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What would a New Government Entity Look Like?
Submitted by
CalculatedRisk on Thu, 09/18/2008 - 6:24pm (457 comments)
They will be hiring hundreds if not thousands of employees/contractors. I doubt it will be based in Texas.
first?
A lurker first? Ya gotta be kidding me!
doh!!!
Whew, you all had me worried. Carry on.
"Working thur the weekend"? Welcome to the world of the working class....
The Greater Depression cannot be denied when TPTB are actively working towards assuring it.
inth?
Less than fifty days to the election. It won't surprise me when i go out to get the paper, see a headline that says, "McCain champions regulation" and then "Bush Says he is Sorry" and then I realize that the paper is actually strapped to a new PONY that shits c-notes.
It will be interesting to see how our general population responds to all this.
As Johnny Rotten said,
"Do you ever feel like you've been cheated?"
Something this big cooked up in a few days is bad to turn out bad for everyone except Goldman Sachs, the true criminals on WS!
*bound
this blog has gone totally fascist.
Is Tanta ok?
No this country has gone totally fascist
oh and "me" you are great American...notice the extreme patriotism (also known as fascim)
this blog has gone totally fascist.
If you aren't joking, you might want to spend the time learning what that word means.
Also, isn't Palin HOT?
I am moving all my money to Eastasia
I don't understand how any of these government programs or any of the Fed's "liquidity pumps" is going to fix the seized credit markets?
You can lend unlimited amounts of money to a bank or take their bad assets, but that doesn't mean they're going to turn around and lend it to Joe Six-Pack.
imho, they're much more likely to invest it in other "safe" investments until conditions change.
Unless part of the Fed's/Governments rules force banks to lend somehow?
There is always a bull market in Eastasia.
I'm sure CR could use a quiet weekend...
Market RED by 10am EST?
"is that this program will actually reduce regulatory capital as losses are realized"
I doubt it. The fed will buy close to par and then tax an extreme loss on the taxpayers' behalf. There is no wat this will even work otherwise.
Ban short sales? RFC? Bloomberg says worst financial crisis since 1920?
Expect "Financial Rapture" any day now.
Conjure says, "Come to Jeeeez-us."
girlbear, I talked with Tanta for about an hour today - she seemed fine. She doesn't post much during periods of high news activity - because she is absorbing the news and she says I always beat her to the good stories!
All, I think this issue of regulatory capital is interesting. If the plan reduces regulatory capital - through price discovery of illiquid assets - it isn't really helping with the key problem. It will be interesting to see the details.
Best to all.
So define "steep discount". They're already constrained to a certain point by the effect on regulatory capital.
So they set an artificial floor and hold onto it until market conditions improve?
As to RFC, I'd like mine extra crispy.
We already have a RFC its current incarnation is the PPT.
Steep discount to what? The paper wishing price, the market price or the actual value?
"Do you ever feel like you've been cheated?"
12th Percentile | 09.18.08 - 11:16 pm |
its been chronic since i realized i wasnt entitled to shit.
This is the BIGGEST nonsense in the history of mankind. Worst than Holocaust. Worst than Rape in Nanking. Worst than any crime committed in the history of mankind.
mp:
Uh, in the rapture, all of the good people disappear.
If I get to go there, will there be ponies?
I am predicting a post from Tanta about the "DAP is Back" anyday now.
Everybody's working thru the weekend
Every banker wants a second chance
Every stock is going off the deep-end
Henry Paulson's got a new romance.
I, for one, welcome our new fascist overlords: Lord Palin, in leather, whips, and chains. Oh my.
whenever congress rushes through anything in a hurry, it always turns out badly.
I, for one, welcome our new fascist overlords
You should have posted as Kent Brockman.
In days like these, who can write satire ?
The great and the good of the street are reduced to penury,
or even worse, begging Senators for terms not too harsh.
Eight hundred points over LIBOR, and eighty percent of the equity ?
And this for a mere line of credit,
although it must be admitted, eighty b's is a decent amount
Why, thats enough for a subdued party, if Blackstone is catering.
Perhaps they could get Bear to raise the cash ?
But revenge is a dish best served cold,
and the Fed did not forget those days of our sunlit youth,
when Long Term Capital Management really did mean
'You'll have the money back by Tuesday'.
I am all for a RTC like entity buying, holding and eventually try to sell this illiquid bonds but in order to sell anything to this RTCv2 it has to be from bankruptcy. The institution needs to wipe out the equity holder and replace the management to be eligible to send their toxic waste to the tax payer. That's not negotiable.
I'm still not getting where this plan is good idea for anyone but the banks.
"If I get to go there, will there be ponies?"
homedad, if you do get a pony, be sure to let Conjure and I know, because we want ours.
damn it - I'm still on the ban on short selling - I just got my account authorized, today, for single stock futures trading - When I sell a future, damn it - that's shorting - are they going to ban THAT ? Then how will it work in the futures market - you can only BUY ? This is just silly.
-K
Perhaps then the Raging Bull would be your first call,
armed with a bottle of English gin, and perhaps a foil or two of Columbia's finest
and a very comely Vice President in charge of Vice Presidents.
I've heard these things work on the Street,
Or rather in quiet corners of bars that never see the light,
but of course I would never try such tactics myself ;
that accountant I chased over the green baize
was complete coincidence - remind me to lie through my teeth if asked
The Raging Bull itself has been swallowed by some python,
from the depths of Africa or some such tropic place,
a slow moving many coiled thing,
still trying to swallow that decaying putrescent pig called Countrywide
That excresence shitted down by that pimple Mozilo,
who never saw a Senator that wasnt due a Special Rate
Disaster Strike writes:
This is the BIGGEST nonsense in the history of mankind. Worst than Holocaust. Worst than Rape in Nanking. Worst than any crime committed in the history of mankind.
Relax! Plant some taters and rosemary, pick some dandelions and make some wine.
Please tell me that Bernanke and Paulson have actually been working in this plan for a while without telling anybody, and they have all their bases covered. Please, please.
So who do we turn to for money on easy terms ?
Perhaps our friends from the Land of Silk
Who were last seen asking after Blackstone.
I have no idea, myself, why they would do this,
unless of course it is something to do with suspecting
that they have been somewhat
treated as the dumb money.
That mere Private Equity would ever do such a thing
is an abhorrent thought, truly disgusting,
and in no way to be comprehended.
Unless it is true of course, and in that case,
it is to be comprehended but not spoken aloud
The plan is simple - smoke and mirrors. Prevent priced discovery until after the elections. So what if it costs only a few tax payers.
As Alexander Litvinenko stands mute witness
to the price of annoying certain gentlemen
who have men with diplomatic passports to do their will.
So we go back to the Street,
trying to cut the deals that can be cut,
trying to run the numbers better than that other fellow,
wondering all the while 'what did they know to lowball our bid'
Becuase the game is all there is,
we could cash out, retire, move to the country,
take with gladness our forty acres and a mule.
But we do not, because pride calls to us
And says 'You, and you alone, are good enough to beat the market
I'll believe the steep haircut when I see it. But I have trouble believing these assets will be purchased at acceptable discounts because that only addresses liquidity problems, not solvency problems created by depreciation of assets.
Solvency is becoming the real crisis here and I don't see the government just sitting back amidst a cascade of bankruptcies unrelated to liquidity issues.
If providing liquidity is their genuine intent then I have less of a problem with it.
That said, I still don't understand the reasoning here:
First, the goal of the plan is to help recapitalize the banks and keep them lending.
What good does it do to have banks lending the borrowers that have shown no ability to use credit responsibly or constructively?
How does lending to non-creditworthy borrowers make things better when lending to non-creditworthy borrowers causes credit crises?
If this helps resolve the crisis doesn't that mean bringing back sub-prime loans should help resolve it too?
What are we doing different from what we were doing before?
"You can lend unlimited amounts of money to a bank or take their bad assets, but that doesn't mean they're going to turn around and lend it to Joe Six-Pack"
That's right. What needs to happen is Chris Cox, Ben Hank & dubya will need to jack up the fake economy even more by forcing pay HIKES so J6P can have enough of an income to borrow to buy overpriced assets. The whole economy is now distorted and the government is trying to keep it that way.
Seriously, people, it appears the shit really could hit the fan.
Conjure says, "Plan accordingly."
legislation on the fly, just like a roulette wheel being spun!
Im beginning to think there should be a test you have to pass to get commenting privileges. Im pretty confident I can score 60% on any exam CR produces, however, Im pretty sure Id flunk anything Tanta puts together.
So what's the difference between RTCv1 with dead entities and pure nationalization.
I kinda like nationalization.
I want to see advertising posters and internet ads saying "America, F$% Yeah!"
mp,
Any new German aviation stuff?
I'll second Real Vapid Bimbos of OC: steep discount to what?
"
First, the goal of the plan is to help recapitalize the banks and keep them lending."
