Maybe they're like the ones here, which are broken down more often than they work correctly.

hxxp://news.yahoo.com/s/ap/20090322/ap_on_go_pr_wh/bank_rescue


Um...
Isn't this what they were supposed to do with the first bail out?

Or what we keep doing with AIG...

Now, if they buy up a bunch of this crap and suddenly are basically the mortgage holders of a bunch of homes worth a trillion or more, great! Then you go and sell these whole mortgages (not pieces) back to actual banks and we, the taxpayer, come out even or ahead. I'm good with this. But if we're buying up crap worth 20c for $1 and the banks make out on this like bandits, I'm going to be pissed.

This is wealth redistribution, but not the kind I care about. I don't think we need any help at the moment, moving money towards the rich. They can do that while screwing us just fine on our own.

SI

Just wait five years from now when they cry about money going towards something actually useful, yet alone to help people out.

What, spend a few billion on subsidized health insurance for children?! Do you think we are made of money?!?!?! Go back to China or Canada you commie!

And so on.

As far as I know we haven't bought a single mortgage yet, we've bought paper with random values based on imaginary sub-divisions of a mortgage that the finance industry complains is too complex to determine the true value of (hint, it rhymes with hero!).

We're already doing that... (oh, wait, you were being sarcastic ;) )

SI

re:
Oh goodie, more loans to be defaulted on, that'll fix everything I'm sure.

friend of mine who manages a restaurant went to work tonight and they told them that it's closed now....thats it, done. Out of business and they gave him no forewarning. Sucks.

I can't see why the banks haven't setup rental divisions with the foreclosed properties rather than leaving them vacant / flooding the market with them? - it would have protected the properties (one of the houses next to me has been empty/foreclosed on for over a year now and its starting to look really grim) and also given the banks extra revenue while also strengthening the housing market by avoiding flooding it with inventory

+1 plus it wouldve created jobs.

To be honest the way I'd have approached it as a bank would have been to make it a responsibility of the foreclosure department to contact the owners defaulting and see if they wanted to stay in their house as a rental.

I'd bet if the terms were right (ie. around what their 'lower' monthly payments were before they shot up) then the vast majority would want to just for ease of life.

This means it changes from being a 'disaster' to being a continual revenue stream (without end) because the new 'tenant' is simply paying out without actually ever purchasing the property now.

There would be in most cases minimal hassle for the bank (ie. no evictions, advertising, repairs on property before it could be let etc.) because the same person living in it now would stay put.

The Geitner bank program unveiled today is awesome and somewhat reverses the Paulson fumble. It will help clear some of the mud out there. Im looking for more details on it.

I think being a landlord on the scale you're talking about would be far less cost effective. First, you're talking mostly single family homes and not apartments/condos. The amount of work required to maintain the home and lot is pretty high. At a minimum all of the maintainence is going to need to be monitored.

Second, scale will work against the banks in many areas. It's one thing to have a lot of homes in Vegas that will be foreclosed by a single bank, but what about the five homes in Dayton or the one in Elkhart? In many communities the staff the bank would need to monitor/repair/collect would make it very hard to make back their money.

Third, insurance. How would insurance on the properties work if the owner suddenly became the renter?

I don't think single-family home renting has ever been done on a large scale because it's full of pitfalls.

You covered my thoughts on this pretty well, although I'll add in the potential decrease in value brought on by damage done by renters as yet another reason this doesn't happen on a large scale.

I also thought about potential problems with zoning issues and neighborhood association rules.

The toxic asset plan is a giant wealth transfer to the banks that will be easily gamed. But it sure gots the markets all agoin.

IMO it was what TARP was supposed to be before Paulson torpedoed it. that being said, some banks are going to get rich and hopefully some people will in owning their stock. Next retracement back down I will likely be buying into some of the stronger banks (GS). Supposedly there will be some mutual funds set up for the retail investor to be able to take advantage of as well.

I would be selling some strength by the end of the week if I wasn't looking to try to average in at some point against my earlier holdings that are much much higher.

SDS and SKF will be getting attractive by the end of the week/next week for a short term play, IMO.

It depends how its undertaken - why couldn't the agreement be written in such a manner that its the tenants responsibility to handle the upkeep to their present standard?; then its simply down to the owner to do inspections semi-regularly if they believe the valuation of the house warrants it.

Bear in mind these houses have largely already been lived in by the tenants - if they're wrecked already then its 'no change' from the current situation, if they're well looked after then its likely that status-quo would also continue presuming the owner was the new tenant.

