STOCK MARKET WATCH, Monday September 15

[ozymandius]

Source: du

STOCK MARKET WATCH, Monday September 15, 2008

COUNTING THE DAYS
DAYS REMAINING IN THE * REGIME 125
DAYS SINCE DEMOCRACY DIED (12/12/00) 2794 DAYS
WHERE'S OSAMA BIN-LADEN? 2519 DAYS
DAYS SINCE ENRON COLLAPSE = 2810
Number of Enron Execs in handcuffs = 19
ENRON EXECS CONVICTED = 10
Enron execs conveniently deceased = 3
Other Arrests of Execs = 54

---

U.S. FUTURES &
MARKETS INDICATORS>
NASDAQ FUTURES-----------------------------S&P FUTURES

---

AT THE CLOSING BELL WHEN BUSH TOOK OFFICE on January 22, 2001
Dow - 10,578.24
Nasdaq - 2,757.91
S&P 500 - 1,342.90
Oil - $27.69/bbl
Gold - $266.70/oz.
$1 USD = EUR 1.06678
$1 USD = JPY 116.6200

AT THE CLOSING BELL ON September 12, 2008

Dow... 11,421.99 -11.72 (-0.10%)
Nasdaq... 2,261.27 +3.05 (+0.14%)
S&P 500... 1,251.70 +2.65 (+0.21%)
Gold future... 764.50 +19.00 (+2.49%)
30-Year Bond 4.33% +0.11 (+2.66%)
10-Yr Bond... 3.73% +0.11 (+2.98%)






GOLD,EURO, YEN, Loonie and Silver

---

PIEHOLE ALERT

Heads Up!
Preliminary info on appearances by Bush & Co. throughout the country. Details & links are added as they become available so check back. And if you know more, are organizing something, or would like to, contact [e-mail]

For information on protests and other actions Citizens For Legitimate Government

---

Read more: du

[ozymandius]

1. Market WrapUp

Fun With Funding
BY BRIAN PRETTI

The following is an excerpt from a discussion we published about a month back on our subscriber site. In light of events of last weekend, I suggest it’s an especially timely topic right about now. The Fed/Treasury/Administration may believe they have won another credit cycle reconciliation battle with the Fannie and Freddie bailout (our children and grandchildren will be overjoyed), but what about the much bigger picture war?

Fun With Funding...You know that for some time now we have been preaching about what we believe to be one of the most important macro themes of the moment that is deleveraging. Important both for financial market and real world economic outcomes ahead. And, whether we like it or not, it's a theme that we believe will be with us for a good while to come. The ultimate contraction of balance sheets in the financial, household and corporate sectors will be a process, not an event, with plenty of volatility along the way. For those attempting to call interim bottoms with respect to this phenomenon as we travel along this path, as we have already seen this year and will undoubtedly continue to see again, our only comment is good luck. In the much larger picture, it was this very multi-decade expansion of private sector balance sheets in aggregate that in large measure drove corporate profits over the longer cycle. So now that deleveraging and balance sheet shrinkage is destined to play out ahead, all as part of the natural progression of a longer term credit market cycle, the trajectory or rate of change in corporate profit growth is in question. A major issue for the financial markets, especially equities. We believe the markets are just starting to wake up to this long cycle thematic realization.

But perhaps another major issue that is not being given enough attention is the fallout consequences due to the one balance sheet not destined to shrink during this process of deleveraging we have described, and that's the balance sheet of the Federal government. While the financial markets, the household sector and in good part the corporate sector engage in long overdue deleveraging, a natural offset to avoid either the reality or perception of collapse will be the continued expansion of the government's balance sheet. And this process of expanding the Federal balance sheet, as you know full well, has already begun in full force. For now, the de facto bail out of the GSE's and the residential mortgage bail out bill are two poster child examples of this phenomenon at the exact point of acceleration. Even the auto manufacturers have their hands out. Will it be the airlines next? Unfortunately, we expect a lot more where this came from ahead. In one sense, the government really has no choice. This is the price all US taxpayers will bear for years of regulatory self induced blindness. Could our current set of circumstances have been avoided? Of course, but regulatory oversight simply turned a blind eye in deference to the Wall Street and credit cycle driven profit motive. Let's face it, a lot of individuals became very wealthy during the prior credit cycle mania period, now clearly seen to be at the expense of the larger US taxpayer base. Privatizing profits and socializing risk. Sounds like Russia a decade ago, no? Welcome to the USSA. As Jim Grant recently opined, "where is the outrage?" We have no idea.

Enough of the ranting and raving. Let's get to the point. As this process plays out and the Federal government is continually forced to expand its balance sheet as an offset to the leverage contraction occurring largely throughout the remainder of the economy and domestic financial markets ahead, THE big question becomes, where will the funding for this balance sheet expansion come from and what will it ultimately cost? A question near and dear to the hearts of US taxpayers everywhere, to say nothing of the investment community. This, we believe, is now and will continue to become one of the most important questions for our investment activities. We cannot take our eye off of this ball as we move ahead. Point blank, and we could not be more serious when we ask this, will the US face a funding problem at some point?

http://www.financialsense.com/Market/wrapup.htm

[readmoreoften]

2. I've been waiting for your opinion on this!

Mornin'!

[ozymandius]

4. Good morning.

:donut:

Here are some opinion pieces from yesterday.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3489103&mesg_id=3489209
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3489040&mesg_id=3489074
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3489040&mesg_id=3489117

I'll reiterate some points:

The financial instruments today are so exotic that no one knows fully how Lehman's unwinding will impact banks and markets. This is a super slo-mo train wreck taking place.

The Lehman holding company has filed Chapter 11 for protection from creditors. That buys some time to make further arrangements for the subsidiaries. Subsidiaries will probably file Chapter 7 so that money can be returned to investors. This move will mitigate some panic over money just disappearing into the ether.

The true shitstorm will happen in the shadow banking system that investment banks have established for themselves alone.

[DemReadingDU]

25. Thanks, we might need 2 SMW threads today

looks like a very busy day

[ozymandius]

3. Reports

08:30 NY Empire State Index Sep
Briefing.com NA
Consensus 1.4
Prior 2.8

09:15 Capacity Utilization Aug
Briefing.com 79.6%
Consensus 79.6%
Prior 79.9%

09:15 Industrial Production Aug
Briefing.com -0.3%
Consensus -0.3%
Prior 0.2%

http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

[UpInArms]

78. U.S. Aug. industrial production falls 1.1% vs -0.3% expected

02. U.S. Aug. manufacturing output falls 1%
9:15 AM ET, Sep 15, 2008

03. U.S. Aug. capacity utilization falls to 78.7%, 4-year low
9:15 AM ET, Sep 15, 2008

04. U.S. Aug. motor vehicle output plunges 11.9%
9:15 AM ET, Sep 15, 2008

05. U.S. Aug. industrial production falls 1.1%, most in 3 years
9:15 AM ET, Sep 15, 2008

06. U.S. Aug. industrial production falls 1.1% vs -0.3% expected
9:15 AM ET, Sep 15, 2008

[UpInArms]

79. U.S. Sept. Empire State index falls to -7.4 from 2.8 in August

24. U.S. Sept. Empire State index falls to -7.4
8:34 AM ET, Sep 15, 2008

[NeoConsSuck]

5. S&P Futures down over 3%

if AIG gets downgraded by S&P, things are really going to get bad today.

[ozymandius]

8. AIG looking at "options" for businesses, capital

CHARLOTTE, N.C. - American International Group Inc. said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings.

....

New York Insurance Superintendent Eric Dinallo and a representative of the state's governor's office have spent the weekend at AIG's offices working with the company and others to craft a solution that protects policyholders, said Dinallo's spokesman David Neustadt in an e-mail.

AIG's chief executive, Robert Willumstad, who took the reins on the world's largest insurer in June, may announce a turnaround plan Monday, possibly involving the disposal of major assets including its domestic automotive business and its annuities unit, the Wall Street Journal reported, citing unidentified people. Also possibly up for sale is the company's aircraft-leasing business.

....

The need for action was likely exacerbated by the plunge in AIG's stock, which tumbled more than 30 percent on Friday alone. Standard & Poor's warned that it could cut AIG's credit rating by one to three notches because of concerns that AIG will have difficulty accessing capital in the short term.

http://news.yahoo.com/s/ap/20080915/ap_on_bi_ge/american_international_group_restructuring

[ozymandius]

19. AIG wants $40B from Fed; Market Cap is $32B (WTF?)

From Mish:

This post is an update to AIG Struggling To Stay Alive, Begs Fed For Cash. We now have the number: A.I.G. Seeks $40 Billion in Fed Aid to Survive.

The American International Group is seeking a $40 billion bridge loan from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said Sunday night.

Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.

more...

AIG's Market Cap is only $32.6 Billion. Barring some miracle, AIG's cap will be worth far less than that at the open. $20 billion would not surprise me, especially since it is holding much of the same garbage Lehman will be forced to dump. AIG should not have turned down the private equity opportunity it did earlier today. The Fed should not provide a penny.

http://globaleconomicanalysis.blogspot.com/2008/09/aig-wants-40b-from-fed-market-cap-is.html

[ozymandius]

21. Atrios efficiently describes AIG's bidness

Wikipedia tells me AIG is the 18th largest company in the world. More than that, a chunk of its business involved guaranteeing Big Shitpile. Another chunk of its business involved betting on Big Shitpile.

[nolabels]

119. Yea, looking at what they do, manage and own that sounds close

American International Group
http://en.wikipedia.org/wiki/American_International_Group

[UpInArms]

26. AIG may take sizable markdowns on Lehman impact: UBS

http://www.reuters.com/article/bondsNews/idUSBNG12175020080915?sp=true

(Reuters) - American International Group Inc will likely incur sizable markdowns, as the liquidation of Lehman Brothers Holdings Inc is expected to put substantial pressure on structured finance securities and credit default swaps (CDS), according to analysts at UBS.

AIG may incur over $10 billion in super-senior CDS losses, and $5 billion in realized investment portfolio losses in the third quarter, the analysts said.

