Credit Clutch
 
Global Banking, Credit, & Lending Confidence Has Decreased -- Risk Tolerance Is Being Reassessed
The Asymmetrically Intertwined, Multi-layered Global Financial System Contains Submerged Components & Evolving Institutions
Opportunities Exist For Risk-takers -- Who Have Patience, Good Timing, & A Little Luck --  To Become Extremely Wealthy
Because unworthy Americans are failing to meet their financial commitments & fear is controlling markets, foreign wealth funds are buying significant portions of the jewels of American finance.
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Recovery To Previous Valuations
Considering The Real Estate Market...
The real estate market had not experienced a major correction since the Depression era of the 1930s.
There is no market that has not experienced major corrections over the same period.
It is unhealthy for any free market to not self correct or to be forced into correction mode.  Failure to correct requires exogenous forces to artificially hold prices and present an appearance of stability or expansion.  That indicates that the specific market is not operating as a free market.
Read the analysis of valuation recovery here.
Imagine It Now, Live It Soon
The Dodd-Frank financial legislation is un-Constitutional, anti-capitalistic, and an America-hating means to undermine American capitalism. Dodd-Frank in conjunction with several other legislative forays, presidential executive orders, and regulatory mandates is designed to be destructive. The reconfiguring of elements and interrelated functions and operations within the financial system have been implemented by unabashedly demented and frustrated little minds. They are attempting to transform the US economy and financial system. Their actions cannot result in anything other than dysfunctional reconfiguration.
Imagine the imbalances and interrelationships being established and forcefully imposed, pasted over, and held in place directly by the three branches of governmental mandate and the supposedly independently operating Fed.
Imagine the internal forces operating within each bank and financial institution endeavoring to maximize self-centered positions and, perhaps, incidentally reconstitute institutional prowess.
Imagine the imbalances being established in order for the elements of the financial system and its dependent users that are being asserted in order to maintain an operational, functioning hobbled financial system.
Imagine the multiplicity of individual self-interested operatives and users of the financial system who are stymied, attempting to resist, and working to exploit the financial system for personal gain.
Imagine the regulations, legislation, cabinet level departmentally implemented mandates, and presidential executive orders that continue to be unleashed prior to the 2012 election.
Imagine the chaotic, unbounded, out of control, nasty, capitalism-hating executive mandates that will be unleashed upon America, Americans, and the US financial system and corresponding multinational financial institutions. These institutions will be twisted, taken over, and made unable to fulfill their missions within the vibrant, capitalistic, developing world economies.
Now recall how enamored and transfixed you were when BO repeatedly stated before his election that he planned to "fundamentally transform the United States of America".
They Fail Econ 101
The US economic recovery is faltering. It had been recovering because this is America, the home of freedom and capitalism. However, under the redistributionist, limited freedom, big government programs of BO, the potential US economic recovery will continue to falter.
Some Americans wonder why BO's programs are not producing economic growth and jobs. Other Americans understand why his programs are not producing economic growth and jobs.
The relevant fact is that to BO and his administration's operatives, the faltering US economic recovery indicates that their programs are working and will be successful. Success has a different definition for them than for most Americans.
In 2006, Bernardine Dohrn lectured in arrogant confidence to a group at Northwestern University. She stated that their goal is to take control of the nation and then work to "dismantle capitalism, that evil thing".
The people she was alluding to are led by her husband, Bill Ayers, and the billionaire, George Soros.
The election of BO brought both Ayers, Soros, unions operatives, and other dedicated anti-capitalists to power by directing the BO administration's actions.
Now, after more than two years of implementation of their programs by the BO administration, the Ayers-Soros regime is reaping results of their programs.
They have used the USA as their laboratory. The BO administration has been implementing their programs. The results are becoming clear. US economic faltering denotes -- to the Ayers-Soros group -- success of their theories.
The Ayers-Soros group fails to understand that the faltering US economy while operating under their policies actually denotes the failure of their programs, not the failure of capitalism. The USA became the world's largest and most successful economy and provided prosperity for more people than any other nation in history. It accomplished this feat using freedom and capitalism, not socialism, Marxism, or big government.
The US economy is now faltering because it has been forced to operate under the Ayers-Soros big government programs that follow Marxian Econ 101 principles. Its objective is not economic success for America. Its objective is control of people, industry, and all else through the use of big government.
Increasing Rates & Corrective Contraction
The only fact attracting capital to US treasuries today is safety -- the belief that it will be returned intact and on time.
The global risk/reward equilibrium is turning 180 degrees.
Rates around the world are increasing. Nations and investors are paying higher rates that offset a diminishing risk of failure to return capital.
Conversely, US treasuries are increasingly less likely [to be able] to return capital intact.
Grand changes are coming in models established in the early 20th century.
Therefore, US rates must rise at some point, either due to natural forces or a passive, succumbing Fed.
Read of the coming deflationary contraction here.
Perspective
If you think the decline in the DJIA from the October, 2007 all-time high was severe, consider the following quantitative history of human psychology.
The DJIA's all-time high reached in October, 2007, faded throughout 2008 to the low reached in March, 2009.
September 3, 1929:  The DJIA  reached 381.17, the closing peak for the bull market of the 1920's.
October 28, 1929:  The DJIA lost 38.33 points to close at 260.64, losing 12.8% of it value.
October 29, 1929:  The DJIA lost 30.57 points to close at 230.07 losing 11.7%.
Over the two days October 28 and 29, the total DJIA loss was 24.5%.
October 30, 1929:  The DJIA rose 28.40 points to close at 258.47. That was 12.34%, the second largest percentage gain of the DJIA.
October 6, 1931:  The DJIA rose 12.86 points to close at 99.34, largest percentage gain of the DJIA, 14.87%.
July 8, 1932:  The DJIA fell .59 to close at 41.22.  The decline from September 3, 1929 to July 8, 1932 totaled 339.95 points, 89.19%.
It was not until 1954 that the DJIA returned to the all-time high it had reached on September 3, 1929.
Beware of false valuations that have been created through arrogant and ignorant market participants groping for bottoms.

Straight

How & Why The World Went Bust
The global financial system has been broken by a deadbeat minority of the population that was given clear access borrow large sums without regard for credit history and with little to no documentation. Their credit unworthiness and unjustifiable borrowing was legitimatized by the US Congress through social legislation mandating suspension of traditional bank credit-worthiness standards of lending.
The lending process was enabled by automation created by overly-empowered, computer-enabled financial and political operatives conniving while being monitored by inadequate dynamic oversight. The factual substance & time frame of today's global bankruptcy can be comprehended.   It is described here.
Before The Beginning
In 2007, Bill Ayers' wife, Bernardine Dohrn, 1960s member of the terrorist Weather Underground group, now law professor at Northwestern University, announced that their goal is to take control of America and "dismantle capitalism, that evil thing".
BO's campaign for the US Presidency was officially kicked off in the Hyde Park home of Bill Ayers and Bernardine Dohrn.
Is it any wonder that capitalism is now under assault?
Searching For The Bottom
The only way to play today's abnormal markets is to accept them as the current normal, play them accordingly, and wait to lose. Each buy was a reasonable bottom-fishing response. Each resulted in losses, or at best, minimal short-term trading profits. This exercise demonstrates that the quest for a bottom is a dangerous and unnecessary unknown. It is always unknowable. Deadly consequences are wrought upon those who know they know.
Broken, Over, Done, Finished. The End.
Those who are under 50 years of age must read the history of markets to learn about the days when markets fluctuated based upon fundamentals and technicals.
In October, 2007, we experienced the final, last, and harshest death scream of the Reagan bull market. Now we know exactly when it was born and how long that bull lived: Born: August, 1982 - Died: October, 2007.
Self Defeat
In an ongoing, repetitious, unending stream, nearly all major economic indicators point to a continuing decline in available jobs, manufacturing activity, the housing market, investment and asset valuations. Prices for cars and homes are declining, but there is little credit available, so purchases are difficult and less likely than is required for economic growth.
Until investors believe they may invest with a reasonable opportunity to make a profit, they will not invest. Until confidence returns to markets, credit will remain in tight supply.
Iceland
If Iceland and its financial institutions could reach the level they have, imagine the condition of other nations and their financial institutions.

Operation Head-Start
The inept, lazy, seemingly unconcerned Bush administration has accomplished a most difficult task just in time to hand the nation over to pres-elect 44's socialists.
Bush and Paulson, along with the ignorant-of-ramifications Federal Reserve, initiated nationalization of the US financial industry. Their tool is the ill-conceived $700 billion bailout bill that acquires ownership in financial organizations. Then, just weeks after that Operation Head-start, they began expanding their nationalization process to include industrial corporations and opened the nationalization door to other industries.
Bush -- passively, in ignorance and displaying unconcern -- and his minions have handed the incoming socialists their head-start. It usually requires demagogues and dictators years to achieve what 44's administration will walk into thanks to the Bush administration.
Hugo Chavez could learn much from his arch-enemy George Bush.

October 8, 2008
Prime Minister Gordon Brown announcing Britain's financial restructuring told a news conference,
"This problem started in America with irresponsible actions and lending by some institutions..." As a result of the financial crisis, "the global financial market has ceased to function."

November 6, 2008
Britain cut one of its key lending rates by one-third to the lowest since 1955: from 4.5% to 3%.
Many Illegal Immigrants Are Becoming Homeowners With Legal Mortgages

The Dallas Morning News
December 4, 2006
By Alfredo Corchado -- A 2004 study by the DC-based National Association of Hispanic Real Estate Professionals (NAHREP) estimated that more than 200,000 illegal immigrants from Latin America have qualified for FHA loans.

A NAHREP board member asserts that "Being in the country legally or not is not an issue when you are buying a house".

Today, October, 2008, half of the mortgages to Hispanics are subprime. A quarter of all those subprime loans are in default and foreclosure.
Name any nation where most people enjoy a high standard of living, whether qualified or not, can find a good job, receive near-free educations, have reasonably affordable housing, can start any business, have access to luxuries from cars to foods, and have a steady supply of consumer staples from toothpaste to toilet paper.

ONLY in America does that exist. It is due to the Constitution, free-enterprise capitalism, & guaranteed individual rights.

So who other than an egoistic, self-involved, narcissistic, angry, man-boy who, at age 47, has not yet come to terms with his identity, would want to convert America to a socialist command economy and remove individual rights by taking from the most successful to grow government larger?
Financial Failure:  The Process
Identification:
A sub-prime mortgage is a mortgage to a person who has a record of poor credit history, has little to no income, and has not met previous payment obligations. The mortgages were often provided with little to no documentation of income and assets.
These mortgages were often provided by national, regional, and local banks, as well as lenders such as Countrywide Financial. These mortgages were often provided to minorities who could not otherwise have afforded them. Their lack of genuine credit-worthiness is being verified by the current proportion of defaults among sub-prime mortgages.
Starting in 1977, under the Community Reinvestment Act, CRA, banks were mandated to provide sub-prime mortgages and loans in order to be allowed by the US government to continue operating and performing other business such as expansions, mergers, and developing new business and branches.
The world's financial system is crumbling under the weight of sub-prime mortgage defaults. People who were given mortgages they could not afford are walking away and defaulting on those mortgages -- yes, their homes.
ACORN, the Obama-affiliated community organizing group, had demanded through its Democrat Congressional legislators that it be included in the original $700 billion financial bailout package. ACORN demanded and was set to receive its wish in the first bailout package. That bill was defeated by House Republicans.
Republican defeat of the original $700 billion bailout bill saved taxpayers $20 billion.
Financial Breakdown 2008:
Today's financial problems originated with the misconception that basic laws of economics can be violated by politicians intent upon redistributing wealth from those who earn it to those who are not able to earn enough to justify their reaping rewards as if they had earned it. And those politicians -- using the powers we, the voters, gave them -- dictate how much of our money we may keep... and how much we must pass along to those minorities earning less than they want. This debacle did not start on Wall Street. It was born in Congress, in the Carter administration, and, when it started to fail, it was given new life during the early years of the Clinton administration.
Enforcement of laws including the CRA has come to mean that once ACORN accuses a bank of racial discrimination and unleashes protestors against it -- no matter how unjustly -- any bank could suddenly face unfriendly government regulators. Thus banks were placed in the position of being easy targets for ACORN shakedowns and paying protection money became necessary for many large and local banks' survival.
Having a heavy political arm weighing upon their business operations, banks started making hundreds of thousands of what became known as "Ninja", translating to" No income, No job, No assets. These loans went to minorities who would have been deemed uncreditworthy. Banks, knowing that a relatively high portion of Ninja loans that they had been coerced to make would turn bad, many lending institutions grouped them into new types of investment packages. They were then sold to shed risk to the originating institutions.
The huge quasi-governmental lending institutions Freddie Mac and Fanny Mae have both been run by Democrat appointees. Both Fannie Mae and Freddie Mac became sources of funding for groups -- including ACORN -- that supported Democrat politicians who then often promoted high-risk subprime home loans.
Most taxpayers are justifiably disgusted with the US government's $700 billion wall street bailout package. The root causes of this unseemly solution are buried in the Carter years with enactment of its Community Reinvestment Act in 1977, and were continued with enthusiasm by the Clinton administration, Representative Barney Frank, Senator Chris Dodd, Chuck Schumer, other Democrat lawmakers and -- most especially -- by groups like ACORN, which was Barack Obama's favorite client over the years. As mortgages and loans to the unworthy became less attainable ACORN lobbied these same legislators and other Democrats in Congress to expand the implicit government guarantees provided by Fannie Mae and Freddie Mac.
ACORN's leadership strong-armed its Washington lawmakers into forcing banks and mortgage lenders to lend mortgage money to financially unqualified minorities and others who everyone knew would never continue to pay their mortgage payments over time. Because these lender institutions were forced to lend to unqualified home buyers, they did what any business would do under similar circumstances:  They found a way to sell off those likely bad loans to other investors.
Since no one in their right mind would buy a package of bad loans, the only way to sell them to investors was to mix them in with good loans and sell pre-packaged goodies that had both good and bad in them. Thus was invented specialized derivatives. These loan derivatives are the CDOs and other instruments that today have no value to the marketplace, are therefore causing huge bank writedowns, and in turn, bank defaults.
Fannie Mae and Freddie Mac using its implicit government guarantee, purchased packages of bad and good mortgages known as Mortgage Backed Securities, MBSs. Banks also packaged bad and good mortgages into other forms known as Collateralized Debt Obligations, CDOs. These huge debt obligations were then resold to Wall Street investment banking houses, including Lehman, Bear Stearns, Goldman Sachs, and others, as well as investors around the world. Once the financial house of cards began to fail, banks refused to do business with other banks and investment banking institutions. That refusal shut down and locked up the short-term interbank credit and lending markets. It is today these final purchasers -- those left holding the bag of derivatives -- that are having to writedown and write off tens-of-billions of dollars of debt.
Hence the government (taxpayers) has to step in to fill the holes caused by Democrat government do-gooders who told banks to lend to minorities no matter what their credit qualifications.
Handing out housing loans and mortgages to financially-unqualified minorities that did not make good economic sense might have made you feel good during boom times. How does it feel today? How does it feel after your stock portfolio where you carefully placed your "buy-and-hold-sure-thing investments" has decreased significantly in value... and in many cases investments have become more worthless than those mortgage holders?
Government Caused - Government Resolving
Will The Restructuring Save The US Financial System?
Repair & Rebuild Will Be Long:  The credit default swap market alone has exploded to $45.5 trillion from $900 billion in 2001.
The Cause:
The current mortgage crisis was written and passed into law by Democrats... over a period of decades. They followed Marxist principles. They started with the Community Reinvestment Act 1977. Carter was president and signed it into law. Amendments followed that strengthened it and weakened the housing market and workplace. Unworthy people were handed mortgages and loans. We have now arrived at the point where high interest rates charged to the unworthy fail to contain the problems -- because too often unworthy people just walk away from their responsibilities... And then their interest rates drop to zero.
President Johnson's War on Poverty resulted in the near-total destruction of Black family life in the United States. It cost $6 trillion. Its cost has been spread over thirty years -- unlike today's mortgage crisis which came to a head suddenly because it is financial-market based.
And the third grand shoe will drop in the next years: The FDR-promulgated socialistic program known as Social Security... with its "man-numbers" and all else.
Congressional Desperate Plans Are Doomed:
The Congressional financial plan continues to accrete pork that merely adds to its cost and does nothing to remedy the financial crisis. The current iteration of the Congressional bill appears to be a collection of pork barrel payments to special interests in order to gain votes to pass the bill.

President Bush is showing no leadership, only repeating daily how desperately needed some plan of the day is. Congressional so-called leaders Pelosi and Reid are blatantly partisan and have sacrificed all appearances of leading the United States. They and many of their minions have become ineffective and should not be trusted. Pundits claim that without this bill, the financial system will collapse.

