I'm all for NOT investing in weak banks, they should be allowed to fail. But I think that with current conditions, given some leadership and a little prodding, strong banks will begin lending. We need to focus the program on those in the middle; they are the ones that need help.
It will be interesting to see down the road if we'll be able to look back and say with confidence that Krugman was awarded his prize as payment for services rendered or if it was just meant to give him a super boost of credibility.
These Bush/Paulson idiots still can't learn fast enough. They are going to this meeting to negoiate with the bankers so that the equity injection can be beneficial to the bankers on terms they desire.
Look at what the Brits did. Quite different. Included the right to change management.
The 3 p.m. meeting is being called while most of the banking chiefs are in Washington for meetings of the World Bank and the International Monetary Fund.
Can the little people listen in on this one, too? Because I want to hear if Paulson is going to protect his buddies this time around.
If Paulson is meeting with these guys to 'encourage' their participation, then the program will fail. There will still be no balance sheet transparency. The biggest move the government can make now is a government audit of what's on the books now. Only then, will there be progress.
From what I am reading, common stock will not be diluted. I am outraged by this. No one else seems to be? Taxpayers put up big fight for bailout but are rolling over on this one.
Headline: Citigroup Drops Bid to Block Wachovia Sale, Presses Ahead With $60 Billion Suit for Damages
I'm looking forward to see how this turns out. I believe America can sue its way to prosperity. Lawsuits may be the new bubble. Citi should securitize their lawsuits: back them with the proceeds of judgments, slice them into tranches, package them up into Lawsuit Backed Securities (LBSes) and sell them off to investors.
"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital."
Healthy institutions......yea ok.
That statement is wrong on so many levels I don't even know where to begin.
exactly, joe. don't invite them to ask for their input, invite them and tell them 'this is the deal, beotches. take it or leave it.' when the only other option to not taking it is to go tango uniform, guess what happens....
Gates Predicts `Significant Recession,' More Job Loss (Update1)
By John Lauerman
Oct. 13 (Bloomberg) -- Microsoft Corp. founder Bill Gates III said that the U.S. economy is headed for a ``fairly significant recession,'' and that the unemployment rate may peak at more than 9 percent.
warrants typically pay some wild -ass dividend. They don't technically dilute common shares however any and all positive cash flow will be taken and paid out to the preferred shareholder. I can see them doing a deal that allows the payment to be returned back to the institution in the form of more warrants and that will be spun as a positive but it really will amount to cost averaging down IMO.
Once they're all in the room together, the doors should be bolted shut. Let them all starve to death--put that on tv--let the masses rejoice-justice is coming to the true evils. These men have destroyed the country--done more harm than bin Laden. Oh, make sure to invite Greenspan.
Yes, but will this help keep: housing unaffordable, good jobs out our nation, and debt levels high? All of those are key parts of the "strong economy" we've enjoyed for years now! Hahahaha...
Ugh... infinite credit = infinite inflation. This is not going to end well!
The program will only work if there's change in management and shareholder cram downs. Like AIG. Otherwise, all you have is poor management getting cash and hoping they can use it to dig themselves out. Just look at Paulson himself. A Wall Street CEO who has been clueless in dealing with this.
To those who doubt Krugman's ability as an economist...
"Some years ago I was at a Festschrift conference for Jagdish Bhagwati at Columbia--Paul's teacher at MIT and himself a frequently mentioned name in connection with the Nobel prize. One of the speakers was Paul Samuelson. Now the usual drill on such occasions is to toast the man of the moment with a combination of wit and eloquence. I don't recall if Samuelson even mentioned Bhagwati. What I recall is that Samuelson spent his whole time on a detailed exegesis of Paul's work on trade. I should have known then that if the Nobel committee were to give another prize in international trade, it would go to Krugman. "
The Treasury's noncallable preferred equity position and 10% guaranteed return along with their in-the-money warrants (just like Buffet) will reduce the deficit. Win-win.
The Treasury's noncallable preferred equity position and 10% guaranteed return along with their in-the-money warrants (just like Buffet) will reduce the deficit. Win-win.
Only as long as they continue to pay the vig, I mean 10% dividend. I'd love to see what the consequences of stopping the dividend are going to be.
I sort of see what you're saying however doesn't the Treasury have to put a little more skin in that game? Buffet's deal was really just licensing his name to a warrant for later purchase.
Of course, everyone sees now that there's no oversight at all. It's all what Paulson wants to do. No congressional input and that's just fine with them.
There can be no "voluntary" choice here. Governments do not tolerate competition. Once any banks accept the offer, the others will be coerced into doing so to "protect" the government's "investment". You can't have more privately held banks drawing off the best customers, leaving the government banks with the less profitable ones.
If Paulson was really interested in transparency (as he has said he was), this meeting would be televised live. It would be good for country to know that Treasury only is concerned with about a handful of giant banks that are all-too ready to collude to save their asses. This meeting would be illegal under a government that took anti-trust/open competition seriously.
But Paulson's only disregarding the US law, so under Bush that doesn't count.
What greater imprimatur than Treasury seeing value in an equity investment? What greater guarantee? If that isn't at least as good as a buffet investment we have far greater problems than interbank lending freezes.
Insurance costs money. Treasury participation is insurance. We need to charge, a lot IMO, else the moral hazard is multiplied.
But Paulson's only disregarding the US law, so under Bush that doesn't count.
JimPortlandOR | 10.13.08 - 12:12 pm | #
Paulsonis to banks as Cheney is to energy.
Speaking as a plumber -- now after Rodrik's 4th party endorsement, we should probably not doubt Krugman's ability as an economist, but we should definitely remain skeptical of the whole ratings game. The "Nobel" prize in economics is the ultimate Moody's AAA. And we've seen where those AAA's can lead, haven't we pilgrim.
ScoProLaw writes:
Corey,
That is American ingenuity right there. Especially since I graduate law school in a few months.
ScoProLaw | 10.13.08 - 12:08 pm | #
It's true genius if he can perform the LBS on both sides (securitize Wells' position and net risk to zero, making money hand over fist on fees.)
I'm all for pumping money into healthy banks. But how about banks that didn't purchase the garbage the others did. Like BB&T, for example. Make them a bigger bank with solid management already in place.
Paulson & Bernanke have managed to have the whole world shouldered the deleveraging of bad assets. Imagine the untangling of all those bets and swaps among banks if there were no support. The US can't undo its own weapons of mass financial destruction. But a sinking US economy would suck along almost everyone else. The world were in a bind with "Damn if you do and Damn if you don't" dilemma. They can blame the US all they want but they have agreed to participate in this dollar hegemony system and this is the price to pay. Rumor that a new financial architecture for the world (Bretton Wood III) is being discussed.
@A man walks into a bank, someone shouts, "get down, give me all your money." It's the teller.
LOL. I see the comic strip being more like Paulson standing behind the teller desk with a gun pointed at a shaking customer: "put it in the bag and you won't get hurt."
B/c that would affect him and his Wall Street buddies. It really is that simple. He had no problem taking out AIG/FRE, etc. It's not notions of free capitalism.
Tranche Coat Mafia writes:
Why isn't Paulson following the British lead?
Seats on the board, ability to change management? No way. I'm thinking after Paulson's announcement on the finalized plan, financials will go through the roof, for a day or two.
The Alt-A train is already here. Alt-A loans go bad not because of their resets (which are generally to reasonable rates) but because the majority are fraudulent (cash-out on inflated appraisal) or near-fraudulent (the borrow can't pay and must constantly HELOC to stay in). The outright frauds are already defaulted and the HELOC-fueled speculation is collapsing fast.
Subprime defaults were driven by resets, because the resets were to usurious levels. People are expecting other loans to default on resets, but since other types generally don't have the ridiculous reset rates, they generally won't be much affected by resets. Other bad loans will go for different reasons. Alt-A mostly goes either right away or when the market turns down. Pay-option will go away when the option to underpay is exhausted and the loans recast (starting now and over the next few years).
LOL. I see the comic strip being more like Paulson standing behind the teller desk with a gun pointed at a shaking customer: "put it in the bag and you won't get hurt."
Man-moth | 10.13.08 - 12:19 pm | #
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market. There will be a disconnect soon between Wall St. and Main St. As the average joe will be struggling holding on to his job, the financial market with taxpayer money will be laying down the foundation for the next growth phase.
I saw that Anonymous but how will that help the scam market? Sounds like a lot of "feel good" BS.
"They include a temporary tax credit for companies that create new jobs in the United States over the next two years; penalty-free withdrawals from some retirement accounts and a 90-day foreclosure moratorium for homeowners who are living in their homes and making good-faith efforts to pay their mortgages."
