The question is...what is the real credit risk of Countrywide Bank CDs when 99% of the deposits are NOT insured?
I think it's greater than whatever the premature withdrawal penalty would be. So, this one seems to be a no-brainer. Yank the deposits and pay the penalty.
The investment decisions were clearly screwy - what the hell was a public sector investment fund doing taking market value sensitive subprime paper like SIV-lites in July and August, no matter what the rating was? The subrime market had been tanking for quite a while by then.
""If you can't understand it and it's not transparent, then you shouldn't buy it," Coffee says"
"A company is something real and nobody can take that away from you. That's why stocks always go up."
is it really? what about Goldman at 25:1 leverage, GM god knows how many billion in debt, CFC totally dependent on FHLB. sure there are plenty of good companies but when the unwind starts asset correlation goes to +1.
looking at the 10yr the past month, my vote would be yes, a flight to safety would seem to make sense, can't imagine a fund director wanting to pick up the phone and tell the board about the ABCP he/she recently purchased.
Hmm...This is a bank run. Now we have a bank holiday. Sorry folks, these things don't happen under inflation. It's the other 'flation. Anyone note that many of these articles talk about cash, and making sure some is available?
The previous post pointed out the reason, the collateral for the original cash increasing loan was BAD. ETrade needed and didn't care about the haircut. Think that might happen again on a larger scale? I do. Oh wait...it just did.
Which brings us to the here and now: we are living in a debt-deflation fat tail, also known as a Minsky Moment. Well actually, as I wrote last month, the Moment has passed and we are now embarked on a Reverse Minsky Journey where instability will, in the fullness of time, restore stability, as Ponzi Debt Units are destroyed, Speculative Debt Units are severely disciplined, and Hedge Debt Units make a serious comeback (remember, in Minsky terms, Hedge Units are the good guys!).
The shadow banking system is being turned into a shrunken shadow of itself, as my partner Bill Gross articulately explained just a few weeks ago in his monthly essay, Shadow Dancing6. Most important, from an investment perspective, a Reverse Minsky Journey will have the precise opposite, probably more violent, effect on the neutral real Fed funds as the Forward Minsky Journey of 20042006. A Reverse Minsky Journey will lower it dramatically, as the implosion of the double bubbles of housing prices and the shadow banking system renders the demand for credit very interest rate inelastic to Fed easing.
Hmm...This is a bank run. Now we have a bank holiday.
Bank runs are, at least partly, based on psychology. Too many depositors decide that the entity has failed a 'vote of confidence'.
One of the classic ways to stop a bank run, is to have a Brinks (or FRB) 18-wheeler back up to the door and unload so much currency as to restore the image that the entity has plenty of money to meet depositors needs. In this case, all the funds were electronic in the first place, so I'm not sure how they would play that card.
The effort at the moment is to prevent a fire-sale situation. The assets may have lost ratings and/or some value, but a fire-sale situation would bring wholesale losses on a scale (likely) beyond what an orderly sale could yield. The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle. Instead of a moderate scale bank-run, we could have a larger cattle stampede.
I'm beginning to understand Marc Faber's hyperinflation argument, and frankly it scares me.
People are finally starting to realize that we live in a fantasy world and they're asking "How do we keep the fantasy going?"
Nobody's asking "How do we deal with reality?"
Anytime somebody even mentions the Fed (except in vain) the hole gets a little deeper.
The mere fact that people are focusing on the Fed is an indication that they expect their wealth to be plucked out of thin air and given to them via the wonders of "monetary magic".
The Fed should be an afterthought, not a centerpiece.
It's like if you worked for a business where the employees spent all day trying to figure out if the fire alarms would work when the building was on fire.
You might play along to keep getting your paycheck, but deep down inside you'd know you were f**ked.
I think Kudlow had a boner this evening on his program, as he was pushing for shock and awe. He said we are now in a bull market based on the past 2 days of trading and discounts are everywhere with stocks on sale.
Can you believe someone that reckless could have a program on investing?
Time to re-post my Kudlow bull market in housing link.
I agree. The FL fund is a harbinger of doom though.
I've been heavily harping on ERISA and pension funds. The IB's et. al. can hide there garbage in their sewers..erm SIVs and other vehicles all they want...and mark them to fantasy...Until the pension funds need to mark to market. Watch the pension funds...when that bank run starts...all hell will break loose.
"The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle."
Isn't it time for our National Wrangler to calm the herd with a well-crafted speech? Or would that make things worse?
The essence of a run is that it doesn't take much fear to overcome "switching costs." Those FL county treasurers presumably had to fax a form in, if that, to get their money out. So they did. Same with brokerage clients -- the safety of Treasury money market funds is a phone call or click away. CD's have penalties, but those are not prohibitive as they affect return on principal, and not return of principal. All of this is going on behind the scenes, and not just in Florida. The clear indications of that are the TED spread, Libor and the long bond yield.
Can these "runs" be prevented by lowering the Fed's target rate, as Ben Bernanke proposed tonight? From a macro perspective, Bernanke has argued that the Fed allowed monetary contraction to affect the real economy by not reflating during the bank failures of 1931. That argument is almost tautological: money contracted, so the solution was money expansion.
Reading Bernanke's book of essays on the Depression, however, its clear he has little to say on velocity. The Fed can provide funds to pay depositors, but what if they just stick the cash in their mattress? Or run to buy hard assets (as in Brazil)? Either extreme of velocity prevents the Fed's actions from working.
We'll find out soon whether Bernanke's criticisms of the 1930's Fed are valid, because, ironically, he'll have a real-world laboratory to test his thesis.
Not to be unkind, but most high-quality investment firms with billions of dollars under management have executive secretaries who are paid more than $97,500 per year . . . . . . . and they'd do a better job managing money than the politically-connected schmuck in Florida, too.
"One of the classic ways to stop a bank run, is to have a Brinks (or FRB) 18-wheeler back up to the door and unload so much currency as to restore the image that the entity has plenty of money to meet depositors needs."
These aren't banks like you're talking about. They have no implicit Fed guarentee. These are funds. It's how financial engineering has escaped the FRS to leverage to high heaven. What goes up comes down HARD.
Headline writers all over are having a Kudlow-esque boner moment, with such ecstatic moanings as the FT's:
Bernanke clears way for Fed rate cut
Ben Bernanke put the Federal Reserve on a path towards a December rate cut in a speech in which he said the relapse in financial markets had resulted in a tightening in financial conditions that had the potential to harm the real economy . . . . .
Exactly. They can pump, but if the actual entities that loan into the system say "Thanks, I'm sticking it into the vault." Well that's that.
And I do not buy the argument that the Fed can just go out and buy financial assets worth zero at par and not have the finance of the world screaming WIEMAR!
I think your point about velocity (or more precisely the lack thereof) is spot on - I am having a difficult time envisioning how that is accomplished in the current situation.
"The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle."
I would be a catastrophe if all those cattle realized all at the same time that their purpose in life was to be turned into hamburger.
Life's better for everyone on the cattle farm if "we're all vegetarians".
Misean,the nice thing about sheeple is all you have to do is plop them in front of the idiot box for minutes until they calm down,then lead them back to the stump.once you get them trained,they stay trained.
I think it is fair to say that most municipalities & several states probably don't know realize (yet) that they have been stuffed by the Street.
What Misean is saying is that once the dirty secret is out, everyone is bound to quantify their exposure.
This is the last thing the commercial banks needed, something to put downward pressure on their HELOC, piggyback 2nd liens, AltA & Jumbo prime marks.
First the hedge fund sharpies go on a buyer's strike, now the unsophisticated investors find out that they have liquidity, credit & career risk in a money market instrument. Jumpin' johesephat.
These aren't banks like you're talking about. They have no implicit Fed guarentee. These are funds. It's how financial engineering has escaped the FRS to leverage to high heaven. What goes up comes down HARD.
I realize that. But the investors (which I called depositors in my analogy) are behaving not much different than a bank run. The central problem seems to be there is no war plan on the books to unwind one of these pools at a moments notice without taking substantial losses. A few of the more astute counties tumbled to that conclusion and pulled out. That started the remaining ones (or enough for red lights to start flashing) to consider bolting. Then it became (from what I'm reading) a rather disorderly unwinding of the pool.
These investment pools were not built up in a day, they should not be unwound in a day. That may be the lesson learned. The BOA slammed on the brakes and we have a 'bank holiday
PPT should be out buying futures on every single index. What do they have to lose? Remember, Bernanke is "flexible"!
"I expect household income and spending to continue to grow, but the combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead."
That's the essence of the argument. But it's a bit deeper. ERISA regulates pensions and dictates the quality of the assets they can hold. When these muni's and whoever push a mark to market of this phoney capital, they are required by las to sell it and get into better paper. REQUIRED BY LAW. They cannot wait. At least not long. That will force phony asset sales to be marked to market. Carrey the argument forward yourself...but it will be unpleasant.
But you are correct on these state funds as they have some similar rules. That's why I call FL a canary in a coal mine.
Ah yes, the great reach for 'yield' (moremoremore,gimmegimmegimme) brings the ultimate reward. Is this some sort of cosmic zen moment, where more has been made into less? Well by crackee, I believe it is!! It's like all those trusted financial-banker types have been revealed as used car salesmen. Greed has a new face, and it belongs to the person selling securities.
I understand there are several FL counties that may not be able to make payroll due to their assets being suddenly frozen in this pool.The next meeting of the pool trustees is not scheduled until Dec. 4.
This has the potential to turn ugly very rapidly. Lawsuits will surely arise and the average teacher, or government employee may get hurt.
Exactly. They can pump, but if the actual entities that loan into the system say "Thanks, I'm sticking it into the vault." Well that's that.
Back when gold was currency that had to be discovered with great effort you could stick talent, knowledge, and ambition in a vault and hold it hostage.
But today it's not hard to discover paper. And gold isn't a currency anymore.
So I'm at a loss as to what I should be sticking in the vault.
If I had a really, really big vault I would put oil in it and hold that hostage.
But only if I could fill it up faster than anybody could pump oil out of the ground.
That's the essence of the argument. But it's a bit deeper. ERISA regulates pensions and dictates the quality of the assets they can hold.
OK
When these muni's and whoever push a mark to market of this phoney capital, it has an impact on the pension funds.
The pension funds are required by law to have a certain mix of equities. The mark to market, if it places highly rated paper into the dustbin, requires the pension funds to sell this stuff to get into better paper. This is required by law. They have little time to wait. That will force phoney capital to be forced to mark to market quickley.
That would be...unpleasant.