If the financial system is so weakened, it is best to allow it to collapse so that something better can be erected in its place without temporal band-aid repairs envisioned by self-serving politicians who obviously do not seriously care and could not possibly begin to understand the basic financial system let alone today's derivative-ized labyrinth.
Step One Should Be First:
Interbank short-term lending needs to open and flow. This is the first step to unwinding CDS, repos, CDOs, and the rest of the nested derivative Ponzi scheme.
The Failures:
While Congress fiddles and leadership hides, the credit default swaps, repos, derivatives some containing up to 128 traunches, and other complex derivatives and computer-generated contrivances must be unwound. That will take time. The immediately-needed step is for confidence to be nurtured by the US government.
Special interests in Congress, including the Black Congressional Caucus, are demanding that ACORN be handed tens-of-billions of dollars from the funding amount. ACORN is the nation-wide entity that promotes building of welfare rolls, illegal immigrant voting rights, motor voter registration, felon voting, no documentation loans and mortgages to minorities, and has thusly put in place the foundation of and orchestrated today's financial crisis.
The Problem & Its Un-resolution:
Putting US taxpayer money on the line does not necessarily mean that the money will inevitably be spent. That is true because the value of all mortgages will likely be higher than it appears today since the vast majority of Americans will pay off their mortgages. However, today the US government is the only entity potent enough to buy and hold the assets of questionable value for as long as needed.
In fact, this staving-off of and dampening of the crisis may end up costing taxpayers nothing and will not cost anywhere near the $700 billion amount.
For over 40 years, equal opportunity civil rights groups forced the ineffectual, minority-rights-above-all US Congress to mandate equality in the workplace, as well as, in the allocation of loans and mortgages. Every one -- no matter how unworthy -- was mandated by Congress to be handled as equal. However now we can see that many people are unworthy and not capable of accepting the responsibilities of re-paying loans and mortgages.
Not all people are equal to all other people when it comes to being responsible and paying back obligations. Wow. Now we know. No, not really.
The government forced financial responsibilities upon unworthy people who in actuality could barely be trusted or to maintain the financial capability to rent let alone to be entitled as so-called home owners. After decades of so-called egalitarian organizations that operated as though the depth of America's resources were unlimited and America could afford to handouts for every less-worthy person. We now see that even America's massively successful brand of capitalism cannot hold up against so many unworthy borrowers.
The Resolution:
The multi-billion dollar plan will work or not. A solution will fall out of the politics. It will be made to work... This is America! American business will eventually unwind the nation's financial system into health. Capitalism and individual self-interest powered by many Americans' need to succeed will eventually mean success.
As time passes over the next months and years, derivatives of derivatives of derivatives each having multifarious tranche structures representing everything from defunct assets to assets of quality will change ownership. Fundamental operating requirements of one-time investment banks -- now commercial banks -- along with newly-merged banks will change to allow assets and liabilities to be shuffled across various existing and newly organized banks, funds, and other operating entities. Credit markets will eventually unlock due to time-created pressures and -- PRIMARILY -- the desire of clever market participants to make money.
It is critical that any instruments including derivatives, credit default swaps, mortgages, and CDOs that are absorbed under the US government's plan which uses recently announced and still-forming mechanisms be managed by non-governmental organizations that are responsible and competent. For example, Pimco, as well as other experienced and successful money managers, should manage a share commensurate with their skill and performance records. When sold, these assets could provide a windfall profit for the government.
The long-term success should be measured by the strength of the newly-shaped US financial system and by the magnitude of profit that accrues to US taxpayers. Success will depend upon new federal law mandating that ONLY outside -- non-quasi nor actual governmental agencies -- have total control and manage ALL of these assets and instruments.
NOTE:  If the Democrats gain full control in November, the management aspect -- along with their other taxing relations -- will bring capitalism to a nadir not experienced since the 1930s.
The Big Lesson:  Do not trust unworthy people with money or political powers... whether writing a mortgage or electing a president of the United States of America.
Short Is As Valid As Long
The up-tick rule must be re-instated. Naked shorting must be outlawed.
After those two fixes, there is every reason to allow shorting.
Markets that allow shorting are robust. Shorting ensures eventual buying pressure.
Disallowing the shorting of specific instruments, whether along industry lines or for specific instruments underlying specific organizations, is to court dire and potentially damaging unintended consequences. No one and no group having any degree of experience is smart or wise enough to successfully meddle in markets. Shorting restrictions should be ended in the very near term.
The Most Far-reaching Intervention Since The 1930s
Financial stocks -- including those of the major financial institutions -- were hitting new multi-decade lows in yesterday's trading when the Bush administration announced its potential plan.
September 19, 2008 -- The Bush administration grabbed falling financial markets and turned them around during trading on September 18.
The US administration's tool to unfreeze capital markets is its proposed Resolution Trust-style mechanism.
This mechanism has the potential to arrest the market declines, turn them around, and free up credit markets. It can reduce the depth of the downward trending market marks that have been leading to additional capital needs and reducing liquidity.
Credit markets could open in a clear-trading fashion thus reducing the overhanging problem assets that have been nearly impossible to sell for months.
LEH... The One-time Lehman Brothers
September 15, 2008 -- LEH filed for bankruptcy. It has debt of $613 billion and assets of $639 billion.
LEH has shut down after 158 years. It survived the railroad bankruptcies of the late 1800s. It survived the 1930's Great Depression.
LEH was killed by uncontrolled, juvenile cowboy traders who wildly traded contrived derivatives of derivatives of derivatives mislabeled financial instruments that they passed along in hot-potato-style to the next Greatest Fool who believed that he would find a next Greatest Fool somewhere across the global economy who could be talked into buying these implicitly worthy debt obligations.
Home owner debt obligations -- often varying greatly in underlying elemental quality -- were bundled into packages. These packages were given the seemingly innocuous label "derivative". These derivatives were virtually deconstructed into obfuscatory tranche arrays. These packaged derivatives -- and derivatives of these derivatives -- were then sold by tranche, tranche groups, as well as, in total to customers around the world. Many of these packaged derivatives carried an implicit worthiness because they were being sold by reputable investment banking names. Some of these no longer exist: LEH, BSC. Others are fading and being absorbed into surviving larger banking organizations.
The final straw that broke the computerized Ponzi scheme of derived derivatives was the myriad of so-called home owners whom were given loans and mortgages that they did not qualify for on paper nor on any moral or ethical level of responsibility. Worry not about them for they will return to "buy" their next home whining about unfairness and racism.
In the end, this debacle proves that home ownership is NOT a right. It is no more a right than is possession of the Office Of The President Of The United States Of America.
Attention All Spoiled, Whining, Complaining Juveniles:  Demanding something -- whether a mortgage, a job in a company, or the US presidency -- does not qualify you for that position.
The US is just about out of Equal Opportunity jobs for the unworthy. Are there any worthy people remaining anywhere?
NOTE: To you who are so willing to hand the US Presidency off to a socialist and unworthy person -- who if he were white would be nothing more than another socialist radical on the fringe:  You may have had LEH in your retirement account. It is today worthless.
BEWARE -- Societies as arrogant as the USA have failed and fallen into disarray under socialism:
Are you educated well enough to have heard of the USSR, East Germany, North Korea, several South American banana republics, and many African tribal nations? Why does communism work in Asian cultures???
OPEC Income Is At An All-time High
US real estate has a rescuer approaching. OPEC -- with all-time record revenue and huge savings from previous years, is looking at foreclosed and sale-priced real estate. This is likely to include residential and commercial real estate properties in individual units and large, distressed bank holdings.
During the first half of 2008, OPEC nations earned as much as they did during the entire 2007 period. This record earnings is due to record oil prices and record production.
OPEC took in $645bn (£335bn, €430bn) from January & June, 2008. The year 2007, was also a record revenue year for OPEC.
At the its record pace, OPEC nations will earn roughly $1,245,000,000 during 2008. That is an all-time record.
The recent 20% decline in oil prices is not likely to dampen OPEC's earnings meaningfully. OPEC's increased output is likely to offset that decline's potential impact.
Collapse across the board is nearer. One morning, after a late night session, massive write downs will be taken.
July 29, 2008 -- Today's markets are filled with illiquid complex and infrequently traded securities. Merrill's sale of $30.6 billion of these securities to the private-equity firm Lone Star Funds provided an unusual element known as a data point. That data point is something that at one time seemingly long ago was a common element: a market price.

Merrill's absolute valuation is 22 cents on the dollar.

Securities including collateralized debt obligations are highly varied. They are very difficult to compare. Banks that carry securities at higher average values will find it difficult to ignore Merrill's price point.

Also, insurers such as AIG may have a hard time viewing the impairment of similar assets as temporary.

