Jeremy Grantham "Night of the Living Fed’

After this post i will continue with my temporary "time out"...Image was just too spot on to pass and is topping even the "They Won´t Stay Dead" version".....

Werde nun meine wohlverdiente Pause fortsetzen....Konnte bei dieser wohl treffensten Illustration seit langem einfach nicht wiederstehen.....Toppt sogar noch die "They Won´t Stay Dead" Version...

Grantham October

Unlike Grantham i think this is a not a bad long term hedge against the wisdom of the "Central Banksters"... ;-)

Selbst wenn einer wie Grantham es etwas anders sieht denke ich das dies langfristig nicht die schlechteste Absicherung gegen die geballten Wesiheiten der weltweiten ( aber inbesonders der angelsächsich geprägten ) "Central Bankster" ist....;-)

Meridth Whithney "I Havn´t Been This Bearish In A Year"

So do i...... But at least from this point of view the market looks "rationale";-)

Genau wie ich ... Immerhin stimmt die Martbewertung wenn man diesen Maßstab ansetzt..;-)

Unlike Bernanke ( H/T Maxgreen) she at least managed to influence the $ longer than 30 minutes......No Surprise ;-) UPDATE : Bernanke vs. Meredith Whitney Mish

Im Gegensatzu zu Bernanke ( H/T Maxgreen ) hat Sie es zumindest geschafft des Verlauf des $ länger als 30 Minuten zu beeinflussen.... Keine Überraschung ;-) UPDATE :Bernanke vs. Meredith Whitney Mish

No Kidding..... S&P Is Acting Responsible & Threatens To Blow Up Fed´s CRE Bailout Stunt Via TALF

Pobably the most underreported news from yesterday... The timing of the move ( a tsunami is not an overstatement ) makes it even more remarkable..... To put this in context lets remember that last week the Fed has continued with the "war on taxpayers" and has decided to bail out large parts of the commercial real estate complex ( see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). The only precondition was....

Kaum zu fassen das gerade die Ratingagentur S&P verantwortungsvoll ( wenn auch einige Quartale zu spät ) reagiert und das Offensichtliche ausspricht. Praktisch alle in den letzten Jahren vergebenen Kredite die durch gewerblich genutzte Immobilien abgedeckt sind drohen analog dem privaten Wohnungsmarkt zu implodieren. Das besondere ist der Zeitpunkt der Ankündigung..... In der letzten Woche hat die Fed in der gewohnt verantwortungslosen Art und Weise beschlossen einen Großteil der gewerblichen Immofinanzierung mit Steuergeldern zu einem Bailout zu verhelfen der aufgrund der schieren Größe des Sektors leicht & locker die 100 Mrd $ übersteigen könnte ( siehe Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). Wenn man nun noch den heutigen Treasury Crash hinzunimmt dürfte das nachfolgende Bild nicht wirklich übertrieben sein........ :-)

An "AAA" rating.....

Die einzige Voraussetzung zur Teilnahme an der Party war ein AAA geratetes Papier....

Current Ratings: As of the TALF loan closing date, the CMBS must have a credit rating in the highest long-term investment-grade rating category from at least two TALF CMBS-eligible rating agencies

Should be no surprise to see that the Fed is deperate to get this kind of crappy collateral with exploding delinquencies onto their balance sheet......Just in time........ Make sure you see more "encouraging" CRE charts via Realpoint / Zero Hedge. Interesting to see that Realpoint is also a "TALF CMBS-eligible rating agency". Judging from their charts & comments it is unlikely that they will "help" the Fed...... Add todays Treasury Crashand i think the picture from Bernanke is even more spot on....... :-)

Inzwischen sollte es keinen mehr überraschen das die Fed eine der am schnellsten implodierenden Anlageklassen auf Teufel komm raus in Ihre Bilanz holen möchte..... Wie dramatisch schnell sich die Lage im gewerblichen Bereich verschlechtert verdeutlichen diese Charts via Realpoint zeigen. Diese Charts sind umso aussagekräftiger wenn man bedenkt das Realpoint ebenfalls zum ausgewählten Kreis der 5 Ratingagenturen gehört denen es erlaubt ist die CMBS zu raten. Nach allem was ich bisher von denen gelesen habe dürften die Kopfschmerzen der Fed eher noch zunehmen.........

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S&P To Downgrade Most Of 2005-2008 CMBS Classes, Derails TALF For CMBS

It is likely that the proposed changes, which represent a significant change to the criteria for rating high investment-grade classes, will prompt a considerable amount of downgrades in recently issued (2005-2008 vintage) CMBS.

Classes up through the most senior tranches of outstanding deals (so-called "A4s," "dupers," or "super-duper seniors") are likely to be affected. Our preliminary findings indicate that approximately 25%, 60%, and 90% of the most senior tranches (by count) within the 2005, 2006, and 2007 vintages, respectively, may be downgraded

Once more i have to quote Tyler ( the man who needs obvioulsly no sleep ) from Zero Hedge.....

Einmal mehr muß ich Tyler ( der Mann braucht anscheinend keinen Schlaf ) von Zero Hedge....

"And all this just days after the government had finally drafted what it hoped was the last and final version of its TALF term sheet. Lets rewind: in the May 19th version of TALF, in order the be eligible, CMBS "must not have a rating below the highest investment-grade rating category from any TALF CMBS-Eligibile Rating Agency." Throw in a downgrade of 90% of the 2007 vintage and it's time to go back to the drawing board.....

Basically, the impending downgrade would make Super Duper CMBS ineligible for TALF

It is a safe bet that the Fed will come back as soon as a week from today and announce TALF 364.7, in which the requirement for a current AAA rating is eliminated altogether.

In fact, as I speculated (jokingly), anything rated Default or higher will soon be perfectly eligible collateral for taxpayer funding. Because that's just how good a fiduciary of taxpayer money the Federal Reserve is."

> I think he is right..... Another stunt could be that the other agencies ( TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) with Realpoint the exception ( see earlier link ) are as "helpful" as always and won´t issue any downgrade until the TALF is working and the most toxic stuff is already on the Fed´s balance sheet......

> Nach meinen Erfahrungswerten was die Fed angeht dürfte Tyler recht haben..... Eine weitere Möglichkeit wäre allerdings auch das die anderen zugelassenen Ratingagenturen(TALF CMBS-eligible rating agencies are DBRS, Inc., Fitch Ratings, Moody’s Investors Service, Realpoint LLC and Standard & Poor’s ) wie bisher beide Augen verschliessen und mit Ihren Downgrades "hilfreich" warten bis TALF implementiert und die "giftigsten" Papiere bereits in der Fedbilanz gelandet sind..... Möchte Realpoint ( siehe vorherigen Link ) von meiner Kritik ausdrücklich ausschließen

What happens if an ABS that was eligible for TALF financing is downgraded by an NRSRO?

