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  • Mon, Oct 6 2008
  • 1:37 AM » Big Discounts Fail to Lure Shoppers
    Published Mon, Oct 06 2008 1:37 AM by WSJ
    As the financial crisis spread, some U.S. retailers began offering more generous discounts than they did at this time last year.
  • 1:36 AM » Eli Lilly set to buy ImClone for $6.1 billion-sources
    Published Mon, Oct 06 2008 1:36 AM by Reuters
    BOSTON (Reuters) - ImClone Systems Inc has agreed to be acquired by Eli Lilly and Co for about $6.1 billion after rebuffing a sweetened takeover offer from Bristol-Myers Squibb, sources familiar with the situation said on Monday.
  • 1:35 AM » AIG to sell Thai bank, consumer finance units
    Published Mon, Oct 06 2008 1:35 AM by Reuters
    BANGKOK (Reuters) - American International Group Inc (AIG) is to sell its Thai consumer finance businesses, including AIG Retail Bank and AIG Card, the head of the bank said on Monday.
  • 1:34 AM » Paulson to name adviser to oversee U.S. bailout: paper
    Published Mon, Oct 06 2008 1:34 AM by Reuters
    PHILADELPHIA (Reuters) - U.S. Treasury Secretary Henry Paulson is expected to name Neel Kashkari to oversee the $700 billion program to buy distressed assets from financial institutions, The Wall Street Journal reported on Sunday.
  • 1:33 AM » Regulator says Fannie, Freddie might sell bad assets
    Published Mon, Oct 06 2008 1:33 AM by Reuters
    WASHINGTON (Reuters) - Fannie Mae and Freddie Mac may sell some bad assets to the Treasury Department but a decision has not yet been made, the regulator of the two mortgage finance companies said on Sunday.
  • 1:33 AM » Lehman CEO Fuld to testify Monday at House hearing
    Published Mon, Oct 06 2008 1:33 AM by Market Watch
    Richard Fuld, the long-serving chief executive of Lehman Brothers Holdings who presided over the Wall Street investment bank during its collapse in September, will testify at a congressional hearing on Monday.
  • 1:33 AM » SEC charges 5 L.A.-area brokers over subprime-mortgage fundings
    Published Mon, Oct 06 2008 1:33 AM by Market Watch
    The Securities and Exchange Commission charged that five Los Angeles-area brokers “put their customers at risk by refinancing their homes with subprime mortgages that they could not afford.”
  • Sun, Oct 5 2008
  • 9:47 AM » The Paulson Plan = MLEC Version 2.0
    Published Sun, Oct 05 2008 9:47 AM by feeds.feedburner.com
    I can be painfully slow to see things sometime..... Long-standing readers and finance junkies may remember the Treasury's structured investment vehicle fiasco of last fall. By way of background, banks had created off balance sheet entities called structured investment vehicles (SIVs) which contained subprime (and sometimes other) assets, funded by commercial paper and short-term debt. Like a regular bank, the economics worked because the assets were of longer maturity (3-5 years) than the funding sources, and short term money is generally cheaper than long-term funding. Then the subprime crisis hit, lenders became very leery of funding subprime related assets, and the SIVs looked pretty certain, as it indeed played out, to produce losses. The banks had assumed they could simply let the SIVs fail, but were told in no uncertain terms by the debt investors that There Would Be Consequences if the SIVs went bust. Suddenly an off balance sheet exposure was not off balance sheet at all. Hank Paulson attempted to ride to the rescue with an idea, the so called Master Liquidity Enhancement Conduit, that we said . He wanted to set up a vehicle, to be managed by a third party that would buy the junky SIV holdings, which included risky real estate assets and murky stuff like collateralized debt obligations, and be funded by private investors. The problem was that there was no price which would solve the basic conundrum: investors were not willing to pay above market prices, and the banks were unwilling to sell at market. Paulson & Co. wasted nearly two months trying to breathe life into this stillborn idea, then abandoned the effort. Ah, but the MLEC lives! It's been retooled into the Paulson plan We still have a fund that will be managed by third parties. We still have the buying of drecky, hard to value assets, with emphasis on mortgage-related paper. And the taxpayer is being told that it is an investor, that it might actually make a profit on this venture. And as...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:46 AM » More on the Charge That JP Morgan Withheld $17 Billion From Lehman, Triggering Collapse
