joi, 31 iulie 2008

visul ciobanului...


cu ocazia unei scurte vacante de 4 zile, am mai lasat de-o parte situatia economica ca- vorba aia - de-o fi sau n-o fi criza trebuie sa mai traim si noi...

si iata ca in cinstea zilei prietenului meu Lucian, am fost cu el si cu Mugur la stana la Valea Plopului. Dupa un urcat pe dealuri, prin noroaie, in bena din spate a unei Dacii pick-up fara amortizoare (adrenalina curata), cam pe la asfintit de soare am ajuns si pe la stana.
s-o pui de mamaliga...

acolo ne-asteptau mielutii deja taiati, pe care unii mai priceputi au purces la a-i pregati la ceaun cu tot felul de bunatati. s-a facut si mamaliguta la tuci cu branzica proaspata si-a iesit un ospat de te lingeai pe degete.

in afara de faptul ca a fost o seara de pomina cu o mancare si mai si, am ramas si cu un gust amar in gura... la un moment dat, cum vorbeam noi cu ciobanii de diversele tipuri de branza si-i intrebam cum e cu facutul cascavalului, unul din ei spune "Apai numai cutarica stie sa faca cascaval...".

vorbind pe drumul de intoarcere ne-am dat seama ca se duce si traditia stanei cu toate cele frumoase si naturale lucruri...

vorba lui Lucian, cand s-or stinge bacii cei batrani, raman astia care sunt acuma ucenici sau vioara a doua(pe la 30-40 de ani), care mai stiu doar 50% din meserie. tot el zicea ca urmatoarea generatie o sa spuna ca mai degraba pleaca in Spania/Italia la lucru decat sa se complice cu niste oi care nici un produc prea multi bani (asta cand nu cheltui mai mult decat castigi) si necesita si multa munca.

si-uite asa se mai duce pe apa sambetei o traditie de neinlocuit. si nici o branza luata de pe raftul supermarketului n-o sa fie la fel cu ce-am mancat noi aseara...

the sheperd's dream

sâmbătă, 26 iulie 2008

the shape of things to come

there goes another one... after the fall of Indy Mac another bank (two entities with the same ownership) bit the dust, and FDIC went into receivership mode. note that their European sisters are also suffering.. S&P sees an acceleration of the downgrades in the EU banking industry .

so all that silver lining with the increase in orders for durable goods, might just be the first lighting strike... as a matter of fact the article on Bloomberg says it:

"A report yesterday from the National Association of Realtors showed existing home sales fell 2.6 percent to a 4.86 million annual rate, the lowest level in a decade. The median home price dropped 6.1 percent from June of last year.

Concern over the ability of Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, to survive the meltdown in subprime lending has heightened the credit crisis and may push up mortgage rates and further curtail access to loans.

U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth"


luni, 21 iulie 2008

when the invisible hand is showing you the finger...

we all know that Adam Smith theory about the invisible hand. It's that principle according to which market participants trade in the most mutually beneficial manner - without any regulatory intervention needed - so as to maximize self interest while at the same time promoting the interests of the society as a whole. this is one of the most widely used metaphors coined to describe a free market capitalism of the kind that we "should" see in the US.

I have a feeling that the invisible hand has been rather busy lately shaking some very visible and dirty hands and going into that taxpayer's pocket...

firstly the SEC banned naked short selling for a while in order to stop speculators driving further down the market, after Freddie and Fannie started spiraling down. one may see this as a legitimate move from a regulator, in a distressed market, against a legally questionable tactics. but then again why didn't the SEC intervene against this practice when the market was in a better shape? isn't that intervention skewing the market's dynamics by helping create an artificial floor?

now there's more and more talks about the US Government taking an active role in a generalized bail-out of the whole banking system, with an even bolder move such as:

"Some experts say the government needs to set up new agencies to foster a recovery in the housing industry, the financial markets and the economy.

