The Shadow Banking System is Unravelling: Roubini Column in the Financial Times. Such demise confirmed by Morgan and Goldman now being converted into banks
The Financial Times published in its Monday edition my Op-Ed column “The Shadow Banking System is Unravelling”. The column was written and posted on their web site a few hours before the sudden announcement of the end of major independent broker dealers with the Fed announcement that Morgan Stanley and Goldman Sachs will become bank holding companies and will be thus regulated as banks. This is the additional step in the demise of Wall Street as we know it and the unraveling and demise of the “shadow banking system” that I described in my Financial Times Op-Ed column.
Here is the text of my Op-Ed column:
The shadow banking system is unravelling
Financial Times Published: September 21 2008 17:57 | Last updated: September 21 2008 17:57
Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.
Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self-fulfilling and destructive run on its liquid liabilities.
But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that prevent runs.
A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent. The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up.
The next step was the run on the big US broker-dealers: first Bear Stearns lost its liquidity in days. The Federal Reserve then extended its lender-of-last-resort support to systemically important broker-dealers. But even this did not prevent a run on the other broker-dealers given concerns about solvency: it was the turn of Lehman Brothers to collapse. Merrill Lynch would have faced the same fate had it not been sold. The pressure moved to Morgan Stanley and Goldman Sachs: both would be well advised to merge – like Merrill – with a large bank that has a stable base of insured deposits.
The third stage was the collapse of other leveraged institutions that were both illiquid and most likely insolvent given their reckless lending: Fannie Mae and Freddie Mac, AIG and more than 300 mortgage lenders.
The fourth stage was panic in the money markets. Funds were competing aggressively for assets and, in order to provide higher returns to attract investors, some of them invested in illiquid instruments. Once these investments went bust, panic ensued among investors, leading to a massive run on such funds. This would have been disastrous; so, in another radical departure, the US extended deposit insurance to the funds.
The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.
Even private equity firms and their reckless, highly leveraged buy-outs will not be spared. The private equity bubble led to more than $1,000bn of LBOs that should never have occurred. The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow. Even the largest LBOs, such as GMAC and Chrysler, are now at risk.
We are observing an accelerated run on the shadow banking system that is leading to its unravelling. If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard. Of course this severe financial crisis is also taking its toll on traditional banks: hundreds are insolvent and will have to close.
The real economic side of this financial crisis will be a severe US recession. Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.
European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.
Thus the financial crisis of the century will also envelop European financial institutions.
The writer, chairman of Roubini Global Economics (www.rgemonitor.com), is professor of economics at the Stern School of Business, New York University
Let me now elaborate in more details on the arguments of this column also in light of the just announced decision to convert Morgan Stanley and Goldman Sachs into banks that will be regulated like banks…
Last February I predicted that several major broker dealers would go bust (step 9 of my 12 steps towards a financial disaster). After the collapse of Bear Stearns I predicted that all of the remaining major broker dealers would not be able to survive as independent entities and suggested – as I repeated in my FT column – that they “would be well advised to merge…with a large bank that has a stable base of insured deposits.” I also argued then that after such broker dealers received in March access to the Fed’s lender of last resort support (via the PDCF) and the Fed’s market maker of last resort support (via the TSLF) that they would have to be regulated like banks. As I repeated in my FT column: “We are observing an accelerated run on the shadow banking system that is leading to its unravelling. If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard.”
For the time being Morgan Stanley and Goldman Sachs decided to become banks rather than merging with another bank, even if both of t
hem are reported to be considering and/or negotiating such a merger (in the way that Merrill Lynch did with Bank of America). And since both are now banks they will have now to be formally regulated by the Fed like banks with higher capital ratios, liquidity requirements and lower leverage. So with Bear and Lehman gone, Merrill merged with BofA and Morgan and Goldman turned into banks the demise of major independent broker dealers that was predicted here months ago is concluded.
At the time such predictions were made – even before the collapse of Bear – such statements were widely considered as lunatic. But the unraveling of the shadow banking system and the key broker dealer sector within it occurred even more rapidly than I expected: I had forecast that there would not be any major independent broker dealer left in a matter of two years; instead the entire process took only seven months.
And while Morgan and Goldman have decided for now to become banks and accept deposits and be subject to the regulation of the Fed as banks – rather than merging with a bank that has a stable base of insured deposits – it is highly likely that both of them would end up merging with a bank or acquiring one: it take a long time and cost to create a large base of deposits via a mass of bank branches. Thus, while in the short run becoming a bank allows both to have direct access to the discount window that lends up to 90 days rather than the PDCF only that lends only overnight the risk that the lender of last resort support of the Fed will not be enough to avoid a run on their overnight repo facilities remains while creating a large base of stable and insured deposits takes years. So, as I argued in my FT column – even after formally becoming banks – it still remain the case that “both would be well advised to merge – like Merrill – with a large bank that has a stable base of insured deposits”.
So, as discussed in my column the demise of the shadow banking system is well underway with a run on most of its components: first the collapse of 300 plus non-bank mortgage lenders; next the collapse of the SIV/conduits scams once the roll-off of their short-term asset backed commercial paper; next the collapse (Bear, Lehman) or merger with banks (Merrill) or transformation into banks (Morgan Stanley, Goldman Sachs) of the major independent broker dealers; next the collapse and government takeover of Fannie and Freddie and AIG; then the bank-like run on money market funds that forced the Fed to extend deposit insurance to such funds. The next steps – as I argued in my column – will be the run on the short term liabilities of hundreds of poor performing and highly leveraged hedge funds and the collapse of highly leveraged LBOs following the recent bust of the private equity bubble.
I had also argued for a while that with the extension of the lender of last resort support of the Fed to broker dealers such firms should be regulated like banks. Indeed there is no difference between Citigroup, Goldman Sachs and the now defunct LTCM or any large hedge fund: they all borrow short/liquid, are highly leveraged and invest/lend long/illiquid. Thus, to avoid moral hazard and the game of regulatory arbitrage given by the tighter regulation of banks that led to the growth of the shadow banking system all such institutions – especially those that are large enough and are thus systemically important – should be regulated like banks. With the folding of broker dealers into the banking system one first step in that direction has occurred; with the folding of the SIVs/conduits off-balance sheet vehicles of banks their assets and liabilities have also been brought back on the balance sheet of the banking system; with the incipient run on the money market funds and the government decision to extend deposit insurance to such fund a much tighter regulation of such funds will be necessary to ensure they don’t invest any more savers liquid assets into toxic and illiquid securities.
And the coming demise of a large number of hedge funds and LBOs engineered by private equity firms the time for large and systemically important hedge funds and private equity funds to be properly and directly regulated will also come. Already the SEC is literally forcing all hedge funds to reveal their short positions as part of its investigation of alleged manipulation by hedge funds of financial firms’ stock. While months ago hedge funds were fighting a battle to avoid even minimal reporting of their positions to authorities they are now slapped with across the board restrictions on short sales and being forced to report their short sales to the SEC. So the process of directly regulating hedge funds has already effectively begun even before formal executive and legislative action is taken to formalize this regulation.
To conclude this is really the end of Wall Street as we have known it for decades if not for a century. The demise and unravelling of the shadow banking system is well underway at a speed even faster than I predicted. This shadow banking system is effectively being mostly folded into the traditional banking system. The distinction between commercial banks and investment banks – that had already become fuzzy after the repeal of the Glass-Steagall act – is now mostly completed. And once money market funds, hedge funds and private equity funds will start to be more tightly regulated and supervised the process of merging the shadow banking system into the traditional banking system will be complete. Two decades of development of the shadow banking system – as a way to arbitrage the tighter regulations of the formal banking system – created massive financial instability and the worst financial crisis since the Great Depression as such shadow banks had all the fragility of banks (massive maturity mismatches and even higher leverage), none of the safety nets of banks (deposit insurance and lender of last resort support by the central bank) and little or none of the regulations of banks. Now that the shadow banking system is effectively being folded into the traditional banking system the circle is completed: the former shadow banks will receive some of the same safety net of banks (deposit insurance and lender of last resort support) but because of the moral hazard that such safety net induces they will have to be supervised and regulated in similar ways as traditional banks.
While this process may make the financial system more stable over time it will require that banks (and former shadow banks) be regulated and supervised better than they have been in the last decade. After all traditional banks have performed as poorly – and some more poorly – and have lost more money than shadow banks during this severe financial crisis. So both the poor regulation and supervision of banks (as regulator were asleep at the wheel while the laissez fair ideology and voodoo-cult of self-regulation and market discipline and internal risk management became dominant) and the lack of sensible regulation of shadow banks lies behind the current financial disaster. Thus, folding shadow banks back into the traditional banking system will make the overall financial system more stable only if the proper reform of the regulation and supervision of financial institutions in a world of financial globalization will be undertaken. This important matter is the subject of the chapter (titled “Financial Crises, Financial Stability, and Reform: Supervision and Regulation of the Financial System in a World of Financial Globalization”) that I have written for the recently published World Economic Forum’s Financial Development Report.
This chapter analyzes in detail the episodes of financial crisis in emerging market economies and advanced economy; discusses the causes and consequences of such crisis; measures the economic and fiscal costs of such crises; discusses the debate on whether monetary and credit policy sho
uld target asset prices and asset bubbles; studies the weaknesses of financial regulation and supervision in advanced economies financial systems that led to the recent crises; and finally considers eleven separate key issues in the reform of the regulation and supervision of financial institutions in a world of financial globalization that are necessary to prevent future crisis and make them less virulent.
The eleven issues that are key in reforming financial regulation and supervision are: the distorted compensation system of bankers/traders and the related agency problems between financial institutions shareholders and their managers; the flaws of the originate and distribute securitization model; regulatory arbitrage and the instability of the shadow banking system given its reliance on short term liquid financing, high leverage and long term illiquid lending; the weaknesses of self-regulation and market discipline and the need of greater rules-based regulation; pro-cyclical capital requirements and other issues with the Basel II capital requirements; the distorted incentives of credit rating agencies; asset valuation and fair value accounting in a world where assets can be highly illiquid and hard to price; the lack of transparency in financial markets; the inadequate regulatory regime; the lack of international coordination of regulatory policies; and the issue of who will regulate the regulators, i.e. how to avoid the regulatory capture by the financial industry of the regulators and supervisors of financial institutions.
So now that the shadow banking system is being folded in the formal banking system it is high time to rethink how both banks and the former non-bank financial institutions should be properly regulated and supervised.
453 Responses to “The Shadow Banking System is Unravelling: Roubini Column in the Financial Times. Such demise confirmed by Morgan and Goldman now being converted into banks”
repost-BW2 is IMO dead..http://www.spiegel.de/wirtschaft/0,1518,579541,00.htmltranslatedMerkel gives US government complicity at finance crisisThe billion heavy rescue package of the US government comes in the opinion of Angela Merkel much too late. The chancellor threw the USA in connection with the credit crisis Mismanagement before – the government Bush first had heated up with its stubbornness the crisis.Washington/Berlin – the US government seeks after own statements “aggressively” support for its billion heavy rescue package – yet until now bump the plans out of Washington to the checking of the credit crisis above all into skepticism and blunt criticism.Chancellor Merkel (with organization in Linz) : “We held” reach us fine on that unaccustomed sharp words the white house at the same time from Germany: Chancellor Merkel threw the US government in connection with the credit crisis heavy failures and blockade before.”I criticize the self-concept of the financial markets – unfortunately have these regulations voluntary itself too long opposes, supports by the governments in Great Britain and the USA”, said Merkel mercury” to the “citizen of Munich. It had pressed already during the German G8-Präsidentschaft in the past year on more transparency in money businesses, Rating agencies and hedge fund. The Anglo-Saxon countries would have supported these suggestions however not sufficiently.That it means therewith above all the USA, made Merkel at an organization in the Austrian Linz unmistakable clearly: Merkel attacked the government Bush indirectly for that that it had pulled in other industrial nations with its stubbornness into the credit crisis with. Many countries of Europe would have made prematurely the bank sector severe levies – about in the credit award. At the same time one had set always on the cooperation of the USA, said Merkel.”We made that naturally fine, transferred a beautiful EU guideline into national right, taken many complaints of members of the middle class in purchase – and as the day there was, said the Americans: We not”, criticized the chancellor: “So can it in the international area do not go.” The consequences would have to carry taxpayer far over America and Great Britain now out, complained Merkel.The chancellor demanded further intensification of the rules for the financial markets. Europe had to enter “now that we get more transparency on the financial markets, that we get clearer rules, and that such crises such as the present do not repeat” themselves. Also Treasury Minister Peer Steinbrück demanded more severe rules. It did not exclude also an international authority in the ARD, that determines the rules.The EU commission announced already suggestions for a better regulation of the financial markets. Domestic market commissioner Charlie McCreevy wants to reach loudly “FTD” on Wednesday first decisions. So banks in the EU should be forced to the disclosure whether they retain a part of the risk in the books in the resale of credit. This results loudly “FTD” from a design McCreevys for a session of the responsible EU specialty committee. McCreevy constructs therewith for the case before that it should fail with the Selbstbehalt planned in the equity guideline for banks in Kreditverbriefungen. Investors should buy may bundled credit into securities accordingly only if the salesman retains therefrom a part. In a design, McCreevy had proposed a Selbstbehalt of ten percent.”Fail and arrogance” of the AmericanThe US government places altogether 700 billion dollar ready in order to receive rotten credit of the institutes and to secure its existence. A law negotiated under high pressure at the weekend in Washington is supposed to be dismissed yet this week. The US country indebtedness climbs through it on until to 11.3 trillion dollar (7.8 trillion Euro).US treasury Minister Henry Paulson had called on Sunday foreign countries to put on a similar rescue package such as the US government. “That should it do”, Paulson said and confirmed that the USA wants to advertise “aggressively” for that. He appeared optimistically that some countries would follow the example of the United States.Germany however also Great Britain brace itself to be sure against the US model. “I have doubt, whether the procedure there the smartest is”, said unions parliamentary group vice Michael master (Christian Democratic Union) the “Handelsblatt”. Possibly the US government with the 700-Milliarden-Dollar-Paket puts already a foundation for the next crisis, similar to which massive interest declines of the US bank of issue after the 11th of September 2001 the germ for the current turbulences put would have.SPD parliamentary group vice Joachim Posse (SPD) showed also wishes out of the USA to a participation of Germany in the rescue package back. “The Americans cannot take now Germany in liability for its failure and its arrogance. In Germany, a comparable action neither is planned yet required”, said Posse. It did not want judge whether a rescue package would be necessary for the USA, : Let that be first once thing of the American.”We are not in a credit clamp”, confirmed Treasury Minister Peer Steinbrück (SPD) on Sunday in the ARD. These would have shown about the numbers to the credit award of the savings banks in the first six months of the year. Also the president of the national association of the German industry (BDI), Jürgen Thumann, had said had come, the economy in the past yet favorably at loan. Thumann had restricted to be sure, let it be unclear whether this would remain also so.The worldwide finance crisis would be allowed to come through supposed to be sure more strongly and more long on the German economy than until now. So the government clearly will sink information of the MIRROR according to its growth prognosis for 2009. Instead of 1.2 percent, the experts of Secretary of Commerce Michael Glos reckoned only with a value around 0.5 percent.Refusal from Great BritainAlso the British government plans according to own statements no up purchase from problem credit to the example of the USA. A speaker of the British treasure chancellor said would be on Sunday, there to be sure permanent contacts with the US treasury, but each country would go with own measures against the credit crisis before.Also the British premier Gordon Brown criticized in an interview with the BBC: “We pay happens the price for that, what in the USA ist.” It becomes “do, what is necessary” in order to master the crisis, promised it in the party convention of its Labour party in London.
Ensimmäinen (“first” in Finnish)
Will domestic and global investor lack of confidence in US “free & fair” markets lead to liquidity crisis in the $USD, stock and bond markets?Could recent actions/market manipulation by the regulators, reminiscent of Japan in 1990s and the US in the 20s, lead to unprecendented volatility, illiquidity , and potential hyperinflation in the US? (see $15 rise in oil and significantly weaker $USD over just the past 2 trading sessions).I am concerned that recent dramatic actions by the authorities could exasperate and compound the problem that such actions are being implemented to minimize.Thoughts from the board?
the real translation of the above…Merkel Says US Government Partly to Blame for the Financial CrisisAccording to Angela Merkel, the US government’s multi-billion dollar rescue package comes much too late. The chancellor accused the United States of mismanaging the credit crisis: The Bush administration only fueled the crisis through its obstinacy.Washington/Berlin – The US government is, in its own words, lobbying “aggressively” for support for its multi-billion dollar rescue package – but until now, the plans from Washington to rein in the credit crisis are encountering mainly skepticism and unvarnished criticism.Unusually sharp language reached the White House from Germany: Chancellor Merkel accused the US administration of serious failures and logjams.”I criticize the self-control of the financial markets – unfortunately, they have long resisted voluntary regulations, supported by the governments in the UK and the US”, Merkel told the “Münchner Merkur”. During the German G8-presidency last year, she already pressed for greater transparency in financial dealings, rating agencies and hedge funds. The anglo-saxon countries, however, did not sufficiently support these proposals.At an event in Linz, Merkel made unmistakably clear that she means primarily the US: Merkel indirectly attacked the Bush administration, arguing that through its obstinacy it has drawn other industrialized nations into the credit crisis. Many EUropean countries imposed strict controls on the banking sector at an early stage – such as when granting loans. In doing so, everyone was counting on the cooperation of the US, Merkel said.”We, of course, properly did the right thing, implementing a nice EU directive into national law in the face of many complaints from small businesses – and and when the day arrived, the Americans said, “Not us”, the chancellor complained. “This cannot work in the international arena.” The consequences must now be borne far beyond the US and the UK, Merkel complained.The chancellor demanded stronger rules for financial markets. Europe must “now insist that we get more transparency in financial markets, that we get clear rules, and that crises such as the current one do not recur”. Finance Minister Peer Steinbrück also demanded stricter rules. In an interview with German television (ARD), he also did not rule out an international agency that fixes the rules.The EU Commission has already announced proposals for improved regulation of the financial markets …..”Failure and Arrogance” of the AmericansThe US government is making a total of $700 billion available in order to purchase bad loans from financial institutions in order to secure their existence. A law being negotiated this weekend under high pressure in Washington is supposed to be passed this week. As a result, the US national debt will increase to $ 11.3 trillion dollars.US Finance minister Henry Paulson on Sunday recommended that othercountries adopt a similar rescue package such as that proposed by the US government. “They should do this”, Paulson said, and he confirmed that the US plans to “aggressively” lobby for such a package. He was optimistic that several countries would follow the example of the United States.Germany, but also the UK, are resisting the US model. “I have doubts, whether this approach is the most intelligent”, CDU party vice chairman Michael Meister (CDU) told “Handelsblatt”: The US government, with its $700 billion rescue package is potentially laying the foundation for the next crisis, just as it did with the massive interest rate reductions by the Federal Reserve after September 11, 2001, which planted the seeds for the current turbulence.SPD vice chairman Joachim Poß (SPD) also rejected calls from the US for German participation in the rescue package. “The Americans cannot now make Germany pay for their failure and their arrogance. In Germany, no similar approach is planned nor necessary,” said Poß. He declined to speculate whether a rescue package is necessary for the US: this is a matter for the Americans, he said.
I can not figure this out, BUT something very sinister is going on in this country.
Gunisimmäinen (Third in Chinese English)
Hyperinflation ? YESProblem compounding ? YES The big theme is the dollar crash
ottavoviva Giorgio Almirante
SORRY GIORGIO ADMIRANTE
Taxpayers: Protect yourselves; Congress won’t!Stop this $ick bailout!CALL FOR A GENERAL STRIKE!!!
Follow the yellowbrick road. Stick it to the international bankers, buy precious metals. It is the only market they can’t control. But buy physical not paper. Otherwise you contribute to the manipulation
…“I don’t like the fact that we have to do this. I hate the fact that we have to do this,” Mr Paulson said on Sunday. “But it is better than the alternative.”
FT Article => Tensions mount over bail-outWhat specifically is that alternative? If Mr. Paulson can’t articulate it and Congress doesn’t know what it is , then how in the world can they continue to consider this legislation?
The american overconsumption must come to an end.All this depends on whether the financial system, which enabled this overconsumption, will be penalized sufficiently.If there wont be enough deleveraging and loss taking, the world will go long on commodities again.
Bank accounts in AUstria are insured for only € 20,000. Worriesome, since I hold most of my money there. I would like to know how to get the best possible information on a bank like Oberbank on their potential default.
If the financial system is about to cash what is the best option to park your hard earned savings? We have seen the fate of property. Is it gold???
I don’t think it was wise to close the FT article quite that abruptly. A lot of European readers of the Financial Times are going to be exhaling their coffee right about now.Better to suggest something the Europeans could do to stop the dominos from falling, just as you’ve suggested a HOLC-like entity for the US.Ah, well. No one listens to me. Eighteen months ago, I was pointing out that the government paying the mortgages would be a lot cheaper than trying to do it at the investment banking level.
