The urge to resist huge write-off is written into bankers' genes. If you give them a way to delay a write-off, they surely would.
In Japan, resist they did...
The bubble popped in 1990.
In 1998, Japanese banks finally started writing down bad loans. They did only because the finance ministry finally dangled a government-financed bail-out plan in front of their noses.
The government poured in an astronomical sum of tax-yen, arranged shotgun marriages among banks (many highly polygamous), and forced massive restructuring. By 2002, the banking
system seemed to be coming out of the life support...well, almost.
Then, Resona, the fifth largest bank, started failing in 2003, necessitating a very costly government takeover.
Would this be our predicament? Are we on Moral Hazard Express train heading toward the Tax-Dollar Bailout station?
"Regulators, meanwhile, were caught off guard by how quickly the proposal became public."
i think this is a recurring theme that regulators, Wall St, and gov't officials have underestimated. due to the power of the internet and blogs like this, intelligent and inquisitive people can gain access to so much more knowledge than ever before. i think these people are just now coming around to this fact and have been used to being able to take their sweet time in screwing the public.
idoc - In this case we should give most of the credit to the WSJ and they got the news from one or more regulators who wanted it 'out there' because the Countrywide & NR runs scared the holy shit out of 'em.
I read that article and there are two conflicting statements there:
"structured investment vehicles it manages after selling $20 billion in assets since the midsummer credit crunch."
Well, that's no different from the stuff the two European funds had to do - sounds like C has the same problem.
"Citi SIVs have in the past week or so been able to sell "many billions of dollars" of short-term debt known as commercial paper "to top-tier-name institutions." He wouldn't give details, and declined to quantify the extent of losses, if any, on the asset sales."
OK.. this would suggest some strength but how come the word "rollover" wasn't used - and no details, nor how many millions.
I've seen far too much "economical with the truth" behavior in the US financial community to buy this shit.
Sounds like a snow job - ( oops wrong blog this isn't a politico one and the sins of the late( job not on this earth) Bush press secretary aren't germane here.
There is no saving us from the recession that we have already entered. Once the job losses kick in, then the defaults will really start to happen. So far the sound we have heard is only the fat lady clearing her throat.
And for any of you who have a hard time with calendars, this staving off is supposed to last for 9 weeks. Woopee. Like the credit crunch will be totally history by then, ya know? Fer sure...
OT: but it resolves a puzzle.. Y'all no doubt recall Sheila Bair's - Chairman of the FDIC - proposal for fixing the "mortgage market problems" - viz. fix the rate of the 2/28, 3/27 ARM rates to to the teaser rate. It seemed lunacy, ill thought out - she's come out with a opinion column in the NY Times:
Excerpts:
"...
looking at the poor lending standards and weak consumer protections at the root of the problem in particular, the troubling loans called 2/28 and 3/27 subprime hybrids....
...
Renegotiating terms loan by loan is too costly and time consuming. Servicers have modified only one percent of these mortgages that reset in early 2007.
So subprime servicers should take a more standardized approach: restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but cant afford the reset payments. Convert these to fixed-rate loans at the starter rate.
This would be no bailout.
...
"
She IS nuts. In what sense is setting an ARM to the starter rate NOT a bailout ? My reading of the starter rates on offer ( and I did look at the blandishments before rejecting them ) was 2%, 3%.
In her defence she states that the starter rates were 7% and these wil reset higher(she says as much as 12%). Any data backing this ? Certainly my recollection of the stuff on the mortgage websites that I was reading in 2004, 2005 was 2%, 3%.
It seems nuts to even suggest something like this, regardless of the teaser/starter rate issue. The fact that she dares - that its an OP-ED, that she is the Chairman of the FDIC ! Nuts.
CR - not sure which 'excellent' article you reference. Yes, I'm wondering when FDIC will staff up (again) or does it think Ms.Bair can set interest rates for the masses as an easy way out of this mess? She sure is green that one.
Well I doubt your explanation. I don't think the oil companies are that determined to help the GOP. I think you are a bit paranoid. My answer would be that the price will zoom up once the cheaper gas has moved through and out of the system. Thus the answer lies in how rapidly that will happen.
Oil refining margins are really low--the refinery specialists, not big oil, are the ones that are probably hurting (Western refining, Valero etc.). Before long gas will go up at least above 3.00, imo.
Why does Citi keep referring to their assets as being sold at distressed prices?
Maybe, just maybe, the prices reflect the true value of the assets.
Citi reminds me of people who bought internet stocks for $100 and refused to sell at $50 because they felt the stocks were really worth $100. Just wait it out and the price will recover to it's true price of $100. Of course, in hindsight, they should have sold at $50 when the price dropped to $0.32.
