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    • Sun Sep 21st 17:29 PM | Rating: 0 0
      Commented on:
      Oppose the Treasury's Bailout Plan
      Thank you David Merkel... I just sent letters to each of my Congressional representatives asking them to oppose this horrible idea -- and I urge every reader of Seeking Alpha to do the same
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    • Sat Sep 20th 12:49 PM | Rating: 0 0
      Commented on:
      How Bernanke Stunned Congress with the Truth
      Mish: You left out the second part of the "stunner" of Paulson's Super SIV 2.0:

      The government is going to hire outside advisers to manage this "trust"... So basically, the very people who did such a bang up job managing these assets on their own books-- will now be paid by the taxpayer to mismanage them on the public's books.

      Of course, they will now be managing the books under the watchful eye of Congressional politicians (democrats and republicans) who cannot balance a checkbook.

      Starting in January of next year, we have two choices. Choice one: General Patton, who wants to go to war with somebody and doesnt seem to care who. General Patton has himself stated that economics are not his thing. Choice two: Peter Pan, whose naivety is more stunning than the financial crisis. Peter Pan plans to fill us with hope by spending money we don't have, and sending the bill to our children. Both General Patton and Peter Pan want to fix the economy by raising taxes and expanding the size of government -- which has never worked in any country in any period of recorded history.

      And this being a democracy, we cannot forget about the voters. 300 million people who insist on living way beyond their means and blaming politicians, Chinese, rich people, French people, OPEC, the boogie man, the monsters in the closet -- pretty much anyone other than the face in the mirror.

      "We the people" caused this financial crisis. We are addicted to debt. We spend way beyond our means. We vote in politicians who make unrealistic promises of benefits we won't have to pay for. We thought we needed 10,000 square foot homes, because the 2,000sq ft homes we grew up in and the rest of the world has are not good enough. We don't have the income to pay for these McMansions, so we have our politicians bully banks into giving us mortgages with less than 20% down -- which was the standard down payment for our parents and grandparents. We insist on blaming the banks for selling us this mistake, even though we had every right to put down 20% if we wanted. In short, we refuse to take any responsibility for our own actions.

      I am very afraid for the future of this country. Neither presidential candidate has the skill set to deal with our debt situation, and even more importantly, neither man has the courage to tell us that we are our own biggest enemy.
      View article »
    • Sat Sep 20th 12:11 PM | Rating: 0 0
      Commented on:
      It's Only the End of the Beginning
      Why would you cite GE as being a great company, as opposed to all the banks that are failing?

      Lots of people have pointed out for years that GE gets the bulk of its earnings from financing operations -- in other words, it is a bank.

      Yes, GE makes aircraft engines and plastic and TV shows -- but that isn't where its big profits came from. For the last 10-20 years, GE made at least half of its money from finance (GE Capital, GE Investments, GE Life Insurance, GE Financial Assurance, and what is now Genworth Financial). GE made far more money financing jet aircraft engines than it did making/servicing them

      Unfortunately, this is true for many many U.S. companies. GM might be listed as a automobile manufacturer -- but they lose money making cars. ALL of GM's profits come from GMAC and Dietech. Ford Motor, Caterpiller, IBM, AT&T -- most of the Dow Industrials have financing divisions that make up very significant percentages of their profits, and sometimes the majority of their profits.

      Debt financed growth is not the same thing as real economic growth. The U.S. has become absolutely addicted to debt. Democrats and Republicans are great scapegoats, but George Bush, John Kerry, Hillary Clinton and John McCain together did not make Joe Consumer go out and max his credit card. Joe Consumer did that all by himself. Not only that, but Joe Consumer went to the voting booth and demanded that government give him unlimited benefits and "entitlements&quo... without charging him higher taxes. Unfortunately, we have the government we voted for.

      It doesnt matter which idiot we put in the White House (or Congress) this coming November. If the U.S. doesn't live within our means, we will be passing a third world country on to our children.
      View article »
    • Sat Sep 20th 11:52 AM | Rating: 0 0
      Commented on:
      Bailouts: The Moral Imbalance
      BTW -- I forgot to mention why home prices being off 15% translates one for one into mortgage losses:

      Home "owners", especially ones who bought in recent years at inflated prices, generally took out mortgages with little or no money down.

