the current holders are STILL going to take a major earnings hit.
"I wonder...will Fidelity's money market fund clients be happy with this announcement? I certainly wouldn't be."
Some months ago they lost my confidence, and my business.
TIAA MM fund is, last I saw, about 88% in commercial paper. I don't know the quality of the commerical paper but I didn't wait to find out; I just got out.
Banker!
You don't have sloooowww locked up in a gimp suit in the BankerDome, do you?
Haven't seen him around either.
My complaint on the Superfund (and again, am I the only one who appreciates what an ironic name that is?) is that it will be used to defer and hide losses.
The hail mary analogy is pretty close . . . except it's a hail mary that stays in the air for months or quarters and gives everybody a chance to confess only a bit at a time.
They're terrified of ripping the band-aid off.
Sorry - but I have trouble understanding the difference between collusion and price fixing and market forces.
If I get together with a few folks and we conspire to determine the value of a commodity and then book this "market" value. It is collusion and anti-competitive.
This Superfund, while in spirit seems innocent enough, is creating false markets to justify a value and price.
With this there is no "free" market.
"A "beard" is a person of the opposite sex who marries or dates a closeted lesbian or gay person to cover up their homosexuality. In the past, often lesbians married gay men so that both could "pass" as straight, either for work or for their families."
Notice that the "beard" does not have to go to bed with the "beardee". They are merely there to provide cover.
One cannot succesfully pass if everyone at your party is as queer as you are.
PIMCO and Fidelity provide cover, little else.
"Someone has to own MLEC and account for it. If these securitites end up being junk, the current holders are STILL going to take a major earnings hit.
Banker"
But then, doesn't somebody already own the SIV's? So how do3es transfering ownership change a dang thing....
And if the Super Sewer only eats the good stuff, doesn't that push the worst shite to the balance sheet, thus increasing massivley capital reserveres.
(Spelling sucks...shoot me)
Just got the feelings thing.
My response:
:PPPPP
Cheers,
I can't help but think this whole Super-SIV thing is doing much more harm than good.
I mean, if everything is so damned great why do all the biggest financial institutions have to get together for a monster game of three-card monte? Markets are all about psychology -- "liquidity is confidence" -- and this can't possibly be instilling confidence in anyone.
Correct me if I'm wrong, but didn't the ABX's start diving again just about the same time the MLEC talks were first reported?
Neal
"A "beard"
TMI
omg
lol
================================
What exactly is unethical about MLEC? The current holders of these securities cannot avoid their ultimate long-term value through this method and they are still on the financing hook.
I see this repeatedly - that delaying, stalling, avoiding is OK. Its not - its unethical. You should 'fess up, take yer lumps and get the restoration process going as quickly as possible. Time is precious - by delaying, one is denying the injured party(and there is certainly an injured party here ) a prompt recourse. Time is money, literally in this instance.
To overstate the case a little - but to posit the case pithily - "Justice delayed is Justice denied" - some Victorian PM said that - Gladstone or Disraeli.
-K
I'll leave you with this. And it has been fun jousting Banker. I hope you're right, but think I am.
Anyhow, enjoy the latest C board meeting:
YouTube -
Cheers,
(Spelling sucks...shoot me)
|MG| Spell Checker for OE 2.1 Download
Works great and it's freeware. Just right click and hit check spelling
Suppose, with analgous facts, this whole SIV setup were taking place in oh, I dunno, some place like, Indonesia, Malaysia, Taiwan, Argentina, Russia, or even Japan. All the big banks and even the government actively collaborating to thwart the market, to hide problems and paper them over?
Wouldn't all the newspapers be hopping mad and sneering over that sleazy "Crony Capitalism"?
With the insufferable arrogance of "thank Ayn Rand that we're not like that!"
I will take Banker's silence as confirmation of my worst fears.
Free slooowww learner!
Oh I thought of another thing. Sorry for the double post.
What is the real point of Super Mega SIV? It's obvious that it can't last---because illiquidity isn't the same thing as insolvency.
It's just like the Surge.
The point is to make sure it all blows up on Hillary. So that she'll have no energy, time or money to actually change things in the structural system.
..and the award goes to...
"The real incentive for MLEC partcipants is that the discount window will be open at some point to "loan" MLEC the 60 cents back. At some point the loan is forgiven and it becomes a taxpayer bailout."
"thank Ayn Rand that we're not like that!"
A banana republic isn't characterized only by a rotten political system, ruled by a small, wealthy, and corrupt clique usually put in power or supported by foreign interests (in the 20th century, in the case of several Central and Latin American countries, by the US), but also by huge wealth and income inequities, poor infrastructure, backwardness in many sectors of the economy, low capital spending, a reliance on foreign capital, money printing and budget deficits, and of course a weakening currency.
A banana republic is also characterized by a ruling class that curtails people's personal freedoms and is moving towards a heavy-handed military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn't a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.
Dr. Marc Faber
Le Bananna replublio
(Spelling sucks...shoot me)
ispCP OMEGA - Error 404? det=2952
Works great and it's freeware. Just right click and hit check spelling
Anonymou
Got a spell checker. Really just being lazy,
Cheers,
One dumb question I have is why aren't the derivative people screaming bloody murder?
Somebody is betting on these things going down... and somebody is betting on them NOT going down.
Wouldn't you expect those on the 'wrong side' of Uncle Hanks bet be screaming 'market manipulation' about now? If I bet they were going down & Hank plan shows up an' rescues them I'd be a bit miffed.
How come so much silence - other than the ranting of Club Tin Hat (card carrying member here, thank you very much)?
Ideas?
BB and Gary,
How exactly are losses being "hidden?" Someone has to own the vehicle and take their share of any losses back through the parent owners one way or another. Delayed? Maybe. Avoided? Nope.
But then, doesn't somebody already own the SIV's? So how do3es transfering ownership change a dang thing....
It changes the liquidity picture, maybe. On the earnings side, over time, I don't think it matters much.
And if the Super Sewer only eats the good stuff, doesn't that push the worst shite to the balance sheet, thus increasing massivley capital reserveres.
No. The shite is already having to be dealt with. By separating the wheat from the chaff they are hoping to gain incremental liquidity.
SK,
I see this repeatedly - that delaying, stalling, avoiding is OK. Its not - its unethical. You should 'fess up, take yer lumps and get the restoration process going as quickly as possible.
Nonsense. Unless you think diplomacy (given just one obvious example) is unethical. Time, by itself, is a tool and should be used accordingly. This ain't a civil rights court.
Time is precious - by delaying, one is denying the injured party(and there is certainly an injured party here )
Bullpoopie. Who exactly is the injured party here? Is someone prevented from freely selling their positions in any company or vehicle? ook upthread how people here are reacting, by acting. MLEC may be unethical, but certainly not for the reasons you've posited.
Got a spell checker. Really just being lazy,
I usually foget.
Dryfly,
The derivatives question is a good one. I suspect the reason is that most derivative books remian relatively balanced. That is, that while counterparties take sides on individual trades, most really do try to "hedge" themselves on their overall book.
