risk capital writes:
from crane data-

"Money Mkt Fund Assets Fall in Latest Week; Grow $​77.​3 Billion in July. The Investment Company Institute'​s latest weekly asset figures show a decrease of $​13.​14 to $​2.​764 trillion for the week ended August 29. Retail funds fell by $​3.​96 billion and institutional funds fell by $​9.​18 billion. Money funds normally see seasonal outflows at month-​end and due to back-​to-​school spending. Separately, ICI'​s monthly "Trends in Mutual Fund Investing: July 2007" shows money market fund assets grew by $​77.​3 billion in July to a record $​2.​615 trillion, or 23% of all mutual fund assets. ICI tracks 565 taxable money funds with $​2.​209 trillion and 263 tax-​free money funds with $​406.​2 billion. YTD, money funds have grown by $​260.​4 billion, or 11%. Stock funds continue to hold record low 3.​5% cash levels.

8/30/07
WSJ "​Conduits" and ABCP Primer Shows Money Funds' Risks Minimal. Today'​s Wall Street Journal contains an article entitled, "'​Conduits' in Need of a Fix", which explains the workings of asset-​backed securities (​ABS) and asset-​backed commercial paper (​ABCP) structures and which discusses some large banks' role and exposure to the current market turmoil. The piece should ease money fund investors worries tremendously, because it discusses the prevalence of backup funding for ABCP. "​Banks earn fees to set up and run the conduits. They also often agree to provide funding if a conduit can'​t resell its commercial paper when it matures, which is generally every 90 days." Of the $​1.​3 trillion in ABCP, "$​1.​1 trillion is backed by funding lines from banks says the article based on a Merrill Lynch estimate. (​See also WSJ'​s "​Short-​Term Paper Goes on a Tear"."
risk capital | 08.30.07 - 8:58 pm | #

risk capital writes:
woops-

http://www.cranedata.us/
risk capital | 08.30.07 - 8:59 pm | #

Cal writes:
http://online.wsj.com/article/ SB...s_us_whats_news

"Bush Plans Response to Subprime Crisis"

"Among the most tangible moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers. The change is intended to help borrowers who are at least 90 days behind in payments but still living in their homes avoid foreclosure; the guarantees help homeowners by allowing them to refinance at more favorable rates.

Mr. Bush will also call on Congress to temporarily suspend a tax provision that is leaving some distressed homeowners with whopping tax bills. And he will announce an initiative, to be lead jointly by the U.S. Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers."

Boy, if there was ever a reason for jingle keys, that is it right there. Get away from your underwater 100% financed house tax free. In California you could wait 4 months payment free and leave with a good chunk of change in your pocket.
Cal | Homepage | 08.30.07 - 9:00 pm | #

we are all screwed writes:
I can't believe what a disaster that article is.

I guess there is no personal responsibility anymore. Aren't republicans supposed to believe in the market and less government? We are done as a country if something like this gets passed.
we are all screwed | 08.30.07 - 9:18 pm | #

peterbob writes:
Sorry if this is posted elsewhere, but from the WSJ:

Investors Default
On Outsize Share
Of Home Loans
By MICHAEL CORKERY and JAMES R. HAGERTY
August 31, 2007

Investors played a big role in pumping up home prices during the housing boom. Now, they account for an outsize proportion of loan defaults, mortgage bankers and builders say.

A survey by the Mortgage Bankers Association found that mortgages on properties that aren't occupied by the owner -- mostly investment homes -- account for between 21% and 32% of the defaults on prime-quality home loans in Arizona, California, Florida and Nevada, states where overdue payments are mounting fast...

This should make it more bailout plans to claim that they are helping "The American Dream." I certainly don't want to help out investors.

BTW, I think these numbers of investor foreclosures are too low.
peterbob | 08.30.07 - 9:25 pm | #

Robert Coté writes:
Illiquid is to insolvent as nude is to naked. Thus all the concern over transparency.
Robert Coté | Homepage | 08.30.07 - 9:26 pm | #

Called_Bluff writes:
The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes," a senior administration official said. "We're not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner."

WAR
Called_Bluff | 08.30.07 - 9:30 pm | #

Calculated Risk writes:
Robert Coté, well said, thanks for the laugh!

peterbob, that makes sense. I'm pretty sure there are a number of investor owned properties near me - including right next to me. That property isn't in foreclosure yet, but I wouldn't be surprised if the owner gives up soon.

Best to all.
Calculated Risk | Homepage | 08.30.07 - 9:33 pm | #

covered wagon writes:
Consumer tapped out? You decide.
http://www.startribune.com/535/s...ry/ 1388623.html
covered wagon | 08.30.07 - 9:33 pm | #

EPD writes:
Yup – there goes the neighborhood - Leave it to W to f up the one govy program left working – yeah dumping tons of subprime junk that will not perform at any interest rate into the FHA pool - nice.

