Someone needs to inform the SEC that their job is to protect shareholders — not wayward corporate management.
For an SEC commission staff to even hint that its okay to move sub-prime junk off balance sheets is not only wrong — its outside of their jurisdiction. That’s FASB’s purview, not the SEC. The goal should be accurate, transparent accounting — not sleight of hand and misdirection.
Allowing this kind of misleading reportage is simply unacceptable gimmickry from the regulatory body that is SUPPOSED TO STOP this sort of crap:
"Just when it seemed as if the mortgage mess had hit a new low, now comes this: The Securities and Exchange Commission’s staff has granted the subprime-lending industry a huge exemption from the normal rules for off-balance- sheet accounting.
In effect, the move will let home lenders keep their balance sheets looking much smaller and less leveraged, even while the off-the-books loans they made get a makeover.
For months, banking regulators and politicians have been pressing lenders to freeze the interest rates on many adjustable-rate subprime mortgages that are scheduled to reset soon at higher interest rates. The idea is to minimize defaults and foreclosures.
While that’s a noble objective, all good deeds must be accounted for, and that’s been a sticking point for many banks. Through September, just 3.5 percent of subprime mortgages that reset in the first eight months of 2007 had been modified, according to Moody’s Investors Service. Even lenders inclined to help don’t want to hurt their financial results. And now they might not have to, thanks to a Jan. 8 letter from the SEC’s chief accountant, Conrad Hewitt. . . .
The SEC and the FASB at least should acknowledge this subterfuge for what it is."
Strong words — but it raises the question: Why is the SEC allowing investors to be misled? Aren’t they merely delaying the eventual truth coming out? Why get in the way of that process?
Today’s Heard on the Street column notes that some of the bigger banks have been dribbling out the write downs — and there is very likely more to come:
"After racking up more than $100 billion in mortgage-related losses in recent months, banks and their investors had hoped they were out of the woods. They aren’t.
UBS AG’s warning yesterday that its 2007 write-downs would be $4 billion higher than it predicted last month signaled that further pain may lie ahead for Wall Street banks still vulnerable to the U.S. housing sector’s strife."
And that’s before we get to the issue of Counter Party Risk, and the losses that will result if Ambac (ABK) and MBIA don’t make good on their derivative trades. Those losses potewntially range form $50 Billion to $150 Billion.
Me? I prefer to rip the band aid off all at once. I find Death by 1000 cuts totally unappealing . . .
>
Sources:
Subprime Lenders Get Big Accounting Break at SEC
Jonathan Weil
Bloomberg, Jan. 30 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aPSScH5rRBLM
More Subprime Pain in Store
UBS Write-Downs, Insurer Downgrades Point to More Unraveling
DAVID ENRICH and PETER EAVIS
January 31, 2008; Page C2
http://online.wsj.com/article/SB120174693398030853.html
Banks May Write Down $70 Billion, Oppenheimer Says
Adam Haigh and Eric Martin
Bloomberg, Jan. 30 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVFVkFUo.XM4
BR says: I prefer to rip the band aid off all at once. I find Death by 1000 cuts totally unappealing . . .
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
So you want a 2-3 year near depression vs. Japanese style 20 year malaise. I’m with you. We may get both, as baby boomers are going to start retiring en masse, liquidating 401ks, selling stock options, downsizing homes, collecting SS and medicare and generally raising demand for healthcare and thus prices.
Have a nice day…Thank you Maestro.
Bank runs may also be under that band-aid.
BR:
I know you don’t like us politicizing your site, but isn’t one of the problems with this administration is that they are politicizing the various departments? Maybe the reason the SEC is not protecting shareholders is that the people who have been appointed to run the SEC are ideologically predisposed to protect corporate management instead of shareholders.
“I prefer to rip the band aid off all at once”
Bravo. There is no such thing as “too big to fail”.
We would never have gotten this deep in the s*** if LCTM was allowed to implode ten years ago. Instead the vampires got away with it, and then promptly leveraged the world.
