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ProShares ETFs – New 4PM Close of Trading
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Beginning Wednesday, October 8, 2008, trading in ProShares ETFs on the NYSE Alternext U.S. (formerly the American Stock Exchange or Amex) will close at 4 p.m. ET rather than 4:15 p.m.
We are making this change in anticipation of the transfer of all 64 ProShares from NYSE Alternext to the NYSE Arca trading platform, where all trading closes at 4 p.m. The NYSE Euronext, owner of NYSE Arca, completed its acquisition of the Amex on October 1, 2008 and changed the Amex's name to NYSE Alternext U.S. NYSE Euronext has indicated that they intend to move all exchange traded products to NYSE Arca in the fourth quarter of 2008.
Oct 3, 2008
GS bought the wachovia monkey wrench. short term that hurts them but they are eyeing the bailout prize now. so the game changed to steal a current meme. they temporarily catch the toxic CDO bug so they get the cure Doctor Paulson is dishing out for free.
I'm curious to see,once the short selling ban comes off how the puts get repriced and what that does to SKF. I think everyone is anticipating it ahead of Thursday.
The Export Slowdown
by CalculatedRisk
http://calculatedrisk.blogspot.com/2008/10/export-slowdown.html
Some things I'm noticing. First imports are rising. Good for our economy. US business exporting products are turnning a profit. A profit we keep inside US borders I hope because exports are more expensive.
The second is that exports are sinking. but falling inline with imports. That is key to Baltic Dry index and Dry Bulk shippers. See when they are shipping goods to the US but going back empty on the route home, they only get a one way profit. Balanced trade mean profit both ways. That is good for shippers.
Third is that this Christmas will be bad for retailers as exports are weak and US producers I don't think have really ramped up enough to support US sales this year. Next year will be different.
This graph shows the combined loaded inbound and outbound traffic at the ports of Long Beach and Los Angeles in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.
West Coast Port Traffic
Inbound traffic grew quickly for a number of years, but appears to be declining (there is a strong seasonal component). Inbound traffic is off about 6% from 2007 (using the last two months of July and August).
Outbound traffic was flat for years, but has been increasing the last few years. Outbound traffic is up 20% from 2007.
However it appears export growth will be slowing. From the WSJ: Slowing Export Machine Is Starting to Sputter
Export growth is expected to fall sharply in coming months ... Many U.S. producers are already seeing a slump in new orders ... The outlook has dimmed so quickly that economists are having a hard time keeping their projections current.
...
The upshot is that exports will no longer serve as the counterweight to weakness in the domestic economy. Over the past year, real goods exports surged by $114 billion, or 12%, up across every major category. They now make up nearly 13.5% of gross domestic product, the highest percentage since World War II.
Exports Imports as Percent of GDPThe second graph shows imports and exports as a percent of GDP since 1947 through Q2 2008.
Over the years, both exports and imports have increased as a percent of GDP. Exports now make up almost 13.5% of GDP (imports as a percent of GDP are at 18.5%). With the decline in oil prices - and the weaker U.S. economy - imports as a percent of GDP will probably decline over the next year.
With the global slowdown, export growth will also slow, and might even decline too. This has been a key source of strength for the U.S. economy, and especially for manufacturing employment.
XLF traded 15.xx today
SKF is trading very much less than 200, where it was when XLF was trading 17.xx back in July.
SKF has got to be undervalued here, doesn't it?
updated the iBox
cleaned up a bit and put up the big charts I'm watching. I'm going to overhaul that iBox make it more informative
LOL HAHAHAHAHAHAHAHAAAAAHHHHHHHH!!!!!111!1ONE!!!!
Lehman Brothers CEO Got Punched In The Face
Farking priceless
Dick "It Wasn't My Fault" Fuld, the CEO of bankrupt investment bank Lehman Brothers, (seen here being heckled after testifying on Capitol Hill) was apparently punched in the face while working out in Lehman gym on the Sunday following the bankruptcy, according to CNBC's Vicki Ward.
Fuld testified before the House Oversight Committee yesterday, blaming everyone but himself for Lehman's collapse, an attitude that prompted Ward to confirm reports that he'd been punched in the face and to side with the attacker:
“From two very senior sources – one incredibly senior source – that he went to the gym after … Lehman was announced as going under. He was on a treadmill with a heart monitor on. Someone was in the corner, pumping iron and he walked over and he knocked him out cold. And frankly after having watched this, I’d have done the same too.”
http://consumerist.com/5060063/lehman-brothers-ceo-got-punched-in-the-face
Financial mess flowchart
Online bank customers create damaging 'silent runs'
* 12:30 07 October 2008
* NewScientist.com news service
* New Scientist staff and Reuters
The ease with which technology allows customers to move their money around by internet or phone has introduced a new financial phenomenon – the "silent run" on a bank.
Within hours, telephone and internet banking customers can remove huge amounts of money from a bank rumoured to be in trouble, without telltale queues, or any other outward sign of the flood of cash.
The bank Fortis, focus of a cross-border rescue by Benelux governments last week, was in part a victim of a silent bank run. That, along with a dramatic fall in its stock prompted an emergency cash injection of 11.2 billion euros and the Dutch government to fully nationalise the bank's Netherlands operations.
In the Great Depression between 1929 and 1933, much of the damage was caused by runs on banks that gained momentum as people saw lines of customers waiting to salvage cash. In Fortis's case, much of the outflow came at the click of a mouse.
'Banana republic'
The bank said it lost about 3% of its deposits from consumer and business clients, or about 5 billion euros ($7 billion).
British bank Northern Rock suffered the first run on a major British bank for more than 140 years last September, with panicked customers lining up at branches over three days. Scenes one politician said made Britain look like "a banana republic".
But branch withdrawals quickly slowed after the UK government guaranteed savings. The most serious damage was done by internet, postal and telephone withdrawals that continued to flood away. By the end of 2007, more than half the bank's retail deposits were gone – only a third via branches.
The silent online run may spare banks the damaging PR of queues outside branches. But funds can be moved more quickly and in far larger quantities with the click of a mouse or a telephone call.
Damaging speed
The speed at which that happens is one of the concerns behind recent scrambles by European governments to increase guarantees on deposits. Ireland and Denmark have offered blanket guarantees to savers, and pressure is mounting on others to follow as savers rush to put their cash in these safe havens.
Executives say that in any silent run the most damaging aspect is the speed at which business customers can move.
"The so-called silent run on the bank – it's real," says Carlos Evans, an executive at fourth-largest US bank Wachovia. The troubled bank is soon to be bought by a rival in a government-backed rescue plan.
Evans said withdrawals started picking up on September 26 and over subsequent days. "You go from being weakened to in trouble in a matter of days. I don't think people understand how quickly events unfolded," he says.
I do waiting for that 90% up day for the turn around. Can't really have that without a short squeeze. markets are all farked up.
I like these investment tools charts. the have a lot of great data. Like this in regards to short sales. Want to know why the ban on shorts. Because the retail investors was getting into the act. My guess is that they saw that as a lot of capital that the banks could get their hands on.
total short sales
retail short sales
member short sales
no bidders out there. did you look at up/down volume statistics? NYSE and Nas were like 38 to 1 first hour today
Investment Tools Index of 12 Shipping
(Water Transportation) Companies (The Blue line is a 20 day Donchian channel, red line is a 5 day exponential average, green line is a 20 day exponential average.
Bottomed? we will need to see where this goes
static chart
updating chart
must have been a lot of request recently for that one. good to see them keeping up on it.
Stockcharts has added $TED to its catalog. Backfilling to come, they said
yeah too bad the credit crunch didn't happen before the overbuild of cargo ships. I think what may happen next is a flood of ships being sent to salvage because the companies are not able to break even on charters.
in regards to crude tankers, there was a serious build up expected for 2009, but a lot of these newbuilds are bought on credit. Its the option to buy that they are purchasing. With the way things are going a lot of companies are walking away from the contracts because their credit lines evaporated.
looks like a burning house
some move on baltic dry index
Re: leveraged ETFs and Counterparty Risk:
You may recall I have wondered about this and even called ProShares about it. I never got decent answers to my questions.
This guy got answers. But I wonder if there are holes in this story?
===========================
Hidden Credit Risks of ETFs
In these tumultuous times it is critical to understand what you own.
by John Gabriel | 2008-09-19 04:00:00
Most exchange-traded products are index investments, backed by the actual portfolio of equities or bonds. Although an investor may be taking on the underlying risks of those portfolio holdings, they are not exposed to any risk from the issuer's financial state. For example, if State Street were to go bankrupt (unlikely, even in these tumultuous times), investors in the SPDRs ETF would be made whole by their claims on the underlying stock investments held by the unit trust.
However, not all exchange-traded products have this safety. Exchange-traded notes, or ETNs, are actually promissory notes with no claim on an underlying portfolio, so they are only as trustworthy as the debt of their backing bank. Morningstar's director of ETF analysis, Scott Burns, recently wrote an article on ETNs and the credit risk that they face.
Besides ETNs' inherent credit risk, some ETFs also posses a certain amount of credit risk. Some ETFs cannot invest directly in their underlying assets, relying on swaps, futures, or other derivatives to match the return on their index. These derivatives open those ETFs to counterparty risk, the risk that the institution on the other side of their trade will default, which could leave a fund with no return on its assets or even a loss. The ETFs vulnerable to counterparty risk fall into two major categories: leveraged funds and commodities funds.
Leveraged ETFs
ProShares and Rydex are the two biggest issuers of leveraged funds, which seek to provide some multiple of the return on an index or sector. Examples include UltraShort Financials ProShares, which seeks to provide twice the opposite of the daily return of the U.S. financials sector, and the Ultra S&P500 ProShares, which seeks to provide twice the daily return of the S&P 500 Index. These ETFs cannot invest directly in a basket of equities twice the size of their index or short-sell their entire portfolio due to restrictions on the investments allowed in a U.S. mutual fund structure, so they instead use swap derivatives to capture the desired daily leveraged returns. These index swaps are contracts traded through investment banks where one party offers to pay a fixed interest payment on a set date in the future in return for the other party offering to pay the return on an agreed-upon index such as the S&P 500. Leveraged ETFs keep the bulk of their assets in cash as collateral, then enter swap agreements based upon their asset values that replicate the desired multiple of an index's return.
The bank that issues the swap contract frequently guarantees the payments and oversees posting of collateral by both parties, but that is little comfort when investment banks are collapsing. Also, if a major counterparty defaults, as American International Group was threatening to earlier this week, the investment bank may not have enough capital to make the other parties whole and may be forced into default.
Although this seems like a lot of risk, there are mitigants. The first bit of good news is that, even if the swap contract is defaulted upon, the fund still holds all of its cash assets. The most a fund could lose is the return owed through a swap contract; it will never lose principal. The second bit of good news is that these swap contracts are very short-term, never written for more than 30-day periods. This gives leveraged ETFs some agility and allows them to quickly close out any exposure to investment banks that look to be edging toward bankruptcy.
We talked to representatives from both ProShares and Rydex and they indicated that their short-term contracts enabled them to minimize their funds' exposure to the collapse of Lehman Brothers and could cover the tiny losses any funds might have sustained. Still, a very swift collapse of a major investment bank or hedge fund in the near future cannot be ruled out (even with recent government moves), and it would almost certainly cause these funds to lose some of their returns, although fortunately the principal would remain secure.
Commodities ETFs
Commodities ETFs also frequently use derivatives rather than directly investing in the underlying assets. This is because it would not be practical to take custody of millions of barrels of crude oil, tons of coal, or bushels of corn in an effort to match benchmark returns. In order to replicate their stated index returns, commodity-based funds invest in futures, forwards, and swap contracts without actually taking physical delivery.
One of the largest and best-known commodities ETFs is United States Oil Fund. This fund--which is often used by institutions as an easily accessible hedging vehicle--is designed to track the movements of both light and sweet crude oil. Its portfolio consists primarily of listed crude oil futures contracts and other oil-related futures, forwards, and swaps, which are collateralized by cash, cash equivalents, and U.S. government obligations with remaining maturities of less than two years. There should be no concern here, as the fund's exposure is collateralized on a dollar-for-dollar basis with extremely liquid assets.
