Citi and BOA gone with the wind?

[ants]

[quote name='lordofavalon' post='1729194' date='Mar 22 2009, 18.27'][url="http://www.rollingstone.com/politics/story/26793903/the_big_takeover/1"]http://www.rollingstone.com/politics/story..._big_takeover/1[/url][/quote]
Ok, [i][b]that[/i][/b] was interesting.

I had no idea the US regulatory framework, was, well, so crap. They took away the capital requirements????? They allowed a regulatory body with one insurance expert to regulate AIG? It is so freaking insane.

And all that bit near the end on what the Fed is doing was pretty scary as well. I've always thought it was strange that the US allowed a private company to be its Federal Reserve, and just chalked it down to your capitalist ideology. But to think you actually wrote and passed legislation saying you can't even audit them? Of course, it does raise the question to what degree you can just off load the Fed, given it is a private company.

[Ashaman]

how can a company , bank or a finacial institution leverage them self, something like 30 to 1 in some cases?
people are complaining that home owner where under water, how can company that are so much leveraged not be under water to?

[Ashaman]

[quote name='ants' post='1729294' date='Mar 22 2009, 13.00']And all that bit near the end on what the Fed is doing was pretty scary as well. I've always thought it was strange that the US allowed a private company to be its Federal Reserve, and just chalked it down to your capitalist ideology. But to think you actually wrote and passed legislation saying you can't even audit them? Of course, it does raise the question to what degree you can just off load the Fed, given it is a private company.[/quote]

how come i hear so much every time the fed come up every one shakes their heads and tell me it IS NOT private and that it is controlled by the U.S of A?

[The Progressive]

[quote name='ants' post='1729132' date='Mar 21 2009, 22.11']Well, since we're trying to play the blame game, it would be remiss of me not to join in! ;)
I've ordered them below, although I should say I hold a bunch very comparable in blame, so I've named them #4.x.[/quote]

Great post by ant. I would like to add an additional comment that a crucial component driving the reckless participation of players like the banks, AIG and other big business entities culminating in the over leveraging of incredible systematic risks was the extremely broken compensation system which desperately needed reform.

There's a real chance to reform this in America via the current bill just passed by the House, let's just hope that Senate Republicans don't derail and fuck it up.

ETA: lol, in some small ways, Geithner is to be thanked for this. If it wasn't for his overtly cautious decisions in February (perhaps he was truly fearful of getting sued, perhaps he was trying to watch out for his Wall St. buddies, doesn't matter now), public anger wouldn't reach the boiling point today.

[The Progressive]

[quote name='Iskaral Pust' post='1727146' date='Mar 20 2009, 10.59']Anyway, I read this morning that they are unwinding these positions rather than retaining them, and they are 80% unwound already. So the problem is nearly done. The promise of those bonuses kept those people in place long enough to dismantle most of that crappy portfolio. Boy, did we trick them on that bonus promise.

I'm not thrilled that taxpayers unwound that portfolio at the worst possible time, but it may be better than an ongoing saga about this. I'm going to look around for verfication that the unwinding is really that far along.[/quote]

I'm curious as to how exactly are these positions are being unwind so fast? Do elaborate further if you have time.

[The Progressive]

[quote name='Chataya de Venoge' post='1729579' date='Mar 22 2009, 12.16']It's only broken if you're looking at receiving government funding, and then rewarding failure. If you're a company not under government control, you should be allowed to reward failure all you like...with the understanding that you will likely go bankrupt and won't be rescued by the US taxpayer.

That's how it's supposed to work, only now we have "too big to fail", and people - our representatives, supposedly - not paying attention to compensation structures when negotiating bailouts.[/quote]

I think you got the chronology mixed up. The bailout negotiation for AIG was done by Paulson back in last November and has no input from Congressional representatives.

ETA: I think the bill is designed to remedy your first point. If these entities don't like the deal, they are welcome to stop suckling on the taxpayers teats and live or die on their own.

[The Progressive]

[quote name='Chataya de Venoge' post='1728782' date='Mar 21 2009, 14.46']Lev - untrue. The Obama plan (see link) will [b]not[/b] help people who got laid off and can't pay their mortgage because they have no income (ironically, these are the only people for whom I feel sorry). Although Mr. Obama says it won't help those who bought houses they couldn't afford, that's practically the damn definition of how ARMs were used during the boom years.