Of course Treasury could have all of them locked up in area 51 along with Elvis, JFK's brain and incontrovertible proof that the Trilateral Commission runs the world.
"Who exactly is the injured party here? Is someone prevented from freely selling their positions in any company or vehicle? "
Understood.
"MLEC may be unethical, but certainly not for the reasons you've posited."
What are the reasons it may be unethical?
==================
Is someone prevented from freely selling their positions in any company or vehicle?
Yup, when ethical behavior is lacking then in some instances this will get resolved in that famous court of property rights - the market - unless of course the delay and shenanigans continue to such an extent that it brings THAT court down.
-K
Banker, they transfer all this crap into another, remote, off-balance sheet entity. How do they value it all?
They value it at a level that allows them to avoid taking huge(r) writedowns today. Push the problem out further, avoid panic, so the losses seem more manageable when spread out over time.
Maybe they're hoping for some wonderful turnaround to happen in the meantime and save their bacon . . . but I think it's really about burying losses as long as possible, and then accepting them in digestible chunks.
I can't prove this (right now) . . . but that is my hunch.
One more thing: if some of these entities, e.g. Citi, had to take all their lumps at once, it could call their solvency into question, which becomes it's own self-fulfilling prophecy, and which they will do almost anything to avoid.
And welcome back.
Etz3l,
Ask SK, she's making the claim
For me, as long as all parties are acting consensually, GAAP is used, law is followed especially re: dislcosure and the securities are sold to MLEC at some approximation of fair market (whatever that is in this case) then I see no ethical issues.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
One last thought, and I'm off to bed.
Let's say they do the MLEC, it fails, and ultimately, let's say C, has to take their lumps, causing a material adverse effect to their business.
I'm thinking, serious SarbOx trouble . . . unless of course, they have the stamp of approval of good buddy HP and the Bush admin. Nothing to see here.
Good night all. If anything, I think even most of the readers here aren't quite jaded enough. In any case, time will tell.
SK,
Exactly who is being prevented from buying or selling what they wish when they wish? Nobody as near as I can see.
Gary,
Banker, they transfer all this crap into another, remote, off-balance sheet entity. How do they value it all?
Well, Citi has sold $20 billion of this stuff in the last month, that provides some market basis for pricing.
They value it at a level that allows them to avoid taking huge(r) writedowns today. Push the problem out further, avoid panic, so the losses seem more manageable when spread out over time.
Maybe, but I don't think it's quite that clean. Again, the top level stuff has had a market over the past few weeks, so they will struggle to invent a price.
Maybe they're hoping for some wonderful turnaround to happen in the meantime and save their bacon . . . but I think it's really about burying losses as long as possible, and then accepting them in digestible chunks.
I think both things are likely true. But I've gotta say, a AAA tranche of seasoned, non-subprime RMBS dopping 8-10 points in a stable rate environment sounds like a panic, not a rational, long term assessment to me. I think they genuinely believe the former is going to happen, but are worried about liquidity in the interim.
Nite all.
"If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this."
Thanks banker!
I will pray that you have no HUGE problems in the future.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
I have a problem with the total lack of transparency of what is in these, Print it out on the front page and put it in front of ALL investors not just a select few and expecaly when the ones that do get a peak are playing with OPM. Hopfully not MY money.
Welcome back,Banker.A further reason to push things back is the year end bonuses,which are likely to be smaller next year.
==================
Exactly who is being prevented from buying or selling what they wish when they wish? Nobody as near as I can see.
I dunno who's saying that either - at the present time at least. I AM saying that relying on the buy/sell aka market aka "you know where the door is", "didya read the small print", "there was full disclosure" metaphor of business transactions - especially large ones with few parties on either side - is way below how I've seen and done business. Ethics guides most stages of business transactions in my world. The style of "sell and move on" is an end point of a deal when its gone bad. And no, before this gets too convoluted, I'm NOT saying that all sells in a transaction are as a result of a deal gone bad.
-K
OK shoot, one more response
Anon,
Transparency among the owners of MLEC, I agree. All investors in MLEC will be contractually promised to get quarterly financials etc.
Tom Stone,
In most Wall Street companies, the bonus year is Oct 1 to the following September 30. Bonuses are determined, argued about allocated etc. during the fourth quarter, announced in December and paid in January. So from a bonus perspective, this is already "next year."
Gross was just on tv talking about this being waste of time?
Maybe he missed something and now is thinking this somehow could be used to pimco's advantage.
I dont understand, what are some of good and bad points of these SIV's.
Who win's who looses,etc...
SK,
This stuff is big boy investing. We aren't talking widows and orphans here. These are private placements sold to full-time, highly educated professional money managers. They can sell anyhting they want and buy something else at any time, including the stock of C or BoA etc. They are not impaired IN ANY WAY by the creation of MLEC.
What concerns me and others: The SIV Superfund prevents banks from having to increase capital contributions because as I understand it these funds remain off book for now. This exposes the FDIC deposit insurance which is only $50B to potential losses because there is less bank capital protection. Once the FDIC's deposit insurance fund is depleted it takes an act of Congress to restore the fund. Deposit insurance is NOT funded by taxpayers as some of you often write. It is funded by the banks via FDIC assessments. However, once the fund is depleted or in non-compliance with its minimum balance mandates Congress will turn to the public's taxes to bail out the FDIC depleted deposit insurance fund and will also increase amounts that banks must pay into the fund as it has done before. Substantial bank capital increases should be mandated before the SIV Superfund gets approved in my view.
"These are private placements sold to full-time, highly educated professional money managers. "
I will go puke now....
Thanks for all the input Banker. Is MLEC even big enough to make a difference? Based on the treatment the plan has gotten in the press, it might have caused more harm than any potential benefits.
=============
This stuff is big boy investing. We aren't talking widows and orphans here. These are private placements sold to full-time, highly educated professional money managers. They can sell anyhting they want and buy something else at any time, including the stock of C or BoA etc.
Funny, that's what I said, in different words..viz, "especially large ones with few parties on either side". And in such transactions, business ethics is vital.
-K
What is with this super SIV? As a bitter renter trying to save up a downpayment, to have my finance company I save with turn around and bail out overpriced mortgages for people who can't afford them and put my downpayment at risk is just downright awful.
I usually don't join in boybotts of companies, but this time, I just might. It's downright offensive.
Bloomberg
Paulson Defends SIV Fund, Says May Be Running By Year's End
Paulson Says SIV Fund May Be Running by Year's End (Update3) - Bloomberg.com
Company Debt Risk Rises the Most in Two Months on SIV Concerns
Company Debt Risk Rises the Most in Two Months on SIV Concerns - Bloomberg.com
G-7 Says Global Expansion Will Slow After Market Turbulence
G-7 Says Global Growth Will Slow After `Market' Rout (Update1) - Bloomberg.com
Bloomberg reports this story differently
Pimco, Fidelity
Paulson also said that Pacific Investment Management Co., manager of the world's largest bond fund, and Fidelity Investments, the world's largest mutual-fund company, are involved in discussions on the fund, Bank of Italy Governor Mario Draghi told reporters in Washington.
