locked out of credit !! that would be a great thing no. its all this credit that started all this mess no. When are all the businesses try to expand organically and not just come to debt markets all the time.
JoeyDVivre Wrote: ------------------------------------------------------- > Hinestly, I think that anybody that thinks this > plan is anything like fair and proper is crazy. > In what universe do the taxpayers jump in and > bailout equity holders? The idea that this is a > good plan because the stock market says so is so > self-centered and naive that it deeply offends me. > If the govt decided that they were going to > assume the pension obligations of every company in > America, the stock market would like it too. > > This is disgusting, awful, gross, idiotic, > unconstitutional, and the most offensive govt I > have ever seen. Please write to your Congressmen > and tell them how you feel. Can you help me understand this, please? (Putting any ideological concerns to one side). My (basic) understanding of what is/was happening is as follows: banks are holding vast amounts of structured products, and the loans underlying those products are of questionable quality. As the value of those products has fallen (quite rightly), banks have been compelled by capital constraints to sell into a falling market, sparking a vicious cycle. Banks have written off in the region of $400-$500bn. That figure compares to a total subprime market of ~$1tn and a total mortgage market of ~$10tn. On the surface, $400-500bn seems like a lot considering that the loss experience on real estate loans has traditionally been very low (not least because only a small proportion of the homeowners are in a position of negative equity and only some of those will default). Although my reasoning here is simple, I infer that there is a large premium to be earned by those able to offer liquidity. Could it be that Paulson has just made a great trade? Maybe he buys the assets with taxpayers’ funds for 40-50c in the dollar and they end up being worth 75c. Is your objection based on a belief that market participants always know more than the guy working at the Treasury? Because Paulson has way more experience (and is probably a good deal smarter) than the majority of the 20- and 30- somethings which largely populate the trading floors and treasury departments of the leading banks.
*sign* … people in the industry and especially those who printing these doggy mortgages knew this makret was going to blow up …they knew they were being underhanded … smartnest is not the issue here , it is awareness and a lot of people choose not to be aware and choose to turn the blind eye … the worst thing is the smart people think they know it all and dont question things … so smartness is a hindrance not a benefit.
drymartini Wrote: ------------------------------------------------------- > locked out of credit !! that would be a great > thing no. > > its all this credit that started all this mess no. > When are all the businesses try to expand > organically and not just come to debt markets all > the time. have you given even few moments to thinking through what would happen if businesses had no credit available? I have several non-financial companies in my coverage universe that need to rollover their credit lines or debt in a short while and if the present condition continued they would either go bankrupt bu failing to do so or would be forced to pay astronomical interest rate. At that point, it would be a Main Street crisis as pink slips are handed out. And then what would happen to housing market if credit remains frozen there as well? You are correct that we as a country need to delever a lot. But this has to be gradual process and not a shock that drives us all into the ground.
First, I think “idealogical concerns” are concerns about the proper role of gov’t and they are crucial. The Treasury is not GS and a gov’t justifying its actions by saying “good trade” doesn’t work for me. In particular a gov’t that sets the laws under which we all operate and then pats itself on the back for “good trade” is a gov’t that ends up owning everything. Second, if the problem is as you describe (a MTM accounting issue/liquidity issue) then it ought to be much easily handled by changing the accounting rules. Accounting rules shouldn’t even especially matter to equity holders since equity analysts are supposed to be able to distill economic realities from accounting dogma. Third, to justify the gov’ts actions by saying they are buying stuff at 40-50c that may be worth 75c is either irrelevant (because 40-50c is a sure thing and 75c is one point on a distribution of possible outcomes) or antithetic to just about everything I know about markets (if the 75c is supposed to represent an expectation or a risk-adjusted expectation or similar). If these things are worth 75c but they can’t find a buyer at 40-50c then why aren’t you buying? Make a strong case, I’ll do the leg work for the fund, we’ll present the case to hedge fund clients and make $3B like John Paulson in reverse. Fourth, I don’t think this has anything to do with Henry Paulson’s experience, education, or intelligence nor do I think that there are many 20-30 year olds with much more of those things than Paulson. The basic tenet of efficient markets is not that the market is as smart as the average participant, but that the market integrates the views of all participants and is smarter than any one participant including Paulson. It’s just not right to say that since the market is comprised of lots of idiots that Paulson ought to do better. Fifth, I think that Paulson (like most other powerful people) is driven by self-aggrandizement rather than a concern for the proper role of govt. In fact, I think if you sat around the Bush Administration war room and asked about just about any question “Is this the proper role of gov’t?” that everyone would give you some Bush Administration pat answer like “The proper role of gov’t is to ensure the general welfare and that’s what we are doing here.” It certainly wouldn’t include elements like avoiding moral hazard, limiting itself, and seeking long-term stability at the expense of high net-worth Republican donors. Anyway, I am in favor of the gov’t providing a liquidity facility if that is the problem but I want the price of using the facility to be a Chapter 11 filing and a re-organization plan. I want the equity wiped out. The role of gov’t might well be to avoid intractable problems, but it is not to provide props for equity owners of investment banks and irresponsible insurance companies. Edit: Post is in response to Etienne’s post above. It should go without saying that I have the highest regard for both Etienne and Paulson.