Yea, lets recapitalize the banks so they can start lending again to leveraged hedge funds!
I am all for a RTC like entity buying, holding and eventually try to sell this illiquid bonds but in order to sell anything to this RTCv2 it has to be from bankruptcy.
Its not the holding or selling that worries me it's the buying. Its apparent that you have more faith in C. Dodd than I do.
Everybody assumes a value will be available which can be discounted. Imo, AIG, for example, crashed because they couldn't even identify what they own, let alone value it.
Soon the taxpayers will own these "assets"
.
If folks missed it, I recommend the Sept 17 piece in the Financial Times by Kenneth Rogoff. He has done much research on costs and policy responses to financial crises.
The entire piece is worth reading, but the condensed version is:
"Unfortunately, however, the financial crisis is far from over, and it is hard to imagine how the US government is going to succeed in creating a firewall against further contagion without spending five to 10 times more than it has already, that is, an amount closer to $1,000bn to $2,000bn."
He acknowledges his numbers involve considerable guesswork, but I don't know anyone better qualified to be guessing.
The past 24 hours suggest we're well on our way to passing Rogoff's lower bound estimate.
link at
FT.com / Comment / Opinion - America will need a $1,000bn bail-out
Just think, once we are all nationalized, we'll have enough cash to bomb Iran to stick and gone. Turn the desert to a sheet of glass!
So who else thinks it's just a coincidence that this super bank rescue plan is announced just before GS is poised to plunge off a cliff?
Comrade CR,
""at a steep discount from solvent financial institutions and then eventually sell them back into the market"."
Yeppers $.95 is a steep discount. Who thinks this "steep" discount will actually be steep?
Nostrovia,
So capital will be destroyed by write-downs on assets passed to the govt, current stockholders will be diluted to clear water when new capital comes in to the cleaned-up institutions, and this makes people want to buy these stocks now?
Maybe management of these institutions needing a little bit of help over the crisis - can secure the new RTC loans with THEIR paychecks and ALL THEIR ASSETS. Fair trade? I might even support that.
barely writes:
That's right. What needs to happen is Chris Cox, Ben Hank & dubya will need to jack up the fake economy even more by forcing pay HIKES so J6P can have enough of an income to borrow to buy overpriced assets. The whole economy is now distorted and the government is trying to keep it that way.
Dude, you think we can start a push like the financial elites did with this RTC idea so that we can get that average wage up to a livable wage?
What good does it do to have banks lending the borrowers that have shown no ability to use credit responsibly or constructively? -- ac
Keeps the bubble inflated until November 5th?
The 'Generational' aspects of 2008's crisis escapes most people: the Baby Boomers & their Elders were promised that the debt chickens would not come home to roost until long after these folks had consumed their ill-gotten debt-fueled assets in a golden-age retirement. With clueless younger generations watching (heck, sometimes even participating), these Elders are pulling out all stops to postpone the deflation of their debt-fueled wealth and toss more debt onto the backs of those born after 1964.
Has anyone born after 1970 figured this out yet?
The boomers & their Elders (Paulson, Bernanke, Bush, Obamas economic advisors' Paul Volker & Robert Rubin, TV's Jim Cramer, Rep. Frank, Sen. Dodd, Rep. Pelosi, etc) will NOT let their generations debt-fueled real estate wealth & securities valuations deflate to the much much lower values that are more consistent with the excessive debt used to create their wealth. They plan to use every trick in the book to postpone this until they have departed the scene or descended into the anesthetized tranquility offered by dementia.
Allowing asset price deflation and 'debt destruction' to run their course will produce lots of 'deserved' losses , and unavoidable pain even to the innocent. But it will pave the path for less debt burdens for younger generations.
According to co-workers, Bush's 2003 efforts to reform the GSE's were overwhelmed by a paternalistic democratic congress etc., etc.
Just reporting, don't kill the messenger....
What would a New Government Entity Look Like?
The headstone on the grave of the Republican party.
Would? I thought it said should.
This will shrink the size of goverment a lot. Right?
At this point, I think everyone and this uncle is going to be too farking confused and/or exhausted to do much of anything major on the market tomorrow. Folks are going to be in waiting mode and information-processing mode, and I doubt there will be much more than 100-150 of movement in either direction, when all is said and done. I see it as NOT a hectic day.
"What would a New Government Entity Look Like?"
Cox in leather shorts.
What about the Default Swaps when the govt buys debt at 50% off?
I think they have to buy it all at face value to cancel all the insurance out...
$2T should be a good start...
Comradeklepto Doug Watts - excellent comment.
Everybody needs a second chance...ooohyeaheeyeah
That said, I think all bets are off for Monday. ... Hide the women and children and the good chinaware. Stash the cash in the pillowcase.
Somebody tell Scone Iran is not a desert before he goes out and bombs it.
Anonymous writes:
So who else thinks it's just a coincidence that this super bank rescue plan is announced just before GS is poised to plunge off a cliff?
It's better than that .. Who do you think orchestrated the decline of GS - none other than GS
And who do you think was buying SPY calls like mad today? I let you answer that one
The Fed and Treasury have reportedly had this plan on standby since as far back as January, and maybe longer.
I really don't understand how this is going to help banks that much. They have this mortgage paper, that say is worth 50 cents on the dollar. So they have already lost the other 50 cents. How are they helped if the Feds buy this from them at 50 cents? They still have the same amount of loss. What good is some liquidity if you are basically bankrupt anyway?
I long for the simple days of just IndyMac going under. Oh, and when does that second half recovery start?
Harold Meyerson - Wall Street's Just Deserts - washingtonpost.com
WAPO Editorial:
Wall Street's Just Deserts
So can we just cancel Christmas this year?
A good plan would force steep haircuts, even if it led to bankruptcy of the institution selling.
The bankruptcy would have few knock-on effects since the bad paper would already be in "strong hands"; in other words, in the hands of someone that would not dump it at an even lower price.
Creditors of the firm would take a haircut as well as stockholders. One of the problems with every bail out so far is the irrational protection of bondholders. They took the risk, let them take a loss.
Finally, the uncertainty over the value of Level 3 assets would be eliminated since the realistic marks would be there for all to see.
In such a plan, the taxpayer benefits, the shareholders and creditors lose.
Shouldn't it be that way?
Seems they are trying to speed up the hyperinflation process. Two weeks ago I thought it would be a couple years away, now I'm thinking it could start much sooner.
The general consensus is that foreign central banks will continue to purchase increased levels of government debt in order to control the exchange rates of their currencies. As dollar outflows slows from increased domestic demand, the foreign central banks won't have the required surpluses to purchased the increasing amounts of dollars required to purchase the US debt. They will have to either slow their debt purchases(hence letting go of exchange rate pegs), or issue their own debt to offset, causing much increased global inflation.
I suspect that they will simply refuse to finance US debt above the levels that their surpluses allow.
When this happens, treasury rates will rise increasing the debt service requirements in the face of sharply declining tax revenues. This would cause an outright collapse of the entire US banking system, which is exactly why they will be forced to monetize.
It's hard to know when this process may actually unfold because we don't know the timing or amounts of the coming bailouts or the severity of the decline of tax revenues.
Of course any nation could suddenly decide to outright sell US debt. Some may think it will never happen, but nobody really knows.
Disclaimer: This comment was written under the heavy influence of cannabis.
Jim
a lot of that paper is headed to 20 cents. the banks know it but cant find a sucker willing to take it... that was until uncle sam walked in.
I'm still not getting where this plan is good idea for anyone but the banks.
Schumer already mentioned that an RFC would take equity for the capital injected. If fannie/freddie/aig is any indication, the shareholders get washed out. (Then the question is what payout is given to the senior preferred = taxpayers?
But that is not the real question in my mind. The Real Question is:
What horrible thing is about to happen that causes Cox to want a rule last invoked in 1931? And did he not notice that the market bottomed in 1932, with that rule?
Conjure Bag is probably beside himself with all this. I wouldn't want to be anywhere near him, cuz the predictions are going to burn my ears. And my mind.
@anonymous (naked)
Here's something just for you:
YouTube - Me 262 Flys Again!
@ Pearson
What about all the credit insurance / swaps etc.?
How could Paulson get them to all agree on each bundle of debt?
I just don't see how the logistics would be possible....
ac -"How does lending to non-creditworthy borrowers make things better when lending to non-creditworthy borrowers causes credit crises?"
Of course. What's worse is the government will need to borrow and sell UST like the devil to keep this craps game going until it goes POOF at the end when the currency collapses. Another lame attempt to put off any pain until there is truly no way out.
at least one joe six pack family is indeed getting annoyed:
Google Finance: American International Group, Inc.
FFDIC writes: ...
There's internet in Seattle?
If earnings are going to be restated then so should bonuses.
"Conjure Bag is probably beside himself with all this. "
CONJURE IS MASSIVELY PISSED.