"discussions" is quite different from "have joined".
Bloomberg.com refer=home
Thanks FFDIC for the link. I nearly always read the links you post.
-K
FT - Greenslime questions superfund
FT.com / In depth - Greenspan questions ‘superfund’
FT - Paulson hits back at superfund critics
"The concept is not to buy bad assets" that have credit problems, Mr. Paulson told the FT. "The concept is for the end investors working with the banks to buy assets that are not credit impaired."
FT.com / US / Economy & Fed - Paulson hits back at ‘superfund’ critics
Don't worry about M LEC, (to use a Britishism) "It's safe as houses!"
FFDIC,
The SIV Superfund prevents banks from having to increase capital contributions because as I understand it these funds remain off book for now.
A couple of things, first these assets sit on the books of these banks already and second, each of the major banks have Tier I Capital Ratios well above the 6% that defines Well Capitalized. So I don't think they are avoiding an increase in regulatory capital through this vehicle. Happy to be persuaded otherwise.
AZ Cowboy,
Is this thing big enough? I have no clue. I really do question the overall impact this vehicle can have. This won't be up and running until after year-end is my guess. That means repricings between now and then that may make this whole thing moot and likely means all these assets remain on the banks books through year-end.
BTW,
Do we have any accountants participating here? I'd love an expert's inpout as to how the banks will account for MLEC, who will own it, how earnings and losses will be distributed and acounted for. Such a discussion would, I think, clarify a lot of things.
Towards the end of "Confessions of an Economic Hit Man", John Perkins makes the casual observation that; while he was completely clear that the "development" loans he was promoting in the third world countries were actually designed to enslave them, that most of the generation that followed him were not. John intentionally wrote the flowery academic reports that justified it as a cover. Unfortunately that line became the orthodoxy and the next generation believed it and internalized the lessons and gleefully promoted and replicated the process at home.
I think the problem is that this particular Jim Jones Kool-Aid is a slow poison, so the masses drank when the first tasters didn't keel over straight away. Blowback indeed.
exactly!... ditto squared
"Gangreen: "Guys, either pony up or we have cross cascading defaults."
Pigmen: "You mean the Fed ain't gonna buy it all?!"
Gangreen: "Nope, but will help you out interest rate wise with this Y2K thing."
Pigmen: "OK we're on board."
Not to mention this thing is huger than huge compared to LTCM.
Cheers,
Misean "
I'd like to mention this credit implosion is huger than huge!
After this first M-LEC, we'll see M-LEC Series 100 soon enough.
They can't raise enough money. The system refuses to recognize loss. This is such a copy of '22 Germany and the world.
This is long a dead horse, but the boys from Bernies want the corpses to appear alive so they can sucker in some more liquidity.
The USTreasury is complicit.
Where's the people's ombudsman? It's time to sue on behalf of the people.
Trying to postpone the inevitable is like trying not to vomit when you need to. It's all the worse when you can't do anything else.
Actually, I thought the point of these things was that the banks would make money off the financing, but the assets would be retained by some one else and if the short term paper couldn't be sold, the "other" owner of the assets (not the bank) would be taking the hit, and that's why they were off-balance
i.e., the assets weren't owned by the bank.
Banker - I kindly disagree but lets continue our research on it and discuss again later. SIVS are off-balance sheet funds that make money issuing short term debt to buy long term, higher yielding assets. Demand for the short term debt evaporated this summer, as investors were unwilling to buy debt that might be backed by bad mortgages. Warren Buffet advocates bringing SIVs on bank's balance sheets which to me indicates massive capital infusions. Buffett also advocates more transparency in pricing. "Some marks can be pretty imaginative," he says. "They call it 'marking to market,' but it's really marking to myth." Thanks for your input.
ECB President Jean-Claude Trichet has a perfectly functioning crystal ball in my opinion!
FFDIC,
You are correct about existing SIV's(of course). I have been presuming, perhaps incorrectly, that many,and perhaps most of the assets which will be purchased are coming off the banks balance sheets.
Wait a minute,
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
SORRY TO BE HOGGING THE THREAD
But...It seems to me there are three possibilities here.
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.
Fidelity:
I don't think that major investment companies can lower the NAV on money market accounts without blowing their credibility. In other words, they would cover the difference from their own funds.
That said (MY wife and I have two brokerage accounts, two Roths, and a 403b at Fidelity) you can transfer money from Fidelity Cash Reserves to Fidelity Federal Money Market (I have not checked but it must invest in short term Government securities). Perhaps this would have its own issues, but would avoid partcipation in this new scheme if Fidelity in fact joins.
Isn't Alan Greenspan (anyone remember him???) with Pimco in an advisory role?
Does anyone else think he might have had some input as to Pimco joining this little shell game - being how it was AG's Fed that initiated the LTCM unwind?
Note also that unlike LTCM (which was only one company), this unwind is for an entire asset class. Moral hazard squared and cubed.
Good morning Banker,
After perusing the thread it would appear that you don't sleep nearly enough....
While I can not claim to speak for the rest of the tin hats on this board I'll iterate my own position, and at least posit why there is some amount of anger brewing within the ranks of the unwashed. The system we have in place, with a Federal Reserve and fractional reserve banking, confers unlimited financial power on a privileged class, namely bankers and their financial brethren. (that's with a small b, so present company may yet be excluded). If you are hooked into the system, you have the possibility of 'creating' fantastic riches for yourself, while placing an enormous amount of the risk on people who will not get a dime from your endeavors should you succeed. Were this power not concentrated in political hands but instead doled out by the market, it is highly unlikely we would find ourselves in what is undoubtedly a colossal screw up.
Sadly, as someone up-thread opined, the likely reaction to this is going to be more creeping socialism. glorious.
Off to continue construction on the qaunt-hut.
d
Mid 2005 - SIV senior debt
investor base breakdown:
Money Mkt Funds 70%
Securities lenders 20%
Investment Mgr 5%
Govt 3%
Isn't Alan Greenspan (anyone remember him???) with Pimco in an advisory role?
Does anyone else think he might have had some input as to Pimco joining this little shell game - being how it was AG's Fed that initiated the LTCM unwind?
Greenspan questions superfund
By Krishna Guha in Washington and David Wighton in New York
Published: October 19 2007 17:12 | Last updated: October 20 2007 01:51
Alan Greenspan on Friday raised serious doubts over the plan to create a $75bn-plus investment fund to buy the assets of troubled investment vehicles, warning that it could prevent the market from establishing true clearing prices for asset-backed securities.
FT.com / In depth - Greenspan questions ‘superfund’
david_in_ct
Exactly! You get an A
Maybe it isn't so much of a money making opportunity, as a means to pool your bad debt without disclosing. That's my bet.
You people who are disparaging MLEC, what do you want? Do you want the man in the street to know the truth? Do you want fear, panic and bank runs? Give me obfuscation over chaos, anytime. The world already has one Iraq.
So how do we vote out the Fed?