AIG, which has been hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor's putting the company's credit ratings on negative watch, indicating a possible downgrade.

Even an equity raise is unlikely to avert a ratings downgrade, UBS analysts Andrew Kligerman, Julie Oh and Brian Meredith said in a note dated Sept 14.

The New York Times earlier reported that AIG, until recently the world's biggest insurer by market capitalization, had made an approach to the Federal Reserve seeking $40 billion in short-term financing.

...more...

[ozymandius]

6. Oil falls below $99 on low Ike damage

SINGAPORE - Oil prices fell below $99 a barrel on Monday after Hurricane Ike inflicted minimal damage to oil installations on the Texas coast.

Light, sweet crude for October delivery declined $2.28 to $98.90 a barrel in electronic trading on the New York Mercantile Exchange midafternoon in Singapore. The contract rose 31 cents on Friday to settle at $101.18 after dropping as low as $99.99 per barrel. Before that, the last time Nymex crude traded below the $100 mark was April 2.

.....

Federal officials said Sunday that the storm destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico — only a small amount of the 3,800 production platforms in the Gulf. Three years ago, back-to-back hurricanes knocked out more than 100 platforms.

.....

In other Nymex trading, heating oil futures fell 2.91 cents to $2.91 a gallon, while gasoline prices dropped 10.56 cents to $2.66 a gallon. Natural gas for October delivery rose 2.7 cents to $7.339 per 1,000 cubic feet.

http://news.yahoo.com/s/ap/oil_prices

[Hugin]

7. Today's SMW History Lesson: The Teapot Dome Scandal

The Teapot Dome Scandal

http://en.wikipedia.org/wiki/Teapot_Dome_scandal

"The Teapot Dome scandal refers to a bribery scandal of the White House administration of United States President Warren G. Harding. "Teapot Dome" is a reference to an oil field on public land in the U.S. state of Wyoming, so named because of a massive boulder that looks like a teapot overlooking the field.

In 1921, by executive order of President Harding, control of naval oil reserves at Teapot Dome in Wyoming and at Elk Hills, California, was transferred from the Navy Department to the Department of the Interior. The oil reserves had been set aside for the navy by President Taft. In 1922, Albert B. Fall, U.S. Secretary of the Interior, leased, without competitive bidding, the Teapot Dome fields to Harry F. Sinclair, an oil operator, and the field at Elk Hills, Calif., to Edward L. Doheny. These transactions became (1922–23) the subject of a Senate investigation conducted by Sen. Thomas J. Walsh."

How many similarities between then and now can you find? I've lost count.

[ozymandius]

10. Good one.

And Harding's wife burned papers that allegedly pointed to Harding's culpability. Somehow, I'm reminded of a fire in the White House of late.

[Hugin]

15. Yes, it would seem those who discourage the study of history are...

actively trying to repeat it. (It goes with today's 'toon, too. Kind of a packaged deal.)

A few things to ponder:

"Another significant outcome was the Supreme Court case McGrain v. Daugherty which, for the first time, explicitly established Congress' right to compel testimony."

"...the first Presidential cabinet member to go to prison for his actions in office."

"Eventually, when the Depression hit, the scandal was part of a snowball effect that damaged many of the big business Republicans of the 1920s."

"It was revealed in 1923 that the FBI (then named the Bureau of Investigation) monitored the offices of members of Congress who had exposed the Teapot Dome scandal, including breaking in and wiretapping."

Is it any wonder the Republicans need their Shiny Spider Hole Lady (Who's soaked in oil on Public Lands) to try
to distract?

[UpInArms]

53. Interior Dept. sloppiness costs U.S. billions

Sloppiness?????? OMG - what they did was criminal! Not Sloppy - Criminal - BIG difference - :grr:

Who writes these headlines???? They are letting them get away - CNN's headline writers are driving the getaway cars for this mal-administration.

http://money.cnn.com/2008/09/12/news/economy/gao_oilroyalties/index.htm?postversion=2008091210

NEW YORK (CNN) -- The sex and drugs scandal revealed earlier this week at the Interior Department may be just the start.

A Government Accountability Office study set for release Friday says the department lacks basic procedures for monitoring the oil industry, and that these shortfalls could be cheating taxpayers out of billions of dollars in revenue. CNN received a draft of the report on Thursday.

The Interior Department tracks production from the energy industry and collects royalties based on that output. Oil and gas royalties are the federal government's second-largest source of revenue, after tax collections.

In fiscal year 2007, the Department of Interior's Minerals Management Service (MMS) collected the equivalent of $9 billion in oil and gas royalties - some of which was shared with states as well as Native American tribes.

On Wednesday, a report by the Interior Department's Inspector General found MMS staffers in Colorado were having sex and engaging in illegal drug use with employees of some of those oil companies. The investigation also found an MMS supervisor had sex with two subordinates and engaged in illegal drug use with at least one of them.

But the GAO study suggests that scandal might be more far reaching.

The department's failure to consistently check oil-company supplied production data, the report found, "raises questions about the accuracy of royalty payments."

The study's author, Frank Rusco, acting director of natural resources and environment at the GAO, said, "there are significant risks when you're relying on self-reported information." Rusco added that there is third-party data they could use to check the production amounts.

The GAO report also found MMS is not inspecting many meters that measure oil and gas production, and sometimes doesn't know when oil companies fail to submit royalty reports. "As a result, MMS cannot be entirely confident that it is receiving all the royalties when they are due," the study concluded.

"This report shows that the U.S. has one of the most lenient royalty collection systems in the world and calls into question whether taxpayers are getting a fair return for the resources they own," said Rep. Nick Rahall, D-West Virginia and chairman of the House Natural Resources Committee.

GAO previously found MMS failed to properly track precisely how much oil was being transferred into the Strategic Petroleum Reserve.

...more...

that last paragraph - not tracking oil being transferredin the SPR?

oh, now that's rich!

[Tandalayo_Scheisskopf]

103. There is the Big Bingo.

"GAO previously found MMS failed to properly track precisely how much oil was being transferred into the Strategic Petroleum Reserve."

A while back, I predicted this. When you have the Koch Brothers, one of whom is married to Doro Bush, sister of Dear Leader, running the SPR, this was fait accompli. Especially when you had record amounts of Oil being pulled off the market and putatively placed in salt domes that had never seen a drop of crude before. At the time, I said that one of the first things a President Obama should do is send a crack GAO/FBI task force down there to run a complete and exhaustive audit of the SPR, amounts in there versus amounts bought, amounts reported and amounts released. The situation, especially at the height of the price runups, was tailor-made for hanky and hinky.

Once again, it looks like I was correct.

All this is really doing a number on my usual thing of being a live-and-let-live, hang out, keep a cool tool kind of guy. I am starting to look fondly at medieval forms of punishment. I especially like the one where people get their intestines wound up on a garden hose reel. Perhaps performed in front of the perps family.

I know. I know. I'll get over this impulse, just you wait and see. ;-)

[Buttercup McToots]

115. Wowy Zowy

I have been watching that...

[ozymandius]

9. Wall Street awakes to 2 storied firms gone

NEW YORK - When Wall Street woke up Monday morning, two more of its storied firms had vanished.

Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.

Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.

.....

On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.

http://news.yahoo.com/s/ap/20080915/ap_on_bi_ge/financial_meltdown

[ozymandius]

12. Bank of America agrees to buy Merrill for $50B

NEW YORK - Bank of America Corp. said early Monday it would acquire Merrill Lynch in an all-stock transaction worth about $50 billion that should lift the uncertainty shrouding Merrill since the start of the credit crisis over a year ago.

Charlotte, N.C.-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch & Co., Inc. is the world's largest and most widely recognized brokerage. A combination of the two will create a global financial services giant involved in everything from fixed-income trading to stock underwriting to credit card lending, which will rival Citigroup Inc., the biggest U.S. bank in terms of assets.

.....

Strategically, most industry analysts are saying it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

http://news.yahoo.com/s/ap/20080915/ap_on_bi_ge/merrill_bank_of_america

[NeoConsSuck]

13. Heard last night on CNBC

that this takeover is going to put a big hurt on some hedge funds that had large short positions in Merril.

[Hugin]

18. See Ozy's post #14:

"The U.S. Federal Reserve also said for the first time it will accept stocks in exchange for cash loans..."

I wonder how much of that junk stock is going to get dumped on the Fed?

[ozymandius]

20. At this point, the Fed appears willing to take IOUs written in crayon

on candy wrappers for loan guarantees. Oddly enough, BoA bought Merrill Lynch with a stock-only transaction. I wonder how that's going to work out in terms of fair value.

[Hugin]

22. I guess gum wrappers are now considered 'precious metals'!

I'm off to turn it into Real Money! :bounce:


I'll be back in a few hours. Today is some Must See SMW!

Take good notes everyone! I'm sure AnneD is going to want to read every word! :D

Edit: My guess, Ozy, is that it won't work out to a fair value. Especially, for the 'average person' and
the Small Investor.

[UpInArms]

32. right on the money again, you are, Ozy! - here's the poop

http://www.marketwatch.com/news/story/fed-expands-loan-program-effort/story.aspx?guid=%7B71DBEE1F%2DDDD0%2D494C%2DA476%2D434842EF0753%7D

<snipping to where the taxpayer picks up the tab for the drunken orgy>

After Bear Stearns collapsed last spring, the Fed determined to make short-term emergency loans to investment banks under a program called the Primary Dealer Credit Facility.

On Sunday the Fed said that the collateral that can be pledged at the PDCF "has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks," the Fed statement said. "Previously, PDCF collateral had been limited to investment-grade debt securities."

Financial firms use repo loans, which are short-term agreements in which a borrower puts up securities as temporary collateral for a loan. The Journal said the more broadly accepted collateral for this facility includes equities.

In addition, the collateral for the Term Securities Lending Facility "also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged," the central bank statement said.

This second facility, the Journal reported, enables firms to swap riskier securities for Treasury bonds.

Expanding the eligible collateral should make these credit lines more effective "in supporting the liquidity of primary dealers and financial markets more generally," the Fed said.

