tag:blogger.com,1999:blog-30643134.post8987203532285439604..comments2023-12-26T01:10:26.319-05:00Comments on Accrued Interest: What would ya like?Accrued Interesthttp://www.blogger.com/profile/05096191765979971184noreply@blogger.comBlogger32125tag:blogger.com,1999:blog-30643134.post-65643308516219953312008-10-11T20:26:00.000-05:002008-10-11T20:26:00.000-05:00Generally a well argued piece, but it falls apart ...Generally a well argued piece, but it falls apart with the following statement.<BR/><BR/>"The bailout will create some semblance of confidence in financial institutions and their balance sheets."<BR/><BR/>It will not, mostly because it's an idiotic plan. All we're going to end up with is the same bunch of financial institutions with wrecked plus an additional $700 billion of public debt.ALDhttps://www.blogger.com/profile/11671975784503809433noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-44838979337453571552008-10-02T14:50:00.000-05:002008-10-02T14:50:00.000-05:005 Posted by guest, Oct 02, 2008 3:31PM URGENT: At ...5 Posted by guest, Oct 02, 2008 3:31PM <BR/><BR/>URGENT: At 3:20PM today Thursday October 2, 2008.<BR/><BR/>The http://marketwarnings.blogspot.com has called for a bottom. Fireworks start tomorrow!<BR/><BR/>Deatils of the call are at:<BR/><BR/>http://marketwarnings.blogspot.com/2008/10/stock-market-trading-call-urgent.htmlUnknownhttps://www.blogger.com/profile/02485001478838059905noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-80707103587202620672008-09-27T16:22:00.000-05:002008-09-27T16:22:00.000-05:00Too late for what? No personal offense intended, ...Too late for what? No personal offense intended, Mr. anonymous fixed income investor, but perhaps the real answer is… too late for you to keep your Wall Street job?<BR/><BR/>My wife and I have ½ Million in liquid investments (all cash and CDs today). But, we largely own our property, including two rental homes, and we have small govt. and defense industry pensions, and she can sign up for Social Security in two years. Finally, we live in sparsely populated, ruggedly individualistic Montana, where we don’t have to cope as much with today’s increasingly Soylent Green reality – except over the TV!<BR/><BR/>Thus, I told my wife yesterday that I think I could accept having that ½ Million in cash GO TO ZERO – so long as it meant wiping out Wall Street! <BR/><BR/>By this I mean wipe out every dimwit, Ivy League MBA that caused this mess thinking he/she was smarter than those of us that play by the rules and pay our bills on time; wipe out America’s Wall Street aristocracy; wipe out the Washington Lobbyists and the Mega Corporations behind the entire ugly, cronyistic sham such people lie to cover with labels like market-based Capitalism; wipe out government by DJIA; wipe out government by Hedge Funds; wipe out government by those presently insuring that my qualify of life will never, ever, ever improve, no matter how hard I work, save or invest…<BR/><BR/>Seeing that wiped out would be worth a BILLION dollars to me – if only I had it to lose!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-11250121207677327882008-09-26T17:20:00.000-05:002008-09-26T17:20:00.000-05:00I take issue with the Merrill example. Effectively...I take issue with the Merrill example. Effectively what you are saying is that the managers should be allowed to basically lie about the value of the assets. That would be fine if they were merely lying to themselves but when they are also lying to investors that is a bigger problem. Certainly an investor is free to decide that despite the market value of the assets, he/she believes the manager that they are really going to e worth more down the line. But allowing the company to basically ignore market prices is simply allowing them to lie to the world. That seems contrary to the entire rationale for accounting rules and disclosure.GeorgeNYChttps://www.blogger.com/profile/00343662712412312274noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-63083712780007046822008-09-26T12:39:00.000-05:002008-09-26T12:39:00.000-05:00Muni VRDO/VRDN Market showing stress.I have a Muni...Muni VRDO/VRDN Market showing stress.<BR/><BR/>I have a Municipal Money Market as the sweep for a brokerage account. Like most Muni MM Funds it holds mostly VRDOs and VRDNs for the state I live in. The yield on the overall fund has been averaging about 1.7% for the last 3 or 4 months. The yield is now spiking up; 3.8% yesterday and 4.21% today.