Fed Relaxes Restrictions for J.P. Morgan-Bear Deal
The latest evidence of the Federal Reserve breaking from its usual practices to support the sale of Bear Stearns to J.P. Morgan Chase: The central bank has agreed to temporarily relax certain restrictions on transactions between banks and their affiliates and ease regulatory capital requirements to facilitate the proposed takeover.
The Fed approved a request by J.P. Morgan to exempt it, for a period of 18 months, from rules that limit the amount of “covered transactions” between a bank and any single affiliate to 10% of the bank’s capital stock and 20% for transactions with all affiliates. The approval was conveyed to J.P. Morgan in a letter to the bank’s associate general counsel posted on the Fed’s Web site.
J.P.Morgan “has requested that the Board exempt from section 23A and Regulation W, for a period of 18 months, certain covered transactions between JPMC Bank and its affiliates, up to an aggregate of 50% of the bank’s capital stock and surplus, to facilitate the acquisition by JPMC of Bear Stearns,” the letter from the Fed stated. The exemption would be phased out gradually and expire on Oct. 1, 2009, the Fed said. The Fed has granted similar requests before to facilitate mergers.
As a condition of the temporary waiver, J.P. Morgan “must guarantee the performance of the affiliate for the benefit of JPMC Bank in connection with any exempt extension of credit or guarantee by JPMC Bank,” the letter stated.
In addition, the Fed approved a request by J.P. Morgan allowing it “for a period of 18 months, to exclude from its total risk-weighted assets (the denominator of the risk based capital ratios) any risk-weighted assets associated with the assets and other exposures of Bear Stearns, for purposes of applying the risk-based capital guidelines to the bank holding company.”
It also granted a request by J.P. Morgan to exclude for 18 months “from the denominator of its tier 1 leverage capital ratio any balance-sheet assets of Bear Stearns acquired by JPMC, for purposes of applying the leverage capital guidelines to the bank holding company,” according to the letter.
As a condition of the approval, the amount of Bear Stearns assets excluded from J.P.Morgan’s risk-weighted assets can’t exceed $220 billion. “The amount of the exemption will be reduced by one-sixth in each subsequent quarter” and expire on Oct. 1, 2009, the letter from the Fed stated.
The amount of assets excluded in the tier 1 leverage capital guidelines can’t exceed $400 billion. The exemption will be similarly phased out over 18 months. “These regulatory capital exemptions would assist JPMC in acquiring and stabilizing Bear Stearns and would facilitate the orderly integration of Bear Stearns with and into JPMC,” the letter stated.
J.P. Morgan “has committed to remain well capitalized .. during the term of the exemptions, even without the regulatory capital relief provided by the exemptions,” the letter stated. –Brian Blackstone
This was a done deal from the get go on Bear… why in the hell do you think BlackRock helped JPM (JD) out by forming “Penny MAC”… the game is up! PennyMac over the next 18 months will take the (shock absorber) out of JPM’s back pocket and make him… (JD) & JPM… “Look like a (Winner) of what’s behind door #3?”… You think! All the while the US tax payer foots the bill on interest payments of $30 Billion… over 18 months… give me a break! Just how dumb is the American Public? Pretty darn… “DUMB”… I think!
The OZ
Just show me the details in fine microscopic print behind closed doors… you think!
The OZ
23A and Regulation W, for a period of 18 months… this loop hole or “Black Hole” I’ve been posting about for the last two weeks. It is the non-transparent reporting to the SEC and Government Regulators that gives the Hedge Funds the “Rights” to steal and lie to the American People… and I don’t have to think… twice about that statement… go look it up for yourself! We are right back to where we started last summer! Ah… heck let’s just do it over again, just for the fun of it and watch the US Tax Payer wither on the sub-prime-mortgage Vine of debt! You wana’… “BET”!
The OZ
Mr. Oz:
You will not be privy to behind the door meetings.
Did big Dick invite you to his energy meeting?
What makes you think big money wants to invite you if big oil doesn’t?
Another reason the fed should be abolished FOREVER!!!!!!!!!!!!
Is the fed going to keep making it up as they go along????
BIG OIL is not my piece of the pie; however it’s no surprise Oil is allowed to eat the whole pie (profits) although everyone already knows about the “Shell Game” at the refineries… you think… Mid Summer/Fall Delays of 2008 Un-Leaded to customers… forces the reinsurance of Ethanol to higher levels of production… hummm… Corn goes through the commodities roof line of demand future prices! What’s in you wallet!
The OZ
It’s really unfortunate that as soon as a transaction begins to appear “complicated”, Congress defers to the Fed or Treasury. If this was such a good deal and “only JP Morgan could do it”, why is it necessary to come back “after-the-fact” and make these exclusions.
Even if the transaction had to be “rushed”, as Mr. Bernanke insists, there was still plenty of time and “plenty of people” to “think through” all of the required language. Will there be more exclusions next week?
The WSJ reported today that Congress is considering a bill to purchase certain assets of student loan lenders to provide liquidity for them to make more student loans. Students clearly need access to student loans, however, this does not appear to be the most effective solution. The federal government has already degraded its balance sheet by adding $Billions of low-grade securities from brokerages. It is proposing to add collateral from student loan lenders, which will (by definition), be illiquid. Will it next need to “free up” credit card receivables to allow banks and financial institutions to continue the supply of credit?
