Anandakos

Why AIG Wasn't Allowed to Fail

Can't do that. It would be an ex post facto law. Los Supremos would swat it down in a (dare I say it....) New York minute.

On Mar 17 05:01 PM Mike Hydes wrote:

> What would happen if Congress just invalidated these credit default
> swaps?
>
> If they can do that then why has it not been done?

Why Houses Now Are Like Stocks in 2002

How to short houses? Sell one using a real estate contract rather than a fee simple sale to a mortgagee. When the price falls enough the contract purchaser will probably default and you'll get the house back plus the money from the contract.

You can't live in it in the mean time and the purchaser might trash it when he or she figures out what you did, but it's a pretty sure thing if houses do lose another 25% of value.

On Mar 16 06:43 PM William Cowie wrote:

> Trust Felix to come up with an unusual perspective. Now if we can
> only figure out how to short houses in this market...

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

Mr Big,

Sic 'em Buck Turgidson! Rattle those Minutemen! Brandish those Tridents! The PU239 in the triggers is gettin' a little weak from sittin' there in those tubes too long. Gonna have to replace the H3 any time now; poisoned with He. Gotta use 'em or lose 'em.

We can ALL ride down on the bomb!

On Mar 13 12:03 PM Mr. Big wrote:

> Sooner or later, Americans will realize that China has been waging
> a quiet war on America. You know what? China is winning. I'm just
> going to put it out there now: CHINA IS THE CAUSE OF THE CREDIT
> CRISIS.
>
> Their manipulation of their currency as decimated the US manufacturing
> base. Their massive buying of medium and long term treasury bonds
> (in support of their currency peg) as caused long term yields to
> remain depressed for a prolonged period, causing the inversion of
> the yield curve in 2005 to 2007 and setting up the conditions for
> leverage in the financial sector and the incentive for savers to
> become borrowers. They did this to America and now they have the
> gull to "warn" us?
>
> Fact of the matter is, China's currency manipulation should be considered
> an act of war on America. It is a blatant attack on America's economy
> and a destabilizing force on its financial sector.
>
> Quite the opposite should happen. America should be warning China
> to stop their blatant attacks or risk military intervention. What
> is happening now is tantamount to an embargo on America....nay....it
> is worse. And if an embargo is considered an act of war, then currency
> manipulation with the sole purpose of boosting domestic manufacturing
> at the expense of foreign manufacturing should also be considered
> an act of war.
>
> Just my thoughts....

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

Chris,

Your options are spot on, except possibly for number 9. It's already been partially done; new Federal employees were locked out of the traditional "Civil Service" retirement system by President Reagan. A "tier two" system was implemented with benefits essentially half a generous as the previous plan (the benefit was 2%/year of service but became 1%).

I gather you're advocating eliminating even the new plan and substituting a 457 system (the governmental equivalent of the 401K).

That would certainly save a little money in the near-term as boomers retire and are replaced by the new 457 only workers. But when the economy recovers -- it really will recover -- the government would have to pay significantly higher wages to attract quality talent. Washington DC is a HIGH cost city and the certainty of a guaranteed lifetime annuity benefit in retirement allows people to make the choice to live there on a lower present salary. Assuming rational investment of the employer contributions in a well-run retirement system -- which seems to be true for the FRS -- and the net present value of money, total Federal expenditures over the next century might actually be HIGHER in the absence of the FRS plan.

This is not an attack, just a "what about?"

On Mar 13 11:23 AM Chris B wrote:

> "The heretofore mutually beneficial arrangement of China purchasing
> US debt with trade surpluses generated by American purchases of Chinese
> goods is drawing to a close. China’s trade surplus has all but evaporated,
> eliminating the need or ability of China to purchase additional US
> debt."
> ----------------------...
> This is a decoupling theory based on a brief decline in US imports
> of Chinese goods. For this theory to work, either (a) Chinese internal
> demand will suddenly reach US levels and keep the factories running,
> or (b) China will decide to quit trading with the US, let the factories
> shut down, allow unemployment and civil unrest to rise, and go into
> steep economic decline just to spite the US.
>
> I'd say the Premier is just talking, exactly as our politicians do.
>
>
>
>
> "As China throttles way back on its purchase of US debt, America
> will have three choices - 1. Borrow and spend less 2. Raise taxes
> tremendously or 3. Print money. Based on what we have seen so far,
> it will be some of number 2 and a lot of number 3."
> ----------------------...
> Might I suggest a couple more multi-trillion dollar options:
>
> 4. Go one decade without a multi-trillion dollar war.
>
> 5. Eventually sell the mortgages, bonds, and stocks that the government
> has purchased so far. Obtain some return from the loans issued.
> Pay down debt with these revenues.
>
> 6. Reduce spending by cutting the number of foreign military bases
> in half, from several hundred to perhaps 200.
>
> 7. Reduce foreign oil consumption.
>
> 8. Reduce government subsidies to agriculture, oil, etc.
>
> 9. Freeze the government worker pension system.

