With the nationalization of Argentine pension funds, it looks like it’s bad news for the Brazilian stock market, because the government will be moving investments into Argentina.
Not unsurprising.
Bumpy ride ahead.
Category: Finance
Seriously, Do Chriso-Fascists even Read the Bible?
The grand high priestess of snark, Wonkette, notes that a Christian group has called for prayer to repair the broken financial system.
While the obvious rejoinder would be something about chasing money lenders out of the temple, that’s not my holy book, but Christo-Fascist (she says it’s because of gay marriage) nutcase Cindy Jacobs has done me the favor of allowing me to go seriously Old Testament* on these folks:
For these and other reasons Cindy is calling for a Day of Prayer for the World’s Economies on Wednesday, October 29, 2008. They are calling for prayer for the stock markets, banks, and financial institutions of the world on the date the stock market crashed in 1929. They are meeting at the New York Stock Exchange, the Federal Reserve Bank, and its 12 principal branches around the US that day.
“We are going to intercede at the site of the statue of the bull on Wall Street to ask God to begin a shift from the bull and bear markets to what we feel will be the ‘Lion’s Market,’ or God’s control over the economic systems,” she said. “While we do not have the full revelation of all this will entail, we do know that without intercession, economies will crumble.”
(emphasis mine)
Umm…Folks, bull, as in adult male cow, as in it was once a CALF, and Bronze is a GOLD colored alloy…..Gold….Calf….does that ring a bell?
On a more amusing note, that photograph really does look like the one from The Ten Commandments
*Normally, I do not use the term, “Old Testament”, I use the term Tanakh, because “Old Testament” implies that there is a “New Testament” out there, which is somehow divinely connected, and I do not accept the divinity of the Christian bible. In this case, however, the phrase, “Going seriously Tanach on these folks,” loses something in the translation.
Economics Update
Well, the Federal Reserve cut the federal funds rate by 50 basis points (½%) as expected.
the Bank of China cut its rates too, for the 34d time in 6 weeks.
In response, the dollar dropped the most since 1998, (this article says since 1985) which is what is supposed to happen when you cut rates, people go elsewhere looking for higher rates of return.
Unfortunately, driving down the dollar is probably all it did. Below a certain level, the difference between the rate set and 0% (giving money away) becomes pretty immaterial, and I think that we are pretty close on this. That’s what my oft repeated phrase, “pushing on a string” means.
I would also note that the falling dollar pushed oil prices higher, which I’ll qualify, so as not to invoke the wrath of Dean Baker, since oil is dollar denominated, a falling dollar does not do anything directly, but it does effect the positions taken by traders in the oil futures market.
In any case, the monoliner insurers are back in the news, with Ambac wanting a capital infusion from the government, but MBIA saying that the money should instead go to assets that they insure. New York State Insurance Commissioner Eric Dinallo agrees with Ambac.
I think that MBIA’s proposal is a bigger bailout, since it means that they have less to pay on the sh^%pile without giving an ownership stake to the feds.
In any case, it looks like the Treasury and the FDIC are working to do MBIA’s bidding, with more signs of plans to buy bad mortgages.
BTW, here is a story to follow, the SEC is looking at tightening rules on credit rating agencies. The story I linked to has 2 ‘graphs, but when the details start coming out, this will be important.
The systemic failure of the ratings agencies is at the core of much of this problem.
Speaking of failures, the Treasury just bought $125 billion in stock in the big boys:
The report showed that the payments included $25 billion each to Citigroup Inc. (C, Fortune 500), JPMorgan Chase & Co. (JPM, Fortune 500) and Wells Fargo & Co. (WFC, Fortune 500) Bank of America Corp. (BAC, Fortune 500) received $15 billion andMerrill Lynch & Co. (MER, Fortune 500), which is being acquired by Bank of America, got $10 billion. Bank of New York Mellon (BK, Fortune 500) received $3 billion and State Street Corp. (STT, Fortune 500) of Boston got $2 billion.
Really about the only good news that I’ve heard today is New York GA Andrew Cuomo getting medieval on senior bank management:
NEW YORK (Reuters) – New York Attorney General Andrew Cuomo, who negotiated executive payment clawbacks by American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) as it received a taxpayer bailout, warned nine banks receiving government money on Wednesday that using the funds for bonus payments may be illegal under state law.
