As the average American’s wealth continues to be whittled away by tumultuous markets, the rising cost of living, and the disastrous lack of leadership being displayed in the Nation’s Capitol, folks are just beginning to realize they have no idea who or what is in control of their wealth.
Many assume that the players they see and hear about on TV – like Hank Paulson, Ben Bernenke, or Alan Greenspan – work for the US Government, because that is who signed their paychecks. It is an easy mistake to make, as they look like Civil Servants in most every way: They are appointed by the President, they are confirmed by the full Congress of the United States, and they are paid with US Tax Dollars. Civil Servants then, right?
Well, no – not necessarily.
Most folks know absolutely nothing of the basic facts about how our finances are administered. They are unaware that the Federal Reserve is a privately owned company who’s shareholders are not citizens nor patriots, and who have no interest in the continued success of the United States beyond what we were able to offer them as a Super Power over the better part of the last century.
Just watch as the financial power centers are slowly shifted from the United States to the far east, particularly China, who’s system of government-controlled “free trade” has made them the fastest growing Empire in history. They don’t have to worry about what a Congress or constituents might think, no protesters to drive by, no subpoenas to dodge. Oh, and the environmental and human rights laws…
Totalitarianism geared towards textbook Fascism is a much more favorable environment for Capitalism to thrive in than is our Representative Democracy, which has outlived it’s usefulness since the development of the Multinational Conglomerate.
After years of unrestrained borrowing and spending, during which time the vast majority of our fundamental production capabilities and jobs were displaced and reestablished over-seas using subsidies provided by American tax dollars, the United States has lost it’s title as the best place in the world to keep and grow your money. We have essentially lost our AAA rating with the world. We are insolvent, and the world is running on us.
How can we tell?
How about the $700BB withdrawal they are working on for Wall Street and foreign-owned banks? How about the GSE bailout? And the record number of recent trips banks have made to the discount window – the one they opened up to gamblers 9investment banks) months ago? FDIC funds for Indy Mac and others? And how many transactions like Countrywide’s $11.5BB loan from the Federal Home Loan Bank System do we know about? Or all the treasuries being auctioned to provide liquidity?
And we are still borrowing and spending – just like they keep asking us to. Aren’t you glad your Social Security is not in the stock market right now? They already talked us into 401K’s that are quickly losing their value, both in the markets and through inflation and devaluation. And they have already tricked us into taking all the equity out of our homes to finance our lifestyles, which are lavish by world-wide standards. What freedoms and advantages we enjoy in our lives are not the norm, and those freedoms and advantages are being eroded so rapidly as to be almost imperceptible.
The false confidence that we as a people collectively hold that this State of Grace that we have enjoyed and have been blessed with for so long in this country will somehow continue unabridged for perpetuity is our hubris, and now our tragedy is realized as the final chapters of our great saga reveal our fate.
The foundations for this wholesale withdrawal of our Nation’s wealth were first laid when the Federal Reserve System was developed, which will be covered in later posts. The crisis at hand today demands we look at some of the relevant parts players that are acting to subvert our Rights, our Middle Class, our National Security and the Constitution of the United States, before we get into the history.
I was worried that nihilistic, neo-liberal ‘neo-cons” were setting the stage for Fascism under some delusion called the Project for the New American Century dreamed up by the Bush family and their minions, but I was wrong. They started setting up all the mechanisms in earnest by the early 1990’s under President Bill Clinton, who I always thought was too chummy with George Herbert Walker Bush-41 and was really a closet Right-Winger.
Isn’t he singing McCain’s praises now when he is supposed to be bucking for Obama? It will not surprise me a bit when McCain dumps Sarah Palin and announces – no, not Joe – but Hillary C as his running mate. Probably just paranoia, but I would not put it past the Clintons or old Turd-Blossom Carl Rove.
Anyway, the point is of this series is to reveal some of the “undisclosed” workings of our financial system, which as it turns out has long been an un-natural, undemocratic and un-constitutional marriage of private power and public funds for generations, and to shed some light on these unprecedented actions of our Federal Government which are technically displays of classic Fascist principles:
Various scholars attribute different characteristics to fascism, but the following elements are usually seen as its integral parts: socialism, nationalism, class collaboration, populism, militarism, totalitarianism, dictatorship, collectivism, statism, social interventionism, and economic planning… Fascist governments nationalized key industries and made massive state investments. They thought private property was to be regulated to ensure that “benefit to the community precedes benefit to the individual.” They also introduced price controls and other types of economic planning measures. Fascists promoted their ideology as a “third way” between capitalism and Marxian socialism.
The Depository Trust & Clearing Corporation is the biggest Bank in the World that you have probably never heard it. They happen to be the registered owners of 99% of all paper (stocks, bonds, securities, etc.). Scary, but true. And they have a perfectly good reason for it – with electronic trading, it is impossible to make timely changes to registered ownership of the paper.
The DTCC retains registered ownership while you as the peasant investor have the designation of beneficiary of the instruments. More on all of that below. First, lets see what the DTCC has to say about itself:
DTCC, through its subsidiaries, provides clearing, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. In addition, DTCC is a leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks.
DTCC’s depository provides custody and asset servicing for 3.5 million securities issues from the United States and 110 other countries and territories, valued at $40 trillion. In 2007, DTCC settled more than $1.86 quadrillion in securities transactions.
DTCC operates through six subsidiaries – each of which serves a specific segment and risk profile within the securities industry:
National Securities Clearing Corporation (NSCC)
The Depository Trust Company (DTC)
Fixed Income Clearing Corporation (FICC)
DTCC Deriv/SERV LLC
DTCC Solutions LLC
EuroCCP Ltd.
DTCC’s customer base extends to thousands of companies within the global financial services industry. DTCC serves brokers, dealers, institutional investors, banks, trust companies, mutual fund companies, insurance carriers, hedge funds and other financial intermediaries – either directly or through correspondent relationships. Increasingly, DTCC’s customers operate both in the U.S. and overseas, where DTCC continues to provide them with services.
In the U.S., DTCC provides critical services to the markets for U.S. Government and mortgage-backed securities, and to all U.S. equity marketplaces, including the New York Stock Exchange, The Nasdaq Stock Market, the American Stock Exchange, and regional U.S. markets, as well as electronic trading and communications networks (ECNs).
All services provided through the clearing corporations and depository are registered with and regulated by the U.S. Securities and Exchange Commission (SEC). The depository is also a member of the U.S. Federal Reserve System and a limited purpose trust company under New York State banking law.
Wow – can you believe these guys are this central to everything that is going on and we have not heard a peep out of them? Wouldn’t you think that their expertise might come in handy right now? Maybe they are – but not for the benefit of you and me.
Why is there so much secrecy in our financial system? Why is so much of the system, and our wealth, controlled by so few people who are so far removed from the law and the Constitution? And how is it they have been getting away with it for so long?
Jim McNeff, Director of Training for the DTC… stated “the DTC is a brokerage clearing firm and transfer center. We’re a private bank for securities. We handle the book entry transactions for all banks and brokers. Every bank and brokerage firm must secure their membership with us in case they become insolvent, so your assets are secure with DTC”. Yes, you read that correctly. The DTC is a private bank that processes every stock and bond (paper securities) for all U.S. banks and brokerage houses. The big question is this; Just who gave this private bank and trust company such a broad range of financial power and clout?
This is another in the list of Federal Agencies like the IRS, FDIC, SEC, and the like who have amazingly broad powers yet little oversight by or subordination to any branch of government. Have you eve heard of an audit by the GAO of the Federal Reserve? You won’t, they are not a government agency, just the “Board” and it’s “Chairman” are, formerly Alan Greenspan and currently Ben Bernenke. The Federal Reserve Board are only an “advisory council” for the President and the families that own the FED, but they are not the decision makers. (More on the Fed in subsequent articles).
The reason the public doesn’t know about DTC is that they’re a privately owned depository bank for institutional and brokerage firms only. They process all of their book entry settlement transactions. Jim McNeff said “There’s no need for the public to know about us… it’s required by the Federal Reserve that DTC handle all transactions”. The Federal Reserve Corporation, a/k/a The Federal Reserve System, is also a private company and is not an agency or department of our federal government, according to the 1998 Federal Registry. The Federal Reserve Board of Governors is listed, but they are not the owners. The Federal Reserve Board, headed by Mr. Alan Greenspan, is nothing more than a liaison advisory panel between the owners and the Federal Government. The FED, as they are more commonly called, mandates that the DTC process every securities transaction in the US. It’s no wonder that the DTC (including the Participants Trust Company, now the Mortgage-Backed Securities Division of the DTC) is owned by the same stockholders as the Federal Reserve System. In other words, the Depository Trust Company is really just a ‘front’ or a division of the Federal Reserve System.
Don’t we deserve to know why this is from someone, especially now, like the media or our elected officials? I guess not, so here is more:
“DTC is 35.1% owned by the New York Stock Exchange on behalf of the Exchange’s members. It is operated by a separate management and has an independent board of directors. It is a limited purpose trust company and is a unit of the Federal Reserve.” -New York Stock Exchange, Inc.
The banks and brokers are merely custodians for their clients. By federal law (SEC), they cannot hold any assets in the customer’s name. The assets must be held in the name of DTC’s holding company, CEDE & Co. That’s how DTC has more than $19 trillion dollars of assets in trust… or is it really in “trust” if the private Federal Reserve System is technically holding it in their “unknown” entity’s name?
Obviously, if stock and bond certificates you’ve purchased aren’t in your name, then the “holder” (the Federal Reserve System) could theoretically refuse to surrender them back to you under a “national emergency” according to the Trading with the Enemy Act (as amended).
Between the market crash and terrorism attacks, I don’t think the powers that be will have too much trouble manufacturing more “national emergencies” with which to further erode our Constitutional Rights. Remember the Patriot Act? They have not even begun to use that on us yet.
And it appears President Clinton has paved the way for a Gulag Society with his 1994 Executive Order 12919 (which I will also examine in subsequent articles). Right now though, the DTCC:
Simply put, the Depository Trust Company absolutely controls every paper asset transaction in the United States as well as the majority of overseas transactions, and they now physically hold (as of April 1999) 99% of all stock and bond book-entrys in their street name, not the actual owner’s names.
REGISTERED HOLDER- A Registered Holder literally possesses, owns, and holds, his stock or bond with his name appearing on the face of the certificate. The company that issued the certificate has registered the owner’s (holder’s) name on their official books. This is the safest way to own a paper asset. You literally possess the fully registered certificate and only you can transfer or sell it. By all Rights and definition of law, you are the owner. You have it, you hold it, you possess it, and you keep it. You have the complete control over it.
BENEFICIAL OWNER- A Beneficial Owner is nothing more than a beneficiary, “One who is entitled to the benefit of a contract”- A Dictionary of Law, 1893. All book-entry stocks and bonds you purchase make you the beneficial owner, not the registered holder. The owner of a book-entry stock or bond is the entity or name that it is registered under.
Even the name of the shadow company that is the agent of who knows, possibly the IMF according to this article: CEDE. Can you believe that. CEDE. I kills me.
CEDE- To surrender possession of, especially by treaty. See Synonyms at ‘relinquish’.” -American Heritage Dictionary of the English Language, 3rd Edition of 1992.
And that is just the plan, just as soon as everything gets a little more chaotic in our once static lives. Living in an Empire at it’s peak is like living in the eye of the hurricane – and if you lived your whole life there under the still, blue skies, you really have no idea what is heading your way.
It’s quite obvious that the stock markets are going to ‘crash and burn’ at some future date and for some ‘unknown’ reason… The Great Depression is about to be repeated, and it will be as deliberate and manipulated as the first one that began with the stock market crash of 1929. We are, without a doubt, on the brink of the Mother of all economic Depressions.
Remember, this was penned in 2003. Pretty prophetic in light of this weeks news. So, how does your portfolio look now?
Your broker sends you a fancy accounting every month of your purported holdings, along with dividend and interest payments paid. The fact is, you only receive the benefit of ownership (interest and dividends) without holding title to your property. You are at the mercy of the registered owner, the DTC. If you don’t believe this is true, then call your broker right now and ask them who’s name is listed as the Registered Holder of your book-entry stocks and bonds. If you’re lucky, the broker will tell you “why of course you’re the Beneficial Owner”, then you’ll know the truth. He may emphasize to you that the stocks and bonds are being held in “safe keeping” for your own protection. This is broker language for “your stocks and bonds are held by the DTC in their street name as the creditor”.
I tried it, and they don’t like to talk about it. At all. I had the feeling they did not understand it completely either, but they swore it was only for expedience and nothing sinister. Fine. But why a private company, and why all the cloak and dagger mystery surrounding what is purported to be the most regulated, the most transparent of all industries?
The reality is that the very history of the Federal Reserve is much more akin to that of conspiracies, Masons and secret inner circles of power. I can’t blame the conspiracy theorists, when you examine even the most tame of the accusations, you find a hell of a lot more mysteries than answers. One more point from the article that I am looking into:
A greater consideration is just exactly who does the DTC hold these securities for? As the owner, who has the DTC pledged these securities to? Our research points to the Federal Reserve System, an international private banking cartel with major offices found in Moscow, London, Tokyo, and Peking. By treaty with the United Nations and in compliance with the Bretton Woods Agreement, the DTC under regulation of the Federal Reserve System has pledged all those stocks and bonds to the International Monetary Fund (IMF). These are the same paper securities found in your IRA and pension fund accounts, as well as in your brokerage account. Remember, you don’t own them…. you’re just a beneficiary.
The truth is, the securities you purchased and paid for with your hard earned money is collateral for the United Nations which is backed by the Federal Reserve System and it’s associated agencies, such as the International Monetary Fund. Is it any wonder that the UN can operate year after year with increasing budgets, but without sufficient funds? The UN has nearly $19 Trillion of backing and reserves, thanks to millions of duped Americans. We are financing the New World Dis-Order with our stocks and bonds.
Sounds so ominous, but then again it doesn’t when we go back to some of the text that DTCC has provided about themselves and some of their initiatives on their own website. Remember, they technically own your securities, they are a private corporation that only serves banks, and they use whatever fees they collect to increase their world-wide monopoly. From DTCC:
DTCC Organizes GREAT Collaboration with Global Peers: More than 40 delegates from 11 infrastructure organizations across the globe came together in New York in July for the first annual Global Relations Exchange and Training (GREAT) workshop hosted by DTCC. The program is aimed at cultivating relationships among colleagues from international clearers and depositories, and fostering collaboration on key trends shaping operations practices in today’s capital markets.
Robert Hegarty, managing director and practices leader, Securities & Investments and Insurance from the independent research firm the Tower Group, discussed in his presentation on securities industry trends the demographic shifts transforming the capital markets, and the challenges facing securities and investment firms and infrastructure organizations.
“There has been – and will continue to be – a major shift of wealth creation from the west to the east and, along with that shift, massive numbers of potential clients to win and service. Companies that don’t embrace this new global marketplace will miss their opportunity to determine their future,” said Hegarty.
Having several of DTCC’s executives meet with these international delegates demonstrates the priority the organization places on gaining a more global perspective. “The sessions were extremely productive in helping us gain a better sense of the value foreign markets place on our services, and the potential business opportunities we all have outside our home borders,” said Patrick Kirby, DTCC managing director, Asset Services.
The DTCC is bigger than GM, GE, Google, Microsoft and many other mega-companies – all added together. Are you sure you never heard of them? Maybe you should take a look for yourself, and then come back to YourMortgageOrYourLife.com for some more surprises.
$700 Billion (eventually into the Trillions) – 110 pages of vague language, few guarantees, and what looks like a whole lot of gaps where the truth of this shameful debacle will escape. The instruction booklet for a 1040 is longer and more complicated than this Bill. I guess this means they have already gotten away with the swindle of the millennia. I am sure it will not be enough for Wall Street, they will manufacture more artificial crisis and take it all now that they know they can get away with it. (Special thanks to Analyst Matthew Miller of Arizona – a good buddy of mine – for these source documents.)
Here is what my Congressman, Representative Peter DeFazio has to say about this fiasco:
Now DeFazio is a good guy, and he has served Oregon as well as you could ever expect a member of Congress to serve his or her constituents. There are also some Republicans who seemed to make an effort to reign in Fannie and Freddie, but I believe that was mostly motivated by their general desire to undo anything that is geared towards helping regular folks. This clip shows a few Dems who were foolishly defending the indefensible, and it shows that this problem is the responsibility of both partys, and reinforces my inclination to want to throw both the Democrats and Republicans out of power, once and for all. this two-party system is destroying our Democracy, as they are both beholden to corporate special interests.
SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION
Section 1. Short Title.
“Emergency Economic Stabilization Act of 2008.”
Section 2. Purposes.
Provides authority to the Treasury Secretary to restore liquidity and stability to the U.S. financial system and to ensure the economic well-being of Americans.
Section 3. Definitions.
Contains various definitions used under this Act.
Title I. Troubled Assets Relief Program.
Section 101. Purchases of Troubled Assets.
