Someone said this already but there is more to come otherwise they would have just given everyone their dollar back without the interest that the fund "earned"
The fact that this is GE not honoring their fund is what's alarming. More to come I'm sure, especially if this triggers a bank run. I will be shocked if this doesn't rattle the markets tomorrow. I was a little surprised by the late day sell-off. This was probably the reason behinf it.
They do not feel the need to make the fund whole, because they are not legally obligated to do so and this is the only fund they have with issues.
I respectfully disagree. They have a reputation to guard and GE Capital is going to get calls tomorrow asking about all their fixed income products. The letter was made 9-08. Why didn't they come clean last week. This has to leave a bad taste in one's mouth.
According to the latest 10Q from the Atlanta FHLB (yes, they have to file with the SEC), Countrywide borrowed $51 billion, accounting for nearly 37% of the Atlanta bank's loans. Meanwhile, the San Francisco FHLB increased its loans to $224 billion from $53 billion during the third quarter. Who did all that borrowing? That's not known though McCullough observes Citibank's Nevada unit is a member of the San Francisco FHLB.
While the Home Loan Banks haven't been forthcoming with information about their recent activities, the gimlet-eyed analysts at Bear Stearns' fixed-income research who first brought to light the massive FHLB lending say it continued in August.
During October, the FHLBs issued $186 billion in short-term discount notes to fund its lending program, increasing the total outstanding to $328 billion by $17 billion. (As with any short-term borrowing program, maturing notes are constantly being rolled over.) The net increase in August and September were $82 billion and $61 billion, respectively.
The slower rate of increase probably owed to easier money-market conditions, which brought Libor (the London interbank offered rate) down closer to the FHLB's rate, Bear's analysts wrote. In other words, as the crisis seemed to abate, there was less need to turn to the Home Loan Banks last month.
Well just wait and see if TIAA or TRowe Price or Fidelity breaks the dollar on their money funds. If that were ever to happen you would see a national panic. It would be like a run on all the banks at once.
...at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist."
I've been watching TIAA-CREF.It turns out their main (stated) exposure is in their Bond Fund. A read of their prospectus puts about 20% of their Bond Fund into the "Dark Matter" category.
With great power (returns) comes great responsibility (risk). I am sure the fund prospectus made it quite clear that the returns are greater than a money market because this "enhanced" thing is riskier than a money market.
Short-term high-grade bonds are low-risk, not no-risk. If this is GE's only exposure, it is quite reasonable (from their point of view) to expose its investors to the risk they signed up for. Bailing it out sets a bad precedent; just how risky does an investment have to be before you actually let investors actually accept the losses they agreed to in writing?
4ward: Well when I discovered that my TIAA money market fund was 80% invested in commercial paper I moved the money to bank savings accounts insured by the FDIC.
I'll take exception to the idea that GE is the best run company on the planet.
If you back out the massive pension gains GE racked up over the last 10 years of Welch's reign, the earnings record doesn't look nearly as good.
GE has been a well-run company by giant company standards, and like Exxon has done a very good job of using its capital to increase per share value rather than total size, but best-run company on the planet covers a lot of territory and it'll be awfully interesting to see how GE's enormous financial services unit holds up through this credit crunch.
This is the first time that I can remember a money market fund (albeit enhanced) breaks the buck. I have always thought companies try their very best not to do this...now they are unwinding their position to yield zero (or does this mean 0 return of funds or 0 yield on funds held?).
That's a possibility I did not consider; it's just employee money, so who cares?
In the e-mail, GE Asset Management said the fund has sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist.
Hard to imagine how to say "take your money out now" more clearly.
Actually, re-reading that quote, there is another possibility. $0.96 is for "non-GE subscribers"; so maybe they have something more friendly in mind for members of the family.
"based on our belief that recent extreme conditions in the credit markets, including liquidity concerns and value dislocations, will continue in the foreseeable future."
well if GE feels this way, who am i to disagree?!!
for that matter, who the hell is Wall St to disagree?!!!
In the e-mail, GE Asset Management said the fund has "sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist."
4% haircut on $5B.. so $200MM out the window. Some investors will be ticked, but its not the end of the world.
When they hand you back your 96-cents (all $B or $multi-MM of it)... where do you deposit the check to avoid another haircut ? (because you certainly are not getting FDIC coverage on $1B unless you have immediate family members from here to Katmandu)
If that were ever to happen you would see a national panic. It would be like a run on all the banks at once.
Yeah and all of these damn banks would be nationalized. Maybe that would be the best way to put an end to this crap. It would create it's own problems but I'm not sure it could get much worse then what we already have.
GE employees and retirees is no laughing matter. Despite Neutron Jack's housecleaning, a heck of a lot of them ended up with their savings under GE Capital's control. This ain't no Enron, which bad as it was, did show signs of containment; if things are bad under the woodwork there, then Katie bar the door.
What about the possibility that GE employees can't redeem; and they are letting non-GE investors out to prevent further litigation? GE employees' investments would be shifted but not saved, as I would guess they have less rights due to their benefit status.
Quite the story, GE. Maybe you should clarify that crap a little bit.
If the bulk of the assets were employee money, then this creates two potential outcomes.
1.) If the money was DB, they can balance it against earnings elsewhere (hopefully)
2.) But if the fund was used in a 401k plan, managed by GE, for GE employees, and still lost money....helloooooo ERISA lawsuit.
ajw, to the annoyance of many I went on a spree posting here last may or june about my 401k . . . which had nothing safer than astable asset fund . . . that was invested in mortgage backed securities, etc.
I cashed out and ran to an IRA and put all in a 5.35% FDIC insured CD. I'm glad I did. This is exactly what I was afraid of.
and from the Barron's article GE's pension and benefit plans could suffer additional losses in the fund as more securities are liquidated. It's unclear whether GE Asset Management plans to wind down the fund.
Gary, I did a similar thing with my IRA, moving into the TSY money market fund (some other positions, but 50% cash). There is no reason on earth for anyone to accept credit risk in this environment, of any kind. I think until very recently the entire industry forgot that there was any risk in structured securities besides prepayment/convexity risk - the notion of credit risk creeping into the "AAA" picture was rarely or never factored into the analysis most of these firms have done up to now, as we are all about to find out.
I've been on hold w/ a TD Ameritrade broker for the last eon, in hopes of switching an IRA MM for a family member to a treasury fund MM.
Said family member called and tried to switch the fund from one to the other, only to be told "you're already in the treasury fund." Absolute BS. When dealing with small/ignorant investors, brokers get away with bloody murder.
OT of sorts:
Everything was supposed to be different in the post-Enron era. So why, asks Fortune's Bethany McLean, does it feel like someone hit rewind?
pretty good article for a MSM Financial writer: maybe she didn't get the memo
I think we got ERISA problems a brewin' not only at GE but also the big 3 auto.
ERISA is another land mine in the path of these companies who have been cramming money from pension funds into these now toxic but once AAA assets. I gotta review ERISA rules again, but that pension money cash cow has just morphed into a tar baby.
Looking for a good blog comment copy-editor: No pay, lots of screaming criticism, payment in Spinal Tap concert tickets, contact Nigel @ Intravenous DeMilo Productions.
"Are you sure? Then we'd have Shumer & Dodd in charge of the banks..."
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money.
Let's be clear here. This was not a money market fund. Money Market funds have SEC guidelines (Rule 2a-7)that are more restrictive than Enhanced Cash funds. While some money market funds definitely have issues at the moment, the parent companies have bailed them out so far - WB/Evergreen, CSFB, BAC/Columbia, Legg Mason, SEI.
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money.
I'll take bankers. At least you know who to put in jail or in extremis.... nahhh that's not my scene.
Misean, I think there are huge ERISA problems brewing, but am less sure they'll be coming from corporate plans. As the Bloomberg article on Florida pointed out (you have to scroll down pretty far), there are many municipalities that have exposure to this stuff. What happens when this starts to hit their bond ratings? Higher borrowing costs + rising numbers of retirees = taxpayer revolt. Not fun.
Since you mentioned the big 3 automakers, something I haven't seen mentioned elsewhere is the fact that these VEBA trusts being set up (where the unions effectively take over a company-funded trust) are bulking up the institutional heft of labor. For context, the entire union pension market at the moment is around $400 billion. Add a bunch of these multi-billion dollar VEBAs, as the steel, auto and other industries are thinking about doing, and all of a sudden labor could become a huge owner of...capital. Rather ironic, no?
Sorry for the diversion, just trying to think this through.
As ESOP before so VEBA now, it seems. I think the unions are going along with the "here, hold this for a minute" just because they think it will keep them in the game a little longer. It didn't work too well with the ESOP's for the most part. The VEBA's are also funded with a lot of promises to pay, especially, if I understand right, company stock. Good luck paying the doctor's bills with GM stock.
