You can tell Volcker is holding back. The Fed has sold the public down the river, and anyone paying attention knows it. But Volcker has to bite his tongue and avoid insulting his pathetic successors.
Volcker: The market was being run by mathematicians that didnt know financial markets. And you keep hearing, you know, god, that event should only happen once every hundred years, according to my model. But those every hundred years events are coming along every two or three years, which should raise some questions.
Volker is right, of course. The problem is that we're (that is to say, the Fed, Congress, the Bush administration are) not working on it.
the key to Volker's statement is this sentence: "If we can stabilize the financial market, we ought to come out of this."
He calls for revamping regulation and supervision of the system (I assume he means more of both), and reassessment of the roles of the Federal Reserve and the Treasury and the government.
We're not doing that.
We're throwing money into a maelstrom of corruption and fraud. Reform is nowhere to be found.
"...weve got a lot of work to do about what we do with the regulatory system, the supervisory system, what the role of the Federal Reserve is, what the role of the Treasury and the government is, because this is a different financial market.weve got a lot of work to do about what we do with the regulatory system, the supervisory system, what the role of the Federal Reserve is, what the role of the Treasury and the government is, because this is a different financial market."
Capitalism needs booms and busts. They are inextricably linked. Thinking you can legislate away busts is as sensible as proposing to super-glue tectonic plates in california to stop tremors. Tremors are healthy.
OT: One of the more interesting theories on why BSC stock is trading so much higher than $2 now is that BSC bond holders - a powerful bunch - want to make sure that the deal gets done at $2 and are are buying votes. The deal immunizes them against all losses. If the deal is blocked by common shareholders, they stand to lose big. A few dollars over $2 is a small price to pay to get the deal pushed through.
Charlie asked him what can be done, and other than "take a look at regulation when all this is over", Volcker said GSEs. There was nothing else. So I guess we can expect agency spreads to tighten once nationalization takes place.
But growth will be more limited given that capitalistic instinct will be replaced by budget constraints. So that will be (i) a plus for financial markets and relationships with FCBs, but (ii) it will be a minus for the housing market.
For the economy, it will essentially be the difference between (i) and (ii)
With the establishment of PDCF, the likelihood that liquidity issues would morph into solvency issues for dealer/brokers would be diminished. Paul Kasriel
Maybe if we had no more foreclosures or defaults, and what was already in the system just worked it's way through then the PDCF might work. But the real tsunami has yet to arrive.
Um, pardon my ignorance, but by definition aren't 'Government Sponsored Enterprises' for all practical purposes, already nationalized?
Kolohe | 03.19.08 - 12:55 am |
Fannie may was a gov't agency, but was privatized starting in 1968. Until then, it had a virtual monopoly on securitization of mortgages. Freddie was created afterwards so that Fannie wouldn't have the same monopoly as a private entity.
Ginnie was born at the same time as the only true gov't love child, which she has remained since then. The first two are implicitly guaranteed, while she is still explicitly guaranteed.
No, the GSE's are not nationalized. I know this because I can buy and sell common stock on the stock market.
To paraphrase another blogger, however, the Fed has a template going forward: entity A absorbs entity B, Fed provides deal financing and/or "first-loss" protection, bondholders made whole, shareholders get thrown under the bus.
It would be nice if the Fed stopped underpricing itself and demanded an equity kicker for the financing it provides. It would be nicer if it retained its own set of deal advisors every time it intervenes. Especially when you consider it typically does so in a crisis, which often are time-limited.
If the GSEs are nationalized, I would expect either shareholders to suffer dilution, if the GSE does a secondary offering with Uncle Sam as the investor, or wipeout in an outright nationalization.
Personally I would like to see a crapload of short term treasury paper offered at these stupid low rates and then the Treasury turn around and buy agency paper from the broker-dealers and pocket the spread. Why should the private sector have all the fun?
Capitalism needs booms and busts. They are inextricably linked. Thinking you can legislate away busts is as sensible as proposing to super-glue tectonic plates in california to stop tremors. Tremors are healthy.
Justin | 03.19.08 - 12:40 am
I'm talkin 'bout legislating away the criminality that leads the government to bail out speculators.
If you need to reduce consumption, a deep deep recession, and a prolonged one, is a good way to do it. So why the frantic efforts to prevent a recession?
other than stupidity could someone tell me why if gse's get all this shoved down their throats and thus take on even more risk at 200:1 leverage which makes the monolines look conservative and given their past scandals and their positive feedback (procyclical) interest rate derivative problems w/ fixed rate loans...
and theyre going to have to raise more capital which even if preferred has to be dilutive...
I am less concerned about Wall Street at the moment than I am about the City of London and Europe. One of the most important actions taken over the weekend was the Fed calling the broker-dealers and telling them, in no uncertain terms to stop trash-talking the competition. That, along with GS refusing to backstop trades its clients had pending with BSC, as well as a lousy response to the rumors (two appearances on TV?), is what brought BSC down.
The BoE auctioned L10b to UK banks. There was solicitation for L16B. There is no industrywide liquidity backstop for the UK and European banks such as the one FRB has here.
I have no crystal ball. But I would be concerned about UBS, HBOS and Barclays at the moment. And that acknowledges the relief rally. Hopefully the rival firms will stay disciplined like GS was in complementing LEH on the wire Tuesday.
Disclosure: neither long nor short. 10% taxable money market funds, 90% FDIC bank account. Which in this environment actually carries a distinction.
Telegraph UK / Ambrose Evans-Pritchard: Sooner Fed Bail-outs than the 1930s revisited "Put a clothes peg on your nose. None of us wants to pay a farthing to rescue the bankers and assorted debt pimps who got us into this financial mess, and in doing so exposed our societies to such harm." Sooner Fed bail-outs than the 1930s revisited - Telegraph
Well ... I wouldn´t go THAT far. Maybe more along the lines of Deutsche Bank chief economist Norbert Walter, who put it this way: "Weekend emergency rate moves don´t help ... Right from the start, the Fed has been part of panic in the markets - both fed from it and added to it ... The Fed is not, was never on top of the situation ..."
Did it work? Mission accomplished? Confidence restored? - Well .... you tell me!
I´d say - Nope. Mission NOT accomplished. Confidence in markets these days is harder to find than an abandoned pint of Guinness in an Irish pub on St. Patrick´s Day.
Sorry, but I´m almost inclined to quote ECB President Jean-Claude Trichet on this one: "The best way to restore confidence to the markets is to keep your monetary policy solidly anchored in price stability."
until they repeal the 5th amendment, nationalization of the gse's would require that all equity holders be paid the value of their stock.
fred | 03.19.08 - 2:10 am |
As it's said, "same as it ever was" - $2 a share, just like Bear.
Dallas Fed President Richard Fisher and Charles Plosser, president of the Philadelphia Fed, rebelled, preferring a ``less aggressive'' move. It's the first time two policy makers have broken with Bernanke publicly and the fifth straight FOMC rate move in which Bernanke has failed to achieve unanimity.
Plosser's dissent is the first for the former University of Rochester economist, who joined the Fed in 2006 and has taken some of the toughest anti-inflation views among policy makers. Plosser, 59, is a voting FOMC member for the first time this year. It's the second straight opposing vote for the 59-year-old Fisher, a former deputy U.S. trade representative in the Clinton administration.
``When inflation gets unanchored, and the long bond market goes up, that's going to really hurt longer-term investment and the recovery in the mortgage markets, which are the root cause of this recession,'' former Fed Governor Susan Bies said in an interview yesterday with Bloomberg Television.
American interest rates have now fallen by three percentage points - to 2.25 per cent - since last summer amid growing concern over the prospects of a 1930s-style recession hitting the US.
Hmm. I thought it was only some of the bloggers talking about Great Depression...
This is what Akio Morita, the former Sony Corporation chairman, told the Group-7 leaders as far back as 1993, when the size of the derivative population was far less. With the derivatives growing so malignant, it is not the actual finance which controls its derivative, but, the other way round - the virtual controls the actual. What, if this off-balance-sheet virtual architecture collapses?
It is so fragile that it can. Martin Wolf warns ìthe connection between housing bubble and the fragility of the financial system has created huge dangers, for the US and for the rest of the world.î If a collapse starts, it is beyond any known powerís power to stop or repair it. The balance sheet of the whole world is too small for it and the actual will too meet the fate of the virtual.
