Category Archives for "Real Estate"

WaMu Fails, JP Morgan Chase Buys Assets in Fire Sale

Now that the cat is out of the bag, I’ll tell you I work for WaMu. At least I did. I guess now my employer is JPM. At least for tomorrow. Time will tell how it all plays out.

Now, on to the important stuff. Your deposits are fine. In fact, they’re safer now than they were yesterday. I implore you, though, to call your federal representatives about the so-called bailout and urge them to just get it done. Iron out the details later.

Read more about WaMu’s demise here — JPMorgan buys WaMu

Money isn’t everything. Enjoy life. Spend time with your family.

Some Experts Say Fed Bailout of Banks Will Be Profitable for Main Street

I tend to agree with Pimco’s Bill Gross, not just because he’s smart, but because he’s right on this one. I’ve been watching Cramer, too, and he seems to think the same.

We have to do this deal. The cost of not doing it is too high. And I do believe that the benefits will far outweigh the costs. Go find an 80 year old who lived here during the Great Depression. While they look upon those years (yes, years, as in a whole decade) with fondness, they would not choose to relive the pain wrought by an economy crippled with no liquidity, no credit, 25 percent unemployment, and picking peaches for 25 cents a box.

Our government froze then. Let’s not freeze now. The time is to act. Let’s not cut off our nose to spite our faces here. Sure, the officers of these companies do not deserve inflated compensation packages; some say they should be making furniture in a federal prison.

But we have time to deal with that later. Let’s pass the darned bill and go to work!

Pimco’s Gross says bailout to benefit Main Street: report: Financial News – Yahoo! Finance

A Picture of the Money Flow to Fund the Government Bailout

A good illustration and explanation on where the money will come from to do this government bailout. For the record, I’m for the bailout, even though we’ll all by paying for this for years to come. But it’s better than the alternative, which, in my humble opinion, was going to be another Depression (with a ‘D’ not an ‘R’).

In that scenario, we’d all be paying but it would be a whole lot more painful and protracted.

Here’s the quick explanation for the flow:

Think about what’s been happening in the markets. The public basically wants out of the private financial system and into Treasuries. But the financial system has been unable to meet that demand, because it can’t sell off toxic paper. Now, under the Paulson plan, the Treasury will buy the toxic paper, which will give the financial sector the funds to pay off debtors, who will use the funds to buy the Treasuries the feds will have to issue to finance the toxic-paper purchases.

Follow the money – Paul Krugman – Op-Ed Columnist – New York Times Blog

Looking For Wall Street Scapegoats: Look No Further Than Chris Cox, Head of the SEC

The current market mess we find ourselves in has a lot of blame to spread around. However, there are a few folks who might benefit from career changes. Some already have succumbed to early termination (Freddie and Fannie heads, for example).

I’m not one to get too much into politics on this site; I leave that to my alter-ego over at Rants for that (not for the faint of heart). This case, unsurprisingly, lends itself to a political perspective.

Way back in the ’30s, the federal government put in measures to protect the market in cases of rapid sell-offs and manias. In essence, if the market rose or fell too fast, systems were in place to bridle the market’s enthusiasm. The measures didn’t necessarily stop the trend (though, in some cases, the market for a particular stock was shut down briefly), but it slowed them down. Over time, additional measures were instilled as market experts learned how to have a mostly “free market” with a lot less volatility than in the past.

AIG got into a big mess (a liquidity crisis) when its stock fell from about $20 to $1.43 in a matter of a few days. Word got around that the company was in dire straits and needed to raise money. Rather than a gradual fall in its stock price, AIG found its stock price falling precipitously, so much so, and so rapidly, that it couldn’t possibly sell any of its $1 TRILLION in assets for anything near their worth. As an example, AIG closed at $12.14 on 9/12 and fell to $1.43 shortly after opening on 9/16. AIG lost 88 percent of its value in barely one full trading day, folks.

The stock, no doubt, was in trouble. So, too, was the company. The faltering stock market and economy didn’t help, either. It was a perfect storm. But did the storm get out of hand? Could something have been done to stop it?


Perhaps not.

We’ve had market crashes and falls before. I got my feet wet as an observer of a market crash in 1987. I wasn’t around for the ’29 Crash. The 90s saw some pretty good falls, too. We had some more in the early part of this decade.

But I’ve never seen companies crash and burn so quickly as I’ve seen recently. I wasn’t really paying attention to the S&L crisis when it happened. But I have yet to hear anybody compare that era with this one in terms of the rapidity of failure.

  • Lehman, bankrupt over the weekend
  • Bear Stearns, bought for a cheap song over a weekend
  • IndyMac, here today, gone tomorrow
  • AIG, down and almost out, and perhaps on its way down again
  • Freddie Mac and Fannie Mae, taken over by the federal government

I don’t see the light at the end of the tunnel, but I know it’s there, and I’m pretty sure it’s not a freight train coming our way.

Times will get better. But I digress.

You want a scapegoat. So do I. It’s you. And it’s greed. And it’s stupid guys put in office who are dumber than dirt.

Like Chris Cox.