Chinese Are Likely to Halt Purchases of U.S. Treasury Debt

Bears,

With comments like "THEY SHOULD ALL BE TAKEN OUT AND SHOT" we MAY be on the verge of another Civil War. Be careful what you wish for.

And you think it was GOOD for investment banks to leverage debt 40 to 1 just because the Ponzi securities could be bought by "fools all over the world"????? This is your idea of a functional economy that brought American prosperity?

And finally, I do truly understand that it pains your racist little heart, but the man IS the President of the United States. Learn how to spell his name.

On Mar 13 10:23 AM johnthebears wrote:

>
> I am so sorry to say that I feel like I am living in Russia, a socialist
> communist country.
>
> We now have one party government and a dictator president that sees
> himself as the Messiah!
>
> Our country is now a bankrupt nation of poor people, already losing
> $11 TRILLION DOLLARS OF REAL WEALTH, MORE THAN THE VALUE OF JAPAN
> AND PERPHAPS GERMANY, that we may never recover, since investment
> banks can no longer create money at 40:1 to be bought by fools all
> over the world.
>
> This thing is global, and all nations are poorer now as well as America.
>
>
> It may take a couple of years before the average Joe to grasp the
> significance of what he has been voting for... the Democratic Socialist
> Republic of America, but truly Oboman's mentor, Rev. Wright's forecast
> has come to be...
>
> THE CHICKENS HAVE COME HOME TO ROOST AND I BLAME DEMOCRAT LIBERALS
> AND STUPID LIBERAL REPUBLICANS.
>
> THEY ALL SHOULD BE TAKEN OUT AND SHOT!
>
> WE MAY BE ON THE VERGE OF ANOTHER CIVIL WAR.
>
> I am sorry that I must sound so pessimistic on this Friday the 13th,
> but that is my true feeling of where we stand today in America.

Volcker's Capital Idea: Getting Back to Real Banking

What shall we call the new legislation limiting the activities of depository institutions, "Steagall-Glass"?

Depression? Recession? No, It's the Great Restructuring

Mark,

Are you a small business owner or a franchisee? I know that many people think they're one and the same, but they are definitely not. A real small business owner has his or her own idea, methods, and viewpoint while franchisees are basically rule appliers.

Certainly both groups have to work very hard for the first years of their business's existence, but the franchisees don't have to do the mental work required to create a genuine business. The franchiser has a thick manual that spells out exactly what and how to do it for nearly every possible circumstance.

It is from the first group that the innovative new businesses that this article describes will arise.

However, the loudest claque of rent-seeking government favor seekers calling themselves "small business owners" are the second group. From a recovery point of view, they deserve no particular consideration.

On Mar 09 03:53 PM Husker Mark wrote:

> The critical point made in the article for me had to do with the
> need to support small business growth. That is the source of most
> new job creation in this country. Based upon the contentions of
> this article, small business could be an even greater factor in our
> economy of the future.
>
> There is next to nothing in the stimulus plan to aid creation or
> growth of small businesses. There is, by numerous accounts, several
> trillion dollars of cash sitting on the side lines (in short-term
> treasuries, money markets, etc.) waiting and looking for a safer
> investing environment (one where expected rewards outweigh potential
> risks). A stimulus package that emphasized new job creation through
> support of small businesses could have done far more to create sustainable
> job growth. As it is, the regulations that will undoubtedly come
> forth to prevent the large companies from taking us down this same
> path again will also impact smalls. The impact of regulation on
> smalls is far greater than on large businesses. Large businesses
> can spread the cost of implementation over a larger pool of employees,
> thereby reducing the cost per employee per hour.
>
> As an owner of a small business I can only say that we see no initiative
> from the government that would encourage us to hire more employees.
> In fact, we expect that regulations and higher taxes will discourage
> us from hiring in the future until we have absolutely no other alternatives.
> The costs are growing and that will translate to fewer jobs created
> for years to come.
>
> We will continue to be profitable and grow our business through this
> recession and into the next upswing in economic activity. But we
> will probably use independent agency contracts for specific short-lived
> tasks where ever possible instead of hiring and investing in employees
> and training. We'd like to do it the other way because it is easier
> to build long-term competencies, but today, and for the forseeable
> future, it will just cost too much.
>
> The government continues to throw billions at large companies that
> will have to trim employee count even further to stay in business.
> Yes, that will save a some jobs but it will not create jobs. They
> are also planning to spend money of many infrastructure projects.
> When those projects are completed, what happens to those jobs? Right
> now we need a plan that will foster job creation in a big way. From
> where I sit, I don't see one on the horizon.

Why Felix Should Walk Away

Alex,

Spot on! The debt is secured by the house and nothing more. To default on the note is NOT "breaking the contract"; any such secured loan contract specifically includes provisions to be invoked in the event of default.

The loan negotiators knew that neither they nor the bank "lending" the money was really on the hook for losses in the event of default; they and the loan analysts at Countrywide, Golden West and WaMu are the genuine perps in the line-up. The bank which approved the loan planned from the first second that the request landed in it's electronic in-box to package the debt with other similar contracts, hash them up, and sell them on the unsophisticated and gullible investors around the world.

Now it's true that those investors have been cruelly served by the system and were misled by the connivance of the rating agencies, who should be immediately broken up, pulverized, and cast to the winds. But those investors will still have something after the dust (from the agencies) settles: they'll own Felix's house and should be able to recover something on the order of 50% of their investment.

The oldest saying in the books about investing pertains: "If it's too good to be true, it probably isn't."

On Mar 05 03:18 PM Alex Filonov wrote:

> Debt is secured. Felix by law can walk out of the mortgage if he
> feels like that. What's wrong with this picture? By walking out Felix
> doesn't break contract, bank takes collateral, everybody should be
> happy. Bank took this risk when it wrote the contract, bank expected
> home values to go up forever. Well, assumption was wrong and bank
> lost money.
>
> Don't bother me with morals. Felix is no more morally obligated to
> continue paying this mortgage than bank was obligated to properly
> estimate risk and write sensible contract.

Why Felix Should Walk Away

Herbie,

Your days were up exactly 77 years ago. And you can't even spell "Marxist". Whooey, what kind of half-ass John Bircher ARE you, anyway?

On Mar 05 02:58 PM Herbert Hoover wrote:

> Felix, you are obviously a socialist, maexist and/or communist. Don't
> make me berate you in public.
>
> Sincerely,
> Rick Santelli

CDS and the Looting of AIG

CDS FTW,

It is "naked" (third party) CDS contracts which are gambling. That is because the purchaser of the contract has no insurable interest, by definition. Essentially "A" is betting against "B" that "C" will default.

This creates moral hazard because "A" has a financial incentive to undermine confidence in "C" or impair its operations in some way thereby increasing the likelihood that "C" will fail, triggering "A's" claim on "B".

For the first few decades of life insurance back in the sixteenth century, Joe Doakes could buy a policy on Count Castle who passed by Doakes' house a few times a month on his way to or from his country estate. Do you think that Doakes would be pleased if by some greatest misfortune the Count were to perish because his carriage ran off the cliff a mile and a half down the road from Doakes' house?

After a rash of such "accidents", the insurers began refusing to sell a policy to anyone other than the "life". This is no different.

On Mar 04 10:53 AM cds ftw wrote:

> How are CDS any more like gambling than buying and selling cash equities?

CDS and the Looting of AIG

Larrysyr,

I don't think we're covering the "gambler's" losses. We're covering the "house's" losses. The gamblers made millions of tiny bets on double-zero, and double-zero came up. At 35 to 1 those tiny bets suddenly become a stupendous burden.

I agree with Philip Gvinter's point that CDS claims by holders of the actual bonds secured should absolutely be paid. Those claimants were purchasing insurance from the world's largest insurer. They have a reasonable expectation that their claims will be honored.

The naked CDS purchasers are gamblers pure and simple -- especially the hedgies -- and if ever in the history of the Republic there was a just cause for an ex post facto law, one banning all such CDS contracts is it. The purchasers should all be locked up and the keys melted down to make more bars. These people have done more to cause human misery than any group since the Khmer Rouge and the machete crazed Hutus in Rwanda.

I honestly believe that before this global meltdown ends there will be more people who die as a result of it than any one thing that's happened since, including Bush's wars.

