RSS Feed
Twitter
Facebook
Email
HomeLD’s “Central Station” Q & A
Posted by Larry Doyle on January 24th, 2009 4:46 AM |
Neither rain, nor snow, nor darkness, nor gloom of the economy, the market, or the world of global finance will keep us from our regularly scheduled departure from “Central Station.” Our ride departs at 9am and will take us through many hills and valleys of our economic landscape before returning to the station at noon. So much to discuss and view as we roll along. Our forum is open to discussing issues from a macro and micro level. From New York to Washington to Europe and Asia, we can explore any avenues you’d like.
Please remember, there are no bad or silly questions. Don’t be bashful . . . ask anything. I offer honest opinions and thoughtful advice. For our newer riders, your conductor is not a professional financial planner but merely a longtime Wall Street veteran who wants to help you make some sense of the current twists and turns along the economic track. Please bring a friend, grab a coffee, settle down, as you’re amongst friends on this ride.
Aaaaaaaaaaaaaaaall Aboard!!
While we wait for our ride to depart, I want to take this opportunity to 
highlight a very special guest on my Sunday night radio show, “LD’s Dollars and Sense,” with the folks over at No Quarter Radio. We will be joined by an individual who, in my estimation, has more professional Wall Street relationships than any other individual. Allow me to share the background of the legend that is…..Michael Maloney. Michael started working on Wall Street in the mid 1960s at the tender age of 16 for a specialist firm on the floor of the NYSE. In 1970, Mr. Maloney was an equity block trader for the venerable Stone and Webster. In the late ’70s, Michael moved into the world of financial recruitment and career consulting. He is known as “the man to see” for those looking to move onto or within the world of Wall Street. He has longstanding relationships that would fill the Manhattan directory and has lived to tell about them. From placing chief investment officers to back office assistants, from working with the major investment houses to startups, Michael truly epitomizes the phrase, “it’s not merely what you know but who you know.” Please join us for a fascinating look back and, simultaneously, a piercing view forward with “the man to see,” Michael Maloney!! “LD’s Dollars and Sense” can be heard on Sunday nights from 8-9PM on No Quarter Radio. You can listen to all archived No Quarter Radio episodes at any time. And don’t forget that No Quarter Radio episodes are also available as free podcasts on iTunes. Just open up iTunes, go to the iTunes store and type “No Quarter Radio podcast” in the search window. Complete No Quarter Radio iTunes instructions are always listed at No Quarter in the right column. Thank you to the great folks at No Quarter!
~ LD
Nationalizing a Bank?? You Really Should Read This!!
Posted by Larry Doyle on January 22nd, 2009 7:15 PM |
We had a few readers ask about the prospects and meaning of nationalizing parts of our banking system. For those who have already seen this Q/A, I beg your indulgence as I try to spread the importance of this topic to a wider audience. Also, to our friends MBC and his close cousin MPC, I hope you do not mind my sharing your questions.
Comment by MBC | 2009-01-21 21:15:32
Hi LD,
Can you explain what the ramifications are if we nationalize US banks? You had written in a previous thread, “the strong likelihood that the banking system in the United States has some form of nationalization. These are truly historic and challenging times and how this banking meltdown is handled from here will be both gut wrenching and critically important to our immediate and long term economic health and well being. We will be watching VERY closely.”
Thanks so much, remember like you are explaining to a high school student.
Comment by LD | 2009-01-21 22:02:46
MBC,
Well, given that we have never nationalized banks and had them continue operating all I can do is offer my opinion. We effectively have nationalized banks via the FDIC (Federal Deposit Insurance Corporation) but then paid off the depositors and closed the doors after selling off assets. That is what I am recommending for institutions that are deemed insolvent.
This approach was taken in Sweden in the early ’90s and the economy recovered fairly quickly (a few years). In these instances, the shareholders are effectively wiped out. The creditors (people who have lent money to the banks) would get paid out up to the FDIC limit (250k) for individuals. For institutions which have lent money, they would have their repayment largely if not totally guaranteed by the government. Departments or divisions that have value could then either spin themselves off or be sold. After all this is done, shut the doors. The party is over. Why would such draconian steps have to occur? Simply because the losses on loans of all types along with losses on investments will have overwhelmed the capital in the bank.
The government may very well take the step of nationalizing the institution but continue to operate it in hopes of generating revenue to writeoff the losses. What is the risk here? That the losses on the loans and investments just merely get worse and it ends up costing even more money down the road than it would cost right now. This approach was taken in Japan in the ’90s and the economy did not turn around for a full decade (it is called The Lost Decade).