    Published Sun, Oct 05 2008 9:46 AM by feeds.feedburner.com
    Reader Saboor passed along the day's updates on the case filed by Lehman creditors last week, alleging that JP Morgan, Lehman's clearing bank, refused to give Lehman access to $17 billion of excess funds held at the bank, precipitating the firm's failure. I did not see an link to the case yet in a quick Google search, and I suspect Gretchen Morgenson will have her teeth into this one post haste. But the latest stories did provide more detail on the court filings. One thing we need to stress: Lehman was a goner. Before it went under, many observers labored under the mistaken belief that if the firm, say, managed to sell Neuberger & Berman for $10 billion, or got a nice chunk of change form the Koreans, it could soldier on for a while, and in the unlikely event that the real estate and LBO paper quit deteriorating in value, the firm might pull through. But there was a reason none of the last-minute prospective buyers (Barclays and Bank of America) came forward with a bid. The firm had a gaping hole in its balance sheet, vastly bigger than what the public at large believed. But that said, JP Morgan was not entitled to stick a knife in and twist, if that is what it effectively did. From : JP Morgan has been accused by its Wall Street rivals of dealing the final hammer blow that forced Lehman Brothers into collapse in a sensational claim that threatens to spark a colossal legal battle. The giant American bank is alleged to have frozen $17 billion (£9.6 billion) of cash and securities belonging to Lehman on the Friday night before its failure. According to Lehman’s biggest creditors, this was what precipitated the liquidity crisis that embroiled the firm, forcing it into Chapter 11 bankruptcy protection on the morning of Monday, September 15.... The funding lines provided to Lehman to finance its everyday operations amount to $188 billion, according to court filings. The creditors are now demanding that JP Morgan open up its books to the bankruptcy court to...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:45 AM » Citi Gets Judge to Suspend Wachovia Deal
    Published Sun, Oct 05 2008 9:45 AM by feeds.feedburner.com
    This interim success by Citigroup, of getting a judge to step into Wells Fargo's effort to break up a deal that Citi had struck to acquire Wachovia, is surprising, to say the least. Most observers thought that the bank had slim grounds for recourse (the FDIC has broad authority regarding the disposition of failed and about-to-fail institutions; the language in the agreement with Wachovia forbidding them to shop Citi's offer was not as iron-clad as it might have been). From the : Citigroup fired the first shot in what could be a prolonged legal battle, persuading a New York judge to temporarily block Wells Fargo from acquiring Wachovia... Citigroup has accused Wells Fargo of wrecking its plan to acquire Wachovia’s banking operations for $2.2 billion, or $1 a share, in a deal arranged by the Federal Deposit Insurance Corporation. Four days after that deal was struck, it fell apart when Wachovia agreed to Wells Fargo’s offer to pay seven times as much for the entire company... A person briefed on the situation said that Citigroup was seeking a total of $60 billion in damages. Citigroup contends that the deal with Wells Fargo violates an agreement that prohibited Wachovia from having any sale or merger discussions with anyone other than Citigroup until Oct. 6. The order issued by a judge on Saturday extends the term of that agreement until further court action, according to Citigroup’s press release. The litigation could be a blockbuster, pitting some of the nation’s largest surviving financial institutions against one another and giving work to the most expensive legal talent money can buy. Citigroup is represented by the New York lawyer Gregory P. Joseph; Wachovia by David Boies of Boies, Schiller & Flexner; and Wells Fargo by Wachtell, Lipton, Rosen & Katz, according to people briefed on the matter. Until late Thursday, Citigroup believed that it had reached a deal with Wachovia after marathon talks last weekend under intense pressure from federal regulators...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:44 AM » France To Buy 30,000 Homes. How Many Will U.S. Own?
