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  • Tue, Nov 25 2008
  • 11:27 AM » Visual Guide to the Financial Crisis
    Published Tue, Nov 25 2008 11:27 AM by The Big Picture
    Via , comes this not quite perfect (some causation omissions) but close enough to be intriguing enough visualization of the credit crunch: > Source : WallStats.com, 11/13/2008 http://blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis/
    Click Here to Read the Full Article

    Source: The Big Picture
  • 11:27 AM » U.S. problem banks rise to 171 at end of third quarter: FDIC
    Published Tue, Nov 25 2008 11:27 AM by Reuters
    WASHINGTON (Reuters) - The number of problem U.S. banks and thrifts jumped in the third quarter to 171, from 117 at the end of the prior quarter, marking the highest level since the end of 1995 and adding to expectations that more banks will fail, regulators said on Tuesday.
  • 9:40 AM » Citigroup on the Brink, Despite Government Rescue
    Published Tue, Nov 25 2008 9:40 AM by Seeking Alpha
    submits: The term that is the basis of all discussions in elementary economic modeling, especially when comparing two factors, is ceteris paribus . Ceteris paribus means "with other things the same" and represents the best guess as to what is likely to occur provided all thing remain unchanged. Let us take an overly simplistic view of the situation with Citigroup's (C) government rescue plan and determine the potential outcome ceteris paribus . According to the Wall Street Journal , in an , the federal government has agreed to absorb $277 billion of $306 billion of losses that Citigroup has identified as "troubled" assets. Additionally, the Treasury is adding $20 billion on top of the $25 billion recently injected into Citigroup as part of the TARP plan. Remember, the $277 billion is separate from the $700 billion bailout package. Again, this current approach with Citi is counter to the early arguments that there needs to be a comprehensive solution, not an individual approach, to the bailouts after the fall of Fannie ((FNM)), Freddie ((FRE)), Lehman, Merrill (MER) and WaMu, which spawned the TARP plan to begin with.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:39 AM » Hedge Funds' De-leveraging Still Has Another $200 Billion to Go
    Published Tue, Nov 25 2008 9:39 AM by Seeking Alpha
    submits: Hedge funds looking to slash their use of borrowed money may have to unload another $200 billion in assets to reach their objectives, a new study found, though a Money Morning expert believes the exit door could get pretty narrow should the holiday shopping season get off to a rocky start later this week. Investors yanked $40 billion from the $1.5 trillion hedge fund industry in October, a month in which market losses slashed industry assets by an additional $115 billion, . reported. A new survey of hedge fund managers conducted by found that 63% said the sale of assets to cut leverage was at least half completed. Another 23% said the process was three-quarters complete.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:38 AM » Bailout Pledges Hit $7.7 Trillion
    Published Tue, Nov 25 2008 9:38 AM by feeds.feedburner.com
    Bloomberg is reporting . The money that’s been pledged is equivalent to $24,000 for every man, woman and child in the country. It’s nine times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office figures. It could pay off more than half the country’s mortgages. “It’s unprecedented,” said Bob Eisenbeis, chief monetary economist at Vineland, New Jersey-based Cumberland Advisors Inc. and an economist for the Atlanta Fed for 10 years until January. “The backlash has begun already. Congress is taking a lot of hits from their constituents because they got snookered on the TARP big time. There’s a lot of supposedly smart people who look to be totally incompetent and it’s all going to fall on the taxpayer.” Follow the $7.4 Trillion. Here is a . Click on any chart for sharper image.Note: the tables below do not reflect another $300 billion for Citigroup. The Fed Part 1 The Fed Part 2 The Treasury The FDIC The FHA Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com to learn more about wealth management for investors seeking strong performance with low volatility.
