patrick.net

This might be interesting.

Top Recipients of Fannie and Freddie Campaign Contributions:
1. Dodd, Christopher J, D-CT
2. Kerry, John, D-MA
3. Obama, Barack, D-IL
4. Clinton, Hillary, D-NY

http://www.opensecrets.org/news/2008/07/top-senate-recipients-of-fanni.html

I don't think of this as an indictment of all Democrats. But, it would appear that Fannie and Freddie believed Democrats would be more useful.

CleansingSphere Says:

October 8th, 2008 at 11:20 pm
This might be interesting.
Top Recipients of Fannie and Freddie Campaign Contributions:
1. Dodd, Christopher J, D-CT
2. Kerry, John, D-MA
3. Obama, Barack, D-IL
4. Clinton, Hillary, D-NY

So what is your point ?
how many times do i have to repeat this :
The Fact that spain and other European countries are having huge “domestic” mortgage related toxic debt issues means that fannie mae/freddie mac in USA are not the problem.fannie mae and freddie mac don't work in spain and europe.

Right on.

Here's a different topic: AIG is getting another 39B$ loan. Why, and why now?

I read that some large chunk of Lehman CDS paper is coming due on Friday 2008-1010. AIG appears to have been a very big player in the CDS market. Maybe this is the reason??

Another topic: The 799+ shorting ban is still on track to expire (or maybe did expire) at midnight.

I'm quite surprised that the ban has not yet again been extended. I wonder why, it is not like Paulson & Co have been showing much restraint regarding manipulating the market lately.

Can anyone think of a reason it would be *useful* to lift the shorting ban right now? Who stands to gain, and how are they connected to Paulson & Co?

Yeah, I am a bit suspicious about this.

Goldman sachs has changed the status from broker to "Bank holding". Its now able to seek liquidities from the Federal Reserve Board.It won't go bankrupt now.
It will benefit from the weakening competition when other investment banks go under.
All the actions paulson and co. take are mostly oriented towards putting Goldman sachs in a more competitive position.
That was one reason they let lehman bros go under but started govt intervention when goldman sachs was getting affected. paulson worked there for 25 years and was a CEO.He might go back to goldman sachs later.They are milking 700B using goldman sachs now.

>>The Fact that spain and other European countries are having huge “domestic” mortgage related toxic debt issues means that fannie mae/freddie mac in USA are not the problem
snmr,

I did not say that F&F are the *only* problem. But, they are certainly at least a $300 billion dollar problem at the moment. And in my mind they contributed greatly to the systemic risk that our economy has fallen victim to.
They legitimized a trade in paper of such low quality as has never been seen in the secondary mortgage market, and that paper IS absolutely the crux of the current problem -- all of the rest of the economic pain stems from it.
They directly benefited from their contacts in congress and used them to block GSE reform and regulation. Every attempt at reigning in F&F this decade was effectively crushed by their allies in congress. They leveraged themselves actually far more than Bear or Lehman... the only difference is that their margin call was forwarded to congress.
What makes me most angry is that they they changed their own accounting rules so they could write themselves hundred million dollar bonuses.
I think the law should be changed so corporations with a mixed public/private charter should NOT be allowed to lobby.

(ranting a bit more about F&F)

Fannie and Freddie absolutely legitimized the secondary market for poor quality, risky loans. Again, the GSEs are effectively the gov't's policy instrument in the housing market (FHA having long gone by the wayside). The GSE's are *designed* to promote safe, sane lending and abate risky practices. All they have to do is decide what paper they will buy.
The results are no less tangible than standards set by any fully public gov't agency. Instead of saying "No we will not buy your stinking toilet paper", they got in the game themselves for great (but fleeting) profits.

The only thing I can compare it to is if the FDA were to suddenly change its mind and say that melamine was totally cool to put into baby formula, and the FAA said it was fine to fly airplanes without landing gears as long as people aren't complaining about the bumpy landings.

