The Fed lowered rates to minus 1%, and hinted at buying Treasuries

Markets responded positively to the potential opportunity to suckle some more at the teat of the taxpayer.

I’m on the Acella train back from DC, but we may as well open the floor for a full open thread! Whats going on, what’s interesting, what’s off topic?

~~~

What say ye?

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

76 Responses to “Fed Day Open Thread”

  1. call me ahab says:

    it’s all bad Barry. Geithner as Sec of Treasury- what a flat out tax cheat who took the money from the IMF to pay his half of the SS tax and then calmly pocketed it- a complete douche and I would like to kick his nancy ass.

  2. TheAddington says:

    I have heard little discussion regarding the influence the 401k’s have brought to bare on our markets. It seems like if the consumer should have more influence on the investment of those moneys. In my various companies we have had some pretty vanilla funds.

  3. toneybrooks says:

    The m0ve to quantitative easing was expected, I believe. The Treasury bubble expands, but the balance sheet is shrinking. Personally, I have no issue with ZIRP.

    The stimulus is another story and is flawed, but it’s good cosmetically for the U.S. and gussies up the dollar.

    The real problem facing America is the zombie money center banks and if reports about a “bad bank” solution are correct, I doubt the strategy will work. I’d prefer nationalization of the big banks.

  4. skysurfer says:

    ToneyBrooks:

    Are you saying that the stimulus is good for the dollar in just the short term (a couple of weeks) or in the long term? I don’t see how wasting almost $1trillion that we have to borrow or print is good for the dollar other than giving people a false hope for a couple of months at most.

  5. leftback says:

    Barry: It’s Acela, not Acella. It’s investor, not inwestor. Are you in the beer car?

    I had a most unenjoyable day of watching the XLF rally after I was “Liesmanized” after hours last night by the CNBC press release on the Bad Bank solution. This is a variant on being “Gasparinoed”, of course. It’s not as if I would object to being “Melissa Leed” or “Rebecca Jarvised” once in a while. (Channelling CNBC Sucks here).

    We should all remember that the terms of the Bad Asset Repository Foundation (BARF)* have yet to be made public, so that the desirability of owning common stock in the financials may yet prove to be on a par with having your life savings with Madoff, Cosmo, or some other LEGITIMATE Ponzi scheme.

    Seems to me we are developing two markets here, one for real companies that make products and another for Mickey Mouse trading in the stock of Zombie Banks that will eventually be nationalized.

    * Go ahead, use it.

  6. toneybrooks says:

    Thanks for your question. The immediate problem is deflation and preventing an “L” shaped recession, or depression. Certainly, this massive increase in the supply of money — bailouts, stimulus, more and more debt — will have inflationary consequences long term. I don’t believe there are any perfect solutions.

  7. Becky says:

    leftback, I loved your post! And I agree with you!

  8. sst3d says:

    Very liberal interpretation of the “open thread” concept. A few weeks ago I took out the entirety of my HELOC @ 2.49% and bot CDs yeilding 4.10% My risk is that I’m locked in for 12 (now 11) months. But break even is a point and a half away. The other benefit is that Chase can freeze my HELOC all they want; it’s maxed. As long as it’s profitable I’ll keep it maxed. By the way, an actual negative one percent would drop my HELOC rate to 1.49%. It’s a crazy frikkin’ world when a guy can arb his home equity…it’s my own personal carry trade.

    scott in chicago

  9. KidDynamite says:

    i just got this in my inbox:

    Jan. 28 (Bloomberg) — A draft bill circulated in Congress would ban credit-default swap trading unless investors in the derivatives owned the underlying bonds, potentially eliminating as much as 80 percent of the market.

    wow. someone really needs to educate these monkeys before they muck things up even worse than they already are.

  10. Mannwich says:

    @leftback: Join the club. I’ve gotten burned in similar fashion over the past year several times, so despite some big wins during this time, I’m still running to stand still. This is why I don’t hesitate to go skiing or doing other things that are “fun” during trading hours (which, coincidentally, is not fun these days).

  11. sst3d says:

    @Kid-
    Gee, you have a problem with an illiquid market where all the participants are positioned the same way? I’d like to think (hope?) that this draft bill has already blown up and drifted away….

  12. leftback says:

    Becky: A Quick Question: do you like riding in planes with billionaires?

    Toney: You bet we will see inflation down the road. We are seeing some interesting phenomena already in the commodity markets, for example, gold used to follow the euro slavishly, but recently we have had some days where the $ goes up and gold goes up anyway. In addition, crude is hanging tough around $40/bbl, despite evidence of an abundance of supply. Things that make you go… hmmm

    At some stage in the not-too-distant future (late 09, or 2010) we will have an exchange of bubbles, as gold goes parabolic and we get a sell-off in both stocks and Treasuries when the $ goes into free fall and interest rates are forced upward. If you think it can’t happen, take a look across the pond to the UK to see what happens when your currency loses 30-40% in short order. The people who weren’t ready for October 2008 will not be ready for this interesting discontinuity either.

  13. ben22 says:

    anyone see the note recently on a guy at the economic policy institute who wants to make any trade taxable, when I saw the calculation they did it for the Vanguard 500 Index fund, it would have caused them to pay a $34 million tax bill in 2007.

  14. km4 says:

    leftback I agree with your last paragraph

    As Angry Saver said over at a CR thread The Fed’s concept of economic growth = asset inflation via debt expansion. Our financial system has become systemically corrupt. Our political system is now hostage to the financial system. What a sham(e)!

    Unless you have a high enough net worth now or soon you and 98% of Americans are FUCKED !

