For some reason the regulators seem to think a going concern plus a failing concern equals a going concern. Spreading contagion does not dilute contagion.
This is just a way of minimizing the number of bailouts. Just cluster as many failing banks under as few roofs as possible and then do large scale bailouts of each of these entities. J6P may take less notice this way.
And why did Bof A buy MER when they did when they could have waited a week and bought it for a fraction of the price?
In what world does that make sense?
The only conclusion I can come to is that things are far worse than we know. Because that was irrational. If they had massive exposure to a MER failure fine....but why buy something that you can buy next week cheaper?
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.
"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.
And so it has begun.
The reverberations of the takeovers and bankruptcies are only now beginning to be felt and will surely accelerate. Derivatives are the key here.
I fully expect a crash in the markets when this becomes more apparent.
Eric Dinallo did not look confident on CNBC on why and how they decided to take over AIG.
"And why did Bof A buy MER when they did when they could have waited a week and bought it for a fraction of the price?
In what world does that make sense?"
I dunno, but BofA seems to live in a world in which it buys companies like Countrywide and then tells the company's creditors to get bent. If it can tell Merril's bondholders to take a hike it might be a good deal!
Perhaps you guys don't read well. The article says "should it falter." Clearly the government thinks/knows it is going to fail and they are trying to find a buyer for Friday night. I think if they do it might be gone by Friday night. If they don't, they will try to hold off another week.
Will Morgan Stanley find shelter? Will WaMu be adopted? Will Wachovia crumble next? Stay tuned, folks... we still haven't had a single big homebuilder BK and several of those are long, long, long overdue. Then we can begin the rest of the show - er, shows.
I suspect some massive tax advantages to BofAs recent actions. Heck, BofA avoiding tens of billions in taxes isn't the same as giving them tens of billions. Right, right?
"....but why buy something that you can buy next week cheaper?"
They did the same thing with Countrywide. These people are all sociopaths to a certain extent, which is just a fancy way to say that they believe their own BS. I realy think these idiots believe that the financial system is sound and they are getting bargains.
I fail to see how we are even close to the end of this debacle. I've noticed none of the bloviators on cnbc or any of the news channels bother to even mention the huge bundle of ARMS that are going to reset the end of this year and beginning of next. I remember reading some time ago it was the biggest batch yet. I would have to guess it will also be the biggest batch of foreclosures yet as unemployment and inflation have only gotten worse since the last batches reset...I would know, I'm one of the poor schmucks holding one of those ARMS and I'm scared to death...I didn't have a choice, Mom died, I had no mortgage history, and I was unemployed for a year taking care of Mom, it was the only way to keep the family home (Mom died with a mortgage)
PS I'm reposting this as I got in on the last thread late with it and everybody moved to this one.
Thoughts on these ARM resets?
BofA still hasn't unwound the CFC crap and are still far from getting slammed on their credit card unit.
Wells Fargo still has problems with Alt-A ready crater.
Small and Regional banks will disappear and while consolidation is supposed to happen to gently and orderly unwind, the problem will be that the large institutions will be incapable of further absorption and unwinding won't occur so much as a giant smoking hole.
But at least we'll have a weak currency at the end so we can export stuff to....????
Kristina, I have similar concerns regarding CR's "beginning of the end" outlook. I live in eastern MA, where HOs still insist "it's different here" because their immune towns have "great schools," and other such circa-2006 nonsense.
This tells me that 1) there is a huge wave of distress still waiting to hit Alt-A and especially prime and therefore 2) a huge wave of writedowns that are not yet even a glimmer in a banker's eye.
I don't see how the banks that are still standing after this, saddled with the corpses of their fallen merger partners, are going to be able to withstand a hit right in their tender parts when prime goes boobies-up. That pain is still to come, and it's not yet "priced in."
Markel, that's what I was afraid of, it seems like they are sticking their fingers in their ears and singing "lalalalalalala" where those un-reset ARMS are concerned. The only hope I have is (mine sets in Feb) is by then we'll have a new President and someone will step in and halt the madness...
Well let me point out that this is a great time to buy and i'm not talking about real estate, i'm talking about financial institutions. Is WaMu a bad deal at the right price? Not on your life. ask yourself who is now in a position to digest it? certainly not BoA. also ask yourself what is the competitive landscape? who wants to be standing above the smoldering wreckage tall and strong? What banks will emerge to be global powerhouses with investment bank arms and lots of assets in banks?
