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Banned
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The Dow 30 industrials index and the S&P 500 made new all time highs, each week for the past two weeks, and the Nasdaq 2000 and Nasdaq 100 made new, 5 year highs....and if the nation's largest bank by marker capitalizartion, Citi Group, was left unassisted, to sell it's "securities" to raise funds...at market price.....the price you or I, or our mutual or pension fund would receive for selling an identical "SIV" (securitized investment vehicle) or MBS.....to meet it's obligations....it appears that Citi Group, and possibly other major financial institutions, holding these "investments"....<h3>would be insolvent</h3>
Sooooooooooooooooooooo...WTF are the stock indexes doing at all time, or long term highs? If your mutual fund or pension fund practices "dollar cost averaging"...purchasing stock as you contribute new funds....when stock prices are low.....or high.......or in between.....if our government is helping to manipulate the appearance of these banks solvency...when they aren't or won't be, soon....isn't this orchestration going to burn your portfolio, as Citi Corp's actual conditions triggers a sudden and rapid stock market decline?
Quote:
http://blogs.wsj.com/deals/2007/10/1...for-citigroup/
October 14, 2007, 11:02 pm
A Bailout for Citigroup?
Posted by Dennis K. Berman
When does an “improvement in liquidity” represent a “bailout”?
We’ll be studying the details of the new “superconduit” when they’re expected to be released on Monday.
But in the meantime it’s hard not to look at the current details — <a href="http://online.wsj.com/article/SB119240580162658678.html?mod=hpp_us_whats_news">ably scooped by Journal colleagues Carrick Mollenkamp, Deborah Solomon and Robin Sidel</a> — as a big Treasury-blessed assist for Citigroup.
Consider that an estimated 25% of the total $400 billion SIV universe comes from Citigroup-affiliated SIV funds. And that Citigroup-affiliated funds have already sold $20 billion in assets.
At its most simple, the superconduit is a means by which a large collection of banks can keep “reasonable” pricing on some of their affiliated securities. And it is this pricing that is the key to the whole operation.
It’s obvious they won’t be priced at market rates because there’s not much of a market to begin with (and why the superconduit exists in the first place).
But where exactly do they get priced? To whose benefit? And by which standard?
Even without specifics, it’s clear that Citigroup has the most to gain from this operation. And it’s clearly bad if the balance sheet of the country’s largest bank were frozen for months on end as it poured money into contractual unwindings of SIV positions.
http://blogs.wsj.com/deals/2007/09/1...nds-greenspan/
Liquidity syndicates were what helped <a href="">save the day during the Panic of 1907</a>. Given the partial return of investors to the LBO credit markets, there is plenty of reason to hope that investors will once again be buying SIV-related paper in the months ahead.
But until that time, four main points still remain oustanding:
* How much pricing confidence can be created in a market when banks are in essence buying paper from themselves?
* Might the mere existence of the superconduit create more doubts about the financial sector, stoking even more panic than the amount it was meant to quell?
* How will the banks structure their public relations to answer the simple question: Are they throwing good money after bad?
* What responsibility will be taken by the bank CEOs who blessed the rush into these structures in the first place? In other words, how will Citigroup CEO Chuck Prince explain this on Monday morning?
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Quote:
http://online.wsj.com/article/SB1192..._us_whats_news
Rescue Readied
By Banks Is Bet
To Spur Market
By CARRICK MOLLENKAMP, DEBORAH SOLOMON and ROBIN SIDEL
October 15, 2007; Page A1
The high-stakes plan to rescue banks from losses on mortgage securities amounts to a big bet that a consortium of financial giants -- at the prodding of the U.S. government -- can persuade investors to pour more money into the troubled credit market. click to show
Over the weekend, the Treasury hosted talks to help a group of banks set up a $100 billion fund to buy troubled assets in exchange for new short-term debt. The banks hope to have the fund up and running within 90 days.
According to people familiar with the matter, the Treasury hopes the plan, which could be announced as early as this morning, will jump-start demand for commercial paper, which froze up this summer amid the credit crunch that roiled global financial markets.
Companies depend on commercial paper to finance day-to-day expenses like payroll and rent. Some financial commercial paper -- known as asset-backed paper -- has been able to find buyers in recent weeks. But investors have remained skeptical of other types, including paper issued by certain bank-affiliated investment funds
The lack of buying signaled that the markets weren't working properly, despite the efforts of central banks, and that investor confidence was low, since commercial paper typically is considered a safe investment.
Some influential investors think the Treasury-backed strategy might work. Other object to the Treasury's role in seeking to help banks avoid a big financial hit for making bad bets.
The coordinated effort is a good way to help restart stalled debt markets, said Mohamed El-Erian, who runs Harvard University's $35 billion endowment and is set to become co-chief executive and co-chief investment officer of money-management firm Pacific Investment Management Co. in January. "No bank would do this on its own."