  15. globaleyes says:

    AS LONG AS we replace zombie capital with NEW zombie capital, we will remain in the most leveraged society in mankind’s history. But economic velocity has come to a halt. Lookout!

  16. ben22 says:

    maybe I need to re-explain he was suggesting a .25% fee/tax for every trade made, I read this in Barron’s I think.

  17. ben22 says:

    does anyone know anything about floating rate funds?

  18. leftback says:

    @ Mannwich. I don’t mind trading the bank stocks, but: “don’t make me do it without the FAZ on…”

    @ km4: I think that as long as we stay employed and out of debt we are less fucked than those who are indebted, no matter what one’s net worth might be. But I agree that owning some hard assets is likely to be extremely useful going forward. I am talking commodities here, not condo loft conversions in Tribeca.

    Mish has been in absolutely splendid form for a week or so, no doubt pumped up by the reception to his recent Peter Schiff evisceration. Here he is, weighing in on the Bad Bank scenario:

    “Everyone knows a tsunami of bank failures is coming. Flooding the market with words and throwing the kitchen sink at the problem will not stop the impending wave of failures. In cases of tools vs. tsunamis, the tsunami will win every time.”

    I don’t always agree with Mish, he is a hard core deflationist and I am not. But on this occasion I think he is correct. Anyone looking at the Prime MBS market and credit card delinquencies knows there are waves and waves of write-offs coming that will make sub-prime look like small potatoes. “Things that can’t happen, are about to…”

  19. Mannwich says:

    @leftback: I hear you. I actually picked up a very small amount of WFC on Monday. Still holding it but will probably dump it tomorrow. Would have dumped it today if I had gotten back from skiing before the market closed. I feel like a need to take a shower after trading the bank stocks.

  20. KidA says:

    Forget the stimulus bill…this is the most entertaining news of the day…either the best bit ever, or just a low-down shame:

    http://www.nytimes.com/2009/01/28/nyregion/28daba.html?em

  21. Mannwich says:

    @KidA: Thanks for making me want to hurl my recently-eaten dinner all over my computer keyboard. Do these gals (and their dickhead boyfriends/husbands who helped cause this mess) really want sympathy from the rest of the country? Good grief. I’ve heard it all now.

  22. Marcus Aurelius says:

    leftback Says:
    January 28th, 2009 at 7:52 pm
    Barry: It’s Acela, not Acella. It’s investor, not inwestor. Are you in the beer car?

    _____

    Reminds me of an old joke:

    An already drunk woman is sitting at the bar, she says, “beertender, give me a martoonie”

    The bartender gives her a martini.

    15 minutes later, she says, “beertender, give me another martoonie”

    The bartender gives her another martini.

    15 minutes later, she repeats her request, adding, “damn, I have heartburn.”

    The bartender, tired of serving the woman says, “lady, you’re lit, and I’m cutting you off.”

    The lady gets indignant, and claims she’s not drunk.

    Bartender says, “look, lady – first of all, I’m a bartender, not a beertender. Secondly, it’s a martini, not a martoonie. And lastly, you don’t have heartburn, your boob’s in the ashtray.”

    Badda bing, badda boom.

  23. leftback says:

    @ Mannwich: No reason to apologize for making money, sell the open tomorrow and you can walk away smiling.

    I can tell you that FAZ requires a larger than normal degree of intestinal fortitude, but I think in the cold light of day tomorrow morning, that the prospect of share dilution, haircuts for preferreds, cramdowns on mortgages, wave after wave of writedowns and an avalanche of bank failures might give some new XLF investors pause.

    A nice perspective on “bad banks” v “good banks” from Josh Rosner and David Kotok:
    http://us1.institutionalriskanalytics.com/pub/IRAMain.asp

    At some point we really will have to choose between the survival of Goldman Sachs and the United States.
    Barack Obama seems like a smart bloke, so I am pretty sure which one he will pick.

  24. AmenRa says:

    I like the bad bank idea…as long as the current stock and bond holders become the new holders of the bad bank. Let the taxpayers get the good bank.

  25. Marcus Aurelius says:

    Let the banks fail.

  26. leftback says:

    One of the reasons I like TBP is that Barry and many posters are good at looking beyond the immediate.
    Everyone here has already guessed at the end-game… except possibly some of the young’uns.

    A wonderful interview with Niall Ferguson lays out the issues for 2009 and 2010 :
    http://www.vanityfair.com/online/politics/2009/01/niall-ferguson-america-needs-to-cancel-its-debt.html

    After reading this you will like your TBT and GLD even more. He is superbly readable.

    @ Kid A: That article on banker girlfriends was hilarious.
    One or two people will have to be sedated before reading it.

  27. investorinpa says:

    Hey, how come Mish doesn’t do a post calling out Ken Heebner, who today was hobnobbing with Jim Cramer? How about TBP dedicates a whole blog posting on people who lost their shirts in 2009 or were mightily wrong? We can also use a post about how this crisis is affecting every day people- besides the obvious with foreclosures and what not. How is it truly affecting Average Joe?

  28. Stuart says:

    Somehow missed amongst all the exuberance in the media over the proposed spending bill and Mr. Good bank supposedly to buy upwards of perhaps more of 1 Trillion in failed assets, exactly where does this money come from?
    Lets see, baseline deficit of $1.2 Trillion + $900B (Obama plan) + $1 Trillion (good bank funding requirements) = …… ?? Even if Geithner ceased at pissing off the Chinese et al, they don’t have this much to belly up to the Treasury auction bar. It seems apparent that Ben and Turbo Tim either continue to crowd out every other market as they seek to scrape up sufficient funds, or Ben will have little choice but to belly up to the Treasury auctions himself, hence their announcement today – planting the seed. They are going to try and control the fall out, and there will be, across the markets. Expect them to be busy in them. Commodity markets and currency markets will be one place to watch for this.

