jsc173

Property Values Set to Fall 43% from Current Depressed Levels

A much more meaningful mean reversion discussion is the income-to-value ratio (e.g., how much of gross income we allocate for housing).

That ratio has increased steadily over time, so to suggest there would be a mean reversion based on price alone is not borne out by this more predictive ratio.

If the income-to-value ratio long-term trend holds firm, we are at, near or below the long-term trendline (mean) depending upon which market you want to discuss. Specifically, markets like Miami, Phoenix and Las Vegas are below the line.

In English, the average house in those markets is priced at or below its investment value (you can actually buy, rent and get positive cash flow).

Treasury Directs GM to Get Ready for Bankruptcy

You highlighted the key real problems and the key political problems.

"Old" GM and "old" UAW are dead. The only question is whether anyone other than a bankruptcy trustee has the fortitude to bury them. I tend to doubt it. The Obama adminstration can't and GM management won't, so it's the courts and Chapter 11 as the only rational player in this theater of the absurd.

Could a Markopolos Blog Have Stopped Madoff?

Madoff was a pretty powerful guy. Markopolos was in fear of his life, choosing to take on one of the most powerful guys on Wall Street.

If Markopolos would have blogged his concerns, one can only imagine what Madoff might have done. Possibly, nothing. Possibly, an unending rash of legal actions. Possibly, worse.

What I find most amazing is his story about approaching the Wall Street Journal and their unwillingness to pursue what would have been the biggest story they ever blew wide open.

I found that testimony very, very disturbing. I'm sure the WSJ, NYT and the rest get "stories" from hundreds of disgruntled employees, investors and other who want to seek revenge. They are best ignored.

For an independent analyst, as well-researched and well-respected as Markopolos was, to be blown off by the Journal is despicable and I've yet to see the Journal apologize to investors for not airing Markopolos' story.

Are you listening Mr. Murdoch, or do you put the blame the prior owners?

Economic Stimulus Package: Let Them Eat Cake

Only comment I will make on this one is the Democrats, assuming the bill is passed pretty much as-is, had better hope and pray that in about 18 months it will have done as intended and we are on the economic upswing.

If not, they are burnt toast in the midterm elections.

Citi, TARP and Trust: Banks May Trust Each Other More, But Consumers Lag Behind

Will everyone please stop this "what are they doing with their TARP money nonsense!"

Here's the bottom line for those of you who aren't bankers, here's a little Bank Finance 101:

1. TARP funds, so far, have been capital investments in banks and thrifts.

2. Banks DO NOT EVER lend out their capital. Capital exists to protect the bank from unexpected losses. It is never "spent", nor is it ever "lent."

3. Banks only lend money they have borrowed. That money comes from depositors, the FHLB and Fed borrowings and other short-term sources. Banks make money on the spread between what they pay for borrowing versus what they charge for lending, plus fees.

So, the lesson here is that most TARP investments replaced capital and reserves that had vaporized in the first couple of waves of write-downs. It was restorative, not additive.

Once that was accomplished, the banks were still able to survive, but are now only lending to the best credits. Why? Because that's all the regulators will let them do. The regulators are hypersensitive to the criticism they allowed this to happen so they are clamping down on lending much more than banks doing it voluntarily.

So, net-net, since banks can no longer lend to crappy customers (even if they wanted to) and the strongest borrowers are no longer interested in being highly leveraged, who in their right mind would expect banks to be lending more than they did last year?

Rahm’s Doctrine and Breaking Up the Banks

If the "Rahm Doctrine" is to make sure there's no such thing as "too big to fail" (what he really means is "too big to save"), that's a good thing.

Regardless of profitability, to have one corporation represent a potential systemic risk is a "bridge too far" for our economy.

Citi, B of A and maybe even Dimon's vaunted Chase are "too big to save" and the only rational thing to do is break them up to get away from the interdependence risk they represent.

In the old days, the Citicorp of John Reed was viewed as "hedged", meaning it was a collection of diverse businesses in many countries and the failure of one or two businesses would not "bring down the bank."

In Sandy Weill's Citigroup, post Glass-Steagel, too many businesses were interdependent so the failure of one is the failure of all.

It's time to fix it.

Against Bank Nationalization

First, Paulson's "take the money or you can't leave the room" approach with the first nine banks was just his way to create greater leverage over those banks. As a shareholder, the Treasury can make more noise. He knew they didn't need it, but he wanted them to be more accountable than they would otherwise be.