They may be legally able to hide things from the book but who is going to invest in this companies? It will hurt the investor confidence in a whole sector. Brilliant SEC, just brilliant.
The only solution is to take the bad apples out before the whole box rot.
I meant LTCM
I think OkieLawyer has hit the nail on the head here. The Administration’s track record in this regard is well-established across virtually all Cabinet-level departments and other gov’t agencies.
From WSJ Onlin: Another $40-$70B writedown coming.
Ratings in Danger at MBIA After Loss
The credit crisis is hammering some important players in the financial world — bond insurers. MBIA, the biggest of the bunch, posted its largest-ever quarterly deficit, swinging to a net loss of $2.3 billion in the period from a profit of $181 million a year earlier as write-downs in its credit-derivatives portfolio rose to $3.5 billion, Dow Jones Newswires reports. The results put MBIA’s triple-A rating at Moody’s in jeopardy, which could cripple its business, Bloomberg writes. MBIA’s superior credit rating lowers the interest rate on municipal bonds, which is how it gets business, but like other bond insurers it has put that rating at risk “by straying from [its] core municipal-bonds business and insuring the exotic mortgage-backed debt instruments that have led to billions of losses throughout the financial services industry,” as Dow Jones explains. The earnings announcement comes a day after Pershing Square hedge-fund manager William Ackman warned that MBIA and its rival Ambac Financial Group could see losses of as much as $24 billion on mortgage investments they have guaranteed, the New York Times notes, adding that Meredith Whitney, analyst at Oppenheimer, estimated big banks may have to write down their investments by $40 billion to $70 billion if the bond guarantors lose their ratings. That would be on top of the more than $135 billion in write-downs already taken, the Times says.
MBIA is looking for new ways to raise capital, through stock and bond sales, Bloomberg says. Yesterday, Warburg Pincus completed its purchase of $500 million of new shares and agreed to backstop a future share sale to help MBIA boost its capital. Adding to the subprime gloom, Standard & Poor’s yesterday downgraded or threatened to downgrade more than 8,000 mortgage investments, The Wall Street Journal reports. That is likely to add further pressure on bond insurers because, as the Times points out, these are the kind of investments that MBIA and Ambac have insured and if homeowners default, the two firms will be left holding the bag.
It is hard to believe that it was one full year ago that I wrote Is Market Fundamentalism the Problem?
As we are starting to discover: We are all Enron now.
I can’t stand by while OkieLawyer misleads us about administration appointees at the SEC.
OL wrote: “the people who have been appointed to run the SEC are ideologically predisposed to protect corporate management instead of shareholders.”
That is not so. The truth is that the people who have been appointed to run the SEC are committed to protecting corporate management instead of shareholders.
BR wrote “Strong words — but it raises the question: Why is the SEC allowing investors to be misled?”
There were several examinations over the past 18 months looking into naked shorting, FTDs and the role the SEC and the DTCC have in these issues. Bloomberg produced one, several others did as well. During these, and through their own admission, the SEC claimed their principle role, as did the DTCC, was to protect the overall functioning of the “system”. BR, what you wrote is merely another application of what they see their principle mandate to be, i.e. “don’t rock the boat” in order to ensure the system continues to function. Their primary concern is the system, not shareholders. This was screamingly clear by their own admission in the Bloomberg production. It’s outrageous, completely irresponsible and although outside their role as you point out, that is what is going by pushing the FASB rules to “bend”. This is one of the core issues affecting our broken financial systems these days. Their own perception of their role is simply just plain wrong.
Following in the same vein as OkieLawyer and ottnott, I’d like to ask Barry a question: What do you tell your clients when they comment about such a move from the SEC? What can a fund manager, which fiduciary duty is good stewardship of his/her clients’ assets, tell them when it becomes clear than the regulators themselves have decided the shareholders interests do not matter?
Of course, this dove into politics, but can the topic of politics even be averted when it keeps interfering with the normal conduct of the markets?
And this administration got elected not once, but twice?
Fuck me plenty!
