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What the President Didn't Say

Markg, imagine you were in Bernanke's position speaking before Congress and the public. Do you a) portray yourself as in control and the situation as manageable, or b) tell everyone were F'd and you better get into cash and stuff it into a mattress? His job is to manage and steer the financial markets, not set off a panic. I bet privately he knew full well what was potentially coming down the pike. They started with measured moves, but the market continued to erode. Now they've pulled out the final solution and armchair QBs like yourself only throw blame around.

Warren Buffett on Goldman Sachs and the Financial Bailout Package

If there is anyone who understands markets and why buying assets in a distress situation can lead to great profits, it's Warren Buffet. As he said "I would do this myself if I could get the terms the government is probably going to get and had the liquidity." If for one believe that. When the storm clouds are darkest is when Warren Buffet is out on a shopping spree. Stand back and watch.

You Can't Handle The Truth

Yes, because I for one believe that the cost will be no where near the $700 billion. First off, it will be a reverse auction where sellers of these securities will offer it at a price they would accept. This will force these institutions to do their homework on what the stuff is really worth. If they don't get the price they want, then it has more value staying on their books. Institutions facing a true liquidity crisis will be forced to offer at prices to clear their balance sheet. Those prices will likely be distressed and a hold to maturity strategy by the government will end up with a gain. Institutions not facing a liquidity crisis will opt to hold if they can't get a price they want. Thus a market value for this stuff will be established. Increased order will return to the financial system, which is primary goal of TARP. Absent that, we'll have this mania or panic trying to short the next institution to effectively create a "run on the bank". That type of stuff only snowballs and results in extreme downside valuations.

On the flip side, had Greenspan not been asleep (and drooling) at the switch, he'd have raised rates a lot sooner and pushed for increasing regs on the mortgage industry long before this thing bubbled up into the current situation. Too many people saw this coming, yet Greenspan kept saying the housing market was overheated only in certain regions and not on a nationwide basis. Problem is, the real estate in those overheated regions were of enough value to take the system down.

Bill Gross on the Bailout Plan

"And how do you arrive at this estimate? Your argument is willing risk everything on this estimate and yet, like Paulson, you are saying, trust me. Does your financial record indicate you can be trusted?
Does your record of financial investment with these very toxic mortgage instruments indicate that your estimates are correct? I think not. If you look at what banks have been selling this stuff at, there is no way you can construe 65%. Give me full disclosure please. How much do you have to gain from this? The more I hear about all of this the more I get the feeling that Wall St. is holding a gun to Main St. This nothing more than a giant extortion scheme. You say the "need for speed is clear. This time there really are weapons of mass destruction...". I say your need for speed has to do with the limited amount of time that this extortion plan has before everyone will start to see more of what is really going on here. If this is such a dire situation then real steps need to taken to insure that it never happens again and yet nowhere, and I mean NOWHERE do I see anyone even interested in such topics, another pointer that self interest is king here."

You can't generalize a price for specific instruments. As they roll up their sleeves and get into this, the prices will be all over the place. Many of these mortgage instruments were structured into strips with differing levels of risk. As one post said "Lone Pine was buying the toxic waste at 20 cents on the dollar." But what is the toxic waste? Is that just the CDOs squared or does it include the CDOs? Is it just the unwrrapped strips in the CDOs? Many questions to ask here and it will take a lot of digging by some knowledgeable folks to determine the true value. One thing that is certain, the uncertainty over the value of these instruments that few understand has resulted in this liquidity crisis. The other certainty is that the market is definitely mispricing these instruments which means there are opportunities. Hopefully, the government can get the best and brightest to take advantage of this.

Anyone have Paulson's e-mail? My resume will be on it's way

Nine Adult Entertainment Stocks to Weather the Recession

Well I'll just pull on my financial condom and plunge right in on these.

Hedge Fund Tracking: Moore Capital Management's 13F Filing

Hmmm......makes my two dumb moves into beaten down financials look good by comparison. At least both of mine are solvent.

America Buys AIG

"The very fact that the Fed is involved speaks loudly to us that no private company believes that this is a prudent loan."

Actually, it's too big for a private company to take on, particularly in this market when there is no money to lend. The articles I've read have described this as a collateralized bridge loan to get AIG through this liquidity crisis. Apparently, there is enough assets there to collateralize this when the assets are liquidated in an orderly fashion as opposed to a distress sale. For providing this bridge facility, the government gets 80% of the company. If it works out as planned, it's a good deal and hopefully stops a potential worldwide financial crisis.