      When you sell a house, you pay 4-5% to a realtor and another 1-2% in a "stamp tax" (some municipalities call this a title transfer fee). So it costs somewhere between 5-7% to sell a house. This means that people who put down less than 5% (which is a significant part of recent loans) really have zero equity in their house, even before accounting for home price declines.

      If you add the nation wide average home price decline of 15% to the 5% cost of selling -- many home "owners" are looking at a 20% loss on an asset where they put down perhaps 10% (often less).

      These people have no skin in the game. Economically speaking, they are renters. The mortgage lender (the "investor" who ultimately bought the loan) is now the owner, and will be very lucky to get 85% of his principal back -- never mind any interest.
      View article »
    • Sat Sep 20th 11:41 AM | Rating: 0 0
      Commented on:
      Bailouts: The Moral Imbalance
      <i>Jlivermoore: "This author is definitely the democrat he claims. High moral authority, and little understaning of the economics. These mortgages are worth 95 cents on the dollar if held, and the government can afford to hold them."</i>

      Obviously, little understanding of economics is a widespread problem. Home prices are off 15% nationwide (more in some "bubble" areas) -- so at best these mortgages are worth (on average) 85 cents on the dollar.

      Even then, home prices are still much higher than historical norms when viewed as a multiple of income. If you understand economics, you must know that home owners need to have income with which to pay their mortgage. Home prices, as a multiple of incomes, are simply too high-- so even 85 cents on the dollar is likely too high.

      Mark to market is not a perfect system, but you seem to have a very short attention span. The reason mark to market became so popular is because of the many problems with cost based accounting. Both systems have strengths and weaknesses -- but neither is a "cause" of the current problems.

      Home prices got too high relative to incomes. People bought these overpriced houses using way too much leverage. Wall Street bought the mortgage loans using even more leverage.

      Now home prices are reverting toward their mean "multiple of income" -- just as they have throughout history. There is nothing new or unexpected about this.

      The problem is the degree that housing got overpriced, and the absurd leverage that was used to finance those overpriced houses. It does not matter if you use cost basis accounting or mark to market accounting -- you still have a huge loss.

      If this Super SIV thing comes to pass (it is not an RTC like plan no matter how Paulson tries to market it) -- the government might end up with an accounting "gain"... but only because the government's accounting systems do not factor in full cost of carry.

      The only way the government (or any private buyer) can make money on these mortgages is if average income levels rise faster than historical average (to bring home prices back into "normal" multiples) -- which seems unlikely given US labor prices are already higher than the rest of the world. The only other way to make money on these mortgages is to buy them at a very big discount (i.e. a lot more than 15% discount)
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    • Sat Sep 13th 18:52 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      riskyreward -- there are a lot of problems with the "Spinco" idea
      (1) You have to be able to place a "real" value on the spun off assets. That involves some sort of price discovery (aka "mark to market"). By definition, there is no widespread agreement on the value of these assets -- meaning it will be almost impossible to make "Spinco" be bankruptcy remote. The creditors of "Spinco" will have a firm legal claim on the assets of the surviving portion of the company.

      (2) The market value of many of these companies suggest that the losses on "Spinco" exceed the positive value on the otherwise surviving businesses. That's a fancy way of saying the remainder of Lehman isn't going to survive

      (3) There is no way to create a stable system in which the rewards go to the lucky / politically connected -- but the costs are born by "the system" (aka the taxpayers). Whether anyone wants to admit it, the parts of Lehman that might survive benefited tremendously from the parts that are now causing its demise. Why should the "surviving" parts benefit doing good times, but not suffer during bad times? And why on Earth are the rest of us responsible for their mistakes?

      Every little hot dog vendor on the street is not "too big to fail". No matter how entangled Lehman is with the rest of the street -- everyone has known about the Lehman problem for months. Any firm that did not control their exposure over those months deserves to fail.

