Archive for 2008

Bailout Bill Update and Text

Bailout bill unveiled, heads to House

Excerpt:  "WASHINGTON (MarketWatch) — Democratic congressional leaders announced their agreement Sunday on details of a massive financial rescue plan proposed by the Bush administration, releasing a draft text trumpeting taxpayer guarantees and caps on executive compensation.

The draft bill, titled the "Emergency Economic Stabilization Act of 2008," follows days of legislative wrangling over a $700 billion plan proposed by Treasury Secretary Henry Paulson as U.S. financial markets teetered on the edge of a collapse triggered by the U.S. mortgage crisis.

The bill will be introduced in the House of Representatives Monday morning and then head to the Senate, said Senate Majority Leader Harry Reid, D-Nev.

"This isn’t about a bailout of Wall Street, it’s a buy-in so we can turn our economy around," House Speaker Nancy Pelosi, D-Calif., said at a press conference announcing the agreement.

The draft legislation would authorize $250 billion immediately, with another $100 billion upon presidential certification. A further $350 billion would also be available subject to congressional approval…

Read proposed legislation"…

 

Text includes some executive-pay caps, taxpayer protections

By Ruth Mantell & Andrea Coombes, MarketWatch





WallSt., Meet MainSt.

Here’s a balanced article on the bailout plan, discussing Nouriel Roubini’s suggestions and the effect of credit drying up on the average American citizen.  Courtesy of Stormy, at Angry Bear.  

Wall Street, Meet Main Street

By Stormy

For the man on the street, the proposed bailout seems like nothing more than handouts to the rich. To him, the fortunes of Wall Street are distinguishable and separate from his fortunes. "Let the suckers sink."

While I deeply sympathize with this view, we all must see how what is happening on Wall Street affects everything, from house mortgages, to car and student loans, to credit cards, and more.

Quite simply, credit is drying up.

If credit disappears, then everyone--rich or poor--is affected. The farmer needs a sizable loan to carry him through the rough times. The poor student needs a loan so that he can position himself better in marketplace. The small town may to float a bond to cover a much-needed fire engine. Already, student loans are becoming increasingly difficult to obtain. Car loans and mortgages are becoming more and more problematical.

To tell Wall Street to take a hike makes for a good sound bite, but it may not be really wise. What happens on Wall Street governs the level of credit, the grease that makes loans and bonds possible.

The problem is: How to fashion a comprehensive plan that addresses everyone’s needs. Our country is mired in debt. Only the very well off can stand alone, fretting foolishly over a million lost here or there. The rest of us, even if all our bills are paid, stand to suffer as the economy crashes around us. Jobs will be lost; incomes will dwindle.

To understand the depth of our dilemma, I would like to go through Nouriel Roubini’s rescue plan. In his solution, he does hit most (not all by a long shot) of the buttons. I do this summary as much for myself as for others.

Take note: We are faced not with a mere recession, but a real depression. It is no accident that parts of the Roubini plan harken back to the Great Depression.

Roubinis plan, which is far more intelligent that what so far has appeared in the public media, only begins to touch on our real difficulties.…
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Barry’s Memo to DC

A Memo Found in the Street

By BARRY L. RITHOLTZ

Excerpt:

"WOW, WE’VE MADE QUITE A MESS OF THINGS here on Wall Street: Fannie and Freddie in conservatorship, investment banks in the tank, AIG nationalized. Thanks for sending us your new trillion-dollar bailout.

We on Wall Street feel somewhat compelled to take at least some responsibility. We used excessive leverage, failed to maintain adequate capital, engaged in reckless speculation, created new complex derivatives. We focused on short-term profits at the expense of sustainability. We not only undermined our own firms, we destabilized the financial sector and roiled the global economy, to boot. And we got huge bonuses.

But here’s a news flash for you, D.C.: We could not have done it without you. We may be drunks, but you were our enablers: Your legislative, executive, and administrative decisions made possible all that we did. Our recklessness would not have reached its soaring heights but for your governmental incompetence.

THIS MEMO PROVIDES A BRIEF HISTORY OF your actions that helped create this crisis.

1997: Federal Reserve Chairman Alan Greenspan’s famous “irrational exuberance” speech in 1996 was somehow ignored by, um, Fed Chairman Greenspan. The Fed missed the opportunity to change margin requirements. Had the Fed acted, the bubble would not have inflated as much, and the subsequent crash would not have been as severe.

1998: Long Term Capital Management was undercapitalized, used enormous amounts of leverage to purchase all manner of thinly traded, hard-to-value paper. It failed, and under the authority of the Federal Reserve a “private-sector” rescue plan was cobbled together. Had these bankers suffered big losses from LTCM, they might have thought twice before jumping into the exact same business model of undercapitalized, overleveraged, thinly traded, hard-to-value paper. Instead, they reaffirmed Benjamin Disraeli’s famous aphorism: “What we learn from history is that we do not learn from history.”

