"And the fund will not distinguish between the assets it buys from each SIV; instead, it will assign the same risk level to all their troubled securities."
This line is still hurting my brain this morning. I hope this BS comes back to hurt someone other than taxpayers.
Of course, participants have been overly optimistic about their previous efforts, only to see them struggle to take flight. The backup fund still needs the blessing of the major credit rating agencies. A fee structure from 75 to 100 basis points, higher than initially proposed, is also being worked out. And several crucial tax, legal and regulatory issues await approval.
NYT Countrywide story allows the "new cruelty" position to sneak in this morning: this whole breakdown is all the fault of those damn minorities and their lobbying groups (ACORN).
This is clearly part of the new Republican talking points, blame the mortgage crises on the lefties.
These big banks are supposed to be the champions (not the poster children) of market-based economies, and here they are desperately trying to avoid letting the market determine the value of the assets they hold.
In the future, the creation of this fund will forever be known as the HiMLEC maneuver.
e.g.
In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver.
"Now, apparently, the Super Fund will buy anything"
And they actually believe true 3rd party investors are going to buy this crap do they...
-Contempt
-Arrogance
-Indifference
-Deceit
All these descriptors pop into mind when thinking about their undeterred persistence to try and cover up fraud and greed by an elitist inner circle bent on fleecing the public.
Disgusting, every part of this whole scam..disgusting. I want their heads behind bars.
What kind of bouquet would be appropriate,and where do i send it? since it appears the death is scheduled for january it may be difficult to find something locally grown.my first thought was Jimson weed and Amanita Muscaria,garnished with Humboldt gold in a handcrafted Yohimbe' bark vase?any suggestions?
Isn't this basically a version of the "bad bank" the Resolution Trust Corp. set up in the early 90s? They find some price that the assets can be sold and move on. The new SIV may end up being successful depending on the ultimate yield of the loans.
Who takes the writedown for the new marks on the asset?
From the article: "The banks could begin asking roughly 60 financial institutions to contribute to the fund by Friday or early next week."
That's a sales pitch I'd like to hear. I thought the reason for the Super SIV was because they couldn't sell this stuff. Now they think they can get a market price for a Neapolitan Sh¡t Sandwich because the individual flavors weren't appealing?
I see a danger in this new structure. Now that the fund has the same content as the reatined debt doesn't the sale of the Super SIV provide a market price? Doesn't that defeat the intent?
To get anybody to invest in this super SIV, the super siv has to buy the assets (the most toxic level 3 stuff) at mkt levels....how can that be done if nobody wants to buy it and there is no mkt for it?
This is a bailout by banks for banks to avoid putting this stuff on their balance sheets, because if the had to put it on their bal sh., they would be impaired big time!( to the point where somebody would be in jeopardy financially)
The elephant under the rug is stinking up the room so it's time to find a new room with a new rug to hide the elephant.
In the end is this just a manuever to sell the securities to yourself at full price so that you can go on pretending that they have some sort of value?
75 Billion divided by nothing = infinity. Sounds like they will be able to dump all the toxic waste into this fund (appropriately marked down to zero) and have room to spare.
I actually think that what is happening here has more to do with internal politics than anything else.This plan may well have worked if proposed and implemented 2-3 months earlier,but.some folks with influence proposed this sick puppy a bit too late,invested their political capital in it,and can not back off without admitting it is too late,and taking a perhaps job fatal hit to their reputation/clout.So they push on with any plausible justification they can come up with...Gallipoli anyone?
Don't the banks just borrow money from the taxpayers to fund the SIV, unload their junk, borrow money from the taxpayers to buy it back (at ten cents on the dollar) and then sell it again at 500% profit in the bond market when things improve.
So when no one steps up to order the 'Neopolitan' as Robert C. so artfully described it, is that the time we transition the single point of failure to a tax payer funded bail out?
There must be some feature of the new super-SIV fund that hasn't been talked about in the press, or else there would be no reason for anyone to invest invest in it.
For example, maybe this fund will buy assets with conditions attached, whereby the banks that own the SIVs agree to buy back the assets if they continue to fall in value. I've heard that Merrill Lynch is doing something similar to get assets off it's books.
I could also see how side-deals could be made with super-SIV investors, offering them access to other lucrative investments if they are willing to throw some money away on the super-SIV.
I can't believe that the fund is being structured ONLY according to the terms that the New York Times has mentioned. There is just no way anyone third party investors would fund it with those terms. If you really thought it was a great idea to buy distressed asset-backed paper why not just go and buy some yourself rather than buy a fund which will buy those same distressed assets for higher prices than you can get them yourself in the open market?
Anyway, I think the media is being kept in the dark about some of the terms of this new fund, likely because some of these features would stink to high heaven with accounting foolery.
You all are overly pessimistic. This is just extending Level 3 accounting through the next year. The US government does it all the time and we haven't imploded yet No one really expects the government to stand by and watch all the banks to fail, right? But again, if these are off balance sheet entities, who really owns these SIVs? Is it only the pension funds and money market accounts? And when they move the mess, are they going to have to lift the cover off, or can they just pretend they bought them back and put them on the books and pay off the original holders? It's just a matter of retaining confidence in our system. You know, a confidence game.
"I hope this BS comes back to hurt someone other than taxpayers."
You funny.
"In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver."
LMAO
"Disgusting, every part of this whole scam..disgusting. I want their heads behind bars."
You right, but line them up and shoot them, jail is for drug addicts.
I don't understand how the scheme can work.. let's assume the SIVs sell toxic waste to the MLEC at marks indicated by the ABX indices... which they may have to do to get auditors and rating agencies to sign off on the transactions. However , haven't they then established marks for the unsold assets that the numerous Conduits and SIVs hold , let alone the assets that pension funds / insurance companies / investment banks or hedge funds still hold ? Won't that cause the same fire sale flood of structured products that the Super SIV is supposed to slow down ? Conversely , if the assets sold to the MLEC fund are not severely marked to market consistent with the ABX indices , how could investors justify to their shareholders or other investors any purchases of MLEC CP ?
Hey there's nothing wrong with having a garbage can to put the trash in. And somebody has to take the trash out. But how exactly will they determine the price for this poo? Isn't the whole problem that there is no market for it? Does anyone seriously think that it will smell better next year? In 2009? There's something to be said for not dumping EVERYTHING on the market all at once, but if they'll take ANYTHING, they'd better be paying NOTHING for it.
The banks could begin asking roughly 60 financial institutions to contribute to the fund by Friday or early next week."
They better . When and if they do come out with a list of these 60 financial institutions if you have any money with any these clowns I would highly recommend you take your money out and run like hell.
Now that the fund has the same content as the reatined debt doesn't the sale of the Super SIV provide a market price? Doesn't that defeat the intent?
What do you assume the intent was?
AFAICT, the point of having liquidity is so that the junk (bonds) can be dispersed widely enough that the losses are socialized nationally and internationally, with and without the consent of the victims (respectively depending on whether favors will be returned or not).
Except as an example of human folly, M-LEC in all its guises to date appears to be a non-event whether the participants 'succeed' in getting it up and limping by December or not. I expect the big three banks and HP are deeply annoyed their plan became publicly known. They're caught in a trap of their own devise.
I presume the NYT piece is the obligatory announcement of 'victory' or the first of several such victorious proclamations. Emily Litella would be proud.
The MLEC could attract funds from ABCP-heavy money market funds. Their motivation will be to avoid having to "defend the buck" in the event of a widespread SIV default.
Of course, MMF's with little ABCP concentration will want no part of this. The question is whether Paulson can get them to cosmetically appear on the "list of interested parties".
Is it too late for the MLEC? We'll find out on Monday after this latest Friday PR offensive. If the financials don't get traction, and if credit spreads don't come in, then the emperor will really be stark naked.
I actually think that what is happening here has more to do with internal politics than anything else.
Possibly, but the ejections of Prince and O'Neal would have been perfect cover to drop the MLEC if someone was out on a limb.
I don't easily discount the power of groupthink, but the fact that 60+ banks employing thousands of nominally bright people are going along with this makes me think the participants believe this MLEC is in their interest somehow. Whether the interest they perceive is short-term (bonus season) or long-term (next bonus season) I don't know.
the fact that 60+ banks employing thousands of nominally bright people are going along with this makes me think the participants believe this MLEC is in their interest somehow
Three big banks who have been screwing the little guys for years discover they are SIV positive and go back to the little guys this one last time to share the contagion. If you were one of these prospective partners what kind of protection would you insist on before climbing into bed? Gives a whole new meaning to wraparound covenants.
I am surprised it is continuing but my bet is this still doesn't happen. Without outside investor money this doesn't accomplish much of anything...and if we're not going to distinguish among risk levels why will a third party play ball?
Of course this looks like it is now so watered down it needs a new name...how about Temprorarily Contained Reposession Asset Protection Structure? TCRAPS!
Energyecon's belief of a single vehicle for failure steps a step forward in the plausability sweepstakes.
"In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver."
transient | 11.11.07 - 11:28 am | #
Very clever and funny!
Alternatively we might consider calling M-LEC "Mary Leak"
as in:
Freddie: What's up with you Mary? What's that puddle on the floor?
Fannie: What the ...?! Oh Mary, you are such a SIeVe!
Sallie: Oh god Mary, that stinks!
Mary: I'm sorry, I can't help it. Paulson and his friend Shittybank made me eat all this poo, and now it's starting to leak out!
Below is a post I made elsewhere (Naked Capitalism) on 11/8. The news that the M-LEC will buy anything makes this look more like what's up.
I think I finally figured out what the M-LEC is for. Disclaimer: I'm a complete amateur. Please forgive me if I'm just rehashing.
The first outfit to sell these things in the current market will establish a low value, to which all the holders must mark.
So the smallest holders just became the "brand new best friends "of the biggest holders - Citibank and the the other big holders have an enormous interest in stopping the smaller holders from selling low.
The small holders can effectively blackmail the big holders.
So Citi puts Billions into M-LEC to buy out smaller holders at inflated prices to stop the markdown.
Maybe this is part of Citi's increasing level 3 debt - they probably have already done some of this under the table somehow.
Robert: "Three big banks who have been screwing the little guys for years discover they are SIV positive and go back to the little guys this one last time to share the contagion. If you were one of these prospective partners what kind of protection would you insist on before climbing into bed? Gives a whole new meaning to wraparound covenants."
No worries ... from the NY-Times article:
We are hoping that this will grease the wheels a little bit to start more trading, the person involved in the discussions said.
Since the proposal is incredibly stupid and has no discernable positive outcome, I have to assume that the level of desperation behind it is extreme. Things MUST be worse than they seem for this to even be considered.
Now Paulson is talking about an "orderly demise" for these SIVs.
