Nemo writes:
...pretty soon you're talking about real money...
Nemo | Homepage | 03.17.08 - 1:24 pm | #

homedad43 writes:
Didn't Krugman actually place losses lower than that previously?

The multiplier effect is going to be amazing.
homedad43 | 03.17.08 - 1:26 pm | #

safe_as_apartments writes:
LEH on death watch, down 40%.
safe_as_apartments | 03.17.08 - 1:26 pm | #

Jim writes:
Manufacturing numbers out and they are terrible, just terrible.
Jim | 03.17.08 - 1:27 pm | #

MiTurn writes:
¡No más, no más! :)
MiTurn | 03.17.08 - 1:29 pm | #

safe_as_apartments writes:
"Because I think we know something that we didn't then. The Federal Reserve was clueless back then. They were only concerned about protecting the nation's gold reserves, and the federal government believed that austerity and cutting spending was the answer to recession. I think we know more than we did then, and just the fact that we have a big federal government is a stabilizing factor. But the current problem is still pretty awesome. "

Krugman fails to mention that we rely on foreigners to finance our "big government". It's hard to fiscally stimulate without foreign cooperation; I very much doubt we would get help without punishing interest rates.
safe_as_apartments | 03.17.08 - 1:29 pm | #

JJL writes:
Lehman says they are in great shape, so I believe them with all my heart. Krugman is mistaken in his assumption as the "losses" are going to get stashed at the FED and never see the light of day.
JJL | Homepage | 03.17.08 - 1:34 pm | #

Navspecwarcom writes:
safe_as_apartments:

LEH on death watch....dying laughing. Love that comment.
Navspecwarcom | 03.17.08 - 1:35 pm | #

halbhh writes:
Krugman is smart and has most things right, but does have a bias, imo, in favor of somehow prolonging the apparent wealth of the recent past.

Accepting the fact we are not as wealthy (as a nation) as we seemed to be in recent years is a psychological challenge, and the realization will be gradual.
halbhh | 03.17.08 - 1:35 pm | #

Sebastian writes:
Slightly OT: Anyone checked LIBOR rates lately? Those resets aren't looking nearly so dire, with all the recent maturities (1 month thru 1 year) under 3%.

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


Sebastian
Sebastian | 03.17.08 - 1:35 pm | #

Jim writes:
Lehman may not be in mortal danger, but since everybody in Wall Street seems to lie (up to the last minute of truth), why believe that?
Jim | 03.17.08 - 1:38 pm | #

Zero writes:
...if you have negative equity, you can end up being foreclosed on...

I keep reading this in the MSM, as if negative equity causes the foreclosure.

Why would having negative equity increase the risk of foreclosure for a broad spectrum of borrowers? Because they would walk away? Because they cannot refinance? Tanta makes the point that there's no evidence that large numbers of homeowners are walking away. (Yet.) And the lending environment doesn't seem to be conducive to refinancing even if you have some equity.
Zero | 03.17.08 - 1:38 pm | #

Jim writes:
Krugman also has a scary comment on interest rates. The important ones are so low that it may be that there is nothing the Fed can do. No more ammunition.

http://krugman.blogs.nytimes.com...liquidity-trap/
Jim | 03.17.08 - 1:41 pm | #

Average Joe writes:
Sebastian:

Be careful what you wish for, good news may not be.

The best thing that can happen for the economy, housing market, and most importantly, the home "owner" is for these resets to be worse than expected, and force a forclosure.

The ability for many to stay in an overvalued home by the skin of their teeth will undue any stimulous package conceivable and have long term affects on all involved.
Average Joe | 03.17.08 - 1:41 pm | #

x-man writes:
sebastian,

IT'S JUST A FLESH WOUND
x-man | 03.17.08 - 1:42 pm | #

dr strangemoney writes:
The financial system is becoming
Too Big To Survive
dr strangemoney | Homepage | 03.17.08 - 1:42 pm | #

Cal writes:
DSL NPA above 10%, I wonder when it starts becoming a problem.

In my local Albertsons there is a DSL, they have a huge banner advertising bank owned homes. Their only promotion..
Cal | Homepage | 03.17.08 - 1:43 pm | #

Kurtyboy writes:
OT for Tanta's edification:

Sub-prime mortgage watchdogs kept on leash
Loan checkers say their warnings of risk were met with indifference

"They could see the meltdown coming.

