he Treasury would almost certainly pay more than ``bottom feeders,'' who right now represent the only market for many kinds of mortgage assets, said Alfred DelliBovi, president of the Federal Home Loan Bank of New York, who served on the RTC's five-member oversight board. The prices the government pays may end up better reflecting some assets' underlying values, because most borrowers are still paying their loans on time, he said.
With mortgage-bond prices at record lows amid the credit crisis, yields on the securities have risen to between 15 percent and 25 percent, according to Merrill Lynch & Co. That leaves room for taxpayers to make a profit buying the bonds, even at higher prices.
Lawmakers insisted on strict oversight of the fund, a sentiment echoed by Seidman and DelliBovi. Scrutiny will need to extend to when the Treasury eventually sells off any assets, DelliBovi added.
All of the crooks on Wall Street are still alive; they haven't all been shot,'' he said.They'll probably go into new businesses and try to pick up assets and you'll have to worry about that.''
Prime Minister Gordon Brown should weigh whether to follow the U.S.'s lead and pursue a government- backed rescue of the U.K. mortgage market, Goldman Sachs Group Inc. chief economist Jim O'Neill said.
The British government should consider ``doing something to take over the activities of all those institutions that are just not in a position to lend here any more, because it's going to end up causing significant economic weakness in the U.K.,'' O'Neill said in an interview on Bloomberg Television.
"not in a position to lend here any more" == technically broke == bail us out please.
I can't help but notice, that there was little if ANY acknowledgement of Friday being "Talk Like a Pirate" day, last Friday. WHERE are the priorities, people?
Re: :Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find at the root of the exotic financial vehicles that have sickened banks around the world."
all you do is look at inditments for Lay and Skilling -- not too hard to show false and misleading info, wire fraud, conspiracy, aiding and abetting .... etc! Fraud is fraud and it needs to be dealt with today!
The United States Teasery is proud to announce a new concept in
financial instruments, designated Hank's Pants, which offers almost
unlimited expected present value potential. The underlying of this
instrument, (also known as Hank's underpants) is the the sequence of
first numbers of the Friday drawing of the mega-millions lottery. The
holder of Hank's Pants will receive a single cash payment, which will
occur on the first week after purchase that the underlying is an even
integer. The cash payment will consist of 3^k (3 to the k-th power)
dollars if the event occurs on the k-th week after purchase of Hank's Pants.
Hank's Pants should appeal to investors desiring a stream of income
with almost unlimited present value potential.
No offense, but you think our budget mess is bad, the Brits have some reaming ahead to take and their public is already pissed (and not the good kind of pissed) about it. They will go berserk on Brown's hide if he tries to bail this mess out. And then they'll hunt down Tony BLIAR for good measure. Bootlickers.
Care to point us in any good direction on that Census data? Z.1? I don't know where to start from the Census FTP site... they couldn't make the data any harder to find...
Spoke with a friend in Vancouver BC today and he said lending has dried up in Canada as well. He works directly in the residential housing market with banks and is having to lay off staff now. They have a pretty big drop coming in the way of house prices.
Yossorian write:
Last thing.
If you haven't already gone there, you might check out the PEW research home page. Hottest survey... apparently 57 percent of Americans (in the sample) support 'The Bailout'.
I saw that earlier. Here was the question:
As you may know the government is potentially investing billions to try and keep fincial instutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?
Where does this mention the Paulsen plan and $700 Billion?
The government stepping in and buying these at loss adjusted yields of say 5-8% will prevent all these distressed funds (that are hiring former employees of these culprit firms) from buying the assets at 15-20% yields.
So the bailout might actually prevent the big shots who've skipped the troubled firms from making another killing. It's classic double dipping. There's always unintended consequences, so stop shouting the bailout is going to help those CFC guy is now behind PennyMac I believe.
Former Countrywide execs form PennyMac to sell whole loans
NEW YORK (MarketWatch) -- A group of former executives from troubled lender Countrywide Financial Corp. (CFC) are forming a new firm to capitalize on the fallout in the mortgage-securitization business, the newly-formed company announced Monday. Former Countrywide President Stanford Kurland and other high-ranking colleagues are forming Private National Mortgage Acceptance Co., or PennyMac, to purchase distressed whole loans, revamp them and then sell them at a profit. PennyMac will partner with private equity firm BlackRock (BLK) and Highfields Capital Management on the deal.
Another unintended consequence - what if passing the bailout actually results in more homeowners saying f-off, I'm defaulting?
Sorry Mr. Paulson but now there is an even bigger problem.
"One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCains campaign manager, according to two people with direct knowledge of the arrangement.
"The disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.
"Mr. Daviss firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the two people said.
"They said they did not recall Mr. Daviss doing much substantive work for the company in return for the money, other than to speak to a political action committee of high-ranking employees in October 2006 on the approaching midterm Congressional elections. They said Mr. Daviss firm, Davis Manafort, had been kept on the payroll because of his close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House.
"Mr. Davis took a leave from Davis Manafort for the presidential campaign, but as an equity holder continues to benefit from its income. No one at Davis Manafort other than Mr. Davis was involved in efforts on Freddie Macs behalf, the people familiar with the arrangement said."
post above got hacked
There's always unintended consequences, so stop shouting the bailout is going to help those CFC guy is now behind PennyMac I believe.
meant to say those shouting the bailout is going to help the guys who caused this might be mistaken since many have already left. The CFC guys are now behind PennyMac to make a killing the second time around...
IF Obama supports the bailout (he does), he will lose. The markets still tank (they will) and home prices will still fall (50% to go in some areas to pencil out as rentals).
Markets have no where to go but down. Hanging $700 extra large on the public is not the solution. Joe Sixpack should be PISSED!
The logic of the $700bn Paulson plan is that the government should buy toxic mortgage assets from banks at prices higher than the current distressed market prices of these securities, according to Ben Bernanke.
The thing is if we let these institution fail - which may be the right thing to do, don't we hurt alot of regular people?