In addition, Schedule 2 Term Securities Lending Facility auctions will be conducted each week instead of the current every two weeks. And Schedule 2 auctions will now offer a total of $150 billion compared with the current $125 billion. Amounts offered in Schedule 1 auctions will remain at a total of $50 billion.

...more gagging...

[Demeter]

65. BofA's Lewis Still Making Deals, But Now Aiming For Distressed Assets

http://www.google.com/reader/view/user/11721077679621642869/label/business-and-economics#stream/feed/http://bigpicture.typepad.com/comments/atom.xml


via The Peridot Capitalist by Chad Brand on 9/15/08

Chad,

If the wires are correct, it looks like Lewis paid a premium to purchase Merrill Lynch. I'm curious why you hold BAC, given that he seems to have an almost emotional need to acquire things, which gets in the way of negotiating the best price for his shareholders. My guess (admittedly from afar) is that he could have done better...


Shepherd, your characterization of BofA CEO Ken Lewis and his love of acquiring things is spot on. Earlier this decade BAC has acquired companies like FleetBoston, MBNA, and U.S. Trust, and paid full prices for all of them. As a result, BAC rarely traded above 10x earnings since most of their growth was coming from acquisitions, not organic growth.

During that time Peridot clients did not hold BAC shares. It was only after the subprime crisis started to bite the big banks that I invested in BAC. There were a couple of reasons I chose BAC. First, relative to their size, BAC had less subprime exposure than their large cap bank peers. They did take writedowns, but given they are the largest bank in the nation, firms like Citigroup, UBS, and Merrill Lynch had far more exposure. On that front, BAC's losses were manageable, and they were forced to dilute shareholders far less than others via capital raises.

The second reason was that BAC is the largest bank by deposits in the country. As we have seen with the investment banks like Bear Stearns and Lehman Brothers, without deposits to fund your business, capital can dry up overnight and a freefall can result.

On the acquisition front, people have criticized the Countrywide deal, but Lewis actually bought them on the cheap. Time with tell if he gets a decent return on the investment (I suspect he will over the long term, despite short term losses), but buying distressed assets on behalf of shareholders is far better than what he used to do (pay a huge premium for assets that were already fully priced).

The Merrill Lynch deal is a similar situation. We can argue if the price he paid was fair, but at least he is buying on the cheap. That will increase the odds of a very successful deal. I'll have more on the Merrill deal in another post to examine exactly what BAC is getting for their money.

Full Disclosure: Long shares of BAC at the time of writing...


ANOTHER ITEM:

The worst case scenario

via Marginal Revolution by Tyler Cowen on 9/15/08

My take on the B of A buyout is that Hank is piling up all the **** into one huge **** on B of A's books so that when they go under it is clearly too big to fail and can be handled in one fell swoop.

That's from a comment at calculatedrisk.blogspot.com. I would bet against that, but it's always worth knowing the worst case scenario. At least it explains why B of A is interested in such a hasty deal with a losing business partner.

[ozymandius]

14. Wall Street shaken by Lehman failure and Merrill sale

NEW YORK (Reuters) - Global financial markets were shaken to their core on Monday after Lehman Brothers filed for bankruptcy protection and Merrill Lynch agreed to be taken over as a deepening crisis took new, bigger victims.

The U.S. Federal Reserve also said for the first time it will accept stocks in exchange for cash loans and 10 of the world's top banks agreed to establish a $70 billion emergency fund, with any one of them able to tap up to a third of that.

....

Lehman said it filed for Chapter 11 protection and was attempting to sell assets, becoming Wall Street's highest-profile bankruptcy since junk bond specialist Drexel Burnham Lambert succumbed in 1990.

....

With Lehman and Merrill out of the picture, three of the top five U.S. investment banks have effectively departed the scene inside six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

http://news.yahoo.com/s/nm/20080915/bs_nm/lehman_dc

[UpInArms]

27. Lehman CEO Fuld's hubris contributed to meltdown

http://www.reuters.com/article/newsOne/idUSN1341059120080914?sp=true

NEW YORK (Reuters) - Not long ago, when Lehman Brothers CEO Richard Fuld talked about "everyone's worst nightmare" he was referring to a massive fraud at French bank Societe Generale.

Just a few months later Fuld, a 30-year-veteran of Lehman who had ably steered it through near-death experiences like the Asian debt crisis of 1998, is living his own worst nightmare as the venerable investment bank stands on the verge of collapse.

How the 158-year-year institution came to this is a tale of hubris and overreaching -- and a big dose of bad luck.

Lehman's fall from grace was brutally fast. Until June, it had never even reported a quarterly loss as a public company.

As recently as March, Fuld was awarded a $22 million bonus for 2007 -- a generous pay package to be sure, but one that also reflected a year in which the bank's net profit had risen 5 percent to a record $4.2 billion.

<snip>

Lehman, until recently Wall Street's fourth-largest investment bank, for years did a big business in originating mortgages, re-packaging them and selling them onto other investors.

Lehman was the top U.S. underwriter of mortgage bonds in 2007 and 2006, grabbing about 10 percent of the market.

But as the U.S. housing market went from boom to bust, it ended up being unable to unload many of the most toxic loans.

...more...

[ozymandius]

69. Creditors May Be Able to Claw Back Lehman 2007 Bonuses

from Credit Slips

Lehman paid out around $5.7 billion in bonuses in 2007. Are those bonuses safe? Maybe not....

Thus, the key question is whether Lehman was solvent when it paid out the bonuses? (The statute of limitations goes back past 2007, fwiw.).....on a balance sheet basis, that might be a closer call, depending on how things like MBS and CDOs are valued.

If Lehman was not solvent when it paid the bonuses, then I think there's a fraudulent transfer. It's hard to see how a bonus could ever be paid in exchange for reasonably equivalent value, when an employee has already been paid a salary for their efforts. There are various defenses to FTs, but none would seem to apply here at first blush.

...more...

[depakid]

30. One of the silver linings is that we're going to find out where a lot of the bodies are buried

Seems to me that most of us have known for quite a while that there's a big stinking mess- but with the lack of transparency and regulation with some of these "products," it's been tough to figure out who's really exposed.

In that sense, some hard reckoning is a good thing.

[ozymandius]

36. Everything that Greenscam was against

Those things should become standard practice. Regulating hedge funds is a good start. These funds have enjoyed sacred status for too long.

[depakid]

40. One might have thought LTCM would have been a wake up call

then again, one would have thought the same thing about the S&L debacle- but the deregulatory craze continued.

[ozymandius]

11. World stock markets sink on Wall Street crisis

LONDON - Asian and European stock markets were down sharply Monday amid growing alarm over the world's financial system after a seismic shake-up on Wall Street, with Lehman Brothers saying it would file bankruptcy and Merrill Lynch being sold to Bank of America.

In Europe, the FTSE index was down 2.72 percent in London, the Paris CAC-40 was off 3.52 percent and Germany's DAX 30 index of blue chips sagged 2.99 percent.

The dollar sank against euro, which rose to US$1.4299 from US$1.4215 late Friday in New York. The pound rose against the dollar, to US$1.8052 from US$1.7937.

....

A global consortium of banks, meanwhile, announced late Sunday a US$70 billion pool of funds to lend to ailing financial companies, a move geared toward preventing a worldwide panic on stock and other financial exchanges. The U.S. Federal Reserve chipped in with more largesse in its emergency lending program for investment banks.

http://news.yahoo.com/s/ap/20080915/ap_on_bi_ge/world_markets

[Pale Blue Dot]

39. European markets now down nearly 5%

http://www.bloomberg.com/markets/stocks/wei.html

I heard a talking head on NPR this morning say that "there would be some stock market turmoil over this, but in 2 weeks we won't even remember this happened." :eyes: (I think he might be right, but not in the way he means.)

[Pale Blue Dot]

43. Now some down almost 6%

Seems to be speeding up now.

[Ghost Dog]

58. Mmmmm...

[ozymandius]

46. European Central Banks Ready to Inject Billions

Looks like someone in a position of authority remembers what happened eighty years ago.

---

PARIS -- Major European central banks prepared on Monday to inject billions into global money markets to ensure that the weekend’s turmoil on Wall Street does not spread to the rest of world’s financial systems.

The European Central Bank said that it lent 30 billion euros or $42.7 billion at 4.25 percent, in an almost identical repeat of an episode that started the financial crisis in Europe in August 2007.

Then, as now, the central bank was worried that banks would abandon the interbank lending market, a vital financial conduit in which banks lend to one another to keep the financial system running on a daily basis. However the central bank.’s latest injection was far less than the 94.8 billion euros it put into money markets in August 2007.

The central bank said it was “ready to contribute to orderly conditions in the euro money market” and that it would lend as much cash as banks wanted at its benchmark interest rate of 4.25 percent. The Swiss National Bank offered money at 1.9 percent, and said it would act “flexibly and generously.”

http://www.nytimes.com/2008/09/16/business/worldbusiness/16centbank.html?ref=business

[Demeter]

50. IT Would Be a Mercy NOT to Open the Markets Today

But of course, they wouldn't even DREAM of doing that!

Where's FDR when you need him?

On edit:

How fortunate for the Orient that they have a ready-made holiday--wonder if Paulson was sensitive enough to use that timing to dilute the blood-letting in that essential market?

[Dr.Phool]

62. Leave FDR out of it. This is all Clinton's fault!

[ozymandius]

47. China Cuts Rates as U.S. Turmoil Adds to Global Risks (Update2)

Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dim the outlook for economic growth.

The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today.

....

``The economic slowdown in the U.S. could be more serious than previously anticipated,'' said Zhao Qingming, senior economist at China Construction Bank Corp. in Beijing. ``The impact on China could be harsher, making it harder to maintain the pace of economic growth.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYUmaHcDsegg&refer=home

[dweller]

63. makes me go 'hmmm' ...

how significent is this?

Purely for stabilization purposes? :shrug:

dp

[ozymandius]

16. Roubini: U.S. Financial Industry Facing 'Disaster' (video)

[Buttercup McToots]

17. Let's put on our seatbelt, everyone...

It's gonna be a ride...

