It appears that, according to Matthew Lynn, the credit crunch was not caused by Lap Dancers, Cocaine, £900 bottles of wine, sexual promiscuity, and general hedonism.
Whoa, that’s such a relief.
Actually, it’s not a relief, because fixing this problem will be much more complex, and much more painful than anything we would have to do in the hedonism scenario.
So, Timothy “Eddie Haskell” Geithner is saying that the Treasury will move quickly to sell the warrants it got for the TARP money.
The warrants, basically stock options, were there to ensure that taxpayers would share in the upside, as well as the downside, but now he’s looking to “move quickly” to sell them.
The devil is in the details:
Big banks may value their warrants at an amount that is hundreds of millions of dollars below the prices that other models might generate, the Treasury official said. That range makes it hard for the government to find a price that protects taxpayer funds without penalizing the banks.
…
Geithner today reiterated that the government can sell the warrants back to the bank or to a third party.
Translation: How do we cut a sweetheart deal for the banks?
Because if the Treasury actually believes that the banks are truly solvent, and will survive, then the warrants are worth tens, if not hundreds, of billions more than what we the taxpayer will get for them.
A New York Times financial reporter describes how he got tied up in the foreclosure crisis.
I guess the article is a good description of the mania that gripped the nation,* but it makes me feel like a peeping Tom, so I let it percolate in my mind for a while.
It’s informative, but it made me feel like I was intruding to read it.
*Well, not so much me, I bought a house in 2004 with a 30 year fixed rate mortgage and 20% down, at only about a 15% greater payment than the half a duplex I was renting, I had to move, and so I bought, even though I though houses were overpriced.
There are indications that the government is pressuring Bank of America to make major changes in the composition of its board.
Basically, they want people who actually understand banking to be the directors of a bank, imagine that.
When juxtaposed with FDIC Chief’s Sheila Bair’s comments saying to expect that some bank CEOs will be given their walking papers, though the FDIC walked backed from the statement later, is a good sign.
We own the banks, now lets fire the rat bastards who broke them.
BankUnited, FSB, Coral Gables, FL, which is no surprise. BankU has been dead man walking for at least 2 weeks.
It’s the biggest failure of the year, and 2nd biggest ever, only exceeded by the failure of Indymac last year.
It’s the 34th bank failure of the year.
The closure will cost the FDIC $4.9 billion, almost doubling the amount of money that it has shelled out so far this year.
As to why do this on Thursday, probably because they have a very busy Friday planned.
Before the President’s Day weekend, there were 4 bank closings, the most this year, and my guess is because they had an extra day to straighten things out before the banks had to open their door, so I would expect this 3 day weekend to be very busy.
Courtesy of Calculated Risk, I come across the term “loan recast.”
It’s similar to a “loan reset“, in that it means that your mortgage payments are increasing, but instead of being an increase in interest rates, it is a change in terms.
So, for example, if you have an interest-only or negative amortization mortgage, when the time comes to catch up, and make payments on principal, you have a recast.
They are in some ways much more worrisome than resets, because if a mortgage resets during a time of low interest rates, the payment may not change by much, but when a mortgage recasts, the payments go up regardless of the interest rates.
The yellow are recasts, and they look like a tsunami.
The graph on the right
Well, Thursday is jobless claims day, and weekly initial jobless claims fell by 12,000, to 631,000, and the 4 week moving average fell to 628,500 from 632,000, but continuing claims hit yet another new record, hitting the number of the beast, 6.66 million.
Meanwhile, more GDP data from more countries has come out, and it is almost uniformly grim.
Additionally, the Philadelphia Fed manufacturing index is showing further contraction, though it did rise, from -24.4 to -22.6.
Of course, the press is touting the fact that the April leading economic indicators rose, but this is a volatile index, and is not supposed to mean anything until you have 3 straight months up or down.
Meanwhile, Treasuries fell, and yields rose, on reports that the Fed will be buying less of them, and on an announcement that the government would be selling an additional $162 billion of them next week.
Basically, it’s inflation concerns, which also drove the dollar to a 4 month low.
Oil rose, largely on profit taking from yesterday’s high.
Because that’s about the only way that I can see that the Massachusetts Attorney General managed to pry $60 million from Goldman Sachs for engaging in deceptive loan and loan securitization processes.
$50 million dollars to the home owners, and $10m in fines to the state, which will reduce principal on, “first mortgages by 25-35% and second mortgages by 50% or more.”
Yes, I know, it’s a typical “no wrongdoing admitted” deal, but she had to have found an awfully big club to use on them.
I wonder what it was.
One of the arguments about the obscene compensation on Wall Street is that they have to pay in order to keep their “talent” from jumping ship.
Brendan Coffey looks at this, and notes that these folks really have no where to go:
If these whiners are so sick of this, and threatening to jump ship, let’s not throw them a life raft when they land in the water.
The bill, along with the dumb-ass guns in national parks provision, just passed the House, and now goes to the White House for Obama’s signature.
Well, let’s lead with a rather unique bit of news, the volume of the derivatives market fell for the first time ever in the last 6 months of 2008.