However, digging further, we notice that a portion of the fund's trades might be in over-the-counter contracts with investment banks, which are not as liquid as exchange-traded oil futures contracts, thus exposing the fund to credit risk associated with its counterparties. This exposure may have built up in the past, when forward contracts through investment banks were cheaper than exchange-traded contracts or could be based upon more obscure underlying assets. Although this type of counterparty risk may be present, we think commodities fund managers will seek to minimize their exposure to investment banks. They will likely sacrifice cost advantages for greater security by moving the portfolios fully into exchange-traded futures. Exchanges ensure each day that futures contracts are fully collateralized, and they require all counterparties to supply enough collateral that there is nearly zero risk of default. This rather pleasant option for commodities ETFs should help them avoid any troubles with counterparty defaults through this crisis, although it may reduce the profitability of the fund sponsors.
ETF Analyst Bradley Kay contributed to this article.
($LIBOR:$UST1M)
Credit to Author:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID369857&cmd=show[s152086914]&disp=P
apparently, this is what the markets have decided to watch.
Is there a chart somewhere?
Three-month dollar London interbank offered rates (Libor) moved higher to 4.3338 percent and overnight dollar Libor slid almost 70 basis points to 1.9963 percent , according to the British Bankers Association's latest daily fixing.
The spread of three-month dollar Libor over anticipated policy rates blew out by more than 25 basis points to 286.875 basis points, reflecting the underlying stress in money markets, particularly for 'term' funding.
Quote of the Day: Fair Value Accounting
Posted by Barry Ritholtz on Wednesday, October 01, 2008 |
IMO this whole market has been floating on the hot air. Where the SEC would not stand for th cheating of Enron, WorldCom and their ilk independently, when an industry collectively risks the global economy it will turn its head and go so far as to promote the false meme that all is well.
2008 has been an insulting year for the investor. Never has there been such a collectively undermining of free market capitalism. I'm not mentioning the socialization of FRE, and FNM or the $700 billion bailout, or Buffets glee to create a bottom, but the fact that the banks can outright cook the books the whole time their houses are burning and point out that things are not as bad as they seem. That the Fed and Treasury will follow suit. That I actually can believe because the Fed and Treasury have a stake in all of this as well. But that the SEC ignores this and goes so far as to ban shorting because they feel that financials are undervalued. It make me feel like I just found out that the roulette wheel, that the dealer is pressing the red button out in the open and every sees it but with some jedi mind trick is able to convince people that if they call him on it he will walk away and they won't have a chance to win back their money, so they better just keep playing.
It makes one want to leave the market entirely. It will be a cold day in hell if I ever buy a financial stock in the future. But then again you can't win if you don't play.
Wachovia went out with a book value of $75 billion. Citi paid $2 billion. Could it be that asset values are overstated, not understated?
-Michael Rapoport, Dow Jones
Gee, I dunno. Better obscure them as soon as possible . . .
Source:
Lying Bank Accounting
http://norris.blogs.nytimes.com/2008/09/30/lying-bank-accounting/
BDI broke down. Hit 3217 today. That is not good for the dry shippers. I expect a few of them to start going bankrupt is prices stay as low as they are. Last years newbuild glut killed them. Best course of action is to take older builds and sell them for salvage. Instant cash and bolsters survivability.
In other news here is a thought experiment using MACD unconventionally. Mapping MACD range over bear and bull markets. It's a poor mans VIX if you ask me. But volatility goes hand in hand with bear markets. Not that you can't have volatility in bull markets just that you rarely have complacency in bear markets.
Bull markets are inherently complacent as people systematically contribute monthly to 401ks and institutional funds. The short term trading that these funds do to try to capture small profits give you the day to day noise and makes it difficult to see the trend. That trend was the steady influx of money into the markets. Complacent influx. Small traders race into markets trying to catch a single stock rally, they represent a penny's worth in regards to the capital that flowed into th market on a timely basis. Long term daily charts like this can compress that noise and drown out the swings. You can then see the forest from the trees.
Te bear is not done. MACD has not significantly diverged from falling prices. In fact MACD seems to be sideways below zero confirming the long term downtrend.
Short ban terminates at 11:59 p.m. EDT Oct. 2
The short ban on financials is due to expire. Makes me think that this whole short ban Paulson plan, House Rejection was orchestrated.
Also I am considering that the big drop we had this Monday was go to a shift in strategies for short sellers who used to borrow shares to sell into the market shifting to options strategies where they buy puts exercise them to sell into the market. It might be more costly but has a similar effect and as much of a profit margin.
10 Things To Expect From The New Post-Apocalyptic Economy
Kiplinger's has put together a list of 10 things that you, fair consumer, can expect from our new post-wall-street-apocalypse economy. Should you be scared? Maybe.
Here's a quick summary of the article, which can be found here:
1. A much less leveraged economy — Cash will be the thing to have.
2. More modest rewards — Less risk-taking means slower growth, slower appreciation of property value, etc.
3. A feast for bottom fishers — If you've got patience and cash, there will be a feast for you amongst the wreckage.
4. Fewer financial firms — Big banks are swallowing the smaller ones.
5. More government oversight of financial markets. — They're gonna be watching.
6. But a revival of private financial firms — Kiplinger's doesn't think that investment banks are gone for good.
7. Simpler forms of securitizing debt — Nor do they think that the secondary mortgage market is gone for good. They say it will be back, but it won't be as 'exotic'
8. Greater scrutiny of executive compensation — Shareholders are annoyed. Very annoyed.
9. Higher taxes and/or a bigger federal deficit — Someone has to pay to run the bilge pump.
10. Higher long-term interest rates — You saw that one coming, didn't you?
Hey, it turns out that the new post-apocalyptic economy is pretty much just the old traditional economy — but with a debt hangover.
Case-Shiller: House Prices Declined in July
by CalculatedRisk
Housing is the key. And house prices are still falling sharply ...
S&P/Case-Shiller released their monthly Home Price Indices for July this morning. This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national house price index.
Case-Shiller House Prices Indices Click on graph for larger image in new window.
The first graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).
The Composite 10 index was off 12.3% annual rate in July (from June), and is off 21.1% from the peak.
The Composite 20 index was off 10.1% annual rate in July (from June), and is off 19.5% from the peak.
Prices are still falling, and will probably continue to fall for some time.
The second graph shows the Year over year change in both indices.
The Composite 10 is off 17.5% over the last year.
The Composite 20 is off 16.3% over the last year.
Home Prices in 20 U.S. Cities Declined 16.3% in July (Update1)
I don't think the market cares about these metrics anymore. seems like its a junkie just looking for that big fix from Congress to pass. More fall out in housing prices means that more mortgages go into negative equity, means more foreclosures, means more defaults and more toxic CDOs\CDSs. This is far from over and regardless if we get $700 billion its not going to put much of a dent in the short term. As housing prices continue to fall over the next 3 months nothing can be done over that time. This will get worse before it gets better.
By Bob Willis
Enlarge Image/Details
Sept. 30 (Bloomberg) -- House prices in 20 U.S. cities declined in July at the fastest pace on record, signaling the worst housing recession in a generation had yet to trough even before this month's credit crisis.
The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
The housing slump is at the center of the meltdown in financial markets as declining demand pushes down property values and causes foreclosures to mount. Banks will probably stiffen lending rules even more in coming months to limit losses, indicating residential real estate will keep contracting and consumer spending will continue to falter.
``The fact that house prices quickened their slide before the worst point in credit markets hit this month does not bode well,'' said Derek Holt, an economist at Scotia Capital Inc. in Toronto.
Home prices decreased 0.9 percent in July from the prior month after declining 0.5 percent in June, the report showed. The figures aren't adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
More Cities Down
Prices dropped in 13 cities month-over-month, compared with 11 in June. Las Vegas saw values fall 2.8 percent in July, the largest decline.
Economists forecast the 20-city index would fall 16 percent from a year earlier, according to the median of 23 estimates in a Bloomberg News survey. Projections ranged from declines of 14.5 percent to 16.5 percent.
Compared with a year earlier, all 20 areas showed a decrease in prices in July, led by a 30 percent drop in Las Vegas and a 29 percent decline in Phoenix.
``While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround,'' David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Other Measures
Other reports show price declines continue. The National Association of Realtors said Sept. 24 that the median price of an existing home fell 9.5 percent in August from a year earlier, compared with an 8 percent drop in July. The following day, the Commerce Department said the median price of new homes fell 6.2 percent in August from a year earlier, following a 4.6 percent drop the prior month.
Sales of previously owned homes fell 2.2 percent in August from the prior month and were 32 percent below their historic high reached in September 2005. Declining home construction has subtracted from growth since the first quarter of 2006, pushing the economy to the brink of a downturn.
U.S. homebuilders, buffeted by at least $19 billion in losses since 2006, will ask lawmakers to pass a $15,000 tax credit for all homebuyers, replacing a $7,500 incentive enacted earlier this year that they contend failed to stimulate demand.
``Our members are really hurting,'' Jerry Howard, the chief executive officer of the National Association of Home Builders, said in an interview yesterday. ``The tax credit passed in July seems to have failed to have sparked interest.''
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
Last Updated: September 30, 2008 09:17 EDT
Loose money was the problem all along. It isn't a part of the long term solution.
I thought the market would signal a few days in advance how critically they need/want to accelerate the multi-trillion dollar bailout for the Federal Reserve banking system that has failed us so miserably.
speculating - 15th bank to fail National City on deck IMHO.
No shortage of willing audience members for The Peanut Gallery these days.
news is opinion and everybody has one. I pretty much assumed that this is what would happen in this economy. There is not a single society that is purely socialist or capitalist. Pure capitalism is like pure democracy is acts like a sociopath. when policy can be put forth and voted on that the majority will prevail it's only a matter of time before the majority will discover that its survivability to is eliminate all minority groups through policy.
In a free capitalist market monopolies would prevail everywhere as there would be no regulative bodies to protect smaller companies, consumers, etc. Socialism begins when the first policy is put into effect. Government by its nature is socialist for its own survivability.
I think that everyone is the world is shocked that the bastion of capitalism has resorted to heavily regulating the markets and absorbing losses the way a Russia or China would. The nature of capitalism would be that no one is too big to fail and that the banks would learn their lesson when the carnage destroyed the worst offenders. Those that survived would be more cautious. Laws of survival. I don't think anything that happen were mistakes. I'm still a strong proponent of free market capitalism even in the current environment.
but I think that the writers here and a lot of other people have to realize that the economic system is very dynamic, it can regulate and deregulate as needed. It can adapt to the environment as needed. The problem is that the regulation and deregulation should be used to protect from bubbles and bursts. Regulate more as markets expand and deregulate more as they suffer.
What we should be doing in freeing up restrictions on wages, housing affordability, mortgage approval etc. Yeah it sounds crazy right now because we just came out of that environment and this is the result. But it works as long as we are willing to increase restriction as markets improve. Imagine how these CDOs would trade if in 2003-2005 when real estate prices started accelerating that we increased closing costs, increase property taxes, sales taxes, increased restriction on mortgage approval availability. housing prices would have not moved at a parabolic rate and it would result in a successive crash. Sure expansion would not have been great but we would probably still be in an expansion today and not talking about bailouts.
Humans... they will never figure it out.
Yahoo News trolls this web site in Lebanon - can you believe it?
Dar Al-Hayat
America Pays for its Mistakes
Michel Morkos Al-Hayat - 29/09/08/
When the US Administration interferes a few times to save its national economy, at times bailing out major financial institutions and at others drafting rescue plans to float the economy, this means it has previously given up - for undisclosed reasons - its fundamental mission of protecting the economy. Instead of regulating markets and controlling large financial institutions, it has left investment banks prey to more debts and money markets under the pressure of hectic speculations.
Two months ago (July 26), Congress passed a bill to set up a $300 billion fund that provides citizens with soft loans to settle mortgage payments. Currently, the US Administration suggested a $700 billion program to save Wall Street. Through these two programs, the US government acquired two mortgage giants, Fannie Mae and Freddie Mac, and controlled American International Group, the largest insurance company in the world. At the same time, many mergers occurred within the private sector: Bank of America took over Merrill Lynch for $50 billion and JP Morgan acquired Washington Mutual. In addition, the shares of Goldman Sachs and Morgan Stanley fell and Lehman Brothers filed for bankruptcy.
Facing these financial crashes, along with the severe losses in world stock markets - with Wall Street leading the way - the US bailout plan comes amidst the continuous and following crises. This clearly indicates a (previous) huge letdown in the financial policy applied to US banks. It also shows the world-class US stock markets dealing with non-solvable money instruments.
