Tags: Bailouts, green shoots
You know there are some vibrant green shoots when major credit card issuers are voluntarily taking 65% haircuts on some outstanding balances.
Consider Bedros Alikcioglu, a gas station owner in Newport Beach, Calif. He owed $112,000 on four cards and was paying $3,000 a month in interest and late fees. “It was so hard to earn that money, and paying it to nowhere didn’t make sense anymore,” said Mr. Alikcioglu, 75.
He signed up with a debt settlement company named Hope Financial, which negotiated deals with his creditors to settle for about 35 percent of his balance. Hope Financial is charging Mr. Alikcioglu about 12 percent of his original debt.
So banks with major consumer exposure are now faced with a rather peculiar situation. The overly leveraged consumer who is chronically delinquent now has leverage over the banks because it’s increasingly likely the value of that debt to the bank will be zero in the coming months. You don’t need the threat of cramdown legislation when things are this bad.
Credit Bailout: Issuers Slashing Card Balances [NYT]
Tags: Bailouts, Finra, Lawsuits
It seems small retail investors are still a glutton for punishment. A number of retail investors learned a harsh lesson last year when the convertible feature of their reverse convertible bonds kicked in and their high yielding bonds morphed into rapidly sinking equities. There are certain varieties of structured products that retail investors can take issue with because they weren’t fully aware of a seemingly minor structural mechanic that came back to bite them. This isn’t one of them. Even by retail investor standards, the key mechanic, the knock-in level, is spelled out clearly.
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Tags: absurdist comedy, Bailouts, Craig T. Nelson, taxes
You could probably find a lot of people who are against bailouts but this morning the most unintentionally hilarious one is Craig T. Nelson. Coach went on Glenn Beck last night to promote this message. He’s pretty steaming mad about all this (“I’m just sick and tired of it”), and you know what he’s going to about it? Stop paying his taxes, that’s what. Whether or not they see eye-to-eye on the whole bailout nation situation, T. Geith’s ears will surely perk up when it’s put that way.
Beck: Are you saying you personally won’t pay income tax anymore?
Nelson: I’m really thinking about it, Glenn. As a fiscally responsible grandfather, there are programs they’re asking me to fund that I refuse to fund. They should be allowed to go bankrupt! We’re a capitalistic society. I go into business, I don’t make it, I go bankrupt. They’re not going to bail me out. I’ve been on food stamps and welfare,* anyone bail me out? No. I’m just SO SICK AND TIRED OF IT. I’m sick and tired of it!
*When was this?
Tags: Bailouts, credit crunch, Treasuries
The Across the Curve blog often has insightful and potent analysis, with a focus on credit markets that reveals some real expertise in the area. Today, however, its author, originally a weak supporter of government intervention, has made a rather public about-face.
We are forced to agree with him. Matters are quickly getting out of hand and deeper government involvement in the essential engines of the economy, and the deficit spending required to entrench it, is looking less and less desirable by the day.
From the outset, I have always been a supporter of government intervention as a means to prevent this unique crisis from taking the system down. I have always believed that the consequences of inaction were greater than the cost of government involvement. I question that assumption now.
The bailouts began with the deal in which JPMorgan took control of Bear Stearns with government assistance and continues to this day with the government intervention in the Bank of America union with Merrill Lynch.
The Federal government will now be an integral part of the financial system for a very long time and will influence decision making and risk taking in that sector during the time in which taxpayers are a partner in those businesses.
I now think that we would have been better off with some truly cathartic event which would have curbed the animal spirits of traders but which would have established a basis for a market prescribed recovery. Succinctly stated, the government is not in the business of taking risk and I would argue is in the business of risk avoidance.
In retrospect, the commonweal would have been better served had nature taken its course and allowed for capitalism to travel its natural course. I fear that this new course has placed on us a path to a very slow recovery and one in which innovation and risk taking will be viewed through the narrow and ill begotten prism of some bureaucrat.
Some Opening Comments [Across The Curve]
Tags: Bailouts, Made-off
The U.S. Government Will Appeal The Madoff Bail Ruling.
They really don’t like this guy.
Tags: Bailouts, Bank of America, Kick Her In The Taco Paco, Merrill Lynch
What shareholders would be the the mood for any deals in this environment? Really, it is damn ugly out there. No surprise then that Bank of America shareholders are about as interested in acquiring Merrill Lynch as a kick in the taco. Actually, though said kick has lingering effects, these are still smaller than the Merrill Lynch acquisition would be, meaning that a kick in the taco would be preferable to the Merrill Lynch acquisition. (At least according to a draft of the full page Wall Street Journal ad before the editing committee got a hold of it. Kicking is too mean to put in the Journal, it seems).
There is a sort of self-fulfilling prophecy aspect to this whole thing. Acquiring shareholders grow upset over the widening spread between current share price of the target and original offer. Shareholder approval looks less likely. Arbitrage players press spread wider, acquiring shareholders get even more upset over the widening spread between current share price of the target… etc. etc. etc.
I wonder what our government’s financial supermen and superwomen will do if that deal begins to crumble too. Backstop funding perhaps? That seems to be the most popular arrow in the quiver these days.
Merrill Flinch [New York Post]
Linda: “Ok, I can’t see your nametag. There, Lloyd, is it? C’mon in. Take a seat anywhere. Ok. I think that’s the last of you. Let’s get started. Uh, ok… sir, uh… yes, you… Vi-car, is it? We couldn’t get the large nametags. Are you waiting for someone?”
Vikram: “It’s Vikram, and no… I most certainly am not waiting for someone, thank you very much.”
Jamie: “Relax Vikram. Don’t be a jerk. Seriously.”
Linda: “Ok, let’s take our seats. We have a lot to cover. My name is Linda. Some of you know me already. I’m a specialist in corporate communications, as well as investor and legislative relations. I have managed to keep the U.S. Auto Industry afloat for more than a dozen years with careful subsidy management, tax relief, bailouts and favorable legislation. You could say that I turn corporate frowns, upside down, really. Ok, Lloyd… since you were late, maybe it would be better if you focused your energy on paying attention instead of laughing with your neighbor, yes? Ok. So… moving on. I’m here because… somebody has a little problem with their public image and with Washington… isn’t that right everyone? Yes, well. Who here is facing bankruptcy? C’mon, hands up now. Don’t be shy. Ok, Brady? Eyes front please. Ok. Thanks. Several of you I see, yes. So. Who has the sympathy of their congressional district? I see, no one… no one? Let’s talk about working the angles here. John, how large is your labor union?”
John: “Uh, my… labor union?”
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