Clear And Present Danger

The Weekly Standard notes difficulties at Fortis, a Dutch/Belgian bank.  From William Kristol:

I've received phone calls in the last hour from two economists I respect, one of them Larry Lindsey, the other in a position where he'd prefer not to be named. Both have government experience, neither is alarmist by nature, and they say this:

The huge European bank Fortis is apparently about to fail. The ripple effect on the American banking system could be disastrous, with bank runs, liquidity crises, and stock sell offs possible Monday. Wachovia may well fail next week. As Larry put it, this really will be 1933 soon if we don't move rapidly to stabilize the banking system.

Well, "fail" is a tricky word.  From these reports (AFP, Reuters) Fortis appears to be solvent but is having a liquidity crisis and may not be able to survive a crisis of depositor confidence.  However, central banks are reassuring depositors and Fortis will probably be sold:

Belgian Finance Minister Reynders appealed Friday "for calm and responsibility from all market participants."

He also insisted that the group's customers should not worry about the situation, saying "as everywhere in Europe, we will not leave any client in Belgium in difficulty."

As the markets closed Friday, Fortis's market value stood at 13 billion euros -- one third of what it was at the end of 2007. Despite assurances, some banking analysts said the group was looking increasingly vulnerable to a takeover.

"A takeover by ING (of the Netherlands) or BNP Paribas (of France) is more and more possible," Dresdner Kleinwort analyst Jaap Meijer said Friday, adding that BNP Paribas had already shown interest in Fortis in 1999.

Other potential buyers include Spain's Santander, Germany's Deutsche Bank or Britain's HSBC.

Fortis' Belgian rivals Dexia and KBC refused to comment on a report by the De Tijd newspaper that they could be involved in a rescue deal for the beleaguered bank.

As to their size, this is impressive:

The stakes are high in Belgium, where Fortis is the biggest private sector employer and where over 1.5 million households, roughly half the country, bank with the group.

Talk about a financial panic if half the checking accounts in Belgium are hung up.  Won't be allowed to happen.

Comments

[matt]

they'd better not waffle on this one, those Belgians!

[PeterUK]

Gravity I presume the bird is Nancy Pelosi.

[Gmax]

The Belgians are Frenchman in attitude with even less reason to be pretentious.

[bgates]

Talk about a financial panic if half the checking accounts in Belgium are hung up.
The financial security of literally dozens of people is at stake here.

[Extraneus]

lol, matt.

[Elliott]

bgates, have you been reading the AP stylebook?

[Rick Ballard]

Fortis is just accross the Channel from Bradford & Bingley (they're the ones that are sort of like HBOS, oops, I mean Lloyds TSB) but half the world away from the safety of Hong Kong.

It's a darn good thing that people can turn to old established names like Lehman Barclay's and Bear Stearns J. P. Morgan for advice concerning their holdings in Washington Mutual J. P. Morgan or Merrill Lynch & Co. Bank of America.

Otherwise people might think this is a matter of global scope.

[PeterUK]

Have a heart,if Belguim goes bust Europe will have nowhere to fight its wars.

[JM Hanes]

PUK: ROTFLMAO!!!

[matt]

last I read, the Flemings and Walloons had virtually brought the country to a halt because of their stupid nationalisms. Anything change lately? This could affect government intervention.

[clarice]

PUK, you are unbelievably funny.

[Charlie (Colorado)]

Have a heart,if Belguim goes bust Europe will have nowhere to fight its wars.

What did they do with France?

[PeterUK]

"What did they do with France?"

Oh,France always outsourced.

[narciso]

There appears to be some odd feedback loops than run from and to the States. European banks have not been averse to melting down on their own; take Social Generale, last year and Barings, almost a decade ago. One could speculate that their is some subprime
exposure; as with Northern Rock earlier this year; but it could be any number of facts on the ground that are responsible. This round robin of poison pills (ACORN and some new tax) and delays aren't helping things any. Gramm/Riley is now being touted
as the scapegoat; but more likely it had little to do with it; the CRA, specially the Clinton revisions probably had more to do with it.