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market.
I note that "not fighting the fed" has produced not-so-great returns since announcement of their alphabet soup.
Will someone please explain why it is ideologically acceptable for Singapore et al. to nationalize U.S. banks but the US can't do the same?
It's like 2% ideology and 98% corporate interests. Ours is neo-liberal, corporate driven economy. In addition to being annoying, the Main Street argument is a farce. Main Street left a long time ago and WalMart, Dunkin' Donuts, etc. moved in. If you think that will change with a Democratic president, don't get your hopes too high.
Looks like Hank may have been reading our posts here at Calculated Risk. If so, it will appear to the world that he his knowledge has moved forward about 3 weeks into the future, and that he has gained about 50 IQ points. He would move from being the bright guy who was trying to help the bankers to a brilliant guy who might do something useful for all of us.
I have the funny feeling a few dozen small to medium banks will be gone over the weekend. Guess who gets to buy them? The people Hank wants to give preferred shares to. If so, I'm just fine with that. Give money to good management. Fire bad management. Send dishonest and fraudulent management to jail.
It's not just a fine morality tale, it's a good way to regulate an economy.
You bulls are whistling past the graveyard. The fed is not putting in a bottom. In case you haven't noticed, they just fired their last bullet and are impotent. God help us when their efforts fail, in the same vein as all previous actions they have taken.
This is a technical rally, and was overdue. Medium to long term, the trend will continue down.
Where did all these rabid bulls come from, anyway?
Sorry for the crabbiness. But the spectre of a bunch of a-holes whose entire econmic experience ranges from A to barely-B* and whose myopia was responsible for the crisis are getting together to sort it out just threw me over the edge.
Their "leader" especially gets me. Y'know about the most the most disgusting thing I've heard for a long time that didn't have the name "Dick Cheney" attached was Paulson refusing to become TS unless he got a tax waiver for his blind-trust conversion.
For christ's sake. He, when people actually thought he was a financial genius, was asked to put that gift into the service of his country and he balked because his net worth would be like 500 million instead of 750 million.
And you think of all those grunts sweating in out in Iraq for sh*t money.
Anyway, Things Are Different (or maybe more correctly Things Never Were Like We Thought They Were) and these people are the last to even have a chance of figuring that out, let alone fixing it.
It's just the echoes of Upton Sinclair again, you can't get a man to understand something when his paycheck depends on him not understanding it. Of course it doesn't have to be a current paycheck, or even a paycheck at all. But do you think anybody could ever convince Angelo Mozilla (sp) that what he did at Countrywide wasn't worth 400 million dollars?
No, he could not and never would be able to face that. Same as these overpaid clowns. They will try to rework Reality until it tells a story in which they were still properly compensated.
Meanwhile things will get worse.
Now I have to apologize for the length. At least the crabby posts were easy to scroll over.
*I tried to come up with a "AAA to junk" joke but couldn't work it out.
I'm very confused. Where is all this money coming from?
After the bail-out bill was passed, the Fed suddenly had a ton more cash to play with. And the government must be sweetening the pot for all of the shotgun weddings. Fannie and Freddie got marching orders to buy $20B each of mortgages. And the Treasury has all its doors and windows open. Toxic asset purchases, bank investments, tax forbearance, etc., etc.
Why do I get the sense that the $700B - which supposedly has not been distributed yet - is already overdrawn? Is there any way of following all these money trails?
This thing can't have much for legs right? After all about $4T to $6T has been destroyed in paper market wealth with the drop of the market. It is just not there to pump back into the market and get prices up again. There will be some movers with cash but there is no possible way they can pump it back up to 14,000 short of years, where can anyone find that much cash to pump in?
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market. There will be a disconnect soon between Wall St. and Main St. As the average joe will be struggling holding on to his job, the financial market with taxpayer money will be laying down the foundation for the next growth phase.
Anonymous | 10.13.08 - 12:31 pm
I don't care what hand waving you do. Short of another fraudulent speculative bubble market wall st can't soar while main st suffers a bad recession/depression.
The Euro lead is pressuring the Bushies. Their plan will be to do as little as possible to weaken investor control, while doing enough to limit arbitrage between US and Euro. They do not want board seats, or meaningful oversite (will Cox be assigned to regulate?). They will prop up Citi, GS and MS, and design a system to channel $ to their hedge fund buddies. Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?
a MacArthur Award.... excellent idea, and quite plausible because CR deserves it and because CR has received increasingly good and wide publicity. CR fits the bill of what MacArthur says they want to promote.
Paul Krugman would know how to do that. MacArthur has Princeton connections.
Also, anyone can go to the MacArthur website, pull their address, and write them a letter.
"Anonymous writes:
The Euro lead is pressuring the Bushies. Their plan will be to do as little as possible to weaken investor control, while doing enough to limit arbitrage between US and Euro. They do not want board seats, or meaningful oversite (will Cox be assigned to regulate?). They will prop up Citi, GS and MS, and design a system to channel $ to their hedge fund buddies. Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?"
I would not rule out Congress stepping in again, either.
And whatever the Bush/Paulson boys do will have a limited shelf life. Their number is up in Jan 2009, unless the country elects Palin to be the new President.
Undoubtably MacArthur scouts have been here. There are also a fair number of people who know who CR is. Regardless, everyone can email CR and google MacArthur. I approve this message. BTW the guidelines for the scouts are extremely clear. IF they were here they couldn't say.
Hangin' Tree. Mob assembled. Last-minute reprieves only for swan song, last rites, and the futile "I will rise again" refrain. Countdown on elevated feet and crooked neck.
@ Anonymous, who writes:
"Congress won't do diddly squat except push for a stimilus plan."
Maybe, but I think there is a political logic to Congress following up on Paulson's heels if either continues to fumble or gives Wall St too much of a sweetheart deal or both.
Paulson represents the lamest dead duck administration ever. If Paulson does anything that stirs waters or continues to let markets plunge, the political pressure to jump down Bush's/Paulson's throat will be irresistable.
No one in Congress wants to be associated with Bush/Paulson. No one.
Bush/Paulson could wring the last drops out of their executive powers over the past month because of the onset of the crisis. Now, they need reciprocate with some positive movement. Without that, their well of executive power is going to be increasingly dry, and the politics of the country and the crisis will free Congress to speak out. In fact, it will practically compel Congress to get up on its hind legs and scream.
Congress won't be able to design a new rescue plan. that has to come from the executive. But they will skewer Paulson.
In the worst case, the system melts down during the next two months but we all get a whiff and a taste of roasted Paulson.
Instead of talking about Nobels and MacArthurs, we should be discussing Olbermann's worst person of the day. Paulson is an obvious choice, but he could only win once a week. How about calling it the Greenspan award?
Instead of talking about Nobels and MacArthurs, we should be discussing Olbermann's worst person of the day. Paulson is an obvious choice, but he could only win once a week. How about calling it the Greenspan award?
Icelanders, whose per capita gross domestic product is the fifth highest in the world, according to the United Nations 2007/2008 Human Development Index, will have to tighten their belts.
It's enough to have the credit crisis,'' he said.Then you have the currency crash. Unfortunately, we have shown that we can't handle it ourselves.''
This situation really has been a bit troubling for people,'' she said.They don't know what's going to happen.''
Bwahahahaha. Don't know why that's funny. Gallows humour. Won't happen here in the USA though. Far too rich, far too wise, far too important.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)
joe, I think you're too optimistic. Congress has spoken and that Congress is Democratic. The bill that was passed precludes any need for Congress to step in.
Somewhat OT: from an MS 'investment advisor' I know. Sweet girl.
We're doing fine, thanks for asking. Unfortunately, only MS's stock price was taking on water - this market has shown how a company with a perfectly good and conservative balance sheet can be driven down by fear and ambiguity in the market. (As well as short traders). Our book value as of Friday was at $31 per share, and we traded at $9 per share. Our deal with Mitsubishi was consummated at $25 per share which is a bargain for them. If anyone were to have bought us for $9 it would have been criminal. We always knew the Mitsubishi deal would happen, it was just a matter of waiting for the Federally-mandated waiting period. Rumors and speculators, as well as very well-respected analysts' reports, highlighed incorrect negative information which investors fed off of. I'm excited to see us survive this and come out stronger than before!
EU Nations Commit 1.3 Trillion Euros to Bank Bailouts EU Nations Commit 1.3 Trillion Euros to Bank Bailouts (Update3) - Bloomberg.com
Oct. 13 (Bloomberg) -- France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.