  29. Mark A. Sadowski says:

    @AmenRa,
    Something we can agree on. Hear Hear!

    @Marcus Aurelius,
    So that’s what’s causing my heartburn! And unlike the lady, I’ve got chest hair. Ouch!

  30. TheReformedBroker says:

    investorinpa, i like where your head is at

    how about someone yanks the curtain away from the “Wizards of Value”

    buffett’s received his share of ribbing lately but is anyone else amazed that Bill Miller still has a job?

    does Marty Whitman get a free pass just cause of his stature (third ave value)? his last letter claimed that “the market is wrong, i am right”…omg

    has anyone seen the funds that Richard Pzena is sub-advising (j hancock classic value/ int’l classic value), they look like hiroshima and nagasaki

    i’m sure there are others equally deserving

  31. leftback says:

    Investorinpa: a lot of people drank the Kool-Aid, so that would be most people out there losing their shirts, although in a lot of cases what they lost was actually OPM.

    Even less obvious mistakes, like believing in “decoupling”, caused people to lose significant amounts of money when emerging markets melted down more than many had anticipated.

    Average Joe is still in denial, he thinks this is a “short, sharp, shock” that the US will recover from very soon. He doesn’t realize that this debt crisis has not only moved the goalposts but altered the playing field. When the recovery comes, the US will no longer have the same leadership position in the world’s financial system.

    George Soros and Jim Rogers have seen this movie before in the UK when the pound collapsed, and they are going to make an enormous amount of money in the next couple of years as the dollar follows suit.

  32. Stuart says:

    whocoodanode…
    US banks may need hundreds of billions more-CBO
    By Susan Cornwell
    WASHINGTON (Reuters) – Weakening U.S. banks will
    probably need hundreds of billions of dollars in additional
    funds beyond what has already been approved for the Troubled
    Asset Relief Program, the head of the non-partisan
    Congressional Budget Office said Wednesday.
    “I think the gap that remains in terms of the
    recapitalization needed by the banking system exceeds the
    amount of money left in TARP, I think by a good margin,” Doug
    Elmendorf told the Senate Budget Committee.
    While some of this capital could and should come from the
    private sector, “the odds are that more money will be needed
    than has been authorized so far in the TARP, probably to the
    tune of hundreds of billions of dollars,” Elmendorf said.
    Some $700 billion has already been allocated for TARP.
    Elmendorf noted that lawmakers would have to decide whether to
    approve more money, but “I think that will be presented to you”
    by the Obama administration.
    President Barack Obama’s top economic advisers are debating
    how best to aid Wall Street and the banking sector that has
    been battered by a downturn in the housing market and a broader
    credit crisis.
    Treasury Secretary Timothy Geithner said last week that the
    Obama team will soon outline a financial market rescue plan,
    but he could face a skeptical audience in Congress.
    Lawmakers from both parties have complained about the
    handling of the bank rescue program under the Bush
    administration, and two days after Obama was inaugurated, the
    House voted against releasing the second half of the TARP
    money, or $350 billion.
    That money was released nonetheless because the Senate
    voted not to block the funds.
    House of Representatives Speaker Nancy Pelosi, asked to
    comment Wednesday on Elmendorf’s statement that banks may need
    hundreds of billions of dollars more, said: “We’ll see when
    they ask for it, what it’s for.”
    “But we have to see how this TARP is spent,” the California
    Democrat told Reuters, referring to the cash already in the
    program.
    Massachusetts Democratic Sen. John Kerry said more help for
    the banks from the government should be conditioned upon
    reforms. “You may even have to have some agreement as to change
    of management and other things,” he told Reuters in an
    interview.
    “You need to have an agreement from those banks that
    they’re going to change their approach, they’re going to write
    down their toxic assets, they’re going to live by a new
    regulatory set of standards,” Kerry said.
    During questioning by Senator Bill Nelson, a Florida
    Democrat, Elmendorf said most observers agreed with Nelson’s
    assessment that Geithner will need to either extend guarantees
    that protect banks against losses; inject more capital into
    banks; or buy up the banks’ toxic assets in a “bad bank”
    scheme.
    The last option would be fraught with challenges as
    policy-makers try to pay the right price for the troubled
    assets, he noted.
    But he also said there was downside to all the options.
    “There’s a tough trade-off,” Elmendorf said. “We can wait
    for the banks to fail, and then in a sense we get (the assets)
    automatically.”
    “We don’t want to benefit the managers who made bad
    decisions,” Elmendorf added. “On the other hand, if we let them
    stew in their own mess, we run the risk of driving the economy
    further into the ground.”
    U.S. policy-makers should move quickly, he said.
    “As the financial system is rebuilt, private creditors will
    have to take some losses; and some banks may have to fail: It
    is neither necessary nor desirable for government to take on
    all the losses from bad assets,” he said.
    The CBO offers non-partisan analysis on the costs of U.S.
    government spending programs.

  33. DL says:

    Kudlow had four people on his show today discussing Obama’s “bad bank” proposal: Rick Santelli, Steve Liesman, Bill Seidman (former chairman of the FDIC and the RTC) Robert McTeer (former president of the Federal Reserve Bank of Dallas), and another former head of the FDIC. With the (very) predictable exception of Liesman, every one of them thought that the taxpayers were going to get REAMED by Obama and Geithner.

    So I guess that Obama is following in Bush’s tradition.

