Seems my simple trivia question was not so simple. I asked what artist and song was on the first CD. I thought it was Bruce Spingsteen, based upon hearing the same question and this answer on the radio, but I cannot find any confirmation. One comment said it was ABBA, but then noted "he was not from New Jersey," suggesting the comment came from someone who knows little about ABBA and who simply looked it up on line, a rules violation. Yes ABBA is not from New Jersey, but it is a group, not a "he." Another has suggested Billy Joel, who is much closer to New Jersey, as in across the river, but still not who I thought when I wrote the question.
So where is the answer to this mystery? It turns out that the truth seems to be in the nature of the question. The first pressed CD, from what I can determine, was ABBA with The Visitor, but it was not released. This was for experimental purposes. The first commercially "released" CD was Billy Joel 52nd Street. My question was not too clear on which I was asking, so drinks to both. I know who voted for Billy Joel, but not ABBA. Catch you later anonymous.
Volcker Moment
Not sure if this is accurate, but at least one commentator noted that the market rise today was due to Obama naming Volcker as head of his new White House Economic Panel. I can appreciate that reaction. I have watched a number of Paul Volcker speeches over the past few months and he seems quite in touch with the current crisis. Moreover, he will do what he considers the correct direction even when he is going against the tide. That worked well for him in fighting inflation in the 1980s and will likely serve him well again in the current crisis. To me, this is Obama's best pick yet.
Otherwise, not a lot of good news to explain the market today. Still, up is better than down, so I will take it.
Wednesday, November 26, 2008
Tuesday, November 25, 2008
Why Ask Why?
I sometimes wonder why the Fed and Treasury are doing such stupid things. Today I have eight hundred billion more reasons to ask why. Yet, in the immortal words of a famous man, "stupid is as stupid does." So I count the days - 56 - until stupid is is stupid gone.
So what is wrong with the $800 billion plan announced today to buy credit card, student loan and other consumer debt from banks to free up more lending? It would take me less time to say what is right with it, which nothing, zip, nada, the big goose egg, but I like to rant and rant I will.
I have mentioned before that the U.S. consumer is already drowning in debt. We are tapped out. Our consumer debt in relation to GDP is at record levels. We have to revert to the mean and spending $800 billion to actively try to stop that from happening is a royally bad idea. Consumers need to save and pay off debt, not incur new debt.
Now I am not too worried about the $800 billion working as intended. Consumers are worried about jobs, about heating bills, about putting food on the table. They are hopefully not stupid enough to add on new debt unless truly desperate. And, for that matter, the banks are not likely to let them. Yes, we can take $800 billion of consumer debt off the bank balance sheets but the banks are not likely to turn around and lend that money to consumers again. They know consumers are on the edge. They are tightening credit standards (which we should applaud) and raising rates (not so much applause here) and they are not about to revert any time soon to throwing money at any body that can fog a mirror. That's what got us in this mess.
I suspect the Fed and Treasury know this. I truly believe they have labeled this as a package to help the consumer, the guy on the street, with no real intention of doing so. This is just a disguised way of getting more money to the banks to help them without all the taxpayers barking about the Fed and Treasury not caring about main street. Another bank bailout cleverly hidden as a consumer bailout. Perhaps these guys are not so stupid after all . . .. Nah, I take that back, as they are the ones that let us get into this mess.
Far East Falling
Different day, same story. Asian stocks down. Toyota has lost its AAA rating. Rio Tinto deal is off. Just not much good news.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8LwbsOVLKyw&refer=home
http://www.bloomberg.com/apps/news?pid=20601087&sid=anFNosF2SNkQ&refer=home
CDS
I am not talking CDs, the music format. I am talking credit default swaps. These are a problem, a major problem, in the current recession and no one yet knows exactly what to do about them. Basically, they are a form of insurance against a credit default event. They have traditionally been individually negotiated, OTC, which means there is little in the way of reliable data on what is out there or the terms of the deals. It is a major big black hole.
