Not exactly good news for the banks, that's for sure. Heads, the insurers die and they take writedowns; tails, they bail out the insurers and they don't see that money for many, many years. Coin lands on edge, they bail out the insurers, the insurers go under anyway, and the banks have even less reserves to try and weather the fallout.
Yea right! Lets ask the already in trouble banks to bail out the in trouble insurance companies? With whose money? Banks have enough of their own problems. Not going to happen!
And the heads of every one of the banks asking the government to put a rescue plan together would very sincerely testify that the less government regulation of their industry, the better.
Oh, and the lower the taxes on their incomes, the better, too.
The talk about propping bond insurers is eerily similar to the talk about how all the banks would get together for a SUPER-SIEVE and help fix the problems with SIVs. Funny how that got nowhere, but the PR was good enough to give the market a few pops here and there. Of course, all those gains are gone now, but it sure did allow some traders to get out of uncomfortable positions.
Im thinking this will prove to be about as useful as the paulson supershiv.
Geoff | 01.23.08 - 5:34 pm | #
It's an attempt to prevent counter party failure. Keep the chain together and no one has to writedown their worthless hedges like MER did with ACA. The banks have a reason to do this but on what terms and where will thet get the capital is the big question.
This is hilarious. The banks bought their insurance from the bond insurers. Now that's a problem, the banks will sell insurance to the bond insurers, so the bond insurers can then sell more insurance to the banks.
Anyone see a problem with this? It's a financial perpetual motion machine!
Sure, throwing good money after bad sounds like a terrible idea, but not if your all the guys relying on the insurance and asking everyone else to foot the bill.
If your insurance company cannot pay your claim, and they subsequently ask you to pay them so that they can pay you your claim, isn't that a zero-sum game?
If it is zero-sum, I would expect the monolines to jump today (and they did) and the banks to decline.
Am I missing something here?
It sounds like a lot of hope for a government-funded (I'm sorry...I meant taxpayer-funded) bailout.
Would someone smarter than me please help me distinguish between:
-- the financial news
-- a sidewalk shell game
-- a Ponzi/pyramid scheme
-- multilevel marketing
-- excellent financial opportunities in email from friends I haven't met yet?
I assume there's some sort of risk management approach for telling these apart.
It prevents all the pension funds who must sell an asset that drops in credit rating. All those sales would depress the price of munies et al, which would have to be reflected on everybody's balance sheet.
If you're a banker, it's not usually a good sign to be making a loan to a borrower who will use the funds you advance in order to pay the interest on another loan he has with you. It's called throwing good money after bad or papering over your assets.
So here we have bankers with assets on their books where the value of those assets depends on the solvency of third parties, and the suggested solution is to send the banks' money to the insolvent so that everyone can pretend the value of the existing assets isn't impaired. This is different from the previous case HOW?
If Dinallo wants the insurers "saved", wouldn't it be simpler for the banks to, say, WAIVE the insurance coverage the monolines have provided? That would be effective as a bailout for the insurers.
Bear Sterns told all it's creditors if they didn't show forebearance and caused them to liquidate assets at fire-sale prices, they would regret it. They seized the assets anyway and got their hands burned!
Bingo. This is about Pension Funds. The banks didn't buy the insurance, the munies bought it to sell bonds at par to very conservative, and very regulated funds.
i'm telling u. each and everyday we have to have at minimum one piece of good news for the pigmen to rally around otherwise the mkt would tank. every day.
I can hardly wait until the first headline- we are doing worse than Japan.
years of crap going down in value as asset prices reset, while inflation makes us all very unhappy to buy anything not priced in dollars that our gov't can control.
I do see a very nice cheap loan in my future for all of my current real estate loans- like 2.5%!!!
We should all begin to practice humility. Of course, right after every mutual fund with an analyst worth their salt gets out of the homebuilders.
Dead feline rebound is definitely occuring, with no respect for reality.
As for nationalizing our dead monolines, only when their counterparty banks are down to the single digits. Save them after the shareholders take their pasting. Not before so that bonuses still get paid.
This is so funny, I'm positively giddy. I wonder what they will do next? It is so much fun watching them buzzing around, playing their little games. Hahaha!!
Watching the Dow chart is like viewing time-lapse movies of a dead animal corpse being invaded by maggots. The maggots burrow under the skin and make the dead animal jitter and jump around a bit - sort of like it's alive - but it's really not, those are just the maggots at work.
Government going to use Tax payers money to help the HBs and bnaks.
Builders, Banks Could Get Tax Break
Wednesday January 23, 4:54 pm ET
By Marcy Gordon, AP Business Writer
Banks, Homebuilders, Others Could Get Fattened Tax Refunds Under Stimulus-Plan Provision
Here we go again. This is how it always works, historically.
First the banks are asked to swing the bail out. Of course they don't want to so they in turn ask the government to secure any money they put up for the bailout. The government eventually does, and we have ourselves a true taxpayer bailout where the banks look like they're doing something, but where the real risk lies with the govt/taxpayers.
It almost makes me look forward to the day we have economic collapse. At least I won't have to witness this disgusting crap anymore.
The banks' balance sheets are weak and they themselves are being bailed out by sovereign wealth funds. Where will they get the funds to prop up the monolines?
There it is. Corporate welfare on a mass scale, and the "free marketers" cheer wildly. But God forbid a poor person gets a food stamp . . . Lucky Ducky!
No. The taxpayers have the money to bail out the capitalists because the capitalists are innovative and create wealth. Which is why they need a bailout, because if there was any risk, they wouldn't innovate. Or something.
The meeting was Insurance Regs and BB&B, not Insurance Regulators and monolines.
I suspect that the state pension fund manager is sweating a bit and is using the influence of the state apparatus, which is likely all he has. No one wants this insured stuff on the auction block right now.
This is all coming to a head because Fitch downgraded and SP and Moodys didnt but thought about it. People here were wondering what it meant when one did and the others didnt, did that mean it really wasnt tripleA? Well, of course it isnt. This bailout talk should prove that once and for all. But it does buy time for the BS to continue, under the pretense that the tripleA will be maintained. But it's just silly. Moodys and SP know what they have to do, but they are not allowed to do it for the damage it would cause. So this is basically the last ditch effort to save the financial system, and it will prove at least on the first round, to go unfunded. Then the hat will be passed again, and one bank will be forced to pony up, since it is most likely the one that will be in the most trouble if no one does. It's really an unbelieveable disgusting spectacle.
And they call this innovation? It's pathetic. Totally clueless. They've innovated their way into oblivion and now are trying to find a way for all the people who didnt benefit from the innovation, in fact, likely the ones who were harmed by the innovation, to get screwed on both ends. Good grief.
I still say, this cannot work and today was the day to load up SKF.
What does this have to do with pension funds? They're sometimes issuers (pension obligation bonds, to fund future pension liabilities), but as tax-exempt investors it makes about as much sense for them to buy munis as it does for you to put them in your IRA.
Sounds a lot like LTCC. If true there is no value in these companies. And, whats more important: Maintain the Balance Sheet or secure the stuff currently held. Last, I see a huge potential for conflict of interest here.
I don't know idoc, many a cop has helped people out by not throwing the book at them. The cop has discretion, particularly if he thinks it's just someone in the wrong place at the wrong time and is not a jerk/repeat offender. Their job as peace officers is to uphold the peace and, if it is not, make it peaceful as quickly as possible. They can do that in many ways, not all of which jam up the jails and courts, and is not helpful to the community.
What does this have to do with pension funds? They're sometimes issuers (pension obligation bonds, to fund future pension liabilities), but as tax-exempt investors it makes about as much sense for them to buy munis as it does for you to put them in your IRA.
ajw | 01.23.08 - 6:36 pm | #<
I agree. To the extent that it does involve pension funds, it would have to be bond insurance for structured finance rather then munis.
Misean I do think this is about Munis it is about all the CP junk that these insurers have jumped on to accelerate revenue. This was a business decision on the part of the monolines
Too much going on!!!
I feel like we are experiencing info overload.
My trading account lost 20% today because of homebuilder rallies, and yet when ryl reports things are still getting worse nothing happens after hours?
Cognitive dissonance.
The entire financial system that we have built is starting to resemble a red queen gambit, and the Fed and the powers that be convene in the bloody insurance commissioners office to try and prop up the monolines?
WTF?
Is wall street essentially broke like the S&Ls and too scared to tell us?
What happens next?
A two thousand point drop followed by another fed cut?
I have come to the conclusion that wall street is so desperate that they will literally hold America hostage until they get more money, and when they don't look out below.
Someday this war's gonna end...but I think the hundred days club is going to be in business first!!!
Agree, I have been saying this is a pension fund problem. For example Cal Strs holds 70% AAA, what happens when the downgrades hit and they now hold 30% AAA - they become forced sellers are bargain prices...
Okay, this is the news I was asking for all day yesterday when the monoline stocks were soaring based on very little new info.
Despite all the scorn I'm reading here, isn't there a chance that this could work? The banks aren't being asked to pay all the claims. They are being asked to provide reserves so that the monolines will be able to show the ability to pay far more claims than are likely to occur. That enables them to stay AAA, and keeps that bond fire sale from happening.
If NY can get a lot of banks to pony up smallish amounts, and not ask one bank to do it all, why not? If a taxpayer guarantee of these bank contributions makes the deal happen, why not? Yes, I'll be pissed too if the taxpayer winds up having to pay off, but if this is done right, that would not necessarily happen. Can we trust the deal makers not to screw this up? Probably not, but this is like the Iraq war at this point. No attractive options.
Is there a way that the Monolines can default on the CP and other junk they insured but stay solvent enough for to insure the munis and other stuff they origninally were designed for before they got "creative" or greedy rather?
(Much like a homeowner defaulting on the second but still able to easily handle the first).
we should all divide up and go do consulting for the SWF's. we could teach them all how to really fleece Wall St.
You know, I can't be the only person who thinks of the classified ads...