Its possible that TPG may have gotten away with some serious anti-dilution measures in its purchase agreement with Wamu. These could include a recast of prices for the deal to wherever the next deal is done, plus an automatic offering of stock to TPG so its proportionate stake in Wamu does not fall. Anti-dilution measures are common in private equity purchases of distressed companies.
If TPG has those anti-dilution measures, then its next to impossible to find another buyer for Wamu. The only way to do it would be for the FDIC to take over the company and then sell the assets to a buyer. The FDIC takeover would likely wipe clear any claims held by TPG.
Who would buy a $250,000 13-month CD at WaMu? Is that just a tabloid exaggeration? I'm from flyover country without tabloid newspapers other than the National Enquierer.
When BoA buys Merrill, and all of it's toxic assets, who is really paying for all of it?
Answer:
The depositors. Without depositors, BoA is just another Merrill or Lehman. It's all sickening. I can't believe that people are so stupid about it. The media is clearly in bed with these f##kers. The banks need a good run, because they have done bad with our money.
The only hope I have is (mine sets in Feb) is by then we'll have a new President and someone will step in and halt the madness...
And do what Kristina? Why should someone step in and save you from a higher interest rate? Why did you take out and adjustable in the first place?
I see no reason to save you or anyone else. You signed the docs, and now you want a bailout. Take what the market gives you. Or else do what these institutions are being forced to do: take the write-downs and/or liquidate.
Trust me, the insanity IS over. Housing is destroyed for a long, long time. And by the sound of your post, you need to mark your asset to market as well.
My question is: has anyone learned their lessons (on Main St and Wall St and in D.C.)?
I've got family and friends waiting for the housing rebound so they can hit the equity ATM again. They're a little more worried about debt load than 3 years ago, but they genuinely believe once this crisis is behind us, we'll see a toned down version of the 2003-2006 run up in home prices.
Wall St is starting to get it (at least a better appreciation of risk), but these are the same folks who think the FFR should be 0. Nevertheless, I think they are starting to understand the core problems (maybe not the permabulls, but others with half a brain are putting it together).
D.C. is the problem. They don't know what to do without inflicting a decent amount of pain on their constituents.
At the end of the day, you have to fix what is broken based on the lessons you have learned. Maybe Congress and Bush will have an epiphany once some of the hearings start and more problems develop and they read more about the issues (this website is a good place to start).
Other than wholesale changes, it will be business as usual and that means potentially bigger problems down the road.
My ARM resets in Nov. 2009, and I could care less because it's only worth 60% of what I paid and over 100% off the peak. The clear choice is to walk away if there's not much equity. My kids need to go to college. The CEOs' kids' are going to college regardless. I just wish that I had purchased it with an ITIN number instead of my SS #. Maybe I should become an illegal alien.
Derivatives (CDS,CDO,MBS,etc.) are causing a Christmas Tree Light effect on our financial system. One light goes out and they all go out. Recent events bear this out by the concern on CDS failures causing a spreading systemic problem.
One bank/ibank/CDSinsurer going down should not take down others. Any future regulations must greatly reduce this effect.
The model of hedging through insurance , then re-insurance, then re-re-insurance etc. is an accident waiting to happen. This inter-dependence problem INCREASES risk instead of the hedgings' intent of DECREASING risk.
This is probably another one of your "FED will raise rates" prediction.
well at least I don't post anonymously so what i think can be tracked. i still call the next move as UP and NOT down. and i call the ECB move as down before the end of the year...maybe soon.
and as I said, this changes the macro picture not at all. in fact, i'd argue that the recent oil prices influence the macro picture an order of magnitude more, while everyone is distracted...
ipodius, I really wasn't offered a choice. I had no mortgage history and was caring for my Mother after her stroke for a year, so my employment record was tarnished. When she died I was left holding the bag. The good news is I still have about 50K in equity even with the depressed housing values and I have a 20K settlement for wrongful death due to come in next week. I'm also a bartender so my income is hard to verify. My intent was to refinance, which it still is, with the ish hitting the fan now, I don't know if I'll be able to refi, that's the problem.
WaMu will be capital deficient (below the 8% regulatory min), but not insolvent as long as it's deposit base doesn't bail. It will probably require about a 15bio capital injection over the next year to keep it above board. It's not a complex institution with a potentially exploding balance sheet - I'll guess JPM or WFC steps up before the end of the month.
I agree with ipodius longterm, although I seriously thought the Fed would give a short-term cut. I still think market conditions are more likely than not to deteriorate this quarter to cause an emergency goose rate cut. But after that, up up up...
