IMF: Financial Losses May Approach $1 Trillion
Submitted by
CalculatedRisk on Tue, 04/08/2008 - 7:37am (123 comments)
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(repost from prev thread)
It looks like the market is allowing the dilution to be the solution...
Unfortunately it's only going to delay the inevitable while eating away longterm shareholder value.
I wonder how long this dilution game will last. We will have to see a failure from a bank that used dilution as a last resort.
That will be the final shoe to drop imho.
first
Great call, CR.
er second
BTW: I keep forgetting to thank CR for this great site and the work that goes into the charts.
Belated Thank you !
Nicely said.
two trillion!
When the calendar says that economic data will be released, I just come here and start hitting refresh. The presentation of data by CR is the best around, since he presents it w/o bias. Other media tends to pick the "best" piece (like a good M/M change instead of a bad Y/Y change) to headline the data. CR Blog: The Anti-Spin.
CR,
OT but related to yesterday's post on the weaker dollar cushioning the recession. The problem is the weak dollar is causing inflation to rise in Asia (and in most other emerging countries), and they are exporting it right back to us:
Asian Inflation Begins to Sting U.S. Shoppers - NY Times
This "sleeper" issue is coming awake with a vengeance. Up until last week I still heard a prominent economist argue that if China revalued manufacturing would just move to Vietnam! And we still hear that we can't have inflation in the U.S. because China is holding down prices...
Those expensive sacks of rice in Asia have "Made in the USA" written all over them. The solution for these countries is to revalue against the dollar. Then you'll really see our inflation rate jump.
And not one of the media elite ever mentions the multi-trillion dollar losses that 75 million American households are going to suffer.
Let's see, if there is $21 trillion in residential property value in the U.S....
10% x $21 trillion = $2.1 trillion
20% x $21 trillion = $4.2 trillion
30% x $21 trillion = $6.3 trillion
All the emphasis is on bank losses?
Why doesn't anybody out there in the MSM ever acknowlege the real problem? (Like CalculatedRisk did in its excellent post back on Dec 6?)
Interesting Times, Bob_in_MA, thanks.
I took some heat last year when I wrote that losses of $1 trillion or more were possible. It seemed a little outrageous at the time.
The questions now are:
1) Where are the losses hidden (I think some of the IB's write-downs are getting close to the ultimate losses, others are still behind). Other losses, like losses in hedge funds won't be reported.
2) What is the impact of $1 trillion in losses on the U.S. and global economy? A severe recession or even depression? Or a less than severe recession with a prolonged period of weakness (my view)?
Call me optimistic!
Best to all.
Congratulations, CR, on being 'way ahead of the curve once again.
CR:
Leadership = Controversy
DownSouth, yes, these are just financial losses. Clearly household wealth will decline substantially. My guess was $4 to $6 trillion.
David Pearson, good points. I posted some comments I'd heard on China last week:
Over the weekend I spoke with an executive of a U.S. based company that manufactures in China. He told me the new Chinese labor laws, combined with other factors, have increased their manufacturing costs in China by 30%!
There is plenty of evidence of problems emerging in China.
Best to all.
Posting from rgemonitor
A friend of mine, journalist Wanye Madsen, has reported on a text circulating in Washington called the "C and R Document." He receives lots of leaks, is very reliable and considers his source rock solid, although he has not personally seen the confidential document. Evidently Pelosi has seen it. The C stands for the conflicts with other nations that could arise should the U.S. default on its debt. The R stands for the revolution that might result from trying to stick U.S. taxpayers with the bill. WSJ reported last year that Treasury has meltdown scenarios, but without details. These may not come from Treasury. Madsen surmises these two scenarios may have been a final warning from David Walker.
Written by lenny on 2008-04-08 10:40:05
Two trillion quatloos for the newcomers!
All of this negativity!
Everybody keeps forgetting that we can expect huge returns on our national investment in Faith-based Initiatives!
God owes us - big time!
HUGE returns.
Who needs full faith AND credit?
How to loose 5M and be just like out friends at Lennar.
The following shows...
The runup
The top
At least one knifecatcher,for now.
Transfer into a trust
2 /2003 VACANT $100
Consolidate 3 different owners to one
2 /2003 VAC-MULTI $87,500
2 /2003 VAC-MULTI $87,500
2 /2003 VAC-MULTI $175,000
Transfer to a LLC
1 /2005 VACANT $100
Bought by Lennar...WOOOOOOT!
5 /2006 VAC-MULTI $6,807,500
Bought by the knifecatcher
11/2007 VAC-MULTI $1,700,000
Current MLS list is 4,999,000
Thats gonna leave a mark!!!
Boy I wish I could loose 5.1 Million in 18 months...
These are 2 10ac tracts brought together. From what I could tell the 2 purchases @ 87500 are the tracts.
175k after combining.