  34. DL says:

    leftback @ 9:38

    “When the recovery comes, the US will no longer have the same leadership position in the world’s financial system”.

    Yeah, the U.S. share of the global economy will continue to decline, and at a faster rate than before.

  35. Is this a new record?

    I think this is what people mean when they say, “If you don’t punish the crime….”

    SEC charges financial planner with TARP fraud

  36. leftback says:

    People have been asking about an unleveraged inverse fund that tracks the long bond. I don’t know any ETFs, but RYJUX is an inverse fund that tracks the 30-year Treasury. I think it may be a little early, as I am concerned that the Fed will intervene in the 30-yr because of its relationship to mortgage rates (see Stuart’s post above). But at some point when inflation picks up, this is a winner and a complete no-brainer. You could use a combination of RYJUX and trades in TBT/PST once the whole curve starts to move out.

  37. Mark A. Sadowski says:

    Most of what’s being devised right now seems intent on avoiding some cold hard economic facts. The less that shareholders and bondholders have to pay the more the taxpayer has to pay. Let’s stop the intellectual sumersaults over this “bad bank ” proposal and just nationalize the banks and wipe the shareholders and bondholders out. At least two Nobel Laureates have now spoken out in favor of this, Paul Krugman and Joseph Stiglitz:

    “A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to a special institution, the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners.”

    http://www.nytimes.com/2009/01/19/opinion/19krugman.html?_r=1

    “What’s the alternative? Sweden (and several other countries) have shown that there is an alternative — the government takes over those banks that cannot assemble enough capital through private sources to survive without government assistance. It is standard practice to shut down banks failing to meet basic requirements on capital, but we almost certainly have been too gentle in enforcing these requirements. (There has been too little transparency in this and every other aspect of government intervention in the financial system.) To be sure, shareholders and bondholders will lose out, but their gains under the current regime come at the expense of taxpayers. In the good years, they were rewarded for their risk taking. Ownership cannot be a one-sided bet.”

    http://www.cnn.com/2009/POLITICS/01/26/stiglitz.finance.crisis/index.html

    Not to do so only leads to a gigantic moral hazard problem where you privatize the profits and socialize the losses, and that would be a terrible lesson for the markets. Nothing draws other investor’s attentions to a problem more effectively than for shareholders of an insolvent firm to be told the truth: that the value of their investment is zero. Similarly, nothing teaches the value of good job performance better than seeing those who have performed poorly face directly the consequences of their institution’s corporate failure, rather than to continue to reap the usual rewards.

    I think a major lesson from the S&L Crisis in particular is that prompt action to nationalize and consquently wipe out the shareholders and bondholders of insolvent financial institutions is the wisest course. Right now the zombie institutions are dithering because they are secretly hoping for the steady drip, drip of bailout money to continue. The sooner we take swift, deliberate action, the sooner we can start rebuilding a fully functioning financial sector.

  38. R.D. says:

    Wondering if that kosher zillionaire elitist that runs AEI , where you went,,

    told you how he shoves policies down the politicians throats and makes a

    fortune doing it on the foreign exchange markets.

  39. Mike in Nola says:

    After reading about how Cosmo of Agape had been in debt to the mob, it occurred to me that one of the best ways of regulating investment firms is to force them each to accept deposits from the Genovese Family. It will keep them honest.

    Today’s rally had pretty good volume, so Cinderella world may continue awhile if those on the sidelines decide it’s time to jump back in. SRS, DUG, SMN are all getting attractive again. Another few days of this and even SKF and QID will be screaming buys. My major concern is how safe the ultrashorts will be on the next big slide as chaos rules.

  40. The Fed Will Buy All Treasury Bonds in Existance if Necessary . Sound far fetched? It’s not. Bernanke said so himself in 2002.

    The Fed absolutely believes that it can keep Treasury bond rates down all across the yield curve. They will do this by enforcing a ceiling on yields across the maturity curve. They believe that they can do this by buying only a small portion of outstanding bonds but if that does not work they are not sunk. In 2002, Bernanke said “At times, in order to enforce these low rates, the Fed [in the years before the Federal Reserve-Treasury Accord of 1951] had actually to purchase the bulk of outstanding 90-day bills.” Therefore, the Fed plans to buy as many bonds as necessary to enforce their policy. If the market does not respond with a small number of purchases, they will just keep on buying until they are the only buyer left. We are talking about the purchase of trillions upon trillions of securities.

    So that’s the next step – the enforcement of a ceiling on treasury bond yields and the purchase of unlimited bonds if necessary to accomplish it. You have been warned.

    Please wrote an extended post on this subject at http://soyouthinkyoucaninvest.blogspot.com/2009/01/fed-plans-to-buy-all-treasury-bonds.html

  41. bruerr says:

    If banks are successful through representative agents Geithner/Paulson to unload their debt on others, the stock market will view that like a victory won’t they? … Be like a frat having a 20-keg party. Fed creates a shell entity to receive toxic assets, but pays a premium for the toxic assets. Then banks sell their debt at .80 cents on the dollar? Holy smoke! No wonder they half jokingly call it a bad bank.

    Fed does not foreclose on banks that are friendly with Geithner/Paulson. Collects the toxic assets in one location, and bundles them like mortgages originated by another lender. Bundles were sold to a sucker client at a premium (good for them), with a derivative enabling a big mark-up (good for them), and then are re-sold to another sucker-buyer, who is even a greater sucker than the first sucker. (Good for them.)

    This bad bank hanky-panky, is the first thing they need to escape accountability. Not out of the that woods completely, but after that the chances of sweeping accountability dwindle; leaving only a few to take the hatchet (who will probably get off lightly in the future if at all).