The deal would roll back OFHEO demands that the nation's two largest sources of mortgage finance hold 30 percent more capital than typically required. That constraint was put in place several years ago after accounting scandals shook both companies.
Increased investment by Fannie Mae and Freddie Mac is expected to bolster confidence in a secondary mortgage market shaken by a wave of failing home loans.
Both recently boosted forecasts for their credit losses into 2009 after reporting combined net losses of $6.1 billion for the fourth quarter of 2007.
Speaking to the BBC after the U.S. Federal Reserve cut both the benchmark federal-funds rate and the discount rate by 75 basis points - to 2.25% and 2.5%, respectively - John McFall, chairman of the House of Commons Treasury Select Committee, said that financial markets were in a "gigantic mess" but that it was important not to panic.
"We want to see a sensible way forward. We want to see a strategy so we can keep this on the road financially," McFall said.
U.K. Chancellor of the Exchequer Alistair Darling is due to appear before the Treasury Select Committee on Wednesday, while Bank of England Governor Mervyn King and other members of the bank's Monetary Policy Committee are scheduled to give evidence next week.
McFall said that with financial institutions in a position "to fall like nine pins," it was "a bit late" to talk about fairness.
The U.S. Fed, the Bank of England and others have got to come in to keep the system stable," McFall said. "When you see an investment bank go down, you really have to worry," he said, referring to the demise of Bear Stearns Cos. (BSC), which is set to be bought by J.P. Morgan Chase & Co. (JPM) for just $2 a share. -By Natasha Brereton, Dow Jones Newswires
Barclays has an even larger credit market exposure to its tangible book value, but it specialised in selling such assets through its Barclays Capital operation and so is thought to have more sophisticated risk management. As for RBS, fears persist about its core tier one ratio - the most honest measure of a bank's financial strength. It is the weakest in the sector.
The vulnerabilities of both Barclays and RBS leave them exposed to further sub-prime writedowns - looking increasingly likely given the constant deterioration in the value of money market assets. Goldman Sachs, the Wall Street bank most resilient to the credit crunch last year, is expected today to announce writedowns of $3bn for the first quarter.
There is no suggestion that HBOS, Barclays, RBS or any other UK bank is in trouble, but in the current market investors don't need a reason to worry. Awareness of possible issues is enough to scare the bears.
The bearded Bernanke, who took over the Fed from the legendary Alan Greenspan last summer, has spent most of his adult life as an academic at the Massachusetts Institute of Technology studying the circumstances which led to the Great Depression of the 1930s.
He is acutely aware of the risks of contagion, when the problems of one financial institution spread to another and you face a systemic crisis across the whole business landscape.
He also knows that the great mistake made by central banks in the 1930s and more recently, in the Japanese financial crisis of the 1990s was to sit on their hands and hope it will pass.
Bernanke knows that when you are in the eye of a financial storm, only dramatic and urgent action can help stave off a full-blown crisis.
That explains why, a week ago, Bernanke promised ailing banks that the Fed was willing to make available up to £100billion of cash in exchange for almost any security they would care to offer, including sub-prime mortgage loans.
The fact that greedy and incompetent banks would be saved, thus overturning the principle of moral hazard, doesn't matter.
As Alan Greenspan told this paper last September, in a banking crisis such as that caused by the collapse of sub-prime mortgages, the central bank has to act, even if it means rewarding the "greedy and egregious".
It is up to the law authorities to deal with those responsible afterwards.
ritain, so closely connected to the U.S. through the role of the City in global finance has, with the best will in the world, been painfully slow in recognising the threat.
Indeed, the complacency of last week's maiden budget by Alistair Darling was, in retrospect, shocking.
Unless the Government wakes up to the scale of the crisis we are facing, then this may yet be seen as the point of no return for New Labour as it seeks to hang on to power.
The LA Times story linked by FFDIC above is exactly the kind of story I'd like to see plastered all over every newspaper across the US everyday for the next few months.
People really need to know that this mess was no accident.
People need to know that it was totally avoidable.
They need to know because now we're all paying for it through inflation.
And if the politicians have their way with us we'll be paying for it in any number of eggregious ways with all these stupid bailout plans.
They need to know that it was due to corruption beyond belief and not just "bad luck" or unforeseeable circumstances.
Then they can decide how they feel about paying twice the amount on their grocery bill or paying to bail out these criminals on Wall Street and politicians attempting all sorts of contortionary tricks to put a floor under an already way too over-inflated housing market.
Too many Americans are still in the dark about what really happened and why. But the truth is real straightforward and easy to understand here, if only the media would begin to break it down for the public.
It would be nice if the Fed stopped underpricing itself and demanded an equity kicker for the financing it provides.
Precisely.
Like when municipalities provide funding for sports arenas for privately-owned professional teams. It may not be the best use of public funds; nevertheless one can understand why they do it. But not to get back an equity position is the most blatant form of corporate crony welfare.
He's pissed to say the least. That faith he speaks of is nothing short of amazing. Kind of like when the nation's shelves of duck tape and plastic got cleared out because the government asked them to suffocate themselves. Reality doesn't seem to matter.
I wrote this yesterday when some were trying to predict the amount the FED would cut:
It's hard to say what they are going to do with interest rates but lowering them will raise oil prices, hurt foreign investment, lower the value of the dollar and increase the sense of panic. Having said that nothing surprises me anymore.
Nobody here challenged me on any of it because it is exactly what has been happening. It wasn't a prediction it was an observation. Here's another exerpt:
Equities? They liked it, finishing up over 400 on the Dow, with no small part of it, I suspect, being Pimco and others ranting that The Fed will buy Mortgage securities.
In a word - bull! That is explicitly ILLEGAL folks. Against the law. Barred by The Federal Reserve Act. For that to happen there would have to be a bill introduced into Congress, pass both House and Senate, and be signed by The President.
Now tell me again that nobody trusts the "liberal" media.
Somewhere I read he took a dive trying to save his laptop or something. Black eye.
Everyone smart seems to agree that they must.
Yeah, how about that. So far I haven't heard of much attention in Congress to the IB aspect, and as Volcker noted there is a certain paralysis in many corners of the government right now. Different people like different parts of his Rose interview. I liked this:
In this situation, they stepped in and nobody else was there to do it They stepped into a vacuum, and I think quite appropriately, its a judgment they had to make.
November or a trumpet call, whichever comes first.
the more problems can be pushed out to 2009, the more they will be. It will create lots of media fodder to use to start blaming the democrats. Of course, so far the demos have been complete wimps about everything.
I heard that Rose has a Macbook Air and dived trying to save it. I think the computer survived.
Is there a ban on political comments on this blog?
Trouble at HBOS / Halifax. I think "complete and utter nonsense" is the UK translation of "rediculous, just rediculous". Watch this space.
An HBOS spokesman denied some speculation in the market that it had been intending to suspend its shares.
"This is complete and utter nonsense," he said. "HBOS is one of the strongest financial institutions in the world... Bank of England governor Mervyn King postponed a speech to regional business leaders in the Midlands yesterday. A Bank spokeswoman said he deferred his visit "because he needed to be in London to monitor events". Bank of England deputy governors Rachel Lomax and Sir John Gieve also postponed regional trips.
Bernanke has made clear that he's not afraid to socialize the loss. And as distasteful as that may be, the alternative is much worse. But the bailout only works longterm with comprehensive re-regulation and prosecution of the enriched perpetrators. Without that you still have a broken system and no moral hazard. And what the hell happened to Keynesian bottom-up stimulus? Does it always have to be tax cuts and truckfuls of money to the banks?
Volcker is articulating a theme that you also are hearing in the "populist" media more and more -- financial regulation no longer works to protect the "little guy", the middle-class consumer or ordinary investor.
We are probably going to have "comprehensive financial regulatory reform" over the next 5 years, and it will be very scary and negative for financial markets (over the short run).
A lot of it will probably focus on leverage, derivatives and hedge funds.
There was some discussion yesterday that the run up in Bear Stearns stock could be bond investors buying to guarantee the JPM $2/share transaction happens. Found this just posted that discussed the possibility in some detail.
the problem is financials are big part of our US economy..But that's a liability.
Now these IB's/hedgefunds made oodles of money by exploiting the situation knowing fully well that FED (taxpayers) will come to their rescue..