ISO SWF-I like long walks on the beach and drinking champaign, and lending money to idiots. I've got a great tan, but am full figured (pigman) Perfect candidate has good salary and a high tolernece for profligacy. No links to terrorists a plus, but not necessary. Please call now.
Why can't the threatened pension funds amend their charters to allow for holdings below AAA? They were the ones clamoring for outsized returns that fueled the CDO machine.
Actually this makes sense. Having the banks bail out the bond insurers WOULD be a zero sum game for the banks EXCEPT for the fact that the fed has cut rates agressively. The cuts will eventually mean that there are less defaults and foreclosures on the ARMs and the crisis is at least pushed into some sort of other inflationary crisis down the road.
All in all, disaster later is better than disaster now.
"Despite all the scorn I'm reading here, isn't there a chance that this could work? The banks aren't being asked to pay all the claims. They are being asked to provide reserves"
I hope the insanity of all this isn't lost on everyone. So let me get this straight:
I pay you (the insurer) money so you can insure me. But you lose the money, so if I ever want to file a claim I need to make more money available to give to you so you can give it back to me? This is complete nonsense.
AJ, I'm thinking that getting into the business of insuring the sane bonds that CAN be insured without being saddled with crushing losses from previous bad bets is why Buffett announced that he was getting into the bond insurance business. What looked stupid a little while ago is looking smarter to me now.
Could it be as simple as the HBs near term future was already priced in? Meaning, the HB will continue to exist for a while longer than you expect. I'm not being facetious. I considered buying some HB puts but did not cause I could not answer the question of when will the HB go bankrupt. I hope to do some rough calculations on HB cash flow burn rate this weekend to get a better idea.
They are being asked to provide reserves so that the monolines will be able to show the ability to pay far more claims than are likely to occur. That enables them to stay AAA, and keeps that bond fire sale from happening.
I'm guessing the forced sale of downgraded bonds is an urban myth. Can anybody back that up with some hard facts?
The problem isn't that downgrades will trigger forced sales but that they will trigger write-downs at banks and pension funds.
Too many write-downs at once, and banks take a big hit to their capital reserve ratios (or go bankrupt). Big write-downs at pension funds come out of corporate profits.
Bad things happens when banks can't lend and companies aren't booking profits.
hiker90,
I agree that from looking under the hood that RYL has at least 18 months to bk. And they may avoid, but meanwhile they just burned down 20% of their book value and wall street shrugs? They just wiped out their entire 2006 profit with their unaudited 2007 losses, and they still pay a dividend?
And the analysts are negative on it. morningstar guy basically said wait until they finish bringing out their dead. In other words, more to come, yet folks are willing to pay up for more losses?
Like I said, rationality has left the building, and a total insanity has seized the markets.
If NY can get a lot of banks to pony up smallish amounts, and not ask one bank to do it all, why not?
Yes; I agree.
If a taxpayer guarantee of these bank contributions makes the deal happen, why not?
Because the taxpayer would be providing something (in this case, insurance) at a price below what the market would charge. No matter how you spin it, that is a gift to these companies. Do you want your tax dollars used to reward the people who made the worst investment decisions? I do not. In fact, it would rather piss me off.
I have no problem with government knocking heads together to hammer out an agreement or to resolve a Mexican stand-off or whatever. I have a huge problem with my tax dollars funding any bail-out for anyone who made poor investment choices, whether house speculators or investment banks or pension funds. Any such bail-out, aside from being morally repugnant, would set a very bad precedent for the long term... And that includes any kind of "taxpayer guarantee".
A mark to market moment would be excellent! But sadly this bailout, if it happens, seems designed to forestall exactly that. How on earth these slimebag banks get to keep doing what they're doing, I have no idea.
On the topic of credit swaps, my understanding from a few months back was that the banks were all writing these for hedge fund clients (hence all the fears about JPM going down from their overall swap exposure). Now, after MER's writedown of their ACA exposure, it sounds like the banks were then hedging their own exposure via contracts with the monolines, leaving themselves in the middle - is that a fair assessment?
"Why would you pay insurance to a company to insure muni bonds?
How can the cost of the insurance be cheaper than just accepting a lower return? Why can't the risks just be built into the returns?"
The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
You could build a 100% fireproof house if you spent enough, but it is cheaper for everyone to just build to code and pay for the rare fire. Although we are now seeing some people using the insurance 'put' option
I've lived in NY State for a long time and follow politics pretty closely, and I'd never heard the name Eric Dinallo before today. He's brand new to the job and has no real power base or experience to negotiate or enforce a deal this complex. His background is as a legal bureaucrat in Albany.
There's a big issue here he has to address as an insurance regulator, and it's how to protect the long-term interests of municipalities and their investors. He can't allow reserves to just get wiped out by the first asset-backed securities to fail. He has to make sure some reserves are left for muni bond claims ten years from now.
As I keep saying, there's a lot of insured muni revenue bond failures to be reported over the next few years. Hundreds of bonds and billions of dollars worth.
Isn't insurance only taken against risks that you don't have the assets to handle?
Not necessarily. Insurance is simply paying a premium to transfer risk. Being a tiny entity facing large risks is one reason you might want to do that, but there are others.
How can the cost of the insurance be cheaper than just accepting a lower return?
It isn't. The issue is not the return; it's the risk. A pension fund (for example) might prefer a stable/near-certain 6% to a volatile/uncertain 8%. So they could pay that extra 2% to cover the premium of an insurer who is more willing than they to assume the risk. (And who is itself able to mitigate that risk by insuring lots of other uncorrelated things.)
The whole scheme actually does work, so long as the models used by the insurers and ratings agencies are not complete garbage. Trouble is, a bunch of new asset classes exploded in the past few years, and the models for those are still... um... maturing.
Don't get me wrong--obviously all this is offensive to most people. Big rich guys playing with other peoples' money get into big problems and now they want us to help them.
Trouble is, they are us. It is our economy they screwed up. If we can figure out a way to fix things without helping these people, let's do that.
But if taxpayer guarantees (as opposed to a straight bailout) can avert serious financial consequences that could hurt everyone, then we need to do that. If a straight bailout is what's needed, then we need to hold our noses and do it.
Remember, I'm saying "if." We only save them to save everybody else. If they can't make the case for this, let 'em all go broke. Fine by me.
When the fire department arrives at a blazing building, they try to put out the fire, even if some of the people who live in the building are bad. (And if it's too late to save that building, they let it burn down and try to keep it from setting other buildings on fire. Maybe that's where we are at right now.)
Personally I'm also ready to pay a personal income tax surcharge to hire a task force of frisky young pitbull prosecutors to go after everyone who broke laws in the runup to all this. That might help to postpone the onset of the next big financial crisis.
"My trading account lost 20% today because of homebuilder rallies, and yet when ryl reports things are still getting worse nothing happens after hours?"
The problem isn't that downgrades will trigger forced sales but that they will trigger write-downs at banks and pension funds.
No. Pension funds especially have Investment Policy Statements (ISPs) that say they can't invest, or can only invest X%, in bonds below AAA or AA. They have to sell.
Pension funds buy asset-backed securities, not munis. Insurance companies also have very high quality mandates, and they buy both asset-backed and munis.
"There's a big issue here he has to address as an insurance regulator, and it's how to protect the long-term interests of municipalities and their investors. He can't allow reserves to just get wiped out by the first asset-backed securities to fail. He has to make sure some reserves are left for muni bond claims ten years from now. "
The state insurance department would have to put them into rehabilitation and supervise them and then take them over in case of insolvency.
A major pain in the ass if there is a possibility that they are just impared and aren't insolvent.
It really seems as though tax breaks, in a stimulus package, to homebuilders and mortgage providers misses the point. We have too MANY homes already built. Perhaps an effort to stave off some bankruptcies, but at this point what positive value are the homebuilders adding?
AVERAGE JOE: "The whole idea of monolines is suspect in my opinion...Why would you pay insurance to a company to insure muni bonds? How can the cost of the insurance be cheaper than just accepting a lower return? Why can't the risks just be built into the returns?"
You argument is what the shorts (of monolines), such as Bill Ackman et al, have been making. However, you might want to think about it a bit because the greatest investor of all time, Warren Buffett, just decided to set up a monoline a few months ago. He never would have done it if the business isn't viable.
To cut to the answer, the reason bond insurance works is the same reason any other type of insurance works. In particular, the bond insurer charges lower than the market because the insurer is able to pick good risk over bad risk. Insurers also generally have diversification working for them.
Anyway, you raise a good point and we'll know who is right in about 2 years. If bond insurance makes no sense, the industry won't exist by then...
So I wanna know what we don't know. If this is the stuff that thrown out to the sheeple, what is in that pile of papers sitin gin the pile under the desks?
Banks and pension funds that hold munis to maturity don't need to mark to market per fas 115.
Interesting...
But, I wasn't thinking of municipal bonds specifically. Pension funds enjoy historically had enough tax perks that there isn't much interest in holding low yield munis. Has that changed? Are banks really holding a lot of munis? Where's the spread?
I just thought I would drop in from the previous thread to say - holy crap. I have a 4.75% (1.25 points) 30 year mortgage in the pipeline with ditech.com.
Eariler today they were offering 4.625% (with 2 points) which I got - and as of tonight they are back up to offering 5.25% (with 2 points) huge swing in one day!!!! Last night was 5.0% with 2 points.
Trouble is, they are us. It is our economy they screwed up.
That is not at all clear, at least to me.
Almost all of the losses so far have been in purely financial assets. With these write-downs, banks are not losing billions of dollars; they are simply acknowledging that the billions were never there in the first place.
The real wealth -- the actual houses and land and cars and education in your head -- are all still there. The write-downs are simply a recognition that they were never worth what the financiers were claiming. And since these are the folks who make more money than anybody else on the planet for doing approximately nothing, I have to say, it couldn't happen to a nicer bunch of guys.
