They Didn’t Pass It!

Posted by Ray on September 29, 2008 under Main | Read the First Comment

I thought this was a done deal, it just need a ceremonial vote and it was in. However, it did not go as planned…thanks to the Democrats, in part. The whole thing is just plain dumb, but Pelosi and Reid just keep opening their mouths and mess things up. We do not like this package, it is bad for us and the country as a whole, but at this point it is time that we pass it.

Clearly, given the markets reaction to the idiocy in Washington it has to go through. With the market declining, probably a 1,000 points tomorrow as well, it opens a new can of worms. Minimum capital requirements by brokerage firms. Given that most brokerages are now banks this allows them to borrow at the Fed Discount rate, 1% currently, which is a good thing in today’s market. However, brokerages must have minimum levels of capitalization in order to be in compliance.

Guess what? What was used as collateral where mortgage backed securities. Now you have a credit crisis with no readily available credit to firms that will need to increase their requirements given market volatility. Without this capitalization firms can be in trouble, this may not be a huge problem, but it is now out there. It is a sure bet that the market is going to have a very, very bad day tomorrow. This thing is far from over.

We briefly reviewed the bill today and it was not very good, in our opinion. The compensation restrictions had loopholes that you could drive a truck through. The payout of the bailout was a joke and will do little but boost market confidence at first. There is still no real protection for home owners, a little, but not much and there is no emergency bankruptcy protection for the US citizens. Given the fact that financial services firms just screwed us all wouldn’t you think that they would throw a bone to the US citizen in big financial trouble?

Emergency bankruptcy protection would allow you to go bankrupt without the means test and would allow the bankruptcy to be removed after 3 or 5 years. Giving a bailout to the crooks on Wall St. should allow our government to do something for us. Don’t get us wrong, very few people need to go bankrupt, but given the current situation bankruptcies will be on the rise so protection is needed from the government, like they actually care, but it needed to be said.

Another option is to give this money to us, the citizens, to save, spend on our mortgage or invest. This would boost the economy, create value in the martgage backed securities and we could probably leave some of the bad apples on Wall St. to rot for awhile. There will, even if this thing is passed, be major bank failures in the future, but not passing this thing was a real blow. We expect some significant failures to occur in the next 48 to 72 hours.

Of course, Congress is off for a couple of days…man they work hard…which will cause the markets to take heavy blows over the next 2 days. We are expecting that the best case scenario is a 1,000 loss over the next couple of days and a worst case scenario of a 3,000 point loss. This is speculation, but it is probably a reality. Regardless it will be a bumpy ride to say the least.

So, THANK YOU Pelosi, Reid and Frank for opening your big fat mouths. This is not a republican problem, this is not a democrat problem it is an AMERICAN problem so do what we do best….FIX IT and shut the hell up.

We Were a Little Off

Posted by Ray on under Main | Be the First to Comment

We figured Wachovia had until Wednesday at the latest for the bailout package to make a difference for them, Tuesday was a more likely scenario though. Based on what we saw, we figured National City would fall first followed by Wachovia. I guess at the end of the day it does not really matter.

Was this a bank failure? That depends on what you are looking at and who you believe. The FDIC arranged the sale to Citi which means that they were on the verge of failing. As you know, we made the call of who we thought could fail and most of the predictions were correct. We believe that National City is the next to go, unfortunately.

What is very sad is the fact that if the bailout package went through last week then this would not have happened. While we oppose this package it was goign to pass, that was a given. However, this package could have been completed on Thursday of last week, but Congress, in their infinite wisdom, decided to attach pork to the bill and then dragged their feet for 3 extra days.

Then, Yesterday, Pelosi, Reid, Frank and Dodd told us they have a bill and then proceeded to tell us how great they were for compromising on everything. What they didn’t tell you was that their incompetence cost us another huge bank with more waiting in the wings. To think that they saved us is just dumb, they are now part of the problem.

This was never a Republican or Democrat issue, this was an American issue and they failed us, miserably. We are nonpartisan, but believe that the dems, in this case, dropped the ball and should bear responsibility. While the republican administration and Congress screwed up, the dems had control for 2 years. The point is they need to politics on the sideline right now to fix this problem.

We have yet to get a copy of the plan as the website is still clogged, but we will voice our opinion on it when it is reviewed. Hold on as the next few days in the market are going to be a wild ride.

The Blame Game Begins

Posted by Ray on September 26, 2008 under Main | Be the First to Comment

It was bound to happen, soon rather than later, that Washington would start the blame game. Senator Reid was just on and said that this is a Republican problem. That is simply not true, totally.

We are not partisan, at all, but we do give the Republicans more blame than the Democrat’s for one simple reason, they had control for 6 years. However, for the last 2 years, the Democrat’s have been in control of Congress. To lay blame is just plain dumb right now. Both parties took money from the financial services industry, so to say one party is guiltier than the other is dumb. They are all crooks.