Tracking the seeds of the US mortgage crisis sheds light on the gaps in the lenders' use of unsecured money instruments. Low-interest mortgages created an active real estate market. Thus, houses increased in value and were turned into mortgaged assets in order to achieve the welfare of households, owners of houses. With the expansion of mortgage lending; with loans offered to buy cars and luxurious furniture, to restore homes, and travel, banks issued bonds against their mortgages and sold them for global investors in return for revenues. Investors then sold or pledged them to investment or hedge funds in view to buying more such bonds. These same bonds are a result of mortgages or loans for durable goods, such as cars.
Mistakes started to pile up. The first one resulted from the expansion in lending at interests linked to the rates set by the Federal Reserve, which increased from one percent at the time to 4.5 percent at the start of the crisis last year. The second mistake was attracting the borrower with bank facilities on one hand and false facilities on the other: settlements for the first three years were only limited to the interest rate. With the rise of the non-fixed interest rate, some borrowers were unable to settle the due payments and faced high fines that increased their inability to pay.
The confusion in the assets guaranteeing the loan or the bonds was the third mistake. Lenders viewed mortgaged houses as a guarantee for their loans, while the owner of the mortgage bonds thinks they are his as well. When the regulations enforced insurance on mortgage bonds, major insurance companies took the burden of the bonds, which were considered pretty crash-proof.
Everything was dependent on the main borrower and his financial solvability. When that borrower defaulted on his payments, the bonds turned into a burden and became bad bonds. Lenders, in need of liquidity, crashed; hedge funds, investors and, consequently, mortgage bonds insurance companies suffered losses.
In short, banks were very lenient. Loans for a single house mortgage became 30 more than the real house value. Newsweek's Fareed Zacharia says that the ratio of corporate debts to share capital stands at 35 to 1.
The crisis is bound to end the dispute over saving the economy. But an administration like the American one must in the first place regulate banking operations and money markets where the reckless competition led to the crash of the world economy and threatens it now with recession and paralysis.
Not all US institutions incurred damages; not all economic activities faced losses. To redress the economy, the mistakes of the past must be first avoided. For economic freedom does not mean chaos.
http://english.daralhayat.com/business/09-2008/Article-20080929-ae93217f-c0a8-10ed-01ae-81abf7cc1eec/story.html
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Press Release
Federal Reserve Press Release
Central Banking System is going to flood the market
Release Date: September 29, 2008
For release at 10:00 a.m. EDT
In response to continued strains in short-term funding markets, central banks today are announcing further coordinated actions to expand significantly the capacity to provide U.S. dollar liquidity. Central banks will continue to work together closely and are prepared to take appropriate steps as needed to address funding pressures.
Federal Reserve Actions
The Federal Reserve announced today several initiatives to support financial stability and to maintain a stable flow of credit to the economy during this period of significant strain in global markets.
We will continue to adapt these liquidity facilities as necessary and will keep them in place as long as circumstances require.
Actions by the Federal Reserve include: (1) an increase in the size of the 84-day maturity Term Auction Facility (TAF) auctions to $75 billion per auction from $25 billion beginning with the October 6 auction, (2) two forward TAF auctions totaling $150 billion that will be conducted in November to provide term funding over year-end, and (3) an increase in swap authorization limits with the Bank of Canada, Bank of England, Bank of Japan, Danmarks Nationalbank (National Bank of Denmark), European Central Bank (ECB), Norges Bank (Bank of Norway), Reserve Bank of Australia, Sveriges Riksbank (Bank of Sweden), and Swiss National Bank to a total of $620 billion, from $290 billion previously.
These steps are being undertaken to mitigate pressures evident in the term funding markets both in the United States and abroad. By committing to provide a very large quantity of term funding, the Federal Reserve actions should reassure financial market participants that financing will be available against good collateral, lessening concerns about funding and rollover risk.
84-Day Maturity TAF Auctions
The increase to $75 billion per auction will triple the supply of 84-day maturity credit to $225 billion from $75 billion. TAF credit at the 28-day maturity will remain at $75 billion. The total amount of TAF credit available in the 28-day and 84-day auction cycles will double to $300 billion from $150 billion.
Forward TAF Auctions
The forward TAF auctions are a new program designed to provide reassurance to market participants that term funding will be available over year-end. The timing and terms of the two forward TAF auctions will be determined after consultations with depository institutions that utilize the TAF program.
It is anticipated that there will be two auctions in November totaling $150 billion. These auctions will provide short-term (one- to two-week term) TAF credit over year-end.
Foreign Exchange Swap Lines
The Federal Open Market Committee (FOMC) has authorized a $330 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide funding for U.S. dollar liquidity operations by the other central banks. The FOMC has authorized increases in all of the temporary swap facilities with other central banks. These larger facilities will now support the provision of U.S. dollar liquidity in amounts of up to $30 billion by the Bank of Canada, $80 billion by the Bank of England, $120 billion by the Bank of Japan, $15 billion by Danmarks Nationalbank, $240 billion by the ECB, $15 billion by the Norges Bank, $30 billion by the Reserve Bank of Australia, $30 billion by the Sveriges Riksbank, and $60 billion by the Swiss National Bank. As a result of these actions, the total size of outstanding swap lines is $620 billion.
All of the temporary reciprocal swap facilities have been authorized through April 30, 2009.
Dollar funding rates abroad have been elevated relative to dollar funding rates available in the United States, reflecting a structural dollar funding shortfall outside of the United States. The increase in the amount of foreign exchange swap authorization limits will enable many central banks to increase the amount of dollar funding that they can provide in their home markets. This should help to improve the distribution of dollar liquidity around the globe.
charting BDI...
In the overall Great Global Expansion since the turn of the century BDI is in a rising channel for rates. If the BDI finds support at 3270 then it should signal that the US recession will stay somewhat isolated to this region and expansion in other regions will compensate. I'm not saying that the rest of the world will not feel the effects of a credit crunch in the US, but that our view of the crisis is someone skewed because we re at the epicenter of it. Which means recovery or expansion in the rest of the world will help lift the US out of the crisis.
14th WB Wachovia - sale before failure?
Wachovia is being preemptive of possible failure. Much like WAMU integrated itself into JPM late last week.
Wachovia sinks as investors weigh its fate
Shares plummet more than 50% ahead of bell as Citi and Wells Fargo bid for troubled bank, according to reports.
September 29, 2008: 7:46 AM ET
NEW YORK (CNNMoney.com) -- Wachovia stock lost more than half its value in pre-market trading Monday as investors mulled the fate of the bank, including a potential merger with one of its peers - Citigroup or Wells Fargo.
Wachovia (WB, Fortune 500) shares, which have lost nearly half of their value in the last week alone, plummeted another 58% before the opening bell.
The Charlotte, N.C.-based bank was reportedly in talks to sell itself to either Citigroup (C, Fortune 500) or Wells Fargo (WFC, Fortune 500). By Sunday evening, a bidding war between the two banking giants was underway, several news outlets reported.
Spain's Banco Santander (STD) had also been mentioned as a possible bidder heading into the weekend.
The talks come as concerns have grown about Wachovia's viability, despite a breakthrough reached Sunday by Congressional negotiators on a $700 billion bailout for the financial system.
Government refuses guarantee
Sunday's report in The New York Times added that the Federal Reserve and Treasury Department were also participating in the discussions, but that the government was refusing to help bidders by guaranteeing a part of Wachovia's assets the way it did for Bear Stearns in March, when it was sold to JPMorgan Chase (JPM, Fortune 500).
The government was also not ready to take over Wachovia the way it did Washington Mutual (JPM, Fortune 500) last week, the Times reported, unless the bank's financial position deteriorates more rapidly. The Seattle-based WaMu ultimately collapsed and was seized by federal bank regulators before it was subsequently sold to JPMorgan.
Talks were reportedly held as late as Sunday evening, but no deal had been struck by Monday morning.
Speculation that either Citigroup or Wells Fargo may only bid a few dollars a share for Wachovia also helped send Wachovia's stock lower, the Times reported.
Also unclear, the Times said, was whether the banks would bid for all of Wachovia or pieces. Wachovia's retail banking operations would help Citigroup and Wells Fargo expand their branch networks, the Times said.
Spokespeople for Citigroup, Wachovia and Wells Fargo declined to comment on the matter when talk of a possible deal first emerged on Friday.
Morgan Stanley deal unlikely
This wouldn't, however, be the first time that Wachovia has been mentioned eyeing a deal. A little over a week ago, there was rampant speculation that Morgan Stanley and Wachovia were reportedly discussing a merger. A deal between the two firms looks increasingly unlikely, though, after Morgan Stanley (MS, Fortune 500) agreed to sell up to a fifth of itself to Mitsubishi UFJ Financial Group (MUFG), one of Japan's largest banks, earlier this week.
Following a string of high-profile collapses of banks in recent weeks, there has been increasing speculation that Wachovia could be the next one to go.
Wachovia reported losses during the past two quarters due in large part to its exposure to the U.S. mortgage market. Some analysts have cited the company's ill-timed 2006 acquisition of the California mortgage lender Golden West Financial Corp. for its current woes.
A Wachovia representative stressed in a statement on Friday that it has a "strong retail franchise and large and stable deposit base," adding that it was working to strengthen both its capital and liquidity.
Were Wachovia to enter a deal, it would mark yet another big shake-up of the nation's banking industry, which has undergone a dramatic transformation in the past two weeks, including the demise of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America (BAC, Fortune 500) and the failure of Washington Mutual and its subsequent purchase by JPMorgan Chase. To top of page
Where we are in the global recession as related to the Baltic Dry Index (BDI)
I've mentioned that the BDI is a leading indicator of economic expansion and contraction. Shipping prices are very volatile, they are usualy the first to feel the impact of expansion or contraction in trade and the wild swings in the rates of shipping can signal when it becomes too costly to conduct trade.
Now keep in mind that BDI signals global impact of trade.
I think the BDI can show us where we are in the recession we are in now. I don't care for the metric that you need successive negative GDP to get a recession as GDP is a measure that is not free market based. It is more prone to manipulation.
It seems that 2009 might be the bottom of the current recession by a number of factors.
BDI - First BDI has not bottomed. It might be another few months of bottoming before businesses feel comfortable enough to take on credit and start expanding again.
Bailout - Its going to be at least 3 months before the bailout is capable of moving CDO off the books of financials and into taxpayer hands. Probably 6-9 months before enough is converted that credit expansion can start up again.
SPX - following credit contraction in step as compared to the 2002 recession. Makes me feel that markets have much further to go before a bottom is in place. A few more bank failures in the next 3-6 months along with slow consumer spending to spook investors out of stocks.
rising bond prices can represent that investors are seeking safety in less risky investments but can also represent that credit is scarce and the government is either unwilling to or unable to expand credit. When the credit contraction occurred in early 2000 the flight to quality started and did not abate until mid 2003 when well after the recession. Yield cannot determine bottoms in expansion or contractions because amidst a contractions bond investors are still skittish and are distrusting of any signs that the contractions are over. again the flight to quality was a mean s of preserving capital and safety. they are not going to be willing to take a risk at finding a market bottom so they wait out the storm. yield can signal a contraction early but not a recovery. lot to markets like BDI and S&P500 to signal a recovery.
Wachovia and Nation City on deck for the next failure, next week might be a two fer.
Update from MarketWatch: Counterparty credit risk jumps on Wachovia concern
The CDR Counterparty Risk Index, which tracks credit-default swaps on leading banks and brokerage firms, surged more than 100 basis points to 430.2, close to a record. A basis point is one one-hundredth of a percentage point.
...
Credit-default swap spreads on Wachovia widened by 827.2 basis points and now trade between 28% and 33% "upfront," according to CDR.
...
"Wachovia is now trading at distressed levels, raising the specter of another major U.S. bank failure in the near future," CDR said in a statement.
National City stock is now off 50%.
Wachovia is off 30%.
Reader BR notes that investors are reacting to JPM's marks on WaMu's loan portfolio. These published marks will force the regionals to write down the value of their paper too.
As I mentioned earler, investors appear to be asking "Who is next?"
I don't think either of these banks will be seized today, but based on the pace of failures, I'd guess a bank failure is likely.
13th bank failure -- WAMU!!!
13 is a real unlucky number. Biggest bank failure, dwarfs IndyMac. That is why they negotiated it with JP Morgan ahead of time. This would have been a market routing event again. Now I'm seeing why the shorting ban. there is a lot of bad news this past two weeks.