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
A. Why are they off balance sheet and B. Isn't that the same kind of crap Enron did. These guy's make their money by sell this crap not by keeping it, if it was all the great they should be more then happy to have such quality assets on their books. Wall Street is one big pump & dump and when stuff blows up it was like we didn't foresee that but it is Mom & Pops pension fund that takes the hit. Looks to me like Mom & Pop will have a lot of this crap on their books when she blows along with what is currently already on them.
Do you want the man in the street to know the truth? Do you want fear, panic and bank runs? Give me obfuscation over chaos, anytime.
Good why don't you put your money to work and help these poor old boy's out.
MLEC is not a 'conduit'. It is a club in which members tell each other how great they all look. The intent is to circle around the weak to avoid a few kills from the outside. It is all based on the notion that somehow there really is a currently unrecognized value to securities that are now apparently near worthless. That is ONLY going to be true if US housing prices can be held at a price-to-income ratio that is way out of historical limits, because that ratio establishes the size of the market and the availability of mortgages.
Common sense and hard numbers say this is impossible. The other issue is that the US leads the world in this: the whole show is coming soon to local theaters everywhere.
"Well, Citi has sold $20 billion of this stuff in the last month, that provides some market basis for pricing."
No, they did not. They sold stuff that was saleable.
A prerequisite for MLEC to work is compromise and swift action, without questions. If some big institutions are against it and Paulson himself says it will take a while, MLEC is either (a) not going to be helpful or (b) not going to matter at all. And we know this superfund is important to many people. So I think disaster is coming. LTCM was a swift deal. This is not. In the coming 2-3 months, more problems will come.
I remember in 2005 I spoke with an investment banker and asked him about derivatives and hedge funds. He told me he doesn't think there would be a huge derivatives collapse but there would be a large number or smaller manageable collapses. What is going on right now is that because the credit bubble affected many parts of the economy at once, we are seeing correlation of blowups. The Bear Stearns funds prompted an LTCM-like series of meetings and compromises, but so does the SIV crisis, and so will other crises. IB's are having to deal with SIVs, pier loans, mortgage books, a decelerating economy, all at once. That's the correlation factor. It's too much at once. I predict the superSIV is simply not going to be a low-hanging-fruit problem, and eventually they'll have to give up on trying to save everything the fake way.
At the risk of repeating myself...
Every statement by Paulson et. al. (never mind the name itself) makes it clear the purpose of M-LEC is to improve liquidity, not solvency.
M-LEC's purpose is to assume the good assets, not the bad, in order to improve investor confidence about which is which (liquidity problem).
Should M-LEC fail, the logical next step would be for the Fed to open the discount window to the SIVs directly, accepting the same collateral -- at the same penalty rates -- that the banks themselves could obtain if the assets were on-balance-sheet.
No conspiracies. No shell game. Just the government intervening in a liquidity crisis, exactly as they are supposed to do.
Hey, it'a a theory. It follows from the assumption that Hank Paulson is, you know, telling the truth. If anyone can produce a shred of evidence to the contrary, I'd love to see it.
David in ct, the problem is you can only separate the political from the market in pure theory. Or by pure regulation.
Wally, I think you are right, but isn't that a circular definition - the stuff that sold is saleable?
All this frantic restructuring seems to me to indicate that, this time, there won't be a fed cut - and that the players know that - and that they are trying to work something out in advance to prevent the market from a free fall when that comes.
There won't be a fed cut because Bernanke has to save something for the upcoming election year and because it isn't addressing the underlying problems.
The Bush administration has the habit of focusing on, magnifying, and distorting any positive data it can find, just to enable it to ignore the darkness all around. Thus, the definition of "the economy" has been contracted to the stock market. At all costs, that positive territory must be supported.
Etz3l,
Ask SK, she's making the claim
For me, as long as all parties are acting consensually, GAAP is used, law is followed especially re: dislcosure and the securities are sold to MLEC at some approximation of fair market (whatever that is in this case) then I see no ethical issues.
If the Fed lets this vehicle go the window for funding? Then I have a HUGE problem with this.
Banker | 10.20.07 - 1:18 am | #
Actually it was me who made the claim.
While nobody can be sure of the methods involved, does anyone seriously doubt that the taxpayer will eventually be on the hook if this doesn't work out for MLEC participants?
I am SURE that Hank and the Fed have winked to all MLEC participants...the upside is that maybe these highly rated MBS come back in price and you make a windfall...
The downside? Ummmmmm there is no downside 'cuz Hank says so.
This is not rocket science folks. Are we going to read about this "promise" in te prospectus for MLEC?? There's not going to be one.
"This super SIV idea has reminded people that this credit problem is deeper and more fundamental than they had thought, and it isn't going away anytime soon,'' said Bob Janjuah, the global credit strategist at Royal Bank of Scotland Group Plc in London."
This super-fund idea is becoming a financial nuke.
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.
Banker | 10.20.07 - 5:19 am | #
If "lingering" is a synonym for unquestionable, please count me in this camp
"the whole show is coming soon to local theaters everywhere."
No, the whole show is already in the theaters, the public is just not watching it. Did anybody read the TIC reports? The end is here. How may people realize that most large US companies, that rely on ABCP financing, have pretty much given up on hedging the falling USD a year ago, and are spending much of their time restating quaterly statements to account for their derivative dependency? Sarbanes-Oxley is forcing many publicly traded companies to slip under the cloak of private equity, where the public isn't allowed to see $hit. If investors really knew what was happening, the Dow would be 50% lower.
From Israel business news "Globes"
(quote)
The MLEC, or The Entity, will allow the banks to offload the AAA mortgage-backed securities in the SIVs that are the most illiquid. The theory is that the trimmed down SIV sans the most illiquid mortgages will entice buyers of SIV commercial paper to return to the market.
There are so many problems with this proposal that I do not know where to begin. After the demise of Enron due to off balance sheet financing, I thought that we had played a requiem for this type of investment for just cause. Enrons machinations taught us that the opacity of off balance sheet funding makes it impossible to discern a proper valuation.
So how is it once again another corporation with an off-the-books problem is singing Someone save me if you will? I have to respond with lyrics from the same Shinedown song, The hardest question to answer is why.
I am not sure how the MLEC will work. To instill confidence, the MLEC or The Entity can only accept AAA bonds. The first problem will be determining which bonds gain entrance and at what price. After the sub-prime meltdown, the AAA rating does not carry the same weight. Coffee mugs will be flying in the air during these discussions.
I see storm clouds ahead. Wall Street is many things but it is definitely not a philanthropic organization. If it has banded together to the tune of $100 billion to save SIVs, then the situation at Citicorp and the other issuers must be dire.
The additional anecdotal confirms that. Treasury Secretary Hank Paulson, a member of the administration that swept into office criticizing Clintons bailouts of the Asian countries, has been lighting fast to take credit for orchestrating this bailout. Although no public funds were used, it seems that the fund would not have been created without a nudge from the Treasury. So it is a de facto bailout.
To be a true Bushie, you have to swear on a stack of Newt Gingrich autobiographies that you will not bailout regardless of need. So Paulson would not have instigated MLEC unless it was absolutely necessary.