I have no idea to be honest, in England at least contents insurance has no bearing on ownership, with regards to buildings insurance - well the banks are already in a 'bind' in this regard surely as unless the banks have taken out insurance on their foreclosed properties they're not effectively insured anyway.

(I'm presuming that its cheaper to insure a tenanted (and thus monitored) building than it is a vacant one - that to me makes sense, no chance of squatters, less chance of vandals etc.)

Its been done in England via. the Council House scheme very successfully, if undertaken America could then follow the 'ownership' route that the English goverment took with council houses by eventually allowing the renters to purchase the houses ....

(and yes I know a lot of Americans might hate the idea of such a scheme because the 'council house' setup in England was very socialist in its roots - but imho it'd be better than the mess thats happening here presently)

I've had some 'interesting' coversations with my neighborhood association about the 'screening' on our pool equipment here (where apparently the plants in question aren't large enough for their liking) ....

Initially their stance was that its 'ok' for the house next door to have had no watering for its lawn (its dead), its pool to be full of interesting algae (its circulation has been turned off for over a year), its pain to be visibly cracked and flaking off etc. - but any house lived in to have a minor violation is a finable offense.

In their defense they have ok'd our plant screen since - I think the time for housing associations to be 'anal' about things is long since past, if there is a problem with reposessions in a neighborhood then you've bigger problems than whether you'll have 'rentals' in the area ...

No idea what 'zoning' issues might lay ahead - I'm still adapting from the 'English' approach of you buy a house its yours do what you want with it pretty much so long as you don't change its shape* - to the American buy a house, yeah its yours but by the way it can only be colours x,y,z and you need 23 plants of type x around it ... remind me why America is the land of the free again? ;)
*Even then a lot of English people don't like being forced to follow such rules - my favourite attempt to avoid it in recent years was the bloke who built a castle by hiding it behind a wall of straw:
www.thisislondon.co.uk/news/article-23434067-details/Hay+presto!+Farmer+unveils+the+'illegal'+mock-Tudor+castle+he+tried+to+hide+behind+40ft+hay+bales/article.do

Yeah, I guess that's the dumb question? Does this make those basically penny stock banks (BAC, Citi) worth getting in on?

EDIT: I might as well make some cash to pay for the taxes that are paying for this damn plan.

SI

The problem with a short term SKF play Flasch is if the government is truly determined to erase bank's mistakes, and the public seems to be gangbusters on the companies (as makes sense if you assume the worst parts of the balance sheet are going to be erased, while you know the banks are going to hang onto the choice parts of the portfolio for themself)...

Ya there is always profit-taking and what not, but these stocks are trading way below where they were... very dangerous potential of a one way climb.

EDIT: In other words, I'm way too much of a paranoid pansy to play that game. Besides, I already just barely escaped out of my last SKF play with a gain when I thought it couldn't possible jump more than 5-7 points down on open. Information and market mood often trumps short term momentum plays.

depends if you consider those strong banks that wont go away.

BAC is hard to imagine going away.

Now bear in mind I think the market retraces to lows within the next 2 months so I wouldnt get in here, as a matter of fact Im thinking of going short within the next 2 weeks via SDS BUT Ive been wrong before with my money although I seem to be getting more and more right with my words...just not my $ :) :banghead:

Big leap there IMO. The residents had an ownership stake before they defaulted, no such would exist if they were merely tenants on a rental basis.



Insurance on a rental property can be a different policy than an ownership property, depends on the parties involved really. But there's definitely issues there to be addressed.

Yeah to some extent I agree with you - but personally I think people live to a certain lifestyle whether tenants or not generally (i've yet to have a friend who was messy as a tenant become a neat freak as an owner or vice versa).

I know you're just having fun with the irony at play...but the answer is primarily because of where you are...Florida.

A good portion of Florida (and mainly newer construction) is developed into "communities", which have HOA's. There are still plenty of non-community (or HOA) homes, as well as new builder construction, but they have become less-frequent since the community-style was more low-lying fruit (and more cost-effective in general). But I've owned a non-community home close to where you are, and I can tell you that beyond something you need a building permit for...or something that violates a general law/ordinance...you pretty much have free reign of your home/property.

So, I spent most of my lunch reading more about MBSs and CDOs. Could someone explain who in their right mind would want to buy something and why such a thing was allowed to exist in such high quantities in the first place. It would be like parlay bets being the most popular thing in Vegas- it doesn't make sense.

