Fannie and Freddie...

[Laura]

There was a VERY sobering discussion on Charlie Rose tonight. You should watch it if you can. They were saying it may be 2011 before the economy is stable again and 2010 before the markets recover. It will be a long time before this settles out. This is a global mess. Everyone was afraid of buying Lehman because they were afraid of what the books were going to show. Even at pennies, it is a risk. They were also talking about hearings a year from now.

[LawBeefaroni]

Today was a crazy day at the office. I had a client call about dividing up an estate's accounts to ensure they were all under the FDIC guarantee. I had a meeting where we discussed another client losing 50% of his net worth over the last year, and how that might affect a planned large charitable grant. At that same meeting, we discussed a client who wanted her transaction completed immediately (likely due to the markets). I have a November transaction that's probably now on hold, and a number of 2-year estate planning transactions that may no longer be effective. When the wealthy clients are uneasy about their assets, it's too late to worry about the masses -- the panic has already taken hold.

Conventional wisdom is that mom & pop are the last ones in a bull market (signaling the top) and the last ones out of a bear (signaling a bottom). Your clients clients sound like the top end of mom & pop or fore-mom & pop.

And when Jim Cramer Mad Money folks start selling all their deep red positions I'm going to buy them.

There was a VERY sobering discussion on Charlie Rose tonight. You should watch it if you can. They were saying it may be 2011 before the economy is stable again and 2010 before the markets recover. It will be a long time before this settles out. This is a global mess. Everyone was afraid of buying Lehman because they were afraid of what the books were going to show. Even at pennies, it is a risk. They were also talking about hearings a year from now.

It's a problem of leverage. And when it starts to unravel, there is a death-spiral as liquidity dries up while instututions try to run for the exit. That is what the Fed and the Treasury were (are?) trying to stop. And as the news trickles down, there is a run on banks and nowdays a run on individual investment vehicles.

Individuals are criticized for running debt. Non-standard mortgage borrowers and credit card users are "irresponsible." But institutions leveraged that same debt 30 times over or more and it was all legal and even good investment practice.

[The Preacher]

Today was a crazy day at the office. I had a client call about dividing up an estate's accounts to ensure they were all under the FDIC guarantee. I had a meeting where we discussed another client losing 50% of his net worth over the last year, and how that might affect a planned large charitable grant. At that same meeting, we discussed a client who wanted her transaction completed immediately (likely due to the markets). I have a November transaction that's probably now on hold, and a number of 2-year estate planning transactions that may no longer be effective. When the wealthy clients are uneasy about their assets, it's too late to worry about the masses -- the panic has already taken hold.

I'm not sure if this is what Lawbeef is saying, but I'd think that what we are going through actually affects the top tier of income more than the middle and bottom. I sure as shit don't have money at Merrill or Lehman (or Goldman or Morgan). I also don't have enough money to worry about the number of banks I need to divide my savings up between to ensure each is under the $100K cap. I'll keep an eye on Wachovia, bless their incompetent hearts, to see if I'll need to tap FDIC for my meager savings sum. Perhaps I'm just not middle class enough.

[LawBeefaroni]

Today was a crazy day at the office. I had a client call about dividing up an estate's accounts to ensure they were all under the FDIC guarantee. I had a meeting where we discussed another client losing 50% of his net worth over the last year, and how that might affect a planned large charitable grant. At that same meeting, we discussed a client who wanted her transaction completed immediately (likely due to the markets). I have a November transaction that's probably now on hold, and a number of 2-year estate planning transactions that may no longer be effective. When the wealthy clients are uneasy about their assets, it's too late to worry about the masses -- the panic has already taken hold.

I'm not sure if this is what Lawbeef is saying, but I'd think that what we are going through actually affects the top tier of income more than the middle and bottom. I sure as shit don't have money at Merrill or Lehman (or Goldman or Morgan). I also don't have enough money to worry about the number of banks I need to divide my savings up between to ensure each is under the $100K cap. I'll keep an eye on Wachovia, bless their incompetent hearts, to see if I'll need to tap FDIC for my meager savings sum. Perhaps I'm just not middle class enough.

