CR Note: What does this comment mean? I've rarely banned anyone - and I'm happy to allow people back if they email me. As far as "swipe material", what does that mean? Weird comments today ...
why does CR block people and use Greasemonkey and then swipe material?
Well I guess we know where the next round of stimulus checks are going - only two of them, well maybe a couple more if Sallie & FHA can get in on the action - but they'll be whoppers.
Morning Perspective Powered by Minyanville: S&P 1650?
July 7, 2008- The top story in Bloomberg this morning, analysts at Deutsche Bank, Lehman Brothers, and UBS predict the S&P 500 index will have the best performance since 1982 during this year's second half. The consensus according to a Bloomberg survey calls for a rise of 18% by next January. On the high end, DB chief strategists believes the S&P 500 index will end the year at 1,650 and Lehman's Ian Scott is predicting 1,630...
Kramer: It's a writeoff for them.
Jerry: How is it a writeoff?
Kramer: They just write it off.
Jerry: Write it off what?
Kramer: Jerry, all these big companies, they write off everything.
Jerry: You don't even know what a writeoff is.
Kramer: Do you?
Jerry: No. I Don't.
Kramer: But they do. And they're the ones writing it off.
Jerry: ...I wish I could have the last 20 seconds of my life back.
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets
Leftys Liquors writes:
Boy is that great news on the S&P or what?
Leftys Liquors | 07.07.08 - 1:40 pm | #
You might want to put extra orders in for champagne to be delivered about that time - I'm sure your distributer wouldn't mind providing the credit... I mean the forecast being so rosy & reliable and all. Its a sure thing... a lock.
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140
this is assured IMO. the goal is to use Fannie and Freddie (as well as FHA) and load all three up with unbelievable amounts of crap. then when they go belly up they can be nationalized/bailed out.
This saves the rest of the banking system.
it only works though so long as their books remain opaque.
If there is a major problem with either of these two players how will this effect the mortgage market?
The private mortgage lenders will start lending again. of course at much higher rates and also much stricter guidelines.
Will others be able to pick up the demand?
yes.
Will rates increase??
of course
Will it break housing even more?
nah. rich foreigners will come in and save the day I'm sure.
yeah, it'll break housing. If this happens (which it won't) I'd guss that you'd see more govt programs to prop housing.
Look, no one could make money lending at these interest rates in a GOOD market where assets were APPRECIATING!!!
The losses by financials are proving that now.
So how in God's name can Fannie and Freddie make monehy lending at the SAME LOW RATES to people buy DEPRECIATING assets!!!!!
Geez, it should be obvious that mortgage rates are too low.
There is no way on this earth you can lend 30 year money at these rates to people buying houses that are falling in value when unemployment can only go up and commodity prices are rising.
Mortgage rates have to be much higher. Housing prices will collapse. From then on people will be buying asset prices that can only go up in an environment where rates can only go down.
This will hurt and hurt badly.
But it is common sense.
Fannie and Freddie will be driven to bust because they will not be allowed to price their loans correctly. Correct prices means financial ruin for many. Fannie and Freddie will take all loses, become govt owned, and will continue to be allowed to lose money for years and years and years just like the airlines.
"Rich Foreigners" doesn't necessarily mean individuals that will come in and pick off 1 or even 10 houses. It could mean large funds that buy up notes and houses for pennies on the dollar -- by the 10's of thousands.
Remember those articles about Canadians buying investment houses in Arizona? It was funny how they tried to make it sound like a wave of Canadians coming to the rescue.
With the optimists weeded out, it is time to address the prospect that the banking industry is in an accelerating downward spiral that could spur government-led recapitalizations of private-sector companies.
Implied in this view is that the Federal Reserve Board's crisis management to this point admired by some observers for its creativity and vilified by others as overstepping ultimately will not prove sufficient to stem the tide of writedowns and credit losses caused by poorly structured products, falling house prices, and a stagnating economy.
With global estimates of losses now reaching as high as $1.2 trillion, a growing constituency is convinced that the industry's capital-raising efforts to this point are merely tentative and inadequate first steps. And these people are asking where precisely all that money is going to come from.
It is not clear whether public markets will perceive additional investments in struggling banking companies as bargains or as good money thrown after bad. There is no guarantee that the Fed will hit upon a way to ease regulatory burdens associated with controlling stakes in financial companies and even if it does, there is no guarantee that private-equity and sovereign wealth funds will commit patient capital to the sector, given their disastrous experiences thus far.
The foreign banking companies that have traditionally been interested in the U.S. market are suffering from the exposure they already have, and they are conserving capital.
Some regulators continue to disavow a policy of bailing out systemically important companies a disavowal that to some observers looks increasingly silly in a world where the Fed has rescued creditors and counterparties of Bear Stearns Cos. Nevertheless, it is clear that some companies are too big, too complex, too entangled, or too politically connected to fail.
The problem, according to some observers, is that the Fed's idea of throwing liquidity at financial companies is the wrong tool to restore balance sheets, not to mention a bad deal for the government.
"What is distressing to me about the discount-window approach is that it is providing liquidity to the very neediest firms in an unaccountable way, subsidizing them for the troubles they got into and we're not getting anything back for rescuing them," said Edward J. Kane, a finance professor at Boston College and a senior fellow in the Federal Deposit Insurance Corp.'s research center. "As a firm approaches insolvency, it needs more risk capital, and the question is where does it get it? During this turmoil it has been coming from the Fed, and it has not been priced properly or fairly to the taxpayer."
Joseph Mason, a finance professor at Louisiana State University, said equity recapitalizations are "part of the discussion, certainly," as academics, economists, regulators, and market observers debate how and whether to prepare for widespread insolvency in banking. "It is a commonly used tool worldwide. I don't think we can dismiss it out of hand."
Such recapitalizations are no doubt a blunt instrument that would raise philosophical questions about the propriety of socializing loss in an ostensibly capitalist economy.
