The music has stopped?
Not at all:
IYF\t ISHARE DJ FIN SC INX?
Up 80 basis points after the news.
Go figure.
Good news, financial stocks go up.
Bad news, finanical stocks go up as Bernanke to bail them out.
Good news, financial stocks go up.
Bad news, finanical stocks go up as Bernanke to bail them out.
You have an entire industry today that exists solely to drive asset prices up.
You make money available to them on easy terms, and guess what they do with it?
Apparently central banks are incapable of learning, or politically powerless to do anything about it.
But history shows that bubbles relentlessly surprise to the upside, so nobody should act shocked if the Dow ends the year at 20,000. Or 5,000 for that matter.
It bothers me a little bit today to see the bond market going along with it. Maybe there's a plan behind that though...
do y'all think that the financial firms are hiding losses and these bad results are the tip of the iceberg?
or are they taking all their writedowns/chargoffs/etc all at once so that they can have one bad quarter, then start showing good numbers going forward?
when does tanta go to town on paul krugman's column re CFC?
Well, I just now read it, thanks to you.
What can I say? I have no idea why Krugman feels the need to put the Enron "wrap" on this story.
You have an overpaid CEO looting the company, a worthless board of directors, and a bubble deflating in the mortgage business. There seems to me to be a lot to be said about unsustainable business models and the perennial problem of overpaid CEOs.
But no, it has to fit into The Enron Saga. And why Krugman would hang his hat on GM's reporting beats me; I guess if you're a Times columnist you're supposed to act like the rest of the paper makes sense.
As a happy participant in the tech bubble, I can tell you that what you say is absolutely true. Living through the cleanup after the party sucks.
I was right there with you pal. But I learned my lesson. At least this time around I'm going to come away ahead with my house sold and bunch of stock related stuff (that in retrospect I sold too soon).
The daily mayhem spices up life a bit - that's what I'm referring to. But I'm full aware of the sucking part that comes at the end. It just makes me sad that people don't learn, but it gives me a perverse thrill also.
At least this time I'm prepared.
I'll be right alongside all the other asset-grabbing vultures when the time comes.
I did a pretty good job of staying ahead of it last time. But my conclusion was that it's a lot more fun to have the people around you "living large" than have them losing their houses and facing huge tax bills.
Yet there's Citi, who's stock is presently trading up.
We already know that markets can become irrational, however, I think irrational has become irrational when the obvious news is disregarded for rumor and hope.
Was Enron an immoral company, or just a scapegoat? Did it fall so fast because of wrongdoings, or was it just a run on the bank kind of thing, like the fall of 100s of mortgage brokerage firms this year? What was Enron's biggest crime - off-balance sheet accounting?? That does not seem to be a crime in this world of SIVs and conduits.
"I lost all respect for Billy Gross after he asked for government rescue of his bond funds"
The fact that he never mentions how fundamentals got so out of whack in his article is telling. Does he think that one day, a bunch of american home owners woke up and discovered that aliens had come in from outer space and made their heretofore pleasurably affordable home insanely expensive?
Wooooah, that came out of left field. I mean, who could have predicted?
The dissembling by our betters is sickening. Especially to those of us in the household formation demographic, watching boomers get free meds, free money via still-absurdly-overpriced housing, and social security that we will never see.
"Was Enron an immoral company, or just a scapegoat?"
I think you can safely say that Enron was more than just a scapegoat, or just bad accounting.
I HIGHLY recommend the book "Smartest Guys in the Room". it goes over in detail what these guys/gals were doing.
Overall, companies are Amoral, not immoral or moral. That is to say that they are out of the realm of morality... however, the actions of the executives sure can be immoral.
I would say that lying to your employees about the state of your company AND disallowing them to cash out their 401k's, while personally cashing in millions of dollars yourself is IMMORAL.
not to mention creating fake companies that did fake things, such as buy and sell assets for inflated prices to make earnings targets, verges near immoral. especially when the profits are divvied up among insiders (examples: Raptor I and Raptor II, created by Andy Fastow which hid millions in losses of Enron, while making andy and his friends rich)
at least the SIV's (purportedly) are doing real transactions... (or are they really just doing accounting tricks?)
