I don't see how they can pay under these conditions. Something like the WaMu deal, with equity and debt wiped out is the only way that makes economic sense.
"Oooo you cannot reach me now,
Oooo no matter how you try.
Goodbye cruel world, its over.
Walk on by.
Sitting in a bunker,
Here behind my wall,
Waiting for the worms to come. ( worms to come. )
In perfect isolation,
Here behind my wall,
Waiting for the worms to come. ( worms to come. )...."
The NET NET: Americans just have to
a) make more money per mo. ( few really can )
b) cut back on living beyond their means lifestyles
c) get a new dream and fast !
"What would happen with Wachovias Financial Securities people? Not much need for them I would think. All the AG Edwards people?
Going to be a lot of layoffs close to Christmas this year I think.
Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers.
I think this is a do-or-die deal for Citi. If they can't pull this one off, I'd argue they're next. As a depositor that is MUCH in excess of the FDIC limit, I know that at least from my perspective this is do-or-die. If they let Wells win this one, my contingency account at JPM is going to get an immediate transfer of all my Citi assets. If they pick up Wachoiva then they're certainly too big to fail... the only hope they have methinks.
Wachovia Bankthe nations fourth largestwas accused of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit. Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes.
Internal Wachovia email revealed high-ranking employees warned colleagues about telemarketing frauds routed through its accounts. Documents also indicate Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to companies that helped steal as much as $400 million from unsuspecting victims. Despite this, Wachovia continued processing fraudulent transactions, earning large fees every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months. We are making a ton of money from them, wrote Linda Pera, a Wachovia executive, about a company later accused by federal prosecutors of helping steal up to $142 million.
Wachovia just opened a new branch here in Pacific Palisades. It's like 5 banks in 4 blocks, now. The new manager of the branch is 'very excited' to be in the Palisades. He keeps being interviewed saying, 'there's more than enough money to go around'. How's a bank branch manager afford the west side of LA, anyways? I bet he's gotta be sitting on a POA about to explode! Ironic, if not hilarious.
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Yeah, but what of those year end bonuses? NYC real estate gonna take take a hit.
Wells finally makes a move... I was wondering when they'd step into the game. For none other than Wachovia... nice match up for them.
Should Wells win Citi is history ... Citi has more derivatives than anyone else ... they will be the poster child ...
I would add Citi needs Wachovia so that they are too HUGE to fail. Personally, break up Citi already as they are already gone.
"bw writes:
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Yeah, but what of those year end bonuses? NYC real estate gonna take take a hit.
bw | 09.28.08 - 6:44 pm | #
Well for one - Wachovia isn't based in NYC. Second, brokers work on draw against commission. They eat what they kill so to speak - retail brokers have payout grids - if you generate over 250,000 in commissions you get paid out 40%. Over 500,000 in commissions you get paid out 50%, over $1million you get a 60% payout etc. Brokers based on their production determine their own compensation pretty much.
There is no doubt that Wall Stree bonuses will be down tremendously this year - that however, has nothing to do with what might happen to Wachovia and the financial advisors that work there.
My question is the following: What promises were made to JPMorgan regarding the bailout and WaMu? Are they going to have access to the $700 billion retroactively? Will taxpayers be asked to soak up WaMu's bad debt for deals that passed before the bill?
"Wachovia Bankthe nations fourth largestwas accused of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit. Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes."
One of the plaintiffs is reported by Reuters to be a disabled Social Security recipient.
For God's sake. Dickens would be jotting down his first draft.
@karelian - that's because the intrade contract expires Sept. 30. Since it has been announced that the Senate won't vote on the bill until Wednesday (house votes on Monday), there is no way the bill can pass by Sept. 30. The 0.21 price on Intrade for pasing before 21% represents a no-brainer short opportunity... or at least shows that prediction markets can be dumber than a sack of hammers. The price for the contract should be 0.00
The bailout will pass, make no mistake about that. The intrade pricing is due to a technicality
At the final, critical meeting in negotiations on the $700 billion Wall Street bailout -- the last round of talks began at 10:40 p.m. Saturday and ended around 12:25 a.m. this morning - Treasury Secretary Hank Paulson was so short of breath that lawmakers called the Capitol physician because they were so concerned.
Paulson, 62, a former Dartmouth offensive tackle, told lawmakers he was fine and waved off the doctor, despite working around the clock for several days.
But as Paulson and Sen. Chuck Schumer (D-N.Y.) later walked to the microphones to address the media, they were locked arm in arm. Treasury confirmed moments ago that Schumer was steadying Paulson, helping him walk.
Boehner calls bill a "crap sandwich" -- but he'll vote for it
In a closed-door session with House Republicans, Minority Leader John A. Boehner just called the financial rescue deal a crap sandwich then said hell vote for it when it comes to the floor Monday.
House Republicans are the key to the bills passage Speaker Nancy Pelosi said earlier today that its a bipartisan bill and will need bipartisanship to pass and it now appears that a substantial number of them will put cast their votes in favor of it.
According to a source in the room, the plan has so far won endorsements from Minority Whip Roy Blunt, who negotiated it on behalf of the House Republicans; Eric Cantor, the chief deputy whip; and Paul Ryan, a hard-core conservative from Wisconsin who may hold more sway with conservatives on this issue than any other member of the House.
But like Boehner, Ryan wasnt exactly happy about how things have unfolded. Referring to the situation facing the country and not the bill itself Ryan said, This sucks.
Inside John McCain's campaign the expectation is growing that there will be a popularity boosting pre-election wedding in Alaska between Bristol Palin, 17, and Levi Johnston, 18, her schoolmate and father of her baby. "It would be fantastic," said a McCain insider. "You would have every TV camera there. The entire country would be watching. It would shut down the race for a week."
Really, how could anyone vote on the basis of economics or foreign policy with such an adorable couple on display?
The government has ... opposed taking over Wachovia the way it did Washington Mutual earlier this week, these people said, unless its financial position deteriorates more rapidly.
Oh, great, so this means an FDIC takeover is a slam-dunk.
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
The FDIC can't afford Wachovia. That is reality. This bank is 20 times the size of IndyMac and three times the size of WAMU.
I've got a CD with them as much as it pains me to admit it. They were offering 4.25% so I rolled over a CD
from SunTrust to this 'bank'. While sitting in the branch managers office I asked him if he was 'worried'. He said no, he had put all of his 401K in WB stock. I wished him well.
The House vote should be fascinating. I suspect that a lot of Democrats will be allowed to vote no if enough Republicans can be found to vote yes. You might even see a real game of chicken tomorrow as the votes are tallied, with switches back and forth.
Mike in Long Island writes:
"bw writes:
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Mike, don't the individual brokers have employment contracts with the company determining the ownership of the book of business and the purchase price paid either by the co. or the individual in buying that book?
Just asking. I have seen this done with insurance brokers vs. the individual sales/broker.
So who will vote for this piece of crap bailout? Only those who don't need to face the voters this year, apparently.
November? Do these jokers actually think this won't be a lasting political issue? Heck, I'm praying that the Bush Dogs (really bad Democrats) vote for this thing, just so that 1) it helps generate strong primary challengers in their districts, and 2) so that we can wield the vote against them in those primaries.
I believe more of the Dem. House caucus are progressives than the number of Blue Dogs.
I don't know how they could get away with that (Dems voting no). If I were a reluctant Republican I wouldn't hesitate to vote no if a single Democrat did so.
I don't know how they could get away with that (Dems voting no). If I were a reluctant Republican I wouldn't hesitate to vote no if a single Democrat did so.
Comrade Bear (tj & the bear) | 09.28.08 - 7:10 pm | #
Dems won't go lock step either - my guess is Boner & Pelosi have negotiated 'quotas' each have to deliver or no deal. Dems have to deliver more but not all, GOP can have more fallout but still have to deliver at least half their caucus...
Log rolling behind closed doors. Nice to see some stuff never changes.
House Majority Leader Steny Hoyer says the financial rescue plan is something a large majority of both parties can and will support.
He may be right House Republican leaders were endorsing the plan Sunday evening but its clear that the bill wont have unanimous support among Democrats.
Rep. Brad Sherman spoke out against the bill during a Democratic caucus meeting this evening, and at least a handful of other liberal Democrats are also expected to oppose it.
Emerging from the room, Rep. Joe Baca said that sentiments were evenly split inside. There are still a lot of unanswered questions, he said.
Baca said that members are still not sold on the bill and that hes leaning towards voting no himself.
But another Democrat, Rep. Carolyn Maloney, said she thought that the votes are going to be there on the Democratic side to pass it.
Ministry of Truth writes:
Simple document to fax to your senators and representatives File Savr - Free File Hosting
Ministry of Truth | Homepage | 09.28.08 - 7:15 pm | #
If you really give a damn take a minute & write your own - in your own words - far more effective. They see lotsa biler plate.
