Friday, October 31, 2008

More Credit Nightmares Ahead?

Ed Stein, Rockey Mtn News---
Items of Interest:

NY Times:
Bernanke Says Mortgage System Needs Safeguards -- Development of a system that allows deserving borrowers to obtain home mortgages while minimizing the risks to the country’s financial system and the taxpayers must be “high on the policy agenda,” the Federal Reserve chairman, Ben S. Bernanke, said on Friday.

Mr. Bernanke said the recent bailout of the mortgage finance giants Fannie Mae and Freddie Mac offered a much-needed chance to rethink and clarify the appropriate roles of government-sponsored enterprises whose ambiguous roles, partly public and partly private, have been cited as contributing to the difficulties in the mortgage markets and, consequently, the entire financial system...
Ellen E. Schultz / Wall Street Journal:
Banks Owe Billions to Executives -- Financial giants getting injections of federal cash owed their executives more than $40 billion for past years' pay and pensions as of the end of 2007, a Wall Street Journal analysis shows.

The government is seeking to rein in executive pay at banks getting federal money, and a leading congressman and a state official have demanded that some of them make clear how much they intend to pay in bonuses this year.

But overlooked in these efforts is the total size of debts that financial firms receiving taxpayer assistance previously incurred to their executives, which at some firms exceed what..
William Patalon III / Seeking Alpha:
Expert: Proposed Plan to Bail Out Delinquent Homeowners May Face Too Many Problems to Succeed -- million homeowners who are behind on their mortgages from losing their houses will be difficult to administer, and could end up costing the country hundreds of billions of dollars more than the plan’s architects expect, a Money Morning contributing editor and credit-crunch expert said yesterday.

R. Shah Gilani, a retired hedge-fund manager and Money Morning contributing editor who is emerging as an expert on the worldwide financial meltdown, noted that the plan was apparently still that – a plan. Even so, he said that “any bailout plan that directly addresses foreclosures is political posturing that will ultimately be overwhelmed by inevitable economic realities.” ...
NY Times:
Banks Alter Loan Terms to Head Off Foreclosures -- Even as political pressure builds in Washington for a sweeping program to help struggling homeowners, some banks are realizing that it may be good business to keep borrowers in their homes.

On Friday, JPMorgan Chase became the latest big bank to pledge to cut monthly payments, by lowering interest rates and temporarily reducing loan balances for as many as 400,000 homeowners. Early in October, Bank of America, which acquired the large lender Countrywide, announced a similar effort aimed at 400,000 borrowers as part of a settlement with state officials...
Lots of homes 'underwater' on mortgages in U.S. -- First American CoreLogic, a data supplier, says that in the July-September period, 18% of all properties with a mortgage were underwater—that is, worth less than the outstanding debt.

The company’s data includes over 80% of all mortgages.

Here are some points from the press release:

• Over 7.5 million mortgages or 18% of all properties with a mortgage were in a negative equity position as of the end of September 2008. There are an additional 2.1 million mortgages that are approaching negative equity. These are defined as mortgages within 5% of being in a negative equity position. Negative-equity and near-negative equity mortgages combined account for over 23% of all properties with a mortgage.• ...
Minyanville: Housing Downturn Turns Down Further
CNBC / Reuters: Many Homeowners Owe More Than House Is Worth
HousingBubble blog:
A Hint Of The Nightmare To Come -- “For four years the Neal family called a two-family house in New Haven, home. The Neals have had their house on the market for a year and a half. They’re frustrated but patient. They understand this is a tough time to sell. ‘You’re seeing more and more houses that are in the inventory — I mean there’s tons and tons of inventory,’ Neal said. ‘Everywhere you look there’s a house for sale.’” ...
57 Percent Price Decrease on Stockton, CA house

USA Today:
Stockton, Calif., tries digging out of foreclosure crisis -- Two years ago, Sharon Halligan drove from Kentucky to California lamenting that she couldn't afford a home in the high-priced state.

Her job search brought her here, and she rented. Then the 61-year-old Halligan watched prices tank as the subprime lending mess engulfed home after home.