She has also won a George Polk Award, and several of journalism's other top honors. Something you and the proprietors of this blog might want to know...
My expectation is that analysts assume that all financials will take a short accounting bath and then everything will be rosy again when the fed cuts again by year's end. It is why I moved into financials about three weeks ago with the expectation that I will see 15K soon. However, I expect that the accounting bath will be longer than expected and we will hit some trouble in March 2008 when I will be in resources again.
I just can't make any sense of this. I really have to go out and get myself some rose-tinted glasses, 'cause I'm missing something.
"U.S. stocks rallied, sending the Dow Jones Industrial Average to a record, as investors speculated the worst may be over for banks and construction companies hurt by subprime mortgage losses..."
"UBS still has $19 billion invested directly in subprime residential mortgage backed securities, an amount it is 'quite comfortable owning,' Rohner said, and some $4 billion in indirect investments. It has about $13 billion at risk in leveraged lending commitments, which have been written down 'appropriately,' the bank said."
Something you and the proprietors of this blog might want to know...
Freddy, dear, we already know that. We simply aren't convinced that having once received a Pulitzer means that a reporter is foreverafter excused from journalistic sins. It's an award, not a Papal Indulgence.
It is important to understand the differences between Enron and Countrywide. A whole lotta people would have been on the Enron story a lot faster if they had ever asked themselves basic questions about the business model--long before the accounting games came into play. Profits derived not from natural gas but from trading natural gas contracts? Enron was the first big "experiment" in a "commodity" company becoming a pure finance company. That apparently made profound sense to the analysts, who didn't mostly notice any problems until it went right up to BK.
CFC's "product" is finance. Go back and read through GM's stuff, and you see over and over how she tries to draw the worst conclusions out of normal business practices for a mortgage lender. That tells me that she's overlaying the Enron stencil, because the "lesson" we "learned" from Enron is to worry when a company makes more off financing activities than its supposed core business.
And so whatever might really be wrong with CFC's business model goes begging in terms of analysis. Wow, what a contribution to understanding the issues.
or are they taking all their writedowns/chargoffs/etc all at once so that they can have one bad quarter, then start showing good numbers going forward?
And I wonder how much of these losses even have to do with the subprime mess. Seems like an excellent opportunity to clean house.
As you recall HB's rallied last winter on the "soft landing" meme. Now we are hearing the worst is over for the financials and HB's because the FED is "on our side". Fall and winter are a great time to play pretend because the residential RE season is over so there is no real data to suggest how things are really doing. Then you have a period in the Spring and Sumer where reality hits. I do not expect anything different this go around. 2008 will not be the year of the rebound. Wall Street could push the DOW to 15000 before the bell tolls.
Jonathan L. Kempner, President and CEO of the MBA. Whether its fraud for housing or the more serious fraud for profit, people are deceiving lenders at an alarming rate, and more must be done to combat this problem.
Folks, this is NOT a "credit crisis." It's a "repayment crisis." There is plenty of credit. But as the already-bankrupt US Government sucks more and more money away from the people to pay for these wars across the globe, there is less and less money for We The People to pay our own bills. And THAT is the real root cause of the present financial disaster.
I agree that Gretchen Morgenson's line of inquiry seems based on Enron's original sin. As yet, this feels more logical than your dismissal of routine practices that weaned a business environment Jeffrey Skilling could only wet-dream about.
If only I had been able to margin stocks at 110% loan-to-value; plus kickbacks based on their target price as sworn and vouchsafed by assessors, everyman Henry Blodgets; and above all, with the airtight documentation of my good looks, I would have bought Enron stock, not just the bankrupt telecoms that handed my ass to me in 2001.
If Countrywide's business practices were routine as you say, how did it beat the competition? If legal and not lowlife, how could routine mortgage practices have yielded what this blog understandably sees as a crisis?
Hey Citicorp is going to take a big hit; just the ticket to buy lots of it. The worse it gets, the more you buy. Makes sense today in the USA, doesn't it?
If Countrywide's business practices were routine as you say, how did it beat the competition? If legal and not lowlife, how could routine mortgage practices have yielded what this blog understandably sees as a crisis?
I'm afraid this is just going to get stuck in a circular argument, but what the hell.