Even if the Fed and Treasury are to be “trusted” in these transactions, Congress is there to “verify” that EACH transaction is in the “best interest of the taxpayer and the nation. If things go wrong with transactions related to securitized products, the taxpayer losses could dwarf the $75 Billion absorbed during the 1980’s S&L crisis. Where is Congress?
Deep rooted corruption and fraud must be investigated and perpetrators of crime must be put behind the bars.
Phil,
Great blog, I could not have said it any better! The $75 Billion in the 80’s will look like the Book Runners Racket on wall street in the numbers of actual loses of defaults incured by the Tax Payer in the 2000’s… you think!
The OZ
You are misinforming people. Your dollars will soon be worth very little. Please buy gold and silver, as much as you can- its the only money that is valid anywhere in the world, anytime in history. Your family will thank you.
Yes, there is inflation. Look around, the price of oil and gas is going up and will continue to go up. Economies run on oil/gas. When prices are high, it just eats up the money in an economy. Inflation is up because of helicopter Ben is just creating so much more money into the system that it will take more dollars to buy things, meaning inflation is going to hit at the 2nd part of this year. Just watch, inflation will possibly get out of control, time will only tell.Gold and Silver/Commodities
Fed may collapse due to defaults in risky assets on its balance sheet.
Is there any truth to the rumour that Bush/Cheney are now seriously considering appointing Robert Mugabe as either SEC Chair, FED Chair or both?
The Fed is doing everything to be investor friendly.
Gabriel Russo:
As long as the investors are shareholders in JPM.
FRNS that are totally worthless
Bank closings all across the U.S
Bank runs with millions of frantic people trying to get their few hundred dollars withdrawn
War with Iran
economy on verge of total collapse
and if this werent enough, factor in worldwide silver shortage the likes that have never been seen before.
Mr. Gorbachov; tear down this Fed !
“Fed Relaxes Restrictions for J.P. Morgan-Bear Deal”
See “The Institutional Risk Analyst” article of March 25,2008 for insight into all this.
1. “The latest evidence of the Federal Reserve breaking from its usual practices to support the sale of Bear Stearns to J.P. Morgan Chase” is also the latest evidence of the Federal Reserve aiding and abetting the Ponzi scheme and investor fraud.
2. Last week the SEC issued a “clarification” of accounting rule SFAS 157 that allows financial companies to avoid writedowns of Level 3 assets if the prices are the result of a forced liquidation or distressed sale. This gutting of the accounting rule is the latest evidence the SEC is aiding and abetting the Ponzi scheme and investor fraud.
3. The Treasury Department orchestrated the bailout of Bear Stearns counterparties and debt holders and the $29 billion backing of Bear Stearns paper,…Bear Stearns, one of the ringleaders in the entire CDO fiasco, mortgage meltdown, and credit crisis. The same Bear Stearns that is under investigation by the SEC and various federal and state prosecutors. The same Bear Stearns that will be hit with investor lawsuits about false and misleading disclosures. The same Bears Stearns that is one of the worst perps and, if “moral hazard” means anything, should not get a dime of Fed or federal help.
4. In regard to the argument that preventing bankruptcy of Bear Stearns was necessary to prevent financial Armageddon, if that be true then it is “the latest evidence” that the Federal Reserve, SEC, and Treasury Department have been aiding and abetting the Ponzi scheme and investor fraud. How is it that the failure of one, relatively small investment bank would lead to the destruction of the entire world-wide financial universe (”must rescue Bear Stearns before Asia markets open Sunday night”). The Fed, SEC, and Treasury are either guilty of incompetence or guilty of aiding and abetting the Ponzi scheme and investor fraud by acts of omission and commission. I have a high regard for the intelligence of Mr. Paulson, Mr. Bernanke, and Mr. Cox. I do not believe they are incompetents.
5. The end does not justify the means.
How is it? Those Republican Feds are very weary to pass HM, King Anthony Santiago Martin and they couldn’t force HM to go outside in Bulacan Area and they wanted to claim over all wealth assigned to him.
Papou:
You are so right about this accounting irregularity. Experienced investors will still notice that the financial sector has no capital and run fron these stocks. www.abmgts.blogspot.com
Bernanke’s Agenda
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more at http://money-sage.com
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Now that Dr. Bernanke has seized control of the FED it is no longer necessary to assess internal divisions within the central bank, conflicting attitudes and perceptions among central bank policymakers, or shifts in the balance of power on the Federal Open Market Committee (FOMC). As the subprime crisis unfolded, Bernanke staged a coup d’etat, transforming himself from laid back chairman of the board to stern and omnipotent captain of the vessel. Bravo Bernanke!
The FED is, once again, a one-man show. We can only hope that Bernanke can undo at least some of the grievous damage wrought by the once universally acclaimed “Maestro.” We do not think it unfair to judge that Greenspan’s central legacy was what we perceive as his deliberate refusal to halt or contain the frenzy of imprudent bank lending to would-be and existing homeowners, and the riverboat gambling of the great commercial banks on highly leveraged securities whose ultimate decline in value was an inevitability.
It was of course the leveraging beyond all reason, and the concentration of speculation on ONE ASSET CLASS — to wit, real-estate based securities — which has brought the banking system to the brink of collapse. In this regard we feel constrained to express our understanding — if news accounts are to be believed –that Bernanke, during his term as a FED governor, did NOT join Mr. Gramlich and others in pressing Chairman Greenspan on the need to fulfill the FED’s regulatory responsibility and rein in gross bank overspeculation on dangerously leveraged securitized instruments.