Read the article earlier. Problem with state funds is they are exempt of SEC filings, which means (I'm not sure if they're ERISA exempt...but) that they won't get tagged on an accrual basis like private funds. Sure they may be under water, but pensions are always a nice place to hide future shortfalls. See Socialist Insecurity et. al.
"...all non-GE subscribers..."
The notion that they would treat different groups of owners of the same fund differently is beyond the pale. Can't happen. Their butts would be in court before the Sun set that night.
GE "Well it's just like a MM because 'it seeks to provide a slightly higher yield than a money-market fund while preserving principal and maintaining an asset value of $1 per share.'"
So they sold it as if it were as safe as an MM even though it wasn't, to yield thirsty investors looking for more than an inflation losing 2% or so. Hmmm...Caveot Emptor...I believe in it, but desperation to bring in yield seems to have blown this warning out of the water. Not that I'm defending slime balls who make false claims...but due diligence is a two way street.
"4ward: Well when I discovered that my TIAA money market fund was 80% invested in commercial paper I moved the money to bank savings accounts insured by the FDIC."
James | 11.14.07 - 7:02 pm | #
Moved 100% of mine to the 5.25% (yield is until 3/1/08)Fixed Annuity (i.e. I must be in good company 170 Billion there).
"The notion that they would treat different groups of owners of the same fund differently is beyond the pale."
They aren't. The point is that the employees pension money is "managed" and the manager has to pull the money out. Non GE investors can do so at a whim. I'm pretty sure, if I'm reading this right...and I think I am.
"An investment in the S&S Money Market Fund is neither insured nor guaranteed by any government agency and no assurance can be given that it will be able to maintain a stable net asset value of $10 per share. It is possible to lose money by investing in this fund or any other investment option. "
Misean,
I couldn't agree more. The selling of low vol/enhanced cash to compete with money markets was an active strategy. Same strategy also pushed money markets into seeking higher yields in securities that they are allowed to purchase. I'm sure we'll be following the lawsuits for years to come.
GE asset management has a white paper on Subprime this spring.
Here is the link: GE Asset Management: Institutional Investing | US Home
Here is a couple of quotes:
"We feel the negative effects will be contained"
"money market and enhanced cash funds . . . should be protected from principal losses"
Misean, excellent catch re:applicability of ERISA to public plans (not applicable since it technically only applies to corporate DB plans). I still think public finances in general, and munis in particular, will be in the next wave of merde to hit the market, and it's a coin toss whether they or CRE (per Roubini today) hit first.
J Bridges wrote:
I've been on hold w/ a TD Ameritrade broker for the last eon, in hopes of switching an IRA MM for a family member to a treasury fund MM.
You can buy the Vanguard Treasury Only MMF from within your TDA account (not all brokers allow this--e.g. E-Trade doesn't, and I don't think Fidelity does either). Buy VUSXX if $50K or above, or VMPXX below. Admiral shares have expense ratio of .10%, lowest by far in the industry, which give it the highest yield.
I'll look into the fund(s). TDAM gave The Reserve (as you know, the company that basically created MM accounts in the 70s) the boot recently...presumably, to generate more fees for the in-house funds. I preferred the way The Reserve runs their MM funds, but your work-around through Vanguard makes a lot of sense. Thanks again,
JDB
For anyone who has money in TDAM's plain MM fund Class A, I would advise finding another place to park your cash...way too much ABS, and questionable CP in it for my taste.
"...The company reported that its cash balances were down to $51.5 million, a decline of $99 million from the end of last year. More significantly, it said that future borrowings are at the sole discretion of its remaining lender, Wachovia Bank, and there can be no assurance that Wachovia will provide additional advances to the company..."
Is UBS trying to get a pop in their stock? In the old days companies would announce a stock buyback, a stock split, or a dividend increase to get a pop in the stock price. Nowadays they announce a writeoff to get a "pop".
Ok, but at a loss in liquidity. What do you do if you want to move the money into something else? A lot more hassle than selling Treasury only MMF shares and buying something else.
Yes of course I think there are problems there. Some of the m BIG...OC Bankruptcy comes to mind...I just wanted to point out that there are different filing requirements.
The GE Enhanced fund was not a money market fund. It was not advertised as a money market fund because it was not advertised. I got into it years ago from a friend who's relative was a GE employee.
I thought it was clear that it wasn't a money market fund when I got into it.
GMAC also has one that's called Demand Notes that's not advertised and was mainly for employees but did let non-employees in for a while. I'd be looking at that if you already haven't.
Oy Vey - Most here would probably agree with the idea of buying through TD. Problem is, that's not usually doable through 401-k's, 403-b's, IRA's, etc. Unfortunately, those programs are where most people have their savings from work, and are generally strictly limited to in-program offerings.
"n February international bank HSBC suffered big losses on its subprime portfolio, sending tremors through the market. Under normal circumstances, such worries would have led to higher interest rates on subprime mortgage bonds. But these were not normal times. Instead of rising, rates on subprime mortgage bonds remained abnormally low until the summer of 2007, and in some months even dropped below 2006 levels.
What was going on? Instead of backing away from subprime paper, Merrill Lynch and other big players were gobbling all they could, because they needed it to feed their CDOs. Their bottomless appetite for the stuff kept prices high and yields low, against all economic logic. "What we had was a perpetual-motion machine driving mortgage prices to uneconomic levels of risk vs. reward," says Friedberg. "
And broke alcoholics gobble all the free booze they can while it's flowing.
Seriously though, they knew this was uneconomical but kept at it. This is why they want the M-bLECh Super Sewer. They need to puke but don't want to do it in their house.
Not questioning you to be a jerk, but the article does say this:
"In the e-mail, GE Asset Management said the fund has "sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) ..."
and this:
"The GE fund, totaling $5 billion, is an "enhanced" cash fund, meaning it seeks to provide a slightly higher yield than a money-market fund while preserving principal and maintaining an asset value of $1 per share."
So maybe they didn't "advertise" it but they sure made some misleading statements about it...if the article is acurate.
A lot more hassle than selling Treasury only MMF shares and buying something else.
R | 11.14.07 - 9:34 pm | #
i tihnk a few here will see the fallacy in that statement...
Entrepreneur,
i agree and have found that a lot when people ask. I think it's a HUGE problem , that our top2000 companies shackle the sheeple to the shed.
A big trend in ERISA has been to put in IPS's, Investment Policy Statements. They say something like this: "We will invest in debt instruments rated triple-A by at least two ratings agencies (and money market equivalent ratings).
You have it on file. Check. Check. Participants can sue, but in court it's a short story.
There will be ERISA fiduciaries who go down the drain shortly. But not over money market funds.
All the non-GE folks are out already huh? Huh. Looks like this just became old news. Very weird. I wonder what the GE employees are doing/saying now. Isn't the Mothership free to do pretty much anything it wants to keep the shareholders (all GE employees now) whole without any public disclosure? If that was the goal and...wait a minute...[places tinfoil hat firmly upon head] was the intent to drive out the non-GE guys so they could do something like that? I have no idea what kind of litigation they may have opened themselves to if that was the case.
Did I read this here or over on Brad Delong's Blog: Quote attributed to Will Rogers: " Sometimes the return of your money is more important than the return on your money"
I understand that. My point, and it has been unclear, is that the pension funds are starting to have the stink of ERISA wafting up from the basement. Further...and I have done no research today, but, this fund is not an MMF, but has pension money in it. Is that a problem...I dunno...but it smells like teen spirit.
"We will invest in debt instruments rated triple-A by at least two ratings agencies (and money market equivalent ratings). "
And THAT is my point exactly. If they have sludge in the portfolio, then the ERISA stink become legion. It's why I'm so interested in watching it.
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money
Please spend some time on opensecrets.org and look at the top campaign contributors to Sens Schumer and Dodd. I believe you will come away enlightened.
Banker, "places tinfoil hat firmly upon head] was the intent to drive out the non-GE guys so they could do something like that? I have no idea what kind of litigation they may have opened themselves to if that was the case."
And that's the big question. And there's simply not enough data available to know. But I fear that might be the case, and they are trying to bury things and extend them out as long as FASB and Fed rules allow, which I think is 3 years. Correct me if I'm wrong.
I had to debate them in NDT style format and the memory makes my head hurt. Still, I will look at them this weekend and see if I'm on target. I think I am, but it's been a while since I looked at the actual text of that convoluted pile of horse poo poo.
I think we can agree though that the fund managers wouldn't object to this being their theme song:
Lehman, Bear Stearns are on the auction block. Are we surprised?