It is, as Kudlow says, a high class welfare where wealth is still going to top 1% despite prevailing widest income/wealth gap in the US.
Now goldman can not only bet aginst CDSs/CDSs and myriad other garbage instruments are make off like a bandit (hedge fund manager paulson made a billion (as an income) last yr!!) but also line up at the discount window to sell off their garbage stuff onto taxpayers..
The financial should and would be reduced to half the present size and it would do everyone good.
so far we have witnessed financial squeeze in US barring few episodes w/ euro banks..
Now the banks in other countries will start showing distress
indian/chinese banks have started showing distress..i belive china bank has considerable subprime/alt-a exposure..china/india metros have home prices rel to household income that would make a sanfranciscan feel bad..
This is beginning to get so bad that i am not prepared to mention the rumours that are being reported on other blogs in case it affects my own personal interests in an entirely different hemisphere and opposite time Zone:-(
But the bailout only works longterm with comprehensive re-regulation and prosecution of the enriched perpetrators.
It's hard to imagine how the needed regulation gets put in place by a regime as philosophically opposed to market regulation as the current one. I can't see this happening if the Republicans retain power, but, honestly, I'm not convinced the Democratic candidates would make the necessary changes either. I suspect it will end up being, at least in major part, a function of how bad things get.
I'm glad we have blogs like this to keep everyone honest. I just popped over to the WaPo site. A headline on the home page has the following headline:
Rate Cut Could Revive Inflation
This is news? How about real vs. officially reported inflation? It wouldn't take a Pulitzer winning paper very long to hit paydirt in an investigation of that little fraud on the American people. Yet, as pro-government propagandist mouthpiece for the past 7 years, the formerly competent Post can't seem to bring itself to stop making the Kool-aid - even though no one is buying it any longer (except for the true Kool-aid whores).
Our nation has become a disgusting caricature of its former self.
Of course there's no Bubble in the DC area - same with NoVa and Maryland. You see, everyone here is rich because they live near DC, and money just rains from the sky on everyone. But, when that fails to happen, it is still okay because, "prices no longer matter," "we're working on an entirely new economic model," and "everyone wants to move here - buy now or be priced out forever!"
Hahaha... right! The Bubble-heads are only slowing starting to see the light around here in Maryland, but many still think 5% to 10% reduction from peak price is all we'll see, and then it's back to the races with double-digit price increases per year with salaries and jobs dwindling.
Yep. Largest job sector in dc metro area sucks on the federal tit. Large part of that work force is retiring, or going to be RIF'd into retirement. So the optimist say, "In come the contractors". Nope. No contractors to replace the govies...just the same shrinking workforce. Whoever is in office in 2009 will have no choice but to cut Fed spending, programs, and probably jobs further.
Yes. But the man makes too much sense and he approaches the job with too much discipline. Sigh...
Pondering the Mess writes: Of course there's no Bubble in the DC area - same with NoVa and Maryland. You see, everyone here is rich because they live near DC, and money just rains from the sky on everyone. But, when that fails to happen, it is still okay because, "prices no longer matter," "we're working on an entirely new economic model," and "everyone wants to move here - buy now or be priced out forever!"
Lol. The DC Bulls are some of the most clueless perma-bulls. I love when then start quoting 1929/1930 style quotes; the best part is they don't realize they're doing it!
Bring Volker back. The economy is sick. We need our medicine.
If you're saying you have info you can't share, what good is that to anyone? If that's not what you meant, I must misunderstand your post. If that's the case, sorry.
Speaking of Fed intervention (or the lack thereof), there is an extensive cover story in today's Wall Street Journal (A1 & A14) entitled "U.S. Housing Bust Fuels Blame Game." There is fairly good coverage of who didn't do what, and when.
Choice quote: 'I turned out to be wrong, much to my surprise and chagrin.' -Alan Greenspan
rich, my impression is that neither you nor Volcker fully get the level of corruption that has engulfed the federal government at every level.
The situation clearly calls for an avalanche of regulation--from imposing standards of care on lenders to forcing derivatives to be traded on an exchange where counterparty risk can be assessed.
But welcome to reality. We can't even get cramdowns in bankruptcies through Congress. You can't get the Fed, or anyone else, to say no to anything. All we see are shovelfuls of greenbacks thrown at insiders and campaign contributors.
And what does the public debate? Obama's pastor saying mean things.
There is a reason why corrupt countries without the rule of law are poor. We are about to examine that reason up close.
Lehman borrows from new Fed facility: report Yahoo! 404 - Page Not Found
"The Wall Street Journal also reported that Goldman Sachs Group Inc (GS.N) is likely to tap the facility before the end of the week."
Have no fear...or maybe, be afraid, be very afraid.
Cramer is featuring 10 reasons why the market may have hit bottom. I might have edited these for clarity:
Treasury Secretary Henry Paulson woke up. Big Hanks no longer touting President Bushs the fundamentals are sound message. Which is great because the people who have lied and denied to you are always really great at coming up with ways to fix the big, actual mess they've created. Go Hank!
Mortgages bonds actually traded up today, in part, Cramer said, because theres talk of a Washington allowing Fannie Mae [FNM 28.22 --- UNCH \t ] to buy back its own bonds. This would mean lower mortgage rates, and the chance for homeowners to refinance. So that means a dozen more homeowners can afford to refi or buy at today's prices and credit restrictions!
Lehman Brothers and Goldman Sachs reported strong quarters despite the odds. Hey, so did Morgan. Everyone's a winner when they set expectations super low!
Stocks outside the bank sector, such a Nucor [NUE 74.45 --- UNCH \t ] and CSX [CSX 54.66 --- UNCH \t ], are actually hitting 52-week highs. This real economy, as Cramer calls it, seems to be in decent shape. The real "export" economy!
The Federal Reserve bailout of Bear Stearns [BSC 5.91 --- UNCH \t ] proved theres virtually no risk of losing any money you might have in an investment firm. That wasnt always the case. Crack pipes and ponies for everyone!
That Bear Stearns bail out solidified a plan for bailing out a failing bank should a similar event surface in the future. Again with the neverending crack pipes!
Momentum names like Apple [AAPL 132.82 --- UNCH \t ], Google [GOOG 439.16 --- UNCH \t ], Intuitive Surgical [ISRG 294.75 --- UNCH \t ] and First Solar [FSLR 204.02 --- UNCH \t ] are showing signs of life again. Four outa ...uh...thousands ain't bad!
Brokers want investors back in the game, so Cramer expects them to low-ball Wednesdays Visa IPO to entice potential buyers. Cant get your hands on any? Buy Mastercard [MA 210.25 --- UNCH \t ] instead. Pay no attention to that maxed out consumer behind the curtain!
The biggest bull on Wall Street, Abby Joseph Cohen, who stayed bullish through this, the worst bear market in years, retired yesterday. I always love a good irony trade, Cramer said. And I always love a good non-sequiter too!
The market rallied despite Ben Bernankes best efforts to hold us back. He talked about inflation in his statement, only cut rates by 75 basis points instead of 100 and it still didnt matter.Mmm, delicious fumes to breathe ...feels like it could go on forever..oh wait, it's 9 a.m. and don't feel so good...ugh...need. more. fumes. You crazy fed people better pony up more fumes or I'll start screamin!
Good luck with that. The three main contenders for POTUS all seem hell bent on continuing down the road of spending the country into oblivion. Regulation won't mean a damn thing if there's no interest in reducing consumption beyond mere words.
Volcker would have let bear stearns failed. The reason Bear Stearnss failure matters so much is this: Just as tarnished reputations have destroyed Bear Stearns and Northern Rock, the same thing is happening to Americas economic system as a whole. There is so much debt in America that the financial system is becoming questioned. For proof, just look at the dollars value. Besides the fact that the U.S. dollar is now worth less than its Canadian counterpart and the Swiss franc, the greenback has lost an astounding 40 percent of its value in less than six years (as measured by the U.S. dollar index).
Seeing this, outsiders see a growing possibility that Americalike Bear Stearns and Northern Rockwill not be able to pay all its bills. Investors are beginning to wonder where America will get the money from to pay back all its debt when the margin calls come in. Some wonder if Americas answer will be to just print up the money to pay the bills. If so, that is the quickest way America could irrevocably and catastrophically lose the trust of the world. Confidence in the dollar is already breaking.
