jackk writes:
why is failure of small banks such a big deal? i don't see how it's different from failure of some hole-in-the-wall hamburger joint or some furniture store? so why be concerned about it? i guess it's different if regular joes lose their deposits, but when was the last time that happened?
jackk | 03.20.08 - 9:57 pm | #

Max writes:
I've been posting about this for a while in the Sacramento area. There's a ton of all types of vacant CRE all over town:

Natomas Area Commercial Real Estate Photolog
Max | Homepage | 03.20.08 - 9:58 pm | #

MiTurn writes:
I still don't understand that after all of this slowdown in the residential housing market, why there hasn't been a corresponding decrease in employment figues. Yes, I know about all of those illegals working in Nevada and California who are now unemployed and don't show up on the rolls, but that doesn't seem to explain it all. Where are all the unemployed construction workers?

Any thoughts would be appreciated.
MiTurn | 03.20.08 - 10:02 pm | #

CalculatedRisk writes:
jackk, in general a small to mid-sized bank failures isn't a big deal. Most depositors are made whole instantly, and the bank is sold to a competitor, so the name just changes. Of course the FDIC takes a loss - but they receive payments from banks that easily cover a few failures.

However, with a rash of failures, the FDIC could be strained to cover the losses. And this could also mean less lending in certain communities.

Best Wishes.
CalculatedRisk | Homepage | 03.20.08 - 10:04 pm | #

Max writes:
I've been stunned at the continuation of CRE construction in my area. Unlike the residential builders which seemed to stop on a dime, the CRE guys keep building and building, leaving empty space in their wake. The ones that advertise their funding (not many these days) are all local "community" banks.

It boggles the mind.
Max | Homepage | 03.20.08 - 10:08 pm | #

Emma Anne writes:
MiTurn, I bet a lot of those construction workers are self employed. They don't show up as unemployed until they give up and start looking for a job.
Emma Anne | 03.20.08 - 10:11 pm | #

CalculatedRisk writes:
MiTurn, there are multiple reasons, but I think a big part is that many specialty residential construction workers moved to commercial construction - and were still reported to the BLS as residential.

Not only didn't we see the expected decline in residential construction workers - but we didn't see the expected increase in commercial workers. Now that commercial is slowing down, I expect workers counted as "residential" to decline signficantly.

Best to all.
CalculatedRisk | Homepage | 03.20.08 - 10:15 pm | #

stinky writes:
arkansas? i'm thinking there was a huge boom around the wal-mart HQ, but arkansas?
stinky | 03.20.08 - 10:17 pm | #

Sippn writes:
What's stunning is that they're stunned at increased delinquencies .... what cousin of the ostrich are they?

Do they know that housing sales slowed down? Might be related.
Sippn | 03.20.08 - 10:19 pm | #

Max writes:
What's stunning is that they're stunned at increased delinquencies

I think we're in "whocudanode" country on that one. If they say they knew, then they'd have to explain why they didn't do anything about it.
Max | Homepage | 03.20.08 - 10:21 pm | #

Emma Anne writes:
Max, those pictures are just scary. It's like aliens came and took everyone away, leaving empty office parks and strip malls behind them.
Emma Anne | 03.20.08 - 10:23 pm | #

frank writes:
The backbone of this country and the economy is the small business owner.

Take out the community bank and you will take with them the small business owner who banks with them.

It is the community banks that keep the mega banks honest with their rates and fees.

I cannot imagine the rates BofA/ Wells FArgo and Citi would charge if there was no community or regional bank. And the non-rates on deposits along with the high fees bank would charge would make people keep their money under a mattress.
frank | 03.20.08 - 10:27 pm | #

Misean writes:
The issue really isn't small/medium sized bank.

It is the fact that while these banks that are underwater on construction loans are increasing, while the past due rate on said loans is shooting through the roof.

Anyone who's read FFDIC's posts knows that the FDIC is in no shape to handle an avalanche. So this is significant, because the FDIC may not have the funds available to handle things in totality. Further, given it's staffing problems, it might not be able to deal with a small/medium bank when it should. Thus, the institution stays running too long requiring a larger write down than otherwise might be.

And, if FDIC runs low on capital...who do you think shores it up. I'll wait whilst you go look in the mirror.

Cheers,
Misean | 03.20.08 - 10:31 pm | #

Max writes:
Max, those pictures are just scary.

There's definitely a Twilight Zone feel in some parts of Natomas these days. Maybe they can use the place as a film set to raise some cash. :)
Max | Homepage | 03.20.08 - 10:32 pm | #

Misean writes:
frank,

Check.

Cheers,
Misean | 03.20.08 - 10:33 pm | #

MiTurn writes:
Thanks Emma Anne, I didn't think about many of them being self-employed, which means that they might never show up on the rolls.

Interesting point CR, that as the residential numbers didn't fall, nor did the commercial rise. If that's the case, then we will probably see some dramatic increases in jobless figures. Seeing what's gone on lately, I am sure that will make the market go up!! Crazy days we are living in.
MiTurn | 03.20.08 - 10:34 pm | #

Anonymous writes:
Oh come on,

jackk is a plant, a shill a mechanism to add additional info.

That's ok, that was good though! I did like the creativity with the burger joint and the link to liquidity and fries.
Anonymous | 03.20.08 - 10:36 pm | #

Anonymous writes:
Ok, we had 50 year low yield on the 3 month treasury.

we had the highest VIV-- volatility in 70 years today

And now....

Commodities plunged, capping the biggest weekly drop in five decades, on speculation that slower global growth will curb demand for energy, metals and grains.

The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, marking the steepest drop since at least 1956. After reaching records this week, gold plummeted as much as $129 an ounce and crude oil tumbled more than $13 a barrel.


Oh yah, The Fed printing record money and dropping rates at historic weird emergency cuts every other week

The Fed using anttrust violations to bail out a failed bank

Opening the discount window to brokers that made bad bets..

Very nice Easter Parade here!

Has anyone seen warsh
Anonymous | 03.20.08 - 10:45 pm | #

Anonymous writes:
Funny how the commodities CRB Index and 3 month treasury are both at 50 year lows.....hmmmm at the same time, same day, same...

On currency markets at 9 am (0000 GMT), the dollar was quoted at 99.32-37 yen, down from Thursday's 5 pm quote of 99.45-55 yen in New York.

The euro was quoted at 1.5433-83 dollars, up from Wednesday's 5 pm quote of 1.5424-34 dollars in New York, and at 153.34-40 yen, down from 153.50-60 yen.

1. Flight to safety from currencies and commodities into stocks...no

Ok, do we have an expert panel here tonight?
Anonymous | 03.20.08 - 10:51 pm | #

sunsetbeachguy writes:
I have a friend that is a VP at a community bank.

All he has been doing for the past 6+ months is making margin calls on the reasonably wealthy developers.

They are successfully keeping their LTVs in the 50-60% range with personal guarantees, liens on other less encumbered property and investment accounts.

They are the only show in town when it comes to C&D loans today, every other competitor is gone.

His workload is through the roof and plenty of lending business.

They are a conservative small community bank, that stopped residential real estate lending (due to the insanity) in 2002.
sunsetbeachguy | 03.20.08 - 10:53 pm | #

Max writes:
The Fed printing record money

The only thing you got wrong.
Max | Homepage | 03.20.08 - 10:54 pm | #

DaveJ writes:
Which banks should we short? Any suggestion? I have never shorted a stock but someday I will.
DaveJ | 03.20.08 - 10:55 pm | #

Misean writes:
Max,

The Fed isn't printing any money, exactly.

