The Economy, stupid

[Cknolls]

The 2 Mortgage giants are an interesting deal, because they were originally started by the government and it's only been really in recent years that they've behaved as entities in the market rather than as government run things. The government guarantee on them was basically implicit. If the government turned its back and let someone run them in to the ground to make a quick buck, the government was always going to have to bail them out. They actually have provided a fair amount of stability in the mortgage market and the peopel who have mortgages probably pay something like a half a point of interest less because they exist.

 

AIG though is another matter. This certainly seems to be another case of the fed deciding that this company was too big to fail, despite all their mistakes. Lehman Bros. going in to bankruptcy is going to be a mess that takes years to clean up, AIG would have been worse. Would have been a major disruption to an awful lot of people's lives (Imagine needing to get in touch with them related to an insurance policy tomorrow. Yowza).

 

Basically, it's the classic example of the government helping the big guy. You go bankrupt tomorrow because of some medical bills, ha, personal responsibility! You shoulda planned for that. AIG goes bad because of some bad bets, and the government is happy to help.

 

Anyway, congrats Americans, we just bought ourselves a failed insurance company!

 

 

Actually the insurance portion of AIG was the ONLY thing that worked. And I would not be surprised to see Buffet scoop it up.

Edited September 17, 2008 by Cknolls

[Cknolls]

We have bad bets, but anyone mention how ridiculous PIMCO ending up making out based upon there shorts in Fan/Freddie. That was one hell of a one day earning (this is a little dated, because I've had computer problems at home but wanted to point it out cause I Follow PIMCO big time). My big client at work is the company that founded PIMCO. Bill Gross is also one of my hero's, just a great investor.

 

 

You mean a great INSIDER.

[Cknolls]

GE notes trading below par.

[Cknolls]

U.S. Treasury announces special series of bill auctions to expand the Fed's balance sheet.

[kapkomet]

U.S. Treasury announces special series of bill auctions to expand the Fed's balance sheet.

Yea. Let's print some more money!

 

[NorthSideSox72]

Markets down another 2.5% or so today. Currency trading is going wacko. Feds looking for $40B in auctions.

 

Yikes.

 

[Cknolls]

What rabbit will the Fed try to pull out of its hat this expiration? Rate cut or complete elimination of short selling? The latter will kill market makers short term, but will eventually lead to wider markets and larger p/l's. Oh and a stock market crash...

[Cknolls]

3 month treasury yielding .04, and thats up from .02 this morning. All time low was .01 in Jan 1940.

[Rex Kickass]

3 month treasury yielding .04, and thats up from .02 this morning. All time low was .01 in Jan 1940.

 

Is that 4% or .04%?

[NorthSideSox72]

Dow down another 4% today at close, 500 down almost 5%.

 

[CanOfCorn]

Dow down another 4% today at close, 500 down almost 5%.

 

And Leon's getting laaaaarrrrrrger.

[mr_genius]

not good. not good at all.

 

too much debt, all around.

 

 

[caulfield12]

Well, this definitely is an interesting turn of events for the election. You would have to think this would favor the Democrats, but if the GOP can somehow deflect this, well...anything is possible.

 

You can blame greed, you can blame deregulation and lack of institutional controls (remember Enron, when their accountants were also their "consultants"?), you can blame Wall Street or Main Street, but everyone has some level of responsibility.

 

Of course, the Fulds and Thains and all the bank executives purged months ago are sitting on deserted islands with their martinis and daquiris and laughing with the Golden Parachutes softening the blow.

 

The problem, of course, is how can anyone trust the numbers put forth by the banks, or any company, for that matter? Now you have "short selling" as a bubble, where every single bank (see the comments today from MSDW president Mack) is being shorted, doesn't matter why...just for being banking institutions. I'm not sure it's such a good idea to eliminate the short-sellers though...maybe by buying the housing giants and AIG, we're only prolonging the ultimate disaster.