Authorizes the Secretary to establish a Troubled Asset Relief Program (“TARP”) to purchase troubled assets from financial institutions. Establishes an Office of Financial Stability within the Treasury Department to implement the TARP in consultation with the Board of Governors of the Federal Reserve System, the FDIC, the Comptroller of the Currency, the Director of the Office of Thrift Supervision and the Secretary of Housing and Urban Development.
Requires the Treasury Secretary to establish guidelines and policies to carry out the purposes of this Act.
Includes provisions to prevent unjust enrichment by participants of the program.
Section 102. Insurance of Troubled Assets.
If the Secretary establishes the TARP program, the Secretary is required to establish a program to guarantee troubled assets of financial institutions.
The Secretary is required to establish risk-based premiums for such guarantees sufficient to cover anticipated claims. The Secretary must report to Congress on the establishment of the guarantee program.
Section 103. Considerations.
In using authority under this Act, the Treasury Secretary is required to take a number of considerations into account, including the interests of taxpayers, minimizing the impact on the national debt, providing stability to the financial markets, preserving homeownership, the needs of all financial institutions regardless of size or other characteristics, and the needs of local communities. Requires the Secretary to examine the long-term viability of an institution in determining whether to directly purchase assets under the TARP.
Section 104. Financial Stability Oversight Board.
This section establishes the Financial Stability Oversight Board to review and make recommendations regarding the exercise of authority under this Act. In addition, the Board must ensure that the policies implemented by the Secretary protect taxpayers, are in the economic interests of the United States, and are in accordance with this Act.
The Board is comprised of the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Director of the Federal Home Finance Agency, the Chairman of the Securities and Exchange Commission and the Secretary of the Department of Housing and Urban Development.
Section 105. Reports.
Monthly Reports: Within 60 days of the first exercise of authority under this Act and every month thereafter, the Secretary is required to report to Congress its activities under TARP, including detailed financial statements.
Tranche Reports: For every $50 billion in assets purchased, the Secretary is required to report to Congress a detailed description of all transactions, a description of the pricing mechanisms used, and justifications for the financial terms of such transactions.
Regulatory Modernization Report: Prior to April 30, 2009, the Secretary is required to submit a report to Congress on the current state of the financial markets, the effectiveness of the financial regulatory system, and to provide any recommendations.
Section 106. Rights; Management; Sale of Troubled Assets; Revenues and Sale Proceeds.
Establishes the right of the Secretary to exercise authorities under this Act at any time. Provides the Secretary with the authority to manage troubled assets, including the ability to determine the terms and conditions associated with the disposition of troubled assets. Requires profits from the sale of troubled assets to be used to pay down the national debt.
Section 107. Contracting Procedures.
Allows the Secretary to waive provisions of the Federal Acquisition Regulation where compelling circumstances make compliance contrary to the public interest. Such waivers must be reported to Congress within 7 days. If provisions related to minority contracting are waived, the Secretary must develop alternate procedures to ensure the inclusion of minority contractors.
Allows the FDIC to be selected as an asset manager for residential mortgage loans and mortgage-backed securities.
Section 108. Conflicts of Interest.
The Secretary is required to issue regulations or guidelines to manage or prohibit conflicts of interest in the administration of the program.
Section 109. Foreclosure Mitigation Efforts.
For mortgages and mortgage-backed securities acquired through TARP, the Secretary must implement a plan to mitigate foreclosures and to encourage servicers of mortgages to modify loans through Hope for Homeowners and other programs. Allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures. Requires the Secretary to coordinate with other federal entities that hold troubled assets in order to identify opportunities to modify loans, considering net present value to the taxpayer.
Section 110. Assistance to Homeowners.
Requires federal entities that hold mortgages and mortgage-backed securities, including the Federal Housing Finance Agency, the FDIC, and the Federal Reserve to develop plans to minimize foreclosures. Requires federal entities to work with servicers to encourage loan modifications, considering net present value to the taxpayer.
Section 111. Executive Compensation and Corporate Governance.
Provides that Treasury will promulgate executive compensation rules governing financial institutions that sell it troubled assets. Where Treasury buys assets directly, the institution must observe standards limiting incentives, allowing clawback and prohibiting golden parachutes. When Treasury buys assets at auction, an institution that has sold more than $300 million in assets is subject to additional taxes, including a 20% excise tax on golden parachute payments triggered by events other than retirement, and tax deduction limits for compensation limits above $500,000.
Section 112. Coordination With Foreign Authorities and Central Banks.
Requires the Secretary to coordinate with foreign authorities and central banks to establish programs similar to TARP.
Section 113. Minimization of Long-Term Costs and Maximization of Benefits for Taxpayers.
In order to cover losses and administrative costs, as well as to allow taxpayers to share in equity appreciation, requires that the Treasury receive non-voting warrants from participating financial institutions.
Section 114. Market Transparency.
48-hour Reporting Requirement: The Secretary is required, within 2 business days of exercising authority under this Act, to publicly disclose the details of any transaction.
Section 115. Graduated Authorization to Purchase.
Authorizes the full $700 billion as requested by the Treasury Secretary for implementation of TARP. Allows the Secretary to immediately use up to $250 billion in authority under this Act. Upon a Presidential certification of need, the Secretary may access an additional $100 billion. The final $350 billion may be accessed if the President transmits a written report to Congress requesting such authority. The Secretary may use this additional authority unless within 15 days Congress passes a joint resolution of disapproval which may be considered on an expedited basis.
Section 116. Oversight and Audits.
Requires the Comptroller General of the United States to conduct ongoing oversight of the activities and performance of TARP, and to report every 60 days to Congress. The Comptroller General is required to conduct an annual audit of TARP. In addition, TARP is required to establish and maintain an effective system of internal controls.
Section 117. Study and Report on Margin Authority.
Directs the Comptroller General to conduct a study and report back to Congress on the role in which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.
Section 118. Funding.
Provides for the authorization and appropriation of funds consistent with Section 115.
Section 119. Judicial Review and Related Matters.
Provides standards for judicial review, including injunctive and other relief, to ensure that the actions of the Secretary are not arbitrary, capricious, or not in accordance with law.
Section 120. Termination of Authority.
Provides that the authorities to purchase and guarantee assets terminate on December 31, 2009. The Secretary may extend the authority for an additional year upon certification of need to Congress.
Section 121. Special Inspector General for the Troubled Asset Relief Program.
Establishes the Office of the Special Inspector General for the Troubled Asset Relief Program to conduct, supervise, and coordinate audits and investigations of the actions undertaken by the Secretary under this Act. The Special Inspector General is required to submit a quarterly report to Congress summarizing its activities and the activities of the Secretary under this Act.
Section 122. Increase in the Statutory Limit on the Public Debt.
Raises the debt ceiling from $10 trillion to $11.3 trillion.
Section 123. Credit Reform.
Details the manner in which the legislation will be treated for budgetary purposes under the Federal Credit Reform Act.
Section 124. Hope for Homeowners Amendments.
Strengthens the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures.
Section 125. Congressional Oversight Panel.
Establishes a Congressional Oversight Panel to review the state of the financial markets, the regulatory system, and the use of authority under TARP. The panel is required to report to Congress every 30 days and to submit a special report on regulatory reform prior to January 20, 2009. The panel will consist of 5 outside experts appointed by the House and Senate Minority and Majority leadership.
Section 126. FDIC Enforcement Enhancement.
Prohibits the misuse of the FDIC logo and name to falsely represent that deposits are insured. Strengthens enforcement by appropriate federal banking agencies, and allows the FDIC to take enforcement action against any person or institution where the banking agency has not acted.
Section 127. Cooperation With the FBI.
Requires any federal financial regulatory agency to cooperate with the FBI and other law enforcement agencies investigating fraud, misrepresentation, and malfeasance with respect to development, advertising, and sale of financial products.
Section 128. Acceleration of Effective Date.
Provides the Federal Reserve with the ability to pay interest on reserves.
Section 129. Disclosures on Exercise of Loan Authority.
Requires the Federal Reserve to provide a detailed report to Congress, in an expedited manner, upon the use of its emergency lending authority under Section 13(3) of the Federal Reserve Act.
Section 130. Technical Corrections.
Makes technical corrections to the Truth in Lending Act.
Section 131. Exchange Stabilization Fund Reimbursement.
Protects the Exchange Stabilization Fund from incurring any losses due to the temporary money market mutual fund guarantee by requiring the program created in this Act to reimburse the Fund. Prohibits any future use of the Fund for any guarantee program for the money market mutual fund industry.
Section 132. Authority to Suspend Mark-to-Market Accounting.
Restates the Securities and Exchange Commission’s authority to suspend the application of Statement Number 157 of the Financial Accounting Standards Board if the SEC determines that it is in the public interest and protects investors.
Section 133. Study on Mark-to-Market Accounting.
Requires the SEC, in consultation with the Federal Reserve and the Treasury, to conduct a study on mark-to-market accounting standards as provided in FAS 157, including its effects on balance sheets, impact on the quality of financial information, and other matters, and to report to Congress within 90 days on its findings.
Section 134. Recoupment.
Requires that in 5 years, the President submit to the Congress a proposal that recoups from the financial industry any projected losses to the taxpayer.
Section 135. Preservation of Authority.
Clarifies that nothing in this Act shall limit the authority of the Secretary or the Federal Reserve under any other provision of law.
Title II—Budget-Related Provisions
Section 201. Information for Congressional Support Agencies.
Requires that information used by the Treasury Secretary in connection with activities under this Act be made available to CBO and JCT.
Section 202. Reports by the Office of Management and Budget and the Congressional Budget Office.
Requires CBO and OMB to report cost estimates and related information to Congress and the President regarding the authorities that the Secretary of the Treasury has exercised under the Act.
Section 203. Analysis in President’s Budget.
Requires that the President include in his annual budget submission to the Congress certain analyses and estimates relating to costs incurred as a result of the Act; and
Section 204. Emergency Treatment.
Specifies scoring of the Act for purposes of budget enforcement.
Title III—Tax Provisions
Section 301. Gain or Loss From Sale or Exchange of Certain Preferred Stock.
Details certain changes in the tax treatment of losses on the preferred stock of certain GSEs for financial institutions.
Section 302. Special Rules for Tax Treatment of Executive Compensation of Employers Participating in the Troubled Assets Relief Program.
Applies limits on executive compensation and golden parachutes for certain executives of employers who participate in the auction program.
Section 303. Extension of Exclusion of Income From Discharge of Qualified Principal Residence Indebtedness.
Extends current law tax forgiveness on the cancellation of mortgage debt.
Now that we have reached Friday, and the World does not seem to be coming to an immediate and certain end, as the advocates of the Paulson-Bush Bailout Shenanigan would have had us believe, let’s take some time to look at what they are really trying to sell as a “Bailout” or “Rescue.”
Congress should be reassured by today’s relatively placid markets and Wall Street having resisted the temptation to start a “run” on Wall Street with a major Friday sell-off. It could be argued that the markets were relieved that no plan was agreed upon today, but don’t get your hopes up.
Congress may have a reputation for molasses like agility, but don’t underestimate their ability to do something really stupid, really fast.
So, it looks like we have at least until sometime next week, which should be more than enough time for Congress and their army of aides and advisors to pour through Paulson’s 2 ½ Page Bailout Scam, and make some necessary adjustment.
Preferably, they will abandon all of it in favor of the multitude of alternatives to Paulson’s Scheme (too many to list), like the Republican‘s new Socialized Investment Bank Insurance Fund (I thought Socialize Insurance was bad? Oh, it’s only bad for getting regular people access to basic healthcare).
If we stop the foreclosures, we solve the crisis for which Paulson maintains we need $700BB for. Let’s do some math, but with really easy numbers that we just make up, like Congress and the Press like to use, and see what we get.
Let’s say the average mortgage “at risk” of foreclosure has an owner in negative equity:
Average Home Value: $200,000
Average Loan Amount: $220,000
Average Loan to Value: 110%
Average Negative Equity: $20,000
Let’s say We need to get all of those loans to a safe 80% Loan to Value ratio to be absolutely certain we avoid a foreclosure:
Amount Needed for 80% LTV: $60,000
Now, let’s see how many people could be helped with Paulson’s $700,000,000,000:
$700,000,000,000 (divided by) $60,000 = 11,666,666 Homeowners who could be rescued from foreclosure.
Wow, that is more homeowners than are going to actually be at risk over the next three years. Way more. And the likelihood it will take an average of $60,000 to bailout every homeowner facing foreclosure is slim to none.
[Some early comments have suggested that my math is too simple. Well, that was the whole point. You don’t think $60K is enough to rescue a home owner (not flipper or investor with multiple properties) from foreclosure? You think $200K is too little to buy a home? The biggest lenders in the country use $200K at 80% LTV for conforming baseline averages on everything from rates to fees. The point of this simple exercise is to say any idiot – even those of you who support this unprecidented crime – can see that the amount of money they want is absolutely out of bounds. They simply want the money for things other than stopping foreclosures, or they would go ahead and use the money to stop foreclosures. They want the money for all those “other” toxic instruments Paulson will not accurately define – bad investments the banks made themselves. So, plug what ever numbers you want in there – if you think it will take $600K to bailout a home owner, that would still be 1.2MM people we can help out instead of giving the money to Goldman Sachs. I would rather spend our tax money helping ourselves than give it to Wall Street privateers while those 1.2MM people lose their homes anyway. If you want hard core numbers, here is a list of about one hundred of the Nation’s Leading Economists who oppose the plan. Don’t be so simple minded. Don’t be fooled. Don’t be robbed.]
Most modifications can be accomplished by choosing a Fixed Rate Mortgage product with an interest rate the borrower can afford, with little or no need to “buy down” the principle. Only in the case of negative amortization loans or areas with drastically declining markets will we need to throw some money in to the fix. But Paulson makes it seem like no one can pay anything at all, and that the Government needs to buy them all up wholesale – but not at wholesale prices. This is completely false; it is disinformation.
“Henry M. Paulson Jr., the Treasury secretary, has put top priority on bailing out financial institutions by buying up soured mortgages and mortgage-backed securities, so banks and other lenders can clean up their balance sheets and get back to normal lending.”
Why do they need all that money? Why do they need it today? Do they really want it and need it because the Banks want out of their Commercial Mortgage Portfolios, which are full of losing bets on risky ventures made at the height of market over-valuation?
They made bad investment and want you and I to pay for it. It is criminal, and it needs to be stopped. From Twist at HousingDoom.com:
Troubled residential and commercial mortgage assets are posting their biggest rallies in months on expectations the U.S. Treasury’s plan to relieve financial institutions of beaten-down assets will help find the elusive floor for nearly $8 trillion in assets.
“The government has stepped up to its role as ‘capital provider of last resort’,” JPMorgan Chase & Co. strategist Christopher Flanagan said in a client note. “Asset price erosion due to inadequate capital availability, in the face of extraordinary fundamental value in many instances, is now largely off the table.”
The top “AAA” slice of the ABX 07-1 index rocketed higher by nearly 8 points on Monday, [graph is 07-02] doubling the move from Friday and erasing at least three months of losses. Lower-rated subprime bond indexes bumping close to zero in recent months jumped by 1/2 point to more than 2 points.
As the government weighs how to bail out the financial sector, the plan’s engineers face a dilemma.
The higher the prices the government pays for troubled mortgage securities held by banks, the more the rescue will bolster those banks and sustain the lending that is vital to the broader economy. But higher prices would also mean a worse deal for taxpayers.
In other words, the more effective the plan, the more expensive it will ultimately be.
Under both the Bush administration’s proposal and many of the variations finding favor among Democrats, the government would buy up to $700 billion in shaky assets now on the books of financial companies. As the government does so, it will be forced to grapple with the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth?
The official name of the program was Hope Now. What? You have never heard of it before? Well that is because the program was introduced with a complete absence of alacrity, especially in light of this weeks bombshell announcement that we are on the hook for from anywhere between $700 Billion (Fed’s guess) and $6 Trillion (outside estimates with many more factors).
The program is ridiculously simple to adhere to, and one would expect that if we were truly facing a global economic meltdown of a magnitude that we have never before imagined in the history of human kind, a few things about the program would have to be true:
One, that the program would be mandated and enforced with the kind of veracity that Paulson seems to want to display in his proposed execution of the Wall Street Bailout; Two, that the program would be fully funded regardless of cost; and Three, that every qualified homeowner (no flippers or investors) would have the opportunity to participate without fear of eviction or credit damage.
Sadly, but not surprisingly, HOPE NOW has none of those elements.
Now, based on the overly-simplified explanation that President Bush uneasily recited last night, laying out the timeline and the oncology of this crisis, it is clear that everyone involved was well aware of the domino effect already in play long before Paulson’s October announcement. From the Horses Mouth:
Bush: First, how did our economy reach this point? Well, most economists agree that the problems we’re witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad because our country is an attractive and secure place to do business.
My Translation: The benefits of a strong economy had well articulated risks postulated by the nation’s leading economic thinkers.
Bush: This large influx of money to U.S. banks and financial institutions, along with low interest rates, made it easier for Americans to get credit. These developments allowed more families to borrow money for cars, and homes, and college tuition, some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.
