'Lack of interest' in Super Fund SIV
Submitted by
CalculatedRisk on Wed, 12/05/2007 - 10:46pm (71 comments)
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Firt????
LOL!
This is so doomed...
So, the banks that lent money to companies that they set up, and then charged fees from those companies, and then used those company to hedge the investments in the other companies that they were doing this with, are proposing to lend money to a company that they're setting up to buy the first companies as a hedge,...I don't have a problem with that. Should work as well as anything else.
I am setting up a fund to get every home owner in the USA a current appraisal so they can realize it is time to mail the bank the keys.
No tax payer dollars will be used, it will be funded completely by shorting bank stocks and home prices.
Ministry of Truth | 12.05.07 - 8:22 pm | #
This idea has merit.
Dont forget how much mileage they've gotten out of this already. Go back and read the headlines each time they trotted this turd out, and check out the market action around those announcements. As a PR puffpiece, it has served its purpose well.
A Golden Oldie --
Even if Barrons is off by an order of magnitude, it's unbelievable that Citi blew itself up for nothing. Picking up nickels in front of a steamroller.
"Citigroup, the leading issuer in the $400 billion SIV market, should have realized that it was earning very little, while risking its reputation and exposing itself to potential financial losses. Citigroup may have netted just $150 million annually from its SIVs, a rounding error for a bank with $30 billion of pretax profits last year."
From Barrons
Financial Investment News - Stock Investing News - Investment News - Barrons.com articl...s_magazine_mai
given that classical economics defines interest as being earnings returning to capital investment, I would certainly agree that this SIV idea lacks interest.
MLEC for the investors....Hope Now for the homeowners....
If the investors get a 5 year freeze on ARM's, its only fair the bankruptcy law gets a 5 year freeze.
My proposal is for the government to do a one-time writeoff of mortgage debt. This would achieve the 'ownership society' aim as well as allowing the 'homeowners' the ability to do some massive HELOCS to keep the economy buzzing with new car purchases!!
As a PR puffpiece, it has served its purpose well.
Regarding selling into this rally, there are legitimate questions about 'who' and a 'how much'. However, I do think something will be done to forestall some home loan defaults, even if it is only for political reasons, i.e. to take this issue away from the Democrats.
(So, August panic and the FHLB are about Countrywide (and Sotto Voce Mutual, my guess), and the MLEC is about Citi and now suddenly with the Freeze we're going straight to the top, it appears. Uh-oh!)
I think the size of the SIV has remained unchanged, I believe that it is the market value that has dropped 50% since they announced it.
Housing to slump thru 2009, prices to fall 30 pct: Moodys.com By Julie Haviv
Thu Dec 6, 12:21 AM ET
NEW YORK (Reuters) - Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody's Economy.com said on Thursday
Yahoo! 404 - Page Not Found
Not only is the fed clueless, they're also powerless. Wall street has screwed everything up. First stocks, then houses and now it looks like money markets (abs, cp) are next. The economy will need fiscal stimlus to restart (aka money printing). To me thats a bailout.
It really seems like they're trying to get the "green" bubble to inflate. I propose a middle income wage bubble or better yet, deflation.
Paulson showed have stayed home and enjoyed his sign off bonus from GS....
As of yet, from Yuan revaluation to MLEC, his 'legacy' is filled with false promises.
I really think we need a new measure of our economic health. Our current GDP measures focus on quantity, not quality. If I dig a hole and you fill it, but no money changes hands GDP is unchanged. If I hire people to dig and then fill the hole GDP increases. In either case, no wealth is created. I'm certain the next round of fiscal and monetary stimulus will put a lot of people to work digging and filling holes.
FYI,
BoE cut by 25 bps this morning.
"There was shrinkage!"
G. Costanza
Surge in Auto-Loan Delinquencies
Is Latest Trouble for the Economy
Surge in Auto-Loan Delinquencies Is Latest Trouble for the Economy - WSJ.com
[...]Few in the auto-loan industry see the strain as the kind of disaster-in-the-making that home mortgages have become. Still, there is a connection between the two categories, since the squeeze on some home borrowers may make it harder to carry car loans. The trouble signs in auto loans suggest that the credit woes could be spreading to the broader economy, a development that has been worrying investors and policy makers in Washington.