Who invented the Credit Default Swap? And why did the smartest people in the room risk everything on that pile of sh1t?
"Seriously, people, it appears the shit really could hit the fan.
Conjure says, "Plan accordingly."
mp | 09.18.08 - 11:27 pm |
mp:
Yes, mp, it really could.
Cash, food non-perishables, PM, out of the market and now pondering whether to cut bait on PIMCO Total Return and the Proshares in the small casino money.
Their gyrations and ineptitude make prudent planning impossible and hinder the avenues available to the typical person. I ain't J6P, but I'm not Rich or idoc either.
And I'm watching these idiots realtime with color commentary, wondering what's going to happen with my kids' generation.
Gut check time for me was last night when my eldest son - in middle school - asked if we were going into a depression. No snarky remarks to a kid, I told him it was very possible.
He's a very bright kid and I'm not going to lie to the boy. Reassure, yes. Lie, no.
This is true gallows humor of the blackest kind.
In this and the short-selling case, the government cabal is essentially saying millions of market participants are unable to adequately determine price. As a result, it will determine price for us.
Comrades,
I think they're trying to fire up the printing presses. It won't work...but Dayam.
Nostrovia,
"Somebody tell Scone Iran is not a desert before he goes out and bombs it."
But they wear shorts! Ahmet-what's-his-name wears leather shorts! They must be bombed! It's the only way to save Wall Street!
You are all missing the important question, which is: When can I buy a million dollar condo in the Gold Coast of Chicago for $200,000 cash?
How are they gonna get these guys to come in and take their haircuts voluntarily? I'd hide out until the Fed runsout of ways to delay final recogning.
Maven,
and speculators had nothing to do with $150 oil... oh wait
Sarah's FunFacts.......Wolverine urine makes your hair shiny,glossly and easy to manage.
Cr tittled most recent blog
"What would a New Government Entity Look Like?"
answer
my mother-in-law
I suspect many of the people you will hear on CNBC tomorrow saying how great the RTC/RFC (or whatever it is called) are the same people that were calling for that mythical second half recovery a few months ago.
So as the CEO of Morgan Stanley, I took excessive risk. Then, as the stock dropped, I was granted options with a very low stock price.
Ben and Hank come along, take my bad assets and leave the good ones. I now have treasuries instead of worthless CDSs and CDOs. My options are worth tens of millions of dollars. I get to continue running my company and collect millions more in salary and other comp.
The taxpayer is saddled with my company's significant losses.
Question: What am I going to do next time?
Answer: Take even more irresponsible risk.
sarah
ill try that. i bet the smell is refreshing.
How are they gonna get these guys to come in and take their haircuts voluntarily?
Look at their stocks. Look at John Thain.
They know that they have no choice in the matter.
since when did exorcism and faith become part of our financial system?
The printing press is for t-bills and t-notes.
Dont assume that we are going to print money.
Asian markets on steroids. Expect a ride on a ballistic missle in the AM if you are holding shorts.
It'll be called Very Important Americans Getting Rich Agency!
Comrade CR,
"What would a New Government Entity Look Like?"
Some nasty poop I left in the toilet a bit ago. Not pretty. Unless by pretty means "Stinks to high heaven".
Nostrovia,
Maven,
and speculators had nothing to do with $150 oil... oh wait
No kidding. And with gas prices still so high the government is still more worried about bailing out wall street than the average family.
haloscan working?
"Ben and Hank come along, take my bad assets and leave the good ones". They are gonna take 'em at a price that shows everyone your dumbass was insolvent. Not exactly good for business. If they don't, it's really aux armes time.
since when did exorcism and faith become part of our financial system?
Can't speak for exorcism, but as to faith, well, that's why it's a fiat currency.
for those who want a picture that depicts the complexity and challenge of counterparty risk
posed by credit default swaps...
the excellent blog
by a quant physics professor scott hsu, oregon state U...
has the peg and the explanation
Information Processing: Notional vs net: complexity is our enemy
If the banks can currently exchange their MBS for treasuries at the window for par, meanwhile reporting them in level 3 at some bogus number, how exactly is getting them marked-to-market going to help the situation?
However they try to paint this, the only way it can work is for the gov't to buy them at some inflated value to keep the entity solvent. Meaning taxpayers foot the bill.
bob
refiners margins were so low we all new they would take some back if oil dipped.
mp,
So, are those a kit now or what? Are you enjoying the show this week? I can't keep up.
I can only imagine the phone banks in the AM at brokerages making margin calls on speed dial. GOnna be wild.
If they want to take the shit assets fine, but they have to wipe out equity holders and management.
Then charge them 800bps over LIBOR for liquidity to discourage freeloaders.
Any new loan of any kind will be full recourse.
Let's roll.
Shanghai up about 10%.
We've seen a little volatility this week!
Best to all
refiners margins were so low we all new they would take some back if oil dipped.
Good point.
In such a plan, the taxpayer benefits, the shareholders and creditors lose.
Shouldn't it be that way?
David Pearson | 09.18.08 - 11:41 pm | #
Well reasoned.
Which is y na ga happen.
Cheers.
I am curious about the policy side of this new entity in some ways more than I am about the financials, although there is much to be said about how challenging price discovery is under these circumstances. It seems like having the government assume these assets will create an immense level of inequality in how Americans experience what is for most the largest investment of their lives. It is obvious the priority will be on escaping foreclosures. So will a large portion of this nation get a break on this investment by virtue of the timing, the historical/geographical trends that influence ability to pay, their counterparty etc. while everyone else deals with what they have? In addition to creating the mother of all moral hazards, I think that will be the real legacy of this experiment.
CR
and probably down 10% on Monday
crazy but interesting times
I doubt it's going to work the magic because this is a credit crisis that has been under disguise since 1980.
"A key purpose of the RFC was to purchase preferred stock in banks to increase their capital positions and expand their landing capacity"
Didn't help....the depression still continued!
Call this Paulson's Super SIV2.
If the gov't injects preferred stock into the banks, isn't this a default event causing the CDS to pay off?
I'm looking forward to seeing this plan. Its going to be a beaut. CR will have 1000+ visitors and 500 comments per post.
but cant find a sucker willing to take it... that was until uncle sam walked in.
Uncle Sam - Sucker of Last Resort
CR: So unlike the RTC, this new entity puts the taxpayers at risk.
How was the RTC not at risk? I don't see the distinction you seem to be making.
CR: But since the first part of the plan - buying impaired assets at a steep discount - appears to reduce regulatory capital
If the assets are properly marked today, what is the difference in regulatory capital - today vs. after selling to Govt. Admittedly, we will find that banks had not properly marked impaired assets, but so what? Capital was already impacted, bank had simply not recognized it.
"Shanghai up about 10%.
We've seen a little volatility this week!"
So China plays Italy to our Weimar Republic?
Naked Kings- "So, are those a kit now or what?"
No, they're exact copies, rivet for rivet. The only difference is they have modern engines and avionics (as required by FAA regulations).
Today's market and expected news shows that you can't exclude politics on an economic blog. Also, no political blog adequately discusses economics.
So if I haven't gotten out of the market yet, tomorrow might be a good day to do that?
"The headstone on the grave of the Republican party.":
"Here Lies the Myth that the Federal Government Cannot Afford ANYTHING."
or, that immortal quote from Wayne Angell:
"The balance sheet of the Fed is INFINITE."
If one were to get out of the U.S. dollar, what are some reasonable "safe haven" currencies to consider?
I've heard Swiss Francs... but why is that?
The problems in the U.S. economy now are a lot bigger than financial markets or the Fed. Third quarter earnings are going to be very bad, and Xmas will be cancelled. Tech is weakening by the day. Govts. are so on their ass that they can't even figure out a budget.
One big problem with making these crazy plans work is the complexity and time they will take, when time is so short.
Another problem is that they've already juiced the U.S. market 10-20% above where it should be. It's hard to prop up just one market in a global market. Investors will look elsewhere for relative value or safety. There's a ceiling on how high you can prop up a fundamentally weak market with hype and leverage, and we're near it.
I sold EEV at the very top yesterday and bought some SRS in the low 80s today. I don't think it's a risky strategy. Just relative value combined with patient investing in the best asset classes. I can wait til after the election. No problem.
krugman's been hanging out here a bit... picked up the "Comrade" meme.
Comrade Paulson seizes the economy’s commanding heights - Paul Krugman Blog - NYTimes.com
This plan will require global cooperation on a massive scale..
Many countries will need to agree to plow their savings in T-Bills to pay for this...
No way for the US Govt. to raise taxes and/or cut spending fast enough to pay for this...
"The balance sheet of the Fed is INFINITE."
Sorry, but that's just bullshit. But, Angell always was full of it.
I personally would like to for the Preferred holders to be made whole... is that selfish?
Fortunately BAC bailed me out of my MERPRQ problem. Hope the deal goes through.