    Suffice to say, if they get this, they are one step closer to evading scrutiny and accountability.

    This is akin to a coup isn’t it? A financial Coup d’état. …allows them to consolidate their positions, obtain acquiescence of the populace (or the surrender of the government’s charter to protect them), and survive the conflict in a refortified manner.

    Thats a huge win for the top 2 percent. I know its like cheating the final grade point average with a computer hack, at the end of 6 years university. But the market could rally on that for some time couldn’t it? I mean the floor traders will be celebrating that around the world.

    And government will be free to focus on fubar-foreign policy again. Let Obama and the common repaint some school buildings. Drink up lads. Be sure to use condoms.

  42. investorinpa says:

    @ Leftback , TheReformedBroker…you guys both make great points. I’d still love Barry to do some chart porn and create a mountain called Market Peak and put little figurines of every investor who has fell from Market Peak. Some, like Bill Miller and Marty Whitman, should be shown near the bottom of the mountain near the ground. Others, like Buffett, could be taking their first few yards of free fall.

  43. Jojo99 says:

    WSJ
    REVIEW & OUTLOOK
    JANUARY 28, 2009

    A 40-Year Wish List
    You won’t believe what’s in that stimulus bill.

    “Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”

    So said White House Chief of Staff Rahm Emanuel in November, and Democrats in Congress are certainly taking his advice to heart. The 647-page, $825 billion House legislation is being sold as an economic “stimulus,” but now that Democrats have finally released the details we understand Rahm’s point much better. This is a political wonder that manages to spend money on just about every pent-up Democratic proposal of the last 40 years.
    [Review & Outlook] AP

    We’ve looked it over, and even we can’t quite believe it. There’s $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There’s even $650 million on top of the billions already doled out to pay for digital TV conversion coupons.

    http://online.wsj.com/article/SB123310466514522309.html

  44. Jojo99 says:

    Robert Reich’s Blog
    Wednesday, January 28, 2009
    How to Keep the Banking System in the Private Sector

    Tim Geitner said today, in response to questions about the prospect of bank nationalization, that the Treasury is considering a range of options with the intent of preserving the private banking system. “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” he told reporters.

    Well, it all depends on what “private” means.

    Geitner et al have to think bigger, and examine history.

    Back in the banking crisis of 1907, J.P. Morgan got all the major bankers into one room and forced a kind of reorganization on all of them. We need the same today — a giant reorganization of the banks, in which their shareholders lose what little value they have left, their creditors get paid 20 cents or so on the dollar, and their assets are written down to about 20 percent of their face value. In effect, it’s an industry-wide reorganization under bankruptcy. This way, bank balance sheets are cleared up, there’s no run on any one bank, everyone starts anew, and taxpayers aren’t left holding the bag.

    To the extent Geitner is serious about preserving a truly private financial system, this kind of broad-based reorganization of the entire sector in the shadow of bankruptcy, seems to me to be the best alternative at this point.

    http://robertreich.blogspot.com/2009/01/how-to-keep-banking-system-in-private.html

  45. grashopa says:

    I’m waiting to find out what the FED reports the value of the collateral placed with it is. With the continued fall in all the indices and the amount of this stuff on the FED balance sheet, it could make for some interesting headlines if the values were marked down.

  46. Bob A says:

    All I know is…

    a little birdie told me to buy the banks monday…

    because this was going to happen…

    and I didn’t….

    and I AM A F>>>ING IDIOT!

  47. harold hecuba says:

    the gov has officially seized the credit markets. the competent are getting squeezed by the incompetent who have access to the taxpayer dollars. the gov is crowding out private capital. how is it possible that a gov can control long term rates. this is absolutely comical. the fed has no control over short rates. pray to the almighty father if the fed steps off the accelerator of the giant ponzi scheme we call an economy. the collapse is coming

  48. harold hecuba said “how is it possible that a gov can control long term rates. this is absolutely comical.”

    I thought it was too preposterous to imagine just yesterday and then I read Bernanke’s 2002 speech. He absolutely believes that he can control the entire bond market.

    Good point about the crowding out effect. I think that has to be happening at this point.

  49. texasradio says:

    Einhorn is buying gold. Now that’s what I call a tough market…

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aqvwUIqllyRc&refer=home

  50. usphoenix says:

    Agree only fair solution is to take over failing banks and wipe out shareholders.

    Back to stimulus plan. IMHO basic concern is not to stimulate economy per se but to goose tax receipts and keep taxing bodies afloat long enough for tax receipts to recover. That was my initial guess, and seems to be the outcome. But that ain’t gonna happen. All the U S taxing bodies have overspent assuming the good ole economic growth bubble will continue forever.

    Everyone thinks a lot more banks will go next. Maybe.

  51. texasradio says:

    WordPress commenting, is it working?

    Einhorn is buying gold…because his grandpa said it was a store of value. Well boy howdy, that’s mighty folksy. Maybe he will become the Warren Buffett of bear markets.

  52. mark mchugh says:

    I’m gonna take a flying leap through my TV screen the next time somebody says, “In the long run, we’re all dead.”

  53. JD says:

    I read some of the details of the stimulus plan today, in the WSJ.

    I have reached the conclusion that most members of the U.S. Congress are mentally retarded.

  54. wunsacon says:

    On “crowding out”…

    In the absence of the Fed buying Treasuries, the supply of Treasuries would divert private capital. (If it did not at first, then Treasury prices would fall until yields increased enough to attract that private capital. Equity yields would have to compete, which means equity prices would have to fall.)

    But, if the Fed buys Treasuries, then the rate of return massive issuance won’t crowd out private investment in private projects. Because the yield on Treasuries will remain too low.