Freelance financial watchdogs who examined the paperwork on sub-prime home loans being sold to Wall Street had an inside view of the boom in easy-money lending this decade. The reviewers say they raised plenty of red flags about flaws so serious that mortgages should have been rejected outright -- such as borrowers' incomes that seemed inflated or documents that looked fake -- but the problems were glossed over, ignored or stricken from reports."

http://www.latimes.com/business/ ...,0,782997.story
Kurtyboy | 03.17.08 - 1:44 pm | #

Jim writes:
This is super funny because of the book ad: or at least it might be funny if things weren't so bad.

http://krugman.blogs.nytimes.com...-ya-gonna-call/
Jim | 03.17.08 - 1:44 pm | #

12th Percentile writes:

Slightly OT: Anyone checked LIBOR rates lately? Those resets aren't looking nearly so dire, with all the recent maturities (1 month thru 1 year) under 3%.


Sebastian, you do understand how neg am interest only loans work, right? The LIBOR rates aren't the issue.

Might want to check on that.
12th Percentile | 03.17.08 - 1:44 pm | #

bluestatedon writes:
"The Fed report showed overall industrial production by the nation's mines, factories and utilities fell by an unexpectedly steep 0.5 percent in February."

Yet again there's the mysteriously "unexpectedly" bad number. Is it the business writers who are so clueless that these numbers are "unexpected," or are the financial wizards these writers are talking to the dimbulbs? It's like juggling chainsaws and being "surprised" when you lose a digit or two.

Maybe these people have been repeating the spin, horsecrap, and happytalk for so long that they're no longer able to discern reality.
bluestatedon | 03.17.08 - 1:44 pm | #

Rob Dawg writes:
"$7-$9 trillion in asset valuation is evaporating because of this nonsense." - Rob Dawg Jun 13, 2006

Finally, partial affirmation.
Rob Dawg | Homepage | 03.17.08 - 1:44 pm | #

Average Joe writes:
"Why would having negative equity increase the risk of foreclosure for a broad spectrum of borrowers?"

Generally speaking it won't. Unless they can't afford it anyway, or choose to walk away.

But all the other things that happen in life, like job change, sickness, divorce etc, that normally would end in a sale, now all end in forclosure.

Keep in mind, half of all marriages end in divorce. That means that half of all married home owners will eventually consider or need to sell.
Average Joe | 03.17.08 - 1:45 pm | #

Anonymous writes:
What time is Sebastian's interview w/ Cramer on CNBC, anyone know?
Anonymous | 03.17.08 - 1:45 pm | #

ac writes:

I think there'll be $1 trillion of losses on mortgage-backed securities showing up somewhere.

And I think there will be some sort of taxpayer funded bailout of most of that trillion dollars (whether through outright taxation or stealth taxation via inflation).

It might be necessary to save the financial system, though one might legitimately ask whether it's worth saving.

I for one think having a big safe along with a shotgun are the only financial system a real man needs.

ac | 03.17.08 - 1:46 pm | #

Max writes:
Image of the day:

http://www.thumbsnap.com/v/OK3dqsps.jpg
Max | Homepage | 03.17.08 - 1:47 pm | #

Crispy&Cole writes:
LEH now down 46%...""this is ridiculous..."
Crispy&Cole | Homepage | 03.17.08 - 1:47 pm | #

Gareth G writes:
Note to self: Stop at bank on way home and bring back lots of cash. Put under mattress.
Gareth G | 03.17.08 - 1:47 pm | #

saul writes:
do you all remember this?

http://www.youtube.com/watch?v=c...h? v=cYPtCmdFCrc
saul | 03.17.08 - 1:48 pm | #

Lionel writes:
Anonymous writes:
What time is Sebastian's interview w/ Cramer on CNBC, anyone know?

I'm sure this has been posted, but there's a link on Drudge, in which Cramer urged an investor to leave his money in BSC. This was March 11. Good call, Jim.
Lionel | 03.17.08 - 1:49 pm | #

Average Joe writes:
"Put under mattress"

This is why Temperpedic is selling off hard today.

