rsj writes:
So, silver lining? Or has that been stripped from the cloud for the scrap value?

I lost internet access yesterday at around 11. aaarrrhhhhh! about to dive into yesterday's comments.

sniff, sniif, I missed this place.
rsj | 03.18.08 - 9:12 am | #

Boat52 writes:
What are their level 3 assets now?
Boat52 | 03.18.08 - 9:13 am | #

Jack writes:
not horrible

great, let's buy 'em up then.
Jack | 03.18.08 - 9:15 am | #

bluestatedon writes:
"overall these are not horrible reports."

?
bluestatedon | 03.18.08 - 9:19 am | #

tj & the bear writes:
Both companies' net falls by more than *half*, and that's not horrible? Talk about lowering expectations!

I just LOVE the Wall Street game (sarcastically speaking), where as long as you beat lousy projections you still come out ahead. Naturally, the futures are up big on the news.

If the net's off by half, why shouldn't the stock price fall by an equivalent amount?



tj & the bear | 03.18.08 - 9:20 am | #

CalculatedRisk writes:
jack, it's hard to call them horrible - when compared to Bear, Merrill, Citi and others that had to take huge writedowns.

Both Goldman and Lehman are still profitable, and I think Lehman will survive (despite all the recent rumors).

Not all level 3 assets are bad.

Best to all.
CalculatedRisk | Homepage | 03.18.08 - 9:22 am | #

Marcus Aurelius writes:
I cringe when I think of how news that is "not horrible" will be interpreted as being "really good".

Wall Street is indeed a classic example of a sub-prime borrower. Can't meet the current debt obligation? Roll it over, silly! Uncle Ben has extended a line of cheap credit, and he never runs out of money. If he does, we'll simply take another job for a while, until the easy credit comes back. Worst case, we can go live with our rich cousins in Europe.
Marcus Aurelius | 03.18.08 - 9:23 am | #

Kp writes:
Haven't you been paying attention?

Goldman is off limits.
Kp | 03.18.08 - 9:24 am | #

CalculatedRisk writes:
tj & the bear, as an investor, I'd be more concerned about how earnings will look in the future, than just this decline in net.

With certain business areas under pressure for several years (I doubt Lehman will make anywhere near as much from the mortgage business for some time).

I don't comment on stock prices (I'm neither long or short either of these stocks), but these reports aren't horrible when compared to other banks.

Best to all.
CalculatedRisk | Homepage | 03.18.08 - 9:26 am | #

Phoenix Woman writes:
Goldman actually outperformed expectations this Q, so Tanta's right -- it's not bad news. Not compared to the bear's stern, anyway.
Phoenix Woman | Homepage | 03.18.08 - 9:26 am | #

Marcus Aurelius writes:
"...it's hard to call them horrible..."

____

Not really. That's why we have words like abysmal, atrocious, appalling, and dire.
Marcus Aurelius | 03.18.08 - 9:27 am | #

s writes:
lehman balance sheet balloned almiost 100 billion in the Q and equity remians the same - now levered almost 40 to 1! But they have ample liquidity!


Goldman beat the number with major growth in prime brokerage probably at expense of BEar etc.. and monster jump in incentive performance fees in asset maneneg,mtn - must be the quant fund..
s | 03.18.08 - 9:27 am | #

JJL writes:
Earnings reports going forward are going to look really good as the writedown age is now over. Roll the assets that are losing value over to the FED, get treasuries in return, and never ever swap them back and you have the makings of a bull market in financials going forward. Heck, maybe I will even buy in here!
JJL | Homepage | 03.18.08 - 9:31 am | #

joe writes:
Let em' come clean about all of the questionable assets on the balance sheets. Let em' open such assets to open market bids. Then we'll see how 'good' of a financial position they're in.

I think we all know what would likely happen if these companies and their balance sheets were subject to true scrutiny.
joe | 03.18.08 - 9:32 am | #

Nemo writes:
Under the circumstances, these results are better than "not horrible"; they are tremendous.

The market had priced in far worse.

I almost bought GS yesterday. Oh well.
Nemo | Homepage | 03.18.08 - 9:33 am | #

m writes:
I dont beleive anyones financials anymore. Am I jaded, no. Just not stupid. with all the off balnce sheet crap still out there I can imagine what Paulson et all are saying. keep it off the balance sheet so we can make this an orderly meltdown. Paulson syas to Goldman, no bad news this week, i need some sleep after the BS fiasco. Say what you may to me, I used to be a bank examiner and I saw all the crap that was pulled there. I dont beleive anything anymore unless I see it with my own eyes, the problem is that you need to be a forensic accountant to read financials. God bless all those 30 something MBA's who never went through hard times so they have no appreciation for what they are doing to the American public. May they rot in their co-ops and southhampton mansions. I am sick to my stomach.
m | 03.18.08 - 9:40 am | #

Tom Servo writes:
Go pump monkeys, go, Dow up 200...
Tom Servo | 03.18.08 - 9:41 am | #

tj & the bear writes:
CR, you just made my point. Independently these *are* horrible, it's only in comparison to their nuked breathtren that they somehow look better.
tj & the bear | 03.18.08 - 9:45 am | #

michael schumacher writes:
No mater what GS or LEH reported it was obvious that the market was going to get pumped. I've read charts long enough to see intervention and what is currently allowed to transpire in the SPX is just sickening.

Circle Jerk gets a new meaning today....

Ciao
MS
michael schumacher | 03.18.08 - 9:47 am | #

Marcus Aurelius writes:
"... the problem is that you need to be a forensic accountant to read financials..."

____


That's why I keep carping that this is mess a law enforcement issue, and that law enforcement is going to need an army of CPAs to get to the bottom of it. Thee are bodies buried somewhere in this mountain of worthless paper. How do we know that? The smell.

OoooOoooo, that smell. Can't you smell that smell? OoooOoooo, that smell. The smell of death's around you.
Marcus Aurelius | 03.18.08 - 9:48 am | #

Marcus Aurelius writes:
Background singers: Yeah, YOU.
Marcus Aurelius | 03.18.08 - 9:50 am | #

Matthew writes:
Lies, damned lies and accounting. What's that famous joke? CEO: "So how much did we make this year?" CFO: "Well how much do you want to make?". Bottom Line: I think these will be fully manufactured numbers with write-offs limited to meet those earnings targets. Specifically if you look at that ABX chart that Bloomberg did last week, I would bet all those assets are still valued at 100% on both Lehman and GS's books, when we know they've deteriorated horribly to a point that only 6 out of 80, still deserve the AAA rating. That's not to mention leverage loans, etc.
Matthew | 03.18.08 - 9:51 am | #

REBear writes:
Two IBs that had good results were asked to report first. There is a good chance now either the rate cut or MS which reports tomorrow will be a bad spot. I bet Bear's earnings was good as well, but we can't have good earnings and still get sold for $2.
REBear | 03.18.08 - 9:52 am | #

Marcus Aurelius writes:
One more drink, fool, will kill you...


Background singers: ...Yeah, YOU.
Marcus Aurelius | 03.18.08 - 9:52 am | #

m writes:
Marcus Aurelius

America has lost all respect in the world. The people who live here by and large are very happy if their tv's work, their beer is cold and they can get laid on the weekend after working 80 hours for bs wages. We Americans are all a bunch of trained organ grinder monkeys. The US grinds the organ and we fetch the dollar but on the way back to the organ grinder wemanage to spend the dollar and borrow another 3. Welcome to Rome.
m | 03.18.08 - 9:53 am | #

tj & the bear writes:
Assuming a 100bps cut today, this could be one of the last best opportunitys to reload shorts & puts.  Don't miss it!
tj & the bear | 03.18.08 - 9:56 am | #

tj & the bear writes:
Ugh, I meant "opportunities" of course.
tj & the bear | 03.18.08 - 9:56 am | #

Neal writes:
An unopened can--it could contain the promised Shinola, or it could be the dreaded shit.

Only the packager knows. He would prefer you to think it Shinola.

But who knows?
Neal | 03.18.08 - 10:00 am | #

tj & the bear writes:
Interesting. All indices seem to have hit some resistance, and TRIN is climbing. Could be the morning pump is over.

p.s.: If you have a tinfoil hat, you've got to love how gold & silver always tank immediately after COMEX opens.

tj & the bear | 03.18.08 - 10:01 am | #

number2son writes:
I'll repeat this comment from previous post: GS reported they had "reduced" their leveraged loan commitments by $20B in this Q. How was this managed, do you reckon, other than by offloading crap onto the taxpayer, er, I mean the Fed?
number2son | 03.18.08 - 10:02 am | #

BOB writes:
This morning Goldman Sachs CFO is making so many positive comments about Lehman that it is highly suspicious. The old boys club shot down one of their capo (BS) and now they just stick together and try to weather the storm. They know that if one more goes down.. they all go down. We're gonna have to wait until year end when their books are truly audited to have a better (if any) picture.
BOB | 03.18.08 - 10:02 am | #

Marcus Aurelius writes:
Welcome to Rome.
m | 03.18.08 - 9:53 am

_______

All roads used to lead to Rome. Until they built that damned bypass. Now all that's left is the ruins of our buildings. I clearly remember Cassius telling me that the value of Real Estate never went down.
Marcus Aurelius | 03.18.08 - 10:03 am | #

tj & the bear writes:
BOB,

They won't all survive that long.

tj & the bear | 03.18.08 - 10:04 am | #

calvert writes:
Did Lehman need to make this change?