Regulators seize Washington Mutual and JPMorgan mops up
Robin Sidel and David Enrich | September 27, 2008
IN what is by far the largest bank failure in US history, federal regulators seized Washington Mutual and struck a deal to sell the bulk of its operations to JPMorgan Chase.
The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corporation, could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank insurance fund.
Instead, JPMorgan agreed to pay $US1.9 billion ($2.3 billion) to the Government for WaMu's banking operations and will assume the loan portfolio of the $US307 billion thrift. The full cost to JPMorgan will be much higher, because it plans to write down about $US31 billion of the bad loans and raise $US8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $US30 billion in debt and preferred stock are likely to recover little or nothing.
The deal will vault JPMorgan into first place in nationwide deposits and greatly expand its franchise.
The fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.
The seizure of Washington Mutual is likely to send tremors through the thrift industry. Many of WaMu's smaller brethren are also struggling with a wave of bad loans and some have already been ordered by regulators to raise capital and stop growing. Many community and regional financial institutions are also slashing dividends, selling branches and reining in lending.
WaMu has suffered huge losses but still boasts a strong deposit base and a network of 2239 branches that bigger banks would have paid dearly for when times were good. In March, with the credit crisis in full bloom, JPMorgan offered to acquire WaMu but was spurned in favour of a $US7 billion infusion led by TPG, a highly regarded private equity firm. TPG, led by investor David Bonderman, said it would lose $US1.35 billion, wiping out its investment.
This is the second time that JPMorgan, the second-largest US bank by market capitalisation, has been a buyer of last resort. In March, the New York company agreed to purchase Bear Stearns, getting a $US29 billion backstop from the federal Government.
DIC chairman Sheila Bair said that WaMu's downward spiral "could have posed significant challenges without a ready buyer."
Referring to JPMorgan's willingness to buy WaMu and absorb its shaky loans amid continuing debate over the $US700 billion bailout package, she added: "Some are coming to Washington for help, others are coming to Washington to help."
While WaMu has been struggling since last year, its demise occurred with breathtaking speed.
Starting on September 15, the day that Lehman filed for bankruptcy protection, WaMu's customers began heading for the exits.
Over the next 10 days, they yanked a total of $US16.7 billion in deposits out of the bank, according to the Office of Thrift Supervision.
Regulators also hustled to shut down WaMu faster than they have with other failing banks this year.
Normally, when the FDIC and another regulatory agency are preparing to take over a bank, the FDIC will solicit bids for the bank on Tuesday or Wednesday and then seize it on Friday evening, after the bank's branches have closed for the weekend.
In WaMu's case, the FDIC set a Wednesday evening deadline for interested parties to submit their offers for various parts ofWaMu.
Twenty-four hours later, they were already preparing to seize the bank.
Earlier this month, Treasury Secretary Henry Paulson made it clear to WaMu that the company should have accepted the takeover deal offered by JPMorgan earlier this year, according to a person close to WaMu.
Federal regulators said the exodus of deposits left WaMu "with insufficient liquidity to meet its obligations".
As a result, WaMu was in "an unsafe and unsound condition to transact business", according to the OTS.
With mortgage losses mounting and its stock price plunging, WaMu has been scrambling over the past month to find a solution.
Last week, it put itself on the auction block. A number of banks -- including Citigroup, Wells Fargo and Banco Santander -- pored over WaMu's books, but the bank did not receive any offers.
This week, WaMu's outside bankers approached a group of private equity funds to gauge their interest in a deal. Those talks were viewed as a last-ditch effort.
Also this week, the FDIC took the step of reaching out to banks, asking them to express interest in taking over some or all of WaMu, according to people familiar with the matter. Those bids were due at 6pm on Wednesday.
JPMorgan's takeover of WaMu's deposits represents a huge blow for private equity firm TPG, which led the deal to inject $US7 billion into the thrift earlier this year.
"Obviously, we are dissatisfied with the loss to our partners from our investment in Washington Mutual," said a TPG spokesman.
"The unprecedented turmoil in global financial markets and resulting macro crisis of confidence has radically changed the dynamics for all financial institutions, and led to widespread losses among investors throughout the sector."
The deal is a bold move for James Dimon, JPMorgan's chairman and chief executive, who has emerged as one of the banking industry's most powerful executives during the current credit crisis.
Just six months ago, JPMorgan swept in to acquire Bear Stearns as the brokerage firm was collapsing and heading for bankruptcy.
Although JPMorgan has also been hurt by the credit crisis, it has one of the strongest balance sheets in the industry despite exposure to many of the banking businesses that are feeling pain.
Additional reporting: Dan Fitzpatrick, Damian Paletta and Peter Lattman
but it is credit expansion which is what the global economy runs on. and it devalues the dollar improving US exports. playing devils advocate. I don't like it but the current banking system and the economy running on it.
We're still ~60 S&P500 points off the lows so Congress seems to feel like there's some breathing room and the partisans take the opportunity to throw elbows around.
There's nothing fundamentally sound about the government taking bad paper off private investors books.
Lawmakers split over bailout
Democrats say they reached bipartisan agreement on set of principles, but Republican balk. White House meeting contentious.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: September 25, 2008: 6:59 PM ET
NEW YORK (CNNMoney.com) -- Chaos erupted on Thursday in the negotiations over the proposed financial bailout as lawmakers bickered over competing counterproposals to the Bush administration's $700 billion rescue plan.
A meeting at the White House between President Bush, congressional leaders and the presidential candidates was meant to speed approval of an agreement, but instead revealed deep divisions between Democrats and Republicans.
Earlier in the day, congressional negotiators said they had agreed to a set of principles on revisions to the rescue plan, which calls for the Treasury Department to buy up bad mortgage securities from banks in an effort to get them to lend again.
The proposal will help homeowners, curb executive pay packages at participating firms and provide oversight of Treasury's actions, said Sen. Christopher Dodd, D-Conn., a key architect of the congressional effort, in a lunchtime address.
"We've reached a fundamental agreement on a set of principles, one, for taxpayers, which is tremendously important," he said. "We're very confident we can act expeditiously."
Details on the plans
The principles call for Congress to make $250 billion available immediately with $100 billion available, if needed, without requiring additional congressional approval, said two senior Democratic aides familiar with the negotiations. The second half of $350 billion would then become available by a special approval of Congress.
On executive compensation, the draft would require limits on compensation for executives of any company participating in the bailout. These caps would apply for as long as the company is in the program. This would include some language to limit excess "golden parachutes."
Treasury will also get an equity stake in the companies being helped by the bailout, though what type remains to be worked out.
Still to be worked out is whether to allow bankruptcy judges to modify mortgage terms, a provision backed by many Democrats and community activists but opposed by Republicans and the banking industry.
The bankruptcy provision is not the only sticking point, however. House Republicans are not on board, according to Minority Leader Rep. John Boehner, R-Ohio.
"House Republicans have not agreed to any plan at this point," Boehner said.
Instead, they issued a statement of economic rescue principles that calls for Wall Street to fund the recovery by injecting private capital - not taxpayer dollars - into the financial markets. Easing tax laws would prompt investors to put in their own dollars, they said.
The plan also calls for: participating firms to disclose the value of the mortgage assets on their books, ending Fannie Mae and Freddie Mac's securitization of "unsound mortgages," reviewing the performance of the credit rating agencies and having the Securities and Exchange Commission audit failed companies to ensure their financial standing was accurately portrayed.
House Republicans also want to create a panel to make recommendations for reforming the financial industry by year's end.
Meanwhile, the ranking Republican on the Senate Banking Committee has another idea. Sen. Richard Shelby, R-Ala., said he doesn't support the Treasury plan until there is serious consideration of alternatives. He proposed Thursday adding funds to the Federal Reserve and Treasury to allow them to lend more to financial institutions.
Bush still hopeful
Before the afternoon meeting, Bush said he expects a deal "very shortly."
After, a counselor to the president said "we're getting closer. There's some more that has to be done. It's going to be a consensus plan at the end of the day."
"Both sides are going to have to work hard to get to an agreement," presidential counselor Ed Gillespie said on CNN.
Administration officials have spent countless hours this week behind closed doors with and in public hearings before Congress. Lawmakers were hoping to have a deal agreeable to both parties hammered out before Thursday's meeting at the White House.
On Wednesday night, Bush took the nation's airwaves in a prime-time address in which he laid out a looming economic disaster.
"The government's top economic experts warn that, without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold," Bush said. "More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically."
CNN Correspondent Kate Bolduan and Congressional Producer Deirdre Walsh contributed to this report. To top of page
First Published: September 25, 2008: 1:28 PM ET
Agreement Reached on Bailout
Ahead of High-Level Meeting
Proposal Breaks $700 Billion Into Installments
By GREG HITT, DEBORAH SOLOMON and DAMIAN PALETTA
A bipartisan group of House and Senate lawmakers left a two-hour-plus meeting in the U.S. Capitol on Thursday saying they have a "fundamental agreement" on a $700 billion plan to bail out U.S. financial markets.
The lawmakers didn't offer details of the plan, but the proposed bill would approve the fund, but would pay the money out in installments, with $250 billion in bailout funds available immediately, people familiar with the matter said.
Lawmakers also agreed that limits on "golden parachutes" and use of warrants would apply to all companies, these people said. However, changes to bankruptcy laws still unresolved. The details still need to be ironed out with the White House.
Republican Sen. Robert Bennett of Utah expressed optimism that lawmakers have a "plan that will pass the House and Senate."
[Congressional leaders reached an agreement on a bailout package.] Reuters
Rep. Barney Frank, second from left, and Sen. Chris Dodd, third from right, spoke with reporters after congressional leaders said an agreement was reached on a bailout package.
"We came to agreements on a lot of the important issues," House Financial Services Chairman Barney Frank (D., Mass.) said at a press conference featuring most of those who attended the meeting. Sen. Bob Corker (R., Tenn.) said: "I believe that we will pass this legislation before the markets open on Monday."
Frank's Senate counterpart, Banking Committee Chairman Christopher Dodd (D., Conn.) said lawmakers plan to "act expeditiously" to pass legislation allowing the federal government to buy billions of dollars in distressed assets. The final legislation is expected to vastly expand on a Treasury proposal issued last weekend. It potentially includes some limits on executive compensation for companies that sell their assets to the government and some way for the government to recoup the money it spends to help free illiquid credit markets.
"I believe we are on track to pass it," Mr. Frank said following the meeting.
Lawmakers said they plan to talk to members of their parties in both the House and Senate before a meeting scheduled at the White House later Thursday to discuss the legislation with the Bush administration.
A dramatic flurry of activity, including a prime-time address by President George W. Bush late Wednesday, appeared to galvanize efforts to finalize the administration's $700 billion financial-markets bailout, despite continuing tensions and an occasionally heated debate on Capitol Hill.
Democratic leaders hoped to nail down details of the measure Thursday, ahead of an extraordinary summit meeting in the afternoon at the White House, which will bring together Republican and Democratic presidential nominees, along with Mr. Bush and top leaders from Congress.
Hours before the meeting, the White House said "significant progress" has been made. "We have made progress every day, and we are closer today to a conclusion than we were yesterday," said White House spokeswoman Dana Perino.
Sen. John McCain (R., Ariz.), Sen. Barack Obama (D., Ill.) and congressional leaders from both parties will meet Mr. Bush at the White House late Thursday afternoon. The meeting will be a chance to "have everybody get together and hopefully start driving to a conclusion," Ms. Perino said. "I can't tell you if we would have a final deal by then, or [if] it would emerge right after that."
Sens. McCain and Obama addressed the issue at a Clinton Global Initiative event Thursday morning. Sen. McCain said "the whole nation was in danger" and that time was short and doing nothing wasn't an option. Sen. McCain said he would carry to Washington five improvements to Treasury's rescue plan: greater accountability from a bipartisan board with oversight; a path for taxpayer recovery of funds; complete transparency in review of legislation -- all details made available online; absolutely no earmarks to be included in bill; and curbs on Wall Street executives' ability to profit from the bill.
Sen. Obama said that a "failure to act" on the bailout plan would have "grave consequences." But he said that it is "outrageous" that taxpayers must bear the burden for Wall Street "greed and risk," adding that the American people must not reward Wall Street executives.
Much is still uncertain and the contours of a likely bill could change. But the outlines of a potential compromise began to emerge late Wednesday after congressional leaders started considering restrictions on the bailout plan that could break the pool of money into installments.
