To the tune of $2.5 billion to be distributed amongst 10,000 staff in New York, and a lot of former Lehman employees who are not part of this deal.*
Running the numbers, these folks will be getting ¼ of a million dollars each, despite that many of the folks are the ones who ran the company into the ground.
Not enough bullets.
*And any right thinking people.
While I am not a strict monetarist by any means, I’m an engineer, not an economist, dammit,*, I think that the fact that central banks are continuing to shovel money out of helicopters upon the financial markets will eventually create some very real, and potentially severe inflation.
In any case, if the spreads between two year interest rate swaps and treasuries hitting a record, 166.38 basis points, is any indication, all this money is not doing much anyway, except possibly pushing the dollar lower.
It’s not not doing much with real estate either, with US existing home sales falling 2.2% in August, and mortgage applications falling 10.6% last week.
This may be why S&P just cut WaMu’s credit rating again.
In energy, oil was down a bit on report of decreased demand, and retail gasoline fell for the 7th straight day.
*I LOVE IT when I get to go all Doctor McCoy!!!
It appears that the Wall Street bankers, writing the SEC as the American Bankers Association, are objecting to an accounting rule that requires that assets be priced on their balance sheets at a realistic market value.
They find it inconvenient that assets that they won’t even try to sell, because they might get 15¢ on the dollar, which would make them technically insolvent.
Dudes, you are broke. You are not broke because of an accounting rule, you are broke because your so called assets on your so called balance sheets are about as popular as the idea of giving Dick Cheney a rim job.
The American Bankers Association, today’s wankers of the day.
Well it appears that the state of New York is moving toward regulating some credit default swaps as insurance.
This is actually important, since it has been known for 300 years that insurance is not just any sort of financial instrument.
Basically, when insurance policies are traded as securities, you get fraud. This was learned in bubbles in the British markets in the 1700s, and so insurance is allowed only for those who have the actual loss.
About a decade ago, New York State said that CDS were not insurance, and so they were not subject to insurance regulation, leading to the current orgy of fraud, speculation, and abuse.
That being said, this is too late, and we know this because SEC Chari Christopher Cox is calling for regulation too, and Cox is a Randroid free-marketeer, and as such, never calls for regulation until it is too late.
According to Politico.com:
Among the major provisions Dodd is adding:
- Authority for bankruptcy judges to restructure mortgages for homeowners facing foreclosure. This was considered a poison pill in a housing bill that passed Congress earlier this summer, but it has gained much more currency now that Washington wants to bail out Wall Street.
Two snaps up to the distinguished gentleman from Connecticut.
I think that it’s clear that Paulson’s plan will be subject to sagnificant modifications in the legislative process with the Democrats seeing a need for new and stronger regulations, an equity stake in exchange for the bailout, and seeing serious questions raised by the portions of the proposed law that prohibit judicial review.
Of course, if I were them, I’d also be flipping out over the idea of Treasury hiring the Wall Street firms who f%$#ed up in the first place to manage the assets once they are purchased.
I would also note that some Congressmen want some sort of mortgage aid to distressed homeowners to be a part of the plan. (IMNSHO, allowing bankruptcy judges to handle this is the best, cheapest, and most efficient way to handle this).
I should note that the the Wall Street boys hate the idea of restrictions or equity stakes, but they have always wanted, to quote Dire Straits, their , “Money for Nothing”.
It does appear, however that the White House and the Congress are narrowing their differences.
First, let’s note that under his proposed plan, Paulson can buy non-American, non-mortgage assets, which sounds an awful lot like some of this money will go to benefit UBS, where Phil “Mr. Congeniality” Gramm, sits on the board of directors……Funny that, huh?
Furthermore, the $700 billion quoted is low. The real reckoning of the cost of the plan is $1.8 Trillion:
Someone is getting a haircut, and it ain’t Wall Street executives.
From the article The Real Reason for the Global Financial Crisis:
Go read the rest of the article too.
Barney Frank is saying that Congress will look at limiting executive pay as a part of any bailout package.
I’m Matthew Saroff, and I unreservedly approve this idea.
As to the limit: The salary of the President of the United States, with the possibility of an equal bonus.
That’s around 800 grand a year, which is fine by me, and a real haircut for these contemptible greedy f%$#s
If you think that this crisis is over, it’s not even close, as evidenced by the fact that 40% of US money market funds posted no returns yesterday:
More than 40 percent of U.S. taxable money market mutual funds posted zero return Thursday amid persistent turmoil in the credit markets, fund tracker Lipper said Friday.
Lipper said 560 of the 1,263 classes of taxable money funds it tracks earned no return Thursday. This compared with 73 classes that posted zero return Wednesday and 63 Tuesday.
A lot of taxable money mutual funds “put up big fat zeros yesterday,” said Jeff Tjornehoj, senior research analyst at Lipper in Denver. “This is unprecedented in recent history.”
Expect to see the phrase, “unprecedented in recent history,” a lot in the next few months.
Part of this was no doubt the rather large gyrations in US T-Bills over the past few days, which went almost to 0% a on Thursday, because people were so concerned about finding safe havens. The 3 month T-Bill was at 0.22% Thursday, before heading back up to 0.91% on Friday following announcement of various rescue plans for the financial markets.
The dollar rose in response to the bailouts too, as did oil, though gasoline is down for the 3rd straight day, as that market adjusts to the realities of Hurricane Ike.
That being said, even with the rescue packages, Moody’s is still looking at cutting its ratings on monoliner insurers Ambac and MBIA.
Also, it now looks like Morgan Stanley is still looking at merging with a commercial bank, even if the news of the bailout plans may have helped.
Ameribank, Inc., of Northfork, West Virginia.