<BR/><BR/>Called and spoke with my rep, and he's telling me that in the last 2 weeks the rate resets on the underlying VRDO/VRDNs has gone from the 1.7% range up to 5.5% last week and 7% this week. He believes they could go to 10% next week.<BR/><BR/>That's obviously not sustainable for short term borrowing needs of local municipalities. Very reminiscent of the ARP blowup, except these instruments have a put option as long as the insurer retains an investment grade rating.<BR/><BR/>Not sure if I should bail on this fund or take the higher yield. I've asked them to find out if this fund is enrolling in the new Fed Money Market insurance program - I hadn't realized that the Fund Mgr. has to choose to enroll and pay a premium for the insurance.<BR/><BR/>Thoughts?Dave Wrighthttps://www.blogger.com/profile/09650953570038179309noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-87074958709764237902008-09-26T12:11:00.000-05:002008-09-26T12:11:00.000-05:00Out here in flyover country, the consensus is that...Out here in flyover country, the consensus is that we just don't get it. There's a flight to treasuries because they're safe, and the banks are holding on to their cash because they're not sure who to trust. <BR/><BR/>That seems like a two-edged sword to me. If the guys working in the industry don't trust each other, why should the folks on Main Street trust them when they say this is a threat to the entire economy. The concern out here is that the government writes the $700billion check to Paulson, the government (meaning the taxpayers) owns all the worthless securities, and then the champaigne corks start poping on Wall Street as all the traders celebrate pulling out a bonus for 2008.<BR/><BR/>One of the things that's been missing for me is anybody coming out and saying this is so important, they will not take a bonus for '08, or '09.<BR/><BR/>Up to now, I would not characterise the actions of the Fed and Treasury as "bailouts," because shareholders and employees have been taking it on the chin at BSC, Lehman, IndyMac, AIG, and now WaMu. The TARP plan looks like the taxpayers take on all of the losses. Wall Street needs to have some skin in the game.Christopher Wheelerhttps://www.blogger.com/profile/03011681827652509509noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-64469771427770662112008-09-26T07:54:00.000-05:002008-09-26T07:54:00.000-05:00Good god, WaMu's bonds are being zero'd out? Lehma...Good god, WaMu's bonds are being zero'd out? Lehman's bonds trade at 0.12/dollar? No wonder dollar Libor is nearly 4.<BR/><BR/>Could you comment/opine on what's happening today in the guts of your world, AI?<BR/><BR/>For example, I'd like to believe that the bailout isn't merely targeted at the primary dealers of T's simply to enable them to be able to make a market for US .gov debt......Unsympathetichttps://www.blogger.com/profile/01139905123679721805noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-56411328903914838122008-09-25T13:33:00.000-05:002008-09-25T13:33:00.000-05:00My fear with the TARP is that the name was chosen ...My fear with the TARP is that the name was chosen because that's what we'll be living under by the end of this...<BR/><BR/>Hopefully that will get a laugh; laughes have been hard to come by these days.PNL4LYFEhttps://www.blogger.com/profile/10009165302340487456noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-4837846935523541622008-09-25T11:33:00.000-05:002008-09-25T11:33:00.000-05:00Great conversation, even those that disagree. Surp...Great conversation, even those that disagree. Surprisingly little name calling!<BR/><BR/>To those that take exception to my Merrill Brothers example b/c of the leverage factor, that's fair. If Merrill Brothers had their bank credit line pulled because the lender bank didn't trust them anymore, then that's capitalism too. It really makes an argument for bank-type funding for everyone. That of course has its own problems. <BR/><BR/>Another great point is the fact that tax payers are already on the hook for FDIC insurance. So in terms of cost to tax payers, pick your poison...