patrick.net

Neutron,

This makes it sound like the Treasury is having to guarantee the Federal Reserve's debt. Those are two big dominoes to have lined up.

The 85b is an 11% loan with a 2 year term. And it replaces their executives.

Well Duke, I hope those execs are not removed "without cause," else some like chief exec Robert B. Willumstad may get over $8 million severence pay.

I also hope you are right about the 11%. Maybe yesterday's 3% increase in the LIBOR overnight rate is part of a trend.

Normally the central banks could move in concert to provide funds to the US by buying treasuries - even with their below inflation yields.
Strangely enough, so many are moving into treasuries now (as a flight from the market) that the US is having no problem selling - the market to buy these things is not making them cost more.
As people flee the market, companies capitalization goes down - which makes them attractive for people to buy who have actual money. The trick will be to fogure out what price point will attract foreign capital to buy distressed American businesses. My guess has been that we will see significant market pruchasing starting at Dow 8500. I am further guessing we will see the market stabalize below that. Say, something closer to 7,000.
I had always wondered what companies would do with their 'war chests'. For a long time I thought it would be smart to buy up cheap assets and weaker competition. With their hamerrng of company cpaitalization I think we will see a number of companies use their cash to take themselves private. Its that or watch Singapore own John Deere.

In the San Jose region, 38 percent of homeowners who purchased their property in 2005 owe more than what the properties are now worth; 46 percent of those who bought their homes in 2006 have negative equity and about 32 percent of those who acquired real estate last year are under water, according to Zillow.

Bernanke ought to get the Congressional Medal of Honor if he ends up steering us through this thing (can't figure out if he is a genius or just trying to BS us with all the different credit facilities and bailouts). Quite amazing to see the Paulson hold the line with Lehman.

Headset, pretty prescient to post the EC Hardwood writeup and discussion about the liquidity trap given what has happened in the past week. Give me liquidity or give me death... Maybe OO will come out of hiding now that the PMs have rallied. Hope he was able to sell his house.

As one of those who worried about the Fed "running out of money", I am a bit shocked by the Treasury auction (liquidity for the rainmaker). By my count, they were down to $480 billion in Treasuries (with another $115B swapped out through the TSLF... and then another $85B lined up for AIG). Don't worry, they've got gold, too.

Strangely enough, so many are moving into treasuries now (as a flight from the market) that the US is having no problem selling - the market to buy these things is not making them cost more.
This was the one piece of "yea olde deflationary spiral" that I didn't get. How could we finance our debt (and liquidity schemes) without crazy inflation. The light bulb went off yesterday when The Reserve MMF NAV broke the buck. Run away -- into the arms of Uncle Sam.

The more I think about the AIG deal the more I like it.

It really solves the moral hazard problem of "Too Big To Fail".

If you are to important and too large to fail, the US GOV wil buy you, then break you up in an orderly fashion (defeating the argument of the disorderly break-up).

Someone state they though BoA was buying up Meril to become too big to fail.

If I don't miss my guess, BoA with Countrywide an now Meril will show weakness in the future - and hello AIG style buy-up and break-down.

Wall Street blackmail has run as far as its going to run (for now).

The more I think about the AIG deal the more I like it.

I am not sure on all details, Is taxpayer up or down the chain?

In a sense I would say there is NO chain and the taxpyer is at the very top. The govt holds the controlling interest. It replaced the executives with people under orders to orderly sell assets over 2 years so that the $85b can be replaced including the 11% a year. This means the tax-payer is plus 9b per year for 2 years and in the end we get an insurance company that insures things. Not a bloated mess that leases aricraft, bets on sub-prime, etc.

Wow - did you ee where the hedgies using Lehman as their trading desks have lost access to their funds!!! This means that during the sharp-downturn this guys are just gettng creamed since they can't DO anything.

Wow - Lehman fail which also hurts hedgies and a kinda AIG liquidation.

I am very pleased with the Fed!

It's a strange feeling indeed to have seen the cliff approaching from so far off and yet still being on the bus as it heads over the edge. As in mountain climbing, many false summits have been called relative to the big unwind, I believe this is clearly it.

Things must get unimaginably ugly now. We may see massive global instability, and as the economies of the 2nd world buckle and rally to war let us hope we do not get completely sucked in. Thankfully Bush is on his way out.

Wow.

"Strangely enough, so many are moving into treasuries now (as a flight from the market) that the US is having no problem selling - the market to buy these things is not making them cost more.
This was the one piece of “yea olde deflationary spiral” that I didn’t get. How could we finance our debt (and liquidity schemes) without crazy inflation. The light bulb went off yesterday when The Reserve MMF NAV broke the buck. Run away — into the arms of Uncle Sam."

Wow - crazy day! Can't buy t-bill without negative interest rates and gold up $100 plus at this point! WTF????

NVR, welcome back for the fun . Ditto what StuckInBA and you said. It is somewhat disturbing to see stuff you read on the Internets come true....

Wow, check out DB Gold Double Long ETN (DGP). I read their prospectus last week and it was not explicitly clear (like GLD) that you could hold it in a retirement account so I didn't dabble. Now that would have been a heck of a ride today.

I wonder how many boomers will have to put their retirements on hold?
New boomer credo: Get back to work!!!!! (Bullwhip in background)

Speaking of the '50's CNBC had t-bills trading at lowest yield since 1954. Happy days are here again!

forgot the link-

http://www.youtube.com/watch?v=yLt7clQbBzo

You know, that video just shows what we had wasn't that bad. Now we have enriched the wall street elite while selling the USA to CHINA and forsaken our sovereignty. WOW!