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:37 AM » Construction Employment and the Obama Stimulus Package
    Published Tue, Nov 25 2008 9:37 AM by Calculated Risk Blog
    One of the key elements of the Obama stimulus package is infrastructure investment. From the WSJ: The construction industry, beset by one of the biggest drops in employment in the current economic downturn, could be poised for a rebound under President-elect Barack Obama's expected stimulus package. I don't think the plan is to have a rebound in construction employment, but to cushion the blow of the 2nd wave of construction job losses coming in 2009. Most of the construction job losses so far have been in residential construction, but the 2009 construction job losses will be related to the end of the commercial real estate boom. Click on graph for larger image in new window. This graph shows construction employment as a percent of the civilian labor force. Even though construction employment has declined as a percent of the workforce, construction employment is still higher than the normal level. This is because the commercial real estate boom has kept many construction workers employed, mostly working on hotels, malls and office buildings. However non-residential investment is now hitting the wall. The second graph shows the is at a record low. There is "an approximate nine to twelve month lag time between architecture billings and construction spending", so we should expect the first decline in architecture billing to impact non-residential structure investment in Q4 2008, and a further downturn in non-residential construction activity next summer. The Obama stimulus plan is intended to somewhat offset this coming slowdown in non-residential investment. From the WSJ article: From highways to schools, state and local governments have been postponing approved construction projects in recent months. Assured funding would jump-start these projects. The American Association of State Highway and Transportation Officials, a group of state and local government officials, has a list of 3,109 "ready-to-go" highway projects that could break ground...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:36 AM » Citigroup Bailout Raises Viability Questions For Entire Banking System
    Published Tue, Nov 25 2008 9:36 AM by feeds.feedburner.com
    Still more details are emerging from the . And in what is no surprise in this corner, it appears Citigroup is not well capitalized and . The government rescue of Citigroup Inc. reversed the perilous slide of the company's stock, but pressure is mounting on its executives and directors to do even more to stabilize the financial giant. Citigroup executives acknowledged Monday that the government made it clear in weekend negotiations that it expects the company to continue to reduce its appetite for risk, and to seriously weigh more drastic actions, including possibly breaking up the company. "This is a reprieve, but it's not a complete pardon," said another person familiar with the matter, referring to the government rescue plan. "Nobody's confused about that." The company faces swelling losses on loans that aren't covered under the government's loss-sharing agreement, which amounts to insurance on a $306 billion pool of assets. Under the plan, Citigroup will shoulder the first $29 billion in losses on that pool. After that, three government agencies will absorb 90% of any remaining losses, which amounts to $249 billion. The arrangement covers Citigroup's portfolios of U.S. residential and commercial mortgages and its leveraged corporate loans, among other assets. The assets aren't just risky ones; the government insisted that the agreement cover entire asset classes, so that Citigroup couldn't simply dump toxic loans and securities in the lap of taxpayers. Absent from the arrangement are Citigroup's giant credit-card business, where defaults have been rapidly piling up, and its overseas lending operations, which also are showing signs of stress. While the government deal bolsters Citigroup's capital ratios, "we are concerned that losses may eventually exceed the government's backstop," said Standard & Poor's equity analyst Stuart Plesser. In exchange for covering hundreds of billions of...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:35 AM » Lennar Upgraded To Buy At UBS
    Published Tue, Nov 25 2008 9:35 AM by feeds.foxbusiness.com
    Lennar Upgraded To Buy At UBS
    Click Here to Read the Full Article

    Source: feeds.foxbusiness.com
  • 9:35 AM » FDIC moves in on banks
    Published Tue, Nov 25 2008 9:35 AM by CNN
    FDIC chief Sheila Bair has already drawn attention for turning her agency from a regulatory backwater to a force in the reshaping of the financial industry. Now a little-noticed proposal that is close to passing would expand her influence further - and could spell trouble for the sprawling banks that Hank Paulson and Ben Bernanke have said are too big, too connected, and too important to fail.
  • Mon, Nov 24 2008
  • 11:23 PM » Buffett to disclose more on derivatives
    Published Mon, Nov 24 2008 11:23 PM by Reuters
    NEW YORK (Reuters) - Warren Buffett will provide more information on how his company Berkshire Hathaway Inc computes losses on derivatives, after the U.S. Securities and Exchange Commission asked for better disclosure.
  • 11:23 PM » Goldman to sell $2 billion in FDIC-backed bonds: source
    Published Mon, Nov 24 2008 11:23 PM by Reuters
    NEW YORK (Reuters) - Goldman Sachs plans to sell at least $2 billion of new debt that will be guaranteed by the Federal Deposit Insurance Corp, with pricing expected Tuesday, according to a market source familiar with the sale.