I'm kind of saying that. I'm saying that it's now more visible to the higher tier "retailer investors." When it becomes obvious to the lower tier, that's widely viewed as the bottom.


As an aside, consider these companies:
AIG
Bank of America
Citigroup
JP Morgan Chase

They're all DOW components. That's 4 of 30 companies in the most watched and probably most used index in the world. 13%.

[The Preacher]

Today was a crazy day at the office. I had a client call about dividing up an estate's accounts to ensure they were all under the FDIC guarantee. I had a meeting where we discussed another client losing 50% of his net worth over the last year, and how that might affect a planned large charitable grant. At that same meeting, we discussed a client who wanted her transaction completed immediately (likely due to the markets). I have a November transaction that's probably now on hold, and a number of 2-year estate planning transactions that may no longer be effective. When the wealthy clients are uneasy about their assets, it's too late to worry about the masses -- the panic has already taken hold.

I'm not sure if this is what Lawbeef is saying, but I'd think that what we are going through actually affects the top tier of income more than the middle and bottom. I sure as shit don't have money at Merrill or Lehman (or Goldman or Morgan). I also don't have enough money to worry about the number of banks I need to divide my savings up between to ensure each is under the $100K cap. I'll keep an eye on Wachovia, bless their incompetent hearts, to see if I'll need to tap FDIC for my meager savings sum. Perhaps I'm just not middle class enough.

I'm kind of saying that. I'm saying that it's now more visible to the higher tier "retailer investors." When it becomes obvious to the lower tier, that's widely viewed as the bottom.

Yeah, I think the difference is I'm looking at the customers (e.g. the people who are splitting balances to keep under the FDIC limits) and you are speaking of the investors (not that the two are mutually exclusive). But I see what you're saying.

As an aside, consider these companies:
AIG
Bank of America
Citigroup
JP Morgan Chase

They're all DOW components. That's 4 of 30 companies in the most watched and probably most used index in the world. 13%.

Yeah, banks are taking a licking. And it's not even close to over.

[The Preacher]

second of three posts

[The Preacher]

triple post

[noxiousdog]

Yeah, banks are taking a licking. And it's not even close to over.

Wells Fargo is up 11%. Fifth Third is up 4%. Synovus 2%. Maybe we're starting to separate the wheat from the chaff.

[Kraken]

Shouldn't Fifth Third be Fifteenth?

[LawBeefaroni]

Yeah, banks are taking a licking. And it's not even close to over.

Wells Fargo is up 11%. Fifth Third is up 4%. Synovus 2%. Maybe we're starting to separate the wheat from the chaff.

WFC is one of the favorite large banks right now: they stuck to the core business of banking.

Still, they will be coming down a bit off those highs since the Fed didn't cut.

[The Preacher]

Yeah, banks are taking a licking. And it's not even close to over.

Wells Fargo is up 11%. Fifth Third is up 4%. Synovus 2%. Maybe we're starting to separate the wheat from the chaff.

WFC is one of the favorite large banks right now: they stuck to the core business of banking.

Still, they will be coming down a bit off those highs since the Fed didn't cut.

Nor would I think that today is going to be indicative of the next year.

It means fasten your seat belt Dorothy, 'cause Kansas is going bye-bye.

[Dan_Theman]

Shouldn't Fifth Third be Fifteenth?

As a side note, I once mentioned this almost verbatim to someone who worked for them, and received a glare I shall vividly remember for years to come (even though it was obvious I was joking). For those who don't know (and I'm assuming Ironrod does, but also shares the same sense of humor as me), it's named that because it was a combination of the Fifth National Bank & the Third National Bank. Why they decided against a hyphen or an ampersand is beyond me, but it will always be a source of annoyance. While we're at it, so is the word "ampersand." I hate it.

[noxiousdog]

Nor would I think that today is going to be indicative of the next year.

Perhaps. Most of this is a margin call/liquidity trap. If you can reach the bottom intact, you should be ok.

[The Meal]

While we're at it, so is the word "ampersand." I hate it.

Octothorpe is pretty cool, though.

[The Preacher]

Nor would I think that today is going to be indicative of the next year.