Government recapitalizations have been tried with varying success in European countries, including Sweden, and perhaps more notoriously in Japan, where an initial recapitalization effort failed in the minds of some, because the government failed to restrict use of that capital, which in some cases was pushed in through the front door and flowed out the back door in form of dividends to equity holders.
The question is whether a more elegantly tailored program could succeed here.
"As is clear now, this is a broad, Main Street banking story, not just a Wall Street banking story, and these ideas naturally come out," said Alex Pollock, a resident fellow at the American Enterprise Institute and a former chief executive of the Federal Home Loan Bank of Chicago. "Whether it is severe enough to warrant it, we don't know yet, but conceptually, these are the issues one deals with."
Mr. Pollock has dealt with these issues before. He was a senior vice president at Continental Illinois National Bank and Trust Co. when it was circling the drain in May 1984. Its demise was by some estimates the first application of the "too big to fail" doctrine in this country, when the Office of the Comptroller of the Currency, the FDIC, the Fed, and the Treasury secretary agreed that the bank must not fail, for fear that its failure would trigger a systemic crisis that would drag down much of the banking sector with it.
The policy prescriptions for Continental Illinois, which got itself in trouble with speculative and fraudulent loans to the energy sector, including oil and gas companies, were extensive.
The Fed allowed it to borrow $3.6 billion from the discount window, and 16 banks teamed up to create a $4.5 billion loan package. When that did not work, the Fed assured creditors that it would meet any of Continental Illinois' liquidity needs. The FDIC stepped in with a $2 billion package and offered a guarantee to depositors, including those holding more than the $100,000 insurance limit. The FDIC took a large preferred stock investment in the bank, and cashiered its management.
The experience with Continental Illinois proved so wrenching and lasting that even today in a banking industry where naming conventions are so traditional that "People" appears in the name of 164 banks only seven have "Continental," and each has less than $1 billion of assets.
That was not the government's only experience with equity investments in the banking sector. The Reconstruction Finance Corp., chartered by the Hoover administration in 1932 to forestall a collapse of the sector, eventually made such extensive investments that virtually every large bank that survived the Great Depression emerged with the government as a shareholder.
The agency's initial mission was to extend loans to banks and companies in other industries threatened by insolvency, but the depth of the problems revealed the limitations of a lending program.
"If the problem is one of undercapitalization or insolvency, no matter how much money I lend you, I can't change the fact that you don't have enough equity. That's why the RFC came around to providing equity," said Mr. Pollock, who researched the agency after his experience at Continental Illinois. "The RFC is a useful thing to study, because it marked the key shift from being a provider of credit or liquidity to a provider of equity capital."
Tomorrow: What are the lessons of the RFC and other public recapitalizations of banking companies? What should a recapitalization program look like, and who should administer it?
I feel like a dope, because this often happens to me. I'm trying to get into the head of a market participant here. Say I'm holding FNM or FRE. This news comes out and I sell. Why? Is it really possible that I'm surprised their assets are worth less than what's on the books? Or was I counting on other participants being ignorant of that fact, so now that it's going to be disclosed, it'll be worth less?
In other words, I don't understand why the market didn't already discount this news, at least most of it. Are market participants in general really surprised?
If you have'nt done everything you've ever wanted to do , you've got maybe 18 months left to do it. stop looking at the market , and get out there and get it done!
I've been trying to get a friend to unload his Fannie stock since it was in the mid 30s. Fannie is clearly in a death cycle.
The worst problem is not the junk portfolio they hold but the daunting exposure to MBS. Fannie's long-term problem is that the investor world is running away from US mortgages, so new mortgage credit is dwindling, causing house prices to head down and walkaways to go up. The downward spiral will last for years.
dryfly, rumor has it that Zimbabwe is buying billions and billions worth of MBS from Fannie and Freddie. I don`t know what the exchange rate is today though. Things change pretty fast over there.
Since we're talking about, among other things, the decline of the dollar, any advice on an ignoramus in these matters on an easy and safe way to park a bit money in a different currency.
With foreign capital about to stay away from FNM and FRE in droves, and the financial situation now much worse now than the 100 BIL$ S&L crisis, maybe it's time for an RTC for homeowners, maybe call it the Permanent Mortgage Sponsorship, "PMS".
Just a philosophical pondering here. let's assume that the most bearish among you are right and this is the freaken' end of the world, whether from peak oil, peak credit, global warming, a meteor crashing into the earth or any of 1,001 catastrophes. Why invest at all, short or long, cash or gold, foreign or domestic? In the end, in a total collapse of society, none of those will have anything but marginal and highly temporary utility. Even those who stockpile food are going to be able to stockpile only so much, and water is even more problematic. Wouldn't you be better off, while you still can, just binging on the pharmaceutical, sexual, religious, gustatory or whatever form of consumptive practice gives you the most ecstatic experience for your buck (or euro, yen, pound, etc)?
Not advocating it necessarily, but just wondering...
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
Fannie and Freddie will take all loses, become govt owned, and will continue to be allowed to lose money for years and years and years just like the airlines.
That could be an interesting attempt at avoiding the Japanese scenario. Instead of an army of zombie banks roaming the financial landscape, squish all the crap into two entities that become uber-zombies.
Sounds like the plot of a SciFi made for TV movie.
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
The purpose of the stimuli is not to pay off existing debt, but to keep consumer spending from falling off a cliff. Sure, just continue your insolvent ways. Go figure.
Why invest at all, short or long, cash or gold, foreign or domestic? In the end, in a total collapse of society
IMO, the world is not ending.
The Japanese have a word for this, resutora, "restructuring".
I was a child of the 70s so I got to see what stagflation looks like, albeit from ~3' off the floor, like seeing Bubble Yum go from 20c to 25c a pack, or a single scoop of baskin robbins go from 25 to 28c.
During the great depression RENTS collapsed too -- rents are a function of personal disposable incomes, full stop. If & when things get tough the renters will drive rents down, down, down, and life will go on.