On a wider point; it seems to be that one of the reasons why conservatism seems a hard fit; is that it is inherently more
complex than liberalism. Unlike them, we don't believe that war, 'just hurts all living things'; but it is a tool to be used
judiciously. Likewise, we think guns are not in themselves a pandemic vector, like the CDC sees it; but a tool to be used primarily for personal self defense; but ultimately against unwarranted state intrusion. We see that tax increases, in a very counterintuitive way; actually lose you revenue, or at the least don't gain you much. As the Roman saw it, although they ultimately overused it; the best way to wage peace is to prepare for war. That appeasement, is how Churchill put it; ' feeding the crocodile first, in hopes he eats you last' We saw how half hearted moves
against AQ in the 90s, led to 9/11; how what seemed to be sensible retreats from Beirut and Mogadishu, were waving the red banner at the wolf. Reagan's moving missiles
into Europe, instead of provoking 'The Day
After' ultimately called the Soviets bluff, whereas as Kennedy's failure to follow through on the Bay of Pigs, gave us a standoff in Berlin, and a game of nuclear
chicken in the Caribbean. The surge, which built on the efforts of the Anbar Awakening
actually helped weaken the various
centripetal forces, trying to seek advantage in Iraq. Judicious oil exploration off our own coasts; will weaken the dirty kleptocrats in Lagos, the tin soldier of Caracas, and the Saudi & Iranian callers of the ummah. It doesn't lend itself
often to a soundbite. but it is the truth.
Anything else is self delusion.

[RichatUF]

Pulled this from Lowry over at National Review-

Just talked to a friend who is plugged-in to all this who wants a deal and has tended to think all along that there will be a deal. Now he’s not so sure. He thinks the wheels are coming off. House Republicans want their insurance as a mandatory thing rather than an option, while the House Democratic caucus is imploding and pulling the deal far to the left. It’s getting ugly.

Man I should have put my beer money on the no deal contract at Intrade. Fat lot of good it would have done me though. Those guys would rather just let this thing burn down.

[clarice]

Eric Cantor v Nancy Pelosi..I know who I think is smarter.

[Rick Ballard]

Rich,

The CDS are burning up money as fast as it can be printed. The MBS side is really pretty simple but the CDS contains some of the greatest robberies ever committed. As the scope of the fraud becomes clear I believe the Cantor piece will come to be seen as the most important. I can't quite figure out the value of writing a CDS on a MBS issue insured by FMBIC (Federal Mortgage Bond Insurance Corporation), can you?

[Charlie (Colorado)]

Rick, the cost of the CDS should at that point go to zero: that makes the credit quality of the MBS agency have the same credit quality as the baseline T bill.

[Rick Ballard]

Charlie,

I bet if the Feds asked the folks at AIG to spin up a FMBIC unit and gave them a few trillion of FMs MBS portfolio to practice on, it would take about a week to get the first policies spun up. Maybe a little less.

[RichatUF]

Rick-

I can't quite figure out the value of writing a CDS on a MBS issue insured by FMBIC (Federal Mortgage Bond Insurance Corporation), can you?

Pretty good, very good actually. That would take care of the MBS side, but the bear raids and unsecured bonds would still be a problem. (Also isn't the PMI or has that gone by the wayside with the advent of sub-prime lending) I wonder if Paulson and Bush might have an ace up their sleeve yet. I've been so disappointed (and wrong) that hope seems a fool's errand.

[Charlie (Colorado)]

The CDS are burning up money as fast as it can be printed.

Really just burning cash, although it looks like money right now. You get the MBS if you were on the selling side of the swap; you just can't liquidate it easily, or anywhere near its full value.

[Rick Ballard]

PMI still exists and is used rather heavily. That's why the actual loss ratio is so low. PMI would lower the the FMBIC premium.

The CDS market could go back to handling non-mortgage corporate bonds. I mean, what rises from the cinders after the current CDS market finishes burning.

[Barney Frank]

Help please.

If the feds buy the bad debt amongst the MBSs aren't the CDSs essentially moot.
Those CDSs on good debt would have reasonable premiums and little chance of coming due as the sound MBSs mature.
Isn't the risk to the system from CDSs that the bad debt will cause insovency for all CDSs? If the bad debt is gone isn't that risk gone?

[Charlie (Colorado)]

We may be talking at cross-purposes here. I mean that the amount the bondholder pays to the CDS seller should approach zero: the price is set by comparing the risks of the bond versus a baseline bond like a T-bill. If the risk of the insured bond is the same as "full faith and credit", then the difference is zero.

So whether AIG or whomever would want to be involved I think would entirely be a function of what they could charge as administrative fees.

[Gmax]

Charlie

Assuming the T-bill remains at zero, yeah. But if you cant collect any taxes from street corner apple sellers, is that still a good assumption? We pay off worthless paper with worthless paper?

[Charlie (Colorado)]

Thew T bill rate is defined as zero, Gmax. The assumption is that the T bill rate, or something like it, is the fair rate of return on an investment with no risk. The CDS "spread" has been going up mightily, indicating that CDSes are getting much more risky.

[Rick Ballard]

"If the feds buy the bad debt amongst the MBSs aren't the CDSs essentially moot."

Why would they be moot? Who covers the difference between par and market due to the 'adverse event' that caused the Feds to buy the bond? That's what the CDS are about, if I'm not mistaken. The Feds aren't on the hook for the discount from par but CDS writers are.

