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HomeWill Banks Truly Sell These Toxic Assets?
Posted by Larry Doyle on March 23rd, 2009 5:25 PM |
A quick summary of the plans proposed by Tim Geithner. Everything looks great on the surface and markets rally in anticipation, but VERY FEW transactions have occurred.
Let’s go over a few points:
1. Government provides cheap loans for investors to buy toxic assets . . . DONE.
2. Government provides backstop for investors to be somewhat protected against losses . . . DONE.
3. Investors express desire to purchase assets . . . DONE.
4. Banks express desire to sell assets to unclog balance sheets . . . DONE. (more…)
Bank Stocks Soar!! Bank Bonds Plummet!!
Posted by Larry Doyle on March 23rd, 2009 1:27 PM |
The major market stock averages overall and bank stocks specifically are respondingly positively to the Public-Private Investment Partnership laid out by Secretary Geithner. In the bond market, however, prices for bank debt are responding in a dramatically different fashion.
Why the inconsistency? My sense is that long term shorts in financial stocks are being forced to cover. Investors in the bond market are reacting as if this PPIP will create losses for certain assets as it simultaneously brings liquidity for other assets.
In its totality, the conflicting signals in the stock and bond markets for banks tell me that the jury remains out on the overall effectiveness of this plan for the financial industry specifically and the economy in general. (more…)
We Need a Bigger Boat
Posted by Larry Doyle on March 23rd, 2009 6:05 AM |
"We need a BIGGER boat!"
The movie Jaws struck fear into the souls of beachgoers in the mid-70s. If our current economy were only a scary movie. A classic scene in Jaws occurred when the salty mariner Quint eyed the shark and informed his sidekicks, “we need a bigger boat.”
In similar fashion, the size of the losses embedded in our banking, insurance, automotive, and states and municipalities will similarly require “a bigger boat!!”
Capital needs in the banking industry are projected from at least $500 billion to $1.5 trillion. Bloomberg reports former Fed chair Greenspan Says Banks Need $750 Billion More Capital. Nouriel Roubini puts the needs at upwards of $1.5 trillion. (more…)
Confidence
Posted by Larry Doyle on March 21st, 2009 10:07 AM |
Our economy, markets, and global finance are impacted by a wide array of factors. While various analysts will focus on the differing magnitudes of a variety of these factors, I know of nobody who would not say that ultimately the greatest factor of all is “confidence”. While there is a monthly Consumer Confidence Survey generated by the University of Michigan, confidence is not measured by hard data.
Regrettably, we are currently suffering a crisis of confidence. The crowd in Washington has not helped instill confidence with its scattered approach to legislation and policy.
Over and above the problems in Washington, our global economy is suffering from increasing protectionist measures. Our current administration may talk about free trade and open markets, but their actions speak otherwise. Those actions impact global confidence. Other countries and regions are equally guilty of the same issues. (more…)
Goldman and AIG
Posted by Larry Doyle on March 21st, 2009 5:49 AM |
There has been extensive speculation that Goldman Sachs unjustifiably benefited from the weakness at AIG over the last 6 months. While conspiracy theorists can and will have a field day with this story, at its core I think Goldman did what any well run firm should always do — protect its shareholders.
While the stock values of Merrill Lynch, Morgan Stanley, and Bank of America flirted with total disaster, Goldman Sachs traded down but bottomed out at approximately $50 a share. That price does not strike me as indicative of a firm on the brink of bankruptcy. As Goldman now reveals, it had significant exposure to AIG but it also significantly hedged this exposure to AIG via other transactions. Thus, Goldman would have been negatively impacted by an AIG bankruptcy but not fatally impacted. (more…)
Will Jamie Dimon be the Next Treasury Secretary?
Posted by Larry Doyle on March 20th, 2009 9:02 PM |
The pressure on Treasury Secretary Tim Geithner is increasing from within the Democratic Party, across the aisle, and the media. Will Tim be fed to the lions? Well, the standard procedures of implementing change seem to be occurring. What are those steps?