Frankly, after all of this, I just want these stupid instruments to all go away but I'm sure it will just go the opposite direction.

SI

Difference being that, in theory, it was their problem as an owner (never mind the mortgage), now it's your problem as the landlord. Particularly when it comes to repairs & maintenance, which shift in responsibility with the primary ownership. Not to mention changing the legal status of the owner with regard to that repair & maintenance on a state by state basis depending upon landlord laws.

Although it's probably symptomatic of the current mess and very shortsighted, banks never really seem to anticipate getting stuck with getting the property back. But once they have it then the level of issue that the condition of the property is in becomes much more of a concern.

For me the biggest difference would be in yard work. I'll do a lot of work on my own yard and spend some money upgrading the flower beds, shrubs, etc., but if I were a renter I'd mow and maybe trim with no chance of me doing anything extra without a financial incentive.

SI, those instruments are ways that they are trying to 'bet on a sure thing', it really comes down to gambling in most cases. I would liken it to having a super heavy favorite, say the Steelers versus a state champion high school squad. You bet 100 bucks on a straight up win, you would be lucky if you get anyone to match 10 for your 100. Still, if you can make that bet a thousand times over, especially with leverage, you can make some good change off it, and really, who expects a high school squad to beat the Steelers?

To complete the analogy, it turns out the 'Steelers' are the Randomtown High School Steelers, and the entire team has been suspended for steroid violations right before the game. Your thousand bets at reverse 10:1 odds become effectively worthless, especially since you did not hedge the other side with bets on the state champion high school squad because you figured they did not have a chance in hell (even though that was the whole advertised point of these instruments being allowed, in practice people skipped over betting on the loser option because it cuts into those shiny profit ratios).

Cue market collapse. Even if it was the Pittsburgh Steelers, there is a chance for catastrophic losses, even if its less than 1% chance that the Steelers come out like total crap and the high school champion squad pulls out the perfect game. There is no such thing as a sure money financial portfolio, you can hedge so you have a really screwy probability profile... but there is always the case where chance lands right within the margin you spent on hedge protection.

If somehow you can get a positive hedge, it means that someone, somewhere, mispriced their option contracts so grossly that they gave you a license to print money (or you are ignoring default risk entirely, which may be the case in some of these big bank credit default swap scenarios).

Even without the bozos going nuts and abusing these odd financial instruments and the loopholes in how they operate, if you have supposedly smart players who set up good hedged positions, there is ALWAYS a probability of failure based on where the prices land (or if you want to get real technical and add time as a variable, there is the potential for any hedge + timing scenario to be blown apart with a sequence of prices).

A couple of other things come to mind:

A house with a tenant can be much more difficult to sell particularly if that tenant is not paying a worthwhile rental and the purchase ceases to appeal to an investor who is buying with the intention of renting it out. I don't know about the USA but it can be difficult to get a tenant out once he's in here.

I'm not sure how much a bank loses when it sells a repossessed house at a knockdown price. The bank is insured against losses - isn't that one reason why AIG is in such a mess ? - and may not lose much at all in the sale. In which case - just get rid!

Incidentally, I saw on CNN yesterday that the average house price in Detroit is $18,000. Surely not?

That's honestly probably very optimistic. Note that number does not include any subarbs. That is strictly the core city. I saw that 5 houses last month in Detroit sold for $1. They interviewed one of the people who got a house for $1. She was a single mom with two kids, so she was obviously thrilled that he had a home of her own with no debt. Five years before that, the house sold for $50,000.

Wow! Who would be the owner of a house that was sold for a dollar? The bank? Why would anyone sell for that? What's the economics operating there?

The problem is not whether it's kept tidy, Marc, but what happens when a repair is necessary. It's often expensive and the tenant no longer benefits from making the repair. It's not a question as to whether he feels the repair should be done but that he's not going to fund it.

Off the top of my head, I'd guess the motivation for a $1 sale is to avoid the property tax burden associated with the house.

Sometimes better to get $1 and remove the tax liability than to end up paying thousands in taxes on a property you don't believe you'll ever capitalize.

The ease or difficulty can vary quite a bit from state to state, in some cases it's a major hassle not to mention nigh on impossible. In some areas around metro Atlanta for example, the sheriff's department that has to serve the legal documents for eviction (such as for non-payment of rent) have a six month backlog and they're pretty open about how it's a very low priority for them.