There are many other colors in your crayon box besides just black and white. Discussing data that is not pretty only helps you make better decisions. To say screw it all to hell because information is too ugly, is to loose opportunity. It's amazing to me how the "glass half full" folks only like to stare at the glass that's half full and nothing else.
Then they have the temerity to shoot the messenger when someone points out their glass has a hole in it.
I've been reading about this since the mid-1990s, when I read William Greider's book "One World Ready or Not." What was predicted in that book seems to be happening now . . . but with enough debt added on top to make the problem even worse.
So I moved out of California, back to the Midwest. I figure if/when the recession gets bad enough to be called a New Great Depression, I'm in a place where people are more generous, friendly, and eager to help others.
It would be better if this wasn't happening. People just want to live their lives, and no one deserves major economic problems added to the random troubles of everyday life. I'm convinced that the current financial mess really is that bad, so I plan to spend the next ten years just helping other people who are worse off than me.
Milkman is reflecting the emerging paradigm. Altruism is making a comeback. Who knows, maybe we'll get to know our neighbors and discover skills once more necessary and a better day will soon be upon us. I hope so. I have the same disdain for the west coast way of life.
Anon: Sam Bowles (economist at SFI and Siena Univ) came out with a paper or article recently that talked about the need for economists incorporating altruism into their models. Seems that their assumptions left out some basic human behavior.
Just a philosophical pondering here. let's assume that the most bearish among you are right and this is the freaken' end of the world, whether from peak oil, peak credit, global warming, a meteor crashing into the earth or any of 1,001 catastrophes.
Dude, there might be some tinfoil hatters on here who fit those specifications, but I'm just shorting the market to make some dough. Can't speak for others on here, but I ain't preaching no "end of the world" scenario.
Wicked: "I'm trying to get into the head of a market participant here. Say I'm holding FNM or FRE. This news comes out and I sell. Why? Is it really possible that I'm surprised their assets are worth less than what's on the books? "
Wicked, I was wondering the very same thing. This seems entirely expected and no bigger deal than yesterday to me.
I also want to know why I have to be right about bad things. I knew the Iraq war was going to be a disaster. I knew the housing bubble was, too. Why can't I know that we are entering an age of peace, prosperity and enlightenment???
Goldman's total trading revenue in the period fell 17 percent to $4.87 billion, as ``significantly lower results in credit products'' offset higher revenue from trading mortgages, currencies, commodities and interest-rate products.
Anybody else trimming their shorts now??? I think I should get some of the profits off of the table in case we see a rebound due to "oversold financials"
"During the great depression RENTS collapsed too -- rents are a function of personal disposable incomes, full stop. If & when things get tough the renters will drive rents down, down, down, and life will go on."
Unless there is war. War is the great devourer, solvent of societies. Without war, life will go on.
Canadians: Are your 30 year fixed mortgage rates the same as your 5/1 arms currently? (do you have 5/1 arms?) I guess I could just go google it but then we wouldn't have this whole conversation about the canadian mortgage market. Do you have a fnma type entity over there straining and puffing as well?
The sun may be setting in the west, but the DJIA pattern has been changed and it will be setting in the South, on the 32 month support at 10750, down 400 more. My question is whether to cover there or at the nearby 3 year support at 10000, so I'll cover half at each.
If a new rule #140 is being issued so that American business is required to get off balance sheet liabilities onto the transparency track, then why would it be good for the GSE's to avoid this, besides the fact that money is hard to raise? Am I missing something really obvious? If I missed an answer in earlier comments please point me to it. thanks.
"Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets"
That makes both of these institutions instant zeros. Playing with accounting rule especially if it is initiated buy government can only mean one thing.
"Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?"
The purpose of the stimuli is not to pay off existing debt, but to keep consumer spending from falling off a cliff. Sure, just continue your insolvent ways. Go figure.
That, and it's ultimately another way of trying to reflate the economy (i.e. stave off debt deflation) without cutting rates and setting the speculators into another frenzy.
Alas, however well-meaning, handing out money never seems to turn out very well.
It seems to me that continuing to do everything to stimulate consumption when our problems are rooted in over-consumption and under-production is a sign of real desperation and a lack of any better ideas.
I also want to know why I have to be right about bad things. I knew the Iraq war was going to be a disaster. I knew the housing bubble was, too. Why can't I know that we are entering an age of peace, prosperity and enlightenment???
Ah, so you're The One! Effective dreams and all that. Get to work, will ya?
Come and listen to my story bout a man named Dodd
refied his house but it seemed kinda odd
saved eighty grand but he said he didnt know
law makers get a break cause theyre friends of Angelo
Mozillo that is Countrywide Bad loans
Well the first thing ya know Angelo is in some trouble
He said HEY DODD NOW THEY SAY I CAUSED A BUBBLE
Dodd said fine Ill just sponsor us a bill
cover it with sugar and Ill sell it on the Hill
Well the moral of the story that you all should know
better vote em out if theyre friends of Angelo
or pretty soon were gona be a shootin at our food
Bernankes got us looking at two hundred dollar crude
Oil that is Black gold OPEC Tea
And now it`s time to say goodbye to you and all your kin
And they would like to thank you all for kindly chippin in
Your all invited back again to this locality
To get get a heapin taxen for their hospitality
Unless there is war. War is the great devourer, solvent of societies. Without war, life will go on.
You sure bring glad tidings."
I am a Cold War participant and survivor, and I have a right to my nightmares.
When the President warned of a possible general war outcome to the ME crisis I took him very seriously. Everyone should.
Financial crises are miserable and cause much suffering to the vulnerable, but they are nothing compared to what might happen in the course of a chaotic process called war.
I think everything is going to be all right, because the world has looked into the eye-holes of death before and turned away from that gaze. The will to live is very strong - if mistakes are not made, black swans (provocations and misunderstandings) do not take wing.
The present disorder in the financial system is above all a symptom of disorder in us - in people.
