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Thursday, September 25, 2008

Bush: Support Bailout or Face Protracted Recession

Items of Interest:

Late news
JPMorgan Buys WaMu's Deposits as Thrift Is Seized by Regulators -- JPMorgan Chase & Co., the third- biggest U.S. bank by assets, agreed to acquire the deposits of Washington Mutual Inc. for $1.9 billion as the thrift was seized by regulators in the biggest bank failure in U.S. history....

Edward Harrison / Credit Writedowns:
JP Morgan Chase buys WaMu out -- Obviously, this is a bankruptcy as much as a takeover by JP Morgan...

They are marking down assets on WaMus loan portfolios by $31 BILLION. That's huge. See page 17. Again, there is a huge $31 BLLION writedown on assuming WaMu's liabilities. WOW! ...

George W. Bush: ultimately, our country could experience a long and painful recessionWhiteHouse.gov
President George W. Bush's address to the nation, on September 24, 2008:
"We're in the midst of a serious financial crisis..."

"Our entire economy is in danger..."

"These are not normal circumstances..."

"Major sectors of America's financial system are at risk of shutting down..."

"Safeguard the financial security of American workers..."

"The federal government also continues to enforce laws and regulations protecting your money..."

"Failure jeopardizes the entire financial system..."

"And ultimately, our country could experience a long and painful recession...."
Deal or No Deal?

Wall Street Journal:
Headlines at 4 pm:
Agreement Reached on Bailout Ahead of High-Level Meeting

Headlines at 7 pm:
Leaders Wrangle Over Bailout -- Wrangling among the nation's top political leaders threw the Bush administration's $700 billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal...
Intrade contract:
US Congress to approve a government bailout of banks on/before 30 Sep 2008 --

NY Times:
Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved -- The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House ...

Deal May Be Dead: Democrats Blaming McCain — Obama, McCain Leave White House Without Deal on $700 Billion Bailout — After days of bipartisan negotiations and meetings today at the White House, the deal to bail out staggered investment banks may be dying amid partisan finger-pointing...
Jonathan Garthwaite / Townhall.com: The World According To Harry & Nancy
Michelle Malkin:
Kill the bailout: More ACORN funding?! -- Just heard from several readers that Lindsay Grahamnesty told Fox that the Mother of All Bailouts includes a reported $100 million more in funding for the left-wing housing entitlement thugs and heavily tax-subsidized fraudsters at ACORN...
Marc Ambinder:
Bailout Agreement Unraveling? — During the White House meeting, it appears that Sen. John McCain had an agenda. He brought up alternative proposals, surprising and angering Democrats. He did not, according to someone briefed on the meeting, provide specifics.
Kenneth Anderson / Newshoggers.com: McCain Creates “Disarray” Over Bailout
Andrew Leonard / Salon: The conservative bailout solution
James K. Galbraith / Washington Post:
A Bailout We Don't Need — Now that all five big investment banks — Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley — have disappeared or morphed into regular banks, a question arises. — Is this bailout still necessary? — The point of the bailout …
Andy Kessler / Wall Street Journal:
The Paulson Plan Will Make Money For Taxpayers
Barry Ritholtz / The Big Picture: Latest Bailout Plan Spin: Its a Money Maker!
Ann Althouse / Althouse: Bush speaks.
The Paulson Plan: Bad News For The BailoutLawmakers on Capitol Hill seem determined to work together to pass a bill that will get the credit markets churning again. But will they do it this week, as some had hoped just a few days ago? Don't count on it...

Some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number...
Hillary Rodham Clinton / Wall Street Journal:
Let's Keep People In Their Homes — There is a broad consensus that Congress must act to stave off deeper turmoil on Wall Street. Irrespective of the final agreement yet to be reached, there are several principles that must be part of a broader reform effort that begins this week and continues in the coming months...
Big Tent Democrat / TalkLeft: Hillary Clinton: The Time For HOLC IS Now
Pamela Geller / Atlas Shrugs: OBAMA “WHO GOT US INTO THIS MESS”
Victor Davis Hanson / Real Clear Politics:
Dr. Frankenstein's Wall Street
Pete Abel / The Moderate Voice: Hanson's Truth to the Masses on Economic Crisis
Alan Stewart Carl / Donklephant: Financial Crisis a Cultural Failure
David Goldman / CNNMoney.com:
Jobless claims soar near 7-year high — First economic report since financial meltdown shows initial unemployment claims rose by 7%, boosted by Hurricanes Gustav and Ike. — NEW YORK (CNNMoney.com) — In the first economic reading from the period since the Wall Street crisis erupted …
Michael M. Grynbaum / New York Times: Durable Goods Orders Drop Sharply
Fact or fiction,
fear or jeer,
fair or foul,
cancer or car crash,
bailout or rescue,
hook or crook,
Paulson or else,
pick your poison.
CNN Money:
New home sales fall to 17-year low -- Sales pace of new homes lowest since January 1991 as prices hit a four-year low and inventory remains high...

The Census Bureau said that the number of homes for sale on the market is equal to a seasonally adjusted 10.9-month supply, up from a 10.3-month supply in July. By contrast, it took the 404,000 homes on the market just 3.7 months to be sold four years ago....
Nouriel Roubini aka Doctor Doom: Hedge Funds In The MicrowaveNouriel Roubini / Forbes:
Doctor Doom: Hedge Funds In The Microwave -- In an op-ed in the Financial Times on Monday, I described the unraveling and demise of the shadow banking system that started with non-bank mortgage lenders, structured investment vehicles (SIVs) and conduits, major independent monoline broker dealers and money market funds. I then argued that the next leg of this unraveling would be hedge funds and private equity firms and their reckless leveraged buyouts (LBOs).

Let me now discuss in more detail this unraveling of parts of the hedge fund industry.

First, note that too much of the shadow banking system was about "Schmalpha" rather than "Alpha" (i.e. the returns that fund managers and asset managers--with their ridiculously high management fees of 2% or more--were getting by parting investors from a good chunk of their assets, rather than by superior absolute returns). In fact, the hedge-fund math of "2/20" was, most of the time, 2% for the fund managers and not 20% (sometimes single digit returns and, this year, actual negative ones) for investors. This scam is now unraveling....
`Race to Bottom' at Moody's, S&P Secured Subprime's Boom, Bust -- In August 2004, Moody's Corp. unveiled a new credit-rating model that Wall Street banks used to sow the seeds of their own demise. The formula allowed securities firms to sell more top-rated, subprime mortgage-backed bonds than ever before.

A week later, Standard & Poor's moved to revise its own methods. An S&P executive urged colleagues to adjust rating requirements for securities backed by commercial properties because of the "threat of losing deals.'' ...
Discussion: The Big Picture
When the Going Gets Tough, The Tough Confiscate Gold -- This was a national emergency. The President said so. And in order to stop the run on banks, and by extension the currency, In one fell swoop, Roosevelt outlawed the ownership of gold and mandated the following penalties which lasted until 1974...
Federal Reserve rate moves 2001 to 2005Credit Writedowns:
The Dummy's Guide to the US Banking Crisis -- So, for those of you who want the 3-minute version of the present crisis, here it is in 20 short steps:
  1. In 2001, following a massive stock market and capital spending bubble, Federal Reserve Chairman Alan Greenspan worried that the U.S. faced a severe recession. He began cutting interest rates down to 1% and kept them at that level until 2004, raising them slowly only 0.25% at a time thereafter.
  2. With interest rates so low, the financial services industry sensed a lot of money could be made and went all in on real estate, seemingly unaware that low interest rates were masking large risks...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia