Just The Facts's Comments

Did the FDIC Sabotage WaMu's Management and Erode Investor Confidence?

Mon, 29 Sep 2008 00:33:17 -0400

I agree. The courts will overturn this "seizure". It violates the 5th Amendment.

I also found it interesting that the bailout bill has language saying that banks cannot sell their troubled assets to the taxpayers at a profit, but makes an exception for assets received through a merger or buyout (meaning that JPM will be allowed to sell WAMU's assets to the Treasury for a nice profit, AFTER the FDIC basically gave the assets to JPM for nothing). It simply boggles the mind. The government seizes private property, gives it to a corporate friend, and then buys it back from said friend at a higher price. Wow!

Barclays Will Not Pick Up Lehman ETNs

Fri, 26 Sep 2008 18:23:03 -0400

And an ETN would be ?

Feddie Pay: The Reality of the Bailout World

Mon, 22 Sep 2008 15:22:16 -0400

Feddie Pay. I like that - LOL!

The Plunge Protection Team Goes to Work

Tue, 16 Sep 2008 04:21:04 -0400

I'm expecting a half point drop in the Federal Funds rate, and maybe some other "unique" approaches aimed at calming everyone's nerves.

My guess? It will provide a boost that lasts roughly 4 hours or so.

Look for DOW 3,500 by the end of this month. :(

Lehman Files For Bankruptcy

Sun, 14 Sep 2008 19:45:30 -0400

You and I both. I hope Cox has enough sense to immediately ban all short selling - of everything. Or as a minimum, all naked shorting.

The Lehman Situation: Brutally Logical, or Patently Illogical?

Fri, 12 Sep 2008 22:24:41 -0400

The way I see it, one of two things is going on.

1 - Either there's a concerted effort to create mass hysteria and drive LEH stock (and a few others) down hard for a short-term gain by market participants (or so the company(s) can be stolen for a few pennies on the dollar), or

2 - The whole house of cards has started falling and all the smart money knows it and is now running for cover.

Option # 2 would be supported with FNM and FRE, as well as recent action with WaMu and AIG. And starting a day or two ago, also with MER. And all the talk of Citi and others to soon follow, which has been going on for a while now. And I saw Goldman and JPM mentioned for the first time today as prime candidates for a huge drop. So far, they've managed to stay largely above the fray. If they start losing 20 to 30 percent of their value every day or two, then there can be no doubt that Option # 2 it is.

Fannie & Freddie: Just the Tip of the Iceberg

Wed, 10 Sep 2008 08:15:24 -0400

Oh. And JPM. They just took a billion-dollar hit on Monday on the bail-out of FNM and FRE. Obviously not included in anyone's projections of their earnings for this quarter ...

Fannie & Freddie: Just the Tip of the Iceberg

Wed, 10 Sep 2008 08:09:10 -0400

No, Paul. They've already taken a dive of 90 to 99 percent.

But how about GS or MS or MER or BAC or WFC?

Isn't there still a ton of downside potential there?

Fannie & Freddie: Just the Tip of the Iceberg

Wed, 10 Sep 2008 04:09:58 -0400

>>> With that in mind, I have two more words for you…got gold? <<<

Through different analysis, I believe that you and I have arrived at the same conclusion!

But just try to buy some, at the "official" price. There is none to be had (in quantity).

:)

Fannie & Freddie: Just the Tip of the Iceberg

Wed, 10 Sep 2008 04:03:00 -0400

>>> but how will financial markets absorb $50 or $100 trillion in triggered swaps? <<<

That's easy. There was an article on it today. The swaps require the bonds be bought back by the insurers, but the nationalization of the underlying debt guarantees that the market will pay full price for the underlying security. So the bondholders sell the debt back to the insurer, who then resells it back into the market at its full insured value. The debts basically became US Treasury Notes via the takeovers. If anything, some people will make a little money in commissions on all those transactions, as everyone honors their obligations and nothing changes (other than who holds the debt).

Maybe that's why the CBO came out today with their opinion that the liabilities of FNM and FRE are now liabilities of the US government and should be added to the national balance sheet.

The problem is, it just increased our national debt by 50 percent. Won't those who own our debt expect a corresponding increase in the rate of return on their investment, due to the increased risk? It's a lot harder to pay back $14.5 trillion than it is $9 trillion --- and especially so, with the economy entering a recession (or worse) and tax revenues declining. And two candidates running for President, one of whom is promising to cut tax revenue and the other who is promising to increase federal spending !!!

Expect the returns on US debt obligations to increase dramatically in the next few weeks. And that, of course, is going to wreak pure HAVOC on our federal budgets for the next several years.

I think we've seen the beginning of the end, for America as it is currently known ...