Every move so far has been sterilized.

M1 anyone:

https://federalreserve.gov/releas...ses/h6/ current/

BTW I love how the FED's sys admins aren't properly updating their SSL Certs.

Cheers,
Misean | 03.20.08 - 10:56 pm | #

Max writes:
His workload is through the roof and plenty of lending business.

Where the guys are losing their shirts here is mainly small retail and office park type stuff. When the big anchors come in, the shopping centers seem to do OK. It's the non-corner lot, small stuff that's taking a real beating on the retail end.
Max | Homepage | 03.20.08 - 10:57 pm | #

Max writes:
The Fed isn't printing any money, exactly.

That's what I said anon got wrong. They're not printing; they're swapping t-bills. I doubt the Fed will ever "print" money; that's the same as giving up completely.
Max | Homepage | 03.20.08 - 10:59 pm | #

Anonymous writes:
The three-month London interbank offered rate, or Libor, for dollars rose for the first time in three weeks, indicating the Fed is struggling to instill confidence in money markets. The difference between what the government and companies pay for three-months loans, known as the TED spread, increased 32 basis points to 1.98 percentage points, the biggest gain since Jan. 22, when the Fed made an emergency cut in borrowing costs.

Margin Calls

Bills have also gained as volatility in higher-yielding assets caused lenders to increase margin calls, or collateral requirements, on loans, according to Prudential's Tully. ``We've been so volatile lately that there's been a lot of need for collateral,'' he said. ``Treasury bills are the margin of choice.''

Ok, theory B2: Institutional hedge money is being pulled from over-valued risky commodities linked to currency chaos and that lions share dough is being used to keep money markets safer, as the buy into short term bills; however, hedges are using some play money to goose the market along with The Fed to prop up share prices to add window dressing to the recession "recovery". In short, The Fed/Bush are trying to make it look as if a recession is not going to happen on their watch, as the vast majority of those involved are fleeing what looks like a depression.

That would be kind of like a Bush-thing, i.e, to save us from a recession as we enter into a depression; kinda like going into Iraq on the cheap and ending up with a $7 trillion boondoggle.
Anonymous | 03.20.08 - 10:59 pm | #

Anonymous writes:
"I doubt the Fed will ever "print" money; that's the same as giving up completely."


It aint over till it's over and this is a long way from over rover
Anonymous | 03.20.08 - 11:04 pm | #

Anonymous writes:
what about on balance volume in the market?

http://stockcharts.com/charts/ga...llery.html? $SPX

Maybe we simply have money trapped in stocks that will play it up and down as long as the bets are all covered and hedged, then, down she plunges?
Anonymous | 03.20.08 - 11:09 pm | #

Mr. T writes:
. How do we know the financial crisis is not just a liquidy issue and not a solvency issue? If it is a liquidity issue then the programs the Fed has put in place this week along with a mandate to the primary dealers to acheive thier liquidity by accessing Fed funds rather than foreclosing on thier shadow banking system clients would indicate that we are basically through the financial crisis.

The credit markets may remain frozen for another few months as they figure out what the MBS are really going to be worth assuming that liquidity will return. but once that figure is better known writedowns will be made and the we will be beyond the problem.

Is it really a solvency issue which would imply that the MBS valuations are not coming back even if the credit markets free up? Is that a good assumption at this point? Has anybody crunched the numbers in order to determine the probable value of the MBS assuming some level of default and if so is the loss figures really enough to create solvency issues at the major banks?

If it is a solvency issue then we have a long way to go to get through this but if it is really more of a liquidity issue I think we may have seen the worst.

Any thoughts would be appreciated.
Mr. T | 03.20.08 - 11:14 pm | #

Topher writes:
sunsetbeachguy writes:
I have a friend that is a VP at a community bank.

All he has been doing for the past 6+ months is making margin calls on the reasonably wealthy developers.

They are successfully keeping their LTVs in the 50-60% range with personal guarantees, liens on other less encumbered property and investment accounts.

They are the only show in town when it comes to C&D loans today, every other competitor is gone.

His workload is through the roof and plenty of lending business.

They are a conservative small community bank, that stopped residential real estate lending (due to the insanity) in 2002.
sunsetbeachguy | 03.20.08 - 10:53 pm | #

“They are successfully keeping their LTVs in the 50-60% range with personal guarantees, liens on other less encumbered property and investment accounts.”



They have to be nuts. Talk about grasping for straws. IMHO
Topher | 03.20.08 - 11:28 pm | #

Anonymous writes:
"And the non-rates on deposits along with the high fees bank would charge would make people keep their money under a mattress."

Might as well, The government is corrupt, the banking system is corrupt, major corporations are ran by greedy insiders and besides that cash works best in the black market economy. I say screw'em.
Anonymous | 03.20.08 - 11:29 pm | #

Ralph Cramdown writes:
Mr. T wrote:
How do we know the financial crisis is not just a liquidy [sic] issue and not a solvency issue?

Well, the best informed people aren't sure, which is why the interbank rates are high. When some yahoo can circulate an anonymous email and play HBOS like a penny stock, when BMO is yielding 7.1%, when the Fed puts up a privacy booth around the window to shield banks from the stigma, then opens up another window for investment banks, and some of them use it "just to show there's no stigma." When an 85 year old company goes from pillar to penny in three days, then I'd say there's some fear of solvency issues.

Liquidity, solvency, what's the difference, in the banking industry? For people who want their money on deposit in risky institutions with two months notice required for withdrawal, there's these things called "hedge funds."
Ralph Cramdown | 03.20.08 - 11:36 pm | #

ac writes:

I've been stunned at the continuation of CRE construction in my area.

The building I live in takes up a city block and the first floor is all retail space. Most of it has remained empty since the apartment was built about 2 years ago, and the complex is only partially occupied so they don't even bother with leases anymore -- they can't afford to lose any tenants.

Across the street they've just completed a huge condo building, again with retail space all around the first floor. Last I heard half the condo units were unsold and sales have come to a dead stop.

Apparently that's not enough, so now they're working on a new condo building just next door to that. Oh, and guess what -- retail space all around the first floor.

This is your brain.
This is your brain on easy credit.

ac | 03.20.08 - 11:38 pm | #

ac writes:

How do we know the financial crisis is not just a liquidy issue and not a solvency issue?

The financial crisis is an everybody-waking-up-to-the-fact-that-their-wealth- is-all-lies issue.

The only way to stop it in the short-term is with more lies.

That's why we can't use the r-word in public anymore.

ac | 03.20.08 - 11:44 pm | #

Anonymous writes:
New Theory:

"Local Globalized Liquidity Traps"

or

"Globalized Local Liquidity Traps"


It looks like a joke, but we have globalized liquidity turned into localized debts, and now we may end up with localized liquidity traps. The interesting thing is, maybe the walmart/service sector/bigbox stores will be the only working conduits within the financial system. People will continue to have part time jobs, people will buy gas, food and essential, but no one will buy homes, cars, stocks, bonds, gold, but oil and thus transportation will push positive inflation (like Ben wants) and this local survival state will be supported on auto pilot as a full blown recession hits wall street.

Huh??
Anonymous | 03.20.08 - 11:52 pm | #

Baltimore Bob writes:
Another great column from Krugman

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.
Baltimore Bob | 03.20.08 - 11:53 pm | #

Bob Dobbs writes:
"The financial crisis is an everybody-waking-up-to-the-fact-that-their-wealth- is-all-lies issue."

