The question is did Goldman and Pimco load up on CIT bonds on Thursday and Friday. If anyone knows that, they will also know if the government will have a last minute bailout planned for CIT.
Without CIT, thousands of retailers may be forced out of business because their suppliers will be put out of business.
Again: I preach the value and virtue of having several months worth of cash flow in the bank.
The improved ROI that you see from running on the cash-flow edge lasts only until you are pushed over the edge.
Do we want the Administration to keep its fingers on the pulse of the American economy? Sure we do.
Do we want the Administration to keep a close watch on the industry that is at the center of the current meltdown and deep recession, i.e., financial services? Sure we do.
Do we want select players from that industry to have a hotline to the Administration? Not a all clear. In the end of the day, the Administration needs to have its own view on financial services, its value to the economy and its inherent problems. If this view comes largely from two vantage points, JPMorgan's and Goldman Sachs', it can't be objective and independent.
One of the often quoted explanations of why CIT did not get its own bailout despite the obvious role it plays in lending to small/medium business is its lack of political clout. Do you think that Blankfein or Dimon would support CIT's plea to help?
PS. Could this article in NYTimes be a PR plot by Goldman to try to deflect the recent burst of the public attention from it?
Jamie Dimon, the head of JPMorgan Chase, will hold a meeting of his board here in the nation’s capital for the first time on Monday, with a special guest expected: the White House chief of staff, Rahm Emanuel.
...
The Treasury secretary, Timothy F. Geithner, declined out of concern that he would be seen as too cozy with a company that has numerous business issues before the department, an administration official said.
...
Mr. Dimon, JPMorgan’s chairman and chief executive, comes to Washington about twice a month, compared with maybe twice a year in the past. He requires senior managers to commute as well.
In recent months, he has met with officials including Mr. Geithner; the White House economic adviser, Lawrence H. Summers; and lawmakers of both parties. He phones or e-mails Mr. Emanuel at whim. Each week, his staff gives him the names of a half-dozen public officials to call.
“It’s got to be a regular thing. You’ve got to have a few relations where people know and trust you; you can be an honest broker,” Mr. Dimon said in an interview. “You can’t just fight everything.”
...
Mr. Dimon helped persuade Mr. Frank and Congress to ease the terms for banks, allowing JPMorgan to repay $25 billion in bailout money from the Troubled Asset Relief Program, known as TARP. He did so by complaining publicly and privately that JPMorgan only reluctantly took the money last year from the Bush administration to avoid stigmatizing more needy banks, and now was being hit with new limits — on hiring skilled foreigners, executive pay and more.
JPMorgan and the industry lost when a pro-consumer credit card bill became law. But it beat back a proposal to allow bankruptcy judges to lower the amount homeowners owe on mortgages. That victory came with a cost: JPMorgan angered Republicans by negotiating with Democrats and then enraged some Democrats when those talks collapsed.
But Mr. Dimon and JPMorgan are willing to bear such defeats if it translates into victory on the broader financial regulation fight that is just beginning.
A centerpiece of that effort involves regulating the market for derivatives, which Mr. Dimon’s firm dominates. While JPMorgan favors new reporting requirements for the complex financial instruments, it opposes the administration proposal to force trades onto public exchanges; doing so would likely cut into the firm’s lucrative business of selling clients custom-made instruments. Like other banks, it also opposes a new consumer agency for financial products.
...
Despite his Chicago connections, Mr. Dimon said he did not know Mr. Obama well while he was there.
He met the future president during Mr. Obama’s 2004 Senate run, at a living room discussion with about 10 pro-business Democrats, and sent his campaign $2,000, the maximum.
Now that Mr. Obama is in the White House, Mr. Dimon has been prominent when the president wants to talk to big business.
During one such meeting in late March, as Citigroup’s chairman, Richard D. Parsons, was trying to explain banks and lending, the president interrupted with a quip: “All right, I’ll talk to Jamie.”
That seems to be an observation from the micro to the macro - not sure where I read it first but rang true - significant part of the problems we have encountered are a result of relentless optimization, to the point of eliminating virtually any redundancy or slack with the resultant brittle and tightly coupled system.
how many not so small businesses are bereft of cash holdings....i mean real cash holdings, not "near cash equivalents"(ABS and other SPV abominations) that aren't liquid when TSHTF.
From the industry group letter: ... if CIT is forced to undertake a bankruptcy filing, the ripple effect will be felt in every city and state across this country as the further tightening of credit markets will make it incredibly difficult, if not impossible, for many of the companies who currently rely on CIT for financing to remain in business.
The non-bank stops banking and the banks won't lend in their stead? Bull.
significant part of the problems we have encountered are a result of relentless optimization, to the point of eliminating virtually any redundancy or slack with the resultant brittle and tightly coupled system.
This is very true. I would also say that since most companies use similar model to to optimize their operations, their reactions to shocks gets amplified (it is not only a financial phenomenon).
One interesting consequence is that when tightly coupled systems fail, one either has to fix the whole system or take a hands-off approach and let the system find a new equilibrium. Politically driven decisions which elements of the system to save and which ones can be let fail only de-stabilizes the system further.
What an interesting PR issue for the Administration:
- GS reports record earnings and bonus payouts, and the Administration has to say its improving economy, green shoots, etc.
- CIT and its customers plea for money and if the Administration refuses it will cause public outrage, or if the Administration bails them out, it will dramatically lower the bar of "too big too fail".
That's the price you pay for not taking a consistent approach to complex problems.
Ya know, the more I read that letter, the more wacky it seems.
The non-bank stops banking and the banks won't lend in their stead? Bull.
Yep. CIT gets out of the lending biz and some other enterprising young banker doesn't step in to take their profit? Sounds like a screaming indication that they were running a charity and not a business.
And another thing: Just why are these dependent companies running with single-points-of-failure for something so fungible as lending?! If this isn't a biz case for creative destruction, then none exist.
Defanging the Fed: Why It Needs Less Power, Not More
William Greider gives six reasons why handing the Fed more power is a bad idea:
1. It would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction.
2. Cumulatively, Fed policy was a central force in destabilizing the US economy.
3. The Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown.
4. The Fed can't be trusted to defend the public in its private deal-making with bank executives.
5. Instead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator.
6. This road leads to the corporate state--a fusion of private and public power, a privileged club that dominates everything else from the top down.
Declare bankruptcy, wipe out the investors, and continue to operate the company. Like the airlines do every few years.
Sorry, but airlines are not a good example. Airlines used to be serial Ch11 filers when they had plenty of unencumbered assets and could therefore easily arrange DIP financing. Any big airline filing in the current environment will be a lot messier (e.g., US Airways or United).
What will secure DIP financing for CIT if not its book of loans, which is in a very bad shape and is the main reason why CIT is in trouble?? It is difficult to see DIP financing without the government backstopping it.
The non-bank stops banking and the banks won't lend in their stead? Bull.
Rob, few big US banks do factoring and AR-backed lending. CIT is by far the largest player in the US.
It is quite different from regular lending. Obviously CIT is not very good at it - why would other banks, with problems of their own up to vazoo, try to develop their expertise in the middle of a recession??
Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
Maybe nobody in the US. Factoring is a big (and so far successful business model) in Australia, the UK and Europe. HSBC is viewed as pretty strong in that area.
Reprising some earlier posts: DIP is guaranteed by all cash flows and assets ahead of almost everybody else in bankruptcy. Since the alternative is liquidation, the bondholders assent to subordination for the duration of DIP. The DIP lasts through bankruptcy only, so the amount is small compared to cash flows & assets (and when it is not, DIP is hard to find.)
IANAL or banker or even knowledgeable, others should chime in with better info.
factoring is the retail equivalent of a no-credit-check ninja non-recourse loan.
retailer gets the cash, CIT gets to secure the inventory, and receives the proceeds from the sales. All is well if the inventory is liquid and has a FMV greater than the loan.
Addendum: And DIP is going for CIT like it should have for the big banks last october. However, the only guy big enough to provide DIP for Citi etal is the gov't, which invokes the "nationalization" bogeyman for those who can't discern between words and concepts.
Reprising some earlier posts: DIP is guaranteed by all cash flows and assets ahead of almost everybody else in bankruptcy.
JP, with all due respect, this is a pretty generic statement. First of all, I do not think DIP financing comes in front of secured lenders, which is why the level of unencumbered assets is important. Secondly, given the supposedly short period of time in Ch, reliance on pure cashflows during bankruptcy cannot support much DIP capital.
factoring is the retail equivalent of a no-credit-check ninja non-recourse loan.
Nope - factoring is based on the credit of the company who is behind the invoice as opposed to the credit of the borrower to who the invoice is payable.
Of course, like any lending business it can be run poorly without checking the credit of those companies whose invoices are used.
As I recall, the contracts are layered. In such a way that the client gets money to continue
the business, but any profits are at the very end, assuming the ultimate purchasers pay, and
the line sells. But it's a very long time ago.
Angry Renter (profile) wrote on Sun, 7/19/2009 - 10:31 am
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Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
could have provided health insurance to about 1million people.
First of all, I do not think DIP financing comes in front of secured lenders
My understanding is that it does. If the secured lenders do not subordinate, the alternative is liquidation. Therefore, the secured guys have a big say in Ch 7 or 11 (usually, forget GM) because they are deciding which way they recover more money on their ill-fated secured loan.
Secondly, given the supposedly short period of time in Ch, reliance on pure cashflows during bankruptcy cannot support much DIP capital.
My writing was not clear. All cashflows are pledged, including those past bankruptcy. My point about DIP lasting thru bk is only that the amount of money is relatively small compared to overall size of the biz, so that the DIP bankers have high confidence of getting paid back.