Nothing happens to existing TALF loans secured by that ABS. However, the ABS may not be used as collateral for any new TALF loans until it regains its status as eligible collateral.

I highly recommend the blog Zero Hedge ( soon on my blogroll ). Here is much more from Tyler on the CMBS topic. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

Ihr merkt schon das ich den Blog Zero Hedge für extrem lesenswert halte ( findet sich demnächst sicher auch auf meiner Blogroll wieder ). Empfehle zudem die gesammelten Werke von Tyler zu diesem Thema. UPDATE: Report: $75 billion of CMBS Market Capitalization Lost in Two Days

Chart Of The Day - " 90 Day Delinquency Rates In Spanish RMBS"

One or two more quarters and the 2008 vintages are already catching up with 2005....Let´s hope the ECB with their € 60 billion QE in covered bond purchases ( Update : ECB Said to Have Debated 125 Billion-Euro Asset Package in May ) isn´t getting as reckless as the Fed ( for their latest latest stunt see Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ) or the spanish central bank with their brilliant move in selling gold to buy spanish mortgages ( see here).....

Noch ein oder zwei Quartale und die 2008er Daten der "überfälligen" Hypothekenzahlungen werden bereits die für das Jahr 2005 locker hinter sich gelassen haben.....Bleibt zu hoffen das die EZB mit Ihrem QE Versuch ( Kauf von € 60 Mrd Covered Bonds / Pfandbriefen UPDATE: ECB Said to Have Debated 125 Billion-Euro Asset Package in May ) zumindest nicht ganz so unverfroren und unverantwortlich agiert wie es die Fed ja momentan im Wochenryhthmus praktiziert ( siehe gestriges Beispiel Fed Bends Over Backward For CMSA, Will Feed Inflation Capacitor With More Toxic Garbage via Zero Hedge ). Wie bereits vorher berichtet ( siehe hier ) übertrumpft die spanische Zentralbank mit der Entscheidung Ihre Goldreserven zu vertickern und dafür in spanische Hypotheken zu investieren aber selbst Bernanke. Und das ist wirklich ne reife Leistung........ Geradezu Oscarverdächtig......



Hat tip FT Alphaville

With unemployment running close to 20 percent i think it is a safe bet that we are just starting to see the pain ( despite the relief from lower interest payments, almost 100 percent of mortgages have variable rates ( see European Mortgage Market / Percentage Of Variables Rates ) and the Spanish borrower is benefitting heavily from the 1% EZB rate ) But i doubt that this will lead to a much different outcome than in the US ( see A Delinquent Spike / Chart US Delinquencies ) .......

Dank einer Arbeitlslosenquote von knapp 20% dürfte hier demnächst eine Explosion an faulen Krediten fast garantiert sein ( und das trotz der massiven Entlastung durch die sinkenden Zinsbelastungen, im Gegensatz zu Deutschland werden fast 100% der Hypotheken variabel verzinst ( siehe European Mortgage Market / Percentage Of Variables Rates ). Es gibt europaweit wohl kaum eine Kreditnehmergruppe die mehr vom momentanen 1% Leitzins der EZB profitiert , ich denke das selbst dieser Fakt ein ähnliche Entwickluung wie in den USA ( unbedingt den Chart angucken A Delinquent Spike / Chart US Delinquencies ) bestenfalls verlangsamen kann......

UPDATE: Scrutiny of Spain’s potential banking pain increases & Spanish banking pain, Caja Madrid RMBS edition

Caja Madrid - Spain’s second-largest savings bank - said it would skip EUR1.12m in interest payments on residential mortgage-backed securities due to soaring defaults on the underlying home loans.

Caja Madrid issued its RMBS II bonds in 2006....

When defaults reach 18.3 percent, all investors except for those in the highest-ranked notes will be cut off, according to Standard & Poor’s. About 16 percent of the underlying mortgages are now either in arrears by more than 90 days or have already defaulted, S&P data show.

Caja Madrid has sold 9.2 billion euros of mortgage-backed bonds since 2006 in four transactions, according to data compiled by Bloomberg. The lender packaged home loans it made to borrowers at the peak of Spain’s 14-year real-estate boom

Spain Bubble Watch

For a decade, the Spanish housing sector enjoyed uninterrupted growth, as low interest rates encouraged borrowing. Average house prices have nearly quadrupled during the past 10 years. About 750,000 homes were built in Spain in 2006 -- more than in France, Germany and the U.K. combined.

Ben, You Have A Problem......

So far the QE hasn´t worked.....Must be due to all the "Green Shoots..... :-) Enjoy the following images...... I wish everybody a nice weekend.....

Bisher hat das sogenannte Quantitive Easing ( also der Kauf von u.a. Staatsanleihen durch die Notenpresse ) keine Wirkung gezeigt. Böse Zungen könnten gar behaupten das das Gegenteil der Fall ist. Könnte natürlich auch an den täglich bejubelten "Green Shoots" liegen ( Meine Meinung hierzu dürfte bekannt sein....) Ich kann eine gewisse Schadenfreude nicht verhehlen. War aber auch wirklich irrwitzig zu glauben das man mit schlappen 300 Mrd. bei der gleizeichtigen Lawine von Billionen an neuen Anleihen nachhaltig Einfluß nehmen kann. Da auf Ben aber Verlaß ist können wir uns jetzt schon mal gedanklich darauf vorbereiten das die nächste Ankündigung des QE um einiges größer ausfallen wird. Bleibt zu hoffen das die Ausländer diese einmalige Gelegenheit nutzen um sich Ihrer Papiere zu entledigen.... Lasse die nachfolgen Bilder und Charts mal ohne weiteren Kommentar stehen und wünsche ein schönes Wochenende.....

Karl Denninger

Contrary Investor

"The Emporer Has No Clothes, But Who Dares To Say It"

Jesse´s Cafe Americain is once more spot on... Thanks :-)

Jesse´s Cafe Americain trifft mal wieder den Nagel auf den Kopf.... Besten Dank :-)

larger/größer

Is There Anybody Out There Believing That There Will Be A "Transparant" Bad Bank........?

If the recent handling from the Fed & Treasury ( and their western counterparts ) is offering any guide i think the chances that we will see much transparancy is not looking very promising ( same has hapened in Germany with the IKB bailout ) . That Obama has choosen Geithner ( just a younger version of Paulson ) isn´t quite helpful and was a big disappointment ( see also the "rant" from Barry Ritholtz The Moral Hazard of the “Bad Bank” ). Read the following articles and it should be clear that there is no way the Bad Bank will pay nowhere near market prices and make the process of how they "model" their inflated "market price" transparent..... Just another attempt to rip off the taxpayer and to avoid the long overdue punishment of equity and especially debt investors......