I know how we can stop this mess. We let China set up banks here in the US and refinance the homeowners at 2%. They have tons of US dollars laying around!
And since we kept hearing about how great globaltization is why just let the factory jobs go, lets let the wall street bankers see what it`s like to lose out to China!!!
A blanket restructure would also require and immediate mark down on all subject tranche's.
Somewhere, someone is forgetting that checks were cut 'in full' for the sales price, that there was a lender involved....
I think that someone is Ms bair
sorry, don't buy it. Top tier institutions, ya like the treasury dept. I smell a rat. SEC chasing down CFC...they should go take a look at C. Something rotten lies there.
I think traditionally all ARMs come out with a starter rate that is somewhat below the ultimate rate calculation, but is usually based on short-term rates.
Then, over the last few years, we've seen those ridiculous teaser rates, as low as 1-2%. Those usually do not last for the same duration, if you read the fine print on these, some only last a month or two.
She seems to be talking about the first case.
It is a bailout of the borrowers, but it's a bailout of the borrowers financed by the lenders and securitizers who ripped them off in the first place.
If she could make it happen, it seems about the most equitable and fair solution.
How many of us want to see vacant houses in our neighborhoods just to satisfy some self-righteous idea of economic justice?
I love that it's treated as some sort of novel invention that the bankers "hatched" the idea of borrowing short and lending long. It's banking 101. Wow, running a mismatched book, but highly levered and with crappy assets, why didn't I think of that?
I had to go back and find this story...it is priceless:
Long-Term became arrogant due to its success and eventually leveraged $4 billion into $100 billion in assets. This $100 billion became collateral for $1.2 trillion in derivatives exposure! With this kind of financial leverage even the most minute market move against you can wipe you out several times over. Talk about financial weapons of mass destruction! This risk did not deter Long-Term, though.
Finally in 1998, Russia defaulted on its bonds- many of which Long-Term owned. This default stirred up the worlds financial markets in a way that caused many additional losing trades for Long-Term.
By the spring of 1998, LTCM was losing several hundred million dollars per day. What did LTCMs brilliant financial models say about all of this? The models recommended waiting out the storm.
By August 1998, LTCM had burned through almost all of its $4 billion in capital. At this point LTCM tried to exit its trades, but found it impossible, as traders all over the world were trying to exit as well.
With $1.2 trillion dollars at risk, the economy could have been devastated if LTCMs losses continued to run its course. After much discussion, the Federal Reserve and Wall Streets largest investment banks decided to rescue Long-Term. The banks ended up losing several hundred million dollars each.
What became of Long-Terms founders? Were they jailed or banned from the financial world? No. They went on to start another hedge fund!
According to the 2nd article cited by CR, SIV's differ from Conduits because the banks are not required to fully cover the fund's debt in the SIV.
Well great, just how much of the fund's debt is any given bank required to fund? What is hiding in the bank conduits, what is the value thereof and how much has been lost?
Too much leverage on assets that are very overvalued. Somehow, I do not think that this will end well.
Oh great. I can go to bed without nightmares now. Thanks CR!
I think I have seen the future of Citi's SIVs:
LOLcats takes on ARMS
NY Times - Banks' Plan to Help May Itself Need Help...
MARKET PLACE; Banks' Plan To Help May Itself Need Help - NY Times
FT - The Right Direction for Credit
Ratings Agencies...
FT.com / Comment / Opinion - The right direction for credit ratings agencies
The urge to resist huge write-off is written into bankers' genes. If you give them a way to delay a write-off, they surely would.
In Japan, resist they did...
The bubble popped in 1990.
In 1998, Japanese banks finally started writing down bad loans. They did only because the finance ministry finally dangled a government-financed bail-out plan in front of their noses.
The government poured in an astronomical sum of tax-yen, arranged shotgun marriages among banks (many highly polygamous), and forced massive restructuring. By 2002, the banking
system seemed to be coming out of the life support...well, almost.
Then, Resona, the fifth largest bank, started failing in 2003, necessitating a very costly government takeover.
Would this be our predicament? Are we on Moral Hazard Express train heading toward the Tax-Dollar Bailout station?
"Regulators, meanwhile, were caught off guard by how quickly the proposal became public."
i think this is a recurring theme that regulators, Wall St, and gov't officials have underestimated. due to the power of the internet and blogs like this, intelligent and inquisitive people can gain access to so much more knowledge than ever before. i think these people are just now coming around to this fact and have been used to being able to take their sweet time in screwing the public.