And to clarify, I don't think if the market deteriorates rapidly that the FED should cut...just saying when you've emptied all the rounds, you just get desperate and hurl the gun as well...
ipodius writes:
well at least I don't post anonymously so what i think can be tracked. i still call the next move as UP and NOT down. and i call the ECB move as down before the end of the year...maybe soon.
Small consolation.
Lucky this is only a blog and no one really takes any advice here too seriously.
Good luck with your ego.
If you have less than 100,000 in WAMU and don't have to physically go to the bank much don't move your money. The feds will absolutely never let you lose your money.
If you have more than $100,000 in WAMU get the excess out YESTERDAY.
If you have to physically go to the bank often you might want to move. During the run lines will be long, possibly including after the takeover when it will be extra frustrating to be in the line because 95% of the people will be idiots with no reason to be there (once the takeover happens it's too late to take out your money).
Greenspan was saying the other day that an event like this happens once in 100 years. Preeeety close. It was October 1917.
P.S. He should have added that a person like him comes around once in ~300 years. (The last one to screw a country this bad was John Law in the 18th century).
kristina, i just don't even know where to begin with that, so i'm going to let it pass. good luck.
blackhat, i think the key is that the fed is carefully watching, knowing how long it takes for those rates to have the desired effect. if ben doesn't want to be another greenspan, they'll have to raise to prevent the inflationary backlash from what they are now doing with the rates and liquidity. and lowering the rate is going to do nothing now until the capital markets calm down. and that's probably not going to happen before they need to raise to prevent REAL inflation, not what you see now.
"The feds will absolutely never let you lose your money."
HA! Who are you kidding? They let us loose trillions of dollars in the last 8 years. Gasoline went for 85 cents a gallon to nearly 4 dollars. Groceries are 2-3x more expensive. My dollar is worth half, if not less. People who "made money" on their homes in the boom have seen all of it evaporate. My neighbors are a good example- made 130k on their first house, paid off the cars, put 100k down on 380k house, and now the house is barely worth 300k, sales fees put it in the negative, and there are over 300 existing homes for sale at this price or lower in a fairly small city AND they're still building new homes.
I think it was Ben Franklin who said inflation is the worst form of taxation.
It's already taxation without representation, and inflation is just double taxation.
It was much better when only small banks existed and gave loans and paid a decent interest rate on savings. The Fed is basically an arm of the socialized government. The FDIC doesn't mean crap if they can't guarantee the value of your $100,000. If the losses exceed what they can pay out, then they take loans and print money. Banks like BoA run around snapping up some of the most toxic companies around with people's hard-earned savings. It's criminal, and people should take out their money and exit the ATM-FICO-Visa-MasterCard-Cirrus-financial system. Stick it to the man. Exit now. Bank deposits should not be leveraged like this. Send them a message.
Kristina,
I am so sorry for the loss of your mother.
It sounds like you were in a very difficult situation.
For more specifics on loan modifications, you might try posting your question at thehousingbubbleblog.
Folks there tend to focus more on the micro side of this crisis, and there are some knowledgeable folks there.
Best of luck.
"we're a strong bank, we're not going anywhere, we just hired three new people and are building a new branch on the other side of the bridge, and it's people like you taking money out of the bank that could cause us to go out of business!" That's what the teller told me the other day when I closed my checking account and half of our cds. The other two cds come due in a few weeks so I'm waiting and hoping they stay alive till then. BTW, there were a lot of people at the bank, employees and people depositing money (it was payday).
I think it was on cnbc or fox finance the other day that they interviewed people on the street and asked them if they were worried about the banking situation. One banking customer said something to the effect of: "I dunno, that stuff makes my head hurt." So, if that's the average customer wamu may avoid a bank run. If that's the average mortgage customer, that might also explain why we're even in this mess in the first place.
BTW, anyone with ING Direct? I have some savings with ING, and I just got an email from the ING CEO of savings. Basically saying that their bank was strong, that they were responsible with their mortgages, and to warn customers to brace themselves for some tough times in the coming year: save money and spend frugaly.
Anyhow, me and my parents are planning on stocking up on some bulk non-perishable items. It's time.
I like the calmness and matter of factness of Fair Economist's reply, thank you.
Kristina, sorry about the loss of your mother, and I applaud you in taking care of her toward the end.
I have decided that I am not going to panic and keep my money there. I actually feel a kind of sentimental attachment to my branch bank. . . just on that personal level ---the nice, familiar tellers there, etc. sort of reminds me of the financial institution that Jimmy Stewart ran in "Its a Wonderful Life". Remember that great scene where he gives the customers his "honeymoon" money---just enough to tide them over?