Well, be that as it may, we must now address the Bernanke agenda.
As we see it, there exists an immense — and indeed, an unbridgable — gap between the FED’s professions and its actual intent. The thrust of Bernanke’s statements, supported by many of his colleagues at the central bank, by the Treasury, by the White House, and by a large body of economists and Wall Street pundits, is that Bernanke’s policy is intended to prevent recession. Failing this, the policy objective is to insure that any recession is brief. The Bernanke FED thus aims to restore economic growth, following a brief and shallow period of no-growth or mildly negative growth.
We would opine that growth, and recession-prevention, are about as central to Bernanke’s concerns as are future vacation plans to a man experiencing an acute coronary. Bernanke, in our view, has one overriding objective. That objective is to PREVENT A COMPLETE AND IMMINENT COLLAPSE OF THE BANKING SYSTEM. Bernanke is aware, we think, not only of the proximity of the great commercial and investment banks to the brink of the abyss, but also of the fact that should such a collapse occur the inescapable consequence would be a serious economic DEPRESSION.
While the grave risks to the banking system are not now being dismissed as promptly and as airily as before the Bear Stearns collapse, the FED and other policy-influencing centers continue to emphasize the FED’s focus on maintaining or at least restoring “growth.” This focus is driven by the perceived need to DEFLECT PUBLIC ATTENTION from the grave state of the banking system and the implications of the persisting paralysis of much of the credit market DESPITE herculean FED efforts to unfreeze same. It is essential to prevent an additional downward spiral of cratering confidence and widening refusal to extend to credit to any borrower save the US government to be SUPERIMPOSED UPON and to REINFORCE the intensifying downward spiral of falling real estate prices, falling securitized real estate issuance prices, weakening bank balance sheets, and the consequent intensification of the deepening credit contraction.
All other policy objectives are necessarily being subordinated to the decisive issue of containing, and then rolling back, the threatening collapse of the banking system.
The failure of the FED’s drastic rate cuts to halt, or even seemingly reduce the speed of the spreading real estate bear market and the consequent contraction and increased costliness of bank lending is suggestive of the gravity of the crisis which confronts the FED.
Good, we got rid od Eliot Spitzer just on time.
Mr. Soros says in a CNN interview (you watch this weekend):
-5,000,000 foreclosures coming
- the authorities (Bernanke etc.) are unaware of the gravity
- the stock market will drop in 6- 12 weeks
-USA is in serious recession
- China will charge 15-20% more for its goods to US …Walmart will raise its prices faster and faster…15% rate impacting “core inflation”
-gold price will rise still more
-the dollar is closer to “tipping” (crash)
Mr. Soros believes the Govt should buy the 5 million foreclsores and keep the people in their homes or otherwise houseing will go WAY down
What has happened is essentially that Iran has frustrated the joint US-British objective of gaining control of Basra, without which the strategy of establishing control over the fabulous oil fields of southern Iraq will not work.
Hey poli–It’s hard to argue with a billionaire like George Soros, but he has been wrong before on a number of occasions. More importantly, he is a precious metals guy, not a true investor (or trader) in stocks & bonds. His interests would be served by a decline in the stock market. Frankly, I think he is partly right, but his credibility is dubious given his bullion bias.
Buy equities!
Terry…..When you hold the expression of your hard work in paper, you have to have faith in quite a few man made institutions. When you hold physical gold in your hot little hand, you don’t have to trust anybody. It’s that simple.
YEAH….LETS BAIL OUT THE THIEFS!!!! Most of these Subprime loans were either to leaniant of restrictions to buy a home or fraudelent! FAKEPAYCHECKSTUBS . COM
Has anybody checked grocery bills recently? The prices of essential commodities have been increased upto 30%. This is way above the official inflation figure of 2.5%. This is a very serious matter for various reasons , as this affect everybody. And sadly inflation control is not Govts top priority , while many goverments around the world do consider inflation as #1 priority. In the last couple of days, many emerging countries have banned exports of essential commodities to developed countries just to contain infation in their countries. My question is , if they are banning exports to USA , why USA is not banning exports of jobs because the USA is also in crisis and the unemployment rate is above 5%.
Common Sense guy…..”Protectionism will do little to create jobs, and if foreigners retaliate, we will surely lose jobs” Alan Greenspan
WSW, So you are worried if foreigners retaliate. But Foreigners are not worried about it. Infact Foreigners are doing everything they can to protect their economy, even if it requires them to ban exports to USA. Tell me onething, wasn’t USA better off before this globalisation came into picture? Btw, the rules of the game should be at the same level.
Correlations, correlations correlations. The hw is not bearing soy-fruit-to-go-timing. There was some correlation between coffee cans and TIPS or other bonds, but on commodities? Any hints?
err… sub “commodities” with “soy”.
Well, why not bailout everone? Who cares that dollar will become WORTHLESS on the world’s monetary stage, and that pensioners will be able to afford dog food after a lifetime of service and saving.
WHY ISN’T SOMEBODY IN JAIL?
Bad loans, zero oversite, GREED, GREED, GREED!
In the meantime, the execs of Bear Stearns and others walked away with MILLIONS of your taxpayer
assisted dollars when they should be in JAIL , like the ENRON clan.
Yes, Geoff, I agree. Instead of emergency bailout of Wall Street, we need emergency prosecution of Wall Street and the rest of the gang: mortgage lenders, homebuilders, appraisal companies, commerciial banks, Wall Street investment banks and brokerages, rating agencies, Federal Reserve, Treasury Department and SEC… the entire gang that raped and pillaged the mortgage industry, ruined the housing market, destroyed the credit system, endangered municipal financing, pension funds, and the banking system, and sent the economy into a downward spiral.
