emo....come on, you're stealing both first AND my joke from the last thread.

Data point on Wachovia. Today friends who had over 100K in a Wachovia account went down to their local branch to withdraw the excess. Teller tried to talk them out of it. Finally got a cashier's check, drove down the street to the local BofA branch to deposit said cashier's check, and was told that there would be a 10 calendar day hold on it, even though it's a cashier's check. FWIW.

Hey CR --

Nemo, well it won't be the end of the world, but I do think there will be serious banking problems

Worth spending $1 trillion on now? Or worth waiting for an actual "situation" and then deciding whether to allocate these sorts of resources? This what I am struggling with... And my gut says "wait".

Out of curiosity, have you called or written your Representative and Senators? If so, what opinion did you express? Or is this one where you do not have a sufficiently strong opinion?

Just curious how you think about these things.

P.S. For the record, "fortis" is Latin for "strong".

P.P.S. I think it would be great if somebody started posting as "doc bank holiday".

Banks have to fail. There are too many banks. The financial sector is way too big a fraction of the US economy, it's nuts.

So we didn't need Lehman, Bear, or WaMu and we don't need Wachovia either. Every time one of them is resolved without hurting taxpayers too much, it's a step forward.

We should never take on the banks' CDO^2. At most we should buy stock directly from the banks at current market price, allowing them to build up their capital in exchange for ownership. That will unfreeze the important markets too and make banks willing to transact with each other.

NO BAILOUT!

I made some butter cookies with pecans the other day. I took some dark chocolate squares with toffee and heated them up in the oven just now. Nothing matters anymore.

Good luck with everything.

P.P.S. I think it would be great if somebody started posting as "doc bank holiday".
Nemo
~

Your humor has been noted and will be scrutinized by our punishment comitee.

Sincerely,

Banksters Clearing House LLC
.

For comparison, the leverage ratio on Fortis from the aforementioned article in the Irish Times:

Barclays has a leverage ratio of 60 and its liabilities - more than £1.3 trillion - exceed the entire British economy. Belgian bank Fortis, even with a lower ratio of 33, has liabilities that are "several times larger" than Belgium's GDP, the researchers say.

Let's please avoid troll-feeding on this thread. Thanks.

When is the requiem mass scheduled for Wachovia?

I'd like to be there to pee on their grave (and as many other 'too big to fails' as possible.

Advice to Congress: stall that bill, baby. Soon no crap-stuffed (yes, crap, not crab) banks will be left to buy toxic assets from at inflated prices that save their ass.

Mannnn, that's so sad ! I started saving up for a house with the Bradford and Bingley Building Society, in, hmmm 1977 ! Wow, how stern and sober they were in their offices, one felt a bit fearful going in, even if it was to deposit money - the very epitome of Yorkshire thrift and canniness.

-K

I don't Europe and the Euro, have any reason to be smug against the dollar and the US.

And OT, here's a little WaMu thingie to chew on:
"As Congress argues over limits on executive pay, the New York Times reports that the chief executive of Washington Mutual, who was on the job just 17 days, is eligible for $19.1 million in compensation."

Fortis was a big player in the "structured products" market. They created and distributed these products in the billions for the institutional market using a combination of derivatives and guarantees.

They would invest in commodities, real estate, hedge funds, stocks and bonds -- often through fund of fund structures. You would get the actual fund return or at least some percentage (e.g. 90%) of principal back at maturity, guaranteed.

Performance is down in all their funds except commodities:

Fortis Private Banking - Structured Products

It isn't always clear exactly who issues the guarantees. Caveat emptor, but too late for some of their institutional investors, I guess. Heavily marketed in the U.S., mainly by UBS.

Another big player in this market, still to be heard from perhaps, is SocGen.

Well, we are attracting the Mish crowd which is a bit disappointing.

I need to note that even Doug Noland, who I really respect, now thinks that action needs to be taken. If he is in that camp, I am moving towards it as well. It shouldn't be about ideology but about pragmatism.

PrudentBear

For our country’s sake, I hope our Washington politicians can work out a mindful financial sector bailout package over the weekend. Not that I am pro-bailout or for government intervention. It’s just that our financial system is teetering at the precipice. Last night’s federal takeover and “sale” of Washington Mutual, our nation’s largest bank failure to date, was yet another major body blow. Confidence has now been shaken so brutally that our policymakers can do little to repair the damage. Yet at this point, stop-gap measures to restrain collapse seem more appealing to me than no measures at all.