[Doctor_J]

129. One seatbelt for all of us?

I want to sit next to Buttercup McToots ;-)

[UpInArms]

23. dollar watch

http://quotes.ino.com/chart/?s=NYBOT_DX&v=i

Last trade 78.598 Change -0.331 (-0.42%)

The Case Against the Dollar

http://www.bktraderfx.com/site/fx-weekly-reports/fx-weekly-0912-091808-bkt-special-the-case-against-the-dollar

For the past week we have been arguing that it made no sense for the market to buy the dollar on the safe haven bid as the US economy provided the greatest systemic risk in the G-11 universe. On Friday the market finally agreed with our view.

As the euro rallied for 300 points while cable skyrocketed for 400 late dollar longs were caught wrong footed in vicious short covering rally only fueling greater gains as the day went by. The reason to the sudden change of sentiment was the old reliable “asset diversification” theme triggerd by news that the Chinese may be looking to lighten theier load of US FX reserves. After all GSE rescue or not foreign investors are going to become decidedly more skittish with respect to US assets as the crisis in the finacial system sees no signs of easing.

Is the dollar rally done? For now we think the bottom may be in. At 1.40 and 225bp spread to the dollar the euro now represents strong value for longer term investors seeking yield. Friday’s poor retails sales data only reinforces the fact that US consumer is DOA and while the EZ is hardly a bastion of strength, traders are likely to cast a much more critical eye on upcoming US data as notions of oil-led recovery fade from view.

...more...

Euro Open: Lehman Implodes, US Dollar Sinks Against Major Currencies

http://www.dailyfx.com/story/special_report/special_reports/Euro_Open__Lehman_Implodes__US_1221457476989.html

The Euro exploded upward overnight, reaching as high as 1.4479. Sterling followed suit, rushing higher to surpass the 1.81 mark before settling in the mid 1.80s. The economic calendar will fall by the wayside in European hours as forex traders brace for impact after Lehman Brothers failed to secure a buyout and declared bankruptcy.

Key Overnight Developments

• Buyers abandon Lehman Brothers buyout, bank declares bankruptcy
• Bank of America buys Merrill Lynch for 44 billion dollars
• Top banks create liquidity pool to avoid further meltdown, Fed extends lending
• Crude oil falls below $100/barrel



<snip>

The real news overnight came from the US as authorities failed to line up buyers for troubled investment bank Lehman Brothers. Key investors Bank of America and Barclays Plc pulled out of negotiations after Barclays could not secure government protection from loses on Lehman's assets. The International Swaps and Derivatives Association held a special trading session today allowing its member banks (218 in total) to begin squaring their Lehman-linked exposure in an effort to prepare for Lehman’s eventual move into bankruptcy.

Within hours of backing out of the Lehman deal, Bank of America was revealed to have entered into an agreement to buy another major bank, Merrill Lynch. Meanwhile, the US Federal Reserve boosted its lending facilities and a consortium of 10 major banks created an emergency liquidity pool of $70 billion dollars to avoid further meltdown. The group is reported to include Bank of America, Deutsche Bank, Credit Suisse, UBS, Citibank, JPMorgan, Morgan Stanley, Goldman Sachs and Barclays. The Fed issued a statement saying, “The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets…in the wake of an unwinding of a major financial institution.”

...more...

[ozymandius]

29. All these banks, these potential suitors for Lehman-

they looked at the balance sheet and saw the abyss. Every single one of them looked and ran. Now the abyss is tied to the dollar. How low can we go? And what about price inflation?

My head hurts.

[UpInArms]

33. I'm hoping it will be "orderly"

as all the foreign banks and investors attempt to unwind from the dollar - but if, as Wilbur Ross predicts, 1,000 banks fail in the next few months, all I can say is we are so screwed.

:(

[Ghost Dog]

55. Gold (& USD) Manipulation (or signs of "forced-selling")?

LONDON, Sept 15 (Reuters) - Gold climbed more than 2 percent after Lehman Brothers filed for bankruptcy protection, spurring buying of gold as a safe haven from risk and knocking the dollar to two-month lows against the yen.

However, the precious metal retreated from highs as oil prices slipped and selling of gold held by exchange-traded funds dented investor confidence.

Spot gold <XAU=> was at $772.90/774.10 at 1022 GMT, up $9.45 from Friday's nominal close in New York but off session highs of $784.90.

"With the kind of turmoil we have had at Lehmans, you would think there would have been a bit more of a boost," said Standard Chartered analyst Daniel Smith.

"The rebound has been a bit disappointing, given the rally we've seen in other markets such as base metals."

Gold rose sharply earlier in the session as news broke of Lehman's bankruptcy, spurring buying of gold as a safe haven and pressuring the dollar.

A weaker dollar typically benefits gold as it boosts the precious metal's appeal as an alternative investment.

...

ETF SALES

Investor selling of gold held by exchange-traded funds is also knocking confidence in the precious metal, analysts said.

ETF Securities said on Monday that the amount of gold it holds to back its Physical Gold PHAU.L exchange-traded commodity fell 16 percent last week to 1.551 million ounces.

The world's biggest gold-backed ETF, SPDR Gold Trust, said its holdings have fallen more than 37 tonnes, or 5 percent, since the beginning of September.

"The ETFs have been liquidating in terms of gold," said Daniel Smith. "SPDR and ETF Securities have shown significant reduction in recent weeks."

"It may be distress-type liquidation -- selling gold to cover other losses," he added.

Among other precious metals, platinum and palladium headed lower after last week's bounce. Spot platinum <XPT=> was down $17.50 at $1,185.00/1,205.00 an ounce, while palladium <XPD=> fell $11 to $231.50/241.50.

Spot silver <XAG=> slipped 3 cents to $10.80/10.88 an ounce. Earlier it rallied 3 percent in line with gold to a session high of $11.15 an ounce.

/... http://www.reuters.com/article/goldMktRpt/idUSLF72918520080915?sp=true

[UpInArms]

24. Putting lipstick on a pig

http://money.cnn.com/2008/09/12/news/economy/spiers_pig.fortune/index.htm

(Fortune Magazine) -- If nothing else, we've learned recently that if you put lipstick on a pig, it's still a pig. Presumably that has always been true - unless of course the pig in question was a subprime mortgage derivative, circa 2006. Then it was quite possibly a "runaway bargain," a "great time to buy," or an "opportunity in a market that's only going to go up."

Still a pig, you say? Well, how is it that no one noticed the legions of bankers, ratings agencies, and real estate professionals bearing lipstick?

Treasury Secretary Hank Paulson has engineered a rescue of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500), but the markets are haunted by the specter of two more big institutions - Lehman Brothers (LEH, Fortune 500) and Washington Mutual (WM, Fortune 500) - on the brink.

The fate of Lehman may soon be decided though, with recent reports suggesting some sort of deal to rescue Lehman could be announced this weekend.

How did this all happen? One answer is that Wall Street, the ratings agencies, and regulators were blinded by the science of securitization - bundling ordinary debt like credit card balances, car loans, and mortgages into vast pools, then issuing bonds backed by those pools. It was a gigantic money machine for Wall Street, but it created a system that was unprecedented in its complexity and opacity.

You might have expected ratings agencies to see the problem, but instead they became part of it. Complex securities are often priced from models that assume, in what may be the apogee of wishful economic thinking, that the underlying assets will behave exactly as they have historically. That has always been a weakness of model-based valuation, but it's particularly problematic when the securities are new and untested.

As for the Wall Street bankers who should have known better, they were mesmerized by the beauty of their creations. They forgot that those sophisticated securities were built from millions of mortgages that required someone to make payments every month. And in the real world, not the mathematical one, a lot of those loans were made to people who never had any plausible chance of repaying them. When the complexity of a security (lipstick, anyone?) has the effect of decoupling its value from that of the underlying asset, it can be very difficult to know what that security is truly worth. When no one knows what anything is worth anymore, it's easy to inflate an asset bubble.

...more...

[UpInArms]

28. Wilbur Ross sees about 1,000 bank closures: report

http://www.reuters.com/article/ousiv/idUSBNG26894920080915

(Reuters) - Wilbur Ross, founder of private equity firm WL Ross & Co LLC, expects as many as a thousand U.S. bank closures in the coming months, CNBC said on its website on Monday.

The billionaire investor, who made his fortune making investments on distressed industries, said the closures will create opportunities for investors, CNBC said, adding that he is looking at picking up smaller distressed institutions.

"I do think a lot of the regional ones will (close), just as they did in the last savings and loan crisis in the 1990s," the website quoted Ross saying.

...more...

[ozymandius]

34. I was just looking over some notes on Glass-Steagall.

This act was designed precisely to prevent this volume of failures and to prevent the general cause of these failures. Then, as now, conservatives opposed establishing the partition between commercial and investment banks.

[Dr.Phool]

66. Wilbur Ross translation.

Lots of carcasses lead to some very fat vultures.

[Tansy_Gold]

71. Hmmmm. I shoulda read further before

I posted my comment.

:hi:

[Tansy_Gold]

70. And is this billionaire Wilbur Ross one of those who pulled

billions in real money out of the Ponzi Pyramid of alphabet soup?

He's as much to blame.

piss on him.



Tansy Gold

[UpInArms]

31. Wall Street model broken by credit crisis

http://www.reuters.com/article/ousiv/idUSN1481719820080915?sp=true

NEW YORK (Reuters) - The future of Wall Street is up for grabs -- and changing by the minute.

In the course of a few hours Sunday, Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), the fourth-largest investment bank hobbled by toxic real estate assets, was left for dead and may file for bankruptcy before Monday.

Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz), the No. 3 investment bank and weakest remaining firm after $40 billion of write downs, rushed into the arms of Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) for $29 a share -- less than half its 52-week high but almost $12 higher than its closing price Friday.

These moves, coming after the U.S. government's takeover of Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and six months after the meltdown of Bear Stearns and its shotgun marriage to JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz), renew questions of what Wall Street will look like in an environment of lower leverage and reduce appetite for risk.

