DC Tom Posted March 19, 2008 Posted March 19, 2008 He might have a point about the validity of the system though. Pity, you didn't address that. Interesting philosophical principle, though: does interference in a capitalist system to keep said system from collapsing in fact make it non-capitalist? You can follow it up by: were we truly living in a capitalist system to begin with? Do the Fed's actions truly invalidate the system, or merely serve to point out that the system was disestablished when the Fed was created? At any rate, can we all at least agree the credit markets' continued existence for at worst a few more days is a good thing?
meazza Posted March 19, 2008 Posted March 19, 2008 He might have a point about the validity of the system though. Pity, you didn't address that. I didn`t address any of his post except for how I feel it is over dramatic. The financial system is not perfect, and each crisis has shown us that. Obviously I`m experiencing my first real financial crisis being fresh out of school and am trying to learn as much as possible from this. When there`s another liquidity/credit crunch, I`ll let you know how i feel
meazza Posted March 19, 2008 Posted March 19, 2008 Interesting philosophical principle, though: does interference in a capitalist system to keep said system from collapsing in fact make it non-capitalist? You can follow it up by: were we truly living in a capitalist system to begin with? Do the Fed's actions truly invalidate the system, or merely serve to point out that the system was disestablished when the Fed was created?At any rate, can we all at least agree the credit markets' continued existence for at worst a few more days is a good thing? Does everything have to be extreme. Sure a free market capitalist system is preferred over a communist system but can anything really function without just a little bit of help at the right time? Those responsible and those not responsible for this credit crunch have felt the burn of this crisis in the last 9 months anyway.
DC Tom Posted March 19, 2008 Posted March 19, 2008 Does everything have to be extreme. Sure a free market capitalist system is preferred over a communist system but can anything really function without just a little bit of help at the right time? Those responsible and those not responsible for this credit crunch have felt the burn of this crisis in the last 9 months anyway. Are you asking me? Or are you pointing out an implicit question derived from my philosophical musings? Because I was going for the implication. And "Does everything have to be extreme"? Come on. You're not new to this board.
GG Posted March 19, 2008 Posted March 19, 2008 He might have a point about the validity of the system though. Pity, you didn't address that. It's been addressed in this thread and in the off-the wall one, as well. Can't keep typing the same thing over and over until it sinks in. Just a few questions for the pundits who are calling it a bailout. Exactly who got bailed out, and if it wasn't for this bailout, who should have been held responsible and suffer the consequences?
meazza Posted March 19, 2008 Posted March 19, 2008 Are you asking me? Or are you pointing out an implicit question derived from my philosophical musings? Because I was going for the implication. And "Does everything have to be extreme"? Come on. You're not new to this board. The former I may not be new but it never ceases to shock me how minds can never be changed.
Dwight Drane Posted March 19, 2008 Posted March 19, 2008 I didn`t address any of his post except for how I feel it is over dramatic. The financial system is not perfect, and each crisis has shown us that. Obviously I`m experiencing my first real financial crisis being fresh out of school and am trying to learn as much as possible from this. When there`s another liquidity/credit crunch, I`ll let you know how i feel It isn't overdramatic. The system is dead. There is no answer to the credit swaps as of yet, other than make sure an obligated major party doesn't go bankrupt, as this would mean that by definition of the SEC rules, firms holding that paper would have to write it down to zero. That would have forced a system margin call on almost every institution by the time the dominoes fell. The same thing will happen if MBIA or AMBAC were allowed to have their credit ratings dropped. By rule, most funds and pensions would have to sell every bond that is insured by these parties, and there would be nobody there to buy them. Again, we all go to zero and the system crashes. I'll give you some examples of the crisis that have been going on, just in my little world. I manage some money for a private hedge fund. My specialty is microcap stocks, but I am just a small piece of the puzzle. 1) There are no bids on junk bonds. Things that you could sell for $.90 on the dollar a few years ago are technicaly worthless. This has something to do with residential subprime, but it has backlashed to commercial properties, solid corporations, and even government obligations. These have real value, but nobody has the cash to buy them, or the stomach to sort them out even if the have funds. 2) AAA bonds have a very limited market, and new issues aren't getting done. Bonds that should be worth par are getting bids in the 30's. The investment banks can't get enough together to float projects. There has been a run on many of the AAA bond funds and money markets.......which leads me to...... 3) Some AAA funds will not allow you to retrieve your cash. The most secure paper out there, and because people need money but there are no real bids on these bonds, funds can't raise the cash to meet clients' needs. A company that we are invested in has been trying to get their money out of a few of these funds since the first of the year, and have received less than half of their request. This is a company that has no debt, and lists these funds as short term investments on their balance sheet. What should they report as the value of these investments? 