This means that the write-downs plaguing Wall Street have not ended.
July 11, 2008
US Senator Schumer has used IndyMac to move the credit clutch into its next strategic phase:
Bank Runs Accompanied By A Capital Shift Toward The Strongest Banks
    Not one penny has ever been lost when insured by the FDIC. Nor will any pennies be lost in today's Age Of Partisan Politicians' Sabotage.
    Between 1990 and 1992, 834 US banks failed. Each was put under FDIC control, rescued, and all insured depositors were fully paid.
    During the 1st quarter of 2008:  Banks having over $10 billion in deposits have had their deposit base grow by 6% from the 4th quarter, 2007. Deposits at smaller US banks grew by 2%.
June 18, 2008
After nearly two decades of Clintonian lying poisoning our culture, perhaps some dampening is in sight.
Do any perpetrators think it was worth it? Do any of the many under-qualified, over-reaching mortgage signers still think it was free money?   Read the news.
How To Lose Money -- The Easy Way
Bottom fishing is an easy and nearly guaranteed method to lose money in today's markets.
This technique is also known as "catching a falling knife".
Check out the charts of most financial stocks over recent months.
C & WM moved the credit clutch into its next strategic phase: Purge & Recapitalize.
    Citigroup is closing a deal to sell approximately $12 billion worth of its leveraged loans and bonds.
    WM nearly doubled its outstanding shares when it issued & sold stock in return for approximately $7 billion.
    Citigroup priced an offering of $4.5 billion in common stock at $25.27 per share. The stock issuance will raise 50% more than it initially proposed one day before. The transaction value includes an over-allotment option for an additional 17.8 million shares of common stock.
In the understatement matching all the obfuscations perpetrated during the entire credit clutch, Gary Crittenden, Citigroup's chief financial officer, said, "We were pleased to increase the offering size to $4.5 billion in response to strong demand from a broad base of investors.  This optimizes our capital structure and further strengthens our balance sheet".
An experienced observer understands who these investors are and why they are willing to grab Citigroup's stock upon considerable dilution before the end of the credit clutch may even be imagined.
Change One
The Problem:  Off-loading of risk using unregulated, over-the-counter, non-public markets.
Today's credit clutch is defined as the freezing of credit availability & the ensuing inability to value assets. It has as its object of contention several variations of financial derivatives. These derivative instruments include CLOs, SIVs, and other synthetic derivatives. There are several familial, computer-created and generated varieties of derivatives, but they may be clumped together under the name collateralized debt obligations, or CDOs.
These CDOs were invented, modeled, evolved, and have been traded by major investment banks since the mid-1980s. These banks traded many variations of CDOs amongst themselves in unregulated networks of over-the-counter markets.
The Objectives:  1.) Clear out today's credit clutch mechanism; and, 2.) Establish a framework that allows free global flow of capital, but prevents future credit clutches and other problems that inhibit capitalistic ventures.
The Solution:  Shift trading of all CDO-type derivatives to regulated public markets.
The shift of all CDO trading to the complex of existing regulated, public derivative exchanges will automatically bring clearing efficiencies and safeguards, mark-to-market capability, and the oversight controls provided by the SEC and CFTC regulatory bodies.
The SEC and CFTC regulatory bodies have been evolving and functioning effectively for decades, utilize time-tested, adaptable procedures and protocols, are managed and staffed by experienced individuals, and have demonstrated their ability to monitor exchanges and clearing operations thus ensuring the integrity of underlying instruments and overall operations.
Derived Impacts
Regulators and bankers worry about the private trading of complex instruments known as derivatives. These instruments remain hidden with indeterminate valuations both on and off balance sheets of financial institutions around the world.
It is these derivatives that have created stresses in the broad economy.
Economic panics and downturns are to be expected in vibrant capitalistic systems. Over the two-plus centuries of mercantilism few downturns have placed such broad and potentially lasting threat upon the total financial system.
It is the potential damage, vast complexity, and massive impacts that concerns the US Federal Reserve, central banks across the world, regulators, as well as investors and speculators. All are intensely involved in formulating and participating within multifarious responses and the potentials that will come to the fore in the near term.
Aftermath -- The Week Of March 16, 2008
On March 16, the US Federal Reserve Bank expanded its role as lender of last resort to include the largest dealers in Treasury notes. This action provided a rescue channel for Bear Stearns.
The S&P 500 posted its first weekly gain in a month.
The dollar rose from its lowest level since 1973.
The global hedging against both inflation and a weak US dollar had provoked the buying of gold, oil and corn.
The Reuters/Jefferies CRB Index of 19 commodities declined 8.3% over the holiday-shortened, 4-day week. This was the largest decline in the index since at least 1956. The index had set a record on February 29, 2008.
It No Longer Exists
That money -- hundreds of billions of dollars -- no longer exists. It used to exist. It was real money. But is no longer in existence.
That money -- those hundreds of billions of dollars -- will not be used to buy back in, invest in, or be deployed in markets, business ventures, or savings accounts. It no longer exists.
That money that has been wiped away will result in unacceptable debt ratios, capital losses, and margin calls. These forces will become evident in the next days and months.
Those new situations will force people to make other -- rippling -- decisions to de-invest in order to salvage capital and attempt to survive. Futures investment will be lessened.
Faith
Faith in this market and the moves made within it requires faith in the majority of the individual participants.
I do not have faith in the wisdom, financial backing, nor investment knowledge to trust today's majority.
Faith in today's market moves will likely damage my net worth.
Recall a guy named Lewis who repeatedly invested in BSC all the way down.
Bargains Are Relative
In 1929 stock markets crashed. Many former blue chip stocks declined over 90%. By 1932 many people thought they should buy those bargain-priced stocks.
It was not until 1954 that the Dow Jones Industrial Average of those blue chip stocks returned to its level of 1929.
So are today's stock prices representing values and bargains?
It is frequently wise to wait to buy stock -- and many investments -- at higher prices on their way up. Often buying on the way down results in holding it while losing potential yields from cash, living with a loss, and waiting for the stock to rise to above your purchase price. And then, when should it be sold after waiting all that time in a losing position?
Resolution Without Destruction
What Ever Happened To Moral Suasion?
On March 4, Federal Reserve Chairman Ben Bernanke challenged the banks to forgive portions of principle to help decrease homeowner defaults. This goes beyond Bush administration calls for restructuring and rate cutting.
Supposedly some tens-of-thousands of so-called over-committed borrowers now need assistance because the terms they agreed to are about to be implemented. And what does the Fed want to do to those homeowners who sold homes at the top of the market?
Rates:
Delinquency rates are increasing. Foreclosure rates are increasing. Interest rates are declining.
A more meaningful rate in the long-term is the borrower walk-away rate. This is the rate at which ordinary Americans give up the last drop of their integrity and commitment to their contracts. These Americans agreed to and signed contracts to repay money at specific terms when they voluntarily accepted obligations to repay mortgages and home equity lines of credit.
The Problem Is Intrinsic:
Home owners who believe it better to walk away than to pay according to their contractual obligations should realize that they are not and never have been the actual homeowners. They accepted responsibility to repay a loan granted to them in order that they might live in the houses as long as they met financial requirements specified in the contracts they signed. The actual -- tangible -- houses are owned by the financial institutions that trusted these self-styled homeowners. These householders should be grateful that they had been trusted and therefore were granted loans.
Americans' must not lose their intrinsic integrity and instinctive need to meet commitments including financing contracts . A rent-to-own option is good for home owners, financial institutions, stabilization of the home market, and the nation's and individuals' self-worth.
Resolution Requires A New Model:
Before people choose to walk away from their commitments and a house, they could be offered an opportunity to rent the house. Borrowers who claim to not be able to meet terms of their contracts could be offered the the option that the financial institution take ownership, but rather than foreclose on the current borrower, provide a rental agreement to this borrower.
Borrowers unable to meet contractual commitments could continue living in the house without disruption. Banks would then shift house assets from non-performing to performing. Creditors would avoid foreclosure expenses as well as losses when selling into a depressed market.
Borrowers would become renters and have a first right to purchase when their finances are in order.
Without Destruction:
The growing wave of non-performing mortgages and home equity lines of credit is being inflated by copycats. Copycat defaulters are those on the financial margin. They learn that other borrowers across the nation are defaulting and getting principle forgiven and rates reduced. They figure out that they need not meet their contractual obligations either, and they walk away allowing foreclosures.
Gone are the days when the Fed used high-minded moral suasion. Today the Fed advocates -- recommends to financial institutions -- forgiving principle and implements excessive rate reductions. Amidst this cultural decay, it would benefit all Americans to stave off the moral decline in individual responsibility. This might be partially accomplished by providing borrowers a way out with honor, without disruption, and without walking away from their contractual obligations.
Credibility -- Rate & Liquidity
Insurers include MBIA, Ambac, Security Capital Assurance, Financial Guarantee Insurance:
The monoline bond insurance industry was created in 1971 by Ambac. The function of the monoline insurers is to insure municipalities' bond issues. This insurance allows easier and safe financing for needed municipal activities such as construction and maintenance of infrastructure and expansion of public services. Underwriting of municipal financing is essential to lower the borrowing costs laid upon municipalities for their issuance of bonds and securities. This insurance for the purchasers in case of default on the debt allows municipalities to incur lower borrowing costs, thus lowered overall project development costs for taxpayers.
Over recent decades the monoline insurers have grown through expansion into structured products. Those products include asset backed bonds and collateralised debt obligations -- CDOs. In recent years, monoline insurers entered the world of structured finance and complex credit derivatives that are now causing troubles for them.
Ratings agencies include Moody's, S&P, & Fitch:
Ratings agencies monitor insurers for adequate financial strength. They assure investors that the insurance companies are following proper fiduciary protocols.
Over recent years, the ratings agencies have broadened their monoline business to include the additional products being handled by the insurers. Those include structured products such as CDOs, SIVs, and other complexly intertwined securitized instruments. The underlying components of these new products were residential mortgages and related equity guarantees.
Because the securitized instruments were insured by the insurers and because the insurers were known to be monitored by the ratings agencies, buyers around the world felt safe in purchasing securitized products. They had inadequate concern for potential -- and actually -- increased risk. Moreover, after four decades of housing price inflation, there was inadequate concern for development of a bubble.
In recent years home mortgages and equity loans of various time-based rate structures have been made available to borrowers who were not credit-worthy nor up to rational and strictly enforced standards. During 2007, those subprime borrowers have started a default deluge. That defaulting has brought into default other marginal borrowers. The confluence of all defaulting brought fear to potential buyers and those already holding CDOs and other structured securitized obligations. In mid-2007, the markets for these instruments became illiquid. Therefore valuations could not be identified. Thus, credit markets clutched and froze.
Only as ratings agencies analyze and confirm rating assessments of insurers, as insurers prove that they are capable of meeting default commitments, then -- following a rebuilding of confidence in ratings and ratings agencies and insurers -- credit clutching will decrease, capital will flow, credit will become available, and credit markets will return to liquid, profit-oriented mechanisms. The credit clutch freeze up will thaw and risk will be attractive.
In a nutshell -- as of February 11, 2008:
Major banks and securities firms have so far disclosed over $146 billion of credit losses and write downs. That is as of January, 2008. The subprime housing market collapse started rippling in about the middle of 2007.
As of September, 2007, there were approximately 7.1 million subprime loans outstanding.
Uncoiling Capitalism Is Unleashing Itself Around The Globe
Understanding & Accepting Without Fear
The credit clutch is only one aspect of the globalizing economy. It was first visible in early 2007. It is nothing more that a large-scale, all-encompassing, complexly intertwined financial adjustment.  It is a consequence of the natural globalization that started evolving in the last quarter of the 20th century.
The only way to comprehend the new world economic and cultural orders is to view today's global economic situation from the highest level perspective. That will -- to an informed, educated, experienced, clear-thinking mind -- provide understanding.
The year 2008 will be recorded in history as the year wherein globalization widely impacted all major economies. Over the next years all major economies will continue to adjust to the implementation of capitalism within the evolving global structure.
Some people are short-sighted. Some people are envious. Some people are angry. Many people in each of these inferior groups of people manifest their emotions as hatred of the United States.
If the United States manages to gain leadership during 2008, the USA will arise stronger and better positioned within a broadly globalizing economic structure. The USA will be the focalizing force that lifts up more people than any other phenomenon in mankind's history.
Exposure Of The Imperial Beggar
2008 -- Uncoiling For The Massive Power Shifting Payback Year  --  For over three decades Middle Eastern ruling families have been amassing the huge wealth they possess today. Over the last decade China has been amassing the huge wealth it possesses today. Since around 2003, the US housing bubble has been fueled by financial institutions handing out mortgages to unworthy people while collecting fees and interest in the near-term, knowing that the house of cards thus built could default upon rate resets scheduled to take place in the intermediate-term. These financial organizations off-loaded their liabilities to other financial institutions by packaging varieties of liabilities in contrivances known as CDOs, SIVs, and more. At the start of 2008 it is apparent that the magnitude of liabilities is so extremely large and so widely dispersed into US and European-based financial institutions that it is not manageable nor containable and is threatening their survival. They are now attempting to survive by cannibalizing themselves -- selling portions to immediately raise cash.
The last days of 2007 are exposing the beginning of a massive uncoiling of Middle Eastern rulers' and Chinese sovereign funds' cash hoards through acquisition of US and European-based financial assets. This takeover is being accomplished using two different sources of wealth. The Middle Eastern monies have been acquired through the sale of oil that willingly flows out of the ground under the feet of Middle Eastern tribal leaders. Chinese monies have been acquired through the sale of large quantities of mass-produced everyday consumer goods products.
Due to massive losses now only partially acknowledged and exposed by major US and European-based banks and investment institutions, Western financial institutions are being purchased piecemeal by Middle Eastern and Chinese wealth at  bargain prices. Due to the magnitude of losses sustained by US and European institutions, they are unable to resist the bailouts originating in Middle Eastern and China.
Globalization has taken an irreversible twist:  US and European financial institutions are being purchased and thus infiltrated and controlled in ever-increasing magnitudes by outsiders having only long-term financial interests to guide their directions. These new owners come from cultures that previously had existed in 19th century modes at best.
Control of financial institutions is globalizing geographically. Control of financial assets is consolidating into an ever-decreasing number of non-capitalistic hands.
Sovereign funds & wealthy Middle Eastern families are accomplishing what suicide bombers and al Qaeda are failing to accomplish: A takeover of Western civilization using financial means rather than mass-murder coercion.
The global credit clutch is not about Merrill's O'Neal, Citigroup's Prince or its shareholder prince. Nor is it about the upper managements of institutions responsible for hoards of money managers who created, packaged, sold, and bought derivatives embedded within various sorts of financial instruments.
 Today's credit clutch is about a culture bereft of leadership. Too many of those thrust into leadership roles have little understanding of operations and functions that they are responsible for and should be competently directing.
 Today's leadership cares not for consequences that damage their institutions. Today's leaders too frequently operate as though they are insulated financially and personally from any negative consequences of their incompetent, unconcerned methods.
 Today's leaders are not leaders. They simply occupy leadership positions. Not until leaders fill leadership positions and lead with competent integrity will their staffs operate with integrity.
 Unlikely as it appears to be, leaders must arise to fill voids in finance, industry, politics, and throughout our culture. New leaders must operate with competent integrity along with personal and institutional respect and concern for long-term consequences. If they fail to emerge, we will each follow the incompetent,  unconcerned, sloppy figures we appear to adore directly down to our ultimate demise.
 None of us is wholly immune in this financial, cultural and political down-drafting void.
How Might A Relatively Small Group Of Sub-standard Borrowers So Disrupt Global Credit Markets?
? Who are all these defaulting subprime mortgage homeowners? Can there be so many thousands? How has our culture become so unethical and nurtured so many people who simply abandon their homes and the contractual agreements they signed and personally committed to fulfill?
How did these people get mortgages?
What financial institutions were writing mortgages for so many subprime people?
If all this is happening as portrayed, the institutions responsible for devising, engineering, marketing, and profiting from the phenomenon should be allowed to fail... regardless of broad economic consequences. These consequences are the cost of cleansing.
The consequence of allowing the subprime to escape with rewards is a further decline....
Logically:  If not caused by a relatively small group of sub-standard borrowers, there must be more involved in the global credit clutch.
Major banks and securities firms have so far disclosed over $146 billion of credit losses and write downs. That is as of January, 2008. The subprime housing market collapse started rippling in about the middle of 2007.
As of September, 2007, there were approximately 7.1 million subprime loans outstanding.
These Are Times When Wisely Experienced People Perceive Opportunities -- Extreme Wealth May Be Earned
The global credit crisis has been gaining visible momentum since early 2007. It will continue. It is spreading to currencies, stocks, bonds, derivatives, & global investments of all grades & origins. It is overlaying into commercial real estate markets. The items presented below include key actions, events, and news regarding the course of the unfolding, multifaceted crisis.
Consider the enormous profits previously accounted for, booked, reinvested, & paid as dividends, bonuses, & salaries during recent years. Fortunes will shift ownership.
Context
Around the world financial institutions managed and operated by experts using computer models have built investment portfolios so intertwined that a relatively small group of delinquencies & defaults brought the global credit market to a standstill. Suddenly the global profit & risk-aversion equilibrium has ratcheted to a halting stop & sputtering go. Capital and tangible assets are being frozen then liquefied at disparate valuations. Capital availability ebbs and flows. Assets cannot be accurately marked-to-market in markets that are illiquid.
Today's credit clutch is an old-fashioned, global-scale crisis in confidence. It is a product of years of the "Just do it -- I don't care" psychology. Today's credit clutch is based upon a well-founded perception that myriads of executives, policy makers, & staff are an untrustworthy conglomerate bunch who, operating in quest of immediately maximized returns with little regard for tomorrow, will jigger and misrepresent valuations. You do not respect them today and you will be less likely to tomorrow.
Two Precipitating Characteristics Of Financial Crises:  Leverage & Complexity
Leverage
Marking-To-Market
Nationalistic Reactions
Intertwined Complexities
Unenlightened Self-interest
Derivative-based Derivatives
Variant Interest Rate Spreads
Non-stop Fast Trading Markets
Multilateral Currency Fluctuations
Uncoordinated Central Bank Actions
These two elements are the top level from which one may view today's high risk, super-entwined, non-decipherable complexity that is not manageable by the tens-of-thousands of keyboard jockeys around the world each operating in unenlightened self-interest within a parochial sphere he is not capable of comprehending nor able to react properly to in order to do much other than sell or freeze.
In historic relative and absolute contexts, two components have not existed before:  1.) Huge contingencies of multi-national, inexperienced Oriental minds interacting frenetically and chaotically in quickly shifting markets, &, 2.) Massive derivative chains vertically embedded within various levels of horizontally connected derivative loops, spirals, and pyramids.
Further credit dislocations are inevitable. Expect disruptions and global devolvement of credits markets, currency markets, and derivatives to clog conduits forcing major financial entities into reconciliation.
Conceivably the next global credit clog debacle could be triggered by a suddenly disrupted foreign currency market involving multiple nation's currencies. The US economy likely will remain strong with high employment, low inflation, and relatively high consumption levels. Subprime borrowers are a culturally significant portion of the home-owning public, but they are not meaningful beyond the intermediate term in today's massive credits markets following return of mature, analytical people.
Rating Ratings:  Credit ratings businesses are for-profit businesses.
The SEC has been reviewing the credit rating companies including S&P, Moody's, and Fitch' policies. The now obvious question concerns their role in setting ratings in ways that promoted the credit bubble. Specifically, there are questions regarding ratings for debt related to subprime mortgages -- those given to borrowers with poor credit histories.
Legislators have pointed to credit-rating companies' lack of of timely and accurate ratings as having contributed to the housing market's collapse. Ratings inaccuracies appear to have included failing to downgrade subprime-mortgage bonds in a timely manner. During a hearing in Washington, lawmakers identified situations wherein companies' mortgage bond ratings may have been influenced by investment banks selling their securities.
S&P is now forming a risk oversight committee, rotating analysts across assignments, and requirements relating to loan data for new residential mortgage-backed securities. S&P pledged to hire an ombudsman, increase investor education, and reduce conflicts of interest.
In early 2008, S&P initiated 27 new procedures to make ratings more accurate and timely.
Perspective:  Today's Americans have not ever lived through hardship. They have only known good times including a growing free economy, personal safety, and abundant consumer products and services. Anyone who graduated from college after the early 1980s has not witnessed stock markets do anything other than trend upward -- disregarding the excesses of the many quasi-real NASDAQ companies that continue to weigh down that exchange.
Today unemployment is around 5%. During the Great Depression unemployment reached 25%. Unemployment in 1982 approached 10%.
The commonly-used stock market indicator, the Dow Industrial Average has declined around 12% from the record high it reached in the Fall, 2007. During the Great Depression, the DJIA dropped over 80%.
Today, one big bank has collapsed. In 1931, 1,400 banks collapsed. In 1984 the federal government nationalized Continental of Illinois, the nation's seventh largest bank.
Today -- to varying degrees -- approximately 2% of home mortgages are having trouble.
History provides a better perspective than do politicians.
Expect any revaluation of any asset at any time. No asset is immune to a potential decline in value.
Often there is a throw-it-all-away type reaction that moves an asset into a new price range for an indeterminable period. Technical trading lines and trends are destroyed and over time will cause a continued trend decline.
On April 11, 2008, the largest percentage loser on the NYSE was General Electric's common stock.
GE stock lost nearly 13% on this one day. Nearly 400 million shares traded. The company announced an earnings shortfall relative to analysts' expectation. Someday those shares will be bought back.
A bear market is subject to down-trending asset revaluations & includes varying-frequency, large up-moves that are reversed within a relatively short period.
Facts according to the US Federal Deposit Insurance Corp.:
Real-estate holdings accounted for 45% of total US bank assets in 2000. In 2006 the percentage was 58%.
There have only been two years since 1934 when no US banks failed. Those years are 2005 and 2006.
Measured on a relative & absolute basis, banks were in less-good condition even before the onset of 2007's credit clutch.
2008 -- The Year  --  Watch for large funds, municipalities, and sovereign funds across the world to dispose of their least credit-worthy instruments.
Experienced buyers will be scarce, very savvy, and hold out for incredibly low pricing from desperate, bewildered, and embarrassed sellers under pressure to dump holdings. There will be a period starting in 2008, during which the very savvy and patient bargainers will have opportunities to become wealthy relatively quickly.
An estimated $105 billion have been written down during 2007 by international banks attempting to recover from subprime loans and other debt commitment exposures. That resulted in a number of financial institutions to make deals involving infusions from state-owned investment funds. Most are sourced in Asia and the Middle East. Government-sponsored investment operations have invested more than $25 billion in major banks since the credit clutch started during mid-2007.
The Emerging Pattern Of 2008
2007 -- The Year  --  Lesson Learned: The least credit-worthy borrowers win with a give-away of extended low rates. Certainly lending institutions are not going to accept a declining profitability. Therefore the most credit-worthy borrowers will pay something extra to make up for lost lender profitability.
Some group must pay and it will be the group who can best afford it -- the most credit-worthy borrowers.
Where does this give away lead the credit industry?
Dilution, 2008 Style: Major organizations such as Citigroup and Washington Mutual are in such desperate straights that they must resort to the dreaded "stock dilution" method in order to raise capital.
Stock holders will likely experience the impact of dilution over several years.
As the value of a company's common stock declines, the impact from dilution by preferred issues increases.
As the company's earnings decline, so too does its P/E, adding downward pressure upon its common stock price. Dilution is thus increased.
Dilution can shift fundamental benefit positions of a company's stock. These include earnings per share, ownership percentage, voting control, & value of individual shares. Dilution often has long-term impacts.
2007 -- An Estimate & A Fact
Disruptions in the US mortgage market may cause mortgage originations to decline 40% in 2008. That translates to a total of approximately $1.5 trillion during 2008.
Home values are coming into equilibrium after several years -- over a decade -- of bubble-type inflation hallmarked by the frequent multiple over-biddings for primary, secondary, and vacation homes.
A Data Point Provides Quantification
Washington Mutual originated more than $26 billion subprime home loans in 2006. That is according to industry newsletter Inside Mortgage Finance.
2007 -- Pause The Panic ! There will be little to no recession except as media hearsay. Effervescent consumerism supported by wise Fed policy and global economic self-interest will stave off a serious recession. That is likely the case as long as employment holds above the 95%-plus area & taxes are not increased.
Relax -- The mortgage holder who cannot pay his mortgage will either get a reduction in monthly payment or be foreclosed.
The ex-mortgage holder will have more disposable income left over each month because his rent will be lower than his mortgage payment. If he remains a mortgage holder in the same house, his payments will likely be reduced.
These people are trained & have developed into efficient consumers. They will continue to spend.
Interest rates are declining over the last and next several months. Mortgage and loan payments will trend downward for many consumers who will do what they do -- purchase consumer goods, including cars, vacations, & most consumer products. They will do more DIY fix-up home repairs with officially out-of-work construction workers working as side jobs.
Relax -- Americans will survive well out of simple self interest. It is more comfortable to be a consumer than to be homeless.
Defaulting mortgage holders will become renters, have more disposable income, & continue to buy consumer goods.
December 30, 2008 -- The Federal Reserve chose BlackRock, Goldman Sachs Asset Management, Pacific Investment Management, & Wellington Management to control its $500 billion purchase of mortgage-backed securities. The purchase is expected to be complete by June, 2009.
Only fixed-rate agency mortgage-backed securities that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae will be eligible for this purchase. The Fed said the purchases will start in early January, & include securities having maturities of 15, 20, & 30 years. They will exclude riskier securities such as interest-only bonds.
The investment managers will be required to purchase securities frequently and to disclose the Federal Reserve as principal.
Buying the MBS, the central bank hopes to increase money available to consumers to purchase & refinance homes, thereby staving off a further decline in house prices. The collapse of the mortgage finance mechanism during 2007 & 2008, led to the worst credit crisis in seven decades. It forced write downs and losses at financial institutions that exceed $1 trillion to date.
Observing & Forming Opinion

"This selection of MBS will be passed on to the chosen managerial custodians, allowed to trade behind curtains, and slowly dissolve away at near-zero valuations. A trillion dollars or more yet to go somewhere or nowhere."
November 19, 2008 -- Citigroup has committed to wind down seven remaining off-the-books investment fund SIVs.
This makes the end of CEO Pandit's efforts to salvage the SIVs. C agreed to purchase the remaining assets held by the structured investment vehicles, SIVs. They have a current market value of $17.4 billion. That is down from $49 billion in December, 2007. These SIVs are backed by bank debt and bonds linked to mortgages, student loans and credit cards intended to minimize investors' losses.
Citigroup's SIVs, had ever-so-clever names which include Sedan, Beta, Centauri. In August, 2007, these instruments were valued at $87 billion.
The SIV: A shell Ponzi scheme that went the way of all shell Ponzi schemes.
What does "wind down" mean? Might it mean "make them vanish by re-valuing them to zero"?
October 29, 2008 -- The Fed's Balance Sheet
The US central bank's recently implemented loan programs have expanded the assets on the Fed's balance sheet by 104% over the last year to $1.804 trillion. That amounts to 12.6% of the US' GDP.
 