"Thousands in taxes". Is that what it costs you?

Depends on where you live. Some states and cities rely more on sales or income taxes. Others use property tax as their main income while charging little or no income tax.

Off the top of my head I'd say this probably applies more to corporate sellers than individual sellers. The idea being that a corporation will look at a stack of these properties as basically nothing but liabilities on the balance sheet and at this point would view a sale even at $1 as basically a net win for them.

The property in question will still be valued (by the city/county/whatever) at a higher rate, so the owner will still be paying "thousands in taxes" unless they can get it re-appraised by that body for a much lower value (and lower taxes). Without a sale at that value, however, this can be difficult (though neighboring sales at that value will help) and will take time, anyway.

Also, if the property falls into disrepair the owner can be eligible for fines and, in the worst case, can be sued if it becomes a public hazard (i.e. kids break in and fall through a hole in the floor).

So there are plenty of reasons why selling at $1 can be a good idea, especially in a place like Detroit where (no offense Detroiters) property values are very unlikely to rebound in the near or even medium-term.

I find this amazing. We have a house price collapse over here but it still costs around $250,000 for the average house.

Detroit is the exception to the rule. The city has been teetering on a mess for some time now even without any recession issues. No other U.S. city has this kind of an extreme scenario.

Quite often I've seen homes advertised for ludicrous prices - but if you look into them they have leans against them from companies and other problems which you'd have to spend serious time and money sorting out.

(often this may be 'property tax' related in America - if someone hasn't paid for 10 years then it mounts up)

PS - As you'd probably guessed those homes aren't often in 'desirable' neighbourhoods ..

I'd argue that the economics of upkeep and rental revenue vs the present poor selling price would make holding onto them until the prices rebound at least a bit the best viable option.

Or to look at it a different way - there are a whole bunch of foreclosed houses in my neighbourhood which have been empty for a year plus - gaining no revenue for the bank and getting in worse and worse repair on a daily basis ... having people renting them would at least have kept them habitable (as presently none have electricity enabled which in Florida means instance mold and problems after a short while); add on top of that the fact that none of these houses will have hurricane shutters put up because they're empty and as the bank you're asking for your property investment to decrease in value hugely.

(no I don't see renting as the 'holy grail' for banks - but its a better situation than their current approach which appears to be ignoring all the properties and hoping they go away ... abeit it does look like the goverment may make that happen in time, so what do I know ;) )

My property tax bill (granted on a house worth more than the $50k price I think this dollar sale was for) will be in excess of $6,000 this year. I think the lowest I've ever paid regardless of location or home was around $4,000.

Bloody hell! (sorry for the English colloquialism)

Not sure, Marc, if you got my pm reply - the forum went sick on me when I clicked send and you either got it three times or more or not at all. But my reply was not too different from the above :)

We 're looking at homes in the Newburgh, NY area and it's common to see 7000-9000 dollar tax bills on 200000 dollar homes.

But a rebound wouldn't benefit the now tenant so there's no way he would want to fund any major repairs.

If the rental was only a temporary arrangement that could easily revert to ownership then that might make a difference but in that case I'm not sure it wouldn't be better for the bank to change the loan to a low rate, interest only mortgage. That way too they would receive some income and you would still have an owner's interest in maintaining the property.

The bank could retain the right to sell the property if there were a buyer and they wouldn't have to set up a real estate department to handle the properties.

But I do get your point about the house rotting away, losing value and, of course, a homeless pre-owner. I'm probably not appreciative of the level of difficulty currently experienced in selling a house over there.

But I strongly suspect the banks don't lose too much on these unsold/low sold repossessions because of insurance.

Michelle Bachman (Min) is an idiot, that is all.


Im watching her on the hill grilling the Fed chairman and Geithner and I just cant take her seriously when she is so obviously a moron.

And what would you pay to rent such a house?

Hard to say as not many are for rent, but we could probably get 1800 sq/ft for less than 2000 a month. If we decide to stay in Newburgh buying could be a good investment, but another 600-800 a month just for property taxes is too much IMO.

Beautiful area though. Gorgeous. My cousin was at West Point so I know the area a bit.

Is that right? No wonder some of you guys have to have three jobs (when you can get them).