(a) Prior to fiscal year 2008, our definition for tangible equity capital limited the amount of junior subordinated notes and preferred stock
included in the calculation to 25% of tangible equity capital. The amounts excluded were approximately $237 million, $375 million and $117 million in the fourth, third and second quarters of 2007, respectively; no amounts were excluded in prior periods.
calvert | 03.18.08 - 10:04 am | #

12th Percentile writes:
The Dow and S&P are once again strongly correlated. All is well.

TJ - Short week. I plan to review loading up again sometime next week. I can't resist me that SRS below $100.
12th Percentile | 03.18.08 - 10:06 am | #

jag writes:
"America has lost all respect in the world"

Have you ever traveled to another country? The notion that "the world" (whatever THAT is) doesn't "respect" America anymore is simply a convenient political canard.

You can find "leaders" or people anywhere, of any political persuasion, to mutter something you can construe into "hate", "disrespect", "love", "envy" or whatever with little or no effort.

In thirty years of travel I've found people who love Americans, hate Americans and don't care just about everywhere. Funny thing is; seems like enough of the "world" likes the US enough to continue to want to immigrate here, no?

Not a lot of critics are leaving here as well are they? And what if "the world" doesn't respect us? So what?
They respect China, oppressing Tibet? They respect Russia, now ruled by bloated autocrats? Finding fault with any country is easy...and simple minded.
jag | 03.18.08 - 10:07 am | #

tj & the bear writes:
12th,

Don't know.  These pumps have gone from lasting days to hours lately.   Next week may be pushing things a bit!  ;-)

tj & the bear | 03.18.08 - 10:07 am | #

Pilgrim writes:
It is clear in the press that a bailout is a firegone conclusion, even among the more libertarian/conservative commentators with whom I would generally agree. The banks will be bailed out and the housing market will be bailed out. The lemmings who made poor decisions will not suffer to the degree they should- and those with the foresight to refuse to run with the lemmings are paying for the lemmings' folly through inflation, taxes and artificially propped up housing and stock prices. The whole affair is shameful. There had better be barriers implemented to this happening again, and let's raise taxes on those in the securities industry, as it is clear that society will cover their losses, so should share in the gains. We are all socialists now.
Pilgrim | 03.18.08 - 10:09 am | #

burnside writes:
CR, would it be fair to expect the large IBs to use their new access to the Fed to improve their balance sheets?

To most here, the answer is probably perfectly obvious. But I'm curious about what the Fed has done and what the implications are, going forward.
burnside | 03.18.08 - 10:10 am | #

Fair Economist writes:
GS is talking up Lehman? Don't they have a rep for talking up things that they're shorting?
Fair Economist | 03.18.08 - 10:11 am | #

Marcus Aurelius writes:
"world" likes the US enough to continue to want to immigrate here, no?

___

On a recent trip to Canada, I heard people complaining of all of the Mexicans illegally immigrating to Canada from the US (think about it).

Like the old song says: he don't love me, she loves my automobile...

People love American money, period. As the value of our money drops, so does our popularity.

Why do you think it is that only elderly, rich, powerful men have trophy wives? Hint: It ain't personality or looks.
Marcus Aurelius | 03.18.08 - 10:13 am | #

Alan Greenspend writes:
jeez. on CNBC just now -
"that's a scary thought, can the fed run out of money?"

"no, i don't think so, they can just print more."

...

"no, the fed can't run out of money, they have a printing press, even if they lower interest rates go to zero."

never ending entertainment value.
Alan Greenspend | Homepage | 03.18.08 - 10:14 am | #

YLSP writes:
I feel like I'm living in a home in medieval England. Every hour I hear either the town crier coming through saying, "9 o'clock and all is well! 10 o'clock and all is well!" or I hear the plague cart ringing, "Bring out your dead! Bring out your dead!"

By my own logic I think that eventually the town crier is going to get the plague and no one will be willing to replace him, but I think some of my fellow townsfolks are leaving their homes and getting the plague.
YLSP | 03.18.08 - 10:15 am | #

Marcus Aurelius writes:
sorry for the missing letters - that's what coffee on the keyboard does.
Marcus Aurelius | 03.18.08 - 10:15 am | #

AlphaBeta writes:
Have you seen Tent Cities:

http://www.youtube.com/watch?v=C...h? v=CnnOOo6tRs8

http://news.bbc.co.uk/2/hi/ameri...cas/ 7297093.stm
AlphaBeta | 03.18.08 - 10:28 am | #

daveNYC writes:
If the net's off by half, why shouldn't the stock price fall by an equivalent amount?

In theory the stock price is supposed to be the net present value of all future cash flows to the firm. So for the price to drop by half, you would have to believe that all their future earnings will be halved.

Of course the above is assuming efficient markets. Snicker.
daveNYC | 03.18.08 - 10:29 am | #

scav writes:
This is la-la-land, everything is measured against peoples expectations or plans and business types talk about their plans for the coming year in the past tense. The Fed is off managing peoples expectations of inflation. blha blah blah. Sheer Kabuki. Nothing to be done about it but watch and every so often go "oooh!" and "aaahhh! over the fireworks.
scav | 03.18.08 - 10:32 am | #

Londonernow writes:
Don't have the details yet but word is that Lehman took a $600 million profit on remarking their own bonds (i.e. their liabilities). So without that their $489 million of net income would actually have been a loss.
Londonernow | 03.18.08 - 10:35 am | #

Marcus Aurelius writes:
daveNYC | 03.18.08 - 10:29 am

______

Being entrepreneurial, but not an accounting or tax type, I was floored the first time an accountant told me that my business could be valued using all of the tangibles plus good will and the expectations of future earnings.

Speculation on par with accounting.
Marcus Aurelius | 03.18.08 - 10:35 am | #

Elvis writes:
Those who can see the fire through the smoke have a better chance of escaping with their lives.
Elvis | 03.18.08 - 10:36 am | #

12th Percentile writes:
Don't know. These pumps have gone from lasting days to hours lately. Next week may be pushing things a bit! ;-)


Well, SRS should be close to $100 by the end of the day so I may not have to wait very long. Apparently the majority of investors think the worst in housing is over. I will take their money now and, at some point in the future, use it to buy their real estate.
12th Percentile | 03.18.08 - 10:36 am | #

Londonernow writes:
Goldman Sachs must have done the same thing.
Londonernow | 03.18.08 - 10:38 am | #

m writes:
Lehman has cut 1,100 jobs in March
m | 03.18.08 - 10:41 am | #

12th Percentile writes:
TJ

To back up my claim that some think that housing is ok now, meet Mr. Econ Professor in the NY Times.

"That’s the real bottom line. The United States has some of the most valuable real estate in the world. Markets should not forget that."
12th Percentile | 03.18.08 - 10:42 am | #

Londonernow writes:
If Lehman and Goldman were really smart they would buy back their own debt at these spread levels and post it as collateral to the Fed.
Actually, they're probably doing just that.
Londonernow | 03.18.08 - 10:42 am | #

JJL writes:
I tried to "remark" my contribution to my employer by 100% and I emailed the payroll department to inform them to double my salary. I am still waiting for a reply, but it will be great to finally make what I am worth!
JJL | Homepage | 03.18.08 - 10:44 am | #

Marcus Aurelius writes:
Londonernow | 03.18.08 - 10:35 am

And they wonder why people don't have any confidence in them. Sheesh.

The only play now is timing. We all know the truth about the solvency of our banks and insurers, as well as the accuracy and honesty of our ratings agencies. All that's left is trying to get in and get out before the tsunami of reality rushes back in and crushes the overconfident, the self-deluded, and the ignorant who continue to collect the fish flopping about on the sea floor (those fish do have some real value, BTW).