    Published Sun, Oct 05 2008 9:44 AM by feeds.feedburner.com
    Morningstar is reporting, . President Nicolas Sarkozy, grappling with the global financial crisis, has decided to directly support the French construction industry by buying 30,000 homes waiting to be built, the presidential palace said Wednesday. "So that current property programs can be successfully concluded, the president...has decided to intervene directly, ordering the purchase at discounted prices of houses on which building work has not yet begun," a statement said. This move will initially cover 30,000 homes, and by ensuring that they will be built, the decision will support the homebuilding industry, it said. France Half Way To Pure Keynesian Insanity France is halfway towards implementing the ridiculous Keynesian idea of Bill Gross who stated "One of the wisest men I know has this serious but admittedly impractical solution: have the government buy one million new/unoccupied homes, blow them up, and then start all over again." See for more abject silliness from Bill Gross. $700 Billion Bailout Ramifications Even though the U.S. government has no plans to buy homes, it is going to end up owning hundreds of thousands if not millions of them via foreclosure processes. Specifics of the bailout bill allow Paulson to buy whatever he damn well pleases at whatever price he wants. The Treasury is going to start buying toxic mortgages, people will continue to walk, and the government will end up owning those houses. Homes in foreclosure process set another record MarketWatch is reporting . Sept. 5, 2008 The rate of mortgages entering foreclosure hit another record high in the second quarter, as did the percentage of loans somewhere in the foreclosure process, the Mortgage Bankers Association reported on Friday. The delinquency rate, a measure of mortgages with at least one overdue payment but aren't in foreclosure, also was the highest ever recorded in the 39-year history of the MBA's quarterly survey. Increases in foreclosures seen in California...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 9:43 AM » Attorney: Bailout Bill Fails Foreclosed Homeowners
    Published Sun, Oct 05 2008 9:43 AM by loanworkout.org
    When Baron decided to become a homeowner a few years ago he thought he was doing the right thing. He says he went to the wrong person to make his dream of homeownership come true. “What they told us is after three years we could come back and re-finance,” Baron, who didn’t want to share his [...]
    Click Here to Read the Full Article

    Source: loanworkout.org
  • 9:42 AM » Bad Medicine
    Published Sun, Oct 05 2008 9:42 AM by The Big Picture
    There is a terrific opinion piece in the Sunday Washington Post, titled that is your MSM Saturday morning reading for the day. Its by James Grant, purveyor of the . While some folks (myself and Nouriel Roubini and Jimmie Rogers and Mark Faber) have been warning about Housing and Credit for two or three years, Grant has been warning that this crack up was the inevitable result of Greenspan's easy money policies for at least decade. Here's his take: "Low interest rates, easy money and malleable accounting rules are what plunged Wall Street into crisis. Yet it is low interest rates, easy money and malleable accounting rules that top the list of federal fixes. The unifying theme of the new bailout bill, all 451 pages of it, is the hair of the dog that bit you. The unblinkable fact is that Americans own too much house. We overpaid and overborrowed, and many of us are "upside down," as the car dealers say. What to do? Recognize the losses and write them off. What not to do? Inflate the currency and debase accounting standards. But inflation and debasement are the very policies being put in place. The Federal Reserve, not waiting for Congress, embarked last month on a radical program of money-printing. Reserve Bank credit -- the raw material of bank lending -- is growing at the year-over-year rate of 61 percent. Credit creation is the Fed's signature crisis-management policy: Let a bubble inflate, then watch it burst; clean up with lots of dollar bills. After the stock market broke in 2000, then-Fed Chairman Alan Greenspan set about easing policy. In company with Fed Governor Ben S. Bernanke, the man who wound up succeeding him, Greenspan warned against "deflation." He vowed that this country would not sleepwalk through a decade of falling prices, as Japan had done. Rather, the Fed would push interest rates low enough to jolt the U.S. economy back into prosperity." I'll bet being right is small consolation for him . . . (Note: The...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:41 AM » Unforgiven? Mortgage modifications skyrocket—but not principal reductions
    Published Sun, Oct 05 2008 9:41 AM by loanworkout.org
    Servicers tweaking loans, even though debt forgivenss more effective way of preventing defaults Loan modifications for financially pressed homeowners have soared six-fold in the last year, though mortgage servicers are still making little use of the most effective approach to reducing borrowers’ delinquent payments. Modifications rose to about 30,000 in August, from about 5,000 a year before, according [...]