The biggest worry is preventing a bank run. A bank run and WaMu is toast by friday.
Hate to tell you this, but WAMU has already been leaking deposits.
I live in Seattle. Last Thursday, I wired $80,000 to Washington Federal, a responsibly run bank. The people there told me that they were doing a land-office business with people doing exactly what I did.
By the way, the depositors who are withdrawing their money are the high-quality depositors. My credit score is 820. The people keeping their money at WAMU are not generally the customers a bank wants.
If I should want a loan in the future, who do you think I'll get it from? WAMU or Washington Federal?
p.s.: Who's going to buy Citibank when it collapses?
Just being honest, but nobody actually knows what the assets are worth in real estate. It's just one big guess.
Right now the guess is pretty much zero. I suspect that's not true. Let's all panic together and have a depression.
they gunning for morgan now...
Here's the thing: How much REALLY in the hole is WaMu? A few billion?
The biggest worry is preventing a bank run. A bank run and WaMu is toast by friday.
For some reason the regulators seem to think a going concern plus a failing concern equals a going concern. Spreading contagion does not dilute contagion.
New Housing up.
http://www.census.gov/const/newresconst.pdf
And as if it needs being mentioned, last month was revised downward.
A lot of us on this board saw this coming. The question is: how many of these large financial institutions can we afford to bail out?
"Money doesn't grow on trees." Or does it?
Starts well down. Mortgage applications way up. Most of the increase in apps was refis -- not a pretty picture.
All they have to do is say...but,but,but wamu is a national treasure and will lead to the collapse of the entire banking system. heheheh.
Rob Dawg,
Exactly. That is my question as well. How can Bof A absorb too negative net worth balance sheets onto their own without going down?
Am I missing something here?
Comrades,
Money is made on servers. With a 64 bit OS that's a lot of digital bits.
Nostrovia,
Oh bummer I was hoping for a hat tip. I was going to be famous!
(slinks off back into his cave)
Why would these institutions agree to buy WaMu now when they can wait a couple of weeks and get it at a bargain price and with a likely Fed backstop?
This is like a Bear's Christmas everyday: a new gift of financial destruction awaits for the third day in a row!
another shotgun marriage???
"Money is made on servers. With a 64 bit OS that's a lot of digital bits."
So, that's a waiter who gets an $8 tip?
This is just a way of minimizing the number of bailouts. Just cluster as many failing banks under as few roofs as possible and then do large scale bailouts of each of these entities. J6P may take less notice this way.
And why did Bof A buy MER when they did when they could have waited a week and bought it for a fraction of the price?
In what world does that make sense?
The only conclusion I can come to is that things are far worse than we know. Because that was irrational. If they had massive exposure to a MER failure fine....but why buy something that you can buy next week cheaper?
Anyone?
Reposting
China paper urges new currency order after "financial tsunami
China paper urges new currency order after financial tsunami
| Reuters
"The world urgently needs to create a diversified currency and financial system and fair and just financial order that is not dependent on the United States."
The commentary suggested China must brace for grave economic fallout and look to alternatives, saying the crisis brings to mind the Great Depression of the 1930s.
"Lehman Brothers announced bankruptcy will not only have a domino effect on the global financial world, it will bring a shock to the world economy," the front-page comment stated.
And so it has begun.
The reverberations of the takeovers and bankruptcies are only now beginning to be felt and will surely accelerate. Derivatives are the key here.
I fully expect a crash in the markets when this becomes more apparent.
Eric Dinallo did not look confident on CNBC on why and how they decided to take over AIG.
The feds are giving B of A and other entities tacit assurances behind the scenes that they will prop them up.
"And why did Bof A buy MER when they did when they could have waited a week and bought it for a fraction of the price?
In what world does that make sense?"
I dunno, but BofA seems to live in a world in which it buys companies like Countrywide and then tells the company's creditors to get bent. If it can tell Merril's bondholders to take a hike it might be a good deal!
Perhaps you guys don't read well. The article says "should it falter." Clearly the government thinks/knows it is going to fail and they are trying to find a buyer for Friday night. I think if they do it might be gone by Friday night. If they don't, they will try to hold off another week.
Will Morgan Stanley find shelter? Will WaMu be adopted? Will Wachovia crumble next? Stay tuned, folks... we still haven't had a single big homebuilder BK and several of those are long, long, long overdue. Then we can begin the rest of the show - er, shows.
I love CR, but quoting the NYPost shows a lack of discipline.
Am I missing something here?