Great – next thing you know George will declare “mission accomplished” on the mortgage meltdown and cruise into some neighborhood on the back of a Rooms to Go truck delivering sleeper sofas
with no interest due until 2025 –

I am packing my bags and moving to Costa Rica on Sunday
EPD | 08.30.07 - 9:34 pm | #

ac writes:
Boy, if there was ever a reason for jingle keys, that is it right there. Get away from your underwater 100% financed house tax free.

Great observation Cal,

Nobody wants to overpay $200,000 for a house even with assistance.

I think people walking away is going to be one of the biggest problems.

Especially if you take away one of the biggest obstacles. What's 7 years bad luck if the money you save lets you retire 10 years earlier?

ac | 08.30.07 - 9:36 pm | #

mw writes:
When will Uncle Bernie revise his 100B cost estimate of this fine debacle?
mw | 08.30.07 - 9:37 pm | #

bklynrntr writes:
Moralizing about bailouts is boring, some form of bailout attempt is almost inevitable IMHO, the question is whether the pols protect their votes or the banking system. My bet is o their votes for the next 12 months anyway. Just for the record, I think a moralizing tone is playing right into the hands of those that want to sacrifice the end householder to save the banks. J6P has nothing to trade except his/her vote while the banks that did a full measure of their part in this mess have all their buddies on CNBC/MSNBC/FOX/CNN etc helping them out. They're bitchin' up a storm about credit crunch yada yada on one side of their mouth's and blaming J6P on the other.

More interesting is the Moody's comment about trust and lack of transparency. He seems to be saying that the underlying securities are fine, its just a lack of transparency/fear factor that is causing the seize up. He might even be right if what he really means is that the banks/hedgies etc leveraged up too much on the expected underlying cash flows. if aggregate cash flows come in as promised, but failures continue, then Moody's is probably right and its a leverage problem at the bank/Hedgie end rather than a real affordability crisis. If that is true, then we'll see MBS's are fine but some hedgies and even the CDO Squared's will be fine because the projected interest income flows came through.

I suspect, however that the Moody's model is wrong and if thats the case, then this is both a leverage problem and an affordability crisis. In that case, Moody's better watch out as the downgrades will continue to accelerate for another 12 motnhs or more. bailouts not relevant in this case.
bklynrntr | 08.30.07 - 9:37 pm | #

Misean writes:
Orignal Post:
"Everyone in New York is expecting to hear about more job cuts in September. There'll be a wave of them."

Gosh I'm cryin'now. They won't be able to enjoy $2000 lunches anymore....awww...Hope they have some savings from those incredible bonuses etc, they earned over the last 7 years.

Actually I don't. And that hedgie dud who had to sell his Yacht...FU...poor War Shriek minion...

I'm in a bad state of mind...

"Moody's president sees unprecedented illiquidity"

Neither could the Titanic crew see that giant frozen piece of illiquidity, often called an iceberg, because of this
http://www.telegraph.co.uk/news/ ...ntitanic129.xml

Good luck pigmen. I hope they end up having to rent in the bronx and harlem.

Cheers,
Misean | 08.30.07 - 9:39 pm | #

Called_Bluff writes:
darn it EPd , you beat me to using MI

Congress to enact reforms that would eliminate the required 3% down payment

wuuuu-huuuu
Called_Bluff | 08.30.07 - 9:40 pm | #

risk capital writes:
For all of you equity boys, surprised you missed this from Crane-

"Stock funds continue to hold record low 3.​5% cash levels."
risk capital | 08.30.07 - 9:42 pm | #

ac writes:
"Everyone in New York is expecting to hear about more job cuts in September. There'll be a wave of them."

Well, it's not really as bad as it sounds - those who do lose thier jobs can always go back to online poker to make ends meet. Workers in other industries don't usually have that kind of safety net.

ac | 08.30.07 - 9:43 pm | #

risk capital writes:
"The credit market is experiencing an unprecedented loss of confidence due to the lack of transparency over where exposures lie rather than underlying credit quality problems"

That statement is ludicrous!

Exposures create credit problems, due diligence uncovers the exposure, and the ratings should reflect the inherent weakness or lack thereof.
risk capital | 08.30.07 - 9:49 pm | #

KnotRP writes:
Anecdotal info:

My cousin (general construction) and his girl (real estate agent) have been attending REOs in the Greater Sacramento Area, looking for value that they might buy, fix up, and rent. Last week, visiting, he says most of the homes he's gone into have cement poured into nearly every drain, copper pulled out, fixtures gone, ....he's only seen one that still had functional plumbing, and that one also had intact granite counter tops so they bid $200K under the REO to see if they get a bite.