My Translation: There was so much money, and Greenspan made it so inexpensive to access, that lenders focus shifted to the fees they could collect on the loan transactions instead of long-term loan quality for their portfolios. This shift to sales led lenders to adopt the role of salespeople with quotas and bonus incentives instead of their being the traditional fiduciary agents with a moral and legal responsibility to protect and advise their clients that Americans had come to expect, and they persuaded people to max out everything. We did.
Bush: Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions.
My Translation: I don’t remember ever thinking that the insane double-digit increases in the value of my home every Quarter would last forever. I do remember the press extolling all the virtues of investing in a second home or investment property. I remember Home Depot and Lowes exploding, and hours of television programming being dedicated to home improvement, real estate investing and ultra-risky property flipping.
And I especially remember my Wells Fargo loan officer here in town spending an inordinate amount of time explaining why I should not put that 20% down payment on our new house, but instead should invest it through Wells. He set me up with a PMI account that gave me .25% off of my mortgage rate. He showed me, in great detail using multiple company-produced marketing materials, how I could take my $50K and invest it with Wells and I would receive even more of a discount on my rate.
If I had done so, like so many did, I would never have been able to refinance my mortgage from the ARM I was in, and I would have lost a lot of money in the stock market.
Bush: Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.
My Translation: It was complete and ultimately the fault of Lenders and their Government Regulators. How would Joe and Sally Homebuyer know how much they can afford when it’s the Lender producing the numbers for them to review? Where would they get the idea that ARM loans could always be refinanced later on to Fixed Rates, home values would always go up? Even the so-called Prime Loans are Defaulting at record rates, so it sure as heck is not our faults.
Bush said it all right there. So why do we get punished again? A whole host of economists have come out against the plan, as well as Banking Industry Experts who maintain that the bailout is not necessary, and that it may in fact be quite harmful to the economy.
Maintaining the President’s simplified line of thinking, I can not escape the conclusion that we have been set up to take a massive fall in what will soon be the biggest hustle ever perpetrated by a Government against it’s People. Think about this:
The crisis was caused by mortgage defaults and foreclosures; a Limp-Wrested Program to prevent to massive failure Paulson and Bush are now telling us is immanent introduced in plenty of time to save us all, but there was no real profit in it for the lenders.
Even if every loan was modified and no one ever defaulted on a single mortgage, the banks would all still be facing steep losses because they themselves leveraged their assets to 100% or more, obviously following their own lame advice.
They built Houses and Condo’s like there was no tomorrow, and they bought way too many high priced Commercial Properties at the peak of the market. There is no possible way for them to ever recoup their investments – which have nothing to do with your or me whatsoever – and now they have figured out a way to Pass the Proverbial Buck on to us poor, hardworking taxpayers.
Now they are using the treat of an economic meltdown to cram this turkey down our throats, and it seems we are powerless to do anything about it. Who will save us? Barney? Dodd? Pelosi?
Trust me, they won’t. You need to save yourself.
(I received some complaints that my posts are long. I am a researcher by nature, so I thought five pages was short. These issues are too important not to be thorough, so if you are inclined to think my post is already long enough, this is a good place to stop. For those of you who want some more proof that we have been Grifted to Nth Degree, please read on. I have produced a summarized comparison between what was “asked” of the lenders in October 2007 as far as their own efforts to both help distressed borrowers and avert the Next Great Depression, and what Paulson and Bush are now “requiring” every American to do. Notice how well one plan would have worked out for taxpayers, and how badly the other will damage our economy, our Sovereignty, and our Constitution.)
1. Communication / Outreach Lenders are “asked” to contact borrowers at risk of default or foreclosure, Borrowers with subprime and ARM mortgages 120 days prior to reset. They are “asked” to set up hotlines, websites and conduct community outreach.
2. ReportingLenders agree to track and report on performance.
3. Loss Mitigation Options / Solutions for Preventing ForeclosureLenders are “asked” to set up streamlined modification programs, consider pausing foreclosures in favor of modification, and offer borrowers all options from forbearance and short sale to partial forgiveness and Deed in Lieu of Foreclosure.
4. Performance MeasuresLenders are “asked” to acknowledge applications within 5 business days, provide an outline of the process, provide status updates to borrowers, and provide a decision Within 45 days of application.
5. Subordination of Second Liens:Lenders are “asked” not to structure modifications that result in an unreasonable increase in payment or principle, or that would unduly effect existing subordinate Financing.
The aforementioned guidelines are designed to attempt to ensure that no Homeowner loses the opportunity to keep his or her home, when the homeowner experiences financial hardship; the homeowner has applied for and submitted information necessary to be considered and potentially approved for a loss mitigation option; and the homeowner has the basic financial ability to afford his or her home.
These loss mitigation options offer balanced mortgage solutions that are affordable payment alternatives and in the best interest of the homeowner and the investor.
Purchases of Mortgage-Related Assets: (a)The Secretary is authorized to purchase…on such terms and conditions as determined by the Secretary, (any kind of) assets from any financial. (b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities…without limitation: (1) appointing such employees (2) entering into contracts (3) designating financial institutions as financial agents of the Government (4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and (5) issuing such …as may be needed…to define terms or carry out …this Act.
Considerations.In exercising the authorities granted in this Act, the Secretary shall take into consideration means for– (1) providing stability or preventing disruption to the financial markets or banking system; and (2) protecting the taxpayer.
Rights; Management; Sale of Mortgage-Related Assets.(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received (b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased…including. (c) Sale of Mortgage-Related Assets.–The Secretary may…sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage- related asset.
Maximum Amount of Authorized Purchases.The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.
Funding.Secretary may use the proceeds of the sale of any securities…(for) the payment of administrative expenses. Any funds expended…shall be deemed appropriated. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Increase in Statutory Limit on the Public Debt.United States Code is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.
What the Prez did not tell you, he did not have to; you could see it in his eyes. After watching President George Bush’s 37th televised address to the Nation regarding the financial crisis the World is facing at present, it occurred to me that we are totally screwed either way – that is to say, either way we will pay.
President George W. Bush on Wednesday warned Americans and legislators reluctant to pass a historic financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs, closed business and “a long and painful recession.”
“Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold,” Mr. Bush said in a prime-time address from the White House East Room that he hoped would help rescue his tough-sell bailout package.”
“It should be enacted as soon as possible,” the president said.
He spoke just after inviting Democrat Sen. Barack Obama and Republican Sen. John McCain, one of whom will inherit the mess in four months, and key congressional leaders to an extraordinary White House meeting Thursday to hammer out a compromise.
We will pay sums that probably will reach several Trillion dollars when all is said and done. Don’t let that $750 Billion number throw you off. You know as well as I do they came up with that figure because they thought it would get through Congress more easily than the figure, which approaches the tens of thousands dollars per every Woman, Child and Man in the country.
$750 Billion was a low ball. Just like everything the Government gets hold of, considering the Government’s tendency to hide their failures with jargon and accounting tricks, we can easily expect the true cost to be a multiple of that quaint figure. By the time they are through with us, 3/4 of a Trillion Dollars will look like a bargain.
I must compliment the Prez for spending what must have been an agonizing hour or two nailing down those remedial facts about Mortgage Backed Securities and the lack of market for the little buggers. I am completely reassured that he has as much of an understanding of the issues at hand as I could ever expect of the man.
At least he is not completely in the dark.
Then again, I don’t think the President achieved what he set out to accomplish with his impromptu pep talk. Accordingto the talking-head pundits on TV, the mission of the President’s speechifying was meant to reassure both the markets and the masses alike, and on those fronts I think he failed completely.
For the masses, Bush failed to articulate the urgency expressed by Treasury Secretary Hank Paulson, who came across in his testimony before Congress yesterday and today as quite arrogant and combative. Paulson seemed to address the panel of Democratically Elected Officials with an air of omniscience that bordered on the narcissistic. Paulson remained me of Nicholson’s character in “A Few Good Men,” displaying the indignance of want-to-be nobility.
Bush on the other hand, who usually comes across to me that way all the time, this occaision simply did not. Bush was subdued, and even seemed to have a level of unease I am unaccustomed to in the Connecticut Cowboy.
Bush looked scared.
Bush looked just like he did the first day or two after he realized he blew Katrina, and he did not exude his usual condescending and dismissive bravado. There were moments, when the President was explaning the finer points of the liquidity influx of the late 1990’s that he almost looked approachable, even a bit vulnerable.
Now I am scared.
I am now inclined to think that Bush has just figured out exactly how deep the doo is in which we now find ourselves. That makes me think it might be even worse than I have imagined, and if you have read some of my stuff before, you will know I am already a Mostly Clowdy with a Chance of Showers guy on this whole calamity to begin with.
I might have to adjust that forcast to a Flash Flood Warning now.
As far as what we learned from the Prez that would be considered new in any way – outside of the fact that ‘W’ is in a major pucker – we learned nothing.
As far as the MBS and other as-yet-to-be-defined waste Paulson wants to collect on our behalf, there is a market for all of these, just not at the price that the holders of those securities want to be paid for them. At the peak of the housing bubble, these holders leveraged the inflated value of the securities to the max, and now that the values are getting back to reasonable, they believe they should get a Mulligan.
Paulson’s plan, which is now officially the President’s plan, provides for buying the MBS at the inflated value of a few years ago. Then, as Pauslon maintains, when the holdings “mature” the Taxpayers will get their money back. Paulson and his cronies even maintain that we would make a tidy little profit on them. I was surprised they did not go so far as to propose they put all the Social Security and Veterans Trust Funds in the kitty, they made it sound like such a good idea.
Well, if it’s such a good and potentially profitable venture, why are the Wealthiest Banks and Brokerages in the World scrambling to get them off their hands, and on to our backs?
Simple, they will never, ever, ever reach the inflation and depreciation adjusted value they had at the peak of the housing bubble. Period. It is just not possible, especially with the specter of stagflation and devaluation growing by the day.
They just want to stick us with the whole mess.
I felt the speech overall was quite dismal, and I feel the markets will react the same way tomorrow and through the rest of the week as Congress mulls over the issues – of all the Inept Institutions in the World, it has to be our Congress that will decide our fate.
Watch for a major sell-off to continue until the Government sticks a multi-trillion dollar pacifier in Wall Street’s screaming pie-hole.
One thing is for sure, we will either pay now or pay later.
(also check out Lee Adler, Russ Winter, and Aaron Krownediscuss the government bailout package along with what to look for in the weeks and months ahead, and discuss strategies for the short, intermediate and long term.
Like a lot of folks who are completely flabbergasted by the Government’s repeated efforts to whitewash and gloss over all of the gross negligence, malpractice and criminality of this – The Worst Financial and Constitutional Crisis in Our Nation’s History – I decided last night I would look up some of what the guys and gals at the Federal Reserve, Treasury, SEC, and FDIC were up to between 1997 and 2007, and how it is they could not have seen any of this coming until apparently this week.
I say apparently because the bureaucrats and sycophants are all maintaining that this whole fiasco is as big a surprise to them as it is to poor Mom-and-Pop getting foreclosed upon in their Golden Years.
I know they are lying, and you know they are lying.
So once again we will play the cat and mouse game of “who knew what and when” as the Crooks all disappear into retirement with their $Trillions of stolen loot, the Politicians will blowhard and achieve little or nothing, and the whole thing will fade away from the headlines with time and the advantage of a short American attention span.
But for now, while every is watching and mad as hell, I am going to try my best to do my little part in exposing the hypocrisy and bald-faced lies that are being spewed around Washington DC and the mainstream press. I was on-line all morning and found so much material that I had to abandon my original post and choose just one document to focus on today – a complete summary of the 2002 Annual FDIC Seminar.
This report, like the dozens of others I located by simply Googling “FDIC,” are available to the Public, to Elected and Appointed Officials, and to the mainstream press by simply doing the same thing I did, yet unsurprisingly the Fourth Estate has completely failed to do even the most remedial research while mass producing their “news” surrounding these watershed events. They simply parrot what the Crooks and Bureaucrats and overly simplified misinformation, then fill the dead air in between with a never ending list of questions they will never even try to answer, but use instead as a bridge to the all important commercial breaks.
Somehow Anderson Cooper is just too busy in makeup or post-production to use a search engine and answer some the questions he likes to pose – or any of the media superstars for that matter.
Thank God for that wonderful Series of Tubes we like to call the Internets.
I now have the power to connect you to the information that magically remains just beyond the uneducated reach of John McCain – in that mysterious realm called cyberspace – of which john has heard tales.
I have the power to speak to you about that which lays beyond the scope of what is practical to profess for Barack Obama – too restrained by the political cannon of vacuousness and rhetoric to bust out of the mold of the ordinary.
The following is from an educated adumbration of the entire conference, including Keynote speakers and a summary of their presentations and crucial quotes form the players themselves. The conference was held in 2002 to primarily discuss Basil II and it’s implications for accounting in the Finance Industry, particularly the use of unproven new risk models and the exposure they represent.
At this conference, most every problem that is plaguing Global Finance today is identified by presenters, discussed in detail by Industry and Regulatory “experts,” and dismissed by nearly all in attendance as the lure of unbridled growth and obscene profits overshadowed clear reason and sound evidence.
Throughout, you will see that these problems were well articulated and understood at a point in time that well preceded the peak of the Housing Bubble, and certainly would have been in enough time to have averted this growing threat of a Global Depression.
Amazingly, these people ignored their own warning and dismissed their own advice, and now they want us to believe this was all inevitable, and they never saw it coming.
When they say they did not know, they are lying to you. While they are lying to you they are stealing your money. While they are stealing your money they are tying your hands. While they are tying your hands they are enslaving your children to foreign debt. While they are enslaving your children, they are destroying our country.
A Blank Check? No Oversight? No Courts? No Indictments? You want to take my money, but you want to let the Crooks keep theirs?
I am responsible, but I can not get a loan anymore. The Banks are irresponsible, and they get to bankrupt the Government? Bankrupt our Nation?
Read this and email me – tell me why you are not out in the streets demanding Justice? Tell me why you are not enraged? All that money for Billionaires, and for the Citizens that built this Nation not a damn thing but the bill.
This is Treason. You are being robbed. Please stand up for yourself and your progeny. Don’t let them destroy our Great Nation.
“Banks, brokerage firms, government sponsored enterprises (GSEs), and other financial institutions are becoming more complex and their risk management decisions must sufficiently address these complexities. Presently, regulators and financial institutions are addressing the importance of appropriate risk management policies and procedures by embracing a second Basel Capital Accord. “
That is from the Introduction, they had already identified the number one problem before they even heard anyone speak at the conference. Amazing. This is 2002 here. It gets better:
“Richard Thornburgh, Credit Suisse First Boston’s (CSFB) Vice Chairman of the Executive Board and Chief Financial Officer opened the discussion by citing the timeliness of the conference given the recent announcements from the Basel Committee on Banking Supervision just a few weeks earlier. He stated that CSFB places a premium on effective risk management practices and supports the ongoing efforts of the Basel community. While CSFB supports the Basel initiative, he noted that issues involving operational risk, pro-cyclicality, calibration, cost and complexity still concern the industry and stressed that the United States needs to be more vigilant to emphasize transparency. He went on to say that the industry relies on its regulators to ensure a fair and honest financial system in the United States, with the quality of supervision having played a key element in U.S. markets being the deepest, most liquid markets in the world.”
“To be effective, senior management must play an active role in risk management. He (FDIC Chairman Donald Powell) discussed the FDIC’s interest in forming a close partnership with the industry in order to reach a mutual goal – a healthy, safe and sound banking industry.Regulators must be able to properly evaluate banks’ risk management practices and ensure that models produce appropriate results that provide viable options for the decision makers.”
Remember that this is 2002, not last month. I know it reads like it all took place last month, but it really was 6 long years ago, way before we invaded Iraq, all of these issues were being “addressed.” Mind-blowing, is it not? There is more:
“Chairman Powell stressed the need for transparency in financial markets. To that end, he announced that the FDIC would form a working group on enhanced disclosures by banks. He emphasized that the group would be comprised of both members of the financial services industry and regulators working together to recommend a disclosure policy around four principles: 1) to provide the markets access to important and timely information so investors can make sound decisions and impose market discipline; 2) to enhance the safety, soundness, and stability of the financial system; 3) to ensure that a level playing field on disclosure is maintained between U.S. banks and their overseas competitors; and 4) to ensure the proper and timely implementations of the proposed new Basel Accord.”
Transparency and Quality Supervision, Principles, Market Discipline – brilliant! I wish I had their paychecks to produce these powerpoint regulations (heck, I just wish I had a job right now regardless of the size of the paycheck). Do you see now why I had to do a whole post on this one get together?
The whole thing reads like it’s The Fox’s Outline to Successfully Running the Chicken Coup. Sure, management and sound business practices. Supervision. OK. Mmm Hmm. Check. Yep, got it.