:(

Fannie & Freddie: Just the Tip of the Iceberg

Wed, 10 Sep 2008 03:37:01 -0400

>>> it’s that the best job in the world is apparently a failed CEO. <<<

LOL! That's been true for as long as I've been following the markets, which is 7 or 8 years or so. The gal at Mattel that drove the stock from $40 to $15 --- and then drove off in the company car --- comes immediately to mind. The guys "retiring" from FNM and FRE are another good example. And I can't help but think of that guy at Boykin Lodging who made that investment in Florida real estate at $19 million with his shareholder's money because it was simply "too good a deal to pass up", while he drove the stock's value from $15 to $6, and then cut a deal with private equity to buy out the company at $8 per share (a whopping 33 percent premium to its "then-current" fair market value ... a good deal - right?). But the kicker was that the same property he "bought" for $19 million with stockholder money got sold back to him for $2 million in the deal. That was supposedly a "great deal" for the stockholders, with the company changing owners at less than half of what it was worth 12 months before.

And I'm sure there are many others.

After watching this closely for 8 years, I'm convinced that our equity markets (and all publicly traded companies in general) are mostly a sham, designed by those with money to transfer money from the pockets of the working class to themselves.

Maybe this latest crisis will finally fix the problem. And maybe not ...

Chewing on the FDIC List of 'Problem' Banks

Wed, 10 Sep 2008 02:52:08 -0400

They were right, and you are right.

As one commentor said in response to your original post, the key would rest in whether or not you believe the data being provided by the government (for starters).

More telling is your statement above that "it should be noted that IndyMac failed and it was not on the problem list at the end of the first quarter". I'd be willing to assume that's correct, although I don't know.

And ANY data you're looking at most certainly doesn't consider the total collapse in value of all FNM and FRE preferred and common stock, or the change in Lehman's situation yesterday.

We're in a highly fluid situation here, where information that is more than 24 hours old or so, probably shouldn't be relied upon for making investment decisions.

Buy some gold, if you can find any. That's all I'll say.

:)

Lehman, How Much Is Your Headquarters Worth?

Wed, 10 Sep 2008 02:12:15 -0400

What is "anything" worth? At what value should assets be carried on a balance sheet?

Someone posed the question a day or two ago (on another site I believe):

"If you live in a home that you paid $250,000 for and your neighbor defaults and his home is sold in a foreclosure auction for $20,000, does that then mean that your home is worth only $20,000?" (or words to that effect)

I said "yes".

If I'm right, then our real estate correction still has a long ways to go. And quite a few of our major banks are worth zero or less.

Would you be interested in buying Goldman shares for $3.00 or $4.00 apiece, if all credit on the planet were dissolved and everything is only worth what someone holding gold or silver is willing to pay for it?

Global Capital Asset Death Spiral

Tue, 09 Sep 2008 15:59:49 -0400

>>> If your home is worth around 250K, but the person next door goes bankrupt, and the home goes into foreclosure and sells for 20K - does that mean the new value of your home is now 20K? <<<

I'd say yes. If it were worth more, wouldn't someone have stepped forward to pay more for your neighbor's house?

Who Killed Frannie?

Tue, 09 Sep 2008 10:51:58 -0400

LOL! Love the analogy, bearfund!

Fannie and Freddie: We All Support You!

Sun, 07 Sep 2008 18:50:23 -0400

>>> By crushing out common and in some cases preferred shareholders in a bailout or chapter 11 restructuring, the regulators/courts ensure that bad risks are not rewarded. <<<

I think our capital structure priorities are exactly backwards. The stockholders are the owners of a company, while bond holders are simply people who lent money to the company for a fixed return. Since the company's performance is judged (and its value is set) in the marketplace by its share price, the shareholders automatically get punished if the company takes on too much risk or performs poorly. In a bankruptcy (or conservatorship, as in the case for FNM/FRE), shouldn't the bond holders be the first to lose their money after the unsecured creditors? They, too, should bear the risks of "investing" (by choosing to make loans to the company).

Even if the assets of the company are explicitly tendered as collateral for the loan, shouldn't the original owners still own whatever is left? How do the owners get their company stolen out from under them and ownership handed over to someone else, while the company still exists and continues to operate? The only way shareholders should ever get "wiped out" is if and when the company is entirely liquidated and all assets are sold off (and even then, nothing is left after paying bond holders and other creditors).

Why does everyone view stockholders as the bottom of the food chain, when they should be at the top of it? I simply don't get it.

Freddie/Fannie Plans In Motion; Why Are They Being Underplayed?

Sat, 06 Sep 2008 16:28:03 -0400

That probably depends on how the story is presented to Joe Six Pack, doesn't it?

Sure, he could be told that those filthy politicians in Washington were using his hard-earned tax money to "bail out" those greedy lieing cheats on Wall Street. And he'd be rightfully upset.