Now all I have to worry about are my CPRMs and AZxxs (forget the exact ticker). Fortunately the WFCOs are holding strong so far.
The Swiss know finance and they can make shit at the same time. They might be the only ones left.
Maria is on the Colbert Report. Colbert mentions about diversify your assets:
"I should bury some of my cash in my backyard, and also put some under my mattress."
and
"So, if I am gonna fail as a business, I should fail like AIG, and not like Lehman. I should fail big so the government has to save me."
So the put writer's abandon the market rendering most puts worthless for whatever time period this ban is in effect?
That's how I read it....any thoughts??
This has got to be the worst 'solution' to the problem I have ever seen, heard or have been witness to.
See they don't have to actually do anything....just talk about a ban and the hedgies that went from nothing to 'kingmakers' in the last few year's, thanks to no regulations, are sacrificed for the good of the 'merican people. i knew there was a reason they were never given any rules. Now the dumb or non-connected ones are going to eat shit along with the rest of us.
We are so fucked...
Ciao
MS
I preface these comments with Scotch and IPA. It all seems so clearly now:
An actual plan to fix this mess:
I think this would be a good start.
@ RhodesianRidgebackinAZ
I like MERKX
So where can I go to dump all my trash? Are they accepting old college textbooks and college notes at the discount window yet? Then I can use that to pay off my college debt!
igor writes:
According to co-workers, Bush's 2003 efforts to reform the GSE's were overwhelmed by a paternalistic democratic congress etc., etc.
Just reporting, don't kill the messenger....
igor | 09.18.08 - 11:34 pm | #
The repukes controlled the Congress and had a GOP presnit, granted a drunk one, and a spineless opposition party. If the repukes wanted to 'reform' it they could have. I suspect reform in this case meant giving to Wall Street as a gift in 2003.
Comrade mp,
"Sorry, but that's just bullshit. But, Angell always was full of it."
Very true.
Nostrovia,
This has less in common with the RTC than it does with the "Brady Bonds" created to clean up the Latin American debt crisis of the 1980s.
From Wikipedia: "The key innovation behind the introduction of Brady Bonds was to allow the commercial banks to exchange their claims on developing countries into tradable instruments, allowing them to get the debt off their balance sheets. This reduced the concentration risk to these banks."
Of course, this says a lot about the state of the American financial system.
A lot of this could be solved by defining swaps as securities, IMO.
@Naked Kings
If you're interested in the history of German aviation research in the years between the wars, here's a photo that may interest you. Old-timers with lots of stories.
The last of the staff from the Rechlin-Larz Research Station. At the end of the war, the Americans drooled over their work. The F-86 Sabre fighter, by the way, was based on the Me262.
Luftfahrttechnisches Museum Rechlin e.V. - Hannover 2004
Step 1: Seize the assets of every member of management current and past of any company that fails.
Step 2: Imprison said employee.
Step 3: Post Memo that reads: No More Wall Street Welfare.
Government pays Wall street full wish price for their worthless asset run by a bunch of thieves that cherry pick and siphion off anything that may actually have some value while taxpayer get the bill and stuck with the garbage. That is the future of this banana republic. Get use to it.
Comrade YSLP,
"So where can I go to dump all my trash? Are they accepting old college textbooks and college notes at the discount window yet?"
Nope. But squirrels are fetching T-Bills at 30 a bunch. Although I'm beginning to think the .22 rounds to get 'em are worth more than the T-bills.
I'm to trashed to calculate it.
Nostrovia,
But defining swaps as securities still does not address mark to market issues, which all goes back to price discovery.
According to the FT, Russia banned both short selling and margin sales, effective immediately. They all have to cover immediately, so they're dreading the reopen. There must have been a memo going around to the regulators in every country.
Disaster Strike writes:
This is the BIGGEST nonsense in the history of mankind. Worst than Holocaust. Worst than Rape in Nanking. Worst than any crime committed in the history of mankind.
Well, yes, but not worse than "Cop Rock"
Well, at least one of the major party candidates has intimate experience with a "rescue plan" to save corruptly managed financial institutions.
good night. rally tomorrow = good selling opp.
Comrade Misean,
Please henceforth bring a glass to this party; no more quaffing from the bottle(s)...
A bit buzzed myself, but still a half bottle for tomorrow.
you can't eliminate CDS as a hedge against default. just only allow them for parties that have a skin in the game. the way they're sold now, it's no different from taking bets on a game.
I really don't understand how this is going to help banks that much. They have this mortgage paper, that say is worth 50 cents on the dollar. So they have already lost the other 50 cents. How are they helped if the Feds buy this from them at 50 cents? They still have the same amount of loss. What good is some liquidity if you are basically bankrupt anyway?
Dr. Jim Sadler | 09.18.08 - 11:38 pm | #
If they do that it will be ineffective but would ultimately not hurt the taxpayer that much. All the I banks go BK. More likely it is the stuff is currently trading at $0.25 on the dollar and the Feds come in and pay $0.90 on the $. Massive transfer of wealth to the I banks. Now if it is a case where the RTC thingy is the entity that handles say the LEH bankruptcy, intead of a normal BK court, that might be more analogous to what the origional RTC was
P.S. a good 50,000 word essay from Tanta on the differences between the current proposal and the origional RTC, along with an explaination of exactly how the selling of these assets to the govt would affect the CDS's that might be written on them would really hit the spot right now. I miss you Tanta.
rowen writes:
you can't eliminate CDS as a hedge against default. just only allow them for parties that have a skin in the game. the way they're sold now, it's no different from taking bets on a game.
rowen | 09.19.08 - 12:14 am | #
Why? Price the risk of default into the transaction.
I wonder how many staunch 'free market' types in Congress, who are quite wealthy, will ultimately agree with the plan and say we must do this or the financial system will collapse.....again. I bet Phill Gramm thinks it's great.
"Of course, this says a lot about the state of the American financial system."
We don't have one of those but we do have a casino with loaded dice.
I thought you all might enjoy some poetry. I am calling this "The Second Coming," in my usual mysterious way. Enjoy.
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.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spritus Mundi
Troubles my sight: somewhere in the sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
mp, you have me way off track now, so thanks; I'm fascinated by: YouTube - Advanced German Weapons of WWII - Part 1 of 3
Adolf "Dolfo" Joseph Ferdinand Galland
Adolf Galland - Wikipedia, the free encyclopedia
This may be related to the war on shorts and new weapons to protect CEO option grants from the threat of dividends?
This is becoming truly frightening. Everyone is leaping at any idea that comes along just to be seen to be DOING something.
The market is just trading on pure sentiment. Certainly not facts. A 600 point swing based on just talk of a bailout? (Goosed by billions in liquidity injected into the market.)
None of this creates a single job; that will allow someone to make a decent living; that will allow someone to buy things; that will allow a company to sell a bit more; that will increase that company's profit; that will allow that company to invest in a bit more production; that will allow them to hire someone; that will allow that someone to make a decent living...etc. as the virtuous cycle continues.
This is just more debt handed out to buy more crap. That just keeps everyone from going bankrupt that little bit longer.
Yes. People will be writing about this for decades to come. Except no one will be able to afford the books.
Bloomberg says the new plan might include insuring money market funds. Ummm...
So Paulson's record is:
Avl Dao writes:
The 'Generational' aspects of 2008's crisis escapes most people: the Baby Boomers & their Elders were promised that the debt chickens would not come home to roost until long after these folks had consumed their ill-gotten debt-fueled assets in a golden-age retirement.
respectfully disagree in part
the time-ing was to allow "the greatest generation" (ie the world war two vets and their peers) to get the fruits of their victory and then the rest to well...
let every one else construct their own ending to the sentence
China goes for the Plunge Protection Team (PPT):
From MarketWatch: China to purchase stocks, 'backstop' market
[A] government entity that controls a large number state-owned enterprises said it would begin repurchasing shares, state media reported.
They could have just outlawed price declines like in Pakistan, or just closed the market like in Russia.
Best to all.
"Someone needs to invest in the United States of America. For the past decade and, in a broader sense, for the entire duration of the Reagan era, both government and Wall Street have opted not to. Should Barack Obama win, the era of neglectful government will probably come to an end. No matter who wins, Wall Street is vanishing before our eyes. And by the measure of their contribution to America's economic strength and well being, both Reagan-age government and Wall Street's investment banks plainly deserve to die."
Money paragraph in the WaPo article.
And this plan we are looking at was developed in the last couple of months with Obama, Volcker and un-named others.
1)First, if youre a financial institution that can borrow from the government, you should be subject to government oversight and supervision.
2)reform requirements on all regulated financial institutions. develop and rigorously manage liquidity risk. establish transparency requirements
3)Third, we need to streamline our regulatory agencies. Our overlapping and competing regulatory agencies cannot oversee the large and complex institutions that dominate the financial landscape
4)Fourth, we need to regulate institutions for what they do, not what they are
5)we must crack down on trading activity that crosses the line to market manipulation
6)standing financial market advisory group to meet regularly and provide advice to the President, Congress, and regulators
What exactly is going to make an overbuild subdivision worth anything in the future except another credit bubble?