That's simply not what the article says. Being on the auction block means they are seeking a buyer. What the article argues is the the major international banks SHOULD be considering approaching the US I-Banks.
it's so friggin easy.. and safe... if that market blows, then go to your $10 farmers alamnac and pray for rain.
t-bonds aren't safe -- they can have huge price volatility due to their sensitivity to interest rates. ask anyone who bought t-bonds in the 70s about that.
t-bills are about as safe as it gets for USD denominated securities
Banker, face it, Bear Stearns is going down. At $14 billion market, it is on the auction block, especially if you're holding a some excess euros. Conjure thinks they're going down for the Chinese. Any CEO who says that his main mission now is to 'preserve the franchise' is really saying 'I'm busting my ass to stay in business.'
I said it months ago, and am sure you remember when I said it. Bear Stearns is going down.
You can say whatever you like. It isn't what the article says. If you're saying that someday BSC will no longer be independent? Big whoop. I agree. Of course people have been saying that about BSC and Lehman every few years since I started in 1985.
Florida (and where there is one..) holds $2b of debt now rated by agencies as junk or default. The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
UBS another $7B, MER another $10B Barclay's $3B more... it's amazing. They are busy de-sensitizing Wall St with dizzying sums so now no one is expected to blink. We haven't even seen the home price declines yet. The borrowers collectively didn't have a fraction of this much in assets. What a remarkable ponzi and amazingly, they managed to trap themselves in their own schemes.
Solvency has to be in question now for some of these loser institutions. Couldn't happen to a more deserving group.
"Please spend some time on opensecrets.org and look at the top campaign contributors to Sens Schumer and Dodd. I believe you will come away enlightened."
I'm already enlightened, our government is bought and paid for by big business and has been for years no secret there.
Markets poised for severe fall, says King
By Edmund Conway, Economics Editor
Last Updated: 12:42am GMT 15/11/2007
Mervyn King's warning came as the Bank gave a firm indication that it plans to cut interest rates
The Bank of England Governor has issued an extremely unusual warning on world stock markets, indicating that shares may be heading for a major fall.
Mervyn King said the full impact of the credit crunch had not yet been felt on equity markets in the West and in developing countries, saying that the possibility of share price falls were one of the biggest risks facing the world economy.
His warning came as the Bank gave a firm indication that it plans to cut interest rates as many as three times over the next two years to protect Britain's economy in the wake of the credit crunch. The signal caused the pound to drop to a four-year low against the euro, with the single currency now worth 71.13p.
"It is very striking that despite the developments we've seen in the last three months , despite the stresses and strains in the banking sector , equity prices are higher now than they were in August," he said, unveiling the Bank's Inflation Report, which said the strength of share prices had been "surprising".
advertisementHe added: "This is true around the world, and in emerging markets they're 20pc higher. There must be some downside risks there.
OT, but why on the one hand do we have the US government officials, Bernanke Palson etc telling us that there is nothing to worry at all, and BoE Govenor King telling us to be afraid. Are the US officials natural born liars?
This is an exceptional blog and the comments are the best I have come across on the internet. I have learned a lot. I can't believe after the day is done, I sit down to have a beer, and read an economics and finance blog. But I do.
For years now I have had a very serious fin de siecle feeling.
It really sucks being the only one seeing a serious reckoning coming. It is very comforting that others are concerned.
UBS may take $7.1 billion charge (Sorry, I've been out dicking w/FedEx/Kinkos where a total of 9 people 'assisted' me but I still copied my 347 FDIC litigation documents at the self serve copier. Not sure if this has been posted yet) UBS, Barclays to take multibillion write-downs: Report - Nov. 14, 2007
I have all life savings in GE's money market fund, not this other "enhanced cash fund"...so I dug into the newswires after I saw this. Looks like I'm okay for now. I thought I was so smart for getting out of stocks a few months ago. I guess I should just hide my money under a mattress.
It really sucks being the only one seeing a serious reckoning coming. It is very comforting that others are concerned.
Red Pill | 11.14.07 - 11:18 pm | #
My thoughts were running along the same lines. Hopefully, for everyone else it is just due to my emotional makeup and not reality. I am becoming more dysfunctional in certain areas of my life.
"I am becoming more dysfunctional in certain areas of my life."
You folks take this crap too seriously. After all, it's only money.
Conjure points out that people aren't as accepting as they used to be. He says, "If the people who run this country genuinely screw it up, their heads would be on pikes within a fortnight and they know it."
So who is holding all the AA and lower ABS? If the IBs held all the super-senior tranches, who bought the crap? And why haven't we seen those announcements yet?
Conjure recommends a Money Bin. One can always swim in it like Scrooge McDuck when one lacks for something better to do with one's time.
Obviously Conjure has never needed to have an impacted centime removed due to an unfortunate Euro-quake accident.
GE's fund is slightly different because it is an enhanced cash fund and therefore took on more risk and did not promise to preserve what was invested, a GE spokesman said.
I don't know of any MM fund that "promises" to preserve what was invested, do you?
I am amazed that in the carnage the Chinese don't demand to be let in. They in a way already control us financially, so why should they not own all or big chunks of our finance firms? This is their big chance to put those dollars they are hoarding to work.
We tend to overestimate the Chinese just like we overestimated the Russians and the Japanese. While the West is no paragon of virtue, our institutions will hold up much better over time. Hell, by now CR and Tanta would long have been toiling in some prison camp for having this insightful of a blog in China.
w- "Hell, by now CR and Tanta would long have been toiling in some prison camp for having this insightful of a blog in China."
Conjure says he agrees, but is reminded of something he claims Frederick the Great once said to him: "You can say anything you like, so long as you do what you're told."
With that, Conjure and I bid all a good night, morning, afternoon, or evening, depending on your location. We are off in search of hot girls, hot cars, and some Amish garden furniture.
For years now I have had a very serious fin de siecle feeling.
Hey take a look at the calendar and get with it. You need a "debut de siecle" feeling now. Does that help?
James | 11.15.07 - 12:40 am | #
Yea, yea. The "fin de siecle" period is historically defined from about 1890 to just before WWI, so there is some flexibility.
I like the wikipedia description:
"In a broader sense the expression fin de siècle is used to characterise anything that has an ominous mixture of opulence and/or decadence, combined with a shared prospect of unavoidable radical change or some approaching "end.""
Paulson will be flying to England to shut blabber mouth King up. Condi may go with him. My 82 year old mom told me this and she is always right like Tanta.
Very odd of Citi to raise money on a long-term basis I thought. In the midst of the uncertainty of a CEO search? Ofd course you're gonna get killed. T+190, wow.
I'm now glad I stayed up late to read this one! Gretchen Morgenson does her thang on Deutsche Bank and the recent adverse Ohio foreclosure ruling. Bring it on Gretch! Somebody wake me up early if Tanta goes on a writing binge over it. God love her. Foreclosures Hit a Snag For Lenders - NY Times
Agreed. Which is why I took my first short position ever against the Hang Seng. (That's right, despite all the bear talk, I'm a sissy long-and-indexed like the rest of the chumps.)
Mukesh Ambani, scion of the Indian family worth $63B (Reliance Industries), is building the world's largest private residence. It is "a 60-story glass tower in Mumbai, complete with hanging gardens, a staff of 600, and six parking floors with room for 168 cars." (quote is from The Week 11/9/07)
James, this is just the warm up act. The Chinese will tighten their grip in all due time, but in an indirect manner. They don't want to run the US, just keep us out of their hair.
At times I wonder if they'll do something spectacular like use their reserves to "buy" all the foreign (read US) owned plants in China, then let the yuan sky (or dollar plummet depending one's perspective). It wouldn't sounds as mean as nationalization. Depending on how they use appraised, tax, or book value they could even be "nice" about it. The repatriation of all those dollars would cause loads of inflation here though. That would of course be too brutal, simple, and easy. I expect something a bit more subtle.
My prediction: A test of the August lows of about 12700 on the DOW and then a end of year stock market rally, lead by tech and foreign stocks. Homebuilders have just had their bounce, so they may start stalling out and going down.
[Rogers, who predicted the start of the global commodities rally in 1999, criticized Federal Reserve Chairman Ben S. Bernanke for comments on the currency before a congressional committee on Nov. 8.
He is a total fool,'' Rogers said.He said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified.''
Bernanke said the only effect of a weaker dollar on a typical American with their wealth in dollars, buying consumer goods in dollars, would be ``their buying powers, it makes imported goods more expensive.''
Rogers said that's not right.
If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up,'' he said.That affects you. He doesn't understand the economy as far as I can see.']
That really was a stunning revelation. I was shocked Paul let Ben get away with that "clarification". Is it really possible that Ben truly believes this. No wonder he likes "core". It excludes anything he has no direct influence over.
The follow-up report that all non-GE participants have settled for .96 sense on the dollar is hard to believe. I would have thought that somebody somewhere hasn't gotten around to opening his mail recently. Perhaps the number of participants outside GE was very small.