What you are witnessing is an "orderly demise" of fiat currency. Eventually, we will sit down to our banquet of consequences. Just need to cheat reality a few more times. Working on my latest play...
Japan redux, why do we want to repeat their same mistakes of dealying the inevitable writedowns of junk? With government intervention (sandwiches only, of course)...
Trying to make M-LEC fly when it foundered when planning buy only the prime stuff by expanding to include everything, is like trying to save the Titanic by cutting holes on the opposite side of the ship from the iceberg to balance the thing.
"Japan redux, why do we want to repeat their same mistakes of dealying the inevitable writedowns of junk? With government intervention (sandwiches only, of course)..."
I agree. The market needs to find a real bottom to assets prices. Attempting to hide assets in Super SIVs will create more problems. Let the fire sale begin. Some big banks will fold but more prudent banks will rise from their ashes, and we will be better off for it.
There's a pathetic AP article this weekend suggesting that the weak dollar will bail out the housing market by increasing foreigner house purchases, especially Europeans.
Of course, this is utter BS because although the Euro may be up 45% since Jan 2003, the houses that are over-priced and causing the problem are up 75-300%. If they didn't want to buy them in Jan 2003, why the hell would any foreigner want to buy them in 2008?
These spin-meisters are running on empty with no clothes on.
the new Republican talking points, blame the mortgage crises on the lefties.
Yup.
Ben Stein from todays NYT biz section:
[Merrills] directors might have been chosen with an eye toward political correctness instead of an eye toward what they knew about finance and accounting. I was staggered when I read about the backgrounds of the Merrill directors. It is nice to have leaders of colleges and universities on boards (as Merrill does) but wouldnt it have been better to look for accounting expertise? Was the idea to conform to P.C. principles and not have anyone asking tough questions?
The fund is meant to avoid a severe credit market disruption, according to its organizers, by either providing time for asset prices to recover or, more likely, at least discourage structured investment vehicles from unloading their holdings en masse, the Times said. (emphaisis added)
My prediction: only the most heavily SIV-positive players will fund this; only the lousiest assets from other players will be bought. This is just price-fixing and blackmail payoffs on a grand scale.
Maybe it is my lack of understanding but I am really getting pissed off. These guys get to borrow millions on leveraged bets book the profits, and give themselves bonuses. Then they go out and buy whatever they want at whatever price, which drives up costs for the rest of us. We go into debt in order to keep our heads above water and they get to hide their losses because it is in our benefit.
The proposed fund could help thaw the frozen market for asset-backed securities by establishing a ready buyer, even if no SIV uses it.
I see. We banks have tons of donkey scat that nobody wants to buy. So we'll get together and fund an entity to buy donkey scat now and then at $10/pound.
Hey Mr. Dipshit investor, don't you want to buy some at $10/pound, too? Well, no matter; we'll just carry it on our books at $10/pound since that's clearly the market price...
Is this supposed to inspire confidence in the investor community?
"This is just price-fixing and blackmail payoffs on a grand scale."
It isn't going to happen. There is way too much attention on this and whatever they concoct will be thoroughly analyzed. Sarbox is our friend. They can't sign their financials with credible analysis documenting the scheme's fallacies. I conclude they can't get away with it this time.
These guys get to borrow millions on leveraged bets book the profits, and give themselves bonuses. Then they go out and buy whatever they want at whatever price, which drives up costs for the rest of us. We go into debt in order to keep our heads above water and they get to hide their losses because it is in our benefit.
Congratulations you just figured out how the system works.
Is the USA going to default on $9 Trillion or just keep the ruse going by trying to pass its financial toxic waste bag to
well if the USA defaults the game is over for everything(stocks, bonds) besides hard cash, ofcourse not in Dollar
the con can work like this, they buy for 1 bil a 1 bil of toxic waste and then a month later sell it back, hence the market price has been set for all of the toxic waste and so they will continue till all eternity xD
Mr. Dipshit Investor thinks his money is safe and sound with a reputable company like Vanguard or Fidelity, and has no idea that for some reason the PPT is having an emergency meeting this weekend to figure out how to sell $10 a pound donkey scat to them. When he figures it out though, he's going to take his remaining 50% and shove it in his mattress... or are they going to freeze his assets so he can't?
Tonite's OSU KU football game on ABC Brent Musberger asked Boone Pickens flat out are we at peak oil. Boone's answer was Yes the world is consuming 88 mbls a day and producing 85.
"Hope you are right Allen C, if not, the bail tolls for taxpayers"
If one extrapolates the trends based on history both in the US and Japan, a bailout of some sort seems inevitable. SIVs aside, there are many other problems. I conclude the GSEs can't withstand a 15-20% decline in RE values.
IMO current ABX prices look realistic. If they transfer @ ABX and take the losses the MLEC may attract investors as a speculative investment. The key value of the structure would be the size and profile to attract smaller private investors with lower return expectations than the investors who deal in distressed assets as a business.
Eg. A risky 50% over 4 years may look good for 1% of your assets to a small investor.
When he figures it out though, he's going to take his remaining 50% and shove it in his mattress... or are they going to freeze his assets so he can't?
No, he'll buy whatever solid asset he can to avoid the devaluing dollar.
Welcome to the Weimar, er, Bernanke Republic.
Congratulations, Bennie, you've accomplished the one thing you thought you were too damn smart to ever do. Idiot!!!
Deflation is better. And with it comes the political changes that will forever remove the elite's powers. And that is why they really fear deflation.
I personally don't believe a word of this. They trot this out there when it's convenient and necessary. This announcement IMO is to prevent a financials meltdown that would otherwise occur after Friday's news horror show. Watch, in a few days, a week, a couple of weeks, we'll be right back where we were. This is the same as the interest rate game...Ben says, well, that's all you'll get, the market says we dont need them, and after a couple weeks of reality, it's back to screaming for interest rate cuts and realizing the SIV is a pipe dream. Just wait and watch...
KM4,
$9 trillion. That's a bit inflamatory! I think of it as just $30,000 per capita. On an interest only loan at 5%, that's only $1,500 per capita, per year. A little over $4 per day. Starbucks gets more than that for that Muckyyucky whatsitsname coffee.
There, isn't that better?
"This announcement IMO is to prevent a financials meltdown that would otherwise occur after Friday's news horror show."
Perhaps you are spot on...
We know this PPT or so called working group exists. Paulson mentioned it himself.
However - The executive branch can only spend money appropriated by congress. That stated, I suspect they developed many tools to impact the markets. Letting BB know that it's an ideal time (e.g. huge short positions, tanking futures) to drop the discount rate is one of them. Clever but effectively meaningless announcements from a government official or financial institution is another. If they did their jobs, they should have a play book. Let's hope all the plays are legal.
So let's see, the initial SIV proposal is in the news as useless and not coming together. Carina CDO scares the pants out of the market that a legitimate tradeable price might be attained. And we KNOW, that CANNOT happen, so tell me this story isn't anything but a PR prevention tool. But of course, it makes no sense. The problem requires a complicated solution, and when that doesnt work, how exactly does a simpler one work better, when even its proponents confess that it wont fix anything, but at best will delay the problem. This is pure and simple a fraud. It wont happen, and it will buy maybe two to three weeks before the next major calamity.
And in case you all didnt notice, we are running out of bullets, both real and imaginary. Tick, tock, tick...
You naive people just dont understand modern financial chemistry.
It works as follows:
1.\tTake 15 glasses of dirty water.
2.\tTake 1 glass of clean, pure water.
3.\tDump all 16 glasses into a pitcher.
4.\tAdd Kool-Aid.
5.\tPour the pitchers contents back into the glasses.
6.\tHave Reverends Paulson, Jones, and Bernake serve it to their flocks.
Voila!
End of problem.
No more glasses of dirty water.
P.S. I hear that the head of MLEC will be Jack Schitt. In case any of you dont know Jack, here is his family history:
Fredrickson, do you think it was a mere coincidence that the 50bpts out-of-the-blue emergency discount window cut came on options expiry day when the DOW futures were off around 200pts and NIKKEI was trading off 8%? It was maximum pain delivered by the PPT at just the right time to foil the shorts, right when they had a kill shot lined up.
Someone in congress (Ron Paul) needs to get a clear answer about whether the government will EVER backstop this MLEC Frankenstein creature of the IBs making. Let the banks eat the Frankenstein, with cake.
Horrible idea that should frighten the crap out of international market participants so they fold up their investments and take them home...
From Wikipedia "One theory regarding the Working Group refers to it as the Plunge Protection Team. This theory claims that the Working Group is a scheme to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures."
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
o Lama, that's not my argument. Mine is they take actions like PR announcements such as this crap on the MLEC fix, which are total BS. They are timed to prevent meltdowns.
All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update.
Then I'm not so sure the PPT is such a bad thing as the effect can only be temporary. Loads of people had to postpone retirement due to the absense of the PPT in 2001-2003.
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
lama
For an SIV, the NAV is the equity and capital note value, usually around 7% of the total, dividing the total asset value minus the value of the borrowed CP and medium term notes. When it hits .5, usually a liquidation of the SIV is triggered.
CR: "All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update."
Of course, it also means that if the total assets fall just 7%, NAV is wiped out.
Geoff - You are using a non-standard definition of what the PPT is and does. What you are descrbing seems like plain-old collusion between market participants - which would be a real-world explanation in my book - instead of the actions of some nebulous government organization.
barely - I realize there is a lot of hero-worship of "the shorts" in financial-doomer circles, but I'm not terribly convinced that they are as important as they are made out to be, or aren't mostly composed of the usual players - hedgies, most notably. And I'm certainly not prepared to assign the kind of competency of action you assert to the Bush Administration.
OK, I'm just a dumb prole and I think all this financial intermediation that is really financial disintermediation of the real, productive economy just imposes huge information losses on the latter, while attempting to mint profits by nickel-and-diming small financial differentials, if not rearranging the deck chairs on the Titanic, likely also leading to intersectoral misallocations of capital. But, that said, AFAICT, here's what I think might be up with MLEC. It's possible through astute selection of assets or just dumb luck that an SIV would have a value of 1.05 of par through capital gains on assets, such that its NAV would be 12/7 or about 158%. It also doesn't make sense, given the highly leveraged structure of SIVs, that the assets held would be highly risky crap like the mezzanine tranches of MBSs or CDOs. The proposal apparently is not to attempt to price all the individual assets of each SIV, which would be time intensive and futile, but to take on a cross-section of the NAV of each SIV, at current best estimate, but at a discount or haircut, less that fire-sale prices, which would likely be less than value at maturity, but lower than current estimated NAV. Hence MLEC would have a NAV above that of the current SIVs, while removing a portion of such assets from the current fire-sale auction, preventing the worst of fire-sale pricing and slowing the auction process, while, still more wishfully, restarting the frozen ABCP market.