  • 5:38 PM » Dow Gains 15% in 7 Hours
    Published Mon, Nov 24 2008 5:38 PM by The Big Picture
    Astonishing: The Dow has run from 7450 to 8598 — more than 15% since Friday at 2:30
    Click Here to Read the Full Article

    Source: The Big Picture
  • 5:37 PM » The Negative Equity Phantom Menace
    Published Mon, Nov 24 2008 5:37 PM by Seeking Alpha
    submits: Month after month after month I read articles on how more and more of America's homeowners are underwater, and how negative equity is allegedly "driving" homeowners to walk away from their homes. If you ask me this is a classic case of people who are confusing a cause with a symptom.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 5:36 PM » Sin Citi
    Published Mon, Nov 24 2008 5:36 PM by www.portfolio.com
    C itigroup is as I write these words. Now, let's be clear: This is a good thing. But it also stinks, in a very deep, ingrained, infuriating way. Bailing out Citi is a bit like putting out a fire in the house of a very irresponsible fellow down the street who lets his kids play with matches while he's sleeping in a hammock out back. You'd be very happy to see his house burn down, preferably with him in it, but you're afraid that the flames will spread through his unraked leaves to engulf the entire neighborhood. At the very least, after the flames are put out, you want an investigation. You want arrests. You want to see someone held accountable. You want to see, pardon the expression, justice. I say "pardon the expression" because I am speaking in an alien tongue here, at least as far as the recent spate of bailouts is concerned. The basic principle of equity, which is that the guilty will be punished and that he who causes pain will feel pain, is simply not a part of the equation in any of the bailouts of the big banks that have taken place this year. In fact, I fear that the way things are going, nobody is going to be held responsible for any of the bank failures that are littering the landscape. I'm not talking about criminal action or anything like that, but simply the rather self-evident requirement that the responsible executives be punished, financially or otherwise, and that the shareholders get absolutely nothing. Zippo. Zilch. The markets are celebrating the Citi bailout, which is good for all of our 401ks, but it is time for the public to feel a greater sense that justice is actually taking place. And no, restricting the dividend to a penny, a pledge to "comply with enhanced executive compensation restrictions," and tossing the taxpayers a few billion in preferred stock at 8 percent is not what I am talking about. That's a pinprick. What's needed is more of a Saudi-style justice. A hand-chopping, not a wrist-slapping...
    Click Here to Read the Full Article

    Source: www.portfolio.com
  • 5:36 PM » Moody's tightens approach to mortgage-backed securities
    Published Mon, Nov 24 2008 5:36 PM by Market Watch
    WASHINGTON (MarketWatch) -- Moody's Investors Service Inc. (MCO) is tightening its criteria for evaluating U.S. residential mortgage-backed securities. The credit-rating firm detailed the changes in three reports issued Monday and said it will put them into effect immediately.
  • 5:36 PM » Freddie Mac Expanded Investment in Home Loans in October
    Published Mon, Nov 24 2008 5:36 PM by Washington Post
    Freddie Mac increased its support for the nation's ailing home loan market in October, in part playing the role the government desired when it seized the mortgage finance giant.
    Click Here to Read the Full Article

    Source: Washington Post
  • 3:30 PM » Donny Deutsch Has ‘The Right Idea’
    Published Mon, Nov 24 2008 3:30 PM by mrmortgage.ml-implode.com
    In case you have not watched Donny Deutsch over the past few weeks, his new format is in-your-face coverage about the financial crisis using CNBC anchors or contributors as guests each night. His favorites seem to be Gasparino and Jeff Mackey. It is very good. It’s funny to see the CNBC guys say things they would never say during the trading day. The word ‘insolvent’ comes up more times during the Donny hour than during than regular 12-hour CNBC day. Housing and exotic mortgages comes up a lot. Donny is very vocal about helping out the little guy.Gasparino is all about blaming irresponsible home owners for ‘buying homes they could not afford’. Donny on the other hand says ‘people are not financial experts, they do what their banker, Realtors and mortgage professionals tell them to’. BINGO Donny - you nailed it! Gasparino is wrong. But Donny needs to take it one step further - at the time the loans were made, most of the people really could afford it. This housing and mortgage crisis is not a result of millions borrowers buying beyond their means or some massive consumer driven multi-year mortgage fraud era where everyone lied to buy a home. This crisis was caused by fraud alright - but not by the consumer. The greatest real estate bubble of all time was only able to occur because of the bank’s allowing home owners to use extraordinary leverage created through exotic loan programs and easy credit that never existed before and never will again. PEOPLE VIEW THEIR HOME AS AN INVESTMENT - NOT A PLACE TO LIVE What’s worse is that over the past five years there was a fundamental shift of how people viewed their home - from ‘a place to live’ to their single ‘largest investment’. How could they not when all loan programs from Subprime to Prime allowed 50% of gross income (greater when considering limited income doc loans) to be used towards debt. In the good ‘ol days when housing was viewed as a place to live financing was sound with down payments required and no more than 28...