  55. vfsv says:

    If the dollar is going to do so badly, what is going to replace it?

    The Euro is not that much different. The Yuan is too small. The Yen? Really?

    There is not enough gold (or PMs in gerneral) in the world to replace the dollar. (Except, maybe, valued ay a MUCH higher price than today?)

    Despite the much-deserved criticism, what is a viable global alternative to the dollar? It seems to me there is alpha in the view that the dollar will remain the world’s reserve currency. Probably even start to go up again once a few more cockroaches are seen scurrying in non-US markets. (“T-bills at -1%,” as Barry commented in the beginning…)

  56. Andy Tabbo says:

    These are the times that try men’s soul…..

    I’m out and about in Houston tonight…..

    Restaurants/Bars are packed downtown….

    Either:

    a) Everything is going to be OK and Bernanke will save the day or;

    b) The economic hardships facing the rest of the U.S. haven’t hit Houston yet.

    These are tough times for a technician….

    Medium term I’m bearish…Short term the price action is bullish…thus the “mildly” bearish stance in the market…890 on cash LOOMS large as resistance…but it seems like we’re going there tomorrow…..

    So what do you do?

    There’s an old saying in trading circles: “Your position MUST express your view.”

    Not sure how to express long term (next two weeks) certainty with short term uncertainty (next 24 hrs).

    I remain SMALL sort S&P futures……885 futures I will be larger SHORT S&P futures…..

    - AT

  57. Mike in Nola says:

    Andy:

    Drive on Buffalo Speedway in West U. For sale/rent signs showing up. Asking prices still too high. I think it’s just hitting Houston as the oil and chemical companies start layoffs.

  58. wunsacon says:

    If any of you would care to comment on this thread:

    http://www.unknownliberal.org/blog/?p=216

    Please look particularly for the section entitled:
    We Prefer a Somewhat More Literal “Helicopter Drop”: Tax Credits/Checks

    If you’re a “liquidationist” (i.e., you prefer a deflationary spiral like the 1930′s), you’ll cringe. But, even so, I still would like to know whether you cringe less at that then at our current bailout mechanisms.

  59. bogwad_seigneur (the smelly one) says:

    @Becky;
    Beware if leftback uses the term “bifurcation” in any exchange of opinion.
    BobA:
    I bought the banks on Monday also, then got spooked..ran out of nerve, (or whatever)…and got the hell out of Dodge.
    Boy did I regret that prior lack of intestinal fortitude at the end of the session yesterday. That’s an unhealthy outlook, but being human even the coldest and most disciplined among us occasionally look over the shoulder and reflects “hoo boy, that was a dumb thing to do”. Sadly though, given that such events are a passing phenomenon – i.e. you’re either in at the right time or else you’re not – there’s nothing to be learned from the experience. Or is there? I’m just not sure…or as unsure as everyone else around about now.

  60. Andy Tabbo says:

    Mike in Nola:

    Yes. I know….I see it cropping it up….

    Just sort of venting a little. At times I’m like mushroom in my office/home….then I venture out into the “real world”….and I see things that are counter to what I “think I will see” and it just sort of throws me for a loop. I’m actually a pretty social person…it’s just that there are stretches when I don’t get out much….I DID NOT EXPECT to fight for parking on a Wednesday night.

  61. Just heard this:

    The only search engine that promises not to log your searches(and thus won’t use them for commercial purposes etc.):

    http://www.ixquick.com/

  62. mark mchugh says:

    Wunsacon,

    I agree with the concept of article you linked to. I’ve said for a long time that the Fed really only has one tool – devaluing the dollar. A year ago, hated the idea of the helicopter drop.

    However, when you tally up the cost of all these programs, you are talking about the equivalent of over $10,000 for every person in the US. I now believe that mailing checks with the understanding that we are devaluing our currency would have been a far more effective approach (that article details the reasons why).

    We are paying for some sort of bizarre magic show that supposed to “fix” things , but we all know it will benefit the 1% (who created the mess in the first place) far more than it will help the other 99%. So what’s so bad about just giving the money directly to the citizens? I honestly don’t know.

  63. Mike in Nola says:

    Andy:

    I think we all tend to forget that it cause and effect in economics is not immediate, e.g. I was into QID way too early last year expecting people to stop buying tech when the saw the meltdown manifestng itself. But, Joe Sixpack doesn’t read financial blogs or serious news. CNN is almost all infotainment babes and Suze Orman is considered an authority. The credit cards haven’t been maxed out yet.

  64. Mike in Nola says:

    I see from all the typos that it’s time for bed. Good Night, all.

  65. Andy Tabbo says:

    Mike in Nola….

    Final thought….

    I used to trade as a “fundamental trader” for a really big company……we were ALWAYS a little “early” and ALWAYS “correct”…..FWIW.

  66. bogwad_seigneur (the smelly one) says:

    Does anyone view the slight rally over the past days as a (potential) classic Bull Trap? It feels that way. You can almost hear the snorting and sound of hooves pawing the ground on the sidelines. A couple more days of this and the bighorns will start to have a play…and then…(??) poof!
    Then again….”a couple more days” ? what the hell am I saying?

    @Mike in Nola: Joe Sixpack doesn’t read – period, let alone trade! :) I think you give the beermeisters a tad more credit than they deserve.