We went from 8750 an acre to 340,000 in about 5 or 6 years. Does that scream bubble? According to tax payments the value was flat from at least 92 till 2000.
Chris
I've always thought that $1trln+ losses was eminently reasonable, given that we have $12 trln of residential mortgage debt in the US.
I have a technical question about the flow of funds numbers for mortgage debt: are these gross numbers, where bank/servicer writedowns have no effect on the numbers? Does the number for existing written-down mortages only go down when an actual loss has been experienced through a short sale/REO sale? I wonder how much this flow of funds number will be a moving target as real losses continue to be experienced after foreclosure.
Thanks,
Curmudgeo
Even the trillion dollar loss estimates are just focusing on the tip of the iceberg, which is big companies, big money and Wall Street. This is also where all the bailout activity and dilution is occurring.
The heaviest losses to U.S. economic fabric will be on Main Street, among both public and private enterprise with market values under about $500 million. These companies are overleveraged, vulnerable to inflation and consumer slowdown, and can't borrow money at affordable costs. Their community banks are shutting off credit. Sovereign funds don't know they exist, and investment bankers aren't knocking on their doors for M&A business. Paulson and Bernanke are their enemies, not their friends.
Now, if they try to cut costs by outsourcing work abroad, U.S. citizens in their own communities will despise and shun them. But in the U.S., health care, utilities and gasoline prices are eating their bottom lines alive.
You are about to see real carnage on Main Street beyond anything on Wall Street. Go TWM!
TWM - Total World Meltdown?
I've always thought that $1trln+ losses was eminently reasonable
yes, there was over FIVE TRILLION of bubble mortage lending 2002-2007:
2002: $700B
2003: $850B
2004: $950B
2005: $1T
2006: $1T
2007: $650B
2000 & 2001 each came in at $400B, and that was overheated compared to the 90s (which were in the $200B/yr range).
10% of the five trillion in bubble lending is the MINIMUM for dead loss.
That's $500 BILLION.
20% is eminently possible. ONE TRILLION.
30% is possible but not probable IMO. ONE POINT FIVE.
The only way to support 2005-2006 era pricing is to loan out 2005-2006 amounts of money -- ONE TRILLION PER YEAR in loans. 2007 came in at just over half that, and the trend is DOWN.
Hey! I thought the bottom was in? What happened?!?
Somewhat OT:
If you are looking for a reason to expect a less severe recession - unconventional natural gas plays in US.
NY Times has an article on the Marcellus Shale in NY/PA/OH/WV today, but similar finds are all across the country in TX, AR, WY, CO, IN/IL as well.
With liquid natural gas being sucked up by Asia and Europe, prices should remain high enough to keep it going.
I don't like any of the three presidential candidates. When it comes time to vote, I think I will write in "CR" for president.
CR, if you wish to divulge your real name (I won't tell anyone), I'll write in your real name.
I know you'd have at least 200 supporters at any given time.
$1 Trillion. That's less than 3 years' debt service on the national debt (state and local excluded).
I wonder how many months' unrecorded public pension liabilities that is?? Less than a year I'd guess.
I'm with DownSouth.
And, homeowner losses will become financial losses.
Per the Z.1, B.100, household real estate was valued at $20.2 trillion in Q4 07. Against that was $10.5 trillion of mortgages. Corporations and municipalities have $11.3 trillion of debt outstanding (B.102).
A 50% drop in home values, with no end in sight and with unemployed hordes on the street, will cause lots and lots of folks to question whether they ought pay down that mortgage or not.
Losses will be $7-10 trillion from household debt writeoffs (50-70%) and another $6-8 trillion from corporate and municipality writeoffs (50-70%).
Good article on the Super Class. Is this the PPT ?
What Power Looks Like | Print Article | Newsweek.com
I bet some of them are reading this comment. Hi.
O/T but novel:
What are the ripple effects of $12B
A Press Release from TERI
"May 22, 2007
DBRS has assigned its A Issuer Rating to TERI, a non-profit guarantor of private loans. The rating is based on TERIs solid market presence, consistently improving operating performance, considerable loan guarantee growth, high asset quality and conservative loan loss provisioning profile"
"TERIs loan guarantee programs help students close the gap between education costs and their other resources such as financial aid, savings and family support. TERI is the oldest and largest guarantor of private (non-government) student loans with more than $12 billion in outstanding guarantees. TERI brings together lenders, schools, students and families to make available low-cost, high quality financing for postsecondary education."
CR is smarter than IMF...LOL.
CR can haz job at IMF?
These retards are using the very same broken models based on the very same dumbass ideas associated with Monte Carlo Stupidity and they are way the F---k off on estimating losses, just as they were last year and the year before, when they had no clue what they were talking about, not even close! These retarded idiots could flip coins and come up with a random number and get closer.
Try $5 Trillion!