This month, the human resources manager moved into her $260,000 two-story home in Stockton after losing seven other bids on foreclosed homes. Thirty months ago, her new house appraised for $608,000. "Isn't it amazing?" she says, standing next to her U-Haul...
Barry Ritholtz / The Big Picture:
Moral Hazard of the Coming Mortgage Bailout -- Herein lies the simple problem in trying to “save” so many mortgages: A huge swath of them should not be saved. Some of that is due to price, some of it is due to not wanting to reward irresponsible behavior, but the bulk of it is simply because the people living in these homes cannot reasonably afford to pay for them, even after a 20-30% workout.

There are now more than 10 million “home-owers” underwater, with their mortgages greater than the present value of their homes. Since they have little skin in the game — thanks to banks that did away with down payment requirements — there is little incentive for them to tough it out.

Not surprisingly, it is FDIC Chairman Sheila Bair who is leading the push towards a mortgage workout plan. She wants policy makers to take action to help people stay in their homes — thereby taking pressure off of the FDIC, which insures the banks.

Why? More foreclosures = more bank failures = bigger FDIC obligations...
NY Times:
Specter of Deflation Lurks as Global Demand Drops -- As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

The word for this is deflation, or declining prices, a term that gives economists chills.

Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament...
Mises Economics Blog / Economics Roundtable: Stuff is cheaper? Time to panic
Meg Marco / Consumerist: What's Worse Than Inflation? Deflation.

Newmedia / Seattle Post-Intelligencer:
Analysis: Deflation fears on rise as inflation declines — As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy -- the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years...
Kevin Depew / Minyanville:
Five Things You Don't Want To Know -- When consumer spending and domestic consumption comprises nearly three-quarters of your economy, expanding credit appetites is critically important... if, especially if, you have no savings.

In 1989, when the Japan economy began its descent into a deflationary recession, consumer savings provided a dramatic cushion to the downside. In fact, consumer spending never really deteriorated that much throughout the deflationary recession. This savings was gradually wrested from savers' hands through the central bank's efforts to bring down short-term interest rates to punishingly low levels. In 1989, Japan consumers had a 13% personal savings rate that over 15 years or so fell to about 2%.

Our situation is more frightening. Not only is credit supply contracting, but so is demand, and on top of that we have virtually no savings cushion to offset a deflationary demand shock...
Douglas McIntyre, 24/7 Wall Street
How Does Amex Fire 7,000 People? -- American Express (AXP) decided to pole axe 7,000 poor souls. As is true with most mass firings, it is driving the company's stock higher, in this case by 5% to just over $26. It still trades near the bottom of its 52-week range.

The layoffs cover 10% of the American Express work force which raises the question of what all of them have been doing up to now. That may appear to be a naive question, but perhaps not...
24/7 Wall Street:
A Prairie Fire Of Layoffs -- [Motorola, Legg-Mason, Goldman Sach, Time-Warner, Gannett, Yahoo, American Express, Electronic Arts, Whirlpool] -- What the layoff news is showing now, in what is probably the second quarter of a recession which could last for six or seven, is that large corporations believe that their revenues will get much worse and that the chance for improvement is further into the future than most companies believe that they can reasonably gaze.

With each job that is lost at a company that is doing relatively well, the probable depth of the downturn gets worse. Many of the cuts being announced now are based more on confusion and fear than on reason...
NY Times:
Fed Adds $21 Billion to Loans for A.I.G. -- The American International Group said Thursday that it had been given access to the Federal Reserve’s new commercial paper program, allowing it to reduce its reliance on a costlier emergency loan from the Fed.

The company said it would be able to borrow up to $20.9 billion under the new program, raising its maximum available credit from the Fed to $144 billion under three different programs. The credit includes an earlier emergency loan of $85 billion from the Fed that carries a much higher interest rate.

A.I.G.’s big borrowings underscore the company’s bewilderingly rapid decline. When it suddenly faced a cash crisis in mid-September, the original estimate of the amount it needed was just $20 billion. A few days later, the Fed stepped forward with its $85 billion credit line. And now, the stunning size of that original bailout has grown by almost 70 percent...

