Meredith Whitney Scares the Crap out of Everyone
Posted on September 15th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Today, Meredith Whitney was on CNBC interviewed by Maria Bartoromo. It was a seven minute segment that was essentially a monologue by Whitney trying to fit in as much as she could. Boy, and did she. Click the link here, or read the loosely transcribed version below.
What she says fits in perfectly with a report I wrote mid last month called ‘The Real Estate Quickening is Upon Us’. If you have not read please do. -Best Mr Mortgage
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At a minimum, this is traumatic for everyone involved. Never in my wildest dreams would I have thought the landscape would exclude Lehman, Bear and Merrill.
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What this does is exacerbates the credit crunch. Pulls so much liquidity out of the market.
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Reality is this situation makes it worse. BofA Merrill is good.
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Loss of Lehman pulls liquidity out of market
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None of the $500b in previous write downs was done amidst liquidity pressure.
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Near term Lehman and AIG will be selling assets. When there is a liquidity crunch asset prices will go lower.
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Lehman’s forced selling of $600bb in assets very quickly will drive asset prices down very quickly causing pain across Wall Street
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Other institutions will have to mark their assets lower. A real virus will spread; I don’t know how we get out of this short of real government intervention.
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Maria: “What’s next?”
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Underlying root of all evil has been us house prices.
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Where have you (each bank) gone into this with assumptions of where housing prices will go?
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Futures indicate a 33% peak to trough housing price decline…I think well north of 40-45%.
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WB estimates a peak to trough house price decline of 21% with 60% exposure in CA where prices have been hit the hardest.
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CITI assumes a 23% peak to trough house price decline. That math is not going to work.
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The banks will have to play catch up with their write downs due to underestimating house price declines.
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WaMu should be on forefront of everyone’s mind.
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Maria asks about dividends:
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It never made any sense why CITI kept their dividend. They should not pay one. They don’t earn any money. They can’t afford to pay. They will be selling assets. They have alot of stuff to sell like AIG.
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Everyone is under asset value pressure and should not pay a dividend.
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All these (financials) names will be bought at much cheaper levels in the short term.
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I can’t believe equities market has held up so well as bond market credit spreads blown out across board.
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So much destruction because of Lehman…very messy credit market next several weeks.
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Don’t understand why equities market hanging in there so well
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Europe and Asia:
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When one of your major investment banks does not answer the phone it’s traumatic across globe. Lehman going down pulls liquidity out of the economy across the globe. To date $3 trillion less liquidity is flowing through the market than last year across the globe and $2 trillion less in the US markets.
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How does engine go forward without any lubrication?
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In the past the market did not impact the economy. But now, market directly impacts the economy and exacerbated certainly by this weekend and what I expect over the next couple of weeks. Now you will see economy impact the market going forward.
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So much of the losses so far have been because on given loans prices have declined so much. There has been a small number of relative portion of given loans defaulted so far. Going forward, there will be a higher frequency of defaults in all states. Unemployment went up 50% from July 2007 to July 2008. The market has yet to appreciate how the economy is going to impact the market. The market is still reigning havoc on the economy.
September 15th, 2008 6:12 pm
To date $3 trillion less liquidity is flowing through the market than last year across the globe and $2 trillion less in the US markets.
Deflation is alive and kicking!
September 15th, 2008 6:23 pm
[...] Markets closed at record lows for the year, with the Dow down over 500 points, NASDAQ down more than 80 points, and the S&P down nearly a whopping 60 points. See the article by Mr. Mortgage about How Meredith Whitney Scares the Crap Out of Everyone. [...]
September 15th, 2008 6:26 pm
Quote: “I can’t believe equities market have held up so well as bond market credit spreads blown out across board.”
Reason:
The Plunge Protection Team has been at work, maybe?
September 15th, 2008 6:32 pm
Viv-
Unfortunately it’s going to take more than a loss in liquidity (where did you get those number by the way?) to get the wheels of deflation rolling.
September 15th, 2008 7:03 pm
>> “The Plunge Protection Team has been at work, maybe?”
Besides the intial plunge at the open, the steepest drop off of the day was right before close. The volume at that time was huge – two to three times the opening volume. Wow.
September 15th, 2008 7:45 pm
Deflation is ticking now. No one can say otherwise. Oil down huge today. Everything is losing value and fast.
Almost no one wanted to buy Merryl Lynch which had a $29 stock bid. The stock closed 1 cent higher on the day. That’s totally unheard of.
My 401K money is sitting in the market in the SPY. I’m about 30 years from retirement so I have plenty of time to burn. I expect I’ll get some good prices and some bad.