Former New York City Mayor Rudy Giuliani says a Wall Street bailout is urgently needed, but should be followed by an investigation. Giuliani, who attended the World Business Forum at Radio City Music Hall, speaks with Kelsey Hubbard. (Sept. 24)
A likely bill would include limits on executive pay in situations where the government puts a large amount of money into a failing institution. In certain cases, the government could receive warrants that would give it the right to acquire shares in the company. Also included is beefed-up oversight through the Government Accountability Office, an investigative arm of Congress.
Likely not included is a controversial idea to let judges alter the terms of mortgages during bankruptcy proceedings.
"Without immediate action by Congress, America could slip into a financial panic and a distressing scenario would unfold," Mr. Bush said in a 12-minute address in which he warned in stark language about the danger of delay. Mr. Bush endorsed several of the changes that have been demanded in recent days from the right and left. He said the bill "should be enacted as soon as possible."
The basic building blocks of the bailout plan as initially proposed remain intact: Democratic leaders are still proposing to authorize Treasury to borrow up to $700 billion to buy hard-to-sell assets from troubled financial institutions. The goal is to calm financial markets by removing the toxic assets, mostly mortgages, which lie at the heart of the crisis. If a final deal is struck, it would represent one of the biggest government bailouts in U.S. history.
Whether the Bush administration will agree to the entire Democratic wish list of provisions isn't clear. Its room to maneuver will be limited, having urged Congress this week to act quickly to forestall financial calamity.
One scenario being discussed by Democrats would be to establish benchmarks to periodically measure the bailout's performance. Those benchmarks would have to be met before further allotments of government money could be used -- in effect, potentially breaking the bailout funds into several installments. The administration doesn't want Congress to split up dispersing the funds, particularly if that would require returning for continual congressional approval, according to people familiar with the matter.
There is less resistance to the idea of having an independent oversight board approve the installments, depending on who sits on the board. But the hope within the administration is that beefed-up oversight will negate the idea, these people said.
Congressional officials don't expect to forge a final deal Thursday morning. But they do expect to sort through remaining details on a handful of issues, including executive-pay limits, housing, equity stakes and the plan to have staged drawdowns on the $700 billion. That would set the stage for a final compromise to be pieced together at the White House later in the day, if all of the parties invited to the meeting can be satisfied.
New Wrinkle
Unknown still is the reaction from rank-and-file lawmakers, particularly conservatives, many of whom have been strongly opposed to the plan. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke testified once again before skeptical members of Congress -- both Democrats and Republicans -- following a similar hearing Tuesday in the Senate.
Adding to the pressure on lawmakers to do a deal, billionaire investor Warren Buffett said he wouldn't have considered investing in Goldman Sachs Groups Inc., a move he announced Tuesday night, if he didn't think the bailout would be approved. "I really do think Congress will do the right thing, when it's terribly important, and they will do it fast," he said. "They will haggle but they have the national interest at heart."
The idea to set benchmarks to measure the plan's success was a new wrinkle that emerged Wednesday, when Democratic party leaders started debating the possibility. Any benchmarking plan, however, itself remains a rough outline. A key issue would be deciding how to judge whether the benchmarks were being met, and whether that authority would reside with the administration or with an independent board that would be created to oversee the rescue plan.
Democratic leaders have discussed holding a quick vote on perhaps one-third of the funds sought by the administration, with a second vote later on the rest. That option is considered less likely, although congressional aides and lawmakers cautioned that nothing has been ruled out.
Amid uncertainty during the day over the continued political wrangling in Washington, investors around the world snapped up short-term Treasury bills, one of the safest investments around. The yield on the one-month T-bill fell to 0.01% early Wednesday morning -- meaning that, in return for safety for their money, investors were willing to accept almost no return whatsoever -- and ended the day at 0.2%.
Republicans are concerned about the overall cost of the plan, and the broad powers it would give the Treasury to intervene in the marketplace. Rep. Eric Cantor, a conservative Republican from Virginia, has floated the idea that the government could insure mortgage assets, rather than buying them outright. Such a move would essentially provide a government guarantee for the assets at a certain price.
Treasury had considered a similar plan but rejected it in favor of buying the distressed assets. Mr. Paulson viewed that as a quicker and more efficient way to get to the root of the problem, according to people familiar with the matter.
Democrats, meanwhile, are pressing for action to help homeowners and families in dire straits, not just Wall Street bankers.
It's impossible to handicap the bill's actual prospects, in part because lawmakers are grappling with the complicated political calculus created by the November elections. Still, party leaders have said they're committed to passing the bill in some form.
Addressing the Joint Economic Committee, Bernanke discusses the reasons behind the agency's actions concerning Fannie Mae and Freddie Mac as well as AIG.
Democratic and Republican leaders prepared to work though the weekend and into next week if necessary. "We'll finish it when it's ready," said House Speaker Nancy Pelosi, a California Democrat. She has been buffered by anger within the House Democratic Caucus over the costly bailout Mr. Bush is demanding. Some Democrats don't want to do a deal with the White House, but she has pressed forward. "We're going to get it right."
The White House and its Republican allies have made an uneasy peace with Democratic leaders of the House and Senate, who have committed to carry the proposal forward. Late Wednesday, Speaker Pelosi and House Minority Leader John Boehner (R., Ohio) issued a joint statement vowing to "work cooperatively and on a bipartisan basis." The two party leaders stressed their commitment to improve oversight of the bailout and protect taxpayer interests.
But in addition to the new changes they are seeking, Democrats are also urging the White House to deliver Republican votes for the package. "We are not taking ownership of this," Mrs. Pelosi said.
The risk for the White House is that Mr. Bush, with his popularity at 30%, just a few points above its all-time low, won't be able to seal the deal. In that case, the administration might have to make more significant concessions to Democrats, in turn further endangering Republican support.
Give-and-Take
In give-and-take on Capitol Hill Wednesday, Mr. Paulson signaled his intention to relent on another key Democratic demand: that limits should be imposed on the compensation of executives at firms participating in the program. Mr. Paulson had previously argued against pay limits, suggesting they might deter companies from participating in the bailout. That argument proved to be a political loser.
"We must find a way to address [executive pay] in the legislation, but without undermining the effectiveness of the legislation," Mr. Paulson told the House Financial Services Committee.
Mr. Paulson has publicly resisted the notion of dividing the $700 billion plan into several parts, saying markets need a big number to instill confidence that the plan will succeed. Privately, however, there was growing acknowledgment within the administration Wednesday that the money might be released in stages.
One big concern: Having to continually ask Congress for money would breed uncertainty in the markets and potentially undermine the program, a senior administration official said. Another top administration official suggested the administration is willing to support the idea, so "long as it's done in a way that doesn't render the program ineffective."
Lawmakers continued to unload their frustration on Messrs. Bernanke and Paulson during hearings Wednesday. Mr. Bernanke, stepping beyond his usually cautious and measured tone, upped the ante, warning the nation faced "grave threats to financial stability." He detailed how nearly every sector of the economy, already under intense stress, would worsen if faced with further financial-market uncertainty.
—Michael R. Crittenden, Henry Pulizzi, Sudeep Reddy, John D. McKinnon and Michael R. Crittenden contributed to this article.
Write to Greg Hitt at greg.hitt@wsj.com, Deborah Solomon at deborah.solomon@wsj.com and Damian Paletta at damian.paletta@wsj.com
nice call, seems the song and dance on capital hill was a show for voters. paulson comes along with a outlandish proposal. 700bil, total authority, not executive reign in. congress whines about it for two days and they come up with a middle of the road agreement that caps executives, and lets congress oversee it.
the end result taxpayer feel they got something out of the deal but they still cough up 700billion and pay more that what the mortgages are worth. Oh and pump the stock market up and they will feel happy about it all lol.
I mean it is all about psychology, because rationally its a terrible deal and damages the taxpayer and the firms can walk away from all the toxic cdos like it never happened.
but emotionally I feel I guess its better this way, stock market is up so everyone else thinks its good too.
economically the taxpayer burden will weaken the dollar long term, cut export to the US, good luck buying a nissan or volvo, us manufacturers will be happy. chinese goods will suffer. US manufacturing will strengthen.
short term it might give the dollar a boost as foreign money flows back in.
I think there is still a lot of foreclosures to go over the next 9-12 months. consumption this holiday season will be weaker than last year. but money flow will trump actual sales and wall street will tell investor to no be so glum about it just get in for the election year\xmas rally.
Weekly Unemployment Claims Jump to 493,000
by CalculatedRisk
The DOL reports on weekly unemployment insurance claims:
In the week ending Sept. 20, the advance figure for seasonally adjusted initial claims was 493,000, an increase of 32,000 from the previous week's revised figure of 461,000. It is estimated that the effects of Hurricane Gustav in Louisiana and the effects of Hurricane Ike in Texas added approximately 50,000 claims to the total. The 4-week moving average was 462,500, an increase of 16,000 from the previous week's revised average of 446,500.
I added the SPX chart to show why we might not be at the bottom yet. Mid 2009 I believe. Looks at when the market bottoms and when Unemployment claims does. Also note that when Unemployment claims starts to rise the markets start to top
This graph shows weekly claims. The four moving average is at 462,500.
Some of the jump in unemployment claims is a result of the hurricanes - and should be temporary - but away from the financial crisis this shows there are significant weaknesses in the labor market and real economy.
History lesson, Warren Buffet and Solomon Brothers... strangely relevant.
http://chinese-school.netfirms.com/Warren-Buffett-Salomon.html
Warren Buffett's Wild Ride at Salomon
October 27, 1997
Warren Buffett's Wild Ride at Salomon A harrowing, bizarre tale of misdeeds and mistakes that pushed Salomon to the brink and produced the "most important day" in Warren Buffett's life.
Carol J. Loomis
Reporter Associate: Maria Atanasov
As Sanford I. Weill, 64, the dealmaking CEO of Travelers Group, steps up to his biggest acquisition ever--the purchase of Salomon Inc. for $9 billion--a famous Wall Street figure, Warren E. Buffett, 67, steps out of Salomon. His days there began almost precisely a decade ago, in the early fall of 1987, when his company, Berkshire Hathaway, became Salomon's largest shareholder and he moved in as a director. But that was training-wheels stuff, nothing to the high-wire unicycle act that came later: Buffett was physically, emotionally, and really at Salomon for nine months in 1991 and 1992, when the firm's trading illegalities created a giant sucking sound that brought him in to run the place.
Though much has been written about Buffett and Salomon, a lot of what you will read here will be new. I have been a friend of Buffett's for about 30 years and have long been a shareholder of Berkshire (though never a shareholder of Salomon). As a friend, I do some editing every year on Buffett's well-known annual report, and we have for eons talked about collaborating on a book about his business life. All this has given me many opportunities to learn Buffett's thinking. Some of what I've gleaned has ended up in Fortune stories that I wrote, most especially in an April 11, 1988, article, "The Inside Story of Warren Buffett," and in an accompanying box, "The Wisdom of Salomon?" But much of what I learned about Buffett's experiences at Salomon in 1991 was confidential, embargoed by him because Salomon was both struggling to regain its footing and dealing with big legal problems. Later on, though those emergencies eased and the embargo might have been lifted, there was no immediate reason to print the story. Now, with the Travelers deal, there is. To that reason, add another: This drama of 1991 sends a powerful message about the hazards lurking in a financial system that every day grows more complex.
This tale should begin with the thought that the ten months Buffett spent at Salomon were a profound break in the rhythm of his life. Warren Buffett is an executive accustomed to making maybe one big investment decision a year, but Salomon left him dealing with 25 operating decisions a day. At the center of this experience was a single day--what he has called "the most important day of my life," Sunday, Aug. 18, 1991--in which the U.S. Treasury first banned Salomon from bidding in government securities auctions and then, because of Buffett's efforts, rescinded the ban. In the four hours of suspense between the two actions, Buffett struggled passionately to ward off a tragedy he saw threatening to unfold. In Buffett's opinion, the ban put Salomon, this company now being priced at $9 billion, in sure danger of having immediately to file for bankruptcy. Even more important, he believed on that day, as he does now, that the collapse of Salomon would have shaken the world's financial system to its core.
