Bits Bucket For September 17, 2008
Please visit the HBB Forum. Post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
About Me
Name:Ben Jones
Location:Northern Arizona, United States
To donate by mail, or to otherwise contact this blogger, please send emails to: thehousingbubble@gmail.com
PayPal is a secure online payment method which accepts ALL major credit cards.
Links
-
May 2024 M T W T F S S « Sep 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Photo Submission: hbbphotos@gmail.com
View the HBB Photo Gallery *updated 4/13/2008
Reactions to AIG’s recapitalization, comrades.
Fedguv - git your damn hand off my wallet.
At some point I foresee political unrest within the U.S., in the form of a tax revolt.
by not paying the IRS? they got concentration camps to stick you into.
My hope is that it won’t come to that.
My hope is that people of the Ron Paul cut of cloth will gain enough political momentum to actually get elected president at some point, and fix things.
One can dream, can’t one?
(P.S. I didn’t say Ron Paul himself, since unfortunately he’s just too old at this point to be elected. Hopefully someone younger but very similar in principle will work their way up the political ladder - the time is right!)
Ok - but what do we do in the next 4 to 8 years while this new leader develops.
The Republicans are the party that wrecked America in the last 8 years.
Ron Paul must start a new party!
Ex-Republican
It is my opinion that Ron Paul may have missed an opportunity to at the very least discuss what he felt needed to be added to the GOP agenda when he declined to support McCain. Now, not having been a fly on the wall when that meeting or call took place I cannot say for sure what happened. But had he been able to insert the key positions or some of them into the McCain position it would have been complimentary to McCain’s “Reformer” status.
I’ll bet McCain wishes he had been saying what Paul has been saying all along about the economy.
And to the Obama supporters, no need to flame me. I respect your choice, please respect mine.
Ron Paul is the same age as John McCain and in better health.
Ron Paul not only is in better health, he can Think better than McC. He can speak better than McC.
Heck you can be in a wheelchair and be a great leader IF you can think. Heck you can have alzheimers and if you can speak well…And articulate your thoughts to lead and encourage people to understand how you are going to fix things. So far, only one of those running can do that.
It is my opinion that Ron Paul may have missed an opportunity to at the very least discuss what he felt needed to be added to the GOP agenda when he declined to support McCain.
From what I understand, the McCain campaign treated Ron Paul like garbage, and gave absolutely no respect to his ideas whatsoever - they merely wanted his supporters.
My problem with McCain is that he is a third-generation “government employee”; his father and grandfather were both admirals.
My experience with people who have only worked for the government, is their view that the private sector’s primary purpose is to supply funds for the government’s operation.
“I’ll bet McCain wishes he had been saying what Paul has been saying all along about the economy.”
Except he doesn’t believe it and neither do his advisers.
“Ron Paul is the same age as John McCain and in better health.”
Yes but he’s 4 years behind McCain now, since the earliest he could be elected is 2012. There’s no way the U.S. will put a 78-year-old into office, no matter how good health he’s in.
Plus we need a candidate who can hopefully be in place for two terms, to really straighten things out. Paul would be 86 by the end of his second term.
Plus - to be perfectly honest - while Paul is a good speaker he doesn’t have a lot of other elements of charisma that would help him get elected. That’s another reason why I think the ideal candidate who actually could get elected would have to be younger person and someone who’s very well-spoken. While most of us here look past charisma to the ideals of the candidate - for the most part the American public does not.
To wit - Obama. If Obama was not as charismatic as he is there’s no way he’d be a viable candidate. He’s just way too far left. His charisma is what’s going to get him elected. The U.S. public has become that dumb.
Collecting money is the one thing the government is spectacular at.
Money keeps the politicians in power. Money allows them to shape the narrative the present to the voters.
So, they might not be serious about war, disaster relief, economic regulation, but you better believe they’re serious about collecting money.
Dr. Doom argues the lack of transparency and accounting a BK filing provides creates opportunity for smart money to escape unnoticed.
At some point I foresee political unrest within the U.S., in the form of a tax revolt.
If the economy is good, then we need to lower taxes to keep it strong, and we need “fedguv” off our backs. If the economy is bad, then we need to lower taxes to keep it strong, but we need “fedguv” to bail us out with taxpayer money.
If there is any political unrest, it will be from younger Americans rebelling against paying for crushing federal deficit payments handed down to them by Boomers who didn’t want to be taxed at the time the deficit was created, but still expect their full range of entitlements.
If there is any political unrest, it will be from younger Americans
there will be political unrest and it will be from younger Americans
I’ll revolt. Just as soon as I finish this xbox game.
I was thinking a large proportion of these kids don’t know how to pick a friend w/o Mommy and Daddy’s ok. Don’t know how to fill time w/o parents dropping them off somewhere and saying do this.
And they’re going to organize and revolt. Maybe a la “Lord of the Flies”.
bluprint..funny.
yep, some of the kids ala 19 yr olds etc can’t make a move or live without mommy/daddy sporting the bill.
Giving them the car,buying clothes, finding them the job, getting them into a school. dang, I did all that and so did you guys W/O mommy/daddy’s help. Or at least I did.
I don’t suspect we will be having any young ppl revolting, as bluprint says, not done with xbox yet.
Bread and circuses, 21st centur style.
Good thing we’re bringing freedom and open markets to Iraq. I shudder to think about how empty the lives of the backward people of Mesopotamia would be without bank runs, federal bailouts of private companies, and the chance to grow up to become an incompetent CEO with a golden parachute. Let’s show them how a country is run! Let’s bring mortgage fraud, ARMs, and even Leslie Appleton-Young to the suffering masses of Baghdad. We can because we’re Americans.
Yes, our empire may be crumbling from within, but we’ve still got the will, the firepower, and the funds (well maybe not the funds) to show other countries how to really screw things up. God bless America!
That’s funny. I actually just bought a ps3 and a wii to try to keep myself out of trouble. The soma’s not really working for me, though.
Will youngins’ rebel against technology when push meets shove, or embrace it in a double-plus-good fashion?
Good thing we’re bringing freedom and open markets to Iraq. Well this administration feels a need to export these because we have this terrible surpluss over here. “The sooner we can get rid of our excess freedoms,” the better would seem to be their motto.
‘… it will be from younger Americans rebelling against paying for crushing federal deficit payments handed down to them by Boomers who didn’t want to be taxed at the time the deficit was created, but still expect their full range of entitlements.’
Well, you can fookin’ well count ME in.
Bring the lasguns, oly!
How does keeping the Fedguv’s hand off your wallet protect you from a future inflation tax?
Exactly.
How can you have a tax revolt from the inflation tax? Clearly you cannot “stop paying” it.
The political unrest will be in the form of dollar collapse as people realize that abandoning the dollar will be the only way to avoid the inflation tax.
“At some point I foresee political unrest within the U.S., in the form of a tax revolt.”
Er, hasn’t that what we’ve been doing since Reagan? Doesn’t cutting taxes just make the deficit and our debt go higher?
Pocketing a tax cut while allowing deficit spending is treason.
Pocketing a tax cut while allowing deficit spending is treason.”
Tax cut for who? Not those who actually need it but rather those who already have their needs met beyond our wildest imaginations. So those who need it (us) get to finance this gift and pay interest on it too? This is *theft* from those who cannot afford it and into the wallets of those who don’t need it.
Absolutely, exeter! It’s because those with money control the puppets in Congress.
The middle class — especially without any kind of organized coalition (like unions) — is powerless. My greatest hope is that the former middle-class rises up and unionizes again so there will be a balance of power. We’ve been lopsided for a long time now.
And all you Ron Paul suckups can thank him for designing it, before abandoning Reagan for not having the balls to just “let them eat cake.”
Nah - Nowhere to viably increase taxes. Easier by far to simply add byte by byte to the Fed/Treas balances…. ad infinitum
Triage on a life raft.
Zandi was just on the radio saying that the end of the crisis is near because the government is acting boldly. Dodd was on earlier. The only thing that drone could say is, “we have to stop foreclosures”. There is no end to this crisis because the “leaders” and “experts” are all clueless tools.
I don’t know what’s worse: The ones who should have seen this coming, but turned a blind eye because too much money was being made…or the ones who are trying to ‘fix’ failing businesses by nationalizing them, then letting them go right back to the same business models that got us in this situation in the first place.
letting them go right back to the same business models Nobody is going right back anywhere — it is not there anymore.
Let us not forget Barney Frank on NPR about the potential for a new federal agency to buy up troubled financial assets. The interviewer asked whether it would be akin to the RTC. Frank’s answer, and I paraphrase, “No, not like the RTC. The RTC bought real assets. This agency would buy bad financial assets and hope they are worth something someday. The only risk is that the taxpayer loses money.”
Barney Frank was on Nightly Business Report on PBS.
His solution to this current problem is for the government to buy up all the bad debt out there. And then impose regulations on the financial industry, going forward.
I was actually not surprised. And if Frank actually proposes it, it’s what the REIC wants. As silly as it sounds, I do expect something along these lines to occur.
Frank wants to stay in power, and his donors aren’t going to give money to someone who does not strongly advocate for their interests.
too bad the life raft has a hole in it.
Once again, it all came down to keeping real estate prices high. How ironic is that - our tax dollars at work to blow up the bubble!
Where do we stand on the question of whether there will be government bailouts?
The US government is broke. So we borrow from the Chinese to pay off the Arabs? Have your taxes gone up? Heck, they sent me a check. This looks like Texas in the 80’s to me. Here’s what I said in 2005:
‘Open Source with Christopher Lydon. Recorded Live, Monday, August 01, 2005 | The Beginning of the End of the Bubble
CL: I heard your say ‘they;’ is someone doing this to us…is it being done or is it just happening?
BJ: I really question whether the likes of Countrywide Financial and GMAC, that they could make the kind of decisions about mortgage lending that have been going on. I think they have to have been given the green light at some level…I think that in the long run, abandoning those traditional measures of lending are going to be a disaster.
CL: Not to ask for predictions Ben, but you’ve seen these patterns. What happens when the cycle completes itself?
BJ: Some gentleman said onetime that..’people lose their minds in herds, and then they get their minds back one by one.’ So I think that’s what’s occurring right now. If it’s anything like we saw in Texas in the oil states in the 80’s 90’s, it will probably be a cascading set of defaults.
CL: City by city, or concentrated in certain growth places or around the country, or what? A national effect?
BJ: I expect they’ll break down regionally.
At this point, it looks like things are breaking down at the top. But I expect the problems at the GSEs, Lehman, AIG and whatever other big fish get taken under will trickle down to the regional level over the next year or so.
I’ve always understood BJ’s consternation about bailouts to mean that nothing was going to stop the correction of housing asset prices.
Nonetheless the Fed et al keep talking about backstopping the housing market to this day! Even if they had the means, is it that hard to understand that respiking the home construction punchbowl will only serve to add to the existing glut of high-end housing? How long can a cadre of the world’s top-ranked economists keep feigning ignorance on something so basic?
Does anyone know what the full terms of this “loan” are? Odd that a lender would receive equity.
This is an example of the new rule allowing the Fed to take “securities” aka “stocks” as collateral for loans. Now any company that needs a bailout can simply issue stock and use it as collateral.
Release Date: September 16, 2008
For release at 9:00 p.m. EDT
The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act. The secured loan has terms and conditions designed to protect the interests of the U.S. government and taxpayers.
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance.
The purpose of this liquidity facility is to assist AIG in meeting its obligations as they come due. This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month Libor plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
http://www.federalreserve.gov/newsevents/press/other/20080916a.htm
The Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility …
Does that imply that “orderly failures” will be allowable, even among the Big Kahunas?
Thanks Leighsong. How do those terms compare to say a subprime loan? In essence AIG is a subprime borrower if they are on the verge of collapse so the rate should be higher to cover the increased risks. LIBOR + 850 seems a bit low to me.
That is huge ~ 13% about right for a financial company with opaque balance sheets in this market.
oc -
I agree with Hoz - dang near credit card interest!
Leigh
Why 79.9% and not 100%. Was it a money thing or a control liability matter?
Why 79.9 percent? Thats to allow the minority=public a board member.
Wall Street laid a broken AIG named Humpty Dumpty, and all we get is more market malfeasance from the somewhat treasonous.
You’re the Gilbert Arenas of the HBB Pun Team. Throw up enough shots and something is going to go in.
“lead to Reduced household wealth”… WTF.
Whose household wealth? The guys at the top?
Still protecting the few, not the citizens, just the cronies.
Protecting the “have mores” ala Bush.
Sounds like the same Gilbert Arenas who used to make us cringe during his University of Arizona career. Some things never change…
Throws up a preyer from just past the 3 point line, off the backstop into the net loss.
Reaction on the financial markets:
Flight to quality
$85Billion!. Executives of AIG must be salivating because they will give themselves a big fat raise, bonus, and a huge exit compensation plan. All this will be hidden somehow in the books. They will think in the next 6 months, all is forgotten.
Hmm. I just can’t imagine sitting at AIG logged into eBank account. Click refresh.. still 0… click refresh.. still 0… click refresh, $85,000,000,000. “Sweet!”
I was actually shocked to find on my drive home yesterday when I heard the news that, as I reasoned it out, I agree with the Fed on this move.
They’ve painted themselves into a corner, and are nearing checkmate. When taking Hoz’ estimate of AIG default to mean that 1/3 of US companies become insolvent this was the only thing left for BB and the boys to do, short of consuming cyanide.
dude, where’s my country?
NZ?
As far as I can tell, this isn’t really a recapitalization - AIG is not selling debt to buy back huge amounts of stock, and the Feds aren’t swapping debt for equity - they’re lending AIG money in return for 11.3% interest and principal payments, as well as 80% of AIG’s equity. There may be a recapitalization going forward if AIG can’t make the vig, but we’re not there yet.
My first though was what good is a loan if they can’t pay it back ,kinda like a sub-prime borrower .Why wasn’t this Company selling assets and what have you to take care of their obligations if many of their divisions were profitable in the three years that they knew this was coming . Wall Street firms dicking around ,waiting for bail-outs, instead of marking to market .
Its seems to me that the refusal to mark to market has more to do with a belief that the real estate market will go on the up again ,because mark to market would of made more sense 2 years ago or even one year ago .The losses are only going to get more extreme because the housing market ain’t coming back . This is what you get when you get the government starting these bail outs and it influence how Companies conduct business .
It will go up if/when inflation hits 20 percent.
Reid Says `No One Knows What to Do’ to Solve Crisis (Update1)
By James Rowley and Brian Faler
Sept. 17 (Bloomberg) — The U.S. Congress is unlikely to pass new legislation to overhaul financial regulations this year because “no one knows what to do,” Senate Majority Leader Harry Reid said today.
“We are in new territory. This is a different game,” Reid said at a briefing in Washington. Neither Federal Reserve Chairman Ben Bernanke nor Treasury Secretary Henry Paulson “know what to do but they are trying to come up with ideas,” Reid said. (Cont’)
Quickly! All the smart ones in the room shoot over IDEAS to the blasted fools.
Do NOT let them figure it out by themselves!
I know!
Leigh
http://www.bloomberg.com/apps/news?pid=20601087&sid=aDXSrZc6VWYw&refer=home
Fed rescues AIG.
When is it gonna start rescuing pizza parlors?
With an 85 billion loan to AIG, can one assume then that a loan of “only” 25 billion to the car companies might be in the bag??
I tend to think the opposite. With so many rescues going on they have to be able to plausibly say they are only doing the ones that are so interconnected that the failure would cause a collapse of the financial system. Helping the car companies retool rescues the workers and maybe the shareholders, but as for the financial system? I don’t think so. If it had been limited to Bear (the first/surprise one that could have caused so much panic) and Fannie/Freddie and everyone else can just go to hell then the big 3 might have had a prayer of getting some help in a few months. Now? adding AIG to the mix and everyone knows that any other systemic threats will have a chance of getting money? They just can’t do it.