There is talk about putting them on an exchange, which will help to avoid them being a problem prospectively, but you still have perhaps over $50 trillion in notional value out there not on an exchange. The problem is that they act like insurance for debt but you do not need what they call in insurance parlance - an insurable interest. It is like being free to take out a fire insurance policy on you neighbor's house. Let's say you paid a visit to your neighbor and saw a lot of frayed electric wires, dozens of appliances plugged into the same outlet and grandma sleeping on the couch with a lit cig still in her tobacco stained fingers. You go out and buy a policy to insure the house against fire and you get it cheap. Then you tell all the other neighbors in the neighborhood to do the same. Soon, the $250,000 house next door has a couple of million dollars worth of insurance on it and if it burns down, the insurers pay a couple of million, as opposed to just the value of the house that burned. It acts a bit like insurance but lacks all the underwriting criteria of any good insurer. So, what to do?
I don't have an easy answer here and no one seems to have one. Going forward, those issuing CDS protection - if anyone does - should probably require that the company buying the protection actually have a risk to protect, i.e. has the loan or bond they can surrender in a default event, i.e. has an insurable interest. That would be a constructive prospective change, but it does not change the current situation.
Let's discuss the current situation a bit so we are on the same page. The AIG bailout (nationalization) was a result of CDS exposure. AIG issued hundreds of billions of CDS contracts to banks in the EU. In the EU, the banks were allowed to use this "insurance" to shore up their capital to debt ratios, which allowed them to take on more debt. Take away this hundreds of billions of (shadow) capital with an AIG bankruptcy and you have major bank issues (beyond the existing major issues) in the EU. So the government caves and does a bailout of AIG. Moreover, a credit downgrade of the party issuing the CDS can lead to collateral posting requirements, which was what started AIG's problems. This is just one case example.
Every potential financial or corporate default now requires the Fed or Treasury or, hopefully, Congress to look at the CDS knock-on effect. The car industry reportedly has over a trillion in CDS protection that could be triggered by a default event, which I am sure (hope) is being considered by Congress. It is a serious issue and it complicates greatly anything the government would like or consider doing.
It is undoubtedly one reason that the Fed and Treasury have to date chosen the path of cash infusions and buying corporate toxic debt over taking down companies and getting on with it. Cash infusions will not trigger defaults under CDS contracts, whereas taking down the companies certainly will. We learned from Lehman that the knock-on effects can be worse than the immediate loss. Perhaps, just perhaps, I have been a bit too tough on Ben and Henry, but they did allow us to get into this mess, so nah, I still say it is time for stupid to go. Nonetheless, some of my criticism has ignored the CDS knock-on effect, so I need to go take a branch and whip my own back for my failings.
Bonus points here. I started this by talking about CDs. Can you name, without looking it up, the first music CD and/or its artist? Hint, he is from New Jersey. Extra bonus points if you can name the year. I will be checking the comments and will buy a drink for the first correct answer, assuming I know who gave me the answer.
Update: I stand corrected. ABBA did the first CD 26 years ago and ABBA is decidedly not from New Jersey. I heard on the radio that it was Bruce Springsteen that did the first CD. Last time I believe what they say on radio. So if anonymous becomes less anonymous at some point, I need to buy him or her a drink.
So what is wrong with the $800 billion plan announced today to buy credit card, student loan and other consumer debt from banks to free up more lending? It would take me less time to say what is right with it, which nothing, zip, nada, the big goose egg, but I like to rant and rant I will.
I have mentioned before that the U.S. consumer is already drowning in debt. We are tapped out. Our consumer debt in relation to GDP is at record levels. We have to revert to the mean and spending $800 billion to actively try to stop that from happening is a royally bad idea. Consumers need to save and pay off debt, not incur new debt.