In each of these scenarios we need to be aware that the motives of the government are far different than the motives of private capital. The government is here to serve the public welfare. The private capital is in business to serve the interests of shareholders. Given changed motivations, we can only assume there will be different business practices. Ultimately, we are trying to achieve not only stability in the banking system as a whole but growth and increased lending. Does this make sense? Hope it helps.
Comment by LD | 2009-01-21 22:11:46
MBC, After writing my own response to your question, I just saw this article from the Wall Street Journal, “What if Uncle Sam Takes Over Your Bank?” The people there must be monitoring NQ for ideas….(lol). I have yet to compare my reply to the article.
Having now just read the WSJ article, I hope that my comments with their detail fully clarify the nationalization topic.
~LD
“We’re Going to Have to Pay . . .”
Posted by Larry Doyle on January 22nd, 2009 1:02 PM |
MARKET UPDATE** Equity markets broadly speaking are down between 3-4% led down by banks and insurance companies. Bonds are not providing a safe haven as across most sectors of the bond market are down anywhere from .25-1%. We are not surprized by the downward move in the equity markets nor in the government bond sector. We discuss in depth in this piece the global demand for funding driving interest rates …UP!
MARKET NEWS: Senators Schumer and Shelby are proposing $110 million in increased funding for staff at SEC and FBI to oversee fraud on Wall Street especially given the unregulated hedge fund industry. We have highlighted that one of the investors in the hedge fund industry and the fund of funds industry is FINRA, the largest non-governmental regulatory authority for financial services business.
John Thain resigns from Bank of America. Culture clash amidst massive losses will get you every time.
Microsoft announces 5000 layoffs.
___________________________________________________________
In the midst of an interview, Alice Rivlin — former head of the OMB (Office of Management and Budget) under President Clinton — was asked about the prospects for the ballooning deficit. She responded that unless we are somehow able to control the deficit, “We’re going to have to pay much higher interest rates and face a rapid fall in the dollar.” I concur.
I do not want to throw cold water on a day when we had a 4% upward move in the equity market, but we need to take a step back and assess the market and economy from a wide angle as we try to make sense of it all. To that end, allow me to provide year-to-date changes across sectors with some general commentary as well.
“Spanning the Globe….”
Posted by Larry Doyle on January 15th, 2009 4:50 PM |
I have great recollections of my youth. Growing up in the ’60s and ’70s as one of eight children, seven boys, we had to 
figure out how to entertain ourselves. Street hockey was great fun. Double features at the cinema were always a hit. Sneaking into Boston College sporting events provided a real thrill. We would not miss “Wide World of Sports” on Saturday afternoons. I can still hear the opening, “Spanning the globe …..” The world back then seemed very large, especially in the eyes of a 12 year old.
Fast forward to today and the world has gotten very small and intricately connected. Information moves rapidly. Cable provides instant access. The internet is amazing. While the advancements in technology are unbelievable, at times I yearn for the simple values and relationships of my youth. Time marches on and change is constant.
Let’s take a break from the focus on our domestic banking crisis and our own struggling economy and “span the globe” ourselves. The issues we face here in the United States are very much impacting the global economy and global politics.
The United States consumer has become the driving force in world trade. As we tighten our belts, it is not difficult to understand that economies around the world will also be impacted. (more…)
What Is a Mortgage Cram Down?
Posted by Larry Doyle on January 1st, 2009 11:35 AM |
On December 23rd in my piece, “Everything’s Negotiable…“, I wrote that I thought for those financially challenged and potentially facing personal bankruptcy with resulting mortgage default and foreclosure that principal reduction was definitely on the horizon. I wrote in that piece:
Additionally, the likely first piece of government assistance to come from the Obama administration is capital to help homeowners in foreclosure or approaching foreclosure. I expect that that assistance will incorporate some degree of mortgage principal reduction.
I would definitely broach with your banker the topic of principal reduction after laying out your budget. The worst that the bank can do is say no. If that is their response you will have been on record as having been proactive in the process and that can’t hurt you if in fact you end up actually defaulting.
Given the anemic response to the current loan modification programs along with the high level of re-defaulting, it is readily apparent that the powers that be should have been listening to Sheila Bair’s proposal on principal reduction from the outset. Sheila promoted the concept of government funding sharing in the losses with the banks in the principal reduction process.
“Where’s The Money??….!!”