4) Since there is no market on most debt, funds do not know how to value things. Is a AAA really only worth 30 cents? That implies almost a 20% long term interest rate. Since things are not being traded, the values are subjective, and inflated. If the regulators were sent in to act like they do during a regular period, they would be marking values down left and right, forcing margin calls and liquidations. While the institutions that lend money to the hedge funds look at the implicit value of the assets used as colateral and want to vomit, and the banks that lend these institutions the money to lend to the funds want to shoot themselves when they look at the books........NOBODY WILL LOWER THE VALUES ON ANYONE BECAUSE EVERYONE WOULD GO OUT OF BUSINESS TOMORROW. The only reason Bear went out was because everyone pulled out and even fudging the numbers couldn't help anymore. Lehman Brothers was at the same point, but the powers that be threatened to limit rescues of anyone who pulled out of Lehman yesterday. There has been a huge cashflow into some firms the past two days thanks to the Fed "lending" against some of the worthless paper. It will not last, because new lending cannot happen fast enough to beat the global slowdown 5) A major bank (cough-DC Tom's relative-cough) has been selling hard assets like buildings and selling certain departments in order to meet the need for working capital. They are one of the giants in the swaps market, and just had another batch of internal writedowns this week. $12 billion in paper wealth can go Poof! with a click of the mouse. There are so many swaps in different departments of some of these banks, that they have no idea what they own, or what they are worth. 6) The FDIC started shopping pools of mortgages to some smaller firms that have never been included in the bidding of some of these sweetheart deals before, because the bigger banks that usually are the first middleman are too tapped to help. This means that there are other big banks either ready to go out, or are walking dead already. The first 4 things have been going on for months, but the last few weeks the disaster started to unfold. The Fed has made the decision to not let the system crash, but they are going to have to keep printing money. I am a value investor, but I am in gold and oil. I won't play the commodities themselves, but through traded companies. I bought some railroads as well today. I still have money in my regular small names, but with index prices flying back and forth, I have played more stock options the past 3 months than I have my entire life. I am not levered much personaly, but the fund could blow up at anytime, along with everyone else. I really feel there will be a full-fledged war in the Middle East by the summer as well. Throw that on top of the housing, the economy in general, and the banks, and this is not going to be a blip on the radar for anyone. I am a cynic and look for faults in everything, but even cold-blooded optimist pros were jaw-dropped on Monday.
DC Tom Posted March 19, 2008 Posted March 19, 2008 I may not be new but it never ceases to shock me how minds can never be changed. There's a certain level of irony in that statement...
Dwight Drane Posted March 19, 2008 Posted March 19, 2008 It's been addressed in this thread and in the off-the wall one, as well. Can't keep typing the same thing over and over until it sinks in. Just a few questions for the pundits who are calling it a bailout. Exactly who got bailed out, and if it wasn't for this bailout, who should have been held responsible and suffer the consequences? It wasn't a bailout. Bear was commandeered by the Fed. It looks as if none of the big banks will be allowed to fail. Some small funds will blow up, some bigger institutions will be merged with an oncologist from the Fed doing surgery as the tainted institution is handed over to a government friendly firm, and the public will suffer in the form of continued foreclosures and a dollar that continues to do tricks. The line has been drawn now. It doesn't mean that things will be easy.
GG Posted March 19, 2008 Posted March 19, 2008 It isn't overdramatic. The system is dead. .... 2) AAA bonds have a very limited market, and new issues aren't getting done. Bonds that should be worth par are getting bids in the 30's. The investment banks can't get enough together to float projects. There has been a run on many of the AAA bond funds and money markets.......which leads me to...... Is this why AT&T upsized its deal by $1 billion a month ago and continues to show high demand for its commercial paper? And it's only rated A2/P1? Charter just sold $1 billion of new loans, and it's a bottom dwelling junk name. You can tone down on the drama. It's bad, but not dead.
Chilly Posted March 19, 2008 Posted March 19, 2008 There's a certain level of irony in that statement... lol
meazza Posted March 19, 2008 Posted March 19, 2008 There's a certain level of irony in that statement... Why? I'm hard headed?
Chilly Posted March 19, 2008 Posted March 19, 2008 Why? I'm hard headed? If you're shocked about something, then likely your mind has been changed in some fashion...
