OK. I have to put you through this one more time, at least those who have stuck with me so far.
The new website is But The What. In Internet speak, it is http://www.butthenwhat.com/.
While you can click on that to get there, you can also use this LINK to get there as well.
Bookmark it, add it to your favorites, whatever so you don't lose it. I am not moving again. Also you probably need to add it to your feed reader if that's what you use. There is also an email feature if you want to get the posts emailed to you.
The site still needs some work but it is usable now.
Thanks for your patience and expect some interesting things.
Tom
Sunday, November 23, 2008
Citigroup Sets The Bar Higher For The Next Round
Ok, this is something of a blockbuster. Here's the latest from the WSJ:
The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.
Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years -- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.
In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.
Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.
The government is not expected to require any management changes, as that was seen as potentially being too destabilizing.
Let's parse this.
The government agrees to go on the hook for another $300 billion. Out-of-pocket is $20 billion that goes to shore up Citi's capital without as so far reported any equity for the government. Citi takes the first loss on the guarantee of assets in an amount of $37 billion to $40 billion (don't you like the way we throw around a billion dollars or so?) and then various parts of the government pick up the rest with the Fed eating the lion's share. Citi gets charged a modestly higher rate of interest, but nowhere market, for the new capital and the government doesn't demand any management changes for fear of destabilizing...what? Oh, and by the way, Citi is genuflecting at the altar of mortgage modifications.
Here's what we don't know. What assets are we guaranteeing and how does that guarantee kick in and require real money? Why is there a $3 billion gap in what Citi has to absorb as a loss? Why the fig leaf of parcelling the losses out among various parts of the government and why is the Fed involved at all in the loss sharing arrangement? And finally, why do the people that negotiated this think that changing management could possibly be anymore destabilising than the current situation.
This is lunacy. Just take the bitch over (excuse the language) and be done with it. Investment bankers erecting incredibly complex financial castles on sand are to a large part to blame for this situation and now they seem intent on transferring that skill to the public sector. This is nothing more than an artifice designed to camouflage a failed bank.
Tom Lindmark
The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.
Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years -- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.
In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.
Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.
The government is not expected to require any management changes, as that was seen as potentially being too destabilizing.
Let's parse this.
The government agrees to go on the hook for another $300 billion. Out-of-pocket is $20 billion that goes to shore up Citi's capital without as so far reported any equity for the government. Citi takes the first loss on the guarantee of assets in an amount of $37 billion to $40 billion (don't you like the way we throw around a billion dollars or so?) and then various parts of the government pick up the rest with the Fed eating the lion's share. Citi gets charged a modestly higher rate of interest, but nowhere market, for the new capital and the government doesn't demand any management changes for fear of destabilizing...what? Oh, and by the way, Citi is genuflecting at the altar of mortgage modifications.
Here's what we don't know. What assets are we guaranteeing and how does that guarantee kick in and require real money? Why is there a $3 billion gap in what Citi has to absorb as a loss? Why the fig leaf of parcelling the losses out among various parts of the government and why is the Fed involved at all in the loss sharing arrangement? And finally, why do the people that negotiated this think that changing management could possibly be anymore destabilising than the current situation.
This is lunacy. Just take the bitch over (excuse the language) and be done with it. Investment bankers erecting incredibly complex financial castles on sand are to a large part to blame for this situation and now they seem intent on transferring that skill to the public sector. This is nothing more than an artifice designed to camouflage a failed bank.
Tom Lindmark
Obama's Team Says They Aren't Waiting Any Longer
Yahoo news (sorry about that) quotes some Obama advisers as saying they aren't going to wait for the inauguration to engage the economic problems. This sounds to me like the first mistake he has made.
A cardinal rule of those in waiting is not to engage until you can control events. The Obama team isn't there yet. Moreover, they are acting without complete information and that is always a dangerous position in life or politics. This is still a political game and the Republicans still control the White House. Bush is said to be working hard to insure a smooth transition but don't be surprised if some other officials in the administration aren't setting the Obamites up for an embarrassing gall.
FDR eschewed all attempts by Hoover to draw him during the interregnum. Obama should have learned from that.