  67. Greg0658 says:

    I saw a thread starting on “the rewards of swipe’g money legally and the moral backlash”
    thats usually how it goes in a jungle world
    I certainly am starting to feel chumped by not keeping up with the Jones … ie a buy’g binge followed by a bankruptcy protection deal … I actually closed a retirement account to pay off credit cards .. you almost feel unAmerican for not doing your part spike’g consumerism

    Joe6packs may not bother reading this stuff – but they do or will get it … then real jobs will be needed .. which were outsourced for the financial benefits of cheaper labor .. outsourced with my savings in the 40:1 deal days (till I forced it back) (I’m still in .. will see at 55yo and again at 67yo or is it 68) (I hope)

    On Geithner/Paulson and Obama/America … I got an email on Paulson being arrested in Germany over a Christmas’06 holiday – saw a Rose Garden Cabinet portrait (tv) soon thereafter – Hank didn’t fix his red tie up and I believed it was a message to friends … found the save “ARREST CONFIRMED BY SEVEN SOURCES: KEY U.S. TREASURY OFFICIAL ORDERED TO GERMANY, SUBJECTED TO A GAG ORDER, AND INSTRUCTED TO TESTIFY AGAINST HIS OWN U.S. TREASURY SECRETARY. HE HAS BEEN IN GERMANY FOR THE PAST TWO WEEKS, TESTIFYING BEFORE THE TRIBUNAL, STAFF OF THE U.S. CONSULATE AND THE GERMAN ATTORNEY GENERAL (EQUIVALENT) ABOUT THE ENDLESSLY FRUSTRATED ATTEMPTS OF AMBASSADOR WANTA’S CORPORATION, TO OBTAIN RELEASE OF THE FUNDS, AND ABOUT ALLEGED CRIMINAL VIOLATIONS BY PAULSON, GOLDMAN SACHS AND COMPANY, ET AL.”
    all caps – thats how it came – I not going to retype it
    point being all – I am wondering whats the next step? .. and be carefull Tim

    on the thread of “devalue’g the dollar by flooding the system” IMO and from MPOV break the dam and flood the system .. the GOP pacs want to hold the dam in place because for cash heavy folks there is a repossession it it and thats one way to get rich (ie take back something half paid for / and a writeoff to Uncle Sam to boot)

    and for Joe & Jane sixpack “this Buds for you” … and for Bill & Brenda wineglass “cheers”

    and to Barack from the prudent side of me and to keep Tim outta jail and us outta war …
    PayGo balance (soon) via a sorta flat tax plan because its a long tail climb with few loopholes that hit individuals families and companies (small to large and huge) with fairness
    (to be crystal clear .. J6P is in on the long shallow end of the climb)
    (and the outta work accountants you’ll need for the high end cheater detection)

  68. Gonzalo Lira says:

    An idea: Bullet-proof banks.

    There is all this discussion about an aggregator bank, a vehicle similar to the RTC of the S&L mess, where all the toxic assets accumulated over this past credit binge would be deposited and unwound over the years in an orderly process, again, like the Resolution Trust Corporation of old, which ended up turning a profit. Thus the “bad bank”—the aggregator bank—would save the financial system, because it would hold the toxic assets and sell them when the time was right. Sounds good.

    The problem, as I see it, is not only that the banks—in their efforts to unload these toxic assets—would make every effort to screw over the Federal government, and therefore us taxpayers, as the banks made every effort to overvalue their crap so that the aggregator bank would buy it, while undervaluing their hidden gems, so that the banks could keep them. The real problem is, we the taxpayers would be paying through the nose for dud assets: We are in the current crisis not because the toxic assets on the banks’ balance sheets are temporarily undervalued—rather, we are in this mess because these assets have been artificially inflated, in order to keep these banks solvent if only on paper.

    So it’s not that the banks are sound but for these toxic assets. Rather, the banks are ALL “bad banks”, chock full of toxic and non-performing assets. The U.S. financial system is, effectively, broke. That’s why they’re salivating over the sweet TARP money, and not lending a nickel to anyone. They need fresh money to stay alive, and they won’t lend that money because they’re broke.

    So why create a bad bank when we already have plenty to go around?

    Instead, why not create good banks? Why not creat brand new bullet-proof banks?

    Suppose the Federal Government capitalized ten banks at $35 billion per new bank. Suppose these new, bullet-proof banks—wholly owned by the Federal government, but operating like any other ordinary bank—had strict limits and regulations, in order to avoid the mistakes of Citi, Lehman, et al.: No investing in certain classes of derivatives, limits on executive compensation, etc. Additionally, these bullet-proof banks by charter could not acquire other banks or financial services companies (so as to avoid an acquisitive feeding frenzy with their fresh capital, as is occurring with the banks that got TARP money). Instead, these bullet-proof banks would have a strict mandate to provide credit to credit-worthy customers, be they businesses or individuals, as well as provide without hesitation the other needed financial services, all done at non-distortive market prices.

    These bullet-proof banks could be organized regionally, covering equal shares of the U.S.’s GDP by state. They could be operated by the staffs of the small, regional banks that did not go crazy during the credit binge. There are many such banks, and it would be easy to recruit some of their officers to perform this public duty of organizing and setting up a fresh slate of banks.

    A brand new, bullet-proof bank, devoid of any toxic assets on their balance sheets, capitalized at $35 billion each, and staffed by conservative, un-slick managers with clear, conservative operating rules, would be an incredibly strong actor in the financial services industry. Ten such banks would very quickly cool any uncertainty insofar as the credit markets are concerned. Apart from providing business and consumer loans, there would be the issue of letters of credit and other financial instruments necessary for a sound financial and trade system, and all the myriad other financial services which a modern economy needs. The insolvent banks—the “bad banks” we already have—are not providing these services; hence this banking crisis. But the ten bullet-proof banks—with $35 billion in capital each, which by the multiplier effect would give the U.S. economy $3.5 trillion in fresh and eager credit for the economy—would provide such much-needed services, without hesitation, especially time-intensive financial services. (I am thinking in particular of Debtor in Possession financing, which has disappeared because of the crisis, and which will be sorely missed if and when there are big bankruptcies; the bullet-proof banks could have the long-term financial stability to confidently provide the massive amounts of DIP financing which will obviously be needed during the next 24-36 months). The bullet-proof banks would be responding to the needs of the market just as any bank would, with the flexibility of the private enterprise, and without distorting the market-place, as the Fed’s clumsy actions are currently doing.