This is purely a politics/perception analysis, not a financial analysis.
AIG is the counterparty to a lot of the Fannie/Freddie debacle.
This is just an orderly liquidation.
“orderly liquidation”
Good point, and one that is easily overlooked amid the headline confusion about ‘bailouts.’ Presumably a true bailout would not leave a firm’s share price down by 99 pct or so?
Precisely.
They will not be around in late 2009, that’s pretty clear even as we speak.
Wonderful mini-thread, FPSS and Professor Bear. Seems like a foregone conclusion to me, too.
This is starting to sound like a smallpox epidemic. Your blacksmith fell sick but recovered, the cheesmaker fell sick but medicine came just in time, the town crier died, the pastor’s daughter went unscathed (all hail), the medicine didn’t arrive in time for the innkeeper, etc. You just don’t know where it will strike next, or how hard, who might be spared…
The only sure survivors are the dairymaids who stayed out of town and diligently and quietly milked their own cows.
Nice analogy.
Well, I’m glad the milkmaids are okay. I like milkmaids, with their darling sunbonnets. I love cows, too. I’m also glad you rescued the cheesemaker, because I love cheese. Save the baker, too, I urge, because of the pizzas and things.
Hmmm… and I’m okay with snuffing the town crier–he was annoying anyway. And you can go on and snuff a lot of the citizenry as well, because they were also annoying.
Hey, where’s the Bigfoot in this story? No story is complete without a Bigfoot.
Here, I did it for you:
Bigfoot also escapes the dreadful epidemic, as he spends all his days safely occupied in furtively lurking in the shrubberies on the edge of the farm, looking at the milkmaids longingly and admiring their adorable sunbonnets that make them look so cute. He’s been in there for forever, eternally hoping to catch a glimpse of milkmaid ankle when they sit on their little milkmaid milking stools. They know he’s there because he often giggles stupidly, (besides the enormous footprints, of course,) but they don’t really mind too much, because he’s harmless and also keeps the bears away. Milkmaids don’t like bears that much.
The End
“as he spends all his days safely occupied in furtively lurking in the shrubberies on the edge of the farm”
I just had a mental image of ’ssssshrubery furtively lurking on the edge of his ranch.
‘I just had a mental image of ’ssssshrubery furtively lurking on the edge of his ranch.’
Well, the milkmaids would definitely shoot at him. Milkmaids hate deceitful Monkey-Man a*ssholes. Or, and this would also be fine, they could just order Bigfoot to catch ’sssssshrubbery and then they could clobber him with their pails and stamp him with their wooden clogs, right before Bigfoot pulls his arms off and does a comical dance with them.
And yokes. How can you talk about milkmaids without mentioning their beautiful, shapely yokes?
Of course technically, the reason that she’s okay is that she survived a case of cowpox years earlier. Sometimes a recession will innoculate you against a depression.
I love it when bloggers are intelligent enough to get obscure references.
‘Round here, some of us have a familiarity with history that goes back to BEFORE the “Reagan Revolution.” You’re unlikely to find that say at “broker outpost.”
Probably. They’ve bailed out the auto companies before.
And for collateral it gets, well, AIG. How’s that for a wise investment? Nobody else wanted it, so now, should AIG fail to pay back the loan (as it will fail), the US becomes instantly eighty-five billion dollars poorer plus the proud owner of a multi-trillion dollar collection of liabilities. Is anybody asking where all this bailout money is coming from? Obviously, the US is borrowing it, but from whom and at what interest rates?
A few days ago, Paulson & Co, put on a big show of no-more bailouts, while at the exact same time, they were putting together this one. And I notice that they announce each of these bailouts when the stock market has had a rough patch, thuse creating new irrational exuberance, and an in-rush of suckers to push the numbers back up for a few day or weeks. This market manipulation is outrageous. What haven’t the media caught on?
Where are the courts or the alleged consumer-protection/citizen-protection organizations. None of this can possibly be constitutional (Paulson and Bernanke are no co-emperors), but nobody who could stop it is uttering a peep (because they’re all in mortgage debt themselves?).
Liars and hypocrites:
Wall Street cries for 2 decades that regulation keeps it from being “competitive” and “innovative” with other markets in creating new debt instruments. When those same debt instruments cause massive worldwide financial failure, they predict Armageddon without taxpayer bailouts.
You cannot have it both ways. If Wall Street expects bailouts, it needs to expect regulation. And Uncle Sam needs to be paid back with interest, once these nationalized companies can be privatized again.
“You cannot have it both ways. If Wall Street expects bailouts, it needs to expect regulation.”
Amen. And the public demands it; as they should.
Wall Street cries for 2 decades that regulation keeps it from being “competitive” and “innovative” with other markets in creating new debt instruments.
Not to mention the tired old corporate saw that “industry can best police itself.” Uh huh. Yet another great example of what happens with poor or no oversight.
Funny how the Big Swingin’ Free Market Profiteers sing a different tune when the sh!t comes down. Isn’t failure a necessary component of the Balls Out Free Market Lifestyle I’m always hearing so much about on the tee-vee?
Once again I must step in and chastise the regulo-philes. There are already vast libraries of regulations on Wall Street, far beyond the ability of any person or group of persons to comprehend, let alone follow or enforce. If companies need to be regulated in this manner, the game is lost before it has begun.
The solution is to *repeal* regulations which allow and encourage the growth of these large organizations and attendant conflicts of interest in the first place.
Chastise away — methinks the evidence is on our side.
You can regulate to your blue in the face, but if you don’t enforce the rules, then you just have more meaningless rules.
And it doesn’t work when the elected officials who are supposed to over see areas like banking and housing are getting donations from businesses and associations (i.e. NAR) in those areas.
oops until you’re
Isn’t the $85 billion a loan from the Federal Reserve - that collection of private banks that is NOT part of the US government?
Had the treasury stepped in with $85B, you could expect $85B of T-bond auctions to raise the dough. So where does the Federal Reserve get Federal Reserve Notes? Maybe they just create them out of thin air?
My take on this “bailout” with the loan at 11.5% is that the Fed said “we know you are good for $100B, so you start selling yourself off to pay us back. And oh yeah - even after you pay us back in full we still own 80% of your ass”.
So I guess after AIG cuts itself up for scrap and sells off the pieces, the loan is paid back, and whatever is left has some residual value, the Fed will then sell their 80% stake in the carcass?
No, according to Bloomberg:
“Last night, the Federal Reserve said the government would lend as much as $85 billion to AIG in exchange for a 79.9 percent stake in the biggest U.S. insurer by assets.”
Note, the government, not the FED, is lending the money.
Had the treasury stepped in with $85B, you could expect $85B of T-bond auctions to raise the dough.
Part of this already happened TODAY. See this PDF file from TreasuryDirect.gov $39.98 billion auctioned off at 0.300% interest for 35 days. This auction was a very rush-rush affair. I missed a great chance to participate LOL.
the Carrying Coal to Newcastle approach, financially.
“This market manipulation is outrageous. What haven’t the media caught on?”
You need to watch more CNBC to understand the role of media. It’s been channeling everything including buckets upon buckets of kool-aid. Nenety pct of its daily broadcast is infomercial. Did you not notice the adverts during GM’s Wagoner interview? Or, Greenberg’s desperate pitch to save AIG? Or, Sunday night’s special report. Its on top of the manipulation story. It’s channeling it.
CNBC is just one long commercial for the financial industry just like FoxNews is one long commercial for the Republican Party. The press are private entities devoted to maximizing the profits of their private owners. Never forget that.
Watch more Cee N Be Ceen to understand the role of media. It’s been channeling everything. Ninety pct of its daily broadcast is infomercial. Did you not notice the adverts during GM’s Wagoner interview? Or, Greenberg’s desperate pitch to save AIG? Or, Sunday night’s special report. Or, last night’s roll out of the AIG story during Kudlow. Its on top of the manipulation story. It’s channeling it.
Maybe I reacted too soon. Here is something from today’s Bloomberg.com:
“The ‘punitive’ interest rate on the two-year loan ‘makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met,” said Marco Annunziata, an analyst at UniCredit SpA, in a note to clients. ‘This is to all extents and purposes a controlled bankruptcy.’ ”
And this time no suckers’ rally appears to be taking place. Maybe investors are finally catching on.
http://bloomberg.com/apps/news?pid=20601087&sid=aptzSDlRtrTk&refer=home
It’s called disaster capitalism
And where are all the calls to throw Fannie & Freddie chieftains in the clink? Funny how very few fingers are being pointed in their direction…including the very few fingers on this board.
They, too, should spent 30 years in the pen and be stripped of all assets.
That’s the only way to tone this down, absent iron-clad regulations
Of course the real question here is how many too-big-to-fail entities remain that need rescuing, how will they be rescued, and how will the system cope with large numbers of too-small-to-rescue financial entities that go under. For the latter group, the subprime implosion offers a hint: How many former subprime lenders can you name that got a government rescue? FDIC-insured banks would appear to be the exception to the rule that small financial firms will get nothing and they will like it.
Yeah, I want a rescue for my business too.
Interest for RTC2 type organization growing, WSJ:
Both Democrats and Republicans have shown interest over the past two days in the idea of creating a government corporation to help deal with the toxic assets that have already brought down financial behemoths Bear Stearns Cos. and Lehman Bros., and forced the government to take over Fannie Mae and Freddie Mac.
http://online.wsj.com/article/SB122162213795546883.html?mod=article-outset-box
It should happen and the government might as well get started now. A napkin calculation is $1.6T.
I wish my post yesterday had showed up. The hoz recommended immediate steps to reassure the markets.
First Congress must immediately authorize $1 Trillion to the FDIC deposit funds account. (This is psychological rather than changing reality, the FDIC is guaranteeing deposits). However MSM is going to run reports that the FDIC has only $XXX left after the next few bank failures. People are stupid. The chance of creating a system wide withdrawal panic is real.
Hoz, isn’t this sort of misdirection what got us here in the first place? I respect your opinions, but in this case I think what you are suggesting is more of the same.
It won’t happen, but I don’t see it being such a bad thing if people lose confidence in the financial system. Undo confidence/credibility paved the way to get where we are.
In an ideal world, you are correct. I do not wish to ever see 25% unemployment and soup lines. If the dollar drops by 50% to save employment, then so be it.
The Treasury has to stand behind its commitment to save depositors in FDIC insured institutions. It will do so.
What I am saying is put the money in the FDIC insured accounts, NOW. There are less than $39 B in the FDIC funds. Put a Trillion or 2 in there (If not used it can always be returned). If not the consequences…
When a major bank goes under, the fund will go negative. People are stupid. The MSM will report that the FDIC has no funds left. People will cause runs on many banks. People are stupid. MSM reports runs on bank, people cause runs at other banks. People are stupid.
I want to head off the possibility of the runs that would cause irreparable damage. The RTC2 bailout will have to occur, might as well get used to it. This time however get personal guarantees from all players.
Hoz , the Feds/government should do exactly what you say .
The FDIC was a insured account and it must be supported .
Can you imagine a society where people are to afraid to even
keep a checking account in the Bank . We couldn’t even function without funds in banks . A blank check for FDIC and other insured accounts should be a given .
Yeah, I get what your driving at. I’m just saying that propping the whole thing up now sets it up for even bigger failures later.
Things won’t change. No one will suddenly “get” how to properly run a national banking system. If they save us this time (which of course they will try) it will just fall bigger next time. Instead of 25% unemployment you get 40. Just mho.
The United States cannot properly run a banking system. A decent job of it was done from the end of WWII up to the early ’80’s, but that was about as long a period as was sustainable for this country. And that was only because people remembered the Great Depression, the government really watched and really regulated the industry, and people trusted the government to do its job.
But memories have faded. The industry has corrupted the government, the government has stopped doing its job, and people no longer trust the government. Because our government is privately owned, it must go through these cycles always ending in economic disaster.
Banks must compete with each other. The CEO’s job is to keep stock prices high. In order to do that he must do the riskiest, but short term most profitable, things he can do, because if he doesn’t, his competitors will, and people will move money from his stocks to those of his competitors and he’ll be fired.
His competitors would be regulated in a ideal world and no entity will be able to put the deposits of this Nation at risk so high that failure would result in forced government bail out .
I think that we got to get over this idea that stock prices have to be kept artificially high by CEO’s taking unsustainable risks . Look what Mozillo of CountyWide did to pump up his stocks . Here this self-serving CEO increasingly made horrible loans ,and he had the nerve to say, “I was just giving the people what they wanted .” Oh sure ,the people wanted fraudulent loans and Mozilo wanted fee income to pump up his stock value before he made his exit for retirement .
Nobody talks to much about how much of a crime wave this
housing boom became on all levels . A lot of the regulations were just not obeyed . Nobody talks to much about what a obstruction of Justice it is to bail out criminal transactions .
When is Wall Street and the Lenders going to admit that they breached their duty to underwrite loans .All hell broke loose out there in loan land and that goes far beyond just making mistakes on weighting risk to just plain criminal neglect ,with greed or bigger profits being the motive .
So given the week’s events, I’m struggling to understand:
- Why the dollar isn’t plunging to new all-time lows, like with an index of 60.
- Why the DJI is still above 11,000, and not at 9,000 or so instead.
- Why gold isn’t $1,500 an ounce.
As a side note - looks like Obama’s in. There’s no way a Pub gets elected at this point.
Maybe the answer to points 1, 2 and 3 is the argument to point 4?
interday odds dissagree
then try the Bradley effect
raines-gorelick-johnson for the fre/fnm
The dollar isn’t low because the anti-dollar bets were already made. In times of major asset deflation cash actually garners a premium.
for the dollar to fall, there has to be an equity or commodity or currency to invest in besides the dollar. At first the US banking issue caused the euro, oil, and gold to rally, earlier in the year. But once the numbers started showing that America’s slowdown would affect the world, those bets were unraveled.
right now the only safe place for money IS money. There’s no more prices to inflate. Its part of hedge fund and other leverage being purged from the system.
As far as why the Dow is still so high: well, its mostly because more and more of the stock market is filled with retirement money. That stuff usually stays parked. Back in 1987 when 22 % lopped off the dow in a single day, less of that money was from Joe 6pack.
“The dollar isn’t low because the anti-dollar bets were already made.”
It goes way beyond anti-dollar bets. Ben Bernanke loudly signalled to the Watchers of the world that the dollar would be trashed, driving the masses into gold and other traditional hedges. What we have now is the unraveling of another financially-engineered bubble.
The masses are in real estate and stocks, and the sheep have been sheared just before winter. Who do you know that owns any gold?
I used to, but I ended up selling it at a loss during the last economic downturn.
Very few people I know are dressed to the .9999’s
Prices are not set by “parked” money.
Right for the stock market, and ditto for the housing market. Why else would REIC ‘experts’ go to such lengths to try to convince the public that foreclosure sale prices are not ‘real prices’?
“That stuff usually stays parked. Back in 1987 when 22 % lopped off the dow in a single day, less of that money was from Joe 6pack.”
That seems like it would be correct as far as pensions and other group retirement accounts. I did hear it reported (probably on CNBC) that the individual investor proportion of traders is only in the low 20%. They said that number was a historic low claiming most of those still in were institutional investor groups. I thought they said the number was closer to 50% in the ’80s.
“There’s no way a Pub gets elected at this point.”
The election is a several weeks away; voters might forget.
You mean our long national nightmare is over?
I’ve posted this link before, but this Jan. 2001 article from the Onion is both funny and prescient: Our Long National Nightmare Of Peace And Prosperity Is Finally Over.
it is over for sure; get ready for the next nightmare.
The newspapers sure are quiet about some of the architects of this mess. Maybe if the online chatter about ex-senator Gramm’s role in this debacle grows, people will see the light.