See Also: Quantum entanglement
Quantum entanglement - Wikipedia, the free encyclopedia
Quantum entanglement is a quantum mechanical phenomenon in which the quantum states of two or more objects are somehow linked together so intimately that one object cannot be adequately described without full mention of its counterpart even though the individual objects may be spatially separated. This interconnection leads to correlations between observable physical properties of remote systems. For example, quantum mechanics holds that states such as spin are indeterminate until such time as some physical intervention is made to measure the spin of the object in question.
One trillion in losses? Now we're talking some real money. That should get everybodys' attention.
Do I hear two trillion? Not yet? OK - just wait...
Why doesn't anybody out there in the MSM ever acknowlege the real problem? (Like CalculatedRisk did in its excellent post back on Dec 6?)
DownSouth | 04.08.08 - 12:09 pm | #
True that there are 2 sets of problems, the $5 T worth of losses will cause. To the extent it is borne by homeowners it show up eventually in lower consumer spending as people work to repair their balance sheets. Within this group one has to seperate out those for whom it is simply a paper loss, ie someone who bought 20 years ago and never refi'd or did so only for rate/terms, and those who sucked out the equity and spent it as housing prices go up. That second group is where you get the jingle mail and foreclosures. However, losses borne by the financial system (part of the overlap with the jingle mail folks) are the most troubling due to our old friend, fractional reserve banking. A loss at a bank reduces capital $ for $. As a rough rule of thumb, each $ supports $10 of lending. Thus bank losses have a superpowered effect on the economy. The only real way out given the losses will probably reach the $5T level (which would bring housing prices back into historical norms of price to rent, price to incomes, total housing value to GDP) is for banks to raise more capital, thus diluting their existing shareholders (I'm using the term bank here broadly to include IB's and GSE's) and by cutting dividends. We see this process in place today at WAMU, more of it is needed. Even if we avoid the total meltdown scenario (and the bailout of BSC helped reduce, but not eliminate the chances of that happeneing) the financial sector does not seem to be a great place for existing shareholders to invest. There are still stocks worth owning, mostly in the natural resource based areas (including Ag), however, underweighting Financials seems to be the best course of action. Also, try to get exposure to other areas of the globe, either directly through buying non-US firms (either ADR or directly overseas) or in US multinationals with big exposure overseas.
CR can haz job at IMF?
Anonymous
Only if CR has obtained credit in:
"Mincing words and leading Sheeple 101"
Minced words make for a nice chowder.
CR, you and Barry Ritholz have a credit up from Krugman, today, too. Expect a lot of hits....
Re: "CR" for president.
Yes, dignity !
I said that based on CR's work last fall, I would not take anybody seriously until they talked about trillions in losses. They are now in the ball park but probably still too low. Makes the Feds billion dollar fixes look damned puny. Lots of luck to all.
Viewing with alarm | Homepage | 04.08.08 - 12:43 pm
They're still saying the economy "might" be in recession.
Who are those people anyway? Do they live in a cave?
From the article I posted above:
"These kinds of connections can work to stabilize the world in a crisis. But not necessarily. I once overheard a dinner conversation among the CEO of a leading aircraft manufacturer and a senior member of the U.S. House Armed Services Committee. "Here's the deal," said the CEO. "I want to sell a plane to Muammar Kaddafi and he wants to buy one. But we have sanctions in place that won't let me sell to him. The U.S. wants this guy dead. So, what I'm thinking is, if you help me get the OK to sell him the plane, I'll build with explosive bolts connecting the wings to the fuselage. Then, one day he's up flying over the Med and we push a button. He's gone. I make my sale. Everyone's happy." Fortunately, the conversation took place in the 1990s, a time before U.S. foreign-policy makers began bending international laws to achieve national security goals. The congressperson declined the offer."
Yikes.
If by, "live in a cave", you mean, "have their heads up their asses", then the answer is, "yes".
Good call Marcus. We are going to need your Legions to protect us from the fools running this show.
The problem is unimaginably, indescribably big. Conservative estimates put the US housing market at US$20 trillion, and the residential mortgage market at US$12 trillion.
Some analysts predict the housing market must fall another 20 per cent before sales pick up in any sustainable way.
In pure financial numbers we're talking about a figure of the order of US$4 trillion in value. Compare this to US GDP in the region of US$15 trillion.
The implications for housing starts, condo sales and values, construction sector jobs and all the way backwards or upstream for the economy, and for 'consumer confidence' are staggering.
It is this that the Fed and US Treasury Secretary Henry Paulson contemplate.
You can't push on a rope, at least not too hard. Is Keynes 'liquidity trap' upon us?
Jamaica Gleaner News - US Fed to the rescue - US$20 trillion housing market at play - Friday | April 4, 2008
Joint (cannabis) - Wikipedia, the free encyclopedia
Would someone be so good as to explain what "dilution" means in this context? I keep seeing it, but is way too general of a term to Google. TIA.
The only votes CR cares about are for Sasha Cohen tonight. But he appears to have taken the link down.