Angry Renter (profile) wrote on Sun, 7/19/2009 - 10:31 am
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Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
could have provided health insurance to about 1million people.
my guess is that CIT was hurt (although not the cause of their BK) by a bunch of Johny come lately who saw the profits in factoring without understanding the risks thereby driving down pricing below the required return for the risk. Easy money and booming economy hides all manner of sins for a while. Companies complaining about lack of lenders are probably complaining about lack of lenders prepared to lend at unrealistic levels.
Maybe at the end of this the Christmas season will not be the sole source of
profits, and we can enjoy Christmas/winter solstice without dragging ourselves
thru endless shopping.
if the other banks don't step in to take over CIT's lending markets, it means the businesses (CIT and their clients) shouldn't be there in the first place.
Hold some inventory, break bulk, book some logistics. All the nuts and bolts stuff.
But how many small businesses depend on little more than trade financing at slightly better rates than their customers' can?
In the case of small mfgrs supplying larger OEMs the answer is 'few or none'. The large OEMs have much better financing at lower rates... they don't have the inclination nor the skill sets to make things in-house anymore... and they don't want to expand their high salary overhead structure to do recapture those skills. They 'platform' now and leave the 'make things' part of the plan to the little people - those folks are funded bu companies like CIT.
I think there are a number of issues to consider here:
Continued consolidation of the financial services industry. If we kill CIT the way we should and don't kill GS the way we should, we get GS plus whatever segment of CIT's viable book GS soaks up.
Delta / time and not pure change being the controlling factor.
If the rates available become more "realistic representations of default risk" and simultaneously become fatally high / tight, then that is something we should consider. There is a real possibility of resonant interplay with consumer finance.
The government's role as lender of first, last and only resort. People haven't even begun to discuss the real impact this is going to have. The problem of central control isn't making good decisions fro ma single viewpoint, it's the political issues around whose viewpoint gets used, if anyone's.
First of all, I do not think DIP financing comes in front of secured lenders
My understanding is that it does.
My understanding is the opposite
The BK judge can decide on many things unilaterally, but he/she cannot force secured lenders to subordinate their claims on collateral. Now, it might be rational for them to do so, but it would be a decision by secured lenders themselves (or they can be strong-armed by the government).
The problem of central control isn't making good decisions from a single viewpoint, it's the political issues around whose viewpoint gets used, if anyone's.
Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
lawyerliz (profile) wrote on Sun, 7/19/2009 - 10:58 am
Well, there's a business plan doomed to failure, dry.
Perhaps they ought to re-learn how to make things.
The issue is one of, being compelled to learn to fabricate an air plane and doing so while falling from 35,000 feet. Not much time, few available resources.
Cali is only one state among many going bankrupt. Then you have to bail out the economy while the major financial players suck some percentage off the top of everything without contributing anything in return.
I'm not nervous, there's about as much suspense in this as in a roadrunner cartoon. The question is, what funny things will the coyote do while seeking to capture that which cannot be captured?
The BK judge can decide on many things unilaterally, but he/she cannot force secured lenders to subordinate their claims on collateral.
I didn't mean to imply it was up to the judge.
The BK is filed either as chapter 7 or 11. If the secured lenders consent to DIP, then it gets filed as 11 and the judge oversees the reorg. If the secured lenders do not consent, then it gets filed as 7 and the judge oversees the liquidation. (The way they "consent" is to subordinate their claim to the DIP loan.)
GM was wacky because the bondholders stated that they'd recover more from 7, but the gov't arm twisting caused 11 to occur. (The bond holders are prob pensions etc, so that was quite charitable of those retirees to donate their money to GM.)
"Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
I am all ears "
It's simple really. Banks finance campaigns. All that bank BS happened 6 weeks before an election.
I was hearing ad's for factoring on the radio about a year ago. This is from the top of the search on Google
What Is Factoring?
Factoring is a way to get immediate cash. You send your invoices to us, we advance you up to 90% of the invoice amount, we collect the invoice and send you the remaining balance, less our fee.
Factoring is quick and convenient: a must for all growing companies in need of capital.
We purchase creditworthy accounts receivable at a small discount and fund you with immediate cash.
If CIT were another type of company, government infusions or DIP financing would make more sense. But realistically, we are in a massive consumer retail contraction, and the receivables don't have much value.
It's not viable because there isn't enough left. They've burned through their loss reserves and the losses are still coming, and will mount in the year to come. The truly secured lenders can pick over the best, and the semi-okay lenders can go for DIP, but the risks of the loans in this type of environment would dictate a rate of interest which will double the risk of many of these loans. They haven't got a continuing business with a cash flow on most of their loans that justifies anything but liquidation.
Being able to borrow money cheaply from the Fed does nothing to lower effective interest rates when the loss risk is so high. What kind of discount would anyone on this board require on a portfolio of student loans these days? Small retail? Gurgle. That stuff is 20-30 cents on the dollar.
So, what is your cost of money? (Here's where it gets interesting and where the major misunderstanding lies.)
So they end up with 30% return? Or not? Factoring is a pawnshop for business
Let's set up an example. You're selling $100,000 worth of widgets to General Motors every month. You ship them, then invoice GM for the parts. Let's say you've arranged 30 day terms. You also have terms of 2.5% for 30 days with your factor, with an advance of 85%.
You send the factor a copy of the invoice at the same time you invoice GM. The factor checks with GM to ensure the widgets were delivered in good condition. He then transfers $85,000 to your account by check or wire transfer. This is usually within two days of receiving the invoice. You've got operating money!
Thirty days later, GM pays the factor $100,000. The factor deducts $2500, then pays you $12,500. You do this 12 months out of the year.
What's your cost of money?
In almost all cases, my prospective clients, thinking in terms of loans, multiply the 2.5% by a factor of 12 and say, "Thirty percent! That's too expensive."
The correct answer is, of course, 2.5% if each invoice is paid within the first 30 days. (This percentage will go up incrementally with any invoices which are paid over 30 days, generally 1/30 per day, but it's still FAR BELOW the current cost of borrowing from banks or getting lines of credit.)
To prove my statement, multiply your monthly sales to GM by 12. That answer is $1.2 million. Now multiply the amount you paid for each invoice by 12. That answer is $30,000. And $30,000 is 2.5% of $1.2 million.
Please tell me where, in the banking system, you can get money at 2.5%? That is, if you can get a bank loan at all in today's uncertain times.
Well, there's a business plan doomed to failure, dry.
Perhaps they ought to re-learn how to make things.
They aren't interested - the companies are run by financial types - similar to the majority of the mind set you see on this forum weekdays - the 'invisible hand' will do that kind of messy stuff and they will be free to 'trade on it'.
Well we are coming to a period where there might not be a lot of stuff made - here at least and without tradeables to trade difficulty buying from somewhere else. So quite possible a much less 'prosperous' culture. Prosperous as defined by buying crap you really don't need.
Seeing that reigned in won't be all bad by any measure. It was a mindset that was unsustainable from the get go.
Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
I am all ears
I don't think there will be political comeuppance for this because I don't think the population as a whole can formulate the question. This is "math is hard, let's go shopping" America. The people who hate Obama hate him because he is "against" Brand Elefunt. The people who adore him are like Brand Elefunt loyalists with their bromantic crush on Messiah Bush, it's about Brand Donkee, not about what Brand Donkee does.
The real issue is that these are just insanely poor schema for allocating resources and they will spend a lot of finite resources going in circles.
Perhaps I am mistaken, but I thought CIT was a large provider for LBOs, which has nothing to do with factoring. Does anyone have a link to the relative size of the businesses?
The BK is filed either as chapter 7 or 11. If the secured lenders consent to DIP, then it gets filed as 11 and the judge oversees the reorg. If the secured lenders do not consent, then it gets filed as 7 and the judge oversees the liquidation.
Ch7 and Ch11 simply serve different purposes - liquidation and reorganizaiton, respectively. I do not think that consent of secured lenders to DIP financing is required, although the largest secured lenders are often consulted with before filing.
If the judge believes your company has a reasonable chance to reorg, he/she will allow you to file Ch11, which later can get converted into Ch7, btw. This will give your company some time to prepare the reorg plan.
I think that while difficult, it is not impossible to file for Ch11 even without DIP financing outside of pre-packaged BKs.
The real issue is that these are just insanely poor schema for allocating resources and they will spend a lot of finite resources going in circles.
AND with the skim coming off of each circuit...what is the quote, "Finance is the art of moving money back and forth between two hands until finally it all disappears?"
Oh, most of my replies that sound intelligent - they came from Factoring websites. Me, the best I can tell is factoring is the pawnshop for business. It works, and makes a lot, until...
The issue is one of, being compelled to learn to fabricate an air plane and doing so while falling from 35,000 feet. Not much time, few available resources.
Exactly.
Someone later might learn from the pieces of airplane they find in the corn field after the crash... but those in the plane are doomed.
Most small manufacturing businesses are going to have a very difficult time meeting bank covenants based on fixed charge cover ratio and the like right now. If they are borrowing from CIT and CIT goes down, it will be very difficult to find financing.
If my business credit line was with CIT, I would be very worried.
CITs business model is not viable. What's wrong with removing an unproductive activity from the general economy? The counter-argument is that their customers will also fail with them. Again, I ask, what's wrong with that? Oh, at some point it becomes systemic risk. Fine, instead of BK then run off the business. Govt subsidies to the eventual buyers to justify the transition. If CIT financing is necessary for all these businesses to operate then we are yet again only addressing a symptom.
The CIT business model may well be not viable, but many businesses depend on it.