Being very conservative, I don't like the risk side of that behavior.
Marcus Aurelius | 03.18.08 - 10:50 am | #

REBear writes:
londener/others,
What does "remarking their own bonds " mean?
REBear | 03.18.08 - 10:50 am | #

m writes:
Paulson: We're in A Sharp Economic Downturn

http://www.cnbc.com/id/23688130
m | 03.18.08 - 10:52 am | #

Marcus Aurelius writes:
All value is by fiat now.
Marcus Aurelius | 03.18.08 - 10:52 am | #

saul writes:
More quality people running NY:

Propelled into office by Spitzer's prostitution scandal, brand-new Gov. Paterson reportedly admits to lengthy affairs
saul | 03.18.08 - 10:52 am | #

Barley writes:
CR - Food for thought

On the retail side, if the equity markets look troubling and T-Bill funds going negative return (yieled of .86 to .97 less expenses) will folks just circulate the cash and not see the value these firms add to the equation. I would argue that we might see a net exodus of retail clients.

On the institutional side, there is no money to do deals as credit tightens and risk is shunned.

As to wealth management, I expect well heeled folks are now spreading around the business to avoid having big pockets of money in just one or two places (like BS).

Places of opportunity like hedge funds might remian open to do business but I suspect the level of control (for lending) will be tightened.
Barley | 03.18.08 - 10:55 am | #

Barley writes:
"That’s the real bottom line. The United States has some of the most valuable real estate in the world. Markets should not forget that."
12th Percentile

I do not think anybody has. But the current value is 40-50% less in Euros, right now.
Barley | 03.18.08 - 10:57 am | #

Londonernow writes:
RE Bear: Remarking their own bonds or liabilities means:
- Lehman and other investments banks debt is trading in the market at a discount, as such Lehman could go into the market and buy back their own debt and retire that debt making a profit. This unrealized non-cash profit is booked as income. Lehman, doesn't actually go in and buy their own debt, they just say they could and books the discount as income. Lehman, supposedly, made $600 of this make believe profit this quarter.

Hope that explains it well enough.
Londonernow | 03.18.08 - 10:59 am | #

Marcus Aurelius writes:
saul | 03.18.08 - 10:52 am

___

Okay, this is about sex, not politics (except tangentially), or finance/economics (except tangentially). Prurient interest is at its core. Unless you have evidence that his sexual pecadilloes were used to manipulate legislation, contracts, or stock prices, take that crap somewhere else.
Marcus Aurelius | 03.18.08 - 11:00 am | #

Viewing with alarm writes:
GS and Lehman marked up their own bonds to pump earnings? Is there no shame? If that is confirmed, and is legal, what is the point of publishing any financial statements?
Viewing with alarm | Homepage | 03.18.08 - 11:01 am | #

Viewing with alarm writes:
OK, I get it now. They marked down their debt giving the same result. Still outrageous.
Viewing with alarm | Homepage | 03.18.08 - 11:03 am | #

daddyo writes:
It's legal, and it's done everywhere.

This is almost the exact counterpoint to all the bank's complaints about having to mark assets down based on market spreads even though they are not trading them.
daddyo | 03.18.08 - 11:03 am | #

Anon writes:
Listening to the LEH call is sureal.
"fed facility incredibly attractive margins and rates - but we do not look at it as a deleveraging facility." Oh ok Erin - we belive you

Why bother talking about liquidity when the Fed has essentially backstopped the company. Look at Bear stock at 6 -- wondering if this still makes Dimon look brilliant or more the stooge? Usually when it looks too good to be true it is. Wall Street has become so patently corrupt it is repulsive to even insiders
Anon | 03.18.08 - 11:05 am | #

ddmmann writes:
http://www.fakepaycheckstubs.com
ddmmann | Homepage | 03.18.08 - 11:06 am | #

saul writes:
when is the fed announcement in Eastern standart time. thank you
saul | 03.18.08 - 11:07 am | #

Viewing with alarm writes:
What they really want is to mark liabilities to market and assets to par. Sweet. Can they pick and choose which method they use for each period?
Viewing with alarm | Homepage | 03.18.08 - 11:10 am | #

Anon writes:
the unencumbered assets availabe for fianncing are mortgages res and cmbs - but we choose not to finance them and save the dry powder - chuckle chuckle
Anon | 03.18.08 - 11:10 am | #

bluestatedon writes:
The market's performance yesterday and today proves there's really no recession after all. It was all just talk. Those dismal manufacturing numbers for February that came out yesterday just don't mean anything, either. They're just numbers.

This means folks in Florida and California can get cracking on paying off their mortgages again, not to mention going shopping. Good times!
bluestatedon | 03.18.08 - 11:10 am | #

MarkS writes:
A little OT, but the fact that the PPI is screaming upwards while the CPI is flat should give you a hint as to what is happening to earnings in the "real economy."

Taking falling debt as a gain is GAAP, right? On the flip side, if the debt recovers in value, that's taken as a loss, so it balances out.
MarkS | 03.18.08 - 11:11 am | #

saul writes:
when is the fed announcement in Eastern standard time. thank you
saul | 03.18.08 - 11:11 am | #

baruza writes:
12th percentile

"Still, especially in coastal areas where zoning regulations have restricted the supply of land that developers can build on, house prices were driven up by increasing population, low interest rates and strong economic growth."

Alex Tabarrok really makes this too easy. For persuasive proof that he has absolutely no idea what he's talking about, at least in regard to Southern California, see here:

http://piggington.com/bubble

"There is no housing shortage.
There has been no population boom.
Local income growth has paled in comparison to home price growth.
Job growth outside the real estate industry has been very weak.
While Southern California may be a nice place to live, it was also nice 5 years ago, when homes cost half as much as they do today."
baruza | 03.18.08 - 11:12 am | #

REBear writes:
Londonernow,
That was great. Thanks.
REBear | 03.18.08 - 11:12 am | #

Barley writes:
m writes:
Paulson: We're in A Sharp Economic Downturn

Question: I quote the quote "We know we’re in a sharp downclimb and there’s no doubt"

WTF is a "downclimb"
Barley | 03.18.08 - 11:13 am | #

jin writes:
I will say we have a short term rally now in stock market. I will buy now and short later.
jin | 03.18.08 - 11:14 am | #

m writes:
jin

a downclimb is where Paulson climbs off the bed after servicing the CEO's of Goldman and Lehman and Morgan. The new spitzer
m | 03.18.08 - 11:16 am | #

m writes:
sorry Jin, meant for Barley
m | 03.18.08 - 11:17 am | #

Clyde writes:
Fed announcement is at 2:15p
Clyde | Homepage | 03.18.08 - 11:19 am | #

Marcus Aurelius writes:
WTF is a "downclimb"
Barley | 03.18.08 - 11:13 am

"Downclimb" as in "freefall".
Marcus Aurelius | 03.18.08 - 11:20 am | #

m writes:
Fed Rate Cuts Are Helping Economy, Not Credit Crisis

http://www.cnbc.com/id/23689759
m | 03.18.08 - 11:21 am | #

Meltdown Man writes:
What is amazing to me about all of the lies being told is...
the only people even listening to what they are saying already know the truth and that they are lying. The people that don't pay attention wouldn't notice even if the truth WERE being told. All this is doing is creating cynics of the knowledgable.
Meltdown Man | 03.18.08 - 11:21 am | #

daddyo writes:
The liquidity facility isn't really a delevering tool. It's to provide cash liquidity on a temporary basis. It's not off balance sheet, it's not a true sale.
daddyo | 03.18.08 - 11:21 am | #

Rob Dawg writes:
CalculatedRisk writes:
it's hard to call them horrible - when compared to Bear, Merrill, Citi and others that had to take huge writedowns.
...
Not all level 3 assets are bad.

Don't you think the only difference is that GS and Lehman weren't forced to take writedowns? The risk of deleveraging is pervasive. Just because 30x Bear Stearns is gone doesn't mean 14x Goldman is safe.
Rob Dawg | Homepage | 03.18.08 - 11:21 am | #

m writes:
http://europac.net/Schiff-FBN-3- ...ref=patrick.net
m | 03.18.08 - 11:24 am | #

Kicker writes:
CR, would it be fair to expect the large IBs to use their new access to the Fed to improve their balance sheets?

How?

Improving the balance sheet would mean deleveraging. The Federal Reserve isn't offering the IBs non-recourse loans or to buy securities out-right.

What the Federal Reserve is giving them is access to cash. Access to cash will prevent a *run* but with a 40 to 1 leverage a 2.5% move in the valve of the portfolio could leave them insolvent.

Of course, it's very hard to be insolvent with unlimited access to cash. And if I can mark to model, well....

If a tree falls in the forest and nobody is there to hear it does it make a sound?

It will be interesting to see if any of these non-regulatred IBs have the stones to actually leverage *up*.
Kicker | 03.18.08 - 11:25 am | #

Just Some dumb guy writes:
psss...inside info..

Cramer says "why bear sterns wont be the last"

snicker...

seriously, are they not investment banks? And our investment loses >50%
and its great because we didnt lose more..

seems like i would find a new investment bank if i were on the streets....
Just Some dumb guy | 03.18.08 - 11:26 am | #

david_in_ct writes:
"The market's performance yesterday and today proves there's really no recession after all. It was all just talk."