"The proposal has the potential to restore liquidity to a market," he added.
Four weeks ago, in an unusual move, Treasury officials convened a meeting of some 10 banks, including Citigroup Inc., to discuss a private-sector solution to the problems and sounded out other market participants about their views on a rescue package. The problems stem from affiliated funds called structured investment vehicles, or SIVs, which Citigroup and others set up as a way to make money without taking the risk involved onto their balance sheets. Such vehicles are formally independent of the banks that create them. They issue their own short-term debt, usually at relatively low rates that reflects their high credit rating. Then, they use the proceeds to buy higher-yielding assets such as securities tied to mortgages or receivables from midsize businesses seeking to raise cash.
The government isn't putting money into the plan but its role could be crucial in luring investors to buy debt issued by the rescue fund as part of the plan.
Even that's too much for some big investors. <h3>"I have never seen Treasury play this kind of role," said John Makin, a visiting scholar with the conservative American Enterprise Institute in Washington and a principal with hedge fund Caxton Associates LLC. The banks made "riskier investments that didn't work out. They should now put it back on their balance sheet."</h3>
The popularity of SIVs has boomed since two Citigroup bankers, Nicholas J. Sossidis and Stephen Partridge-Hicks, invented the strategy in London in the late 1980s. (They later left to form their own company, London-based Gordian Knot, which operates the world's largest SIV.)
Behind Treasury's concern were banks like Citigroup, whose affiliates owned $80 billion in assets backed by mortgages and other securities. The world's biggest bank, by market value, held the assets off its balance sheet and was facing the prospect of either having to unload them in a disorderly fire-sale fashion or moving them onto its books.
Either scenario would have hurt financial markets and could have damped the economy by curtailing banks' ability to make new loans to consumers and corporations. Treasury envisioned a potentially "disorderly" unwinding of assets that could worsen the credit crunch, said a person familiar with the matter.
<img src="http://online.wsj.com/public/resources/images/P1-AJ301_CONDUI_20071014204929.gif">
When it began discussions with the banks last month, Treasury made clear that a government-backed bailout or any publicly financed rescue effort was "not on the table," and that it wanted to facilitate a private-sector response, this person said.
Under the proposed rescue package Citigroup, J.P. Morgan Chase & Co. and Bank of America Corp. will set up a fund, or "superconduit," to act as a buyer of last resort. It will pay market prices for SIV assets in an effort to prevent dumping.
J.P. Morgan and Bank of America don't have SIVs, but they plan to participate because they would earn fees for helping arrange the superconduit, whose lifespan, according to people briefed on the plan, is expected to be about a year. The superconduit can buy assets from any bank or fund around the world.
Details are still being worked out but the oversight committee of the three banks will set criteria for what the new fund, to be called the Master-Liquidity Enhancement Conduit, will buy. For now, it is unlikely the fund will buy assets underpinned by subprime mortgages due to concern that they would constrain it, people familiar with the matter said. Subprime mortgages are those aimed at borrowers with shaky credit.
<h3>The plan means that some banks now stand to profit from the problems their industry helped create.</h3> Citigroup, J.P. Morgan and Bank of America, for example, will be paid fees for providing the financial backstop to the fund. In addition, the broker-dealer arms of the banks could be paid for helping the new structure raise capital. Bank of America highlighted the opportunity to generate fees in discussions leading up to the final plans, people familiar with the matter said.
Citigroup took the lead in pushing for the rescue plan. Large sums of SIV debt were coming due in November. And increasingly debt analysts were forecasting a tough future for SIVs. A Citigroup research report, issued two days before the banks and Treasury met for the first time, noted, "SIVs now find themselves in the eye of the storm."
The banks and Treasury consulted the Federal Reserve early on. The Fed was available to answer technical questions but left it to Treasury to oversee the talks. At a critical meeting convened by Treasury on Sunday, Sept. 16, Anthony Ryan, Treasury's assistant secretary for financial markets, asked the bankers about their outlook. The response was that assets could be sold, but in a process that would bring disorder to the markets.
<h3>Banks would face huge losses if their affiliated funds were forced to unload billions of dollars in mortgage-backed securities and other assets because it would drive down prices and lead to big write-offs at the new, lower market prices. Indeed, in the past several months, Citigroup's own affiliates have sold some $20 billion in assets.</h3>
Some bankers objected to the plan, calling it an escape hatch for Citigroup, which has more SIVs than any other bank, according to people familiar with the situation. The bank has accounted for about 25% of the global SIV market. As of August, assets held by SIVs totaled $400 billion.
In coming weeks, there could be challenges in getting other banks to join because they may be concerned their investors could view it as a signal that their books are weak.