Hey ac, check out Krugman's column, "partying like it's 1929'.

http://www.nytimes.com/2008/03/2...&hp& oref=slogin

The conclusion:

"The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago. People aren’t pulling cash out of banks to put it in their mattresses — but they’re doing the modern equivalent, pulling their money out of the shadow banking system and putting it into Treasury bills. And the result, now as then, is a vicious circle of financial contraction.

Mr. Bernanke and his colleagues at the Fed are doing all they can to end that vicious circle. We can only hope that they succeed. Otherwise, the next few years will be very unpleasant — not another Great Depression, hopefully, but surely the worst slump we’ve seen in decades.

Even if Mr. Bernanke pulls it off, however, this is no way to run an economy. It’s time to relearn the lessons of the 1930s, and get the financial system back under control."
Bob Dobbs | Homepage | 03.20.08 - 11:54 pm | #

Bob Dobbs writes:
Curse you, Baltimore Bob!
Bob Dobbs | Homepage | 03.20.08 - 11:55 pm | #

bobn writes:

Misean states:

The Fed isn't printing any money, exactly.

No, but they are extracting crud by allowing the use of sludge as collateral for "loans" that rollover at borrower discretion.
bobn | 03.20.08 - 11:56 pm | #

Anonymous writes:
Yah,

What about the dilution of the dollar. That may not be physically printing greenbacks, but the back office operation is being impacted by currency devaluation through foreign exchange rates in addition to backing the greenbacks up with AIDS tainted whore stained casino money that has shit on it, so what about that dilution factor> Huh...huh??
Anonymous | 03.21.08 - 12:01 am | #

Misean writes:
Max,

Wasn't on you about it. It's just freaking hard to reply to all of the new anonymouses lately.

Cheers,
Misean | 03.21.08 - 12:02 am | #

Kicker writes:
Is it really a solvency issue which would imply that the MBS valuations are not coming back even if the credit markets free up?

Your mistake is that the "value" of an MBS can be determined based entirely on expected default and recovery rates.

Those valuations are only relevant to banks who are holding the loans on the books till maturity.

Hard money investors also have to figure in both interest rate and duration risk (convexity).

Since mortgages have an embedded "call" option the duration tends to increase when interest rates rise and fall when interest rates decrease (negative convexity).

In other words, when interest rates rise homeowners tend to stay in their homes longer leaving you stuck with a bond paying below market rates. But, when interest rates drop they tend to refinance leaving you to re-invest your money at lower rates.

Hence, a small change in interest rates can have a large swing in bond prices. Investors used to hedge the interest rate risk by shorting Treasuries. But, that worked until it didn't. After the BSC blow-up nobody is going to be willing to make that trade for a while.

So, if a hard money investor isn't willing to take the securities off the banks balance sheet at close to par the banks are going to be forced to hold them to maturity.

That means that it's going to take a long time before "liquidity" returns to the market. Banks won't be able to make new loans until old ones are paid down or banks are able to raise new capital.
Kicker | 03.21.08 - 12:02 am | #

Misean writes:
ac,

"The building I live in takes up a city block and the first floor is all retail space. Most of it has remained empty since the apartment was built about 2 years ago, and the complex is only partially occupied so they don't even bother with leases anymore -- they can't afford to lose any tenants."

Seeing the same thing here.

"New lower leases. Fully remodeled. Restaurant and pub downstairs."

Cheers,
Misean | 03.21.08 - 12:03 am | #

homedad43 writes:
Kicker:

O/T but thanks for the insights/explanations last thread.

At what point can we begin a dollar-carry trade? I'm already home with the kids, so why can't I be a Japanese housewife?
homedad43 | 03.21.08 - 12:04 am | #

Misean writes:
bobn,

"The Fed isn't printing any money, exactly.

No, but they are extracting crud by allowing the use of sludge as collateral for "loans" that rollover at borrower discretion."

Correct, but it's still sterilized. The question is how does the Fed do TOMO when the treasuries are all lent out?

Cheers,
Misean | 03.21.08 - 12:05 am | #

Anonymous writes:
When I was tiny, I used to get really fresh crisp clean bills for my birthday, but now, if I do see a fresh crisp dollar, I immediately wonder how much its worth and how many wall street Fed whores have touched it. I'm like most of the world and now when people offer these bills to me, I just tell them to piss off... TP is cleaner, and it's gonna take years for The Fed to get out from under this huge pile of stinking garbage being forced on Americans that would rather it was dumped at sea!
Anonymous | 03.21.08 - 12:05 am | #

Misean writes:
homedad43,

"At what point can we begin a dollar-carry trade? I'm already home with the kids, so why can't I be a Japanese housewife?"

Because the US is in debt up to it's eyeballs. Japanese housewives have savings.

i.e. Nothing to carry.

Cheers,
Misean | 03.21.08 - 12:06 am | #

YLSP writes:
Natomas is that area close to Arco Arena, right? For some odd reason I normally stop at Del Paso and fill up there instead of stopping at the Arco near the airport... maybe since the Arco was closed for remodeling it's a habit.

My favorite local SoCal CRE is on the 101 between Westlake and Calabasas. I think they put in a high end furniture store, but on the 101 seems like there are plenty of signs regarding Leasing Space available. Not sure if that includes the Countrywide buildings (yet) but it's around the same stretch of the 101 too... I'm sure others from here can remind me of other ill-timed CRE around...
YLSP | 03.21.08 - 12:08 am | #

Anonymous writes:
46 comments, 80 fools on this ship; I miss the days of 700+.

History lesson 1:

In their history of price controls, Robert L. Schuettinger and Eamonn F. Butler concluded:

Public jawboning, private threats, ostracism, boycotts, fines — all proved useless against the flood of paper money. The price of common labor in Boston, which was fixed at three shillings a day in 1777, had risen to 60 shillings by mid-1779. In April 1779, George Washington complained that "a wagon-load of money will scarcely purchase a wagon-load of provisions." In 1779, when the Continental Congress again endorsed price controls, the request was for state laws limiting wage and price increases "not to exceed twenty fold the levels of 1774." Not even that modest goal was attainable, however, and Congress allowed controls to expire when it met again in February 1780.

Meanwhile, Continental Congress had repeatedly assured anyone who would listen that the continental currency would one day be redeemed at its face value, and that it was "derogatory" to the Congress's honor that anyone would spread rumors to the contrary. In March 1780, Congress announced a plan for redeeming the currency at one-fortieth of its face value. So much for Congress's honor.
Anonymous | 03.21.08 - 12:10 am | #

homedad43 writes:
Misean:

Earlier comment was actually serious and clothed in a joke.

The aggregate American is swamped in debt, but could it be done on an individual basis? In a sense, it's kind of like an ant colony where one starts, others follow and soon there's a global swing of funds.

You're right, won't go that far cumulatively, but individually?
homedad43 | 03.21.08 - 12:11 am | #

Misean writes:
Kicker,

"Since mortgages have an embedded "call" option the duration tends to increase when interest rates rise and fall when interest rates decrease (negative convexity).

In other words, when interest rates rise homeowners tend to stay in their homes longer leaving you stuck with a bond paying below market rates. But, when interest rates drop they tend to refinance leaving you to re-invest your money at lower rates."

Only on large loans. After points and fees etc. a loan ~$200K or less there's no benefit to a refi (unless rates plummet). And loan duration generally has little to do with such loans. Climbing the corporate ladder is more important.

In my case a refi would cost me more.

Just saying.