But you are correct on these state funds as they have some similar rules. That's why I call FL a canary in a coal mine.
I realize it was a busy day in the world of business, but somehow perhaps the most important real news of the day has gone by without much notice. As expected, the weekly unemployment claims figure appears to now be catching up to the rest of the dire financial news. Recession Q1-08.
Nov. 30 (Bloomberg) -- Treasuries headed for their best month in 12 years as Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has ``affected'' prospects for the economy.
An index of Treasury securities returned 3.2 percent as of yesterday, according to Merrill Lynch & Co., fueled by traders betting the Fed will cut interest rates next month by as much as half a percentage point. Rising gasoline prices, a housing slump, reduced access to credit and stock losses will probably ``create some headwinds for the consumer,'' Bernanke said.
can u or anyone else here possibly explain to me why one would want to buy UST's at such paltry interest rates when they clearly don't even cover one's cost of inflation?
i compared a 1yr chart of GLD vs. TLT, the ishares 20 yr bond price and GLD is up 26% vs. TLT up 4.25%. no comparison!
Governments and pension funds, that was an easy call. My next prediction...Tanta recruited as an expert witness for the class action lawsuits lining up. As I noted before, I have no idea of any legal basis, it's just what happens in America. You get enough people injured and voila! You have a class, and where you have a class, you have a lawyer. Actually, I'm a bit at a loss to predict whether there will be fewer lawyer visits to CR because they won't have the time to 'surf', or whether there will be more, trolling, 9hmmmm, make that seining), for more flotsam and jetsam.
So if (very roughly) half of the fund's participants read the tea leaves and withdrew their funds, the other half "owns" the remaining assets - assets that are really worth a whole lot less than what's on the balance sheet. That would mean to me that not only can't the fund allow any more withdrawals, the state government is stuck with figuring out how to be "fair" in the screwing. I bet the strongest proposal will be to retroactively claim/charge the entities that were shrewd enough to bail out an amount that makes their net loss percentage equal to the others'. And there will be screaming and wailing over that. Probably why Alex Sink (FL Comptroller) used such waffle language today.
As for the payrolls, though, that will be resolved one way or the other. While I think it unlikely that any city must depend on the fund for payroll, they may claim that they do. If they can prove it, that much will be released to them.
I have been addicted to housing bubble blogs since June 2005. I am now going through the mortgage process with my nesting wife, to prove my point. This is an e-mail my realtor had forward to me,from a mortgage company, today.
"Fannie Mae and Freddie Mac announced that they will be implementing
significant new loan-level price adjustments beginning with loans
purchased on or after March 1, 2008. The pricing adjustments will be
related to credit score and loan to value.
FICO adjustment for >70
LTV Loans
Credit Score
Adjustment
15 years only
These pricing adjustments will potentially affect the ability of
customers to qualify for mortgage financing. As a result, savvy
realtors will pay close attention to the source and reliability of
mortgage Pre-Approvals. It will also be important to pay close
attention to the ability of buyers to obtain mortgage commitments.
_____ Mortgage will continue to develop mortgage sources that are
independent of Fannie Mae and Freddie Mac guidelines and have more
flexibility to offer different program options."
I don't know if this is true, but it seems to be coming out the same time the Fannie and Freddie maximum loan amounts were annouced.
let's start calling our local government and county officials about how they invest taxpayer's money. I am renting with no kids. So not too much benefit or harm either way. But I just want some more fun and give heliBen a little more head wind. Don't forget to ask your local paper about it too.
Sorry I'm so busy these days, but I'd like to take this chance to remind everyone that new home sales will go below 500k for at least a couple of years (at terrible margins). Bye bye 75% of homebuilders.
This is kinda a wierd thought...What if a large group of people went to any Bank branch on a Friday evening and took a whopping cash advance on their credit card for, oh say, 24 hours...According to my cc statement I can get $58,000 up front, no questions, hard cash, real bills. Imagine if even 100,000 people did this?
What I'm saying is that they can't back a brinks truck up to the fund and spray money on those in line. A bank hollidy only decreases confidence that the fund actually has the requestors money, thus INCREASING the depositors desire to get their cash.
We've all been wondering who's holding the lower rungs of the investment grade ABSs.
The banks have been losing their shirts on the super superior MBS and AAA stuff. Who on earth has been bathing in the pool of less noble securities, and what are their losses?
"can u or anyone else here possibly explain to me why one would want to buy UST's at such paltry interest rates when they clearly don't even cover one's cost of inflation?"
I can try. The idea is flight to quality. The people have been invested in juicier paper that now is getting smelly. So they look around and see the dollar plummeting and realize any return is better than holding cash. But they need to have something almost as liquid as cash. Bingo.
AC And gold isn't a currency anymore. So I'm at a loss as to what I should be sticking in the vault.
I beg to differ. Gold is the money of the world, always has been, always will be until the dinosaurs return. First, think of Greshams Law. Gold no longer circulates because of Legal Tender laws. Being the better money, gold is hoarded. Second, the U.S. government, bless them, have struck millions of $50 gold pieces since 1986, millions. Theyre each an ounce yet obviously no one in his right mind would use one to purchase $50 of goods with them. All are in hiding, yet they are technically the same status as $50 bills printed in green ink. The people prefer to spend the latter and hoard the former. Again, Greshams law. Third, gold is the basis for all futures prices, including Treasury rates. The rates are based upon gold contango. Lastly, and this is instructive, a few years ago when the Wall Street Journal dropped its Monday-morning full-page list of commodities futures to save paper & money, it retained only four. Those were: bonds, bills, oil, and gold. Now why choose those, and only those?
(As an aside, in Vietnam, houses are still negotiated in terms of gold Tael (approx. 1.206 oz, nearly .980+ pure) before payment is made in digital or paper Dong. I kid you not. The same Tael pieces were what the boat people used in 1975 when they fled Saigon. If you had the requisite Tael, you could high-tail it to Malaysia or Hong Kong. If not, you stayed behind to be indoctrinated. Literally tens of thousands of gold Tael (plural) in their rice paper wrappers flooded into American after 1975. Coin dealers bought and sold them in bundles of 100, I know, I was one of them. Until recent years, houses in Greece were also negotiated in terms of British gold sovereigns, strange as that seems.)
I make just south of 100K. My Amex credit limit is 85k and my visa is similar. I laugh at it and tell people I could by a Mercedes on my CC. Not that I'd be that stupid.
I bought some very large amounts of gold and silver in 1999. I'm sitting purty. But on many blogs, talking gold and silver gets you labeled a tinfoil hat we....Oh yeah. Well, I'll just keep my piles of gold coins, silver rounds, swiss franks, silver bars (have you ever held a silver bar...Homer Simpson---Silver ...Sllllll). So we'll see. Just a note gold when I piled up was at ~$295.
Does anyone have any thoughts about how the major industry-wide subrime work out agreement, the Wall Street Journal is reporting will be announced next week, could impact the real-estate market?
If this kind of concerted industry action occurs, it would seem to greatly change the curve of the reset wave many analysts have been watching. Couldn't this provide a boost to the real-estate market? Far fewer people will be forced into foreclosure by a sudden rise in their payments. Fewer foreclosures would have to be positive.
On the other hand, I don't see how this would make the underlying securities backing these mortgages any more attractive. If anything, investors might want to discount mortgage securities even more if they feel the terms governing them can arbitrarily change.
And let's forget about this kind of plan re-kindling interest in new mortgage securities.
Still, on the whole such a massive re-work program might slow down price declines in the next year or so.
Sniglet, I think the temporary freeze on subprime resets makes about as much sense as a super SIV fund. They both attempt to delay things long eneough for the market to "settle down".
The only problem here is that what they hope to delay IS the reason for the market's problems. Delaying the inevitable will only prolong the pain. A fire-sale of the assets is the only way to work this out.
Great...except all trading stops and Vm decreases to 0. that might be bad, but who cares. Lets freeze it all. Global Warming? Hah..beat global freezing.
so many assumptions were built into those IR adjustments. changing the rules in the middle of the game will have alot of unintended consequences. heres a few off the top of my head:
regular payers will purposely default to become eligible.
savers will realize that their behavior goes unrewarded and will engage in more risky behavior.
mortgage investors will shy away from further investing or demand WAY higher rates to compensate for regulatory risk.
servicers will be motivated to keep even those who would default even with no change in IR in their homes to keep the fees comin at the expense of the investors.
i'm sure their are many more. bottom line is gov't manipulation of mkts will make matters worse.
yeah i have a couple of bags of gold krugerrands and silver rounds in the ol safe. yes, i have tried lifting a silver bar once. damn heavy! couldn't see myself payin for anything with that
it'll be interesting to see what happens to PM's and the USD over time. Denninger has a fervent rant about this today on his site. check it out.
"1. regular payers will purposely default to become eligible.
2. savers will realize that their behavior goes unrewarded and will engage in more risky behavior.
3. mortgage investors will shy away from further investing or demand WAY higher rates to compensate for regulatory risk.
4. servicers will be motivated to keep even those who would default even with no change in IR in their homes to keep the fees comin at the expense of the investors."
I'm at a rock concert waving my lit butane lighter pumping my fist in the air.
Fewer banks may fail and that is all that matters.
FFDIC | 11.30.07 - 1:12 am | #
darn. wish u hadn't said that. not good for my bank shorts.
but now that u mention it, how do u figure? just who are all these foreclosures actually going to? investors round the world or to our banks? all those CFC foreclosures on their website are mostly those they service correct?
No you're wrong buddy. I bought gold in 1999 at 295...weren't you listening? Chrissakes...you move capital in the right direction and make money.
Oh blodody hell...perma bulls just can't even understand a reference frame. Let me try...
Jack, it was 1999, where the hell do you think I got that 85K from....1980's gold purchases...or liquidating stock market positions. Run those numbers again, withou leverage against the stock markets performance, and realize for dollar declines. I'm waiting with baited breath on your numbers.
The BOJ did everything the FED is doing now back in the 1990's. You can drop the rate to zero and hand out dollars like no tomorrow but you can't force people to borrow or spend. It really is about the velocity of money not the amount available. Next up is a slow down in Europe then most of Asia.
Jack Staub: The only way to make money in gold is to convince other chumps to buy it.
Actually, to make money with it, you hold it until just before Volcker comes back. The more bankers cheat, the more valuable gold becomes. They'll keep trying to cheat the system until the price of commodities puts the fear of Market into them. But hey, don't judge them too harshly, what other options do cowards have?
Sources with knowledge of the negotiations told the Journal that individual members have agreed to abide by any agreement reached by the coalition, which is called the Hope Now Alliance.