On Mar 04 10:30 AM Larrysyr wrote:

> There's nothing wrong with gambling. And there's nothing wrong with
> insurance.
>
> There's something hugely wrong with pretending that gambling is insurance.
> And I resent having to cover the gamblers' losses.

Why Zombie Banks Won't Be Nationalized

You don't "Short For Me" you illiterate moron. Before you go slinging around epithets, LEARN HOW TO SPELL THEM! It's "Bolshevik". And what the hell is "emergently"? Is that a new adjective sourced from "emerging markets"? And if so, are you expecting to sell the the bogus paper your friends of Wall Street created to Rwanda and Bolivia?

And finally, I guess Democrats in the House and Senate will be unbolting their chairs from the desks and urging them to run out the door to attack their constituents? One does not "loose" one's seat in Congress. One "loses" it.

P.S.

You need a do-over in third grade to learn spelling. Apparently you have not noticed that this website puts a red line under any series of characters separated by a space or punctuation mark that it does not recognize as a word. There's one under your alias; there's one under mine. Because they're not WORDS! You might take notice of those red lines when you are typing your post. When one appears it's a hint that what you just typed doesn't make sense!

On Mar 02 01:25 PM Ishortyou wrote:

> well Iooks like the 'stress test' theory from the socialist bolchevics
> democrats is not working that well, already wiping out the retirement
> plans of pop and mom. Looks like cleaning the balance sheet of banks
> from those 'securitized bonds' i.e. MBS, CDO is a viable alternative
> that needs to be implemented emergently, but with the socialists
> bolchevics democrats worried about loosing their seats from the blackmailers
> constituents vote outs, are probably not going to do it, so sit tight
> and expect a major diving for several years to come.

Why Zombie Banks Won't Be Nationalized

@GreenEyes,

"Nationalization" of the money center banks is NOT "socialism"!!!! Please understand that they are members of the Federal Deposit Insurance Corporation -- now THAT has elements of socialism, certainly -- and are therefore subject to conservatorship and restructuring as a part of membership. The "socialism" happened in the mid-30's when the FDIC was established. It's been used before on a large money center bank, Continental Illinois, without dashing the US into the maw of rapacious Socialism. (key dark music). There is no sudden "slippery slope" and it happens all the time to smaller institutions that get into trouble.

However, one problem is that the nominal assets and liabilities of the big five are so huge that the cost may be several trillion dollars. But also, once insolvency is invoked it becomes the FDIC's (or more likely another agency like the S&L Resolution Trust Corporation) responsibility to make decisions about "haircuts" for various holders of the failed institution's liabilities.

Since so many of those liabilities are held by foreign sovereign and near-sovereign investors -- especially those of Citigroup -- taking the step of declaring insolvency and embarking on the impossible to get completely fair and just process of assigning those haircuts is fraught with serious international relationship minefields. So the government is doing exactly what most other people and institutions do when faced with an unpleasant task: equivocating.

Since there is the possibility that aggrieved foreign investors might tank US markets much more severely than they have so far, equivocation has some genuine attractions. Things MIGHT turn up.

On Mar 02 10:50 AM Green Eyes wrote:

> I don't think that moving our country one step closer to socialism
> (nationalization) is the answer...

It's an Economic Reset, Not a Recession

Spot on, Joe. Unfortunately we've spent our past fifteen years of innovation on whiz-bang financial "instruments". We've got some catching up on renewables and especially on transportation technologies.

On Feb 26 06:01 PM Joe from Dallas wrote:

> I agree here, however on the other side lies a whole new world. There
> might be slow growth here, but greater growth overseas. The only
> way to ensure American prosperity now is to sell the rest of the
> world our innovation and new technologies to build a more efficient
> world instead of selling them jet planes and missiles and various
> war machines.

Virginia Hammerness, 75-year-old heiress to the Giannini family’s banking fortune and a big shareholder in the bank it founded - Bank of America (BAC) - says the bank’s current "idiot" managers’ actions are totally repulsive. More than that, they’re ruining her family’s legacy.

Ms. Hammerness is exactly correct. Her grandfather and father would be completely appalled at the way the bank operates today. The Giannini's envisioned and created a bank that served it clients rather than fleecing them. Sure, they understood that the institution had to make a profit in order to survive and prosper, but service and knowing the customer was the first order of business.

It was a sad day when NCNB bought the bank in the 2000-2002 downturn. It's not Bank of America now, it's Bank of The Confederacy.