Notable day tomorrow--Financial crisis

wsuffa said:
Agree, Andrew.

And that's one of my pet peeves with those that call for more and more regulation: the problem is that the regulators are often not nearly as smart or forward-looking as the folks in the commercial sector. Paulson is an exception - he came from GS. Even though SarbOx called for more transparency, I've seen less transparency in the corporate side, not more.

By the way: anyone else find it very, very interesting that oil prices have dropped pretty precipitiously over the last few weeks - as Lehman's troubles have become more widely known? Even dropped in the face of the major hurricane. Speculate as you will.
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They all went private after S/O.
 
TMetzinger said:
HUH? home prices are driven by demand for housing, not by "ability to pay". In most cities, there's no SPACE to build.
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I think what Kevin was saying is that limiting the sale of houses to those who can afford a 20% down payment limits the demand.
 
Interesting comment this morning (that is true).... banks and other institutions are "hoarding cash" and are unwilling to lend. That's compounding the situation.... and is something that Paulison is very concerned about (and we should be, too)

Another interesting note: Wall Street chiefs are unwilling to bail out or work to restructure the others (in fact, one was quoted as saying "if we do this once for Lehman, then when will it stop?").... it tells me two things: 1) that they don't think that the crisis is going to bring the whole sector down, and 2) that they won't put their money up ('cause they're afraid that others will ask), but they want the Feds to put up our tax dollars. #2 tells me that the lessons haven't been completely learned yet.
 
GS net was down 70% this morning. That won't get the market off to a very good start. The devil is in the details. Lots of speculation about what the Fed will do today. They've already greatly increased money availability.

Best,

Dave
 
wsuffa said:
Interesting comment this morning (that is true).... banks and other institutions are "hoarding cash" and are unwilling to lend. That's compounding the situation.... and is something that Paulison is very concerned about (and we should be, too)]
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Then they run the risk of watching their stock sink until a takeover offer is made. Scoop up the company AND the cash too, no?


wsuffa said:
Another interesting note: Wall Street chiefs are unwilling to bail out or work to restructure the others (in fact, one was quoted as saying "if we do this once for Lehman, then when will it stop?").... it tells me two things: 1) that they don't think that the crisis is going to bring the whole sector down, and 2) that they won't put their money up ('cause they're afraid that others will ask), but they want the Feds to put up our tax dollars. #2 tells me that the lessons haven't been completely learned yet.
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They don't think it's worse than LTCM yet? Hoo boy!
 
wsuffa said:
Interesting comment this morning (that is true).... banks and other institutions are "hoarding cash" and are unwilling to lend. That's compounding the situation.... and is something that Paulison is very concerned about (and we should be, too)

Another interesting note: Wall Street chiefs are unwilling to bail out or work to restructure the others (in fact, one was quoted as saying "if we do this once for Lehman, then when will it stop?").... it tells me two things: 1) that they don't think that the crisis is going to bring the whole sector down, and 2) that they won't put their money up ('cause they're afraid that others will ask), but they want the Feds to put up our tax dollars. #2 tells me that the lessons haven't been completely learned yet.
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They want the Feds to put up tax dollars because the Feds have already put up tax dollars. And it's why the automakers are in line, and so on and so forth. But Mooooooooom, you did it for Bobby! I want a pony!

Rich, what is LTCM?
 
rpadula said:
Then they run the risk of watching their stock sink until a takeover offer is made. Scoop up the company AND the cash too, no?
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The more they hold in cash (a non-declining asset) compared to paper (currently declining asset, except toxic paper that has virtually no value), the better their stock will perform. The liklihood of these folks being scooped up is reduced because 1) cash is a stable asset, and 2) the folks that might like to buy them want to hold their own cash (or don't have any to start with).
 
There was some speculation by the financial pundits yesterday that BOA bought Merrill at somewhat of a premium so that they would become "too big" to not be bailed out. I think they're already too big, but I hope this isn't true. If they go under or need a bailout we are in trouble.
 