Now there are questions whether any of the independent firms will still be around. Certainly, for those that survive the current 100-year storm, Wall Street will look a lot different.

...more...

[54anickel]

74. Somewhere last night it was quoted that the derivative markets are guesstimated

to be $454 trillion --- an amount nearly impossible to grasp, it's made up of zeros and ones and lots of confidence floating in the atmosphere....

$454 trillion fo so-called wealth, derived from nothing but debt.



Worth repeating from last night. Think I have the links fixed now.....

subprime derivatives
http://www.youtube.com/watch?v=0YNyn1XGyWg&feature=related


Overcollateralization (O/C) in structured finance
http://video.google.com/videoplay?docid=8278100526242917072&vt=lf&hl=en


Synthetic CDO that fails in subprime securitization
http://www.youtube.com/watch?v=-8vmzvfEuk0

[Tansy_Gold]

101. Unfathomable numbers

And no one seems able to explain exactly where they come from. . . .

23 Nov 2007
http://www.iht.com/articles/2007/11/23/bloomberg/23webbxinvest.php
"Market for derivatives grows at fastest pace in nine years, to $516 trillion"

11 Dec 2007
http://globaleconomicanalysis.blogspot.com/2007/12/derivatives-trade-soars-to-record-681.html
"Derivatives Trade Soars To Record $681 Trillion"

26 May 2008
http://www.twnside.org.sg/title2/finance/twninfofinance20080507.htm
GLOBAL DERIVATIVES MARKET HITS US$596 TRILLION


Is this an aggregate amount? Are there $600~T in contracts or whatever out there, or is this merely an account of activity, like X number of shares traded per day? :shrug: I dunno. I ain't no expert.

But as I commented re the billionaire investor, somebody has turned all this funny money into real stuff, and that has caused this whole mess.


Tansy Gold

[54anickel]

122. You got it in a nutshell there Tansy.....

somebody has turned all this funny money into real stuff, and that has caused this whole mess

The game can only go on until someone wants to cash in their mega-pile-o-chips.

[Roland99]

35. DJIA futures -359?? O.M.G.

And I'm without power at home to catch all the panic on CNBC. Ike's remains whalloped Louisville. ..250k without power, some for up to a week...over 130 roads blocked and the Ryder Cup play starts here this week.

[radfringe]

56. unless the PPT jumps in today with a net

it's probably that the market drop will set a new record. YEA bush! Yea mccain! Yea Repubs! congrats on screwing the pooch...again

[Dr.Phool]

67. I think after this week-end, the PPT is climbing onto the window ledge.

Talking about another kind of plunge.

[Demeter]

37. Good Morning, Everyone!

Yes,it is a GOOD morning! Any morning that finds theft and deception lessening is a good one, even if it is painful. It is only through fact and honesty that progress, real progress can be made.

I for one am grateful that this crash is coming before the election, when it will do the most good.

This is the kind of event in which one discovers who one's friends are, who has been swimming naked, and where all the bodies are buried. And may this discovery continue through the economic sphere into the political, and take down Caribou Barbie and her puppet McCain. And Gramm. And Lieberman.

[ozymandius]

42. I agree completely with you.

The unraveling is painful and necessary. The Wall Street plan was built on hope and quicksand. It has existed for this long because idiots of the sort like Harvey Pitt and Alan Greenspan have been willing to play along like everything's fine.

[54anickel]

54. "The issue of economics is not something I've understood as well as I should"

McCain told the Boston Globe late last year. He said that in choosing a vice president he'd look for a person with economic experience to compensate for his own shortcomings. "I'm going to be honest," he told Stephen Moore of the Wall Street Journal three years ago. "I know a lot less about economics than I do about military and foreign policy issues.

http://www.weeklystandard.com/Content/Public/Articles/000/000/014/751tryie.asp


You said a mouthful here Demeter!!!

"I for one am grateful that this crash is coming before the election, when it will do the most good."

[UpInArms]

38. Will the USoA follow Japan's Zombie pattern?

http://www.chicagogsb.edu/capideas/sep06/3.aspx

Starting in the early 1990s, Japan�s economy slid into a prolonged crisis�growth collapsed, deflation took hold, and the financial system crumbled. By conservative estimates, taxpayers will be burdened with losses totaling at least 20 percent of Japan�s Gross Domestic Product. New research analyzes why the government�s monetary and fiscal policies failed to prevent Japan�s �lost decade.�

After Japanese stock prices peaked in 1989, stocks lost roughly 60 percent of their value in the next three years. Commercial land prices fell by roughly 50 percent after their 1992 peak over the next 10 years. Essentially, all loans that were secured by property became worth far less than anticipated. As a result, Japan�s banking system failed to record a net operating profit for more than 10 years. Most importantly, economic growth ground to halt.

However, the political and regulatory response to the financial crisis was to deny the existence of the problems and delay serious economic reforms or restructuring of banks. Because banks had to comply with international standards governing their minimum level of capital, many banks continued to extend credit to insolvent borrowers, gambling that these firms would recover or that the government would bail them out. The Japanese government also encouraged banks to increase their lending to small- and medium-sized firms to ease the �credit crunch� after 1998.

The pattern of Japanese banks lending to insolvent borrowers, even when the prospects for being repaid were extremely doubtful, has been termed �ever-greening� in previous research. The practice of ever-greening became even more pervasive in the late 1990s and early 2000s.

In a new study �Zombie Lending and Depressed Restructuring in Japan,� University of Chicago Graduate School of Business professor Anil K Kashyap, Takeo Hoshi of the University of California at San Diego, and Ricardo J. Caballero of Massachusetts Institute of Technology explore the role that misdirected bank lending played in prolonging Japan�s economic stagnation. The authors focused on the widespread practice of Japanese banks lending to unprofitable borrowers that the authors refer to as �zombies.�

Previous research has found that bank loans to poor performing firms often increased between 1993 and 1999. For all publicly traded firms in the manufacturing, construction, real estate, retail, wholesale, and service sectors, 30 percent of these firms were on life support from banks in the early 2000s.

Kashyap, Hoshi, and Caballero began with the premise that most large Japanese banks only complied with capital standards because regulators were lax in their inspections. Banks often engaged in sham loan restructurings that kept credit flowing to �zombie� firms, which under normal conditions would be forced to shed workers and lose market share. Low prices and high wages reduced the profits that new and more productive firms could earn, thereby discouraging their entry and investment.

Focusing on the effects of zombie firms partially explains why the combination of extremely low interest rates and large budget deficits did not revive the economy. Neither policy focused on closing down the insolvent banks and the zombie borrowers that strangled the economy.

...more...

[UpInArms]

41. and it does appear that the Fed has already been doing the "Zombie" waltz

more from the link supplied:

Kashyap adds, �By recycling loans, banks essentially doubled and tripled their bets on these zombie firms. If banks had cut their losses back in 1994 rather than consciously ignoring the problem until 1997, the situation would not have been nearly as bad.�

Kashyap argues that regulators should have forced banks to recognize they were undercapitalized and needed to raise money, and face the consequences of poor performance. Instead, there was a serious discrepancy between regulators denying the severity of the banking crisis and the significant amounts of taxpayer money being spent to prop up the ailing banks.

�The government allowed even the worst banks to continue to attract financing and support their insolvent borrowers,� says Kashyap. �By keeping these unprofitable borrowers alive, banks allowed the zombies to distort competition throughout the rest of the economy.�

[Pale Blue Dot]

44. Speaking of which... why didn't Japan trade last night?

Is it a national holiday there?

[readmoreoften]

45. Yes.

Happy Monday or something...

[UpInArms]

48. dunno - but Japan is going to make Lehman keep its assets in Japan

and not allow them to scamper away in the dark

Japan orders Lehman unit to retain certain assets in country

http://www.marketwatch.com/news/story/japan-orders-lehman-unit-retain/story.aspx?guid=%7BBD1AA091%2D560C%2D471B%2DBC34%2D8F7D4705E5AD%7D&dist=msr_4

TOKYO (AFP) -- Japan's financial watchdog on Monday ordered Lehman Brothers' (LEH: 3.76, -0.46, -10.9%) Japan unit to retain certain assets within
Japan, it said in a statement.

Lehman said Monday it would file for Chapter 11 bankruptcy protection after last-ditch talks to save one of Wall Street's icons failed.

[UpInArms]

49. Key Asian markets were closed for holidays

http://www.marketwatch.com/news/story/bruising-open-seen-us-stocks/story.aspx?guid=%7B0C9D6D89%2D3813%2D40E3%2DB9AC%2D742DC21A108D%7D&dist=morenews_ts

Key Asian markets were closed for holidays, but markets from Taipei to Mumbai lost around 4%. Stocks in Europe also hemorrhaged, with the CAC 40 down 5.4% in Paris.

[DemReadingDU]

52. I heard holiday in Japan, n/t

[depakid]

51. So long, and thanks for the bonuses (Sydney Morning Herald)

The bankers have all banked their million-dollar bonuses, billions in savings have been blown up and, now the party is over, the US Government is bailing out Wall Street again.

In yet another emergency measure announced yesterday morning, the US Federal Reserve has invited investment banks to swap any "investment grade'' assets they may care to dispose of into the Fed in exchange for US Treasuries. The Government gets the assets the banks can't sell, that is, and the banks get rock-solid government bonds which they can promptly sell and turn into cash.

Not much of a penalty from the Fed for years of bull-market profligacy, especially as the Government bailed out Bear Stearns in March and mortgage giants Fannie Mae and Freddie Mac just last week. Though the Bush Administration and its treasury secretary Henry Paulson have drawn the line at rescuing Wall Street's oldest bank, Lehman Brothers.

This modicum of restraint on the corporate welfare front was no doubt due to the necessity to draw the line somewhere, especially as the likes of insurer AIG and savings and loans hulk Washington Mutual are also getting the wobbles and General Motors and Ford both have their hands out for government largesse.

The problem is that few really know a lot about Lehman's counterparty risks and obligations. What will be the knock-on effects of this bank collapsing into Chapter 11 bankruptcy protection?