Does the Belgian central bank, if they have one, have enough wherewithall to save Fortis?

Fortis is Belgian and Dutch so perhaps together the two central banks may be able to keep it on life support for a while if they chose to do so.

Would the European Central Bank step in?

Banks are regulated on the national level in Europe so the ECB's first (and perhaps only) choice would be to force the national central banks to deal with it. It is not fair to all the other citizens of Europe to have to bail out a bank from one or two countries when there is no EU level control over banks. If regulatory duties were ever to be bumped up to the EU level then the ECB could get involved.

Nothing to see here, move along now, move along

sincerely,

Banksters Clearing House Internationale' LLC

This is the summary page of a report by economists at HSBC on the TARP program:
*** A Leaky TARP ***
*** The US Financial Crisis and the Troubled Assets Relief Program ***
Please open the attachment to view the full document:

26 September 2008

• Even if TARP unclogs the system a bit…
• …it will not jump-start bank lending
• So policy makers will need to do more

We take a look at the top 20 US banks by assets and make a rough stab at
how much of their assets will be eligible for the USD700bn Troubled Assets
Relief Program (TARP), assuming it ultimately passes Congress in one form
or another. Although many of the assets should have only limited
impairment over the long run, we suggest that approximately USD3trn in
assets could feasibly meet the conditions required to be eligible to be
sold to the government, assuming Treasury Secretary Henry Paulson gets
wide leeway in deciding what assets to purchase. The bottom 80% of US
banks and the pure-play investment banks may have an additional USD1.5trn
of eligible assets, for a total of roughly USD4.5trn. The USD700bn TARP,
while helpful, would represent only 15% of this. We have our doubts about
whether that would be enough to unclog the financial system.

But even if TARP did have better-than-expected results, it will not
jump-start lending, as house prices appear likely to keep falling for some
time, TARP will not completely rebuild trust between banks, risk reduction
at money market funds still pose systemic problems despite recent
government investor insurance, and mark-to-market rules will still
increase capital needs even if TARP acts to reduce some strains. In other
words, the forces of deleveraging are overwhelming, and so the credit
crunch will remain over the next few quarters.

As a result, the economy would be virtually stalled over the next year, we
forecast that the unemployment rate will rise to at least 7% in 2009, and
therefore core inflation is likely to fall next year. On a “cash-deficit”
basis, the budget deficit is likely to soar to USD1.2trn for 2009, we
estimate.

As a result of this growth backdrop, more macroeconomic policy action is
still likely to be needed to stabilize demand in the form of more fiscal
stimulus, fed funds interest rate cuts to 1% with the risk that it goes
all the way down to 0%, and ongoing enhancements to liquidity injections
and other unconventional options. It’s not over yet.

Nemo,

I agree with you that we shouldn't provide the $700 billion in one shot. Lots of details need to be worked out and hopefully reasonable minds can come together.

The problem that I see in my reading of the international scene is that confidence is waning and suspicion rising that no solution can be worked out due to ideological differences.

This increases systemic risk dramatically and may lead to a situation where the major international players start to say, we have to save ourselves. This is not a U.S. problem alone as the title of this thread should indicate to anybody interested.

If world confidence in the financial system is lost then we are in for a much worse time than most anticipate. This won't be fun and games.

brian: linky please?

How is your pension doing?

The NC State pension fund...

Figures provided to The Insider by Lang show that, as of June 30, the pension fund held 3,197,515 common and preferred shares of Fannie Mae; 1,105,989 shares of Freddie Mac; 2,860,203 shares of insurer AIG; 1,701,070 shares of investment bank Lehman Brothers; and 3,123,151 shares of savings and loan Washington Mutual

Deutsches bank - A lovely bank with a great history, especially in the 1933 to 1945 period.

Y'all check the suggested article from the one CR linked to, on the effects of a huge dropoff in British consumer spending, starting when this last round of crises did? Makes me wonder what NYC retail looks like these last few days.