The really crazy question (among many today) is: given what the futures markets are saying, will the Fed *really* cut interest rates today? :eek:
 
rpadula said:
The really crazy question (among many today) is: given what the futures markets are saying, will the Fed *really* cut interest rates today? :eek:
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I think they will and that is the wrong move. Take the pain or the dollar will become worthless.
 
$138 Billion advanced to Lehman after bankruptcy filing:

One advance of $87 billion was made on Sept. 15 after the pre-dawn filing, and another of $51 billion was made the following day, according to a bankruptcy court documents posted today. Both were made to settle securities transactions with customers of Lehman and its clearance parties, the filings said.
The advances were necessary ``to avoid a disruption of the financial markets,'' Lehman said in the filing.
The first advance was repaid by the Federal Reserve Bank of New York, Lehman said. The bank didn't say if the second amount was repaid. Both advances were ``guaranteed by Lehman'' through collateral of the firm's holding company, the filing said. The advances were made at the request of Lehman and the Federal Reserve, according to the filing.



http://tinyurl.com/6j5p7j


Best,


Dave
 
wsuffa said:
Interesting comment this morning (that is true).... banks and other institutions are "hoarding cash" and are unwilling to lend. That's compounding the situation.... and is something that Paulison is very concerned about (and we should be, too)

Another interesting note: Wall Street chiefs are unwilling to bail out or work to restructure the others (in fact, one was quoted as saying "if we do this once for Lehman, then when will it stop?").... it tells me two things: 1) that they don't think that the crisis is going to bring the whole sector down, and 2) that they won't put their money up ('cause they're afraid that others will ask), but they want the Feds to put up our tax dollars. #2 tells me that the lessons haven't been completely learned yet.
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"We think the risk is too high and cloudy to assess, so we need the fed money to take it and absorb any loss. unless, as always, if it turns out to be profitable, then we get the profits."
 
flyingcheesehead said:
I think what Kevin was saying is that limiting the sale of houses to those who can afford a 20% down payment limits the demand.
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Thanks for the accurate clarification Kent. :yes:
I'm out of town this week and am having difficulties keeping up with threads in which I post.
 
The doomiest econopmist, Nouriel Roubini, on last night's News Hour said there will be another 15% drop in home values.

NOURIEL ROUBINI: Unfortunately, I think we're going to have a very severe recession. It's going to last at least 18 months through the middle of next year. And this financial crisis is not going to be over anytime soon.

And the problems are not just problems of housing. Housing has not yet bottomed out. Home prices are going to fall for another 15 percent for a cumulative fall of 40 percent.
http://www.pbs.org/newshour/bb/business/july-dec08/bankcollapse_09-15.html
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If course, that depends on the market right? RIGHT?
 
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wabower said:
Required loan to value ratio based on real appraisal numbers. It doesn't solve all the problems, but it's a good start.
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Just as a touch point, I refi'd just this spring after barely more than a year, and the new appraisal qualified me for a conforming mortgage. Wiping my brow.

Not that I didn't think the house was still worth a lot more.

I'm *very* happy on where I hit on the interest rate dip.
 
mikea said:
The doomiest econopmist, Nouriel Roubini, on last night's News Hour said there will be another 15% drop in home values.



If course, that depends on the market right? RIGHT?
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If one laid all the economists in the world end to end, they would never reach a conclusion :lightning:

Best,

Dave
 
Anthony said:
I think they will and that is the wrong move. Take the pain or the dollar will become worthless.
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Well they didn't.

They still might if things get worse.

I think the prime reason they did not was that oil again dropped due to lower demand and consumer prices also dipped slightly. Those two things can offer some relief to consumers. Perhaps the Fed thinks that will lead to an increase in spending so as to get more money flowing back up into corporate coffers?
 
