Rolling US Economy Into The Shitbin Thread

Sure, Fannie and Freddie should have been more cognizant of the risks of buying anything backed by the subprime mortgages being originated by irresponsible lenders. Lots of people should have - starting from the rating agencies, on through the risk-management departments of almost all the major banks and insurance companies. Unfortunately, at that time, there was nothing unusual in their willingness to believe these were safe investments. What was unusual was that relative to their size, they participated much less in these assets than others did - mainly because of regulations that prevented them from buying subprime mortgages directly.

my post was multi-xp to pancakes

Wells Fargo is based out here and is sitting pretty last I checked

right, i was not saying that California banks were in trouble, i was saying that too much exposure to California ARMs was/is a key problem for the biggest troubled banks here

>but would it be better to allow BoA or Citi to increase their existing west coast positions? it appears to me that the retail banks that are in trouble here - indymac, wamu, wachovia - had too much exposure to the california (and florida) housing market(s)

no, Wachovia is barely a blip in LA, in fact it's notorious for not having enough branches since arriving. and BoA is already gigantic; it greatly outnumbered the Wamus, at least in this half of the state.

That Zabar fuel surchage seems like a dumb PR move. Don't put out a big sign saying you're going to slap a surchage on every purchase - just quietly raise prices across the board. Zabar's food is so overpriced anyway, who would notice another 1.8% - unless you put up a big sign calling attention to it?

Eli's Manhattan ≠ Zabar's, and per the article it was explicitly in the alternative to quietly raising prices and explicitly a PR move to call attention to how fuel prices are hitting food prices (everywhere, not just where upper east siders buy $6 tomatoes)

here's the alternate plan proposed by the house GOP

http://biz.yahoo.com/ap/080926/bailout_alternative_preview.html

no, Wachovia is barely a blip in LA, in fact it's notorious for not having enough branches since arriving

i don't know what kind of retail presence they have there, but they have a lot of exposure to the housing market

Also, I never said they were driving the process. I said they were paying for the fuel.

and taking a cut of the pass-through to pay for their own gravy train. there's no question fannie and freddie were enablers, and were happy to ask no hard questions. but of course the right-wing effort to blame them specifically -- and low-income/minority borrowers -- as the prime culprits is silly and noxious. (only truly dedicated ideologues could find a way to blame a wall street meltdown on poor people.)

and i'm not sure i understand your point, vic - you're not arguing that wachovia should increase its presence there? and I agree with you that BoA is already gigantic in CA and that this is why Chase, which isn't there at all, should take over WaMu instead.

Meanwhile, troubles over at the Morgan Stanley prime brokerage business:

Morgan Stanley lost close to a third of assets in its prime brokerage last week, amounting to hundreds of billions of dollars, as hedge funds fled after the collapse of Lehman Brothers and moved to rival banks.

http://www.ft.com/cms/s/0/fc0e74be-8b43-11dd-b634-0000779fd18c.html

>>but would it be better to allow BoA or Citi to increase their existing west coast positions?

i thought you were advocating this, and i was just saying that BoA is already huge here. i didnt know Wachovia was big w/ housing but retail wise they're small

in LA, they're apparently at the market share of the Farmers and Merchants Bank of Long Beach, which I hear is pretty good

I'm not arguing against the wingnutz' lack of honesty in the issue, I'm saying that Fan/Fred played a significant role in the crisis. There's also some truth to the fact that reform might have lessened the blow or at very least, saved the taxpayers some money. It seems obvious that the GOP would cater to their constituents in this regard.

Eli's Manhattan ≠ Zabar's

I was referring to Eli Zabar's stores in general, not the Zabar's store in particular. I thought Zabar's was one of his, but apparently it's run by his brothers.

You might be right Don, that reform at Fannie & Freddie might have lessened the blow to taxpayers. We have yet to know how much taxpayers will be on the hook for losses at Fannie & Freddie. I'm not a big supporter of the quasi-public model. Though even if Fannie & Freddie had been fully privatized a long time ago, it seems they would have still been deemed "too big to fail", so taxpayers still would have been on the hook. Even worse, if they'd been privatized, they probably wouldn't have even had what regulation they did have to keep them in line.

Away from Wall Street, Economists Question Basis of Paulson's Plan

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/25/AR2008092504531.html

wow, National City (my bank), is down almost 50% right now.

http://finance.yahoo.com/q?s=ncc

I'm saying that Fan/Fred played a significant role in the crisis. There's also some truth to the fact that reform might have lessened the blow or at very least, saved the taxpayers some money.

if you're following the bloomberg news investigation piece, a lot of this comes down to bad risk assessments and forced error, kind of the way dot com IPOs and GC/Enron stock prices were forced into places they shouldn't have been by Frank Quattrone types (except they mostly didn't get caught like Quattrone did, because they were better at playing dumb I guess) - but my point is that FM/FM were both allowed to have risk/credit ratings well above what they should have, perhaps because of the implicit federal insurance behind them - unless reform fixed this aspect, I don't think it would have saved anybody a red fucking cent.

(when I say forced error above, I mean in cases where it was "commit to this lie or resign tomorrow," which isn't really forced error in an engineering sense, because the person actually in charge of such ultimata is committing the original error, and is doing it for the sake of just being a greedy piece of shit)

my point is that FM/FM were both allowed to have risk/credit ratings well above what they should have, perhaps because of the implicit federal insurance behind them - unless reform fixed this aspect, I don't think it would have saved anybody a red fucking cent.

Instead of fixing this, the government now seems intent on extending that guarantee to pretty much the entire financial landscape.

so i stayed behind while everyone else ran. at least the lines will be shorter now, eh?

Run on Bank Helped Kill WaMu, But Your Money Is Safe
http://finance.yahoo.com/tech-ticker/article/73415/Run-on-Bank-Helped-Kill-WaMu-But-Your-Money-Is-Safe?tickers=WM,JPM,XLF,WB,%5EDJI,%5EGSPC
Posted Sep 26, 2008 10:44am EDT by Aaron Task in Investing, Recession, Banking

In the biggest bank failure in U.S. history, the Federal Deposit Insurance Co. seized Washington Mutual's assets Thursday. The FDIC then quickly sold most of WaMu (that's assets and liabilities) to JPMorgan.

Simply put, WaMu was victimized by a classic "run on the bank." Customers withdrew $16.7 billion in a 10-day period following the bankruptcy of Lehman Brothers, leaving WaMu "with insufficient liquidity to meet its obligations," its regulators determined.

A longer explanation is WaMu was victimized by mismanagement and misguided bets on exotic (and toxic) instruments such as option adjustable-rate mortgages.

The deal has major ramifications for JPMorgan and the banking industry as a whole, as Henry and I discuss in a forthcoming segment.

For the vast majority of people who bank at WaMu, which had 2200 branches and $188.3 billion of deposits as of June 30, the important thing to remember is your deposits are insured up to $100,000, and the Federal government will go to every extreme to make sure it's available.

"There will be no interruption in services and bank customers should expect business as usual come Friday morning," FDIC Chairman Sheila Bair told reporters last night.

The sobering truth, however, is that repeated declarations about the sanctity of FDIC insurance from Bair, President Bush, Treasury Secretary Paulson, Fed Chairman Bernanke and others failed to quell concerns among WaMu's customers. That suggests more "bank runs" could be in the offing unless the government moves quickly to restore confidence.

I was referring to Eli Zabar's stores in general, not the Zabar's store in particular. I thought Zabar's was one of his, but apparently it's run by his brothers.

Zabar's is a 75-year-old semi-populist institution founded by Eli's father and taken over by two of his sons. The more entrepreneurial Eli, who never spent substantial time working there afaik, opened his own more upscale/expensive place, E.A.T., on the East Side in the '70s. His "Eli's Manhattan" is 10 years old.

founded by Eli's father

and mother

it's probably a good thing that this "run on the bank" was not reported until after it collapsed, eh?

my dad has national city and i think he's upset right now

fake john mccain summarizes shitstorm well

fakejohnmccain The WaMu punchline: WaMu CEO, who's only had the job for 3 weeks, walks away from smoking crater with $20 million bonus: http://is.gd/39pe

i went down to the Nat City branch at lunchtime to make doubly sure my money market account is insured

xpost

again, wake me when citi shits the bed

Good cheer:

Although things were operating normally this morning at WaMu branches, 66-year-old Mike Singer of West Hollywood went to the La Brea branch and decided to move $20,000 to a certificate of deposit at Bank of America.

That way, he said, the remaining $180,000 in the business, savings and checking accounts and CD filed jointly under his and his wife's names will stay under the FDIC insurance limit of $100,000 per depositor. He also added his daughter and his wife's son as beneficiaries to the accounts as an extra precaution.

"It's better for me to divide and conquer," said Singer, a contractor. "There's nothing to worry about -- after all, if America really goes down after all of this, then I won't need the money anyway."

so I don't know how much I agreed, in principle, with this bailout plan before today, but if there are realistic concerns that consumers are going to do more runs on banks, then something needs to happen. it's becoming a matter of delusional paranoia on a mass scale and the government needs to do something to quell it.