What is need is a RICO prosecution of this gang for committing the greatest financial crimes in U.S. history. The only thing that has any hope of stopping this continual rape and pillage of the investors, pensioners, city and state funds, and taxpayers is to see the entire Wall Street crime family arrested and perp walked in handcuffs to federal and state jails. Now. Not 2 years from now.
this is way worse than the enron/tyco/qwest/healthsouth debacle of old. that messed with investor confidence and retirements of thousands and thousands of employees. the subprime/cdo CANNOT be compared to enron. this crisis will bring the financial markets to its knees. these products were created in the 70s but just really begun booming the last five years, we’re talking exponential growth. the size of the deals are generally 500m to a 1bil. there were roughly 20-30 deals going to market a month on average over the last five years, every ounce of debt you own has been securitized, every dollar of debt in the market has been repackaged and securitized. enron is a tick compared to the gigantic size of the securitization market. the collapse of the financial markets is inevitable at this point. there’s not much left to cut as far as interest rates go. if oil was extremely cheap it still would not matter, the size of multi-trillion dollar debt market dwarfs the oil market (think, how much you spend on gas vs. the amount of debt you have outstanding, i can bet the $ amount of gas you buy doesn’t come close to the $ amount of debt you owe, same goes for corporations, debt is greater issue). i’m not going to be doom and gloom but there’s not much sunshine out there, there is going to be some serious bloodshed soon.
Mortgage Fraud
The True Cause
In my best selling book, “the Angry Black Man’s Guide to Success,” in chapter eleven, I take a hard look at the credit rating agengies and how a system without transparency really caused the sub-prime mortgage crises that is destroying the financial markets around the world. While the Ferderal Reserve attempts to stop the inevitable, a market crash, they still are treating the symptoms but not the desease.
Many analyst are blaming easy credit but are missing the obvious. The credit rating system, or credit scores as they are more commonly known, are defective, faulty and wrong. The scoring system devised by Fair Issacs in 1961 initial purpose was to serve to speed up the process of approving or denying small consumer credit and store cards. Thus a system devised to approve purchases up to $500.00 is now being used to approve real estate purchases into the millions.
The credt scoring system eliminated the core basics of the three C’s of credit, which include Collateral, Character and Capacity, Collateral or assets did not apply which is why investors could buy multiple homes with no money down as long as thier score was above 700. Character took a flying leap out the window and Capacity to repay was never analyzed. No documentation was required or requested because the credit scoring system was considered infalable.
The Treasury Department, however, is calling for more transparency of everyone associated with the the housing market but the credit scoring systems. The very system used to repeat lending mistakes to millions of home buyers is not even under review. The three major credit bureas, Equifax, Experian, and Trans Union must be called to task and thier scoring system made transparent not only to restore confidence to financial markets, but also to restore confidence to consumers and to allow a thourogh accounting and valuation of mortgage portfolios. Its impossible to value the quality of any mortgage without a clear understanding of the credit approval process.
Congress needs to call for hearings and force the transparency of the credit scoring system now.
George Farrell
The Angry Black Man’s Guide to Success
www.abmgts.blogspot.com
Federal Reserve Bank of New York President Timothy Geithner had difficulty explaining how BlackRock would be paid.
“We have not yet completed our negotiations on the fee,” he said. “It will be a commercially reasonable fee. We will be very careful in setting it.”
Sen. Jon Tester, D-Mont., asked Mr. Geithner, “Is that typical of how things are done — make agreements and set fees later?” He responded, “Almost nothing is typical about the arrangement we reached.”
Senate Banking Chairman Chris Dodd asked Mr. Geithner how the value of the assets has changed since the original appraisal March 14. Mr. Geithner did not answer, but he said the senator’s staff could “confidentially review that collateral,” and he pledged to provide quarterly reports so Congress can track how the assets perform over time.
Correlations, correlations: Correlations,
It’s a double edge sword that cuts in both directions on the hedge against loss on (#1 Soy, #2 Corn, #3 Wheat (SPOT) back and forth up and down VS. November Delivery.) / (Gold / US Dollar) = Cyclic {} Models Treasures of the “Snorting-Short-Bulls”… short on liquidity (Fast Eddie Bucks)… they have become so good at this that they are all now having trouble fitting through thru the narrowing (margin) window of the revolving door of nano-second exchanges one at a time now. New strategies / models are being developed (hourly) in order to stay one step ahead of the markets (shorts demand rates)… you see they are forcing out the day short trader… margins of ($P) trades are declining by the second in this upside down trade by the usage of huge volume swings in above items. Here is the key if your models says sell at Gold = 105, the sell at 10% - 15% (model) loss at 95, vola… a 65 – 75% profit gain… every time…don’t get greedy! Fight back… (just trade more often), remember the gal (hillbilly) that won the CNBC trading Monopoly game she had only one focus… trade more often than any one else and take less loses! The US tax Payers is losing ground every day now, this will soon end too, the Deflationary Depression – (Feds/Treasury, Wall Street and the NY Banks) that is now sinking its saber teeth into our economy will soon choke the Dollar to Death! You think… I do! Wanta’ buy a coffee can?
