Under the heading "Conspiracy of Fools" Has anyone out there read this book? If not you should right away. It's a modern day description of this modern day financial mess.
The young firm, McKee Nelson, helped investment banks and mortgage lenders bundle home loans into securities lots of them. Since 2000, McKee has been involved in almost 3,300 deals totaling $2.7 trillion, according to Asset Backed Alert, an industry newsletter.
"The Wall Street banks and lenders hired McKee Nelson, which is based in Washington and New York, to write or review prospectuses for the securities. It was a lucrative arrangement, helping to generate $202.5 million for the firm in 2006, the latest year for which figures are available."
But after profiting from the mortgage boom, McKee Nelson is now positioning itself to profit from the bust by riding the coming wave of lawsuits. In January, the firm flew its partners and their spouses to Charleston, S.C., aboard four Delta commuter jets, to map out its strategy.
Were heavily committed to doing more litigation, Mr. Nelson said. The firm hopes to represent investment banks, hedge funds and other financial companies, as well as their executives, in a variety of litigation, he said.
**** Custodial Credit Risk Investments
For investments, this is the risk that, in the event of a failure by the counterparty, the City will not be able to
recover the value of its investments or collateral security that are in the possession of an outside party. The City
has custodial credit risk exposure equal to $71,201,911 in debt securities and $205,599 in equity securities
because the related securities are uninsured, unregistered and held by the counterparty.
The City does not have an investment policy for custodial credit risk.
Of the Retirement Systems total investments of $253,617,090 there was custodial credit risk exposure of
$6,387,472 in alternative investments because the related securities are uninsured, unregistered and held by the
counterparty.
Investment Rate Risk
The City does not have a formal policy that limits investment maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates.
Credit Risk
The City has not adopted a formal policy related to Credit Risk
This is happy, bullish news. Once the investigations show that all was above board, because we all know the bankers love us, then it will make that spring time BLOOM in housing prices.
The economy will start chugging along, houses will start flipping like flap jacks at Dennys.
I mean the article says:
"The SEC ... recently upgraded...UBS and Merrill Lynch & Co."
I believe these investigations and suits, criminal and civil, will go on for years and win quite a few convictions and settlements that will cost financial firms many billions in money and lost business and prestige.
The difference between this time and the dot.com bust is that this time the goats won't be individual people or firms but rather the financial system. It's going to produce deep negative sentiment against finance types in general. Even some ethical financial industry folks will get tarred with the rest.
A lot of people will decide they just don't need the latest, hottest, slickest crap Wall Street and its hustlers are selling. I mean, this is only really starting and aren't we almost already there?
An enormous amount of high-paying financial jobs will go down the drain permanently. NYC will feel the hit the most.
I don't think the woes of Wall Street are cyclical but secular.
Sure it can -- depends on your point of view. As someone waiting to see Wall St get its richly deserved comeuppance, I think it's a lot of fun. And will hopefully lead to meaningful change.
The City has been experiencing serious financial stress over the last several years and by the end of FY2004
faced a financial crisis. It was determined that the City needed the Commonwealth to provide short and long term
financial resources in order to avoid a financial collapse. The additional funding provided the much needed time
for the City to work with the Commonwealth to turn around the financial condition.
On July 9, 2004, the Massachusetts legislature enacted Chapter 169 of the Acts of 2004 entitled An Act Relative
To The Financial Stability of Springfield. Under Chapter 169, a Finance Control Board (FCB) was established
and vested with comprehensive authority over all of the Citys finances, including appropriations, borrowings,
transfers of funds, and municipal spending authorizations. Chapter 169 also established a $52 million trust fund
subject to the control of the Commonwealths Secretary of Administration and Finance (the Secretary) from
which interest-free loans may be disbursed to the City from time to time on terms and conditions determined by
the FCB and approved by the Secretary.
Control Board Budget Message from Phillip Puccia
June 7, 2007
Dear Members of the Springfield Finance Control Board:
I am pleased to submit the budget for Fiscal Year 2008. It is the third annual budget that has been developed since the 2004 implementation of Chapter 169, the act that created the Control Board. As was the case for Fiscal Year 2007 budget, this years budget is balanced and does not contain a structural deficit. However, unlike prior budgets, this budget relies solely on recurring revenue to finance expenditures and does not rely on reserves to support operating expenses.
We believe this is a major accomplishment; one that is a result of the outstanding cooperation and partnership between Mayor Ryan and the Springfield Finance Control Board.
The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage reminds me of Deep Throat.
Expect punishing fines as always and "no wrong-doing" because that is what the SEC is all about: protecting heisters from criminal prosecution...and extracting fees for the service from selected performances.
In cutting rates so fast, the Fed produced a significant drag on economic growth.
It cut the spendable income of 50-60 million retired Americans who live mostly on fixed income from savings. Six months ago, the highest yield 1-year CDs at bank-rate.com were about 5.5%. Now, they are at 4.5% and probably heading lower. This comes when seniors' incomes are falling behind rising inflation. A lot of seniors need to cut back spending by 20-30% just to stay afloat over the next year. On discretionary spending, it may mean cutting almost 100%.
Small-time deposits increased to $1.2 trillion from $800 billion over the past four years. Now, banks will lose a lot of these deposits, as they did with the Greenspan rate cuts. So, rate cuts will produce a drain on bank assets.
The more seniors America has and the less they've saved, the greater this drag from rate cuts is. It will be worse this time than in any other rate-cutting cycle.
The Federal Reserve and the banking system was designed to weather these storm. The bestest and brisghtest run it, living in their billion dollar mansions, protecting us from the EVILS of deflation. Why Mr. Bernachy is an MIT professor. Surely he knows how to run the economy.
Sunny times to come all. Trust the FRB and the USG...they know what is best and only have our best interests at heart.
Apparently the Super Colander Tin Foil Hat had a short. Apparently I was channeling O-Joes psychic energies...I've got quite a headache.
These investigations will go side ways for years until the corruption involved does NOT harm the banks. Anyone cheering this is going to have a "I think the Giants will win Sunday" moment.
As I have been harping on for over 6 months...keep your eyes on the monolines. That's where the implosion will begin. This is a side story to keep the sheep focused on the trivial. Sure they're going after corrupt bastards, but its a magicians feint.
The cops are never late.
They arrive on time -- to soothe the mark, restore order, and remove the mark from the scene before they react violently to being ripped off.
A good fix is indistinguishable from unexpectedly bad luck, except that in
a fix, the bad luck was prearranged.
My first thought on reading the linked article was that this administration's ability to quash inconvenient inquiries must be waning as the end of its term approaches.
There are competent, principled people involved in every aspect of government. Evidently some among them are shrugging off the short-timers and taking an independent line.
Rich's comments on the impact of failing interest rates on retired individuals are accurate and timely. Furthermore, these folks will be forced to downsize their living standards. Many of these people have no mortgages and constitute a silent group of homeowners that the politicos have chosen to ignore. This group will be a new supply of houses this Spring as the decline in interest rates starts to really impact their budgets. And they have been excluded from the stimulus package being tossed around Washington.
OT: I was out in my garage putting an engine together, and I had the TV (yes, one in the garage) on Fox News so I would have something to laugh at while working.
They played a press conference with Bush telling people not to be afraid of going out and spending money. The way he spoke, it sounded like he was saying that if the economy tanks, it would be our fault.
Things are going so good right now, why would you stop spending? That is essentially what he was saying.
I'd also like to point out that the rebound that started in 2003 was jump-started by two huge tax cuts, by far the largest in U.S. history.
This time, there will be no tax cuts.
There will be a measly one-time stimulus hand-out, followed by a decade of permanent and cumulative tax increases at all levels of U.S. govt. There is no way this country can escape massive tax increases over the next decade and stay solvent.
As soon as the spring, you will see gaping increases in the federal deficit. This will come mainly from revenue shortfalls compared to budget, and it will hit even before the impact of the stimulus costs.
There is almost no way the govt. can avoid a deficit of $10-11 trillion two years from now. Keep your eye on the federal debt clock:
I have two CD's locked at 5.3% and 4.5%.
Too bad for me they are maturing in six months, but in the meantime I will enjoy turning the tables on the banks for a bit.
Once they mature, my money is going to be pulled out faster than you can say "Heliben."
The Fed is playing a very dangerous game. All this volatility in the markets could translate to bonds, in which case an explosion in the 10 year to 7-8% cannot be ruled out. If it happens quickly, all Hell may break loose.
Chin up, from Alan Abelson this a.m.: Indeed, as the estimable David Rosenberg of Merrill Lynch, who consistently comes up with some great stuff, points out, in the 2000-2002 bear market, there were no fewer than 16 rallies of at least 5% in the S&P, each lasting on average about a month, and no fewer than 35 bounces of 5% or more in the Nasdaq (which still managed to wind up losing nearly 80% of its value).
the most interesting thing to watch is the commodity complex, the stocks have led the commodity and had become weak prior to the actual slide that you saw late last weak. The near-term contracts seem to be heavily shorted predicting near-term weakness, the longer contracts still predicting a recovery in prices, if the economic data continues to get weaker, which is probable, it will be interesting to watch whether we see capitulation on the longer contracts causing what could be a snowball of significant moves to the downside and hedge fund pain.
On the other hand, inflation could perk, the economy could get stronger, and we could all live happily ever-after continuing to pay higher prices.
There is no way this country can escape massive tax increases over the next decade and stay solvent.
rich: what do you mean?? On Kudlow they showed me the Laffer Curve... and Art Laffer assured me that the best way to reduce the federal deficit was to DECREASE taxes! Look how well that worked when Reagan and GWB II did it!
"-- Blaming a tough lending environment and investor requests for their money back, Minnetonka-based hedge fund Deephaven Capital Management announced plans to close two funds worth $780 million, according to documents filed Thursday with the Securities and Exchange Commission. "
The Fed is playing a very dangerous game. All this volatility in the markets could translate to bonds, in which case an explosion in the 10 year to 7-8% cannot be ruled out. If it happens quickly, all Hell may break loose.
Central,
You would think that if that happens, maybe you could get 6% or so in a 5-year CD. But maybe not.
It's interesting how banks compete so hard for 1-year CD money, but no bank seems to want longer-term money. I watched this pattern for a couple of years, because I was helping an elderly relative create a high-yield CD strategy.
The banks' idea was to rope 1-year CD money with hot rates and then let inertia work, maybe by rolling over CDs at lower rates.
But I don't think the "rope and dope" strategy works because the Internet has made it too easy for CD shoppers to compare rates and switch at maturity.
All through 2006 and early 2007, Corus Bankshares always paid 5 bs. pts. more than any other competitor nationally on 1-year CDs. They increased retail CDs to $5.9 billion by the fourth quarter of 2006.
But then Corus stopped competing for 1-year CD money and it went away. In the 4th quarter of 2007, their retail CDs dropped to $5.4 billion.
"i guess the bank borrowings are back to normal:"
idoc | 02.01.08 - 10:43 pm
Thanks for all your posts. I think people who can short, and stick with it like you do, play a very important role, especially for index fund investors like myself.
