Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 29 members and 158 guests online.
1st
Whip out that bazooka Paulie.
I'm missing something here.
$14.9 Billion is obviously a lot of money, but in comparison with the Fannie and Freddie capital it isn't THAT much.
Perhaps things have got very much worse since June in the mortgage market areas where the bulk of the F&F loans are located.
This is an outrage.
John McCain, if you are reading this and you really meant any of your speech when accepting the Republican nomination, you need to stand up right here and now and put a stop to this crap, making clear that you will NOT permit it under your administration and will "unwind" anything that encumbers the taxpayer with this garbage paper prior to your taking office, assuming you win.
Barack Obama, you said that these firms were "weird" and that if they were to be public firms they cannot be backstopped, and if government-run, they cannot make profits. Well? Where is YOUR outrage?
We have two Presidential Candidates and this is the issue for November folks.
You can claim all you want that we should have an election about The War, about national security, about health care or about energy independence.
None of this matters if our economy and government funding mechanisms are damaged or destroyed due to the irresponsible and outrageous bailing out of TWO GIANT HEDGE FUNDS that happen to be called "Fannie Mae" and "Freddie Mac", and THE PRESENT GOVERNMENT just took FIVE TRILLION DOLLARS onto its balance sheet!
You're worried about Medicare, Social Security, our nation's infrastructure, or our energy needs?
Well what the HELL are you doing then sitting on your butt this weekend sirs, while UNELECTED Ben Bernanke and Hank Paulson TAKE FIVE TRILLION DOLLARS WE DON'T HAVE, FIVE TIMES THE AMOUNT WE HAVE SPENT IN TOTAL ON THE IRAQ WAR, AND BLOW IT ON BAILING OUT TWO GIGANTIC HEDGE FUNDS AND THEIR "INVESTORS"?
GET OUT IN FRONT OF THIS ISSUE NOW - THIS WEEKEND - IF YOU WANT AMERICAN'S VOTES!
What Is The Truth? (Fannie/Freddie) - The Market Ticker
These weekend/Sunday afternoon, under the cover of semi-darkness, announcements reek of third-world-style economic manipulations. I'm just glad that the adults running the show know what they are doing.
Some day this war will end....
No matter how big the bill gets, if it's denominated in dollars, it's not real money.
anything that saves the shareholders at the expense of the taxpayers is sick! if this is really the intention then the US is one sick parrot and the country is most definitely going down. The rich who 've made a fortune will be saved by the masses and this will ultimately lead to extreme resentment and revolution.
This is a fraud designed to keep the current house of cards standing. Taxpayers are already on the hook for GSE debt, and now will become equity holders in unstable, flawed institutions. Where is the reform? Most management is left intact, they can continue to lobby Congress, and their flawed quasi-public structure remains unreformed. This just delays the day of reckoning and means taxpayers will lose both on the debt side and on the equity side.
Even worse, it appears that common shareholders (small investors, 401ks) will be nearly wiped out while preferred shareholders (banks, Wall Street) and bondholders (China, Russia,PIMCO) will be made whole.
ozajh writes:
I'm missing something here.
"$14.9 Billion is obviously a lot of money, but in comparison with the Fannie and Freddie capital it isn't THAT much."
Ozajh:
Remember that one of these entities committed fraud in financial accounting in the past. IMO, nobody can possibly know the magnitude of the losses to come, (or if the losses already reported are correct) hence all estimates are just PR to sell the deal.
All the best.
.
In the 230-year history of the Republic, have taxpayer dollars ever been handed directly to a public company so that it can pay dividends?
Because that is what "protecting" the preferred stock means...
Luckily, a small government, fiscally prudent Republican administration is in charge.
Imagine the nightmare otherwise.
Further, the fact that our Treasury Secretary has such a wealth of experience in financial matters is only going to benefit us all, right?
Prime mortgages starting to wilt, bank failures showing all signs of heating up, Fannie and Freddie crumbling. On top of this the recessionary slowdown appears to be in the very early stage with lots and lots more to come. We still have major BKs coming - homebuilders, big investment houses and banks, the automakers.
This will be an entertaining fall and winter, to say the least.
Too many forget that F/F lobby politicians with this money. What goes around comes around--or--shit buys more shit--and it all stinks.
More butter please................
Nemo,
I've said before: what is going on in this administration is open looting. There is no precedent for the monetary scope of it, for the general level of sleaze maybe the Harding administration.
Paulson thinks he's some big shit that can bully the market. Hopefully once the reformers get in (after the revolution) his millions will be confiscated and he will be lucky to end up in jail for the rest of his life.
This bail out of Fanny and Freddie will consist of the major investment banks shifting to their own books at bargain prices the GSEs assets that still retain value while at the same time they transfer over to the GSEs all their own toxic paper. In other words the taxpayers will be bailing out both Fanny and Freddie and the major investment banks.
So lets talk about the immorality of those Eastern elites. Now mind you, Mitt Romney calling out the Eastern elites is like Albert Einstein complaining about Jewish Intellectuals. But it will be interesting to see if either major party will be commenting on this taxpayer swindle of the millennium by the real Eastern elites. Or are we just going to be covered for the coming weeks by the Palin smokescreen.
I still want to know why ANY stockholder, prefeered or no, should get anything.
So instead of a bazooka, we get a slingshot fired once a quarter.
A very, very expensive slingshot. It fires golden rocks or something.
BTW, I still suspect the preferreds will not be left unscathed, but will be "invited" to participate in the recapitalization.
After all, you need some kind of positive PR to drown out the outrage from not wiping them out completely.
it's none of our business...we're all Georgian now...or didn't you get the memo?
Wasn't there a post the other day which said something like US may not be guranteed 3A if f&f was bailed out?
telephone conversation 15 minutes ago:
Me:(panic in voice) What am I going to do Monday?
Friend: (40 year veteran of Wall St. wars) I am buying real estate.
Me: WTF!
Friend: Yea, I'm looking for a cave out in the middle of nowhere with a good water source and clear fields of fire.
McCain says "we're all Georgian now" and Palin has taken to wearing the Israeli flag lapel pins.
Country first dontcha know?
-GSD
REBear --
Well, I guess that would be one way to get credit spreads down.
"My name is Mudd"
That was a Blue Star lapel pin that Palin was wearing Wednesday night (an insignia for parents of servicemen and women), not an Israeli flag pin.
--
System of the Crooks, by the Crooks and for the Crooks marches on.
There isn't a damn thing that born-and-bred American dopes can do to stop the rule of the Crooks.
American dopes legitimize, or give sanction to, the rule of the Crooks when they go and vote.
Goldchain Silverknife running the economy! What a system!! What a country!!!
Jas
I am normally an even keel person that does not get too upset about things. I work honestly, save diligently, invest prudently, and give generously to those in need. I try to take a balanced view of the world and get peace of mind in living a simple, responsible life which allows me to watch most schinanigans from the sidelines. It allows me to get a good night sleep. But starting a year ago, I got an uneasy feeling that a decade of excess and greed was coming to a head and somehow I was going to get run over. Last night I saw the headlights at point blank range. For the first time in a long while, I could not sleep for I realized that my life's creed was one of a schmuck. My government which has always had faults, has now completely betrayed me by bailing out foreign investors and greedy banks who bet on the irresponsible. I was the schmuck not realizing that I was always their hedge. I'm sick, just sick.
where in the heck is the U.S. Attorney General? I want indictments, jail time and renumeration of compensation from these thieves! JP Morgan running the show is the fox in the hen house. We can't even expect a truthful audit to come. Revolution!
On top of this trillion dollar debacle, we have Joe Sixpack layoffs beginning to reach a level that will shock and awe. So far the Fed, Paulson, etc. have done nothing but kick the ball to beyond November 5. We're almost there. Worse, if the Democrats win, Israel will almost certainly attack Iran before the inauguration, since Joe Hairplugs told them that under an Obama administration they'll need to "learn to live" with a nuclear-armed Iran. So throw heating oil shortages and $20 gas into the post-election equation.
The disaster unfolding would be fun to watch -- if it were happening in Argentina.
Preferred means last in line at the firing squad. If you are lucky they run out of bullets before your turn.
Fannie and Freddie have had little or no difficulty selling or rolling over their senior debt
There's the problem. Its always been the problem. Risk has been mispriced. There are three ways to restore equilibrium. Either reduce the risk via guarantees to reflect the lower risk when backstopped or allow the price to fall in a market or artificially lower borrowing costs to effectively transfer risk. Let's be clear here, the Treasury cannot allow number two; market repricing to occur because too many lending entities would be in violation of capital requirements or bond covenants. Thus you see numbers 1 and 3 being deployed. Backstopping and lend window. IMO it ain't gonna work. The full faith and credit of the United States of America doesn't have the same weight in the markets precisely because it is squandered on schemes such as this. Not only will the market make itself heard regardless but the explicit inflation premium such action generates will exacerbate the problem. Understandably the Treasury wants the impact to be contained to stockholders. Inevitably that hope will go the way of all containment theories. Gravity wins.
"Nemo writes:
BTW, I still suspect the preferreds will not be left unscathed, but will be "invited" to participate in the recapitalization.
After all, you need some kind of positive PR to drown out the outrage from not wiping them out completely."
Working from memory, there may be the ability to suspend payments for up to 5 years (the same may apply to the subordinated debt). If that was done, it would create a bit of a haircut for the preferreds/sub debt without violating their legal rights.
But for all the outrage here about how socialist any potential actions are, people seem to have only a vague idea how capitalism actually operates. If The Powers That Be just arbitrarily decide to "wipe out" some class of creditor (and preferreds are only quasi-equity; they still represent a fixed obligation), those "wiped out" creditors could easily "go nuclear" by suing everyone in sight and attempt to force a liquidation.
Even if they theoretically would be wiped out anyway in a liquidation, the senior creditors could take massive losses as well. At the same time, the whole mortgage finance apparatus would be frozen.
That's a much better bargaining position than their place in the capital structure indicates.
America is a big country. There must be somebody? One person somewhere? That you can vote in to fix this mess? Somebody???
(crickets chirping)
(crickets chirping)
(crickets chirping)
More butter please
I finally found what CR really does for a living:
Nevada Bail Bonds bail bondsman bailbonds bail bond company
Tripleplay,
Good point.
I'm not from the US, and as such not fully up with the arcana of F&F.
(But isn't $70-something Billion between them rather a thin capital base for $5 Trillion in mortgages?)
Bond Guy,
The notion that the financial world would "freeze" is wrong. Prices would adjust, not freeze. Commerce & trade would continue.
Your views have an extreme socialist bent based on a ficticious belief that the world would be worse off without a finance driven economy.
Look at the flow of funds tables. Real growth was higher (and more realistic IMO) when finance was 15% of GDP or national profits, not 35%.
bond guy --
But for all the outrage here about how socialist any potential actions are, people seem to have only a vague idea how capitalism actually operates.
Oh, I suspect most people here understand it better than you think...
That's a much better bargaining position than their place in the capital structure indicates.
Yes, exactly. So because these shareholders and creditors are in a position to threaten the global financial system, they are also in a position to demand a transfer of taxpayer wealth directly to themselves. We now live in a world where the debt -- and even some of the equity -- of every major U.S. bank, investment bank, and GSE is implicitly guaranteed by the government.
You can call that "capitalism" if you like, although I am not sure Adam Smith would agree. Whatever you want to call it, though, I call it disgusting.
Isn't there some enormous amount of derivatives tied to F&F? Whatever the bailout is it will have to avoid triggering the default clauses of those.
Some appropriate music:
YouTube - Celly Cel - It's Goin' Down Tonight 1995 Vallejo
Anybody with mad Photoshop skillz want to make a video of Paulson lip-synching this? Because that would be awesome.
Isn't there some enormous amount of derivatives tied to F&F? Whatever the bailout is it will have to avoid triggering the default clauses of those.
Bingo. The 2 & 20 crowd and the IB's would be smashed if capitalism was allowed to function.
Bond Guy,
I don't know if you were specifically referring to F&F, but the creditors are unlikely to have any rights under a regulatory seizure.
My sense is that the plan will contain three elements:
1) The promise to inject capital into preferreds as needed (to make up quarterly losses). This costs very little up front.
2) A guarantee of preferred dividends. This costs nothing up-front since the firms have liquidity to pay them.