Now I am not too worried about the $800 billion working as intended. Consumers are worried about jobs, about heating bills, about putting food on the table. They are hopefully not stupid enough to add on new debt unless truly desperate. And, for that matter, the banks are not likely to let them. Yes, we can take $800 billion of consumer debt off the bank balance sheets but the banks are not likely to turn around and lend that money to consumers again. They know consumers are on the edge. They are tightening credit standards (which we should applaud) and raising rates (not so much applause here) and they are not about to revert any time soon to throwing money at any body that can fog a mirror. That's what got us in this mess.
I suspect the Fed and Treasury know this. I truly believe they have labeled this as a package to help the consumer, the guy on the street, with no real intention of doing so. This is just a disguised way of getting more money to the banks to help them without all the taxpayers barking about the Fed and Treasury not caring about main street. Another bank bailout cleverly hidden as a consumer bailout. Perhaps these guys are not so stupid after all . . .. Nah, I take that back, as they are the ones that let us get into this mess.
Far East Falling
Different day, same story. Asian stocks down. Toyota has lost its AAA rating. Rio Tinto deal is off. Just not much good news.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a8LwbsOVLKyw&refer=home
http://www.bloomberg.com/apps/news?pid=20601087&sid=anFNosF2SNkQ&refer=home
CDS
I am not talking CDs, the music format. I am talking credit default swaps. These are a problem, a major problem, in the current recession and no one yet knows exactly what to do about them. Basically, they are a form of insurance against a credit default event. They have traditionally been individually negotiated, OTC, which means there is little in the way of reliable data on what is out there or the terms of the deals. It is a major big black hole.
There is talk about putting them on an exchange, which will help to avoid them being a problem prospectively, but you still have perhaps over $50 trillion in notional value out there not on an exchange. The problem is that they act like insurance for debt but you do not need what they call in insurance parlance - an insurable interest. It is like being free to take out a fire insurance policy on you neighbor's house. Let's say you paid a visit to your neighbor and saw a lot of frayed electric wires, dozens of appliances plugged into the same outlet and grandma sleeping on the couch with a lit cig still in her tobacco stained fingers. You go out and buy a policy to insure the house against fire and you get it cheap. Then you tell all the other neighbors in the neighborhood to do the same. Soon, the $250,000 house next door has a couple of million dollars worth of insurance on it and if it burns down, the insurers pay a couple of million, as opposed to just the value of the house that burned. It acts a bit like insurance but lacks all the underwriting criteria of any good insurer. So, what to do?
I don't have an easy answer here and no one seems to have one. Going forward, those issuing CDS protection - if anyone does - should probably require that the company buying the protection actually have a risk to protect, i.e. has the loan or bond they can surrender in a default event, i.e. has an insurable interest. That would be a constructive prospective change, but it does not change the current situation.
Let's discuss the current situation a bit so we are on the same page. The AIG bailout (nationalization) was a result of CDS exposure. AIG issued hundreds of billions of CDS contracts to banks in the EU. In the EU, the banks were allowed to use this "insurance" to shore up their capital to debt ratios, which allowed them to take on more debt. Take away this hundreds of billions of (shadow) capital with an AIG bankruptcy and you have major bank issues (beyond the existing major issues) in the EU. So the government caves and does a bailout of AIG. Moreover, a credit downgrade of the party issuing the CDS can lead to collateral posting requirements, which was what started AIG's problems. This is just one case example.
Every potential financial or corporate default now requires the Fed or Treasury or, hopefully, Congress to look at the CDS knock-on effect. The car industry reportedly has over a trillion in CDS protection that could be triggered by a default event, which I am sure (hope) is being considered by Congress. It is a serious issue and it complicates greatly anything the government would like or consider doing.
It is undoubtedly one reason that the Fed and Treasury have to date chosen the path of cash infusions and buying corporate toxic debt over taking down companies and getting on with it. Cash infusions will not trigger defaults under CDS contracts, whereas taking down the companies certainly will. We learned from Lehman that the knock-on effects can be worse than the immediate loss. Perhaps, just perhaps, I have been a bit too tough on Ben and Henry, but they did allow us to get into this mess, so nah, I still say it is time for stupid to go. Nonetheless, some of my criticism has ignored the CDS knock-on effect, so I need to go take a branch and whip my own back for my failings.