If this continues, we're going to have to start counting months of housing supply in both real (functional plumbing) and nominal (city services unreachable) terms.

Supply may rot out of the market,
which might help recover sooner,
but won't help the bank loss department.
KnotRP | 08.30.07 - 9:52 pm | #

GaudiaRay writes:
>copper pulled out, fixtures gone,

Money is money. The cheaters stole it from the lenders, and the illegals stole it back, to "recycle".
GaudiaRay | 08.30.07 - 10:01 pm | #

albrt writes:
Down here in central Arizona we will need a special category for empty Mad Max exurbs. Civilization may be unreachable for reasons other than concrete in the drains.
albrt | 08.30.07 - 10:02 pm | #

risk capital writes:
Barclays-

http://biz.yahoo.com/ft/070830/f...71131.html? .v=1
risk capital | 08.30.07 - 10:02 pm | #

rich writes:
"Last week, visiting, he says most of the homes he's gone into have cement poured into nearly every drain, copper pulled out, fixtures gone"

Like I said, there's a million or more homes that will just be demolished and sold for land. The homes have become punching bags for people who feel abused by the system and lost in pursuit of the Dream. The slums of America keep expanding.
rich | 08.30.07 - 10:07 pm | #

Pablo writes:
CFC rebuttal
Pablo | 08.30.07 - 10:07 pm | #

rich writes:
If there was total transparency and you knew where exposures lie, then it starts to get scary.
rich | 08.30.07 - 10:08 pm | #

Robert Coté writes:
109 visitors at 10PM EDT. Leading indicator?
Robert Coté | Homepage | 08.30.07 - 10:18 pm | #

barely writes:
[Boy, if there was ever a reason for jingle keys, that is it right there. Get away from your underwater 100% financed house tax free.]

That's probably right for most financially aware people but J6P won't do it, anticipating appreciation will fire right back up and turn that investment around. The govt will bail out the lender and J6P will fail on the loan in a year, transferring the loss to Uncle Sam.

Lender bailout.
barely | 08.30.07 - 10:33 pm | #

Banker writes:
Off Topic,

Just letting folks know I'm going to be traveling quite a bit and will be out of pocket over the next month or so. Too bad for me, I think we're going to see a bunch of events happen that will be fun to discuss.

Be well!
Banker | 08.30.07 - 10:41 pm | #

energyecon writes:
Bear Stearns Hedge Fund BK Not Going to be in Caymans

A Manhattan bankruptcy judge on Thursday gave two bankrupt Bear Stearns hedge funds 30 days of additional protection from creditors looking to seize their assets, but refused to permanently shield them from U.S. lawsuits.
energyecon | 08.30.07 - 10:41 pm | #

energyecon writes:
Safe journeys Banker, hopefully we will all be reminiscing over some single malt and a cigar...
energyecon | 08.30.07 - 10:43 pm | #

Robert writes:
Just letting folks know I'm going to be traveling quite a bit and will be out of pocket over the next month or so. I am oddly comforted by Banker's willingness to leave the relative safety of the Bankerdome and venture out into a changing world.
Robert | 08.30.07 - 10:45 pm | #

Stagflationary Mark writes:
Just letting folks know I'm going to be traveling quite a bit and will be out of pocket over the next month or so.

I am oddly comforted by Banker's willingness to leave the relative safety of the Bankerdome and venture out into a changing world.

I must ask one question before I'm oddly comforted.

Banker, will you be staying within the country on your journeys or are we to assume that we are on our own and you know what out of luck if the you know what meets up with the fan?

I tried to make my question a bit cryptic. I don't want to be the cause of a panic. I urge you to cryptically nod yes in response. That way we will all see what we want to see.

(Some of us will pack our bags thinking we'll be joining you overseas and some of us will hunker down thinking you'll be staying here.)
Stagflationary Mark | 08.30.07 - 11:03 pm | #

Neal writes:
banker will be back by the end of September to view restored liquidity per his prediction a few days back. We'll see too.
Neal | 08.30.07 - 11:06 pm | #

Stagflationary Mark writes:
109 visitors at 10PM EDT. Leading indicator?

It's a lending indicator I think.

Perhaps 100 people wish to know if they should be lending more money in the morning. Based on what's been written here today perhaps it is best to plan for the worst.

Hey, why are the black helicopters flying over my house again?

I mean hope for the best! Don't plan for the worst. Hope for the best! Yeah, that's it!