Yalt-You are quite right, I can handle it when Detroit or Pittsburgh or some US city where it snows wins, but when Anaheim and Tampa Bay win the Cup, then I think it's time to cut the pipeline.
If the kids don't play pond hockey in the wintertime and most of the high schools don't have teams, then it's a fad and not a long term investment.
Hope you'll at least let some oil trickle down to Michigan and Minnesota; they should be honorary Canadians for purposes of this discussion (especially Minnesota, which suffered the indignity of losing their hockey team to Dallas for cryin' out loud...)
So proud of myself for closing my SKF at 73 and dumping my LEH Puts today. Does anyone have any guesses as the the timing & magnitude of a potential bounce?
G.H.: Take a look at 10 year charts of MID, RUT, INSR and others, down only 12-16% after 200-300% runups, and now breaking hard. The 'buy the dip' bounces aren't happening.
ac writes:
"It seems to me that continuing to do everything to stimulate consumption when our problems are rooted in over-consumption and under-production is a sign of real desperation and a lack of any better ideas."
Furst?
thought i was first
but second or third ?
Implied guarantee...
CR Note: What does this comment mean? I've rarely banned anyone - and I'm happy to allow people back if they email me. As far as "swipe material", what does that mean? Weird comments today ...
why does CR block people and use Greasemonkey and then swipe material?
Edited By Siteowner
Well I guess we know where the next round of stimulus checks are going - only two of them, well maybe a couple more if Sallie & FHA can get in on the action - but they'll be whoppers.
Ownership Society...
Gee, thanks for the hat tip CR
Also on Bloomberg today:
Morning Perspective Powered by Minyanville: S&P 1650?
July 7, 2008- The top story in Bloomberg this morning, analysts at Deutsche Bank, Lehman Brothers, and UBS predict the S&P 500 index will have the best performance since 1982 during this year's second half. The consensus according to a Bloomberg survey calls for a rise of 18% by next January. On the high end, DB chief strategists believes the S&P 500 index will end the year at 1,650 and Lehman's Ian Scott is predicting 1,630...
deal with it BB
Well I guess we know where the next round of stimulus checks are going
We know where the bill is going also.
Kramer: It's a writeoff for them.
Jerry: How is it a writeoff?
Kramer: They just write it off.
Jerry: Write it off what?
Kramer: Jerry, all these big companies, they write off everything.
Jerry: You don't even know what a writeoff is.
Kramer: Do you?
Jerry: No. I Don't.
Kramer: But they do. And they're the ones writing it off.
Jerry: ...I wish I could have the last 20 seconds of my life back.
Boy is that great news on the S&P or what?
"How much do they raise and how easily can they do that?"
It depends on what the definition of implied implies.
Thank you Jett Rink! That Seinfeld exchange never gets it old.
This is a really good buy opportunity for financials.
You won't be able to buy into financials at these levels ever again.
-cnbc
Because most of them will be out of business.
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets
And a "clean opinion" from their auditors...
Leftys Liquors writes:
Boy is that great news on the S&P or what?
Leftys Liquors | 07.07.08 - 1:40 pm | #
You might want to put extra orders in for champagne to be delivered about that time - I'm sure your distributer wouldn't mind providing the credit... I mean the forecast being so rosy & reliable and all. Its a sure thing... a lock.
If there is a major problem with either of these two players how will this effect the mortgage market?
Will others be able to pick up the demand?
Will rates increase?
Will it break housing even more?
.....................
Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140
this is assured IMO. the goal is to use Fannie and Freddie (as well as FHA) and load all three up with unbelievable amounts of crap. then when they go belly up they can be nationalized/bailed out.
This saves the rest of the banking system.
it only works though so long as their books remain opaque.
Besides uncle Ben, is there anybody else who is buying Fannie or Freddie`s garbage?
If there is a major problem with either of these two players how will this effect the mortgage market?
The private mortgage lenders will start lending again. of course at much higher rates and also much stricter guidelines.
Will others be able to pick up the demand?
yes.
Will rates increase??
of course
Will it break housing even more?
nah. rich foreigners will come in and save the day I'm sure.
yeah, it'll break housing. If this happens (which it won't) I'd guss that you'd see more govt programs to prop housing.
464 52-week lows in the nasdaq with 4 highs.
What a day.
The question I want to know is - who screwed up? Why wasn't this 'leaked' Friday afternoon at 4:01PM EST? Somebody has some 'splainin' to do.
yearning seems to know the story behind the story
"nah. rich foreigners will come in and save the day I'm sure."
ROTFLOL
Ha HAHAHAHHA this is one of my favorite explanations for what's going to save housing...
Thanks Y2L
trading stats:
If you're here, what's that S&P target again? Thanks.
Broker writes:
Besides uncle Ben, is there anybody else who is buying Fannie or Freddie`s garbage?
Broker | 07.07.08 - 1:47 pm | #
My guess is BOJ & PBoC are front and center at the trough... else you'd see the dolluh a might bit lower. But that's just a guess.
I remember when the US was the rich foreigners.
Look, no one could make money lending at these interest rates in a GOOD market where assets were APPRECIATING!!!
The losses by financials are proving that now.
So how in God's name can Fannie and Freddie make monehy lending at the SAME LOW RATES to people buy DEPRECIATING assets!!!!!
Geez, it should be obvious that mortgage rates are too low.
There is no way on this earth you can lend 30 year money at these rates to people buying houses that are falling in value when unemployment can only go up and commodity prices are rising.
Mortgage rates have to be much higher. Housing prices will collapse. From then on people will be buying asset prices that can only go up in an environment where rates can only go down.
This will hurt and hurt badly.
But it is common sense.
Fannie and Freddie will be driven to bust because they will not be allowed to price their loans correctly. Correct prices means financial ruin for many. Fannie and Freddie will take all loses, become govt owned, and will continue to be allowed to lose money for years and years and years just like the airlines.