The 30% debt to asset for corporate US bothers me a little bit. The one thing that should be learned from this expirience is don’t borrow what you can’t afford to pay back, even if you have some rainy days.
September 15th, 2008 8:14 pm
WAMU, NAT CITY, DOWNEY,BK UNITED ALL UNDER LETTERS OF AGREEMENT WITH FED.
WACHOVIA, CITI, WELLS IN TROUBLE.
BOA GO FIGURE, 3RD QTR LOSSES SHOULD BE HUGE(COUNTRYWIDE OPTION ARMS, SECONDS, MERRIL SUBPRIME LOANS 1ST AND 2NDS, AND COMMERCIAL LOSSES.
FDIC WILL BE EMPTY AFTER WAMU TAKE OVER.
WE NEED THE FDIC TO SET UP A RTC( A LA S & l CRISIS) TAKE BAD LOANS OFF BOOKS.
THEN THE FED TO REDUCE CAPITAL RESERVE REQUIREMENTS.
IF NOT, IT WILL BE UGLY, WAGES ARE FLAT AND UNEMPLOYMENT GOING UP, NOT GOOD FOR HOUSEING RECOVERY.
September 15th, 2008 8:31 pm
AIG downgraded (CNBC) by S&P to A-2 for long-term counterparty.
September 15th, 2008 8:33 pm
They are calling this double AIG downgrade the equivilent of a financial ‘nuclear bomb’ require $10s of billion more than the $40bb and $75bb intitially thought. Nobody really has $75bb for this. They just say they do. What about WaMu this week.
September 15th, 2008 8:50 pm
I love how the Shills at the FED & Treasury jaw bone market players into doing things that otherwise they would not do and then they say there was no government help.
Then the so-called bad bank idea – what a joke is that a FREE MARKET concept.
Choke on your FREE MARKET SHILLS.
September 15th, 2008 9:07 pm
Europe and Asia getting crushed and Ken Rosen calling on the Fed to cut before the opening bell, and possibly .5 bp… Not sure I agree with the rate cut because it will not have that much of an affect as witnessed today by the spread moving to 6%, but you never know in this market. Keep the discount windows open and let them come get what they need but leave the rate at 2% IMO…
WaMu is in big trouble with the downgrade and no access to capital without huge cost which would be counter productive and probably mean their demise anyway…
AIG better start finding buyers for their sellable assets they mentioned because their time is running out after their downgrade this evening. They will at best be broken up into a shell of what they look like today IMO, that is if they make it at all…
September 15th, 2008 9:21 pm
Dr. Nouriel Roubini, Dr. Robert J. Shiller, Dr. Karl E. Case, Dr. Allan N. Weiss, Michael “Mish” Shedlock, Todd Harrison, and others were explaining what was wrong long before Meredith Whitney.
Now many talking heads are on board, they are saying that stability returns once the housing market recovers.
But, they all say the housing market will recover in 2009 or 2010. And they are wrong. The first six names above make no claim that the housing market will recover by the end of 2010 or before. Many, closer to the real estate market, know that it will be a long process for housing to ‘stabilize’ as prices in many markets are out-of-line with both rents and income levels.
The de-levering that is going on will continue until there are no independent ‘investment banks’ and the regulators can enforce the various rules they have waved.
When there are no ‘SIVs’ and the derivatives markets shrink to a fraction of their current size, we will see a return to ‘normal’ markets.
September 15th, 2008 9:21 pm
Fed Funds spread signals crash
The last time the Fed Funds target rate got this out of line with the effective rate was in 1987, and from a base of over 6% not 2%. On a percentage basis, at three times the target rate the spread is unprecedented. It happened today.
Fed funds jump to 6 pct in mkt, tripling Fed’s target
NEW YORK NEW YORK, Sept 15 (Reuters) – Federal funds traded in the U.S. interbank lending market were indicated to have jumped to 6 percent on Monday, tripling the target rate of 2 percent which the Federal Reserve sets.
The move happened even after the Federal Reserve earlier added $20 billion of temporary reserves to the banking system via overnight repurchase agreements.
Early Monday, at around 7:10 a.m. EDT in New York, federal funds had traded at 2.0625 percent. When market inter-bank lending rates shoot up, that often reflects distrust among financial institutions of lending to some other counterparties. Global market participants’ risk aversion has surged on Monday as the U.S. banking crisis has escalated, analysts say.
AntiSpin: The Fed tries to manage the economy and inflation by influencing short term interest rates. It does that by buying and selling government bonds in the bond market in what are called “open market operations.” They set a target rate, such as 2%, then buy or sell bonds as needed until the effective rate in the bond market matches the target rate objective. Problem is, this process does not always work in times of crisis because the bond markets themselves may be dis-functional, as is the case today.