Or he could be told the other side of the story, which is that his adoring and loving government has intervened into this unusual financial crisis (caused by those greedy lieing cheats on Wall Street, of course) --- in order to save his home and his job and the future of America. And he'd be rightfully grateful.

In my view, we were pretty much damned if we did and damned if we didn't, at this point. Philosophically, I think our government should stay out of the markets. But if the markets get so dumb that they do things which are going to cause the whole system to come crashing down (taking the government with it), then something has to be done.

And if our tender and loving government doesn't soon get its fiscal house in order and start living within its means, then none of this is going to matter anyways. They're just buying time, for now. Let them. It beats the alternative.

As far as a long-term fix is concerned, I think Uncle Sam needs to do 2 things. First and foremost, start running budget surpluses and retiring federal debt. And secondly, forget this globalization stuff and implement new rules (or enforce existing ones) that would prevent any one company from owning so much market share or having so much economic influence that it becomes "too large to fail". Then, our government could stay out of the way and let the markets work their magic. Companies that took on too much risk or leveraged themselves too highly because they got greedy would simply go under, and the smarter companies would survive and pick up their market share. Economic Darwinism, at its best!

Bill Ackman's Letter to Paulson On Restructuring Plan

Sat, 06 Sep 2008 15:18:58 -0400

I don't know why it disgusts me that everyone is jockying for position and saying "Save me! Forget everybody else and just save me! And if there's some way a deal can be worked that lets me benefit on the losses of others, then that's even better! But just save me, no matter what!".

But it does.

Why does this have to be complicated? Couldn't FNM and FRE just issue a new series of redeemable preferred stock to be sold only to the US Treasury (and not traded on the market), at a fixed price per share with a fair (if not outright cheap) dividend? They could authorize a gazillion shares at $1,000 or $1 million per, and issue them as necessary in exchange for working capital when needed. And then redeem them as circumstances allow.

Freddie/Fannie Plans In Motion; Why Are They Being Underplayed?

Sat, 06 Sep 2008 06:50:20 -0400

Yes, the fallout will be interesting to see. Could this be the end, or the triggering event that starts that cascading collapse of faith in all things financial and American? If we just added another $6 trillion to our debt of $9+ trillion with the stroke of a pen, do you think foreigners will continue to lend us their money at low rates? Or will they demand another couple of points to cover the increased risk that we'll never be able to repay them? And if they ask for a greater return, what's that going to do to our federal budget? We're already running huge deficits year after year after year (essentially borrowing more money just to keep up the interest payments). Will the world continue to give us those no-down-payment, interest-only, ARLs (Adjustable Rate Loans)? Or will they view that as a bad way to conduct business, which will inevitably lead to ultimate default?

I can't wait for Monday!

The End of the End-of-the-World Trade

Fri, 05 Sep 2008 13:27:16 -0400

If you'd re-post those charts on a linear scale instead of logarithmic, I suspect your readers might see a whole different world.

What the Banking Industry Can Learn from the Insurance Industry

Wed, 03 Sep 2008 04:16:11 -0400

Absolutely agree. I'm thinking 3-to-1 or 4-to-1 should be the maximum allowed by law.

Why Fannie Shouldn't Marry Freddie

Wed, 03 Sep 2008 04:04:06 -0400

LOL! I was totally on board, until I read the first post!

I see merit to both arguments, to be honest with you. But the Libertarian in me forces me to decide (after much pondering) that the break-up idea is probably best in the long run. The GSE's should probably have never been created, to begin with. But they were. It's sort of like the argument that while we should probably have never gone to Iraq, we did and we are now therefore responsible for fixing our mistake --- as painful as it may be.

We created the mortgage problems we find ourselves facing today, whether we should have or not. Let's just take our medicine, fix it, and be done with it --- once and for all.

:)

WaMu: Speculative Value Play

Wed, 03 Sep 2008 02:52:20 -0400

Oh. And I'm hanging onto that gold I have buried in my friend's yard.

Just in case I'm wrong!

;)

WaMu: Speculative Value Play

Wed, 03 Sep 2008 02:35:35 -0400

I agree with the previous poster that said fortunes are to be made now in our financials. Diversification is key, as always. Basically, I view it as a bet on whether or not America survives. I've decided to bet a little of my money on America.

As the nation's largest thrift, WM is on my "buy" list. And especially so, at 10 cents on the year-ago dollar. To protect against individual failures, I'm spreading my investment over quite a few financials that are now available for 5 to 10 cents on the dollar. If they ALL fail, then any equity investment is worthless and nothing will matter anyways. But if our financial system recovers and our nation survives, then this is a "once-in-a-lifetime" opportunity for the average investor to get rich. Each surviving business will pay out 3 to 5 times as was lost on each business that went under. Short a total collapse of our entire system, this is a "no brainer" investment!