3) Creditors protected by the quarterly injections. Again, costs nothing up front.
Get the picture? Paulson has two quarters left in office. The cost over those two quarters could well be on the order of a few billion -- chump change. It depends on accounting for losses. Who will be in charge of that accounting? The regulator. Who controls the regulator? Paulson.
Perfect plan -- socialize and postpone losses, allow the markets to bask in the glow of mark-to-market gains up front. That's why the markets rallied after hours. The idea is that Treasury rates will be little impacted since any hit to the budget is in the future (so who cares, right?).
There's a rub, and the question is, how long before the market realizes it. I'm assuming no up-front, explicit guarantee of F&F debt. If true, the quarterly capital injections will not be enough to satisfy Asian (and Russian) Central Banks. They will know that 1) the enabling legislation expires in '09 and reauthorization is uncertain; 2) the next administration can do whatever it wants anyway.
If you were the PBOC and just bought $350b in agency paper, would quarterly injections be enough? I'd say no. You don't need to own the paper, so just sell it into whatever rally occurs. That means, ultimately, that either Treasury issues an explicit guarantee, or it gets the Fed to take the paper off the Asian CB's hands.
One more complication: conservatorship may be a default event under the terms of F&F CDS agreements. I'd like to see their plan for dealing with that one.
"We can't solve problems by using the same kind of thinking we used when we created them." - Albert Einstein
Q: Why do we have Paulson, Bernanke & Morgan Stanley in charge of "solving" the problem???????
A: To protect their interests of course.
uhhh...you guys aren't following the script: This is not about the IBs and the holders of complex derivatives being saved...it's about the little guy being saved...
please. pay attention.
The rich who 've made a fortune will be saved by the masses and this will ultimately lead to extreme resentment and revolution...
Doubt it. Marx knew what happens: the screwed just get more religious. That's why you need revolutionary elites to make the screwed understand where their interests lie. We don't, and probably never will, have such a group.
<a href=http://market-ticker.denninger.net/">Karl Denninger (whose head, as you'd expect, is exploding) points out that the Washington Post has made a significant change in their version of this story. First, the Post said,
"Under the plan . . .The value of the company's common stock would be diluted but not wiped out while the holdings of other securities, including company debt and preferred shares, would be protected by the government."
The Post later changed that to this:
"Under the plan . . . The value of the companies' common stock would be diluted but not wiped out; while the holdings of other securities, including company debt and preferred shares might be protected by the government."
those "wiped out" creditors could easily "go nuclear" by suing everyone in sight and attempt to force a liquidation.
Can they really do it? New rules written on the fly during the Bear Sterns deal met with very little resistance.
First of September Fannie Mae appointed David Hisey as chief financial officer and Peter Niculescu to the chief business officer post. Hanky got a couple of his frat boy's in the door, a week and a half later says everything is A-OK and a week after that he pulls out a bazooka and shoots the taxpayer in the ass with a minimum 100 bill tab. Wonder which Investment bank is going to cut a fat hog in the ass on this deal. What a county. El Banana Republico.
"It is difficult to get a man to understand something when his job depends on not understanding it." - Upton Sinclair
Does this mean anything to you Bond Guy?
The government will HAVE to protect the value of what is mainly or largely held by foreign central banks, etc..
Re revolutionary elites. Instead of them, what we get is Palin. LOL.
Agree on outrage.
Does the broader stock market rally on this news? Uncertaintiy has been lifted.
And now we have a direct, political pipe between foreign savers and Americans.
Now powerful lawmakers can defend the mortgagees in their states. Politics will be involved like never before.
REBear --
Can they really do it? New rules written on the fly during the Bear Sterns deal met with very little resistance.
The announced offer was $2/share. The final offer was $10/share...
I would call that "resistance".
"REBear writes:
those "wiped out" creditors could easily "go nuclear" by suing everyone in sight and attempt to force a liquidation.
Can they really do it? New rules written on the fly during the Bear Sterns deal met with very little resistance."
The whole point in the BSC affair is that no contractual obligations were breached. Thus, no problem.
In response to other commenters - even if the sub-debt lose in court cases, it will take years for them to lose. During that period, a lot of institutional investors in GSE's senior debt would face unknown legal risk on their positions.
Or, they could buy a bund/JGB/gilt/canada and avoid that uncertainty.
It could easily be a real mess.
Clearly the elephants are fighting with the predictable effects on we worker ants. There are still other elephants that may make things interesting. When Charlotte SC gets handcuffed to Ontario CA in a weird form of sister city debt averaging the States Rights elephants will sharpen their tusks. That didn't work out so well last time.
Nice analysis, Pearson.
Folks, let's remember a few things:
This is the America WE CREATED. Not "elites", not rich wall street types - WE were the ones who legitimized those dollars, paid those mortgages, voted in these politicians, and stood by as almost half of our country clung to stone-age mythology.
Make your bed and lie in it.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard. - Alan Greenspan
Fiat was sold as a way to help the masses. Instead, it has enslaved them for the benefit of a few that leach off production.
Short EVERYTHING!
The time to revolt is becoming a possibility folks........
I've suggested this once before, and I'll suggest it again.
We are all about to be screwed by the biggest fraud ever. You have three choices:
My favorite is number 3. It's legal, and if enough people do it, you will take "them" down with you. Yes you are going to suffer when the entire system crashes, but at least you took "them" out with you.
If you think that complaining to, or electing ANY politician is going to help, you're a fool.
just dont revolt in minn., protesting their will get you a 7 year felony sentence...
yikes.
Anyway, from previous post, LawyerLiz, here's some acronym help...
LOL= Lots of laughs
ROFL= Rolling on Floor Laughing
ROFLMFAO=Rolling on Floor Laughing my Fing A Off
WTF=What the f***?
The whole point in the BSC affair is that no contractual obligations were breached. Thus, no problem.ed
WRONG! The fed had/has no legal right to guarantee the value of a deal. The fed only had the authority to make a loan, not make a loan AND guarantee the value of the underlying collateral.
add to #3 - take all money out of 401k, IRA and stock accounts
who(what bank) can now sell mortgages and hold for investment that is compettitive with farking mcmae
3. but max your debt in ponzi dollars, after all you will be paying that debt off with cheaper money.
Cheaper by the trillion.
But then I told you guys this day would come when this crisis kicked off.
Some of you remember how negative I was when I was still allowed on BdL's site.
All I can say is: Can I haz bailouts?
And:
Someday this war's gonna end...
Some of us watched the Soviet Union evaporate...it simply caved in on itself, ran out of gas.
...don't know what made me think of that....
Bill Gross and the Chinese have successfully blackmailed the U.S. Treasury into bailing out their bad investments.
I knew we were descending into banana republic status, but the speed of the descent has just increased.
Paulson should save his last bullet for himself. Traitors get hung, in the end.
Can the hysteria. Nothing much will happen. The screwed, as I said, will just get more religious and the rednecks and mediocrities who don't know what is happening to them will turn to worshiping Palin who personifies their values. The decline will be gradual, so gradual any anger about it will peter out....if there is any anger. More likely bewilderment. You all seem to think Mr. and Ms. Average American pay as much attention to this as you do. They don't.
More butter please................
Canadian watching with popcorn | 09.06.08 - 9:51 am | #
It's coming to Canada too:
Decline in home sales hits economic growth
404: Page not found
At least the Canadian government is more upfront about the backstop, the Canadian Mortgage and Housing Corporation is a Crown Corporation owned by the Federal Government:
Canada Mortgage and Housing Corporatio - Wikipedia, the free encyclopedia
escariot, 20 years later, russia now has a multiple of our foreign reserves and a largely stable, prosperous economy. somehow I think our entitlement state won't let that happen, much as we refuse to let the market take the trash out in the present tense.
Canadian,
Enjoy your popcorn while you can. If the US economy goes down the economy of that little country on our northern border will too.
Your popcorn will go limp and the butter rancid.
Enjoy!
"escariot, 20 years later, russia now has a multiple of our foreign reserves and a largely stable, prosperous economy. somehow I think our entitlement state won't let that happen, much as we refuse to let the market take the trash out in the present tense."
Mainly thanks to oil. They got lucky. They won't stay lucky. Nobody does.
Our economy won't "go down the drain". Why the hysteria????
F/C's in Manhattan...
Foreclosure Makes Its Move On Manhattan - NY Times
regarding the politico blogs...
Someone last night showed the right was not even mentioning this story of Fannie and Freddie...
I'd like to point out that DK is talking about it and the author's final statement is:
"As for firing those in charge, it's about time. These idiots got the companies into the mess; there is no need to keep them around.
Here's the short version: The US taxpayer is now on the hook for the housing mess."
And Russia was "allowed" to fail. The country was in a depression in 1998...
Oh, I should point out that DK is a lefty blog...
"Mainly thanks to oil. They got lucky"
And Nat Gas, and Palladium, etc...
Actually, oil didn't go up - the dollar just went to hell, making any and all non-dollar assets infinitely more 'valuable'. And luck had nothing to do with it, the fed consciously trashed it.
Dawg "Inevitably that hope will go the way of all containment theories. Gravity wins"
Right. Over time the, "I'll take water of of my side of the bucket" strategy can't possibly work. The bucket isn't filled with water. The game is, make sure what's in the bucket is sufficiently viscous so as to allow something to come along that bouys markets. Kick the can down the road and "Hope".
Hi Nemo,
The announced offer was $2/share. The final offer was $10/share...
That bump coincided with JPM getting 95 million newly issued shares of BSC. BSC was trading at multi year low of about $60 at the begining of the week. IMO, $8 more in JPM shares wasn't even enough to dry clean investors wet pants.
3 sounds great, but I suggest buying a heavy safe and hiding it with all your cash.......
Yeah the US taxpayer is on the hook for the housing mess; he has been on the hook for the Iraq mess; he, etc., etc., and hasn't done a damn thing about it. Hasn't even understood. You all seem to think the US taxpayer understands what's going on outside his little life. He doesn't.
Silver State Bank in NV had Andrew McCain (yes, his son...) on it's board, a member of the bank's audit committee, responsible for oversight of the company's accounting.
Yeeehawww...
Does anyone feel like me that when you say you're treading water, what you really mean to say is that the water you're in is in a ginourmous toilet bowl for the power brokers?
I hate when it gets dark....
99.999999999999999999% of American don't evven know about Andrew McCain, and all but 50 of the rest don't care.
Nemo,
"Yes, exactly. So because these shareholders and creditors are in a position to threaten the global financial system, they are also in a position to demand a transfer of taxpayer wealth directly to themselves. We now live in a world where the debt -- and even some of the equity -- of every major U.S. bank, investment bank, and GSE is implicitly guaranteed by the government.
You can call that "capitalism" if you like, although I am not sure Adam Smith would agree. Whatever you want to call it, though, I call it disgusting."
Bravo, sir...Bravo!
Cheers,
I guess I could be OK with all of this if enough senior executives and administration officials spend enough time in prison.
The easiest way to allow justice to happen is for the next administration to put former U.S. Comptroller General David Walker in charge of an independent investigation on the whole mess.
Gainas, nobody is going to do a thing about it. Trust me.
That it, CR, no more hiking for you. It's too hard on the global economy...
isn't this the same as truman's nationalizing the steel industry?
San Francisco area rocked by 4.1-magnitude earthquake
4.1 is a jiggling not a rocking.
Music for the new America:
YouTube - "The Third Man Theme"
"The classic period of the black market"
I think craigslist serves the purpose admirably.
Alt Wein wahr schon, aber geduldig.
Someday this war's gonna end...
add to #3 - take all money out of 401k, IRA and stock accounts
And pay taxes on them. The Gov't would like that.
The idea is that Treasury rates will be little impacted since any hit to the budget is in the future (so who cares, right?).
Heh heh heh. I'm looking for a 50bps pop in long rates starting Sunday evening. If that qualifies as "little impacted" in your lexicon, well then it works just fine for me as well. ;>)
As for your final point about conservatorship constituting a credit event for CDS, let me just say that I think it's very unsportsmanlike for you to bring up something so distasteful over the weekend. Why not wait for a few days so that I can cover my Trashury shorts and then reload on the ensuing panic as you pound the table on this one? TIA.