Thursday, October 30, 2008

Bank Bailouts, Bonuses, and Bilking

One way in which the current recession/depression/meltdown (take your pick) will differ from previous economic collapses is the granularity of information now available. The world is awash with more data than ever before, generating a plethora of ways to scare yourself silly. — Mark Gilbert, Bloomberg
Items of Interest:

William Greider / The Nation:
Henry Paulson's Bailout Swindle Revealed -- The swindle of American taxpayers is proceeding more or less in broad daylight, as the unwitting voters are preoccupied with the national election. Treasury Secretary Hank Paulson agreed to invest $125 billion in the nine largest banks, including $10 billion for Goldman Sachs, his old firm. But, if you look more closely at Paulson's transaction, the taxpayers were taken for a ride--a very expensive ride. They paid $125 billion for bank stock that a private investor could purchase for $62.5 billion. That means half of the public's money was a straight-out gift to Wall Street, for which taxpayers got nothing in return....

Paulson's bailout staff is heavily populated with Goldman Sachs veterans and individuals from other Wall Street firms. Yet we do not know whether these financiers have fully divested their own Wall Street holdings. Were they perhaps enriching themselves as they engineered this generous distribution of public wealth to embattled private banks and their shareholders? ...
Mike Schuster / Minyanville:
Wall Street Nears the Bonus Round -- As if taxpayers didn't have enough to gripe about, Wall Street bonus season is fast approaching and it appears executives will still be compensated after a government bailout and dismal 2008.

Although how much -- and how it will compare to last year's windfall -- has yet to be finalized, most financial analysts agree that paychecks will indeed be a little heftier during the holiday season.

But wait! There's more! According to a survey conducted by, of the 1300 financial services professionals polled, 36% expect a higher bonus than last year. Experts concede that the compensation wouldn't be nearly so high had the $700 billion rescue package been shot down.

So much for not rewarding poor performance...
David Weidner / MarketWatch:
Executive Pay and the Fools On Capitol Hill
Steve Miller Band - Take The Money And Run:
This is a story about Billy Joe and Bobbie Sue
Two young lovers with nothing better to do
Than sit around the house, get high, and watch the tube
And here is what happened when they decided to cut loose

They headed down to, oh, old El Paso
That's where they ran into a great big hassle
Billy Joe shot a man while robbing his castle
Bobbie Sue took the money and run

Go on take the money and run
Go on take the money and run
Go on take the money and run
Go on take the money and run...
CEO Cashes Out as Bank Seeks U.S. Loan -- The top executive at a midsize bank holding company is retiring with a more than $12 million payday, even as the company is applying for a government investment that could restrict such windfalls.

The South Financial Group on Tuesday said Chairman, President and CEO Mack Whittle had left his post, effective Monday. Whittle had earlier said he would leave by the end of the year, and during a conference call to discuss the company financial results last week he made no indication the timing had changed.

The unexpectedly sudden departure comes just days after the bank announced it plans to apply for a federal investment through the Troubled Asset Relief Program, or TARP, which contains provisions that void existing compensation agreements in order to prevent "golden parachutes." ...
Donn Vickrey, a forensic analyst, is skeptical of A.I.G.’s past reports. You don’t just suddenly lose $120 billion overnightMary Williams Walsh / New York Times:
A Question for A.I.G.: Where Did the Cash Go? — The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October...

“You don’t just suddenly lose $120 billion overnight,” said Donn Vickrey a forensic accountant...
Tristero / Hullabaloo: Maybe The Dog Ate It All
Mary Kane / The Washington Independent: Banks and Bad Behavior
Binyamin Appelbaum / Washington Post:
Banks to Continue Paying Dividends — Bailout Money Is for Lending, Critics Say — U.S. banks getting more than $163 billion from the Treasury Department for new lending are on pace to pay more than half of that sum to their shareholders, with government permission, over the next three years...
Fubar / Needlenose: Heckuva job Hank
BJ Bjornson / Well, that's a relief!