Whew. They've flown off again. That was close. Crisis averted! I really need to learn to type faster.
Stagflationary Mark | 08.30.07 - 11:09 pm | #

Anthony writes:
http://www.telegraph.co.uk/money...1/ cnjobs131.xml

Deutsche Bank has shut down its proprietary credit trading desk in London
Anthony | 08.30.07 - 11:10 pm | #

Neal writes:
CNN, tonight

(quote)

...Outstanding commercial paper fell by $62.8 billion, or 3.1%, in the week ended Wednesday to $1.98 trillion, bringing the total decline in the past three weeks to $244 billion, or 11%, the Federal Reserve reported Thursday.

Such a hit has taken place despite commercial paper's seemingly safe-haven status in lending. "It's kind of like a margin account that businesses use for short-term financing," Arnold said.

While it has been a primary source of funding for corporate mergers and acquisitions, it "can be used for almost anything," said Raymond Benton, a Denver-based adviser who purchases individual bond issues for high net-worth clients. Commercial paper is a generic term for most any short-term corporate borrowing, he added. "It's nothing more than a short-term note that can come due in as little as 30 days or less," Benton said.

....But such data don't tell the whole story, he added. Crandall's research shows that terms and conditions are tightening in commercial paper.

"Where a dealer might have been willing to finance a customer position for a couple of months at the beginning of the summer, it might be willing to make a commitment for no more than a week or two in the current environment," he wrote.

And that situation could become more acute in coming days, Crandall added. " Customers who locked in funding through the August dog days earlier in the summer may find that the term financing market is not as deep after Labor Day as usual," he said.

(end quote)

Waiting for restoration of liquidity..
Neal | 08.30.07 - 11:14 pm | #

Neal writes:
Washington Post, tonight

WASHINGTON -- Banks increased their borrowing from the Federal Reserve for a second straight week as the central bank worked to deal with a credit crunch that has roiled global financial markets.

The Federal Reserve reported that the daily borrowing averaged $1.315 billion for the week ending Wednesday. That was the highest average borrowing since the attacks of Sept. 11, 2001. The average surpassed last week's average of $1.2 billion, which also had been the highest since the 2001 terrorist attacks
Neal | 08.30.07 - 11:17 pm | #

Neal writes:
Telegraph, UK, tonight

FEARS that Russia's banking system could be vulnerable to a sudden downturn have led to a surge in capital outflows over the past two weeks, triggering the sharpest fall in the country's reserves since the oil boom began.

Foreign currency reserves have fallen $6.4bn (£3.2bn) since mid-August, despite vast revenues from oil and gas exports. Capital inflows had been running at about $7bn a month until August.

The central bank has intervened aggressively in recent days to stave off a possible credit crunch, injecting a record $10.6bn into the banking system on Tuesday.

In a move that has raised eyebrows, it is also selling dollars to support the ruble, spending $4bn on August 21 alone.
Neal | 08.30.07 - 11:22 pm | #

Banker writes:
Stagflationary Mark,

I'll be headed to the mainland US and even visitng my old colleagues in NYC. So hopefully around late September I'll have SCOOP!
Banker | 08.30.07 - 11:24 pm | #

Banker writes:
Neal,

Yup, That is still my prediction :)

Road shows for a couple of LBO's begin next week so by September 15 or so we're going to know if those have priced or not. If they have, very good news. If they don't get done? Um, back to the Dome for a spell :)
Banker | 08.30.07 - 11:26 pm | #

ac writes:
Off Topic,

Just letting folks know I'm going to be traveling quite a bit and will be out of pocket over the next month or so. Too bad for me, I think we're going to see a bunch of events happen that will be fun to discuss.

Be well!

Take care Banker,

We'll text message any short sale recommendations directly to your cell phone as soon as they show up in the comments section. We'll also notify you ASAP if any poster warns that he's absolutely certain a market crash is coming in the next week.

Have a good trip.

Oh, and watch out for the PPT.

ac | 08.30.07 - 11:33 pm | #

Kevin writes:
"Among the most tangible moves will be an administrative change to allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to guarantee loans for delinquent borrowers."