If your refering to Gramms hand in the Glass-steagall repeal and deregulation, remember ex-Treasury secretary Robert Rubin was a cheerleader for deregulation and is now part of Obama’s team. Be wary of glass houses, when stones are thrown.
Phil Gramm is a cretin and never met a deregulation scheme he didn’t like. He deserves to be called on it — again and again.
Call out all the deregulation fanboys, that’s fair, but let’s not pretend that Gramm isn’t at the head of the pack.
Oh my word. Guess who sponsored the repeal of Glass-Steagall? I’ll give you all a hint. The name of the law is called The Gramm-Leach-Bliley Act.
Here’s a wonderfully classic remark made by none other than Nasty Senator Trent Lott (R) about the passage of The Gramm-Leach-Bliley Act;
“When the history is written of this session of Congress, it will probably identify this piece of legislation as the single biggest achievement. I have heard this financial services modernization issue discussed for my entire career in the Congress, which is now up to 27 years.”
How nice…. Sponsored by two from the GOP crime syndicate, Gramm and Leach, and praised by another known liar Trent Lott.
…and signed into law by President Clinton. You forgot to mention that part.
Did I forget to mention this veto proof legislation was signed into law by President Bill Clinton on November 12, 1999? He did as it was veto proof thanks to a GOP majority in the 106th congress. 87% of those that voted against this bill that became law were……… democrats. Imagine that.
http://www.govtrack.us/congress/vote.xpd?vote=s1999-354
So B J Clinton did sign the The Gramm-Leach-Bliley Act after all? THAT MEANS HE AGREED WITH IT.
This is the actual history of the passing of the act.
http://online.wsj.com/article/SB122167514301648581.html
The final bill passed the senate with a 90-8 vote
The final bill passed the senate by a 90-8 vote.
Whole story here
http://online.wsj.com/article/SB122167514301648581.html
I agree. There’s simply not enough talk about those who orchestrated this meltdown, and profited greatly. In fact, I haven’t heard even one report of the mind blowing wealth brought to the heads of these now failing companies. This is where our media has totally failed. The greedy pigs get to sail off into the sunset on their hundred million dollar yachts, leaving behind a wake of destruction. When they’ve had enough sun in the Virgin Islands, they’ll hop on the private jet and head back to Jackson Hole, to enjoy their bought and paid for mega mansion, laughing as the little people starve.
The newspapers by and large are clueless about what’s going on. Many call what happened with AIG yesterday a “bail out.” Clueless.
In a time when unprecedented historical events are happening on a daily basis, no prediction can be relied on, and that includes the election outcome.
Breaking the buck
Reserve Money Fund Falls Below $1 a Share, Delays Withdrawals
Sept. 17 (Bloomberg) — Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by bankrupt Lehman Brothers Holdings Inc.
Shareholders pulled more than 60 percent of the fund’s $64.8 billion in assets in the two days since Lehman folded. Losses on the securities firm’s debt forced the fund to break the buck, meaning its net asset value fell below the $1 a share price paid by investors, New York-based Reserve Management Corp., its closely held owner, said yesterday in a statement. Redemptions were suspended for as long as seven days.
Assets in money-market funds, considered the safest investments after cash and bank deposits, rose to a record $3.59 trillion this month as stock and commodity markets fell. Investor confidence has been shaken by the subprime-mortgage collapse, the demise of Lehman and Bear Stearns Cos., and the failure of 11 U.S. commercial banks. The first money-market fund to break the buck was the Community Bankers Mutual Fund in Denver, which had $82.2 million when it was liquidated in 1994 because of losses on interest-rate derivatives.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLwxHK3Ygc8s&refer=home
King Dollar = humpty dumpty
Yesterday Mom calls to find out if her money at WaMu is safe, if my sisters 401-k money is safe. The 500 point downward rally is raising pulses. This thing is about to break wide open. Be calm. All is well.
There is a definite lag time between these events and when the average person clues in. Last night Boston dot com had a headline about whether or not your money is safe in the bank.
Nothing like planting the seed of doubt about the financial system.
I think that is something that people like those who post on this board can lose sight of. It takes a long time for the ramifications of these events to sink in for the average person.
A short anecdote: I have a friend who works for a small business. The owner of this business has a son who worked at Lehman Brothers. Yesterday, he remarked to a couple of his co-workers, “Well I guess we might see Robbie working here, at some point because of what happened at Lehman” the response he got was, “Why what happened at Lehman?”.
“Idiocracy” was on cable TV a couple nights ago. I figured it was an omen.
Scary movie. Sadly, like Dr. Ben Bernanke in a room full of congressmen. (They aren’t idiots, but they have to act like it or their constituents turn on them??)
Rumor is the Fed is searching for a buyer for Wamu right now. If that happens a lot of people might suddenly start paying attention.
You’re right a WAMU failure would make a lot of the general public sit up and take notice. The other institution that seems to be in a lot of trouble is Wachovia. Those kind of high profile failures at institutions where many average people have accounts would bring in a much broader awareness to what is going on.
http://tinyurl.com/6dwj83
“The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation’s largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.”
Along those lines it looks like WAMU is trying to sell itself by auction.
http://dealbook.blogs.nytimes.com/2008/09/17/washington-mutual-begins-auction-to-sell-itself/
“…In repo, Tbills are trading at 0 as in zero. Treasury general collateral, which generally trades close to the funds rate is trading at 25 basis points. T bills and specials are trading near zero.
This is all in response to the news that the Reserve fund broke the buck…”
that’ll steepen the yield curve.
thanks to those who are panic mode.
watch out, Russell 2k is making a run at a golden cross.
They will steepen on the short end. Rate cut coming.
Somewhere I read that the Fed Funds rates actually trail the market, so the fact that Fed kept it unchanged only shows that the unseen hand of the market isn’t willing to lend $$ for any less.
So which other money market mutual funds are at risk now? Is rescuing AIG the same as rescuing all the folks who shorted the market as it was going down?
The rescue of AIG created new lows of CLOs and CDOs. It has gotten worse for banks. The new MTMs place another group of banks on the FDIC doomed to fail list.
IMHO the Fed did the correct action with regard to AIG. They should have done it sooner. Why it took so long before the Fed acted is debatable, but it may be that the Fed knows exactly what is happening, contrary to many peoples opinion, and has only so many bullets and is keeping its powder dry for the big one.
I worry for the day when the Fed runs out of backs of envelope calculations, with which to bettor plot our future…
Defenders of the AIG deal are quick to say taxpayers are not actually involved, yet. The money is coming from the Federal Reserve, etc.,etc. However, it is a government takeover and taxpayers are always on the hook to back up government spending.
Since all the excitement began a year ago the Federal Reserve has bailed out financial institutions to the tune of almost one-trillion dollars. Where does the Fed get the money? We are approaching the day Americans may become curious about money creation and start peeking behind the curtains of the banking system. They may will be shaken by what they discover.
Ah yes, the poor, poor US taxpayer, who probably has borrowed the interest on the debt for the highway to his town.
You know, I used to do long winded posts about how AIG was probably the counter party to Fannie Mae, as they both got in hot water with a bunch of off-shore special purpose entities in 2005. And I used to get emails from guys telling me they were making xx grand a week shorting homebuilders. There are fortunes being made, but you have to actually DO something with the knowledge that the housing bubble is collapsing…
“Given that it was the U. S. housing market and the associated investment products that got the world into the financial crisis, it follows that the return of some stability to that sector will get us out of the mess. But don’t anticipate any change before the end of 2009. That’s the prediction from Nandu Narayanan, chief investment officer of New York-based Trident Investment Management, a firm that manages a couple of funds for CI Investments.”
“Narayanan is worth listening to because of his track record. “It’s awful out there, but we can take comfort from the fact that we have been positioned for this. We saw this coming,” he said, adding it was almost three years back when he became aware of the potential mess and started shorting some of the major financial firms.”
“It took a while for that strategy to start paying dividends, but over the past year, it has been raining gold.”
Wed morning, smackdown. Ben Jones-style!
Love it!
Pandering to the boogeymen.
Dah, comrade. FIRE.
It’s hard to read this morning with tears in my eyes
Why does the government hate us so much?
The government hates our freedom.
I think we’re slowly comming to the realization that the “financial industry,” is an oxymoron. At the end of the day, Wall Street exists so that the deferred gratification of some (savings) can be channeled into the more efficient production of goods and services that make people’s lives greater. If the money simply circles around and around in ever more complicated patterns without actually resulting in the production of goods that people want, it is a meaningless ghost, sound and fury, signifying nothing.
Absolutely. AIG merely insures debt instruments created by Wall Street. Ultimately, they failed because they couldn’t cover the cost of Wall Street hedging against itself. I see absolutely no proof that the real economy of families paying for food and shelter will suffer if AIG fails, other than that the parasitic shadow banking system will collapse.
This is the very definition of corporate welfare. Anyone benefiting from future counterparty risk claims on the stock market is now a Socialist.
I see absolutely no proof that the real economy of families paying for food and shelter will suffer if AIG fails Ever been unable to find work for a year?
Ah yes, the poor, poor US taxpayer, who probably has borrowed the interest on the debt for the highway to his town.
You said anything about not making money? Money is and always will be “made” in good times and in bad.
Well, that all fine and well but another concern, at least for me, is what are we allowing our government and those controlling our government to do? We are handing huge amounts of [more]power to the same guys who helped to engineer this whole fiasco. Something tells me this is neither good for our posterity nor Liberty but thats just me.
Won’t be good for your posterior either!
I was reading Ben’s post above about making money in this morass.
The part that seems challenging to me is knowing whether a given day’s market moves are in response to yesterday’s news or expectations for the environment 3, 6, or 12 months from now (or both).
I’m not sure I have enough ability to watch the market closely enough to know if there are any more financials to short or what sector to move to based on the new news coming out.
Are financials cheap or just due for another leg down? They seem to be taking everything else down with them at the moment.
Oxymoronically, it seems like the best position right now could be in cash and metals and waiting for the real declines in real estate to take hold.
We are all speculating to some degree at this point. Keep in mind that doing nothing is a strategy and a risk as well.
I’m not sure I have enough ability Well, I’m sure. I’m sure I don’t have the ability!
Then Paulson LIED directly to us on TeeVee yesterday when he said the gov’t would NOT bailout AIG.
Paulson and Bernanke looked “glum” yesterday following the meeting because they knew they were LIARS.
To all the evangs out there: your Bible says that LIARS do not inherit God’s kingdom and get thrown into the Lake Of Fire!
Yeah! You evanges! And your Bible ALSO says:
¶ We have a little sister, and she hath no breasts: what shall we do for our sister in the day when she shall be spoken for?
Song of Solomon 8:8
That’ll clear things up! So take that and smoke it in your keister!
Or however the cliche goes. I’m not good with cliches. Look, shut up, you know what I mean.
Also, may I add that ‘The Lake of Fire’ sounds like an awesome carnival ride.
Hath no breasts? Get a HELOC-financed boob job sistah!
No fake equity? No fake boobs then!
BWAHAHAHAHAHAH…….
Where do bad folks go when they die?
They don’t go to heaven where the angels fly.
They go to a lake of fire and fry,
You won’t see ‘em again till the 4th of July.
— The Meat Puppets (Arizona’s finest cow-punk band)
BUSINESS
SEPTEMBER 17, 2008
Thornburg Warns of Another Cash Crunch…Like other mortgage lenders, the company has been under pressure during the housing crunch as the value of mortgages has fallen precipitously. But Thornburg’s troubles have been of particular interest because it specialized in loans to relatively wealthy, credit-worthy borrowers — not subprime loans.
http://online.wsj.com/article/SB122161638247146295.html?mod=rss_markets_main
What do you all recommend in the next few years for young-ish folks like myself? Stash cash, rent, what else? My Roth and regular IRAs are tanking, but that’s no real biggie.. I’ve got time (and I’m partially hedged with short ETFs). My generation has never known a really tough economy or high unemployment, so I just don’t know what to expect out of all this. Any thoughts?
“My Roth and regular IRAs are tanking…”
Move the funds in these accounts to as close to cash as you can get them and ride out the storm. When the time is right, in a year or so, move them into stocks.
I bought bond funds, which at any other time I would never recommend because they are a safe investment with crappy returns, but at least are better than actual term treasury bonds because of their liquidity.
I plan to buy long term bonds once the Fed is overwhelmed from all the bailouts and real interest rates rise again. Only then will putting one’s money in savings be worth it.
Just so hard to time the market, though. Nothing wrong with having some money in cash or the bond funds now, but you don’t want to miss on those wonderful days in 2009 (or 2011 as case may be) when stocks shoot up 500 points (and stay there).
I was lucky enough to start my 401k contributions in 2001. Ick.
Diversify (lg caps, small caps, SnoCaps, Global funds), have most of your money in stocks now so you buy lots o’ shares at low prices, and hope that in 30-40 years when you retire the stock market is nice and frothy.
If the stock market isn’t nice and frothy in 30-40 yrs, ick. We’re all screwed.
hold which stocks though? You have to pick some and the stocks around today look nothing like the stocks around 30 years ago. If you had bought and “held” for 30 years then half the companies would have gone under.
If you buy now there is a good chance that many of the companies will not last, but will be replaced with new companies. Besides, you have no idea what the government will nationalize.
I would wait until we can see an end in sight for credit losses and there have been a few quarters of profits before buying any stocks.
I have no idea which stocks–that’s why I’d just pick a good large cap fund, small cap, what have you. If somebody fails, hopefully the fund is diversified enough that it eats up the loss.
If there is any hope for a stock market system, and you have 20-30 yrs to play around with, buying lotsa shares now will mean nice things in 20-30 yrs. Timing the market for long term investment is just too darn hard.
Our esteemed BlogHost Ben may disagree on where to put the money, but I agree with him wholeheartedly that what’s happening right now can turn into a huge windfall. For all the dudes and dudettes here that have been playing their cards right the last few years by not buying a house or other real estate beyond their means, by “saving” their money instead of buying the 96 inch plasma screen, well this is where that money may come in real handy, because there is opportunity, and there’s going to be a heckuva lot more.
posts are getting eaten, must be popular day today, but I didn’t mean to say buy individual stocks…buy good, well-run mutual funds with diversification (lg caps, sm caps, whatever).
“Just so hard to time the market, though.”
Don’t TIME the market, PRICE the market. Buy when the PRICE is down.
The price determines when to buy, not the calendar.
If one has already taken a hit, is it really worth it to move to cash now? Or just ride it out?
That’s my thought. I saw this thing coming in 2005, and I could have gone to cash then. But I recognized then that the top is hard to call. Even with the big dump this year, funds are still above 2005 levels. I’ll keep DCA-ing a modest amount and also save up cash to go in big a few years down the road. Not a perfect approach, but it seems to be a reasonable strategy. All-cash (or all-PM) has its risks as well.
My thought is that significant declines in one’s standard of living are painful, so it is better to be happy living modestly and avoid them. Even if it means that in the end you end up giving a lot of money to charity that could have been spent.
Of course, perhaps if the Joneses also take a bath, most Americans won’t mind a little austerity. But what do they see on TV? Hollywood.
My brother was kind of glum yesterday, we were discussing all this. Then he made an interesting comment, he said that he and I would be OK because we’re so poor we won’t really see much difference. I had to laugh, he’s somewhat right. We’ll see inflation, but job loss isn’t a problem since neither of us have real jobs. He can fix anything and has a garage full of good oldstyle tools (pre-Chinese). Neither of us have any debt, and my vehicles are paid for. He sold his two vehicles a month or so ago, lives close to everything and rides his bike everywhere. We are both minimalists and live very cheaply.
But what are the folks with kids, house/car payments, all that going to do? Health, no debt, and the ability to move have all been discussed as being important in a bad economy. Having a determined mindset will help. There will be ways to make money, they just might require a lot more effort and skill than in the past.