Ness, the south is served from pipelines that originate in Texas. No gas in, no gas out.
Troy | 09.27.08 - 8:09 pm | #

Yup colonial pipeline was down and refineries were and some are still down in Houston/Beaumont corridor. (AFAIK equipment is mostly OK but they lacked electrical service)

No gasoline shortages or panic/hoarding apparent here in DC area. I topped up tonight for $3.72/gal regular unlead. I think we get service from both NJ-area and gulf coast so more robust than areas further south

From Kona | 09.27.08 - 8:14 pm:

The article mentions "self-certified" borrowers: is that British for "liar's loans"? Nice!

Citizen Scotto writes: One of the things that makes petroleum such an attractive fuel is that it can easily be transported by pipeline, truck, or ship.

And one of the things that makes ethanol so awful: it's too corrosive to be put into the pipelines, so it has to be trucked, at great expense.

LIBOR change? Up and Up and ...

You have to love Fortis' slogan - Here today, where tomorrow? (yes, this really is their slogan)

How do you say "in the shit" in Wallon?

unit472 writes:
Gasoline prices spiked in the SE in the immediate aftermath of IKE. Once it was clear that the damage to refinieries and production platforms was not as severe as potentially retail gas prices declined.

??? Well prices are low I guess but the shortages in places like Charlotte and Atlanta are real.

Maybe if the prices were allowed to rise there would not be shortages. (but I hear station owners are afraid of being reported for gouging)

Kona writes:
Automakers gained $25 billion in taxpayer-subsidized loans and oil companies won elimination of a long-standing ban on drilling off the Atlantic and Pacific coasts as the Senate passed a sprawling spending bill Saturday.

=====

yeah, funny that after the $700B giveaway being discussed,... $25B in loan backstops seems perfectly reasonable

My letter to an assortment of Senators and representatives (please feel free to award nerd points for the analogy between the Albanian pyramid scheme crash and the US housing bubble):

I do financial research at a large (solvent) bank. I am personally opposed to the proposed bailout. Our firm doesn't need it, and it won't work for its intended purpose.

The world will not crumble if Congress takes a collective breath and implements something better in a week or two. At a bare minimum Congress should keep the size of the bailout much smaller than the requested $700 billion (e.g., $100 billion) and allow staff to look more closely at long term alternatives.

I think two papers are especially enlightening. First, the IMF study of bank failures and government responses, http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf .

"Existing empirical research has shown that providing assistance to banks and their borrowers

can be counterproductive, resulting in increased losses to banks, which often abuse

forbearance to take unproductive risks at government expense. The typical result of

forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank

bailouts, and even more severe credit supply contraction and economic decline than would

have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as

substantial liquidity support, explicit government guarantee on financial institutions’

liabilities and forbearance from prudential regulations) tend to be fiscally costly and that

these particular policies do not necessarily accelerate the speed of economic recovery."

Second, the collapse of the Albanian bank pyramid schemes in 1996 and 1997, Finance & Development, March 2000 - The Rise and Fall of Albania's Pyramid Schemes  . US housing bubble losses will be similar in size to the collapse of the Albanian pyramid schemes. In both cases, the losses will be about 2/3 of the annual GDP. For the US, total home values were $22.4 trillion in 2006 and GDP was $13.1 trillion. If the most recent JPMorgan severe recession forecasts related to the takeover of WaMu are correct, nominal losses will be $8.3 trillion. Even at the current expected loss figure, home value drops will be $5.6 trillion from their artificial bubble values.

It is critical to realize that mortgages and real estate in the US became a pyramid scheme from about 2003 to 2007. The only way that price increases could continue was with new participants and greater leverage. In any pyramid scheme, the last entrants are the ones who get the worst deal. Many of them do not even realize they are participating in a pyramid scheme until it is too late. They are the people who lose the most money. Unable to convince many new people to participate in the deleveraging pyramid scheme, current holders of mortgage backed securities try to convince others to buy out their interest at minimal loss, or even try to get others to compensate them for their losses.

While many individual homeowners might not have understood what was happening, banks and other financial institutions certainly should have. A number of banks are doing just fine, because they did not make the same stupid mistakes as failed and failing banks. WaMu made several hundred thousand stupid mistakes, as a matter of policy. They made loans to people who could not document their income and future ability to pay. Many of them paid nothing down and then took loans where payments for the teaser periods did not even cover the interest costs. This fabulously stupid pollicy was based on the assumption that real estate prices not only would avoid drops, but also would continue appreciating at least 5% per year.