Flash back

"Right here in America if you own your own home, you're realizing the American Dream." "A third major barrier is the complexity and difficulty of the home buying process. There's a lot of fine print on these forms. And it bothers people, it makes them nervous. And so therefore, what Mel has agreed to do, and Alphonso Jackson has agreed to do is to streamline the process, make the rules simpler, so everybody understands what they are -- makes the closing much less complicated." (President George Bush, 2002 speech to St. Paul AME Church, Atlanta)

OK.
Kevin | 08.30.07 - 11:35 pm | #

FFDIC writes:
Financial Times

Bank warns emergency borrowers

http://www.ft.com/cms/s/0/ 9004b0...00779fd2ac.html
FFDIC | 08.30.07 - 11:55 pm | #

FFDIC writes:
Financial Times

Barclays reassures after more borrowing

http://www.ft.com/cms/s/c9eec74e...2Fhome% 2Feurope
FFDIC | 08.30.07 - 11:56 pm | #

wawawa writes:
Fellows, check out Mish's latest about Benny.
wawawa | Homepage | 08.31.07 - 12:04 am | #

WMD1964 writes:
http://online.wsj.com/article/ SB...s_us_whats_news
WMD1964 | 08.31.07 - 12:17 am | #

DH writes:
For all of you equity boys, surprised you missed this from Crane-

"Stock funds continue to hold record low 3.​5% cash levels."
risk capital | 08.30.07 - 9:42 pm | #

whats up risk,
the mutual fund cash reserves have been low since 2005. This stock market is
in the hands of instuititions right now. The only reason it went down recently was because of deleveraging. Its not over yet. The individual investor is buried under
real estate investments and will not
be a factor for years to come.
DH | 08.31.07 - 12:24 am | #

anotherajh writes:
"In a move that has raised eyebrows, it is also selling dollars to support the ruble, spending $4bn on August 21 alone."

One of the ways I can envision a BIG unwind is if China follows a similar course; a nasty scenario along the lines of: down housing -> down MEW -> drop in purchase of Chinese goods -> slower Chinese economy -> Hot Money exits China -> China defends its currency by selling dollars. This leads to further collapse in the dollar coupled with pressure on interest rates (to go up). I recall CR has raised the possibility of a vicious cycle along these lines, where increased interest rates feedback onto consumer spending, further exacerbating the problem.

The other possible disaster scenario is a rapid unwind of the yen carry trade.

Hopefully neither is terribly likely, but I'd really like to get better information on the state of the consumer pocket books to better assess this. I'd like to know, by age cohort, the population’s average assets, defined as: equity beyond 20% + savings + non-real-estate assets - liabilities. I think this would allow a reasonable assessment of how well prepared the consumer is to weather a storm. Any suggestions where I might get such data?

Thanks.
anotherajh | 08.31.07 - 12:30 am | #

Calculated Risk writes:
Banker, have fun!

Best Wishes.
Calculated Risk | Homepage | 08.31.07 - 12:32 am | #

GaudiaRay writes:
Liquidity is coming...within weeks.

It appears the FHA will buy the toxic loans at 100% from the lenders!

And, I'm guessing the FHA will raise the loan limits up to nearly $1 million.

The Feds are about to use fiscal policy instead of monetary policy to pump liquidity into the system.

Bye bye USD. The store of value, sound as a Dollar, is now officially history.

So, where's the store of value? Rogers says agricultural commodities, and China's market. Gold? Where is it for the next few years?
GaudiaRay | 08.31.07 - 12:34 am | #

Ministry of Truth writes:
The FHA offers more of an insurance product than actual loans. I don't forsee a bailout but more of giving J6P a reason to keep paying the mortgage on a devaluing asset. The FHA will help stem the losses for those poor bag holders who's debt slaves fall off the treadmill.
Ministry of Truth | 08.31.07 - 12:47 am | #

Ministry of Truth writes:
The WSJ article's title should read "Bush Moves to Aid BagHolders"

http://online.wsj.com/article/ SB...s_us_whats_news

Who in their right mind wants to keep paying interest payments on something worth less than the debt on it?
Ministry of Truth | 08.31.07 - 12:54 am | #

barely writes:
Truth, By guaranteeing these impaired loans to 100% don't you think they become a lot more valuable to trade and easy to get off the lender's books?

It's a bailout - nothing less. There's no other way to define it. The libs (marks) will get snowed because they are willing to see the sunny side, and smile, while they're getting hosed.
barely | 08.31.07 - 1:00 am | #

FFDIC writes:
The NY Times

Why a U.S. Subprime Mortgage Crisis Is Felt Around the World

http://www.nytimes.com/2007/08/ 3...erivatives.html

The Rolling Stones "Satisfaction"

http://youtube.com/watch?v=XTdLS1s2z9U
FFDIC | 08.31.07 - 1:04 am | #

Hazard writes:
Of course. JUST AS I PREDICTED.