I view Bush as a mediocrity, not a crook. Mediocre people tend to appoint people like themselves to positions of power and influence. Many of us who are fundamentally mediocre learned (from Al Capone, Maximilian) to appoint the strongest people possible so we could look like we were smart. Bush is of the former school, appointing unremarkable people left and right (Myers to SC) and these people are failing.
“Their primary concern is the system, not shareholders.”
Hence the key question: Cui bono? (Who profits?)
Here is another reason the losses reported to date have been understated. GAAP requires that impairment calculations are done at the interest rate in effect when the initial contract was made, as opposed to the rate that is in effect at the time of impairment. The risk premiums on the securities that are impaired have increased tremendously, but are not part of the calculation. A simple example imagine that a bank holds a 30 year mortgage paying $1M per year which originally carried a 10% rate. If it appears that payments will only be $500,000 per year then the loan is impaired and the payments would be present valued back to today at the 10% rate to obtain the loss.. The problem is that the interest rate is today much higher. Watch for more losses to come
They could induce a depression by pinching themsleves while slowly pulling off the band-aid.
At one point, no one will be able to discern the good from the bad. Total chaos. We saw what happened with commercial paper, imagine with everything else!
I was just reading that the commercial real estate market lags residential by 5qts…what’s going to happen in that arena – CMBX – commercial real estate asset-backed securities? Would one of you gurus please fill us in?
No one will rock the boat until it is clear to everyoen that the system is broken and must be fixed.
A lot of optimists out there still think that markets are wobbly because of perma-pessimsits.
We’re still a long way from seeing a change in paradigm.
The last 2 decades have been 99% about cutting rates when times get tough. A one trick pony economy. And considering the last few rate cuts, that way of thinking is still prevalent
1) the SEC is responsible for setting accounting rules. It usually defers to the FASB, which uses a community process for setting rules (proposal, comments, foot dragging, evaluating the politics, decision).
2) Both groups (FASB & SEC) deserve to be flogged for allowing the screwy off balance sheet investment reporting rules that currently exist. I thought Enron was the death of that. Nope. It just became institutionalized and blessed by both groups. All this boils down to is that the financials of banks and other large financially based companies can not be believed. Your investment is nothing more than betting which shell covers the pea, if in fact a pea even exists.
On the other hand, only a double dumbass would put good money down on something that had its value set by a computer program. I’m talking serious retard here.
BTW, thanks, BR, for the nice email. You showed a lot of consideration to an anonymous blogger. It looks like a lot of the regulars are back. And I’m feeling better now.
Finally, I’m convinced that the current market vacillations are nothing more than normal bouncing on a big bottom. Low rates will invite buyers back to housing. Bargain hunters who waited are getting their best deals now. Improvements there will raise the tide for all boats.
Market uncertainty will go on for another few weeks. It’s a good time to buy if you have a horizon of several months and aren’t an excited trading puppy. I’m in nearly 100% now and expect to clean up this year. Value will be king this year.
In spite of the popularity of Fed bashing, I think Bernanke is spot on and has been. Screaming finance babies want another cult of personality that covers up massive incompetence. Somehow, lowering rates in dribbles became popular and anything other than that process invites criticism. All that does is drag out the downturn that lowering rates is supposed to correct. This is another example of advanced retardism.
BTW, the Fed succeeded in breaking the back of inflation. Most uninformed economic types confused oil prices with inflation. Nope. That’s just being at the unpleasant receiving end of supply and demand. ASSET prices were the real problem and those that were set by oceans of liquidity have been settled down.
Please note that copper has found a floor, has risen from it with conviction, and appears stable. Please also note that the yen appears to have found a top and is showing slight cracks of weakness.
Also, if you are attuned to personal subtleties, note how the CNBC commentators are hand wringing about the morning weakness in the markets and talking BIG DROP IN THE FUTURES! Please also note how it doesn’t seem to sound scary anymore. This is called a change in sentiment and is bullish. Last call for buyers!
CNBC…is blowing smoke up everybodys’ asses! They are trying to tacitly stop the markets from reaching their equilibriums. The media, the government…who next god? How can they get away with this stuff? REPORT JUST WHAT IS OUT THERE PLEASE, LEAVE YOUR OPINIONS TO YOURSELF.