Just like Bear Sternss 24-hour implosion, confidence in America could disappear overnight. With over $48 trillion of debt, the economy entering recession, growing job losses, a cascading housing market, and a rapidly aging retirement population, America could be facing the biggest margin call in history.
One day the alarm clock will ring and America will roll out of bed and find that the world has changed: worthless dollar, dysfunctional stock markets, wave of bankruptcies, mass unemployment, and inflationary food prices. All it took was a few hours and everything changed for storied investment icon Bear Stearns. The signs are already here; the trends are in placejust read the news. The only question is whether or not you will be prepared. 1 Thessalonians 5 talks about a thief coming in the night and catching people sleeping. Will you be caught with your eyes closed?
Volcker: Feds Extreme Intervention Raises Some Real Questions
Former Federal Reserve Chairman Paul Volcker said the Feds decision to lend money to Bear Stearns Cos. to keep it from collapsing is unprecedented and raises some real questions about whether thats the appropriate role for the Fed. The wisdom of the decision depends on how severe this crisis was and their judgment about the threat of demise of Bear Stearns, Mr. Volcker said on the Charlie Rose Show on Tuesday evening. Thats a judgment they had to make and an understandable judgment. It is absolutely not what you want for the longstanding regulatory support system.
the visa ipo is to help bail out the bankers who own visa, plain and simple. many banks stand to make a small fortune, The visa IPO is kust part of the bailout. How mnay ipo's have we seen in the last month? why VISA now. Its a bear stearns type of deal. BAILOUT.
JPM has notional $77T in derivatives. BSC is probably a large counter party. The $30B FED facility works like thsi:
FED $ -> BSC -> JPM.
JMHO, but if I can find a good link to a 3.19.08 WSJ article I read this morning on a blog without a link (grrr), I'll post it. They aren't saying what I'm saying, but all of the pieces are there.
Exactly: Visa is making an IPO now to get the common-folk volunteering to hold the bag. I wonder how many people who can barely make minimum payments on their credit cards are considering buying Visa stock? Unreal... the consumer is tapped out - and often unemployeed or grossly underemployeed - as the result of our brave "New Economy" where greed is rewarded, saving is punished, and income is replaced with debt and credit.
"...weve got to get the consumption down, we got to get spending in line with our capacity to produce. I think thats going on. And that process is going to take a while."
Well, a $600 per person economic stimulus payment should certainly help here.
For many years now I've noticed that:
1) "Everyone" knows that we need to reduce consumption and increase savings and
2) "Everyone" agrees that the economy cannot afford a reduction in consumer spending.
Unfortunately, public policy for the past couple decades has been based almost solely on the second premise.
I thought my message had relevant content even if you felt it of no value.
Most of the posts on blogs like this are relatively personal ones like mine was but i dont see why it should be judged by you to be valueless in the context of this blog.
I don't know about all of you, but I am increasingly concerned about something. I'm not even going to tell you what it is; that's how scary it could be.
What a novel thought, Mr Volcker, you are sooo boring! Our govt has been mirroring the public's sentiment all along: borrow and spend, leverage is the golden word. Big houses, TVs, SUVs, and waist lines ...that seems to be the new norm!
"There is a reason why corrupt countries without the rule of law are poor. We are about to examine that reason up close.
Markel"
I disagree. We have laws, but mainly only to protect wealth and power. Our laws for freedoms are thin and few. And they exist mainly to protect wealth and power.
If America becomes lawless, we will be much richer than we are today. Rich elites can't rule WITHOUT laws.
Obviously, based on what he knows, Volcker implies he would not have bailed out BSC. But he sympathizes with the man who called the judgment because he recognizes that the Federal Gov isn't functioning properly either.
It is interesting that someone mentions Mandelbrot. I studied chaos math for a time (but not finance) and Mandelbrot actually took an interest and came to speak at my college (and show extensive pictures). There are a lot of interesting changes in a dynamical system as it approaches chaos, including the doubling and tripling of periods and cycles. That appears to be what is happening in the TED spread, it's cycling. The spread is peaking and abating in cycles, but it appears the cycles are becoming more frequent. And the fed is having to assume ever greater risk. There is no assurance that anything is really contained.
The other thing I wanted to mention is that I looked into the financial engineering programs at one school, thinking maybe this could be for me. It was immediately striking that the faculty were teaching that traders and financial decision makers would always know when to stop doing something. Actually people don't. Their is this behavior someone once described on this blog, how gas molecules don't scream and all huddle in one corner of the box; the human behavioral factor is something financial engineers just don't get well at all.
"weve got to get the consumption down, we got to get spending in line with our capacity to produce."
Reward saving.
Lets make the Homeland Security department bigger.
tg
You have reduced this absurd drama to its quintessence.
Well done.
bring Volcker back!
You can tell Volcker is holding back. The Fed has sold the public down the river, and anyone paying attention knows it. But Volcker has to bite his tongue and avoid insulting his pathetic successors.
So, either this Fed is very different from its predecessors, or this crisis is nothing like we've seen in recent history. Let's hope it's the former.
Rose: Could we have risked the failure of Bear Stearns?
Volcker: Well who knows? It would take a lot of courage.
The Federal Reserve has not, in the past, been conceived as a place where you put in bad assets, possibly bad assets....
Agreed.
Reward saving by taking the interest rate down to nothing?
to my way of thinking,here's the money quote:
Volcker: The market was being run by mathematicians that didnt know financial markets. And you keep hearing, you know, god, that event should only happen once every hundred years, according to my model. But those every hundred years events are coming along every two or three years, which should raise some questions.
tg,
Yes, you grabbed the key phrase. Of course, reducing consumption is rather heretical thiniking these days, isn't it?
Volker is right, of course. The problem is that we're (that is to say, the Fed, Congress, the Bush administration are) not working on it.
the key to Volker's statement is this sentence: "If we can stabilize the financial market, we ought to come out of this."
He calls for revamping regulation and supervision of the system (I assume he means more of both), and reassessment of the roles of the Federal Reserve and the Treasury and the government.
We're not doing that.
We're throwing money into a maelstrom of corruption and fraud. Reform is nowhere to be found.
"...this is a different financial market."
Indeed.
"...weve got a lot of work to do about what we do with the regulatory system, the supervisory system, what the role of the Federal Reserve is, what the role of the Treasury and the government is, because this is a different financial market.weve got a lot of work to do about what we do with the regulatory system, the supervisory system, what the role of the Federal Reserve is, what the role of the Treasury and the government is, because this is a different financial market."
I agree.
Once the IB's became too big to fail, they are going to have to accept more oversight.
Bush won't do it, but he is a lame duck. The next administration will have to act.
The whole concept of 'prime broker' needs to be examined.
When they do the postmortem, I think their 'clients' the hedge funds will have their fingerprints all over the 'run' on BSC.
Volcker is supporting Obama. That is all I needed to know for the election.
Capitalism needs booms and busts. They are inextricably linked. Thinking you can legislate away busts is as sensible as proposing to super-glue tectonic plates in california to stop tremors. Tremors are healthy.
Can anyone explain whether BSC had $395B of assets per page 82 or $96 B on page F4?
The resource cannot be found.
The biggest news IMO from Volcker's comments is his opinions on GSEs. It's increasingly likely that they will be nationalized.
Zig,
Page F-4 is (PARENT COMPANY ONLY)
OT: One of the more interesting theories on why BSC stock is trading so much higher than $2 now is that BSC bond holders - a powerful bunch - want to make sure that the deal gets done at $2 and are are buying votes. The deal immunizes them against all losses. If the deal is blocked by common shareholders, they stand to lose big. A few dollars over $2 is a small price to pay to get the deal pushed through.
the other theories don't make much sense at all.
probert writes:
The biggest news IMO from Volcker's comments is his opinions on GSEs. It's increasingly likely that they will be nationalized
Me thinks there is no other option!
Gog bless the free enterprise system.
Justin, great theory. Same thing with CDS buyers.
I'm gonna put my house on the market for euros and see what happens...
Charlie asked him what can be done, and other than "take a look at regulation when all this is over", Volcker said GSEs. There was nothing else. So I guess we can expect agency spreads to tighten once nationalization takes place.
But growth will be more limited given that capitalistic instinct will be replaced by budget constraints. So that will be (i) a plus for financial markets and relationships with FCBs, but (ii) it will be a minus for the housing market.