Of course, I think shorting opportunities still exist today in our financials. They could be played as a "hedge" against financial Armageddon, if one were so inclined. Just look for names trading at MORE than 10 cents on the year-ago dollar. And the higher, the better!

:)

On Being Rich

Wed, 03 Sep 2008 01:54:00 -0400

>>> Shouldn't America focus on making **more** people rich, instead of taxing the rich out of existence? <<<

Yes, I agree with this. The problem is, our laws are structured in such a way as to make it a practical impossibility for the average American to "become" rich.

I don't know if you achieved your success through hard work or good fortune, but I know many people (myself included) who have worked hard their whole lives and never achieved success. And in fact, that "American dream" is REALLY hard to achieve when your government effectively seizes 50 percent of every dime you earn along the way (in order to avoid "taxing the rich out of existence").

I don't want the rich to pay any more than anyone else. But I want them to pay the same as everyone else, on a percentage basis. Their "fair share", and nothing more. If the top two percent earn 90 percent of the income, then they need to pay 90 percent of the bills. Not 50 percent, while arguing they're paying "more than their share" and depriving every other hard-working American the opportunity of realizing the American dream.

It's simple, really. If the effective tax rate on the average hard-working American (considering employment taxes and business taxes and sales taxes and income taxes and excise taxes and real estate taxes and inheritance taxes and all the OTHER taxes) is 43 percent, then the richest of Americans should also send 43 percent of their income to the US Treasury.

How is that unfair, or "taxing the rich out of existence" (any more than it is taxing the middle class out of existence) ????

On Being Rich

Wed, 03 Sep 2008 01:30:36 -0400

OK, I made some posts on another article that would fit nicely here. But I won't bother to repeat them.

Let's put it this way. What this country needs is two things:

First, it needs to extend the mandatory tax withholding of 6.8 percent (or is it 8.6 percent?) for Social Security and Medicare to every American, of all income levels. Forget the "income tax", since it is only a tiny fraction of what most Americans ultimately pay. Let EVERYONE get 15 percent whacked off the top of every dollar they earn --- no questions asked or exemptions granted --- and I suspect the concept of "taxes" would take on a totally different argument within our society.

And secondly, everyone living or working in Washington DC as a politician and calling themselves a "public servant" should be required to be randomly adopted by a "real" average American family. Drawn randomly, by lot. And to live with them for at least 3 months, before they went to Washington and tried to pass laws in the name of the "public" good.

Those two minor changes would fix most of our problems, I'm guessing ....

:)

Residential Real Estate: How Much More Pain?

Wed, 03 Sep 2008 00:56:15 -0400

My parents paid $11,000 for their first home. And they're still alive. I don't have children, but I'm willing to bet that any child born today will also be able to buy their first home for $11,000 --- or thereabouts. Maybe I'm wrong. I hope I am, for all of "your" sakes ....

;)

Residential Real Estate: How Much More Pain?

Wed, 03 Sep 2008 00:45:42 -0400

Heck, they're offering tiny little "McMansions" placed side-by-side with other "McMansion's" here in my current home town, for better than a quarter million dollars apiece. And people are buying them, even in today's market. Go figure.

It's like nobody any longer realizes exactly how much money a quarter million dollars is.

Or maybe a quarter million dollars isn't what it "used" to be. Can anyone say "bubble" ?!?!?! ....

/8^O

Residential Real Estate: How Much More Pain?

Wed, 03 Sep 2008 00:34:55 -0400

I'd have to think really hard to grasp all that was said in the original post, but I suspect that my own real personal "real-life" situation probably reinforces the author's point.

I'm looking to move from north Alabama to central Alabama, to get closer to family. I currently rent (for a long list of reasons which would justify a whole different article and discussion), and had hoped to continue doing the same. But upon searching, I discovered that it would cost me as much or more to rent in my new location than it would to buy --- my own land and a mobile home!

Home prices haven't yet dropped to the point that I would consider it prudent to buy, but rental rates have gone up so much that it no longer makes sense to rent either.

For 12 months' rent, I could buy my own land and plant a used mobile home on it, thereby providing a roof over my head and protection from the elements. Bought and paid for, with no future payments required (other than minimal maintenance and upkeep). And be perfectly good to go for the next 10 years or more, as long as "keeping up with the Jones's" wasn't an ambition of mine.

Real money and basic necessities, where 12 months = 10 years? We're living in a bubble, my friends. And the only reason it hasn't yet totally popped is because local communities are inclined to pass "zoning laws" to protect the bubble.

I wouldn't want to be a home owner in a "protected" area when the bubble finally bursts. And that's all I'll say ....

:)

Looming Wave of Option Repricing?

Fri, 29 Aug 2008 18:39:55 -0400

I agree, farmer.