GG Posted March 19, 2008 Posted March 19, 2008 It wasn't a bailout. Bear was commandeered by the Fed. Well, that's a novel interpretation. The Fed did what bankruptcy court would do, except did it in 24 hours, without a market panic and at a much lower cost. Win win win. It looks as if none of the big banks will be allowed to fail. Some small funds will blow up, some bigger institutions will be merged with an oncologist from the Fed doing surgery as the tainted institution is handed over to a government friendly firm, and the public will suffer in the form of continued foreclosures and a dollar that continues to do tricks. The line has been drawn now. It doesn't mean that things will be easy. Opening the discount window to broker dealers should alleviate a lot of funing issues.
Dwight Drane Posted March 19, 2008 Posted March 19, 2008 Is this why AT&T upsized its deal by $1 billion a month ago and continues to show high demand for its commercial paper? And it's only rated A2/P1? Charter just sold $1 billion of new loans, and it's a bottom dwelling junk name. You can tone down on the drama. It's bad, but not dead. How about it's "Richard Zednik skating back to the bench holding his throat". VISA went public today as well. Of course firms are going to extend and expand offerings if they can get things done. What is the level of traditional offerings on whole as opposed to what has been done the past 6 or so months? I don't know how people can say to tone down the drama when it was admitted to the market yesterday that the entire US financial system would have been destroyed if Bear was allowed to go bankrupt. The fact that people laugh it off shows just what an American Idol, 2 hour attention span we have.
Dwight Drane Posted March 19, 2008 Posted March 19, 2008 Well, that's a novel interpretation. The Fed did what bankruptcy court would do, except did it in 24 hours, without a market panic and at a much lower cost. Win win win.Opening the discount window to broker dealers should alleviate a lot of funing issues. No, the bankruptcy court would value their swaps at zero, and blow up the entire system. It wasn't fair that they sliced Bear up, then opened funding to everyone else. Why is the stock trading up? Now that the banks got a pacman power pellet from the Fed and turned the ghosts blue for the next few weeks, cooler heads can prevail and maybe Bear does go through court. The Fed either 1) Handed Bear over with bad intent 2)Paniced themselves by rolling over for JP Morgan 3)Are idiots.
DC Tom Posted March 19, 2008 Posted March 19, 2008 It wasn't a bailout. Bear was commandeered by the Fed. It looks as if none of the big banks will be allowed to fail. Some small funds will blow up, some bigger institutions will be merged with an oncologist from the Fed doing surgery as the tainted institution is handed over to a government friendly firm, and the public will suffer in the form of continued foreclosures and a dollar that continues to do tricks. The line has been drawn now. It doesn't mean that things will be easy. Wait, I'm confused. Are you implying that, had the Fed not bailed out Bear and instead thrown the credit markets over a cliff, foreclosures would have slowed down? Is this some sort of argument that, while the entire financial industry should suffer for their egregiously bad decisions, the individual homeowner who bought with a negatively amortized adjustable rate interest-only loan with a balloon payment five years out "because otherwise we couldn't afford a house" shouldn't suffer for their egregiously bad decisions? Not that important a point, really...it just struck me as a really bizarre observation to stick in there.
DC Tom Posted March 19, 2008 Posted March 19, 2008 If you're shocked about something, then likely your mind has been changed in some fashion... More like: if you never cease to be shocked at people never changing their minds, your not terribly open to changing yours...
meazza Posted March 19, 2008 Posted March 19, 2008 More like: if you never cease to be shocked at people never changing their minds, your not terribly open to changing yours... A real philosopher you are
GG Posted March 19, 2008 Posted March 19, 2008 No, the bankruptcy court would value their swaps at zero, and blow up the entire system. It wasn't fair that they sliced Bear up, then opened funding to everyone else. What's not "fair" is Bear not knowing their liquidity position last week and becoming insolvent on Thursday. Fed took the prudent action to open the discount window for other major broker dealers. Why is the stock trading up? Now that the banks got a pacman power pellet from the Fed and turned the ghosts blue for the next few weeks, cooler heads can prevail and maybe Bear does go through court. The Fed either 1) Handed Bear over with bad intent 2)Paniced themselves by rolling over for JP Morgan 3)Are idiots. The stock is trading up because it's a reasonable call option on the company. Note that the stock didn't jump back to $30. (how much did you make on those Lehman puts you bought yesterday, btw?) And if Bear still ends up in Ch. 11, the Fed is off the hook, JPM walks and you have an orderly liquidation. Again, why the harangue over an averted disaster? The downside was much greater than crying about the Fed doing its job in restoring the sanctity of the US financial system.
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