Banks: "Raise Shields!" Scotty: "Too Late!"
BOOM!
"Bond insurers may be split into two pieces to bolster credit ratings and protect municipalities and bondholders, New York's top insurance regulator plans to tell Congress."
Game over.
A few days ago I predicted that this was exactly the outcome that we would get out of Buffett's "proposal." It appears that Dinello has the same idea, and why not?
Oh sure, there will be plenty of rattling around, like the death-rattle of an old man lying in bed with pneumonia, but the outcome is now a given.
This, by the way, was the only way out and has been for quite some time. That this would be the path taken became clear as soon as Buffett started talking about reinsuring the munis, as that can be funded even if the government ends up paying the bill for the existing bonds. That's an $8-10 billion problem - bad, but, affordable. Remember, we just blew $165 billion on a "stimulus" that won't stimulate anything but sure looks good in the vote-buying contests.
The banks and others have run the "systemic risk" scam for years, arguing that we "can't allow them to fail" because, among other things, municipalities would get killed.
Well, that argument is now over.
As for the "we're too big to fail" argument, good luck with that. See, not everyone in these markets were imprudent. Goldman, for example, was apparently shorting these securities all last year, and presumably is well-hedged against a CDO explosion. They're fine, right? (so long as they weren't lying!)
Bear, Citi, Merrill? So sorry, so sad. Merge the solid portions with one another and cut the rest off to die.
Oh yes, the howls of protest will come, and the "favors" will try to be called in the Halls of Congress. Bet on it.
Bet on the argument failing too.
Why?
Because to actually bail out those folks is simply not possible - the total cost would exceed a trillion dollars and the upside of that estimate could be six or more trillion, or essentially the entirety of the MEWs taken over the last three years, most of which were taken against false appreciation and thus weren't real!
There is simply nothing Congress can do about this.
Further, when you look at what has happened over the last few months, The Fed has shifted towards more secrecy instead of more transparency and has gotten exactly nothing out of it in terms of positive result!
Why?
Because the problem is secrecy in the first instance!
The way out of the box is to cut that **** out. But that means getting very aggressive with the fraudsters and schemes, and simply saying "no more of that crap boys!"
Do you expect The Fed to do this? No - not until it becomes apparent that they have to. Why? Because they can manage their own risk without it, and that's all they care about.
Who has to fix this? OCC. OTS. Congress. State regulators, especially in the insurance space.
This is where the problem originated and where it has to be dealt with.
This, by the way, is why I am so negative on Ron Paul. He sits on the committe that could have put a stop to this crap four years ago, and did nothing to effectuate that change.
There are a lot of people who think I'm way too rough on him or should even embrace him. Nope. The way I see it, he had a responsibility to do something and failed. He's even worse than most of the other fraudsters on The Hill in this regard, because with the exception of people like Chris Dodd, who also has the authority to act (and didn't) most Congresscritters simply aren't on the responsible committees.
So while the blame is generic, when we drill down into it, we have to point the finger at those who could have acted but failed to.
The Bond Market no likey what's going on. The 10 is threatening to break out of a bullish (for rates) flag, which presages a potential 4.20% 10 year rate. This will instantaneously translate into higher mortgage and other "long money" rates, destroying what's left of the housing industry.
There is only one way to prevent this, and that's for the stock market to blow up so that people run like hell into bonds, pushing yields down!
Pick your poison Ben.
Who wins here?
The credit market.
The Street crooners are again out screaming, but did you notice anything today? They're a bit more nervous. There's a bit of a lisp in their words, and a bit of panic in their happy-talk. Oh sure, they say "people want mortgage debt" again, referencing the CMBX (commercial mortgage) deal that got done. What they don't talk about is that it went at over 200 basis points beyond Ts, which is four times what that same deal would have priced at in terms of spread just one short year ago.
They also don't talk about what a 200 bips spread does to all the existing commercial deals out there that have 50 cap spreads...... uh, can you say "dead"?