None of my posts are getting posted.
Barney Frank and his New Deal up next!
My mother made it thru that era.
How?
You and your brother have got built in flexibility. You have a lot of varied skills in wide field of knowledge. You’ll get so much further w/less.
Your comments bring up something I’ve been considering. My very close friends are not living the lifestyle I want to raise my kids in or that I feel we need to do to be flexible. One drops about $100 between Starbucks and lunch at Johnny Rockets every time I invite her & her kids to go for a walk. How does my free socializing turn into a wallet draining day?
If I try to explain I don’t want to spend the money, she treats me which only leaves me feeling like I have to spring the next time. I don’t want to spend the money once never mind twice.
With another good friend, I bring twice the food and drink I really want to when we go to play cards. And I’m the cheapskate! I already feel like I don’t contribute my share. I can’t imagine showing up with less. She is already bristling at her husband’s attempts to reign in her budget so she only narrows her eyes when I mention a budget is a good thing.
I know what happens when you say no too many times. People move on w/others that will spend to their level. My kids are friends w/their kids. This isn’t going to be easy.
Carrie, tell your friends that you just bought a steal of a deal vacation home in Colorado, but are going to really really have to budget for it now. They’ll marvel at your financial savvy and be more understanding when you say you’re on a tight budget.
The only way Americans understand budgeting is when you spend it on something you can’t afford.
That would be fun to drop that bomb….and watch their jaws drop after listening to all my blog inspired housing & credit market commentary.
We made an off-the-cuff comment about buying a boat and I don’t think I’ve ever seen my bro-in-laws head swivel around so fast.
“What?!?” LOL
A good primer for investing is Andrew Tobias’s “The Only Investment Guide You’ll Ever Need”. It covers the basics of dollar cost averaging which I think will be a good strategy beginning next spring.
There are some really good Vanguard, T. Rowe Price and Fidelity funds to look at.
Morningstar puts out a book every year on mutual funds reviewing last year’s performance and makes recommendations based on fund managers. It’s called the Morningstar 500 or something like that. It includes the biggest as well as what they consider to be the best funds. I’ve made some good picks just from that book. It’s costs about $35 - $40.
AIG rescue
Published: September 17 2008 09:28 | Last updated: September 17 2008 12:10
AIG was not too big to fail, but too connected. Bankruptcy would have effectively cancelled the debt insurance that AIG provided, and triggered emergency capital raisings from counterparties around the world. The Fed’s rescue is on punishing terms: AIG must repay the $85bn loan at a storecard-like 8.5 percentage points over Libor, liquidating perfectly fine assets to do so. But resolution – of a sort – has been achieved.
Meantime, chalk this up to a failure of regulation. AIG was laid low by mark-to-market losses in its Financial Products division, which wrote insurance on thousands of fixed income securities held by banks. But what AIGFP offered was not straightforward protection, in the sense of covering for potential losses. It was regulatory arbitrage. Banks that entered credit default swaps with AIGFP could assure auditors and regulators that the risk of the underlying asset going bad was protected, and with a triple-A rated counterparty.
is this another scam the rating agencies were involved in? If so, can it be blamed on a computer malfunction?
There is no real protection from risk anymore.
What people don’t realize is now Uncle Sam is now underwriting the risks on Wall Street. Because there will be falling tax revenues due to a faltering economy, the very fiscal soundness of the US government is at risk.
There never was nor will be protection from systemic risk. In fact, the illusion that big firms like AIG can provide blanket protection from systemic risk on a global level leads to complacency and foolish behavior that actually increases the level of systemic risk. Ditto for GSEs that act as mortgage insurers on a national scale. A prevalence of too-big-to-fail entities is a prelude to systemic collapse. Hopefully at least this simple lesson can be learned from the current meltdown, though I have my doubts.
Moral Hazard used to be scoffed at about 6 months ago as a “theoretical” risk. This is a textbook case of Moral Hazard!
I smell serious change a comin’…
When we first introduced the discussion here, we were flamed and pilloried by trolls. Nowadays all the high muckamuck economists on the planet seem preoccupied with the subject of moral hazard.
You seem to imply CDS’s were a stupid idea.
“Bankruptcy would have effectively cancelled the debt insurance that AIG provided.”
Why?
I understand that it may not have had the funds to pay the full claims, but that doesn’t mean that insurance contracts would be invalidated. The expected payout would be less, but not zero, no?
“8.5 percentage points over Libor”
Hell what do I know, Uncle Sam is an inveterate capitalist! Maybe the Government/taxpayer will actually come out ahead on this deal.
Maybe the Government/taxpayer will actually come out ahead on this deal.
Doubtful.
In my view the AIG insurance of bad loan risk was just one more leg of how Wall Street pulled off this Ponzi Scheme of using fake
loans to generate income backed by fake real estate prices . Why was AIG allowed to insure that which it could never pay off on if
those insurance claims were really called upon ?
So the lenders get to say that the loans are insured ,yet the insurer can’t pay . Great for being able to sell bad paper to the secondary market with AAA ratings .Real great that these loans were backed by inflated real estate and borrowers who couldn’t pay and a whole lot of fraud .
Wall Street left unbridled or allowed self-regulation will come up with anything they can to make a buck apparently ,even if its based on a Ponzi scheme that relied on real estate always going up .The bogus models said that CDO’s spread out the risk ,but how can that be if real estate goes down ? Isn’t the
asset that backs the security that determines that risk ,rather than the vehicle that loan is put into that determines the risk ? In other words ,what did it matter how the loan was broken up ? What ever happen to this concept of spreading out risk by these financial vehicles ? The true value of the asset and the ability of the borrower to pay is what sets the risk . How much skin does the borrower have in the game and how likely that loan will be re-payed on a solid value appraisal . So the industry falsely raised the value of real estate based on giving bogus appraisals and loans to people who could not really pay . Has the industry even been slightly prudent in the loans giving it would of stopped the mania ,but as time went on they just
did anything to keep it going by breaching any duty to underwrite the loans or appraisals .
Wall Street creates the biggest fake Ponzi- scheme in American History and they want to be bailed out and survive to live another day to dream up another one .Wall Street went to far this time ,but they must be cheering that BB ,Paulson ,Congress and the Senate, are their savior ,while the public they fleeced pays .
All it takes is a Visa or MasterCard with a 2,000,000,000,000.00 credit limit. That should about cover it.
Financial “Whac-a-Mole”:
Bubbles, Commodity Prices and Global Imbalances
Ricardo J. Caballero Emmanuel Farhi Pierre-Olivier Gourinchas∗
This version: September 2, 2008
This paper provides theoretical and empirical evidence to support the proposition that three of the major global macroeconomic phenomena of recent years –the persistent global imbalances, the subprime crisis, and the volatile oil prices that followed it– are tightly interconnected. They all stem from a global environment where sound and liquid financial assets are in scarce supply. In this framework, the large recent fluctuations in oil prices are the result of the interplay between a tight oil market and the search for financial assets: Bad news in US financial markets is good news for oil as an asset; conversely, good news in the
former is bad news for the latter. Our analysis also indicates that, in the short run, this endogenous response of oil prices has limited the extent of the adjustment in US’s external accounts that otherwise would have taken place in response to the US financial crisis.
http://www.brookings.edu/economics/bpea/~/media/Files/Programs/ES/BPEA/2008_fall_bpea_papers/2008_fall_bpea_caballero_farhi_gourinchas.pdf
caution 56 pg pdf.
“They all stem from a global environment where sound and liquid financial assets are in scarce supply”.
A very nice discussion on the trade deficit and commodity impact from the bubbles exploding. Not for light reading.
Thanks Sir Hoz.
Many fail to understand just how intertwine financial are globally.
You may like this one:
Wednesday, September 17, 2008
Brady, Volcker, Ludwig: Resurrect the RTC
The fact is that the financial system needs basic, long-term reform, but right now the system is clogged with enormous amounts of toxic real-estate paper that will not repay according to its terms. This paper, in turn, is unable to support huge quantities of structured financial instruments, levered as much as 30 times.
Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions.
… We should move decisively to create a new, temporary resolution mechanism. There are precedents — such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
http://online.wsj.com/article/SB122161086005145779.html
What say you my friend?
Leigh
I agree with caveats.
The RTC let the principals off the hook with a lot of cash. I would want personal guarantees from every individual that got bonuses over the last 10 years. I would want independent arbiters to determine fair market value.
These will not happen. The Congress and President receive billions in campaign contributions from the industry. I suspect it will be akin to RTC. Buying assets at above market value and then selling these same assets back (to the same players that got us in this mess) for chump change.
We only will be paying for the RTC for 15 more years or so. RTC2 is going to be at least 5X larger.
I agree 5x.
I’ve recommended several times more efficiently if broken down by region(s).
N, S, E, W?
12 regional Fed areas?
The thought sorting through all the paperwork gives me a headache.
Reaching for aspirin -
Leigh
If they break it into two pieces and the residential Real Estate through the FHLB and the commercial including corporate problems through the Federal Reserve Banking system. I am not smart enough to even try to comprehend the magnitude of this problem
I say let the house crumble so I can just buy a house in cash. Enough of the socialism.
I agree that is appears to be an orderly liquidation of the company. I still disagree with the action because now there is no clear Fed policy with regard to bailouts. It is anything goes and that will cause a further lack in confidence and the collapse will increase in speed. The “perfectly fine” assets the Gov got for this will decline in value rapidly now that the fire sale has been announced.
If the Gov relents and does not do a fire sale then I am stuck with the Federal Government being a major competitor to my company in selling auto insurance. Just a mess.
In summary, I think Paulson tried to instill confidence with this bailout but the effect will be the opposite. The world will perceive the US financial industry as a bunch of crooks who will do anything including steal form their children in order to steal a dollar.
I wandered past some web place last night where I had an urge to point out to Europeans that while Wall Street might well have “caused” the huge misallocation of wealth into housing over there (through runaway liquidity), Wall Street didn’t drag all those Europeans to the closing tables.
“I still disagree with the action because now there is no clear Fed policy with regard to bailouts.”
Can’t you see that it is all improvised?
Central banking poker champion announced:
Market Scan
Heart Of Lehman Beats In Barclays
Parmy Olson, 09.17.08, 6:42 AM ET
LONDON - Barclays has grabbed itself a bargain, and its shareholders are impressed. Shares in the British bank jumped on Wednesday morning in London, after it announced Tuesday night in London that it was buying the American investment banking and capital markets business, or core business, of Lehman Brothers Holdings for $1.75 billion.
Hey, with all this dust & noise…anybody seen Goldilocks?
I forgot all about Goldilocks. lol
She was fed to the squirrels in San Francisco back in 2005.
The three Bears mauled her senseless…Polyannna tried to help, but Casandra kicked the cr@p out of her before she could render assistance.
REVIEW & OUTLOOK
SEPTEMBER 17, 2008
Barney’s Rubble
Barney Frank didn’t like our recent editorial taking him to task for his longtime defense of Fannie Mae and Freddie Mac, and the Congressional baron defends himself in his signature style here. We’d let him have his say without comment except that his “whole story” is, well, far from the whole truth.
Mr. Frank contends that he favored “very strong reform” of Fannie Mae and Freddie Mac, even before Democrats took over Congress after the 2006 elections. To adapt a famous phrase, this depends on what the meaning of “reform” is.
this guy needs to be tossed out of congress. He will never take any responsibility for his actions reguarding this mess. I watched him on bloomberg yesterday and all he did was fingerpoint! Just once I would like to see him turn that finger towards himself. No solutions, just blame!
I’m voting against him….who’s with me
I’m voting against Schumer, and against Bush and the Republicans. Anybody available to vote against Dodd?
Of course, you have to have someone to vote FOR.
I always did. He’s still there.
Is it just me or are sellers still delusional? This morning I browsed some RE sites online and houses in my ‘hood are still sky high. I was hoping that prices would have dropped slightly but I was disappointed.
Sometimes I wish I could leave comments for each house. Such as:
“I don’t care if your townhouse was featured on HGTV it ain’t worth $679k”
“$425k? Have you even considered removing the 1970’s wood paneling?
“Sure, the converted church loft is pretty cool, but 5,300 sq is too big for my family and $969k is a tad pricey too.”
“$2,300,000? No house has sold over $2.0 mil in this neighborhood and yours sure as hell won’t be the first.”
“What the hell were you thinking when you renovated this piece of garbage?”
“Price 24 months ago: $319k. Price 12 months ago: $319k. Price today: $319k. Haven’t these people learned anything?”
“Rent v. own: $429,000 to buy or $2,400 to rent (both are about 50% too high!). ”
“I love your big Victorian house. Too bad there’s no one left who can afford a mortgage at your asking price. Give it a 30% haircut and you’ll get some interest.”
“No one wants to buy your old rotted out house for $379k!”
“Despite what your ad says, your home is NOT ‘undervalued’. It’s practically on the onramp to I-90! Try lowering the price more then .75% every few months!”
Give this international banking crisis news six months to trickle down to Main Street, then see how delusional sellers remain.
They’re not delusional. From their perspective, they’re being rational:
1. They owe the amount that they’re asking for, whether HELOC, mortgage or what not.
2. They have no money left to bring to the table at closing (Used that to pay the mortgage and drag on the inevitable)
3. Which means they can’t sell for less even if they wanted to, unless banks do short-sells, which is hard to get under-staffed banks to discuss.
So their choice (assuming they *must* sell) is:
1. Try to sell at the price they quoted, all the way to foreclosure.
2. Jingle Mail, which also means this house is not on the market, until REO process finishes. This can be up to a year for some markets.
There’s no *third* choice that allows them to lower the price immediately.
That’s why this is a slow train wreck. Because of no-savings nature of Americans, this will take a long time to play out as all eventual declines have to squeeze through the small sphincter of the REO process.
You can on ZipRealty. The wife and I sometimes stop into “interesting” Open Houses. The comments we leave are honest statements, but only about half are ever posted.
My favorite: “Was the decision to put the refrigerator in the dining room intentional, or did you forget to make room for it in the kitchen when doing the rennovations?”
Alas, it was true. And didn’t make it on the comments.
Yes, there are still a lot of sellers with their heads in the clouds. (Or up their a**es). See the same thing here in the Bay Area, even with a large part of the housing market in melt down. I can’t keep track of the number of people at work still buying and selling overpriced real estate. Flyers left in the mailroom for $1,000,000 homes (asking price, that is).
That said, a friend from work managed to pick up a foreclosure for $250k in a neighborhood that had been boasting prices at $500k - $600k. He was formerly “priced out forever” and now he and his family of 4 finally have a home. Good deal? Only time will tell as prices probably continue to come down. But after seeing/hearing all the bragging and big numbers being bandied about by so many, it was nice to see him finally be able to get a big enough house for what he could afford.
I hear you laughing boy.
I recently amended my ZipRealty searches to only include 2 bed SFRs, under $1 million, with a greater than 10,000 sq ft lot.
In the entire Westside area of Los Angeles - from West L.A to Malibu and from Sherman Oaks to Venice - there’s a grand total of 35 houses that fit the criteria. Half of which are foreclosures.
In other words, in an area roughly 300 sq miles geographically, with 3+ million people, less than 40 houses are ‘affordable’.
Someone wake me up when the real crash starts….
That’s unbelievable. I’m glad I don’t live in LA. Although sometimes I secretly wished I had moved there after law school and gotten a job in the industry as an agent’s assistant and worked my way up, hanging out with movie stars and models and the like. But hey, everyone can have dreams, right?
The local RE tapes his listings up in the storefront window. I looked at them yesterday and saw one gutted worthless box described as “a great flip!” LMAO.
One thing about backwater locations, they will still be crying pain long after it is obvious things are improving on the other side of this.