What is the upshot for Australia, where Lehman Brothers has a large retail exposure as a result of taking over Grange Securities two years ago? Lehman had sold roughly $2 billion worth of CDOs (collateralised debt obligations) and other fancy structured finance products to hundreds of local charities, churches, local councils, government agencies and super funds across the nation.

Since the credit crisis last year, the value of these CDOs has fallen dramatically. Now, the counterparty to the transactions is headed for liquidation. What of the two-dozen councils shaping up for a class action against Lehman? Will there be any one left to sue? What of St Vincent de Paul Society with its $9 million exposure, just to mention one case?

More: http://business.smh.com.au/business/so-long-and-thanks-for-the-bonuses-20080915-4gse.html

[Demeter]

57. Secrecy and Bank Regulators

http://skepticaltexascpa.blogspot.com/2008/09/secrecy-and-bank-regulators.html

Sunday, September 7, 2008


"Federal regulators have increased the number of struggling banks they have effectively put on probation, forcing them to fix their problems and try to avoid potentially costly failures. ... These secret agreements can force banks to take steps including raising capital, cutting back on risky loans and suspending dividend payments. ... Because banks don't have to disclose the memorandums, bank customers and investors generally remain in the dark. ... The inconsistency of public disclosures 'is very frustrating as an investor in bank stocks,' said Gerard Cassidy, an analyst with RBC Capital Markets, noting that an enforcement action represents a red flag about a bank's health and is also likely to put the breaks on that company's growth. 'It would be very helpful in an investor's analysis if they knew that an agreement was already signed.' ... Speculation about these pacts is enough to drive a bank's stock price down", Damian Paletta & David Enrich at the WSJ, 26 August 2008.


Chris Cox (CC), where are you? Pasting your resume all over Wall Street for a nice seven-figure position with a hedge fund? Didn't you make it clear to all publicly-held bank holding companies that such agreements must be disclosed on Form 8-K? If not, why not? Further, that if the SEC finds such an agreement with a "confidentiality clause", you will immediately make a criminal referral to the DOJ of both the bank's management and the employees at the: Fed, FDIC or Comptroller of the Currency's Office which thought such secret agreements Kosher. You can start with National City Corp.'s management. See my 18 June and 24 August 2008 posts. We're watching. Imagine, the SEC portrays itself as the "investors' friend". What a joke. Paraphrasing Abe Lincoln's "Gettysburg Address", we now have a "government of the banks, by the banks and for the banks". What a country. Tell me CC, have you no shame?


I KNOW THIS LOOKS LIKE OLD NEWS, BUT IT HASN'T GONE AWAY OR GOTTEN MUCH ATTENTION, AND IT WILL COME BACK AGAIN AND AGAIN. FYI!

[Demeter]

59. Some quick analysis of what the Frannie bailout means

http://brontecapital.blogspot.com/2008/09/some-quick-analysis-of-what-frannie.html

... Warning this is a long post – and it is coming straight off the typewriter – so there are certain to be errors and misunderstandings. You are getting the fast-version analysis – and my slow version may wind up far more nuanced. I expect to be corrected - and will keep the comments as a rolling update...

I might have a go at working out whether there is any value left in Fannie stock or preferreds. This is by definition heavily speculative and not the sort of thing I would trade on. This is super-rough.
I am also only doing it for Fannie as I have not thought much about the numbers for Freddie other than that everything is substantially worse for Freddie.

The first surprise

The bailout looks more generous for the common than I would have expected and it is fairly generous to the preferred. The government has given Fannie (and Freddie):

a large line of credit – effectively a guarantee they would remain liquid at least whilst the facility remains – to 2009, and

a put option on preferred stock whenever its book value goes negative (in other words the right to put preferred only when strictly necessary – effectively a guarantee backed by $100 billion that they will remain solvent

The most explicit statement yet that the Federal Government stands behind these entities – but with the liquidity support limited to 2009 and the capital support limited to 100 billion for now




In exchange Fannie has given the government:

one billion dollars, paid in preferred stock, not cash

80% of the common equity

an indeterminate annual fee which can be paid in preferreds

A change in regulation which will force Fannie’s owned portfolio to reduce over time to $250 billion


That is it for now.





Well that looks generous to me. There is NOTHING here that wipes out the preferred (though its dividend gets suspended pending repayment of government monies). There is nothing here that wipes out the common (yet).

This is Mr Paulson who argued that Bear Stearn shareholders should receive a low price in the bailout not a high price. I cannot see why for instance the warrants were not for 95% of the common or 99% of the common except that maybe they felt for some reason that they needed to get the GSE management on board.


My view: if the government is going to back-stop the risk it should take the upside. It took a lot of it – but by no means all. Then again - maybe there is not much upside.


I know this is a radical suggestion that this is generous because the view around the traps is that the “bailout” knifes the preferreds. Their rating got cut into the Cs. That is funny – apart from a billion dollar sign up fee nothing so far has been put senior to the preferreds and they have a government guarantee for senior capital and senior liquidity. Its not a bad deal at all for the preferreds. Whether the preferreds ultimately get paid anything of course will depend on the ultimate losses – but we will get to that later in this post.

The reduction in Fannie earnings power

The second big issue is one that almost nobody has much commented on – which is that the owned portfolio of Fannie Mae will shrink over many years to about 250 billion. In the past most of the earnings power of Fannie Mae has not come from the guarantee book – but from the owned book. This will reduce the underlying earnings power of Fannie from say 10.5 billion pre-tax to say 4-5 billion. But at a 10% reduction rate for the owned book (after an increase this year) it will take a long time to get there. This “earnings power” is contingent on Fannie being able to issue debt at reasonable spreads – say 30-40bps – on Treasuries. This has not been the case for some time and because the guarantee has not been made explicit it might not even be obvious now…

An upper value for Fannie Mae common

This calculation of earnings power giveS an upper value for Fannie stock post the bailout. If the “end earnings power” is say 4.5 billion pre-tax then the upper value of the stock is say 45 billion – and that is presuming all the losses have been absorbed. The government now owns 80% of the stock for nominal consideration so the upper value of the currently listed stock is say 11 billion.

If everything thus goes perfectly from here – one day the currently listed stock will be worth 11 billion. That is after all losses have been absorbed, repaid by earnings etc and presuming not further dilution. 11 billion is a somewhere-over-the-rainbow upper value. Given the market cap at close Friday was 7 billion the common holders are getting crushed – but they are not getting crushed by the bailout as such – they are getting crushed by the future losses. And the future losses were there before the bailout! The common may eventually get crushed by an event-of-default on the preferred to – as I will discuss below.

So how big are the losses in the book

The losses in the traditional mortgage book are the 64 billion (or 250 billion or 40 billion) dollar question. Nobody knows. I had a go at estimating them in Fannie Mae Part III. I got $64 billion but until now I have avoided talking about the $64 billion dollar question. Them big numbers – and they are over the background losses. Lets just plumb for an 80 billion dollar loss number as my (reasonable but speculative) baseline. That assumes a little more on the non-standard mortgages in Fannie's books.

The “fair value” of Fannie assets at the end of the last quarter was negative 5 billion dollars – see Fannie Mae’s Fair Value Balance Sheet as reproduced below....

[Demeter]

61. What has been the real benefit of Fannie and Freddie?

http://real-estate-and-urban.blogspot.com/2008/09/what-has-been-real-benefit-of-fannie.html


It is almost certainly not homeowning, and it is almost certainly not funnelling money into underserved neighborhoods or toward underserved borrowers.

Rather, is has been the transfer of interest rate risk from households to investors. So far as I know, the US is the only country in the world with long-term, fixed-rate, 95 percent LTV loans that do not have prepayment penalties. When interest rates rise, borrowers are protected; when they fall, they are not mad e immobile by yield-maintenance and lockout clauses.The low down payments (and five percent equity seems to be OK) effectively give households with modest incomes access to capital markets. I have written elsewhere that I believe that the peculiar structure of Fannie and Freddie has helped bring about the unique American mortage.

One could argue that the current environment shows that none of this has been worth it. But I would disagree with that argument.

[TheWatcher]

60. Hmmmmm. The Futures are a tad weak this morning.

S&P 500 -51.00 1207.50 9/15 8:01am
Fair Value 1252.93 9/14 6:01pm
Difference* -45.43

NASDAQ -53.00 1726.50 9/15 8:01am
Fair Value 1776.70 9/14 6:01pm
Difference* -50.20

Dow Jones -348.00 11103.00 9/15 7:51am


And so the great unravelling begins. What a difference a week makes. Last Monday, we awoke to similar futures numbers, but they were in the other direction. We were told how Stammerin' Hank saved the day, and how TPTB bravely acted to save the economy by putting FNM/FRE into conservatorship.

We were told to go back to sleep, get back to America's Got Talent and our other favorite TV Shows, to Get ready For Some Football, Grill up some cheeseburgers to gobble, and how great it was that the taxpayer once again got to do it's part to save the Monsters who caused the problems in the first place.

Now, seven days later, and in the space of 48 hours, LEH and MER have ceased to be, and the indications are that WAMU will not last through the month.

I know I usually post rather biting commentary, but I will admit, I am genuinely frightened at what we are seeing. The entire financial system seems to be in systemic collapse before our eyes.

Be well and safe today Marketeers, and good thoughts and wishes to you all.

We are heading into some very, very serious times.

My quote for this morning? The only thing I can think of is Bill Paxton from "Aliens":

"How Do I Get Out Of This Chickenshit Outfit?"

GAME OVER, MAN!

[Phillycat]

64. Wondering about AIG too...

I'm in London, been watching this slow-mo train wreck for half a day now. It's gonna be a bumpy ride, kids...

[ozymandius]

77. AIG Falls After Failing to Give Plan to Save Rating (Update1)

Sept. 15 (Bloomberg) -- American International Group Inc., the largest U.S. insurer by assets, fell by almost half in early trading as the company failed to present a plan to raise capital and stave off credit downgrades.