Cheers,
Misean | 03.21.08 - 12:11 am | #

Misean writes:
YSLP,

"My favorite local SoCal CRE is on the 101 between Westlake and Calabasas. I think they put in a high end furniture store, but on the 101 seems like there are plenty of signs regarding Leasing Space available."

Oh Yeah! And they're expanding the TO auto mall. People always need another Mercedes.

Cheers,
Misean | 03.21.08 - 12:14 am | #

Peter writes:
CR brings up a good point about the FDIC, and something I have seen little written about anywhere (I've been waiting for an FDIC thread - pretty please):

"However, with a rash of failures, the FDIC could be strained to cover the losses. And this could also mean less lending in certain communities."

The FDIC has roughly $1.22 for each $100 that it insures (see the annual report http://www.fdic.gov/about/strate.../ar07final.pdf) . Of course, this is adequate in normal times (the target is 1.25%), but these are not normal times...

If I am reading the data on the FDIC website right(see http://www2.fdic.gov/sod/pdf/dde...f/ ddep_2007.pdf and http://www2.fdic.gov/sod/sodSumR...sInfoAsOf=2007) the largest concentration of deposits were at:

1) BofA 596B
2) JP Morgan 439B
3) Wachovia 314B
4) Wells Fargo 263B
5) Citibank 210B

And for anyone not freaking out yet
6)Washington Mutual 202B

Now, of course, the FDIC only insures the first 100K per account... so the numbers above are obviously way over exagerating the issue. However...

The insurance fund balance as of 12/31/07 stood at 52.4B. Roughly 25% of the deposit value of a bank that people are openly talking about as the next BSC.

Oy!

Beyond these super scary thoughts (like would FDIC failure lead to bank failures through a totally perverted form of contagion, completely at odds with it's intent - like who is going to keep their E*Trade and CFC bank accounts open if the FDIC is running short on reserves???), there is the less tin-foil hat wearing problem to consider of rising premiums.

If the FDIC has to pay out large sums to cover banks that fail, but not so much that the entire banking sector has collapsed... then they will need to recapitalize themselves. This is done by increasing the rates that they charge for the insurance. So, just when the economy is in a serious tailspin and there is credit contraction, the FDIC could realistically be forced to increase insurance rates on the banks. This is basically the same as increasing the minimum reserve requirements for the bank, and given bank leverage - is potentiall serious money.

The FDIC Chairman Donna Tanoue in April of 2001 put it well (http://www.fdic.gov/deposit/insurance/initiative/ direcommendations.html):

"For example, it is possible that, in difficult times, deposit insurance premiums could reduce the pre-tax net income of insured institutions by almost $9 billion. On the basis of recent average capital- and loans-to-assets ratios for all insured institutions, this could reduce bank lending by more than $60 billion at the precise time in the business cycle when credit is most needed in communities around the country."
Peter | 03.21.08 - 12:16 am | #

Misean writes:
homedad43,

"You're right, won't go that far cumulatively, but individually?"

I've always thought the Japanese housewife thing a bit of a media mirage.

However, even if true, with a negative US savings rate, how much do you have to turn the tide? Ask your neighbors if they'll join you. Enough? The next town over? Enough?

We're talking Trillions. Not trying to be an ass, but I think:

Houston, we have a problem.

;)

Cheers,
Misean | 03.21.08 - 12:17 am | #

ac writes:

This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.

As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.

And yet in this case it was the regulators and supervisors themselves (e.g. Greenspan) that were promoting the use of subprime products.

It was the regulators and supervisors that prevented markets and inventories from correcting naturally by flooding the economy with easy money.

As far as I can tell the primary financial regulatory and supervisory institution in this country caused the problem.

Regulations and supervisory institutions can be used for harm just as easily as they can be used for good.

IMO the Fed has screwed things up so catastrophically that it gives a lot of credibility to laissez-faire arguments.

ac | 03.21.08 - 12:19 am | #

rich writes:
How could you read that whole WSJ article and not see the solvency issue?

What the author of the article does is to show how one small builder's insolvency can ripple across a whole community of lenders, employees, investors, contractors, etc. This contractor was a good guy and he took down a lot of other people.

This article confirms something I have felt for a long time -- that there is a serious permanent regional issue, an economic rot in the heartland. We could be looking at a third of the small banks in Ohio and Michigan going away.

No, it's not as simple as the FDIC selling them off to a bigger bank. There's not enough economic activity left to support so many banks, stores, office buildings, etc. It is going to take a kind of "Midwest New Deal" to bring these areas back. They are really important to the U.S. and our economy in many ways, and what's happening to them is a shame. For Ohio and Michigan, the housing slowdown is just one of many deep problems.
rich | 03.21.08 - 12:20 am | #

Anonymous writes:
"the Fed has screwed things up so catastrophically"

They're not finished yet.
Anonymous | 03.21.08 - 12:22 am | #

Misean writes:
ac,

It's like that with all gov't oligopolizations. The regulators get captured by the regulated.

Over the last 50 years this trend has been increasing. We shall now reap the whirlwind.

-shakes head-

Cheers,
Misean | 03.21.08 - 12:25 am | #

Misean writes:
rich,

"No, it's not as simple as the FDIC selling them off to a bigger bank. There's not enough economic activity left to support so many banks, stores, office buildings, etc. It is going to take a kind of "Midwest New Deal" to bring these areas back."

A Midwest New Deal? With what jobs? Houses in Detroit selling for less than a beat up Edsel when new?

The heartland has been raped and murdered by Wall Street banksters. We need a systemic change.

Cheers,
Misean | 03.21.08 - 12:27 am | #

homedad43 writes:
Misean:

lol.

No, don't expect to start a movement and even if the thing is a bit overdone, there's still a basis of truth.

I've spent more damned time on the 'net in the past 24+ months, watching and learning, and surprisingly, the better half tolerates it so long as it doesn't interfere with family responsibilities - house, kids, meals, etc.

I've had the question of what to do once youngest hits school and we're now there. Was planning a website - after move, new school for kids, and a fired webdesigner - it'll finally be up in about 2 - 3 weeks; but am now also convinced that the financial horizons have to expand dramatically both risk-wise and geographically. Hey, if Mitsuyo can do it, why can't I?

What can I say, you have time to think changing 12K+ diapers.
homedad43 | 03.21.08 - 12:28 am | #

Anonymous writes:
Not everyone is convinced that Bernanke has managed to turn the tide for financial firms.

``He has taken extraordinary measures, things that we haven't seen since the Great Depression,'' said former Fed vice chairman Alan Blinder, a Princeton University professor. ``He's working overtime, literally and figuratively, to get this panic under control. But so far, it's not under control.''

U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 yesterday as investors sought the safety of government debt. Bill rates declined as low as 0.387 percent as finance company CIT Group Inc. drew on $7.3 billion in credit lines after being shut out of short-term debt markets.

``This is all about money,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois, who has been trading gold since 1973. ``The Fed can control the price of money but the banks still don't want to lend.''
Anonymous | 03.21.08 - 12:33 am | #

Misean writes:
homedad43,

1. If you need a website/designer, let me know. I have one of the best in the business. If you pay more than $1k let me know...we'll talk.

2. If you're used to being home, why are you sending your kids into the maw of gov't youth indoctrination camps?
/Super Colander Tin Foil Hat power down.

Seriously on point 1. Always looking for extra curricular business. Any off time sites are gravy. I can outprice virtually anyone.