Wenn die bisherige Handhabung der Bailouts von Seiten der Fed und des Finanzministeriums ( gleiches gilt auch für Steinbrück in Sachen IKB/KFW!) irgendwelche Anhaltspunkte geben wie es bei der kommenden Bad Bank um die Transparenz bestellt sein wird sieht es, wie nicht anders zu erwarten, zappenduster aus...... Trotz aller großen Reden Obamahs das in allen Bereichen vollkommene Transparenz obersterstes Gebot seiner Regierung sein wird. Das Obama ausgerechnet Geithner nominiert, hat der schon zu Zeiten als Fed Verantwortlicher eine einzige Katastrophe gewesen ist und mir eher wie ne jüngere Version von Paulson vorkommt, spricht Bände ( siehe auch die wenig schmeichelhaften Kommentare zu Geithner via Barry Ritholtz The Moral Hazard of the “Bad Bank” )...... Lest bitte die folgenden Artikel und es dürfte kristallklar sein das die Bad Bank nicht mal ansatzweise aktuelle Marktpreise zahlen wird. Zudem dürfte es keinerlei schlüssige Erklärung geben wie die Bad Bank die deutliche Überbezahlung der Anlagen rechtferigen kann...... Alles in allem ein weiterer Versuch den Steuerzahler ohne entsprechenden Gegenwert die Last der geballten Inkompetenz der Bänker und Aufseher zu schultern..... WICHTIG: Unbedingt diesen Link "Bad Bank - Bad System" von "Querschüsse" lesen um am Beispiel der Wets LB mit offenem Mund zu bestaunen was für Lasten kommen werden.....

> I think it´s safe to say that you can add central bankers to this list......

> Ich denke man kann getrost auch die Zentralbänker dieser Welt dieser Liste (Cartoon) zuordnen.....

Obama Records Pledge Tested By Citigroup Guarantees Jan. 29 (Bloomberg) -- U.S. government guarantees on securities totaling $419 billion for bank bailouts provide an early test of President Barack Obama’s pledge to be open with taxpayers about what they have at risk in the credit crisis.

Bloomberg News asked the Treasury Department Jan. 26 to disclose what securities it backed over the past two months in a second round of actions to prop up Bank of America Corp. and Citigroup Inc. Department spokeswoman Stephanie Cutter said Jan. 27 she would seek an answer. None had been provided by the close of business yesterday.

As Congress debates an $875 billion economic stimulus bill, the guarantees represent a less publicized commitment. The public’s stake has grown along with assurances tying the Treasury to the fate of corporate loans and securities backed by home mortgages, car loans and credit card debt.

Obama promised a new era of government openness as he took office last week, issuing a statement telling agencies “to adopt a presumption in favor of disclosure” in responding to requests under the Freedom of Information Act. Treasury Secretary Timothy Geithner and Lawrence Summers, head of the National Economic Council, said they would emphasize accountability and transparency in using the second half of a $700 billion bank bailout fund.

New Disclosures

Late yesterday, Geithner’s office put hundreds of pages about the fund on the department’s Web site. They did not include documents describing the guaranteed assets.

Members of Congress from both parties have complained about the Bush administration’s lack of disclosure about the spending of the first $350 billion from the fund.

“We have requested information in the past three months and have been rebuffed by the administration,” said Representative Scott Garrett, a New Jersey Republican and member of the House Financial Services Committee. “President Obama comes down the pike now, and maybe, in a week or a month, we’ll know.”

Last fall, the Federal Reserve declined to identify the recipients of about $2 trillion in emergency loans from U.S. taxpayers or the assets the central bank is accepting as collateral.

Fed Is Sued
Bloomberg News asked for details of the lending on May 21 and filed a federal lawsuit against the Fed Nov. 7 seeking to force disclosure. The loans were made under the terms of what became 11 programs in the midst of the biggest financial crisis since the Great Depression. Arguments in the suit may be heard by a judge as soon as next month, according to the court docket.

Bloomberg filed a FOIA request yesterday for the list of what was covered by the Citigroup and Bank of America guarantees. Bloomberg asked for records on the fees paid by banks to the government, which securities were rejected for guarantees, as well as any contracts for data services and experts to assess the value of the securities.

Under the information law, passed by Congress in 1966, Treasury has 20 working days to respond to Bloomberg’s request. The measure allows nine exemptions, such as trade secrets or national security, for blocking disclosure.

During his confirmation, Geithner, the former president of the Federal Reserve Bank of New York, didn’t directly answer a senator’s request for more information about Maiden Lane LLC, a special-purpose entity that holds assets from the takeover of Bear Stearns Cos. by JPMorgan Chase & Co.

$301 Billion Guarantee

Citigroup’s guarantee package, completed Jan. 16, totals $301 billion. It kicks in after the bank goes through its $9.5 billion in current loan loss reserves and the first $29 billion of losses. The government also gets $1 billion of the bank’s benefit from hedging contracts. The Treasury, the Federal Deposit Insurance Corp. and the Fed then assume 90 percent of losses from those assets.

Citigroup’s guarantees include $191 billion of consumer loans, with $55.2 billion of them second mortgages, according to a Jan. 16 news release from the bank. Securities backed by commercial real estate total $12.4 billion and corporate loans add $13.4 billion.

> Unfortunately the US is not alone in this kind of behavior ( see ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) On top of this our rumored German version of the Bad Bank is structured in a similar way.......

> Unglücklicherweise macht dieses Beispiel Schule..... ( siehe ING Gets Massive Dutch Bailout.... Dumping € 27.7 Billion Alt-A RMBS On The Dutch Taxpayer........ ) Nach allem was man von Steinbrück hört droht uns in Deutschland eine ähnlich skandalöse Konstruktion......

Citigroup has received $45 billion in cash from selling preferred securities to the government under the Troubled Asset Relief Program.

$118 Billion
Bank of America’s agreement, announced the same day, is similar: $20 billion in cash aid, bringing the total to $45 billion,

and $118 billion in asset guarantees. The government said the assets included securities backed by residential and commercial real estate loans and corporate debt and associated derivatives and hedges

. Scott Silvestri, a spokesman for the Charlotte, North Carolina-based bank, declined comment.

Merrill Lynch & Co., which was bought by Bank of America, was the underwriter for $49.4 billion in defaulted collateralized debt obligations, the most of any bank, since October 2007, according to data compiled by Standard & Poor’s and Bloomberg.

Merrill was the biggest CDO underwriter from 2005 to 2007, with more than $102 billion, said Sanford C. Bernstein & Co. research analyst Brad Hintz.

