Common sense commentary on the covid 19, politics and the economy.
Morgan Stanley Chief Executive Officer John J. Mack, who will run the largest broker-dealer when the acquisition of Smith Barney from Citigroup Inc. is completed later this year, told employees in a nationwide conference call yesterday that 2009 will be “a difficult year,” mostly because of so many toxic assets that have yet to be cleansed from the bank’s holdings. Among the 529 financial institutions that received loans from American taxpayers, according to data compiled by Bloomberg, Morgan Stanley isn’t yet prepared to pay back the $10 billion it received from the U.S. Treasury in October.
the full story is on the bloombeg website.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQf5gYtkdEBk
It looks like the toxic asset issue may linger on in 2009.
http://financialfactstoday.blogspot.com/2009/03/toxic-to-taxpayers.html
This article in the New York times reveals just how crazy the foreclosure situation has become this year. The value of real estate in some areas has declined so much that the banks doesn't even want to claim the property in order try and recoupe losses. We have had a major meldtown in the economy and with housing. It should be clear that there are few winners when fluctations in pricing are so severe.
http://www.nytimes.com/2009/03/30/us/30walkaway.html?em
We haven't had a free market for decades if ever. If we had a truly free market the shifty banks would have been sorted out long ago and never gotten too big to fail. Also we would have had the market cleared of toxic assets a long time ago if the free market would have been in place. There would be no games going on between the bankers and the fed like now. My opinion is that we are being played for the biggest fools ever by the banks. They are still in business, still sitting on toxic assets and still holding out for a better price. We have spent billions in tax dollars as the asset prices have only gotten worse. I don't think a free market could be so stupid.
From the Wall Street Journal
Federal regulators explained why they took over two commerical credit unions this weekend.
"U.S. Central and Western Corporate have been grappling for more than a year with large paper losses on a slew of assets, mostly mortgage related. In January, regulators moved to prop up U.S. Central with a $1 billion infusion after it took big write-downs on some of the securities.
Mr. Fryzel said regulators acted Friday after becoming convinced that the two institutions were underestimating the true scope of their losses. "With us in control we'd get honest numbers," he said. Mr. Fryzel said regulators plan to replace top management at both institutions"
Does anyone think that the large banking institutions that we have been propping up with billions of dollars are giving accurate estimates of their potential losses and write downs? Why are these institutions taken over and not bailed out? They were along given a 1 billion dollars before being seized by federal regulators. Evidently we would rather have the likes of Citi Group and AIG in business for the long haul.
From the WSJ article on the new plan from the government.
I don't understand the attack on Tim Geithner. Geithner seems to be no more than a puppet for Obama and appears to have very little say regarding policy. Confidence in this administration is fading in my opinion and if they don't get some policy that is more cohesive our economy will stall. Geithner is not making decisions as treasury secretary and although Obama has said he wants input from everyone, he is following his own policy. Geithner doesn't have a plan, and if he did the administration would do what they want anyway. We have a president who know very little about economics or politics. He is versed in one thing and that one thing is campaigning.
Eventually time will heal the economy but if we congress and administration weigh the system down with idiotic policy it will be a struggle to move ahead.
I read an article in the Wall Street Journal that told of how the first lady had taken up a cause to help military families. The article is entitled The Dissing of Laura Bush by William McGurn and it talked about how Obama seemed to slight Laura Bush by saying that she thought that no one ever thought about or tried to support or help the families of our military personnel. The article pointed out that Laura Bush had done numerous things to aid the families of soldiers even having picnics on the White House lawn. The author thought the ABC press coverage could have been a little stronger. It gave me confirmation of an impression I have been getting regarding our new first family also.
This Seems more like typical biased love affair with the Obama’s that pays little, if any attention to the actual facts. Where have the Obama’s been the past 8 years that they thought no one recognized military families? My impression is that hubris doesn't properly describe the level of arrogance the first family is revealing. It seems as though they have been in the "change train vacuum" for too long and were too focused on "getting elected" to notice so many genuine committed, caring people that have been working to recognize, help and support military families. Evidently the administration was just too busy to get prepared to take office during the months of November, December and January as well. I thought as bright as the President appears to be, that he would have realized we were in economic crisis and that he should spend the 2 months after the election learning a little bit more about economics and the law of supply and demand. It is clear that after 3 months the new administration is still quibbling about how to get credit flowing again. Leadership is not built on arrogance and narcissism and if both the President and the first lady want to lead the country they need to stop with the platitudes and actually see what is really going on across the country. If you are a good speaker you can be a preacher, a teacher, a lawyer and even get elected president. However, as president, substance will is the most important ingredient. Whether or not this president can turn his great speeches into more substantive results in order to lead a thriving country is to be determined.
From the bloomberg.com news page
A quote from the G20 meetings.