Nevada regulators closed Silver State and the Federal Deposit Insurance Corp. was appointed receiver of the bank, based in Henderson, Nev. It had $2 billion in assets and $1.7 billion in deposits as of June 30.
Andrew K. McCain, a son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, since February but resigned in July after five months citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting.
The younger McCain, who is the chief financial officer of Hensley & Co., the beer distributorship of which Cindy McCain is chairwoman, is the Arizona senator's adopted son from his first marriage.
Silver State Bank in Nevada is shut
-
Bay News 9
You mean thatAndrew McCain?
ttp://www.muckety.com/Andrew-K-McCain/98646.muckety?big=true
"Even worse, it appears that common shareholders (small investors, 401ks) will be nearly wiped out while preferred shareholders (banks, Wall Street) and bondholders (China, Russia,PIMCO) will be made whole."
.... but somebody needs to keep buying the new bonds and who would do that unless one is already "tied up" with the firms ... and a a ball at the foot in what seems perpetuity
but aside from that, considering that only 2 months ago "the firms appeared to be well capitalized", one is led to ask: did they underestimate the risk (international funding threats, accounting, RE market degradation...?) 2 months ago, or did they not tell the truth? = the central question that brought the entire crisis in the first place and keeps feeding it is not resolved ... it is even being "scaled up"!!
You may try to picture that Wall Street is likely to muddle thru. However, the world has changed, the real money and the power has shifted to other continents. IMO
So lately this Chicago Dude, who sold his car years ago because it just sat there for weeks at a time, has been thinking that a get-out-of-dodge vehicle purchase is a good insurance policy if things were to go south in a hurry. I've got so many fiat dollars I don't know what to do with them, maybe I should use them before they inflate to nothing.
Hmm, all wheel drive is a must. Decent cargo carrying ability a good thing.
I can get slightly used Ford Explorers for half off original MSRP all day long. Autotrader says 500 of them within 50 miles of me. They're a gas hog, but parts to fix them should be cheap, right?
Or perhaps an Audi station wagon. Coddle me with leather and a German ride. Not much ability off the paved road, but sure-footed on. Better gas mileage than the Explorer.
What to do?
So much for big government. Those mean, mean tax and spend liberals - right?
Whew! No one is immune to being inconsistent, but what I really love of about the right-wing brand of hypocrisy, it their ability to use both their external sphincter muscles at the same time to express their wacky ideas.
I've been waiting weeks to say this:
We're all homeowners now! Hooray. I've always wanted my share of the American dream. /sarcasm
I'm just a happy little squirrel knowing that I can help our mighty empire save it's glorious shit piles from collapsing. When in human history have us prudent little squirrels been capable of such mighty endevours.
I think I can say, without fear of contradiction, that this is the single greatest moment in history for us squirrels. Hell, I'm gonna go out on a limb here...crack...shit..ahhhhhhhhh!
Cheers,
Hmmm...
Bush, George W. and Family Financial Misconduct, major media articles
"NEIL BUSH. In 1990, federal regulators filed a $200-million lawsuit against Neil Bush and other officers of the Silverado Banking, accusing them of gross negligence contributing to its $1 billion collapse.1 Our conclusion is that Silverado was the victim of sophisticated schemes and abuses by insiders and of gross negligence by its directors and outside professionals, FDIC Senior Deputy General Counsel Douglas H. Jones said in a statement.2
Bush was reprimanded by the Office of Thrift Supervision for multiple conflicts of interest as a paid director of the S&L, including his approval of $132 million in loans from Silverado to two business partners, Bill Walters and Kenneth Good.3 Bush, in turn, had received $550,000 in salaries from a company funded by Walters and Good plus a $100,000 loan from Good that was subsequently forgiven.4 Walters and Good looted an estimated $330 million from Silverado; one Silverado director had shared instructions on how to establish family trusts to protect such secreted funds from repossession by the government.5
A top federal regulator testified to Congress that Washington officials postponed Silverados shutdown from October to December 1988, after George Bushs presidential campaign was successfully culminated.6 The director of the Office of Thrift Supervision asked the Treasury Department to investigate whether political considerations caused the delay, but no such probe was conducted.7 Neil got off paying only $50,000 in a settlement of the $200 million federal suit against him other Silverado directors.8 He didnt have to worry about his $250,000 legal bill, as Thomas Ashley, a friend of George Bush senior and the head of a banking association that was lobbying the federal government for bank deregulation, formed a legal defense fund to pay the bills.9
Chicago dude- a mid wisconsin farmhouse with 20 acres would be even better.
Just make sure you do a really good job with winterizing;-}
Phoenix paper has brand new titan Kingcab for just under 12k.
Gotta have somewhere to go;-}
Someday this war's gonna end...
Hey, Bubba! This dead squirrel has a tin foil hat on!
I just absolutely stunned at the comments here. It seems that all anyone can think about is possible "bailout" money (which may or may not be needed if you look at the capital situation). If the government invests, takes first position, thins them out, and forms something new and smaller out of the mess, this could actually end up making money.
But the MOST important thing here is to keep the mortgage securitization process from freezing up. That would cause an even bigger crisis. So if you can look past your political rants, and start thinking, you'd figure out that this is what the takeover is about. It's about continuing to securitize mortgages and having the capital to do so WITHOUT any reliance on bond floating and punitive rates to do so. This is also a positive for the mortgage market in that it will probably LOWER rates. The govt can also really push workout processes forward.
So get off the "i'm not getting any" crap and think. I know some of you can do that...
Ipodius.....
New to the country and our history? When has the government done a good job at anything? Especially a desperate last resort move such as this..... keep your head in the sand pal.......
Agree ipodius. This whole thing is a nothingburger.
iPodious thus intones:
But the MOST important thing here is to keep the mortgage securitization process from freezing up.
Ahh the old "way to keep from falling down is to run faster" theory.
this could actually end up making money.
The govt can also really push workout processes forward.
These seem to conflict.
ipodius,
"If the government invests, takes first position, thins them out, and forms something new and smaller out of the mess, this could actually end up making money."
If I stitch wings on my back, climb a really high mountain and leap off, I might actually fly.
Cheers,
Some thoughts I had last night after reading about this story...
But if true means they back up preferred or back up FDIC because they got skin in the game regardless and they probably think they'll need to do some of both so go to the source sooner rather than later.
Fed balance sheet back to full by fiat - pun intended.
So not trying to justify Hank's actions but rather understand them - understand the motives & repercussions and you can better see what comes next.
And all the outrage by this forum is understandable but good grief anyone with half a brain knew TPTB were going to monetize all these bad debts somehow at some time... we just didn't know how or when.
Now we do. At least Phase One.
And if that isn't enough expect more - that is why all along I've acknowledged the deflationists for correctly identifying the severe deflationary forces at play. I have taken them to task for underestimating how aggressively TPTB & Fed will be at attempting to drown that deflation in a sea of new money (via bad debt monetization).
I will also acknowledge TPTB might fail but they are going to create a whole lotta new fiat before they throw in the towel. This is really still in the early innings. Expect more.
JMHO - feel free to rip it apart.
Add $10 Trillion housing mess to $32 Trillion dollars in total liabilities and unfunded commitments for future payments and you get The cost of Bush to America since 2000
In a speech a few months ago at the National Press Club, former GAO Comptroller General David Walker said:
"If the federal government was a private corporation and the same report came out this morning, our stock would be dropping and some people would be talking about whether the companys management directors needed a major shake-up".
"The federal governments total liabilities," Walker explained, "translates into a de facto mortgage of about $455,000 for every American household and theres no house to back that mortgage. In other words, our government has made a whole lot of promises that, in the long run, it cannot possibly keep without huge tax increases."
RIP America's Debt-Based Monetary system
1980's - 2007
Done in by the extreme greed of capitalist pigs feeding at the obscenely leveraged debt liquidity trough.
"No generation has a right to contract debts greater than can be paid off during the course of its own existence." ~ George Washington
ipodius,
This represents a huge departure from what has been considered normal that it bears contemplating.
The answer is the financial system is getting precarious, and the screams here are a reflection of the fear this instability engenders.
The problem is the bigger crisis is next, as this progression has shown no signs of abating as it rips through the financial sector.
There is no mortgage securitization crisis anymore. There is only government backed debt from this day forward.
How much debt is the question, and the answer has a lot of folks terrified.
Someday this war's gonna end...
LOL each bailout attempt by the gov starting with the rescue of JPM yes JPM not BSC has done nothing to help the credit markets. why would anyone have faith in the latest scheme concocted by our worthy powers that be. i agree keep your head in the sand the bailouts will continue
Americans, now you can feel the pain like my grandpa 1933 when the Nazis come to power.
The whole world ask the German why they have done nothing against this criminals.
Now show the world that you are the better man.
I am keen to your reaction.
And think about, most of you have guns.
Stronger measure, to resist tyranny cash in that money and buy gold. Back to AG's speech speech
321gold: Gold and Economic Freedom by Alan Greenspan 1966
"If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves."
Gold does not only protect the individual it protects against governments run amuck. From Warren Buffett's dad in a speech to congress back in the day.
"Because an economy Congressman under our printingpress
money system is in the position of a fireman
running into a burning building with a hose that is not
connected with the water plug. His courage may be
commendable, but he is not hooked up right at the other
end of the line. So it is now with a Congressman working for
economy. There is no sustained hookup with the taxpayers
to give him strength.
When the people's right to restrain public spending by
demanding gold coin was taken from them, the
automatic flow of strength from the grass-roots to
enforce economy in Washington was disconnected.
and
"The subject of a Hitler or a Stalin is a serf by the mere
fact that his money can be called in and depreciated at
the whim of his rulers. That actually happened in Russia
a few months ago, when the Russian people, holding
cash, had to turn it in -- 10 old rubles and receive back
one new ruble."
http://www.fame.org/PDF/buffet3.pdf
Votes do not mean squat. The only way the people can control the government is to control the purse strings.
dryfly,
"So not trying to justify Hank's actions but rather understand them - understand the motives & repercussions and you can better see what comes next."
Very nice...the whole comment. But in the end the hyperinflation will stil end in deflation. But, I fear, you may be correct.
In which case, I think I shall go buy some more spam and ammo today.
Cheers,
But the MOST important thing here is to keep the mortgage securitization process from freezing up.
Yup, because we all know things become more valuable the more times they're sold. Nothing like pulling value out of thin air.
How do they portend to appease the Asian market before it opens? What stupidity! The Fed and Treasury are so wall street driven that it is just revolting!!! The need to game the market and tilt the casino wheel to allow the house to win with crooked deals is sick and perverted. If The Asians don't see this bullshit, then they obviously learned very little from the inability of Japan to face reality with its 13 years of deflation/stagflation, which was brought about by denial.
Are The Asians going to look away on risk just because Bernanke or Paulson lie about the fraud at Fannie and Freddie and the cancer within the American financial system? Are we going to explain away the lack of regulation and the conspiracies and collusion that brought us to this moment of truth? Do they really think the Asian markets will forgive their losses in America and then ask to be screwed a little more, but this time with a bazooka?
As i said, take off the political glasses and think like a CFO for a second and do some analysis here. What's problem number one for the GSE's? They throw a bond party and no one shows up. What happens to the mortgage market at that point where there is no other entity out there to take up slack? Yes, that sound you hear are crickets chirping, and the entire housing market comes to a screeching halt.
dryfly, that was a thoughtful post. I think that you hit the money on the head, but the preferred will lose out because there will be no dividend, but the value will be preserved. It would be an even bigger hit to the treasury if that class were wiped out for the reasons you mention.
But, again, an actual use of government cash may or may not be in the cards here. I don't know where some of you are getting the trillions figure, because these can be put in run-off mode and still throw A LOT of cash. Period. So those of you screaming that don't know how to read or analyze financials. If you did, and you're smart, you could make some lemonade out of this. Again, with the capital reserves (which could be suspedended under this arrangement) there is plenty of cash to run these out. But that's NOT what we need...we need them functioning and confidence in them. And the rates for bonds will be the same as treasuries.
But don't be fooled...a lot of people are going to lose a lot of money. As it should be. Even Gross will be taking a haircut as he should be careful what he asks for.
This is also a positive for the mortgage market in that it will probably LOWER rates.