AIG executives spent yesterday in discussions with buyout firms including KKR & Co. and J.C. Flowers & Co. as the insurer sought to raise $20 billion in capital and sell $20 billion of assets, people familiar with the talks said. AIG later sought a $40 billion bridge loan from the Federal Reserve, the New York Times reported, citing an unnamed person.

Chief Executive Officer Robert Willumstad is under pressure to raise capital and sell units after three quarterly losses totaling $18.5 billion. Investors are concerned the New York- based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors.

...

A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aP8_E7lVpblE&refer=home

[DemReadingDU]

68. Karl Denninger essays and a video

9/14/08 Game Over

So this weekend everyone who is a "who's who" huddled in New York at The Fed to figure out what to do with Lehman Brothers.

The market sat on pins and needles, and in fact ramped by nearly 10 full handles (close to 1%) in the last 10 minutes before the futures locked up for the weekend, in the vain belief that there will be some "resolution."

I'm here to tell you that there is no resolution, no fix, and we now face a stark choice between most of American Finance being sucked into the vortex, and everything, including you, being sucked into the vortex.

Yes, those are some stark - and harsh - words.

more... and be sure to watch the video at end of essay. about 8 minutes

http://market-ticker.denninger.net/archives/579-Tilt-Game-Over.html



9/14/08 Citizenship Is Not A Spectator Sport

Last night we saw the mother and father of all implosions - and attempted "sticksaves" and "power grabs", all at once.

First, the implosions.

Lehman Brothers has gone down and Bank America has forcibly swallowed Merrill Lynch. Forced by The Fed, one assumes - they surmised (correctly) that come Monday shorts would attack Merrill immediately and in force, thrusting them to the bottom of the pool if they did not first insure that they couldn't be attacked. So a deal was brokered, and now we have gone from five investment banks to two, with the count decreasing by fifty percent in one day.

That's right - Morgan Stanley and Goldman Sachs are all that's left, and they won't last long. Say good-bye to the last pieces of the Depression-era legislation that prohibited the co-mingling of investment and commercial banking, the hard way.

ALL investment and commercial banking is now in the hands of a very small number of institutions, with the key players being JP Morgan and Bank of America.

lots more...
http://market-ticker.denninger.net/archives/580-Citizenship-Is-Not-A-Spectator-Sport.html


Edit: Hope everyone takes the time to read both of Karl Denninger's in-depth essays and watch the video.

[RUMMYisFROSTED]

72. Piehole:

Bush to discuss financial market problems at 11:00 am
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4003380

[ozymandius]

75. "fundamentally sound"

Look for those words to dribble out of the idiot's piehole. The one-trick pony is getting ready for its act.

[radfringe]

76. let me guess..

"we're keepin' an eye on it.... economy is strong.... it's the democrats fault.... best thing amurikans kin do is go shoppin..."

[UpInArms]

88. PIEHOLE TAKE TWO: Paulson at 1:30

01. Paulson to speak at White House at 1:30 pm eastern
9:41 AM ET, Sep 15, 2008

[RUMMYisFROSTED]

89. Can the Helicopter be far behind?

[Demeter]

95. Dear God NO! Anything But That!

and no Sarah Palin either, if you have any mercy.

[ozymandius]

73. numbers before the open

09:18 am : S&P futures vs fair value: -43.60. Nasdaq futures vs fair value: -52.80. Futures are on the defensive, with a worse-than-expected economic reading not helping matters. Just hitting the wires, August industrial production fell 1.1% in August (consensus -0.3%) and capacity fell by one percentage point to 78.7% (consensus 79.6%). In deal news, Long Drugs Stores (LDG) confirmed earlier today that Walgreen (WAG) expressed unsolicited interest of $75.00 per share in cash for all outstanding shares of LDG. CVS Caremark (CVS) and Longs entered a merger agreement at $71.50 per share in August.

09:01 am : S&P futures vs fair value: -40.40. Nasdaq futures vs fair value: -49.00. A sharply lower open is expected. In news outside of the financial market turmoil, shares of video game maker Take-Two (TTWO) are down 28.5% in premarket trading after Electronic Arts (ARTS) terminated its discussions to acquire Take-Two. In March, Take-Two rejected a $26.00 per share offer from Electronic Arts.

[ozymandius]

80. The opening bell has tolled.

9:34
Dow 11,329.41 Down 92.58 (0.81%)
Nasdaq 2,206.02 Down 55.25 (2.44%)
S&P 500 1,235.87 Down 15.83 (1.26%)
10-Yr Bond 3.527% Down 0.203
NYSE Volume 217,644,687.5
Nasdaq Volume 78,531,156.25

[UpInArms]

81. 9:36 - will the Nasdaq fall below 2,200?

Dow 11,321.35 100.64 (0.88%)
Nasdaq 2,203.01 58.26 (2.58%)
S&P 500 1,235.44 16.26 (1.30%)
10-Yr Bond 3.529% 0.201

NYSE Volume 247,025,296.875
Nasdaq Volume 95,363,773.438

[RUMMYisFROSTED]

83. Will DOW drop below 11K?

[RUMMYisFROSTED]

133. Simon says "yes" to -11K.

[Pale Blue Dot]

82. It looks like the PPT is REALLY trying to keep this from getting out of hand.

Dow down less than 100 pts. so far.

[ozymandius]

84. They're losing that struggle.

9:39
Symbol Last Change Dow 11,142.64 Down 279.35 (2.45%)
Nasdaq 2,202.53 Down 58.74 (2.60%)
S&P 500 1,216.81 Down 34.89 (2.79%)
10-Yr Bond 3.526% Down 0.204
NYSE Volume 306,325,937.5
Nasdaq Volume 118,610,781.25

[Pale Blue Dot]

86. Wow.

:wow:

[UpInArms]

90. 9:47 nasdaq having a miraculous healing

Dow 11,151.76 270.23 (2.37%)
Nasdaq 2,223.69 37.58 (1.66%)
S&P 500 1,223.52 28.18 (2.25%)
10-Yr Bond 3.529% 0.201

NYSE Volume 612,095,062.5
Nasdaq Volume 188,448,406.25

(edited for subject line grammar)

[ozymandius]

92. Well, somebody is doing some heavy lifting. Read this blather.

09:45 am : The stock market opens sharply lower, with the S&P 500 down nearly 3%. Lehman Brothers (LEH 0.29, -3.36) filing for bankruptcy, Merrill Lynch (MER 21.52, +4.47) selling itself to Bank of America (BAC 28.48, -5.24) and reports that AIG is "desperately" seeking cash is roiling the financial markets.

Lehman Brothers filed Chapter 11 bankruptcy protection after no buyers came to the table to save the troubled firm due to a lack of a government backstop. None of Lehman's broker-dealer subsidiaries will be included in the bankruptcy and will continue to operate.

Merrill Lynch agreed to be sold to Bank of America in an all-stock deal for $29 per share, or $50 billion, a 70.6% premium to Friday's closing level. BofA said it was willing to pay the premium because the benefits were appealing and it still believes it is a compelling price, noting there was the possibility that others were interested. According to the Wall Street Journal, the move came after federal officials "strongly encouraged" the sale due to concern that the firm was approaching failure.

Meanwhile, insurance giant AIG is making moves in an effort to survive. In an attempt to avoid a credit rating downgrade, AIG is planning to sell some of its most valuable assets, raise capital and reach out to the Fed, accord to the WSJ. Over the weekend, AIG turned down a capital infusion from a group of private equity firms because an option tied to the offer would have effectively given the private equity firms control of AIG, according to reports.

The financial sector is down 4.9%.

---

Overseas the financial sector is down 10%.

[ozymandius]

91. Random thought:

I wonder how that hideous Club for Growth can defend this drivel anymore.

[Dr.Phool]

125. Just looking at that grinning hyena Stephen Moore is enough to make you wanna puke.

And wonder just what kind of drugs he's on.

I would guess hallucinogens laced with anti-depressants.

[UpInArms]

96. 9:56 - Whoopsie! We hit a slick spot!

Dow 11,094.36 327.63 (2.87%)
Nasdaq 2,216.24 45.03 (1.99%)
S&P 500 1,216.94 34.76 (2.78%)
10-Yr Bond 3.535% 0.195

NYSE Volume 924,111,437.5
Nasdaq Volume 246,934,484.375

[nolabels]

113. ehh, still above 11,000

bet ya there are still a lot of bottom feeders a lurking

Call me cynical but seems there were a lot of people looking to make some bucks the same way about 7 years ago. Besides if there was going to be a real long and sustained crash do you think so many people would know it's coming ahead of time? It seems more of a renovation of the chair section on the titanic



Btw, any announcement of some of those billionaires going belly up :shrug:

[Wednesdays]

85. Oh man, don't blink

I got up to throw away a tissue, and when I returned the Dow had plummeted from -100 to -300!

:wow:

[RUMMYisFROSTED]

87. Where's the Mr. Bubble when you need it?

[RUMMYisFROSTED]

93. -300.11 @ 23 minute mark.

-306.71 @ 24 minute mark....

[RUMMYisFROSTED]

94. -338.95 @ 25 minute mark.

Cue Tom Petty!

[ozymandius]

97. NYSE Volume 1,000,679,187.5

That's inside 28 minutes. Panic?

[Jennicut]

98. Its not looking good, eh?

Will it be a big crash?

[Buttercup McToots]

99. Banks Can Now Use Deposits to Fund Investment Banking Operations?

http://www.nakedcapitalism.com/2008/09/b....


Monday, September 15, 2008
Banks Can Now Use Deposits to Fund Investment Banking Operations?

Reader Michael M called our attention to this statement in a Financial Times article:
The Fed also suspended rules that prohibit banks from using deposits to fund their investment banking subsidiaries.

Was this the quid pro quo for Band of America buying Merrill? If so, the repercussions extend beyond BofA. This is a time when the federal authorities need to be vigilant, not lax about banks taking risk with depostors' funds.

Note than many banking experts, post the S&L crisis and now, recommend the reverse, "narrow banking", which requires banks to invest depositors' funds only in the very safest assets. This is the exact opposite of the sort of regulatory measures needed to improve the health of the banking system. Expediency trumps soundness.