    Click Here to Read the Full Article

    Source: mrmortgage.ml-implode.com
  • 2:28 PM » 'Dramatic Rise' in Alt-A Loan Delinquencies May Continue
    Published Mon, Nov 24 2008 2:28 PM by Seeking Alpha
    submits: CreditSights reports a “dramatic rise” in the number of delinquent Alt-A borrowers over the past three months, and anticipates a further increase in delinquencies in these “not-quite prime” mortgages by the end of this year. According to CreditSights’ Alt-A Residential Mortgage-Backed Securities sample:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 2:28 PM » Time for a change at the Fed
    Published Mon, Nov 24 2008 2:28 PM by www.econbrowser.com
    Plan A didn't work. Plan B didn't work. I suggest the Fed get going on Plan C. The Bureau of Labor Statistics that the seasonally adjusted consumer price index fell by 1% during the month of October, implying an annual deflation rate around -12%. That's the biggest monthly drop in the CPI since publication of seasonally adjusted changes began in February 1947. The core CPI (excluding food and energy) saw its first decline in a quarter century. Does this mean that deflation is now upon us? argues that despite the indication from the headline and core CPI, actual decreases in prices were not that widespread in October. One of the ways that Bryan proposes to measure this is to order the different components of the CPI by how much the price changed, with those whose price fell the most at the bottom and those whose price increased the most at the top. Suppose you threw out items in the bottom category until you'd eliminated 10% of the total spending by the typical consumer, threw out the 10% in the top category as well, and calculated the sample mean of the remaining 80%. That basket of "typical items" did not change in price during October. If you threw out more than 10% of the bottom and top categories, you'd end up with a slightly positive inflation rate for the month. The graph below shows the resulting average October inflation (reported at an annual rate) when you throw out the bottom x% and top x%, plotted as a function of x. The value x = 0 corresponds to the usual sample mean (the headline CPI itself), while x = 50 corresponds to the sample median. Source: . Alternatively, we might look at the cumulative inflation readings over the last year, rather than the single month of October in isolation. These suggest a 3.7% inflation rate from the CPI and 2.2% for the core CPI. Trimming x = 8% from the bottom and top yearly changes gives an of 3.0%. Year-over-year percent change in the seasonally unadjusted CPI and CPI excluding food and energy...
    Click Here to Read the Full Article

    Source: www.econbrowser.com
  • 2:12 PM » Why Citigroup got Detroit's money
    Published Mon, Nov 24 2008 2:12 PM by CNN
    Poor Detroit. The heads of the Big Three automakers had to subject themselves to two days of Congressional grilling last week while they begged for a $25 billion loan.
  • 2:12 PM » FHA's New Risky Loans Make Housing Even Riskier
    Published Mon, Nov 24 2008 2:12 PM by CNBC
    Posted By: Forgive me for not getting to this sooner, but every day in the housing crisis is hairier than the last. But I certainly didn’t miss the announcement last week by the Housing and Urban Development’s Hope for Homeowners program that new regulations would help more troubled borrowers get in on a newly-modified, FHA-backed loan. Topics: | | Sectors: | MEDIA:
  • 2:12 PM » Shrinking Wall Street to cost New York 225,000 jobs
    Published Mon, Nov 24 2008 2:12 PM by Reuters
    NEW YORK (Reuters) - Wall Street's painful downsizing could cost 225,000 New Yorkers their jobs over the next two years and poorly performing top executives should forego their bonuses, the state comptroller said on Monday.