Cheers,
Misean | 03.21.08 - 12:33 am | #

homedad43 writes:
Rich:

There's an ebb and flow to history and we seem to be in an ebb.

I do think that over a looooong period of time, you'll see improvement in the rust belt. The sunbelt is in process of cratering and folks will pick up and go somewhere...why not where the housing is cheap, especially if they're desperate for a taxbase and you're looking for a cheap home. Hey, if it's cheaper than an old Edsel, then you don't need a huge income to support it.

We are really talking bootstrap time here.

And y'know, I have a huge headache over the pop in gold prices, but I'm personally glad that it's in the portfolio.
homedad43 | 03.21.08 - 12:33 am | #

Fair Economist writes:
The mortgage loans now have an additional convexity issue from the foreclosure put option. With this, as interest rates rise, house prices will fall, more will default, and the loss rates will increase. Very complicated. The academics will have a lot of papers modeling this but of course that will come out too late to be of use in this crisis.
Fair Economist | 03.21.08 - 12:35 am | #

Anonymous writes:
Bespoke Investment Group has put the two-day commodities decline into a scary perspective. If you accept the Reuters/Jefferies CRB index as a proxy for commodities, it endured its two largest-ever one-day declines this week.
Here's the good news for commodity bulls, though: commodities tend to rebound following steep sell-offs. On its blog, Bespoke looked at the 10 largest declines in the CRB index, going back to 1956, which include one-day plunges in 1973, 1980 and 1987. On average, the day after the index rose by 0.33 per cent, and was up 1.7 per cent over the following week and 2.5 per cent over the following month
Anonymous | 03.21.08 - 12:35 am | #

homedad43 writes:
Misean:

Wish I'd known that about 6 weeks ago; I talked to multiple folks about a year ago and went with the low bid...which confirms why the low bid is sometimes the low bid.

Do have someone now who's already done the design and it's nicely along in the process...but appreciate the offer.

I'll homepage it when it's going.

O/T - one evening last week, I responded to someone's query about what others were doing and I responded that researching breastfeeding. Truly a weird response and the way that others ignored it was pretty hilarious. Presume they thought I was a whack job, and not terribly far from the truth. Actually, I was doing that exact thing.

You'll see in a couple weeks.

Unless I have to fire this guy too.
homedad43 | 03.21.08 - 12:40 am | #

ac writes:

We need a systemic change.

We have a computer here at the office that's on the verge of consciousness.

It's already making all sorts of financial transactions with foreign governments and shady organizations.

We're upgrading the CPU next week. God knows what it will do then, but I wouldn't rule out systemic change.

ac | 03.21.08 - 12:42 am | #

Milkman writes:
Good article:

http://www.counterpunch.org/ whit...ey03202008.html

"The Fed is subsidizing capital flight..."

Yikes!
Milkman | 03.21.08 - 12:43 am | #

Kicker writes:
Only on large loans. After points and fees etc. a loan ~$200K or less there's no benefit to a refi (unless rates plummet). And loan duration generally has little to do with such loans.

Convexity is still negative, just less so. And refi's aren't the only risk. Most likely duration is going to increase across the board simply because of negative equity and tighter loan standards (your going to keep the house you have it you wouldn't qualify to buy another one).

My point is, the price a mortgage trades at on the open market is a function of more than just the value of collateral backing the loan and default risk.

A pool of fixed jumbos with a 1.2% expected default rate trading for 75 cents on the dollar in the open market may truly be "fairly valued" when factoring in the increase in duration and competition for money.
Kicker | 03.21.08 - 12:51 am | #

Misean writes:
ac,

"We have a computer here at the office that's on the verge of consciousness."

http://www.youtube.com/watch?v=J...h? v=JcNkMIwolKc

A tribute to one of my favorite SciFi writers. May the after life be all that was in the former.

Cheers,
Misean | 03.21.08 - 12:51 am | #

Anonymous writes:
"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Meanwhile, JPMorgan said it will guarantee all business — such as trading and investment banking — until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter.

JPMorgan Chase Chief Financial Officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the Bear Stearns name would survive. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds.

Risky bets on securities tied to subprime mortgages — loans given to customers with poor credit history — crippled Bear Stearns, the nations' fifth-largest investment bank. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis.

Also see: http://en.wikipedia.org/wiki/Uptick_rule

Uptick rule

The Uptick rule is a former financial regulations rule, relating to the trading of securities in the United States. The rule was eliminated by the SEC, effective July 6, 2007.
[edit]Explanation
Anonymous | 03.21.08 - 12:55 am | #

Misean writes:
kicker,

"Convexity is still negative, just less so. And refi's aren't the only risk. Most likely duration is going to increase across the board simply because of negative equity and tighter loan standards (your going to keep the house you have it you wouldn't qualify to buy another one).

My point is, the price a mortgage trades at on the open market is a function of more than just the value of collateral backing the loan and default risk.

A pool of fixed jumbos with a 1.2% expected default rate trading for 75 cents on the dollar in the open market may truly be "fairly valued" when factoring in the increase in duration and competition for money."

So your whole point is durations are going to increase? OK. but if they don't then what.

Jingle mail, jingle mail, jingle all the way.

Oh what fun it is to turn my keys in today...yay!

Cheers,
Misean | 03.21.08 - 12:58 am | #

Marcus Aurelius writes:
Hey, y'all.

It's solvency (due to all of the money being gone). Actually, due to over leveraging. You can be liquid and insolvent. This is why I think the Fed is relaxing collateral standards and expanding eligibility for their loans. They know it's insolvency, but they also understand the unravelling process - they're just trying to get the shit through the goose. If an avalanche of margin calls begins, the house of cards comes down all at once. Cheap money still moves. No money locks us down.

There's also the idea that they're going to try to inflate our way out of debt (borrow valuable dollars and repay in debased dollars). Our creditors aren't about to let us off that easily, and will begin following our currency down. This would also explain, to some extent, the drop in commodities with the rise in the dollar this week.
Marcus Aurelius | 03.21.08 - 12:59 am | #

rich writes:
>I do think that over a looooong period of time, you'll see improvement in the rust belt. The sunbelt is in process of cratering and folks will pick up and go somewhere...why not where the housing is cheap, especially if they're desperate for a taxbase and you're looking for a cheap home.

Nice idea, but I don't think so for several reasons. There is too much public debt in the Rust Belt and it means state/local taxes will go sky-high. Energy costs are higher in cold weather. Boomers are retiring and moving south, not north. The industrial base is gone and employers are exiting. In general, people don't move from a vibrant to a dying region just for cheap housing. And for some time, cheap housing may be plentiful all over.

It will take a combination of public debt defaults and a revival in industrial-type jobs to bring the Rustbelt back. Govt. or large companies will have to make a coordinated commitment to put factories, research centers or distribution hubs in that area. Big tax incentives will be needed for reinvestment and job creation.
rich | 03.21.08 - 1:07 am | #

Misean writes:
Marcus,

I'd like to say:

Well Duuuuhhh!.

But then again, many just don't get it.

;)

Cheers,
Misean | 03.21.08 - 1:07 am | #

Kicker writes:
At what point can we begin a dollar-carry trade? I'm already home with the kids, so why can't I be a Japanese housewife?

People are doing a USD-Yuan carry today...

CFOs of multi-nationals are using tricks to boost the profits of their China based subsidiaries.

Lets assume you have a US based R&D sub and a China based manufacturing plant. The US based R&D sub runs at a loss and you borrow money on the open market to fund it.

The US sub develops the next IPod clone and emails the design to the China sub for assembly. The China sub sells them to WalMart at high margins (because it had zero design costs) and collects dollar profits.

