Citi and BOA gone with the wind?

[The Progressive]

[quote name='Ashaman' post='1696856' date='Feb 23 2009, 12.58']btw i have lost track of how much money have been pored out from the printing press and other sources in the U.S to help recover from this mess. any one know the number of M1, M2 and M3 there are in the us before and afther this giant shit hit the fan?[/quote]

Why here's a handy chart just for your question:

[url="http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/"]http://money.cnn.com/news/specials/storysu...lout_scorecard/[/url]

Total amount spent so far is $2.2 trillion.

[Ashaman]

woah, and 11 trillion allocated that will in effect dubble U.S goverment deabt wich last time i heard where in about 10 trillion.

but trying to put thees humongus numbers in to some context, any one know how much this is compared to totall amount of money in the economy ([url="http://en.wikipedia.org/wiki/Money_supply"]M3[/url] as far as i have heard the terme)?

a shout i found it, [url="http://upload.wikimedia.org/wikipedia/en/9/95/Components_of_the_United_States_money_supply2.svg"]link[/url] url: [url="http://upload.wikimedia.org/wikipedia/en/9/95/Components_of_the_United_States_money_supply2.svg"]http://upload.wikimedia.org/wikipedia/en/9...ney_supply2.svg[/url]

deam how can this be possible, to allocate 11 trillion dollars in a economy not whort much more then 11 trillion about 3 years ago...

what i am aming at is how can this add up?

[ThinkerX]

At first I thought it was just more semi-gleeful muttering from the nutjobs, but apparently it is true: the DOW did loose 251 points today, closing at a level not seen since May of 1997. One of the nutjobs ran a 'back of the envelope' inflation adjusted calculation on that and said with that factored in, the DOW is at 1996 levels. They are speculating that if this trend continues the DOW will be trading below 7000 by the end of the week - or maybe tomorrow.

Rather than link to their thread (long and both boring and disturbing for many of the people here), I instead put forth this link to the MSN assessment:

[url="http://articles.moneycentral.msn.com/Investing/Dispatch/market-dispatches-022309.aspx?icid=dispatch_090223"]http://articles.moneycentral.msn.com/Inves...dispatch_090223[/url]

It seems that the Feds are trying to aquire huge amounts of Citi common stock. They keep saying they don't want to nationalize Citi or other financial institutions, but they never really rule it out either.

AIG is claiming that without a massive new government infusion they will go Chapter 11, period - and soon.

And then there be that humiliating Micro-soft bit - demanding money back from laid off employees? And citing a 'computer glitch' as the reason for the overpayment? *This*, from *the* computer company? Something does not compute here.

[WarGalley]

[quote name='ThinkerX' post='1696925' date='Feb 23 2009, 16.40']AIG is claiming that without a massive new government infusion they will go Chapter 11, period - and soon.[/quote]

This [url="http://www.cnbc.com/id/29353282"]article [/url]claims:

[quote]American Insurance Group, the insurance giant that is 80-percent owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.

Sources close to the company [AIG 0.53 -0.01 (-1.85%) ] said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate.

That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.[/quote]

[ThinkerX]

Way past time to stop dumping dollars into AIG. Simply break the company up and declare all those CDO's and security thingees fraudulent and refuse to honor them. That outfit has eaten ... what $300 billion???... in taxpayer dollars in less than six months.

[Iskaral Pust]

[quote name='Stalker' post='1695509' date='Feb 22 2009, 05.03']Leverage just exaberates the issues, not cause them, so I don't hold that to be so important. The argument I mostly heard was that the dependability of the deposits provided a buffert for the investment side.[/quote]

Being half as much leveraged means they had twice as much equity relative to toxic assets as did the i-banks, so it takes that much longer for the losses on toxic assets to wipe out the equity. Of course the cause is still the crappy mortgages they held, but lower leverage meant they looked relatively better able to ride it out.

[ThinkerX]

[quote]Being half as much leveraged means they had twice as much equity relative to toxic assets as did the i-banks, so it takes that much longer for the losses on toxic assets to wipe out the equity.[/quote]

Doomed in a year or doomed in a month is still doomed. I would also point out these criminal nitwits lobbied heavily so they could run these scams with absurdly low amounts of equity. They did all that to themselves.

[quote]Of course the cause is still the crappy mortgages they held, but lower leverage meant they looked relatively better able to ride it out.[/quote]

Failure to do even cursory research/fact checking on these mortgages - indeed, in many instances actively holding in contempt those who did so - also contributed to this mess. I refer here to the political manuvering inspired by these criminals which delayed the investigations that would have nipped this mess back in 2005 before it ballooned out of control and into the menace it is today.