For the economy, it will essentially be the difference between (i) and (ii)
A little comfort for the remaining pessimists:
"By midday Sunday, however, after
looking over Bears books and saying
it was scared stiff by what it saw,
JPMorgan dropped its price to $2 a share"
NakedShorts: Oh sure it’s over
Probert.... Thanks.
Are they netting something out before it hits the parent company balance sheet?
"Of course, reducing consumption is rather heretical thiniking these days, isn't it?"
YouTube - She's a witch!
be careful tj
"the GSE's will be nationalized"
Um, pardon my ignorance, but by definition aren't 'Government Sponsored Enterprises' for all practical purposes, already nationalized?
OT. The east coast liberals are after Ben B...
Dear Ben: Seriously, Next Time, F*** Wall Street. - Consumerist - Jezebel
With the establishment of PDCF, the likelihood that liquidity issues would morph into solvency issues for dealer/brokers would be diminished. Paul Kasriel
http://safehaven.com/article-9728.htm
Raw red meat for Tanta.
L.A.Times / Sub-prime mortgage watchdogs kept on leash
Los Angeles Times -- Business, Technology, Real Estate, Hollywood, Economics, News - latimes.com
Maybe if we had no more foreclosures or defaults, and what was already in the system just worked it's way through then the PDCF might work. But the real tsunami has yet to arrive.
Um, pardon my ignorance, but by definition aren't 'Government Sponsored Enterprises' for all practical purposes, already nationalized?
Kolohe | 03.19.08 - 12:55 am |
Fannie may was a gov't agency, but was privatized starting in 1968. Until then, it had a virtual monopoly on securitization of mortgages. Freddie was created afterwards so that Fannie wouldn't have the same monopoly as a private entity.
Ginnie was born at the same time as the only true gov't love child, which she has remained since then. The first two are implicitly guaranteed, while she is still explicitly guaranteed.
OK?
and of course I meant Fannie Mae - sorry.
NY Times Economic Scene /Can't Grasp Credit Crisis? Join the Club
ECONOMIC SCENE; Can't Grasp Credit Crisis? Join the Club - NY Times
Bear's Woes Hit Index Fund Investors...
Bear's Woes Hit Index-Fund Investors - WSJ.com
But JPM is in the index, so if JPM gets a windfall at Bear's expense, it is all in the index.
Volcker is on PBS/Charlie Rose right now in Dallas, TX.
From bloomberg 30 seconds ago.
USD-JPY 98.9250 -0.9450 -0.95
Well that didn't last very long, did it.
major asian stock indicies now in the black...plus 1.5 to 3.5 percent (except jakarta)
ah... all better now
ah... all better now
Great! Time to move back into stocks. * barf *
No, the GSE's are not nationalized. I know this because I can buy and sell common stock on the stock market.
To paraphrase another blogger, however, the Fed has a template going forward: entity A absorbs entity B, Fed provides deal financing and/or "first-loss" protection, bondholders made whole, shareholders get thrown under the bus.
It would be nice if the Fed stopped underpricing itself and demanded an equity kicker for the financing it provides. It would be nicer if it retained its own set of deal advisors every time it intervenes. Especially when you consider it typically does so in a crisis, which often are time-limited.
If the GSEs are nationalized, I would expect either shareholders to suffer dilution, if the GSE does a secondary offering with Uncle Sam as the investor, or wipeout in an outright nationalization.
Personally I would like to see a crapload of short term treasury paper offered at these stupid low rates and then the Treasury turn around and buy agency paper from the broker-dealers and pocket the spread. Why should the private sector have all the fun?
Capitalism needs booms and busts. They are inextricably linked. Thinking you can legislate away busts is as sensible as proposing to super-glue tectonic plates in california to stop tremors. Tremors are healthy.
Justin | 03.19.08 - 12:40 am
I'm talkin 'bout legislating away the criminality that leads the government to bail out speculators.
I don't think that's going to be a problem.
If you need to reduce consumption, a deep deep recession, and a prolonged one, is a good way to do it. So why the frantic efforts to prevent a recession?
other than stupidity could someone tell me why if gse's get all this shoved down their throats and thus take on even more risk at 200:1 leverage which makes the monolines look conservative and given their past scandals and their positive feedback (procyclical) interest rate derivative problems w/ fixed rate loans...
and theyre going to have to raise more capital which even if preferred has to be dilutive...
why is their stock going up and not down?
wtf?
So why the frantic efforts to prevent a recession?
Jim | 03.19.08 - 1:47 am |
The Fed isn't intervening to prevent the recession; the Fed is intervening to prevent the financial system collapsing.
Some food for the bears on this board:
UK Banks tainted by toxic debt:
British banks tainted by US toxic debt - Telegraph
I am less concerned about Wall Street at the moment than I am about the City of London and Europe. One of the most important actions taken over the weekend was the Fed calling the broker-dealers and telling them, in no uncertain terms to stop trash-talking the competition. That, along with GS refusing to backstop trades its clients had pending with BSC, as well as a lousy response to the rumors (two appearances on TV?), is what brought BSC down.
The BoE auctioned L10b to UK banks. There was solicitation for L16B. There is no industrywide liquidity backstop for the UK and European banks such as the one FRB has here.
I have no crystal ball. But I would be concerned about UBS, HBOS and Barclays at the moment. And that acknowledges the relief rally. Hopefully the rival firms will stay disciplined like GS was in complementing LEH on the wire Tuesday.
Disclosure: neither long nor short. 10% taxable money market funds, 90% FDIC bank account. Which in this environment actually carries a distinction.
Telegraph UK / Ambrose Evans-Pritchard: Sooner Fed Bail-outs than the 1930s revisited "Put a clothes peg on your nose. None of us wants to pay a farthing to rescue the bankers and assorted debt pimps who got us into this financial mess, and in doing so exposed our societies to such harm."
Sooner Fed bail-outs than the 1930s revisited - Telegraph
just for kicks
until they repeal the 5th amendment, nationalization of the gse's would require that all equity holders be paid the value of their stock.
Thread music: Castles Made of Sand - Jimi Hendrix
YouTube
- Castles Made of Sand- jimi hendrix
This was a good story here:
Well ... I wouldn´t go THAT far. Maybe more along the lines of Deutsche Bank chief economist Norbert Walter, who put it this way: "Weekend emergency rate moves don´t help ... Right from the start, the Fed has been part of panic in the markets - both fed from it and added to it ... The Fed is not, was never on top of the situation ..."
Did it work? Mission accomplished? Confidence restored? - Well .... you tell me!
I´d say - Nope. Mission NOT accomplished. Confidence in markets these days is harder to find than an abandoned pint of Guinness in an Irish pub on St. Patrick´s Day.
Sorry, but I´m almost inclined to quote ECB President Jean-Claude Trichet on this one: "The best way to restore confidence to the markets is to keep your monetary policy solidly anchored in price stability."
It's Confidence, Stupid!
It's Confidence, Stupid! - CNBC
until they repeal the 5th amendment, nationalization of the gse's would require that all equity holders be paid the value of their stock.
fred | 03.19.08 - 2:10 am |
As it's said, "same as it ever was" - $2 a share, just like Bear.
or
As Harpo would say, Gornisht mit gornisht.
Dallas Fed President Richard Fisher and Charles Plosser, president of the Philadelphia Fed, rebelled, preferring a ``less aggressive'' move. It's the first time two policy makers have broken with Bernanke publicly and the fifth straight FOMC rate move in which Bernanke has failed to achieve unanimity.
Plosser's dissent is the first for the former University of Rochester economist, who joined the Fed in 2006 and has taken some of the toughest anti-inflation views among policy makers. Plosser, 59, is a voting FOMC member for the first time this year. It's the second straight opposing vote for the 59-year-old Fisher, a former deputy U.S. trade representative in the Clinton administration.
``When inflation gets unanchored, and the long bond market goes up, that's going to really hurt longer-term investment and the recovery in the mortgage markets, which are the root cause of this recession,'' former Fed Governor Susan Bies said in an interview yesterday with Bloomberg Television.
Where is Warsh The Pussy?
blowncue, thanks for the UK link. Perhaps our prudent & prim Ms. Bair should go speak to those old dodgy Brit bankers.
harpo speaks?
mama loshen?
OT: British "homeowners were told by civil servants to expect continuing turmoil until 2009."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/19/ncredit119.xml
Here's the money quote for the U.S.:
American interest rates have now fallen by three percentage points - to 2.25 per cent - since last summer amid growing concern over the prospects of a 1930s-style recession hitting the US.