Mr. T
I suspect some massive tax advantages to BofAs recent actions. Heck, BofA avoiding tens of billions in taxes isn't the same as giving them tens of billions. Right, right?
"....but why buy something that you can buy next week cheaper?"
They did the same thing with Countrywide. These people are all sociopaths to a certain extent, which is just a fancy way to say that they believe their own BS. I realy think these idiots believe that the financial system is sound and they are getting bargains.
Joh
I fail to see how we are even close to the end of this debacle. I've noticed none of the bloviators on cnbc or any of the news channels bother to even mention the huge bundle of ARMS that are going to reset the end of this year and beginning of next. I remember reading some time ago it was the biggest batch yet. I would have to guess it will also be the biggest batch of foreclosures yet as unemployment and inflation have only gotten worse since the last batches reset...I would know, I'm one of the poor schmucks holding one of those ARMS and I'm scared to death...I didn't have a choice, Mom died, I had no mortgage history, and I was unemployed for a year taking care of Mom, it was the only way to keep the family home (Mom died with a mortgage)
PS I'm reposting this as I got in on the last thread late with it and everybody moved to this one.
Thoughts on these ARM resets?
Here we go again (and again) . This storm is moving fast . Where do I hide ?
YouTube -
If you thought the last few days were fun, wait till the Option ARM resets in 2010. Let's get the party started!
Am I missing something here?
Mr. T
Exemptions from several banking restrictions: 10% concentration, limitations on use of deposits, etc.
BofA still hasn't unwound the CFC crap and are still far from getting slammed on their credit card unit.
Wells Fargo still has problems with Alt-A ready crater.
Small and Regional banks will disappear and while consolidation is supposed to happen to gently and orderly unwind, the problem will be that the large institutions will be incapable of further absorption and unwinding won't occur so much as a giant smoking hole.
But at least we'll have a weak currency at the end so we can export stuff to....????
Anony writes:
Here we go again (and again) . This storm is moving fast . Where do I hide ?
I see your dylan and raise you CCR.
YouTube - ccr bad moon rising
Going once, going twice, sold! to Dubai for 10 cents on the dollar!
Come get your prayer mats and birkas, and bow to Islam like the whole of Europe.
Hi,
First time poster here. . .I come here via "DailyKos" --- I don't know that much about these kind of matters.
I don't belong to the "investor class"; my money is in the bank.
I'm not here to ask: Should I take my money out of WaMu? Because, you know, I wouldn't take random financial advice from a "blog" ---
I'm here to ask: How long do I have to educate myself? It's 5:45 am here on he West Coast.
Later this morning, I think I'll just walk over to my branch of WaMu and see if there is a line forming, if there is, maybe I'll join it.
Mrs.J.
Rob Dawg,
Excellent point. It just concentrates even further toxic "assets" into the hands of fewer institutions that become too big to succeed.
Heck Mrs J, if you can walk to the bank you're qualified to be Secretary of the Treasury, right?
Kristina, I have similar concerns regarding CR's "beginning of the end" outlook. I live in eastern MA, where HOs still insist "it's different here" because their immune towns have "great schools," and other such circa-2006 nonsense.
This tells me that 1) there is a huge wave of distress still waiting to hit Alt-A and especially prime and therefore 2) a huge wave of writedowns that are not yet even a glimmer in a banker's eye.
I don't see how the banks that are still standing after this, saddled with the corpses of their fallen merger partners, are going to be able to withstand a hit right in their tender parts when prime goes boobies-up. That pain is still to come, and it's not yet "priced in."
In recent days, federal banking regulators have reached out to Wells Fargo, JPMorgan Chase, HSBC and several other financial institutions ...
Please let it be HSBC.
"A lot of us on this board saw this coming. The question is: how many of these large financial institutions can we afford to bail out?"
Answer:
All of them. Just print money.
It would be far better for Main St if the government just let all of these banks collapse and go to zero, but they're not worried about Main St.
Markel, that's what I was afraid of, it seems like they are sticking their fingers in their ears and singing "lalalalalalala" where those un-reset ARMS are concerned. The only hope I have is (mine sets in Feb) is by then we'll have a new President and someone will step in and halt the madness...
AIG stock should go to LEH level.
They are just guessing 85B is enough, and sure it won't fail but this liquidation (it is to me) will take years as a recovery isn't in sight yet.
Well let me point out that this is a great time to buy
and i'm not talking about real estate, i'm talking about financial institutions. Is WaMu a bad deal at the right price? Not on your life. ask yourself who is now in a position to digest it? certainly not BoA. also ask yourself what is the competitive landscape? who wants to be standing above the smoldering wreckage tall and strong? What banks will emerge to be global powerhouses with investment bank arms and lots of assets in banks?