Barry and others smarter than I-
Does this post I recently read at Jack Haddad Trading mean anything to you – just how key is this reserve requirement and the fact that they are borrowing to fund it?
—
Check out the corruption by our banks
from Jack Haddad Trading by Jack Haddad
Team,
Below are statistics and balance sheet datas regarding our bank reserve. Check out the corruption for your own amusement! Last month i posted a video link of three series on the high-powered money that banks conduct. Do you recall? Banks are required to keep reserves with the Federal Reserve Bank. The amount of this reserve has dropped from 43 billion in early december of 2007 to 199 million on january 16th of 2008. Look under non-borrowed reserves in the third column. Banks are using borrowed money to fulfill the reserve requirement right now!!!
tinyurl.com/2fykqe
Why does there seem to be such a level of defensiveness by government and regulatory officials – up to and including the Fed – this time around? What has changed and why do they suddenly act like they are part of the business world? They now are starting to ‘own’ the whole problem and are taking the burden of public accountability off the shoulders of some very guilty parties…
Barry, Barry, Barry.
You’re using the wrong medical analogy with “ripping off the bandaid.” What’s happening isn’t a financial “boo-boo.”
No, think of it as a all four coronary arteries blocked off.
So, here’s your choice: full blown heart attack or dangerous, but life preserving, yet very dangerous quadruple bypass surgery.
I find the notion — “Let’s have a 2-3 year depression” — appalling and irreponsible.
That’s the equivalent of saying, “oooh…let’s have a heart attack and see if we make it.”
We need methodical controlled write downs. We need skilled surgery go get rid of all the gunk that’s clogging are financial arteries.
But, Jesus, we don’t need to kill the patient. Bad, bad, REALLY bad idea.
I said:
Value will be king this year
How to spot value:
If a mainstream sector or logical group had the crap kicked out of it, beyond reason, to the point has to rise significantly just to look bad, you might have a good value candidate.
Throw a rock in any direction. It will likely land within 100 feet of an exceptional value candidate for investment.
If you can’t find a good value candidate now, to the point where you don’t have enough cash to satisfy your avarice, you don’t belong in the stock market.
Wait, I’m not done yet.
One poster in another thread wants banks to “take their medicine.” I see. So a $14 billion write off yesterday by UBS is what…a glass of 1st growth Bordeaux??
Another said these Fed cuts are designed to “prop up the markets.” As far a the equity markets are concerned, Ben Bernanke could give a rat’s rear end about what happens to the price of Amazon, Clear Channel, or Pfizer.
But what he DOES care about, and what is proper for him to care about, is the prospect of a credit market liquidity dry-up like Death Valley. And that’s would it be, ladies and gentlemen — Death Valley.
You know, I wonder how many of the truly bearish on here have ever taken a microeconomics course. Oh, that’s right, this is a blog about the MACRO perspective. Sorry.
So, a little micro lesson for you all. You see, it would be great if the currency were worth more, it really would. The problem is that if there’s isn’t any DEMAND to accompany it, it’s “worth” is purely academic.
So when the machine tool guy comes to the bank and says,
“Hey, could you lend me some money so I can buy a machine/hire people to make stuff to sell?”
the bank is going to say,
“Sorry, our spreads aren’t there any more, and besides, WE have to go out and get our own money. Come back to us in, oh, about 24 months. By then we’ll have our balance sheet in order. . .maybe.”
Rinse and repeat this scenario — about 10 million times.
THAT’s what a credit market meltdown is.
No investment. No unlocking of value through acquistions and sales. No constructing of value through the buying /building of assets. No nothin’.
But, hey, we’ve got a really GOOD currency. Yessiree, really good. Thank god I have room under my mattress for all of it!!