Beyonce - You musta just lost yo mind
YouTube
- NEW!!!! Beyonce - Lost Yo Mind
Idoc
What Hath Blog Wrought
idoc - In this case we should give most of the credit to the WSJ and they got the news from one or more regulators who wanted it 'out there' because the Countrywide & NR runs scared the holy shit out of 'em.
I read that article and there are two conflicting statements there:
Well, that's no different from the stuff the two European funds had to do - sounds like C has the same problem.
OK.. this would suggest some strength but how come the word "rollover" wasn't used - and no details, nor how many millions.
I've seen far too much "economical with the truth" behavior in the US financial community to buy this shit.
Sounds like a snow job - ( oops wrong blog this isn't a politico one and the sins of the late( job not on this earth) Bush press secretary aren't germane here.
-K
Great News!!!
Citi has stated it will remain solvent for the next 83 days!!!
The Super SIV will save them in 90 days. Hope nothing happens in the 7 days from day 83 to day 90.
Mark
I hope they rot
Oops, it is late here. My math was off.
Great News!!!
Citi has stated it will remain solvent for the next 73 days!!!
The Super SIV will save them in 90 days. Hope nothing happens in the 17 days from day 73 to day 90.
Mark
Consumer debt will leak past this dam like a SIV.
There is no saving us from the recession that we have already entered. Once the job losses kick in, then the defaults will really start to happen. So far the sound we have heard is only the fat lady clearing her throat.
FT -Superfund seeks more backers - only Wachovia has publicly joined Cit, BofA and JPMorgan..meeting Thursday night...
FT.com / Financials - Superfund seeks more backers
A Fiendishly Ingenious Confidence Scheme
Conglomerate Blog: Business, Law, Economics & Society
NEWSWEEK - Protecting Paulson's Pals - The subprime collapse didn't bother the Bush administration until Wall Street bankers started whimpering.
Gross: Protecting Paulson's Pals | Newsweek Voices - Daniel Gross | Newsweek.com
And for any of you who have a hard time with calendars, this staving off is supposed to last for 9 weeks. Woopee. Like the credit crunch will be totally history by then, ya know? Fer sure...
Dollar futures hit $90 tonite.
Asia Times - Not so benign neglect- Q&A w/Clamity Poole...
Asia Times Online :: Asian news and current affairs - Not so benign neglect
Sorry, it's late and I should have written OIL futures hit $90 tonite and the DOLLAR reached another low. Good night all.
OT: but it resolves a puzzle.. Y'all no doubt recall Sheila Bair's - Chairman of the FDIC - proposal for fixing the "mortgage market problems" - viz. fix the rate of the 2/28, 3/27 ARM rates to to the teaser rate. It seemed lunacy, ill thought out - she's come out with a opinion column in the NY Times:
OP-ED CONTRIBUTOR; Fix Rates to Save Loans - NY Times
Excerpts:
"...
looking at the poor lending standards and weak consumer protections at the root of the problem in particular, the troubling loans called 2/28 and 3/27 subprime hybrids....
...
Renegotiating terms loan by loan is too costly and time consuming. Servicers have modified only one percent of these mortgages that reset in early 2007.
So subprime servicers should take a more standardized approach: restructure all 2/28 and 3/27 subprime hybrid loans for owner-occupied homes in cases where the borrower has been making timely payments but cant afford the reset payments. Convert these to fixed-rate loans at the starter rate.
This would be no bailout.
...
"
She IS nuts. In what sense is setting an ARM to the starter rate NOT a bailout ? My reading of the starter rates on offer ( and I did look at the blandishments before rejecting them ) was 2%, 3%.
In her defence she states that the starter rates were 7% and these wil reset higher(she says as much as 12%). Any data backing this ? Certainly my recollection of the stuff on the mortgage websites that I was reading in 2004, 2005 was 2%, 3%.
It seems nuts to even suggest something like this, regardless of the teaser/starter rate issue. The fact that she dares - that its an OP-ED, that she is the Chairman of the FDIC ! Nuts.
-K
FFDIC, that is an excellent article. This credit situation seems to be getting worse by the day ...
Best to all.
CR - not sure which 'excellent' article you reference. Yes, I'm wondering when FDIC will staff up (again) or does it think Ms.Bair can set interest rates for the masses as an easy way out of this mess? She sure is green that one.
When is $90 oil going to start affecting gasoline prices? Gasoline is still cheap, relatively, here in Tucson.
Oil August 21st $69
Oil October 17th $88
Gas August 21st $2.77 (US average)
Gas October 17th $2.80 (US average)
!!!