1999: The Financial Services Modernization Act repealed Glass-Steagall, a law that had separated the commercial-banking industry from Wall Street, and the two industries, plus insurance, came together again. Banks became bigger, clumsier, and hard to manage. Apparently, risk-management became all but impossible, even as banks had greater access to larger pools of capital.

2000: The Commodities Futures Modernization Act defined financial commodities such as “interest rates, currency prices, and stock indexes” as “excluded commodities.” They could trade off the
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SEC

Conclusion:  Voluntary regulation does not work, a lesson learned (hopefully) the hardest way.

SEC Lambasted on Bear Sterns

Courtesy of Todd Sullivan’s – ValuePlays

Like I’ve said repeatedly, time for Cox to go…

 





Nouriel: Plan’s a Disgrace

Is Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks

Courtesy of Nouriel Roubini, at Nouriel Roubini’s Global EconoMonitor 

Whenever there is a systemic banking crisis there is a need to recapitalize the banking/financial system to avoid an excessive and destructive credit contraction. But purchasing toxic/illiquid assets of the financial system is not the most effective and efficient way to recapitalize the banking system. Such recapitalization – via the use of public resources – can occur in a number of alternative ways: purchase of bad assets/loans; government injection of preferred shares; government injection of common shares; government purchase of subordinated debt; government issuance of government bonds to be placed on the banks’ balance sheet; government injection of cash; government credit lines extended to the banks; government assumption of government liabilities.

A recent IMF study of 42 systemic banking crises across the world provides evidence on how different crises were resolved. First of all only in 32 of the 42 cases there was government financial intervention of any sort; in 10 cases systemic banking crises were resolved without any government financial intervention. Of the 32 cases where the government recapitalized the banking system only seven included a program of purchase of bad assets/loans (like the one proposed by the US Treasury). In 25 other cases there was no government purchase of such toxic assets. In 6 cases the government purchased preferred shares; in 4 cases the government purchased common shares; in 11 cases the government purchased subordinated debt; in 12 cases the government injected cash in the banks; in 2 cases credit was extended to the banks; and in 3 cases the government assumed bank liabilities. Even in cases where bad assets were purchased – as in Chile – dividends were suspended and all profits and recoveries had to be used to repurchase the bad assets. Of course in most cases multiple forms of government recapitalization of banks were used.

But government purchase of bad assets was the exception rather than the rule. It was used only in Mexico, Japan, Bolivia, Czech Republic, Jamaica, Malaysia, and Paraguay. Even in six of these seven cases where the recapitalization of banks occurred via the government purchase of bad assets such recapitalization
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It’s the Derivatives, Stupid!

Here’s an excellent article by Ellen Brown which focuses on the financial derivatives industry.  (Wikipedia has a helpful introduction to derivatives, here.)  The previous article posted, Behind Insurer’s Crisis, Blind Eye to a Web of Risk, provides a clear illustration of how billions of dollars can quickly evaporate in the derivative world.  

IT’S THE DERIVATIVES, STUPID!
WHY FANNIE, FREDDIE AND AIG ALL HAD TO BE BAILED OUT
South Sea Bubble Cards

“I can calculate the movement of the stars, but not the madness of men.”
– Sir Isaac Newton, after losing a fortune in the South Sea bubble

Something extraordinary is going on with these government bailouts.  In March 2008, the Federal Reserve extended a $55 billion loan to JPMorgan to “rescue” investment bank Bear Stearns from bankruptcy, a highly controversial move that tested the limits of the Federal Reserve Act.  On September 7, 2008, the U.S. government seized private mortgage giants Fannie Mae and Freddie Mac and imposed a conservatorship, a form of bankruptcy; but rather than let the bankruptcy court sort out the assets among the claimants, the Treasury extended an unlimited credit line to the insolvent corporations and said it would exercise its authority to buy their stock, effectively nationalizing them.  Now the Federal Reserve has announced that it is giving an $85 billion loan to American International Group (AIG), the world’s largest insurance company, in exchange for a nearly 80% stake in the insurer . . . .

The Fed is buying an insurance company?  Where exactly is that covered in the Federal Reserve Act?  The Associated Press calls it a “government takeover,” but this is not your ordinary “nationalization” like the purchase of Fannie/Freddie stock by the U.S. Treasury.  The Federal Reserve has the power to print the national money supply, but it is not actually a part of the U.S. government.  It is a private banking corporation owned by a consortium of private banks.  The banking industry just bought the world’s largest insurance company, and they used federal money to do it.  Yahoo Finance reported on September 17:

“The Treasury is setting up a temporary financing program at the Fed’s request. The program will auction Treasury bills to raise cash for the Fed’s use. The initiative aims to help the Fed manage its balance sheet following its efforts
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Porkie du Credit Shambles

Here’s a fascinating article in the NY Times on A.I.G., the London unit of A.I.G. known as A.I.G. Financial Products, credit default swaps, or C.D.S., Goldman Sachs, and our government actions, but let’s start with an introduction by Greg Newton, at Nakedshorts.