That's what I like to hear. Meet me on Globex tomorrow afternoon, Mr. Podius, and I will give a very special opportunity to lock in 10-yr. returns at 3.60%. Sounds good, huh? Mebbe you'd like to try our 30-yr. model . . .
"JMHO - feel free to rip it apart."
dryfly | 09.06.08 - 11:33 am
Quite the contrary, I suspect most of my favorites here are like me, and just want more.
BTW, it is disingenuous of you to characterize such sharp-edged clear thinking as "opinion".
BTW - my wife (a mgr at her company) said lay offs coming. Her dept will be spared (actually might add bodies) but only because it is a critical mission for new business capture. Eventually even they might see cuts.
Point is they were one of the 'immune' - not expected to see major downside due to credit crunch. Its spilling over into business in general.
That is were it gets ugly in a political way... for McP & OB. Irony is (from what I've heard) the electorate makes the decision if the economy is OK or not six months prior to election... after that shorter term events really don't have that much effect unless VERY extreme.
My guess is Hank's efforts was to dampen likelihood of an extreme visible market 'event'... say one day triple digit down draft in DOW... in late Sept or October.
Again JMHO.
So, the government takes charge. Preserves some shareholder value. Injects taxper dollars to clean and scrube the books - ie assume all losses. Once done Morgan gets the go ahead with a public offering and presto a new company.
Sounds about right:
1. Shareholders dont suffer -- cha ching WS is happy
2. Losses socialized -- cha ching WS happy
3. New public company -- cha ching WS happy w/ more fees and deals
During which time, the political elephant gets fat on the donations that pour in -- cha ching same government and WS happy
ipodius,
"If you did, and you're smart, you could make some lemonade out of this."
Sorry dude. The gov't goons came by, guns in hand and stole my lemons. I think they're intent on giving them to the GSE's. I've heard that the GSE's only know how to make vinager out of lemons.
Cheers,
Yo Misean!
Human Buzz Lighyear
You may want to expand your options.
"So not trying to justify Hank's actions but rather understand them -"
Enrich him and his buddies and screw some sucker in the process think it's pretty easy to understand.
Re: This is also a positive for the mortgage market in that it will probably LOWER rates.
BULLSHIT, mortgage rates will skyrocket because of the risk factor. This bailout decreases liquidity and it consolidates power into fewer hands and thus any notion of a free open market will be challenged by anyone loaning cash, i.e, loans will demand premium perfection, with better collateral and higher rates!
But in the end the hyperinflation will stil end in deflation.
You know I'm not an Austrian - but I agree. You can't go up up up forever. Something will give. When it does it will be very bad.
The key to making a Keynesian model 'work' is via monetary discipline... once that is thrown out the window the Austrians then become 'right' by default. We are closing in on that point.
I don't see what the "bigger crises" is. Just raise the bloody interest rate. Send mortgage rates higher (I think this will happen anyway, no?), and instead of working on infusing cash into these walking zombies every quarter work on leeching the bad stuff every quarter. Can't we just accept good money is chasing bad here... maybe it is all bad now...
But don't be fooled...a lot of people are going to lose a lot of money. As it should be. Even Gross will be taking a haircut as he should be careful what he asks for.
ipodius | 09.06.08 - 11:41 am | #
I fully agree.
Whatever entity they spin off here with a conservatorship, will obviously exchange pools of mortgages with Lehmans new spinco.
didn't even feel it 60 miles north.
AB,
BWAHAHAHAHAHAHAHAHAHAHA!
Cheers,
So what are the PTB gonna do when "we the taxpayers" can no longer afford to pay taxes ? Our governments (local, state, & federal) seem not to realize that they inherently have no money--their money comes from taxing what we have earned. There is only a finite limit in how much we can be taxed, particularly in an environment where megacorporations have been allowed to drive wages downward in pursuit of profit. The PTB need to think about how much tax the Chinese are able to collect from their factory workers.
Anyone have any idea why they decided that this weekend was the weekend to make the move?
NFL kickoff weekend distracting J6P?
dryfly,
I see you have both your whit and intelligence in fine working order this morn. You back in gestapo land or still in Waterloo?
Cheers,
Fl Renter,
Probably something really bad was imminent...
In some states, companies can be placed under conservatorship, as a less extreme alternative to receivership. Whereas a receiver is expected to terminate the rights of shareholders and managers, a conservator is expected merely to suspend those rights.[2] Ramsey & Head advise that an insolvent bank should go into receivership rather than conservatorship to guard against false hope and moral hazard.[3] In July 2008, the failing IndyMac Bank was taken into administrative receivership by the Federal Deposit Insurance Corporation (FDIC) and its assets and secured liabilities transferred to a specially-established bridge bank called IndyMac Federal Bank, FSB which was placed into conservatorship, also by the FDIC.
Wikipedia, the free encyclopedia
Con...Conservatorship
The US government will just borrow the money from China and Russia to pay off the bad debt to China and Russia.
The real question here is why Fannie is not being taken into receivership, and why taxpayers will be funding dividends! This is illegal, corrupt, a conspiracy, fraud and treason, why are people not pissed off?
"Fed balance sheet back to full by fiat - pun intended."
How is this going to effect the AAA ratings of US treasury debt? Anyone know?
One thing we know in Texas: bank's failing. During the 80's and early 90's we lost almost 600.
Most of these bank closings followed a pattern that has been remarked on many times in this blog (denial, we have plenty of capital, some outsider will save us, it's not us it's market conditions, etc, followed by govt takeover)
Months after these banks failed a small article appeared explaining how surprised the govt. was that these failed banks were in a lot worse shape than what the regulators belived.
We need to wait until June, 2009 and discover if we truly are screwed. Based on our experience in Texas this probably will not be good news. I feel like I am sailing on a huge ship that just hit an iceburg. I pray that the crew of this ship is correct and this is just a small bump because there aren't enough lifeboats and all I can see is cold water.
ipod, hang in there. You are right. If the mortgage market froze up - and it would if F&F went under or even restricted new loans - it would be Armageddon. House prices would plummet far below fair value and the resulting - unnecessary and economically unjustified - losses in mortgage portfolios and MBS would bankrupt every financial institution in the world, including central banks. Commerce, production and trade WOULD halt. No money, no action.
That said, bailing China, Russia, and PIMCO (and assorted smaller players of similar ethical value) to the tune of 100-200 billion dollars REALLY grates.
"How is this going to effect the AAA ratings of US treasury debt? Anyone know?"
Moody's, S&P and Fitch will rate it AAA all the way until the day it collapses under it own weight. Past is pro log.
The real question here is why Fannie is not being taken into receivership, and why taxpayers will be funding dividends! This is illegal, corrupt, a conspiracy, fraud and treason, why are people not pissed off?
Paging Jas Jain! Jas Jain please come to the commenters' podium!
Necktie,
Party of Six,
Necktie!
REBear is right that this should be a top issue in this election. I am disappointed.
The results will be even bigger than the $800 billion currently authorized. Probably much bigger. Probably the real costs will come further down the road:
This problem is huge and potentially disastrous,and I am sick that it is barely on the election radar, compared to, say, Sarah Palin's pregnant teenager.
Paulson Plans to Bring Fannie, Freddie Under Government Control
Should read:
Paulson Fires Bazooka At Chaotic Mortgage Market In Hopes Of Killing Free Market
Dallas Morning News (Saturday)
Citigroup may sell Texas retail banks
Citigroup may sell Texas retail banks |
News for Dallas, Texas | Dallas Morning News
| Dallas Business News
Costs are irrelevant.
Money is going to become irrelevant too.
Fair E, aren't you just a little scared that the very foundations of confidence in our fiat currency are coming undone?
A little Wall street speculation is one thing, but this is major league bailout time.
Someday this war's gonna end...
It is killing the free market. The free market is free as long as its going up, if it goes down, Hank and buddies are taking the game away. What Hank and buddies don't realize is that eventually people will bring their own game.
Add $10 Trillion housing mess to $32 Trillion dollars in total liabilities and unfunded commitments for future payments and you get The cost of Bush to America since 2000.
And it explains why Americans should kick the living shit out of every Republican who stood up at the podium in St. Paul and talked about how they were the party of fiscal responsibility. In a pig's eye!!!
"They throw a bond party and no one shows up. What happens to the mortgage market at that point where there is no other entity out there to take up slack? Yes, that sound you hear are crickets chirping, and the entire housing market comes to a screeching halt."
Why is there no other entity to take up the slack? Simply because lending to over-indebted consumers based on the theoretical value of four walls and a roof is a risk that requires much a higher ROI than 7%. So you are saying that since the rest of the market considers this a poor investment that the government should do more of it? Genius...sheer genius.
$19 silver is now $13 silver.
$1012 gold is now $808 gold.
And just in time: $147 tar is now $108 tar.
Anybody got the spot price on feathers?
Fannie Debt Demand Cut by Currency Concern
Fannie Debt Demand Cut by Currency Concern, Morgan Stanley Says - Bloomberg.com
"Foreign central-bank holdings of agency debt and agency mortgage bonds dropped to $965.8 billion in the week ended Sept. 3, from a record $983.9 billion on July 16, Federal Reserve data show. That decline came even as U.S. Treasury Henry Paulson won approval for a plan to support Fannie and Freddie, the two largest mortgage-finance companies, if the housing slump adds to their $14.9 billion of net losses from the past four quarters"
FairE that is the total deal here. This really IS too big to fail and it has to be done. I'm not interested in the political ramifications at all...and i expect when this is over, we're going to hit an age of regulation not seen since the 30's. Again, people like Gross should be careful about what he's asking for. And these people aren't fools...there will be no "bailout" without pain for ALL investors in some way, either though loss (common), dividened suspension (preferred) or rate reductions (bond holders).
There is also NO CHANCE WHATSOEVER of hyperinflation here. NONE. We are in total DEFLATION right now, but none of you have ever seen it so you're completely off the mark. Just like Trichet you're tilting at windmills. All this is necessary because of the total credit and asset price COLLAPSE. The government can print all it wants now to NO effect. The destruction of money and credit will negate any possible printing and faster than the printing presses can run. This is where we're at and I've been screaming it for months but some people here who lack any financial skill just repeat whatever their political bent or others tell them to.
Welcome to total deflation kids. All the rules you know are now completely wrong.
Rob D. those are last weeks prices...things change.
Buckle up, this week is going to be wild as gyrations hit the market and foreign investors digest this news.
Oh yeah, another GOM hurricane.
Nawlins is rolling the dice agin- hope they get their point.
Someday this war's gonna end...
The Sunday NY Times editorial should be interesting.
Rob Dawg,
"Anybody got the spot price on feathers?"
$316/lb.
Zucker Feather Guinea Plumage Red .04oz Product Detail -- CreateForLess
Cheers,
ipodius-
I'm not even seeing food inflation any more.
I can't believe I'm writing this, but Bernanke has been right and nearly every other central banker in the world has been wrong in 2008.
ipodius,
Right, I've NEVER said that this is a deflation. I've never banged that drum. Nope, not me. I'm a hyper stagflationist.
Sheeesh!
Cheers,
"All this is necessary because of the total credit and asset price COLLAPSE. The government can print all it wants now to NO effect"
... no need for much financial skill to get that point
aren't you just a little scared that the very foundations of confidence in our fiat currency are coming undone?
ironically no. this works BECAUSE of the full fail in the very foundations of the us government. otherwise this would be a meaningless gesture. the takeover is BECAUSE of this faith and will work because of it. you've got it backwards.
and fiat will never change. talk about tilting at windmills...just like globalization there is no going back. so start to think about how to solve real problems in the world in which we live. i don't see this as anything but probably, and sadly, necessary. but if it consoles you, a lot of people that thought they were wealthy are going to find out they are not.
"There is also NO CHANCE WHATSOEVER of hyperinflation here. NONE. We are in total DEFLATION right now"
How come Weimar Germany experienced hyperinflation WHEN THE CITIZENS WERE DIRT POOR?! Devastated by the WWI. Answer that if you can.
You got it all ass backwards. The hyperinflation will come when US government runs out of money and is forced to print because of tax revenue collapse. The other part necessary for hyperinflation is the the narrowing of demand to cover only essentials (food,shelter,gas). These two combined create the hyperinflation.