“Panel One: Risk Management in Complex Institutions: A Progress Report”
“The first panel of the symposium highlighted current risk management practices at financial institutions. Thomas (Todd) Gibbons, Chief of Risk Management at The Bank of New York (BONY) began by discussing current issues in risk management. Mr. Gibbons believes there has been more development of sophisticated credit risk modeling, but that there is considerable room for advancement.He noted several improvements in BONY’s new risk management system. For example, the new system is more granular, meaning that risk is more finely assessed, with 18 grades of probability of default and 12 grades for estimated loss given default. Therefore, each loan can be categorized into one of 216 possible risks, allowing BONY to more accurately assess whether it is being adequately compensated for the risks that it assumes. In response to a question, Mr. Gibbons noted that while modeling was rightly assuming a more important role in risk management, the bank “does not manage to a model.” Overall, Mr. Gibbons stated that the industry was doing better with its risk management, but “we still have a long way to go.” “
Last I checked BONY Mellon was doing pretty good – maybe there is something to that last bolded statement, that BONY does not manage to a model. This might be be the key to determining where underwriting and risk-based pricing broke down. I would appreciate any insight any of you readers may have on this point. Please comment on this at the end of the article.
“The next panelist, Robert Dean, Senior Vice President of Market Risk Oversight Freddie Mac, focused his remarks on the measurement of market risk. Mr. Dean noted that the market has been more volatile in recent years, with the frequency of high stress, high volatility market environments increasing. Mr. Dean noted that value at risk (VaR) does not take into account many attributes of an unstable market. He suggested that the conventional VaR needs to be adapted to capture additional risks, including modeling error and liquidity risks.The goal is to try to calculate the unexpected loss or the potential for the market to be wrong, which is more likely to occur in high-stress environments. In response to a question, Mr. Dean acknowledged that Freddie Mac holds greater economic capital against similar portfolios than before.”
They realized they were not accurately accounting for risk. They did nothing but continue expose themselves further. They ramped up new, risky exotics like ALT A, A- and EA. Insanity. How can they say they did not see it coming? Oh ya, they are lying their faces off. It gets even better still:
“Next, Evan Picoult, Managing Director of Risk Methodologies and Analytics, Citigroupcited three crucial aspects of risk management. First, Mr. Picoult stressed the importance of having a consistent method for measuring risk and consistent policies for the management of risk across the firm. Next, he stated that the critical aspect of risk management is the integration of risk policies and practices into business decisions. The third aspect he noted concerns both the way risk measurement is structured and how functions are defined.Structural issues, such as whether risk management should be centralized or decentralized, should be considered. Mr. Picoult also mentioned that in some instances, perverse performance incentives caused excess risk to be taken by a bank. In his view, managers were rewarded for generating revenue without consideration for the risks they were taking.”
Exactly! The policies in place at the lenders encouraged quantity over quality. They knew this is 2002, well before the flagrant abuses infested the industry to it’s core. They did nothing, and now they want that mark on you and your family. They want you to pay, to shut up, and to mind your own business. More still:
“The final panelist was Robert Tortoriello, partner with Cleary, Gottlieb, Steen & Hamilton. Mr. Tortoriello highlighted the critical role for legal and compliance personnel by assisting management in identifying, monitoring, and mitigating various types of risks. The legal/compliance function must establish and implement a written compliance program relating to federal and state banking and securities law. He noted that the new Sarbanes-Oxley law only underscores the responsibility to disclose important developments, articulate accounting assumptions in an understandable way, properly analyze and execute off-balance sheet transactions, and properly disclose loans and other exposures to executive officers and directors.Finally, Mr. Tortoriello stressed the involvement of the legal and compliance functions in how a bank structures, discloses, and implements risk management practices.”
Classic! I love it – accurate accounting assumptions to analyze off-balance sheet transactions. I think the entire idea of off-balance sheet accounting is itself a violation of any sort of accurate accounting methods. The reason they are off-books in the first place is because they are uber-risky and would make the books look like a minefield to investors. You can see they sampled a lot of the Koolaid they were serving.
“Panel Two: The Road Ahead: Risk Management and the New Basel Accord”
“Panel Two focused on risk management and the implications of the new proposed Basel Accord, also known as Basel II. The first panelist was William L. Rutledge, Executive Vice President for the Federal Reserve Bank of New York. Mr. Rutledge stated that under Basel II bank supervisors are emphasizing the need to understand and assess a bank’s internal processes, rather than focusing simply on a bank’s condition at one particular point in time. While Mr. Rutledge believes that competition and other factors would cause the quality of risk management to continue to rise, he feels that Basel II adds further encouragement to the improvement of risk management practices.The most significant advance in the new Accord is the application of an internal ratings-based (IRB) approach to credit risk. Mr. Rutledge stated that U.S. supervisors have embarked on an interagency pilot program that will help to prepare for the implementation of Basel II. The program is intended to help the regulators learn how to conduct internal ratings reviews and to evaluate banks’ current readiness to adopt an internal ratings-based approach to monitoring credit risk. Finally, Mr. Rutledge discussed the upcoming October 2002 launch of the Committee’s third “Quantitative Impact Study” (“QIS 3″), through which banks worldwide will estimate the effects of the proposed new rules on their capital levels.”
From my perspective as an analyst working for the lenders I can tell you that increased competition led to the erosion of of risk management, it did not improve it. The desire for increased market share and originations revenue – not the conventional earnings from the long-term booked value of a loan – is what drove the erosion. The loans were sold off as fast as they were booked, and the sweatshop mentality developed out of Greed. And it infected everyone from the rooky LO to the Senior Management at the biggest lenders in the country.
Next up is the first non-mentally disabled person to speak at the conference. Everyone must have taken a Hooker break or something and completely missed this speaker:
“The next panelist, Karen Shaw Petrou, Managing Partner of Federal Financial Analytics, had a considerably different take on the appropriateness of the Basel initiative. Ms. Petrou said that she has significant concern with Basel II, not because the individual pieces of it are necessarily wrong but because “nobody understands how it all works together.” Ms. Petroustressed that reliance on models on which the Basel rules are based must be evaluated with tremendous caution and a careful look at the bottom line. She also highlighted problems with the operational risk rule. Reputation risk is not included in the Basel definition of operational risk for purposes of determining a capital requirement. As another weakness of the Basel II proposal, Ms. Petrou stressed the difficulty with relying on models. She suggested that the Basel Committee move forward only with the provisions of the rule on which there is widespread agreement and considerable evidence of immediate need.”
Anyone know where Karen Shaw Petrou is today? I would love to hear her story. I bet voices of dissent like hers were not rewarded very well – what a bummer she must have seemed to all those privateers. Maybe she is out of work now like I am – we can give her Paulson’s job. She had a couple of allys too:
“The next speaker was D. Wilson Ervin, Managing Director of Strategic Risk Managementwith CSFB. He also highlighted the problems with the proposed quantification of operational risk in Basel II, stressing that quantification of operational risk could create a false sense of security that operational risk had been measured, and thus controlled.He discussed another concern with the Basel initiative the pro-cyclicality of the rules. He noted that the new rules promote more risk sensitivity and assign higher capital to higher risk classes, which should encourage a better return on capital. However, he cautioned that bank capital tends to be hit hard during economic recessions and suggested that Basel II would have banks cut back on lending during a recession. Mr. Ervin concluded his remarks by saying that unless the current proposal is streamlined significantly, there would be a real risk that the mass of the new rules may outweigh the potential benefits.”
And let’s get D. Wilson Ervin for Berneke’s job while we are at it. These are only two of four voices of reason at this event. Two more to follow. Too bad they did not listen to them then.
A $Trillion Sorrys Everyone!
“The final speaker on this panel was Adam Gilbert, Managing Director of Corporate Treasury Group at J.P. Morgan Chase & Co. Mr. Gilbert outlined five main benefits of Basel II: it will differentiate borrowers by internal or external ratings, it will create more incentives to hedge credit risk and to hedge operational risk, it will recognize more forms of collateral, it will factor correlation into the regulatory model in a much more explicit way by recognizing that products are different, and it will subject the banking industry to a more rigorous test to qualify for the advanced techniques. While Mr. Gilbert believes in the fundamentals of the Basel initiative, he also noted some potential problems. First, operational risk and disclosure requirements remain a concern. Next, he noted the implementation challenges for both supervisors and banks. For banks, he discussed the challenges of trying to meet the qualifying criteria for the IRB approach, including data capture and model input validation. For supervisors, Mr. Gilbert commented on the need to enhance resources to review bank readiness for implementation of Basel II.”
But this guy probably was promoted to SVP. Reward the messanger for the message.
“During the Panel Two question and answer period, the Federal Reserve’s Mr. Rutledge addressed the concern raised by other panelists that the system created could lead to uncertain outcomes on the safe and sound operations of a bank. He defined the basic concept of the revised Basel rules and described the lengthy process of consultations and calibrations to ensure that the system works effectively. “
“Ken Thompson, Chief Executive Officer of Wachovia, was the luncheon keynote speaker at the symposium. In his remarks, he stated that the three primary concepts of Basel II – robust risk management, strong partnerships between financial institutions and regulators, and transparency of information – could not be more appropriate in today’s environment. Mr. Thompson noted the greater importance of risk management by discussing Wachovia’s approaches to traditional and non-traditional risks. First, he said that credit risk management has become more complex. He discussed how Wachovia has taken a conservative approach on credit risk based on the risk adjusted return oncapital. The second category of risk that Mr. Thompson discussed was the risk associated with a sizable merger. First Union and Wachovia merged almost one year ago, and to date Mr. Thompson reported that the bank was meeting or slightly exceeding its projected expense efficiencies for the year. One of the ways that the banks accomplished this feat was “to build risk management from the ground up.” The firm linked and coordinated the market, compliance, credit, and operational risks. Next, Mr. Thompson discussed reputation risk which he believes is one of the largest risks that banks face today. He noted that much of the goodwill that companies built over decades has been eliminated due to companies’ violation of trust of the American public. Mr. Thompson emphasized that adequate disclosures must become a best practice in corporate America.”
This is the same guy who decided to buy World Savings at the very apex of the housing bubble – World savigs the poster-child for insane underwriting and total lack of risk management – isn’t he that guy? I am sure he will do just fine after we have to foot the bill for his poor management of a private company.
“Panel Three: The Rise of Risk Management: Challenges for Policymakers “
“The first speaker, Peter Fisher, Under Secretary of the Treasury for Domestic Finance, focused his remarks on the absence of credit culture. Mr. Fisher noted that the rise in “macro-volatility” has resulted in the development of the science of risk management which has coincided with a corresponding decline in the attention to the basics of credit analysis. He suggested that the current status of risk management and credit management is a natural consequence of today’s marketplace. Mr. Fisher noted that in a financial environment with large swings, macroeconomic events can be relatively more important than the particular circumstances of an individual borrower. He indicated that the recent lack of appropriate credit analysis in the corporate sector has created problems for the U.S financial sector. In closing, Mr. Fisher stressed that the challenge for policymakers over the next five years would be to take the models, capital requirements, and Basel initiatives and use them as a starting point for recreating a credit culture focused on credit analysis.”
I have to keep reminding you – this is 2002. The next five he refers to puts us in 2007, the beginning of the credit crunch in earnest. Will somebody give this guy a medal or something?
“The second speaker, Franklin Raines, Chairman and Chief Executive Officer of Fannie Maefocused his remarks on the current crisis in corporate governance. Mr. Raines reiterated the importance of restoring trust in American businesses by strengthening risk management and renewing confidence in public corporations. Mr. Raines views this era as a potential crisis period in corporate America, as capitalism and the selfish motives that underlie the system fall out of balance. He noted three problem areas that stand out: 1) compensation structures have fallen out of balance, 2) investors and managers have moved away from fundamentals, and 3) managers have denied responsibility for their actions. Mr. Raines noted that not only will new laws have to be enacted and enforced, but good corporate governance is essential to restore public confidence. He noted that Fannie Mae’s risk management practices are bolstered by seven major risk mitigants that may be helpful to other companies: 1) the continual onsite examination process of a financial regulator, 2) annual reviews by an independent external rating agency, 3) maintaining a minimum capital level, 4) operating under a risk based capital approach, 5) maintaining liquid assets to meet unexpected demands, 6) strengthening market discipline by issuing market-priced subordinated debt, and 7) ensuring sound financial disclosures. In the end, Mr. Raines stressed that risk management and risk mitigation must continue to be strengthened to restore public confidence in corporate America.”
He certainly sounded promising. If his leadership was even half of his rhetoric, we might have saved hundreds of billions of dollars for something else – like education and health care.
“The next speaker, Elizabeth McCaul, serves as the Superintendent of Banks with the State Banking Department of New York.Ms. McCaul believes that as regulators, “we have to share with our financial institutions some of the things that we’re seeing” in the areas of financial disclosure, financial transparency, and corporate governance.Ms. McCaul noted that as the financial services marketplace has evolved, financial institutions have become more sales driven and traditional client relationships have changed. She noted the lessons that were learned from banks’ losses in Long Term Capital Management where the importance of integrating market and credit risks were made clear. Ms. McCaul recognized the need “to build structures that get away from the siloing of risk analysis” and to integrate this analysis into the new financial services marketplace. In conclusion, Ms. McCaul articulated the importance of ethical decisions in the workplace and strong mentoring relationships as part of a training program to ensure that the best decisions are being made.”
That was number four of the sane people who attended and presented. Not a single warning from any was heeded, and things only deteriorated more and more in all the specific areas of concern they outlined. Now the Fed and Treasury want us to believe they did not see this coming until it was too late. Pathetic. They think we are pathetic and stupid.
“The final speaker was Randall Kroszner, who served on the President’s Council of Economic Advisors.Mr. Kroszner reaffirmed the important role of trust in the marketplace and the private market’s response to the issues of risk and corporate governance. He stated that striking the appropriate balance between government and market regulation is important, since government regulation will not work fully by itself.Ethics and individual behavior remain integral to the efficient functioning of the marketplace. Mr. Kroszner detailed President Bush’s actions to strengthen regulation, the steps taken by the SEC to hold corporate wrongdoers accountable, and the attempt of Basel II to better harness market forces. He believes that flexibility, innovation, and public disclosure are elements of a sound financial system. Mr. Kroszner stated that companies would seek to operate in appropriately regulated markets because of the confidence and trust that result. He added that third parties, such as rating agencies, also offer risk assessments of industries to promote corporate governance.Mr. Kroszner articulated that the meshing of public and private regulation is critical to ensure appropriate oversight responsibilities. A “one-size fits all” approach to regulation does not work well, and he stated that the new Basel Accord addresses this issue. “
Ethics? Bush strengthened regulation? SEC held someone responsible? Oh, he was still under the impression that rating agencies were independent “third-parties” as opposed to paid cronies. Well, dismiss everything he said then because he either has no clue or was already a terrible liar.
Now many of these people – well, mainly the ones who had no idea what they were talking about – are now making some of the decisions as to how to “fix” the very problems they created by ignoring the evidence and experts they paid to tell them better. Some of these characters are advising Presidential Candidates, and could end up in high profile positions in the next administration, like it’s all some big game of musical chairs.
The truth is they made a lot of money, they destabilized the global economy, and they are now scrambling to cover their butts. Yet, even in the face of the worst financial crisis since the Great Depression, they are still maneuvering for ways to make another pile of money by being the ones who craft the solution.
I heard this compared to “Financial Terrorism.” They created this problem and now threaten us with certain demise if we don’t pay them off with $Billions more. No strings attached.
Do you really trust them to do what is best for you or your country? They never have so far.
“With so many lenders looking shaky these days, it brings up the question of how well prepared the FDIC is to deal with lender failures. That was a question that I asked, and posted on, back in July of 2006. I noted at the time that an FDIC paper written in 2004 showed only a mild concern with the risks of falling home prices, but a surprisingly positive attitude towards lenders encouraging borrowers to borrow the maximum amount possible. Apparently the wave of refinancing that occurred after interest rates lowered was nearing an end, and lenders were looking for new ways to increase profitability. I don’t believe the FDIC prepared adequately for a risk they didn’t see coming.”
“In a fascinating report “Focus This Quarter” for Winter 2004, the FDIC looked in their crystal ball and saw 2006. It would have been comforting to see the FDIC accurately assess the difficulties, had they not appeared to encourage risky loan practices. The report specifically dealt with HELOC concerns (Home Equity Line of Credit), but addressed concerns with the mortgage industry in general as well.”
Here is a a collection of today’s best in far-out and conspiratorial theories surrounding financial nationalization and the surrendering of our democracy.
If you like conspiracies, you’ll love this. If you want only straight news, believe it or not, you’ll love this too.
Across the board, the sentiment is the same everywhere: People are really ticked. Even Wall Street has woke up and realized the problem is a lot bigger than anyone is ready to admit – except the authors of the following articles.
Imagine the scoffs and indignation just the mention of these items would elicit even six months ago. Many good writers, analysts and others were chastised and even blackballed for committing any time or resources to such “nonsense.”
In the summer of 2007, I had an employer tell me I was “naive” and that I “read too many blogs” after I proffered that BofA would likely buy out Countrywide. Glad I have witnesses for that one!
Now, after weeks of unprecedented developments in the financial world and days of the largest swings in the markets and commodities since the Depression, a lot of these old “conspiracies” are turning up as “headlines”.