Paulson is a Christian Scientist, and he's strictly so, he won't accept medical help (standard style).
A dramatic twist!
I celebrate his piety, and I say that with frank and perfect sincerity. He leave himself open to the judgment of God. God answers. Being so despicable, it is really amazing that he is so willing to submit himself to the will of the divine. I hope the judges of the underworld take this into account when they weigh his thievish heart.
I've been waiting to see who was the first casualty of the pressure of modern crisis leadership. Looks like we have a winner.
Excellent piece on IHB! That "legitimacy" is ultimately represented by the dollar, and I've already predicted it's demise. The world will be an entirely different place thereafter.
Oh, it appears the FHLB still has some debt. What about the other 42 billion?
MarketWatch.com
As a result of the transaction, approximately $16 billion of Federal Home Loan Bank of Seattle advances outstanding to Washington Mutual, FSB are now outstanding to JPMorgan Chase. The Federal Home Loan Bank of Seattle remains fully collateralized on these advances.
I have been reading this blog for over a week and have a much better understanding of all of this than I had before(suffice it to say that I was clueless before my reading). Can anyone recommend further reading that might show a more positive (or even neutral)spin on all of this?
People! I know these bankers. They will f**k you without a kiss. One day you'll think, "it would have been nice to at least have gotten a kiss." But, no! -- nooooooo! -- you'll realize that you were f***ed without a kiss.
I can see that, but it's the DEMs deal and if they show any slippage whatsoever then the whole thing collapses.
Comrade Bear (tj & the bear) | 09.28.08 - 7:18 pm | #
BELIEVE ME - GOP has skin in this game or they would have walked LONG AGO. Remember who INITIATED it - Pelosi Reid didn't drag Paulson to that meeting last Wednesday.
I have no idea what boogie man Hank showed them but they are obviously all sufficiently spooked or the GOP would have told Pelosi et al to pound sand last week.
Now they are all in [sort of] & it is just a matter of 'price' - who ponies up the 'volunteers' for the suicide mission. Gonna be political body bags on both sides I bet.
BTW - if I were a shitty Dem operator I'd have played 'good faith' for cameras then let it all blow up - and then campaigned like crazy against Bush-GOP excess backed by who gives a damn GOP congressional delegates... the worse the markets got the more 'we' would win. Complete BS & distortion but almost a certain winner at the polls in many, many districts.
Something really has these folks spooked - I doubt we've been told the full story.
Can anyone recommend further reading that might show a more positive (or even neutral)spin on all of this?
Try the "Trillion Dollar Meltdown" by Charles Morris, or "Bad Money" by Kevin Phillips.
What manner of $700 billion beast slouches towards Washington if Pelosi has to predicate its advance on those she denounces with every other word giving their consent?
I would suggest that it is because the Democrat party is a chimera. A gossamer of words whose real backing comes not from the 'Main Street" they speak of but from the 'Wall Street' they demagogue.
Mr Mortgage says Wells Fargo has never come clean on their bad loan exposure. What a shame...the pay option arm liar loan crime wave will get them too in the end.
Let these poisoned sharks eat each other and then let the last one standing...drop dead. In other words let the free market work.
Ive been speculating all week that the pressure being used on the Congress to pass the Paulson Plan is the threat of Fed illiquidity. As of two weeks ago, the Fed had lent out more than $600 billion of its $800 billion balance sheet Treasuries against crap MBS collateral.
The Paulson Plan would have allowed the banks to unwind the repos putting the Treasuries back in the Fed, get cash for the crap MBS, and get more Treasuries from the issues financing the $700+ billion funding of the Plan. As a bonus, the Paulson mark-to-maturity price becomes the implicit Level 3 price for capitalisation of all the firms and banks in the system, giving them some breathing room to stay in business. Everyone wins except the poor American taxpayer.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
a. China has threatened to dump Treasuries if their other US investments are not bailed out
b. Bush wants relative economic stability while Iran gets nuked
c. Paulson promised his buddies at Goldman Sachs that he'd save their 2008 bonuses
d. The Federal Reserve System is days away from failure, because it's got all this crap on its balance sheet
e. Bush owns stocks and real estate that he doesn't want to see lose value
f. The end of the dollar as the world's reserve currency
g. None of the above
Loans not held for Sale: $488.2 Bil
Allowance for loan loss: $ 10.7 Bil
Total Assets: $812.4 Bil
Total Tangible Assets: $773.5 Bil
Total Equity: $ 78.2 Bil
Total Tangible Equity: $ 39.3 Bil
So in a purchase scenario, Citi or Wells would only have about $40 billion or so of room to play with to further mark down Wachovia's loan portfolio. And remember that J.P. Morgan wrote down an extra $23 billion on Wamu's porfolio, and Wamu was 40% the size of Wachovia (though perhaps WB is less exposed to mortgages relatively speaking).
So I cannot see Warren Buffet letting Wells buy through a regular purchase. And Citicorp is already "too big to fail" so what do they get by overpaying for Wachovia.
Now Washington Mutual type scenario, where an FDIC takeover and declaration of insolvency allows for a legal rationale to leave bond holders behind...
Excellent piece on IHB! That "legitimacy" is ultimately represented by the dollar, and I've already predicted it's demise. The world will be an entirely different place thereafter.
Thanks! Yes, you're right, a nation's currency is a concrete representation of its legitimacy (although mixed somewhat with central bank issue) and without legitimacy the currency is just pieces of paper. Puts Keynes' claim "Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." in a new light I hadn't thought about.
Dryfly, I am inclined to agree with you. In situations like these one has to walk a fine line between getting the public to take the situation seriously and inciting panic.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
The Real Reason for the Rush
Comrade Bear (tj & the bear) | 09.28.08 - 7:32 pm | #
Comrade Bear - I hear ya about the Fed balance sheet but they don't need to do this to 'fix' that... it fails Occam's Razor. Just have congress float them a 100 year loan for a trillion bucks and the fed is 'recapitalized'... Treasury then sells 30 years to 'fund' it.
There is something else going on - like PBoC said "We start dumping if you don't back up what you owe us and do it NOW."
Huge European bank fails
European financial giant Fortis partially nationalized. Three governments to pour 11.2 billion euro ($16.4 billion) into the bank.
Dry Fly... and if I was running the GOP house I would campaign that this is all the fault of California and black run cities.
40% of the mortgage defaults are coming from California. Throw in the subprime crap from Cleveland, Detroit, etc and the third world communities around Washington and Miami and there you have it.
Democrat deadbeats all across America destroying the value of your home, your 401k,even the value of your money.
The man from Indonesia cannot be trusted because that is who supports him.
Fed illiquidity can be dealt with without all this back door stuff. Issue Treasuries and deposit them in the Fed. Cover story is easy - with the tremendous demand for short-term Treasuries, we need to increase the amount available without actually spending the money. Fed insolvency can be put off indefinitely since "deposits" can only be redeemed when the Fed wants.
What spooks the Dems is losing all the middle class gains in a crash. But they're holding the cards and Paulson's kneel was not mere levity. They just have to realize the game is to spin it as punishment not bailout.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
dryfly and tj-
the toxic sludge is on the books of most companies. as such, they are all doing worse than reported. Some are bankrupt and they do not yet know it. This would result in unemployment rates as high/higher than in the GD. The FED being tapped out is pretty obvious. They are in apanic mode because Hank showed the the mother of black swans....
answer? let's ditch FAS157!!! yeah! that'll work!
unit472: Sounds like you may have a lucrative career with the RNC.
None of this had to do with excessive leverage, of course. And the poor banks...how could they not have been fooled by all those clever "Third World" deadbeats, when all they have to protect them is the knowledge that got attending Harvard, Wharton, and Stanford Business Schools?
Doesn't Wells Fargo come out of this squeaky clean? They can take care of their Achilles heel (the billions of crappy CA, AZ resi paper) by unloading it into the bailout wood chipper and then they do an all-stock deal to win the bid for Wachovia... they are trading at 52 week high. Might as well put that equity to work while they still have it. Plus they have been making out like bandits... with WAMU refugees switching over everyday. Not to mention, Uncle Warren is an investor. So they basically are above the law. Must be nice.
Do the math, it ain't even close. You could give every 'minority' family in the country a half-million dollars and it would not be $700 billion.... and nobody has been giving anybody that kind of $$$.
On the fact, you are wrong.
unit472, sorry, but I'm in CA and the defaults are concentrated in Republican districts. If you look at $$$ value of defaults it's overwhelming. Low-income loans actually have a lower default rate than loans in generals.
Jim,
Excessive 'leverage' is a judgement call. I can be leveraged 30 to 1 in Marin County real estate and not be overleveraged. I can be leveraged 10 to 1 in Oakland and be dangerously over exposed. Don't you understand that
Depends on who your 'counterparties' are. Don't you understand that. If not you must be a Democrat or just stupid.