In that case, when I move from here, it will be to the Gold Coast not LA :)

Beautiful as long as you're not in Newburgh proper. It would be a tough call as to whether Newburgh, Bridgeport or El Paso was shittier.

very true...very true. i neglected to point that out. but man if you could get a house that was somewhat secluded out there...nice piece of land...mmm...it's gorgeous

In the evil, liberal District of Columbia I pay $1800 in taxes on a house assessed around 3000000

Video - CNBC.com

Is this Bernanke somewhat agreeing with me?

At least at 10:20 or so, where he talks about putting AIG into a conservatorship and unwindingly it slowly imposing losses as needed while protecting policy holders (and presumably other assets).

All in hindsight of course. I'm telling you... I've had people disagree with me tooth and nail because I wasn't saying the same things the media and people in control were saying during the crisis, but I'm collecting so many 'in hindsight' agreements I don't know whether to be more pissed off, or thankful that I'm at least in the ballpark of coming up with decent strategies.

I too have a lot of those however I believe, with interpretation, all sides will be claiming that they were right with such clips in droves.

In Wisconsin, I pay $3K for 150K. Wisconsin is horrible on property tax. Although the house we have the offer in on is a little over $3K for $250K so, go figure.

Treasury sale just now is screaming that this rally is a bear market bounce and a lot of the pundits are hanging their hats on the 800 S&P as a threshold for a signal. Fine if you say so. I continue to believe that this is a bear market bounce and intend on buying into an average when it hurts in the next 2 months or so.

I cant believe I was right in calling this rally though.

Is that the right number of zeroes?

Yow. I need to move. :(

I have to ask does a $3m house come with its own butler? :D

(and there I was thinking the 'lord' was just your user name ;) )

Gold :D

SI

S&P at 800 is a signal for what? A downturn?

If so it is at 820 so shouldn't you be prepping to load up on SDS?

I dunno, I dislike the pundits (excluding myself, ha!) as I'm on the record of being against them too numerous times to count. I think this was a bit of an irrational bounce, but its caused by the treasury plan. That was reflected in how the financial sector moved much more than anywhere else on Monday (at least according to my bots and the way I was graphing out the market).

We'll see some nervousness, like we are today, about whether the prices all jumped too fast and too early, but I think the overall news is a bonus for the banks (at taxpayer's expense mind you).

I certainly am not shorting, as for buying, strong ones I'm buying if they have not spiked up too much, because I figure they'll be up over this next year anyway... others that are not so strong, ya I too am waiting for some of this bounce to be shed off. Whether we will revisit say March 9th, I am doubting it. Recall of course my general expectation is for this quarter to have different news than the first quarter (which was everyone taking a loss).

Well, exactly. This is the problem with all the morons who say "Dow is up 300, Obama's idea is good", "Dow is down 300, Obama's idea is bad". I'll contend that yesterday's news will be one we deeply regret in 20 years. But the market loved it because we're dumping $1T into the market, mostly into the banks- it was definitely in their best short term interest so they loved it.

SI

yes, people are talking about 800+- being some sort of demarcation or 'hold' line so if it finishes south of there the market will be heading south (what I think anyways). as long as the markets are north of there the markets will have some upward pressure.

as for SDS, yes, Im looking to average into it starting probably end of the week for a short term play to finally put my money where my mouth is but look at GE...wish I was selling it today :) coulda, shoulda, woulda.

From CNNMoney


:banghead:

A few minutes ago, Citi just borrowed 10 trillion dollars from the Chinese secured by that mortgage and will be able to pay it back when the Senichs' house decemmillenuples in value, which they expect will happen in the next 18 months.

THE ECONOMY IS SAVED!

Talk about bear market bounces....my house in FL jumped 5% in value since last month according to Zillow!!

OK...enthusiasm must be tempered since it is only Zillow...but still.

Not completely crazy.

Not at all.

Two weeks ago I was invited to the home of a schoolfriend of my daughter. It was a very nice home on the canals - not spectacular (4 beds, 2 baths, 2500 sq ft) the sort of house a third time buyer might aspire to. The owner, a motor mechanic, bought it for $400,000 in 1995 (being on the canals with it's own small jetty inflates the price).

By the middle of 2008 it was valued at an insane $2.5 million.

And no butler.

It illustrates precisely why we're now in the worst economic condition for more than half a century - asset values just went ape! The only way a normal person could buy even a modest house was to take out a crappy loan - and eventually, inevitably, default :rolleyes:

Dow up this past week 6+% and has been up for the third consecutive week for a Dow 17+% gain. Not too shabby.