Bonus points here. I started this by talking about CDs. Can you name, without looking it up, the first music CD and/or its artist? Hint, he is from New Jersey. Extra bonus points if you can name the year. I will be checking the comments and will buy a drink for the first correct answer, assuming I know who gave me the answer.
Update: I stand corrected. ABBA did the first CD 26 years ago and ABBA is decidedly not from New Jersey. I heard on the radio that it was Bruce Springsteen that did the first CD. Last time I believe what they say on radio. So if anonymous becomes less anonymous at some point, I need to buy him or her a drink.
Monday, November 24, 2008
Parade? Here Comes The Rain
Hate to rain on your parade, but the government providing over $300 billion in investment and backstop to Citi is not much reason to celebrate, though the market seems to have done just that today. Best two day climb in over 20 years. Impressive indeed. But not nearly as impressive as what I am about to tell you, assuming you have not already read about it.
Seems two Bozos and one Bozette (less her than the other two) have really racked up quite a lot of IOUs for you and me. Mind you, lawmakers - as in elected representatives - are in part responsible for $700 billion, but the rest is the Bozos and Bozette. Hope you are sitting down. We are potentially committed to the tune of $7.4 Trillion, which is $24,000 for every man, woman and child in the country, and we haven't saved the auto industry yet. That is half of the value of everything produced in this country last year. And nearly all of it has been racked up by unelected officials, who are doing so on our tab.
But hey, you say, they are doing a good job, just look at the market the past couple of days. Well, I would not throw caution to the wind just yet. Yes, some people who know more than me are getting back into the market - and I am mostly back in myself (and reconsidering that decision) - but there are troubled waters ahead and if you are going back in, do so with the knowledge that many risks are ahead. Knowledge is power and I do this blog because it forces me to read enough to get knowledge. I hate that it cuts into my evening TV time, but it has paid off a good bit better than watching Dancing with the Stars.
I am not talking here of the obvious economic risks that I usually discuss. I am (or Yves is) talking currency crisis, and she is not the only one. We have a temporary prop of the currency currently taking place as certain bets unwind, but soon that will come to an end and the U.S. currency is then toast. I do not pretend to know a lot about currency related issues, but I have been reading more lately and we are on the edge here from what I have read from various sources I trust. I have seen a few articles I have not posted and will try to find more to share, but this is becoming a key risk going forward. I noted it last week and it seems to be accelerating.
And currency crisis is not the only problem. We need to start worrying about debt default. I posted the other day about what happens when our foreign allies stop buying Treasuries. Well, that issue is increasingly coming front and center.
Once you consider these two issues, give yourself a headache thinking about deflation. Deflation is not a good thing. Why? Let us assume I bought a home for $100,000 and took out a loan of $80,000 to pay for it. For the past year or so that home price has been deflating and the home could very well now be worth less than the loan. An example of bad deflation. What's more, let's say I have a fixed rate loan and I am paying, say $750 a month for that loan, which does not change. The spending power of the $750 goes up during deflation, i.e. $750 buys more as things get cheaper, so on a relative basis, I am giving up more stuff to pay a mortgage on property not worth the amount of the loan. Not a pretty picture. Try adding to that the prospect that I did an ARM and the rate is about to adjust up significantly, and you get the picture on why deflation can be bad.
Another way to consider deflation is related to its cause in the current economy. People have no money, so they stop spending. Demand goes down so prices come down to try to lure demand. Companies have no demand or sales, so they reduce employment, further reducing available cash and demand, which continues the spiral.
Moreover, deflation is harder to fix than inflation. For inflation, raise rates. For deflation, lower rates. But what do you do when rates are already at 1%? Well drop money from helicopters and increase the money supply, but that too has consequences.