Cui bono indeed. What average investors, or even players managing millions of dollars in assets need to understand, is that the system is rigged: If you don’t sit at the table with the big boys, you’re going to lose money. A lot of people knew what was going to happen to Enron before it collapsed. People at the SEC knew, and allowed it to play out as it did. Then they had a show trial (“a few bad apples,” anyone?) The problem was simply too big to prosecute everyone involved, and they knew it, so why bother with the rules when there’s money to be made? Besides, the SEC was complicit. Don’t you worry though. Once they’ve helped skin the suckers who play the market, the “regulators” will go back to nice jobs with lots of perqs, and a new crop of “regulators” will take their places. In an ideal world, the FBI would investigate not only the frauds on Wall Street but their accomplices in the government. Then the DOJ would prosecute them, secure convictions, and put them away for 20 years’ hard time far from a country-club prison. Too much to ask for, I know. . . .
I see Karl has been drinking the kool-aid
The write downs that you so preciously hold up for evidence are what they want to report. Of course you make NO mention of the billions in toxic crap sitting in L3 where the value is questionable at best.
“let’s have a 2-3 year depression appalling”
Ah earth to Karl…hello??? It’s not up to people like us. If having a depression means clearing off crap that has NO VALUE but representing it as such means that we go into a depression then SO BE IT. There are people who are responsible and did not leverage themselves to the point where a small market drop causes a margin call-ahem,….LIKE MOST BANKS- the person smiling the most at this is Phil Purcell.
But this takes the case:
“We need methodical controlled write downs. We need skilled surgery go get rid of all the gunk that’s clogging are financial arteries.”
Controlled write downs so that the people who gorged at the trough can continue to do it while SLOWLY masking there mistakes with yet more capital.
Sounds fucking brilliant….please explain how that is supposed to help the entire system and it’s failed policies of off- loading the risk to the next sucker, I mean buyer.
Sounds like you are the one who needs the economics course. Just give them more money and it will all be fine.
We’ve seen that movie before and it doesn’t end very well.
Get a clue
Ciao
MS
I view Bush as a mediocrity, not a crook. Mediocre people tend to appoint people like themselves to positions of power and influence.Posted by: Howard Veit | Jan 31, 2008 8:47:14 AM
The problem isn’t bush, the problem is the republican party. And the problem isn’t the party per se, it’s key people in the party and their brains. How they think about right and wrong, the role of government, etc…
Basically you have a large cohort of people who work in the republican party who sincerely believe that the only good government action is one that gives a hand up to business all the time. They see no moral hazard. They don’t underdstand the idea of ‘standards’ or ‘disinterest’. For them it’s like having a beer concession at the fair and you can give your buddies free beer whenever you want cause your running the f-ing stand. I was elected. I gots a mandate, etc…..
They don’t understand what capitalism really needs to work well, only the notion of good guys and bad guys. That’s the brain you have running the agencies and that’s why you are getting mindless counter productive decisions.
Northern Observer,
I think it is even more fundamental than that.
The republican party wants to remain in power. The party takes significance over the individual politician. Those who respect that hierarchy are allowed to progress in the party unless popular support overrides party objectives (rarely).
Remaining in power is the objective of the party. Using free money provided by the US government, legally, is the means to reward party supporters. Free money is in the form of currency, favors, favorable legislation, and ignoring those who might put a stop to party influence. Injury to those with no ability to provide support is of no concern, providing the cause and effect relationship is obscure and subject to obfuscation.
It’s probably closer to the mafia than anything else. Only power is the objective, not money. Financial reward is the tool used to buy support. Earmarks were a petty example of one tool.
BR, sorry for the political piece, but politics is intertwined with money at this level of government. I tried to keep it above the waist.
Good banter!
I might add: Which accounting firm is going to cook the books and sign their good name? I think these mid-play changes creates more confusion and eventually it will be the lawyers who will have a years of good billings.
It is also a question of Optics – if we need foreign money to prop up some loosers, ya think they will rely on ever changing standards for financial performance?
Northern,
I believe it also says something about the constituents. (Not the libertarian-minded subset.) I do believe W is a reflection of the people who voted for him. Therefore, I have low expectations that future GOP nominees will be materially better. (After all this, where did Ron Paul rank?)