What will this mean?
October 7, 2008 -- The Next Step Toward Freeing & Opening Markets
CME & Citadel Investment Group announced that they are creating a joint venture. It will provide an electronic trading platform for credit default swaps. This trading mechanism will be integrated with a central clearing house.
Freeing & opening credit markets using trustworthy, reliable platforms is the major step needed to end the global financial lack of confidence.
September 19, 2008 -- The Most Far-reaching Intervention Since The 1930s
The Bush administration grabbed falling financial markets and turned them around during trading on September 18.
The US administration's tool to unfreeze capital markets is its proposed Resolution Trust-style mechanism.
This mechanism has the potential to arrest the market declines, turn them around, and free up credit markets. It can reduce the depth of the downward trending market marks that have been leading to additional capital needs and reducing liquidity.
Credit markets could open in a clear-trading fashion thus reducing the overhanging problem assets that have been nearly impossible to sell for months.
Financial stocks -- including those of the major financial institutions -- were hitting new multi-decade lows in yesterday's trading when the Bush administration announced its potential plan. Separately, and effective immediately is a short-term ban on short selling of 799 financial entities.
September 17, 2008 -- Russian markets are locking up & shutting down. The government injected emergency billions into Russia's three largest banks and halted stock trading for a second consecutive day.
Russia's finance ministry extended repayment periods on loans for OAO Sberbank, VTB Group, & OAO Gazprombank to 3 months from one week. The Micex stock index fell to a low when it lost 10%. This brings the index down 25% in three days.
Foreign investors have removed at least $35 billion from Russia's stock & bond markets just since the 5-day invasion into Georgia several weeks ago.
Putin failed to understand that capitalism requires stability. Russia is facing its largest financial crisis since its default in 1998.
Russia may regret over-reaching militarily. It also may regret having soured its relationship with the USA -- its bailout benefactor in 1998.
 
Putin led Russia too far in his 5G war against freedom and its proponent states when he directed a military offensive into Georgia amidst worldwide faltering financial markets.
September 15, 2008 -- LEH filed for bankruptcy protection. AIG hit a multi-decade low.
BAC agreed to acquire MER.
The credit clutch is being maneuvered out of existence, but many stock and bond investors will never recover their principle let alone recover from the loss of the interest payments that they will never realize. Long-term investing concepts have been decimated.
At least another year will be required to unwind the remaining weakened investment banking businesses, banks, and mortgage houses. Only those people who caused the credit clutch -- the unworthy who accepted monies that they knew they could not repay -- are walking away unscathed. And they will return soon enough to "buy" their next house!
Wise investors will re-think their attitudes toward long-term holdings in their trading accounts and their retirement accounts.
August 11, 2008 -- The Federal Reserve reported that bank credit tightening increased during the past three months. Most banks surveyed by the Fed expect to continue to restrain credit over the next year and longer.
The Fed has been aggressive in its efforts to make credit more available over the last year. However, a record percentage of banks have been making it more difficult for borrowers during the three month period ending July 31.
A majority of banks tightened their rules for granting loans to businesses and consumers. The Fed's quarterly senior loan officer survey of 52 major banks indicates that banks show a reluctance to lend for home mortgages, credit cards, home equity loans, commercial real estate loans, or commercial and industrial loans.
No bank in the survey eased credit terms for any type of loan in the past three months. Only one bank said it anticipated easing standards for consumers in the next 12 months.
This Fed survey is often a leading indicator of credit creation in the US.
 