Toll Brothers Swings to Loss
On Land Value Write-Downs
Toll Brothers Sees Some Relief From Bush Plan but Issues a Grim Forecast - WSJ.com
Toll Brothers has resisted price cuts, which several home builders have used to try to reduce inventory. As a high-end builder, Toll suffers less from the subprime-lending fallout than others in the industry, but it isn't immune to the broader credit crunch.
Containment realized...
Bank of England Cuts Interest Rates, ECB Holds Steady
Tight Credit Stirs Central Banks - WSJ.com
The Bank of England's Monetary Policy Committee cut its key interest rate Thursday for the first time in two years as evidence mounts that the economy is slowing as credit conditions tighten. The BOE cut its benchmark rate by a quarter percentage point to 5.5% from 5.75%.
The European Central Bank, meanwhile, held its benchmark rate unchanged at 4% despite surging inflation and a stronger euro, as it considers how ripples from the U.S. subprime mortgage morass will affect the economy.
I wonder if the ECB looks upon the FED as a bunch of teenagers left alone in the house for the first time--should they go and have have talk about the racket, or just call the cops?
At the risk of sounding a positive non-cyncial note on this blog, it sounds to me like subprime is in the early stages of getting cleaned up. WSJ tone aside, the fact is that SIVs have been getting managed down, taken on sheet, and there's less of a problem to deal with. The fund that emerges will stabilize what's left for as long as it takes. One down. Recapitalizing financials and seeing their stocks start to bottom is another sign. Two. Taking much of the worst of the ARM resets off the table is another. Three. Homebuilders nearing the end of the land-dumping cycle. Four.
At some point, the risk (for stock traders) is failing to see that risk is reducing.
"Moodys has also placed under review for downgrade 340 million euros worth of debt from five CPDOs that are also exposed to financial companies."
Alea | Page not found
For those following retail and its remarkable bounce on that Black Friday red herring:
Our sales results largely met expectations through our two-day post-Thanksgiving event, but softness in the final week of November caused the month overall to fall short of our planned range, said Bob Ulrich, chairman and chief executive officer. This late-month sales shortfall was concentrated in key seasonal categories including toys and holiday trim, but other home and apparel categories fell short of expectations as well. These sales trends would need to meaningfully improve in December in order to achieve fourth quarter EPS growth.
Expired
jerome ball,
Are you more than 12 years old?
Seriously.
rich, I think he's trying to summarize something he read or heard.
"Recapitalizing financials and seeing their stocks start to bottom is another sign."
What the heck does that mean?
it sounds to me like subprime is in the early stages of getting cleaned up
Subprime loans are an effect, not a cause. The percentage bet is that 30-year mortgagae rates are in a long-term upward trend.
"Subprime" has become a way of saying "Them", "Those poor people", "Not us". It's a meaningless label at this point.
I'm less impressed with the MLEC as a stability device but I think jerome is probably basically right - he's just way too premature. His analysis doesn't consider continued neg HPA that's coming over the next couple 2-3... 5 years [whatever]. That's going to act live a down escalator those four points are going to have to run up before things get better.
But the process he describes will probably be some what similar to how the financials & HBs eventually heal... emphasis on eventual.
But I wouldn't back up the truck just yet jerome.
Do you guys think we should encourage CR to start a new Tip Jar for those poor Wall St IB employees that may see a bonus pool shortfall?
My heart goes out to those useful contributing members of society and their families in this time of need.
Dry,
Sure, time heals all wounds. However, he's speaking in the present tense; As if all those things are happening now. No references, of course, because it's just something he heard and didn't question.
The Monster employment index fell 5 points in November to 183 reflecting what the report describes as a broad decline in online job availability across industries and regions. Only 2 of 20 industries posted gains in the month. The outlook for Friday's jobs report would be bleak -- if it were not that is for yesterday's robust estimate from ADP. Jobless claims, with the latest data issued at 8:30 a.m. ET, have been giving the most important negative signal of all.
a good amount of data can be found here:
Wirtschaftsagenda
The fundamental premise here is EXACTLY the same as the Paulson 'freeze' plan: there is no market so let's pretend there is one. Create an artificial one that stalls off the day of reckoning and maybe lets us pass stuff off to greater fools in the extremely unlikely event we can find any.