Dave Siciliano said:
Mike: Here's a link to news on AIG:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7owyQQ3Nxks&refer=home
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The latest news: AIG already has lawyers drawing up bankruptcy papers, and may declare bankruptcy as early as tomorrow.

http://news.yahoo.com/s/nm/20080916/bs_nm/aig_bankruptcy_dc_1

I found one part of Dave's link (in the quote above) veeeeeeery interesting:

AIG, seeking to raise $20 billion in capital and sell $20 billion of assets, rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. AIG instead sought $40 billion from the Federal Reserve, the New York Times reported, citing an unnamed person.
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Sounds to me like "We don't want to be taken over - We either want free government money, or we want to go under." :mad:
 
Or maybe we'd like to see if we can get money at discount window loan prices rather than expensive interest with participation and high origination fees?

Best,

Dave
 
flyingcheesehead said:
Sounds to me like "We don't want to be taken over - We either want free government money, or we want to go under." :mad:
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Just watching CNBC now. Reporting an $85B bridge loan is pretty much a done deal. Gov't gets warrants for 80% of the company (a la Freddie/Fannie), so I'd hardly call it free money.

Says Dealbreaker:

Per the deal, the government would get warrants for most of AIG's equity, severely diluting shareholder value. And by severe dilution, we mean nothing. Bondholders, would get "next to nothing," and policyholders "some protection."​


BTW, when reporters say some event will trigger the bond covenants, where is a good place to find and read those?
 
rpadula said:
Just watching CNBC now. Reporting an $85B bridge loan is pretty much a done deal. Gov't gets warrants for 80% of the company (a la Freddie/Fannie), so I'd hardly call it free money.

Says Dealbreaker:
Per the deal, the government would get warrants for most of AIG's equity, severely diluting shareholder value. And by severe dilution, we mean nothing. Bondholders, would get "next to nothing," and policyholders "some protection."​
BTW, when reporters say some event will trigger the bond covenants, where is a good place to find and read those?
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Where is that $85 billion coming from? China? UAE?

Does this mean that basically Wall Street is owned by foreign countries?
 
rpadula said:
Just watching CNBC now. Reporting an $85B bridge loan is pretty much a done deal. Gov't gets warrants for 80% of the company (a la Freddie/Fannie), so I'd hardly call it free money.

Says Dealbreaker:

Per the deal, the government would get warrants for most of AIG's equity, severely diluting shareholder value. And by severe dilution, we mean nothing. Bondholders, would get "next to nothing," and policyholders "some protection."​
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So the CEO and management who refused all of the other offers get to stay after shafting the stockholders they were working for? Can't imagine why they rejected all but this deal. :mad:
 
smigaldi said:
Where is that $85 billion coming from? China? UAE?

Does this mean that basically Wall Street is owned by foreign countries?
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It is coming from the Federal Reserve.

No.


mikea said:
So the CEO and management who refused all of the other offers get to stay after shafting the stockholders they were working for? Can't imagine why they rejected all but this deal. :mad:
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No they don't (source CNBC):

Management at the firm, including AIG's CEO Robert B. Willumstad, will be fired as part of the deal, which will also severely dilute existing shares of the company.​
 
rpadula said:
....No they don't (source CNBC):

Management at the firm, including AIG's CEO Robert B. Willumstad, will be fired as part of the deal, which will also severely dilute existing shares of the company.​
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Ok. My cynical nature says the firing comes with a $5M severance deal. Watch it be more.
 
wsuffa said:
Interesting comment this morning (that is true).... banks and other institutions are "hoarding cash" and are unwilling to lend. That's compounding the situation.... and is something that Paulison is very concerned about (and we should be, too)

...
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Bill, I know a guy who has had a credit line for about 3 years, up to $1.5M. They are in the process of winding up the business, collecting receivables and paying down bills, just about an even match between owed and owing and going quite nicely. Line has never been in default, paid down to around $300,000, on track to be paid-off in about 4 months. They called it.

Geniuses. Watch for an 11 filing and a fractional recovery.

Geniuses.
 
Ted DuPuis said:
If you're irresponsible and you did 0% down.... QUOTE]

Irresponsible? Gee .. I guess that makes me irresponsible. Funny .. I've
never felt like a derelict.