  • 12:37 PM » John Hussman: How Best to Address the Mortgage Crisis
    Published Mon, Nov 24 2008 12:37 PM by Seeking Alpha
    Excerpt from fund manager on the U.S. market: Excerpt from the Hussman Funds' (11/24/08): Fundamentally, the current mortgage crisis is about present value. We could ease the crisis in the mortgage market tomorrow if distressed homeowners were allowed to get a reduction of current mortgage principal in return for giving away an equal claim to future price appreciation of the home. The cash flows required to service the mortgage would be greatly reduced, but the present value of the payment obligations would be about the same. As a result, the value of the mortgage securities on the books of financial institutions would also stabilize.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:21 PM » ING Direct to Suspend Foreclosures Until March
    Published Mon, Nov 24 2008 12:21 PM by www.thetruthaboutmortgage.com
    It appears ING Direct has answered Fannie and Freddie’s call to help struggling homeowners by freezing foreclosures through the holidays. The Dutch-bank and Internet-based mortgage lender said today it will suspend foreclosure sales on owner-occupied single-family residences through the end of March 2009. Additionally, it will suspend evictions from occupied single-family properties until January 15, “in the [...]
    Click Here to Read the Full Article

    Source: www.thetruthaboutmortgage.com
  • 12:21 PM » FDIC Commercial Paper Guarantee Could Crowd Out Fannie and Freddie
    Published Mon, Nov 24 2008 12:21 PM by Seeking Alpha
    submits: The Financial Times reports that GMAC’s bid to become a bank holding company could put additional pressure on Fannie Mae (FNM) and Freddie Mac’s (FRE) ability to sell debt at advantageous interest rates. In addition to access to TARP funding that the “winning” financial institutions get, even the potential “losers” can sell debt with FDIC guarantees. The FT is concerned that GMAC could flood the market with billions of FDIC guaranteed debt, crowding out the non-explicitly guaranteed GSE debt. In and , I wrote that investors were already unconvinced that the government is unconditionally guaranteeing Fannie and Freddie debt. Investors are demanding a premium for GSE debt over treasuries, helping to put a floor under mortgage rates. Now with everyone from General Electric (GE) to American Express (AXP) pushing FDIC insured commercial paper, the GSEs don’t stand a chance at lower rates.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:21 PM » Paulson’s Policies Accelerate Citigroup’s Implosion
    Published Mon, Nov 24 2008 12:21 PM by Seeking Alpha
    submits: The New York Times reports the latest post Lehman financial meltdown is due to Treasury Secretary Paulson’s abandonment of the original TARP purpose. At least the purpose he came to Congress with, whether he had any honest intent in his words or not. Mortgage securities were artificially supported by the premise that Paulson would create a market for toxic assets as Part 2 of the TARP. The banks waited in anticipation. Now trading is starting to resume without a safety net. This, along with renewed fears of consumer lending, credit card defaults and commercial mortgages have fed the latest bear raid on financial stocks. The stock market has completely lost confidence in the reactionary Paulson and Bernanke’s Federal Reserve throw money at everything policy. They have both been so creative in their multitude of programs that no one understands their objectives. Only one objective is crystal clear: stockholders will suffer. As we entered Citigroup’s (C) crisis of confidence this week, the market clearly understood this. New York Fed Governor and likely Treasury Secretary Geithner needs to convince Paulson that any government support for Citigroup cannot hurt shareholders. A healthy Citigroup share price is imperative to restoring investor confidence in all banks. Just look at the fall in Bank of America (BAC) and JP Morgan (JPM) on Friday. Goldman Sachs (GS) dropped below its offering price of $53 in 1999.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:05 PM » LandAmerica Shares Collapse On Fidelity Deal Termination
    Published Mon, Nov 24 2008 12:05 PM by feeds.foxbusiness.com
    LandAmerica Shares Collapse On Fidelity Deal Termination
    Click Here to Read the Full Article

    Source: feeds.foxbusiness.com
  • 12:05 PM » Stocks surge on Citi
    Published Mon, Nov 24 2008 12:05 PM by CNN
    Stocks rallied Monday morning as investors welcomed news that Citigroup is getting a massive rescue package - and geared up for the announcement of President-elect Obama's economic team.