CFAAtlanta Wrote: ------------------------------------------------------- > > So Joey, what do you suggest we should do? > Possibly risk a major global financial system > failure with run on banks, a complete freezing of > credit market, asset deflation and a prolonged > recession as businesses get locked out of credit > and consumer panics? > > I am not saying that above is a certainty but the > likelihood of us going that path is not immaterial > at this point. Sometime you have to take the best > of bad solutions, and unfortunately, I believe, we > have been backed into a corner to do this. > > Also, btw, do you really believe Paulson and > Bernanke are stupid? Or just very smart but weak > individuals being forced into something they abhor > by political considerations. Let me deal with this post in reverse. No I do not believe that Paulson or Bernanke are stupid nor have I ever suggested such a thing (at least not while I have been sober). I think what they have done here is stupid but smart people do stupid things all the time. I do not think that it is fair to say that Paulson, et. al. has come up with a gigantic omnibus plan so if I think it is stupid, I have to come up with a gigantic omnibus alternative. I think liquidity facilities might be a part of the solution but it is not about the gov’t making good trades; it is about the gov’t picking up the pieces after everyone with an equity interest (at least) has been wiped clean. I think a really solid principle is that the taxpayers should never be in a loss position ahead of equity holders. A second principle is that taxpayers shouldn’t be equity holders through any gov’t agency. A thrid is that gov’ts should never be trying to balance their books by trading anything (though it sometimes happens as with the Fed, but we deliberately limit the extent that the rest of the gov’t can access those gains). Finally, just about anything that starts with “possibly risk” doesn’t move me much. During the last fifty years, there were times when the US gov’t “possibly risked” global thermonuclear war and it was the right thing to do. A Goldman Sachs bankruptcy or even an additional 20% chopped off the S&P doesn’t strike me as nearly as bad as that. Anyway, what the heck is “global financial system failure” anyway except rhetoric for something that sounds bad? We’re having some economic troubles but it is not at all clear that bailing out financial institutions with taxpayer money is a decent way of handling that.
JoeyDVivre Wrote: ------------------------------------------------------- > First, I think “idealogical concerns” are concerns > about the proper role of gov’t and they are > crucial. The Treasury is not GS and a gov’t > justifying its actions by saying “good trade” > doesn’t work for me. In particular a gov’t that > sets the laws under which we all operate and then > pats itself on the back for “good trade” is a > gov’t that ends up owning everything. > > Second, if the problem is as you describe (a MTM > accounting issue/liquidity issue) then it ought to > be much easily handled by changing the accounting > rules. Accounting rules shouldn’t even especially > matter to equity holders since equity analysts are > supposed to be able to distill economic realities > from accounting dogma. > > Third, to justify the gov’ts actions by saying > they are buying stuff at 40-50c that may be worth > 75c is either irrelevant (because 40-50c is a sure > thing and 75c is one point on a distribution of > possible outcomes) or antithetic to just about > everything I know about markets (if the 75c is > supposed to represent an expectation or a > risk-adjusted expectation or similar). If these > things are worth 75c but they can’t find a buyer > at 40-50c then why aren’t you buying? Make a > strong case, I’ll do the leg work for the fund, > we’ll present the case to hedge fund clients and > make $3B like John Paulson in reverse. > > Fourth, I don’t think this has anything to do with > Henry Paulson’s experience, education, or > intelligence nor do I think that there are many > 20-30 year olds with much more of those things > than Paulson. The basic tenet of efficient > markets is not that the market is as smart as the > average participant, but that the market > integrates the views of all participants and is > smarter than any one participant including > Paulson. It’s just not right to say that since > the market is comprised of lots of idiots that > Paulson ought to do better. > > Fifth, I think that Paulson (like most other > powerful people) is driven by self-aggrandizement > rather than a concern for the proper role of govt. > In fact, I think if you sat around the Bush > Administration war room and asked about just about > any question “Is this the proper role of gov’t?” > that everyone would give you some Bush > Administration pat answer like “The proper role of > gov’t is to ensure the general welfare and that’s > what we are doing here.” It certainly wouldn’t > include elements like avoiding moral hazard, > limiting itself, and seeking long-term stability > at the expense of high net-worth Republican > donors. > > Anyway, I am in favor of the gov’t providing a > liquidity facility if that is the problem but I > want the price of using the facility to be a > Chapter 11 filing and a re-organization plan. I > want the equity wiped out. The role of gov’t > might well be to avoid intractable problems, but > it is not to provide props for equity owners of > investment banks and irresponsible insurance > companies. > > Edit: Post is in response to Etienne’s post above. > It should go without saying that I have the > highest regard for both Etienne and Paulson. Good stuff.