Sure there will be some pain in the real world. That's called "the business cycle", and I believe it is like the weather, not like some big machine with lots of knobs and levers for our government and central bank to twiddle. In short, any intervention is likely to make things worse in the long run. (Heck, central bank manipulation of the money supply arguably created the current crisis.)
But whether you agree or not, do be careful not to confuse the wailing and gnashing of teeth on Wall Street with a crisis in the world of real people and real things.
AMBAC Class Action Filed..The Complaint alleges that Ambac and certain of its officers and directors violated federal securities laws by issuing materially false statements regarding the Company's insurance coverage on collateralized debt obligations ("CDO") contracts. The Complaint alleges that Defendants concealed the following facts
JOHN STARK: "But if taxpayer guarantees (as opposed to a straight bailout) can avert serious financial consequences that could hurt everyone, then we need to do that. If a straight bailout is what's needed, then we need to hold our noses and do it."
Speaking as an Ambac shareholder, I don't want the government funding anything. First of all, it is bad for shareholders since the government is going to fleece the shareholders in their interest (they will probably lose in courts though). Secondly, the government doesn't know what it's doing. I would rather let private individuals and institutions work with this. Lastly, if governments bail out the monolines, it'll set a bad precedent and won't help the industry. The monolines need to be able to weather the storm with voluntary, private market, transactions or else it's not going to do anything in the long run.
If anything, what the govt agency should do is to facilitate any capital injections.
Companies like Ambac are not in a solvency crisis. Ambac is nowhere near defaulting on any claims. The problem is maintaining the ratings. This is a sustainable business (why else would Buffett enter?) and the monolines just need to inject some confidence into the markets.
Also one other point, monolines are not the cause of the sell offs across the world. Most of the lower tranches are generally not insured by monolines, and only a small portion of the CDS contracts are written by them. All of the blame started getting thrown at the monolines when Cramer went on TV and started blaming them for all the problems. I have no proof but I suspect he did it bail out his allies at banks and hedge funds. Cramer was the one that said the Dow will rally by 3000 points if the monolines were nationalized. Needless to say, I'm against nationalization of any of the bond insurers.
Keep monolines at AAA?? They are JUNK now and insolvent. Over 200 billion in losses.
Most Muni's are required to have insurance.
Ambac and MBIA insure over 700 billion.
Let's understand what these are. they are mortgage insurers. nothing more. Kind of like Allstate having too many claims after a hurricane. they are insolvent and cannot keep up with the losses from the likes of Merrill.
Why Ambac and the others don't hold the Bond issuer resposible and cut them loose, I don't know. My medical insurance does it all the time?
Politicians are always generous with iur money. Its the common folks pockets that get picked each and every time.
How many are asking the TanMan, Chuck Prince, and all the billionaire hedge fund managers from giving up the hundreds of millions they made during the credit bubble??
Now they want us to pay so that these guys can have homes in the Hamptons & the Caribbean and fly their own Gulfstream jets! And we call it "free market capitalism". But you can't blame them since we allow this s***!!
M-F - interesting that they are quoting you so many different things. Their funding flows were probably changed radically yesterday by the Fed's action.
"Also one other point, monolines are not the cause of the sell offs across the world. Most of the lower tranches are generally not insured by monolines, and only a small portion of the CDS contracts are written by them. "
If you are talking about mbi or abk, fine. But ACA is a big problem and should just die.
Who exactly invented the $15B figure? Sounds a little light, when you add up all the losses across all the insurers. Fannie & Freddie have an interest in this too I would imagine, along with FDIC. They can just ask dubya, since their offices are close by.
This is a game of WAY TOO BIG TO FAIL. The banks will play deaf like MLEC and then taxpayer money will flow in unabated, during an election year as everyone smiles and pats each other on the back. Saves the common shares of all the players in the room.
May be paring back positions soon. I'll get back in after the deal is announced and I can see who gets left out in the cold, to perish.
I don't think you get it. The only reason Buffett is interested is that he has plenty of capital and if the incumbents lose their aaa status, would be able to write new business at profitable rates.
The reason the monolines got into structured finance is that there wasn't enough business in munis and what business there was had been priced too low.
NEMO: "Almost all of the losses so far have been in purely financial assets. "
That's a simplistic view IMO. In a free market, a financial asset is a pricing mechanism. Financial assets are generally nothing more htan a piece of paper indicating the value placed on something by the market.
So, when you say that a lot of the losses are simply financial losses that didn't mean anything real, it is misleading. Whenever the paper gets marked down, the market is saying that the asset in the real world is worth less. The market is passing judgement on the underlying asset (not just on the piece of paper).
For instance, if the stock price of a company drops 50% (permanently) then it actually has an impact on the real physical company. If you tried to sell that company (its physical assets, brands, etc), you will likely get 50% less. In some sense, only the financial asset, in this case a share certificate, dropped; but in reality, the actual physical company lost value.
You can argue that something is overvalued or undervalued--which is kind of what you are arguing--but the reality is that there are real losses borne.
The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
That's only true for small portfolios that can't be adequately diversified.
But, most of these insured bonds are finding their way into the portfolios of large banks and insurance companies that can diversify away idiosyncratic risk leaving only systematic risk.
How do you build a business model insuring against systematic risk?
ZIGURRAT: "If you are talking about mbi or abk, fine. But ACA is a big problem and should just die."
ACA likely won't survive. Their first problem is that they wrote CDS contracts that requires them to post collateral.
Secondly, I haven't looked into them deeply but I think they wrote a lot of the 2007 mortgage stuff, which is the risky stuff. Most of the other monolines started cutting back and pretty much stopped by mid 2007.
Lastly, rating agency projections (who knows how reliable they are) for ACA is extremely large. They are projected to take $1+ billion in loss, which is very large for a company that size. For reference, MBIA and Ambac are around $2+ billion in loss for companies that are around 5x to 10x larger.
"I don't think you get it. The only reason Buffett is interested is that he has plenty of capital and if the incumbents lose their aaa status, would be able to write new business at profitable rates."
I use the example of Buffett as an argument against those claiming that the bond insurance industry makes no sense. You can say Ambac doesn't belong in the industry or that structured product insurance doesn't make sense, or whatever, but some are claiming that the whole industry--the concept of bond insurance--doesn't make sense. That is completely false...
"The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.
For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up."
"Wall Street hasnt yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moodys Economy.com. "
OK....so now the little secret about just how bad it is was on the front page of today's NYT's.
So everyone knows it now. Except the perma bulls on cnbc.
"I use the example of Buffett as an argument against those claiming that the bond insurance industry makes no sense. You can say Ambac doesn't belong in the industry or that structured product insurance doesn't make sense, or whatever, but some are claiming that the whole industry--the concept of bond insurance--doesn't make sense. That is completely false..."
I would say that the traditional bond business isn't a good business over a credit cycle.
It wasn't only greed that got them into their current mess. They would have had to essentially shut down until prices returned to reasonable levels.
Tons and ton of cases like this in Cali. But your petty refi is going to save the day? I really wish it was so.
By the way, Who is going to insure all your municipal and state projects that are going to save us?? not to mention where the hell the money for the projects going to come from?
Here is another question for an arrogant someone in the know, what if the taxpayer bailout(call it what you want) isn't enough?
"The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
That's only true for small portfolios that can't be adequately diversified.
But, most of these insured bonds are finding their way into the portfolios of large banks and insurance companies that can diversify away idiosyncratic risk leaving only systematic risk.
How do you build a business model insuring against systematic risk?
Kicker | 01.23.08 - 7:40 pm | #"
Kicker.... I think the idea is that the muni insurers are more efficient at managing diversifiable risk then many bond holders.
You have lots of small issues and the bond insurer does the underwriting once. Sort of like a rating agency that issues a permanent rating backs it with its own money.
Anyway, I don't think it is a great business. Mostly because the upper bound on what can be charged economically prevents making high enough profits to make things work over a complete credit cycle.
The mistake the monolines did was precisely what Buffett said their mistake was. Namely, they didn't price their insurance on structured products properly! The reason for that, in my opinion, was not because of greed (although that always plays a role) or too much competition (structured products are a growth area and not much competition). Instead, I believe their problem was that their models were wrong. Since most of the structured products were new (when was a CDO created for the first time? how about a CDS-type insurance?), they miscalculated in a major way.
Furthermore, their reliance on rating agencies for guidance led them down the wrong path as well, since the rating agencies were mispricing them too. Some people here, and elsewhere, who are kind of naive think it was all a scam to mark a senior tranche of a CDO-squared with AAA. The reality is that the agencies htemselves likely thought it was worthy of their AAA rating scale (as a side note, their rating scale varies so a AAA CDO-squared wouldn't be the same as a AAA government treasury bond).
Lastly, the investors also thought the ratings gave a good indication of default. They were wrong of course.
People were just wrong all over the place! Sad event in American finance history. I really don't think there was anything sinister going on, with people purposely rating something AAA and selling it knowing it is questionable. Although to a bystander it might seem like a snake oil scam, it really was the problem with marking unknowable risk. I think in 20 years, when all these structured products become the norm, investors will look back and wonder how it happened...
(Oh, one last word to those bashing the potential for banks to supply capital... remember, those that bought LTCM actually turned a profit in the end... bankers generally make sure they get paid )...
That's a simplistic view IMO. In a free market, a financial asset is a pricing mechanism.
Yes, but the value of a financial asset is equal to the future cash it will generate, discounted back to the present day. (Thus the value is only knowable precisely in retrospect.) The market price of a financial asset typically, but not always, approximates its value.
In your example of a company whose stock gets cut in half, that could either mean the market is recognizing the future cash flows will not be what it expected... Or it could mean the market is being irrational. Either way, the value of the company fundamentally depends on those future cash flows. If the owners are in no rush to sell and have no need to raise capital, the market price is irrelevant; the earnings are all that matter. Those earnings are part of the "real world". The stock price is part of the "financial world". The two are connected but not at all identical.