One specific allegation GM has made is that since CFC owns affilated businesses, and uses those affiliated businesses when dealing with foreclosures, CFC is "profiting from foreclosures." The implication is that this is "unfair."
Now, the reality of the situation is that--whether you and I like it or not--affiliated businesses have been declared legal. So just using an affiliate is not prima facie evidence of an illegal kickback.
Furthermore, CFC beats the competition by undercutting them all on price. Jesus. They're like Wal-Mart. They're huge, and they get cost concessions, and they exploit them. So in fact, it's quite possible that CFC is saving those foreclosed customers money, in a way that Mom & Pop servicer cannot and does not.
Do I know which way it is? I have never claimed to know which way it is. That's why I want GM to freakin' do the reporting on it. What are theses charges? What is the markup? How do they compare to other servicers? You have to answer those questions before you can claim unfair trade practices.
Go back and read that article I complained about: there's no evidence presented that CFC unfairly profits. Not only that, but some of the stuff she does bring up are, in fact, standard practices. There is no servicer in this country who doesn't make float income on suspense accounts. That's a fact. Don't believe me? Make some phone calls. To imply that CFC is "guilty" of something by suspending partial payments is factually absurd and logically ridiculous.
This blog has spent a lot of time trying to explain how "normal business practices" can cause a credit bubble problem. I have never said that CFC's business model isn't a problem. But it is not the only one, and it is not because they receive float income on custodial accounts. And it bloody well matters to me, because if some idiot decides we need to change the law on suspense accounts to fix this non-problem, instead of dealing with the true issues, we're doubly screwed.
The easy way out is to decide that this all must be nefarious, because if you do that, you can make a few headline busts, do a few pointless perp walks, and then everyone can go back to business as usual.
I have my eye on a whole different analysis and a whole different approach.
Tanta, as a former newspaper reporter (who didn't work for The Times, but its biz-section archrival), I'll avoid the temptation to circular argument. I will also re-read as you've asked, as we both allow time to reveal.
Understand, however, that Gretchen, who I met long ago but don't know, has probably been entrusted by her editors to chart her own course, as any good reporter must.
I think the right analogy is to liken Enron to New Century, since both have no physical assets and rely soly on liquidity.
For companies that have utility assets such as WMB, EP, DYN, AES and were implicated in enery trading scandal, they were on the verge of BK around 2002-2003. But look at the chart now, you will find what makes great investments in distressed assets.
To any investor, morality is not the right matrix, cash flow is......
first to troll..
I second it. Where is everyone?
The music has stopped?
Not at all:
IYF\t ISHARE DJ FIN SC INX?
Up 80 basis points after the news.
Go figure.
Good news, financial stocks go up.
Bad news, finanical stocks go up as Bernanke to bail them out.
Go figure....
when does tanta go to town on paul krugman's column re CFC?
Good news, financial stocks go up.
Bad news, finanical stocks go up as Bernanke to bail them out.
You have an entire industry today that exists solely to drive asset prices up.
You make money available to them on easy terms, and guess what they do with it?
Apparently central banks are incapable of learning, or politically powerless to do anything about it.
But history shows that bubbles relentlessly surprise to the upside, so nobody should act shocked if the Dow ends the year at 20,000. Or 5,000 for that matter.
It bothers me a little bit today to see the bond market going along with it. Maybe there's a plan behind that though...
Relax, AC. Sit back and enjoy the show.
As long as they aren't going bust, I'm enjoying the carefully worded explanations.
It was more than a little surreal for Citigroup to recommend the homebuilders today.
A question:
do y'all think that the financial firms are hiding losses and these bad results are the tip of the iceberg?
or are they taking all their writedowns/chargoffs/etc all at once so that they can have one bad quarter, then start showing good numbers going forward?
and a second question:
"Citi also cut the value of its mortgage-related positions, as rival Wall Street investment banks did last month."
do these sorts of actions have any effect on the mark to market/model/fantasy accounting of these products and their derivatives for OTHER companies?
when does tanta go to town on paul krugman's column re CFC?
Well, I just now read it, thanks to you.
What can I say? I have no idea why Krugman feels the need to put the Enron "wrap" on this story.
