Getridofthemnow

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    • Wed Nov 12th 00:45 AM | Rating: 0 0
      Commented on:
      Banks Worried About FDIC Debt Guarantees
      The 75bp will not end up applying to Fed Funds. For the rest of the senior unsecured, clearly there should be a fee applied for insurance for the program, so complaining banks shouldn't be taken too seriously. Rather than complaining, how about presenting a solution? Hey, that's a neat idea.

      Is the flat 75b is sensible? Well of course its not. It's an arbitrary # that will help Sheila replenish her DIF and plucked out of thin air.

      The fee should be risk based, not flat rate. FDIC should base the insurance fee on CAMELS ratings and other safety and soundness indicators.
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    • Mon Oct 13th 01:07 AM | Rating: 0 0
      Commented on:
      Paulson Finally Doing the Right Thing
      Is anyone concerned about the state of municipal finance? I worry that this is the next significant show to drop. I am hearing more and more from my colleagues and friends that municipalities are in deep trouble. I would like more insight and information about the fiscal health of munis. Banks have a lot of money - liability and asset side - that depends on munis.
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    • Mon Oct 13th 00:56 AM | Rating: 0 0
      Commented on:
      G-7: Nothing New
      Your welcome. I am always here to help the intellectually challenged. The losses we are dealing with in this situation is not = to the total mortgages outstanding in the U.S....your $12 trillion "fear mongering" number. The losses that exist on the balance sheets of today's banks is more in the range of $2 to $3 trillion. This is a huge number, and far exceeds the $700B TARP stack of "sugar". However, it does no one any good to spew silly numbers on what should be serious chat boards. SA expects better.

      Placing losses relative to GDP, especially nominal GDP, is crazy. Losses and nominal gross domestic product are two very separate things. The only thing in common is that they both represent big numbers, but placing two "big numbers" side by side is nothing more than, well, placing two big numbers side by side.

      What we should focus on is the amount of expected loss in the system. To do this, I urge you to stretch your mind on the simple calculation:

      * On average, banks have 35% of their assets in mortgage-related instruments
      * On average, there has been a 15% declined in home prices
      * On average banks have 10% capital to be considered "well capitalized" under PCA (do you know what PCA means?)
      * If we assume that bank mortgage assets are down 15%, this means a $5.25 loss in value
      * Thus, on average, most banks have seen their solvency hit by 50% remark
      * Thus, there are many wounded and many "dead" banks

      In order to save these wounded banks, we need to recapitalize them. How much will it cost? As a simple estimate, consider using the average decline in value (15%) against the volume of mortgages outstanding. This brings us to a $2 trillion bailout, approximately.

      Thus, if the point is to criticize the $700 billion as being insufficient....vrspac... couldn't agree more. It's at least 2.8x that amount that is needed.

      If, however, there is a suggestion that it's $12 trillion....well....th... bar the door. Dow will be 500 before we are done. That's an absurd number.

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    • Sun Oct 12th 00:05 AM | Rating: 0 0
      Commented on:
      G-7: Nothing New
      vrspace - get an HP-12C and do your own calcs. Bearfund puts it in the right units - relative to gold. Placing in reference to GDP is silly. $12 Trillion...that's utter nonsense.
      View article »
    • Sat Oct 11th 18:26 PM | Rating: 0 0
      Commented on:
      G-7: Nothing New
      For those that want an education on ideas on how to solve the crisis in a more fitting and tested manner, we should all read "Fifty Billion Dollars" by Jesse H Jones, a book that is essentially an instruction manual for dealing with massive bank insolvency, which is the real issue at hand. Under the leadership of Jesse Jones, the RFC placed banks into three categories: A, B, and C. Category A banks were viable without assistance; B were recoverable; and C were the living dead. After the "bank holiday", only banks that were in sufficiently good health were permitted to re-open as private organizations. The category B banks were, over time, recapitalized using preferred shares. It was this use of preferred shares - i.e., recognizing that loans (a la the heretofore strategy for 2008) - that finally permitted the banking system to turn the corner. It is good that our leadership has finally recognized the need for this action. No amount of liquidity will cause counterparties to trust and lend when solvency is at stake. It should be noted, however, that no well publicized and understood process for identifying the "A-B-C" banks has been put into effect for this 2008 crisis. All national, state-member, state-non-member, S&Ls, and credit unions should be "tranched" into similar categories. In today's much more resilient system, the ability to identify these organizations should not take long at all, and a bank "holiday" would not be needed thanks to existing FDIC insurance and other "differences"... from the 1930's situation. Those banks that are "C" should be handed to FDIC as receiver and, as necessary, continue to run as "open banks" but under federal control until such time as assets and deposits can be transferred (like IndyMac). "B" banks should be recapitalized using preference shares. Repayment should be on favorable terms to the U.S. and all participants should have to stop current dividends. In some cases, certain percentages of current shareholders should be wiped out. U.S. will have controlling rights and be able, if necessary, to change management (something that wasn't often necessary in the 1930's).
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    • Sat Oct 11th 12:00 PM | Rating: 0 0
      Commented on:
      Quitting the Hedge Fund Game - Mark Sellers
      Has ANYONE in the press or media noticed the list of hearings here?

      oversight.house.gov/st...