Much of the current problem with interbank lending comes from banks not knowing who will be next to be taken over. The banks in trouble should be taken over quickly. Their management should be quickly replaced without giving prior management any additional pay or bonuses. Any new money injected to recapitalize the banking system should go to the solvent well-managed banks, or to entirely new banks. Some of those good banks are quite large, but others are small or regional. The cost will be lower than buying bad assets, the recovery will be quicker. Good management will be rewarded, and bad managers will be unemployed.

Shareholders of responsible firms will do comparatively well. Shareholders of irresponsible firms may be wiped out. It is the shareholders who elect the board of directors, and indirectly select the CEO. Let shareholders and management bear the first losses, not the taxpayers.

I live 15 miles north of Boston on the North Shore (many of you don't know what that is but that's ok Anyways....gas is 3.39 here and no one has run out of gas! I don 't get it!
Me in MASS | 09.27.08 - 8:27 pm | #

It's actually very simple. Your gas comes (I would guess) from refineries in the Northeastern US that were not shut down after hurricanes Gustav and/or Ike.

Me in MASS writes:
I live 15 miles north of Boston on the North Shore (many of you don't know what that is but that's ok Anyways....gas is 3.39 here and no one has run out of gas! I don 't get it!
Me in MASS | 09.27.08 - 8:27 pm | #

Geez. The Shell station 50 yards away from the gates of the Shell Refinery in Norco is $3.69/gal.

If it weren't for the wacky gasoline formulations legislated by each state, gas would be much cheaper.

Gas prices in Atlant are 3.95-4.25 for regular . Plantation Pipline was running about 40% of normal as of last week . I would say 20% of the stations in my neighborhood have fuel this weekend .

Commuinty Reinvestment Act

FRB: Community Reinvestment Act

The Community Reinvestment Act is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995, and was most recently amended in August 2005.
Evaluation of CRA Performance
The CRA requires that each depository institution's record in helping meet the credit needs of its entire community be evaluated periodically. That record is taken into account in considering an institution's application for deposit facilities.

Update (8:40 p.m.): The meeting on Capitol Hill reconviened this evening but the situation is becoming more complicated not less. Senator Kent Conrad, who runs the Senate Budget Committee, emerged from the meeting and told reporters that "We've got several big issues" that have not been resolved.

House Speaker Nancy Pelosi has added a twist to the negotiations by introducing a new proposal that would allow the government to 'recoup' losses from securities or mortgage bought from financial firms by charging the firms some kind of fee. We described this proposal, which originated with conservative Democrats, earlier today. The provision could be highly problematic as it adds complexity and unpredictability to the deal, leaving financial firms on the hook for the downside of the assets that have been dragging them down for the past year.

Update (5:40 p.m.): The point man for the Republican House members, Roy Blunt, just left House Speaker Nancy Pelosi's office. He walked right past the waiting press hordes without offering any comment. The official word is that those meeting, including Barney Frank, Senators Chris Dodd and Judd Gregg, Treasury Secretary Hank Paulson, Blunt and Pelosi, are taking a break.

Apparently, it's not just a break because it's dinner time. House Democrats are meeting in the basement of the Capitol building. Blunt will be speaking with Eric Cantor, who has been taking the measure of the House Republican rank and file. Gregg is presumably briefing fellow Republican Senators, while Dodd meets with Democratic Senators. Paulson is probably on the phone with Robert Steele, his former deputy at Treasury who is now the head of Wachovia, cursing the fact that he has to deal with all this damned poliiticians while another U.S. bank teeters on the edge of failure.

The meeting is scheduled to resume within an hour.

It would be my hope that this could be resolved today, that we'd have a day for the American people and members of Congress to review the legislation on the Internet,'' said House Speaker Nancy Pelosi, Democrat of California.One thing is for sure, we are not leaving until this legislation is passed.''
~

Did anyone actually look at what she said ...

if it passed today we'd get a look ... do we get a look if it passes tomorrow ?

I wonder how much in credit default swaps Fortis is holding, and how much is written against their bonds?