Since October 2007, Bank of America underwrote under its name $15.1 billion in failed CDOs, according to S&P and Bloomberg. Banks have so far understated losses on such securities, and “the tsunami is on the horizon,” Hintz said.

‘Going to Be Huge’

Past sales of CDOs valued them at pennies on the dollar. In July, New York-based Merrill sold $30.6 billion of the securities to an affiliate of the Dallas-based investment firm Lone Star Funds for $6.7 billion. Merrill provided financing for about 75 percent of the purchase price, and the sale valued the CDOs at 22 cents on the dollar.

“By June, it’ll become clear that these guarantees are being drawn and they’re going to be huge,” said Christopher Whalen, managing director of Institutional Risk Analytics, a financial-services research company in Torrance, California. “Every day that goes by, Congress figures it out just a little more.”

High Dive Into the Toxic Pool WSJ

Goldman Sachs Group estimates that troubled assets could exceed $5 trillion, if defined as assets that could show a loss rate close to, or above, 10%. To put that in context, $5 trillion is just over 40% of the $12.3 trillion in total assets of U.S. commercial banks.

> Some of the estimated loss rates ( Commercial, Alt-A, Second Lien) seems overly "optimistic...... Will be (no) fun to watch how big the haircut will be and what kind of "magic" formula they will use to defend their "value estimate" when the Bad Bank will take over the toxic paper..... Here is another view via Naked Capitalsim Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)

> Nach allem was ich so mitbekomme sind einige der Annahmen zu den kommenden Verlusten ( gewerbliche Immobilien, Alt-A, Home Equity Loans) reichlich "optimistisch......Wird sicher (k)ein Spaß zu sehen sein zu welchen Werten diese Positionen in die Bad Bank gehen werden und mit welch "magischer" Formel der Wertansatz gerechtfertigt wird..... Eine weitere Meinung kommt von Naked Capitalism Goldman: Bank Rescue May Reach $4 Trillion (and "Bad Bank" Issues)

Option ARMs See Rising Defaults WSJ

Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance, an industry publication. Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders.

..... more than 55% of borrowers with option ARMs owe more than their homes are valued at, according to J.P. Morgan Securities Inc.

As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics, a data firm that analyzes mortgage performance. That compares with 23% in September. An additional 7% involve properties that have already been taken back by the lenders. By comparison, 6% of prime loans have problems.

Problems with subprime are still the worst. Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period.

Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs

, which assumed a further 10% decline in home prices. That compares with a 63% default rate for subprime loans originated in 2007. Goldman estimates more than half of all option ARMs outstanding will default.

In a recent conference call, Bank of America said it had added $750 million to its impaired portfolio reserves to offset higher-than-expected losses related to its acquisition of Countrywide Financial Corp. The company said the increase "was focused principally in the pay option ARM product." This week, Wells Fargo said $59.8 billion of its "Pick A Payment" option ARM mortgage portfolio was "credit impaired," including $24.3 billion in loans on which the company has taken a credit write-down.

> Mhhhhh, i wonder how much of this paper will end at the Bad Bank......

> Tippe mal das wir einen gewaltigen Teil aus den unten aufgeführten Bilanzpositionen demnächst in der Bad Bank wiederfinden werden.....

Why Meredith Whitney thinks a “bad bank” is a bad idea FT Alphaville


> Here comes a reminder on how "honest" you should take the estimates for taypayer losses when they come from the Fed, Treasury or 90% of politicians......

> Nur zur Erinnerung wie glaubhaft Aussagen zu möglichen Verlusten für den Steuerzahler sind die von Seiten der Notenbänker, Finanzminister oder von 90% der Politiker kommen verweise ich auf das Beispiel Fannie Mae und Freddie Mac......

Fan and Fred's Lunch Tab WSJ

It seems a lifetime ago, but it's only been six months since the Congressional Budget Office put a $25 billion price tag on the legislation to bail out Fannie Mae and Freddie Mac. At the time, then CBO Director Peter Orszag told Congress that there was a "probably better than 50%" chance that the government would never have to spend a dime to shore up the two government-sponsored mortgage giants.

A spokeswoman for Fannie promoter Barney Frank said then, "we especially like that there is less than a 50% chance that it will be used." The CBO had figured that there was a 5% chance that losses would reach the $100 billion cap on the credit line created by the July law. Now CBO's best guess is more than double that.

The bigger picture here is that politicians like Mr. Frank have been telling us for years that Fannie and Freddie's federal subsidy was a free lunch. We are now slowly, and painfully, learning the price of Mr. Frank's famous desire to "roll the dice" with Fan and Fred. Keep that in mind the next time you hear a politician propose a taxpayer guarantee. The only sure thing is that the taxpayers will pay.

A quarter-trillion dollars later, and rising.............

Gold’s Post-Bubble Performance In The UK, US And Japan.

I still think that we will see deflation in the US and other parts of the world but in the end i think the report from Dresdner is spot on....... Needless to say that i call myself a goldbug and have "little" faith in any fiat currency...... It´s probably helpful ( often overlooked ) to note that Gold in reaching new highs in almost every other world currency besides the $ ( see Goldchart in €, British Pound, Swiss Franc, Yen etc ) . Would be nice to see a goldchart vs the Icelandic Krona or the Forint......

Ich bin nach wie vor der Meinung das es in naher Zukunft eine Deflation in weiten Teilen der Welt geben wird. Im Endeffekt wird es aber zu dem im Dresdner Report geschilderten Ergebnis kommen...... Wohl überflüssig zu erwähnen das ich ein Goldbug bin und mein Misstrauen hinsichtlich Währungen nicht nur auf den $ ( obwohl dort extrem ausgeprägt ...) beschränkt ist.....Werde zumindest nicht mehr ganz so offen belächelt wie noch vor einigen Jahren..... PS: Bei der Qualität der heimischen Wirtschaftspresse ist es wenig überraschend das oftmals lediglich der Goldpreis in $ behandelt wird. Dabei wird wie nicht anders zu erwarten in schöner Regelmäßigkeit ausser Acht gelassen das Gold in den anderen Leitwährungen momentan nahe historischen Hochs notiert ( siehe Goldchart in €, British Pound, Swiss Franc, Yen etc ) . Habe leider keinen Goldchart vs islänsiche Krone oder ungarischen Forint auftreiben können......

Thanks again to Wall Street Follies

FT Alphaville

One way to combat the mess of a bubble popping is, as Dresdner puts it,“reducing confidence in the value of money” — i.e. creating inflation.

What the rise in the US and UK gold price tells us is that those two countries (assuming gold is in fact acting as an inflationary hedge here) are not shying away from their inflationary task.

They are, unlike Japan, really going for it.