One weird item or a definitely fraudulent nature the nutjobs are starting to comment on. Actually, it is the same item, repeated more and more often, though you have to dig way down into the strictly local level news to find it most of the time:

Sheriff (or whoever) gets notice to forclose on house and evict tenants. He climbs in squad car, heads to the address...and finds an empty lot. No house was ever there - but the mortgage paperwork not only claims a house was there, but that it sold for a lot of money. If the nutjobs are to be given any credence, there is a *lot* of this sort of thing going on. But who benefits from a scam like this? Homeowner? They apparently never existed. Mortgage Broker? Err...If he could fake up the paperwork, I suppose he'd get his cut of the commission...but wouldn't he have to put up at least some of his own money for the down and the fees? The I Bank? Bonus driven, bonus's driven by sales...fake sales resulting in real bonus increases...would that be it?

[CloudFlare]

[quote name='ThinkerX' post='1697578' date='Feb 24 2009, 01.25']Sheriff (or whoever) gets notice to forclose on house and evict tenants. He climbs in squad car, heads to the address...and finds an empty lot. No house was ever there - but the mortgage paperwork not only claims a house was there, but that it sold for a lot of money. If the nutjobs are to be given any credence, there is a *lot* of this sort of thing going on. But who benefits from a scam like this? Homeowner? They apparently never existed. Mortgage Broker? Err...If he could fake up the paperwork, I suppose he'd get his cut of the commission...but wouldn't he have to put up at least some of his own money for the down and the fees? The I Bank? Bonus driven, bonus's driven by sales...fake sales resulting in real bonus increases...would that be it?[/quote]

I've been watching the mortgage mess, and have yet to hear of a non-existent house. All the parties involved have to interact with a county recorder, and as bad as they are, this goes beyond the pale.

There has to be a house and a human in the loop, otherwise whoever ends up owning the mortgage, which usually isn't the originating institution, is on the hook for fraud.

[一方通行]

[quote name='ThinkerX' post='1697184' date='Feb 23 2009, 18.48']Way past time to stop dumping dollars into AIG. Simply break the company up and declare all those CDO's and security thingees fraudulent and refuse to honor them.[/quote]

that'll go over real well.

lets print off a a couple trillion dollar bills and mail 'em to china while we're at it. National debt gone!!!!!

[ThinkerX]

[quote]that'll go over real well.

lets print off a a couple trillion dollar bills and mail 'em to china while we're at it. National debt gone!!!!![/quote]

The alternative comes down to handing those crooks something on the order 200-300 billion a year for the forseeable future (next decade or so). And we get *nothing* in return. Plus, no matter what the goverment idiots running things claim, I maintain that as much as half of that money would end up effectively stolen.

From where I am standing, the so called 'money' represented by those CDO's and security thingees never really existed in the first place. These crooks are trying to get us, the taxpayers, to honor a debt that did not and does not actually exist. That is criminal. The claimed totals for these CDO's/Securities is several times greater than all of the money generated on the entire planet! That alone should tell you that something is not right; that the nitwits running these companies are also trying for a giant payout.

[Lany Freelove Cassandra]

[quote name='ThinkerX' post='1697744' date='Feb 24 2009, 05.40']The claimed totals for these CDO's/Securities is several times greater than all of the money generated on the entire planet! That alone should tell you that something is not right; that the nitwits running these companies are also trying for a giant payout.[/quote]

Have you ever seen a Truth and Lending statement for a loan? They tell you the total you will pay over the life of the loan.

Say you have a mortgage for $150,000. When you add in all the interest the total is often close to 3 times that, so $450,000. The interest is paid first and very little prinicpal is paid. It is the $450,000 that is added in the securities.

Most MBS are not bad and the majority are still performing. The CDOs are another story, that is true.

[Balefont]

Though we had a blood bath in the private bank on Friday, [url="http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5776682.ece"]this article[/url] is basically where my thoughts are with respect to BAC:

[quote]In a statement, Mr Lewis insisted that speculation about nationalisation was based on a poor understanding of BoA. He said: “We see no reason why a company that is profitable, with strong levels of capital and liquidity, and that continues to lend actively should be considered for nationalisation.”

...

[size=2][b]The American Bankers Association called for an end to speculation about nationalisation, describing it as “harmful to the markets and harmful to the [banking] system”. [/b][/size][/quote][size=2]

[font="MS Reference Sans Serif"]Emphasis mine. The speculators of the past 10 years have turn the stock market into a "get rich quick" scam/casino. I, personally, just bought another 300 shares of the BAC stock fund. [/font]



Edit for formattin'.[/size]

[The Progressive]

No doubt there are various hedge funds that are actively shorting BoA and City stocks right now .............. for your sake I hope they're wrong.