Say, CIT charges 30% in annualized charge. That means that about 70-75% of its customers do pay on time - and now they will lose their funding. How many of them will be able to get lines of credit from banks and how many of those CIT customers will end up closing down?
What is a maximum sustainable consumer % for the economy.
That is why I never, well sometimes I really want too, believed in the greenshoots thing. There is no longer the pool of discretionary income via HELOC's to support the pyramid build on top.
Perhaps I am mistaken, but I thought CIT was a large provider for LBOs, which has nothing to do with factoring. Does anyone have a link to the relative size of the businesses?
Caution - anecdotal info following!!!
I don't have data but know of a number of LBOs [companies I work with] and CIT wasn't involved in any of them EXCEPT as part of the everyday funding of operations before and after LBO transfer. The LBO funding came from TWO places [in general]... (1) GE Capital and (2) large regional banks like Key Corp & PNC...
The regionals also did factoring but not much anymore - too heavily exposed to CRE.
If a good, but cyclical, business needs a credit line to meet fixed costs when top line revenue is down and that business is unfortunate enough to have its line with CIT, it seems a shame to let that business fail along with CIT.
True, that's life in the fast lane, but there is a societal cost to allowing these businesses to fail.
I do not think that consent of secured lenders to DIP financing is required, although the largest secured lenders are often consulted with before filing.
It's not required by the bankruptcy court, but the DIP provider requires it before signing over the money. When financing docs are drawn up, there are signature pages for everybody in the capital structure. (Not just secured lenders.) Otherwise, the DIP bank is not assured of payback and simply refuses to loan the money.
which later can get converted into Ch7, btw.
Yes, I didn't want to complicate the issue any more than it already was.
I think that while difficult, it is not impossible to file for Ch11 even without DIP financing outside of pre-packaged BKs.
Again, it's all about the money. If the BK company has the cash on hand, DIP is not required. The fact that CIT requires DIP is an indication of how badly mismanaged they are. As an aside, when the secured lenders are negotiating over the DIP, they should require changes to BoD and officers so that the internal culture starts to change.
The long term green shoot is that we have a large and growing pool of educated out of work professionals that can be put to work. Problem is, wages are sticky on the way down, but when enough run out of benefits they will be willing to work for less. If we can find something useful for them to do.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
A business with negative EBIT is going to have a very difficult time changing lenders right now, even if cash flow is positive. In manufacturing it is tough not to have negative EBIT over the last 6 months. Just ask Alcoa (they need to hire GE-trained accountants),
What is the max consumer spending %age that can be sustained.
Anything better than my shoot from the hip 50%?
Seems like if 50% is right that means that roughly 28% of consumer
spending needs to go away. I could do that. Don't want to and won't
unless forced, but could.
And a large part of the educated, professional level class built a "lifestyle" based on a 6 figure income. Unemployed, how many will return in time to the cash flows needed before the entire house cards they built collapses? Plus, how many, even if they find work, will return to the salary level of 2007
HELOC spending is no more. 10%
The unemployed don't spend. 10%
The underemployed spend very little. 6%
Savings rate is up - no spending. 6%
CC availibity is being cut massively - no spending. 3%
Looks like a 35% drop just from the above. Not adding in IOU pay checks and people stashing cash in the matteress. So my guess is between 40% and 50%.
A business with negative EBIT is going to have a very difficult time changing lenders right now, even if cash flow is positive. In manufacturing it is tough not to have negative EBIT over the last 6 months. Just ask Alcoa (they need to hire GE-trained accountants)...
They almost have to be negative EBITA right now - if they aren't they are pricing too high in the market and will lose contracts going forward from others who are more concerned about immediate cash flow.
This is one of those periods where the weak die off - what people don't appreciate is (1) how many weak there are and (2) how it will effect them both economically & socially.
Yes, a lot of painful lifestyle adjustments are in progress (or denial). I personally know a couple that went from combined $400k/yr to $100k/yr.
They have given up the Porsche SUV, defaulted on the condo rental property, and are downsizing from a 5 bedroom McMansion to daddy's 3 bedroom rental. It's very very hard to adjust your lifestyle down. I've done it twice.
Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from taxation. I think we are very close if not past that particular event horizon.
Comrade Coinz (homepage, profile) wrote on Sun, 7/19/2009 - 11:28 am
The long term green shoot is that we have a large and growing pool of educated out of work professionals that can be put to work. Problem is, wages are sticky on the way down, but when enough run out of benefits they will be willing to work for less. If we can find something useful for them to do.
Just FYI, my suppositional contribution to the state of the art of my chosen field of study is this: "state failure parameters are based on expectations". People in West Germany would consider their state "failed" a lot sooner than someone in West Africa. Consider that well.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
Easy to say.
You better find a way to make it otherwise, or they'll drag down the state. Working them to death in workhouses won't be an option this time. The firearms the Founding Fathers saw fit to pass out to all and sundry will assure this, may the angels smile upon them.
It's very very hard to adjust your lifestyle down. I've done it twice.
I've not had to do it since I was a kid... but then as an adult we didn't go back up over the top. Cheap old house. Inexpensive cars driven into the ground... vacations that usually involve tents somehow, somewhere - etc.
But you are right... it will be an eyeopener for a lot of folks.
It's very very hard to adjust your lifestyle down. I've done it twice.
So true, especially if it is down under the gun.
Wise folks keep their eyes open to the early brown shoots in the economy and start scaling back dramatically at the first signs of trouble. Or never get into the squirrel exerciser wheel in the first place.
Liz, I just looked at funding no longer available and that some people are now saving.
I am sure there are many other factors in play.
Our oven bottom burner stopped working the other day, The stove is really old. We bought a new element rather than a new stove. Two years ago when both hubby's and my businesses were going great, we probably would have used the dead element as a justification to buy the super stove hubby would love to have.
We can buy a new stove, but our decision making about expences have changed. When that type of thinkingn enters the mainstream spending may even be lower.
Since we worked all day and went to law school at
nite, there wasn't much time to spend money. Oh, and
we paid for the tuition as we went. No loans, unless you
take into consideration that money is fungible, and we
charged some living expenses.
Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from taxation. I think we are very close if not past that particular event horizon.
One small correction:
"Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from GOV'T EXPENDITURES. I think we are very close if not past that particular event horizon."
Ever since Reagan BOTH parties have spent WAY more than taxed... the former does eventually drive the latter unless we accept monetary inflation as a SOP. IMHO - that is what is on the event horizon and nobody - not Team O nor the hapless GOPers is facing up to it... we got tax cutters [GOPers] and stimulusers [Dems]... but nobody facing the real crunch - we need to produce more and consume less & gov't is a huge net consumer.
Just as the generation of adults who lived through the GD in the 30's tended to be very cautious about spending the rest of their lives, I think it takes a crash-land (or near) for an individual to avoid in the future the temptations of debt-fueled day to day living. You may have to burn your hand on the stove instead of just hearing about it.
Rob Dawg (homepage, profile) wrote on Sun, 7/19/2009 - 11:38 am
I think we are very close if not past that particular event horizon.
Accepting Dryfly's caveats, which he phrased better than the ones I was typing, yes. Certainly in CA. You might be able to pinch a bit tighter here in Byzantium but you have to start asking why.
Ok, this is going to sound really elementary. It just occured to me cash is like blood in the body or oil in an engine. CIT failing is a sign that blood is no longer getting to the extremities. Money is our sugar except we became diabetics. Now comes the death of the feet. Then the legs.
And I think I know some 20 somethings who have
suddenly gotten cautious.
I don't think the gov't spending is as doomy as some here think.
That's because I think that an ever greater part of the economy is
going off the books.
There are other Factor companies... The real problem is many of the 1000s of small businesses are not credit worthy. CIT had an interest in "working" with them in order to collect open liabilities.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
Easy to say.
You better find a way to make it otherwise, or they'll drag down the state.
There is certainly some risk in this area.
I don't know how to fix this situation.
When I was getting gas on Friday, I was solicited by two people, one guy selling cologne out of a backpack, the other selling windshield crack repairs. I am sensing more desperation lately.
Dryfly,
Yes. I said "derived from taxation" for those very reasons. I sure as hell haven't seen either side of the trillions spent on my behalf with my money. Somehow I don't think I'll be seeing a net balance of those two either.
Gov spending along with a huge drop in tax income is going to force most states to lower (thier and our) living standards. Weather those standards are pay cuts, services, fewer orders of hard goods, no replacement of equipment, not upgrading systems, they will spend less.
They will also tax more. In some states increasing taxes is a very uphill battle, the fee increases are killers. Increasing fees a few dollars to an individual or a few hundered dollars to a business seems to create less of an outcry.
EU runs 58% of GDP = consumption, lower than the US because of stronger export position.
US was 62% in the 1980's - started the climb to 70% as top tax rates were cut. Hmmm.....
The fee to get a sales tax lic in most cities in Metro Phx went from $15.00 to $70.00, per property (single family unit).
The also are requiring documentation that each owner is a US citizen, and charging a hefty fee to file the paperwork you send in. I know they do not verify any of it.
"In San Francisco, I understand that does make you a pauper!!!"
I live (mostly) modestly and sock away tons of money. I'll never be able to afford a house around here. Probably not even if there is a 50% crash. Friends of mine that bought are all hurting, including a doctor that makes 5x what I do.
Got something interesting in last month's mail from Chase. According to them they "reviewd my last payment" and divined that I had intended to close my HELOC. Never mind that this last payment was a yeat and half ago. Since it's been "reviewed" they've locked it. I can:
a) Confirm my intent to close and I won't be charged any closing fees. No matter that I haven't had any closing fees since the initial 1 or 2 year period expired.
b) Request that my account remain open.