Supply Side Marxism, my friend has called these bailouts…
Such is the power of truth. Such is the power of truth in the minds of many men. That N. Roubini makes powerful argument that the investment banks must change their business model, merge, or cease to exist. With emboldened short sellers delivering a message not to be ignored, Wham! suddenly a transformation. Over another “working weekend” comes a chrysalis emerged double bank. When the redoubtable business of creation & production and the allocation of capital becomes but a game of pretend wizardry–You know you are in OZ. Ozmandyias. What a devastation to the true patriots whose blood was pledged to a true cause. Patriots who spent their hard muscled blood, sweat, tears to support the most comely ideas socialized men have ever known. LIBERTY. Ability to make, be, do according to the capacity infused by the great Creator and the vision of individual man. Patriots who were willing to forgoe their futures in order to insure for unborn generations a tremendous inheritance at birth. These tiny wonders of 13 colonies have become a nation of 300 millions. But if only a handful of this legion will rise up and reclaim their birthright, this small setback of material prosperity can be easily overcome, and another wave of innovation, invention, and common wealth be renewed. Giving in to a moment’s weakness and looking for a “saviour” in a strong man of mortal flesh is a remake of the Third Reich. Enduring an economic recession, enduring hunger for work-money-possession is a small concession to a Republic that can long endure. Think of the great persons whose actions resisted great evil and who gave the greatest and final sacrifice of their entire life to preserve your LIBERTY. Do not allow its destruction for the pittance of minor possessions. Better to possess nothing and one’s true knowledge of freedom than to barely exist as a surfeited slave of pretend prosperity!
Could this latest announcement mean that GS and MS are throwing in the towel? Did Wall Street end today (as we used to know it anyway)?WASHINGTON – The Federal Reserve said Sunday it had granted a request by the country’s last two major investment banks — Goldman Sachs and Morgan Stanley — to change their status to bank holding companies.The change continued the biggest restructuring on Wall Street since the Great Depression.The request for the change to bank holding companies was granted by a unanimous vote of the Fed’s board of governors during a late Sunday meeting in Washington.The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation’s bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Standard, the main point is to set aside enough cash to pay your bills for about the next five years. If you have a recession-proof job (e.g., undertaker, e.g., barber, e.g., prostitute, e.g., bartender), then you have few worries.Once you have covered your basic needs, and sets aside some cash for opportunistic buying, one wants at least some assets that are resistant to both inflation and deflation, because we may see both. The asset that probably does best in that regard is carefully-selected raw land and real estate in places like New York City that aren’t likely to see major demographic shifts. However, it’s risky and requires payment of taxes. Gold and silver are a problem because present tax law treats them as collectibles, with high capital gains. Miners are a problem because they hedge. Only if one understands their hedging structure can one invest sensibly. New technology and emerging markets should also be considered. They may be very volatile, but as long-term holds, they’re more likely to go up than down. And then there’s always investing privately. If you have a recession-proof business, that could be an excellent place to invest. As always, diversify, because plenty of companies will go bust.Alas, only about 1 person in 100 and probably fewer is able to take this advice. How many of us can afford to go 5 years without perhaps needing to tap our investments?
Professor, I hope that you will advise Obama if he becomes president. You deserve the nobel prize in economics!What do you think will happen to the dollar?
What happened to the article and post written by London Banker? Was it pulled down? I’m not surprised; it was getting at the truth.These political economists (shills) are standing in line trying to save capitalism. How many lies will they tell, how low will they stoop, to grab a few crumbs from their master’s table.
In Hong Kong, it is said that Paulson now is able to do whatever he loves to do.I did not see such a powerful political player in 10 years in the world.
It will always be named “the alternative” because the word “failure” is too hard to pronounce methinks. Especially by a government secretary months before election.
will the rating agencies down garde USA?
In Hong Kong, it is said that Paulson now is able to do whatever he loves to do.I did not see such a powerful political player in 10 years in the world.His plan is not yet law …
Our current administration is trying to cram a proposal down the throats of the American public that will bail out the rich at the expense of the middle class – to the tune of $700 billion. And that doesn’t count all the taxpayer dollars they’ve already thrown at this bad situation.While I understand the need for acting quickly and decisively, it feels like the goal of this plan is to rush it through before the election and a new administration takes over, which is insane. We are about to put this country into even more debt. Such action deserves careful thought and right now, we’ve been given very few details for how this will work except that Paulson will have unfettered authority to pick and choose who gets to play.Wall Street and the over-extended got themselves into this mess; let them fix it.If nothing else, the presidential candidates need to stop talking about tax cuts and Bush and the Treasury Boys need to take the smirks off their faces during photo ops. That goes for you too Barney Franks. If the feds and Wall Street get their way, we’re all going to be paying for this for a very long time.
if their is any law in the usa…
Nouriel,For once you are entitled to say “I told you so!”
Nobel prize for Roubini!Uncanny predictions that many brushed off.Even myself was not sure of the prediction about the demise of the investment banks.
The Elephant In The RoomThere has been much deserved criticism of the actions of the investment banks, mortgage originators, commercial banks, the Federal Reserve, the Treasury, the Securities and Exchange Commission, and the current Republican Administration along with the Democratic Congress in their collective handling of the financial crisis now dubbed the Panic of ’08.Although we should expect better, we must realize the constraints that have led to the current series of bailouts and nationalization of the markets.First, the players with their hands on the levers of power and the knowledge of what was happening, the Federal Reserve and the U.S. Treasury, were constrained by their hidden agendas as well as their explicit ones.The Treasury is tasked with the strength of the dollar and the need to finance our massive public debt. However, a strong dollar hurts exports and increases imports, the trade deficit, and the outsourcing of American jobs. As part of the current administration, politically this is a balancing act at best. And to top it off, interest rates which enable the financing the public debt are totally out of their control.Currently, foreigners hold much of our public debt, and thus can dictate terms or refuse to buy more. Meanwhile, the Treasury has lowered the limits as to how many savings bonds U.S. citizens can buy. Down from $60,000 per year to $10,000 per year, thus increasing our dependence on foreigners.The Federal Reserve is not part of the government, it is a creature that is in essence a quasi-private central bank with immense power and owned by the banks who have access to the Fed’s discount window and whose excess profits are given to the treasury. They are tasked with a stable currency (value of the dollar within the U.S. but not overseas) and stable economic growth. But their real mandate is to maintain a stable banking system. Politically, as a creature of Congress, they are subject to political pressure, but the members are appointed by the Executive branch. Most politicians, both Republican and Democrat, don’t have a clue as to what they do.They have been much criticized for their failure in stemming inflation and maintaining reasonable levels of employment. However, increases in unemployment have often been necessary in order to halt run away inflation. Thus politically, politicians love it when they do the wrong thing by increasing the supply of money and credit and hate it when they raise rates and withdraw the free lunch of unlimited credit. In addition, when they do the right thing and raise interest rates, they reward savers and raise the cost of carrying the public debt. Again, another institution that cannot keep their masters happy by doing the right thing.It can be correctly argued that today’s crisis is the result of the Fed’s choice to attempt to prevent a recession in late 2001 and postponing the price we should have paid for the 2000 Dot-Com Bubble. As usual, though the roots of the crisis go way back: Phil Gramm’s green lighting an unregulated derivatives market, Reagan’s de-regulation, Nixon’s closing of the gold window, LBJ’s guns and butter, Kennedy’s fiddling with statistics, etc. The truth is we collectively have been taking the easy way out and postponing the day of reckoning for decades.The Securities and Exchange Commission, like the Treasury, is part of the administration. This administration has sponsored a light hand and minimal regulation. This is completely in line with the previous Fed Chairman, “Easy Al”. Thus, in the perp-walks of the recent past, it was the Attorney General of the State of New York that was in the lead and not the SEC.The current Administration and Congress are focused on November 4th, counting on the Fed, Treasury, and SEC to keep peace until they can again pay attention to these problems. But, last week they have been dragged in and told “the world is about to end”.You see, in all of the previous meetings between the bankers and the Fed, or larger meetings with the Fed and Treasury, there was an Elephant in the room. This Elephant is the market in derivatives, and precisely in it’s largest part, the market in Credit Default Swaps.This Elephant is larger than all other players combined. This Elephant is what causes fear. This Elephant is why the measures taken so far have been done the way they have been done.The CDS market is unregulated but is like insurance. Just like an entertainment company can buy a life or disability policy on an actor while the film is in production, or an actor could insure his nose, legs, or voice, the purchaser of a Mortgage Backed Security or a Bond, can buy insurance against the default of that security or bond. However, this is not a regulated insurance contract and what constitutes a default in one CDS contract is often different from another CDS contract. Thus only civil courts can clear these.These CDSs are contracts or betting slips, and the biggest bookie was AIG. AIG is not an insurance company but a holding company that owns regulated insurance companies, who do not write CDSs, and unregulated companies who do write CDSs.Furthermore, the value of these CDSs is what separates most banks from insolvency. That is, if the value of these contracts is in doubt, the FDIC has to take over the bank.These takedowns of Bear, Fannie, Freddie, and AIG ( and today’s morphing of Goldman and Morgan into banks) were all done in a way to avoid triggering these ‘default’ events and a cascade to oblivion in the CDS market.The Elephant is still in the room, and thus the danger is still with us.
The Great Subprime “Babel”—A Modern “Tail” of Biblical GreedBy WilliamBanzai7Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes. – Jesse LivermoreThe public’s annual loss to Wall Street has usually been estimated in former years at $100,000,000 per annum, but owing to the more recent enterprising methods of the “Street” in manipulating the game, this estimate is now far to small as we shall see.-Franklin Keyes (1904)Conceit of the StreetShortly after the explosion of the great “dot.com” bubble something happened that was to change the monetary affairs of all men on Earth.The investment banking tribes had once again begun to proliferate and fill the Street. They spoke a new tongue–the lanauge of rampant financial innovation. They thought they understood one another well. It was a strange tongue with words like synthetic CDOs, conduiting, CLOs, SIVs, bespoke swaps, CDOs squared, negative default correlations, binomial expansions and stochastic modeling. A tongue curiously reminiscent of the tongue of the House of ENRON.The generations of bankers before the “dot.com” bubble used fundamental investing and global muscle, paying attention to the fundamental laws of securitiof es analysis and diversification. They were believers in the book of Graham and Dodd.But the new generation of investment bankers was different. They stressed an opposite code of investing. The smart investor did not count. Their game was a vast opaque pool of derivatives and asset backed securities. Had they confined themselves to this kind of financial life in a modest fashion, all might have been well. But the obscene fee income made possible by cheap leverage, complex financial engineering and securitization techniques made them ever greedier and their stupidity made them think they could beat the financial laws of thermodynamics.They decided to build a great Tower of mortgage backed securities. The tower would allow them to pillage the housing markets and at the same time and make it possible for them to seemingly eliminate all risk for themselves. Heads we win, tails you lose; that was their credo. The symbol of their invincible wealth, as they thought, was to be built in the shadow of the House of Greenspan. It would be built with the blood and sweat of Joe public long disdained and exploited by the Lords of the Street. This time they would build the Tower with the temptation of excessive mortgage loans in an “irrationally exuberant” real estate market.According to the Lords of the Street, a new paradigm had emerged: financial risk could be sliced and diced into oblivion, cheap leverage was here to stay and housing prices would only go up. Many foresaw the folly of this enterprise. Buffet, the great chief of the House of Berkshire Hathaway, called the new instruments of invincible wealth, financial weapons of mass destruction. But the aging House of Greenspan was oblivious to the great folly unfolding before its jaundiced eye. The unbelievers were admonished to stay in Nebraska where they belonged.Their PunishmentFinally, the Market decided to punish the arrogance of the bankers by destroying the tower. First, it, confused them by splitting them up into many greedy tribes, each with a tongue and agenda of its own, (hence the name Babel, meaning “confusion”). A new tribe, the Shorts, arrived and the hunters soon became the hunted. Alas, they were forced to subjugate their vast pools of CDOs and CDSs to the divine force of the Market. This ultimate humiliation came to be known as the “great MTM slaughter.”When this happened, the Tower had to be abandoned. The various bankers would migrate in different directions. Many were fired. Others headed West to the the Valley of Silicon, no doubt dreaming of other Babels ripe for exploitation—nanotech, infotech, biotech and cleantech to name but a fewThe Tower itself was partly burned and partly swallowed by the great Houses of Morgan, BOA and the Fed, under the wise and knowing protection of Benjamin B, the new master of the House of Greenspan, who would later come to be known as “Father Moral Hazard”.(Adapted by WilliamBanzai7 from the Biblical story of the Tower of Babel)
Professor, why do you continue to include Moral Hazard in your statements. Haven’t the recent events, that you clearly foresaw, convinced us all that Moral Hazard no longer exists. It was killed as an ideal suitable for the past, but not needed in this modern age of No-Fault Theology. This new principle reigns in our markets, and our elected government. The Treasury of the United States and the Federal Reserve have voted NO-CONFIDENCE in the citizens of our country! It is plain to see. Why should we continue to ‘play’ in the markets? Who do we serve? What is in our best interest? Moral hazard?
The credit default swap exposure remains one of my biggest concerns, too. $70 trillion is about five times U.S. GDP and roughly the entire net worthof the U.S., unless my recollection fails me. Scary indeed!SWK
“The Shorts” are not a new tribe. Joe Kennedy and Jessie Livermore are examples of this tribe back in the post WWI period.The Fed, created in 1913, made the situation worse. The Fed was created because of the Panic of ’07 (1907) and has created the Panic of ’08 (2008). But the roots as always are in the excessive creation of debt and our collective refusal to pay it off. We pass it off to the future.Bankers, in their greed, create new ways to lose monney. The new ways are evil in themselves, but we would be wrong to ignore the underlying cause, too much debt.
“Moral Hazard” and “Too Big To Fail” are the result of the interdependence of financial intermediares.What we must recognize is that the current 10% limit on deposits is too large. No one institution should be allowed to have more than 3% of deposits, nor 3% of loans, nor 3% of insurance, etc.Then none would be “too big to fail” and “Hazard” could be re-introduced.
next week i will wrok out my ideas in saving US currency…next month i shoud be ready to say i have done my good job, we will be in a new world…
The alternative to the bailout – Declare All Credit Default Swaps Null And Void:The problem ain’t MBS. The problem are over the counter derivatives like CDS’ at ten times the value of the underlying assets like MBS.These were the ‘insurances’ that killed AIG.There is only way to avert the crash.Declare all CDS contracts, worldwide, as null and void. There is precedence for this:
During the Great Depression, many debt contracts were indexed to gold. So when the dollar convertibility into gold was suspended, the value of that debt soared, threatening the survival of many institutions. The Roosevelt Administration declared the clause invalid, de facto forcing debt forgiveness. Furthermore, the Supreme Court maintained this decision.
At the same time:* close all financial exchanges and markets of the world for a week* CDS are declared null and void and new CDS creation is forbidden until new regulation is in place* the publicly dealt financial entities have seven days to figure out and publicly restate the value of their liabilities and assets excluding all CDS* a onetime windfall tax will be created that socializes overt advantages some entities will have from this* the proceed of that tax shall be used to prop up the capital of the big losers in a program comparable to the Reconstruction Finance Corporation of 1932.After CDS’ are gone, Congress should set up a new Home Owners’ Loan Corporation to solve the foreclosure problem and stabilize housing prices. This will then stabilize the MBS/ABS markets. Losses will have to be taken, but the catastrophe would be avoided.
how can I tell myself that Paulson is trustworthy, as now GS is the biggest…
how can I tell myself that Paulson is trustworthy, as now GS is the biggest…
how can I tell myself that Paulson is trustworthy, as now GS is the biggest…
* close all financial exchanges and markets of the world for a weekthat clause alone would start massive sell off,but there is 1 plus point to your ideas,we MIGHT just avert WW3
Here is the link to the article and post written by London Banker.
who can call the police for me. I was killed…
About the bailout:If the assets the goverment is going to buy is not already written off by the banks I think this bailout has a serious problem. If the price the goverment pay is to low the banks will not get any help. So thats why I think Paulson wants to become King. He is going to pay the original full value for these assets and then let the taxpayers do the writing off. This will not be popular in main streat. I guess this is the end of the bailouts.
Good questions for the SEC:Cox `Asleep at Switch’ as Paulson, Bernanke Encroach http://www.bloomberg.com/apps/news?pid=20601109&sid=aevZB0zyXNZw&refer=home
“A lot of investors are looking at the SEC and saying, ‘Where were you with respect to auction-rate securities? And where were you with the securitization process of home mortgages?”’ says Senator Jack Reed, Democrat of Rhode Island and a member of the Senate Banking Committee.
@ Professor RoubiniI too had doubts about the failure of all the IBs, and am now chastened by the accuracy of your predictions – once again.You conclude today’s post with the eleven critical issues for reform. I agree with all of them, but cannot see how any can be resolved in the public interest in the current political and economic climate.The Reichstag Fire of the Lehman failure is being used to consolidate unreviewable authority and what remains of US Treasury credit in the hands of the same gang that engineered the impending catastrophe, and they have no interest in forwarding any of the reforms you suggest. Their interest is in restarting the liquidity pump which enabled their unworkable models to siphon prosperity to ever more concentrated pockets over the past two decades, leaving the poor taxpaying workers of the nation both privately indebted through mortgage/consumer credit and publicly indebted through federal/state/local deficits that are already approaching unsustainable levels.At this point, I see no way for the public interest, however defined, to find expression in the public policies being enacted. The system is too corrupt.The alternative is failure of the system. That is unpalateable, but also likely unavoidable.I have observed that it is usually creditors who have no dominant stake in a local system who bring in the liquidators or receivers. Being less exposed to influence by local authorities, they make a decision on expectations of recovery in the short term rather than preserving status and influence in the long term.I expect it will be the foreign creditors – who are even more disenfranchised than the poor taxpayers – who will call time and close the bar on US and UK corrupt credit games. A currency crisis that sees the end of BWII is likely inevitable when the credit stops.When that happens, it will be time for the taxpayers to once again assert an interest in their systems of political and economic governance through reforms.Your list of 11 reforms will still be valid then. But I fear it will not be effectual until then.
Hello comrad guest”Will domestic and global investor lack of confidence in US “free & fair” markets ..”Yes big lack of confidence. But there is enough place for more of the same. First-comrad Bush and his succesor-comrad can hardly stopp: take car manufactors for example.”..lead to liquidity crisis in the $USD, stock and bond markets?”Not now. There is no alternative to the US-market. But as the going-down goes on, who knows, what will be done by Second-comrad Paulson tomorrow?comrad globumedes
I think I just figured out a piece of the puzzle. All the Fed’s alphabet soup of emergency liquidity facilities were structured around repurchase agreements. Toxic waste securities were used as collateral for US Treasuries and dollar credit at 85 percent of face value. But as each facility expires, it has to be rolled over and increased to keep pace with the implosion of credit in the interbank markets.The Paulson plan will provide a one off opportunity for banks to take their toxic collateral back and sell it at a Paulson-determined price for cash. He selectively decides winners and losers, of course, creating arbitrage opportunities and survivor bias in the process.In the meanwhile, the removal of the toxic waste from the Fed balance sheet gets the Fed off the hook for having hypothecated all its Treasuries against worthless toxic waste at Enron-styled false valuations.Any views?
Effectively, if the above is right, the Paulson Plan recapitalises the Federal Reserve without the humiliation of admitting that the central bank was dangerously overextended. The issue of the Treasuries to finance the toxic waste purchases replaces the Treasuries redelivered to the Fed in the interbank market. Pretty neat.
Have already wrote my representatives to vote this funding down. What are the chances that they (the representatives)will listen to the will of the American people ? Also, told them to read Andrew Jackson’s farewell speech as President on banking and try to find a moral backbone to fight for the freedoms we have enjoyed.
Thanks. Many people don’t realize that texts translated by computer need to be revised.
What will be the question on everyone’s minds with respect to RTC 2? I guess it would be the price at which the distressed assets are aquired. As well as accountability of the Treasurer and the Fed. We are at the cusp of a financial disaster, and ironically, a plan like the one Paulson is proposing will probably push the markets over the edge. The main issue cause of the problems has been and will be overleverage and the lack of bank capital for all these assets. Moving the leverage to the government just changes the source of the pain when the final deleveraging correction comes. It is up to the citizens of the US of A to decide for themselves as to whether it will be the tax payers, or the bank investors who will bear the price of the failure to regulate leverage. Letting Paulson have his way would lead to economic slavery for generations of Americans to come, and more likely than not, a default on payment by the US Government. The alternative is to let the investors and creditors of the banks who made the mistakes take the pain, where the government comes in AFTER the fact to clean out the banks and re-establish them as viable and regulated entities.Somehow, I fear that the latter is not an acceptable scenario for the major participants of the great bailout charade. They want to make the taxpayer pay for their mistakes and the complicit Congress and Senate will let the taxpayer suffer for this. Bernanke is relying on foreign investors to continue to lend to the USA to help finance this bailout but I am a firm believer in self-interest. The major reserve holders will have zero incentive to help the US of A because they can no longer afford to buy the goods that these countries produce. They certainly will not endanger their wealth which can be better used to shield them from the coming recession/depression. We will see the USA be destroyed to save the selected few bankers.Its up to the common American now to wake up and examine the situation without propaganda and deceit, It is your country at stake here, and if you want to make sure your children have a future, I seriously suggest you make the fact known to your elected official in no uncertain terms that you do not agree to this plan and that your vote is at stake. If not, the USA is gone, and it will drag the whole world with it.