"Mike, don't the individual brokers have employment contracts with the company determining the ownership of the book of business and the purchase price paid either by the co. or the individual in buying that book?
Just asking. I have seen this done with insurance brokers vs. the individual sales/broker.
Anonymous | 09.28.08 - 7:09 pm "
I've never seen anything that can be enforced in any practical way. When a broker is going to leave Merrill and go to Morgan for example, they will generally call all their better accounts and give them a heads up. Once they are at the new firm they'll actively solicit them to move their accounts over - a simple Fed Ex to get a couple of signatures and the account can get transferred over via something known as ACATS.
It's been quite a long time since I was close to that end of the business in a meaningful way so maybe somethings have changed but it boils down to the broker and the relationship they have with the client - lots of times if the broker moves the clients move with them...
unit472 writes:
Dry Fly... and if I was running the GOP house I would campaign that this is all the fault of California and black run cities.
Don't forget the 'queers' in NYC - if you are gonna throw red meat make sure its not just an appetizer.
Those 'arguments' work in the Senate - not the House so much. Look at the districts. Heck something like HOR 50 are in Cali alone!! A bunch more in Boston-NY-DC corridor. Running agsainst Cali & NYC and you lose ~25% of the seats right out of the get go.
But something like 40 of the 100 senators come from rural almost all white god fearing fly-over states. I live there and have heard those 'arguments' - running against Cali & NYC is a winner out here for sure. No accident most senators from fly-over are GOP...
But HOR districts are population determined - the politics of the two are very different.
Dems could practice scorched earth if they wanted to in many HOR races - but the GOP would have to give them the 'ammo' to do it. They are trying very hard to not do that...
rich,
What I was suggesting was that if Citi took over Wachovia - the Wachovia (fka Wheat First Union) brokers would likely be less at risk versus the support staff. Citi has a pretty big brokerage sales force that is well supported - it would be easy in a short period of time to deploy Citi broker workstations to the Wachovia brokers and redirect their phone calls to the Citi trading desks.
If a broker is able to exceed their draw against commission the only cost to the firm is opportunity cost - ie could they get a different broker to use that same desk space would could generate more commissions for the firm.
All elected officials with a double digit lead in the polls shall vote aye. Others may vote no, unless passage seems unlikely, in which case we pass it unanimously without roll call. Deal?
ju writes, unit472 please leave. Why should I? That is the level of debate I have to expect from those who won't confront reality.
Shut up, go away, you are saying things that must not be said.
Would you tell Barney Frank to go away for he said the exact samething I am saying on Bloomberg TV. The truth slipped from his toothless dishonest mouth when he opined that 'some groups are not ready,, either financially or socially to own homes'! Barney Franks words not mine. Do you understand that?
There are differential default rates independant of income. I KNOW that. I live that. You cannot build a stable financial system by ignoring that all to real, if unpleasant reality.
What would you have the US government do? Ignore the fact that one sector of the populace, with the same income, is at at a demonstrably higher risk of defaulting than another?
I am just stunned. At this point regulators may just as well say that financial institutions don't need to file financial statements or reports. All investing will be based purely on guesses and all equities should be priced the same without metrics. What will stock analysts do for a living ?
Dry fly, if there is one thing I am not going to 'run against' in a real estate crisis it is running against the queers'. I am not a bigot!
Homosexuals are decidedly good for real property. Childless, for the most part, they do not impose heavy costs on local government. Well educated, typically, they hold good jobs and, if this is not 'homophobic' tend to be fashionable with a penchant for 'redecorating' their homes in a manner that benefits their neighbors.
On the other hand a section 8 renter or a municipal bus driver moving into a neigbhorhood that had been, previously, out of their reach, absent concessionary financial terms, is a disaster for the community they move into. Ralph Kramden is NOT a good neighbor and neither is Hector Gonzalez if his immigration status is suspect.
Thanks for the link. The post lays out the legitimacy issue very well, and I do not deny its importance, or the fact that a $700 billion bailout law will be a non-trivial chip off the legitimacy of the Federal Goverment.
But the post may be overstating its case.
Take ...From left to right, we Americans are unified against this plan - not necessarily against any intervention, but against this intervention
If they mean the Paulson 3-page plan from last weekend, then I would agree that there was very widespread opposition, from left to right. If they mean what seems likely to be voted on early this week, it is too early to say, but I would guess that from "moderate" left to "moderate" right, there will be a lot of people in the "this really sucks but is necessary" camp.
Now a disproportionate share of readers of CR, Naked Capitalism and the Irvine Housing Blog are various shades of libertarians, and no doubt for them, this bailout bill will be yet another serious blow to the legitimacy of the Federal Government. But let us remember that Ron Paul typically received between 5 and 10 percent of the vote among Republican Primary Voters. Now on the left, if we are looking for those for whom any sort of bailout law would be an unqualified outrage, we can look to the type of voters who voted for Nader in 2000 (or would have voted for him if Gore had a comfortable lead in the polls). That's another 5% of the electorate.
And that is only considering the universe of the 50% adult population that cares enough about public affairs to vote. If you consider that most non-voters (I know, some non-voters are principled anarchists, libertarians, etc) are at least as appalling uninformed and indifferent as a good chunk of voters (see Content Not Found : The New Yorker, you have to wonder how much of a difference this bailout law will make to an overall sense of illegitimacy amongst the public.
An even weaker assertion:
The United States government has tremendous legitimacy, partly by successfully leading us through two World Wars, a Depression, and the Cold War. But more importantly, we have a deep 200+ year tradition that all can participate in the political process and in some sense the governments decisions thus reflect our decisions. If a decision of this magnitude - one on which perhaps the future of the world depends - gets made, with us cut out, that legitimacy is lost.
All true as far as it goes, but history shows that lots of governments that are newly constituted after revolutions or defeated in war and have no history of any sort of sucess or tradition, are able to obtain the acceptance of their citizens or subjects. As the Declaration of Indepence also says "...all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves...".
Voluntary debt rehab. Enter the program, zombie bank. We'll get you lending again. But the party is over. We use a faith-based approach. Secretary Hank will be your facilitator.
The standard intro is to stand up and say, "Hi, I'm insolvent and I need help." This program has been generously funded with no strings attached by your patient taxpayer, who trusts you.
The first thing you did was asked for facts. I gave you the salient fact; you ignored it.
Once again, walk through this and do the math: There are _____ 'minority' households in the entire US.
Now, divide $700 billion by that number. Looks pretty non-sensical, doesn't it. Don't buy arguments about minority households somehow being a problem here. you are being misled. A minute or so of thought shows that that cannot possibly explain the situation.
They can take care of their Achilles heel (the billions of crappy CA, AZ resi paper) by unloading it into the bailout wood chipper and then they do an all-stock deal to win the bid for Wachovia...
That would imply that they will not make a move until after a bailout is passed. While it is very likely that it will be passed, it is not a 100% certainty, or even certain enough for them to make a deal assuming it will be passed.
Yet for all we know, the FDIC will pull the trigger on WB like it did with WM, even before passage of a bill.
Unit is wrong to blame this entirely on subprime loans, but your math proof of it weak. Just 3 million minority households (not even close to 1/3 of such households- minorities make up over one quarter of the 300+ million population) at just $250K would be $750 billion.
They are the single reason why Paulson came out with the Hanky-Panky-Superfund
The NY Fed had to lend them $138bn following Lehman's collapse to keep their heads above water. If the bailout doesn't pass, Citi couldn't pay them back, and the Fed is out $138bn which forces them to beg for more cash from the Treasury
Banco Santander wanted in on the bidding but were rebuffed due to political nonsense.
Wells can handle it if the price is cheap enough and makes for a nice expansion of the footprint, Citi couldn't organize a 2 car parade at this moment, but need to expand their depositor base in the worst way.
Not really surprising, but I suppose it is useful info to have a MSM outlet quoting an inside source.
All we can hope for is that passage of the bailout drags on, that there starts to be a run on WB's deposits not so big to make things much worse, but big enough to force the FDIC to act as it did with WaMu. I think most people here agree that it is better for the bondholders to pay than the taxpayers.
Then note that Citibank being the indenture trustee for $138 billion is not the same as being the creditor. An indenture trustee "is the agent of a bond issuer who handles all the administrative aspects of a loan, including ensuring that the borrower complies with the terms in the indenture." (404 File Not Found
Now I suppose it is possible that some or most of the $138 Billion is held by the $1 Trillion off-balance sheet entities sponsored by Citicorp, but is there any direct evidence for that?
first?
2nd or at least top 10.
th
short selling ban not working...
Fifth bidding for the fourth (asset size)?? Their website shows ratings are still Aaa; very puzzling!!