The newspaper said the coalition and the government have largely agreed to extend the lower introductory rate on mortgages for certain borrowers who will have trouble making payments when their mortgages increase.
To be determined, however, are exactly which borrowers would qualify for the freeze and for how long it would last, the Journal said, adding one scenario envisions a freeze lasting as long as seven years.
reuters free link: Banks, U.S. near deal to freeze subprime rates: report
| Reuters
Vote Free Lunch Party 2008!
Free Lunches For All Forever!
Puttin' The Political Back In Political Economy!
Ito calculus, integrate this!
Haha. Financial "Engineering". Yeah right.
"Anyone thinking Bernanke might try to steer the market away from confident expectations of a December 11 rate cut has just been disabused of the notion. A rate cut now seems all but inevitable," (analyst comments)
although:
Bernanke on Thursday made clear the central bank still has lingering concerns on inflation.
While core inflation, which strips out volatile foods and energy costs, has been moderate, rising costs for oil, food and some imported goods could prove troublesome, Bernanke said. ""
Deflation proponents keep insisting velocity of money can't be increased because it would be "pushing on a string." That's arguably valid in the case of Japan's deflation.
But there are other paths a gov't can follow during an asset-value collapse, and they lead inevitably to hyperinflation. Suppose that the Arabs and Asians cut off our $2B/day line of credit, and we choose to monetize that amount? Suppose the gov't buys up bad mortgage and CC loans?
Just as likely, suppose we have a wide-scale depression, and the gov't doles out gas and food ration chits? Pushing on a string, ha! People may not borrow cheap money, but they sure as heck will use their ration cards!
In a non-fiat economy, deflation is the rule, not the exception. In a fiat economy, there will always be found a way to inflate. To believe otherwise is to misunderstand human nature.
Deflation today will lead to (hyper)inflation tomorrow. But investors will get whipsawed in the process. So the safe strategy is to keep cash and PM's.
But how safe is that? Where are you going to keep it exactly where it is safe?
At least with land its always there when you come back at night. I was looking at a nice brick house the other day with heaps of land. Even buying at the top seems better than having the money in the bank.
Maybe its a plan? Scare people into buying houses:-)
Maybe i am senile but i tend to believe in "safe as houses" even now. One day i will get my money back.
Banks, U.S. near deal to freeze subprime rates: report
The Bush Administration is close to agreeing on a pact with major financial institutions that would temporarily freeze interest rates on certain subprime loans, the Wall Street Journal reported Friday, citing sources familiar with the negotiations.
The plans' details, which could be announced as soon as next week, are still being ironed out, the Journal said.
Has anyone heard about the effect the interest rate freezes would have on the MBS market?
Seems to me that this would just drive that market down even further or lock it up entirely.
Surely a good portion of the supposed value of those instruments came from the resets to higher rates, not from the "low, low introductory rate".
If the freeze is enacted look for the Fed to really seriously slash the Fed rates in the (futile) hope of providing a means for people to jump to different mortgage products.
And, as with other solutions, this does not address housing affordability and the dropping value of the assets as compared to the debt.
Will 7 years be enough for income to come into alignment with house prices?
Anonymous, I was just about to post the same article. Is this not a bailout? I see several challenges to implementation.
Will this be okay with bank shareholders? Will they fight it because it is not in their comercial best interest, or will they go along becuase the alternative is for the bank not to survive?
What about the responsible mortgage holders who locked into long term fixed rather than short term cheap. Now they are seeing their neighbours' sweet mortgage deals being extended for years. Will they object, or will they go along becuase the alternative is a street full of foreclosures.
Why don't they just let these foreclosures happen? A lot of homebuyers have no skin in the game and lose nothing if they are foreclosed on. So their credit rating is bad for a few years. They will carry on, a little wiser. This is being packaged as a great deal for homeowners, a means of saving their homes for them. But who's really being saved here? The banks.
sterlingerl,
Exactly
That concept of skin in the game is a critical issue. I intermediated several small business sales. I could always tell when a supposed seller was not serious when they would put out no effort to facilitate the sale. When we asked for financials or tax returns, they were slow in coming, etc. They would push all the work onto the buyer's people. All they wanted was a ballpark estimate of what someone would pay for their business. After one of these situations, I would give the prospective business seller a reasonable list of things my client needed from them. If they balked or complained, I withdrew.
No skin in the game.
Nov. 30 (Bloomberg) -- The cost of borrowing euros for three months rose to the highest since May 2001, according to the British Bankers' Association.
The London interbank offered rate, the amount banks charge each other for such loans, rose 3 basis points to 4.81 percent, its 13th straight day of gains.
That's 81 basis points more than the European Central Bank's benchmark rate, the biggest gap ever.
The overnight euro rate rose for a second day, up 9 basis points to 4.08 percent, the BBA said today.
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
PPT should be out buying futures on every single index. What do they have to lose? Remember, Bernanke is "flexible"!
barely | 11.29.07 - 11:08 pm
Maybe its a plan? Scare people into buying houses:-)
Worried | 11.30.07 - 6:11 am
The hope is the cash PPT pumped to the indices push fearful investors money away. How thats going to come back is the movement the Fed is monitoring. Theyre waiting for the ideal outcome when those come back has no where to go but the real estate market, as people realize that hyperinflation of the US$ is a fact of life.
That would mean to me that not only can't the fund allow any more withdrawals, the state government is stuck with figuring out how to be "fair" in the screwing. I bet the strongest proposal will be to retroactively claim/charge the entities that were shrewd enough to bail out an amount that makes their net loss percentage equal to the others'.
Yeah, after I signed off last night, thats more or less what I'm expecting as well. If a few of the smaller counties/school-districts were slowest, and standing at the end of the line, they could be 100% wiped out.
BTW, from my reading last night, this isn't the pension fund (called FRS), this is the current operating balances for these local governmental entities. I think this is worse than the pension fund getting hit.
President Vladimir Putin signed a law on Friday suspending Russia's participation in a key post-Cold War arms treaty, a move which could allow it to deploy more forces close to western Europe.
"$85000/$295per ounce = ~288 ounces of gold. I get at the moment gold is 797.30. So 288*797.30=229622.
Looks like a 170% gain over 8 years. I don't think that's bad. Do you Jack?"
Although I do think gold has it's place in investment decisions (I also own gold/silver), I believe the original comparison was gold to a Miami Condo.
using that analogy, I would guess that gold's performance is somewhat near that of a Miami Condo... (many condos in South Beach appreciated at least that much).
Now of course, Miami condos are on a serious downtrend in worth. but that could also happen with gold as well... (as seen after 1980)
gold IS a nonproductive asset. It's value is almost solely based on what future people will pay for it (unlike ownership in a business, which has potential for cash flow). gold also does have significant transaction/storing expenses...
Anyway, I think gold is great... and it has done really well in the last 5 years or so... but so have a lot of things (my international stock index fund comes to mind, which is still up like 20%+ this year as example... although I don't have 5 year data off hand)
going forward I just don't know for gold. One problem is that there may be large speculation in gold (hedge funds)-that may be liquidated to raise cash for their trades gone bad... also never forget that there is substantial multinational governmental intervention in gold markets... theoretically they often dump gold to drop its price then buy it on the cheap... they could then dump longer than you can stay solvent.
Just a quick barb from one Minnesotan to another... a followup from our conversation on Wednesday...
Now do you agree with me on the Dec 11 cut after Bernanke has spoken?
today's repeat speaches by Plosser will be intriguing... I'm guessing we'll see a slightly different tone today.
I usually don't make bold predictions... but I'm sticking to my prediction from Wednesday: 100% chance of a 25bps FFR cut on Dec 11. (and I'm starting to wonder... maybe a 50bps drop in the discount window?)
The roaring stock market seems to agree. The Fed doesn't have the balls to disappoint. If they did, they wouldn't have put themselves in this situation. Not cutting would be a catastrophic stock loss...
Now the question for me: am I bold enough to follow through with my strategy... (staying all long until a few days after the cut then selling it all and sitting out... then going all long again about 2 weeks later until after that cut and sitting out...)
The economic headwinds of rising energy prices, falling home prices and growing economic pessimism continued to push down US consumers' spending as the fourth quarter began, abetted by a decline in their inflation-adjusted disposable incomes.
October personal consumption rose 0.2 pct, the Commerce Department reported today, but after adjusting for inflation, consumers spent no more than they did in September. The unchanged real consumption number was the smallest change since a 0.2 pct decline in March of this year.
Personal income also rose 0.2 pct in October but real disposable income -- after adjusting for inflation and taxes -- fell 0.1 pct, the first decline since April. Nominal disposable income rose 0.1 pct.
Futures on steriods today. Bernanke must be proud of his performance last night, but just to be sure, I am thinking unlimited funds were authorized to buy up futures before his performance.
Now the question for me: am I bold enough to follow through with my strategy... (staying all long until a few days after the cut then selling it all and sitting out... then going all long again about 2 weeks later until after that cut and sitting out...)
Yearning to learn,
Your market timing strategy may or may not work. But just realize a couple of things. With each serial rate cut, the market reaction will be less enthusiastic. This may be the cut when the market gets up and dances. It's all about confidence and euphoria in the short run, not reality.
Also, the market will gyrate over the next 6-12 months but the general direction will be down due to weaker earnings, tightening credits and rising defaults. Your strategy is only long, not short. So, you're fighting a headwind.
of course i know that banks are in trouble. but what i would like to hear from you are your thoughts about how this teaser rate freeze helps the banks other than by avoiding foreclosures. i have some obvious thoughts and would also like to hear what u say about who are the losers if implemented.
where are Seb, OJoe, Tennis, and James to tell us "see how great the economy is doing? never mind it takes a coordinated Fed, Treasury moral hazard bailout".
i think the banks are gonna get screwed by this. they underestimated the little guys ability to game the system once and they will underestimate him again.
the contrary way to look at this and profit massively is to realize that this indicates the US of A is in REAL trouble as opposed to all the political positive posturing thats gone on. think contrarily and invest accordingly.
check that consumer spending and income for october...goldilocks is back - NOT!
Income has now officially fallen behind inflation = negative real income growth. This trend will probably continue for the next 2-3 years. Cumulatively, real income may fall about 10% or so. It means more foreclosures and (with tighter credit and less home equity) less consumption.
i hope the Bush administration and BB's Fed are proud of themselves that they've lost all credibility and confidence in what was once a more free and fair economic system
We've done a great job. We just don't seek publicity and recognition for it. We hope members of the Florida Retirement System recognize it.
