Financial topics

[freddyv]

http://www.youtube.com/watch?v=JUSteiKaeQA

John, don't know if you've seen this interview of Louise Yamada by Bloomberg but at the very end she is actually asked about and makes an interesting comment about generational effects on the stock market. She seems to nail it dead on in about 10 seconds and has obviously given this some thought. This woman is impressive and one of the few Wall Street analysts who doesn't make me angry when I listen to her.

Her statement is basically that we tend to not want to listen to our parents but at least we saw them make their mistakes and since we are so far removed from our grandparents we tend to repeat their mistakes, which of course are based on basic human frailties such as greed and fear so they are bound to be repeated.

--Fred

[The Grey Badger]

Absolutely. I saw that in the child-rearing front before I ever read "Generations" and nothing I've seen since has falsified the original observation.

[freddyv]

A little humor to start the day...

Bank of New York Mellon said Tuesday that fourth-quarter profit tumbled 88 percent, hurt by securities losses and pressure on fees as client assets declined.

Net income fell to $61 million, or 2 cents per share after accounting for preferred stock dividends, from $520 million, or 45 cents, a year earlier.



Results reflected a charge of 65 cents per share from $1.24 billion in writedowns largely for securities tied to "Alt-A'' mortgages, which often go to people who can't document income or assets.

Excluding this item, operating profit was $53 million, or 5 cents per share, the bank said. Revenue fell 24 percent to $2.89 billion. Results also included a charge of 9 cents per share for severance and other charges tied to job cuts.

Analysts, on average, expected profit of 70 cents per share, excluding items, on revenue of $3.81 billion, according to Reuters Estimates. It was not immediately clear on what basis the analysts computed their estimates.

I just LOVE that last line...HAHAHAHA!

--Fred

[freddyv]

Sorry to turn this forum into The Laugh Factory but it appears that our next Treasury Secretary uses TurboTax to do his taxes.

http://www.cnbc.com/id/28773292/

Oh my...we are in trouble, aren't we?

--Fred

[Higgenbotham]

U.S. financial losses may reach $3.6 trillion, suggesting the banking system is “effectively insolvent,” New York University Professor Nouriel Roubini, told a conference in Dubai on Jan. 20. Obama will have to use as much as $1 trillion of public funds to bolster the capitalization of the industry, he estimates.

And the beat goes on...And the beat goes on...on and on and on and on and on...la da da di di...la da da di da...

http://www.bloomberg.com/apps/news?pid= ... refer=home

[Gordo]

I think at this point everyone knows that most of the major banks (Citi, Merrill, B of A, RBS, etc) are insolvent. CEOs are leaving or being kicked out, they are laying off employees, governments are propping them up and nationalizing them.

What I don't see being discussed much is what are the potential roads forward from an insolvent banking system? Is it POSSIBLE that new banks will be created (government owned or otherwise) and the economy can function without the old/dead entities? I haven't seen ONE PERSON even talking about this possibility, or what the implications would be. Why would lending have to grind to a halt when the US government can create any amount of money at any time out of thin air? They already took over fannie and freddie, so the structure is in place for them to lend as freely as ever. (By the way lending has NOT ground to a halt, standards are just being enforced, which is a good thing).

Everyone is assuming since Bernanke, Paulson, Obama, and Congress (the majority anyway) all seem to think its a good idea to continue to toss money down the black hole of insolvent banks (so much for change you can believe in!), is there any reason to believe they would NOT nationalize the banking system? Again, what are the implications as far as inflation and debt to GDP? We already have massively increasing money supply countered by rapidly decreasing velocity - which one wins over the next 1, 2, or 3 years? What would happen if they did NOT continue down this path and instead let these institutions fail? Would it create total panic as money markets cratered and bond holders at these institutions got wiped out?

Finally, why do so many bearish commentators assume the market can only go down? The market does not trade on things that already happened (like last quarters earnings) as much as what market participants believe WILL happen. While the great depression era had the most devastating overal market declines ever, it also had more massive rallies than at any other time in the last century. I laugh every time I see John talking about how a stock market crash is imminent because last quarter's earnings sucked so bad. As earnings go to zero, P/E heads to infinity - that alone is NOT a short term trading tool of ANY value whatsoever.

[John]

> I laugh every time I see John talking about how a stock market
> crash is imminent because last quarter's earnings sucked so bad.

** Collapse of corporate earnings portends imminent stock market plunge
** http://www.generationaldynamics.com/cgi ... 18#e090118

"Plunge" does not equal "crash."

Idiot. Errrrrrrr I mean Gen-Xer.

[Higgenbotham]

I think at this point everyone knows that most of the major banks (Citi, Merrill, B of A, RBS, etc) are insolvent. CEOs are leaving or being kicked out, they are laying off employees, governments are propping them up and nationalizing them.