See, this is the misdirection of the media - all intentional too, as all of these "market participants" know full well that if you have a 200 bips spread on costs with a 50 cap spread on income you're screwed! Unless these spreads come back in and soon commercial R/E will be decimated over the next year - there is simply no other possible outcome!
Don't look at the home sales numbers either - down 21% Y/O/Y in the 4th Quarter, the steepest quarterly drop ever recorded. Gee, you think? Prices are still far too high relative to incomes, and the sales dropoffs will not turn until that goes away!
There has been much digital ink spilled trying to "paper over" the SOMA downturn and reality in the credit markets, with people like Kudlow pointing to the C&I (commercial and industrial) loan ramp rate and saying "see see see its all ok!"
Uh, false.
Those loans are involuntary! Firms and governments are increasingly finding that they CAN'T access the normal debt markets on their own, and are turning to banks as their last option, as the cost of money there is much higher.
Now add to this that we've got a slowing economy and banks are trying to take down risk as their balance sheets are bloated as well, and you have a recipe for disaster.
Involuntary credit demand is not "good", it is VERY BAD.
This sort of "misread" is the same thing that has happened with the so-called "Shadowstats" M3 "reconstruction."
The moonbats claim that The Fed discontinued M3 because they're trying to hide something. In fact they discontinued M3 because it didn't tell you the truth; it was simply NOT capturing any of the "shadow" credit creation caused by all the fraud (and undercapitalized "insurance" which, in fact, is worth zero), but it sure is capturing the forcible repatriation into bank balance sheets when there is no other when it comes to access to capital for companies and governments.
Yet there are STILL people who refuse to read out here.
Heh, that's fine. If you want to ignore all of:
"Bond insurers may be split into two pieces to bolster credit ratings and protect municipalities and bondholders, New York's top insurance regulator plans to tell Congress."
Game over.
A few days ago I predicted that this was exactly the outcome that we would get out of Buffett's "proposal." It appears that Dinello has the same idea, and why not?
Oh sure, there will be plenty of rattling around, like the death-rattle of an old man lying in bed with pneumonia, but the outcome is now a given.
This, by the way, was the only way out and has been for quite some time. That this would be the path taken became clear as soon as Buffett started talking about reinsuring the munis, as that can be funded even if the government ends up paying the bill for the existing bonds. That's an $8-10 billion problem - bad, but, affordable. Remember, we just blew $165 billion on a "stimulus" that won't stimulate anything but sure looks good in the vote-buying contests.
The banks and others have run the "systemic risk" scam for years, arguing that we "can't allow them to fail" because, among other things, municipalities would get killed.
Well, that argument is now over.
As for the "we're too big to fail" argument, good luck with that. See, not everyone in these markets were imprudent. Goldman, for example, was apparently shorting these securities all last year, and presumably is well-hedged against a CDO explosion. They're fine, right? (so long as they weren't lying!)
Bear, Citi, Merrill? So sorry, so sad. Merge the solid portions with one another and cut the rest off to die.
Oh yes, the howls of protest will come, and the "favors" will try to be called in the Halls of Congress. Bet on it.
Bet on the argument failing too.
Why?
Because to actually bail out those folks is simply not possible - the total cost would exceed a trillion dollars and the upside of that estimate could be six or more trillion, or essentially the entirety of the MEWs taken over the last three years, most of which were taken against false appreciation and thus weren't real!
There is simply nothing Congress can do about this.
Further, when you look at what has happened over the last few months, The Fed has shifted towards more secrecy instead of more transparency and has gotten exactly nothing out of it in terms of positive result!
Why?
Because the problem is secrecy in the first instance!
The way out of the box is to cut that **** out. But that means getting very aggressive with the fraudsters and schemes, and simply saying "no more of that crap boys!"
Do you expect The Fed to do this? No - not until it becomes apparent that they have to. Why? Because they can manage their own risk without it, and that's all they care about.