    Click Here to Read the Full Article

    Source: loanworkout.org
  • 9:41 AM » Goldman Sachs Forecasts "Deeper" Recession
    Published Sun, Oct 05 2008 9:41 AM by Calculated Risk Blog
    From Rex Nutting at MarketWatch: More severe recession now forecast by Goldman Sachs The U.S. recession will be "significantly deeper" than they previously thought, Goldman Sachs economists predicted Friday in a research note. ... The unemployment rate will likely rise to 8% by the end of next year from 6.1% currently. Goldman is now forecasting Q3 2008 real GDP growth at 0.0%, with PCE at minus
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 9:41 AM » Wells Fargo Absolutely Did Subprime, Stated, Interest Only, No Ratio Etc
    Published Sun, Oct 05 2008 9:41 AM by mrmortgage.ml-implode.com
    **NOTE - Mortgage/Real Estate professionals…feel free to share your experiences in the comments section below. Due to a consistent denial by Wells management, there is a belief that Wells was the safest out there through the bubble years and took very little risk. Tell us about your Wells deals…did they really do things so much safer than everyone else? From my experiences, they were one of the busiest and ‘best’ lenders out there during the bubble years, that’s for sure. But in the mortgage business ‘best’ means easiest and most risky. That like saying ’she is a great appraiser’ - wink-wink. The CEO of Wells was just on with Maria Bartaromo and he said “we never did stated income, low document, no document, interest only or subprime loans.” That is not accurate. I have covered Wells to death but here are a couple of documents I think the CEO might like to see. I don’t want to sound like I am coming down on Wells, but it is this type of deception that has turned a crisis of confidence into a full-blown global financial system meltdown. The first page below is their portfolio intermediate-term ARM products that were their top sellers from 2003-2007. Wells Fargo led the market in these. I believe they still have $75 billion in “Prime” first mortgages, including “Jumbo Prime” on their balance sheet of which much is likely this product type. However, with values down 40% to 70% across CA where Wells has the greatest exposure, these loan types are likely to perform much closer to Alt-A and Subprime vs. Prime , as they currently have them categorized. Remember folks, throughout the bubble years Wells considered an ‘A’ paper or “Prime” loan to be a full-doc, 620 score, 95% combined loan to value, Jumbo 5/1 interest only with 50% debt to income ratios. This person could not get financing anywhere today or even six months ago. Much of this is on their best selling 5/1 interest only with initial 5-year rates at 4% to 5.5%. Below is their stated income product guidelines for the...
    Click Here to Read the Full Article

    Source: mrmortgage.ml-implode.com
  • 9:26 AM » Graphical Depiction of Finance Crisis
    Published Sun, Oct 05 2008 9:26 AM by The Big Picture
    Nice collection of charts and graphics over at the . These two are my favorite: > > > Source: BBC, Friday, 3 October 2008 http://news.bbc.co.uk/2/hi/business/7644238.stm
    Click Here to Read the Full Article

    Source: The Big Picture
  • 9:26 AM » Wachovia Sale to Wells Fargo Is a Better Deal for the U.S. Banking System
    Published Sun, Oct 05 2008 9:26 AM by Seeking Alpha
    submits: The deal everyone first expected to happen is now likely to proceed. Wells Fargo (WFC) is set to buy Wachovia (WB). Earlier this week, we heard that Wachovia was to be acquired by Citigroup (C), the beleaguered corporate behemoth that has written down over $50 billion during this credit crisis. What's more is that Citigroup was only going to pay about $2 a share to acquire Wachovia.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • Fri, Oct 3 2008
  • 3:54 PM » New Framework for Measuring Resilience of Financial Systems
    Published Fri, Oct 03 2008 3:54 PM by Seeking Alpha
    submits: Now that the conventional models and tools for managing financial markets have been found lacking, a new working paper* from Harvard Business School examines another approach based on measuring institutions’ sensitivity to external shocks.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 3:54 PM » Paulson: Ready to use bailout tools
    Published Fri, Oct 03 2008 3:54 PM by Reuters
    WASHINGTON (Reuters) - Treasury Secretary Henry Paulson on Friday said the $700 billion financial rescue package protects Americans' jobs and savings and that the government is ready to begin buying up soured assets from banks.
  • 3:54 PM » Pimco's Gross says he is raising cash and waiting: CNBC
    Published Fri, Oct 03 2008 3:54 PM by Reuters
    NEW YORK (Reuters) - The manager of the world's biggest bond fund said on Friday he is raising cash and waiting for asset prices to become more appealing.
  • 12:04 PM » Citigroup demands Wachovia call off new deal with Wells Fargo
    Published Fri, Oct 03 2008 12:04 PM by news.yahoo.com
    Citigroup says its agreement with Wachovia provides that Wachovia will not enter into any transaction with any party other than Citi or negotiate with anyone else.