Of course, financial losses can effect the real world... But only for companies or individuals that need financing! If 90% of the damage here is in the financial institutions and only 10% hits the real world, I can live with that. Doubly so if the alternative is for my tax dollars to bail out the financiers.
People were just wrong all over the place! Sad event in American finance history. I really don't think there was anything sinister going on, with people purposely rating something AAA and selling it knowing it is questionable. Although to a bystander it might seem like a snake oil scam, it really was the problem with marking unknowable risk. I think in 20 years, when all these structured products become the norm, investors will look back and wonder how it happened...<
In general, I agree that it wasn't fraud. However, it wasn't just a mistake either. CDO's were designed to extract every possible profit and fee based on known models. The financial engineers took advantage of weaknesses in rating agency models -- they weren't designed to fail, but they were designed to be as awful as possible and still get rated.
Anyway, they won't be able to sell opaque crap like this in the future.
Furthermore, there is absolutely no reason to use a credit enhancement technique like a cdo and then buy insurance. These are competing credit enhancement technques.
brokebrain benny-A Michelle Malkin article from 2003 is the best you can do? Yikes! She and her friend Bush wouldn't know a fact if it bit them in the ass.
There is plenty of money for investments that will add to the productive capacity of the country. Those are perfectly appropriate to borrow for, just as companies borrow to build factories. Fixing the financial system is also necessary, though, belive me, I am not overjoyed about it. What is not worth it is a tax rebate that will either go to pay bills or buy stuff from China.
I don't know how old you are, but I have lived through enough booms and busts to know that in every boom some people come out to say it will never end and in every bust some people come out to tell us that the economy will never grow again. If you want to make that mistake, go ahead, but I am going to bed instead.
"But trading up was always a fragile phenomenon. It rested, in large part, on consumer psychology a feeling of wealth derived from soaring home values and the steady growth of real income, that is, income adjusted for inflation.
Today, any growth in real income is all but canceled out in consumers minds by falling home prices and rising energy costs. Michael J. Kowalski, the chief executive of Tiffany, calls this the wealth affect.
Even if people have plenty of money on paper, he said, they suddenly feel less rich. It is a reaction to the general economic uncertainty that everyone is feeling, Mr. Kowalski said.
At Tiffany, the wealth effect translated into sluggish holiday sales of jewelry priced between $1,000 and $10,000, items aimed at what the chain calls its midtier luxury consumer.
Bailout and then what? This will create another opportunity for someone who will run exactly the same scheme over and over knowing that he will get bailed out again.
Middle-aged, sour at the prospect that guys like Orangilo ride off into the sunset and we all pay for it. The article was the firt I found and really illustrates how far back we knew this was going on and did nothing. The "SITK" crowd knew exactly what would happen.
End of the world, no way. Pissed that I have to still eat a shit sandwich because I played by the rules, absolutely.
insurance is a rough business. buffet himself has explained that in the best of times insurance companies compete themselves to oblivion.
its all about lax underwriting standards. so they get easier and easier with their underwriting, collect their premiums and then finally when it all does blow up, because AFTER ALL ITS INSURANCE WHERE WE ARE ALL EXPECTING IT TO BLOW UP, the can't pay
My thought as well. I almost broke out laughing watching the so-called "leaders" of today's rally ... BZH up 10%, ABK up 78%, Capitol One taking back 6 bucks. For God's sake Beazer has not even reported earnings since last June, what kind of delusional fool would buy a stock like that?
Meanwhile, companies with real earnings and an actual future like Apple and Google were getting taken out back and shot. The Googster is now 20% off it's highs, in 500 dollar territory.
This had to be some program trading gone haywire. Maybe hedge funds caught in a massive liquidation mode, where they had to unwind their short positions and dump profitable longs to meet margin calls or some other evil.
This kind of volatility is darn near impossible to trade ... thank God I'm in cash. AllenM, hang in there, when the final leg down for RYL comes it will be stunningly swift and final, like frontier justice.
Why would the banks be interested in participating?
From the NYTimes:
"While $15 billion might seem like a large amount of money for banks to commit to bond guarantors at a time when many investors have lost faith in them, Mr. Haines said it would be smaller than the billions the banks might have to write down if the companies lost their top ratings or incurred major losses."
In essence, in the short term, it might be in their interests, while the long term solution is certainly something else.
It's just like the SIV 'plan'. They will go round and round for weeks or more, leaking news stories that look positive, only to realize that a loss is a loss, and once it is there...there is nothing to do but realize it.
If they are at all serious about strong arming the banks into taking action, it must be because there is a chance of system wide counterparty failure in the credit derivatives arena. That is the only thing that makes this make sense.
The banks are being told that they can pitch in now, and take more losses, or let the entire system collapse, and lose everything.
OK so anyone else read NoThing's rumor that DeutcheBank is goinging to announce big bad news?
The idea of loaning money to the mono-lines starts to sound good even as a stalling measure as long as the banks get back as much money as they loan (with minimal intrest) and don't have to share it with some other investors... seems like they're holding the bag anyway, if the folks re-insuring the monolines can't make payments. All the banks (even GS) would seem to have some skin in this game whether it's write-downs on CDOs or CDSs.
Yeah they gotz planz! Buy before you get price out forever!
What incentive banks would have to rescue the bond insurers?
well someone please bail me out. I can be irresponsible too!
Not exactly good news for the banks, that's for sure. Heads, the insurers die and they take writedowns; tails, they bail out the insurers and they don't see that money for many, many years. Coin lands on edge, they bail out the insurers, the insurers go under anyway, and the banks have even less reserves to try and weather the fallout.
What incentive banks would have to rescue the bond insurers?
Because then the insurers can give them their money back when the bonds go belly up.
Yea right! Lets ask the already in trouble banks to bail out the in trouble insurance companies? With whose money? Banks have enough of their own problems. Not going to happen!
And out of curiousity, where do these banks get their fair share of money to pony up?
What did I tell you!
It's M-Blecch all over again.
And how many fools were fleeced in the last 90 minutes today, while big guys reduced positions?
This market is a sucker's game for the individual investor. But it is fascinating to watch from the sidelines.
And the heads of every one of the banks asking the government to put a rescue plan together would very sincerely testify that the less government regulation of their industry, the better.
Oh, and the lower the taxes on their incomes, the better, too.
reposting...
The talk about propping bond insurers is eerily similar to the talk about how all the banks would get together for a SUPER-SIEVE and help fix the problems with SIVs. Funny how that got nowhere, but the PR was good enough to give the market a few pops here and there. Of course, all those gains are gone now, but it sure did allow some traders to get out of uncomfortable positions.
Im thinking this will prove to be about as useful as the paulson supershiv.
Geoff | 01.23.08 - 5:34 pm | #
I still believe some sort of bail-out is inevitable.
Why the shareholders of the common stock think they will see even a penny of it, however, is beyond me.
It's an attempt to prevent counter party failure. Keep the chain together and no one has to writedown their worthless hedges like MER did with ACA. The banks have a reason to do this but on what terms and where will thet get the capital is the big question.
This is hilarious. The banks bought their insurance from the bond insurers. Now that's a problem, the banks will sell insurance to the bond insurers, so the bond insurers can then sell more insurance to the banks.
Anyone see a problem with this? It's a financial perpetual motion machine!
SuperSiv 2!
It isn't a bail out baby, its a bail in!
Sure, throwing good money after bad sounds like a terrible idea, but not if your all the guys relying on the insurance and asking everyone else to foot the bill.
If your insurance company cannot pay your claim, and they subsequently ask you to pay them so that they can pay you your claim, isn't that a zero-sum game?
If it is zero-sum, I would expect the monolines to jump today (and they did) and the banks to decline.
Am I missing something here?
It sounds like a lot of hope for a government-funded (I'm sorry...I meant taxpayer-funded) bailout.
That must have been one heck of a meeting.
I can just imagine the heads of the largest U.S. banks quoting Homer Simpson:
"Awww... Can't somebody else do it?"
Would someone smarter than me please help me distinguish between:
-- the financial news
-- a sidewalk shell game
-- a Ponzi/pyramid scheme
-- multilevel marketing
-- excellent financial opportunities in email from friends I haven't met yet?
I assume there's some sort of risk management approach for telling these apart.
I fear I've lost track.
It prevents all the pension funds who must sell an asset that drops in credit rating. All those sales would depress the price of munies et al, which would have to be reflected on everybody's balance sheet.
If you're a banker, it's not usually a good sign to be making a loan to a borrower who will use the funds you advance in order to pay the interest on another loan he has with you. It's called throwing good money after bad or papering over your assets.
So here we have bankers with assets on their books where the value of those assets depends on the solvency of third parties, and the suggested solution is to send the banks' money to the insolvent so that everyone can pretend the value of the existing assets isn't impaired. This is different from the previous case HOW?
If Dinallo wants the insurers "saved", wouldn't it be simpler for the banks to, say, WAIVE the insurance coverage the monolines have provided? That would be effective as a bailout for the insurers.
What would be the downside?
Bear Sterns told all it's creditors if they didn't show forebearance and caused them to liquidate assets at fire-sale prices, they would regret it. They seized the assets anyway and got their hands burned!
Blonde Vigilante,
Bingo. This is about Pension Funds. The banks didn't buy the insurance, the munies bought it to sell bonds at par to very conservative, and very regulated funds.
Cheers,
i'm telling u. each and everyday we have to have at minimum one piece of good news for the pigmen to rally around otherwise the mkt would tank. every day.
Any guesses as to which bank was whining for a govt bailout?
The ratings companies should bail them out - they were the linchpins of the enabling scheme.
Greedy monolines knew what they were doing – who should bail them out for playing with fire? « Sidetalk
The pension funds can lend the Monolines money. CALPERs to the rescue. After all, one of them hasn't lost their AAA rating yet.
Sn iff sniff, is that a Bail-out I smell? Who will the bagholder be?