We're doing fine, thanks for asking. Unfortunately, only MS's stock price was taking on water - this market has shown how a company with a perfectly good and conservative balance sheet can be driven down by fear and ambiguity in the market. (As well as short traders). Our book value as of Friday was at $31 per share, and we traded at $9 per share. Our deal with Mitsubishi was consummated at $25 per share which is a bargain for them. If anyone were to have bought us for $9 it would have been criminal. We always knew the Mitsubishi deal would happen, it was just a matter of waiting for the Federally-mandated waiting period. Rumors and speculators, as well as very well-respected analysts' reports, highlighed incorrect negative information which investors fed off of. I'm excited to see us survive this and come out stronger than before
She forgot to mention the Fed GUARANTEE that the Japanese wont lose out on their preferred investment...
Jas:
I am most sympathetic to the point of view that ruling class exploits the masses including the talented and educated ones. From your own admission, you once belonged to the latter group; the way you got out apparently was by seeing first hand the fraud committed by the ruling class. The vast majority of people including most university professors are unlikely to see the fraud first hand. Instead of dismissing them as born and bred dopes, it would be nice if you suggest ways by which they can see the fraud and rise against it.
RE: "Paulson Calls Meeting of Bank Chiefs"
There is only one way to stop the American people from being victimized by the "Tranche Coat Mafia" :
Amend the constitution to allow citizens to represent themselves in the US House of Representatives (i.e. Direct Democracy). This can be done using currently existing technology. Citizens who prefer to have reps speak for them can continue to do so. Citizens who want to directly vote on House Bills will have their votes counted as a fraction of the total votes cast in the district during the election.
Asl Hearts
"The bill that was passed precludes any need for Congress to step in."
I don't think that bill precludes anything, especially not "need" should political opportunities and pressures practically demand that Paulson be turned into a punching bag.
Paulson's only protection has been that in a crisis any rescue can only come from the executive branch. That protection could easily vanish. It is diminishing just because the clock is running out. Add to that more dawdling or anthying that is too obviously fishy . . . .
And remember that Congress built a role for itself into the bailout legislation: the money gets doled out in installments.
The cost to the taxpayer will be higher than anyone can imagine, even now. Much of the costs will be hidden, though. Exemptions to tax rules; fair value of future returns; ongoing fed funding. Etc.
Amend the constitution to allow citizens to represent themselves in the US House of Representatives...
Oh come on. You're talking about an electorate that not only elected this administration - but RE-ELECTED it as well. Letting these same voter clowns direct access to the legislative machinery would result in an even bigger mess than we already have.
Little fishys congratulating themselves on the feeding frenzy created by the sudden surging currents; and in being in place ahead of peers for advantage. They keep congratulating themselves through the breach and throughout the freefall to the rocks below.
I'm a rich, superclever Roman. I can buy off those barbaric Northern hordes crashing the gates.
Blaming Bush means blaming a majority of the American people. A majority of the American people are responsible for electing Bush, and the others, myself included, carry responsiblity for not being able to defeat him.
All this blame is scaled according to power. Some are more responsible than others. But, to some degree, the whole country is responsible, and all must pay (though that should be scaled, too)
Blaming Bush means blaming a majority of the American people.
You need to amend your statement to be "a majority of voters", which is not a majority of the people. Come to think of it, it wasn't even a majority of voters either.
62,040,610 in 2004 (more than Kerry, but a sliver of the 197,005,000 registered voters), 50,456,002 in 2000 (fewer than Al Gore, and under 30% of the 186,366,000 registered voters).
I'll ask again: If the bailout switches from buying toxic debt to investing in banks, who are the winners and losers? What are the risks?
If the banks live, then taxpayers are the winners, and current equity holders are the losers. If the banks ultimately fail anyway, then this switch does not really change anything: both the taxpayers and the equity holders are hosed as they were.
if you want to argue this way, then you make my case that the country as a whole is responsible. So many stayed home and did not vote, the opposition could not run an effective campaign, Bush wins.
Bush winning is all that mattered. Imagine the hypothetical scenario in which Bush gets us in a war with Russia, which can attack the US as well as the US can attack Russia. Will you try to explain to the incoming ICBMs that you did not support Bush? Too late. We are represented by Bush. We share responsibility in the moment for what happens . . . in the moment. Longer term, our responsibility also comes with the chance to change things.
It doesn't matter if it's a majority of potential voters or majority of actual voters or simply a majority of penguins-without-fins. Bottom line - the American electorate as a whole re-elected these jackasses.
There is zero evidence to suggest they'd be any better at doing actual legislative work and a whole lot of evidence they'd do appreciably worse.
Negligent homicide isn't the same as premeditated murder, even if the result is the same.
If you believe that the two major parties are the same except in particulars (demonstrably true based on the way the bailout essentially sailed through congress), then there are certainly plenty of reasons to not bother showing up at the polls (or at least not checking a box for president, plenty of people vote but may or may not vote on every race).
System was broken, still is broken, and Bush was at the helm. Bush is either evil or the sort of incompetent that reliably results in the worst possible conclusion. That doesn't mean that we wouldn't be standing in the same place with Kerry as president, even if the markets possibly wouldn't drop 200 points every time he stood up and made a speech.
This shit is beyond the actions of one person, but it isn't "our" collective responsibility by a long shot. A handful of extremely greedy people pushed things in directions that benefited them personally, and here we are, handing them more money.
Good grief! As smart as most of you seem to be, you still don't get it. "Equity" for the taxpayers is a charade no matter how you structure it. The government cannot make good on bad debt by issuing more debt.
Even if you get your wishes and the government gets equity and voting shares for its "capital" injection (borrowed, by the way), banks surviving is no benefit to the tax payer. All that will have happened is that the bad debt is now on a balance sheet no one has a right to examine. Tax payers get the losses no matter how you try to structure this bailout. They will get it in higher taxes, lower standards of living caused by the crowding-out effect of escalating government borrowing, and through higher inflation once the tax and borrow limits are reached, which are not far away now.
Get your heads out of the sand- there is going to be no future profits for insolvent banks, and a good argument can be made that the profits made in the last 20 years were illusary, too, and that can be seen by the plain fact of the gaping financial hole in the balance sheets.
Mr. Cloudy Day: There is zero evidence to suggest they'd be any better at doing actual legislative work and a whole lot of evidence they'd do appreciably worse.
How could it get worse? Most Americans won't have the knowledge or inclination to get involved if given direct access. But the dedicated few will use the opportunity. And they could transform our democracy.
The Peoples Central Economic Planning Ministry has dictated that there WILL be prosperity for the workers of the Republik. The Ministry has provided Happy Juice to our comrades in the Wall Street Autonomous Okrug. Bread will be available from 3:00 am to 5:00 am every day. The circus will come to your raion every year. Ponies will be given to all the good comrade boys and girls.
As a token of your appreciation, the Republikan Party will expect your favourable vote in November.
Dissenters and undesirables will be sent to the Guantanamo Gulag.
Hail and praise the fine work of Comrades Paulson and Bernanke on behalf of the United Socialist States of Amerika.
Investment Strategy. Given Obama's announcement to cash-out IRAs, we are thinking of picking one of 2 investment strategies and sticking with it indefinately. We are in our early 40s. Which do you think we be better:
A) Cash our retirement accounts penalty-free. Pay-off mortgage. Start investing for retirement from scratch, putting as much as possible into S&P500 fund only; OR
B) Sell house. Rent. Put all money into S&P500 fund only.
Who said that any or all preferreds that Treasury intends to buy are (a) non-callable or (b) perpetual? I would assume not, if "part-nationalization" of bank and industrial borrowers, a euphemism for bankruptcy protection, is to be believed to be Treasury's short-term policy objective.
And if either instrument is convertible to common shares (enjoining warrants stipulating exercise price or date) how would such contracts not dilute outstanding shareholders' equity and/or, more important, discount returns of preferred shares?
I imagine, at the least, Treasury would have to qualify borrowers' credit firstly by dividend distributions to value future dividend payments by class of commons in order to assure recovery of principal borrowed from "taxpayers". In that case, averages of 4% - 6% push breakeven far into the future.
I understand Kashkari is point-man on automating SOP and instrument classification. Is there a template somewhere on the web to confirm this understanding of federal re-capitalization or investment or what have you?
I don't recall ever seeing that level of disclosure in FRB or Treasury PR.
Why does ADIA get voting rights but not the US taxpayer?
4runner | 10.13.08 - 12:27 pm
That's what ADIA negotiated. What ADIA negotiates has NOTHING to do with what Paulson's and Congress's decrees for US "taxpayers" and Treasury's authority to "part-nationalize" NOTHING.