I don't find bank borrowings so normal. Look at the latest H.3 Release.
Borrowed Reserves, as a percent of the total Monetary Base, have climbed from 5% to 6.1% from 16 January to 30 January, no matter which Table (1, 2 or 3) you use. Recall, the last peak (since 12/31/1974) was 4.4% in August 1984.
"What's happening is that tax-free money funds are dumping billions worth of muni securities backed by shaky insurers, and these bonds aren't attracting many buyers. Funds have the right to sell securities back to their brokers. On occasion, doing this is one way muni managers can meet customer redemptions. But now they're using it as a convenient exit strategy to get out of troubled securities before they're downgraded."
LONDON (Reuters) - Egg, the Internet bank owned by Citigroup (NYSE:C - News), will withdraw credit cards from 161,000 customers following a risk review, a spokesman for Egg said on Saturday.
"The credit profiles of affected customers had deteriorated between the time they joined Egg and the acquisition (by Citigroup) in May," Egg said in a statement. "The decision to end these customers' agreements was taken after conducting a one-off, extensive risk review of our (customers)..."
-OTimagine that CR will be posting the Business Week article/cover on housing today. They assume that home price declines are just starting and we have about 25% more to go. Clearly if that happens, financials and the economy in general have a long way to go down
I did not think that there would be an opportunity to make money again on the downside with homebuilders during this cycle. We now seem to be having a really massive short squeeze in that area (and with many weak and at risk companies in retail etc.). I think that the best strategy now is to hold cash and wait for topping. Perhaps that will come when this spring's "home selling season" turns out to be worse, not better, than last year.
IMO, yesterday's employment figures suggest that the recession has started. It's still an open question as to whether the FED can do much to prevent a deep recession. Maybe we will get a bit of an improvement by fall, but I am afraid that the next president will have a lot of trouble. Maybe the economy will recover in time for the next president to have a shot at a second term.
My first thought on reading the linked article was that this administration's ability to quash inconvenient inquiries must be waning as the end of its term approaches.
I hope your first thought is right, but "ongoing criminal investigation" is a great excuse for avoiding investigation in other forums.
I would like to see what they find in their discovery, especially any emails leading to the insurance regulators of the monolines, such as Dinallo's office in New York. It seems to me that there is collusion among those regulators, the banks, the rating agencies and the monolines, violating the disclosure rules of the SEC, thereby harming investors to the tune of billions. Right now, I imagine Dinallo is telling people to hold off disclosing more losses, because we may have a deal soon. If correct, this line of reasoning violates numerous laws. Hopefully, someone has the guts to follow the trail and hold all of those parties, including the regulators, accountable. There has been inadequate disclosure in this area for a long time, and that is still the fundamental issue that has led to the problem.
What is happening to our financial system is not a heart attack. It is systemic shock, to the point where sepsis is setting in. The patient can still be saved, but will never again be quite what it was. Do not bet on a "full recovery."
"BillD writes:
-OTimagine that CR will be posting the Business Week article/cover on housing today. They assume that home price declines are just starting and we have about 25% more to go. Clearly if that happens, financials and the economy in general have a long way to go down"
Thanks for the heads-up on that article. Interesting to note that the 25 percent figure is a national average, with greater drops deemed likely in the bubble zones. And of course there were those in the article who "wouldn't be shocked" at 40 percent or more, figuring in inflation, because this time it really is different.
The 25% drop call is national for all housing. What I would like to know is...what's the % decline for new condo construction?
In other words, what would a new condo unit sell for in mid to late 2008, compared to say mid 2006? Wouldn't you guess the decline might be 40-50%?
It's mind-boggling how many high-rise condos are still going up in bubble markets. It's superfluous construction at this point, because a lot of the downtown luxury condos were built for an investor/flipper/2nd home market that has died.
BillD, an interesting item to note is that some of the homebuilders I follow that have risen the most (SPF, BZH, HOV) have short interest as a %-age of the float over 60 and institutional ownership > 100%. My thesis is that trapped institutional longs have been waging all-out war on each other, manufacturing short squeezes to try and blow each other up and give themselves a shot at handing the bag to Joe six pack before the cops arrive.
This insane rally is not sustainable. The fundamentals are plain awful, and there is the little detail of needing a job to buy a new home. I agree with your assessment completely, but everytime I say these turkeys can't go any higher they do.
Better to stand on the sidelines and watch as these gladiators disembowel each other.
risk capital, I think we can all agree that we have a deflationary impetus before we have an inflationary bias. Right now, I see the deflation of discretionary assets outweighing the impact of inflation on non-discretionary goods. And I see deflation overshooting on the downside, and I fear a prolonged Chinese bear market. All of these prevent me from putting on yield curve steepeners or trying to buy a commodity ETF. Can you poke a hole in this reasoning?
Recession or not, selling all those houses will be impossible. The listings in my area (southern AZ) are just exploding far beyond what you would expect for the spring sales rush, suggesting lots of pent-up supply as sellers tried to wait out the market. The few that appear to be selling reasonably quickly are going for 20% less than a year ago.
Hellasious at Sudden Debt has written about the peril that could happen when the vast amount of fictious money embedded in the credit default swap market starts to get real. The shorts are highly leveraged and suddenly have to cover with real money, which is deleveraging and deflationary.
Maybe the same is going on with long/short hedge funds. They tend to have the highest leverage (300-600%) because they think their systematic risk is small. But in this squeeze, systematic risk has magnified. The shorts are having to convert leverage to real money, which accelerates the decline.
Are the longs manipulating it? It's easy money, so why wouldn't they. But deleveraging and disinflation is bearish overall for stocks.
Clyde -
I dont think you'll see China's economy tank - although the stock market over there may adjust. Same for India. You really need to go there to see it - truly and industrial revolution that is in the early innings. The infrastructure build is really just starting - as well as the acceptance of automobiles. On top of all that their currencies will continue to strengthen over time versus the dollar. I think that will provide a pretty good floor for commodities like metals, oil and coal. There may be a bump or 2 in the road, but over the long term I dont see how China and India dont continue to grow and become larger and larger consumers of these commodities - I also dont see how the dollar doesnt continue to weaken versus their currencies. There is definately geo political risk, but you cant predict that stuff.
Remember when everyone was scared of Communism? China has abandoned that political philosophy in everything but name, and has seen the light of Capitalism.
Capitalist hordes that will work for the equivalent of pennies a day - and prosper (comparatively) while doing it.
We were scared of cCommunism when we should have been scared of Capitalism.
Also the Chinese Economy is not entirely a free-market, it may not follow the usual pattern. In the long run, China will follow the path of Japan instead of USA. Pure Captialism is too individualistic to be accepted in Chinese Mentality as a governing principle.
My biggest battle of late is to figure out how to calmly persuade a colleage (who spends all his free time listening to a particular conservative talk radio host) that the greatest threat to his family is not a bunch of American muslims and the ACLU.
Can you imagine how much of a threat Silicon Valley would be to the rest of the developed world if everyone there worked for $4 a day and felt like they were getting rich?
I am hearing quant and long-short hedge funds are down anywhere from 5% to 20% for the month of January. They were short financials and retail, long momentum (Apple, Google, emerging markets). The gap in performance between those two, created over several months, was closed within a few weeks. Imagine the pain of someone levered 5 to 1.
The collapse of hedge fund leverage is a necessary scene in this movie. Ironic, isn't it? What needs to happen also hurt those that believe it will happen (i.e. the shorts).
Its a necessary scene because hedge funds are the providers of liquidity to this market. One of the quant's favorite trades, for instance, has been to step in and provide a bid on days that you see big downward moves in stocks -- the so-called PPT effect. Take these "stat arb" players out, and the PPT is also gone.
"Its a necessary scene because hedge funds are the providers of liquidity to this market. One of the quant's favorite trades, for instance, has been to step in and provide a bid on days that you see big downward moves in stocks -- the so-called PPT effect. Take these "stat arb" players out, and the PPT is also gone.
It's a sorry state of affairs when "opportunistic" liquidity providers have supplanted "dedicated" liquidity providers (Specialists) as a result of the SEC's efforts to disintermediate stock trading so joe6pack slinging his odd lots can save $.01 in spread costs.
I have a feeling that a 20% down day like 1987 is a distinct possibility. Unfortunately there won't be any Specialists left by then to step in and be a buyer of last resort - only the "opportunistic" liquidity providers who most likely to the surprise of everyone take the opportunity to log off their computers and go home...
Could you imagine the social security and healthcare nightmare in the United States if we had one billion people? China has huge momentum and potential, but there is danger lurking in the shadows (political, environmental, human rights). My guess is that growing pains will bite them hard about the same time the US economy is trying to pull itself out of the upcoming severe recession.
When a hedge fund loses 20% in a short period, it's almost pointless to continue with that fund. The track record and risk mgt. discipline looks terrible in a competitive market, and it may take a long time to get back to high water mark.
So, the MO is to shut down the fund and start up another. But to do that, the fund has to totally delever. Get enough funds delevering at the same time and the market has a problem.
If the long/short hedge funds had to panic-sell shorts last week, like David said, then they now could have systematic exposure on the long side. So, this week could be interesting.
Is there anything Bush has touched that is working?
Twice! They elected this boob TWICE!
Lower 26th percentile: "Can't vote Dem, though - they'll take all of our hard-earned assets away (plus, they got's darkies and skirts wantin' to run the show - we'd rather be enslaved).
You got that right. Watching NOW on PBS last night and seeing a couple about to lose everything saying they would always keep voting for these foolios for their 'values' was just mind boggling.
Saw that, and could have cried at the ignorance. The couple cited "their religious upbringing" as a reason they could never vote Dem. They get what they deserve. Unfortunately, so do we.
Tanta/CR... over the last year, FHLBs seem to have become the repositories of mortgage risk (by lending to C and CFC against loans). Can you do a UberNerd on their role.. How they work.. how they are capitalized.. Government guarantees for their paper.. and under what circumstances can they put the loan back to C & CFC and the ilk..
I hope you guys are right re hedge funds unwinding - I'm not sure how else one can explain the rally in the HBs.
Lets say you know the positions of various Hedge funds and most are short the HB etc, you have access to large amounts of short term cash big enough to create movements in the future markets, you go long the HB's and force a bear rally, the pig men at work.
"Robyn must live in the only community in Florida with no problems.
'Well, her community of 1100 is worth about a billion dollars, that's not exactly average either.
sdtfs' "
There are areas in our county that have problems. I think the bulk of the problems I've seen are with condo conversions (which mostly consisted of taking dumpy 20 year old apartments - putting a coat of paint on them - and selling them). Not surprisingly - that market is a mess.
Also - with newer construction - we were behind the curve. Huge planned communities were just getting off the ground. Now they are stalled - or being abandoned. See - for example - this article from our local paper today:
Ditto with 3 large condos in Jacksonville. Plugs were pulled before ground was broken. I suppose that sometimes it's good to be behind the curve.
A lot of the communities here are upper middle class - of medium age (10-20 years) - with stable populations (middle aged people who work here and are raising families here). So there wasn't as much speculation as there might have been in newer communities - or communities which attracted lots of speculators.