They lose their jobs. Trust me not everyone in banking/wall street makes 5mm a year. There are a ton of regular trade clerks, accountants, etc. that are innocent and would lose their jobs. Couldn't the pain to these folks be much worse than inflicting pain on shareholders (which may actually be many regular Americans through their mutual funds,pension funds, etc).
The guilty have already abandoned the ship at these institutions.
Dodd almost seems to want to distance himself from Friends Of Angelo, but I think he will remain in the pussy mode and belly up to Pailson with his zipper down!
Re: en Chris Dodd, D-Conn., is the chairman of the banking committee. He said he is angry about having to deal with a crisis caused by a "a preventable, avoidable situation" that he attributed to a regulatory climate he described as "basically an eight-year coffee break," reports Agence France-Presse.
"I'm prepared to act quickly but I'm not going to act irresponsibly," he said. "If it takes longer, so be it."
Bernanke is spot on with his trading/valuation commentary. There are ways to analyze this stuff and estimate how bad defaults/losses could be and bid it at more reasonable levels rather than at the levels these vultures are bidding. Banks are being forced to sell and they know it.
Think of this situation as being a bit of a money squeeze. Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
re: raphael
The problem with stopping German expansion from 1939-1945 is that there were a whole lot of regular folks hurt by it. These are just your run of the mill farmers, engineers, and tractor drivers. All of those people ended up wiped out!
I hope my argument exposed some flaws in your thinking.
The problem with chemotherapy is just about everything but you hope to improve and recover once the cancerous cells are dead.
I am more and more inclined to agree with NC Jim. (Lost track of the post).
This was a play by Paulson and Bernake to get out of a checkmated game.
i.e. There is no way out. So propose a solution that in no way Congress/Senate would agree.
Now the solution is Congress/Senates idea.
Congress/Seanate owns own solution and it isnt a solution !! (yes tanta two exclamation marks).
Jas made an astute prediction in an earlier thread. The day is coming when the rich greedsters will be hunted down and prosecuted, even if it takes decades and the hunt crosses continents.
Like Nazi butchers were after WWII.
We're descending into an devastating depression next year, and the best way to get out of one is to unite the energies of the people behind a common resentment.
That's how fascism will come to the US. Since the poor and middle-class far outnumber the rich, and have nothing to lose, it'll be an easy sell.
The only hope the BFNYC characters and their gov't inside men like Paulson and Bernanke and Greenspan have is that they might die naturally before the movement takes full hold.
And even if they do escape justice through death, their estates will be stripped.
YLSP writes:
re: raphael
The problem with stopping German expansion from 1939-1945 is that there were a whole lot of regular folks hurt by it. These are just your run of the mill farmers, engineers, and tractor drivers. All of those people ended up wiped out!
I hope my argument exposed some flaws in your thinking.
I'm just bringing up a point that seems to be overlooked when I continually see posts with simplified statements like "let them fail, they deserve it".
I certainly understand the situation is more complex.
Although I will say the German example is slightly different because we were eradicating the German leadership too. In this case alot of those responsible have already walked away (and prob. retired).
on the Z.1, I'm looking at table F.1. Do I see a considerable amount of borrowing/lending contraction in 2008/Q2 ? Is that a result of de-leveraging or the credit crunch ?
Hank ... you need to get some sleep before tomorrow's pain stick work-out ... I mean ... closed door session with the House Select Committee on Finance.
If we bail out the company, the CEO should be fired. Maybe a few Officers as well on a case-by-case basis. If this were private money, the CEO would expect to hand in his head. Public money should be no different. Joe Sixpack should own the Board if it's do or die.
Comrade Paulson promises only to stick the head of his socialist tool in if his fellow comrade would kindly give up all information on his traitorous fifth columnists who hate the glorious Soviet Republic of America.
He also promises not to deposit his nonelitist gametes in the traitorous comrades orifice if he would volunteer be properly re-educated at the Esteemed Comrade Woodrow Wilson School of Public and International Affairs, Wasilla Soviet.
raphael writes: Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
Gives me a great idea: so let's pay CEO compensation and bonuses with the same crap, at the same valuations, that they sell to the gov't. They think this stuff is so peachy-keen, they won't mind, right? Deferred-comp plans stuffed with this stuff!
In fact, let's claw back past bonuses, and replace them with like amount of toxic waste, oops, I meant, properly-valued paper. Incentives aligned yet, folks?
"Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find..."
Who cares? Just the fact they'd be prosecuted could go a long way in sending a loud a clear message that reckless behavior can extract a steep price.
Please excuse me fellow comrades, I haven't had enough time to read all your insightful wisdom, but let me add something something hopefully new.:
If you want to hand in shitty or illiquid assets to Comrade Sam, this is what I want:
Executive disgorgement. Every nickel in exercised options from 2002-2007 in their bonus packages goes to the soviet.
Executive compensation will be decided by a committee chosen at random amongst hourly employees who work for the soviet.
Warrants: The soviet(social security/medicare trust fund, whatever) gets warrants at a dollar for dollar basis to match up to the entire float with an expiry of 10 years with a strike price of close of business as of Sept. 11, 2008
Any black box system must be made available at a FTP site for download and can be bought by any person for $50,000.
This hopefully limits gaming of the system without resorting to show trials(though I enjoyed Bukharin's.)
perhaps this is a stupid question, but in all honesty... who lost all this money? I sure as heck haven't lost any. I wasn't invested in CDS, so who was? Who needs $700 Billion? Who did the loaning? I don't get it.
Why do we even need a bail out? Who do these companies and owe and why should I care?
MLM, I have very little in a Money Market. Most of my cash is in "online savings accounts", which are DDAs, which are FDIC'ed... and my bank ain't crazy.
But if I read your comment, people in Money Market's invested in this paper and that's why they need money? My money market is the one demanding cash?
Well, mp just looking at these numbers (and I know nothing about the economy from an academic perspective) I do see a few odd numbers. Nurses are trained to look for unusual readings/results when looking at a pts. chart;)
F.215 flow of funds (line 1) that puppy dropped like a stone!