U.S. Bureau of Economic Analysis:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2008 (ADVANCE) — Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of .3 percent in the third quarter of 2008, (that is, from the second quarter …
Washington Post:
Economy Shrinks in Third Quarter; Markets Start Off Strong
Kevin Drum / Mother Jones: Economy Watch
Mark Gilbert / Bloomberg:
The Shipping News Suggests World Economy Is Toast -- In the third quarter of 2007, Volvo AB booked 41,970 European orders for new trucks. Guess how many prospective purchases Volvo, the world's second-biggest maker of heavy rigs, received in the third quarter of this year?

Here's a clue. Picture a highway gridlocked by 41,815 abandoned trucks -- because Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.

The pathogen that has fatally infected swathes of the banking industry is now contaminating non-financial companies...
Elizabeth Chuck / MSNBC:
Feds probe Countrywide's ‘V.I.P.’ program — The wide-ranging criminal investigation into wrongdoing at Countrywide - once the nation's largest mortgage originator - now includes serious scrutiny of a loan program that provided special mortgage deals to the well-connected and powerful, including two U.S. senators...
NY Times:
Government Said to Be Discussing Plan to Aid Homeowners -- Senior Bush administration officials are completing a plan that could help up to three million homeowners struggling to pay their mortgages to stay in their homes, three people briefed on the proposal said Wednesday.

The initiative could be the most sweeping government effort directed at mortgage borrowers since the financial crisis began last year. Under the plan, the government would agree to shoulder half of the losses on home loans if mortgage companies agreed to lower borrowers’ monthly payments for at least five years, according to the people briefed on the plan who asked not to be named because details were still being negotiated.
Fed expands playbook to boost ailing economy -- The severity of the shock facing the U.S. economy has not been lost on Federal Reserve policy-makers, who seem committed to pulling out all stops to brighten a distressingly bleak outlook.

The downbeat note struck in Wednesday's Federal Open Market Committee statement was a dramatic departure from just six weeks ago, when the Fed judged that growth and inflation risks were roughly equal.

Facing the worst potential economic downturn in decades, the Fed lowered its benchmark interest rates by half a percentage point and seems likely to lower benchmark lending rates yet again in December.

As its rate-cutting ammunition shrinks though, the Fed will be forced into a "quantitative easing" regime that many analysts say they have already quietly launched...
Simon Owens / MediaShift:
Econ Bloggers Gain Clout in Financial Crisis - Late last month Dean Starkman, a writer for the Columbia Journalism Review, penned a scathing piece titled "Ouryay Eatbay Just Ewblay Upyay." The essay is addressed to members of the mainstream business press and proclaims dramatically in the opening paragraphs that their beat "just blew up." Starkman wags his finger at economic reporters, chastising the business beat as a group for failing to warn us of the coming crisis before the rug was pulled out from under our feet.

"From a journalistic standpoint, what we are experiencing today is the equivalent of the city hall reporter arriving for work one day to find the mayor and city council being led out in handcuffs," he wrote. "If the business press were, say, a nuclear industry reporter, this is having most of the reactors on your beat melting down to China. What to tell the boss?"..
Businomics Blog
Economist's View
Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong
Paul L. Kasriel / Northern Trust Company:
Tough Economic Times Ahead and They Are Priced In [pdf] -- Make no mistake about it; there are tough economic times ahead. The credit markets seem to have priced in, if not the worst case, then at least a very realistic case...

Household balance sheets are in their worst shape in the post-World War II era... So, household balance sheets are highly leveraged and very illiquid. This is a very negative combination for consumer spending at a time when the value of their assets is falling and the unemployment rate is rising rapidly...
Homeowner Confidence Survey -- Homeowner Confidence Survey: The perception-reality gap persists. Despite the turbulent quarter, half of U.S homeowners do not think their home’s value has decreased. In reality, nearly three-quarters of homes lost value in the past 12 months.

For more information about the survey, check out the press release and blog post...
Diana Olick / CNBC Realty Check:
Wake Up America—Home Prices ARE Falling -- Am I not doing my job? Or is nobody listening? How is it possible, in the midst of the worst credit crisis in history, which is predicated on one of the biggest housing crashes in history, that nearly half of all Americans still don’t get that home prices are falling?