"Our key priority now is to address the value of assets held on banks’ balance sheets, which are constraining banks’ lending” and damaging economies, the G-20 statement said. Banks are still hoarding cash after being stung by more than $1.2 trillion of write downs and losses. Interbank lending rates this week rebounded to the highest level since Jan. 8."
I had mentioned the idea of pricing assets held on banks balance sheets in a blog called "there is always a market". The new bank rhetoric on profitability and solvency evidently didn't get to the G20 yet. Funny how we are told by the bankers that they are profitable yet the biggest issue at the G20 meetings is how the banks are hoarding cash and holding toxic assets while constricting their lending. It couldn't be that banks are selling the rosy picture to the government and the public because they are going come back for more money could it? Well hopefully not but things are not lining up properly. Two opposing views on what the major issues are with the banks. I guess we are supposed to trust the bankers again because they have seen the light.
It amazes me that this bailout of the banking system continues and the administration allows for CEO such from Citi and BOA to give irresponsible statement to the public regarding how profitable they have been during the first quarter. This is complete manipulation and it is how we got into the mess in the first place. People wrongly assumed that banks were being honest about their number and they bought the story. It appears that we are all buying it again as they pass out kool aid for wiling drinkers. The banks have soaked the tax payer for trillions of dollars and would have been bankrupt a few weeks ago if they had not gotten massive injections of capital from the government. In a miraculous turnaround a few weeks later they have become profitable companies? Wow these CEO’s must be the best and the brightest and it is a shame that they weren’t there running the companies during the meltdowns and massive liquidity problems. Oh wait! I forgot most of them were there during the meltdown and were the ones at the helm during most of the credit crunch. But now they come out with a memo or a luncheon speech and say whatever they want about profitability and now ones questions them, the stock market bounces, and Obama looks like a “guru” stock picker. I have heard the stock market is always looking forward by several months but I don’t see how the banking system can be fixed in several months as housing is still falling, credit is tightening, unemployment rising, and taxes increasing. There was no lag time between the Citi memo on profitability and the market turning upward. Where was the forward looking lag time? I tend to believe that this was more of a short covering rally than the all in signal but I don’t know either way. It just seems to me like we are adding to the lack of trust in the system by allowing bankers to have public forum to preach profits without examination of the data. If we see a downturn of the banks again after this bounce we will have done even more harm to the fragile confidence of investors and the American public. If the banks are saved it is great for everyone and now they can just write the check back –with interest- to the government and send out that memo tomorrow. If this is more smoke and mirrors from the CEO’s we will have taken two more steps back.
Finally president Obama has realized that it is not in his best interest to bash the economy while preaching gloom and doom. It has been one of the most egregious uses of the presidential pulpit in decades. The president was willing to destroy billions of dollars in the capital markets in order to push a massive spending bill through congress. The president’s rhetoric was not the only thing that caused the market to drop so quickly this year but his tone likely aided in the 1800 pt drop. We have man in office who has had the goal to be the President. His entire career has been based on jockeying for position to get the inside track to become president. The groundbreaking and monumental event of having a black man as president was the agenda. The only thing that he forgot to do was to focus on what it would take to actual BE the president. It is clear by the first few months in office that our president had very little experience in economics and business. It is clear he also had little idea how the stock market worked and how quickly things would deteriorate when the banking system failed. He was more interested in reward those who voted for him and working on his speeches to give at the inaugural balls then he was about really getting to work on the economy. It is also clear that he either thought that bending the rules a little was ok or he misjudged how many people in politics were used to getting away with bending and breaking the rules with no accountability. His nominees for critical positions seemed to be trapped by their own closets full of skeletons and even the Teflon image of Obama couldn’t help them out. The back peddling done on ear mark reform and fiscal responsibility has been typical of most politicians. It is amazing how an election can change the minds of so many “strong willed” people who preach change. To be continued
Jon Stewart took Cramer to task on the Daily show. For some reason he felt it was time to give say his piece about the credit cruncn but it seems like it should have been last year's news.
Cramer is full of it but where was the "investigative Reporting" of the daily show a year ago? Why wasn't he calling out Cramer back then? I Stewart is right on but he just happens to be about year late to the party. Typical ratings seeking stunts in my opinion. A year late and a few trillion short.
There has been new talk of plans to set up a system to buy “toxic assets” at above market prices from the world banks. This weekend G20 talks have begun talk of setting up more “bad banks” in order to clear the books of the financial institutions.
From Market Watch.com
“The request came in a letter to U.K. Prime Minister Gordon Brown from the Institute of International Finance, a trade group of the world's largest global banks. The IIF wants Brown and his G20 colleagues to push the Obama administration in the direction of setting up a bad bank.