Don't get me wrong. The real estate market here is pretty dead. But lack of sales doesn't always equal distressed owners.
By the way - our property tax constitutional amendment passed on Tuesday. Among other things - it makes $500,000 of Save Our Homes tax benefits portable when you sell your house. Wonder how that will affect the market? Robyn
P.S. To Oy Vey re discussing CD yields. People still have to make a living - whether it's in their jobs or via their investments.
dunham, "Technically, the talk is that this rally is running out of steam, maybe one or two days left"
I hope you're right but if 2001 is any indication we could see it run for up to 2 months. Even the HBs, since thier sales activity may bounce off the lows briefly on massive price cuts and that could fuel even more insanity. Then if the stimulus pkg get larded up in the Senate we'll see even more dumbass juice. I wouldn't be surprised to see another 7-8% on the SP500 before we get the next leg down busting through the lows. I don't know if I have enough gas to ride up 7%.
Another 7% would hurt, and if it hits that level I would arge that it may not even be a bear market anymore - you'd be smashing through some pretty good resistance levels if you go up that much more.
I wonder what's the near term future for property taxes. The states have no incentive to lower them because of all the foreclosure (theoretical deep pockets), but they're going to be under a lot of pressure to 'ease' to allow those homeowners barely making it to flounder around a bit longer. Some kind of hardship adjustment? If they're not careful, they'll end up with the property.
Ditto with 3 large condos in Jacksonville. Plugs were pulled before ground was broken. I suppose that sometimes it's good to be behind the curve.
The problem with high-rise condos is...you can't break ground one-at-a-time. Once you are two floors, you're all-in.
The Atlanta-based private company that is building the Element in Tampa, Novare. They have 5,000 high-rise condo units under construction in Tampa, Atlanta, Charlotte and Nashville. They better have deep pockets or their bankers are in trouble.
Several of these projects also have big retail parts. Their great idea of the year is to mix condos with boutique luxury hotel rooms in the same project. You can have room service delivered to your condo.
The IB's run it up and then run it down. They need to replace the money they lost their shareholders.
Good luck with that.
FFDIC writes: More sicko news. Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
FFDIC--That Bloomberg story on school boards is incredible. Why on earth would cash-strapped school boards be playing speculative Wall Street games with tax money? Well, maybe because the Legislature thought it was a good idea. Hope everyone read to this point:
Then, in September 2003, the state Legislature adopted a law allowing schools and towns to use interest-rate swaps to lower borrowing costs and raise cash.
I believe these investigations and suits, criminal and civil, will go on for years and win quite a few convictions and settlements that will cost financial firms many billions in money and lost business and prestige.<
True.
However, our government needs to decide if it wants to punish capital or it wants to attract capital.
UBS and MER are both large and currently solvent. Also, whatever they did was probably also done at C and other banks.
The government isn't a monolithic entity, but there should be some sort of federal playbook. You either pump them up or kill them off but not both. They don't have the money to bleed a little out of them ala the dot com mess.
Anyone out of business is fair game. Go ahead and jail them (including Mozello for insider trading) and try to extract what you can from their D&O insurers.
If you are going to lower fed funds to pump up banks, then leave the solvent ones alone to the extent possible. If they survive, there will be plenty of time to bleed money out of them in civil litigation.
The only good news in the article is that they haven't decided exactly what to do yet.
I worked on a broken high rise condo deal in JAX - owner is going rental, believes that the condo market will turn around in 2-3 years.
dunham,
But if there's so much overhang from distressed condo owners willing to dump at any price, how can the condo market turn around in JAX at a decent price? Isn't there going to be a fire sale of FL condos?
Not saying it will turn around or won't turn around - but the owner is banking on it.
FWIW, JAX isn't particularly inundated with cranes - its not downtown Miami, and the owner in this particular case wasn't asking silly prices - the buyers just disappeared. I also would classify JAX w/ the "FL Condo" rap - probably not warranted, as the amount of overbuilding is marginal compared to South Florida.
We didn't do enough work (ie market research) on it from the condo valuation end to give you a real idea unfortunately - we were going to do it as a rental deal or not at all (didn't end up doing it).
It's a sorry state of affairs when "opportunistic" liquidity providers have supplanted "dedicated" liquidity providers (Specialists) as a result of the SEC's efforts to disintermediate stock trading so joe6pack slinging his odd lots can save $.01 in spread costs.
generally have always agreed with your thought process... and not disagreeing here.. but the penny spread was 'sold' as for the little guy... in reality , Was for stat/arb sun supercomp's running algorithms to be in and out doing just as you say, taking over the spceialist role...
Lurker, love this site - but both parties are one in the same. Bush sucks and so do the dems. Fiscal stupidity has run rampant for 20 plus years. A purge of excess is underway and it may take time as the fed is bailing furiously.The key will be if they can reflate if not then we die.
Hence " REFLATE OR DIE " is no doubt on the lips of both parties. The end result will not be pretty and hopefully the people will wake up and take back the Republic. The current choices now are a joke with no change in sight for another 4 maybe 8 years.
The ships on the titanic are simply being rearranged. Bail FAST! Something evil walks this way
I love it when they start doing stuff for my own good and to protect my interests!!!!-
"
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs." Treasury Validates Some Pension Rollbacks - WSJ.com
Remember when urban/suburban condo marketers would hold pre-construction sales parties, and people would line up to get the "chance" to buy a "prestigious" condo?
Remember when, if people hesitated, they were sent to the back of the line, only to find out, on making their way to the front of the line the second time, that the unit they could have purchased 3 hours ago had "appreciated" $30K in that 3 hours?
Remember when the "Preferred Lender" had a nice little office right inside the sales center - all ramped up to process 400 - 500 mortgages at a time? (No one got turned away: they were going to get you into the condo if they had to smash you flat and slide you under the door).
Just remember, that many of those that participated in that insanity early on (call it 2004) may still be sitting on a lot of equity - even if they sell today.
In NYC 4Q $/SF increased 4.0% over 3Q $/SF - it goes on and on and on here somehow.
Commenting on a prior thread, used doublewides by far are the best value in America today. Most built after 2000 are 2x6, glued and nailed construction. Typically, you can find these at 10-15 dollars a square foot. Most have cheap tube-plumbing that can be easily swapped-out for superior pex plumbing.
Other than that, if you are going to use it as a rental, it is an absolute bargain if you have the zoning, land, demand and location for one.
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs."
Today's NY Times has a detailed story about the Merrill/Massachusetts situation. What Merrill has confessed to in repaying Springfield is not what MA has alleged in its civil fraud suit.
Merrill -- we sold the city CDOs without proper authorization.
MA -- you didn't explain the investment risk in words or documents.
The state is investigating CDO purchases made by other MA entities through Merrill, the article says.
According to one attorney quoted: MA is alleging fraud against a municipality, which carries much more gravitas than a simple lawsuit.
Why wouldn't all other states go after all other companies that sold this stuff? What do the states have to lose?
Isn't the investment industry's liability (and legal cost, and PR hit) going to be huge?
"Shylock writes:
The fun will start when the pillory is returned to service exclusively for these sorts of crimes."
Or the modern version of the pillory: put them in orange jumpsuits and set them to cleaning up garbage by the side of the highway. We could sort the offenders out by crime and put a sign up the road from where they were working so you'd know who you were passing ("Crooked mortgage brokers: next 1/2 mile").
OT- the auto dealer body is shrinking and taking it in the shorts in all profit centers. Service, finance and sales! These little never centers of demand across the US are beginning to downsize. Service capacity is getting weak! usually pays for overhead. 20,000 dealers-avg employee count is at least 60. It will be a tough year for dealers and many used car mom and pop lots will disapeer.
Marcus Aurelius writes: Remember when everyone was scared of Communism? China has abandoned that political philosophy in everything but name, and has seen the light of Capitalism.
Capitalist hordes that will work for the equivalent of pennies a day - and prosper (comparatively) while doing it.
We were scared of cCommunism when we should have been scared of Capitalism.
Hoodathunkit?
Well, from what I understand, modern China may combine the best (or the worst) of capitalism and communism, depending on your point of view. Their economy is still controlled by the central authority, especially the money. The dollar surpluses that their industries accumulate are mostly "invested" in the US to fuel our continued consumption. This is a Central government policy that is subject to change.
Borrowed Reserves, as a percent of the total Monetary Base, have climbed from 5% to 6.1% from 16 January to 30 January, no matter which Table (1, 2 or 3) you use. Recall, the last peak (since 12/31/1974) was 4.4% in August 1984.
Psychodave,
I'm surprised more people aren't paying attention to this here. The H.3 release by the StLouis Fed is very useful.
Though, I don't bother with the monetary base calculations.. since we've just been expanding the ways we calculate the base over the last few decades.. while the reserve requirements have floated around the $40 billion mark.
See this 40 year chart of Total reserves and Non-borrowed reserves at depository institutions.
We are experiencing an un-precedented event. This is a discontinuous drop in the amount of non-borrowed reserves.
Forgive the non-dated chart.. i'm stuck using goog spreadsheet right now.. the data goes from January 1959 to January 2008 (projected).
The last big divergence you see on the chart is August-September 1984.
Those of us who live in St. Johns County (except for the real estate brokers and construction workers) are kind of relieved that places like Nocatee are dead in the water right now. Our county only has about 120,000 people - and there are approved plans for about 50,000 new homes. We don't have the infrastructure (schools - fire stations - roads - etc.) to support that building - so if the estimated build-out time goes from 15-20 years to 20-30 years it will be a good thing.
FWIW - I have a reservation this summer to stay at the Trump in Chicago - one of those condo/hotel places. I will see what the reviews of the place look like (it was supposed to open last week).
Finally - I haven't heard anything about the frozen Florida investment fund - which was - like those places in Massachusetts - also sold a bill of goods (i.e., a bunch of crummy CDOs) by a major brokerage firm. Know a couple of lawyers working on things - but not what they're doing. Wonder what will happen? Roby
Newspaper advertising is considered a leading or coincident indicator.
Not as true as in times past. Right now the newspaper industry has new and special problems on both the circulation and advertising side. Not sure what's causing it, but we hear rumors of some kind of interweb thing that's stealing our customers. Any idea what might be going on?
In any event, I don't think the dailies in one newspaper towns will go away, unless they are really close to another town. But they will cut and outsource payroll. This is ongoing.
The typical structure of these loans (subprime) has been to provide for a starter rate (usually between 7 and 9 percent), followed in 24 or 36 months by a potentially steep increase in the interest rate (often as much as 3 percent within the first year after the reset depending on the level of market interest rates) and a commensurate change in the monthly payment.
Particularly in today's declining housing market, the NPV of keeping resetting mortgages at the starter rate generally will be greater than the NPV of foreclosure and will be in the best interest of the securitization of the pool as a whole.
Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation - January 31, 2008
rich - Excellent point. Many may remember the elder set complaining during the last reflation. S/T treasuries are likely yielding the inflation rate. Capital preservation notes...