Tighter credit may slow economic growth. Consumer spending is especially sensitive to credit squeezes. Lack of credit could further depress the commercial real estate market & stifle business capital investments.
July 14, 2008 -- The US Treasury & Administration Moved To Bring FRE & FNM Closer To Explicit Guarantee
The US treasury requested that Congress authorize it to buy unlimited stakes in, and lend to Freddie Mac & Fannie May, the companies that buy or finance nearly half of the $12 trillion of US mortgages. The Federal Reserve authorized FRE and FNM to borrow directly from the central bank.
The US remains the world's most secure & most potent economic engine.
"Full faith & credit of the United States" continues to have substantive meaning.
July 11, 2008 -- US Senator Schumer has used IndyMac to move the credit clutch into its next strategic phase:
Bank Runs Accompanied By A Capital Shift Toward The Strongest Banks
Not one penny has ever been lost when insured by the FDIC. Nor will any pennies be lost in today's Age Of Partisan Politicians' Sabotage.
During the 1st quarter of 2008:  Banks having over $10 billion in deposits have had their deposit base grow by 6% from the 4th quarter, 2007. Deposits at smaller US banks grew by 2%.
Between 1990 and 1992, 834 US banks failed. Each was put under FDIC control, rescued, and all insured depositors were fully paid.
June 18, 2008 --  After nearly two decades of Clintonian lying poisoning our culture, perhaps some dampening is in sight.  Read the story.
FBI Director Robert Mueller and Deputy Attorney General Mark Filip announced a national arrest and prosecution labeled Operation Malicious Mortgage. According to the announcement, over 400 people will be arrested in connection with alleged mortgage fraud over schemes in locations from Chicago to Dallas to Miami.
Two BSC former hedge fund managers, Ralph Cioffi and Matthew Tannin, were arrested at their homes.
Cioffi was a senior portfolio manager of two BSC funds which collapsed. Tannin served as his COO. US prosecutors are focusing on an e-mail allegedly sent by the two suggesting that their funds were headed for trouble four days before they stated to investors that their holdings were in satisfactory condition.
Former prosecutor Robert Bunzel said that these indictments "signal a new chapter in the subprime debacle".
But is is too late? For many investors, yes. But for our culture, no... although that depends upon you... and each of us.
April 28, 2008 --  Key EU Nations Are Experiencing Reduced Credit Quality & Expecting Growing Deficits
European corporate credit quality is sinking at what Moodys terms an "alarming" rate. Causes include rising oil prices and possible  recession in the US. Also, the euro's strength will continue to restrain EU economic growth.  Read the specifics.
European Union nations are paying for their welfare-state philosophy.
April 25, 2008 --  The monoline insurance companies' record losses continue.
The monoline insurance industry, Ambac, MBIA, and others, posted record losses for Q1. These entities used to provide guarantees for municipal bonds that infrequently default. They expanded to insuring securities linked to the now deteriorating mortgage market. Home mortgages are becoming delinquent at the highest rate since 1985. Ambac's new business slumped 87% during Q1 following ratings companies' threats to strip the insurer of its AAA status.
California Treasurer Bill Lockyer is circulating a petition calling for the credit rating companies to be required to change procedures on how they assess municipalities. Lockyer claims that the existing rating system exaggerates the risk that cities and states will default, thereby creating an artificial demand for bond insurance.
City and state officials question the value of bond insurance.
April 19, 2008 --  The Bank of England provided its Special Liquidity Scheme
The BoE is attempting to enable banks and building societies to temporarily swap assets that are illiquid in exchange for UK Treasury Bills. This briefing note provides information about the function and purpose of the bank's initiative.  Read the BoE's scheme identification.
"Financial markets are not working normally, which if left unchecked will have an impact on the wider economy. Across the world, there is a lack of confidence in assets"
April 12, 2008 --  Functional Realities Hit The Real World's Business Operations
General Motors had an agreement to sell a stamping plant outside Pittsburgh to the private investment group Allegheny Holdings. The deal has been called off. Approximately 200 jobs can be lost if the plant shuts down.
Allegheny Holdings Internet site reports that "On Tuesday this week our senior lender informed us that the terms and conditions under which they extended their original commitment could no longer be attained, and that they were unable to renew their lending commitment which expired on March 28. We have made every effort possible to find alternative sources of funding to keep this deal alive, but have been unable to get a commitment quickly enough to allow us to proceed. The sad reality is that without a source of financing, we can no longer move forward with the acquisition."
The rippling credit clutch continues oscillating & resonating along its course impacting real business operations.
April 9, 2008 --  Citigroup is closing a deal to sell approximately $12 billion worth of its leveraged loans and bonds.
The buyers include a group of private equity firms. The firms reportedly include TPG, Apollo Group, and Blackstone.
The average price may be around 90 cents on the dollar.
Citigroup is working to consummate the deal before it is scheduled to report its first-quarter results on April 18.
At the end of 2007, Citigroup's total exposure to leveraged loans totaled approximately $43 billion.
This event & the WaMu version verifies that the credit clutch has moved into its next phase: Purge.
WaMu's approach: April 8 - WM nearly doubled its outstanding shares when it issued & sold stock in return for approximately $7 billion.
April 3, 2008 --  The multi-functioned Citigroup of today was finalized in 1998, as Sandy Weill and John Reed finalized a series of mergers and acquisitions.
Ten years later, John Reed characterized the mergers that built Citigroup as a "mistake" that failed to benefit the conglomerate’s investors, employees, and customers.
Citigroup is an experiment in vertical and horizontal integration that became unmanageable and was driven beyond accounting & ethical standards and controls.
March 19, 2008 --  The US government loosened strict capital requirements that had been placed on Fannie Mae and Freddie Mac.
This easing of safety requirements will allow them to add billions of dollars into the nation's failing mortgage market through their mortgage purchase and guarantee mechanisms.
The Office of Federal Housing Enterprise Oversight (Ofheo) reduced Fannie Mae's and Freddie Mac's capital-surplus requirement to 20% from 30%. The two companies will be able to invest freed-up capital in mortgages and mortgage-backed securities.
It is expected that this will add up to $200 billion of immediate liquidity to the mortgage-backed securities market. Ofheo's change in policy, along with other actions, is expected to enable FNM & FRE to purchase or guarantee about $2 trillion in mortgages during 2008.
Ofheo, the federal regulator for FNM & FRE had increased capital safeguards following accounting scandals. Ofheo had mandated FNM hold 30% more capital than was typically required.
Here we go again.
March 17, 2008 --  Lending The Last Resort
The Fed lowered its discount rate by 25 basis points to 3.25%.
Also, the Fed made the discount rate available to primary dealers and expanded the length of such loans to 90 days from 30 days.
Also, the Fed significantly broadened the types of securities it will accept as collateral to now include investment-grade corporate debt, municipal securities, mortgage-backed securities and asset-backed securities.
Last resort seems to be just around the corner. But you thought prosperity was just around the corner.
March 17, 2008 --  Clarification leading to identification and discernment is not to be found.
The Fed lowered the discount rate by a quarter of a percentage point to 3.25%. Also, the Fed will provide up to $30 billion to JPMorgan to assist JPM in financing its purchase of Bear Stearns.
BSC collapsed following recent client shifts removing $17 billion in two days. In old-fashioned terms, this was a run on the bank.
This action by the Fed is its first weekend emergency action in nearly three decades.
The depth and detail of the Fed's involvement is most disconcerting -- at least.
Today, as in other days when some single aspect looks clarified, other aspects slightly out of focus are becoming weaker and fuzzier.
March 11, 2008 --  The Fed broadened its new liquidity facility to encompass other flavors of failing institutions.
The Fed announced that it is "expanding a securities lending program and will accept a broader range of securities as collateral. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days...by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS."
The Fed added that it is cooperating with other central banks, including the Bank of Canada, Bank of England, European Central Bank and the Swiss National Bank working to alleviate pressure in global financial markets.
Additionally, the Fed said its Open Market Committee authorized increases to existing swap lines with the European Central Bank and the Swiss National Bank.
The Fed's recently created facility is may be working well and is therefore being broadened. Or are credit markets in such stringent lock-up that the facility was forced into expansion?
Subtleties can force the marginal into violent swings where money & credit are involved.
Self-interest Rules
March 1, 2008 --  BAC received a Wells Notice as part of a municipal bond investigation.
A Wells Notice is the process used by the SEC to notify companies of potential charges. It provides a procedural process to respond. The specific investigation is industry-wide and concerns the bidding process used for municipal derivatives offered to states, municipalities and other issuers of tax-exempt bonds.
The SEC can seek permanent injunction, disgorgement plus prejudgment interest, civil penalties, as well as other remedial relief.
BAC disclosed that following probes regarding its dealings in municipal bond derivatives, it reached an agreement with the US Department of Justice. This agreement will help it avoid criminal prosecution. However, the SEC has taken steps apart from the the Justice Department for enforcement action against BAC.
Government agencies are investigating several financial service companies regarding the possibility of bid-rigging and related abuses in the municipal-bond market.
UBS recently announced it had received an SEC Wells Notice related to its activity in the municipal-bond market. Wachovia Bank recently disclosed that it has received subpoenas from the Justice Department and the SEC.
BAC received a Wells Notice indicating that the SEC staff is considering recommending enforcement action relating to BAC's bidding of various financial instruments associated with municipal securities.
February 29, 2008 --  JPMorgan Identifies Its Home Mortgage Write Off Amounts
JPM announced that it expects loan write offs to continue during 2008. During the 4th quarter of 2007, it wrote off $248 million of its home equity loans. That increased from $150 million in the 3rd quarter, $98 million in the 2nd quarter, and $68 million in the 1st quarter.
During the 4th quarter of 2007, JPM increased its loan loss reserves by $2.54 billion to anticipate increased loan losses in 2008.
JPM stated that its 1st quarter loss could be $450 million and its 2008 4th quarter net charge-offs for bad debt could be double that amount.
CEO James Dimon instructed investors that they should not worry. He said earnings will be high in a few years -- "We shouldn't be in a twitter about all this stuff. ... Recovery will come -- for most".
JPM's CEO Dimon instructs investors: Don't get in a "twitter".
He likely won't since his salary & bonus are secure even if investors must sell low.
February 22, 2008 --  Bank Employees Played Games & Named Their Toys
Standard Chartered Bank announced that it canceled its plan to provide liquidity to its SIV. The bank had a name for its SIV: Whistlejacket. Whistlejacket's underlying assets have plunged in value over recent months.
Germany's third largest bank, Dresdner Bank, has rescued its $18.8 billion SIV. Dresdner, a unit of Allianz, said it will provide a credit line to enable its K2 fund to repay all of its senior debt. Dresdner will cut the size of the fund, which has been reduced from $31.2 billion since July.
K2 was started in 1999, and named after the world's second-highest mountain.
How many subprime borrowers does it take to bring the global financial mechanism to a halt?
How many are there in the US culture of delinquency?
February 18, 2008 -- The US market for auction-rate securities is gaining buyers through increased rates. Rates have risen to as high as 20%.  Read the updated story.
Econ 101:  Failure Rate Declines As Rates Jump Up
February 17, 2008 -- Northern Rock will be nationalized.
Alistair Darling, chancellor of the Exchequer, announced on Sunday, February 17, that, "It is our expectation that the company can be moved into the private sector at the earliest and most prudent opportunity".
The two private sector bidders did not meet the requirement which will be met by this nationalization plan. That is, under the public ownership plan, the government's outstanding loans to Northern Rock will be repaid in full with interest.
Northern Rock suffered the first run on an English bank in over a century, is the first nationalization since 1984, and the biggest bank nationalization since Clement Attlee's Labor government took the Bank of England into public control in 1946.   Read the story.
Prime Minister Gordon Brown and Alistair Darling said nationalization was their least favored option.
February 16, 2008 -- Eighty-seven percent of auction-rate security auctions failed on February 14.
Liquidity continues to deteriorate in today's $330 billion market. This information was reported by Bank of America.  Read the story.
The Failure Rate Is Up From 2% To 87% Within Just Days
February 15, 2008 -- Banishing The Defective Appears to Leave The Remaining Portion Healthy, But Overall The System Continues To Decay
FGIC has requested that the New York Insurance Department allow it to be split in two parts. FGIC's purpose is to protect the municipal bonds it covers. FGIC recently lost its Aaa guaranty rating provided by Moody's Investors Service. If approved, FGIC will separate its municipal insurance unit from its guarantees on subprime-mortgages.
This split-up tactic may be attempted by other bond insurers. It may appeal to those that already have been downgraded by one or more rating agency.
Last month New York State regulators organized banks into planning a rescue. The regulators talking to private-equity firms and sovereign wealth funds. It is estimated that the bond insurers need around $5 billion with and additional line of credit for $10 billion.
Loss of bond insurers' AAA ratings would negatively impact the rankings of thousands of schools, hospitals and local governments across the nation.  FGIC insures approximately $314 billion of debt. That includes $220 billion in municipal bonds. The two largest bond insurers, Ambac and MBIA, guarantee a total of $1.2 trillion debt.
Purging the rotten portion removes clears FGIC's books. However, banks and other institutions will still need to identify, unwind, and handle those purged, lower-quality, decaying, underlying components. Those remain buried in CDOs, & swaps.
Imagine that an iron ore mining company removed the slag and passing it off to customers who bought large quantities of what they believed were mixtures. Customers are left holding a pig in a poke with little guarantee and unknown waste.
February 8, 2008 -- Decision Displaying Reality -- The European Central Bank dropped its threat to raise rates in order to more aggressively fight inflation. Instead it held rates unchanged.
This ECB position unmistakably displays its concern for the worsening global economic slow down. The ECB held its main interest rate at 4%.
The Bank of England, the ECB's counterpart, cut its benchmark rate by a quarter-point to 5.25%. The ECB later stated it may follow through and lower its rate also.
The president of the ECB, Jean-Claude Trichet, said, "This assessment is in line with indicators for business and consumer confidence which, while having declined over the past few months, over all, remain consistent with ongoing growth."
The Bank of England's governor Mervyn King warned through a bank statement that inflation remains a concern. The bank's statement added that "prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued." The British central bank said it needs "to balance the risk that a sharp slowing in activity pulls inflation below target in the medium-term against the risk that elevated inflation expectations keep inflation above target."
This interest rate cut was the second in two months by the Bank of England.
Two One-way Streets
One impacts inflation. The other impacts growth. Each street runs in opposition to the other. Central banks can drive only one street at any given point in time.
Moral suasion must do for now.
February 5, 2008 -- Deposed & Broken -- US-based financial institutions have been hobbled by a relatively small number of employees including executives, managers, traders, & traitors. Their self-interest and greed was as large as their unjustifiable over-empowerment. The New World Order includes a damaged United States financial system that was torpedoed by complex, computer-created, packaged derivatives known as SIVs, CDOs, swaps, and other securitized instruments. Each type of instrument encapsulated, disguised, and shielded from view its intrinsic risk. Each enticed buyers who were not adequately concerned with underlying risks.
For the first time a Chinese bank is the world's largest financial institution.  Industrial & Commercial Bank of Chna, China Construction Bank, and Bank of China have surpassed Citigroup's capitalization.
In 2003, there were 13 American banks ranked in the top 20. There was not a single Asian bank. Today there are four Asian and six US institutions. The credit clutch of 2007 destroyed almost $100 billion of value from the three biggest US banks. That destruction occurred during the last half of 2007.
Today Beijing-based ICBC is the largest financial-services firm. Citigroup has decayed to 7th place even after billions of recently-added capital. ICBC has more customers than the combined populations of France, Spain and the United Kingdom.
Those top to mid-level US-based financial institution executives, managers, traders, and traitors are slipping away with bonuses and departure payoffs large enough to keep them comfortable in New World Order.
The New World Order will include a less arrogant US population. However, Americans will experience much more pain before they awaken to new realities.
January 31, 2008 -- Bristol-Myers Squibb reported a $275 million charge due to investments in subprime securities. This investment contributed to a fourth-quarter loss of $89 million, $0.05 per share. BMY's subprime-related expense may rise to $417 million.
Chief Executive Officer James Cornelius said that BMY is "now moving to a safer interpretation of what triple-A means". He added that the company is switching away from risky securities and moving into treasury notes and fixed bank deposits.
Citigroup, Merrill Lynch, and Wall Street banks are now only the visible leading edge of major losses from subprime defaults and the ensuing credit clutch & credit freeze. Losses are extending to non-financial businesses, states, and municipalities.
In 2007, when yields on more traditional debt securities fell to near record lows, states, corporations and hedge funds scoured investment opportunities for extra basis points. That included Florida, Connecticut, hedge funds run by Bear Stearns, and drug manufacturer BMY. They fell for higher returns promised by subprime-backed investments rated AAA. These investors passed over mundane US government securities' low-but-secure returns. Their quest for basis points has cost millions of dollars.
A Safer Interpretation Of What Triple-A Means
Judgment & perspective regarding the concept of risk as it applies to corporate finance failed to override some investment managers' need for a few extra basis points.
January 29, 2008 -- Countrywide Financial announced a Q-4 loss of $421.9 million ($0.79 loss per share). Year ago results included a profit of $621.6 million ($1.01 profit per share).
CFC also said that it reduced its employees by about 11,000 since July, 2007.
CFC declared a $0.15 dividend on common shares.
CFC's provision for credit losses total $924 million. That amount increased from $73 million in 2006's quarter.
And....
January 23, 2008 -- Survival in the post credit clutch era:  BAC initiated a $6 billion public offering. C used a $12.5 billion private placement.
There are two securities involved.
The first is a depository security. Each unit represents a 0.04% interest in a share of non-cumulative perpetual preferred stock -- Series K. The second security consists of shares of non-cumulative perpetual convertible preferred stock -- Series L.
BAC stated that it will use net proceeds for general corporate purposes.
UPDATE:  January 25 -- Bank of America doubled its planned sale of preferred shares. BAC raised $12 billion in the public offering of two types of securities. BAC priced the offering of depositary shares and convertible preferred stock at $6 billion for each type of security. This issuance offers the highest yields in 15 years. BAC sold approximately $6 billion of perpetual securities that will yield approximately 8% -- the highest since 1992, and $6 billion to $7 billion of convertible shares.
Citigroup announced it priced the classes of stock it is selling to raise new capital amounting to $12.5 billion using private placement of special classes of stock. The shares provide a 7% dividend and have a conversion price of $31.62. Shares were purchased by the Government of Singapore Investment Corp., Kuwait Investment Authority, Capital Research Global Investors, Capital World Investors, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former Chief Executive Sanford Weill and his family foundation.
Redundant Dilution
Did you hear about the Broadway producer who sold 240% ownership in his new play? He was later accused of fraud because he had sold the same 100% to multiple investors. He had hoped his play would fail and therefore no investor would expect a return of principal -- or profit.
January 18, 2008 -- Record high bonuses are being paid to employees for 2007's results at Wall Street's largest & one-time grandest.
Wall Street's largest, including MER, C, & more, have been writing down & off tens-of-billions of dollars, yet they provide huge exit-payments for the top managers who were ostensibly in charge of -- and therefore responsible for -- the massive losses. Somehow the boards of directors and new management find billions to pay out for record employee bonuses while they grovel across the world for cash.
These organizations' managements -- concurrently approve record bonuses -- and plead with Chinese communist sovereign funds and Arab wealth for cash infusions. They are selling equity stakes at discounts thereby diluting existing shareholders' positions. Wall Street managements justify paying bonus-billions to employees for 2007's performance instead of holding those billions of dollars in-house and using it to reinforce the one-time greats' balance sheets.
A bonus is an apportioned payout made to an employee based upon his relative contribution to the organization's profits -- and success.
January 15, 2008 -- The Chinese government has opposed China Development Bank's plan to invest $2 billion in Citigroup.
Over recent months Chinese financial institutions have provided funding through share purchases of struggling Wall Street firms. China Investment Corp., the country's sovereign wealth fund, recently invested $5 billion in Morgan Stanley.
China Development Bank was established in 1994 and is in the initial stage of become a commercial lender. On December 31, 2007, it received a $20 billion infusion from China Investment Corp.
Citigroup has asked, and continues to negotiate with, the Government Investment Corp. of Singapore for an investment of at least $5 billion.
It may be that the Chinese communist government is pulling back from its aggressive foray into the capitalism of failing banks.
January 14, 2008 -- The US' failing culture continues to infiltrate major financial institutions that are now failing because too many Americans are walking away from their financial and moral obligations by not meeting their mortgage commitments. But those people were primarily sub-prime. Therefore the industry knew -- but lent for short-term gains -- that the sub-primers would fail to pay once their rates jumped up.
Less than two years ago Americans were panicking over Abu Dhabi's investment in several US port operations. Today Abu Dhabi's investment arm owns major portions of Wall Street's largest, one-time most revered financial institutions.
Abu Dhabi's investment arm invested $7.5 billion in Citigroup in late November which gave it a 4.9% position. Citigroup is searching for another $8 to $10 billion from Chinese sovereign funds and Saudi sources to stave off further exposure to catastrophe in the next days when it announces what used to be called earnings, but is now better known as losses.
China's communist government's sovereign fund known as Temasek owns near 10% of Merrill. MER is expected to soon receive $3 billion to $4 billion from a Middle Eastern government investment fund and is attempting to sell more of itself to members of the Saudi royal family. The Financial Times reports the Kuwait Investment Authority may be a significant investor in additional portions of MER. The Swiss-owned UBS has accepted $9.75 billion from another Singapore state fund.
These weakened US institutions are desperately questing for tens-of-billions of dollars more before reporting earnings (losses) in the next days.
The chart to the right portrays recent investments in some of the major Wall Street financial institutions as of late 2007.
January 11, 2008 -- Bank of America is buying Countrywide Financial at a bargain price even after factoring in risk. Free market maneuvering is salvaging the mortgage industry.
BAC's capitalization -- even today at a multi-year low -- is approximately $173 billion. BAC is acquiring CFC for $4 billion in stock.
Bank of America will become the US's largest mortgage lender and loan servicer. Ken Lewis, BAC's chief executive, said, "Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers".
Countrywide Financial operates a sophisticated back office and this is one aspect that makes it a valuable asset for BAC. Bank of America will become a worthy competitor of Wells Fargo, Washington Mutual, and giants.
During 2007, CFC complete $408 billion in mortgage originations and had a servicing portfolio of approximately $1.5 trillion holding 9 million loans. CFC's technology platform, its experienced people running that technology, hedging capabilities, facilities, mortgage servicing rights, and its origination platform all contribute to making BAC's takeover deal likely worth the risk.
The inept dullards who were placed too easily in top positions for inappropriate reasons during easy times and who chose to play their responsibilities out on golf courses are being swept out to green pasture. The year 2008 is already shaping up to be the year wherein the real money-handlers swoop in for extreme bargains.
January 10, 2008 -- Rearranging assets, accounting magic, & some stock certificate shuffling demonstrate capitalism's highest level & its contemporary grand masters.
Blackstone -- the world's largest hedge fund manager -- is buying GSO Partners for $920 billion. BX said the purchase will add $10 billion in leveraged loans & distressed debt investments to its $35.8 billion hedge fund assets. The acquisition will not reduce earnings due to its inclusion of the planned share buyback.
The cost of credit for funding of leveraged buyouts has more than doubled since June, 2007. Blackstone's CEO & co-founder Stephen Schwarzman is broadening the company's debt business. Blackstone manages $98.2 billion in assets & the world's largest LBO fund which consists of $21.7 billion.
Schwarzman said, "Now is a fantastic time to be growing this business globally... It takes a little bit of internal fortitude to it because the world looks a little messy".
Hedge funds serve insurance companies, pension funds and individuals with at least $1 million. They are most often private and unregulated capital pools. Their managers buy & sell assets while participating substantially in profits. Typically hedge fund clients pay fees of around 2% of assets and 20%profits.
January 1, 2008 -- The Parting-out Of Merrill -- Merrill Lynch & Co is talking with Chinese and Middle Eastern sovereign wealth funds about their acquisition of additional assets. Talks could result in the sale of additional large positions. Merrill recently announced it was building its capital base up to $7.5 billion through the sale of $6.2 billion in shares to Singapore's Temasek and asset manager Davis Selected Advisers.
Merrill's new Chief Executive John Thain has been assigned the job of acquiring capital adequate to support continued write downs amid large subprime mortgage losses.
Merrill's balance sheet bolster could be accomplished through sales of additional shares or other assets to raise cash.
Some analysts predict an additional large write down in the fourth quarter. Some analysts estimate the number will be bigger than Merrill's third quarter write down of $8.4 billion.
Apparently the multi-billion cash infusion from Temasek was not enough to stave off near-term capital shortfall problems. Thain is searching for additional saviors perhaps including sovereign fund investors from the Gulf and China.
January 1, 2008 -- Berkshire Hathaway is starting a bond insurance company. This new organization will be an additional potential source for state and local governments and could lower their borrowing costs since it will be a well-capitalized insurance haven not carrying burdens from the mortgage market's CDOs and SIVs.
The new Berkshire Hathaway Assurance Corp. could take business from established rivals struggling within credit market turmoil. It has received licensing from the state of New York and plans to enter other markets.
Warren Buffett said that the new company will be capitalized at $105 million and will commit "quite a bit of capital if we like the business"...but maintain "a capital ratio that's stronger than anybody's".
The bond insurance industry as a whole insures approximately $2.5 trillion of debt.
Insurance Industry Index Declined In 2007, The Most Since 2002 --
For 2007, the largest bond insurer, MBIA, was down 75%, & 2nd largest Ambac was down 71%. The largest mortgage insurer, MGIC, lost 64%. The largest insurer, AIG, lost 19%. Equities up on the year include Aon up 35%, Aflac up 36%, Prudential up 8.4%, & MetLife up 4.4%.
December 29, 2007 -- The recent decline in LBOs dollar volume is from $336.4 billion in the first half of 2007, to $101.9 billion in the second half of the year.
Even with the decline in dollar volume and number of LBOs, Citigroup, Goldman Sachs, Morgan Stanley, and JPMorgan Chase are finding it necessary to offer discounts of as much as 10 cents on the dollar in order to clean out a $231 billion backlog of loans and high-yield bonds. Barclays reports that these institutions have sold some bonds at a discount of 10%, loans at 5% below par.
Investors are demanding extra yield to accept high-yield bonds. Those bonds include SP-rated below BBB- and Moody's Investor's Service rated Baa3. According to Merrill Lynch data, the spread between Treasuries and these lower-rated instruments widened to 5.64% at the close of 2007, from the record low 2.41% in June, 2007.
Lenders have reduced the overhang from this year's record $438 billion of leveraged buyouts by 32% since July, 2007.
According to JPMorgan data, banks have $161.9 billion of loans and $69.6 billion of bonds remaining in inventory that they must distribute.
December 28, 2007 -- Streamlining, "non-critical" operations being sold off, cost reductions, cash infusions, write-downs, layoffs, refocusing business directions, these are some of the massive efforts across the boards being used to stave off the unthinkable.
Citigroup may sell or shut several midsize operations in a move executives estimate may lead to disposal of as much as $13 billion in so-called non-critical assets. US-based and European-based banks are reviewing the possible sale of everything from branches to entire units as extraordinary steps to hold together their finances amid the credit clutch.
Citigroup's new Chief Executive Vikram Pandit is reportedly planning to streamline operations. That may include laying off about 20,000 employees and selling business operations.
HSBC could exit all or part of its $13 billion auto-finance business.
It appears that Citigroup is striving to streamline its operations while rebuilding its capital base. HSBC has already closed or discontinued several US businesses and is demonstrating that it is focusing more on growth in emerging markets.
Global bank assets sold would likely provide profitable opportunities for Asian banks or wealthy sovereign wealth funds anxious to expand their portfolios. Citigroup, HSBC and smaller banks, as well as smaller US & European-based lenders will likely be restructuring operations through asset sales.
Citigroup & HSBC buildings in London's Canary Wharf district. Two of how many institutions at various locations across the world preparing to sell off "non-critical" operations?
December 20, 2007 -- The M-LEC plan has been abandoned. Secretary of the US Treasury Paulson invested much suasion to achieve major bank acceptance of the now-abandoned M-LEC plan.
There was a lack of demand for the M-LEC plan. Instead, banks have chosen to operate like major banks by resolving the problem over time doing such things as bringing SIVs onto their balance sheets. The SIVs will be restructured. When credit markets resume normal operation, SIVs will likely prove profitable for their owners.
That fact explains why SIVs have been consolidated onto balance sheets. Citigroup moved $49 billion worth of SIVs onto its balance sheet in mid-December.  Read the original story.
Yet another example of unnecessary government meddling proven unnecessary by markets devising and resolving problems.
December 20, 2007 -- Major UBS shareholders are rebelling against management's infusion of bailout capital from wealthy Middle Easterners.
Major shareholders are balking at the sale of a portion of UBS to wealthy Middle Eastern family interests and a Chinese sovereign fund. Shareholders are questioning how UBS was allowed to arrive at its current weakened position bringing capital ratios so low that UBS requires a cash infusion from outside sources.
The Financial Times reports the mystery Middle Eastern investor providing $1.73 billion into UBS’s recapitalization is from Saudi Arabia.
Saudi royal family involvement details were not disclosed, but one banker believed Prince Sultan, the crown prince and defense minister, was a major force. The investment appears to be the result of a long relationship between the private banking arm of UBS for the Middle East and the Saudi royal family.
There is a threat of shareholder revolt at the special shareholders’ meeting in February, 2008. The meeting's purpose is to approve the measures prompted the Swiss National Bank recommending the unusual recapitalization. Philipp Hildebrand, the SNB’s deputy chairman, said: "This is a very good deal. It is very important for UBS and for the country for shareholders to understand this at the extraordinary general meeting."
Separately, an influential Swiss investment lobby, the Ethos foundation, said it will ask UBS to explain how it ended up with more than $14 billion in write downs on securities linked to the US residential mortgage market. UBS said it would "carefully answer all Ethos’s questions". Ethos’s director Dominique Biedermann said the plan to bring in Singapore as the single biggest shareholder with nearly 9% ownership was "not necessarily the ideal structure".
Western wealth is rebelling against outsider takeovers. There appears to be stronger resistance in Europe than in the US. This may indicate US financial organizations are in more desperate straights.
December 20, 2007 -- MBIA announced that it had previously guaranteed $8.1 billion of the most risky mortgage securities.
MBIA's entire net worth is imperiled. MBIA's 26% one-day capitalization decline is the largest ever and returned the company's value to that of 13 years ago. MBIA's stock has declined 70% during 2007, after reaching an all-time high in January, 2007.
MBIA's disclosure poses a genuine threat of a chain reaction possibly leading to larger write-downs at major banks.
The cost MBIA to insure its bonds also soared to new records. MBIA announced that it had guaranteed $30.6 billion of complex mortgage securities in total.
MBIA is vulnerable to its guarantees and its exposure is involves the riskiest debt known as CDO squared, or CDOs backed by other CDOs.
MBIA's CDO exposure is another indication that ratings of bond insurers may receive downgrades. Triple-A ratings are a basic aspect of the industry's business model. Lower ratings could cause a ripple effect forcing more major banks to accept billions of dollars of losses on their insured securities.
MBIA is the largest bond insurer. Ambac is the second largest insurer. One or both could be shifting into different roles as CDOs & SIVs continue to change valuations.
Warburg Pinckus announced on December 10, it will invest $500 million through a purchase of MBIA shares at $31 each. That restored some investor confidence. MBIA shares peaked at $37.50 on that day. Ten days later they are under $20.
December 19, 2007 -- Globalization:  Morgan Stanley sold a portion of itself for $5 billion to an investment arm of the Chinese government.
Morgan Stanley -- the second largest US investment bank -- had recently warned of a write down, however the actual amount was nearly triple what had been expected. The $9.4 billion write down -- attributed to bad investments on mortgage-related debt -- led Morgan-Stanley to accepting a $5 billion infusion from an arm of the Chinese government.
Morgan Stanley Chairman & Chief Executive John Mack accepted blame for the fiscal fourth-quarter loss. He said that he will forgo his annual bonus.
Over the past year, Mack had aggressively moved Morgan Stanley into the home loan industry, along with trading in related securities. Mack said disappointing results were due to "isolated losses by a small trading team in part of the firm."
Morgan Stanley took its first quarterly loss in its 73-year history. The write down was $9.4 billion.
December 19, 2007 -- SIVs were created by banks and designed to operate separately from those banks. That meant that SIVs would be kept off the banks' balance sheets.
SIVs issue short-term debt to investors. They use the funds to buy higher-yielding -- generally longer-term -- assets. This business model only functions properly only if SIVs can keep issuing new debt as old debt comes due. This model failed to function properly as subprime mortgage problems accelerated during the summer of 2007.
Bank of America, Citigroup, JPMorgan Chase, and BlackRock reiterated their commitment to the launch of an SIV rescue fund that will be one option for assisting troubled structured-investment vehicles. The banks announced this even though many of the big banks have backed SIVs by accepting the SIV's assets onto their balance sheets in order to stave off potential additional losses and forced sales. These four banks said that they plan to start the Master Liquidity Enhancement Conduit, known as an M-LEC, in the coming weeks.
SIVs  often hold mortgage-backed securities and have therefore come under intense scrutiny over recent months as investors have become concerned about purchasing short-term debt known as commercial paper which provides funding to the SIVs.
Bank of America, Citigroup, JPMorgan Chase have been working since September to establish the M-LEC. Its establishment was initiated by the Treasury Department. Interest in the M-LEC waned as several banks determined that they would not wait for it and decided to save their own SIVs.
Since mid-2007, the beginning of the credit clutch, SIVs have been forced to sell assets to pay off maturing debt.
December 15, 2007 -- Imagine how many were not even considering doing their jobs and thus permitted this to take place over several years!
Citigroup announced it will incorporate its seven SIVs, onto its balance sheet. The SIVs have $62 billion in assets -- $49 billion excluding cash and cash equivalents and $58 billion in debt. The decision to incorporate the SIVs onto the balance sheet followed within hours Vikram Pandit's appointment as  CEO. This consolidation erodes the bank's capital buffer against loan losses.
Pandit, who took over earlier this week, shows he isn't reluctant to reverse policies of prior management.
Citigroup decision to bail out seven subprime-infected investment funds with $49 billion in assets may increase the likelihood of cut in its dividend. Doing so would allow Citigroup to retain capital at an annualized rate of nearly $11 billion.
Citigroup's Tier 1 capital ratio -- the ratio of its cash to its debt, a measure of financial strength -- is likely to be reduced by 0.16% to approximately 7.16% in the fourth quarter with the SIVs on balance sheet. Bank regulators prefer 6% or above for a bank to be considered "well capitalized". Citigroup will likely be below its peers. It has nearly $2.36 trillion in assets.
Citi's exposure to bad debt through SIVs is minimal compared to the bank's holdings of CDOs. Citigroup has roughly $55 billion in direct exposure to US subprime mortgages. Citigroup has debt the credit market is shunning because of the housing downturn. Of this $55 billion, approximately $43 billion is exposure to CDOs with underlying mortgage or asset-backed securities.
Moreover, it is impossible to know actual valuations. Citigroup stated that 54% of SIV assets are rated AAA and 43% are rated AA. However, high ratings don't provide the same sense of confidence they did before the credit clutch began. Recently a CDO operated by Credit Suisse and named Adam Square was liquidated. Investors holding AAA notes recovered less than 25% of what their original equity.
Stanley O'Neal sometimes was out on the links playing several rounds of golf a day.
SIVs are created by banks. They are investment funds that sell short-term debt to invest the proceeds at higher rates using in long-term debt. When credit markets froze, SIVs were left with few buyers for short-term debt. Concurrently the value of many of their longer-term investments declined significantly.
December 11, 2007 -- Washington Mutual's Rating:  Fitch Ratings downgraded the company to A-. Fitch cited further deterioration in Washington Mutual's portfolio and warned of potential further rating cuts.
Washington Mutual announced that it is leaving the subprime lending business. It will eliminate 3,150 jobs.
Washington Mutual added that it will cease lending through its subprime mortgage channel. It will close approximately 190 of its 336 home loan centers and sales offices, shut down nine home loan processing and call centers, and eliminate about 2,600 home loan positions and 550 corporate and support employees.
Washington Mutual is cutting its quarterly dividend to $0.15 per share from $0.56 per share. Its sale of convertible preferred stock will provide $2.5 billion.
Washington Mutual stated that cost reductions will result in charges of $140 million in the fourth quarter, but will decrease non-interest expenses by approximately $500 million in 2008.
The company will now focus on offering home loans directly to more creditworthy customers through its retail branch network.
December 10, 2007 -- Across the US, small and medium-scaled banks have evolved their lending portfolios making construction loans a relatively large portion. Today as construction lending is weakening and the number of bad loans is growing, these banks are dependent upon their outstanding construction loans.
Federal Deposit Insurance Corporation released numbers illustrating that both midsize and small banks have construction loans outstanding that are greater than their total capital. A decade ago, these types of loans were equal to a third of capital for these banks.
Construction loans were profitable for smaller banks when they were losing business to large banks and securities markets in areas including mortgage lending and credit card issuance.
Today over 3% of all construction loans are classified as being nonperforming or have borrowers who are not current in their payments. That is the highest proportion in a decade.
Failing construction loans can quickly grow in volume and count. It often requires a long time for new construction loan issuance to slow as construction slows. Moreover, once started, unfinished construction projects are useless and become a drag upon the economy and market until completed. For example, a 30-story high-rise cannot be topped off at midway, but instead becomes a highly visible beacon of a failing market. A builder of single-family homes may stop building after some portion of the homes are complete, but stands out while trying to sell completed homes to cover costs amidst a partially dugout and barren field.
Construction loans will need cleansing before the credit clutch subsides.
Construction loans: Another black hole along the faltering pathway.
December 6, 2007 -- Now we know why smart people have bad credit ratings. Because they receive preferential mortgage rates while wealthy people -- likely to have good credit ratings -- will pay higher rates to make up for lenders' decreased profitability. And, wealthy people will earn less on their investments because banks will pay less to make up for decreased profitability.
The Bush administration announced a plan for borrowers who never should have received low-rate mortgages in the first place and now face an increase in their monthly mortgage payments when those special low rates reset to normal rates.
The proposal was agreed to following talks between Treasury Secretary Henry Paulson and representatives of the mortgage industry. Their plan will freeze introductory "teaser" rates on subprime mortgages which will prevent low teaser rates from resetting to normal rates for five years.
President Bush stressed that the special arrangement is not a bailout because no government money is involved. He failed to identify the fact that by being subprime a person will now receive preferential rates for another 5 year period. He failed to identify how these special low rates will cut into lenders' profitability.
Specifically, approximately 2 million subprime mortgages that had been given to borrowers with spotty credit histories will not reset to the rates these borrowers contracted and agreed to. Instead, introductory -- teaser -- rates of about 7% to 8% that were scheduled to reset to about levels as high as 11% will not reset. As borrowers and the financial institutions' commissioned sales forces knew, this reset would add hundreds of dollars to the their monthly payment.
The New American Way
Sage financial advice from those who pay late, don't care, & have won a bonus:
It is better to be a subprime borrower than to lend to subprime borrowers.
And next time special low rates reset upward, will the subprime crowd default? And the prime crowd?
   