Tom Lindmark
A cardinal rule of those in waiting is not to engage until you can control events. The Obama team isn't there yet. Moreover, they are acting without complete information and that is always a dangerous position in life or politics. This is still a political game and the Republicans still control the White House. Bush is said to be working hard to insure a smooth transition but don't be surprised if some other officials in the administration aren't setting the Obamites up for an embarrassing gall.
FDR eschewed all attempts by Hoover to draw him during the interregnum. Obama should have learned from that.
Tom Lindmark
WSJ Confirms Aid For Citi
That didn't take long. Here is a WSJ article that reports the government is indeed discussing the purchase of some of Citi's toxic assets.
While the discussions remain fluid and might not result in an agreement, talks were progressing Sunday toward creation of what would essentially be a "bad bank." That structure would help Citigroup cleanse its balance sheet of billions of dollars in potentially toxic assets, these people said.
The bad bank also might absorb assets from Citigroup's off-balance-sheet entities, which hold $1.23 trillion. Some of those assets are tied to mortgages, and investors have worried such assets could cause heavy losses if they land on the company's balance sheet. Citigroup also has about $2 trillion in loans, securities and other assets on its balance sheet as of Sept. 30.
Behind the push is a broad effort to shore up faith in the New York company, which saw its stock price tumble by 60% last week to a 16-year low.
Under the terms being discussed, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold. The federal government would cover losses beyond that level, people familiar with the matter said. One person said the new entity is expected to hold about $50 billion of assets.
It would seem that Paulson's plan to put the balance of the TARP funds on the shelf until the next administration arrives has changed yet again.
So where do we go from here. If the AIG saga provides any guidance, the amount of aid to Citi will most likely grow. More to the point, who is next. Citi doesn't have an exclusive on the ownership of junk. This buys Citi some time but why won't the markets train their sites on Bank of America, JP Morgan, a large swath of the European banking community as well as smaller banks. Indeed, this might well throw the whole system into turmoil as it seems to be an admission that the original recapitalization via the TARP was less than what the system needs.
With Watergate it became political gospel that you can survive the scandal but the cover up will kill you. We may be finding a corollary to that when it comes to bank resuscitations. It might well be that half measures fool no one and inevitably lead to what you hoped to avoid.
Tom Lindmark
While the discussions remain fluid and might not result in an agreement, talks were progressing Sunday toward creation of what would essentially be a "bad bank." That structure would help Citigroup cleanse its balance sheet of billions of dollars in potentially toxic assets, these people said.
The bad bank also might absorb assets from Citigroup's off-balance-sheet entities, which hold $1.23 trillion. Some of those assets are tied to mortgages, and investors have worried such assets could cause heavy losses if they land on the company's balance sheet. Citigroup also has about $2 trillion in loans, securities and other assets on its balance sheet as of Sept. 30.
Behind the push is a broad effort to shore up faith in the New York company, which saw its stock price tumble by 60% last week to a 16-year low.
Under the terms being discussed, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold. The federal government would cover losses beyond that level, people familiar with the matter said. One person said the new entity is expected to hold about $50 billion of assets.
It would seem that Paulson's plan to put the balance of the TARP funds on the shelf until the next administration arrives has changed yet again.
So where do we go from here. If the AIG saga provides any guidance, the amount of aid to Citi will most likely grow. More to the point, who is next. Citi doesn't have an exclusive on the ownership of junk. This buys Citi some time but why won't the markets train their sites on Bank of America, JP Morgan, a large swath of the European banking community as well as smaller banks. Indeed, this might well throw the whole system into turmoil as it seems to be an admission that the original recapitalization via the TARP was less than what the system needs.
With Watergate it became political gospel that you can survive the scandal but the cover up will kill you. We may be finding a corollary to that when it comes to bank resuscitations. It might well be that half measures fool no one and inevitably lead to what you hoped to avoid.
Tom Lindmark
Citi Update
I haven't been able to confirm this but Calculated Risk is reporting that the government is set to buy up to $100 billion of assets from Citi to keep it afloat. Treat this report with caution as CNBC, the source for Calculated Risk, has been off base before.
Tom Lindmark
Tom Lindmark
Upping The Ante On The Obama Recovery Plan
Senator Charles Schumer said today that the Obama recovery plan announced on Saturday would likely run into the range of $500 billion to $700 billion. Schumer said, "To make this work you need five per cent of GDP." It's a little like a new New Deal, but you do it before the Depression occurs, not after."