NSA nonborrowed reserves are -$2.4B. That can't be good. Let's see what happens to the monetary base in the next month.
Thanks for the thought - I've played around w/ various hedges - I even "called a ST bottom" last week and went long for a day but got spooked by the action - oops - would love to have held those through this week.
I'm mostly in Puts now, with a position in TWM that I will close Monday if things start going against us again.
They are mostly Mar/Apr/May, so I should be able to hang on.
MA,
If I could by a NYC condo at 2004 prices I would - just pointing out that all Real Estate is local.
2004 was 4 years ago - things didn't really accelerate until 2005/2006. And stuff built in 2004 was less marginal than stuff finished later on - in terms of location.
my pologigies for interrupting the regularly scheduled program with this copy and paste-
"Treasury Allows Some Pension Freeze
By ELLEN E. SCHULTZ and THEO FRANCIS
February 1, 2008 9:33 p.m.
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs.
In addition to validating some pension rollbacks that could save companies billions of dollars, the Treasury's action also could tip the outcome of long-running lawsuits alleging age discrimination by pension plans at AT&T Corp., Cigna Corp., Dun & Bradstreet Corp., El Paso Corp., and other major companies. The stakes are huge: In just the AT&T case, nearly 24,000 current and former workers had opted into a class action as of December, with potential claims exceeding $2 billion.
(cont)-
"The crux of the issue is whether employers that change from traditional pensions to so-called cash-balance plans can freeze the growth of older workers' pensions for months or years following the change -- a phenomenon called "wearaway" -- even as younger workers' pensions continue to grow. Many companies let employees remain in the old plan for a time, but that only delays the onset of wearaway. The Treasury ruled that decades-old laws that effectively prohibit companies from temporarily freezing pension growth don't apply when the freeze is delayed.
The new rule covers certain plans through 2008, and the Treasury said it intends to issue a rule extending it beyond Jan. 1, 2009.
"The agency charged with enforcing a law to protect older workers has blown a hole in it," says Laurie McCann, a senior attorney at the elderly-advocacy group AARP.
The Treasury says it is just interpreting existing law.
Over the past decade, hundreds of employers shifted from traditional pensions to cash-balance plans. This saves companies money because instead of calculating benefits by multiplying years of service and salary, which produces rapid pension growth in the later years, the company converts the pension to a cash-out value. This becomes an account that then grows at a flat annual rate, commonly about 3% of pay.
Many companies low-balled older workers in establishing an opening account balance, setting it at, say, $80,000 even if the cash-out value was worth $100,000. The older person's pension thus was effectively frozen, since it would take years to grow back to the amount the worker was entitled to at the time of the changeover."
"Thousands of employees sued, arguing that this violated a law requiring that pension growth occur with a certain steadiness -- for example, it can't fall to zero, then jump. The rules were intended to prevent abusive pension practices, such as having a "backloading" formula whereby a person could earn almost no pension for 19 years, and then have 90% of the pension benefit kick in at year 20. The problem: employers could fire people in year 19 to avoid paying them a bigger pension.
Some courts sided with employees in wearaway cases; wearaway was one of five claims in a suit that International Business Machines Corp. settled for $320 million in 2003. (In 2006, IBM won its appeal on the age discrimination claim in that suit).
In response to a continuing outcry, Congress banned wearaway in the 2006 Pension Protection Act, explicitly saying that companies adopting cash-balance plans after June 2005 must give everyone the full present value of their pension.
Lawmakers didn't address companies that had already converted their pensions. But they did open the door for the IRS to begin reviewing plans dating back to 1999, and in a review of more than 1,250 cash-balance plans last year the agency found widespread backloading violations. The agency could have required companies to pay out billions of dollars more in pension benefits to current and future retirees."
Employers responded with a volley of lobbying, enlisting more than two-dozen lawmakers to ask the agency to back off. Friday's action by the Treasury suggests the campaign was effective. The Treasury and IRS are now agreeing that employers aren't violating backloading laws when they give employees a pension option that delays wearaway but doesn't eliminate it.
Treasury spokesman Andrew DeSouza says the backloading rules were enacted decades before cash-balance plans were designed, and that the ruling "provides clarity on how the backloading rules work in the context of cash-balance plan conversions."
central_scrutinizer said: "...This insane rally is not sustainable. The fundamentals are plain awful, and there is the little detail of needing a job to buy a new home. I agree with your assessment completely, but every time I say these turkeys can't go any higher they do...."
Respectfully, the rally isn't insane at all.
First, the overall stock market (SP500 as proxy) has already gone through a substantial correction, carrying it down to valuation levels not seen in 5+ years. Even if there really is going to be a recession, a 14%-15% correction in anticipation means the short-play in stocks is considerably harder to justify and getting long makes more sense.
Second, in the competition within the "paper asset" class (bonds vs. stocks) stock earnings yields are substantially above what bonds are paying, also a valuation level not seen in 5+ years. (And another sign of investor panic.)
Third, there have been two separate and extremely strong technical developments in this recent rally. There has been an SP500 "follow-through" up-day as described by Bill O'Neil's "CANSLIM" method.
But even more telling on the technical side is a signal from the 90% selling climax indicator (a Google search should turn up literature on both of these indicators). Thursday and Friday were back-to-back days when 80%+ of the NYSE volume was positive (after multiple days during the downtrend when the volume was 90% negative, indicating climax selling). This is an extremely rare signal indicating that buying pressure is both high and persistent, and that a major stock market low has formed.
On top of the fact that the MSM (and an embarrassingly-large number of posters here) has all but declared that the recession is here, even though there are no numbers in the economic data to support it. (Example: How many times has there been a one-month net loss of non-farm payroll jobs when there wasn't a recession?)
Even reading CR's recent posts, one can tell that he's subtly walking-back his recession expectations.
There may be a re-test of the recent stock-market lows, but we're at the beginning of a whole new upleg. The reactionary bears who are getting their "analysis" from newspapers and bearishly-biased bloggers have made a major error in judgment.
I'm trying to be neutral here but the S&P500 low in January was higher than any level prior to January '06, just 2 years ago. Where did the "5 years" come from?
Note: It's currently higher than any level before October '06.
Like no one else did the same. They ought to take a look at Goldman and JPM as well.
Fun for lawyers, most likely.
Is there a large bank that hasn't done this?
Yikes.
That got a few CFOs' attention...
Primo?
Banker factions at war?
Under the heading "Conspiracy of Fools" Has anyone out there read this book? If not you should right away. It's a modern day description of this modern day financial mess.
Crooks! All of them.
The young firm, McKee Nelson, helped investment banks and mortgage lenders bundle home loans into securities lots of them. Since 2000, McKee has been involved in almost 3,300 deals totaling $2.7 trillion, according to Asset Backed Alert, an industry newsletter.
"The Wall Street banks and lenders hired McKee Nelson, which is based in Washington and New York, to write or review prospectuses for the securities. It was a lucrative arrangement, helping to generate $202.5 million for the firm in 2006, the latest year for which figures are available."
But after profiting from the mortgage boom, McKee Nelson is now positioning itself to profit from the bust by riding the coming wave of lawsuits. In January, the firm flew its partners and their spouses to Charleston, S.C., aboard four Delta commuter jets, to map out its strategy.
Were heavily committed to doing more litigation, Mr. Nelson said. The firm hopes to represent investment banks, hedge funds and other financial companies, as well as their executives, in a variety of litigation, he said.
Small Law Firm at Center of Loan Universe - NY Times
Well, what we do know is this: the worse the news, the higher the stock market will go.
The IB's run it up and then run it down. They need to replace the money they lost their shareholders.
Another good read.
"More Salad, Less Twinkies"
http://www.europac.net/archives.asp#
i guess the bank borrowings are back to normal:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=TOTBORR&s[1][range]=5yrs
actually try this:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=TOTBORR&s[1][range]=5yrs
maybe this:
St. Louis Fed: Series: TOTBORR, Total Borrowings of Depository Institutions from the Federal Reserve
Could I get a toaster and butt wipes with that?
CITY OF SPRINGFIELD, MASSACHUSETTS
REPORT ON EXAMINATION OF
BASIC FINANCIAL STATEMENTS
FISCAL YEAR ENDED JUNE 30, 2006
http://www.mass.gov/Asfcb/docs/auditors_fy06_fin_statemnt.pdf
**** Custodial Credit Risk Investments
For investments, this is the risk that, in the event of a failure by the counterparty, the City will not be able to
recover the value of its investments or collateral security that are in the possession of an outside party. The City
has custodial credit risk exposure equal to $71,201,911 in debt securities and $205,599 in equity securities
because the related securities are uninsured, unregistered and held by the counterparty.
The City does not have an investment policy for custodial credit risk.
Of the Retirement Systems total investments of $253,617,090 there was custodial credit risk exposure of
$6,387,472 in alternative investments because the related securities are uninsured, unregistered and held by the
counterparty.
Investment Rate Risk
The City does not have a formal policy that limits investment maturities as a means of managing its exposure to
fair value losses arising from increasing interest rates.
Credit Risk
The City has not adopted a formal policy related to Credit Risk
ot. in case this has'nt been posted,thought it might interesting.
You Walk Away - Foreclosure Protection Plan and Kit, Mortgage Loan Modification, Foreclosure Assistance, Debt Consolidation, Credit Repair from Foreclosures
More sicko news. Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards - Bloomberg.com
This is happy, bullish news. Once the investigations show that all was above board, because we all know the bankers love us, then it will make that spring time BLOOM in housing prices.
The economy will start chugging along, houses will start flipping like flap jacks at Dennys.
I mean the article says:
"The SEC ... recently upgraded...UBS and Merrill Lynch & Co."
It's sunny and happy times.
Happy, Happy, Joy, Joy.
YouTube - Ren and Stimpy - Happy Happy Joy Joy
Cheers,
I believe these investigations and suits, criminal and civil, will go on for years and win quite a few convictions and settlements that will cost financial firms many billions in money and lost business and prestige.
The difference between this time and the dot.com bust is that this time the goats won't be individual people or firms but rather the financial system. It's going to produce deep negative sentiment against finance types in general. Even some ethical financial industry folks will get tarred with the rest.
A lot of people will decide they just don't need the latest, hottest, slickest crap Wall Street and its hustlers are selling. I mean, this is only really starting and aren't we almost already there?
An enormous amount of high-paying financial jobs will go down the drain permanently. NYC will feel the hit the most.
I don't think the woes of Wall Street are cyclical but secular.
...but this can't be fun.
Sure it can -- depends on your point of view. As someone waiting to see Wall St get its richly deserved comeuppance, I think it's a lot of fun. And will hopefully lead to meaningful change.
Sounds like a good reason for a rally to me.
Was anybody following the tape today? From 1pm on it was 2 steps forward 1 step back for 3 straight hours. Unreal.
UBS to SEC: Hoocoodanode?
SEC to UBS: Ushouldanode!