It’s little consolation and a sad vindication for those of us they called the “doom and gloomers” – believe me, I would really rather be paranoid than be right anytime.
So here is to all of those who were rejected for being a wet blanket when you warned of things to come, and even now get the evil eye from everyone at the office like this whole mess is somehow your fault for having known – Enjoy!
Fleecing What’s Left of the Treasury “The lobbyists and corporate lawyers, the heads of financial firms and the crooks who control Wall Street, all those who spent the last three decades assuring us that government was part of the problem and should get out of the way, are now busy looting the U.S. treasury.”
Bob Novak Thinks Prescott Bush Was A Liberal “Paul Joseph Watson Prison Planet, Tuesday, July 24, 2007 – A BBC Radio 4 investigation sheds new light on a major subject that has received little historical attention, the conspiracy on behalf of a group of influential powerbrokers, led by Prescott Bush, to overthrow FDR and implement a fascist dictatorship in the U.S. based around the ideology of Mussolini and Hitler.”
Privatizing Profits and Socializing Losses: How the Rich are Staying Rich “And McCain is one of the asses who was so patronizing to Ron Paul during the debates, like he was some eccentric relation to be tolerated. Hey everyone, Ron Paul Called it All, and he is the only candidate to put forth specific plans to rescue our country from the Goldman Sachs controlled Federal Regulatory Agencies. They all work for Wall Street now – they have for years, and now you see the mess.”
America is now under dictatorship “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
Federal Reserve Directors: A Study of Corporate and Banking Influence “In 1914 a few families (blood or business related) owning controlling stock in existing banks (such as in New York City) caused those banks to purchase controlling shares in the Federal Reserve regional banks. Examination of the charts and text in the House Banking Committee Staff Report of August, 1976 and the current stockholders list of the 12 regional Federal Reserve Banks show this same family control.”
Proposed bailout plan is a giant money-laundering scheme (With Video)”Having bought these securities for any price Mr. Paulson would like (and he can compel institutions to sell at his demanded price as noted above!) he can then sell those assets at any price he wishes, to anyone he wishes. It certainly is nice to be a “Friend of Hank”, and it most certainly sucks if you’re not.”
Bear Stearns’ Bailout by the Fed, JPM: A Century Old Conspiracy “The bold effort the present bank had made to control the Government, the distress it had wantonly produced … arc but premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution, or the establishment of another like it.” – Andrew Jackson, referring to the Second Bank of the United States.”
Financial Bailout: America’s Own Kleptocracy “Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d’Etat for the class that FDR called “banksters.” What has happened in the past two weeks threatens to change the coming century – irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era.”
Conspiracy Watch: Goldman Spreads Its Tentacles “Nonsense! I’m tired of reading about conspiracy theories on Goldman — they even surface in the Business section of The New York Times! Sure, the list of four of the last six former Goldman co-heads reveals a nice pattern.”
YOUR DOLLARS AREN’T MONEY, THEY’RE DEBT INSTRUMENTS “”We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system…. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.” – Robert H. Hamphill, Atlanta Federal Reserve Bank.”
Fannie Mae and the Vast Bipartisan Conspiracy “The nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates.”
Financial coup d’etat in the U.S. – Part 1 – Hello Feudalism “In other words, the same individuals who wrecked the U.S. financial system are the very ones given the lucrative contract to “rebuild it.” Many analysts are predicting that hundreds of smaller banks and financial companies across the U.S. will go bankrupt in the coming period. Guess who will be swooping in to take over their business.”
Bush Administration Seeks “Dictatorial Power” “Notice how everyone wants to rush this through even though it is the biggest financial crisis in history. One might think that something this big should be carefully considered but no… Bush says: “This is going to be a big package because it’s a big problem” and “We need to get this done quickly and the cleaner the better.”
Subprime Conspiracy Theory “This raises a potential conflict of interest regarding which subprime borrowers actually receive the assistance that the Subprime Bailout Plan is to provide because those whose mortgages are owned by SIVs or impact repayment on SIV assets could gain preference to aid the SIV Bailout Plan. I believe there should be a call for oversight and full transparency of this entire mess because there is the appearance of a potential conflict of interest here.”
Wall Street: The dark theory “What if the reality is that the US economy has been a lot worse than was thought for a long time, and now the chickens are finally coming home to roost? That’s the dark thinking beyond what is known as “Pollyanna creep.”
Our Enemy, The State “It [the State] has taken on a vast mass of new duties and responsibilities; it has spread out its powers until they penetrate to every act of the citizen, however secret; it has begun to throw around its operations the high dignity and impeccability of a State religion; its agents become a separate and superior caste, with authority to bind and loose, and their thumbs in every pot. But it still remains, as it was in the beginning, the common enemy of all well-disposed, industrious and decent men. — Henry L. Mencken, 1926. ”
Paulson Bailout Plan a Historic Swindle “If Wall Street gets away with this, it will represent an historic swindle of the American public–all sugar for the villains, lasting pain and damage for the victims. My advice to Washington politicians: Stop, take a deep breath and examine what you are being told to do by so-called “responsible opinion.””
This crisis is no accident; it was premeditated and internationally agreed “I discovered that the situation did not come about by accident but was actually conceived and planned by the International Banking Fraternity in Basel, Switzerland, in 1998. The tsunami of credit that burst onto the scene after this “Basle Accord” helped save America from a recession, enabled it to fund a war, sleep walked Europeans, politically, into the Euro Zone and attempted to copper fasten the artificial state called the European Union. This crisis is no accident; it was premeditated and internationally agreed. If you don’t believe the pre-meditation involved please read the quote below from the Wall Street Journal, Nov. 27th . 2007″
Who Is Running America? “”I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” — Thomas Jefferson — The Debate Over The Recharter Of The Bank Bill, (1809)”
We pay taxes – and not on Our “profits” mind you – We pay taxes on the money We use to buy food, fuel, clothes for Our kids, and everything else We have to fork out to get by every month.
They want Us to pay for it. All of it. When I think about that I forget to breath for a minute. The don’t just want Us to pay for it, they are making Us pay for it, and We will pay for generations to come.
Paulson and Berneke are asking for a Blank Check to bailout people who had profited from the lax oversight and underwriting for years – and Pelosi Purse-strings has pledged to roll over on anything and push a bill through hastily, so they can all go home for a long vacation.
Congress probably will not even read it. You know they are not writing it, they will leave that to the lawyers and Corporate Lobbyists – you know, the “Experts.”
Now these same Bastards are going to “Fix” the problems they made (and Us) and create even opportunities for More Profits for Those with Money off the backs of the rapidly disappearing middle class.
Quick, check out this list of the 10 Biggest Bankruptcies Ever before they are replaced entirely with a whole new bevy of big-name losers by the end of next year regardless of how much money the Feds throw around.
“In a related move, the Federal Reserve said it will extend loans at the primary credit rate to finance the purchase of asset-backed commercial paper from money market funds. The Fed said the move should assist money funds that hold such paper in meeting demands for redemptions.”
“Concerns about the net asset value of money market funds falling below $1 have exacerbated global financial market turmoil and caused severe liquidity strains in world markets,” the Treasury said.“ The Treasury Department said it’s going to insure any publicly offered money market fund, both retail and institutional, that pays a fee. President Bush has authorized up to $50 billion in protection, and Treasury said it’s acting using the authority of the Exchange Stabilization Fund. ” — WOW! They are nationalizing literally everything! Well, the losses, at least…”
Things have obviously spun out of the Governments Locus of Control when you wake up one fine day to find that AIG is a Subprime Borrower:
“Under the deal, the Federal Reserve will provide a two-year $85 billion emergency loan at an interest rate of about 11.5 percent to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued. In return, the government will get a 79.9 percent stake in AIG and the right to remove senior management.”
“We are in historically unprecedented times. The foundation is being laid for a default of US Treasuries in the wake of the greatest regulatory failure in modern history, and the collapse of the US financial system.”
Who to elect? Obama has not produced anything more concrete than rhetoric, and after hearing the comments from Obama’s competition, it is clear to me now that McCain Understands Very Little about anything he has supposedly been legislating on for the last several decades.
And McCain is one of the asses who was so patronizing to Ron Paul during the the debates, like he was some eccentric relation to be tolerated. Hey everyone, Ron Paul Called it All, and he is the only candidate to put forth specific plans to rescue our country from the Goldman Sachs controlled Federal Regulatory Agencies. They all work for Wall Street now – they have for years, and now you see the mess.
And now the Losers Become Winners, and We Foot The Bill for their mismanagement. It’ like buying the Captain from the Exxon Valdez a stiff drink for doing such a great job:
“I am really sick of regulators acting like the stock market’s response to the crisis is the problem. The stock market has been badly lagging in discounting the problems for years, since the official cheerleading squad known as the press and the government have actually succeeded in brainwashing (or at least providing rhetorical cover for) the financial world.”
Maybe the States Can Help, but We will not be able to depend on them to foot the stupendous bill that is coming our way as we face record resets of ALT A and Pay Option Arm loans over the next two years, as well as a boatload of ARMs. There were 1.5 million Lost Their Homes This Year alone, and that number may double in 2009.
What you Government is doing might as well be Communism, but it’s worse – it makes a great platform for Fascism. They are in the process of a Nationalization of Private Debt and are setting a precedent for every other industry.
Now the US Government is now choosing to follow in the footsteps of Francisco Franco, Benito Mussolini, Hugo Chavez, Fidel Castro and every other petty economic dictator of history.
What is really making me angry is that the dialogue in the press and within our “leaders” rhetoric is a tendency to still blame the borrowers as if We had any control over their underwriting and risk abatement. They ran Our credit and decided what We could borrow, and now they Want To Blame Us For This Mess.
They are still sitting back Letting Old People Be Ripped Off by predatory Reverse Mortgages, and they will wait until the problem is so big – and the profits have already been made – to do anything about it. It’s Criminal!
Guess what? They Want to Bill You For This Mess Twice too, by making sure you payback any losses from a short-sale of your home – even if it was to avoid a foreclosure, and even if you were forced to move to find work:
“With home prices tumbling, millions of people owe more on their mortgages than the houses are worth. If a new job or other life change compels them to sell, their choices include bringing a pile of cash to the closing to make the bank whole, going into foreclosure or cutting a deal with the lender to pay off the balance of the loan over time.”
“A sale for less than the value of the mortgage on a property is known as a “short sale,” because the transaction leaves a homeowner short of the funds needed to settle the debt. Agents and lenders say the number of short sales is rising markedly.”
“Reluctantly, banks are agreeing to let some short sales go through. But instead of writing off the unpaid portion of the debt, they want homeowners to sign a note promising to pay some or all of the balance due.”
But wait, it gets even worse. Instead of doing something like organizing to help homeowners under the threat of foreclosure, Michigan Republicans Plan to “Foreclose” on Voters to Help McCain by making sure poor black voters in distressed areas are intimidated out of their right to vote as citizens of the United States of America. It is shameful!
“According to CBS News, Michigan Republicans are planning to use a list of foreclosed homes throughout the state to block people from voting in the upcoming presidential election in counties where foreclosure rates are high. One of those counties, Macomb County, a “key swing county in a key swing state,” will use this “foreclosure” tactic as part of the state GOP’s effort to challenger some voters on Election Day, as Michigan is arguably the top “blue state” target of the McCain campaign.”
“McCain’s campaign has yet to respond to this issue, and it’s likely they’ll ignore it. The scheme would affect African-American families in the area, “who are more likely to vote Democratic, and more likely to be in foreclosure as a result of sub-prime loans,” (cbsnews.com, 9/12/08).”
“When asked about the GOP’s efforts, by CBS’s Steve Benen, Carabelli said, “I would rather not tell you all the things we are doing.”
“Benen ends his article aptly: “Because nothing says democracy like Republicans acting in secret to prevent Americans from participating in an election. And nothing says ‘in touch with the needs of working families’ like trying to capitalize, politically, on a foreclosure crisis, by stopping victims from voting.”
Probably thought of and planned out at a Christian Chruch, if I know them. Shameful in the eyes of God too! this whole thin is shaping up to be just a Massive Ponzi Scheme Robbing Americans of their wealth and status. soon it will be your standard of living and your freedom:
“Corruption is pervasive. The public uneasy but largely uninformed. The worst of what’s going on is hidden. A vast shady network of “interconnected institutions working through highly legalized and poorly understood systems.” Moving unimaginable sums around the world in seconds. Seducing people into the most outrageous schemes involving unrepayable debt. Then having to borrow more to service amounts already unaffordable. Heading for what money manager Jeremy Grantham calls a “slow motion trainwreck”- the inevitability that bubbles always burst. His advice in the current environment. What he calls the “first truly global bubble:” hunker down and “take as little risk as possible” because “I for one am officially scared.
“Schechter refers to “an unholy trinity of private players, Wall street firms, and non-regulating regulators” who saw a way to profit hugely. Do it with shady practices, and thus partner in a “criminal conspiracy” to rip off millions of working Americans. “It was the largest robbery in history – not a bank heist but a heist by banks.”
“Where are the prosecutors,” asks Schechter? A Congressional probe. Indictments to go after the guilty. Faint hope along with any chance for redress for victims. No chance either for most people to understand an “opaque and unregulated global financial system” with obscure terminology, according to economist Nouriel Roubini. A highly levered “financial monster that eventually leads to uncertainty, panic, market seizure, liquidity crunch, systemic risk and economic hard landing.”
“Crucial to understand is that the current economic crisis “is an outgrowth of the very corporatist policies that will haunt this country for decades.” Plus our costly wars. “Obscenely high levels of corruption,” and many other characteristics of a nation off its moorings and in trouble. This one in “the quicksand of debt and delusion.” Proving unfettered capitalism doesn’t work. At a time Business Week magazine suggested “an irresistible force (is) meet(ing) an immovable object.” The force is the economy and object an unrepayable wall of debt.”
“Little of this gets media attention or is addressed in political discourse. Never mind huge structural problems, an economy in crisis, millions in duress, and barely a sign of remedial help coming for the vulnerable. As conditions worsen “when will the American people realize how badly they have been had and turn on the plunderers,” asks Schechter? The politicians and regulators also who allowed it.”
I am speechless. Imagine something like this walking around your city – say, checking your ID and such. Now imagine it with a 60 caliber machine gun mounted on it, walking around your city – say, checking your ID and such. Welcome to the 21st century.
WAMU:35 Min. after the closing Bell – FauxBiz is reporting that the WSJ has broken news that Washington Mutual has now began preparations to sell itself in – what it hopes will be – an Auction. It looks as if JP Morgan, Wells Fargo, HSBC and even Lame Duck Citigroup wants in on this weeks feeding frenzy as the potential bidders. The stock has reacted positively.
“I’ve been thinking about getting my money out for weeks,” said Steve Baker, another WaMu customer. “Then today I got an email from a friend who works in a bank downtown . . . apparently there’s a rumour on the internet that they’re going to close this afternoon.”
And there will be a whole bunch of that tomorrow if a deal does not go down tonight – keep your fingers and toes crossed.
Not long before the Post reported that WAMU CLOSE TO HIRING GOLDMAN SACHS TO EXPLORE SALE. I’d say the cat is out of the bag everybody. This – by this a mean a quick sale – is definitely better than the many alternatives (I just hope the markets agree) that seemed ever more possible as summer was coming to an end.
Looks like it’s the end of WaMu’s endless summer…
It was a fun ride. that is for sure. But when WaMu announced a few days ago that they were OK in the liquidity department, I blogged that it was one of the sure signs of trouble to come. This is undoubtedly will go down as one of the biggest weeks in history. You are witnessing a lot of history this week. Let’s hope this move does not “reassure” the markets tomorrow like the Fed non-takeover-takeover of AIG yesterday. Amazing. More to follow.
Now that the AIG, Lehman Brothers, and Merrill heads of the financial Hydra have been severed, it’s time for our Hero the Fed to simultaneously solve and create new problems for world markets by turning the fight on a looming WaMu insolvency.
It sounds like TPG has the scoop that WaMu needs more cash. Option one for TPG to protect it’s prior investment would be to pony up more dough – but it looks like they went for option two, which is to hold the door open of a building on fire and hope to high heaven someone else runs in.
Un-coincidentally, one tip that has come in already today from a confidential source who states that there has been “unusual withdrawal activity” at a small retail branch of WaMu in Washington State, and that could signal WaMu may be experiencing the beginnings of a Bank Run.
Please note, this is just one report, and it was not what would be characterized as severe, but it was “abnormally large.”
Before you run out the door, jump in your Buick and race down to nearest WaMu branch with passbook in hand, please read Is Your Money Safe? FDIC and SIPC Coverage Basics, which will basically tell you how fast you will need to drive to the bank depending on your account classifications and current deposit levels. It could save you a speeding ticket.
If you are at least reasonably wealthy or near retirement, an you Thrive on Fear, this is an informative article as well. To recover, check out what Minyanville is Wondering Too.