It's not surprising to see this thing growing like Topsy. As I said last night in my post, I still want someone to tell me where this money is going to come from.
Tom Lindmark
more:here
It's not surprising to see this thing growing like Topsy. As I said last night in my post, I still want someone to tell me where this money is going to come from.
Tom Lindmark
more:here
Different Views Of Stimulus Plans
Last night I wrote a post about Obama's plan for economic recovery. It's heavy on spending and light on tax cuts. This morning there's a little more information that highlights the differing views as to how the problem should be approached. One involves the British solution and the other points out a growing divide between the Democrats and Republicans on the issue.
First, the U.K. is opting for tax cuts to drive their stimulus program. News reports are that the VAT will be cut from 17.5% to 15% which is the lowest level allowed under European Union rules. There are a few other tax measures as well including a tax rebate to low-income workers and a tax exemption on foreign dividends. Interestingly, the Conservatives are coming out against the plan arguing that it is going to produce a "tax bombshell" in a couple of years.
Contrast that plan with the Obama plan which is very heavy on stimulus spending some of it highly targeted towards green industries. Today, the Republican minority made it somewhat clear that they favor the British approach. John Boehner, a Republican member of the House from Ohio, suggested that cutting capital gains taxes and the corporate tax rate would be the preferred method of increasing employment. He proposal for capital gains relief specifically proposed that any equities purchased over the next two years ought to be exempt from capital gains taxation.
Personally, I feel the British probably got this one right much as they did with their solution to the banking crisis. Grandiose stimulus spending plans tend to be hijacked to some extent by special interests so that the overall impact is lessened. Moreover, to the extent it is targeted on specific industries, particularly when those industries are in their infancy, the beneficial affects tend to be muted. Tax cuts take the discretionary element away from politicians and allow the market to allocate the benefits.
But don't expect the Democrats to follow the British. There are far too many campaign debts to be paid and central planning is an idea whose time has come, at least for a while.
Tom Lindmark
more: U.S. Plan, British Plan
First, the U.K. is opting for tax cuts to drive their stimulus program. News reports are that the VAT will be cut from 17.5% to 15% which is the lowest level allowed under European Union rules. There are a few other tax measures as well including a tax rebate to low-income workers and a tax exemption on foreign dividends. Interestingly, the Conservatives are coming out against the plan arguing that it is going to produce a "tax bombshell" in a couple of years.
Contrast that plan with the Obama plan which is very heavy on stimulus spending some of it highly targeted towards green industries. Today, the Republican minority made it somewhat clear that they favor the British approach. John Boehner, a Republican member of the House from Ohio, suggested that cutting capital gains taxes and the corporate tax rate would be the preferred method of increasing employment. He proposal for capital gains relief specifically proposed that any equities purchased over the next two years ought to be exempt from capital gains taxation.
Personally, I feel the British probably got this one right much as they did with their solution to the banking crisis. Grandiose stimulus spending plans tend to be hijacked to some extent by special interests so that the overall impact is lessened. Moreover, to the extent it is targeted on specific industries, particularly when those industries are in their infancy, the beneficial affects tend to be muted. Tax cuts take the discretionary element away from politicians and allow the market to allocate the benefits.
But don't expect the Democrats to follow the British. There are far too many campaign debts to be paid and central planning is an idea whose time has come, at least for a while.
Tom Lindmark
more: U.S. Plan, British Plan
Saturday, November 22, 2008
What Becomes Of Citi?
There should be some news on Citigroup tomorrow. Any bets? I'm of the opinion that they announce discussions about major spin offs and try to tough it through. Here's a link to a Telegraph article musing about the outcome.
Regardless, of what happens tomorrow, unless the market eases up on them they're toast. My bet still remains a government take over or quasi-nationalization.
Tom Lindmark
Regardless, of what happens tomorrow, unless the market eases up on them they're toast. My bet still remains a government take over or quasi-nationalization.
Tom Lindmark
Summers Gets The Other Top Econ Job
So it's Larry Summers to head the Council of Economic Advisors. This should be interesting. Summers has always impressed me as an in your face type of guy. Geithner at Treasury is your prototypical public servant. Look for lots of leaks and back channel bull.
My bet is that Geithner doesn't last more than a year or two. There's a big difference between the academic environment of the Fed and the rough and tumble of Washington and White House politics.
