Perhaps Citi should release their forecast for house prices so we can see if the $8B to $11B writedown is sufficient.
That and I'd like to know what they expect the underlying cashflows to be that ultimately supports those RMBS, CDOs and SIVs valuations.
Estimates of collateral values and loan performance would just about tell us all we'd need to know... which is maybe why we'll never see any of this until we read it as 'history' someday.
"A lot of us were scratching our heads wondering Where did these bonds go, said a banker at a rival institution who was not authorized to speak publicly."
Question: where do the bonds "normally" go? Pension funds, mutual funds, insurance companies, high-end investors, or elsewhere?
What difference does it make where the bad loans end up? Bad is bad. Someone is going to end up screwed. The black swan was falling house prices. Now it is time for payback.
The banks didn't realize there was a systemic problem not captured by their historical models - falling house prices - and diversification doesn't reduce this risk.
You will note the article does not mention I-Bonds (inflation protected savings bonds) or TIPS (treasury inflation protected securities) and there's no analysis of what high inflation rates have done to inflation adjusted stock returns.
Add all of this up and it means that you've got to have a smattering of all asset classes. Ideally, your portfolio will hold a mix of small- and large-cap U.S. stocks, a smattering of international stocks, some REITs and some bonds.
It's just the same old diversification plan that has worked for decades. It's just a giant SIV's worth of smattering in my opinion.
Follow the strategies above and you'll be well on your way to handling anything the economy dishes out.
The theory is that diversifiation will protect you from anything, but that you should only diversify in things that worked during the 1980s and 1990s (stocks thanks to falling interest rates, real estate thanks to falling interest rates, housing thanks to falling interest rates). I hope there's not a common "diversification" theme there, especially since the article is claiming inflation is the big risk.
can we dump TB please ? He/She has already posted porn-like links in the past. Its not appropriate,IMO to have the opening comments about the issues the Troll finds important. As a long time online person, right back to Digital Equipment Corporation's SOAPBOX and other notes conferences dating back to 1985( shit, that's 22 years ago). there is only one way to handle such behavior.
With some thought, I suggest delete ( and then delete my comment too).
The biggest criminal of Enron, who got least punishment, was a Jew too.
Just so we're clear here, I did not suggest Enron was yet another "Jewish Conspiracy", but I do find it interesting how you single out the "worst offenders" by ethnicity.
Just clarifying my position, but CR might as well delete this too.
Getting back to the main topic, do you people think that Citibank is getting the skeletons out so fast, because they will then have the highest chance of getting bailed out by being first in the line, or are they really in worse shape than most other banks and brokers?
Also, does anybody else believe that Goldman is immuned from all these problems ? Somehow their comment that they shorted the subprimes from Feb and so were on the receiving side of the trade seems like a big lie to me. These guys all move in a pack, when there are billions of dollars involved. Hard to expect such originality from Goldman.
James - start with the idea that so many people at the top of Wall Street are HUMAN !
The "OTHER" is a vicious idea - this is not the blog for discussing this but absolutely I welcome email and discussion around this - in a forum that finds those aspects important.
Anyone have a guess at BAC's ultimate writeoffs? How about WFC? Which depository institution is most likely to emerge from this mess as king of the hill?
sk: I didn't initiate the discussion of the Jewishness of high finance. I was merely suggesting a few thoughts about it. It is probably not a topic for extensive discussion here. But the fact is that certain occupations in the US are disproportionately Jewish. They are on the whole ones that require high IQ: doctors, lawyers, high finance, punditry, movie making, etc.
This is the wrong forun for these things. But it 3AM (and TANTA is not watching).
The eastern european jewish traditon, what i know, stresses education. this and this aspect only is responsible for a greater success (%)within the sub-group, then others. The rest is an accident of history, you're not allowed to own land, you go into finance.etc
Article in FT stating that the banks still aren't marking their books to the closest traded price (ABX Index) for these bonds. Its mentioned that UBS for example, would have to write off another $8 billion if it did.
How much would have to be lost(written off) to "sink" Citigroup? That is, propel it into bankruptcy, from which it might or might not be rescued?
James
That's the million dollar question, innit? They guessed badly in so many different schemes that it's now an issue.
Whatever they're offering up as losses is maybe half their true exposure among all product lines. They have the assets to cover it, but for them it truly is more of a liquidity issue than a solvency issue; only if the government jawbones the markets.
In theory BK would be the best way to resolve these issues, but it would kill equities in such an insidious way you'd think Agatha Christie had designed the murder.
Thanks James and ihoIVINS for your replies. They do answer my queries. I understand that it is not the right forum, but the questions popped in my mind after seeing so many 'coincidences'.
Home-builder stocks rose Monday after a Citigroup analyst raised his stock ratings on several of the sector's largest companies on signs the worst may be behind the embattled industry.
Ha ha ha...I used to think those analysts were intentionally misleading the public, but it seems like their CEO was also driking their own cool-aid
Maybe Wall Street and their friends are not really crooked.....they are just plain dumb.
I always mistrusted Mozillo and now I think it was not right. I feel sad and guilty now - sob, sob, sob. I will buy their green band from Ebay tomorrow.
On second thought, should I wait for Citibank's wristband?
Stephen Kim is the biggest housing bull analyst out there. If you've ever listened to homebuilder earnings call you can always hear him softballing questions to management and trying to turn negatives into positives. He is basically the Anti-Zellman.
Paul Krugman and Josh Marshall are both self-described Jews and would not have been behind any of this criminality for all the money in the world.
What appears to have happened is similar to what happened to Christianity in the third and fourth century. A religion became infested with magic. In this case, the magic was "mark to model".
There's a real battle now between bulls and bears on the home builders. Will the HB's drop to new lows or will all of those value investors start to prevail? Personally, I think that the value guys are at least one year early, but it's possible that bears will need to stand by and let the bulls take up the stocks for a while. However, October home sales data could be sharply down.
Hey, Troll Brothers --any time you want to call my gentile self a coward to its face, I'd love to meet up with you. An unusual number of Americans in positions of power in the financial world are Jewish for three or four historical reasons. First, Jews, deprived of every other economic opportunity, especially ownership of land, went into a money lending; they were also uninhibited by Christian injunctions against usury. Secondly, there is some evidence that Jews have higher IQs than non-Jews. Third, European anti-Semitism is an enormous inefficiency that the United States is proud to have corrected for; and lucky: it allowed, among other things, your heroes in the Third Reich to not take advantage of their best physicists, who instead designed an atomic bomb for democracy. Finally, American Jews are by and large urban, family-oriented, ambitious, hyper-smart, and thanks to an emphasis on close Talmudic study, hyper-well-educated. If your kid is flipping their burgers, you might want to put down the Elders of Zion, and look in the mirror instead.
As the overseas markets continue to decouple (that had to be the most hilarious proclaimation I have heard in quite sometime).
Let's explore a couple other fallacies that have appeared on this forum.
The first back when the 10 year moved towards 5.25% and almost all participants declared higher rates forever! As I explained, the 10 year would move towards a 3 handle and there would be an unprecedented flight to quality. Some scoffed at the idea, well, it seems that they were very wrong, the news, by any measure in the credit markets is and has been clearly deflationary and the 10 year rests at 4.28% this morning.
Lately, the hyperinflationary calls have been arising more frequently, this is off base and you will likely see a commodity collapse in the near-term due to the developments in the credit markets, which, again are clearly deflationary.
Another fallacy, was the refusal to accept the repricing of risk that had taken place in August, you will see further repricing of all risk assets going forward.
Balance sheets will shrink and credit will become far more tight. The next shoe is the distressed/HY debt that needs to be refinanced, corporate defaults will likely move to the double digits.
Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible. The dividend talk at this point is premature and frankly surprises me with those that should understand balance sheets and options that clearly exist.
Understand, we are headed for a difficult period which will likely be prolonged, but, some of what is being written is utter garbage-
Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline
mooncalf: much of what you say is correct. However you should remember that Germany was not defeated by the atom bomb. It was defeated by first the firepower of the Russian army and second by that of the US army. The bomb served simply to end the war vs. Japan faster than otherwise would have been the case.
All the fat cats at the top made their money back from the Stock Market scandal and the Enron losses in 01, now they are all jumping ship with millions in overseas banks waiting to be treated like royalty. We the consumer on the other hand are left holding the bag...and we all, all, received a little royalty ourselves..a royal screwing.
And the screwing continues, through the so called New Bankruptcy laws that flew through congress amongst other BS bills.
They get a slap on the wrist you get put in the street...nice trade off huh.
They only have to be plausible, not accurate or defininitive.
Citi and other parties in similar positions will not just lay down and die.
They will fight to the end, meaning that there will be a long trail of such pronouncements.
But geez, so many of the brightest people in the room not ever conceiving of a downturn in housing prices or mortgage issues?
I guess that's where the private hotel floors, gated communities, private jets, private schools, drivers, $1000 golf games get you--isolation, ignorance and hubris.
Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible.
Part of what supports our banking /financial system is faith and confidence. When J6P looses that faith, then things begin to go squirrelly. I have no desire to see a large bank fail because punishment and retribution would come full circle to my front door... and yours and yours. The system is screwed up, not terminally broken.
....A war between France and England for land in the New World was lost by the French, almost bringing the country to bankruptcy. Pandemic diseases like the plague no longer killed a significant portion of the population. As resources became fewer more and more people where born and survived childhood, more mouths to feed each day and less available with which to feed them. The division between the rich and poor was greater than ever. In France at this time you either lived in ridiculous opulence or horrid poverty, there was virtually no middle ground.
The lynchpin that brought about the revolution was the coronation of Louise the XVI as king of France. Ill prepared to rule a country, especially one in such disarray, the gap between have and have nots widens. Meanwhile, in Paris a new movement begins, the age of enlightenment. Ideas from the recently freed United States of America have worked their way to Paris being ideas of freedom, self rule and rights for all men. Long before this revolution would pour into the blood filled streets it fermented in the minds of men throughout France, the monarchy was facing a severe challenge to what they considered their God given rights.