The Chinese sub converts those dollar profits through the central bank and converts them into 6% bonds. The Yuan appreciates at 8% per year giving a 14% return. Funding cost in the US are 4-5% netting 10% return.

Better yet, you've got tax savings to boot!

The only reason I mention this is that "profits" in a place like China can be a nebulous thing.
Kicker | 03.21.08 - 1:09 am | #

scotty at the poker table writes:
Theory 470B

Today we see 3 yr treasury bill at 5o year low yield, we see commodities crash to 50 year low, we see many things, but Theory 470B is connecting Bear Stearns Crash/Bailout with these 50 year events....why??

As many will recall, The FBI & SEC were watching Bear for accounting fraud and "somehow" there was amazing leverage Sunday night, which IMHO is linked to criminal-like behavior relating to The Sunday "Deal", which forced the $2 share value.

That eye popping event either had legal ramifications or put the fear of God into lots of people who just bailed out of commodities in an unprecedented panic, as if "The fear of God" or fear of legal reprisal was nigh. I think this was some behind the scenes negotiation where The Fed may have been playing extreme hardball and offering deals between prison time and clean up time.

Something changed here, there is no doubt. There is a new perception which may just be a flight to safety, but that flight was triggered Sunday by actions which are not observable, i.e, the yield on the 3 month and the commodity crash in one day is very suspect.

Im open to theory 470C though
scotty at the poker table | 03.21.08 - 1:11 am | #

Misean writes:
rich,

I hate to ask...but do you follow the threads or just pop in from time to time?

rich,
""No, it's not as simple as the FDIC selling them off to a bigger bank. There's not enough economic activity left to support so many banks, stores, office buildings, etc. It is going to take a kind of "Midwest New Deal" to bring these areas back."

A Midwest New Deal? With what jobs? Houses in Detroit selling for less than a beat up Edsel when new?

The heartland has been raped and murdered by Wall Street banksters. We need a systemic change."

Then you have this:

"Nice idea, but I don't think so for several reasons. There is too much public debt in the Rust Belt and it means state/local taxes will go sky-high. Energy costs are higher in cold weather. Boomers are retiring and moving south, not north. The industrial base is gone and employers are exiting. In general, people don't move from a vibrant to a dying region just for cheap housing. And for some time, cheap housing may be plentiful all over.

It will take a combination of public debt defaults and a revival in industrial-type jobs to bring the Rustbelt back."

Which is it? A gov't pogrom or private revitalization. How to square the two statements?

Cheers,
Misean | 03.21.08 - 1:12 am | #

Marcus Aurelius writes:
Misean,

If you look at today's posts on CR, the "liquidity crisis" is mentioned several times (I believe it's also mentioned several times in this thread). I know that most here understand the issues and potential/tangential issues in play - somehow, the meme still makes it's way into the collective conscious.

P.S: Did I mention that nobody understands me?
Marcus Aurelius | 03.21.08 - 1:14 am | #

JoeB writes:
Max - great post about what's going on in Natomas for CRE. Who is continuing to build this stuff? Is it local players or big national ones? Do you have an estimate of how long it would take to absorb all of this space? With these vacancies and obvious lack of revenues, how are they meeting their debt and expense obligations? Is investor capital getting wiped out? Hope I'm not asking too many questions, but it was a very interesting post.
Thanks!
JoeB | 03.21.08 - 1:14 am | #

Misean writes:
Marcus,

"P.S: Did I mention that nobody understands me?"

I do. Not to be insulting, but hardly rocket science.

;)

Cheers,
Misean | 03.21.08 - 1:16 am | #

mock turtle writes:
Peter at 12:16 am talked about dollar limits of fdic coverage.

Peter, there's more money hanging out over the edge because IRA accounts are fdic (and ncua for credit unions...) covered to 250,000 dollars.

i dont know haw many...and the dollar amount of all the ira savings accounts and ira CDs out there but i'll bet it's considerable...especially since fear is on the run lots of people ducked for cover (insurance)
mock turtle | 03.21.08 - 1:16 am | #

Marcus Aurelius writes:
It's amazing how fast the shucking and jiving stopped once the law got involved.
Marcus Aurelius | 03.21.08 - 1:17 am | #

Mr. T writes:
Good discussion.

I guess the question I have is this.

The value of the MBS's are depressed right now due to two factors. One is of course the default rates and other fundamental factors that would influence the value of any bond.

The other is the fact that the credit markets have frozen up and so there are no buyers partly due to the uncertainty of the fundamentals.

Assuming that the next six months provides a better idea of the default rates and other fundamentals AND assuming that the credit markets thaw out, has anybody looked at an expected range of values for the portfolio of MBS's held by the banks?

And is this value such that the losses taken to mark to market at that time would bankrupt our system?

Also, can someone explain why the banks are holding all this toxic paper? I thought the whole idea is that the banks packaged up and sold this bad debt to pensions and other institutional investors. Aren't they the ones holding the bag?

I had thought that the financial system was out of time and we would see the banks with access to the Fed foreclose upon the primary dealers who did not have access and in turn the primary dealers would foreclose on the shadow banking system. Now that liquidity has been provided to the banks and primary dealers does this mean that they will not have to foreclose upon those down the food chain and if so it would seem to me that some time has been bought.

Now that there is some time to unthaw the credit markets how possible is it that the actual losses on the MBS's will not turn out to be all that bad?

Appreciate any insights you can provide.
Mr. T | 03.21.08 - 1:17 am | #

Misean writes:
Kicker,

"Lets assume you have a US based R&D sub and a China based manufacturing plant. The US based R&D sub runs at a loss and you borrow money on the open market to fund it.

The US sub develops the next IPod clone and emails the design to the China sub for assembly. The China sub sells them to WalMart at high margins (because it had zero design costs) and collects dollar profits.

The Chinese sub converts those dollar profits through the central bank and converts them into 6% bonds. The Yuan appreciates at 8% per year giving a 14% return. Funding cost in the US are 4-5% netting 10% return."

I am aware of how the $/Y trade works.

This:

"Lets assume you have a US based R&D sub and a China based manufacturing plant. The US based R&D sub runs at a loss and you borrow money on the open market to fund it.

The US sub develops the next IPod clone and emails the design to the China sub for assembly. The China sub sells them to WalMart at high margins (because it had zero design costs) and collects dollar profits.

The Chinese sub converts those dollar profits through the central bank and converts them into 6% bonds. The Yuan appreciates at 8% per year giving a 14% return. Funding cost in the US are 4-5% netting 10% return."

Assumes much.

Not saying you're wrong. How about some data.

Cheers,
Misean | 03.21.08 - 1:20 am | #

homedad43 writes:
Misean/Rich:

Not impossible. Consider the following...

http://news.moneycentral.msn.com...0316& id=8344763

Article re Johnstown, PA. Trust me, my parents "escaped" from Western PA (no offense folks, their words) a long time ago.

We're talking decades. But not impossible.
homedad43 | 03.21.08 - 1:22 am | #

homedad43 writes:
Mr. T @ 117 -

Best analogy that I can come up with at the moment, and it's late, is that the Fed is in process of throwing all the raw meat available into the pen to keep the cannibals from devouring the weak and lame.

What you saw with Carlyle and BSC was really cannibalism, or death by a thousand margin calls.
homedad43 | 03.21.08 - 1:27 am | #

Kicker writes:
So your whole point is durations are going to increase? OK. but if they don't then what.