Let's see "Hidden Talents of the Stars" at 10 EST?
OT from
How the world works
1991 Hearing Before Subcommittee on Telecommunications and Finance Committee on Energy and Commerce
102nd Congress
on
A bill to Amend the Federal Securities Laws to Equalize the Regulatory Treatment of Participants in the Securities Industry
As we autopsied dead savings and loans, we were absolutely amazed by the number of ways thrift rogues were able to circumvent, neuter, and defeat firewalls designed to safeguard the system against self-dealing and abuse. One of the favorite methods was to link up like-minded thrifts in the daisy chains through which they could circulate inflated assets and hide their rotten loans to each other and to each other's customers from regulators.
Banks that need to get money to a troubled securities affiliate will do exactly the same thing. By linking up three or more banks, each with its own securities subsidiary, a daisy chain will facilitate a round robin of reciprocal loans in times of need. Then, the next time we have a Black Monday on Wall Street, this daisy chain will swing into action as a handful of mega-banks try to prop one another's securities subsidiaries and their customers as the market plummets.
In such a scenario, billions of federally insured dollars will disappear in the twinkle of a few program trades.
That will happen, not might happen but will happen, and when it does these too-big-to-fail banks will have to be propped up with Federal money . In the smoking aftermath, Congress can stand around and wring its hands and give speeches about how awful it is that these bankers violated the spirit of the law, but once again, the money will be gone, the bill will have come due, and taxpayers will again be required to cough it up.
dilution = evaporatio
I still don't understand the obsession with predicting the "bottom" of housing or worse the "recovery."
Absent sudden and large income gains, the bottom is 3X median income - if we don't overshoot. A recovery to 5-8X income ain't happenin. PERIOD.
Home buyers that grossly overpaid are screwed just like all the dot-bomb bagholders still holding LVLT, Q, AOL, DELL, JDSU, etc. Deal with it or walk away.
I really need a bottom or recovery caller (think Greenspan) to explain where the income gains are going to come from.
The IMF's 2003 report on the effect of realestate versus financial downturns was very good. I think it is fairly clear that they were looking ahead; which not all that many were doing in 2003.
I don't like any of the three presidential candidates. When it comes time to vote, I think I will write in "CR" for president.
Not sure I would go that far, but CR heading up HUD and Tanta as Sec of Treasury sounds great to me. Maybe put Dryfly in as Sec of Commerce as well.
From the Economist. The bust begins in Britian,
A collective shudder ran down the spines of British homeowners on Tuesday April 8th when Halifax, a part of HBOS and the countrys biggest mortgage lender, revealed that house prices fell in March by 2.5%. The monthly decline recorded by the Halifax house-price index was the biggest since September 1992, when the housing market was enduring an agonisingly prolonged bust.
Premium content | Economist.com
Money qoute:
Between the first quarter of 1997 and the first quarter of 2007, house prices rose by 214%. This was the third highest among 20 countries covered by The Economist. It contrasts with a rise of 135% in America up to its peak in 2006.
Jim
If Tanta becomes Secretary of the Treasury, I'll help sign all those one dollar bills.
Dilution: If a company has 100 shares outstanding and you own one of them, you own 1% of the company. If they have to sell another 100 shares to raise capital, either you spend money to buy one to maintain your position, or you now only own one half of one percent of the company. Granted, the company is slightly bigger due to the money they've raised, but usually when companies HAVE to do this, they're somewhat desperate, the stock is somewhat cheap, and you're diluted.
Just raise the minimum wage to say $30-$35/hr and we're good.
Would someone be so good as to explain what "dilution" means in this context?
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
The same as this.
Dirk van Dijk,
I see the problem as being much more dire.
The reason is that "those who sucked out the equity and spent it" seem to outnumber "those for whom it is simply a paper loss" by about 2 to 1.
Again, CalculateRisk did a wonderful analysis back on Nov. 15. (That's why I LOVE the internet, it's about the only place where you can get unfiltered data and discussion, not controled by the media elite gate keepers)
So I just don't buy it. Propping up profligate Wall Streeters without propping up profligate homeowners is like trying to treat the symptoms without treating the disease.
And the economic problems are just the beginning. We have yet to see the political and social repercussions.
Emma Ann @ 12:50
If you own 100 shares in a company with 1,000 shares outstanding, you own 10% of the company.
If the company now issues another 1,000 shares to new investors, you still own your 100 shares, but you now own only 5% of the company.
You have been diluted.
... and climbing.
Americans already overwhelmed by personal debt racking up a household debt-to-income ratio of 1.42 ( for total of $13.8 trillion in debt including mortgages ) that already matches the countrys $14 trillion G.D.P.
If the Federal government tries to stick U.S. taxpayers with the bill the revolution will be televised
This is $1T in losses related to US real estate. What additional losses will there be on RE outside the US, e.g. UK and Spain?