But lest we forget
Strong week on Wall Street ends with a thud - Stocks & economy- msnbc.com
Spent money on a family dinner, Bolt dvd and felt that was a splurge.

im hoping to buy into SDS at the 70 or below range early next week. Had the market gone up on Friday I probably wouldve gotten some.

It sounds like the lifeline has been pulled for Chrysler and GM. Their requests for bailout funds were denied, and both firms were given enough cash to do restructuring. Chrysler is now again talking merger with Fiat.

Feds declare GM, Chrysler not viable, refuses more aid - Politics Wire - News & Observer

Wouldn't it make sense to file for Chapter 11 to get the protection and be able to re-structure costs (such as labor deals) much easier?

This was the idea a lot of people pushed around many months ago. GM was unsavable and the money we gave them was basically flushed down the toilet. They have refused to restructure and either sell/close down unprofitible lines (Hummer).

oh shit....SDS time.

Here's an interesting article from one of the guys who wrote a program for Wall Street firms that helped convert mortgages into more attractive securities.

How Michael Osinski Helped Build the Bomb That Blew Up Wall Street -- New York Magazine

I really hate the precedent we are seeing here. Granted I shorted GM after it bounced up last week (because I think it is no better than 2 dollars until it fixes its balance sheet), but I hate the power we are giving the government to basically send companies to boom or bust status over a weekend. Bailouts are going to kill us slowly if this continues.

I also think the banks pretty much own the government entirely.

I think the government might meddle so much that a recovery is going to be delayed.

Anyways, I guess I'll stick to my plan of reloading longs I offloaded last week and building up more of a portfolio. No doubt this news is going to send things downward across the economy even if it is supposed to be autospecific news.

we will retest l;ows.

I dunno, seems like the hype changes direction every few weeks, I know someone out there is loving this volatility (maybe even causing it).

Some indicators point to the start of a recovery, but you start off another panic and wham goes the markets, and you might encourage companies to start cutting past the amount they can truly sustain. If you truly think we are going to retest lows you should already be sitting on some SDS, at the low it was what, 110 to 115? That is a 38% gain if you buy this minute.

Personally I'm just going to delay some purchases I was intending to make anyway, since the price will probably drop, but who is to say what crap they will drag out next?

It appears that the Chrysler-Fiat partnership is now official.

Chrysler, Fiat agree on global linkup - Autos- msnbc.com

I've already seen signs of this. I have a lot of friends that work for EDS, who was purchased by HP last spring. HP has been cutting EDS like mad across the board, but at least in our local market, there is lots of work and they are still winning contracts. So things look good for the bottom line as all these cuts happen, but what happens when they have to actually deliver projects and there aren't enough people left to do it?

The other sick thing is that HP made something like 13 billion dollars last year and yet have put out a 5% salary reduction across the company worldwide (and actually 10% in the US). Talk about squeezing people just because you can. :(

The really bad parts of stock markets and public companies is that if your profit isn't as much as the stockholders think it should be, you have to lay people off to make them happy. Too many profitably companies have been doing layoffs lately...

You cease to have any control of who your owners are and what their demands are. Easy access to capital, but a lot of douchebags may become owners of the company too. I don't find that a good place to be.

Not recession driven, but our company was just acquired by another company today so, great fun. Management is flitting about talking how this is such a great thing... blah blah blah. How about I ask you in 6 months how great it is when they cut your position. Hearing all the usual propaganda about how this is a 'merger' and not an acquisition.

Time to update the ole' resume.

OK...When?

next few months, I think the Bank #'s are going to be worse than expected the jobs number worse than expected and the overall picture worse than expected over the next few and we will retest the lows set a few months back. I actually put my money where my mouth is and bought some of the short and plan on buying a little bit on average over the next week(s) if the market tries to push higher. I just dont see anything that would push things higher at this point outside of this 'bear market rally' (which I actually got right, for once). It hought we'd get a spat of positive news...we did. Now I see nothing good coming over the next few weeks...even the MtM talk is getting watered down.

David Brooks goes after the financial system oligarchy:

I'm with DB :D

I think I've even suggested all of those things - nationalize banks, break them up, spin them off as pieces, don't let them get back together. I'm all for this plan.

SI

I've advocated the same (break the banks up). Big banks actually fuel the sort of malinvestment we do not want in our economy. The naive economicists might mention 'efficiency of scale' but that argument actually breaks down in multiple ways (either using common sense logic and emprical observation, or mathematics to demonstrate how fewer, larger banks skews the incentive structures towards higher amounts of risk in portfolios).