On another note, WaMu is now bought by J.P. Morgan for $1.9B in one of the most necessary buyouts of our lifetime. What is amazing is that WaMu had $330B in total deposits and they were bought for $1.9B… do you think there was a problem there?

While this buyout averted one major bank failure there are more to come. We have had 12 banks fail this year, but there are a few big ones to watch, specifically Wachovia. This bailout and now the politicizing of this event is just ridiculous and it will make this not work. We hate the bailout, as you already now, but at this stage it is going to be passed so these people, our elected officials, need to make sure we get the most equitable deal possible.

The thing is a farce, but if they are going to do it then they need to do it right.

Presidential Address

Posted by Ray on September 24, 2008 under Main | Be the First to Comment

After watching the Presidential address I am totally convinced that we should just turn over $700 Billion to the banks without any oversight or judicial review. It makes sense, the president laid it our perfect for us. Yes, I am kidding and is he kidding us?

15 minutes, that is the length of his speech, 15 minutes. Besides the fact that he was beat red and stumbling on his words, both indications that he didn’t even believe the words that he was saying, he totally simplified the problem and the solution.

They keep saying that the banks need to extend credit and that is true, but so fundamentally wrong. We cannot operate on credit forever and the fact that they use the line; “so you can buy the car that you need” is ridiculous. No one ever really needs a new car, they want one and there is a huge difference between need and want.

Basically, they want to unload these things on us to allow the same people who screwed everything up to continue screwing everything up. If these things were so good, like Buffet said – I know its bad to knock the God Buffet – then why didn’t he buy $5 Billion of these securities. He can get them at 25 to 75 cents on the dollar, but he said no to that. Instead he loans money directly to Goldman at 10% interest and warrants to buy stock at $115 a share, a sweet deal. But, Buffet is great at getting people to buy what he wants them to buy because he already has his position. He is no Oracle, he is simply smart, built a brand and the sheeple follow.

I am no fan of the President, but he cannot take full blame for this mess, a big part of it, yes, but not all of it. Congress are the ones who has committees and oversight duties, not the President. They all have to take the blame and stop pointing fingers because they will, ultimately, not like where the finger is being pointed. They did this and they should, if this is such a good deal, be forced to put a significant part of their net worth into these things before tax payer money.

You must raise the question, if these things are so great then why are no other entities buying them? We need to do something, but not just buy them from the banks. If they are going to work out then loan them the money, with all the restrictions you want, at 11% interest while using the securities as collateral. Then we can hit them with all sorts of penalties and new regulations, but we would not have to spend the money and hold the junk debt.

Take a Step Back

Posted by Ray on under Main | Be the First to Comment

Bernanke, Paulson, the media and Wall Street are still selling this bailout. The committee meets today were a joke and they were straight-out asking these guys how to sell this to you, the voter. While doing nothing will certainly cause severe financial pain doing this plan will cause more.

Here is what we are struggling with, they keep saying that you and I will benefit from this bailout because they are buying assets, not simply giving the firms money…but they are. They keep saying that these investments, long-term, will be profitable so if these things are so profitable and good for us then why are the banks desperate to get them off their books? You also have to remember that these securities have maturity dates ranging from 10 to 40 years, do you hear them telling you this? Nope, they avoid that topic.

Also, if they are such great investments why are the super rich not buying them? While we do think that they are going to be profitable investments we also think that the government has zero business buying this stuff. The security is also not the problem, it is the fact that they were leveraged, they could have done the same thing with US government issued bonds, but they did not.

So to recap, they want us to buy securities that may be profitable over 40 years, hire the same people who traded them to buy them for the government, give Wall Street the freedom to issue more credit (because they did so well the first time), and let you pay for these things through taxes. Not to mention they are still collecting interest on your monthly payments. How does that make good policy?

Are there going to be repercussions to the CEO’s and CFO’s who did this? Are they going to have to give up their net pay from the last 5 years? Are there going to be indictments? Are they going to cap executive pay? Will the Countrywide CEO payback his $100M golden parachute? Nope, nope, nope, nope and nope.

Simply put they want to create credit for corporations, not us. They want you to believe they are unfreezing credit markets, but they are unfrozen. Credit is still be issued, check your mailbox you will see, they simply want to unfreeze this one market, sub-prime securities. Do not forget the Fed is loaning money out at 1% and have injected over a Trillion dollars into the market over the last 13 months, not including Fannie, Freddie and AIG…that’s 2 Trillion dollars.

In order for the market to recover it must fail. It has failed and those who caused this must pay. If they do this package they are merely postponing the inevitable and we will have $700B less to help when this happens, a major bank failure. We have to realize that this whole situation started 20 years ago.

Greenspan worked hard to open the credit markets to everyone. The Democrats and Republicans worked hard to deregulate the markets, specifically Glass-Steagal, No one can pin the blame on one party, it was both of them, but you can blame one man…Greenspan. He is no maestro or genius his loose monetary policy created this problem.

This bailout is a perversion of law and common sense.