Who has to fix this? OCC. OTS. Congress. State regulators, especially in the insurance space.
This is where the problem originated and where it has to be dealt with.
This, by the way, is why I am so negative on Ron Paul. He sits on the committe that could have put a stop to this crap four years ago, and did nothing to effectuate that change.
There are a lot of people who think I'm way too rough on him or should even embrace him. Nope. The way I see it, he had a responsibility to do something and failed. He's even worse than most of the other fraudsters on The Hill in this regard, because with the exception of people like Chris Dodd, who also has the authority to act (and didn't) most Congresscritters simply aren't on the responsible committees.
So while the blame is generic, when we drill down into it, we have to point the finger at those who could have acted but failed to.
The Bond Market no likey what's going on. The 10 is threatening to break out of a bullish (for rates) flag, which presages a potential 4.20% 10 year rate. This will instantaneously translate into higher mortgage and other "long money" rates, destroying what's left of the housing industry.
There is only one way to prevent this, and that's for the stock market to blow up so that people run like hell into bonds, pushing yields down!
Pick your poison Ben.
Who wins here?
The credit market.
The Street crooners are again out screaming, but did you notice anything today? They're a bit more nervous. There's a bit of a lisp in their words, and a bit of panic in their happy-talk. Oh sure, they say "people want mortgage debt" again, referencing the CMBX (commercial mortgage) deal that got done. What they don't talk about is that it went at over 200 basis points beyond Ts, which is four times what that same deal would have priced at in terms of spread just one short year ago.
They also don't talk about what a 200 bips spread does to all the existing commercial deals out there that have 50 cap spreads...... uh, can you say "dead"?
See, this is the misdirection of the media - all intentional too, as all of these "market participants" know full well that if you have a 200 bips spread on costs with a 50 cap spread on income you're screwed! Unless these spreads come back in and soon commercial R/E will be decimated over the next year - there is simply no other possible outcome!
Don't look at the home sales numbers either - down 21% Y/O/Y in the 4th Quarter, the steepest quarterly drop ever recorded. Gee, you think? Prices are still far too high relative to incomes, and the sales dropoffs will not turn until that goes away!
There has been much digital ink spilled trying to "paper over" the SOMA downturn and reality in the credit markets, with people like Kudlow pointing to the C&I (commercial and industrial) loan ramp rate and saying "see see see its all ok!"
Uh, false.
Those loans are involuntary! Firms and governments are increasingly finding that they CAN'T access the normal debt markets on their own, and are turning to banks as their last option, as the cost of money there is much higher.
Now add to this that we've got a slowing economy and banks are trying to take down risk as their balance sheets are bloated as well, and you have a recipe for disaster.
Involuntary credit demand is not "good", it is VERY BAD.
This sort of "misread" is the same thing that has happened with the so-called "Shadowstats" M3 "reconstruction."
The moonbats claim that The Fed discontinued M3 because they're trying to hide something. In fact they discontinued M3 because it didn't tell you the truth; it was simply NOT capturing any of the "shadow" credit creation caused by all the fraud (and undercapitalized "insurance" which, in fact, is worth zero), but it sure is capturing the forcible repatriation into bank balance sheets when there is no other when it comes to access to capital for companies and governments.
Yet there are STILL people who refuse to read out here.
Heh, that's fine. If you want to ignore all of:
- The Port Authority of NJ is forced to pay 20% for short-term money after their auction rate security auction failed (along with $250 billion of others!)
- Spreads have blown wide open virtually everywhere.
- SOMA is being aggressively drained by The Fed.
- Home prices have contracted by 6% in the last year, and will likely drop by more than that in 2008.
- Stock market prices are off 10+% in the last three months.
Heh, if all you look at is food and fuel, we've got a tremendous inflationary problem!
But if you look at the actual monetary base then it is clear what is going on.
PS: Happy Valentines Day. Was your Valentine Green or Red? :->
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