[bgates]

Eric Cantor v Nancy Pelosi..I know who I think is smarter.
Eric Cartman v Nancy Pelosi, same result.

[Charlie (Colorado)]

If the feds buy the bad debt amongst the MBSs aren't the CDSs essentially moot.

Sorry, I shuld have picked that up before.

They're not moot; they can still be exercised. But

(1) if they are exercised, the writer of the CDS has a liquid asset that they can sell, or borrow against, or go to the Discount window with; that means the CDS writers can get more cash

(2) if they aren't exercised, the holder of the MBS has a security on their books that may not yield as high as they did, but they have a real value, and can be held to maturity. Now, depending on the situation, a firm holding an MBS might rationally decide to hold it to maturity, realizing the face interest rate.

[Charlie (Colorado)]

Oh fuck.

Huckabee is talking about this now, and has no more of a clue what the issues are than I have a Divinity degree.

[Barney Frank]

Well I guess my question was, are there sufficient reserves behind the CDSs, without Cantor, to cover the worst of what the feds would buy?
If there is, barring a bad recession, wouldn't the remaining CDSs, covering the soundest debt be unlikely to be exercised, and the system be able to right itself?

As an example, let's say a plague was putting a serious strain on the life insurance industry. It has sufficient capital to cover the presently sick but can't cover every policy if the plague spreads. So the government intervenes and in order to prevent spread of the disease takes all the sick out and shoots them (obviously a Republican administration). The insurance companies are low on cash after covering the deaths but at least can resume business, as only the healthy remain.

[Rick Ballard]

"are there sufficient reserves behind the CDSs"

No. There aren't. Never have been. It's a pyramid scheme built on a card house that works wonderfully for minor events (a single or a couple of BKs). No one has a clue as to how it will work now - except for the fact that premiums have gone up just a tad.

IMO - the CDS market is the real "dirty secret" in the deal. Buffett wasn't kidding when he called the instruments 'weapons of mass destruction'.

[sbw]

Comments? Throw the bums out!

[Barney Frank]

No. There aren't. Never have been.

OK, then. How is Cantor's proposal going to work? I heard him on Kudlow and still couldn't see how it made any sense.
If there are guaranteed losses coming when the feds buy up trash who is going to put up their money to cover it? Who could pay the premioums to cover a guaranteed hit of that size? Only the gov, but its supposed to be private dough according to Cantor.

Went to a car show today and it was blistering hot. My brain must have gotten fried, but I just don't get it.

[Pofarmer]

The CDS's are the problem. In fact, the CDS's are multiplying the problem. Now, in addition to having your own MBS porfolios maybe not performing as well as you'd anticipated, you just got called to take a whole nother one???? For Cash???? They gotta go. If the CDS's just went poof! What would happen if the companies had to deal with just the MBS's themselves?

[Rick Ballard]

Barney,

The credit event has occurred wrt FMs paper. How much CDS dough is involved? Pick a number.

The exact amount of CDS on Fannie Mae and Freddie Mac are not known, reflecting the private nature of the market, but they are part of widely traded indices and the amounts are likely to be significant. Analysts at Lehman Brothers said: “There is likely to be a considerable amount of notional protection outstanding.”

Translation: Sure, maybe there were a few arsonists that bought FM CDC but really, who cares? Why isn't asonists money as good as anybody else in an unregulated market?

As the extent of the over write on MBS becomes clear, so will Cantor's idea. Essentially, the CDS market was writing million dollar policies on $10K shacks to arsonists - note the five year duration on the CDS.

[Topsecretk9]

[url=http://www.reuters.com/article/bondsNews/idUSWBT00986620080927]Dems seek Wall Street tax in bailout[/url]

[Topsecretk9]

crud

Dems seek Wall Street tax in bailout

[Bill in AZ]

I haven't seen this mentioned anywhere yet...
Article at NRO by David Freddoso, talking with AZ Rep John Shadegg. Kind of a different take from the doom and gloom we're getting from all sides.

Working away from a “stunningly irresponsible” bailout.

I have talked to a lot of smart people who know Wall Street, know banking, know the economy quite well, and you hear different opinions. Some will tell you that it is absolutely essential. Quite frankly, I’m skeptical about that.

But I think that in some ways the question doesn’t matter any more. Because Secretary Paulson chose to raise the matter in the way he did — that is, to go public in a very high-profile way, not just with his concern, but with a kind of Chicken-Little, the-sky-is-falling kind of demand — it became a self-fulfilling prophecy.

...

Henry Paulson was attempting to use fear — and it was... fear-mongering — in an effort to stampede the Congress. And the only people standing in his way at the time were House Republicans — from passing his bad idea which was $700 billion to spend without restrictions, and in a stunningly irresponsible way...