"Rich Foreigners" doesn't necessarily mean individuals that will come in and pick off 1 or even 10 houses. It could mean large funds that buy up notes and houses for pennies on the dollar -- by the 10's of thousands.
dk writes:
This is a really good buy opportunity for financials.
You won't be able to buy into financials at these levels ever again.
Too late. Dick Bove said we already had our once-in-a-generation buying opportunity in financials in March. Sorry you missed out!
Taking ioi's now
ades,
Remember those articles about Canadians buying investment houses in Arizona? It was funny how they tried to make it sound like a wave of Canadians coming to the rescue.
funneeee!!
DOW getting loose! Hands in the air, people and
SCREEEAAAAMMMMM!!!!!
Capital of Last Resort: Confronting the Prospect
Capital of Last Resort: Confronting the Prospect - American Banker Article
If you think conditions in the financial sector are stabilizing or improving, you can stop reading now.
With the optimists weeded out, it is time to address the prospect that the banking industry is in an accelerating downward spiral that could spur government-led recapitalizations of private-sector companies.
Implied in this view is that the Federal Reserve Board's crisis management to this point admired by some observers for its creativity and vilified by others as overstepping ultimately will not prove sufficient to stem the tide of writedowns and credit losses caused by poorly structured products, falling house prices, and a stagnating economy.
With global estimates of losses now reaching as high as $1.2 trillion, a growing constituency is convinced that the industry's capital-raising efforts to this point are merely tentative and inadequate first steps. And these people are asking where precisely all that money is going to come from.
It is not clear whether public markets will perceive additional investments in struggling banking companies as bargains or as good money thrown after bad. There is no guarantee that the Fed will hit upon a way to ease regulatory burdens associated with controlling stakes in financial companies and even if it does, there is no guarantee that private-equity and sovereign wealth funds will commit patient capital to the sector, given their disastrous experiences thus far.
The foreign banking companies that have traditionally been interested in the U.S. market are suffering from the exposure they already have, and they are conserving capital.
Some regulators continue to disavow a policy of bailing out systemically important companies a disavowal that to some observers looks increasingly silly in a world where the Fed has rescued creditors and counterparties of Bear Stearns Cos. Nevertheless, it is clear that some companies are too big, too complex, too entangled, or too politically connected to fail.
The problem, according to some observers, is that the Fed's idea of throwing liquidity at financial companies is the wrong tool to restore balance sheets, not to mention a bad deal for the government.
"What is distressing to me about the discount-window approach is that it is providing liquidity to the very neediest firms in an unaccountable way, subsidizing them for the troubles they got into and we're not getting anything back for rescuing them," said Edward J. Kane, a finance professor at Boston College and a senior fellow in the Federal Deposit Insurance Corp.'s research center. "As a firm approaches insolvency, it needs more risk capital, and the question is where does it get it? During this turmoil it has been coming from the Fed, and it has not been priced properly or fairly to the taxpayer."
Joseph Mason, a finance professor at Louisiana State University, said equity recapitalizations are "part of the discussion, certainly," as academics, economists, regulators, and market observers debate how and whether to prepare for widespread insolvency in banking. "It is a commonly used tool worldwide. I don't think we can dismiss it out of hand."
Such recapitalizations are no doubt a blunt instrument that would raise philosophical questions about the propriety of socializing loss in an ostensibly capitalist economy.
Government recapitalizations have been tried with varying success in European countries, including Sweden, and perhaps more notoriously in Japan, where an initial recapitalization effort failed in the minds of some, because the government failed to restrict use of that capital, which in some cases was pushed in through the front door and flowed out the back door in form of dividends to equity holders.
The question is whether a more elegantly tailored program could succeed here.
"As is clear now, this is a broad, Main Street banking story, not just a Wall Street banking story, and these ideas naturally come out," said Alex Pollock, a resident fellow at the American Enterprise Institute and a former chief executive of the Federal Home Loan Bank of Chicago. "Whether it is severe enough to warrant it, we don't know yet, but conceptually, these are the issues one deals with."
Mr. Pollock has dealt with these issues before. He was a senior vice president at Continental Illinois National Bank and Trust Co. when it was circling the drain in May 1984. Its demise was by some estimates the first application of the "too big to fail" doctrine in this country, when the Office of the Comptroller of the Currency, the FDIC, the Fed, and the Treasury secretary agreed that the bank must not fail, for fear that its failure would trigger a systemic crisis that would drag down much of the banking sector with it.
The policy prescriptions for Continental Illinois, which got itself in trouble with speculative and fraudulent loans to the energy sector, including oil and gas companies, were extensive.
The Fed allowed it to borrow $3.6 billion from the discount window, and 16 banks teamed up to create a $4.5 billion loan package. When that did not work, the Fed assured creditors that it would meet any of Continental Illinois' liquidity needs. The FDIC stepped in with a $2 billion package and offered a guarantee to depositors, including those holding more than the $100,000 insurance limit. The FDIC took a large preferred stock investment in the bank, and cashiered its management.
The experience with Continental Illinois proved so wrenching and lasting that even today in a banking industry where naming conventions are so traditional that "People" appears in the name of 164 banks only seven have "Continental," and each has less than $1 billion of assets.
That was not the government's only experience with equity investments in the banking sector. The Reconstruction Finance Corp., chartered by the Hoover administration in 1932 to forestall a collapse of the sector, eventually made such extensive investments that virtually every large bank that survived the Great Depression emerged with the government as a shareholder.
The agency's initial mission was to extend loans to banks and companies in other industries threatened by insolvency, but the depth of the problems revealed the limitations of a lending program.
"If the problem is one of undercapitalization or insolvency, no matter how much money I lend you, I can't change the fact that you don't have enough equity. That's why the RFC came around to providing equity," said Mr. Pollock, who researched the agency after his experience at Continental Illinois. "The RFC is a useful thing to study, because it marked the key shift from being a provider of credit or liquidity to a provider of equity capital."
Tomorrow: What are the lessons of the RFC and other public recapitalizations of banking companies? What should a recapitalization program look like, and who should administer it?