Why Treasury Shielded Frannie's Sub Debt

Chris B stated "In buisness, when liabilities far exceed owner's equity, bankruptcy occurs, and the assets are seized by the creditors or used to pursue their interests." The more accurate description is that bankruptcy occurs, or is forced to occur when liabilities exceed the current value of the assets.

With respect to Government, Chris B stated "but it can force the taxpayers to pay, so the taxpayers have no leverage." That has always been the case, so nothing's new.

Mexico has defaulted several times on its debt, but we still happily play in the sand box with them.

China is up to its eyeballs in US debt, but that is because of our huge trade imbalance with them, which they are happy to continue. Otherwise, who else would they sell their cheap goods to?

Will Securitized Mortgages Rise Again?

In answer to the specific question, yes mortgage securitisation will return, but never at the extreme form that we saw in this cycle. Too many people drank the securitisation KoolAid. It was financial alchemy, turning subprime lead into gold.

You know what happens when you hand out money that can never be repaid? That's right, asset prices soar to unrealistic levels. Gee, what a new concept.

Manhattan Real Estate Is Teetering - Barron's

"The $5.4 billion purchase of Stuyvesant Town/Peter Cooper Village by Tishman Speyer and BlackRock (BLK) was predicated upon the notion that rental income from the predominately rent-controlled housing would rise as the apartments were quickly converted to market rate apartments. But rental income is declining - covering just 35% of estimated annual interest costs of $300M on the $4.4B loan developers took."

Sounds like they made a bad bet. Oh well, that's how asset prices are normalized.

Wells Fargo Sham Revealed

The statement that Wells can only lend at 6.00%, so why are they borrowing at 9.75% really just highlights the author's banking ignorance, though he does touch on the answer: LEVER IT.

As another poster noted, this bond offering has equity-like characteristics including perpetual life, interest deferment and subordination. Undoubtedly this will be treated as Tier 2 capital under BIS regs. The BIS rules set requirements on two categories of bank capital, Tier 1 capital and Total capital. Tier 1 capital is the book value of its stock plus retained earnings. Tier 2 capital is loan-loss reserves plus subordinated debt (subordinated debt is long term debt that, in case of insolvency, is paid off only after depositors and other creditors have been paid. Thus it can be used like equity to provide those creditors some protection against insolvency). Total capital is the sum of Tier 1 and Tier 2 capital. BIS requirements establish a minimum Total Capital of 8%. Technically new loans with a 100% risk weighting are funded with 8% equity plus 92% borrowings in the form of deposits (whether retail, commercial or inter-bank). Assume for the sake of simplicity that the loan is a one year term loan. The cost to fund this loan at the margin is the weighted average cost of the subordinated debt (8% x 9.75%) and the one year LIBOR rate (92% x 3.20%) for a total funding cost of 3.72%. So if they can lend at 6.00% and their funding cost is 3.72%, their interest margin is a respectable 2.28%. Without factoring in staff and other costs, that is a 23.4% return on equity. Wells has been chugging along at 20% return on equity, so it all seems to be in form to me. That this author concluded that Wells was making a capital raise in desperation is scary. Rather, Wells is likely seeing a lot of loan growth opportunities as other banks are on the sidelines repairing their balance sheets after flushing much of their capital away.

Will GM's Volt Change History?

The big disappointment I'm reading regarding the Volt is that it has a gas engine as opposed to a diesel engine. Diesel's are far more efficient and that would create a win win situation in the Volt.

Supply and Demand in the Oil Market

On the supply side, it takes years to bring new supply on board. On the demand side, destruction of demand is not immediate. It takes awhile for people to get rid of their big SUVs for smaller cars. We have an oil guzzling infrastructure in place and it will take a few years for people to rotate out of fuel guzzling cars and into more economical cars.

Drilling in ANWR: What's Not to Like?

Brian27 hits the nail on the head with the closest description of a comprehensive energy plan which will wean us off of oil dependence in the long run. Drill ANWR and the Outer coastal shelf. Assess a tax on the oil generated (not a windfall profit tax) and use the proceeds to develop nuclear and renewable energy. On the nuclear front, the plant should be made capable of also producing hydrogen. Use the tax proceeds to build out the infrastructure necessary for hydrogen powered fuel cell vehicles which are just right around the corner.

Our current liberal/green politicians hate big oil and want to punish them with a windfall profits tax. All that would do is disincentivize further exploration and development of new reserves. We want them to explore and develop new reserves, then tax and use the proceeds to develop the alternatives.

Of course, this all assumes that the tax proceeds would be used for what they were intended, as opposed to some preferred pork barrel rat hole of the politicians or increased governmental staffing.