Put in office as the head of the Securities and Exchange Commission by President Bush in 2005, Cox, who’s resume looks not much better than Michael “Heckuva Job” Brown (former — and disgraced — head of FEMA during Hurricane Katrina, who’s greatest claim to fame pre Katrina was as a horse judge, whatever that means):

From 1977 to 1986, Cox was first an associate and then partner with the international law firm of Latham & Watkins. At the time of his retirement in 1986 he was the Partner in Charge of the Corporate Department in the Orange County office, and served as a member of the firm’s national management.
In 1984, Cox co-founded Context Corporation, which produced daily English reproductions of the leading state-controlled newspaper in the Soviet Union, Pravda. The publication was used chiefly by U.S. universities and U.S. government agencies, and was eventually distributed to customers in 26 countries around the world. The company had no connection to the Soviet government.
In 1982–83, Cox took a leave of absence from Latham & Watkins to teach federal income tax at Harvard Business School.

In short, Cox was a lawyer who didn’t have any experience with the stock market, not even a small exchange.

Cox sought to make the stock market “freer.”

So he stopped enforcing the rules and relaxed the systems put in place to protect the market from too much momentum.

It’s the momentum that kills, not the downward pressure on prices. Let’s go back to AIG. Had they enough time to sell off a few pieces of their business (remember, they had $1 trillion in assets), they could have met their short-term obligations and the government would not have had to come in to rescue them with a bridge loan.

You know who pays for government bailouts? You and me.

Specifically, the rules have been in place for a long time prohibiting naked short selling (according to Wiki):

Naked short selling, or naked shorting, is the practice of selling a stock short without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale. When the seller does not then obtain the requisite shares, the result is known as a “fail to deliver.”

…Naked shorting is widespread and … the SEC regulations are poorly enforced, although the SEC has denied these claims.

The “short sellers” have obliterated this market. They are to blame. Now, I’m not saying that they don’t play a vital role in making the markets work; however, what I am saying is that left to their own devices, people with bad intentions, or not so good intentions, can effect bad outcomes.

They’re jackals killing a wounded lion. I suppose for all the “free marketeers” that the stock market is like the jungle. But for most of us, whose retirements count on the stock market (after all, it’s been the government whoring out the 401k and IRAs), it’s not a jungle. Sure, it has its pitfalls, but there are rules to play by. 

And nobody’s playing by them. Or, worse yet, the rules were changed and we didn’t even know about it.

So, in short, President Bush appointed another friend with zero experience and intelligence in a high position of power and we got hosed because of it. “Brownie, meet Mr. Cox.”

I’m not saying the market would be fine and dandy, but it surely would not have fallen so far so fast.

Of course, now that John McCain has announced he’d fire Mr. Cox, the media has jumped on the bandwagon. Here are some stories from around the ‘net.

SEC’s Cox Catches Blame for Financial Crisis
McCain says he would fire SEC head Christopher Cox
Fire Christopher Cox?
SEC Issues Temporary Ban on Short-Selling
Bush backs SEC’s Cox after McCain says would fire him
Financial Crisis and Short-Selling

Next Big Market Mover: Goldman Sachs to Buy Major Bank

I work in the banking industry; I’m naturally skittish right about now (and have been for over a year now), darn it!

Today, my “out-of-left-field” thinking led me to the idea that a major bank (let’s call it WaMu) would merge with Goldman Sachs. This quote from GS’ CFO cements the deal for me (which I read after my epiphany and to which I’ve added my emphasis):

Chief Financial Officer David Viniar appeared to strongly rebuff the market’s growing sentiment that the fabled Wall Street firm should find a traditional bank with whom it can merge. “Most assets we have couldn’t be funded by deposits” at a traditional bank, Viniar said on a conference call with analysts to discuss Goldman’s third-quarter earnings. In the last six months, two struggling Wall Street investment banks have been acquired by large commercial banks – including yesterday’s purchase of Merrill Lynch & Co. (MER) by Bank of America Corp. (BAC) – and a chorus of analysts and investors have speculated that Goldman will enter a similar merger. Traditional banks typically enjoy more stable businesses, as well as the ability to borrow money inexpensively from depositors. As a result, these commercial banks have become natural merger partners for struggling investment banks, whose businesses are typically more volatile in nature, and much more vulnerable to negative market sentiment as well as the need to borrow capital at expensive terms.

So here’s the deal: Goldman will do the opposite of what’s been done recently: Rather than a retail bank buying an investment bank, the hunter becomes the hunted and the investment bank buys the retail bank.

Bank of America just became the biggest investment bank in the country with this deal:

Overnight, the deal will make Bank of America the county’s largest player in wealth management. It already runs the biggest branch banking network and it is the biggest issuer of small business, home equity and credit card loans. The Countrywide deal made it the nation’s biggest mortgage lender, too.

Goldman cannot afford to let BofA get bigger. Goldman had to say what they said today. Their stock had already taken a bath based on the horrible earnings announced today. They have to wait for several days before they can do anything because their deal will most definitely be a stock deal. First, they have to wait until their stock rises a few dollars per share. Then, they do a deal. Now, of course, I have no inside information and haven’t bought anything, but I think a deal is imminent. It’s a matter of who buys whom. The “if” is no longer a question.

This is a time of unprecedented consolidation.
Mark my words.

Either that, or Schwab buys WaMu. Either one works and broadens the market coverage of the dealmakers.

Money isn’t everything. Enjoy life. Spend time with your family.
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