The costs of basic items such as flour go far beyond the reach of the common family While the royals dined with the finest treats in the world most of France faced starvation. The fuse was finally lit and with a population that felt they had absolutely nothing to lose the French revolution was born.....
One quick observation on Wall Street morays -- I have 5 years of experience in construction and 20+ years in investments.
I haven't been extremely impressed with the unimpeachable ethics of any industry, but I do think that the standards of Wall Street are considerably higher (or should that be, "less low"?) than those of the construction biz, heavy commercial, light commercial and/or residential - take your pick. One quick example from the construction business: in the 1970s in one southern state I worked in, the outfit I worked for was an "open shop", but to remain eligible to bid on certain kinds of union jobs had to agree to pay "prevailing wages" to all its non-union employees. Except that it was so expensive to do so, that everyone (the union bosses especially) understood that open shop companies like mine would sign the agreements with unions, but then go ahead and pay non-union wages to non-union workers and then at the end of the year pay the union a "fine", which was calculated to be notably less than the savings from violating the agreement. I always wondered what a forensic audit would uncover about where the fines actually ended up - union coffers or bosses' pockets. I have a pretty good wild guess.
TB, while denying it, raises the significant (if maybe tangential) question of what group will be scapegoated if these events lead to a cataclysmic denouement.
Rest assured that it won't suffice to jail a few highly visible second-tier players, as has been the case in the past. Historically, Jews have been scapegoated, and it isn't outside the realm of possibility that it will happen again. It may also be the Pigmen, the UltraRich, or even the Fundamentalist Christians who put Bush/Cheney in power. It could even be the Boomers, fingered by GenX.
Of course, maybe this will all blow over and scapegoats will not be demanded. If they are, you've just heard the beginning of how ugly this will get.
Not knocking you, TB, but let's keep this in perspective.
Geez, Troll Brothers, your trolling is weak sauce. You could at least bring Hitler into it. (BTW, did you know he was terribly flatulent? Cracks me up.)
On the other hand, it's amazing that even with a name like "Troll Brothers" people are responding to you as if you were serious.
RC, I tend to agree with you regarding C going BK - a highly improbable event. But, having a little bit of experience in these matters, I DO think there is a >50% probability that some mid-tier players could be decimated.
C has the assets and the balance sheet to whether a tremendous storm. Regional wannabes and second-tier players don't. My feeling is that this will look like a glacier melting - chunks falling in all around, but the big iceberg staying mostly intact. In the end, a company like C (also Wachovia and BOA) may benefit from the turmoil and consolidation.
What difference does it make where the bad loans end up? Bad is bad. Someone is going to end up screwed. The black swan was falling house prices. Now it is time for payback. The difference is that the FED is interested in minimizing bank failures. BB isn't going to break a sweat to save Chinese central bankers, but when Citi whines he listens.
They've created financial instruments that through pooling (diversification) are likely to have losses only with a protracted, national fall in RE prices. This enabled the market to bid up prices until that is exactly what happened. Improved, more grippy tires on race cars don't decrease accidents. They mean that accidents happen at higher speeds. The Davey lamp didn't decrease mining accidents, they meant that people worked in mines previously considered unsafe. Safety systems don't increase safety if they simply allow opertors to run faster/closer/under more dangerous conditions. THAT is the lesson that we should draw from this. The pooling and tranching process won't reduce overall risk if people are simply encouraged to make riskier loans. But since they have pooled the market into a national one, we have a national decline.
In failure mechanics, you DON'T usually want to eliminate all failures except for catastrophic ones. Instead you often design systems with weak links so that failures are obvious and non-catastrophic. That's what fail-safeing is: non the elimination of failure, the ensuring that failures result in a safe situation rather than a catastrophe. Like a 20% downpayment: It does little to prevent foreclosure, rather it ensures that the bank against loss of principal.
TB, while denying it, raises the significant (if maybe tangential) question of what group will be scapegoated if these events lead to a cataclysmic denouement.
Bloggers caused this! If they hadn't demanded to know what was really going on, and made people curious, Wall Street could have kept the game rolling forever!
Risk,
I just had a quick look at the financials on Yahoo. I am looking at the suddenly bloated Balance Sheet and nearly cash neutral Statement of Cash Flows on decent earnings. In a time of turning markets, that's not pretty at all.
Sounds like a lot of people are afraid if the big banks fail. I don't feel afraid in fact I think they need to. Smaller more nimble banks will replace them and they are likely to have learned from these idiots mistakes. I feel if these idiots survive either by bailout or pure luck we will be here again in 15 years talking about the same crap different verse.
Safety systems don't increase safety if they simply allow opertors to run faster/closer/under more dangerous conditions. THAT is the lesson that we should draw from this.
That was the best post on this thread, and the best I have seen on the entire blog for some time.
Even worse than all those jews in the big financial groups, there are christians in just about all the other jobs! These whackos try to squeeze anybody else out of the business, and cut plush deals for all their christian buddies. I tell ya, it's enough to make a grown man believe in NASCAR!
"Also note that many of the IBs (especially Citi) might be making a similar mistake"
Well, that's the question, isn't it: who and how much? Interesting that the major U.S. IBs are hanging on the ragged edge and yet stock investors think every other business, except homebuilding, will keep kicking out record profits. Amazing.
Joe Banks,
I would prefer to see the big banks crumble slowly under their weight rather than this spontaneous combustion. However, no one asked me what I wanted.
I read "Extraordinary Popular Delusions and the Madness of Crowds" right in the midst of the tech-boom and was amazed at the similarity, not only in misperceptions, but in vocabulary from different eras.
Troll Bros - don't you see the statistical problem with your sampling? If you look at the Implode site and investigate the backgrounds of the principals, you'll find a very unconvincing link to Jews.
Are O'Neal, Prince and Mozilo Jews?
You are following a mental process similar to the ones used to build these models that predicted that the values of all of these Super Senior securities. Highly selective and showing a complete lack of rigor.
What did the Japanese RE bubble have to do with Jews? What do the bubbles in places like Kuwait and Dubai and multiple Asian locations in which you'd have a hard time finding a Jew?
For those who are interested in the topic of financial blame games, it might be worthwhile researching the fate of the Knights Templar and the moneylending class in medieval Japan.
The real question about the genesis of what's happening is the one Tanta asked a couple of days ago in her thread about risk. Why did so many people suddenly ignore risk? Why did so much of the population?
Have you noticed that no one has won a Miss Universe contest except earthlings?...Coincidence?....Rigged?
You decide! - the_economist
That's not true, I've picked up a broadcast from the third planet in that binary star system over in the next galaxy, and let me tell you, those girls know how to wear an evening gown. And talk about talent!
Citi Credit Swaps: Credit-default swaps on the New York-based lender opened 8 basis points higher at 80 basis points, according to prices from Lehman Brothers Holdings Inc. The contracts, which rise as perceptions of credit quality worsen, have increased from as little as 10 basis points in June and last traded at 73 basis points at 8 a.m. in New York.
There's an interesting comment in the article by an RBS analyst: With a new CEO, there's always the chance of a new broom coming through and wiping the slate clean for the new financial year,'' said Corinne Cunningham, a credit analyst at Royal Bank of Scotland Plc in London.That leads to increased uncertainty in the short term.''
In other words, the odds of Citi searching its conscience and making a more detailed confession just rose.
These type of comments look more like PR or at best some industry driven drivel. Citi's big problem is the creation of opaque SIV's using varous Enron accounting methods. Most of the CDO financial talk is well known and the fact that their value is based on home values and cash flow is not news, sooner or later who created these off shore units why and how they operated will finally get vented.
Now that the Federal Reserve's two interest rate cuts have "reduced significantly" the risks to the economy caused by financial markets, those risks are "balanced" by the risk of inflation, Fed Governor Frederic Mishkin said today.
Because of that, he will "want to carefully assess" economic data and the effects of financial conditions before even "considering further policy action."
That's nice so is it going to be a 25bps cut or 50 in December?
I will never get back the 5 minutes of my life I spent listening to the horrifyingly upbeat Citi conference call.
Also, a quote I know you'll love:
"It's our view that these very very steep price reductions in real estate (as alluded to in the ABX) won't actually happen."
Yep, Citi's professional analysts have taken the position that the ABX is wrong and that housing prices and cashflows from their CDO's won't drop. Who wants to bet we'll see the phrase "unforeseen losses" when discussing their q407 writedowns?
I opened a Citibank e-savings account a few months back when they started offering 4.75% APY. For various reasons (bad service, recent troubles,...) i started transferring money out by inter-bank transfers and noticed that they lowered their limits from $5000 / day to $2000 / day sometimes in the last month or so. May be completely unrelated to recent troubles, but still a little disconcerting.
Let me share a little anecdote about happenings here in Southern Oregon. I have a buddy who is a large used car dealer, writes much of his own paper. He called one day outta the blue and "long time no see... I could really use your help, come down and see me.."
Well, he is quiet wealthy, couldnt imagine what he wanted, though I was gonna get hit on for some form of charity gas iron work... But I went on in..
Its bad, real bad. Sales are way down and he had 472 different vehicles on his repo sheet. He is bleeding to death. That is simply a huge number given the limited size of this area, and these are his vehicles, not held by the bank or other lots. He knows I am very well connected, and offered me a birddog fee for locating these vehicles. You wouldn not believe the names, I recognised many, especially in construction who are no longer paying for their big fancy trucks. I saw 3 vehicles the first day, two I knew the owner well, and in the other instance he was a part time employee of a friend. I just dont have the heart to call the repo crew on these guys and am debating wether I should just give the list back to the lot owner and tell him.. but I could have made $300.00 dollars that day hardly going outta my way. Someone is gonna take that money who is less principled, I think its a given..
In other words, the odds of Citi searching its conscience and making a more detailed confession just rose.
In the game of expectation management, "Blame it on the old guy," is a standard ploy.
Yep, Citi's professional analysts have taken the position that the ABX is wrong and that housing prices and cashflows from their CDO's won't drop. Who wants to bet we'll see the phrase "unforeseen losses" when discussing their q407 writedowns
There are none so blind as those who will not see.