Hmm. I thought it was only some of the bloggers talking about Great Depression...
Will the US remain US? Or become a neo-USSR?
S. Gurumurthy
Wednesday, 19 March , 2008, 11:18
Will the US remain US? Or become a neo-USSR?
This is what Akio Morita, the former Sony Corporation chairman, told the Group-7 leaders as far back as 1993, when the size of the derivative population was far less. With the derivatives growing so malignant, it is not the actual finance which controls its derivative, but, the other way round - the virtual controls the actual. What, if this off-balance-sheet virtual architecture collapses?
It is so fragile that it can. Martin Wolf warns ìthe connection between housing bubble and the fragility of the financial system has created huge dangers, for the US and for the rest of the world.î If a collapse starts, it is beyond any known powerís power to stop or repair it. The balance sheet of the whole world is too small for it and the actual will too meet the fate of the virtual.
Explaining The Bear Stearns Share Price - Market Movers - Portfolio.com
Not sure that I believe it, but why not.
The deal would roll back OFHEO demands that the nation's two largest sources of mortgage finance hold 30 percent more capital than typically required. That constraint was put in place several years ago after accounting scandals shook both companies.
Increased investment by Fannie Mae and Freddie Mac is expected to bolster confidence in a secondary mortgage market shaken by a wave of failing home loans.
Both recently boosted forecasts for their credit losses into 2009 after reporting combined net losses of $6.1 billion for the fourth quarter of 2007.
blow:
Speaking to the BBC after the U.S. Federal Reserve cut both the benchmark federal-funds rate and the discount rate by 75 basis points - to 2.25% and 2.5%, respectively - John McFall, chairman of the House of Commons Treasury Select Committee, said that financial markets were in a "gigantic mess" but that it was important not to panic.
"We want to see a sensible way forward. We want to see a strategy so we can keep this on the road financially," McFall said.
U.K. Chancellor of the Exchequer Alistair Darling is due to appear before the Treasury Select Committee on Wednesday, while Bank of England Governor Mervyn King and other members of the bank's Monetary Policy Committee are scheduled to give evidence next week.
McFall said that with financial institutions in a position "to fall like nine pins," it was "a bit late" to talk about fairness.
The U.S. Fed, the Bank of England and others have got to come in to keep the system stable," McFall said. "When you see an investment bank go down, you really have to worry," he said, referring to the demise of Bear Stearns Cos. (BSC), which is set to be bought by J.P. Morgan Chase & Co. (JPM) for just $2 a share. -By Natasha Brereton, Dow Jones Newswires
Barclays has an even larger credit market exposure to its tangible book value, but it specialised in selling such assets through its Barclays Capital operation and so is thought to have more sophisticated risk management. As for RBS, fears persist about its core tier one ratio - the most honest measure of a bank's financial strength. It is the weakest in the sector.
The vulnerabilities of both Barclays and RBS leave them exposed to further sub-prime writedowns - looking increasingly likely given the constant deterioration in the value of money market assets. Goldman Sachs, the Wall Street bank most resilient to the credit crunch last year, is expected today to announce writedowns of $3bn for the first quarter.
There is no suggestion that HBOS, Barclays, RBS or any other UK bank is in trouble, but in the current market investors don't need a reason to worry. Awareness of possible issues is enough to scare the bears.
As a global recession looms, is there any way to halt the slide?
http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=537728&in_page_id=1770
The bearded Bernanke, who took over the Fed from the legendary Alan Greenspan last summer, has spent most of his adult life as an academic at the Massachusetts Institute of Technology studying the circumstances which led to the Great Depression of the 1930s.
He is acutely aware of the risks of contagion, when the problems of one financial institution spread to another and you face a systemic crisis across the whole business landscape.
He also knows that the great mistake made by central banks in the 1930s and more recently, in the Japanese financial crisis of the 1990s was to sit on their hands and hope it will pass.
Bernanke knows that when you are in the eye of a financial storm, only dramatic and urgent action can help stave off a full-blown crisis.
That explains why, a week ago, Bernanke promised ailing banks that the Fed was willing to make available up to £100billion of cash in exchange for almost any security they would care to offer, including sub-prime mortgage loans.
The fact that greedy and incompetent banks would be saved, thus overturning the principle of moral hazard, doesn't matter.
As Alan Greenspan told this paper last September, in a banking crisis such as that caused by the collapse of sub-prime mortgages, the central bank has to act, even if it means rewarding the "greedy and egregious".
It is up to the law authorities to deal with those responsible afterwards.
ritain, so closely connected to the U.S. through the role of the City in global finance has, with the best will in the world, been painfully slow in recognising the threat.
Indeed, the complacency of last week's maiden budget by Alistair Darling was, in retrospect, shocking.
Unless the Government wakes up to the scale of the crisis we are facing, then this may yet be seen as the point of no return for New Labour as it seeks to hang on to power.
The LA Times story linked by FFDIC above is exactly the kind of story I'd like to see plastered all over every newspaper across the US everyday for the next few months.
People really need to know that this mess was no accident.
People need to know that it was totally avoidable.
They need to know because now we're all paying for it through inflation.
And if the politicians have their way with us we'll be paying for it in any number of eggregious ways with all these stupid bailout plans.
They need to know that it was due to corruption beyond belief and not just "bad luck" or unforeseeable circumstances.
Then they can decide how they feel about paying twice the amount on their grocery bill or paying to bail out these criminals on Wall Street and politicians attempting all sorts of contortionary tricks to put a floor under an already way too over-inflated housing market.
Too many Americans are still in the dark about what really happened and why. But the truth is real straightforward and easy to understand here, if only the media would begin to break it down for the public.
It would be nice if the Fed stopped underpricing itself and demanded an equity kicker for the financing it provides.
Precisely.
Like when municipalities provide funding for sports arenas for privately-owned professional teams. It may not be the best use of public funds; nevertheless one can understand why they do it. But not to get back an equity position is the most blatant form of corporate crony welfare.
What are the chances of the Federal Reserve taking on so much toxic junk that it implodes itself?
Any chance of that happening?
What denninger says about the latest FED moves:
people believe "The Fed will save us."
The Market Ticker
He's pissed to say the least. That faith he speaks of is nothing short of amazing. Kind of like when the nation's shelves of duck tape and plastic got cleared out because the government asked them to suffocate themselves. Reality doesn't seem to matter.
I wrote this yesterday when some were trying to predict the amount the FED would cut:
It's hard to say what they are going to do with interest rates but lowering them will raise oil prices, hurt foreign investment, lower the value of the dollar and increase the sense of panic. Having said that nothing surprises me anymore.
Nobody here challenged me on any of it because it is exactly what has been happening. It wasn't a prediction it was an observation. Here's another exerpt:
Equities? They liked it, finishing up over 400 on the Dow, with no small part of it, I suspect, being Pimco and others ranting that The Fed will buy Mortgage securities.
In a word - bull! That is explicitly ILLEGAL folks. Against the law. Barred by The Federal Reserve Act. For that to happen there would have to be a bill introduced into Congress, pass both House and Senate, and be signed by The President.
Now tell me again that nobody trusts the "liberal" media.
OT but worth a read:
Contemporary Hooverville | MetaFilter
Reactions to the BBC story about tent cities in LA. (aka 'Bushvilles' or 'The Shruburbs').
Bernanke Running Out of Bliss Space
Asia Times Online :: Asian news and current affairs
From the WSJ
Other investors are shorting Bear bonds and credit-default swaps, and are buying Bear shares and will vote "no," hoping to push Bear into bankruptcy.
Note that there are 135 million shares of BSC and $64 Billion in debt.
Who knows the amount of CDS's.
Here is the link:
Bear's Run-Up Sets Stage for Clash - WSJ.com
I haven't watched the show in a while, what happened to Charlie Rose's face?
And does anyone think the government will closely regulate investment banks now? Everyone smart seems to agree that they must.
what happened to Charlie Rose's face?
Somewhere I read he took a dive trying to save his laptop or something. Black eye.
Everyone smart seems to agree that they must.