Excuse me while I go grease my wheelbarrow
I can hardly wait until the first headline- we are doing worse than Japan.
years of crap going down in value as asset prices reset, while inflation makes us all very unhappy to buy anything not priced in dollars that our gov't can control.
I do see a very nice cheap loan in my future for all of my current real estate loans- like 2.5%!!!
We should all begin to practice humility. Of course, right after every mutual fund with an analyst worth their salt gets out of the homebuilders.
Dead feline rebound is definitely occuring, with no respect for reality.
As for nationalizing our dead monolines, only when their counterparty banks are down to the single digits. Save them after the shareholders take their pasting. Not before so that bonuses still get paid.
Someday this war's gonna end...
This is so funny, I'm positively giddy. I wonder what they will do next? It is so much fun watching them buzzing around, playing their little games. Hahaha!!
BV,
Now THERE's a scenario where the insured bails the insurer to get claims paid.
LOL. I'm going to go practice flying by flapping my arms and jumping off the roof. Should work out about as well.
Cheers,
Thank goodness for crony capitalism and one-way bets.
FF
no, thank goodness for the taxpayer.
BV - mark my words, this will be every bit as effective as the M-LEC was.
Today's rally was a mirage. Wait til everyone realizes they were drinking sand, and there is no water in sight.
Well not to worry. MBIA has a large stake in it's Cayman Island reinsurer, set up by MBIA to write reinsurance for MBIA almost exclusively.
See it's all covered. Clear as mud.
Cheers,
we should all divide up and go do consulting for the SWF's. we could teach them all how to really fleece Wall St.
Watching the Dow chart is like viewing time-lapse movies of a dead animal corpse being invaded by maggots. The maggots burrow under the skin and make the dead animal jitter and jump around a bit - sort of like it's alive - but it's really not, those are just the maggots at work.
Times like this, I wish I was smart enough to play shorts. Thing is I know how much I don't know, so even though the upcoming drop is obvious...
GEEZ, ok ok ok....I will insure all the bonds!
Just send all the incoming revenue that Ambak and MBIA usually get to my house.
I will pay for all defaults as long as there aren't any.
Problem solved.
You're Welcome.
The banks can sell more equity to foreign sovereigns to come up with the 5B
Government going to use Tax payers money to help the HBs and bnaks.
Builders, Banks Could Get Tax Break
Wednesday January 23, 4:54 pm ET
By Marcy Gordon, AP Business Writer
Banks, Homebuilders, Others Could Get Fattened Tax Refunds Under Stimulus-Plan Provision
Expired
Another chance to buy puts on the monolines.
Average Joe
wait a minute. ur a cop. u throw ppl in jail not bail em out.
Probably the reason for financial rally today. Almost seems criminal.
Expired? .v=1
Why would the state of NY try to coordinate something like this instead of the Feds?
Here we go again. This is how it always works, historically.
First the banks are asked to swing the bail out. Of course they don't want to so they in turn ask the government to secure any money they put up for the bailout. The government eventually does, and we have ourselves a true taxpayer bailout where the banks look like they're doing something, but where the real risk lies with the govt/taxpayers.
It almost makes me look forward to the day we have economic collapse. At least I won't have to witness this disgusting crap anymore.
The banks' balance sheets are weak and they themselves are being bailed out by sovereign wealth funds. Where will they get the funds to prop up the monolines?
Will Ambac reverse their decision and issue capital again?
Remember back on Jan 17th when Evercore Asset Management, a large Ambac shareholder, complained about their plans to raise costly equity capital
because of the dilution?
Where will the bailout money come from? Show me the money!
Why are all these bond holders freaking out?
Insurance companies don't pay claims -- they just collect premiums. It's the American way, don'tcha know . . .
There it is. Corporate welfare on a mass scale, and the "free marketers" cheer wildly. But God forbid a poor person gets a food stamp . . . Lucky Ducky!
The reason it is being done by the state is that they (monolines) are regulated by the state insurance departments. The big ones are NY companies.
no, thank goodness for the taxpayer.
No. The taxpayers have the money to bail out the capitalists because the capitalists are innovative and create wealth. Which is why they need a bailout, because if there was any risk, they wouldn't innovate. Or something.
Zig,
The meeting was Insurance Regs and BB&B, not Insurance Regulators and monolines.
I suspect that the state pension fund manager is sweating a bit and is using the influence of the state apparatus, which is likely all he has. No one wants this insured stuff on the auction block right now.
Cheers,
C'mon Ambac was up yesterday and today? You guys didn't see this coming?
Good call Gary!
patient renter has it right. same ol story repeated of taxpayer bailouts.
and all the clowns like Seb, OJoe, and that new guy Texalope wonder why we are all so jaded by the hypocrisy and injustice of it all.
idoc,
Check.
Cheers,
This is all coming to a head because Fitch downgraded and SP and Moodys didnt but thought about it. People here were wondering what it meant when one did and the others didnt, did that mean it really wasnt tripleA? Well, of course it isnt. This bailout talk should prove that once and for all. But it does buy time for the BS to continue, under the pretense that the tripleA will be maintained. But it's just silly. Moodys and SP know what they have to do, but they are not allowed to do it for the damage it would cause. So this is basically the last ditch effort to save the financial system, and it will prove at least on the first round, to go unfunded. Then the hat will be passed again, and one bank will be forced to pony up, since it is most likely the one that will be in the most trouble if no one does. It's really an unbelieveable disgusting spectacle.
And they call this innovation? It's pathetic. Totally clueless. They've innovated their way into oblivion and now are trying to find a way for all the people who didnt benefit from the innovation, in fact, likely the ones who were harmed by the innovation, to get screwed on both ends. Good grief.
I still say, this cannot work and today was the day to load up SKF.
Ambac: I can haz equity plees?
Market: No.
Ambac: I can haz loan plees?
Bank: No.
Government: O rly?
Bank: ok ok it can be loan time nao
What does this have to do with pension funds? They're sometimes issuers (pension obligation bonds, to fund future pension liabilities), but as tax-exempt investors it makes about as much sense for them to buy munis as it does for you to put them in your IRA.
Geoff
load up slowly for we could have a multiday, multiweek rally before the big downdraft. OTOH, the levees could break sooner than you'd think.
Sounds a lot like LTCC. If true there is no value in these companies. And, whats more important: Maintain the Balance Sheet or secure the stuff currently held. Last, I see a huge potential for conflict of interest here.
I don't know idoc, many a cop has helped people out by not throwing the book at them. The cop has discretion, particularly if he thinks it's just someone in the wrong place at the wrong time and is not a jerk/repeat offender. Their job as peace officers is to uphold the peace and, if it is not, make it peaceful as quickly as possible. They can do that in many ways, not all of which jam up the jails and courts, and is not helpful to the community.
Hey, when did the visitor counter make a comeback? Did it get a bailout somehow?
I agree. To the extent that it does involve pension funds, it would have to be bond insurance for structured finance rather then munis.
Munis aren't defaulting left and right.
Misean I do think this is about Munis it is about all the CP junk that these insurers have jumped on to accelerate revenue. This was a business decision on the part of the monolines
Gary --
For the record, I am a staunch "free marketer", and I think privatizing gains while socializing losses is a load of crap.
Please do not confuse "free marketers" with Republicans. People like me don't have a party to support anymore.
Too much going on!!!
I feel like we are experiencing info overload.
My trading account lost 20% today because of homebuilder rallies, and yet when ryl reports things are still getting worse nothing happens after hours?
Cognitive dissonance.
The entire financial system that we have built is starting to resemble a red queen gambit, and the Fed and the powers that be convene in the bloody insurance commissioners office to try and prop up the monolines?
WTF?
Is wall street essentially broke like the S&Ls and too scared to tell us?
What happens next?
A two thousand point drop followed by another fed cut?
I have come to the conclusion that wall street is so desperate that they will literally hold America hostage until they get more money, and when they don't look out below.
Someday this war's gonna end...but I think the hundred days club is going to be in business first!!!
Look at the two single huge buys on ABK today. "Oh just shopping..." phuuweee
What the hell do the get for the $15billion?
Agree, I have been saying this is a pension fund problem. For example Cal Strs holds 70% AAA, what happens when the downgrades hit and they now hold 30% AAA - they become forced sellers are bargain prices...
Okay, this is the news I was asking for all day yesterday when the monoline stocks were soaring based on very little new info.
Despite all the scorn I'm reading here, isn't there a chance that this could work? The banks aren't being asked to pay all the claims. They are being asked to provide reserves so that the monolines will be able to show the ability to pay far more claims than are likely to occur. That enables them to stay AAA, and keeps that bond fire sale from happening.
If NY can get a lot of banks to pony up smallish amounts, and not ask one bank to do it all, why not? If a taxpayer guarantee of these bank contributions makes the deal happen, why not? Yes, I'll be pissed too if the taxpayer winds up having to pay off, but if this is done right, that would not necessarily happen. Can we trust the deal makers not to screw this up? Probably not, but this is like the Iraq war at this point. No attractive options.
What is Cas Strs?
I think Cal Strs = CALPERS, the California Pension Retirement System
crispy&cole it is called discipline in finance...so, we pay for a bad decision? If they have to sell let them sell.
Is there a way that the Monolines can default on the CP and other junk they insured but stay solvent enough for to insure the munis and other stuff they origninally were designed for before they got "creative" or greedy rather?
(Much like a homeowner defaulting on the second but still able to easily handle the first).
we should all divide up and go do consulting for the SWF's. we could teach them all how to really fleece Wall St.
You know, I can't be the only person who thinks of the classified ads...
ISO SWF-I like long walks on the beach and drinking champaign, and lending money to idiots. I've got a great tan, but am full figured (pigman) Perfect candidate has good salary and a high tolernece for profligacy. No links to terrorists a plus, but not necessary. Please call now.
barley- they bought insurance against this? What was the point of the?