 

So far, the Dow's down about 25% off its high of a year or so ago. You just wonder where's the floor? I'm not thinking about selling any investments yet, and it's illogical to do (buy low, sell high!!!) because if you have a long-term orientation, things SHOULD come back to equilibrium, but there are many people out there overleveraged with debt who will be tempted to try to get at least something back...nobody wants to be the one left at the end of musical chairs without a place to sit down.

 

I was/am a big follower of Bill Miller (Legg Mason Value Trust) and he has gotten absolutely creamed for 3 years in a row after 14 years consecutively beating the market. But disciples of Buffett (such as Oakmark Fund/Oakmark Select) have also been hammered. It seems even "value" investors are having trouble identifying the right market niches to get into. I manage assets for my mom and she's 80 years old. Fortunately, she receives enough money from my father's pension (he passed away 9 years ago) that she's okay without having to live on any of the investment income. However, I'm starting to feel it would have been better to be 80/20 bonds-to-stock instead of 20/80 stocks to bonds, something like PIMCO's Total Return Index instead of some of the Vanguard Index funds and Oakmark/Legg Mason. Well...I'll try to call her from Thailand and reassure her. It's scary, because we don't have long-term care insurance, and long-term nursing care can wipe out hundreds of thousands in as little as 5-10 years. We rode out the tech stock bubble, hopefully this one won't throw us into Great Depression II. But you have to wonder...all those people living beyond their means, all the credit cards, student loans, mortgages, you certainly have a feeling it will keep getting worse before it gets any better.

[Cknolls]

Is that 4% or .04%?

 

 

.04. At one point it was negative. You were paying the gov't.

[Cknolls]

STT getting the fugly stick today. OUCH!! Down 52%

[StrangeSox]

.04. At one point it was negative. You were paying the gov't.

 

Had WBBM on in the car when I ran to get lunch, and they were saying that some money market funds were actually getting negative yields yesterday.

 

What a god-awful mess we're in.

[Cknolls]

U.K just banned all new short positions in financials until 1/16 2009. This just won't work. Also, Calpers has said it will no longer lend MS and GS shares for people to short.

[southsider2k5]

The sad thing is that after seeing what they have done so far, I am rooting for them to all go home.

 

http://www.bloomberg.com/apps/news?pid=was...id=aVPBaUbYV_qQ

 

Democratic Congress May Adjourn, Leave Crisis to Fed, Treasury

 

By Kristin Jensen

More Photos/Details

 

Sept. 18 (Bloomberg) -- The Democratic-controlled Congress, acknowledging that it isn't equipped to lead the way to a solution for the financial crisis and can't agree on a path to follow, is likely to just get out of the way.

 

Lawmakers say they are unlikely to take action before, or to delay, their planned adjournments -- Sept. 26 for the House of Representatives, a week later for the Senate. While they haven't ruled out returning after the Nov. 4 elections, they would rather wait until next year unless Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, who are leading efforts to contain the crisis, call for help.

 

One reason, Senate Majority Leader Harry Reid said yesterday, is that ``no one knows what to do'' at the moment.

 

``When you rush to judgment, you usually make mistakes,'' said Sherwood Boehlert, a former Republican congressman from New York. ``This is something you can't go on forever without addressing, but Congress in a short span of time is best served by going home.''

 

In 2002, after accounting scandals forced Enron Corp. and WorldCom Inc. into bankruptcy, Congress passed the Sarbanes-Oxley law, setting new corporate-governance rules. While the measure passed unanimously in the Senate and overwhelmingly in the House, it has since become a target of criticism from some Republicans, including presidential candidate John McCain, and from many in the business and financial worlds.

 

``There's a huge danger that needs to be guarded against -- that we'll have a tremendous overreaction in regulations,'' former Treasury Secretary John Snow said in an interview.

 

Reid's `Despair'

 

Still, the Democrats opened themselves up for attack with Reid's comments. The Republican National Committee pounced on the Nevada lawmaker for his ``despair,'' and Senator Mel Martinez, a Florida Republican, said his remarks are ``not a way to inspire confidence or begin to turn the tide.''