Who will qualify for purchasing the assets that underlie this "asset"?
This is the greatest swindle ever and if we taxpayers accept it then shame on us. They are taking out taxes, which will rise, and transferring it to weak entities that should fail. Once failed, the assets can go into an RTC at a cost base of zero. This crystalizes the losses at banks and puts taxpayers on hook while foreigner Tsy buyers will stop buying and bring the whole thing down.
I AM DISGUSTED THAT EDUCATED PROFESSIONALS WOULD PROPOSE SUCH A THING.
As Jim Grant said, when this was done in the 30's it was at the depth of the Great Depression when GDP was down over 40%!!! This is socialism for Wall Street and purgatory for the taxpayer.
Hey MS --
I read it the other way. Options market makers need to short stock (to maintain a delta-neutral position) whenever they buy calls or sell puts. If you cannot short, it is harder to sell puts.
Fewer put sellers = put price goes up. Well, the "ask" goes up, anyway. The bid probably stays the same.
Mostly this will just increase the spreads on options by lowering the bid for calls and raising the ask for puts. It will also increase the volatility (by reducing liquidity). Ask Shanghai...
Actually that book "Generations" that coined the phrase "Generation X" predicted, according to their theory of generational cycles that there would be a "crisis" around 2007-08. I forgot about that until now.
What would a new government entity look like? The unprecented corruption of the Iraq Coalition Provisional Authority does not inspire confidence.
Comrade Misean
do you understand German?
Might have a very fitting musical link for you.
So we'll find out at what -- 9:20 a.m. -- whether or not folks can sell short or not tomorrow. That oughta work well.
Just close the market tomorrow and keep it closed til you idiots figure out what the hell cockamamie plan you want to employ.
As so often at critical conjunctions with Big Plans, everything hands upon a single adjective: "steep." If any proposed Guvmint subsidiary buys up bad securitized junk at appropriately steep discounts, the institutions from which said assets }sic} are purchased are wiped out multiple times over; the losses are too severe. If the discounts are insufficiently steep to offer some 'fair market price' for said assets, the institutions come out solvent by being overpaid while the public subsidiary locks in massive losses and years and years of adminstrative costs trying to wade through the mess. ---Which is the whole idea. Which is why the idea is wholly bad.
Seize the institutions; then strip the bad assets as necessary. Don't pay for the privilege of this huge money loser.
@Naked Kings, and anyone else interested.
Here's what Americans can do with a homebuilt kit if someone would just show some goddamned interest.
I guess they want the Chinese to build them and we can buy them.
YouTube - BD-10 Homebuilt Supersonic Jet Aircraft (1 of 2)
Paulson is starting to sound an awful lot like the Iraqi Minister of Information. There will not be a bailout. No more bailouts. Please ignore the bailouts going on behind me.
From an update wsj article on the short selling rule:
Hedge funds expressed concern that short-sale limits could cause investors to panic about the balance of their portfolios, and have the unintended consequence of causing hedge funds to sell so-called long positions -- or bets that companies' shares will rise -- because they'll feel less able to "hedge" those positions through short sales, according to a person who took part in several afternoon phone calls with SEC staff.
Nope. But squirrels are fetching T-Bills at 30 a bunch. Although I'm beginning to think the .22 rounds to get 'em are worth more than the T-bills.
I got 50 T-bills each for old high school and college love letters and 70 for drawings from my 3-year-old! Squirrels are a dime a dozen!
Paulson is starting to sound an awful lot like the Iraqi Minister of Information. There will not be a bailout. No more bailouts. Please ignore the bailouts going on behind me.
Baghdad Ben?
They're gonna blink on the ban on short sells. I guarantee it. I bet you my 1977 Bud Harrelson baseball card.
The unintended consequences for all of this will be hard to fathom, especially when you consider that I Banks have been doing quite the balancing act as the Treasury/Fed danced around the idea of intervening.
CR; Thank you for your kind response regarding Tanta. I am glad to hear she is well....but probably fuming and swearing.
Thanks to you both for the education..
Dow futures up 205
Let's review. Unintended consequences of short selling ban (on new shorts):
-Cost of convert issues goes to prohibitive levels, and banks have more difficulty raising capital.
-Spreads widen, liquidity drops.
-Hedge funds sell down long portfolios since they cannot initiate short hedges.
-No short-covering support for the market when it has steep drops.
Got that?
I'd like to remind you of two things about designing RTC 2.
Congress, especially Democrats, is still committed to Paygo at least in word. While other bailouts so far haven't come under Paygo scrutiny, this might.
Second, the securities RTC 2 would be buying come in thousands of shapes and sizes. You would need to create a process, panel or model for determining purchase value.
Then, you also would need to have a transaction fee to compensate for the risk that the model is wrong and pay RTC 2 admin fees and such.
For example, let's say the model says your bond is worth 42 cents on the dollar. Then, you get slapped with a 12 cent transaction fee. So, you get paid 30 cents.
But to make it more appetizing to financial companies now, Congress might have to accept less in the short run but make it up with a Paygo tax in the long run. It would make sense to charge this uniformly as a premium to all types of financial institutions that use the U.S. market, like FDIC or PBGC premiums.
So, you would have a liquidity facility but maybe not a cheap one, especially for financial institutions able to survive this mess.
"6)standing financial market advisory group to meet regularly and provide advice to the President, Congress, and regulators"
and I presume the members are already in the wings, stage LEFT?
I volunteer, and my advice will be steadfast: "SHORT the dollar!"
China goes for the Plunge Protection Team (PPT):
From MarketWatch: China to purchase stocks, 'backstop' market
[A] government entity that controls a large number state-owned enterprises said it would begin repurchasing shares, state media reported.
Hey, if it's good enough for H.K., it's good enough for the parentaland. They might even make a few dollars/yuan. Dolyuan?
Ben is an expert on the depression. Certainly he has warned Cox that the ban on short selling didn't work then, and won't work now. He's not going to let the same mistake be made again... is he???
Comrade 1929er,
"So where can I go to dump all my trash? Are they accepting old college textbooks and college notes at the discount window yet?"
F that. Bottle planted firmly to lips.
So many comments...Can't even deal. I'm goin down hard.
Hey yoush...whosh yoush looking at huh...Why I oughtash....
Nostrovia,
I really don't understand how this is going to help banks that much. They have this mortgage paper, that say is worth 50 cents on the dollar. So they have already lost the other 50 cents. How are they helped if the Feds buy this from them at 50 cents? They still have the same amount of loss. What good is some liquidity if you are basically bankrupt anyway?
Dr. Jim Sadler | 09.18.08 - 11:38 pm | #
If they do that it will be ineffective but would ultimately not hurt the taxpayer that much. All the I banks go BK. More likely it is the stuff is currently trading at $0.25 on the dollar and the Feds come in and pay $0.90 on the $. Massive transfer of wealth to the I banks. Now if it is a case where the RTC thingy is the entity that handles say the LEH bankruptcy, intead of a normal BK court, that might be more analogous to what the origional RTC was
If this is what is going to happen, (More likely it is the stuff is currently trading at $0.25 on the dollar and the Feds come in and pay $0.90 on the $. Massive transfer of wealth to the I banks.), then this is absolutely the worst thing that could ever happen, and we are all doomed.
If they properly discount the assets we purchase, then what is the point of the excercise? The holders of the assets are still busted flat. If they do not properly value this toxic waste, then the taxpayers are screwed. Tell me again what the point of this excercise is!
Calculated Risk writes:
China goes for the Plunge Protection Team (PPT):
CR, I believe that that's Prunge Protection Team.
Dr Jim and I have the same concern. He posted first. Sounds like a good Doctor.
I bet the RTC is the vehicle for re-implementing DAP!
No doubt, they will stick DAP in the RTC or whatever bill that gets passed...
Huzzah!
Rich,
If they did all that, none of this would move. My guess is Congress wants to be involved in this in name only, just to say they did something. They'll hold hearings later if they think it is advantageous to look like they are scrutinizing what's going on, although I'm willing to bet most members of Congress do not know a MBS from you know what. They don't understand anything except that time is of the essence.
My prediction for Friday...
They're doing the 'no shorting financial stocks' because a large financial entity is about to implode.
While everyone is staring at SoCal, I keep smelling this odor of burning primer cord from the midwest.
CR: All, I think this issue of regulatory capital is interesting. If the plan reduces regulatory capital - through price discovery of illiquid assets - it isn't really helping with the key problem. It will be interesting to see the details.