Tom Lindmark
more: here
My bet is that Geithner doesn't last more than a year or two. There's a big difference between the academic environment of the Fed and the rough and tumble of Washington and White House politics.
Tom Lindmark
more: here
Is The Volt Viable
Here's an interesting post on the WSJ economics site. It asks the question if with oil prices falling whether or not the green movement gets stalled.
I think it does but the post doesn't argue that fact but simply asserts that technology has taken us to a point at which alternative fuel vehicles are viable. I beg to differ. The article asserts that the Volt will get 100 miles to the gallon. I don't know where that number came from but even GM doesn't make such a claim. In fact the Volt is an extremely limited vehicle in terms of utility and has a significant drawback Its range is significantly limited so in essence it is nothing more than a golf cart encased in a car body.
The American people have shown a strong resistance to being pigeonholed into cars they don't like. If the Obama administration attempts to strong arm the consumer into buying something they don't want. they may indeed rue that decision.
Tom Lindmark
I think it does but the post doesn't argue that fact but simply asserts that technology has taken us to a point at which alternative fuel vehicles are viable. I beg to differ. The article asserts that the Volt will get 100 miles to the gallon. I don't know where that number came from but even GM doesn't make such a claim. In fact the Volt is an extremely limited vehicle in terms of utility and has a significant drawback Its range is significantly limited so in essence it is nothing more than a golf cart encased in a car body.
The American people have shown a strong resistance to being pigeonholed into cars they don't like. If the Obama administration attempts to strong arm the consumer into buying something they don't want. they may indeed rue that decision.
Tom Lindmark
Obama As Helicopter Ben
Barack Obama gave some indication today of the direction he intends to go in order to get the economy back on track once he is in office. In his radio address, he also seemed to signal that he was going to start engaging sooner rather than waiting until after the inauguration.
From the New York Times:
President-elect Barack Obama signaled on Saturday that he would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term.
In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to design a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He called it “a plan big enough to meet the challenges we face.”
While specifics on his tax agenda weren't forthcoming, speculation is that he will now work out some sort of tax relief plan for low and middle income wage earners, yet defer his promised tax increase for upper income citizens. Any eventual tax increase will be accomplished by letting the Bush tax cuts expire in 2011. This will, of course, not be billed as a tax increase and Congress will be spared the agony of having to go on record in favor of a tax increase. This course would seem to result in a much broader tax increase than he promised during the campaign as the Bush tax cuts were spread across the income spectrum.
The price tag for the stimulus plan is put at $300 billion. Estimates are that this is the opening bid and it could easily be much higher. That begs the question of how he plans to pay for it. Ignoring the cost of the various programs in place or likely to go into place to keep the economy stable, which is kind of like ignoring a very big elephant, tax revenues are going to crater. The recession will certainly devastate income tax revenue and you can kiss capital gains tax revenue goodbye for some time. At the rate that the government is spending money, the issue of who is going to provide it becomes a legitimate question. All the more so if some of the larger sources of capital are so constrained by their own problems or so impoverished by the fall in commodity prices that they can't continue to buy our bonds.
I'll leave for another day a discussion about how much good this sort of massive government spending will do. For now, I think that there is a chance that the Obamites might well find that they are more fenced in than they think with respect to their range of policy choices. If we do end up in a world of reduced capital availability, a massive government program might well do as much harm as it does good as it crowds out the private sector. Let's hope that they have some really good, wise men and women that think all of this through.
(I suppose this will become a routine thing but Obama posted his radio speech on YouTube. Dutifully I have included it below.)
Tom Lindmark
From the New York Times:
President-elect Barack Obama signaled on Saturday that he would pursue a far more ambitious plan of spending and tax cuts than anything he outlined on the campaign trail, setting the tone for a recovery effort that could absorb and define much of his term.
In the Democrats’ weekly radio address, Mr. Obama said he would direct his economic team to design a two-year stimulus plan with the goal of saving or creating 2.5 million jobs. He called it “a plan big enough to meet the challenges we face.”