Really, really dis-functional.
In 1987 during the crash the Fed Funds target rate was 6% but the effective rate jumped more than two times to 16% as banks lost confidence in lending to each other. Today that spread looks benign.
On Friday Sept. 12, the effective funds rate was 2.1 percent, only 10 basis points over the target rate. Now the effective rate is three times the target rate. What it means is that the banks are so distrustful of each other’s credit that they do not want to lend to each other. Who can blame them? Lehman Bros. went out of business today leaving its creditors holding the bag to the tune of $630 billion in defaulted debt.
“If the fed funds rate closes high today, I would be really worried as it would mean that there really is no money out there to be lent,” said Stan Jonas, who trades interest- rate derivatives at Axiom Management Partners LLC in New York.
- Bloomberg
These episodes usually don’t last long. It will be interesting to see what happens next.
Today’s mega spread between the Fed target and effective rate has not shown up in the Fed’s graph yet today. Look for it tonight or tomorrow.
September 15th, 2008 9:40 pm
CNBC is reporting the Asia market has already thrown in the towel on AIG and are trading as if it is done. The ratings down grade had the affects of adding $13 – $15 billion of additional capital required. They now need approximately $100 Billion by tomorrow or the pose a very real risk of defaulting. Wow!!!
September 15th, 2008 9:42 pm
There was also a report that some of the PE’s would have the money and want ownership into financials, but 25% ownership in an insurer would make them regulated so it can’t be done… Go figure the ones that could help are not able too.
September 15th, 2008 10:04 pm
Per CNBC Faber “AIG has until EOBD tomorrow to raise 75B (or bust).” Meredith Whitney ROCKS! Larry Kudlow is in the fetal position in the corner mumbling “drill drill drill…king dollar king dollar”
Here in FL a lot of RE is already devalued 45% from peak. I believe that she means across the country and here I would expect 60% to not be unreasonable in the most undesirable properties here. Heck I have 27 unit portfolio discounted to 32% of peak for sale and its a bummer at that price.
“I tip my hat to the new revolution…”
Keep up the great work MM!
September 15th, 2008 10:49 pm
Seriously – with the Treasury and the fed pulling an end around on the Asian markets did this country really need to make more enemies? They got stuck with Lehman suspended trading on the whole bag. Small banks in Asia going from black to red in a day. Shanghai’d in Shanghai.
Seems like that is all this adminstration has been good at. Paulson’s briefing today was a joke. Perino is a good enough spin doctor to cover the softball crap that came from the grossly uniformed (well screened)press.
As much as I enjoy the permabulls wriggle, the US markets just cant stiff the world on its bills and expect to get away with it. I just hope we can get some leadership that will at least not be so quick to pick a fight because the next one might find us with the odds stacked against us and it wont matter how many NOD’s come out that month.
September 16th, 2008 12:10 am
SKEPTICAL/
Hey Guys call me crazy but I think we are being set up by this whole AIG deal. To me this just smells. The way I see it is we’ve been set up by everybody involved, The FED, media, and regulators. They let Lehman die (sacrificial lamb) so that AIG can get saved. Media postures, and crys for government interention. The Fed look like heros. This all makes perfect sense to me. Somehow a rabbit is going to be pulled from a hat and bang! we get a bailout of some sort for AIG. I have no idea where the money comes from but I’m confident its going to play out positive for AIG. The only diferance this time is we don’t have to wait for the weekend. Think about it?? I’ll be buying calls on AIG earyl a.m.
Just my .02
Disclaimer: Don’t listen to me, I’m often completely wrong.
September 16th, 2008 1:31 am
No matter how badly this plays out over the next couple of weeks, it’s going to be bad. But, when the BLS reports the next unemployment figures, I think this will have a devistating effect on the market. As it will confirm a systemic melt-down in the economy rather than a secular financial crisis. Europe and Asia are taking this hard. PBoC already announced a rate cut, the first in 7 years. How far away is the Euro or the Pound? Fed will cut tomorrow as well. Looks good for the US$, though. How’d have thunk it?!
September 16th, 2008 3:34 am
Anyone else think it’s almost as though the US and it’s trading partners are under an attack… a financial attack? Likely an inside job that has gone Chernobyl on them.
Anyway, I would love for someone to explain why deflation is such a “bad” thing. As a working class stiff who didn’t buy a house during the boom, I can’t help but see this as a good thing. My hard earned $$$ can buy more for once in my life.
Granted, deflation is bad if you’re a stock holder. But the market’s a gamble. If you investors loose your shirts, let me be the first to welcome you to the burgeoning Working Class.