And to top it off, they knew they could get away with it by telling their allies in congress some beautiful fibs. E.g., for subprime lending they could say, "look at the wonderful diverse lending we've been getting into... opening new opportunities for people. Through the mandates of good folks like you in congress, we've finally discovered that captialism and equal opportunity in lending can walk hand in hand", which was sure to evoke watery eyes among a certain crowd.

Tf things got hairy, they could tell congress "we tried so hard to give every good hard-working american the loan they deserved, but it came back to bite us, gosh darnit".

The worst part of it all is that everyone knew that if Fannie and Freddie were doing it, it was safe to jump in, because F&F are too big to fail. If it came down to it, they could pull strings in congress, and the US taxpayer would perform the needed wallet-to-wallet resuscitation.
The "congress put", well hedged -- hundreds of billions of protection for only $174 million to grease congress's pockets in the last 10 years.

Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble, perhaps the first cracks in the Fortress' growth prospects?

OO said:
The likes of Paulson need to stay awake and ponder where their future generations can live, because America and Europe have had enough, perhaps they should consider Africa.

Please, no. Africa has suffered enough, and the last thing they need is a bunch of refugee Banksters. :-)

A lot of better thinking has surfaced lately.
MLEC dead (aka Super SIV II).
Direct injection of capital.
Backstopping by Trichet
Coordinated cuts.
We will see some needed weedng of banks and companies soon.

Now, now we can talk about the 800lb gorilla in the room

I think we need to nullify all CDS where the party hedging debt has no interest stake (or a trivial stake) in those bonds. The math is scary.

We will only be truly out of the woods once that CDS market is susupended. Sorted out. Then regulated.

@OO

The Investment News article is an eye opener. Thanks !

apostasy Says:
Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble, perhaps the first cracks in the Fortress’ growth prospects?

This is another one of those long overdue headlines - the situation on the ground is pretty old, but the MSM ignored it. The fact is that for nearly two years now, the smart money has been sitting out of the tech-startup market. The majority of investments have been triaged into the most viable of _existing_ portfolio companies - i.e. not for a new startup.

From my vantage point, the bust in startups has been like the housing market - it was clearly going on, and the trend seemed pretty well established, but cheerleaders and gossip-rags kept took didn't change their tune, until it was a non-news item.

that last sentence was poorly edited mid-post - it should have said:
"but cheerleaders and gossip-rags didn’t change their tune, until it was a non-news item."

overheard at a breakfast meeting in the cafe just now...:
"Bernanke and the other CB's gave the market a gigantic boner pill yesterday, but still failed to get it up."

"first cracks in the Fortress’ growth prospects"

huh? First? It started cracking with everything else. Personally, I don't think the Bay Area will turn into Detroit, but rather they'll decline per a relative ratio with everything else.

US treasury yield is rising, yet stock market is still dropping.

What does that mean? Foreign flight of capital, NO imaginary flight to safety to the US. The USD euphoria is not created by foreigners desiring the US as a safe harbor, but because the US-based financial institutions are out of money to cover their USD-denominated debt.

IF China, Japan and Middle East are lightening up their load during this time (which we won't know until 1-2months after fact), we are doomed.

But don't worry, Congress will make sure every single American will have to buy patriotic Treasury from the government, what you don't like that? I will just stuff it into your 401K and make that your only choice.

# The Original Bankster Says:
September 23rd, 2008 at 10:58 am

basically, they are concerned with things hitting the CDS markets… think about this scenario:

Foreclosures continue
massive credit card defaults
CDS depreciate
CDS market dead
credit card rates shoot the moon
no consumer spending
consumer stocks begin to fail
??? (the rapture?)

I hope I'm quoting the correct poster on this string. I don't generally comment, more of a lurker, but did want to say I've been watching my credit card statements begin to shoot the moon.

I sent the payment in a day or two late via snail mail on a Visa card a few months ago and Chase hiked the APR rate to 25.99%. That's pretty steep for an average consumer who pays bills on time and has good credit. Even the Target credit card I used to have never went above 18%.

I'm moving the balance to another card but also delaying all non-essential purchases until I pay off the balance. If everyone out there is doing the same, it's going to be a dismal holiday season.