    Click Here to Read the Full Article

    Source: news.yahoo.com
  • 11:40 AM » Bailout: House Votes at 12:30 PM ET
    Published Fri, Oct 03 2008 11:40 AM by Calculated Risk Blog
    From Bloomberg: Financial-Rescue Bill Gains Support Before House Vote At least eight lawmakers, including Republican Zach Wamp of Tennessee and Democrat Emanuel Cleaver of Missouri, now say they would support the measure. Four others say they may switch their ballots before the House votes again, at about 12:30 p.m. today on the bill, which failed by a dozen votes on Sept. 29. For those that want
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 11:39 AM » SEC Deregulation Let Banks Leverage Up
    Published Fri, Oct 03 2008 11:39 AM by The Big Picture
    We've discussed this extensively over the past few weeks, but its now on the front page of the NYTimes: "Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming. On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks. They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments . The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr . Two years later, he left to become Treasury secretary. (emphasis added) No wonder the bailout package is so poorly crafted : The same genius, Hank Paulson, that helped us to get into this, and has utterly failed to see this coming until it was all but on top of is, is trying to get us out. He is uniquely unqualified for this task. How this guy hasn't honorably fallen on his own sword yet is beyond me. Here are a few money quotes from the article: “We’ve said these are the big guys,” Mr. Goldschmid said, provoking nervous laughter, “but that means if anything goes wrong, it’s going to be an awfully big mess.” “I’m very happy to support it,” said Commissioner Roel C. Campos, a former federal prosecutor and owner of a...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 11:39 AM » Eurozone Divided By Banking Crisis
    Published Fri, Oct 03 2008 11:39 AM by Seeking Alpha
    submits: Efforts by the French government to initiate a €300 billion bailout fund for troubled banks in the Eurozone will probably end in a stillbirth after Germany has reiterated its stance that it is not willing to bailout other banks. In an interview with the :
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 11:39 AM » Job losses now at recession levels
    Published Fri, Oct 03 2008 11:39 AM by themessthatgreenspanmade.blogspot.com
    The Labor Department nonfarm payrolls fell by 159,000 in September, the sharpest decline since March of 2003, and unemployment held steady at 6.1 percent. This marks the ninth consecutive month of job losses with a total year-to-date decline of 760,000, a number that is sure to be revised much lower after the annual benchmark revisions are performed. Over the last year, the Labor Departments's has resulted in the addition of almost 900,000 jobs to the payrolls data. Intended to account for the net creation/destruction of jobs by small businesses which are not yet reporting to state unemployment agencies, by the Labor Department's own admission, this model performs poorly at economic "turning points", so, a doubling of current job losses may be the result after the data is revised. In September, payrolls were trimmed in all the usual areas with trade and transportation hit unusually hard seeing a net decline of 58,000 positions. A broad decline in retail trade employment accounted for most of these job losses - department stores cut 10,800 jobs and car dealers eliminated 8,600 spots. Manufacturing employment fell by 51,000, construction payrolls dropped 35,000, professional services payrolls fell by 27,000, and jobs in leisure and hospitality declined by 17,000. Employment at food service and drinking places (within the leisure and hospitality category) declined by 4,800 in September and fell 7,200 overall in the third quarter. This was the first quarterly decline since the second quarter of 2002 and is one more clear indication that we are now in a recession. The health care industry continued to add jobs as did the Federal government, however, excluding education, state and local governments reduced payrolls by a combined 18,100, a clear sign of belt-tightening at these levels.