Perhaps. Most of this is a margin call/liquidity trap. If you can reach the bottom intact, you should be ok.

No disagreement here. But that "intact" part could challenging depending on the bank. If I owned Wachovia, as an example, you have to wonder if they don't have a few skeletons rattling around.

[noxiousdog]

Nor would I think that today is going to be indicative of the next year.

Perhaps. Most of this is a margin call/liquidity trap. If you can reach the bottom intact, you should be ok.

No disagreement here. But that "intact" part could challenging depending on the bank. If I owned Wachovia, as an example, you have to wonder if they don't have a few skeletons rattling around.

Normally the small stuff fails before the big stuff. If we're up to AIG, it's close to the end. I hope

[Dan_Theman]

While we're at it, so is the word "ampersand." I hate it.

Octothorpe is pretty cool, though.

Yep, I can deal with that one

[Dogstar]

Apparently the government is getting into the insurance business...

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that would give it an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.

[The Preacher]

Nor would I think that today is going to be indicative of the next year.

Perhaps. Most of this is a margin call/liquidity trap. If you can reach the bottom intact, you should be ok.

No disagreement here. But that "intact" part could challenging depending on the bank. If I owned Wachovia, as an example, you have to wonder if they don't have a few skeletons rattling around.

Normally the small stuff fails before the big stuff. If we're up to AIG, it's close to the end. I hope

As long as it's not "approximately alphabetical" we're fine.

[Little Raven]

So the government is not only going to become the largest handler of real estate in the nation but also the largest insurer?

I think we're beginning to stretch the meaning of the term 'capitalist.' I'm not arguing that these moves are necessarily bad...but they certainly don't fit into how I was taught our economy works.

[ydejin]

Interesting chart at the NY Times shows how much major financial institutions have lost in Market Cap in the last year. Some examples:

Wells Fargo is down 8.8%
BofA is down 36.5%
Washington Mutual is down 90.7%!

[Kraken]

Apparently the government is getting into the insurance business...

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that would give it an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.

Pfft, shareholders, who cares? I hope this means my AIG Roth IRA annuity is safe. I still didn't understand our vulnerability after reading through all the paperwork on it today. I concluded that we probably would've just been hosed if AIG had failed. I almost panicked and initiated the early withdrawal/rollover process. So much for safe investments. From now on, I'm sticking with bank CDs. Those I understand.

The rest of our money is in ING Direct, Vanguard, and Fidelity. I haven't read any scare stories about them...yet. At least I didn't put all of our aigs in one basket.

[Zarathud]

Conventional wisdom is that mom & pop are the last ones in a bull market (signaling the top) and the last ones out of a bear (signaling a bottom). Your clients clients sound like the top end of mom & pop or fore-mom & pop.

My clients are generally high net worth, since they're the only ones paying estate tax. The fiduciary calling about the estate accounts was a smaller client, but motivated by the fact that he's potentially liable if found to imprudently manage the assets. These clients are uneasy despite the advice to hold when possible, and can move the markets without the masses jumping in.

I would not be diversifying overseas. All eyes have been on the US, and our foreign investors have been subsidizing the US for a while. Foreigners are going to have to start writing down their US holdings as well as their mortgage-backed assets, so the panic run/margin calls could continue. We're not at the end, and the contagion is going to spread.

[Dogstar]

This gets better and better.

WASHINGTON - Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.

The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

The fund, which is marking its 75th anniversary this year with a "Face Your Finances" campaign, is at $45.2 billion — the lowest level since 2003. At the same time, the number of troubled banks is at a five-year high.

[Defiant]

How secure are your investments?

[The Preacher]

So the government is not only going to become the largest handler of real estate in the nation but also the largest insurer?

I think we're beginning to stretch the meaning of the term 'capitalist.' I'm not arguing that these moves are necessarily bad...but they certainly don't fit into how I was taught our economy works.

Welcome to the New Deal.

[noxiousdog]

So the government is not only going to become the largest handler of real estate in the nation but also the largest insurer?

I think we're beginning to stretch the meaning of the term 'capitalist.' I'm not arguing that these moves are necessarily bad...but they certainly don't fit into how I was taught our economy works.

That's because it's tough to explain modern economics in a semester or two.