[RUMMYisFROSTED]

102. Imo, the near-term US financial levees are BAC and Citi.

And they're both looking wobbly.

[Renew Deal]

106. Why would BoA do this deal?

It seems that they overpaid for a vulnerable Merril that couldn't survive on its own. They did the same with Countrywide. I don't understand why they would bail these companies out.

[RUMMYisFROSTED]

112. Dunno. Someone suggested that they wanted to take on enough

bad paper to ensure a federal bailout. Iow: "We're too big to fail! You must help us!"

If true, it's a piss-poor strategery.

[Doctor_J]

100. -328, with Smirk still to speak

arrgh. I'll never retire.

[radfringe]

105. Headline I want to see - BUSH APPLIES LIPSTICK TO PIG.... n/t

[llmart]

114. Just have to say.....

love your tagline. It's how I feel. I'm neither youthful or hopeful any more but I sure hope there's lots of young 'uns out there that are. This country desparately needs them.

I think we were all sold a bill of goods about how wonderful 401 K's would be for us instead of those pesky old fashioned pensions where retirees were guaranteed a certain monthly income for life. I was against the concept of 401 K's years ago when they were pushing them but they were foisted on us and the average John and Jane Doe believed the hype. Now John and Jane Doe (and my husband I) are near retirement and you don't have to have a financial degree and background to do the basic math of adding up what you contributed, what you have today, and how little you've got.

It's downright disillusioning. But as my brother says to me, "I'm just glad I'm on the back nine." (He's a golfer:)

[Doctor_J]

130. Thanks. It's my own creation. I wish Obama would adopt a smoother version

I too am old, and the fact that a drooling, mean old bastard and a corrupt dilletante are within striking distance of one of the best combos ever to run makes me lose hope. But something tells me that Obama Generation is going to save us and pull us back from the brink.

[llmart]

131. Agreed.

Just reading the financial stuff on this site today is enough to make me cringe.

I see you're a fellow Michigander. I think our state is going to be key in this election.

[RUMMYisFROSTED]

104. PPT anyone? -267.47

[Buttercup McToots]

107. The Ultimate Wall Street Nightmare

Follow Link for charts...


http://www.bullioncity.com/showthread.php?p=1959#post1959

The Ultimate Wall Street Nightmare

--------------------------------------------------------------------------------

by Martin D. Weiss, Ph.D. 09-15-08


In the wake of Lehman's demise, Fed Chairman Bernanke and Treasury Secretary Paulson will try to put out the word that it's no great trauma.

But it's a lie and they know it. If they openly admitted that the Lehman collapse will paralyze Wall Street, torpedo the stock market and sink the economy, they'd have to pony up $100 billion or more to support it. Instead, their agenda was to push big banks to put up the money. And they failed to do so.

No matter what, there's no denying that the Lehman debacle is a massive and immediate threat to U.S. and global markets. At the latest reckoning, Lehman had $691 billion in assets. That makes it bigger than Wachovia, twice as big as Washington Mutual, and over sixteen times larger than Schwab.

Lehman's debts — at $668.6 billion — are also enormous. Even if you added together all the debts of TD Ameritrade, E-Trade and Schwab, you'd still have only $108.5 billion, or less than one-sixth the total debts which Lehman reports.

In fact, among brokers, there are only two other U.S. firms that beat Lehman in the debt category: Morgan Stanley, with $1 trillion, and Merrill Lynch, with $988 billion.

Can you imagine anyone in his right mind making the argument that a Merrill Lynch downfall would be "no great trauma to investors and financial markets"? Of course not.

The reality: The collapse of America's third-largest brokerage operation is very serious business with equally serious consequences. The primary concern ...

Defaults on Derivatives

We've lost count of how many times the authorities have virtually sworn on a stack of Bibles that "our financial system is fundamentally sound."

But no one could possibly lose count of their recent desperate efforts to prevent the system's collapse — actions which directly belie their words:

One — the coordinated efforts by central banks to flood the global economy with liquidity in the summer of 2007.

Two — the hasty bailout of Bear Stearns in March of this year.

Three — the giant Fannie and Freddie rescue announced just eight days ago.

Each time they intervene, they say "we must not reward CEOs who deceive the public and walk off with multibillion dollar bonus checks." And each time they say it's the "last time we'll make an exception to that rule."

But then they go ahead and do it anyhow, not only breaking their own word ... but also trashing the long tradition of restraint established by their predecessors since the Great Depression.

Why? Because they had neither the courage nor the audacity to confront Wall Street's ultimate nightmare: A collapse in the giant mountain of derivatives.

Derivatives are essentially bets on interest rates, foreign currencies, stocks or specific events like the bankruptcy of a particular company. The interest rate-related bets are by far the biggest. But the bets on bankruptcies — called credit default swaps — are the fastest growing and the most volatile.

These derivatives were originally designed to help hedge investments reduce risk — like insurance policies. But in practice, they've been increasingly used to leverage investments, increasing the risks of participants.

Here are some essential facts that illustrate the enormity of the problem ...

* The amounts are absurdly large. The total "notional," or face value, of derivatives held by U.S. banks is $180 trillion, and it's three times that much globally. This figure is said to overstate the actual market risk. But it does not overstate the risk of defaults such as those that could be triggered by the failure of a company the size of Lehman Brothers.

* Over 90% of all derivatives are traded outside of regulated exchanges. Consequently, other than very general information, the authorities have no mechanism for keeping track — let alone efficiently cleaning up the mess in the wake of a giant failure.

* Off the balance sheets. Some companies report nothing more than the total value of their derivatives in footnotes to their financial statements. Others don't report at all. Consequently, the actual risk, amounts and even the very existence of derivatives is often poorly disclosed to investors.

* Disclosure in the brokerage industry is especially bad. Many brokerages are private and do not disclose more than their rank and serial number. The SEC collects sparse data and does not publish it. So if you want to figure out how much derivates risk your broker is exposed to, good luck! Getting the information can be like pulling teeth.
Big Banks Risk All with Danger of Defaults on Derivatives

* Concentrated in the hands of five major players. Nearly 97% of all U.S. bank-held derivatives are concentrated in the hands of just five major U.S. banks — JPMorgan Chase, Citibank, Bank of America, Wachovia and HSBC.

[zanne]

108. What does this mean for ordinary people?

I don't know anything about Wall St. How will this impact all of our lives? I can tell that the numbers are very bad, but should I be stocking up on canned goods?

[Roland99]

117. Just don't plan on quitting your job and save up several months (at least) of expenses

[Tansy_Gold]

120. I asked the same thing last night and got no response.

Tansy Gold, with a decent supply of pasta and EVOO

[kineneb]

123. I take a break from the news, and, well....

the manure hits the ventilator. That light -was- an oncoming train.

kineneb, hanging tight, with lots of USDA free pasta, beans and rice, and full freezer.

[antigop]

109. Lehman's outstanding debts total $600 billion

http://www.ft.com/cms/s/0/b7634a0a-8315-11dd-907e-000077b07658.html

Lehman Brothers Holdings owes more than $600bn to creditors scattered across the US, Europe and Asia, according to the investment bank’s Chapter 11 petition.

The largest unsecured creditors include Citigroup and Bank of New York Mellon, who have around $138bn of exposure to Lehman’s bond debt as indenture trustees.

Indenture trustees act as agents on behalf of bondholders, and while they help enforce the rights of creditors, they are not necessarily creditors themselves.

Bank of New York Mellon has an additional $17bn in exposure to both subordinated and junior subordinated debt, again as an indenture trustee.

[Buttercup McToots]

110. Anybody heard from Anne?

Hope all is ok with her...?

[ozymandius]

116. Last I heard was that she and her husband went AWAY from Houston.

I've read that Houston, right now, is experiencing a host of problems reminiscent of the Middle Ages: no drinking water, no electricity, no sanitation services...

[nashville_brook]

111. at some point, might it be good to start the ***Official Stock Market Thread 2 ***

load time is crazy slow already!

[ozymandius]

118. A Second Thread Has Been Started

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3490146

[Tandalayo_Scheisskopf]

121. Stop. It's Hammer Time.

CLV08.NYM Crude Oil Oct 08 95.58 9:32am ET Down 5.60 (5.53%)
HOV08.NYM Heating Oil Oct 08 2.7314 9:32am ET Down 0.2077 (7.07%)
NGV08.NYM Natural Gas Oct 08 7.181 9:32am ET Down 0.185 (2.51%)
PNV08.NYM Propane Gas Oct 08 1.565 8:56am ET 0.00 (0.00%)
RBV08.NYM RBOB Gasoline Oct 08 2.5725 9:33am ET Down 0.1971 (7.12%)

This promises to be a huge exposure of the extent of speculation in the energy markets today.

I propose that the DHS do something useful and watch all airports and ports for Wall Street Criminals trying to get their asses out of the country, first to the Caymans, to grab their booty, then to Paraguay or other countries without extradition treaties. I also propose that the US Government start preparing SpecOps teams to perform snatch and grab ops on the ones that do make it out, to bring them to Gitmo for tribunals for their economic destruction. Penalties should be severe, merciless and nauseatingly public. Perhaps Chinese investors who are getting reamed would like to revive that old standby: "Death by 1000 Cuts". I am sure Faux would pay well for the TV rights.

Treat them like the terrorists and enemies of the state that they are. The destruction they have wrought could only be dreamed of by an Afghan tribesman.

Oh, getting on Bloomberg's site is impossible. They are getting hammered.

[Hugin]

124. I finally resorted to Bloomberg Radio...

Taking great pleasure in hearing the question..."When is the Housing Market going to recover?"

Um, try... NEVER! (at least not until Labor is again a valued commodity.)

[Tektonik]

126. I'm glad Greenspan is still alive to watch his creation fucking fail

This economy needs 8 years of Obama to get back on track.

[Dr.Phool]

127. It's gonna need a couple of generations of Obama's.

[Doctor_J]

132. Yes, too bad Milt Friedman isn't around to be heaped with scorn

as his "baby" dies a fiery death.

[TrogL]

128. Thread #2

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3490146