There is a way out of this ‘correction’ if we would just return to traditional banking structures. There is too much cheap money out there. Forgive me if I called it a correction. I don’t mean to make light of what is clearly a historic period in the financial markets. However, is this not the literal definition of what is occurring. America was a country that relied on savings, bonds, and other investment vehicles that were supplied by an existing and real money supply. The notion that we would be able to live large through leverage and credit is an absurdity from which we will not outgrow yet. As painful as it is to ask, I want to know why it was so important to buy these debts. What does this notion of ‘too big to fail mean’. This bailout is going to debase the currency, drastically raise the price of imports and enable a system that will most likely continue its practices with indemnity. It’s awful how an industry with so many honourable players, the majority of them, can be penalized for the recklessness of the few. Please expand on the phrase ‘too big to fail’. Thank you.
Do repos mature at random intervals or are their maturities bunched at the end of quarters – like 30 Sep? It seems crisis modes are centered around past quarter closes. The curious rush to resolve this legislation before 30 September could be a coincidence or to avert a 30 Sep trigger.
Congress has once again abdicated its responsibility in exchange for short-term political goals. Paulson and Bernanke presented them with a doomsday scenario and Congressional leaders literally wrote them a blank check, a scenario not unlike Oct. 2001. Paulson said in a statement, and the sentiment has been echoed by economists, that the alternative would have been catastrophic and this had to be done. Yet, I have yet to see any serious analysis on this matter. Trillions is a lot to commit to on gut instinct alone. Maybe it did need to be done, but maybe there were WMDs in Iraq in 2003. In either case, no proof has been offered.
Professor Roubini,One of the small provision of the Paulson plan is a 50B$ garanty for money market mutual funds investments.What does it mean? Have all of them have been transformed in Treasury funds? So, agressive managers have an incentive to search for high yields with the opportunity to get a higher management fee with no consequence as to the fund valuation.That is unreal. How far panic can push this deperate government?
Yes but why have any degree of a fractional reserve banking system at all, why can’t an economy function purely on its productivity and real economies? It’s a slippery slope that always proves to be unmanigable and ripe for corruption and abuse. What proof is there besides anecdotal that it provides any worth to society at all? It defies laws of nature, laws of physics, and is obviously unsustainable. I would argue that even at a ratio of 1 to 10 it’s still enevitable for major deflationary periods to happen followed by big booms plus the system heavily slants itself towards an elite class and accelerates the consolidation of power. It’s a terrible system for an equitable distribution of wealth, cripples the real economy and is in essence crooked.
Unfortunately you may well be right.The government is blackmailing congress in approuving it’s plan. They claim that they won’t encourage moral hazard for banks who didn’t see the looming risks, but this government wants to be saved from its own shortcomings.How wild!It reminds of Iraq-WMD situation.These people are irresponsible impostors.
Last week mark’s the historic beginning of the hyperinflationary runup
Another viewpoint as to why the government is acting “punch drunk” (John Bogle’s recent term).IT’S THE DERIVATIVEShttp://webofdebt.wordpress.com/
The Term Auction Facility was for 28 days and 84 days. PDSF was overnight. TSLF auctions were for longer period, I believe. The Fed had a calendar of auctions, so the month-end observations may not be that relevant.
MAKE NO MISTAKE ABOUT THIS BAILOUT. THIS ONLY BENEFITS WALL STREET. THE 70-80% OF THE REAL ECONOMY SUPPORTED BY MAIN STREET WILL CONTINUE TO ERODE WITH HIGHER PRICES, HIGHER TAXES ON THE AVERAGE AMERICAN IN SOME FORM, AND LESS SPENDING. THERE WILL BE MORE BAILOUTS TO COME FURTHER ERODING THE DOLLAR. SOONER OR LATER MORE MONEY WILL COME OUT OF THE MARKET AS MORE AND MORE AMERICANS WISE UP TO THE EROSION OF THEIR REMAINING WEALTH THROUGH INFLATION. THERE MAY BE DEFLATION IN SOME AREAS BUT NOT IN THE COST OF GOODS USED DAILY BY THE AVERAGE AMERICAN. AMERICA NEEDS TO WAKE UP AND VOTE EVERY INCUMBENT OUT OF OFFICE WHILE THE OPPORTUNITY IS OPEN FOR THEM. OTHERWISE THE GAME WILL CONTINUE UNTIL THEY WAKE UP AND DISCOVER THEIR LIBERTIES ARE A THING OF THE PAST.
I agree,Fractional reserve banking requires ever growing debt and thus ever growing population and ever growing misallocation.If you would follow nature’s logic, Europe for example with a decreasing population(if you don’t count immigration)would now have the same space, ressources, wealth to share with lesser people wich should be beneficial. All excess production could then be traded in exchange for exotic products.Because of huge debt and a very dependent energy policy, we now have to keep chasing the numbers in population to keep our housesfilled and our children indebted.And they call this civilization. Everythingfalls apart because of the financial value of a pile of bricks and morter or wood.We really are an odd specie.
Are you sleepwalking about the election? See the great angry comment by Juan Cole in which he calls Americans masochists if they elect a Republican this November:Below are two selected portions:The Republican Party came to Washington, DC, in 2000 with a solid majority in both houses of Congress and on the Supreme Court, allowing them to steal the presidency, as well. If you wanted to know what a pure Republican-Party government unhindered by the Democrats, Libertarians, Greens or Socialists might look like, this was the moment.So they came to power when there was a budget surplus bequeathed by a Democratic president.They immediately ran up a big deficit every year since, doubling the national debt from $5 trillion to $10 trillion. You don’t run big deficits of $300 and $400 billion a year in good times according to Keynes. You save the the deficit spending for a recession, when the economy needs a jolt. If you’re already racking up a big deficit every year in a good economy, you have no way of making a difference during a significant downturn except by then going for a truly mega-deficit, which risks destroying the value of your currency abroad. In a service economy like that of the US, a dollar with a declining value might not even help the economy via exports very much, since the manufactured goods are being made down in Mexico now, anyway.Note that Clinton had been talking about using the surplus to pay down the debt or to fix the looming crisis in social security.With the government encumbered with $5 trillion in new debt before September, and now with another trillion and a half (probably when it is all said and done with), how exactly will social security be fixed?******By their incompetence and cupidity the Republican politicians deeply damaged the relief effort for one of America’s great cities, New Orleans, which will never see the $33 billion pledged for its reconstruction. Not to mention that levies and bridges are breaking and falling down all around us because Cheney did not want to tax his billionaire friends to pay for the country’s infrastructural upkeep.And then they so radically deregulated and removed any oversight from the banking system that they came within hours of presiding over a 1929-style absolute meltdown of the entire financial and securities system. To cover the criminal activities of their cronies, they are now proposing to impose a fine of one trillion dollars on the middle class, to ensure that their partners in crime will receive their $25 million Christmas bonuses and be held harmless for their misdeeds.And in the wake of the greatest and most sustained act of systematic plunder since the Mongol hordes appropriated to themselves the riches of everyplace in Asia from Beijing to Isfahan, the reaction of the supine and slave-like American voting public is to scratch their heads and have a hard time deciding if they would like more of the same.for the whole commentary, which should be widely read abd disseminated:http://www.juancole.com/2008/09/nation-of-masochists.html
I dont think anyone ever got Nobel Prize for economic predictions.
1)Krugman calls the plan CASH FOR TRASH, but doesn’t truly explain the mechanics to his readers!2)Bloomberg has a story about the total expansion of the asset categories for this plan! They are trying toget any debt to qualify.3)I was hoping the Professor would distinguish betweenhis HOME(HOLC) and what is being proposed, but he probably wants more information before he does.The clock is ticking and they will pass a new law thatwill benefit only the banks!
The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. So is there going to be another round of bailout package for the hedge funds? Arent they also going to be classified as ‘too big to fail’?
Same situation in Germany. Here is what I do:- Buy some physical gold- Hold some cash- Spread the money among accounts in different bank. Each account is insuref for €20000- Invest directly in government papers. In Germany we can get roughly 4%, daily available, from http://www.tagesanleihe.de (don’t think you can buy from outside Germany). This is a nice alternative to a money market fund.- Some German bank consortiums (like the Sparkasse) have their own protection funds, with much better insurance than the standard €20000.- Hold some stocks. If your bank goes bust, you still own the stock.This should keep the money safe, but of course all this will not protect me from devaluation of my money.
It has never been clear to me if the Fed loans which are collateralized by the junk are re-marked when rolled over, or if they are collateralized at 85% of par and will be so continually. Same old question, recourse or non-recourse?A central bank doesn’t get “dangerously over-extended”. It’s simple and easy to re-capitalize a central bank.I think it implies that the first bailout wasn’t enough. Banks hocked the junk for cash but it wasn’t enough. And they have no more collateral to offer. They have pledged everything. They need now to reduce their balance sheets and there is no market – no market – for their assets. Many of us have suspected that the collateral was over valued initially. So, I suspect that they are more deeply indebted now than ever. Their only hope reducing their balance sheet will be to find a market above that already over inflated value at which their loans were collateralized.Or perhaps to put it more simply, I don’t see how it’s terribly beneficial to purchase toxics outright as opposed to loaning against them on a continually revolving / rollover basis. Except, of course, in the event that they were purchased at less than the 15% discount.
Link to Jackson’s speech?
Re-posting this article from the last blog.Yes … the Shadow Banking System is unravelling.But right now the Shadow system is winning the war – it is being allowed to devour our free market economy. If Congress cedes this power to Paulson, then Americans really will lose our stakes for economic freedom in this country.PeteCA——-The New War Between The Shadow Financial System and the Free Market EconomyThe present proposal by Mr. Paulson and Mr. Bernanke does not simply represent a “rescue of the stock market”, or a “bailout of the banks”. In its purest form, what we are seeing is a new form of financial war developing between the enormous “shadow financial system” and the free market economy that supports most Americans.As huge financial losses mount in the system, the shadow financial system is now in serious distress and is taking direct aim at the free market economy. This is something that Americans need to understand clearly – because there is now a direct and overt attempt to pile all the losses from the shadow system directly onto the US taxpayer.Some QUOTES and DATA—————————————————————-”The Bank for International Settlements reports that interest rate swaps are the largest component of the global OTC derivative market. The notional amount outstanding as of December 2006 in OTC interest rate swaps was $229.8 trillion, up $60.7 trillion (35.9%) from December 2005. These contracts account for 55.4% of the entire $415 trillion OTC derivative market.”NOTE: Entire OTC market was around $415 trillion by the end of 2005, and still growing. The current CDS market is estaimated at being about $70 trillion.Source: Wikipedia article on Interest Rate Swaps———————————————————————-”Unless derivatives contracts are collateralized or guaranteed, their ultimate value also depends on the creditworthiness of the counterparties to them. In the meantime, though, before a contract is settled, the counterparties record profits and losses -often huge in amount- in their current earnings statements without so much as a penny changing hands. The range of derivatives contracts is limited only by the imagination of man (or sometimes, so it seems, madmen).”Source, Warren Buffet, 2002———————————————————————-US Banking System Exposure to Credit Default Swapsstart of 2004 0.8 trillion dollarsstart of 2005 2.2 trillion dollarsstart of 2006 5.4 trillion dollarsstart of 2007 8.8 trillion dollarsstart of 2008 14.1 trillion dollarscurrent 2008 16 trillion dollars (roughly)Source: Approximate figures drawn from data published by Contrary Investor.[Note - this is just the US bank exposure. The global figures are much higher - over four times higher at the current time].————————————————————————-As Americans struggle to understand what is happening with the current financial crisis, it is important to comprehend the growth of the “shadow banking system” or the “shadow financial system”. This world of finance and banking lies hidden from the eyes of most normal Americans. More importantly, large segments of the OTC market are shielded from effective regulation. As a result, the market for credit default swaps (CDS) and the entire OTC system have literally exploded as large banks and hedge fund operators have fed on an enourmous source of new profits – with few or any people checking on the deals or the assumptions that support them.Americans need to understand that OTC agreements are “over the counter” deals established directly between banks, hedge funds, and companies. They are private contracts, invisible to the eyes of the free market.It is now clear that once the shadow financial system grew to enormous proportions, literally almost exploding on an exponential curve, it eventually hit limits and began to suffer enormous losses. But the problem is that the shadow system was never designed to be realistic, it was never backed up with proper collateral, it operated on high levels of financial leverage, and there was no large bank that could foot all the losses if such a system ever collapsed. Indeed, it is abundantly clear that the people who designed this shadow system – and made enormous profits from it – were motivated in large part by greed (while delibarately understating risks).Viewed from this light, Americans can now understand what is happening today. Mr. Paulson and Mr. Bernanke realize that the money is simply not available to sustain the shadow banking system. So their plan is simple – pass all the losses directly off onto the US taxpayer. This is not a rescue. If this deal goes forward it is a triumph of the shadow financial system over the free market economy of the United States. The perpetrators of this orgy of greed will effectively pass all of the financial risk from their extravagant deals directly onto honest hard-working American citizens.To see that this is a form of financial war, Americans must ask not only what has transpired, but also what has NOT transpired …* During the last week, Mr. Paulson asked that an enormous sum of $700 billion be allowed to be transferred onto the public debt (actual full debt could be much higher in the future). But at no stage did the US Government enter into emergency deliberations to reduce government spending, to challenge the real value of the losses that the Wall St banks are holding, or to put together a plan for how the massive increase in US debt could be paid for.* During the last week authorities took the highly unusual step of preventing short sales on 799 financial companies in the USA. This is a direct restriction on an important function in the free market economy. But at no stage did the authorities announce any kind of restriction on the shadow financial system, such as a moratoroium in creating new CDS contracts, an extensive review of OTC derivatives along with proposals to severely restrict the growth of these contracts, or a widescale unveiling of OTC contracts that would expose the global counterparty risks that are tied up in these contracts.There is every reason to see the current “rescue plan” as an attempt to bail out the shadow financial system, while placing undue restrictions on free market operations and transferring ALL the losses to honest American citizens. This is not a rescue – except of the shadow finance world itself. It is the beginning of a war of survival between a secret world of derivatives deals and most American citizens.At stake is the central question … who really controls the American economy and who really benefits from it?PeteCA————————————————-
Not sure anybody will benefit since it’s only trying to delay the inevitable… Misallocation of capital and of human resources = Wealth destruction. Can’t see much reform on this yet…
“freetranslation” is NOT your friend
I’m closing all my financial stock positions including LEAP puts because the system is too rigged and the outcome too uncertain. I wish Ron Paul had more pull to inject some insanity into this chaos. I’ll just sit on the sidelines with my GLD, and SLV and DGP and watch it all unfold.
In another analogy, the Elephant is ‘Goliath’. Where is David? I agree with what you are saying. Nobody though is dealing with the Elephant/Goliath. The CDS market continues to grow. All the Treasury cash can be spent on ‘bailouts’ but the threat from the Elephant remains. Maybe the Treasury cash should be ‘saved’ and used for the aftermath of the Elephant/Goliath coming down!?
good questions for the Senator, as well!
Robert Kuttner(wrote Squandering of America) has a piece in the Huffington Post that sets out some provisions that should be included to protect the taxpayer. This bailoutis probably a fait accompli, but the terms need to protectthe taxpayers. Kuttner was a senate staffer in the past andhe is very intelligent.http://www.huffingtonpost.com/robert-kuttner/calling-paulsons-bluff_b_128075.htmlTHIS BAILOUT NEEDS TO BE EITHER VOTED DOWN OR TOTALLY REMADE TO INCLUDE ONLY RESIDENTIAL MORTGAGE SECURITIESWITH REDUCTIONS OF BALANCES FOR THE TAXPAYERS. WHY COMMERCIAL? WHY LBO BRIDGE LOANS! WHY CREDIT CARDS? WHYAUTO LOANS?WHY ARE THE “TROUBLED ASSETS” BEING EXPANDED? SOME OF THESE TROUBLED ASSETS HAVE NOTHING TO DO WITH RESIDENTIALMORTGAGE LENDING AND THAT IS WHERE TAXPAYERS GET A BENEFIT.
With the government now getting involved in banking and insurance, would it mean that they can finally afford universal health care insurance for all of the citizens?
Nice to see you posting here london Banker! I was worried that in deciding not to invest money in the USA, you would stop posting. Your insight is critical along with the Professor’s, sort of like coupling together practice and theory.
As usual-10:00 CST and the double bottom is in place for stocks…up we go! Stocks are the new sentiment pawn for HankNBen…If they were smart, they would tanks stocks all week to force the hand of congress…
…The average American is working two and half jobs, gets two weeks off, and has all the employment security of a one-armed trapeze artist. The Bush Administration has preached the “ownership society” to America: own your house, own your retirement account; you don’t need the government in your way. So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401k programs that put money where, exactly? In the stock market! Where rich Republicans fleeced them….
Thank you PeteCA, for that post.All American readers should raise hell with their representatives and senators in Congress, NOW!
I’ll just sit on the sidelines with my GLD, and SLV and DGP and watch it all unfold.I wouldn’t be too complacent about those ETFs. Too much counterparty risk and manipulation. You might consider converting to physical.For a primer on this read Bob Chapman’s International Forecaster.
So Americans mortgaged themselves to the hilt to buy overpriced houses they can no longer afford and signed up for 401k programs that put money where, exactly? In the stock market! Where rich Republicans fleeced them.”Plenty of rich Democrats fleeced them as well.
got a link to the appropriate article? I went there but was overwelmed by the choices. Thanks for the tip…..
Congress will screw this up just like they always do! A bunch of lawmakers trying to fix financial problems…give me a break!
Funny how the recession has been swept under a rug lately…getting worse folks!”The Chicago Fed National Activity Index was −1.59 in August, down from −0.93 in July and reaching its lowest level since 2001. All four broad categories of indicators made negative contributions to the index in August.”
For a long time “economists” complained about that a system where education and health care is universal and free (such as exists Sweden, Germany, or France) was too expensive for America. But since successive administrations of government have had nothing against increasing the national debt, surely it could have been increased for a cause that actually benefited the citizens? The government could also have reduced the defense spending to a minimum (like, say, 50 billion a year). At least there would now be far less people with large health care or school debts.What you have now is a population with a far worse employment security, health care, and time off from work than what is common in Europe. Yet even with all of these sacrifices from the U.S. workers, they are not ahead in pay compared to the Europeans. And the financial condition of the U.S. industries is far worse than the industries in afore mentioned European countries.
Since they are not smart (proven by “everything well contained” and “the American financial system is sound”) and stocks are going down, I think the ugliness of the situation has become too overwhelming to be hidden by the usual cosmetics. Reality check finally there?
I fully agree. A true bipartisan effort:-)
This week …The world moves ever closer to a major tipping point – the rejection of the US dollar as the reserve currnecy for the globe. Don’t be surprised if some countries that were considering de-pegging their currencies from the US dollar decide to advance their plans for this action. The losers will be those who wait too long.Last week the collapse of Lehman put the existence of some hedge funds deeply in doubt (esp. hedge funds based in the UK). These hedge funds have direct counterparty risk to Lehman in the CDS market, and could not figure out if they were even still solvent. Further fallout in the hedge fund industry is inevitable at this stage.The collapse of Lehman also triggered a firesale in equities tied to Eastern Europe – because Lehman held a lot of assets in that sector. This caused two days of chaos in the Russian stock market. Imagine what Russian traders (and the Kremlin) must be thinking. The Fed has bailed out almost every US player that is in trouble – but not Lehman. A lot of rumors are bound to be swirling in Russia about this.Americans remain deeply concerned about the regulations that were placed on 799 financial companies last week – preventing short selling of stocks. Naked short selling should certainly be banned. But ordinary short selling is integral to the free market process. The short selling ban appears to be overly broad and over-reaching. If the US authorities had serious concerns about hedge funds shorting certain banks, all they had to do was to place a limit on the number of short positions that could be held by any one player. That would almost certainly be effective in limiting damage from hedge fund attacks. Likewise, if the rumor that the authorities were concerned about “financial terrorism” is true (this seems improbable to me), then other restrictions (such as geographic limits) might be applicable. Therefore, US citizens are deeply concerned about the impact on the free market process – and what steps could be coming next. What other tricks does Mr. Paulson have up his sleeve???It is reasonable to suspect that there will be an acceleration in the flight of foreign inverstors from US markets.PeteCA
Stocks down and Treasury yields up. Bad cocktail…
“As we get to the other side of this, the dollar will get crushed,” said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world’s biggest currency hedge-fund firm, which manages about $15 billion. . .”The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,” said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc.
Thou hast spoken.
Great post as usuall. However, without the reduction of at least all primary residential outstanding mortgages debt in the U.S. by 30-40% across the board, the speed of decline in home value for the homeowners will be to much for them to keep paying the mortgage. Then what?
11:28 a.m.Short-sale ban list expanded to include GE, GM, 28 othersHELL, WHY NOT JUST OUTLAW SHORT SELLING ON EVERY STOCK IN THE US??? FRIGGIN IDIOTS!!!!!
The so much hailed consumer may be starting to feel that he’s completely left in the cold when things are getting really serious. Tax increases coming and banks itchy about credit hand-outs. No consumer relief in sight by these rather draconic measures.
