Con-tango

Roubini’s triage

Nouriel Roubini. Economist.

Roubini says the original plan was flawed, that it needs a triage approach:

• The government needs to determine fast which banks are distressed but solvent, and let
  the others go under, in order to avoid a run of the banks, since
  deposits (not covered by the FDIC) are leaving banks because their
  solvency is unknown.
• Then, recapitalize the surviving banks through the purchase of prefered stock,
• and reduce the mortgage debt, through an HLOC or similar agency, so debtors can stay in their homes and pay their mortage…

Hence, confidence to banks is reestablished.

If this is the traditional approach, why didn’t Paulson and Bernanke take these steps in the first place?

It could be that the new instruments make the determination of the solvency of the banks almost impossible. Roubini doesn’t think so.

1929

November 1929 headlines

I found this amazing piece,  Reactions of the Wall Street Slump, published by The Economist on their November 23, 1929 edition.

I chose the following paragraph that was written days after the month long collapse of the stock market, because it’s truly eerie:

How far this will extend must at present be a matter of conjecture. A
great deal must in any case depend upon the situation of the banks. The
one influence that could throne back the full brunt of the speculative
collapse upon industry and produce a real depression throughout the
country would be banking trouble. Certain Wall Street banks made some
spasmodic efforts to check the slump, but were careful to dispose of
their holdings at the first opportunity, and there is no reason to
suppose that they have seriously handicapped themselves by efforts
which never went the length of attempting to stop the rot by holding
large blocks of stock off the market. There are, however, known to be
large quantities of securities not yet absorbed by the public which for
the time being have to be carried by banks and finance houses. Many
banks will, moreover, have made very large bad debts, while others will
have to finance customers for a long or short period. Some bank
failures, no doubt, are also to be expected. In the circumstances will
the banks have any margin left for financing commercial and industrial
enterprises or will they not? The position of the banks is without
doubt the key to the situation, and what this is going to be cannot be
properly assessed until the dust has cleared away. On the whole, the
experts are agreed that there mint be some setback, but there is not
yet sufficient evidence to prove that it will be long or that it need
go to the length of producing a general industrial depression.

The lack of liquidity, compounded with fear, and the underlying problems like CDS, CDOs, subprime MDS, over indebtness at all levels (from credit cards to companies and government) gives me a light stomach, like when I’m looking down from the edge of an abyss.

Sarah Palin

This is just comic relief. I know I need it.

From Saturday Night Live… Sarah and Hillary

A car crash

Car crash, or The House said No!

I don’t know where I read it, but, it’s the best description I’ve found to illustrate the fear which has been brought upon market players, they will all be a lot more cautious after today for quite some time — just as you would after a car crash.

Continue reading…

Outline of Congress draft

From a Reuters factbox, I thought it would be a good idea to include here where the house bailout draft stands so far.

Continue reading…

Republican balls

Las Vegas
Courtesy of Iñigo Biain

Man, o’man, o’man, I’ve got to hand it to them, the some republicans have titanium balls, they started with a pretty large sum, $700 billion, but now, they’re asking you and me to take out of these clowns’ hands the potential risk of the whole $62 trillion insured debt (or credit default swaps).

As reported by Reuters:

On Thursday, a small group of conservative House Republicans —
including Texas’ Jeb Hensarling and Virginia’s Eric Cantor — offered
their own alternative to the Bush proposal. Focused on mortgage
insurance, the one-page alternative plan was presented to reporters at
a briefing.

The plan calls for the U.S. government to offer
insurance coverage for the roughly half of all mortgage-backed
securities that it does not already insure. The Treasury Department
would charge premiums to holders of the securities, under the plan.

Let me see,

• pay outright $700,000,000,000 or assume the risk of a debt default worth $62,000,000,000,000?
• or approximately $2,100, versus risking $186,000 for each one of the 300+ million US citizens.

Gee, when did Las Vegas take over the whole USA?

Continue reading…

Of foxes and chicken coops

Explosion

As I read, and keep on reading –we are living through a historic event–, it does not cease to amaze me how well aligned is the book with the talk. And, it is a relevant discussion point because it would seem that we have the fox in charge of the chicken coop…

Don’t I recall Mr. Paulson getting a compensation of Goldman Sach shares in the $100s of millions?
If GS fails he would stand to get a substantial haircut, or wouldnt he?

Update 09/29/2008: According to this article, Mr. Paulson sold the lion’s share of his GS holdings, about $492 million, at about the date of his confirmation; keeping for himself:

• 494,054 restricted shares of common stock (worth $60 million roughly at this moment’s $122.75 share price), all of which are vested and deliverable,
• plus, options to buy –at an unknown price– 680,474 shares of common stock, all of which are exercisable.
         

Continue reading…