This reeks of "you've won a free vacation to Hawaii" telemarketing crap. I could see it from a shadier bank, but from Chase, who I've never been late with...
In '72, we could have bought a nice small house in the Gables for
27k or so. We felt we couldn't afford it. Our whole lives would have
been different, had we bought it.
For 35k, we could have gotten something very nice indeed.
Chase is trying to close down inactive accounts before they ramp up. You are not generating any revenues for Chase but represent a potential default risk - no upside, only downside from Chase's point of view.
I can't tell you how much 500K woud buy you in Miami-Dade, because virtually
nothing in that range is moving, but I trust you could get something pretty darn
fabulous.
I'd sell you my house for that much (if I were selling), but I'm not sure whether
I'd be overcharging or not.
OT: I'm gonna invest me in some REIT IPOs and become rich!
The planned IPOs, which include units of firms like Apollo Management [APOLO.UL] and Alliance Bernstein Holding LP, could be just the beginning of what some bankers expect to be a boom in Real Estate Investment Trusts (REITs) going public over the next few years.
Oil in the engine, nova - except far too many have bought into the mistaken notion it is the engine - anyone who uses the phrase 'finance industry' probably shares this delusion.
Chase is trying to close down inactive accounts before they ramp up. You are not generating any revenues for Chase but represent a potential default risk - no upside, only downside from Chase's point of view.
True. My total mortgage+HELOC is still less than 80% of total equity though.
I'm tempted to call and get it unlocked. If they ask what it's for I'll tell them hookers and blow.
It's a switch from when I took out the HELOC for a future emergency. I want $X, they talked me into 2$X with a lower rate and were practically begging for me to take 3$X. 3*$X was more than my first mortgage by an a fair amount.
I wonder if it's possible to give up the HELOC for a lower interest rate? Since I'm a good credit risk they didn't sell my mortgage to one of the government agencies, therefore I don't qualify for one of the super low interest rates they are (were?) offering.
Folks had a fair amount of time to secure alternative arrangements as CIT woes were known. If the basic business model that served them for so many years is intact, someone will buy that business.
Because of CIT’s primacy in this field, they have essentially become the banker to “Main Street" . This is the reason why the Obama administration is not interested in bailing them out because they are on the Main St. team. I'm sure if CIT'S failure had a negative impact on Wall St. they would run to the rescue. They are probably planning a takeover of all these loans by the" Too Big to fails" with the backing of the government? This will give them control over all these small businesses without having to call it an official bailout. They want all these small businesses on their knees begging so they can blindfold them and begin the whipping!
CIT's problem is not the quality of it's book, but rather very high cost of funding.
Large portion of CIT's book is it's aircraft and rail leasing business, and government guaranteed student loans. The rest of the book is not doing great, but it is not horrible.
The problem is that most of their funding is from bond sales, with high and getting higher rates. When you lend at 6% and your funding costs are > 6%, it does not matter how good your loan book is. Another mistake is when they converted to a bank holding company, pretty much all of their deposits were brokered, and it seems that FDIC decided to make an example of them.
CIT should file for Chapter 7, wipe junior bond holders and bellow, convert senior unsecured to equity and leave senior secured as they are. That should give them around $40B in real equity. After that, change the name, expand the bank, reduce dependence on brokered CDs and start making SBA loans again.
After BK, CIT could be stronger than it has been in last 3 years.
Alabama, again. . . .
The number is immeasurable because factors other than CIT do exist in the US. I expect they've had some applications under consideration lately.
CIT isn't irreplaceable.
The question is did Goldman and Pimco load up on CIT bonds on Thursday and Friday. If anyone knows that, they will also know if the government will have a last minute bailout planned for CIT.
Money supply will continue to be cut off as the wealth to back all of the leverage does not exist.
Sorry CIT, looks like GS has money riding on your demise.
See you on the other side(of bankruptcy).
MoT:
Even if they did, debt-to-equity holdings in a cleaned-up CIT might not be a bad thing. Not sure that signals intervention.
Without CIT, thousands of retailers may be forced out of business because their suppliers will be put out of business.
Again: I preach the value and virtue of having several months worth of cash flow in the bank.
The improved ROI that you see from running on the cash-flow edge lasts only until you are pushed over the edge.
LBD: you are obviously aware that Bombs Away Ben has been withdrawing 'dollars' recently.
Hold some inventory, break bulk, book some logistics. All the nuts and bolts stuff.
But how many small businesses depend on little more than trade financing at slightly better rates than their customers' can?
Do we want the Administration to keep its fingers on the pulse of the American economy? Sure we do.
Do we want the Administration to keep a close watch on the industry that is at the center of the current meltdown and deep recession, i.e., financial services? Sure we do.
Do we want select players from that industry to have a hotline to the Administration? Not a all clear. In the end of the day, the Administration needs to have its own view on financial services, its value to the economy and its inherent problems. If this view comes largely from two vantage points, JPMorgan's and Goldman Sachs', it can't be objective and independent.
One of the often quoted explanations of why CIT did not get its own bailout despite the obvious role it plays in lending to small/medium business is its lack of political clout. Do you think that Blankfein or Dimon would support CIT's plea to help?
PS. Could this article in NYTimes be a PR plot by Goldman to try to deflect the recent burst of the public attention from it?
In Washington, One Bank Chief Still Holds Sway
Jamie Dimon, the head of JPMorgan Chase, will hold a meeting of his board here in the nation’s capital for the first time on Monday, with a special guest expected: the White House chief of staff, Rahm Emanuel.
...
The Treasury secretary, Timothy F. Geithner, declined out of concern that he would be seen as too cozy with a company that has numerous business issues before the department, an administration official said.
...
Mr. Dimon, JPMorgan’s chairman and chief executive, comes to Washington about twice a month, compared with maybe twice a year in the past. He requires senior managers to commute as well.
In recent months, he has met with officials including Mr. Geithner; the White House economic adviser, Lawrence H. Summers; and lawmakers of both parties. He phones or e-mails Mr. Emanuel at whim. Each week, his staff gives him the names of a half-dozen public officials to call.
“It’s got to be a regular thing. You’ve got to have a few relations where people know and trust you; you can be an honest broker,” Mr. Dimon said in an interview. “You can’t just fight everything.”
...
Mr. Dimon helped persuade Mr. Frank and Congress to ease the terms for banks, allowing JPMorgan to repay $25 billion in bailout money from the Troubled Asset Relief Program, known as TARP. He did so by complaining publicly and privately that JPMorgan only reluctantly took the money last year from the Bush administration to avoid stigmatizing more needy banks, and now was being hit with new limits — on hiring skilled foreigners, executive pay and more.
JPMorgan and the industry lost when a pro-consumer credit card bill became law. But it beat back a proposal to allow bankruptcy judges to lower the amount homeowners owe on mortgages. That victory came with a cost: JPMorgan angered Republicans by negotiating with Democrats and then enraged some Democrats when those talks collapsed.
But Mr. Dimon and JPMorgan are willing to bear such defeats if it translates into victory on the broader financial regulation fight that is just beginning.
A centerpiece of that effort involves regulating the market for derivatives, which Mr. Dimon’s firm dominates. While JPMorgan favors new reporting requirements for the complex financial instruments, it opposes the administration proposal to force trades onto public exchanges; doing so would likely cut into the firm’s lucrative business of selling clients custom-made instruments. Like other banks, it also opposes a new consumer agency for financial products.
...
Despite his Chicago connections, Mr. Dimon said he did not know Mr. Obama well while he was there.
He met the future president during Mr. Obama’s 2004 Senate run, at a living room discussion with about 10 pro-business Democrats, and sent his campaign $2,000, the maximum.
Now that Mr. Obama is in the White House, Mr. Dimon has been prominent when the president wants to talk to big business.
During one such meeting in late March, as Citigroup’s chairman, Richard D. Parsons, was trying to explain banks and lending, the president interrupted with a quip: “All right, I’ll talk to Jamie.”
JP,
That seems to be an observation from the micro to the macro - not sure where I read it first but rang true - significant part of the problems we have encountered are a result of relentless optimization, to the point of eliminating virtually any redundancy or slack with the resultant brittle and tightly coupled system.
how many not so small businesses are bereft of cash holdings....i mean real cash holdings, not "near cash equivalents"(ABS and other SPV abominations) that aren't liquid when TSHTF.
Declare bankrupcy, wipe out the investors, and continue to operate the company. Like the airlines do every few years.
Goldman Sachs replies: thumb down
From the industry group letter: ... if CIT is forced to undertake a bankruptcy filing, the ripple effect will be felt in every city and state across this country as the further tightening of credit markets will make it incredibly difficult, if not impossible, for many of the companies who currently rely on CIT for financing to remain in business.
The non-bank stops banking and the banks won't lend in their stead? Bull.
Robert,
Looks familiar - there are alternatives, but the participants don't like the price. Hence the industry whine and veiled threats.
Did Paulson draft the letter?
significant part of the problems we have encountered are a result of relentless optimization, to the point of eliminating virtually any redundancy or slack with the resultant brittle and tightly coupled system.
This is very true. I would also say that since most companies use similar model to to optimize their operations, their reactions to shocks gets amplified (it is not only a financial phenomenon).
One interesting consequence is that when tightly coupled systems fail, one either has to fix the whole system or take a hands-off approach and let the system find a new equilibrium. Politically driven decisions which elements of the system to save and which ones can be let fail only de-stabilizes the system further.
What an interesting PR issue for the Administration:
- GS reports record earnings and bonus payouts, and the Administration has to say its improving economy, green shoots, etc.