The OZ
If you want too seeee for your self at one of the Kingdoms best at this “hook and nook’em”… game go back one month and look ar (MER) Merrill (Indsider Trading) on all the Stocks they own across the world markets outlet discount stores and windows of ($Cash is King”:)opertunity and you will see the massive volumes of small short trades that will crash you computer memory capacity storage ram (it down their throats) in a NY Second! You think?
The OZ
And you thought the Financial Bank Conglomerates in the US were the only ones in trouble… think again. Go look at “whom”… (US Banks) owns the shares of the ones listed below, or has sold relentlessly in the last 3 - months (if you want to follow the real…$Muck Money Trail) of lies and deceit that are now falling… Globally!
.
Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, and the nation’s five other major lenders may report a 40 percent decline in combined profits due to losses related to U.S. subprime mortgages, Nikkei English News said.
The major banks’ combined net income is likely to be about 1.5 trillion yen ($14.7 billion) in the year ended March 31, missing their January forecasts that totaled more than 2 trillion yen, the Nikkei reported, without saying where it got the information.
The banks’ subprime losses have expanded to as much as 800 billion yen, including about 400 billion yen at Mizuho Financial Group Inc., the report said. The banks may write down their shareholdings by 100 billion yen, it said.
Japan’s six major banks also include Sumitomo Mitsui Financial Group Inc., Resona Holdings Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holdings Inc.
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Crooks beget… more… “CROOKS”! YOU THINK?
The OZ
“ACCOMMODATIVE”… huh?
There is a risk that “our attempts to deal with problems in the real economy could lead to higher inflation expectations and an erosion of our credibility,” she said.
U.S. headline consumer inflation was 4 percent in February year-on-year. The Fed has slashed its benchmark lending rate by 3 percentage points since mid-September, to 2.25 percent.
The funds rate is now “accommodative,” at a real, or inflation-adjusted, level of zero or slightly above zero, Yellen said.
Some Fed watchers expect stiff opposition from inflation hawks to pushing the funds rate to a negative real level given the threat of inflation. In March, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser voted against the Fed’s aggressive 75 basis point rate cut. Bernanke also stressed on Thursday that the Fed was uncomfortable with the current high levels of inflation, while arguing that these pressures should abate in the months ahead.
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You guys and your rules… I gota’ laugh when I looked into your persuasive eating gluten of Grains… (Corn-ed) crystal ball. This is a nano-second trading world, do you really think… for one “NY” second that the government can afford another ¾ point cut? If they cut any more than ½ point… it will be like cutting off the hand that feeds you!
Many you guys don’t get it at all, it’s not about inflation, look at the damn dollar and exchange rates, if the cut comes in at ¾ it will dive the dollar down to undertaker levels of … .60 cents on the dollar… “Just”… tell me where the bodies are so we can pick them up quick before “Riga mortise” sets in… you think! Our Government is almost broke, there are writing checks that the Tax Payers can’t ever pay back in the short haul, this is going to take 4-8 years to iron out the abuse and lies of wall street, banks and the overseas hedge funds… you think…. “Wake up America… wake the Hell up? If you think I’m kidding just look a “GOLD” futures… I made a killing last month in 2 week it went fro $922 to $1003 and ounce, and at the next cut… God Forbid… the dollar will tank and you’ll need a “CAT”… D9 dozer to pull it out of the $Muck Money Pit where it will lie… for years to come! Our own government is playing the “inside straight” to the bank game on shorting our own dollar with Gold through the (G7-8-9-10?) you think! Wanta’ buy a coffee can?
The OZ
OZ… Shove it.
I think the public should be made aware of the next banking disaster, which the Credit Default Swap or CDS. The sub-prime lending is under 2 trillion US$, the CDS crunch is over 40 trillion US$, it is not my intention to make people nervous, but if you prepare for something like this you will be better off, you cannot do anything about the people who are making money, they always will, you need to prepare for yourself.
Agree that giving special treatment because of size is not logical; imagine the long-term effect on inflation (and adverse effect on the dollar) of making unlimited dollars available to the idiots who thought up the CDO scheme! That’s what’s happening with giving government funds to JPMorgan’s purchase, then in a week modifying the contract to give more exemptions. So billions of $$s going to the banks with trillions, and regular homeowners at risk of losing their homes due to the banks financial mis-dealings. Regarding inflation, wasn’t it Treasury Secretary Burns back in the 1970s that asked for a core inflation index that didn’t show increases in inflation no matter what was actually happening?
I don’t read the blogs of individuals who can’t form complete sentences. Perhaps you shouldn’t, either. LONG LIVE THE FEDERAL RESERVE BANK. The only time they stunk was when that psychotic, egomaniac Greenspan was in charge. The new Fed has been brilliant in this crisis. They didn’t create it, but they are helping to fix it. Look, if all of those worthless subprime loans have to be held by the Fed (i.e., U.S. taxpayers), so be it. The real problem was the lack of regulatory oversight that permitted investment bankers like Bear Stearns to lend on subprime terms. Have you ever read the monetary terms of a subprime note? 6% above the 6-mo LIBOR rate is a good example. Please quit focusing on the plight of the dollar. It is not a “capitalist” dollar anymore. It is a “socialist” dollar. All socialist currencies get creamed over the long-run. Why? Because socialist government policies discourage long-term productivity. What kind of policies? The policies that dole out money or services to people who cannot or will not pay (i.e., welfare, medical care, you name it and the socialist government likely does it). the destruction of the socialist currency grinds slowly. So slowly that the idiot voters don’t realize they’ve been “denuded”. The voters want a weaker dollar and they’ve got it. LONG LIVE THE FED, WHICH IS NOT CONTROLLED BY BARNEY FRANK AND CHUCKIE SCHUMER, the N.Y. Times, NBC, CBS, ABC or any other alphabet soup organizations. The U.S. dollar will not recover long-term until it is embraced by some “capitalist” policymakers. In the meantime, you can bet against all of the stuff you don’t like and laugh all the way to the bank. There are no reasons to complain. Short the U.S. dollar if you’d like. Buy gold if you’s like. If you don’t like the lack of jobs, form a company, hire a labor union to work it and piss all your hard earned money away. Whatever. Another thing, if you want to complain, at least give me a few tips on how I can make money in this silly economic environment.
