Trillion
Category: TEOTWAWKI
Well, Now We Know What the Sh%$ Pile is Worth
Lehman’s Credit Default Swaps (CDS) lost 91.375% off of face value, which is lower than even I expected, I was expecting about 15¢ on the dollar.
So now we have a market price on these assets.
Based on the size of the CDS market, this means that losses are well in excess of world GDP.
This is not a liquidity issue. This is an insolvency issue.
Economics Update
Oh my God.
While We are Talking About International Bank Failures
TED Spread
The TED spread is the difference in interest rate between short term treasuries, and short term inter-bank lending.
During times of uncertainty, it rises, as people flee to treasuries, and Brad DeLong gives us this very scary picture:
Holy Crap
Suburban Guerrilla is reporting that:
Wow. Live on CNBC, they’re showing the Lehman Brothers employees who were told to come into the office tonight and clean out their desks.
They’ve been told to clean out their desks on a Sunday night?
Oh my God.
Oh My God, They are Nationalizing Fannie and Freddie
It appears that regulators have sent a letter notifying the GSEs of this, here and here, and the details will be announced tomorrow.
It won’t be called a nationalization, my money would be on “conservatorship”, but the share holders are rumored to get little to nothing, and management will be replaced by people who answer to the government
One of the interesting dynamics here, and one that is barely covered in the financial press is the fact that Fannie and Freddie have been aggressive lobbyists and soft money contributors (their employees are big hard money contributors) for years, and with a nationalization, that will stop.
This means that Congress will stop writing laws, and pressuring regulators, for the benefit of Fannie and Freddie, which is apt to lead to major changes in said laws, regulation, and oversight.
If You Want Nightmares
Read Mike Morgan’s essay The World’s Grandest Ponzi Scheme Unravels.
He makes Nouriel Roubini, and for that matter me, look like Panglossian optimists, though he does appear to be a short seller, which means that pessimism is his job.
I’ve shown this scare chart, but it’s time to show it again:
Total Fed lending to financial institutions.
Pleasant Dreams.
Signs of the Apocalypse: Francis Fukuyama Supports Barack Obama
Seriously, Francis Fukuyama’s endorsement of Barack Obama is something akin to the Union of Bullfighters endorsing the ASPCA.
Fukuyama was one of the signers of the infamous PNAC letter, which called for Clinton to invade Iraq and spread democracy through the middle east in 1998, so this is just whack.
Signs of the Apocalypse: The WaPo Editorial Board Gets TWO Right in the Same Year
This time, they are going after the Republicans, and McCain for killing improvements in the GI bill.
The got one right 2½ weeks ago too, in addition to one in 2007.
H/t Brad Delong.
Signs of the Apocalypse: Military Budgets Edition
The Pentagon’s Selected Acquisition Report (SARs) actually showed some cost drops this year, and the increases appear to be primarily from buying more stuff than previously anticipated, so the unit prices are not going through the roof.
I’m a cynic. I don’t believe it will last, and I would want to see the raw numbers.
Signs of the Apocalypse: The WaPo Editorial Board Gets One Right
They label the Senate foreclosure bill a, “A Pro-Foreclosure Bill“:
We refer to a $7,000 tax credit (payable over two years) to anyone who purchases a foreclosed home within a year of the proposal’s enactment. Supposedly, this would help clear the nation’s swollen inventory of repossessed properties, thus propping up home prices more generally. Here’s the catch. For lenders as well as borrowers, foreclosure is an expensive hassle. If at all possible, most banks would rather avoid repossessing a house, which they must then try to resell. But, by making it cheaper to buy a foreclosed house than a comparable unforeclosed property, the tax credit makes it more feasible to sell one. The cost and hassle — for the lender — of foreclosure go down, and the benefits go up. Other things being equal, lenders would be that much more likely to foreclose — rather than to help homeowners stay in their houses on modified terms.
The record of the Washington Post editorial board lately has been so bad that I’ve come to wonder if Richard Nixon was innocent.
H/T Dean Baker
Signs of the Apocalypse: Fox News Edition
First, Fox and Friends anchor Brian Kilmeade walks off the set over constant Obama bashing, though to be fair, they also made fun of his background as a sports caster, and then Chris Wallace also on FOX and Friends, objects to similar behavior.
The Fux Newsies were objecting to the bashing over the phrase, “typical white person”.
If it were just Chris Wallace, I would assume that his father, Mike Wallace, had dope slapped him over it, but two news anchors essentially defending Obama?
I’m expecting to see the Stay Puft Marshmallow Man.
Signs of the Apocalypse: I Agree With E. J. Dionne Jr.
THIS Was in the CORNER??????