Stagflationary Mark, you make such nice charts. Can you show DSL's parabolic increases in NPA over the past year? They have been kind enough to share the data!
" It is "a 60-story glass tower in Mumbai, complete with hanging gardens, a staff of 600, and six parking floors with room for 168 cars." (quote is from The Week 11/9/07)
Sounds very Rothchild, doesn't it?
unirealist,
Sounds to me more like a condo unit, but a nice one at that!
The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
Ha! Sounds like my mother presiding over her annual garage sale and refusing to dicker over her priceless cracked lava lamp.
Florida (and where there is one..) holds $2b of debt now rated by agencies as junk or default. The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
Boy am I waiting for that shoe to drop. I fired off that link to the editor of the local paper last night.
Assuming that the participants expected to make, say 3% return, and they are now down 2%, that would produce a net shortfall of 5%. If the county or school system doesn't have a spare 5% in the budget (and most don't) then they have to start looking for places to chop until next year rolls around. They can't cut teacher's salaries as most of them are on contract. So where ?
"Jimmy Rogers thinks everyone in the world is a total fool. Nothing new there."
What ol Jimmy forgot to mention is that the so-called educated Americans accountants, doctors, economists, engineers, lawyers, etc. are BRED to be dupes when it comes to economics and politics. These dupes don't understand such a simple thing as DEBT.
The net result is that Corporate Crooks of America, Bankrupters and Fraudsters of New York City, and Fraudulent Reserve System, working in concert, comprise the greatest criminal organizations in human history. There simple crime? Pushing Debt on the public. How is a born-and-bred American dupe to know what is Pushing Debt and what is normal borrowing and lending? That is why brainwashing is indispensable to rule over a population. The collapse of American econo-political system is guaranteed. The only question is: Is it 10, or20, 0r 25 years away.
My guess, and I'm no expert, is that what they are saying is that the 96% deal is for outside investors in the fund, not for say other divisions of GE. I imagine that would include their pension fund, but it is just a guess.
The mention of having enough liquidity to cover non-GE explains it. They think they can sell enough (or maybe they even already have sold enough at 96.2% or something like that), right now, to get 96% for any outside investor who wants out, but act fast. With internal GE fund owners they will have more wiggle room and can more easily phrase the deal in a squishier "we will get as much as we can as fast as we can" kind of way.
Someone said this already but there is more to come otherwise they would have just given everyone their dollar back without the interest that the fund "earned"
When all is said and done, a loss of interest and 4% of principal may end up being a hell of a deal!
If GE can't afford to "maintain the buck", what is this world coming to?
Two possibilities come to mind.
1) They do not feel the need to make the fund whole, because they are not legally obligated to do so and this is the only fund they have with issues.
or
2) There are more cockroaches under the countertop and they actually need to conserve capital.
Since this is General Electric -- indisputably the best-managed company in the history of the planet -- I am guessing (1). Time will tell.
The fact that this is GE not honoring their fund is what's alarming. More to come I'm sure, especially if this triggers a bank run. I will be shocked if this doesn't rattle the markets tomorrow. I was a little surprised by the late day sell-off. This was probably the reason behinf it.
Better than getting 96 cents worth of GE products.
In the spirit of WWJD (LOL) - What would Jack Welsh have done? He must be proud.
They do not feel the need to make the fund whole, because they are not legally obligated to do so and this is the only fund they have with issues.
I respectfully disagree. They have a reputation to guard and GE Capital is going to get calls tomorrow asking about all their fixed income products. The letter was made 9-08. Why didn't they come clean last week. This has to leave a bad taste in one's mouth.
I continue to harp about the FHLB -
The numbers are HUGE!
The "B Word" Returns: Backdoor Bailouts of Bankruptcy Candidates - Barrons.com?....
excerpt -
According to the latest 10Q from the Atlanta FHLB (yes, they have to file with the SEC), Countrywide borrowed $51 billion, accounting for nearly 37% of the Atlanta bank's loans. Meanwhile, the San Francisco FHLB increased its loans to $224 billion from $53 billion during the third quarter. Who did all that borrowing? That's not known though McCullough observes Citibank's Nevada unit is a member of the San Francisco FHLB.
While the Home Loan Banks haven't been forthcoming with information about their recent activities, the gimlet-eyed analysts at Bear Stearns' fixed-income research who first brought to light the massive FHLB lending say it continued in August.
During October, the FHLBs issued $186 billion in short-term discount notes to fund its lending program, increasing the total outstanding to $328 billion by $17 billion. (As with any short-term borrowing program, maturing notes are constantly being rolled over.) The net increase in August and September were $82 billion and $61 billion, respectively.
The slower rate of increase probably owed to easier money-market conditions, which brought Libor (the London interbank offered rate) down closer to the FHLB's rate, Bear's analysts wrote. In other words, as the crisis seemed to abate, there was less need to turn to the Home Loan Banks last month.
This should set off a nice run on money market funds.
"During October, the FHLBs issued $186 billion in short-term discount notes to fund its lending program"
This seems quite SIV like, No? Except it's probably worse...
Well just wait and see if TIAA or TRowe Price or Fidelity breaks the dollar on their money funds. If that were ever to happen you would see a national panic. It would be like a run on all the banks at once.
This seemed to me the second best part -
...at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist."
I've been watching TIAA-CREF.It turns out their main (stated) exposure is in their Bond Fund. A read of their prospectus puts about 20% of their Bond Fund into the "Dark Matter" category.
With great power (returns) comes great responsibility (risk). I am sure the fund prospectus made it quite clear that the returns are greater than a money market because this "enhanced" thing is riskier than a money market.
Short-term high-grade bonds are low-risk, not no-risk. If this is GE's only exposure, it is quite reasonable (from their point of view) to expose its investors to the risk they signed up for. Bailing it out sets a bad precedent; just how risky does an investment have to be before you actually let investors actually accept the losses they agreed to in writing?
But E*Trade has "bounced back" so all is well. Sleep tight tonight. Worry not.
My TIAA CREF bond market account is 38.1 percent "mortgage-backed securities and Comm. Mortgage-bkd securities".
The account has a 5.49% average yield to Maturity.
There should be lots of smiling faces on CNBC tomorrow.
50% haircut coming soon to a "cash equivalent" near you.
4ward: Well when I discovered that my TIAA money market fund was 80% invested in commercial paper I moved the money to bank savings accounts insured by the FDIC.
Fitch put GMAC on rating watch negative
CNNMoney.com: 404 Page Not Found
Rather like termites in a house, right? You just see a little problem until you begin to dig and then the rot seems endless. Endless.
The GEAM Trust Enhanced Trust fund's assets primarily come from GE's pension trust and other GE employee benefit plans, Barron's said.
Gee thanks! It may explain why GE isn't stepping up. Most of the money is employees.
Business & Financial News, Breaking US & International News | Reuters.com
"The GEAM Trust Enhanced Trust fund's assets primarily come from GE's pension trust and other GE employee benefit plans"
There has to be critical consideration as to why they chose not to make it whole.
I'll take exception to the idea that GE is the best run company on the planet.
If you back out the massive pension gains GE racked up over the last 10 years of Welch's reign, the earnings record doesn't look nearly as good.
GE has been a well-run company by giant company standards, and like Exxon has done a very good job of using its capital to increase per share value rather than total size, but best-run company on the planet covers a lot of territory and it'll be awfully interesting to see how GE's enormous financial services unit holds up through this credit crunch.
This is the first time that I can remember a money market fund (albeit enhanced) breaks the buck. I have always thought companies try their very best not to do this...now they are unwinding their position to yield zero (or does this mean 0 return of funds or 0 yield on funds held?).
From the cnbc article: The fund holds cash from outside investors, the General Electric pension fund and other GE employee benefit plans.
Are GE employees the next Enron employees? Big morale booster.
That's a possibility I did not consider; it's just employee money, so who cares?
In the e-mail, GE Asset Management said the fund has sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist.
Hard to imagine how to say "take your money out now" more clearly.
Which quote do you think jack would bust out for this situation?
An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.
Jack Welch
Be candid with everyone.
Jack Welch
Change before you have to.
Jack Welch
Control your own destiny or someone else will.
Jack Welch
Face reality as it is, not as it was or as you wish it to be.
Jack Welch
We've only been wealthy in this country for 70 years. Who said we ought to have all this? Is it ordained?
Jack Welch
And since this is a blog
I was afraid of the internet... because I couldn't type.
Jack Welch
The only way I can think of that would be clearer and more concise would be to just scream : PANIC!!!
Actually, re-reading that quote, there is another possibility. $0.96 is for "non-GE subscribers"; so maybe they have something more friendly in mind for members of the family.
"based on our belief that recent extreme conditions in the credit markets, including liquidity concerns and value dislocations, will continue in the foreseeable future."
well if GE feels this way, who am i to disagree?!!
for that matter, who the hell is Wall St to disagree?!!!