You have an overpaid CEO looting the company, a worthless board of directors, and a bubble deflating in the mortgage business. There seems to me to be a lot to be said about unsustainable business models and the perennial problem of overpaid CEOs.
But no, it has to fit into The Enron Saga. And why Krugman would hang his hat on GM's reporting beats me; I guess if you're a Times columnist you're supposed to act like the rest of the paper makes sense.
Relax, AC. Sit back and enjoy the show.
As long as they aren't going bust, I'm enjoying the carefully worded explanations.
One thing I'm starting to realize about myself -- for all my griping about the bubbles, I'm going to be very sad when they're all gone. =(
It was more than a little surreal for Citigroup to recommend the homebuilders today.
MarkS | 10.01.07 - 10:39 am | #
Well if I was holding homebuilder stocks and could move the market, I would upgrade them and then sell.
This is probably a start of the string of bad reports from the banks to put presure on the Fed to keep lowering.
UBS gapped up nicely at the open.
One thing I'm starting to realize about myself -- for all my griping about the bubbles, I'm going to be very sad when they're all gone.
As a happy participant in the tech bubble, I can tell you that what you say is absolutely true. Living through the cleanup after the party sucks.
party hats for all
CNBC
CNBC
Kudlow rocks !
As a happy participant in the tech bubble, I can tell you that what you say is absolutely true. Living through the cleanup after the party sucks.
I was right there with you pal. But I learned my lesson. At least this time around I'm going to come away ahead with my house sold and bunch of stock related stuff (that in retrospect I sold too soon).
The daily mayhem spices up life a bit - that's what I'm referring to. But I'm full aware of the sucking part that comes at the end. It just makes me sad that people don't learn, but it gives me a perverse thrill also.
At least this time I'm prepared.
I'll be right alongside all the other asset-grabbing vultures when the time comes.
I'll feel bad about it, but I'll do it anyhow.
ac -
I did a pretty good job of staying ahead of it last time. But my conclusion was that it's a lot more fun to have the people around you "living large" than have them losing their houses and facing huge tax bills.
Yen touching 116. Stocks and $ way up.
I suppose Citi's results take in account their SIVs results, does it?
Yet there's Citi, who's stock is presently trading up.
We already know that markets can become irrational, however, I think irrational has become irrational when the obvious news is disregarded for rumor and hope.
This isn't going to end well.
I assume this means that Chuck will have to take less than 10,000 square feet on the water this summer in East Hampton.
I pray, I sincerely pray, that he can withstand the blow.
Bill Gross
PIMCO - Investment Outlook - October 2007 "What Do They Know?"
Was Enron an immoral company, or just a scapegoat? Did it fall so fast because of wrongdoings, or was it just a run on the bank kind of thing, like the fall of 100s of mortgage brokerage firms this year? What was Enron's biggest crime - off-balance sheet accounting?? That does not seem to be a crime in this world of SIVs and conduits.
What am I missing here?
I lost all respect for Billy Gross after he asked for government rescue of his bond funds (well, not directly, but for for mortgages).
I expect GM to receive Pulitzer for investigative journalism, no matter whether Tanta likes it or not. If Tom Friedman can make it, anybody can.
That remains to be my only long-term prediction on this board.
"I lost all respect for Billy Gross after he asked for government rescue of his bond funds"
The fact that he never mentions how fundamentals got so out of whack in his article is telling. Does he think that one day, a bunch of american home owners woke up and discovered that aliens had come in from outer space and made their heretofore pleasurably affordable home insanely expensive?
Wooooah, that came out of left field. I mean, who could have predicted?
The dissembling by our betters is sickening. Especially to those of us in the household formation demographic, watching boomers get free meds, free money via still-absurdly-overpriced housing, and social security that we will never see.
Cheers,
prat
"Was Enron an immoral company, or just a scapegoat?"
I think you can safely say that Enron was more than just a scapegoat, or just bad accounting.
I HIGHLY recommend the book "Smartest Guys in the Room". it goes over in detail what these guys/gals were doing.
Overall, companies are Amoral, not immoral or moral. That is to say that they are out of the realm of morality... however, the actions of the executives sure can be immoral.