Talk about signs of the Apocalypse, when Charles Murray, the bigot who wrote The Bell Curve, posted on the Corner Blog of the National Review, a Magazine that never failed out to speak out in favor of bigotry and racist policies until it was too late to make a difference, just described Barack Obama’s speech as, “just plain flat out brilliant”.
You know, if I was hoping for the Rapture, I’d be looking this as a bigger sign than anything happening in Israel.
Bear Stearns, I May Have Gotten a Prediction Right
On August 2 of last year, I said that within a year, Bear Stearns would cease to function as an independent entity.
I’m not right yet, but I don’t see how I won’t be right in the next 5 months.
Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
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!
And it would seem, that I actually get a prediction right, which is another sign of the apocalypse.
Just yesterday, the Bear Stearns CEO said that there were no liquidity issues, but today, JPMorgan Chase and the New York Fed have gotten together to bail them out.
Basically, the Fed can’t bail out Bear Stearns, it’s out of its authority, but it can guarantee JP Morgan’s loans to the embattled investment bank, which it did.
Actually, a closer reading makes it even more extraordinary. The Fed directly lent money to Bear Stearns, using an authority last used in the 1960s, which required a vote of the Fed’s Board of Governors.
Typically, the Fed is only supposed to lend to banks, and Bear is not a bank, but an investment house.
As to the statements of the CEO yesterday, I would call them a bald faced lie, but I don’t have a Harvard MBA, so I don’t know the fancy term for blowing smoke up everyone’s ass.
Of interest is some potential insider trading, specifically, someone traded 55,000 Bear Stearns puts Tuesday. (A “Put Option” is basically a bet that the stock will decline in value.)
One of the results of all of this is that money has been fleeing to Treasuries, or fleeing the US entirely, with the dollar down.
One of the things you have to understand is that Bear Stearns is a pretty small player in all this, with a market capitalization of “only” about $15 billion dollars, and we’ve got the markets jumping out windows.
Signs of the Apocalypse: Jim Cramer Trashes “Laissez Fair”
Yes, this is the Cramer of “Mad Money”, and yes, he is generally to the right of Atilla the Hun, he supported Alan Keyes in 2008, and at a speech at Bucknell University, he condemned laissez fair politics:
“Do not be fooled by the sirens of laissez faire,” he told a packed audience at Bucknell University’s Weis Center for the Performing Arts in the continuing national speakers series, “The Bucknell Forum: The Citizen & Politics in America.”
“Ever since the (President) Reagan era, our nation has been regressing and repealing years and years worth of safety net and equal economic justice in the name of discrediting and dismantling the federal government’s missions to help solve our nation’s collective domestic woes,” he said. “We call it deregulation … a covert attempt to eliminate the federal government’s domestic responsibilities.”
When Jim Cramer is forced to come to his senses, you know something is whack.
Signs of the Apocalypse: Press Call Out “Straight Talker” McCain on Bald Faced Lie
McCain lies about Romney’s position on the Iraq war*, and Time’s Michael Scherer calls him out on it.
I’m stunned.
What happened to the media’s role as “fluffer” for John McCain?
Signs of the Apocalypse: Financial Times Columnist Calls for Regulation of Bankers’ Pay
Martin Wolf, a columnist and editor for the Financial Times, is calling for regulations regarding the remuneration of banking executives.
Basically, he sees the current pay structures of banking, with enormous bonuses for short term results, as being a major factor in the current banking/credit crisis.
Further, he sees banking as an industry with an amazing talent for, “privatising gains and socialising losses.”
He says, “My attitude to the banking industry is not a prejudice. It is a ‘postjudice’.”, or to be translated into more prosaic language, he learns from the mistakes he observes, and prior behavior colors his attitude towards the industry.
It is the nature of limited liability businesses to create conflicts of interest – between management and shareholders, between management and other employees, between the business and customers and between the business and regulators. Yet the conflicts of interest created by large financial institutions are far harder to manage than in any other industry.
That is so for three fundamental reasons: first, these are virtually the only businesses able to devastate entire economies; second, in no other industry is uncertainty so pervasive; and, finally, in no other industry is it as hard for outsiders to judge the quality of decision-making, at least in the short run. This industry is, in consequence, exceptional in the extent of both regulation and subsidisation. Yet this combination can hardly be deemed a success. The present crisis in the world’s most sophisticated financial system demonstrates that.
Basically, he is saying that these institutions are immature and short sighted in outlook, but they possess the ability to destroy the output of the most of the rest of society, and so they need aggressive regulation.
Word up.
Signs of the Apocalypse, Hillary Clinton Is Very, VERY, Funny
It’s also very, very savvy, it strokes the ego of her press corps. She
played flight attendant over the loud speaker, welcoming people aboard “Hil Force One”, and declaring, among other things, that, “FAA (Federal Aviation Administration) regulations prohibit the use of any cell phones, BlackBerrys, or wireless devices that may be used to transmit a negative story about me”.