Why do you think commodity prices will correct near-term? Because you think IBs will squeeze HFs who speculate on commodities? I was thinking that a commodity squeeze would be like a year away due to the time it takes emerging markets to catch the cold. What do you think?
Jews have a culture of ultra-education and we know there's correlation and causation between education and success (i'm not just talking about formal education or high education, I'm talking about teaching your kids all kinds of stuff on random occasions). So no need for racism... and especially not on CR.
I cannot believe I am replying to this idiocy but . . .
mooncalf,
let me get this - You are replying to ridiculous racist anti-semitic queries by TB . . . by arguing that "Jews maybe smarter than non-Jews" (not including you apparently) . . . . uhh do you want to rethink your own "racist" thinking.
Neal 7:39: Please, please stop with the nonsensical history, all wrong and loony. Where did you get all that stuff, from your grade school text book or some movie? Instead read The Coming of the French Revolution by Georges Lefebre. Real intelligence and research there.
CIBC: Citis math doesnt add upNov 05 15:02
by Sam Jones
Comment
In the wake of Citis latest writedowns, CIBC - the analysts who precipitated the banks share slide with their dividend-cut note last week - have issued another warning: Citis math doesnt add up.
Citi insists in its statement on Sunday that after the $8-11bn Q4 writedowns it expects to realise, More
In the wake of Citis latest writedowns, CIBC - the analysts who precipitated the banks share slide with their dividend-cut note last week - have issued another warning: Citis math doesnt add up.
Citi insists in its statement on Sunday that after the $8-11bn Q4 writedowns it expects to realise, it will not be cutting its dividend and will restore capital adequacy by the second quarter of 2008 - flatly contradicting CIBCs October 30 predictions. CIBC issued their own note on Monday, and questioned Citis figures:
The math on this announcement just doesnt add up in our opinion. After what we now expect to be a loss for 4Q and a payout of $2.7 billion of its dividend, its capital ratios should only deteriorate materially. Note, we are not even assuming further credit losses or SIV put backs in this calculation.
By our estimates, Cs payout ratio will be in excess of 90% for 2007 and roughly 60% in 2008. Assets sales intended to improve capital ratios would only lower earnings and push the payout ratio to prohibitive levels. This is the Catch 22 we referred to in a prior note, dated October 30, 2007.
We continue to expect more negative headline risk from C. We continue to believe severely low capital ratios will be the main area of focus, and that as Cs price heads towards the low 30s, pressure will be felt across all financial stocks.
We believe that for Citi to re-establish an average tangible capital ratio of over 4.25%, the bank will need to raise over $30 billion in equity. To do that, it could cut its dividend, raise capital, sell assets, or a combination thereof. In any of those scenarios, we believe the earnings and returns would diminish significantly.
To reiterate then: the dividend will be cut.
Question: where do the bonds "normally" go? Pension funds, mutual funds, insurance companies, high-end investors, or elsewhere?
PBOC, and Cayman Island offshore funds run out of Dubai.
They just started puking USD assets.
When they sent Paulson over to Beijing to sell mortgage bonds, they figured, "Why now? What might a US Treasury secretary and former CEO of Goldman know that we don't know....yet? Does he think we just woke up yesterday?"
That anomalous action probably convinced them to do the opposite. Quite wise.
(OT) Interesting ISM report this morning, parts of which surprised even me.
"...The nine industries reporting growth in October listed in order are: Other Services*; Mining; Retail Trade; Construction; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Accommodation & Food Services; and Health Care & Social Assistance. The four industries reporting decreased activity from September to October are: Management of Companies & Support Services; Information; Wholesale Trade; and Public Administration...."
and this one:
"...Commodities in Short Supply
Assorted Qualified Labor and Construction Labor...."
His last comment is not true that 20 percent down doesn't prevent forclosure. In fact, the 20% rule acted as a brake on the ability for many to purchase homes (and bid against others purchasing homes). The increased buying pool placed an artifical bid on homes and gave more people unlimited buying power. Even people with good credit and steady income were forced to compete and thus overpay. Any job loss, divorce, means a forclosure, in addition those who can afford to stay in their house ironically now cannot afford to sell and buy more. Good buyers are stuck and thus there is a lower demand for the homes the banks wnat to offload.
His race track scenario is more accurate if you say that the better tires lowered the risk at 150 mph, so they opened the track to amatures and encouraged higher speeds. The tires become irrelevant as the speeds drop due to the volume of drivers and get worse as the carnage left on the tracks keep the speed lower even after the number of drivers still moving forward is lower even than before opening the gates to the amatures.
Hmmm... rc, you're sounding just a little less short-term optimistic than Banker.
I stand by my comments about at least one major IB and several major HBs failing before the downturn is over. However, that's somewhere in the next 1-3 years. Depression won't be in full swing until around 2009 at the earliest.
(quote)
"Lefebvre's account of the origins of the French Revolution was written in Quatre-Vingt-Neuf, and published in 1939 to mark the sesquicentennial of the events of 1789, but the Vichy government that took over the following year wanted no left-wing history or sympathetic understanding of the Revolution, as they drew their support from the anti-republican right[citation needed]. The régime suppressed the book, ordering 8,000 copies to be burned; as a result the work was virtually unknown in its native land until it was reprinted in 1970. Its reputation was already secure in the Anglophone world, however, since the English translation, The Coming of the French Revolution (1947) had established it as a clear, yet subtle, classic. It remains the definitive explanation of the Marxist interpretation of the causes of the revolution."
(end quote)
Pehaps you could explain the Marxist version of the causes of the French revolution that does not include the themes of privelege and poverty, class and class warfare, and the struggle for dominance of the capitalistic state?
The corollary to Jim A's excellent post: anything that allows you to "safely" increase leverage also creates more price volatility for the underlying asset. You can't forecast house price behavior by looking at historical experience, because you'd be looking at race car driving before the grippy tires showed up.
The idea of the foreign consumer riding in to take the place of the US consumer doesn't seem to hold up under scrutiny.
The US is only 5% of the world population. Get a clue.
That was sort of the point of my comment -- foreign consumption is not rising in concert with the steep rise in foreign production. The US consumer is not filling the gap.
Production unmatched with consumption has, historically, lead to serious problems stemming from oversupply and overcapacity.
AJ I agree that 20% down does decrease the chance of foreclosure some. And you're right about it's secondary effect on the market. But it does much more to decrease the banks losses in a foreclosure. It was not the best example of the principle that I was trying to illustrate. I wasn't thinking so much about indy or cart racing in the last 20 years as the difference in autoracing between 1920 and 1950. Wider tires meant that the cars could take the turns much faster.
OK worlds highest paid supermodel gets what BSB and Paulson do not...
thats a low blow to some fine experience and education
"Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means. "
In 1939, in observation of the 150th anniversary of the French Revolution, and on the eve of the Second World War, the great French historian Georges Lefebvre published this classic study of the beginnings of the French Revolution, from the summer of 1788 to October 1789. Lefebvre's signature contribution was writing history "from below"--a Marxist approach--and his particular specialty was the French Revolution as viewed from the experiences of the peasantry. Placing the "common people" at the center of his analysis, Lefebvre emphasized the class struggles within France and the significant role they played in the coming of the Revolution.
Jim A's faster tires analogy only works if the race track stays open only to the existing drivers.
20% down doesn't make a difference if those who were buying before were now allowed to do so without the down payment. In other words, you look back in a normal market (1994-1997 say) and say "what difference would it have made had we not been so strict?" Well there wouldn't have been. Jim A is right in this vacuum in saying that the down payment itself didn't necessarily prevent anyone from defaulting.
However more things changed than just the LTV when you removed the 20% requirement. You first opened up the "race track" to many more drivers. In addition the existence of more able buyers meant that everyone paid more for the same assets. So it wasn't fair priced houses bought by responsible buyers without a down payment, but now it was overpriced houses bought by irresponsible buyers without negative equity.
The risks were expanded exponentially. This changed the landscape for some time.
To go back to the race track example. Faster tires didn't just allow the existing drivers to drive faster, it opened the track to fearless amatures forcing everyone to drive faster and faster to compete. Once the first wrecks occurred, the carnage gets strewn across the roadway, preventing everyone, no matter the skill level to drive artificially slow for some time. How slow? Who knows, it depends upon how bad the carnage. Some say it could grind to a halt altogether. Even Mario Andretti can only go 1MPH in gridlock no matter the tires or driving skill. So going back to the old tires and the 150MPH limit on the track is meaningless unless the track gets cleared off and only the previous level and number of drivers is allowed back on the clean track.
I also like rc's forecast and jim a's
post. A possible significant event will be ACA's earnings Wednesday. (I have no position). IMO ACA has the most CDO exposure of the bond insurers in relation to capital. Credit agency downgrades could affect the $61 billion of structured credit they have guaranteed.
AJ, in the race track analogy, IT DOESN'T MATTER whether you open the track to fearless amateurs. The professional drivers will drive at a speed that maximize their chance of winning while holding their chance of an accident down to whatever limit they find acceptable. Anyone who drove at that old speeds loses. The accident rates STAYS at say, 2%, despite improvements in the handling of the racecars. They don't have to be fearless, they have exactly the same level of fear that they did before. That's why I chose racecars rather than the much more contentious notion that safety improvements in passenger cars don't actually improve safety.
Thus we have a safety feature that does not increase safety. If you eliminate all minor failures, only major failures are left.
What's really preposterous here emanates from some who believe it is improper for anyone to state CITI is BK. American history has a past replete with failed companies. One of the most vivid is the repeated collapses of railroads. The equity holders were wiped out; the bond holders became the new equity holders, and later they too found the structure uneconomic and foundered. Banks now are in a similar position. For RR's, the markets were misperceived. For Banks, the markets have been misperceived. This is what's happening. All this hemming and hawing and defending is old hat. What I ask is "What's next?"
Anonymous, who issued you the "correct" interpretation of reality?
A said, "Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible. The dividend talk at this point is premature and frankly surprises me with those that should understand balance sheets and options that clearly exist.