There is a whole generation of investors here that has never had to face the music and just cannot grasp that it really, really must do so. No do-overs, no help from Daddy, no King's-X.
Tough, tough lessons lie ahead.
At the risk of sounding a positive non-cyncial note on this blog, it sounds to me like subprime is in the early stages of getting cleaned up. WSJ tone aside, the fact is that SIVs have been getting managed down, taken on sheet, and there's less of a problem to deal with.
The real problem is subprime no longer really exists. People don't make those kind of loans anymore. If this phenomenon persists then the US housing market has to change fundamentally over the coming years. Add to this all the other problems with housing (e.g. excess inventory, construction layoffs) and you have a recipe for years of deterioration and pain to come.
I don't think anybody's currently prepared to deal with that.
Someone said "beginning of the end", another said "end of the beginning".
"End of the beginning" sounds about right. We are at the point where there is widespread recognition of a problem.
We are now entering the period of half-solutions, false solutions and renewed spin.
The MLEC will fail as the parties who were supposed to pony up the capital are realizing that they may need that capital for their own losses.
Besides, how can you justify the buying of such investments at this time? Ignorance was a plausible excuse as late as the 3rd quarter. That excuse is removed now.
Fiduciary responsibility, anyone?
I don't mind that. It's just that there is so much intelligence represented on this board. If you can identify the middle ground of opinions on this board, it's probably the best guide out there.
So, when some little kid comes on here trying to tell everybody where it's all going, based on something he read on the back of a cereal box, you have to say something.
As if all those things are happening now.
I think the process IS happening now... but that down escalator still has a lot of run left in it.
HBs are clawing their way through land, financials are recapitalizing [I think he means back fill the reserves]... stock bottoming??? I doubt it now but someday... so on.
I think the mess is getting cleaned up... but it is in its REALLY early phases. I'm like a lot hear who think there is more pain to discover [let alone patch up]...
The key point jerome makes...
At some point, the risk (for stock traders) is failing to see that risk is reducing.
...will eventually be true. Maybe he thinks that future is near term. I think it's out there farther. Some here appear to think that it will never come. We'll see.
The guys who get the timing right will be the big winners.
Shrinkage.
Shrinkage ?
Shrinkage !!!
"The guys who get the timing right will be the big winners."
Certainly. Even Warren Buffett, though he denies it, is essentially a stock timer. He just words it differently: "Buy at the right price".
Same thing.
We are nowhere near bottom.
We're on the doorstep of a major crisis in bond insurance.
We've got to work through many more downgrades on investment-grade derivatives.
We've got bankruptcies, defaults and layoffs in CRE and especially in the condo market. Huge reserves for loan losses in construction loans.
The regional/small bank crisis and impact on FDIC. Specialized condo lenders like CORS going bust.
Tax increases on the rich to fix AMT. Tax increases for universal health care. Tax increases for environmental control. Tax increases on energy consumption. Etc.
We have to undo 20 years' worth of problems.
Tough, tough lessons lie ahead.
wally | 12.06.07 - 9:40 am | #
I agree. The 'freeze' is the worst idea I've heard in a long time. When it 'unfreezes' it won't be pretty.
I don't know how many of you live on cold climate like me (Minnesota) but my back yard is frozen over six months of the year... plus I have too hunting dogs. When the snow melts and the ground thaws you can't imagine what it looks & smells like. Cattle yards pale in comparison.
The longer this market freeze is maintained & the more comprehensive it gets... the more the eventual thaw is going to look like dryfly's back yard come April. My guess is Hank will be long gone by then and won't help shoveling the mess up then.
dry,
LMAO! I lived in Alaska for twelve years, come breakup it all thaws out at once. That may be the real point of the freeze exercise, making that happen on someone else's watch.
That may be the real point of the freeze exercise, making that happen on someone else's watch.
This seems to be the prevailing belief everywhere online. It certainly fits the MO of this administration.
This seems to be the prevailing belief everywhere online. It certainly fits the MO of this administration.
Walker | 12.06.07 - 9:59 am | #
Even the timing - five years. To make sure the current crop of candidates & congress shut up and go along - make sure the thing freezes for the duration of the NEXT administration.
That is one helluva a lotta poop frozen out there in Hank's backyard. Somebody's gonna have fun.
OT,
I wasn't dialed into the market in 1999-2000, was it something like this then with the asset inflate-or-die crowd driving a parabolic blowoff?