Fannie and Freddie are insolvent. So is the U.S. Government for that matter.
We have a choice to make. Continue with the Greenspan doctrine of inflating to save our ficticious wealth, or let the market sort it out.
Place your bets.
Wow, market internals are sucking the Bud Light. Guess I better clean out the bunker tonight.
Too bad I listened to Seb and O-Joe and went long...now I will need to buy a box to live in..
gotta go back to '06 lows 1219
I feel like a dope, because this often happens to me. I'm trying to get into the head of a market participant here. Say I'm holding FNM or FRE. This news comes out and I sell. Why? Is it really possible that I'm surprised their assets are worth less than what's on the books? Or was I counting on other participants being ignorant of that fact, so now that it's going to be disclosed, it'll be worth less?
In other words, I don't understand why the market didn't already discount this news, at least most of it. Are market participants in general really surprised?
The land of Jerry Springer, Beavis,
GWB, illiterate grads, Katrina, gangsta-rap ....
Nothing surprises me any more.
Get cameras in all classrooms,
and things will change, if it's
not too late.
For now, finance adult online learning.
At any cost; now.
If you have'nt done everything you've ever wanted to do , you've got maybe 18 months left to do it. stop looking at the market , and get out there and get it done!
I've been trying to get a friend to unload his Fannie stock since it was in the mid 30s. Fannie is clearly in a death cycle.
The worst problem is not the junk portfolio they hold but the daunting exposure to MBS. Fannie's long-term problem is that the investor world is running away from US mortgages, so new mortgage credit is dwindling, causing house prices to head down and walkaways to go up. The downward spiral will last for years.
Raise your hand if you think the FED will raise rates now?
Thought so.
Edited By Siteowner
6t325ty | 07.07.08 - 1:37 pm
dryfly, rumor has it that Zimbabwe is buying billions and billions worth of MBS from Fannie and Freddie. I don`t know what the exchange rate is today though. Things change pretty fast over there.
Since we're talking about, among other things, the decline of the dollar, any advice on an ignoramus in these matters on an easy and safe way to park a bit money in a different currency.
Thnx.
With foreign capital about to stay away from FNM and FRE in droves, and the financial situation now much worse now than the 100 BIL$ S&L crisis, maybe it's time for an RTC for homeowners, maybe call it the Permanent Mortgage Sponsorship, "PMS".
on an easy and safe way to park a bit money in a different currency.
FXE, FXA, FXC, FXY, FXB, FXF
Bob Dobbs, I've used PSAFX for this purpose.
Best,
That 2:00 PPT pumped sure didn't have much air in it.
PPT insolvency alert!
Why do you have to finance adult online learning? Stanford, MIT and Berkeley all offer entire courses online for anyone to watch.
OH! You're talking about CREDENTIALS! The PAY-TO-PLAY kind! well, that's another story...
Just a philosophical pondering here. let's assume that the most bearish among you are right and this is the freaken' end of the world, whether from peak oil, peak credit, global warming, a meteor crashing into the earth or any of 1,001 catastrophes. Why invest at all, short or long, cash or gold, foreign or domestic? In the end, in a total collapse of society, none of those will have anything but marginal and highly temporary utility. Even those who stockpile food are going to be able to stockpile only so much, and water is even more problematic. Wouldn't you be better off, while you still can, just binging on the pharmaceutical, sexual, religious, gustatory or whatever form of consumptive practice gives you the most ecstatic experience for your buck (or euro, yen, pound, etc)?
Not advocating it necessarily, but just wondering...
Bob Dobbs, the currency ETF's that Troy mentions are nice. I have also sometimes used the Merk Hard Currency Fund (MERKX) for parking some cash.
I second the MERKX.
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
Aheadofthecurve | 07.07.08 - 2:08 pm | #
Yes. Everything in moderation.
Aheadofthecurve, your moronic ramblings continue unabated. Time for your meds.
Fannie and Freddie will take all loses, become govt owned, and will continue to be allowed to lose money for years and years and years just like the airlines.
That could be an interesting attempt at avoiding the Japanese scenario. Instead of an army of zombie banks roaming the financial landscape, squish all the crap into two entities that become uber-zombies.
Sounds like the plot of a SciFi made for TV movie.
Aheadofthecurve
I see you are 'one of us'. Lemme know where and when.
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
Great. Let's start a new credit binge.
Christopher Cox on Cnbc: Thinks investors need to have better information.
LMAOROFLBUGAFLOG
Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?
The purpose of the stimuli is not to pay off existing debt, but to keep consumer spending from falling off a cliff. Sure, just continue your insolvent ways. Go figure.
Oh, great GoogaMooga, can't you hear me talking to you.
Why invest at all, short or long, cash or gold, foreign or domestic? In the end, in a total collapse of society
IMO, the world is not ending.
The Japanese have a word for this, resutora, "restructuring".
I was a child of the 70s so I got to see what stagflation looks like, albeit from ~3' off the floor, like seeing Bubble Yum go from 20c to 25c a pack, or a single scoop of baskin robbins go from 25 to 28c.
During the great depression RENTS collapsed too -- rents are a function of personal disposable incomes, full stop. If & when things get tough the renters will drive rents down, down, down, and life will go on.
Market just took another leg down,...
Cox Cnt'd: "We found shortcomings" in the ratings agencies. Their "resources were strained"
"IMO, the world is not ending."
Good to know (I guess). I recall the 70s too, somewhat hazily, though....
Aheadofthecurve,
There are many other colors in your crayon box besides just black and white. Discussing data that is not pretty only helps you make better decisions. To say screw it all to hell because information is too ugly, is to loose opportunity. It's amazing to me how the "glass half full" folks only like to stare at the glass that's half full and nothing else.
Then they have the temerity to shoot the messenger when someone points out their glass has a hole in it.
Anonymous writes:
That 2:00 PPT pumped sure didn't have much air in it.
Just wait until 4 PM....