F.207 Net change in liabilities took a huge jump up
F.08,line 3 Looks like J6P is starting to save
F.02,line 10 Looks like not alot of mortgage lending
and
F.01,line 3 Look like household borrowing has contracted.
Now one of you smart guys want to tell me what all that means?
We incarcerate per capita more criminals than any country in the world. Our prisons are literally 3x capacity, and our solution to crime is to "lock 'em up."
Ah...erm...70%(per the Bureau of Prisons website) of all criminals are back in prison within a year of release.
As a businessman, if you lost money on 70% of your sales you would be considered a terrible failure. Yep, 2.4 million men and women in prisons with another 321,000 waiting in country jails to enter the system. (per the Sentencing Project).
"Another factor in maintaining balance involves the element of time. As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."
-Dwight David Eisenhower, 1960
Yea, you all are right, what was I thinking...Lock 'em all up.
comrade savings account - Maybe the money market (or your online savings account) invested in the paper of someone who invested in MBS, or CDO's (say Lehman). As long as nobody asks for their money back, where' the problem?
In 1960, lame duck Ike also issued the famous warning about the military-industrial complex". Outgoing presidents are free to give dire warnings. But I don't expect W to grow a conscience. Still betting he will be the first ex not to die on American soil.
I am curious why there have been no prosecutions of 'stated income' loans.
Isn't it illegal to lie on a loan application?
Samething with loans made on the pretense the owner would occupy the premises to include submitting phony rental agreements,leases, cancelled checks on the buyers real home.
Tanta mentioned the GSE's were going to review their loan portfolios in an effort to find such fraud and send those loans bank to the originators. Have they? Will they?
Might even be able to overcome non recourse laws if fraud is shown.
Doug Watts, loser writes:
Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
raphael | 09.24.08 - 1:56 am | #
If that is so, then to paraphrase dryfly, you buy it.
If you are not willing to buy this crap, then why should the taxpayers, who don't want to?
I am buying it - oddlots as they show up for the bid. Locking in 12-20% returns even if every homeowner defaulted in many cases.
How's that for a model - assume every homeowner will default with 60-80% severities and still get 15% returns? Why there's even room for error!
Think the government might be ok with using that model except maybe by demanding 6-8% return (higher px) a la Bernanke the govt might help out alot of institutions (which would smoke the soc. security fund returns).
Sorry don't have 100b in my bank account to buy it all up. The valuation inferences here are dribble.
There's paper that fundamentally should be worth zero being bid at zero, but there is ALOT more paper fundamentally worth much higher levels trading at ridiculous spreads/prices.
For example, yesterday there was a prime ssnr '06 deal that traded 25pts back from where it should. The bond will not take any losses. It was a AAA now its a BBB. There is nobody who traditionally bid this stuff at the table. So it's great deal for the buyer - a distressed fund looking for equity returns without using leverage.
So, yes there are idiots out there - distressed funds that hired all these people who put the deals together now bidding the stuff up at levels that guarantee ridiculous returns. It may not be ridiculous for the govt to sit at the table and compete. As a taxpayer I'll take a govt entity making anything over 5% returns.
Just Wikipedia "Credit Default Swaps". Honestly it appears these financial institutions were looted in every possible way, but the Credit Default Swap will go down in history as the most rediculous financial scheme ever.
None of the housing shenanigans would have happened without the tidal wave of rezoning approved by gleeful City and County commissioners.
State and Federal affairs over local land use have been a third rail, but if taxpayers are taking on exurban and South Beach toxic waste, I think the "stake" I want is to bring this up and figure out the new federal/state/local role. With $4 gas, the market for "90 minutes from [insert job center here] is kaput. This country no longer has a growth problem, but a big arrangement problem that hybrid cars won't solve because the Highway Trust Fund is broke and watersheds can't deliver drinking water over pavement. This is what we are, in part, buying our way out of.
The big question now is what the great rearrangement looks like.
In order to appease the masses that have railed against this Wall Street hand-out across party lines, they're now going to investigate the firms that have ALREADY failed. Nice to know they're on the ball.
I am suspicious of the FBI's strategy to prosecute these companies for fraud. I am no attorney, but here is my take in layman's terms.
They will have to establish criminal intent in order to convict them of faud. They will have to prove that the executives knowingly and willfully consciously deceived the marketplace.
I believe that is a much higher bar than Sarbanes-Oxley. Under Sarbanes-Oxley, the burden of proof is on the executives and their auditor. Again in layman's terms, they must certify in writing that the financial statements fairly present the financial condition of the company. Further, they must certify that their reporting processes have been assessed and that these processes ensure that the statements will fairly present the financial condition of the company.
Under Sarbanes-Oxley, it is no longer sufficient to say that I conformed to generally accepted accounting principles. GAAP is the floor, not the ceiling.
The central issue in yesterday's Senate hearing was that it is very difficult to value some of these exotic financial instruments. If that is true, then the executives and the auditors should have concluded that they had no adquate process reporting the value of these assets.
To this novice, that appears to be prima facie evidence that they knew their certifications were false. If so, that is a much lower bar for the FBI to prosecute.
raphael,
Thanks for the insight. Well written, IMO.
It's been over a year since Cramer's meltdown over the bond market. It's been over a year since the pros were declaring the bond market broken.
Isn't the real problem for Wall St that the bond market is actually working but they don't like the terms?
Well, it's a tricky situation for the FBI. It sure would be nice to point to AIG, BS, Fannie and Freddie and LEH and say - "they did it!"
But of course, the more they look, the more they'll see that the whole runup of exotic investment vehicles and idiotic lending practices leaves a trail of greasy thumbprints all over the place.
What I'm finding more interesting is the fact that we may see the complete breakdown of the power structure within the Republican party. Rove/Cheney/etc/etc (I like to call them the backoffice lads) are probably toast and I can only hope their influence over the party has been permanently impaired.
Now that the wallets of everyone are on the line, it's finally time to investigate what's going on and march on DC and express moral outrage. When 3000 Americans died mysteriously and with many unanswered questions and there was a movement for 911 Truth...well that wasn't worth fighting for.
