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Trachei
 
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I think we'd probably agree on a large part of the problem, and the fixes. For one, I am for increasing Tier I capital ratios. I am for the removal of FAS140 and Fin46. I am for removal of most off balance sheet securitization transactions, provided they do not get capital treatment as similar on-balance sheet loans (but still more capital treatment than current situations). I am also for better oversight and treatment of lower-tier credits, including CDOs (I certainly think that a lot of these assets got better ratings than they deserved).
Well, they just announced that banks can include goodwill in their capital ratios, whereas before they had to deduct it, or be under close scrutiny. Yet even more accounting gimmicks to cover the real problems. Yes, that is an accounting gimmick as goodwill can be severely impacted by market conditions.
Old 09-20-2008, 02:24 PM Trachei is offline  
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Trachei
 
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Originally Posted by LegendKiller View Post
What % of those mortgages will actually default? Not 100% behind will default.

I've thought that the number would be somewhere around 500bn-1TR (after recoveries, assuming 50% recovery). However, that was actual credit losses, not ones due to write-downs from M2M.

Well, we also know cure rates. Cure rates have been falling rapidly to about 40% from what I've seen. They were definitely higher when the bubble was first deflating, but now people are just giving up.

So about 60% of those mortgages are being REO'd, so $600b. We've seen 50% loss rates on REO's and still not selling. So, a conservative estimate would be $300b in actual losses from the banking system, not counting the holding cost of those homes.

$300b in losses and because of the alphabet soup, 23A exemptions, and every other accounting gimmick, we can't track down these losses. Look at LEH, their portfolio blew up before everyone's eyes because no one believed them. Was it as necessarily bad as everyone thought? Who knows, we had to trust them.
Old 09-20-2008, 02:26 PM Trachei is offline  
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LegendKiller
 
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Well, they just announced that banks can include goodwill in their capital ratios, whereas before they had to deduct it, or be under close scrutiny. Yet even more accounting gimmicks to cover the real problems. Yes, that is an accounting gimmick as goodwill can be severely impacted by market conditions.

Heh, "goodwill". Yeah, I saw two companies write down huge portions of that in the last 6 months because of stock price declines, so I am not a huge fan of that.
Old 09-20-2008, 02:28 PM LegendKiller is offline  
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Well, we also know cure rates. Cure rates have been falling rapidly to about 40% from what I've seen. They were definitely higher when the bubble was first deflating, but now people are just giving up.

So about 60% of those mortgages are being REO'd, so $600b. We've seen 50% loss rates on REO's and still not selling. So, a conservative estimate would be $300b in actual losses from the banking system, not counting the holding cost of those homes.

$300b in losses and because of the alphabet soup, 23A exemptions, and every other accounting gimmick, we can't track down these losses. Look at LEH, their portfolio blew up before everyone's eyes because no one believed them. Was it as necessarily bad as everyone thought? Who knows, we had to trust them.

Data on the cure rates? I haven't see that number before.

I think that 50% loss on REO would be a bit high, most areas haven't hit that, although liquidity premiums are high too.

As far as LEH. Most banks were relatively comfortable with them until people started to panic. That's the biggest problem right now, people panicking and not rationalizing the situation. One input into that is the short selling ,as it just adds to the panic.

I saw the whole LEH thing go down in the bank, it was very similar to BSC. Have tens of millions of lines outstanding, stock price falls, rumors start up, everybody pulls their lines, bank has no liquidity, it fails. LEH and BSC would probably have survived had people not panicked, because things, while bad, weren't that bad.

Some of the stuff I have seen in the last 6 months is crazy. People are just shell shocked at what is happening.

Would transparency help? I highly doubt it. Even with the "big picture" being clearer, people would still panic.
Old 09-20-2008, 02:34 PM LegendKiller is offline  
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Trachei
 
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Heh, "goodwill". Yeah, I saw two companies write down huge portions of that in the last 6 months because of stock price declines, so I am not a huge fan of that.

The hide the sausage game collapsed all the confidence out of the system. Markets are based off of confidence and because institutions were allowed to have their CEO's come on TV on Wednesday, claim they are well capitalized with $40b in liquidity available, and on Friday, collapse, confidence was lost.

I'm going to give you a quote from Bill Flecktinstein relating to Japan:

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For those who have always maintained that a decade of declining real estate/stocks, combined with a weak economy, can't happen here as it did in Japan because America is not like Japan, I offer up the following, from an article headlined "Japan Parliament Passes Relief Bill for Ailing Banks" (October 13, 1998, New York Times):

"Parliament approved landmark banking legislation today that will allow the Government to nationalize failing banks, and political parties announced that they had reached a new accord to provide several hundred billion dollars in new money to try to revive the banking system and set the country on a path toward economic health. . . . The possibility of a way out of the financial crisis sent stocks surging today, with shares of the nation's banks jumping an average of 8 percent. The Nikkei index of 225 shares rose 5.24 percent, to 13,555.01, in a big comeback after last week's plunge

" It's worth noting that even after a 3.8% gain last night, the Nikkei only stands at 11,920!
If the dates and country were changed it would look just like the US in 2008. The drudge even had headline news of DOW up 18% in 5 years! A fucking savings account has a better rate of return.
Old 09-20-2008, 02:38 PM Trachei is offline  
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Trachei
 
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Originally Posted by LegendKiller View Post
Data on the cure rates? I haven't see that number before.