Whatever the plan, I'm afraid the key problem will be to prevent the thieves from paying the piper. It will be positioned as necessary steps to counteract the effects of "panic". In reality, this is a natural reaction to the repudiation of the statistical underpinnings of modern finance. In reality, that AAA tranche that was worth $100MM because, statistically, the model says it was worth $100MM is really worth $0 since that is how much reality will be paying out on that contract. If people could even began to grasp the magnitude of destruction that will be wreaked by basing our financial structure on flawed mathematical models and then leveraging it up, they would probably be panicking more than they have been. The flaw is at such a low layer of the system, that the ripple effect outward is catastrophic. They didn't just screw up a door in the skyscraper, they computed the strength of steel off by an order magnitude and here comes a hurricane.
Some of us have the ability to grasp the ramifications of screwing something up so fundamentally intrinsic to the system as the appropriate pricing of risk. Some of us also understand how thin is the veneer of civilization. Hopefully whatever solution is presented will hold those who brought this upon us accountable to the grave danger we are all in. I expect that won't be the case though.
Don't forget to vote for your masters!
Comrade Vlad,
"do you understand German?"
Ich verstehe wenig...
Mostly
Ich trincken bier...But whatever.
Nostrovia,
What if the Pelosi Democrats in Congress DEMAND that their Stimulus Package #2 be attached to this emergency legislation for RTC2? I bet they will and then it gets REALLY ugly and REALLY political.
emo-
The mind is a little slow at this point (ambien + 3 fingers of 20 year old Rum) but I just don't see how any put writers are even going to show up for work tomorrow much less want write calls since they lack the ability to hedge that call with a short.
I have a shed of puts and can't see a way out of them if this goes through....the whoosh tomorrow will make a 200% gain a 100% gain in the first few minutes. I am at a loss as the see what transpires even if they don't enforce a rule. You know the old saying....looks like a duck,quacks like a duck....it's a fuckin' duck.
My initial strategy would just to sit it out and wait for the gap up and crap down however I think the market makers are prepared for that (like they were today) and will not allow much of a crap from the gap.
I also heard (through a Jim Chanos piece) that BAC were responsible for pulling the lines of credit from MER last week that dropped the SP....and they then acquire them???
WTF it's the wild, wild, west.
WE'd be in jail if we even thought of that.
Ciao
MS
The I Banks don't value this properly and will play the govt like a Strad. They will put lipstick on these pig bonds and sell them for more than they are worth. This is a huge swindle in process.
They are allowing banks to count goodwill as capital and are planning to pay interest on excess reserves and are taking equities at the discount window.
BOHICA.
A stimulus check might take some of the sting out of paying for someone else's mortgage.
Hank will probably be appointed to preside over this new fountain of wealth for the rich at the taxpayers expense, he is going to be needing a job soon after all.
Calculated Risk writes: If the plan reduces regulatory capital - through price discovery of illiquid assets - it isn't really helping with the key problem.
I hate to disagree with the esteemed host, but the key problem is: The Truth. If the Fed wants to Recapitalize Insolvent Banks, that's fine, but call it as It Is.
I see no way that "price discovery of illiquid assets" won't "reduce regulatory capital".
To. Zero.
Get. Over. It.
Got. A. Plan?
Comrade MS,
Too drunk to debate, but here ya go:
"WTF it's the wild, wild, west."
YouTube - The Wild Wild West TV intro (1965)
Nostrovia,
What happened to my metallic foam composites?
As a Generation Y'er, I want to thank everyone older then me for your collective lack of leadership and foresight. Armageddon only comes once, and I would have hated to have missed it.
paying interest on reserves will replace the current means of the fed adding adbn draining reserves to hit a funds target. its soemthing they have been trying to get approved for years and was to start in 2011. this would just bring it forward and has nothing to do with bailing out or recapitalizing banks
Is this to preserve regulatory capital or avoid panic?
the reduction in reg capital gets addressed through the purcahse of preferred shares.
This will seal it for me. Can't tax what they cant find....
I will not pay for assets that I can't appraise......
Some humor to help thru the darkness
Cartoons on wall street meltdown
Cartoons: Wall Street meltdown
Bush vs Zombies
YouTube - Bush Vs. Zombies
good luck to all....
bond girl
you suggested above, defining credit default swaps as securities
how does defining a derivative as a security help us out here
not saying it doesnt... just clue me in
im a social worker who deals with street kids and gang members for a living and CRCC is my alter ego
please educate me on this
Less than 3% of GS and MS shares are short sales according to WSJ. AIG had less then 8.3%.
McCain was right. Cox should be fired.
I cannot even fathom what will happen on equity derivative desks tomorrow.
So how does this work.
MBS is worth only 20 cents on the because home owners walking away.
So RTC2 buys this MBS at 100.00 to bailout the company.
So what happens to the homeowner does he keep paying the loan?
Does homeowner walk away? What does this do to home prices?
Oh yes, this package is going to fly like a pig
As much as I like to gamble, taking on ultrashorts tomorrow looks like russian roulette. I'll wait till Monday, and sell my few longs tomorrow if the price is right. The fact that SKF hit 200 in the last meltdown and only 145 in this one speaks volumes for decay in the ultrashorts.
Can I ask a serious question?
May I say that I will not stand for this?
They have gone too far.
I have never been an activist type. Yet somehow I am picturing myself holding up a sign outside of some meeting that says
"Yes, I understand it. It is theft. You won't get away with it."
Is anyone else feeling this way?
Me for one.
Interesting.
Everyone on the floor of the NYSE gave out a gala cheer at the anouncement.
The teachers my breakroom gave out a sigh and an "Ah Sh*t more taxes".
I guess we're just not as jovial as those floor specialists.
Comrade
I'll pass then. It's one of those things that while very fitting and funny if the nuances are caught, is infantile on the surface.
I better get back to work on finance, but, this is an old dream some posted:
The Forerunner V would be a four-place business jet. The pilot and three passengers could be anywhere in the world in an hour or less. Scramjet modules under the wing would allow a cruise speed of Mach 15. If hydrogen is carried for short dashes, it might reach Mach 20! Cost would be under $5 million - less than many conventional business jets. But then, it only carries four people.
solohedger - i understand the frustration but what would you suggest. the problem is so bad that something has to be done to prevent a banking collapse and a depression. how much misery would you like to see before you get to the point where the government steps in? serious question - what would you suggest.
"A stimulus check might take some of the sting out of paying for someone else's mortgage.
Bond Girl | 09.19.08 - 12:31 am | # "
So, let me work this out. If I own part of somebody else's mortgage, it's, like, a timeshare in Miami, right? Cool. But if Leathershorts Cox gets his evil plan done, then it's like, crashing on some slacker's basement sofa in Spokane?
But since the first part of the plan - buying impaired assets at a steep discount - appears to reduce regulatory capital, a RFC preferred investment might be included to help boost regulatory capital. We will know more soon.
Ugh... I need a scotch tonight to get my mind aound this plan. Take away capital while boosting it?!?
I'm with JP...(way up there in the comments) these guys know they need haircuts badly. The line to this barber shop will be long.
If the markets are frozen, how are people paying for their ponies?
Any news on the credit card front? Mortgages (other than Fannie and Freddie offering lower and lower rates)?
Got Popcorn?
Neil
How will the mortgage financing work for a buyer to purchase an RTC owned discounted home...the RTC Mortgage Company of easy lending...
The new govt. entity will be called The Dept. of Homeland Social Security
United States of Argentina.
This WILL impair the ability to fund our deficits with foreign purchases of Tsy bonds.
Comrade solohedger,
"Can I ask a serious question?
May I say that I will not stand for this?"
Then bend over the table dude. What, you think that the rulers in Warshington DC care about YOU!
Bwahahahahahahahahaha!
Talk to Lefty before you get stuck.
Nostrovia,
David Pearson --
The inability to hedge was the first thing I thought of when I read about these rules.
I intend to be "all cash, wait for the crash" within a week.
There are hedge funds that are always equally invested long+short as part of their strategy. What, precisely, are they supposed to do?
This is beyond insane.
sc - we dont fund our deficits with foreigneners buying treasury bonds. thats not how it works.
Party Dissident Gerkinov.
"The new govt. entity will be called The Dept. of Homeland Social Security"
Socialist Insecurity.
Sheesh!
Nostrovia,
yes solo....
unfortunately shortly after we do that large van will pull up and tell us they are here to give us our free ponies....won't you come over this way?
I feel powerless too.....I wish there was a way to do something but I can't think of anything that doesn't begin with a .9mm and a bag of ammunition at this point.
Any other idea's
Ciao
MS
If hydrogen is carried for short dashes, it might reach Mach 20! Cost would be under $5 million - less than many conventional business jets. But then, it only carries four people.
I'm all for dreaming... But that's like saying a carbarator is going to give you 100mpg. (It won't... fuel injection mixes the fuel better.) Its violating a few 'conservation of energy' type equations.
Sorry... my field. I dream. But the technology isn't even close.