Springfield Finds way To Tweak Investment Problem:
City of Springfield Finance Dept.: Finance & Taxation
Timothy J. Plante
Finance/Budget (Acting CFO), 2007- Present
Salvatore Calvanese
Treasurer/Collector, 2004 Present
The City has been experiencing serious financial stress over the last several years and by the end of FY2004
faced a financial crisis. It was determined that the City needed the Commonwealth to provide short and long term
financial resources in order to avoid a financial collapse. The additional funding provided the much needed time
for the City to work with the Commonwealth to turn around the financial condition.
On July 9, 2004, the Massachusetts legislature enacted Chapter 169 of the Acts of 2004 entitled An Act Relative
To The Financial Stability of Springfield. Under Chapter 169, a Finance Control Board (FCB) was established
and vested with comprehensive authority over all of the Citys finances, including appropriations, borrowings,
transfers of funds, and municipal spending authorizations. Chapter 169 also established a $52 million trust fund
subject to the control of the Commonwealths Secretary of Administration and Finance (the Secretary) from
which interest-free loans may be disbursed to the City from time to time on terms and conditions determined by
the FCB and approved by the Secretary.
See: Merrill Story @WSJ
Control Board Budget Message from Phillip Puccia
June 7, 2007
Dear Members of the Springfield Finance Control Board:
I am pleased to submit the budget for Fiscal Year 2008. It is the third annual budget that has been developed since the 2004 implementation of Chapter 169, the act that created the Control Board. As was the case for Fiscal Year 2007 budget, this years budget is balanced and does not contain a structural deficit. However, unlike prior budgets, this budget relies solely on recurring revenue to finance expenditures and does not rely on reserves to support operating expenses.
We believe this is a major accomplishment; one that is a result of the outstanding cooperation and partnership between Mayor Ryan and the Springfield Finance Control Board.
The SEC, deepening its own set of investigations into whether Wall Street firms improperly mispriced mortgage reminds me of Deep Throat.
Expect punishing fines as always and "no wrong-doing" because that is what the SEC is all about: protecting heisters from criminal prosecution...and extracting fees for the service from selected performances.
In cutting rates so fast, the Fed produced a significant drag on economic growth.
It cut the spendable income of 50-60 million retired Americans who live mostly on fixed income from savings. Six months ago, the highest yield 1-year CDs at bank-rate.com were about 5.5%. Now, they are at 4.5% and probably heading lower. This comes when seniors' incomes are falling behind rising inflation. A lot of seniors need to cut back spending by 20-30% just to stay afloat over the next year. On discretionary spending, it may mean cutting almost 100%.
Small-time deposits increased to $1.2 trillion from $800 billion over the past four years. Now, banks will lose a lot of these deposits, as they did with the Greenspan rate cuts. So, rate cuts will produce a drain on bank assets.
The more seniors America has and the less they've saved, the greater this drag from rate cuts is. It will be worse this time than in any other rate-cutting cycle.
Oh, you silly bears.
The Federal Reserve and the banking system was designed to weather these storm. The bestest and brisghtest run it, living in their billion dollar mansions, protecting us from the EVILS of deflation. Why Mr. Bernachy is an MIT professor. Surely he knows how to run the economy.
Sunny times to come all. Trust the FRB and the USG...they know what is best and only have our best interests at heart.
Cheers,
Snarkier than ever Misean. And now, back to our show...hic.
Speaking of criminals:
The Guardian
The Orange One is no longer glowing
The Orange One is no longer glowing |
Business |
guardian.co.uk
Sorry,
Apparently the Super Colander Tin Foil Hat had a short. Apparently I was channeling O-Joes psychic energies...I've got quite a headache.
These investigations will go side ways for years until the corruption involved does NOT harm the banks. Anyone cheering this is going to have a "I think the Giants will win Sunday" moment.
As I have been harping on for over 6 months...keep your eyes on the monolines. That's where the implosion will begin. This is a side story to keep the sheep focused on the trivial. Sure they're going after corrupt bastards, but its a magicians feint.
Keep your eyes on the bloody ball.
All hell is coming. Got ammo?
Cheers,
Hasn't anyone seen "The Sting".
The cops are never late.
They arrive on time -- to soothe the mark, restore order, and remove the mark from the scene before they react violently to being ripped off.
A good fix is indistinguishable from unexpectedly bad luck, except that in
a fix, the bad luck was prearranged.
KnotRP,
Well here's some music to let you decide:
YouTube - Scott Joplin - The Entertainer
Cheers,
No wonder HankP looks like he has a piece of barbed wire up his ...
Cannot see him or Chuckee as prison bitches though.
cheers..
The SEC has been so busy reducing shareholder's rights that I'm surprised they had the time to look into this little mortgage thing.
Speaking of crimes:
bubbleinfo.com » Page not found
I think Robyn was asking about fraud? A nearby real estate agent and her adventures.
However, I think Robyn is a PITA.
Naturally MER stock was up 5% today.
Want to learn about money creation and scare yourself into buying a farm and burying canned food in the ground? Watch this video:
Google Videos Error
Tinfoil hat^2, but asks interesting questions. Timely as well.
Great link sdtfs.
Amazingly blatant fraud, and absolutely ridiculous excuses- "I was naive"! ... Ha- she was a "professional" Realtor© at the time.
One would conclude that she is either professionally incompetent, is a professional thief, or both.
J6P is quickly reclassifying "Realtor©" as very a bad word.
If you permit Mark to Model, it would seem to me that anything is possible and permitted.
My first thought on reading the linked article was that this administration's ability to quash inconvenient inquiries must be waning as the end of its term approaches.
There are competent, principled people involved in every aspect of government. Evidently some among them are shrugging off the short-timers and taking an independent line.
May Wall Street become the new Johns Manville.
Rich's comments on the impact of failing interest rates on retired individuals are accurate and timely. Furthermore, these folks will be forced to downsize their living standards. Many of these people have no mortgages and constitute a silent group of homeowners that the politicos have chosen to ignore. This group will be a new supply of houses this Spring as the decline in interest rates starts to really impact their budgets. And they have been excluded from the stimulus package being tossed around Washington.
OT: I was out in my garage putting an engine together, and I had the TV (yes, one in the garage) on Fox News so I would have something to laugh at while working.
They played a press conference with Bush telling people not to be afraid of going out and spending money. The way he spoke, it sounded like he was saying that if the economy tanks, it would be our fault.
Things are going so good right now, why would you stop spending? That is essentially what he was saying.
I want some of his drugs.
I'd also like to point out that the rebound that started in 2003 was jump-started by two huge tax cuts, by far the largest in U.S. history.
This time, there will be no tax cuts.
There will be a measly one-time stimulus hand-out, followed by a decade of permanent and cumulative tax increases at all levels of U.S. govt. There is no way this country can escape massive tax increases over the next decade and stay solvent.
As soon as the spring, you will see gaping increases in the federal deficit. This will come mainly from revenue shortfalls compared to budget, and it will hit even before the impact of the stimulus costs.
There is almost no way the govt. can avoid a deficit of $10-11 trillion two years from now. Keep your eye on the federal debt clock:
http://www.rodgermitchell.com/US-National-Debt-Clock.htm
@ Misean
What's your take on Au slide yesterday? TIA
Let me add agreement to what rich said. Not only will the dropping of rates not have any great stimulus effect, it amounts to a war on savers like me.
rich,
I have two CD's locked at 5.3% and 4.5%.
Too bad for me they are maturing in six months, but in the meantime I will enjoy turning the tables on the banks for a bit.
Once they mature, my money is going to be pulled out faster than you can say "Heliben."
The Fed is playing a very dangerous game. All this volatility in the markets could translate to bonds, in which case an explosion in the 10 year to 7-8% cannot be ruled out. If it happens quickly, all Hell may break loose.
Chin up, from Alan Abelson this a.m.:
Indeed, as the estimable David Rosenberg of Merrill Lynch, who consistently comes up with some great stuff, points out, in the 2000-2002 bear market, there were no fewer than 16 rallies of at least 5% in the S&P, each lasting on average about a month, and no fewer than 35 bounces of 5% or more in the Nasdaq (which still managed to wind up losing nearly 80% of its value).
Clyde-
the most interesting thing to watch is the commodity complex, the stocks have led the commodity and had become weak prior to the actual slide that you saw late last weak. The near-term contracts seem to be heavily shorted predicting near-term weakness, the longer contracts still predicting a recovery in prices, if the economic data continues to get weaker, which is probable, it will be interesting to watch whether we see capitulation on the longer contracts causing what could be a snowball of significant moves to the downside and hedge fund pain.
On the other hand, inflation could perk, the economy could get stronger, and we could all live happily ever-after continuing to pay higher prices.
There is no way this country can escape massive tax increases over the next decade and stay solvent.
rich: what do you mean?? On Kudlow they showed me the Laffer Curve... and Art Laffer assured me that the best way to reduce the federal deficit was to DECREASE taxes! Look how well that worked when Reagan and GWB II did it!
/sarcasm
"-- Blaming a tough lending environment and investor requests for their money back, Minnetonka-based hedge fund Deephaven Capital Management announced plans to close two funds worth $780 million, according to documents filed Thursday with the Securities and Exchange Commission. "
http://www.tradingmarkets.com/.site/news/Stock%20News/1057863/
suppiler bk-
The article requested is no longer available.
Central,
You would think that if that happens, maybe you could get 6% or so in a 5-year CD. But maybe not.
It's interesting how banks compete so hard for 1-year CD money, but no bank seems to want longer-term money. I watched this pattern for a couple of years, because I was helping an elderly relative create a high-yield CD strategy.
The banks' idea was to rope 1-year CD money with hot rates and then let inertia work, maybe by rolling over CDs at lower rates.
But I don't think the "rope and dope" strategy works because the Internet has made it too easy for CD shoppers to compare rates and switch at maturity.
All through 2006 and early 2007, Corus Bankshares always paid 5 bs. pts. more than any other competitor nationally on 1-year CDs. They increased retail CDs to $5.9 billion by the fourth quarter of 2006.
But then Corus stopped competing for 1-year CD money and it went away. In the 4th quarter of 2007, their retail CDs dropped to $5.4 billion.
more on plastech-
Detroit News and Information - Crain's Detroit Business
"i guess the bank borrowings are back to normal:"
idoc | 02.01.08 - 10:43 pm
Thanks for all your posts. I think people who can short, and stick with it like you do, play a very important role, especially for index fund investors like myself.
I don't find bank borrowings so normal. Look at the latest H.3 Release
.
Borrowed Reserves, as a percent of the total Monetary Base, have climbed from 5% to 6.1% from 16 January to 30 January, no matter which Table (1, 2 or 3) you use. Recall, the last peak (since 12/31/1974) was 4.4% in August 1984.
a proactive fed?-
"What's happening is that tax-free money funds are dumping billions worth of muni securities backed by shaky insurers, and these bonds aren't attracting many buyers. Funds have the right to sell securities back to their brokers. On occasion, doing this is one way muni managers can meet customer redemptions. But now they're using it as a convenient exit strategy to get out of troubled securities before they're downgraded."
Bernanke's New Entourage
Sounds a little crunchy...