I want to be the one who prints dollars. My business is efficient with 24X7 turn around. Recent college graduates need not apply. My subcontractors have signed all the required NDAs.
Viewing with alarm writes:
Who are those people anyway? Do they live in a cave?
It is difficult to get a man to understand something when his salary depends upon his NOT understanding it.
Upton Sinclair
I'm with rich.
$1T is just the icing on the cake.
That $1T will have a multiplier in reverse.
At least the ass hats who are buying these diluted stocks will get burned in the process. Idjits!
I'm gonna have to stock up on batteries. The news keeps burning out the Super Colander Tin Foil Hat.
Sheeesh!
Cheers,
We are facing a whole new psychology. From 1997-2006, buyers universally believed that home prices NEVER went down. They also craved the free & easy money from helocs & refi's. No money down made it all a can't lose proposition. No job or income required. FREE wealth.
The new psychology is different. House prices DO go down - even the fools know this now. And helocs have to actually be paid back from wages, not just further appreciation. Houses are expensive on a monthly basis. Houses are illiquid. Houses require a 20% downpayment and the potential to LOSE money. Houses are not an investment after all, except maybe for the very long term.
Can the Government save housing? I doubt it, but I am certain they can play Robin Hood via dollar depreciation, deficits, negative real interest rates and inflation. One way or another, the Government will redistribute a good portion of the losses from the imprudent to the prudent.
GRRRRRRRRR! Now I'm really angry!
Interesting Times, the other name for that group is 'The Illuminati.' Many also sit on the 'Council on Foreign Relations.
Council on Foreign Relations
Jas can give you more details on them.
Down South I don't totally disagree with you, there are lots of problems that all stem from the same core problem of the housing bubble, sort of which head of the hydra is most dangerous. However, dollar of dollar, the most problematic are the losses in the banking system. You are certianly right that relatively few are in the bought 20 years ago and never took a dime out group. What I was pointing out is that there are different transmission mechinisms for the fall out to affect the economy. Declining consumer spending has very serious consequenses, as it will lead to further job losses, trouble in CRE etc. After all it is 70% of the economy. However, long term declining consumer spending is probably a good thing. Less spending means more savings and the U.S. has not been saving enough by a long shot. However getting from here to there is not going to be fun. Much of the recent economic growth, as anemic as it was, was caused by the decline in the savings rate. As the savings rate rebuilds, economic growth is going to be persistently weaker than it otherwise would be. One question that I would love to see asked next time Congress has BB or Hank in front of them is "Assuming that the consumer savings rate returns to 6% from its current level of near 0% over five years, what is the potential growth rate of the economy?"
I want to see CR, Tanta, Harm et al testify on before Congress. At least the public would understand the lies and incompetence of the fed, the banking industry, investment community, the NAR, etc. Those fools should be publicly disgraced, not rewarded with more responsibility.
I'm so sick of these losers and their plans to fix the housing problem. They were part of the problem, I seriously doubt they can provide a solution.
sdtfs:
I think that as an act of solidarity and respect for CR, everyone should check out Hidden Talents of the Stars.
Now watch the number of readers soar as everyone checks in to see how many aren't checking in.
BTW...will anyone of these stars be playing armpit farts? That I would watch.
Another rant by the Angry Saver. Somebody stop me.
Any Government response to the housing problem should start with the following premise:
UNAFFORDABILITY IS NOT A SOLUTION.
Thanks all on dilution. I guess I knew that companies issued new stock shares, and that this diluted the value of the outstanding shares. But that's usually a minor effect - 5% more shares or something, right? Whereas what we are seeing with the financial institution is that they need capital so badly that they are issuing, what, 50% more shares or something? I'm amazed people buy the new shares and that the existing shareholders don't vote out the board.
Misean:
Does your tinfoil colander hat take AA, AAA, or auto battery/jumper cables?
I have to go to the battery store.
Dilution:
P/E ratio - Wikipedia, the free encyclopedia
... stock A, trading at $24 per share, may be expected to earn $6 per share the next year. Then the forward P/E ratio is $24/6 = 4.
So, you are paying $4 for every one dollar of earnings,
With dilution..... if a stock is $24 per share and the retarded analyst pimps and whore suggest with monte carlo coin flips, that the shares will gain $6 in future earnings, they will suggest by touting and acting as shills that the forward P/E ratio may be $24/6 = maybe $4, implying that for ever $4 you shell out for this con game, you may have a shot at getting back one dollar in earnings value.
However, if the insiders decide to sell off shares and then re-issue new shares, the P/E goes up and your yield goes down, thus for every $4 you bet, you end up with probability outcomes which are less and less and then you begin to see that the odds of your bet paying off are diminished and thus your return is diluted and reduced, poof, up in smoke like that stuff Franks want to legalize man.