' And he will announce an initiative, to be lead jointly by the U.S. Treasury and Housing and Urban Development departments, to identify people who are in danger of defaulting over the next two years and work with lenders, insurers and others to develop more favorable loan products for those borrowers." '


Tanta? dryfly? Do you still say I was wrong? HMPH!!!!!!!!!!!!
Hazard | 08.31.07 - 1:06 am | #

Ministry of Truth writes:
Barely, homeowners will still have to refinace into these loan products. I would think the loan products still have to perform. How many homeowners do you really think will qualify? It looks more like a lot of jawboning for the appearance of doing something.
Ministry of Truth | 08.31.07 - 1:15 am | #

KnotRP writes:
> Boy, if there was ever a reason for jingle keys, that is it right there. Get away from your underwater 100% financed house tax free.

Also:

It's an incentive for everyone who didn't lever up to get busy levering, since you can take that loan and go buy stocks, and if your home price drops, you get to (1) skip paying back the loan, (2) keep whatever you bough/invested with the loan proceeds, and (3) no IRS tax due on the write off.

Are they insane?
Is this what a helicopter sounds like?
Hold me. ;)
KnotRP | 08.31.07 - 1:26 am | #

FFDIC writes:
Guardian

Leading lender likens US credit crisis to Great Depression

http://business.guardian.co.uk/ s...2159627,00.html
FFDIC | 08.31.07 - 1:27 am | #

dean writes:
Just heard on Bloomberg Asia TV:
DB lays off credit trading team in London.
S&P President resigns over subprime fiasco.
dean | 08.31.07 - 1:33 am | #

SDMisfit writes:
You can slaughter a lot of bears with a donkey jawbone...

I live in one of the San Diego neighborhoods with the most foreclosures (Golden Hill). Barrio Logan next door is also in the top three. Low-income, subprime central. Well, I wandered about these areas on foot for two hours this week and saw little overt evidence of distress. But already the bailout talk has reached the White House. Are they really responding to poor people suffering, or is this a rescue of fat cats stranded on a hot tin roof?
SDMisfit | Homepage | 08.31.07 - 1:39 am | #

a writes:
"He seems to be saying that the underlying securities are fine, its just a lack of transparency/fear factor that is causing the seize up."

Things are seizing up and credit lines are being cut (even to major banks). When some USD is offered in the market by bank A, there is a reasonable chance now that Bank B cannot borrow it because bank A is full up with bank B. Bank B may have very little subprime (really! such banks do exist), but bank A can't know that, and it's not going to take a chance. IBs with trading activities (and I'm talking trading activities which has nothing to do with housing) which need liquidity are being impacted. IBs may well have to make the choice of financing their trading activities or financing their corportate clients. The sums on this are huge and the spigot could well be turned off in a matter of weeks, if not days.
a | 08.31.07 - 1:42 am | #

wawawa writes:
I beleive that there is unprecedented illiquidity. Allow me to share a personal story.

My cousine who is a Pharmacist and her husbad who is a plastic surgeon purchased a house in SO. CA last Dec. for $1.3M. I just talked to the husband and he told me that he can not refinance the house because all lenders want some equity or downpayments. Since they bought the house with no down payment and interested only and prices have declined, now their rate is resting and they can NOT refinance. Both of them have excelent FICO.


Here, we have a couple who have probably a combined income of $200K and they can not refinance.

What that tell us about the rest of the FB?

This shit is serious, we are lucky if we do not have a depression.
wawawa | Homepage | 08.31.07 - 1:44 am | #

Tom Stone writes:
Banker,have a wonderful time! I have appreciated your insights,and look forward to more.
Tom Stone | 08.31.07 - 1:47 am | #

M-F writes:
From the Bush bailout WSJ article linked above:

"By allowing the agency to back loans for delinquent borrowers, the FHA estimates it can help an additional 80,000 homeowners qualify for refinancing in 2008"

Well, if 80,000 homes all default and the average loss is $100,000 that "only" adds up to an 8 billion dollar loss... so guaranteeing 80,000 additional homes doesn't have much of a worst case and it probably wont make much of a dent in the problem either.
M-F | Homepage | 08.31.07 - 1:47 am | #

Lee Helm writes:
wawawa: "This shit is serious, we are lucky if we do not have a depression."

The U.S. probably deserves a depression. Our excesses are epic. Our misadventures around the world are ridiculous. Our leaders are greedy whiners who serve their own special interests and their own pocket books, by convincing the rest of the idiots in the country that they're serving *our* special interests and *our* pocket books. Our over-consumption and waste are truly industrial-strength. Our principles are entirely sold down the river. Our marketplace is a frantic no-holds-barred grab-fest of money-grubbing leeches trying very hard to suck the blood out of all the other money-grubbing leeches.

And finally, our moral backbone is utterly broken. Hey America: good luck with that.
Lee Helm | 08.31.07 - 2:08 am | #

Pablo writes:
I declare a winner in the MMI competition:

Watching the rating cuts trickle out of the derivatives forest is akin to searching for elephant dung on a path to try and work out how many pachyderms are in the jungle. There's clearly a herd in there. And it's probably much bigger than the ordure you have seen so far would suggest.