Back to Dresdner:

Japan had no Japanese precedent to study. The last experience of deflation was buried so far in the past that anyone predicting a recurrence could be safely dismissed as a crank. The BoJ was dominated by inflation vigilantes who bitterly rued inflating the bubble and were determined at all costs to avoid a repeat. They remained far behind the curve and allowed growth in the monetary base to collapse. The contrast with the United States could not be clearer. Ben Bernanke is an authority on the historical experiences of deflation, and in his famous speech of 2002 laid out his playbook for all to see.

And to conclude:

No policy response to a post-bubble bust can ever be free of unintended consequences. The speed and scale of the current economic fiasco as good as ensures that the mistakes will be serious. The key question for investors is whether over the long haul their bias will be deflationary (too little, too late) or inflationary (too much, too fast). Given the different pressures that policymakers are working under, we find it hard to believe that the world as a whole will choose the Japanese path.

UPDATE: Prefect timing.....

If you still have some doubts make sure you read the latest (desperate) Fed effort via Naked Capitalism Fed Ponders Issuing Debt to Finance Its Mushrooming Balance Sheet

Sollte immer noch leichte Zweifel bestehen dem empfehle ich einen Blick auf den neuesten (verzweifelten) Versuch der Fed zu werfen Fed Ponders Issuing Debt to Finance Its Mushrooming Balance Sheet Via Naked Capitalism

No Limit Specified........

Lets hope they still can find enough buyers of their treasuries ( see Who Will Be Left To Buy US Treasuries...... & China Slashes Lending Rate to Support Slowing Economy ) to finance their daily bailout ( see Breakdown of the Bailout Rescue Efforts & Various Fed Lending Facilities ) with a yield close to 3% .... The bigger issue down the road could be that the "investors" are demanding bonds that are not $ denominated......Got Gold.....?

Bleibt zu hoffen das die USA es weiterhin schaffen genügend "smarte" Investoren finden ( siehe auch Who Will Be Left To Buy US Treasuries...... & China Slashes Lending Rate to Support Slowing Economy ) die bereit sind dies täglichen Bailouts ( siehe Breakdown of the Bailout Rescue Efforts & Various Fed Lending Facilities ) für 3% in US Währung zu finanzieren..... Die US sollten sich schon einmal entfernt darauf gefasst machen das es in naher Zukunft bald Investoren gibt die keine US Anleihen auf $ Basis mehr abnehmen wollen.......Got Gold...? UPDATE: Netter Bericht der FTD 700 Milliarden? Ha! Es sind 8500 Milliarden

WSJ

An even better graph is coming from the NYT

Eine noch besser Übersicht liefert die NYT

bigger / größer

Barry Ritholtz has much more and slightly different data ( but what are a few trillions here and there these days ) and the quote of the day......

Barry Ritholtz hat noch mehr und leicht abweicdhende Daten ( aber was sind heutztage einige Billionen unter Freunden ) zu diesem Thema und ein Zitat das wohl mehr als alles andere die Ausmaße der aktuellen Bailouts beschreibt......

The only single American event in history that even comes close to matching the cost of the credit crisis is World War II: Original Cost: $288 billion, Inflation Adjusted Cost: $3.6 trillion

The $4.6165 trillion dollars committed so far is about a trillion dollars ($979 billion dollars) greater than the entire cost of World War II borne by the United States: $3.6 trillion, adjusted for inflation (original cost was $288 billion).

Go figure: WWII was a relative bargain.

No wonder the CDS on US Debt are "moving"........ Via FT Alphaville

Kein Wunder das die Absicherung gegen einen möglichen US Bakrott langsam in "Bewegung" kommen..... Dank an FT Alphaville

U.S. Agrees To Citigroup Bailout

What a start to a week..... I´m running out of words .... Just a few points...... Reminds me of the UBS bailout ( see UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).....On top of this it is looking more and more like John Hempton was spot on (make sure you read his theory) .....Hat tip Naked Capitalism.... After the structure & terms of this bailout it will almost be impossible to deny any other enquiries ( GM...... )...... UPDATE: Official Term Sheet is out and has some slightly different numbers & details or read the Summary via FT Alphaville

Da mir anhand der tagtäglichen Ungeheuerlichkeiten bald die Worte fehlen möchte ich lediglich sagen das hier wohl Anleihen aus der Schweiz übernommen worden sind ( siehe UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).... Zudem empfehle ich dringend nachfolgenden Link von John Hempton zu lesen.... Was zum Zeitpunkt des Postings für viele noch ungeheuerlich erschien ist rückblickend fast als genial zu bezeichnen...... Beide Male geht der Dank an Naked Capitalism ... Die Struktur sowie die Bedingungen diese Bailouts achen es unmöglich überhaupt noch eine Anfrage weiterer Bailouts abzulehnen ( GM.... )..... UPDATE: Das offizielle Memo ist veröffentlicht und beinhaltet einige kleine Abweichungen hinsichtlich Summen und Bedingungen. Eine nette Zusammenfassung gibt es von FT Alphaville

WSJ Billions in Toxic Assets May Be Removed; New Phase for Government Bank Rescue

WASHINGTON – The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years

-- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.

Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.

The government is not expected to require any management changes, as that was seen as potentially being too destabilizing.

Under terms of the agreement, the Treasury Department and FDIC will guarantee $306 billion of Citigroup loans and securities backed by residential and commercial real estate and other assets, which will remain on the bank's balance sheet. Citigroup will absorb the first $29 billion of losses, with the government stepping in after that as "protection against the possibility of unusually large losses."

> Make sure you read Citi of over-leveraging to put Citi´s loss absorbtion into perpective.......

> Empfehle einen Blick auf Citi of over-leveraging um zu erkennen das die Verlustsumme der Citi ein einziger Witz ist.....

Among the conditions that Citigroup agreed to is "an executive compensation plan, including bonuses, that rewards long-term performance and profitability, with appropriate limitations," according to the Treasury Department. Details on the company's compensation "must be submitted to, and approved by" the government. .....

The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet.

Another possibility on the table was the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in weak assets, these people said.

In either case, taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an additional equity stake in Citigroup in return for the support. Citigroup previously agreed to issue the government preferred shares in return for the $25 billion the bank received as one of the first nine companies to get capital infusions.

If the government sets up the bad-bank structure, the amount of financial support will be a key variable. If there is too little, investors might conclude that the bad assets will wipe it out, leaving the bank right where it was before.

In addition to $2 trillion in assets Citigroup has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company's books.

One rescue structure under consideration would resemble aspects of the $150 billion bailout plan the government struck with American International Group Inc. in November. Two vehicles, funded largely by as much as $52.5 billion in government money, were created to take on risks from some of AIG's souring assets, including exposure to credit derivatives. That deal also reduced interest costs on AIG's previously arranged $60 billion loan from the government.