We don't need big banks, it actually doesn't make sense for the original purpose of banks, connecting loans between pools of capital and individual purposes (be it homes, creating business, or what not). Encouraging the growth of a bank oligarchy (ignore the political corruption factor for a moment) also reduces the points of entry for new entrants into the market. In fact, you can see it as DB pointed out the amount of profit funneling through banks increased dramatically over the past few decades... its because they 'logically' concentrated the money in themselves as opposed to other investments. Imagine if all that money, even if leveraged to all hell, was put into production economy growth.... we'd have our frickin flying cars already! (okay maybe not, but certainly that pile of money could build a lot more than just a housing glut super bubble).

Big business is bad for business, at least in its modern incarnation. We need viciously competitive young companies to develop the new products and processes to get the country back on top. And for them to get the attention and scrutiny they need, we have to have small active banks as opposed to large banks passively chasing 'easy money'.

Woo hoo. Checked my 401(k) and my YTD is in the black! (with the help of company contributions). Market is feeling better for the past 4 weeks. On a project at least till July. Feeling a little good right now. The 8000 level is a relief ... pretty sad on how low our expectations have dropped.

Bah, another epic rant....

SHORT VERSION: DOW is pointless as a metric, and has been way over-valued previous to now. And barring auto/bank induced catastrophe we will probably have a net positive quarter two (note, the run-up to where we are right now might be the extent of that positive growth).

The 14,000 DOW was a bit of an optical illusion. Stocks are only worth what their dividend yields, and whatever growth is possible in the price. Irrational investors were bidding up prices WAY beyond the theoretical capacity of the company to raise dividends, and faster than revenue/profit growth in many cases.

In my opinion they were even bidding it up higher than it would take for a theoretical company to pay the price in order to acquire the company in a merger. Granted, those mergers still happened, but the vast majority of them were terrible ideas (massive increases in corporate debt with supposed revenue growth as the target, but profit growth was very limited if any).

I'm pretty sure once this thing is all sorted out, if you adjust the DOW for inflation it will probably end up a number that is some small multiple of the average growth rate of those businesses (in terms of profit).

I would argue if the debt balances were not so scary that some stocks are actually under priced at the moment, sort of the overcorrections the market is fond of (yay psychology investing!). My own indices pegged for so many companies early this month that I went on a buying spree despite the possibility of continued slide (helps that I've accumulated capital to lose of course). I still don't agree with investors who think just because GM sales are -35% instead of -40% that it is a great thing (made up numbers, but in the ballpark)... I hate how people react to beating an analyst estimate is somehow a good thing. The autos are still in a bad shape from a cashflow perspective (even foreign automakers are not so rosy although they are generally in better shape IMO)... so granted there is no giant fallout if those auto share prices go down again, I think it will be a good quarter two. Not necessarilly gangbusters, but a solid month that will hopefully get people's heads out of the gutter and back to spending (I'm talking businesses, fuck the consumer confidence crowd, people buy shit when they have jobs or credit, businesses are the only source of both).

and hence Ive begun to average into the SDS (while keeping on all of my long positions) since I think the S&P/DOW has run up too far, too fast. I still hurt when I see the market run on me as Im putting on my short but thats the price you pay. It hurt to buy GE when I did too (below 6 at one point) and that worked out. {shrug}

sounds like the minutes from the last FED meeting had a bunch of the governors ringing the deflation bell and that downside risks had actually worsened. I still think that we're right near the top of a Bear market rally.

The bottom is going to fall out pretty soon, there is no reason to be optimistic at this point in my view. So I guess I agree with Flasch.

Banks are not going to be profitable for a while, doesn't mean the economy has to sit around collecting dust though. Another case where trying to keep these dumps afloat is a drag on the economy, where controlled execution of the worst parts of the banking industry would let the economy be forward looking again.

My hope is the overall economy improves, and people wise up and leave their expectations of banking in the gutter and not force any economic recovery to go through the banks as a bottleneck. Unfortunately, the banks are WAY too powerful, will probably insist that they are the gods of the universe,and consquently keep us in a garbage shape for the year or two it takes for them to turn their bad decisions into government debt (doing it all at once would piss people off too much).

