DougM

Breaking News: Wells Fargo Buys Wachovia

And yet, this deal makes much more sense for Wells because they don't have much of a presence on the east coast. With this deal, Wells finally goes truly national. I hope it goes through. The Citi deal was contingent on shareholder approval anyway. So, why would a shareholder not simply vote that deal down and take this one?

Time Not for a Bailout, But for Nationalization

WaMu probably wasn't a swaps player. I think they're deathly afraid of either a swaps player going down, or a firm that's the subject of a lot of swaps going down, because any such event threatens to trigger the swaps bomb.

Time Not for a Bailout, But for Nationalization

I think if you nationalize a firm that's not well-capitalized, you'll trigger a credit event that sets off all the CDS's that have been written on that firm. That would then cause more firms to fail, I suspect you'd end up owning all the firms. At least then the government could net out all the swaps across counter-parties. One question would be, if the FDIC takes over a firm, is it on the hook for the CDS's, or are those, like the debt of the failed firm, detrius to be squabbled over in bankruptcy?

You Can't Handle The Truth

I agree 100% with your assessment of what could happen in the event of a "meltdown", and it *is* scary. So, yes, it's worth $700 billion to avoid it. Now the next question is, is this bailout the only way to avoid it? Is there a better way? One that doesn't involve giving *anything* to the wall street wizards that created this stinking fraking mess?

This Uncertainty Is Unacceptable

You're missing something - economics is a "social" science, not a "hard" science. It has the trappings of science with numbers, formulas, etc., but at bottom a lot of it boils down to human behaviour and emotion, which is much harder to quantify.

The End of the Chaos Trade

Yes, there's something a little odd about placing a bet that pays off big if, say, an asteroid hits the earth...

The Financial Crisis Explained

While I agree that shoddy lending practices, bad tax law, and unbelievable leverage levels all fed into this mess, you've not mentioned a few other salient factors.

The unregulated swaps market, which has been growing since the early 90s, has reached the point where it threatens to bring down the entire financial system if a single large player fails. This should not have been allowed to happen - regulators, but specifically Alan Greenspan, were asleep at the switch. This systemic risk creates the need for government action now.

Moreover, the mark-to-market accounting change couldn't have been more poorly thought out or timed - when there is no functioning market, this rule creates a balance-sheet vicious cycle that's adding fuel to the fire. Throw in the the complete lack of enforcement of the rules against naked shorting and you have a recipe for violent market action.

Finally, how can you not take note of the fact that Greenspan took the funds rate too low for too long, driving even more investors into the only asset classes that were still producing any yield?

Should We Try Congestion Pricing for Security Trades?

There is an important asymmetry to long/short trading that you're missing. During a bubble, the underlying company won't be damaged, only the traders foolishly bidding up the price will be hurt. Whereas during a panic, a company whose business model depends on its access to the capital markets can be driven into bankruptcy.

Oppose the Treasury's Bailout Plan

Amen

Making Sense of the Brokerage Bust

The hedge funds are doing exactly the same things these failing firms have been doing; gambling in the markets against each other with huge sums of borrowed money. The only difference is, the big WS firms forced the rest of us to invest in their schemes by virtue of being publicly traded. And, in an odd way, the hedge funds are a cheaper way to lose your money, since their take of the profits is "only" 20%.

Oil Up $6 to $104

The bailout being worked over the weekend is likely to be inflationary.

Hank Paulson: Leading Us to the Next Bull, Soon

Unreasonable to blame Clinton. The GOP congress passed that bill after all. Plus G-S was irrelevant by that point anyway. The unregulated swaps market was already a growing problem even without the G-S repeal. Fact is, the real source of the systemic risk we now face is the swaps. Without that, many institutions could and would have been allowed to fail as they should, including Bear Stearns and AIG. While the swaps are the systemic risk, it needed a trigger, and for that, we need look no further than Alan Greenspan, who ignored shoddy lending practices and who held short-term interest rates too low for too long.

U.S. Records Another Huge Current Account Deficit

When you say that Bush and Congress should have acted to fix the current account deficit, what exactly are they supposed to have done? I see one concrete proposal hinted at in your article, which is a sensible energy policy. Beyond that, what?

Wednesday Outlook: Commodities, Emerging Markets

Dave, love your column. Some possibilities re. the utilities decline:
1. Possible repeal of dividend tax rate under new president.
2. If long interest rates rise, bond-like equities could go lower.
3. Expensive renewable mandates - paid for by who?
4. Expensive grid upgrades needed - paid for by who?
And of course as you know
5. In a downtrend since last year - trend continues until it doesn't.
6. Just more stocks in the sell basket.

Frannie CDS Triggered

I've been trying to figure out what the problem is here for sellers of protection, since the bonds are now backed by the US Gov. Let me make a stab at it: they're now going to have to pony up cash and go long the bonds at whatever the nominal interest rate is. If you're a hedge fund that used a leverage position to sell "insurance" on these bonds, you're probably not looking forward to raising enough cash to pay off your counterparty and then ending up long these bonds at today's historically low interest rates. Just a guess.