Walker,
It fits the MO of every administration. Why is it that 34 years after the Oil Embargo we do not have a comprehensive energy policy?
We're still funding governments that are our sworn enemies, still blasting the tops off mountains for coal, still stuck in traffic...
(end of rant)
Oh look, the market is up at the open. Morons.
Cheers,
dry,
Do you ever get what we called a 'Chinook' wind? They happened every so often, and the sub-zero realms are suddenly hit with 40+ degree winds and the snows disappear at a phenomenal pace revealing what was hidden by the blanket of snow...wonder if any financial Chinook's stir up in the meantime.
Wow... Bloomberg is reporting delinquencies at 20 year high. Over 5% of all mortgages.
Bush and Paulson don't have a chance to fix this thing.
Misean,
Looks like they are having to lean much harder on the yen to inflate this morning compared to yesterday...they are going to push this thing until the engine blows completely...
I wasn't dialed into the market in 1999-2000, was it something like this then with the asset inflate-or-die crowd driving a parabolic blowoff?
We're at something like mid-summer 2000 here, where the "one trick ponies" that were symptomatic of the bubble (pets.com then, subprime and buy-and-flip places now) got taken out back and shot while investors kept crowding into and puffing up the "best of breed" (Cisco and Qualcomm then; prime loans, CRE, Goldman now). And both analysts and everyday investors had a hundred reasons why the "good stuff" wouldn't suffer any spillover from the toxic waste that was splashed all over other parts of the market.
Eventually, confidence in an ever-shrinking solid base turned to rationalization turned to panic, and everything got blown up. We're in the beginning of the "realization" stage ... and still a long way off from the "panic" stage.
Let's not forget - Bush has his hand in this, so it's bound to:
a) be used a a conduit by which funds held in the Treasury are distributed to his cronies, and;
b) trip on it's own Johnson as it comes out of the gate, and;
c) be so incompetently conceived and executed as to have value only in its potential for dark humor, and;
d) be useless as teats on a bull.
Home Foreclosures Hit Record High
Thursday December 6, 10:08 am ET
By Jeannine Aversa, AP Economics Writer
Home Foreclosures Hit Record High in Third Quarter
WASHINGTON (AP) -- Home foreclosures shot up to an all-time high in the third quarter, fresh evidence of the problems afflicting distressed homeowners amid the housing meltdown.
The Mortgage Bankers Association in its quarterly snapshot of the mortgage market released Thursday said that the percentage of all mortgages nationwide that started the foreclosure process jumped to a record high of 0.78 percent during the July-to-September period. That surpassed the previous high of 0.65 percent set in the prior quarter.
More homeowners also fell behind on their monthly payments.
The delinquency rate for all mortgages climbed to 5.59 percent in the third quarter. That was up from 5.12 percent in the second quarter and was the highest since 1986, the association said. Payments are considered delinquent if they are 30 or more days past due.
[snip]
another bad sign for Citi
Citigroup sending search party for cash
Citigroup Inc. needs to look everywhere including underneath the living room couch to find some big change. After turning over some pillows, the New York-based financial services giant found some cash Wednesday when it finally reached an agreement to sell an office building in downtown Manhattan for $1.58 billion, making it the fourth-largest-ever building sale in the U.S.
Citigroup sending search party for cash (Dealscape - )
energyecon,
"they are going to push this thing until the engine blows completely..."
I believe you're correct, I just can't believe that it has this much life left in it.
On another note, the dollar just brushed up against its 50 day MA and is heading back down.
Cheers,
Even the timing - five years. To make sure the current crop of candidates & congress shut up and go along
There is no way the next administration is getting a pass on this. Even if the freeze were to work, the Option Arms would bring the return of the Great Unravelling.
Herbert Hoover gets a lot of the blame for the GD. His primary sin was being totally ineffective in cleaning up the mess created by Coolidge's excesses. But he didn't create the excess in the first place. I don't see how any candidate of either party is going to end up being seen as anything other than another Hoover when this is all done.
Jerome's comment smacks of failure to fully internalize what's happening right now more than anything. Classic externalization, most optomist's are defined by this.
"If I don't look down, I won't fall....yes I know there is no ground underneath my feet, but REALLY if I don't look down I WON'T FALL."