[Charlie (Colorado)]

Barney, think of the CDS's like car insurance. If you total a car, the car insurance gives you the value of the car --- but they take the car. So now imagine a kind of car insurance that, if say you ding a door, they give you the value of the car, and take the car. They could then fix the door and sell the car again.

With CDS's, you may someone else for a contract that says if the value of the underlying bond is impaired, the person who sold you the CDS promises to pay you the maturity price of the bond, but they get the bond in exchange.

In general, like with "fractional reserve banking", the people who sell you the CDS don't have the cash on hand to cover the full amount of all the bonds they insure. This is indeed like the case of a life insurance company faced with a sudden pandemic, or as I wrote down many threads now, like someone who wrote life insurance only on people who worked in the World Trade Center. It takes an extremely unlikely event, but there is always the tiny chance that you'll be asked to pay out for a lot of the things at once.

What is causing the liquidity crisis now is that people are exercising the CDS's but the CDS writers can't sell the bonds they receive; this means the cash is draining out and is irreplaceable, and it means that companies that have lots of CDS's --- are "highly leveraged" --- have lots and lots of MBS's they can't sell, and because of mark to market, have to value way down. So their balance sheets look like hell, even though if they wait long enough, the bonds will mature and pay off the face value or close to it.

What Paulson buying the bonds does is this:

• If you own an MBS because you wrote a CDS that was exercised, you can sell the damn thing and get cash for it. It goes from being near zero on your books to having a value, and that value is cash they can use elsewhere, like paying for other CDSs that are exercised. This might or night not save companies that wrote CDS's, depending on how much they have of other assets and such, but if not, at least they can be unwound in an orderly fashion, through bankruptcy./li>
• If you own an MBS against which you bought a CDS, you might be willing to not exercise it, say for a refund of your premiums; this would be especially true since if you exercised it, you might find that you have to give them the bond and then take your place in the queue of creditors. That might get you less than the value of the market value of the bond.

[Gmax]

Charlie

You missed my attempt, feeble as it was, at levity. The full faith and credit may not be worth much if we throw 25% out of work and then tax the shit out of the top 5% in attempt to honor a pledge for "fairness". Thus the assumption of zero, may go away as the paper starts looking like Argentinia paper of the 70s.

[Topsecretk9]

Bill AZ

I recall a report that a month or so ago, Paulson refused to brief Mccain camp, but went to great lengths to brief the Obama campaign...or something like that,

I'll see if I can find it, but your passage posted sounds exactly like Chuck Schumer's irresponsible, unprecedented action of releasing his letter which caused a run on IndyMac.

[Charlie (Colorado)]

Bill, I read that interview. I could wish there weren't quite so many ellipses. I could also wish that someone among these people expressing an opinion, or writing about them, had a finance background. Shadegg is another lawyer, and, well, like this:

I have talked to a lot of smart people who know Wall Street, know banking, know the economy quite well, and you hear different opinions. Some will tell you that it is absolutely essential. Quite frankly, I’m skeptical about that.

So what he's saying is that after having all the top people explain to him what the problem was, he doesn't believe it. Why? Because...

And then they called their local bankers, as I called my local bankers, and my local bankers said, “I think things are just fine.” I talked to one banker who said, “Gosh, we’ve got money, and we’re liquid, and we’re making a profit. And we’re in the market selling loans, and we’ve got competitors trying to sell loans against us.”

So, at that point, there’s a disconnect. Secretary Paulson is claiming that this is a catastrophe of generational proportions that could go worldwide. And none of what we were hearing back home matches that. And I’m not speaking just for myself, but also for many of my colleagues who were making similar calls. They weren’t being called by their bankers, or by any of the businesses back home saying, “I can’t borrow any money”

Which proves that he really doesn't understand the problem. See, if people back home were unable to get little commercial loans --- if people were having their Visa balances called or their cards canceled --- that would mean the collapse we are worried about had already happened.

He's saying "I don't think I'm really sick, I'm not dead yet."

[JM Hanes]

Don't know if anybody has posted a link to John Boehner's big piece on ACORN at his Republican Leader's blog. I was getting to like Boehner quite a bit before the current contretemps, and I'm glad to see he clearly gets the ACORN business.

[Charlie (Colorado)]

You missed my attempt, feeble as it was, at levity.

Ah. Duh.

[PaulL]

Who first came up with mark to market, and why?

[Sara (Pal2Pal)]

They've got a deal.

[Charlie (Colorado)]

Paul, it's been around for ever. There are all sorts of different ways you can value assets in accounting, especially ones that change value easily, like commodities. (What is the crude oil inventory in tankers worth today? What it cost when it was pumped? Or the price when it arrives?)

What is different is that the Sarbanes-Oxley law in 2002 forces companies to mark to market based on the most recent trade. This was supposed to prevent some of the things that caused the Enron and WorldCom problems.