  • 12:05 PM » Citi’s leverage: 280! (Leverage by the Numbers, Part 2)
    Published Mon, Nov 24 2008 12:05 PM by ml-implode.com
    The federal government agreed Sunday night to rescue Citigroup Inc. by helping to absorb potentially hundreds of billions of dollars in losses on toxic assets on its balance sheet and injecting fresh capital into the troubled financial giant. The agreement marks a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions.
    Click Here to Read the Full Article

    Source: ml-implode.com
  • 11:34 AM » Mr Mortgage: NO SPIN - Oct Existing Home Sales Report
    Published Mon, Nov 24 2008 11:34 AM by mrmortgage.ml-implode.com
    I heard this morning from several popular media sources that that prices falling, month’s supply coming down and foreclosures as a percentage of total sales rising is a ‘great thing’ for housing. DON’T BELIEVE IT! These are the same forces as we have seen for the past year and the housing market is worse off today than ever. Show me a month where a) organic sales rise b) values stay flat or rise and c) new loan defaults and foreclosures stay flat or drop - that would be a positive. Remember, when one person gets a ‘great deal’ on a foreclosure in a neighborhood all similar homes within the appraisal zone (one mile radius) lose value. This puts everyone closer to or deeper into a negative equity position exponentially increasing their likelihood of loan default. This creates more foreclosures, which creates more supply, which pushed home prices down further. This exponentially increases likelihood of loan default, creates more foreclosures, which creates more supply, which pushes home prices down further and so on and so on. It is amazing nobody understands how devastating this negative feedback loop is. It is great that all of you do. With respect to month’s supply dropping it makes no difference. Month’s supply is absolutely flawed because a) banks don’t list all their REO for sale - the amount of shadow REO dwarfs that actually listed b) as prices fall home owners trying to sell their properties have to pull their listings because they can’t sell for more than the home is worth c) at the end of the summer selling season inventories always plunge as sellers pull listings awaiting the Spring selling season. Foreclosures now make up 45% of all sales as reported by the NAR. Organic sales, which are typically the all-important ‘move-up buyer’ and gauge the true health of the housing market are at record lows. Organic sales plummeting means that home owners are not freely able to transact. This tells me a few things a) that home owners are stuck upside down in their home...
    Click Here to Read the Full Article

    Source: mrmortgage.ml-implode.com
  • 10:30 AM » Another call for a gold standard in the WSJ
    Published Mon, Nov 24 2008 10:30 AM by themessthatgreenspanmade.blogspot.com
    It does seem rather obvious, doesn't it? The fallout from another burst asset bubble following years of virtually unlimited creation of money and credit aided by the complete failure of regulation of financial industry could have been avoided if only there were inherent limits on the creation of money and credit. Without such restraint, greedy financiers aided by dimwitted economists and naive politicians, most of whom seek only short-term solutions to complex problems in order to ensure their re-election, will always produce the same result. Is there any hope for a longer lasting solution to our current problems? Well, the sharply increased volume of editorials in the Wall Street Journal is a hopeful sign that the message is getting out. Whether or not anyone is listening is another question, but you gotta start somewhere. To wit, another WSJ calling for a new gold standard, this one by Christoper Wood, the author of "The Bubble Economy: Japan's Extraordinary Speculative Boom of the '80s and the Dramatic Bust of the '90s": There are no easy policy answers to the current credit convulsion and intensifying financial panic -- not as long as politicians and central bankers are determined not to let financial institutions fail, and so prevent the market from correcting the excesses. ... What happens next? With a fed-funds rate at 0.5% or lower in coming months, it is fast becoming time for investors to read again Mr. Bernanke's speeches in 2002 and 2003 on the subject of combating falling inflation . In these speeches, the Fed chairman outlined how policy could evolve once short-term interest rates get to near zero. A key focus in such an environment will be to bring down long-term interest rates, which help determine the rates of mortgages and other debt instruments. This would likely involve in practice the Fed buying longer-term Treasury bonds. It would seem fair to conclude that a Bernanke-led Fed will follow through on such policies in...