Coleman Stipanovich ( whose brother is J.M. "Mac" Stipanovich, a highly influential Republican fundraiser and lobbyist who has been a political strategist for both Jeb Bush)
SBA
Florida Susan Ohanian's Testing Outrages (Susan Ohanian Speaks Out)
Is the proposal to use public money to fund lenders, say, the difference between the teaser rate and the reset rate? So, that bankers who gorged on profits for years can continue to gorge? If so, I would hope that Americans would be rather upset about that.
idoc: Yes, they didn't sufficiently hedge thier political risk. You can buy enough PR and politicians to screw over a fair percentage of the population. But in a democracy, if you attempt to screw over too many sheeple, even with their explicit, written consent, they go all squirlley on you. The process becomes nonlinear. The politicians can't buy enough votes when a disproportionalte percentage of people are facing foreclosure and bankrupcy. Which means that you can't in turn buy the politicians. You tend to have a nonlinear conversion from crony capitalists to pandering populists.
Anyone care to offer some insight into how Paulson's plan affects cash flows for financial institutions? If they are thinly capitalized and face plenty of defaults and those that don't default send in far less cash than their future cash flow models predict isn't it possible that a massive cash crunch unsues where reserves become inadequate? I would imagine reserve requirements numbers are another measure of the flexibility/nimbleness that the Fed was suggesting.
this will encourage a collapse in refinancing as no one will want to give up those teaser rate loans. good as gold.
I doubt many of them could refinance, so no harm there.
But, it will keep people tied to their debt traps for longer than needed which is going to depress consumer spending.
I would REALY like some data on the percentage rates are on those teaser loans are. All my searches end up with reporters quoting each other "as low as 1%". Tanta? Anyone?
There is going to be some serious political backlash if these teasers are below rental rates or prime mortgage rates.
I would also love someone to explain how the current CDO and MBS holders are going to deal with this.
if i were a paying subprimer, i would immediately default and start hiding income to qualify for permanent teaser status. this is a great opportunity for them to lock below mkt rates.
Just like Japan the people and their Gov't cannot accept the reality of the situation. Instead of 5-7 years of a normal housing correction we get 15 to 20 years.
the complexity of a voluntry deal between the Bush Administration and selected lenders, one that doesn't require Congress' approval or compel compliance or enforcement, is off the chart...and ultimately ineffective.
IT'S ALL SMOKE! (what the Administration does best)
it really comes down to whether or not u think the powers to be can manipulate us out of the RE and structured finance debacle for their own benefit by violating free mkt principles. in other words, more of the same. i'm holding my shorts; literally.
The key to the teaser rate freeze politics is getting all lenders to do it. It's an effort at cooperation amongst all the servicers and lenders. It won't work if only half of them agree to the freezes, because then the other half will foreclose and drive the prices down further, putting even the teaser borrowers further underwater.
If they do get pretty much all the lenders and servicers to agree, then it can work, but it also may be a Sherman anti-trust violation. Such an agreement on the part of companies is essentially trying to limit REO-driven inventory. This is trust behavior similar to price-fixing. IMHO this is illegal in light of said Sherman Act.
this has the potential to put alot of the smaller, less liquid banks under.
of course there is illegality to this whole proposal. the class action lawyers need to get working. as i see it, our regulators will not step up to do whats right here since most are handpicked by GWB. the only stick here in the US of A that can get anything done is the lawyers.
Being a FRS pension receiver I am so made I am seeing red!
To imagine those yahoos running the FL State Pension is thinking about selling a kind of insurance to the FL State investment pool to guarantees against losses is down right criminal!
Does anyone have half a brain in Tallahassee these days?
Those of us reading daily this blog saw this coming 12+ months ago...
It kind of makes me think it is too much trouble to put a paid person on staff to read daily 'alternative opinions' just to keep abreast what others besides the MSM are thinking.
This is a sad (and beginning to get scary) state of affairs.
GaudiaRay, Who are you referring to as the manager of this fund? Would that be Coleman Stipanovich? He was the only person in the meeting yesterday who appeared to have a clue about what is really going on and what the ramifications of the actions could be.
Well, IMHO "frozen" means payments and this is some sort of extended neg-am scheme. Otherwise this would be completely unpalatable. FBs might come out ahead with a foreclosure today rather than 5 years from now. yes they'd live in their homes for 5 years while paying submarket rents. But if they're foreclosed upon NOW, they'd be closer to having good credit when the market is near bottom than if they wait 5 years.
Meeting in an emergency session, the State Board of Administration suspended withdrawals from the Local Government Investment Pool, which has been rocked by uncertainty over the national subprime mortgage crisis.
3) What happens when other investments are downgraded. Will they be forced to liquidate those items in a fire sale?
The question is...what is the real credit risk of Countrywide Bank CDs when 99% of the deposits are NOT insured?
I think it's greater than whatever the premature withdrawal penalty would be. So, this one seems to be a no-brainer. Yank the deposits and pay the penalty.
Or, is there something else here we can't see?
The investment decisions were clearly screwy - what the hell was a public sector investment fund doing taking market value sensitive subprime paper like SIV-lites in July and August, no matter what the rating was? The subrime market had been tanking for quite a while by then.
""If you can't understand it and it's not transparent, then you shouldn't buy it," Coffee says"
Gee, ya think?
"the guidelines allowed investment in asset backed commercial paper (CP) backed by prime and Alt-A mortgages."
It's OK everyone. This doesn't involve subprime.
Wouldn't it be ironic if stocks became seen as a safe-haven from credit problems?
"A company is something real and nobody can take that away from you. That's why stocks always go up."
Why does my index fund now act like an internet stock?
"A company is something real and nobody can take that away from you. That's why stocks always go up."
is it really? what about Goldman at 25:1 leverage, GM god knows how many billion in debt, CFC totally dependent on FHLB. sure there are plenty of good companies but when the unwind starts asset correlation goes to +1.
I never realized how easy it was to be a Big shot fund manager. All you had to do was chase yields.
The manager of this fund is the brother of what Bush exGov described as a "politically connected" man.
This manager has no formal training in investment management.
The manager was paid $97,500 per year, plus perks and recognitions to manage the $ billions in this fund.
What can be expected from the above scenario?
What did that manager receive or those over who he had dominion or control or influence when he bought the CW garbage?
It was not the manager who was reckless but Gov Bush for appointing the man. Ever hear the name "Bush" before?
Will there be a run on other investment pools
looking at the 10yr the past month, my vote would be yes, a flight to safety would seem to make sense, can't imagine a fund director wanting to pick up the phone and tell the board about the ABCP he/she recently purchased.
Hmm...This is a bank run. Now we have a bank holiday. Sorry folks, these things don't happen under inflation. It's the other 'flation. Anyone note that many of these articles talk about cash, and making sure some is available?
The previous post pointed out the reason, the collateral for the original cash increasing loan was BAD. ETrade needed and didn't care about the haircut. Think that might happen again on a larger scale? I do. Oh wait...it just did.
Cheers,
Misean,
Deflaters are winning: here is Pimco's McCauley:
Which brings us to the here and now: we are living in a debt-deflation fat tail, also known as a Minsky Moment. Well actually, as I wrote last month, the Moment has passed and we are now embarked on a Reverse Minsky Journey where instability will, in the fullness of time, restore stability, as Ponzi Debt Units are destroyed, Speculative Debt Units are severely disciplined, and Hedge Debt Units make a serious comeback (remember, in Minsky terms, Hedge Units are the good guys!).
The shadow banking system is being turned into a shrunken shadow of itself, as my partner Bill Gross articulately explained just a few weeks ago in his monthly essay, Shadow Dancing6. Most important, from an investment perspective, a Reverse Minsky Journey will have the precise opposite, probably more violent, effect on the neutral real Fed funds as the Forward Minsky Journey of 20042006. A Reverse Minsky Journey will lower it dramatically, as the implosion of the double bubbles of housing prices and the shadow banking system renders the demand for credit very interest rate inelastic to Fed easing.
Might we get back to a 2 ½% Fed funds rate, as I forecast would be the peak, way back in 2004? I honestly dont know. What I do know, or at least think I know, is that the slower the Fed is in lowering the Fed funds rate, the greater will be the cumulative decline in the Fed funds rate.
PIMCO - Global Central Bank Focus- December 2007 "Comments Before the Money Marketeers Club Minsky and Neutral: Forward and in Reverse"
Hmm...This is a bank run. Now we have a bank holiday.
Bank runs are, at least partly, based on psychology. Too many depositors decide that the entity has failed a 'vote of confidence'.
One of the classic ways to stop a bank run, is to have a Brinks (or FRB) 18-wheeler back up to the door and unload so much currency as to restore the image that the entity has plenty of money to meet depositors needs. In this case, all the funds were electronic in the first place, so I'm not sure how they would play that card.
The effort at the moment is to prevent a fire-sale situation. The assets may have lost ratings and/or some value, but a fire-sale situation would bring wholesale losses on a scale (likely) beyond what an orderly sale could yield. The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle. Instead of a moderate scale bank-run, we could have a larger cattle stampede.
I'm beginning to understand Marc Faber's hyperinflation argument, and frankly it scares me.
People are finally starting to realize that we live in a fantasy world and they're asking "How do we keep the fantasy going?"
Nobody's asking "How do we deal with reality?"
Anytime somebody even mentions the Fed (except in vain) the hole gets a little deeper.
The mere fact that people are focusing on the Fed is an indication that they expect their wealth to be plucked out of thin air and given to them via the wonders of "monetary magic".
The Fed should be an afterthought, not a centerpiece.
It's like if you worked for a business where the employees spent all day trying to figure out if the fire alarms would work when the building was on fire.
You might play along to keep getting your paycheck, but deep down inside you'd know you were f**ked.
I think Kudlow had a boner this evening on his program, as he was pushing for shock and awe. He said we are now in a bull market based on the past 2 days of trading and discounts are everywhere with stocks on sale.
Can you believe someone that reckless could have a program on investing?
Time to re-post my Kudlow bull market in housing link.
The Housing Bears Are Wrong Again
Clyde,
I agree. The FL fund is a harbinger of doom though.
I've been heavily harping on ERISA and pension funds. The IB's et. al. can hide there garbage in their sewers..erm SIVs and other vehicles all they want...and mark them to fantasy...Until the pension funds need to mark to market. Watch the pension funds...when that bank run starts...all hell will break loose.
The FL fund is the canary in the cave.
I'm just saying...
Cheers,
"The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle."