….
“Specifically, corporate expenditures and payments, made in the absence of fair consideration of undercapitalized firms, may well violate NY Debtor and Creditor Law 274, which deems such payments illegal fraudulent conveyances,” Cuomo’s letter said.
Obama really needs to give this guy a senior post if he’ll take it.
Waxman Joins Cuomo in Looking at Bank Exec Pay
He’s asking banks who have taken federal bailout money for detailed information on pay and benefits to senior officials.
Screw it. Nationalize them, and make senior executives GS-3s.
When Do We See the Frog Marches in Cuffs
America, Where It Pays to Fail
Not my title, rather it was the title from der Speigel, thankfully it’s in English.
How can you not love an article that starts like this:
More than 100 years ago, German sociologist Georg Simmel criticized the banks for being even bigger and more powerful than the churches. His chief complaint — that money is the new god of our times — is still heard today. If Simmel was right, and there are some indications that he was, his statement would have to be modified to suit today’s circumstances: Not all people pray to the same god.
Among the money worshippers, there are at least three faiths. First there are the Puritans, who patiently carry their money to the new churches, hoping that it will multiply. The average Chinese, for example, deposits 40 percent of his income in banks. What laudable discipline! Then there are the Pragmatists. They save and lend, but only in that order; their savings limit their boldness. This persuasion is especially prevalent in the Germanic countries, where the savings bank is the shrine.
Finally, we have the religious community of the Uninhibited, which is especially popular in the United States. Its adherents readily admit to intentional recklessness, wanton waste and omnipresent greed.
It’s amazing how much savage good writing we are seeing these days about American klepto-capitalism.
Iceland,Ukraine, Hungary to get IMF’d
Icelnad has gotten a deal for a $2 billion loan from the IMF. That’s about $6250.00 for every man, woman, and child on the island. They could not cut a deal with the Russians who, my wild-assed guess here, wanted some naval basing consideratins.
There are conditions, such as, “Iceland said it would use the funds to reintroduce a flexible interest rate regime and revise its financial regulation, particularly insolvency laws.”
What does that mean, for a start it means that Iceland’s central bank just raised rates to 18%.
As to the insolvency laws, my guess is that they were told to change the laws so that foreign investors are at the front of the line, and that those debts could not be discharged at all.
Iceland has just become 320,000 people working for foreign masters.
Ukraine is well along the way to the same fate, with the IMF demanding budget cuts in the middle of an economic downturn.
This is the sort of policies that created the Great Depression following the stock market crash.
There has also been a deal cut between the IMF and Hungary, but I don’t have details.
As I’ve said before, let’s see how free market fundamentalist the IMF goes on white people. I think that it will be far more gentle than it would be if the people were black, brown, or yellow.
The Greenspan Putz
No, it’s not a typographical error, it’s a great play on the concept of, “The Greenspan Put“
The indispensable Barry Ritholtz of The Big Picture found an article of that title by Alan Kohler:
As Alan Greenspan said in his testimony to Congress last night: “With … home prices rising, delinquency and foreclosure rates were deceptively modest. Losses were minimal. To the most sophisticated investors in the world, (mortgage securities) were wrongly viewed as a ‘steal’.”
Unsophisticated investors didn’t stand a chance.
Now the “steal” is going to work the other way. Mortgage securities vehicles everywhere are being liquidated because their risk is being repriced – in most cases dramatically, to the point where investors don’t want their money in them at all.
….
I am amused, though I would disagree with the characterization. A putz has a head.
This has been another episode of Yiddish vocabulary.
Why Oil Prices are Collapsing
Well, here’s another insight that I picked up at the by invitation only Stellar Parthenon BBS.
Triutumi pointed me to James Howard Kuntsler, and his explanation makes a lot of sense.
Basically, people who would ordinarily hold oil futures contract are selling them, because they have to answer margin calls on their other investments:
This means especially oil. I hope you’re enjoying the temporarily cheap prices at the gas pumps, because this is purely a function of the compressive deleveraging that is going on right now, as contracts and positions held in energy markets are being dumped by everybody and his uncle to raise cash to meet margin calls.