It seems that an MLEC will only delay the inevitable. Let the issuers of SIVs take the write downs now. Then the rest of us can deal with the consequences. William Gross of bond giant Pimco is correctly calling the creation of The Entity lame.
As Kenny Rogers sang You got to know when to hold 'em, know when to fold 'em, know when to walk away. Until Ben Bernanke can figure out the value of mortgage back securities, I am staying out of the market except for a few tech stocks. The market may continue to rally. But if I wanted to throw my money away, I would go to the race track. It would be more fun.
Maybe I am spooked because this week is the twentieth anniversary of the 1987 market crash. Financials also led the market down back then.
(Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own inv
Thoughts on SIVs.
Hank is telling the truth and trying to make sure their is enough feed for all but he keeps collaborating with his buddies at the trough. Nothing illegal just some are more equal than others
I actually overheard people talking about this at the Safeway store this morning.the fragment i heard clearly was "these banks are just like enron".friskies and milk,if you must know.
david_in_ct, well said!
Banker,
You don't think "sweetheart" pricing will occur?!? The entire scheme is a "sweetheart" club!
At best, yes, some "institutions" . . . strike that, let's call them what they are . . some GAMBLERS need cash and cannot sell some true AAA & AA paper at "proper" prices at this time. This will allow them to get full value because of the SWEETHEART / NOT ARMS LENGTH nature of this club.
A question:
This may be too basic, but what is the accounting rule / convention that allows this to be held off-balance sheet? SIVs are wholly owned, controlled by, and debt guaranteed by the banks and/or funds.
(I follow non-financials outside the US and my naive accounting skills are behind the times I guess?)
. . . and lastly, Banker, considering the above, do you seriously think sorting out the accounting will be a concern? Geez.
When you've been "conned" in Texas, they say that someone "slipped a turd in your back pocket".
The M-LEC solution according to Dilbert:
"Sometimes the best you can do is move the turd to another pocket."
Frankly, I don't see any "moral hazard" in simply moving the turd.
Hiding out
From above, Barrons
"MLEC's clear aim is to avoid having to sell assets held by the SIVs, off-balance sheet contrivances that recall the worst of Enron. But, as Joan McCullough of East Shore Partners acidly observes, that's exactly what the Americans criticized Japanese regulators for doing during the 1990s.
And when U.S. officials pushed the Japanese to take the hit for their bad loans, many of which were real-estate-related, who led the American charge? Then-Treasury Secretary Robert Rubin, now a major mucky-muck at Citi, the biggest SIV sponsor and MLEC beneficiary.
"Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Is that a turd in your pocket or are you just an M-LEC member?
Unless greater amounts of new liquidity are repeatedly injected, the cracks in the global financial system will reappear somewhere in the world as asset prices continue to decline. New paradigmers will define this gradual, global systemic failure as the efficient dispersion of risk. The reality is that a systemic rot is infecting the entire global financial system, and it is being concealed continually by the excess liquidity that has either been dormant on the sidelines or is being newly created by governments to combat the crises. The result can be either a very quick unwinding of the debt if markets are allowed to freely adjust without intervention, or instead, if the government moves to protect the bad debt and stabilize asset prices, the result can be a gradual erosion of the efficient allocation of capital, as society must continually designate good resources to prevent the failure of its bad investments....
COLLATERAL DAMAGE
The Inevitable Unwinding of Assets and the
Impending Governmental Intervention
by Bill Laggner with George Karahalios
Bearing Asset Management
October 18, 2007
Nemo, Banker,
As I understand it, MLEC will buy only top rated securities: Treasuries? Agencies? Investment grade corporates? All of those are already liquid. What does that leave?
Top rated CDO's
Top rated non-agency ABS tranches
Top rated CLO's
All rated by the ratings agencies. None with clear market prices.
The Superconduit itself will be a form of CDO. It will 'pay' for securities in part with equity-like junior debt. So again, we have more creation of "first loss" instruments.
Picture someone buying an ounce of fools gold with an ounce of gold coin chocolates, all at the price of real gold, and you will understand the rationale behind the MLEC.
Running,
It seems to me that much of the concern is over the potential for a future taxpayer bailout after organizing this single point of failure - as many have observed, this is an industry of LTCM's rather than one fund - if one holds the perspective this is a genuine insolvency problem rather than a liquidity problem. Has quite a bit more spinnability as a responsible attempt to stabilize the financial system, that will be the storyline anyways...
Blah...Someone get the liscence of the truck that hit me last night...
Anywho...the M-bLECh Super Sewer goes like this:
"No sub-prime MBS" (shouldn't it be m "BS")
Right, cuz, it only holds AAA rated ABCP. Now, the ABCP may be a derivative of m"BS" but SHHHH!!! you'll scare the sheeple. So we're only "selling" ABCP to the Super Sewer. And the Super Sewer is only going to pay "market" prices. So we'll tell the sewer to buy at $.975 on the dollar...you know, give ourselves a "REAL" hair cut to make it look all legite and stuff.
See, it's all so simple.
Cheers,
California housing slump worsening state budget picture | california, state, shortfall - News - The Orange County Register
"California housing slump worsening state budget picture "
California tax revenue dropped precipitously in September as the slumping housing market pushed up unemployment and home sales slid for the sixth straight month.
California collected $809 million less than expected. The drop, about 7 percent below projections, nearly doubles the cash shortfall the state recorded for all of last year.
Dryfly,
Contrary to Banker's take (that hedge funds have hedged both ways and are hence complacent about the workout), I suspect differently.
Hedge funds model potential losses, but only within what they consider to be reasonable ranges. The current deterioration far exceeds anything they expected. So even if they were betting on an instrument dropping, any loss past the amount of "insurance" they bought, is actually their loss.
If the above is true, they may expect to have sufficient losses that the SIV's work out in their favor too.
from Mauldin weeklin newsletter:
This week we learned that Structured Investment Vehicles or SIVs should more properly be termed SIGs or Structured Investment Garbage. Several SIVs worth over $20 billion are closing shop, and investors will lose money. More SIVs are selling assets to meet loan demands. SIVs had issued at the peak about $400 billion worth of asset-backed commercial paper. The total of asset-backed commercial paper was $1.2 trillion. Since July, that has plummeted, nose-dived, crashed to $888 billion, and is on its way to a small fraction of that. In effect, we are taking a trillion dollars of financing for a wide variety of things we need, like credit cards, autos, homes, and corporate loans out of the credit market. That is going to have an impact.
Neal- "Can you taste the hypocrisy?" McCullough writes to clients. "The Japanese were slow in disposing of bad loans? What do you think the SIVs are doin', eh?"
Misean, this relates to what was being discussed the other night. It is more likely, thanks to MLEC, that the US financial system is headed for a prolonged credit crunch-and possibly a liquidity trap-than a hyperinflation.