Understand, we are headed for a difficult period which will likely be prolonged, but, some of what is being written is utter garbage-
Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline"
Not a soul here is calling for BK of CITI. If you start with a strawman, any outcome you choose will be our new, correct reality. Interpretation requires considered thought.
Everyone can see Citi has a net worth of $80B, more or less, excluding goodwill, which sits there until the TM is sold. There are large pieces of their known investment positions that are experiencing Sigma Six knocks. Those pieces have a nominal value that vastly exceeds Citi's net worth.
The job of not seeing into the future belongs to S&P and Moody's analysts. The inquiry here is what's real and what's next.
For those who assert 80% this and 3 that, my response is that so long as you choose to define reality your way, then you'll be able to say, "Nobody could have predicted that."
That's what we're hearing from the "leaders", the bankers, mortgage players, etc. And that is a crock of crap. So as to not set up my own strawman here, let's just go back to the line items and the numbers associated with each.
SIV Total Nominal Value Current Value by internal segment.
Pier Loans Same
Super High Extra Special Hold the Mayo
Same
Commercial RE Same
Muni Bonds Same
Loans to Mtg and Bond Insurers Same
Long Buried Losses Not Yet Surfacing Same
Forced Sales and deal repurchases due to dropping newsletter writers lettering system (a joke of hindsight and expected from the incompetence of their prior predictive capacities and utterances) (The US ought to use them as IED's, loaning them out freely to countries who disagree with its policies, to give economic advice.)
Same
Same
When we arrive at $60 B worth of write offs (no need to show the inc
Improved, more grippy tires on race cars don't decrease accidents. They mean that accidents happen at higher speeds. The Davey lamp didn't decrease mining accidents, they meant that people worked in mines previously considered unsafe.
I live in a world that's international. Your conclusions are nation-state local, and on top of that, you think that as the US goes, so goes the world. What was good for GM is "old world". What would be good for Citi is also "old world", though as an American, I wish what I observe as reasonably probable were not within probability.
A said, "Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline"
Welcome to the new world order, that ranks the US a bit further down than what you assert is reality, above.
But geez, so many of the brightest people in the room not ever conceiving of a downturn in housing prices or mortgage issues?
I guess that's where the private hotel floors, gated communities, private jets, private schools, drivers, $1000 golf games get you--isolation, ignorance and hubris.
Neal
Ditto
Neal, it's as if ml-implode and thehousingbubbleblog.com never existed or were for the "other people".
There are clearly people who for their own reasons continue to experience cognitive dissonance.
My point was that the 20% down didn't protect banks from just the damage to an individual default, what they didn't see was that it protected everyone from fewer defaults. It didn't protect them from what they thought it did.
Like your tire example: Increasing the safety of the tires but keeping the old speeds would be a proper use of getting the full value out of the safety enhancements, unless you thought that it was soooooo safe now that anyone and everyone could not race on the "safe" track provided they stayed at the reduced speeds with the safe tires.
Once the race track population went from 30 professionals to 3000 amatures, now even the professionals cant go fast enough to make the speed limits or the tires matter.
It's not a race track that went from unsafe at 150MPH to unsafe at 190MPH, it ceased being a race track altogether and is now a parking lot.
That was my point.
The market is broken and can't go back to the "old days" by just going back to the old standards.
When Bernanke estimated the losses at 100B, that was like saying "OK, OK, we are 40 MPH over safe at 190MPH on Jim A's race track. Just lop off 40MPH, bring it down to 150MPH and get back to work.
Meanwhile we have 3000 amatures kareening off the walls and about to make 30 MPH impossible without hitting the smoking wreckage.
Estimating when we get back to 150MPH now depends on other factors like how many tow truck crews we have, how many pro's and their cars survive, how bad the damage to the surface of the track is, etc.
In other words it's unknowable.
The risk levels you thought you were avoiding by staying at 150MPH weren't even close to reality. That's because when you decided to move to 190MPH you envisioned the same set of pros driving with the same skill level, just faster.
My point wasn't a contridiction so much as a side note to Jim A's comment.
The current damage isn't just a matter of subtracting the new risk from the old.
enough said on the topic.
Other than anyone who says they can measure the risk doesn't know what the risk is.
SDTFS but the tires allow to go faster primarily BECAUSE you can go around the turns at a higher speed. If you tried to go around the turn at a lower speed you WOULD spin out.
Here's the econ 101 type breakdown. Lets assume that we have a system with two failure modes. A fairly common breakdown and a very rare catastrophe. Lets assume again that breakdowns and catastrophe's are both proportional to the speed (or throughput or hours between maintenance) that the system is operated at. If we suddenly discover a way to halve the chance of breakdowns per unit of speed one immediate thought is that breakdowns would decrease. But if the primary limitation on the speed that the system is operated at IS the number of breakdowns, once it is ramped up to a higher speed the chance of catastrophe is actually INCREASED. Not just relative to breakdowns, but at an absolute number.
This isn't as farfetched as it might seem. People are pretty good at estimating common risks that they are familiar with and quite bad at estimating rare occurances. When there is considerable pressure to maximize production (or speed or what have you) people tend not to worry about rare but catastrophic occurances.
Average Joe: I think in the racecar analogy, the banks are the drivers and the increased number of marginal subprime borrowers are the higher speeds that they've been operating at. Every new borrower is an added MPH. There were plenty of idiot, young drivers upon the course: witness the "implode-o-meter," of kaput subprime lenders. But even Fannie and Freddy and the old-school banks have been driving faster. And all the debris on the course makes it hazardous for even careful drivers.
Are you saying Citi completely ignores their own analysis?
Heavens no!
I suspect they are fully embracing their private analysis! Too bad we never see that. It's on a need to know basis and we apparently don't need to know, lol.
Andrew, This website, and being able to reason things out among the posters has been VERY informative for me. I have NO idea where I first read about the Davey Lamps not improving safety, but apparantly that is THE cannonical case where safety equipment had the paradoxical effect of decreasing safety. The other analogy is with floodwalls. By hemming in the river and preventing minor flooding they raise the level that the river floods to because it has nowhere to go but up.
If real wages triple in california by christmas i am confident that the real estate market will recover to some degree by next spring.sleep well.
Perhaps Citi should release their forecast for house prices so we can see if the $8B to $11B writedown is sufficient.
That and I'd like to know what they expect the underlying cashflows to be that ultimately supports those RMBS, CDOs and SIVs valuations.
Estimates of collateral values and loan performance would just about tell us all we'd need to know... which is maybe why we'll never see any of this until we read it as 'history' someday.
Silly CR.
Citi--the 'i' stands for IMMUNE!
"A lot of us were scratching our heads wondering Where did these bonds go, said a banker at a rival institution who was not authorized to speak publicly."
Question: where do the bonds "normally" go? Pension funds, mutual funds, insurance companies, high-end investors, or elsewhere?
What difference does it make where the bad loans end up? Bad is bad. Someone is going to end up screwed. The black swan was falling house prices. Now it is time for payback.
All of the above plus Hedge funds and Central banks like Bank of China and Japan who buy US Mortgage debt to park their balance of trade surpluses.
CR,
The banks didn't realize there was a systemic problem not captured by their historical models - falling house prices - and diversification doesn't reduce this risk.
Why the Fed's rate cut should scare you
Inflation is a lot more of a threat to your retirement than a recession.
You will note the article does not mention I-Bonds (inflation protected savings bonds) or TIPS (treasury inflation protected securities) and there's no analysis of what high inflation rates have done to inflation adjusted stock returns.
Add all of this up and it means that you've got to have a smattering of all asset classes. Ideally, your portfolio will hold a mix of small- and large-cap U.S. stocks, a smattering of international stocks, some REITs and some bonds.
It's just the same old diversification plan that has worked for decades. It's just a giant SIV's worth of smattering in my opinion.
Follow the strategies above and you'll be well on your way to handling anything the economy dishes out.
The theory is that diversifiation will protect you from anything, but that you should only diversify in things that worked during the 1980s and 1990s (stocks thanks to falling interest rates, real estate thanks to falling interest rates, housing thanks to falling interest rates). I hope there's not a common "diversification" theme there, especially since the article is claiming inflation is the big risk.
You forgot to mention Woody Allen, He is also a jew.
can we dump TB please ? He/She has already posted porn-like links in the past. Its not appropriate,IMO to have the opening comments about the issues the Troll finds important. As a long time online person, right back to Digital Equipment Corporation's SOAPBOX and other notes conferences dating back to 1985( shit, that's 22 years ago). there is only one way to handle such behavior.
With some thought, I suggest delete ( and then delete my comment too).
-K
"Let's stick to the facts"
As long as those "facts" support the right conclusion?
Judging how those Enron guys stiffed people, they must be Jews too.
You've kinda made your point TB - as I have - Can you give me a website that you own and control that discusses this, TB?
-K
TB, go pursue your scientific racial inquiries elsewhere. You are wasting my time and demeaning this blog. Get lost.
The biggest criminal of Enron, who got least punishment, was a Jew too.
Just so we're clear here, I did not suggest Enron was yet another "Jewish Conspiracy", but I do find it interesting how you single out the "worst offenders" by ethnicity.
Just clarifying my position, but CR might as well delete this too.
Thank you. This is my last post in this blog.
Good luck.
Getting back to the main topic, do you people think that Citibank is getting the skeletons out so fast, because they will then have the highest chance of getting bailed out by being first in the line, or are they really in worse shape than most other banks and brokers?
Also, does anybody else believe that Goldman is immuned from all these problems ? Somehow their comment that they shorted the subprimes from Feb and so were on the receiving side of the trade seems like a big lie to me. These guys all move in a pack, when there are billions of dollars involved. Hard to expect such originality from Goldman.
LiT
James - start with the idea that so many people at the top of Wall Street are HUMAN !
The "OTHER" is a vicious idea - this is not the blog for discussing this but absolutely I welcome email and discussion around this - in a forum that finds those aspects important.
-K
TB, sorry about your ideations of persecution.