Now get to work; those toilets don’t scrub themselves.
September 16th, 2008 9:49 am
We need a revolution…
September 16th, 2008 10:34 am
The whole system was not based on assets but leverage. The leverage came from using counterparties to insure those off balance sheet “assets”. We now see those “assets” are in actuality huge liabilites. This is a conveluded mess that is not backed by capital assets but promises to pay up if assets tanked. It is apparent that those insurers were window dressing because no one on earth has the capital or will put up the capital to cover those losses. It is obvoius our entire economy was one based on lies and deception. Even the deep thinkers at our most prestegious universities and on Wall Street have no idea what those firms are actually worth or what the loss risk could possibly be. This is worldwide…Russia had to put in trading curbs today because it is loss limited down. This is not a US problem but a global one. Look for the system to limp along until November and some MAJOR changes after the new Pres. is in office. This may be the straw that breaks the Congressional back. I would bet the farm that this melt down will change who gets elected come next Congressional election cycle. Change is good ignorance and ignoring reality for the sake of special interest donations is wrong and has led us to the abyss. This will be a defaltionary depression because the Fed has pumped so much liquidity into this to keep the broken syatem afloat that your dollar will buy less. So, prices may drop for homes, cars, etc…but the dollar has dropped in tandem with those goods. Cheap “stuff” is not cheap when your purchasing power is anemic. The great depression at least had a strong dollar. There is no end to housing deflation, until prices meet buyers ability to purchase on current income levels and I don’t see income going up anytime soon. There will be a firesale on whatever can be sold. Foreign buyers will flood the market and purchase housing on the cheap and laugh at us all the way to Dubai, Saudi, Asia and the like. The “brics” are falling faster than if they were hit with a wrecking ball. There is no decoupling it is tangled into the same web of lies we are involved in. AIG will fail because it is comprised of so much foreign investment. GOd bless all of you and stay strong….we need help from the Almighty to weather this storm.
September 16th, 2008 10:54 am
The dollar rate soared 3.33 percentage points to 6.44 percent today, its biggest jump in at least seven years, according to the British Bankers’ Association.
September 16th, 2008 12:29 pm
Deflation is tough because eventhough the prices will get lower, demand decrease as well. This causes the whole supply/demand curve to shift to the left. High unemployment is the next dissaster to hit. The US$ will continue to rise against most assets and most other currencies as the flight to safety and need for liquidity kick in and FCB desire to keep their currencies weaker than the dollar. Gold will start to rise in November and keep going for at least 2 years.
If you have lots of cash now and a stable job. You will come out of this with once in a life time purchasing oppotunities as the average american will experience wealth devistation and possibly impoverishing circumstances.
I would not be surprised to see huge federal govt intervention in mid 2009 as it may become intolerable to the masses as they finally recognize how totally screwed they really are at that point.
September 16th, 2008 12:40 pm
“If you have lots of cash now and a stable job. You will come out of this with once in a life time purchasing oppotunities…”
Well it’s about time.
September 16th, 2008 1:13 pm
od, that is the first chuckle I have had in a few days… I thought the same damn thing. FINALLY I get mine!!! I am very secure mind you, but boy watching all of these wanabees over the past years has really pissed me off. Back to the basics which I never left but many, many around me did.
Good thing I have cash and liquidable assets however because forget getting loans pretty soon. Everybody (that is smart that is) is hoarding cash and I would say any bank worth their salt will no longer give a mortgage to anyone that doesn’t have 20% down (minimum) and an iron clad 700+ credit score… for starters!!!
Well that is except the US “Tax Payers” who via Fannie and Freddie will lend till the cows come home to anyone with two legs and a heartbeat. We the “Tax Payers” will ultimately get stuck with the bill off course, but I have already planned some risk management for our Governments stupidity, and failed and reckless policies. Paulson and Bernanke are jokes running wild spending the “Tax Payers” money on anything that looks like it will keep this Ponzi scheme alive and well. I will be glad and may even dance on my roof top when these morons are finally out of the office that was given to them and not even earned!!!
Watch them in their infinite stupidity lower rates today. Which in my mind is about the worst thing they can do? They always seem to fu%& up a good thing they stumble on by mistake I am sure. We finally had some stability in the rates and I felt were well positioned to start rising later this year, which we so desperately need to do. Let’s see what they come up with in their little magic bag of trickery, foolery and chicanery…
September 16th, 2008 1:34 pm
I just read that the FED is now convinced a public savior of AIG is nil at this point. Nobody has the money or is willing to take on the risk involved which could take them down as well.