Printing alone does not necessarily do that but when population is out of jobs and economy has collapsed, any new money created by government will eventually go to buy these narrow set of essentials that are in huge demand. Who cares about deflation in house prices if you have not eaten for days?
ipodius, asset deflation does not equal total deflation.
Don't fall into the jas/mish trap.
This is giant stagflation.
for the moment stuff is cheaper as inventory is reduced, but as the overbuilt inventory is destroyed, the replacement costs from a much smaller demand base will be huge.
This is the 70's show on steroids.
Absolute deflation is impossible with a fiat currency, the acceptance of the damage by foreign investors of deflation transmitting to their economies from us leads to dollar dumping and decoupling from the US instead. Why go down with us when you can switch to a resource chain without dollars intermediating, especially when the value of the dollar is gyrating.
You are mistaking the wallsteet asset crash for 1929. But we just devalued with this nationalization, and BB has promised devaluation on demand if the situation warrants.
In other words, real value of assets is declining, but the nominal valuation will eventually start increasing, just based on replacement costs alone.
The relative value of the dollar is key, and the Fed and the Treasury will do anything not to face a 20% sudden decline, as that is too fast.
20% over two years, sounds good to them, as long as J6P doesn't squeal too loudly about the cost of tobacco, beer, and gas.
So bubble values of houses are gone, big deal. Bubble values on Wallstreet, another nothing burger.
The last bubble in metals and oil is greeted with the same so what.
However, notice the lows are not going back to 1999 levels in resources.
Funny how that is...and that is your baseline inflation.
Someday this war's gonna end...
ipodius,
I agree with you that the outcome is deflationary. However, it seems to me that the system will fight asset deflation using everything it can. And without high goods inflation (as measured by CPI) there is seemingly nothing to keep them in check. There are no market vigilantes left: the Chinese will buy bonds, the USD won't fall b/c other currencies are equally weak, oil/gold/commodities can only rally so far until they run into demand destruction, etc.
So what do you think keeps the Fed from reflating this thing one more time?
Biggest lie in the English language:
"I'm a Republican and I'm here to cut the size of government.
I see you have both your whit and intelligence in fine working order this morn. You back in gestapo land or still in Waterloo?
Home now - going out again Monday AM all week.
Should be an interesting trip - all the way to Texas & back... up & down I 35... I am seriously considering other avenues of 'gainful employment' Don't mind travel but how many times does a guy have to go to Wichita before he gets a reprieve?
Uggggg...
"BECAUSE of the full fail in the very foundations of the us government."
ipodius | 09.06.08 - 12:25 pm
Freudian slip showing?
I can't believe I'm writing this, but Bernanke has been right and nearly every other central banker in the world has been wrong in 2008.
MarkS it's ok to write it if it's true, and i believe it is. I've been saying this all along...they are all fighting the wrong battle, and the battle now is to keep deflation under control. the inflation was PRICE inflation and that isn't the story. It was a symptom as money was deperately trying to find sanctuary and yield. It was only delaying the inevitable. And this is a world-wide issue.
The Fed has to do what it is doing and it still can't keep up with the destruction of money and credit all around. It's a piss in the ocean, but it may help domestically to cushion the full effect. The asset price collapse has to be stopped here, that is the key right now. By whatever means necessary. And the Fed has to inject liquidity just to offset, somewhat, the massive credit destruction.
We live in fascinating times for sure. But whatever assets you hold, be prepared for deflation.
Ipodius, There is no credit bubble in the eurozone. The english and irish ARE NOT HIS PROBLEM.
I believe that Trichet is betting that the dollar will collapse reserve currency. Got euros?
"So, the government takes charge. Preserves some shareholder value. Injects taxper dollars to clean and scrube the books - ie assume all losses. Once done Morgan gets the go ahead with a public offering and presto a new company.
"
Spot on! Wallstreet wants mortgage securization to be totally in private(not public} hands. The US is going the way of Europe-Covered Bonds for mortgages at variable interst rates. Let the borrower assume all interest rate risk.
I tell my 20 something kids to get a fixed FHA assumble mortage in the next few years while they are still available. When WallStreet get full monoply of the mortgage business, you can kiss cheap mortgages goodbye.
Awesome post that blows away most of the chatter here...
Major implications of the Fannie
Daily Kos :: Comments The Fannie/Freddie Bail-Out: A History and Overview
I've been asked what my thoughts are about the Fannie and Freddie bailout leaked by the Treasury to the NYTimes and the Washington Post late Friday afternoon.
Since the actual details haven't been released, and you can click over to Tanta and Barry Ritholtz as easily as I can, I suggest you go there for the best exposition so far of the proposed details. In fact, Ritholtz' "The Big Picture" has a pretty good multi-point presentation, which forms the basis for my comments below.
This story is MAJOR, in multiple ways, and almost none of it good, particularly for the long-term. Some points below.
I'm sure there is more, and I'll comment more once the actual terms of the bailout are released (although I suspect even then there will be escape clauses allowing for Treasury secrecy). In the meantime, drowning your intellect with the intoxicating beverage of your choice is not a bad thing. Sometimes abject despair is the appropriate reaction.
"When the going gets tough, the tough get 'too big to fail'."
How come Weimar Germany experienced hyperinflation:
Weimar Germany debt was in gold, our debt is in dollars.
I tell my 20 something kids to get a fixed FHA assumble mortage in the next few years while they are still available.
The dumbest thing anyone can do is take on debt during deflation. Just tell them to save...soon they won't need a mortgage.
This is the 70's show on steroids.
Not:
in 70's we had wage inflation.
Folks this is asset deflation, even human capital (got a job bro?). No credit, no consumption. If you think the 30's with the WPA was fun, wait till you see what happens in three years with regime change.
km4,
I don't come here to read the daily chaos. I certainly don't care what the chaos thinks. I'll take the individual and collective wisdom of CR any day.
It sure looks like nasty deflation when you read all the new truck ads in the Dallas Morning News...and widespread inflation at Safeway every time I go there. What's up with that?
So what do you think keeps the Fed from reflating this thing one more time?
I don't think that they can, I think they are interested in just not turning into Japan. It's going to take all guns blazing just to cushion the blow, never mind reinflate.
And I don't think i'm as absolutist as mish here. and i don't disagree some form of "stagflation" can happen, just that it will be complete stagnation, not inflationary and not deflationary, where we sort of just scrape along in low gear for a few years. actually that wouldn't be a bad outcome compared to the alternatives. a bad case of the blahs. but i'm telling you that commoditity prices are headed down further...oil will be below 100 by the end of the month and will be around 80 by december.
all prices will be headed lower because there is no credit for people to buy with. so when you have to buy what your income can support, what happens to demand? what goods get sold? where is the pressure? down down down...for example, why would i buy a car now? i'll wait because the prices are only headed down. especially when financing is expensive or hard. wait until this hits health care too....
AllenM aka Joliet Jake writes:
"for the moment stuff is cheaper as inventory is reduced, but as the overbuilt inventory is destroyed, the replacement costs from a much smaller demand base will be huge."
I see this very commonly now. THIS IS TRUE!!!!
I own a small (tiny!) business.
I sell to other companies. Small & mid-sized. They are all "waiting each other out" in some form or another...
Trucking firms "mostly eating" fuel costs to try and outlast the firms on the financial skids... Nat'l moving companies keeping prices low to outlast the fly-by-nights who won't last thru October... and companies who haven't figured out HOW to charge for all the INCREASES they've been saddled with... debt servicing, lease increases, fuel and energy costs, insurance risk increases...
This is not conjecture. These are actual reasons told to me by mgrs and corp execs as they sit in my office and we chat...
"I've been keeping my prices low and eating the fuel costs, but I won't be able to much longer..."
"We're waiting until November to raise prices nationally; the summer held us back as there was too much fiscally unqualified competition in the market...the overhead will strangle them once the bills come in..."
Spot on, JJ.
ipodius.....you're so convinced of deflation?
You think in 3 years gas will be $1 a gallon? Thats what you're saying.
no way. It will be $3 or more.
CPI is made up of deflation in the things you cannot afford and inflation in the things you need.
squeezed,
I think you are wrong, along with most of the deflation crowd.
What is the value of the money if you took out a 30 year fixed when you add another zero to the price of a house?
People were paying off houses in the late 80's with amounts that were the equivalent of a cheap car payment.
That was after a decade of stagflation.
Wages will have to start rising next, and thanks to the commodity bubble, the Fed has cover for several years of inaction against inflation.
Wages are the last to rise, and the only way big business is willing to countenance a rise in interest rates to combat inflation.
Notice the Boeing workers just went out on strike for higher wages...sounds like labor is going to once again get organized. Wait until the teachers strike in California.
Someday this war's gonna end...
"The asset price collapse has to be stopped here, that is the key right now. By whatever means necessary. And the Fed has to inject liquidity just to offset, somewhat, the massive credit destruction."
it seems to me that this is precisely the reason for an inflation scenario. the Fed is artificially propping up asset prices while the underlying value continues to plunge.
the RATIO of the artificial price divided by the real price is exploding.
i.e. too much money chasing too few goods.
example: if i go to purchase a house today the sellers knowing that there is a bailout underway will hold more tightly to his asking price.
ipodius,
"Welcome to total deflation kids."
You make good arguements that I usually agree with but one point (of 3, BSC and severity of recession being the others) of contention is the FFR. You have commented several times the feds will raise a quarter point (if not a half point) this year. Have you changed your position?
I tell my 20 something kids to get a fixed FHA assumble mortage in the next few years while they are still available. When WallStreet get full monoply of the mortgage business, you can kiss cheap mortgages goodbye.
Anonymous | 09.06.08 - 12:33 pm | #
I think you are right they will try to do that just like they wanted to privatized SS... the electorate might have a different idea.
Few things generate a populist uprising quite like threatening basic needs - you'll see NO complaint from J6P until the threat is real & apparent... its getting there for mortgages.
Same applies to medical insurance... most are still covered now... most are okay with the current system... so who cares. watch corps drop benefit coverage and watch the push for something NOW!
Change ANY of these basic 'privileges' and the electoral landscape changes over night.
Note OB NEVER said to eliminate F&F... he said either make them REALLY NON-PROFIT or REALLY market entities & let them fail... A or B. That still leaves him an 'out'.
McP is more 'committed' verbally anyway - says make them get small fast - reality has a way of changing commitment (reality like a landslide opposition mid-term election).
Watch the rhetoric over the next month - note actual 'policies' but who they pander to & need for support. Those will be who they protect.
I doubt we'll ever see Euro Zone like mortgage system for real UNLESS it is coupled with US Farm subsidy like 'hidden supports'. It might look 'market' but it won't quack like a market.
Just sayin'...
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;
We're have a "drown your intellect with the intoxicating beverage of your choice" sale this weekend. And new shipments of vaseline are on the way.
Leftys Liquors writes:
We're have a "drown your intellect with the intoxicating beverage of your choice" sale this weekend. And new shipments of vaseline are on the way.
Leftys Liquors | 09.06.08 - 12:46 pm | #
I loaded up on Friday Lefty - be after it hard later tonight.
Say did the hombre running the taco cart in front of your joint ever make it back from Mexico after his deportation?
The only reason the Fed would raise (and I think I've said this) is to support the dollar NOT because of inflation, although they will talk about it people it's what people what to hear. The dollar has to rise against the Euro...and all the eurozone apologists think, somehow, economic rules are different there. they aren't. trichet is going to be forced into a bad situation soon as they start to see widespread deflationary activity in some member states. it is unavoidable, and might break the euro if the ECB is not careful.
contrary to some people here, I think the more danger is in the euro and NOT the us dollar. we have the wherewithall to do what we need to without having to go to committee. and we'll do it. the name of the game here is to let the dollar rise enough to be strong, but not enough to kill exports. the wild card is how much the euro drops, as it will. and the more the dollar starts to rise the more oil collapses.
Sick & Tired of the Greed! writes:
3 sounds great, but I suggest buying a heavy safe and hiding it with all your cash......
Because hiding some increasingly worthless paper in the ground is somehow different than doing the same thing by leaving it in a safety deposit box?
We are all in this together, whether you hide your chits in the back yard or leave them in the bank. Their value will sink or rise based on what is going on in the world outside your safe deposit box. Might as well have your dollars in the game somehow, since that way you have some hope of influencing the outcome.