"I'm very confused. Where is all this money coming from?"
It is critical to separate the real economy and physical assets, from paper values. The real economy includes things like growing apples, making cars, shipping goods, providing tourism, and creating software. Real assets include houses, stores, cars, roads, and computers.
Companies have real assets like office buildings. They also have intellectual property like patents. Of course, they also have employees, who often have rather specific knowledge or skills.
When equity prices drop suddenly, usually the knowledgeable people haven't died or retired. The office buildings and factories usually haven't been destroyed (e.g., hurricane). In other words, the stuff used to make money is still in place. What has changed is usually the market's estimate of how much money can be made, or how much the assets are currently worth.
A strong credit contraction means that fewer transactions will get done, especially in the short term as companies and people start to adapt. Fewer transactions usually means less profit for companies. For consumers who have cash, it usually means better prices. For example, cars will be cheaper for people who have cash.
Over time, if the credit crunch continues, less stuff is sold but supply also drops. It drops very fast for Dell computers, because they are usually made to order. It drops a little slower for cars. Even slower for new homes. For items which are primarily resold (like existing homes), supply drops really slowly. The longer it takes to contract supply, the worst the oversupply can be and the stronger the price drops.
When prices of equity shares dropped, they dropped far more than companies' ability to make money. The people who sold put their money elsewhere, like treasuries and bank CDs. That's where the extra money is currently at.
As long as we are on the topic of who to elect, there is an interesting debate about whether to directly elect people like the Secretary of The Treasury. Some places, local treasurers are elected, some places they are appointed. Having dealt with a number of them, it seems that appointees and career civil servants are more likely to know what they are doing. However, the elected officials are more likely to make big changes. Sometimes big changes are needed.
Nemo?
Second?
i called up the treasury last week and asked for some money but they haven't got back to me yet. wtf.
I'll ask again: If the bailout switches from buying toxic debt to investing in banks, who are the winners and losers? What are the risks?
I wonder who will be Number 2, Frau Farbissina, Patty O'brien and the lot.
I would think Blankfein would be Number 2, Jamie Dimon could be Patty O'brien...maybe Vikram could be Frau.
I'll ask again: If the bailout switches from buying toxic debt to investing in banks, who are the winners and losers? What are the risks?
losers = bank shareholders and insurance companies. The latter need to unload their crap.
winners = wall street execs, who get to keep their jobs and perks.
We all know Fuld is Mustaffa.
He's already been dumped into the trapdoor fire pit.
With the Dow up 500+ points, I guess they can just celebrate with some champagne and go home. Obviously nothing else is important.
All your banks belong to us.
I wonder how voluntary it will be. Will banks that do not opt in be at a disadvantage to the others. O to be a fly on the wall and hear the details.
Hey boys, the checkbook arrived! Who wants one? Get 'em while they're hot!
And an image of piglets nestling up for a nice suckle on mama sow comes to mind...
I'm all for NOT investing in weak banks, they should be allowed to fail. But I think that with current conditions, given some leadership and a little prodding, strong banks will begin lending. We need to focus the program on those in the middle; they are the ones that need help.
It will be interesting to see down the road if we'll be able to look back and say with confidence that Krugman was awarded his prize as payment for services rendered or if it was just meant to give him a super boost of credibility.
These Bush/Paulson idiots still can't learn fast enough. They are going to this meeting to negoiate with the bankers so that the equity injection can be beneficial to the bankers on terms they desire.
Look at what the Brits did. Quite different. Included the right to change management.
The 3 p.m. meeting is being called while most of the banking chiefs are in Washington for meetings of the World Bank and the International Monetary Fund.
Can the little people listen in on this one, too? Because I want to hear if Paulson is going to protect his buddies this time around.
I guess it will be all fixed then and everyone can go home...
"Equity purchase program: We are designing a standardized program to purchase equity in a broad array of financial institutions."
Broad array will be interpreted liberally to include car manufacturers.
"Apparently Paulson is considering making equity investments in strong banks to keep them lending. This would be voluntary"
Herbert Hoover all over again. Ideology trumps good sense.
Capitalists don't voluntarily work for the greater good unless it's also in their own immediate interest -- unless there's a gun to their heads.
Considering this program is supposed to invest in "healthy" banks, it is absurd that those five are getting preferred treatment.
This is going to be some interesting game theory in practice:
Then, consider what will happen if a rival takes more or less capital than you leading to:
3a. More - they eat you with the backing of the Treasury
3b. Less - perhaps you can eat them
Overlay the entire process with,
Can't they at least invite Wilhelm Builer to talk about regulatory capture. Meetings like this are exactly what's wrong with system.
If Paulson is meeting with these guys to 'encourage' their participation, then the program will fail. There will still be no balance sheet transparency. The biggest move the government can make now is a government audit of what's on the books now. Only then, will there be progress.
From what I am reading, common stock will not be diluted. I am outraged by this. No one else seems to be? Taxpayers put up big fight for bailout but are rolling over on this one.
Headline: Citigroup Drops Bid to Block Wachovia Sale, Presses Ahead With $60 Billion Suit for Damages
I'm looking forward to see how this turns out. I believe America can sue its way to prosperity. Lawsuits may be the new bubble. Citi should securitize their lawsuits: back them with the proceeds of judgments, slice them into tranches, package them up into Lawsuit Backed Securities (LBSes) and sell them off to investors.
"As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital."
Healthy institutions......yea ok.
That statement is wrong on so many levels I don't even know where to begin.
Ciao
MS
Apparently Paulson is considering making equity investments in strong banks to keep them lending.
'strong banks'
So if all the insurance companies go under, then what?
joe shmoe | 10.13.08 - 11:49 am
exactly, joe. don't invite them to ask for their input, invite them and tell them 'this is the deal, beotches. take it or leave it.' when the only other option to not taking it is to go tango uniform, guess what happens....
What a job title - 'Interim Assistant Secretary for Financial Stability'
Is that title meant seriously, or is just the sort of thing that children playing as grown ups would imagine is adult?
Or are we to expect interim financial stability?
DAWG writes:
From what I am reading, common stock will not be diluted. I am outraged by this.
I read the same thing and don't understand how no dilution. Is it warrants that won't cause dilution but provide an equity stake?
From what I am reading, common stock will not be diluted.
Link? My guess was that it was going to be preferred with some form of conversion.
Gates Predicts `Significant Recession,' More Job Loss (Update1)
By John Lauerman
Oct. 13 (Bloomberg) -- Microsoft Corp. founder Bill Gates III said that the U.S. economy is headed for a ``fairly significant recession,'' and that the unemployment rate may peak at more than 9 percent.
ballgame-
I'm sure they will be included in the "broad array of financial institutions" part of that.
Disgusting really...
Ciao
MS
I guess we should put our money in the Paulson mututal fund -- holdings include GS, JPM, C, etc. -- short everything else.
Taxpayers robbed.
WTF ? Bear market is over in a month ?
warrants typically pay some wild -ass dividend. They don't technically dilute common shares however any and all positive cash flow will be taken and paid out to the preferred shareholder. I can see them doing a deal that allows the payment to be returned back to the institution in the form of more warrants and that will be spun as a positive but it really will amount to cost averaging down IMO.
Ciao
MS
Once they're all in the room together, the doors should be bolted shut. Let them all starve to death--put that on tv--let the masses rejoice-justice is coming to the true evils. These men have destroyed the country--done more harm than bin Laden. Oh, make sure to invite Greenspan.
Yes, but will this help keep: housing unaffordable, good jobs out our nation, and debt levels high? All of those are key parts of the "strong economy" we've enjoyed for years now! Hahahaha...
Ugh... infinite credit = infinite inflation. This is not going to end well!
No seat at the table for the boys from Wells Fargo/Wachovia?
The program will only work if there's change in management and shareholder cram downs. Like AIG. Otherwise, all you have is poor management getting cash and hoping they can use it to dig themselves out. Just look at Paulson himself. A Wall Street CEO who has been clueless in dealing with this.
To those who doubt Krugman's ability as an economist...
"Some years ago I was at a Festschrift conference for Jagdish Bhagwati at Columbia--Paul's teacher at MIT and himself a frequently mentioned name in connection with the Nobel prize. One of the speakers was Paul Samuelson. Now the usual drill on such occasions is to toast the man of the moment with a combination of wit and eloquence. I don't recall if Samuelson even mentioned Bhagwati. What I recall is that Samuelson spent his whole time on a detailed exegesis of Paul's work on trade. I should have known then that if the Nobel committee were to give another prize in international trade, it would go to Krugman. "
Dani Rodrik's weblog: Four cheers for Paul Krugman
The Treasury's noncallable preferred equity position and 10% guaranteed return along with their in-the-money warrants (just like Buffet) will reduce the deficit. Win-win.