Those things are HEAVY, ever try to lift that to put cash under it?
Average Joe | 03.17.08 - 1:49 pm | #

Jim writes:
tough words from Roubini:

The response of the Fed to this run has been radical and in the form of the extension of the lender of last resort support to non bank financial institutions. Specifically, the new $200 bn term facility allows primary dealers – many of which are non banks – to swap their toxic mortgage backed securities for US Treasuries; second, the Fed provided emergency support to Bear Stearns and following the purchase of Bear Stearns by JPMorgan, is now providing a $30 bn plus support to JPMorgan to help the rescue of Bear Stearns; finally, now the Fed is allowing primary dealers to access the Fed discount window at the same terms as banks.


This is the most radical change and expansions of Fed powers and functions since the Great Depression: essentially the Fed now can lend unlimited amounts to non bank highly leveraged institutions that it does not regulate. The Fed is treating this run on the shadow financial system as a liquidity run but the Fed has no idea of whether such institutions are insolvent. As JPMorgan paid only about $200 million for Bear Stearns – and only after the Fed promised a $30 billlion loan – this was a clear case where this non bank financial institution was insolvent.


The Fed has no idea of which other primary dealers may be insolvent as it does not supervise and regulate those primary dealers that are not banks. But it is treating this crisis – the most severe financial crisis in the US since the Great Depression – as if it was purely a liquidity crisis. By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbate moral hazard distortions. Here you have highly leveraged non bank financial institutions that made reckless investments and lending, had extremely poor risk management and altogether disregarded liquidity risks; some may be insolvent but now the Fed is providing them with a blank check for unlimited amounts. This is a most radical action and a signal of how severe the crisis of the banking system and non-bank shadow financial system is. This is the worst US financial crisis since the Great Depression and the Fed is treating it as if it was only a liquidity crisis. But this is not just a liquidity crisis; it is rather a credit and insolvency crisis. And it is not the job of the Fed to bail out insolvent non bank financial institutions. If a bail out should occur this is a fiscal policy action that should be decided by Congress after the relevant equity holders have been wiped out and senior management fired without golden parachutes and huge severance packages.

The Fed may be, again, doing the wrong thing in its panic.
Jim | 03.17.08 - 1:51 pm | #

bluestatedon writes:
"Cramer urged an investor to leave his money in BSC. This was March 11."

I think the market for personal protection services for financial advisors is the next investment opportunity.
bluestatedon | 03.17.08 - 1:52 pm | #

REBear writes:
JPMorgan Chase & Co.'s (JPM) takeover plans for Bear Stearns Cos. (BSC) include cutting more than half of Bear's 14,000-member staff, CNBC's Charlie Gasparino reported Monday, citing sources at JPMorgan.
The layoffs are anticipated over the "next couple months," Gasparino said.
Gasparino added that expansions are planned for Bear's trade-clearing, prime-brokerage and energy-trading businesses. He said JPMorgan will consider bringing in Bear people to bolster JPMorgan's existing fixed-income and investment-banking operations.
REBear | 03.17.08 - 1:52 pm | #

NoVa writes:
Wow! Evil people are giving LEH a nugie. I checked Seb's LIBOR. It had happy green smiley faces by the rates so I know it is good. Funny I always thought LIBOR was a zodiac sign...

I am not worried. Bush says "they are on top of it." Wait. ummmm, maybe, naw.

When are the gun nuts coming back? God, I love it when we talk Glock here.
NoVa | 03.17.08 - 1:52 pm | #

John Stark writes:
Why would having negative equity increase the risk of foreclosure for a broad spectrum of borrowers? Because they would walk away? Because they cannot refinance? Tanta makes the point that there's no evidence that large numbers of homeowners are walking away. (Yet.) And the lending environment doesn't seem to be conducive to refinancing even if you have some equity.
Zero

The problem is that people sink into negative equity and then (in the words of one local realtor) "life happens." You get transferred to a new city. You get divorced. Your spouse loses his/her job. You have a heart attack. Suddenly you can't make the payments, or you need to sell and can't. In some cases this means short sale, not foreclosure, but it's still nasty.
John Stark | 03.17.08 - 1:54 pm | #

Jeff writes:
OT - What ETF are people using that are buying glod?
Jeff | 03.17.08 - 1:54 pm | #

Sebastian writes:
Average Joe said: "The best thing that can happen for the economy, housing market, and most importantly, the home "owner" is for these resets to be worse than expected, and force a foreclosure."