[Pofarmer]

Which proves that he really doesn't understand the problem. See, if people back home were unable to get little commercial loans --- if people were having their Visa balances called or their cards canceled --- that would mean the collapse we are worried about had already happened.

He's saying "I don't think I'm really sick, I'm not dead yet."

What he's saying is "We seem to have a two tiered situation."

There used to be a blog called Federalist-X. It may still be there but it's long dead. The folks there were wealthy, liberal, and big time "vultures" they looked for dying and dead companies to short and chop up and sell. One dude was going to Hong Kong to get into the derivatives market and was supposedly making a mint. Anyways, these folks were talking about an "upperclass reccession" that might not really effect those down the line too much. I beleive this is what they saw coming.

[Topsecretk9]

Thanks Sara -- Blunt's a wise and seasoned politician...he seems to say, if the Dems don't sneaks as they always do, we might agree...might be no dice. I'm expecting no dice, because the Dems WILL corrupt it

Republican Whip Roy Blunt (R-Mo.), the chief Republican negotiator, said he was “looking forward to what we’re going to see on paper” but said he was optimistic that it would be something House Republicans could support.

IOW's he saying been there, done that...making no assurances.

[PaulL]

Thanks, Charlie.

But didn't I read somewhere, maybe here, that mark to market only happened in the last year?

[Charlie (Colorado)]

What he's saying is "We seem to have a two tiered situation."

Which means he doesn't understand the problem.

Pofarmer, this is just not a two tiered credit market. It's not, No matter how much you'd like to think it's the way you wish it were, it's just not. If Wal-Mart's paychecks can't be written because they've got no short-term credit and their cash is unavailable because JPMC or whoever is cash-poor, then my little regional bank down the road is going to be in trouble, becuase they won't have cash deposits coming in. And they won't be able to do anything about it because interbank credit isn't available; they probably won't even be able to get their short term money back from whoever they bank with, because once the market is that tight, the money markets are going to start delivering the underlying securities, not cash.

The thing is, right now there's some slack; it's about gone.

It's not like I've got some deep love for this, or that I think it was a good thing. It's that I don't want to see my mother reduced to rag picking in order to eat.

[Charlie (Colorado)]

I beleive this is what they saw coming.

If the market stays liquid, it might be relatively true. (Don't forget that those rich bastards buy their steaks and Champagne from regular butchers and liquor stores.)

If the market stays illiquid and credit freezes up, the only people who won't notice the change already have their clothes and stuff in shopping carts.

[Charlie (Colorado)]

Wikipedia has a decent article on mark to market.

But didn't I read somewhere, maybe here, that mark to market only happened in the last year?

Well, if so, someone was wrong. Even if it was me.

It my have been that mark-to-market didn't force any significant markdowns or didn't force any credit-rating changes until this year.

[Pofarmer]

Charlie, I see your point, I really do, but, I don't think the problem is that deep.

Here's the deal. Paulson wanted to buy 700 billion $ worth of mortgages in one fell swoop. Why? Well, we've been discussing those pesky CDS insturments. IF the Fed holds the underlying interest, then would those CDS's become pretty much null and void???? This was/is as play to protect these huge firms holding CDS paper, under the guise of a Mortgage buyout. If the Bill they come up with does anything less than what Paulson wanted to do, it won't work.

[RichatUF]

Charlie-

It my have been that mark-to-market didn't force any significant markdowns or didn't force any credit-rating changes until this year.

I thought there was a loophole that was closed when Bear Stearns imploded and Citi and the bond insurers went through their crisis. I thought that the problems were being stuffed into offshore holding companies and the Fed changed the rules so that if the banks wanted to come to the discount window they had to start pulling this stuff back onto their balance sheets and admit the problems.

[RichatUF]

Pofarmer-

The premiums paid on the credit default swaps contracts are going somewhere too. It obviously ain't going back into equities or the bond market, those guys were betting (engineering?) on defaults-doesn't leave that many other places.

[Gmax]

Mark to market, unless early adopted, was not mandatory until fiscal years starting after November 2007. See FAS 157 for confirmation.

[matt]

Po;

The $700B was supposed to be in tranches, or slices. The first tranche would probably be $300B, and then if necessary, another $200-300B, and then the remainder, but only if necessary. That's the way it was being sold.

The odds are that some outfits will suck up all they can, but that's where the regulators have to come in. If this is going to work, by the way, there will have to be a couple of laws on the books like, say "death for screwing the American People".

An awful lot of the bad actors are now enjoying the fruits of their looting, so I'm not sure how they may be able to call them to account. Maybe we put Obama's new tax on corporate managers and Wall Street hooligans specifically. Something to deter these flim flams.

[Charlie (Colorado)]

F the Fed holds the underlying interest, then would those CDS's become pretty much null and void????