In Citigroup's case, the government's arrangement likely will be able to accommodate only a sliver of the company's more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such "hidden" assets helped trigger the nose-dive in Citigroup's stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities.

Citigroup has tried repeatedly to rid itself of its exposure to those assets. In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.

No Nigerian Princes at the Fed..... :-)

LOL! The fact that the scamsters have shifted from Nigeria, Petro$ etc. to the Fed speaks volumes......That´s what can happen if you launch a new lending facility almost on a weekly basis and politicians & Fed are talking about bailouts for everyone an a daily basis...... The Fed balance sheet is already looking like some kind of scam......

Genial! Alleine die tatsache das die "Nepper,Schlepper,Bauernfänger" Ihren Fokus von Nigeria usw auf die Fed verlegt haben spricht Bände.....Man stelle sich mal vor die Bundesbank oder die EZB müßte per Pressemitteilung auf eine ähnliche Situation hinweisen. Das passiert aber wohl wenn man beinahe im Wochentakt neue Kreditlinien aus dem Hut zaubert und die Politiker & Notenbänker tagtäglich Bailouts für alle und jeden versprechen ..... Beim Anblick der Fed Bilanz würden ein paar mehr Programme auch nicht mehr ins Gewicht fallen..........

Real Time Economics / WSJ The Federal Reserve Board Board released a statement today warning consumers about a phishing scam that invokes the central bank’s name in an effort to bilk people out of their money.

The fake emails promise consumers access to loans through a nonexistent Fed lending program. Consumers are encouraged to deposit large sums of money into a bank account, under the guise of a security deposit, in order to receive the purported loan. Of course, the Fed doesn’t lend directly to consumers.

“Consumers are strongly urged to verify the legitimacy of potential service providers before entering into a business transaction,” the Fed said. “Individuals seeking personal finance options are encouraged to do business only with reputable lenders and to shop around for the most favorable loan terms.”

Hussman "Why On Earth Would Congress Put The U.S. Public Behind The Bondholders? "

I think we all know why........ Too bad that this minor question won´t be raised in Congress...... Should be very good news for the $ and the long term treasury yields ...... Got Gold........ ? I have to apologize for my post title Quote / Joke Of The Day ..... from last week . Should have been titled "Joke Of The Century" from the get-go....... I also recommend to read this Open Letter To Congress On The $700 Billion Paulson Bailout Plan from Mish.

Denke das inzwischen selbst der Blindeste mitbekommen hat das es bei den ganzen Eingriffen alleine darum geht bereits faktisch insolvente Banken auf Kosten der Steuerzahler "rauszuhauen". Bin mir ziemlich sicher das solch unwichtigen Details wie die Haftung der Bondanleger im US Kongress nicht weiter thematisiert werden........ Immerhin dürfte es in nicht allzu langer Zeit dazu führen das der US $ den aktuelen Status als "der Reservewährung" verlieren wird und die Finanzierungskosten der USA dramatisch steigen werden. Evtl. lassen sich ja sogar die Ratingagentuern dazu hinreissen das AAA Rating von US Schulden herunterzustufen. Spaß beiseite......Vorher wird denen sicher die Lizenz entzogen...... Got Gold....... ? Möchte mich hier für meine Postingbezeichnung Quote / Joke Of The Day ..... von letzter Woche entschuldigen . Hätte es gleich "Zitat/Witz des Jahrhunderts" betiteln sollen...... Zudem empfehle ich noch einen Blick in diesen extrem treffenden Open Letter To Congress On The $700 Billion Paulson Bailout Plan von Mish zu werfen.

Hussman In 2006, the president of the Federal Reserve Bank of St. Louis noted “Everyone knows that a policy of bailouts will increase their number.” This week, Congress is being asked to hastily consider a monstrous bailout plan on a scale nearly equivalent to the existing balance sheet of the Federal Reserve.

As an economist and investment manager, I am concerned that the plan advocated by Treasury is essentially a plan to bail out the bondholders of financial institutions that made bad lending decisions, with little help to homeowners that are actually in financial distress. It is difficult to believe that the U.S. government is contemplating taking on the bad assets of these institutions at probable taxpayer loss and effectively immunizing the bondholders (and shareholders) of these companies.

While it is certainly in the public interest to avoid the dislocations that would result from a disorderly failure of highly interconnected financial institutions, there are better ways for public funds to accomplish this, other than by protecting corporate bondholders while homeowners remain in distress. .......

These institutions are not failing because 95% of the assets have gone bad. They are failing because 5% of the assets have gone bad and they over-stretched their capital. At the heart of the problem is “gross leverage” – the ratio of total assets taken on by the company to its shareholder equity. The sequence of failures we've observed in recent months, starting with Bear Stearns, has followed almost exactly in order of their gross leverage multiples. After Bear Stearns, Fannie Mae, and Freddie Mac went into crisis, Lehman and Merrill Lynch followed. Morgan Stanley, and Hank Paulson's former employer, Goldman Sachs, remain the most leveraged companies on Wall Street, with gross leverage multiples above 20.

Look at the insolvent balance sheet again. The appropriate solution is not for the government to replace the bad assets with public money, but rather for the government to execute a receivership of the failed institution and immediately conduct a “whole bank” sale – selling the bank's assets and liabilities as a package, but ex the debt to bondholders, which preserves the ongoing business without loss to customers and counterparties, wipes out shareholder equity, and gives bondholders partial (perhaps even nearly complete) recovery with the proceeds.

The key is to recognize that for nearly all of the institutions currently at risk of failure, there exists a cushion of bondholder capital sufficient to absorb all probable losses, without any need for the public to bear the cost.

For example, consider Morgan Stanley's balance sheet as of 8/31/08. Total assets were $988.8 billion, with shareholder equity (including junior subordinated debt) of $42.1 billion, for a gross leverage ratio of 23.5. However, the company also has approximately $200 billion in long-term debt to its bondholders, primarily consisting of senior debt with an average maturity of about 6 years. Why on earth would Congress put the U.S. public behind these bondholders?

The stockholders and bondholders of the company itself should be the first to bear losses, not the public. That is the essence of what a free and fair market, and a responsible government would enforce. The investors in the companies that produced the losses should be accountable for them, and the customers and counterparties should be protected.

The case of Fannie Mae and Freddie Mac was special in that government had already provided an implicit guarantee to their bondholders, so that bailout couldn't have been done otherwise without harming the good faith and credit of the government, but it's absurd to tell Wall Street “send us your poor and your tired assets, and we will tend to them.” The gains in financial stocks we have observed in the past two days reflects money that those firms expect to be taken out of the public pocket. .....