Sometimes circumstances are such that it comes in handy. Like when you
get divorced at an older age and don't have the time to save a downpayment. And when you give your ex all the equity in the house because it helps her.

I earned the ability to get a no downpayment VA loan by enlisting and
serving. So I used it. Hasn't been a problem at all and as soon as I got
it below 80% I refinanced and got rid of the mortgage insurance and
got a conventional loan.
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SCCutler said:
Bill, I know a guy who has had a credit line for about 3 years, up to $1.5M. They are in the process of winding up the business, collecting receivables and paying down bills, just about an even match between owed and owing and going quite nicely. Line has never been in default, paid down to around $300,000, on track to be paid-off in about 4 months. They called it.

Geniuses. Watch for an 11 filing and a fractional recovery.

Geniuses.
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Certain laws of physics including "angle of incidence equals angle of rebound" and "equal action and reaction" are not shared by the regulators and financial institutions.

As CEO of an investment bank in the late 80's I spent six months preparing to syndicate a golf course in Myrtle Beach, SC. I had secured (and paid for) a loan commitment from NCNB, and was in the process of raising several million equity when the bank called to say the 75-25 debt/equity ratio was not sufficient under the new rules (FIRREA) that had just been enacted.

I said no prob, we would amend the offering and raise the equity to 33%, or 40% or even 50% if necessary. They said no, I didn't understand the new rules, and that even if we raised 90% of the money they couldn't loan the other 10% because real estate was involved as part of the collateral.

So we write off a couple hundred thousand due-dil and legal fees and are back on the street. Not only that, the sorry sumbitches tried to keep my loan commitment fee because the change in lending policies had been dictated by the government, and one of the fine-print clauses gave them an out. We got the money back, but never did get the deal done.
 
Dear U.S. taxpayer, your gov'ment is proud to announce it now owns AIG!

Best,

Dave


AIG Gets $85 Billion Fed Loan, Cedes Control to Avert Collapse

By Hugh Son and Craig Torres
Enlarge Image/Details

Sept. 16 (Bloomberg) -- American International Group Inc. avoided the worst financial collapse in history by accepting a rescue that provides an $85 billion loan from the federal government in return for a majority stake.

The U.S. reversed its opposition to a bailout of AIG, the nation's biggest insurer by assets, after private efforts failed and the Federal Reserve concluded that ``a disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a Fed statement today.

http://tinyurl.com/6882wp
 
RogerT said:
Ted DuPuis said:
If you're irresponsible and you did 0% down.... QUOTE]
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Irresponsible? Gee .. I guess that makes me irresponsible. Funny .. I've
never felt like a derelict.

Sometimes circumstances are such that it comes in handy. Like when you
get divorced at an older age and don't have the time to save a downpayment. And when you give your ex all the equity in the house because it helps her.

I earned the ability to get a no downpayment VA loan by enlisting and
serving. So I used it. Hasn't been a problem at all and as soon as I got
it below 80% I refinanced and got rid of the mortgage insurance and
got a conventional loan.
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Me too.

My first house as 0% down VA loan. I qualified for hundreds of thousands of dollars according to the loan specialist. She told me $500,000 as a matter of fact. But I was only earning about $75,000/ year at that the time and even I know I could not afford that type of mortgage over a 30 year period. In the end I got a $120,000 loan. That was equivalent to what I was paying out in rent at the time. As I earned more money I simply raised my principal payment and ended up taking years off of the pay back of that loan.

It would have been irresponsible for me to take a loan higher than what I could pay. The loan specialists did really try and push me into that position and I can see where some people would have allowed themselves to be pushed. Those are the people that are probably now having to foreclose.
 
smigaldi said:
It would have been irresponsible for me to take a loan higher than what I could pay. The loan specialists did really try and push me into that position and I can see where some people would have allowed themselves to be pushed. Those are the people that are probably now having to foreclose.
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Exactly, every time I read a hard luck story about someone losing their house due to foreclosure, I like to read the WHOLE story. Way down on the last page, I'll typically see something like "Mr. X had refinanced his house 4 times in the last 6 years, each time taking out cash to pay for xxx". Or you'll see a picture of the person with an SUV in their driveway. These folks didn't appreciate the risks they were taking with their borrowing.