Web bank Egg withdraws cards from riskier customers
Reuters
Saturday February 2, 4:21 am ET
LONDON (Reuters) - Egg, the Internet bank owned by Citigroup (NYSE:C - News), will withdraw credit cards from 161,000 customers following a risk review, a spokesman for Egg said on Saturday.
"The credit profiles of affected customers had deteriorated between the time they joined Egg and the acquisition (by Citigroup) in May," Egg said in a statement. "The decision to end these customers' agreements was taken after conducting a one-off, extensive risk review of our (customers)..."
[snip]
Yearning,
Don't knock the Laffer Curve.
It works beautifully in a world where everybody hypothetically dies at age 62.
-OTimagine that CR will be posting the Business Week article/cover on housing today. They assume that home price declines are just starting and we have about 25% more to go. Clearly if that happens, financials and the economy in general have a long way to go down
I did not think that there would be an opportunity to make money again on the downside with homebuilders during this cycle. We now seem to be having a really massive short squeeze in that area (and with many weak and at risk companies in retail etc.). I think that the best strategy now is to hold cash and wait for topping. Perhaps that will come when this spring's "home selling season" turns out to be worse, not better, than last year.
IMO, yesterday's employment figures suggest that the recession has started. It's still an open question as to whether the FED can do much to prevent a deep recession. Maybe we will get a bit of an improvement by fall, but I am afraid that the next president will have a lot of trouble. Maybe the economy will recover in time for the next president to have a shot at a second term.
My first thought on reading the linked article was that this administration's ability to quash inconvenient inquiries must be waning as the end of its term approaches.
I hope your first thought is right, but "ongoing criminal investigation" is a great excuse for avoiding investigation in other forums.
I would like to see what they find in their discovery, especially any emails leading to the insurance regulators of the monolines, such as Dinallo's office in New York. It seems to me that there is collusion among those regulators, the banks, the rating agencies and the monolines, violating the disclosure rules of the SEC, thereby harming investors to the tune of billions. Right now, I imagine Dinallo is telling people to hold off disclosing more losses, because we may have a deal soon. If correct, this line of reasoning violates numerous laws. Hopefully, someone has the guts to follow the trail and hold all of those parties, including the regulators, accountable. There has been inadequate disclosure in this area for a long time, and that is still the fundamental issue that has led to the problem.
What is happening to our financial system is not a heart attack. It is systemic shock, to the point where sepsis is setting in. The patient can still be saved, but will never again be quite what it was. Do not bet on a "full recovery."
"BillD writes:
-OTimagine that CR will be posting the Business Week article/cover on housing today. They assume that home price declines are just starting and we have about 25% more to go. Clearly if that happens, financials and the economy in general have a long way to go down"
Thanks for the heads-up on that article. Interesting to note that the 25 percent figure is a national average, with greater drops deemed likely in the bubble zones. And of course there were those in the article who "wouldn't be shocked" at 40 percent or more, figuring in inflation, because this time it really is different.
The 25% drop call is national for all housing. What I would like to know is...what's the % decline for new condo construction?
In other words, what would a new condo unit sell for in mid to late 2008, compared to say mid 2006? Wouldn't you guess the decline might be 40-50%?
It's mind-boggling how many high-rise condos are still going up in bubble markets. It's superfluous construction at this point, because a lot of the downtown luxury condos were built for an investor/flipper/2nd home market that has died.
Won't the banks have to eat most of it?
Years ago, I attended an SEC deposition of a very narcissistic investment banker. It WAS fun to watch the jackass getting defensive and crying.
BillD, an interesting item to note is that some of the homebuilders I follow that have risen the most (SPF, BZH, HOV) have short interest as a %-age of the float over 60 and institutional ownership > 100%. My thesis is that trapped institutional longs have been waging all-out war on each other, manufacturing short squeezes to try and blow each other up and give themselves a shot at handing the bag to Joe six pack before the cops arrive.
This insane rally is not sustainable. The fundamentals are plain awful, and there is the little detail of needing a job to buy a new home. I agree with your assessment completely, but everytime I say these turkeys can't go any higher they do.
Better to stand on the sidelines and watch as these gladiators disembowel each other.
risk capital, I think we can all agree that we have a deflationary impetus before we have an inflationary bias. Right now, I see the deflation of discretionary assets outweighing the impact of inflation on non-discretionary goods. And I see deflation overshooting on the downside, and I fear a prolonged Chinese bear market. All of these prevent me from putting on yield curve steepeners or trying to buy a commodity ETF. Can you poke a hole in this reasoning?
Recession or not, selling all those houses will be impossible. The listings in my area (southern AZ) are just exploding far beyond what you would expect for the spring sales rush, suggesting lots of pent-up supply as sellers tried to wait out the market. The few that appear to be selling reasonably quickly are going for 20% less than a year ago.
Hellasious at Sudden Debt has written about the peril that could happen when the vast amount of fictious money embedded in the credit default swap market starts to get real. The shorts are highly leveraged and suddenly have to cover with real money, which is deleveraging and deflationary.
Maybe the same is going on with long/short hedge funds. They tend to have the highest leverage (300-600%) because they think their systematic risk is small. But in this squeeze, systematic risk has magnified. The shorts are having to convert leverage to real money, which accelerates the decline.
Are the longs manipulating it? It's easy money, so why wouldn't they. But deleveraging and disinflation is bearish overall for stocks.
Clyde-
my opinion is that there is so much leverage in the system that you cannot rule out the possibility of anything in the short-term.
Clyde -
I dont think you'll see China's economy tank - although the stock market over there may adjust. Same for India. You really need to go there to see it - truly and industrial revolution that is in the early innings. The infrastructure build is really just starting - as well as the acceptance of automobiles. On top of all that their currencies will continue to strengthen over time versus the dollar. I think that will provide a pretty good floor for commodities like metals, oil and coal. There may be a bump or 2 in the road, but over the long term I dont see how China and India dont continue to grow and become larger and larger consumers of these commodities - I also dont see how the dollar doesnt continue to weaken versus their currencies. There is definately geo political risk, but you cant predict that stuff.
Been in mining stocks for 2 plus years now and those commodity ETFs Rich mentioned look interesting too.
Also FYI: TD Ameritrade allows trading of Canadian stocks using the over the counter symbol for the same $9.99 per trade.
Remember when everyone was scared of Communism? China has abandoned that political philosophy in everything but name, and has seen the light of Capitalism.
Capitalist hordes that will work for the equivalent of pennies a day - and prosper (comparatively) while doing it.
We were scared of cCommunism when we should have been scared of Capitalism.
Hoodathunkit?
it continually amazes me that with all the issues concerning banks, large and small, that people still find time to dicuss CD yields...
It's As if FFDIC never posted one critique on this blog ever...
Also the Chinese Economy is not entirely a free-market, it may not follow the usual pattern. In the long run, China will follow the path of Japan instead of USA. Pure Captialism is too individualistic to be accepted in Chinese Mentality as a governing principle.
In the Trenches - I've been to China twice in the last 4 years and it reminded me a lot of Silicon Valley in 2000.
Silicon Valley is still there, and there's still a lot of business being done there, but they might have been overdoing it just a bit in 2000.
China, whose worried about, armed-to-the-teeth, 1 billion strong, seeking economic (and probably eventually military) hegenomy China.
My biggest battle of late is to figure out how to calmly persuade a colleage (who spends all his free time listening to a particular conservative talk radio host) that the greatest threat to his family is not a bunch of American muslims and the ACLU.
MLM:
Can you imagine how much of a threat Silicon Valley would be to the rest of the developed world if everyone there worked for $4 a day and felt like they were getting rich?
Rich,
I am hearing quant and long-short hedge funds are down anywhere from 5% to 20% for the month of January. They were short financials and retail, long momentum (Apple, Google, emerging markets). The gap in performance between those two, created over several months, was closed within a few weeks. Imagine the pain of someone levered 5 to 1.
The collapse of hedge fund leverage is a necessary scene in this movie. Ironic, isn't it? What needs to happen also hurt those that believe it will happen (i.e. the shorts).
Its a necessary scene because hedge funds are the providers of liquidity to this market. One of the quant's favorite trades, for instance, has been to step in and provide a bid on days that you see big downward moves in stocks -- the so-called PPT effect. Take these "stat arb" players out, and the PPT is also gone.
"Its a necessary scene because hedge funds are the providers of liquidity to this market. One of the quant's favorite trades, for instance, has been to step in and provide a bid on days that you see big downward moves in stocks -- the so-called PPT effect. Take these "stat arb" players out, and the PPT is also gone.
It's a sorry state of affairs when "opportunistic" liquidity providers have supplanted "dedicated" liquidity providers (Specialists) as a result of the SEC's efforts to disintermediate stock trading so joe6pack slinging his odd lots can save $.01 in spread costs.
I have a feeling that a 20% down day like 1987 is a distinct possibility. Unfortunately there won't be any Specialists left by then to step in and be a buyer of last resort - only the "opportunistic" liquidity providers who most likely to the surprise of everyone take the opportunity to log off their computers and go home...
Could you imagine the social security and healthcare nightmare in the United States if we had one billion people? China has huge momentum and potential, but there is danger lurking in the shadows (political, environmental, human rights). My guess is that growing pains will bite them hard about the same time the US economy is trying to pull itself out of the upcoming severe recession.
Bush/Paulson sub-prime rescue plan not working:
Oops
When a hedge fund loses 20% in a short period, it's almost pointless to continue with that fund. The track record and risk mgt. discipline looks terrible in a competitive market, and it may take a long time to get back to high water mark.
So, the MO is to shut down the fund and start up another. But to do that, the fund has to totally delever. Get enough funds delevering at the same time and the market has a problem.
If the long/short hedge funds had to panic-sell shorts last week, like David said, then they now could have systematic exposure on the long side. So, this week could be interesting.
Is there anything Bush has touched that is working?
Twice! They elected this boob TWICE!
Lower 26th percentile: "Can't vote Dem, though - they'll take all of our hard-earned assets away (plus, they got's darkies and skirts wantin' to run the show - we'd rather be enslaved).
Oy.
P.S: Sorry for the political commentary.
Rich/DP,
I hope you guys are right re hedge funds unwinding - I'm not sure how else one can explain the rally in the HBs.
Technically, the talk is that this rally is running out of steam, maybe one or two days left.
We'll see.
Marcus @ 11:16
You got that right. Watching NOW on PBS last night and seeing a couple about to lose everything saying they would always keep voting for these foolios for their 'values' was just mind boggling.
Tom:
Saw that, and could have cried at the ignorance. The couple cited "their religious upbringing" as a reason they could never vote Dem. They get what they deserve. Unfortunately, so do we.
Tanta/CR... over the last year, FHLBs seem to have become the repositories of mortgage risk (by lending to C and CFC against loans). Can you do a UberNerd on their role.. How they work.. how they are capitalized.. Government guarantees for their paper.. and under what circumstances can they put the loan back to C & CFC and the ilk..
I hope you guys are right re hedge funds unwinding - I'm not sure how else one can explain the rally in the HBs.