By the way, the P/E of the S&P 500 continues to remain "high" thus is overvalued due to the sad fact that earnings are going down, while the government uses taxpayer cash to prop up banker friends and this too is dilution, man.
Also see: YouTube
- Broadcast Yourself.
It used to take AAA only, then it found out it was only using AA that had been packaged as AAA.
the AP and raw story report whats been kept out of the msm...
poor are beginning to riot in various places around the world for need of food especially rice
The Raw Story | Egyptian workers riot over rising prices
over at business week they opine that the rising cost of oil and gasoline is speculation and manipulation and not classic market forces.
There Is No Gas Shortage - BusinessWeek
and all this is on top of the financial system melt down that CR referenced this thread and well reported here and at naked capitalism.
doesnt it feel like it's closing in on all sides?
Re: "This is $1T in losses related to US real estate. What additional losses will there be on RE outside the US, e.g. UK and Spain?"
What about the "other" derivatives and synthetic shadows and illusions and the loss of jobs and all that other non-farm stuff?
"... "I want to sell a plane to Muammar Kaddafi and he wants to buy one. But we have sanctions in place that won't let me sell to him. The U.S. wants this guy dead. So, what I'm thinking is, if you help me get the OK to sell him the plane, I'll build with explosive bolts connecting the wings to the fuselage. Then, one day he's up flying over the Med and we push a button. He's gone. ..."
Laws only apply to the masses and International Law only to foreigners. We have met the enemy and he is us...
Angry Saver--"One way or another, the Government will redistribute a good portion of the losses from the imprudent to the prudent."
This echoes Bill Goss' post the other day "No Bailouts"
PIMCO - IO March 2008
If we decide to go the inflation route, savers (old people and foreigners) will pay the bill.
But if we decide to go the route of direct government bailouts of profligate Wall Streeters and homeowners, everyone will pick up their piece of the tab.
Wouldn't it be best to have everyone pick up their fair share, in lieu of placing all the burden on old people and foreigners?
If we try to place the bill on foreigners, what are the potential consequences of that?
I'm voting for Sasha. I don't care if she stinks at talent.
I've always liked her, even before CR. She's one of the greatest female athletes of these times, and I guess tonight she'll show off some non-athletic talent, too.
a question for all of the people that comment things are going implode, severe recession, depression, revolution and bloodshed in US, etc. etc.; how are you positioning your portfolio to prepare for the negative future?
don't get me wrong, i'm not saying everything is good and the mkt will rally. in fact I think the economy is likely quite poor for some time and the mkt is still priced pretty rich by historical standards. I am very interested to hear what you're doing portfolio-wise.
Interesting Times,
Angelina Jolie is on the PPT? Now I can start sleeping nights again.
The fed is proping up asset prices at the expense of the fixed costs of the majority of American families.
What kind of economic policy is that? A compassionate conservative Robin Hood policy: steal from the middle class and give to the rich. Get real.
Scotty needs a Prozac:
Dude, you're making my screen bleed.
Relax and take a deep breath.
YouTube - Bill & Ted's Excellent Adventure - The Future Council
homedad43,
I have different battery pods. 9V's for walking around. Lantern batteries for FOMC days. Auto batteries for when the fit hits the shan.
Cheers,
Downsouth,
How about NO BAILOUTS. Let the market force the foolish buyers and lenders to take their medicine all by themselves.
Bill Gross has benn begging for a bailout since the start of the housing bust. If he loses a half a billion, he will still die a wealthy man.
Angry Saver,
"The fed is proping up asset prices at the expense of the fixed costs of the majority of American families. "
Nope, it's at the expense of the variable costs. Fixed is fixed. The War Shriek Billionaire Bail Out does not affect my 30yr fixed mortgage. But it sure is making my food and energy bill spiral out of control.
Cheers,
Misean:
Given the negative bent here right now, how about a Red Cross approved emergency Tin-Foil Colander Hat? You can have a crank that takes about three minutes of winding for 2 minutes of conspiracy-theorizing.
Works for me.
All through the U.S. and global financial system, mortgage-backed and asset-backed securities rated AAA and AA became a new kind of currency. It was a way whiz-kid MBA institutional investors could show their bosses how smart they were.
"Hey, Boss, why are we investing in Treasuries, when we could get 2.5% more yield by taking a nanobit more risk in CMO-squared?"
The crazy thing is to see how much focus there's been on big banks and IBs and none at all on all the other parts of the financial system. Anywhere there is an investment mandate to stick to AAA and AA-rated paper, you will find these bonds. That includes life insurance companies, pensions, endowments, consumer finance companies, corporate cash accounts, escrow accounts, institutional trust accounts, hedge funds, etc, etc.
What happens when a life insurance company suddenly loses 50% of its reserves? The answer is a run on 10X as much policyholder capital, because that's the amount of leverage. But unlike banks, there is no tool in the Fed arsenal that can stop this run.