So in their infinite wisdom, they have thrust the idea of the American “Tax Payer” “Bailing Out” AIG for the sake of… well you know the investors, speculators, gamblers and other lay a bouts that were playing the get rich quick game. All of this will fall on our backs yet again. You know these folks are getting pretty heavy right about now and may end up squashing the good ole US of A if we keep giving away the farm… literally!!!
MG, when is this stupidity going to end??? Please someone, anyone tell me why the “Tax Payers” of this country should “Bail Out” this private company… anyone at all!!! Is that crickets I hear???
September 16th, 2008 1:53 pm
If you consider that a huge amount of our govt debt is bought by the Asian countries, they really allow our govt to function in the red. If our demand level for their products drops low enough, they will not buy T Bills unless the interest rate is more reflective of the risk on return value. I suspect that some time in Mid 2009, the Asian appetite for our govt debt will be seriously reduced as they are already divesting at this time. But since they have the US$, they may find out natural resource companies an attractive investment since this is something they lack.
September 16th, 2008 1:57 pm
This sort of nonsense will go on (taxpayer bailouts) until voters STOP voting people into office who promise *everyone* the moon.
I mean really, should EVERYONE be a homeowner? The obvious answer to any thinking person is NO.
The Community Reinvestment Act needs to go along with housing advocates and community organizers such as ACORN.
September 16th, 2008 2:19 pm
Peterb, good this is what needs to happen and don’t fool yourself… Our Government has not operated in the Red for a long time.
What I think you meant to say is they allow our Governemnet to continue along with reckless spending, socialized programs and fat salaries for doing nothing but merely borrowing their way through the years. Making blind, stupid, ignorant policies that keep the chirade going…
September 16th, 2008 2:26 pm
Well, well, well… Just when you thought they didn’t learn a lesson from the past year or more they surprise and DO NOT cut rates! Good for them!! Bravo I say!!!
Now that is the first sign of Government making sense around these parts for quite awhile. I am very impressed by their ability to hold for once and to not bow down to lobbyist and foreign interest. To do what was right (well raising rates is what is really needed) for a change.
Now they can really grow up like the folks they are supposed to be (Tax Payer Representatives) and toss this foolish nonsense on saving AIG. Now that would nearly knock me out of my chair…
What caused this epiphany? Are they finally listening to someone other than themselves? Did they all get hit on the head or something?? This is stunning to me and although I am quite pleased for once… it may be short lived. Stupidity doesn’t vanish overnight.
Hey, maybe they all stayed at a Holiday Inn last night???
September 16th, 2008 2:39 pm
Fed’s waiting for things to get worse as they know they will. And perhaps have the rest of the world drop their rates as well, got to let them catch up to us? It aint getting better folks. This is not a bottom by any means.
September 16th, 2008 4:58 pm
[...] more on Meredith Whitney’s sage vision, check out Mr. Mortgage’s latest article, which spells it all [...]
September 16th, 2008 6:31 pm
Correct me if I’m wrong but is this not incredibly bad news: http://www.bloomberg.com/apps/news?pid=20601087&refer=&sid=a5O2y1go1GRU Mutual funds exploding! Falling into the “things getting worse category”
September 16th, 2008 6:39 pm
Stu, I think they just realized that any further action would do nothing but prolong the inevitable and the task was just too much.
I do think they want to save AIG to try and slow the rate of the death spiral for the market but this is all still going down, just a matter of the rate. The derivatives market was a ticking time bomb with huge amounts outstanding and now the bomb is about to go off.
September 16th, 2008 6:41 pm
Ya Mel, I think can quals as fairly bad.
September 16th, 2008 7:02 pm
So the old line “TOO BIG TO FAIL” has come back I see… Shameful, and just another example of our incompetent Fed and Treasury FU$%^&% things up once again at the “Tax Payers” expense.
This time it is much worse however. We had Paulson stand before “THE WORLD” and state PERFECTLY CLEARLY that the “Tax Payers” of America would not foot the bill for Lehman and / or AIG PERIOD!!! They clearly or atleast I thought, and so did everyone else who saw his speech, that the US “Tax Payers” were done footing the bill for everyone and their brother who came to the door with their hand out. DONE!!! He could not possibly have said it any clearer. You saw it and I saw it… It appears that may have been a joke on us the “Tax Payer” as it does appear that Paulson was just faking us out and it was simply a lie as to his true intentions. Boy, I hope I am wrong on this one. I will NOT appologize tomorrow if I am wrong because THEY ALLOWED the MSM to make this a viable option. If they truly had no intention, then SHAME ON THEM even more for attempting to manipulate the markets through the MSM in such a way without saying a word!!! Off course much of our MSM are bigger fools and idiots so they would not have seen this coming if they arrived in a 100 fleet caravan of 18 wheelers. None the less something smells in Denmark and it ain’t pretty!!!
