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A Remedy for Short Selling Manipulation

There's also a quote that says, "The market can remain irrational longer than you stay solvent.


Great article GT! I hope it gets implemented!


On Dec 11 02:41 PM Srdjan Popovic wrote:

> There is a theory put forward over 100 years ago that bear raids
> by themselves can't force the price down as the insiders and others
> with knowledge about the company would be more than happy to buy
> at lower prices and by doing so push them back up. Those who get
> in trouble are the technical speculators caught between two trends,
> but so be it. The buyers might decide to wait for a better entry,
> but they won't wait forever... if the company is any good, of course.
> However, when you have a lousy company or weak economic conditions,
> it is all too easy to blame it all on short-sellers.

GM's Tough Treatment Should Be a Model for Other Bailouts

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

We're Not Buying This Rally

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

Banker CEOs Lied to Congress

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

FDIC Watch: Agency's Insurance Commitments 34% Higher than Reported

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

Bank Liabilities: Why the Discussion Isn't Explicit

The San Francisco Chronicle had an article on Sunday about the lack of prosecutions and an assertion that this credit crisis is not real. The writer said that it's a deep recession from too much debt and too much debt-financed consumption but that the idea that it's because consumers and businesses can't borrow more is a lie devised by the banks to justify handing them a lot of money that they aren't going to lend to consumers and businesses anyway.

Check it out: www.sfgate.com/cgi-bin...

Citigroup: The End Draws Near

I did a little bit of amateur analysis of the bailout package and these were my findings. If anyone can offer additional insight into this in the form of a reply, it'd be much appreciated.

- Conditional guarantee on $306B in assets, presumably designed to mostly cover their riskier derivative positions at a price of $7B in preferred stock paying a coupon of 8%. Given that C's two highest yielding preferreds already pay a coupon of 8.125% (CpP) and and 8.5% (CpM), this appears to be quite a deal for C in terms of added dividend liability.

- C's added liabilities at this point, to attain this much of a guarantee, comes out to around $329 million per year (8% * $7B).

- Someone correct me if I'm wrong here, but I believe that the CDS spread on C was in the ballpark of 470bps on Friday. Thus, purchasing that much of an unconditional guarantee on C's debt would've cost roughly $14.38B on the open market; being that this is a conditional guarantee, C needs to absorb $29B before coverage begins. Just between C's $24B loan loss reserve allocation and the $25B TARP to drawn on, it seems likely that C could reasonably absorb the full $29B without much trouble.

- Now, please, someone offer their insight with regards to the financing provision. Every which way I read it, it seems as if the government is extending a guarantee on the REST of ALL of C's assets, beyond the $308B troubled portfolios, in the form of a non-recourse loan @ OIS + 300bps with the same 90/10 loss sharing terms. Given that the overnight rate has been averaging in the ballpark of only 30-50bps this past month, this again seems
curious. If I'm not misinterpreting this, it would appear as if they're getting an extremely generous credit line that, maybe given its terms, the USG doesn't expect it to tap into.

- C keeps the income derived from their assets in the guaranteed portfolio, designating the risk weight to 20%. Since it's unknown how, in light of what's happened the past year, to what extent C has re-weighted the risk in those portfolios, and there's no better risk weighting than 20%, this should help free up much of C's capital tied down to those assets.

- Preferreds are agreed to be redeemable in either cash or stock, so this should have no negative impact on the share price beyond the added liability from the new preferred issuance. That liability seems to be explicitly covered in a prudent attempt to minimize backlash from the public, demand further cost reduction, by requiring an almost complete cut in its dividend which had been, @ $0.16/share, a quarterly expense of $872 million based on the 5.45B shares outstanding.

Very wisely, more stuff cooked in to placate an increasingly irritated
taxpaying public and demonstrate that this deal is not 'for free':

- C's obligation to reduce its divdend to $0.01. It will be seen on Monday how this affects C's commons. Considering that the rationalization for the steep plunge through the last trading sessions was primarily due to concerns of solvency with no expectation that the yield be maintained, I don't imagine this should negatively impact the share price too much. In terms of net impact, it should be negative clearly, but overall much of the price depression was a bet placed on the solvency question.

- An interesting throw-in was the 10-year warrant for $2.7B @ $10.61/share. A fairly transparent attempt to elevate C's share price, it will likely yield some positive impact to C's common, but probably by not much. But it does offer the very clear message that USG will not hesitate to profit heartily by offering its assistance.

- Place executive compensation under oversight by the USG. Nothing new from the TARP.

Overall, I think that the terms in this package appear to have been thought out a bit better and though the terms are less attractive than with the original TARP, its impact is comprehensive and far clearer. My guess is that this will likely remove any remaining doubt as to C's short and long-term solvency.