Alan Blinder, a former Fed vice chairman who is now a professor at Princeton University in New Jersey, calls for the return of what he's dubbed ``The Incredible HOLC'' -- the Home Owners Loan Corp. Set up in 1933, the HOLC acquired defaulted residential mortgages from lenders and investors and then refinanced the loans on more favorable terms for the borrowers."

what was that thing about free market self regulation? naah, when push comes to shove, it's still privatize profits & socialize losses...

if I could only believe the good intentions of the politicians to clear the mess and straighten the rules. but what to say when various regulators let loopholes be exploited and even well known figures, from the inner circle, such a Jamie Dimon are pointing at the loaded dice and call the figures a lie.

and please don't tell me that the FED and SEC don't know that this is regulatory forbearance...

or as Nouriel Roubini said in his last post about the coming US banking system bust:

"Most financial institutions are putting increasing numbers of assets in the illiquid buckets of Level 2 and Level 3 assets. While FASB 157 should prevent manipulation of the valuation of such illiquid assets, forbearance by the SEC, the Fed and other regulators allows a massive amount of fudging. An insider told me that in a major financial institution the approach is as follows now: top management decide in advance what the announced writedowns should be and folks dealing with the toxic/illiquid assets come up with totally ad hoc assumptions to make sure that such illiquid assets are valued consistently with the decided-in-advance amount of writedowns and losses. This is not earnings smoothing; this is active manipulation and falsification of financial results aimed at creating even more obfuscation of the true state of financial institutions. This obfuscation is actively abetted by the SEC, the Fed and all other regulators that are now in forbearance crisis management stage where the objective is to avoid at any cost anything that may trigger a financial meltdown. Thus, most of these earnings reports are not worth the paper they are written off.

This earnings manipulation occurs in a variety of ways. First, ad hoc assumptions still used to value and write down level 2 and level 3 assets. Second, banks are leaving aside less reserves for loan losses that are much less than necessary; they do that by using ad hoc assumptions about future losses on mortgages, credit cards, auto loans, student loans, home equity loans and other commercial real estate loans and industrial and commercial loans. Reserves for loan losses have been sharply lagging actual and expected losses, thus padding earnings as decided by the financial institutions' managers. Third, there is disposal of illiquid and toxic assets in ways that misleadingly reduces the amount of actual writedowns. An example is as follows: suppose a bank wants to dump illiquid MBS or leveraged loans that are worth – mark to market – 70 cents on the dollar rather than 100 cents on the dollar. Then, instead of selling these at a price of 70 and showing a 30% writedown these are sold to hedge funds and other investors to a price closer to par – and thus showing in the balance sheet a smaller writedown – by providing a subsidy to the buyer of the security: so a hedge fund will buy such toxic securities at 80 or 90 cents and receive a loan to finance the transaction at an interest well below the borrowing costs for the funds. Thus, writedowns are then shown smaller than the true underlying loss on the asset and the bank finances that fudged transaction with earning less revenues than otherwise on its credit portfolio. This is an accounting scam- bordering on the criminal - that auditors and regulators are abetting on a regular basis."

I don't know about you, but I see an invisible hand waiving with the middle finger way up at the mere thought of "promoting the interest of the society as a whole"...



vineri, 18 iulie 2008

through the looking glass...

I feel all of a sudden that common sense has nothing to do with it anymore...yeah it's the stock market and the irrational exuberance. first there's Well's Fargo that starts a rally ending up with the biggest gain in bank stocks in two decades (23% in one day). and all of that not because large profits or a restructuring success but because their profit dropped ONLY with 23%...wow!

then there's another rally today because Citigroup posted ONLY a $2.5bn loss instead of the $3.67 bn estimates...I mean WOW!! ain't that some good news?

then I remember that Citigroup has some $1.1 trillion assets off the books that are just waiting to see some writedowns and come back to the rooster... and I get a cold shiver down the spine.

that gets worse when I read about another disaster lurking in the shadows, the monster sister of Freddie and Fannie...

the fundamentals are still there. and still disastruous, no mather what looking glass you use.

marți, 15 iulie 2008

the wizard of Oz and the free lunch - part II

so the wizard of Oz got his free lunch by stealing taxpayer's platinum credit card and paying with it for unlimited goodies...

now we all can see the downside for the poor taxpayer at a first sight. somebody's stealing from his hard earned money (call it taxes paid to the state budget). but there are other risks here, even to the wizard himself...

indeed by opening the Fed's balance sheet to Fannie & Fred, there's a clear risk that the $478 bio of remaining treasuries get quickly used away to no much avail. see here -> the estimate for backing the current $1,540 bn of the two GSEs combined is some $230 bn...

and that is only a small part of the issue that's been put through authorities and the FED in the hands of the taxpayer. cause there's plenty of trouble brewing round the next corner for various banks that are on the bankruptcy list... by some estimates the FDIC has already used a large portion of its available funds for the rescue of IndyMac (10% of the available funds already) and will soon need to be re-capitalized...