Porkie* du Credit Shambles

The Unbearable Lightness of Goldman Sachs

SucklingPig 
QuoteOpenSmall 
A Goldman spokesman said…that the firm was 
never imperiled by AIG’s troubles and that
 
Mr. Blankfein participated in the Fed
discussions to safeguard the entire
financial system, not his firm’s own interests.
QuoteCloseSmall

I think we’ve reached the point where somebody really needs to go to jail. And 85 Broad would be an excellent place to start rounding up a few of the usuals.Goldman Sachs Headquarters

Behind Insurer’s Crisis, a Blind Eye to a Web of Risk
by Gretchen Morgenson
The New York Times Sep. 28 2008

*Cockney Rhyming Slang: Porkie = Pork Pie = Lie

************ 

Behind Insurer’s Crisis, a Blind Eye to a Web of Risk

Excerpt:

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.”

— Joseph J. Cassano, a former A.I.G. executive, August 2007

Two weeks ago, the nation’s most powerful regulators and bankers huddled in the Lower Manhattan fortress that is the Federal Reserve Bank of New York, desperately trying to stave off disaster.

As the group, led by Treasury Secretary Henry M. Paulson Jr., pondered the collapse of one of America’s oldest investment banks, Lehman Brothers, a more dangerous threat emerged: American International Group, the world’s largest insurer, was teetering. A.I.G. needed billions of dollars to right itself and had suddenly begged for help.

The only Wall Street chief executive participating in the meeting was Lloyd C. Blankfein of Goldman Sachs, Mr. Paulson’s former firm. Mr. Blankfein had particular reason for concern.

Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in
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Do you know who you’re messin’ with?





Fiddling While Rome Burns

Here’s an article from Spencer at Angry Bear pointing out that a couple of his leading indicators of world economic growth are looking pretty sickly.

Fiddling While Rome Burns 

By Spencer

While Congress fiddles and postures it might be informative to look at two highly reliable leading indicators of world economic growth.

The first is the Dry Ships Index of various daily bulk cargo rates. Over time this has proven to be a highly sensitive leading indicator of world economic activity. About half of the recent plunge in the blue index so far this year has occurred this month.


The second index is the CRB:Index of Industrial Raw Material Prices — it includes no energy or agricultural foodstuffs prices. About one quarter of the drop in this index so far this year occurred since the end of last month.

Both of these indicators are signaling that the slowdown in world economic growth is accelerating.

I’ll just remind readers that these are two of the signals that I used as leading indicators of a peak in oil prices earlier this year.

 





Oil

I found Why the Oil Crisis Will Persist, by Jeffrey D. Sachs, SciAm, via Mark Thoma’s website, Economist’s View, discussing oil and where we should go from here.  Here’s Mark’s article, citing the SciAm article. 

Oil

Jeff Sachs says "current energy crisis will most likely worsen before it gets better":

Why the Oil Crisis Will Persist, by Jeffrey D. Sachs, SciAm: …[F]undamental factors of supply and demand in the world economy will keep oil costly for years to come. … Drilling in protected areas would provide little relief, and at horrendous environmental risks. Only a concerted move to new transport and energy technologies will relieve the pressures.

The greatest irony about the Bush Administration is that it correctly focused on energy needs at the start of its first term, but then got everything wrong in the strategy. Viewing the world through the eyes of Texas oilmen, it focused on gaining concessions to Iraqi oil fields and opening U.S. protected areas to drilling, while scorning fuel economy standards, renewable energy sources, and climate change mitigation. But the simple arithmetic of oil and carbon was always against the strategy.

World demand for conventional oil is outstripping world supply. … There are few prospects for mega-discoveries that could keep up with fast-growing world demand. …

The boom in global driving is likely to be relentless. … If China attains just half of the U.S. per capita ownership of passenger vehicles, it would have … roughly twice as many as the U.S. And that prospect is not a silly scenario. Vehicle production in China has already tripled… With … massive house building on the spreading periphery of city centers, China seems intent on reproducing America’s metropolitan sprawl and commuter-based society. A similar, though still less dramatic trend, is getting underway in India. …

Conventional oil has little prospect of keeping up with this soaring demand.

What then will give? Of course a grave economic crisis—war, global depression, economic collapse of one or more major economies—would cut oil demand the hard way. There are two much better alternatives. The first is a redesigned, far more energy-efficient automobile that uses … electricity or hydrogen. Several variants of plug-in-hybrid and all-battery cars have been promised by major auto producers as early as


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ValueWalk

#1 Performing Global Macro Hedge Fund Sees More Shorts Opportunities Ahead As China Bursts

By Jacob Wolinsky. Originally published at ValueWalk.