Didn't we go through this once?

Yeah, my 11:03 and my my 12:41.

Just in one sentence, no: you could still swap your bond for cash via a CDS, and then with a liquid market the new owner could sell it to recoup part of the loss; or you might prefer not to exercise, perhaps get a refund of your fees ("premiums" I've called them, which is strictly wrong since they went to great lengths not to make these things insurance) and sell the bond on the now-liquid market.

[Charlie (Colorado)]

Gmax: Mark to market, unless early adopted, was not mandatory until fiscal years starting after November 2007. See FAS 157 for confirmation.

Well, ... someone was wrong. Even if it was me.

QED.

[davod]

"Gmax: Mark to market, unless early adopted, was not mandatory until fiscal years starting after November 2007. See FAS 157 for confirmation.

Well, ... someone was wrong. Even if it was me.

QED"

Does this mean we are talking about about an administative problem?

[PeterUK]

"One could speculate that their is some subprime
exposure; as with Northern Rock earlier this year; "

Northern Rock might have the tremors of sub-prime shake its edifice,but the basic problem was bad business practices.
Since the deposits by lenders did not cover the ambitions of management to grow the business rapidly, money was borrowed to lend for mortgages.Mortgages are long term,borrowing was short term.With the fall in the domestic housing market and the onset of the credit crunch,a run on the bank finished them.

[M. Simon]

My ACORN article. It explains why the Obama team and the Clinton people do not get along:

ACORN Is Not About Nuts

[PeterUK]

Could anyone explain the ACORN SCANDAL to me? Is ACORN the Democrat party's Brown Shirts?

[M. Simon]

Webster G. Tarpley is the author of Obama - The Postmodern Coup: The Making of Manchurian Candidate and Barack H. Obama: The Unauthorized Biography.

[Pagar]

Good Morning to All!

"If Nancy Pelosi wants to pass the Paulson plan, she has the votes -- that's what being a majority means. But she does not want to pass the bill without Republican cover, and there is no cover available."

LUN

I've slept poorly on it, and I still can't understand why we are being told we must give cover to people who are not working in the best interest of this country.

[M. Simon]

PUK,

Guess I got done with that in a timely fashion.

[M. Simon]

Look in the comments for Webster G. Tarpley to find out more about Obama's Brown Shirts

[M. Simon]

BTW Tarpley is not correct about a few things but he does get the Obama Brown Shirts right.

[Patton]

The Republicans would be stupid to go along with this mess.

Boehner should come out and say; the Democrats refused to work with us in 2002 and 2005 when we warned them their irresponsible support for risky loans was going to destroy the financial market - now they got what they have been asking for.

The Democrats didn't say they needed our votes when they forced Fannie and Freddie to buy up all these bad loans.

Now to top it off, they reached across the aisle for us to bail them out of the mess they caused by calling us unpatriotic.

The simple fact here is the Democrat Party doesn't need a single Republican to vote for their bailout of their wallstreet cronies. And Senator Obama can call today for the Democrats to vote for the bill and pass it if he's not too bust with Oprah and Barbara Streisand.

The Democrats decided hearings on steriods in baseball were more imporant then the Nations fiscal health and Obama took his eye off the ball because he was too busy raking in campaign donations from these same people he now wants to shower with Mainstreet tax dollars.

If Obama really believes in this bailout and really thinks it is that serious, he should be here getting his party to do their jobs instead of always critizing others for representing the peoples interests.

[Simple Simon]

It is a poker game with China. China cut off credit thinking the government was going to bail out the bad debt. The Republican Congress clearly understands that no paycheck on September 30 for American workers because of liquidity problems means chaos here but also in China with closing of factories.
It would be the Grinch stealing Christmas. Last week workers in India killed a factory manager . Think what happens in China.
China gives in and we go drill baby drill to erase trade deficit and boost housing prices and Democrats get exposed on at least two of their main issues, their alternative energy global warming meme and the Fannie Mae Freddie Mac trough and doesn't Dodd;s amendent not expose the democrats.

It is funny how politics has diametrically changed where the Republicans are the ones looking out for the little guy while the Dems are vested with special interests. Mccain should finally be able to say that Obama is Bush III rather than the opposite. McCain went back to Washignton and can counter the Schumer dem offensive that will be the Sunday talk show agenda. I think he did not want to let cat out of bag Friday at debates since the devil is in the details.

[Patton]

Long but well worth the time to explain what happened to your friends.

http://www.youtube.com/watch?v=H5tZc8oH--o&eurl=http://mypetjawa.mu.nu/

Tell them there is a hot pic of Palin at the end...I mean there could be...