you might rightfully ask yourself where would one get the funds to do it? still from the same platinum card stole from the taxpayer? what would happen when the FED starts to print money from the presses just to cover more and more losses? what would happen if you used more than the allowed credit limit and loose confidence of the "bank"? you would go bankrupt...and that "you" is the US itself, with the rest of the world loosing confidence in the dollar and the whole American financial system. they'll stop supplying unlimited credit and investments in that currency that was turned into a worthless piece of paper.

the indigestion would be fatal to the wizard of Oz...

if there ever was such a thing as a wizard of Oz... but of course there is no such thing.

just who do you think rigged the stock markets so as banks $ FIs rebounded today with no good news in sight? unless there are some more sleight of hand tricks in the making, to divert the public's attention from the ongoing fraud...

of course the poor taxpayer would still pay the ultimate bill...

the wizard of Oz and the free lunch - part I

we're living interesting times aren't we? the mother of all capitalistic nations is struggling to save the "socialistic" Frankensteins called GSEs, the Freddie, Fannie and FHLBs that are walking financial zombies... or so it may seem.

now before going further, think about this, it's always easier to accept a sacrifice (or further sacrifices) when this is presented as the lesser of two evils.

let's have a closer look and start by reading the fine print of the menu:

"The Federal National Mortgage Association (FNMA) (NYSE: FNM), commonly known as Fannie Mae, is a government sponsored enterprise (GSE) of the United States federal government. It is a shareholder-owned corporation authorized to make loans and loan guarantees.

[...]

It is the leading market-maker in the U.S. secondary mortgage market, which helps to replenish the supply money for mortgages and enables money to be available for housing purchases. As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) own or guarantee about half of the U.S.'s $12 trillion mortgage market.

FNMA's primary method for making money is by charging a guarantee fee on loans that it has securitized into mortgage-backed security bonds. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk, that is, Fannie Mae's guarantee that the principal and interest on the underlying loan will be paid even if the borrower defaults.
"

so make no mistake, by enabling the repackaging and sale of mortgage loans, the GSEs were responsible for providing the money necessary to baloon this Ponzi scheme and inflate the real estate prices into the housing bubble.

all of that while retaining the default risk with an implied government backing, hence allowing the corporate beneficiaries to receive risk free funds to further skim for profit. of course officially the GSEs were helping joe 6 pack to buy the house of his dreams. it's just that in real life, as opposed to dreams, you eventually end up paying when you bite more than you can chew...

all is for the better in the best of the worlds except that there comes a time when things start to go wrong in the real estate business and now everybody in this market feels the brunt. but guess what, according to the officials, although having by far the largest exposure to subprime, both Fannie Mae and Freddie Mac are adequatly capitalized as of last week. could it be that the Wizard of Oz has many tricks in his sleeve and tries to pull a fast one on the populace?

of course, let's not forget that the wizard of Oz was just a poor trickster with a hot air baloon and that sometimes tricks won't make reality go away...

it's just that the week thereafter the previous conforting announcement, since investors were dropping shares like radioactive waste, the government needed to take urgent action to prop-up the empty shells of Fannie &Freddie, in order to prevent the brown smelly stuff from hitting the air venting machine...

so what's to be done? well let's open the king's coffers for the looting. yes you've heard the man, he really asked the Congress for unlimited authority to buy shares and lend to the GSEs.

need a spelling? it says unlimited authority to use the taxpayer's money to prop-up the GSEs gone insolvent because of profit skimming (through excess lending, asset bubble investment and overvaluation of assets), by the corporations that participated in the great Ponzi scheme.

of course, dear citizens, rest assured this is measure is "aimed at supporting the stability of financial markets, not just these two companies.'' and undoubtedly "would be done so only at Treasury's discretion, under terms and conditions that protect the U.S. taxpayer and are agreed to by both Treasury and the companies". I thought so...

so now you know how the wizard of Oz got his free lunch...the taxpayer paid for it.

marți, 8 iulie 2008

moral hazard? hmmm...what was the first word?

it's just as the title says...we just forgot about "moral"

I hesitated between several definitions briefly overlooked over the web over the right choice of words (yep moral...):


" Concerned with principles of right and wrong or conforming to standards of behavior and character based on those principles"

or

"Arising from conscience or the sense of right and wrong"

I think, gut feeling, that I'll stick with the second one without being concerned of whatever dialectical divide this wording might generate...

As philosophical as it might seem, this post is still about economy or rather about what "solutions" might be applied in the almighty name of profit. otherwise said it's, particularly, about GSEs.