I’m still digesting his web site, but he is a savagely impressive writer.
Economics Update
OK, the markets went wild on the expectation that the Fed will cut rates tomorrow….I’m not impressed, truth be told….As I’ve said before, I think that the Fed is pushing on a string with interest rates.
What is or more interest is the fact that the Federal Reserve’s intervention in the commercial paper market has appeared to raise rates, rather than lower them. From Bloomberg:
Yields on commercial paper rose as the Federal Reserve began buying the debt directly from companies, showing the central bank’s efforts to unfreeze short- term credit markets have yet to take hold.
I think that the Fed is looking at a monetary solutiuon, when the solution is government legislation and government spending.
Still, this has not stopped GMAC from going in with the Fed’s commercial paper facility.
BTW, the Fed is doing something else, currency swaps with other central banks, most recently the Central Bank of New Zealand, though it has set up similar arrangements with Australia, Canada, and Japan too.
It’s supposed to help maintain liquidity, but I have no clue how this works. Anyone want to explain this to me?
What I do understand is the Federal Reserve going into the commercial paper market in the US. Ge just borrowed $5 billion from the fed.
Of course, even there, there is stuff that I don’t get, like why is the Federal Reserve starting to buy foreign commercial paper?
In any related news, the Treasury is looking at extending the bailout to privately held banks, though one wonders how they get a meaningful equity stake, as Bush Paulson and His Evil Minions™ had promised for any direct aid.
I’m not sure if this is working, as is noted at Calculated Risk:
- 3 month treasuries are essentially unchanged.
- TED spread is marginally better.
- The two year swap spread is a bit worse.
Of course, that is just the world of banking. In the real world, the perceptions are actually worse, with the Conference Board’s measure of Consumer Confidence hitting the lowest reading ever recorded, dropping to 38 from September’s 61.4
This graph (click for full size), courtesy of Calculated Risk, of the Case Shiller numbers and makes a good counterpoint to the most recent housing data, also from Calculated Risk, and it is rather grim.
Short form, house prices are retrenching in a major way, and I would expect significant overshoot on the way down:
- The Composite 20 index is off 20.3% from the peak.
- The Composite 10 is off 17.7% over the last year.
- The Composite 20 is off 16.6% over the last year.
In energy, oil has continued to fall rapidly, and I think that I have finally come across a good reason for this, which I will cover in a separate post.
Hedge Fund Schadenfreude
Well, something interesting happened today; for a few hours today, Volkswagen had the largest market capitalization in the world, exceeding that of Exxon-Mobil.
It appears that what happened is that Porsche, which had previously held 42.6% of VW shares, cut a deal to increase this to 74%, and just announced it.
Combined with the German state of Lower Saxony’s slightly more than 20% share in the auto maker, this meant that only 5% of the shares were available, and there were a bunch of short sellers who bid up the stock, because there was not enough out there to cover their short sales.
My take is that the hedge funds can go Cheney themselves. Their stock in trade is to make money from just such of a lack of transparency, they call it “market asymmetry,” and they just lost money on a lack of transparency.
Hoist by their own petard….Heh.
There is going to be an German regulators looking into this though.
My guess is that Porsche did this in this way because they wanted to punish the short sellers.
They succeeded, but I’m not sure if all is in accord with German securities law.
Japanese Move to Restrict Short Selling
I’m not surprised by their temporary ban on short naked sales and additional rules on reporting and transparency on shorting.
What surprises me is why someone selling something that they don’t have to someone else is legal in the first place, unless you are a completely incompetent acolyte of Ayn Rand who believes that anything done by an investor is capitalism in its highest form, like Alan “Bubbles” Greenspan….Wait, now I get it.
Economics Update
While it’s generally known that the Fed will cut rates, it is news when European Central Bank President Jean-Claude Trichet says that it’s likely that they will do the same, it is a bit of a surprise.
In terms of interest rate spreads, it’s not looking good, with the spreads for Fannie Mae and Freddie Mac hitting the highest level since March.