December 4, 2007 -- Citigroup has sold two of its downtown Manhattan office buildings to SL Green Realty Corp. for about $1.58 billion.
These sales are part of a series of at least a half-dozen buildings recently sold by Citigroup.
SL Green said that Citigroup will lease back the buildings under a 13-year lease that calls for annual rental increases for the two adjacent buildings where Citigroup's investment bank employees office. The properties are located on Greenwich Street in Manhattan's Tribeca neighborhood and total about 2.6 million square feet of office space.
Nearly 9,000 Citigroup employees working primarily in the investment banking unit with some wealth-management and back-office function employees office in the buildings.
Collecting nickels and dimes to replace billions lost dollars.
December 3, 2007 -- Moody's Investors Service announced that has it cut, or may cut, ratings for over $100 billion worth of securities issued by specialized funds known as structured investment vehicles, SIVs.
Moody's statement addressed the continuing decline in value of the investments made by structured investment vehicles by downgrading or issuing warnings regarding about $116 billion of their debt.
Moody's downgraded or put on watch for downgrade nearly $65 billion of securities sponsored by Citigroup's SIVs. It added in a press release, "The situation has not yet stabilized and further rating actions could follow".
Moody's stated that has confirmed, downgraded or placed on review $130 billion of debt from SIVs. That amounts to roughly 42% of the entire SIV debt market.
SIVs are bank affiliates that raise cash by selling short-term debt. They then use the proceeds to buy longer-term and high-yielding securities. Those purchased securities are often tied to US mortgages. SIVs often are accounted for off-balance sheet.
Catching a falling knife can be disastrous.
November 30, 2007 -- Headlines across financial press reports read: "Citi Sells Off More SIV Assets"
Lead paragraphs proclaim: "Assets in the structured investment vehicles declined to $66 billion as of Nov. 30 from $83 billion as of Sept. 30, Citigroup confirmed."
Citigroup announced that it has sold off 20% of the assets in its structured investment vehicles over the last two months. As of November 30, assets in the SIVs declined to $66 billion from $83 billion as of September 30. Citigroup acknowledged this following a report from Moody's Investors Services detailed falling asset values of several SIVs.
Citigroup manages seven SIVs. The Moody report stated that six of them including Beta Finance Corp., Centauri Corp., Dorada Corp., Five Finance Corp., Zela Finance Corp. and Sedna Finance Corp., experienced asset value declines since September. Moody's said assets declined at SIVs managed by other financial institutions, too, including HSBC Holdings, Bank of Montreal, Standard Chartered Bank, Societe Generale, Rabobank International and MBIA. The ratings agency has put many of SIV assets on review for possible downgrading.
The declines reflect efforts of Citigroup and other institutions to sell off SIV assets and lower the troubled funds' leverage. Possibly at some unknown time the world stock of SIVs will liquidate completely.
The question for investors is, "Are these declines in value due to selling out of portfolios or due to declines in value of the underlying instruments?" Obviously declines are due to some unknown and indeterminate combination of both selling and deflation.
Isolation, identification, and evaluation of the causes for the declining valuations is indeterminate.
November 26, 2007 -- Experts Speak -- The same experts who contrived and failed to prevent the credit clutch.  Citigroup's economic and market analysis group released a report in which it was concluded that the global economy will survive current foreseeable stresses. However, risks remain.
Citigroup's Prospects for Financial Markets report, officially entitled, "Stress and Resilience: Market Implications for 2008 and Beyond", reviewed interactions between monetary policy and market pricing of risk. It concluded global growth will be moderate, but will not collapse. Lewis Alexander, chief economist and head of the economic and market analysis group said, "Our base case forecast reflects the judgment that the current stresses from the U.S. housing sector, high oil prices, a weak U.S. dollar and the recent financial turmoil will not overwhelm the global economy".
Alexander added that the level of uncertainty surrounding the report's theoretical base case is "unusually high". The report highlighted the US economy's strong household financial position and its productivity growth. These factors, combined with the US economy's lack of imbalances outside of the housing sector are sources of resiliency.
Citigroup's economists expect central banks will ease policy over the next months. The economists predict that emerging market growth will remain strong with a slowdown in central Europe and Latin America.
Separately?