I think that 50% loss on REO would be a bit high, most areas haven't hit that, although liquidity premiums are high too.

As far as LEH. Most banks were relatively comfortable with them until people started to panic. That's the biggest problem right now, people panicking and not rationalizing the situation. One input into that is the short selling ,as it just adds to the panic.

I saw the whole LEH thing go down in the bank, it was very similar to BSC. Have tens of millions of lines outstanding, stock price falls, rumors start up, everybody pulls their lines, bank has no liquidity, it fails. LEH and BSC would probably have survived had people not panicked, because things, while bad, weren't that bad.

Some of the stuff I have seen in the last 6 months is crazy. People are just shell shocked at what is happening.

Would transparency help? I highly doubt it. Even with the "big picture" being clearer, people would still panic.

I doubt it. Transparency equals confidence. If I can't see someone elses' situation then I can't trust them. If another bank can't trust you, then you are fucked. Lack of transparency allowed short sellers to take down LEH because they had the upper hand. Even with that, I wouldn't say short sellers took them down, management took them down. If a short seller can take you down then the blame lies firmly with the firm.

edit:// I'll try to find those cure rate numbers, 40% might have been a little overzealous of me as I was recalling from memory, but it is close I believe. We are way below 60%.

edit2: Found a cure rate from Fannie Mae, master book cooker.

2008 Q2:
cure rate, 45%
default, 2%
90 days or more delinquent, 53%.

Yeah, it's that bad. I bet with private label MBS it's even worse. Google: Fannie Mae 2008 Q2 10-Q Investor Summary. Funny how such a large percentage can be 90 days or more delinquent yet the default of 2% is so low. In fact, that default rate has been DECLINING with an increasing percentage being pushed into the 90 days or more delinquent. Talk about book cooking, they essentially said they aren't taking back the defaulted loans, they are just praying to god to find a way to keep them off their books.

You should really look at page 17 of that report.

Last edited by Trachei; 09-20-2008 at 03:22 PM..
Old 09-20-2008, 02:40 PM Trachei is offline  
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The financial pundits state that if we didn't bailout these companies, we'd witness world economic collapse. so...if the government didn't step in, what would happen? i don't disagree with anything said in this thread, i'm just curious as to what would happen if we let things run it's course...you know, without stepping in

We would face a large collapse of financial institutions and a lot of hard times. The problem with monetizing debt is that it virtually kills the currency because you need to continually expand the debt to soak up the debt you just printed, and its a viscous merri-go-round that never ends. If we do not let these institutions fail and the bad debts of these trillion of dollars or mortgages, loans, and securities be written off, we will face the total collapse of the US dollar and the collapse of the world financial institution at the same time. We have not fixed ANYTHING and we will be facing the worst economic outlook for the last few hundred years.

We would be in a depression/deep recession if we allowed financial institutions to fail, but that would not effect the US' underlying position with its currency. If we inflate ourselves into oblivion we will be facing Veymar Germany, a collapse of the financial system and inflation beyond anyones imagination..... which leads to overthrowing of governments and many other horrible problems.
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Old 09-20-2008, 02:45 PM coolxboxgamer is offline  
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ok i've officially gotten too uninformed to comment. Just for shits and giggles, could both legend and trachei point me to what they believe are some definitive and honest financial learning sources?
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Old 09-20-2008, 02:48 PM jkrowling is offline  
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Trachei
 
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Originally Posted by jkrowling View Post
ok i've officially gotten too uninformed to comment. Just for shits and giggles, could both legend and trachei point me to what they believe are some definitive and honest financial learning sources?

I know legend is going to disagree with me, but everything I learned is from blogs and reading SEC filings.

The source of all of my information:

http://www.nakedcapitalism.com/
http://globaleconomicanalysis.blogspot.com/#
http://www.tickerforum.org/cgi-ticker/akcs-www
http://bubbletracking.blogspot.com/
http://housingdoom.com/
http://calculatedrisk.blogspot.com/
http://housingpanic.blogspot.com/


If you had read these blogs/message boards you would have been ahead of every single pundit and probably 95% of investors. In fact, I knew all of this was coming down since late 2006 (I was out of the country for military before that, so I never really experienced the bubble and the media behind it. I was gone from 2003-2006).