<BR/><BR/>I'm all for creating some disincentive for banks to use the Treasury facility willy-nilly. Like the equity warrant plan. But I would like to see the purchase price be attractive enough to help banks recapitalize.Accrued Interesthttps://www.blogger.com/profile/05096191765979971184noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-24644109145674561602008-09-25T10:03:00.000-05:002008-09-25T10:03:00.000-05:00If the immediate problem is that (a) the commercia...If the immediate problem is that (a) the commercial paper market is freezing up and (b) everyone's running to short-term treasuries even at zero yield, then why can't we fix the problem by creating a new bank-like entity to step in and unstick things?<BR/><BR/>Let's call the new entity <I>Hank's Bank and Trust</I>. Here's how it'll work. We'll seed it with $700 billion, or, well, pick a number. The bank will also accept deposits in unlimited amounts, 100% insured because, well, the bank's owned by the government and can't fail. The bank will pay, say, 50 basis points on deposits - not great, but apparently better than the market rate now. In fact, maybe we don't need $700 billion if we get enough deposits. The bank will step in and start making those short-term loans that are apparently so important to keeping the economy running.<BR/><BR/>The institutions with bad paper can then sink or swim on their own; we can fiddle with the mark-to-market rules or whatever so that they don't have to act with guns to their heads.<BR/><BR/>At some future time, Hank's Bank will wind down its operations and/or sell off its assets and deposits to stronger institutions and quietly go out of business.<BR/><BR/>As Paris Hilton would say, "Financial crisis solved!"Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-2224624921629055932008-09-25T09:52:00.000-05:002008-09-25T09:52:00.000-05:00should the other players at the table step in and ...<I>should the other players at the table step in and force you to fold? In a free market, you can bet, raise, or fold, no matter what other people say.</I><BR/><BR/>Not true.<BR/><BR/>When you put up a 3% stake (MB in your analogy), and someone in a more powerful position puts up the other 97% of the bankroll (or 33 times leverage), the gambler has given up some of their freedom. This is particularly true when things start to go south for the gambler.Unknownhttps://www.blogger.com/profile/14335699180486356748noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-48532864315396952522008-09-25T09:10:00.000-05:002008-09-25T09:10:00.000-05:00Or, we could get behind the Dodd legislation deman...Or, we could get behind the Dodd legislation demanding equity stakes and strong oversight combined with the return of Glass-Steagall.<BR/><BR/>The Republican ideology that no regulation is good regulation.. is the sole reason for this crisis. Leverage KILLS - and I for one am not shocked that AI's hypothetical didn't discuss the amount of leverage used to make those home loans.<BR/><BR/>This simply isn't "bailout nownownow or we're all going to a Gulag!" Nope, AI, that rhetorical pablum's not flying. Nothing Bush has demanded Congress pass immediately has been a remotely positive idea.. so I'd rather call his bluff. Goldman BK's, I lose no sleep.<BR/><BR/>Paulson doesn't propose legislation. He won't agree to modify the plan? That's cute - his chicken scratching is immaterial until a Congressman backs it. He has no plan until a bill has passed Congress.Unsympathetichttps://www.blogger.com/profile/01139905123679721805noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-84976426007949204152008-09-25T08:41:00.000-05:002008-09-25T08:41:00.000-05:00Cap Vandal: "F&F were nationalized becaus...Cap Vandal: "F&F were nationalized because they threatened to deleverage and run themselves as businesses."<BR/><BR/>Right on! I think that the Frannie takeover was designed to keep mortgage rates artificially low to help put a floor under home prices. That will benefit their existing book along with the rest of the banks. <BR/><BR/>That being said, I think it was only a matter of time; if they had been allowed to delever, mortgage rates would rise, prices would fall further, and porfolio losses would have overwhelmed their increased earnings power.PNL4LYFEhttps://www.blogger.com/profile/10009165302340487456noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-74063968276438486662008-09-25T07:23:00.000-05:002008-09-25T07:23:00.000-05:00What I would really like is some of the bloated pi...What I would really like is some of the bloated pigs who caused this problem to leave the financial industry and do something useful. Plenty of people did not get caught up in this drama, let them win.