[Iskaral Pust]

[quote name='Pax Thien Jolie-Pitt' post='1698170' date='Feb 24 2009, 13.26']No doubt there are various hedge funds that are actively shorting BoA and City stocks right now .............. for your sake I hope they're wrong.[/quote]

The problem is, and I think that this is frequently not understood about markets, prices are only set by marginal buyers and sellers. If active traders start selling short, it can force the price down so that the passive indexers have to sell too in order to maintain the benchmark weights as market cap has just dropped. So the short sale is a self-fulfilling prophecy, amplified by passive indexers.

Usually the short sale will be reversed if other active managers see value in the new low price and rush in to buy. But if there is a lot of momentum on the selling (look at Lehman and Bear Stearns) and possible buyers are concerned, e.g. by getting wiped out in a nationalization, then the short sale can reach critical mass and the company collapses.

So the short selling reached critical mass and the company died not because there was no hope of the business continuing as a going concern (although that might be true), but because of how markets work. A lot of people watch the market and view it as a true indication of things, but that's actually a very naive understanding that has somehow become part of our accepted wisdom. <I'm not saying that Lev has this naive understanding, but a lot of Joe Public does>

Edit: so the hedge funds can be wrong about the viability of the business, but still be right in that they short sell it out of existence.

[ThinkerX]

Ok...real b asic, fundamental question here:

Where is the Bailout money going?

AIG and Citi and the rest claim huge deficits, hence the need for more money. They have to make payouts on these CDO and security thingees that are detonating right and left - or so they say.

Taken at face value, that makes them conduits, not recipients.

But just exactly who is the end recipient of all that money? Who is going to end up with something on the order of 95% of the money on the planet when the financial dust settles?

Note that a blanket answer of 'investors' is not acceptable here. Specifics. Or are you going to argue that this money that is so desperately needed to settle the terms of these CDO's and security thingees just literally vanishes?

[Iskaral Pust]

[quote name='ThinkerX' post='1698362' date='Feb 24 2009, 15.26']Ok...real b asic, fundamental question here:

Where is the Bailout money going?

AIG and Citi and the rest claim huge deficits, hence the need for more money. They have to make payouts on these CDO and security thingees that are detonating right and left - or so they say.

Taken at face value, that makes them conduits, not recipients.

But just exactly who is the end recipient of all that money? Who is going to end up with something on the order of 95% of the money on the planet when the financial dust settles?

Note that a blanket answer of 'investors' is not acceptable here. Specifics. Or are you going to argue that this money that is so desperately needed to settle the terms of these CDO's and security thingees just literally vanishes?[/quote]

The money has not disappeared, it has gone to people who made money on inflated house prices. That is who really sucked up all this money.

Investors loaned money and, if they're lucky, might get it back. They are not receiving anything they did not put in already. The only people who are getting something they did not put in are all the homeowners/developers/realtors/mortgage brokers who sold houses at inflated prices, or who "tapped the equity" in an inflated house price They are the ones who got money for nothing.

People who made money on a house sale but then sunk the profits into buying another inflated house are exempt from this criticism. All the money that our govt is currently trying to replace was ultimately taken from the system by people who extracted real money in some way from inflated home prices.

Wall St. taking a commission on securtized debt was part of it, but if you follow the money, then a lot more of it went to HELOCs spent on SUVs and TVs, people trading down (e.g. sell the big house and move to a condo in Florida) and the realtors and mortgage brokers getting their commissions everywhere.

That's the uncomfortable truth that a lot of people avoid. It's easier to blame Wall St.

[The Progressive]

[quote name='Iskaral Pust' post='1698346' date='Feb 24 2009, 12.10']so the hedge funds can be wrong about the viability of the business, but still be right in that they short sell it out of existence.[/quote]

Agree with most of this post, but I would argue that perhaps the short-traders aren't wrong about the viability of BoA of City as they are. Both of these companies' traditional bread-and-butter business of saving and lending (normal bank stuff) are doing fine and is well capitalized; what make the firm on a whole nonviable is that the peeps running these firms thought they were so smart that they expanded aggressively into other markets such as commodities and the selling of credit default swaps on collateralized debt obligations (CDOs) without heeding proper risk. Anyhow, both BoA and City stocks jumped today, so perhaps the fear of nationalization had dampened.

[quote name='ThinkerX' post='1698362' date='Feb 24 2009, 12.26']Ok...real b asic, fundamental question here:

Where is the Bailout money going?[/quote]

As IP has explained, a lot of people made money prior to the collapse and promptly spent it on consumer products. A large chunk of this money was also put into investment vehicles, which also promptly declined when the stock market dived.

As to the specific bailout money from the government, most of it are still sitting in the banks, or is being used by banks to acquire other banks.

[ants]

[quote name='Iskaral Pust' post='1698407' date='Feb 25 2009, 07.00'][quote]Ok...real b asic, fundamental question here:

Where is the Bailout money going?