The outstanding contracts fell by 15% to $592 trillion dollars (!!), or about forty times the GDP of the United States, and 110% of the entire planet.
My guess is that people suddenly realized that they had absolutely no idea at all what the hell they were holding, and started to unwind, because they did not know who they could trust.
It’s the sort of story I like, so I put it first even though by all rights the fact that Japan’s GDP fell at a 15.2% annualized rate in the first quarter of this year.
That’s Eastern Europe imploding numbers.
Export driven economies like Japan’s are going to take a hit, which is why
Moody’s is warning on possible downgrades of Asian banks, specifically those in Korea, Malaysia, the Philippines, and Indonesia.
Still we have a couple of glimmers on real estate, with the Architecture Billings Index holding steady in April, indicating that there future building is at least taking a pause downward, and mortgage applications rose in response to low interest rates, though much of that is refi activity.
Of course, the commercial real estate market market is still heading down sharply, which is why the Federal Reserve has expanded the TALF to include commercial mortgage backed securities.
Ending with oil and the US dollar, oil finished above $60 for the first time since November, $62.04/bbl, and the dollar hit a 5-month low on more optimism about the world economy.
I don’t get that last bit. All I see is a dead cat bounce.
Yes, they are….Only, there’s no mention of repaying the FDIC insured loans, and they are trying to weasel out from their obligations in the stock warrants that they issued to the US Government at the time they got the money, which could cost taxpayers billions of dollars.
I expect the Treasury to act in a way that benefits the banks at the expense of the taxpayers, since that’s what Geithner has been doing his whole career.
In any case, it appears that the Fed has set a timetable of around June 8 for a response, and there are restrictions on paying back the money, including another “stress test” and getting off the FDIC gravy train, because, of course, senior executives think that their own inflated paychecks are more important than the health and well being of their banks.
Well, there were no bank failures on last Friday, but we have the continuing saga of BankUnited, which regulators have called “critically undercapitalized”:
WL Ross & Co. and private-equity firms including Carlyle Group made a bid to buy BankUnited Financial Corp. assets provided they are put into receivership by the U.S. government, a person familiar with the matter said.
So it seems to me that it is time to put a fork in BankUnited, it’s done.
It was an overwhelming vote, 90-5 in favor, which indicates that a lot of ‘Phant Senators got calls from outraged constituents.
It’s a bit weaker than the House version, and contains that dumb ass “guns in national parks” provision.
We’ll see what comes out of conference committee.
Still, this is not something that I expected to see in my lifetime.
Well, out in the real world, housing starts and housing permits both fell unexpectedly, and industrial production fell ½%, which looks bad, while the Baltic Dry Index, an index of ship activity, hit a 7 month high, mostly on Chinese demand for iron ore.
Note that the fall in housing starts and building premits was almost entirely related to a drop in construction of condominiums and apartments.
In the long run, this may be good news, as it means that the supply of new housing units is finally being outstripped by demand, as anemic as it is, which is a first step to recovery.
Note also, however, that housing starts is a leading indicator, and as such this does not speak well for “green shoots” in the economy.
My guess would be that that condos are driving this, as they used to be a step up to a stand alone house, but now people realize that a condo is as hard to get rid of as a case of herpes.
In the delusional world of bankers the news is fairly good, with the LIBOR hitting a to a 4 month low, the Volatility Index (VIX) below 30 for the first time since Lehman imploded, and >Barry Ritholtz’s semi regular credit crisis watch is showing signs of thawing in a number of metrics.
So at this point, the problem may be more the real economy than it is the banks, and the fact that Norway, the outlier in so many good ways, like its lack of corruption in a petro state, has finally joined the rest of Europe in a recession.
Meanwhile, it looks like Allstate and Ameriprise will not be among insurance companies taking TARP money.
I’m not sure if it’s the potential for pay limits, or the stigma, or the fact that they think that Geithner is a turd.
Meanwhile, in currency, the good news in the credit market pushed the dollar down on reduced demand for a safe haven.
Oil broke the $60/bbl barrier in interday trading, before settling at $59.65/bbl, largely on yet another refinery fire….Is it me, or is this beginning to sound awfully convenient?
I’m wondering if they timed it so that deferred maintenance would kick in just before the start of the Summer driving season.
The Times of London has a very good account of what took down AIG, and it predates Joseph Cassano, the head of its Financial Products Unit, and it makes it clear that the insurance giant was on shaky ground, with the active participation of its founder Hank Greenberg, for at least a decade previous.
It also notes how Brooksley Born, who was purged by Fed Chairman Alan “Bubbles” Greenspan and Treasury Secretary Robert “Why am I not Under Indictment for Insider Trading” Rubin, knew about the problem, and that it was systemic, and tried to do something about it.
It’s a good read, and highly recommended.
Well, we have another expert on the economy saying that the so-called green shoots are not real, the Postmaster General of the United States, John Potter, is saying that mail volume continues to fall, and in these days of email, increasingly mail volume is driven by, and so is a a very good indicator of, the state of the mail order business.