    Click Here to Read the Full Article

    Source: themessthatgreenspanmade.blogspot.com
  • 10:30 AM » What Barack Obama Needs to Know About Tim Geithner, the AIG Fiasco and Citigroup
    Published Mon, Nov 24 2008 10:30 AM by The Big Picture
    What Barack Obama Needs to Know About Tim Geithner, the AIG Fiasco and Citigroup Chris Whalen November 24, 2008 Christopher Whalen is Managing Director of IRA. Chris has worked as an investment banker, research analyst and journalist for more than two decades. After graduating from Villanova University in 1981, Chris worked for the U.S. House of Representatives and then as a management trainee at the Federal Reserve Bank of New York, where he worked in the bank supervision and foreign exchange departments. Chris subsequently worked in the fixed income department of Bear, Stearns & Co, in London. After moving back to the U.S. in 1988, Chris spent a decade providing risk management and loan workout services to multinational companies and government agencies. In 1997, Chris worked as an investment banker in the M&A Group of Bear, Stearns & Co. ~~~ > On Friday, the FDIC closed and facilitated the sale of two CA savings banks, Downey Savings and Loan, the bank unit of Downey Financial Corp (NYSE:DSL) and PFF Bank and Trust, Pomona, CA. All deposit accounts and all loans of both banks have been transferred to U.S. Bank, NA, lead bank unit of US Bancorp (NYSE:USB). All former Downey and PFF Bank branches reopen for business today as branches of U.S. Bank. Earlier this year we wrote positively about Downey and the funding advantages it had over larger thrifts such as Washington Mutual due to the solid deposit base and strong capital. Indeed, as of Q3 2008, the bank’s Tier One leverage ratio was over 7.5%, more than two points over the minimum, and its charge offs had actually fallen compared with the gruesome 400 basis points of default reported in the previous period. But since the September resolution of WaMu and Wachovia, the FDIC, it seems, is not willing to wait to resolve institutions, even banks that are apparently solvent and not below any of the traditional regulatory triggers for closure. The visible public metrics indicating soundness did not dissuade...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 10:30 AM » Krugman on Citigroup Bailout: "a lousy deal"
    Published Mon, Nov 24 2008 10:30 AM by Calculated Risk Blog
    From Paul Krugman: has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:12 AM » Questions for Geithner
    Published Mon, Nov 24 2008 9:12 AM by The Big Picture
    by November 23, 2008 David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs, including Morning Call, Power Lunch, Kudlow & Company, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG). ~~~ NY Fed president Timothy Geithner will face a Senate confirmation hearing about his nomination to succeed Hank Paulson as Secretary of the Treasury. Here are a few questions for the Senators to consider. Politics being what they are, we recognize that some of them may not be asked. Q. As the NY Fed president, you held a unique position. NY is the only one of the 12 regional Fed banks that is always a voting member of the Federal Open Market Committee (FOMC). The other 11 banks rotate the voting slot, with only four of those 11 presidents are voting at any one time. Mr. Geithner: is this system obsolete? Is there a need for 12 regional banks now that payments are largely electronic? Isn’t the concentration of banks in the north and east (Boston, New York, Philadelphia, Cleveland, Richmond) a reflection of history and not the present distribution of economic and banking activity around the United States? With your experience as the NY Fed president and now as the new Treasury Secretary, would you recommend any changes...
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    Source: The Big Picture
  • 9:12 AM » WaMu conspiracy theories abound, but there's no smoking gun
    Published Mon, Nov 24 2008 9:12 AM by ml-implode.com
    It turns out they really were a junky, fraud-ridden bank, which had made even junkier decisions in the year preceding their collapse. We do, however, have an issue with the FDIC putting huge guarantees in place to facilitate large bank takeovers. It's like TARP, but without even the pretense of legislative due process. The real crime is being missed, here.