@Rob Dawg
Explain how the banks get to fair better than AIG.FRE, etc.
Seems we are playing favorites at taxpayer expense.
You're right Dawg, but the deficit seems to be the last thing Paulson is concerned with.
The Treasury's noncallable preferred equity position and 10% guaranteed return along with their in-the-money warrants (just like Buffet) will reduce the deficit. Win-win.
Only as long as they continue to pay the vig, I mean 10% dividend. I'd love to see what the consequences of stopping the dividend are going to be.
Corey,
That is American ingenuity right there. Especially since I graduate law school in a few months.
dawg-
I sort of see what you're saying however doesn't the Treasury have to put a little more skin in that game? Buffet's deal was really just licensing his name to a warrant for later purchase.
What am I missing?
Ciao
MS
The Humpty Dumpty Bankers sat on the golden wall.
The Humpty Dumpty Bankers had a great fall.
All the governments men and the Congresss bailout legislation
Could not put Humpty Dumpty back together again.
Michael LittleBig
10-13-08
Of course, everyone sees now that there's no oversight at all. It's all what Paulson wants to do. No congressional input and that's just fine with them.
There can be no "voluntary" choice here. Governments do not tolerate competition. Once any banks accept the offer, the others will be coerced into doing so to "protect" the government's "investment". You can't have more privately held banks drawing off the best customers, leaving the government banks with the less profitable ones.
A man walks into a bank, someone shouts, "get down, give me all your money." It's the teller.
If Paulson was really interested in transparency (as he has said he was), this meeting would be televised live. It would be good for country to know that Treasury only is concerned with about a handful of giant banks that are all-too ready to collude to save their asses. This meeting would be illegal under a government that took anti-trust/open competition seriously.
But Paulson's only disregarding the US law, so under Bush that doesn't count.
To Krugman Doubter's writes:
To those who doubt Krugman's ability as an economist...
From the comment section of the same article:
It's possible that Krugman's contempt for everything Republican improved his chances. It's not like Sweden is a hotbed of conservative thinking
Posted by: IdahoSpud | October 13, 2008 at 10:38 AM
What greater imprimatur than Treasury seeing value in an equity investment? What greater guarantee? If that isn't at least as good as a buffet investment we have far greater problems than interbank lending freezes.
Insurance costs money. Treasury participation is insurance. We need to charge, a lot IMO, else the moral hazard is multiplied.
But Paulson's only disregarding the US law, so under Bush that doesn't count.
JimPortlandOR | 10.13.08 - 12:12 pm | #
Paulsonis to banks as Cheney is to energy.
Combination short rally, sucker rally, dead cat bounce.
I love this:
"attractive terms"
"healthy institutions"
Ambiguity means we can continue to make up the rules as we go.
Speaking as a plumber -- now after Rodrik's 4th party endorsement, we should probably not doubt Krugman's ability as an economist, but we should definitely remain skeptical of the whole ratings game. The "Nobel" prize in economics is the ultimate Moody's AAA. And we've seen where those AAA's can lead, haven't we pilgrim.
So when do we get to see this "standard term sheet"?
And is anyone out there willing to argue that this move will not be inflationary?
Guaranteed by whom? Are we walking around the woods in circles, here?
@JimPortlandOR
I agree. And, I wish someone who had some credentials would step up and call the Treasury on this. The silence is deafening.
Hey, has ms survived today ?
I am too sad.
ScoProLaw writes:
Corey,
That is American ingenuity right there. Especially since I graduate law school in a few months.
ScoProLaw | 10.13.08 - 12:08 pm | #
It's true genius if he can perform the LBS on both sides (securitize Wells' position and net risk to zero, making money hand over fist on fees.)
I'm buying SDS at 98 with my fun money.
"voluntary" ?
I am totally confused.
I'm all for pumping money into healthy banks. But how about banks that didn't purchase the garbage the others did. Like BB&T, for example. Make them a bigger bank with solid management already in place.
Krugman wins the prize for being on the right side of politics first and an economist second.
Right side being the winning side of course.
Paulson & Bernanke have managed to have the whole world shouldered the deleveraging of bad assets. Imagine the untangling of all those bets and swaps among banks if there were no support. The US can't undo its own weapons of mass financial destruction. But a sinking US economy would suck along almost everyone else. The world were in a bind with "Damn if you do and Damn if you don't" dilemma. They can blame the US all they want but they have agreed to participate in this dollar hegemony system and this is the price to pay. Rumor that a new financial architecture for the world (Bretton Wood III) is being discussed.
sorry my last sentence should have said 'buy future shares of stock from the warrants at a later date'
Still don't see how this is supposed to be a good thing.
Ciao
MS
You must be thinking of another, or a lot of other governments.
Not this one.
This government wants to lose so it can funnel money to the top.
"WTF ? Bear market is over in a month ?"
Sorry, it's just a rally.
@A man walks into a bank, someone shouts, "get down, give me all your money." It's the teller.
LOL. I see the comic strip being more like Paulson standing behind the teller desk with a gun pointed at a shaking customer: "put it in the bag and you won't get hurt."
Why isn't Paulson following the British lead?
The "Nobel" prize in economics is the ultimate Moody's AAA.
Your getting confused because you think economy is a science. It's more akin to the prize for literature.
Still don't see how this is supposed to be a good thing.
Remember the idiots who would buy after billion dollar writedowns were announced? They're back.
jp-
it would appear so. How can they not see that the Alt-A 'train' will need several trillion $'s to consume in a few short months?
I guess they need to do this before they can't.
Total fascism IMO.
Ciao
MS
@Tranche Coat Mafia
B/c that would affect him and his Wall Street buddies. It really is that simple. He had no problem taking out AIG/FRE, etc. It's not notions of free capitalism.
Tranche Coat Mafia writes:
Why isn't Paulson following the British lead?
Seats on the board, ability to change management? No way. I'm thinking after Paulson's announcement on the finalized plan, financials will go through the roof, for a day or two.
Will someone please explain why it is ideologically acceptable for Singapore et al. to nationalize U.S. banks but the US can't do the same?
Why don't the taxpayers want voting rights? Why don't the taxpayers want a seats on the board?
sd: I'm not confused. I would venture that it's a prize for science fiction.
Turns out the bulls were just "mostly dead."
Not many guarantees in life but I guarantee this meeting means Paulson and Friends make money off taxpayer dollars.
I love the headlines... US Stocks Rally Sharply.
I didn't know recovering from one day's loss is a huge rally, I guess it's any port in a storm.
Why don't the taxpayers want voting rights? Why don't the taxpayers want a seats on the board?
4runner | 10.13.08 - 12:23 pm
Don't confuse what paulson/banks want with what the taxpayer should get.
Pauson? Who's Paulson? We're talking about Krugman. Ok, enough silliness. Have a great day all. Let's be good to each other out there.
Dope B., on Yahoo stocks are rising dramatically, I guess like Hamlet or something.
Uncle Billy Vs. Mt. Pelerin writes:
sd: I'm not confused. I would venture that it's a prize for science fiction.
Like you said it's a prize, but altogether different from the one perceived.
Remember, Hank and co. have just 3 months to loot and rig this plan. They're going to hit this real hard
Anon,
just a bit closer to opex though...
Why does ADIA get voting rights but not the US taxpayer?
Anonymous writes:
Remember, Hank and co. have just 3 months to loot and rig this plan. They're going to hit this real hard
Wrong. He's got 3 months but the structure is being put into place for the seasons. Didn't you listen to Neel Cashcarry?
Obama wants penalty free IRA withdrawls through 2009. That's my boy!
The Alt-A train is already here. Alt-A loans go bad not because of their resets (which are generally to reasonable rates) but because the majority are fraudulent (cash-out on inflated appraisal) or near-fraudulent (the borrow can't pay and must constantly HELOC to stay in). The outright frauds are already defaulted and the HELOC-fueled speculation is collapsing fast.
Subprime defaults were driven by resets, because the resets were to usurious levels. People are expecting other loans to default on resets, but since other types generally don't have the ridiculous reset rates, they generally won't be much affected by resets. Other bad loans will go for different reasons. Alt-A mostly goes either right away or when the market turns down. Pay-option will go away when the option to underpay is exhausted and the loans recast (starting now and over the next few years).