Of course, a couple of them have now proved that, not only did they need it, they needed much more.

I still feel we will not see a true "bottom" unless one of the big banks still remaining is (given time to prove they can't survive) allowed to fail, their assets truly marked to market, viable businesses sold, toxic residue liquidated.

Until then, we will see the merry-go-round of coming back periodically for another dose of whatever the acronym is of the moment -- TARP, CPP, whatever.

The criminal part of it is many of the banks that have completely "fessed up" and marked their assets to market and are adequately (but not necessarily well) capitalized, are the ones still lending while the big banks aren't. The TARP money wasted on the big/bad banks would have ensured the "borderline" banks' survival, which is now in doubt.

Banks: Just a Shadow of Their Former Selves

If the system was forced to go cold turkey, wouldn't that help define a bottom? It's been like throwing a drowning man a life preserver that's water soluble -- you gotta keep tossing more, hoping that he makes it to shallow water before you run out of life preservers.

If there was a permanent fix forced on them from the beginning (break up into managable businesses, bring all off balance sheet assets on, mark everything to market, etc., etc., maybe they wouldn't still be drowning?

Of course, the best solution of all would have been to let the market exact its punishment. Would a short death have been any worse than the slow death we're now experiencing?

How Are Banks Spending Bailout Money? Anyone's Guess

How is the TARP investment "being spent?" Hopefully, not at all!

Do you know anything about banking? If you did, you would know that capital (which is what TARP investments are) is not "spent."

Capital is a cushion against future expected and unexpected losses. It isn't spent, it is held.

The spread earned from investing deposits and borrowed funds in loans and other types of investments is what is "spent" on day-to-day operations.

TARP investments, per se, would never be lent out or used to pay salaries or other expenses.

All the TARP investments have done, so far, is replace capital that was burned-off due to unexpected write-downs of non-performing loans and investments.

A Fed About-Face on GMAC?

This is the epitome of non-sensical government intervention.

Tens of billions have been doled out to large banks, in theory to stimulate granting credit, yet the iceberg hasn't thawed. Few of those banks (Chase excepted) did much in the way of supporting the auto industry. Why? Because the maufacturing arms always subsidized the financing arms. How many banks would make 0% loans? Or provide floor plan financing at low rates?

So why is Treasury creating an opportunity for GMAC to do more insane financing?

Better yet, since GMAC was amongst the more aggressive mortgage lenders, why are they being favored when a couple hundred savings and loans (who didn't do stupid mortgage lending) are still waiting for TARP money?

Don't Be Scammed by Madoff Investor Sob Stories

My comment regardin Madoff's investors is the same one I made regarding Keating's depositors and Enron's investors:

When greed meets greed, both usually wind up disappointed.

Six Ways to Cash in on Obama's Infrastructure Plan

All good guesses, but until the plans are formulated and the contracts are awarded, these are all shots in the dark.

E.g., who's to say Caterpillar will get a dime -- why not Komatsu?

Why I Am Long National City

My observation is you are not taking into consideration what you might not know. The regulators handcuff banks using confidential MOUs (Memoranda of Understanding). As will see if you look at the post mortem on IndyMac, the government imposed lots of controls on Indy, but those controls were kept secret. You will not receive the explanation you wish from the government.

My suspicion is there's a lot none of us know about NCC and may not know, even though the optics (capital ratios, etc.) don't look horrific.

However, much in the same way Citi's aborted attempt to acquire Wachovia wound up being a JPM acquisition, if what you say is really true -- NCC is a giveaway at $2.23 -- then a "white night" will rescue them from PNC at something north of $2.23.

Right?

Wall Street, R.I.P. Now What?

Puh-leez.

Once the "big kids" on Wall Street started playing with other people's money -- e.g., when the firms converted from private partnerships with their own money at risk to public corporations, it was only a matter of time.

It wasn't pure greed that killed them.

It was simple arrogance.

Or, as a wise sage once told me during the peak of the bull market, "they're like fat guys riding their bicycles downhill thinking they're going fast because they're good athletes."

The Outlook for Financials Failure

The big ones won't fail, but they won't succeed, either?

What does that mean?

For me, it means it will be another 3-5 years for them to be able to get beyond the effects of their current problems and completely redefine themselves (which they must do to survive).