Since we aren't on a gold standard, the only thing a dollar is worth is what it is being used for. If yours are lining a box in the ground then that is your vote about their value.
Jas Jain you were the most visionary one here. Events have proven you right in substance and justified in attitude. I salute you.
Lefty,
Are you out of vaseline? I've never know that to happen at your store. The end must be near. Pun intended.
Recently I read a bit of Greenspan's, The Age Of Turbulence.
In this, he talks about (Japan) deflation on page, 291:
" ... financial intermediation so vital to any large developed economy virtually dried up. Deflationary forces took hold. It was not until the long decline in real estate prices bottomed out in 2006 that reasonable judgments of bank solvency were possible.
I love that: "reasonable judgments of bank solvency were possible."
This Fannie/Freddie financial cancer has the same exact DNA from the monster in japan, but instead of America looking at corruption or illegal activity by corporations and individuals, we have a sympathetic Treasury and Fed that are going to spin this problem into a new form of synthetic denial that allows time to be bought for those that need to escape justice.
This conservatorship idea is the trapdoor mechanism which helps avoid the harsher reality of receivership and thus linkage to providing accountability. This third-world collusion and mafia-like pact enables the crooks to continue repackaging the opium-like mortgage fraud into synthetic covered bonds, while taxpayers will now be in the loop to help fund the crooked insiders directly with a quarterly dividend. This is not absurd in what's happening here, it's called treason, and people involved in this coup should be hung!
Greenspan also says the deflation issue in Japan was not economics but culture, i.e, a society in denial, which is what we have with The Bush Coup and Friends of Mozilla....
Re: Senators Dodd and Conrad have been identified as friends of Mozilla. Their V.I.P. status and preferred rates from Countrywide was a drop in the bucket. Significantly, it did help reduce their monthly mortgage payments. However, I have to wonder if Country and Mozilla were not under such close scrutiny would those two trees stand out in the forest of senators and representatives? Some others may have received preferential treatment from mortgage lenders that also lost money during the subprime crisis and resultant credit crunch.
"Notice the Boeing workers just went out on strike for higher wages..."
Boeing workers are protected somewhat from competition because the US wants a domestic airplane manufacturing company for military/security reasons. But others workers aren't in such a fortunate business. My brother in-law is an independant trucker and is worried about McCain passing NAFTA which would bring him into competition with cheaper Mexicans drivers. My own company just received an mandate to move more software support overseas-the goal being 20% done through Indian operations.
US labor doesn't have the wage inflation push they had in the 70s.
ipodius,
The fed can't raise.
That would put far too many banks under before the FDIC can gear up for their demise.
They will of course talk about a strong dollar. And talk, and talk, and talk.
All the while, the sinking will continue unabated. The euro has it's own set of problems. Most of the problems are quite simply Italian. The germans want them to run a real budget and stop printing euros to cover their bad follies.
What will most likely happen is the euro will fragment into a northern hard zone, and a southern national currency of inflation zone.
Just like it used to be.
Geez, the world is definitely perturbed, 204 visitors online during a saturday.
Someday this war's gonna end...
ipodius,
"this works BECAUSE of the full fail in the very foundations of the us government."
FULL FAIL...I agree. Now you get the picture...Oh wait I bet you meant full faith. Ah well...I had hope for a sec or two.
Cheers,
With McCain's interest in reaching across the aisle for major cabinet positions, and the GOP nationalizing beyond the TSA and on to the mortgage industry, if the Straight Talk Express makes it to the White house, I'm betting Bernie Sanders as Treasury Secretary.
Even though data Friday from the Mortgage Bankers Association indicated that U.S. foreclosures hit a record in the second quarter, that wont necessarily translate into big declines in home prices.
That appears to be the conclusion based on the findings of a trio of economists in a National Bureau of Economic Research paper.
Even in the face of an extreme foreclosure wave such as that experienced in 2007, our evidence indicates that foreclosure shocks have relatively small effects on U.S. house prices, the authors, Charles Calomiris of Columbia University and Stanley Longhofer and William Miles of Wichita State University wrote.
The authors model incorporated MBA foreclosure and Ofheo home price data from 1981 to 2007, and used home foreclosure forecasts for 2008 and 2009 from Economy.com. The model included data on employment, building permits and existing home sales. In their paper, the authors said the study was first to estimate the effect of foreclosures on home prices for all the U.S.
Even under an extreme foreclosure shock scenario, with foreclosures up 75% compared to the baseline in 2008 and 2009, U.S. home prices only decline about 5.5% between the the second quarter of 2007 to the end of 2009, the authors estimated.
Home prices, they wrote, are quite sticky, and fears of a major fall in house prices, with all of its attendant negative macroeconomic consequences, typically are not warranted even in extreme foreclosure circumstances.
We conclude that a reasonable estimate of the future path of U.S. housing market prices is that they will remain essentially flat, on average, for the next two years notwithstanding the large predicted increase in foreclosures, they wrote
Foreclosure Effect on Home Prices May Be Small - Real Time Economics - WSJ
How is the dollar responding to all this? Are exchange rates calculated on the weekends?
Chanting Ravi,
Go inside FDIC and work two decades there as I did and you will easily see corruption that will leave you either very angry, sad or both. The FDIC isn't going to survive this crisis in its present form. It will either be abolished, get smaller or more likely grow with a bigger ego to match it's new role in the U.S. and beyond.
"I think the more danger is in the euro and NOT the us dollar. we have the wherewithall to do what we need to without having to go to committee."
Typical American BS. Maybe you should try to live in some EU country and see it for yourself. What you got is a empty shopping mall economy. Even Spain has relatively larger manufacturing sector than your pitiful 13 percent and US even loses to crappy UK (16 percent)! You cannot even cover yearly imports with that! USA also spends 40 percent of tax dollars into military.
Where is your high speed trains? Public transporation is a joke. Everything is based on big trucks and cars. Totally fubar when facing the peak oil. Actually, the worst possible situation now.
Well, maybe you make it but don't tell us how much worse EU is because that ain't just true. You just don't have any facts to back your claims up, only that American "we are better than everybody else" exceptionalism.
A salient issue here is whether they effectively declare them insolvent. The common holders would/should sue as govt officials repeatedly inferred otherwise.
I suspect the first round will be an equity investment.
ffdic,
I know, I'm just pissed! Paulson essentially is using his bazooka to destroy the middle class in a war where crooks win, because they have bigger guns.
Chanting Ravi,
I cry bushwa.
Joint Legislative Budget Committee - Monthly Fiscal Highlights
click on august and see the 40k disparity in median homeprices between foreclosure and private sale in metro Phoenix.
Nice guys, but their model has waaaay too many assumptions for comfort.
Like a functioning unchanged mortgage market. How much fraud will be allowed with an explicit government guarantee?
Liar's loans are dead. A whole lot of money will be necessary to buy foreclosed houses shortly, as the down requirements and financial qualifying are tough on investors.
Ask Cobradriver about how low the investment market is going to get renters. Where he is at in Florida is about two years ahead of CalNevArizona. Brutal price drops coming in bubble areas, and modest in not so bubbly. Until inflation finally lifts the prices based on replacement costs.
Someday this war's gonna end...
usd index dropped from 79.06 to 78.81 AH Friday.
CR, I am not yet sure what to take out of the whole story.
Do you think the Gov Buy Out is necessary or is it a bit early?
Is it done due to political motivation or is it really needed for the health of our financial system?
Lefty's
"We're have a "drown your intellect with the intoxicating beverage of your choice" sale this weekend."
Yesh I no, yeash...no wait...know...what wazzat 'bout buyers remorse....burp...and anover thing...you get back here...i got ...
Cheers,
AlphaBeta,
Your new Tzar to the east is about to "explain" to you how very wrong you are.
A particularly foolish quote from that paper:
"Second, from a pure contemporaneous forecasting perspective, we do not believe
that there is a reasonable basis for assuming adverse shocks to employment, permits and
home sales (that is, declines beyond what would be forecast from the data for 2006 and
2007)."
This is just risible.
Sorry, but those are blinders or what?
Real time data from Arizona and California suggests that statement is full of crap.
Someday this war's gonna end...
FFDIC,
"Lefty,
Are you out of vaseline? I've never know that to happen at your store. The end must be near. Pun intended."
A snarky quip from the fount of information FFDIC?! Run to the hills, the end is nigh!
Cheers,
Perhaps in this all there will at least be economic justice in the fact that insiders at fannie/Freddie will reap less reward in option grants? I doubt it, as I'm sure they have already planned ahead and will be rewarded by taxpayers for a heck of a great job! May God grant them options plenty and may they be filled with great blessings!
Re: Word of the Treasury Department takeover first came out late Friday, and sent the shares of both companies plunging in after-hours trading, with Fannie Mae giving up 25% of its value and Freddie falling by about 20%.
What does all this mean?
The goverment taking over FNM and FRE was expected, we just didn't know when.
Well if the goverment does not intervene we can have a complete failure of the finacial markets which would leed to a depression.
So the goverment continues to intervene (ala Japan) and crosses its fingers and hopes things get better.
So far we are Japan 10 years later.
Well, Japan's population is 10 years older than ours.
However, unlike Japan when times are bad, our copanies lay people off.
When people start losing jobs - people stop buying homes.
As long as people are losing jobs there can be no bottom in housing.
And on top of this Alt-A mortages are now resetting - By definition all Alt-A mortgages are bad mortgages. This is a product designed for flippers.
AllenM,
"Real time data from Arizona and California suggests that statement is full of crap."
suggests? If by that you mean screams from the roof tops I agree.
Cheers,
Re: Lefty,
Are you out of vaseline?
Perhaps you should all try the new squirrel balm which I'm told is useful for numerous applications!
Re: Lanolin is used commercially in many products ranging from rust-preventative coatings to cosmetics to lubricants. Some sailors use lanolin to create a slippery surface on their propellers and stern gear to which barnacles cannot adhere. The water-repellent properties make it valuable as a lubricant grease where corrosion would otherwise be a problem, particularly on stainless steel, which becomes more vulnerable to corrosion when starved of oxygen.
Lanoli - Wikipedia, the free encyclopedia
Boeing workers are protected somewhat from competition because the US wants a domestic airplane manufacturing company for military/security reasons. But others workers aren't in such a fortunate business. My brother in-law is an independant trucker and is worried about McCain passing NAFTA which would bring him into competition with cheaper Mexicans drivers. My own company just received an mandate to move more software support overseas-the goal being 20% done through Indian operations.
Tell your bro NAFTA was already passed & implemented. Done deal. Truckers are coming SOON.
VennData writes:
With McCain's interest in reaching across the aisle for major cabinet positions, and the GOP nationalizing beyond the TSA and on to the mortgage industry, if the Straight Talk Express makes it to the White house, I'm betting Bernie Sanders as Treasury Secretary.
VennData | 09.06.08 - 12:58 pm | #
Funny - hope you aren't serious because NO Indees, NO Dems besides Lieberman will get offers or tale offers - look for Joe to be Sec'ty of Defense. His speech at NRC was the price of admission.
Other than that - all GOP, everywhere, all the time.
orangeman,
"Well if the goverment does not intervene we can have a complete failure of the finacial markets which would leed to a depression.
So the goverment continues to intervene (ala Japan) and crosses its fingers and hopes things get better."
People keep using this worthless analogy. Japan had a +20% savings rate. We were negative for several years during the bubble. There is no comparison here. The Japanese gov't mearly looted its savers. Who the f*&k is Uncle Sam gonna rob?
Cheers,
"Well, maybe you make it but don't tell us how much worse EU is because that ain't just true."
The typical unemployment in your average EU country has been several points higher then here. The unemployment among young people has been even more striking.
A friend of mine has been there on business trips for many years, he has talked to people in the medium cities. "In Europe, if your father is firefighter, you are firefighter, if you father is politician, you are politician." Due to the unions, the social mobility is much smaller, well that's what he beliefs based on the people he talked too.
Also, everything is more expensive for them. As for their Manufacturing Sector, it has been hit as hard or harder.