As to mortgages... who's going to pay now? Only those who put enough down to hold on. Which is what fraction?!?
Got Popcorn?
Neil
I will be out in full force with my gang and rob the world silly. Thanks to u sgaf for the money. Hollar!
I think the feeling has passed. Back to trying to ride along with the pig men.
Anonymous, you've got it wrong. First off you hedge written calls with longs, not shorts.
More importantly, your puts will do fine. You got in under the wire. The IV's shot to heaven today and my puts held value even though the underlyings were rising dramatically.
explain sean... or is that sarcasm. I'm so disgusted with this initiative.
Ok, I found some fun stuff: Where governments give support through purchase of preferred stock, they might forego dividends for some time to boost banks income. Options to put-back private equity stakes to the government at certain prices and options to buy the government stake could be used to balance burden sharing. Subordinated debt convertible into equity if not repurchased by the bank within a specified time (or in the event of financial problems or managerial ineptitude) can be used to protect the government from banks inability to service the debt (by allowing government to intervene). Such contingent clauses can also be a powerful incentive for owners and management to rehabilitate the bank as quickly and effectively as they can. Governments can finance equity, subordinated debt and cash injections by selling government paper in the market, or inject bonds, which banks can sell for cash. The main drawback of unrequited cash or bond injections is, of course, that the government does not have any ownership or control rights.
Granting government loans or placing deposits will also improve bank liquidity and provide an opportunity for the bank to buy unimpaired assets. This does not immediately increase capital, however, nor does it improve capital ratios because assets and liabilities increase by the same amount. Moreover, unless the bank has new, fit-and-proper owners and managers or is under air-tight supervision, there is a real danger that the old-style investment mentality will resurfacethat is, investing funds in risky assets, as their gamble on recovery.
http://www1.worldbank.org/finance/assets/images/sysbank.dot.
The financials are not constrained by disclosure rules, etc. with respect to the swaps they get into because swaps are not considered securities like stocks, bonds, etc. They are considered contracts. As in, outside of SEC jurisdiction. (Although there is some debate about this as they relate to specific bond transactions.) That is why the I banks, commercial banks, and insurance companies are so far out on the limb right now and we are in this domino situation. They could rack up God knows how much in derivative liabilities without scrutiny because they are just plan old unregulated contracts.
If they had been treating these like securities rather than mere contracts, it would be a different ball game. And then financing these bailouts would not be crowding out future social (federal budget) priorities like they inevitably will.
sc writes:
United States of Argentina.
You wish.
One serious policy problem that is not addressed is that we've got a Catch-22 situation. The Feds are trying to juice up the credit markets so that the banks can LEND more. However, one of the big problems is that, on whole, we don't SAVE enough.
Sure banks may have the capital to make mortgages again, but seriously how many people do you know under 35 have (1) 720 FICOS and (2) can put down 20%.
oh shoot, the Feds meant lending to the hedge funds, not the Joe Six Pack.
This is sounding like a desperation move. Maybe Harry Reid was right when he said that nobody knows what to do.
Think of this - there has been $500 Billion in credit losses so far, with another 1/2 Trillion to a Trillion or more coming. What will another Trillion in losses do to the worlds' financial system? Holy crap!!!
You're right Vlad. They have great steaks, women and perhaps even a livable health-care system...
First off, cutting a dividends hurts shareholders, but not option grant holders, in fact, dividends are dilutive to option grants, thus I hope you rubes do't fall for that shit, but that will happen, i.e, a promise to reduce dividends, while option grants are increased, which is what happens with share repurchases...
back to aviation?
CR asks:
Question: What would a New Government Entity Look Like?
Answer: http://techdumpster.com/wp-content/themes/UpstartBloggerMinim06/ubminim/images/header.jpg
Bond girl
thanks , got it
idea is transparency and regulation
bringing it under the sec umbrella..ok
good for the future
but retroactively, it seems that everybody has been resisting going to the confessional,
thus the restatements.
The bazooka shot its last wad.
sc,
Yes, and plenty of wine.
"Even credit-worthy people are having trouble getting loans...."
Duh! It's the asset price is still. too. high.!
A 200K household, with good credit history, cannot buy 400K homes in many parts of the country because 400K homes are total POSes that no one with a 200K/year income would want to live in.
So they've GOT to go for the 600K- over a million.
This is so stupid I can't believe it. Makes me cringe.
Don't worry.
"You've Got The Fed"
YouTube - YOU'VE GOT THE FED - song parody from versusplus.com on the CREDIT CRISIS
I'm with Pearson and Nemo on the shorts. They have no idea what they are doing here. But it's kind of like the price of oil being blamed on speculation. You blame the speculators and then you can ignore the reality of the situation. Very expedient but stupid.
ot sarcasm.
when the federal govt spends they debit the treasuries account at the federal reserve and credit a fed members bank. this is important to get clear because it highlights that the fedeeral govt does not issue bonds to raise money to spend. they spend first and the bond issuance is a reserve drain - ie drains excess reserves that would push the fed funds ratye down to 0. taxes have the same effect. the federal govt does not collect your taxes and then spend them. if you showed up at the irs with cash they would burn it.
the public sector (govt) deficit is exactly equal to the private sector surplus (foreign and domestic private sector). because we have a trade deficit foreign private savers invest in treasuries - recently to maintain their currency peg- to prevent their currency from apretiating vs the usd.
the federal govt is not revenue constrained. excess spending may be inflationary but the federal govt will never be insolvent and we do not rely on foreigners to buy our bonds - we issue the cash that gets invested in the bonds.
More generally, most bank recapitalizations in developing countries using public resources failed, with one recapitalization following another. Efforts mainly fixed balance sheets, with little attempt to correct the underlying problems. Repeated recapitalization led to moral hazard; with an implicit government guarantee there was little incentive for prudential banking. Hungary, for example, had to recapitalize its banks several times before it got it right.
Distressed loans may be taken over by governments at their face value (less any provisions). To the extent that banks under-provision (which is often), the government will provide support accordingly. Contingent arrangements are also possible. In Chile, government purchases of non-performing loans was conditional on existing shareholders repurchasing those loans from future profits (Box 8). In Mexico, recapitalized banks bore 25 percent and government 75 percent of losses on non-performing loans, preserving some incentive for banks to manage and recover on these loans. In the end, non-performing claims continued to mount up (and the government is now the largest holder of financial assets in Mexico, but provides no intermediation) and corporations have not been restructured sufficiently by banks.
In other countries, Korea, for instance, share ownership is more diffuse and no particular party can be tapped for new capital. Korean banks may have to be directly recapitalizedas indeed has been done with some bankseven if it means largely diluting existing shareholders out of existence. Government will then have to assume responsibilities of ownership and restructuring, until the bank can be sold to strategic investors with sufficient capital and expertise to manage it. In other countries, particularly Indonesia, long-standing connections between bank and corporate owners (often the same) have undermined the efficient allocation of resources. Existing and controlling shareholders are, therefore, less preferable as long-run owners, and arrangements will likely have to be made attract new capital, including foreign investment.
I don't understand. Why not just ban all bids at or below the last transaction price? That way markets can only go up. It's obvious to all that wealth can be created simply by passing new laws.
From Bloomberg article:
Foreign investors may demand higher compensation for providing the money the U.S. government and economy depend on. That, in turn, could translate into lower living standards for Americans as borrowing costs are pushed higher and the dollar is pulled lower.
solo-
I understand that however if there is no bid on them......there's no bid.
Not much you can do about it. The lack of an ability to continue to produce the same trade will make bids for existing ones worthless.
Am I missing something here??
Ciao
MS
Maybe the IMF will step in and basil us out?
MS-
41 mag, 7 mill for long distance, ak-47 plus sawed off pump shotgun..
just pumping the shotgun will run off most people...
I will be vocal in front of Feinstein and boxers sf offices..they are very close to each other...
time to inform the sheeple...
Paulson tonight:"I think we saw the best of the USA in the speaker's office tonight."
Not you Joe6pack, us, we on our fat overpaided, over stolen wallets, not you.
Holy shit. Is there a limit UP on the futures ?
Good one Rob Dawg. The dumpster should say 0.0
or 0 plus 0 equals 0.
my prediction for tomorrow
based purely on intuition
the fed and treasury are on full court press mode
they are shooting their load...do or die
tomorrow will be an "up" day for the markets because "they " are desperate, and will spare no trick in the PPT tool box to make it so.
please remember this is an intuitive guess
--
best of good luck to you all
bye (i mean sell)
sc - the bloomberg writer doesnt undferstand what he is talking about. not the first time that has happened with a bloomberg writer.
I don't understand. Why not just ban all bids at or below the last transaction price?
Corey
They've tried that already - on the Karachi Stock Exchange on Aug 17th. Stocks can't trade below that day's closing price
HAHAAHHAHAHAHAHAHAHAHAHAHAHAHAH
Coming to an exchange near you too.
