Looks like the Fed is flipping and flopping a lot like the McCain campaign in its policy pronouncements. “Being for something before being against the same”.
When the financial markets were melting down on Monday with Lehman going under and jobs lost all around, McCain coolly comes up and tells us that the economy is strong. Later he backtracks and says that he was talking about the American people and not the health of the economy actually. Likewise, the Fed initially said that they will not bail out AIG before actually deciding to bail them out late evening yesterday. Yes, it called for an injection of $85 billion of taxpayer money this time. Of course, this is on top of the bail out of Bear, Fannie and Freddie.
The latest bailout might be labeled as the ‘mother of all bailouts’ since it was not just the company (AIG) that was bailed out, but all those toxic assets from companies that AIG had insured. In essence, AIG's clients still got to chew on their toxic mortgage meatballs while the taxpayers stepped in to foot the bill. Of course, many will advance the argument that AIG was 'too big to fail'. Even if one agrees with this theory (yes, this too big to fail thing is fast becoming a theory as more and more banks are signing on the bailout bucket list), the bailout should have come with regulatory conditions that will prevent this mess from happening again. Of course, none of that happened. Taxpayer money was pledged to straighten a large Wall Street firm with minimal guarantees ensuring the survival of the firm, ensuring the people at the top get their regular bonuses and also ensuring that nary a legislation or regulation is passed that would have prevented a meltdown like this from happening in the future. Well, this is free market at its best.
Two things were clear after the latest bailout: The first being that the Fed is absolutely clueless and has just about zero control over the rapidly deteriorating situation in the financial markets. The other being that we have just further slowed down what was essentially an already very slow moving financial train wreck. What is that expression of Chinese torture – death by a thousand cuts – is what we will be subject to….
Showing posts with label Lehman Brothers. Show all posts
Showing posts with label Lehman Brothers. Show all posts
Wednesday, September 17, 2008
Tuesday, September 16, 2008
Executive paycheck watch - II
As the investors keeps getting hammered with more bad news (AIG falling under after ratings cut last night, Goldman announced a couple of minutes back that their profits were down 70%, the first time since the company went public, Merrill to see large layoffs, thousands of Lehman workers out on the street), here is a bit of news that looks to the bright side of things...
From here: Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.
The ultimate irony with the whole payout was that John Thain was hired into Merrill nine months back explicitly to turn the ailing company around. Instead, he turns tables and sells the company lock stock to Bank of America (of course, he had no other option after the debacle at Lehman). Yes, greed is good.
The executive paychecks for CEOs who were responsible for sending Fannie Mae and Freddie Mac into the ground covered here previously.
From here: Merrill Lynch & Co. Chief Executive Officer John Thain and trading-division head Thomas Montag may reap payouts totaling more than $47 million if they leave or are given lesser roles after Bank of America Corp. buys the firm.
The ultimate irony with the whole payout was that John Thain was hired into Merrill nine months back explicitly to turn the ailing company around. Instead, he turns tables and sells the company lock stock to Bank of America (of course, he had no other option after the debacle at Lehman). Yes, greed is good.
The executive paychecks for CEOs who were responsible for sending Fannie Mae and Freddie Mac into the ground covered here previously.
Monday, September 15, 2008
Using more of our money… Bail Baby, Bail!
On April Fools day of this year, I wrote about a money spigot opened up by the Fed that allowed investment banks on Wall Street to drive by and borrow any amount that they wished from the Feds sans rigorous oversight or regulation. The rate of drawing from the spigot was about $33 billion a day then – I do not have the numbers for now. The ostensible reason for this largesse was to preserve 'financial liquidity' and make sure that the major players on the Street have enough money to perform their complex dalliances and ensuring year end bonuses.
This weekend, we witnessed multiple events that almost looks like an automatic structural re-adjustment of the financial industry. The spectacularly predictable failure of Lehman. Merrill rushing into the waiting hands of its suitor, Bank of America and AIG (the biggest insurance company in the world) gasping for air as it asks the Fed for $40 billion in restructuring costs.
Well, the common sense would dictate the following: Hey, these companies played poker with the money entrusted to them and during the process of carving up mortgages into complex financial instruments that no-one understood, they were setting themselves for failure. Let the structural adjustment happen, let the financially unsound institutions fail, as soon as the bad apples amongst the lot is weeded out and we should see the bottom of this thing - Or so, one might think.
Well, the Fed thinks otherwise. In a sign of continuing largesse and misfired blanks from Paulson’s bazooka, the Fed has opened up newer spigots of money to Wall Street banks.