Sorry for the doom and gloom when people are popping corks, but you need to appreciate the "potential" risks. I say potential as nothing is written in stone. The positive response in the markets the past couple of days could be a self-fulfilling prophecy in some respects. Certainly, a large part of the market and economy is mental. Credit and lending are in part about companies feeling the economy is on the track to recovery. So I cannot discount how emotion might impact things, especially in the short term. But in the long run, I fear two plus two will always equal four. Somebody has to pay the piper, and unfortunately that is on our tab. Thank you Bozo!
http://www.nakedcapitalism.com/2008/11/government-lending-support-pledges-and.html
For more less than inspiring thoughts on the Citigroup bailout and the rag tag nature of the U.S. response, I highly recommend the following article. All is not as well as the last two trading days would seem to indicate. Some of my mentors seem to be wading back into the market yet I am thinking "hunker down." They know much more than me, so you decide. Nonetheless, Bloomberg is one news service I respect, and they have been decidedly negative on the Citi development.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNaCt99p3AZg&refer=homepid=20601087&sid=aNaCt99p3AZg&refer=home
I believe I mentioned that the Citigroup/Wachovia deal was really about a back door way for the FDIC funding Citigroup so that it does not fail. I believe Bronte Capital did a piece on this, but here is another:
http://www.nakedcapitalism.com/2008/11/wsj-us-agrees-to-bail-out-citi.html
Housing Down
Hardly a surprise, except that it is down on a global basis. First time ever. Wow!
http://www.guardian.co.uk/business/2008/nov/24/international-property-house-prices-dubai
Deep 6 Big 3 Chapter 11?
Apparently the thought of the big three doing Chapter 11, bankruptcy talk for reorg., is not well liked in all corners. Some say the damage to public image will be the death knell, despite airilines successfully doing it. Certainly, taking a chance that an airline will go Chapter 7 in a few weeks on a ticket worth a few hundred is not the same risking a five year warranty on a $40,000 car or SUV, so this will never ever work, right? Well, folks, guess what, the government that has taken on $7.4 trillion may need to spend a few dozen billion and backstop warranties on vehicles. I really don't get it; we spend trillions backstopping the jerks that got us into this mess and are unwilling to spend what is realtively little to save hundreds of thousands, if not millions, of jobs and avert very real losses to the U.S. economy. Do an AIG type of deal but keep at least two of these companies up and running.
Stop!!!!!!!!!!!!!!!
Paulson wants the rest of the $700 billion now. Given his track record I have one comment, just say no. Let's start a grass roots effort, "Say No To Bozo, Say No To Bozo!!"
Bad?
Sounds bad.
http://www.nakedcapitalism.com/2008/11/us-trying-to-combat-treasury-repo-fails.html
Seems two Bozos and one Bozette (less her than the other two) have really racked up quite a lot of IOUs for you and me. Mind you, lawmakers - as in elected representatives - are in part responsible for $700 billion, but the rest is the Bozos and Bozette. Hope you are sitting down. We are potentially committed to the tune of $7.4 Trillion, which is $24,000 for every man, woman and child in the country, and we haven't saved the auto industry yet. That is half of the value of everything produced in this country last year. And nearly all of it has been racked up by unelected officials, who are doing so on our tab.
But hey, you say, they are doing a good job, just look at the market the past couple of days. Well, I would not throw caution to the wind just yet. Yes, some people who know more than me are getting back into the market - and I am mostly back in myself (and reconsidering that decision) - but there are troubled waters ahead and if you are going back in, do so with the knowledge that many risks are ahead. Knowledge is power and I do this blog because it forces me to read enough to get knowledge. I hate that it cuts into my evening TV time, but it has paid off a good bit better than watching Dancing with the Stars.
I am not talking here of the obvious economic risks that I usually discuss. I am (or Yves is) talking currency crisis, and she is not the only one. We have a temporary prop of the currency currently taking place as certain bets unwind, but soon that will come to an end and the U.S. currency is then toast. I do not pretend to know a lot about currency related issues, but I have been reading more lately and we are on the edge here from what I have read from various sources I trust. I have seen a few articles I have not posted and will try to find more to share, but this is becoming a key risk going forward. I noted it last week and it seems to be accelerating.