I would guess that the market performance yesterday and today is directly inversely correlated to the 879 visitors we had here on sunday night all gathered round to see the crash. There is nothing at all absolute about this business but one of the more certain things is that when everyone is lined up to watch some financial spectacle they are sure will happen, they are almost always vastly disappointed.
david_in_ct | 03.18.08 - 11:27 am | #

ScoProLaw writes:
Indeed, david. There was a ton of popcorn eating here on sunday.
ScoProLaw | 03.18.08 - 11:30 am | #

REBear writes:
Barley ,
it's

down..er..down..climb [shakes his head]
ma ..Matt

Did he always do that?
REBear | 03.18.08 - 11:31 am | #

Kicker writes:
I would guess that the market performance yesterday and today is directly inversely correlated to the 879 visitors we had here on sunday night all gathered round to see the crash.

Interesting post about how around-the-clock index futures and the 'Sunday Effect'.

I guess all the damage is done before the market is opened.

http://www.rickackerman.com/
Kicker | 03.18.08 - 11:31 am | #

burnside writes:
Kicker, thanks.

The 'use the fed to repair balance sheets' trope came up weeks ago inre discount window and TAF. I've been curious ever since how to make sense of it.
burnside | 03.18.08 - 11:32 am | #

sick of this writes:
david_in_ct

everyone is lined up to watch some financial spectacle they are sure will happen, they are almost always vastly disappointed.


we were not lined up to watch a spectacle. The spectacle has been happening since August. To call it disappointment is a little bit crude. Do you live in Darien with all the other bankers? I hear the mortgage crisis in Ct is worsening, nah, not Ct. alas, when thousands of people get laid off from the brokerages, many who live in ct will be in deep doo. Soup lines in Ct, never, just in bridgeport which is a short hop from Darien.
sick of this | 03.18.08 - 11:32 am | #

Bob_in_MA writes:
I almost bought LEH yesterday. Oh, well.

It seemed obvious there would be a big bounce, but longer term, I don't think the case for these firms is compelling.

First, events of the next couple years are likely to effect their core businesses in ways we can't really foresee.

Second, and maybe more important, they have lost an awful lot of respect around the world. Will anyone look at these guys the same way? Will people in Europe not be very suspicious of these guys, and what they are peddling, in the future?
Bob_in_MA | 03.18.08 - 11:36 am | #

Anonymous writes:
http://www.thedailyshow.com/vide...le=broken- arrow

Jon Stewart on "Crisis in the Chartland". His take on the crisis is long, but worth the watch---funny!!
Anonymous | 03.18.08 - 11:36 am | #

ron writes:
The lesson that is being taught is that you cannot make it to the exits in time! Mortgage brokers, lenders, IB all fade in a flash,those that had illusions about the product or their ability to trade in fast times finds the exits crowded or closed.
ron | Homepage | 03.18.08 - 11:37 am | #

sick of this writes:
great post from another blog
“Lehman and GS financials are fabricated.

I dont beleive anyones financials anymore. Am I jaded, no. Just not stupid. with all the off balnce sheet crap still out there I can imagine what Paulson et all are saying. keep it off the balance sheet so we can make this an orderly meltdown. Paulson syas to Goldman, no bad news this week, i need some sleep after the BS fiasco. Say what you may to me, I used to be a bank examiner and I saw all the crap that was pulled there. I dont beleive anything anymore unless I see it with my own eyes, the problem is that you need to be a forensic accountant to read financials. God bless all those 30 something MBA's who never went through hard times so they have no appreciation for what they are doing to the American public. May they rot in their co-ops and southhampton mansions. I am sick to my stomach.”

Guest wrote on 2008-03-18 08:54:16

“America has lost all respect in the world. The people who live here by and large are very happy if their tv's work, their beer is cold and they can get laid on the weekend after working 80 hours for bs wages. We Americans are all a bunch of trained organ grinder monkeys. The US grinds the organ and we fetch the dollar but on the way back to the organ grinder wemanage to spend the dollar and borrow another 3. Welcome to Rome.”


The cynicism hangs heavy on this blog.

welcome to the laissez faire United States of Corporations.

Caveat emptor rules in the marketplace where over the past 25 years we have seen the emergence of a plethora of products that promise the impossible such as male enhancement and effortless weight loss – all marketed without fear that they will ever need to demonstrate that there snake oil concoctions actually do what they claim.

The workforce has become almost completely casualized, pension plans pillaged or sidestepped through bankruptcies and takeovers, and good paying manufacturing jobs replaced with minimum wage burger flippers, fingernail polishers, and Wal-Mart greeters.

The Federal coffers has been picked clean by all manner of corporations, from drug companies to KKR and other defense contractors.

Even homeowners, the keepers of the American Dream, have had much of their equity taken from them and transferred to the pockets of AngeloMozilo and countless other loan sharks, bankers, shadow bankers, and Wall Streeters. Now, Americans have less equity in the homes than at any time since the GD.

AAA ratings have been abused and rendered almost meaningless in order to deceive people and maximize profits.

Our democracy has become a plutocracy where the have-nots are ruled by the haves.

Etc.

And last, but definitely not the least problem, ACCOUNTING HAS BECOME A TOOL OF OBFUSCATION for the corporations rather than a system of clarification, explanation, and transparency for investors and other stakeholders!

They have brought to the edge of the abyss, and perhaps even over the edge. Now they are destroying the dollar in an attempt to save “us” (themselves) from the fall. This country survived and emerged even stronger from the GD; will we survive this crisis? And, if so, will we emerge stronger, or forever weakened by the bitter fruits of laissez faire, free-market capitalism?


So the question is what do we do about our corporatist society?

Merely remain cynical and complain on blogs? Or take action in our communities, and with our votes to take back the power that has been amassed by the corporations and return it to the people where it rightfully belongs?


Written by KJ Foehr on 2008-03-18 10:17:13
sick of this | 03.18.08 - 11:38 am | #

jin writes:
This week is OE week. With Fed's action, IBs will paint everything so shiny to make you think that the worst is over. I am playing long for a few days just to be safe I guess.
jin | 03.18.08 - 11:39 am | #

m writes:
Bravo
m | 03.18.08 - 11:40 am | #

david_in_ct writes:
Bob:
I bought back some TMA yesterday.
I too don't like the brokers going forward. Not so much because of their balance sheets but because a part of the business model is impaired. Also LEH was happy to announce today that they are net short subprime. Well halleyluya, that's for sure going to be a big winning position going forward.
david_in_ct | 03.18.08 - 11:40 am | #

Keep It Simple, I'm Stupid writes:
Can anyone explain the compelling reason for BSC to be up $2.50 today? Is there anyone that really thinks that, if they kill the JPM offer, they are going to just go ahead in perfect shape on their own?
Keep It Simple, I'm Stupid | Homepage | 03.18.08 - 11:40 am | #

Sebastian writes:
Speaking of watching financial spectacles, Libor continues to fall fast, now over 200 bp lower than at the beginning of the year and 20-30 bp lower since yesterday.

http://mortgage-x.com/general/in...tory.asp? y=2008



S.
Sebastian | 03.18.08 - 11:44 am | #

12th Percentile writes:
"baruza writes:
12th percentile

"Still, especially in coastal areas where zoning regulations have restricted the supply of land that developers can build on, house prices were driven up by increasing population, low interest rates and strong economic growth."

Alex Tabarrok really makes this too easy. For persuasive proof that he has absolutely no idea what he's talking about, at least in regard to Southern California, see here:"


I think the guy is an idiot. Which is my opinion of most people. But i'm happy to have him pump up the markets. The idiots have had a long run. I've been making money off them for a short while. I don't mind if they extend their run in the face of overwhelming evidence. It shouldn't be this easy, but i'll take it.
12th Percentile | 03.18.08 - 11:44 am | #

david_in_ct writes:
simple:
bsc shareholders have an effective call option. they can always sell at 2 bucks but the deal will not close for many months and i believe there was some language about it being open for a full year if the shareholders vote it down. it makes sense to value bsc as a call option.
i know this is beyond the pale but imagine if it turns out that consensus economic opinion is wrong (oh my how could this be, economists en masse have a near perfect track record, which also explains why all the great money managers over the years were first and foremost well trained academic economists....)
david_in_ct | 03.18.08 - 11:45 am | #

Missed Information writes:
TED spread is still 1.53
stocks may be going up, but it doesn't mean investors suddenly feel all warm and fuzzy inside.
Missed Information | Homepage | 03.18.08 - 11:46 am | #

Keep It Simple, I'm Stupid writes:
bsc shareholders have an effective call option. they can always sell at 2 bucks but the deal will not close for many months and i believe there was some language about it being open for a full year if the shareholders vote it down. it makes sense to value bsc as a call option.