Karl,
>> “Sorry, our spreads aren’t there any more, and besides, WE have to go out and get our own money. Come back to us in, oh, about 24 months. By then we’ll have our balance sheet in order. . .maybe.”
Yes, the banks are supposed to court people with money, in order to lend to others. Why does the lender have to be the goverbiz ™, with tax-payer money? Remember “DEPOSITORS”? Us depositors won’t get a decent rate of return on our capital when the goverbiz steps in and says “we’ll lend to you at a cheaper prices”.
cinefoz,
Glad to see you back. Good luck on your long bets. It’ll be very interesting to see how this plays out.
See the Article on Bloomberg.com
How and why is MBIA rated AAA in the first place
The U.S. Dollar is the currency equivalent of Nick Leeson’s 88888’s account. Why anyone would hold USD is beyond me. One dolar in 2001 is worth about 25c today in gold terms. The mortgage market has been nationalized via the FHLB, FHA and GSEs over the past six months. Going forward, mortgage insurance will be a small-potatoes problem compared to bond and default insurance (CDS). Once the USD starts backing those trillions in losses you’ll really start seeing some fireworks.
I view Bush as a mediocrity, not a crook…
Posted by: Howard Veit | Jan 31, 2008 8:47:14 AM
He’s mediocre and a crook. Mediocrity alone doesn’t steal the silverware.
There has never been a business or enterprise that Bush has touched that didn’t unjustly reward him at the expense (and devastation) of the shareholder (baseball doesn’t count – they were too smart to actually let Bush touch the controls).
Our country is no different. It will take years – maybe decades – to reverse the damage this criminal boob has done. Somebody had better start keeping track of the money.
You know, it boggles the mind…why, on God’s green earth, would anyone WANT a depression?
Look, we may get one no matter what, but why DESIRE it?
Really, go look in the mirror right now. Say to yourself,
“Yes, I want the credit markets to grind to a halt.
“Yes, I want to have millions of people lose everything.”
Now, go take a look at the Kool-Aid YOU’RE drinking. It’s awfully bitter stuff.
The only consolation in this whole mess is we have running the FED THE foremost expert on these kinds of credit market meltdowns. Thank God he won’t listen to you folks.
Bush has made good appointments (Petraeus), and he has made bad appointments (Myers), but Ben Bernanke’s may go down as the the greatest of his administration.
And as we struggle through this mess, and maybe, just maybe make it through, very few members of the public will know it.
But I will.
See the British take on subprime issues and market volatility:
http://www.youtube.com/watch?v=SJ_qK4g6ntM
“How and why is MBIA rated AAA in the first place”
Because it has to be or the situation spirals down even faster from here and public officials know this. They’ll never openly admit this, but I’m sure they’re applied tremendous pressure on the rating agencies to look the other way.
Posted by: Karl K | Jan 31, 2008 11:23:19 AM
__________
Ignoring the gorilla does not make the gorilla go away. ignoring the gorilla is dysfunctional. No one wants financial devastation, but it is already in the room. Most here are trying to get it out into the open before it wakes up, gets hungry, and starts trashing the house and beating our asses.
They have doctors and meds that can help you accept, and deal with, reality.
I’ve not called for a depression only your mis-characterization of my comments have.
I did say that if cleaning out all this crap causes one then so be it. It will have been something COMPLETELY AVOIDABLE.
And Yes SHAME ON ME FOR WANTING THE PEOPLE WHO CAUSED THIS PROBLEM TO ACTUALLY PAY FOR IT. Only then will people stop being so ignorant about handing a smack addict more smack (as you’ve suggested to have measured write downs)
There was nothing “measured” about ratcheting up leverage and having no risk profiles and thinking that you could just roll over the paper and collect the spreads FOREVER-that’s what C thought it could do. but hey billions of lost dollars later they are finding out that there are drawbacks to simply having no clue what was going on as long as the direction was up.
Little problem called Real estate cycle took care of that fiction known as “alpha return” pertaining to homes.