A couple come to mind immediately.
Its possible that TPG may have gotten away with some serious anti-dilution measures in its purchase agreement with Wamu. These could include a recast of prices for the deal to wherever the next deal is done, plus an automatic offering of stock to TPG so its proportionate stake in Wamu does not fall. Anti-dilution measures are common in private equity purchases of distressed companies.
If TPG has those anti-dilution measures, then its next to impossible to find another buyer for Wamu. The only way to do it would be for the FDIC to take over the company and then sell the assets to a buyer. The FDIC takeover would likely wipe clear any claims held by TPG.
Who would buy a $250,000 13-month CD at WaMu? Is that just a tabloid exaggeration? I'm from flyover country without tabloid newspapers other than the National Enquierer.
When BoA buys Merrill, and all of it's toxic assets, who is really paying for all of it?
Answer:
The depositors. Without depositors, BoA is just another Merrill or Lehman. It's all sickening. I can't believe that people are so stupid about it. The media is clearly in bed with these f##kers. The banks need a good run, because they have done bad with our money.
Mrs.J. writes:
Hi,
First time poster here. . .I come here via "DailyKos" --- I don't know that much about these kind of matters.
I don't belong to the "investor class"; my money is in the bank.
I'm not here to ask: Should I take my money out of WaMu? Because, you know, I wouldn't take random financial advice from a "blog" ---
I'm here to ask: How long do I have to educate myself? It's 5:45 am here on he West Coast.
Later this morning, I think I'll just walk over to my branch of WaMu and see if there is a line forming, if there is, maybe I'll join it.
Many here know economics--it's the new Fascist variant that is difficult to assess.
Yes Ipod, will buy when the FED raises rates.
This is probably another one of your "FED will raise rates" prediction.
The only hope I have is (mine sets in Feb) is by then we'll have a new President and someone will step in and halt the madness...
And do what Kristina? Why should someone step in and save you from a higher interest rate? Why did you take out and adjustable in the first place?
I see no reason to save you or anyone else. You signed the docs, and now you want a bailout. Take what the market gives you. Or else do what these institutions are being forced to do: take the write-downs and/or liquidate.
Trust me, the insanity IS over. Housing is destroyed for a long, long time. And by the sound of your post, you need to mark your asset to market as well.
CR - I like your post about necessary steps.
My question is: has anyone learned their lessons (on Main St and Wall St and in D.C.)?
I've got family and friends waiting for the housing rebound so they can hit the equity ATM again. They're a little more worried about debt load than 3 years ago, but they genuinely believe once this crisis is behind us, we'll see a toned down version of the 2003-2006 run up in home prices.
Wall St is starting to get it (at least a better appreciation of risk), but these are the same folks who think the FFR should be 0. Nevertheless, I think they are starting to understand the core problems (maybe not the permabulls, but others with half a brain are putting it together).
D.C. is the problem. They don't know what to do without inflicting a decent amount of pain on their constituents.
At the end of the day, you have to fix what is broken based on the lessons you have learned. Maybe Congress and Bush will have an epiphany once some of the hearings start and more problems develop and they read more about the issues (this website is a good place to start).
Other than wholesale changes, it will be business as usual and that means potentially bigger problems down the road.
So Morgan Stanley, Citigroup, Wachovia et al are all preparing to slice below Monday lows.
The tenth of a trillion bailout bought about 14 hours of calm.
This peaceful night came at a dear price indeed.
My ARM resets in Nov. 2009, and I could care less because it's only worth 60% of what I paid and over 100% off the peak. The clear choice is to walk away if there's not much equity. My kids need to go to college. The CEOs' kids' are going to college regardless. I just wish that I had purchased it with an ITIN number instead of my SS #. Maybe I should become an illegal alien.
Here we go again (and again) . This storm is moving fast . Where do I hide ?
Does the wonderful world of youtube have the scene near beginning of Wizard of Oz with Dorothy trying to get into a cellar with tornado closing in?
Derivatives (CDS,CDO,MBS,etc.) are causing a Christmas Tree Light effect on our financial system. One light goes out and they all go out. Recent events bear this out by the concern on CDS failures causing a spreading systemic problem.
One bank/ibank/CDSinsurer going down should not take down others. Any future regulations must greatly reduce this effect.
The model of hedging through insurance , then re-insurance, then re-re-insurance etc. is an accident waiting to happen. This inter-dependence problem INCREASES risk instead of the hedgings' intent of DECREASING risk.