For me the disturbing thing about M-LEC is that it continues bad behavior, and with the encouragement of the regulators. The whole SIV/ ABCP crisis has exposed two big problems hat regulator should be trying to fix. One, the SIVs borrowed short to invest long -- something that long has been known to carry the risk of destabilizing the financial sector, and hence when banks do it they face certain capital requirements. By doing it off the books banks have avoided this requirement in SIVs, but M-LEC proposes to issue short-term debt, to buy longer term paper, thus perpetuating the problem. The second problem is that banks have been allowed to create SIVs and keep them off the books, thus hiding risk from investors and regulators. The inability of SIVs to rollover short term debt, could force these assets and liabilities back on banks books, but M-LEC is a way to again perpetuate keeping risk off balance sheets. To me it not ethical for the regulators to support the continuation of bad practices rather than ending them. Then of course this vehicle which includes SIV sponsors funding an entity to buy SIV assets, means transactions are not truly arm's length. The participation of many parties may offer some sense that in fact they are arm's length, but when all parties have an interest in maintaining asset prices, then it would appear that collusion is just as as likely a possibility, which further reduces transparency and competition, which regulators should also be supporting not hindering.
"Misean, this relates to what was being discussed the other night. It is more likely, thanks to MLEC, that the US financial system is headed for a prolonged credit crunch-and possibly a liquidity trap-than a hyperinflation.
mp for Conjure Bag "
Oh my, Conjure bag this early into this hangover. Well morning Conjure...this is for you:
YouTube -
I think that the M-bLECh is an attempt by TPTB to go Japanese. Problem is the Japanese have savings and make stuff. We don't. Well except for printing press stuff. So to "fund" this puss, Fed's gonna hafta print, IMHO.
I'm really kinda 50/50 on deflation-hyper inflation thingy. Well maybe 48/52.
I need a bloody mary.
Cheers,
--
" Crooks and Liars! Lend me your ears! Now is the time to rally around our ailing brethren. We must lift them up, that they might not fail."
I feel better and better about my observation about the American econo-political system -- A system of the Crooks, by the Crooks, and for the Crooks.
An American faithful has nothing other than denial to comfort him, or her.
The Scam Market TOP is in. Economys top is in. Nothing but down hill for American economy and political system. There are consequences of abuses for decades, stupidity, and being ruled over by certifiable Crooks.
Jas
Great idea for a blog. Keep it up!!
Debt Consolidation
Financial Advisor
Credit Card Equipment
Misean,
Yes, I wish I could figure out deflation v hyper-inflation, which way is it going to go eventually? A question for the ages. And my future financial security.
I am seeing a lot of comments that make the point that it is in every bank's interest to make sure that Citi does not go belly up, but I'm not so sure. If Citi were to fail, or at least be damaged, wouldn't that mean there would be more business for the other banks?
link to Mauldin's newsletter on SIV:
http://www.frontlinethoughts.com/pdf/mwo101907.pdf
"I am seeing a lot of comments that make the point that it is in every bank's interest to make sure that Citi does not go belly up, but I'm not so sure. If Citi were to fail, or at least be damaged, wouldn't that mean there would be more business for the other banks?
jonny"
No jonny....
YouTube - Apollo 13 Clip
It's called cascading cross defaults.
Analysis here:
The Limits of Central Banking by Gary North
Ganggreen here:
FRB: Testimony, Greenspan -- Private-sector refinancing of the large hedge fund, Long-Term Capital Management -- October 1, 1998
Cheers,
SIVs, structured investment vehicles, that Mauldin suggests might better be tagged "SIGs", structured investment garbage...might be over-looking "structured".
Consider David Pearson's structured comment above and invest in those sentiments (rated AAA by calmo) [So superior to S&P's, Moody's and other dogs'...mongrels really. Don't let your pedigree get you down: recognize this is part of the "structure".] rather than the windier, more desperate pleas, suspended whateverittakes forchrisakesamen.
Review the AG line about "the distermediation of risk" by new financial instruments and know that these clowns (ok, you're right: heisters) have knocked themselves out.
"SORRY TO BE HOGGING THE THREAD"[Banker]
Banker, disabuse yourself of the idea you are a thread hogger.
Given the quality of your posts, and your willingness to engage a wide spectrum of viewpoints/assertions, please entertain the idea that, rather than hogging, you need to increase post quantity. Please think of yourself as an underachiever and, therefore, obligated to post more.
If the above is true, they may expect to have sufficient losses that the SIV's work out in their favor too.
Hmmm | 10.20.07 - 10:58 am | #
Makes sense... regardless, their silence on the topic is deafening.
Banker, disabuse yourself of the idea you are a thread hogger.
Second that... love to hear your take even when we disagree.
"Review the AG line about "the distermediation of risk" by new financial instruments and know that these clowns (ok, you're right: heisters) have knocked themselves out.
calmo "
Yes they have. Enjoy this:
YouTube -
Cheers,
Uh, if I were the owner of some of the current SIV commercial paper*, I'd be mad as hell at any attempt to transfer out of them the "high-quality" assets to MLEC, leaving me with the junk. Why isn't this seen as just an attempt to transfer the few remaining valuable assets out near-failing enterprises into a NEW enterprise owned by the banks (or some new investors), but no longer me, leaving me with something from a firm even more likely to go belly-up.
(If Banker is right in his assumption that MLEC is for the banks assets, not the SIVs assets, other questions arise, no less troubling, but for another comment. Do we know for sure which it is?)
DCRogers
Oops, just checked my BofA and Fidelity accounts... I am the owner of some of this paper! Sht.
If I do not defend those who say things I disagree with, who shall defend me?
As if I have any authority here, but your thoughts are always welcome Banker.
Cheers,
DCRogers
I am of the opinion that they are transfering junk to the Super Sewer-M-bLECh thingy...and holding the good stuff. We'll see.
Cheers,
I want my TantaTV! Bring on the rock blogging.
Jack Cafferty: Almost half of America thinks the US is in a recession
Jack Cafferty: Almost half of America thinks the US is in a recession | Crooks and Liars
One bad apple.
Paulson Urges IMF to Control `Unsustainable' Spending
Paulson Urges IMF to Control `Unsustainable' Spending (Update1) - Bloomberg.com
@Nemo
Thanks for your comments above.
O/T Remember asking if the Fed could buy 30yr Treasuries?
Well, it turns out,
/* Misean, et al. I hope you're sitting down for this */
The Treasury can too! Even in times of a deficit
Tho' they're probably talking about shorter term securities.
Maybe my view is naive on this but it looks like to me that this M-LEC thing is simply creating the illusion of a market as the members sell unsalable crap to each other. They mark their books to this value and pray that the real market recovers to a point will it will buy the stuff at something close to those prices.
Now, that it only takes highly rated securities says to me they are just abandoning everything lower and salvaging what they can. In other words, the situation is very dire.
A number of people have suggested a public funded bailout is inevitable. Well, it is obviously going to have to be a huge bailout and there are political consequences to consider. Most people after all are not investment bankers. So let's see, what kind of things an aspiring politician might say:
"I feel your pain people of #####! You can't get health insurance, your mortgage is adjusting, and your house is worth 25 % less!!! The economy is in recession and YOUR services are being cut and those bought and paid for politicians are asking for 100s of BILLIONS of bailout money for those 100-million-dollar-bonus enron CEOs!!"