 

And there were some calls for at least a bipartisan show of leadership during the crisis, which has resulted in the collapse of mortgage giants Fannie Mae and Freddie Mac, investment banks Lehman Brothers Holdings Inc. and Bear Stearns Cos., and insurer American International Group Inc., among other companies.

 

Unless party leaders on both sides of the aisle join with President George W. Bush to endorse a solution, there's little Congress and the president can do in the near term to restore market confidence, said Chuck Gabriel, managing director of Capital Alpha Partners LLC, which advises investors on politics and Washington.

 

White House Lawn

 

Wall Street would respond positively ``if the president and Treasury Secretary Paulson and a couple of Cabinet members and the Republican and Democratic leadership all went on the White House lawn and said that we are resolved to taking additional measures in the coming weeks despite the elections to ensure that confidence is restored,'' Gabriel said.

 

``But the odds of that seem very, very low.''

 

Some committee chairmen have scheduled hearings and promised better oversight.

 

Representative Henry Waxman, chairman of the House Oversight and Government Reform Committee, will hold two days of hearings on Oct. 6 and 7 ``to examine what went wrong and who should be held to account'' at AIG and Lehman Brothers, which filed for bankruptcy on Sept. 15.

 

Waxman's committee summoned Lehman Chief Executive Officer Richard Fuld, AIG CEO Robert Willumstad and former AIG chiefs Maurice ``Hank'' Greenberg and Martin Sullivan to speak.

 

`Work Will Continue'

 

House Speaker Nancy Pelosi defended the decision of Congress to adjourn. Lawmakers can always be recalled to Washington ``if there is a need to do so,'' she told reporters yesterday. In the meantime, House and Senate committees will hold hearings and the financial crisis will be studied by Congress, she said. ``Our work will continue even if we are not still on the floor,'' she said.

 

House Financial Services Committee Chairman Barney Frank said Congress could give the Federal Reserve authority to pay interest on bank reserves sooner than originally scheduled.

 

``They already have the authority; it's just a question of moving it up a couple of years,'' Frank, of Massachusetts, told reporters yesterday. ``We're trying to work that out.''

 

Senate Banking Committee Chairman Christopher Dodd said the Fed also has the power to buy and dispose of bad debt stemming from the subprime-mortgage crisis.

 

``The Fed has the authority to move in this area,'' Dodd told reporters in Washington.

 

No `Quick Fixes'

 

Creating a separate agency to take on bad debt, akin to the Resolution Trust Corp. set up in 1989 to absorb losses from savings-and-loan associations, would take about a year, he said. Instead, the Fed should use its own authority to act.

 

Senator Johnny Isakson, a Georgia Republican active on housing issues, scoffed at suggestions that lawmakers postpone adjournment to rewrite laws governing the financial markets.

 

``The last thing you need,'' he said, ``are 535 people, not many of whom are that well-versed in financial markets, trying to do quick fixes to a market correction that's one of the more significant that we've ever seen.''

 

To contact the reporters on this story: Kristin Jensen in Washington at kjensen@bloomberg.net ; Christopher Stern in Washington at cstern3@bloomberg.net

[Balta1701]

The sad thing is that after seeing what they have done so far, I am rooting for them to all go home.

 

http://www.bloomberg.com/apps/news?pid=was...id=aVPBaUbYV_qQ

Isn't it basically a well-worn rule that any time Congress acts rapidly in response to a crisis situation it winds up making enough mistakes to make things worse? Your example would be Sarbanes/Oxley, mine would be the Patriot Act.

 

There clearly needs to be a massive reform of these financial institutions, especially once we own them all. More transparency, lower CEO pay, more long term thinking, some vastly improved regulations on borrowing, requirements for cash reserves, whatever. But if we try to put those in place now, all that's going to happen is they'll make the job of getting out of this mess harder.

 

Sometime early next year there needs to be a massive regulatory reform package clamping down on the financial industry, but the fact is, they're right, the Treasury and the Fed are just so much better at responding quickly in a crisis that they're the ones who should be managing this.