Lets say you know the positions of various Hedge funds and most are short the HB etc, you have access to large amounts of short term cash big enough to create movements in the future markets, you go long the HB's and force a bear rally, the pig men at work.
They should investigate the Federal Reserve also.
"Robyn must live in the only community in Florida with no problems.
'Well, her community of 1100 is worth about a billion dollars, that's not exactly average either.
sdtfs' "
There are areas in our county that have problems. I think the bulk of the problems I've seen are with condo conversions (which mostly consisted of taking dumpy 20 year old apartments - putting a coat of paint on them - and selling them). Not surprisingly - that market is a mess.
Also - with newer construction - we were behind the curve. Huge planned communities were just getting off the ground. Now they are stalled - or being abandoned. See - for example - this article from our local paper today:
Housing woes knock at Nocatee | Jacksonville.com
Ditto with 3 large condos in Jacksonville. Plugs were pulled before ground was broken. I suppose that sometimes it's good to be behind the curve.
A lot of the communities here are upper middle class - of medium age (10-20 years) - with stable populations (middle aged people who work here and are raising families here). So there wasn't as much speculation as there might have been in newer communities - or communities which attracted lots of speculators.
Don't get me wrong. The real estate market here is pretty dead. But lack of sales doesn't always equal distressed owners.
By the way - our property tax constitutional amendment passed on Tuesday. Among other things - it makes $500,000 of Save Our Homes tax benefits portable when you sell your house. Wonder how that will affect the market? Robyn
P.S. To Oy Vey re discussing CD yields. People still have to make a living - whether it's in their jobs or via their investments.
I'm not sure how else one can explain the rally in the HBs.
Short squeeze.
The biggest rallies always occur in bear markets. Why should it be different this time?
dunham, "Technically, the talk is that this rally is running out of steam, maybe one or two days left"
I hope you're right but if 2001 is any indication we could see it run for up to 2 months. Even the HBs, since thier sales activity may bounce off the lows briefly on massive price cuts and that could fuel even more insanity. Then if the stimulus pkg get larded up in the Senate we'll see even more dumbass juice. I wouldn't be surprised to see another 7-8% on the SP500 before we get the next leg down busting through the lows. I don't know if I have enough gas to ride up 7%.
However, At 1400 S&P might need some really strong news to break through convincingly.
barely,
Another 7% would hurt, and if it hits that level I would arge that it may not even be a bear market anymore - you'd be smashing through some pretty good resistance levels if you go up that much more.
"At 1400 S&P might need some really strong news to break through convincingly."
Headline: Iraqis convert to Christianity en mass, apply for statehood, Saudi Arabia to follow.
That should get you up to at least 14,500.
Just noticed my mistake (S&P vs. Dow). My comment still holds true. Serendipity.
I wonder what's the near term future for property taxes. The states have no incentive to lower them because of all the foreclosure (theoretical deep pockets), but they're going to be under a lot of pressure to 'ease' to allow those homeowners barely making it to flounder around a bit longer. Some kind of hardship adjustment? If they're not careful, they'll end up with the property.
The problem with high-rise condos is...you can't break ground one-at-a-time. Once you are two floors, you're all-in.
The Atlanta-based private company that is building the Element in Tampa, Novare. They have 5,000 high-rise condo units under construction in Tampa, Atlanta, Charlotte and Nashville. They better have deep pockets or their bankers are in trouble.
Several of these projects also have big retail parts. Their great idea of the year is to mix condos with boutique luxury hotel rooms in the same project. You can have room service delivered to your condo.
Doesn't that sound so 2006?
Anything is possible when you have guys with no skin involved trading hundreds of billions of OPM
Anything is possible when you have guys with no skin involved trading hundreds of billions of OPM
Are you talking business,.. or the US Congress?
Rich,
I worked on a broken high rise condo deal in JAX - owner is going rental, believes that the condo market will turn around in 2-3 years.
Rental valuation doesn't really support the construction cost/land, so for his sake I hope he is right.
Are you talking business,.. or the US Congress?
sdtfs | 02.02.08 - 12:05 pm | #
They, along with the Executive Branch, are one and the same.
The IB's run it up and then run it down. They need to replace the money they lost their shareholders.
Good luck with that.
FFDIC writes: More sicko news. Hidden Swap Fees by JPMorgan, Morgan Stanley Hit School Boards
FFDIC--That Bloomberg story on school boards is incredible. Why on earth would cash-strapped school boards be playing speculative Wall Street games with tax money? Well, maybe because the Legislature thought it was a good idea. Hope everyone read to this point:
Then, in September 2003, the state Legislature adopted a law allowing schools and towns to use interest-rate swaps to lower borrowing costs and raise cash.
True.
However, our government needs to decide if it wants to punish capital or it wants to attract capital.
UBS and MER are both large and currently solvent. Also, whatever they did was probably also done at C and other banks.
The government isn't a monolithic entity, but there should be some sort of federal playbook. You either pump them up or kill them off but not both. They don't have the money to bleed a little out of them ala the dot com mess.
Anyone out of business is fair game. Go ahead and jail them (including Mozello for insider trading) and try to extract what you can from their D&O insurers.
If you are going to lower fed funds to pump up banks, then leave the solvent ones alone to the extent possible. If they survive, there will be plenty of time to bleed money out of them in civil litigation.
The only good news in the article is that they haven't decided exactly what to do yet.
I worked on a broken high rise condo deal in JAX - owner is going rental, believes that the condo market will turn around in 2-3 years.
dunham,
But if there's so much overhang from distressed condo owners willing to dump at any price, how can the condo market turn around in JAX at a decent price? Isn't there going to be a fire sale of FL condos?
Rich,
Not saying it will turn around or won't turn around - but the owner is banking on it.
FWIW, JAX isn't particularly inundated with cranes - its not downtown Miami, and the owner in this particular case wasn't asking silly prices - the buyers just disappeared. I also would classify JAX w/ the "FL Condo" rap - probably not warranted, as the amount of overbuilding is marginal compared to South Florida.
We didn't do enough work (ie market research) on it from the condo valuation end to give you a real idea unfortunately - we were going to do it as a rental deal or not at all (didn't end up doing it).
It's a sorry state of affairs when "opportunistic" liquidity providers have supplanted "dedicated" liquidity providers (Specialists) as a result of the SEC's efforts to disintermediate stock trading so joe6pack slinging his odd lots can save $.01 in spread costs.
generally have always agreed with your thought process... and not disagreeing here.. but the penny spread was 'sold' as for the little guy... in reality , Was for stat/arb sun supercomp's running algorithms to be in and out doing just as you say, taking over the spceialist role...
damn,
I meant I would NOT classify JAX w/ the "FL Condo" rap.....
Lurker, love this site - but both parties are one in the same. Bush sucks and so do the dems. Fiscal stupidity has run rampant for 20 plus years. A purge of excess is underway and it may take time as the fed is bailing furiously.The key will be if they can reflate if not then we die.
Hence " REFLATE OR DIE " is no doubt on the lips of both parties. The end result will not be pretty and hopefully the people will wake up and take back the Republic. The current choices now are a joke with no change in sight for another 4 maybe 8 years.
The ships on the titanic are simply being rearranged. Bail FAST! Something evil walks this way
meant chairs
I love it when they start doing stuff for my own good and to protect my interests!!!!-
"
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs."
Treasury Validates Some Pension Rollbacks - WSJ.com
Damn!
Remember when urban/suburban condo marketers would hold pre-construction sales parties, and people would line up to get the "chance" to buy a "prestigious" condo?
Remember when, if people hesitated, they were sent to the back of the line, only to find out, on making their way to the front of the line the second time, that the unit they could have purchased 3 hours ago had "appreciated" $30K in that 3 hours?
Remember when the "Preferred Lender" had a nice little office right inside the sales center - all ramped up to process 400 - 500 mortgages at a time? (No one got turned away: they were going to get you into the condo if they had to smash you flat and slide you under the door).
In short: remember when everybody went insane?
Wasn't that long ago.
Whoodafreekinknoweditwouldcometothis?
MA,
Just remember, that many of those that participated in that insanity early on (call it 2004) may still be sitting on a lot of equity - even if they sell today.
In NYC 4Q $/SF increased 4.0% over 3Q $/SF - it goes on and on and on here somehow.
robynn-
Commenting on a prior thread, used doublewides by far are the best value in America today. Most built after 2000 are 2x6, glued and nailed construction. Typically, you can find these at 10-15 dollars a square foot. Most have cheap tube-plumbing that can be easily swapped-out for superior pex plumbing.
Other than that, if you are going to use it as a rental, it is an absolute bargain if you have the zoning, land, demand and location for one.
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs."
Enron 2.0
The fun will start when the pillory is returned to service exclusively for these sorts of crimes.
Today's NY Times has a detailed story about the Merrill/Massachusetts situation. What Merrill has confessed to in repaying Springfield is not what MA has alleged in its civil fraud suit.
Merrill -- we sold the city CDOs without proper authorization.
MA -- you didn't explain the investment risk in words or documents.
The state is investigating CDO purchases made by other MA entities through Merrill, the article says.
According to one attorney quoted: MA is alleging fraud against a municipality, which carries much more gravitas than a simple lawsuit.
Why wouldn't all other states go after all other companies that sold this stuff? What do the states have to lose?
Isn't the investment industry's liability (and legal cost, and PR hit) going to be huge?
"Shylock writes:
The fun will start when the pillory is returned to service exclusively for these sorts of crimes."
Or the modern version of the pillory: put them in orange jumpsuits and set them to cleaning up garbage by the side of the highway. We could sort the offenders out by crime and put a sign up the road from where they were working so you'd know who you were passing ("Crooked mortgage brokers: next 1/2 mile").
risk capital,
can you copy that article into halo?
OT- the auto dealer body is shrinking and taking it in the shorts in all profit centers. Service, finance and sales! These little never centers of demand across the US are beginning to downsize. Service capacity is getting weak! usually pays for overhead. 20,000 dealers-avg employee count is at least 60. It will be a tough year for dealers and many used car mom and pop lots will disapeer.
Hey but at least we got the superbowl!
Marcus Aurelius writes:
Remember when everyone was scared of Communism? China has abandoned that political philosophy in everything but name, and has seen the light of Capitalism.
Capitalist hordes that will work for the equivalent of pennies a day - and prosper (comparatively) while doing it.
We were scared of cCommunism when we should have been scared of Capitalism.
Hoodathunkit?
Well, from what I understand, modern China may combine the best (or the worst) of capitalism and communism, depending on your point of view. Their economy is still controlled by the central authority, especially the money. The dollar surpluses that their industries accumulate are mostly "invested" in the US to fuel our continued consumption. This is a Central government policy that is subject to change.
dunham | 02.02.08 - 12:32 pm |
If they sell today? To whom would they sell, and at what price? '04 prices were still inflated.
Borrowed Reserves, as a percent of the total Monetary Base, have climbed from 5% to 6.1% from 16 January to 30 January, no matter which Table (1, 2 or 3) you use. Recall, the last peak (since 12/31/1974) was 4.4% in August 1984.