That was more than a peek into how to stuff the coffee cans; I think I’ll “shove it” right into my bank, or the ground, as appropriate. Many thanks for the current lesson Dr. Oz.
Would someone kindly explain to me — why DJIA and generally Markets’ indices still so enthusiastically rebound and rise? as per the present 12,600 points, from almost 1,000 or so less of a month ago, instead of, say, settling at about a modest 11,000? If things are as bad in the States as some gentlemen here (as, too, elsewhere) seem to think that are truly, there ought to have appeared much, much greater caution. As, too, on the side of Government, Fed and generally all the regulators. Or, am I mistaken? Can’t quite figure out who is/are buying with such (reckless?!) “abandon”, and especially since some seem to postpone and “spread” the fuller expression of the overall problems. All ears. Thank you. Best wishes,
Hey Straddling,
In the words of this week’s Economist, “if it’s the Apocolypse, you want gold and SF, if it’s not you want to load up in the market. Vast sums are made in these conditions. Vast sums are lost.” Not quite the exact quote but you get the idea, buy when others are scared. One thing is certain, you cannot deleverage by borrowing, and we Americans are still borrowing in fantastic terms (the govt, which is us). And whadda think is going to happen to the $ as a long run result.
In the current scenario, the position of Dow should be 11000. Clearly the DJIA is way ahead of the curve. But its understandable speculators are back in action again.
Make no mistake the Fed is indirectly buying the stocks.
Straddling the Atlantic….The Market is a screaming buy! Q3 and beyond into 2009, The Market will go up. Buy the “firesale ” now by averaging into the Market!
Straddling the Atlantic - In re to your question: Why DJIA and generally Markets’ indices still so enthusiastically rebound and rise…while some gentlemen think there ought to be much, much greater caution? A large part of the answer is that the market reaction is the immediate moral hazard created by 1) the recent actions of the Fed, Treasury, and SEC to bailout Wall Street and the financial system, 2) Congress mulling over various way to bailout homeowners, speculators, and everyone connected to the mortgage crisis and credit crunch, such as giving rich home builders $6 billions of taxpayer money.
The market feels free to continue “irrational exuberance” because the FED, Treasury, SEC, and Congress demonstrated that they will backstop reckless bevaviour by soaking the taxpayers.
With the regulators (FED, Treasury, SEC) are aiding and abetting the Ponzi scheme and investor fraud, of course the markets throw caution to the wind. With softballing country-club Senators refusing to challenge Schwartz and Dimon or to dig into the cesspool created by Wall Street firms, of course the markets throw caution to the wind.
A great forum, educated and aware people. The question, what can we really do to stop this insanity. The Federal Reserve, those politicans with their hands out, getting rich at the expense of the people clainiming they are doing it because the system of capitalism is our only hope and salvation. After all, they will say, they haven’t done any thing illegal! Torches and pitchforks!
A rule is a rule, unless the rule is inconvenient for the powers that be, then it’s a suggestion. The Fed has no business with these winks and nods to the big banks.
I know the too-big-to-fail concept is the dominant opinion in financial quarters, but if that’s true why even have FDIC insurance for big banks?
Instead of an FDIC logo at the teller, shouldn’t big banks just have a photo of Bernanke?
WSW, I’d agree with you IF corp profits stay flat or grow. Anyone think corp profits are going to stay flat or grow?
CDS $45 Trillion
JP Morgan $l6 Trillion {they are the inventors circa 1995}
As EVERYTHING unwinds during 2008 look for DJIA 8000.
Hey tkondas - This is a response your question about what can done to stop the insanity. There are various FBI investigations and state and federal prosecutions currently underway. What is needed to put these prosecutions on fast track.
Just like the emergency bailout of Wall Street, we need emergency prosecution of Wall Street and the rest of the gang: mortgage lenders, homebuilders, appraisal companies, commerciial banks, Wall Street investment banks and brokerages, rating agencies, Federal Reserve, Treasury Department and SEC… the entire gang that raped and pillaged the mortgage industry, ruined the housing market, destroyed the credit system, endangered municipal financing, pension funds, and the banking system, and sent the economy into a downward spiral.
What is needed is a RICO prosecution of this gang for committing the greatest financial crimes in U.S. history. The only thing that has any hope of stopping this continual rape and pillage of the investors, pensioners, city and state funds, and taxpayers is to see the entire Wall Street crime family arrested and perp walked in handcuffs to federal and state jails. Now. Not 2 years from now.
Don’t pay attention to people who claim there is deflation, or worry about deflation. There is inflation, a lot of inflation, so much inflation that we have hyperinflation. The thing that is deflating is the value of money, because there is hyperinflation.