Response to Aheadofthecurve-
I've been reading about this since the mid-1990s, when I read William Greider's book "One World Ready or Not." What was predicted in that book seems to be happening now . . . but with enough debt added on top to make the problem even worse.
So I moved out of California, back to the Midwest. I figure if/when the recession gets bad enough to be called a New Great Depression, I'm in a place where people are more generous, friendly, and eager to help others.
It would be better if this wasn't happening. People just want to live their lives, and no one deserves major economic problems added to the random troubles of everyday life. I'm convinced that the current financial mess really is that bad, so I plan to spend the next ten years just helping other people who are worse off than me.
435 visitors online. The CR INDEX says the market still has a ways down to go.
Uncle Billy Goes to Washington writes:
Christopher Cox on Cnbc: Thinks investors need to have better information.
Well i am getting plenty good info on blogs, esp. this one.
man, will the dow hold 11,000 today? Stay tuned!
What weakness in the housing market!? Government on the hook?! No way! This is all priced in! Buy now or get left behind forever!
Milkman is reflecting the emerging paradigm. Altruism is making a comeback. Who knows, maybe we'll get to know our neighbors and discover skills once more necessary and a better day will soon be upon us. I hope so. I have the same disdain for the west coast way of life.
BB: I don't think Cox has ever posted here. Could be wrong though.
Milkman-it's not the financial mess that really is troubling; it's more about the long chain hydrocarbons.
Jett Rink, great stuff. And here is the 30 second video of Jerry and Kramer discussing write-offs.
Best to all.
Anon: Sam Bowles (economist at SFI and Siena Univ) came out with a paper or article recently that talked about the need for economists incorporating altruism into their models. Seems that their assumptions left out some basic human behavior.
Just a philosophical pondering here. let's assume that the most bearish among you are right and this is the freaken' end of the world, whether from peak oil, peak credit, global warming, a meteor crashing into the earth or any of 1,001 catastrophes.
Dude, there might be some tinfoil hatters on here who fit those specifications, but I'm just shorting the market to make some dough. Can't speak for others on here, but I ain't preaching no "end of the world" scenario.
Wicked: "I'm trying to get into the head of a market participant here. Say I'm holding FNM or FRE. This news comes out and I sell. Why? Is it really possible that I'm surprised their assets are worth less than what's on the books? "
Wicked, I was wondering the very same thing. This seems entirely expected and no bigger deal than yesterday to me.
I also want to know why I have to be right about bad things. I knew the Iraq war was going to be a disaster. I knew the housing bubble was, too. Why can't I know that we are entering an age of peace, prosperity and enlightenment???
it's more about the long chain hydrocarbons.
Canada and our pal Hugo down south have trillions of barrels of the stuff that can be dug out.
Will need some nuke plants located nearby to crack it, but two trillion barrels x $100 each is a lot of profit on the table to make this happen.
Suess: Well, thank goodness, I can stop worrying now.
"Why can't I know that we are entering an age of peace, prosperity and enlightenment???"
Here you go.
Mayan calender ends on December 21st, 2012 A.D
Mayan calender ends on December 21st, 2012 A.D
Anonymous | 07.07.08 - 2:28 pm | #
I will bet you $1 million euros the sun will come up on December 22, 2012.
Canada isn't going to give no oil to no stinkin Americans until you let us win a Stanley Cup for a change. It's all been promised to China anyway.
Suess: Well, thank goodness, I can stop worrying now.
My point being that you appear to be arguing with a straw man.
Anonymous writes:
Mayan calender ends on December 21st, 2012 A.D
Mayans ended earlier.
Interesting Times: yes the sun will come up, but from what direction?
I will bet you $1 million euros the sun will come up on December 22, 2012.
Ah, but will we be there to see it?
Seriously though, life goes on, you just need a plan for those large and small speed bumps.
Goldman Had 20 Days of Trading Losses Last Quarter
Goldman Had 20 Days of Trading Losses Last Quarter (Update4) - Bloomberg.com
Goldman's total trading revenue in the period fell 17 percent to $4.87 billion, as ``significantly lower results in credit products'' offset higher revenue from trading mortgages, currencies, commodities and interest-rate products.
Anybody else trimming their shorts now??? I think I should get some of the profits off of the table in case we see a rebound due to "oversold financials"
Right on schedule, at 2:00....
CashAmerica up 15.95% today.
anon - for some it won't matter where it comes from.
Drew - if I am there to see it, there's an extra 1 million waiting for me
Drew - if I am there to see it, there's an extra 1 million waiting for me
I admire the fact that you also asked for it in a denomination other than American Pesos.
PPT to the rescue
Nah, this is a short covering rally.... Very predictable.
PPT to the rescue.
Here in Canada, we don't have a PPT. But we do have Bud Camp.
"During the great depression RENTS collapsed too -- rents are a function of personal disposable incomes, full stop. If & when things get tough the renters will drive rents down, down, down, and life will go on."
Unless there is war. War is the great devourer, solvent of societies. Without war, life will go on.
Canadians: Are your 30 year fixed mortgage rates the same as your 5/1 arms currently? (do you have 5/1 arms?) I guess I could just go google it but then we wouldn't have this whole conversation about the canadian mortgage market. Do you have a fnma type entity over there straining and puffing as well?
There are no 30-year mortgages with rates fixed to maturity in Canada. The longest term you can have your rate fixed for is 10 years.
Uncle Billy - we have something worse than Fannie - CMCC.
Canada Mortgage and Housing Corporation
100% backed by the Canadian Government.
CMHC
Pavel Chichikov writes:
Unless there is war. War is the great devourer, solvent of societies. Without war, life will go on.
You sure bring glad tidings.
The sun may be setting in the west, but the DJIA pattern has been changed and it will be setting in the South, on the 32 month support at 10750, down 400 more. My question is whether to cover there or at the nearby 3 year support at 10000, so I'll cover half at each.