Setting aside the value of the stock and certain assets on corporate balance sheets, I am confused about who is responsible for regulation and oversight of these exotic financial instruments. I mean, the SEC regulates stock exhanges (after a fashion), but what about these products tthat no one can seem to value? Should anyone be allowed to sell a product that no one can fairly value?
These products seem to be like buying chips at a casino, and everyone assumes they will go on an extended winning streak, maybe even hit the jackpot.
Seriously, who is "responsible" for oversight of the sale of these products?
Billy Hill,
I suppose there could be a conviction for fraudulent misrepresentations under SOX. The biggest threat is that the CFO and CEO attest the financials personally, so they can be cleaned out by a shareholder suit.
SOX was rolled out in 2002. For the first years the process was indeed burdensome and there was a lot of worthless effort.
The process now is quite streamlined. The best analogy is an ISO certifications for financials. As with financial audits, the people who hate it the most are the ones who are not organized. Most view it as a necessary evil. A few actually like the audit process. I did a SOX audit of a reporting department who were going to hire some new people and were happy to use the flowcharts for training purposes.
SOX is now a commodity. It's either done inhouse, by lower level outside auditors or offshored. This should tell you how cookbook it has become.
Your characterization of the current state of SOX reporting and auditin processes undergirds my point.
If there are assets that are both material to your financial statement and fundamentally resistant to measurement, you should either not own them, or not report them, or report them with a robust disclosure in your Discussion and Analysis statement.
"Another unintended consequence - what if passing the bailout actually results in more homeowners saying f-off, I'm defaulting?"
Purely anecdotal but that's what a couple of neighbors are saying on my Temecula street. Since they can afford the payments, but are now upside down $150-200K, they have decided it is in their best interests to walk as they don't see how they can make up the negative ever! They are mad as hell about the bailout, because they don't qualify.
Nemo?
first? no way
wow i can hear an echo in here
What is, a four letter word for first?
emo
First thig first, arrest Angelo Mozilo and ask questions later
fbi won't get us our money back
all roads lead to Rome...
700 billion would fund a very thorough investigation though...
Repeated from last thread
CR, I don't know if you're aware, but the 2007 American Community Survey was released today.
The implications for equity in mortgaged residential real estate, particularly given the downward revisions in the Z.1 report, are not good.
Isn't that piling on? I'd really be impressed if they decided to investigate someone who wasn't BK (oh, sorry Hank), err ah mark-to-market challenged.
he Treasury would almost certainly pay more than ``bottom feeders,'' who right now represent the only market for many kinds of mortgage assets, said Alfred DelliBovi, president of the Federal Home Loan Bank of New York, who served on the RTC's five-member oversight board. The prices the government pays may end up better reflecting some assets' underlying values, because most borrowers are still paying their loans on time, he said.
With mortgage-bond prices at record lows amid the credit crisis, yields on the securities have risen to between 15 percent and 25 percent, according to Merrill Lynch & Co. That leaves room for taxpayers to make a profit buying the bonds, even at higher prices.
Lawmakers insisted on strict oversight of the fund, a sentiment echoed by Seidman and DelliBovi. Scrutiny will need to extend to when the Treasury eventually sells off any assets, DelliBovi added.
All of the crooks on Wall Street are still alive; they haven't all been shot,'' he said.They'll probably go into new businesses and try to pick up assets and you'll have to worry about that.''
Anyone seen Chris Cox. Shouldn't he be doing something too?
Add 'bottom feeders' to short sellers on the list of undesirables.
a yes, 15% is great if the principal still existed to generate that fictional revenue stream
if WB can get 10% and massive downside protection we taxpayers should also get that if not better - that is our price
I don't believe it. Well, i do:
Prime Minister Gordon Brown should weigh whether to follow the U.S.'s lead and pursue a government- backed rescue of the U.K. mortgage market, Goldman Sachs Group Inc. chief economist Jim O'Neill said.
The British government should consider ``doing something to take over the activities of all those institutions that are just not in a position to lend here any more, because it's going to end up causing significant economic weakness in the U.K.,'' O'Neill said in an interview on Bloomberg Television.
"not in a position to lend here any more" == technically broke == bail us out please.
Headline: "EVERYONE BUT THE HOT DOG VENDORS INDICTED ON WALL STREET"
But the money's still long gone..
O/T, but...
I can't help but notice, that there was little if ANY acknowledgement of Friday being "Talk Like a Pirate" day, last Friday. WHERE are the priorities, people?
Re: :Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find at the root of the exotic financial vehicles that have sickened banks around the world."
ahhhh, the timing of it all....
In a more serious vein...I can't help but wonder what the ratio is/was, between out and out criminal acts, mere..(or is that sheer?) stupidity?
The United States Teasery is proud to announce a new concept in
financial instruments, designated Hank's Pants, which offers almost
unlimited expected present value potential. The underlying of this
instrument, (also known as Hank's underpants) is the the sequence of
first numbers of the Friday drawing of the mega-millions lottery. The
holder of Hank's Pants will receive a single cash payment, which will
occur on the first week after purchase that the underlying is an even
integer. The cash payment will consist of 3^k (3 to the k-th power)
dollars if the event occurs on the k-th week after purchase of Hank's Pants.
Hank's Pants should appeal to investors desiring a stream of income
with almost unlimited present value potential.
No offense, but you think our budget mess is bad, the Brits have some reaming ahead to take and their public is already pissed (and not the good kind of pissed) about it. They will go berserk on Brown's hide if he tries to bail this mess out. And then they'll hunt down Tony BLIAR for good measure. Bootlickers.
mp,
Nice to see you posting.
Care to point us in any good direction on that Census data? Z.1? I don't know where to start from the Census FTP site... they couldn't make the data any harder to find...
Totally OT
Large pushy pig traps Australian
BBC NEWS | Asia-Pacific | Large pushy pig traps Australian
Spoke with a friend in Vancouver BC today and he said lending has dried up in Canada as well. He works directly in the residential housing market with banks and is having to lay off staff now. They have a pretty big drop coming in the way of house prices.