And currency crisis is not the only problem. We need to start worrying about debt default. I posted the other day about what happens when our foreign allies stop buying Treasuries. Well, that issue is increasingly coming front and center.
Once you consider these two issues, give yourself a headache thinking about deflation. Deflation is not a good thing. Why? Let us assume I bought a home for $100,000 and took out a loan of $80,000 to pay for it. For the past year or so that home price has been deflating and the home could very well now be worth less than the loan. An example of bad deflation. What's more, let's say I have a fixed rate loan and I am paying, say $750 a month for that loan, which does not change. The spending power of the $750 goes up during deflation, i.e. $750 buys more as things get cheaper, so on a relative basis, I am giving up more stuff to pay a mortgage on property not worth the amount of the loan. Not a pretty picture. Try adding to that the prospect that I did an ARM and the rate is about to adjust up significantly, and you get the picture on why deflation can be bad.
Another way to consider deflation is related to its cause in the current economy. People have no money, so they stop spending. Demand goes down so prices come down to try to lure demand. Companies have no demand or sales, so they reduce employment, further reducing available cash and demand, which continues the spiral.
Moreover, deflation is harder to fix than inflation. For inflation, raise rates. For deflation, lower rates. But what do you do when rates are already at 1%? Well drop money from helicopters and increase the money supply, but that too has consequences.
Sorry for the doom and gloom when people are popping corks, but you need to appreciate the "potential" risks. I say potential as nothing is written in stone. The positive response in the markets the past couple of days could be a self-fulfilling prophecy in some respects. Certainly, a large part of the market and economy is mental. Credit and lending are in part about companies feeling the economy is on the track to recovery. So I cannot discount how emotion might impact things, especially in the short term. But in the long run, I fear two plus two will always equal four. Somebody has to pay the piper, and unfortunately that is on our tab. Thank you Bozo!
http://www.nakedcapitalism.com/2008/11/government-lending-support-pledges-and.html
For more less than inspiring thoughts on the Citigroup bailout and the rag tag nature of the U.S. response, I highly recommend the following article. All is not as well as the last two trading days would seem to indicate. Some of my mentors seem to be wading back into the market yet I am thinking "hunker down." They know much more than me, so you decide. Nonetheless, Bloomberg is one news service I respect, and they have been decidedly negative on the Citi development.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNaCt99p3AZg&refer=homepid=20601087&sid=aNaCt99p3AZg&refer=home
I believe I mentioned that the Citigroup/Wachovia deal was really about a back door way for the FDIC funding Citigroup so that it does not fail. I believe Bronte Capital did a piece on this, but here is another:
http://www.nakedcapitalism.com/2008/11/wsj-us-agrees-to-bail-out-citi.html
Housing Down
Hardly a surprise, except that it is down on a global basis. First time ever. Wow!
http://www.guardian.co.uk/business/2008/nov/24/international-property-house-prices-dubai
Deep 6 Big 3 Chapter 11?
Apparently the thought of the big three doing Chapter 11, bankruptcy talk for reorg., is not well liked in all corners. Some say the damage to public image will be the death knell, despite airilines successfully doing it. Certainly, taking a chance that an airline will go Chapter 7 in a few weeks on a ticket worth a few hundred is not the same risking a five year warranty on a $40,000 car or SUV, so this will never ever work, right? Well, folks, guess what, the government that has taken on $7.4 trillion may need to spend a few dozen billion and backstop warranties on vehicles. I really don't get it; we spend trillions backstopping the jerks that got us into this mess and are unwilling to spend what is realtively little to save hundreds of thousands, if not millions, of jobs and avert very real losses to the U.S. economy. Do an AIG type of deal but keep at least two of these companies up and running.
Stop!!!!!!!!!!!!!!!