    Meanwhile, as the bullet-proof banks flourish, we allow the other banks—Citi, Morgan, et al.—to survive or die as is their fate. Capitalism at its finenst, survival of the fittest. We don’t allow the bullet-proof banks to have special privileges, aside from their initial capital. But we set them standards and implement reforms through them which we also apply to the already existing “bad banks”. Thus we could reform the entire financial system by example, rather than by diktat.

    Once the financial situation has stabilized in 3 to 5 years, the bullet-proof banks could be sold off in orderly, scheduled IPOs, with the proceeds going to the Federal government, which after all is all of us. I am sure that ten such banks, spun off over a five to ten year period, would be an incredibly good investment, AND provide short-term market stability in a non-clumsy, non-distortive manner.

    The only question as I see it would be the time it would take to set up these bullet-proof banks: Banks are pure value-added businesses, they don’t need special equipment or factories. All they need is good people manning the teller windows and the bank-officer chairs. Thus, setting up ten such bullet-proof banks should not take more than six months, at a cost of, say, $50 million per bank, that is, half a billion all told. The regional Fed banks could be charged with setting up these new banks, but mandated to staff them with non-government, non-Fed personell, so as not to turn these new banks into political cesspools.

    Unquestionably, bullet-proof banks would be a better investment for the nation than creating an “aggregator bank”—it would certainly be more fair, and more efficient. Setting them up might take some time, but if done and done right, these new banks would solve a lot of our current problems with the financial system in a fair, transparent and long-term beneficial manner.

    This is a serious, considered proposal. Comments would be greatly appreciated.

  69. Mike in Nola says:

    Gonzalo:

    Believe I saw someone else make such a suggestion. My guess is that they won’t do it because there is a lot more involved not regarding lending to American businessses and consumers, but about credit default swaps and other exotics that we don’t give a crap about but that Washington’s banker buddies, PIMCO and foreigners do. And, we know who has all the stroke: it’s not American taxpayers. This all looks like 18th century England, those in power seeing how much they can steal or steer their own way.

    Bogwad: I don’t think anyone here thinks we’ve hit bottom yet. It’s just a matter of how long all the preliminaries take.

    leftback: Forgot to compliment you on your additons to the American financial vocabulary.

  70. Bruce N Tennessee says:

    If the government is going to spend this money, I would like to see it appropriated more like the “feed a man a fish, you help him temporarily, teach him how to fish, you help him forever” kind of idea..

    Instead of make work ideas that won’t enhance our future competitiveness in the depression, I would like to see the federal programs aimed at education. Folks who are drop-outs be given help in the GED programs, more money for college education programs, money for 5 year work study programs, internship programs, that sort of thing. Money to help poor students in high school, and keep more enrolled so that they might graduate. Retraining programs…

    I am not sure any of these bloated federal programs will work. But I’d feel better if the money was “wasted” on education, than wasted on something else. At least the American worker might learn better how to fish….

  71. RuffRednSore says:

    leftback Says:
    @ Mannwich. I don’t mind trading the bank stocks, but: “don’t make me do it without the FAZ on…”

    Hahaha! From Steely Dan’s “The Royal Scam”! How appropriate. Still have that on vinyl in a box some where in the basement.

  72. Greg0658 says:

    Gonzalo Lira asks for thoughts.
    1st I recognized your seriousness in the matter .. and like it in general.

    No offense please … but do we require these bullet proof banks to buy new or used office furniture and before that to build a new office building or use some old building?
    :-) smile

    I also would like to suggest these 10 bullet proof banks be in each region of industrial America with a charter to invest locally and require them to watch and regulate outsource’g to outer regions and keep regional balanced books with PayGo in mind. Allow ad campaigns directed at its turf of people to use our credit card 1st please.

    BnTN .. I think thats a good fish story

  73. batmando says:

    “So what’s so bad about just giving the money directly to the citizens? I honestly don’t know.”

    Was it on the Tuesday(?) Daily Show, John Stewart floated the trickle-up proposal to Donna Ifills? I’ve often wondered the same: Rather than give TARP directly money to the banks, give it to all individual debtors with the explicit requirement it must be used to pay down/off personal debt (credit cards, mortgages); the banks end up with money to lend again and consumers are freed up to borrow again.

    Sounds good to me, even though I’m not much in debt (one mortgage of less than 17% total assets).

  74. Ritchie says:

    investorinpa: “…people who lost their shirts in 2009…”

    Ben Stein, of “Ben Steinery” fame, February 2009, issue of Newsmax, page 30:

    “I’m No Longer Rich, But God’s Been Good”

  75. batmando says:

    @ sst3d January 28th, 2009 at 8:04 pm
    If you’re still following this thread, just wondering who is issuing CDs at 4.1% (12 month term?)
    I just checked Schwab and don’t find anything near that except 10 year CDs @ 4%
    BTW my bank’s current HELOC variable rate is north of 3%

  76. seemach says:

    Non Performing Asset
    Thank you very much for sharing this great post. I also visited your given blog very attractive. I am not sure any of these bloated federal programs will work But I would feel better if the money was throw away on education, than wasted on something else.