[Thomas Collins]

Sorry to go somewhat off topic (still on the financial mess, but a slight diversion from the recent posts), but I have always wondered whether anyone has any clue about who is guarenteeing what debt in the credit default swap market. Let's say there is a million dollar bond out there. The way I understand it, High Flying Investment Bank X (HFIBX) could enter into an unlimited amount of credit default swaps in which, on default of that million dollar debt, would require it to pay, if the debt defaulted, the difference between the par value and the fair market value of the debt on a default. How can HFIBX do this? Because its many counterparties don't have to own that million dollar debt. So, HFIBX gets great profits for a while by getting fixed fees from its counterparties. Then, that one million dollar debt goes into default. Bye-bye HFIBX, which doesn't have enough assets to make good on the payments it owes all its counterparties. Adding to the mess, noone can really figure out how many of these contracts HFIB has undertaken.
So, there is not only uncertainty about the financial status of HFIBX, there is no clue. And even with the current rescue plan, the market is still going to be significantly clueless about future HFIBXes around the world that may be melting down. Am I overstating this mess?

[ptg]

Won't the threatened crash be followed by a recovery? Good investments reflect real assets and honest equities, just as true creditworthiness finds capital.

What should be the instrument of the needed adjustments, the inept and untrustworthy Congress, or the invisible hand of Adam Smith? Whom do you trust? The congressclowns you can see, or the less obvious economic realities of the market?

[Bill in AZ]

I am sure this is redundant because I am sure most of ya'll, like me, read JOM the very First thing in the morning (er... and throughout the day, all day), and then read American Thinker next - but this article, Barack Obama and the Strategy of Manufactured Crisis, is one of the best summaries of the machinations of the radical left (now center) I have seen. It's on topic, as this "crisis" is central to radical left-think - and the article names names, discusses ACORN, etc. Very good read.

[Amused bystander]

Where do do you get the idea that China has cut off credit. That rumor last week has been debunked by the Chinese government. Is there something new on this?

[Rick Ballard]

"Am I overstating this mess?"

Not at all, Thomas. Take a simple 15 tranche, $1B MBS deal, sell $1B of CDS on every tranche (belt & suspenders, don'tchaknow), now there's a notional total of $15B worth (hahahahaha) of CDS. Trigger event occurs, $1B MBS deal now worth $650M, $350M due to 15 CDS holders. If it were insurance, then the loss would be $350M but because of the marvel of modern finance that loss is now $5,250B.

This is why investment in hedge funds is supposed to be limited to the sophisticated and well heeled investor. Only they are sufficiently stupid to believe that there is some magic (aside from outright fraud) capable of producing 20% returns year after year.

[JLj]

China wrote off a bunch of 'loans' like Biden.

[Sue]

It is driving me nuts that Frank and Dodd are front and center in this debacle. They have no fear of being outed as a large part of the problem. Thanks MSM.

[Pofarmer]

If this is going to work, by the way, there will have to be a couple of laws on the books like, say "death for screwing the American People".

An awful lot of the bad actors are now enjoying the fruits of their looting, so I'm not sure how they may be able to call them to account.

I'm all for the senior management at any firm taking bailout funds to be GONE.

F the Fed holds the underlying interest, then would those CDS's become pretty much null and void????

Didn't we go through this once?

Yeah, my 11:03 and my my 12:41.

Just in one sentence, no: you could still swap your bond for cash via a CDS, and then with a liquid market the new owner could sell it to recoup part of the loss;

Talking about the CDS paper against the MBS the govt would buy and hold.

[kim]

Bill in AZ, you should read Richard Lindzen's expose of the 'manufactured crisis' in climate:

arxiv.org/ftp/arxiv/papers/0809/0809.3762.pdf

You know I don't give urls very often, so this must be serious. Utterly damning about the manipulation of the public by fear.
======================================

[Extraneus]

Thanks for the link, Bill. You're right, that was a good read.

[sbw]

Rick: $1B MBS deal, sell $1B of CDS on every tranche (belt & suspenders, don'tchaknow), now there's a notional total of $15B worth (hahahahaha) of CDS. Trigger event occurs, $1B MBS deal now worth $650M, $350M due to 15 CDS holders.

But, but, but. Why wouldn't the bank that bought the risky MBS be guilty of fraud for using the whole $1B MBS as collateral for each tranche? Since it would be unable to deliver the security 15 times?

[kim]

Big Berthas Bust Banks.
==============

[Bill in AZ]

That's a good read kim - thanks. I am convinced - based on "astrology" and the inconvenient truth that is playing out with the sun right now - that within only a couple of short years AGW will be a busted myth and the Goracle will be a laughingstock.

Not that that will affect future lib-think where history began this morning. Al Gore? who?

[DebinNC]

"It is driving me nuts that Frank and Dodd are front and center in this debacle. They have no fear of being outed as a large part of the problem. Thanks MSM."

I hear ya. They even brought in Rangel at the very end, just long enough to sign on and get his picture taken. Ugh!

