Notable day tomorrow--Financial crisis

wsuffa said:
A

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 have actually been thinking the same thing. No institution/company should be so big as to be "too big to let fail".

Sorry, but that is NOT capitalism. I think the Fed has only prolonged the problem, again, with their meddling.
 
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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Paulson actually made that made point in a statement to the Press, Bruce. He said Lehman had been given time and the opportunity to address the problem and didn't.

I'd like to see the actual terms of the equity participation agreement if anyone has access. I understand the LIBOR plus part, but would like to see how the equity participation agreement part actually works. This interest rate isn't cheap. This really gives AIG time to work things out in an orderly fashion IMO rather than liquidate inneditely in a distressed market. My lines of credit are cheaper on the interest rate side. Of course, giving 80% of the equity is interesting, but will there be any equity and how is that determined? As with Lehman, how are we assured as taxpayers the money is properly applied ?

Best,

Dave
 
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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Bruce, that is also my understanding.
 
Looks like I wuz right...

Evaporating access to credit and fears of an economic washout are taking a toll on oil prices, forcing speculators using borrowed money out of the market.....

The potential for less leverage -- or borrowed money -- at play in the oil-futures market has already helped spark a sharp fall in oil prices, which have lost about 20% of their value this month.
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http://online.wsj.com/article/SB122161720455746373.html?mod=testMod

So all the congressional huffing and steaming was unnecessary. At least oil didn't crash completely....
 
wsuffa said:
At least oil didn't crash completely....
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Would a crash of oil pricing be an altogether bad thing? I'm thinking selfishly here, particularly of 100LL.
I'm just curious. In a previous life I worked in (non-oil/gas) geophysical exploration and the boom-busts would often flood our offices with resume's of well meaning people willing to work at slave wages (until the boom returned). Invariably, we would not hire oil/gas workers because we knew that if oil went as high as (gasp) $30/barrel they would gey big offers to go back to the oil companies.
 
Keith Lane said:
Would a crash of oil pricing be an altogether bad thing? I'm thinking selfishly here, particularly of 100LL.
I'm just curious. In a previous life I worked in (non-oil/gas) geophysical exploration and the boom-busts would often flood our offices with resume's of well meaning people willing to work at slave wages (until the boom returned). Invariably, we would not hire oil/gas workers because we knew that if oil went as high as (gasp) $30/barrel they would gey big offers to go back to the oil companies.
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A significant portion of our financial institutions are back uped with money that comes from oil rich countries. We buy their oil, they get American dollars and then reinvest them into our financial system. It is a symbiotic relationship where one effects the other.
 
wsuffa said:
...So all the congressional huffing and steaming was unnecessary. At least oil didn't crash completely....
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So the ever lower Fed interest rates and bailouts using taxpayer funds were being used to raise the price of oil - while the Fed was concerned about fighting inflation? N-I-C-E :mad:
 
mikea said:
So the ever lower Fed interest rates and bailouts using taxpayer funds were being used to raise the price of oil - while the Fed was concerned about fighting inflation? N-I-C-E :mad:
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42386799.jpg


I think that cartoon captured the spirit of the whole situation.
 
Don't know what to say today! Very bad for banks and financials in particular. It's what happens when there is a complete lack of confidence/trust in the financial system. Folks just don't know what to believe anymore.

Someone told me today they wouldn't wire funds on a Friday; that seems to be when these firms get shut down.

Best,

Dave
 
Dave Siciliano said:
...
Someone told me today they wouldn't wire funds on a Friday; that seems to be when these firms get shut down.
...
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If it's anything like when Steve Fossett got bailed out, they scramble and talk over the weekend to make the deal and it's in place by the Monday open. (The chairman of the Fed had to OK the deal. I was there.)

In these cases it looks like we hear what the deal will be during "Take out the trash" time on Friday evening.
 
mikea said:
WAMU toooooo.

Wonder if they'll sign the takeover deal at a little kiosk instead of a desk. :D
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Which CPA firrms will this take down as part of the blood-letting?
 
Oh, and this is just great, too. Five companies received an SEC exemption:
...to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.
​
Anybody care to guess which five? (Here's a clue: three of them ain't in business anymore! At least, not as stand alone entities)
 
And now comes word that one of the Money Market funds has broken a buck.

That's bad. Really, really bad.

(That means if you have put $1 in a supposedly 'safe' money market fund or account, it may not be worth $1.... MOST are safe. The Reserve Primary Fund has lost money - there was an outright run on the fund - others still appear to be good, though).
 
rpadula said:
Oh, and this is just great, too. Five companies received an SEC exemption:
...to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1. Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.
​
Anybody care to guess which five? (Here's a clue: three of them ain't in business anymore! At least, not as stand alone entities)
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Thanks for posting that. I was wondering how the firms were allowed to maintain this much leverage. Couldn't do that back when I was in the business best I can recall.