I would say that lying to your employees about the state of your company AND disallowing them to cash out their 401k's, while personally cashing in millions of dollars yourself is IMMORAL.
not to mention creating fake companies that did fake things, such as buy and sell assets for inflated prices to make earnings targets, verges near immoral. especially when the profits are divvied up among insiders (examples: Raptor I and Raptor II, created by Andy Fastow which hid millions in losses of Enron, while making andy and his friends rich)
at least the SIV's (purportedly) are doing real transactions... (or are they really just doing accounting tricks?)
Why is Citi trading up? How is this possible?
Troll Brothers:
Gretchen Morgensen has already won The Pulitzer Prize.
The Pulitzer Prizes | Page Not Found
She has also won a George Polk Award, and several of journalism's other top honors. Something you and the proprietors of this blog might want to know...
Correction: Gretchen Morgenson...
My expectation is that analysts assume that all financials will take a short accounting bath and then everything will be rosy again when the fed cuts again by year's end. It is why I moved into financials about three weeks ago with the expectation that I will see 15K soon. However, I expect that the accounting bath will be longer than expected and we will hit some trouble in March 2008 when I will be in resources again.
I just can't make any sense of this. I really have to go out and get myself some rose-tinted glasses, 'cause I'm missing something.
"U.S. stocks rallied, sending the Dow Jones Industrial Average to a record, as investors speculated the worst may be over for banks and construction companies hurt by subprime mortgage losses..."
U.S. Stocks Rally, Sending Dow Average to Record; Lennar Gains - Bloomberg.com
Bloomberg.com
"UBS still has $19 billion invested directly in subprime residential mortgage backed securities, an amount it is 'quite comfortable owning,' Rohner said, and some $4 billion in indirect investments. It has about $13 billion at risk in leveraged lending commitments, which have been written down 'appropriately,' the bank said."
UBS Has Loss, to Cut Jobs, After Subprime Writedowns (Update7) - Bloomberg.com
Something you and the proprietors of this blog might want to know...
Freddy, dear, we already know that. We simply aren't convinced that having once received a Pulitzer means that a reporter is foreverafter excused from journalistic sins. It's an award, not a Papal Indulgence.
It is important to understand the differences between Enron and Countrywide. A whole lotta people would have been on the Enron story a lot faster if they had ever asked themselves basic questions about the business model--long before the accounting games came into play. Profits derived not from natural gas but from trading natural gas contracts? Enron was the first big "experiment" in a "commodity" company becoming a pure finance company. That apparently made profound sense to the analysts, who didn't mostly notice any problems until it went right up to BK.
CFC's "product" is finance. Go back and read through GM's stuff, and you see over and over how she tries to draw the worst conclusions out of normal business practices for a mortgage lender. That tells me that she's overlaying the Enron stencil, because the "lesson" we "learned" from Enron is to worry when a company makes more off financing activities than its supposed core business.
And so whatever might really be wrong with CFC's business model goes begging in terms of analysis. Wow, what a contribution to understanding the issues.
or are they taking all their writedowns/chargoffs/etc all at once so that they can have one bad quarter, then start showing good numbers going forward?
And I wonder how much of these losses even have to do with the subprime mess. Seems like an excellent opportunity to clean house.
As you recall HB's rallied last winter on the "soft landing" meme. Now we are hearing the worst is over for the financials and HB's because the FED is "on our side". Fall and winter are a great time to play pretend because the residential RE season is over so there is no real data to suggest how things are really doing. Then you have a period in the Spring and Sumer where reality hits. I do not expect anything different this go around. 2008 will not be the year of the rebound. Wall Street could push the DOW to 15000 before the bell tolls.
Bloomberg.com is running an interesting video of Dick Bove (Punk Ziegel Co.) saying Citigroup is not a 'One-Shot' deal.
And here is today's NY Times Citi piece:
- NY Times
in case anybody was hankering for something to read on mortgage fraud, there's this:
MBA Study Examines Fraud Committed Against Mortgage Lenders
Jonathan L. Kempner, President and CEO of the MBA. Whether its fraud for housing or the more serious fraud for profit, people are deceiving lenders at an alarming rate, and more must be done to combat this problem.
Thanks BD. Those poor people are sharks!