Rob Dawg i appreciate your insight and follow your posts
just a thought, the km4 paste from daily kos was pretty well written
AND
at the kos web site article the author specifically recommended readers go to CR for more top shelf info
maybe the liberal pol bent of DK puts you off...understandable
(but as a liberal dem i make it a point to read the more intelligent "conservative" blogs
mock turtle
Working through this...How does the govt account for an equity investment made under non-economic terms? Can anyone think of a plan that makes sense?
"There is also NO CHANCE WHATSOEVER of hyperinflation here. NONE. We are in total DEFLATION right now"
Exactly - good! Now we're getting somewhere.
Time to stock up on 30 year Treasury bonds. I've been enjoying them so far.
dryfly,
"NO Dems besides Lieberman will get offers or tale offers - look for Joe to be Sec'ty of Defense. His speech at NRC was the price of admission."
MS is correct. I can't even point out something obvious about this.
Cheers,
Andrew Cuomo and Fannie and Freddie
How the youngest Housing and Urban Development secretary in history gave birth to the mortgage crisis
New York News - Andrew Cuomo and Fannie and Freddie - page 1
Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current crisis. He took actions thatin combination with many other factorshelped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans. Three to four million families are now facing foreclosure, and Cuomo is one of the reasons why.
Also before the tin foil hats come out folks, note that deflation != depression. Except in one well publicized event.
UTMB cutting indigent-care program funds by $24 million - A $59 million shortfall spurred slash in budget
"GALVESTON The budget for providing medical care to the poor is being slashed by $24 million as the University of Texas Medical Branch at Galveston continues to move away from its traditional role of caring for the region's uninsured, officials said Friday. UTMB announced this week that it is cutting its indigent-care program from $115 million to $91 million for fiscal 2008, which began Sept. 1."
404 Error, No such article | Chron.com - Houston Chronicle
"Time to stock up on 30 year Treasury bonds."
You could get hurt if investors begin to demand a risk premium.
Dr. D, tell me 20 years how those certificates of confiscation are holding up!
Someday this war's gonna end...
Dryfly,
You mention people getting upset when the really important things get too expensive--like mortgages. Would you put power & water into that category as well? If so, what kind of reponse have you noticed to some very substantial increases in power costs in de-regulated areas or regions serviced by private utilities (Entergy, etc)?
I couldn't find the link to an article I read earlier this week regarding an utility's stating that if it didn't get the very substantial rate increase it had requested, service & repair/maintenance services would decrease. Not that that was a threat or anything.
"...considering that only 2 months ago "the firms appeared to be well capitalized"
Genevieve, hon, you were lied to by a guy who claimed to have a bazooka in his pants.
February 19, 2008
How Canst Thou Know Thy Counterparty When Thou Knowest Not Thine Self?
Hussman Funds - Weekly Market Comment: How Canst Thou Know Thy Counterparty When Thou Knowest Not Thine Self?
Now make no mistake, there is little question that bank deposits and agency debt are safely backed by the U.S. government and that this is a good commitment. However, the holders of stock in banks or mortgage companies like Fannie Mae and Freddie Mac may not be so secure. It's just excruciatingly difficult to perfectly match risky assets and liabilities at extremely high levels of leverage. Ask Long Term Capital. Indeed, were it not for accounting rules that allow Fannie Mae to keep balance sheet losses out of earnings, it would be clearer to investors that last summer's 5-month duration mismatch cost Fannie nearly a year of earnings. Similar derivatives-related issues are at the core of Freddie Mac's recent difficulties. [Fannie and Freddie have each lost over 60% of their value since that piece was published].
The time to revolt is becoming a possibility folks........
If you want a general revolution, two things need to happen...
1) People who do not have a roof over their head at night. Foreclosures might be a beginning to this item.
2) People who do not have food on the table to eat. When filling the SUV with gas (to go see grandma) decimates the monthly food budget (which is already strained by rising prices), you might be on the way to this happening.
"NO CHANCE WHATSOEVER of hyperinflation here"
Hyperinflation only kicks in, when government does not have enough revenues and can not borrow, so they turn on the printing press and starts printing some cash.
I wouldn't count on hyperinflation, unless we select another "genius" into our government, both candidates seems smarter then that.
Besides, turning the printing press, would cause the opposition from FED, like it or not however those people do have certain professional dignity.
Chanting Ravi,
"Andrew Cuomo and Fannie and Freddie..."
GOSH! You mean it all wasn't the Rebooblikuds? You mean those nice care bears, the Dumborats, also had a hand in this mess? You mean both Farties are par and parcel of this mess?
Hooocoodanode!?
Cheers,
Genevieve, hon, you were lied to by a guy who claimed to have a bazooka in his pants.
wally | 09.06.08 - 1:28 pm | #
Hopefully Liz will ask what this means and we can all learn something.
"9. It is good to be Bill Gross. Bill Gross of PIMCO has been nakedly "talking his book" for the last couple of months, insisting that the Feds must bail out Fannie and Freddie. Yesterday on CNBC he explicitly said he was unable to comment on this bailout (meaning he had inside knowledge). It must be nice to get Uncle Sam to bail out bad investment decisions. You and I can't do that."
No, those were good investment decisions. One, because in the end it worked out (bailout). Two, because due to at least foreign ownership of Fred/Fannie bonds, they simply could not be allowed to fail. You think the Fed would save little Bear Sterns yet let Fred/Fannie fail? No way.
Gross did it right - the only part he got wrong was buying into Fred/Fannie a few months too early.
"I wouldn't count on hyperinflation, unless we select another "genius" into our government, both candidates seems smarter then that."
Democratic presidential nominee Barack Obama warned the elderly on Saturday that Republican rival John McCain would put their retirement income in danger.
WRAPUP 3-Obama, McCain spar over Social Security
| Reuters
You have to love the third rail of politics ain't a dime to pay for any of this crap so what is going to be the alliterative. Hummmmmmmmm
ipodius and dryfly
you guys are constructive and thoughtfull in your response suggesting we can manage this and i respect your point of view.
but i dont agree
almost every response to this problem comming from wall street and DC has been similar
the connie mae thing is truly breathtaking and resemblems mlec and other shell games...
move stuff off book or move stuff into a shell corporation, then loan the new entity money from the old entity to buy the toxic crap, then collateralize it.. blha blha blha
who the hell is gonna pay for this train wreck???
the fortune 500 companies have successfully built firewalls to protect themselves from the misfortunes of the nation...these are super-national companies
and we learned recently that nearly half pay little or no fed taxes.
you dont need me to tell ya we are in serious serious trouble
what i'm asking is what can we do...not to make a smart play in the market and make money...i already got enough money
i mean what do we do to save our country???
"Allen C writes:
"Time to stock up on 30 year Treasury bonds."
You could get hurt if investors begin to demand a risk premium."
Please - be serious. Fred/Fannie are being saved, and you think that default on Treasuries, or a hint of it would be allowed to occur?
Conjure and I are enjoying this.
Thank you.
dryfly, the hombre who ran the taco stand went back to Mexico, talked to his broker and put on a trade of long peso short Fannie.
Now he wants to buy me out.
Just sayin'...
dryfly | 09.06.08 - 12:44 pm | #
Good points but consider who is advising the US Treasury about the Fre/Fan bailout? It is Morgan and you can bet their advice will be to use the "good bank - bad bank" strategy. This will consist of the culling of performing Fan/Fre debt into a "good bank" which will then be sold to private interests(Wallstreet) at a cheap price. The bad debts will be siphoned into a "bad" bank and become the headache of the taxpayer. WallStreet can then use the "good" bank profits as an example of how the private market is superior to the public markets in allocating funds. They will use as an example the loses of the "bad" bank to demonstrate the opposite. The public will be convinced that WallStreet is the best benefactor of the mortgage market. Once WS has the monopoly, they will transfer the interest rate risk of the mortgage bond to the borrower.
Misean,
Actually the Japanese goverment still has debt from trying to save their housing market. The Japanese goverment borrowed, and it still owes.
..and who do you think they're going to come whining to when that Czar starts to really misbehave.
Oh yea, that's right. I guess that's the curse of being "exceptional."
One of Lefty's best customers about a mile from my home...
Wheelchair robber rolls in, rips off 7-Eleven
"DALLAS A wheelchair getaway at a 7-Eleven has police looking for an unusual robbery suspect. Authorities said Friday that a man in a wheelchair entered a Dallas convenience store this week, rolled straight toward the cash register and began hitting it with a baseball bat. But he didn't grab any cash. The suspect instead stole 10 boxes of condoms and an energy drink before making his getaway Wednesday afternoon, Dallas police Cpl. Kevin Janse said. Janse said the culprit may have been homeless and probably intoxicated at the time."
404 Error, No such article | Chron.com - Houston Chronicle
XMAS with Paulson & Bernanke video:
YouTube - Invasion USA: Richard Lynch Rocket Launch
Since people are talking about deflation and inflation here, let me run a rule of general application by everyone and see who agrees with it:
If you are considering acquiring an asset (e.g., care, home) and you anticipate a high inflationary environment - ceteris paribus (sp?) - , you should buy now and debt-finance, thus allowing inflation to erode the real value of your debt. [Although your lender's interest rate will reflect his assessment of the inflation risk, so you need to find a lender more bullish than you are....
If you anticipate a deflationary environment, you should instead rent or lease the asset, lend your capital at fixed rates (e.g., Treasury bills) and then pay cash once the value of the asset had fallen. (again, assuming all else remains equal).
I think everyone will agree with that. So the question becomes, what factors are most likely not to remain equal, which would invalidate these conclusions?
ipodius,
I understand that you can look at this as some basic work required to keep the wheels on the car. Fine. But back up your perspective a bit and look at the last seven years or so... don't you see the major transfers of wealth that are happening? From whom to whom? It isn't just about keeping the wheels on - it is about where the car is going and who is being taken for a ride. Personally, I know that I have been lied to by my government, cheated by major institutions and am now being lined up for a major readjustment in my future earnings potential and retirement chances.
"Gross did it right - the only part he got wrong was buying into Fred/Fannie a few months too early."
Still Gross needs to be strung up by the neck the old fashioned way. Hanged by the neck until strangulated. None of this quick break the neck nonsense. Let him swing.
GRRRRRRRRRRRR!
Cheers,
Lefty - LOL. Where are you located? I'll stop in and say hola to the new jefe.
"AllenM aka Joliet Jake writes:
Dr. D, tell me 20 years how those certificates of confiscation are holding up!
Someday this war's gonna end..."
Don't be silly, why hold them for 20 years? Buy them for appreciation then sell when rates bottom out.
Amazing how little people understand how to invest in deflation. One - get rid of debts and sell assets (I sold my house in 2005 on the last day of the bubble and paid off my debts, and sold all my stocks later in 2006), two, become a creditor to the highest quality debtor (US Govt) for the longest duration. Three, be patient, collect coupon while all other investments decline, and finally sell the bonds for capital gain.
dryfly, thanx, I'll pass that along to him.
Re: GOSH! You mean it all wasn't the Rebooblikuds? You mean those nice care bears, the Dumborats, also had a hand in this mess? You mean both Farties are par and parcel of this mess?
Misean, yes, I'm sorry to have to tell the truth, but yes, every Senator and Congresswomen is corrupt and Rome is burning, so get your marshmellows and bring out yer dead.
Misean,
The Japanese spent more than their entire GNP trying to save housing.
Where is Chuck Norris, we taxpayers need help in this war with Paulson!!!
YouTube - Invasion U.S.A. (rough Chuck Norris) - final duel
"People keep using this worthless analogy. Japan had a +20% savings rate. We were negative for several years during the bubble. There is no comparison here. The Japanese gov't mearly looted its savers. Who the f*&k is Uncle Sam gonna rob?"
Cheers,
Misean | Homepage | 09.06.08 - 1:21 pm | #
Our children!
"Still Gross needs to be strung up by the neck the old fashioned way. Hanged by the neck until strangulated. None of this quick break the neck nonsense. Let him swing."
Why? A lot of mom and pops (including me) depend on him in our 401k's and pensions. Fido doesn't give me a lot of good investment choices, PIMCO's Total Return fund is the only one, I judged, that was likely to do well through this period. So far it's been true.
mp
What is the time on the Conjure clock?
thus allowing inflation to erode the real value of your debt
This is assuming wage inflation since debts are repaid with wages and not prices.
The situation is much more fluid now than in the 70s. Like many here, I see dislocations in the future where wants become less expensive and needs become more.
