Augustus

Should You Invest in Banking Stocks?

BAC will be lucky to earn money fast enough to pay their legal fees. The problems that are on the books now will bleed them for the next ten years. Investors will be vomiting this stock out of their portfolios. There are clean places to invest in well run banks.

AIG Bonuses Are Just the Tip of the Iceberg

I really like these talking head CNBC hyperventilators discussing the AIG or Merrill bonuses. GE would be down the tubes months ago without the Fed guaranteeing their debt so they can roll it over. What does a CNBC shouter get in pay? Should it be decided by the House Finance Committee?

How About Adjustable Principal Mortgages Instead?

". . . As long as the banks could hedge and charge a rate premium . . . "

+++++

Who the heck will they hedge with? AIG offered that deal and is now gone. Some institution is going to assume the losses of the entire US real estate market declining? Rots of Ruck with that.

The End of the Credit Crisis

The article is hypothetical nonsense.
A mortgage (or any amount) on a house worth $400,000 is worth more than a mortgage on a house worth $300,000. The example is nonsense.

The Three Riskiest Banks - American Banker

Mellon is still facing the Russian situation. That could well take them completely out. Pretty unjustified, but that is the Russian justice system.

Social Banking: How to Make Bank Shares Worthless

The Indian program has been a financial disaster. Sure, they do not pay for foreign imports of milk. However, look at the size of the budget deficits that it costs them. And they cannot easily quit as they have developed a large and very inefficient group of supplicants for the govt. teat.

Bank of America Facing Mortgage Servicing Losses

You have got the servicing fees jacked up to be about 10X what they really are. Rates are usually 1/4% to 3/8%.

Finally, Some Disclosure from Companies That Received Bailout Funds

There is no way to answer the question about "which loans did the Fed money support." Neither can the banker tell you which loan was made with the money you put in your CD. Anyone asking the question is exhibiting that they know nothing about banking.

In Defense of the U.S. Taxpayer: End Deferred Compensation and Its Tax Subsidy

lorddarley and kinabaru are certainly correct.
There is nothing to tax as nothing has been paid. And the companies receive no deduction for it until it is paid. In some cases, it may not ever be paid. Company goes down the tube and these plans become unsecured creditors.

however, it is interesting to note that the GSE run by Barney Frank has stated that they will honor the defered compensation agreements for their executives. The WSJ article on this issue quoted the FRE spokesperson as stating the necessity of honoring the deferred pay packages for the managements that helped destroy the companies. Where will Barney land on that issue? Wipe them out along with the preferred holders is my solution. BTW, they were GUARANTEED a 9%+ return on the deferred money.

Central Banks Are Destroying Traditional Risk Spread Methodologies

The Fed and Paulson have really screwed up the credit market pricing. In the rush to provide credit for various good purposes, they have driven the uninsured borrowers out of the market - or made borrowing unaffordable for them. It was not too bad if they had stopped at the GSE bailouts and guarantees. When they have now made the facility available for commerical paper of selected issuers they have ruined the rates for the rest. Banks have to lend money to borrowers. They also should have to do their own credit evaluation and pricing. The Fed has now guaranteed the loans to some very large borrowers, screwing many of the smaller ones which may really be much more credit worthy. It is a version of the "good money driving out bad" principle at work.

Schumer Is Way Off

Thanks for the good article and explanation of why this new plan faces the same problems as any other. Schmucker is certainly one of the worst. A dagger at the throat of the economy.

The idea that the banks will run out and lend money is a bit odd. What growing business will be able to pay it back in a shrinking economy? Don't you have to laugh when you hear about the problems at the auto dealers? Hell, they aren't selling any cars. Over leveraged in the first place, low volume for 18 months, finally facing financial reality. Many are just broke in a bad business. So this plan is hurried through to save them.

Auction Rate Securities: Who's To Blame?

The real kicker in these deals was the provision for the lock in at very low rates in the event of a series of failed auctions. If the rates had been allowed to continue to increase, the borrowers would have had to payoff these bonds and get other financing. The lenders would not have suffered from the crunch.

Cuomo Takes Action Against Citigroup, as ABCP Buyers Wait in Vain

In Re: charging managers for crimes

The charges against the two Bear Sterns guys are just as bogus as the Martha Stewart charges. The guys were funning funds investing in mortgage securities. They were hoping things would get better. They reported what the values were - bad declines - we think they are oversold. Then exchange some emails complaining about market action devaluing their assets. Who knows what the ultimate payouts on their particular holding would have been - maybe they had valid complaints. If anyone should be charged it is Thain. He was telling the same story for nine months. the Bear guys were on the beginning before the full effects were evident.

Cuomo Takes Action Against Citigroup, as ABCP Buyers Wait in Vain

keen observer,
Your comments on the Martha Stewart affair are very correct. I'm not a fan of Martha. The charges and conviction were a real sham. I'll never talk to any law enforcement official, ever.

traffic stop:
Policeman: "Do you know why I stopped you?"
Me: "No"
I get double charged because the spedometer was correct in showing 75 in a 55 zone and I knew it.

No Underwriter Support For Failed Muni Auctions

The leveraged Closed End Funds have been funding the leverage for themselves by issueing auction floating rate securities. Very cheap source of funding. If the auctions fail so that the costs go up - and different bonds have very different provisions for that somewhat max rate - then these guys will quit using leverage. To do that the CEF will sell enough bonds to get back to only a 100% long position.

These auction failures really are pretty nutty. Think about the CEFs. They have portfolios of single A to triple A municipals with about zero chance of default. They put that up as collateral to borrow maybe 50%. And then use that cash to buy more AA municipal securities. The very shortest term normal rates are less than longer term muni rates so the deal has made sense on a interest spread basis.

As for the idea that the municipal borrowers were in some sense gambling - it is just not correct. These organizations were and still are good credits. And there are still mountains of cash that need to be invested on a very short term basis so willing to earn small yields. Because the lenders really have not understood very well what they were buying in many cases, they have simply decided to not buy anything other than US Treasury Bills. When these auctions freeze up, whoever was holding the bond last gets to keep it a while longer, earning the much higher rate while doing so. Not a good thing for the lender which really needs that cash today. But most of these are cash management vehicles, so that the size of the cahs pool is probably pretty large.