Anyone have a guess at BAC's ultimate writeoffs? How about WFC? Which depository institution is most likely to emerge from this mess as king of the hill?
sk: I didn't initiate the discussion of the Jewishness of high finance. I was merely suggesting a few thoughts about it. It is probably not a topic for extensive discussion here. But the fact is that certain occupations in the US are disproportionately Jewish. They are on the whole ones that require high IQ: doctors, lawyers, high finance, punditry, movie making, etc.
How much would have to be lost(written off) to "sink" Citigroup? That is, propel it into bankruptcy, from which it might or might not be rescued?
I do easily foresee an Onion article that describes Countrywide spending 2B to rescue Citibank
This is the wrong forun for these things. But it 3AM (and TANTA is not watching).
The eastern european jewish traditon, what i know, stresses education. this and this aspect only is responsible for a greater success (%)within the sub-group, then others. The rest is an accident of history, you're not allowed to own land, you go into finance.etc
OT but I'm told that Morgan Stanley also did similar trades to those of Merrill Lynch.
and i second (or third) the motion to delete any comment with the word jewish in it, including this one
Too damn funny ! O yeah, DJIA futures are -102 ( I should check the FMV to be exact ) right now but too damny funny.
If you read the Onion, and if you are Brit cognoscenti you'll LOVE Private Eye. Private Eye | Official Site
Depending on how good your French you'll also like NouvelObservateur
I just checked it and WTF, google wants to offer me the translated version:
Google Translate
original version is at :
Actualité et Information en temps réel : journal quotidien de presse en ligne, actualités internationales : Nouvel Obs
The original, harder to read is kinda more real - sort of. I really can't fault the translation given MY level of facility with French though.
Have at it and every idea you suggest that helps me stay acccustomed to another language is welcome. Maybe I should read 10Q's in French !
-K
Article in FT stating that the banks still aren't marking their books to the closest traded price (ABX Index) for these bonds. Its mentioned that UBS for example, would have to write off another $8 billion if it did.
How much would have to be lost(written off) to "sink" Citigroup? That is, propel it into bankruptcy, from which it might or might not be rescued?
James
That's the million dollar question, innit? They guessed badly in so many different schemes that it's now an issue.
Whatever they're offering up as losses is maybe half their true exposure among all product lines. They have the assets to cover it, but for them it truly is more of a liquidity issue than a solvency issue; only if the government jawbones the markets.
In theory BK would be the best way to resolve these issues, but it would kill equities in such an insidious way you'd think Agatha Christie had designed the murder.
As my white trash cousin would say,
"This sh*t f**ed up, yo."
Thanks James and ihoIVINS for your replies. They do answer my queries. I understand that it is not the right forum, but the questions popped in my mind after seeing so many 'coincidences'.
Respectfully, TB
from Oct 1, 2007
Home-builder stocks rose Monday after a Citigroup analyst raised his stock ratings on several of the sector's largest companies on signs the worst may be behind the embattled industry.
Home-builder stocks rise on Citigroup upgrade - MarketWatch
Ha ha ha...I used to think those analysts were intentionally misleading the public, but it seems like their CEO was also driking their own cool-aid
Maybe Wall Street and their friends are not really crooked.....they are just plain dumb.
I always mistrusted Mozillo and now I think it was not right. I feel sad and guilty now - sob, sob, sob. I will buy their green band from Ebay tomorrow.
On second thought, should I wait for Citibank's wristband?
REBear,
I suggest it was REBear, in the Conservatory, with the knife.
I'm probably mistaken, but you are clearly twisting it!
Lost in Translation,
Maybe Wall Street and their friends are not really crooked.....they are just plain dumb.
I've changed my mind!!!
I suggest it was Lost in Translation, in the Study, with Hanlon's Razor.
Never assume malice when stupidity will suffice. - Hanlon's Razor
Maybe I just need to get a Clue.
Stag Mark
Are you saying Citi completely ignores their own analysis?
Stephen Kim is the biggest housing bull analyst out there. If you've ever listened to homebuilder earnings call you can always hear him softballing questions to management and trying to turn negatives into positives. He is basically the Anti-Zellman.
Paul Krugman and Josh Marshall are both self-described Jews and would not have been behind any of this criminality for all the money in the world.
What appears to have happened is similar to what happened to Christianity in the third and fourth century. A religion became infested with magic. In this case, the magic was "mark to model".
Trichet is the man on the hot seat in the world today.
He really faces an almost insoluble conundrum.
He has inflation, and he has companies who are foundering on account of the strong euro.
What will he do?
There's a real battle now between bulls and bears on the home builders. Will the HB's drop to new lows or will all of those value investors start to prevail? Personally, I think that the value guys are at least one year early, but it's possible that bears will need to stand by and let the bulls take up the stocks for a while. However, October home sales data could be sharply down.
Hey, Troll Brothers --any time you want to call my gentile self a coward to its face, I'd love to meet up with you. An unusual number of Americans in positions of power in the financial world are Jewish for three or four historical reasons. First, Jews, deprived of every other economic opportunity, especially ownership of land, went into a money lending; they were also uninhibited by Christian injunctions against usury. Secondly, there is some evidence that Jews have higher IQs than non-Jews. Third, European anti-Semitism is an enormous inefficiency that the United States is proud to have corrected for; and lucky: it allowed, among other things, your heroes in the Third Reich to not take advantage of their best physicists, who instead designed an atomic bomb for democracy. Finally, American Jews are by and large urban, family-oriented, ambitious, hyper-smart, and thanks to an emphasis on close Talmudic study, hyper-well-educated. If your kid is flipping their burgers, you might want to put down the Elders of Zion, and look in the mirror instead.
As the overseas markets continue to decouple (that had to be the most hilarious proclaimation I have heard in quite sometime).
Let's explore a couple other fallacies that have appeared on this forum.
The first back when the 10 year moved towards 5.25% and almost all participants declared higher rates forever! As I explained, the 10 year would move towards a 3 handle and there would be an unprecedented flight to quality. Some scoffed at the idea, well, it seems that they were very wrong, the news, by any measure in the credit markets is and has been clearly deflationary and the 10 year rests at 4.28% this morning.
Lately, the hyperinflationary calls have been arising more frequently, this is off base and you will likely see a commodity collapse in the near-term due to the developments in the credit markets, which, again are clearly deflationary.
Another fallacy, was the refusal to accept the repricing of risk that had taken place in August, you will see further repricing of all risk assets going forward.
Balance sheets will shrink and credit will become far more tight. The next shoe is the distressed/HY debt that needs to be refinanced, corporate defaults will likely move to the double digits.
Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible. The dividend talk at this point is premature and frankly surprises me with those that should understand balance sheets and options that clearly exist.
Understand, we are headed for a difficult period which will likely be prolonged, but, some of what is being written is utter garbage-
Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline
PS- roxy, pat yourself on the back.
Above comment was mine, apologies.
mooncalf: much of what you say is correct. However you should remember that Germany was not defeated by the atom bomb. It was defeated by first the firepower of the Russian army and second by that of the US army. The bomb served simply to end the war vs. Japan faster than otherwise would have been the case.
Another comment on a group of people taking over a certain segment:
Have you noticed that no one has won a Miss Universe contest except earthlings?...Coincidence?....Rigged?
You decide!
All the fat cats at the top made their money back from the Stock Market scandal and the Enron losses in 01, now they are all jumping ship with millions in overseas banks waiting to be treated like royalty. We the consumer on the other hand are left holding the bag...and we all, all, received a little royalty ourselves..a royal screwing.
And the screwing continues, through the so called New Bankruptcy laws that flew through congress amongst other BS bills.
They get a slap on the wrist you get put in the street...nice trade off huh.
rc,
When do you expect the recession to start?
The Citi announcements are just to buy time.
They only have to be plausible, not accurate or defininitive.
Citi and other parties in similar positions will not just lay down and die.
They will fight to the end, meaning that there will be a long trail of such pronouncements.
But geez, so many of the brightest people in the room not ever conceiving of a downturn in housing prices or mortgage issues?
I guess that's where the private hotel floors, gated communities, private jets, private schools, drivers, $1000 golf games get you--isolation, ignorance and hubris.
Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible.
Part of what supports our banking /financial system is faith and confidence. When J6P looses that faith, then things begin to go squirrelly. I have no desire to see a large bank fail because punishment and retribution would come full circle to my front door... and yours and yours. The system is screwed up, not terminally broken.
....A war between France and England for land in the New World was lost by the French, almost bringing the country to bankruptcy. Pandemic diseases like the plague no longer killed a significant portion of the population. As resources became fewer more and more people where born and survived childhood, more mouths to feed each day and less available with which to feed them. The division between the rich and poor was greater than ever. In France at this time you either lived in ridiculous opulence or horrid poverty, there was virtually no middle ground.
The lynchpin that brought about the revolution was the coronation of Louise the XVI as king of France. Ill prepared to rule a country, especially one in such disarray, the gap between have and have nots widens. Meanwhile, in Paris a new movement begins, the age of enlightenment. Ideas from the recently freed United States of America have worked their way to Paris being ideas of freedom, self rule and rights for all men. Long before this revolution would pour into the blood filled streets it fermented in the minds of men throughout France, the monarchy was facing a severe challenge to what they considered their God given rights.
The costs of basic items such as flour go far beyond the reach of the common family While the royals dined with the finest treats in the world most of France faced starvation. The fuse was finally lit and with a population that felt they had absolutely nothing to lose the French revolution was born.....
The system is screwed up, not terminally broken.
The system is corrupt, not screwed up, or broken...corrupt..and it goes strait to the top.
One quick observation on Wall Street morays -- I have 5 years of experience in construction and 20+ years in investments.
I haven't been extremely impressed with the unimpeachable ethics of any industry, but I do think that the standards of Wall Street are considerably higher (or should that be, "less low"?) than those of the construction biz, heavy commercial, light commercial and/or residential - take your pick. One quick example from the construction business: in the 1970s in one southern state I worked in, the outfit I worked for was an "open shop", but to remain eligible to bid on certain kinds of union jobs had to agree to pay "prevailing wages" to all its non-union employees. Except that it was so expensive to do so, that everyone (the union bosses especially) understood that open shop companies like mine would sign the agreements with unions, but then go ahead and pay non-union wages to non-union workers and then at the end of the year pay the union a "fine", which was calculated to be notably less than the savings from violating the agreement. I always wondered what a forensic audit would uncover about where the fines actually ended up - union coffers or bosses' pockets. I have a pretty good wild guess.
rebear-
My first thought, as you well know, was Q3, at the latest Q1, but, that said, tough to predict the "official" timing.