Question - Do they issue re-insurance for this???
Why can't the threatened pension funds amend their charters to allow for holdings below AAA? They were the ones clamoring for outsized returns that fueled the CDO machine.
Cal Strs is the California Teachers penion plan, the little brother of CAL Pers
Actually this makes sense. Having the banks bail out the bond insurers WOULD be a zero sum game for the banks EXCEPT for the fact that the fed has cut rates agressively. The cuts will eventually mean that there are less defaults and foreclosures on the ARMs and the crisis is at least pushed into some sort of other inflationary crisis down the road.
All in all, disaster later is better than disaster now.
Then can hold below AAA, just not a high percentage. They hold all grades from AAA to junk.
"Despite all the scorn I'm reading here, isn't there a chance that this could work? The banks aren't being asked to pay all the claims. They are being asked to provide reserves"
I hope the insanity of all this isn't lost on everyone. So let me get this straight:
I pay you (the insurer) money so you can insure me. But you lose the money, so if I ever want to file a claim I need to make more money available to give to you so you can give it back to me? This is complete nonsense.
AJ, I'm thinking that getting into the business of insuring the sane bonds that CAN be insured without being saddled with crushing losses from previous bad bets is why Buffett announced that he was getting into the bond insurance business. What looked stupid a little while ago is looking smarter to me now.
AllenM,
Could it be as simple as the HBs near term future was already priced in? Meaning, the HB will continue to exist for a while longer than you expect. I'm not being facetious. I considered buying some HB puts but did not cause I could not answer the question of when will the HB go bankrupt. I hope to do some rough calculations on HB cash flow burn rate this weekend to get a better idea.
Best,
They are being asked to provide reserves so that the monolines will be able to show the ability to pay far more claims than are likely to occur. That enables them to stay AAA, and keeps that bond fire sale from happening.
I'm guessing the forced sale of downgraded bonds is an urban myth. Can anybody back that up with some hard facts?
The problem isn't that downgrades will trigger forced sales but that they will trigger write-downs at banks and pension funds.
Too many write-downs at once, and banks take a big hit to their capital reserve ratios (or go bankrupt). Big write-downs at pension funds come out of corporate profits.
Bad things happens when banks can't lend and companies aren't booking profits.
hiker90,
I agree that from looking under the hood that RYL has at least 18 months to bk. And they may avoid, but meanwhile they just burned down 20% of their book value and wall street shrugs? They just wiped out their entire 2006 profit with their unaudited 2007 losses, and they still pay a dividend?
And the analysts are negative on it. morningstar guy basically said wait until they finish bringing out their dead. In other words, more to come, yet folks are willing to pay up for more losses?
Like I said, rationality has left the building, and a total insanity has seized the markets.
Someday this war's gonna end...
I agree kicker.
Kicker - I think its both forced sales and writedowns.
John Stark --
If NY can get a lot of banks to pony up smallish amounts, and not ask one bank to do it all, why not?
Yes; I agree.
If a taxpayer guarantee of these bank contributions makes the deal happen, why not?
Because the taxpayer would be providing something (in this case, insurance) at a price below what the market would charge. No matter how you spin it, that is a gift to these companies. Do you want your tax dollars used to reward the people who made the worst investment decisions? I do not. In fact, it would rather piss me off.
I have no problem with government knocking heads together to hammer out an agreement or to resolve a Mexican stand-off or whatever. I have a huge problem with my tax dollars funding any bail-out for anyone who made poor investment choices, whether house speculators or investment banks or pension funds. Any such bail-out, aside from being morally repugnant, would set a very bad precedent for the long term... And that includes any kind of "taxpayer guarantee".
The whole idea of monolines is suspect in my opinion. Isn't insurance only taken against risks that you don't have the assets to handle?
i.e. I ensure against catasrophic expenses larger than my worth or income can handle.
I don't buy insurance from people worth less than me.
Why would you pay insurance to a company to insure muni bonds?
How can the cost of the insurance be cheaper than just accepting a lower return? Why can't the risks just be built into the returns?
Govts are usually self insured since their ability to cover losses is greater than anyone who could insure them.
What am I missing.
Kicker:
Banks and pension funds that hold munis to maturity don't need to mark to market per fas 115.
Therefore, I think that the only issue is structured finance where the ability to keep the insured cdo's at par is the only benefit.
Barley, Zig,
Gah! I think you're right. I just dug through Calpers assets.
So I guess it IS in the banks interest. Mark to market moment. That would be sweet.
Cheers,
Miesean...
Keep digging. Notice that CALPERS has a little credit enhancement program.
They have the money to pick up some of the slack regarding enhancment of munis, and have been doing some of it. They could expand the program.
Not to mention Buffett's interest in writing new business.
https://www.calpers.ca.gov/eip-docs/investments/policies/invo-risk-mang/credit-enhancement.pdf
Nemo
well said
ot to mention how unfair this is to Buffett? propping up competitors when he could be a monopoly. life is so unfair to billionaires.
A mark to market moment would be excellent! But sadly this bailout, if it happens, seems designed to forestall exactly that. How on earth these slimebag banks get to keep doing what they're doing, I have no idea.
On the topic of credit swaps, my understanding from a few months back was that the banks were all writing these for hedge fund clients (hence all the fears about JPM going down from their overall swap exposure). Now, after MER's writedown of their ACA exposure, it sounds like the banks were then hedging their own exposure via contracts with the monolines, leaving themselves in the middle - is that a fair assessment?
Average Joe wrote: I don't buy insurance from people worth less than me.
BINGO!
-- Judge Smales
"You'll get nothing and like it"
"Why would you pay insurance to a company to insure muni bonds?
How can the cost of the insurance be cheaper than just accepting a lower return? Why can't the risks just be built into the returns?"
The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
You could build a 100% fireproof house if you spent enough, but it is cheaper for everyone to just build to code and pay for the rare fire. Although we are now seeing some people using the insurance 'put' option
If these guys (mbi abk) had stuck to munis, they would be fine.
I've lived in NY State for a long time and follow politics pretty closely, and I'd never heard the name Eric Dinallo before today. He's brand new to the job and has no real power base or experience to negotiate or enforce a deal this complex. His background is as a legal bureaucrat in Albany.
The page cannot be found
There's a big issue here he has to address as an insurance regulator, and it's how to protect the long-term interests of municipalities and their investors. He can't allow reserves to just get wiped out by the first asset-backed securities to fail. He has to make sure some reserves are left for muni bond claims ten years from now.
As I keep saying, there's a lot of insured muni revenue bond failures to be reported over the next few years. Hundreds of bonds and billions of dollars worth.
Average Joe --
Isn't insurance only taken against risks that you don't have the assets to handle?
Not necessarily. Insurance is simply paying a premium to transfer risk. Being a tiny entity facing large risks is one reason you might want to do that, but there are others.
How can the cost of the insurance be cheaper than just accepting a lower return?
It isn't. The issue is not the return; it's the risk. A pension fund (for example) might prefer a stable/near-certain 6% to a volatile/uncertain 8%. So they could pay that extra 2% to cover the premium of an insurer who is more willing than they to assume the risk. (And who is itself able to mitigate that risk by insuring lots of other uncorrelated things.)
The whole scheme actually does work, so long as the models used by the insurers and ratings agencies are not complete garbage. Trouble is, a bunch of new asset classes exploded in the past few years, and the models for those are still... um... maturing.
Don't get me wrong--obviously all this is offensive to most people. Big rich guys playing with other peoples' money get into big problems and now they want us to help them.
Trouble is, they are us. It is our economy they screwed up. If we can figure out a way to fix things without helping these people, let's do that.
But if taxpayer guarantees (as opposed to a straight bailout) can avert serious financial consequences that could hurt everyone, then we need to do that. If a straight bailout is what's needed, then we need to hold our noses and do it.
Remember, I'm saying "if." We only save them to save everybody else. If they can't make the case for this, let 'em all go broke. Fine by me.
When the fire department arrives at a blazing building, they try to put out the fire, even if some of the people who live in the building are bad. (And if it's too late to save that building, they let it burn down and try to keep it from setting other buildings on fire. Maybe that's where we are at right now.)
Personally I'm also ready to pay a personal income tax surcharge to hire a task force of frisky young pitbull prosecutors to go after everyone who broke laws in the runup to all this. That might help to postpone the onset of the next big financial crisis.
"My trading account lost 20% today because of homebuilder rallies, and yet when ryl reports things are still getting worse nothing happens after hours?"
Hedgies are buying and shorting commodities.
INO Equities Stocks Indexes - CONTINUOUS COMMODITY INDEX (NYBOT:CI) Price Chart and Quote
See ya, wouldn't want to be ya.
and gold keeps truckin on 893.60
OT: What was the investment that STMicro lost $46 million i
No. Pension funds especially have Investment Policy Statements (ISPs) that say they can't invest, or can only invest X%, in bonds below AAA or AA. They have to sell.
Pension funds buy asset-backed securities, not munis. Insurance companies also have very high quality mandates, and they buy both asset-backed and munis.
"There's a big issue here he has to address as an insurance regulator, and it's how to protect the long-term interests of municipalities and their investors. He can't allow reserves to just get wiped out by the first asset-backed securities to fail. He has to make sure some reserves are left for muni bond claims ten years from now. "
The state insurance department would have to put them into rehabilitation and supervise them and then take them over in case of insolvency.
A major pain in the ass if there is a possibility that they are just impared and aren't insolvent.
It really seems as though tax breaks, in a stimulus package, to homebuilders and mortgage providers misses the point. We have too MANY homes already built. Perhaps an effort to stave off some bankruptcies, but at this point what positive value are the homebuilders adding?
John Stark wrote: If a straight bailout is what's needed, then we need to hold our noses and do it.
What's this "we" stuff, Kemo Sabe? I've got an idea: I'll sit out the bailout and you can take care of my share, too, right?