Yossorian write:
Last thing.
If you haven't already gone there, you might check out the PEW research home page. Hottest survey... apparently 57 percent of Americans (in the sample) support 'The Bailout'.
I saw that earlier. Here was the question:
As you may know the government is potentially investing billions to try and keep fincial instutions and markets secure. Do you think this is the right thing or the wrong thing for the government to be doing?
Where does this mention the Paulsen plan and $700 Billion?
I've mentioned this in previous posts.
The government stepping in and buying these at loss adjusted yields of say 5-8% will prevent all these distressed funds (that are hiring former employees of these culprit firms) from buying the assets at 15-20% yields.
So the bailout might actually prevent the big shots who've skipped the troubled firms from making another killing. It's classic double dipping. There's always unintended consequences, so stop shouting the bailout is going to help those CFC guy is now behind PennyMac I believe.
Former Countrywide execs form PennyMac to sell whole loans
NEW YORK (MarketWatch) -- A group of former executives from troubled lender Countrywide Financial Corp. (CFC) are forming a new firm to capitalize on the fallout in the mortgage-securitization business, the newly-formed company announced Monday. Former Countrywide President Stanford Kurland and other high-ranking colleagues are forming Private National Mortgage Acceptance Co., or PennyMac, to purchase distressed whole loans, revamp them and then sell them at a profit. PennyMac will partner with private equity firm BlackRock (BLK) and Highfields Capital Management on the deal.
Another unintended consequence - what if passing the bailout actually results in more homeowners saying f-off, I'm defaulting?
Sorry Mr. Paulson but now there is an even bigger problem.
american public = rock and hardplace
aked kings
mortgage crime ?
start with the accountants and the accounting and law firms ...
they are always in on it ...
@YLSP
http://factfinder.census.gov/servlet/DTTable?bm=y&-geo_id=01000US&-ds_name=ACS_2007_1YR_G00&-_lang=en&-_caller=geoselect&-state=dt&-format=&-mt_name=ACS_2007_1YR_G2000_B25096
http://www.federalreserve.gov/releases/Z1/Current/z1.pdf
Re: Fraud
McCain Aide's Firm Was Paid By Freddie Mac Through August - NY Times
Tonite at NYT --
"One of the giant mortgage companies at the heart of the credit crisis paid $15,000 a month from the end of 2005 through last month to a firm owned by Senator John McCains campaign manager, according to two people with direct knowledge of the arrangement.
"The disclosure undercuts a remark by Mr. McCain on Sunday night that the campaign manager, Rick Davis, had had no involvement with the company for the last several years.
"Mr. Daviss firm received the payments from the company, Freddie Mac, until it was taken over by the government this month along with Fannie Mae, the other big mortgage lender whose deteriorating finances helped precipitate the cascading problems on Wall Street, the two people said.
"They said they did not recall Mr. Daviss doing much substantive work for the company in return for the money, other than to speak to a political action committee of high-ranking employees in October 2006 on the approaching midterm Congressional elections. They said Mr. Daviss firm, Davis Manafort, had been kept on the payroll because of his close ties to Mr. McCain, the Republican presidential nominee, who by 2006 was widely expected to run again for the White House.
"Mr. Davis took a leave from Davis Manafort for the presidential campaign, but as an equity holder continues to benefit from its income. No one at Davis Manafort other than Mr. Davis was involved in efforts on Freddie Macs behalf, the people familiar with the arrangement said."
Oh Gawd, he's crooked as hell. It's pure luck that we have Senator Obama to vote for instead!
Thanks for bringing this to our attention!
Now that they own the books, if they can't find anything, they aren't trying:
If you give me but six lines written by the most honest man, I will find something therein with which to hang him.
Cardinal Richelieu
Re: mp
Z1, Page 7, 3rd column looks of interest.
Not used to looking at raw data like this but it is interesting.
this is one of those magician tricks where they distract us with the lovely assistant
only this one's got hairy legs
post above got hacked
There's always unintended consequences, so stop shouting the bailout is going to help those CFC guy is now behind PennyMac I believe.
meant to say those shouting the bailout is going to help the guys who caused this might be mistaken since many have already left. The CFC guys are now behind PennyMac to make a killing the second time around...
Echoes of Iraq in Bush handling of mortgage crisis
News analysis: Another 'trust me' remedy is getting rushed before lawmakers
http://www.marketwatch.com/News/Story/Story.aspx?guid={EB54967E-258D-4650-BE95-2203FCA64AAA}&print=true&dist=printMidSection
Shocked and awed yet?
The whole system is riddled with fraud.. why scapegoat a few..
What about GS, JPM, ML, BoA, WaMu, Wachovia, CW, IM......?
George Will
IF Obama supports the bailout (he does), he will lose. The markets still tank (they will) and home prices will still fall (50% to go in some areas to pencil out as rentals).
Markets have no where to go but down. Hanging $700 extra large on the public is not the solution. Joe Sixpack should be PISSED!
Down with King Paulson.
Bernanke squares virtuous circle
FT.com / US / Economy & Fed - Bernanke squares virtuous circle
The logic of the $700bn Paulson plan is that the government should buy toxic mortgage assets from banks at prices higher than the current distressed market prices of these securities, according to Ben Bernanke.
Very good article.
The thing is if we let these institution fail - which may be the right thing to do, don't we hurt alot of regular people?
They lose their jobs. Trust me not everyone in banking/wall street makes 5mm a year. There are a ton of regular trade clerks, accountants, etc. that are innocent and would lose their jobs. Couldn't the pain to these folks be much worse than inflicting pain on shareholders (which may actually be many regular Americans through their mutual funds,pension funds, etc).
The guilty have already abandoned the ship at these institutions.
Great stuff at: On the Dishonest Sale of the Bailout Bill « naked capitalism
Well worth adding to the GREAT job being done here at CR!!! Thanks CR and Tanta!!! Keep it coming and help America!!
What a relief.