Sure. I understand why the current shareholders have an incentive to gum up the works. Why the hell is anyone *not* already a Bear shareholder playing along? Is this price increase driven solely by people who already own BSC buying more?
Keep It Simple, I'm Stupid | Homepage | 03.18.08 - 11:47 am | #

homedad43 writes:
A little O/t but...

I opened the morning paper today and found - under the article about a developer who want to build about 45 acres of high-density homes - that the Fed is moving fast to avoid a financial 'meltdown'.

Wow. News travels fast.
homedad43 | 03.18.08 - 11:48 am | #

Just Some dumb guy writes:
Slightly off topic but equally as ridiculous:

USA today names lawrence Yun as Fifth in its top ten of economic forcasters.

I'm not kidding...

http://www.realtor.org/ press_roo...forecaster.html
Just Some dumb guy | 03.18.08 - 11:49 am | #

Matt writes:
homedad,

that's better then my local paper with the story on "hep c outbreak" opposite the page for call girls!
Matt | 03.18.08 - 11:49 am | #

Elvis writes:
My understanding about the increase in BSC today has to do with hangovers from St. Patricks Day. You see, many traders are significantly hungover and are making trades in this less-than-clear state. Therefore, when the hangover clears, and traders realize their mistakes, the market will readjust.
Elvis | 03.18.08 - 11:50 am | #

halbhh writes:
LEH was certainly an opportunity yesterday, especially after it's clear the FED will prevent the real value of a lot of mortgage paper from being realized anytime soon.

At this point, it's clear the sophistication of moneyed interests (Credit Suisse and JPMorgan lobbying Congress for the mortage bond bailout which Dodd is now making a seemingly reasonable looking verions of) is far greater than any opposing public forces.

They tricked most commentators into the false idea that the economic fallout of the credit bubble can be stopped...

Not.

And...

so when they "price" the "current price" of the houses of bad loans to be put into FHA, they'll overprice of course.

There's the rub, there's the payoff.

Overprice vs reality.

i.e.--a house with an existing note for $280,000 that just could not be sold for more than $200,000 will be "priced" at $230,000 - $240,000.

betcha!
halbhh | 03.18.08 - 11:52 am | #

Kicker writes:
It seemed obvious there would be a big bounce, but longer term, I don't think the case for these firms is compelling.

Don't beat yourself up...

Investing against fundamentals is no different from gambling. You may get away with it for a while, but probability theory says that in the long run you'll almost certainly go broke (Gambler's Ruin).

Even worse is that there are large parts of our brain dedicated to finding patterns, even when they don't exist (Gambler's fallacy).

But, you can console yourself that the satisfaction from an avoided loss is greater than the pain from a missed opportunity.
Kicker | 03.18.08 - 11:53 am | #

Londonernow writes:
KISIS said:
Can anyone explain the compelling reason for BSC to be up $2.50 today? Is there anyone that really thinks that, if they kill the JPM offer, they are going to just go ahead in perfect shape on their own?
Keep It Simple, I'm Stupid

The Fed is giving away free money to all the primary dealers. You can take any investment grade asset and post it to the Fed. If this facility was made available last week instead of on Sunday, Bear Stearns would have been fine as it would have been able to fund itself. As such, this deal will not go through as the Fed and JP will be sued up the ying yang by every Bear Stearns' shareholder. Basically, the Fed is in an impossible situation. They wanted to use Bear Stearns as an example to the market but the market is basically telling the Fed to F...off. Lehman for example, is probably betting the Fed won't take them out as well as it will just lead to a massive market panic, and as the rest of the IB's get more comfortable with the Fed window for funding, the moral hazard aspect is just going to get worse.
Londonernow | 03.18.08 - 11:54 am | #

ac writes:

I would guess that the market performance yesterday and today is directly inversely correlated to the 879 visitors we had here on sunday night all gathered round to see the crash.

I've noticed the comments here have been a pretty good contrary indicator for short term movements since about July of last year.

Of course, not coincidentally, that's about the time short interest really started picking up.

The shorts have been right overall, so far, but I bet on an individual basis a lot of them have been wiped out by overly aggressive bets.

ac | 03.18.08 - 11:56 am | #

david_in_ct writes:
ac:
this has and continues to be a memorable market. Easy to get killed on either side. Given that we are in options expiration week where maximum gamma lurks, we could see some historic price swings.
david_in_ct | 03.18.08 - 12:00 pm | #

DannyHSDad writes:
OT: yet another signs of slow down:

Restaurant industry traffic slowest in five years, report says

http://fastfood.freedomblogging....says/#more- 1012

The restaurant industry is on the skids, facing one of its worst spells in at least five years, according to a report released this week by NPD Group.

The New York-based market research firm said customer traffic posted “no organic growth in 2007″ — a slowdown tied to consumers ratcheting back spending, especially at dinner time. In 2007, consumer traffic, nationally, was up barely .7 percent for the year.

“This is the smallest traffic gain since the 2000-2003 period of unrest,” NPD said in a statement, referring to a period where sales declined post 9-11.
DannyHSDad | Homepage | 03.18.08 - 12:01 pm | #

Marcus Aurelius writes:
DannyHSDad | Homepage | 03.18.08 - 12:01 pm

___

I guess we need more restaurants.
Marcus Aurelius | 03.18.08 - 12:02 pm | #

energyecon writes:
david,

That would make a kick @ss rock band name - "Maximum Gamma" - I think the lead singer is 6 Sigma ;-)
energyecon | 03.18.08 - 12:03 pm | #

Kicker writes:
I bought back some TMA yesterday.

Does TMA have any public information available on what they still have on the balance sheet since the margin calls?

I'm assuming that TMA handed over anything not nailed down to avoid margin calls. I'm guessing all of that was sold and TMA is on the hook for any deficiency.

The only hope is that not every lenders issued margin calls which still leaves some hope of recovery.

Still, very dicey.
Kicker | 03.18.08 - 12:04 pm | #

Marcus Aurelius writes:
That would make a kick @ss rock band name - "Maximum Gamma" - I think the lead singer is 6 Sigma ;-)
energyecon | 03.18.08 - 12:03 pm

___

And their hit single: Your hyperinflation popped my love doll.
Marcus Aurelius | 03.18.08 - 12:06 pm | #

Anonymous writes:
There is no way to evaluate Level 3 unobservable assets, if banks like Goldman have those Level 3 securities parked over at Paulsons Fed vault -- exchanged "temporarily" for safer money. Allowing this distortion is pure fraud and everyone can smell a rat! The Fed needs to stop bailing out crooks and be in collusion with this type of abusive illegal practice!

In regard to a pst from the prior thread: " Exchanging MBS for treasuries, is this how GS managed to "reduce" its leveraged loan commitments by $20B?"
Anonymous | 03.18.08 - 12:06 pm | #

Fair Economist writes:
BSC is up because the shareholders can very likely extort a little more money out of JPM. JPM has 6 billion set aside for legal contingencies as a result of the deal and the market opined that the deal gained JPM about 10 billion or roughly Bear's book. JPM can probably pitch in a billion or two - resulting in a stock value between 10 and 18 - and still come out way ahead.
Fair Economist | 03.18.08 - 12:06 pm | #

Missed Information writes:
hey, maybe this uptick in market is from all the people who were sitting in treasuries and CDs and suddenly realized dollar may tank any second?

and they are flying to stocks as inflation hedge.
Missed Information | Homepage | 03.18.08 - 12:06 pm | #

Bob_in_MA writes:
Bob:
I bought back some TMA yesterday.

One additional factor that held me back is I want to keep everything simple going forward: broad ETFs/funds. I frankly am sick of following the market, etc., and want to put everything on autopilot.
Bob_in_MA | 03.18.08 - 12:08 pm | #

vicjim writes:
bsc shareholders have an effective call option. they can always sell at 2 bucks but the deal will not close for many months and i believe there was some language about it being open for a full year if the shareholders vote it down. it makes sense to value bsc as a call option.

Sure. I understand why the current shareholders have an incentive to gum up the works. Why the hell is anyone *not* already a Bear shareholder playing along? Is this price increase driven solely by people who already own BSC buying more?

Not my money, but there is a possibility JPM pays more than $2 if the books look good in a few months.
vicjim | 03.18.08 - 12:08 pm | #

Anonymous writes:
from WSJ:
11:19 a.m.: Glenn Schorr of UBS wants to know how comfortable the firm is with its liquidity position, and also wants to know how willing Goldman is to take on “Level 3 assets” and “beef up those positions.” Mr. Viniar responds that the liquidity position has never been stronger, adding that “most of our short-term financing is termed out…we have little rollover risk. It’s not zero, but it’s little.” He adds in a bit about the Fed’s dealer credit facility, which he likes. As for distressed investments, he goes through what seems like typical analysis for a firm in a strong position, saying if the firm sees opportunities, they’ll take them.
Anonymous | 03.18.08 - 12:08 pm | #

m writes:
March 18 (Bloomberg) -- Bear Stearns Cos. rose 45 percent in New York trading to triple the current $275 million value of JPMorgan Chase & Co.'s buyout plan as traders increased bets that investor resistance would force a higher offer.