Or the investors that bought a foreclosure and are trying to rent it out for double what the market will bear. The ad states it’s on a cul-de-sac. What they fail to mention is that a freeway off-ramp leads into and through that cul-de-sac.
Oh, for the good old days when we just traded shots about overpriced houses! Here’s one for old time’s sake:
Asking price in 2006 was in the mid 200’s — high on a SF and quality basis. It was a sweet 2 BR in need of some love, across the street from a bunch of rentals stuffed with UM college students.
Now the asking is $795K. It has 4 BR (though one looks like a walk-in closet) and no yard (because the flipper added so much onto the house) and is still across the street from the same crappy rentals.
In case the link doesn’t work, we’re talking 408 Blaine in Missoula, 59801. MLS Number: 807664
http://www.missoularealestate.com/index.php/fuseaction/search.detail/mls/807664/type/Residential?addressNumber=&addressStreet=&city=Missoula&area=0&resType=0&mfSqFt=0&bedrooms=0&bathrooms=0&priceRangeMin=0&priceRangeMax=1000000000&showListings=12&NewestSort=1&garage=0&acreage=0&basement=0&hcap=0&x=true&startRow=24&type807744=Residential&type807743=Residential&type807739=Residential&type807732=Residential&type807728=Residential&type807726=Residential&type807714=Residential&type807707=Residential&type807705=Residential&type807704=Residential&type807703=Residential&type807700=Residential
Not a bad looking house, but $795k? In Missoula? Yeesh. That one’ll sit.
Banking system gets a lube job
Explainer
Banking system overheats after essential lubricant clogs up
Ashley Seager
The Guardian, Wednesday
September 17 2008
In normal times the word Libor remains an esoteric term best left to the world of banking. But yesterday saw central banks around the world throw hundreds of billions of dollars, pounds and euros into money markets as Libor - the rate at which banks lend to each other - surged in response to the collapse of Lehman Brothers and worries over insurance group AIG.
Looking at Libor is a bit like peering at what goes on under the bonnet of the banking machine. Yesterday things did not look pretty: the engine was overheating and came close to seizing up before big injections of lubricant from central banks kept it turning - just.
…
The focus yesterday was on the overnight Libor rate as banks, which normally spend all day buying and selling money from each other and thereby keep the wheels of global finance turning, again became reluctant to lend to other institutions in case they turned out to be another Lehman.
Normally, overnight Libor tracks very closely central bank interest rates in their respective currencies, often running at 0.1 or 0.2 of a percentage point above them.
Yesterday, overnight dollar Libor jumped to 6.4% in its daily fix by the British Bankers’ Association, up from 3% on Monday. That rate was the highest since January 2001, when the Federal Reserve’s official rate was 6%, compared with 2% now.
In US money markets, dollar overnight money market rates jumped to above 10% at one point, more than five times the official Federal Reserve rate.
Looks like we aren’t getting much of a rate of return after inflation.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCMdnmwJqCaM&refer=home
“Treasury three-month bill rates dropped to the lowest since at least 1954 on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. Investors pushed the rate as low as 0.233 percent as the loss of confidence in credit markets deepened.”
So negative four percent is the best risk-adjusted after-inflation adn tax return available to savers? Apparently so. Looks like those who overspent in the past did win, because they socialized the diminished future.
This has officially gone into the scary territory, even for bears. We’re now on the verge of dismantling social constructs. The destruction happening will affect us for generations. This is about as fun as seeking a thrill by jumping of a building — not fun.
When will this end?
Take the current crisis and run it to the logical conclusion. Finances at some level is a representation of our civilization and civil ways.
I’m fearing for my life, not just my financial well being anymore.
The key point is that the financial system is broken. It doesn’t matter if you bail out the players because the game is over. You can’t make money securitizing and derivatizing debt any more. It’s over. So who needs an AIG to insure bonds when the bonds won’t sell? Who needs a Goldman to trade derivatives of derivatives when there are no counterparties? And who is the most broke player of all? Why, the .gov of course; the one that is creating debt to cover debt of collapsed companies.
This is a Weimar scenario.
I think we have to pass through Argentina on the way to Weimar, if memory serves…
All of a sudden combotechie’s pile of cash seems awefully small compare to that of the FED. He is a good man, but time to ponder on the saying: you cannot teach an old dog new tricks….
Combo wanted the future to look like 1974, events playing out in the same fashion, but this is a whole different kettle of fish…
Cash Americanus might only be of use in one place on the planet, while Ne Plus Ultra can go anywhere it wants.
“I’m fearing for my life”
Are you afraid of crime breaking loose in your area? I think Alladin nailed it when he suggested getting to know your neighbors. We’re all gonna be learning to need each other again.
“When will this end?”
Well, as John Maynard Keynes once said: “In the long run, we’re all dead.”
Constantly fretting over the end of the world as we know it is a lousy way to go through life.
Constantly fretting over the end of the world as we know it is a lousy way to go through life. But, at least it’s exciting!
Especially to those seeking ratings (the media) and votes!
BTW, 26 years ago will get you back to 2008-26 = 1982, roughly at the end of Reagan’s double-dip recession. The country’s population was far smaller back then.
BULLETIN MAJOR U.S. STOCK INDEXES SLIDE 2% EARLY WEDNESDAY
ECONOMIC REPORT
Single-family building permits fall to 26-year low
By Rex Nutting, MarketWatch
Last update: 9:10 a.m. EDT Sept. 17, 2008
WASHINGTON (MarketWatch) - Home building tumbled again in August, with the number of new building permits for single-family homes dropping to a 26-year low, the Commerce Department estimated Wednesday.
Starts of new homes fell 6.2% to a seasonally adjusted annual rate of 895,000, the lowest in 17 years, and much weaker than the 955,000 rate expected by economists surveyed by MarketWatch. See Economic Calendar.
Starts of single-family homes fell 1.9% to a 17-year low of 630,000 annualized units. Read the full report.
LIBOR problems. If this is more than a temporary jump, it is a huge development.
http://www.bloomberg.com/apps/news?pid=20601213&sid=aJs41o1Rt_uk&refer=home
Why wouldn’t the international central banking cabal step in here to contain Libor going forward? I will assume the Libor jump is a Lehman-liquidation blip until I see contrary evidence.
You could be right, to me it is a sign that these banks simply don’t trust each other. When institutions faith in one another breaks down it can take a very long time for it to be re-built.
I totally agree with you. I was merely suggesting that some kind of market manipulation measures to keep Libor below its equilibrium level may be attempted to prevent a spike in U.S. mortgage rates that could lead to a housing price crash.
PAUL B. FARRELL
Bubbleonomics & Greenspan’s ‘magic piggy banks’
Road to big bucks paved with bubbles, meltdowns and big bailouts
By Paul B. Farrell, MarketWatch
Last update: 6:50 p.m. EDT Sept. 16, 2008
ARROYO GRANDE, Calif. (MarketWatch) — Former Fed Chairman Alan Greenspan’s done it again. Back in 1996 he defined an era. Then Robert Shiller immortalized it in “Irrational Exuberance.”
Well, Alan’s done it again. In his updated memoir, “The Age of Turbulence,” you’ll find the perfect label for the current global credit crisis: “Magic Piggy Banks!”
Shiller should have waited for Greenspan to come up his new zinger. Instead, Shiller jumped on the publishing bandwagon early. As a result, his latest book has a rather boring title: “The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to do About It.” But the book’s got bigger problems: Shiller’s solutions read like a children’s fairy tale about a bag full of magical beans.
Hard times on Wall Street.
http://www.nydailynews.com/money/2008/09/17/2008-09-17_hard_economic_times_hits_the_high_end_gi.html
“You have a Wall Street guy and he looks like one of the seven dwarfs,” Hayes says. The schlub finds himself with a fabulous girlfriend such as used to brush past him as if he were a wall. He will do almost anything to keep her if his magic millions suddenly evaporate, even selling his watch and cuff links. “The last overhead to go is a really high-end girlfriend,” Hayes says. “If you’re a short, ugly 40-year-old guy and you’re throwing over a high-quality girlfriend, you’re desperate.” The absolute economic low comes with a realization that Hayes summarizes in a sentence. “I can’t afford her anymore!”
Wouldn’t an escort service provide the same benefits for a fraction of the cost, of course unless you have an Spitzer appetite.
Renting is cheaper.
Saying is, “If it flies, floats or f*cks, rent it.”
Sharing is cheaper still.
Yeah, but the ugly dwarf wants to believe that their trophy girlfriend LOVES them. Stomp on straw long enough and it turns into gold, NOT!
Bloomberg: Treasury to print help shore up Fed balance sheet!
What is the point of formally stating the obvious?
Closure.
There has been much discussion on this blog that the Fed is not actually part of government. Isn’t this a relatively significant move in that respect?
The bottom line with this latest line in the sand is that the majordomos couldn’t come up with $85 Billion in a hurry any other way than nationalizing more debt on our shoulders, our children’s shoulders and our grandchildren’s shoulders…
But I shrug~
Markets are setting up for a scary October.
latest news Treasury to provide cash to Fed market liquidity operations
FUNDWATCH
Fund managers more downbeat on economy
More managers believe global economy is in recession, Merrill survey shows
By Sarah Turner, MarketWatch
Last update: 8:50 a.m. EDT Sept. 17, 2008
LONDON (MarketWatch) - The number of fund managers taking the view that the global economy is in recession rose sharply in September, according the Merrill Lynch’s monthly survey.
I wonder when those quarterly statements arrive? That will NOT be an up day.
I’m guessing the statements will arrive right around mid-October — traditional Wall Street crash season.
closed indefinitely:
Russia’s two main bourses, RTS and MICEX, said on Wednesday they were suspending trade until further notice from the state’s main market regulator as shares continued to tumble one day after their steepest decline in more than a decade.
Talk about illiquid assets!
Russia did me some real hurt in the 90s and that is why I refused to buy anything in there again. Same crap as 97
OT Sarah Palin news:
In the Troopergate investigation, the McCain machine is interfering with Alaska politics, creating fake conferences on the calendar and false butt-buddy relationships with the Democratic legislator who is part of the bipartisan commission investigating her. She is refusing to cooperate with the investigation to fire the head of the Alaska State Troopers (public safety division). Her stonewalling is leading to an Alaskan Constitutional crisis between the legislative and executive branches. Unbelievable….
That does it…I’m convinced that not only is she guilty, but she is as corrupt as anyone else. Her dragging the national media and the McCain campaign in to save her *ss is not unexpected, but completely antithetical to her message of reform.
Taser her !!!!!
But she’s cute, and that makes up for a lot.
Not even looks can make up for that nagging, shrill drawl.
How can you tell when your nose is so high in the air??
In the same way a beaten down casuality of voodoo economics and deregulation does. From a distance.
TASER HER !!!!!!!!!!!
She seems like the female equivalent of Spiro Agnew.
Who’s Spiro Agnew?
“Who’s Spiro Agnew?”
Figures.
For you golfers out there, here is a nice little shack that a Realtwhore that struck it big is trying to sell…
http://www.golf.com/golf/gallery/article/0,28242,1840609,00.html
A couple days ago someone posted where they purchase their Silver Maple Leafs from. I think it is time to hedge and have some physical silver on hand…but I can’t find the link again…anyone?
One thing good about being in the stuff business, always plenty of scrap silver on hand.
All roads lead to hyper-inflation now…
Cash is going to get rooked in value, better think of a plan G, people.
Plan G
“I had lunch the other day with a guy who said all you need to survive the coming apocalypse is a shotgun, water and some rabbits. Of course, if you’ve got a shotgun, you don’t need your own water and rabbits. You can just take someone else’s.”
John Kelly
Hide the Toys, ‘Age’ the Soap And Other Tips for Tight Times
Care for some dried-out cheese with that? Eleanor Roosevelt would know how to survive our troubled economic times.
Wednesday, September 17, 2008
WaPo
Those that plan to use a shotgun to get water and rabbits are part of the problem. Those that store food are part of the solution. Those that have both food and shotguns (for defense) will survive.
Those that rely on their scatterguns will have to deal with larger groups of men with automatic weapons & RPG’s. Best to dig a very deep hole & close it up over yourself after camouflaging the opening.
The Emperor’s ride comes complete with 150,000 miles on the odometer, the odd bit of body damage here and there and a crack in the windshield.
I’m an FB impersonator…
Sounds very much like my ride, which will run on vegetable oil in a pinch.
Ah yes. Nothing like a little financial turmoil to bring the Y2K survivalists out of the woodwork.
So tell me - back in 2000, how long did you hunker down in your cave before you figured out it was safe to come out?
An evang/militia/tax evaders church in the next town over, were out on the streets en masse, guns at the ready, from around dusk on December 31, 1999, till the all-clear was given sometime around noon on January 1, 2000, in case Y2K was to rear it’s ugly head…
GREAT POST!
Too bad you don’t post more often, ‘ole Salty One.
The SEC issued a new short-selling rule, which will apply to all public companies. Rules are tightened, requiring a firm to deliver securities by the settlement date, according to reports.
is this going to help stop the sell-off?
No.
The US stock market is very small compared to the bond market. The shorts got it handed to them by the Federal Reserve 3X this year. Yesterday when the Fed said they would not help AIG, the shorts blasted AIG debt. Free moneys - supposedly, boom we all saw what happened.
That was the third time this year the fed blasted the shorts in bonds. The stock market traded 2B shares yesterday involving $120B total. AIG debt traded $500B yesterday.
If you think a company is going under, short the debt far more profitable unless the G steps in.
Hoz, where does one go to trade bonds? Are there online/low cost brokers like for stocks? Just curious.
Yes. There is online trading. I believe Ameritrade or Etrade accounts allows bond transactions. Have fun! Stay with liquid issues.
BTW, who thinks at this point that the housing market will be propped up by stock market gains (one of the lame theories that was tossed around on this blog a couple of years ago…)?
the only thing the market’s gaining at this point, is speed on the way down.
Wednesday, September 17, 2008
Reich: In the aftermath, a loss of trust
What’s up with the free marketeers in the Bush Administration rushing to help out the big firms on Wall Street? Commentator Robert Reich looks back at the last few years to find what started this mess.
Dr. $trangeloan or: How I Learned To Stop Worrying And Love The Debt Bomb
Okay, I’m one of the biggest bears there is here at work, but all of this is starting to really rattle me. Money Market Funds breaking the buck, FDIC issues, HBB’s here commenting on limits in bank withdrawls.
Where in the hell do you put your money, if I can get my hands on it in the first place. Do I really need to burry it in the backyard? This is nucking futz!
Better pick a good hiding spot; the Roaving Hoardes of Starving Masses are on their way. I am wearing my filthiest rags right now, and polishing my pitchfork. When they arrive at my house I will hoist said pitchfork high and join the mob as we march to the better neighborhood searching for hidden stores of canned beans or gold coins, which were outlawed by the New Dollar Act of 2009. Then my revolutionary brethern will rejoice, scratching flea bites, eating cold beans from cans and swapping stories of how best to ferret out the gold-hoarding seditionists and evil unAmericans responsible for our wretched plight.
lol, is their a metal detector attached to the other end of said pitchfork?
One of the reasons for the “limit” of $10,000 on bank withdrawls is that carrying in excess of $10,000 cash is considered probable cause for comission of a crime; and is therefore subject to seizure. Furthermore, any cash movements within a bank of $10,000 or more triggers the IRS reporting cause. Giant PITA, so I’d personally avoid any cash transactions (or transportation) greater than $10,000.
Be sure to keep the withdrawal receipt with the cash.
Hey thanks, you reminded me that I need to go to the bank again today.
There is no actual $10,000 limit. Anycarrying of cash is considered probable cause for the commission of a crime and is subject to seizure. Withdrawing or depositing any cash can be considered suspicious and reportable to the feds by your financial institution.