If a new rule #140 is being issued so that American business is required to get off balance sheet liabilities onto the transparency track, then why would it be good for the GSE's to avoid this, besides the fact that money is hard to raise? Am I missing something really obvious? If I missed an answer in earlier comments please point me to it. thanks.
CMCC. Thanks. Will read more. Prounounced: "Commie Cook"?
I remember the Mayans. I shorted them, too.
The Mayans are still around all over the Yucatan and Guatemala. And they are quite short.
"Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule that would force the companies to bring their off-balance sheet assets back onto their balance sheets"
That makes both of these institutions instant zeros. Playing with accounting rule especially if it is initiated buy government can only mean one thing.
there's a whole bunch of Mayans scattered around the USA too!
Most financials are not illiquid, they are insolvent.
"Instead of passing economic stimulus packages, what about allowing all income going toward debt servicing to be considered tax deductible? Wouldn't that help stabilize things?"
The purpose of the stimuli is not to pay off existing debt, but to keep consumer spending from falling off a cliff. Sure, just continue your insolvent ways. Go figure.
That, and it's ultimately another way of trying to reflate the economy (i.e. stave off debt deflation) without cutting rates and setting the speculators into another frenzy.
Alas, however well-meaning, handing out money never seems to turn out very well.
It seems to me that continuing to do everything to stimulate consumption when our problems are rooted in over-consumption and under-production is a sign of real desperation and a lack of any better ideas.
Troy, anotherajh, Drew, Geoff, thanks for the advice!
Bob
FASB: Financial Accounting Standards Board
For anyone who's wondering.
I don`t know if the euro is still going to be around come Dec. 22nd 2012.
Broker writes:
I don`t know if the euro is still going to be around come Dec. 22nd 2012.
SHHhhhh.
Mayan calender ends on December 21st, 2012 A.D
Anonymous | 07.07.08 - 2:28 pm | #
I will bet you $1 million euros the sun will come up on December 22, 2012.
Interesting Times | 07.07.08 - 2:29 pm | #
I will happily escrow the wager for you. Let me give you the EFT numbers...
Emma Anne:
Ah, so you're The One! Effective dreams and all that. Get to work, will ya?
FRE & FNM are the lynchpins that cause a cascading cross default of the rube goldberg financial system that greenspan constructed.
OT:
This just in. Too good not to share!
(Theme from the Beverly Hillbillies)
Come and listen to my story bout a man named Dodd
refied his house but it seemed kinda odd
saved eighty grand but he said he didnt know
law makers get a break cause theyre friends of Angelo
Mozillo that is Countrywide Bad loans
Well the first thing ya know Angelo is in some trouble
He said HEY DODD NOW THEY SAY I CAUSED A BUBBLE
Dodd said fine Ill just sponsor us a bill
cover it with sugar and Ill sell it on the Hill
Well the moral of the story that you all should know
better vote em out if theyre friends of Angelo
or pretty soon were gona be a shootin at our food
Bernankes got us looking at two hundred dollar crude
Oil that is Black gold OPEC Tea
And now it`s time to say goodbye to you and all your kin
And they would like to thank you all for kindly chippin in
Your all invited back again to this locality
To get get a heapin taxen for their hospitality
"BB writes:
Pavel Chichikov writes:
Unless there is war. War is the great devourer, solvent of societies. Without war, life will go on.
You sure bring glad tidings."
I am a Cold War participant and survivor, and I have a right to my nightmares.
When the President warned of a possible general war outcome to the ME crisis I took him very seriously. Everyone should.
Financial crises are miserable and cause much suffering to the vulnerable, but they are nothing compared to what might happen in the course of a chaotic process called war.
I think everything is going to be all right, because the world has looked into the eye-holes of death before and turned away from that gaze. The will to live is very strong - if mistakes are not made, black swans (provocations and misunderstandings) do not take wing.
The present disorder in the financial system is above all a symptom of disorder in us - in people.
They were just talking about Turkey on CNBC.Turned out it was the country and not any particular stock.
Terry, where did this come from?
Aheadofthecurve writes:
Canada isn't going to give no oil to no stinkin Americans until you let us win a Stanley Cup for a change.
LOL. Moving a hockey team from Winnipeg to Phoenix was bubble think at its finest and an early, clear sign of the coming apocalypse.
520 visitors online. Jets move to Phoenix. Yep...
@life will go on.
We've always got the reset button, Troy.
Tiny URL - create a shorter link
Yalt-You are quite right, I can handle it when Detroit or Pittsburgh or some US city where it snows wins, but when Anaheim and Tampa Bay win the Cup, then I think it's time to cut the pipeline.
If the kids don't play pond hockey in the wintertime and most of the high schools don't have teams, then it's a fad and not a long term investment.
Hope you'll at least let some oil trickle down to Michigan and Minnesota; they should be honorary Canadians for purposes of this discussion (especially Minnesota, which suffered the indignity of losing their hockey team to Dallas for cryin' out loud...)
why are there 560 people here?
So proud of myself for closing my SKF at 73 and dumping my LEH Puts today. Does anyone have any guesses as the the timing & magnitude of a potential bounce?
SKF @ 173....wouldn't be too proud if I sold at 73:)
"Fannie Mae and Freddie Mac will probably get an exemption from the new FASB 140 rule..."
Conjure says, "BWAHAHAHA! One step closer to the Japan scenario."
Time to update the playbook.
G.H.: Take a look at 10 year charts of MID, RUT, INSR and others, down only 12-16% after 200-300% runups, and now breaking hard. The 'buy the dip' bounces aren't happening.
My reading is the bounce starts lower, down 5-7%.
Does anyone have any guesses as the the timing & magnitude of a potential bounce?
That was 3:30 -> 3:30.
j/k
ac writes:
"It seems to me that continuing to do everything to stimulate consumption when our problems are rooted in over-consumption and under-production is a sign of real desperation and a lack of any better ideas."
Just thought that was worth repeating. Well said!
Damn accounting rules. If it wasn't for accountants we wouldn't be having this housing slowdown.