Isn't it time for our National Wrangler to calm the herd with a well-crafted speech? Or would that make things worse?
The essence of a run is that it doesn't take much fear to overcome "switching costs." Those FL county treasurers presumably had to fax a form in, if that, to get their money out. So they did. Same with brokerage clients -- the safety of Treasury money market funds is a phone call or click away. CD's have penalties, but those are not prohibitive as they affect return on principal, and not return of principal. All of this is going on behind the scenes, and not just in Florida. The clear indications of that are the TED spread, Libor and the long bond yield.
Can these "runs" be prevented by lowering the Fed's target rate, as Ben Bernanke proposed tonight? From a macro perspective, Bernanke has argued that the Fed allowed monetary contraction to affect the real economy by not reflating during the bank failures of 1931. That argument is almost tautological: money contracted, so the solution was money expansion.
Reading Bernanke's book of essays on the Depression, however, its clear he has little to say on velocity. The Fed can provide funds to pay depositors, but what if they just stick the cash in their mattress? Or run to buy hard assets (as in Brazil)? Either extreme of velocity prevents the Fed's actions from working.
We'll find out soon whether Bernanke's criticisms of the 1930's Fed are valid, because, ironically, he'll have a real-world laboratory to test his thesis.
Not to be unkind, but most high-quality investment firms with billions of dollars under management have executive secretaries who are paid more than $97,500 per year . . . . . . . and they'd do a better job managing money than the politically-connected schmuck in Florida, too.
RayOnTheFarm,
"One of the classic ways to stop a bank run, is to have a Brinks (or FRB) 18-wheeler back up to the door and unload so much currency as to restore the image that the entity has plenty of money to meet depositors needs."
These aren't banks like you're talking about. They have no implicit Fed guarentee. These are funds. It's how financial engineering has escaped the FRS to leverage to high heaven. What goes up comes down HARD.
Cheers,
Ummm, the gray-bearded nationa wrangler made a speech just tonight . . . . . see here:
FRB: Bernanke, National and regional economic overview
Headline writers all over are having a Kudlow-esque boner moment, with such ecstatic moanings as the FT's:
Bernanke clears way for Fed rate cut
Ben Bernanke put the Federal Reserve on a path towards a December rate cut in a speech in which he said the relapse in financial markets had resulted in a tightening in financial conditions that had the potential to harm the real economy . . . . .
David,
Exactly. They can pump, but if the actual entities that loan into the system say "Thanks, I'm sticking it into the vault." Well that's that.
And I do not buy the argument that the Fed can just go out and buy financial assets worth zero at par and not have the finance of the world screaming WIEMAR!
IMHO,
Cheers,
Bah
This:
finance of the world screaming WIEMAR!
SB:
finance ministers of the world screaming WIEMAR!
My bad.
Cheers,
Or will Wrangler Bush step up to the bully pulpit and regale the Nation with his cattle herding analogies?
4822,
Most people think that monkey is an idiot. Probably spook the sheeple.
Cheers,
David,
I think your point about velocity (or more precisely the lack thereof) is spot on - I am having a difficult time envisioning how that is accomplished in the current situation.
So, we now see the benefits of securitization...spread the risk around.
Neat how the fees garnered for these have not been spread around, huh?
Wow. How long before the lines form at your local bank branch?
"The true danger at the moment is that the psychological impact of what is happening at the Florida LGIP may spread and cause other entities (beyond the control of the Florida BOA) to run like scared cattle."
I would be a catastrophe if all those cattle realized all at the same time that their purpose in life was to be turned into hamburger.
Life's better for everyone on the cattle farm if "we're all vegetarians".
WINK WINK NUDGE NUDGE
I vote for George Bailey as the next fed governor. Merry Christmas.
Misean,the nice thing about sheeple is all you have to do is plop them in front of the idiot box for minutes until they calm down,then lead them back to the stump.once you get them trained,they stay trained.
I think it is fair to say that most municipalities & several states probably don't know realize (yet) that they have been stuffed by the Street.
What Misean is saying is that once the dirty secret is out, everyone is bound to quantify their exposure.
This is the last thing the commercial banks needed, something to put downward pressure on their HELOC, piggyback 2nd liens, AltA & Jumbo prime marks.
First the hedge fund sharpies go on a buyer's strike, now the unsophisticated investors find out that they have liquidity, credit & career risk in a money market instrument. Jumpin' johesephat.
Barley,
Yep it's called socializing costs and privatizing benefits. Otherwise known as crony-capitalism, fascism, and socialism.
Hey but it'll work out..the fed will just buy some dodgy assests and put the punch bowl back on the table.
Meats back on the table boys:
YouTube - LOTR Extended Edition - Merry-Pippin escape
Not likely IMHO.
Cheers,
These aren't banks like you're talking about. They have no implicit Fed guarentee. These are funds. It's how financial engineering has escaped the FRS to leverage to high heaven. What goes up comes down HARD.
I realize that. But the investors (which I called depositors in my analogy) are behaving not much different than a bank run. The central problem seems to be there is no war plan on the books to unwind one of these pools at a moments notice without taking substantial losses. A few of the more astute counties tumbled to that conclusion and pulled out. That started the remaining ones (or enough for red lights to start flashing) to consider bolting. Then it became (from what I'm reading) a rather disorderly unwinding of the pool.
These investment pools were not built up in a day, they should not be unwound in a day. That may be the lesson learned. The BOA slammed on the brakes and we have a 'bank holiday
ABN Amro downgrades HSBC Holdings to "sell
I liked Mish's post "Where's the cash?"
Mish's Global Economic Trend Analysis: Where's the Cash?
Ok, I'll just toddle off to buy more PMs now.
Thats the beauty of mark to fantasy, it hides the problem until all the sheeple figure it out at once.
Gonna be like Wonka in the tunnel
PPT should be out buying futures on every single index. What do they have to lose? Remember, Bernanke is "flexible"!
"I expect household income and spending to continue to grow, but the combination of higher gas prices, the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead."
Clyde,
That's the essence of the argument. But it's a bit deeper. ERISA regulates pensions and dictates the quality of the assets they can hold. When these muni's and whoever push a mark to market of this phoney capital, they are required by las to sell it and get into better paper. REQUIRED BY LAW. They cannot wait. At least not long. That will force phony asset sales to be marked to market. Carrey the argument forward yourself...but it will be unpleasant.
But you are correct on these state funds as they have some similar rules. That's why I call FL a canary in a coal mine.
Cheers,
Ah yes, the great reach for 'yield' (moremoremore,gimmegimmegimme) brings the ultimate reward. Is this some sort of cosmic zen moment, where more has been made into less? Well by crackee, I believe it is!! It's like all those trusted financial-banker types have been revealed as used car salesmen. Greed has a new face, and it belongs to the person selling securities.
I understand there are several FL counties that may not be able to make payroll due to their assets being suddenly frozen in this pool.The next meeting of the pool trustees is not scheduled until Dec. 4.
This has the potential to turn ugly very rapidly. Lawsuits will surely arise and the average teacher, or government employee may get hurt.
Exactly. They can pump, but if the actual entities that loan into the system say "Thanks, I'm sticking it into the vault." Well that's that.
Back when gold was currency that had to be discovered with great effort you could stick talent, knowledge, and ambition in a vault and hold it hostage.
But today it's not hard to discover paper. And gold isn't a currency anymore.
So I'm at a loss as to what I should be sticking in the vault.
If I had a really, really big vault I would put oil in it and hold that hostage.
But only if I could fill it up faster than anybody could pump oil out of the ground.
"PPT should be out buying futures on every single index."
They have been-two day reversal courtesy of the PPT. Except $INDU still confirms the $TRAN primary trend change to a bear. Meow,splat,boinggg.
M-, strike three: it's 'Weimar' (at least in English).
Boy was that a bad post. Let me correct
Clyde,
That's the essence of the argument. But it's a bit deeper. ERISA regulates pensions and dictates the quality of the assets they can hold.
OK
When these muni's and whoever push a mark to market of this phoney capital, it has an impact on the pension funds.
The pension funds are required by law to have a certain mix of equities. The mark to market, if it places highly rated paper into the dustbin, requires the pension funds to sell this stuff to get into better paper. This is required by law. They have little time to wait. That will force phoney capital to be forced to mark to market quickley.
That would be...unpleasant.
But you are correct on these state funds as they have some similar rules. That's why I call FL a canary in a coal mine.
Cheers,
I realize it was a busy day in the world of business, but somehow perhaps the most important real news of the day has gone by without much notice. As expected, the weekly unemployment claims figure appears to now be catching up to the rest of the dire financial news. Recession Q1-08.
jg,
you say weimar I say wiemar...
Cheers,
barely,
Didn't miss it...but the stock jocks are cheering it as UTOPIA. Fed's gonna cut! Yeah! We gonna party like it's 1999.
Oh yeah..well that wasn't such a good party afterall.
Cheers,
This is all getting too weird for me. I am getting out of my CA munis tomorrow morning.
ah yes, barely has it right. the rise in unemployment is the last leg of the stool thats been kicked out from underneath the bull.
now its all up to the Fed. last card trick from a one trick pony. sorry, already proven it won't work.
Maybe those Europeans bankers are 'snooty' and thought they were 'cleverer', but not our Banker!
FT.com / Europe - ‘Snooty’ bankers blamed for crisis
More action like this FL event (and also MT fund) and the performance may even improve more!
Treasuries Have Best Month in 12 Years on Credit-Market Losses
Nov. 30 (Bloomberg) -- Treasuries headed for their best month in 12 years as Federal Reserve Chairman Ben S. Bernanke said volatility in credit markets has ``affected'' prospects for the economy.
An index of Treasury securities returned 3.2 percent as of yesterday, according to Merrill Lynch & Co., fueled by traders betting the Fed will cut interest rates next month by as much as half a percentage point. Rising gasoline prices, a housing slump, reduced access to credit and stock losses will probably ``create some headwinds for the consumer,'' Bernanke said.
[snip]
energyecon
can u or anyone else here possibly explain to me why one would want to buy UST's at such paltry interest rates when they clearly don't even cover one's cost of inflation?
i compared a 1yr chart of GLD vs. TLT, the ishares 20 yr bond price and GLD is up 26% vs. TLT up 4.25%. no comparison!
Not directly related, but you guys see this article where WFC says their 1.4 clam writedown was on a "prime" portfolio?