    Click Here to Read the Full Article

    Source: ml-implode.com
  • 8:57 AM » Citi Bailout
    Published Mon, Nov 24 2008 8:57 AM by The Big Picture
    The Bailout of Citigroup moves forward (Is this book ever going to be finished?): “Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan. In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for [$27 billion of] preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.” Un-fricking-believable. For Citi, its a great deal — but its a terrible one for taxpayers. The US is guaranteeing $306 billion on bad investments. (So much for Capitalism without failure) Where is the “Protection” for the taxpayers? Where are the clawbacks? How about going after the idiots that bought a third of a trillion dollars worth of junk, and then got paid large on it? Where is the sense of outrage and justice? At what point do taxpayers demand that the people responsible for creating this mess must pay their pound of flesh? > Sources : http://www.federalreserve.gov/newsevents/press/bcreg/20081123a.htm Bradley Keoun Bloomberg, Nov. 24 2008 http://www.bloomberg.com/apps/news?pid=20601087&sid=aBdUcxoRPkp4&r ERIC DASH NYT, November 23, 2008 http://www.nytimes.com/2008/11/24/business/24citibank.html Plan Injects $20 Billion in Fresh Capital, Guarantees $306 Billion in Toxic Assets DAVID ENRICH, CARRICK MOLLENKAMP, MATTHIAS RIEKER, DAMIAN PALETTA and JON HILSENRATH WSJ, NOVEMBER 24, 2008 http://online.wsj.com/article/SB122747680752551447...
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    Source: The Big Picture
  • 8:56 AM » What’s Next For Mortgages? Try More Regulation
    Published Mon, Nov 24 2008 8:56 AM by feeds.feedburner.com
    As U.S. financial organizations plot their course for 2009, many are waiting to see how the federal government will handle the current financial crisis under a new Presidential administration. And while there are plenty of unknowns, early leaks from the White House suggest that the Obama administration will not be taking a hands-off approach to [...]
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    Source: feeds.feedburner.com
  • 8:56 AM » Why Can't Bank Executives See in the Mirror?
    Published Mon, Nov 24 2008 8:56 AM by Seeking Alpha
    submits: Recent complaints by Citi's (C) Pandit and Bank of America's (BAC) Lewis can only leave investors shaking their heads. Vikram Pandit said Friday that "rumor mongering" was at the heart of the company's stock slide and called in Gov't officials on Thursday to re-instate the short sale ban. It should be noted that this was tried earlier this fall, and , well, stocks fell anyway. Not sure what Pandit hopes to accomplish here. He also said the bank has plenty of liquidity and will not break itself up.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:56 AM » Statements by Fed, FDIC, Treasury on Citi Bailout
    Published Mon, Nov 24 2008 8:56 AM by Calculated Risk Blog
    Form the Fed: The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital. As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan. In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program. With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy. We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts: We will work to support a healthy resumption of credit flows to households and businesses. We will exercise prudent stewardship of taxpayer resources. We will carefully circumscribe the involvement of government in the financial sector. We will bolster the efforts of financial institutions to attract private capital. Here is the .
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    Source: Calculated Risk Blog
  • Sat, Nov 22 2008
  • 8:08 PM » Obama: "Act Swiftly and Boldly"
    Published Sat, Nov 22 2008 8:08 PM by Calculated Risk Blog
    From the NY Times: Mr. Obama said he would direct his economic team to design a two-year stimulus plan with the goal of saving or creating 2.5 million jobs, “a plan big enough to meet the challenges we face that I intend to sign soon after taking office” on Jan. 20, an indication that he would begin pushing his plan through Congress even before taking office. ... “The news this week has only reinforced the fact that we are facing an economic crisis of historic proportions,” Mr. Obama said. “We now risk falling into a deflationary spiral that could increase our massive debt even further.” Here is Obama's radio address today (3 min 52 secs): On the size of the stimulus plan from a Goldman Sachs research note yesterday: We need a fiscal stimulus package that offsets most of the retrenchment in private spending that remains after offsets from a smaller real trade deficit and lower oil prices. Our recommendation has been a $300-$500bn package, but we regard this as the minimum of what would be desirable. The 4% of GDP that we estimate for the retrenchment amounts to $600bn. The good news is that the likelihood of a large package under President Obama is rising. Now many economists are calling for $300-$400bn, and some have proposed as much as $600bn; as recently as late October, when we first outlined the case for significant stimulus, $200bn was the highest figure on the table. The bad news is that implementation of whatever is adopted is at least two to three months away absent an extraordinary bipartisan effort. This is unfortunate, as the dynamics of the retrenchment have clearly developed a life of their own. It sounds like we should expect a massive stimulus package to be signed by the end of January. There is a good chance the simulus package will be along the lines by Larry Summers: The Composition of Stimulus In many ways the composition of a fiscal stimulus program is a decision that goes to value rather than economic judgments. It seems to me however that particularly...
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    Source: Calculated Risk Blog
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