When people find out they can't get loans against the cash value on their whole life insurance or they can't withdraw their single premium deferred annuities, there's going to be panic in the streets and the damage will be far worse than $1 trillion.
Craig,
Treasurys, TIPS, canned food & toilet paper.
If you are really pessimistic diversify with the Boyz in Da Hood Portfolio: Bling (aka gold, jewelry, etc.), guns & ammo.
Craig, I'm short SSO (ETF 2X S&P 500).
JG,
You're joking, right? This "Superclass" stuff is nonsense. Newsweek is apparently trying to tap into the 'Access Hollywood' demographic for the biz crowd.
"Look, a small group of very wealthy, influential people, who own Gulfstreams and - gasp - have each other's phone number!"
Please. This crowd is functionally powerless. You and I get mad enough about something, we organize. We can reach consensus. These guys can't organize because each one insists on being in charge. When everyone's ego has its own zip code, you have no consensus. All chiefs, no indians.
The only example he provides of actual consensus is the Fed - a government-created institution - putting its foot down. You don't need to chill in Davos to do that. It is the prerogative of the bureaucrat.
So instead these bigwigs opt for the illusion of being a powerbroker, which is just as nice, because when you're already wealthy, the benefits are psychological anyway. And cranks like the Roskopf guy stroke those egos and in exchange gets to bask in the indirect light of their shimmering self-importance.
Not worth your time. Not even worth the time it took me to compose this comment. Back to our regularly scheduled programming.
FYI (OT) Maybe?:
SIFMA is the single powerful voice for strengthening markets and supporting investors -- the world over.
Our dynamic, organization is passionately dedicated to representing more than 650 member firms of all sizes, in all financial markets in the U.S. and around the world.
RE: Eligibility of Student Loan ABS for the Term Securities Lending Facility
Dear Chairman Bernanke and Mr. Geithner,
We are writing on behalf of the American Securitization Forum (ASF)1 and the Securities
Industry and Financial Markets Association (SIFMA)2 to encourage you to act expeditiously
to ensure that current credit market dislocations do not result in severe disruptions in the
availability of educational finance options to students for the upcoming academic year.
Re: January 8, 2008 The Securities Industry and Financial Markets Association (SIFMA) today issued its 2008 U.S. Market Outlook, projecting a median 15 percent decline in fixed income issuance this year, to $3.4 trillion from the estimated $4.0 trillion issued in 2007.
New York, NY, November 27, 2007 According to the latest Research Quarterly issued by the Securities Industry and Financial Markets Association (SIFMA), issuance of securities in the U.S. capital markets reached $5.06 trillion in the first nine months of 2007, a 7.7 percent increase over the same period in 2006. Third quarter issuance volume was lower at $1.33 trillion compared to $1.92 trillion in the second quarter of 2007 and $1.51 trillion in the third quarter of 2006.
Check out ticker sumbols: SWYSX & VSLAX to get an idea of what AAA is actually worth on the open market.
The reason the FED & Blackrock can't liquidate Bear's 30B of securities is that they are worth only sixty cents on the dollar at best. The new primary dealer lending facility is a tax payer funded joke. The interest rate on primary dealer ABS collateral should be at least double treasurys.
Why isn't their any public outrage?
Dirk,
I'd like to see any member of Congress balance a personal checking account. I'm guessing there'd be a 100% failure rate.
homedad,
Good idea.
Cheers,
The present housing bill has a (shh)provision allowing certain housing-related corporations to apply loses against previous earnings.
Two questions
1. Will this apply to those who have lost money on MBS?
2. Any good estimates of costs?
Is anybody on the internet raising a hue and cry?
Why would bankers lend trillions of dollars that don't really exist to people that can't possibly pay it back?
For the bonuses STUPID! IT's THE BONUSES STUPID!
F-E-, I don't know. I'm starting to believe there may be something to the paranoia around the 'one world types.'
The Federal Reserve is run by banks for the banks, enabled by Congress because such allows easier deficit spending by the federal government.
Central banks, such as the Federal Reserve, are a natural organ for interventionalist one world types.
Re: Spain
Costa Del Sol, Balearic RE markets frozen, elsewhere still moving.
BBVA reduced GDP predictions to 1.9 & 1.4 for next couple of Qs.
Not to turn blue in the face, but costa RE will have more of an impact in UK than in Spain (construction excluded).
There's other bubble pockets but the lenders were forced to keep back way more in reserves than in the US; part of the reason they expanded so fiercely into N.Europe and the americas.
rich,
ERISA...been on that since last summer.
But it gets even eerier, as the monoline's assets used to insure this toxic crap, is in itself toxic crap.
When those things go, it will be like pulling a loose thread on a knitted sweater.
Upside down debt pyramids tend to fail catastrophically.
Cheers,
I'd like to see any member of Congress balance a personal checking account. I'm guessing there'd be a 100% failure rate.