I still believe that there is a small chance that we avoid recession, but, rest assured, it will feel like we are there regardless.
I believe we are likely in a prolonged period of low returns, volatility, and uncertainty.
The potential for a severe crisis of confidence is the most disconcerting.
TB, while denying it, raises the significant (if maybe tangential) question of what group will be scapegoated if these events lead to a cataclysmic denouement.
Rest assured that it won't suffice to jail a few highly visible second-tier players, as has been the case in the past. Historically, Jews have been scapegoated, and it isn't outside the realm of possibility that it will happen again. It may also be the Pigmen, the UltraRich, or even the Fundamentalist Christians who put Bush/Cheney in power. It could even be the Boomers, fingered by GenX.
Of course, maybe this will all blow over and scapegoats will not be demanded. If they are, you've just heard the beginning of how ugly this will get.
Not knocking you, TB, but let's keep this in perspective.
risk capital,
Would I be riught in guessing you expect a dollar rebound?
Geez, Troll Brothers, your trolling is weak sauce. You could at least bring Hitler into it. (BTW, did you know he was terribly flatulent? Cracks me up.)
On the other hand, it's amazing that even with a name like "Troll Brothers" people are responding to you as if you were serious.
RC, I tend to agree with you regarding C going BK - a highly improbable event. But, having a little bit of experience in these matters, I DO think there is a >50% probability that some mid-tier players could be decimated.
C has the assets and the balance sheet to whether a tremendous storm. Regional wannabes and second-tier players don't. My feeling is that this will look like a glacier melting - chunks falling in all around, but the big iceberg staying mostly intact. In the end, a company like C (also Wachovia and BOA) may benefit from the turmoil and consolidation.
Not to say that it won't be an ugly site however.
dd
What difference does it make where the bad loans end up? Bad is bad. Someone is going to end up screwed. The black swan was falling house prices. Now it is time for payback.
The difference is that the FED is interested in minimizing bank failures. BB isn't going to break a sweat to save Chinese central bankers, but when Citi whines he listens.
They've created financial instruments that through pooling (diversification) are likely to have losses only with a protracted, national fall in RE prices. This enabled the market to bid up prices until that is exactly what happened. Improved, more grippy tires on race cars don't decrease accidents. They mean that accidents happen at higher speeds. The Davey lamp didn't decrease mining accidents, they meant that people worked in mines previously considered unsafe. Safety systems don't increase safety if they simply allow opertors to run faster/closer/under more dangerous conditions. THAT is the lesson that we should draw from this. The pooling and tranching process won't reduce overall risk if people are simply encouraged to make riskier loans. But since they have pooled the market into a national one, we have a national decline.
In failure mechanics, you DON'T usually want to eliminate all failures except for catastrophic ones. Instead you often design systems with weak links so that failures are obvious and non-catastrophic. That's what fail-safeing is: non the elimination of failure, the ensuring that failures result in a safe situation rather than a catastrophe. Like a 20% downpayment: It does little to prevent foreclosure, rather it ensures that the bank against loss of principal.
Bloggers caused this! If they hadn't demanded to know what was really going on, and made people curious, Wall Street could have kept the game rolling forever!
/sarcasm off
On the Citigroup conference call, management is essentially admitting they haven't got a clue what their exposure is.
Wow. And these people are the company's biggest asset.
Risk,
I just had a quick look at the financials on Yahoo. I am looking at the suddenly bloated Balance Sheet and nearly cash neutral Statement of Cash Flows on decent earnings. In a time of turning markets, that's not pretty at all.
Sounds like a lot of people are afraid if the big banks fail. I don't feel afraid in fact I think they need to. Smaller more nimble banks will replace them and they are likely to have learned from these idiots mistakes. I feel if these idiots survive either by bailout or pure luck we will be here again in 15 years talking about the same crap different verse.
jim a --
Safety systems don't increase safety if they simply allow opertors to run faster/closer/under more dangerous conditions. THAT is the lesson that we should draw from this.
That was the best post on this thread, and the best I have seen on the entire blog for some time.
Are you Jewish? (ha ha! kidding)
Seriously, thanks for the insight.
Even worse than all those jews in the big financial groups, there are christians in just about all the other jobs! These whackos try to squeeze anybody else out of the business, and cut plush deals for all their christian buddies. I tell ya, it's enough to make a grown man believe in NASCAR!
"Also note that many of the IBs (especially Citi) might be making a similar mistake"
Well, that's the question, isn't it: who and how much? Interesting that the major U.S. IBs are hanging on the ragged edge and yet stock investors think every other business, except homebuilding, will keep kicking out record profits. Amazing.
Joe Banks,
I would prefer to see the big banks crumble slowly under their weight rather than this spontaneous combustion. However, no one asked me what I wanted.
I read "Extraordinary Popular Delusions and the Madness of Crowds" right in the midst of the tech-boom and was amazed at the similarity, not only in misperceptions, but in vocabulary from different eras.
Troll Bros - don't you see the statistical problem with your sampling? If you look at the Implode site and investigate the backgrounds of the principals, you'll find a very unconvincing link to Jews.
Are O'Neal, Prince and Mozilo Jews?
You are following a mental process similar to the ones used to build these models that predicted that the values of all of these Super Senior securities. Highly selective and showing a complete lack of rigor.
What did the Japanese RE bubble have to do with Jews? What do the bubbles in places like Kuwait and Dubai and multiple Asian locations in which you'd have a hard time finding a Jew?
For those who are interested in the topic of financial blame games, it might be worthwhile researching the fate of the Knights Templar and the moneylending class in medieval Japan.
The real question about the genesis of what's happening is the one Tanta asked a couple of days ago in her thread about risk. Why did so many people suddenly ignore risk? Why did so much of the population?
Have you noticed that no one has won a Miss Universe contest except earthlings?...Coincidence?....Rigged?
You decide! - the_economist
That's not true, I've picked up a broadcast from the third planet in that binary star system over in the next galaxy, and let me tell you, those girls know how to wear an evening gown. And talk about talent!
Citi Credit Swaps:
Credit-default swaps on the New York-based lender opened 8 basis points higher at 80 basis points, according to prices from Lehman Brothers Holdings Inc. The contracts, which rise as perceptions of credit quality worsen, have increased from as little as 10 basis points in June and last traded at 73 basis points at 8 a.m. in New York.
There's an interesting comment in the article by an RBS analyst:
With a new CEO, there's always the chance of a new broom coming through and wiping the slate clean for the new financial year,'' said Corinne Cunningham, a credit analyst at Royal Bank of Scotland Plc in London.That leads to increased uncertainty in the short term.''
In other words, the odds of Citi searching its conscience and making a more detailed confession just rose.
you will likely see a commodity collapse in the near-term due to the developments in the credit markets
1.7Bn Chinesse or about 5 for every 1 American who have rising wages and savings and a pile of dollars think your full of crap.
These type of comments look more like PR or at best some industry driven drivel. Citi's big problem is the creation of opaque SIV's using varous Enron accounting methods. Most of the CDO financial talk is well known and the fact that their value is based on home values and cash flow is not news, sooner or later who created these off shore units why and how they operated will finally get vented.
Now that the Federal Reserve's two interest rate cuts have "reduced significantly" the risks to the economy caused by financial markets, those risks are "balanced" by the risk of inflation, Fed Governor Frederic Mishkin said today.
Because of that, he will "want to carefully assess" economic data and the effects of financial conditions before even "considering further policy action."
That's nice so is it going to be a 25bps cut or 50 in December?
Way to go MOM,
the way to fight ignorance is through education.
I will never get back the 5 minutes of my life I spent listening to the horrifyingly upbeat Citi conference call.
Also, a quote I know you'll love:
"It's our view that these very very steep price reductions in real estate (as alluded to in the ABX) won't actually happen."
Yep, Citi's professional analysts have taken the position that the ABX is wrong and that housing prices and cashflows from their CDO's won't drop. Who wants to bet we'll see the phrase "unforeseen losses" when discussing their q407 writedowns?
Good times, though!
Hello--
long time lurker - first post.
I opened a Citibank e-savings account a few months back when they started offering 4.75% APY. For various reasons (bad service, recent troubles,...) i started transferring money out by inter-bank transfers and noticed that they lowered their limits from $5000 / day to $2000 / day sometimes in the last month or so. May be completely unrelated to recent troubles, but still a little disconcerting.
Great blog by the way.
Let me share a little anecdote about happenings here in Southern Oregon. I have a buddy who is a large used car dealer, writes much of his own paper. He called one day outta the blue and "long time no see... I could really use your help, come down and see me.."
Well, he is quiet wealthy, couldnt imagine what he wanted, though I was gonna get hit on for some form of charity gas iron work... But I went on in..
Its bad, real bad. Sales are way down and he had 472 different vehicles on his repo sheet. He is bleeding to death. That is simply a huge number given the limited size of this area, and these are his vehicles, not held by the bank or other lots. He knows I am very well connected, and offered me a birddog fee for locating these vehicles. You wouldn not believe the names, I recognised many, especially in construction who are no longer paying for their big fancy trucks. I saw 3 vehicles the first day, two I knew the owner well, and in the other instance he was a part time employee of a friend. I just dont have the heart to call the repo crew on these guys and am debating wether I should just give the list back to the lot owner and tell him.. but I could have made $300.00 dollars that day hardly going outta my way. Someone is gonna take that money who is less principled, I think its a given..
In other words, the odds of Citi searching its conscience and making a more detailed confession just rose.
In the game of expectation management, "Blame it on the old guy," is a standard ploy.