Paulson wants the rest of the $700 billion now. Given his track record I have one comment, just say no. Let's start a grass roots effort, "Say No To Bozo, Say No To Bozo!!"
Bad?
Sounds bad.
http://www.nakedcapitalism.com/2008/11/us-trying-to-combat-treasury-repo-fails.html
Sunday, November 23, 2008
The Citi That Never Sleeps
Certainly Pandit and company are not sleeping a lot lately. What will the government do, oh, what will it do? Again, Citigroup on the ropes is no surprise. It is the poster child (along with the likes of Bearn Stearns, Lehman and countless others) for the derivatives mess. Yet it takes the game a notch higher than others. This particular institution has hundreds of billions of uninsured deposits,especially over seas, and over one trillion in OFF BALANCE SHEET assets. Seriously, who lets a financial institution that is too big to fail have over a trillion plus in off balance sheet crap. You know there is a reason they keep it off balance sheet and it is not because they want to surprise their shareholders with a big bounce when they bring it on balance sheet.
Undoubtedly the government will do some very expensive deal, but hopefully shareholders and bond holders will pay the price. I know some of my readers are among the shareholders, but you take your chances you pay the price. Taxpayers did not make that bet and should not pay any more price than absolutely necessary. I do note that the numbers they are discussing, $50-100 billion, ain't going to be nearly enough. Citigroup is just getting its hook in the government's mouth. We are all suckers now.
http://www.nakedcapitalism.com/2008/11/citi-in-talks-with-us-to-create-bad.html
http://www.nakedcapitalism.com/2008/11/meredith-whitney-says-citi-is-goner-bbc.html
For good or bad, Citigroup or Citibank has a long history of living life on the edge and the government might be well adivsed to consider an orderly winding down or, at least, neutering the beast. You need to consider what knock on effects this has on CDS positions, but you need to do that in whatever action the government takes. This is simply a company that does not learn its lesson and we should not be paying the price for their repeated mistakes. Water board the officers and move on.
So you know, I once had put options on Citigroup, but they were sold long ago, apparently sooner than they should have been sold. Not complaining, though, as I made good money.
http://www.nakedcapitalism.com/2008/11/new-york-times-citi-woes-due-to-lousy.html
On the bad bank proposal for Citi, i.e. putting toxic debt in a separate bad bank, the best comment I have seen was on Calculated Risk, where he noted that he thought Citi WAS the bad bank. Oh so true.
Undoubtedly the government will do some very expensive deal, but hopefully shareholders and bond holders will pay the price. I know some of my readers are among the shareholders, but you take your chances you pay the price. Taxpayers did not make that bet and should not pay any more price than absolutely necessary. I do note that the numbers they are discussing, $50-100 billion, ain't going to be nearly enough. Citigroup is just getting its hook in the government's mouth. We are all suckers now.
http://www.nakedcapitalism.com/2008/11/citi-in-talks-with-us-to-create-bad.html
http://www.nakedcapitalism.com/2008/11/meredith-whitney-says-citi-is-goner-bbc.html
For good or bad, Citigroup or Citibank has a long history of living life on the edge and the government might be well adivsed to consider an orderly winding down or, at least, neutering the beast. You need to consider what knock on effects this has on CDS positions, but you need to do that in whatever action the government takes. This is simply a company that does not learn its lesson and we should not be paying the price for their repeated mistakes. Water board the officers and move on.
So you know, I once had put options on Citigroup, but they were sold long ago, apparently sooner than they should have been sold. Not complaining, though, as I made good money.
http://www.nakedcapitalism.com/2008/11/new-york-times-citi-woes-due-to-lousy.html
On the bad bank proposal for Citi, i.e. putting toxic debt in a separate bad bank, the best comment I have seen was on Calculated Risk, where he noted that he thought Citi WAS the bad bank. Oh so true.