Psychodave,
I'm surprised more people aren't paying attention to this here. The H.3
release by the StLouis Fed is very useful.
Though, I don't bother with the monetary base calculations.. since we've just been expanding the ways we calculate the base over the last few decades.. while the reserve requirements have floated around the $40 billion mark.
See this 40 year chart of Total reserves and Non-borrowed reserves at depository institutions.
We are experiencing an un-precedented event. This is a discontinuous drop in the amount of non-borrowed reserves.
Forgive the non-dated chart.. i'm stuck using goog spreadsheet right now.. the data goes from January 1959 to January 2008 (projected).
The last big divergence you see on the chart is August-September 1984.
What do these tea leaves mean?
Gannett, the country's largest newspaper publisher (USA Today and many community papers) reported fourth quarter ad revenues down 12% from year ago.
Newspaper advertising is considered a leading or coincident indicator.
I believe in this recession many smaller newspapers will be put permanently to rest. They no longer fit in a changing economy.
They employ a lot of people and their printing is one of the largest domestic China-immune manufacturing industries.
Rich - These are some of the JAX projects I was thinking about. I don't think ground was ever broken:
Weak market stalls second tower for The St. John | Jacksonville.com
Those of us who live in St. Johns County (except for the real estate brokers and construction workers) are kind of relieved that places like Nocatee are dead in the water right now. Our county only has about 120,000 people - and there are approved plans for about 50,000 new homes. We don't have the infrastructure (schools - fire stations - roads - etc.) to support that building - so if the estimated build-out time goes from 15-20 years to 20-30 years it will be a good thing.
FWIW - I have a reservation this summer to stay at the Trump in Chicago - one of those condo/hotel places. I will see what the reviews of the place look like (it was supposed to open last week).
Finally - I haven't heard anything about the frozen Florida investment fund - which was - like those places in Massachusetts - also sold a bill of goods (i.e., a bunch of crummy CDOs) by a major brokerage firm. Know a couple of lawyers working on things - but not what they're doing. Wonder what will happen? Roby
Newspaper advertising is considered a leading or coincident indicator.
Not as true as in times past. Right now the newspaper industry has new and special problems on both the circulation and advertising side. Not sure what's causing it, but we hear rumors of some kind of interweb thing that's stealing our customers. Any idea what might be going on?
In any event, I don't think the dailies in one newspaper towns will go away, unless they are really close to another town. But they will cut and outsource payroll. This is ongoing.
dunham,
Thanks for the information about JAX condos.
I'll just offer you one investment technique I have successfully used to ride out reversals of fortune.
This is designed to help you hold your shorts through a 7% up move in S&P.
Sell 10-20% of your shorts and use the proceeds to buy Ultra Long S&P 500 ETF.
The typical structure of these loans (subprime) has been to provide for a starter rate (usually between 7 and 9 percent), followed in 24 or 36 months by a potentially steep increase in the interest rate (often as much as 3 percent within the first year after the reset depending on the level of market interest rates) and a commensurate change in the monthly payment.
Particularly in today's declining housing market, the NPV of keeping resetting mortgages at the starter rate generally will be greater than the NPV of foreclosure and will be in the best interest of the securitization of the pool as a whole.
Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation - January 31, 2008
Just do it.
double wide's?
what happended to this blog?
are we talking jumbo fannies again?
rich - Excellent point. Many may remember the elder set complaining during the last reflation. S/T treasuries are likely yielding the inflation rate. Capital preservation notes...
NSA nonborrowed reserves are -$2.4B. That can't be good. Let's see what happens to the monetary base in the next month.
Rich,
Thanks for the thought - I've played around w/ various hedges - I even "called a ST bottom" last week and went long for a day but got spooked by the action - oops - would love to have held those through this week.
I'm mostly in Puts now, with a position in TWM that I will close Monday if things start going against us again.
They are mostly Mar/Apr/May, so I should be able to hang on.
MA,
If I could by a NYC condo at 2004 prices I would - just pointing out that all Real Estate is local.
2004 was 4 years ago - things didn't really accelerate until 2005/2006. And stuff built in 2004 was less marginal than stuff finished later on - in terms of location.
cd-
try this-
Treasury Validates Some Pension Rollbacks - WSJ.com
my pologigies for interrupting the regularly scheduled program with this copy and paste-
"Treasury Allows Some Pension Freeze
By ELLEN E. SCHULTZ and THEO FRANCIS
February 1, 2008 9:33 p.m.
Under intense pressure from employers, the Treasury issued a ruling that allows companies to freeze the pensions of older workers in certain cases without running afoul of laws meant to protect employees' nest eggs.
In addition to validating some pension rollbacks that could save companies billions of dollars, the Treasury's action also could tip the outcome of long-running lawsuits alleging age discrimination by pension plans at AT&T Corp., Cigna Corp., Dun & Bradstreet Corp., El Paso Corp., and other major companies. The stakes are huge: In just the AT&T case, nearly 24,000 current and former workers had opted into a class action as of December, with potential claims exceeding $2 billion.
The companies declined to comment."
(cont)-
"The crux of the issue is whether employers that change from traditional pensions to so-called cash-balance plans can freeze the growth of older workers' pensions for months or years following the change -- a phenomenon called "wearaway" -- even as younger workers' pensions continue to grow. Many companies let employees remain in the old plan for a time, but that only delays the onset of wearaway. The Treasury ruled that decades-old laws that effectively prohibit companies from temporarily freezing pension growth don't apply when the freeze is delayed.
The new rule covers certain plans through 2008, and the Treasury said it intends to issue a rule extending it beyond Jan. 1, 2009.
"The agency charged with enforcing a law to protect older workers has blown a hole in it," says Laurie McCann, a senior attorney at the elderly-advocacy group AARP.
The Treasury says it is just interpreting existing law.
Over the past decade, hundreds of employers shifted from traditional pensions to cash-balance plans. This saves companies money because instead of calculating benefits by multiplying years of service and salary, which produces rapid pension growth in the later years, the company converts the pension to a cash-out value. This becomes an account that then grows at a flat annual rate, commonly about 3% of pay.
Many companies low-balled older workers in establishing an opening account balance, setting it at, say, $80,000 even if the cash-out value was worth $100,000. The older person's pension thus was effectively frozen, since it would take years to grow back to the amount the worker was entitled to at the time of the changeover."
"Thousands of employees sued, arguing that this violated a law requiring that pension growth occur with a certain steadiness -- for example, it can't fall to zero, then jump. The rules were intended to prevent abusive pension practices, such as having a "backloading" formula whereby a person could earn almost no pension for 19 years, and then have 90% of the pension benefit kick in at year 20. The problem: employers could fire people in year 19 to avoid paying them a bigger pension.
Some courts sided with employees in wearaway cases; wearaway was one of five claims in a suit that International Business Machines Corp. settled for $320 million in 2003. (In 2006, IBM won its appeal on the age discrimination claim in that suit).
In response to a continuing outcry, Congress banned wearaway in the 2006 Pension Protection Act, explicitly saying that companies adopting cash-balance plans after June 2005 must give everyone the full present value of their pension.
Lawmakers didn't address companies that had already converted their pensions. But they did open the door for the IRS to begin reviewing plans dating back to 1999, and in a review of more than 1,250 cash-balance plans last year the agency found widespread backloading violations. The agency could have required companies to pay out billions of dollars more in pension benefits to current and future retirees."
Employers responded with a volley of lobbying, enlisting more than two-dozen lawmakers to ask the agency to back off. Friday's action by the Treasury suggests the campaign was effective. The Treasury and IRS are now agreeing that employers aren't violating backloading laws when they give employees a pension option that delays wearaway but doesn't eliminate it.
Treasury spokesman Andrew DeSouza says the backloading rules were enacted decades before cash-balance plans were designed, and that the ruling "provides clarity on how the backloading rules work in the context of cash-balance plan conversions."
Write to Ellen E. Schultz at ellen.schultz@wsj.com and Theo Francis at theo.francis@wsj.com
Well apparently China can't even handle a major snowstorm.
One foot of snow during their holiday season, and the entire nation's energy, food and transportation system grinds to a halt.
A very very ugly piece on housing from Businessweek (via Yahoo):
Housing Meltdown
Probably the most bearish thing I've seen yet in the MSM.
I'm still holding on to (and adding) my shorts.
Rich@ 1:01 -
I subscribe to NY Magazine (cheap and good quick source for what to do in your spare time - shows, restaurants, etc.)
Anyway, the mag has in recent years been packed with condo ads. This weeks issue - I counted 3 ads for NY area projects.
Their ad sales must have taken a devastating blow.
central_scrutinizer said: "...This insane rally is not sustainable. The fundamentals are plain awful, and there is the little detail of needing a job to buy a new home. I agree with your assessment completely, but every time I say these turkeys can't go any higher they do...."
Respectfully, the rally isn't insane at all.
First, the overall stock market (SP500 as proxy) has already gone through a substantial correction, carrying it down to valuation levels not seen in 5+ years. Even if there really is going to be a recession, a 14%-15% correction in anticipation means the short-play in stocks is considerably harder to justify and getting long makes more sense.
Second, in the competition within the "paper asset" class (bonds vs. stocks) stock earnings yields are substantially above what bonds are paying, also a valuation level not seen in 5+ years. (And another sign of investor panic.)
Third, there have been two separate and extremely strong technical developments in this recent rally. There has been an SP500 "follow-through" up-day as described by Bill O'Neil's "CANSLIM" method.
But even more telling on the technical side is a signal from the 90% selling climax indicator (a Google search should turn up literature on both of these indicators). Thursday and Friday were back-to-back days when 80%+ of the NYSE volume was positive (after multiple days during the downtrend when the volume was 90% negative, indicating climax selling). This is an extremely rare signal indicating that buying pressure is both high and persistent, and that a major stock market low has formed.
On top of the fact that the MSM (and an embarrassingly-large number of posters here) has all but declared that the recession is here, even though there are no numbers in the economic data to support it. (Example: How many times has there been a one-month net loss of non-farm payroll jobs when there wasn't a recession?)
Even reading CR's recent posts, one can tell that he's subtly walking-back his recession expectations.
There may be a re-test of the recent stock-market lows, but we're at the beginning of a whole new upleg. The reactionary bears who are getting their "analysis" from newspapers and bearishly-biased bloggers have made a major error in judgment.
Sebastian
Seb...'squeze me?
I'm trying to be neutral here but the S&P500 low in January was higher than any level prior to January '06, just 2 years ago. Where did the "5 years" come from?
Note: It's currently higher than any level before October '06.
Za vashe zdorovye!
S&P, I'm thinking I'd save my powder for about 1415.
Considering the S&P chart as a first leg down in a bear market that started in October, from 1570 to 1260 is about 310 sticks.
A 50% retrace would be about 1415. Resistance reads to me about 1407. So, 1415 would be past it just enough to suck some longs in.
By the time we get there, that's about where the 50 EMA is going to be.
Stochastic shows it back into overbought range, Williams oscillator is back above midline.
You put about a 2% stop, because 1430 is going to be a break of that downtrend line.
That's the logical bet to me, risking 2%.