James you keep asking that same question and I keep saying after the election.
FFDIC
Well I doubt your explanation. I don't think the oil companies are that determined to help the GOP. I think you are a bit paranoid. My answer would be that the price will zoom up once the cheaper gas has moved through and out of the system. Thus the answer lies in how rapidly that will happen.
Oil refining margins are really low--the refinery specialists, not big oil, are the ones that are probably hurting (Western refining, Valero etc.). Before long gas will go up at least above 3.00, imo.
Why does Citi keep referring to their assets as being sold at distressed prices?
Maybe, just maybe, the prices reflect the true value of the assets.
Citi reminds me of people who bought internet stocks for $100 and refused to sell at $50 because they felt the stocks were really worth $100. Just wait it out and the price will recover to it's true price of $100. Of course, in hindsight, they should have sold at $50 when the price dropped to $0.32.
I know how we can stop this mess. We let China set up banks here in the US and refinance the homeowners at 2%. They have tons of US dollars laying around!
And since we kept hearing about how great globaltization is why just let the factory jobs go, lets let the wall street bankers see what it`s like to lose out to China!!!
A blanket restructure would also require and immediate mark down on all subject tranche's.
Somewhere, someone is forgetting that checks were cut 'in full' for the sales price, that there was a lender involved....
I think that someone is Ms bair
sorry, don't buy it. Top tier institutions, ya like the treasury dept. I smell a rat. SEC chasing down CFC...they should go take a look at C. Something rotten lies there.
sk,
I think traditionally all ARMs come out with a starter rate that is somewhat below the ultimate rate calculation, but is usually based on short-term rates.
Then, over the last few years, we've seen those ridiculous teaser rates, as low as 1-2%. Those usually do not last for the same duration, if you read the fine print on these, some only last a month or two.
She seems to be talking about the first case.
It is a bailout of the borrowers, but it's a bailout of the borrowers financed by the lenders and securitizers who ripped them off in the first place.
If she could make it happen, it seems about the most equitable and fair solution.
How many of us want to see vacant houses in our neighborhoods just to satisfy some self-righteous idea of economic justice?
Were those seller financed sales?
None of this SIV super fund floundering matters. The value of the underlying collateral has no where to go but DOWN.
So much denial and delusion...it boggles the mind.
I love that it's treated as some sort of novel invention that the bankers "hatched" the idea of borrowing short and lending long. It's banking 101. Wow, running a mismatched book, but highly levered and with crappy assets, why didn't I think of that?
isnt this SIV thing just like the brady bonds?
I want to see the video of Chuckie Prince Breakdancing when he got the news.
The market seems to think the SuperFund may be a flop and is pricing credit swaps accordingly
SIV Concerns Trigger Worst Week for Credit in Three Months - Bloomberg.com
I had to go back and find this story...it is priceless:
Long-Term became arrogant due to its success and eventually leveraged $4 billion into $100 billion in assets. This $100 billion became collateral for $1.2 trillion in derivatives exposure! With this kind of financial leverage even the most minute market move against you can wipe you out several times over. Talk about financial weapons of mass destruction! This risk did not deter Long-Term, though.
Finally in 1998, Russia defaulted on its bonds- many of which Long-Term owned. This default stirred up the worlds financial markets in a way that caused many additional losing trades for Long-Term.
By the spring of 1998, LTCM was losing several hundred million dollars per day. What did LTCMs brilliant financial models say about all of this? The models recommended waiting out the storm.
By August 1998, LTCM had burned through almost all of its $4 billion in capital. At this point LTCM tried to exit its trades, but found it impossible, as traders all over the world were trying to exit as well.
With $1.2 trillion dollars at risk, the economy could have been devastated if LTCMs losses continued to run its course. After much discussion, the Federal Reserve and Wall Streets largest investment banks decided to rescue Long-Term. The banks ended up losing several hundred million dollars each.
What became of Long-Terms founders? Were they jailed or banned from the financial world? No. They went on to start another hedge fund!
I copied this from here:
Mish's Global Economic Trend Analysis: Genius Fails Again
And this is pause for relection:
The Market For Lemons
Am I the only one who doesn't get it? The article says Citi secured 80B in funding. From who???
According to the 2nd article cited by CR, SIV's differ from Conduits because the banks are not required to fully cover the fund's debt in the SIV.
Well great, just how much of the fund's debt is any given bank required to fund? What is hiding in the bank conduits, what is the value thereof and how much has been lost?
Too much leverage on assets that are very overvalued. Somehow, I do not think that this will end well.