In recent weeks, investors have grown worried about the size of bank-affiliated funds that have invested huge sums in securities tied to shaky U.S. subprime mortgages and other assets. Citigroup has drawn special scrutiny. <h3>The bank and its London office run seven affiliates, or SIVs, that would be able to sell assets to the superconduit.
Bringing assets onto its balance sheet would be a big problem for Citigroup because it would be required to set aside reserves to cover the assets. The banking titan operates with a capital ratio that is thinner than peers.</h3>
Auditors in recent weeks also had taken a hard-line when it came to assessing losses within SIVs. As the credit crunch worsened in August, many financial institutions argued that losses due to market volatility didn't reflect the assets' long-term value.
But on Oct. 3, the Center for Audit Quality, backed by the Big Four accounting firms, issued analysis that said market prices were real and couldn't be ignored. One paper argued that banks must periodically reassess the condition of off-balance-sheet funding vehicles and take account of market prices and any resulting losses, even if these were seen as an anomaly. If the losses become so great that a bank sponsoring one of these vehicles may have to shoulder some of their cost, "the sponsor would be required to consolidate" the vehicle, the paper said.
The Center for Audit Quality drafted the papers after consulting with the Securities and Exchange Commission. As a result, this put companies on notice that the Big Four accounting firms, along with the SEC, had taken a common stand on these complex accounting questions.
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<h3>The criminals running these banks have kept their money losing investments hidden....off their books....in "off balance sheet" arrangements with "shell" subsidiaries that exist only for that purpose....just as Enron once did. This bullshit props up the stock prices of the banks, and of the entire market....and the US government has been helping them to effing do it....</h3>
There is a huge effort....even the accounting standards were revised to accomodate it....to conceal the actual, current value of the "bad paper" that banks, brokerages, hedge and pension funds, mutual and money market funds are now stuck holding, from the actual owners of this crap....the investing public...and the added problem is, some of this crap is so unpopular, that the professional portfolio managers who buy and sell it, no longer know what it is worth....so don't look for any mortgage originators to be able to securitize and sell their loans to private investors....only GSE's like Fannie and Freddie will buy them....dramatically lowering liquidity flowing into the residential real estate market....so, lower realty prices are coming...further weakening the value of the collateral backing the MBS that the above institutions already can't sell:
Quote:
http://articles.moneycentral.msn.com...reditMess.aspx
"..Kudos to the Financial Accounting Standards Board (FASB) for creating this fiasco last September, when "it approved a new, three-level hierarchy for measuring 'fair values' of assets and liabilities, under a pronouncement called FASB Statement No. 157, which Wells Fargo adopted in January," as Weil reported.
He counted the ways: "Level 1 means the values come from quoted prices in active markets...Call this mark-to-market.
"Level 2 values are measured using 'observable inputs,' ..
...Then there's Level 3. Under Statement 157, this means fair value is measured using 'unobservable inputs.' While companies can't actually see the changes in the fair values of their assets and liabilities, they're allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe."
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...and the danger is...further margin calls..like the ones Countrywide, H&R Block's dead mortgage arm, Option 1, Thornburgh Mortgage Co., and the BK'd New Century, have already received. The more recent MBS are actually toxic....Thornburgh borrowed from warehouse credit lines to write jumbo mortgages...they were leveraged 19 to 1....so when they received a margin call, they sold $22 billion of their loan portfolio containing loans to borrowers with highest credit scores....at 95 cents on the dollar. This generated a loss of $1.099 biliion. If they had lent only their own money, and not been so highly leveraged, they would have generated less profits, but they would hve received no margin calls, either, and they could hold loans...absorbing occasional defaults, and earning income on mortgage interest paid by the 98 percent of borrowers who did not default..... E*Trade online broker admits to holding $12 billion in HELOCS....2nd mortgage loans which will only be partially collateralized by the properties that were put up to obtain the loans....as property values decline and first mortgage holders stand in line ahead of 2nd lien holders to take all of the cash proceeds from low return, high expense, foreclosure sales.....BUT THE CEO of CITI CORP, on OCT 1., claimed that the "worst is behind it"....and stock indexes rose.....
This will keep running in a downward (death) spiral....more than a million ARM loan resets in the next 18 months....no ability for many to carry the mortgage payments ar reset, higher interest rates, and with principle, too to be paid on loans that were initially, lower rate, "interest only"......and, with declining selling prices, many will owe more than their property will sell for....they'll default....some will walk away from their homes, even if they have the ability to pay....if prices fall low enought to wipe out their equity......in the later stages of the housing depression that we are in the beginning of, and the national economic depression that we don't even believe is coming.....but it is!
Last edited by host; 10-15-2007 at 12:29 AM..
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