Let me go back to the definition:

GSE = "Privately held corporations with public purposes created by the U.S. Congress to reduce the cost of capital for certain borrowing sectors of the economy. Members of these sectors include students, farmers and homeowners.
Notes:
GSEs carry the implicit backing of the U.S. Government, but they are not direct obligations of the U.S. Government. For this reason, these securities will offer a yield premium over Treasuries. Some consider GSEs to be stealth recipients of corporate welfare.

Examples of GSEs include: Federal Home Loan Bank, Federal Home Loan Mortgage Corporation (Freddie Mac), Federal Farm Credit Bank, Resolution Funding Corporation, and The Student Loan Marketing Association.
See also: Freddie Mac, Treasury Bond"

So let me get that straight, a GSE claims to have a Government backing and gets accordingly privileges such as access to cheaper funds, more lax risk regulations and so on, all the while transferring some of these benefits to corporate entities that are on the run for profit and only profit...

I have nothing against it when these privileges go to the ones in need (individuals wanting to access a mortgage, students...) but NOT when they are siphoned or skimmed by corporations !!!

Look at the FHLB definition:

"The 12 banks of the FHLBank System are owned by over 8,100 financial institutions from all 50 states, U.S. possessions, and territories. Equity in the FHLBanks is held by these owner/members and is not publicly traded. Institutions must purchase stock in order to become a member. In return, members obtain access to low-cost funding, and also receive dividends based on their stock ownership. FHLBanks are exempt from state and local income taxes, but are subject to property taxes. The mission of the FHLBanks reflects a public purpose (increase access to housing and aid communities by extending credit to member financial institutions), but all 12 are privately capitalized and, apart from the tax privileges, do not receive taxpayer assistance."

I hope I understood it clearly (and please contradict me if I'm wrong). The private banks owning FHLB get access to cheaper funds, with the backing of the State, to offer mortgage loans indiscriminately and make profits straight into a crisis? where's the sense of right and wrong here? is it just on the surface of an argument such as the sacrosanct right of ownership on a house for Joe 6 pack?

do you really think a private corporation getting access to cheaper funds will use for the greater good or for a wider profit margin?

well let's see how Fannie Mae and Freddie Mac will fare now and what real backing they get from the Government...


Note in the paragraph above that, in theory, they should not "receive taxpayer assistance"...

miercuri, 2 iulie 2008

baby it's getting cold outside...

iata ca in postul anterior ziceam ca evolutia crizei la nivel mondial a fost franata de diverse forte inertiale. din nefericire nu ma mai uitasem pe evolutia pietelor in ultimele zile. wow ce baie de sange...

bursele s-au prabusit, iar sectorul financiar e in cadere libera. sunt din ce in ce mai multe zvonuri despre prabusirea unor mari jucatori financiari (Lehman Brothers ?) si a unei intregi cohorte de banci mai mici sau de talie medie. unii spun chiar ca e vorba de un risc sistemic pe cale sa se materializeze in sectorul financiar, un financial perfect storm. citez din articolul de pe link:

To date, much of what has been put aside for a rainy day assumes individual banking problems, but not a clustered grouping of multiple banks all failing at the same time. That makes this occasion something of a brave new world. For investors, it is possible that going forward the best concept to apply may be the idea of seeking out a bank which can provide the return OF your money, rather then the bank which pays the best return ON your money.
scary...

oare cum va rezista o piata deja in corzi falimentului unui jucator de talie mare (Lehman? Goldman ? ...naaah!) sau unei serii de falimente a unor banci mai mici? e posibil sa se raspandeasca ca focul la butoaiele cu praf de pusca?

oare mitul "too big to fail" e pe cale sa dispara? uitati-va la General Motors, acest darling al Americii ...

se pare ca aceasta acalmie care se instalase in mod inexplicabil in piete precum si increderea care in mod fals aparuse din nou, ca si cum nici o criza nu avusese loc, e pe cale sa se destrame brusc. au aparut si ultimele cifre legate de cresterea ratei somajului in US si nu sunt de loc roze.

si s-ar putea ca nici ultimele incercari de cover-up si de intarziere a unor legi de mult asteptate, care insa risca sa puna in dificultate bancile care s-au jucat de-a investitul cu banii altora, sa nu mai poata opri inevitabilul.

cel putin, suprinzator, mai sunt si unele industrii care profita de pe urma crizei. asta arata clar ca situatia e really fucked-up :):):):)

what's next Mr Spin Doctor? how's Iran doing?