While I am hesitant to believe these lying, corrupt, stupid, ignorant, worthless, good for nothing talking heads if they save AIG EVER AGAIN, I did give them kudos for keepng rates at 2% today, which was the right thing to do. I should have waited for their true colors to bleed through I suppose (and they are not red, white and blue). It does appear that moral hazzard may be alive and well once again. Sinful? Yes, but it may be the reality of tonight.
I will sadly predict that by the opening bell tomorrow we the “TAX PAYERS” of this once great country will be on the hook for an additional $200-$400 BILLION dollars by “Bailing Out” AIG. Hey, Paulson has an $800 Billion blank check, so $200 Billion to the FDIC, %200 Billion to AIG, $400 Billion to Fannie and Freddie and then ask for more NEXT YEAR… AH HA! I figured out what they are doing.
If th American people do not “VOTE OUT EACH AND EVERY SINGLE INCUMBANT” in this years election then we deserve EVERYTHING WE GET moving forward!!! If you have had enough of this BS as have I and you are tired of the same old same old career politicians i.e. Kennedy, Dodd, Leiberman, Frank, Kerry, Byrd, and oh the list goes on and on both Republicans and Democrats alike. It is a Who’s, Who of conspirators…
Any way as I digress the issue at hand is AIG and we have got to let them fail!!! We need to show everyone that the game playing has ended and SHORE UP YOUR BOOKS NOW!!! It will be such a disgrace if the Fed does anything to help this situation out!!!
I am hearing a $85 – $90 Billion loan is on the table. Severe dilution as a result and mandatory selling of major assets immediately. Unfortunately folks this is going to happen. “GOD HELP US ALL” if this fails as Fannie and Freddie probably does because the value of the American dollar will plummet and the United States will instantly become a 3′rd world nation in terms of it’s currency due to the massive printing that would ensue…
Let’s hope they don’t FU^& this up like everything else they have attempted or we ALL go down in flames IMO!!!
September 16th, 2008 7:17 pm
Too prove my point of their ignorance… isn’t this what just got us all into trouble? A 60% + default rate on loans with assistance if I remember correctly?
Like I said: “God help us”
Ann Ashburn, President of AmeriDream, issued the following statement today after the House Financial Services Committee adopted H.R. 6694, legislation designed to reauthorize and reform downpayment assistance programs that the Bush Administration banned in July.
WOW!!!
Talk about the PROOF being in the pudding. What more do you need folks to wake TF up???
September 16th, 2008 7:23 pm
Don’t know about this rally on AIG. The market really needed to see the private money come in here.
What does this leave? Well, this problem is fixed and there are 10 on their back with no private money support.
September 16th, 2008 7:37 pm
I agree MR. M. the precedent is not yet set here and WTF is next? Moral Hazzard is truly live and well here now!!! This will be a complete disaster IMO but hey what do I know… I would think the market does not even want Fed intervention as it strips the value of the main players right our from under them. They truly wanted to see public and industry support which their just isn’t enough free capital floating around to do so. Sad as it is we are all broke now… remember Blackstone? How long ago was that? Times have certainly changed when you cannot get $100 Billion to save $1 Trillion from the very public who will face the consequences of this failure of this. That is why the Government stepping in is such a bad idea IMO. IF they can’t simply saves themselves then what the heck are us “Tax Payers” doing saving them??? We all will lose and LOSE BIG!!!
September 16th, 2008 7:51 pm
I’m all for what’s right and not using tax payer cash. Companies that ran poor business should fail on their own accord.
AIG – I hate to say this…. The world, and I do mean world would have gone down like a domino effect if AIG went belly up. I think, let it go and lets get this over with so we can rebuild. The other side looks at all the companies tied to AIG who will drop. Most will at some point and I’m sure we’ll revisit AIG again. Think of the amount of pensions alone, tied up in the viability of AIG. When – and I still think when – these get wiped out, the retirement or future moneys of people everywhere will be gone. What do they do? Wait for their Social Security check they’ll never see? Most people don’t have any savings or money planned for later which is their own dang fault. That needs to change.
Anyway, I have a hard time taking a strong, let them fail stance. Hopefully this gives people the chance to prepare themselves if they’re paying attention. If not, next time around they’ve got no pitty party to cry about.