CR- "Probably all they have to do is wait ..."
They will.
In a nation without laws, paper assets have no value.
Suspension of FASB 157 is indeed a game changer.
Is Citi in a strong enough position itself to take on Wachovia? Well Fargo probably is, but Citi?????
an 80% haircut to WB Friday close sound about right?
How bout just confiscate the property rights, give the deposits to Buffett and throw the toxic assets back on the taxpayers....
its all contained, everythings going according to plan.
After the Shock and Awe.
It's now,
Bad + Worse = Good.
What would happen with Wachovias Financial Securities people? Not much need for them I would think. All the AG Edwards people?
Going to be a lot of layoffs close to Christmas this year I think.
I don't see how they can pay under these conditions. Something like the WaMu deal, with equity and debt wiped out is the only way that makes economic sense.
Option ARMs strike again.
Wells would be a more better fit.
Gut em. Could not happen to a finer bunch.
<a href="http://www.nytimes.com/2008/09/29/business/29hedge.html?ref=business>Hedge Funds Are Bracing for Investors to Cash Out
. . .never happen. . .
. . .keep buying. . .
May I humbly nominate one of the greatest bands to supply the appropriate thread music?
Waiting For The Worms
"Oooo you cannot reach me now,
Oooo no matter how you try.
Goodbye cruel world, its over.
Walk on by.
Sitting in a bunker,
Here behind my wall,
Waiting for the worms to come. ( worms to come. )
In perfect isolation,
Here behind my wall,
Waiting for the worms to come. ( worms to come. )...."
Citi is bankrupt, what the hell are they thinking bidding on Wachovia?
Are they expecting a big TARP payola?
The NET NET: Americans just have to
a) make more money per mo. ( few really can )
b) cut back on living beyond their means lifestyles
c) get a new dream and fast !
Sounds much like the WAMU timeline. They were offered $8 a share, refused... then were taken over anyway.
"What would happen with Wachovias Financial Securities people? Not much need for them I would think. All the AG Edwards people?
Going to be a lot of layoffs close to Christmas this year I think.
Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers.
I think this is a do-or-die deal for Citi. If they can't pull this one off, I'd argue they're next. As a depositor that is MUCH in excess of the FDIC limit, I know that at least from my perspective this is do-or-die. If they let Wells win this one, my contingency account at JPM is going to get an immediate transfer of all my Citi assets. If they pick up Wachoiva then they're certainly too big to fail... the only hope they have methinks.
Wachovia Bankthe nations fourth largestwas accused of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit. Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes.
Internal Wachovia email revealed high-ranking employees warned colleagues about telemarketing frauds routed through its accounts. Documents also indicate Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to companies that helped steal as much as $400 million from unsuspecting victims. Despite this, Wachovia continued processing fraudulent transactions, earning large fees every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months. We are making a ton of money from them, wrote Linda Pera, a Wachovia executive, about a company later accused by federal prosecutors of helping steal up to $142 million.
Source: Just google them
Mike in Long Island | 09.28.08 - 6:39 pm |
Thanks
Wachovia just opened a new branch here in Pacific Palisades. It's like 5 banks in 4 blocks, now. The new manager of the branch is 'very excited' to be in the Palisades. He keeps being interviewed saying, 'there's more than enough money to go around'. How's a bank branch manager afford the west side of LA, anyways? I bet he's gotta be sitting on a POA about to explode! Ironic, if not hilarious.
We want the deposits, baby! The deposits! With those we can bet on the next sure winner! No problemo! The deposits are insured, right?
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Yeah, but what of those year end bonuses? NYC real estate gonna take take a hit.
Wachovia is still in the midst if building a 46 story tower in uptown Charlotte. I don't think it's topped out yet, but it's close.
The Clearing House LLC boys are in a fight for their lives ... their bubble has busted ... and now they are fighting each other ...
Should Wells win Citi is history ... Citi has more derivatives than anyone else ... they will be the poster child ...
Wells finally makes a move... I was wondering when they'd step into the game. For none other than Wachovia... nice match up for them.
Should Wells win Citi is history ... Citi has more derivatives than anyone else ... they will be the poster child ...
I would add Citi needs Wachovia so that they are too HUGE to fail. Personally, break up Citi already as they are already gone.
Wells is healthy enough.
This is getting more and more interesting...
Got Popcorn?
Neil
"bw writes:
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Yeah, but what of those year end bonuses? NYC real estate gonna take take a hit.
bw | 09.28.08 - 6:44 pm | #
Well for one - Wachovia isn't based in NYC. Second, brokers work on draw against commission. They eat what they kill so to speak - retail brokers have payout grids - if you generate over 250,000 in commissions you get paid out 40%. Over 500,000 in commissions you get paid out 50%, over $1million you get a 60% payout etc. Brokers based on their production determine their own compensation pretty much.
There is no doubt that Wall Stree bonuses will be down tremendously this year - that however, has nothing to do with what might happen to Wachovia and the financial advisors that work there.
My question is the following: What promises were made to JPMorgan regarding the bailout and WaMu? Are they going to have access to the $700 billion retroactively? Will taxpayers be asked to soak up WaMu's bad debt for deals that passed before the bill?
"Wachovia Bankthe nations fourth largestwas accused of allowing fraudulent telemarketers to use the banks accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit. Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes."
One of the plaintiffs is reported by Reuters to be a disabled Social Security recipient.
For God's sake. Dickens would be jotting down his first draft.
I thought the raptors were going to attack Citi after Wachowia... so taking over W could be a move of rare genius...
One a week. Now its Wachovia's time to appear on American Iconoclast.
Intrade odds for passing plunged to 21%...
Suspension of Mark-to-Market accounting rules.
New rules: Mark-to-Hank!
"In a nation without laws, paper assets have no value."
All the commandments are gone, and all that is written there now is All animals are equal, But some animals are more equal than others.
Animal Farm by George Orwell
I bid $700,000,000,000.
I suppose that Citi could do an all stock deal. What do they have to lose?
I think anyone would need the cushion of the preferred and debt to be wiped out.
Wells should wait for a failure.
Wachovia Securities is under Federal criminal investigation. Don't know as if anyone would want to 'buy' into that without a USG waiver of immunity.
@karelian - that's because the intrade contract expires Sept. 30. Since it has been announced that the Senate won't vote on the bill until Wednesday (house votes on Monday), there is no way the bill can pass by Sept. 30. The 0.21 price on Intrade for pasing before 21% represents a no-brainer short opportunity... or at least shows that prediction markets can be dumber than a sack of hammers. The price for the contract should be 0.00
The bailout will pass, make no mistake about that. The intrade pricing is due to a technicality
Rolled some WB puts from Oct to Nov just in case this stretched out a bit, but a quick resolution would be nice.
Wells is healthy enough.
Neil
~~~~~~~~~~
I'd take a look at Well derivatives as well ... their derivatives were in the trillions , Citi's were in the tens of trillions.
Ok, but who is going to take Nat City?
At the final, critical meeting in negotiations on the $700 billion Wall Street bailout -- the last round of talks began at 10:40 p.m. Saturday and ended around 12:25 a.m. this morning - Treasury Secretary Hank Paulson was so short of breath that lawmakers called the Capitol physician because they were so concerned.
Paulson, 62, a former Dartmouth offensive tackle, told lawmakers he was fine and waved off the doctor, despite working around the clock for several days.
But as Paulson and Sen. Chuck Schumer (D-N.Y.) later walked to the microphones to address the media, they were locked arm in arm. Treasury confirmed moments ago that Schumer was steadying Paulson, helping him walk.
Treasury Confirms Paulson Woozy Spell - Live Coverage -
Elvis writes:
I bid $700,000,000,000.
Hmm. The dead king makes an offer for the walking dead using dead money. Sounds like a match to me.
Yay! Another mega-merger! To heck with too big to fail - let them merge until they are too big to audit! What you don't know can't hurt the economy!
Boehner calls bill a "crap sandwich" -- but he'll vote for it
In a closed-door session with House Republicans, Minority Leader John A. Boehner just called the financial rescue deal a crap sandwich then said hell vote for it when it comes to the floor Monday.
House Republicans are the key to the bills passage Speaker Nancy Pelosi said earlier today that its a bipartisan bill and will need bipartisanship to pass and it now appears that a substantial number of them will put cast their votes in favor of it.
According to a source in the room, the plan has so far won endorsements from Minority Whip Roy Blunt, who negotiated it on behalf of the House Republicans; Eric Cantor, the chief deputy whip; and Paul Ryan, a hard-core conservative from Wisconsin who may hold more sway with conservatives on this issue than any other member of the House.
But like Boehner, Ryan wasnt exactly happy about how things have unfolded. Referring to the situation facing the country and not the bill itself Ryan said, This sucks.
The bailout will pass, make no mistake about that.
