mikeg3

'Too Big to Fail' Has Gotten Much Bigger

Has anyone thought about having the Fed and other country's equivalents driving down LIBOR to near zero so that the rate resets create the mortgage adjustments the mortgage servicers won't do?

Disparity in Bank Asset Valuations

If C is marked to market at the bottom, what happens during the recovery.?

When can C buy back the government shares?

The Stress Test Cliff Notes

Your comments were a blast!
The truth is that the major BHC's own going businesses. When the recession ends, they will do OK. During the recession, their fire-sale net worth is negative. Come to think of it, even during normal times a megabank could not quickly sell all their assets for enough to cover all their liabilities.
So the banks' game plan now is to batten down the hatches and wait out the recession, while keeping their polical bases covered and talking a good game on lending.
If the banks all do this successfully, how will we ever get out of the recession (think Japan 1990's)?
Answer 1:
We click our shoes together three times and repeat after me: "There's no place like home".
Answer 2:
We nationalize and resell like mad creating smaller banks run by small bank managers who have no experience whatsoever with addressing trillion dollar problems. This mainly enriches the shorts and convinces long term investors to never buy shares again in a company subject to Fed supervision.
Answer 3:
We pump so much money into the economy that jobs recover. Once jobs recover, foreclosures of owner-occupied houses return to normal. Fact: most actual homeowners with underwater mortgages do not mail in the keys unless they lose their income. Once the supply of houses stabilizes and the deficit spending fires up inflation, housing prices start to rise. This creates a buying panic among families and speculators looking to buy at the bottom. Only then do the bank assets become liquid again and MTM works. Of course, there will still be losses, but they will be quantifiable and the megabanks can earn their way out of the hole in a transparent manner.
Do I believe this? Yes.
Am I sure? Absolutely not.
Answer 4:
A really big war breaks out (guess where) and three problems are solved in rapid succession: A) Unemployment B) Declining GNP C) Humans overpopulating planet Earth.

Pre-Payments Reducing Value of Mortgage-Backed Securities

Under normal conditions, you'd be correct. However, banks are currently starved for capital and any way they get more cash without diluting their common stock is a good thing. The problem you describe was the original reason tranche's were created, so the holders of the "equity tranche", the riskiest 5%, get a lot of the prepayment. Since this tranche is selling for peanuts right now, investors who accept your analysis have an interesting speculation available.

The Terminator Banks

With the regulators camped out in ther offices, do you really think Citi understated their credit card reserves? Is it possible that some unpopular actions, such as lowering or even terminating credit lines for cardholders who have always managed to make the minimum monthly payment but are showing stress in their overall credit profile, have resulted in a better credit card portfolio than some other banks?
BTW, Pandit is the CEO, not the CFO.

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

Could someone really parse that memo? I'd love to learn the jargon.

Exclusive: Big Banks' Recent Profitability Due to AIG Scam?

It seems to me that AIG CDS's are worth far less than their apparent value because AIG could never honor more than a small fraction of the relevant contracts. Billions in aid will not fund trillions in payments.
If the CDS contracts are valued realistically, the unwind trades are at fair value.

Pandit's Letter to Citi Shareholders: Lame

Citi improved their Tangible Common Equity ratio because that is part of the stress test. Once Citi officially passes the stress test, the bettors on Citi's demise will have to find another target.

The interesting question is why TCE replaced Tier 1 capital as the Fed's metric of bank health. I think that was just following the crowd, but it wasn't Citi's decision.

Bank Nationalization: It's Just Plain Wrong

BTW, Japan, after the miracle cure of bank nationalization, is much worse off than the US with its banks particularly hard hit.
www.nytimes.com/2009/0...

Bank Nationalization: It's Just Plain Wrong

It took some courage to post this piece on a board full of short sellers and bank haters, but the points werre well taken.
Given time, the banks will earn their way out of the problem and housing prices will stabilize and begin to rise. Inflation, sure to follow the multi-trillion dollar deficit spending, will speed up the process.
Examples from socialist countries do not apply to the US. If the price of government help is nationalization, few companies will ask for help next time and few investors wil risk their capital in an industry where the house closes out the game while there are still chips on the table.
As for moral hazard, even here in Texas there are penalties short of capital punishment.

Nationalizing Bank Losses

That chart factored out inflation, a key driver of house price increases (and vice versa). Do you really think the fed can print a few trillion extra dollars without causing major league inflation once the worst of the downturn is over?


On Feb 01 07:22 PM Yamu wrote:

> For anyone relying on home values to appreciate, have a look at this
> chart:
>
> static.seekingalpha.co...
>
>
> I am no expert on banking so I'll probably be totally off but what
> about letting the banks fail whilst at the same time covering deposits?
> Sure that should be cheaper?

Nationalizing Bank Losses

I don't think you can constitutionally cancel a CDS contract unless the issuer goes bankrupt.


On Feb 01 04:05 PM One Eyed Guide wrote:

> Real estate/housing being underwater is an old style problem that
> the banking system can easily handle over time. Banks have a derivative
> problem (as BigAl and Tom stated earlier). Mortgage backed securities
> can work thier way out over time but Credit Default Swaps (seekingalpha.com/symbo...)
> will wipe out anyone who issued them. The solution is to give bank
> creditors a haircut by allowing issuers to default on CDS's without
> penalty by simply returning the premium. Anyone (hedge funds, for
> example) who can't return the premium goes bust so you still clean
> out some of the real dead wood without destroying needed financial
> structure.

Nationalizing Bank Losses

If the big banks are nationalized whenever the economy goes south, who in their right mind will invest in banks again?
The last "bad bank", the Resolution Trust Corporation, made money for the taxpayers once the economy recovered.. That's because the Fed's cost of carrying the bad paper was close to zero and housing prices eventually came back.
The term bankrupt is overused. No large bank has any trouble paying customers making withdrawals or paying bills. The issue is that if bank assets are valued at instant fire sale prices, they are out of compliance in their lawful reserves. Let the banks, or the bad bank, hold the paper until the economy recovers and the multi-trillion dollar problem goes away.
The only ones hurt will be the short sellers and other vultures.

Where's the Nationalization Debate?

Felix:
Re: Bank Nationalization
Some writers disclose their holdings.
Care to do so?

Dick Parsons to Head Citi's Board? The Insanity Continues

BTW, Vernon, Citibank had evening and weekend hours long before Commerce Bancorp existed.