Granted, there are truly hard luck stories out there, but nowhere near the magnitude of the foreclosure activity.
 
AAARRRGGGHHHH.....

Lost the entire 10 minutes of typing a post as the server dropped my connection.

Sigh.

Two points from some fiscal conservatives I know.

1) Perhaps it's time to make the tax system more progressive as the biggest beneficiaries of the "government as last resort" are those making big bucks. More at risk, most risky behavior, higher premiums in the form of taxes. Don't like it? Then industry insure/heal itself.

Interesting theory. Conforms with standard economic & insurance theory. Troubling because the Government never seems to get the spending side right.

2) Perhaps it's time to regulate critical institutions - or break them up - so as not to let a critical institution get 'too large to fail'. This would minimize risky behavior as it would hold management & shareholders accountable for such behavior (such allows the institution to go into bankruptcy, as opposed to bailout).

Interesting - and certainly solves one problem, but may through baby out with bathwater. OTOH, larger institutions tend to have greater reserves and (if diverse enough) a portfolio that mitigates risk through diversification. it may be where certain candidates are headed.

My friends' commented that they never would have suggested these had 1) the government stuck to capitalist theory and declined the bailout, or 2) had other Wall Street entities stepped up to the plate instead of the Feds. Had commercial interests stepped in, there would have been a price.
 
Word from the inside is that when the fed eased credit in June to allow Lehman to borrow- they did. But they did not divest themselves of their mortage derivitives. Instead, they borrowed and bought more securities.

This is one of the reasons I'm told, why Secretary Paulsen said, "no more". We were dealing with pigs.
 
wsuffa said:
AAARRRGGGHHHH.....

Lost the entire 10 minutes of typing a post as the server dropped my connection.

Sigh.

Two points from some fiscal conservatives I know.

1) Perhaps it's time to make the tax system more progressive as the biggest beneficiaries of the "government as last resort" are those making big bucks. More at risk, most risky behavior, higher premiums in the form of taxes. Don't like it? Then industry insure/heal itself.

Interesting theory. Conforms with standard economic & insurance theory. Troubling because the Government never seems to get the spending side right.

2) Perhaps it's time to regulate critical institutions - or break them up - so as not to let a critical institution get 'too large to fail'. This would minimize risky behavior as it would hold management & shareholders accountable for such behavior (such allows the institution to go into bankruptcy, as opposed to bailout).

Interesting - and certainly solves one problem, but may through baby out with bathwater. OTOH, larger institutions tend to have greater reserves and (if diverse enough) a portfolio that mitigates risk through diversification. it may be where certain candidates are headed.

My friends' commented that they never would have suggested these had 1) the government stuck to capitalist theory and declined the bailout, or 2) had other Wall Street entities stepped up to the plate instead of the Feds. Had commercial interests stepped in, there would have been a price.
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I like your #1. A lot. I would also append transparency rules to that approach. You can opt out, but you're going to pay for the privilege.

As to your final point, I think a big price is being paid by shareholders, Giving up 80% of the company is pretty much getting your face ripped off. That's a tough deal. But better than letting the dominoes tumble IMHO.

Hank Greenburg, still a 12% shareholder, was on Charlie Rose last night. He said he had private capital lined up to do a deal, and neither AIG management nor the Feds gave him a seat at the table. I guess Spitzer keeps screwing people even after he leaves the stage...
 
bbchien said:
Word from the inside is that when the fed eased credit in June to allow Lehman to borrow- they did. But they did not divest themselves of their mortage derivitives. Instead, they borrowed and bought more securities.

This is one of the reasons I'm told, why Secretary Paulsen said, "no more". We were dealing with pigs.
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"Let's double down, our luck's gotta change soon."

What a way to run an investment bank. They should require these guys be pilots. At least we always looking for a safe place to set down when the motor quits.
 
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