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
No, they just keep whispering 'Warren Buffet...shppp, shhp shhhhp'. and people all say 'What !?! Buffet's buying Countrywide!?!' and the market goes up.
That way they don't even need to buy a single share.
F. Frederson, better look at the short positions in the NYSE page. It's my belief that the shorts are the ONLY reason the major indexe haven't collapsed 40%, since the short positions are so large it's impossible for shares to give up a lot of ground, supplying support. In reality the shorts are what's holding the markets up.
That PPT surprise and deviously timed discount window rate cut hurt a lot of investors and shook up the [rigged] free market.
Time to get tested . . . thousands, possibly millions, are walking around blissfully unaware that their portfolios are SIV positive . . .
Gary | 10.21.07 - 4:01 pm | #
Dry,
Ya, sorry for the interruption. I suspected that there were different definitions of the term PPT. I think it's funny. I prove the point that every member of Congress lied about $300 billion in deficit spending last year and get no reaction. Another that the AICPA estimates 20% of taxes due are not reported, that it comes directly out of honest taxpayers and the IRS does very little enforcement. Again, no reaction. Most people work 4-7 months each year to pay for their tax burden, but lots of people shrug their shoulders about those unimportant events and worry about some phantom who moves the stock market a few points. Sad.
Anyway, back to SIVs.
Fidelity Management & Research\t2\t$583,594,889 \t1\t$105,068,590
Barclays Global Investors Intl\t1\t$671,765,388 \t2\t$64,689,164
Wellington Management Company\t6\t$292,086,280 \t3\t$45,146,685
Capital Research & Management Co\t4\t$444,140,126 \t4\t$39,894,515
AllianceBernstein\t7\t$267,716,574 \t5\t$39,690,773
Goldman Sachs Asset Management\t8\t$198,678,431 \t6\t$34,526,865
JPMorgan Chase (US)\t14\t$132,167,232 \t7\t$21,834,549
Janus Capital Corp\t16\t$110,179,695 \t8\t$21,752,770
Brandes Investment Partners\t49\t$49,415,600 \t9\t$21,516,769
this list is last years equity commission report, street wide...
do some homework and examine the strucutre of these funds , their goals, and their strategies...
what you'll find is, they manage most of the pension money in america... which is basically a partnership in america, which will NEVER be sold in it's entirety...
sure, they'll underweight / overweight here and there, but that's it...there in, regardless of how high up the water come in the titantic
Atrios links to Lansner interview with turd-flinging chimp Walter Hahn . . . an entertaining juxtaposition of his predictions on CA real estate . . . which couldn't have been more wrong if he hired O-Joe and Sebastian as his research staff.
Stalling on realizing the losses might, perhaps be likened to dying. Would you rather go out at once, boom, just like that, or die a long protracted lingering death? I think most people would prefer the former. Prolonging one's death doesn't stop one from dying, it just makes it more agonizing.
I'm certainly not prepared to assign the kind of competency of action you assert to the Bush Administration.
Goldman's top alumni wield White House clout
They include: Hank Paulson, the Treasury secretary and former Goldman chief executive; Reuben Jeffrey, a former Goldman managing partner who is the chiefregulator of commodity futures and options trading; Joshua Bolten, White House chief of staff who served as a Goldman executive director; Robert Steel, the former Goldman vice-chairman who advises Mr Paulson on domestic finance; and Randall Fort, the ex-Goldman director of global security who advises Condoleezza Rice, the secretary of state.
The composition of President George W. Bush's working group on financial markets demonstrates the clout of the company's former executives on policy.
The panel which is composed of Mr Paulson, Mr Jeffrey, Ben Bernanke, the Federal Reserve chairman, and Christopher Cox, chairman of the Securities and Exchange Commission would be Mr Bush's first port of call in the event of a financial crisis.
Mr Dudley would also play a crucial role in stabilising the markets in the event of a meltdown, as one of his predecessors, Peter Fisher, did following the near collapse of Long Term Capital Management, the hedge fund. The former executives will also be influential in issues ranging from the regulation of Fannie Mae (NYSE:FNM) and Freddie Mac, the housing giants, to tax policy, to how heavily the energy markets should be regulated; all issues that Goldman Sachs lobbies heavily on in Washington.
"I don't think anybody else even comes close [to holding the number of top positions in Washington]," says Charles Geisst, a Wall Street historian and professor at Manhattan College, who points out that Goldman's reach is even more impressive because it comes at a time when there is no single dominant bank or brokerage in the US.
Unlike other companies that are targeted for being too cozy with the White House, neither Mr Bush nor Goldman have been criticised by Democrats for holding too many powerful jobs, in part because the investment bank also has deep ties to Democrats.
Goldman represented the biggest single donor base to the Democratic party ahead of this year's mid-term elections, according to the Center for Responsive Politics, and at least two Democratic political heavyweights Jon Corzine, the New Jersey governor, and Robert Rubin, the former Treasury secretary, are Goldman alumni.
Goldman says it is proud of its long record of public service, but does the company yield too much power in Washington?
Alex Knott, political editor at the Center for Public Integrity, says that while there is no doubt that former Goldman executives have the experience to hold their posts, they also have close ties to a company that benefits from their public policy decisions.
"It does create a potential conflict of interest because so much regulation is doled out by administrators who could be lo
Stalling on realizing the losses might, perhaps be likened to dying. Would you rather go out at once, boom, just like that, or die a long protracted lingering death? I think most people would prefer the former. Prolonging one's death doesn't stop one from dying, it just makes it more agonizing.
Referencing a story from a sci-fi book CR alluded to a while back,...
There's a thief who convinces the king that if he is pardoned for one year, he will teach the king's horse to sing. Why? "Who knows what might happen, in a year I might die, or the king might die, or the horse may learn to sing." Crazy Eddie.
How can we protect ourselves from a sharp painful demise? Glad you asked!
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Frederson "well, which is it? The shorts are holding up the market, or the shorts were poised to take down the market and the Fed had to act?"
Duh - The shorts already HAD their positions and got robbed. The PPT sparks the shorts to cover and the few dollars remaining on the sidelines to get in on the short covering rally.
well if the USA defaults the game is over for everything (stocks, bonds) besides hard cash, ofcourse not in Dollar
IMHO:
Don't forget, the U.S. has already defaulted on its debt twice officially this century. In 1933, when revaluing a dollar from 1/20th of an ounce of gold to 1/35th, and in 1971, when closing the international reedemability of the dollar in gold.
In the years since, constant but slow inflation is an unofficial deafult on debt: You're paying the debtholder back less than is originally owed as time progresses.
This will play out exactly like the Great Depression in the sense that the currency will be devalued so that the debt burden is lessened. The only difference is that the dollar is now a fiat currency, so it will be easier to do. Bernanke has stated explicitly what he will do:
"I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Meaning, they will depreciate the currency early and more quickly--not waiting three or four years as in the Great Depression, for severe deflation to take hold.
Whether that plan works or not is not clear. But what is clear is that the dollar is the worst place to be right now.
At least the Europeans understand and are on the side of the citizenry:
The population should be protected against inflation. This is very important. That is why the independence of the European Central Bank is the alpha and omega. And that is why Germany will not budge on this.--Angela Merkel, Chancellor of Germany
Let's hope they can hold off Sarkozy--he's the only European leader so far calling to lower interest rates and weaken the Euro. What the Fed wants is for the Europeans to print more money while the Fed does--everybody devalues debt at the same time.
Does the PPT have any influence over the [manipulated] reported PPI & CPI numbers? I mean, if they come in high, the market won't receive them well at all.
In the case of the SIVs, it seems more of an issue of losses on assets (e.g. CP) that shouldn't have any losses. Could there be more than $20B of losses here? Who knows?
The big losses (so far) are in sub-prime followed by alt-A mortgages. We should have national mortgage disclosure week. Who has it? What kind (sub-prime, alt-a, prime)? What form (securitized, direct, insurance, etc.)? How much?
Until more is known, investors will continue to seek refuge in treasuries. Therein lies some metaphoric tin.
CR: "All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update."
Extrapolating the pace of losses puts the SIV average at around 50% mid-November...it appears to be a decay rate of about 12.5% per month, at 76% mid-September puts them at the halfway mark mid-November just eyeballing the plot...just sayin'.
dry you must not understand me. no i'm not ponying up just yet but what i'm understanding here is that the idea is to get a BID and BID and once that starts happening the value will be uncovered even if its 1 penny on the dollar. then some vintages will actually pay back their investors and those who bought at 1 penny on the dollar will get stinky rich.
If this is another PR move to save the markets, it's a bad one. It would've been much more confidence-inspiring if they'd have said the Super-SIV wasn't necessary.
brady bonds were packages of loans made to people that shouldn't have gotten them made by people who shouldn't have been making them. the credit markets were having similar trouble then as it was 'gonna bring down the system.'
so package 'em up, get 'em off the books, pick up a bid, any bid - and move on...
"The shorts already HAD their positions and got robbed."
Who are "the shorts" and why should I care if they "got robbed" - though how losing money on a speculative position in a voluntary market that almost every retail short would acknowledge is rigged can be robbery escapes me at the moment.
"The PPT sparks the shorts to cover and the few dollars remaining on the sidelines to get in on the short covering rally."
So the shorts are out of the market? But you just said:
"It's my belief that the shorts are the ONLY reason the major indexe haven't collapsed 40%, since the short positions are so large it's impossible for shares to give up a lot of ground, supplying support."
Are the shorts in the market or were they driven out by the short-covering rally?
Hey I just flashed on how the whole MLEC thang turns out - they pull the latex mask off of Paulson to reveal gasp Old Man Smithers - who then cackles at the blogosphere "And I would have gotten away with it too, it it weren't for you meddling kids!"
how else would the bankers and brokers cash in on their salaries, bonuses and options without driving stock prices to incredible highs and then trying to figure what to do with the garbage left over from the party?
I am actually surprised at how well the SIVs are doing, and how few of them are having problems or downgrades.
If you read the whole Fitch overview, it's actually reassuring on what has happened to date.
Like many here, I have a concern about what happens when the underlying investments keep dropping. However, most of those SIVs aren't very concentrated in a particular asset class. Since they aren't majority subprime, subprime can do some damage, but not nearly as much as if it was a single asset class.
However, the joint fund to provide liquidity and buy assets still isn't making sense to me. Either there is some major arm-twisting, or it will work differently than what has been described so far in the media. Being a technical researcher, I know how badly the media butchers many technical topics. I'm really hoping the real way it works is different than reported.
the team consists of the president of the NY fed, (Geithner) he treasury sec (Paulson) Fed Chair (Bernanke) and their closest advisor's. They tap the brakes or hit the accelerator on the market by providing loans and "suggestions" to the companies to which the Market Specialist belong. Of coursee Specialists... MAKE... the market between the brokers on the floor of the stock exchange.