[kapkomet]

Hey, speaking of Sarb-Ox, IT's WORKED REALLY FREAKING WELL, NOW HASN'T IT?

 

 

It's juuuuuuuuuuuuuuuuust a bit ironic.

[Cknolls]

Isn't it basically a well-worn rule that any time Congress acts rapidly in response to a crisis situation it winds up making enough mistakes to make things worse? Your example would be Sarbanes/Oxley, mine would be the Patriot Act.

 

There clearly needs to be a massive reform of these financial institutions, especially once we own them all. More transparency, lower CEO pay, more long term thinking, some vastly improved regulations on borrowing, requirements for cash reserves, whatever. But if we try to put those in place now, all that's going to happen is they'll make the job of getting out of this mess harder.

 

Sometime early next year there needs to be a massive regulatory reform package clamping down on the financial industry, but the fact is, they're right, the Treasury and the Fed are just so much better at responding quickly in a crisis that they're the ones who should be managing this.

 

 

Well Fasb157 was a good response to the Enron crisis. Let's mark to market. Hey, what's the market? Don't know. S&P: You're downgraded two notches, you need to raise 50 billion in capital.

[Texsox]

It's all about keeping shareholders (now voters) happy. What worries me is politicians always gravitate towards "helping" as many people as possible. That's good for getting reelected. "Helping" in this case could mean almost anything, but I doubt it would mean making it tougher for borrows.

 

I'm with SS, I'd rather they went home. Then, maybe, when they return a better thought out and reasoned approach could be implemented.

[Balta1701]

Well Fasb157 was a good response to the Enron crisis. Let's mark to market. Hey, what's the market? Don't know. S&P: You're downgraded two notches, you need to raise 50 billion in capital.

I typically can make some meaning out of the things you say in here...but I don't think I've understood any of that. If you'd like I can respond with a rant about volatile driven melting of peridotite.

[Balta1701]

Merrill Lynch & Co. chief executive John Thain and two former Goldman Sachs Group Inc. colleagues he recruited may reap almost $200 million for their year running Merrill if they leave or are given lesser roles after Bank of America Corp. buys the brokerage.

 

Thain, who got a $15 million bonus when hired in December, stands to get an additional $11 million in accelerated stock payouts if he doesn't stay after the deal, compensation consultant Graef Crystal said.

 

Trading chief Thomas Montag, 51, who joined in August, may get $76 million, including bonus and accelerated awards. Strategy head Peter Kraus, 56, was given $95 million, including bonus and stock awards, to replace a Goldman package he had to forfeit, people familiar with the matter said.

 

While Thain managed to negotiate a merger even as rival Lehman Brothers Holdings Inc. sank into bankruptcy, shareholders may resent the executive payouts. Merrill's stock returned more than 13 percent a year from 2000 through 2006. Since Dec. 1 of last year, Thain's first day, the shares have fallen more than 60 percent, as write-downs on devalued mortgage holdings eroded the company's financial results.

 

"Investors will definitely be disappointed," said Richard Bove, of Ladenburg Thalmann & Co. "Thain's claim to fame here is that he kept them from going bankrupt." Merrill spokesman William Halldin declined to comment.

Link.

 

I'd have been willing to deal with BofA and sell the whole company to them for less than $5 million.

[Cknolls]

John McCain. 25 May 2005, speaking to the Senate:

 

Mr. President, this week Fannie Mae’s regulator reported that the company’s quarterly reports of profit growth over the past few years were “illusions deliberately and systematically created” by the company’s senior management, which resulted in a $10.6 billion accounting scandal.

 

The Office of Federal Housing Enterprise Oversight’s report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae’s former chief executive officer, OFHEO’s report shows that over half of Mr. Raines’ compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

 

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator’s examination of the company’s accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

 

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac–known as Government-sponsored entities or GSEs–and the sheer magnitude of these companies and the role they play in the housing market. OFHEO’s report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO’s report solidifies my view that the GSEs need to be reformed without delay.

 

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

 

I urge my colleagues to support swift action on this GSE reform legislation.