JP Morgan Chairman and CEO, Jamie Dimon
1. A vote of confidence by the Administration. Always a kiss of death!
2. Leak the name of a strong prospective secretary.
Who might that be? JP Morgan Chairman and CEO, Jamie Dimon.
Dimon is enormously well respected in Washington and Wall Street. He can quickly build a team. He has run very large organizations. He has been a longtime Democratic supporter and publicly promoted President Obama and his plans.
I find it interesting that Dimon’s name was bandied about last October as a prospective leader of Treasury. Market Watch highlighted this fact in reporting The Next Treasury Secretary Is…
As the firestorm over the prospective legislation to restrict Wall Street bonuses grows, do not be surprised to see Dimon ride in on the white horse to broker peace between Washington, the financial community, and the public at large.
LD
Throwing the Baby Out with the Bath Water!!
Posted by Larry Doyle on March 20th, 2009 3:12 PM |
I questioned a Wall Street friend of mine this morning whether Washington in general and the Obama administration and Democratic Congress specifically could be so myopic or actually are so calculating in attempting to enact legislation that would impose tax rates of 70-90% on certain Wall Street employees. My friend quickly responded that the Washington crowd is not that smart.
Make no mistake, the proposed legislation of taxing certain Wall Street employees at 70-90% rates is targeted at addressing public outrage over improperly allocated compensation. However, Washington is utilizing a bazooka when in fact they need a laser.
In so doing, the politicians pushing this legislation are showing themselves to be misinformed and misaligned in understanding the basic tenets of capitalism and free market principles. (more…)
Gimme Credit
Posted by Larry Doyle on March 20th, 2009 8:56 AM |
In the midst of all the wrangling in Washington, Wall Street, and literally all around the world, the biggest concern for everyday Americans is the accessibility of credit. I am sure everybody reading this post has either had issues gaining credit or knows of people who have had issues gaining credit. The knee jerk reaction for this lack of credit is to lash out at those big, bad banks. Well, those big, bad banks along with their smaller counterparts only provide approximately 50% of the consumer credit in our economy.
Where did the other 50% of credit emanate and where did it go? Welcome to the world of asset-based financing and in turn Asset-Backed Securities. I highlighted back on November 12th that the Wall Street Model is Broken…and Won’t Soon Be Fixed. Well, the breakdown and discontinuation of the ABS market is truly the equivalent of the total collapse of one of your lungs. Try to go about your daily business and all of your activities with access to only half the oxygen supply as normal. Might get a little winded? Might struggle to perform? Might tire rather quickly? Might be less efficient and productive? Well, folks, given the shutdown of the ABS market that is exactly what our economy has been experiencing. (more…)
Kangaroo Court . . . MUST READ!!
Posted by Larry Doyle on March 19th, 2009 4:20 PM |
The kangaroo court on Capitol Hill just passed a bill to tax bonus payments at a 90% rate for employees (with family incomes in excess of $250,000) of AIG and other firms that received $5 billion or more in government bailouts. In my opinion, 
this piece of legislation is a poorly constructed means of recapturing government funds.
I have previously stated that firms which were truly bailed out by the government should be subject to strict government compensation controls. A number of firms – such as Northern Trust, JP Morgan, Wells Fargo, and Goldman Sachs – were compelled to take government funds. If employees of these firms are subject to this tax, it will be a travesty and injustice of unprecedented proportions. I believe that Congress is unknowingly escalating class warfare amidst a facade and charade of protecting the public. I believe we will see public outrage from employees at these firms (JP Morgan, Northern Trust, Goldman, Wells Fargo) that can only be rivaled by our forefathers back in the 1770s. This tax is another means of promoting the income redistribution upon which Obama ran his campaign. Taxation without representation is tyranny!!! (more…)