What you fail to see is that the Fed is only making this worse by giving the addict more money. By allowing “measured writedowns” you are only making the inevitable pain LONGER. Get it over with so we can get back to a legitimized financial system…..we have a ponzi scheme at best now. It will only get worse the longer these banks are allowed to lie, cheat and deceive people as to the real value of what it’s assets are.
As it stands now you and I are paying for it covertly and overtly.
I am not for allowing these people to skate as you suggest by “measured writedowns”
Show me how measured the feeding frenzy was on the way up……It wasn’t.. so why should it be on the way down??
All I see from you is socialism that is masked in the form of patriotism…..hasn’t worked before….will not work here.
Ciao
MS
The market is up. Did movers and shakers read my optimism? Is this blog THAT popular? Is this the cinefoz rally? Smart move.
Karl K,
What many don’t seem to understand, and this apparently and tragically includes the Bernanke fed, is that depressions aren’t so much a consequence of actions (or lack thereof) during a downturn. IMHO, it’s the environment before the downturn that contributes most to the scope of the downturn.
There are lots of “good” reasons for prices, even aggregate prices, to fall. We have several happening now; rapidly improving productivity in emerging markets, the impact of tech advances in developed markets, and the demographics of the industrialized world. The problem is the industrialized world is now thoroughly conditioned to expect prices to move in one direction only (up), and to expect any threat of downturn to be met by a flood of liquidity.
This flood of liquidity encourages mispricing of risk, credit growth in excess of growth generally, and growth in capacity and/or inventory. The longer this goes on, the more distorted things get, and the larger the stakes in a downturn. Like any “sure thing”, the bet will be pressed to extremes. This is what causes ordinary cyclic downturns to become depressions.
A deflationary event would be really bad if it happened now, with debt service levels in the household sector at record levels. If it’s deferred though, animal spirits will prevail and the stakes will be even higher next time.
I think this is exactly what’s happening. The “Uncle Sam’s got our back” mentality that’s evolved may well result in a US-1920’s or Japan-1980’s style speculative run. Enjoy it while it lasts.
Pisani says it’s short covering. Run piggies, run.
It’s noon! Cool! Now we’ll get to ski the huge after-lunch downturn. Last one back to the lodge is a tranched CDO!
This is classical dysfunctional behavior’s!
If we can’t talk about problems then we can’t solve them!
Stop telling me the economy is strong. I knoe better!!!!
back to the original topic.
Barry-
http://www.housingwire.com/2008/01/31/commentary-fasb-140-bloomberg-columnists-and-the-truth/
The B’Berg author says virtually the same thing in July………he doesn’t fully understand what he is saying.
Read the above link after you read the Weil article.
Ciao
MS
Does anybody know what percent of a bank foreign investors can own? If they can own 100% then the current boards of directors have an extra out – sell the banks little by little
then run away. The employees and shareholders
will have to take their chances.
“Someone needs to inform the SEC that their job is to protect shareholders — not wayward corporate management.”
Would you please send copies of this note to the SEC to the FED, the White House, the House, the Senate, foreign central bankers, special interest groups & corporations.
The American people would be forever in your debt.
I dunno, for someone who says “so be it” to a complete credit collapse and then claims he’s not “calling for it” — well, that “is” at best a legalistic evasion.
Though perhaps that depends on what the definition of “is” is.
Meanwhile, let me be clear. I have no problem with a bear market. I have no problem with prices seeking levels in line with micro and aggregate demand.
What I DO have a problem with is a central bank standing by and doing nothing while demand evaporates. And let me tell you, boys and girls, had the Fed done nothing we’d be well on our way to that very ugly scenario.
This notion that today “liquidity misprices risk” is a bunch of hooey. Even the weakest student of markets and finance understands that there’s drek on the balance sheets of financials right now. Is there anyone at all with any brains out there who DOESN’T understand that CDO Squared securities are worthless?
Gimme a break.
Right now for the financials it’s a race between write downs, capital structure re-building, and cash flow. Trust me, you want them to win that race, or at least not collapse in exhaustion before they get to the finish line.
At the same time, we’ve got companies out there in all kinds of businesses providing real economic value the need to operate in a financial environment that can still be turbulent, but which simply shouldn’t grind to halt.
