Info Thread: Updates on US Financial Markets & Govt interventions

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Wow, after Paulson says he's going to "invest" all of his $700 Billion in bank shares (and not buy *any* troubled assets, ie mortgages), the FDIC announced this today:

FDIC unveils plan to modify mortgages - Yahoo! News

http://money.cnn.com/2008/11/14/news/economy/fdic_bair/?postversion=2008111409

Seems like we've got some interdepartmental fighting at the federal level on how to spend the money.

That's not good, but is certainly expected, given the huge amount of $$$ on the table here (and differing views on how to best address the crisis).

-Russ H.

PS I'm still looking for a good non-political article that describes what Paulson's plan (unveiled this past Wed) does. I have yet to find a good, all-encompassing article that does not bleed political crap. I will continue to work on this, and find a good reference for the readers of this thread.

 

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[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Here's a compilaton article that cites (and links to) dozens of other articles on Paulson's announcement:

USNews.com: Political Bulletin: Thursday, November 13, 2008

It does have political content, but does not cast blame. Here's a quote that I thought summed up the Wed announcement well:

. . . "the public may feel like victims of a bait and switch. The original idea was spend $700 billion tax dollars to buy troubled mortgage-related assets from struggling banks, but the actual bailout calls for nothing of the sort. Instead, your tax dollars are buying massive shares in some of the nation's biggest and most successful banks with virtually no strings attached."

Bottom line, the TARP (new name for the bail out bill) was sold to many as a way to buy up troubled assets-- like mortgages (good idea) and mortgage backed securities (bad idea, IMO).

But now, Paulson wants to give ALL of the TARP to the nation's biggest banks! He says this is to "loosen up credit markets" (which I'm sure is his intent), but after giving them $290 BILLION, they have not done this.

So he's giving them more.

I've tried to stay very neutral on this thread, but I just see this as a HUGE mistake.

If you loan someone billions of dollars to do something, and they don't do it-- why give them MORE?

As always, I encourage input and explanations from our more experienced investors (Randall, Edge)-- I'd love to know how you see this, and if I'm reading it wrong.

Thanks,

-Russ H.

 

[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

Russ, you may as well have asked me to write a book, heh. I apologize in advance for the non-fastlane mentality when I spew my rants here.... I will try to keep it short, but the problems in this current economy we're facing are of such magnitude that even I have lost sense in it because there are so many variables and inconsquential circumstances that have layered more problems into the mess.

but here's why the TARP program is useless in its original intention and Paulson saw the flaws immediately as state mandated programs already prolonged the inevitable:

in a very simple nutshell: people/companies losing assets because they could not afford them a year ago are the same people who cannot afford them now, or next year. The rates on these mortgages/loans/debts are already low, mid 5s up to 7s.... the TARP was designed to get these loans of the books and give banks breathing room to renegotiate them to allow those same debtors to pay down the loans. but how low can the bank/lender go? they'll make squat and it's not even worht the effort. ultimately, the flaw in this model was that it was assumed these people/companies could still pay the debt at a slight discount but obviously, they can't because they're squeezed.

the other main flaw in the model is that the Paulson crew made a fatal assumption that people/companies will still pay on real estate/assets even if they're upside down.... it's a prudent and probably unethical biz decision to say "screw this: I'll buy it next year for cheaper" when they let go of real estate/equipment/vehicles/business assets/luxury items/etc.... but it's commonplace and Paulson & co. took it for granted people really wanted to hold on to these things

there's enough finger pointing to make us all dizzy, but Congress really screwed up when they issued the money without their own supervisory council

one of the main problems with the TARP was that it was rushed awfully fast. I had a verbal argument with a friend who is lifetime employee recently turned VP exec at a large regional bank (whose share price went from 25 to 3 during the current debacle) and he was angry the congress took too long to pass the TARP bill and he went as far as to blame the Congress for the continuing bank plunging... forget about the fact his bank made stupid bets, (don't worry, I reminded him subtley) and the fact that his bank invested 1/4 of their funds in FNM preferreds..