As a Georgist I must say that ground rents & land valuations are the Elephant in the room here. If the cost of living goes up 50%, wages remain flat, then rents HAVE to come down, the landlord class is in line AFTER the taxman, grocer, and oilman for the money in renters' pockets.
I consider my present rent rather expensive -- $1750/mo -- but as long as the house I want to buy is declining in price by half that -- and it is -- then I'm basically getting free rent now.
Re: What is the time on the Conjure clock?
YouTube - Puppet Playtime-Howdy Doody intro
Inflation, deflation, stagflation, who knows?
The one certainty is that at the end of the day the average American will be poorer.
"What is the time on the Conjure clock?"
The Conjure clock melted down a few weeks ago.
Sorry.
Troy-
Thanks. You're right that I assume wage inflation. So if there is price inflation but not corresponding wage inflation, I guess the advice would be, what? Buy the asset but don't eat?
"The Conjure clock melted down a few weeks ago."
Must have been those cheap China batteries Conjure put in that thing.
"Conservative" blog watch...
Please to report that Redstate.com put something up this morning. Also FreeRepublic put a link up to WP article as breaking news.
Malkin, HotAir, LGF... still nothing... even the LGF open thread. I suppose you can figure out which right-side blogs are "neocon" or not... probably all of them are neocon.
orangeman,
Yes, at this point...but they began under good savings...we are the fit hitting the sahn at not quite such a point.
Cheers,
Actually, the Conjure Clock was melted down by events, as Conjure said it would be.
The clock was powered by events.
"What is the time on the Conjure clock?"
i remember last march when conjure rightly said it was very close to midnight
then rod bernanke serling stepped in and took us on a voyage of time and the imagination
since then all clocks have stopped and droop over the edges of the table like those in a salvador dali painting
does anybody really know what time it is...does anyone care?"
. Up thread someone mentioned 'derivatives' - I don't know how they are wrapped into this but my guess is they are wrapped around Freddy & Fannie axles pretty tight. Considering the tangled mess that is derivative markets - no wonder they're scared of this 'uncertainty'. So try to end the uncertainty ASAP.
occ report -
OCC: OCC's Quarterly Report on Bank Derivatives Activities
Derivative contracts remain concentrated in interest rate products, which comprise 79% of total
derivative notional value. The notional value of credit derivative contracts, 99% of which are credit
default swaps, increased 4% during the quarter to $16.4 trillion.
in a jsp back mort program, all rates should be equal, killing the swaps maret, theoretically
Why read RedState? Or DailyKos for that matter, on financial matters? In finance, I'm not trying to decide who to vote for. I'm trying to inform my financial decisions. Why do partisans needs a partisan take on their finance? That's like me as a Catholic asking the Pope's advice on whether I need a prostrate exam.
We're seeing more traffic in our stores today.Sales aren't up that much but people are picking up and looking at our items and asking questions.We are stocked and ready.We are in this for the long haul and will be here when needed.
Chanting Ravi,
"Misean, yes, I'm sorry to have to tell the truth, but yes, every Senator and Congresswomen is corrupt and Rome is burning, so get your marshmellows and bring out yer dead."
DEER IN HEADLIGHTS...NOOOOOOOOOO!
Bring out your dead:
YouTube - Monty Python-Bring out your dead!
Cheers,
Maybe you should try to live in some EU country and see it for yourself.
Save it AlphaBeta. I studied and ran a business in the EU zone so I know exactly from where I speak. Your anti-american tinged comments may cow some, but I've been there and know better. You're full of hot air just like Trichet.
margin call you are on the money there. you do not buy anything in this evironment, which makes it worse. but that's what this move is intended to stop. in housing anyhow. make it cheap again to buy, and people will.
mt, how do we save ourselves? actually, even though people on this board are wailing and gnashing teeth, i think the Fed and the Treasury are doing a great job...my slip notwithstanding. you see, in the end, it's the full faith and credit of the US. and that means everything here. it's something even the EU doesn't have.
yesterday, costco in olympia wa had Christmas lights and such on display and for sale...earliest i've ever seen it
Margin,
Mainly to see if this economical meltdown news had made it into the political consciousness. All the partisan bastard cheerleaders that only care if their party wins (what, is that 50% of the country now?) read those blogs... but I doubt many of them read the financial blogs.
I'm not getting financial news from those sites, just looking at how much news has leaked over. Now, if only the news can make it into US Weekly or People...
I will vote against any republican communist who pretends to be a capitalist.
mt,
"does anybody really know what time it is...does anyone care?"
YouTube - Chicago - Does Anybody Really Know What Time It Is?
Cheers,
Conjure says, "The stage is now set for the next leg down."
"i think the Fed and the Treasury are doing a great job"
Tool.
BWAHAHAHAHAHAHAHAHAHAHAHAHHAHAHAHAHHAHAHAHAHHAHAHAHAHAH!
Cheers,
XMAS is almost here:
It's A Wonderful Life bank run
Blimey
[during the run on the bank] You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house...right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his slums and paying the kind of rent he decides. Joe, you lived in one of those Potter houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that broken-down shack? Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments? You didn't lose your house, did you? Do you think Potter would have let you keep it? Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains. Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other.
"Treasury are doing a great job...my slip notwithstanding. you see, in the end, it's the full faith and credit of the US."
What if Europe,Russia,Central Asia, and Iran get together on the Euro and decide to back it with something of real value, like oil. I gotta think oil is worth more than the full faith and credit of the US
Nothing new here. Go read some history about the end of empires. Turmoil will happen. Paradigms will shift. Life will continue.
We all are living a turning point in America's history. We'll get used to a lower standard of living and someone else in charge.
Revolution? Just accelerate the process with many innocent deaths. Why? Because I can't drive my SUV or live in a 4000 sq ft house. How about we all accept and try to stabilize our local communities. Live simpler.
The golden rule has always been in effect through history. The man with the gold makes the rules. They've been destroyed and replaced over and over.
Conjure says, "The stage is now set for the next leg down."
But the stool only has three legs to begin with, and one is longer than the others
Wait, that should read:
The money's not here. Your money's in mp's house...right next to miseans. And in the Tanta house, and Mrs. CR's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Paulson gets hold of this Building and Loan there'll never be another decent house built in this town. He's already got charge of the bank. He's got the bus line. He's got the department stores. And now he's after us
It's obvious the Middle East, Chinese, and Russians and whatever foreign countries own our debt are going to force us to bail them out; than when we can't anymore they will slit our throats.
"make it cheap again to buy, and people will"
Sorry, Ipodius, but there are two parts to that: price and finance costs. Problem is: fix one and wreck the other and vice versa. Backing Fannie and Freddie does not fix the house price bubble, it extends it. Fixing the house price bubble kills Fanie and Freddie. Worst choice of all? Well, that would be fixing the banks foreign governments that hold F&F while letting both price and finance go to hell.
Misean
thanks for the link!!
mock turtle
Now Jas is starting to sound sane.
Good or Bad,
"We'll get used to a lower standard of living and someone else in charge."
time to start blogging squirrel recipes again.
Cheers,
anon, what is oil priced in? who holds a lot of dollars? answer those questions and that's the end of the discussion. no one is moving to euros. it still isn't clear if the eurozone will even hold together through all of this. And, i beleive, Trichet may have just sowed the seeds of a potential break with his policy that is just punitive to certain countries.
what is the euro backed by in the end? the full faith and credit of...italy? Germany? France? Spain? Or the belief that they won't spilt or return to their own currency? Be real.
then when we can't anymore they will slit our throats.
or take title to our stuff. How much are the pinks for Alaska & Hawaii worth, anyway?
republican are TRAITORS | 09.06.08 - 1:58 pm | #
I will vote against any republican communist who pretends to be a capitalist.
RAT
look i lean left
i believe that repubs have been a tad bit more responsibile for this shit than dems cause the repubs alwys want to end oversight and regulation
but
as chanting ravi pointed out in the village voice article
there are dems that bear a lot of responsibility for this crisis...i would say many dems
we gotta get off of the left and right kick and start identifying the congressman and women who have stood up for the sheeple, and they ARE out there
this could be the start for a new party bringing together people like Ron Paul and Dennis Kuchinich...
two guys who have differences but each has NEVER sold out for personal gain...thats the point
ChantingRavi- "Your money's in mp's house"
Your money isn't in my house and I don't owe you, or anyone else, a goddamned thing.
Not even the time of day.
Sorry.
the guest,
I always thought Jas sounded sane. It was the delivery that was the problem.
mt,
Chanting Ravi,
This is not my beautiful house....
YouTube -
Cheers,
chanting
outrageous
thanks
Next leg down, then the next, and so on....
I visualize it as similar to building where the floors are falling from top to bottom. One floor slams, more weight than can be held, then those 2 slam...bam bam bam till the ground is hit.
I know I should be upset and riled over the
Frannie n Freddie Travelling Roadshow but I cant quite find it in me. Too tired trying to dodge finacial debris.Too tired watching others on higher floors than me frittering away their time instead of getting to a safer spot. Ha, tired of arguing with customers over already deflated and discounted room rates at a clean n safe motel. (There is some deflation for ya!)
Now the point for rumbly anger is gone, long gone. Now it is time for prairie-doggin and rubber-neckin: Sticking your head out just far enough to see what the outside is doing and ogling at the explosions then getting back to cover.
Sorry, Ipodius, but there are two parts to that: price and finance costs. Problem is: fix one and wreck the other and vice versa.
No not at all here! Price,right now, isn't the issue. The prices have come down and will still a bit more. But they will stop coming down if you bring the people out there that are just waiting to buy into the game with financing that works. That's the name of the game here. People don't buy on price, they buy on MONTHLY PAYMENT. don't think like an expert. think like j6p in the burbs...what's my payment? And that is about FINANCE.
That's why this is the absolutely correct move now. It is critical to keep the mortgage markets flowing and damn the torpedos. If it's done right, and the GSE's take GOOD loans, all will work out if they are busted into pieces and sold off to investors. That's the endgame here. And, frankly, the people that will take the haircut now will be more than happy to be in on that game when it happens as money will be made.
Margin Call,
If you want to take advantage of inflation by borrowing and buying, you need to invest in something like toilet paper, not houses.
The main reason house prices are high is because of cheap credit. Without cheap credit, interest rates will soar and house prices will be under major downward pressure. Since inflation will quickly lead to higher interest rates, house prices will stagnate or decline at the same time that toilet paper and gasoline prices are soaring.
Margin Call,
If you want to take advantage of inflation by borrowing and buying, you need to invest in something like toilet paper, not houses.
The main reason house prices are high is because of cheap credit. Without cheap credit, interest rates will soar and house prices will be under major downward pressure. Since inflation will quickly lead to higher interest rates, house prices will stagnate or decline at the same time that toilet paper and gasoline prices are soaring.
Interesting that WaPo and NYT have conflicting reports on whether the preferred will be punished in this scenario. Are the highly-placed sources telling the two big papers different things on purpose, to keep everyone guessing until the last minute?
The preferred stock is a big deal because so many banks hold so much of it. Some of those banks already have a problem or two with their balance sheets, from what I've been reading here.
I'm a taxpayer and I hate the thought of my hard-earned dollars being used to help someone with more money than me. But I also hate the thought of the financial system collapsing. That would hurt the taxpayer too. Duh.
Sorry mp, that story always confuses me and I never know who is selling and who is buying.
Also, what we need is a good war to get us out of this mess! I mean, another war maybe, and then we could forgive this subprime debt and Iraq and just repackage this mess into a a really big world war, maybe a few nukes, reduce populations, re-invent banking, etc
DrChaos,
The typical unemployment in your average EU country has been several points higher then here. The unemployment among young people has been even more striking.
It is quite important to have some perspective instead of being fooled by quoted statistics. It is not the unemployment rate that matters but the employment rate.
Clouds on Horizon: Joy over Falling German Unemployment May Soon Fade - SPIEGEL ONLINE - News - International
"... At 69 percent, the country's [Germany] employment rate is slightly higher than the OECD average of 67 percent, but still well below its best performers -- countries like Iceland, Switzerland, Denmark and Norway, all of which have employment rates of 75 percent or greater. ..."
You may want to check, but the U.S. employment rate just hit ~61%. So much for the U.S. "advantage".