In the e-mail, GE Asset Management said the fund has "sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) but there can be no assurance that this will continue to be the case at any point in the future as the difficulties in this market persist."
Here is the cnbc link
4% haircut on $5B.. so $200MM out the window. Some investors will be ticked, but its not the end of the world.
When they hand you back your 96-cents (all $B or $multi-MM of it)... where do you deposit the check to avoid another haircut ? (because you certainly are not getting FDIC coverage on $1B unless you have immediate family members from here to Katmandu)
Excellent point Nemo...
If that were ever to happen you would see a national panic. It would be like a run on all the banks at once.
Yeah and all of these damn banks would be nationalized. Maybe that would be the best way to put an end to this crap. It would create it's own problems but I'm not sure it could get much worse then what we already have.
GE employees and retirees is no laughing matter. Despite Neutron Jack's housecleaning, a heck of a lot of them ended up with their savings under GE Capital's control. This ain't no Enron, which bad as it was, did show signs of containment; if things are bad under the woodwork there, then Katie bar the door.
What about the possibility that GE employees can't redeem; and they are letting non-GE investors out to prevent further litigation? GE employees' investments would be shifted but not saved, as I would guess they have less rights due to their benefit status.
Quite the story, GE. Maybe you should clarify that crap a little bit.
If the bulk of the assets were employee money, then this creates two potential outcomes.
1.) If the money was DB, they can balance it against earnings elsewhere (hopefully)
2.) But if the fund was used in a 401k plan, managed by GE, for GE employees, and still lost money....helloooooo ERISA lawsuit.
12th percentile, thanks for giving 110%.
ajw, to the annoyance of many I went on a spree posting here last may or june about my 401k . . . which had nothing safer than astable asset fund . . . that was invested in mortgage backed securities, etc.
I cashed out and ran to an IRA and put all in a 5.35% FDIC insured CD. I'm glad I did. This is exactly what I was afraid of.
and from the Barron's article
GE's pension and benefit plans could suffer additional losses in the fund as more securities are liquidated. It's unclear whether GE Asset Management plans to wind down the fund.
Looks like it isn't clear to Bary either.
Gary, I did a similar thing with my IRA, moving into the TSY money market fund (some other positions, but 50% cash). There is no reason on earth for anyone to accept credit risk in this environment, of any kind. I think until very recently the entire industry forgot that there was any risk in structured securities besides prepayment/convexity risk - the notion of credit risk creeping into the "AAA" picture was rarely or never factored into the analysis most of these firms have done up to now, as we are all about to find out.
Off to the new thread upstairs. Here Banker! Come on, boy!
That is cold young Jedi...funny, but cold...
I've been on hold w/ a TD Ameritrade broker for the last eon, in hopes of switching an IRA MM for a family member to a treasury fund MM.
Said family member called and tried to switch the fund from one to the other, only to be told "you're already in the treasury fund." Absolute BS. When dealing with small/ignorant investors, brokers get away with bloody murder.
The bales of dicey paper in the TDAM fund:
http://tinyurl.com/2lcmdj
All I needed to see what Sigma Finance. No thanks!
Let the tidal wave begin.
12th percentile, thanks for giving 110%.
Actually, in the spirt of the day I was only giving 96%.
OT of sorts:
Everything was supposed to be different in the post-Enron era. So why, asks Fortune's Bethany McLean, does it feel like someone hit rewind?
pretty good article for a MSM Financial writer: maybe she didn't get the memo
The Bulldog: It's Enron all over again - Nov. 14, 2007
ajw,
I think we got ERISA problems a brewin' not only at GE but also the big 3 auto.
ERISA is another land mine in the path of these companies who have been cramming money from pension funds into these now toxic but once AAA assets. I gotta review ERISA rules again, but that pension money cash cow has just morphed into a tar baby.
Cheers,
It's about time Banker, I've been waiting nearly an hour for that!
Yeah and all of these damn banks would be nationalized. Maybe that would be the best way to put an end to this crap.
Are you sure? Then we'd have Shumer & Dodd in charge of the banks...
That should have read:
"All I needed to see WAS Sigma Finance."
Looking for a good blog comment copy-editor: No pay, lots of screaming criticism, payment in Spinal Tap concert tickets, contact Nigel @ Intravenous DeMilo Productions.
CR, thanks. Economics is third on my interest list behind politics and and transportation policy, yet this is my favorite blog in all the tubez.
"Are you sure? Then we'd have Shumer & Dodd in charge of the banks..."
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money.
Let's be clear here. This was not a money market fund. Money Market funds have SEC guidelines (Rule 2a-7)that are more restrictive than Enhanced Cash funds. While some money market funds definitely have issues at the moment, the parent companies have bailed them out so far - WB/Evergreen, CSFB, BAC/Columbia, Legg Mason, SEI.
====================================
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money.
I'll take bankers. At least you know who to put in jail or in extremis.... nahhh that's not my scene.
-K
Misean, I think there are huge ERISA problems brewing, but am less sure they'll be coming from corporate plans. As the Bloomberg article on Florida pointed out (you have to scroll down pretty far), there are many municipalities that have exposure to this stuff. What happens when this starts to hit their bond ratings? Higher borrowing costs + rising numbers of retirees = taxpayer revolt. Not fun.
Since you mentioned the big 3 automakers, something I haven't seen mentioned elsewhere is the fact that these VEBA trusts being set up (where the unions effectively take over a company-funded trust) are bulking up the institutional heft of labor. For context, the entire union pension market at the moment is around $400 billion. Add a bunch of these multi-billion dollar VEBAs, as the steel, auto and other industries are thinking about doing, and all of a sudden labor could become a huge owner of...capital. Rather ironic, no?
Sorry for the diversion, just trying to think this through.
While some money market funds definitely have issues at the moment, the parent companies have bailed them out so far
Key word = so far.
ajw,
As ESOP before so VEBA now, it seems. I think the unions are going along with the "here, hold this for a minute" just because they think it will keep them in the game a little longer. It didn't work too well with the ESOP's for the most part. The VEBA's are also funded with a lot of promises to pay, especially, if I understand right, company stock. Good luck paying the doctor's bills with GM stock.
I have but two words for you : therapy.
Hey, never say never, right? It's a small list of guarantees in life....
ajw,
Read the article earlier. Problem with state funds is they are exempt of SEC filings, which means (I'm not sure if they're ERISA exempt...but) that they won't get tagged on an accrual basis like private funds. Sure they may be under water, but pensions are always a nice place to hide future shortfalls. See Socialist Insecurity et. al.
Cheers,
"...all non-GE subscribers..."
The notion that they would treat different groups of owners of the same fund differently is beyond the pale. Can't happen. Their butts would be in court before the Sun set that night.
Spec,
"This was not a money market fund. "
Yeah but it was falsely suggested like this:
GE "Well it's just like a MM because 'it seeks to provide a slightly higher yield than a money-market fund while preserving principal and maintaining an asset value of $1 per share.'"
So they sold it as if it were as safe as an MM even though it wasn't, to yield thirsty investors looking for more than an inflation losing 2% or so. Hmmm...Caveot Emptor...I believe in it, but desperation to bring in yield seems to have blown this warning out of the water. Not that I'm defending slime balls who make false claims...but due diligence is a two way street.
Cheers,
"4ward: Well when I discovered that my TIAA money market fund was 80% invested in commercial paper I moved the money to bank savings accounts insured by the FDIC."
James | 11.14.07 - 7:02 pm | #
Moved 100% of mine to the 5.25% (yield is until 3/1/08)Fixed Annuity (i.e. I must be in good company 170 Billion there).
wally,
"The notion that they would treat different groups of owners of the same fund differently is beyond the pale."
They aren't. The point is that the employees pension money is "managed" and the manager has to pull the money out. Non GE investors can do so at a whim. I'm pretty sure, if I'm reading this right...and I think I am.
Cheers,
Disclaimer for GE 401(k) MM fund :
"An investment in the S&S Money Market Fund is neither insured nor guaranteed by any government agency and no assurance can be given that it will be able to maintain a stable net asset value of $10 per share. It is possible to lose money by investing in this fund or any other investment option. "
Misean,
I couldn't agree more. The selling of low vol/enhanced cash to compete with money markets was an active strategy. Same strategy also pushed money markets into seeking higher yields in securities that they are allowed to purchase. I'm sure we'll be following the lawsuits for years to come.
"...where do you deposit the check to avoid another haircut ? "
I heard Countrywide Bank is paying nice returns these days...
In case anyone is curious - Futures flat. Surprising. It's already priced in? LOL!!
NCJim,
I'm sure you're right. The point is how the info is diseminated to the customer. Not excusing people for not reading the small print.
Nuff said.
