credit crunch

  • 30 Sep 2008 at 5:24 PM

Excellent News From The Ministry Of Price Control!

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At least if the Wall Street Journal is to be believed, the short sale ban will be extended for at least a week or two after the original October 2nd sunset date. Doubtless the incredible success of the plan (see attached chart after the jump), put into place on September 19th, and its immense popularity with market participants are the central influences spurring its renewal. Said the SEC at the time:

Under normal market conditions, short selling contributes to price efficiency and adds liquidity to the markets. At present, it appears that unbridled short selling is contributing to the recent, sudden price declines in the securities of financial institutions unrelated to true price valuation. Financial institutions are particularly vulnerable to this crisis of confidence and panic selling because they depend on the confidence of their trading counterparties in the conduct of their core business.

As we pointed out earlier today, Taiwan got in on the act and banned short selling outright. I don’t know about the rest of you, but I am really enjoying my new found equilibrium based on the “true price valuation” of high leveraged financial institutions that feel no downward price pressure except that of their own bloated balance sheets.
Don’t Blame Short Selling [Wall Street Journal]
Related: DealBreaker Swag

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  • 30 Sep 2008 at 2:38 PM

Presented Without Comment: 48 Hours of Crisis Photography

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After the jump.

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  • 29 Sep 2008 at 11:19 AM

When Is “Price Discovery” Not Price Discovery?

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Hidden in the middle of a Wall Street Journal article on vulture investors is a small observation that suggests, perhaps unwittingly, that the Treasury might be on the eve of complicity in one of the largest cases of accounting fraud in recent memory.

Other opportunistic investors, though, say they likely will stick to the sidelines for now. They are skeptical that the government’s purchase of distressed assets will accurately establish what they are worth. So far, there have been few transactions, despite the desperation of banks to sell, because of disagreements over pricing. (Emphasis ours).

If the Treasury buys assets at inflated prices and that permits banks to mark-to-the-Treasury-model, well… you get the idea.

Vulture Funds Plan to Buy Assets Ahead of Bailout

  • 26 Sep 2008 at 10:58 AM

Let’s Do The Time Warp Again!

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When the country’s three largest banks reached agreement on Friday on how to structure a $75 billion fund to prop up distressed securities, an exhausted group of its top planners gathered in a Bank of America conference room to toast their success with 12-packs of Bud Light.
But the celebration might have come too soon.
Having settled on the fund’s composition, officials from Bank of America, Citigroup and JPMorgan Chase will now have to raise more than $60 billion of the fund from dozens of financial institutions around the globe in the next few weeks. The goal is to have the fund operating by the end of the year. But the big question is: Will it actually help?
The answer, some analysts and big investors say, is probably not much. The backup fund will not save troubled structured investment vehicles, or SIVs, that hold billions of dollars in packaged loans, though it could delay their demise. It may help calm the turbulent credit markets by preventing a sharp sell-off of securities, though analysts say the fund will probably not be able to offset the deteriorating prices of the securities.

Ripped straight from today’s headlines? Not really. Try November of 2007, actually. And that bailout plan bit the dust too.
Who the hell drinks Bud Light at the closing party? Well, I suppose it was only the end of a structuring party. Maybe the good stuff was packed away for a bigger event. Still, I have a sneaking suspicion that Bank of America’s catering department keeps the cold ones stocked all the time, not just for special occasions. Still think that the post-merger integration with Merrill is going to go smoothly?

  • 25 Sep 2008 at 11:29 AM

Perverse Incentives

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We’ve had a cautious eye on Clusterstock since our old friend John Carney went over there to do “mature work.” (It better pay better, because where’s the fun in that?) Seems voyeuristic of us though, doesn’t it? Spying on our old friend’s new digs? That’s why we only read Henry Blodget’s pieces. (We kid, we kid).
Yesterday, Blodget penned a mostly insightful piece on Warren Buffett’s bailout take. Blodget points out:

Warren Buffett, meanwhile, thinks the appropriate price would be the “market value,” which he believes is below the price at which the banks are currently carrying their trash:

[If] they do [the bailout] right, I think they’ll make a lot of money…. They shouldn’t buy these debt instruments at what the institutions paid. They shouldn’t buy them at what they’re carrying, what the carrying value is, necessarily. They should buy them at the kind of prices that are available in the market. People who are buying these instruments in the market are expecting to make 15 to 20 percent on those instruments. If the government makes anything over its cost of borrowing, this deal will come out with a profit. And I would bet it will come out with a profit, actually…

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  • 22 Sep 2008 at 4:19 PM

Media to Assist In Resolving Credit Crisis By Coloring Truth In Other Direction For Now

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Fortunately, the media, typically tasked with inflaming tense situations as much as possible, has agreed to shift the focus in the other direction for a while. Fresh on the heels of very serious and very determined corrections to avoid the wrath of Andrew Cuomo’s financial thought police, the New York Times covers the emergent phenomenon, which, like most stories in the media about the media, gives the media high marks for restraint and Newspeakness.

“We’re very careful not to throw words around like ‘meltdown’ and ‘free fall,’ ” said Ali Velshi, senior business correspondent at CNN. “If someone wants to say the markets are in free fall, we’ll discuss it first,” he said, and the outcome is most likely to be a change in wording.

CNN isn’t the only sterling provider of quality financial news that is thumbing the scale a little bit in favor of totally panicked and totally-on-the-brink-of-collapse firms.*

” ‘Crash,’ ‘panic,’ ‘pandemonium,’ ‘apocalypse,’ those are the words we’re staying away from,” said Robert H. Christie, a spokesman for The Wall Street Journal, now part of the News Corporation.

Even the sleeveless one gets kudos.

“I want to caution everybody,” said the on-air editor, Charles Gasparino. He said several times that the tip came from “Wall Street sources,” not the government, adding, “We have yet to get a confirmation from the Treasury Department.”

Uh, no comment.
Of course, this wouldn’t be an article from the New York Times, if it didn’t discuss the New York Times.

Early this month, a New York Times article described Lehman as “ailing” and “precarious,” but did not explicitly mention the possibility of failure or bankruptcy.

I smell a Pulitzer.
Amid Market Turmoil, Some Journalists Try to Tone Down Emotion [New York Times]
* Not that we are suggesting any firms at all are experiencing any dip or drop or depression or temporary slowdown or anything whatsoever that might bring them the slightest bit closer to anything resembling failure or the like. Kay. Thanks.

  • 22 Sep 2008 at 8:04 AM

Bailout Blues

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It probably isn’t surprising that Wall Street initially focused on the figure rather than the text of The Bailout Plan (it being so large and broad in scope that proper noun capitals seem appropriate here). $700 billion looks almost comfortably close to the $1 trillion that everyone seems to think represents the amount of toxic mortgage garbage on the balance sheets of your favorite brand-name investment banks (or their acquirers). In addition, there isn’t much more to look at. For such a massive plan, the succinct prose managed to fit into less than three full pages. Don’t worry though, democratic legislators started working to correct that oversight immediately. Already efforts to “insulate Main Street from Wall Street” and enact “an economic recovery package that creates jobs and returns growth to our economy,” (Pelosi) as well as something that “helps folks cope with rising prices, and sparks job creation” (Obama) are afoot.
Looking a little deeper at the original proposal, some questions do emerge, and certainly with all the weekend coverage, I expect we are not the first to ask them here.
Much More After The Jumptm

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