    Click Here to Read the Full Article

    Source: themessthatgreenspanmade.blogspot.com
  • 10:03 AM » Roubini Ritholtz Conference Call
    Published Fri, Oct 03 2008 10:03 AM by The Big Picture
    Just got home from the with Nouriel Roubini et. al. Mad props to for live blogging the entire session (after the jump). This was a dry run for the next version, which might be 4 people (any names you might like to see/hear? Use comments to suggest others). October 2, 2008, 5:11 pm Live-Blogging the Roubini/Ritholtz Conference Call Posted by Mark Gongloff is the NYU economics professor known lovingly around Wall Street as “Dr. Doom” for his foresight in predicting the end of the financial system as we know it. Blogger/strategist of The Big Picture and Fusion IQ, who hasn’t been much more optimistic, is joining him this afternoon for a conference call to discuss the credit crunch. Should be fun! And by “fun,” we mean “a reminder to stuff our money in our mattress.” 5:08: Roubini starts out saying there are six things to think about. The first question has about 10 parts. Could be a long call. Nouriel Roubini 5:11: The U.S. economy risks a negative feedback loop : Economic woes hurt creditworthiness, hurting banks, hurting credit, hurting the economy. Wash, rinse, repeat, lose your house. 5:14: The Fed’s next move is likely a rate cut. 5:14: Everything that’s going on in markets now? You know, stocks and credit being lousy? Expect more of that. 5:16: “The events of the last few weeks say we’re one accident away from a systemic financial meltdown ,” says Roubini. He points to previous accidents that nearly caused a universe-eating financial black hole: Bear Stearns in March, Fannie and Freddie in July and Lehman and AIG a couple of weeks ago. “We’re seeing the beginning of a silent run on the shadow and traditional banking system,” he says. “There’s a generalized panic” in the financial markets. 5:20: And that’s not the scariest part, he says! The scariest part is that, every time the government steps up its response, the market reaction gets weaker and weaker. 5:22: “We are literally one step away from collapse of entire financial system and even the corporate system.”...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 10:02 AM » Land Selling for Pennies on the Dollar
    Published Fri, Oct 03 2008 10:02 AM by Calculated Risk Blog
    From the WSJ: Developer Sells Land Dirt Cheap To Reap Tax BenefitsHorton two weeks ago sold about 2,000 house lots in Desert Hot Springs ... for $7.8 million, according to county records. William Shopoff, a land investor ... estimates Horton paid about $110 million for the land before [spending on improvements]. Horton also recently sold a four-acre parcel in Escondido, near San Diego, for $4.4
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 10:02 AM » BreakingViews: Bailout Bill to Worsen, Prolong Recession
    Published Fri, Oct 03 2008 10:02 AM by feeds.feedburner.com
    In the last few days, virtually all mainstream financial media outlets have taken up the banner for the passage of the deeply flawed bailout bill. A bit late in the game, BreakingViews, which is insightful but hardly extreme in any of its positions, argues that the Paulson plan directs capital to where it will not do much good at a time when funding is scarce, thus exacerbating an economic contraction. Welcome Japan. From Martin Hutchinson at (free subscription available): Treasury secretary Hank Paulson’s plan uses money borrowed by the US government to buy value-impaired debt left over from the credit bubble. In a period of freely available credit, that might not matter. Good investments would get funded and, since additional money is available, some bad investments would, too. Diverting some money into unproductive uses should affect mainly those bad investments, with only modestly negative economic effects. When money is tight, however, as it is likely to be for some time, withdrawing $700bn from the funding pool to support failed, past investments has a more serious effect on the economy, because capital flows are restricted by market illiquidity and investor trepidation. If that reduces asset prices, it exposes more loans to losses. If it prevents good investments by crowding them out of any chance of getting funding, it reduces economic activity. Either way, it makes the economy less efficient. Herbert Hoover’s Reconstruction Finance Corporation of 1931-32, which made loans to politically connected companies, didn’t do much to alleviate the Great Depression. An equivalent amount of welfare handed out through the “Veterans’ Bonus”, which Hoover opposed, might have boosted consumption and stabilised the economy more quickly. Japan’s 1990s infrastructure spending spree also diverted capital from more productive uses, helping to cause consumption to stagnate and the downturn to extend for 13 years. Paulson’s plan differs from both these examples in some ways, but...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 10:02 AM » Greenspan says markets to recover ... SELL!
    Published Fri, Oct 03 2008 10:02 AM by themessthatgreenspanmade.blogspot.com
    One of the worst prognosticators of the late 20th century and one of the best contrary indicators of all time has just sounded the "ALL CLEAR" for investors, declaring the financial recovery and economic revival are now at hand. This can mean only one thing for any astute individual - SELL! This at Bloomberg has the details: Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover ``sooner rather than later'' from the worst turmoil in seven decades. ``Trust will eventually reemerge as investors dip hesitantly back into the marketplace,'' Greenspan said today in a speech at Georgetown University's law school in Washington. `` From that point, history tells us, financial and economic revival sets in . I suspect it will be sooner rather than later.'' ... ``We are living through the type of wrenching financial crisis that comes along only once in a century ,'' Greenspan said today. ``Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance . Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.'' A "protracted period of ... irrational exuberance"? Wasn't that just a fleeting thing back in 1996? Now it's a decade long period of irrational exuberance?
    Click Here to Read the Full Article

    Source: themessthatgreenspanmade.blogspot.com
  • 9:15 AM » Wells to buy Wachovia for $15.1 billion
    Published Fri, Oct 03 2008 9:15 AM by Reuters
    NEW YORK (Reuters) - Wells Fargo & Co said it agreed to buy Wachovia Corp for about $15.1 billion, without U.S. government help, thwarting a planned Citigroup Inc deal that had been seen as big boost for both Citi and Wachovia.