SOMETHING will pass because they have to make like they're doing something. What that bill will be is another matter entirely.
Mmmmm.... so there are a lot of people who think the bill will pass before Senate votes for it.
That sounds like a bet that Monday will bring such a calamity that the Senate vote will be moved ahead. Seems extremely unlikely.
But please let's get back on topic here:
Inside John McCain's campaign the expectation is growing that there will be a popularity boosting pre-election wedding in Alaska between Bristol Palin, 17, and Levi Johnston, 18, her schoolmate and father of her baby. "It would be fantastic," said a McCain insider. "You would have every TV camera there. The entire country would be watching. It would shut down the race for a week."
Really, how could anyone vote on the basis of economics or foreign policy with such an adorable couple on display?
This clinches it for me.
Who's going to marry MS?
WSJ: Treasury officials say firms can choose to use insurance or bailout plans.
Pick your own bailout! Awesome! I can haz both?
Comrade Kristina writes:
Who's going to marry MS?
Are you offering?
Wells has played a cool hand to date. They've committed nothing. Luck has been with them: problems in CRE have been slow to develop.
Regarding Henry Paulson, feeling woozy, and refusing a MD:
Paulson is a Christian Scientist, and he's strictly so, he won't accept medical help (standard style).
Google: Henry Paulson, religio
I don't know who will 'marry' MS but that beauty CNBC brings on to talk about shorts is married to a V.P. there.
As both of them maybe out of a job I'd be interested in dating the blonde gal.
Wells is derivatives central. They've been VERY LUCKY so far.
The government has ... opposed taking over Wachovia the way it did Washington Mutual earlier this week, these people said, unless its financial position deteriorates more rapidly.
Oh, great, so this means an FDIC takeover is a slam-dunk.
Comrade Kristina writes:
Who's going to marry MS?
Are you offering?
JP | Homepage | 09.28.08 - 7:02 pm | #
Nah, we're just dating, they hold my mortgage
Wachovia did not had the bank run like WaMu did so they probably still have a few deposits.
Comrade Bear (tj & the bear) writes:
Wells is derivatives central.
~~~~
As far I know wells is down the list behind Citi, JP Morgan, Goldman and BAC ...
order may have changed ...
MSNBC is showing the dark brown mahogany doors live....
They will open like Gates of Mordor and spew forth a GOP minion any moment now.
Looks like the meeting is running 30 min over... bad sign.
excerpt from W.B Yeats:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
mmckinl,
You're right, JPM is the king of CDS. I'm confusing myself.
GS is the king of Level 3, too; talk about being lucky so far.
lol karelian "Gates of Mordor"
The FDIC can't afford Wachovia. That is reality. This bank is 20 times the size of IndyMac and three times the size of WAMU.
I've got a CD with them as much as it pains me to admit it. They were offering 4.25% so I rolled over a CD
from SunTrust to this 'bank'. While sitting in the branch managers office I asked him if he was 'worried'. He said no, he had put all of his 401K in WB stock. I wished him well.
The House vote should be fascinating. I suspect that a lot of Democrats will be allowed to vote no if enough Republicans can be found to vote yes. You might even see a real game of chicken tomorrow as the votes are tallied, with switches back and forth.
Mike in Long Island writes:
"bw writes:
"Actually any of the brokers that have a book of business will be fine. Brokers don't cost money - they generate money for the firms. Back office, operations, trade support desk types yeah they would be in jeopardy but not the brokers."
Mike, don't the individual brokers have employment contracts with the company determining the ownership of the book of business and the purchase price paid either by the co. or the individual in buying that book?
Just asking. I have seen this done with insurance brokers vs. the individual sales/broker.
The view from the netroots left:
Kos on dailyKos:
So who will vote for this piece of crap bailout? Only those who don't need to face the voters this year, apparently.
November? Do these jokers actually think this won't be a lasting political issue? Heck, I'm praying that the Bush Dogs (really bad Democrats) vote for this thing, just so that 1) it helps generate strong primary challengers in their districts, and 2) so that we can wield the vote against them in those primaries.
I believe more of the Dem. House caucus are progressives than the number of Blue Dogs.
karelian writes:
Looks like the meeting is running 30 min over... bad sign.
karelian | 09.28.08 - 7:07 pm | #
Bad in a 'good' sort of a way?
Yancey,
I don't know how they could get away with that (Dems voting no). If I were a reluctant Republican I wouldn't hesitate to vote no if a single Democrat did so.
"He said no, he had put all of his 401K in WB stock. I wished him well."
unit472 | 09.28.08 - 7:08 pm |
Good rate on the CD, but #23 on my list of "Personal Banking Rules" I think applies:
23) Never bank with someone who is either a) clearly retarded; or b) very likely has recently sustained a closed head injury.
MSNBC said the meeting was expected to be 60 min... it has run over... unusually few people leaving.
Sounds like they might fail to get to 50% - which would trigger Dem revolt.
From the new rules -
Wow. 0% reserves. I can't quite figure out how it's possible to have reserves less than 0%. How can any institution every become undercapitalized.
With this rule ALL BANKS WILL ALWAYS BE WELL CAPITALIZED.
Why would WB need to sell itself ?
fair economist-
just read your essay (its here ).
very well written. it eloquently summarizes the frustration i have been feeling for the past week.
well done.
I don't know how they could get away with that (Dems voting no). If I were a reluctant Republican I wouldn't hesitate to vote no if a single Democrat did so.
Comrade Bear (tj & the bear) | 09.28.08 - 7:10 pm | #
Dems won't go lock step either - my guess is Boner & Pelosi have negotiated 'quotas' each have to deliver or no deal. Dems have to deliver more but not all, GOP can have more fallout but still have to deliver at least half their caucus...
Log rolling behind closed doors. Nice to see some stuff never changes.
Simple document to fax to your senators and representatives
File Savr - Free File Hosting
intrade at 21x24 for bill passing. (Essentially equating to 22% chance of passage.)
Active trading. Was at over 50% yesterday.
I can't quite figure out how it's possible to have reserves less than 0%.
If you do, you probably have a future in modern banking... or as an adviser to the next Treasury Sec'ty.
there is a meeting goin' on right now ?
Crypt:
Democratic support won't be unanimous
House Majority Leader Steny Hoyer says the financial rescue plan is something a large majority of both parties can and will support.
He may be right House Republican leaders were endorsing the plan Sunday evening but its clear that the bill wont have unanimous support among Democrats.
Rep. Brad Sherman spoke out against the bill during a Democratic caucus meeting this evening, and at least a handful of other liberal Democrats are also expected to oppose it.
Emerging from the room, Rep. Joe Baca said that sentiments were evenly split inside. There are still a lot of unanswered questions, he said.
Baca said that members are still not sold on the bill and that hes leaning towards voting no himself.
But another Democrat, Rep. Carolyn Maloney, said she thought that the votes are going to be there on the Democratic side to pass it.
Simple document to fax to your senators and representatives
If you can spare the moments, write your own. When the staffer doesn't recognize a form letter, it's worth more points. Really.
dryfly,
I can see that, but it's the DEMs deal and if they show any slippage whatsoever then the whole thing collapses.
Citi is hoping for a deal like JPM got for wamu. Where they get 300 bn in assets for 200bn as the 58bn of the FHLB and 30bn of debt holders get zilch.
Ministry of Truth writes:
Simple document to fax to your senators and representatives
File Savr - Free File Hosting
Ministry of Truth | Homepage | 09.28.08 - 7:15 pm | #
If you really give a damn take a minute & write your own - in your own words - far more effective. They see lotsa biler plate.
Paulson is a Christian Scientist, and he's strictly so, he won't accept medical help (standard style).
A dramatic twist!
I celebrate his piety, and I say that with frank and perfect sincerity. He leave himself open to the judgment of God. God answers. Being so despicable, it is really amazing that he is so willing to submit himself to the will of the divine. I hope the judges of the underworld take this into account when they weigh his thievish heart.
I've been waiting to see who was the first casualty of the pressure of modern crisis leadership. Looks like we have a winner.
if you add reps and dems it will pass
Fair Economist,
Excellent piece on IHB! That "legitimacy" is ultimately represented by the dollar, and I've already predicted it's demise. The world will be an entirely different place thereafter.
intrade at 21x24 for bill passing. (Essentially equating to 22% chance of passage.)
Active trading. Was at over 50% yesterday.
That's for the bill to pass by September 30. Given that the Senate is not expected to vote on it until Wednesday, that's why the odds are so low.
dryfly writes:
...
If you really give a damn take a minute & write your own - in your own words - far more effective. They see lotsa biler plate.
I totally agree but thought the lazy might participate if it was handed to them. LOL!!!
But the dems will not be there if only 40% of GOP backs this thing - Pelosi promised that Dems have the right to back out if GOP won't follow through.