Posted by Larry Doyle on December 29th, 2008 6:38 PM |
I thought about providing an outlook for 2009. I considered offering further opinions on Obama’s economic plans. Perhaps a review of the Bush economic program would be well received. Then yesterday, the lead editorial in my local newspaper asked “Where did the bailout money go?” I had my answer. In previous pieces I have touched upon why I thought there was a very good chance why this money would not flow through the system. I hesitate to continue to refer back to my piece published on November 12th (The Wall St. Model is Broken…and Won’t Soon be Fixed), but for new readers I do firmly believe it is as good as anything I have read or seen in any publication in explaining how we find ourselves in our current position.
Please allow me to digress for a second. I will admit that I am not a movie buff, but I do enjoy films that focus on the success of underdogs, have a measure of financial intrigue, or perhaps a combination of the two. Not surprisingly, a few of my favorite movies are, Rocky, Jerry Maguire, and The Sting.
Christmas 1919
Posted by Larry Doyle on December 24th, 2008 6:30 PM |
I will not ruin this piece by adding any unnecessary commentary.
Merry Christmas, Happy Hanukkah, Happy Kwanza, or however you celebrate, Happy Holidays!!
A Christmas Tale — 1919, Wall Street Journal, December 2008
LD
Below, a short excerpt from the beginning: (more…)
How Bernie “Madoff” With $50 Billion!!!
Posted by Larry Doyle on December 14th, 2008 4:20 PM |
The neighborhood of Far Rockaway in Queens, NY epitomizes the essence of middle income urban life. To say that the kids from this neighborhood develop “street smarts” at a very early age is a huge understatement.
Hustlers of every strain, predominantly positive in nature, grow up early in Rockaway. The movie, “Flamingo Kid,” starring Matt Dillon is set in Rockaway Beach. From the beaches in Rockaway one could see the Twin Towers off in the distance. Dreams of fortunes and fame earned on Wall St. drove many with real ambition. Bernie Madoff was one of those boys filled with ambition. However, while ambition can be an amazingly powerful force, if left unchecked it can be fatal.
When the tide is high and the surf is pounding in Rockaway, the kids frolic and never want to come out of the water. However, when the tide goes out, the ocean can leave a few gems. Often times, though, the waves leave a mix of driftwood and waste and a very unpleasant, if not putrid, odor.
Bernie Madoff
In similar fashion, in 2008 the tide on Wall St. has gone out. While there will be some gems amidst the rubble, it is also mostly a mix of driftwood and waste left upon the shore. Just as at times large fish are trapped and die as the tide recedes, this past Thursday,the unchecked ambition from one of Rockaway’s boys finally caught up with him and in so doing left the biggest “carcass” in the person of Bernard Madoff on the shore for all to observe.
How is it that this “fish” which appeared to be the marvel that created wonderment in the form of outsized financial returns for so many for so long was actually a shark that enveloped and ultimately devoured his followers? Let’s enter the world of this “shark.”
Economic/Market Highlights 11/21/08: V-O-L-A-T-I-L-I-T-Y !!
Posted by Larry Doyle on November 22nd, 2008 4:10 PM |
The fact that the equity markets totally reversed yesterday’s 5-6% selloff is not the biggest story of the day. In short, 400-500 point swings either way have become so normal as to not be a big deal. But they are a big deal and I will explain why shortly.
At 2:30pm the equity markets were basically unchanged. By 3:45pm the equity markets had rallied by 5-6% primarily on the announcement of Tim Geithner, NY Fed chair, as the nominee to be Treasury Secretary, while the other candidate for that role, Harvard professor and former Tsy Secretary for Bill Clinton, Larry Summers will be a senior White House economic advisor. Well done by Barack to get both on the team.
The markets respect Geithner and he will be easily approved. Summers would have faced some grilling for sexist comments he made while President of Harvard as well as the fact that he has already been Tsy Secy and it would have been viewed as “the more things change the more they stay the same”. Geithner obviously knows where all the bones are buried on Wall St. having worked very closely with Paulson over the entirety of this financial fiasco. The transition should be seamless. Geithner and Paulson have different styles but both are respected by Wall St. even if Paulson is not fully liked by Main St. The markets respect Geithner and this is obviously very important.
Read more here as to “Obama Likely to Pick Fed’s Geithner for Treasury.”
While Geithner and Summers are obviously highly respected they are not Houdini and they will not be able to singlehandedly turn our economy or markets around based on their name alone. (more…)
Tags: Sense on Cents, Sense on Cents commentary on market, Sense on Cents view of economy and markets, Tim Geithner, unemployment call, volatility in markets
Posted in American Consumers, Auto Industry, Banking Institutions, Current Affairs, Economy, General, Tim Geithner, Warren Buffet | No Comments »