Yep, Citi's professional analysts have taken the position that the ABX is wrong and that housing prices and cashflows from their CDO's won't drop. Who wants to bet we'll see the phrase "unforeseen losses" when discussing their q407 writedowns
There are none so blind as those who will not see.
RC,
Why do you think commodity prices will correct near-term? Because you think IBs will squeeze HFs who speculate on commodities? I was thinking that a commodity squeeze would be like a year away due to the time it takes emerging markets to catch the cold. What do you think?
All,
Jews have a culture of ultra-education and we know there's correlation and causation between education and success (i'm not just talking about formal education or high education, I'm talking about teaching your kids all kinds of stuff on random occasions). So no need for racism... and especially not on CR.
I cannot believe I am replying to this idiocy but . . .
mooncalf,
let me get this - You are replying to ridiculous racist anti-semitic queries by TB . . . by arguing that "Jews maybe smarter than non-Jews" (not including you apparently) . . . . uhh do you want to rethink your own "racist" thinking.
Delete only spam, please.
Neal 7:39: Please, please stop with the nonsensical history, all wrong and loony. Where did you get all that stuff, from your grade school text book or some movie? Instead read The Coming of the French Revolution by Georges Lefebre. Real intelligence and research there.
Sorry Georges Lefebvre not Lefebre.
Perils of Plenty: Can Foreign Reserves Grow Forever?*
PIMCO - Global Central Bank Focus -November 2007 "Perils of Plenty: Can Foreign Reserves Grow Forever?*"
CIBC: Citis math doesnt add upNov 05 15:02
by Sam Jones
Comment
In the wake of Citis latest writedowns, CIBC - the analysts who precipitated the banks share slide with their dividend-cut note last week - have issued another warning: Citis math doesnt add up.
Citi insists in its statement on Sunday that after the $8-11bn Q4 writedowns it expects to realise, More
In the wake of Citis latest writedowns, CIBC - the analysts who precipitated the banks share slide with their dividend-cut note last week - have issued another warning: Citis math doesnt add up.
Citi insists in its statement on Sunday that after the $8-11bn Q4 writedowns it expects to realise, it will not be cutting its dividend and will restore capital adequacy by the second quarter of 2008 - flatly contradicting CIBCs October 30 predictions. CIBC issued their own note on Monday, and questioned Citis figures:
The math on this announcement just doesnt add up in our opinion. After what we now expect to be a loss for 4Q and a payout of $2.7 billion of its dividend, its capital ratios should only deteriorate materially. Note, we are not even assuming further credit losses or SIV put backs in this calculation.
By our estimates, Cs payout ratio will be in excess of 90% for 2007 and roughly 60% in 2008. Assets sales intended to improve capital ratios would only lower earnings and push the payout ratio to prohibitive levels. This is the Catch 22 we referred to in a prior note, dated October 30, 2007.
We continue to expect more negative headline risk from C. We continue to believe severely low capital ratios will be the main area of focus, and that as Cs price heads towards the low 30s, pressure will be felt across all financial stocks.
We believe that for Citi to re-establish an average tangible capital ratio of over 4.25%, the bank will need to raise over $30 billion in equity. To do that, it could cut its dividend, raise capital, sell assets, or a combination thereof. In any of those scenarios, we believe the earnings and returns would diminish significantly.
To reiterate then: the dividend will be cut.
Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline
PS- roxy, pat yourself on the back.
Anonymous | 11.05.07 - 6:56 am |
I like this.
I'm listening to this morning's conference call. They need a new CFO.
Recommend Jim A's comment
Question: where do the bonds "normally" go? Pension funds, mutual funds, insurance companies, high-end investors, or elsewhere?
PBOC, and Cayman Island offshore funds run out of Dubai.
They just started puking USD assets.
When they sent Paulson over to Beijing to sell mortgage bonds, they figured, "Why now? What might a US Treasury secretary and former CEO of Goldman know that we don't know....yet? Does he think we just woke up yesterday?"
That anomalous action probably convinced them to do the opposite. Quite wise.
Perils of Plenty: Can Foreign Reserves Grow Forever?*
Again, note that consumption as a percentage of GDP is falling in these emerging economies.
The idea of the foreign consumer riding in to take the place of the US consumer doesn't seem to hold up under scrutiny.
risk capital,
Excellent thoughts. I find myself looking for your comments.
(OT) Interesting ISM report this morning, parts of which surprised even me.
"...The nine industries reporting growth in October listed in order are: Other Services*; Mining; Retail Trade; Construction; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Arts, Entertainment & Recreation; Accommodation & Food Services; and Health Care & Social Assistance. The four industries reporting decreased activity from September to October are: Management of Companies & Support Services; Information; Wholesale Trade; and Public Administration...."
and this one:
"...Commodities in Short Supply
Assorted Qualified Labor and Construction Labor...."
Full report at:
ISM - ISM Report - November 2009 Non-Manufacturing ISM Report On Business®
S.
The Enronization of US financial system is systemic.
Now let's see if GOP and Dem political leaders try and bailout these bastards by passing the bag to middle class Americans.
If so, then I say go f*ck yourself !
Not sure I get Jim A's comment in total MOM.
His last comment is not true that 20 percent down doesn't prevent forclosure. In fact, the 20% rule acted as a brake on the ability for many to purchase homes (and bid against others purchasing homes). The increased buying pool placed an artifical bid on homes and gave more people unlimited buying power. Even people with good credit and steady income were forced to compete and thus overpay. Any job loss, divorce, means a forclosure, in addition those who can afford to stay in their house ironically now cannot afford to sell and buy more. Good buyers are stuck and thus there is a lower demand for the homes the banks wnat to offload.
His race track scenario is more accurate if you say that the better tires lowered the risk at 150 mph, so they opened the track to amatures and encouraged higher speeds. The tires become irrelevant as the speeds drop due to the volume of drivers and get worse as the carnage left on the tracks keep the speed lower even after the number of drivers still moving forward is lower even than before opening the gates to the amatures.
Hmmm... rc, you're sounding just a little less short-term optimistic than Banker.
I stand by my comments about at least one major IB and several major HBs failing before the downturn is over. However, that's somewhere in the next 1-3 years. Depression won't be in full swing until around 2009 at the earliest.
Try not to be stunned and surprised.
James, this one?
(quote)
"Lefebvre's account of the origins of the French Revolution was written in Quatre-Vingt-Neuf, and published in 1939 to mark the sesquicentennial of the events of 1789, but the Vichy government that took over the following year wanted no left-wing history or sympathetic understanding of the Revolution, as they drew their support from the anti-republican right[citation needed]. The régime suppressed the book, ordering 8,000 copies to be burned; as a result the work was virtually unknown in its native land until it was reprinted in 1970. Its reputation was already secure in the Anglophone world, however, since the English translation, The Coming of the French Revolution (1947) had established it as a clear, yet subtle, classic. It remains the definitive explanation of the Marxist interpretation of the causes of the revolution."
(end quote)
Pehaps you could explain the Marxist version of the causes of the French revolution that does not include the themes of privelege and poverty, class and class warfare, and the struggle for dominance of the capitalistic state?
The idea of the foreign consumer riding in to take the place of the US consumer doesn't seem to hold up under scrutiny.
The US is only 5% of the world population. Get a clue.
MoM,
The corollary to Jim A's excellent post: anything that allows you to "safely" increase leverage also creates more price volatility for the underlying asset. You can't forecast house price behavior by looking at historical experience, because you'd be looking at race car driving before the grippy tires showed up.
The idea of the foreign consumer riding in to take the place of the US consumer doesn't seem to hold up under scrutiny.
The US is only 5% of the world population. Get a clue.
That was sort of the point of my comment -- foreign consumption is not rising in concert with the steep rise in foreign production. The US consumer is not filling the gap.
Production unmatched with consumption has, historically, lead to serious problems stemming from oversupply and overcapacity.
RE ISM
Prices\t63.5\t66.1\t-2.6\tIncreasing
Backlog of Orders\t43.5\t47.0\t-3.5\tContracting
I especially like this line (where are these guys polling?)
Gasoline* (5) is the only commodity reported as down in price.
These ISM guys are getting as sketchy as the BLS.
AJ I agree that 20% down does decrease the chance of foreclosure some. And you're right about it's secondary effect on the market. But it does much more to decrease the banks losses in a foreclosure. It was not the best example of the principle that I was trying to illustrate. I wasn't thinking so much about indy or cart racing in the last 20 years as the difference in autoracing between 1920 and 1950. Wider tires meant that the cars could take the turns much faster.
Supermodel Bundchen Joins Hedge Funds Dumping Dollars (Update3) - Bloomberg.com
OK worlds highest paid supermodel gets what BSB and Paulson do not...
thats a low blow to some fine experience and education
"Gisele Bundchen wants to remain the world's richest model and is insisting that she be paid in almost any currency but the U.S. dollar.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means. "
James, a little more on Georges Lefebvre:
In 1939, in observation of the 150th anniversary of the French Revolution, and on the eve of the Second World War, the great French historian Georges Lefebvre published this classic study of the beginnings of the French Revolution, from the summer of 1788 to October 1789. Lefebvre's signature contribution was writing history "from below"--a Marxist approach--and his particular specialty was the French Revolution as viewed from the experiences of the peasantry. Placing the "common people" at the center of his analysis, Lefebvre emphasized the class struggles within France and the significant role they played in the coming of the Revolution.
(end quote)
Maybe I was channeling Georges Lefebvre?
US is 5% of the population . . . a simplistic statement.
US is roughly 30% of GDP and, don't fool yourselves, ALL of Asia is leveraged off of consumption and credit creation in the US.
So we're clear,
Jim A's faster tires analogy only works if the race track stays open only to the existing drivers.
20% down doesn't make a difference if those who were buying before were now allowed to do so without the down payment. In other words, you look back in a normal market (1994-1997 say) and say "what difference would it have made had we not been so strict?" Well there wouldn't have been. Jim A is right in this vacuum in saying that the down payment itself didn't necessarily prevent anyone from defaulting.