Mrs. J
Don't keep anything above the limits or uninsured.
And even then am not sure how long before everyone gets theirs out if this thing blows.
Just my 2 cents.
This is probably another one of your "FED will raise rates" prediction.
well at least I don't post anonymously so what i think can be tracked. i still call the next move as UP and NOT down. and i call the ECB move as down before the end of the year...maybe soon.
and as I said, this changes the macro picture not at all. in fact, i'd argue that the recent oil prices influence the macro picture an order of magnitude more, while everyone is distracted...
ipodius, I really wasn't offered a choice. I had no mortgage history and was caring for my Mother after her stroke for a year, so my employment record was tarnished. When she died I was left holding the bag. The good news is I still have about 50K in equity even with the depressed housing values and I have a 20K settlement for wrongful death due to come in next week. I'm also a bartender so my income is hard to verify. My intent was to refinance, which it still is, with the ish hitting the fan now, I don't know if I'll be able to refi, that's the problem.
Question. What is the impact of some mutual fund breaking the buck? Does it possibly portend mass redemptions or is it an anomaly?
WaMu will be capital deficient (below the 8% regulatory min), but not insolvent as long as it's deposit base doesn't bail. It will probably require about a 15bio capital injection over the next year to keep it above board. It's not a complex institution with a potentially exploding balance sheet - I'll guess JPM or WFC steps up before the end of the month.
I agree with ipodius longterm, although I seriously thought the Fed would give a short-term cut. I still think market conditions are more likely than not to deteriorate this quarter to cause an emergency goose rate cut. But after that, up up up...
The TED Spread
is now 2.83, up 0.64 since yesterday.
And to clarify, I don't think if the market deteriorates rapidly that the FED should cut...just saying when you've emptied all the rounds, you just get desperate and hurl the gun as well...
ipodius writes:
well at least I don't post anonymously so what i think can be tracked. i still call the next move as UP and NOT down. and i call the ECB move as down before the end of the year...maybe soon.
Small consolation.
Lucky this is only a blog and no one really takes any advice here too seriously.
Good luck with your ego.
The game will be up if network news start showing clips of people standing in lines in front of WaMu branches.
It hasn't happened yet - there is a deep sense of complacency even with recent headlines.
I see another leg down today, but they will be furiously defending yesterdays levels.
If those don't hold then it's..."Thar she blows!!! Look out below"
El Cliffo
I watch the TED Spread carefully - I do not see it anywhere near 2.83, it has bee
Mrs. J:
If you have less than 100,000 in WAMU and don't have to physically go to the bank much don't move your money. The feds will absolutely never let you lose your money.
If you have more than $100,000 in WAMU get the excess out YESTERDAY.
If you have to physically go to the bank often you might want to move. During the run lines will be long, possibly including after the takeover when it will be extra frustrating to be in the line because 95% of the people will be idiots with no reason to be there (once the takeover happens it's too late to take out your money).
Greenspan was saying the other day that an event like this happens once in 100 years. Preeeety close. It was October 1917.
P.S. He should have added that a person like him comes around once in ~300 years. (The last one to screw a country this bad was John Law in the 18th century).
kristina, i just don't even know where to begin with that, so i'm going to let it pass. good luck.
blackhat, i think the key is that the fed is carefully watching, knowing how long it takes for those rates to have the desired effect. if ben doesn't want to be another greenspan, they'll have to raise to prevent the inflationary backlash from what they are now doing with the rates and liquidity. and lowering the rate is going to do nothing now until the capital markets calm down. and that's probably not going to happen before they need to raise to prevent REAL inflation, not what you see now.
There's a Storm Blowin' up - A Whopper!
YouTube - Its a Twister
When I linked The TED Spread @9:22 AM it said 2.83, I swear. Maybe it was a Bloomberg glitch. Sorry.
No worries. I think if it hit 2.83 it would automatically send my alogrithims into meltdown mode.
"The feds will absolutely never let you lose your money."
HA! Who are you kidding? They let us loose trillions of dollars in the last 8 years. Gasoline went for 85 cents a gallon to nearly 4 dollars. Groceries are 2-3x more expensive. My dollar is worth half, if not less. People who "made money" on their homes in the boom have seen all of it evaporate. My neighbors are a good example- made 130k on their first house, paid off the cars, put 100k down on 380k house, and now the house is barely worth 300k, sales fees put it in the negative, and there are over 300 existing homes for sale at this price or lower in a fairly small city AND they're still building new homes.