- CIT and its customers plea for money and if the Administration refuses it will cause public outrage, or if the Administration bails them out, it will dramatically lower the bar of "too big too fail".
That's the price you pay for not taking a consistent approach to complex problems.
There's that damn hardware bk again.
Can't they pick someone else? Or, maybe there is no one else?
Chopped fresh cherries in the organic buckwheat pancakes with
real maple syrup.
Umm, yummm.
And for what it's worth, I prefer the misogyny out in the open. You know
what you are dealing with.
Ya know, the more I read that letter, the more wacky it seems.
The non-bank stops banking and the banks won't lend in their stead? Bull.
Yep. CIT gets out of the lending biz and some other enterprising young banker doesn't step in to take their profit? Sounds like a screaming indication that they were running a charity and not a business.
And another thing: Just why are these dependent companies running with single-points-of-failure for something so fungible as lending?! If this isn't a biz case for creative destruction, then none exist.
Defanging the Fed: Why It Needs Less Power, Not More
William Greider gives six reasons why handing the Fed more power is a bad idea:
1. It would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction.
2. Cumulatively, Fed policy was a central force in destabilizing the US economy.
3. The Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown.
4. The Fed can't be trusted to defend the public in its private deal-making with bank executives.
5. Instead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator.
6. This road leads to the corporate state--a fusion of private and public power, a privileged club that dominates everything else from the top down.
Defanging the Fed: Why It Needs Less Power, Not More
Declare bankruptcy, wipe out the investors, and continue to operate the company. Like the airlines do every few years.
Sorry, but airlines are not a good example. Airlines used to be serial Ch11 filers when they had plenty of unencumbered assets and could therefore easily arrange DIP financing. Any big airline filing in the current environment will be a lot messier (e.g., US Airways or United).
What will secure DIP financing for CIT if not its book of loans, which is in a very bad shape and is the main reason why CIT is in trouble?? It is difficult to see DIP financing without the government backstopping it.
And for what it's worth, I prefer the misogyny out in the open.
And likewise for the misandry.
CIT isn't irreplaceable. = CIT invested poorly in the last election cycle. = CIT isn't GS.
So, what kind of interest rate were all these needy tanning bed/nail salons paying in the 90s?
The non-bank stops banking and the banks won't lend in their stead? Bull.
Rob, few big US banks do factoring and AR-backed lending. CIT is by far the largest player in the US.
It is quite different from regular lending. Obviously CIT is not very good at it - why would other banks, with problems of their own up to vazoo, try to develop their expertise in the middle of a recession??
GS & JPM already said they'd provide the DIP financing. (They refused on short-term financing without bankruptcy.)
Evidently the lending business is not the model of market efficiency the Chicago School wants you to believe.
Who could have knowed?
JP (homepage, profile) wrote (in reply to...) on Sun, 7/19/2009 - 9:22 am
And for what it's worth, I prefer the misogyny out in the open.
And likewise for the misandry.
It's useful to balance misogyny with a sense of misandry, and vice versa. Be an equal opportunity bigot!
Obviously CIT is not very good at it
Serious question: Who is? I also have to wonder what fraction of their biz is factoring based.
Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
My client who did the factoring was in rough shape.
The factors didn't impress me either. They were small shops.
GS & JPM already said they'd provide the DIP financing.
Secured by what and under what conditions? As a favor to the Administration?
MrM,
Factoring in the US predates the US. Expertise is available.
For all that, I wonder if a restructured CIT could maintain its portfolio - or the parts it prefers. Wouldn't most just bolt?
I've read those factoring contracts---a long time ago, the guy is long out of
business. They are ugly.
Serious question: Who is?
Maybe nobody in the US. Factoring is a big (and so far successful business model) in Australia, the UK and Europe. HSBC is viewed as pretty strong in that area.
Factoring in the US predates the US. Expertise is available.
Who are large and sucessful factoring players in the US?
Business Week with some perspective:
CIT's Fate Worries Retailers and 'Factor' Industry - BusinessWeek
Commercial paper has been dropping, no?
Maybe when everyone is not stealing from the next month or 2, that
will be a green shoot?
Secured by what and under what conditions?
Reprising some earlier posts: DIP is guaranteed by all cash flows and assets ahead of almost everybody else in bankruptcy. Since the alternative is liquidation, the bondholders assent to subordination for the duration of DIP. The DIP lasts through bankruptcy only, so the amount is small compared to cash flows & assets (and when it is not, DIP is hard to find.)
IANAL or banker or even knowledgeable, others should chime in with better info.
Gee, that "I" is eating the "T". Anybody else notice.
Their business ideal right there out in the open.
factoring is the retail equivalent of a no-credit-check ninja non-recourse loan.
retailer gets the cash, CIT gets to secure the inventory, and receives the proceeds from the sales. All is well if the inventory is liquid and has a FMV greater than the loan.
Good article, burnside & an interesting comment.
Addendum: And DIP is going for CIT like it should have for the big banks last october. However, the only guy big enough to provide DIP for Citi etal is the gov't, which invokes the "nationalization" bogeyman for those who can't discern between words and concepts.
factoring is the retail equivalent of a no-credit-check ninja non-recourse loan.
What are normal LTVs?
Reprising some earlier posts: DIP is guaranteed by all cash flows and assets ahead of almost everybody else in bankruptcy.
JP, with all due respect, this is a pretty generic statement. First of all, I do not think DIP financing comes in front of secured lenders, which is why the level of unencumbered assets is important. Secondly, given the supposedly short period of time in Ch, reliance on pure cashflows during bankruptcy cannot support much DIP capital.
They have to charge immense interest rates, the apparel industry is very risky
Lines can fail. That's the industry my factored client was in.
factoring is the retail equivalent of a no-credit-check ninja non-recourse loan.
Nope - factoring is based on the credit of the company who is behind the invoice as opposed to the credit of the borrower to who the invoice is payable.
Of course, like any lending business it can be run poorly without checking the credit of those companies whose invoices are used.
As I recall, the contracts are layered. In such a way that the client gets money to continue
the business, but any profits are at the very end, assuming the ultimate purchasers pay, and
the line sells. But it's a very long time ago.
OT.
Map of state unemployment rates. Which will climb higher in the months to come.
- NY Times
You can check that credit as much as you like but the invoiced clients
can go bust too.
A minor correction - factors prefer to take accts receivable as security. Rates are in the hard money range - the article says 20%. I've seen higher.
And as I type, I see Mr M got there first (and didn't miss).
Angry Renter (profile) wrote on Sun, 7/19/2009 - 10:31 am
* reply
* Ignore user
Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
could have provided health insurance to about 1million people.
Lovely Josap. Let's all go live in North Dakota.
First of all, I do not think DIP financing comes in front of secured lenders
My understanding is that it does. If the secured lenders do not subordinate, the alternative is liquidation. Therefore, the secured guys have a big say in Ch 7 or 11 (usually, forget GM) because they are deciding which way they recover more money on their ill-fated secured loan.
Secondly, given the supposedly short period of time in Ch, reliance on pure cashflows during bankruptcy cannot support much DIP capital.
My writing was not clear. All cashflows are pledged, including those past bankruptcy. My point about DIP lasting thru bk is only that the amount of money is relatively small compared to overall size of the biz, so that the DIP bankers have high confidence of getting paid back.
Angry Renter (profile) wrote on Sun, 7/19/2009 - 10:31 am
* reply
* Ignore user
Taxpayers losing a $2.3 billion "investment" from TARP with CIT's collapse. The free market would have killed this company last year. I wonder how many crazy loans they made between the TARP injection and today.
could have provided health insurance to about 1million people.
Cali's govt is failing and the unemployment is huge, and yet
nobody's nervous?
It snows in ND.
Not going there. Although we are going to CO on Tues to get out of the AZ heat. 115 here yesterday.
It does?
I guess I'm not going there either.
You can check that credit as much as you like but the invoiced clients can go bust too.
Especially when the invoices are coming from retailers during consumer-led recession
my guess is that CIT was hurt (although not the cause of their BK) by a bunch of Johny come lately who saw the profits in factoring without understanding the risks thereby driving down pricing below the required return for the risk. Easy money and booming economy hides all manner of sins for a while. Companies complaining about lack of lenders are probably complaining about lack of lenders prepared to lend at unrealistic levels.
Maybe at the end of this the Christmas season will not be the sole source of
profits, and we can enjoy Christmas/winter solstice without dragging ourselves
thru endless shopping.
if the other banks don't step in to take over CIT's lending markets, it means the businesses (CIT and their clients) shouldn't be there in the first place.
Hold some inventory, break bulk, book some logistics. All the nuts and bolts stuff.
But how many small businesses depend on little more than trade financing at slightly better rates than their customers' can?
In the case of small mfgrs supplying larger OEMs the answer is 'few or none'. The large OEMs have much better financing at lower rates... they don't have the inclination nor the skill sets to make things in-house anymore... and they don't want to expand their high salary overhead structure to do recapture those skills. They 'platform' now and leave the 'make things' part of the plan to the little people - those folks are funded bu companies like CIT.
I think there are a number of issues to consider here:
Continued consolidation of the financial services industry. If we kill CIT the way we should and don't kill GS the way we should, we get GS plus whatever segment of CIT's viable book GS soaks up.
Delta / time and not pure change being the controlling factor.
If the rates available become more "realistic representations of default risk" and simultaneously become fatally high / tight, then that is something we should consider. There is a real possibility of resonant interplay with consumer finance.
The government's role as lender of first, last and only resort. People haven't even begun to discuss the real impact this is going to have. The problem of central control isn't making good decisions fro ma single viewpoint, it's the political issues around whose viewpoint gets used, if anyone's.
which is not a greet shoot, Dr. Munch.