They Don't Buy in Dubai
Not even the Middle East is immune to the global economic rout. The two largest mortgage lenders in Dubai had to be taken over by a government owned bank. Seems they had a little real estate bubble of their own, and with oil now trading below $50 a barrel, that spigot has temporarily been turned off too. Indeed, their bubble makes ours look tiny; a fourfold increase in prices in five years. They seem to be just at the beginning of their bubble bursting, so this may take a while.
I guess ridiculous spending on ecologically disastorous man-made islands shaped like palm trees and on constructing the world's tallest building led to some large debts just a credit dried up. Not a good combination. Can't say I am shedding any tears over this one. The spending and construction activity there was obscene.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaiN_27b33uU&refer=home
Build It and They Will Come (and get jobs)
I cannot say I am on board with all the economic decisions Obama has made, including his inclusion of some in his inner circle who are partly to blame for today's mess, but I do think the economic package he is trying to put together is the right way to attack the problem, which is from the ground up. Too many plans, including the $700 billion bailout, are trying to do it from the top down, but this ignores the fact that the top cannot survive without a strong base. The U.S. consumer needs help. And instead of giving them handouts, it is infinitely more beneficial to give them jobs doing something constructive, like improving our crumbling infrastructure or helping to lower our dependence on foreign oil. Let's face it, we need to spend this money whether we like it or not, so let's get some bang for our buck.
None of this is a quick fix but getting people employed doing infrastructure and altenative fuels achieves a lot more than throwing money at big banks. There are only a couple of ways for housing to reach a bottom. First, prices can fall until they get to where they need to go. There are obvious problems with this approach, as we are seeing. Moreover, with unemployment growing, the stock market down and employers cutting back hours, the median income will likely decrease, which means housing prices need to go down even further to revert to mean. The second altenative is that we use funds that we are going to have to spend anyway to support job growth and improve median income. That helps to make homes more affordable (i.e. they do not have to drop as far), slows foreclosures, aids consumer spending and supports all sorts of businesses. This helps the big banks better than giving them money as it lessens the defaults on all those derivatives on their books. In other words, the toxic waste becomes less toxic. It takes more time, but it is a better long term fix, in my opinion. Then again, what do I know. Any thoughts?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aip_MC9nX0M0&refer=home
I guess ridiculous spending on ecologically disastorous man-made islands shaped like palm trees and on constructing the world's tallest building led to some large debts just a credit dried up. Not a good combination. Can't say I am shedding any tears over this one. The spending and construction activity there was obscene.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaiN_27b33uU&refer=home
Build It and They Will Come (and get jobs)
I cannot say I am on board with all the economic decisions Obama has made, including his inclusion of some in his inner circle who are partly to blame for today's mess, but I do think the economic package he is trying to put together is the right way to attack the problem, which is from the ground up. Too many plans, including the $700 billion bailout, are trying to do it from the top down, but this ignores the fact that the top cannot survive without a strong base. The U.S. consumer needs help. And instead of giving them handouts, it is infinitely more beneficial to give them jobs doing something constructive, like improving our crumbling infrastructure or helping to lower our dependence on foreign oil. Let's face it, we need to spend this money whether we like it or not, so let's get some bang for our buck.
None of this is a quick fix but getting people employed doing infrastructure and altenative fuels achieves a lot more than throwing money at big banks. There are only a couple of ways for housing to reach a bottom. First, prices can fall until they get to where they need to go. There are obvious problems with this approach, as we are seeing. Moreover, with unemployment growing, the stock market down and employers cutting back hours, the median income will likely decrease, which means housing prices need to go down even further to revert to mean. The second altenative is that we use funds that we are going to have to spend anyway to support job growth and improve median income. That helps to make homes more affordable (i.e. they do not have to drop as far), slows foreclosures, aids consumer spending and supports all sorts of businesses. This helps the big banks better than giving them money as it lessens the defaults on all those derivatives on their books. In other words, the toxic waste becomes less toxic. It takes more time, but it is a better long term fix, in my opinion. Then again, what do I know. Any thoughts?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aip_MC9nX0M0&refer=home
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