A new survey from finds that a full 49 percent of those surveyed think their home has either retained its value or even gained value in the past year. According to Zillow, 74 percent of all U.S. homes have lost value in the last year...

Realtime Economics / WSJ:
Many Homeowners Think They’re Immune to Price Declines

Wednesday, October 29, 2008

Mortgage Meltdown post-mortem

Items of Interest:

Prof. Stan J. Liebowitz / University of Texas /
Anatomy of a Train Wreck - Causes of the Mortgage Meltdown [29 pages, pdf] -- Why did the mortgage market melt down so badly? Why were there so many defaults when the economy was not particularly weak? Why were the securities based upon these mortgages not considered anywhere as risky as they actually turned out to be?

This report concludes that, in an attempt to increase home ownership, particularly by minorities and the less affluent, virtually every branch of the government undertook an attack on underwriting standards starting in the early 1990s. Regulators, academic specialists, GSEs, and housing activists universally praised the decline in mortgage-underwriting standards as an “innovation” in mortgage lending. This weakening of underwriting standards succeeded in increasing home ownership and also the price of housing, helping to lead to a housing price bubble. The price bubble, along with relaxed lending standards, allowed speculators to purchase homes without putting their own money at risk.

The recent rise in foreclosures is not related empirically to the distinction between subprime and prime loans since both sustained the same percentage increase of foreclosures and at the same time. Nor is it consistent with the “nasty subprime lender” hypothesis currently considered to be the cause of the mortgage meltdown. Instead, the important factor is the distinction between adjustable-rate and fixed-rate mortgages. This evidence is consistent with speculators turning and running when housing prices stopped rising...

Liebowitz's conclusion:

But let’s not blame the speculators here. There is nothing wrong with speculation or speculators. At fault is a mortgage system run by flexible underwriting standards, which allowed these speculators to make bets on the housing market with other people’s money. It was a system that invited the applicant to lie about income. It was a system that induced applicants to watch a video instead of providing solid evidence about their financial condition...

Right Truth:
Anatomy of a Train Wreck -- This report has also been excerpted for the cover story in the October 20th issue of National Review (subscription required).

Steve Sailer's iSteve Blog:
Liebowitz: Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
-- Paul Krugman just won the Nobel Prize in economics, but they should have given it to the economist who has been hollering since the 1990s about the government's mortgages for minorities and the poor policies, Stan J. Liebowitz...

Real Clear Markets:
Foreclosure Myths: Can the Media Handle the Truth? -- As Liebowitz observes, what we are currently seeing is often characterized as a subprime crisis, but in fact, it is an adjustable-rate mortgage problem. Starting in mid-2006, foreclosures jumped sharply for both prime and subprime ARMs, but not for fixed-rate mortgages of any kind, including subprime ones...
M. Jay Wells /
Why The Mortgage Crisis Happened -- one of the most complete timelines of the debacle...

" is not free-market capitalism at the root of the current mortgage industry crisis, but rather the very socialism Obama hawks. The historical record makes this fact unmistakably clear." ...

"Initially the GSEs [i.e., Fannie Mae and Freddie Mac] resisted purchasing these risky mortgages but eventually the Clinton Administration instructed them to substantially increase the percentage of these mortgages in their portfolios." ...
Barry Ritholtz / The Big Picture:
President Bush and Home Ownership -- There was an editorial in IBD this week, mistitled, Why The Mortgage Crisis Happened. Funny thing is, they somehow overlooked these speeches below.

The pandering and disinformation campaign of the far right are looking more and more like the death spasms of an intellectually bankrupt ideology

A Home of Your Own, by President Bush, May 17, 2002 ...

Tuesday, October 28, 2008

Credit Crisis Batters Confidence

Items of Interest:

Give me that old time panic

A swarm gathers on Wall Street during the bank panic in October 1907Wikipedia:
Panic of 1907 -- The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell close to 50 percent from its peak the previous year. Panic occurred during a time of economic recession, when there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered into bankruptcy. Primary causes of the run include a retraction of market liquidity by a number of New York City banks, loss of confidence among depositors, and the absence of a statutory lender of last resort...