First of all, I do not think DIP financing comes in front of secured lenders
My understanding is that it does.
My understanding is the opposite
The BK judge can decide on many things unilaterally, but he/she cannot force secured lenders to subordinate their claims on collateral. Now, it might be rational for them to do so, but it would be a decision by secured lenders themselves (or they can be strong-armed by the government).
Well, there's a business plan doomed to failure, dry.
Perhaps they ought to re-learn how to make things.
Mrs. Helmsley iz in yr bznss plan messin w/ yr ovrhed.
Perhaps they ought to re-learn how to make things.
That's not the new and improved American Way, Liz.
The problem of central control isn't making good decisions from a single viewpoint, it's the political issues around whose viewpoint gets used, if anyone's.
Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
I am all ears
Yes, commercial paper has experienced a fairly precipitous decline - even with the Fed as a ready buyer - would appear to be demand is down.
FRB Commercial Paper
The fifth figure down is a graph of the outstandings - the link at the top called outstandings will take you to a table.
lawyerliz (profile) wrote on Sun, 7/19/2009 - 10:58 am
Well, there's a business plan doomed to failure, dry.
Perhaps they ought to re-learn how to make things.
The issue is one of, being compelled to learn to fabricate an air plane and doing so while falling from 35,000 feet. Not much time, few available resources.
Cali is only one state among many going bankrupt. Then you have to bail out the economy while the major financial players suck some percentage off the top of everything without contributing anything in return.
I'm not nervous, there's about as much suspense in this as in a roadrunner cartoon. The question is, what funny things will the coyote do while seeking to capture that which cannot be captured?
My understanding is the opposite.
I did figure that out.
The BK judge can decide on many things unilaterally, but he/she cannot force secured lenders to subordinate their claims on collateral.
I didn't mean to imply it was up to the judge.
The BK is filed either as chapter 7 or 11. If the secured lenders consent to DIP, then it gets filed as 11 and the judge oversees the reorg. If the secured lenders do not consent, then it gets filed as 7 and the judge oversees the liquidation. (The way they "consent" is to subordinate their claim to the DIP loan.)
GM was wacky because the bondholders stated that they'd recover more from 7, but the gov't arm twisting caused 11 to occur. (The bond holders are prob pensions etc, so that was quite charitable of those retirees to donate their money to GM.)
In real life, the road runner and coyote go splat, and get eaten by vultures,
only now there is doubt about the vultures.
"Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
I am all ears "
It's simple really. Banks finance campaigns. All that bank BS happened 6 weeks before an election.
Next question.
I was hearing ad's for factoring on the radio about a year ago. This is from the top of the search on Google
What Is Factoring?
Factoring is a way to get immediate cash. You send your invoices to us, we advance you up to 90% of the invoice amount, we collect the invoice and send you the remaining balance, less our fee.
Factoring is quick and convenient: a must for all growing companies in need of capital.
We purchase creditworthy accounts receivable at a small discount and fund you with immediate cash.
Thanks, that map is telling - as is the MSM starting to harp on U-6 - and your observation that the trend is not our friend in this case
If CIT were another type of company, government infusions or DIP financing would make more sense. But realistically, we are in a massive consumer retail contraction, and the receivables don't have much value.
However CIT also got into home loans and student loans. This shows the breakdown of CIT's business as of September, 2007.
14% home loans
14% student loans
13% manufacturing
9% retail, etc.
It's not viable because there isn't enough left. They've burned through their loss reserves and the losses are still coming, and will mount in the year to come. The truly secured lenders can pick over the best, and the semi-okay lenders can go for DIP, but the risks of the loans in this type of environment would dictate a rate of interest which will double the risk of many of these loans. They haven't got a continuing business with a cash flow on most of their loans that justifies anything but liquidation.
Being able to borrow money cheaply from the Fed does nothing to lower effective interest rates when the loss risk is so high. What kind of discount would anyone on this board require on a portfolio of student loans these days? Small retail? Gurgle. That stuff is 20-30 cents on the dollar.
The Cost Of The Factor's Money
So, what is your cost of money? (Here's where it gets interesting and where the major misunderstanding lies.)
So they end up with 30% return? Or not? Factoring is a pawnshop for business
Let's set up an example. You're selling $100,000 worth of widgets to General Motors every month. You ship them, then invoice GM for the parts. Let's say you've arranged 30 day terms. You also have terms of 2.5% for 30 days with your factor, with an advance of 85%.
You send the factor a copy of the invoice at the same time you invoice GM. The factor checks with GM to ensure the widgets were delivered in good condition. He then transfers $85,000 to your account by check or wire transfer. This is usually within two days of receiving the invoice. You've got operating money!
Thirty days later, GM pays the factor $100,000. The factor deducts $2500, then pays you $12,500. You do this 12 months out of the year.
What's your cost of money?
In almost all cases, my prospective clients, thinking in terms of loans, multiply the 2.5% by a factor of 12 and say, "Thirty percent! That's too expensive."
The correct answer is, of course, 2.5% if each invoice is paid within the first 30 days. (This percentage will go up incrementally with any invoices which are paid over 30 days, generally 1/30 per day, but it's still FAR BELOW the current cost of borrowing from banks or getting lines of credit.)
To prove my statement, multiply your monthly sales to GM by 12. That answer is $1.2 million. Now multiply the amount you paid for each invoice by 12. That answer is $30,000. And $30,000 is 2.5% of $1.2 million.
Please tell me where, in the banking system, you can get money at 2.5%? That is, if you can get a bank loan at all in today's uncertain times.
Well, there's a business plan doomed to failure, dry.
Perhaps they ought to re-learn how to make things.
They aren't interested - the companies are run by financial types - similar to the majority of the mind set you see on this forum weekdays - the 'invisible hand' will do that kind of messy stuff and they will be free to 'trade on it'.
Well we are coming to a period where there might not be a lot of stuff made - here at least and without tradeables to trade difficulty buying from somewhere else. So quite possible a much less 'prosperous' culture. Prosperous as defined by buying crap you really don't need.
Seeing that reigned in won't be all bad by any measure. It was a mindset that was unsustainable from the get go.
MoM!
Welcome back!
MrM (profile) wrote on Sun, 7/19/2009 - 11:03 am
Obama will have to explain why he insisted on BK for GM and Chrysler, and now CIT (all the good decisions, btw), but provided taxpayer funds that ended up as bonuses at Citi, BofA, AIG, GS (via AIG CDS payouts).
I am all ears
I don't think there will be political comeuppance for this because I don't think the population as a whole can formulate the question. This is "math is hard, let's go shopping" America. The people who hate Obama hate him because he is "against" Brand Elefunt. The people who adore him are like Brand Elefunt loyalists with their bromantic crush on Messiah Bush, it's about Brand Donkee, not about what Brand Donkee does.
The real issue is that these are just insanely poor schema for allocating resources and they will spend a lot of finite resources going in circles.
Ok, what is the theoretical maximum for the percentage of the
economy for consumer spending which is more or less sustainable.
Isn't that the question?
The shoot from the hip answer seems to be 50% but I am willing to be
proved completely, totally wrong.
I am in the mood for gazpacho.
And tomato bread.
Will I have the energy? Is the yeast still functional? And should
I put some millet in the bread for some crunch?
Repeating an earlier question with more detail:
Perhaps I am mistaken, but I thought CIT was a large provider for LBOs, which has nothing to do with factoring. Does anyone have a link to the relative size of the businesses?
The BK is filed either as chapter 7 or 11. If the secured lenders consent to DIP, then it gets filed as 11 and the judge oversees the reorg. If the secured lenders do not consent, then it gets filed as 7 and the judge oversees the liquidation.
Ch7 and Ch11 simply serve different purposes - liquidation and reorganizaiton, respectively. I do not think that consent of secured lenders to DIP financing is required, although the largest secured lenders are often consulted with before filing.
If the judge believes your company has a reasonable chance to reorg, he/she will allow you to file Ch11, which later can get converted into Ch7, btw. This will give your company some time to prepare the reorg plan.
I think that while difficult, it is not impossible to file for Ch11 even without DIP financing outside of pre-packaged BKs.
The real issue is that these are just insanely poor schema for allocating resources and they will spend a lot of finite resources going in circles.
AND with the skim coming off of each circuit...what is the quote, "Finance is the art of moving money back and forth between two hands until finally it all disappears?"
Oh, most of my replies that sound intelligent - they came from Factoring websites. Me, the best I can tell is factoring is the pawnshop for business. It works, and makes a lot, until...
lawyerliz (profile) wrote on Sun, 7/19/2009 - 7:51 am
Cali's govt is failing and the unemployment is huge, and yet nobody's nervous?
I'm nervous. But you knew that. I also live in California!
Those pancakes sound good, Liz, I'm on it.
The issue is one of, being compelled to learn to fabricate an air plane and doing so while falling from 35,000 feet. Not much time, few available resources.
Exactly.
Someone later might learn from the pieces of airplane they find in the corn field after the crash... but those in the plane are doomed.
There's many a slip twix finger and lip, nova.
My guy always seemed to have trouble getting the 2nd payment.
why, exactly is lost in the midst of time.
Most small manufacturing businesses are going to have a very difficult time meeting bank covenants based on fixed charge cover ratio and the like right now. If they are borrowing from CIT and CIT goes down, it will be very difficult to find financing.
If my business credit line was with CIT, I would be very worried.
Made gazpacho last week and donated it to the local hungry, student bartendress and her boyfriend (after a proper taste test, of course).
Go for it, Liz!
Unless they have a golden parachute.
CITs business model is not viable. What's wrong with removing an unproductive activity from the general economy? The counter-argument is that their customers will also fail with them. Again, I ask, what's wrong with that? Oh, at some point it becomes systemic risk. Fine, instead of BK then run off the business. Govt subsidies to the eventual buyers to justify the transition. If CIT financing is necessary for all these businesses to operate then we are yet again only addressing a symptom.
LL,
Nothing like a cushion to take the sting out of a stumble.
I still want an answer to my question.
What is a maximum sustainable consumer % for the economy.
Seems that that should tell us when this Great Recession will end.
lawyerliz (profile) wrote on Sun, 7/19/2009 - 8:18 am
Unless they have a golden parachute.
"Parachute" wasn't the word I was thinking of.
Well a metal parachute will fly like a brick.
But I think that metaphor just broke.
The CIT business model may well be not viable, but many businesses depend on it.
Say, CIT charges 30% in annualized charge. That means that about 70-75% of its customers do pay on time - and now they will lose their funding. How many of them will be able to get lines of credit from banks and how many of those CIT customers will end up closing down?
What is a maximum sustainable consumer % for the economy.
That is why I never, well sometimes I really want too, believed in the greenshoots thing. There is no longer the pool of discretionary income via HELOC's to support the pyramid build on top.
Perhaps I am mistaken, but I thought CIT was a large provider for LBOs, which has nothing to do with factoring. Does anyone have a link to the relative size of the businesses?
Caution - anecdotal info following!!!
I don't have data but know of a number of LBOs [companies I work with] and CIT wasn't involved in any of them EXCEPT as part of the everyday funding of operations before and after LBO transfer. The LBO funding came from TWO places [in general]... (1) GE Capital and (2) large regional banks like Key Corp & PNC...
The regionals also did factoring but not much anymore - too heavily exposed to CRE.
If a good, but cyclical, business needs a credit line to meet fixed costs when top line revenue is down and that business is unfortunate enough to have its line with CIT, it seems a shame to let that business fail along with CIT.
True, that's life in the fast lane, but there is a societal cost to allowing these businesses to fail.
But I think that metaphor just broke.
Yes, and quite often in the real world, the coyote catches the road runner.
Is this a
hat or a silver pyramid.
How many of them will be able to get lines of credit from banks and how many of those CIT customers will end up closing down?
What happens when the people who are paying them begin paying 60 to 90 days late or with IOU's? The banks pulls the line of credit?
I do not think that consent of secured lenders to DIP financing is required, although the largest secured lenders are often consulted with before filing.
It's not required by the bankruptcy court, but the DIP provider requires it before signing over the money. When financing docs are drawn up, there are signature pages for everybody in the capital structure. (Not just secured lenders.) Otherwise, the DIP bank is not assured of payback and simply refuses to loan the money.
which later can get converted into Ch7, btw.
Yes, I didn't want to complicate the issue any more than it already was.
I think that while difficult, it is not impossible to file for Ch11 even without DIP financing outside of pre-packaged BKs.
Again, it's all about the money. If the BK company has the cash on hand, DIP is not required. The fact that CIT requires DIP is an indication of how badly mismanaged they are. As an aside, when the secured lenders are negotiating over the DIP, they should require changes to BoD and officers so that the internal culture starts to change.
Consumer spending will be lower for a long time.
The long term green shoot is that we have a large and growing pool of educated out of work professionals that can be put to work. Problem is, wages are sticky on the way down, but when enough run out of benefits they will be willing to work for less. If we can find something useful for them to do.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
A business with negative EBIT is going to have a very difficult time changing lenders right now, even if cash flow is positive. In manufacturing it is tough not to have negative EBIT over the last 6 months. Just ask Alcoa (they need to hire GE-trained accountants),
Yes, but I am now asking for some theory.
What is the max consumer spending %age that can be sustained.
Anything better than my shoot from the hip 50%?
Seems like if 50% is right that means that roughly 28% of consumer
spending needs to go away. I could do that. Don't want to and won't
unless forced, but could.
Comrade Coinz,
And a large part of the educated, professional level class built a "lifestyle" based on a 6 figure income. Unemployed, how many will return in time to the cash flows needed before the entire house cards they built collapses? Plus, how many, even if they find work, will return to the salary level of 2007
EBIT? Is that anything like OBIT?
LLiz: Yes just like it.
EBIT = earnings before interest and taxes.
Liz, I can't guess at a real number.
HELOC spending is no more. 10%
The unemployed don't spend. 10%
The underemployed spend very little. 6%
Savings rate is up - no spending. 6%
CC availibity is being cut massively - no spending. 3%
Looks like a 35% drop just from the above. Not adding in IOU pay checks and people stashing cash in the matteress. So my guess is between 40% and 50%.
A business with negative EBIT is going to have a very difficult time changing lenders right now, even if cash flow is positive. In manufacturing it is tough not to have negative EBIT over the last 6 months. Just ask Alcoa (they need to hire GE-trained accountants)...
They almost have to be negative EBITA right now - if they aren't they are pricing too high in the market and will lose contracts going forward from others who are more concerned about immediate cash flow.
This is one of those periods where the weak die off - what people don't appreciate is (1) how many weak there are and (2) how it will effect them both economically & socially.
And CIT is just one small piece.
@nova,
Yes, a lot of painful lifestyle adjustments are in progress (or denial). I personally know a couple that went from combined $400k/yr to $100k/yr.
They have given up the Porsche SUV, defaulted on the condo rental property, and are downsizing from a 5 bedroom McMansion to daddy's 3 bedroom rental. It's very very hard to adjust your lifestyle down. I've done it twice.
Hmmm, ok josap.
That is valid.
Wasn't the way I was thinking about it, but that's why I am here.
I was looking at it from the point of view that--given a closed system--you have to
make everything you spend. Maybe.
You are looking at it from the opposite way.
This is how we spent more than we had, and this has to go
away.
Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from taxation. I think we are very close if not past that particular event horizon.
It's very very hard to adjust your lifestyle down. I've done it twice.
I never moved up, so I won't have to suffer coming down.
"I've done it twice." I would be interested in seeing your thoughts on the +/- of the experiences and how they impact your present world view.
Comrade Coinz (homepage, profile) wrote on Sun, 7/19/2009 - 11:28 am
The long term green shoot is that we have a large and growing pool of educated out of work professionals that can be put to work. Problem is, wages are sticky on the way down, but when enough run out of benefits they will be willing to work for less. If we can find something useful for them to do.
Just FYI, my suppositional contribution to the state of the art of my chosen field of study is this: "state failure parameters are based on expectations". People in West Germany would consider their state "failed" a lot sooner than someone in West Africa. Consider that well.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
Easy to say.
You better find a way to make it otherwise, or they'll drag down the state. Working them to death in workhouses won't be an option this time. The firearms the Founding Fathers saw fit to pass out to all and sundry will assure this, may the angels smile upon them.
It's very very hard to adjust your lifestyle down. I've done it twice.
I've not had to do it since I was a kid... but then as an adult we didn't go back up over the top. Cheap old house. Inexpensive cars driven into the ground... vacations that usually involve tents somehow, somewhere - etc.
But you are right... it will be an eyeopener for a lot of folks.
It's very very hard to adjust your lifestyle down. I've done it twice.
So true, especially if it is down under the gun.
Wise folks keep their eyes open to the early brown shoots in the economy and start scaling back dramatically at the first signs of trouble. Or never get into the squirrel exerciser wheel in the first place.
Comrade Coinz,
So you eat stress for breakfast, lunch, and dinner? Cause that sounds insanely painful
One can live nicely in many places on low 6 figures!!!
And yes, I've done it once, when we moved to Fla in 72.
It is easy to increase spending, hard to cut it back.
Which is why saving is a good thing.
On 400k, why didn't they save and pay cash for the Porche?
Oh, never mind.
Liz, I just looked at funding no longer available and that some people are now saving.
I am sure there are many other factors in play.
Our oven bottom burner stopped working the other day, The stove is really old. We bought a new element rather than a new stove. Two years ago when both hubby's and my businesses were going great, we probably would have used the dead element as a justification to buy the super stove hubby would love to have.
We can buy a new stove, but our decision making about expences have changed. When that type of thinkingn enters the mainstream spending may even be lower.
Define really old.
We cut by buying a super cheap house.
Since we worked all day and went to law school at
nite, there wasn't much time to spend money. Oh, and
we paid for the tuition as we went. No loans, unless you
take into consideration that money is fungible, and we
charged some living expenses.
Can't be done today.
Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from taxation. I think we are very close if not past that particular event horizon.
One small correction:
"Never mind what percentage of consumer spending is sustainable. Rather be very concerned with the maximum percentage of GDP derived from GOV'T EXPENDITURES. I think we are very close if not past that particular event horizon."
Ever since Reagan BOTH parties have spent WAY more than taxed... the former does eventually drive the latter unless we accept monetary inflation as a SOP. IMHO - that is what is on the event horizon and nobody - not Team O nor the hapless GOPers is facing up to it... we got tax cutters [GOPers] and stimulusers [Dems]... but nobody facing the real crunch - we need to produce more and consume less & gov't is a huge net consumer.
Just as the generation of adults who lived through the GD in the 30's tended to be very cautious about spending the rest of their lives, I think it takes a crash-land (or near) for an individual to avoid in the future the temptations of debt-fueled day to day living. You may have to burn your hand on the stove instead of just hearing about it.
Rob Dawg (homepage, profile) wrote on Sun, 7/19/2009 - 11:38 am
I think we are very close if not past that particular event horizon.