Dodd almost seems to want to distance himself from Friends Of Angelo, but I think he will remain in the pussy mode and belly up to Pailson with his zipper down!
Re: en Chris Dodd, D-Conn., is the chairman of the banking committee. He said he is angry about having to deal with a crisis caused by a "a preventable, avoidable situation" that he attributed to a regulatory climate he described as "basically an eight-year coffee break," reports Agence France-Presse.
"I'm prepared to act quickly but I'm not going to act irresponsibly," he said. "If it takes longer, so be it."
Bernanke squares virtuous circle
Bernanke is spot on with his trading/valuation commentary. There are ways to analyze this stuff and estimate how bad defaults/losses could be and bid it at more reasonable levels rather than at the levels these vultures are bidding. Banks are being forced to sell and they know it.
Think of this situation as being a bit of a money squeeze. Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
re: raphael
The problem with stopping German expansion from 1939-1945 is that there were a whole lot of regular folks hurt by it. These are just your run of the mill farmers, engineers, and tractor drivers. All of those people ended up wiped out!
I hope my argument exposed some flaws in your thinking.
The problem with chemotherapy is just about everything but you hope to improve and recover once the cancerous cells are dead.
There I go again!
The whole system is riddled with fraud.. why scapegoat a few..
Your entire statement is a strawman and a disingenuous diversion.
Bye.
I am more and more inclined to agree with NC Jim. (Lost track of the post).
This was a play by Paulson and Bernake to get out of a checkmated game.
i.e. There is no way out. So propose a solution that in no way Congress/Senate would agree.
Now the solution is Congress/Senates idea.
Congress/Seanate owns own solution and it isnt a solution !! (yes tanta two exclamation marks).
Jas made an astute prediction in an earlier thread. The day is coming when the rich greedsters will be hunted down and prosecuted, even if it takes decades and the hunt crosses continents.
Like Nazi butchers were after WWII.
We're descending into an devastating depression next year, and the best way to get out of one is to unite the energies of the people behind a common resentment.
That's how fascism will come to the US. Since the poor and middle-class far outnumber the rich, and have nothing to lose, it'll be an easy sell.
The only hope the BFNYC characters and their gov't inside men like Paulson and Bernanke and Greenspan have is that they might die naturally before the movement takes full hold.
And even if they do escape justice through death, their estates will be stripped.
Raphael:
"The guilty have already abandoned the ship at these institutions."
Good point about the immediate hostages (since we're all hostages approximately).
That's why civil action and criminal indictments were invented.
Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
raphael | 09.24.08 - 1:56 am | #
If that is so, then to paraphrase dryfly, you buy it.
If you are not willing to buy this crap, then why should the taxpayers, who don't want to?
To particiapte in a bail out each exec that keeps his job must give back the bonuses and stock options profits from the last 8 years.
simple and will save the tax payers at least 10%-20% of the cost of the bail out + some banks may opt out... even better.
Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
I know two guys who are willing to buy your valuation model for "One million, uhh, one BILLION dollars."
"One million, uhh, one BILLION dollars."
talk about creepy pinkies!
YLSP writes:
re: raphael
The problem with stopping German expansion from 1939-1945 is that there were a whole lot of regular folks hurt by it. These are just your run of the mill farmers, engineers, and tractor drivers. All of those people ended up wiped out!
I hope my argument exposed some flaws in your thinking.
I'm just bringing up a point that seems to be overlooked when I continually see posts with simplified statements like "let them fail, they deserve it".
I certainly understand the situation is more complex.
Although I will say the German example is slightly different because we were eradicating the German leadership too. In this case alot of those responsible have already walked away (and prob. retired).
Point understood however.
mp,
on the Z.1, I'm looking at table F.1. Do I see a considerable amount of borrowing/lending contraction in 2008/Q2 ? Is that a result of de-leveraging or the credit crunch ?
"One million, uhh, one BILLION dollars."
Hank ... you need to get some sleep before tomorrow's pain stick work-out ... I mean ... closed door session with the House Select Committee on Finance.
If we bail out the company, the CEO should be fired. Maybe a few Officers as well on a case-by-case basis. If this were private money, the CEO would expect to hand in his head. Public money should be no different. Joe Sixpack should own the Board if it's do or die.
Comrade Paulson promises only to stick the head of his socialist tool in if his fellow comrade would kindly give up all information on his traitorous fifth columnists who hate the glorious Soviet Republic of America.
He also promises not to deposit his nonelitist gametes in the traitorous comrades orifice if he would volunteer be properly re-educated at the Esteemed Comrade Woodrow Wilson School of Public and International Affairs, Wasilla Soviet.
mp - Pardon me for differing a bit, but I have come to the conclusion that table D.3 really tells the tale.
What do you figure the interest is on 32.4365 trillion dollars, anyway (D.3, 2008 Q2, Total Outstanding Debt)?
I just know that pushing that number to 33.1 is going to solve the problem!
raphael writes: Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
Gives me a great idea: so let's pay CEO compensation and bonuses with the same crap, at the same valuations, that they sell to the gov't. They think this stuff is so peachy-keen, they won't mind, right? Deferred-comp plans stuffed with this stuff!
In fact, let's claw back past bonuses, and replace them with like amount of toxic waste, oops, I meant, properly-valued paper. Incentives aligned yet, folks?
CSC - Are you willing to sign up to the idea that any CEO who agrees to get a guiche can keep his/her job?
US dollar set to be major casualty of Hank Paulson's bailout
US dollar set to be major casualty of Hank Paulson's bailout - Telegraph
@DC Rogers - Nice!
DCRogers
Brilliant!
I'm all for punishing these guys.
Personally I think I just may differ in the belief that this program could help and without the costs everyone believe are going to occur.
"Investigators say that despite calls from some quarters to prosecute wealthy bankers who helped fuel the mortgage bubble, it is unclear what crimes they will find..."
Who cares? Just the fact they'd be prosecuted could go a long way in sending a loud a clear message that reckless behavior can extract a steep price.