From here:
In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans through the Primary Dealer Credit Facility.
But with the new announcement, the Fed will accept stocks and some debt that has junk-bond status and some securities that may have few real buyers.
Well, now they are ready to accept junk bonds from distressed companies on Wall Street. Wonder what is next.
What amazes me is that we have just peeled some preliminary skin off the mortgage mess. We are only witnessing the fallout from a type of mortgage called 'sub-prime'. Mortgages of lesser toxicity sit waiting for their turn to wreck havoc – an example of such a mortgage is called 'Alt-A'.
From here:
Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower's income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late, data compiled by Bloomberg show. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods
About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland.
Wonder what the Fed will do when the bottom on the Alt-A mortgage market fall out. I guess we all have a simple enough answer: Use more of our money… Bail Baby, Bail! 
This weekend, we witnessed multiple events that almost looks like an automatic structural re-adjustment of the financial industry. The spectacularly predictable failure of Lehman. Merrill rushing into the waiting hands of its suitor, Bank of America and AIG (the biggest insurance company in the world) gasping for air as it asks the Fed for $40 billion in restructuring costs.
Well, the common sense would dictate the following: Hey, these companies played poker with the money entrusted to them and during the process of carving up mortgages into complex financial instruments that no-one understood, they were setting themselves for failure. Let the structural adjustment happen, let the financially unsound institutions fail, as soon as the bad apples amongst the lot is weeded out and we should see the bottom of this thing - Or so, one might think.
Well, the Fed thinks otherwise. In a sign of continuing largesse and misfired blanks from Paulson’s bazooka, the Fed has opened up newer spigots of money to Wall Street banks.
From here:
In an obscure but highly important announcement late Sunday evening, the Fed said it would let Wall Street firms post as collateral much riskier assets — including equities, junk bonds, subprime mortgage-backed securities and even whole mortgages — in exchange for emergency loans through the Primary Dealer Credit Facility.
But with the new announcement, the Fed will accept stocks and some debt that has junk-bond status and some securities that may have few real buyers.
Well, now they are ready to accept junk bonds from distressed companies on Wall Street. Wonder what is next.
What amazes me is that we have just peeled some preliminary skin off the mortgage mess. We are only witnessing the fallout from a type of mortgage called 'sub-prime'. Mortgages of lesser toxicity sit waiting for their turn to wreck havoc – an example of such a mortgage is called 'Alt-A'.
From here:
Homeowners lured by low introductory rates to Alt-A mortgages, which typically require little or no proof of a borrower's income, may fuel the next wave of foreclosures and further delay a recovery from the worst housing decline since the 1930s. Almost 16 percent of securitized Alt-A loans issued since January 2006 are at least 60 days late, data compiled by Bloomberg show. Defaults will accelerate next year and continue through 2011 as these loans hit their three- and five-year reset periods
About 3 million U.S. borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding, according to Inside Mortgage Finance, a trade publication in Bethesda, Maryland. Of the Alt-A borrowers, 70 percent may have exaggerated their income, said David Olson, president of mortgage research firm Wholesale Access in Columbia, Maryland.
Wonder what the Fed will do when the bottom on the Alt-A mortgage market fall out. I guess we all have a simple enough answer: Use more of our money… Bail Baby, Bail!
Sunday, September 14, 2008
Friday, September 12, 2008
Morning thoughts on bailouts and abuse
If the Fed and the government allows Lehman to fail, it might be better for al of us - having a market correction now rather than keep delaying the inevitable is definitely not good for the nations interests at large. Plus the usual argument 'they were too big to fail' put forward by the Fed in the case of Bear, Fannie and Freddie seems more rancid than ever - especially with many other distressed banks in the line after Lehman... (read WaMu, Wachovia etc…)
An interesting line from today's Wall Street Journal (WSJ): "To avoid reckless lending in the future, failure has to be an option.". Never thought I will see this day when ultimate free market cheerleaders like the WSJ opines on an investment bank's failure.
The other thought I was having was that it is time for Obama to act and act decisively. Especially in light of the shameful 'kindergarden sex-education' advert which was clearly a complete bag of lies. If Mr. Obama does not act now, come out forcefully and tell the nation that what is at play is pure partisan politics which erases the lines between the truth and untruth and the public needs to start questioning adverts like these, we as a nation would be the losers. He needs to tell us that as a responsible parent of two young girls he took the right steps in sponsoring legislation that will protect young children from predators and for the McPalin team to distort this record is simply dishonest and dishonorable. In addition, he will need to demand a public apology from the McCain for distorting his vote on protecting young children from sexual predators. If he does not do this soon enough and forcefully enough, he will lose the election.