Wells Fargo woes show breadth of mortgage meltdown
Governments and pension funds, that was an easy call. My next prediction...Tanta recruited as an expert witness for the class action lawsuits lining up. As I noted before, I have no idea of any legal basis, it's just what happens in America. You get enough people injured and voila! You have a class, and where you have a class, you have a lawyer. Actually, I'm a bit at a loss to predict whether there will be fewer lawyer visits to CR because they won't have the time to 'surf', or whether there will be more, trolling, 9hmmmm, make that seining), for more flotsam and jetsam.
So if (very roughly) half of the fund's participants read the tea leaves and withdrew their funds, the other half "owns" the remaining assets - assets that are really worth a whole lot less than what's on the balance sheet. That would mean to me that not only can't the fund allow any more withdrawals, the state government is stuck with figuring out how to be "fair" in the screwing. I bet the strongest proposal will be to retroactively claim/charge the entities that were shrewd enough to bail out an amount that makes their net loss percentage equal to the others'. And there will be screaming and wailing over that. Probably why Alex Sink (FL Comptroller) used such waffle language today.
As for the payrolls, though, that will be resolved one way or the other. While I think it unlikely that any city must depend on the fund for payroll, they may claim that they do. If they can prove it, that much will be released to them.
I have been addicted to housing bubble blogs since June 2005. I am now going through the mortgage process with my nesting wife, to prove my point. This is an e-mail my realtor had forward to me,from a mortgage company, today.
"Fannie Mae and Freddie Mac announced that they will be implementing
significant new loan-level price adjustments beginning with loans
purchased on or after March 1, 2008. The pricing adjustments will be
related to credit score and loan to value.
FICO adjustment for >70
LTV Loans
Credit Score
Adjustment
15 years only
These pricing adjustments will potentially affect the ability of
customers to qualify for mortgage financing. As a result, savvy
realtors will pay close attention to the source and reliability of
mortgage Pre-Approvals. It will also be important to pay close
attention to the ability of buyers to obtain mortgage commitments.
_____ Mortgage will continue to develop mortgage sources that are
independent of Fannie Mae and Freddie Mac guidelines and have more
flexibility to offer different program options."
I don't know if this is true, but it seems to be coming out the same time the Fannie and Freddie maximum loan amounts were annouced.
hi everyone,
let's start calling our local government and county officials about how they invest taxpayer's money. I am renting with no kids. So not too much benefit or harm either way. But I just want some more fun and give heliBen a little more head wind. Don't forget to ask your local paper about it too.
sorry
my first blog post and I screwed it up. tried to copy and paste
ajustments were 70
Sorry I'm so busy these days, but I'd like to take this chance to remind everyone that new home sales will go below 500k for at least a couple of years (at terrible margins). Bye bye 75% of homebuilders.
This is kinda a wierd thought...What if a large group of people went to any Bank branch on a Friday evening and took a whopping cash advance on their credit card for, oh say, 24 hours...According to my cc statement I can get $58,000 up front, no questions, hard cash, real bills. Imagine if even 100,000 people did this?
Is there real money out there?
RayOnTheFarm,
What I'm saying is that they can't back a brinks truck up to the fund and spray money on those in line. A bank hollidy only decreases confidence that the fund actually has the requestors money, thus INCREASING the depositors desire to get their cash.
Cheers,
We've all been wondering who's holding the lower rungs of the investment grade ABSs.
The banks have been losing their shirts on the super superior MBS and AAA stuff. Who on earth has been bathing in the pool of less noble securities, and what are their losses?
ban on hedge fund redemptions.
covered bond market closure.
Fl. LGIP bank holiday.
now if we all just stop working then no one will have to pay anyone and all will be good.
idoc,
"can u or anyone else here possibly explain to me why one would want to buy UST's at such paltry interest rates when they clearly don't even cover one's cost of inflation?"
I can try. The idea is flight to quality. The people have been invested in juicier paper that now is getting smelly. So they look around and see the dollar plummeting and realize any return is better than holding cash. But they need to have something almost as liquid as cash. Bingo.
Cheers,
According to my cc statement I can get $58,000 up front, no questions, hard cash, real bills. Imagine if even 100,000 people did this?
Is there real money out there?
Quite a credit line. You must be wealthy.
Misean
at those interest rates, you're losing money with inflation rates as they truly are, not as reported by CPI.
why not gold? its real money, liquid and even has a Fort as in Knox built around it.
lama: "It's OK everyone. This doesn't involve subprime."
No worries mate, even SUBPRIME is OK ... provided it's "insured" for default by a near-insolvent third-party!
When I saw the title of this post, I was reminded of this article from a few years ago. Stood out in my memory for some reason.
WSJ - U.S., Banks Near A Plan to Freeze Subprime Rates
U.S., Banks Near A Plan to Freeze Subprime Rates - WSJ.com
AC And gold isn't a currency anymore. So I'm at a loss as to what I should be sticking in the vault.
I beg to differ. Gold is the money of the world, always has been, always will be until the dinosaurs return. First, think of Greshams Law. Gold no longer circulates because of Legal Tender laws. Being the better money, gold is hoarded. Second, the U.S. government, bless them, have struck millions of $50 gold pieces since 1986, millions. Theyre each an ounce yet obviously no one in his right mind would use one to purchase $50 of goods with them. All are in hiding, yet they are technically the same status as $50 bills printed in green ink. The people prefer to spend the latter and hoard the former. Again, Greshams law. Third, gold is the basis for all futures prices, including Treasury rates. The rates are based upon gold contango. Lastly, and this is instructive, a few years ago when the Wall Street Journal dropped its Monday-morning full-page list of commodities futures to save paper & money, it retained only four. Those were: bonds, bills, oil, and gold. Now why choose those, and only those?
(As an aside, in Vietnam, houses are still negotiated in terms of gold Tael (approx. 1.206 oz, nearly .980+ pure) before payment is made in digital or paper Dong. I kid you not. The same Tael pieces were what the boat people used in 1975 when they fled Saigon. If you had the requisite Tael, you could high-tail it to Malaysia or Hong Kong. If not, you stayed behind to be indoctrinated. Literally tens of thousands of gold Tael (plural) in their rice paper wrappers flooded into American after 1975. Coin dealers bought and sold them in bundles of 100, I know, I was one of them. Until recent years, houses in Greece were also negotiated in terms of British gold sovereigns, strange as that seems.)
The ark,
No its a symptom of the universe.
YouTube -
I make just south of 100K. My Amex credit limit is 85k and my visa is similar. I laugh at it and tell people I could by a Mercedes on my CC. Not that I'd be that stupid.
Cheers,
idoc,
I bought some very large amounts of gold and silver in 1999. I'm sitting purty. But on many blogs, talking gold and silver gets you labeled a tinfoil hat we....Oh yeah. Well, I'll just keep my piles of gold coins, silver rounds, swiss franks, silver bars (have you ever held a silver bar...Homer Simpson---Silver ...Sllllll). So we'll see. Just a note gold when I piled up was at ~$295.
Cheers,
the ark,
Exactly. When that fit hits the shan it will be hammer time.
Sorry...I won't link to it.
Cheers,
I can't think of a less productive asset than gold. A Miami condo comes in close but even that can be used every now and then.
Does anyone have any thoughts about how the major industry-wide subrime work out agreement, the Wall Street Journal is reporting will be announced next week, could impact the real-estate market?
U.S., Banks Near A Plan to Freeze Subprime Rates - WSJ.com
If this kind of concerted industry action occurs, it would seem to greatly change the curve of the reset wave many analysts have been watching. Couldn't this provide a boost to the real-estate market? Far fewer people will be forced into foreclosure by a sudden rise in their payments. Fewer foreclosures would have to be positive.
On the other hand, I don't see how this would make the underlying securities backing these mortgages any more attractive. If anything, investors might want to discount mortgage securities even more if they feel the terms governing them can arbitrarily change.
And let's forget about this kind of plan re-kindling interest in new mortgage securities.
Still, on the whole such a massive re-work program might slow down price declines in the next year or so.
Jack Staub,
Let me get this straight as these are close to my numbers, and I don't gamble with leverage. VERY conservative here.
$85000/$295per ounce = ~288 ounces of gold. I get at the moment gold is 797.30. So 288*797.30=229622.
Looks like a 170% gain over 8 years. I don't think that's bad. Do you Jack?
Cheers,
ban on hedge fund redemptions.
covered bond market closure.
Fl. LGIP bank holiday.
oh yes, and now a freeze on IR adjustments.
i have an idea. why don't we just turn back the clock by 6 mo and freeze ourselves in time? perpetual bliss.
Misean,
LOL. But it isn't productive!
Sniglet, I think the temporary freeze on subprime resets makes about as much sense as a super SIV fund. They both attempt to delay things long eneough for the market to "settle down".
The only problem here is that what they hope to delay IS the reason for the market's problems. Delaying the inevitable will only prolong the pain. A fire-sale of the assets is the only way to work this out.
idoc,
Great...except all trading stops and Vm decreases to 0. that might be bad, but who cares. Lets freeze it all. Global Warming? Hah..beat global freezing.
LOL
Cheers,
Misean,
LOL. But it isn't productive!
idoc
It's productive to me. Don't let me get started about my physical silver plays. ;P
Cheers,
so many assumptions were built into those IR adjustments. changing the rules in the middle of the game will have alot of unintended consequences. heres a few off the top of my head:
i'm sure their are many more. bottom line is gov't manipulation of mkts will make matters worse.
idoc
5. Fewer banks may fail and that is all that matters.
Misean
yeah i have a couple of bags of gold krugerrands and silver rounds in the ol safe. yes, i have tried lifting a silver bar once. damn heavy! couldn't see myself payin for anything with that
it'll be interesting to see what happens to PM's and the USD over time. Denninger has a fervent rant about this today on his site. check it out.
FT - Florida moves to stop run on fund
FT.com / US & Canada - Florida moves to stop run on fund
idoc,
Gotta go for tonight but;
"1. regular payers will purposely default to become eligible.
2. savers will realize that their behavior goes unrewarded and will engage in more risky behavior.
3. mortgage investors will shy away from further investing or demand WAY higher rates to compensate for regulatory risk.
4. servicers will be motivated to keep even those who would default even with no change in IR in their homes to keep the fees comin at the expense of the investors."
I'm at a rock concert waving my lit butane lighter pumping my fist in the air.
Cheers,
The bailout begins!
U.S., Banks Near A Plan to Freeze Subprime Rates - WSJ.com
Misean, gold was $800 in 1980 and now, 27 years later, its at about $800. Adjusted for inflation, its value has dropped by 66%.
So you've made 170% over eight years! Dude, adjust that return for inflation and you are where you started. No, that isn't good, it sucks.
The only way to make money in gold is to convince other chumps to buy it.