That makes 12 for the year, and 5 of those were in the past 2 months.
The TED spread is the difference in interest rates between the LIBOR rate, which banks use to lend each other money over night, and the 3 month US Treasury bill.
While interest rates go up and down, generally the TED spread is fairly constant….But not now.
It just hit a record high.
It’s not that the LIBOR has gone up much, but that so many people want T-Bills right now, because they see nothing else as safe, that they have bid down the interest rates on that instrument.
Well it appears that Washington Mutual is trying to find someone to buy them, and their large institutional investors have have agreed to waive a stock dilution clause, which, along with reports that US Regulators are helping them look for a buyer does not bode well for the company.
In any case, it appears that Citi has given the deal a pass.
Meanwhile, in an excercise of remarkably good journalism, Matthew Garrahan of the Financial Times went to the bank, and saw that people are queuing up to get their money out.
Dead bank walking.
Again, as this seems, this is only the so called little stuff, because there is a lot of big stuff again
I’ve been firmly in the recession camp of the, “Is it recession yet,” dispute, and the the Leading Economic Indicators falling again reinforces that notion, though the fact that the Philadelphia Fed Factory Index rose runs counter to that, but as it is the first rise in 10 months, I put that one in the outlier category.
Meanwhile, the weekly, and this week affected by hurricanes, new filings for unemployment rose to 455K and housing starts fell to a 17 year low, even as mortgage rates continue to fall.
Of course, not too many people can get the loans these days, because all the money is fleeing to treasuries.
Gas prices tick higher – Sep. 17, 2008
Housing Starts Plummet to 17-Year Low in August – Economy * US * News * Story – CNBC.com
In energy, eased off of a bit, as did gasoline for the first time in 9 days, as the panicking over Hurrican Ike moderated.
Finally, I just want to say that Tom Toles is a bloody genius:
Felix Salmon of Condé Nast notes:
It’s not just hedge funds, either, which could end up being the vector by which crisis is spread. It could be a big insurance company, or it could be a series of failures of small and medium-sized banks. Or it could come out of left field entirely: the “shadow banking system” is now so big and so global that for all we know a series of bad decisions by a mid-level technocrat in Kazakhstan could precipitate cataclysm across America and the world.
(emphasis mine)
I would note that Borat Sagdiyev hails from, “Glorious Nation of Kazakhstan”.
It does raise the point that when markets are deregulated to the degree they are, people will stomp all over the line in an attempt to maximize short term gain, and this raises the possibility that minor actions will have major effects on the economy.
That’s why we need regulation in the first place. Enlightened self interest absent common sense regulation, gives way to unenlightened, and uninformed self interest, which invariably becomes bubbles and fraud.
H/T Kevin Drum for the catch.
Merrill Lynch shareholders suing, because they think that they did not get enough from Bank of America to buy them.
If BoA shareholders sued, they would have a case, because Merril shows every sign of being like Countrywide, where every few days/weeks, more unpleaseantness will be found as rocks are turned over.
BoA bought itself another money pit.
I approve of the right to litigate, but this is a stupid lawsuit.
You know that there is a problem, when I open with ratings downgrades.
We have S&P downgrading Washington Mutual to junk status, and even more significantly, AIG, the largest insurance company in the world has been downgraded by Fitch Ratings to A from AA-, and S&P and Moody’s downgraded them too, from to A- from AA- for S&P, and to to A2 from Aa3 for Moody’s.
This is ugly, and it is not surprising that the costs of corporate bond insurance has skyrocketed on what is called “counterparty risk” by the MBA types, and the belief that you are dealing with a bunch of lying bastards foo the rest of us.
It’s the same reason that the costs of overnight borrowing has gone up too, with the LIBOR more than doubling from 3.10625% to 6.43750%.
No one knows when the next shoe is going to drop, and even the additional $70 billion that the Fed dropped out of helicopters wasn’t much help.
It’s why we’re seeing Thornburg Mortgage struggle under a sudden onslaught of margin calls.
When Goldman Sachs earnings 70%, even though they hedged against the real estate crash, you know that no one is making money.
And at the end of all this the Fed decided to leave interest rates unchanged, which is not surprising, since they are already pushing on a string.
Meanwhile, the dollar is behaving like my cat when he gets outside in a rain squall, it really did not move, but you can see the conflict between fear driving people to dollars, and the fear of the US financial meltdown driving people away from the dollar.
We actually saw consumer prices fall, driven by falling energy prices (oil is now about $91.15/bbl on demand concerns from the financial meltdown)
Gasoline still went up, driven by the came hurricane refinery concerns that have driven prices over the past 4 or so days.
Mr. Yglesias is a wise man:
Unlike the guy who runs Lehman Brothers, the guys who clean the bathrooms in the Lehman Brothers office have, as best one can tell, been doing an excellent job. And yet if the company going under results in everyone involved losing their jobs, the guy who runs Lehman will wind up being better off than the guys who clean the bathrooms. This is because in the United States of America, hard work is the way to get ahead.
Madame Guillotine is beginning to look remarkably attractive.
He is predicting that the current model for investment banks is unsustainable.
He thinks that independent brokerages are done, and will be purchased by some of the mega banks, including extensive foreign ownership and control.
It’s a good read, but the interview below is good too. My favorite quote is, “They’re all toast.”
So now Bloomberg is suggesting that western flight from the Russian markets may drive russia to moderate its position on Georgia.
This is bovine scatology….the people who will flee are the foreign investment banks, and the people who will snap up stuff at depressed prices are Putin supporters, and they will make more money when the money reenters the Russian market, and the net result will be a movement of ownership from transnational corporations to Putin and his cronies.
This is a feature, not a bug.