On the other hand, the banks have continued loosening short term credit, with
the LIBOR dropping sharply again, indicating that bank to bank lending is getting healther, and the National Association of Homebuilder confidence index rose to 16 from 14, though with neutral being 50, this is a change from “end of the world bad” to “beins strapped in a chair and forced to watch the Ben Affleck Jennifer Lopez movie Gigli” bad.
It doesn’t help that the situation for the GSEs, Fannie and Freddie, is looking increasingly dire, with further losses into the tens, if not hundreds of billions forecast, and one wonders if at some point, a decision is made to wind them down, which would eliminate much of the available financing available for mortgages in the US.
I would also note that, with the big banks concentrating on buying up other banks, the fact that the smaller US look to need an additional $24 billion in capital does not bode well for the finance needs for much of our economy.
While we’re at it, let’s note that the real estate crash is now firmly hitting the higher end of the market, as people purchase those homes as “trade ups,” and they have run out of rubes people with sufficient equity in the old homes to do so.
And in the old standbys, energy and currency, rose by the most in a month, on concerns about Nigerian unrest, a fire at a refinery in Pennsylvania, and concerns about the start of the Summer driving season, while dollar rose on comments by the Japanese Finance Ministry that they needed to work to keep the Yen from appreciating too much.
Grim news out of Europe, with Euro zone GDP collapsing by 2.5% in the first quarter…That’s a quarterly decline, not a year over year decline, and largest decline for the Euro zone in at least 13 years. Before that there were no Euro zone statistics. (It should be noted that the YoY number is 4.6%, which is merely scary, as opposed to a terrifying double digit annual decline)
Not surprisingly, this pushed the dollar up relative to the Euro.
As bad as this was, it was even worse in Eastern Europe, because their recent growth was driven by exports and foreign investments looking for high returns, which are both gone.
Again using the quarterly numbers, Hungary -6.4%, Slovakia -5.4%, the Czech Republic -3.4, and Romania -6.4%.
A lot of this was driven by Germany’s contraction, which was among the largest in Western Europe, because they have a Hooverite as Chancellor, which was -3.8%, the biggest decline in Germany since the end of WWII.
Seriously we are talking end of the world numbers, he said, citing experts:
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!
Of course you have to go to Russia for a really scary number, -9.5% in the first quarter….Annualize that.
The news from the US was relatively mild, with the Empire State Manufacturing Survey showing only a modest decline. The index was up, but still below zero, so it still indicates contraction, and the Fed’s report on capacity utilization showed a marked decline.
We are still seeing the largest year over year decline in consumer prices since June 1955, but month to month indicates that there was no change, which eases deflationary concerns…A bit.
In banking, we are seeing further signs of easing with both the LIBOR and TED spread falling.
The easing of credit may be why the FDIC is walking away from its plan to guarantee 10 year bank bonds, though there are also indications of push-back from Treasury.
Meanwhile, the horrible GDP numbers from Europe, and the stronger dollar drove oil down, though retail gasoline is moving in the opposite direction, up 12% over the past 17 days.
Because it’s beginning to feel like my geek days in high school*, when I though that I was the only virgin among the 1200+ students at Woodrow Wilson High School, because we have yet more people scrambling for TARP money.
First, we have major insurance companies getting major commitments of money:
The Treasury yesterday granted preliminary approval for some of the nation’s largest insurance companies to receive capital infusions under the government’s Troubled Assets Relief Program, Treasury spokesman Andrew Williams said.
Recipients are Hartford, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial Group, he said. The insurers notified yesterday are among hundreds of financial institutions in the pipeline “that are being reviewed and funded as appropriate on a rolling basis,” Williams said.
In addition we have YRC Worldwide, one of the largest trucking firms in the world, applying for bailout money to shore up its underfunded pension plan.
They are a big player, over 20%, in the “less-than-truckload” market, where loads amongst multiple customers are consolidated onto one truck.
How do I get my hands on some free money? I gotta start me a bank……I’ll pay myself just $500,000 a year, along with a $½ million bonus.
*I was more than just a geek. I wasn’t just a wargamer who played Dungeons and Dragons, but I founded the wargaming club at the school. I was the king of the geeks.
By which I mean Representative Ron Paul, Libertarian icon, and Senator Bernie Sanders, socialist are have both submitted bills calling for a full audit of the books of the Federal Reserve System, both the board, and the 12 regional banks.
I think that their motivations are different, Paul has long opposed the Fed because it sees it as an unwarranted intrusion by the government into the market, and Sanders sees it as being a tool of the big banks, but knowing what the Fed is doing would be a good thing, for everyone but Federal Reserve members.
Note that there is a general bipartisan consensus towards opening up the fed, as evidenced by the Senate’s passage of a bankruptcy reform bill with an amendment that expands oversight of the Federal Reserve.
I think that it’s clear that the role of the Fed in the current crisis shows that its role should be significantly restricted. I understand why there needs to be an institution which is insulated from political winds to manages monetary policy, but in their roles of bank regulator and bank rescuer, this “insulation”, is a level of opaqueness that does not serve society.