While specifics on his tax agenda weren't forthcoming, speculation is that he will now work out some sort of tax relief plan for low and middle income wage earners, yet defer his promised tax increase for upper income citizens. Any eventual tax increase will be accomplished by letting the Bush tax cuts expire in 2011. This will, of course, not be billed as a tax increase and Congress will be spared the agony of having to go on record in favor of a tax increase. This course would seem to result in a much broader tax increase than he promised during the campaign as the Bush tax cuts were spread across the income spectrum.
The price tag for the stimulus plan is put at $300 billion. Estimates are that this is the opening bid and it could easily be much higher. That begs the question of how he plans to pay for it. Ignoring the cost of the various programs in place or likely to go into place to keep the economy stable, which is kind of like ignoring a very big elephant, tax revenues are going to crater. The recession will certainly devastate income tax revenue and you can kiss capital gains tax revenue goodbye for some time. At the rate that the government is spending money, the issue of who is going to provide it becomes a legitimate question. All the more so if some of the larger sources of capital are so constrained by their own problems or so impoverished by the fall in commodity prices that they can't continue to buy our bonds.
I'll leave for another day a discussion about how much good this sort of massive government spending will do. For now, I think that there is a chance that the Obamites might well find that they are more fenced in than they think with respect to their range of policy choices. If we do end up in a world of reduced capital availability, a massive government program might well do as much harm as it does good as it crowds out the private sector. Let's hope that they have some really good, wise men and women that think all of this through.
(I suppose this will become a routine thing but Obama posted his radio speech on YouTube. Dutifully I have included it below.)
Tom Lindmark
Appraisal Angst
During the height of the housing boom, appraisals became something of a joke. It was not at all unusual for a mortgage loan broker to call several appraisers until he or she found one that would deliver the value "needed" to close the deal. The meltdown exposed just how wildly overvalued many houses had been and the inevitable pendulum swing to stricter appraisal standards occurred. An article in the New York Times about the problems that stricter appraisal standards are causing reveals a certain sense of denial that I see and hear frequently from real estate professionals as well as the general public.
The article points out that lenders are scrutinizing appraisals and kicking back or flat cutting appraised values when they don't agree with the valuation presented by the appraiser. Pretty standard stuff but what struck me was the degree of seeming displeasure with the new order. Consider these comments:
“A house is only worth what the bank says,” said Terry Hastings, a partner at Hamilton Mortgage, in Ridgefield. “It’s not worth what the buyer says anymore.”
“The banks are much less willing to make any exceptions at all,” said Bob Grace, a broker with Anchor Mortgage, in Westport. “They are looking for ways to squash a deal, as opposed to finding a way to make it work.”
“You have banks that know what’s going on and accept it,” said Chris Downey, managing partner at Redding Appraisal Group, “and you have banks that are a little ridiculous.”
Worse, sometimes the only available comps include a foreclosure or a short sale. Because such properties typically sell below market rates, they can drag down a neighboring house’s perceived value.
I particularly like the last excerpt concerning the affect of a foreclosure sale dragging down the perceived value. I think that says an enormous amount about the state of denial that many are in concerning home values. But the larger point is that there is, at least to me, a sense of yearning for the good old days in these comments. More to the point, and this is drawn from other experiences not just from this article, there appears to be a feeling that we will go back to the way things were once this little crisis passes.
I've had numerous conversations with others concerning things like 100% mortgages, home equity lines of credit, no income verification loans and on and on. Generally, the thesis that I hear is that these will be back, often from those shut out of the process now because they need these products to buy a house. Not only is there an absence of recognition that to a large extent these type of lending practices ignited the bonfire but a sometimes vocalized belief that there is nothing toxic or dangerous about them.
I would tend to dismiss this as somewhat typical of human nature, but I wonder if people may have gotten so hooked on easy credit that they might demand its return. If so, and if that dependency is widespread then we might see a rerun sooner than we expect. The political class does not do well in denying this sort of thing to the general populace and might well go back down the road if votes are to be garnered.
Tom Lindmark
The article points out that lenders are scrutinizing appraisals and kicking back or flat cutting appraised values when they don't agree with the valuation presented by the appraiser. Pretty standard stuff but what struck me was the degree of seeming displeasure with the new order. Consider these comments:
“A house is only worth what the bank says,” said Terry Hastings, a partner at Hamilton Mortgage, in Ridgefield. “It’s not worth what the buyer says anymore.”