If you could somehow take away the black cloud that the banks bring over everything, some indicators are ready for a recovery. The problem is everyone is nervous as all hell and not willing to be the sucker who creates jobs during a depression (although those early moving companies tend to be the biggest winners in the next boom....). They are encouraging a downward cycle, instead of resetting their outlooks and taking their lumps so they can move on. They need to realize they already lost 80%-95% of their billion dollar fortunes trying to manipulate things, maybe they should get back to growing that last 5%-15% the old fashioned way instead of scheming how to magically make billions of dollars appear out of no where (ahem... government).

Out of curiosity as much as anything I guess, what sort of "small" are you thinking about here?

I suspect it's just phrasing, but when I think of "small" banks, I think of community banks basically (the kind that keep going under here in Georgia). I imagine that you're thinking more in terms of 100 locations chains not 2500 locations chains.

But I was curious if that was right, so I'm asking.

Out of interest why do you say that? - I know its whats promoted by the media but as I understand things many of the larger remaining banks have only actually posted relatively minor losses despite huge their write off's ...

For instance Wells Fargo and Bank of America (BAC) have only posted a loss in one quarter so far (the most recent one), JP Mogan Chase & Co have yet to post a loss despite write offs etc.

Yes they might not be as profitable as in the past and some may take a LONG time to come right side up again (if ever) - however unless I'm missing something there are some which are still in a relatively strong financial state.

(personally I was kind of expecting at some stage (post paying the goverment back its cash) for at least some of the banks to turn around and indicate they'd written off more money than required in their provisions - cue larger than expected profits and bonus's all around for the people in charge etc. ... not that I'm cynical or anything ;) )

I am thinking smaller community level banks. Obviously we need a mix, but certainly no 'too big to fail' banks should be allowed. We need low level investments, that is where your small businesses that end up growing the economy tend to come from. Big business has been very sluggish at innovating in my opinion, it becomes so concerned with its own weight (or stock manipulation) that the strategies tend towards either blandness or outright stupidity.

A small bank would need to watch its loans, and if it fails in its oversight (like so many have recently) needs to be exterminated as a bank. I would argue that many of the failing banks have been poorly run, and are likely to close to the mortgage silliness (or stored their money in supposedly safe big business investments). Banks that are lending to a community that they understand, with sane contracts and expectations, have been weathering the storm fairly well in my opinion (granted I don't know the inner workings of all that many, I have one person I know who works at a mid-sized bank chain, you might even consider it small).

They talk about Main sTreet and Wall Street in the media, and are completely talking out their ass. They don't even know what a main street economy would look like, and if they did they would know there hasn't been a main street for years now. All of the money is funneling through the big corporate created machine (maybe for fun we should locate a particular bank and try to break down its portfolio, even good ones have a lot less in direct loan service than I would expect/hope).

I mostly want banks to have more of their portfolio in direct people or businesses. This loan = that building, that loan = X business with Y prospects. I want them to stop pooling it into giant collections of paper labeled Derivative D, X% rate of return, entirely fictional risk rate. Giant paper does not really drive business in my opinion, yes I know we could start a giant argument over how modern companies work...

Essentially, the further we abstract away our investments from real things, the worst off I think our economy is getting. Right now we have a generation of finance people who couldn't take apart a company balance sheet if their life depended on it... the best of them are ex-physicists with complex math that can create an abstract piece of paper, but don't really understand how to assign numbers to the variables in the equation! We need good bean counters more than we need rockstar model makers or hotshot cocky daytraders (what I would argue many think of when they think of someone on Wall Street, including those on Wall Street).

I think the bank's are just starting to take their medicine. Hell, the problems have been there for well over a year and they post their first losing quarter just now?!

Think about it for half a second, the finance community is great at shuffling money through time in so many ways that they can pretty much wizard their profits and losses into any magical shape they can get away with. They are just starting to post those losses, and they have plenty more to post (Bank of America certainly does on my own tally). They can only shape that money so much, so they are either going to take losses or spread those out over a longer period of time and show quarters of reduced profit.

In terms of long term health, I would love for them to just take their next quarter as two with losses (yes that will play hell with short term stock prices that they are all apeshit over, but they already killed so much share price so far what really is the point?).

If you think banks are going to have three good quarters, I've got a shiny nickel I'll bet you. Are they going to weather them? I think so, the government has shown that they are not going to let them all die. Hell, the gov has given them trillions of dollars so they might even be able to hide their losses even better. But their cash flows are in serious trouble still, anyone who says anything else hasn't done anything except parrot CNBC to you.