I am authorized by the PPT to invite each of you to go long, and share the wealth. We want you to be happy.
Telegraph UK
Chancellor reconsiders savings pledge
Mr. Darling has staged an embarrassing climbdown which could cause more UK bank runs...
Chancellor reconsiders savings pledge - Telegraph
Folks, this is NOT a "credit crisis." It's a "repayment crisis." There is plenty of credit. But as the already-bankrupt US Government sucks more and more money away from the people to pay for these wars across the globe, there is less and less money for We The People to pay our own bills. And THAT is the real root cause of the present financial disaster.
Yup~
Tanta:
I agree that Gretchen Morgenson's line of inquiry seems based on Enron's original sin. As yet, this feels more logical than your dismissal of routine practices that weaned a business environment Jeffrey Skilling could only wet-dream about.
If only I had been able to margin stocks at 110% loan-to-value; plus kickbacks based on their target price as sworn and vouchsafed by assessors, everyman Henry Blodgets; and above all, with the airtight documentation of my good looks, I would have bought Enron stock, not just the bankrupt telecoms that handed my ass to me in 2001.
If Countrywide's business practices were routine as you say, how did it beat the competition? If legal and not lowlife, how could routine mortgage practices have yielded what this blog understandably sees as a crisis?
Hey Citicorp is going to take a big hit; just the ticket to buy lots of it. The worse it gets, the more you buy. Makes sense today in the USA, doesn't it?
C: Summary for CITIGROUP INC- Yahoo! Finance
If Countrywide's business practices were routine as you say, how did it beat the competition? If legal and not lowlife, how could routine mortgage practices have yielded what this blog understandably sees as a crisis?
I'm afraid this is just going to get stuck in a circular argument, but what the hell.
One specific allegation GM has made is that since CFC owns affilated businesses, and uses those affiliated businesses when dealing with foreclosures, CFC is "profiting from foreclosures." The implication is that this is "unfair."
Now, the reality of the situation is that--whether you and I like it or not--affiliated businesses have been declared legal. So just using an affiliate is not prima facie evidence of an illegal kickback.
Furthermore, CFC beats the competition by undercutting them all on price. Jesus. They're like Wal-Mart. They're huge, and they get cost concessions, and they exploit them. So in fact, it's quite possible that CFC is saving those foreclosed customers money, in a way that Mom & Pop servicer cannot and does not.
Do I know which way it is? I have never claimed to know which way it is. That's why I want GM to freakin' do the reporting on it. What are theses charges? What is the markup? How do they compare to other servicers? You have to answer those questions before you can claim unfair trade practices.
Go back and read that article I complained about: there's no evidence presented that CFC unfairly profits. Not only that, but some of the stuff she does bring up are, in fact, standard practices. There is no servicer in this country who doesn't make float income on suspense accounts. That's a fact. Don't believe me? Make some phone calls. To imply that CFC is "guilty" of something by suspending partial payments is factually absurd and logically ridiculous.
This blog has spent a lot of time trying to explain how "normal business practices" can cause a credit bubble problem. I have never said that CFC's business model isn't a problem. But it is not the only one, and it is not because they receive float income on custodial accounts. And it bloody well matters to me, because if some idiot decides we need to change the law on suspense accounts to fix this non-problem, instead of dealing with the true issues, we're doubly screwed.
The easy way out is to decide that this all must be nefarious, because if you do that, you can make a few headline busts, do a few pointless perp walks, and then everyone can go back to business as usual.
I have my eye on a whole different analysis and a whole different approach.
Tanta, as a former newspaper reporter (who didn't work for The Times, but its biz-section archrival), I'll avoid the temptation to circular argument. I will also re-read as you've asked, as we both allow time to reveal.
Understand, however, that Gretchen, who I met long ago but don't know, has probably been entrusted by her editors to chart her own course, as any good reporter must.
I think the right analogy is to liken Enron to New Century, since both have no physical assets and rely soly on liquidity.
For companies that have utility assets such as WMB, EP, DYN, AES and were implicated in enery trading scandal, they were on the verge of BK around 2002-2003. But look at the chart now, you will find what makes great investments in distressed assets.
To any investor, morality is not the right matrix, cash flow is......