What I don't see being discussed much is what are the potential roads forward from an insolvent banking system? Is it POSSIBLE that new banks will be created (government owned or otherwise) and the economy can function without the old/dead entities? I haven't seen ONE PERSON even talking about this possibility, or what the implications would be. Why would lending have to grind to a halt when the US government can create any amount of money at any time out of thin air? They already took over fannie and freddie, so the structure is in place for them to lend as freely as ever. (By the way lending has NOT ground to a halt, standards are just being enforced, which is a good thing).

Everyone is assuming since Bernanke, Paulson, Obama, and Congress (the majority anyway) all seem to think its a good idea to continue to toss money down the black hole of insolvent banks (so much for change you can believe in!), is there any reason to believe they would NOT nationalize the banking system? Again, what are the implications as far as inflation and debt to GDP? We already have massively increasing money supply countered by rapidly decreasing velocity - which one wins over the next 1, 2, or 3 years? What would happen if they did NOT continue down this path and instead let these institutions fail? Would it create total panic as money markets cratered and bond holders at these institutions got wiped out?

Finally, why do so many bearish commentators assume the market can only go down? The market does not trade on things that already happened (like last quarters earnings) as much as what market participants believe WILL happen. While the great depression era had the most devastating overal market declines ever, it also had more massive rallies than at any other time in the last century. I laugh every time I see John talking about how a stock market crash is imminent because last quarter's earnings sucked so bad. As earnings go to zero, P/E heads to infinity - that alone is NOT a short term trading tool of ANY value whatsoever.

Not to play on words here, but we will only know for sure that the banks are insolvent and how insolvent they are if there is a complete audit, and that will only measure the degree of insolvency at the time it is done. As Hussman said, the situation is evolving daily. As far as how many have surmised that the banks are insolvent and believe it as of this moment, I would guess it's less than 1 in 10,000. I doubt 1 in 100 even know what the word insolvent means or know the ramifications of insolvency. I doubt Obama himself ever even considered the issue until recently.

As far as the way out, I only know of one way out. This is my understanding of history and how banking works. Time is off the essence in a case like this. When JP Morgan found out Knickerbocker might be insolvent, he was on vacation and hightailed it back to New York. A group was mobilized to examine balance sheets immediately. Any bank that was insolvent and, I don't know there may have been some minor ones besides Knickerbocker, were shut down immediately. Those that were solvent but illiquid were bailed out, and that contained the panic. To my way of thinking, it is impossible to bail out insolvency because it spreads insolvency. In my opinon, bailouts in any form, printing money or otherwise, take capital from solvent, profit making enterprises and destroy it, the profit making enterprises themselves and the livelihoods of the workers employed in them.

So there is no way forward other than what Morgan did in my opinion. The Fed could have done the same thing if they had audited the books of the banks, but I don't believe that happened.

[mark]

OK, I'll ask.

What's the difference between insolvent and illiquid?

My guess is insolvent is, you are broke; illiquid is you are not broke, but nobody wants to trade with you because there is not anything you can exchange that is mutually possible.

[Higgenbotham]

OK, I'll ask.

What's the difference between insolvent and illiquid?

My guess is insolvent is, you are broke; illiquid is you are not broke, but nobody wants to trade with you because there is not anything you can exchange that is mutually possible.

These would be my definitions as they apply through the ages. I would guess lawyers or regulators might have different definitions depending on the entity involved. In my estimation, when the FDIC is talking about unsound banks, they are talking about banks that are not well enough capitalized according to regulations.

If an entity is illiquid, it means all their assets and liabilities have been marked to market and the entity has a positive net worth but, at the same time, it has no liquid assets to provide on demand.

If an entity is insolvent, it means all their assets and liabilities have been marked to market and the entity has negative net worth. It could still be liquid.

Your questions was what I had in mind when saying that fewer than 1 in 100 could properly define solvency. I'm sure some can parrot what they read in the news, but if everyone went to work tomorrow and was told to take out a sheet of paper and write on it the difference between a bank that is insolvent and one that is illiquid, few could.

So given that only a few could do that, it's a great leap for the average person to come to the conclusion that the banking system is insolvent at the moment when the average person can't even define what that means. Plus, as anyone who has read the news knows, a lot of these assets aren't being marked to market and can't because there is no market for them. So I don't know how the degree of insolvency could really be determined before somehow unbundling all this derivative crap and putting it into a form where it can be sold off.

One more thing, they talk about too big to fail. If something is too big to fail, then in my opinion it was too big to exist to begin with. And if that's the case, it needs to be chopped up and sold off for whatever the market will bear.