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-30643134.post-19929355011269081882008-09-24T21:56:00.000-05:002008-09-24T21:56:00.000-05:00As much as I'd like to jump in with y'all,...As much as I'd like to jump in with y'all, that isn't the point. Is it worth burning everything to save our pride? What do you expect to come from either administration that follows? Perfect marxism or capitalism? Is it ok, or shall I say "proper" to let money market mutual funds burn into nothingness because the commercial paper market is locked? And then who knows what else because we are too proud of our ideology. <BR/><BR/>What do you think is going to be built upon this wreckage when the dust is nothing but ash? A perfect ideology based upon the good intentions of Smith or Lenin? And when that perfect world hits a snag much smaller than we face today how will those pure hearted ideologues that built our new "perfect" system legislate then? <BR/><BR/>AI has hinted so much in this post. But let me attempt my own translation..... What do you expect to be built upon this pile of shit? Utopia always changes with those who hold the money or the votes. Let me ask. State Street saw the most violent trading range I have seen in my 8 years of trading; are the ideologues prepared to burn everything, and I mean everything else to save our future? Further, who do you think is going to sow the seeds of our new foundation? Ron Paul? That seems to be the consensus of the "day traders". However, we need about 500 or so more of him; and the last time I checked, he wasn't in that much supply.<BR/><BR/>The foundation is still solid. We don't need to abandon it because the house is infested with termites.<BR/><BR/>As much as I'd like to think, I'm no expert in pesticides, or foundations for that matter. I don't know if Hank's plan is the right one or not. I suspect there are several that will work. Point is, its now clear (as it always is post-mortem) as day how it all came to bear, FASB, FNM & FRE overleveraged, the ratings agencies greased by greed, the IB's and various other banks copying that model thanks to ultra low rates, an unregulated market for securities, and a fed that believed it create dollars to make it all go away. What do you want to replace it with? And how are all of us going to do it? These are all problems that face us no matter how we rebuild. Question is..........where do you want to start from? <BR/><BR/>The burn it all crowd makes the assumption that there are no honest bankers left, or none that have learned their lesson. I disagree. I am just a pup. There is still some green on my horns (I thought otherwise for a while until latest meltdown). Speculative excesses cannot be legislated away from any aspect of human nature. Only the market can re-teach the pups and those who have sinned. And so far, I think its doing a pretty good job at it. Do all of us deserve life without parole? <BR/><BR/>Thanks for the forum A.I. One of the few market blogs looking forward in this wild time.Horace Kenthttps://www.blogger.com/profile/11089711200880505084noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-64757974158848605562008-09-24T21:28:00.000-05:002008-09-24T21:28:00.000-05:00If the money markets were allowed to fail last Fri...If the money markets were allowed to fail last Friday, we would be looking at 1930 all over again.<BR/><BR/>Any institution that had backed up their commercial paper program with bank lines would be out of luck, since the banks wouldn't be able to fund them.<BR/><BR/>If Paulson had waited until the weekend to backstop the money market funds, then people would have seen the abyss more clearly. <BR/><BR/>The abyss is when YOU have everything ship shape. You have cash. You have no leverage. You have assets and liabilities perfectly matched. All your customers, however, need credit to continue to function. Your customers tank. Your business has no paying customers. <BR/><BR/>The real irony is that the S&L interest rates used to be fixed. Set by the Fed. They competed by giving away toasters. However, money market funds started offering higher rates. They then deregulated the interest rates paid by S&L's and their asset/liability mismatch did them in.