In summary, the Treasury proposal to address current financial difficulties places corporate bondholders ahead of the public, rewards irresponsible risk-taking, and sets a precedent for future bailouts. Moreover, we know from a long history of economic experience across countries that a major expansion of government liabilities is invariably followed by multi-year periods of extremely high inflation, particularly when it is not matched by a similar expansion of economic production. Such inflation would initially be modest because of the current weakness in the economy, but could pose unusual challenges to the United States in the coming years.

Congress can benefit the American public by maintaining a focus on responsibly assisting homeowners in distress rather than defending the stockholders and bondholders of overleveraged financial companies. It is essential to recognize that the failure of these companies need not result in “financial meltdown” provided that the “good bank” representing the vast majority of assets and liabilities is cut away, protecting customers and counterparties, so that the losses are properly borne out of the capital base of the companies that incurred them.

Again, everyone knows that a policy of bailouts will increase their number. By choosing who bears the losses for irresponsible decisions at these companies, Congress will also choose the scope of the bailouts that follow.

Cartoon Of The Day

No problem if you own gold....

Sollte kein Problem sein wenn man ein Freund des Goldes ist......

UPDATE via Yves from Naked Capitalism

Bernanke: "We Have Lost Control"

Really shocking.... :-)

A.I.G. Seeks $40 Billion in Fed Aid to Survive

Forget Lehman..... I think the far bigger story is looming in the collaspe of the world biggest insurer AIG...... In a sign of total desperation they are begging the Fed to bail them out...... And with all the recent bailouts it seems only logical for AIG in trying to suck the Fed in ( on top of this it remains to be seen how much toxic waste the Fed can absorb until the balance sheet is similar to lets say a subprime lender .... And it is getting worse by the day ....see Fed Widens Collateral for Loans, Banks Set Up $70 Billion Fund )..... If AIG is failling i assume the implications for world markets would be far bigger than the Lehman BK..... If it is true that AIG had turned down the money from Private Equity and went instead to the Fed ( and would get the money ) it would create the biggest moral hazards so far....

Der Fokus sollte heute nicht auf Lehman sondern auf AIG liegen.... AIG ist bis vor kurzem der größte Versicherer weltweit gewesen und steht unmittelbar vor dem Untergang. Sollte dieses Eintreffen dürften die Schockwellen um einiges Größer sein als die Implosion der im Verhältnis zu AIG winzigen Lehman Brothers. In einem Anfall von totale Verzweiflung hat AIG offensichtlich bei der Fed um Hilfen von schlappen 40$ Mrd angefragt. Denke das dürfte der weltweit erste Fall sein in dem eine Versicherung solch einen Schritt unternimmt. Bei der bisherigen Politik der Fed ist wohl auch einen Versuch wert. Die Fed Bilanzstruktur der Fed sieht eh schon schon aus wie die eines Subprimelenders ( und verschlechtert sich weiter rapideFed Widens Collateral for Loans, Banks Set Up $70 Billion Fund ) ...... Sollte die Meldung stimmen das AIG ein Angebot von Private Equity abgelehnt hat und sich stattdessen auf die Fed verlassen hat und Bernanke & Co die Fed Bilanz für den Versicherer öffnen würde das einen erneuten Dammbruch und den bisherigen Höhepunkt in Sachen "Moral Hazard" markieren

A.I.G. Seeks $40 Billion in Fed Aid to Survive Dealbook NYT
The American International Group is seeking a $40 billion bridge loan from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said Sunday night.

Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.

Though this past weekend was convened to focus on Lehman, the Wall Street chieftains who gathered at the Federal Reserve Bank of New York also pondered a solution for A.I.G. The firm had become one of the biggest underwriters of complex debt securities known credit default swaps, used as insurance for a wide range of products, including the mortgage instruments that have been the bane of Wall Street for the past year and a half

The firm had planned to move $20 billion from its regulated insurance business to its holding company and to sell assets and a stake in the company to private equity firms. But A.I.G. has ruled out the capital shift because of the time and complexity involved.

J. C. Flowers & Company, a buyout firm focused on financial services firms, offered $8 billion for a stake in the business that would have given it an option to buy all of A.I.G. down the road. Kohlberg Kravis Roberts and TPG also said they would bid.

But all three withdrew at the last minute, citing anxiousness over the company’s precarious financial health.

> Here the different version via the WSJ

> Hier nun die Version des WSJ

AIG Scrambles to Raise Cash, Talks to Fed

During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms led by J.C. Flowers & Co. because an option tied to the offer would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

The proposed option would have allowed the firms to acquire AIG for $8 billion under certain conditions. That price is just one-fourth of AIG's current market value.

A.I.G.’s extraordinary move of reaching out to the Fed for help may spur other non-investment banks to try a similar move. Companies ranging from General Electric to GMAC have been hurting badly and would desperately love the liquidity that the Fed would provide.

Herd On The Street WSJ

For instance, applying some of Lehman's latest marks to AIG's holdings could result in at least $15 billion in additional write-downs to the insurer's residential portfolio, which has a face value of $88 billion.

How severe were Lehman's marks? Consider that even longtime bears on the stock thought the firm was finally marking its residential portfolio to realistic levels last week.

Lehman Chief Financial Officer Ian Lowitt said on the firm's investor call that the firm was marking Alt-A exposures at about 39% of face value, compared with about 63% at the end of the second quarter. Alt-A mortgages are loans given to borrowers who, while not necessarily subprime, lack documentation to verify their financial condition or other information.

Still, Lehman has thrown down a marker. At the end of June, AIG's marks on Alt-A securities were about 67%. Citigroup, meanwhile, appeared to be valuing its $16.4 billion in Alt-A exposure at just over 80 cents on the dollar.

Ft Alphaville

The fall of Lehman brothers might well lead the news this morning, but the situation for AIG is potentially more serious. Systemically speaking, AIG is a much bigger domino.

For starters, AIG has written more credit protection - via CDS - than Bear Stearns. It is, to wit, a crucial counterparty in many Wall Street firms’ hedging strategies.

Then there’s the fact that AIG is the world’s largest insurer. Trouble for AIG could pull the insurance sector into a deep and very nasty spiral and might well be the knock-out blow to ailing economies.

Nasty Details AIG 10Q FT Alphaville

..... ratings downgrades would spell huge collateral calls from counterparties on AIG’s CDS. The relevant detail is in AIG’s 10Q from June 30:.....

It is estimated that, as of the close of business on July 31, 2008, based on AIGFP’s outstanding municipal GIAs and financial derivative transactions at that date, a downgrade of AIG’s long-term senior debt ratings to ‘A1′ by Moody’s Investors Service (Moody’s) and ‘A+’ by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (S&P), would permit counterparties to make additional calls for up to approximately $13.3 billion of collateral, while a downgrade to ‘A2′ by Moody’s and ‘A’ by S&P would permit counterparties to call for approximately $1.2 billion of additional collateral.