Also, what was so cool is that the weather in Milwaukee back then was just like LA!

Jesus H Christ in a chickenbasket

really - where is the racism in understanding what country holds the USA debt?

We have the Brits, Japan, Brazil and China

What is racist in understanding facts?

http://www.jsmineset.com/cwsimages/Miscfiles/6589_TIC_July_2008.pdf

Don't foget to scroll down through ALL charts!

"while selling the USA to CHINA and forsaken our sovereignty.

Paul u r teh racist!"

WOW again - is it not patriotic (opposite racist) to want to protect ones country from invasion either by foreign force or foreign purchase?

I have never denigrated any race on this board or any other.

Thanks. Here is another "racist"

http://www.youtube.com/user/donharrold?ob=1

TOB : Don't even compare yourself to paul. Its like a pig comparing itself to a lion !
Everybody on this board knows that you are a racist pig.

warren buffet mentioned long time back that other countries will start buying US assets. Sad but true !

Not to worry the Bay Area has been always and will remain an oasis. Real estate will never go down there because everyone makes 175K per yar! That's 350K per yar per couple! The streets are paved with mother fucking gold I tell ya! (900+/toz) Shit why just yesterday i bought 500k worth of google products. It's a brave new world and the rockstar(tm) laden BA will surely weather this storm.

Aahahahahahahahahahah suck it fags~!

when you put melamine in baby formula you do so because babies like melamine. don't they?

Now, most financial firms also invest for themselves. They use partners' or shareholders' money to place bets on stocks, bonds and other securities -- so-called "principal transactions." Merrill and other retail brokers, which once served individual clients, have ventured into investment banking. So have some commercial banks that were barred from doing so until the repeal in 1999 of the Glass-Steagall Act of 1933.

Fucking slander. Surely this was not Clinton but those god damn Bushes(tm). The Clinton's feces was really gold, which now paves the Bay Area. Certainly the origins of the current crisis could come from the proud party of Obama now could they?

ahahahahahahahahahahahaahhaahahah, oh fuck it just doesn't get old.

surfer-x, we all know that beautiful places like the marina are still prime. you just need to face reality. why, just the other day a friend of mine had a listing in the fortress for $850,000 that sold for $1.1M after 57 bids! you guys are missing out on the bull market, but I've got a buddy who does zero down ARM mortgages. you can always refinance later! oops, my home just appreciated another $50K on zillow, i'm going to withdraw that equity and get a bmw!

:o

I really wish that Face Reality (a.k.a Marina Prime, The Other Side, etc.) and his asstard friends would show back up and face the music. Patrick really does need to put this blog in a time capsule so that future generations can know what realtors sounded like before we switched to a fixed payment system regulated by the government.

I smell opportunities coming here. If banks are so undercapitalized, and they've already written down huge losses after marking to market, isn't it in their best interests to just accept the first reasonable bid and move on? What would hold them back? And does FNM/FRE even have loss mitigation departments for the forthcoming wave of jingle mail?

Yeah, where is that "Marina is Subprime" tool anyway?
No doubt, he's pissing his pants in mortal fear of the imminent de-leveraging of his souless way of life, as the walls of his dinky Marina home constrict of the blackness of night, awaiting another cheerless day in the markets.

Bap33,

it is not the "moral decay of the liberals" that is causing wall st and the overall economic functioning of the US in to go under.

Quite the contrary. It is the moral decay of (some of) the conservatives, who preach free markets and personal responsibility, but practice rigged markets and wast irresponsibility at the expense of the rest of society.

[delurk]
Bap, I am mostly with you. Liberalism confuses what ought to be and what is. Such misalignment of reality will tear apart any society over time.
[/delurk]

http://www.dqnews.com/News/California/Bay-Area/RRBay080918.aspx

Bay Area home sales near bottom again, median price plunges

This seems to go well with the current tangent.

All the plans of big shots, all the desires of our governing masters, all the wishes and dreams of people who imagine themselves to be larger and more important than the rest of us, melt like snow on a sunny day.
In this sense, the market is the great leveler, the force in the universe that humbles all people and reminds them that they are no more important than anyone else and that their wishes must ultimately be shelved when faced with the overwhelming desire on the part of market traders that some other reality emerge.
For this reason, everyone has reason to celebrate the end of Lehman and Merrill. Overnight, while we slept, the seemingly mighty were humbled, the first made last and the last made first. The greatest became the least, all without a shot being fired.
http://www.mises.org/story/3109

It's been fun following the story these past few years. Two years ago everyone here was wishing for real estate prices to tank so they could buy a house. Be careful what you wish for! The RE prices have tanked, and so has our economy.

My old San Jose house sold in May 2006 for $670K, which I pocketed on my way out of town. That house has now gone into forclosure and it apparently "sold" (maybe REO?) for $540K according to Zillow et al. Somehow $130K of "value" has evaporated. I'm curious what that house will sell for to an actual buyer in today's market.

I can't believe this:

US Weighing Plan to Set Up Facility to Hold Bad Debts

Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.

The facility would be similar to the Resolution Trust Corporation, which was set up in 1989 to take on all the failed thrift assets during the savings and loan crisis, these sources said.

"Liberalism confuses what ought to be and what is. Such misalignment of reality will tear apart any society over time."

Exactly that, yes. I know several sweet idealistic people who are very much in favor of the new proposition to decriminalize prostitution in SF. They have sweet Firefly-induced visions of respected and respectable sacred prostitutes, half high priestess and half counselor, finally free to practice their holy work in SF.

They confuse what ought to be with what is. Which is not quite so pretty.