Best.

Dave
 
wsuffa said:
And now comes word that one of the Money Market funds has broken a buck.

That's bad. Really, really bad.

(That means if you have put $1 in a supposedly 'safe' money market fund or account, it may not be worth $1.... MOST are safe. The Reserve Primary Fund has lost money - there was an outright run on the fund - others still appear to be good, though).
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I was on Terry Savage's chat yesterday when she said that news broke just hours after she had written the advice to shelter your money in a money market because none has ever gone bust. :rolleyes:
 
Finally someone has explained the current credit mess in terms even I get.....

From Glenn Beck at CNN.com
http://www.cnn.com/2008/POLITICS/09/17/beck.wallstreet/index.html

t's just before Christmas,1996, and as you watch overeager parents trample each other to buy Tickle Me Elmo dolls for their kids, you see an opportunity. "This isn't a Tickle Me Elmo bubble," you think to yourself, "this is a long-term trend. Every person in America will soon own a Tickle Me Elmo, maybe even two. It's the American dream." You approach your local banker about a loan and, naturally, he loves your idea. In fact, he loves it so much that for every $1 you have in your account, he's willing to lend you $34. Great deal, you think, as you max out your credit line and buy as many Tickle Me Elmos as you possibly can
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Interesting article on "Modern history’s greatest regulatory failure"

LINK

This article mentions Paul Volcker stating that he thinks a new RTC structure will be required.
As Paul Volcker, former Fed chairman, has suggested, an enormous Resolution Trust Corporation-style approach for the banking and securities system may be required.
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That is a fairly candidate statement of acknowledgment that the free for all of deregulation in the financial sector has failed.
 
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Kraft is replacing AIG in the Dow.

Kraft should be THE growth company since we'll all be living on the product they show:

(I like how the Dow and the S&P averages just toss out the firms that hit 0 so they can keep up the claim that the indexes are a safe place to invest. Too bad investors can't just do the same.)


:mad:
 

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Skip Miller said:
All I can say is that Alan Greenspan knew when to retire! -Skip
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Of course he did. He probably saw what some of his policies were about to result in. What we all need to also realize is that part of this whole meltdown is that when it became apparent that real wages were not climbing and were in fact stagnant from the trickle down and voodoo economic ideas, that one way to jump start the economy was to make it much easier to get money via credit. That is why Fannie Mae was first started. The feeling was that people indebting themselves in order to buy a house would be good for generating sales of a great many things.

Not a bad idea, but what happened was that when banking regulation were lessened it became much easier for banks to make riskier loans to people who never had a chance to pay them back, There were also people who say that they could get free money and had hoped to have a way to pay it back or really never had any intention.

Then the perfect storm of a economic slowdown, job shifts overseas and downsizing, with energy prices going through the roof resulted in what we have now. There were plenty of opportunities to prevent this but no one cared and our government was more than happy to keep spending and borrowing money from overseas locations. Now we have a situation were our financial system is being nationalized to prevent a Hoover like depression.
 
I was under the impression that "credit score" replaced the traditional borrowing ratios and disposable income calculations for home loan financing. The fallacy of this approach was that the (financially unqualified and untested) homeowner's ability to simply walk away (no skin in the game) was not foreseen as a significant risk. The lenders bought the theory, which made the originator's life good, but the lenders insisted on some repayment guarantee. Now the guarantors are upside down and so are we. Or is that an incorrect premise on my part?

smigaldi said:
Of course he did. He probably saw what some of his policies were about to result in. What we all need to also realize is that part of this whole meltdown is that when it became apparent that real wages were not climbing and were in fact stagnant from the trickle down and voodoo economic ideas, that one way to jump start the economy was to make it much easier to get money via credit. That is why Fannie Mae was first started. The feeling was that people indebting themselves in order to buy a house would be good for generating sales of a great many things.

Not a bad idea, but what happened was that when banking regulation were lessened it became much easier for banks to make riskier loans to people who never had a chance to pay them back, There were also people who say that they could get free money and had hoped to have a way to pay it back or really never had any intention.

Then the perfect storm of a economic slowdown, job shifts overseas and downsizing, with energy prices going through the roof resulted in what we have now. There were plenty of opportunities to prevent this but no one cared and our government was more than happy to keep spending and borrowing money from overseas locations. Now we have a situation were our financial system is being nationalized to prevent a Hoover like depression.
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smigaldi said:
Then the perfect storm of a economic slowdown, job shifts overseas and downsizing, with energy prices going through the roof resulted in what we have now.
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Although you are no doubt aware of this, you have overlooked the other side of the loose credit policies, where banks and mortgage companies packaged these loans and securitized them into tranches and sold them to investors.