Furthermore, these blogs have been correct on everything coming down. Some disagreement existed over inflation vs. deflation, but right now, deflation is winning. If we monetize this then we've got Weimar Germany on a grander scale because of Reserve currency status, negative trade balance, negative savings, over reliance on real estate assets for wealth, and reliance on the petro-dollar. I am still severely concerned that in the next 10 years we will no longer be able to afford the deficit and entitlement spending, leading to a revolution in about 20 years after we default and we are no longer funded by foreign nations.

I'm going to try for a dual citizenship with Canada (yes I know it takes a long time), which isn't the greatest place ever, but at least more accessible to me considering I would still have ties to USA.
Old 09-20-2008, 02:59 PM Trachei is offline  
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jkrowling
 
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Originally Posted by Trachei View Post
I know legend is going to disagree with me, but everything I learned is from blogs and reading SEC filings.

The source of all of my information:

I know, that's why I asked for both. Best to get both sides, eh? Thanks
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Old 09-20-2008, 03:03 PM jkrowling is offline  
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Originally Posted by Trachei View Post
I know legend is going to disagree with me, but everything I learned is from blogs and reading SEC filings.

The source of all of my information:

http://www.nakedcapitalism.com/
http://globaleconomicanalysis.blogspot.com/#
http://www.tickerforum.org/cgi-ticker/akcs-www
http://bubbletracking.blogspot.com/
http://housingdoom.com/
http://calculatedrisk.blogspot.com/
http://housingpanic.blogspot.com/


If you had read these blogs/message boards you would have been ahead of every single pundit and probably 95% of investors. In fact, I knew all of this was coming down since late 2006 (I was out of the country for military before that, so I never really experienced the bubble and the media behind it. I was gone from 2003-2006).

Furthermore, these blogs have been correct on everything coming down. Some disagreement existed over inflation vs. deflation, but right now, deflation is winning. If we monetize this then we've got Weimar Germany on a grander scale because of Reserve currency status, negative trade balance, negative savings, over reliance on real estate assets for wealth, and reliance on the petro-dollar. I am still severely concerned that in the next 10 years we will no longer be able to afford the deficit and entitlement spending, leading to a revolution in about 20 years after we default and we are no longer funded by foreign nations.

I'm going to try for a dual citizenship with Canada (yes I know it takes a long time), which isn't the greatest place ever, but at least more accessible to me considering I would still have ties to USA.


If it gets really bad you can come live on my soon to hopefully be farm.
Old 09-20-2008, 03:10 PM ElectribeCyanide is offline  
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Trachei
 
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If it gets really bad you can come live on my soon to hopefully be farm.

Heh, in 20 years I hope to be totally independent from the USA.

edit:

On a side note, one of the biggest issues facing our economy became even larger; moral hazard. Now, with the government having completed the Fannie Mae/Freddie Mac bailout and now RTC II, what happens to all the people who have been paying their mortgage on time, but are underwater by $200k on their mortgage?

Are all these Prime Mortgage buyers going to keep making their payments knowing they can become delinquent and have a workout that reduces interest, reduces principle, or even allow them to live rent free over years (yes, I have seen that)? We have opened a can of unintended consequences and I believe the evidence will come out that people will abuse this bailout like never before.

Last edited by Trachei; 09-20-2008 at 03:44 PM..
Old 09-20-2008, 03:24 PM Trachei is offline  
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Fuckyouformakingmeregister
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Originally Posted by Trachei View Post
I know legend is going to disagree with me, but everything I learned is from blogs and reading SEC filings.

The source of all of my information:

http://www.nakedcapitalism.com/
http://globaleconomicanalysis.blogspot.com/#
http://www.tickerforum.org/cgi-ticker/akcs-www
http://bubbletracking.blogspot.com/
http://housingdoom.com/
http://calculatedrisk.blogspot.com/
http://housingpanic.blogspot.com/


If you had read these blogs/message boards you would have been ahead of every single pundit and probably 95% of investors. In fact, I knew all of this was coming down since late 2006 (I was out of the country for military before that, so I never really experienced the bubble and the media behind it. I was gone from 2003-2006).

Priceless.

Who needs to read books or get an education when you have BLOGS ON THE INTERNET YOU CAN READ.

I'm kinda curious why you're posting here when you're obviously so ahead of the game from reading those sites that you've probably made billions in the market.
Old 09-20-2008, 05:01 PM Fuckyouformakingmeregister is offline  
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Xayd
 
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i'm pretty sure you've never read any marx. here, i've pulled out all the parts of your statement that are completely incongruous with a "textbook definition of socialism."

i'm pretty sure he can't read.
Old 09-20-2008, 05:09 PM Xayd is offline  
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Trachei
 
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Originally Posted by Fuckyouformakingmeregister View Post
Priceless.

Who needs to read books or get an education when you have BLOGS ON THE INTERNET YOU CAN READ.

I'm kinda curious why you're posting here when you're obviously so ahead of the game from reading those sites that you've probably made billions in the market.

I do have an education, probably more than you. I've probably read more SEC filings and investor related information than you will in an entire lifetime.
Old 09-20-2008, 05:21 PM Trachei is offline  
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