Why is there hyperinflation? Because there is “never enough money” to avoid bankruptcy of the major institutions, because they are printing money for the war in Iraq, and for too much government. The money printers are fearing deflation because other people might be taking money out of the banks (which is said to be deflationary) to hold it in the mattress, spend it overseas, or use it to buy silver and gold. But that’s not deflation, it’s the result of hyperinflation.
Hyperinflation makes people take their money out of the banks, and spend it as fast as possible.
The point is that there is no monetary incentive for people to hold cash or bonds right now; as they are losing money because of the high money creation rate, and the gold rate increases.
Another main point that follows is that gold will continue to go up as long as current conditions exist, as they have, since 2001. Since 2001, gold has been going up by about 22% per year. That’s from $250 to a high of $1000, over 7 years.
Now then. Where are the economic incentives today when owning gold pays 22% per year, and owning bonds costs 15% per year?
The incentive is to sell bonds and buy gold. The world economic conditions are paying people to move into gold.
There is no reason to think that anything will change, until it does.
The required change is for bonds to pay more than the annual gold value increases.
Until bonds pay more than owning gold, then gold will continue to rise.
How far will this process be likely to go? How long? Until when?
Until bonds pay more than owning gold, then gold will continue to rise.
That’s not a misprint; it’s a repeat of the main point.
Here’s another clue:
The size of the U.S. Bond market might be about $25 trillion, and the world bond market might be $50 trillion.
The size of the world gold market might be about $5 trillion.
Right now, an extremely tiny portion of the $50 trillion market is trying to buy into the $5 trillion market.
I think about $0.115 trillion is going into gold annually right about now. (4000 tonnes x $900/oz.)
Thanks all for helpful comments, though must admit I remain much baffled by said rebound of DJIA and other USA indeces (Europe ’s dropped even as much and more, from a year ago, without even been the main culprit).
ajs, can the Fed put out so much cash to buy stocks (that is, without U.S. printing new one) so as to effect that greatly the index, and then spend to keep it up?
WSW, heard you saying this time and again “The Market is a screaming buy” but, what makes you think that? What do you “hear”, so many others don’t?
Anonymous, if you and many think Dow should be at 11000, but for bubbling up, again (too soon?) on account of ever present speculators, why does it not anyway drop to a more “balanced” (given the acknowledged difficulties) level, on account of those who would naturally be shorting even this (smaller) bubble?
tom taxpayer, thanks. Your answers seem to me to bespeak what might be, indeed, the obvious — yet: if the Market is unduly high(er) because of, you say: (i) Fed etc actions, and (ii) Congress’ largesse in bailing out all, I wonder: do not (American) investors realize that such actions and giving are provided at major cost, as money (energy) may not materialize out of thin air? cost that will be found awaiting later or sooner before the nation’s, people’s doors; and that it, then, would be paid as compounded with interest? Many investors surely ride on the “irrational exuberance”, as you say, but the majority of the American peoples surely realize that there ain’t such thing as a free lunch – that US taught this to the world - do not they? Or, is there not a counter-balancing movement to end this, by no other than clear-eyed sensible investors, turn bear? If for no other reason but to protect their investments? So, why does not give, why does not balance?
Papou, read your figures, and can add a couple myself. We agree that it is unduly high, but 8000? are you not exaggerating? do you use a method to reaching this?
tkonds, you seem to suggest that the “regulators” (and I mean the term in the general sense, to include all public overseers) should start legal proceedings against … themselves, and their partners and peers, in this go-round? Isn’t this wishful thinking?
Trying to understand. Many thanks.
Kudos Oz!
Horrible that taxpayers eat this crap, but we all knew this would happen 4 years ago when we saw inevitable crash forth coming.
I am not even against the JPM and Bear merger but free markets must remain free. privatizing profits and socializing losses by putting tax payers on the hook is bullsh-t. The problem the fed is dealing with is the systematic failure of counter risk trading, meaning the other people on the side of transactions will get slammed and lead to more slamming.
Well guess what to the world of as-hole financial geeks who thought they knew everything about finance and thievery, you were wrong and the american people are on to your game. enough of the “liar’s poker” bullsh-t. let darwin banking take place, set policies to make it happen, allow the acquiring companies outs in the deals, do everything to promote free markets — BUT DON’T SCR-W THE AMERICAN TAXPAYER FOR CORP GREED!!!!
Public Opinion: New Constraint on Bernanke
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more at http://money-sage.com
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Last Friday’s publication of the results of the latest New York Times/CBS News public opinion poll indicated the existence of a serious new obstacle to the FED’s efforts to assist a banking system threatening to implode and drag the economy down with it. It seems that a very large number of Americans (40% according to the poll) place primary blame on the regulatory authorities for the real estate/banking/credit market crisis. Even more significantly, a majority are opposed to any government assistance to the banks, even if such aid would limit the depths of the unfolding recession.
Now these are very serious statistics, we think. While the FED and other regulatory agencies — as well as the politicians in Congress and at the head of the executive branch — may indeed merit the responsibility for the hydra-headed debacle, the fact that a majority of Americans have correctly fixed the blame where it belongs will serve to limit the ability of the regulators and the politicians to contain the fall-out from the mess which they allowed/encouraged to develop.