How about placing some cash in a safety deposit box at the bank? Aside from the logistics of getting inside the bank to access it, any other blarring negatives?
illegal
Withdrawing or depositing… Several years ago before all this happened I withdrew $5000 from one of my banks in order to deposit it in another for some reason I now forget. The source bank reported it, saying they didn’t want to get in trouble with the feds. I don’t know if the receiving bank did or not.
Likely, they reported it 30 times (to their stock holders
)
When the end is near, be sure to empty your pockets.
-Bo Duh
Interviewer: HAL, you have an enormous responsibility on this mission, in many ways perhaps the greatest responsibility of any single mission element. You’re the brain, and central nervous system of the ship, and your responsibilities include watching over the men in hibernation. Does this ever cause you any lack of confidence?
HAL: Let me put it this way, Mr. Amor. The 9000 series is the most reliable computer ever made. No 9000 computer has ever made a mistake or distorted information. We are all, by any practical definition of the words, foolproof and incapable of error.
See you later Dollar.
Sincerely, Gold.
AU now up over 50. Buggy whips are back!
I note that today we are at the height of financial panic. AU and l-t T-bonds (aka future dollars) will both tend to go up in flight-to-quality moves.
But by all means conclude that your theory about gold being the only real money is confirmed by today’s price action if it makes you feel better about life.
Mellow yellow’s up 10% today and it isn’t even breathing hard…
It was just waiting for Paulsondora’s Box to open up~
Gold/Silver : Greatest daily rise in market history… probably nothing……..
Is that for sure? There wasn’t a larger single-day rise in the 80’s runup?
we are at the height of financial panic You exaggerate. The height of financial panic would be along these lines: Cash only accepted by anyone. ATM’s all closed. Credit & debit cards useless for the time being. Businesses which require daily access to credit close abruptly. A huge number of people suddenly out of work. Grocery stores & gas stations abruptly run out of stock (since they have already run out of cash to pay for deliveries). Airlines grounded for the same reason. People reduced either to bartering or using scrip (IOU’s which promise to pay when things improve).
This scenario composed based on historical accounts of Panics of 1837, 1873, 1893.
They had ATMs?
I wrote that my scenario was “based on” not a “duplicate of” previous Panics.
This scenario composed based on historical accounts of Panics of 1837, 1873, 1893.
—
Gosh, Houston a couple of days ago:
Cash only: Check
ATMs not working: check
Credit and Debit cards useless: check
Businesses closed abruptly: check
Gas stations abruptly run out of stock: check
Airlines grounded: check
Bartering: I don’t think people around here are even bothering to barter…
—
I think my wife finally understands why I have always kept a couple thousand in cash around, since I went through the Loma Prieta earthquake (San Francisco, 1989) with $5 in my pocket.
Boo hoo! Waited out the housing insanity, but still prayed for my granite and stainless, alas - our investment portfolio tanked miserably, and our medical plan doesn’t cover psychotherapy counseling for anxiety disorders and depression without a huge deductible. Where’s our bailout!?
Gold up $50?
With all the upward pressure that’s been on this commodity w/o a result, what made the logjam let go?
A cold splash of reality. The barbarous relic is back; fiat-hoarders are on the run.
Boo hoo! Waited out the housing insanity, but still prayed for granite and stainless, alas - our investment portfolio tanked miserably, and our medical plan doesn’t cover psychotherapy counseling for anxiety disorders and depression without a huge deductible. Where’s our bailout!?
Sept. 17 (Bloomberg) — Islamic terrorists targeted the U.S. Embassy in Yemen’s capital, Sana’a, blowing up a car outside the entrance to the compound and killing 16 people in the second attack against the mission in six months.
Was in town yesterday for a bit, sitting on a bench in front of the bank, waiting for a line to form, never been in a bank run, so was just watching in case one came along.
Out comes this little scruffy guy, sort of like someone from Fiddler on the Roof, but a bit better dressed, muttering. “All that money, gone, gone, gone…”
I asked him if I could help, mostly just to get the scoop. Sounded pretty serious, thought maybe the bank had done something bad.
He looked a bit startled, so I said, “What happened, is there anything I can do?”
He just shook his head and muttered something about trillions of dollars, just evaporated like that, gone gone gone, then walked on.
True story, still not sure what was going on. Oh, yes, I was in Jackson, Wyoming, do you think that has anything to do with it? He got in a limo.
There was no money to begin with.
When pointing out the moon to dogs, the dogs stare at your finger.
-Shar Pei
I have no idea what that means, and no implication of you being a dog was meant, yensoy.
My dog would follow my point, although he was often unsure first. Like if there was food involved (perhaps I say “treat”) and he got excited he would look at me, then my hand, then me, then finally look to where I was pointing. If he didn’t find it he would come back to me. But I’m pretty sure he would, to some degree, follow where I was pointing.
On Aug. 29 I dug a hole and put him in it. We had that dog for 12 years. Good dog.
Ah, the pain of losing a good friend. Lost one of mine a couple of years ago and I still miss him. My condolences, blu.
Herstatt Risk
Germany seeks explanation of KfW Lehman transfer
“Germany’s Finance Ministry said it is astonished that state lender KfW transferred 300 million euros ($426 million) to Lehman Brothers (LEH.P: Quote, Profile, Research, Stock Buzz) on the day the U.S. bank filed for bankruptcy protection….
“We expect a swift explanation of such a technical failure, which is inexplicable to us, but which will hopefully be explained soon,” he said at regular government news conference. KfW said on Tuesday it mistakenly transferred the funds to Lehman on the day the investment bank filed for bankruptcy….”
Reuters
So the day of filing BK, Lehman scoops up a EU300MM transfer and then files. Free moneys.
How to win friends and influence people who don’t trust you anymore:
“KfW said on Tuesday it… mistakenly… transferred the funds to Lehman on the day the investment bank filed for bankruptcy….”
Hey Germany, what to help us Americans start a with a war against Iran or Russia? Come on you guys are a part of NATO now…forget about those Wall Street losses…it’s only “Federal Reserve notes” …it’s easy to make more, really, we can show you how…now come on, we have to finish bringing those Islamic Arab nations into the democratic free market system…our work is nearly done…look, we’ll paint a 12″ green zone around a 3 mile radius of Tehran and it all be over in about…10 months…promise.
Acht du Lehman!
Dear Comrades,
I have great pleasure to announce glorious new banking infrastructure thingy called USgosbank. The fabulous new facility will be here for all of industry and personal needs. Please use lending facility as if it is bottomless cookie jar. Cookies are good, yes? Thank you, and enjoy our amazing future of financial freedom from choice.
Regards,
Benski Bernanskova
Tough times in Midtown. Long line at the coffee cart this morning.
The Starbucks seemed empty.
The Parable of the Grasshopper and the Ants (Hip-Hop 2008 Version):
Yo, dude ants work hard while dude grasshopper screws around.
Dude ants put money in 401k and other financially safe places, yo, they rock.
Dude ants try to warn dude grasshopper, yo, dude, you starve, dude, when times go bad, dude. Dude grasshopper parties on, he rocks.
Yo, dude bankers screw up, real bad, dudes, system failure.
Dude grasshopper gets free dinner for telling crazy stories around the campfire while dude ants starve.
Yo.
That’s about it, though I believe the grasshoppers in this case are more fond of Sinatra.
Yeah, too bad it’s cabbage soup after standing in line for half a day to get it.
Word?
So where’s the Caped Crusader for the DOW? I thought it hit the safety net at 10,800?
Maybe he got stuck on the train, or something…
i think they changed it to 10,700.
does anyone know what is bring life back into the markets?
finance dot yahoo dot com
“Top Economist: Americans Should Worry About Bank Deposits if Congress Doesn’t Act
…But Americans are justified to be worried, says Nouriel Roubini, of NYU’s Stern School and RGE Monitor, who notes there is already a “slow-motion run on retail banks” occurring nationwide.
That “run” could accelerate as people realize the FDIC fund has about $50 billion to “insure” about $1 trillion in assets at the nation’s financial institutions, says Roubini. “They’re going to run out of money” unless Congress acts soon to recapitalize the FDIC.
In addition, the recent spike in number of banks on the FDIC’s “troubled list” is only through June, meaning even that inflated number understates the problem.
The intent here isn’t to add to people’s anxieties, but Roubini is one of the few market watchers to correctly predict the severity of this ongoing credit crisis. If nothing else, he says people with accounts exceeding $100,000 in value should spread their money - and the risk - among different firms.”
Financials are toast. MS, WM, WB, C? Pick a bank, any bank.
Which one is up for execution next Sunday?
Talked to a friend the other day, and he’s smart as a whip…
He told me he had to scatter his money between 9 banks to keep each under $100k.
When I asked if he knew how much money the FDIC had in reserve, he had no idea that they didn’t have a pot to piss in, his only concern being spreading around his manure.
Can’ wait till the spotlight hits the regionals due to fall in the dominoes.
can you give a link for that? I can’t find it.
finance dot yahoo dot com/tech-ticker/article/56994/Top-Economist-Americans-Should-Worry-About-Bank-Deposits-if-Congress-Doesn%27t-Act?
(Paulson walking around in circles first to the left…then…to the right holding a Daisy flower called the Forbes 500)
Flinging petals into the air…
“We love you…
We love you not!…”
“We love you…
We love you not!…”
…”Mr Paulson there’s a call from President Shrub” :
“Put him on the speaker phone:”
Shrub: “Hey Pauly, how you doin’?….hehehehehehe, seriously now…do I say to the American public that our administration still believes in a strong US Dollar? …hehehehehehe, hey, Cheney would like to know if we should mention how Republicans are the only trusted party that will continue to preserve Reagan’s free market model, …hehehehehehe, just kidding, he really never liked Reagan, …hehehehehehe, well, I gotta go…helping the folks down in Galveston…I’m on top of anything that hits Texas…see in the funny’s …hehehehehehe”
hehehehehehe
lil’ Bush most likely has vast family money stashed in some middle eastern country, and probably some faux Saudi palace to flee to. Talk about no skin in the game.
Money-market fund dips below safety benchmark
“Most funds would take action long before the $1 net asset value was jeopardized,” Crane said.
But Reserve “is really an anomaly, because they are one of the few advisers that is privately held, and doesn’t have a large financial institution as a parent,” Crane said.
Crane said in the past 14 months, the managers of 21 money funds have stepped in to supply additional cash to avoid breaking the buck. Crane said he was aware of three such “support events” this week alone, involving the money-market funds of Wachovia Corp.’s Evergreen Investments unit; Ameriprise Financial Services Inc.’s RiverSource Funds; and the money fund of Northwestern Mutual’s Russell Investments.
Money funds hold $3.5 trillion in assets for a wide range of individual and institutional investors
http://biz.yahoo.com/ap/080917/investor_risk_fallen_money_fund.html
this may have been already posted, interesting, bloomberg dot com:
“U.S. Mortgage Rates May Wreak Havoc After Libor Gain (Update2)
By Kathleen M. Howley
Sept. 16 (Bloomberg) — The biggest jump in the London interbank lending rate in at least seven years could wreak further havoc on the U.S. housing market and there’s nothing the Federal Reserve can do about it.
…
Many Libor-linked U.S. mortgages don’t limit the size of a loan’s first adjustment, with caps of 2 percent on subsequent changes. That means a monthly mortgage bill could double or even triple when it first resets.
“If the Libor market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”
Banks tightened lending as AIG was downgraded by Moody’s Investors Service and Standard & Poor’s, adding to evidence that the fallout from the collapse of the U.S. mortgage market is spreading. The surge in funding costs came less than a day after Lehman’s bankruptcy, the biggest in history, and Merrill Lynch & Co.’s sale to Bank of America Corp.”
It is much too early to say whether higher Libor rates after the week when Merrill, Lehman and AIG were taken under will stick. It seems possible we are just seeing the disruptive effect of huge whales getting shot and dropped into the water from great heights. Large waves will naturally follow.
The financial sector is down 9.4% with all 86 of its components posting a loss. Goldman Sachs (GS 99.64, -33.51) plunges below the $100 mark for the first time in three years.
i thought these guys were immune to this down turn? LOL!!!!!
I just looked into the mirror and I think I saw Ann Frank looking back.
Wow ,ouro verde ,you have a way of making statements that just go to the heart of the feelings this crisis is evoking .
I was thinking it was the most ridiculous thing I’ve ever read. But, then again, it does serve to show how silly some of you guys are acting. I wonder what you might see if something really serious happened in your life?
Joan of Arch?
The dark circles under my eyes reminded me of someone 13 and hopeful.
Well, OV, you showed me the neighborhood you grew up in and I read Frank’s diary. I think comparing yourself to that poor girl is a little over the top.
I sentance you to an entire week of watching CNBC including the asia markets.
My former broker is going to be working for a big china bank now. CITIC
Glad i left MS.
Insight: Dragon of moral hazard is going to take some impaling
By John Plender
Published: September 16 2008 20:50 | Last updated: September 16 2008 20:50
…
One constant in financial crises is moral hazard, whereby repeated bail-outs encourage excessive risk-taking. The high-risk decision to let Lehman go to the wall was a well intentioned attempt to address this endemic problem. The snag is that the consolidation taking place in the financial system is leading to more concentration: a smaller number of much bigger institutions that are too big to fail. Impaling the moral hazard dragon will be an unremitting struggle.
John Plender is an FT columnist and chairman of Quintain plc
note to Jetson-boy
It’s just not keeping me awake at night worrying about 41,500 SLV in my retirement money.
But I’ve been involved in the silver market for a long time, including professionally, in NYC in the 70’s and 80’s. I don’t recommend people try to do this at home.
Well I guess I do, actually.
Despite a prevalence of govt assistance already getting poured down the REIC rathole, there is a clamoring underway from politicians for still more.
Government Assistance
Free Bailouts?
Joshua Zumbrun, 09.17.08, 6:00 AM ET
…
But the most visible item of any actual housing bailout is the increase in outlays for federal housing programs, which have risen to $4.4 billion from $337 million in the same period last year, driven almost entirely by the Federal Housing Administration.
The nominal cost so far to the government’s efforts has been minimized by accounting wizardry. This could prove a stroke of genius or a dangerous aneurysm hiding in the balance sheets.
Behind the relatively small rising outlays for the Federal Housing Administration is a balance sheet that’s exploding. The Housing Bill, passed in July, allows for the FHA to insure up to $300 billion of new mortgages. In good times, this could be done at a profit. But if these are good times–and if a profit is to be made–then private companies are missing an opportunity to get rich. If things go badly, the Federal Housing Administration could be on the hook, as we previously reported, for as much as $100 billion.
My hunch is that if there were an opportunity here for private companies to get rich, then the govt would not be involved in insuring mortgage debt.
Capitulation,
CAP IT YOO LAY AY SHUN,
It’s makin’ me wait.
It’s keepin’ me WAY AY AY IT ING.
But there’s news from the front…
5326 Avenue S4
Palmdale 93552
4+3 2100+sqft.
Listing price today $86K!!!
It must be thouroughly trashed.
History? Builder sold it to A. Perez 6/04 for $303K, brand spankin’ new.
A. Perez hung F. Sanchez out to dry for $420K in 7/06.
F. Sanchez got foreclosed on and the shack now sits on the books of Deutsche bank at $342K.
Unless this is a realtor ploy to scare up some buyers with a bait and switch we may be seeing the beginning of the end of the waiting game!
Hey dude . I am also seeing foreclosures starting to get to the 80 dollar
a sq ft and lower range . I was looking at condos in San Diego that are down to under 100k when they use to sell for 250k to 300k . Still ,I can’t
get all excited about it when I can’t get a handle on what the rental demand will be ,and how far rents might drop . You have a increase risk of having a renter default on you in a climate of increased job loss.