I won't go into further detail than necessary, but we all know the underlying root of the problem was not addressed when TARP was created.... obviously to keep the economy humming, loose, predatory lending was required! but it wasn't happening! there are too many other obligations on the books that need to be met (CDS, collateral debt obligations, payouts, etc) that were sucking the funds dry before they even had a chance to spill into the economy

Now, this recent about face Paulson decided to pull is actually an excellent idea to sustain the commercial financial system as we know it. Without putting money into the banking system, none of the monetary relief foreclosed homes would receive would mean a damn thing because liquidity would flow all too slowly. Because truth be told again, the real issue at hand is the financial system and we are all witnessing some of the most amazing turn of events right before our eyes that will be in the history books for centuries to come.

so, why are we screwed? the same folks buying our bonds to sustain the TARP and Fed government are running scared and are now selling their own investments on the markets, thus forcing the treasury to create longer term (higher payouts) bonds.... auctions are a lot more frequent while the buyers are not showing up as much. China just did their own stimuli progam and we know how that ends up! handwriting is on the wall....

NOW, here is the really big kicker- the law of unintended consequences is prevelant today. Everyone is asking where the hell they're bailout money is.... and I can't blame them. I even wrote my Governor and local congressman a very simple letter asking why the wealthy companies making bad bets as well as the poor bastards who shouldn't have bought the homes in the first place are the ones getting aid, while people like me struggle to make sure my payroll is met for my 20 employees... the entitlement attitude is prevailing. I am not alone, but unlike many others at a recent chamber meeting, I am not seriously looking for a hand out, but if some breaks aren't passed onto the small businesses, we will have absolutely the worst possible end result regardless of what the Fed gov't does for banking system.

there are stories of people who are hoarding their own cash and not paying any bills including mortgages, cars, credit cards or any other credit obligation because they really fear the worst. Society is going through a terrible transition but it's happening so fast.

I have indicated many times that unemployment is the number indicator I follow to determine the health of the economy. If TARP is working, then money is flowing and then unemployment will stabilize.... but that will take a little while.

it's going to take time, but there's no rush needed to stock up the bomb shelter and load up with guns and ammo.....

 

[lee]

Re: Due Diligence: Here's what's happening to US Financial Market

China just did their own stimuli progam and we know how that ends up! handwriting is on the wall....

I have no clue, please elaborate

Imho, they are doing the only right thing for them, dumping soon to be worthless US Dollars to build up there domestic demand so that they no longer have to rely as much on exports as they did.

Bad for the US ofcourse.

 

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[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

I have no clue, please elaborate

Imho, they are doing the only right thing for them, dumping soon to be worthless US Dollars to build up there domestic demand so that they no longer have to rely as much on exports as they did.

Bad for the US ofcourse.

the stimulus packages the USA did only prolonged the inevitable. Maybe the Chinese learned from the USA's mistakes and are structuring their package differently, I don't know... I do not follow the chinese markets enough to make a fair assessment but from your statement, then it obviously makes sense to encourage spending to offset loss of export income.

Back to my statement, the US's economic stimulus was designed to encourage spending at the consumer level, and it did just that, but it went to end use products and imports that did little for large ticket items and services that are manufactured in the USA... the economic stimulus as we all know did not last for very long

I read a poll where people said their economic stimulus money would be spent and the top of the list contained gas bills, car payments among other obligations. On the bottom of the list were luxury items and indiscretionary spending.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Randall, my continued gratitude for your input/feedback/observations on these things.

Here's the latest:

Citigroup gets $306 billion rescue from government - Yahoo! News

The amounts we're seeing tossed about here are just plain staggering.

-Russ H.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Randall, my continued gratitude for your input/feedback/observations on these things.

Here's the latest:

Citigroup gets $306 billion rescue from government - Yahoo! News

The amounts we're seeing tossed about here are just plain staggering.

-Russ H.

 

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[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Randall, my continued gratitude for your input/feedback/observations on these things.

Here's the latest:

Citigroup gets $306 billion rescue from government - Yahoo! News

The amounts we're seeing tossed about here are just plain staggering.

-Russ H.

 

[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

I am still concerned that the bailout money is only able to stop the bleeding temporarily.... there's still not enough transparency in the default markets

 

[PurEnergy]

Re: Due Diligence: Here's what's happening to US Financial Market

Randall

"but if some breaks aren't passed onto the small businesses, we will have absolutely the worst possible end result regardless of what the Fed gov't does for banking system."

What would you suggest the government could do to help small businesses besides free up lines of credit? It appears as though this thing can crumble from the bottom up just as easily as it can from the top down.

I've been wondering if the money would have been better spent bottom up rather than top down.