Under this approach, governments would buy toxic assets from banks at a price higher than the prevailing market rates. For the time being, private investors simply won't buy the assets at the prices that the banks want. As a result, banks have huge holes in their balance sheets. “
Of course!!!! The bankers have gotten into a mess and they hold everyone hostage because they have the keys to the vault and now they stand pat as the heads of state quiver in fear and now are pushing to pay top dollar for the ineptitude of the Bank....It is absurd, ridiculous and just plain stupid. On the other hand if we are afraid to make the banks sell at market price and are wiling to support them forever they will stand still and pump more and more spin to the media that they are now profitable. In the end we will allow banks to stick us the citizens carrying the weight of a contracting economy on our backs. The banks get away with murder because they now in the end the system will save them from punishment.
This is a quote by Alan Greenspan taken from today's Wall Street Journal.
There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.
The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages. Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate.
This should not come as a surprise. After all, the prices of long-lived assets have always been determined by discounting the flow of income (or imputed services) by interest rates of the same maturities as the life of the asset. No one, to my knowledge, employs overnight interest rates -- such as the fed-funds rate -- to determine the capitalization rate of real estate, whether it be an office building or a single-family residence.--end quote
Iinteresting article and should be read by anyone interested in real estate and stocks, and who isn't right ?
What happens when there is no market where banks can sell their securites or mortgage paper? If the market stalls, the pricing of assets becomes extremely difficult, but there usually is a market. The issue today is that the banks don't want to sell at market price.
It means these assets have the potential to be toxic because the underlying collateral is valued far less than the paper asset. the banks over extended themselves and made no plans for market downturn. Everything changes for the banks and actually individuals as well when there is no one willing to bid on what you are selling. mbs or individual home.....losing that flexibility of selling in reasonable time to at least cover the cost of the asset or home spells disaster. Our economy is suffering because the fluidity of these markets has disappeared. If some individuals default it is the job of the regulators and banks to make sure they can survive and prevent meltdown. The assets may not be worth zero by most people's opinion but in reality if no one will pay you for your asset, at least enough to cover the debt of that asset, then it is virtually worth $0. Even using a home as an example makes it clear. If you have a home most likely everyone will agree that it is not "worth" zero. However, it becomes toxic as soon as you need to move or sell if there is no market. It might be worth less than zero because it becomes an albatross around someones neck. It can start the snowball effect. This is where banks got stuck also. They never accounted for the lowering of asset values. They are supposed to be the back stop and maintain enough strength to withstand defaults. Mark to market is in place to protect the economy but when the government comes in and basically says to the banks that we are going to let you slide for a while even though your forecasting and reserves are inadequate, it prolongs the cycle and prevents mark to market rules from cleaning out the system quickly and efficiently, then it is virtually worth $0.
continued from previous post
I refreshed the screen again and saw 2oo shares short of one of the triple short etf's. I had not intention of making a short trade at the time and for the past few weeks this stock had become increasingly difficult to borrow. Immediately, I began to recount all of my trades and knew I had not placed a short order. These etf's can move $10.00 or more in the matter of minutes and at times seconds and they do not afford anyone the luxury of calling customer service to check on the issue. -especially with about an hour left in the trading day- I had no choice but to cover the stock as it shot up over $9.0 costing me what appeared to be close to $2,000. However, when I covered the dollar amounts of gain and loss did not compute properly and I had no idea where I stood. The chaos that ensued on the screen was ridiculous and ended up costing me about $3500. This number could have been even higher because of what I missed while trying to figure out this mess. There is no way to know in situations like this but the numbers don't lie. They have record of where I stood before their screw up and also where I ended the day. They have a chance to do the right thing.
TDAmeritrade is not known for its trading platform prowess. They seem to not be able to get there real time streaming down to a science. Usually about once a week the system has some minor cliche that would typically not be noticed if you were not trading actively. These are happening often enough that they have started the don't ask, don't tell policy for customer service. They aren't telling and they aren't asking if you were effected by their technical issues. Often trades will not cancel or they will freeze while they are pending. If you missed a trade and want to cancel often times you are unable to do so and instead have to wait for the stock to come back down have it be executed and then sell it again. This has happened many times the past month but they customer service department refused to acknowledge there was a problem. I would consider this a basic form stealing. Friday's was the far more egregious. More to follow in the next post.
First the divide is because you can ride the change train for free, and most of the "folks" are still expecting BO to come to their front stoop and hand them a check directly from the tarp bank account. Wait a minute. I forgot that the tarp money has already been vaporized by wall streets "best and brightest".
2. the market isn't saying much to Obama. The market is finally saying OK now we realize the change train is more of the same train and that the trillions spent on stimulus will not turn the tanker ship of the economy around until it reaches the delta. The message of "superpower, super hero administration" was sold to the American people and they are still buying it. If the administration can keep selling this message long enough the economy will turn on its own and Obama might get re-elected. Most people are too caught up in surviving their daily lives to really give a crap what the stock market is saying. The truth is that the media covers the market more than it covers the "folks". The people going on TV are always selling something or they wouldn't likely be there spouting off some ridiculous opinion on how to save the world economy.