“The banks are much less willing to make any exceptions at all,” said Bob Grace, a broker with Anchor Mortgage, in Westport. “They are looking for ways to squash a deal, as opposed to finding a way to make it work.”
“You have banks that know what’s going on and accept it,” said Chris Downey, managing partner at Redding Appraisal Group, “and you have banks that are a little ridiculous.”
Worse, sometimes the only available comps include a foreclosure or a short sale. Because such properties typically sell below market rates, they can drag down a neighboring house’s perceived value.
I particularly like the last excerpt concerning the affect of a foreclosure sale dragging down the perceived value. I think that says an enormous amount about the state of denial that many are in concerning home values. But the larger point is that there is, at least to me, a sense of yearning for the good old days in these comments. More to the point, and this is drawn from other experiences not just from this article, there appears to be a feeling that we will go back to the way things were once this little crisis passes.
I've had numerous conversations with others concerning things like 100% mortgages, home equity lines of credit, no income verification loans and on and on. Generally, the thesis that I hear is that these will be back, often from those shut out of the process now because they need these products to buy a house. Not only is there an absence of recognition that to a large extent these type of lending practices ignited the bonfire but a sometimes vocalized belief that there is nothing toxic or dangerous about them.
I would tend to dismiss this as somewhat typical of human nature, but I wonder if people may have gotten so hooked on easy credit that they might demand its return. If so, and if that dependency is widespread then we might see a rerun sooner than we expect. The political class does not do well in denying this sort of thing to the general populace and might well go back down the road if votes are to be garnered.
Tom Lindmark
Friday, November 21, 2008
The Dems Try And Drag Obama Into The Auto Swamp
Franklin Roosevelt, despite overtures from Herbert Hoover, famously refused to engage the issues of the Great Depression until after his inauguration. Roosevelt reasoned, politically correctly, that the road to collaboration would brand him sooner than necessary with the incipient disaster. Barack Obama is doing the same but unfortunately he does not live in a simple age. The forces of the media are much stronger and are pushing him towards engagement.
The crisis du jour is the auto mess and his own party seems to be dragging, or at least trying to drag him into the middle of it. Yahoo! News, admittedly not the best source but certainly one that has been pro-Obama, has an article this evening that seems to hint at a bit of frustration over the fact that he is not more involved. The article is ambivalent at best but if you read between the lines, this appears to be an issue which the Obama camp wants to avoid at all costs. The worst possible outcome would be to push him towards a forcefull advocacy of a bailout to a couple of companies that eventually ended up in the bankruptcy courts.
I don't blame Obama for sitting this one out. He can't control the debate or the outcome so any action on his part is filled with nothing but downside. I do blame the press and some in his own party for trying to force him to jump into a fight in which they are trying to protect too many constituencies. Either the greens, unions or the Midwestern voters who put the Democrats and Obama over the top are going to have to be stiffed. Obama is right to let the lame ducks do the stiffing.
Tom Lindmark
The crisis du jour is the auto mess and his own party seems to be dragging, or at least trying to drag him into the middle of it. Yahoo! News, admittedly not the best source but certainly one that has been pro-Obama, has an article this evening that seems to hint at a bit of frustration over the fact that he is not more involved. The article is ambivalent at best but if you read between the lines, this appears to be an issue which the Obama camp wants to avoid at all costs. The worst possible outcome would be to push him towards a forcefull advocacy of a bailout to a couple of companies that eventually ended up in the bankruptcy courts.
I don't blame Obama for sitting this one out. He can't control the debate or the outcome so any action on his part is filled with nothing but downside. I do blame the press and some in his own party for trying to force him to jump into a fight in which they are trying to protect too many constituencies. Either the greens, unions or the Midwestern voters who put the Democrats and Obama over the top are going to have to be stiffed. Obama is right to let the lame ducks do the stiffing.
Tom Lindmark
Two More Friday Failures
I jumped the gun this evening. There were two more banks that bit the dust this evening and one isn't inconsequential.
Downey Savings and Loan located in Newport Beach, CA and PFF Bank of Pomona, CA both were taken over. Downey had assets of $12.8 billion and deposits of $9.7 billion. PFF reported assets of $3.7 billion and deposits of $2.4 billion. All of the banking operations were acquired by U.S. Bank.