Careful.:) From there it's only one step to "the best thing that can happen for the economy is a rising unemployment rate with millions of jobs lost."

In a crisis, you don't count the cost. You try to do what's "right" at the time and sort it all out later.


Sebastian
Sebastian | 03.17.08 - 1:57 pm | #

girlbear writes:
"When billionaire Joseph Lewis started buying into Bear Stearns last year, most thought he was bottom feeding. It turns out that Lewis was getting in near the top"

Wow, try to time the market and loose 1 Billion $$'s
girlbear | 03.17.08 - 1:58 pm | #

cd writes:
10% pop on leh in minutes..crazy day...
cd | 03.17.08 - 1:59 pm | #

Anonymous writes:
Did Sebastian just say "get the balance right" on que ? (see video of the day)
Anonymous | 03.17.08 - 2:02 pm | #

rich writes:
The Gold ETFs are GLD, IAU, and DGL

There was some discussion here last week about counterparty risk in PowerShares and ProShares ETF.

I have friends at PowerShares, so I e-mailed them about this. They responded immediately (through Deutsche Bank) with the following:

"All 11 of the currency and commodity ETFs called "PowerShares DB" hold US T-Bills and exchange traded futures contracts only, so have no counterparty risk beyond the US Government and the regulated futures exchanges."

I will try to get a similar answer from ProShares.
rich | 03.17.08 - 2:03 pm | #

saul writes:
bluestatedon.

http://www.businessandmedia.org/ ...0317110946.aspx
saul | 03.17.08 - 2:04 pm | #

Sebastian writes:
Anonymous wrote: "What time is Sebastian's interview w/ Cramer on CNBC, anyone know?"

This is great. I know I'm on the right side of the argument when the other side makes it personal.:)

Never mind that mortgage resets for Libor-based ARMs, long touted as a major bearish factor for housing, are down 160 bp since the beginning of the year, and likely to go even lower.


Sebastian
Sebastian | 03.17.08 - 2:04 pm | #

Kett82 writes:
Dear Dryfly

You on?...what say you about this...from the interview:

Is there any solution?

Well, a weak dollar is helping. I look at the euro at $1.53 and cheer - not for this European trip I'm planning to take after classes are done. But for manufacturing plants in the Midwest, it's a very good thing. Arguably the only good thing we have going for the U.S. economy now is the weak dollar and how that helps exports.

Best regards,
Kett82 | 03.17.08 - 2:05 pm | #

JJL writes:
Obscure film referefence with regards to LEH:
"get him a body bag! YEAH!"

Hint:
"Sweep the leg"
JJL | Homepage | 03.17.08 - 2:06 pm | #

Interesting Times writes:
"Lehman: We're Not Bear, and We're Not Screwed"
http://finance.yahoo.com/tech-ti...ere-Not- Screwed


Ridiculous! Absolutely Ridiculous!
Interesting Times | 03.17.08 - 2:07 pm | #

Jeff writes:
Thank you rich.
Jeff | 03.17.08 - 2:08 pm | #

Darren writes:
Seb: "Never mind that mortgage resets for Libor-based ARMs, long touted as a major bearish factor for housing, are down 160 bp since the beginning of the year, and likely to go even lower."

Is that like being shot with a 12-gauge rather than a bazooka?
Darren | 03.17.08 - 2:17 pm | #

Scotto writes:

Obscure film referefence with regards to LEH:
"get him a body bag! YEAH!"

Hint:
"Sweep the leg"


But Sensai, I'll be disqualified!
Scotto | 03.17.08 - 2:17 pm | #

thoth writes:
Sebastion:
"In a crisis, you don't count the cost. You try to do what's "right" at the time and sort it all out later."