Good stuff! Rep+

 

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[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

Randall

"but if some breaks aren't passed onto the small businesses, we will have absolutely the worst possible end result regardless of what the Fed gov't does for banking system."

What would you suggest the government could do to help small businesses besides free up lines of credit? It appears as though this thing can crumble from the bottom up just as easily as it can from the top down.

I've been wondering if the money would have been better spent bottom up rather than top down.

Good stuff! Rep+

To answer your question in two parts, firstly - the coulda, shoulda, woulda part - the government lowered their regulations in the late 90s at the constant begging by the same banks who are getting whipsawed today . It seemed like everyone lost their focus and greed has become the prevelant theme. Obviously, the lawmakers should have not modified or tampered with the regulatory processes in the financial arena.

The second part of my answer to the same question is that the bailout money should have had to come with restrictions. What we have seen thus far are banks who have tapped into TARP are not so quick to save the bad assets but are utilizing the funds to buy deposits at banks who have already written down a lot of their bad assets. So instead of the money trickling into a credit line for my business which would potentially save about 5 workers' future, it has instead simply been used to shore up their balance sheets and protect reserve levels.

I put your perceptive thoughts in bold - this has been my thinking for a long time. The only problem with this theory is that people are not spending as quickly as they would have last time around.... people have more debt than just a few months ago and as unemployment continues to creep higher, we'll see "economic stimulus" have little impact to improve economic activity as purchases made using debt/leverage are already accounted for GDP but debt payments are not (which would probably eat up a lot of the economic stimulus $ if it's disbursed at a consumer level)

thanks for the rep

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Interesting article that calls up a few very important issues:

FDIC head says stepped up foreclosure prevention is needed - Dec. 2, 2008

"The legal authority is there to modify loans, but there are conflicting economic interests on the part of investors [in mortgage-backed securities]," Bair said at the Fortune 500 Forum.

These mortgages have been broken up into classes or tranches, as they are called in the industry. The senior tranches have first claim on assets should the loan fail. Other tranches have a secondary claim on assets.

In a modification that reduces the value of an investment, "The senior claim may be okay but the lower tranches could get wiped out," said Bair.

That could make it difficult to get cooperation from those lower-tranch investors. One representative of investors, Greenwich Financial Services, has sued Countrywide Financial (now part of Bank of America) to force it to repurchase any mortgages it alters.

For this reason lenders like Chase and Citi will only modify loans they hold in their own portfolios, which they can do without getting approval from third parties. Beyond that, they are seeking authorization from investors to modify mortgages sold into the secondary market.

According to Bair, these obstacles can be overcome.

"We looked at the pooling and servicing agreements [that cover what servicers can do to ensure loans continue to perform] and most give wide flexibility to servicers to modify loans," Bair said during an interview with CNN.

She told the Fortune 500 Forum that it's not too late to step up foreclosure prevention initiatives.

"The sooner we do it the better," she replied. "I see higher delinquencies growing through 2010."

Acting now would help many families who would otherwise lose their homes. And that would benefit everyone.

"Attacking the financial problem at its roots is the fiscally responsible and smart thing to do," she said.

********

Wow. Everything I'd read last year said the 2008 April/May foreclosures would be the "peak"-- the highest we'd see. After that, due to less loans written w/rate teasers, things would taper down (less foreclosures).

That's not the case anymore.

-Russ H.

 

[AroundTheWorld]

Re: Due Diligence: Here's what's happening to US Financial Market

Now the recession (coming depression) will cause additional delinquencies.

The snowball continues to roll.

 

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[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

and here's a way to stimulate the economy at the expense of the mortgage markets... this is screwy stuff!

Bloomberg.com: Worldwide

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Contract discussion moved to this thread:

http://www.thefastlanetomillions.com/general-business-discussion/18691-ok-break-contract.html

-Russ H.

 

[andviv]

Re: Due Diligence: Here's what's happening to US Financial Market

I think the post from gofalls was pertinent to this thread, even though it was what started the other conversation.

 

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[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Most of the posts in this thread are summary articles that allow someone to read through the financial crisis in a chronological fashion.

I'm not sure which one you're talking about, but if gofalls post did reference a good article, please feel free to copy his post over to this thread, andviv.

-Russ H.