U.S. Bank entered into a loss share agreement with the FDIC which requires the bank to assume the first $1.6 billion of losses from the asset pool created from the two banks. Unless I missed it the FDIC did not indicate what its projected loss or cost from this latest shutdown will likely cost. I suspect it is not insignificant.
As part of the transaction, U.S. Bank agreed to institute a loan modification agreement similar to that instituted by the FDIC on the IndyMac loan portfolio it now owns. Sheila Bair is evidently determined to impose her prescription for the salvation of the world on just about anything she gets her hands on.
These aren't insignificant failures. Once again it's a reminder that we are a ways from getting out of this haunted forest.
Tom Lindmark
more: Reuters, FDIC
Downey Savings and Loan located in Newport Beach, CA and PFF Bank of Pomona, CA both were taken over. Downey had assets of $12.8 billion and deposits of $9.7 billion. PFF reported assets of $3.7 billion and deposits of $2.4 billion. All of the banking operations were acquired by U.S. Bank.
U.S. Bank entered into a loss share agreement with the FDIC which requires the bank to assume the first $1.6 billion of losses from the asset pool created from the two banks. Unless I missed it the FDIC did not indicate what its projected loss or cost from this latest shutdown will likely cost. I suspect it is not insignificant.
As part of the transaction, U.S. Bank agreed to institute a loan modification agreement similar to that instituted by the FDIC on the IndyMac loan portfolio it now owns. Sheila Bair is evidently determined to impose her prescription for the salvation of the world on just about anything she gets her hands on.
These aren't insignificant failures. Once again it's a reminder that we are a ways from getting out of this haunted forest.
Tom Lindmark
more: Reuters, FDIC
First Warning
Hopefully, sometime this weekend, I will be moving this blog to a WordPress platform. I will try and give everyone lots of warning. I will put up a final post with specific links and directions to the new blog site. It is still going to be called But Then What. If you subscribe via an RSS feed you will need to reestablish it once the new site is operational.
In the meantime, I'm going to take advantage of perfect late November Sonoran Desert weather and spend a day on the golf course. I will post a few things later Saturday afternoon. For those of you reading this in colder climes I am not trying to rub your noses in anything. Quite the contrary, I mention it only to persuade you to visit Arizona this winter when the snow and cold becomes too much to tolerate. Lord knows we need you to come down here and spend your money.
Tom Lindmark
In the meantime, I'm going to take advantage of perfect late November Sonoran Desert weather and spend a day on the golf course. I will post a few things later Saturday afternoon. For those of you reading this in colder climes I am not trying to rub your noses in anything. Quite the contrary, I mention it only to persuade you to visit Arizona this winter when the snow and cold becomes too much to tolerate. Lord knows we need you to come down here and spend your money.
Tom Lindmark
Friday Failure
Here is the latest FDIC seizure. The Community Bank (great name, huh?) of Loganville, Georgia has been taken over. This is a small four branch operation. Reuters has the details. The interesting part of the story is that this is the third Georgia bank to go down this year. That's a reasonable percentage of the 20 banks closed so far. What gives down there?
But it wouldn't be a good weekend without a little drama. Does Citi make it through to Monday or does it open up under someone elses banner or even the banner of the FDIC. For an interesting take on the situation read Bronte Capital's post today. My bet is that they open for business as usual and Paulson puts a big slug of TARP money into them. Not very dramatic but I've personally had enough drama for one year.
Tom Lindmark
But it wouldn't be a good weekend without a little drama. Does Citi make it through to Monday or does it open up under someone elses banner or even the banner of the FDIC. For an interesting take on the situation read Bronte Capital's post today. My bet is that they open for business as usual and Paulson puts a big slug of TARP money into them. Not very dramatic but I've personally had enough drama for one year.
Tom Lindmark
Into The Valley Of Death Rides Timothy Geithner
I'm sure you've heard the news that Timothy Geithner, the President of the New York Fed, has been tapped to be the next Treasury Secretary. The stock market as is its wont celebrated on the receipt of the news. Why is any one's guess. If you know as little about the guy as I then you might find this short post in the WSJ economics blog informative.
As I said, I don't know him and certainly don't have any opinion to offer. I wish him good luck of which he is going to need boatloads. And I wonder what possesses people to leave perfectly wonderful job like the one that Geithner seems to have to move to the cesspool of D.C.