The kids are gettin' clean burning coal in their stockings this X-mas.

http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html?pagewanted=1&_r=1&ref=business

A very good article on what the real issue is now.

Derrivites make the MBS problem look like nothing.

The world needs to strike these down by. . .hrm tomorrow. Lehman CDS are due to be sttled tomorrow and up to $1t may chnage hands. Of course, this would crush the counterparties which would bankrupt which would trigger a CDS event which would crush the counter parties which would. . .
In a nearly $600t CDS market we simply have to stop this. Now. Today.

As much as I dislike Pualson and Cox and as little as I trust Congress, they are not stupid. Look for some anouncement today or after market.

We have done so many game changing rules so far, why not the big one? Nullifying CDS contracts?

DOW may drop below 9,000 today. Glad I'm not in it.

Sequoia Rings the Alarm Bell: Silicon Valley Is in Trouble

This fucking shit has gone far enough, the Bay Area is immune from the rest of the madness sweeping the world, it is an oasis, unique, perfect in every way, everyone makes 1.4HaHas per annum. Gay marriage is not only accepted, but the law. The streets are paved with gold, all code monkeys are sheltered and well fed, why hells bells folks, google just opened another googleflophouseaplex just yesterday. So shut the fuck up, the Bay Area is just fine, more than fine in fact, it is perfect. You are just a bunch of shallow bitter renters living in flyover states, you will never have what us Bay Aryans have, housing that only goes up, perfect weather, the world is our oyster and your fucker are just the shuckers.

wow, that is just refreshing, like a coffee enema at a fancy resort paid for by a bailout.

I’m moving the balance to another card but also delaying all non-essential purchases until I pay off the balance

You should have been doing this all along.

TOB
Well, in the near term they can work out something where credit card companies can hedge against defualt using insurance agencies that set aside approriate reserves.
In the IMMEDIATE term, tomorrow can start the biggest snowball you have ever seen.
Personally, I think stopping the snowball BEFORE it starts rolling is a pretty good idea.
In the medium term we can regulate the derivatives market to make sense.
In the long term, everything will be regulated to death since all pretext of trusting people to act in their own best long-term interest has not proven to be accurate. For every Mozilla that crushes a countryide for the simple reason that 'he got his' there are 1million American Mozilla wannabes. Given the chancet o make a short term killing then retire to Napa is the American dream. Taken to its illogical extreme you have. . .why, you have where we are today. Insolvent banks holding assets of insolvent businesses with working people losing their etire life savings.

Can anyone think of a reason it would be *useful* to lift the shorting ban right now? Who stands to gain, and how are they connected to Paulson & Co?

Without the shorting ban, the market may shoot up.

Short-sellers (especially retail traders) are bulls' best friends.

Duke,

>>I think we need to nullify all CDS where the party hedging debt has no interest stake (or a trivial stake) in those bonds. The math is scary.

Allowing tradable "insurance" polices that exceed the underlying insured asset is like having multiple fire stations starting an office pool on whether your house will burn down. The odds are that no-one will show up if somebody sets a match to the house.

Duke,

I asked the the question further up in the thread whether the lift of the shorting ban in some perverse way was related to the fact that a big chunk of Lehman CDSs are coming due Friday 2008-1010, which you also mentioned.

Any insights on that?

I think we need to nullify all CDS where the party hedging debt has no interest stake (or a trivial stake) in those bonds. The math is scary.

Sorry, but you really know nothing about the financial market.

Nothing should be done. It is so simple.

LET THE BANKSTERS EAT CAKE.

Capitalism is driven by the prospect of success and the reality of failure.

I missed this on SNL, but heard about it and finally tracked it down. It was missing from the NBC video website for a few days.

http://gregmankiw.blogspot.com/2008/10/snl-on-financial-rescue.html

Duke,

is there a real way to nullify CDS contracts? Every article I've read points to how complicated the web is, and how they wouldn't even know how to start a process like that.

At this point, if there is a way to stop the carnage by changing the rules in the banking industry, then they'd better do it quick. I don't give a shit if some banker doesn't get his payout on a CDS. They lost all their rights when they started sucking the taxpayer tit.