[The Preacher]

I'm kind of excited about the book that will come out 2 years from now. The House Of Cards we'll call it. Yeah, from a modern economics standpoint, this is just utterly fascinating stuff.

[LawBeefaroni]

I would not be diversifying overseas. All eyes have been on the US, and our foreign investors have been subsidizing the US for a while. Foreigners are going to have to start writing down their US holdings as well as their mortgage-backed assets, so the panic run/margin calls could continue.

Absolutely. And I wouldn't want to count on the ECB or BoE or Chinese government.

We're not at the end, and the contagion is going to spread.

It's not over until everyone stops their 401K contributions.

[Kraken]

So the government is not only going to become the largest handler of real estate in the nation but also the largest insurer?

I think we're beginning to stretch the meaning of the term 'capitalist.' I'm not arguing that these moves are necessarily bad...but they certainly don't fit into how I was taught our economy works.

Welcome to the New Deal.

Privatized gain, socialized risk: what's a capitalist to dislike?

[Aganazer]

I remember in the mid 90's when the DOW first crossed 10,000. Man, we partied that night. Those were good times.

We may see it again soon! Why am I not feeling so elated this time?

[Padre]

Here in the UK, we're creating more gigabanks with a Halifax/Bank of Scotland (HBOS) merger with Lloyds TSB, after fears of a run on HBOS similar to the one which caused the collapse of Northern Rock, another UK bank. HBOS is/was the UK's largest mortgage lender, and it's being said that under any other financial climate the merger would be disallowed as anticompetitive, but given the conditions the Prime Minister is prepared to force the deal through in the interests of stability (!).

Entertaining times, until they reach my bank, at which point it becomes a crisis.

[LawBeefaroni]

Here in the UK, we're creating more gigabanks with a Halifax/Bank of Scotland (HBOS) merger with Lloyds TSB, after fears of a run on HBOS similar to the one which caused the collapse of Northern Rock, another UK bank. HBOS is/was the UK's largest mortgage lender, and it's being said that under any other financial climate the merger would be disallowed as anticompetitive, but given the conditions the Prime Minister is prepared to force the deal through in the interests of stability (!).

Entertaining times, until they reach my bank, at which point it becomes a crisis.

Isn't the government there blaming HBOS on short-sellers?

[Isgrimnur]

FHFA

I'm not a fan of the source, but this seems to be getting little coverage elsewhere.

Big news out of the Fifth Circuit Court of Appeals—the Federal Housing Finance Agency (FHFA) is unconstitutionally structured.

The FHFA was created in the wake of the 2008 financial crisis and tasked with overseeing Fannie Mae and Freddie Mac, the two giant government-sponsored enterprises that were put into conservatorship after imploding during the mortgage meltdown. The agency has been a topic of controversy since its inception, with a novel structure that heavily insulates it from presidential control. Appropriately, the Fifth Circuit ruled that FHFA’s structure violated the Constitution’s separation of powers:

We hold that Congress insulated the FHFA to the point where the Executive Branch cannot control the FHFA or hold it accountable. We reach this conclusion after assessing the combined effect of the:

(1) for-cause removal restriction;

(2) single-Director leadership structure;

(3) lack of a bipartisan leadership composition requirement;

(4) funding stream outside the normal appropriations process; and

(5) Federal Housing Finance Oversight Board’s purely advisory oversight role.

Supreme Court precedent establishes that Congress has the ability to partially insulate agencies from the executive branch, but as this court found, “Congress cannot enshroud an agency in layers of independence-promoting insulation to the point at which the President cannot adequately control the agency’s behavior.” In other words, agencies may be independent, but they may not be isolated.

Interestingly, the FHFA decision has repercussions for the constitutionality of another post-financial crisis regulator: the Bureau of Consumer Financial Protection (BCFP), formerly known as the Consumer Financial Protection Bureau, or CFPB. The five features cited by the court are virtually identical to what the Bureau exhibits.
...
However, the Court does find a distinguishing feature between FHFA and the BCFP, point (5): “With respect to the [BCFP], the President, through the Financial Stability Oversight Council, can influence the [BCFP]’s activities.”