      The "Regulation of Hedge Funds" hearing scheduled for October 16th ought to be very interesting, especially given recent "talking head fodder" that the "hedge funds" are to blame for the wild intra-day swings....

      ....first it was the short-sellers....now we are again on hedge funds....next it is the regulators....

      ...when will we learn that the problem was "easy credit" provided by the FRB, irresponsible lending (the bankers themselves and mal-aligned incentive plans) by the banks, and poor decisions by the INDIVIDUALS (i.e., those that took out the loans).
      View article »
    • Sat Oct 11th 11:52 AM | Rating: 0 0
      Commented on:
      Look What We've Had All Along: The Paulson Plan to Purchase Bank Equities
      Agree. We have been through this before. We need to recapitalize the banks, as a vast amount (> 50%) are insolvent. The math is simple: on average 35% of banks total assets are in mortgages. Mortgages have declined in value by roughly -16% (note: take as an average the 2006 vintage as reported by Case-Schiller; take as average 2008 Case-Schiller; difference as % of 2006 average as proxy for decline). JPM and other estimate at least another 8% to go. This means that:

      = .35*(.16+.08) = .084

      That's 8.4%. Most banks are "well capitalized" at 10%. Thus, on average, 8.4% of banks capital is wiped out. This implies that there are a whole lot of "zombies" in the market right now. The only way to fix them is to recapitalize, as I have been saying since at least March-08 and the BSC bailout.

      One need only read "Fifty Billion Dollars" (the book, read Chapter 2) to understand what "must" happen. Unfortunately, Paulson's plan doesn't accomplish what is needed. Moreover, as a politician and "power hungry POS" he wants to subsume the power into UST. This is stupid and inefficient. We already have the infrastructure to accommodate what's needed in terms of resolution teams in the FDIC, OCC, OTS, and FRB. Instead, he is appointing a 35 year old Neel Kashkari? Are you serious? Use the infrastructure that is ALREADY in place and be FAST.

      One of the lessons of the Great Depression was that "slow" and ineffectual moves made the situation a lot worse. Sadly, Paulson's "power grab" is jeopardizing the success of the program. Rather than cooperating with Agencies ALREADY IN PLACE that can very aptly handle the problem, he is building his own "universe" in order to increase the power and clout of UST. Paulson, as has been said in NUMEROUS other forums, should be fired - YESTERDAY. UST should be solving fiscal, budget, and similar issues, not bank regulation, supervision, and market oversight. This should be vested with "others". Even the OCC should be pushed into a separately funded and "arms-length"... (from gov't) entity, which I trust will be the nature of the reg reform law that is passed next year.

      Immediate need:

      1) FDIC handles "ABC" banks. "A" are basically sound but may need capital; "B" are in need of help, and should be immediate focus; "C" are dead and should be shut-down ASAP.

      2) Asset sales of mortgage related product is coordinated, via the FDIC structure, with FNMA na dFHLMC. All "other" asset sales handled by FDIC (and their existing contract arrangements) with current loan and asset sales (i.e., workout) partners.

      3) FRB handles, only as needed, systemic issues. FDIC and FRB coordinate much more closely.

      4) We need to launch, as was done in 1930's, more infrastructure projects

      5) We need to launch, as was done in the 1930's, direct corporate lending where it is a systemic issue (like the FRB's CPFF...good move)

      6) Etc....(the list is long)
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    • Fri Oct 10th 22:39 PM | Rating: 0 0
      Commented on:
      Where We Go from Here: Best and Worst Cases
      No one needs the talking heads of "today" to tell us that the problem is capital and solvency, not liquidity. Read this from the book, "Fifty Billion Dollars", written by Jesse H. Jones, the director of the Reconstruction Finance Corporation (RFC) from 1932-1945:

      "Despite all these efforts, as fast as one situation was improved, several others got worse. It became increasingly evident to us that loans were not an adequate medicine to fight the epidemic. What the ailing banks required was a stronger capital structure." (page 22, Chapter 2, "Aid to Banks" )

      The book the provides what amounts to "instructions&quo... for how to handle widespread insolvency, beginning with the "A-B-C" bank plan and the use of preferred stock. Sadly Jesse wrote the text so in the future leaders could learn from the RFC experiences - what worked and what didn't work.