LOL. I see the comic strip being more like Paulson standing behind the teller desk with a gun pointed at a shaking customer: "put it in the bag and you won't get hurt."
Man-moth | 10.13.08 - 12:19 pm | #
Sinfest did it with a ATM Transformer yesterday: http://sinfest.net/comikaze/comics/2008-10-12.gif
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market. There will be a disconnect soon between Wall St. and Main St. As the average joe will be struggling holding on to his job, the financial market with taxpayer money will be laying down the foundation for the next growth phase.
Wrong. He's got 3 months but the structure is being put into place for the seasons. Didn't you listen to Neel Cashcarry?
Don't mean a damn thing. Executive order throws this into the ash heap of history
I saw that Anonymous but how will that help the scam market? Sounds like a lot of "feel good" BS.
"They include a temporary tax credit for companies that create new jobs in the United States over the next two years; penalty-free withdrawals from some retirement accounts and a 90-day foreclosure moratorium for homeowners who are living in their homes and making good-faith efforts to pay their mortgages."
the order of invitation was not alphabetical.
should be this order...
bac,c,gs,jpm,ms
but C was asked last. I think this means C is next to fail.
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market.
I note that "not fighting the fed" has produced not-so-great returns since announcement of their alphabet soup.
Will someone please explain why it is ideologically acceptable for Singapore et al. to nationalize U.S. banks but the US can't do the same?
It's like 2% ideology and 98% corporate interests. Ours is neo-liberal, corporate driven economy. In addition to being annoying, the Main Street argument is a farce. Main Street left a long time ago and WalMart, Dunkin' Donuts, etc. moved in. If you think that will change with a Democratic president, don't get your hopes too high.
Ministry of Truth writes:
I saw that Anonymous but how will that help the scam market? Sounds like a lot of "feel good" BS.
Don't help the scam market by no 10% penalty helps many who have plans
Looks like Hank may have been reading our posts here at Calculated Risk. If so, it will appear to the world that he his knowledge has moved forward about 3 weeks into the future, and that he has gained about 50 IQ points. He would move from being the bright guy who was trying to help the bankers to a brilliant guy who might do something useful for all of us.
I have the funny feeling a few dozen small to medium banks will be gone over the weekend. Guess who gets to buy them? The people Hank wants to give preferred shares to. If so, I'm just fine with that. Give money to good management. Fire bad management. Send dishonest and fraudulent management to jail.
It's not just a fine morality tale, it's a good way to regulate an economy.
You bulls are whistling past the graveyard. The fed is not putting in a bottom. In case you haven't noticed, they just fired their last bullet and are impotent. God help us when their efforts fail, in the same vein as all previous actions they have taken.
This is a technical rally, and was overdue. Medium to long term, the trend will continue down.
Where did all these rabid bulls come from, anyway?
Sorry for the crabbiness. But the spectre of a bunch of a-holes whose entire econmic experience ranges from A to barely-B* and whose myopia was responsible for the crisis are getting together to sort it out just threw me over the edge.
Their "leader" especially gets me. Y'know about the most the most disgusting thing I've heard for a long time that didn't have the name "Dick Cheney" attached was Paulson refusing to become TS unless he got a tax waiver for his blind-trust conversion.
For christ's sake. He, when people actually thought he was a financial genius, was asked to put that gift into the service of his country and he balked because his net worth would be like 500 million instead of 750 million.
And you think of all those grunts sweating in out in Iraq for sh*t money.
Anyway, Things Are Different (or maybe more correctly Things Never Were Like We Thought They Were) and these people are the last to even have a chance of figuring that out, let alone fixing it.
It's just the echoes of Upton Sinclair again, you can't get a man to understand something when his paycheck depends on him not understanding it. Of course it doesn't have to be a current paycheck, or even a paycheck at all. But do you think anybody could ever convince Angelo Mozilla (sp) that what he did at Countrywide wasn't worth 400 million dollars?
No, he could not and never would be able to face that. Same as these overpaid clowns. They will try to rework Reality until it tells a story in which they were still properly compensated.
Meanwhile things will get worse.
Now I have to apologize for the length. At least the crabby posts were easy to scroll over.
*I tried to come up with a "AAA to junk" joke but couldn't work it out.
I'm very confused. Where is all this money coming from?
After the bail-out bill was passed, the Fed suddenly had a ton more cash to play with. And the government must be sweetening the pot for all of the shotgun weddings. Fannie and Freddie got marching orders to buy $20B each of mortgages. And the Treasury has all its doors and windows open. Toxic asset purchases, bank investments, tax forbearance, etc., etc.
Why do I get the sense that the $700B - which supposedly has not been distributed yet - is already overdrawn? Is there any way of following all these money trails?
As part of the oversight that Mr Paulson said he welcomed, I hope that congress is represented at this meeting.
Anyone know how to nominate CR for the MacArthur Fellows program, aka "genius grant"?
Hey Fs. Do we know who CR is ?
You cant nominate screen names to awards
This thing can't have much for legs right? After all about $4T to $6T has been destroyed in paper market wealth with the drop of the market. It is just not there to pump back into the market and get prices up again. There will be some movers with cash but there is no possible way they can pump it back up to 14,000 short of years, where can anyone find that much cash to pump in?
Don't fight the FED as Allan M, a regular here, often warns. The FED and its other counterparts worldwide have just laid the floor for this Bear market. There will be a disconnect soon between Wall St. and Main St. As the average joe will be struggling holding on to his job, the financial market with taxpayer money will be laying down the foundation for the next growth phase.
Anonymous | 10.13.08 - 12:31 pm
I don't care what hand waving you do. Short of another fraudulent speculative bubble market wall st can't soar while main st suffers a bad recession/depression.
The Euro lead is pressuring the Bushies. Their plan will be to do as little as possible to weaken investor control, while doing enough to limit arbitrage between US and Euro. They do not want board seats, or meaningful oversite (will Cox be assigned to regulate?). They will prop up Citi, GS and MS, and design a system to channel $ to their hedge fund buddies. Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?
sdtfs
a MacArthur Award.... excellent idea, and quite plausible because CR deserves it and because CR has received increasingly good and wide publicity. CR fits the bill of what MacArthur says they want to promote.
Paul Krugman would know how to do that. MacArthur has Princeton connections.
Also, anyone can go to the MacArthur website, pull their address, and write them a letter.
Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports - Bloomberg.com
Iceland dies of ice after scorching fire.
Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?
It will hold for 3 months
I agree with this Anonymous:
"Anonymous writes:
The Euro lead is pressuring the Bushies. Their plan will be to do as little as possible to weaken investor control, while doing enough to limit arbitrage between US and Euro. They do not want board seats, or meaningful oversite (will Cox be assigned to regulate?). They will prop up Citi, GS and MS, and design a system to channel $ to their hedge fund buddies. Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?"
I would not rule out Congress stepping in again, either.
And whatever the Bush/Paulson boys do will have a limited shelf life. Their number is up in Jan 2009, unless the country elects Palin to be the new President.
Undoubtably MacArthur scouts have been here. There are also a fair number of people who know who CR is. Regardless, everyone can email CR and google MacArthur. I approve this message. BTW the guidelines for the scouts are extremely clear. IF they were here they couldn't say.
How long before the side blows out of the last Greenspan bubble in US treasuries is what I want to know. We gotta be getting close.
I would not rule out Congress stepping in again, either.
Congress won't do diddly squat except push for a stimilus plan.
Wow--imagine representing our interests in this room. Oh wait, don't have to imagine, just ask Exxon.
What does Kashkari mean when he satates that we will invest in strong banks?
And whom may that be??? Goldman???
How about some transparency please?
Hangin' Tree. Mob assembled. Last-minute reprieves only for swan song, last rites, and the futile "I will rise again" refrain. Countdown on elevated feet and crooked neck.
Nothing against CR, but I'd nominate Tanta for the MacArthur Fellowship.
There are three criteria for selection of Fellows:
exceptional creativity CHECK.
promise for important future advances based on a track record of significant accomplishment GOD I HOPE SO.
and potential for the fellowship to facilitate subsequent creative work. A BOOK? A MINISERIES? A BRICOLAGE?
Some stil think Nemo is CR
Just as long as he tells everyone else when the Fed is buying their stock...then we will all benefit from it.
i think conjure is CR
@ Anonymous, who writes:
"Congress won't do diddly squat except push for a stimilus plan."
Maybe, but I think there is a political logic to Congress following up on Paulson's heels if either continues to fumble or gives Wall St too much of a sweetheart deal or both.