The panic would have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money, and convinced other New York bankers to do the same, to shore up the banking system. At the time, the United States did not have a central bank to inject liquidity back into the market. By November the contagion had largely ended...
Consumer Confidence in U.S. Plunged to Record Low -- U.S. consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit, raising the risk spending will tumble. The Conference Board's confidence index decreased to 38, less than forecast and the lowest reading since monthly records began in 1967, the New York-based research group said today...
U.S. consumer confidence plunges to record low -- Job, economic worries worsen as financial crisis takes toll ...

Jason Goepfert / Minyanville:
Lack of Confidence -- The plunge in Consumer Confidence is getting a lot of attention, but it might pay to step back and see what that has meant before. The previous troughs in Confidence were in December 1974 (43.2), May 1980 (50.1), October 1982 (54.3) and February 1992 (47.3). By six months later the S&P 500 was higher every time by an average of +21.1%.

On the other hand, Confidence reached its all-time high in May 2000 (144.7), and October 1968 (142.3) prior to that. You wouldn't have exactly been happy holding stocks after those instances...after a year, the S&P was down both times by an average of -8.8%...
Home Prices in 20 U.S. Cities Fell From Year Ago -- House prices in 20 U.S. cities declined at the fastest pace on record as foreclosures climbed before the credit crisis deepened this month.

The S&P/Case-Shiller home-price index dropped 16.6 percent in August from a year earlier, as forecast, after a 16.3 percent decline in July. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.

The decrease in property values, which helped boost sales last month to the highest level of the year, will probably intensify in coming months as the latest tightening of credit markets threatens to dry up mortgage financing. Prolonged price declines may push even more houses into foreclosure, weakening consumer spending and the economy...
WSJ blog: A Look at Case-Shiller Numbers, by Metro Area
CNNMoney: Home prices see another record plunge
Capital One, Key Among 19 Banks Getting $35 Billion -- At least 19 regional U.S. banks, including SunTrust Banks Inc. and Capital One Financial Corp., accepted $35 billion in government cash as the Treasury rolled out the second half of its $250 billion package to shore up lenders and thaw frozen credit markets.

Treasury Secretary Henry Paulson is doling out cash to recapitalize struggling lenders and jump-start takeovers in an industry suffering from the worst housing crisis since the Great Depression. SunTrust, Capital One, KeyCorp and PNC Financial Services Group Inc. are among regional lenders that have agreed to take cash so far by selling preferred shares to the U.S...

Niagara Falls, Beverly Hills

The latest U.S. banks to benefit from the government's Troubled Asset Relief Program, or TARP, spanned the nation, ranging from City National Corp., in Beverly Hills, California, to First Niagara Financial Group Inc., based in upstate New York near Niagara Falls. The banks may be joined by life insurance companies, some of which are now in talks with the government about potential Treasury investments...

Following are banks that have announced participation in the Treasury program:

Citgroup $25 billion
Wells Fargo $25 billion
JPMorgan Chase $25 billion
Bank of America $15 billion
Merrill Lynch $10 billion
Goldman Sachs $10 billion
Morgan Stanley $10 billion
Bank of New York $3.0 billion
State Street $2.0 billion
TOTAL $125 billion

PNC $7.7 billion
Capital One $3.6 billion
SunTrust $3.5 billion
Regions Financial $3.5 billion
Fifth Third $3.4 billion
BB&T $3.1 billion
KeyCorp $2.5 billion
Comerica $2.25 billion
Northern Trust $1.5 billion
Huntington $1.4 billion
First Horizon $866 million
City National $395 million
Valley National $330 million
Washington Federal $230 million
UCBH Holdings $298 million
First Niagara $186 million
Old National $150 million*
HF Financial $25 million
Redding Bank $17 million
Provident --**
TOTAL $34.93 billion (35.18)

*Old National hasn't decided whether to participate.
**Provident didn't say how much it expects.
Deal Journal / Wall Street Journal:
Terrible Ideas of the Financial Crisis: Goldman Sachs and Citigroup -- There are bad ideas that seemed like a good idea at the time. Then there are bad ideas that didn’t make sense from the beginning. That is pretty much most of the big merger ideas rumored in the past six weeks.