Couldn't happen to a nicer bunch.
raphael writes:
The thing is if we let these institution fail - which may be the right thing to do, don't we hurt alot of regular people?
The financial sector is way too big. There has to be downsizing. I feel for 'em too but then's the facts ...
Please excuse me fellow comrades, I haven't had enough time to read all your insightful wisdom, but let me add something something hopefully new.:
If you want to hand in shitty or illiquid assets to Comrade Sam, this is what I want:
Executive disgorgement. Every nickel in exercised options from 2002-2007 in their bonus packages goes to the soviet.
Executive compensation will be decided by a committee chosen at random amongst hourly employees who work for the soviet.
Warrants: The soviet(social security/medicare trust fund, whatever) gets warrants at a dollar for dollar basis to match up to the entire float with an expiry of 10 years with a strike price of close of business as of Sept. 11, 2008
Any black box system must be made available at a FTP site for download and can be bought by any person for $50,000.
This hopefully limits gaming of the system without resorting to show trials(though I enjoyed Bukharin's.)
MLM writes:
CSC - Are you willing to sign up to the idea that any CEO who agrees to get a guiche can keep his/her job?
LOL. Only if they got pierced by someone who's livelihood they ruined.
Financial crisis: Does the US face a full-scale run on its currency?
Financial crisis: Does the US face a full-scale run on its currency? – Telegraph Blogs
That, as they say, has got to hurt.
an gonna leave a mark....
mp, thanks! I'll take a look.
Best Wishes.
Hot damn, CR is still up! Nothing like a 700 billion dollar public flogging to get the adrenalin up.
Kudos DCRogers- I hope someone in Congress reads your plan. (So that's what the old Countrywide shills do when the company is gone.)
perhaps this is a stupid question, but in all honesty... who lost all this money? I sure as heck haven't lost any. I wasn't invested in CDS, so who was? Who needs $700 Billion? Who did the loaning? I don't get it.
Why do we even need a bail out? Who do these companies and owe and why should I care?
comrade savings account - have you checked the balance in your money market lately? All is not as it seems to be.
Mortgage strike/rent strike. November 2008. Pass it on.
MLM, I have very little in a Money Market. Most of my cash is in "online savings accounts", which are DDAs, which are FDIC'ed... and my bank ain't crazy.
But if I read your comment, people in Money Market's invested in this paper and that's why they need money? My money market is the one demanding cash?
BB
Thanks for the links.....
Well, mp just looking at these numbers (and I know nothing about the economy from an academic perspective) I do see a few odd numbers. Nurses are trained to look for unusual readings/results when looking at a pts. chart;)
F.215 flow of funds (line 1) that puppy dropped like a stone!
F.207 Net change in liabilities took a huge jump up
F.08,line 3 Looks like J6P is starting to save
F.02,line 10 Looks like not alot of mortgage lending
and
F.01,line 3 Look like household borrowing has contracted.
Now one of you smart guys want to tell me what all that means?
We incarcerate per capita more criminals than any country in the world. Our prisons are literally 3x capacity, and our solution to crime is to "lock 'em up."
Ah...erm...70%(per the Bureau of Prisons website) of all criminals are back in prison within a year of release.
As a businessman, if you lost money on 70% of your sales you would be considered a terrible failure. Yep, 2.4 million men and women in prisons with another 321,000 waiting in country jails to enter the system. (per the Sentencing Project).
"Another factor in maintaining balance involves the element of time. As we peer into society's future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."
-Dwight David Eisenhower, 1960
Yea, you all are right, what was I thinking...Lock 'em all up.
When does four become four hundred?
comrade savings account - Maybe the money market (or your online savings account) invested in the paper of someone who invested in MBS, or CDO's (say Lehman). As long as nobody asks for their money back, where' the problem?
trader7757 - to be sung to: YouTube - Line 'em up - James Taylor feat.Elio & le Storie Tese
Night all.
In 1960, lame duck Ike also issued the famous warning about the military-industrial complex". Outgoing presidents are free to give dire warnings. But I don't expect W to grow a conscience. Still betting he will be the first ex not to die on American soil.
I suppose when the tool in your tool belt is a hammer, everyone looks like a nail.
As of today, what percentage of the people in our prisons are ex-CEOs or VPs? I'm willing to bet it's miniscule.
If that is so, then to paraphrase dryfly, you buy it.
If you are not willing to buy this crap, then why should the taxpayers, who don't want to?
Amen.
Sorry Ben, I doubt you're surprised.
Capitalism is a system that tracks profit and loss.
Why was loss expunged from all those Harvard MBA text books?
The FBI should be investigating this.
Sorry Ben, we were too stupid to keep it.
I am curious why there have been no prosecutions of 'stated income' loans.
Isn't it illegal to lie on a loan application?
Samething with loans made on the pretense the owner would occupy the premises to include submitting phony rental agreements,leases, cancelled checks on the buyers real home.
Tanta mentioned the GSE's were going to review their loan portfolios in an effort to find such fraud and send those loans bank to the originators. Have they? Will they?
Might even be able to overcome non recourse laws if fraud is shown.
Doug Watts, loser writes:
Valuations have not dropped to these levels strictly because of fundamental loss expectations to the cashflows.
raphael | 09.24.08 - 1:56 am | #
If that is so, then to paraphrase dryfly, you buy it.
If you are not willing to buy this crap, then why should the taxpayers, who don't want to?
I am buying it - oddlots as they show up for the bid. Locking in 12-20% returns even if every homeowner defaulted in many cases.
How's that for a model - assume every homeowner will default with 60-80% severities and still get 15% returns? Why there's even room for error!
Think the government might be ok with using that model except maybe by demanding 6-8% return (higher px) a la Bernanke the govt might help out alot of institutions (which would smoke the soc. security fund returns).
Sorry don't have 100b in my bank account to buy it all up. The valuation inferences here are dribble.
There's paper that fundamentally should be worth zero being bid at zero, but there is ALOT more paper fundamentally worth much higher levels trading at ridiculous spreads/prices.