I'm sorry Neo, but this is doesn't work if you are not in the Matrix.
if i were the Democrats i would block every Bush/Paulson measure to postpone the day of reckoning to make sure the SHTF NOW vs. after next November.
if i were a distressed homeowner i would default NOW knowing that this inept administration will try anything/everything to prevent my foreclosure.
see how fast i learn?
Rich,
You and a few others showed up here over the last few months... You've got shit on your shoes, and it's starting to stink up the place..
Since you are so clear on the exact way this will all play out in the market, lever up on shorts and get rich (so to speak). Don't be an ass to someone just because they didn't walk in here, ask what you think and just puke it back up in your lap.
Caveat: I think there is a small chance of a "Total Effing Dislocation (TM)" in the global financial markets, but me crystal ball isn't clueing me into whether this is it... or just another fakeout.
CNNMoney: Bush to unveil subprime aid plan
World
Canoe man's sons fear 'huge scam'
Funny, for some reason, many of us are feeling the same way this morning, Cnn.
Re Jerome's comment about turning the corner, don't we need some HBs to do the BK before we can talk about hitting bottom?
Do you ever get what we called a 'Chinook' wind? They happened every so often, and the sub-zero realms are suddenly hit with 40+ degree winds and the snows disappear at a phenomenal pace revealing what was hidden by the blanket of snow...wonder if any financial Chinook's stir up in the meantime.
energyecon | 12.06.07 - 10:08 am | #
We get thaws but not classical Chinooks - need mountains to do that and um the Midwest lacks those [flat].
But I get your drift. I expect the path won't be straight down or straight up. I'm in the camp that e have more down left but I don't have a clue how much or how long.
But I don't believe this is the end of civilization as we know it - if I did I wouldn't be hanging around on a blog. Having lived in Alaska I think you understand the strategy one applies in the real EOTW... find bush, find it fast, cover all tracks even on the internet. I'm not close to that yet.
Re Jerome's comment about turning the corner, don't we need some HBs to do the BK before we can talk about hitting bottom?
It would be one of my milestones before I'd think we're done falling.
On another note, the dollar just brushed up against its 50 day MA and is heading back down. - Mise
ECB to France: Enjoy your riots.
Eli,
Amen brother.
re: Jerome Ball
first of all, don't pay much mind to people who wrote insulting responses to your post. They are the ones behaving like 12 year olds trying to raise their own self-esteem by ridiculing others.
While you are right that the current mess is getting 'cleaned up' to some extent and that's the good news, that is not the real concern. The real concern is that current mess is just the beginning.
Subprime was the first wave of mortgage problems, but a quick look at mortgage reset chart shows that most of the problems are yet to come. The same syndrom of 'future problems are set to be worse than current ones' affects important areas like consumer spending, credit markets, etc. In addition, slowing economy will make all these issues progressively worse, resulting in snowball effect if you like.
Now, look at this again and think about the following: if the current set of problems were enough to nearly cause abrupt Citi bankruptcy and send an entire housing industry into a seizure, what will happen when the problems persist for a few more years, at the same time growing in scale?
This is the scary scenario and its likelihood seems to be growing.
We're at something like mid-summer 2000 here, where the "one trick ponies" that were symptomatic of the bubble (pets.com then, subprime and buy-and-flip places now) got taken out back and shot while investors kept crowding into and puffing up the "best of breed" (Cisco and Qualcomm then; prime loans, CRE, Goldman now). And both analysts and everyday investors had a hundred reasons why the "good stuff" wouldn't suffer any spillover from the toxic waste that was splashed all over other parts of the market.
i think that's a fair analogy, mook.
in defense of jerome, as others said i think he's got what a bottom (or rather, the immediate aftermath of a bottom) will look like nailed.
but recapitalization of the financials does not coincide with citi frantically trying to scare up cash at 11% to save its balance sheet. recapitalizing the financials will probably look a lot more like the salomon brothers foldup (except this time being bought by china's CIC fund), or even direct cash infusions from treasury.
Why is there no "IMB visits the confessional" post? LOL!
You frigtards.
Look harder.
F - H - L - B
Discount loans outstanding .....
CFC has borrowed $51 billion as of September 31.
No need for a supersiv when you have the FHLB.
Name calling! Name Calling! Shame, shame, shame...you blog bastards.