From the NYSE, glossary, definition;
Specialists
A specialist performs five essential functions in the specific securities allocated to him/her:
*
Manage the auction process. To maintain a fair and orderly market in a particular security, the specialist establishes the opening price for his security every day. Then, during the day, he quotes the current bid and offer prices to brokers.
*
Execute orders for floor brokers. The specialist can execute an order immediately or hold the order and execute it when the stock reaches the specific price requested by the customer. As a dealer, the specialist will buy or sell stock from his own inventory to keep the market liquid or to prevent rapid price changes.
*
Serve as catalysts. Specialists are the point of contact between brokers with buy and sell orders. The specialist acts as a catalyst, bringing buyers and sellers together enabling a transaction to take place that otherwise would not have occurred.
*
Provide capital. If buy orders temporarily outpace sell orders, or conversely if sell orders outpace buy orders, the specialist is required to use his firm's own capital to minimize the imbalance. This is done by buying or selling against the trend of the market until a price is reached at which public supply and demand are once again in balance. Usually public order meets public order without specialist participation, however, specialists do participate in about 10 percent of all shares traded.
*
Stabilize prices. To ensure that stock trading moves smoothly, with minimal price fluctuation, the specialist will step in against the market trend. Specialists buy and sell stock to cushion temporary imbalances and to avoid unreasonable price variations.
You can be silly and not believe in the tooth fairy, Angels or even Santa Clause...but you better believe in the PPT or you are certainly going to hell.
dry you must not understand me. no i'm not ponying up just yet but what i'm understanding here is that the idea is to get a BID and BID
They can get bids without tiis monstrosity (FrankenSIV?) - they just don't (1) like the price they'd get and (2) are levered up to and beyond the red line... and would just as soon NOT have to acknowledge the real price they fear they'd get... see item (1) above.
Really like the Brady bond analogy. I'm a small buyer at the right price.
Lotsa folks would maybe buy this crap if the price is right - so sell them. Why bundle into ANOTHER SIV layer... except maybe to skim off an additional layer of fees. How does that improve the economics & performance of the underlying collateral?
This sucker is fishy - there are lotsa ways this is NOT like Brady... For one we knew what was backing Brady (bonds for country X, country Y, etc.) In HIMLEC... its tranches of CDO^2s of CDOS of MBS of mortgages of what?
Liquidate the damned things as is and take the hit - or hold'em and make the vehicles 'perform'... if they dare.
More socialize risk & privatize reward. Sickening.
Guys, I'm glad you like my "SIV-positive" quip. If I didn't laugh, I would have to cry.
Props to CR & Tanta for hosting this best of all blogs. Sorry I've gotta do more lurking than posting for now.
Super-SIV is the sound you hear as the helicopters warm up their engines. This fiendish scheme has freshly printed dollas written all over it. The Yen is reacting as expected. Are any hedgies still messin with the yen carry? If so they are a lot dumber than I thought. Playing with fire given the dolla's stinky performance.
Thank GOD we still have THE dominant global military apparatus. The uncertain future may require it. Hell, maybe even to tame the natives inside our borders
But could it may be an accounting vehicle to deffer write-downs for a year or two?
Jack Staub
then some vintages will actually pay back their investors and those who bought at 1 penny on the dollar will get stinky rich.
dc1000
both nailed it dead solid perfect.
Dryfly, for accounting purposes they want the dregs off the books and to be a certain number. This won't be a decade long write down, 2-3 Q should do the trick
What the Fed wants is for the Europeans to print more money while the Fed does--everybody devalues debt at the same time.
ditto
1922/1923 pre-hyperinflationary Germany taking place in the USA.
Similarities: Credit has stopped. The previously fabulously profitable, now heavily extended debtholders go BK, including the foolish pier holders.
FF, the shorts were stopped out at the new high, over 14000, and new longs were stopped in at that same new high. The money will come from the downside, driving out the weak longs, having jettisoned many shorts (BK'ing them in that Sept/Oct rise).
ot the best source but wiki says "The key innovation behind the introduction of Brady Bonds was to allow the commercial banks to exchange their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to these banks."
the idea here is the same but today's version appears to be missing one key element - the true guarantee. the brady's were collateralized by zero coupon bonds and other securities held by the Fed.
today's version also appears to be missing another key step in that there has been no structured negotiations between creditors and debtors, unless you count citi negotitating the the SIV to determine the value of what they're contributing to the fund. - the proverbial hair cut.
the bottom line though is that this is the same situation all over again.
this has happened through ALL TIME and HISTORY
banks make loans
loans go bad
banks have problems
banks figure out a way to fix
fix happens
banks make more loans
credit cycles and business cycles are as old as time. there is no reason to think things wont get worked out this time as well
just ask the banks who funded Bolivar's wars in South America or the South Sea Trading Companies or Bridges to No Where in Panama or IO NEG AM mortgages to Tom Dick and Harry
This is surreal. A "vehicle" in which to dump the dark matter? A fiscal trash can; a financial dust bin - what law can this be intended to evade?
"And the fund will not distinguish between the assets it buys from each SIV; instead, it will assign the same risk level to all their troubled securities."
This line is still hurting my brain this morning. I hope this BS comes back to hurt someone other than taxpayers.
Of course, participants have been overly optimistic about their previous efforts, only to see them struggle to take flight. The backup fund still needs the blessing of the major credit rating agencies. A fee structure from 75 to 100 basis points, higher than initially proposed, is also being worked out. And several crucial tax, legal and regulatory issues await approval.
Hey!
We need some orderlies over here to carry out the dead bodies.
-- Hiding Out
PR value only for futures ramp in the AM
NYT Countrywide story allows the "new cruelty" position to sneak in this morning: this whole breakdown is all the fault of those damn minorities and their lobbying groups (ACORN).
This is clearly part of the new Republican talking points, blame the mortgage crises on the lefties.
Awesome!
These big banks are supposed to be the champions (not the poster children) of market-based economies, and here they are desperately trying to avoid letting the market determine the value of the assets they hold.
Who would invest in this voluntarily?
I suggest calling this fund the HiMLEC.
In the future, the creation of this fund will forever be known as the HiMLEC maneuver.
e.g.
In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver.
"Now, apparently, the Super Fund will buy anything"
And they actually believe true 3rd party investors are going to buy this crap do they...
-Contempt
-Arrogance
-Indifference
-Deceit
All these descriptors pop into mind when thinking about their undeterred persistence to try and cover up fraud and greed by an elitist inner circle bent on fleecing the public.
Disgusting, every part of this whole scam..disgusting. I want their heads behind bars.
Search | WHAT REALLY HAPPENED
Bank exposure to CDO's courtesy of the government.
"Orderly, give this patient another sedative. He almost woke up and saw what we were doing."
What kind of bouquet would be appropriate,and where do i send it? since it appears the death is scheduled for january it may be difficult to find something locally grown.my first thought was Jimson weed and Amanita Muscaria,garnished with Humboldt gold in a handcrafted Yohimbe' bark vase?any suggestions?
Isn't this basically a version of the "bad bank" the Resolution Trust Corp. set up in the early 90s? They find some price that the assets can be sold and move on. The new SIV may end up being successful depending on the ultimate yield of the loans.
Who takes the writedown for the new marks on the asset?
I do not know which fills me with more despair the jumping jack video or this. We are giving Murphy such an unfair advantage.
From the article: "The banks could begin asking roughly 60 financial institutions to contribute to the fund by Friday or early next week."
That's a sales pitch I'd like to hear. I thought the reason for the Super SIV was because they couldn't sell this stuff. Now they think they can get a market price for a Neapolitan Sh¡t Sandwich because the individual flavors weren't appealing?
I see a danger in this new structure. Now that the fund has the same content as the reatined debt doesn't the sale of the Super SIV provide a market price? Doesn't that defeat the intent?
To get anybody to invest in this super SIV, the super siv has to buy the assets (the most toxic level 3 stuff) at mkt levels....how can that be done if nobody wants to buy it and there is no mkt for it?
This is a bailout by banks for banks to avoid putting this stuff on their balance sheets, because if the had to put it on their bal sh., they would be impaired big time!( to the point where somebody would be in jeopardy financially)
These big banks are supposed to be the champions (not the poster children) of market-based economies
The big lie works well, eh?
mmm,I "refreshed" and comments disappeared,has haloscan been improved?
The elephant under the rug is stinking up the room so it's time to find a new room with a new rug to hide the elephant.
In the end is this just a manuever to sell the securities to yourself at full price so that you can go on pretending that they have some sort of value?
The mantra of the brave new era of Free Enterprise, privatize profits and socialize losses.
Monty Python addresses condition of Super Fund's assets:
YouTube - Monty Python-Bring out your dead!
75 Billion divided by nothing = infinity. Sounds like they will be able to dump all the toxic waste into this fund (appropriately marked down to zero) and have room to spare.
I actually think that what is happening here has more to do with internal politics than anything else.This plan may well have worked if proposed and implemented 2-3 months earlier,but.some folks with influence proposed this sick puppy a bit too late,invested their political capital in it,and can not back off without admitting it is too late,and taking a perhaps job fatal hit to their reputation/clout.So they push on with any plausible justification they can come up with...Gallipoli anyone?
Don't the banks just borrow money from the taxpayers to fund the SIV, unload their junk, borrow money from the taxpayers to buy it back (at ten cents on the dollar) and then sell it again at 500% profit in the bond market when things improve.
It's genius....
Many Banks 1 Cup
So when no one steps up to order the 'Neopolitan' as Robert C. so artfully described it, is that the time we transition the single point of failure to a tax payer funded bail out?
There must be some feature of the new super-SIV fund that hasn't been talked about in the press, or else there would be no reason for anyone to invest invest in it.
For example, maybe this fund will buy assets with conditions attached, whereby the banks that own the SIVs agree to buy back the assets if they continue to fall in value. I've heard that Merrill Lynch is doing something similar to get assets off it's books.
I could also see how side-deals could be made with super-SIV investors, offering them access to other lucrative investments if they are willing to throw some money away on the super-SIV.
I can't believe that the fund is being structured ONLY according to the terms that the New York Times has mentioned. There is just no way anyone third party investors would fund it with those terms. If you really thought it was a great idea to buy distressed asset-backed paper why not just go and buy some yourself rather than buy a fund which will buy those same distressed assets for higher prices than you can get them yourself in the open market?
Anyway, I think the media is being kept in the dark about some of the terms of this new fund, likely because some of these features would stink to high heaven with accounting foolery.