The tragedy is not just AIG, but most firms bet the farm with funds they should not have. The greed and wrongdoing has brought hell upon people that don’t deserve it. Either way, we’re all going to lose on this. Unless you are shorting or trading this stuff. That’s becoming difficult if you don’t have a long term horizon since intervention in a free market makes for some irrational stock moves.
I hope this causes people to take another look at a proposal for hedge funds to manage American’s pensions. We’ve seen the damage they can do.
This whole thing just ticks me off! Smoke and Mirrors and it’s getting worse, not better.
September 16th, 2008 7:53 pm
This set the bar pretty damn high on ‘too big to fail’ and leaves those like WM and WB flapping in the wind.
September 16th, 2008 7:54 pm
spz only up 6 handles from close. This was only a hole plug and not a solution…the system is much weaker today that it was before last Tuesday thats for sure.
September 16th, 2008 8:05 pm
Kip, while I hear you plea, please look at it this way. AIG failing does not mean $1 Trillion vanishes, but probably $200 – $400 Billion. They will still honor many of the things you suggest failing because they get precedence over others. This will serve to awaken the masses as you say you want, but it will do it NOW and not later when it is too late IMO. The American people on the whole are not going to “Get it” as you suggest and you know that to be true in your heart of hearts. They have not gotten it yet and I would suggest that we have been at this for awhile. Stop kidding yourself and making excuses for stupid people because while they do need a certain amount of protection against themselves… when it comes at my expense I get angey. Well now it is coming at my expense!!! So light it up, get things moving, the weak fall and the smart ones survive. Hey, why should you or I lose out over this mess???
September 16th, 2008 8:08 pm
So let me get this straight as I am slow on the uptake…we now own the biggest mortgage shop in the world and we just bought the insurer? I feel kinda spent out.
September 16th, 2008 8:15 pm
Mr. M. WaMu & WB are DONE!!! They are just happy they are not in the headlines due to others being battered. As soon as AIG blows over, at “Tax Payers” expense off course, ALL EYES on deck and staring at WaMu who are dead men walking already. They just have not been forced to fall down yet IMO. JP will more than likely wait for them to fail and pick up the good assets at a much better price (see Lehman failure and Barclays awaited response). Folks are starting to “GET IT” as you suggested and I agreed was a very astute observation by you at the time. Probably the most imortant change in philosophy of approach is that very realization… again IMO. That is why it is so crucial NOT to enter a losing proposition because the street will simply let you go down and pick your carcus clean… “Tax Payer” or not!!!
September 16th, 2008 8:22 pm
Mr. Mortgage said: Don’t know about this rally on AIG. The market really needed to see the private money come in here.
What does this leave? Well, this problem is fixed and there are 10 on their back with no private money support.
Marc, this came down pretty much the way I thought it would. The system is rigged. Everything that these guys do is out of shear desperation and the other countries in the world see this clearly. Just the fact that the Fed could not get any private investors into the game tells you allot. I agree with your last sentence here, but we do not know if 85B will be the end all as this deal will likely cost much more to sustain. Going forward, this does not bode well for financials..the problems are not fixed. This truly makes the WAMU and WB situations look as if they will get similar treatment. I suspect we will also see the true colors of MS and GS in the very near future, and as I mentioned in an earlier post the regionals and commercial lenders are next. Time to get short again.
September 16th, 2008 8:25 pm
Exactly Peterb!! Now don’t go crazy but we the “Tax Payers” didn’t do this in 2002 or 2004 when it would have been amazingly profitable… nope! We did it at the HEIGHT of the reccesion / depression in the finnacial markets which many compare to the “Great Depression”!!!
We chose to do it at the worst possible time in our Nations (the world for that matter) history. We chose to SAVE the world yet again!!! Unfortunately we are not Superman and will pay a very dear price for the ego our Government has…
I will say this… when our Government does something really, realy stupid, they are the “BEST” in the world at it!!!
September 16th, 2008 8:36 pm
Oh this is just great!!! They are talking about the Fed getting into the insurance business now… SOCIALIZE IT ALL folks!!! Why not? When they get done with us (“Tax Payers”) we won’t have a choice about being socialized. They will have accomplished that all by themselves without our help being needed. Well we did help as “Sheeple” in our voting records but we will have plenty of time to discuss that with our 25% unemployment rate… MG we are so screwed!!!
September 16th, 2008 8:45 pm
It’s done folks… Sad… so very, very sad.
September 16th, 2008 8:53 pm
What’s left, Wamu, Wachovia,GM, Ford, Many state and local govts…..am I missing anyone?
September 16th, 2008 8:54 pm
Well, I suppose this will create more Government jobs perhaps. I mean with an 80% ownership and controling interest they would be classified as such correct? Hey, do I get my shares or does the Government hold onto them too? Is this legal?