      Arguably some of the most prominent firms on Wall Street 30 years ago were names like White & Co, EF Hutton, Loeb, Salomon Brothers, and Paine Webber. They were all as important in their day as Lehman or Morgan Stanley is to today's market. They are all gone -- and the world did not end. Drexel Burnham failed almost overnight, and again the world did not end. Even the junk bond market is still alive and well. The world will miss Lehman and many others that will soon fail -- but life will go on.

      There will be a disruption when Lehman fails, but it won't bring down any well managed firm... The CEOs of the other companies are **SUPPOSED** to be doing daily credit analysis on all their counterparties. They have all had months to adjust to the current crisis. If they haven't adjusted, if they aren't doing their jobs, then they deserve the fate of any business that isn't doing its job.

      Things will stabilize when trust and confidence is restored to the system -- not when a bunch of government bureaucrats and central economic planners pick and chose which firms will survive or fail based on politics.

      Firms that don't do their job well have always failed -- except in crony capitalist economies where government props them up. Consumers and taxpayers are always worse off when this happens.

      The best solution to this problem is the one the U.S. suggested (and almost imposed) on Asia 10-15 years ago... Don't prop up bad businesses; instead let new entrepreneurs step in and meet consumer demands. Get government spending under control.

      Lots of people have tried to blame free markets for this crisis... but if we were more honest: it was the Fed that lowered interest rates too far. It was Alan Greenspan (the Fed again) that recommended everyone switch to adjustable rate mortgages, and it was bank regulators that failed to regulate banks on liar loans and abysmally poor (non existent?) risk management practices. Government's push to promote home ownership -- at any price-- was a big part of the problem. Fannie Mae and Freddie Mac are both political entities sponsored by the government.

      If taxpayers go and bail out the failed companies (which we really cannot afford to do anyways) -- it means the same geniuses that caused this problem remain in business to mess things up again and again. The economy needs new companies with new ideas and better management -- those new companies will never come to be if they have to compete against government/taxpayer subsidized ponzi schemes. Part of the reason why Fannie and Freddie got so oversized is because they had implied government backing and could borrow money 80 basis points cheaper than the competition (and according to a Federal Reserve study, less than 25bp of that was passed along to homeowners).

      People always want to take action and "do something!!!" -- but sometimes the best thing to do is nothing. Have a little patience. This too shall pass.
      View article »
    • Sat Sep 13th 15:17 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      riskyreward -- I think I understand your point now.. but I still disagree. Accounting has ALWAYS been an art, not a science. You cannot look at book value or P/E ratios as if they were some sort of precise measurement. At best, they are a snapshot of a moving target. At worst, they are nothing more than artifacts of accounting rules.

      People have been debating the merits of "mark to market" and "cost basis" literally for centuries (the concepts were the same, the names sometimes changed).

      Mark to market gained popularity precisely because cost basis does not reflect impaired value unless and until management "recognizes" it. Plenty of CEOs have inflated earnings by simply delaying that "recognition"... Mark to market regained popularity because CEOs would pretend acquisitions were successful -- there are many instances from the 1980s were a CEO overpaid for another company (creating enormous amounts of "goodwill"), but when it became obvious that the acquisition wasn't paying for itself, CEOs refused to write down the worthless good will.

      Now the pendulum has swung to the opposite extreme, and people are rehashing all the complaints against mark to market.

      But as investors, we shouldn't get ourselves tangled up in accounting minutia. We have to look at the underlying business(es) and understand what is going on.

      You have no doubt read about all the homes being foreclosed upon all over the country? The even larger number of people who are behind on mortgage payments? You must have read how home prices as a multiple of income are STILL many times higher than historical "norms". These people are not paying (and probably cannot pay).

      If they cannot pay, that means the folks on the other side of the transaction-- the people who own the mortgage securities-- are not getting paid. Lehman (and the rest) paid money up front to buy the mortgages (ultimately they lent the money to the homeowners) -- and now they are not going to be paid back.