Does anyone have a good answer to the Community Reinvestment Act/It's All The Dems Fault right-wing meme that's circulating? I mean I smell distortion, but I'd like to be able to back my nose up on this one.

it seems increasingly clear (to me, anyway; I'm not economic expert) that the economy runs largely on trust; and when that trust is gone, things go batshit. it's easy to say 'well corporations broke that trust', well, true, but the alternative is not very nice either.

Hurting, I saw a link the other day to a document which showed that CRA loans comprised only a small percentage of foreclosed loans (<9%), that they were less likely than other loans to be sold off, etc. I'll see if I can find it.

the economy runs largely on trust; and when that trust is gone, things go batshit

see: paper money!

also see: http://www.bloomberg.com/apps/news?pid=20601109&sid=ax3vfya_Vtdo&

Hurting,

The CRA argument is total horseshit. Besides the basic chronological flaw (how did a 1977 law cause a 2008 crisis?), here's all the info you need.

http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

Well, the version I heard is that it was the 1995 CLINTON changes that caused the problem. Which for all I know may be true -- I mean dude was one de-regulating dildo.

In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation's Ellen Seidman (and by Harvard's Joint Center), that activity "largely came to an end by 2001." In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law's toughest standards. Yet sub-prime lending continued, and even intensified -- at the very time when activity under CRA had slowed and the law had weakened.

EL TOmbot

http://biz.yahoo.com/rb/080926/business_us_wachovia_citigroup.html

I like to imagine this thread title as:
Rolling US Economy into the Shebeen Thread

http://cache.marriott.com/propertyimages/e/ewrho/phototour/ewrho_phototour04.jpg

haha I just learned what a shebeen was last week, I was looking up Clash lyrics

+ yeah brownie that is the fun fact of the day!!

if we don't pay for this in a bailout we're just going to end up paying for it in ATM fees

ugh tbomb

chase atm fees went up a dollar this year already

Ha I forgot about ATM fees. LOL America

guys, I've been getting email bombed by people who are convinced that the Community Reinvestment Act is cause of all problems. Is there a quick and dirty refutation that I can use for them? I don't really want to get all derivative on their asses because I'm not sure how it all works or ties in to the CRA but I will if that's the only way.

thanks

confused in cleveland

Rolling US Economy Into The Shitbin Thread

scroll up?

Ooh neocongetting worried:
http://weeklystandard.com/Content/Public/Articles/000/000/015/636zbhel.asp

I've received phone calls in the last hour from two economists I respect, one of them Larry Lindsey, the other in a position where he'd prefer not to be named. Both have government experience, neither is alarmist by nature, and they say this:

The huge European bank Fortis is apparently about to fail. The ripple effect on the American banking system could be disastrous, with bank runs, liquidity crises, and stock sell offs possible Monday. Wachovia may well fail next week. As Larry put it, this really will be 1933 soon if we don't move rapidly to stabilize the banking system.

And here's the bad news: the current bailout bill, whatever its merits and likelihood of passage, does nothing to address this.

Congress should pass by Monday simple legislation doing two things:

1. Giving the FDIC authority to provide unlimited deposit insurance through the FDIC for transaction accounts in banks.

2. Authorizing the Secretary of the Treasury to provide unlimited protection of principal in money market funds through the Treasury's exchange stabilization fund.

Maybe my acquaintances (and I) are too worried; maybe this legislation wouldn't quite be the right solution. But I wanted to sound what may be, unfortunately, a needed alarm.

There is a phrase in the vernacular idiom about taking your medicine. Medecine is notoriously bitter.

We may face 1933 again. It may be that the medecine is unavoidable. The financial 'industry' built a vast edifice out of fraud and excess. Saving all or most of it may not only be a doomed effort, but even if it is successful it may just start another cycle of something worse.

brownie,

try here: http://economistsview.typepad.com/economistsview/2008/04/yet-again-it-wa.html

CRA only governs a certain class of federally insured banks. Problem is, half of the subprime loans came from mortgage companies with no CRA involvement at all. Another 25%-30% came from companies with very little CRA exposure. For those who left their abacus at home, that's 80% of the loans which were fully or largely outside CRA jurisdiction. More than that, the non-CRA mortgage firms made subprime loans at twice the rate of CRA-covered firms. Which basically leaves a stake in the heart of this particular theory. Indeed, until now, some conservatives have been moaning that no one is talking about the CRA part because it's so racially charged. Poppycock. It's just a false charge...