Take, for example, Goldman Sachs Group CEO Lloyd Blankfein’s call to Citigroup Vikram Pandit to sound out the possibility of a combination of the two companies, as reported by the FT, and note that the call took place in the panic-filled week just after Lehman Brothers Holdings filed for bankruptcy and Merrill Lynch ran into the arms of Bank of America...
Words to remember...

Dean Barnett:
The Plucky Smart Kid with the Fatal Disease --
As I grew sicker, I had what for me was an extremely comforting insight. I came to view serious and progressive illness as an ever constricting circle with oneself at the center. The interior of the circle represents the contents of one’s life. As the circle gets smaller, things that were inside get forced out. Some of these things are dearly missed; others that were once thought precious get forced to the exterior and turn out to go surprisingly unlamented.

At the innermost point of the circle are the things that really matter: family, faith, love. These things stay with you until the day you die. At the very end, because the circle has shrunk down to its center, they’re all you have left. But as we approach that end, we finally realize that all along, they were what mattered most. As a consequence, life often remains beautiful and worthwhile right up until the end...
William Kristol / Weekly Standard:
Dean Barnett, 1967-2008 — It's my sad duty to report that our good friend and valued contributor Dean Barnett passed away today. He was a remarkable man—principled, witty, and to all of us, a model of grace and courage. We mourn his passing and cherish his memory.

Hugh Hewitt /
Farewell, Dean
— My friend and colleague Dean Barnett died today, and the world is a much poorer place for it. As anyone who listened to him on my radio show or read his work at Soxblog, here or at the Weekly Standard knows, and as everyone who had the great, great pleasure of knowing Dean will attest …

John Podhoretz / Commentary Magazine: Dean Barnett, 1967-2008
The Hill's Blog Briefing Room: DAY'S END ROUNDUP
Michelle Malkin: Dean Barnett, R.I.P.
Sean Hackbarth / The American Mind: DEAN BARNETT, R.I.P.
Andrew Sullivan / The Daily Dish: Dean Barnett, RIP
iowahawk: Dean Barnett, 1967-2008 — I am deeply saddened to learn …
Achenblog: Dean Barnett
Allahpundit / Hot Air: Horrendous: Dean Barnett passes away
Spencer Ackerman / ATTACKERMAN: If I Ever Thought About It
Bookworm Room: Dean Barnett, RIP
Baseball Crank: Dean Barnett, Rest in Peace
The Wide Awake Cafe: Dean Barnett, Already Missed
Kathy Shaidle / five feet of fury.: Dean Barnett: 1967 - 2008 (with updates)
Patrick Ruffini / The Next Right: Dean Barnett, RIP

Monday, October 27, 2008

Global markets listen to more chin music

Items of Interest:

Lest you’re feeling financially inadequate, know you’re not alone... [countries around the world] are listening to similarly sullen chin music. — Todd Harrison, Minyanville
Todd Harrison / Minyanville:
Monday Morning Quarterback: The Great Wonder of the World -- Lest you’re feeling financially inadequate, know you’re not alone. This year alone, Brazil is down 51%, China is off 67%, India is 58% lower and Canada (-32%), France (-46%), Germany (-49%), Hong Kong (-60%), Italy (-48%), Japan (-53%), South Korea (-50%), Singapore (-54%), Switzerland (-36%) and the U.K. (-42%) are listening to similarly sullen chin music.

Heck, Argentina lost 26% this month (-58% for the year) and Russia (-76%) was forced to close their exchange with hopes of stemming the supply.

And that’s just the equity side of the equation. The largest contagion of our lives has now cast an eye toward the currency markets. The Yen is at 13-year high against the dollar (+12% for the month), the Mexican Peso is at a record low, the Brazil real lost a third of its value since August, the South Korea Won is at a ten-year low against the dollar and according to some reports Europe is on the brink of currency crisis meltdown...
Global Stocks Decline on Economy Concerns; Treasuries Rally -- Stocks tumbled, extending the MSCI World Index's biggest monthly drop on record, as concern grew that government efforts to stabilize financial markets won't avert a global recession. Treasuries rose as investors sought the safety of government bonds.