<BR/><BR/>Now it turns out money market funds were just apretend free market "innovation". They had turned their risk into systemic risk which had to be mitigated by the government.cap vandalhttps://www.blogger.com/profile/17179669039246988631noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-18933309144609602552008-09-24T21:15:00.000-05:002008-09-24T21:15:00.000-05:00"FRE and FNM were nationalized because they m..."FRE and FNM were nationalized because they might soon have had less money than the govt wanted as a cushion after they devalued their current assets and set aside capital for their expected future losses. The cushion, by the way, was 20% higher than before their accounting scandals."<BR/><BR/>F&F were nationalized because they threatened to deleverage and run themselves as businesses.<BR/><BR/>Under pressure the last year, they raised fees, they improved underwriting, and started trying to dig out.<BR/><BR/>After nationalization, F&F don't have to deal with the dual public/private mission. It's just a government program.<BR/><BR/>They might have made it through, but only by increasing fees even more and beginning to delever.<BR/><BR/>Not thrilled with nationalization, but the government is very tough business partner. Makes Buffett seem like a softie.cap vandalhttps://www.blogger.com/profile/17179669039246988631noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-39566165258260474802008-09-24T21:05:00.000-05:002008-09-24T21:05:00.000-05:00Great example, because in normal vanilla banks, it...Great example, because in normal vanilla banks, it doesn't work that way.<BR/><BR/>First, your example assumes the loan is current.<BR/><BR/>If it is current and if it is in their "held" portfolio, then it ISNT marked to market. It is marked to amortized value and there is a provision for loan losses.<BR/><BR/>If the calculation of the loan loss provision is reasonable, then the auditors sign off on it. <BR/><BR/>The assets borrowed "short" are FDIC insured deposits. No problem there.<BR/><BR/>The only risk (assuming it is, in fact, a solid asset), is if short term rates increase to the extent that their cost of funds puts them out of business.<BR/><BR/>That was the original Savings and Loan problem. The second and worse came after the insured deposit limit increased to $100k and they took brokered deposits and tried to "earn" their way out of it.<BR/><BR/>Under the traditional bank system, the Fed doesn't have to bail anyone out. They just have to agree that the assets, if held to maturity, are good.<BR/><BR/>Investment banks, hybrids, etc. have structured asset backed securities with no decent market pricing mechanism and must be held in the investment portfolio. The investment portfolio generally includes stuff that will be sold prior to maturity. It is marked to market and has all the problems you mention.<BR/><BR/>If Wells Fargo took its held loan portfolio and made all the loans into asset backed structured securities, they would be insolvent.cap vandalhttps://www.blogger.com/profile/17179669039246988631noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-11596384567735376472008-09-24T19:33:00.000-05:002008-09-24T19:33:00.000-05:00Markets convey information. That is the only reaso...Markets convey information. That is the only reason they exist. One doesn't need to be an Austrian to believe that, but it helps. If some other system were better at allocating resources, including capital, then such a system would have worked out better than it has in actuality. Does anyone think the world economy is worse off now than the Soviet Union was in the 1980's? If you do, then I have some land in Kazakhstan that I'll gladly take your bids on.Bill Longhttps://www.blogger.com/profile/00504076288100058769noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-67472968939890291822008-09-24T19:25:00.000-05:002008-09-24T19:25:00.000-05:00Yes. Its true. (News from Bloomberg)The real quest...Yes. Its true. (News from Bloomberg)<BR/><BR/>The real question is, who is copying who?<BR/><BR/><A HREF="http://benbittrolff.blogspot.com/2008/09/kazakhstan-plans-paulson-style-bailout.html" REL="nofollow">Kazakhstan Plans Paulson Style Bailout: Borat?</A>Ben Bittrolffhttps://www.blogger.com/profile/12465978905157927856noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-67003532036863293042008-09-24T19:04:00.000-05:002008-09-24T19:04:00.000-05:00Why is there no good choice? If Merrill Brothers ...Why is there no good choice? If Merrill Brothers fails I fail to see the problems. Will there be fallout, of course. As a customer of Wachovia, is my bank likely to be caught in the mess: perhaps. Will some previously "riskless" investments lose value. I presume. So what.<BR/><BR/>Quite simply we cannot trust Washington to only do the bailout this one time. Do I think Hank Paulson will make a canny trade? Sure. But Hank Paulson's successor will not. And the supreme court, who will later rule that the Treasury must perform bailouts in some circumstance will only ensure that the bailout responsibility is forever enshrined.<BR/><BR/>A few nickels now, are not worth the growth in govt intrusion in the markets. Unfortunately, the desire for a few nickels now (with no future risk assessing) is what caused this mess; and, not ironically, the same people are using *exact same* justification to support the bailout.<BR/><BR/>Wall Street and Washington have the exact same kind of myopic idiots in charge. The foolishness would be laughable if there were a better country to emigrate to.Brad Shttps://www.blogger.com/profile/02172312185504579525noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-2097485476463165132008-09-24T18:51:00.000-05:002008-09-24T18:51:00.000-05:00My apologies for the rant, but I didn't even menti...My apologies for the rant, but I didn't even mention CDS.<BR/><BR/>How can you have an unregulated 'private' system of insurance that puts at risk the entire financial system of the US and the world and call it capitalism?<BR/><BR/>There isn't even a market!<BR/><BR/>Is not our currency and fractional reserve system a commons?<BR/>Wouldn't it be a tragedy if something happened to it?Unknownhttps://www.blogger.com/profile/10574593738022046768noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-14458252907839881052008-09-24T18:41:00.000-05:002008-09-24T18:41:00.000-05:00Merril was 'forced' to leverage 30:1 by it's compe...Merril was 'forced' to leverage 30:1 by it's competitors and the greed of its executives. It and 4 other IBs were allowed to do this by special SEC order. No doubt they asked to be on that list so that it could pay extra large bonuses.<BR/><BR/>Now that the house has fallen down they want a full bailout. They've already had months (if not effectively years) of support from the FED and they still couldn't raise enough capital to remain solvent? Their creditors must loan them money because their bets might pay off? Where is the capitalism in that?<BR/><BR/>In a truly free market I can put a gun to your head and take all your money.<BR/><BR/>All markets are regulated and they can be efficient when the rules are reasonably stable, there are enough participants to provide liquidity, and each of the parties have reasonable and roughly equal visibility into future value.<BR/><BR/>What we had was a lack of rules (on leverage and accounting) and we let the bankers (along with the Chinese) put a gun to our head. The IBs have been taking money out for years. Now we have to decide if we're going to let them off and pay them out entirely, or not. No good choices.Unknownhttps://www.blogger.com/profile/10574593738022046768noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-70630181671858381562008-09-24T18:25:00.000-05:002008-09-24T18:25:00.000-05:00ai - you have ignored that MB chose to finance tho...ai - you have ignored that MB chose to finance those assets with short term paper. had MB locked up multi-year funding in size, it would not have been an issue. a large issue of (ir)responsibility is criminally poor gap management. i would like to see the government fund some of this with pursuit of ill-gotten bonuses of executive level management. after all, pay is a very significant portion of street profits. and that is particularly so for the executive office.pghttps://www.blogger.com/profile/05553656438243144746noreply@blogger.comtag:blogger.com,1999:blog-30643134.post-87308871135590372392008-09-24T18:20:00.000-05:002008-09-24T18:20:00.000-05:00I would suggest your merrill bros (mb) is fine as ...I would suggest your merrill bros (mb) is fine as to the asset side of the balance sheet. However, have you borrowed short to lend/invest long? What does Buffet like about insurance companies? Guaranteed float and their attendant investment portfolios. He borrows from no one, unlike your MB example, and can purchase the occasional less than liquid asset (again a function of buyers and sellers meeting or not meeting at the right moment in the right market environ). Your MB example has made this investment without that kind of right side balance sheet flexibility. Lenders get antsy and they are f_ _ _ _ ed, as we have seen.Chris Jhttps://www.blogger.com/profile/02721917437046417807noreply@blogger.com