4. Straight from Merriam Webster --hemorrhaging-a rapid and uncontrollable loss or outflow. Example - A financial hemorrhage.
When we are hemorrhaging 650000 jobs a month, most people are more concerned about their next paycheck than they are about their 401 k. I also would imagine that most people have been pummeled so much that their 401 k might be cut in half and they have just decided to not even open their statements now. The probably figure that it is too late to do anything about it now and I am sure the mutual fund brokers are selling the same old book but now with the extra pitch that you don't want to miss the upside bounce that is sure to happen any day now. I think that might have been true in July as well.
Can it be good for the economy if two of the most popular figures (or figureheads maybe) are either recommending that stocks are a buy or just announcing that they are buying. I don't know either but I know that it is a sign that we have taken a whipping the past year and everyone is cheering for a turn around, myself included. I think O'Reilly is doing it to try and put people at ease and instill a little hope in an otherwise dismal looking 2009. Obama seems to be trying to dig out of his 2 month long bunker created by his insistence that the American people didn't realize the economy was in the tank before he took office. It sure seemed as though he had directed his administration to act like 4 year olds who were trying to point the finger at their little brother when asked about the milk spill. I have never heard someone shift so quickly from the change train coming to the rescue to the oh crap train saying "maybe we created expectations that were to high" train.
Look, we all want things to get better. NO one wants anyone to fail because everyone losses. The republican party, no matter how delusional it is, can't be that stupid anyway. Wait. Did I just say that ? Well I hope they are not that stupid.
If Obama just gets off of his set for his hero coming to the rescue model and accepts responsibility for being president while getting on with focusing on the future, we might start to see the light at the end of the change train tunnel.
O'Reilly mad a few more predictions the other day about who could and could not be elected president. I thought he would learn after he pronounced about a year or so ago that Barack Obama could not be elected president. I recall something about "the folks aren't going to elect". I haven't seen it ever referenced again but I am sure he wouldn't mind. He is a bright man and would have no problem owning up to his mistaken predictions. Right? I don't know about that but he has taken plenty of time to publish his "right" predictions. I am specifically referring to the demise of GE and O'Reilly's beat down of CEO Immelt. ( you could almost say it was a short sale pounding by O'Reilly) I am not on the side of crooked CEO's but to be fair GE is not the only stock taking a beating during this down turn. I would guess that the beat down of Immelt is more a because they parent NBC , MsNBC. As long as The Factor has the ratings lead NBC and Immelt will be hit hard by O'Reilly.
We then get "change" in the white house and they keep on spending. The ridiculous PR stunt of helping home owners with out reducing principal will waste another 75 million, which most will be used to administrate the program, because it is likely that any of the people who could have used the help are now will over the 105% LTV. You can yell about free markets and I am with you all the way but when the lenders go on the public dollar then things have to be changed for those on the other side of the trade. IE consumers holding notes from insolvent banks. I will not agree with you that when these notes have gone down to pennies on the dollar, that they can be sold with the buying party able to sting the borrower for full value. The banks have to base their paper on collateral value and when they "guess" wrong you can't let them walk away with billions in tarp funds and the rights to full future value of the note. It might not be fair to everyone but fairness is out the window when banks come crying for handout. (yes don't forget the perfect timing by the banks either.....right before the election when they knew they could manipulate and stare down the cowardly congress......because they were all pandering for votes....{there were more flip flops in Washington than in middle of July on south beach}...congress blinked and they have been caving every time the banks cry economic disaster. I don't want a penny from the bank or reduction in my mortgage. But there are people who should be getting mortgage reductions and the banks should be paying for their poor business models and poor business decisions. If this happened we would be a lot closer to a free market than we are today.
Schumer just said that there already has been earmark reform in congress. With so many delusional people in Washington and the spend o ramma congress we might see dow 1000 for crying out loud.
Steve Forbes is just plain wrong when it comes to the issue of mark to market accounting. The reason the banks and insurers are in death spirals is because they took assets that have depreciated well beyond the original amount of a mortgage or policy. The reason mark to market account is hurting these companies has nothing to do with paper losses but more to do with what ensuring the companies have adequate reserves in case strong economic downturn. The reality is now being seen by everyone. The banks were horrible at forecasting real estate values have been overly involved in MBS and CDS markets. It doesn't matter if someone is paying or not on a loan that is 300,000 underwater because that particular loan is a powder keg waiting to blow. It is a toxic asset regardless of the payment history. If the collateral doesn't matter and we should do away with mark to market accounting my full article can be found at
http://morefinancialreality.blogspot.com/