JPMorgan, with backing from the Federal Reserve, agreed on March 16 take over the 85-year-old New York-based securities firm for about $2 a share in stock to prevent a collapse. Shareholders must approve the transaction.

Yesterday, billionaire Joseph Lewis, Bear Stearns's second- biggest shareholder, called the price ``derisory,'' according to a phone interview cited by CNBC. Other investors may share that opinion.

``It's perfectly possible that the deal you see right now is not the deal you're going to get,'' said Nancy Havens, president and founder of Havens Advisors LLC, which invests in takeover targets. ``There's every incentive for shareholders to vote `no' the first time.''

Havens said she didn't buy Bear Stearns at yesterday's prices because she wasn't convinced the offer would rise above that level.

Bear Stearns rose $2.14 to $6.95 at 11:02 a.m. in New York Stock Exchange composite trading, three times the current value of JPMorgan's stock-for-stock offer.

The shares reached $171.51 last year and closed at $30 on March 14, the last trading day before New York-based JPMorgan stepped in. Bear Stearns's book value was $84 a share as recently as November.
m | 03.18.08 - 12:10 pm | #

david_in_ct writes:
Kicker:
Yeah, its a complete crapshoot.
From what i can make out, a few of the repo counterparties already liquidated a bunch of stuff, hence the pimco buy. a few more have reached standstill agreements, and a few more remain unaccounted for. since almost all of thornburgs exposure is to libor based arms i would say that the real value of their book has increased quite a bit. i have a loan with them and it resets every month. i should be right around 4% in april. i was up over 7% this summer. thats a pretty big rebate spread over 33 billion dollars in loans and in the real world would make the collateral worth a whole lot more based on the increased credit quality. I think that the night of the long knives is over, but again its just a bet.
david_in_ct | 03.18.08 - 12:10 pm | #

Marcus Aurelius writes:
I wonder if PMs and foreign currencies already have the Fed rate cut priced in? This is going to be interesting.
Marcus Aurelius | 03.18.08 - 12:10 pm | #

Anonymous writes:
Window dressing and fraud, fraud, fraud, abusive distortion, does anyone trust this obvious blaten fraudulent bullshit??????? This is awful that pirates are looting America and the press is hyping fraud........where will this "FRAUD" end???
Anonymous | 03.18.08 - 12:11 pm | #

ac writes:

ac:
this has and continues to be a memorable market. Easy to get killed on either side. Given that we are in options expiration week where maximum gamma lurks, we could see some historic price swings.

And yet I think if you made the right call about stocks, notably real estate and financials, you could be up on the order of 20%-50% since the middle of 2006 and weather the rallies fairly well.

But with all the screeching out there I figure people must be going for broke and trying to get 1000% gains in a year.

Probably a lot of people who were "right" are losing money or at least not making any because they're getting greedy.

If you've built up a healthy portfolio over time by showing a bit of self-control in the past, even a 20% gain can mean big $$$.

ac | 03.18.08 - 12:12 pm | #

david_in_ct writes:
"I frankly am sick of following the market, etc., and want to put everything on autopilot."

Sometime you just have to keep on grinding.
david_in_ct | 03.18.08 - 12:13 pm | #

Anonymous writes:
They said a week ago to sell into strength, so this is one more opportunity for insiders and daytraders to run it up before it drops again, and again. Very nice, if your a bank that can exchange toxic waste for cash though and then leverage that again in a crap shoot!!
Anonymous | 03.18.08 - 12:13 pm | #

saul writes:
Shouldn't someone be held accountable for pillaging the US economy? The disappearance of Bear Stearns isn't a blameless phenomenon, any more than the looting of public corporations like Tyco by executives who felt entitled to cook the books.

I'm going to make a simple suggestion: "The Financial Services Recovery Act of 2008": to qualify for federal bail out, Wall Street executives and traders and securities lawyers at big law firms must relinquish to a federal insolvency fund the monetary value of individual bonuses paid out over the previous 10 year period.

You want public money to bail out your failed schemes and securitized asset portfolios, that no one wants to own? Give back, then, all the money you made creating them in the first place. You want to keep your bonuses and fees? Then, let your Bear Stearns disappear like shooting stars... without our help.

The American public didn't ask for financial derivatives, using the value of a simple mortgage and leveraging it twenty or thirty times as the case may be, raining down a blizzard of fees, commissions, and wealth every time a new security was created.

When the Federal Reserve last week took the unprecedented action of accepting toxic financial derivatives as collateral for two hundred billion dollars of loans to banks, it began the process of nationalizing the private banking system of the United States. (I use the two hundred billion dollar number loosely: the general public has no idea what the Federal Reserve and US Treasury is doing, now, veiled in secrecy and manipulation of published data on the economy.)
saul | 03.18.08 - 12:15 pm | #

blackhat writes:
This is just another pump, positions will be sold, suckers will buy...DOW could go up 2000pts and it doesn't change the fundementals. Look at it another way, in real terms, stock, after management and transaction fees needs to increase 10% this year to equalize real inflationary pressures...again, this is capital preservation time.
blackhat | Homepage | 03.18.08 - 12:17 pm | #

Sebastian writes:
Marcus Aurelius asked: "I wonder if PMs and foreign currencies already have the Fed rate cut priced in?"

I've read before that Fed/Treasury activity isn't kept a total secret, that information is shared with important foreign central banks (who are U.S. allies) before major announcements.

In order to maintain an orderly market, I don't know how they can keep important policy changes absolutely secret from primary bond dealers, either.

There must be lots of people in the know about what's coming while we're left to guess.


Sebastian
Sebastian | 03.18.08 - 12:17 pm | #

energyecon writes:
Reuters
Paulson admits U.S. economy in sharp decline
Tuesday March 18, 9:35 am ET


WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson on Tuesday described the economy as being in "sharp decline," the closest he has come yet to conceding an election-year recession has set in.
energyecon | 03.18.08 - 12:18 pm | #

Keep It Simple, I'm Stupid writes:
Ok. Now I get it. I stand by my opinion that the first place that should get the benefit of a decision that BSC is worth more than $2 a share is the Fed and it's $30 billion guarantee, and not BSC shareholders. That constitutes a bailout of the worst sort.
Keep It Simple, I'm Stupid | Homepage | 03.18.08 - 12:19 pm | #

david_in_ct writes:
"DOW could go up 2000pts and it doesn't change the fundementals. "

I'm guessing readership here might decline a bit.
david_in_ct | 03.18.08 - 12:21 pm | #

ba_lurker writes:
Phew !

So relieved that the Credit Crunch, Housing Downturn. Dollar Selloff and Equities Bear Market are all over !!

I am so g;ad to see that the Fed and Treasury have a handle on things !!!

I think I'll go 100% equities and shop around for that IO loan to buy that Million Dollar shitbox in the valley now.
ba_lurker | 03.18.08 - 12:23 pm | #

cd writes:
Do reits get to draw from new FED policy?
cd | 03.18.08 - 12:24 pm | #

sick of your comments writes:
david_in_ct

everyone is lined up to watch some financial spectacle they are sure will happen, they are almost always vastly disappointed.


we were not lined up to watch a spectacle. The spectacle has been happening since August. To call it disappointment is a little bit crude. Do you live in Darien with all the other bankers? I hear the mortgage crisis in Ct is worsening, nah, not Ct. alas, when thousands of people get laid off from the brokerages, many who live in ct will be in deep doo. Soup lines in Ct, never, just in bridgeport which is a short hop from Darien
sick of your comments | 03.18.08 - 12:26 pm | #

Kicker writes:
A few more have reached standstill agreements, and a few more remain unaccounted for.

What's a standstill agreement?

TMA won't be out of the woods until banks are ready to leverage back up gain. Until then, the warehouse lines are quick way to reduce pressure on the balance sheet.

I've been looking at RWT as a way to play the mortgage rebound. They don't seem to have the problem with warehouse lines of credit but I can't find details about the financing (spread risks, covenants, etc).

And, valuing even a plain-vanilla MBS is *hard* when you aren't sure about future inflation risks or the value of the collateral.

I always wondered why a hard money investor would be willing to buy a mortgage that was essentially a 30 year bond with an call option at 5%.

But, now I realize that there really aren't *any* hard money investors in the mortgage market (except the Chinese). The only reason it worked at all was because of leverage and the extreme low volatility of MBS and Treasuries (buy MBS, short Treasuries to hedge interest rate risk, make the spread).