My sainted mother told me to “work my problems, don’t let my problems work me.”
She was wiser than many on here.
“Someone needs to inform the SEC that their job is to protect shareholders — not wayward corporate management.”
Absolutely!
And everyone should take a hard look, because their retirement depends on the trustworthiness and accountability of our businesses and our government. It’s really sad where our business ethics have gone. What exactly do they teach in those MBA courses? I don’t think Sarbanes Oxley does much other than increase the paperwork. Wasn’t it around 7 years ago that we went through this with the tech bubble – Enron, Adelphia, Tyco, etc., their CEO’s,the WS analysts cheering them on, making deals with CEO’s to get their kids in a certain school, people losing their pensions/retirement savings, and corruption. We didn’t learn much. ;-(
It may be the job of the FASB. But unfortunately that has been politicize and corrupted. In 1993 when the FASB wanted to do its jobs and close a loophole that allowed companies to avoid recording stock options on their balance sheets and treat it as compensation was stopped by certain Congress members. I wouldn’t be surprised to see more deterioration of US business accounting and ethics, because that’s the environment created today. It’s hard to do the right thing, and ethics are not free. So you don’t double your money every 5 years, but our country as a whole gains a lot more and its sustainable.
What our country gains as we export tangible capital overseas is fictitious capital, money created out of thin air that does not benefit the real economy. Instead it is used to create more debt, and gets packaged in various financial exotic instruments, and used to settle derivatives bet in offshore tax havens (1.5 quadrillion derviatives transactions per year).
We have plenty of money, but most of that is not in the real economy and held by 0.1%-1% of the population. In the real economy, there is not enough money, since those who have the money do not invest in the real economy anymore, at least, not in the US, thats why our bridges fall down, and so we have recession.
Inflation today is not a result of too much money that stimultated wage growth due to jobs creation that fueled consumption and demand for a finite number of goods. The inflation of today is a result of a weak dollar that has caused oil and now food prices to increase, not to mention the various cartels who collude to set prices in financial, insurance, energy, food, health care, pharmaceutical industries with no effective government regulation or intervention.
This type of inflation is not affected by monetary policy. Adding money to the real economy would not be inflationary at this stage.
The only solution is for intervention by the Fed and Congress to get the money that has been created out of thin air into the real economy, or add it directly in the form of greenbacks dumped out of helicopters. This will not be a popular move by those who own the Fed and have bought out Congress.
So we will have both inflation (necessities like food and energy) and deflation (tangible assets like housing and equities) and followed by a dollar collapse and then hyperinflation, unless the real problem is addressed.
SEC’s actions are just the tip of the iceberg and is simply one more symptom of a very corrupt government. Don’t bet on any fix by these crooks.
As for free money one of the commenters spoke of. Our money is free. It is free to the private Federal Reserve System banks.
They loan us money by buying our Treasuries with money they do not have, but which they can create and earn interest on. For every dollar they loan us, they can create 10 more dollars for investments and loans that earn them more money for their money they created out of thin air, and for FREE.
Your government never pays the principal on their loans, only the interest. You must pay both on your loans, plus you must pay income tax so the government may pay interest on their loans. Before the Fed, there was no Federal Income Tax.
We need to nationalize the Fed, that is the only solution.
Incredible! Now the SEC is aiding and abetting bank fraud and cover-up of bank losses. In broad daylight.
Outrageous lawbreaking! Let’s cut the nonsense, and stop all this kid glove treatment of white-collar crime.
At high noon tommorrow the FBI should raid the SEC offices and arrest the SEC staff committing this flagrant fraud. The FBI should invite the news media to film the SEC staff being taken away in handcuffs at high noon.
Then next week, as it has the evidence, the FBI can begin raiding each of 14 companies and leading the perps away in handcuffs.
The only hope to stop the Wall Street criminals is when pictures of their fellow perps in hancuffs are splashed across the front page of the New York Times, Wall Street Journal, and the newspapers of America, and TV and cable news.
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