Cheers,
Spec,
Oh yeah. This is old news. There were supposed MM blow ups over the summer. I was sure at the time that this was not a rare incident.
Cheers,
What, you mean the tuna salad sandwich in this lunch that I got for free has melamine filler in it?
[Fido]"I heard Countrywide Bank is paying nice returns these days..."
Fido? . . . is that you Banker?
http://72.14.253.104/search?q=cache:3IyCKZ-1ujgJ:www.ici.org/home/mm_11_01_07.html+money+market+funds%2Btotal+assets&hl=en&ct=clnk&cd=2&gl=us
My summation of this seems to have disappeared, so I will put up the link. Are these numbers wrong?
Drudge has a link to this story now.
GE asset management has a white paper on Subprime this spring.
Here is the link: GE Asset Management: Institutional Investing | US Home
Here is a couple of quotes:
"We feel the negative effects will be contained"
"money market and enhanced cash funds . . . should be protected from principal losses"
Misean, excellent catch re:applicability of ERISA to public plans (not applicable since it technically only applies to corporate DB plans). I still think public finances in general, and munis in particular, will be in the next wave of merde to hit the market, and it's a coin toss whether they or CRE (per Roubini today) hit first.
"I must be in good company 170 Billion there."
Haaahaaahaaa
J Bridges wrote:
I've been on hold w/ a TD Ameritrade broker for the last eon, in hopes of switching an IRA MM for a family member to a treasury fund MM.
You can buy the Vanguard Treasury Only MMF from within your TDA account (not all brokers allow this--e.g. E-Trade doesn't, and I don't think Fidelity does either). Buy VUSXX if $50K or above, or VMPXX below. Admiral shares have expense ratio of .10%, lowest by far in the industry, which give it the highest yield.
UBS supposed to report a 7 bn write off due to subprime..
Subprime Hits Likely to Keep Coming - WSJ.com
Wall Street's money machine breaks down
This story is a must read.
Thanks, R.
I'll look into the fund(s). TDAM gave The Reserve (as you know, the company that basically created MM accounts in the 70s) the boot recently...presumably, to generate more fees for the in-house funds. I preferred the way The Reserve runs their MM funds, but your work-around through Vanguard makes a lot of sense. Thanks again,
JDB
For anyone who has money in TDAM's plain MM fund Class A, I would advise finding another place to park your cash...way too much ABS, and questionable CP in it for my taste.
Novastar says bankruptcy possible after $598 million quarterly loss
"...The company reported that its cash balances were down to $51.5 million, a decline of $99 million from the end of last year. More significantly, it said that future borrowings are at the sole discretion of its remaining lender, Wachovia Bank, and there can be no assurance that Wachovia will provide additional advances to the company..."
drudge has also picked up the db case that tanta wrote about yesterday.
U guys kill me sometimes...
Buy treasuries direct at auction...
t-bills ,noteas or bonds,
it's so friggin easy.. and safe... if that market blows, then go to your $10 farmers alamnac and pray for rain.
Is UBS trying to get a pop in their stock? In the old days companies would announce a stock buyback, a stock split, or a dividend increase to get a pop in the stock price. Nowadays they announce a writeoff to get a "pop".
WAG
dotcommunist,
Good article. I can summarize in in one of the oldest Wall Street sayings:
"Genius is leverage in a bull market"
oy vey wrote:
Buy treasuries direct at auction.
Ok, but at a loss in liquidity. What do you do if you want to move the money into something else? A lot more hassle than selling Treasury only MMF shares and buying something else.
ajm,
Yes of course I think there are problems there. Some of the m BIG...OC Bankruptcy comes to mind...I just wanted to point out that there are different filing requirements.
Cheers,
The GE Enhanced fund was not a money market fund. It was not advertised as a money market fund because it was not advertised. I got into it years ago from a friend who's relative was a GE employee.
I thought it was clear that it wasn't a money market fund when I got into it.
GMAC also has one that's called Demand Notes that's not advertised and was mainly for employees but did let non-employees in for a while. I'd be looking at that if you already haven't.
Oy Vey - Most here would probably agree with the idea of buying through TD. Problem is, that's not usually doable through 401-k's, 403-b's, IRA's, etc. Unfortunately, those programs are where most people have their savings from work, and are generally strictly limited to in-program offerings.
dotcommunist,
Read it this morning.
Of note:
"n February international bank HSBC suffered big losses on its subprime portfolio, sending tremors through the market. Under normal circumstances, such worries would have led to higher interest rates on subprime mortgage bonds. But these were not normal times. Instead of rising, rates on subprime mortgage bonds remained abnormally low until the summer of 2007, and in some months even dropped below 2006 levels.
What was going on? Instead of backing away from subprime paper, Merrill Lynch and other big players were gobbling all they could, because they needed it to feed their CDOs. Their bottomless appetite for the stuff kept prices high and yields low, against all economic logic. "What we had was a perpetual-motion machine driving mortgage prices to uneconomic levels of risk vs. reward," says Friedberg. "
And broke alcoholics gobble all the free booze they can while it's flowing.
Seriously though, they knew this was uneconomical but kept at it. This is why they want the M-bLECh Super Sewer. They need to puke but don't want to do it in their house.
Cheers,
If GE is the only MMF that breaks the buck, it's terrible for them.
If they are one of about 4-5, it's still bad.
But if they are one of dozens, so what? It's better to be first, because everyone will forget you shortly.
I think GE figured they will be first of many.
VennData,
Not questioning you to be a jerk, but the article does say this:
"In the e-mail, GE Asset Management said the fund has "sufficient liquidity to redeem all non-GE subscribers at the current net asset value (.96) ..."
and this:
"The GE fund, totaling $5 billion, is an "enhanced" cash fund, meaning it seeks to provide a slightly higher yield than a money-market fund while preserving principal and maintaining an asset value of $1 per share."
So maybe they didn't "advertise" it but they sure made some misleading statements about it...if the article is acurate.
Cheers,
rich,
"But if they are one of dozens, so what? It's better to be first, because everyone will forget you shortly."
Unless it has that ERISA stink to it. Many MM's don't have to worry about parking there employees pension money in a defunct safe fund.
Just a thought.
Cheers,
A lot more hassle than selling Treasury only MMF shares and buying something else.
R | 11.14.07 - 9:34 pm | #
i tihnk a few here will see the fallacy in that statement...
Entrepreneur,
i agree and have found that a lot when people ask. I think it's a HUGE problem , that our top2000 companies shackle the sheeple to the shed.
Misean,
A big trend in ERISA has been to put in IPS's, Investment Policy Statements. They say something like this: "We will invest in debt instruments rated triple-A by at least two ratings agencies (and money market equivalent ratings).
You have it on file. Check. Check. Participants can sue, but in court it's a short story.
There will be ERISA fiduciaries who go down the drain shortly. But not over money market funds.
Huh,
All the non-GE folks are out already huh? Huh. Looks like this just became old news. Very weird. I wonder what the GE employees are doing/saying now. Isn't the Mothership free to do pretty much anything it wants to keep the shareholders (all GE employees now) whole without any public disclosure? If that was the goal and...wait a minute...[places tinfoil hat firmly upon head] was the intent to drive out the non-GE guys so they could do something like that? I have no idea what kind of litigation they may have opened themselves to if that was the case.
Did I read this here or over on Brad Delong's Blog: Quote attributed to Will Rogers: " Sometimes the return of your money is more important than the return on your money"
rich,
I understand that. My point, and it has been unclear, is that the pension funds are starting to have the stink of ERISA wafting up from the basement. Further...and I have done no research today, but, this fund is not an MMF, but has pension money in it. Is that a problem...I dunno...but it smells like teen spirit.
"We will invest in debt instruments rated triple-A by at least two ratings agencies (and money market equivalent ratings). "
And THAT is my point exactly. If they have sludge in the portfolio, then the ERISA stink become legion. It's why I'm so interested in watching it.
Cheers,
Who would you rather have rip you off, the government that already is or a bunch of greedy bankers that destroys inocent peoples lives and savings and walks away with a pile of money
Please spend some time on opensecrets.org and look at the top campaign contributors to Sens Schumer and Dodd. I believe you will come away enlightened.
Banker, "places tinfoil hat firmly upon head] was the intent to drive out the non-GE guys so they could do something like that? I have no idea what kind of litigation they may have opened themselves to if that was the case."
And that's the big question. And there's simply not enough data available to know. But I fear that might be the case, and they are trying to bury things and extend them out as long as FASB and Fed rules allow, which I think is 3 years. Correct me if I'm wrong.
I need to change my batteries...
Cheers,
Sorry Misean,
I read through the ERISA/PBGC statutes and regs in my early twenties and almost didn't recover. I haven't any idea.