She ain't that naive. She built a dead man's switch into Democratic support.
Oh, it appears the FHLB still has some debt. What about the other 42 billion?
MarketWatch.com
As a result of the transaction, approximately $16 billion of Federal Home Loan Bank of Seattle advances outstanding to Washington Mutual, FSB are now outstanding to JPMorgan Chase. The Federal Home Loan Bank of Seattle remains fully collateralized on these advances.
Opinions on the "weak link"? That's where the fire needs to be concentrated.
Paulson on 60 minutes got his its all contained talk thrown back in his face!
whats on those 4 screens he's been watching?
Paulson and Pelosi called it a moment of levity, when asked if the kneeling incident took place. LOL
"got his its all contained talk thrown back in his face!"
It's about time. A little public humiliation might do him some good.
hey Pelosi is on MSNBC
weakest link?
I am still of the mindset that when the Euros get to the point we are right now...
France or Italy balks and leaves the Euro.....its better than marital law.
I have been reading this blog for over a week and have a much better understanding of all of this than I had before(suffice it to say that I was clueless before my reading). Can anyone recommend further reading that might show a more positive (or even neutral)spin on all of this?
People! I know these bankers. They will f**k you without a kiss. One day you'll think, "it would have been nice to at least have gotten a kiss." But, no! -- nooooooo! -- you'll realize that you were f***ed without a kiss.
Italians won't leave the euro... they will be thrown out next year to preserve the union.
Anonyshe ,
wall street journal
fox news
Pelosi "the party is over" msnbc
o estanta culpemia
I can see that, but it's the DEMs deal and if they show any slippage whatsoever then the whole thing collapses.
Comrade Bear (tj & the bear) | 09.28.08 - 7:18 pm | #
BELIEVE ME - GOP has skin in this game or they would have walked LONG AGO. Remember who INITIATED it - Pelosi Reid didn't drag Paulson to that meeting last Wednesday.
I have no idea what boogie man Hank showed them but they are obviously all sufficiently spooked or the GOP would have told Pelosi et al to pound sand last week.
Now they are all in [sort of] & it is just a matter of 'price' - who ponies up the 'volunteers' for the suicide mission. Gonna be political body bags on both sides I bet.
BTW - if I were a shitty Dem operator I'd have played 'good faith' for cameras then let it all blow up - and then campaigned like crazy against Bush-GOP excess backed by who gives a damn GOP congressional delegates... the worse the markets got the more 'we' would win. Complete BS & distortion but almost a certain winner at the polls in many, many districts.
Something really has these folks spooked - I doubt we've been told the full story.
Can anyone recommend further reading that might show a more positive (or even neutral)spin on all of this?
Try the "Trillion Dollar Meltdown" by Charles Morris, or "Bad Money" by Kevin Phillips.
Regarding "weak link" I meant politicians.
What manner of $700 billion beast slouches towards Washington if Pelosi has to predicate its advance on those she denounces with every other word giving their consent?
I would suggest that it is because the Democrat party is a chimera. A gossamer of words whose real backing comes not from the 'Main Street" they speak of but from the 'Wall Street' they demagogue.
I'm still stuck on 0% reserves.
FDIC is out of business. No need for them any more. Save money on regulators.
And no need for audits either. No level 3 or level 2 assets. Everything is marked up to par.
And I thought a lack of regulation was widely accepted as responsible for the problems
This new set of rules is a game changer for sure. Investors should feel more confident now.
Anonyshe | 09.28.08 - 7:26 pm | #
Galbraith - Crash of 1929 - Written in the 50's, dry humor and relevant today. So much so, that it is depressing.
Mr Mortgage says Wells Fargo has never come clean on their bad loan exposure. What a shame...the pay option arm liar loan crime wave will get them too in the end.
Let these poisoned sharks eat each other and then let the last one standing...drop dead. In other words let the free market work.
dryfly "The American Public can't handle the truth!!!"
dryfly,
Ive been speculating all week that the pressure being used on the Congress to pass the Paulson Plan is the threat of Fed illiquidity. As of two weeks ago, the Fed had lent out more than $600 billion of its $800 billion balance sheet Treasuries against crap MBS collateral.
The Paulson Plan would have allowed the banks to unwind the repos putting the Treasuries back in the Fed, get cash for the crap MBS, and get more Treasuries from the issues financing the $700+ billion funding of the Plan. As a bonus, the Paulson mark-to-maturity price becomes the implicit Level 3 price for capitalisation of all the firms and banks in the system, giving them some breathing room to stay in business. Everyone wins except the poor American taxpayer.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
The Real Reason for the Rush
What has them spooked? Your choice:
a. China has threatened to dump Treasuries if their other US investments are not bailed out
b. Bush wants relative economic stability while Iran gets nuked
c. Paulson promised his buddies at Goldman Sachs that he'd save their 2008 bonuses
d. The Federal Reserve System is days away from failure, because it's got all this crap on its balance sheet
e. Bush owns stocks and real estate that he doesn't want to see lose value
f. The end of the dollar as the world's reserve currency
g. None of the above
OK - two hours. New Zealand bourse is trading up by 1%.
Apparently the world is not ending. If they could not whip the rebels into shape in two hours, they will not be able to do it now.
GOP will not make it to 50% support, Pelosi will yank Dem support and this will not go to vote on Monday.
This new set of rules is a game changer for sure. Investors should feel more confident now.
bearly | 09.28.08 - 7:31 pm | #
What's to not be confident about? 0% reserves and 'Mark-To-Hank'? What could possibly go wrong?
Some relevant facts re Wachovia from
their 6/30/2008 (unaudited)Balance Sheet
http://ccbn.10kwizard.com/xml/download.php?format=PDF&ipage=5823025
Loans not held for Sale: $488.2 Bil
Allowance for loan loss: $ 10.7 Bil
Total Assets: $812.4 Bil
Total Tangible Assets: $773.5 Bil
Total Equity: $ 78.2 Bil
Total Tangible Equity: $ 39.3 Bil
So in a purchase scenario, Citi or Wells would only have about $40 billion or so of room to play with to further mark down Wachovia's loan portfolio. And remember that J.P. Morgan wrote down an extra $23 billion on Wamu's porfolio, and Wamu was 40% the size of Wachovia (though perhaps WB is less exposed to mortgages relatively speaking).
So I cannot see Warren Buffet letting Wells buy through a regular purchase. And Citicorp is already "too big to fail" so what do they get by overpaying for Wachovia.
Now Washington Mutual type scenario, where an FDIC takeover and declaration of insolvency allows for a legal rationale to leave bond holders behind...
Excellent piece
on IHB! That "legitimacy" is ultimately represented by the dollar, and I've already predicted it's demise. The world will be an entirely different place thereafter.
Thanks! Yes, you're right, a nation's currency is a concrete representation of its legitimacy (although mixed somewhat with central bank issue) and without legitimacy the currency is just pieces of paper. Puts Keynes' claim "Lenin was right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." in a new light I hadn't thought about.
Well the Skins beat the Cowboys. All is well in this crazy mixed up, muddled up, shook up world.
gelboak
news : Citi is not too big to fail, it is too big to save ...
Dryfly, I am inclined to agree with you. In situations like these one has to walk a fine line between getting the public to take the situation seriously and inciting panic.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
The Real Reason for the Rush
Comrade Bear (tj & the bear) | 09.28.08 - 7:32 pm | #
Comrade Bear - I hear ya about the Fed balance sheet but they don't need to do this to 'fix' that... it fails Occam's Razor. Just have congress float them a 100 year loan for a trillion bucks and the fed is 'recapitalized'... Treasury then sells 30 years to 'fund' it.
There is something else going on - like PBoC said "We start dumping if you don't back up what you owe us and do it NOW."
Suspension of FASB 157 is indeed a game changer.
Ross | 09.28.08 - 6:31 pm | #
no shit. i haven't had confidence in my investments for over 3 years, but this is a dealbreaker. i am canning my 401k and will stash the $ elsewhere
Huge European bank fails
European financial giant Fortis partially nationalized. Three governments to pour 11.2 billion euro ($16.4 billion) into the bank.
Business, financial, personal finance news - CNNMoney.com
Dry Fly... and if I was running the GOP house I would campaign that this is all the fault of California and black run cities.
40% of the mortgage defaults are coming from California. Throw in the subprime crap from Cleveland, Detroit, etc and the third world communities around Washington and Miami and there you have it.
Democrat deadbeats all across America destroying the value of your home, your 401k,even the value of your money.
The man from Indonesia cannot be trusted because that is who supports him.
If you do, you probably have a future in modern banking...
I think it's now post-modern banking.
The concept of reserves is just another discourse of power.