I think big bailouts are not a foregone conclusion and I am really really interested to hear the political rhetoric come 2008.
/* Misean, et al. I hope you're sitting down for this */
psychodave
In reality they can monetize all they want. Knew that...not being smug...
Let's have a little of this...
By the way which one is pink?
Enjoy
YouTube -
Cheers,
"Maybe my view is naive on this but it looks like to me that this M-LEC thing is simply creating the illusion of a market as the members sell unsalable crap to each other....
Red Pill "
You have snatched it from my hand grasshopper:
YouTube - Kung Fu - grasshopper dialog
Cheers,
a line that would be called on only if the S.I.V. could not borrow and a German bank could not meet its promise to make the loan. That happened, so Citi forked over the cash and immediately put the loan on nonperforming status. That's a neat trick.
Safe Haven | Respite's Over
CITI bank RUN
get out
OK. First, I'm not an expert, just an interested 'little guy' who's been following these events - reading as much as I can to understand.
Can we officially declare a state of denial now??
""Right now we have a market failure. We have assets that we all agree are worth much more over the long term than one can get today. There has been a freeze-up in the market because of the great uncertainty over what the value in the long term of these assets is going to be," he said." - Jonathan Fiechter, deputy director of the monetary and capital markets department of the International Monetary Fund
IMF says beware of knee-jerk subprime rules
| Reuters
Key word , I think, is believe. Isn't this really hope masquerading as conviction (dbl entendre intended)? What if what they 'all' believe turns out to be wrong? What happpens to the first person to admit it, ala John Reed at Citi when he decided to part with the fiction and start selling his South American bonds?
I'm not the first to say it, but I'm convinced it's all about trust - which has been lost, and deservedly so. This doesn't get fixed until folks start parting the curtain and accurately disclosing what their trashed securities exposure really is. The first to do so will have the least losses, be made a pariah, and trigger an avalanche of selling off. Painful in the extreme, but completely necessary. Until it happens, there is no hope for liquidity to ease.
It is worth noting that Citigroup expanded its balance sheet by $133bn during Q3, a 24% annualized rate. Amazingly, Citi's asset have ballooned $608bn during the past four quarters, or almost 35%. Despite the poor and deteriorating outlook, Bank of America's Assets increased at an 11.6% pace during the quarter, exceeded by Wachovia's 19.0%. Big Five (Citi, BofA, JPMorgan, Wachovia and Wells Fargo) Total Assets expanded $243bn during Q3 - a 15.1% growth rate. Big Five Assets have inflated 20% over the past year.
anyone wanna tackle this issue?
CITI ru
Chophouse,
No the key is
We have assets that we all agree are worth much more over the long term than one can get today.
No referent to WE. What do you me "we" white man.
They all agree on the value...Let's put it in the M-bLECh Super Sewer. We're giving away our GOOD stuff! We're for the people!
Cheers,
this ain't no 5k
CITI Ru
Wait a minute,
If most of the assets which will be purchased by MLEC are ALREADY off balance sheet for the banks,now I'm really baffled as to what the ethical issues might be regarding MLEC.
Banker
Uhhh, maybe because the worthless crap has to be brought back onto the balance sheets when the SIV defaults and collapses.
El SUPER-SIEVE is the newest latest greatest SHELL GAME to avoid the surfacing of these losses.
In other words, it is UNETHICAL.
Why does this non-banker understand this obviousness and the Banker does not? Maybe sk was right when stating Banker wouldn't.
The ethical and moral areas of the brain are removed before reaching the 33rd level of Banker.
"Chophouse,
No the key is
We have assets that we all agree are worth much more over the long term than one can get today."
And let me say Banker...even if this is true (which I doubt) Then perhaps the banksters need to be taught a lesson about lending long (30 yrs) and borrowing short (30 days to 1yr).
Nothing can make that risk go away. And that was what made me angry yesterday...and now it's back under my craw.
Cheers,
Here's a little more rock blogging:
YouTube - Black Sabbath - Children Of The Sea
Enjoy
Cheers,
Picture someone buying an ounce of fools gold with an ounce of gold coin chocolates, all at the price of real gold, and you will understand the rationale behind the MLEC.
David Pearson
Great analogy!
===============================
re: chophouse
I'm not the first to say it, but I'm convinced it's all about trust - which has been lost, and deservedly so.
Yup, its about trust alright. An ancient business relationships training ( Integro I think ) emphasized that - though why one needs TRAINING in this stuff is puzzling. And the larger the deal, the fewer the players, the more complicated the scheme, the more important trust is in decision making.
And if you lose in once, just once, then you'll only regain it with some very public donning of sackcloth and ashes. That, or the passage of time when memories of your conduct fade and fail, or Old Man Time reaps your fellow wheelers and dealers or heaven forbid, reaps YOU.
-K
I see Hank as a Tony Soprano Boss dealing with a crisis, meeting with Fidelity, Pimco and the 23A Gang:
"I'm concerned about your health. You guys gotta kick in to the payoff fund, or it might take a permanent turn for the worse. If we don't help out the C Gang, all the Mobs could be threatened."
(stunned silence)
"I expect your check by Monday 9 AM at my office. I don't think I have to explain what's gonna happen if it isn't there on time."
(stunned silence)
"This meeting is over."
The shrewd banksters who could see criminal enterprises as easy money cannot see a rational solution out of their criminal enterprise.
Allowing me a bit of liberty here:
The SIV's were continuing criminal enterprises, RICCO activities. They were illegal for the banks to conduct themselves. But bank officers and employees created and managed them.
Criminal activities are always lucrative... in this case better than pimping ho's or dealing drugs because the fees were larger.
In this case, just like drug dealers, the RICCO banksters were flipping money for product and product for money, taking commissions just like every continuing criminal enterprise normally does.
The US Dept of Justice was just gutted by Sanchez/Gomez/whatever the jerk's name was, in yet another of the Bush family of political psychophants appointed to leadership. So, this RICCO act violation instead of being prosecuted, is being led by a man who was one of the RICCO profiteers, Paulson.
What should Paulson do? Blow up his reputation? Expose his old and soon enough again customers to criminal investigation?
Would the president who said, "show me corruption and I'll root it out", but who desperately clings to people under the tent of loyalty, recognize this criminal activity and protect the people and the institutions of the people of the USA?
The markets are speaking out. The US equity markets IMO have started major crashes. The world's private and public risk takers now understand the crime and know the product is unsafe and has already caused the deaths of dozens of fellow economic entities.
Instead of prosecuting the criminals... instead of exposing the crimes to the economic marks who were the victimless participants in this enterprise... instead of protecting whatever is really left of the stores of value in the SIV portfolios and, as in all bankruptcies, allocating them to the creditors and equity holders... instead of causing the contract to be enforced, and the insurers to pay the claims, those insurers being the very banks themselves who loaned their reputations and their stockholders' wealth to the criminal enterprises via guarantees... instead of telling the world's public that a major mistake of judgment occurred and the public institutions will defend the people first, via the FIDC and every other legally responsible agency and entity, and that the the rest of the losses will resolve painfully, possibly even to the public themselves, the innocent depositors... instead of all of this, we are now witnessing a collusion to avoid exposing those losses to the light of day.