In real estate we have Journalistic bullsh%$ good news, with reports that new home sales increased in September, but as Barry Ritholtz of the The Big Picture notes, these are bad numbers:
One other thing to note: Note the monthly 2.7% increase was based in part on last month’s being revised downwards, making the differential look bigger (this month is also likely to be revised downwards). Annualized sales for the month was 464k; Actual unadjusted monthly new home sales are about 35-45k, down from 100-120k (before they get annualized).
Year over year, house sales fell by 33%, and prices fell by 9%.
Meanwhile, it looks like the tax payers have already sent a significant chunk of change to the banks $63 billion to 15 banks:
- PNC Financial Services ($7.7 billion)
- Capital One Financial ($3.55 billion)
- Regions Financial ($3.5 billion)
- SunTrust Banks ($3.5 billion)
- KeyCorp ($2.5 billion)
- Comerica ($2.25 billion)
- State Street ($2 billion)
- Northern Trust ($1.5 billion)
- Huntington Bancshares ($1.4 billion)
- First Horizon National ($866 million)
- City National ($395 million)
- Valley National Bancorp ($330 million)
- UCBH Holdings ($298 million)
- Washington Federal ($200 million)
Oh…me bad…I forgot that BB&T is in for $3.1 billion too.
Well, at least gas prices and oil prices are continuing to fall.
In currency, we have
the dollar and yen pounding the Euro and Pound to the degree that the bank of Japan is considering an intervention to keep the Yen form spiking too high.
It also looks like the Australian dollar is at serious risk of falling off a cliff, see here and here.
Not Enough Bullets: Tax Loophole Edition
Well, now we know why Wells Fargo wanted wanted to buy Wachovia, a tax loophole
The day after Citigroup made its bid, the Treasury changed a tax rule that lets banks accelerate the losses and writedowns on banks they acquire against their own net income, offsetting the charges as tax write-offs.
Wells plans on writing off some $74 billion of Wachovia’s $498 billion loan portfolio — an insanely large amount that reflects just how poisoned Wachovia’s books really were. With the new tax rules, it gets to use all of that $74 billion as a charge against its own net income, which means one thing: Wells Fargo’s going to be a tax-write-off machine for years to come.
Not enough bullets.
As Atrios is Wont to Say, “Eated”
Alpha Bank & Trust, Alpharetta, GA…Shut down.
Roubini Says `Panic’ May Force Market Shutdown
Just go read his whole article.
personally, I think that we will see the formation of parallel markets, which exclude the failed players, before this happens, so, for once, I’m a bit more optimistic than the good doctor.
Eated*
National Citybought by PNC Financial to for $5.2 Billion.
They have been in trouble for a while.
*Quoting Atrios.
Economics Update
In energy, OPEC formally announces production cuts, though the price of oil continues to fall, as does the price of gasoline.
It should be noted that even with falling energy prices, the markets are so spooked that the futures contracts triggered so called circuit breakers for the S&P 500.
It’s not just the S%P that has gone into the twilight zone. The credit meltdown has pushed the interest rate of long term interest rate derivatives to negative numbers. Basically, it’s a “safe” way to lock in an interest rate, and the market is so uncertain, that people are willing do do worse than their mattresss.
Meanwhile currency is…well…confused, with the dollar gaining against the Pound and Euro, but the Yen hit a 13 year high. No clue as to what is going on there.
In any case, even if the recession isn’t official yet, it is in the UK, where GDP fell by 0.2%.
Not Enough Bullets: Where Bailout Money Goes
The taxpayers are shelling out $700 billion, and $70billion is going to executive bonuses, 10% for the mathematically disinclined.
Sorry, but outside of the cafeteria worker and custodian, none of these folks deserve a bonus.
I know that they will make claims about motivation, but how about something like, I don’t know, the threat of arrest and imprisonment?
When Ideology Makes You Stupid
The FDIC is trying to create a program to guarantee home mortgages to encourage modifications to contracts. This is stupid, particularly because in many of the cases, you can’t find anyone to modify the contract, because the instrument is held in a portfolio of bonds with hundreds, if not thousands, of stake-holders, all of whom have a legal right to veto any change,
The solution is simple, and does not cost the taxpayer anything: Modify bankruptcy to allow judges to modify mortgages. When you can’t find the owner of the loan, an judge handles it, and when you can, it to force lenders to the table.