As for the powerful rejection of assistance to the banks, this constitutes an understandable emotional and perhaps, in some limited respects, a rational viewpoint. Operationally, however, it will constitute a very serious obstacle to undertaking the imperative bailout. The failure of the public to comprehend the gravity of the risk to its own well-being represents yet another FED FAILURE. In a basic sense the public’s ignorance is a direct consequence of FED and other government downplaying and denial of the risk and gravity of the crisis. We would have thought that these folk would have recognized by now that there is no free lunch. Their efforts to cover the old fanny by understating and denying the dire nature of the situation and of the consequences should drastic bail-out measures not be taken has created a climate of opinion in which emotion is able to triumph over the requirements of rational economic self-interest.
The politicians will be no more able to ignore the demands of public opinion than the FED is able to ignore the pressure from the politicians. The FED’s much-vaunted “independence” is perpetually contingent upon the will of Congress, which may limit or enable, add to or remove powers and authority from the central bank.
Well, perhaps Mr. Greenspan, our maestro of yore, will step forward to publicly accept responsibility for the debacle, thereby reducing the incubus saddling the FED and enabling both the FED and the politicians to move forward in reshaping public opinion by themselves fessing up to the magnitude of the potential disaster.
For some strange reason, we are not holding our breath. Mr. Greenspan, it would seem, has other preoccupations at the moment — preoccupations which are facilitated, we would guess, by his image of financial mastery.
Failure what failure… you mean the one where… “One will fall and the others are following”, You Think!
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10 min ago Asian markets Update:
Banks were lower after a report said that the combined net profit of six major Japanese banks is estimated to have fallen more than 40% to around 1.5 trillion yen for the year ended March 31, hit by losses related to the U.S. subprime mortgages. Mizuho Financial Group fell 2.1%, Mitsubishi UFJ Financial Group dropped 1.8% and Sumitomo Mitsui Financial Group lost 0.9%. The overseas decline has started in the next week for new revelations to be disclosed on the US Sub-Prime Fall Out! You think!
The OZ
Gee… Malcolm… where in the hell did you come up with that Lame Brain Idea, did you have a nightmare, under the rock that you have been sleeping under? You Think? Would you say it’s a little late to be suggesting such radical changes…? Yep! You sound more like Useless Paulson more and more every day! It’s contained every thing will work out just fine… I’m in charge… Damm-mitt… oh I messed up again… it’s Mr. Bush that’s in charge… not my fault… you think?
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Malcolm Knight, general manager of the Bank for International Settlements, said the current turmoil is “probably the most serious financial turbulence in the advanced countries since the second World War,” and called for a retooling of oversight of the global financial system.
A day short and $500 – $800 Billion dollars short… and Oh did I mention .70 cents on the US dollar and headed lower?
The OZ
As regulators and banks around the globe move to fix a broken banking system, the U.K. Treasury is pushing for greater supervision, while banks are pushing for far quicker solutions for their souring assets.
The differing time frames could set up parallel tracks or a patchwork of changes in the wake of the credit crisis. The U.K. Treasury is stepping up because U.K. banks have been among the worst hit and the U.K. short-term bank-lending market remains sluggish as banks across Europe worry about lending to each other.
The U.S. and U.K. policy makers are now looking toward a meeting … you think, would you think it’s a little late now for a meeting… I DO!
The OZ
The March employment and ISM data added to the evidence that a recession is under way, with earlier weakness in housing-related sectors spreading to the rest of the economy, say the analysts at UBS in the firm’s daily U.S. economic comment. Yea right … mild recession… you think, more like a major… “Deflationary Depression” that going to last 4-8 years. UBS is just “WHO” you should listen too… you think…NOT!
The OZ
There will be a continued bail out,piecemeal as in the JPM-BSC deal or by the method recommended by Alan S. Blinder that was used during the Depression after the DJIA hit bottom in 1932 {HOLC June 1933.]
The difference is that we were then a creditor nation.
Peter L. Bernstein the stock market historian says we are now in an unprecedented situation.
US Financial firms need to show that they are adequately funded. For Lehman Bros. (+1.7 percent) Oh wow what a deal +1.7%, it was a convertible debenture. UBS sold stock, what gave you the 1st clue? For many banks and investment houses, the capital requirement might be gratis Ben and the Federal Reserve. Remember, the Treasury sold off $75 billion in Fed notes the week before last, conspicuously days before the end of the fiscal quarter. The banks and brokers could put up highly rated mortgage paper as collateral and put in their books a chunk of change. This way, they can appear fully funded and liquid. Finally, the financial companies need to be able to say that they are focused on strengthened in lending capabilities and are looking forward to improvement in the next quarter. What crock… they are looking at being… “Fully Funded”… not in your wildest dreams… you think…. $4 - 5 Trillion (Sub-Prime) related Global Debt and counting… oh did I mention interest? You Think? If the Fed cuts anything above “ZERO”… it may just be… For… “WHOM” the Bell Tolls” on the troll for… the US Tax Payer!
The OZ
Oppsssss… the Gold Dolar Ice Cream Float… just went flat! It maybe to late for a cut… u think… or is it, can you smell that… the $ just went stink!
The OZ
WaMU is going down the garbage disposal of $ Muck Money Debt… you think?
Coulter is sitting on 15 - 20 Billion from Asian Investments Firms and can’t wait to get his hands on “FREE TAX PAYER MONEY”… from the FED! You think! Hell I would too if I could get an interest rate at 2.25%… and turn (spin) WaMu out of a major debt crisis, all the while getting paid anywhere from 12 - 21% intrest on his investment… Smells like “Black Stone or is it BlackRock/JPM”… yoy think… just another “PennyMac”… YEP?
The OZ