J. D. Swampfox

AmEx Shares Could Double - Barron's

Another joins the chorus singing "investors are fools to be selling banks." Without the government, AmEx would have no liquidity. Its charge-offs are rising, but that's not important because AmEx relies on fees, not interest on those charged off loans...something just doesn't sound right with that analysis...

CDS Recoveries: Down and Out

Default rates expected at "2 standard deviations below the historic average." Now that's beginning to sound like one of Nassim Taleb's Black Swan events.

What Else Are the Banks Hiding?

Simon Johnson has a great article in the The Altantic about how the bankers oligopoly have staged a "quiet coup", bringing the US government under their thumb since World War II and the urgent need to put them in their proper place before we spin off into depression. see: www.swampreport.com/po.../

Is It Finally the End of the Bear Market?

The writer says, "we can now admit that the Fed actions the past few months have been a success and that it clears the sky a bit." a success? - I don't accept that at all... Bank bondholders have to take a haircut... but if they are forced to, all the CDS's written on the banks bonds will be triggered and payable, leading to another meltdown. The TALF and so-called Public/private partnership is just another re-arrangement of the deck chairs on the Titanic...see Mike Whitney's article in the Market Oracle here: www.marketoracle.co.uk...

We certainly may see a little more upside, but deeming the FED's actions a success? -the sky is not clear at all

Bailoutspotting: Zombie Bank System Needs to Detox from Federal Rescues

Good post. I'm trying to summarize the unintended consequences:
1. a sell off in the secondary market of TLGP issues - this means to me lowered values for this part of banks' debts.
2. in April, spreads will be driven wider by the dramatic drop in TLGP swapping activity - this means to me that longer term bank debt will fall in value more than short term debt.
3. LIBOR is likely to spike and short spreads to widen - this means to me that more tight liquidity and more reliance on government provision
4. other unforeseen consequences...in particular from Dodd's DPA 2009 bill with $500B more of bank methadone - this means the amount of Dodd's bill is intended to be drawn down. It's all most under the radar of the press because it's "aimed at small banks" and big banks have their own separate programs.

The Bounce in Financials: Will it Last?

David Darst at FTN Midwest Securities Corp. says that the current prices of the bonds of BAC and C indicate the "companies' equity is worthless, the government's investment is worthless and subordinated debt holders will lose some of their investment". Buying their bonds, much less their stock, really takes some "out of the box" thinking to justify...

See www.bloomberg.com/apps...

The Elimination of the Consequences of Bad Behavior Continues

"It sometimes appears like we're moving towards a society where the costs associated with taking risks are slowly being eliminated.That means that eventually, so will the benefits." Yup, if the cost of failure is shared by all, then the benefit is shared by all. But... the consensus of all is rarely to take risk, because all don't want to pay the cost of failure- hence "the collective" gives up the potential for gain from risk taking. Result? ...mediocrity, at best.

Confidence in Banks and Government While Fools Reign Supreme

It will take the government at least 10 years to get out its equity positions in the banks (if it ever does). Betting on a socialist government to efficiently run the country's banks without using them for social engineering?... now that's foolish.

Encroaching Equitization of Citi's Capital Structure

The writer says, "The real concern should be for other convertible (and potentially higher up in the capital structure securities), who unlike ADIA can ill afford to lose out on their heretofore considered safe investments." Yup, not only mom and pop but beaucoup other banks and insurance companies own these "higher-up-in-the-capi... securities. 80 percent ownership by the government is just 'round the corner. Think, though, how long will it take for a bank to earn and save back enough profits to buy back as treasury stock an 80 percent ownership position? After all, the government will not be able to just offer its 80 percent position to the public in the open market. I'm afraid that government control of banks through this "partial ownership" vehicle is here for a long time

Stress Tests: Banks vs. Bond Insurers

Yup, great post. If a writer of CDS's like MBIA is able to make good on its obligations, maybe not all CDS's are created equal. Hmmm, I guess it would be nice if all those CDS's that are not on JPMorgan's balance sheet (but should be) were obligations of MBIA...

The End of the Credit Crisis

The shares in the banks that the government owns are newly issued shares, not purchased from the existing supply in the market. Further, IF the banks take "write-ups" from the scenario you lay out, the value of them to existing private shareholders will have been diluted by the percentage controlled by the government. In the case of Citi, as of today, this is currently about 40%, but it looks increasingly like it will soon be 80% a la RBC in the UK. Skyrocket from write-ups? Sounds tenuous, at best...

America's Banks: Are They Really Insolvent?

An organization is insolvent when it cannot meet its obligations AS THEY BECOME DUE...NOT when its "assets are insufficient to cover its liabilities". The author points this out: "This means that strictly speaking having fewer assets than liabilities is not necessarily insolvency" As banks get to the point where obligations cannot be met as they become due, as is increasingly likely, with cash inflows declining as a result of defaults and impairments, the Gov't can step in and make up the difference as needed. The problem is the uncertainty --- how much will ultimately have to be contributed, over how long a time? I choose take the full write down now, even if it overshoots the amount ultimately needed. The other way means much less economic activity over the time needed to finally count the "last bean"...