Fed illiquidity can be dealt with without all this back door stuff. Issue Treasuries and deposit them in the Fed. Cover story is easy - with the tremendous demand for short-term Treasuries, we need to increase the amount available without actually spending the money. Fed insolvency can be put off indefinitely since "deposits" can only be redeemed when the Fed wants.
unit472 writes:
Dry Fly... and if I was running the GOP house I would campaign that this is all the fault of California and black run cities.
~~~~~
I guess this comment speaks for itself but I for one am not amused one bit ...
What spooks the Dems is losing all the middle class gains in a crash. But they're holding the cards and Paulson's kneel was not mere levity. They just have to realize the game is to spin it as punishment not bailout.
Poor, poor Paulson. Who would have guessed extreme villainy would be detrimental to one's health. F him.
Fair Economist,
The Treasury already announced plans to bolster the Fed; that's why gold skyrocketed overnight a short while back.
Blessed be Mary, Mother of God.... "the members we talk to will go home and think about it"
Sounds like they can't even take a count.
What could go wrong, Dryfly? Well, a lot could go wrong.
The Fed is very close to being illiquid. That is the fear factor we are seeing at work, and the reason no one will discuss why the bailout is needed - only emphasise the urgency.
dryfly and tj-
the toxic sludge is on the books of most companies. as such, they are all doing worse than reported. Some are bankrupt and they do not yet know it. This would result in unemployment rates as high/higher than in the GD. The FED being tapped out is pretty obvious. They are in apanic mode because Hank showed the the mother of black swans....
answer? let's ditch FAS157!!! yeah! that'll work!
karelian,
More than a few politicos may be (rightfully) seeing this as determining their futures in public service.
what is really over for pelosi i don't understand
unit472: Sounds like you may have a lucrative career with the RNC.
None of this had to do with excessive leverage, of course. And the poor banks...how could they not have been fooled by all those clever "Third World" deadbeats, when all they have to protect them is the knowledge that got attending Harvard, Wharton, and Stanford Business Schools?
There is no Euro currency if Italy is "kicked-out". Jesus, what a stupid statement.
New thread.
mmckinl, I wouldn't expect a partisan person to be amused. There is really nothing funny about it but it is the truth.
Mortgage defaults are heavily concentrated amongst Democrat voting blocs.
You can try and say it isn't true but I submit it is. Where is your evidence that it is not?
Doesn't Wells Fargo come out of this squeaky clean? They can take care of their Achilles heel (the billions of crappy CA, AZ resi paper) by unloading it into the bailout wood chipper and then they do an all-stock deal to win the bid for Wachovia... they are trading at 52 week high. Might as well put that equity to work while they still have it. Plus they have been making out like bandits... with WAMU refugees switching over everyday. Not to mention, Uncle Warren is an investor. So they basically are above the law. Must be nice.
unit472
Do the math, it ain't even close. You could give every 'minority' family in the country a half-million dollars and it would not be $700 billion.... and nobody has been giving anybody that kind of $$$.
On the fact, you are wrong.
Wall Street paper pushers, notoriously pro-Republican, will soon be defaulting if bipartisan common sense resistance emerges.
mmckini, you may ignore unit472.
He is genuinely one ill mofo, and he is a perfect example of why this nation is truly a no-hoper.
"the members we talk to will go home and think about it"
That's the best course. Go home and find out what your constituents think.
KILL THE BILL !!!!
unit472, sorry, but I'm in CA and the defaults are concentrated in Republican districts. If you look at $$$ value of defaults it's overwhelming. Low-income loans actually have a lower default rate than loans in generals.
Jim,
Excessive 'leverage' is a judgement call. I can be leveraged 30 to 1 in Marin County real estate and not be overleveraged. I can be leveraged 10 to 1 in Oakland and be dangerously over exposed. Don't you understand that
Depends on who your 'counterparties' are. Don't you understand that. If not you must be a Democrat or just stupid.
The Texas Ratio calculation is now completely useless. There is no way to value a financial institution. So why not let WB just keep rolling ?
The way I see it taking 50 bucks out of an ATM could wipe a bank out on any given day.
FairEcon and NullP
The legitimacy of this bailout decision is an issue I've been trying to figure out how to get into a letter to my congress critters.
Thanks for pointing FairEcon's out... You've just about written the letter for me. Heck, I'll point it out to some friends as well.
There are a lot of people who are outraged (my mom?! grandad?! boss?!). Smart people who normally just shrug, and figure it's not that big a deal.
It's a big deal this time.
Please. The brokers do all the back-office, compliance, margin loan, operations work themselves?
There's vast overcapacity in brokers because a lot of rich investors are going elsewhere, getting out of crapola accounts and firms.
Many unproductive, superfluous brokers will soon be on the street, along with all the people who support them.
"Mike, don't the individual brokers have employment contracts with the company determining the ownership of the book of business and the purchase price paid either by the co. or the individual in buying that book?
Just asking. I have seen this done with insurance brokers vs. the individual sales/broker.
Anonymous | 09.28.08 - 7:09 pm "
I've never seen anything that can be enforced in any practical way. When a broker is going to leave Merrill and go to Morgan for example, they will generally call all their better accounts and give them a heads up. Once they are at the new firm they'll actively solicit them to move their accounts over - a simple Fed Ex to get a couple of signatures and the account can get transferred over via something known as ACATS.
It's been quite a long time since I was close to that end of the business in a meaningful way so maybe somethings have changed but it boils down to the broker and the relationship they have with the client - lots of times if the broker moves the clients move with them...
Dem. Rahm Emanuel (IL)venting on msnbc
unit472 leave please
unit472 writes:
Dry Fly... and if I was running the GOP house I would campaign that this is all the fault of California and black run cities.
Don't forget the 'queers' in NYC - if you are gonna throw red meat make sure its not just an appetizer.
Those 'arguments' work in the Senate - not the House so much. Look at the districts. Heck something like HOR 50 are in Cali alone!! A bunch more in Boston-NY-DC corridor. Running agsainst Cali & NYC and you lose ~25% of the seats right out of the get go.
But something like 40 of the 100 senators come from rural almost all white god fearing fly-over states. I live there and have heard those 'arguments' - running against Cali & NYC is a winner out here for sure. No accident most senators from fly-over are GOP...
But HOR districts are population determined - the politics of the two are very different.
Dems could practice scorched earth if they wanted to in many HOR races - but the GOP would have to give them the 'ammo' to do it. They are trying very hard to not do that...
Be interesting.
unit472, please take your racism somewhere else.
unit472, please take your racism somewhere else.
Heaven knows there are enough places where it will be welcome.
rich,
What I was suggesting was that if Citi took over Wachovia - the Wachovia (fka Wheat First Union) brokers would likely be less at risk versus the support staff. Citi has a pretty big brokerage sales force that is well supported - it would be easy in a short period of time to deploy Citi broker workstations to the Wachovia brokers and redirect their phone calls to the Citi trading desks.
If a broker is able to exceed their draw against commission the only cost to the firm is opportunity cost - ie could they get a different broker to use that same desk space would could generate more commissions for the firm.
All elected officials with a double digit lead in the polls shall vote aye. Others may vote no, unless passage seems unlikely, in which case we pass it unanimously without roll call. Deal?
Worked for FDR.
RhodesianGreenbackinAZ writes:
unit472, please take your racism somewhere else.
RhodesianGreenbackinAZ | 09.28.08 - 7:53 pm | #
He makes a point - I fully expect many GOPers to run against big city Sodum & Gomorrah - its usually a winner out here.
But the Dems have their own 'red meat' - and one of them is 'economic' - feeding workers' fears that GOP is all about 'corporations over people'...
Dems will feed those flames if this 'rescue' blows up - the market tanks - and GOP is made to look like the cause.
Like I said - it is going to get interesting.
ju writes, unit472 please leave. Why should I? That is the level of debate I have to expect from those who won't confront reality.
Shut up, go away, you are saying things that must not be said.
Would you tell Barney Frank to go away for he said the exact samething I am saying on Bloomberg TV. The truth slipped from his toothless dishonest mouth when he opined that 'some groups are not ready,, either financially or socially to own homes'! Barney Franks words not mine. Do you understand that?
There are differential default rates independant of income. I KNOW that. I live that. You cannot build a stable financial system by ignoring that all to real, if unpleasant reality.
What would you have the US government do? Ignore the fact that one sector of the populace, with the same income, is at at a demonstrably higher risk of defaulting than another?
El Cliffo writes:
What could go wrong, Dryfly? Well, a lot could go wrong.
El Cliffo | Homepage | 09.28.08 - 7:43 pm | #
El Cliffo - I use that as a 'screen saver' on really bad days. LOL!!
Say the dollars spent for this bill pushes food prices in China up a mere %15. Will the lowly assembly line serf push back?