You all are overly pessimistic. This is just extending Level 3 accounting through the next year. The US government does it all the time and we haven't imploded yet No one really expects the government to stand by and watch all the banks to fail, right? But again, if these are off balance sheet entities, who really owns these SIVs? Is it only the pension funds and money market accounts? And when they move the mess, are they going to have to lift the cover off, or can they just pretend they bought them back and put them on the books and pay off the original holders? It's just a matter of retaining confidence in our system. You know, a confidence game.
"I hope this BS comes back to hurt someone other than taxpayers."
You funny.
"In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver."
LMAO
"Disgusting, every part of this whole scam..disgusting. I want their heads behind bars."
You right, but line them up and shoot them, jail is for drug addicts.
Is there any way this won't work and the pig men have to choke on their own poo?
I don't understand how the scheme can work.. let's assume the SIVs sell toxic waste to the MLEC at marks indicated by the ABX indices... which they may have to do to get auditors and rating agencies to sign off on the transactions. However , haven't they then established marks for the unsold assets that the numerous Conduits and SIVs hold , let alone the assets that pension funds / insurance companies / investment banks or hedge funds still hold ? Won't that cause the same fire sale flood of structured products that the Super SIV is supposed to slow down ? Conversely , if the assets sold to the MLEC fund are not severely marked to market consistent with the ABX indices , how could investors justify to their shareholders or other investors any purchases of MLEC CP ?
Go to page 22
http://www.occ.treas.gov/ftp/deriv/dq207.pdf
Hey there's nothing wrong with having a garbage can to put the trash in. And somebody has to take the trash out. But how exactly will they determine the price for this poo? Isn't the whole problem that there is no market for it? Does anyone seriously think that it will smell better next year? In 2009? There's something to be said for not dumping EVERYTHING on the market all at once, but if they'll take ANYTHING, they'd better be paying NOTHING for it.
The banks could begin asking roughly 60 financial institutions to contribute to the fund by Friday or early next week."
They better . When and if they do come out with a list of these 60 financial institutions if you have any money with any these clowns I would highly recommend you take your money out and run like hell.
Robert Cote said:
Now that the fund has the same content as the reatined debt doesn't the sale of the Super SIV provide a market price? Doesn't that defeat the intent?
What do you assume the intent was?
AFAICT, the point of having liquidity is so that the junk (bonds) can be dispersed widely enough that the losses are socialized nationally and internationally, with and without the consent of the victims (respectively depending on whether favors will be returned or not).
Except as an example of human folly, M-LEC in all its guises to date appears to be a non-event whether the participants 'succeed' in getting it up and limping by December or not. I expect the big three banks and HP are deeply annoyed their plan became publicly known. They're caught in a trap of their own devise.
I presume the NYT piece is the obligatory announcement of 'victory' or the first of several such victorious proclamations. Emily Litella would be proud.
Are the rating agencies going to have a shot at assigning rating(s) to this ... cornucopia ... of debt ?
The MLEC could attract funds from ABCP-heavy money market funds. Their motivation will be to avoid having to "defend the buck" in the event of a widespread SIV default.
Of course, MMF's with little ABCP concentration will want no part of this. The question is whether Paulson can get them to cosmetically appear on the "list of interested parties".
Is it too late for the MLEC? We'll find out on Monday after this latest Friday PR offensive. If the financials don't get traction, and if credit spreads don't come in, then the emperor will really be stark naked.
Any company buying into this Super Fund will be infected by it.
Any company buying into this Super Fund will be infected by it.
Jack Staub | 11.11.07 - 12:58 pm | #
Ummm, yeah, it will become SIV-positive!
Aren't they going to need a bigger container than just 75B? From what I have been reading there is at least 10X this much toxic waste floating around.
SIV-positive!
- HVH 11.11.07 - 1:01 pm
Post of the week. It's all over, nobody else should even try to top that one.
It seems I'm suddenly solicited for "financial planning" by various banks.
Before reading Dumber than Average's question, "Who would invest in this voluntarily?", I considered to offer it as "unrelated news" ...
I actually think that what is happening here has more to do with internal politics than anything else.
Possibly, but the ejections of Prince and O'Neal would have been perfect cover to drop the MLEC if someone was out on a limb.
I don't easily discount the power of groupthink, but the fact that 60+ banks employing thousands of nominally bright people are going along with this makes me think the participants believe this MLEC is in their interest somehow. Whether the interest they perceive is short-term (bonus season) or long-term (next bonus season) I don't know.
the fact that 60+ banks employing thousands of nominally bright people are going along with this makes me think the participants believe this MLEC is in their interest somehow
How about their own survival that's my take.
"the fund will not distinguish between the assets it buys from each SIV"
So any investor has to account for two significant factors -
The trend is drastically down for any mortgage credit and down for practically any other credit except for treasuries.
In order to reasonably price the assets, you need a team of experts to value many moving targets.
Seems to me, this is DOA unless there is another component we have yet to hear about. I hope it doesn't include the taxpayer.
What about the FHLB? Mark-to-market, CFC is likely insolvent.
Three big banks who have been screwing the little guys for years discover they are SIV positive and go back to the little guys this one last time to share the contagion. If you were one of these prospective partners what kind of protection would you insist on before climbing into bed? Gives a whole new meaning to wraparound covenants.
I hope it doesn't include the taxpayer.
You funny.
I believe the song for the day is "Nothin from Nothin" by Billy Preston....
I am surprised it is continuing but my bet is this still doesn't happen. Without outside investor money this doesn't accomplish much of anything...and if we're not going to distinguish among risk levels why will a third party play ball?
Of course this looks like it is now so watered down it needs a new name...how about Temprorarily Contained Reposession Asset Protection Structure? TCRAPS!
Energyecon's belief of a single vehicle for failure steps a step forward in the plausability sweepstakes.
"In an effort to prevent the credit markets from choking on their own poo in late 2007, Secretary Paulson began what has since become known as the HiMLEC maneuver."
transient | 11.11.07 - 11:28 am | #
Very clever and funny!
Alternatively we might consider calling M-LEC "Mary Leak"
as in:
Freddie: What's up with you Mary? What's that puddle on the floor?
Fannie: What the ...?! Oh Mary, you are such a SIeVe!
Sallie: Oh god Mary, that stinks!
Mary: I'm sorry, I can't help it. Paulson and his friend Shittybank made me eat all this poo, and now it's starting to leak out!
Below is a post I made elsewhere (Naked Capitalism) on 11/8. The news that the M-LEC will buy anything makes this look more like what's up.
I think I finally figured out what the M-LEC is for. Disclaimer: I'm a complete amateur. Please forgive me if I'm just rehashing.
The first outfit to sell these things in the current market will establish a low value, to which all the holders must mark.
So the smallest holders just became the "brand new best friends "of the biggest holders - Citibank and the the other big holders have an enormous interest in stopping the smaller holders from selling low.
The small holders can effectively blackmail the big holders.
So Citi puts Billions into M-LEC to buy out smaller holders at inflated prices to stop the markdown.
Maybe this is part of Citi's increasing level 3 debt - they probably have already done some of this under the table somehow.
Robert: "Three big banks who have been screwing the little guys for years discover they are SIV positive and go back to the little guys this one last time to share the contagion. If you were one of these prospective partners what kind of protection would you insist on before climbing into bed? Gives a whole new meaning to wraparound covenants."
No worries ... from the NY-Times article:
We are hoping that this will grease the wheels a little bit to start more trading, the person involved in the discussions said.
Since the proposal is incredibly stupid and has no discernable positive outcome, I have to assume that the level of desperation behind it is extreme. Things MUST be worse than they seem for this to even be considered.
Now Paulson is talking about an "orderly demise" for these SIVs.
What you are witnessing is an "orderly demise" of fiat currency. Eventually, we will sit down to our banquet of consequences. Just need to cheat reality a few more times. Working on my latest play...
Waiting For Volcker
"... that the average NAV across the SIV sector has fallen from 101% at the beginning of July to 71% at the beginning of November"
I presume we're into the 60s by now.
Houston...anybody there?
No one will invest in M-LEC unless they are already SIV-positive. But could it may be an accounting vehicle to deffer write-downs for a year or two?
Japan redux, why do we want to repeat their same mistakes of dealying the inevitable writedowns of junk? With government intervention (sandwiches only, of course)...
I hope this BS comes back to hurt someone other than taxpayers.
You mean like Paulson? String that bastard up!!
and how will this P.R. instill much needed confidence in financial markets?
Some historic perspective on the GSEs. The "enron" in the link seems fitting...
Housing in the Macroeconomy
Trying to make M-LEC fly when it foundered when planning buy only the prime stuff by expanding to include everything, is like trying to save the Titanic by cutting holes on the opposite side of the ship from the iceberg to balance the thing.
It won't woik.
"Japan redux, why do we want to repeat their same mistakes of dealying the inevitable writedowns of junk? With government intervention (sandwiches only, of course)..."
I agree. The market needs to find a real bottom to assets prices. Attempting to hide assets in Super SIVs will create more problems. Let the fire sale begin. Some big banks will fold but more prudent banks will rise from their ashes, and we will be better off for it.
"Ummm, yeah, it will become SIV-positive!"
NOBODY can do any better than that..... that is the quote of the decade!
There's a pathetic AP article this weekend suggesting that the weak dollar will bail out the housing market by increasing foreigner house purchases, especially Europeans.
Of course, this is utter BS because although the Euro may be up 45% since Jan 2003, the houses that are over-priced and causing the problem are up 75-300%. If they didn't want to buy them in Jan 2003, why the hell would any foreigner want to buy them in 2008?
These spin-meisters are running on empty with no clothes on.
the new Republican talking points, blame the mortgage crises on the lefties.
Yup.
Ben Stein from todays NYT biz section:
[Merrills] directors might have been chosen with an eye toward political correctness instead of an eye toward what they knew about finance and accounting. I was staggered when I read about the backgrounds of the Merrill directors. It is nice to have leaders of colleges and universities on boards (as Merrill does) but wouldnt it have been better to look for accounting expertise? Was the idea to conform to P.C. principles and not have anyone asking tough questions?
Attempting to hide assets in Super SIVs will create more problems. Let the fire sale begin.
Yup, but the problems and the fire sale won't begin until they are tucked safely away from the banks and into Mom and Pops pension fund.
I suspect we may be hearing more bad news out of Britain and Spain soon.
Numbers: Housing - BusinessWeek
price discovery sure to prompt more visits to the confessional (imo, this is precisely what's needed, mark this shit to market)-
CDO's Liquidation Raises Concerns About Repricing - WSJ.com
Great idea.
From Reuters: Top U.S. banks agree on backup fund for markets :
The fund is meant to avoid a severe credit market disruption, according to its organizers, by either providing time for asset prices to recover or, more likely, at least discourage structured investment vehicles from unloading their holdings en masse, the Times said. (emphaisis added)
My prediction: only the most heavily SIV-positive players will fund this; only the lousiest assets from other players will be bought. This is just price-fixing and blackmail payoffs on a grand scale.