[url="http://www.npr.org/templates/story/story.php?storyId=100831129"]http://www.npr.org/templates/story/story.p...oryId=100831129[/url]

Yeah, we have to subsidize the fucking idiot losers who couldn't read a contract. Damn morons.

Please pardon my language, but I've never quite felt this upset before.[/quote]

Chat,

You're right, this plan is essentially rewarding people who bought houses they couldn't afford. So instead of letting foreclosures act as a mechanism to restore home value to its equilibrium, this shitty plan would only prop up home prices at a still artificially high level.

[Iskaral Pust]

[quote name='Pax Thien Jolie-Pitt' post='1729594' date='Mar 22 2009, 15.34']Chat,

You're right, this plan is essentially rewarding people who bought houses they couldn't afford. So instead of letting foreclosures act as a mechanism to restore home value to its equilibrium, this shitty plan would only prop up home prices at a still artificially high level.[/quote]

The problem with letting houses prices fall too far is that they will fall well below equilibrium price (that is a constant feature of bursting asset bubbles), it will incur many voluntary foreclosures by homeowners of weak moral fiber that are otherwise avoidable (perptetuating a feedback loop and holding down consumer confidence), and it will restrict mobility within the labor force at a time when we need workers to be more flexible and mobile (because families cannot afford to sell at a loss and write a big check to the bank).

If we prop up house prices now, the lesser of two evils perhaps, we are likely to cause price stagnation in real estate for many years. Prices will be buoyed by low interest rates, as prices naturally inflate the effect will be offset by rising interest rates, creating anemic absolute price growth over the medium term, and decreasing real price growth. They're shooting for a soft landing that will gradually allow real estate to fall to a more appropriate real price. We'll see if it can be managed. The last attempt by the Fed to ease into a soft landing created this credit bubble.

[The Progressive]

[quote name='lordofavalon' post='1729194' date='Mar 22 2009, 00.27'][url="http://www.rollingstone.com/politics/story/26793903/the_big_takeover/1"]http://www.rollingstone.com/politics/story..._big_takeover/1[/url][/quote]

That is a damn good article; thanks for linking to it.

[The Progressive]

[quote name='Triskele' post='1729896' date='Mar 22 2009, 18.41']Check out this [url="http://Salon.com"]article.[/url] It is about how much money from huge corporations is hidden in foreign subsidiaries in places like The Caymans, Andorra, etc...

It estimates that the US loses 100 billion annually in lost tax revenue. Just a one page article.[/quote]

You linked to the front page, the actual article is here:
[url="http://www.salon.com/opinion/conason/2009/03/23/big_clawback/"]http://www.salon.com/opinion/conason/2009/...3/big_clawback/[/url]

[Jaime L]

[quote name='Iskaral Pust' post='1729610' date='Mar 22 2009, 15.55']They're shooting for a soft landing[/quote]

[url="http://www.youtube.com/watch?v=ohN_SzPQr5k"](Real Life Dramatization)[/url]

[AndyP]

Chat

I have a new avatar for you

[Iskaral Pust]

I'm not a fan of this new proposal for a public-private partnership to buy toxic assets from banks. It offers investors a highly leveraged route to buy risky assets, with the govt acting as prime broker and insurer with very weak collateral (a small equity stake and the crappy debt itself).

As an investor, I'll be looking for any high yield funds that will be partaking of this. It seems like a great bet. From that perspective, this might be a very successful policy. However, it leverages the govt risk exposure far beyond what was intended in the TARP bill, and effectively circumvents the oversight of Congress. Perhaps the populist rage is forcing them to use under-the-table solutions, but it's not how I would like to see this play out.

[url="http://www.nytimes.com/2009/03/24/business/economy/24bailout.html?hp"]Description from NYTimes[/url]

[Altherion]

Maybe they're counting on people to get sick and tired of this and stop paying attention? I feel like there has been a biweekly cycle of announcements saying that the government is going to spend X billions of dollars to prop up something or other.