The dollar volume of credit default swaps is so huge because they are highly leveraged. This massive credit expansion can be maintained if the players consider the notional dollars to have some real value. Once that belief is violated, defaults in the trillions of dollars become inevitable.Last spring’s dollar decline –which coincided with the shrinking of the real economy–was a signal that the fiction had become unsustainable. The balloon of credit expansion had reached its limit and the only unknown as its speed and breadth.None of the proposals currently being floated, and certainly not Paulson’s shock and awe,can alter this economic law of gravity. There aren’t enough dollars to plug this particular black hole. The taxpayer, the homeowner and even the entire value of the nation’s real capital stock would be inadequate even if they were seized and plundered outright.I don’t know who or what is holding these debt swaps, but one thing is for sure: God himself can’t protect them from infamy, let alone bankruptcy. Truly we would be better off by letting them just go bust in one massive convulsion and then picking up the pieces.
@P1AQL: “A lot of investors are looking at the SEC and saying, ‘Where were you with respect to auction-rate securities? And where were you with the securitization process of home mortgages?”’ says Senator Jack Reed, Democrat of Rhode Island and a member of the Senate Banking Committee.”Senator Reed’s suggestion and McCain’s suggestion and others targeting Cox is interesting in light of the fact that of the entire gang of crooks making our financial decisions, he’s one of the very few who is not a past or a future Goldman Sachs confidant. Is there an emerging pattern here that scapegoats must be found who are not connected with Goldman?
@ Guest on 2008-09-22 10:43:52As I indicated last week, the game plan is to guy the SEC of all powers in favour of the Fed as the unitary executive in fianancial regulation. Cox is the fallguy and the SEC will be “reformed” into a “principles based” regulator that poses no real threat to those in authority on Wall Street or in Washington.
“gut the SEC” not “guy the SEC”
The VIX is actually DOWN with stocks DOWN +2%!!! Cmplacency at its finest!
A mass refusal to pay debt for a month, credit card, mortgage, etc. is more appropriate, don’t you think? As a means to increasing bargaining power.
A mass refusal to pay debt for a month, credit card, mortgage, etc. is more appropriate, don’t you think? As a means to increasing bargaining power.
11:50 a.m.Crude futures gain more ground, touch $109.60 high on Globex
Guest,It’s true that most countries in Europe have not too expensive health care and education. But in many of those countries it’s rapidly changing and extra personal input or insurance is more and more required, because the social security systems are having increasing deficits.You borrowed as a country to spent on war as where we borrowed to spent it at keeping a bankrupt social security in place.We too used housing bubbles to make our GDP figures outrun our debtgrowth.We welcome(d) immigrants to keep pressure on the housing market and to increase the numbers.Don’t just copy a model because it seemingly looks good. That’s what we did when looking to the Anglo-American consumer debt, housing bubble model. And that’s what kept our systems going.Now that the tide is turning, we’ll see what will be left of it.
as always, you are talking a lot without solid ideas.maybe this is a real english banking practise.
WHERE’S THE 2009 FEDERAL BUDGET FOR THE ADD ON $1 TRILLION ENTITY?It doesn’t exist, so I say this “pie in the sky” budget lie is just a phony prop to keep the stock market from collapsing some more in the short term.To add $1 trillion to the federal deficit, step one is getting someone to lend us tax payers the principle to pay interest taxes on it. The rest of the world is broke too and we aren’t buying so much of their stuff anymore.So who’s gonna lend us the money….the tooth fairy?
Dear Professor:Your analysis is dead on again! We all know the Shadow Banking System is huge. You state that we are going tosee “The demise of the Shadow Banking System”;however,the Shadow Banking System seems to be in control of ourgovernment. The Shadow Banking System is maneuvering toDUMP ALL THEIR TOXICS ON THE AMERICAN TAXPAYER BY WAY OFTHE UNITARY EXECUTIVE RUBBER STAMPED BY CONGRESS. Logicleads me to believe that this will lead to a DEMISE OF THEDOLLAR unless there is a plan to COLLATERALIZE THE DOLLARWILL ALL THE LIGHT SWEET CRUDE IN THE MIDDLE EAST. The dollar will be worthless without collateral! Energy is theonly collateral that is effective in emergency like this!Can someone tell me how else the dollar will be propped up?
@ SoftwareengineerFrom the proposed legislation:Sec. 11. Credit Reform.The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.A former Treasury friend tells me this means there can be zero reported budget outlays for the purchase of up to $700 billion of loans under the act. “Credit Reform” indeed!
Well said. We’re getting the Buffalo Stampede treatment again. Big on hyperbole, short on clear, verifiable explanation. RED FLAG.
The collapse of Lehman also triggered a firesale in equities tied to Eastern Europe – because Lehman held a lot of assets in that sector. This caused two days of chaos in the Russian stock market. Imagine what Russian traders (and the Kremlin) must be thinking. The Fed has bailed out almost every US player that is in trouble – but not Lehman.
Funny some people might have thought that Russian stocks tanked because of something wrong with Russia or because of UK doing something (as they had threated that Russia would suffer economically because of that Georgia thing).
Enjoy (If you can) this Randy.http://www.youtube.com/watch?v=WMUN9I0VMokhlowe
12:09 p.m.McCain ‘deeply uncomfortable’ with rescue plan
Prof ROUBINI, Isn’t it odd that John Mack/MS and GS both cried, “short sellers are driving our stock down.” Mack offered no facts to support this claim. He also said “there is no rational basis for the movements in our stock.” Actually, there was: Investors don’t believe Morgan Stanley’snumbers.(P.S. John Mack & GS have made the most profit from short sellers via Morgan’s (and Goldman’s) Prime Brokerage Stock Lending/Shorting business- So why didn’t he shut this business down long ago and why does he continue to kept it open – odd, no ?).Hypocricy – blame the short sellers! what a joke!
Correct. Core problem: U.S. financial sector invested huge amount, with leverage, in assets that had a negative return on investment. The entire country participated.Until we figure this out, as a country, downward into the spiral we go.Appropriate resource allocation means “invest in enterprises that generate wealth”.The financial sector, and our own good sense, failed us. We need a referendum on the question of “what do we base our economy on?”.
Read some of the other threads on Roubini’s other posts and also London Banker. This is closer to economic fascism and parallels political developments. Not all “socialization” / “nationalization” / “Verstaatlichung” is the same.Whitey
someday, all politicians will have to find a way to make peace with their own souls for what they have done-God speed to them…
LB-in English please…
@London Banker to Guest: “As I indicated last week, the game plan is to gut the SEC of all powers in favour of the Fed as the unitary executive in fianancial regulation. Cox is the fallguy…”Thanks for the reply: I was gone this weekend and I certainly agree with your point.The concentration of power is definitely on the side of tyranny but for those of us still able to speak, we need to remember that it may be easier to topple a concentrated target than a multitude of evils. As Sen. Dodd was being interviewed by National Public Radio this morning, the interviewer asked (as we all would like to know), “Isn’t it of some concern that so much power is being given to one man, the Secretary of the Treasury?”Sen. Dodd’s response is so convoluted that it’s unimportant. However, the point that Americans should start to realize is that this dangerous power is being handed to the largest investment bank that now also runs a private cartel (the Fed) in world history and that its solitary spokesman is Treasury-Secretary Hank Paulson. Ironically, this NPR newscast was headed by the news story of Goldman Sachs’ and Morgan Stanley’s newest central role in this financial event.And for those who would say this is a Republican administration power grab, would a Secretary of the Treasury Rubin or another Goldman treasurer that he selects, improve the situation?
I don’t understand how current politicians can look their own children/grand children in the eyes…they have ruined their futures.
Apropos to the good Professor’s solution to this quagmire, inquiring minds should re-read Nock’s “Memoirs of a Superfluous Man.” Particular attention should be paid to Chapter 7, to extinguish this starry-eyed belief in the State’s power to distribute economic advantage equitably. Here is Nock’s piercing rebuttal to all who would plan mankind’s betterment through the State (or in this case, regulatory oversight by State functionaries):“Suppose by some miracle you have your system all installed, complete and perfect, it will still have to be administered, — very well, what kind of people can you get to administer it except the kind of people you’ve got? I never had an answer to that question.”
Elephants are wise …I wish there was at least one in the room !
Bottom in for the day.
I Want My RTC(With Sincere apologies to Dire Straits)Now look at them yoyo’s,that’s the way you do it,You hide your bad loans in an RTCThat ain’t free markets,that’s the way you do it,get your money for nothing,take big risk for freeNow that aint workin thats the way you do itLemme tell ya them guys aint dumbMaybe get a bounce back in the DJIAMaybe stop another big bank runWe gotta pay for all their mistakesBillion dollar pay day’sWe gotta pay for their all their greedPay more taxes everydaySee the little faggot with the podium and the secretaryYeah buddy that his home in Bel AireThat little faggot got his own jet airplaneThat little faggot hes a BillionaireWe gotta pay for all their mistakesAll the Billion dollar pay day’sWe gotta pay for their all their greedPay more taxes everydayI should have learned, to lie for the cameraI should have learned to sell them loansLook at that mama, she got no job for eight yearsMan, she owns eight homesAnd hes up there, whats that? No need for capital?He’s Bangin on the podium like a chimpanzeeThat aint free markets, that’s the way you do itYou hide your bad loans in an RTCI want my, I want my, I want my RTCMoney for nothing,I want …
Maybe it’s this one ? (Please confirm Jomos)
…No political maxim is better established than that which tells us that an improvident expenditure of money is the parent of profligacy, and that no people can hope to perpetuate their liberties who long acquiesce in a policy which taxes them for objects not necessary to the legitimate and real wants of their Government…
Andrew Jackson’s entire => Dec. 1836 Address
Then you would have to pay workers more within a country and share political power with them. That isn’t a favorite political system for large-scale private property. Hence: “export-led growth” and US finance capitalism.Darkie
Have you forwarded this to Jim Bunning of KYor anyone else?
Text of the Dodd counter-proposal is up. Hank won’t like it.The Dodd draft legislation includes multi-agency and independent oversight, audit, accountability, executive remuneration regulation, a GAO report and help for homeowners.http://www.politico.com/static/PPM41_ayo08b28.html
Citi top management resigns-rats fleeing a sinking ship?
Then you would have to pay workers more within a country and share political power with them. That isn’t a favorite political system for large-scale private property. Hence: “export-led growth” and US finance capitalism.Darkie
“Failure” of the Shadow Financial system and those who feed there. Let it happen!PS: At this moment on C-SPAN The House is intensely engaged in debate of legislation to preserve Civil War Battlefields. I guess this “failure” must not be all that severe.
“Plunder” is a new book out by Danny Schechter on the Paulson legacy. “It is time to understand the origins of the crisis,” he says, “and the need to fight for economic justice.” Here is an excerpt from an article by Schechter ~HAIL CEASAR: PAULSON IS THE POWER…Is this what a State of Emergency feels like?Make no mistake about: we have entered the era of a financial coup d’etat with the Treasury Department releasing a THREE PAGE document and then demanding $700 Billion dollars for a system “rescue” as a start and with unlimited and unchecked power. Welcome to another 9/11 with the Bush Administration in effect pre-empting the options of whoever becomes our next President with a measure likely to cost way over a $ trillion or more.GUEST INSERT [A little dishonest editorializing by Schechter here as the “Congress” has the responsibility for the nation’s monetary decisions, albeit that they have deferred…i.e. where does this Republican administration go to get its $700bn – to a Democrat-controlled Congress.]In fact, as Frank Rich reminded us in the NY Times, Johh McCain has asked for a “new 9//11 Commission to “get to the bottom” of 9/14, the day the illiquid Lehman went down. Never mind that the old 9/11 Commission did not get to the bottom of much about the original 9/11.For months, we have been expecting an October Surprise, perhaps an attack on Iran. Instead what we are getting is a September surprise, and an attack on American taxpayers who are being told they/we will now bail out criminally irresponsible bankers, the folks that Franklin Delano Roosevelt once denounced as “BANKSTERS.”The only thing missing are troops in the streets and, believe me, as I reported last week, that is coming. Troops are being shipped back from Iraq to be on standby for CIVIL UNREST. (The “authorities” don’t believe that the American people will take the strip mining of their lives without a fight. Surely more crime, and other dislocation is coming!)Some are saying that because of this dire emergency, the election could be “postponed.” That may be too unlikely and unnecesary, especially if it is fixed or if both candidates sign on to the PLAN, what ever it is. We don’t even know the details yet but both McCain and Obama are aboard as you may have seen on 60 Minutes Sunday night.This seems to follow the pattern layed out by Naomi Klein–create a shock and disorient the normal processes of government to impose emergency rules by fiat. It is shocking, but few in the media are even presenting the voices of critics who feel this way.This measure is being sold as a way to help everyday Americans but the first time that members of Congress wanted the bailout to apply to distressed homeowners, Tresasury Secretary Paulson’s predictable response was a big fat NO WAY.Thanks a lot.This power grab has a name—“the troubled assets relief program” or TARP. Gretchen Morgenson of the NY Times compares this tarp to others, “the kind of thing they spread over muddy fields so you don’t spoil your Guccis.” This is also a tarp they seem to be pulled over the eyes of the American people and its Congress as the fear weapon is used again as it was after the last 9/11.Then, they needed vast amounts of money to make war, mostly on people who had nothing to do with The World Trade Center attack. Now they need money to make themselves whole at our expense.WARNING OF A COMPLETE MELTDOWN…http://www.newsdissector.com/blog/
PLUNDER – “To take the property of another without observing the decent and customary reticences of theft. To effect a change of ownership with the candid concomitance of a brass band.” Ambrose Bierce
So they fix this mess but cause a dollar collapse in the interum which causes oil to got to $200 which causes a global depression…BRILLIANT!!
I still don’t like the bailout, but this Dodd proposal is much more balanced than the Paulson proposal. Beyond the contingent shares, executive compensation limits and claw backs, I especially like section 18 “Studies and Reports”. This would hopefully allow the experts and public to go back and learn from this mess.I challenge Paulson to explain why any of these provisions are onerous enough to stand in the way a his supposed emergency plan. Is this the US or Paulson’s land of make-believe?I also challenge an US representative to tell their constituents in detail why any of these provisions are not in their best interest. I pity any representative who votes in favor of the original proposal come election day. An alternative is on the table. It’s not perfect, and it shouldn’t be done, but it is WAY better than the original proposal.May the politics begin!
1:34 p.m. Crude futures hit limit price climb of $10/brlA limit price for RISING prices??? I thought only falling prices were illegal LOLOLOL
They may be reused soon.
Cheaper for us, not for them.OK we all know this a crime in progress. Now how do we stop it?
The alternative is failure of the system. That is unpalateable, but also likely unavoidable.
Unpalatable for whom, Sir? Please articulate …And if unavoidable, then why continue to waste valuable time, energy and $ on keeping the cancer alive?Save the patient, eradicate the disease!
How can the VIX still be down with stocks down approaching 3%????????
OK what do we do? Details please.
Obama said that Paulson might have a role in his administration, according to something I read.
1:48 p.m.Gold leaps $44.30, or 5.1%, to close at $909 an ounce
If troubled assets do not include bridge loans for leverage buyouts then Mitsubishi will not buy 20% of Morgan Stanley.The whole idea is to launder out the totality of the troubled assets to the taxpayer before anybody will invest in a bank. They would also like to be overpayed for the assets, thereby shoring up the finances of the banks.Paulson is the Money Launderer in Chief. He will stick thetaxpayers so the banks can recapitalize. The banking lobbywill work hard to get everything they want.
I don’t understand the need to act quickly. The big financial institutions have had tons of this toxic waste stuck on their books, that they could not get rid of, for over a year now. What’s the hurry?However I do want Congress to do something, to commit to some extent, before the election. Because after the election the people will have no voice at all.So what I expect from them is to reject Paulson’s requests wholesale, BUT pass a new bill requiring salary givebacks, equity participation by the government in any bailouts that might occur in the future, rigorous oversight and judicial review of such oversights, etc. In other words, implement those good ideas that have come up this week, but flush Paulson’s garbage (and him too, if possible) down the loo.
“Take That: An answer to shock and awe”The “People’s Secretary of Treasury” Rufus T. Fernwell convenes congressinal leaders, scares the bejesus out of them, and then submits his proposal:1.Nationalize the banks, funds, insurance companies.The government holds them all as public fiduciary and issues enough new stock to own 51% of them. Investors face substantial dilution but that’s better than losing everything.2.Sanitize (read:void)the derivative holdings of the weakest firms; fire their boards of directors.3.Immediately dictate terms of a work-out of mortgages in foreclosure, financing across the board consumer debt reduction with confiscatory taxes on the rich.4.Seize and liquidate the houses and personal property of bankers and financiers indicted for malfeasance by duly constituted grand juries and…5.Use the proceeds to compensate those who have lost their homes due to unscrupulous and predatory lenders.Heh we can dream, can’t we?
To forestall this, though, the Treasury proposal was amended to put in lots of candy for foreign creditors. US Taxpayers will bail them out too! I don’t see Congress agitating to remove that provision.I’m afraid the foreign creditors may find that in amended form this is the best deal they are likely to get, and support it. And besides …Once it’s in and done, the debt is irrevocably on the taxpayers no matter if the creditors later come back and press for more market reforms here.
2:09 p.m.Moody’s says U.S. government’s ‘Aaa’ ratings not threatenedOooohhhh, that makes me feel better! Especially with the job you did on rating subprime…
I’m cross-posting this from the CalculatedRisk blog.guy with a rollformer writes:When are we finally going to wake up and figure out that it is time for smart people to become engineers again?guy with a rollformer | 09.22.08 – 11:40 am | #I think that revelation will occur about 2-3 months from today, when it becomes obvious that the rest of the world is no longer interested in buying or holding our debt.Suddenly, everyone will learn the difference between the financial sector and the real economy.
I think if Hank tanked, er, um…I mean the markets tanked 1,000 point sor so by Wednesday, that would make congress squirm….
Ain’t gonna happen, bottom in on Dow for the day, will rally green by the close…
Moral hazard? Forget moral hazard, that’s the possibility of theft in the future.This is enormous theft, right now! Just stop the theft & let the chips fall where they may. The sun will still rise, the birds will still sing, and freedom will have won a magnificent victory.
I hope the Congressmen enjoy going back to their districts and meeting their constituents up-close-and-personal. They should keep that in mind, rather than Paulson, in their actions and votes here.
I read somewhere that Obama would consider a role for Paulson in his administration.Congress will be Democratic (unless they let this go through untouched, in which case all those Dem incumbents might be thrown out). So the President should be Republican. Besides, as an old man, McCain (like Arlen Specter, a Republican who is calling for hearings on this measure) may care more for doing what is right and less for earthly concerns.
From Economist Michael Hudson:My alternative solutions are as simple as Mr. Paulson’s, but of course are quite different. The public interest does indeed call for maintaining the economy’s basic credit, money-transfer, credit card and depository checking and savings functions. But not under the current venal and predatory management practices. It is this management that has lobbied so hard for deregulation, and whose industry representatives have insisted so strongly to place extremist ideological deregulators into the economy’s major positions. Therefore, the Treasury only should buy junk mortgages at current market price. The losses should be taken in order to re-even out the wealth pyramid that has become so much steeper under the Greenspan-Bernanke ploys. The banks knew full well that these mortgages lacked underlying value. The price of making use of this borrowing facility is to forfeit all equity stock to the government. The Treasury should prohibit any financial institution that sells or swaps securities to the Fed from paying any dividends to shareholders or stock options and bonuses to managers. It also should give the government priority over other creditors. Otherwise, firms that have negative equity will benefit purely at public expense, using the money to pay dividends, bonuses and exorbitant salaries.Second, we need to restore the Glass-Steagall separation of commercial banks from risk-taking investment banks, mortgage brokers and other financial-sector flotsam and jetsam. Break up the mergers between banks and casino sell-side financial and real estate institutions. Just the opposite is occurring: On Monday, Sept. 22, the financial universe was transformed by the announcement that Mr. Paulson’s Wall Street firm, Goldman Sachs, was transforming itself into a bank holding company. The casinos are to take over the banking system as big fish eat little fish in the present financial emergency. It looks like new giants are emerging, already larger than the government in terms of the magnitude of the debts they have run up – and certainly in their earning power. Indeed, who is to say that extracting interest from the U.S. economy will not emerge as the new form of taxation?Third, re-write the bankruptcy laws to favor debtors once again, not creditors. This means reversing the current bankruptcy code sponsored by lobbies from the credit-card companies. The interests of the five million mortgage debtors faced with foreclosure and expropriation this year should rightly be placed above the interest (literally) of predatory creditors.Fourth, sharply increase property taxes, shifting them back off labor and sales. We need to return to the classical idea of taxing unearned and unproductive income instead of adding to the price of labor and industry. What has been freed from the tax collector by the shift of taxes off property has not lowered the cost of housing and other real estate, or corporate costs of doing business. The income “freed” has ended up being paid to the banks as interest. The government still has had to raise money – but in the form of taxes that fall on labor’s wages and industry’s profits. So labor and industry now pay twice for what they formerly paid only once. They still pay the same overall amount of taxes, but also pay an equivalent amount of interest. The financial system is crowding out the government.In the fifth place, we need to start discussing whether we really need a banking system that behaves in the way the present one does. In recent decades banks have made loans mainly to inflate asset prices by loading real estate and industry with interest-bearing debt. What if all banks were to be organized along the lines of savings banks, with 100% reserves. This is the Chicago Plan from the 1930s (currently revived by the American Monetary Institute, which holds its annual meeting this week in Chicago, by the way). This at least would go back to basics to provide a foundation from which to re-begin to discuss just what kind of credit the economy needs and what would be the best terms on which to structure financial markets.Any solution does indeed need to be radical. But it can be much less radical than Mr. Paulson’s power grab for his Morgan Stanley firm and the rest of Wall Street in the closing days of the Bush administration just before the Republicans look like losing power. The indicated solution is to reverse predatory finance, not bail it out at permanent taxpayer expense. Government funds are not unlimited. Is it worth wiping out hopes for Social Security and public health care, for renewed national infrastructure spending and industrial restructuring in order to bail out a banking and financial system that has not contributed to economic growth but has weighed it down with reckless debt regardless of the economy’s ability to pay?http://www.counterpunch.org/hudson09222008.html
WHY IS IT THAT ROUBINI NEVER SUPPORTS HIS FEAR MONGERING WITH NUMBERS? HE NEVER ADDRESSES THE REALITY THAT 90%+ OF ALL MORTGAGES ARE UP TO DATE. HIS WHOLE ARGUMENT SEEMS BASED ON THE PREMISE THAT AMERICANS WILL STOP PAYING THEIR MORTGAGES EN MASSE IF HOUSING PRICES TEMPORARILY FALL ANOTHER 10%…THIS IS A HIGHLY QUESTIONABLE ASSUMPTION. MOST OF THE DEFAULTS REALIZED TO DATE HAVE STEMMED FROM SPECULATORS AND FRAUD NOT WELL INTENTIONED HOME OWNERS, WHICH REPRESENTS THAT VAST MAJORTY OF HOMEOWNERS. 6 MONTHS FROM NOW THE PACE OF MORTGAGE DEFAULTS WILL BE ON THE DECLINE AND HOME PRICES WILL HAVE BOTTOMED AND BEGUN TO MOVE UPWARD ALTHOUGH SLOWLY. WAKE UP DRAMA QUEENS…THE US WILL ONCE AGAIN PROVE TO BE A HIGHLY RESILIENT ECONOMY.