Transient, perhaps it could be called the Housing Initiated Master Liquidity Enhancement Conduit(HIMLEC).
"The market needs to find a real bottom to assets prices."
If the implied pricing in the ABX can flatten for a few months and everyone adjusts their books accordingly, then maybe.
We have two big moving targets - Home prices and the economy. Both are headed down and the decline has only begun.
I suppose that it is just a coincidence that this is coming on the heels of the Carina CDO liquidation?
Maybe it is my lack of understanding but I am really getting pissed off. These guys get to borrow millions on leveraged bets book the profits, and give themselves bonuses. Then they go out and buy whatever they want at whatever price, which drives up costs for the rest of us. We go into debt in order to keep our heads above water and they get to hide their losses because it is in our benefit.
Does any of this have to do with Peak Oil, or the export land model
Any chance that there is some security out of this that can be taken to the discount window?
Massive DEBT is why US capitalism is teetering.
Argentina defaulted on a mere $100B
Is the USA going to default on $9 Trillion or just keep the ruse going by trying to pass its financial toxic waste bag to
1) US 'middle class' taxpayers
2) the rest of the world
3) the next generations
The proposed fund could help thaw the frozen market for asset-backed securities by establishing a ready buyer, even if no SIV uses it.
I see. We banks have tons of donkey scat that nobody wants to buy. So we'll get together and fund an entity to buy donkey scat now and then at $10/pound.
Hey Mr. Dipshit investor, don't you want to buy some at $10/pound, too? Well, no matter; we'll just carry it on our books at $10/pound since that's clearly the market price...
Is this supposed to inspire confidence in the investor community?
"This is just price-fixing and blackmail payoffs on a grand scale."
It isn't going to happen. There is way too much attention on this and whatever they concoct will be thoroughly analyzed. Sarbox is our friend. They can't sign their financials with credible analysis documenting the scheme's fallacies. I conclude they can't get away with it this time.
Hope you are right Allen C, if not, the bail tolls for taxpayers
These guys get to borrow millions on leveraged bets book the profits, and give themselves bonuses. Then they go out and buy whatever they want at whatever price, which drives up costs for the rest of us. We go into debt in order to keep our heads above water and they get to hide their losses because it is in our benefit.
Congratulations you just figured out how the system works.
Is the USA going to default on $9 Trillion or just keep the ruse going by trying to pass its financial toxic waste bag to
well if the USA defaults the game is over for everything(stocks, bonds) besides hard cash, ofcourse not in Dollar
"Does any of this have to do with Peak Oil, or the export land model."
No, despite TheOilDrum's efforts to expand to into a generic doomer site. The MLEC is plain, old-fashioned self-interest and corruption.
I think they should rent out the conference room at the Holiday Inn just off the turnpike and auction these SIV assets off like they do the REOs.
the con can work like this, they buy for 1 bil a 1 bil of toxic waste and then a month later sell it back, hence the market price has been set for all of the toxic waste and so they will continue till all eternity xD
Mr. Dipshit Investor thinks his money is safe and sound with a reputable company like Vanguard or Fidelity, and has no idea that for some reason the PPT is having an emergency meeting this weekend to figure out how to sell $10 a pound donkey scat to them. When he figures it out though, he's going to take his remaining 50% and shove it in his mattress... or are they going to freeze his assets so he can't?
Tonite's OSU KU football game on ABC Brent Musberger asked Boone Pickens flat out are we at peak oil. Boone's answer was Yes the world is consuming 88 mbls a day and producing 85.
"Hope you are right Allen C, if not, the bail tolls for taxpayers"
If one extrapolates the trends based on history both in the US and Japan, a bailout of some sort seems inevitable. SIVs aside, there are many other problems. I conclude the GSEs can't withstand a 15-20% decline in RE values.
IMO current ABX prices look realistic. If they transfer @ ABX and take the losses the MLEC may attract investors as a speculative investment. The key value of the structure would be the size and profile to attract smaller private investors with lower return expectations than the investors who deal in distressed assets as a business.
Eg. A risky 50% over 4 years may look good for 1% of your assets to a small investor.
When he figures it out though, he's going to take his remaining 50% and shove it in his mattress... or are they going to freeze his assets so he can't?
No, he'll buy whatever solid asset he can to avoid the devaluing dollar.
Welcome to the Weimar, er, Bernanke Republic.
Congratulations, Bennie, you've accomplished the one thing you thought you were too damn smart to ever do. Idiot!!!
Deflation is better. And with it comes the political changes that will forever remove the elite's powers. And that is why they really fear deflation.
Did you check out my homepage?
I personally don't believe a word of this. They trot this out there when it's convenient and necessary. This announcement IMO is to prevent a financials meltdown that would otherwise occur after Friday's news horror show. Watch, in a few days, a week, a couple of weeks, we'll be right back where we were. This is the same as the interest rate game...Ben says, well, that's all you'll get, the market says we dont need them, and after a couple weeks of reality, it's back to screaming for interest rate cuts and realizing the SIV is a pipe dream. Just wait and watch...
Deflation is better. And with it comes the political changes that will forever remove the elite's powers.
So we remove one set of elite's and they get replaced with another set. OK
Use poker game theory. If you can't identify the bagholder, it's you.
KM4,
$9 trillion. That's a bit inflamatory! I think of it as just $30,000 per capita. On an interest only loan at 5%, that's only $1,500 per capita, per year. A little over $4 per day. Starbucks gets more than that for that Muckyyucky whatsitsname coffee.
There, isn't that better?
I think they should rent out the conference room at the Holiday Inn just off the turnpike and auction these SIV assets off like they do the REOs.
Sotheby's... this is still more than the average price of an REO (even at mark to reality).
Might be fun watching the guys holding number paddles talking to someone half a world away.
"This announcement IMO is to prevent a financials meltdown that would otherwise occur after Friday's news horror show."
Perhaps you are spot on...
We know this PPT or so called working group exists. Paulson mentioned it himself.
However - The executive branch can only spend money appropriated by congress. That stated, I suspect they developed many tools to impact the markets. Letting BB know that it's an ideal time (e.g. huge short positions, tanking futures) to drop the discount rate is one of them. Clever but effectively meaningless announcements from a government official or financial institution is another. If they did their jobs, they should have a play book. Let's hope all the plays are legal.
Why is everyone so fascinated with the PPT? What exactly does the PPT do?
So let's see, the initial SIV proposal is in the news as useless and not coming together. Carina CDO scares the pants out of the market that a legitimate tradeable price might be attained. And we KNOW, that CANNOT happen, so tell me this story isn't anything but a PR prevention tool. But of course, it makes no sense. The problem requires a complicated solution, and when that doesnt work, how exactly does a simpler one work better, when even its proponents confess that it wont fix anything, but at best will delay the problem. This is pure and simple a fraud. It wont happen, and it will buy maybe two to three weeks before the next major calamity.
And in case you all didnt notice, we are running out of bullets, both real and imaginary. Tick, tock, tick...
wait for it........
What exactly does the PPT do?
they eat little iraqi children xD
The letters "PPT" relieve conspiracy theorists of finding real-world explanations for financial-market phenomenon.
Did you check out my homepage?
Yep, Now I am probably on some agency' list, maybe re-reading "DARKNESS AT NOON" will provide me some cover.
Plunge Protection Team Blog
- Tracking the President's Working Group on Markets
You naive people just dont understand modern financial chemistry.
It works as follows:
1.\tTake 15 glasses of dirty water.
2.\tTake 1 glass of clean, pure water.
3.\tDump all 16 glasses into a pitcher.
4.\tAdd Kool-Aid.
5.\tPour the pitchers contents back into the glasses.
6.\tHave Reverends Paulson, Jones, and Bernake serve it to their flocks.
Voila!
End of problem.
No more glasses of dirty water.
P.S. I hear that the head of MLEC will be Jack Schitt. In case any of you dont know Jack, here is his family history:
Know Jack Video
He was formerly chief investment officer of his familys private bank, formerly know as SchittiBank before it merged with Travellers Insurance.
Yeh. F. Frederson....Friday's announcement was a coincidence. Mhm. Ya.
Fredrickson, do you think it was a mere coincidence that the 50bpts out-of-the-blue emergency discount window cut came on options expiry day when the DOW futures were off around 200pts and NIKKEI was trading off 8%? It was maximum pain delivered by the PPT at just the right time to foil the shorts, right when they had a kill shot lined up.
Someone in congress (Ron Paul) needs to get a clear answer about whether the government will EVER backstop this MLEC Frankenstein creature of the IBs making. Let the banks eat the Frankenstein, with cake.
Horrible idea that should frighten the crap out of international market participants so they fold up their investments and take them home...
From Wikipedia "One theory regarding the Working Group refers to it as the Plunge Protection Team. This theory claims that the Working Group is a scheme to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures."
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
o Lama, that's not my argument. Mine is they take actions like PR announcements such as this crap on the MLEC fix, which are total BS. They are timed to prevent meltdowns.
All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update.
Best to all.
Then I'm not so sure the PPT is such a bad thing as the effect can only be temporary. Loads of people had to postpone retirement due to the absense of the PPT in 2001-2003.
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
lama
it's on wikipedia, you stupid trucker
yeah, a lot of people think it
OT : What with these SIV's names-Gordian knot ?!! Why do not call one Damocl's sword?
Dimitry
For an SIV, the NAV is the equity and capital note value, usually around 7% of the total, dividing the total asset value minus the value of the borrowed CP and medium term notes. When it hits .5, usually a liquidation of the SIV is triggered.
Lama it is not the PPT it is the PTB and SWMBO but unbeknownst to them they work for a guy named Murphy who is ROTFLHAO
CR: "All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update."
Of course, it also means that if the total assets fall just 7%, NAV is wiped out.
30% decline in underlying asset value is catastrophe. As I understand it, the percentage of mortgages in the SIVs is relatively low.
Geoff - You are using a non-standard definition of what the PPT is and does. What you are descrbing seems like plain-old collusion between market participants - which would be a real-world explanation in my book - instead of the actions of some nebulous government organization.
barely - I realize there is a lot of hero-worship of "the shorts" in financial-doomer circles, but I'm not terribly convinced that they are as important as they are made out to be, or aren't mostly composed of the usual players - hedgies, most notably. And I'm certainly not prepared to assign the kind of competency of action you assert to the Bush Administration.
BTW - John Mauldin's October 19 issue "Taking Out the SIV Garbage" provides a good, basic background on the issue.