Also included in this issue:

Standard & Poor's butchered the ratings...

and

You can bet the world's biggest and smallest banks are also panning for risk in the structured investment vehicles and off-balance-sheet companies they casually sponsored in the gold rush.

and

The ensuing carnage in the balance sheets of every financial-services company in the world would dwarf the damage wrought in the securities industry by the subprime crisis so far.

and

It will be hard enough for central bankers in the U.S. and Europe to set monetary policy at next month's meetings when they have no way of knowing how bad the financial storm might get and how much it might hurt economic growth. The more things that go boom in financial markets in the coming weeks, the harder the task facing the rate setters will get.

It's like he's in a league all his own.
Pablo | 08.31.07 - 2:13 am | #

Miles Smoljo writes:
Dean, you're right about S&P's president resigning.

http://www.bloomberg.com/apps/ne...QfJk& refer=news

The shoes keep dropping at an increasing rate.
Miles Smoljo | 08.31.07 - 3:20 am | #

Yal writes:
Crisis is over, Bush will fix the sub-prime problem:

http://www.bloomberg.com/apps/ne...fsAY& refer=home
Yal | Homepage | 08.31.07 - 3:35 am | #

fredw writes:
S&P President Kathleen Corbet has been replaced effective immediately amid questions of the credit rating agencies' role in the subprime mortgage crisis. ( Reuters- 8/31/07 - 1:19 am .) Looks like the stuff is getting ready to hit the fan. September seems to have the potential to be a bloody month . After the pep talks from Bush and Bernanke tomorrow which are geared to attempting to convince folks the Gov't has things under control , the reality will start hitting home next month when CP markets continue to remain locked down , Wall Street joins the lenders in mass firings of employees and additional companies go belly up ( one should expect to start seeing HBs hit chapter 11 in the next few months .) When it becomes clear that there isn't a painless Gov't solution to what is an insolvency crisis , that's when panic might raise its head
fredw | 08.31.07 - 3:35 am | #

albrt writes:
Poor Tanta.

Try hard to keep your perspective on the bailout talk, folks. Congress probably won't even give Bush approval for additional torture and eavesdropping in 2008 unless he throws himself on the ground and screams like a three-year-old in a supermarket checkout.

These programs are unlikely to amount to anything more than diverting some moldy Katrina trailers to other states. In fact, I doubt there is anybody left in federal government employment who could manage to do that, even if they could find the money to gas up the trucks.
albrt | 08.31.07 - 3:55 am | #

Chris writes:
McGraw-Hill Cos., the parent of Standard & Poor's, said in a statement yesterday that Corbet resigned to spend more time with her family. Her exit isn't related to the current credit-market turmoil, Steven Weiss, a New York-based spokesman for the company, said in an interview.

Why do they keep telling lies? Isn't one of the main problems the fact that so many in the finance world have been telling lies of all sorts over the past few years. So they keep on doing it? Really!
Chris | 08.31.07 - 4:08 am | #

JudgeSmales writes:
Whether Bush plans to bail out 1 FB or 80,000, I find it morally distasteful for my gov't to invoke this sort of moral hazard. The risk takers who screwed up must be punished by the market. Otherwise, we'll be right back in another bubble in a couple of years. (What'll it be, solar power? Corn? Beanie babies 2.0?)

NO BAILOUTS! -- sneaky or otherwise. Those FHA loan guarantees will be coming out of my pocket and yours, eventually.

I've never been more ashamed of my gov't and the president than I am today. I guarantee you in today's speech, Bush will say, "This is not a bailout," but that's exactly what it is.

I realize the president of the U.S. need not be a genius. But when the president is as stupid as this guy -- I'm talking about brains, not his stumbling speeches or made-up words -- an idiot president can do a lot of damage, regardless of his political party. See: Bush, George W.

-- Judge Smales
"You'll get nothing and like it"
JudgeSmales | 08.31.07 - 4:44 am | #

Yal writes:
Banker,

Have a good trip. If you are anywhere on the Moscow to South Africa time zone give mr a hauler....
Yal | Homepage | 08.31.07 - 4:54 am | #

Yal writes:
mr = me (e next to r on the key board)
Yal | Homepage | 08.31.07 - 4:55 am | #

unirealist writes:
albrt 3:55, you are so right.

Guys, please don't anguish about the bailout that "is not a bailout."

This administration is incapable of doing *anything* successfully. Even the *wrong* things it does it always screws up. For example the Iraq invasion, for example the toxic FEMA trailers, for example firing the US Attorneys, for example...well, let's all try to think of *any* government program that the Bush/Cheney/Rove triumvirate has done right.