However more things changed than just the LTV when you removed the 20% requirement. You first opened up the "race track" to many more drivers. In addition the existence of more able buyers meant that everyone paid more for the same assets. So it wasn't fair priced houses bought by responsible buyers without a down payment, but now it was overpriced houses bought by irresponsible buyers without negative equity.
The risks were expanded exponentially. This changed the landscape for some time.
To go back to the race track example. Faster tires didn't just allow the existing drivers to drive faster, it opened the track to fearless amatures forcing everyone to drive faster and faster to compete. Once the first wrecks occurred, the carnage gets strewn across the roadway, preventing everyone, no matter the skill level to drive artificially slow for some time. How slow? Who knows, it depends upon how bad the carnage. Some say it could grind to a halt altogether. Even Mario Andretti can only go 1MPH in gridlock no matter the tires or driving skill. So going back to the old tires and the 150MPH limit on the track is meaningless unless the track gets cleared off and only the previous level and number of drivers is allowed back on the clean track.
When someone purports to have all the answers, ala Risk Capital, you can be sure that they don't.
Okay, okay, the race track analogy is flawed,like most analogy. What he said about safety systems is true, no?
I also like rc's forecast and jim a's
post. A possible significant event will be ACA's earnings Wednesday. (I have no position). IMO ACA has the most CDO exposure of the bond insurers in relation to capital. Credit agency downgrades could affect the $61 billion of structured credit they have guaranteed.
AJ, in the race track analogy, IT DOESN'T MATTER whether you open the track to fearless amateurs. The professional drivers will drive at a speed that maximize their chance of winning while holding their chance of an accident down to whatever limit they find acceptable. Anyone who drove at that old speeds loses. The accident rates STAYS at say, 2%, despite improvements in the handling of the racecars. They don't have to be fearless, they have exactly the same level of fear that they did before. That's why I chose racecars rather than the much more contentious notion that safety improvements in passenger cars don't actually improve safety.
Thus we have a safety feature that does not increase safety. If you eliminate all minor failures, only major failures are left.
Damn- but tires were not designed as a safety feature per se, it's to increase the odds of winnning the race by enabling faster driving.
What's really preposterous here emanates from some who believe it is improper for anyone to state CITI is BK. American history has a past replete with failed companies. One of the most vivid is the repeated collapses of railroads. The equity holders were wiped out; the bond holders became the new equity holders, and later they too found the structure uneconomic and foundered. Banks now are in a similar position. For RR's, the markets were misperceived. For Banks, the markets have been misperceived. This is what's happening. All this hemming and hawing and defending is old hat. What I ask is "What's next?"
Anonymous, who issued you the "correct" interpretation of reality?
A said, "Now, for those already calling for the failing of a major instution, this is complete bullshit and irresponsible. The dividend talk at this point is premature and frankly surprises me with those that should understand balance sheets and options that clearly exist.
Understand, we are headed for a difficult period which will likely be prolonged, but, some of what is being written is utter garbage-
Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline"
Not a soul here is calling for BK of CITI. If you start with a strawman, any outcome you choose will be our new, correct reality. Interpretation requires considered thought.
Everyone can see Citi has a net worth of $80B, more or less, excluding goodwill, which sits there until the TM is sold. There are large pieces of their known investment positions that are experiencing Sigma Six knocks. Those pieces have a nominal value that vastly exceeds Citi's net worth.
The job of not seeing into the future belongs to S&P and Moody's analysts. The inquiry here is what's real and what's next.
For those who assert 80% this and 3 that, my response is that so long as you choose to define reality your way, then you'll be able to say, "Nobody could have predicted that."
That's what we're hearing from the "leaders", the bankers, mortgage players, etc. And that is a crock of crap. So as to not set up my own strawman here, let's just go back to the line items and the numbers associated with each.
SIV Total Nominal Value Current Value by internal segment.
Pier Loans Same
Super High Extra Special Hold the Mayo
Same
Commercial RE Same
Muni Bonds Same
Loans to Mtg and Bond Insurers Same
Long Buried Losses Not Yet Surfacing Same
Forced Sales and deal repurchases due to dropping newsletter writers lettering system (a joke of hindsight and expected from the incompetence of their prior predictive capacities and utterances) (The US ought to use them as IED's, loaning them out freely to countries who disagree with its policies, to give economic advice.)
Same
Same
When we arrive at $60 B worth of write offs (no need to show the inc
===========================
Improved, more grippy tires on race cars don't decrease accidents. They mean that accidents happen at higher speeds. The Davey lamp didn't decrease mining accidents, they meant that people worked in mines previously considered unsafe.
Yup, what jim a. said. Crosslinks would be the venerable riskdigest - link at: RISKS Digest - Wikipedia, the free encyclopedia
It still works in newsgroup form.
If you fly then of course,the government's NTSB site is great -
NTSB - Aviation
is a must - yeah right, like, you know, people actually read it ?,..
-K
Anonymous, your conclusion is omphalosceptic.
I live in a world that's international. Your conclusions are nation-state local, and on top of that, you think that as the US goes, so goes the world. What was good for GM is "old world". What would be good for Citi is also "old world", though as an American, I wish what I observe as reasonably probable were not within probability.
A said, "Projection-Recession, 80%, 10 year, 3 handle, duration- prolonged, credit- much tighter, Hedge community- contracting, commodity- material decline"
Welcome to the new world order, that ranks the US a bit further down than what you assert is reality, above.
Back to the important subtopic at hand...
Jews are smarter, and Midwestern gentile Charles Murray explores why:
http://www.commentarymagazine.com/viewarticle.cfm?id=10855&page=all
Fascinating article, and convincing to (gentile) me.
But geez, so many of the brightest people in the room not ever conceiving of a downturn in housing prices or mortgage issues?
I guess that's where the private hotel floors, gated communities, private jets, private schools, drivers, $1000 golf games get you--isolation, ignorance and hubris.
Neal
Ditto
Neal, it's as if ml-implode and thehousingbubbleblog.com never existed or were for the "other people".
There are clearly people who for their own reasons continue to experience cognitive dissonance.
Jim A,
My point was that the 20% down didn't protect banks from just the damage to an individual default, what they didn't see was that it protected everyone from fewer defaults. It didn't protect them from what they thought it did.
Like your tire example: Increasing the safety of the tires but keeping the old speeds would be a proper use of getting the full value out of the safety enhancements, unless you thought that it was soooooo safe now that anyone and everyone could not race on the "safe" track provided they stayed at the reduced speeds with the safe tires.
Once the race track population went from 30 professionals to 3000 amatures, now even the professionals cant go fast enough to make the speed limits or the tires matter.
It's not a race track that went from unsafe at 150MPH to unsafe at 190MPH, it ceased being a race track altogether and is now a parking lot.
That was my point.
The market is broken and can't go back to the "old days" by just going back to the old standards.
When Bernanke estimated the losses at 100B, that was like saying "OK, OK, we are 40 MPH over safe at 190MPH on Jim A's race track. Just lop off 40MPH, bring it down to 150MPH and get back to work.
Meanwhile we have 3000 amatures kareening off the walls and about to make 30 MPH impossible without hitting the smoking wreckage.
Estimating when we get back to 150MPH now depends on other factors like how many tow truck crews we have, how many pro's and their cars survive, how bad the damage to the surface of the track is, etc.
In other words it's unknowable.
The risk levels you thought you were avoiding by staying at 150MPH weren't even close to reality. That's because when you decided to move to 190MPH you envisioned the same set of pros driving with the same skill level, just faster.
My point wasn't a contridiction so much as a side note to Jim A's comment.
The current damage isn't just a matter of subtracting the new risk from the old.
enough said on the topic.
Other than anyone who says they can measure the risk doesn't know what the risk is.
SDTFS but the tires allow to go faster primarily BECAUSE you can go around the turns at a higher speed. If you tried to go around the turn at a lower speed you WOULD spin out.
Here's the econ 101 type breakdown. Lets assume that we have a system with two failure modes. A fairly common breakdown and a very rare catastrophe. Lets assume again that breakdowns and catastrophe's are both proportional to the speed (or throughput or hours between maintenance) that the system is operated at. If we suddenly discover a way to halve the chance of breakdowns per unit of speed one immediate thought is that breakdowns would decrease. But if the primary limitation on the speed that the system is operated at IS the number of breakdowns, once it is ramped up to a higher speed the chance of catastrophe is actually INCREASED. Not just relative to breakdowns, but at an absolute number.
This isn't as farfetched as it might seem. People are pretty good at estimating common risks that they are familiar with and quite bad at estimating rare occurances. When there is considerable pressure to maximize production (or speed or what have you) people tend not to worry about rare but catastrophic occurances.
We just have too many unknown knowns. Once we know, then we'll know.
I am channeling Donald Rumsfield here.
Haven't you heard. Enronization is now Official Government Policy.
There has never been a better time to buy. Since yesterday. Obviously.
Somewhere in the future I see historians laughing uproariously as they chronicle these events. How stupid and self-delusional they were!
once again, what jim.a. said, and said very well. Other good stuff are certain chapters in Naseem Taleb's Black Swan book.
Nassim Nicholas Taleb - Wikipedia, the free encyclopedia
-K
Average Joe: I think in the racecar analogy, the banks are the drivers and the increased number of marginal subprime borrowers are the higher speeds that they've been operating at. Every new borrower is an added MPH. There were plenty of idiot, young drivers upon the course: witness the "implode-o-meter," of kaput subprime lenders. But even Fannie and Freddy and the old-school banks have been driving faster. And all the debris on the course makes it hazardous for even careful drivers.
REBear,
Are you saying Citi completely ignores their own analysis?
Heavens no!
I suspect they are fully embracing their private analysis! Too bad we never see that. It's on a need to know basis and we apparently don't need to know, lol.
Jim A,
Can you recommend any books on risk analysis?
Thanks.
Andrew, This website, and being able to reason things out among the posters has been VERY informative for me. I have NO idea where I first read about the Davey Lamps not improving safety, but apparantly that is THE cannonical case where safety equipment had the paradoxical effect of decreasing safety. The other analogy is with floodwalls. By hemming in the river and preventing minor flooding they raise the level that the river floods to because it has nowhere to go but up.