In westerns that's called shoot first and ask questions later. Profound.
thoth | 03.17.08 - 2:21 pm | #

saul writes:
Greenspan blames the risk models.

http://www.nakedcapitalism.com/2...isk- models.html
saul | 03.17.08 - 2:23 pm | #

Arik writes:
Very disappointed in Krugman this time. Only 66% of American homeowners have mortgages. If you take his 100M homeowner households (which I think is too high... more like 56M), but if you take his 100M, then you end up with 20M/66M, or 30M homeowners with negative equity. So you are telling me that slightly less than half of all homeowners with mortgages will have negative equity? That doesn't sound reasonable, even with a 25% price drop.
Arik | 03.17.08 - 2:25 pm | #

JJL writes:
"But Sensai I can beat this guy!"
"I dont want him beaten!"
Great pickup Scotto
JJL | Homepage | 03.17.08 - 2:25 pm | #

Turbo writes:
Not that I disagree that the housing and mortgage markets are a debacle, but you do have to take Krugman with a grain of salt right now, since his op-ed pieces have essentially become him lobbying to be Fed chief when Hilary becomes president.
Turbo | 03.17.08 - 2:26 pm | #

FFDIC writes:
I'm sorry my cranky old neighbor, Charlie Weaver, died. He would be cussing a mother fucking blue streak.
FFDIC | 03.17.08 - 2:28 pm | #

byzantine_ruins writes:
In a crisis, you don't count the cost. You try to do what's "right" at the time and sort it all out later.

Fast road to policy failure there.

If it's a vexing policy problem, chances are, simple solutions failed or are beyond the perceptual / solution means horizon of the response framers. A situation like this is much more likely to take the form of a wicked problem with no easy solution or one that offers strictly counterintuitive answers than one that responds well to a direct attack. Shooting from the hip will let you resdiscover how the last five parties with a reflexive approach failed.

Crises should be met with very carefully formulated, devious plans that offer unexpected and economical responses to the challenges they pose. The idea that a crisis is an excuse to spend willy-nilly and run around shouting how the consequences don't matter is more an artifact of 20th century American hubris and predisposition to histrionics than an actual way to solve problems. Crises demand fast responses, not reckless responses. In the real world, where resources are finite, uneconomical solutions to crises leave participants strapped for resources when emergent challenges present themselves.
byzantine_ruins | Homepage | 03.17.08 - 2:33 pm | #

ron writes:
Why would having negative equity increase the risk of foreclosure for a broad spectrum of borrowers? Because they would walk away? Because they cannot refinance? Tanta makes the point that there's no evidence that large numbers of homeowners are walking away. (Yet.) And the lending environment doesn't seem to be conducive to refinancing even if you have some equity.
Zero

But it certainly would not be a great time to buy for new buyers, why buy asset class that is deflating and requires significant upkeep not to mention subject to state and local taxes.
ron | Homepage | 03.17.08 - 2:33 pm | #

dynamitejacket writes:
i doubt there will be any crane kick and triumphant theme music at the end of this, JJL


as a total noob, unsophisticate, plebe, whatever, can any1 explain the vague feeling of impending doom I have? And why i just went and made sure my camping gear is in order? Lots of terms people use here are lost on me- and I wonder how many of "me" there are out there checking their coleman fuel supply and counting ammunition.

Can the Fed stop us peasants from "gunning up" by protecting the Bear Stearns of the world?
dynamitejacket | 03.17.08 - 2:33 pm | #

Gary writes:
Sebastian: ideologue, liar, shill. He is the Grima Wormtongue of this board. The liar's equivalent to Jas Jain.

Of course, to Sebastian, being called out as a lying piece of crap just means he is correct.

I used to believe that Seb believed his own BS, but no longer. Shill, shill, shill.
Gary | 03.17.08 - 2:37 pm | #

Sebastian writes:
Gary said: "Sebastian: ideologue, liar, shill. He is the Grima Wormtongue of this board. The liar's equivalent to Jas Jain."

Thank-you for the response. Have a nice day.:)

(I'm turning a new leaf just for you, Tanta.)


S.
Sebastian | 03.17.08 - 2:44 pm | #

saul writes:
Moody's places Fifth Third Bancorp on negative outlook
saul | 03.17.08 - 2:46 pm | #

Anonymous writes:
In a crisis, you don't count the cost. You try to do what's "right" at the time and sort it all out later.

Per chance would your name happen to be Paul Dundes Wolfowitz?
Anonymous | 03.17.08 - 3:02 pm | #

Sebastian writes:
Anonymous asked: "Per chance would your name happen to be Paul Dundes Wolfowitz?"

The sentiment I expressed is a little older.

"If your neighbor's house is on fire, you don't haggle over the price of your garden hose."