Hmmm, my account looks to be short a few thousand, or maybe a hundred thousand,...call a lobbyist and problem solved!
Does your tinfoil colander hat take AA, AAA, or auto battery/jumper cables?
I have to go to the battery store.
homedad43 | 04.08.08 - 1:22 pm | #
Def not AAA, that stuff gets downgraded to C pretty quick and then just doesnt fit.
rich | 04.08.08 - 1:27 pm | #
>The only votes CR cares about are for Sasha Cohen tonight.
I've always liked her, even before CR. She's one of the greatest female athletes of these times, and I guess tonight she'll show off some non-athletic talent, too.
Is this Borat or am I missing something (or out of touch with the MSM/Boob Box)
sdtfs,
Hell, just go to the House post office and write a rubber check. Problem solved.
Cheers,
Anonymous | 04.08.08 - 12:51 pm | #
Was me on the 1991 hearing thru How the World works.
sbarrkum
Misean,
I agree on the fixed mortgage. But my re taxes, utils, gas, insurance, food & tuition bills are soaring.
The fallacy of the asset inflation model is that eventually, houses, commodities, etc. look cheap and are bid up in price. Negative real interest rates in a 4% inflationary environment? Get real. Where is the wisdom in that?
It's time to let the asset holders take a valuation hit.
Angry Saver,
Your sentiments are certainly in agreement with those of a majority of Americans. If one reads deep down into the poll data of the recent CNN poll (the one where 81% indicated America is on the wrong track) one finds 62% oppose bailing out the banks. Only 30%+ favor. I think there was slighly greater support for bailing out homeowners.
What strikes me about all this is the huge gap between expert (pro-bailout) and public (anti-bailout) opinion. They are the inverse of each other.
I think the government is setting itself up for a very ugly political backlash. Remember, this comes right on the heels of another meltdown of expert testimony--the Iraq war.
Vox populi vox Dei!
The public is a beast to be managed and controlled with care, "the great gorilla in the political jungle, a beast that must be kept calm."
The public is the voice of the sovereign voter who will have the last word.
Why doesn't the housing bill require borrowers seeking government relief to demonstrate that they did NOT commit fraud on their loan applications?
Also, let lenders prove that they used reasonable due diligence.
Why don't Bob Toll and Angelo Mozillo pony up their 100M bonuses as capital instead of tax breaks.
They can't.
YouTube - US Government Immorality Will Lead to Bankruptcy
Angry Saver,
Just being a bit snarky. But you are discussing variable costs.
"It's time to let the asset holders take a valuation hit."
Well, yes. But it's those level 3 assets I want really want to see take a hit.
Cheers,
If total residential RE is $22T (?) and house prices drop by a third (a la the GD), how in the world can res. losses only be 1/2T? Wouldn't it be more like $7T?
Taking into account that over half the $27T is in mortgages, and 7/10 of home mortgages will be bad debt!
Am I missing something here?
Unirealist,
The 1T refers to bank losses only. Household wealth will fall in accordance with your 7T calculation.
Sasha Cohen: ice skater
Sacha Baron Cohen: Borat/Ali G
Thanks, Angry Saver, that's what I get for jumping to the head of the line. It won't happen again.
Rosner on the Prospects for the Credit Markets (Not for the Fainthearted)
Rosner on the Prospects for the Credit Markets (Not for the Fainthearted) « naked capitalism
I assume this means the market will only go up, right?
OMG did a lot of you forget to take your medication today by some sort of astrological chance????
I now believe that there is at least a 15% chance that the Bush administration will declare martial law if the Democrats win the Presidency and the congress.
15% chance that the above poster is an idiot.
London Times
IMF fears credit crisis losses could soar towards $1 trillion
"The US is going to be looking for help to prevent this banking and housing problem from getting worse."
IMF fears credit crisis losses could soar towards $1 trillion - Times Online
FFDIC - not to be picky, buy the losses cannot soar anywhere...they already are what they are. Recognition of the losses, on someone's account, can soar, however, but that moment will be delayed. What we have right now is the part of the game where the music has stopped, but someone unexpectedly turned out the lights to cover some chair/occupant reshuffling.....at some point, someone will turn on the lights, and we'll see some folks have chairs and a few bruises, and others are unconcious on the floor sans chair.
Roubini was bandying about the 1 trillion mark back in November on DemocracyNow - I blogged about it in November myself, but I'll toot DemocracyNow's horn instead because without them, I am nothing.
Abu Dhabi Becomes Largest Citigroup Shareholder with $7.5B Investment, Bailout Comes Amidst Subprime Mortgage Crisis, Record-High Oil Prices
ok, I am sufficiently scared enough to actually consider trying to open some type of gold or bullion account..you all seem to have the knowledge on how to do this..sorry to ask for opinions, but this true novice must.
btw, a great big Thank You to all of you and Tanta an CR for all the information provided daily..an interesting learning experience