What a complete injustice to the American people!!!
September 16th, 2008 8:54 pm
Airlines Peterb… AIRLINES!!!
September 16th, 2008 8:56 pm
Interesting thoughts from my buddy Karl on tomorrow’s trade.
Commentary On The Capital Markets
Tuesday, September 16. 2008
Posted by Karl Denninger at 18:46
(Page 1 of 266, totaling 531 entries) » next page
AIG “Rescued” With Fed-Backed Bridge Loan?
The market will roar tomorrow.
Now here’s my advice – sell any and all financial stocks – anything that may have written CDS in the market – into the spike tomorrow.
Do it at the opening bell, and do not look back.
Here’s why:
By getting warrants that massively dilute existing shareholders what Paulson has done is paint a target on the back of every financial firm in America.
All of them.
Let’s say I’m a Hedge Fund. I want to make a billion dollars.
I pick on, oh, Goldman Sachs. I know they wrote a bunch of CDS. I, and a bunch of my hedge fund buddies, short the firm’s stock into the ground.
Eventually, this will force a ratings downgrade. As soon as it does, Goldman can’t make the capital calls on the CDS, and is forced to ask for help.
They get help and the common stockholders are wiped out.
I, Mr. Hedgie, say “thank you very much” and cover my short at a huge profit.
Then I repeat this with the next firm.
I get rich and buy me a new yacht, while the common stockholders in the firms are destroyed.
This will happen to every firm in America as soon as this is figured out by the Hedge Fund community, which, incidentally, will take less time than it took me to write this and record the attached video.
Sell your financial stocks into the spike tomorrow folks. No firm that is “seriously interconnected” in our financial system is safe from this, and this “risk” was wholly manufactured by the actions of our government this evening.
You’ve been warned!
September 16th, 2008 8:59 pm
Next “bail Out” for “WE THE PEOPLE” is the FDIC!!!
Mark my words people… When, not if, WaMu goes belly up (probably this weekend IMO) the Fed will play hard ball (wink, wink) as the FDIC (OR WE the “Tax Payers”) covers their losses. Then they go to the Fed and tap their LOC from WE the “Tax Payers”. It’s all there to see so easily folks… just open your eyes and look and it plays like music right there in front of you!!!
September 16th, 2008 9:04 pm
Thanks Mr. M. and mine were sold awhile ago, but good advise if you are still holding!!! Their is also the reprucussions of this that will reverberate through every single financial company out there today in IMO a very negative manner. This will take months to unwind, but it will, so staying in for any length of time is like catching a falling knife!!!
September 16th, 2008 9:45 pm
“Sell” includes short selling, selling calls, and buying puts.
Speaking of catching falling knives.
September 16th, 2008 10:24 pm
Amazing! What the terrorists were incapable of doing on 9/11 we have done to ourselves in less than a year. Absolutely, simply amazing!
September 16th, 2008 10:50 pm
Shorting is the way the beast brings the weak to the ground and then devours its prey. Because if the weak are truely weak, they cant get their hands on the resources they need to survive and thus must capitulate to the strong. But the weak had to be weak in the first place. Kinda like the lion going after the lame gazelle. Nature would get the gazelle eventually, but the lion expedites the process for its own purposes.
September 17th, 2008 12:52 am
I guess Karl Marx was right; “Democracy is the road to socialism.”
Oh well, time to start over!
September 17th, 2008 6:23 am
Mr. M,
Thanks for the great site. Despite being eager to buy in CA, you’ve helped keep me on the sidelines and “in cash & CDs, eating popcorn” since I started following your site in the Spring.
FYI For those who still believe in “decoupling,” YOY real estate declines in Kazakhstan (home of Borat) -40%, Kyrgyzstan (Where!?) -60%.
So far, Moscow prices are holding up, but after their stock market lost 17% yesterday, they just shut it down. It’s closed today “for repairs.”
Keep up the good work,
JAllen
September 17th, 2008 6:31 pm
Don’t know if this has already been mentioned, but an Asia Times Online article says that AIG was a major repository for Chinese global investors
perhaps, a major factor in the necessity of prompt action?
September 17th, 2008 6:36 pm
link to Asia Times Online article:
http://www.atimes.com/atimes/China_Business/JI18Cb02.html
September 17th, 2008 6:41 pm
Well, right after the AIG takeover was announced last night he Dow futures spiked to about 130. Then everybody got wise before the market opened.
September 17th, 2008 6:45 pm
I just checked the price action of some of the financials today. If you sold right at the opening you probably saved yourself some serious money.
September 23rd, 2008 2:58 pm
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