  • 9:14 AM » September job losses steepest in 5-1/2 years
    Published Fri, Oct 03 2008 9:14 AM by Reuters
    WASHINGTON (Reuters) - U.S. employers cut payrolls at the steepest rate in 5-1/2 years during September, slashing an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month.
  • 9:13 AM » French PM says world "on edge of abyss"
    Published Fri, Oct 03 2008 9:13 AM by Reuters
    NEW YORK/LONDON (Reuters) - Wells Fargo & Co, one of the strongest U.S. banks, stepped in to buy Wachovia Corp. on Friday, hours before the House of Representatives was to vote on a $700 billion bailout bill for the financial industry.
  • 9:12 AM » A Better Way to Use That $700 Billion
    Published Fri, Oct 03 2008 9:12 AM by feeds.feedburner.com
    Even though the deeply flawed bailout bill appears to be moving relentlessly towards passage by the House, it hasn't deterred pundits and experts from coming up with better alternatives. Since the smart money expects this so-called "Mother of All Bailouts" to be another chapter in a series, it's worth keeping tabs on these ideas, since some of them may actually see the light of day. This "Bailout 2.0" idea comes from Morris Goldstein at the Peterson Institute. It in essence recommends that the powers that be spend some hard dollars to do price discovery and ascertain how damaged the big players really are, It then sets forth a plan for recapitalization, which includes having companies suspend dividend payments, That is more important than it might seem. Banks pay $400 billion a year in dividends, so suspending or reducing them would help a great deal in shoring up the system. From the : Fortunately, there is still time to agree on a modified TARP.... That plan should deal with four key aspects of the current difficulties: illiquidity for certain mortgage-backed securities, undercapitalization of the financial sector, an interruption in the flow of credit to households and nonfinancial businesses, and a rising foreclosure rate that threatens to produce a downward overshooting of housing prices. Rather than spend the entire $700 billion on government-financed purchases of troubled assets and aim for a purchase price (based on hold-to-maturity arguments) that is significantly above recent market prices, the Treasury should conduct auctions for only about a fifth of the authorized amount (say, $150 billion). That ought to be large enough to establish greater transparency about the fair market value of such assets. Such transparency should in turn make it easier for counterparties and bank supervisors to evaluate the balance sheets of financial institutions and to distinguish healthy from less healthy ones. Better credit assessment is a prerequisite...
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    Source: feeds.feedburner.com
  • 9:12 AM » MBIA Sues Countrywide: Part of the Solution to Clean Up the Lies
    Published Fri, Oct 03 2008 9:12 AM by Seeking Alpha
    submits: Yesterday MBIA (MBI) sued Countrywide, now part of Bank of America (BAC), alleging fraud, misrepresentation and breach of contract in connection with over 14 billion worth of MBS-containing Countrywide mortgages and insured by MBIA. MBIA has already incurred $459 million in losses. This is the beginning of what may be a long battle by the bond insurers MBIA and Ambac (ABK) to recover part of their losses from those responsible, a process they refer to as remediation. Both companies have stated that they expect material/substantial recoveries due to misrepresentations and breaches of warranty with respect to securities that they have insured.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:12 AM » Buffett on the Credit Crisis: 'An Economic Pearl Harbor'
    Published Fri, Oct 03 2008 9:12 AM by Seeking Alpha
    submits:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:08 AM » Banks Borrow Record From Fed as Last Resort
    Published Fri, Oct 03 2008 9:08 AM by dealbook.blogs.nytimes.com
    U.S. banks’ borrowed a record $367.8 billion per day from the Federal Reserve in the latest week, as financial institutions relied heavily on the lender of last resort amid the most severe credit crisis since the Great Depression. With interbank lending markets frozen and commercial paper markets near paralyzed, there is virtually nowhere else where banks [...]
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    Source: dealbook.blogs.nytimes.com
  • 9:07 AM » Fed's Bullard: Don't Cut Rates Back to 1%
    Published Fri, Oct 03 2008 9:07 AM by CNBC
  • 9:06 AM » The SEC Rule that Let Banks Pile on Debt
    Published Fri, Oct 03 2008 9:06 AM by CNBC
  • 9:05 AM » Money Markets Stay Frozen Before Congress Vote
    Published Fri, Oct 03 2008 9:05 AM by CNBC
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