Securitization is much like sausage - the investors were happy to eat them but didn't want to see how the sausage was made. THAT was the job of the rating agencies. Whereas they seem perfectly capable of rating simple first-tier securities, I don't think they had a clue how to underwriting and rating the re, re-re, and re-re-resecuritizations that led to some wonderful Wall Street constructs such as Triple A Junk. Yes, Triple A bonds backed by nothing but junk paper. The overcollateralization was supposed to make it work. And where they went wrong is that what you describe as the perfect storm just invalidated all their models, and the effective leverage provided by the multiple layers of securitization left this paper worthless, sometimes overnight.

Not to mention the fraud in this institutional side of the system whereby loans were made in violation of numerous rules and regulations, and lack of good disclosure to the ultimate buyer. The effective guideline for the mortgage originators was simply: "If you can sell the loan, make the loan."

People put these securities on the books without looking at anything except the interest rate and the credit rating. Since they were allegedly so safe, they then leveraged them to the hilt. We now know the result.

It is interesting to note that all the safeguards that were put in place post-1929 have been unwound in the last 5 or so years.....

-Skip
 
mikea said:
Kraft is replacing AIG in the Dow.

Kraft should be THE growth company since we'll all be living on the product they show:

(I like how the Dow and the S&P averages just toss out the firms that hit 0 so they can keep up the claim that the indexes are a safe place to invest. Too bad investors can't just do the same.)


:mad:
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Hey, it's a step above ramen!

Who makes beanee-weenee? They outta be on the 500 too...


Trapper John
 
Trapper John said:
Hey, it's a step above ramen!

Who makes beanee-weenee? They outta be on the 500 too...


Trapper John
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It just occurred to me that I am very likely a stockholder who got shafted. One or more of the funds in my 401K had to own some of those guys.

Happy, happy, joy, joy. :mad:

(The International fund is doing nicely. :rolleyes: Wait for the news how various foreign companies accounting are non-existent. )
 
Skip Miller said:
Although you are no doubt aware of this, you have overlooked the other side of the loose credit policies, where banks and mortgage companies packaged these loans and securitized them into tranches and sold them to investors.

Securitization is much like sausage - the investors were happy to eat them but didn't want to see how the sausage was made. THAT was the job of the rating agencies. Whereas they seem perfectly capable of rating simple first-tier securities, I don't think they had a clue how to underwriting and rating the re, re-re, and re-re-resecuritizations that led to some wonderful Wall Street constructs such as Triple A Junk. Yes, Triple A bonds backed by nothing but junk paper. The overcollateralization was supposed to make it work. And where they went wrong is that what you describe as the perfect storm just invalidated all their models, and the effective leverage provided by the multiple layers of securitization left this paper worthless, sometimes overnight.

Not to mention the fraud in this institutional side of the system whereby loans were made in violation of numerous rules and regulations, and lack of good disclosure to the ultimate buyer. The effective guideline for the mortgage originators was simply: "If you can sell the loan, make the loan."

People put these securities on the books without looking at anything except the interest rate and the credit rating. Since they were allegedly so safe, they then leveraged them to the hilt. We now know the result.

It is interesting to note that all the safeguards that were put in place post-1929 have been unwound in the last 5 or so years.....

-Skip
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Deregulation you say? nah...

Skip, how does any of this correlate with Michael Milken and his junk bonds? I remember it happening but I don't remember much detail. Was he just a renegade back then and now EVERYONE is doing it, or am I way off base in drawing any analogies there? (I don't have a clue what I'm talking about, in other words).
 
Wow! No short selling; money market guarantees and a new RTC where the gov'ment takes the toxic stuff. Just don't know what to think. So, does anyone still think this is a free market?

No doubt something needed to be done. These moves seem to be restoring confidence in the market, but at what cost to taxpayers?
Will this set a president that the public will look to in the future anytime a large financial firm looks as if it might fail?
How will losses be absorbed? How will gov'ment assure managers to a good job of liquidating things with taxpayers at risk behind them.

These actions have directly affected the market; will speculators be willing to take positions that create liquidity in the market when they can be wiped out by gov'ment action?

At this point, I believe there are more questions than answers. I'm sure we'll hear the reasoning over the next few days and get to evaluate it.

Who's manipulating my post? I didn't put the Arrr in here.

Best,

Dave
 
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Arrrrr. There's a bailout a brewin, I can feel it in me bones!



Mateys.
 
ARRRRRrrrrr... No problem ye scallywags! The Captain said he be persecutin' any of dem that done us wrong.

ARRRRRrrrrrr....we be takin' on water...
 
Dave Siciliano said:
Will this set a president that the public will look to in the future.......
Who's manipulating my post? I didn't put the Arrr in here.

Best,

Dave
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President, or precedent? Either could be true here.........

Arrrgghhhh blast them spell checkers. Bleedin' computers, always be a doin' what ye tell 'em to not what ye meant.
 
Today, my friends, we mark the passing of the capitalistic monetary system and the free market. :(
 
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