-- Judge Smales
"You'll get nothing and like it"
AVERAGE JOE: "The whole idea of monolines is suspect in my opinion...Why would you pay insurance to a company to insure muni bonds? How can the cost of the insurance be cheaper than just accepting a lower return? Why can't the risks just be built into the returns?"
You argument is what the shorts (of monolines), such as Bill Ackman et al, have been making. However, you might want to think about it a bit because the greatest investor of all time, Warren Buffett, just decided to set up a monoline a few months ago. He never would have done it if the business isn't viable.
To cut to the answer, the reason bond insurance works is the same reason any other type of insurance works. In particular, the bond insurer charges lower than the market because the insurer is able to pick good risk over bad risk. Insurers also generally have diversification working for them.
Anyway, you raise a good point and we'll know who is right in about 2 years. If bond insurance makes no sense, the industry won't exist by then...
A variety of monoline bailouts could make sense if MBIA and Ambac still had a viable biz model for generating revenue and profit. They don't.
They will have to lay off most staff soon.
In a run-off situation, there's a good chance good money would be thrown after bad and lost.
So I wanna know what we don't know. If this is the stuff that thrown out to the sheeple, what is in that pile of papers sitin gin the pile under the desks?
patient renter you summed it up wonderfully. Not to mention, if the banks pony up, why should they now pay any premiums?
I smell a "Super SIVII" in the air.
Banks and pension funds that hold munis to maturity don't need to mark to market per fas 115.
Interesting...
But, I wasn't thinking of municipal bonds specifically. Pension funds enjoy historically had enough tax perks that there isn't much interest in holding low yield munis. Has that changed? Are banks really holding a lot of munis? Where's the spread?
I just thought I would drop in from the previous thread to say - holy crap. I have a 4.75% (1.25 points) 30 year mortgage in the pipeline with ditech.com.
Eariler today they were offering 4.625% (with 2 points) which I got - and as of tonight they are back up to offering 5.25% (with 2 points) huge swing in one day!!!! Last night was 5.0% with 2 points.
Kicker I dont think it is about munis. It is about the 400B of junk CP sitting in on-again-off-again balance sheets.
The value is in the munis. In any arrangment they will parceled off...HEY we could syndicate this!
Kicker....
I don't really know, but I believe that individuals own about 60% of munis and pension funds and banks own about 20% each......
John Stark --
Trouble is, they are us. It is our economy they screwed up.
That is not at all clear, at least to me.
Almost all of the losses so far have been in purely financial assets. With these write-downs, banks are not losing billions of dollars; they are simply acknowledging that the billions were never there in the first place.
The real wealth -- the actual houses and land and cars and education in your head -- are all still there. The write-downs are simply a recognition that they were never worth what the financiers were claiming. And since these are the folks who make more money than anybody else on the planet for doing approximately nothing, I have to say, it couldn't happen to a nicer bunch of guys.
Sure there will be some pain in the real world. That's called "the business cycle", and I believe it is like the weather, not like some big machine with lots of knobs and levers for our government and central bank to twiddle. In short, any intervention is likely to make things worse in the long run. (Heck, central bank manipulation of the money supply arguably created the current crisis.)
But whether you agree or not, do be careful not to confuse the wailing and gnashing of teeth on Wall Street with a crisis in the world of real people and real things.
Woops....insurance companies and banks own about 20%.... not pension funds.
Sorry.
Hurry up, S&P, with that damn downgrade and save us from this 'deal'!
pension funds dont hold munis - the do have CDO's and other toxic crap...
AMBAC Class Action Filed..The Complaint alleges that Ambac and certain of its officers and directors violated federal securities laws by issuing materially false statements regarding the Company's insurance coverage on collateralized debt obligations ("CDO") contracts. The Complaint alleges that Defendants concealed the following facts
CNNMoney.com: 404 Page Not Found
JOHN STARK: "But if taxpayer guarantees (as opposed to a straight bailout) can avert serious financial consequences that could hurt everyone, then we need to do that. If a straight bailout is what's needed, then we need to hold our noses and do it."
Speaking as an Ambac shareholder, I don't want the government funding anything. First of all, it is bad for shareholders since the government is going to fleece the shareholders in their interest (they will probably lose in courts though). Secondly, the government doesn't know what it's doing. I would rather let private individuals and institutions work with this. Lastly, if governments bail out the monolines, it'll set a bad precedent and won't help the industry. The monolines need to be able to weather the storm with voluntary, private market, transactions or else it's not going to do anything in the long run.
If anything, what the govt agency should do is to facilitate any capital injections.
Companies like Ambac are not in a solvency crisis. Ambac is nowhere near defaulting on any claims. The problem is maintaining the ratings. This is a sustainable business (why else would Buffett enter?) and the monolines just need to inject some confidence into the markets.
Also one other point, monolines are not the cause of the sell offs across the world. Most of the lower tranches are generally not insured by monolines, and only a small portion of the CDS contracts are written by them. All of the blame started getting thrown at the monolines when Cramer went on TV and started blaming them for all the problems. I have no proof but I suspect he did it bail out his allies at banks and hedge funds. Cramer was the one that said the Dow will rally by 3000 points if the monolines were nationalized. Needless to say, I'm against nationalization of any of the bond insurers.
This too shall pass...
Keep monolines at AAA?? They are JUNK now and insolvent. Over 200 billion in losses.
Most Muni's are required to have insurance.
Ambac and MBIA insure over 700 billion.
Let's understand what these are. they are mortgage insurers. nothing more. Kind of like Allstate having too many claims after a hurricane. they are insolvent and cannot keep up with the losses from the likes of Merrill.
Why Ambac and the others don't hold the Bond issuer resposible and cut them loose, I don't know. My medical insurance does it all the time?
Politicians are always generous with iur money. Its the common folks pockets that get picked each and every time.
How many are asking the TanMan, Chuck Prince, and all the billionaire hedge fund managers from giving up the hundreds of millions they made during the credit bubble??
Now they want us to pay so that these guys can have homes in the Hamptons & the Caribbean and fly their own Gulfstream jets! And we call it "free market capitalism". But you can't blame them since we allow this s***!!
M-F - interesting that they are quoting you so many different things. Their funding flows were probably changed radically yesterday by the Fed's action.
"Also one other point, monolines are not the cause of the sell offs across the world. Most of the lower tranches are generally not insured by monolines, and only a small portion of the CDS contracts are written by them. "
If you are talking about mbi or abk, fine. But ACA is a big problem and should just die.
Who exactly invented the $15B figure? Sounds a little light, when you add up all the losses across all the insurers. Fannie & Freddie have an interest in this too I would imagine, along with FDIC. They can just ask dubya, since their offices are close by.
This is a game of WAY TOO BIG TO FAIL. The banks will play deaf like MLEC and then taxpayer money will flow in unabated, during an election year as everyone smiles and pats each other on the back. Saves the common shares of all the players in the room.
May be paring back positions soon. I'll get back in after the deal is announced and I can see who gets left out in the cold, to perish.
siv....
I don't think you get it. The only reason Buffett is interested is that he has plenty of capital and if the incumbents lose their aaa status, would be able to write new business at profitable rates.
The reason the monolines got into structured finance is that there wasn't enough business in munis and what business there was had been priced too low.
NEMO: "Almost all of the losses so far have been in purely financial assets. "
That's a simplistic view IMO. In a free market, a financial asset is a pricing mechanism. Financial assets are generally nothing more htan a piece of paper indicating the value placed on something by the market.
So, when you say that a lot of the losses are simply financial losses that didn't mean anything real, it is misleading. Whenever the paper gets marked down, the market is saying that the asset in the real world is worth less. The market is passing judgement on the underlying asset (not just on the piece of paper).
For instance, if the stock price of a company drops 50% (permanently) then it actually has an impact on the real physical company. If you tried to sell that company (its physical assets, brands, etc), you will likely get 50% less. In some sense, only the financial asset, in this case a share certificate, dropped; but in reality, the actual physical company lost value.
You can argue that something is overvalued or undervalued--which is kind of what you are arguing--but the reality is that there are real losses borne.
Idoc, the trade is long into SOTU!
will bracket 1375
The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
That's only true for small portfolios that can't be adequately diversified.
But, most of these insured bonds are finding their way into the portfolios of large banks and insurance companies that can diversify away idiosyncratic risk leaving only systematic risk.
How do you build a business model insuring against systematic risk?
-- Judge Smales
"You'll get nothing and like it"
JudgeSmales | 01.23.08 - 7:07 pm | #
A reference to Judge Smales? Have I died and gone to heaven?
That news was from yesterday and why it is hyped is amazing! It remains generalized hype and obviously not worth a 600 point rebound!
ZIGURRAT: "If you are talking about mbi or abk, fine. But ACA is a big problem and should just die."
ACA likely won't survive. Their first problem is that they wrote CDS contracts that requires them to post collateral.
Secondly, I haven't looked into them deeply but I think they wrote a lot of the 2007 mortgage stuff, which is the risky stuff. Most of the other monolines started cutting back and pretty much stopped by mid 2007.
Lastly, rating agency projections (who knows how reliable they are) for ACA is extremely large. They are projected to take $1+ billion in loss, which is very large for a company that size. For reference, MBIA and Ambac are around $2+ billion in loss for companies that are around 5x to 10x larger.
"I don't think you get it. The only reason Buffett is interested is that he has plenty of capital and if the incumbents lose their aaa status, would be able to write new business at profitable rates."
I use the example of Buffett as an argument against those claiming that the bond insurance industry makes no sense. You can say Ambac doesn't belong in the industry or that structured product insurance doesn't make sense, or whatever, but some are claiming that the whole industry--the concept of bond insurance--doesn't make sense. That is completely false...
MSM got it.
ECONOMIC SCENE; Worries That the Good Times Were a Mirage - NY Times
Key points:
"The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.
For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up."
"Wall Street hasnt yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moodys Economy.com. "
OK....so now the little secret about just how bad it is was on the front page of today's NYT's.