2:52 p.m. Crude scores biggest daily dollar price gain ever on Nymex
my solution to thi problem is for the govt to buy all vacant houses and have them raised. the US wouls see an explosion in highering and an instant stabilizing of homr prices. then the govt would own lots they could sell as prices allowed. cost to us taxpayer 0.
2:58 p.m.Fitch downgrades General Motors on diminishing liquidity
From The BigPicture blog:Want to get a sense of exactly how expensive the Paulson Plan is?1 million seconds is 11 days1 billion seconds is 32 years1 trillion seconds is 3 centuriesIf we take on as much debt as Paulson wants (well over a trillion dollars) and we pay it back at the rate of a dollar per second, it would take 3 centuries to repay. And that assumes its “only” a trillion dollars . . . it could be much, much more.Watch the greenback go down the rathole.
Right! Unpalateable to whom?These leeches, with their ever-increasing parasitism, want to start the game all over after a bailout.They not only want to start over, they want to go forward as bigger players with even more concentrated wealth and power.
OK so if hyperinflation occurs, even more modest but very high inflation, with decline in the dollar, when is real property going to return to its normal rise in value and serving as a hedge against inflation. The bizarre cruelty of this crisis in bank liquidity and lack of a market for mortgages is that real property has become divorced from its normal role as an inflation hedge while other commodities rocket up in value.
More from BigPicture:The dollar has dropped the most versus the Euro since its inception, according to Bloomberg. And ddue to the collapse of the greenback, Briefing is reporting that COMDX Crude oil trades to new 2-month high of $130 per barrel.
wrong. it would be 32 000 years
I told you so!:))))
Isn’t the real issue that our money is based in debt and that debt has a limit and we have reached it? Isn’t that the whole premise of fractional reserve banking- money from debt? When you cannot create any more debt- the jig is up? A whole new monetary system needs to created. Have we hit the debt ceiling- the point where it can no longer be repaid? And where the lenders cannot lend any more? Isn’t that why the toxic stuff was allowed to be created to begin with- to create more money by creating more debt? And now they want to raise that ceiling yet again? Is that even possible? I see no way out of this mess, we are headed for the train wreck- it doesn’t matter if they go through with the bailout or not- either way the monetary system is broken beyond repair. An end to fractional reserve banking needs to come, and a new system developed that the world can work together within. I don’t know what that is- but I believe we are on the cusp of sweeping and radical changes- whatever happens.
By NELSON D. SCHWARTZ and CARTER DOUGHERTYPublished: September 21, 2008PARIS The financial crisis that began in the United States spread to many corners of the globe. Now, the American bailout looks as if it is going global, too, a move that could raise its cost and intensify scrutiny by Congress and critics.Foreign banks, which were initially excluded from the plan, lobbied successfully over the weekend to be able to sell the toxic American mortgage debt owned by their American units to the Treasury, getting the same treatment as United States banks.
Sept. 21 (Bloomberg) — The Bush administration widened the scope of its $700 billion plan to avert a financial meltdown by including assets other than mortgage-related securities.The U.S. Treasury submitted revised guidance to Congress on its plan a day after first submitting it, as lawmakers and lobbyists push their own ideas. Officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.The change suggests the inclusion of instruments such as car and student loans, credit-card debt and any other troubled asset. That may force an eventual increase in the size of the package as Democrats and Republicans in Congress negotiate the final legislation with the Bush administration, analysts said.“The costs of the bailout will be significantly higher than originally considered or acknowledged,” said Josh Rosner, an analyst with independent research firm Graham Fisher & Co. in New York. “How, given these changes, can the administration and Federal Reserve believe they are being forthright in their unrevised expectation of future losses?”
NEW YORK (MarketWatch) — The U.S. Congress is likely to raise the cost of a $700 billion rescue deal for U.S. markets by adding a new economic stimulus plan to benefit taxpayers, according to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.Further, the cost of the latest government plan to stabilize the credit and lending market could cost up to $1 trillion dollars, said Sen. Richard Shelby, R-Ala., ranking member of the Senate Committee on Banking, Housing & Urban Affairs.That raises the specter of higher taxes under the next presidential administration.
C’MON…someone address the following with factsWHY IS IT THAT ROUBINI NEVER SUPPORTS HIS FEAR MONGERING WITH NUMBERS? HE NEVER ADDRESSES THE REALITY THAT 90%+ OF ALL MORTGAGES ARE UP TO DATE. HIS WHOLE ARGUMENT SEEMS BASED ON THE PREMISE THAT AMERICANS WILL STOP PAYING THEIR MORTGAGES EN MASSE IF HOUSING PRICES TEMPORARILY FALL ANOTHER 10%…THIS IS A HIGHLY QUESTIONABLE ASSUMPTION. MOST OF THE DEFAULTS REALIZED TO DATE HAVE STEMMED FROM SPECULATORS AND FRAUD NOT WELL INTENTIONED HOME OWNERS, WHICH REPRESENTS THAT VAST MAJORTY OF HOMEOWNERS. 6 MONTHS FROM NOW THE PACE OF MORTGAGE DEFAULTS WILL BE ON THE DECLINE AND HOME PRICES WILL HAVE BOTTOMED AND BEGUN TO MOVE UPWARD ALTHOUGH SLOWLY. WAKE UP DRAMA QUEENS…THE US WILL ONCE AGAIN PROVE TO BE A HIGHLY RESILIENT ECONOMY.
The European housebust will soon give us the next creditcrisis. I cant see how the world economy will stand for this. Furthermore mot only the US consumer, the best in the world, but also the European cusin are both bust. My guess is that there will be a tsunami of profitwarnings q3 and q4.
Just think of all the banks that have to take the hit in Q3 on the wipeout of Phony & Fraudy preferereds!
With equity at 3%, a default on a minority of loans is enough to make financial institutions insolvent, which already has happened. Folks going through the assets of Lehman have already drawn their conclusion: default.
Alan Blinder (professor at Princeton, former Fed vice chair) criticized the Treasury’s bailout plan and called for Paulson to be dismissed on a talk show on WAMU (an NPR radio station in DC) this morning.This is what he said in part (from the Chicago Tribune’s “The Swamp” website).“I’m speaking now as one of the earliest advocates of creating an institution like this, many, many months ago. And it’s a crying shame to see the way the Treasury has written this. I think the secretary of the Treasury should be dismissed, frankly. … Asking for the authority to buy anything, with no review, with no court review, with no limits practically as to quantity or scope, with almost no congressional oversight. We have something more precious at stake than our precious financial system and that’s our precious Constitution. And frankly, if I were a member of Congress, having advocated for this for nine or ten months, I would vote against this unless it’s changed, dramatically…”
CHECKMATE, CHECKMATE, CHECKMATE!!!It’s over. Paulson and Bernanke have admitted that the entire financial system is insolvent. But the only solution is for the taxpayer to take over all the bad debt. Problem is the dollar and commodity traders aren’t going to play ball. OIL SPIKES $30! CHECKMATE!!
This qutoe should be bombarded to all of our congressmen/women!! If this gets passed in its current state, there will be legal precident to just ignore the constitution and anarchy shall rule the day…
“THEY” are fighting with all their ammo to keep the dow above 11K…
VOLATILITY200 point per day swings have morphed into 400 point per day swings. The end of this tawdry charade is days to weeks away.
ROUND UP THE USUAL SUSPECTSFinancial are down big today. Round up the usual suspects, the shorts!! Oh, wait there are no more shorts. LOL
Not true…especially for GS and MS exposures.Plus your assertion is trying to apply apples to oranges…a 3% default rate may have negative consequences for shareholders (depending on capital structure) but it most certainly would not cause the entire US financial system to implode.Also — HOW COME ROUBINI NEVER SUPPORTS HIS “ANALYSIS” WITH ANY NUMBERS???We are experiencing nothing more than a panic by fear mongers likes Roubini.
WHEH! NICE SAVE once we poked under 11K! HOW LONG CAN THE GAME BE PLAYED???
and they succeed (but only just…)
3:57 p.m. [WM] Moody’s may downgrade WaMu’s debt ratings
Than we have a problem: who to blame now?
4:01 p.m.U.S. doesn’t agree to receive shares in rescue plan: CNBC
4:02 p.m.[WM] Moody’s cuts WaMu preferred stock to ‘most speculative
4:05 p.m. [CHK] Chesapeake cuts production growth outlook to 16% from 19%4:03 p.m. [CHK] Chesapeake Energy cuts 2008-2010 capex budget by $3.2 bln
4:08 p.m. Sen. Shelby: U.S. rescue plan may not be ‘workable’
WHERE ARE THE NUMBERS??????C’MON MEMBERS OF THE ROUBINI SCHOOL OF THOUGHT? SHOW SOME NUMBERS/FACTS….
Goldman Sachs has been a cancer since the 1920s. Looks like they are metastasizing.
“I just heard that nobody on Capital Hill has a clue what to do and Paulson is running around the halls of Congress , naked with a throne on his head yelling, I am your supreme leader, where is my sponge cake.
Go back to bed.
C’MON…someone address the following with numbers/factsWHY IS IT THAT ROUBINI NEVER SUPPORTS HIS FEAR MONGERING WITH NUMBERS? HE NEVER ADDRESSES THE REALITY THAT 90%+ OF ALL MORTGAGES ARE UP TO DATE. HIS WHOLE ARGUMENT SEEMS BASED ON THE PREMISE THAT AMERICANS WILL STOP PAYING THEIR MORTGAGES EN MASSE IF HOUSING PRICES TEMPORARILY FALL ANOTHER 10%…THIS IS A HIGHLY QUESTIONABLE ASSUMPTION. MOST OF THE DEFAULTS REALIZED TO DATE HAVE STEMMED FROM SPECULATORS AND FRAUD NOT WELL INTENTIONED HOME/OWNERS, WHICH REPRESENTS THAT VAST MAJORTY OF HOMEOWNERS. 6 MONTHS FROM NOW THE PACE OF MORTGAGE DEFAULTS WILL BE ON THE DECLINE AND HOME PRICES WILL HAVE BOTTOMED AND BEGUN TO MOVE UPWARD ALTHOUGH SLOWLY. WAKE UP DRAMA QUEENS…THE US WILL ONCE AGAIN PROVE TO BE A HIGHLY RESILIENT ECONOMY.
The problem I see is that when Roosevelt declared a clause in a contract null and void we were less globally connected.For your proposal to succeed, we would need similar simultaneous proposals from the European Union and China.
Please go back to bed.
In one hour all her great riches were brought to naught. A measure of wheat for a day’s wage. Is this where we are headed?
Yep, John saw the collapse that he repeated thrice occurred “in a day”
Anonymous – “WHY IS IT THAT ROUBINI NEVER SUPPORTS HIS FEAR MONGERING WITH NUMBERS…”Well here are numbers from Deutsche Bank, far from the most bearish research team on the Street, updated and released today: “We conclude that under a full mean reversion housing price scenario, cumulative total losses on 2001 through 2007 production mortgages would total approximately $544 billion, or approximately 5.4% of the outstanding mortgage universe, over 12 times the historic norm of about 0.4%… includes only losses on actual residential mortgages and mortgage-backed securities…”; that is, not including reference vehicles like CDS or CDOs of those securities (many which would be triggered into liquidation based on that scenario).Not to mention the negative feedback loop of realized or mark-to-market losses, increasing cost of capital, asset fire sales, broad credit contraction, and further realized or mark-to-market losses.I personally do not subscribe to a theory of US financial system collapse but I think we can easily see $1 to $2 trillion in credit losses globally in the next 18 to 24 months.Also, yelling (writing in large caps) is rather rude. We tend to share ideas here in a more constructive way. This isn’t FoxNewstalk or Lou Dobbs.
This is great news. Arlen Specter is holding out for hearings. Some of our more serious men are doing their best for their country, not rolling over to the banks.We should not modify it. We should throw it out and start over the right way. Do nothing until we know what the right thing is to do.
What does that mean? Who is speaking for the “U.S”?
How about these numbers?$700 Billion$85 Billion$30 Billion$200 BillionHalf Fed’s Balance Sheet
Ooh, I just understood.You mean that the fear mongering from an unknown and lunatic doomsday professor is the cause of all this credit crisis and the fallout in stock exchanges, naked short-selling raids, bank bankruptcies (sorry for the redundancy), half trillion writedowns …?You are so smart, how we and Paulson did not think about this one?
$544 against a $14-15 trillion economy can easily be absorbed.you also write — “not including reference vehicles like CDS or CDOs of those securities (many which would be triggered into liquidation based on that scenario”…this is again hype, not supported by facts or numbers….you further write — “Not to mention the negative feedback loop of realized or mark-to-market losses, increasing cost of capital, asset fire sales, broad credit contraction, and further realized or mark-to-market losses.” ….more hype not supported by facts or numbers….I WILL NOW REVERT BACK TO CAPS NOT TO BE RUDE BUT BECAUSE THIS IS HIGHLY IMPORTANT:WHY DOESN”T ROUBINI SUPPORTY ANY OF HIS “ANALYSIS” WITH NUMBERS OR FACTS?????HIS KEY ASSUMPTION IS AS FOLLOWS — AMERICANS WILL DEFAULT ON THEIR MORTGAGES EN MASSE WHEN HOME PRICES TEMPORARILY FALL ANOTHER 10%…THIS IS ABSURD!!!!!HE ALSO REFUSES TO RECOGNIZE THAT THE VAST MAJORITY (75%+) OF MORTAGE DEFAULTS AND FORECLOSURES TO DATE HAVE RELATED TO SPECULATORS AND FRAUD NOT WELL INTENTIONED HOMEOWNERS WHO REPRESENT THE VAST MAJORITY OF ALL HOMEOWNERSWAKE UP PEOPLE!!!! YOU ARE BEING SCARED WITLESS BY A MAN WHO WOULD EXPERIENCE NO GREATER PLEASURE THAN SEEING USA FAIL.
@Guest: “Officials now propose buying what they term troubled assets, without specifying the type, according to a document obtained by Bloomberg News and confirmed by a congressional aide.”They’re all trying to rush in and get their “share” of government handout: and the government can’t handle it all. It’s an unrealistic assumption that the country can pick up this bill and pay it.It’s like Katrina. The ambulance chasers came from everywhere “to help out,” to grab Federal money — the trailer builders, the roofers, the plumbers, the contractors, the housing providers, the care providers, the lenders, the vast encyclopedia of social programmers… It became one of the biggest money attractions in disaster history. (I’m not talking about those who came to give, not to take.)In the current manmade Katrina, financial companies are lobbying intensely to broaden their recipient base — working to come up with more ways to get more, working over the weekend representing every imaginable angle to get their private interests in on this no-bid, freefall avalanche of free money — interests such as real estate, credit cards, lenders to students, insurance, auto makers, every imaginable money-related entity on shore. And now that the international bankers and investment bankers have got theirs, the rest of Wall Street has decided, panting and slobbering on its rush to Congress, that this is just a big cascade of free money and they need to get in on it. Poor Paulson, if Congress keeps doling out the Treasury to everybody, the bankers won’t get it all.When the bankers can operate only amongst themselves, with just the New York Fed, the Fed and the treasury secretary, then they’re doing pretty well for themselves. But the minute they have to go into the Halls of Congress, the green flag goes up for everybody to get theirs.Well, the cold truth is that the banking cartel can make the stock market go up but it can’t make the economy go up. It can’t order the soil to produce more. Herein lies the problem. It can take the dollar, it can take people’s money, but it can’t take away market production and consumption, i.e. the components of Americans’ livelihoods, or there will be revolution. It’s just too big a jump from here to the plantation. When it gets to the point that the people can’t eat, the people, God bless them, will say, “Let’s go get ‘em.”.Well, Wall Street did it and Wall Street is breaking up. And the bust is too big for the economy (the taxpayer) to absorb. Congress needs money for everybody—except for those who did what was right and paid their taxes. Says Congress, Hey, we need those people to pay up. Well, Congress has no money of its own, and owes its salaries to these same people. Maybe, just maybe, these same people will ask them to find employment elsewhere before they bankrupt the entire country.The bottom line is as NR says: it’s the end of Wall Street as we have known it.
My brother is an Exec. at a Major Bank which is dealing with significant REO Assets. In the past 30 days they have begun to receive multiple offers of their foreclosure sales. If financing doesn’t skew dramatically because of the crisis, we are on the bottom of the R.E. market in certain locations….California
I am certain this will pass within days.Schumer,Dodd,Frank are working overtime for their buddies on Wall Street.
Speaking of the coming Dark Age:”Contrary to popular belief, the rescue package cannot help the economy; it will only severely weaken wealth generators. (The larger the package, the more misery it will inflict.) Hence, once the massive rescue plan is implemented, it will not prevent an economic slump but, rather, runs the risk of plunging the economy into the mother of all recessions.”http://mises.org/story/3119Vivre la revolutioneHo humPeterJB
ya better get this key info out to Comrade Paulson, he seems to think there’s a spot of a problem with mortgages too.
What a moron ! Are you the POTUS, sir ?Take a break with thishttp://globalresearch.ca/index.php?context=va&aid=10303
aint this a oil short squeeze?
i wonder whether hank will soon also ban shorting the usd…:)today, the usd had its largest one day drop since 2001and i made a 145% return (1.45x my money) over the past 24 hours by shorting usd vs long chf. thanks hank:)
Au contraire. Roubini early on warned of this oncoming financial tsunami and suggested ways to thwart it.Wake up? I woke up long ago, to those who have used the Federal Reserve System and unchecked access to the U.S. Treasury to destroy the credit of the U.S. and the dollar as the world’s reserve currency, for personal gain. Just as frightening are their lap dogs in the Congress. This financial crisis is more explosive than mortgage default: it is of the magnitude of a hydrogen bomb or hell bomb with an explosive equivalent of 7,500,000 tons of TNT, or if things really get bad, that of a tritium bomb with a release force equivalent to the spontaneous detonation of more than 22,000,000 tons of TNT.If that doesn’t scare you, what will? China is certainly taking cover. It’s ironic that the only person who predicted what was gong to happen and with free advice, is accused of finding “no greater pleasure than seeing the USA fail.”
PhilT: “What specifically is that alternative?”It’s called free-market. Investors who made bad bets bear the consequences of their free choices and eat the losses. If they go broke, too bad.Apparently comrade Paulson doesn’t even dare to name it.
Sir, you should consider this resort for your precious brainhttp://www.buymyshitpile.com/With best regards
MR CAPS —please get a hold of paulson and let him know that he and roubini and the rest of us are wrong. He has this plan ya see…
Why would Roubini experience “no greater pleasure than seeing the USA Fail?
correction: that would be about 2.4x my initial money i guess. dont even try to annualize that return:)Hank – i will drink one on you tonight.