Nullifying private contracts is what communists do.

Wow, MLEC and Super-SIV. I had almost forgotten about that whole thing.

http://en.wikipedia.org/wiki/Master_Liquidity_Enhancement_Conduit

It was announced on 2007/10/15, and never went anywhere, likely because the banks did not trust each other. This was in the aftermath of the initial 2007-08 credit meltdown.

Another analogy: CDS is the policy (yeah pun) of mutually assured destruction of the financial world. Now, how are we going to force all the actors away from the launch button?

I know Peter P wants to launch and have all the Banksters eat cake, but then so will the rest of us.

forgot to add...
it's a pretty funny skit.
It may be a sign that we are hitting the phase of the crisis, long predicted on this blog, where people who were involved in risky lending are constantly and publicly lampooned. (the "how could we/they have been so stupid??" phase). Anyone who saw the dot-com bust or the S&L crisis will understand where we are at now.

I know Peter P wants to launch and have all the Banksters eat cake, but then so will the rest of us.

I doubt you have enough skin in the game to care.

Look Peter I appreciate your free-market-or-die approach. I do.
I think failure is exactly the right perscription for bad bets.

What you fail to see is that this unregulated market has intertwine everyone. The amounts payable are impossible to pay. Whole sectors will be wiped out. Whole nations.

I suppose the realty may be that a counter-party simply refuses. The challenge the legality of the claim and buy time with legal review.

Since we have heard from every branch of the governement so far, I suppose it is time for the Judicary to step in.

They can call CDS, 'illegal and unenforcable contracts' which would satisfy Peter P's pathoological desire to follow the letter of the law in the free market world. Namely, the law would say, "In our legal opinion these contracts never existed,'

And yes Peter, the free market can do things like enter into contracts for things like human organs. And yes Peter, those contracts are illegal.

Justme,

I don't think so. The length of the bans is jist Cox makng this stuff up as he goes along. I guess the insider view wouldsee it like this:

Someone, say GS, knows the counterparties to the Kehman CDS. Say, Mogan Stanly. GS takes an enormous short against MS today. Tommorrow, MS reveals it owes $900b on CDS and MS goes under. GS then covers it short with MS stock at near 0. GS makes a killing.

Phew, there is so much money at stake - mebbe? Wow, I would love to see the legal review of that trade. Especialy if GS was orignally asked to be the hedge of Lehman bonds, they refused, then they recomended MS.

They would have material information not know o the rest of the market. and their profit would be grotesque.

What you fail to see is that this unregulated market has intertwine everyone. The amounts payable are impossible to pay. Whole sectors will be wiped out. Whole nations.

Scary tactics worked on you, huh? :)

If the amounts payable are impossible to pay, then no one will be payed as everybody cross-defaults everybody else. So what? They entered the game with full knowledge of credit risks and systemic risks. It is a fair game.

You think us human beings can be wiped out by numbers on pieces of paper? Not so easy.

And yes Peter, the free market can do things like enter into contracts for things like human organs. And yes Peter, those contracts are illegal.

They ought to be legal.

Bankster want a bailout? That is going to cost him a kidney!

Hi SP - I am still around - can't shake the habit of checking Patrick now and again after about 5 years of reading this blog - but I kinda stopped posting as it was like watching paint dry in this area of ours. Most houses in Mountain View and some in Los Altos now seem to be selling for 10% less than original asking price - but they need to come down a lot more than that and I am hoping the Alt-A resets will do the trick, along with a weakened tech.

However, I am now thinking that if the stock market doesn't improve in a years time, then we will no longer be in a position to buy a house ourselves(i.e my husband will be looking for a new job) and we would be better off being mobile.

Bap33 - where are you located roughly - offering for?

Dennis would certainly kow better than I the statue for legal and illegal contract, but I would guess the test is this:
Is the contreact harmful to society; so:
Parents cannot enter contracts to sell their children (in whole or in parts)
You cannot take a contract to have someone killed
You cannot take a contract to dump toxic waste in Giradelli square
You cannot take a contract that will trigger $600t of other contracts.