Plus, the FDIC may end up on the hook for more, and that is what makes everyone nervous about this WaMu situation, and why I believe this is the next item on the Fed’s “quick fix” list is that a WaMu Failure Could Trigger Extension of Deposit Guarantees:
Many firms carry more than $100,000 in balances over the course of a month, particularly if they have a healthy payroll. And the requirements of payroll processing in particularly make it prohibitively expensive to operate multiple accounts. Although the Financial Times article does not address that issue, it does discuss that it may be necessary to increase the scope of FDIC insurance in this nervous environment.
This is contrary to the FDIC’s Sheila Bair who seems only marginally convinced that the FDIC reserves are “adequate” to cover any immediate needs. Yet, just a couple of weeks ago it was announced that the FDIC is Boosting Reserves by hitting hitting banks with higher premiums:
The recent failure of IndyMachas sent the FDIC’sinsurance fund balance to its lowest levels since 1995. This is forcing the regulator to boost its reserves by increasing the fees banks pay.
The Deposit Insurance Fund balance fell to $45.2 billion at the end of June, down from $52.8 billion three months earlier, according to the FDIC’s quarterly bank report, released Tuesday.
The drop is due primarily to the FDIC setting aside $10.2 billion in additional provisions for insurance losses for recent bank failures.
The July failure of IndyMac, one of the nation’s largest mortgage lenders, is estimated to cost the agency about $9 billion, the FDIC said.
So the regulator will consider a plan in October to boost its balance within five years by charging the banks higher premiums. It plans to change its system to assess riskier banks even higher fees.
“We’ll be fine-tuning assessments so higher risk activity will result in significantly higher premiums,” said Sheila Bair, the FDIC’s chairman. “I should say it will be enough to impact behavior.”
Despite the drain on the FDIC’s reserves, consumers don’t have to worry that the agency won’t be there to back them up, said Craig Colasono, associate director at Sandler O’Neill. But banks that are already facing hurdles could find it tough to ante up more in premiums.
“It could present a challenge for troubled institutions,” he said.
It seems to be that everyone is short of cash, but no one wants to admit it. Must keep up appearances.
Word is this morning that the Fed is Seeking a Buyer for WaMu, the nation’s largest Savings and Loan (Oh crap, remember those?):
The fate of Washington Mutual remained in question yesterday as federal regulators recently called a number of banks asking if they would consider buying the nation’s largest savings and loan should it eventually falter, sources told The Post.
In recent days, federal banking regulators have reached out to Wells Fargo, JPMorgan Chase, HSBC and several other financial institutions to gauge their interest in a possible acquisition of WaMu, but no merger discussions are currently under way between the Seattle-based bank and anyone else, sources said.
The move comes as investors worry that WaMu’s customers could begin pulling their money, which totals about $143 billion, out of the bank should its stock fall further.
That doesn’t appear to be happening now, but several WaMu customers in the New York area told The Post yesterday that they were worried about their cash.
Also, there are Continued Rumors of a JP Morgan Buyout, but as of this post, I still have heard nothing solid. I just got off the phone with a JP Morgan contact in Florida who believes “Jamie Dimon will wait and let the dust settle a bit prior to making his next move,” even with the threat of other agressive takeovers rumored to be brewing at Wells Fargo.
Not to mention, it is looking more and more likely that Goldman Sachs needs to diversify its capitalbase by buying its very own bank, with names like Wachovia being floated around. Morgan Stanley is also on the brink, and judging by it’s stock performance, they won’t have that option today.
Best to get this all worked out before GE starts to fail. Chop Chop!
In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.
All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that could be exchanged for an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.
A person briefed on the matter said the agreement does not require shareholder approval.
If the Fed takes a controlling stake, it is likely that it would want to replace A.I.G.’s board as well as its chief executive and chairman, Robert B. Willumstad.
The Fed’s action came after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday night to meet with House and Senate leaders. Mr. Paulson called the Senate majority leader, Harry Reid, Democrat of Nevada, about 5 p.m. and asked for a meeting in the Senate leader’s office, which began about 6:30 p.m.
The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for A.I.G. to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium could not complete the deal in time.
Without the help, A.I.G. was expected to be forced to file for bankruptcy protection.
The U.S. Treasury is considering taking over American International Group Inc. under a conservatorship as one option to address the insurer’s crisis, according to two people briefed on the discussions.
Executives from AIG, bankers and Treasury and Federal Reserve officials are meeting today on the company’s situation at the New York Fed. A number of options are under being discussed to fill a shortfall of $75 billion to $100 billion in funding, one of the people said. The talks are continuing, he said.
Goldman Sachs Group Inc. and JPMorgan Chase & Co., which have been leading efforts to find a private-sector solution, informed the Fed that such an effort would be difficult, the person said. Under another option, the Fed would extend a loan to New York-based AIG, according to a person informed of the matter.
Treasury Secretary Henry Paulson earlier this month seized Fannie Mae and Freddie Mac and put them into conservatorships, where officials will oversee the firms and aim to protect their assets.
A BK of this magnitude would have had unfathomable repercussions, as there is probably no end to the reach global giant AIG has as one of the most owned stocks in the world, and standard part of most any diversified portfolio. I am under the impression that the BK would probably have been at the Holding Company Level only, and not an AIG company wide filing.
Some analysts had warned that they Saw a BK for AIG on the Horizon. Now, after a little ground was gained in the markets today, will we see a real Bear Market Rally on the AIG rescue tomorrow, or will the specter of mounting national debt bring markets down bay the end of the day? If I had to guess, I’d say look for a big jump to the plus in the morning, with everyone coming back to their senses in the after noon, moderating early gains. But, who knows?
This further reinforces the original subject of this post:
On the subject of writedowns, since the spring of 2007, I have in multiple conversations where I lauded the efforts of lenders who were honestly recording the writedowns of their portfolioed and off-the-books assets. I believed, like many other analysts, that the only way to get through this crisis in short order is to get the bad news out in a a timely and accurate manner.
I think even a month ago, I would have welcomed news of BarclaysBuying Troubled Lehman Assets for dimes-on-the-dollar at a total of $1.75BB,as Faux Biz just announced an hour after the closing bell (the Manhattan properties aquired from Lehman in this deal are worth $1.5BB alone.) The sooner we get a real price tag on these assets, and get all the SIV’s and what not on the books, the sooner we will fell bottom in the markets and begin a recovery, I had thought.
Ah, now the script that everyone was trying to avoid, that of an institution failing, selling assets in bulk leading to distressed prices, which forces other players to mark their books down to the new market prices, leading to losses and reductions of already-scarce equity, is now playing at your local credit market.
Lehman has started selling LBO loans, and unlike many recent sale of this sort of paper, will not be providing financing. Fortunately, this sale, at $852 million, is not at all large, but in this market, even what would have otherwise been a manageable sale may not attract great bids. We’ll see soon enough where this trades.
Many of us worried that too much Federal intervention and the lack of a market to truly value those assets would cause a decade long Recession Like Japan Experienced in the 1990’s. Get the bad news out, take the hits, move on to growth and profitability again.
Come December, we will be getting what we have been wishing for as mark-to-market activities begin in earnest for the nation’s lenders and banks.
Now, given the tenuous state of the markets – specifically as Lehman and AIG are in the process of selling mortgage-backed securities from their portfolios at firesale prices – I am wondering if this forced mark-to-market in a few months is such a good idea.
Another negative: two little-talked-about regulatory changes Whitney says will stymie banks’ recoveries. One is a new accounting rule known as FAS 141R. Given the depth of the crisis, Whitney expects to see bank regulators arranging shotgun marriages between well-capitalized institutions and foundering ones. Problem is, any such deals would have to happen before FAS 141R takes effect in December. The new rule, she says, “will make it almost impossible to do bank mergers.” The rule demands that an acquirer not only immediately mark to market the portfolio of the company being bought – and remember, bids for mortgage assets are now few and far between – but also mark to market its own portfolio as well. “Nobody’s going to want to do that,” Whitney says.
One off the factors that has Wall Street and the Financials in a major pucker today is the threat that Lehman and AIG Capital Desperation will force sales of assets at prices that will cause a massive reevaluation of everyone’s MBS, with a net result that could be a loss in the trillions of dollars world-wide. Hence all the backroom deals – save Lehman Brothers (no pun intended).
Steve Forbes, who really bothers me on a personal level for many reasons, was rambling on during an interview this weekend on Faux Biz, and something he said actually rang true with me. Forbes said the the forced mark-to-market that is headed our way will have a devastating effect on markets by causing hundreds of billions of dollars in portfolioed assets suddenly worth only pennies on the dollar.Forbes has suggested that there is no meaningful reason for the extreme mark-to-market mandate fro Q4-08. These assets (I am paraphrasing Forbes here) are collateralized by real estate that, under current market conditions, can not be effectively valued.
Forbes argues that these are long-term investments that are portfolioed for a reason: The portfolio holder is planning on retaining the assets until such a time when market conditions improve and the portfolios have effectively Matured to the Current Book Value. The assets can be classified under existing accounting standards as long-term holdings, and adjusted accordingly based on the anticipated maturity date.
In the wake of the 500 point sell-off on the Dow yesterday, I am thinking this might be a more mature approach to the problem of assets without a fair market value. Really, this makes sense.
A massive mark-to-market in December, during a recession, in the middle of a credit crunch, with little or no capital to be found worldwide (outside of the billions the Fed keeps throwing onto the fire, like they did today) is now is looking to me to be more like a suicide pact for the Financias than tough-love.
The MBS holders are already having to Writedown Losses at Record Levels – do we need to force the issue further? I would love someone to respond with comments on why they think the December Massacre is a good idea.
The approach used in the Bloomberg piece yields a more dramatic number, but also gives the impression we are further along with the financial mess than we may in fact be. However, the article usefully compares the damage to the firms’s equity bases versus the new funds raised to date, revealing a nearly $150 billion shortfall. Ouch.
The problem is that at least some of those estimates were simply for writedowns, not for operational losses. For instance, the Bridewater paper, which estimated the total damage at $1.6 trillion, used a mark-to-market approach, which means it did not include losses from current business activities. Similarly, the IMF estimate, which the story also cites, was for losses to all financial players (including, for instance, hedge funds) again making for an apples and oranges comparison.
So – who has the good argument in favor of the December mark-to-market plan? I would like to hear from you…
AIG, Lehman Brothers, Merrill, WaMu– This weeks Four Horsemen of the Markets have had a tremendous, even historical effect on every aspect of business and finance this week, and the surprises keep coming. Just as the Markets hit lows for the year, the Fed has now announced that they want Goldman Sachsand JP Morgan to fund a $70BB rescue fund for AIG.
This announcement may have a saving effect here at the end of trading today. AIG was somehow allowed to bend the rules and borrow $20BB from it’s own subsidiaries, effectively eating it’s own tail – and this maneuver does not get them out of liquidity hot water – they still have to hunt down more money, which seemed more likely last week than it does this, given the shakeups.
The stock has been hammered today on the news. Governor Patterson of NY seems willing to help in a regulatory manner, but there is no sign of the $40BB bridge loan life-line that AIG is looking for from the Feds. Do them a favor folks, hold off on those hurricane claims.
Asia’s opening makes me nervous. After being closed yesterday for holiday, they are basically going to have their Black Monday on Tuesday. They are following two unanswered rounds of losses in both Europe and N. America, and they could get walloped.
Then, what will European and N. American markets do? There is no money to go buy up Asian deals – it is the Asian money that will dry up for any possible cheap deals for them, further leaving our Financials with no way out but the Government’s ever-ready printing presses. There goes inflation driven by energy and food costs and weakening dollar.
After the bell, Neil Cavuto reported that the Feds are now strongly urging some kind of accident between AIG and Morgan Stanley intheir new role as financial Matchmaker. Unfortunately, they are only 1 and1 so far, if Bear Stearns was a success and Lehman is a failure.
Richard Breeden, former SEC Chairman expressed support for the current Fed Chiefs, Bernanke, Paulson and the usual suspects, saying that they have basically got it all right on Fannie and Freddie, Bear, Merrill and Lehman.
None the less, “The markets will survive Lehman’s failure” Breeden said.
Wow. Glad he has the “ex” in front of that SEC Chairman moniker.
What is scary is that the moves by the Fed are having less and less of a positive impact on the struggling markets. Up until now, one could expect at least a full day of rally when the Fed flexes it’s muscle. Now, there seems to be little to no feeling of reassurance displayed by traders.
I would even argue – especially if the Fed cuts rates tomorrow – that everything is quickly spinning out of their locus of control. And judging from the Fed’s failure to force a Lehman deal combined with news that big 10 banks announced they will form a fund to back each other up, they may be more and more out of the loop, unless they are willing to pony up the cash.
Markets closed at record lows for the year, with the Dow down over 500 points, NASDAQ down more than 80 points, and the S&P down nearly a whopping 60 points. See the article by Mr. Mortgage about How Meredith Whitney Scares the Crap Out of Everyone.
Lehman Brothers is under Chapter 11 Bankruptcy protection – this essentially will buy time for Lehman to sell off some of their still valuable assetsin an organized, not-so-firesale like manner. There are still byuers (Vultures) hanging around looking to pick up Neuberger Berman, if given the chance. Lehman has acknowledged today that they are still entertaining offers for Neuberger that were presented prior to the BK, which now looks to be nothing more than a tactic employed by Dick Fuld to keep his job longer, and take the media pressure off while he sells off what is best about Lehman. It worked so far.
Merrill Lynch is now a division of Bank of America. B of A’s Ken Lewis looks to have jumped the gun on Merrill, paying fully $10 more per share than the stock has been trading at today – and the stock is even trading up for the session. I am of the opinion that Ken Lewis has one serious case of Jamie Dimon envy, and this is a major motivation in many of his decisions. But Lewis, unlike Dimon, just does not seem to have the magic touch – his impatience and insecurity with his ability to close a good deal has had him jump the gun twice now with the CW and Merrill buyouts. Lewis’ willingness to pay top dollar in a languishing marketfor what will prove to be even bigger problems down the road has been bringing shares of B of A down all year, and when B of A starts their writedowns in earnest, the stockholders will have some big questions for Lewis to answer.
Maybe B of A just wants to be too big to fail. Mission accomplished.
Washington Mutual- Hard to know what to say here. Reminds me of a war movie where some poor grunt has to hold his buddy in his arms as he draws his last breath. Very sad. I am again hopeful that JP Morgan has their sights on WaMu and their $140BB deposit base, as well as their (rapidly shrinking) retail banking footprint. Something should be happening this week or next, as I do not believe they really have the capital to make it much longer, especially in these damaged markets. Wamu may become the new big-troublemaker after AIG because WaMu Failure Could Trigger Extension of Deposit Guarantees:
Many firms carry more than $100,000 in balances over the course of a month, particularly if they have a healthy payroll. And the requirements of payroll processing in particularly make it prohibitively expensive to operate multiple accounts. Although the Financial Times article does not address that issue, it does discuss that it may be necessary to increase the scope of FDIC insurance in this nervous environment.
All in all, as I write this post 20 minutes before closing today, the puts on financials are piling up, and the stage is being set for another raucous market Tuesday. Henry Paulson has expressed his opinion that the regulatory system currently in effect is archaic, and is need of a complete overhaul.
Say goodbye to the profits from over-leveraging in a fantasy market scenario where assets never lose any value. We may see the pendulum swing back toward more regulation and away from the Gramm-Leach-Bliley Actthat was passed about 10 years ago, and that opened the door to the incestuous relationships between Consumer and Investment Banks. Also watch for GE’s numerous mortgage-based money-pits start popping up in the headlines, and dragging down the giant.
So, by years end we may see the end of the stand-alone investment bank, as Goldman and Morgan Stanley are the last holdouts. We can probably expect them to find a distressed bank or two to pick up and diversify their capital base with the retail banking depositsthat have kept other financials out of any immediate liquidity problems.
The following is a fantastic reprint from Minyanville discussing some of the anticipated and surprise after-effects from the events this weekend and in today’s trading:
Even though Lehman Brothers was larger and older than Bear Stearns — its existence predates the Civil War — it was the first to get that dreaded dose of tough love. There was no Barclays or Bank of America deal, no “good bank”/”bad bank” arrangement — for the first time this year, the government allowed a large financial player to fail.
The implications of this failure are massive, and they’ll be absorbed over a period measured in months, not days. For one, Lehman’s 25,000 employees face an uncertain future. Its customers, many of them big financial institutions, will have to unwind what are bound to be extremely complicated transactions. And investors will have to figure out what to make of the largest U.S. investment bank failure since Drexel Burnham Lambert in 1990.
To get after that last issue, I asked a panel of Fool advisors and analysts to share their thoughts on these events. Here’s what they had to say.
1. As of Friday’s close, Lehman traded hands for $3 and change, down more than 90% from its 52-week high. Not many average Joe investors held this stock. So why is this failure so far-reaching?
Bill Mann, advisor: Lehman matters for its role in the financial markets far beyond its own capitalization. Lehman owned some $600 billion in assets, some more liquid than others, all of which are likely to be sold during bankruptcy. There should be no doubt, for example, that some of the extreme levels of volatility in emerging markets have come from Lehman Brothers selling heavily to raise cash in the face of this crisis.