 

[andviv]

Re: Due Diligence: Here's what's happening to US Financial Market

Oh, I see. Then no, it is fine over there... it was not an article, it was his summary from a meeting he attended.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Relevant article on AIG:

AIG payments to banks stoke bailout rage

Appears that much of the original TARP billions were funneled through AIG to European banks and to Wall St.

Many will read this and get more frustrated and angry. But think about it-- this does reinforce the claim that the collapse of AIG would have brought about a collapse of markets--and/or banks-- worldwide.

Again, no opinions/rants to this thread, please. This thread is for folks who want to read about the financial crisis, as it developed and unfolded.

-Russ H.

 

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[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

This article is excellent in several respects:

1. It does not blame. It only seeks to inform, and offer suggestions.

2. It does not take a political stance
(except to acknowledge that separatism will drive us into a depression)

3. It actually details what can/cannot happen with the current plan, and

4. Offers ideas/suggestions for the next steps, and why.

Overall, while it did not offer any new information, I think it is an excellent, dispassionate summary of the global financial crisis.

Highly recommended reading.

Here's the link:

Niall Ferguson: How the financial crisis happened - Apr. 8, 2009

-Russ H.

 

[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

Russ,
from the article:

How come so few foresaw this crisis?
Plenty of intelligent observers did

;-)

ultimately we have a very serious problem on our hands. Past recessions/depressions have had government influence via taxes, policy making and interest rates.

we have a government who is hell bent on throwing money at a very long term problem with an extremely short term solution.

"after talking to you we realized we don't have much time left, so we're blowing it all! look George... it's a Pierre Cardin!!!!"

(hopefully you enjoy seinfeld)

I liked this article in how the problems are presented even though I disagree that a mandated 3% mortgage rate will cure the problem. Thanks for posting this Russ.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

You're welcome.

I love Seinfeld. Favorite episode was when George decided do everything the opposite-- like be honest and tell the truth. He starts by ordering a new sandwich, then introduces himself to a girl at the counter (eating the same sandwich) by saying, "Hello, my name is George Costanza, I'm unemployed, and live with my parents." By the end of the day, he's got a great new gf, and a job working for the Yankees!

Back to financial doings: I like the stuff I'm hearing about the bank stress testing-- it'll be interesting to see how that shakes out.

-Russ H.

 

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[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Good global eval article:

Global recession worst since Depression, IMF says

A bit scary, but if you look at absolute numbers, really not that bad-- says to look for no growth (or negative growth) overall worldwide for about a year.

-Russ H.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Good follow-up read to the Global Recession article:

breakingviews: A money flood for the markets - Apr. 22, 2009

Some good news, some bad, mostly caution.

-Russ H.

 

[MooreMillions]

Re: Due Diligence: Here's what's happening to US Financial Market

If you can stomach it, this explains it ALL.

http://www.portfolio.com/news-marke...folio/2008/11/11/The-End-of-Wall-Streets-Boom

 

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[Runum]

Re: Due Diligence: Here's what's happening to US Financial Market

If you can stomach it, this explains it ALL.

The End of Wall Street's Boom

linky no worky

This Page Could Not Be Found

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

The End of Wall Street's Boom

Linkie now workie.

-Russ H.

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

We predicted this would happen:

SEC rule on 'naked' short-selling now permanent - Yahoo! News

-Russ H.

 

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[randallg99]

Re: Due Diligence: Here's what's happening to US Financial Market

huh? I wish the SEC is clearer in their intentions on how to monitor naked short selling

I saw similar article here, but with more info: MarketWatch.com Story

>>>The Securities and Exchange Commission on Monday said it would no longer require hedge funds and other institutional investors to provide short-sale position data to the agency regularly, and that the ban on "naked" shorting would be made permanent....<<<

and then -

>>>In October, the agency introduced an emergency measure requiring institutional investors to disclose short sale positions on a weekly, confidential basis. That provision, Rule 10a-3T, is set to expire on Aug. 1. <<<


so, if we read this correctly, the SEC says: "no more naked shorting, but don't worry about telling us because we'll assume you're not naked shorting anymore!"

that's like telling kids at a prom to keep their pants/gowns on at the after parties when nobody's looking

 

[Russ H]

Re: Due Diligence: Here's what's happening to US Financial Market

Interesting article:

Fed: consumers cut debt by record $21.6B in July - Yahoo! News

Somewhat relevant, as it ties into spending patterns and consumer credit.

Lowest since they started measuring this, c 1943.

-Russ H.