How It Began
That Sunday in August was a far cry from the commercialism of another Sunday, Sept. 27, 1987, when Buffett and John Gutfreund, then Salomon's chairman and CEO, agreed that Berkshire Hathaway would buy $700 million of Salomon convertible preferred stock, which equated to a 12% stake in the company. The deal allowed Gutfreund to stave off takeover artist Ronald Perelman, who seemed poised to buy a large block of Salomon common stock from certain South African investors wanting to sell. With Berkshire's $700 million, Gutfreund was able to strike a deal that allowed Salomon itself to buy the South African stock--and with that, Perelman was dispatched. It was easy to see why Gutfreund welcomed Warren Buffett, White Knight. It was less easy to see why Buffett wanted to hook up with Salomon, much less trust it with this mint, $700 million--the largest amount he'd ever invested in a single company. Over the years, Buffett had derided investment bankers, deploring their enthusiasm for deals that provided huge fees but that were turkeys for their clients. He has also spoken often of wanting to work only with people he likes. So here he was, handing over mountains of Berkshire's carefully accumulated and husbanded cash to the high-living, cigar-chomping, corner-cutting crowd soon to be made infamous in Liar's Poker? Several reasons explain the move, none of them really good enough in the light of what followed. One is that Buffett had been having trouble for a couple of years finding stocks he thought reasonably priced and was looking for fixed-income alternatives. A second is that the Salomon proposal came from John Gutfreund, whom Buffett had seen do principled, non-greedy, client-friendly work for GEICO, in which Berkshire was then a major stockholder (and which is now owned 100% by Berkshire). Buffett liked Gutfreund--still does, in fact.
A third explanation was simply that Buffett thought the terms of the deal worth accepting. In effect, convertible preferreds are fixed-income investments with lottery tickets attached. In this case, the security was to pay 9% and be convertible after three years into Salomon common stock at $38 a share--against the $30 for which the stock had been selling. If Buffett did not convert the stock, it was to be redeemed over five years beginning in 1995. To Buffett, it looked like a decent proposition. "It's not 'a triple,' which is what you'd like to have," he said to me in 1987, "but it could work out okay."
To some of the brainy, mathematical types at Salomon, that appraisal would have qualified as the understatement of the year. From Day One, they thought--and let it be known to the press--that Buffett had exploited Gutfreund's fear of Perelman and had secured a dream security, with a too-high dividend or a too-low conversion price or some combination thereof. Over the next few years, this opinion did not die at Salomon, and more than once executives of the firm (though never Gutfreund) came to Buffett with propositions for deep-sixing the preferred.
It's fair to say that Buffett might have taken those offers more seriously had he known that ahead lay the business-wrecking, profit-shredding scandal that broke in August 1991--and that turned the world upside down for both Salomon and him.
A little stage setting here: Before the crisis hit, Salomon was on its way to an excellent business year, marred only by a Treasury investigation into a May T-bill auction in which Salomon was thought perhaps to have engineered a short squeeze. Despite that sticky matter, Salomon's stock had climbed to $37 a share, a price very near Buffett's conversion point of $38.
The Phone Call
For the story of what then happened, we may begin with Buffett in Reno. Yes, Reno, which was the spot two executives of a Berkshire subsidiary had picked for an annual getaway with Buffett. Arriving in Reno on the afternoon of Thursday, Aug. 8, Buffett checked with his office and found that John Gutfreund, en route at that moment from London to New York, wanted to talk to him that evening. Gutfreund's office said he'd then be at Salomon's principal law firm, Wachtell Lipton Rosen & Katz, and Buffett agreed to call him there at 10:30 P.M. New York time. Mulling this over, Buffett concluded that it couldn't be bad news, because Gutfreund hadn't been in New York to attend to it. Maybe, he thought, Gutfreund had made a deal to sell Salomon and needed a quick okay from the directors. Heading out to dinner in Lake Tahoe, Buffett actually told his group that he might be hearing "good news" before the evening was out--a characterization indicating Buffett was ready to bail from this supposedly plummy deal he'd got into four years earlier.
At the appointed time, breaking from dinner, Buffett stood at a pay phone to make his call. After a delay, he was put through to Salomon's president, Tom Strauss, and its inside lawyer, Donald Feuerstein, who told him that because Gutfreund's plane had been held up, they would instead brief Buffett on "a problem" that had arisen. Speaking calmly, they said that a Wachtell Lipton investigation commissioned by Salomon had discovered that two of its government securities traders, including the top gun, managing director Paul Mozer (a name Buffett didn't know), had broken the Treasury's bidding rules on more than one occasion in 1990 and 1991.
Mozer and his colleague, said Strauss and Feuerstein, had been suspended, and the firm was now moving to notify its regulators and put out a press release. Feuerstein then read a draft of the release to Buffett and added that earlier in the day he had talked at some length to Salomon director Charles T. Munger, Berkshire's vice-chairman and Buffett's sidekick in everything important.
The release contained only a few details about Mozer's sins. But a fuller account dribbled out over the next few days, depicting a man at war with the Treasury over bidding rules that he despised. A new rule, promulgated in 1990 to prevent such behemoths as Salomon from cornering the market, said that a single firm could not bid for more than 35% of the Treasury securities being offered in a given auction. In December 1990 and again in February 1991, Mozer simply made hash of this rule by, first, bidding for Salomon's allowable of 35%; second, submitting, without authorization, separate bids for certain customers; and, third, simply stuffing the securities that these bidders won into Salomon's own account, never telling the customers a word about the whole exercise. From all this, Salomon emerged with more than 35% of the auctioned securities and with increased power to swing its weight around.
On that Thursday night, with other pay-phoners chattering all around him, Buffett did not hear nearly that much detail nor detect, in Strauss and Feuerstein's matter-of-fact tones, any reason to be particularly alarmed. So he went back to dinner.
Only on Saturday, when he reached Munger, then vacationing on a northern Minnesota island, did Buffett get a sense of real trouble. Munger, a lawyer by training, had stopped Feuerstein's recital two days earlier to explore what Feuerstein meant by saying--to use the words that were on a sheet of "talking points" drawn up by lawyers for these calls--that "one part of the problem has been known since late April." In writer-speak, that is the "passive voice," and it raises an obvious question: "Who knew?"
Munger bore down on that question and found out that Mozer, believing that he was about to be unmasked, had disclosed the February bidding infractions to his boss, John Meriwether, in late April. Calling Mozer's behavior "career-threatening," Meriwether immediately went to Strauss with the news and, days later, met with Strauss, Gutfreund, and Feuerstein to decide what to do. Feuerstein advised the others that Mozer's act was probably "criminal," and the group concluded that the New York Federal Reserve must be told what had happened. But then no one did a thing about telling--neither in April nor in May, June, or July. That was the inaction that Buffett later said was "inexplicable and inexcusable," and that pushed the crisis to its limits.
Talking to Buffett on that Saturday, Munger called management's extended failure to act "thumb sucking," which is a term Buffett thinks he heard repeated when he himself was talking to Strauss and Feuerstein. But he does not otherwise think the two men made any effort to clearly inform him about top management's part in this mess. Some of Salomon's regulators later voiced a similar complaint, saying they were told about top management's dereliction, but in soft, shrouded words that failed to get the point across.
Even so, that left them better off than the public, which in the Aug. 9 press release learned absolutely nothing about management's having known anything, at any time. In his phone conversation with Feuerstein, Munger sharply challenged the omission. But Feuerstein said that management and its lawyers worried that too much disclosure would threaten the firm's "funding"--its ability to roll over the billions of dollars of short-term debt that became due every day. So Salomon's plan was to tell its directors and regulators that management had known of Mozer's misconduct, but to avoid saying this publicly. Munger didn't like it, finding this behavior neither candid nor smart. But not considering himself an expert on "funding," he subsided.
When he and Buffett talked on Saturday, however--with the Salomon story played big on the front page of the New York Times--they resolved to insist on prompt disclosure of the full facts. On Monday, Munger delivered their strong opinions to Gutfreund's close friend and adviser, Martin Lipton of Wachtell Lipton, and was told that the matter would be discussed at a telephone board meeting scheduled for Wednesday afternoon. Buffett, meanwhile, was talking to Gutfreund, who allowed that just about all the affair meant was "a few points on the stock."
At the Wednesday board meeting, the directors heard a reading of a second press release, which included three pages of details and a straightforward admission that top management had learned of Mozer's February transgression back in April. But a sentence that followed sent the directors into a telephonic uproar. It said that management had then failed to go to the regulators because of the "press of other business." Buffett, listening in Omaha, remembers calling this impossibly lame excuse "ridiculous." The explanation in the press release was later changed to incorporate the words "due to a lack of sufficient attention to the matter, this determination was not implemented promptly," another passive-voice specimen slightly less lame but unflinching in its refusal to assign any blame.
"The Atom Bomb"
The real offense of that Wednesday directors meeting, though, was not language but a flagrant omission: Gutfreund's failure to tell the board that he had the day before received a letter from the Federal Reserve Bank of New York that contained some doomsday words. The letter was signed by an executive vice president of the bank, but anyone reading it would have known that behind it stood 6 feet 4 inches of Irish force and temper, Gerald Corrigan, the bank's president. Corrigan by then knew enough to have become incensed by these doings on his watch. The letter said that Salomon's bidding "irregularities" called into question its "continuing business relationship" with the Fed and pronounced the Fed "deeply troubled" by the failure of Salomon's management to make a timely disclosure of what it had learned about Mozer. It asked for a comprehensive report within ten days of all "irregularities, violations, and oversights" Salomon knew to have occurred.
Buffett learned later that Corrigan expected the letter to be promptly given to Salomon's directors, whom he believed would just as promptly recognize that top management had to be changed. When the directors didn't act, Corrigan thought they were being defiant--but instead, of course, they were simply in the dark. Buffett did not hear about any Fed letter until later in the week, when he spoke to Corrigan, and even then Buffett assumed the Fed had only sent a request for information. Buffett did not actually see the letter until more than a month later, after he heard Corrigan refer pointedly to it in congressional hearings.
In Buffett's opinion, the Fed's belief that its letter had been ignored stoked the fury with which the regulators came down on Salomon a few days later. There is no shortage, Buffett says, of "vital matters" that Gutfreund, Strauss, and Feuerstein kept from the directors in the previous months, all the while acting as if things were perfectly normal. But not conveying the Fed letter to the board was in his thinking "the atom bomb." Or maybe, he says, a more earthy description fits: "Understandably, the Fed felt at this point that the directors had joined with management in spitting in its face."
A "Run" on Salomon
You may reasonably ask what was going on in Salomon's stock while all of this was transpiring. It was emphatically down, from above $36 per share on Friday to under $27 on Thursday, when the second press release rocked the market. But the stock was only the facade for a much graver matter, a corporate financial structure that by Thursday was beginning to crack because confidence in Salomon was eroding. It is not good for any securities firm to lose the world's confidence. But if the firm is "credit dependent," as Salomon was to an extreme, it cannot tolerate a negative change in perceptions. Buffett likens Salomon's need for confidence to a mortal's need for air: When the required good is present, it's never noticed. When it's missing, that's all that's noticed.
Unfortunately, the erosion of confidence was occurring in a company grown enormous. Salomon in August of 1991 had bulged up to $150 billion in assets (not counting, of course, huge off-balance-sheet items) and was among the five largest financial institutions in the U.S. Propping the company on the right-hand side of the balance sheet was--are you ready?--only $4 billion in equity capital, and above that was about $16 billion in medium-term notes, bank debt, and commercial paper. This total of about $20 billion was the capital base that supported the remaining $130 billion in liabilities, most of these short-term, due to run off in one day to six months.
The paramount fact about those liabilities is that short-term lenders have their track shoes on at all times: They have absolutely no enthusiasm for earning an extra fraction of a percentage point in interest if they perceive that their capital is even slightly at risk. Just waving a premium rate in front of them is in fact counterproductive, since it makes them suspect there is hidden danger. Moreover, unlike commercial banks, whose creditors can look to the FDIC or to the "too big to fail" doctrine, securities firms have no declared "Big Daddy" whose mere presence is a deterrent to runs.
So on that Thursday, Salomon began to experience a run. It materialized out of left field in the form of investors who wished to sell this big-league trader and market maker, Salomon, its own debt securities--specifically, the medium-term notes that the company had outstanding. Salomon had always made a market in these securities, but that was ordinarily a yawn, since nobody wanted to sell. But now the sellers poured in. Salomon's traders responded by lowering their bids, trying to deter the traffic--dying to do that, in fact, because every repurchase of notes they made melted down the capital base that was holding up the whole Salomon structure. Finally, after the traders had bought about $700 million of the notes, Salomon did the unthinkable: It stopped trading in its own securities. That called a halt on the rest of the Street too. If Salomon wasn't going to buy its own paper, it's for sure nobody else would.