OK, I'm just a dumb prole and I think all this financial intermediation that is really financial disintermediation of the real, productive economy just imposes huge information losses on the latter, while attempting to mint profits by nickel-and-diming small financial differentials, if not rearranging the deck chairs on the Titanic, likely also leading to intersectoral misallocations of capital. But, that said, AFAICT, here's what I think might be up with MLEC. It's possible through astute selection of assets or just dumb luck that an SIV would have a value of 1.05 of par through capital gains on assets, such that its NAV would be 12/7 or about 158%. It also doesn't make sense, given the highly leveraged structure of SIVs, that the assets held would be highly risky crap like the mezzanine tranches of MBSs or CDOs. The proposal apparently is not to attempt to price all the individual assets of each SIV, which would be time intensive and futile, but to take on a cross-section of the NAV of each SIV, at current best estimate, but at a discount or haircut, less that fire-sale prices, which would likely be less than value at maturity, but lower than current estimated NAV. Hence MLEC would have a NAV above that of the current SIVs, while removing a portion of such assets from the current fire-sale auction, preventing the worst of fire-sale pricing and slowing the auction process, while, still more wishfully, restarting the frozen ABCP market.
Yep, Now I am probably on some agency' list, maybe re-reading "DARKNESS AT NOON" will provide me some cover.
One of the best books ever. Good taste.
Now back to your regular programming...
Is that what everyone thinks is happening? The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
No, they just keep whispering 'Warren Buffet...shppp, shhp shhhhp'. and people all say 'What !?! Buffet's buying Countrywide!?!' and the market goes up.
That way they don't even need to buy a single share.
F. Frederson, better look at the short positions in the NYSE page. It's my belief that the shorts are the ONLY reason the major indexe haven't collapsed 40%, since the short positions are so large it's impossible for shares to give up a lot of ground, supplying support. In reality the shorts are what's holding the markets up.
That PPT surprise and deviously timed discount window rate cut hurt a lot of investors and shook up the [rigged] free market.
In reality the shorts are what's holding the markets up.
So your sayin' the PPT is really idoc and shortcourage? Whodda thunk it.
The govt secretly buys millions of public shares under pseudonyms on a minute's notice? The same govt that can't keep bridges standing?
lama, let's just say they have their priorities wrong. Now, really, is this news?
cough, cough . . . ahem:
Time to get tested . . . thousands, possibly millions, are walking around blissfully unaware that their portfolios are SIV positive . . .
Gary | 10.21.07 - 4:01 pm | #
barely - well, which is it? The shorts are holding up the market, or the shorts were poised to take down the market and the Fed had to act?
Dry,
Ya, sorry for the interruption. I suspected that there were different definitions of the term PPT. I think it's funny. I prove the point that every member of Congress lied about $300 billion in deficit spending last year and get no reaction. Another that the AICPA estimates 20% of taxes due are not reported, that it comes directly out of honest taxpayers and the IRS does very little enforcement. Again, no reaction. Most people work 4-7 months each year to pay for their tax burden, but lots of people shrug their shoulders about those unimportant events and worry about some phantom who moves the stock market a few points. Sad.
Anyway, back to SIVs.
there's a lot of tin sounds here tonight
let's look at reality-
Fidelity Management & Research\t2\t$583,594,889 \t1\t$105,068,590
Barclays Global Investors Intl\t1\t$671,765,388 \t2\t$64,689,164
Wellington Management Company\t6\t$292,086,280 \t3\t$45,146,685
Capital Research & Management Co\t4\t$444,140,126 \t4\t$39,894,515
AllianceBernstein\t7\t$267,716,574 \t5\t$39,690,773
Goldman Sachs Asset Management\t8\t$198,678,431 \t6\t$34,526,865
JPMorgan Chase (US)\t14\t$132,167,232 \t7\t$21,834,549
Janus Capital Corp\t16\t$110,179,695 \t8\t$21,752,770
Brandes Investment Partners\t49\t$49,415,600 \t9\t$21,516,769
this list is last years equity commission report, street wide...
do some homework and examine the strucutre of these funds , their goals, and their strategies...
what you'll find is, they manage most of the pension money in america... which is basically a partnership in america, which will NEVER be sold in it's entirety...
sure, they'll underweight / overweight here and there, but that's it...there in, regardless of how high up the water come in the titantic
ps..the 1st number is asset' s, the 2nd is commission's
Atrios links to Lansner interview with turd-flinging chimp Walter Hahn . . . an entertaining juxtaposition of his predictions on CA real estate . . . which couldn't have been more wrong if he hired O-Joe and Sebastian as his research staff.
Eschaton
The best line in the whole piece, Hahn's mea culpa for how he was so unbelievably and unforgivably wrong:
"My bad."
Stalling on realizing the losses might, perhaps be likened to dying. Would you rather go out at once, boom, just like that, or die a long protracted lingering death? I think most people would prefer the former. Prolonging one's death doesn't stop one from dying, it just makes it more agonizing.
So your sayin' the PPT is really idoc and shortcourage? Whodda thunk it.
That's how they work! Get it? It's always the ones you least expect,...
I'm certainly not prepared to assign the kind of competency of action you assert to the Bush Administration.
Goldman's top alumni wield White House clout
They include: Hank Paulson, the Treasury secretary and former Goldman chief executive; Reuben Jeffrey, a former Goldman managing partner who is the chiefregulator of commodity futures and options trading; Joshua Bolten, White House chief of staff who served as a Goldman executive director; Robert Steel, the former Goldman vice-chairman who advises Mr Paulson on domestic finance; and Randall Fort, the ex-Goldman director of global security who advises Condoleezza Rice, the secretary of state.
The composition of President George W. Bush's working group on financial markets demonstrates the clout of the company's former executives on policy.
The panel which is composed of Mr Paulson, Mr Jeffrey, Ben Bernanke, the Federal Reserve chairman, and Christopher Cox, chairman of the Securities and Exchange Commission would be Mr Bush's first port of call in the event of a financial crisis.
Mr Dudley would also play a crucial role in stabilising the markets in the event of a meltdown, as one of his predecessors, Peter Fisher, did following the near collapse of Long Term Capital Management, the hedge fund. The former executives will also be influential in issues ranging from the regulation of Fannie Mae (NYSE:FNM) and Freddie Mac, the housing giants, to tax policy, to how heavily the energy markets should be regulated; all issues that Goldman Sachs lobbies heavily on in Washington.
"I don't think anybody else even comes close [to holding the number of top positions in Washington]," says Charles Geisst, a Wall Street historian and professor at Manhattan College, who points out that Goldman's reach is even more impressive because it comes at a time when there is no single dominant bank or brokerage in the US.
Unlike other companies that are targeted for being too cozy with the White House, neither Mr Bush nor Goldman have been criticised by Democrats for holding too many powerful jobs, in part because the investment bank also has deep ties to Democrats.
Goldman represented the biggest single donor base to the Democratic party ahead of this year's mid-term elections, according to the Center for Responsive Politics, and at least two Democratic political heavyweights Jon Corzine, the New Jersey governor, and Robert Rubin, the former Treasury secretary, are Goldman alumni.
Goldman says it is proud of its long record of public service, but does the company yield too much power in Washington?
Alex Knott, political editor at the Center for Public Integrity, says that while there is no doubt that former Goldman executives have the experience to hold their posts, they also have close ties to a company that benefits from their public policy decisions.
"It does create a potential conflict of interest because so much regulation is doled out by administrators who could be lo
InfoViewer: Goldman's top alumni wield White House clout
There is the link.
Time to get tested . . . thousands, possibly millions, are walking around blissfully unaware that their portfolios are SIV positive . . .
So what color ribbon pin do we get? Is 'dollar green' taken by any other cause yet?
Stalling on realizing the losses might, perhaps be likened to dying. Would you rather go out at once, boom, just like that, or die a long protracted lingering death? I think most people would prefer the former. Prolonging one's death doesn't stop one from dying, it just makes it more agonizing.
Referencing a story from a sci-fi book CR alluded to a while back,...
There's a thief who convinces the king that if he is pardoned for one year, he will teach the king's horse to sing. Why? "Who knows what might happen, in a year I might die, or the king might die, or the horse may learn to sing." Crazy Eddie.
I'm thinking a mosaic (inspired by the puzzle theme of the autism ribbon) of all types of excreta would be appropriate.
So what color ribbon pin do we get? Is 'dollar green' taken by any other cause yet?
Why do you think the phrase " a sickly color of green" is so common? Wait until 20s come on perforated rolls.
Sound as a dollar == death sentence.
The plan requires approval by the major credit-rating companies,
uhhhh.... they're getting called to the carpet for the cdo mess...
now there going to be asked to rate the saving structure?
this should be real interesting
How can we protect ourselves from a sharp painful demise? Glad you asked!
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Longer and more orderly demise!
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Frederson "well, which is it? The shorts are holding up the market, or the shorts were poised to take down the market and the Fed had to act?"
Duh - The shorts already HAD their positions and got robbed. The PPT sparks the shorts to cover and the few dollars remaining on the sidelines to get in on the short covering rally.
Perhaps "Orderly" is the new "Contained". In the way that "recession" is the new fangled "panic."
well if the USA defaults the game is over for everything (stocks, bonds) besides hard cash, ofcourse not in Dollar
IMHO:
Don't forget, the U.S. has already defaulted on its debt twice officially this century. In 1933, when revaluing a dollar from 1/20th of an ounce of gold to 1/35th, and in 1971, when closing the international reedemability of the dollar in gold.
In the years since, constant but slow inflation is an unofficial deafult on debt: You're paying the debtholder back less than is originally owed as time progresses.
This will play out exactly like the Great Depression in the sense that the currency will be devalued so that the debt burden is lessened. The only difference is that the dollar is now a fiat currency, so it will be easier to do. Bernanke has stated explicitly what he will do:
"I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Meaning, they will depreciate the currency early and more quickly--not waiting three or four years as in the Great Depression, for severe deflation to take hold.
Whether that plan works or not is not clear. But what is clear is that the dollar is the worst place to be right now.
At least the Europeans understand and are on the side of the citizenry:
The population should be protected against inflation. This is very important. That is why the independence of the European Central Bank is the alpha and omega. And that is why Germany will not budge on this.--Angela Merkel, Chancellor of Germany
Let's hope they can hold off Sarkozy--he's the only European leader so far calling to lower interest rates and weaken the Euro. What the Fed wants is for the Europeans to print more money while the Fed does--everybody devalues debt at the same time.
Sorry, that was twice in the last 100 years, not this century
Go Angela GO!
I am reminded of a quote from one of my old high school teachers. "When you can't get rid of the garbage, spread it around"
Does the PPT have any influence over the [manipulated] reported PPI & CPI numbers? I mean, if they come in high, the market won't receive them well at all.
I think it's possible.
It's good for America, right?