-K
Here's what Americans can do with a homebuilt kit if someone would just show some goddamned interest.
Cool, a mini-Hornet. Without the crappy computers and leaky hydraulics. The only thing that may be a problem is working on the motor. Looks kinda cramped.
Good night everyone. It's bedtime here on the East Coast!
sc,
What we are doing is exporting our inflation to those foolish enough to trade our currency for treasuries. If we insist on being so blatant they might b/c less foolish.
Finally:
Conclusions
E
xperiences from other countries, including some in Eastern Europe, Latin America and Scandinavia, suggest several important principles for successful systemic restructuring. It requires sufficient public resources, deep changes in institutions, rules of the games, and attitudes, an early and systematic evaluation of the size of the problem, design of an overall strategy, and prompt action. The approach needs to be comprehensive and repair both the flow and stock problems of weak and insolvent banks and corporations. Shifting non-performing loans from bank balance sheets to loan-recovery agencies can be useful in easing the banks stock problembut it has risks. The government might have to provide capital to viable banks, but this should not undermine incentives for private-sector equity injections. Extraordinary mechanisms to accelerate operational restructuring of corporations are necessary to return banks and firms to profitability and sustained solvency. This, in turns, requires effective loan workouts and properly structured loss absorption that also take into account the links between financialand corporate-sector restructuring. Exit policies and proceduresfor firms and financial institutionsneed to be revamped and strictly enforced. Capital adequacy targets need to be meaningful, but should be enforced as forbearance is risky and costly. More broadly, regulatory changes need to balance the need for fundamental reforms with political and social reality. Given the time involved in the process, it is essential to provide sufficient liquidity, both at the individual corporate and at the national level, including through financial relief.
Experience also shows that systemic restructuring is difficult to design and often leads to moral hazard. Appropriate design depends on country circumstances, including the overall macro-economic environment, its fiscal and external financing situation, and quality of the institutional framework. While there is no catch-all solution, there is no alternative to comprehensive and integrated solution. Existing institutional weaknesses in East Asia also make some options less preferable. In particular, it is unlikely that a private bank-led approachwhere banks are recapitalized and take the lead in corporate restructuringwill be sufficient to resolve corporate sector problems or lead to the desired medium-term changes in corporate financing and corporate governance. It is also clear that more centralized, government-led approaches have many risks for East Asia. Complementary actions will be necessary, where interested third parties are involved in the restructuring of individual corporates and in determining financial relief. And in some countries, corporate or bank restructuring will not be the key short term priority. Rather, it will be restoration of financial intermediation and resumption of real-sector activity, particularly of the export sector. Critical in all countries will be building social and political consensus necessary to carry programs through. Systemic restructuring involves the redistribution of wealth and control, and deciding how the costs will be shared among government,
shareholders of banks and corporations, and foreign investors and lenders. And that will inevitably be a major political and social issue.
"What if the Pelosi Democrats in Congress DEMAND that their Stimulus Package #2 be attached to this emergency legislation for RTC2?"
Stimulus #2 won't be a pimple on this beauty's ass - lost in the rounding error. I can't conceive of what $2 TRILLION is. I guess it fits on that infinite balance sheet though.
Wait - let me get this straight. Uncle Sam bans short selling for the unwashed masses but at same time creates a new government agency that permits financial companies to essentially short MBS (sell high to Uncle Sam only to buy back years later for pennies on the dollar).
Makes me sick. When does the revolution start?
cd writes:
MS-
41 mag, 7 mill for long distance, ak-47 plus sawed off pump shotgun..
just pumping the shotgun will run off most people...
I will be vocal in front of Feinstein and boxers sf offices..they are very close to each other...
time to inform the sheeple...
cd | 09.19.08 - 12:54 am | #
EASY, CD, EASY!!! It's not quite time to form a vigilante force and start bumping off politicians.
Sean,
"the problem is so bad that something has to be done to prevent a banking collapse and a depression."
What if a banking collapse and depression can't be prevented and all this plan does is waste more of the country's rapidly depleting wealth. Or worse, what if this is just a cover so the Wall Street theives can steal more public money. Or both.
Help me here to get clear on this:
The new RTC II buys some BBB tranche CDOs from JP Morgan Chase for 60 cents on the dollar.
JPM gets some capital and gets the loser tranche off it's books.
RTC II holds on to BBB tranche for a couple of years to sell it for ... ?
Par? $0.50?
Nope.
The market price for the BBB tranche will be $0.00.
Unlike a pile of underperforming mortgages, which will be worth at least the collateral value in a couple years, the BBB tranche will be worth zero. There is no income on a BBB tranche if the pile of debt has even just a few defaults. The BBB tranche takes all the default and none of the payment.
And which of it's assets do you think JPM is going to "sell" to the RTC II for a "deeply discounted price"?
Can anybody please point out to me where I am wrong?
"The only thing that may be a problem is working on the motor. Looks kinda cramped."
Hey, it's a crotch rocket.
Nostradamus writes:
Wait - let me get this straight. Uncle Sam bans short selling for the unwashed masses but at same time creates a new government agency that permits financial companies to essentially short MBS (sell high to Uncle Sam only to buy back years later for pennies on the dollar).
That is a really interesting way of looking at it!
Comrades,
They ain't banning naked short selling of PM
I'm about done here.
Nostrovia,
sean******so what happens next?
One of the reasons they had to bail out the GSEs was the threat of a funding failure of "guaranteed" entity bonds. The fear was this could spread to the Tsy market.
awgee - I think you are spot on.
This is just a desperate plan to hand financial companies more of the taxpayers' cash.
What does this teach them? To take even bigger risks next time.
what if it cant be prevented... i think you have to try because if you dont you will get one for sure.
i agree that soem wall street guys will get over - they already have. they have been paid huge for the past few years and are either gone now or their business is gone and all non vested equity has been wiped out. small penatly i know.
im one of the guys who wasnt in that business and was lucky enough to be at the IB the treasury was ok with letting fail so i should be as bitter as anyone. i do not however want to see the system collpase and the economy collapse.
McBush Jr. will come to control the new entity. They will buy an island with that money.
maybe we should just try the plan at the end of Fight Club?
Because there now too many posts to go through, everyone should try to make their point in 6 words or less (Caps ok). Here's my first:
WHY IS MORE LENDING GOOD?
sc - trasury will never default. why would they. they issue the currency the bonds are denominated in.
Russia? remember?
what next - my guess. fund set up to take assets off banks. govt buys bank preferred to recapitalize with agreement banks buy back in a presecribed period. new mortgage regulations....
Well, not that it matters anymore, BUT Senator Bunning (R. KY), one of the few politicians who has gone toe to toe with that ass Bernanke, has a new Bill.
It is S.3510 and is to Stop The Bailouts. If you still have strength,
You can call Toll Free
1-800-828-0498
1-866-338-1015
1-866-340-9281
and give the guy props.
Or, call your Dem. Senators and tell them you'll vote Republican on Nov. 4 if they don't support this Bill. By the looks of things on the campaign trail, that just might get their attention.
Shorts are just opportunists taking advantage of corporate fraud; if a company is well run, they should have nothing to fear.
If this plan goes through, why not attach some more stuff to the bill:
Can you believe the crap coming out of Washington? Where is CNBC, BTW? Asleep?
I don't won't to spoil the Wall Street party but this $637 trillion derivative problem that is imploding around the world is way to big for all the central banks in the world to fix, let alone some government entity.
IMO, the only solution is to do the old fashion thing and fess up! Instead of spending more money on worthless paper that isn't worth 2 cents on the dollar, we need to tell the whole world we screwed up big time.
The paper the world bought on mortgages around the world is worthless! Nada! Nothing! Zero!
The investors in the world have to take the hit and move on. It is that simple.
We, meaning all countries in a real estate bubble and too much securitized debt, can't and will never be able to pay back all the trillions of dollars in securities sold around the world to finance homes, business and real estate.
It's time to end the wizard of oz show , drop the curtain and deal with this global problem in a global way. One government can't solve the problem.
Good luck everyone!
yes i remember the gko's. in the end they did pay. they made a huge mistake by delaying.
Lending is always good if capital is allocated efficiently. Problem is good ole 'merican capitalism don't work that way anymore. Finance begets more finance begets asset price inflation and we all unwind, eventually.
Comrade, please. Not until I trade more of the USTP, er USD for the shiny golden stuff.
Then, after I load up.
Watchtovia,
badger
Default is not the issue. It is the failure of an auction that will turn Tsy into a second class asset. What happens if there is a series of weak auctions? Rates go up. The mortgage resets go up. More defaults. Less recovery/value in the RTC II assets not to mention Maiden Lane.
Russia got bailed out from oil. What is going to bail out the USA? The Chevy Volt?
If they want to take the shit assets fine, but they have to wipe out equity holders and management.
Plus reach back and take the last year of bonuses away from the execs.