So everyone knows it now. Except the perma bulls on cnbc.
... oordinate some kind of rescue plan for the monolines
This is the same crap we heard about with The SIV Rescue! Total retarded crap being hyped to bail out crooks!
"I use the example of Buffett as an argument against those claiming that the bond insurance industry makes no sense. You can say Ambac doesn't belong in the industry or that structured product insurance doesn't make sense, or whatever, but some are claiming that the whole industry--the concept of bond insurance--doesn't make sense. That is completely false..."
I would say that the traditional bond business isn't a good business over a credit cycle.
It wasn't only greed that got them into their current mess. They would have had to essentially shut down until prices returned to reasonable levels.
ZIGURRAT: "I would say that the traditional bond business isn't a good business over a credit cycle."
Then how did Ambac and MBIA survive for 30 years? We must have had at least two or three cycles in there.
AC, pie in the sky brother. A bunch a happy go lucky "what ifs" to a better tommorow.
Look, I can back up every one of my statements here with facts. Here is an article. For this post:
Home Loans for Illegal Aliens?! by Michelle Malkin -- Capitalism
Magazine
Tons and ton of cases like this in Cali. But your petty refi is going to save the day? I really wish it was so.
By the way, Who is going to insure all your municipal and state projects that are going to save us?? not to mention where the hell the money for the projects going to come from?
Here is another question for an arrogant someone in the know, what if the taxpayer bailout(call it what you want) isn't enough?
Look the DINK thing was inappropriate.
Good Luck
"The idea is that the frictional costs of dealing with credit risks is higher then the costs of insuring the risk.
That's only true for small portfolios that can't be adequately diversified.
But, most of these insured bonds are finding their way into the portfolios of large banks and insurance companies that can diversify away idiosyncratic risk leaving only systematic risk.
How do you build a business model insuring against systematic risk?
Kicker | 01.23.08 - 7:40 pm | #"
Kicker.... I think the idea is that the muni insurers are more efficient at managing diversifiable risk then many bond holders.
You have lots of small issues and the bond insurer does the underwriting once. Sort of like a rating agency that issues a permanent rating backs it with its own money.
Anyway, I don't think it is a great business. Mostly because the upper bound on what can be charged economically prevents making high enough profits to make things work over a complete credit cycle.
Ziggurat,
The mistake the monolines did was precisely what Buffett said their mistake was. Namely, they didn't price their insurance on structured products properly! The reason for that, in my opinion, was not because of greed (although that always plays a role) or too much competition (structured products are a growth area and not much competition). Instead, I believe their problem was that their models were wrong. Since most of the structured products were new (when was a CDO created for the first time? how about a CDS-type insurance?), they miscalculated in a major way.
Furthermore, their reliance on rating agencies for guidance led them down the wrong path as well, since the rating agencies were mispricing them too. Some people here, and elsewhere, who are kind of naive think it was all a scam to mark a senior tranche of a CDO-squared with AAA. The reality is that the agencies htemselves likely thought it was worthy of their AAA rating scale (as a side note, their rating scale varies so a AAA CDO-squared wouldn't be the same as a AAA government treasury bond).
Lastly, the investors also thought the ratings gave a good indication of default. They were wrong of course.
People were just wrong all over the place! Sad event in American finance history. I really don't think there was anything sinister going on, with people purposely rating something AAA and selling it knowing it is questionable. Although to a bystander it might seem like a snake oil scam, it really was the problem with marking unknowable risk. I think in 20 years, when all these structured products become the norm, investors will look back and wonder how it happened...
(Oh, one last word to those bashing the potential for banks to supply capital... remember, those that bought LTCM actually turned a profit in the end... bankers generally make sure they get paid
)...
A good business does more then survive.
Also in the last 30 years, there is more competition then in the past.
Sivaram Velauthapillai --
That's a simplistic view IMO. In a free market, a financial asset is a pricing mechanism.
Yes, but the value of a financial asset is equal to the future cash it will generate, discounted back to the present day. (Thus the value is only knowable precisely in retrospect.) The market price of a financial asset typically, but not always, approximates its value.
In your example of a company whose stock gets cut in half, that could either mean the market is recognizing the future cash flows will not be what it expected... Or it could mean the market is being irrational. Either way, the value of the company fundamentally depends on those future cash flows. If the owners are in no rush to sell and have no need to raise capital, the market price is irrelevant; the earnings are all that matter. Those earnings are part of the "real world". The stock price is part of the "financial world". The two are connected but not at all identical.
Of course, financial losses can effect the real world... But only for companies or individuals that need financing! If 90% of the damage here is in the financial institutions and only 10% hits the real world, I can live with that. Doubly so if the alternative is for my tax dollars to bail out the financiers.
On to the next thread.
In general, I agree that it wasn't fraud. However, it wasn't just a mistake either. CDO's were designed to extract every possible profit and fee based on known models. The financial engineers took advantage of weaknesses in rating agency models -- they weren't designed to fail, but they were designed to be as awful as possible and still get rated.
Anyway, they won't be able to sell opaque crap like this in the future.
Furthermore, there is absolutely no reason to use a credit enhancement technique like a cdo and then buy insurance. These are competing credit enhancement technques.
brokebrain benny-A Michelle Malkin article from 2003 is the best you can do? Yikes! She and her friend Bush wouldn't know a fact if it bit them in the ass.
There is plenty of money for investments that will add to the productive capacity of the country. Those are perfectly appropriate to borrow for, just as companies borrow to build factories. Fixing the financial system is also necessary, though, belive me, I am not overjoyed about it. What is not worth it is a tax rebate that will either go to pay bills or buy stuff from China.
I don't know how old you are, but I have lived through enough booms and busts to know that in every boom some people come out to say it will never end and in every bust some people come out to tell us that the economy will never grow again. If you want to make that mistake, go ahead, but I am going to bed instead.
More from the NYT's.
The end of affordable luxury:
THE NATION; Thinking Twice About That $400 Handbag - NY Times
"But trading up was always a fragile phenomenon. It rested, in large part, on consumer psychology a feeling of wealth derived from soaring home values and the steady growth of real income, that is, income adjusted for inflation.
Today, any growth in real income is all but canceled out in consumers minds by falling home prices and rising energy costs. Michael J. Kowalski, the chief executive of Tiffany, calls this the wealth affect.
Even if people have plenty of money on paper, he said, they suddenly feel less rich. It is a reaction to the general economic uncertainty that everyone is feeling, Mr. Kowalski said.
At Tiffany, the wealth effect translated into sluggish holiday sales of jewelry priced between $1,000 and $10,000, items aimed at what the chain calls its midtier luxury consumer.
Bailout and then what? This will create another opportunity for someone who will run exactly the same scheme over and over knowing that he will get bailed out again.
Something is seriously wrong with US...
The point being that today's NYT's had a front page article talking about 30% housing declines and more to come from banks like WFC.
Then the article on $400 handbags.
It is almost like reading CR.
MSM has caught up.
AC,
Middle-aged, sour at the prospect that guys like Orangilo ride off into the sunset and we all pay for it. The article was the firt I found and really illustrates how far back we knew this was going on and did nothing. The "SITK" crowd knew exactly what would happen.
End of the world, no way. Pissed that I have to still eat a shit sandwich because I played by the rules, absolutely.
Sleep tight, enjoyed it.
Great day for financials. B of A yielding 2X the ten year with the Fed cutting rates. Jump in, the water is fine.
insurance is a rough business. buffet himself has explained that in the best of times insurance companies compete themselves to oblivion.
its all about lax underwriting standards. so they get easier and easier with their underwriting, collect their premiums and then finally when it all does blow up, because AFTER ALL ITS INSURANCE WHERE WE ARE ALL EXPECTING IT TO BLOW UP, the can't pay
thats why he bought geico
Hedgies are buying and shorting commodities.
My thought as well. I almost broke out laughing watching the so-called "leaders" of today's rally ... BZH up 10%, ABK up 78%, Capitol One taking back 6 bucks. For God's sake Beazer has not even reported earnings since last June, what kind of delusional fool would buy a stock like that?
Meanwhile, companies with real earnings and an actual future like Apple and Google were getting taken out back and shot. The Googster is now 20% off it's highs, in 500 dollar territory.
This had to be some program trading gone haywire. Maybe hedge funds caught in a massive liquidation mode, where they had to unwind their short positions and dump profitable longs to meet margin calls or some other evil.
This kind of volatility is darn near impossible to trade ... thank God I'm in cash. AllenM, hang in there, when the final leg down for RYL comes it will be stunningly swift and final, like frontier justice.
Why would the banks be interested in participating?
From the NYTimes:
"While $15 billion might seem like a large amount of money for banks to commit to bond guarantors at a time when many investors have lost faith in them, Mr. Haines said it would be smaller than the billions the banks might have to write down if the companies lost their top ratings or incurred major losses."
In essence, in the short term, it might be in their interests, while the long term solution is certainly something else.
It's just like the SIV 'plan'. They will go round and round for weeks or more, leaking news stories that look positive, only to realize that a loss is a loss, and once it is there...there is nothing to do but realize it.
If they are at all serious about strong arming the banks into taking action, it must be because there is a chance of system wide counterparty failure in the credit derivatives arena. That is the only thing that makes this make sense.
The banks are being told that they can pitch in now, and take more losses, or let the entire system collapse, and lose everything.
OK so anyone else read NoThing's rumor that DeutcheBank is goinging to announce big bad news?
The idea of loaning money to the mono-lines starts to sound good even as a stalling measure as long as the banks get back as much money as they loan (with minimal intrest) and don't have to share it with some other investors... seems like they're holding the bag anyway, if the folks re-insuring the monolines can't make payments. All the banks (even GS) would seem to have some skin in this game whether it's write-downs on CDOs or CDSs.
I hope the insanity of all this isn't lost on everyone.
Tactical Flashlights
r c helicopter
video game