Gutfreund Falls
That Thursday evening, as newspapers cranked out their stories of the day's extraordinary events at Salomon--when the teller's window slams down, there's no keeping it secret--John Gutfreund and Tom Strauss talked by phone to Gerry Corrigan. Trouble was all around, and in the conversation Gutfreund and Strauss questioned their ability to keep leading Salomon.
The next morning, at 6:45 A.M. Omaha time, Buffett was awakened by a phone call. On the line were Gutfreund, Strauss, and Marty Lipton. Gutfreund said that he and Strauss were resigning, and the question of who was going to take over sort of hung there. Gutfreund later said he asked Buffett to take the job. Buffett thinks he volunteered. He did not in any case nail down anything while at home, but instead said he would call the New Yorkers when he got to his office, five minutes away. Once there, he looked at a just-arrived fax of that day's New York Times story, whose front-page headlines said:
Wall Street Sees a Serious Threat to Salomon Bros.; High-Level Resignations and Client Defections Feared
And at 7:45 A.M. Omaha time, he called the Salomon group back and said he would take on the job until things got straightened out.
To this day, newspapers report that he went in to protect Berkshire's $700 million, but that seems awfully simplistic. Sure, he wished for the safety of that investment. But beyond that, he was a director of a company in deep trouble and, in a way that few directors do, he felt an obligation to all of its shareholders. In addition, he had a job--CEO of Berkshire-- that he could for a while run with one hand while picking up trouble in the other, and for the $1 a year he earned at Salomon, he didn't need to waste time working out an employment contract. Okay, he knew he was changing his life, and not for the better. "But somebody had to take this job," he said then and has said since, "and I was the logical person."
On that Friday morning, Buffett made immediate plans to fly to New York. But the group from Salomon had asked him to stay at his office to await a call from Corrigan, and it was slow in coming. While Buffett waited, the stock market opened--but trading in Salomon stock did not. Then came the call from Corrigan. It was short and contained word that he was willing to let up a little on "the ten-day schedule" now that Buffett was entering the picture. Not having seen the Fed's letter, Buffett didn't have a clue what Corrigan was talking about, but grasped from the context that the Fed must be asking for information. When the conversation ended, Buffett flew to New York, arriving there around 4 P.M. By that time, Salomon had released the news that he was becoming interim chairman, and the New York Stock Exchange had opened up trading in the stock. In its brief exposure to the light, the stock traded heavily and moved up a dollar, closing just under $28.
Buffett's own exposure that day included an evening meeting with Corrigan at the Fed's office. Gutfreund and Strauss went too, and the three men stepped into a session totally devoid of the cordiality that normally greets Buffett. Corrigan said soberly that he hadn't found that interim chairmanships worked well; warned Buffett that he should not attempt to get around Corrigan by seeking help from "Washington friends"; and, in a dire but mysterious comment, told Buffett to prepare for "any eventuality."
Then he asked Buffett to step out while he talked privately to Gutfreund and Strauss, two men who had long been--past tense needed here--friends of his. When the two emerged, Gutfreund told Buffett that Corrigan had emotionally expressed his personal regrets about the part he was playing in ending their careers. Gutfreund, iron tough to the end, angrily dismissed the incident when talking to Buffett, saying he wasn't about to grant Corrigan "absolution." Today, Buffett, recalling those strange moments, remembers also that George Washington cried as he signed the death warrant of Major Andre, a British spy. But like Corrigan, he signed.
Tough Decisions
For Buffett, the rest of Friday and all of Saturday were given over to crucial operating decisions. One obliged him to address the fate of John Meriwether, who had sped to tell his bosses about Mozer's misdeeds when he learned of them but then had willingly or unwillingly got caught up in the web of nondisclosure. Marty Lipton, terribly visible in these crisis days, wanted Meriwether fired, and so did a good many members of the management committee, who were clawing for anything that might save the firm.
But Buffett, unclear that it was fair to fire Meriwether, kept searching for more understanding of what had truly happened after April. He gained some knowledge on Saturday, when two Wachtell Lipton lawyers spent more than an hour telling Buffett and the surviving members of Salomon's management committee what they had learned in their investigation, which had begun in early July. Then, late on Saturday, the Meriwether question became moot, because he himself decided it was best that he resign.
The still bigger decision facing Buffett was determining which member of Salomon Brothers' executive group would become the new head of the securities operation, now losing its two bosses, Gutfreund and Strauss. So on Saturday, at Wachtell Lipton's offices, Buffett talked serially to about ten members of Salomon's management committee, asking each man whom, among this group, he thought most qualified to run the business. The great majority said Deryck Maughan, then 43, who had recently returned from running Salomon's Tokyo office and been made co-head of investment banking. Maughan himself had a subtle answer: "I think that when you ask many of the others whom they want, you'll find it's me." Buffett knew also that Gutfreund thought the choice should be Maughan. So Buffett identified his man that day. But he held off telling both Maughan and the world because the Salomon board--ready to meet in emergency session at 10 A.M. on Sunday, Aug. 18--needed to ratify the decision and indeed to elect Buffett himself.
A New Crisis
Had the whole regulatory establishment slept through that weekend, the board meeting would still have been a landmark event. But as it was, on Saturday Salomon's regulators were putting the finishing touches on a guided missile. It hit Salomon's offices in downtown Manhattan just before 10 A.M. on Sunday, by way of a phone call from the Treasury saying that in a few minutes it would announce that Salomon was to be barred from bidding at Treasury auctions, both for its own account and for customers.
Buffett got the message in a small room where he was talking with a handful of people, including two, Gutfreund and Strauss, who were set to offer their resignations at the meeting. The three men immediately concluded that the news would put Salomon out of business--not because of the economic loss that would be sustained because of the Treasury's lockout, but because the world would interpret the news as TREASURY TO SALOMON: DROP DEAD. Furthermore, this blow would fall on a company already staggered by credit problems and just barely hanging on.
Nor was there time to maneuver: Word had already gone out that Buffett would appear at a 2:30 P.M. press conference, and a crowd of journalists was expected. Worse than that, the tyranny of a worldwide market was bearing down on the firm. The Japanese market would be opening in the late afternoon, and then London, and then New York. Bad news would cascade from one market to the other and center on just one thought: Salomon's credit is shot. In a firm dependent on credit, other thoughts didn't matter anyway. This one alone would destroy the company.
In the small room where they got the news, Buffett and the others huddled to consider their options. They saw three possible courses of action. First, get the Treasury to rescind or at least modify the ban. Second, put on a brave face, spout confident statements, and hope that the world would buy the act--or, in other words, lie. Third, liquidate by declaring bankruptcy, hoping thereby to fail honorably, minimize the damage, and spread its effects equitably among Salomon's creditors.
The second strategy got ditched almost before it was articulated. The other two lived and were pursued simultaneously. That meant bankruptcy lawyers needed to be called in. A team was summoned from Wachtell Lipton and put to work investigating how a mammoth international securities firm goes bankrupt, on a Sunday, possibly needing some judge, yanked from watching baseball and eating popcorn, who might suspect that a careless typist had added an extra zero to that figure of $150 billion, and who would in any case probably never have heard of a derivative or repos or fails to deliver. In short, the bankruptcy filing, if things came to that end, was going to be a nightmare.
In a personal sense, it would have been that for Buffett also. His job description was on the verge of drastic changes that would leave him no reason for being there: He had come to save Salomon, not to escort it through the endless process of bankruptcy. All manner of people could do that job, he told himself.
So early on that Sunday, Buffett concluded that he would refuse election if bankruptcy ensued. He did not, however, kid himself about the furor that would follow, since he knew that his exit would be viewed as the abandonment of a sinking ship or, worse yet, as the very cause of its going down. Buffett had long told his three children that it takes a lifetime to build a reputation but only five minutes to tear it down. As he moved along through Sunday, he told himself he might be edging up on the five minutes.
But that did not short-circuit a ton of energy he was putting into Plan A: getting a reversal of the ban. Buffett assigned himself to calling the Treasury and also talked once that day to Fed Chairman Alan Greenspan. Gutfreund and Strauss were put on the job of finding Corrigan, who proved hard to reach. Meriwether, lending help, was told to track down Richard Breeden, chairman of the SEC. That thrust turned out to be a total nonwinner. Breeden, once Meriwether got him, said he had participated in the Treasury's decision, pronounced Salomon "rotten to the core," and said it would get no help from him.
On the Treasury front, logistics dealt an early blow. When Buffett tried almost immediately to call back the Treasury official who had delivered the awful message, the line was busy. The phone company agreed to interrupt the call, but there was confusion and error and delay. By the time Buffett actually got through to the Treasury spokesman, the announcement of the Treasury ban had hit the wires and gone flashing around the world.
The Most Important Day
The Treasury spokesman then got Secretary of the Treasury Nicholas Brady, at that moment visiting Saratoga Springs, N.Y., for the horseraces, to call Buffett. The two men had been friendly acquaintances over the years but could hardly have imagined they would be facing off on this Sunday morning. His voice cracking with emotion and strain, Buffett made his case, telling the Secretary that Salomon could not cope with the Treasury ban and that it was bringing in bankruptcy experts to prepare for a possible filing. Buffett stressed Salomon's gargantuan size and the worldwide nature of its business. He predicted that a Salomon bankruptcy would be calamitous, having domino effects that would reach worldwide and play havoc with a financial system that subsists on the idea of prompt payments.
Doomsday scenarios are not easy to get across. Responding, Brady was friendly and empathetic but inclined to think this talk of bankruptcy and financial meltdowns was far-fetched. He could not imagine Buffett refusing to take the job or failing in its execution. Brady was also highly aware of where things stood: The announcement had gone out, and reversing it would be an enormous problem.
But to Buffett's enormous relief, Brady did not cut off the dialogue. Instead, he went off to make some calls and then kept getting back to Buffett. In one of the stranger details of the day, Buffett talked on Salomon phones that had been programmed not to ring but instead flashed a tiny green light when someone was calling. For longer than he cares to remember, Buffett stared at the telephone, waiting for the Secretary of the Treasury to create light. With each call, Buffett tried to make Brady realize the seriousness of the situation and his sense that they were rocketing along on a train that had to be stopped--but that could be, once everybody realized that this was an accident that mustn't be allowed to happen. At one point in the Brady conversations, all of Buffett's anguish and sense of futility got jammed into a single sentence: "Nick, this is the most important day of my life." Brady said, "Don't worry, Warren, we'll get through this." But that didn't mean at all that he had changed his opinions.
It took Corrigan's entrance into the telephone calls in the afternoon to make a difference. This was the man who told Buffett to prepare for "any eventuality" and defined his term by endorsing the ban. But Corrigan now listened hard and seemed to assign credence to Buffett's talk of bankruptcy and of his personal plans to leave were a filing to come. Said Corrigan to Brady and another regulator on the phone with them: "We better talk among ourselves." Buffett went back into the boardroom and waited with the other directors. Six floors below, over 100 reporters and photographers, this author among them, were gathering for the 2:30 press conference. Directly outside the boardroom, some of the managing directors that Buffett had interviewed on Saturday were milling around, summoned because one of their number was to be named operating head of Salomon.
And then, just at 2:30, Jerome Powell, an Assistant Secretary of the Treasury, called Buffett to read a statement the Treasury was ready to go with. It was effectively half a loaf, or maybe two-thirds, saying that the ban on Salomon's bidding for its own account was lifted while the ban on bidding for customers' accounts remained. "Will that do?" asked Powell. "I think it will," answered Buffett. The board then raced through electing Buffett as interim chairman of Salomon Inc. and Deryck Maughan as a director and operating head of Salomon Brothers. Buffett found Maughan and said, "You're tapped," and the two went down to the press conference, entering at 2:45.
The start was abrupt: "I'm Warren Buffett, and I was this afternoon elected interim chairman of Salomon Inc." A few minutes later he was into the just-released Treasury announcement, which he read aloud. When he finished, there were muffled cheers from the back of the auditorium and a scrambling of feet as employees ran with the lifesaving news. Buffett then moved into more than two hours of questions. "How will you handle needing to be both here and in Omaha?" he was asked, and the answer popped right back: "My mother has sewn my name in my underwear, so it'll be okay."