Accepting Dryfly's caveats, which he phrased better than the ones I was typing, yes. Certainly in CA. You might be able to pinch a bit tighter here in Byzantium but you have to start asking why.
Ok, this is going to sound really elementary. It just occured to me cash is like blood in the body or oil in an engine. CIT failing is a sign that blood is no longer getting to the extremities. Money is our sugar except we became diabetics. Now comes the death of the feet. Then the legs.
Adjusting my lifestyle down was probably not as hard for me as some currently going through it.
Both times, I was mentally prepared (somewhat) because they were the result of the failure of small businesses I started.
I knew going in that it might not last. While it did, 4 years the first time, 6 years the second time, my income was very high.
Then, when I had to go back to work for someone else, income was much lower and despite my savings and preparation, it was still hard.
There is also the "working for someone else again" part that is an ego hit.
Over time, you get used to certain luxuries that eventually become "normal". When those go away, you face the new normal.
I think it is harder for someone who loses a lot of income when they get fired or laid off compared to losing a business.
I heard about it, and I didn't do it.
And I think I know some 20 somethings who have
suddenly gotten cautious.
I don't think the gov't spending is as doomy as some here think.
That's because I think that an ever greater part of the economy is
going off the books.
papereconomy has a nice article on commercial paper contraction:
Paper Economy - A US Real Estate Bubble Blog: Outstanding Contraction!: Commercial Paper Outstanding July 16 2009
And it looks like Barry Ritholz is firing back at claims of a bottom:
7 Reasons Why Housing Isn’t Bottoming Yet | The Big Picture
There are other Factor companies... The real problem is many of the 1000s of small businesses are not credit worthy. CIT had an interest in "working" with them in order to collect open liabilities.
We will also have a large pool of uneducated, low skilled workers. Things will bleak for this group.
Easy to say.
You better find a way to make it otherwise, or they'll drag down the state.
There is certainly some risk in this area.
I don't know how to fix this situation.
When I was getting gas on Friday, I was solicited by two people, one guy selling cologne out of a backpack, the other selling windshield crack repairs. I am sensing more desperation lately.
Still want some theory on what percentage is sustainable max of consumer spending.
Dryfly,
Yes. I said "derived from taxation" for those very reasons. I sure as hell haven't seen either side of the trillions spent on my behalf with my money. Somehow I don't think I'll be seeing a net balance of those two either.
Gov spending along with a huge drop in tax income is going to force most states to lower (thier and our) living standards. Weather those standards are pay cuts, services, fewer orders of hard goods, no replacement of equipment, not upgrading systems, they will spend less.
They will also tax more. In some states increasing taxes is a very uphill battle, the fee increases are killers. Increasing fees a few dollars to an individual or a few hundered dollars to a business seems to create less of an outcry.
" One can live nicely in many places on low 6 figures!!!
And yes, I've done it once, when we moved to Fla in 72."
Gosh, you are making me feel like a pauper with my low 6 figure salary in SF in 2009.
EU runs 58% of GDP = consumption, lower than the US because of stronger export position.
US was 62% in the 1980's - started the climb to 70% as top tax rates were cut. Hmmm.....
Tax increases in Miami-Dade total $17 per parcel average. Lots of cuts too, firing
of personell. Nobody is screaming over the 17 bucks that I see.
In San Francisco, I understand that does make you a pauper!!!
Here, I live on 2 1/2 acres, 2800 square foot house, soon to be equipped with
new curtains, pool, fireplace etc, etc.
Ummm, in 72, we were NOT making 6 figures.
Try inflation adjusting your current income back to 1972 dollars
km4 (profile) wrote - 7:20 am
Defanging the Fed: Why It Needs Less Power, Not More
William Greider gives six reasons why handing the Fed more power is a bad idea:
i thought we already had a privileged club that dominates everything
i think they call it yale...and harvard
ps im not necessarily disagreeing with you...just sayin
The fee to get a sales tax lic in most cities in Metro Phx went from $15.00 to $70.00, per property (single family unit).
The also are requiring documentation that each owner is a US citizen, and charging a hefty fee to file the paperwork you send in. I know they do not verify any of it.
"In San Francisco, I understand that does make you a pauper!!!"
I live (mostly) modestly and sock away tons of money. I'll never be able to afford a house around here. Probably not even if there is a 50% crash. Friends of mine that bought are all hurting, including a doctor that makes 5x what I do.
JP - I think our views are not that far off, after all
Hey mock!
I've been much-absent lately.
Good to see you!
CPI Inflation Calculator
$35k in 1972
equals
$180 in 2009
Got something interesting in last month's mail from Chase. According to them they "reviewd my last payment" and divined that I had intended to close my HELOC. Never mind that this last payment was a yeat and half ago. Since it's been "reviewed" they've locked it. I can:
a) Confirm my intent to close and I won't be charged any closing fees. No matter that I haven't had any closing fees since the initial 1 or 2 year period expired.
b) Request that my account remain open.
This reeks of "you've won a free vacation to Hawaii" telemarketing crap. I could see it from a shadier bank, but from Chase, who I've never been late with...
"$35k in 1972
equals
$180 in 2009 "
in 1972, supposedly you could buy a very nice house in SF for $35,000.
in 2009, $180,000 buys you nothing. $500,000 buys you nothing.
Holy crap. We are making only slightly more!
And yet we are living much better.
No kids to support?
House bought at right time and paid off?
Mom living with us and contributing?
No tuition to pay?
In '72, we could have bought a nice small house in the Gables for
27k or so. We felt we couldn't afford it. Our whole lives would have
been different, had we bought it.
For 35k, we could have gotten something very nice indeed.
It really depends on where you live. In New Mexico $500,000 will buy a LOT of house.
Chase is trying to close down inactive accounts before they ramp up. You are not generating any revenues for Chase but represent a potential default risk - no upside, only downside from Chase's point of view.
You can buy a very nice house in Brevard County for 180k now.
You can buy a very nice house in Miami Dade for 280k, and a very
livable one for 180k.
I can't tell you how much 500K woud buy you in Miami-Dade, because virtually
nothing in that range is moving, but I trust you could get something pretty darn
fabulous.
I'd sell you my house for that much (if I were selling), but I'm not sure whether
I'd be overcharging or not.
In 1989, $220k would get to a tool shed with running water in southern Marin.
In 1955, the same house cost $5,000 new.
OT: I'm gonna invest me in some REIT IPOs and become rich!
The planned IPOs, which include units of firms like Apollo Management [APOLO.UL] and Alliance Bernstein Holding LP, could be just the beginning of what some bankers expect to be a boom in Real Estate Investment Trusts (REITs) going public over the next few years.
RPT-IPO VIEW-US REITs seeking billions in IPOs, follow-ons
| Reuters
Go right ahead, JP.
Just let us know how that works out.
Oil in the engine, nova - except far too many have bought into the mistaken notion it is the engine - anyone who uses the phrase 'finance industry' probably shares this delusion.
LLiz: I can see your jealousy through the intertubes.
Dear Fascist Scumbag,
Gimme money like you did for everyone else.
Sincerely,
Pig Man Wannabe
Chase is trying to close down inactive accounts before they ramp up. You are not generating any revenues for Chase but represent a potential default risk - no upside, only downside from Chase's point of view.
True. My total mortgage+HELOC is still less than 80% of total equity though.
I'm tempted to call and get it unlocked. If they ask what it's for I'll tell them hookers and blow.
It's a switch from when I took out the HELOC for a future emergency. I want $X, they talked me into 2$X with a lower rate and were practically begging for me to take 3$X. 3*$X was more than my first mortgage by an a fair amount.
I wonder if it's possible to give up the HELOC for a lower interest rate? Since I'm a good credit risk they didn't sell my mortgage to one of the government agencies, therefore I don't qualify for one of the super low interest rates they are (were?) offering.
Dear Fascist Scumbag
p.s. Less tax too, a$$hole.
Sincerely,
Pig Man Wannabe
I wonder if it's possible to give up the HELOC for a lower interest rate?
Lower interest on what? On your mortgage? If both mortgage and HELOC are from the same bank, it might make sense to call the bank and ask.
Folks had a fair amount of time to secure alternative arrangements as CIT woes were known. If the basic business model that served them for so many years is intact, someone will buy that business.
Byzantine_Ruins
great to hear from you too
Because of CIT’s primacy in this field, they have essentially become the banker to “Main Street" . This is the reason why the Obama administration is not interested in bailing them out because they are on the Main St. team. I'm sure if CIT'S failure had a negative impact on Wall St. they would run to the rescue. They are probably planning a takeover of all these loans by the" Too Big to fails" with the backing of the government? This will give them control over all these small businesses without having to call it an official bailout. They want all these small businesses on their knees begging so they can blindfold them and begin the whipping!
CIT's problem is not the quality of it's book, but rather very high cost of funding.
Large portion of CIT's book is it's aircraft and rail leasing business, and government guaranteed student loans. The rest of the book is not doing great, but it is not horrible.
The problem is that most of their funding is from bond sales, with high and getting higher rates. When you lend at 6% and your funding costs are > 6%, it does not matter how good your loan book is. Another mistake is when they converted to a bank holding company, pretty much all of their deposits were brokered, and it seems that FDIC decided to make an example of them.
CIT should file for Chapter 7, wipe junior bond holders and bellow, convert senior unsecured to equity and leave senior secured as they are. That should give them around $40B in real equity. After that, change the name, expand the bank, reduce dependence on brokered CDs and start making SBA loans again.
After BK, CIT could be stronger than it has been in last 3 years.
need I go on? good articles: Interesting Finance & Economic articles
motgagepayer, great site. Very interesting.
that "I" is eating the "T". Anybody else notice.