Andy Cross, advisor: Lehman is the latest financial butterfly to flap its wings, and it’ll have ripple effects throughout the entire world of finance. What’s interesting in this case is that the Federal Reserve put its hand up to say “enough.” After bailing out Fannie Mae and Freddie Mac, and backing the JPMorgan Chase buyout of Bear Stearns earlier this year, the Fed apparently decided that Lehman did not qualify as “too big to fail.”
Tim Hanson, senior analyst: This isn’t just about Lehman. The company’s bankruptcy filing this morning is the latest symptom of a sick financial sector. In a way, this whole experience illustrates just how intertwined the global economy actually is. What started as the admirable goal of helping a few more people own their own home and jumpstart a slowing economy in the wake of crisis (Sept. 11, 2001) ended up inflating a massive housing bubble, encouraging financial institutions to take on unprecedented amounts of risk, taking down a number of venerable financial institutions, and decimating consumer confidence. This has essentially put us back to where we started: looking for ways to jumpstart a slowing economy in the wake of crisis. It will, however, take time. Lehman now must unwind its enormous trading positions, which will put greater downward pressure on asset values in the near-term.
2. Can U.S. taxpayers in any way rejoice that this marks a tide change in how the government handles large, failing financial institutions (or non-financial institutions)?
Mann: I think we can describe this past weekend’s events as an accidental victory for capitalism. Several big banks and several government entities sat in a room with the express purpose of figuring out how to rescue Lehman Brothers. The government stated that it would not guarantee Lehman’s liabilities, and one by one the banks dropped out of the bidding.
Now, recent activities in subprime securities notwithstanding, these big banks are run by fairly smart people, all of whom came to an obvious conclusion: If they did not step in and help rescue Lehman Brothers, their own stocks were going to be mauled. And yet they still decided that taking on the risk wasn’t worth it.
In the end, no one stepped in, and Lehman filed bankruptcy and will be wound down. While it probably feels a lot worse today around the globe as the financial system takes a massive shock, I believe that Lehman’s failure will help clean out the system faster than if billions of capital were being used to prop it up.
Of course, the cynic in me also says that Wall Street probably has learned two additional lessons. First, if you’re going to fail, be the first to do so. Bear Stearns got help. Lehman got bupkis. And second, if you’re going to take on risk, don’t just put your company at risk — make sure you rope in whole segments of the global economy.
Cross: The optimist in us all searches for the silver lining when we see a 158-year-old firm collapse under its own heavy leverage and poor risk management. I’m encouraged that the U.S. government apparently knows when to say “no.” Too bad so many once-stout investment and traditional banks didn’t have the same discipline when they were writing or selling risky loans and financial instruments.
Bill Barker, senior analyst: In any way? Well, rejoice is a little strong, but let me count the ways investors can be grateful:
Less taxpayer money used to largely reward undeserving executives.
There should be a renewed sense of urgency on the part of any financials with deeply flawed models and sketchily capitalized balance sheets to fix their problems now instead of waiting for help.
The market is all about getting rid of uncertainty.
In its own bizarre way, the government’s clear statement that it won’t bail out every company like Lehman makes these resolutions a bit more certain. Either these companies succeed or they fail — completely. It’s slightly easier to do the math and value companies when you get into binary outcomes, rather than having to calculate multiple scenarios and assign various probabilities to outcomes that you can’t even quite define. In the long run, I think this helps valuations of these companies, though obviously none of them are going to fetch better prices today.
Hanson: I’m not sure U.S. taxpayers (i.e., us) have much at all to rejoice about right about now. Our economy is fragile, we have a tremendous and growing deficit, and our obligations continue to pile up. The fact that the government did not step in here hopefully indicates that aside from the unwinding that has to take place, the Lehman fallout won’t be that bad. Going forward, the government may decide that it does not want to risk having to deal with large, failing financial institutions and decides to start breaking them up — which would be bad news for Bank of America and its growing collection of financial assets.
3. In 2008, there have been several high-profile failures or near-failures: Bear Stearns. IndyMac. Fannie Mae. Freddie Mac. Now Lehman Brothers. The FDIC increased its “problem bank” list by 30% last quarter; there are now 117 banks on that list, totaling $78 billion in assets. Given all of this, do you think we’re closer to the beginning of this mess, or the end?
Cross: My crystal ball is fuzzy on those details. And I think anyone giving you a straight answer has a bridge to sell you in Brooklyn. From what I can tell we still have a few chapters left in this story. But investors who are well-diversified across industries and market caps should be able to weather this storm, even if a few of your stocks are taking a beating today.
Barker: We’re far closer to the beginning of the number of companies that are ultimately going to fail. There will be far more than the handful we’ve seen so far. But I think that we’re much closer to end of general destruction of market capitalization of these companies, and the ultimate total of write-offs that we’ll see from them. We’ve already seen far more than $500 billion in mortgage-related write-offs, and I think that’s closer to the end than the beginning.
Hanson: Given that this mess is almost seven years old now, odds are we’re closer to the end. That’s not to say there won’t be an alarming climax, but the remaining big financial institutions (Bank of America, JPMorgan, Goldman Sachs, and Morgan Stanley (NYSE: MS)) look to be in better health than the companies mentioned.
4. For financial-related stocks, the bad news has been relentless. What would you tell investors about fishing for bargains in financials right now?
Mann: Don’t be fooled. Lots of financial companies are exhibiting enormous dividend yields and look extremely cheap on a price-to-earnings and price-to-book basis. But earnings and book value are historical measures, and many banks and financial institutions have fundamentally changed. One of the fundamental rules for dealing with a burning building is not to run into it if you’re already safely outside. Let others be heroes.
That said, in every sector there are good and bad companies, and the financials are no different. There are bank companies that have little to no exposure to the worst segments of the real estate market, and they’re gobbling up market share. These are among the financial companies that have dropped the least. Companies like PNC (NYSE: PNC), Wells Fargo (NYSE: WFC), and BB&T (NYSE: BBT) are quite cheap, even though they don’t look like it next to their scorched cousins.
Cross: I’m not ready to double down on financials yet, but for investors who are willing to take on a bit more risk you could look at a few banks. BB&T is one of the best out there. But again, make sure you’re diversified — in this environment, these bank stocks could continue moving south even if the companies’ fundamentals are relatively strong.
Barker: Don’t — please don’t.
All right, with more color: Invest in what you know. Invest in what you understand, or are capable of coming to understand. If you think that you can figure out the balance sheets of financials — great. But you’re in a very, very, very small group if you’re actually able to gauge what’s going on there. You might invest in Berkshire Hathaway, because if anybody’s going to make the right move scavenging from this mess, it’ll be Buffett and Munger. But doing it on your own? There are better opportunities out there.
Hanson: All stocks have been punished recently, not just financials. As a fellow investor pointed out to me on Friday, it’s either the end of the world or an incredible buying opportunity. Either way, as a modern day Pascal might wager, we should be buying, and the best opportunities are in the non-financial stocks that have been punished without even being tied to the current crisis. There is a caveat: It could get worse before it gets better. In other words, be absolutely certain that any money you put in the market today is not money you need to pay near-term bills. Be prepared to leave today’s investments alone for the next three, five, or forever years.
Bloomberg Today has announce that Lehman Brothers Has Filed for Bankruptcy Protection as US treasuries are set to explode today. While most Asian markets were closed for holiday, word from Europe had Helsinki and other exchanges suspended trading on Lehman Brothers BK announcement.
On other fronts, there is what looks to be a defensive reaction of self preservation, 10 Banks to Fund $70 Billion Borrowing Facility, this announced by many of the same banks that decided to let Lehman Brothers drown while they circle their financial wagons in a literal “I’ve got your back pal” move.
They say it is to ensure there is plenty of liquidity in the market – blah blah – they are buying each other insurance, the kind that the Fed says it is no longer in the business of.
Not sure if AIG Heard That message, as they have been seen hanging around the alley, tin cup in hand, hoping for a spare $40BB.
The banks involved in this new endeavor obviously heard what the Paulson was saying this weekend – and more surprisingly Paulson must have really meant it – that Wall Street financials would have to pry the money out of Fannie and Freddie’s cold, dead fingers.
The 10 banks are Bank of America, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs Group, JPMorgan Chase, Merrill Lynch, Morgan Stanley and UBS.
In addition, the banks said they were working together to arrange an “orderly resolution” of derivative exposures between the stricken investment bank Lehman Brothers Holdings and its counterparties.
The 10 banks said their action will be enhanced by the U.S. Federal Reserve Board’s decision Sunday to accept a wider array of collateral for emergency loans.
The Federal Reserve said it would begin accepting equities as collateral for emergency loans for the first time ever. In addition to broadening the collateral it would accept from investment banks for direct Fed loans, the Fed also said it would increase the amount of Treasury securities it auctions on a regular basis under one of its lending programs.
Ben Bernanke, the Fed chairman, said in a statement that the Fed’s actions, “along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to the markets.”
The extraordinary Fed actions came as talks to find a buyer for Lehman failed after three days of discussions.
Perhaps the most significant change was the decision to accept equities as collateral for cash loans under its Primary Dealer Credit Facility for investment banks. Previously, the collateral had been limited to invest-grade debt securities.
One analyst I was in contact with this evening pointed out that no one is noticing the Fed’s statement about taking equities as collateral, and noted that was fairly radical.
Also, tucked in at the very end was this little gem…
In a third step, the Fed said it would temporarily allow insured depository institutions to extend liquid funds to their affiliates for assets that would normally be accepted in tri-party repurchase agreements.
This means the problems for the FDIC just got way bigger – and the funds available to sop up the mounting losses are running out probably more quickly than anyone anticipated, especially with the threat of a WaMu bailout hanging over the Feds head this week.
Such loans are normally capped by Section 23A of the Federal Reserve Act. The exemption from Sec. 23A was aimed at enabling banks to better use the Fed’s discount window to inject cash into illiquid credit markets, and will last as long as the Fed’s modified discount window program. (On Aug. 17 the Fed announced a temporary 0.5 percentage point cut in the discount rate and a lengthening in loans to as much as 30 days from one.) The Fed gave Citigroup permission for its bank unit, Citibank N.A., to lend up to $25 billion to its broker-dealer affiliate Citigroup Global Markets, for the purposes of executing securities repurchase transactions.
In effect, the exemptions enable the banks to use discount window funds to enter into repo transactions with credit market counterparties using its broker dealer unit as a facilitator. The terms of the bank’s transaction with the broker-dealer must be the same as the terms of the broker dealer’s transaction with the final counterparty.
The Fed has since also released letters granting the same exemption to J.P. Morgan Chase & Co. and Bank of America Corp. All three are dated Aug. 20.
Such exemptions aren’t unusual; the Fed’s Web site show it has granted two 23A exemptions earlier this year (one to Wachovia Corp. and one to Bank of America Corp.) and five last year. The latest exemptions stand out for their coordinated nature, their potential size and the clear link to the Fed’s efforts to restore liquidity to credit markets via the discount window.
What we effectively have now is a blanket Super Section 23a Exemption status. This is a big, big safetynet to cast. Big and potentially very expensive. It will dwarf FDIC reserves in the end.
A couple of things I thought an hour ago that I am not so sure about now:
Is the tough talk from the Feds really a cover for the fact that Fannie and Freddie are going to wipe the US taxpayers out – and there is no money for Lehman – or anyone?
And if so, does that mean the entire Lehman meeting was really everyone else just figuring out how to cover their butts in what has got to be one of the Funkiest Market Situations in Memory?
The Mutual Appreciation (except for you Lehman, sorry little guy) Society may act to buffer the anointed from investor insecurity today, and could even make some of these winners in what could easily be a whopper of a loser in the markets today.
Word is to expect a massive equities sell off as money pours into US Treasuries.
Wow. What Will Tomorrow Hold? A pullback on Lehman and AIG news, tempered by a Merrill/B of A deal? Or a Merrill/B of A deal rally, tempered by Lehman and AIG news?
Everyone now anxiously looks to Asian and European markets for a glimpse at What is Coming New York’s Way. Good luck sleeping tonight everyone! This may be a week of big plays – like Wells and JP Morgan may decide to do some quick snatches too, as a potential “Battle of the Survivors” looks to be brewing.
A subsequent conversation with sources at B of A since originally posting this article reveals Bank of America is determined to move fast and furious on Merrill Lynch Monday in an effort to take advantage of what will surely be a sharp reaction by the markets to news that Lehman is filing for Bankruptcy.
Teams at B of A are moving rapidly to shore up terms of the deal tonight, and are working feverishly to secure at least a basic agreement with Merrill in efforts to stave off any competing bids that may drive up the purchase costs.
The terms are said to be Between $25 and $30 Per Share, in possibly an all-stock deal, which would certainly be beneficial for B of A, who has legal problems and losses mounting from their puzzling purchase of major liability and toxic mortgage producer Countrywide.
Such an Acquirement by Bank of America would position them as a leader in asset and wealth management worldwide, and would certainly soften the blow they felt from the Bear Stearns Deal.
My source reiterated B of A’s high priority mode on this, saying that “they want the deal ready to go in the morning. They are moving double-time on this..”
-The banks that merged to form Bank of America in 1998 — NationsBank and BankAmerica — have historically bought distressed assets on the cheap. Bank of America Chief Executive Kenneth Lewis has made his bank by far the most aggressive acquirer of any major U.S. bank this decade, having spent more than $100 billion on such targets as FleetBoston Financial Corp, MBNA Corp, LaSalle Bank Corp and Countrywide Financial Corp.
-Bank of America had a market capitalization of $153.9 billion as of Friday’s close, making it the largest U.S. bank by market value. Merrill Lynch had a market cap of $26.1 billion, making it the third largest U.S. investment bank.
-Lewis, from Bank of America, famously said last October that he had all the fun he could stand in investment banking. But he also said on May 15 that the U.S. economic downturn will encourage, or force, more investment banks to merge with commercial banks to better protect themselves against tough markets. Lewis also publicly regretted his October comment.
-Bank of America has been trying to bolster its retail brokerage for years and this acquisition will make Merrill, the world’s largest broker, even bigger. But combining brokerage and retail banking has proven enormously difficult and banks such as Citigroup Inc have struggled to force the two businesses to complement each other.
-Stanley O’Neal, the former chief executive of Merrill, last year approached then-Wachovia Corp Chief Executive Ken Thompson about a potential merger last year, as huge mortgage losses loomed. He did so without alerting his board beforehand, which was one of the reasons he was fired.
I received a phone Sunday afternoon call from a well placed source at Bank of America who was to chat-up some of the days rumors surrounding what appears to be Failed Talks in New York led by the Federal Government to shore up BK bound Lehman Brothers before the Asian markets open Monday.
According to conversation, Bank of America only had a passing interest in making a play for wounded fish Lehman brothers, but only if the the deal was really sweetened up with Taxpayer Money. The Government has maintained that Will Not Happen.
Faux Biz reporter Adam Shapiro – who was reporting from in front of Lehman HQ in NY as I wrote this piece, giving the latest Lehman Brothers updates to the sounds of a street musician playing the theme from Titanic, I kid you not – stated that Lehman employees have been informed to await an email that will instruct them as to whether they should report to work Monday morning – ouch.
Looks like they are still burning the midnight oil at Lehman, and the executive parking lot is is full.
Faux also reported that their Lehman sources said to expect a BK filing by midnight Sunday.
B of A understandably feels a little slighted by the knee-jerk support rival JP Morgan enjoyed in the Bear Stearns deal, and was looking for something that was never there in the way a Federal support for the deal.
Apparently B of A is more interested in landing a bigger fish this year – Merrill Lynch For at Least $38.25 billion – and they may have a real fight on their hands, as Merrill dwarfs Lehman in every aspect and will definitely have a lot of fight left if the takeover bid is unfriendly in nature.
If financials open 20% off Fridays close on the Lehman news, there could be a feeding frenzy like we have not seen surrounding several trouble lenders, but particularly Merrill Lynch.
As a deal for Lehman Brothers can be expected to be announced this weekend, the speculation on what that deal would look like is beginning to gain momentum. After reviewing the morning’s news feeds and placing a couple of phone calls, I am increasingly convinced that a Lehman deal is possible, even attractive, without Federal monies propping up the deal.
First, who would the buyers be? Well, I have maintained since My September 7 Article that there would be a friendly buyout/takeover bid made by publicly traded company and backed by private equity capital based on conversations with a confidential source.
My September 11 Articlearticulated some of the reasons I believe outfits like Lehman will survive the credit crisis – with or without Federal assistance – and why I believe those more similar to WaMu will be sacrificed.
Well, after climbing way out on the limb, I was pleased to awaken to a bevy of analysis that further convinces me that I am on the right track.
Friday 9-12-08
2:15pm PST An analyst from RBC Bank stated on Faux Biz that Lehman needs to close a deal on Sunday, or file for BK protection on Monday.
12:30pm PST Liz Clayman of Faux Biz is saying her inside Lehman sources say any deal is out of Fulds hands now – any deal is now solely at the discretion of Treasury Secretary Henry Paulson – else Monday would have to see a structured BK for Lehman.