AIG and Citi and the rest claim huge deficits, hence the need for more money. They have to make payouts on these CDO and security thingees that are detonating right and left - or so they say.

Taken at face value, that makes them conduits, not recipients.

But just exactly who is the end recipient of all that money? Who is going to end up with something on the order of 95% of the money on the planet when the financial dust settles?

Note that a blanket answer of 'investors' is not acceptable here. Specifics. Or are you going to argue that this money that is so desperately needed to settle the terms of these CDO's and security thingees just literally vanishes?[/quote]
The money has not disappeared, it has gone to people who made money on inflated house prices. That is who really sucked up all this money.

Investors loaned money and, if they're lucky, might get it back. They are not receiving anything they did not put in already. The only people who are getting something they did not put in are all the homeowners/developers/realtors/mortgage brokers who sold houses at inflated prices, or who "tapped the equity" in an inflated house price They are the ones who got money for nothing.

People who made money on a house sale but then sunk the profits into buying another inflated house are exempt from this criticism. All the money that our govt is currently trying to replace was ultimately taken from the system by people who extracted real money in some way from inflated home prices.

Wall St. taking a commission on securtized debt was part of it, but if you follow the money, then a lot more of it went to HELOCs spent on SUVs and TVs, people trading down (e.g. sell the big house and move to a condo in Florida) and the realtors and mortgage brokers getting their commissions everywhere.

That's the uncomfortable truth that a lot of people avoid. It's easier to blame Wall St.
[/quote]
Got to admit, this doesn't ring true to me either.

On AIG, I think we can say two places the money is dissapearing to.

1. Collateral. The simple fact that AIG has a worse credit rating means they need to put money in collateral, which is causing their problems. Assuming everything else unchanged, having the collateral doesn't change the underlying viability of their position on the product (whether its a CDO or otherwise), it just makes the other party more secure. So a whole chunk of the government's money is simply going and sitting there, since AIG's current rating means they need to post it. Its not actually doing anything.

2. Insurance payouts. Effectively (if I understand correctly), AIG was effectively offering insurance on bond payments, for a whole heap of companies and a whole tranch of products that nobody in their wildest dreams expected to go bust together. But they have. So that means the bond holders who would have received a payment from the underlying product/company as interest and then their investment back, instead takes a payout from AIG. So effectively in this case the Government money is going to replace the money defaulting companies should have been paying on their bonds, or that bad mortgages should have been paying.

Now, I'm not sure whats happening with the banks. But given this kinda disagrees with what you said Isk, I suspect something along the above lines is also happenning with them.

And Thinker, you've got to remember a lot of this money is going in as capital, against the paper reduction in value of other assets. If all those CDO's turn out to have been mispriced, and in fact in 10 years time are worth a lot more than everyone expects because 90% of people do pay their mortgages, in hindsight we'll probably say the banks were sitting on whole piles of cash that [i]with hindsight[/i] they didn't need to. But given the current valuations, they need to.

[ants]

Reading the "Sense of Entitlement" thread, found out Iskarul Pust is also a qualified Actuary. Suddenly the fact we're both so active in the economy threads has gone from interesting to scary.

[Iskaral Pust]

Chataya - I understand that you feel like you worked hard for your profit on those houses, but put aside your personal perspective here. House prices were inflated by cheap credit made available to people who could not repay it. There was a bubble in real estate - that is a stone cold fact. We, the taxpayer, are now footing a big chunk of the bill for the bursting of that bubble. The people who took money out of that bubble before it burst, money that is now being replaced by the taxpayer, are those who made profits from houses and did not sink them back into another inflated house. The question was where did the actual money go - that's where it went. No amount of indignation on how hard you worked will change the fact that is where actual dollars went.

Home values are basically illiquid, because even when you sell one you usually buy another in similar market conditions. In that way, not a lot of true money disappears when home values decline. Some people might have mortgages that are underwater, but they have the same mortgage payment they always had. No actual money has been taken from them. The only people who took away actual money are those who liquidated their home value in some way: HELOC, selling without buying another or selling and then buying smaller, and of course all the commissions for realtors, mortgage brokers and Wall St.


Ants - for AIG, all of the losses are basically on the CDS, which is bond default insurance. Even the collateral is just mark-to-market cash for losses on those. They didn't have to post any actual cash while they were AAA (what a stupid rule, that they played for their own advantage as long as they could), and then suddenly had to find cash after a downgrade to AA. But the losses were already made on a mark-to-market basis, they just did not have to hand over any cash to back those losses until they were downgraded.

It easier to think of it as they held a HUGE, leveraged amount of exposure to mortgages and other credit debt. Way more than they could really afford to lose.