"there's a lot of tin sounds here tonight"
In the case of the SIVs, it seems more of an issue of losses on assets (e.g. CP) that shouldn't have any losses. Could there be more than $20B of losses here? Who knows?
The big losses (so far) are in sub-prime followed by alt-A mortgages. We should have national mortgage disclosure week. Who has it? What kind (sub-prime, alt-a, prime)? What form (securitized, direct, insurance, etc.)? How much?
Until more is known, investors will continue to seek refuge in treasuries. Therein lies some metaphoric tin.
CR: "All, I misread the NAV article - the NAV just referred to the capital note - so underlying asset losses aren't as bad as it seems. See post for update."
good grief
headless chicken hysteria
this is just like the lat am debt crisis all over again.
think of MLEC as BRADY BONDS and its pretty simple to understand
the securities traded from this mlec will be its own asset class
Extrapolating the pace of losses puts the SIV average at around 50% mid-November...it appears to be a decay rate of about 12.5% per month, at 76% mid-September puts them at the halfway mark mid-November just eyeballing the plot...just sayin'.
headless chicken hysteria
anon | 11.11.07 - 6:26 pm | #
the securities traded from this mlec will be its own asset class
dc1000 | 11.11.07 - 6:28 pm | #
So anon & dc - can we count you two in on buying a few million bucks worth of these? Paulsen would like that.
And you won't mind your tax dollars going to bail'em out... you know... should there be a problem?
Just more Brady bonds huh? I don't think so.
dry you must not understand me. no i'm not ponying up just yet but what i'm understanding here is that the idea is to get a BID and BID and once that starts happening the value will be uncovered even if its 1 penny on the dollar. then some vintages will actually pay back their investors and those who bought at 1 penny on the dollar will get stinky rich.
If this is another PR move to save the markets, it's a bad one. It would've been much more confidence-inspiring if they'd have said the Super-SIV wasn't necessary.
brady bonds were packages of loans made to people that shouldn't have gotten them made by people who shouldn't have been making them. the credit markets were having similar trouble then as it was 'gonna bring down the system.'
so package 'em up, get 'em off the books, pick up a bid, any bid - and move on...
is this true or not true?
"The shorts already HAD their positions and got robbed."
Who are "the shorts" and why should I care if they "got robbed" - though how losing money on a speculative position in a voluntary market that almost every retail short would acknowledge is rigged can be robbery escapes me at the moment.
"The PPT sparks the shorts to cover and the few dollars remaining on the sidelines to get in on the short covering rally."
So the shorts are out of the market? But you just said:
"It's my belief that the shorts are the ONLY reason the major indexe haven't collapsed 40%, since the short positions are so large it's impossible for shares to give up a lot of ground, supplying support."
Are the shorts in the market or were they driven out by the short-covering rally?
Why FAS 157 strikes dread into bankers - just when we hoped the worst was over
Why FAS 157 strikes dread into bankers | William Rees-Mogg - Times Online
F. Frederson
Do you activly trade the US stock market on a daily basis in real time?
Hey I just flashed on how the whole MLEC thang turns out - they pull the latex mask off of Paulson to reveal gasp Old Man Smithers - who then cackles at the blogosphere "And I would have gotten away with it too, it it weren't for you meddling kids!"
how else would the bankers and brokers cash in on their salaries, bonuses and options without driving stock prices to incredible highs and then trying to figure what to do with the garbage left over from the party?
"Why FAS 157 strikes dread into bankers"
tol...icle2852547.ece
Times Online | News and Views from The Times and Sunday Times
".......FAS 157 may prove an historic regulatory blunder."
And so tell us - Why doesn't an investor have the right to know "whats in your wallet"
I am actually surprised at how well the SIVs are doing, and how few of them are having problems or downgrades.
If you read the whole Fitch overview, it's actually reassuring on what has happened to date.
Like many here, I have a concern about what happens when the underlying investments keep dropping. However, most of those SIVs aren't very concentrated in a particular asset class. Since they aren't majority subprime, subprime can do some damage, but not nearly as much as if it was a single asset class.
However, the joint fund to provide liquidity and buy assets still isn't making sense to me. Either there is some major arm-twisting, or it will work differently than what has been described so far in the media. Being a technical researcher, I know how badly the media butchers many technical topics. I'm really hoping the real way it works is different than reported.
F. Frederson - Are you for real? Sebastian no longer offers free sage investment advice, so... What are you buying on Monday?
dc1000
Really like the Brady bond analogy. I'm a small buyer at the right price.
there is a plunge protection team.
the team consists of the president of the NY fed, (Geithner) he treasury sec (Paulson) Fed Chair (Bernanke) and their closest advisor's. They tap the brakes or hit the accelerator on the market by providing loans and "suggestions" to the companies to which the Market Specialist belong. Of coursee Specialists... MAKE... the market between the brokers on the floor of the stock exchange.
From the NYSE, glossary, definition;
Specialists
A specialist performs five essential functions in the specific securities allocated to him/her:
*
Manage the auction process. To maintain a fair and orderly market in a particular security, the specialist establishes the opening price for his security every day. Then, during the day, he quotes the current bid and offer prices to brokers.
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Execute orders for floor brokers. The specialist can execute an order immediately or hold the order and execute it when the stock reaches the specific price requested by the customer. As a dealer, the specialist will buy or sell stock from his own inventory to keep the market liquid or to prevent rapid price changes.
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Serve as catalysts. Specialists are the point of contact between brokers with buy and sell orders. The specialist acts as a catalyst, bringing buyers and sellers together enabling a transaction to take place that otherwise would not have occurred.
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Provide capital. If buy orders temporarily outpace sell orders, or conversely if sell orders outpace buy orders, the specialist is required to use his firm's own capital to minimize the imbalance. This is done by buying or selling against the trend of the market until a price is reached at which public supply and demand are once again in balance. Usually public order meets public order without specialist participation, however, specialists do participate in about 10 percent of all shares traded.
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Stabilize prices. To ensure that stock trading moves smoothly, with minimal price fluctuation, the specialist will step in against the market trend. Specialists buy and sell stock to cushion temporary imbalances and to avoid unreasonable price variations.
You can be silly and not believe in the tooth fairy, Angels or even Santa Clause...but you better believe in the PPT or you are certainly going to hell.
The big news about the SIV didn't do anything for the overseas markets tonight, all RED, Yen Up
dry you must not understand me. no i'm not ponying up just yet but what i'm understanding here is that the idea is to get a BID and BID
They can get bids without tiis monstrosity (FrankenSIV?) - they just don't (1) like the price they'd get and (2) are levered up to and beyond the red line... and would just as soon NOT have to acknowledge the real price they fear they'd get... see item (1) above.
Really like the Brady bond analogy. I'm a small buyer at the right price.
Lotsa folks would maybe buy this crap if the price is right - so sell them. Why bundle into ANOTHER SIV layer... except maybe to skim off an additional layer of fees. How does that improve the economics & performance of the underlying collateral?
This sucker is fishy - there are lotsa ways this is NOT like Brady... For one we knew what was backing Brady (bonds for country X, country Y, etc.) In HIMLEC... its tranches of CDO^2s of CDOS of MBS of mortgages of what?
Liquidate the damned things as is and take the hit - or hold'em and make the vehicles 'perform'... if they dare.
More socialize risk & privatize reward. Sickening.
I am actually surprised at how well the SIVs are doing, and how few of them are having problems or downgrades.
God bless mark to myth!!! Every company and off balance sheet entity should have virtual valuations - the wave of the future!
Guys, I'm glad you like my "SIV-positive" quip. If I didn't laugh, I would have to cry.
Props to CR & Tanta for hosting this best of all blogs. Sorry I've gotta do more lurking than posting for now.
Super-SIV is the sound you hear as the helicopters warm up their engines. This fiendish scheme has freshly printed dollas written all over it. The Yen is reacting as expected. Are any hedgies still messin with the yen carry? If so they are a lot dumber than I thought. Playing with fire given the dolla's stinky performance.
Thank GOD we still have THE dominant global military apparatus. The uncertain future may require it. Hell, maybe even to tame the natives inside our borders
But could it may be an accounting vehicle to deffer write-downs for a year or two?
Jack Staub
then some vintages will actually pay back their investors and those who bought at 1 penny on the dollar will get stinky rich.
dc1000
both nailed it dead solid perfect.
Dryfly, for accounting purposes they want the dregs off the books and to be a certain number. This won't be a decade long write down, 2-3 Q should do the trick
Ah, the schmucks can try all the games that they want to try to protect their banks. But, $75B is a drop in the bucket.
Wherewithal to pay is dropping like a rock, as evidenced by skyrocketing foreclosures, falling sales tax collections, plummeting corporate profts.
Paulson and girls are going to be swamped by plunging confidence in the U.S., rising real interest rates, and big drops in economic activity.
Wall Streeters, enjoy your last year of nice bonuses, and make sure that you buy lots of gold with it, 'cause your going to need it, schmucks.
Mail delivery must be slow in Japan; they must not have gotten the NYT with the good news about HIMLEC.
All that red; didn't they get the memo?
Stay red, Far East!
CR: Perhaps "Orderly" is the new "Contained."
Said the sick banker, to the hospital attendant, after receiving the HIMLEC maneuver: "Orderly, I don't feel very contained!"
What is the NAV of a SIV that owns stuff that is just leveraged on something else (and maybe again)?
What the Fed wants is for the Europeans to print more money while the Fed does--everybody devalues debt at the same time.
ditto
1922/1923 pre-hyperinflationary Germany taking place in the USA.
Similarities: Credit has stopped. The previously fabulously profitable, now heavily extended debtholders go BK, including the foolish pier holders.
Guldmark is next to appear.
FF, the shorts were stopped out at the new high, over 14000, and new longs were stopped in at that same new high. The money will come from the downside, driving out the weak longs, having jettisoned many shorts (BK'ing them in that Sept/Oct rise).
Fear, Confusion, Panic. Our new friends.
ot the best source but wiki says "The key innovation behind the introduction of Brady Bonds was to allow the commercial banks to exchange their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to these banks."
the idea here is the same but today's version appears to be missing one key element - the true guarantee. the brady's were collateralized by zero coupon bonds and other securities held by the Fed.
today's version also appears to be missing another key step in that there has been no structured negotiations between creditors and debtors, unless you count citi negotitating the the SIV to determine the value of what they're contributing to the fund. - the proverbial hair cut.
the bottom line though is that this is the same situation all over again.
this has happened through ALL TIME and HISTORY
banks make loans
loans go bad
banks have problems
banks figure out a way to fix
fix happens
banks make more loans
credit cycles and business cycles are as old as time. there is no reason to think things wont get worked out this time as well
just ask the banks who funded Bolivar's wars in South America or the South Sea Trading Companies or Bridges to No Where in Panama or IO NEG AM mortgages to Tom Dick and Harry