Franklin Roosevelt


S.
Sebastian | 03.17.08 - 3:12 pm | #

js writes:
As a renter with $75,000 in student loans pegged to LIBOR, please excuse me while I dance in the streets. Rates will reset on April 1 down ~200 bps from where they are now.

And with our stimulus check coming in May, my wife and I are thinking of investing in . . . wait for it . . . 1 ounce of gold! Though by then the $1200 may not be enough.
js | 03.17.08 - 3:19 pm | #

wally writes:
"If your neighbor's house is on fire, you don't haggle over the price of your garden hose."

Sort of depends on whether your own house is burning, too. It can change your view of neighborliness.
wally | 03.17.08 - 3:31 pm | #

Benajmin Gorenberg writes:
rich @ 2:03PM, please post the answer to your Proshares inquiry regarding counterparty risk.

Thanks,

benjamin
Benajmin Gorenberg | 03.17.08 - 4:05 pm | #

KnotRP writes:
js - Libor is London's bank rates, not the US Treasury rates....why do you expect those to go down, when the US rates drop?
KnotRP | 03.17.08 - 4:21 pm | #

RN writes:
That Kramer Bear Stearns video clip is just too freaking funny. My God.
RN | 03.17.08 - 4:53 pm | #

Banks Own it ALL writes:
I think the market for personal protection services for financial advisors is the next investment opportunity.
bluestatedon


I always thought the next great opp was selling handguns door-to-door, under duress, of course.
Banks Own it ALL | 03.17.08 - 5:04 pm | #

zIRPY THE pINHEAD writes:
I was in BAC this morning transfering some funds to payoff the final beneficiary of my father's trust. Couldnt help but notice a very long-line of mostly senior citizens in front of me. According to the teller I spoke with, most were pulling cash-out. She claims this was rather unusual since its the middle of the month hence no S.S. checks and the like.
zIRPY THE pINHEAD | 03.17.08 - 5:30 pm | #

halpmeh writes:
haha that wall street crying video is awesome, thanks for the link above, i'm pasting it again

http://www.youtube.com/watch?v=c...h? v=cYPtCmdFCrc
halpmeh | 03.17.08 - 5:38 pm | #

js writes:
KnotRP - It's not an expectation; LIBOR has actually been dropping precipitously since the beginning of the year.

http://www.bloomberg.com/markets/rates/

Down 300 bps in six months. That's over $2000 a year less in interest for me. Perhaps chump change for all the fund managers here, but it's real money to me.

As Krugman points out, the TED spread has increased, but that's because Treasury's have dropped even more than LIBOR. Even though the Fed doesn't control LIBOR, they rates tend to move very close in sync. And right now, it appears the British banks are keeping rates really low to prop up liquidity - certainly on risk alone, you'd expect the rate to be rising right now, not falling 50 bps in the last month.
js | 03.17.08 - 5:38 pm | #

M-F writes:
Sebastian's post at 1:35 is a damn good point guys. Those LIBOR rates are down, way down since January, like 2 points down.

The ARM mortgages that reset based on the LIBOR will be much easier to handle for everyone and the 2 points may make the difference for many people between foreclosure and sticking it out, for now, at least.

The point on student loans is also good, this July could be a great time to refinance student loans if the lower rates hold.

This rate drop will make some difference, but who knows how much? It would be interesting to know the prevalence of terms on 2/28 ARMs. Is the 2 year intro period typically 6 percent followed by a LIBOR plus 2 or 3? If so, even 2.5% + 3 giving 5.5% is a rate decrease from the 2 year intro period. And which LIBOR is the most commonly used for mortgages?

The LIBOR drop is well worth noting!!
M-F | Homepage | 03.17.08 - 7:11 pm | #

Paul writes:
You know, all those people don't really have negative equity. They have lots of junk they bought with the equity so all they have to do is sell all their stuff with the house.

I could use a plasma with my new house.
Paul | 03.17.08 - 7:55 pm | #

Alec writes:
LIBOR shot up 81bp over the weekend, will gap even bigger on the fed cut, spreads have also increased in Pound & Euro LIBOR
Alec | 03.18.08 - 6:35 am | #

Guy writes:
I confess to not reading the interview - does he blame George Bush or Dick Cheney?
Guy | 03.18.08 - 4:41 pm | #