A Final Payoff
On Monday, the headlines didn't say DROP DEAD; they took in the reversal as well as the ban. Salomon's stock opened on time and traded in orderly fashion, falling about a point and a half.
Pointing out a paradox, Buffett says today that the whole Treasury episode, excruciating though it was at the time, probably gave Salomon a boost that it could not have got any other way. The reversal, coming along at 2:30 P.M., sent a message to the market that this almighty regulator, the Treasury, thought Salomon was okay. Had not that endorsement materialized, Monday's debt markets would have been forced to make their own determination about Salomon's creditworthiness, and who knows what kind of thoughts they would have pulled from the ether.
As it was, Salomon emerged from that weekend with just enough stamina to limp through some exceedingly tough months, in which the interim CEO reduced leverage by vastly shrinking the balance sheet, haggled with banks about money Salomon badly needed, and hoped above all else that Mozer's wrongdoing (which cost him nearly four months in prison after he pleaded guilty to lying to the Fed) would not entrap Salomon itself in criminal charges. In the end, the company settled for $290 million, an outcome mainly reflecting the extraordinary cooperation Buffett decreed should be given both regulators and the law in getting things cleaned up.
A big broom in this cleanup was a California lawyer who had worked often for Berkshire, Robert Denham, and whom Buffett pulled into Salomon full-time. When May of 1992 rolled around, with many of Salomon's biggest problems under control, Buffett went back to Omaha, and Denham stepped into his place as chairman of Salomon Inc. and overseer of the shareholders' interests. Having now overseen these folk into $9 billion of Travelers stock, Denham will be stepping on to something else.
And Berkshire's part of the $9 billion? It's about $1.7 billion, though some of the Travelers stock Berkshire will receive is committed to holders of a Berkshire convertible bond. About that complication you do not wish to know more, nor do you wish to deeply analyze other acrobatics that Buffett has carried out with Salomon stock. Just note this: a share of Salomon is right now worth about $81 in Travelers stock. Against that, Berkshire owns some Salomon stock that it bought in 1987 at an effective price of $38, and it owns other Salomon shares purchased later at an average price of about $48.
In short, Buffett said in 1987 that Salomon wouldn't be "a triple," and it hasn't been. On the other hand, this record hardly equates to a strikeout. "I'd say we hit a scratch single," says Buffett, "but not before the count got to 0 and 2."
And then inching oh-so-slightly toward a philosophical summary of Salomon, he hauls out one of his favorite expressions: All's well that ends.
Two Views; Zero Pay
In Salomon's chaotic weekend of Aug. 16-18, 1991, outgoing CEO John Gutfreund was unstintingly helpful in trying to ease the transfer of power and combat the dangers of Sunday. But he was also worried about his economic future. So on Saturday, his lawyer, Philip Howard, tried to get some sort of assurances out of Buffett and Munger as to what Gutfreund's severance package would be. Buffett and Munger had no real stomach for this discussion on that incredibly tense and busy day, but they thought Gutfreund deserved the courtesy of a hearing. Later, though, it turned out that the two sides disagreed on what, if anything, was decided that night. The point is important not only because of what eventually was decided about Gutfreund's compensation but also because it illustrates how memories and perceptions differ when events are dramatic and strung out, as they were at Salomon in 1991. You can say this in other words: This article that you have been reading mainly describes how Buffett saw events; a Gutfreund account of the same period would be different.
In the compensation talks on that Saturday, Howard says he and Munger came to an understanding that Munger and Buffett would support severance of $10 million to $15 million. Munger and Buffett say they refused to commit to any figures at that point. Ultimately they agreed with the board's determination to offer $8.6 million. Gutfreund was offended by this amount, and refused. The dispute then became a New York Stock Exchange arbitration case, put before a panel of three experienced Wall Streeters. Gutfreund asked for $55 million. The arbitrators decided to give him nothing--not a cent.
Paulson wouldn't go up there and sit in front of the Senate if the deal were not already signed sealed and delivered. The drama on TV is so the public can hear all the reasonable objections and have them explained away. To overwhelm dissent I expect they let the S&P500 wobble around and do another death drop to new lows. That would quickly shut up Congressional complaints and get Joe Sixpack on the bandwagon for total government takeover of the banking, brokerage and insurance industry.
Looks like the Fed wants the market to frown on Congresses questioning...
Temporary Open Market Operations
Deal Date: Wednesday, September 24, 2008
Delivery Date: Wednesday, September 24, 2008
Maturity Date: Thursday, September 25, 2008
Type of Operation1: Reverse Repo
Settlement: Same Day
Term of Operation2: 1 Day
Operation Close Time: 09:40 AM
Treasury Accepted 25billion
Fed moves again to boost dollar liquidity
Adds $30 billion in swap lines with four more central banks
By William L. Watts, MarketWatch
Last update: 7:49 a.m. EDT Sept. 24, 2008
Oops... it looks like the fed sees another massive deluge of sell orders coming in. probably after the congressional meeting yesterday. I think foreign investors are losing more and more confidence in the US. if the 700 bil bailout doesn't pass no amount of monetary injection will cover the amount of money that will flow out of the US markets.
LONDON (MarketWatch) -- The Federal Reserve ramped up its effort to stabilize tight credit markets Wednesday, setting up swap lines that will provide $30 billion to central banks in Australia, Sweden, Denmark and Norway for short-term loans to commercial banks.
The Fed last week made an additional $180 billion available to money markets through swap lines to major central banks.
With Wednesday's move, the U.S. central bank has made a total of $277 billion available for short-term money-market lending in dollars through its foreign counterparts.
"These facilities, like those already in place with other central banks, are designed to improve liquidity conditions in global financial markets," the Fed said in a statement. "Central banks continue to work together during this period of market stress and are prepared to take further steps as the need arises."
Central banks routinely conduct open market operations to add or drain liquidity in effort to keep the overnight rates at which banks lend money to each other near official targets, such as the U.S. Fed funds rate or the Bank of England's bank rate.
In times of turmoil, banks can become increasingly reluctant to lend to each other due to a variety of reasons, including a desire to hoard cash to build up their own capital or uncertainty about the soundness of other banks. In extreme circumstances, money markets can virtually freeze, halting the credit creation process.
As a result, the Fed and other central banks have made huge injections of dollars and other currencies into the financial system via short-term loans in an effort to maintain the credit markets.
The Fed's action last week boosted the amount available to money markets through swap lines with the European Central Bank and the Swiss National Bank and created new swap lines with the Bank of England, the Bank of Japan and the Bank of Canada.
The European Central Bank on Wednesday allotted $40 billion in overnight dollar loans in its daily auction amid strong demand. The Bank of England allotted $29.9 billion of the $40 billion in overnight dollar funds it offered Wednesday.
In a sign of easing tensions in the overnight sterling market, the Bank of England for the second day on Wednesday moved to drain 10 billion pounds ($18.4 billion) of reserves from the system.
"This action is being taken in response to conditions in the short-term money markets," the central bank said, in a statement announcing the operation. "The Bank of England continues to monitor money market conditions closely."
Overnight lending rates in dollars and other currencies have eased after spiking last week in the wake of the collapse of Lehman Brothers and mounting global worries over turmoil in the financial sector. But banks still appear reluctant to lend to each other for longer periods, leaving other short-term interest rates at elevated levels.
End-of-quarter positioning has also served to make banks reluctant to lend, pushing rates higher, analysts said.
The swap lines with Australia and Sweden will provide up to $10 billion each, while the lines with Norway and Denmark total $5 billion each.
William L. Watts is a reporter for MarketWatch in London.
So the Hold to Maturity price that Paulson and Bernanke want to price everything at is going to be a magic number that these two are going to dream up in an auction when they place the first bid for a CDO. What they are saying is if they keep buying securities at this HtM price then the asset values stay high.
But does that reestablish trust in the housing market. I mean the assets that back these CDOs are still crap and floating in the market with little or no hope of returning any value. In fact they may offer negative value (cost to maintain, secure, demolish, taxes).
Sure this frees up credit and gets Wall Street rolling. I mean they shed the crap and move on like nothing ever happened. And the audacity to say that taxpayers should not get a stake in the firms that sell these assets because private investors will not want to compete with them on future profits. WTF!?!?! Fark private investors. If this is the bed Financials made they should lay in it suffer some consequences. And speaking for private investors we will participate in just about any venture for a piece of the pie. There are a lot of corporations in Socio-Capitalist countries that have taxpayer ownership and that does not stop investors from jumping in. Having it provides a level of security. Look at the US GSEs FNM and FRE... case in point.
Paulson is not mutch of a bullshit artist. This is pathetic.
Berkshire to invest at least $5 billion in Goldman
Buffett may be lured by stabilized business model of Wall Street firm
Look at the terms highlighted below. Buffett gets in cheaper than the current market value and at a premium. My guess is that he will help GS pump up the common stock price so help them raise capital.
By Alistair Barr & Jonathan Burton, MarketWatch
Last update: 6:26 p.m. EDT Sept. 23, 2008
SAN FRANCISCO (MarketWatch) -- Berkshire Hathaway agreed late Tuesday to invest at least $5 billion in Goldman Sachs Group, with billionaire investor Warren Buffett backing a Wall Street firm that's begun transforming itself into a more-stable banking business.
Berkshire, the insurance-focused conglomerate run by Buffett, will invest at least $5 billion in Goldman by buying $5 billion of perpetual preferred stock issued by the investment bank. The securities pay a dividend of 10% and is callable anytime at a 10% premium.
Berkshire also gets ,warrants to purchase $5 billion of Goldman common stock with a strike price of $115 a share. Buffett can exercise these at anytime over five years, Goldman said in a statement.
"Buffett did this after Goldman converted to a bank holding company," said Pat Dorsey, director of equity research at Morningstar.
This means the Federal Reserve will be Goldman's new regulator, so Buffett "has people looking over their shoulder," he added.
"Buffett is saying that, with less leverage and more stable sources of funding, this is an institution worth investing in," according to Dorsey. "From Buffett's perspective you have a world-class firm in a less-competitive landscape, with a hopefully less-risky business model."
NOTE ----->>>> Goldman also said that it's raising at least $2.5 billion by selling common stock in a public offering.
Shares of Goldman Sachs shares jumped 7% to $134 in after-hours trading Tuesday.
Buffett's investment is "a strong validation of our client franchise and future prospects," said Lloyd Blankfein, chief executive of Goldman, in a statement. "This investment will further bolster our strong capitalization and liquidity position."
"Goldman Sachs is an exceptional institution," Buffett commented. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance." End of Story
Alistair Barr is a reporter for MarketWatch in San Francisco.
Jonathan Burton is an assistant personal finance editor for MarketWatch, based in San Francisco.
On a highly different note... Report: Hedge funds suffer mass redemptions
by CalculatedRisk
From the Independent: Hedge funds suffer mass redemptions
Hedge funds could have an unprecedented level of cash pulled out by investors this quarter, according to insiders, just as they faced millions of pounds of losses from last week's shock regulation of short selling.
...
The redemptions seem to have started in earnest, although currently the evidence is mainly anecdotal. One UK hedge fund manager confided that last week had the highest number of investors rushing to withdraw funds that he has known. The industry will know for sure whether it is a drip or a deluge when the data providers release their statistics for the third quarter, next month. One market analyst said: "I know even the good hedge funds have been suffering withdrawals recently. Investors are very nervous."
Roubini predicted that the next phase would be hedge fund withdrawals:
“The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years.”
If this report is accurate, kudos (again) to Roubini!
So this is why Paulson does not want to redefine bankruptcy laws and let mortgagees have an exit.
This is how wall street gets off scott free and not get held accountable for this credit crisis.
this is how he can say that the taxpayer may profit SOMEDAY.
It doesn't help the mortgagee, it assigns him to indentured servitude to the government until his debt is resolved. slavery.
why he is ramming it through so fast? easy Paulson's buddies on wall street are dropping like flies and he needs to act fast enough to save as many as he can before MS, or WM, or even GS gets hurt more by this crisis.
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NYSE Composite vs the NYSE Summation
What I am looking for here is divergence in summation relative to price in the NYSE Composite which is what Summation tracks. You will recognize that the July 2002 low in the NYA resulting in a deep low on Summation. While price trended sideways in the NYSE Composite and most market indexes the Summation signaled a higher high in October and by April of 2003 there was still an even higher high in Summation with still a trending market. If current Summation does not break the -1200 previous low and signals a higher high then we are probably about 3-6 months form a major market bottom for another multi year rally as the business cycle resumes.
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