CNBC television reports Citigroup, the US' largest bank by assets, is planning major job cuts over the coming months.
CNBC reported no precise number has been set. CNBC added the point that some jobs are already being eliminated. CNBC estimated that job cuts could total anywhere between 17,000 and 45,000. November 4, Citigroup announced it may write off $11 billion of assets linked to subprime mortgages this quarter.
November 12, 2007 -- US Commercial Real Estate Markets Are Beginning To Feel A Squeeze

Global credit turmoil has spilled into the market for bonds backed by US commercial mortgages. This threatens to push down property prices and end deals.
Issuance of US commercial-mortgage-backed securities fell to $6.3 billion in October, down 84% from a record $38.5 billion in March, 2007, according to Commercial Mortgage Alert, a trade publication. The decline in CMBS issuance is critical because they have provided approximately 40% to 60% of financing for new commercial property purchases in recent years.  Read the story.
One analyst expects the total issuance of commercial mortgages to fall to $100 billion or less in 2008. That would be the lowest since 2004. Analysts continue to expect 2007 to be a record $245 billion.
November 12, 2007 -- The Celebration & The Cure
The celebration may have premature when the nation's three largest banks agreed upon a mechanism for survival. Their M-LEC plan for SIVs may stave off further problems, but it will have large costs and it may be short on investors. Some analysts and investors believe the $75 billion SIV fund designed to hold together distressed securities may not do enough.
The SIV fund may calm turbulent credit markets by preventing further sell-offs of securities. Some analysts say the fund will probably not be able to offset the deteriorating prices of the securities.  Read the story.
November 9, 2007 -- Two Weeks That Shook The Titans Of Wall Street
As one tottered, others slipped and packed it in.
Learn of the two weeks from the end of October into November when executive suites were vacated by those who proved themselves to not have been worthy of the jobs they were highly paid to fill.
C, BAC, JPM, WB & More
November 9, 2007 -- JPMorgan Chase announced that "if market conditions worsen" it may write down more debt holdings and mortgages in the 4th quarter.
In its regulatory filing JPMorgan Chase stated that it held $40.6 billion in leveraged loans and unfunded commitments as of September 30, 2007, that are difficult to hedge. The company's fees from investment banking has declined since June 30, due to a decline in debt underwriting.
The company said that during the 4th quarter, less liquidity and wider credit spreads may make it difficult to sell loans needed to finance leveraged buyouts. This will lower investment banking fees and trading revenue.
Additionally due to market conditions, trading positions, subprime mortgage holdings, and CDOs may also decline in value.
Additional institutions, more grand write downs, & stalled market conditions continue.
November 6, 2007 -- The Financial Times had the following to say.
As the tech bubble imploded, fund managers stopped pretending to know what ethernet routers did and started asking what life would look like if all tech stocks halved in value. The structured credit market has yet to reach this moment of clarity. As is typical when the sky falls in, many specialists, buried by complexity, point to the impossibility of generalising about the weather.
It is true that in terms of the vintage and profile of the underlying collateral, and the priority of claims on it (subordination), a dazzling range of permutations exist for collateralized debt obligations (CDOs). And the $23bn of sub-prime write-offs so far from the three banks worst hit suggest intellectual chaos: relative to their remaining exposure to “super-senior” CDOs, UBS wrote down 8 per cent, Merrill Lynch 41 per cent, while Citigroup’s guidance is 19 per cent.
Those who want to see the forest for the trees have two options for estimating total losses. The first is a “bottom-up” approach. Moody’s Economy.com takes the universe of risky mortgages (sub-prime, Alt-A and some jumbo loans) then assumes an economic slowdown and a 12 per cent fall in house prices from their peak. This generates a roughly 10 per cent loss rate, or a $225bn hit, mostly suffered by securitised products.
The alternative is to try to “mark to market” the known universe of mortage-backed securities, using the quoted ABX indices. According to RBS Greenwich Capital, this points to a $238bn hit for subprime and Alt-A. The Bank of England, using a similar approach, got to $100bn as of October 15, but the declines in the ABX indices since then suggest its estimate could now approach $200bn.
What conclusions can be drawn? First, mark-to-market prices imply a gloomy but realistic fundamental prognosis for mortgage losses. Second, sub-prime write-offs of $28bn for the eight big investment banks that have made disclosures are the tip of a $200bn-plus iceberg. The investment banks themselves may take more hits, but it is time for the insurance companies and commercial banks which bought big slugs of CDOs to face the music.
Copyright The Financial Times Limited 2007
The beginning has not yet ended.
October 30, 2007 -- Merrill reports the largest loss in its 93-year history due to an $8,400,000,000 write down.
Stanley O'Neal, who resigned from his CEO post at Merrill had became Merrill's chief executive in 2002, and changed a traditionally-oriented, complacent, perhaps stodgy company culture. He cut 24,000 jobs, eliminated corporate perks, and took the company known as "Mother Merrill" due to its comfortable ambiance and predictability into risky, more lucrative arenas, including the subprime mortgage market.
Most of Merrill's board of directors were chosen by O'Neal. They must share responsibility for the debacle. Its members were aware of how O'Neal was investing the firm's money. However, there was one thing O'Neal failed to tell the board. That is that he had approached the chief executive of Wachovia Corporation about a possible merger of the companies. He bypassed procedure and protocol with that act and angered the board.
During his five years heading up Merrill, O'Neal commanded with a toughness and determination. Some top executives have said he displayed an explosive temper. O'Neal's undoing was that he insisted upon using high risk in ever-greater magnitudes. Merrill's CDO position grew from $1 billion 1-1/2 year ago to approximately $40 billion recently. Apparently he and his team failed to implement effective hedging safeguards for a time when markets turned against their strategy.
Only two or three generations from slavery, raised in poverty, he rose to control one of the grandest citadels of American capitalism. Only in America with its powerful, accomplished, and successful capitalistic economy and egalitarian culture might this be realized. Only America has a capitalistic business structure that can absorb all skill levels, personalities, management styles, and still survive after being injured.
O'Neal has now retired at age 56 and leaves Merrill with about $161,500,000 in stock, options, and other pension products. He received a $36,000,000 special bonus in 2006.
Stanley O'Neal is not the prototypical banker, broker, trader, or financier.
October 22, 2007 -- Settlement Without Trial Lawyers -- And All Sides Win
HAR, KKR and a GS investment group reached agreement without going to court and without payment of a breakup fee.
KKR and the GS group will invest $400 million in Harman International Industries debt as part of a termination deal.
Instead of HAR demanding a breakup fee and/or court, KKR & the GS group will buy $400 million of 1.25% HAR senior notes that are, under certain conditions, convertible into HAR stock at $104 per share. KKR & Goldman state they have agreed to not sell nor hedge their position for at least one year. KKR member Brian Carroll is to join Harman's board. HAR said it plans to use the proceeds to buy shares back.
October 15, 2007 -- The three largest US banks, Citigroup, JPMorgan, & BankAmerica announced a new mechanism & fund, the M-LEC, consisting of approximately $80 to $100 billion. The new Master Liquidity Enhancement Conduit, or M-LEC, will be in operation within 90 days. It is expected hold the assets until maturity. It will be used to bail out risk-takers who get caught taking excessive risk. That includes Citigroup, the inventor and large current holder of "structured investment vehicles". SIVs are typically purchased by institutional investors seeking to increase returns without significantly raising credit risk, thereby lowering ratings and increasing borrowing costs.
Several of the world's largest banks working under US Treasury orchestration, have built a multi-billion dollar pool to be used to prevent a broader security sell-off that would force additional write offs & write downs.
The M-LEC will theoretically allow holders to sell in an orderly manner.
The plan is reminiscent of 1998's bailout of Long Term Capital Management, the hedge fund run by a group of consummate hedge fund experts. Citigroup, the largest holder of SIVs, led the push for the super conduit rescue plan. Large amounts of SIV debt are coming due in November.
Markets have been impacted by various aspects of subprime mortgage debt and related derivatives. Market participants are also concerned about other potentially dangerous investments.   Read the highlights.
Structured investment vehicles, SIVs, are off-balance sheet funds created by banks. These issue short-term debt to acquire & finance specific longer-term assets -- recently subprime mortgage-backed securities and similar assets.
Citigroup, JPMorgan, & BankAmerica have created a SuperSIV conduit backed by other major banks to serve as a buyer of last resort.
Possibly some day the next sources needed to fund the next new fund may not have the funds to fund that new fund.
October 7, 2007 -- Q3 earnings period is write off announcement time. The following is a sampling of the write downs:
Deutsche Bank's profit may be reduced by up to 1.7 billion euros ($2.4 billion).
Merrill Lynch reports, "Write downs of an estimated $4.5 billion, net of hedges, related to incremental third quarter market impact on the value of CDOs and sub-prime mortgages. These valuation adjustments reflect in part significant dislocations in the highest-rated tranches of these securities which were affected by an unprecedented move in credit spreads and a lack of market liquidity". Merrill's commitments totaled $31 billion at the end of Q3 2007. That is a net reduction of 42% from $53 billion at the end of Q2 2007. Net losses derived from these commitments have been limited through "aggressive and effective risk management", Merrill claims.
Merrill Lynch owns approximately half of BlackRock which has over $1 trillion in assets under management. As perspective, last July, Merrill's Jeff Edwards, CFO, told investors the firm's exposure to subprime mortgages was "limited, contained and appropriate".
Washington Mutual announced that weakening housing markets as well as disruptions in secondary markets will cause a decline in net income of approximately 75% from Q2 2007. No further details will be made available regarding company Q3 results before its regularly scheduled earnings release on October 17, 2007.   Read more details.
Potential Write Downs
Deutsche Bank -- $2.4 billion
Merrill Lynch -- $4.5 billion
Washington Mutual -- Unspecified amount with a warning of the potential relative magnitude.
As of the end of Q3, estimations are for a total of nearly $20 billion in write-downs by major banks and securities firms. This amount is less than the actual losses because they are tallied by deducting fees, offsetting hedges, and gains earned.
September 28, 2007 -- The online bank known as NetBank has been shut down by federal regulators due to an excessive level of mortgage defaults. The bank operated with an online presence only; it had no traditional physical operations. Its total assets were $2.5 billion. The FDIC said $1.5 billion of NetBank's insured deposits will be assumed by ING Bank which has a significant online bank operating as part of the Dutch financial ING Financial Groep NV. ING will pay $14 million to acquire 104,000 customers and their deposits.
NetBank is the largest savings and loan failure since the tail end of the industry's crisis more than 14 years ago. FCIC insurance will protect all depositors' of less than $100,000.
The Office of Thrift Supervision declared in a statement that NetBank sustained losses last year ''primarily due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies".
NetBank had a deal to sell its deposit accounts and other assets to the privately held EverBank of Jacksonville, Fl. However earlier this month EverBank announced that the deal collapsed.
NetBank's Internet home page statement:
On September 28, 2007, NetBank, Alpharetta, GA was closed by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. All insured depositors are now customers of ING Direct Bank, member FDIC. No advance notice is given to the public when a financial institution is closed. The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a business checking account, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled information which should answer many of your questions.
September 28, 2007 -- Credit rating agencies including Moody's Corp., Standard & Poor's, and Fitch Ratings are testifying before Congress answering questions and presenting positions regarding their ability to provide unbiased and accurate information to support investor decision-making. At issue are the roles these rating agencies have served leading up to and during the mortgage crisis in credit that has impacted financial markets worldwide.
Specifically, there are potential conflicts of interest within and amongst these organizations that might have contributed to market turmoil vis a vis securities backed by mortgages. The rating agencies are defending their past analysis of mortgage markets. Each rating agency claims to have adequate internal protections that guard against conflicts of interest.
Some critics claim rating agencies have failed to provide adequate warnings of the risk associated with complex mortgage-backed securities.
The SEC has been examining whether investment banks that issued mortgage-backed securities worked to influence some rating agencies in order to receive higher ratings than were merited.
A law enacted last year was designed to encourage competition in the lending industry. The rating agencies are subject to SEC oversight.
A credit rating agency performs research & assigns credit-worthiness ratings for issuers of debt. Usually these issuers are municipalities, companies, non-profit organizations, or federal governments issuing debt-like securities that may trade on secondary markets. Since the credit rating identifies credit worthiness it directly impacts the interest rate & costs to procure loans.
September 27, 2007 -- The investor group planning to buy Sallie Mae is balking at the price it had agreed to pay. Sallie Mae is officially known as SLM Corp. and says it will fight to complete the deal.
The investor group had planned on paying $25 billion. It claims that current economic conditions and legislation near being signed into law make the terms unacceptable material adverse change..
The acquisition agreement between Sallie Mae and the investor group comprised of the Flowers firm, Bank of America and JPMorgan & Co. calls for a $900 million breakup fee payable by either side if certain conditions have changed during the takeover process.
The group led by private-equity firm J.C. Flowers & Co. told Sallie Mae that it does not plan to complete the deal negotiated in April at $60 per share. The group has stated that it is open to discussing new terms to purchase the largest US student lender. It has promised to pursue legal remedies to prevent termination of the arrangement by the investor group.
The Flowers investment firm issued a statement that the investor partners believe "that the conditions to closing under the merger agreement, if the closing were to occur today, would not be satisfied as a result of changes in the legislative and economic environment."
Sallie Mae insists that the deal can and should be consummated in October, as planned. The company said in a statement that it "firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law."
Sallie Mae's Internet site states that it is "is the nation's leading provider of student loans, helping millions of Americans achieve their dream of a higher education."
September 24, 2007 -- Five months after predicting little chance of a "major slowdown", the International Monetary Fund updated its opinion. The IMF proclaimed in its just released Global Financial Stability Report, that global economic instability stemming from credit-market turmoil in the US is "likely to be protracted... The potential consequences of this episode should not be underestimated".
The latest IMF report continues, "Credit conditions may not normalize soon, and some of the practices that have developed in the structured credit markets will have to change".
However the IMF now believes, "downside risks have increased significantly and even if those risks fail to materialize, the implications of this period of turbulence will be significant and far reaching", according to today's report.
In April, 2007, the IMF reviewed rising mortgage delinquencies and credit conditions more broadly and concluded that a "major dislocation still appears to be a low-probability event".
The 9/24/2007 IMF report concludes:
"However, the adjustment period is continuing, and if the intermediation process stalls and financial conditions deteriorate further, the global financial sector and real economy could experience more serious negative repercussions... The chances of a more severe tightening of credit conditions cannot be dismissed."
Contemporary Enhanced Functional Definition:  "Deal"  --  A contractual arrangement, commitment, promise to complete a transaction agreed to by all relevant and involved parties until it appears to not be beneficial to one or more parties.
NOTE:  The concept of deal is shifting to serve contemporaneous needs. The term follows functional adaptation. Today's business climate is one of distrust, lack of integrity, and loss of ethical temperament. Alternatively, it may be argued that the term's meaning and application has been changed prior to -- and was in part the cause of -- today's crisis in confidence and potential lenders' decreased willingness to trust borrowers.
The unilateral operation, adaptation, and implementation of deals today is the root cause of the global crisis in confidence. There exists an undermining lack of trust in other parties to meet commitments and follow through to completion with integrity per contractual arrangements.
Therefore, today's practical connotation of the term "deal" is:  A deal is a deal, but may not be a deal unless it is a deal, or up to and until it is no longer a deal, or may not have ever actually been a deal due to peripheral aspects that may have changed or are now perceived differently, making the deal no longer a deal.
Contemporary buyouts, takeovers, and mergers frequently have a clause known as the material adverse change clause, or MAC. For buyers who may not want to complete a deal, the MAC provides a potential termination route for their deals if a company suffers an unforeseen and deleterious downturn according to a perception.
MAC, today's deal-maker poster child
It depends what the meaning of deal is.
MAC provides buyers with an ability to terminate deals if they perceive a the target company in an unforeseen and deleterious condition.
September 21, 2007 -- Credit confidence crisis has decreased the supply of capital. It is resulting in less capital being available to just go do it.
Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. have abandoned their $8 billion takeover of Harman International Industries Inc. The firms cited a decline in the company's performance as a cause.
Harman issued a statement in which it disagreed with the buyers' assessment.
Goldman's private-equity arm and KKR had agreed to purchase Harman in April, 2007, for $120 per share. The sale agreement requires that the buyers pay the company a break-up fee of $225 million if they refuse to proceed with the transaction unless they can show a severe decline in the company's business.
The agreement was filed with the US Securities and Exchange Commission in April. It identifies valid break-up circumstances in which KKR and Goldman can abandon the purchase. The contract rules out a decline in the audio industry and in the overall economy as permissible excuses. Also missed company forecasts resulting in a drop in the company's stock valuation is ruled out. Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business said, "Those clauses are written extremely tightly... They'll need to be willing to be stuck paying the break-up fee at this point."
Escaping the deal is private equity's new fine art. Sportsmanship may be sacrificed in this phase.
Paying a mere few hundred million dollars is today's relatively easy out.
Harman reports that Kohlberg Kravis & Goldman Sachs declared a MAC in Harman’s business. Harmon denies the claim.
Read about the settlement.
September 21, 2007 -- The footwear retailer Genesco filed a lawsuit in an attempt to force Finish Line to complete its proposed $1.5 billion merger.
Finish Line & UBS, the bank financing the deal, stated it has ended closing work on the deal because of concerns over Genesco’s financial health. Genesco's lawsuit states that it disputes the contention that it has undergone a MAC-condition and accused Finish Line of suffering from buyer’s remorse.
September 21, 2007 -- Dividing a cohesive group of self-serving, narcissistic Congressmen who hold little in principle will serve to unite them against an outsider. Instead members of Congress will congeal and form a short-term, cohesive weapon that will work to defeat that outsider.
In working to halt legislative proposals that could seriously increase their taxes, buyout firms are failing to build broad coalitions. Instead they are attempting to divide and conquer Congress. They have attacked powerful legislators by name and have been disparaged by populist minority groups and pension funds they need as allies.
Representative John Linder, a Georgia Republican serving on the tax-writing House Ways and Means Committee said, "The principal sin in politics is overreaching... When they start talking about women and children, they're overreaching."
The outcome of the tax battle is far from certain. Early mistakes have taken a toll upon private equity's first grand-scale foray into lobbying. Their poorly-chosen approach has cost private equity firms over $5.5 million during the first six months of 2007. That is almost four times as much as they spent in all of 2006.
Their overreaching effort has been orchestrated by allies of the Private Equity Council. The PEC is a Washington lobbying group set up in 2006 by 11 buyout firms including Blackstone, the Carlyle Group, Apollo Management LP, Bain Capital LLC and KKR & Co.
The Divide & Conquer Tactic Will Fail When Applied To Congress
It will result in accomplishing exactly the opposite & result in losses for the outsider.
September 19, 2007 -- Bank of England has reversed. It has returned to its previous policy.
The Bank of England may be the UK bank most damaged by the credit confidence crisis. Following yesterday's announcement of additional market interventions, the BofE actions can be considered a series of concessions with a resulting capitulation.
In August, the BofE stressed its formal framework for financial markets. Those allow institutions to borrow from it, overnight, with penalty terms, and with risk-free collateral.
On September 5, facing high interbank rates, the BofE relaxed aggregate reserve targets. That essentially injected additional cash into the overnight market.
On September 14, the BofE extended an unlimited credit line to Northern Rock. It also accepted mortgages as collateral. However, the BofE insisted that these concessions would not apply to the overall market.
On September 19, the BofE announced three large interventions at three-month maturities. Mortgages were accepted as collateral.
Confidence Critical