Paulson represents the lamest dead duck administration ever. If Paulson does anything that stirs waters or continues to let markets plunge, the political pressure to jump down Bush's/Paulson's throat will be irresistable.
No one in Congress wants to be associated with Bush/Paulson. No one.
Bush/Paulson could wring the last drops out of their executive powers over the past month because of the onset of the crisis. Now, they need reciprocate with some positive movement. Without that, their well of executive power is going to be increasingly dry, and the politics of the country and the crisis will free Congress to speak out. In fact, it will practically compel Congress to get up on its hind legs and scream.
Congress won't be able to design a new rescue plan. that has to come from the executive. But they will skewer Paulson.
In the worst case, the system melts down during the next two months but we all get a whiff and a taste of roasted Paulson.
The sovereigns are now the bagholders.
Instead of talking about Nobels and MacArthurs, we should be discussing Olbermann's worst person of the day. Paulson is an obvious choice, but he could only win once a week. How about calling it the Greenspan award?
Instead of talking about Nobels and MacArthurs, we should be discussing Olbermann's worst person of the day. Paulson is an obvious choice, but he could only win once a week. How about calling it the Greenspan award?
back on topic,
I don't know why any strong banks would choose to participate in this.
Unless we're talkin' "strong banks" like Downey Savings and Loan Association, National City, BB&T and BankUnited FSB. Then, yeah.
The treasury will be the next sovereign. It won't be apparent for about a month.
Ciao
MS
Schnaps
There is CR the blog, and CR the Blogger.
The MacArthur should go to people for the blog, and that would mean CR the person and Tanta, together.
What do y'all think about this 500 point rally?
Icelanders, whose per capita gross domestic product is the fifth highest in the world, according to the United Nations 2007/2008 Human Development Index, will have to tighten their belts.
It's enough to have the credit crisis,'' he said.Then you have the currency crash. Unfortunately, we have shown that we can't handle it ourselves.''
This situation really has been a bit troubling for people,'' she said.They don't know what's going to happen.''
Bwahahahaha. Don't know why that's funny. Gallows humour. Won't happen here in the USA though. Far too rich, far too wise, far too important.
Paulson must be STOPPED!
mp-
Just downloaded Conjure's paper.
Gracias.
What do y'all think about this 500 point rally?
I think people who thought I was the next Sebastian on Friday should STFU, that's what I think.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)
joe, I think you're too optimistic. Congress has spoken and that Congress is Democratic. The bill that was passed precludes any need for Congress to step in.
Somewhat OT: from an MS 'investment advisor' I know. Sweet girl.
We're doing fine, thanks for asking. Unfortunately, only MS's stock price was taking on water - this market has shown how a company with a perfectly good and conservative balance sheet can be driven down by fear and ambiguity in the market. (As well as short traders). Our book value as of Friday was at $31 per share, and we traded at $9 per share. Our deal with Mitsubishi was consummated at $25 per share which is a bargain for them. If anyone were to have bought us for $9 it would have been criminal. We always knew the Mitsubishi deal would happen, it was just a matter of waiting for the Federally-mandated waiting period. Rumors and speculators, as well as very well-respected analysts' reports, highlighed incorrect negative information which investors fed off of. I'm excited to see us survive this and come out stronger than before!
EU Nations Commit 1.3 Trillion Euros to Bank Bailouts
EU Nations Commit 1.3 Trillion Euros to Bank Bailouts (Update3) - Bloomberg.com
Oct. 13 (Bloomberg) -- France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.8 trillion) to guarantee bank loans and take stakes in lenders, racing to prevent the collapse of the financial system.
I see your 700B and raise you 1100B.
50% retrace from the low, went long last Friday, looks like it'll be time to go short next Friday.
exit-
Book value.....tired old argument.
I'll put that along with the CFC rep who called me and said it's stock was a great buy at $22.
Ciao
MS
Similar WAG, massive pump into opex, check out the maximum pain point on just about any stock...yikes if you are writing options.
Change over from FDIC Friday...to Sovereign Default Saturday. First up, Iceland. Next, Turkey?
Some guy who should have won the Nobel prize :
Bloomberg News
Conjure will soon begin construction of his new Sovereign Deathwatch List.
We're doing fine, thanks for asking. Unfortunately, only MS's stock price was taking on water - this market has shown how a company with a perfectly good and conservative balance sheet can be driven down by fear and ambiguity in the market. (As well as short traders). Our book value as of Friday was at $31 per share, and we traded at $9 per share. Our deal with Mitsubishi was consummated at $25 per share which is a bargain for them. If anyone were to have bought us for $9 it would have been criminal. We always knew the Mitsubishi deal would happen, it was just a matter of waiting for the Federally-mandated waiting period. Rumors and speculators, as well as very well-respected analysts' reports, highlighed incorrect negative information which investors fed off of. I'm excited to see us survive this and come out stronger than before
She forgot to mention the Fed GUARANTEE that the Japanese wont lose out on their preferred investment...
Jas:
I am most sympathetic to the point of view that ruling class exploits the masses including the talented and educated ones. From your own admission, you once belonged to the latter group; the way you got out apparently was by seeing first hand the fraud committed by the ruling class. The vast majority of people including most university professors are unlikely to see the fraud first hand. Instead of dismissing them as born and bred dopes, it would be nice if you suggest ways by which they can see the fraud and rise against it.
RE: "Paulson Calls Meeting of Bank Chiefs"
There is only one way to stop the American people from being victimized by the "Tranche Coat Mafia" :
Amend the constitution to allow citizens to represent themselves in the US House of Representatives (i.e. Direct Democracy). This can be done using currently existing technology. Citizens who prefer to have reps speak for them can continue to do so. Citizens who want to directly vote on House Bills will have their votes counted as a fraction of the total votes cast in the district during the election.
MOAB
Mother of All Bounces?
Asl Hearts
"The bill that was passed precludes any need for Congress to step in."
I don't think that bill precludes anything, especially not "need" should political opportunities and pressures practically demand that Paulson be turned into a punching bag.
Paulson's only protection has been that in a crisis any rescue can only come from the executive branch. That protection could easily vanish. It is diminishing just because the clock is running out. Add to that more dawdling or anthying that is too obviously fishy . . . .
And remember that Congress built a role for itself into the bailout legislation: the money gets doled out in installments.
The cost to the taxpayer will be higher than anyone can imagine, even now. Much of the costs will be hidden, though. Exemptions to tax rules; fair value of future returns; ongoing fed funding. Etc.
Amend the constitution to allow citizens to represent themselves in the US House of Representatives...
Oh come on. You're talking about an electorate that not only elected this administration - but RE-ELECTED it as well. Letting these same voter clowns direct access to the legislative machinery would result in an even bigger mess than we already have.
Little fishys congratulating themselves on the feeding frenzy created by the sudden surging currents; and in being in place ahead of peers for advantage. They keep congratulating themselves through the breach and throughout the freefall to the rocks below.
I'm a rich, superclever Roman. I can buy off those barbaric Northern hordes crashing the gates.
...remember that Congress built a role for itself into the bailout legislation: the money gets doled out in installments.
Yeah, that worked real well in containing costs in Iraq, too.
"What do y'all think about this 500 point rally?"
IMHO: it's just a rally on the larger trend down.
Cloudy Day
Yet again, we agree.
Blaming Bush means blaming a majority of the American people. A majority of the American people are responsible for electing Bush, and the others, myself included, carry responsiblity for not being able to defeat him.
All this blame is scaled according to power. Some are more responsible than others. But, to some degree, the whole country is responsible, and all must pay (though that should be scaled, too)
but C was asked last. I think this means C is next to fail.
nope. that list is the too big to fail list.
Blaming Bush means blaming a majority of the American people.
You need to amend your statement to be "a majority of voters", which is not a majority of the people. Come to think of it, it wasn't even a majority of voters either.
Cloudy
Well, we disagree here:
Mr. Cloudy Day writes:
...remember that Congress built a role for itself into the bailout legislation: the money gets doled out in installments.
Yeah, that worked real well in containing costs in Iraq, too.
.....
big difference between the Iraq War appropriations and the bail out bill.
war appropriation are done on the fiscal year, pegged to time and not to oversight.
the bailout is pegged to oversight.
with the war, there was no oversight because there was no effective political will to push back against Bush and the war.
Now, with the bail out, Bush is a dead duck, Paulson is scorned, and both parties are ready to jump on their asses at the drop of a hat.
very different situations.
rally? Sure it's a rally however
Signal to Noise
YouTube - Peter Gabriel - Signal to Noise (Live)
Ciao
MS
Minority.