Click on the link to get more details on the effect of a downgrade....

Klickt bitte auf den Link um mehr Details zu den Auswirkungen der Downgrades zu erfahren....

UPDATE :

AIG “giving a bridge loan to itself.”

This is unfortuantely no joke......

Das ist leider kein Witz.......

Long-Term Capital: It’s a Short-Term Memory

Market amnesia..... The following article comes from ROGER LOWENSTEIN the author of When Genius Failed: The Rise and Fall of Long-Term Capital Management. I recommend to read the entire peace.

Manchmal könnte man wirklich meinen das der Markt an unheilbarer Amnesie leidet..... Der nachfolge Bericht kommt von ROGER LOWENSTEIN der den Bestseller When Genius Failed: The Rise and Fall of Long-Term Capital Management verfasst hat. Ich empfehle den kompletten Report zu lesen. Bleibt zu hoffen das der auch den Weg zu den Aufsichtsbehörden, Zentralbanken usw findet........


Long-Term Capital: It’s a Short-Term Memory NYT

A FINANCIAL firm borrows billions of dollars to make big bets on esoteric securities. Markets turn and the bets go sour. Overnight, the firm loses most of its money, and Wall Street suddenly shuns it. Fearing that its collapse could set off a full-scale market meltdown, the government intervenes and encourages private interests to bail it out.

The firm isn’t Bear Stearns — it was Long-Term Capital Management, the hedge fund based in Greenwich, Conn., and the rescue occurred 10 years ago this month.

AS striking as the parallel is to Bear, Long-Term Capital’s echo is far more profound. Its strategy was grounded in the notion that markets could be modeled. Thus, in August 1998, the hedge fund calculated that its daily “value at risk” — meaning the total it could lose — was only $35 million. Later that month, it dropped $550 million in a day .....

Rather than evaluate financial assets case by case, financial models rely on the notion of randomness, which has huge implications for diversification. It means two investments are safer than one, three safer than two. .....

The fund’s partners likened their disaster to a “100-year flood”— a freak event like Katrina or the Chicago Cubs winning the World Series. (The Cubs last won in 1908; right on schedule, they are in contention to repeat.) But their strategies would have lost big money this year, too.

John W. Meriwether, the fund’s founder, later organized a new fund, which suffered big losses early this year, according to press reports.

If 100-year floods visit markets every decade or so, it is because our knowledge of the cards in history’s deck keeps expanding. When perceptions change, liquidity evaporates quickly. Indeed, the belief that one can safely get out of a “liquid” market is one of the great fallacies of investing.

This lesson went unlearned. Banks like Citigroup and Merrill Lynch felt comfortable owning mortgage securities not because they knew anything about the underlying properties, but because the market for mortgages was supposedly “liquid.” Each firm would write down the value of its mortgage investments by more than $40 billion. .....

....the notion that a private hedge fund with but 16 partners and fewer than 200 employees could cause lasting harm was never truly examined. It was simply accepted.

The concept of too-big-to-fail, exceptional in 1998, is now a staple in the regulators’ playbook. Bear Stearns and, by implication, other troubled investment banks have been taken under Washington’s protective skirts; Fannie Mae and Freddie Mac, too. The Federal Deposit Insurance Corporation is pushing for easier terms for millions of homeowners; auto companies are demanding loan guarantees.

....Incredibly, six months after the Long-Term Capital affair, Mr. Greenspan called for less burdensome derivatives regulation, arguing that banks could police themselves. In the last year, he has been disproved to a fault.

Not Only Homeowners Are Having Refinancing Problems.......

It is really no wonder that investors are demanding a much higher risk premium for bank debt.... It will be interesting to see how the central bank balance sheets will look like in 2009/2010....

Wenig verwunderlich das die Investoren zukünftig eine ansprechende Risikoverzinsung verlangen..... Bin gespannt wie die Bilanzen der Zentralbanken im Jahre 2009/2010 aussehen werden.....

New Credit Hurdle Looms for Banks WSJ
U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.

At issue are so-called floating-rate notes -- securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That's forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.

The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.

The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.

The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.

via Bloomberg U.S. Says Banks on `Problem List' Rose 30% in Quarter

The U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased [to] 117 ``problem'' banks as of June 30, up from 90 in the first quarter and the highest since mid 2003 ... FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the ame quarter a year ago.

> It seems to me that even the spread of 200 basispoints for lots of banks is not quite "rich"...... Especially when you add the lousy quality of their balance sheets..... Just take a look the another main sector besides residential is showing some kind of "stress"...... Hat Tip EconompicData

> Wenn man sich diese Meldung ansieht können einige Banken noch froh sein das die Spreads nur 200 Basispunkte betragen.... Ganz zu schweigen von der ansonsten oft sehr dürftigen Bilanzqualität...... Man muß sich nur einen zweiten Eckpfeiler neben dem privaten Immobiliensektor ansehen um zu erahnen das die Luft "dünner" wird..... Dank an EconompicData

As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.

via Bloomberg Merrill, Wachovia Hit With Record Refinancing Bill

The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.

Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years.

The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.

The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.

Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.

At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.

Central Banks' Role
All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.

On this topic..... Buy Freddie Paper With Fed Leverage via Dealbraker Hat Tip FT Alphaville

We don't know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the ecision to bid relatively easy. That's because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.

Here's how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed's Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).

At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.

via Real Time Economics

But there is growing concern banks have become over-reliant on ECB funding, or may be abusing the situation. The ECB says it is monitoring developments and will, if necessary, adjust funding rules. Some financial institutions may have started to treat the ECB’s financing window as a substitute for a well-functioning structured finance market that has been largely shut since last August.

The share of asset-backed securities — or notes backed by repayments on debt such as mortgages or credit card loans — in the total collateral held with the national central banks in the 15-nation euro zone has risen to around 20%, from around 4% in 2004. At the same time, the share of government bonds has fallen sharply.

> Here the Fed´s balance sheet..... Hardly AAA.....

> Hier das grausige Bild der Fed Bilanzkomposition..........Sieht mir nicht mehr nach AAA aus.....

Mish has also something to say and is offering this must see chart Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Scary.....

Mish trifft mit seiner Aussage den Nagel mal wieder auf den Kopf und liefert gleichzeitig einen Blick auf die detaillierte Ansicht der Fed Bilanz. Nicht verpassen! Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Fuchteinflösend.....

"A the current pace, the Fed runs out of treasuries about a year from now. Things are about to get very interesting."

via Telepgraph Bank borrowing from ECB is out of control

One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.

"Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks," said the source.

This "soft bail-out" is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.

The latest data from the Bank of Spain shows that the country's banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.

Got gold......?