I don't really understand what the plan is anymore. First they decided to give money to the big banks and hope that this keeps them afloat. Then they decided that it might be better to set up a program that takes the bad assets off their books. Now it seems that we've given them the money [i]and[/i] we're going to take those assets off their books. I don't think even the most brilliant financial types know what the combined price tag of all of these programs will be -- perhaps not even within a factor of 3.

[Piper]

[quote name='Iskaral Pust' post='1730237' date='Mar 23 2009, 11.15']I'm not a fan of this new proposal for a public-private partnership to buy toxic assets from banks.[/quote]

[url="http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE52M4SS20090323"]Neither, apparently, is Paul Krugman[/url]

[The Progressive]

[quote name='Altherion' post='1730246' date='Mar 23 2009, 08.28']I don't really understand what the plan is anymore. First they decided to give money to the big banks and hope that this keeps them afloat. Then they decided that it might be better to set up a program that takes the bad assets off their books. Now it seems that [b]we've given them the money [i]and[/i] we're going to take those assets off their books.[/b] I don't think even the most brilliant financial types know what the combined price tag of all of these programs will be -- perhaps not even within a factor of 3.[/quote]

Not just that, they're also getting paid through AIG as well. This trifecta of money channeling is the biggest public subsidy for the greatest gambling lost of corporate history. I'm so pissed off about this, especially after learning more from the rollingstone article about Geithner's role from the Paulson's bailout last year and their more than cozy relationship with all the big players on Wall Street.

On the other hand, I also understand the Obama administration's need entice institutional investors to participate since they don't have the balls to let these big banks to die .............. my tolerance however is hinging upon the new regulatory frameworks they'll unveil soon and whether or not the bill to tax bailout bonuses will become law.

[Iskaral Pust]

Lev - I'm not sure that the Senate will endorse the taxing of those bonuses at 90%. There tends to be more of the "older, wiser heads" caution in that august body. That's not to say the House is wrong, but the Senate seems more likely to resist populism.



There was another proposal, reported in the NYTimes last Friday (I think), that the govt is mulling over whether they should make a direct intervention on executive pay in general, and whether a legal or regulatory approach would be more appropriate and effective. This is pretty close to what I suggested last week: that a populist revolution, bordering on communist, might see that bonus taxing get applied to everyone.

I've said for years that executive comp is broken and needs to be fixed, but I would much rather see shareholders do it than the govt.

[The Progressive]

I also would rather have shareholders be instrumental in the reforming of compensation packages, but unfortunately that has been an abysmal failure due to the boardroom nepotism inherent in current corporate governance. Nevertheless, the bonus tax shouldn't be universal and should only apply to entities that are sucking on the taxpayers teats. I see this as a rather necessary incentive for them to accelerate the separation process. That coupled with the new plan to detox their balance books should see a rather fast recovery of the credit market.

[Fatuous]

[quote name='Piper' post='1730451' date='Mar 23 2009, 14.10'][url="http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE52M4SS20090323"]Neither, apparently, is Paul Krugman[/url][/quote]

This quote is not from Krugman, this is from one of Obama's Economic Advisors:
[quote]"This is really tails both the government and the private sector win, heads both the government and the private sector lose. We both are going to have, as the saying goes, skin in the game."[/quote]

I thought that this might be the case. I now imagine the Banking Section of the US Economy as Sheriff Bart from Blazing Saddles. The scene where he faces down an unruly mob by taking himself hostage is particularly apt. "I am so good and they are so dumb." is about the right quote as the Private Sector seems to win either way under this plan. If I understand this right, that is.

Regardless, a prognosis of 50/50 that the patient either lives or dies is just fantastic. And remember, this is from the people who believe in this plan!

[The Progressive]

[quote name='Iskaral Pust' post='1730237' date='Mar 23 2009, 08.15'][b]As an investor, I'll be looking for any high yield funds that will be partaking of this. [/b] It seems like a great bet. From that perspective, this might be a very successful policy.
[url="http://www.nytimes.com/2009/03/24/business/economy/24bailout.html?hp"]Description from NYTimes[/url][/quote]

I share the same thought too; seems like a great opportunity for some long term investment.