62,040,610 in 2004 (more than Kerry, but a sliver of the 197,005,000 registered voters), 50,456,002 in 2000 (fewer than Al Gore, and under 30% of the 186,366,000 registered voters).
Paulson to Banks:
All your banks are belong to us.
I'll ask again: If the bailout switches from buying toxic debt to investing in banks, who are the winners and losers? What are the risks?
If the banks live, then taxpayers are the winners, and current equity holders are the losers. If the banks ultimately fail anyway, then this switch does not really change anything: both the taxpayers and the equity holders are hosed as they were.
We're doomed.
Comrade Peronista writes:
We're doomed.
Only a question of sooner or later.
J.Goodwin
if you want to argue this way, then you make my case that the country as a whole is responsible. So many stayed home and did not vote, the opposition could not run an effective campaign, Bush wins.
Bush winning is all that mattered. Imagine the hypothetical scenario in which Bush gets us in a war with Russia, which can attack the US as well as the US can attack Russia. Will you try to explain to the incoming ICBMs that you did not support Bush? Too late. We are represented by Bush. We share responsibility in the moment for what happens . . . in the moment. Longer term, our responsibility also comes with the chance to change things.
I wonder if BAC will re-negotiate its MER purchase. It should.
It doesn't matter if it's a majority of potential voters or majority of actual voters or simply a majority of penguins-without-fins. Bottom line - the American electorate as a whole re-elected these jackasses.
There is zero evidence to suggest they'd be any better at doing actual legislative work and a whole lot of evidence they'd do appreciably worse.
American electorate had its chance in '92 and '96 and blew it. The guy with the big ears, funny talk and flip charts was right on.
joe,
Negligent homicide isn't the same as premeditated murder, even if the result is the same.
If you believe that the two major parties are the same except in particulars (demonstrably true based on the way the bailout essentially sailed through congress), then there are certainly plenty of reasons to not bother showing up at the polls (or at least not checking a box for president, plenty of people vote but may or may not vote on every race).
System was broken, still is broken, and Bush was at the helm. Bush is either evil or the sort of incompetent that reliably results in the worst possible conclusion. That doesn't mean that we wouldn't be standing in the same place with Kerry as president, even if the markets possibly wouldn't drop 200 points every time he stood up and made a speech.
This shit is beyond the actions of one person, but it isn't "our" collective responsibility by a long shot. A handful of extremely greedy people pushed things in directions that benefited them personally, and here we are, handing them more money.
The SNL spoofs of Perot were classic.
Must be on YouTube . . . .
Maybe Paulson can recommend Dimon for his job? Please??
Good grief! As smart as most of you seem to be, you still don't get it. "Equity" for the taxpayers is a charade no matter how you structure it. The government cannot make good on bad debt by issuing more debt.
Even if you get your wishes and the government gets equity and voting shares for its "capital" injection (borrowed, by the way), banks surviving is no benefit to the tax payer. All that will have happened is that the bad debt is now on a balance sheet no one has a right to examine. Tax payers get the losses no matter how you try to structure this bailout. They will get it in higher taxes, lower standards of living caused by the crowding-out effect of escalating government borrowing, and through higher inflation once the tax and borrow limits are reached, which are not far away now.
Get your heads out of the sand- there is going to be no future profits for insolvent banks, and a good argument can be made that the profits made in the last 20 years were illusary, too, and that can be seen by the plain fact of the gaping financial hole in the balance sheets.
Mr. Cloudy Day: There is zero evidence to suggest they'd be any better at doing actual legislative work and a whole lot of evidence they'd do appreciably worse.
How could it get worse? Most Americans won't have the knowledge or inclination to get involved if given direct access. But the dedicated few will use the opportunity. And they could transform our democracy.
Comrades,
The Peoples Central Economic Planning Ministry has dictated that there WILL be prosperity for the workers of the Republik. The Ministry has provided Happy Juice to our comrades in the Wall Street Autonomous Okrug. Bread will be available from 3:00 am to 5:00 am every day. The circus will come to your raion every year. Ponies will be given to all the good comrade boys and girls.
As a token of your appreciation, the Republikan Party will expect your favourable vote in November.
Dissenters and undesirables will be sent to the Guantanamo Gulag.
Hail and praise the fine work of Comrades Paulson and Bernanke on behalf of the United Socialist States of Amerika.
what strong banks there aren't any. They are all insolvent. Just more waste of tax payer money. They should be nationalizing them outright
Investment Strategy. Given Obama's announcement to cash-out IRAs, we are thinking of picking one of 2 investment strategies and sticking with it indefinately. We are in our early 40s. Which do you think we be better:
A) Cash our retirement accounts penalty-free. Pay-off mortgage. Start investing for retirement from scratch, putting as much as possible into S&P500 fund only; OR
B) Sell house. Rent. Put all money into S&P500 fund only.
You can only pick one answer.
Thanks!
Who said that any or all preferreds that Treasury intends to buy are (a) non-callable or (b) perpetual? I would assume not, if "part-nationalization" of bank and industrial borrowers, a euphemism for bankruptcy protection, is to be believed to be Treasury's short-term policy objective.
And if either instrument is convertible to common shares (enjoining warrants stipulating exercise price or date) how would such contracts not dilute outstanding shareholders' equity and/or, more important, discount returns of preferred shares?
I imagine, at the least, Treasury would have to qualify borrowers' credit firstly by dividend distributions to value future dividend payments by class of commons in order to assure recovery of principal borrowed from "taxpayers". In that case, averages of 4% - 6% push breakeven far into the future.
I understand Kashkari is point-man on automating SOP and instrument classification. Is there a template somewhere on the web to confirm this understanding of federal re-capitalization or investment or what have you?
I don't recall ever seeing that level of disclosure in FRB or Treasury PR.
Yeah, what you said MS.
I can't keep up with Haloscan.
Mary,
You could try this tool that lists comments as they come in to try to keep up: Mibbit IRC client widget
Type in a name and click chat.
Or if you know about irc: irc.realize.org:9996 #calculatedrisk
Why does ADIA get voting rights but not the US taxpayer?
4runner | 10.13.08 - 12:27 pm
That's what ADIA negotiated. What ADIA negotiates has NOTHING to do with what Paulson's and Congress's decrees for US "taxpayers" and Treasury's authority to "part-nationalize" NOTHING.
Read the EESA again. The limitation is in there.
Obama wants penalty free IRA withdrawls through 2009. That's my boy!
Anonymous | 10.13.08 - 12:30 pm |
Oh, good! That will close the spread between interest earned and interest paid on public debt!
Thanks, BrianTX@SD
Perhaps I can help with some comments such as:
"I'm very confused. Where is all this money coming from?"
It is critical to separate the real economy and physical assets, from paper values. The real economy includes things like growing apples, making cars, shipping goods, providing tourism, and creating software. Real assets include houses, stores, cars, roads, and computers.
Companies have real assets like office buildings. They also have intellectual property like patents. Of course, they also have employees, who often have rather specific knowledge or skills.
When equity prices drop suddenly, usually the knowledgeable people haven't died or retired. The office buildings and factories usually haven't been destroyed (e.g., hurricane). In other words, the stuff used to make money is still in place. What has changed is usually the market's estimate of how much money can be made, or how much the assets are currently worth.
A strong credit contraction means that fewer transactions will get done, especially in the short term as companies and people start to adapt. Fewer transactions usually means less profit for companies. For consumers who have cash, it usually means better prices. For example, cars will be cheaper for people who have cash.
Over time, if the credit crunch continues, less stuff is sold but supply also drops. It drops very fast for Dell computers, because they are usually made to order. It drops a little slower for cars. Even slower for new homes. For items which are primarily resold (like existing homes), supply drops really slowly. The longer it takes to contract supply, the worst the oversupply can be and the stronger the price drops.
When prices of equity shares dropped, they dropped far more than companies' ability to make money. The people who sold put their money elsewhere, like treasuries and bank CDs. That's where the extra money is currently at.
The Federal Govt can also create as much money as they want. In cases of deflation, it is plausible that could be a good idea. See Bernanke, from before he headed the Federal Reserve, http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
As long as we are on the topic of who to elect, there is an interesting debate about whether to directly elect people like the Secretary of The Treasury. Some places, local treasurers are elected, some places they are appointed. Having dealt with a number of them, it seems that appointees and career civil servants are more likely to know what they are doing. However, the elected officials are more likely to make big changes. Sometimes big changes are needed.
As they say,if you are not at the table, then you are on the menu.
Will it work or will the Bushie Boys again be forced to fall back and adjust their strategy?
Igor: It will hold for 3 months
84 days to be exact.