Let’s not forget that there are some people out there that made some serious, serious coin which played a huge factor in how all this mess was created. Another point that seems to have gotten lost lately are the ratings agencies. These guys should be ripped from their posts and replaced with people who are halfway competent. This whole freaking thing stinks of greed and non-accountability. Everyone wants a solution to the current situation, but I want some accountability. I want all those people that made millions and millions of dollars to be hunted down and have it ripped right back from them and put towards the costs of this thing. Dream land I know. The biggest problem in our society today is lack of accountability. It starts with the kids and goes right to your average axe murderer. It sucks @ss and I’m sick and tired of seeing/reading about it.
Rating agencies used to matter. It seems to me that in a world with credit derivatives traded on everything, a rating agency is about as useless as an analyst’s equity rating (what about the UBS analyst who reiterated his “Buy” rating on AIG the day before the gov’t bailout? Does that guy still have a job?). Can you imagine anybody assessing the quality of a portfolio by checking the average rating among the five (uh, lemme check that) major US investment banks? Add to that their feeble simulation ratings on complex derivatives and nobody should even take those guys seriously for two seconds. Rating agencies will be with us for awhile, but they are just a silly anachronism. Speaking of silly anachronisms, why the heck does the gov’t think that extending insurance meant for safe-guarding banks is appropriate for money market funds? Let’s see, I can buy commercial paper from some piece of crap company that the rating agency says is fine even if it is trading at a 10,000 point spread to T-bills and put it in my money market fund. Now I sell everything else in my money market fund except that turd-like thing and now the gov’t is backstopping my T-bill + 10,000 bp investment so it has the same credit quality as a T-bill because the rating agency says it’s ok. I feel ok being a taxpayer because I know the finest financial minds on the planets go to work for the completely marginalized rating agencies.
JDV- i largely agree w/ your point… however… if rating agencies don’t matter at all these days, how come the cost of borrowing increased so dramatically when AIG needed $$. That was this week. and i know i’m about to get blasted for this… but IMO, the MM situation isn’t much different than the run on the banks during the great depression. it’s all about the avg joe’s perception of safety. how many people use their MMF as a checking account. people should’ve known that their money was at higher risk being in a MMF than an account like ING Orange, but unfortunately, that isn’t the case. perhaps its a problem w/ regulation, disclosure or whatever, but on the scale of things, i think intervening now and “guaranteeing” MM before everyone starts breaking a buck is better than later. just because once that downward spiral gets going… what will happen then? whats the difference between this and the run on the banks from the great depression?