FFDIC | 11.30.07 - 1:12 am | #
darn. wish u hadn't said that. not good for my bank shorts.
but now that u mention it, how do u figure? just who are all these foreclosures actually going to? investors round the world or to our banks? all those CFC foreclosures on their website are mostly those they service correct?
Jack,
No you're wrong buddy. I bought gold in 1999 at 295...weren't you listening? Chrissakes...you move capital in the right direction and make money.
Oh blodody hell...perma bulls just can't even understand a reference frame. Let me try...
Jack, it was 1999, where the hell do you think I got that 85K from....1980's gold purchases...or liquidating stock market positions. Run those numbers again, withou leverage against the stock markets performance, and realize for dollar declines. I'm waiting with baited breath on your numbers.
Cheers,
Jack,
Actually I'm not for I have to sleep, for tomorrow is a busy day. But if you want to run them and post again when we meet again, I'll be interested.
Night all.
Cheers,
The BOJ did everything the FED is doing now back in the 1990's. You can drop the rate to zero and hand out dollars like no tomorrow but you can't force people to borrow or spend. It really is about the velocity of money not the amount available. Next up is a slow down in Europe then most of Asia.
Jack Staub: The only way to make money in gold is to convince other chumps to buy it.
Actually, to make money with it, you hold it until just before Volcker comes back. The more bankers cheat, the more valuable gold becomes. They'll keep trying to cheat the system until the price of commodities puts the fear of Market into them. But hey, don't judge them too harshly, what other options do cowards have?
OT did anyone else see that Sears profit plunged 99% last quaarter?
idoc
I think there is no way in hell Sheila Bair would have stuck her pretty little pearl ladened neck out on this unless bank's were at great risk.
Sources with knowledge of the negotiations told the Journal that individual members have agreed to abide by any agreement reached by the coalition, which is called the Hope Now Alliance.
The newspaper said the coalition and the government have largely agreed to extend the lower introductory rate on mortgages for certain borrowers who will have trouble making payments when their mortgages increase.
To be determined, however, are exactly which borrowers would qualify for the freeze and for how long it would last, the Journal said, adding one scenario envisions a freeze lasting as long as seven years.
reuters free link:
Banks, U.S. near deal to freeze subprime rates: report
| Reuters
Vote Free Lunch Party 2008!
Free Lunches For All Forever!
Puttin' The Political Back In Political Economy!
Ito calculus, integrate this!
Haha. Financial "Engineering". Yeah right.
idoc - take a look at FDIC's quarterly banking report at fdic.gov and also read Minyanville's take on it at #4 below: "While everyone is worried about residential mortgages, loan loss increases were largest in C&I, not mortgages, which actually rank THIRD after 'other' consumer loans." (Third is still a large number to be sure.)
Five Things You Need to Know: New Home Sales; A Question of Psychology?; Not Horrible News for Once!; Quarterly Banking Report; Capital One Update-Minyanville
I beg to differ. Gold is the money of the world...
I'll bet you all the money in the world that you can't hold your breath for 5 minutes.
Care to wager?
savers will realize that their behavior goes unrewarded and will engage in more risky behavior
2008 M3 here I come! This work-out deal is good for cars, too, right?
"$85000/$295per ounce = ~288 ounces of gold. I get at the moment gold is 797.30. So 288*797.30=229622.
Looks like a 170% gain over 8 years."
Okay, not let's do the same exercise using real money.
Gold 1999: 270 euro per ounce. Gold 2007 : 540 euro per ounce.
So you doubled your money in 8 years. Also, normally you have to pay certain fees (insurance...). Don't know how much the real return comes out to.
Agh, that should be "Okay, now let's do the same exercise using real money."
Meanwhile Uncle Ben is at it again:
Bernanke says financial strains dimming outlook
| Reuters
"Anyone thinking Bernanke might try to steer the market away from confident expectations of a December 11 rate cut has just been disabused of the notion. A rate cut now seems all but inevitable," (analyst comments)
although:
Bernanke on Thursday made clear the central bank still has lingering concerns on inflation.
While core inflation, which strips out volatile foods and energy costs, has been moderate, rising costs for oil, food and some imported goods could prove troublesome, Bernanke said. ""
hmmm, ya think?
Pretty soon the motto of the world will be the same as McGovern's Tavern in Newark,NJ:
"In God we trust, all others pay cash"
Deflation proponents keep insisting velocity of money can't be increased because it would be "pushing on a string." That's arguably valid in the case of Japan's deflation.
But there are other paths a gov't can follow during an asset-value collapse, and they lead inevitably to hyperinflation. Suppose that the Arabs and Asians cut off our $2B/day line of credit, and we choose to monetize that amount? Suppose the gov't buys up bad mortgage and CC loans?
Just as likely, suppose we have a wide-scale depression, and the gov't doles out gas and food ration chits? Pushing on a string, ha! People may not borrow cheap money, but they sure as heck will use their ration cards!
In a non-fiat economy, deflation is the rule, not the exception. In a fiat economy, there will always be found a way to inflate. To believe otherwise is to misunderstand human nature.
Deflation today will lead to (hyper)inflation tomorrow. But investors will get whipsawed in the process. So the safe strategy is to keep cash and PM's.
"So the safe strategy is to keep cash and PM's."
But how safe is that? Where are you going to keep it exactly where it is safe?
At least with land its always there when you come back at night. I was looking at a nice brick house the other day with heaps of land. Even buying at the top seems better than having the money in the bank.
Maybe its a plan? Scare people into buying houses:-)
Maybe i am senile but i tend to believe in "safe as houses" even now. One day i will get my money back.
All the other options seem risky.
Banks, U.S. near deal to freeze subprime rates: report
The Bush Administration is close to agreeing on a pact with major financial institutions that would temporarily freeze interest rates on certain subprime loans, the Wall Street Journal reported Friday, citing sources familiar with the negotiations.
The plans' details, which could be announced as soon as next week, are still being ironed out, the Journal said.
Banks, U.S. near deal to freeze subprime rates: report
| Reuters
There is another effect on state and local governments that has not received much coverage in the MSM and that is the upcoming drop in tax revenues.
Foreclosure impact: Next stop, tax drop - Nov. 29, 2007
Has anyone heard about the effect the interest rate freezes would have on the MBS market?
Seems to me that this would just drive that market down even further or lock it up entirely.
Surely a good portion of the supposed value of those instruments came from the resets to higher rates, not from the "low, low introductory rate".
If the freeze is enacted look for the Fed to really seriously slash the Fed rates in the (futile) hope of providing a means for people to jump to different mortgage products.
And, as with other solutions, this does not address housing affordability and the dropping value of the assets as compared to the debt.
Will 7 years be enough for income to come into alignment with house prices?
Anonymous, I was just about to post the same article. Is this not a bailout? I see several challenges to implementation.
Will this be okay with bank shareholders? Will they fight it because it is not in their comercial best interest, or will they go along becuase the alternative is for the bank not to survive?
What about the responsible mortgage holders who locked into long term fixed rather than short term cheap. Now they are seeing their neighbours' sweet mortgage deals being extended for years. Will they object, or will they go along becuase the alternative is a street full of foreclosures.
Why don't they just let these foreclosures happen? A lot of homebuyers have no skin in the game and lose nothing if they are foreclosed on. So their credit rating is bad for a few years. They will carry on, a little wiser. This is being packaged as a great deal for homeowners, a means of saving their homes for them. But who's really being saved here? The banks.
Neal,
And how many will actually qualify?
I have a suggestion for who might qualify for frozen rates...
How about it is offered to homeowners who put 20% down, sicne they are serious buyers and not speculators.
Plus they must produce proof that they did not lie about their income when they completed their mortgage application (which is FRAUD).
Then they must produce proof that they own only one property (again to weed out speculators).
Then, make all the "saved interest benefit" taxable.
We could probably come up with a good list of criteria which you all could then send to your electred representatives.
sterlingerl,
Exactly
That concept of skin in the game is a critical issue. I intermediated several small business sales. I could always tell when a supposed seller was not serious when they would put out no effort to facilitate the sale. When we asked for financials or tax returns, they were slow in coming, etc. They would push all the work onto the buyer's people. All they wanted was a ballpark estimate of what someone would pay for their business. After one of these situations, I would give the prospective business seller a reasonable list of things my client needed from them. If they balked or complained, I withdrew.
No skin in the game.
Three-Month Libor for Euros Soars to 6 1/2-Year High, BBA Says
By Gavin Finch
Nov. 30 (Bloomberg) -- The cost of borrowing euros for three months rose to the highest since May 2001, according to the British Bankers' Association.
The London interbank offered rate, the amount banks charge each other for such loans, rose 3 basis points to 4.81 percent, its 13th straight day of gains.
That's 81 basis points more than the European Central Bank's benchmark rate, the biggest gap ever.
The overnight euro rate rose for a second day, up 9 basis points to 4.08 percent, the BBA said today.
To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net
Last Updated: November 30, 2007 07:08 EST
PPT should be out buying futures on every single index. What do they have to lose? Remember, Bernanke is "flexible"!
barely | 11.29.07 - 11:08 pm
Maybe its a plan? Scare people into buying houses:-)
Worried | 11.30.07 - 6:11 am
The hope is the cash PPT pumped to the indices push fearful investors money away. How thats going to come back is the movement the Fed is monitoring. Theyre waiting for the ideal outcome when those come back has no where to go but the real estate market, as people realize that hyperinflation of the US$ is a fact of life.
Chip 12:00 am
That would mean to me that not only can't the fund allow any more withdrawals, the state government is stuck with figuring out how to be "fair" in the screwing. I bet the strongest proposal will be to retroactively claim/charge the entities that were shrewd enough to bail out an amount that makes their net loss percentage equal to the others'.
Yeah, after I signed off last night, thats more or less what I'm expecting as well. If a few of the smaller counties/school-districts were slowest, and standing at the end of the line, they could be 100% wiped out.
BTW, from my reading last night, this isn't the pension fund (called FRS), this is the current operating balances for these local governmental entities. I think this is worse than the pension fund getting hit.
Russia signs Europe arms pact suspension into law
Yahoo! 404 - Page Not Found
President Vladimir Putin signed a law on Friday suspending Russia's participation in a key post-Cold War arms treaty, a move which could allow it to deploy more forces close to western Europe.
"$85000/$295per ounce = ~288 ounces of gold. I get at the moment gold is 797.30. So 288*797.30=229622.
Looks like a 170% gain over 8 years. I don't think that's bad. Do you Jack?"