Trust me, this non-bailout is going nowhere. Remember the "mission to Mars" announced a couple years back? How's that coming along?
unirealist | 08.31.07 - 5:46 am | #

fellow academic writes:
OT--the markets are supposedly focused on Ben B's talk today at the meeting in Jackson Hole. IMO, Ben is likely to disappoint the Street. This is not a monthly Fed meeting, nor is it testimony before Congress.

Like the good professor that he is, Ben is probably looking forward to the chance to get away from the immediate problems and to talk about theory, concepts and broader data issues. Perhaps he will through in something for Wall Street, but maybe not. He does not want to tip his hand and why should he be concerned about being labeled a "professor."
fellow academic | 08.31.07 - 5:48 am | #

fellow academic writes:
correction:

"Perhaps he will throw in something for Wall Street"
fellow academic | 08.31.07 - 5:49 am | #

central_scrutinizer writes:
unirealist, Cal +10. Bailout proposals may initally cheer people up but ultimately they will fail.

The thing to remember is that any legislation passed by Congress and signed by a lame duck Prez will have unintended consequences. As Cal pointed out, a 1099 amnesty (hey there's a rallying cry, no amnesty for flippers) will encourage jingle mail. And as I've pointed out before, proposals to keep underwater buyers in the homes and not defaulting may reduce foreclosures a bit, but remember that they will tie these folks to their homes for a good long while meaning less mobility. Less mobility means fewer home sales moving forward.

Not to mention that the presidential election campaign really gets rolling in 4 months. When Congress returns in Sept. they will be preoccupied with Iraq and General Petraeus' report. After that, the chance of any major legislation will grow dimmer by the day as both parties concentrate on bashing the heck out of each other, not getting anything useful accomplished.
central_scrutinizer | 08.31.07 - 6:11 am | #

JG writes:
--> politician bail out
JG | 08.31.07 - 6:34 am | #

ilsm writes:
Bails out are great!

100% insurance means the servicers auctioning a property can sell for $.01.

Why anyone would keep paying a mortgage is debatable.

VA loans guarantee a certain floor.

One auction I watched, a home I sold to a VA borrower, the bank went for the floor.

Great buy, but everything else in the neighbor likely was now worth 66% of otherwise assumed value.

I wish I knew the bank would sell for such a loss!!!!

What does 100% insurance tell the buyer?
ilsm | 08.31.07 - 7:11 am | #

covered wagon writes:
In a move that has raised eyebrows, Banker has announced he will be absent for some time from the comments forum at Calculated Risk. "Just letting folks know I'm going to be traveling quite a bit and will be out of pocket over the next month or so," he recently posted to the well-respected economics blog. Fellow commentators sent their well-wishes, and while some felt "oddly comforted" by his willingness to venture forth from "the Bankerdome" during these uncertain times, others were more skeptical.
"Will you be staying within the country or are we to assume that we are on our own if the you-know-what meets up with the fan?" inquired Stagflationary Mark. In his posting, Banker, with his trademark brevity expressed his fondness for the CR community and its lively but serious coverage of the escalating crisis in global financial markets. "Too bad for me," he wrote. "I think we're going to see a bunch of events happen that will be fun to discuss."

A safe journey and a speedy return!
covered wagon | 08.31.07 - 7:25 am | #

Gort writes:
Trust me, this non-bailout is going nowhere. Remember the "mission to Mars" announced a couple years back? How's that coming along?
unirealist | 08.31.07 - 5:46 am | #

Man on Mars! I forgot about that yet unfulfilled vision by the president. Maybe bush can send spaceships full of sub prime defaulter - together with homebuilders - to Mars for a government sponsored $1.00 an acre land-grab; thereby killing two birds with one stone.
Gort | 08.31.07 - 7:50 am | #

Robert Coté writes:
Maybe bush can send spaceships full of sub prime defaulter - together with homebuilders - to Mars for a government sponsored $1.00 an acre land-grab; thereby killing two birds with one stone.

Golgafrincham! B-Ark solution.
Robert Coté | Homepage | 08.31.07 - 11:11 am | #

tj & the bear writes:
Banker,

Safe trip! We'll miss you...

p.s.: Need someone to watch the bankerdome while you're gone? ;-)
tj & the bear | 08.31.07 - 3:16 pm | #

ReadingNLearning writes:
Shrub thinks it's fine to cut school meal programs for underprivileged children, but just dandy to subsidize creep flippers!

Yay Team! Go Team Go!
ReadingNLearning | 08.31.07 - 8:11 pm | #