nolabird032 Wrote: ------------------------------------------------------- > JDV- > i largely agree w/ your point… however… > > if rating agencies don’t matter at all these days, > how come the cost of borrowing increased so > dramatically when AIG needed $$. That was this > week. > I don’t understand this point. I think rating agencies still matter; I just don’t think they should. Do you mean why did AIG’s cost of borrowing go up so much? AIG CDS certainly weren’t following ratting agencies. > and i know i’m about to get blasted for this… > but IMO, the MM situation isn’t much different > than the run on the banks during the great > depression. it’s all about the avg joe’s > perception of safety. how many people use their > MMF as a checking account. people should’ve known > that their money was at higher risk being in a MMF > than an account like ING Orange, but > unfortunately, that isn’t the case. perhaps its a > problem w/ regulation, disclosure or whatever, but > on the scale of things, i think intervening now > and “guaranteeing” MM before everyone starts > breaking a buck is better than later. just because > once that downward spiral gets going… what will > happen then? What will happen then? Gee, someone invested in mildly risky securities might lose 5% or less. My heart bleeds. In lots of ways, I think money market funds are safer than bank deposits because bank deposits are insured by a vastly underfunded FDIC (though now being funded in back door ways). The whole reserve banking/gov’t backstop is outmoded. >whats the difference between this and > the run on the banks from the great depression? Everything. A run on a money market fund does nothing. People demand their money, the fund gives them their money, they take it somewhere else. Money market investments are almost all completely liquid and the fund just sells them. A run on the bank in the Great Depression caused a real problem because the bank had no facility to get the cash and all kinds of illiquid assets (like home mortgages) on the books.
JoeyDVivre Wrote: ------------------------------------------------------- > nolabird032 Wrote: > -------------------------------------------------- > ----- > > JDV- > > i largely agree w/ your point… however… > > > > if rating agencies don’t matter at all these > days, > > how come the cost of borrowing increased so > > dramatically when AIG needed $$. That was this > > week. > > > I don’t understand this point. I think rating > agencies still matter; I just don’t think they > should. Do you mean why did AIG’s cost of > borrowing go up so much? AIG CDS certainly > weren’t following ratting agencies. I probably misunderstood your statement- "Rating agencies used to matter. It seems to me that in a world with credit derivatives traded on everything, a rating agency is about as useless as an analyst’s equity rating. " I wasn’t able to follow the as much as I wanted… so maybe i’m off, but from what i understood, AIG needed something like 20 billion as of friday. then the RA moved their rating from AAA to AA. and by the time they actually got the $$ they needed, they needed $85 billion. > > > and i know i’m about to get blasted for this… > > but IMO, the MM situation isn’t much different > > than the run on the banks during the great > > depression. it’s all about the avg joe’s > > perception of safety. how many people use their > > MMF as a checking account. people should’ve > known > > that their money was at higher risk being in a > MMF > > than an account like ING Orange, but > > unfortunately, that isn’t the case. perhaps its > a > > problem w/ regulation, disclosure or whatever, > but > > on the scale of things, i think intervening now > > and “guaranteeing” MM before everyone starts > > breaking a buck is better than later. just > because > > once that downward spiral gets going… what > will > > happen then? > > What will happen then? Gee, someone invested in > mildly risky securities might lose 5% or less. My > heart bleeds. In lots of ways, I think money > market funds are safer than bank deposits because > bank deposits are insured by a vastly underfunded > FDIC (though now being funded in back door ways). > The whole reserve banking/gov’t backstop is > outmoded. > > > >whats the difference between this and > > the run on the banks from the great depression? > > Everything. A run on a money market fund does > nothing. People demand their money, the fund > gives them their money, they take it somewhere > else. Money market investments are almost all > completely liquid and the fund just sells them. A > run on the bank in the Great Depression caused a > real problem because the bank had no facility to > get the cash and all kinds of illiquid assets > (like home mortgages) on the books. liquid until every MMF needs to sell out of the same securities at the same time. of course, MMF shouldn’t be holding securities w/ a long duration, but regardless, who is going to be buying such a large quantity? the price of these short term securities would plummet. which means more MMF would break the buck, which would create more panic and redemptions. Its all about the public’s perception of safety. if people have your perception that the FDIC is vastly underfunded, then that would just worsen things. people won’t be moving their MMF into savings accounts, they’re buying gold bars and putting them in their safety deposit boxes. depending on how fast that happens, avg joe could lose more than 5% if he doesn’t get out. if the gov’t guarantees MM, i think they will have to regulate what the MMF can own, but i think the cost of acting early is a lot less than if the spiral gets some real speed and acting later.
C’mon - this is very far-fetched. A liquidity death spiral in commercial paper? It’s short-term paper that gets its value from the near-certainty of being paid back in the very short term with no complicated modelling and few liquidity issues.