Jingle mail, jingle mail, jingle all the way.

Sorry, no that wasn't my point...

The liquidity crisis isn't going to resolve itself until banks are able to de-leverage.

The quick-fix in the past was for the Federal Reserve to lower short term interest rates. Long term interest rates for bank products (mortgages, etc) would follow. Spreads between Treasuries and mortgages would narrow as investors hunted for yields and duration moved toward the shorter end of the yield curve (higher spreads).

Higher interest rates and lower duration meant huge increases in the value these securities that were held on the banks books at par. A bank that was in trouble or needed to de-lever could sell the securities on the open market. Increased profits, smaller balance sheet, less leverage.

Mortgage securities were the "ballast" on a banks balance sheet. They could always be thrown over-board (at premium prices) when the balloon began leaking air.

Now, just the opposite is happening. Duration is increasing, the rates on new mortgages are going *up* instead of down as the Fed cuts rates, and default and interest rate (inflation) risks are still unknown.

Without a quick fix, banks will have to de-lever the old fashioned way by raising capital. Expenses and dividends will need to be cut and new investors will need to be found.

That's going to take a long time.
Kicker | 03.21.08 - 1:31 am | #

mock turtle writes:
Anonymous at 03.20.08 - 10:51 pm wrote

....(why)

Flight to safety from currencies and commodities into stocks...no

Ok, do we have an expert panel here tonight?

-----

mt says...i'm no expert..i'm learning from CR and all y'all ...

but i guess two actions might be involved in the move from currencies, commodities into equities.

1. there have been GAMES on wall street regarding electronic stock certificate issuance that parallel some of the synthetics and leveraging going on in the banking world. (see FTDs and broker dealer IOUs and naked puts and the inverse! ?).

2nd while i can't dispute M1 has been steady or even shrinking from time to time...hasn't the fed essentially (effectively) increased M2 with the TAF and the tslf and now even letting primary dealers come to the window? maybe this "money" (yeah i know it's a lone at face value...but not..) is being used to shore up some bets... and juice the market(that's a question)
mock turtle | 03.21.08 - 1:32 am | #

Misean writes:
homedad43,

I'm sorry but the basis of this "turn around" is:

"Santoro looks at the city's massive hospital complex, the growing tourist industry and what many refer to as the pork-barrel economy -- an array of defense-related industries lured in by powerful U.S. Rep. John Murtha -"

Wasting resources to build stuff that gets destroyed is hardly a growth industry, given that the purchaser of such crap is going bankrupt. It may make a small boom, but basing an economy on blowing shite up is kinda sick. It is also counter productive,

Cheers,
Misean | 03.21.08 - 1:33 am | #

Misean writes:
Hastas all,

Manana.

Cheers,
Misean | 03.21.08 - 1:36 am | #

Anonymous writes:
When do the media start talking about publicly funded construction projects? San Francisco is seriously way behind on paying its bills for construction projects in the last year.
Anonymous | 03.21.08 - 1:37 am | #

Ralph Cramdown writes:
It's easy to value an MBS as a percentage of par:

((Avg FICO - 600)/100)*(% in pool w/note on file if you need to foreclose)
__________________________________________________ ___________
(fraction in pool that weren't full-doc)*(1 + #of tranches senior to this one)


Normally we'd include factors for coupon and duration, as well as concentration in depressed areas. But in current conditions, they're not significant factors.
Ralph Cramdown | 03.21.08 - 1:38 am | #

scotty at the poker table writes:
Hey Mock, Marcus

You just triggered a thought for me in my conspiracy theory.

Re: It's amazing how fast the shucking and jiving stopped once the law got involved.

What if Sunday night, as The FBI was frosting the cake, someone who we will call Paulsuun or Bennie suggested that in this round of negotiations, I mean plea bargaining that The Fed would open The BIG Window for dealers, if some players backed off on commodity pumping. This was of course in addition to the other part of the deal, which involved get out of jail cards if yah cooperate and spill the beans on who is doing what and explain all this crap to our forensics team....and agree to sell your little casino for two bills.....

What think?
scotty at the poker table | 03.21.08 - 1:40 am | #

homedad43 writes:
Misean:

Agreed, Murtha is PA's answer to Byrd and the defense industries are happening.

But regardless of whether we like the businesses or not, the most effective model is a mix of public/private interaction.


And things will turn again, but in a generation or so.
homedad43 | 03.21.08 - 1:40 am | #

Kicker writes:
Assumes much.
Not saying you're wrong. How about some data.

Wish I had some...

But it's not like CFO's are going to step up and announce that they took steps to both skirt Chinese currency controls and US tax laws.

Morgan Stanley in 2005 reported that the total in offshore un-repatriated profits held by US corporations amounted to about $700 billion.

http://www.atimes.com/atimes/Glo...y/ IJ13Dj02.html

To the CFO it's just a matter of where to hold the funds. Right now, would any CFO not hold Yuan if he had the option?
Kicker | 03.21.08 - 1:42 am | #

scotty at the poker table writes:
It's the job of the treasurer to help spin the money around the globe, not just CFO.
scotty at the poker table | 03.21.08 - 1:44 am | #

Marcus Aurelius writes:
scotty at the poker table | 03.21.08 - 1:40 am

At this point, I wouldn't be surprised at any scheme to maintain the status quo. Bad part is, the status quo will deteriorate nonetheless - scheming gives them more time to collect fees, obfuscate, and get the hell out of the way.

I still want to know WHY the FBI got involved. The police don't typically make social calls.

Are they looking the other way? Do they get a cut? Are political strings being pulled? Has the FBI morphed into our version of the Praetorian Guard?
Marcus Aurelius | 03.21.08 - 1:48 am | #

picosec writes:
Ahh Johnstown...

My home town (JHS class of '57) but I also "escaped" shortly thereafter. But I wouldn't really use that word; I always enjoyed (still enjoy) visits there during properly selected seasons. It is in a beautiful location that, 40 years ago, wasn't even visible due to the smoke.

But to the crux...based on my last visit there the optimism of this article ranks as a 12 on a scale of 1 to 10. The biggest growth industry is retirement homes and a semi-busy medical center. On a visit a couple of years ago I walked around downtown and estimated the number of spaces in parking garages (didn't count the lots which were numerous) and came up with over 1800 spaces. NOTHING in Johnstown requires, or will ever require, 1800 off-street parking spaces.

The comment about John Murtha's contribution is spot on. He has seen to it that J-town has gotten more than it's fair share of pork. It's easy to imagine what it would be like there without Murtha, just go a couple of legislative disricts in any direction and you'll see even worse situations.
picosec | 03.21.08 - 1:54 am | #

mock turtle writes:
scotty at the poker table...

a get outta jail free card and a deal to stop pumping commodities in excahnge for lessons about all the complicated stuff and help propping up the market??

scotty your thinking is more complex than i can muster at this hour.

but again my guess is that the fed ain't focussed on arrests and trials...this is an "all hands on deck" situation with the ship beginning to sink.

so my guess is that the fed saw an economic time bomb in the equities market and maybe some margin games and inflation of the total shares outstanding and the fed said here's a loan, clean up your act and MAKE the market or we are all going down with the ship.
mock turtle | 03.21.08 - 2:09 am | #

mock turtle writes:
good nite to 29 visitors
mock turtle | 03.21.08 - 2:10 am | #

Anonymous writes:
Try the yield curve tool here:

http://fixedincome.fidelity.com/ ...HistoricalYield

Typically the yield on 30-year Treasury bonds is three percentage points above the yield on three-month Treasury bills. When it gets wider than that -- and the slope of the yield curve increases sharply -- long-term bond holders are sending a message that they think the economy will improve quickly in the future.