The Bank of England is one of the oldest central banks. It was founded in 1694 and nationalized in 1946.
September 18, 2007 -- The Bank of England doubled the amount of emergency loans made available to British banks. This action muffled a rise in overnight borrowing costs. However, this move supported bank critics' claims that the Bank of England's governor, Mervyn King,was reversing, or at least tempering, his policy against bailouts.
The Bank of England lent £4.4 billion at its benchmark interest rate of 5.75% and said it will offer the same amount in seven-day loans to strengthen confidence in the banking system.
This move follows a surge in the overnight lending rate that banks charge each other. That rate rose to 6.47% -- the highest in four months. That high rate signaled that lenders remain concerned in the global credit situation and continue to be reluctant to lend.
The government announced that the Bank of England would repay all Northern Rock customers all of their deposits if Northern Rock fails. It offered the same support to any lender in a similar situation. Prime Minister Gordon Brown made his first public comment on Northern Rock's problems, saying "The decisive action we have taken means that the deposits of Northern Rock customers are guaranteed".
The Fed should not cut its fed funds rate nor discount rate on September 18.
To cut rates will resolve some housing industry problems. It will surely ease pressures upon those who caused most of the problems.
More importantly it will display to the world that the US central bank is easily dissuaded from its fight against inflation.
As a byproduct of lower rates, non-housing related entities and individuals will take advantage of lower rates to further promote their own separate and less well-founded purposes.
A rate cut is a tacit bail out for those who should not be bailed out. It is also an opportunity for others to ride the tail winds -- lowered rates -- that were established for those who were bailed out.
All markets -- housing, interest rate, industrial products, consumers -- should be allowed time to correct as payment for recent years of excesses.
Consider the enormous profits previously accounted for, booked, reinvested, & paid as dividends, bonuses, & salaries during recent years. It is that excess that is coming to an end.
Fortunately the morning news included a government report identifying recent benign inflation & a mild inflationary expectation.
Appropriate Action Now Will Yield Long-term Fed Potency & Market Stability
9/18 - The Fed lowered both its funds target & discount rates by 0.50%, thus acknowledging the severity of credit's confidence crisis.
Rate cuts will contribute to erosion of the dollar & support rising commodity prices.
UK-based Standard Chartered Bank announced that it is buying the American Express Bank, AEB, for about $860 million.
September 18, 2007 -- American Express Bank's FIG unit employs about 700 people, serves 1,700 banks in 120 countries, and is notably strong in providing US dollar clearing services.
AEB's private bank division employs 400 staff, has over 10,000 customers, and at the end of 2006, had $22.5 billion in assets under management.
Strategically, amidst globalization, why has American Express Corporation sold it 1919-founded, global private banking services?
PHH Sale to GE, Blackstone May Collapse as Banks Balk

September 17, 2007 -- New Jersey-based mortgage lender PHH Corporation had agreed to be purchased by General Electric Co. and Blackstone Group LP. Today it announced that the $1.8 billion sale has the potential to unravel. It said that lenders are backing away.

PHH said that JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. have told Blackstone that they may be $750 million short in funding its portion of the deal. GE has plans to keep the company's vehicle leasing unit may exit the deal also if Blackstone cannot get financing.
Renegotiated deals & stand-offs follow successful renegotiation at Home Depot Inc. Banks had threatened to back out of financing Home Depot's sale of its contractor-supply unit to a group including Bain Capital, Clayton Dubilier & Rice & Carlyle Group. After negotiations, Home Depot lowered its price & buyers increased cash commitments.

Another not-new new book:  It turns out Alan Greenspan is a trivial, shallow guy who has squandered his stature to write a book that delves into politics of the moment like the Iraq war, Bush, and the upcoming presidential election.

How silly of him when he could have taken a broad view, focused exclusively on historical monetary policy, compared world-wide monetary policy to historical events, etc., etc., and otherwise distinguished himself as a scholar.

He's just an egocentric mediocre guy.
As long as assets are perceived to be increasing in value, buyers and sellers have little regard for the marked-to-market result. They care more about just doing the deal.
Jack Ciesielski, editor of the Analyst's Accounting Observer newsletter, claims there is "no black and white" in the accounting rules about when marks should be taken.
The concern is that "marking-to-market" of assets being traded is determined by whomever has control and that may be multiple entities operating concurrently upon the same assets.
Under new accounting rules there three asset class groupings. They range from "Level 1" assets where there are clear market prices to illiquid "Level 3" assets where valuations may use "unobservable inputs". Banks' practice had been to reveal the split only in regulatory filings long after their earnings were posted. However, financial institutions will be pressured to provide details. This pressure will be great if the "Level 3" portion has increased. It averaged only 9% for securities firms in the second quarter of 2007, and includes assets such as real estate.
Some senior industry executives have been concerned at indications from the Securities and Exchange Commission that it is relaxed about banks reaching different valuations for the same asset. But Brad Hintz, analyst at Sanford Bernstein, says it is unlikely that there will be any "managing" of marks.
Another focus will be how banks account for loan commitments to private equity buy-outs.
In today's frozen and locked tight credit markets, marking-to-market is relevant.
Merrill Has Been Forced To reduce The Value Of Some Assets
September 14, 2007
Merrill Lynch announced that difficult credit market conditions during the third quarter have forced it to reduce valuations of certain balance sheet assets.
The disclosure was made in a regulatory filing with the Securities and Exchange Commission. This is another advisory to investors that more investment banks may disclose meaningful reductions in assets, including leveraged loan commitments, mortgage-backed securities, and collateralized debt obligations within third-quarter earnings' statements.
Vague Valuations
Update: October 4, 2007 -- Northern Rock stock has increased on volume due to speculation of its being acquired.
Update: September 15, 2007 -- Deposits are being withdrawn via the Internet and by those queuing at all 72 Northern Rock branches.
Fears grew on day 2 following the BoE funding assistance that panic among savers could cause a run of withdrawals. Estimates are that 1 billion pounds ($2 billion) have already been removed. Reports are that customers withdrew approximately 250 million pounds ($505 million) from branches on the day of the BoE announcement. A larger amount has reportedly been removed via Northern Rock's Internet site. There is little need to emulate our grandfathers by standing in line in front of the majestic bank buildings when our money is a click away.    Read the Update.
England, September 14, 2007, AP, Forbes, Bloomberg -- Northern Rock Plc received emergency funding from the Bank of England. A Bank of England spokeswoman said the loan was given at a penalty rate and declined to give further information.
This is the largest bailout of a British lender in 30 years. The mortgage provider was unable to make new loans due to rising credit costs. This is the first time Britain's central bank has acted as "a lender of last resort" since becoming independent on interest rate policy in 1997. Treasury chief Alistair Darling said there was no threat of insolvency at the bank and urged customers not to panic.
Adam Applegarth, Northern Rock CEO, told Sky News that. "We can't tell when the global (credit) freeze is going to unwind. On that basis, it made sense to get this facility now." He did not disclose how much the bank had borrowed.
The Bank of England eased restrictions on financial institutions, thus encouraging them to lend more to each other as it tries to reduce overnight borrowing costs now threatening to slow economic growth.
Bankers warn against drawing parallels between Northern Rock and the troubled Countrywide Financial Corporation in the US.
Northern Rock has relied on borrowing in the money markets to control costs and grow faster than it would have if it relied on its deposit base.    Read the full story.
Was A Liquidity Squeeze Inevitable for Northern Rock?
The Credit Freeze Is Spreading Globally
London -- The global credit crunch is spreading, adding commercial and residential property in Britain and beyond to its list of victims.
On the face of it, a prime London office building with an A-list investment bank tenant and a house repossessed from a subprime borrower in California may have little in common.
But such has been the force of the re-pricing of credit that properties of all sorts in many places have become markedly more difficult and expensive to finance over the past month.
The transmission mechanism is not just lenders pulling in their horns from property, but an unwillingness of banks to lend to each other that is driving up the cost of money for all.    Read the full story.
Blackstone Sees Opportunites In PIPES & Rescues
Blackstone Group LP's management sees investment opportunities in PIPEs and minority stake rescue financing, Bank of America Corp said in a note, adding it expected Blackstone's to raise around $15 billion for its next buyout fund.
PIPEs -- private investments in public equity -- are privately negotiated securities that provide companies with quick capital, often in exchange for a discount on their stock price.
That Blackstone is focusing on smaller acquisitions in PIPEs and minority stakes shows how deep the credit squeeze is impacting large private equity buyers, which for that last year pursued takeovers of companies worth tens of billions of dollars.
Blackstone can still get financing for deals of up to $1 billion, Hecht said in the note, while the appetite for deals above $10 billion is "gone."    Read the full story.
On the arrogance circuit:  Times do change situations -- New equilibriums become the norm.
 NYSE Euronext Is Closing Some Trading Floors & Lowering Some Fees
Shifting Markets Along Side Changing Technology Within Evolving Risk Patterns
NYSE Euronext will cut some transaction fees and close half of the trading rooms at the New York Stock Exchange after its share of the U.S. equity market dropped to a record low.
Brokerages will be able to execute some trades at the Big Board at no cost and will receive higher payments for sending some orders to the NYSE Arca electronic market, the New York- based company said in a statement today. By shutting two of its four remaining rooms, the NYSE will shrink to its 1963 size as increased automation allows brokerages to process more shares with fewer floor traders.    Read the full story.
Closing Floors
Currency Trader Joseph Lewis Bought A Stake In Bear Stearns
Bloomberg News, September 10, 2007
Joseph Lewis, a British currency trader who lives in the Bahamas, paid $860.4 million to acquire a 7 percent stake in Bear Stearns Cos.
Lewis is director and president of Aquarian Investments Ltd. and four other Bahamas-based companies that made the investment, he said in a filing with the U.S. Securities and Exchange Commission.
Lewis, 70, drew attention in the 1990s, when he accumulated almost 30 percent of auction-house Christie's International and mounted an effort to take the company private. Lewis sold his stake in the company to French billionaire Francois Pinault in 1998 for $244 million, the New York Times reported at the time.
Aquarian and the other four companies bought 8,096,942 shares of New York-based Bear Stearns during the past 60 days, according to the filing.
Catch The Falling Knife
Even with this buying (selling absorption) of BSC stock over the 60-day period, BSCT is down from 144 to 107. BSC's all-time high of 172.61 was reached in January, 2007.
Washington Mutual lost 3% of its stock market value following CEO Kerry Killinger's statement at a Lehman Brothers conference in New York on September 9, 2007.
He said that the housing industry is headed for a "near perfect storm". He added that Washington Mutual has boosted its provision for this year's loan losses.
Washington Mutual may have to allocate an additional $500 million as housing markets continue to weaken.
Battening Down
The Mortgage Bankers Association, released its quarterly report September 6, 2007.
According to a quarterly report released by the Mortgage Bankers Association, the crisis is most severe in subprime mortgages. Those are loans made to borrowers with the weakest credit. Problems are spreading to other types of mortgages.
The report illustrated that the number of homeowners who received foreclosure notices in the 2007 April-June quarter hit an all-time high of 0.65%. That is up from 0.58% in the first three months of 2007. It marks the third consecutive quarter that a new record has been set.
Beazer Homes Received Notice Of Default
The Associated Press, September 7, 2007
Atlanta - Homebuilder Beazer Homes USA Inc. says it has received default notices for five senior notes due between 2011 and 2016, though the company denies it is in default on that debt.
Shares fell $1.41, or 13 percent, to $9.50 Friday, a little more than two weeks after Beazer had asked a federal court to stop U.S. Bank National Association from demanding the builder repay $1.38 billion in loans.
Minnesota-based U.S. Bank is the trustee for the loans, meaning it must ensure that the borrower is in compliance with the lending terms. The bank also enforces any default declaration by the lenders.
The notices from U.S. Bank concerning the debt said Beazer had gone into default because it hasn't filed its 10-Q report with the Securities and Exchange Commission for the quarter that ended June 30 and thus failed to deliver those files to the trustee.
It gives the company 60 days to do so.
But Beazer said in a statement that it believes the notices are invalid because the company is only required to give the trustee copies of its report 15 days after delivering it to the SEC.
Beazer spokesman Leslie Kratcoski declined to comment further Friday afternoon.
"We are not speculating on any possible outcomes," she said, adding the litigation is ongoing.
U.S. Bank spokesman Steve Dale declined to comment Friday.
Big House, Now The Big House
Countrywide's Job Cuts
Countrywide Announces Plan to Address Changing Market Conditions Including Workforce Reductions
Calabasas, California, September 7, 2007
Countrywide Financial Corporation today announced a plan of action to address changing market conditions that positions the Company for continued growth and success. Central elements of this plan include:
Reductions in workforce which will occur in areas most impacted by lower mortgage market origination volumes. The Company presently estimates a total workforce reduction of 10,000 to 12,000 over the next three months representing up to 20% of its current workforce.
Countrywide said it continues to move its residential lending business into its federally chartered thrift entity, Countrywide Bank, FSB as it tries to increase liquidity and reduce borrowing costs. By September 30, almost all home loan production will be originated within the bank.
Anthony Mozilo, Founder
Banks Are Huddling To Account For Losses
The Financial Times, September 9, 2007
The leading commercial and investment banks have been in private talks about how to account for losses in their leveraged lending and securities businesses due to the credit squeeze.
The discussions reflect concerns that the various banks could make very different judgments about the impact of the market turmoil.
Banks have a high degree of discretion about how to value the losses but top executives believe too much variation will undermine market confidence.    Read the full story.
Private Equity Is Firming Its Bench
Financial Times, September 9, 2007
Carlyle is gearing up for a round of deal making in the financial services industry by hiring one former US Treasury official and five banking executives including Sandy Warner, the former chairman of JPMorgan Chase.
The employees will join the US private equity group’s financial services group, which was formed only a few months ago and is considering raising a fund dedicated to investments in the sector.
The mix of backgrounds among the six, including both banking industry expertise and regulatory know-how, signals that Carlyle may be looking to take advantage of troubles in parts of the financial services industry hit by the mortgage meltdown.
The dislocation in the mortgage industry generates distress, which historically has created opportunities,” said Ned Kelly, co-head of Carlyle’s financial services team.    Read the full story.
     Please answer the following points.
 
Please check your major sources of financial news. Daily Newspapers, (NYT, USAToday, etc.)
 Wall Street Journal
 CNBC
FOX Business News
 Bloomberg Business News
 Internet sites
Others:
About how many hours during an average day do you sit and seriously watch CNBC? Rarely
 Only on a big day in the markets
 Some but less than 1 hour a day
 About 1 to 3 hours a day
 Over 3 hours a day
 The TV in the area is often tuned to CNBC, but I seldom watch.
The global credit and confidence crisis will be contained by a combination of sovereign funds, wealthy investors, organizations including the US Federal Reserve, the ECB, and the Bank of England before it does long-term & widespread damage. Agree
 Disagree
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