2.5 pages unfettered authority to treasury 700B of tax payer money raising national debt ceiling to ~12T move bad assets from wall street to taxpayer liability no accountability for the partners of GS and MS to get fired/fined/jailed is it just me, or is anyone else feeling a deep sense of revulsion and fury at underwriting the GS and MS bankers who will keep their jobs at the end of all this, while my tax bill goes up another few thousands? i rented a house smaller than my family’s needs, i stayed in cash and did not speculate, i saved 40%+ of our family income, my kids made their own flash cards to learn the alphabet instead of buying readymade ones, now i need to finance the wall street bankers’ bonus who securitized this mess, pumped and dumped real estate stocks, etc. excuse me for feeling violated, but if hank showed up in front of me now with his 500M bank account and plans to rescue the b a s t a r d ’ s buddies from wipeout, i will personally slap the critter.
i’m not saying that it would have absolutely happened if the FED didn’t come in and guarantee MMF. i’m say that there was the possibility, and the fact that they stepped in earlier rather than later is probably a good thing. its all about perception. if the perception is that your money isn’t safe in a MMF. you’re going to take it out ASAP. and if there are a ton of redemptions, then you’re going to have to sell stuff in a hurry. and if you do that, you’re going to flood the market and you might have to take a loss. wasn’t there a liquidity crisis in CP (ABCP) just last year?? i definitely remember reading it. i was doing research and trying to learn as much about FI mutual funds as possible and it was all over the news. i just did a quick search on google… found a ton of articles talking about how much the CP has shrunk over the past year. the MMF that broke the buck recently owned LEH CP. i’m quite confident that stuff isn’t liquid these days. i could be overstating the problem, but i’m confident that a run on a MMF creates problems just like a run on a bank. avg joe doesn’t want his grocery money to be swept away…
Rohufish, I agree with you. You should write your congressman. It takes 20 minutes. That’s the kind of stuff they need to hear. Tell them you are not voting for them and you’re starting a blog to point out this kind of craziness.
i am certainly writing to the congressman, and even the senator. this is just highway robbery of the worst kind - rob the middle class to help the rich speculators. both obama and mccain supported this - shame on them both. this nation is in for some hard times, and we fully deserve it - with this kind of value system at the top, the nation deserves to become a cesspool of idiocy. “unfettered authority” to redistribute wealth to the rich stockholders and owners. right.
2.5 pages? its out? where did you see it?
I wrote to my rep and bothe Senators. I kept it short and simple, but don’t really know if that was the right thing to do. Anybody have any sense of what the most effective way is to write to your Congressmen?
done… Congressman xxxx, I am deeply distressed and disappointed to learn about the financial bailout proposals being considered this weekend. They are a shameful example of robbing the hard earned savings of honest, middle class taxpayers to protect the interests of rich owners and managers of financial institutions that created the crisis in the first place. My family has been financially responsible - we have deferred buying a house for the last 4-5 years and have rented one smaller than our needs instead, we have paid a lot of money to obtain the insurance protections we need, we have saved responsibly for the future, and we have not incurred credit card debts. Now, we face the prospects of higher taxes or lower public services spending because the government wants to spend a trillion dollars rescuing irresponsible financial firms. Where is the reward for our responsible behavior, and accountability for irresponsible behavior of financial firms? My family does not have tens of millions of dollars in the bank like many of the financial executives being bailed out with OUR money. We need to buy a house, pay for our kids’ education, save for retirement. With this bailout, I fear that those goals will become harder to reach, while rich financial executives and owners laugh their way to their bank with OUR money. I am particularly distressed that firms like Goldman Sachs, that made hundreds of millions securitizing these bad loans, underwriting securities offerings for real estate firms, advising them on their mergers and acquisitions, devising newer and more lucrative and more risky financial products, all the while shorting the same securities they sold to investors in their prop trading accounts, will now get OUR money. These firms must go out of business, and their management needs to be tried for fraud. Instead, it is ordinary people like my family that are being punished, so these financial big shots can earn their big bonuses once again. Where is the reward for our responsible behavior, and accountability for irresponsible behavior of financial firms? This criminal administration is asking for “unfettered authority” to spend OUR $700 billion. Its Treasury Secretary made hundreds of millions himself in his years at Goldman, engaging in exactly the kinds of financial schemes that have brought us here. Now, we are expected to hand over OUR money to this man, so he can save his Wall Street buddies from ruin that they deserve for their duplicity and greed? I want to let you know that my family will monitor your voting record on this bailout, and while you may not hold these firms accountable for their mistakes, we will certainly hold you accountable for your vote on this matter. With kind regards,