[Barney Frank]

Take a simple 15 tranche, $1B MBS deal, sell $1B of CDS on every tranche (belt & suspenders, don'tchaknow), now there's a notional total of $15B worth (hahahahaha) of CDS.

Rick,
If that in fact is what has occurred then that is the missing piece that has prevented me from understanding.
Presumably that is where the $65 trillion CDS figure is coming from.

[Pagar]

"Tell them there is a hot pic of Palin at the end.."

Why pick on Gov Palin. A much better vision, IMO would be Rekzo singing like a bird and the resulting fallout among Chicago politicians including Obama.

"Looks like convicted political fixer, and Obama’s personal real estate fairy, Antoin “Tony” Rezko is well-tuned and singing with the choir.

Recap: A few days ago news arrived that the Feds might indict Illinois Gov. Rod Blagojevich (left),1 followed by word from the Chicago Sun-Times’ Michael Sneed2 that Rezko (right) was reportedly singing like a canary to the Feds:"

LUN

If anyone has any money invested in Obama, today would probably be a good day to ask for your money back.

"The problem that Rezko faced was the hospital board had fifteen members and that is a lot of people to bribe and a lot of loose ends. But then Rezko had a friend who chaired the Illinois Senate’s Health and Human Services Committee.

Enter State Senator Barack Obama, who is credited as the moving force behind a piece of bipartisan legislation (Il. Senate Bill 1332) that reduced the hospital board to nine people, to be appointed by Governor Rod Blagojevich (know as Governor ‘Blago’) with advice and consent of the Illinois Senate.

Blago immediately appointed three physicians, Rezko cronies with similar Middle Eastern backgrounds, all of whom were coincidentally big contributors to Barack Obama. As they say downtown, Barack knows how to walk the Chicago Way. Rezko became the guy you saw if you wanted to build a health care facility. He controlled the board’s votes.

The three appointed physicians have been convicted in the Federal probe and are rumored to be about ready to sing."

[DSW]

The congressmen have been there for thirty years, why would they worry? We need term limits and now they're dealing with a problem they helped create. Congress doesn't want term limits because the money is good and they get great deals with the banks, etc. No one wants term limits because of the money, so where's the money?

[clarice]

I think it's time to begin a recall petition re Chris Dodd. Most of the other Congress critters involved in this fiasco are Congressmen from safe districts whom TNT could not dislodge, but Dodd is a Senator with 2 years left to his term and he can be.

[clarice]

Pagar, I'd be astonished if Fitzgerald will indict Blago before the election. After the election, if O should win the DoJ will do nothing to him..heck about 99% of the lawyers there are career liberals .

[Sue]

JMH turn your head, I'm going to talk polls. Gallup has Obama winning the debate by 12 percentage points. 46-34. We are doomed people. Doomed.

[sbw]

Sue, when we were children crying "Life is not fair!" my mother explained, "Life is not fair."

Then she'd say, "Deal with it!"

[Rick Ballard]

SBW,

The example is obviously oversimplified. The real question is 'why are there 15 tranches in the first place?'. I can wrap my head around the fact that the A tranches are first in line for principal and refi proceeds (when a D tranche loan is refinanced the money is first used to pay down the A tranche). The D tranche holders are interested in the high interest income and forego the return of capital. The A tranches self-liquidate much more quickly and the reduction of exposure (the safety net of taking all the early refinance money) justifies a lower return.

The only reason I can see for 15 tranches rather than 5 is to achieve sufficient complexity so that 100% opacity is achieved. Well, that and the additional fee income generated. I'm not positive that the sellers would consider themselves to be engaged in fraud. I'm not at all sure that any laws were broken.

This was just a perfectly legal and above board Three Card Monte operation that just grew and grew. Remember, the whole charade is restricted to savvy and sophisticated investors. Not the great unwashed that you would find playing blanket dice in some dingy alley - these were all Ivy League educated,top drawer people.

The type that make common thieves puke in disgust.

[MayBee]

Sue- I agree, we are doomed.

Does anybody know which New Deal program had FDR buying up homes for an eventual profit?

[bio mom]

Pay no attention to any polls. They are all crap. If you sample 11% more Dems than Repubs you get an 11% Obama edge.

[Lori]

Clarice,
How does one begin a recall petition against Chris Dodd?

[Pagar]

Clarice, It's make a wish time.
The original post implied people would respond because they wished to see a "hot picture of Palin".
I'm wishing we would see Blago and his best friend head off to jail.

Do I think it will happen? No, I agree with you. But it's my dream ending.

[bio mom]

Yes. Term limits!! In today's system there is no other way to clean up the congress. Incumbency gives almost universal seat assurance. The longer they are there the more likely they will stay. They become addicted to power and Washington.