It appears the fear of losing CITIBANK as a going concern, and the tidal wave of consequential losses are both politically perceived by Paulson of Treasury, himself a prior conspirator, to be worth destroying more economic value, the store of value symbolized by the US Dollar than to admit the error and accept the expectedly very painful punishme
Misean,
Yes! Why the he!! do we have an institutional endorsement of duration mismatch to 'secure' the underpinnings of the credit market?!
I am not sure how this fits in the SIV's and M-LEC's etc.
But I really believe that the assets that Paulson and others are most afraid of liquidating now are the houses owned by the banks (present and future). There is a good argument that these homes will be worth more later than now in that, as the builders slow or go BK, the supply will drop and inventory will slowly come down over time. At the same time inflation will help bring the home values up. (I think that they are overly optomistic about how long this will take by the way).
In any case, unlike stocks or other assets, when you liquidate homes quickly it has two major implications.
First, because they are virtually all bought on debt, i.e. margin....the more the prices drop due to banks liquidating, the bigger the problem actually becomes as the resets hit and more and more people wont have the equity to even qualify for a loan. In other words, the quicker the banks liquidate houses to raise cash, the more houses they get back.
Second, and probably the reason that those in power feel that a continuation of the mistakes that caused this mess are justified, is that there is a real and social cost to rapid home price drops: people lose their houses and must move. This doesn't happen when you "bite the bullet" and just take you losses on other assets like stocks.
This social problems this causes are outside the normal, strictly financial, considerations that most CEO's consider when making book decisions.
This is bigger than just a financial disaster.
If you combine a rapid liquidation of homes with a credit crunch and a recession, you can get one heck of a perfect storm. If they can hold off or delay any of these ingredients so they mix with the timing of the other they figure it's worth a try (I think it's unavoidable for the record).
"Yes! Why the he!! do we have an institutional endorsement of duration mismatch to 'secure' the underpinnings of the credit market?!
energyecon"
To continue the con my friend...to continue the con.
And this disturbs who?
YouTube -
Enjoy
Cheers,
well, as my posting was truncated without prior notice to amend or rewrite, I will cut to the chase here.
The people of the first world, the savers of the world, have been damaged economically. The leadership must protect itself.
Why, truly, would anyone who is comfortable economically anywhere else in the world choose to be an American at this time other than to retain the right to vote in the next election?
"Yes! Why the he!! do we have an institutional endorsement of duration mismatch to 'secure' the underpinnings of the credit market?!
energyecon"
To continue the con my friend...to continue the con.
And this disturbs who?
YouTube -
Enjoy
Cheers,
So one might participate in this (yeah I know ain't gonna happen, but one can dream):
YouTube - Rainbow : Kill The King
Cheers,
Once again the rating agencies seem to be getting a free pass here. Many of these SIV programs continue to be highly so that money funds can still buy/hold them. How is this possible when these programs hold assets that are not currently enough to support them? This just a giant collusion to keep banks and funds whole as so many of them made the wrong credit call. Funds are being held hostage by the banks right now as theyre forced to roll their maturities or risk default. Notice that S&P only dropped their rating on Cheyne to D after they defaulted. The agencies are supposed to be inside of these ABS programs and monitoring their performance. Of course if they actually applied true market valuations, all types of triggers would be hit and many programs would have to unwind.
Once again the rating agencies seem to be getting a free pass here. Many of these SIV programs continue to be highly so that money funds can still buy/hold them. How is this possible when these programs hold assets that are not currently enough to support them? This just a giant collusion to keep banks and funds whole as so many of them made the wrong credit call. Funds are being held hostage by the banks right now as theyre forced to roll their maturities or risk default. Notice that S&P only dropped their rating on Cheyne to D after they defaulted. The agencies are supposed to be inside of these ABS programs and monitoring their performance. Of course if they actually applied true market valuations, all types of triggers would be hit and many programs would have to unwind.
Anonymous
Because no MSM calls them on it. My feelings can be found here:
YouTube - very supertitious stevie wonder
Cheers,
MSM?
MSM= main street media, but only if you've got yr tinfoil hat o
Don't go nocking the hat...I have several models..the best is a metal collander wrapped lovingly with lead foil, the a rather generous wrapping of tin foil, followed by several turns of copper wire, connected to a battery pack. Guarenteed to keep signals out.
Shheeeesshhh,
Cheers,
First!!
The whole thing stinks to high heaven, but it presents a great opportunity for those folks investing if the haircut is deep enough. The number of jingle mailers aren't gonna be that many, so if there's an arbitrage opportunity, go for it.
I just want 1 point when they start trying to organize a Pier Investment Vehicle.
I am really angry. During the bust, my 401-k (which was in the money market) yielded negative after they took out their 1.5 or 2% fees. I reasoned, well, at least I am not losing it in the market.
The hedgies and other well-connected financiers profited directly from shafting folks like us. Now that the shit is hitting the fun, guess what? They want to shaft us again.
I am a capitalist (own a small business), but I can tell you that this is how revolutions are seeded.
Well, there goes my PIMCO bond funds. Good thing I've got 30 years to retirement.
Yesterday, Greenspan said he did not think the SSIV was a good idea. Bill Gross concurred.
Things sure change quickly in this realm.
Don't go nocking the hat...I have several models..the best is a metal collander wrapped lovingly with lead foil, the a rather generous wrapping of tin foil, followed by several turns of copper wire, connected to a battery pack. Guarenteed to keep signals out.
Ah, yes, the ol' Faraday Cage
Damn, you let the secret out...
Speaking of TIAA-CREF, over 80% of it's 200 BILLION in equity is parked in garbage like agencies and c.p. The implications for millions of boomers nearing retirement will be an imperative that will result in events (e.g. election of Ron Paul as our next President) few could predict just 6 months ago.
Don agree I never keep more than 10% of my net-worth in funds like IRA, 403(b), etc... Even CREF's Bond fund is 80+% toxic waste, which explains why folks like Hussman have been accumulating TIPS this year.
Getting time to teach my 5 month old how to operate a 45 noting the hoard of physical p.m.'s out back in my bunker....
PIMCO not participating. I suspect Fidelity is going to be blasted with calls tomorrow. Thanks to posters at tickerforum.org
More firms to participate in SIV fund: officials - MarketWatch
A super-duper bad-loan bailout plan - MSN Money
Heard an interesting theory, rather than the MLEC taking the toxic waste from the SIVs, the idea is to extract the few things of value from the SIVs leaving them to fail. The trick is going to be how to remove the "good" assets without triggering margin calls, debt accelerations, and other such bad things. Kinda like Jenga....Three Mile Island edition.
So the holders of SIV CP are the suckers left with nothing and the banks will be left holding the good paper. Remember "SIVs...[don't]...require banks to cover fully the fund's debts if the commercial-paper market dried up." What a country!
It makes sense that the SIVs have been selling the higher quality, most liquid paper. In a leveraged situation, a hypothetical 95-99 cent average could move down considerably. Oops...