I think it was Ben Franklin who said inflation is the worst form of taxation.
It's already taxation without representation, and inflation is just double taxation.
It was much better when only small banks existed and gave loans and paid a decent interest rate on savings. The Fed is basically an arm of the socialized government. The FDIC doesn't mean crap if they can't guarantee the value of your $100,000. If the losses exceed what they can pay out, then they take loans and print money. Banks like BoA run around snapping up some of the most toxic companies around with people's hard-earned savings. It's criminal, and people should take out their money and exit the ATM-FICO-Visa-MasterCard-Cirrus-financial system. Stick it to the man. Exit now. Bank deposits should not be leveraged like this. Send them a message.
How can Bof A absorb too negative net worth balance sheets onto their own without going down?
Am I missing something here?
In the CFC case, BofA is free to pay for the good stuff, bring it onboard, mark down the bad stuff, and keep it in a subsidiary.
BoA is buying the stock, not the debt. This gives it power to restructure the purchased company, kinda like a private Chapter 7.
As long as BAC is fair with the bondholders' competing claims to assets, BAC has leeway to do it what it wants.
In the CFC case, it helped that CFC's shareholders and bondholders overlapped, so the former was happy to get BAC stock rather than a fat $0.
the problem will be that the large institutions will be incapable of further absorption
Absorption?
One word....SHAMWOW!!
Kristina,
I am so sorry for the loss of your mother.
It sounds like you were in a very difficult situation.
For more specifics on loan modifications, you might try posting your question at thehousingbubbleblog.
Folks there tend to focus more on the micro side of this crisis, and there are some knowledgeable folks there.
Best of luck.
"we're a strong bank, we're not going anywhere, we just hired three new people and are building a new branch on the other side of the bridge, and it's people like you taking money out of the bank that could cause us to go out of business!" That's what the teller told me the other day when I closed my checking account and half of our cds. The other two cds come due in a few weeks so I'm waiting and hoping they stay alive till then. BTW, there were a lot of people at the bank, employees and people depositing money (it was payday).
I think it was on cnbc or fox finance the other day that they interviewed people on the street and asked them if they were worried about the banking situation. One banking customer said something to the effect of: "I dunno, that stuff makes my head hurt." So, if that's the average customer wamu may avoid a bank run. If that's the average mortgage customer, that might also explain why we're even in this mess in the first place.
BTW, anyone with ING Direct? I have some savings with ING, and I just got an email from the ING CEO of savings. Basically saying that their bank was strong, that they were responsible with their mortgages, and to warn customers to brace themselves for some tough times in the coming year: save money and spend frugaly.
Anyhow, me and my parents are planning on stocking up on some bulk non-perishable items. It's time.
I would like to thank everyone who replied.
I like the calmness and matter of factness of Fair Economist's reply, thank you.
Kristina, sorry about the loss of your mother, and I applaud you in taking care of her toward the end.
I have decided that I am not going to panic and keep my money there. I actually feel a kind of sentimental attachment to my branch bank. . . just on that personal level ---the nice, familiar tellers there, etc. sort of reminds me of the financial institution that Jimmy Stewart ran in "Its a Wonderful Life". Remember that great scene where he gives the customers his "honeymoon" money---just enough to tide them over?
The biggest worry is preventing a bank run. A bank run and WaMu is toast by friday.
Hate to tell you this, but WAMU has already been leaking deposits.
I live in Seattle. Last Thursday, I wired $80,000 to Washington Federal, a responsibly run bank. The people there told me that they were doing a land-office business with people doing exactly what I did.
By the way, the depositors who are withdrawing their money are the high-quality depositors. My credit score is 820. The people keeping their money at WAMU are not generally the customers a bank wants.
If I should want a loan in the future, who do you think I'll get it from? WAMU or Washington Federal?
p.s.: Who's going to buy Citibank when it collapses?
Kristina,
Many of these resets wont happen. As it is, several lenders are modifying loans based on the starting rate. Start by calling the lender.
Hmm. Huge despoitory base... lots of branches.
Seems like MS or GS may eventually need this kinda orginization to compete with BAC/MER.
If only they could find a place for the billions and billions of crap on WM. Sounds like an investment banking problem...
Re ING safety.
I sure hope they are safe. I have a chunk of change there too.
I know they are one tough place to get a loan thru. Low LTV, strict appraisals.
That's good for the depositors.
Just being honest, but nobody actually knows what the assets are worth in real estate. It's just one big guess.
Right now the guess is pretty much zero. I suspect that's not true. Let's all panic together and have a depression.