U.S. shares slid, deepening the market's worst monthly slump in 70 years. Europe's Dow Jones Stoxx 600 Index declined 3 percent as German business confidence decreased more than forecast this month. Hong Kong's Hang Seng Index sank as much as 15 percent, the most since the 1989 Tiananmen Square crackdown, after money-market rates rose.
[Persian] Gulf Bank Customers Rush for Deposits After Currency Losses -- Customers rushed to withdraw money from Gulf Bank KSC, Kuwait's second-biggest bank, after clients defaulted on currency contracts and the central bank was forced to guarantee deposits...
IMF and Ukraine agree to $16.5 billion loan -- The International Monetary Fund and Ukraine said on Sunday they had reached an agreement in principle for a $16.5 billion loan package to ease the effects of the global financial crisis.

But analysts said politicians would have to set aside differences to adopt a set of financial measures needed to clinch the deal and secure the loan. The former Soviet republic is in the throes of the latest bout of political turmoil that has gripped it since the 2004 "Orange Revolution."

With Ukraine facing its third parliamentary election in as many years, the hryvnia currency has slumped to a record low. Analysts are concerned over the ability of the government, firms and banks to refinance with global lending at a standstill...
South Korea Cuts Rate by Record as Markets Slump, Economy Flags -- South Korea slashed interest rates by a record amount and pledged extra tax cuts and spending to tackle the nation's biggest crisis since it needed an International Monetary Fund bailout 10 years ago.

The Bank of Korea cut the benchmark rate by 75 basis points to 4.25 percent at an emergency board meeting in Seoul today, the second reduction in less than three weeks. Vice Minister Kim Dong Soo said the government will increase spending to bolster an economy that last quarter grew at the weakest pace since 2004...
U.S. New-Home Sales Unexpectedly Rise as Prices Drop -- Sales of new houses in the U.S. unexpectedly rose in September from a 17-year low, propelled by a drop in prices ahead of the latest turmoil in financial markets.

Purchases increased 2.7 percent to an annual rate of 464,000 from 452,000 the prior month that was less than previously estimated, the Commerce Department said today in Washington. The median sales price decreased to a four-year low.

The drumbeat of builder bankruptcies since the middle of last year and frozen credit markets signal a collapse in mortgage lending that may extend the housing recession into a fourth year...
FBI Probe of JPMorgan Fees Focuses on Swaps Roiling Muni Debt -- As the credit crunch froze lending globally, causing stock markets to plunge, local officials who say they trusted JPMorgan faced a crisis of their own. Wall Street's drive for profits over the past decade has backfired on towns, cities and counties that borrow in the $2.7 trillion municipal bond market.

Financings arranged by JPMorgan and other banks are forcing hundreds of public agencies to spend billions of dollars they don't have to pay for increased interest payments and penalties.

No Bailouts

These come in municipal bond and derivative deals that have turned poisonous. Unlike JPMorgan, which has benefited from federal bailouts, the towns and schools the bank has financed have received no help from Washington...
Banks Beware: Here Come the Lawsuits -- Bank of America to pay $8 billion; JPMorgan, Wells Fargo may be next...
"Side Bets" Blow Up

60 Minutes / CBS News:
The Bet That Blew Up Wall Street -- Steve Kroft On Credit Default Swaps And Their Central Role In The Unfolding Economic Crisis

As Steve Kroft reports, essentially they are side bets on the performance of the U.S. mortgage markets and the solvency on some of the biggest financial institutions in the world. It's a form of legalized gambling that allows you to wager on financial outcomes without ever having to actually buy the stocks and bonds and mortgages.

It would have been illegal during most of the 20th century, but eight years ago Congress gave Wall Street an exemption and it has turned out to be a very bad idea...
CBS News:
A Look At Wall Street's Shadow Market -- 60 Minutes: How Some Arcane Wall Street Financial Instruments Magnified Economic Crisis

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