Now those models are blown what's a mortgage worth? There are a lot of places in the world where you simply can't get a 30YR fixed mortgage.
Kicker | 03.18.08 - 12:26 pm | #

"Juliet?" I come anon ... writes:
The NASCAR crowd (sorta) came to this blog on Sunday night, looking for a spectacular crash. It didn't happen. But further proof that the non-finance types are starting to pay attention. Losing your home will do that to a guy/gal.
"Juliet?" I come anon ... | 03.18.08 - 12:28 pm | #

ipodius writes:
Shouldn't someone be held accountable for pillaging the US economy? The disappearance of Bear Stearns isn't a blameless phenomenon, any more than the looting of public corporations like Tyco by executives who felt entitled to cook the books.

Of course saul! After all, you and everyone else is entitled to an economy that never has a downturn, where human failings never occur, where everyone signs kumbaya and never tries to cheat or game anyone else, and where we all pass gas with only the scent of violets.

Where are you people coming from lately? I guess with all the quaking and shaking recently, the gold nuts, fiat freaks, money-printers, conspiracy theorists, and general financial illiterates get shaken out of their holes.

Perhaps we should just go to a centrally-planned, regulated economy so all of this needn't trouble you. Or maybe that didn't work out so well for the masses either...
ipodius | 03.18.08 - 12:28 pm | #

sam samuels writes:
sick of your comments

i agree

dave in ct sounds a bit arrogant and pompous. probably married money or was born into it. I dont like his attitude either about his board. too bad there isnt an ignore button
sam samuels | 03.18.08 - 12:29 pm | #

Anon writes:
It just flashed on Bloomberg that city council voted to resurrect that old Lenin statue in Times Square. Holding to communist form, the proletariat can no longer afford bread.
Anon | 03.18.08 - 12:30 pm | #

saul writes:
Delta offers to buy out 30,000 workers

more people losing their jobs because of this bs.
saul | 03.18.08 - 12:32 pm | #

hb writes:
saul writes:
Shouldn't someone be held accountable for pillaging the US economy?....


saul, there's already a plan, but the persons to be held accountable have been choosen to be you and I and other taxpayers and folks that need to drive cars (pay oil prices vs falling dollar), etc.

Just the same, I think you should send letters to newspapers, etc.
hb | 03.18.08 - 12:37 pm | #

Anonymous writes:
This will be great for the derivatives market and now we can all start investing in repo swaps again, and I dont car if my repo is at The Fed in a swap for a repo swap cubed, as long as I make profit, Im happy The Fed is bailing out my buddies! Go long and never fight The Fed! They are the only counterparty to watch and now they will pump the market like crazy. All on board the FED Choo Choo! Yea Haw!
Anonymous | 03.18.08 - 12:43 pm | #

ipodius writes:
I hear the mortgage crisis in Ct is worsening, nah, not Ct. alas, when thousands of people get laid off from the brokerages, many who live in ct will be in deep doo. Soup lines in Ct, never, just in bridgeport which is a short hop from Darien

now here's a perfect example of the type of post I am talking about. Nothing in here but envy. if you put some of that energy into cogent financial interpretation and analysis instead of silly commentary like this, you'd have probably made more money.

I think we're all expressing exasperation at comments that used to be insightful and apt, and now appear to have sunk to some sort of low common denominator.
ipodius | 03.18.08 - 12:48 pm | #

Low, common denominator writes:
I think we're all expressing exasperation at comments that used to be insightful and apt, and now appear to have sunk to some sort of low common denominator.

Get used to it. You'll be living with us in the tent cities soon enough.
Low, common denominator | 03.18.08 - 12:51 pm | #

david_in_ct writes:
Kicker:
I don't think TMA is actually making any loans at the moment. From what I understand about the agreements with some of the repo lenders is that they have agreed not to liquidate any collateral for one year. I do not know what what was the quid pro quo.

I don't know much about redwood, other than i have heard the name so i cant offer much help.

as a pure spec shot and not an 'investment' i like tma because of the implied leverage by where its portfolio is valued.
as an investment it's actually a pretty good niche mortgage business. there are very few instances where there is refi risk because almost everything is variable rate and runs off libor. had they been an s&l nothing bad would have happened to them. they probably would have been held up as a paragon of lending based on the actual performance of their book.
david_in_ct | 03.18.08 - 12:53 pm | #

novus actus interveniens writes:
Does anyone know where I should put my new money, i.e, the money that is now being minted? I feel richer on one hand but still feel restraint with the other and I fell like a dollar bill being torn in half. What should i do, can someone help tip the balance here for me?
novus actus interveniens | 03.18.08 - 12:53 pm | #

Kicker writes:
I think we're all expressing exasperation at comments that used to be insightful and apt, and now appear to have sunk to some sort of low common denominator.

Agreed...

Many of the posts have moved beyond reason to dogma. Here's a hint, if you aren't aware of how your opinion or data could be *wrong* then you really don't have an opinion or data at all.
Kicker | 03.18.08 - 12:53 pm | #

sam writes:
Hoorah for Low, common denominator.

the arrogance of some of the people here is amazing. IPODIUS, what kind of name is that. it even sounds arrogant
sam | 03.18.08 - 12:55 pm | #

sam writes:
Liquidity Traps: Myth And Reality

Fed getting pretty close to running out of bullets. to hell with the dollar. It already has broken its support line. let it dive. welcome to Rome where the name Ipodious is pretty common I suspect

http://globaleconomicanalysis.bl...nd- reality.html
sam | 03.18.08 - 1:00 pm | #

novus actus interveniens writes:
sam is the lowest common denominator of all and seeks to call attention to his lack of IQ
novus actus interveniens | 03.18.08 - 1:02 pm | #

psychodave writes:
@Kicker
Maybe Tanta won't mind if I ask an Off Topic question from a previous thread:
You pointed out recently that the Fed could not afford a reduction in value of the AAA-rated private label MBS the TSLF will be accepting in exchange for Treasuries, loaned out to Primary Dealers.

Prior to the TSLF, when the Fed was still using highest quality paper as its legal collateral behind the Federal Reserve Notes, would a large enough downswing in the price of Treasuries also have the same effect?
Thanks
psychodave | 03.18.08 - 1:03 pm | #

LEH, GS numbers look good writes:
I think the numbers that GS and LES posted look good. In the markets, what matters is how the actual numbers turned out vs. the expectations, and the expectations were worse.

Plus, they both gave good guidance.
LEH, GS numbers look good | 03.18.08 - 1:03 pm | #

Kicker writes:
There are very few instances where there is refi risk because almost everything is variable rate and runs off libor.

I'm figured that ARMs would be libor plus X. That removes the interet rate risk, but still leaves a spread and duration risk if new Jumbo's get written at libor plus X plus.

I don't see a business model going forward so it's purely a book value play. Held to maturity, TMA's book will eventually recover close to par value but I'm not sure TMA will get that chance.

TMA is in the "too hard" bucket for me. Good luck.
Kicker | 03.18.08 - 1:06 pm | #

sam writes:
novus actus interveniens

I trade futures between 8:30 and 10:30. I use tradestation as a platform. Used to be in equities, but no longer. Have to read too many bogus reports. I am darn good at TA. I use stockcharts, mainly. As far as IQ, someher around 130 since I was tested many years ago.
sam | 03.18.08 - 1:07 pm | #

m writes:
I am on Sam's side.

dont beleive anyones financials anymore. Am I jaded, no. Just not stupid. with all the off balance sheet crap still out there I can imagine what Paulson et all are saying. keep it off the balance sheet so we can make this an orderly meltdown. Paulson syas to Goldman, no bad news this week, i need some sleep after the BS fiasco. Say what you may to me, I used to be a bank examiner and I saw all the crap that was pulled there. I dont believe anything anymore unless I see it with my own eyes, the problem is that you need to be a forensic accountant to read financials. God bless all those 30 something MBA's who never went through hard times so they have no appreciation for what they are doing to the American public. May they rot in their co-ops and southhampton mansions. I am sick to my stomach.
m | 03.18.08 - 1:11 pm | #

saul writes:
novus actus interveniens

what is so different about your degrading comments of sam. Have you stooped so low. Another Roman. probably Ipodius in disguise.
saul | 03.18.08 - 1:15 pm | #

saul writes:
novus actus interveniens

[Latin: a new intervening act] An intervening act that breaks the chain of causation.

pretty arrogant if you ask me
saul | 03.18.08 - 1:17 pm | #

david_in_ct writes:
Kicker:
If they can raise longer term capital it is a pretty good business. in 'normal' times spread risk is pretty low, and if your capital costs are fixed it really doesn't matter too much.
yes, i agree that if they can find no new capital to lend then it is just a run off of the book which given the margin situation might never get to run off. i guess my fingers are crossed that the fed has had a pretty good sit down with all the folks who are most in a position to cause havoc buy pulling lines of credit and raising repo haircuts. certainly tma management is going to give it the old college try because they are huge shareholders thought that didn't seem to help bsc very much...
david_in_ct | 03.18.08 - 1:18 pm | #

sam writes:
The financial community is demonstrating beyond any doubt that it is not able to perform it role of efficient capital allocation. There are other, newly-emergent means to accomplish this goal.