Tom Lindmark
As I said, I don't know him and certainly don't have any opinion to offer. I wish him good luck of which he is going to need boatloads. And I wonder what possesses people to leave perfectly wonderful job like the one that Geithner seems to have to move to the cesspool of D.C.
Tom Lindmark
Thursday, November 20, 2008
Be Careful What You Wish For
There seems to be more than a fair amount of sentiment that Congress is derelict in its duty in adjourning for several months in the middle of the worst economic crisis in whatever year you care to name. Let me suggest that it may be the best thing that can happen to us.
It would seem to be abundantly clear that their are limits on what government can do in a period such as this. Despite all of the maneuvering and TARP bills, squabbling, congressional hearings, lobbying for bailouts and endless press briefings, little or nothing has been accomplished since they reconvened. In fact, their presence in Washington may have been counter productive. Surely, the markets have turned thumbs down on their performance.
At this point in time, particularly on the eve of a significant transfer of power, the inclination of politicians is not so much to solve immediate problems rather it is to position themselves and their programs for advancement in a new milieu. To expect anything else would be to imbue these creatures with more good will than they deserve. Now is not the time for problem solving so much as intrigue.
Rest assured that come the New Year, or more precisely January 21 they will spring once more into frenzied action. On that date, we may indeed pine for this halcyon holiday period when at least they were doing no harm.
Tom Lindmark
It would seem to be abundantly clear that their are limits on what government can do in a period such as this. Despite all of the maneuvering and TARP bills, squabbling, congressional hearings, lobbying for bailouts and endless press briefings, little or nothing has been accomplished since they reconvened. In fact, their presence in Washington may have been counter productive. Surely, the markets have turned thumbs down on their performance.
At this point in time, particularly on the eve of a significant transfer of power, the inclination of politicians is not so much to solve immediate problems rather it is to position themselves and their programs for advancement in a new milieu. To expect anything else would be to imbue these creatures with more good will than they deserve. Now is not the time for problem solving so much as intrigue.
Rest assured that come the New Year, or more precisely January 21 they will spring once more into frenzied action. On that date, we may indeed pine for this halcyon holiday period when at least they were doing no harm.
Tom Lindmark
We Should Have Seen It Coming
If you're one who believes that there is little new under the sun than the following from the WSJ economics blog might well reinforce that view. It's some thoughts from Irving Fisher, an economist who lost his shirt in the crash and then turned to analyzing the elements of the Depression.
He outlines the problems of over-consumption, over-spending and over-indebtedness, and what their effects can be. He might as well be talking about the recent housing bubble when he writes: “Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100% per annum by borrowing at 6%, he will be tempted to borrow, and to invest or speculate with the borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderful investment opportunities, and so caused big debts… The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible”
It seems as if Mr. Fisher pretty much described some seventy years ago what to be wary of during a period of extremely low interest rates. Do you find it as eerie as I do?
We study history in order to have some sense of how to avoid its not infrequent repetitions. Ben Bernanke is reputed to be one of the more eminent economic scholars on the subject of the Great Depression. History may well show that he was, to paraphrase Bill Buckley, standing athwart Alan Greenspan and yelling Stop! On the evidence to date, that would not seem to be accurate. Instead, he seems to have been more an enabler than siren. We can only hope then that his senses serve him better in leading us out of this mess than they have in avoiding it to begin with.
Tom Lindmark
He outlines the problems of over-consumption, over-spending and over-indebtedness, and what their effects can be. He might as well be talking about the recent housing bubble when he writes: “Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100% per annum by borrowing at 6%, he will be tempted to borrow, and to invest or speculate with the borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderful investment opportunities, and so caused big debts… The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realizing a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible”
It seems as if Mr. Fisher pretty much described some seventy years ago what to be wary of during a period of extremely low interest rates. Do you find it as eerie as I do?
We study history in order to have some sense of how to avoid its not infrequent repetitions. Ben Bernanke is reputed to be one of the more eminent economic scholars on the subject of the Great Depression. History may well show that he was, to paraphrase Bill Buckley, standing athwart Alan Greenspan and yelling Stop! On the evidence to date, that would not seem to be accurate. Instead, he seems to have been more an enabler than siren. We can only hope then that his senses serve him better in leading us out of this mess than they have in avoiding it to begin with.
Tom Lindmark
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