Banker,
I had to debate them in NDT style format and the memory makes my head hurt. Still, I will look at them this weekend and see if I'm on target. I think I am, but it's been a while since I looked at the actual text of that convoluted pile of horse poo poo.
I think we can agree though that the fund managers wouldn't object to this being their theme song:
YouTube -
Cheers,
Misean,
As long as they're not doing this
YouTube - Breaking The Law-Judas Priest
Lehman, Bear Stearns are on the auction block. Are we surprised?
Lehman, Bear Stearns Are Ripe for European Offers: Matthew Lynn - Bloomberg.com
Banker,
Yes of course...but if they are/were then we need to do this:
YouTube - Iron Maiden: Run to the Hills
Cheers,
Dotcommunist,
In that article, you could replace all the nouns and describe the managed mutual funds industry...another fee machine.
mp,
Lehman, Bear Stearns are on the auction block. Are we surprised?
That's simply not what the article says. Being on the auction block means they are seeking a buyer. What the article argues is the the major international banks SHOULD be considering approaching the US I-Banks.
Bad conjure bag, bad!
t-bills ,noteas or bonds,
it's so friggin easy.. and safe... if that market blows, then go to your $10 farmers alamnac and pray for rain.
t-bonds aren't safe -- they can have huge price volatility due to their sensitivity to interest rates. ask anyone who bought t-bonds in the 70s about that.
t-bills are about as safe as it gets for USD denominated securities
There are some serious youtube freaks in this room
Conjure bag,
Do you think swallowing a nigh on to defunct IB called Bear Stearns buy a European bank would be a good idea?
I mean try this:
YouTube -
Cheers,
Banker, face it, Bear Stearns is going down. At $14 billion market, it is on the auction block, especially if you're holding a some excess euros. Conjure thinks they're going down for the Chinese. Any CEO who says that his main mission now is to 'preserve the franchise' is really saying 'I'm busting my ass to stay in business.'
I said it months ago, and am sure you remember when I said it. Bear Stearns is going down.
ac, i think you got my point , that it's pointless to pay some guy in his fendi flip flops 30bps
MP,
You can say whatever you like. It isn't what the article says. If you're saying that someday BSC will no longer be independent? Big whoop. I agree. Of course people have been saying that about BSC and Lehman every few years since I started in 1985.
Misean- Do you think swallowing a nigh on to defunct IB called Bear Stearns buy a European bank would be a good idea?
It depends on the deal. It always depends on the deal. It depends on how far Bear Stearns is willing to bend over and my guess is they're ready.
Sorry if this was already posted:
Florida Holds $2.2 Billion of Debt Cut to Junk Status (Update7) - Bloomberg.com
Florida (and where there is one..) holds $2b of debt now rated by agencies as junk or default. The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
UBS another $7B, MER another $10B Barclay's $3B more... it's amazing. They are busy de-sensitizing Wall St with dizzying sums so now no one is expected to blink. We haven't even seen the home price declines yet. The borrowers collectively didn't have a fraction of this much in assets. What a remarkable ponzi and amazingly, they managed to trap themselves in their own schemes.
Solvency has to be in question now for some of these loser institutions. Couldn't happen to a more deserving group.
"Please spend some time on opensecrets.org and look at the top campaign contributors to Sens Schumer and Dodd. I believe you will come away enlightened."
I'm already enlightened, our government is bought and paid for by big business and has been for years no secret there.
Markets poised for severe fall, says King
By Edmund Conway, Economics Editor
Last Updated: 12:42am GMT 15/11/2007
Mervyn King's warning came as the Bank gave a firm indication that it plans to cut interest rates
The Bank of England Governor has issued an extremely unusual warning on world stock markets, indicating that shares may be heading for a major fall.
Mervyn King said the full impact of the credit crunch had not yet been felt on equity markets in the West and in developing countries, saying that the possibility of share price falls were one of the biggest risks facing the world economy.
His warning came as the Bank gave a firm indication that it plans to cut interest rates as many as three times over the next two years to protect Britain's economy in the wake of the credit crunch. The signal caused the pound to drop to a four-year low against the euro, with the single currency now worth 71.13p.
"It is very striking that despite the developments we've seen in the last three months , despite the stresses and strains in the banking sector , equity prices are higher now than they were in August," he said, unveiling the Bank's Inflation Report, which said the strength of share prices had been "surprising".
advertisementHe added: "This is true around the world, and in emerging markets they're 20pc higher. There must be some downside risks there.
"drudge has also picked up the db case that tanta wrote about yesterday"
REally...!
"Markets poised for severe fall, says King"
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/11/15/cnking115.xml\t
OT, but why on the one hand do we have the US government officials, Bernanke Palson etc telling us that there is nothing to worry at all, and BoE Govenor King telling us to be afraid. Are the US officials natural born liars?
Are the US officials natural born liars?
Silly you
cranedata.us reports that Reuters incorrectly reported this as a money market fund, when it's actually an enhanced cash fund.
Crash coming. All the signs are there.
I know nothing...
when it's actually an enhanced cash fund
That's because it enhances the speed of the lose no doubt.
This is an exceptional blog and the comments are the best I have come across on the internet. I have learned a lot. I can't believe after the day is done, I sit down to have a beer, and read an economics and finance blog. But I do.
For years now I have had a very serious fin de siecle feeling.
It really sucks being the only one seeing a serious reckoning coming. It is very comforting that others are concerned.
Red Pill,
Just for you
YouTube - Monty Python's - Life of Brian (unique)
UBS may take $7.1 billion charge (Sorry, I've been out dicking w/FedEx/Kinkos where a total of 9 people 'assisted' me but I still copied my 347 FDIC litigation documents at the self serve copier. Not sure if this has been posted yet)
UBS, Barclays to take multibillion write-downs: Report - Nov. 14, 2007
They should put Scott Peterson and Eric Rudolph in the same cell.
I have all life savings in GE's money market fund, not this other "enhanced cash fund"...so I dug into the newswires after I saw this. Looks like I'm okay for now. I thought I was so smart for getting out of stocks a few months ago. I guess I should just hide my money under a mattress.
"I guess I should just hide my money under a mattress."
Conjure recommends a Money Bin. One can always swim in it like Scrooge McDuck when one lacks for something better to do with one's time.
It really sucks being the only one seeing a serious reckoning coming. It is very comforting that others are concerned.
Red Pill | 11.14.07 - 11:18 pm | #
My thoughts were running along the same lines. Hopefully, for everyone else it is just due to my emotional makeup and not reality. I am becoming more dysfunctional in certain areas of my life.
I am becoming more dysfunctional in certain areas of my life.
tg
in that case, go to the velcro'ed depends, the zippered ones are just to dangerous
"I am becoming more dysfunctional in certain areas of my life."
You folks take this crap too seriously. After all, it's only money.
Conjure points out that people aren't as accepting as they used to be. He says, "If the people who run this country genuinely screw it up, their heads would be on pikes within a fortnight and they know it."
You guys are making me laugh a lot. If I could see one big shot's head on a pike on CNBC, it would make my day.
So who is holding all the AA and lower ABS? If the IBs held all the super-senior tranches, who bought the crap? And why haven't we seen those announcements yet?
And why are the ABX 07-1 BBB- tranches holding at .18? Why aren't they near zero? Seems to be mispricing if AA is .47 and BBB- is at .18.
"If I could see one big shot's head on a pike on CNBC, it would make my day."
Conjure says, "Quod erat demonstrandum."
Conjure recommends a Money Bin. One can always swim in it like Scrooge McDuck when one lacks for something better to do with one's time.
Obviously Conjure has never needed to have an impacted centime removed due to an unfortunate Euro-quake accident.
mp,
Has CB ever considered an autobiography? I'd like to place an order for a signed first edition!
Robert, Conjure gave up on the French when Napoleon took over.
tj, Conjure basks in his anonymity and the fact that he can move freely in our midst because he looks just like any other conjure bag.
GE's fund is slightly different because it is an enhanced cash fund and therefore took on more risk and did not promise to preserve what was invested, a GE spokesman said.
I don't know of any MM fund that "promises" to preserve what was invested, do you?
Banker,
Mastiffs? Nice! I favor shepherds myself.
mp,
Too bad. I envisioned a cross between "Highlander" and "Confessions of a Dangerous Mind".
I am amazed that in the carnage the Chinese don't demand to be let in. They in a way already control us financially, so why should they not own all or big chunks of our finance firms? This is their big chance to put those dollars they are hoarding to work.
I have all life savings in GE's money market fund,
Can you find out what its MM fund is invested in? Or better not to do so?
We tend to overestimate the Chinese just like we overestimated the Russians and the Japanese. While the West is no paragon of virtue, our institutions will hold up much better over time. Hell, by now CR and Tanta would long have been toiling in some prison camp for having this insightful of a blog in China.
They in a way already control us financially, so why should they not own all or big chunks of our finance firms?
