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Info Thread: Updates on US Financial Markets & Govt interventions

Russ H

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

Friday has become "Bank Siezure Day" these past few months.

Today is no different.

Today, the Feds closed 9 US Banks.

Today's actions cover about $18.4 Billion in assets-- which seems like a lot, until you compare it to the Washington Mutual seizure last year ($307 Billion in assets, just one bank).

-Russ H.
 
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Russ H

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

Haven't updated this thread in a while.

There have been more bank seizures, and more companies going under.

Chrysler and GM are different companies, now.

So is Toyota, for different reasons.

Lots of finger pointing. I'm sure that will continue.

Looks like Goldman Sachs might have been playing 2 sides of the meltdown, in order to make megabucks:

Senate probe: Goldman planned to profit from bust - Yahoo! News

While trading on both sides of the fence was practiced before, I think this might go a bit deeper, if it's found that execs were selling their clients one thing, and placing bets on the opposite.

Time will tell . . .

RandallG-- anything developments these past few months you'd like to add?

-Russ H.
 

Russ H

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

Another Friday. Another bank bites the dust. And another one's gone, and another one's gone:

Banks closed in Puerto Rico, Mich., Mo., Wash. - Yahoo! News

Note that the Carribean takeovers are a substantial portion of the entire banking industry for that area.

-Russ H.
 

Russ H

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Russ H

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

Thanks to all for keeping this a reference thread and not voicing opinions-- very much appreciated. :thumbsup:

-Russ H.
 
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Russ H

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Wow, big update today on AIG:

AIG, U.S. set faster, riskier exit path - Yahoo! News

Thanks to all for continuing to make this an INFORMATION ONLY thread-- if you have comments/opinions, please start a new thread and reference the post from this thread.

-Russ H.
 

Russ H

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More big news:

Goldman to buy Buffett's $5 billion preferred shares - Yahoo! News

I think this is a good sign, an example of some of the "biggies" getting back on their feet. As this continues, the smaller banks/companies will gain confidence, and we'll see less fear (RandallG, please feel free to correct me here if my analysis here is incorrect)

Thanks to all for continuing to make this an INFORMATION ONLY thread-- if you have comments/opinions, please start a new thread and reference the post from this thread.

For those of you who did not experience the financial meltdown b/c you weren't as conscious, financially, as you are now, this thread is a great read.

-Russ H.
 
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randallg99

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hey Russ - I think what's more fascinating than Buffet getting paid back is that GS sold themselves for peanuts when the times were dire and even though GS just paid back a chunk of cash, don't forget that Buffet still owns long term warrants that don't expire for another few years.

In regards to the banking world, we need to recognize that GS wasn't really a bank. it was the king of investment houses. But when liquidity came to a screeching halt in Sept08, we saw GS become an actual bank (by banking & insurance dept standards) only so that it could have access to Fed Reserve money which is not available to privately run investment brokerages. As a result, GS becomes regulated by government standards and thus needed to maintain certain capital levels which is where Buffet comes in to save the day. Now, don't get me wrong, I don't know what would happen if the government were to take over GS's assets but I am pretty sure they wouldn't have a clue what to do since GS's operations are a lot more complex than the average bank

So, let's recap some of the changes to the banking world:
there've been more bank closures by FDIC in the past couple of years than in all of US history combined in terms of branch locations as well as assets in nominal dollars. then there's the mark to market regulation that government imposed for only a short period which is where a lot of the banks got crushed.... and then there's when the banks got a bit crunched when regulators all of a sudden woke up and did their job ... and now there's Freddie and Fannie who all but got shut down via regulations, thus making secondary mortgage markets all but invisible meaning less ability for banks to make money on loans and mortgage originations.

so, what's a bank to do? one that's as leveraged and exposed to CDS markets as GS was? anyone facing a gun would happily sell their souls to stay alive. Don't forget that besides Buffets infusion, GS was a recipient of TARP funds via AIG so GS had access to capital that most institutions envied

and GS paid a lot to stay alive.... and so with Buffets cash in 2008, GS was able to avoid the harsh scrutiny other banks suffered because those banks lacked the capital to maintain reserve level thresholds.

is it a good thing that GS is paying buffet back? yes, it's a great sign that GS has the ability to pay a bunch but as you can see from the collusion GS executives enjoyed, they are really the exception to the rule that most banks won't enjoy.

as far as the other "biggies" are concerned, they still haven't valued their underperforming assets to their true values. combine that with these factors:
1. foreclosures have trickled
2. delinquencies are still high
3. loan originations are still low

it's hard to see where banks are making profits when their biggest profit centers have all but evaporated.....

R
 

Jonleehacker

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it's hard to see where banks are making profits when their biggest profit centers have all but evaporated.....

Great stuff Randall, always enjoy your insights.

If interest rates tick up (or to be more accurate, when) won't banks banks get hit with even more difficulties making money as it will slow down lending?
 

randallg99

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Great stuff Randall, always enjoy your insights.

If interest rates tick up (or to be more accurate, when) won't banks banks get hit with even more difficulties making money as it will slow down lending?

hey Jonleehooker, the banks' lifeline has been the low rates. The overnight rates have been pretty close to zero for a long time so banks have had access to free capital thus all of their carry should have been theoretically profit.

so the question begs what happens when rates start hiking. It's hard to forsee the demand for loans become even more anemic, but in theory that's what can happen.

but don't forget, the banks live on the spread so if overnight rates/Fed window rates increase, then the banks pass that rate hike to the borrower.... but if mortgage rates are so low today, why isn't there an increase in mortgage activity?

So in this environment theoretically we will most likely see further pressure on banks.

I didn't bring this up much in previous post, but banks still have a LOT of dead weight on their balance sheets that are allowed to be written off without affecting their announced performances. I just read the delinquency rate at the commercial mortgage back security level is above 9%....

However, the other side of the coin is that the economy begins rolling at a expanding clip that forces Fed to raise rates to ease growth and inflation. In this scenario of a growing economy, interest rate hikes are a course of doing business and easier for the banks to sustain as more deposits are created. The demand for banking services increases in this scenario and typically banks will return to making profits from loan originations and higher margins.

This is how the interest rate cycles pretty much happened in the past - economy slows down, then Fed drops the rates and conversely when the economy heats up, the Fed jacks up the rates.

But I am afraid we are in a "new normal" because in my view, interest rate fluctuations will be more influenced by the effectiveness of quantitative easing (QE and QE2) instead of a direct reflection of the economy.

This is an entirely new dynamic that has not impacted the interest rates and money supply like it has in past cycles.
 
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Russ H

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Wow, I always appreciate your input, Randall.

Awesome posts. Rep speed. + + +

Thank you.

-Russ H.
 

Russ H

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Whups, looks like I've gotta spread the love around a bit before I can speed you again.

I'll be bahhhk . . .

-Russ H.
 

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