Although I do think gold has it's place in investment decisions (I also own gold/silver), I believe the original comparison was gold to a Miami Condo.
using that analogy, I would guess that gold's performance is somewhat near that of a Miami Condo... (many condos in South Beach appreciated at least that much).
Now of course, Miami condos are on a serious downtrend in worth. but that could also happen with gold as well... (as seen after 1980)
gold IS a nonproductive asset. It's value is almost solely based on what future people will pay for it (unlike ownership in a business, which has potential for cash flow). gold also does have significant transaction/storing expenses...
Anyway, I think gold is great... and it has done really well in the last 5 years or so... but so have a lot of things (my international stock index fund comes to mind, which is still up like 20%+ this year as example... although I don't have 5 year data off hand)
going forward I just don't know for gold. One problem is that there may be large speculation in gold (hedge funds)-that may be liquidated to raise cash for their trades gone bad... also never forget that there is substantial multinational governmental intervention in gold markets... theoretically they often dump gold to drop its price then buy it on the cheap... they could then dump longer than you can stay solvent.
I hereby propose a temporary moratorium on anybody having to do anything they promised to do.
to dryfly:
Just a quick barb from one Minnesotan to another... a followup from our conversation on Wednesday...
Now do you agree with me on the Dec 11 cut after Bernanke has spoken?
today's repeat speaches by Plosser will be intriguing... I'm guessing we'll see a slightly different tone today.
I usually don't make bold predictions... but I'm sticking to my prediction from Wednesday: 100% chance of a 25bps FFR cut on Dec 11. (and I'm starting to wonder... maybe a 50bps drop in the discount window?)
The roaring stock market seems to agree. The Fed doesn't have the balls to disappoint. If they did, they wouldn't have put themselves in this situation. Not cutting would be a catastrophic stock loss...
Now the question for me: am I bold enough to follow through with my strategy... (staying all long until a few days after the cut then selling it all and sitting out... then going all long again about 2 weeks later until after that cut and sitting out...)
"funded with surpluses in mortgage-backed securities."
Business, financial, personal finance news - CNNMoney.com
U.S. Oct. real disposable incomes fall 0.1%
"funded with surpluses in mortgage-backed securities."
Meaning, i am assuming, that the increasing mortgage amounts are contributing to an eventual surplus which then funds the extended teaser rate.
The economic headwinds of rising energy prices, falling home prices and growing economic pessimism continued to push down US consumers' spending as the fourth quarter began, abetted by a decline in their inflation-adjusted disposable incomes.
October personal consumption rose 0.2 pct, the Commerce Department reported today, but after adjusting for inflation, consumers spent no more than they did in September. The unchanged real consumption number was the smallest change since a 0.2 pct decline in March of this year.
Personal income also rose 0.2 pct in October but real disposable income -- after adjusting for inflation and taxes -- fell 0.1 pct, the first decline since April. Nominal disposable income rose 0.1 pct.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
another 300 pt day for the Dow?
another 300 pt day for the Dow?
Yen carry trade in full swing and oil getting hammered - U think?
another 300 pt day for the Dow?
Sheltereenee | 11.30.07 - 9:03 am
I think -300 pt is likely. The aim of the PPT's game is utter confusion, cause people expect that after yesterday BB's speech, it should go up.
Futures on steriods today. Bernanke must be proud of his performance last night, but just to be sure, I am thinking unlimited funds were authorized to buy up futures before his performance.
Yearning to learn,
Your market timing strategy may or may not work. But just realize a couple of things. With each serial rate cut, the market reaction will be less enthusiastic. This may be the cut when the market gets up and dances. It's all about confidence and euphoria in the short run, not reality.
Also, the market will gyrate over the next 6-12 months but the general direction will be down due to weaker earnings, tightening credits and rising defaults. Your strategy is only long, not short. So, you're fighting a headwind.
Can i please have my puts frozen at the price I paid for thenm asas well?
FFDIC
of course i know that banks are in trouble. but what i would like to hear from you are your thoughts about how this teaser rate freeze helps the banks other than by avoiding foreclosures. i have some obvious thoughts and would also like to hear what u say about who are the losers if implemented.
Yesterday's official statement from the Florida LGIP... here
check that consumer spending and income for october...goldilocks is back - NOT!
where are Seb, OJoe, Tennis, and James to tell us "see how great the economy is doing? never mind it takes a coordinated Fed, Treasury moral hazard bailout".
the "teaser rate freeze" is 90% political posturing. It isn't real.
Do you really think the Bush administration wants to do this and has the ability to do this? Not!
this will encourage a collapse in refinancing as no one will want to give up those teaser rate loans. good as gold.
i think the banks are gonna get screwed by this. they underestimated the little guys ability to game the system once and they will underestimate him again.
the contrary way to look at this and profit massively is to realize that this indicates the US of A is in REAL trouble as opposed to all the political positive posturing thats gone on. think contrarily and invest accordingly.
Watching this morning's markets, I remind myself that Fridays have often involved 'interesting' disclosures a few hours after the closing bell.
So the morning java goes down more smoothly.
Do we have any official reportage due today?
Income has now officially fallen behind inflation = negative real income growth. This trend will probably continue for the next 2-3 years. Cumulatively, real income may fall about 10% or so. It means more foreclosures and (with tighter credit and less home equity) less consumption.
i hope the Bush administration and BB's Fed are proud of themselves that they've lost all credibility and confidence in what was once a more free and fair economic system
We've done a great job. We just don't seek publicity and recognition for it. We hope members of the Florida Retirement System recognize it.
Coleman Stipanovich ( whose brother is J.M. "Mac" Stipanovich, a highly influential Republican fundraiser and lobbyist who has been a political strategist for both Jeb Bush)
SBA
Florida
Susan Ohanian's Testing Outrages (Susan Ohanian Speaks Out)
Is the proposal to use public money to fund lenders, say, the difference between the teaser rate and the reset rate? So, that bankers who gorged on profits for years can continue to gorge? If so, I would hope that Americans would be rather upset about that.
idoc: Yes, they didn't sufficiently hedge thier political risk. You can buy enough PR and politicians to screw over a fair percentage of the population. But in a democracy, if you attempt to screw over too many sheeple, even with their explicit, written consent, they go all squirlley on you. The process becomes nonlinear. The politicians can't buy enough votes when a disproportionalte percentage of people are facing foreclosure and bankrupcy. Which means that you can't in turn buy the politicians. You tend to have a nonlinear conversion from crony capitalists to pandering populists.
As David Pearson said, the potential energy is building.
on-residential private construction falls by 0.5%
http://www.census.gov/const/C30/release.pdf
Anyone care to offer some insight into how Paulson's plan affects cash flows for financial institutions? If they are thinly capitalized and face plenty of defaults and those that don't default send in far less cash than their future cash flow models predict isn't it possible that a massive cash crunch unsues where reserves become inadequate? I would imagine reserve requirements numbers are another measure of the flexibility/nimbleness that the Fed was suggesting.
this will encourage a collapse in refinancing as no one will want to give up those teaser rate loans. good as gold.
I doubt many of them could refinance, so no harm there.
But, it will keep people tied to their debt traps for longer than needed which is going to depress consumer spending.
I would REALY like some data on the percentage rates are on those teaser loans are. All my searches end up with reporters quoting each other "as low as 1%". Tanta? Anyone?
There is going to be some serious political backlash if these teasers are below rental rates or prime mortgage rates.
I would also love someone to explain how the current CDO and MBS holders are going to deal with this.
if i were a paying subprimer, i would immediately default and start hiding income to qualify for permanent teaser status. this is a great opportunity for them to lock below mkt rates.
Bond insurers love this Paulson deal, for as long as it lasts.
well if MLEC is any indication, i don't think this will go very far.
Just like Japan the people and their Gov't cannot accept the reality of the situation. Instead of 5-7 years of a normal housing correction we get 15 to 20 years.
the complexity of a voluntry deal between the Bush Administration and selected lenders, one that doesn't require Congress' approval or compel compliance or enforcement, is off the chart...and ultimately ineffective.
IT'S ALL SMOKE! (what the Administration does best)
it really comes down to whether or not u think the powers to be can manipulate us out of the RE and structured finance debacle for their own benefit by violating free mkt principles. in other words, more of the same. i'm holding my shorts; literally.
The key to the teaser rate freeze politics is getting all lenders to do it. It's an effort at cooperation amongst all the servicers and lenders. It won't work if only half of them agree to the freezes, because then the other half will foreclose and drive the prices down further, putting even the teaser borrowers further underwater.
If they do get pretty much all the lenders and servicers to agree, then it can work, but it also may be a Sherman anti-trust violation. Such an agreement on the part of companies is essentially trying to limit REO-driven inventory. This is trust behavior similar to price-fixing. IMHO this is illegal in light of said Sherman Act.
JMHO
if you give people low rates on bloated appraisals that's what started this
Lee Helm
this has the potential to put alot of the smaller, less liquid banks under.
of course there is illegality to this whole proposal. the class action lawyers need to get working. as i see it, our regulators will not step up to do whats right here since most are handpicked by GWB. the only stick here in the US of A that can get anything done is the lawyers.
Being a FRS pension receiver I am so made I am seeing red!
To imagine those yahoos running the FL State Pension is thinking about selling a kind of insurance to the FL State investment pool to guarantees against losses is down right criminal!
Does anyone have half a brain in Tallahassee these days?
Those of us reading daily this blog saw this coming 12+ months ago...
It kind of makes me think it is too much trouble to put a paid person on staff to read daily 'alternative opinions' just to keep abreast what others besides the MSM are thinking.
This is a sad (and beginning to get scary) state of affairs.
Confused in Cape Coral
GaudiaRay, Who are you referring to as the manager of this fund? Would that be Coleman Stipanovich? He was the only person in the meeting yesterday who appeared to have a clue about what is really going on and what the ramifications of the actions could be.
MBI is trading up to $35 a share, this is a gift, people. And the major indices all look like they are about to reverse sharply down.
Opportunities like this come up rarely, for those that have the courage to spring into action.
Well, IMHO "frozen" means payments and this is some sort of extended neg-am scheme. Otherwise this would be completely unpalatable. FBs might come out ahead with a foreclosure today rather than 5 years from now. yes they'd live in their homes for 5 years while paying submarket rents. But if they're foreclosed upon NOW, they'd be closer to having good credit when the market is near bottom than if they wait 5 years.
Meeting in an emergency session, the State Board of Administration suspended withdrawals from the Local Government Investment Pool, which has been rocked by uncertainty over the national subprime mortgage crisis.
pandreson
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