From here: “I have a 6-year-old daughter and a 3-year-old daughter, and one of the things my wife and I talked to our daughter about is the possibility of somebody touching them inappropriately, and what that might mean,” Mr. Obama said in 2004. “And that was included specifically in the law, so that kindergarteners are able to exercise some possible protection against abuse, because I have family members as well as friends who suffered abuse at that age.”
An interesting line from today's Wall Street Journal (WSJ): "To avoid reckless lending in the future, failure has to be an option.". Never thought I will see this day when ultimate free market cheerleaders like the WSJ opines on an investment bank's failure.
The other thought I was having was that it is time for Obama to act and act decisively. Especially in light of the shameful 'kindergarden sex-education' advert which was clearly a complete bag of lies. If Mr. Obama does not act now, come out forcefully and tell the nation that what is at play is pure partisan politics which erases the lines between the truth and untruth and the public needs to start questioning adverts like these, we as a nation would be the losers. He needs to tell us that as a responsible parent of two young girls he took the right steps in sponsoring legislation that will protect young children from predators and for the McPalin team to distort this record is simply dishonest and dishonorable. In addition, he will need to demand a public apology from the McCain for distorting his vote on protecting young children from sexual predators. If he does not do this soon enough and forcefully enough, he will lose the election.
From here: “I have a 6-year-old daughter and a 3-year-old daughter, and one of the things my wife and I talked to our daughter about is the possibility of somebody touching them inappropriately, and what that might mean,” Mr. Obama said in 2004. “And that was included specifically in the law, so that kindergarteners are able to exercise some possible protection against abuse, because I have family members as well as friends who suffered abuse at that age.”
Thursday, September 11, 2008
As we rouge pig lips...
Just this morning on the train to work, I read…
- 156 year old Lehman Brothers is fighting for its life on Wall Street – fallout from the ‘markets know best’ culture that spawned the sub-prime mortgage fiasco
- One of the poorest nations, Haiti (whose citizens use clay mud cakes to soften their hunger pangs) has been battered beyond belief by Hurricane Ike – fallout from global climate change
- Special Operations forces are now unilaterally striking targets in Pakistan without much regard to what the government of that country thinks or says – fallout from the so called ‘war on terror’.
- Oil companies in Texas bedded with an Interior Department agency that collects taxes on oil drilling using sex and drugs as carrots. Investigators called it a ‘culture of ethical failure’ – fallout from the ‘drill, baby drill’ chant popularized by you know who
- Venezuela’s president plans to pilot Soviet made TU-160 ‘Blackjack’ bombers in a show of joint military force with the Russians just south east of our coastal borders – fallout from an ill conceived backing of the Georgian war
- The worlds most isolated and unpredictable regime’s ‘Dear Leader’, Mr. Kim Jong-il suffered a stroke – raising fears of an ugly succession battle in a country armed with nuclear missiles – fallout from the world deciding to isolate the regime as rogue and classifying it as ‘axis of evil’.
And here we are – debating pigs and lipstick… My take is that the only good thing that go well with pigs is dollops of barbecue sauce. When are we going to get to some real issues?
- 156 year old Lehman Brothers is fighting for its life on Wall Street – fallout from the ‘markets know best’ culture that spawned the sub-prime mortgage fiasco
- One of the poorest nations, Haiti (whose citizens use clay mud cakes to soften their hunger pangs) has been battered beyond belief by Hurricane Ike – fallout from global climate change
- Special Operations forces are now unilaterally striking targets in Pakistan without much regard to what the government of that country thinks or says – fallout from the so called ‘war on terror’.
- Oil companies in Texas bedded with an Interior Department agency that collects taxes on oil drilling using sex and drugs as carrots. Investigators called it a ‘culture of ethical failure’ – fallout from the ‘drill, baby drill’ chant popularized by you know who
- Venezuela’s president plans to pilot Soviet made TU-160 ‘Blackjack’ bombers in a show of joint military force with the Russians just south east of our coastal borders – fallout from an ill conceived backing of the Georgian war
- The worlds most isolated and unpredictable regime’s ‘Dear Leader’, Mr. Kim Jong-il suffered a stroke – raising fears of an ugly succession battle in a country armed with nuclear missiles – fallout from the world deciding to isolate the regime as rogue and classifying it as ‘axis of evil’.
And here we are – debating pigs and lipstick… My take is that the only good thing that go well with pigs is dollops of barbecue sauce. When are we going to get to some real issues?
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