Hey all caps mad person – where can I fact check your assertion that 75% of mortgage defaults etc are related to speculators and fraud? Your all caps logic seems to be influenced by a distaste for the messenger delivering a message that has been on target. And if the Professor turns out to be correct, will you promise to use lower case except for initial cap of proper nouns and the first word in a sentence? If you make that promise there will likely be a kind soul on this blog who will provide the numbers that you dearly seek. Or possibly, ignore your rants. In any event, we won’t know without testing that theory starting with the numbers to support your asertions. What do you think?
I am also joining those who prefer to sit in the sidelines and just enjoy the show. I found that today was a good opportunity for me to just walk away from this rigged market. In a bear market like this, both bears and bulls lose much.Thank you Cox for convincing me to close both my long and short position in financials (yes long, I have a quasi self-hedged industry-neutral portfolio).Thank you Paulson for convinving me to get out of any dollar-denominated investments I had.Best to all
Wall Street’s Woes May Be Wall Street’s Fault, U.S. Chiefs SaySept. 22 (Bloomberg) — The U.S. financial institutions that will receive $700 billion of government rescue money may have been the source of their own undoing, say the people who pay the industry’s salaries: its clients.“At the end of the day we are here because we have moved from sound fundamentals of doing business to shady get-rich- quick programs,” Dan DiMicco, chief executive officer of steelmaker Nucor Corp., said in an e-mail Sept. 19. “It is very discouraging that we have come to this point through gross mismanagement and greed and the wrong kinds of regulatory rules changes over the last several years.”
HELL FREEZES OVERCramer is recommending gold stock tonight as insurance. LOL
@AfAAnd, like you, many more will now walk away from the markets and this trend will continue until all the public, that is to say, the enemies of the FedRes, will walk away from the markets.Soon, anyone (any fool) considering buying a stock will, by Law (papal Bull), have to pay a greater sum for the share than the last sale and holders of shares will be forbidden, by Law (papal Bull), to sell equities at a lower prices than the last sale.Let them have Wall Street as it is bankrupt anyway, but fight for Main Street – this never dies as it represents the ‘spirit of men’.Ho hum
LOL! Are you going to sell yours, then? I mean, Cramer is on of the best contrarian indicators on earth.
check outhttp://www.oenb.at/en/stat_melders/datenangebot/finanzinst/kreditinstitute/kreditinstitute.jspif you are an EU citizen, you might also considerhttp://www.bundesschatz.at/main/start.html
Such self-confidence and conviction while oblivious to the basic issues at hand is impressive. Are you Sarah Palin? George Bush maybe?
Something to think about: does Goldman and Morgan’s emergency conversion to bank holding companies imply the impending failure of Washington Mutual? If Wamu’s demise is a fait accompli behind closed doors then either Goldman or Morgan could buy roughly $150 billion in deposits, which would likely go a long way towards shoring up their capital base. Perhaps the powers that be decided Wamu was a lost cause, or simply not as important as GS and MS. If so, this would partly explain why GS and MS were allowed to bypass the five-day antitrust waiting period.
It’s time for the Congress to get a backbone and call the bluff that is this false sense of urgency to ram more destabilizing legislation through.The best campaigning that each member of Congress can do at this point is to forget about the upcoming break and work this out with Integrity for as long as it takes.
Yeah, now I’m really scared!! Seriously, even morons eventually must face the truth
Plus your assertion is trying to apply apples to oranges…a 3% default rate may have negative consequences for shareholders (depending on capital structure) but it most certainly would not cause the entire US financial system to implode.Apparently someone didn’t tell you that the system is predicated on EXPANSION. When the system is geared toward upper single digit and low double digit growth A NEGATIVE GROWTH RATE -e.g. CONTRACTION- IS BAD NEWS!As I’ve been saying for a long time now, growth is D_E_A_D. The markets -the SYSTEM- is recognizing that the Ponzi scheme is up.The big entities (financial to start with) are unable to generate returns.GAME OVER!
There’s a point here. It seems that Roubini knows the script without having to know the details like the numbers.How he’s able to pick the right plausible outcome while not predicting one of 100 other wrong plausible outcomes, I don’t know. It seems that more than general economic principles are at work, yet there aren’t detailed numbers either.
We’ll see. Often times our legislators just apply lip service knowing that whatever they say, which makes people feel good, won’t occur. They can look good to both sides of the deal: in this case explain to the financial sector that he knew that his position wasn’t going to win out, that his talk and vote was to garner him votes from his constituency in his next election.As PeterJB says “Ho hum”…
These probably include foreign offices of U.S. banks — there is no end to their takings and power and criminal fraud.
FED watch.Apparently the last standing bastion of Wall Street is starting to show serious cracks. Since the day of the Lehman collapse (only one week ago!) the Federal Reserve Bank of New York can barely defend the Federal Fund Rate target.http://www.ny.frb.org/markets/omo/dmm/fedfundsdata.cfmWe had a 2,80 the day AIG collapsed and 1,48 Friday. I’m not sure about the implications, but it adds to the “they have lost control” thesis.
From Michael Hudson:http://www.counterpunch.org/hudson09222008.htmlWhat is reducing real estate and corporate stocks and bonds to junk is the exponential growth in the economy’s debt overhead. Debts that cannot be paid have little market value at any price. The nation must make a choice: If the government bails out the large financial institutions for having made bad loans – or to be more precise, for not being able to pawn off these bad loans on foreigners or other financial prey in a timely fashion – then the only way in which the government (or other new creditors) can be paid back is by not forgiving the debts owed by strapped homeowners. This would tighten the debt terms on debtors at the bottom of the food chain – those against whom the bank-sponsored new bankruptcy has been aimed. This is why I deplore the government bailout of Fannie Mae and Freddie Mac for the junk mortgages it has been packaging from predatory lenders such as Countrywide Financial, Washington Mutual and other deceptive lenders. The wrong parties have been gifted.I should add that the solution does not lie simply in creating a new regulatory system, much less a single regulatory agency. After all, it was at Wall Street’s command that the Bush Administration installed deregulators in all the key regulatory positions. This meant that regulations didn’t matter at the Environmental Protection Agency (EPA), at the Fed under Alan Greenspan, at the Securities and Exchange Commission (SEC) under Mr. Cox (after William H. Donaldson resigned when the White House would not let him regulate as much as he thought necessary) or at the Department of Justice under Bush yes-men such as Alberto Gonzales. Politics and people have turned out to be more important than the law. We have seen the Supreme Court scrap the Constitution in the 2000 election – with acquiescence from the Democrats, starting with Mr. Gore’s refusal to contest Florida.
Geoffrey Samuel, I smell a bingo… We will probably know shortly (By Friday looks like a conservative bet)
Are you a PAID subscriber to the inside info? Maybe THAT info is there?
Consider the Moral Hazard created by the lack of political will of the DEM Congress to proceed with Impeachment in 2007.
Don’t drink too long. Pretty soon it will be illegal for US to buy chf.
@Guest: “Alan Blinder (professor at Princeton, former Fed vice chair) criticized the Treasury’s bailout plan and called for Paulson to be dismissed on a talk show on WAMU (an NPR radio station in DC) this morning…”If foreigners wonder what caliber of officials we have in this fast imploding banana republic of united states here are excerpts from “The Long and Short of It at Goldman Sachs” by Ben Stein of the New York Times on December 2, 2007. It zeros in on our trusted treasurer, Paulson, who is, frankly, a criminal. Notice that Stern mentions a former Goldman Sachs scandal from the Great Depression:http://www.nytimes.com/2007/12/02/business/02every.html?pagewanted=all…More thoughts came to me as I read a recent piece in Fortune by my colleague Allan Sloan, a veteran financial writer. Mr. Sloan traces the life and death throes of a Goldman Sachs-arranged collateralized mortgage obligation. He shows how truly toxic waste was sold to overly eager investors who now have major charge-offs, and he also points out that some parts of the C.M.O. were indeed safe and were either current or had been paid off.But what leaps out at me from this story is that Goldman Sachs was injecting dangerous financial products into the world’s commercial bloodstream for years.My pal, colleague and alter ego, the financial manager Phil DeMuth, culled data from a financial Web site, ABAlert.com (for “asset-backed alert”), that Goldman Sachs was one of the top 10 sellers of C.M.O.’s for the last two and a half years. From the evidence I see, Goldman was doing this for years. It might have sold very roughly $100 billion of the stuff in that period, according to ABAlert. Goldman was doing it on a scale of billions even when Henry M. Paulson Jr., the current Treasury secretary, led the firm.The Goldman spokesman would not comment on this except to note that other firms sold C.M.O.’s too.The point to bear in mind, as Mr. Sloan brilliantly makes clear, is that as Goldman was peddling C.M.O.’s, it was also shorting the junk on a titanic scale through index sales — showing, at least to me, how horrible a product it believed it was selling.The Goldman Sachs spokesman said that the company routinely shorts the securities it underwrites and said that this is disclosed. He noted candidly that Goldman is much more short in this sector than usual.From what I have observed over the years, Goldman has a fascinating culture. It is sort of like what I imagine the culture of the K.G.B. to be. You always put the firm first. The long-ago scandal of the Goldman Sachs Trading Corp., which raised hundreds of millions just before the crash of 1929 to create a mutual fund, then used the fund’s money to prop up the stocks it owned and underwrote, was a particularly sad example. The fund, of course, went bust…Here is a query, as we used to say in law school: Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman?…
This is powerful!! Thank goodness, Guest, that you found it.
That’s about it, PeterJB. More misery for the people. What the productive middle class really needed after war, recession, inflation and the decline in civil liberties, was to be forced to carry Wall Street on its shoulders.
It’s the over supply causing divorce as a hedge against inflation. Wait till baby boomers retire or die. Home appreciation will be strictly on the back of inflation for a long time.
Wonder where wobbly #4 bank Wachovia is at in their quest for survival? FDIC can handle this banking failure if it comes, right?
Oh yeah, I forgot the Big taxpayer funded banking bailout will save all the banks everywhere and real estate is going to recover soon and deposits will go up, so Wachovia will be just fine. Don’t worry, be happy.
I am surprised we haven’t seen more posts such as the ones written by Mr. Caps. Attacking the messenger because the message doesn’t fit with a world view one would like, in spite of the overwhelming power of Professor Roubini’s predictive prowess and his courageous dissemination of the what has been proven to be the truth. In spite of this, Mr. Caps demands further proof, as if expressing numbers rather than words based on numbers, will somehow make the truth disappear and invalid information valid.Now I ask for proof. What proof have you Mr. Caps, that Professor Roubini wishes to see the economy fail, when he has thus far demonstrated the most responsible concern for the well being of this economy and this country’s citizens.
有 揣 測 指 ， 保 爾 森 的 措 施 是 防 止 高 盛 步 雷 曼 後 塵 ， 是 否 不 少 高 盛 俱 樂 部 的 成 員 將 會 中 招 ？ 再 深 入 探 索 ， 保 爾 森 持 有 等 值 7 億 美 元 的 高 盛 股 票 ， 不 難 令 人 有 點 遐 思 。
paulson and the likes holding $700million GS shares…
hahahahahFARKIN Idiotsi was saving the quote for this special occasianGloomy im afraid youre rightwhen there’s no else to blameits game over
Let’s see if I got this right… One of the things that set the stage for this big blow up was the repeal of Glass-Stegall, which allowed banks and financials to intermingle. The SOLUTION(?) is now to make Goldman and MS into this very hydra?Am I right in asking WTF?
Ben Stein, he’s not THE Ben Stein, the same one who a couple of years back ridiculed Schiff for warning that there was a housing bubble?If so, he needs to be lined up in front of the firing squad with all the other crooks!
Unfortanately a lot of people don’t understand how credit driven inflation works they just use a vague sort of time reference to subjectively value things. They don’t understand that home values are based on phoney credit. Things look like a bargain to the average Joe right now because they don’t see the incoming job deflation that will take down asset prices much further.
it is a joke/trap.I was killed. Who can call the police for me.
I’m afraid I don’t understand your response. Please elaborate in lower case.
Excellent. Evaporate the mountain of funny money that threatens to topple and bury the world. How can this money possibly be real when it equals more than the entire global GDP? Why wouldn’t other countries agree?
The Ones who are destroying American Financial System and Economy1) Mr. Phil Gramm, and Mr. James Leach – Repealer of the Glass-Steagall Act by Gramm-Leach-Bliley Act – allowed massive securitization by the Wall Street Investment Banks and other financial entities2) Mr. Alan Greenspan – Fed’s irresponsible Monetary Policy maker and bubble blower – made a massive tech stock bubble and the biggest housing bubble3) Mr. Ben Bernanke – Irresponsible Monetary Policy maker and stock market manipulator – is killing the dollar and tanking the stock market4) Mr. Hank Paulson – Irresponsible Bailout King – is destroying American financial system and tanking American economy by incompetence and causing substandard living for Americans and making rich for the Wall Street manipulators by bringing in socialism for the rich and fraudster5) Mr. Christopher Cox – Flagrant violator of Capital Market and manipulator of the US Stock Market – causing the demise of capitalism6) Mr. Barney Frank and Mr. Christopher Dodd – Incompetent Accomplices destroying sound American Monetary, Financial and Fiscal Policies – is taking American people to a poor house at the expenses of self interest of reelection7) Mr. Timothy Geithner – Market Manipulator – is destroy American banking system in the behind scene
So what exactly will happen without the 700 billion plan?
Uh, okay. Assuming all your ideas on McCain are true, what about PALIN? If McCain gets in and then kicks off can we expect him to care more for doing what is right?
Typo. Should read:If McCain gets in and then kicks off can we expect her to care more for doing what is right?
Avoid Paulson’s TRAP (Troubled Relief Asset Program)The Consumer is Too Big to Fail
“Wake Me Up When September Ends”Summer has come and passedThe innocent can never lastwake me up when september endslike my fathers come to passseven years has gone so fastwake me up when september endshere comes the rain againfalling from the starsdrenched in my pain againbecoming who we areas my memory restsbut never forgets what I lostwake me up when september endssummer has come and passedthe innocent can never lastwake me up when september endsring out the bells againlike we did when spring beganwake me up when september endshere comes the rain againfalling from the starsdrenched in my pain againbecoming who we areas my memory restsbut never forgets what I lostwake me up when september endsSummer has come and passedThe innocent can never lastwake me up when september endslike my father’s come to passtwenty years has gone so fastwake me up when september endswake me up when september endswake me up when september ends
A nice Hall of Shame.Let’s burn some cds!
As you can see, no one even bothers saying something about you, this is just sad.I pity you, sincerely.
WTF is the right question.I am afraid no Chinese Wall can withstand the amount of greed, recklessness and fraud GS & MS are planning to inflict on people’s savings deposits.Even a Berlin Wall would not do the trick.Soon, the difference between a CD and a CDO or CDS will be just a technical one.Poor Sheila, no, in addition to deposits, she is also insuring mutual funds, structured products and other derivatives.Let’s burn some cds (certificates of deposited securities)
HILARIOUS!FACTS AND NUMBERS PLEASE!!!!!ENOUGH HYPE AND FEAR MONGERING!!HERE IS ANOTHER FACT — AT THE END OF AUGUST, 93.4% OF ALL US MORTGAGES WERE BEING PAID ON TIME…THAT IS CORRECT 93.4%!NOW MY QUESTION AGAIN — WHY DOES ROUBINI NOT SUPPORT ANY OF HIS “ANALYSIS” WITH FACTS/NUMBERS?????TALK ABOUT SHOOTING THE MESSENGER — ATTACK ME BECAUSE I POINT OUT THE ABSURDITY OF THE ROUBINI ANALYSIS.
http://online.wsj.com/article/SB122212703717165255.html WASHINGTON — The Federal Reserve, unleashing its latest attempt to inject more cash into the nation’s ailing banks, loosened longstanding rules that had limited the ability of buyout firms and private investors to take big stakes in banks.It marks the latest move by the Fed to rewrite the rulebook in response to the financial crisis. Regulators have grown worried about a shortage of capital at banks, in particular smaller thrifts and regional institutions. The Fed has been crafting this policy for at least two years, and private-equity firms have been aggressively lobbying for more lenient policies.Monday’s move should encourage private-equity firms, government investment funds and others to buy stakes in banks, transferring capital from those that have it to those that need it. Previously, if the Fed determined that a private-equity firm had a controlling stake in a bank, it could classify the investor as a “bank holding company,” directly supervise the parent firm and impose restrictions on outside investments. The rules were designed to prevent investors from abusing their bank stakes to benefit their nonfinancial investments.The Fed showed flexibility in three main areas: allowing certain investors to hold board seats, communicate with bank management and own larger amounts of stock. While the changes aren’t sweeping, banking lawyers and investors said they will spur investment.”I would think it would enable private equity to make investments in some bank holding companies where they had been reluctant to do so over the last few months,” said Ed Yingling, chief executive officer of the American Bankers Association trade group.”This is more additional flexibility out of this regulation than I had been expecting,” said Randal K. Quarles, managing director of the private-equity giant Carlyle Group and a former Treasury Department official.Significant DiscretionThe Fed has significant discretion in determining what is a controlling stake. Any investor that owns a quarter or more of a bank has been likely to be considered controlling, but sometimes a 10% stake has been enough to trigger the designation. Most private-equity investments are structured to avoid the designation.In its statement, the Fed said an investor can take as much as 33% equity interest, of which 15% can be voting common stock, without being deemed a controlling investor. This could pave the way for bigger capital infusions by private-equity firms and others.Since April, when Washington Mutual Inc. and National City Corp. received capital from private-equity firms, investors haven’t made any large investments in banks. During this period, buyout firms such as Warburg Pincus and Kohlberg Kravis Roberts & Co. have lobbied federal banking officials to loosen their restrictions. Private-equity firms are hoping to repeat the success some enjoyed after the savings-and-loan debacle in the late 1980s and early 1990s, when they snapped up S&Ls on the cheap and reaped big profits….Hank, Ben et al are changing rules by the second. Hard to keep up!!!
” Debts that cannot be paid have little market value at any price.” == ANOTHER COMPLETE FABRICATION!FACT — 93.6% OF ALL MORTGAGES ARE BEING PAID ON TIME.
Here’s the future folks:US generals planning for resource warshttp://www.irishtimes.com/newspaper/opinion/2008/0922/1221998220381.htmlNo resources = no growth = game over!
Is it just me, or does it seem that everythingto avert this crisis is to the benefit of big businessAnd to the detriment of the individual.
Sign up for his paid subscription!Would you ask God for numbers? And when things are as clear as the end of your nose even?How about YOU tell us how things cannot but go in the toilet?What is your basic understanding of reality? Here’s reality for you:US generals planning for resource warshttp://www.irishtimes.com/newspaper/opinion/2008/0922/1221998220381.html
LOL!!! — JOKER SHOWS THE IGNORANCE PERMEATING THIS BOARD!!!THESE ARE LOANS AGAINST ASSETS THAT WILL PROVIDE A POSITIVE RETURN FOR THE US GOV’T. THESE ARE NOT DEBTS THAT NEED TO BE REPAID WITH TAX PAYER DOLLARS. HATE SHATTER YOUR WORLD BUT ROUBINI IS MISLEADING YOU.STUDY UP ON MARK TO MARKET ACCOUNTING! — THIS IS ANOTHER CONCEPT THAT ROUBINI MYSTERIOUSLY IGNORES IN HIS “ANALYSIS”
welcome to the real world
MARK — I JUST WANT NUMBERS/FACTS TO SUPPORT THE ANALYSIS?!!!? WHY IS THIS SO HARD TO PROVIDE????WHAT DO YOU THINK ABOUT THE FACT THAT 93.6% OF ALL AMERICAN HOUSEHOLDS ARE HAPPILY PAYING THEIR MORTGAGE ON TIME????
The sad reality is that we can no longer separate the corporation from the individual.Per wikipedia:Since the 1800s, legal personhood has been further construed to make it a citizen, resident, or domiciliary of a state (usually for purposes of personal jurisdiction). In Louisville, C. & C.R. Co. v. Letson, 2 How. 497, 558, 11 L.Ed. 353 (1844), the U.S. Supreme Court held that for the purposes of the case at hand, a corporation is “capable of being treated as a citizen of [the State which created it], as much as a natural person.” Ten years later, they reaffirmed the result of Letson, though on the somewhat different theory that “those who use the corporate name, and exercise the faculties conferred by it,” should be presumed conclusively to be citizens of the corporation’s State of incorporation. Marshall v. Baltimore & Ohio R. Co., 16 How. 314, 329, 14 L.Ed. 953 (1854). These concepts have been superseded by statute, since U.S. jurisdictional statutes specifically address the domicile of corporations.People have become intermingled with corporations. They depend on corporations for survival. But given corporations’ dependencies on externalized costs (energy being perhaps the biggest), large corporations are nearing their end. People best get ready…
BRAVO !….Encore !
Is this original? Really great — otta be a hit!