For example, yesterday there was a prime ssnr '06 deal that traded 25pts back from where it should. The bond will not take any losses. It was a AAA now its a BBB. There is nobody who traditionally bid this stuff at the table. So it's great deal for the buyer - a distressed fund looking for equity returns without using leverage.
So, yes there are idiots out there - distressed funds that hired all these people who put the deals together now bidding the stuff up at levels that guarantee ridiculous returns. It may not be ridiculous for the govt to sit at the table and compete. As a taxpayer I'll take a govt entity making anything over 5% returns.
Just Wikipedia "Credit Default Swaps". Honestly it appears these financial institutions were looted in every possible way, but the Credit Default Swap will go down in history as the most rediculous financial scheme ever.
Bwahahaha.
"But already there is widespread anger that mortgage securities deals enriched many on Wall Street at the expense of millions of home buyers"
At the expense? How the blazes are they going to prosecute anybody if the writer doesn't understand how this worked?
None of the housing shenanigans would have happened without the tidal wave of rezoning approved by gleeful City and County commissioners.
State and Federal affairs over local land use have been a third rail, but if taxpayers are taking on exurban and South Beach toxic waste, I think the "stake" I want is to bring this up and figure out the new federal/state/local role. With $4 gas, the market for "90 minutes from [insert job center here] is kaput. This country no longer has a growth problem, but a big arrangement problem that hybrid cars won't solve because the Highway Trust Fund is broke and watersheds can't deliver drinking water over pavement. This is what we are, in part, buying our way out of.
The big question now is what the great rearrangement looks like.
Paging Raines, Gorelick, Johnson, Rubin and a host of 90's characters . . . . please answer the courtesy phone.
In order to appease the masses that have railed against this Wall Street hand-out across party lines, they're now going to investigate the firms that have ALREADY failed. Nice to know they're on the ball.
TED Spread at 3.01. Don't know what it means, but it is high
http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND
I am suspicious of the FBI's strategy to prosecute these companies for fraud. I am no attorney, but here is my take in layman's terms.
They will have to establish criminal intent in order to convict them of faud. They will have to prove that the executives knowingly and willfully consciously deceived the marketplace.
I believe that is a much higher bar than Sarbanes-Oxley. Under Sarbanes-Oxley, the burden of proof is on the executives and their auditor. Again in layman's terms, they must certify in writing that the financial statements fairly present the financial condition of the company. Further, they must certify that their reporting processes have been assessed and that these processes ensure that the statements will fairly present the financial condition of the company.
Under Sarbanes-Oxley, it is no longer sufficient to say that I conformed to generally accepted accounting principles. GAAP is the floor, not the ceiling.
The central issue in yesterday's Senate hearing was that it is very difficult to value some of these exotic financial instruments. If that is true, then the executives and the auditors should have concluded that they had no adquate process reporting the value of these assets.
To this novice, that appears to be prima facie evidence that they knew their certifications were false. If so, that is a much lower bar for the FBI to prosecute.
raphael,
Thanks for the insight. Well written, IMO.
It's been over a year since Cramer's meltdown over the bond market. It's been over a year since the pros were declaring the bond market broken.
Isn't the real problem for Wall St that the bond market is actually working but they don't like the terms?
Have there been any prosecutions under Sarbanes-Oxley? I think there are still people who says S-O is too burdensome and should be weakened.
Well, it's a tricky situation for the FBI. It sure would be nice to point to AIG, BS, Fannie and Freddie and LEH and say - "they did it!"
But of course, the more they look, the more they'll see that the whole runup of exotic investment vehicles and idiotic lending practices leaves a trail of greasy thumbprints all over the place.
What I'm finding more interesting is the fact that we may see the complete breakdown of the power structure within the Republican party. Rove/Cheney/etc/etc (I like to call them the backoffice lads) are probably toast and I can only hope their influence over the party has been permanently impaired.
Now that the wallets of everyone are on the line, it's finally time to investigate what's going on and march on DC and express moral outrage. When 3000 Americans died mysteriously and with many unanswered questions and there was a movement for 911 Truth...well that wasn't worth fighting for.
Setting aside the value of the stock and certain assets on corporate balance sheets, I am confused about who is responsible for regulation and oversight of these exotic financial instruments. I mean, the SEC regulates stock exhanges (after a fashion), but what about these products tthat no one can seem to value? Should anyone be allowed to sell a product that no one can fairly value?
These products seem to be like buying chips at a casino, and everyone assumes they will go on an extended winning streak, maybe even hit the jackpot.
Seriously, who is "responsible" for oversight of the sale of these products?
Billy Hill,
I suppose there could be a conviction for fraudulent misrepresentations under SOX. The biggest threat is that the CFO and CEO attest the financials personally, so they can be cleaned out by a shareholder suit.
SOX was rolled out in 2002. For the first years the process was indeed burdensome and there was a lot of worthless effort.
The process now is quite streamlined. The best analogy is an ISO certifications for financials. As with financial audits, the people who hate it the most are the ones who are not organized. Most view it as a necessary evil. A few actually like the audit process. I did a SOX audit of a reporting department who were going to hire some new people and were happy to use the flowcharts for training purposes.
SOX is now a commodity. It's either done inhouse, by lower level outside auditors or offshored. This should tell you how cookbook it has become.
lama
Your characterization of the current state of SOX reporting and auditin processes undergirds my point.
If there are assets that are both material to your financial statement and fundamentally resistant to measurement, you should either not own them, or not report them, or report them with a robust disclosure in your Discussion and Analysis statement.
MLM writes:
What is, a four letter word for first?
MLM | Homepage | 09.24.08 - 1:19 am | #
it's "Dibs"!
raphael | 09.24.08 - 1:34 am | # said:
"Another unintended consequence - what if passing the bailout actually results in more homeowners saying f-off, I'm defaulting?"
Purely anecdotal but that's what a couple of neighbors are saying on my Temecula street. Since they can afford the payments, but are now upside down $150-200K, they have decided it is in their best interests to walk as they don't see how they can make up the negative ever! They are mad as hell about the bailout, because they don't qualify.