Crescat Global Macro Fund update to investors on 1/19/2019

Crescat Global Macro Fund and Crescat Long/Short fund delivered strong returns for both December and full year 2018 in a difficult market. Based on ...



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Zero Hedge

Johns Hopkins, Bristol-Myers Face $1 Billion Suit For Infecting Guatemalan Hookers With Syphilis 

Courtesy of ZeroHedge. View original post here.

A federal judge in Maryland said Johns Hopkins University, pharmaceutical company Bristol-Myers Squibb and the Rockefeller Foundation must face a $1 billion lawsuit over their roles in a top-secret program in the 1940s ran by the US government that injected hundreds of Guatemalans with syphilis, reported Reuters.

Several doctors from Hopkins an...



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Phil's Favorites

Divisive economics

 

Guest author David Brin — scientist, technology consultant, best-selling author and futurist — explores the records of Democrats and Republicans on the US economy in the following post. For David's latest posts, visit the CONTRARY BRIN blog. For his books and short stories, visit his web...



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Kimble Charting Solutions

Stock declines did not break 9-year support, says Joe Friday

Courtesy of Chris Kimble.

We often hear “Stocks take an escalator up and an elevator down!” No doubt stocks did experience a swift decline from the September highs to the Christmas eve lows. Looks like the “elevator” part of the phrase came true as 2018 was coming to an end.

The first part of the “stocks take an escalator up” seems to still be in play as well despite the swift decline of late.

Joe Friday Just The Facts Ma’am- All of these indices hit long-term rising support on Christmas Eve at each (1), where support held and rallies have followed.

If you find long-term perspectives helpf...



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Digital Currencies

Transparency and privacy: Empowering people through blockchain

 

Transparency and privacy: Empowering people through blockchain

Blockchain technologies can empower people by allowing them more control over their user data. Shutterstock

Courtesy of Ajay Kumar Shrestha, University of Saskatchewan

Blockchain has already proven its huge influence on the financial world with its first application in the form of cryptocurrencies such as Bitcoin. It might not be long before its impact is felt everywhere.

Blockchain is a secure chain of digital records that exist on multiple computers simultaneously so no record can be erased or falsified. The...



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Insider Scoop

Cars.com Explores Strategic Alternatives, Analyst Sees Possible Sale Price Around $30 Per Share

Courtesy of Benzinga.

Related 44 Biggest Movers From Yesterday 38 Stocks Moving In Wednesday's Mid-Day Session ...

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Chart School

Weekly Market Recap Jan 13, 2019

Courtesy of Blain.

In last week’s recap we asked:  “Has the Fed solved all the market’s problems in 1 speech?”

Thus far the market says yes!  As Guns n Roses preached – all we need is a little “patience”.  Four up days followed by a nominal down day Friday had the market following it’s normal pattern the past nearly 30 years – jumping whenever the Federal Reserve hints (or essentially says outright) it is here for the markets.   And in case you missed it the prior Friday, Chairman Powell came back out Thursday to reiterate the news – so…so… so… patient!

Fed Chairman Jerome Powell reinforced that message Thursday during a discussion at the Economic Club of Washington where he said that the central bank will be “fle...



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Members' Corner

Why Trump Can't Learn

 

Bill Eddy (lawyer, therapist, author) predicted Trump's chaotic presidency based on his high-conflict personality, which was evident years ago. This post, written in 2017, references a prescient article Bill wrote before Trump even became president, 5 Reasons Trump Can’t Learn. ~ Ilene 

Why Trump Can’t Learn

Donald Trump by Gage Skidmore (...



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Biotech

Opening Pandora's Box: Gene editing and its consequences

Reminder: We are available to chat with Members, comments are found below each post.

 

Opening Pandora's Box: Gene editing and its consequences

Bacteriophage viruses infecting bacterial cells , Bacterial viruses. from www.shutterstock.com

Courtesy of John Bergeron, McGill University

Today, the scientific community is aghast at the prospect of gene editing to create “designer” humans. Gene editing may be of greater consequence than climate change, or even the consequences of unleashing the energy of the atom.

...

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Mapping The Market

Trump: "I Won't Be Here" When It Blows Up

By Jean-Luc

Maybe we should simply try him for treason right now:

Trump on Coming Debt Crisis: ‘I Won’t Be Here’ When It Blows Up

The president thinks the balancing of the nation’s books is going to, ultimately, be a future president’s problem.

By Asawin Suebsaeng and Lachlan Markay, Daily Beast

The friction came to a head in early 2017 when senior officials offered Trump charts and graphics laying out the numbers and showing a “hockey stick” spike in the nationa...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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