      If Ben Bernanke is such am "expert" on the Great Depression, I truly wonder what he and the Hankster have been thinking. Maybe Ben needs to re-read some of these old texts, as the only smart thing they have done so far seems to be the suggestion of direct capital injections into the banks.

      Are there other motives at work? Did they really not perceive the situation as being that desperate? Do they think its a OTC and NYC problem, rather than a real banking crisis?

      Let me add that this crisis is no where near over. There remains a woeful lack of a systematic program to address the banking crisis in a way that allows the separation of the true healthy, from the sick but recoverable, and the walking dead. There are no plans for such effort. Thus, we are destined to watch more banks fail - large and small - and customer and others lose more and more faith and trust in our financial leadership.
      View article »
    • Fri Oct 10th 01:12 AM | Rating: 0 0
      Commented on:
      Seeking the Fix That Will Finally Work
      Occdude - you are right on mark. The issue is loss recognition, insolvency, and bank failure. You can put all the scaffolding you wish underneath the bad eggs, but they are still bad eggs. You cannot "liquify" yourself out of an insolvency. What we are doing as a nation is no different than a personal balance sheet as follows:

      Total Assets = $100 (but recorded at $130 using "GAAP" and "held to maturity" pricing)

      Total Liabilities = $115

      Net Worth = ($15)

      Ben Bernanke, who should be and likely will be fired before long (if Congress and/or next President finally wakes up), along with Daddy Warbucks (ooops...I mean Hank Paulson), told Congress and the world that to correct this negative net worth situation, we merely need to increase the limit on the poor saps credit card.

      Ben: Here Mr. Banker. I know you are insolvent, but please take this money and grant more loans.

      Banker: But Ben, I need to reduce my liabilities and find some way to recapitalize.

      Ben: No...no. Just use the cash. Make loans. The market won't know you are insolvent because you don't have to mark anything to market. We will worry about capital later. This is a liquidity crisis, not a solvency crisis.

      Banker: Ben, with all due respect, I don't think you learned much up there at Princeton. The reason my depositors are leaving, wholesale and large uninsured CD, is they have kind of figured out my assets aren't worth $130. They are a bit freaked about that. If I solve the capital issue and recognize the losses - that is "repair" the REAL hole in my balance sheet - they won't leave.

      Ben: Don't worry. We will insure ALL depositors.

      Banker: Ben...that doesn't solve the hole in my balance sheet.

      Ben: Don't worry. Be happy. Trust me...I've studied these things.

      Banker: And was it a water bong or a pipe you were smoking during those studies?
      View article »
    • Mon Sep 29th 14:35 PM | Rating: 0 0
      Commented on:
      Fear Goes Hand in Hand with Drama
      With the House vote, I am on my way to being proud of being an American - again. I hope this holds. It will be painful, but a pain that is necessary and proper.
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    • Mon Sep 29th 11:06 AM | Rating: 0 0
      Commented on:
      3 Things America Needs to Do to Get the Economy Back on Track
      Great article
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    • Sun Sep 28th 21:37 PM | Rating: 0 0
      Commented on:
      The Deal's Getting Done, But Will It Work?
      Sheila Bair has called for a "foreclosure"... moratorium within the IndyMac portfolio. What do you think this does to all those that have been paying? Of course...stop paying. They won't get foreclosed on, so why pay? Then, once it gets to a point where delinquency is really bad, the government will "modify" the loan, if you qualify (i.e., have a heartbeat) so that you "can" pay, which in practice means writing down the principal balance to get to a "conforming" payment (i.e., the FNMA and FHLMC qualifying criteria). Once you qualify for a FNMA and FHLMC mortgage, then it can be packaged and sold, with a government guarantee from FNMA and FHLMC. This is the plan for how many loans will be "worked out", and it relies on government taking a hit on principle. They would like banks to start doing the same thing...modifying loans so they become qualifying, then Hank&Co. (via that joke of a regulator/conservator Lockhart) can issue FNMA/FHLMC bonds and the losses can accrue to the $200 billion g-fee bailout.

      Then Paulson plan part deux does even more. It says, essentially, that we are unwilling to let banks fail because of their dumb decisions. We will buy assets at prices that, as Bernanke says, are "held to maturity" (HTM) prices.

      This is really another way of saying, "Hey, I think Americans are dumb. Let's use an "accounting" label, then they won't 'get it' and will believe there really is some 'price' that is different from the 'economic' price".

      Bernanke is a criminal, as is Paulson, for even suggesting that there is something called a "held to maturity price". Google HTM price. You will not find anything.

      What he should say is:

      "We, Ben Bernanke and Hank Paulson, think that the intrinsic value of the cash flows are worth more than the current market value. We are willing to place the bet that the financial markets are wrong and we are right, and we are willing to bet your tax dollars on it."