MARK AND GUEST HAVE OFFICIALLY GONE OFF THE DEEP END!JUST GIVE US SOME FACTS AND NUMBERS TO SUPPOER THE ANALYSIS.ON THAT FRONT, WHAT DO YOU MAKE OF THE FACT THAT 93.4% OF ALL AMERICAN HOUSEHOLDS ARE HAPPILY PAYING THEIR MORTGAGES ON TIME?STUDY UP ON MARK TO MARKET ACCOUNTING TO UNDERSTAND WHY PAULSON BELIEVES HE NEEDS TO ACT.AND NO NEED TO ATTACK ME — I’M JUST LOOKING FOR FACTS AND NUMBERS.SO WHY DOES ROUBINI NOT SUPPORT ANY OF HIS “ANALYSIS” WITH FACTS AND NUMBERS?WHAT DO YOU THINK ABOUT ROUBINI’S ASSUMPTION THAT US HOMEOWNERS WILL DEFAULT ON MORTGAGES EN MASSE WHEN HOME PRICES TEMPORARILY FALL ANOTHER 10%? THE ANSWER IS OBVIOUS — PURE ABSURDITY!
…Beyond the turmoil for banks and homeowners, however, there is a super-sub-prime crisis brewing in Washington. Our fiscal policies have created a disconnect between today’s citizens and future taxpayers. Today’s taxpayers benefit from high government spending and low taxes, while future generations are expected to pay the bill. Our real challenge is where we are headed on our do-nothing fiscal path…
David Walker in the FT => Washington must heed fiscal alarm bell
The last time I checked Bank Deposits are backed by the FDIC. If I were running a private equity firm and I had substantial ownership interest,I could probably get them to loan us FDIC guaranteed money cheap and we could take high risk and if it goes wrong and we bankrupt the bank, the FDIC pays. Didn’t we already see this movie already! Is this a replay of the Savings and Loan Crisis.The Fed will allow Private Equity Firms, Hedge Funds, and Sovereignwealth Funds to take up to a 33% non-voting equity position without trigerring regulaton. Is not the fed enticing them to bring money to the table knowing what they will do in the future. Every one of these entities will be very creative with the FDIC GUARANTEED FUNDS.
Yes, I’d like to know “what is the _alternative_” that we cannot face that the TPTB keep mentioning. IE what did Bernanke tell congress when they met?
What is your problem CAPANON?I simply asked why it seems all of the’fixes’ appear to benefit the large corporationsat the cost of the individual, tax payer that is.How is that “GONE OFF THE DEEP END!”?This isn’t an ANALYSIS, it’s a question,so there no need for FACTS AND NUMBERS TO ‘SUPPOER’ it.AND THERE IS NO NEED TO ATTACK ME BECAUSE I’MJUST ASKING A QUESTION!!!
“Are citizens equal under the law, do they have access to an independent, non-discriminatory judiciary, and are they respected by the security forces?” The answer is No. There is now one law for the rich, and another for the people.As Solon said in 575 B.C.: “Laws, like cobwebs, entangle the weak, but are broken by the strong.” The foundation of this great republic built by our Founders has been shattered and trampled by this effete, boot-licking, disloyal Congress.
How is debts that cannot be paid having little market value a complete fabrication?That seems entirely reasonable, why would anyone want debts that cannot be paid or will not be paid?Also, provide a source for 93.6% of all mortgages are being paid on time, AND compare it with historical default rates AND provide projected default rates under normal circumstances as well as default rates in the current environment OR shut the hell up.
Fourth, sharply increase property taxes, shifting them back off labor and sales? I certainly disagree with this one. Is a man to be totally taxed out of his house and home? When did the tax collector shift taxes off property? Certainly not mine. Bit of Communist baloney in this paragraph, I’m afraid. I certainly go for the fifth, however.
I second that comment. I read the news today that they had outlawed shorts on GM and GE and I couldn’t beleive it. Are they deliberately trying to tell the world how pathetic the US financial system is becoming … because if they are – they’re definitely succeeding!PeteCA
I like you, Guest. You made me laugh — out loud. And it was only Thursday that I thought I’d never laugh or smile again.
The alternative is that the collapse will come a little sooner, but the elitist will not get to steal more your wealth in the mean time.
@ MASHIACH BEN CHANACOULD YOU PLEASE TELL MR. ALL-CAPS TO SHUT UP IN YOUR POLITE LANGUAGE, YOU WILL MAKE THIS BOARD A BIG SERVICE.THANK YOU,MR. ALL-CAPS IS COMINGWELCOME MASHIACH, GOODBYE ALL-CAPS
0% of households are _HAPPILY_ paying their mortgage.
“pure absurdity”? Sir, there is a lot of absurdity going around these days, but I’m afraid that I disagree with the direction in which your finger is currently pointing.
Why is it that the bankers are too big to fail but the economy isn’t? Hopefully, the taxpayers won’t play ball, either, and will toss the bad debt right back in their marbled halls and show Congress the door.
NOW THOSE ARE SOME GREAT FACTS AND NUMBERS!!!! MORE ABSURDITY!
The panic over the “bailout” of the holders of bad mortgages is not as bad as it is being painted:1. $700 billion for correcting the “bad mortgage” problem over several years is less per year than we (U.S.) spend on foreign oil EVERY YEAR.2. The $700 billion is not even an expense; it is an investment. It may turn out to earn a profit for the taxpayer. The mortgages are not worthless; and they will be bought at a discount. Over time, the housing that is represented by the mortgages will be sold at some price — maybe even at a profit.So let’s do this thing and be glad that we have not all lost all our money. Money market funds are now covered by FDIC, and most companies in the U.S. will not go bankrupt.Uncle Ben
SO THE TRUE COLORS COME OUT. YOU WOULD PREFER A DICTATORSHIP THAT QUIETS ALL VIEWS DIFFERENT FROM YOUR OWN, REGARDLESS OF THEIR FOUNDATION IN FACTS AND REALITY.
HEY I AGREE WITH YOU. THERE SHOULD BE NO GOV’T INTERVENTION AS CURRENTLY PROPOSED.
Back to the original question, afterCAPANON puked all over it, is it abad assertion that all the fixes implementedand purposed, negatively impacts the individualto the benefit ofcorporations?
Since the day they brought Old Glory down, on last Thursday afternoon, I walk about with tears rolling down by cheeks. My country, my country, my beloved country.
HILARIOUS! I AGREE WITH YOU — NO GOV’T INTERVENTION AS CURRENTLY PROPOSED.BUT YOU OBVIOUSLY DON”T UNDERSTAND THE CONSEQUENCES FOR “THE INDIVIDUAL” AS WELL AS THE “CORPORATION” OF NO GOV”T INTERVENTATION.NOW BACK TO MY ORIGINAL QUESTIONS WHICH YOU CAN”T ANSWER:WHAT DO YOU MAKE OF THE FACT THAT 93.4% OF ALL AMERICAN HOUSEHOLDS ARE HAPPILY PAYING THEIR MORTGAGES ON TIME?SO WHY DOES ROUBINI NOT SUPPORT ANY OF HIS “ANALYSIS” WITH FACTS AND NUMBERS?WHAT DO YOU THINK ABOUT ROUBINI’S ASSUMPTION THAT US HOMEOWNERS WILL DEFAULT ON MORTGAGES EN MASSE WHEN HOME PRICES TEMPORARILY FALL ANOTHER 10%? THE ANSWER IS OBVIOUS — PURE ABSURDITY!
Sharply increase property taxes?!? What the hell do you thinkthe sharp and unnatural rise in real estate prices has the effect of doing? And guess what, the local governments burnedthrough all of that revenue with little value to show for itbut yet their appetite only grows.
Ok, you really want numbers? Pull out the Alt A portfolios of Washington Mutual. I can suggest you look at Mish Shedlock’s research on it. Look at the delinquency levels of these Alt-A bonds and see if it doesn’t scare you. Mind you, some of the data is still dated (ie before the recent price falls). The delinquency pattern is implying that as prices drop further, delinquencies increase. So it is probably conservative to say that mortgages will default en-masse. I am also looking a prime and jumbo delinquencies and already I am seeing a jump in a lot of these. If you have a bloomberg, look it up. If not, there is plenty of analysis online of some of the mortgage portfolios. Remember, FNM and FRE did not report losses on mark-to-market. Their losses came from defaults on the mortgages.If you are not willing to look up the data for yourself, instead of living in Lala land, then I suggest you not bother us with your lack of understanding of the depth of the problems.
Some Advice for American FamiliesTonight I want to give some simple advice for American families – to average people who may be reading this blog for the first time. If you haven’t already done so, make sure you take some money out of your local bank and put it in a safe place. Enough money to buy food and gas for your family for at least a couple of weeks (preferably longer). Also, if you haven’t started any kind of pantry at home, start putting away some basic food and water. Nothing fancy. Enough for you and the kids to be able to eat – without standing in lines (if something should go horribly wrong).Americans have become so used to the world of “plastic”, that people don’t stop to think what would happen if credit cards stopped working. But just in case they do – make sure your loved ones are taken care of. Remember that all those plastic cards are tied by computers to the US banking system, and that system is in a lot of distress now. So take care of your own home and loved ones, because what we’re seeing from Washington makes so little sense that there’s no point in trusting the “system” to fix itself.I’m not saying the world will end tomorrow, or next week. But it’s pretty clear that our leaders are in serious denial at this stage, and most of them don’t even understand what the problems are … let alone knowing how to fix them. So as Americans, we better be prepared to take care of ourselves at this stage.PeteCA—————————————————————–
Hilarious?!Understanding of consequences?!Roubini’s analysis?!Happy mortgage payers?!What the hell does that have to do with my question?
Very impressive summations. Kudos to you both, PeteCA and Mandarin. Roubini’s blog produces some of the most original thinking on the web–a must companion with your morning coffee and evening wine.
Low taxes, David Walker? Americans are taxed out, maxed out. Just ask California’s governor. There’s no more money to be had. I prefer the Mises.org viewpoint as posted here by PeterJB:”Contrary to popular belief, the rescue package cannot help the economy; it will only severely weaken wealth generators. (The larger the package, the more misery it will inflict.) Hence, once the massive rescue plan is implemented, it will not prevent an economic slump but, rather, runs the risk of plunging the economy into the mother of all recessions.”
THIS POST IS THE HEIGHT OF FEAR MONGERING! NOT ONE FACT OR NUMBER.
Perhaps someone is on a bender, trying to denounce reality? In answer to your question, it does appear as you’ve observed, so it’s not just you.
Have you heard of fractional reserves? 6.6% would be a large reserve under current standards. Admit it, none of the big players have a 6.6% reserve. Not only that, they gave loans out on the myth the assets would always gain value. Almost all of the asset prices are falling. So, you can accept your facts and still be cooked. Finally, wouldn’t the 6.6% who aren’t paying be most likely to be not paying on the most inflated mortgages at the highest prices? Remember a lot of the people in the remaining 93.6% are paying on the old-school mortgages, that aren’t part of the nightmare. Okay, I took the troll-bait.
Exactly. I fear for the future of this country and her people in the hands of these international bankers. America is not on the road to serfdom, she is on the highway to destruction.
STILL CAN”T ANSWER MY QUESTIONS CAN YOU?YOUR QUESTION IMPLIES THAT YOU ARE AGAINST THE GOV”T “FIX”…SO AM I
Anonremember this date and time2008-09-22 23:29:41This was the time you deny the inevitableREMEMBER THAT
The advice is good COMMON SENSE. Even if the economy wasblissfully awesome, the same advice would be good. Now that the economy is OBVIOUSLY ABNORMAL it is even BETTER ADVICE!So go suck eggs.
Must see video! At least Rep McDermott is on the job and speaking up:
Mr Speaker,The people in Washington State are very troubled by the fact that King George has been disposed of by King Henry.We picked up Newsweek magazine today and we have a new King… King Henry?We’re supposed to give him 700 billion dollars of our money. He doesn’t want any review. He wants to be able to do whatever he wants with it. He doesn’t want any Congressional oversight. And worst of all, the new king is just like the old king: He doesn’t want any sacrifice.He says, “Oh we can’t threaten the salares of the investment bankers who drove us into a ditch. We can’t get anyone to pay for this.” This is the third time we’ve done it with this bunch. First the war, that didn’t get paid for. Then the tax cuts, that didn’t get paid for, and now King Henry takes over to distribute 700 billion dollars. He’s going to be there for four months. And in four months he will make deals and then he’ll go out and he’ll be able to catch a pass he threw to himself.
6.6% DELINQUENCY RATE IS IN LINE WITH THE HISTORICAL AVERAGE.THE BANKING SYSTEM IS MORE THAN CAPITALIZED ENOUGH TO HANDLE A 6.6% DELINQUENCY RATE. IN FACT THE BANKING SYSTEM COULD HANDLE A DOUBLING OF THE DELINQUENCY RATE.THE ASSUMPTION UNDERLYING THE FEAR MONGERING IS THAT THERE IS A MASSIVE SPIKE IN DEFAULT RATES WHEN HOME PRICES TEMPORARILY FALL ANOTHER 10%. THIS IS PURE ABSURDITY.
HOPE YOU ARE ENJOY LIFE IN A STATE OF DELUSION. EVEN ROUBINI DOESN”T POSIT YOUR CRAZED VIEW.THE US ECONOMY WILL SHOW TO BE RESILIENT ONCE AGAIN.
This will be my last reply to you.I have question for you. If your 93.4% figure is correct, doesn’t that tell you a lot about the state of our financial system given the mountains of write-downs and the collapse of more than just one iconic wall street house?Please fast forward to approximately September 22nd, 2008. It seems that your question is just outdated. Given the size of the mortgage industry, and more importantly the size of derivatives based thereupon, a slight increase in defaults translates into huge losses. Your 93.4% is just irrelevant. I agree that the assertion by Professor that there will be mass defaults coming is a speculation of his – but isn’t that the added value of a forecasting economist?The key factors to look at are: affordability, mortgage rates and accessibility to credit (in the long-run in the future, not in the short-run or in the past) and how they will be impacted in the future. Debating with someone who is making projection in the future using outdated figures is just absurd.There are things that are more important and more convincing than facts and numbers if one wants to look at them. These are the logic used. Especially if that logic is proved to be, so far, correct.Now, it is true that Professor is not showing us his models and sheets, but I doubt he will. That knowledge, and my own conviction, was a collection of my sources and resources, some of whom were providing more hard data. Based on that I recommend you go ask your question on Calculate Risk blog . People there show much more hospitality with people coming out of nowhere who never participated in any discussion before and who think they got the question that nobody thought about it before. You will feel better welcome there, just say you were recommended by some RGE blogger (diabolic laugh)Let’s burn some cds.
One more question.Is that you Mr. Ballock?
THE ANSWER TO YOUR QUESTION IS THE ADVERSE CONSEQUENCES OF BLIND IMPLEMENTATION OF MARK TO MARKET ACCOUNTING IN A FRACTIONAL RESERVE BANKING SYSTEM.THE VAST MAJORITY OF THE DEBT BEING WRITTEN DOWN IS PERFORMING AT LEVELS MUCH HIGHER THAN THAT IMPLIED BY THE “MARK” IN AN ILLIQUID MARKET. THIS IS WHY THE GOV”T (IE — TAX PAYERS) WOULD PROBABLY MAKE A LOT OF MONEY ON THE PROPOSED BAILOUT AND ALMOST CERTAINLY ON AIG AND THE GSES — THIS IS WHY THE WHOLE NOTION OF A GOV”T BAILOUT OF WALL STREET AT THE EXPENSE OF MAINSTREET IS ABSURD. BANKS ARE BEING FORCED RESERVE AND RAISE CAPITAL AGAINST MARK TO PANIC.HAVE A GOOD NIGHT.
And one more advice, that I never thought I would give:go watch/read some MSM
The ignorance and duplicity of this Congress has astounded me: these preparations you present, Pete, make sense in the present environment. The Congress is standing aloof and useless and reminds me of President Bush — where they are out of the loop, last to arrive at the scene, filled with bad ideas and self-serving platitudes, providing every evidence of front men for lobbyists.In the meantime, flimflam crooks who have been stealing money all along from the public are caught in a crisis and as the self-appointed managers, with each of their announcements, find it’s harder and harder to shake Bush and Dodd and Barney awake and drag them to the front while they’re quickly adjusting their ties and slapping sleep from their eyes, and hand them the prepared scripts they are to read.Anyway, young man with the capital letters, perhaps you sleep well at night, but as for Pete and myself, we’re leaving the light on.
What’s wrong with Mark to Market? Is it not better than Mark to Model? If you purpose that it is more like Mark to Panic, is it not Panic that was initiated from Wall Street much before panic on Main Street.If the mortgage default rate is inline with historic averages, then why is there a problem.If the problem is panic, then who is the first thatpaniced, certainly it was Wall Street before Main Street?
Paulson and his Street cabal may have co-opted everything but the kitchen sink to make their scheme-to-steal keep on working — the president, the Congress, the SEC, the U.S. Treasury, private savers, the dollar, pensions, the PPT and Bernanke, their personal puppet. But in the end they can’t make it work because — THEY DON’T OWN THE ECONOMY. While they’re taking a commission from everybody’s labor, problems are building, big, big problems.Congress doesn’t have a blank check on the country’s resources to give to these bankers to use for their personal bank account. Come January, when the Democrats flood into the Congress on Obama’s coattails, they’re going to want money to pay back their vote support. No action by a lame duck Congress, by a bank bully, is going to stop them from taking back that money to protect programs for their own.
MORE FEAR MONGERING WITH NO FACTS.THE DELINQUENCY RATES ON PRIME AND JUMBO LOANS ARE TINY — LESS THAN 3%.THE DELINQUENCY RATES ON ALT A LOANS ARE HIGH AND WHILE THIS MAY UNDOUBTEDBLY PROVE BAD NEWS FOR WAMU IT MOST CERTAINLY DOES NOT MEAN THE US FINANCIAL SYSTEM IS AT RISK OF IMPLODING. WHAT IS THE SIZE OF THE POOL OF ALL ALT A LOANS ISSUED OVER THE PAST 3 YEARS? IF YOU KNEW THE ANSWER TO THIS QUESTION, YOU WOULD REALIZE THE ABSURDITY OF YORU FEAR MONGERING.THE GOV”T (IE TAX PAYERS) WILL ULTIMATELY MAKE A FORTUNE ON THE CAPITAL ALLOCATED TO FNM AND FRE.
REMEMBERING PAULSON’S DEALINGS GS/ CHINA/FF (an earlier article from Bloomberg)http://www.bloomberg.com/apps/news?pid=20601109&sid=a8w9MI4Btco4&refer=exclusiveSome excerpts on Paulson:The legislation gives Paulson all of the major items he asked for, including unlimited authority for 18 months to make emergency loans to Fannie Mae and Freddie Mac and possibly buy stakes in the two mortgage giants. The legislation also created a long-sought new regulator to oversee Fannie and Freddie. Bush signed it into law on July 30.Trading the presidential objections for Democratic backing was classic Paulson, says Edwin Truman, a senior fellow at the Peterson Institute for International Economics and a former Treasury official.“He’s a dealmaker,” Truman says. “It’s one skill that Treasury secretaries need to have.”Paulson sold his 3.23 million shares in Goldman, worth about $500 million at the time, when he took the Treasury job, according to regulatory filings. He was exempted from paying capital gains tax on the sale of those stakes under a rule meant to avoid penalizing wealthy people who take government jobs and are forced to sell assets.Paulson also sold about $25 million of holdings in a Goldman fund whose sole asset was a stake in Industrial & Commercial Bank of China, the world’s largest publicly traded financial institution. The bank raised $22 billion in its initial public offering in October 2006, the world’s biggest IPO.Managing the U.S. relationship with China is an increasingly important part of the Treasury secretary’s job. During the Fannie and Freddie crisis in July, Paulson used his credibility with Chinese leaders to reassure them that the U.S. mortgage companies weren’t in jeopardy.
I always thought TPTB put Paulson in the treasury because he knew where all the explosives are buried and where to steal the money. He’s the guy who was CEO of Goldman Sachs while it engineered the biggest packaging of MBS toxic waste known to the investment world and then jumped off the train by shorting just before it hit the wall.
And then the next one and then the next one and then the next one . . .It doesn’t stop.
Thats the reason why they wont save itthey are already preparing before ARMAGEDDON hitsGold Sach/Morgan Stan = Banks, they will swallow all the small banks, these are the 2 survivors, Lehman wasnt one of em..See it Now??They will “bail out” as soon as their provisions are enoughThat’s why WE must stop em, let BRING EM DOWN together
Now that its abundantly clear to the whole freaking world that the solvency of the entire US Financial system is now resting solely on the USFed/Govt (Hank and Ben) itself ( rather than the finacial strength and probity of its banking institutions, establishments and Congressional oversight), investors in US assets are now more than ever placing bets on “the full faith and credit of the US Govt”.And we know what the US Govt creditors ledger looks like (puke).The US is hostage more than ever now to the fate of it’s currency, the worlds reserve. That currency’s fate in turn rests with those that hold it- 50% and more of whom reside outside the US.If the USFed/Govt fails in convincing those holding USD’s of their ability to adequately manage this unfolding financial catastrophe, the dollar will suredly collapse as it becomes shunned beyond all redemption.Gold, Oil and fx are now signalling that serious doubts are being acted apon. We could be at the start of an old fashioned currency panic which in turn will re-fuel the Crack Up Boom to much higher prices for essential commodities and PM’s.
Even Paulson and Bernanke are getting it now, go to ask them their numbers.
Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.http://www.bloomberg.com/apps/news?pid=20601087&sid=aoDmO_d0IJSU&refer=home
The whole concept of “Marking” assets to anything other than reality is a silly accounting game.The brutal reality is this: If a product has no buyer, it’s value is ZERO.You can mark it to fantasy if you like, but don’t confuse that with reality.If we’d kept this principle in clear view for the last twenty years things would arguably be better now.
No, it’s a Dire Straits hit from the 80′s.
@Mammon,I think energy is NOT the collateral. Lower Consumption is the collateral. No consumption leads to no demand for oil leads to no investment related to merchantilist exports. We just need to regulate consumption, which the invisible hand is already doing. I’ve said this before, lower consumption automatically leads to a stronger dollar.Best,P1AQL.
Anon, you remind me of some traders I know off. They are usually in the early 30s and the only kind of market they have ever been in is a BULL market. Let me explain to you, in a different way, why the US asset market will continue to decline at a pace that will probably surprise you, but not anyone else. It is one of basic economics. It is one of money supply. And it is one of overleverage. Lets start with basic money supply. What are the components?(1) printed Money : S(2) credit multiplier : mThe total money supply in the product of both: S x m. Of course there are other components but this 2 are the major bits.What is happening in the current situation? m, the multiplier is declining at a fantastic rate. Why? Because the banks, the creators of credit, have overextended themselves by lending money WITHOUT SETTING ASIDE CAPITAL, through the shadow banking system. Have you got that yet?So as a result money supply is decreasing at an incredible pace (also known as deleveraging). Because of that, financial assets (also known as levered assets, like credit, mortgages, commercial buildings etc etc) have their value decimated, because there isn’t enough money out there for the total stock of assets. Furthermore, as prices decline, because of the nature of non-recourse mortgages in the US (who the hell thought of that idea!?), there will be increasing levels of default in the borrowers who levered on these assets. This is simple and undisputed facts in economics. This is the vicious cycle of deleverage. Financial institutions, in taking excess risk without setting aside bank capital, has become insolvent. Their capital cannot even support the asset base WITHOUT DEFAULTS OR WRITEDOWNS. And the defaults and writedowns will make it even worse. Mind you, this is not fear mongering. This is a FACT. If you are in the financial industry, you would know this. I know, because I am in the industry. This “off-balance sheet” asset booking is what killed Enron, and it is what will kill the banks and financial institutions in the US, and othe global banks who made the same mistake. As for defaulting mortgages, even in countries where there is recourse, a 30% decline in housing prices caused MASSIVE DEFAULTS. So expecting big number of defaults in a loan without recourse is not irrational nor unreasonable.The question now is who is to bear the cost of all this. Is it going to be the shareholders, debt holders and employees of the financial institutions who got themselves into this mess of overleverage and silly lending, or is it going to be generations of taxpayers in the US who will pay the price for decades to come.I view it from a medical perspective: Do you cut the gangreneous arm off, or do you let it infect the body and kill it? The choice is yours, the Americans to make.PS Your foreign creditors are watching very very carefully.
The Fed usually does not lead the federal funds rate but follows. Recent data shows why the Fed did not change the ‘Target Rate’.They are now ‘pressing on a string’ and thus one of their tools has been taken away. Thus, Paulson is up front and Bernanke is hardly seen.
Close to 800 billion dollars (proposed 700 billion + 85 billion for AIG) will be drained out of gullible Americans in the name of saving the modern financial great depression. This is nothing but a drain in whatever little value people find in whatever they are left with, after foreclosures / plummeting house prices / stock prices. I have done a value drain analysis of the money flow. Check it out athttp://economy.franteractive.com/Markets/mortgage-bailout-800-billion.htmlNow, there is nothing to panic. Just as a VALUE CHAIN (a la Michael Porter) adds value, a VALUE DRAIN drains value…Enjoy,Sam
As always in the course of human events we are punishing the innocent (shorts) and rewarding the guilty (Paulson).Paulson has his hands on the levers of financial power. His solution can be modified by the Congress, but he has us by the short hairs.
OCC’s Quarterly Report on Bank Trading and Derivatives ActivitiesFirst Quarter 2008http://www.occ.treas.gov/ftp/release/2008-74a.pdf
The Consumer is out of cash and the banks are cutting the Consumer’s lines of credit.
The new rules announced today are to encourage private equity to provide capital to the banks.It is one more step to saving the banks. This is the main mission of the Fed.
If the last “stimulus package” was to the states rather than individuals (to buy votes), we would have healthy state governments, healthy municipal bonds, and lower unemployment.Congress as usual took our money and spent it on the wrong bailout.Look at the muni-bond markets, the public employees with generous severance, the public contractors with little severance, the increase in unemployment, and drastically lower tax revenues to state and local government.We f**ked up!
One thing I have always admired about the Mormons, a.k.a. the church of latter day saints, is they believed in buying stocks of food. That is, they would routinely in their pantry have 6 months of food. If they were ‘laid-off”, they could eat it. If their neighbor was , ‘laid-off’ they could share it.An admirable quality to say the least.If we all followed their dictum, no one would be hungry.Thus, I say, it is not gold coins you should horde, but rather cans of Chili.
The Elephant Is In The Room
Perhaps they should nick-name the alternative Voldermort after the bad guy in the Harry Potter series… that’s something even the kids can identify with
Quote of the Day“The problem with financial institution balance sheets is that on the left hand side nothing is right and on the right hand side nothing is left.”
LOL, the way to the next bonus is the noble art of hiding this behind complicated financial structures.
Repost: It’s all gone down the middle; Time to fill ‘er up. Go get ‘em dollars.P1AQL.
Accounting Humor: an oxymoron.I would rather go to my dentist than to my accountant
The answer is: translate.google.com
HERE IS TRUE DOPE WHO WRITES — “The brutal reality is this: If a product has no buyer, it’s value is ZERO”SORRY MY FRIEND — CASH FLOWS DETERMINE THE VALUE OF ANY FINANCIAL INSTRUMENT. AND IF YOU COLLECT ALL INSTEREST OWED ON A DEBT INSTRUMENT AND THEN RECOUP THE PRINCIPLE (WHICH IS HAPPEINING IN 94% OF MORTGAGES), THE DEBT HAS FULL VALUE.
http://online.wsj.com/article/SB122212703717165255.html?mod=googlenews_wsjDeregulation of Finance has brought us to this crisis today. So what does the Fed do? They have now made it easier for Private Equity Capital to harness FDIC deposit funds to do what they do best. The favorite target of Private Equity Capital is a well-run business that invests in research and development, workers and future investment. They take such a business private and load it up with debt, transactions fees and give themselves a dividend. Once the company is defiled, they set up an IPO to make it public again. Private Equity Firms can take a 33% non-voting stake in an FDIC insured bank and are being allowed to influence management. All rules are being relaxed according to the Wall Street Journal. This is Private Equity Capital’s Dream!!!! The Fed is goingto removed the “troubled assets” from Goldman and Morgan, and then turnthem into banks that use FDIC deposits to fund Private Equity Plunder.The same relaxation will come to Hedge Funds!INSTEAD OF CLOSING ALL THE REGULATORY LOOPHOLES ON PRIVATE EQUITY ANDHEDGE FUNDS, they are letting the FOXES into the FDIC henhouse.The Fed is going to use this emergency to pump up the Private EquityModel. The only problem is that the PRESENT PLUNDER WAS SO HUGE, thatthis will only work if Sovereign Wealth Funds go full hog into thePrivate Equity Model. Sowhere down the line, the FDIC will be plunderedfurther!
ANOTHER FOOLISH STATEMENT — THE $800 BILLION IS INVESTED AGAINST ASSETS WHICH ARE IN ALL LIKELIHOOD WOULD PRODUCE A PROFIT FOR THE US TAX PAYERS.
MORE HYPE AND FEAR MONGERING BUT NO FACTS.PLEASE ADDRESS THE FACTS AND NUMBERS
FACTS AND NUMBERS PLEASE. ENOUGH OF YOUR ANTI CAPITALISM IDEOLOGY.
Yes, this is the future. Climate change scenarios point in the direction of a future of depleted resources: food, water and energy coupled with over population. It may not just be the US who is preparing or giving thought to this future. For example, Britain may conceive itself as an ‘island fortress’, fortified to keep the struggling hordes of hungry and homeless from gaining entry. (How can you be charitable when you are struggling to feed yourself.) Countries that have believed the globalization mantra and have been guided by cheap food policies through importation and in turn killing their local production will be caught short. Just think of all the housing developments that now occupy farmland. The future may only be 30 to 50 years away, just in time for some of the mortgages to be paid off!
Hi Paulson,What are you doing here?
The US Treasury is now arguably the biggest sovereign wealth fund.
LB, We gotta show the merchantilists SWF’s who their Daddy is. Since the enemy SWF’s are threatening us by are hoarding capital in our own currency, we can fisc print $700 Big B’s and spring our own fund!Best,P1AQL.
Dearest CAPSANON,The data is on the net. You’ll see if you take your head out of the sand OR the sand out of your head, whichever works.How about refuting the following data: (Hat tip to Mr. Mortgage)http://mrmortgage.ml-implode.com/2008/09/22/august-ca-home-sales-foreclosure-report-national-existing-home-sales-preview/
In the month of August, the key stats are:37,988 Total Sales; down 3.9% from Julys June’s 39,507 and the slowest August for organic sales since DataQuick began reporting in 1988.46.9% of Total Sales (17,816) were Foreclosure Resales; up 2.1% from last month and 1100% from two years ago.21,172 ‘Organic Sales’ (Total Sales less Foreclosure Resales). This is down 1640 homes from July.$301k median price; down 5.3% in a single month and a whopping 37.9% from last summer. As expected long ago, prices are gravitating towards the most readily available financing: Agency 43,205 new Notice-of-Defaults, which will result in 34,500 new foreclosures 4-5 months from now.213,500 new Notice-of-Defaults in past 5-months= 171,000 new REO from 4-6 months out as they move through the system.25,309 homes went back to the bank as REO totaling $10.65 Billion…second highest of all time.Only 12,679 units left inventory (Total Sales less New Bank REO)
Ben and Hank are fighting to stop us from selfishly cutting off our collective noses and give our kids enough food now to let the future immigrants pay taxes later. Since we offer life saving services in 90 seconds flat, there’s a never ending queue of smart immigrants waiting to bail themselves in and bail us out on our tax obligations. After the Hank is done with the fisc, we’ll need help from the USCIS to get us some brains who are still smarting from the 50% crash on the SSE Composite and Sensex.See http://finance.yahoo.com/q/bc?s=000001.SSDon't ya just love the alpha in the US?Now go back to putting your head in the sand rather than worrying about what respected Prof. Roubini is saying without numbers OR go back to putting more sand in your head; whichever works.Enjoy the beach (sand)!Print First Ask Questions Later aka P1AQL.
LOL!!!!!!!!!!!THANK YOU. THANK YOU. THANK YOU VERY MUCH FOR PROVING MY POINT.”25,309 homes went back to the bank as REO totaling $10.65 Billion…second highest of all time.” — LET ME REMIND YOU THAT WE HAVE A $14-15 TRILLION ECONOMY. THE $ AMOUNT OF THE LOANS THAT ULTIMATELY PROVE BAD WILL BE PALTRY RELATIVE TO THE SIZE OF THE US ECONOMY AND NET US ASSETS…AND $10.65 BILLION vs $14-15 TRILLION — LOL!HERE IS A CRITICAL FACT THAT YOU CONTINUE TO IGNORE — 94% OF ALL US HOMEOWNERS CONTINUE TO HAPPILY PAY THEIR MORTGAGES ON TIME EVERY MONTH.PLEASE PROVIDE MORE FACTS AND NUMBERS.
ANOTHER PERSON WHO DOESN”T LIKE THE FACTS.
lemme see…if i wanted to take down a country, i would take down their currency. if i wanted to rule the globe, i would have to take down the usa first. if i wanted to launch ww3, i would need a big financial crisis first…
CAPSANON, Giving credit to people who need credit is a bad idea. But I’ll make an exception for you.740+ FICO’s like my Uncle don’t need credit. They have 30 cards in their wallet. As I’ve said before, they’re the most rational and sophisticated users of credit on the planet who will extract the last reward point from their credit card company. It’s a price the banks pay for asset quality. Present them Uncles an opportunity to pick their neighbor’s REO for 40% less and they will very rationally WALK from their current upside down mortgage. They’re the most powerful example of the invisible hand.With the independent Wall Street banks gone, the pipeline of the smartest $10 Million plus bankers that graduate to highly paid $40 Million plus CEOs is gone. They have the alpha. Your paycheck is not dependent on how much value you create but how much damage you can potentially do. Your paycheck’s an incentive not to do damage or else you’re out. Since the new generation CEOs will not be able to do much damage with all the regulations to follow, expect to take a big haircut on your paycheck next.Even you will walk when you’re neighbors house goes for half off and you can’t refinance or move because your job’s next on the line.P1AQL.
Hank and Ben, don’t take your eye off the ball and PRINT PRINT PRINT.http://biz.yahoo.com/ap/080923/earns_lennar.html
The value of homes in backlog plunged by 53 percent from a year ago to about $1.05 billion.
And that’s a leading indicator to which the 93% head in the sand mortgage paying homeowner’s existing home sales numbers will follow into the abyss.Best,P1AQL.
LOL!!! — MORE FEAR MONGERING.FACTS AND NUMBERS PLEASE.THE WHOLE PREMISE OF AMRAGEDDON IS BASED ON A MASSIVE SPIKE IN MORTGAGE DEFAULTS IF/WHEN HOUSING PRICES TEMPORARILY FALL 10% — PURE ABSURDITY.
Who said 10%? The leading indicator seems to say 50+%. See below.
94%? Is that a good number or a bad number? How does it look on a very long historic perspective? How has the US economy or stockmarket performed on a relative basis compared to the rest of the world on this last economic cycle? On relative basis I mean taking into account the drop in the us dollar. What do you think is the reason the broker dealers do not exist anymore? You are writting about mortgages, but how are all the other loans doing, car, creditcard? I also do not understand why they need this bailout if everything acctualy is ok., maybee I am missing something.I am no experts so just getting some information from all sides. Thanks in advance The Dane.
LOL!!!!!!THE DECLINE IN BACKLOG REDUCES FUTURE SUPPLY WHICH BRINGS US CLOSE TO SUPPLY/DEMAND BALANCING IN THE MARKET AND HOME PRICES STABILIZING. THIS IS ALL VERY, VERY POSITIVE.THANK YOU VERY MUCH AGAIN FOR PROVING MY POINT.MORE FACTS AND NUMBERS PLEASE.
94% IS A VERY HEALTHY NUMBER.FIRST — THIS IS NOT A BAILOUT IN THE SENSE OF THROWING MONEY AWAY. THIS $700 BILLION WOULD BE INVESTED IN ASSETS THAT WOULD PROVIDE THE US GOV’T A RETURN…YES — THE TAX PAYERS WILL MAKE $ ON THIS PLAN.SECOND — THE REASON FOR THE GOV’T ACTION IS THAT THERE IS FEAR AMONG GOV”T OFFICIALS THAT AN ESCALATION OF THE CURRENT PANIC WOULD CAUSE A DESTABILIZING RUN ON THE SYSTEM. IF EVERYONE DECIDED TO WITHDRAW MONEY FROM A SOLVENT BANK AT THE SAME TIME, THE BANK WOULD FAIL REGARDLESS OF THE SOLVENCY OF THE BANK THE DAY BEFORE THE RUN. THIS PLAN WILL STABILIZE THE SYSTEM REGARDLESS OF ANY FUTURE PANIC — THIS REALITY IS WHAT IS INFURIATING THE ANTI-USA ESTABLISHMENT THAT WANTS TO SEE AMERICA FAIL. BUT GUESS WHAT — IT AIN”T HAPPENING FOLKS. THE US ECONOMY WILL PROVE RESILIENT AND PROSPER ONCE AGAIN.PERSONALLY — I DON”T BELIEVE PAULSON NEEDS TO TAKE THIS STEP. I AM AGAINST THE CURRENT PROPOSAL IN THE CURRENT FORM.
You’re confusing price with quantity. Decline in backlog quantity is fine with me. But how can a simultaneous rapid one year decline in backlog prices by 50% be stabilizing? Next you’ll say the rapid decline in any asset price is stabilizing. Case in point, Lehman neither has neither price nor quantity of stock available.P1AQL.
LOL! First CAPSANON thinks this $700 billion project has +ve NPV. Then s/he thinks Paulson doesn’t need to take this step and is even against the proposal!P1AQL.
Bernanke nor Paulson would admit that WallStreet owes the American People an apology. These Rat F— Sons or a Bitches. They do not feel any remorse for their actions of these cronies. This is beyond contempt.
YOU CITE AN DECLINE IN AGGREGATE $ VALUE OF BACKLOG WHICH NECCESSARILY REFLECTS A CORRESPONDING DECLINE IN AGGREGATE UNITS (I.E. QUANITY) IN BACKLOG. SUPPLY/DEMAND IN THE HOUSING MARKET IS VERY CLEARLY MOVING TOWARD BALANCE AND THIS WILL STABILIZE HOME PRICES.MORE FACTS AND NUMBERS PLEASE.THE $700B WOULD BE A NPV+ INVESTMENT.MY BELIEF THAT THE PAULSON PLAN IS MISGUIDED REFLECTS A PERSONAL/SUBJECTIVE OPINION — I DON”T THINK THE GOV”T SHOULD UNNECESSARILY STICK ITS NOSE WHERE IT DOESN”T BELONG. NOT EVERYONE WILL AGREE WITH THIS OPINION WHICH IS WHY WE SHOULD STICK TO FACTS AND NUMBERS.PLEASE — MORE FACTS AND NUMBERS.
You are obviously very young, but I will try to make as simple as I can for you.Your analysis bears no relation to the SALE of any product.If we suppose that at some future time this financial instrument you speak of IS put up for sale – only then the buyer will decide if your cashflow has any value or not. If your financial instrument has no buyers, then your cashflow has been cleared demonstrated in the open market to irrelevant.Hope this makes sense to you.
THIS $700 BILLION WOULD BE INVESTED IN ASSETS THAT WOULD PROVIDE THE US GOV’T A RETURN…YES — THE TAX PAYERS WILL MAKE $ ON THIS PLAN.This $700 billion has to be financed. The US government is going to have to pay out for this. Let’s see YOUR numbers on this, how the government is going to recoup more money that the $700 billion plus interest (assuming that foreigners will continue to fund our deficits).Meanwhile:Washington must heed fiscal alarm bellhttp://www.ft.com/cms/s/0/85b5de5e-88b6-11dd-a179-0000779fd18c.htmlDavid Walker has LOTS of numbers for you
One other thing, please provide us with an incident in which the government has actually MADE money for the US taxpayer. That’s FUNNY!
With the waiving of 23A do they even have to be all that creative?
BORROW AT 3-4% AND USE THE PROCEEDS TO PAY 50 CENTS ON THE DOLLAR FOR DEBT SECURITIES YIELDING 10%+, WHICH YOU ULTIMATELY SELL FOR AN AVERAGE OF 75 CENTS ON THE DOLLAR…A LOT OF MONEY WILL BE MADE BY THE US TAX PAYER IF NOT A FORTUNE….WALKER IS WELL INTENTIONED BUT MISGUIDED…HE ACTUALLY BELIEVES HE KNOWS EXACTLY WHAT THE WORLD IS GOING TO LOOK LIKE IN 40 YEARS…40 YEARS AGO NO COULD HAVE IMAGINED MICROSOFT, GOOGLE, GENENTECH ETC…
A collapse of the shadow banking sytem must mean a substantial contraction of credit which will depress asset prices. Ultimately the end result of a non-regulated shadow banking system is much higher leverage. Therefore its collapse also means a contraction of leverage i.e. a contraction in credit. Arguably one result of the explosive growth of the shadow banking sytem has been a substantial increase in asset prices (houses, debt instruments, commodities etc.) A generalised decline in asset prices will deepen the recession. I would argue, as I have in the past, that the US really faces a substantial risk of an economic depression.
Professor Roubini has a long history of predicting recession and panic – his insight is remarkable for its depth of understanding of the mechanisms and causes for the unwinding of credit. Unfortunately for his analysis, but fortunately for us – the end game of his predictions get mired in forced justifications of his social theories. The bottom is coming – sooner rather than later. It will take nothing like 10 Trillion in balance sheet to re-intermediate the “shadow” banking system – that is an estimate based on notional value, not risks. Smart though he is, the good Professor doesn’t know any more than I do who is long and short what – and without real contraction of value, there is no pain. Clearly the bursting of the US leverage bubble results in contracting credit – but it will not contract to 0 – an end point this website is increasingly painting as a fait accompli. I suggest that the ultimate loss profile and end state will be tied to a fraction of the housing market that corresponds to real income gains made from the end of the last housing downturn – a point which is no more than 5-8% below the current Case Shiller composite index.Lord of the Flies should be required reading for everyone on this website here this weekend. We must remember not to slaughter the messenger or to focus on red meat at the expense of our rescue.
Sounds like you think that there is a problem with going long commodities???Maybe that is the real solution. Opt out of the entire fiat currency scam and store wealth in commodities where arbitrary inflation does not exist.
I’d be inclined to okay with you here. Which is not something I usually do! I love reading a post that will make people think. Also, thanks for allowing me to speak my mind!
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