Today:

3 Month Treasury @ 0.34%

30 Year Treasury @ 4.17

3.83% huh..... Typically, the dollar is not below the value of a Canadian dollar, a Swiss franc, The Euro, Yen, and Typically there isn't a housing crash with resets increasing, and typically you don't see bank bail outs with 1930-style negotiations over a weekend, and typically, you don't see the 3 month yield crash as people panic to find safety. Meanwhile, stocks go up and push the volatility index to 70 year highs, as stock index P/Es go up and index yields go down. Looks good!
Anonymous | 03.21.08 - 2:21 am | #

Anonymous writes:
Oh but wait, just to add to that last point

Last month the 3 month Treasury was @ 2.14%

The 30 Year treasury was @ 4.67%

Thus in one month, a spread difference from 2.53 to 3.83

The interesting thing to note is the 2 year yield @ 1.58% while the 3 year is @ 1.46%; a month ago, that inversion was not the case!!! That calls for some DD!
Anonymous | 03.21.08 - 2:36 am | #

Anonymous writes:
Since 1960, the appearance of the “inverted” yield curve has shown a strong tendency to precede an economic slowdown. The current economic situation appears to be no exception, since the yield curve inversion indicator flashed a clear warning sign well in advance of the economic difficulties beginning in mid to late 2007. Although many interest rate analysts prefer to study the 2 versus 5 year Treasury notes and the 5 versus the 10 year Treasury note comparative returns, there is much evidence that the shorter end of the yield curve is the more telling portion of the curve. This part of the interest rate spectrum appears to be the most useful in telegraphing the earliest warning signs of an impending downturn in the economy. This short end of the curve phenomenon is the sweet spot and is best measured by studying the implied yield curve, derived from the pricing structure of the Eurodollar futures contracts. These implied yields are calculated by subtracting the futures prices from 100.00. By making these calculations sequentially for all of the contract months, an implied yield curve can be drawn. Currently, the Eurodollar implied yield curve is showing an inversion out to the 4th quarter of this year. This situation provides a very strong argument for some additional economic turbulence over the near term and, in turn, further gains for the Eurodollar futures market between now and late 2008.
Anonymous | 03.21.08 - 2:39 am | #

blowncue writes:
Kicker,

The CFOs will not have to do any such thing. The revenue authorities shall complain, and millions will be spent, and the paper shall be unearthed, and their transfer pricing schemes shall be uncovered, for they will have neglected to do one simple thing, and then there will be a conference, and sad news shall be delivered, and then they shall settle.

But for one simple thing, which I shall not reveal as I do not wish to deprive our revenue authorities their bounty.
blowncue | 03.21.08 - 2:43 am | #

Anonymous writes:
Here it is:

Shortly after Katrina, the yield of the 2-year U.S. Treasury note was briefly and temporarily higher than the yield of 3-year Treasury. It was merely the latest development in an ongoing debate over the significance of the narrowing yield spread.
Anonymous | 03.21.08 - 2:48 am | #

Jim writes:
Natomas: but gee the streets are not crowded. Think how easy it is to drive around. Not everything is bad.
Jim | 03.21.08 - 3:35 am | #

SteelCurtain writes:
Just to be a little more upbeat about the western PA area, there are some positive trends. For one the rise in commodity prices is driving a boom in the local oil industry. Lots of old wells being reopened and new ones drilled. Also, the JOY Global plants in Franklin are working overtime with so many orders. Take a look at the JOYG stock charts. They make underground and surface mining machinery.

Also, PA, OH, MI and even upstate NY may see a rebirth of agriculture in the coming years, they declined as the better land in the west opened up but at $30/bu wheat it may be quite profitable even in the east now.
SteelCurtain | Homepage | 03.21.08 - 10:15 am | #

zong qua writes:
We know that to clean up this financial mess, a few trillions will be written off the balance sheets of institutions and individuals, so for discussion sake, lets just wash our hands of the whole thing and forget about it.

Looking forward, there are some big changes to our economy on the way. Warren Buffet said a few weeks ago that there has already been a fundamental change in the financial system, because the "dumb money" that created all the easy credit for the past few years has dried up. Going forward, Mr. and Mrs. JSP must learn to live frugally on earned income, in spite of high energy and food costs, a 10% savings rate, no more easy credit, and higher taxes. When that happens, what will our GDP and growth rates look like? Where should we invest in a frugal society?

Now go and look at the You Tube video of Volker talking with Charlie Rose a few days ago. He talks about a society of declining standards of living, needing to produce more that we consume, and tough regulatory environments.

Will these changes cause deflation? Will the US have to suffer a liquidy trap and a decade of ZIRP? Will boomers, who have for years been advised to save for retirement, soon find their savings and net worth wiped out like the folks at Bear Stearns?

Volker indicates that the American economy will not recover until three things happen: until the country can produce more than it consumes, achieves a 10%+ national savings rate, and can provide quality education and training. Currently every day, billions of dollars drain out of the US to pay for energy and manufactured goods.

My question is, if these trends come to pass, how do we save for retirement?
zong qua | 03.21.08 - 10:41 am | #

Clyde writes:
Think the Fed has not thought about opening the discount window to CIT ? CIT executives said the company's access to capital largely evaporated over the past week. The funding squeeze is likely to make it harder and more expensive for businesses of all sizes to borrow from CIT. Given CIT's size, shrinking the amount of available credit also could drive up borrowing costs for companies generally.
http://online.wsj.com/article/ SB...s_us_whats_news
While it isn't a bank, CIT is a major lender that specializes in providing financing to companies of all sizes that often can't get all the capital they want from traditional banks. With customers in more than 30 industries and 50 countries, CIT had managed assets of $83.2 billion as of Dec. 31, about the same size as KeyCorp, a regional bank in Cleveland.
Clyde | 03.21.08 - 11:02 am | #

SurferDude writes:
wow the MSM is now waking up to the idea that there are a lot of community and mid-size banks exposed to residential construction. when will they move to the next obvious question -- what were the banking regulators doing as these exposures were being put on the balance sheet? the chart from the fdic q4 qbp clearly shows siginficant exposure all the way back to 2003. yet regulators did nothing while the concentrations almost doubled in 3-4 years. someone should you have some explaining to do.
SurferDude | 03.21.08 - 11:20 am | #

Bob Dobbs writes:
"Volker indicates that the American economy will not recover until three things happen: until the country can produce more than it consumes, achieves a 10%+ national savings rate, and can provide quality education and training. Currently every day, billions of dollars drain out of the US to pay for energy and manufactured goods.

My question is, if these trends come to pass, how do we save for retirement?"

As best you can. It won't be enough to maintain your current lifestyle. You'll have a frugal old age; may even move in with the kids, as people used to.

One of the great innovations of New Deal politics was reduction in poverty among the aged; it was a huge problem. Social security, medicare, etc.helped solve this. Now they don't seem to be enough. People say we can't afford them. If that's the case, be prepared to get to know your grown children again, really well. Or, rediscover the joys of the SRO hotel.

Personally, I think we can, and will, afford them. The political will will be there when things get nasty enough.

I also think we need to put together a national, Manhattan Project -style initiative for energy independence; it would reduce the money drain abroad, and give us new things to sell that would also benefit the world.
Bob Dobbs | Homepage | 03.21.08 - 11:43 am | #