Top 25 commercial banks derivatives holdings as of 3/08
In Trillions
JP Morgan $89.9
Bac $37.9
Citi $37.6
Wachovia $4.8
HSBC $4.2
Wells $1.4
http://www.occ.treas.gov/ftp/release/2008-74a.pdf
I am just stunned. At this point regulators may just as well say that financial institutions don't need to file financial statements or reports. All investing will be based purely on guesses and all equities should be priced the same without metrics. What will stock analysts do for a living ?
ju and Jim-
Get GreaseMonkey... use it.
unit - get lost.
What will stock analysts do for a living ?
LOL - what they've always done - make stuff up for CNBC.
joeblo do i need to create the scripts myself ?
ju, no just us the killfile script
Wow, local news just teased the 10'oclock news: "Breakdown of the Bailout Plan and what it means to you."
J6P thinks it's dead?
I'd like to get in on the bidding if I could ... I have a dead hamster, chewing gum wrapper and several small bits of string. I like my chances ...
Dry fly, if there is one thing I am not going to 'run against' in a real estate crisis it is running against the queers'. I am not a bigot!
Homosexuals are decidedly good for real property. Childless, for the most part, they do not impose heavy costs on local government. Well educated, typically, they hold good jobs and, if this is not 'homophobic' tend to be fashionable with a penchant for 'redecorating' their homes in a manner that benefits their neighbors.
On the other hand a section 8 renter or a municipal bus driver moving into a neigbhorhood that had been, previously, out of their reach, absent concessionary financial terms, is a disaster for the community they move into. Ralph Kramden is NOT a good neighbor and neither is Hector Gonzalez if his immigration status is suspect.
Fair Economist:
Thanks for the link. The post lays out the legitimacy issue very well, and I do not deny its importance, or the fact that a $700 billion bailout law will be a non-trivial chip off the legitimacy of the Federal Goverment.
But the post may be overstating its case.
Take ...From left to right, we Americans are unified against this plan - not necessarily against any intervention, but against this intervention
If they mean the Paulson 3-page plan from last weekend, then I would agree that there was very widespread opposition, from left to right. If they mean what seems likely to be voted on early this week, it is too early to say, but I would guess that from "moderate" left to "moderate" right, there will be a lot of people in the "this really sucks but is necessary" camp.
Now a disproportionate share of readers of CR, Naked Capitalism and the Irvine Housing Blog are various shades of libertarians, and no doubt for them, this bailout bill will be yet another serious blow to the legitimacy of the Federal Government. But let us remember that Ron Paul typically received between 5 and 10 percent of the vote among Republican Primary Voters. Now on the left, if we are looking for those for whom any sort of bailout law would be an unqualified outrage, we can look to the type of voters who voted for Nader in 2000 (or would have voted for him if Gore had a comfortable lead in the polls). That's another 5% of the electorate.
And that is only considering the universe of the 50% adult population that cares enough about public affairs to vote. If you consider that most non-voters (I know, some non-voters are principled anarchists, libertarians, etc) are at least as appalling uninformed and indifferent as a good chunk of voters (see Content Not Found : The New Yorker, you have to wonder how much of a difference this bailout law will make to an overall sense of illegitimacy amongst the public.
An even weaker assertion:
The United States government has tremendous legitimacy, partly by successfully leading us through two World Wars, a Depression, and the Cold War. But more importantly, we have a deep 200+ year tradition that all can participate in the political process and in some sense the governments decisions thus reflect our decisions. If a decision of this magnitude - one on which perhaps the future of the world depends - gets made, with us cut out, that legitimacy is lost.
All true as far as it goes, but history shows that lots of governments that are newly constituted after revolutions or defeated in war and have no history of any sort of sucess or tradition, are able to obtain the acceptance of their citizens or subjects. As the Declaration of Indepence also says "...all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves...".
unit472 writes:
mmckinl, I wouldn't expect a partisan person to be amused. There is really nothing funny about it but it is the truth.
Mortgage defaults are heavily concentrated amongst Democrat voting blocs.
Like white oil workers in Houston ? Why do you think they call a measure of bank distress the Texas ratio?
unit472 sez: Mortgage defaults are heavily concentrated amongst Democrat voting blocs.
Oh yeah, the biggest concentration of CA defaults is in the central valley and east of LA, which is pure red GOP territory.
Please engage mind before your mouth.
Voluntary debt rehab. Enter the program, zombie bank. We'll get you lending again. But the party is over. We use a faith-based approach. Secretary Hank will be your facilitator.
The standard intro is to stand up and say, "Hi, I'm insolvent and I need help." This program has been generously funded with no strings attached by your patient taxpayer, who trusts you.
New version of bailout bill???
http://i.cdn.turner.com/money/2008/images/09/28/ayo08c04_xml.pdf
unit472,
The first thing you did was asked for facts. I gave you the salient fact; you ignored it.
Once again, walk through this and do the math: There are _____ 'minority' households in the entire US.
Now, divide $700 billion by that number. Looks pretty non-sensical, doesn't it. Don't buy arguments about minority households somehow being a problem here. you are being misled. A minute or so of thought shows that that cannot possibly explain the situation.
Brian the "bailout bill" is here
House Financial Services Committee
RhodesianGreenbackinAZ:
You wrote:
They can take care of their Achilles heel (the billions of crappy CA, AZ resi paper) by unloading it into the bailout wood chipper and then they do an all-stock deal to win the bid for Wachovia...
That would imply that they will not make a move until after a bailout is passed. While it is very likely that it will be passed, it is not a 100% certainty, or even certain enough for them to make a deal assuming it will be passed.
Yet for all we know, the FDIC will pull the trigger on WB like it did with WM, even before passage of a bill.
Wally,
Unit is wrong to blame this entirely on subprime loans, but your math proof of it weak. Just 3 million minority households (not even close to 1/3 of such households- minorities make up over one quarter of the 300+ million population) at just $250K would be $750 billion.
I would find another line of attack.
ju- (sorry for everyone this is offtopic)
If you use Firefox just install the Greasemonkey add-on.
Greasemonkey
Then click the javascript install button on:
killfile for Greasemonkey
Now every time you spot a troll just click the [kill / hide comment] link.
That troll or comment will never bother you again :^)
=== It looks like this before ===
ju writes:
joeblo do i need to create the scripts myself ?
ju | 09.28.08 - 8:15 pm | # [kill][hide comment]
=== And this after ===
Comment by unit472 blocked. [unkill][show comment]
So who knows where the $700B is coming from? Sounds like they need this cash ASAP to start buying stuff..
Is China doing a wire transfer once the Bush signs the bill?
I'm curious how exactly the Feds come up with $700B so quickly.
re: Citi
They are the single reason why Paulson came out with the Hanky-Panky-Superfund
The NY Fed had to lend them $138bn following Lehman's collapse to keep their heads above water. If the bailout doesn't pass, Citi couldn't pay them back, and the Fed is out $138bn which forces them to beg for more cash from the Treasury
Banco Santander wanted in on the bidding but were rebuffed due to political nonsense.
Wells can handle it if the price is cheap enough and makes for a nice expansion of the footprint, Citi couldn't organize a 2 car parade at this moment, but need to expand their depositor base in the worst way.
After reading some of the rule changes in the bailout bill there is now no denying it - The USA IS a Banana Republic.
Last I heard 94% of American mortgage holders are paying their loans.
Isn't it just a bit hard to believe that 6% are bringing down the world credit markets.
Financial Times:
Wachovia takeover rests on bail-out
FT.com / Financials - Wachovia takeover rests on bail-out
Not really surprising, but I suppose it is useful info to have a MSM outlet quoting an inside source.
All we can hope for is that passage of the bailout drags on, that there starts to be a run on WB's deposits not so big to make things much worse, but big enough to force the FDIC to act as it did with WaMu. I think most people here agree that it is better for the bondholders to pay than the taxpayers.
EvilHenryPaulson:
Re: the $138 billion lent to C by the Fed. Do you have a source?
EvilHenryPaulson:
Further note on my previous question,
if your source is the Lehman bankruptcy filing
http://www.creditslips.org/creditslips/Lehman.pdf
Then note that Citibank being the indenture trustee for $138 billion is not the same as being the creditor. An indenture trustee "is the agent of a bond issuer who handles all the administrative aspects of a loan, including ensuring that the borrower complies with the terms in the indenture." (404 File Not Found
Now I suppose it is possible that some or most of the $138 Billion is held by the $1 Trillion off-balance sheet entities sponsored by Citicorp, but is there any direct evidence for that?
For however much or little it is worth, Citibank is publicly saying that the $138 billion is administrative
(Citigroup says mention in Lehman bankruptcy not exposure - MarketWatch
Mortgage defaults are heavily concentrated amongst Democrat voting blocs.
In CA that is patently false. Look at the Central Valley, Riverside, SB & OC. All Repub. strongholds and drowning in FCs.