      That means they have billions in losses... it doesnt matter if you look at it on a cost basis or a mark to market basis -- they have massive losses either way.

      Lehman's problems are compounded because they bought those mortgages at extreme leverage. And many of the mortgages are in securitized forms that are very illiquid -- making them difficult to price even if you are a mortgage securities analyst/trader.

      That is why Lehman (and many other banks) are insolvent -- whether you use cost basis or mark to market accounting.

      There are hundreds of investors with a lot of cash and a lot of smart analysts working for them who would sweep in and buy Lehman on the cheap if they were truly solvent.
      View article »
    • Fri Sep 12th 19:00 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      Auditors also signed off on Enron's books. The only thing auditors do is spot check some (not all) assets.

      Goldman and Morgan Stanley (and Lehman) have no way to properly value many of the illiquid assets on Lehman's books. The assets are listed at costs established during the real estate bubble -- way too high.

      If Goldman et al are unable to value the assets -- its ridiculous to cite a bunch of CPAs rubber stamping Lehman's cost as being in any way accurate.

      The firm is not solvent and there is no madness. There is nothing illogical about the price. If there was any merit to LEH, there are many smart and cash rich players who would jump in and take the free money.
      View article »
    • Fri Sep 12th 16:10 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      DJT -- I think we understand your point, you are missing ours.

      If, as you seem to suggest, LEH's stock is "unfairly" battered down -- why wouldn't one or more of Dick Fuld's numerous friends on Wall Street start buying like crazy?

      Why wouldn't Goldman (or Morgan Stanley or whomever) buy LEH stock and make a windfall once the market "comes to its senses"?

      Goldman is certainly in at least as good position (arguably better) than anyone on this board to evaluate Lehman's assets/liabilities. So is Morgan Stanley. So are many others. Why doesn't Warren Buffet jump in? Heck, why doesn't some allegedly greedy hedge fund manager jump in? If Lehman stock is "unfairly" down (whether short selling or "rumors" or whatever conspiracy), why don't any of these well heeled, long term investors want to make easy money?

      The obvious answer is: Lehman stock is down for very good reasons. Over-leverage, illiquid assets that are difficult to value and even more difficult to sell, and poor risk management

      Lehman has had access to Fed lending programs for months (since two days after Bear's collapse) -- so its very confusing why would you suggest Paulson and Geither go *announce* something that everyone has known for months? It has already been done -- and it failed to stablize the markets.

      Dick Fuld is a smart guy -- what makes you think he hasn't already shown the books to potential buyers? There have been many rumored suitors (Goldman, BankAmerica, Korean Development Bank, etc)

      This isn't an unnecessary fire sale -- its the very easily anticipated result of a decision to get overlevered in illiquid assets.

      You need to think ahead a few moves with your suggestion that Lehman be given a pass-- especially at taxpayer expense. How could Lehman ever hope to enforce a margin call against a customer in the future? Do what we say, not what we do?
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    • Fri Sep 12th 15:38 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      And none other than Warren Buffet has dismissed the naked short selling conspiracy...

      jeffmatthewsisnotmakin...

      Buffet is not worried about naked short selling of Berkshire Hathaway -- in fact he offers to hold a special meeting to help anyone who wants to try.

      Buffet cites a windfall profit he made off short sellers in US Gypsum

      Short selling is simply not an issue for a well run firm.
      View article »
    • Fri Sep 12th 15:32 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      The whole short sale conspiracy theory has been repeatedly discredited -- in addition to the president of Indonesia, short sale conspiracy advocates are keeping company with the CEO of overstock.com ...

      The NY Times also discredited the idea that naked short sellers are somehow manipulating markets
      norris.blogs.nytimes.c.../

      The fact is, healthy companies don't ever seem to fall victim to these alleged conspiracies -- or more to the point, they are very transparent and conservatively leveraged, so it is very easy for a healthy company to convince the markets that the short sellers are wrong.