Wouldn't THAT go over well in Congress!
For years now I have had a very serious fin de siecle feeling.
Hey take a look at the calendar and get with it. You need a "debut de siecle" feeling now. Does that help?
Wouldn't THAT go over well in Congress!
Well things might get to the point where Congress would have nothing to say about it.
w- "Hell, by now CR and Tanta would long have been toiling in some prison camp for having this insightful of a blog in China."
Conjure says he agrees, but is reminded of something he claims Frederick the Great once said to him: "You can say anything you like, so long as you do what you're told."
With that, Conjure and I bid all a good night, morning, afternoon, or evening, depending on your location. We are off in search of hot girls, hot cars, and some Amish garden furniture.
"Wouldn't THAT go over well in Congress!"
After a couple of rounds of campaign donations, you bet.
Banker,
I love Life of Brian.
For years now I have had a very serious fin de siecle feeling.
Hey take a look at the calendar and get with it. You need a "debut de siecle" feeling now. Does that help?
James | 11.15.07 - 12:40 am | #
Yea, yea. The "fin de siecle" period is historically defined from about 1890 to just before WWI, so there is some flexibility.
I like the wikipedia description:
"In a broader sense the expression fin de siècle is used to characterise anything that has an ominous mixture of opulence and/or decadence, combined with a shared prospect of unavoidable radical change or some approaching "end.""
Stock markets still living in la la land. "Adjustment" on the horizon:
Markets poised for severe fall, says King - Telegraph
Form 8-K for COAST FINANCIAL HOLDINGS INC.
Expired
Is the Gulf about to abandon the dollar peg:
Dollar dives on fears Gulf will abandon link - Telegraph
Paulson will be flying to England to shut blabber mouth King up. Condi may go with him. My 82 year old mom told me this and she is always right like Tanta.
Nikkei took a late dive, down 100. The "rollercoaster" analogy is very apt these days.
Very odd of Citi to raise money on a long-term basis I thought. In the midst of the uncertainty of a CEO search? Ofd course you're gonna get killed. T+190, wow.
Citigroup Punished in 1st Bond Sale Since Writedowns (Update4) - Bloomberg.com
I'm now glad I stayed up late to read this one! Gretchen Morgenson does her thang on Deutsche Bank and the recent adverse Ohio foreclosure ruling. Bring it on Gretch! Somebody wake me up early if Tanta goes on a writing binge over it. God love her.
Foreclosures Hit a Snag For Lenders - NY Times
Misean,
I had forgotten just how badly Iron Maiden sucked. Thanks for bringing it all back.
Cheers,
prat
We tend to overestimate the Chinese
Agreed. Which is why I took my first short position ever against the Hang Seng. (That's right, despite all the bear talk, I'm a sissy long-and-indexed like the rest of the chumps.)
Cheers,
prat
Speaking of the fin de siecle feeling:
Mukesh Ambani, scion of the Indian family worth $63B (Reliance Industries), is building the world's largest private residence. It is "a 60-story glass tower in Mumbai, complete with hanging gardens, a staff of 600, and six parking floors with room for 168 cars." (quote is from The Week 11/9/07)
Sounds very Rothchild, doesn't it?
James, this is just the warm up act. The Chinese will tighten their grip in all due time, but in an indirect manner. They don't want to run the US, just keep us out of their hair.
At times I wonder if they'll do something spectacular like use their reserves to "buy" all the foreign (read US) owned plants in China, then let the yuan sky (or dollar plummet depending one's perspective). It wouldn't sounds as mean as nationalization. Depending on how they use appraised, tax, or book value they could even be "nice" about it. The repatriation of all those dollars would cause loads of inflation here though. That would of course be too brutal, simple, and easy. I expect something a bit more subtle.
The money market crisis is back. No offers on USD.
Jim Rogers calls Bernanke a "total fool":
Jim Rogers Urges People to Sell U.S. Dollar Holdings (Update1) - Bloomberg.com
UBS may take $7.1 billion charge
Made it happe
FFDIC,
Sounds like First Banks made a smart move buying Coast, eh?
My prediction: A test of the August lows of about 12700 on the DOW and then a end of year stock market rally, lead by tech and foreign stocks. Homebuilders have just had their bounce, so they may start stalling out and going down.
tj & b,
That mix with a dash of 'Candide?'
[Rogers, who predicted the start of the global commodities rally in 1999, criticized Federal Reserve Chairman Ben S. Bernanke for comments on the currency before a congressional committee on Nov. 8.
He is a total fool,'' Rogers said.He said Americans who buy only American goods are not affected if the value of the U.S. dollar goes down. I was terrified.''
Bernanke said the only effect of a weaker dollar on a typical American with their wealth in dollars, buying consumer goods in dollars, would be ``their buying powers, it makes imported goods more expensive.''
Rogers said that's not right.
If you only buy American products and the dollar goes down, the price of oil goes up, copper goes up, wheat goes up,'' he said.That affects you. He doesn't understand the economy as far as I can see.']
That really was a stunning revelation. I was shocked Paul let Ben get away with that "clarification". Is it really possible that Ben truly believes this. No wonder he likes "core". It excludes anything he has no direct influence over.
The follow-up report that all non-GE participants have settled for .96 sense on the dollar is hard to believe. I would have thought that somebody somewhere hasn't gotten around to opening his mail recently. Perhaps the number of participants outside GE was very small.
Stagflationary Mark, you make such nice charts. Can you show DSL's parabolic increases in NPA over the past year? They have been kind enough to share the data!
Expired
"Neutron Jack" Welch would be proud! If hosing the employees wasn't enough, now GE can be in the business of hosing customers as well!
The hits keep coming fast and furious. Better lower rates and trash the dollar since that always helps! Hahaha...
" It is "a 60-story glass tower in Mumbai, complete with hanging gardens, a staff of 600, and six parking floors with room for 168 cars." (quote is from The Week 11/9/07)
Sounds very Rothchild, doesn't it?
unirealist,
Sounds to me more like a condo unit, but a nice one at that!
The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
Ha! Sounds like my mother presiding over her annual garage sale and refusing to dicker over her priceless cracked lava lamp.
Jack Bogle on CNBC today, 8-9AM EST
Florida (and where there is one..) holds $2b of debt now rated by agencies as junk or default. The interesting part is the rather feeble statement that they refuse to sell it (or value it) at "98 cents on the dollar" because "it is worth more" (even though nobody will quote them a price).
Boy am I waiting for that shoe to drop. I fired off that link to the editor of the local paper last night.
Assuming that the participants expected to make, say 3% return, and they are now down 2%, that would produce a net shortfall of 5%. If the county or school system doesn't have a spare 5% in the budget (and most don't) then they have to start looking for places to chop until next year rolls around. They can't cut teacher's salaries as most of them are on contract. So where ?
Ray- "They can't cut teacher's salaries as most of them are on contract. So where ?"
Science and math programs. If they cut sports, their heads would end up on pikes.
Jimmy Rogers thinks everyone in the world is a total fool. Nothing new there.
"Jimmy Rogers thinks everyone in the world is a total fool. Nothing new there."
What ol Jimmy forgot to mention is that the so-called educated Americans accountants, doctors, economists, engineers, lawyers, etc. are BRED to be dupes when it comes to economics and politics. These dupes don't understand such a simple thing as DEBT.
The net result is that Corporate Crooks of America, Bankrupters and Fraudsters of New York City, and Fraudulent Reserve System, working in concert, comprise the greatest criminal organizations in human history. There simple crime? Pushing Debt on the public. How is a born-and-bred American dupe to know what is Pushing Debt and what is normal borrowing and lending? That is why brainwashing is indispensable to rule over a population. The collapse of American econo-political system is guaranteed. The only question is: Is it 10, or20, 0r 25 years away.
It IS the Debt, Stupid!
Jas
--
Credit is the life-blood of the capitalistic system.
America's Crooks have tainted the economic blood-supply of the whole world economy. Nothing less was expected of BFNYC. One could count on them.
Jas
Red Pill:
Never mind James!
I get it: bad is happening and getting worse. How we cannot yet say, for the future is not ours to see nor Doris Day's, just Tant - uh, Cassandra's!
Isn't that why we keep coming back?
James:
Très drôle!
Re: "non-GE subscribers"
My guess, and I'm no expert, is that what they are saying is that the 96% deal is for outside investors in the fund, not for say other divisions of GE. I imagine that would include their pension fund, but it is just a guess.
The mention of having enough liquidity to cover non-GE explains it. They think they can sell enough (or maybe they even already have sold enough at 96.2% or something like that), right now, to get 96% for any outside investor who wants out, but act fast. With internal GE fund owners they will have more wiggle room and can more easily phrase the deal in a squishier "we will get as much as we can as fast as we can" kind of way.
and people wonder why the price of gold rises...