Yeah, how about that. So far I haven't heard of much attention in Congress to the IB aspect, and as Volcker noted there is a certain paralysis in many corners of the government right now. Different people like different parts of his Rose interview. I liked this:
November or a trumpet call, whichever comes first.
the more problems can be pushed out to 2009, the more they will be. It will create lots of media fodder to use to start blaming the democrats. Of course, so far the demos have been complete wimps about everything.
I heard that Rose has a Macbook Air and dived trying to save it. I think the computer survived.
Is there a ban on political comments on this blog?
Trouble at HBOS / Halifax. I think "complete and utter nonsense" is the UK translation of "rediculous, just rediculous". Watch this space.
An HBOS spokesman denied some speculation in the market that it had been intending to suspend its shares.
"This is complete and utter nonsense," he said. "HBOS is one of the strongest financial institutions in the world... Bank of England governor Mervyn King postponed a speech to regional business leaders in the Midlands yesterday. A Bank spokeswoman said he deferred his visit "because he needed to be in London to monitor events". Bank of England deputy governors Rachel Lomax and Sir John Gieve also postponed regional trips.
UK banking shares under pressure |
Business |
guardian.co.uk
Opps that 6:37 anonymous was me.
US Banks Seen Riskier Than Investing In Kazakhstan, Nigeria
Yahoo! 404 - Page Not Found
I dont know what to make of this
Any of you who are counting on decoupling to protect your china stocks may want to take a look...
China braced for US sub-prime backlash - Times Online
And Gametheory I think wjhat you can take away from the article is that this is not over yet.
Bernanke has made clear that he's not afraid to socialize the loss. And as distasteful as that may be, the alternative is much worse. But the bailout only works longterm with comprehensive re-regulation and prosecution of the enriched perpetrators. Without that you still have a broken system and no moral hazard. And what the hell happened to Keynesian bottom-up stimulus? Does it always have to be tax cuts and truckfuls of money to the banks?
The financial genies in Wall Street would do well to read their Mandelbrot more carefully.
Volcker is articulating a theme that you also are hearing in the "populist" media more and more -- financial regulation no longer works to protect the "little guy", the middle-class consumer or ordinary investor.
We are probably going to have "comprehensive financial regulatory reform" over the next 5 years, and it will be very scary and negative for financial markets (over the short run).
A lot of it will probably focus on leverage, derivatives and hedge funds.
At some level, leverage ceases to have any econmomic purpose. Two or three aspirin sure. Fifty aspirin?
We've overdosed the system with leverage.
I see CPI inflation and asset deflation. Prosperity baby, that's what I'm talking about.
There was some discussion yesterday that the run up in Bear Stearns stock could be bond investors buying to guarantee the JPM $2/share transaction happens. Found this just posted that discussed the possibility in some detail.
Bear Stearns rally won't last - Mar. 19, 2008
the problem is financials are big part of our US economy..But that's a liability.
Now these IB's/hedgefunds made oodles of money by exploiting the situation knowing fully well that FED (taxpayers) will come to their rescue..
It is, as Kudlow says, a high class welfare where wealth is still going to top 1% despite prevailing widest income/wealth gap in the US.
Now goldman can not only bet aginst CDSs/CDSs and myriad other garbage instruments are make off like a bandit (hedge fund manager paulson made a billion (as an income) last yr!!) but also line up at the discount window to sell off their garbage stuff onto taxpayers..
The financial should and would be reduced to half the present size and it would do everyone good.
so far we have witnessed financial squeeze in US barring few episodes w/ euro banks..
Now the banks in other countries will start showing distress
indian/chinese banks have started showing distress..i belive china bank has considerable subprime/alt-a exposure..china/india metros have home prices rel to household income that would make a sanfranciscan feel bad..
This is beginning to get so bad that i am not prepared to mention the rumours that are being reported on other blogs in case it affects my own personal interests in an entirely different hemisphere and opposite time Zone:-(
But the bailout only works longterm with comprehensive re-regulation and prosecution of the enriched perpetrators.
It's hard to imagine how the needed regulation gets put in place by a regime as philosophically opposed to market regulation as the current one. I can't see this happening if the Republicans retain power, but, honestly, I'm not convinced the Democratic candidates would make the necessary changes either. I suspect it will end up being, at least in major part, a function of how bad things get.
I'm glad we have blogs like this to keep everyone honest. I just popped over to the WaPo site. A headline on the home page has the following headline:
Rate Cut Could Revive Inflation
This is news? How about real vs. officially reported inflation? It wouldn't take a Pulitzer winning paper very long to hit paydirt in an investigation of that little fraud on the American people. Yet, as pro-government propagandist mouthpiece for the past 7 years, the formerly competent Post can't seem to bring itself to stop making the Kool-aid - even though no one is buying it any longer (except for the true Kool-aid whores).
Our nation has become a disgusting caricature of its former self.
Worried | Homepage | 03.19.08 - 7:33 am
That's cool. Stop wasting time and electrons.
Marcus,
WaPo sucks as a newspaper ...their RE folks still think there is no re bubble in the DC area...
Justinian Gaius Dumbus:
The RE section is down to almost nothing. Ad revenues must be close to nothing. Serves them right for selling out and violating the Public's trust.
We're throwing money into a maelstrom of corruption and fraud. Reform is nowhere to be found.
Well it worked so well in Iraq, the administration decided to try it at home.
Marcus
Not sure i understand. I am guessing you misunderstood my level of concern.
(Sarcasm)
Of course there's no Bubble in the DC area - same with NoVa and Maryland. You see, everyone here is rich because they live near DC, and money just rains from the sky on everyone. But, when that fails to happen, it is still okay because, "prices no longer matter," "we're working on an entirely new economic model," and "everyone wants to move here - buy now or be priced out forever!"
Hahaha... right! The Bubble-heads are only slowing starting to see the light around here in Maryland, but many still think 5% to 10% reduction from peak price is all we'll see, and then it's back to the races with double-digit price increases per year with salaries and jobs dwindling.
Pondering the Mess,
Yep. Largest job sector in dc metro area sucks on the federal tit. Large part of that work force is retiring, or going to be RIF'd into retirement. So the optimist say, "In come the contractors". Nope. No contractors to replace the govies...just the same shrinking workforce. Whoever is in office in 2009 will have no choice but to cut Fed spending, programs, and probably jobs further.
stinky writes:
bring Volcker back!
Yes. But the man makes too much sense and he approaches the job with too much discipline. Sigh...
Pondering the Mess writes:
Of course there's no Bubble in the DC area - same with NoVa and Maryland. You see, everyone here is rich because they live near DC, and money just rains from the sky on everyone. But, when that fails to happen, it is still okay because, "prices no longer matter," "we're working on an entirely new economic model," and "everyone wants to move here - buy now or be priced out forever!"
Lol. The DC Bulls are some of the most clueless perma-bulls. I love when then start quoting 1929/1930 style quotes; the best part is they don't realize they're doing it!
Bring Volker back. The economy is sick. We need our medicine.
Got Popcorn?
Neil
worried:
If you're saying you have info you can't share, what good is that to anyone? If that's not what you meant, I must misunderstand your post. If that's the case, sorry.
LEGAL INSIDER TRADING IN THREE EASY STEPS, BROUGHT TO YOU BY JP MORGAN AND THE SEC
http://wikileaks.org/wiki/Whistleblower_exposes_insider_trading_program_at_JP_Morga
Fannie, Freddie can purchase $2 trillion in mortgages
Speaking of Fed intervention (or the lack thereof), there is an extensive cover story in today's Wall Street Journal (A1 & A14) entitled "U.S. Housing Bust Fuels Blame Game." There is fairly good coverage of who didn't do what, and when.
Choice quote: 'I turned out to be wrong, much to my surprise and chagrin.' -Alan Greenspan
Housing Bust Fuels Blame Game - WSJ.com
rich, my impression is that neither you nor Volcker fully get the level of corruption that has engulfed the federal government at every level.
The situation clearly calls for an avalanche of regulation--from imposing standards of care on lenders to forcing derivatives to be traded on an exchange where counterparty risk can be assessed.
But welcome to reality. We can't even get cramdowns in bankruptcies through Congress. You can't get the Fed, or anyone else, to say no to anything. All we see are shovelfuls of greenbacks thrown at insiders and campaign contributors.
And what does the public debate? Obama's pastor saying mean things.
There is a reason why corrupt countries without the rule of law are poor. We are about to examine that reason up close.