Also ,how low will any house , development ,project ,or condo project go after everything is said and done . I have to put this risk into any
speculation on real estate ,if I was going to invest ,and I’m not saying that I’m really interested . Gods knows what the government will do in terms of policies and law changes .Wall Street and the government screwed up the ability to determine risk in almost all kinds of investments ,including stocks .
Agreed, and I’m laying in a hammock in the sunshine catching zzzzs AT LEAST until there are fewer NODs than sales in a given 3 month period.
I could be waiting a while.
I can’t stop wondering what all of this news of a credit panic portends for future U.S. home mortgage loan availability. My leading hunch is that if the world’s largest banks are afraid to lend to each other overnight, then it will be very difficult going forward for individual households to get long-term loans to buy declining value real estate. But I defer to the experts on how this situation will resolve
.
September 17, 2008, 10:30 am
A State of Panic: The Credit Markets
Posted by David Gaffen
It’s almost impossible to believe, but the overnight funding markets have seized up again and spreads on key measures of stress have ballooned — surging past previous peaks hit in both July and March.
“She’s breaking up Captain, she can’t take much more!”
“Screw you Scotty, we’re going to warp 100!”
“Beam me up Scotty, this place has no intelligent life.”
Do the posters who constantly dish on the worthlessness of the U.S. dollar find the crash in three-month T-bill yields as a somewhat disconcerting bit of contrary evidence? Or is it all about only paying attention to the data that bolsters your personal views (aka confirmation bias)?
U.S. Stocks Drop as Lending Freezes Up Following AIG Takeover
By Elizabeth Stanton and Lynn Thomasson
Sept. 17 (Bloomberg) — U.S. stocks tumbled as bank lending seized up in the wake of the government’s takeover of American International Group Inc., raising concern that more of the nation’s biggest financial companies will fail.
Goldman Sachs Group Inc. and Morgan Stanley, the two remaining independent U.S. securities firms after Lehman Brothers Holdings Inc. collapsed and Merrill Lynch & Co. was taken over, plunged the most ever. General Electric Co., the world’s third- biggest company, fell 7.7 percent and U.S. Steel Corp. slid 11 percent. Yields on three-month Treasury bills sank to a 54-year low as investors sought the relative safety of government debt, and a measure of corporate borrowing costs surged to the highest since the crash of 1987.
“It’s ugly,” said Michael Mullaney, a Boston-based money manager for Fiduciary Trust Co., which oversees $10 billion in stocks and bonds.
“It’s about the worst I’ve seen it in 25 years. You have to have free-flowing credit to lubricate the system. That’s not happening right now.”
Weimar’s currency stabilized for several months right before the hyperinflation took off.
Do the posters who constantly dish on the worthlessness of gold find the $100 rise in gold prices as a somewhat disconcerting bit of contrary evidence? Or is it all about only paying attention to the data that bolsters your personal views (aka confirmation bias)?
If you only look at one piece of data (a tree) that could be the result of many different causes then you can get the wrong picture (miss the forest). A short term flight to perceived safety can buck(pun intended) the medium term trend.
I could just as easily point out that the cost of insuring treasuries against default is at an all time high. So how do you reconcile record low interest rates with record high default insurance rates on the same debt?
“Do the posters who constantly dish on the worthlessness of gold find the $100 rise in gold prices as a somewhat disconcerting bit of contrary evidence?”
See my remark about flight-to-quality, and also my calculation below. But I assume you are referring to other posters, as I never claimed gold was worthless (though I admittedly do not currently own any).
I don’t suppose the fact that some of the world’s largest and most famous corporations are finding it difficult to obtain short-term, low interest loans is any reason to assume that individual U.S. households would be expected to have any problems going forward with getting long-term, low-interest mortgages? After all, money does grow on trees, doesn’t it?
GM, UBS Short-Term Debt Costs Soar as Money Fund Breaks Buck
By Bryan Keogh
Sept. 17 (Bloomberg) — Short-term debt costs for General Motors Corp., UBS AG and Sears Holdings Corp. soared as the oldest U.S. money-market fund saddled investors with losses, sapping confidence in assets once considered among the safest.
General Motors, the largest U.S. automaker, is willing to pay the most to borrow seven-day commercial paper since Dec. 31, 2007. The short-term debt rate for Zurich-based UBS jumped to the highest since March 4. Sears, the biggest U.S. department-store company, is offering to pay the most in six months for 30-day paper.
The Reserve Primary Fund suspended redemptions and its net asset value fell below $1 a share, eroding confidence in money- market funds, which invest in commercial paper. That could drive up financing costs for companies, said Ajay Rajadhyaksha, head of fixed income strategy at Barclays Capital Inc. in New York. Companies rely on access to the commercial paper market to finance day-to-day expenses such as payroll and rent.
“That unfortunately can spiral in the sense that it makes it more difficult for all companies to raise short-term money,” Rajadhyaksha said.
OT - Had a talk with someone about politics, which I always tell myself never to do, but I felt rebellious that day and did it anyway, and she said she was confident God would put whoever he wanted in charge, so she wasn’t a bit worried. She was, of course, in the McCain/Palin camp.
Wondering if the financial meltdown will convince people like her that the repubs really don’t deserve a third go-round.
Sometimes I think I’m an alien surrounded by creatures who look and talk like me but have a complete different brain wiring, I’ve felt like that since I was a kid, but it’s now morphing into complete disbelief of the brain even existing. (for them, not me, I know I’m OK - hehehe).
Occasionally i’ll sneak down into the bible belt otherwise known as the Central Valley, and the people are to my mind so indoctrinated with the evang dogma it’s a bit scary.
Like a religious stepford state…
goAld
NEW YORK (MarketWatch) — Gold futures surged more than $80 an ounce Wednesday, the biggest daily gain in dollar terms since at least 1980, as news of the U.S. government’s takeover of the biggest U.S. insurance company fueled massive safe-haven buying. Gold for December delivery closed up 9% at $850.50 an ounce. It earlier jumped $83.80 in electronic trading to $864.30
High five! you like? — Borat
And silver was up 11%. Booya.
Watcher, I thought you only care about the physical price which seems unaffected so far today, now you care about paper price too when it’s on its way up? I’ve been watching rolls of eagles on ebay which have been stuck between 330-360 including today.
I’m glad you brought that up. I had wondered if the spread between physical/paper would close when the spot price started rising. In fact, the spread remained fairly constant at the online dealers I monitor. I can’t speak about Ebay.
Rumor of the day; AIG had a big naked short position in PMs. I have no idea if that is true.
Just for you — today’s price change in gold at an annualized rate:
((850.50/(850.50-70))^360-1)*100 = 2.68230277 quadrillion* pct
(In English speaking countries, 1 quadrillion = 1,000,000,000,000,000)
LOL.
PB you are always a hoot!
Prof, we agree on virtually nothing…but thanks for the extrapolation!
We may actually agree on more than you think, but I am much more discrete with my hunches than you appear to be.
peter schiff:
http://www.safehaven.com/article-11261.htm
“The move represents the largest lurch toward socialism that this country has ever seen, and signals the end of the vibrancy of America’s once vaunted free market economy. Since there is no limit to the amount of money the Fed can create, there is no limit to the number of assets they can acquire.”
Sobering words, indeed.
Let’s put this in sardonic quotes, where it belongs: America’s once vaunted “free market economy.”
No matter what your philosophical stripe, our “free market economy” can safely be called a myth.
“Boston, MA – 09/17/08. Monday’s mammoth Lehman Brothers Holdings’ Chapter 11 bankruptcy filing has dominated worldwide news—thrusting US Bankruptcy Court proceedings into the international spotlight. While this case certainly is record-shattering, in terms of its colossal size, there was yet another significant marker passed this week. With more than three months still remaining in 2008, this year has exceeded the total number of corporate public Chapter 11 and Chapter 7 bankruptcy filings seen in all of 2007. http://www.bankruptcydata.com reveals that the total count for last year reached just 78 public bankruptcies, and this year has already seen 81 such filings.”
BankruptcyData.com
Wheeee a new record.
Today the GSE agency debt widened out to levels that are unbelievable. The 2 yr has widened 15/17 bps over treasuries. These are for all intents and purposes the sme thing. Both backed by the same government.
This is unabridged fear.
The 6 month agencies are yielding 2.5%, 6 month Treasury bills ~1.1%
I could do the arb all day long, but as we will all learn the market can get a lot wider. And am just doing enough to keep my margin at 4:1 (Shorting T / buying GSEs) It is not free money, but it is real close.
The GSE debt guarantee is now explicit. How can so many folks doubt the full faith and credit of Uncle Sam?
wow.
this is shaping up to be just like last August, the VIX is higher than Aladinsane on a hike…..if you have the nutsack to short TLT now, you will be rewarded.
Vozzie,
I agree the R/R is very favorable.
Smoke em’ if you gottem’ by the balls…
apologies to bears sans nutsacks.
Thanks hoz, I’m clear on this now. Yesterday I thought you were saying the opposite of what you were saying.
So maybe mr market thinks there is some risk of the govt backing out of it’s gaurantee if things get too bad?
Recent rate of decline in San Diego home prices at annualized rate of change:
July 2008 $370,000
Aug 2008 $350,000
((350/370)^12-1)*100 = -48.667 pct per annum
Needless to say, this figure does not reflect the impact of the Wall Street meltdown over the past couple of weeks.
County’s median home price at lowest level in 5½ years
By Roger Showley
UNION-TRIBUNE STAFF WRITER
11:29 a.m. September 17, 2008
San Diego County’s median home prices dropped to $350,000 last month, the lowest level in 5½ years, AMD DataQuick reported Wednesday.
The median price was 26.3 percent lower than August 2007’s $475,000 and 3.9 percent lower than in July.
NEW YORK (Reuters) - Pressure is building on the pristine “AAA” rating of the United States after a federal bailout of American International Group Inc, Standard & Poor’s sovereign ratings committee chairman said on Wednesday.
The $85 billion bailout of AIG on Tuesday by the U.S. Federal Reserve “has weakened the fiscal profile of the United States,” S&P’s John Chambers told Reuters in an interview.
“Lack of a pro-active stance could have resulted in further financial stress and put pressure on the U.S. triple-A rating,” Chambers said. “There’s no God-given gift of a AAA rating, and the U.S. has to earn it like everyone else.”
S&P earlier this month affirmed the “AAA” sovereign rating of the United States, noting risks to the U.S. credit profile including the deteriorating credit profiles for most U.S. financial institutions over the past 12 months, S&P said in a September 3 statement.
Potential up-front costs to the government of maintaining financial stability could reach 24 percent of gross domestic product in the case of a “deep and prolonged recession,” the report said.
Chambers on Wednesday compared the U.S. rating to a lobster cooking in a pot of cold water.
“The lobster is still in the AAA pot and still moving,” Chambers said. “The heat is turning up, but the water is still AAA stable.”
the pension funds are already heading to court over losses. i wonder how much they will get after the government takes its share?
Panic grips credit markets
By Krishna Guha in Washington, Michael Mackenzie in New York and Gillian Tett in London
Published: September 17 2008 18:23 | Last updated: September 17 2008 20:00
The panic in world credit markets reached historic intensity on Wednesday prompting a flight to safety of the kind not seen since the second world war.
Barometers of financial stress hit record peaks across the world. Yields on short-term US Treasuries hit their lowest level since the London Blitz. Lending between banks in effect halted and investors scrambled to pull their funding from any institution or sector whose future had been called into doubt.
http://www.nytimes.com/2008/09/18/business/18morgan.html
Morgan Stanley and Wachovia a match made in heaven.
ok, who’s up to watching cramer scream tonite? i think it could be a pretty good show! lol!!!!!
Before my daughter got away with switching the channel, he seemed pretty subdued.
Speculation is he’s on medication these days
I was shocked by his calmness. The only thing I saw him get excited about before I changed the channel was his anger at cox over not bringing back the uptick rule.
A Chinese friend at work just sent me this article :
http://www.dwnews.com/gb/Consumer/estate/2008_9_17_16_30_30_777.html
It’s is Chinese, so I can’t read it. Basically it says that Morgen Stanley is pulling out of all Chinese RE holdings. He says that this will send shockwaves throughout China and the world.
Just thought that I would share.
An email exchange between my 18 YO (sophomore at BYU) daughter and I.
(she)Could you please explain leverage again? I’m sorry I didn’t completely grasp it the first time, I get the part about Lehman… I understood that a lower leverage is better? Is that right? How did you get 10% from a leverage of 10, is it just division? The 10% example is what through me off… If you were to make a graph, how would the 10% loss correspond to the 4.2% loss?
(me)10:1 leverage means I borrowed $10 for every $1 I have cash, in order to make bigger gains in the market. The best I am allowed with my trading accounts is 1.5:1
Let’s say then that I lose $2 in value on my total of $11 invested (10+1). I’m only down 18%, no big deal. What if the $10 I borrowed to invest are due to be repaid 12 months after I borrowed them? If I can’t re-up that loan or find moneys elsewhere I’m in default and might go bankrupt. This is essentially the foil to all bubble borrowers from the lowly strawberry picker all the way up to the big investment banks, and alas, I fear, the US treasury as well.
(she)This morning before class there was a little bit of discussion about the situation… My teacher was pretty upset about the plans to back up AIG… but then once class started it was back to the power point… I guess he’s just trying to give us a good foundation.
(me)I actually agree with the fed’s decision to open the credit line for AIG. They were painted into a corner and this was the only move they could make. The alternative was that almost overnight not a single company that uses debt to operate would have had access to said debt. That would be about 1/3 of US companies, large and small. Can you imagine 33% unemployment within the course of about a month’s time?
AIG is out of business just like Lehman. The Fed just gave a lifeline to provide time to sell off parts of that company that are still worth something. They may even actually get paid back on the loan. The markets reacted badly to this because this was not an inflation solution, like F&F. MS and GS stock dropped huge today because they are spectacularly on the hook when AIG winds up.
(she)Do you think people realize that when the Fed saves these firms, they (the people) are the ones paying for it? But then again, they’re also the ones benefiting from it…
(me)The people are at least 6 months behind the curve on this and I think the republicrat conglomerate will point fingers at each other and most people will take one side or the other, not realizing they are backing the same crook as the other guy. If we are lucky we will avoid rule by a facist or socialist dictator, that’s about as positive as I can be on this.
OK, I made another run on my bank. Actually, I’m moving back to Utah and the nearest branch is 120 miles from where I’m going, so I decided to just take out some cash, might make me be more frugal than using my CC, even though I pay it off every month in full.
Just like last time, this small bank required no signature nor ID, and I took out 10k last time, 5k this time. Wow. Pretty crazy.
I then drove around town, kind of like that Roger Miller song, Do Wacka Do, where he talks about diving around in his big cadillac with money in the sack, though my car’s not a caddy. But it was fun anyway.
Until I got to a small upscale subdivision, the only one in town, really, about 50 houses, all custom. Probably 20% or more were for sale.
This is W. Colorado, Ridgway, an upscale town close to Telluride. It’s hitting here, and everyone said this area would be different. Yo.
How We Got Here: It’s Housing, Stupid
http://finance.yahoo.com/banking-budgeting/article/105782/How-We-Got-Here-It-Is-Housing-Stupid
The nation’s financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.
But in the end, it all comes back to one issue - housing.
Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble.
Then the bubble popped. And the fallout isn’t over yet, experts say.
None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages.
Oh, so close. Here I thought I was reading something rational. But then I got to the statement bolded above. Why is it so hard for anyone to state it accurately? Let me try:“None of this would have happened if the housing market had not exploded.”
There, that’s better.
Let it be remembered that this was…
“The Week of Weaks”
Jump in London rate to hit U.S. housing
Bloomberg News
September 17, 2008
The biggest jump in the London interbank lending rate in at least seven years could wreak further havoc on the U.S. housing market, and there’s nothing the Federal Reserve can do about it.
About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime adjustable-rate mortgages, are linked to the London interbank offered rate, or Libor, according to First American CoreLogic in Santa Ana, Calif.