      He, and Paulson, Pelosi, Dodd, Frank, and others (except some House Republicans) believe that if we hold onto these assets for a few years, that Americans debtors will repay and that the present value of those cash flows are worth more than the market price today. They may be "somewhat" correct, but not altogether correct. There likely is some distressed value that is lower than the real intrinsic value, but it is nowhere near the levels Hank&Co believe (i.e., around 70-75% of face).

      The reality is that many of these mortgage loans shouldn't have been made, and the losses are going to be realized - by someone.

      No "waiting game" is going to make it better and, in fact, the government interference is working in perverse ways to, in some cases, make the situation far worse (as in the Sheila Bair and Indy Mac example above). We think these bureaucrats are heros? No. They need to go back and take Econ 101.

      This is why I say: Americans don't understand what is happening. It is too complex, and most Americans have the attention span of a gnat.

      Let us ask the right questions. It is really very basic.

      1) What is the ability and willingness of the debtors to repay?
      2) What is the value of the collateral?

      #1 is being sabotaged by all the effort to "shore up" the system
      #2 continues to be crushed by inventory on the market

      Paulson is trying to solve #2 by buying up inventory at off-market prices before the loans even hit the "market", and thus artificially prop up price.

      But it is all smoke and mirrors. The losses are real and need to be recognized. This is a capital and solvency issue, at the core. Read the article at:

      us1.institutionalriska...

      Right on the money.
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    • Thu Sep 25th 01:30 AM | Rating: 0 0
      Commented on:
      Don't Panic
      For the record, there are news reports (one in today's WSJ) where other countries are saying things like, "This just shows that capitalism is a dead-end, flawed road" and "We need more government control and regulation."

      For the record (for those that haven't been paying attention for the last 60+ years:

      America is NOT a free market.

      We are a highly regulated, manipulated, socialized market.

      If anyone suggests that we have a free-market system, please send me a note so I can pass along some reading recommendations.

      There are numerous flaws with our current system, not the least of which is manipulation of incentives by more than a few government agencies. Reform is needed, but oddly enough the reform is to get government further REMOVED from tinkering with incentives and creating poor signals of proper/improper investment choice, and work to increase market transparency (we live in an information age, so this shouldn't be so hard).

      Problems today include:

      1) GSE models (government's fault; flawed; read former Governor Poole's comments on the GSE problem)
      2) Allowing TBTF firms - read Alan Greenspan's confirmation hearing and try to internalize all that William Proxmire had to say to the "Maestro". If only we had listened to poor, ignored William.
      3) FHLB System - a disaster waiting to happen
      4) US Government gtys - like FHA - are you serious? Shoot it
      5) Cash basis accounting, not GAAP
      6) Of course, the FRB's "fine tuning" operations. Read Friedman. Not that I am a monetarist, but I agree with the "remove the punch bowl" philosophy, which isn't today's FRB (bring back Volker!!!)
      7) FDIC insurance - should be paid for as a direct adjustment to amount the CUSTOMER decides they want to insure. Adjustment to rate. No insurance = higher rate; more insurance = lower rate. Make the customer responsible for his/her risk taking
      8) Bank ratings - CAMELS? How about rating risk management, disclosure, concentrations, etc. Make them public. Assess higher fees for higher risk.
      9) Regulatory arbitrage - not the rules, but the Agencies. Under GLBA, functional regulators created. Congress screwed up. Don't allow "Divide and conquer." Bring the regulators under one roof. Keep the state charters. Push insurance to the FRB. Keep supervision separate from the FRB. Similar to Paulson's plan. Reform needed, but perhaps more regulation isn't, just recalibration.
      10) Etc...I could go on and on, but you would get bored, and it's 1:30am.
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    • Thu Sep 25th 01:04 AM | Rating: 0 0
      Commented on:
      Money Market Funds: 'Chutzpah Banking'
      Can I pay you to be shut up?
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    • Thu Sep 25th 00:58 AM | Rating: 0 0
      Commented on:
      You Can't Handle The Truth
      The credit markets are toast. Did anyone see the TED spread today? Once again, we are grinding to a halt. It won't be pretty. Tomorrow and Friday are pivotal days. No one can issue term debt right now. That's bad. Financial organizations dis-intermediate risk - credit, liquidity and interest rate. Confidence is going, going....(gone?). P&B have orchestrated some of this by telling the markets "If this doesn't pass it's a meltdown!" That's so irresponsible, I would fire them for being so stupid to say it. That aside, it is now to the point that if something significant isn't done by Congress, there will be a collapse. Between now and Friday, Jesus needs to be seen walking on some water, passing out some dixie cups of wine, and passing out some fish and chips, else....well, .....enough said....
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