Earlier this morning: Analyst Dick Bove said this morning in an interview with Faux Biz that if you look at Lehman’s balance sheet minus all recent writedowns and mark to market activity from Q3, they actually show about $3.5BB revenue with nearly $400MM in pretax profits.
Bove says that means a deal could stand on it’s own without any Federal assistance, and I agree.
Bove says that if the buyer is a large banking institution – like Bank of America – the troubled Commercial Mortgage Portfolio could be put in “maturity” accounting status and not have to marked to market for a loss.
It really looks like a deal will be announce Sunday, and no Federal money involved.
I do suspect that there will be some kind of implied safety-net offered to the buyer by the Fed in a non-official, backroom on-a-handshake kind of promise. Hence the Fed’s heavy involvement in “brokering” this deal.
Trust me, the reassurances of future Federal backing is there in the deal, but no money will be publicly pledged.
On Washington Mutual, Bove said he believes WaMu does have some capital left to hold them over – why he believes this he did not say – and thinks the Fed will probably have to back a deal to save WaMu.
Bove believes the Feds will pressure Wells Fargo to absorb WaMu, and other rumors from the American Banker of a JP Morgan deal are still floating around.
I say the Feds will let WaMu fail in the end. Perhaps they can be convinced to provide some support, but I think the few dollars they have to keep the markets stable are earmarked for bigger problems down the road.
As the markets continue to settle in the wake of the Lehman Brothers announcement that they are more or less running on capital fumes at this point, many theories are being proffered in the media that are predicting everything from a Buyout for Lehman (the theory I still support based on a confidential source) to the ridiculous notion that Lehman will be Sacrificed by the Feds in an effort to send a message to the Markets that no one can rely on there being a Federal safety net in the case of another Bear Stearns-like failure.
I say ridiculous because it will not be Lehman Brothers who will be asked to make the ultimate sacrifice soon – Washington Mutual will. The difference between Lehman and WaMu (besides the fact that one is an investment bank and one is a thrift, a designation that would seem to matter very little when they are basically suffering from the same disease) is what will be left of them respectively when their stocks go to junk here soon.
Lehman Brothers true value is not written in the days stock price, but in the long term value of it’s investment arm Neuberger Berman. Even a de-listed Lehman will have viable market value in the billions that would be snapped up by all number of interested parties – as evidenced by the hyperactive rumor mongering that has surrounded Lehman bothers fate for weeks.
The advantage to the interested parties in waiting for Lehman to run out of rope on its own is the prospect that the Feds will jump in at that point and ante-up the bulk of the financing upfront – like the sweetheart deal Jamie Dimon and JP Morgan got on Bear Stearns.
The JP Morgan – Bear Stearns deal was the tell tale sign that the Feds have already decided who they will support through a crisis of liquidity and who they will allow to fail – only those institutions that will maintain a level of marketable viability in the aftermath of the housing bubble will be saved.
Bear Stearns was saddled with the same toxic MBS garbage that is killing Lehman and WaMu. And Lehman – like Bear Stearns but unlike WaMu – has something that others would want regardless of the fate of their rapidly decomposing commercial mortgage portfolio – namely Neuberger Berman – a division that is still highly profitable and structured in such a way within Lehman that it’s value and operations can be rescued from the rest of the troubled company.
Any deal that ended up in the unwinding of Lehman and Neuberger would leave the mammoth problem of what to do with the mounting losses being accrued by their commercial loan portfolio, which was heavily leveraged while being wildly over-valued at the peak of the housing bubble, so much so that some analysts estimate it only reach a fraction of its peak market value in an economic recovery.
Regardless, the anticipated value of the commercial portfolio, which is said to be made up of some very strategically located properties, will ultimately prove to be enough and will not derail a deal for Lehman Brothers in the end, even if it is not the winning deal CEO Dick Fuld is working for, and even if the Feds doesn’t throw in any money in the end.
How is WaMu different, and why will they be left to fail?
Well, when WaMu’s stock goes to zero, it really means the company is worth squat. They are overwhelmed with mounting losses in their own portfolios – residential and commercial – and these losses will have them cutting back on the services and storefronts that are their only gateway to sorely needed revenues.
When the credit crisis first began to reach the consciousness of the mainstream press in August of 2007, some analysts – including myself – had almost no doubt that JP Morgan was going to swoop in on WaMu as soon as their rapidly falling stock value reached $10.
JP Morgan had been on a full-court press acquiring smaller institutions in an effort to expand their retail footprint with already established storefronts. Bank One is the poster child. I was under the impression that Q1-08 earnings would thrust WaMu’s stock below that $10 marks, and that would be when JP Morgan would strike.
Problem was every one thought something like this was on the horizon for WaMu, and the stock bounced around in the mid-teens for some time. Heck, just the prospect that Jamie Dimon was still shopping for new opportunities propped up several other troubled stocks like Indy Mac and National City too.
But when the Bear Stearns deal was announced, it was like the rug was yanked out from under them all. And since the Bear deal, I have not heard even a hint of a rumor that any deal is possible for any of the three but National City – perhaps. We already know what happened to Indy Mac Federal Bank.
So what now WaMu? They are closing branches and writing CD’s at rates they will never be able to honor at payout in a desperate effort to stay raise afloat. The CEO was canned, they have been treading water since March, and there is no ships-smoke on the horizon.
Don’t look for JP Morgan, Goldman Sachs and others to voice support for WaMu in the press like they are for Lehman.
WaMu has been carrying the overhead on too many storefronts from there meteoric assent to the national bank scene. But their rapid expansion and excessive bad bets on mortgage loans have left their retail banking operations unable to sustain the weight of WaMu’s losses for much longer.
And why wouldn’t JP Morgan or the like want to gobble up WaMu? My contact at WaMu claims it is their Home Equity portfolio that is the poison pill no one wants to swallow.
My source, who holds a position at WaMu that requires an understanding of WaMu’s portfolioed assets, states that WaMu is so over-extended on their Home Equity commitments accumulated through purchase money seconds, piggy-backs, HELOCs and HELO’s during the bubble that my source anticipates there will be no opportunity to recover.
The short term goodwill generated by offering 5% CDs will not be enough to compensate for the inevitable cuts to services and their availability to customers, the source said.
Closing unutilized HELOCs on customers who do not represent credit risks just to pretty up a balance sheet soiled by subprime carnage is no way to keep your best customers happy. It is probably something of an insult.
Toss in the anticipated end to the WaMu goodies that made them a household name in American banks, like free checking and higher than average yield savings accounts and CDs, and there is very little left for WaMu to differentiate themselves from any other mainstream bank.
Hence, no rumors of foreign banks or private equity rescues for WaMu. And don’t hold your breath for the feds to throw bad money after bad either – they have their eyes on the survivors and are looking long term – regardless of how reckless and impulsive their actions on Bear Sterns seemed – they have their chosen few, and WaMu ain’t on the list.
Ultimately, somehow I am sure it will be the taxpayers who will foot the bill for WaMu’s reckless assent. Isn’t is always?
We can expect a few more big names in there, I am sure – but Lehman will not be one of them. Nor will Merrill Lynch in the end, or any other financial that has solid non-mortgage related value, regardless of how bad their portfolios look.
So, now you know when Lehman and WaMu stock go to zero, Lehman (and the like) will survive and WaMu (and most thrifts) will go down hard S&L style.
It’s not that everyone doesn’t want WaMu to make it, it’s that in the end, the bottom line says it is just not worth it.
Lehman Bothers’ losses for Q3-08 are more than $5 a share – up from estimates of just over $2 a share.
Lehman plans to sell Majority share of Neuberger Berman – No buyer announced or details released.
Lehman will spin-off the Commercial Real Estate Division assets worth as much as $40BB into a new company, along the Good Bank /Bad Bank scenario.
Lehman cutting Dividend from .17 cents per share to .5 cents.
Pre-bell trading tanks on Lehman announcement after trending towards the positive for hours, from up 100 points to down more than 50 points at the time of this posting.
The reaction from Lehman employees is said to be one of disappointment.
From CEO Dick Fuld’s phone conference:
“…significant repositioning of the firm, adjusting exposure…”
“…significant de-risking of balance sheet…”
“…mitigate potential future writedowns and return the company to profitability…”
More Details To Follow As They Are Announced.
My Take: Lehman will rock the markets today. With no deal in sight, Lehman’s prospects of surviving this crisis in tact are seriously in doubt.
I don’t want to start eulogizing Lehman Brothers ten minutes after the announcement, but it sounded like a head-shot to me.
Rumors were flying all night long, with some major news outfits even reviving hope in the KDB deal as others continued to call it dead.
I don’t think anyone’s intention was to propegate rumors. The lack of offcial commuique from Lehman management had left little alternative other than speculation.
We all wanted a deal for Lehman, and still do.
Watch for Lehman to be set upon by vulters after the stock goes to junk today. Keep an eye on Merrill Lynch, WAMU, National City and a few others today (see list atML-Implode-O-Meter).
According to Faux Biz News, Constitutional Law expert Judge Andrew Napolitano has confirmed that the first of what I would expect to be a flood of lawsuits seeking to block Henry Paulson’s plan to Nationalize the Failed GSE’s Fannie Mae and Freddie Mac.
Paulson’s plan includes the gradual privatization of the two largest mortgage underwriters in the world, with combined portfolio values that are estimated to reach well into the Trillions of Dollars.
YourMortgageOrYourLife.com first reported yesterday Napolitano’s analysis that predicted there would be lawsuits filed against Paulson and the Federal Government seeking to block the confiscation of privately owned shares of the nearly defunct behemoths.
Grounds for the suit, which I expect to include a request for an immediate injunction preventing any more actions on the part of the Treasury to move forward with Paulson’s plan, are based on theories asserting that the takeover of Fannie and Freddie amounts to the illegal seizure of property (violation of the fourth Amendment) as well as the denial of due process and equal protection under the law (violation of the Fourteenth Amendment).
Expect other claims to arise over time as legal teams delve into Criminal, Tort, Constitutional, Common and Case Law precedents.
My Take: Arguments have been made by some that ultimately the Federal Government has carte blanche to seize the GSE’s under their powers of Eminent Domain, and that any challenges to Paulson’s bailout plan would have a slim chance once they reached the U.S. Court of Appeals and the Supreme Court.
I agree.
Problem is, it could take months to years to get through the courts – even if Chief Justice John Roberts decided to fast track the case for consideration. In the mean time, the effect of such a suit would have devastating effects on world financial markets – especially if an injunction is issued by the court.
Such a crisis could spell the end for lenders teetering on the edge of the abyss- like WAMU, Lehman, Merril, GMAC, National City and a host of other giants who until now may have seemed to be on firmer ground.
Keep coming back to YourMortgageOrYOurLife.com for all the latest and greatest…
More details on this story and the looming fate of Lehman to follow as details are available…
Private Equity Firms Interested in Buying Lehman: This is in line with what my source says is going down at Lehman. This is confirmation of the story I originally broke on Sunday 9-7-08 – Nice of everyone else to catch up with me. Read On:
In recent weeks, Lehman Brothers has received interest from private equity firms for a potential purchase of the troubled brokerage house, but top officials said the company wasn’t for sale, people close to the matter say.
The news comes as Lehman prepares to preannounce third-quarter results at 7:30 am Wednesday morning in New York. Lehman will also provide investors with some guidance on the firm’s “strategy”.
Lehman is expected to announce a massive loss, and writedowns from troubled debt. The firm has been hammered in recent days as it attempts to raise capital through infusions from banks, and the sale of its investment management business.
Some big investors are praying for an outright sale of the firm, whether its private equity or a large U.S. bank, like Bank of America.
It is unclear just how much private equity firms are willing to pay for Lehman, or whether Lehman brushed aside the interest because the private equity firms made a low ball offers; Sources say senior executives at Lehman told the firm that rather than purchase Lehman, they could bid on its asset management unit.
It is also unclear if regulators will allow a private equity firm to buy a major Wall Street player, particularly one with huge amounts of illiquid securities on its books, like Lehman.
But with the 45 percent drop in the firm’s share price on Tuesday, Lehman may be open to even low ball offers from private equity firms despite the famously independent streak of its CEO Richard Fuld.
Lehman has historical ties with private equity firm Blackstone; the firm’s executives Peter Peterson and Steve Schwartzman were former Lehman investment bankers.
Analyst Dick Bove of Landenburg Thalmann is now upping his estimate of Lehman Q3-08 losses to be closer to $7BB, rather than the $5BB that has been discussed widely in the press.
On a live phone interview at 2:07 pm PST, Bove says Fed and heads of major banks are meeting now over the Lehman crisis hoping to create a unified voice on the matter to soothe markets.
Bove predicts if no intervention is employed that Merrill, WAMU, AIG and others will be threatened with short-sale pressures that could culminate in their collapse.
Shares of Lehman were up 3%+ in after the bell trading at the time of this posting after Goldman Sachs announced that there had been no halt to trading of Lehman shares.
Faux analysts are split 3-1 in favor of Lehman’s continued viability, especially given the support expressed by Goldman Sachs and Citigroup in after-hours trading.
The dissenting analyst speculated that Lehman had a deal on the table last week but blew it – predicts stock will go to zero.
Time is up forLehman Brothers – Stock Reaches Lowest Level in more than ten years.
Details to follow here at YourMortgageOrYourLife.com.
Confidential sources exclusive to YourMortgageOrYourLife.com indicate that Lehman is close to announcing a voluntary takeover / merger. Private Equity capital will fuel the deal in combination with a publicly traded company that is looking to position itself as an investment banking powerhouse in coming years.
CEO Dick Fuld is expected to stay for the transition, but will leave after the dust settles. The deal will satisfy Fuld’s and other Lehman top-guns desires to maintain Lehman as one complete entity, including investment management division gem Neuberger Berman.
My Take: The deal makes more sense than breaking up Lehman and selling offNeuberger, which was only expected to fetch near $6BB, but is valued by some analysts at over $10BB – more than the lion’s share of Lehman’s total Market cap of around $11.5BB.
The deal will also allow Fuld and other current Lehman management and board members to make a more graceful exitand not saddle them with the legacy of having been at the helm of one of the greatest American financial institutions as it was plowed headlong into an iceberg of high-risk subprime mortgage gambles during the recent housing boom.
Details on this deal are scant, and I will be filling in the rest of the story as it is revealed this week.
Remember– for the best Lehman Brothers analysis – keep checking here atYourMortgageOrYourLife.comwhere the Lehman Dead Cat Bounce was called last Thursday, the KDB deal was called dead last Friday, the voluntary takeover/merger was announced Sunday, and the first solid news of Lehman’s ultimate fate are being revealed today.
Faux Reports: Lehman has not accessed the Fed’s Discount window. KDB is a dead deal. Sentiment is that there will be no Federal intervention, with unnamed analysts suggesting Lehman is “small enough to fail.” Faux Reports: Lehman has not accessed the Fed’s Discount window. KDB is a dead deal. Sentiment is that there will be no Federal intervention, with unnamed analysts suggesting Lehman is “small enough to fail.”
Napolitano argues that the special status of the GSE’s as a quasi-government agency has no bearing on the legality of what amounts to the United States Government’s illegal seizure of private property.
In a case of Illegal Seizure of property by the Government, it would be highly likely that the Courts would order that the Government to compensate those damaged by the seizure with the fair market value of the seized property.
My Take: It’s nice that the Markets are on Fire with news of the Government’s Takeover of the GSE’s, but that does not mean the end to the troubles that the failed giants will cause already tenuous markets.
The courts will not just decide to intercede – the Judicial Branch does not work that way – they only react after there is a case and set of facts to examine in the context of Constitutional, Common and Case Law.
First, the Government has to fully implement their Seizure and Bailout Scheme. Then someone will have to file a lawsuit. at that point the courts could intervene.
Realistically – unless a private party aggressively pursues a case against the Government seeking an immediate injunction, nothing may happen for months while the logistics of such a case are examined and a legal strategy conceived.
When a case does come down the pike, it could literally seize world markets, and place the future of the GSE’s in a legal limbo for an indefinite period of time. Markets hate uncertainty – uncertainty is a major risk factor. Watch for that uncertainty drive markets down once this threat to the Bailout is recognized market-wide.
This is only the first instance where the GSE’s will have a triple-digit effect on the Markets – and I am sure they won’t all be gains.
Like on a roller coaster, we are still making that initial assent – maybe nearing the peak.
Hold on tight for the ride of your life, folks.
(Don’t fall prey to those who call bottom – they want you to throw your money away).
Posted by Anthony M. Freed 
Grounds for the suit, which I expect to include a request for an immediate injunction preventing any more actions on the part of the Treasury to move forward with Paulson’s plan, are based on theories asserting that the takeover of Fannie and Freddie amounts to the illegal seizure of property (violation of the fourth Amendment) as well as the denial of due process and equal protection under the law (violation of the Fourteenth Amendment). 
Problem is, it could take months to years to get through the courts – even if Chief Justice John Roberts decided to fast track the case for consideration. In the mean time, the effect of such a suit would have devastating effects on world financial markets – especially if an injunction is issued by the court.
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