Tuesday’s daily rate more than doubled, with smaller gains in the one-week and one-month rates, as lenders demanded higher compensation for risk after Lehman Brothers Holdings Inc. collapsed and American International Group Inc.’s value fell 84 percent in a week.
Daily Libor rates are used to calculate monthly adjusting mortgage resets, including some so-called option ARMs that allow borrowers to defer payments by increasing mortgage balances, said Keith Gumbinger, vice president of Pompton Plains, N.J.-based mortgage research firm HSH Associates Inc.
More important, gains in the shorter-term Libor rates may signal increases to come in the three- to 12-month indexes used to calculate the majority of ARM resets, he said.
Home loan rates tied to Libor are beyond the reach of Federal Reserve Chairman Ben Bernanke and others on the Federal Open Market Committee, which Tuesday left its benchmark interest rate unchanged. Libor-indexed loans, including the subprime mortgages that helped spark the global credit crunch, have interest rates set by London bankers who report to the British Bankers’ Association.
Forty percent of subprime ARMs were in foreclosure or had late payments in the second quarter, according to the Mortgage Bankers Association in Washington. For prime adjustable-rate home loans the combined rate was 12 percent, and for mortgages of all types it was 9.2 percent, the trade group said in a Sept. 5 report.
U.S. home prices probably will tumble through 2010, Freddie Mac said in a forecast Monday.
A willingness to hold 3-Month T-bills at zero interest is consistent with expectations for deflation going forward — the opposite scenario from the dollar collapse envisioned by some posters.
Treasury 3-Month Bill Rates Drop to Lowest Since World War II
By Sandra Hernandez
Sept. 17 (Bloomberg) — U.S. Treasury three-month bill rates dropped to the lowest since World War II as a loss of confidence in credit markets worldwide prompted investors to abandon higher-yielding assets for the safety of the shortest- term government securities.
Investors pushed down the rate to 0.0203 percent on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. In a sign of banks’ reluctance to lend, the rates charged for short-term loans relative to U.S. bill rates rose to the highest on record.
“It’s scary,” said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York and started trading bonds in 1969. “This is the worst it’s ever been since I’ve been in the business. Nobody knows what’s really going on. Systemic risk is here and there and everywhere.”
I don’t agree that a willingness to accept zero interest on 3-month Tbills means an expectation of deflation. People with money & no safe place to put it for 3 months & people who are panicked out of their minds would have their own motivation for buying those.
If I thought a major near term inflation or devaluation was up next, I would not put my dough into 3-month Tbills at 0 pct interest.
Hundreds of billions of dollars has disappeared from the economy, is disappearing from the economy, is destined to disappear from the economy. This has made, is making, will make the remaining dollars scarce thus more precious.
This is deflation.
crunch all you want, we’ll make more.
Wall Street fire sale continues…
September 17, 2008 7:02 P.M.ET
BULLETIN
WaMu’s for sale by auction
Goldman started taking bids for nation’s largest thrift days ago: report
Washington Mutual has put itself up for sale, the New York Times says, citing sources. Potential bidders include Wells Fargo, J.P. Morgan.
• Morgan Stanley looking for merger partner, like Wachovia: report
Modern history’s greatest regulatory failure
By Roger Altman
Published: September 17 2008 18:52 | Last updated: September 17 2008 18:52
Financial market conditions have now descended to the lowest point since the banking shutdown of 1932. In one 96-hour period, we saw three nearly unimaginable events. Lehman Brothers, America’s fourth-largest securities firm, filed for bankruptcy. Merrill Lynch, the best-known firm, was forced overnight to sell itself to Bank of America. And market pressures forced the Federal Reserve into a huge $85bn takeover of AIG, our largest insurer, to avert its bankruptcy.
All of this occurred only two weeks after the massive federal rescue of Fannie Mae and Freddie Mac and three months after the collapse of Bear Stearns. Market participants around the world have been shocked senseless by these serial failures. Their confidence has evaporated, replaced by an unprecedented level of fear. That is why lending is frozen and worldwide markets are plunging.
…
This will come to be seen as the greatest regulatory failure in modern history. The degree of leverage that these institutions took on is indefensible. The average large securities firm was leveraged 27 to one in mid-2007. They were not regulated by any prudential supervisor. In effect, they regulated themselves. The lack of transparency was stunning. Many big lenders did not disclose off-balance-sheet risks. In some cases, they did not understand these risks themselves. More fundamentally, we allowed a second, huge financial system to develop outside the normal banking network. It consisted of investment banks, mortgage finance companies and the like. It was unregulated, not transparent and way too leveraged. But with nine separate and mostly ineffective financial regulators, these risks were ignored. That is, until this second system crashed.
We will be climbing out of this financial hole for a long time. Three or four years may pass before normal lending functions are resumed. In the interim, our economy will not have access to all of the credit it needs and may underperform, at great cost to our society. All of this could have been prevented.
The writer is chairman and chief executive of Evercore Partners and was deputy US Treasury secretary under President Bill Clinton. He was a co-head of investment banking and a board member at Lehman Brothers in the 1980s
“…This will come to be seen as the greatest regulatory failure in modern history. …”
They got into problems because they were dealing with unregulated securities. What regulatory failure is there?
There has never been a problem with the regulated securities. Put the unregulated securities on an exchange and poof most problems go away.
One of the larger problems that we all have is the lack of clarity on 10Qs and 10Ks. It is nearly impossible to see what these firms own and what real assets are present. People have complained about bank secrecy for years, well it bites ‘em in the ass. I do not trust any banks assets unless it is MTM. Nor does any other reasonable investor.
Is GS overpriced underpriced fair priced? It has so much of its assets in mark to fantasy that I would short it just on that. Citigroup has 1.5T in off sheet assets that may be worth ? a hell of a lot less. They have tried to sell these assets and there are no buyers. What is the bank worth?
3,4 years - I think he is an optimist. 3 - 4 years to hit bottom and then 2 years before lending resumes.
I honor of the unfortunate demise of J6P, Im cracking one open for the homies…
aahhh….
smell that, thats sweet victory.
Working long hours, it’s hard to post a defense.
Hoz “Health care had a NET LOSS of jobs in August”
BLS:
http://www.bls.gov/news.release/empsit.nr0.htm
“Health care employment continued to grow in August (27,000), with more than
half of the gain in hospitals. Over the past 12 months, health care has added
367,000 jobs.”
I was wrong in yesterday’s bits bucket where I said health care gained 55,000 jobs in August. I found that on a link somewhere. But it DID gain half as much jobs. 367,000 health care jobs added in the last 12 months.
Sorry to not bring further doom to today’s gloom. Just wanted to show Hoz was wrong in his way while I was equally wrong with my number.
Trusting the BLS for jobs, lol. Like the finance jobs created this year. Get a life.
If CITIC buys or merges with Morgan Stanley, that would be a powerful combination. Much better than merging with some US bank. Go for the money. Easier conduit to China investing, hmmm.
Night all.
The Big Banks
What’s Behind The Bank Selling
Liz Moyer, 09.17.08, 5:16 PM ET
The federal government has a knack these days for sparking market panic when it intends to do the opposite.
Tuesday night’s rescue of American International Group (nyse: AIG - news - people ), in the form of $85 billion in emergency loans from the Federal Reserve Bank of New York (financed by the U.S. Treasury), was supposed to soothe fears that another major financial company was about to fall and send a cascade of problems through the financial markets.
But the markets didn’t read it that way. Instead, investors stampeded out of financial stocks and herded into gold.
Wall Street’s version of speed dating. I hope they don’t succumb to VD (voracious debt).
Bankers Speed Date
by Megan Barnett
Sep 17 2008
In a scramble for survival, Morgan Stanley talks to Wachovia and WaMu reaches out to anyone willing to commit.
421’st post.
know,
1. dont fvck with me unless I know you.
B. its generational, no offesne to anyone…
but you as an individual are wrong.
the crowd is confused at this point.
lord,
here my prayer.
I have to confess that I could see the gold true believers having the last laugh on the skeptics (like me)…
U.S. Government Debt Risk Jumps to Record After AIG Bailout
By Abigail Moses
Sept. 17 (Bloomberg) — The cost to hedge against losses on U.S. government debt rose to a record after the Federal Reserve rescued American International Group Inc. to avert the worst financial collapse in history.
Benchmark 10-year credit-default swaps on Treasuries increased 4 basis points to 30 today, according to BNP Paribas SA prices. The contracts have risen from below 2 basis points at the start of the credit crisis in July 2007 and are more than double those on government bonds sold by Austria, Finland or Sweden.
The U.S. Treasury pledged an $85 billion loan for AIG just 10 days after committing as much as $200 billion to prevent a collapse of mortgage companies Fannie Mae and Freddie Mac. The U.S. budget deficit will grow next year to $438 billion, the Congressional Budget Office said Sept. 9, making it harder for President George W. Bush’s successor to either cut taxes or increase spending.
“The latest bailout comes at the expense of the U.S. taxpayer,” Tim Brunne, a Munich-based credit strategist at UniCredit SpA, wrote in a research note today. “It cannot be expected that AIG will survive in its present form.”
at this point,
dont even bother with the futures.
NOBODY KNOWS THE FUTURE!!!
time signature. 1941 PST..)i do that for the others(
America will need a $1,000bn bail-out
By Kenneth Rogoff
Published: September 17 2008 19:06 | Last updated: September 17 2008 19:06
One of the most extraordinary features of the past month is the extent to which the dollar has remained immune to a once-in-a-lifetime financial crisis. If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring. Instead, the dollar has actually strengthened modestly, while interest rates on three- month US Treasury Bills have now reached 54-year lows. It is almost as if the more the US messes up, the more the world loves it.
But can this extraordinary vote of confidence in the dollar last? Perhaps, but as investors step back and look at the deep wounds of America’s flagship financial sector, the public and private sector’s massive borrowing needs, and the looming uncertainty of the November presidential elections, it is hard to believe that the dollar will continue to stand its ground as the crisis continues to deepen and unfold.
Anyone who buys a home in the current market without some kind of humongous govt subsidy backing up their purchase is either too wealthy to care about downside risk or an absolute fool. Behold the handwriting on the wall: When tall banking giants are getting felled and sold off for fire wood, you can be sure the housing market has only begun to bottom out.
SEPTEMBER 18, 2008
Mounting Fears Shake World Markets
As Banking Giants Rush to Find Buyers
By TOM LAURICELLA, LIZ RAPPAPORT and ANNELENA LOBB
Fear coursed through the U.S. financial system on Wednesday, as hope for a resolution to the year-old credit crisis faded.
Stocks tumbled, concern grew about which financial firm would fall next, and investors rushed toward the safe haven of government bonds in the wake of the collapse of Lehman Brothers Holdings Inc. and the crisis at insurer American International Group.
The market turmoil is doing more than inflicting losses on investors. Borrowing costs for U.S. companies have skyrocketed, and the debt markets have become nearly inaccessible to all but the most creditworthy borrowers.
“creditworthy” borrowers
You (they) “keep using that word. I do not think it means what you think it means.” - Inigo Montoya
COMMON SENSE
SEPTEMBER 17, 2008
Current Crisis Could Set The Stage for Future Gains
By JAMES B. STEWART
This just in — an email from a broker at a prominent Manhattan real-estate firm eager to be quoted: “September 2008 and I get flashbacks of 9/11. … After the initial shock waves this could lead to a real estate boom.”
With estimates of 50,000 layoffs and counting on Wall Street, the meltdown of Lehman Brothers and the fire sale of Merrill Lynch, that strikes me as absurd. It’s true that 2001 marked the beginning of a real-estate boom that has brought us to our current plight. But 2008 isn’t 2001.
This seems so obvious that I’m not going to belabor the differences. Suffice it to say that the causes of the current credit crisis are rooted in the continuing collapse of the real-estate bubble, which has proven to have far wider ramifications than the collapse of the tech bubble that began in 2000. A big difference is leverage. Most real-estate purchases are leveraged, with the mortgage debt repackaged and distributed to investors. Most tech stocks weren’t bought on margin, and when they were, it was up to 50% of a stock’s value, not the 100%-plus that became common in the real-estate boom. Leverage magnifies losses. Now we’re seeing the consequences of a massive deleveraging.
Next time Aladinsane says something big is about to happen, I am going to duck and cover.
SEPTEMBER 18, 2008
Mounting Fears Shake World Markets
As Banking Giants Rush to Raise Capital
By TOM LAURICELLA, LIZ RAPPAPORT and ANNELENA LOBBArticle
Fear coursed through the U.S. financial system on Wednesday, as hope for a resolution to the year-old credit crisis faded.
Stocks tumbled, concern grew about which financial firm would fall next, and investors rushed toward the safe haven of government bonds in the wake of the collapse of Lehman Brothers Holdings Inc. and the crisis at insurer American International Group.
The market turmoil is doing more than inflicting losses on investors. Borrowing costs for U.S. companies have skyrocketed, and the debt markets have become nearly inaccessible to all but the most creditworthy borrowers.
The desperation was especially striking in the market for U.S. government debt, long considered the safest of investments. At one point during the day, investors were willing to pay more for one-month Treasurys than they could expect to get back when the bonds matured. Some investors, in essence, had decided that a small but known loss was better than the uncertainty connected to any other type of investment.
That’s never happened before. In a special government auction on Wednesday, demand ran so high that the Treasury Department sold $40 billion in bills, far beyond what it needed to cover the government’s obligations.
“We’ve seen crisis. We’ve seen recession. But we’ve not seen the core of the financial system shaken like this,” says Joseph Balestrino, a portfolio manager at Federated Investors. “It’s just crazy.”
REVIEW & OUTLOOK
SEPTEMBER 18, 2008
The Fed and AIG Article
If U.S. officials thought that nationalizing giant insurer AIG would stop the financial panic, markets gave them a rude reply yesterday. Stocks fell sharply, gold rose $89 (!) an ounce, and spreads on Morgan Stanley and Goldman Sachs debt widened to canyons over Treasurys. Investors are wondering who’s next on the Treasury-Federal Reserve list for a force majeure takeover, and are selling off accordingly.
latest news BOJ injects additional 1 trillion yen into money markets
Three-month Libor marks biggest jump in nine years
TED spread widens to level not seen since Black Monday 1987
By Lisa Twaronite, MarketWatch
Last update: 5:37 p.m. EDT Sept. 17, 2008Comments: 44
09/18/2008
US FINANCIAL CRISIS
‘The World As We Know It Is Going Under’
By Marc Pitzke in New York
Panic is the word of the hour on Wall Street. Now even Morgan Stanley is fighting for survival. The commercial bank Wachovia and China’s Bank Citic are being discussed as possible rescuers. The crisis has led President Bush to cancel a trip.
Days of wine and Porsches over
The Street that’s made millionaires, and billionaires, out of traders and deal makers is being torn up
ANDREW WILLIS
From Thursday’s Globe and Mail
September 17, 2008 at 11:50 PM EDT
John Mack, a.k.a. Mack the Knife, gave vent Wednesday to the frustration and anger that comes when $120-million (U.S.) of your savings vanish in the space of a few hours.
As the chief executive officer of Morgan Stanley watched the value of his investment bank slashed at one point by 44 per cent, on fears that his would be the next Wall Street titan consigned to the scrap heap, Mr. Mack fired off a lunch-hour memo.
“We’re in the midst of a market controlled by fear and rumours. There is no rational basis for the movements in our stock,” thundered the 63-year-old CEO. Hours later, those fears and rumours had Mr. Mack reportedly in merger talks with larger banks.
Mack the Knife is missing something. He doesn’t realize folks think Wall Street is no longer rational. These people see an era drawing to a close.
The Street that’s made millionaires, and billionaires, out of traders and deal makers is being torn up, and will soon be a far less lucrative place to work.