Lehman borrows from new Fed facility: report
Yahoo! 404 - Page Not Found
"The Wall Street Journal also reported that Goldman Sachs Group Inc (GS.N) is likely to tap the facility before the end of the week."
Have no fear...or maybe, be afraid, be very afraid.
Cramer is featuring 10 reasons why the market may have hit bottom. I might have edited these for clarity:
Reward saving
Good luck with that. The three main contenders for POTUS all seem hell bent on continuing down the road of spending the country into oblivion. Regulation won't mean a damn thing if there's no interest in reducing consumption beyond mere words.
I guess we do negotiate with terrorists, so long as they hold the financial system hostage.
If we can stabilize the financial market, we ought to come out of this.
Um, is that meant to be optimistic? We came out of the depression too.
Don't let that collapsing yield on the 13-week treasury scare you.
Please...don't....please....
^IRX: Basic Chart for 13-WEEK TREASURY BILL - Yahoo! Finance
Bank earnings look so much better when you can shove off crap MBS onto the Fed's balance sheet rather than write it off on your own.
Lehman borrows from new Fed facility: report
Investment banks are borrowing from Fed
| Reuters
Everyone know what the FED's role is going to be is it's to bailout the speculators.
Is any body planing to buy Visa today?
I am thinking to get some shares.
Why are we still calling them investment banks? Why not speculation banks.
Volcker would have let bear stearns failed. The reason Bear Stearnss failure matters so much is this: Just as tarnished reputations have destroyed Bear Stearns and Northern Rock, the same thing is happening to Americas economic system as a whole. There is so much debt in America that the financial system is becoming questioned. For proof, just look at the dollars value. Besides the fact that the U.S. dollar is now worth less than its Canadian counterpart and the Swiss franc, the greenback has lost an astounding 40 percent of its value in less than six years (as measured by the U.S. dollar index).
Seeing this, outsiders see a growing possibility that Americalike Bear Stearns and Northern Rockwill not be able to pay all its bills. Investors are beginning to wonder where America will get the money from to pay back all its debt when the margin calls come in. Some wonder if Americas answer will be to just print up the money to pay the bills. If so, that is the quickest way America could irrevocably and catastrophically lose the trust of the world. Confidence in the dollar is already breaking.
Just like Bear Sternss 24-hour implosion, confidence in America could disappear overnight. With over $48 trillion of debt, the economy entering recession, growing job losses, a cascading housing market, and a rapidly aging retirement population, America could be facing the biggest margin call in history.
One day the alarm clock will ring and America will roll out of bed and find that the world has changed: worthless dollar, dysfunctional stock markets, wave of bankruptcies, mass unemployment, and inflationary food prices. All it took was a few hours and everything changed for storied investment icon Bear Stearns. The signs are already here; the trends are in placejust read the news. The only question is whether or not you will be prepared. 1 Thessalonians 5 talks about a thief coming in the night and catching people sleeping. Will you be caught with your eyes closed?
Volcker: Feds Extreme Intervention Raises Some Real Questions
Former Federal Reserve Chairman Paul Volcker said the Feds decision to lend money to Bear Stearns Cos. to keep it from collapsing is unprecedented and raises some real questions about whether thats the appropriate role for the Fed. The wisdom of the decision depends on how severe this crisis was and their judgment about the threat of demise of Bear Stearns, Mr. Volcker said on the Charlie Rose Show on Tuesday evening. Thats a judgment they had to make and an understandable judgment. It is absolutely not what you want for the longstanding regulatory support system.
Go ahead and buy Visa, but I hope you're not considering holding it for very long.
Visa sees the end coming. Time to diffuse the losses.
As Alo said, above: "Pay no attention to that maxed out consumer behind the curtain!"
Marcus:
As I undrestand it, risk of credit card lending stays with the banks that issues the credit card. Visa only collects fees.
Also, I looked at how good Master Card did last year after its initila offering.
Marcus Aurelius
the visa ipo is to help bail out the bankers who own visa, plain and simple. many banks stand to make a small fortune, The visa IPO is kust part of the bailout. How mnay ipo's have we seen in the last month? why VISA now. Its a bear stearns type of deal. BAILOUT.
sam,
After a lot of pondering, here's the BSC bailout.
JPM has notional $77T in derivatives. BSC is probably a large counter party. The $30B FED facility works like thsi:
FED $ -> BSC -> JPM.
JMHO, but if I can find a good link to a 3.19.08 WSJ article I read this morning on a blog without a link (grrr), I'll post it. They aren't saying what I'm saying, but all of the pieces are there.
Cheers,
Exactly: Visa is making an IPO now to get the common-folk volunteering to hold the bag. I wonder how many people who can barely make minimum payments on their credit cards are considering buying Visa stock? Unreal... the consumer is tapped out - and often unemployeed or grossly underemployeed - as the result of our brave "New Economy" where greed is rewarded, saving is punished, and income is replaced with debt and credit.
"I wonder how many people who can barely make minimum payments on their credit cards are considering buying Visa stock? "
They irresponsible pension fund/401k manager is loading up on Visa as we speak. Filling those useless index funds full of that trash.
No voluntary bagholders needed. You gave the keys to the crooks, and they will make sure you hold that bag, like it or not.
Lehman borrows from new Fed facility: report
I hate the helicopter idea as much as the next guy, but if the helicopter comes to my neighborhood I'd be a fool not to grab a few bucks.
"...weve got to get the consumption down, we got to get spending in line with our capacity to produce. I think thats going on. And that process is going to take a while."
Well, a $600 per person economic stimulus payment should certainly help here.
For many years now I've noticed that:
1) "Everyone" knows that we need to reduce consumption and increase savings and
2) "Everyone" agrees that the economy cannot afford a reduction in consumer spending.
Unfortunately, public policy for the past couple decades has been based almost solely on the second premise.
There is so much debt in America that the financial system is becoming questioned.
Yet the entity with the biggest debt - the federal government - is looked at as the savior.
We're getting exactly what we deserve.
Marcus
"If you're saying you have info you can't share,"
I did not say i could not share it.
I thought my message had relevant content even if you felt it of no value.
Most of the posts on blogs like this are relatively personal ones like mine was but i dont see why it should be judged by you to be valueless in the context of this blog.
OT. The east coast liberals are after Ben B...
Dear Ben: Seriously, Next Time, F*** Wall Street. - Consumerist - Jezebel me
Steelhead, that link was great. Gotta love us east coasters - we say it like it is.
Didn't that writing style kind of remind you of Tanta's? But then... nah, couldn't be.
I don't know about all of you, but I am increasingly concerned about something. I'm not even going to tell you what it is; that's how scary it could be.
Am I overreacting?
What a novel thought, Mr Volcker, you are sooo boring! Our govt has been mirroring the public's sentiment all along: borrow and spend, leverage is the golden word. Big houses, TVs, SUVs, and waist lines ...that seems to be the new norm!
"There is a reason why corrupt countries without the rule of law are poor. We are about to examine that reason up close.
Markel"
I disagree. We have laws, but mainly only to protect wealth and power. Our laws for freedoms are thin and few. And they exist mainly to protect wealth and power.
If America becomes lawless, we will be much richer than we are today. Rich elites can't rule WITHOUT laws.
Am I overreacting?
Scared | 03.19.08 - 11:11 am |
No. But just to be safe, stay away from electrical devices and use twice as much tinfoil as you have been. Good luck.
Obviously, based on what he knows, Volcker implies he would not have bailed out BSC. But he sympathizes with the man who called the judgment because he recognizes that the Federal Gov isn't functioning properly either.
It is interesting that someone mentions Mandelbrot. I studied chaos math for a time (but not finance) and Mandelbrot actually took an interest and came to speak at my college (and show extensive pictures). There are a lot of interesting changes in a dynamical system as it approaches chaos, including the doubling and tripling of periods and cycles. That appears to be what is happening in the TED spread, it's cycling. The spread is peaking and abating in cycles, but it appears the cycles are becoming more frequent. And the fed is having to assume ever greater risk. There is no assurance that anything is really contained.
The other thing I wanted to mention is that I looked into the financial engineering programs at one school, thinking maybe this could be for me. It was immediately striking that the faculty were teaching that traders and financial decision makers would always know when to stop doing something. Actually people don't. Their is this behavior someone once described on this blog, how gas molecules don't scream and all huddle in one corner of the box; the human behavioral factor is something financial engineers just don't get well at all.