The capital markets have told us that it's time for Mr. Darwin to work his magic. Focus that rage. I am for generating new solutions
sam | 03.18.08 - 1:21 pm | #

novus actus interveniens writes:
saul,

These are times of distrust and sometimes you have to see which dogs have teeth, and which are just bark.

As you may recall, Dog Latin is unrelated to Pig Latin, however, please also recall, Quando Omni Flunkus Moritati!
novus actus interveniens | 03.18.08 - 1:25 pm | #

saul writes:
novus actus interveniens

agreed. try this one on.

Gey KOKKEN offen YAAM
saul | 03.18.08 - 1:26 pm | #

saul writes:
novus actus interveniens

so when are you going to play dead?
saul | 03.18.08 - 1:28 pm | #

Kicker writes:
dont beleive anyones financials anymore. Am I jaded, no. Just not stupid. with all the off balance sheet crap still out there I can imagine what Paulson et all are saying. keep it off the balance sheet so we can make this an orderly meltdown.

Okay, let's assume your right.

Does it mean that those securities held in level 3 will never recover par value. In other words, are they actually hiding *loses*.

Or, are those securities held in level 3 *temporarily* impaired (will recover par) but couldn't be sold for the price currently on the books.

Or, do you have some other theory?

And, what are you going to do about it? Rant to strangers about the injustice of it? Why do you expect us to care? I doubt any of us can do anything to change it.

Or are you secretly hoping that GS CFO will read your rant about the unfairness of it on this board and run to the bankruptcy court in a pique of conscious? Or that the chair of the FASB is going to read this board and run out and rewrite all the accounting rules to make you happy?
Kicker | 03.18.08 - 1:28 pm | #

saul writes:
well deserved compensation.

NEW YORK, March 18 (Reuters) - MBIA Inc (MBI.N: Quote, Profile, Research), which lost $1.92 billion in 2007, on Tuesday said it awarded former Chief Executive Gary Dunton about $5.2 million to leave the world's largest bond insurer, on top of $8.08 million of compensation for 2007
saul | 03.18.08 - 1:33 pm | #

Kicker writes:
i guess my fingers are crossed that the fed has had a pretty good sit down with all the folks who are most in a position to cause havoc buy pulling lines of credit and raising repo haircuts.

Or, pull the lines of credit, grab the securities and drop them on the Fed indefinately. Eventually they will recover par and more for me!

Some suggested that the Fed's moves to accept MBS as collateral from the PDs was what caused the run on Carlyle Capital.

No honor among thieves.
Kicker | 03.18.08 - 1:37 pm | #

novus actus interveniens writes:
All right, no more name calling, I just wanted to think about banks and the reason why Fed collusion in antitrust is a serious matter.

The Fed should be held accountable for the amount of risk they have contributed to and thus the occasioning of harm. Although the casino models used in this game are based on chance, on probability, these unpredictable events which have unfolded are novus actus, because the subprime fraud was obvious, inevitable and with our powers of observation we can loook back and use foreseeability tests to prove beyond doubt that no doc loans to unqualified people was actus reus, or a guilty act.

This entire matter boils down into this soup: criminal negligence lies in the presence or absence of foresight as to the prohibited consequences. Recklessness is usually described as a 'malfeasance' where the defendant knowingly exposes another to the risk of injury. The fault lies in being willing to run the risk. But criminal negligence is a 'misfeasance or 'nonfeasance' (see omission), where the fault lies in the failure to foresee and so allow otherwise avoidable dangers to manifest.

Banks like Bear and even The Fed may be counter-parties to synthetic derivatives, but they can not escape the reality of the collusion, fraud and illegal activity which will result in the pursuit of justice!

Re: Recklessness is usually described as a 'malfeasance' where the defendant knowingly exposes another to the risk of injury. The fault lies in being willing to run the risk. But criminal negligence is a 'misfeasance or 'nonfeasance' (see omission), where the fault lies in the failure to foresee and so allow otherwise avoidable dangers to manifest
novus actus interveniens | 03.18.08 - 1:40 pm | #

david_in_ct writes:
"Some suggested that the Fed's moves to accept MBS as collateral from the PDs was what caused the run on Carlyle Capital.

No honor among thieves."

Not even a little.
david_in_ct | 03.18.08 - 1:48 pm | #

saul writes:
novus actus interveniens

based on your last post which was very well written where does the word trust come in. what happened to that sacred word. IMO there is no more. gone.
Quae nocent, saepe docent
saul | 03.18.08 - 1:51 pm | #

novus actus interveniens writes:
One last thought.

ok two:

1. A defendant cannot evade responsibility through a form of wilful blindness.

2. Ignorantia juris non excusat or Ignorantia legis neminem excusat (Latin for "ignorance of the law does not excuse" or "ignorance of the law excuses no one") is a public policy holding that a person who is unaware of a law may not escape liability for violating that law merely because he or she was unaware of its content; that is, persons have presumed knowledge of the law.

Ok >> 3: actus non facit reum nisi mens sit rea, which means that "the act does not make a person guilty unless the mind is also guilty"

& Finally #4: In the criminal law, a conspiracy is an agreement between natural persons to break the law at some time in the future, and, in some cases, with at least one overt act in furtherance of that agreement.

The current Fed collusion can be thought of more in terms of conspiracy IMHO, and thus the actions we are witnessing are not about the actions of banks, but individuals that act together as a unified.

Re: [A] scheme by a group of salesmen to sell used automobiles as new, could be prosecuted as a crime of fraud and conspiracy, and also allow a purchaser of an auto to sue for damages [in civil court] for the fraud and conspiracy.

Conspiracy law usually does not require proof of the specific intent by the defendants to injure any specific person in order to establish an illegal agreement. Instead, usually the law only requires the conspirators have agreed to engage in a certain illegal act. This is sometimes described as a "general intent" to violate the law.
In United States v. Shabani, 513 U.S. 10 (1994) the United States Supreme Court ruled: U.S. Congress intended to adopt the common law definition of conspiracy, which does not make the doing of any act other than the act of conspiring a condition of liability" at least in so far as to establish a violation of a narcotics conspiracy under 21 U.S.C. § 846. Therefore, the Government need not prove the commission of any overt acts in furtherance of those narcotics conspiracies prohibited by 21 U.S.C. § 846. The Shabani case illustrates that it is a matter of legislative prerogative whether to require an overt step, or not to require an overt step in any conspiracy statute. The court compares the need to prove an overt step to be criminally liable under the conspiracy provision of the Organized Crime Control Act of 1970, while there is no such requirement under 21 U.S.C. § 846.


The DOJ should be investigating this, but due to corruption within that branch of justice, we have a break down of civil law!
novus actus interveniens | 03.18.08 - 1:53 pm | #

Jumpin' Jack writes:
Nouriel's site just went down. 20 minutes before announcement.

Just too odd. Coincidence?
Jumpin' Jack | 03.18.08 - 1:56 pm | #

saul writes:
novus actus interveniens

so whaere does that leave the common man in the USA?
saul | 03.18.08 - 1:56 pm | #

novus actus interveniens writes:
without justice
novus actus interveniens | 03.18.08 - 1:57 pm | #

saul writes:
Jumpin' Jack

just tried it. works fine for me
saul | 03.18.08 - 1:58 pm | #

saul writes:
novus actus interveniens

Quam terribilis est haec hora
saul | 03.18.08 - 2:00 pm | #

Jumpin' Jack writes:
Vos Latin orator es pissing mihi off. Tamen nimirum in vestri code , vos es rectus hodie.
Jumpin' Jack | 03.18.08 - 2:05 pm | #

Justus Somus dumbus guyus writes:
oh now i understand
Justus Somus dumbus guyus | 03.18.08 - 2:05 pm | #

novus actus interveniens writes:
There was a thread here many weeks ago which was related to the movie, "It's a Wonderful Life" and as I recall the conclusion in that debate was that Pottersville was a matter of not just corruption but antitrust abuse. Potter was able to control his anarchy-like society with mafia-like collusion, where the entire town depended on corruption and a lack of law.

We should not allow The Fed to make America into Pottersville!

http://en.wikipedia.org/wiki/Pot...ki/ Pottersville
novus actus interveniens | Homepage | 03.18.08 - 2:05 pm |