      There is no conspiracy to drive down LEH or any other financial company. They are over-levered into too many illiquid assets. As sad as it is to see LEH go, it is dying because of its own mistakes
      View article »
    • Fri Sep 12th 13:17 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      "Hmm. Seems to me that buyers of firms shorted to death (Countrywide, Bear, Indymac,Leh...) won't..."

      Every example you cited (except LEH, which is on going) has been found in hindsight to be insolvent. BAC has refused to guaranty the debt of Countrywide. JPM refused (even with the Fed's gun to his head) to take Bear Stearns unless the Fed took $29 billion of garbage. IndyMac is already straining FDIC.

      And Goldman Sachs has said flat out they will not take LEH unless the Fed or Treasury takes some bad assets out of the mix.

      So either Goldman is crazy -- or Research123 thinks he knows more than people who have actually been given detailed access to LEH's books.
      View article »
    • Fri Sep 12th 12:48 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      If LEH were able to make its books transparent -- which is impossible given the assets they hold -- the short sellers would be discredited in an instant. LEH's lack of transparency is the problem.

      If the questionable assets were a small part of the total, and small in relation to shareholder equity -- the short sellers would have nothing to go on. LEH's excessive leverage is the problem

      Short selling "abuses", if they exist, are only possible because of poor decisions made by LEH.

      Crying about short sellers is the sort of thing Wall Street USED TO make fun of when the former President of Indonesia did it at the start of the Asian crisis.

      No one has ever cited a single example where an otherwise solvent firm was brought down by speculators / short sellers. A strong solvent firm (or country) has numerous easy ways to fight any short selling.
      View article »
    • Fri Sep 12th 12:26 PM | Rating: 0 0
      Commented on:
      Debating the Lehman Collapse
      Its really embarrassing how many so-called "capitalists"... want the government to step in and rescue over-levered banks with balance sheets that cannot be deciphered even by insiders.

      Even though (most) people like Dick Fuld, not even his friends and supporters can figure out the value of what is on LEH's books. Its not obvious that Dick Fuld knows, given there is no market for many of these assets. LEH's supporters keep whining about an alleged capital ratio or book value -- both of which rely on questionable accounting judgments about the very assets that are causing the banks demise.

      The most telling thing is to ask what would LEH do if one of its own customers got over-levered? What would LEH do if you bought something on leverage through LEH and that asset went down?

      The answers are obvious: over-levered customers would be required to de-lever immediately, selling whatever assets at the current market price. If you tried to argue with your broker that XYZ stock is undervalued by the market and so the margin call is totally unfair-- your broker would just laugh at you. These responses are not unique to Lehman; the same outcome would happen at any brokerage.

      You know what people think about those who cannot take their own medicine...
      View article »
    • Wed Sep 10th 16:20 PM | Rating: 0 0
      Commented on:
      Distinguishing Between Out of Favor Sectors and Doomed Ones
      DM: On an unrelated note, what should be the terms for bailing out Lehman Brothers?

      What? Why do you assume a bailout is necessary?

      Lehman's counterparties are all "institutional investors". People with MBAs and PhDs. People who collect millions of dollars per year in compensation because they are supposedly so much smarter than everyone else.

      The argument to bail out Lehman (or WaMu or any other) is ridiculous. The consumer is roughly 70% of the economy -- that's more than ALL the banks put together. If XYZ bank is too big to fail, then the consumer is way way way too big to fail.

      So we should all send our mortgages and credit card bills to Paulson. And under the too big to fail doctrine, we have every right to expect him to pay every single one of them. 70% of the economy is clearly too big to fail. And the majority of consumers do not have MBAs or PhDs like the "sophisticated investors" who work on Wall Street -- we are far more deserving of help. Where is our bail out?


      Or, we could follow the ideas that once made America the great country it USED to be (and could be again). Let the people who made poor investments bear the consequences of their decisions.

      If you traded with Lehman or WaMu or whomever -- you get the results of your decision good OR bad. If you make money, its yours. If you lose money, its also yours.

      Of course, this means a lot of Wall Street will fail. But they are hardly "victims" of anything, except their own decision making.
      View article »
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