FDIC R.I.P - Eric Janszen

[Quincy K]

Re: FDIC R.I.P - Eric Janszen

Is this the trade out of treasuries and into oil to which you referred in another thread?

if so, not good. oil is essentially gold. however, it is an asset that generally collapses during economic contractions. in the last 30 days, these guys have doubled their gold and limited their Treasury exposure. that does not show faith in the immediate survivability of the System.

and since these guys admittingly and historically do not gamble at the casino(stock/commodity markets), if they are now going long oil after multiple years of patience and fortitude they are essentially moving away from paper, hence; trading in one's fiat for any and all assets. i-tulip has specifically stated that they have been in Treasuries and gold for around eight years with an occasional spec play( i believe short-term) at the blackjack table.

it's possible that we may be looking at an imminent devaluation, systemic breakdown(Gerald Celente) or a hyperinflationary scenario.

Re: FDIC R.I.P - Eric Janszen

Very illuminating column for those of us who don't watch all the financial news. The last paragraph had enough meat in it to induce non-subscribers to subscribe, as well.

On the other hand, the sentence structure continues to be quasi run-on sentences. Phrase after phrase is packed into single sentences, as if periods cost $10 each. I also think I spotted a couple of missing commas, which makes long sentences worse. With these columns already containing pretty esoteric information and words, sentence structure should not be an impediment to its easy comprehension. Also trying to stick to a "introduction/meat of the column/summary and conclusion format is more effective than shotgunning concepts.

Everyone's writing could use editing for clarity. The writer knows what he means, others may not grasp it so easily.

Is "FRED" actually allowed to edit the columns? The "FRED" posts I read are always concise and flow well.

[Supercilious]

Re: FDIC R.I.P - Eric Janszen

Speaking of CDS', doesn't this plan simply make the FDIC a CDS writer?

I believe you are right. It makes FDIC a dumber CDS writer than AIG. Actually, I believe this plan makes the US citizens involuntary CDS writers ...

[FRED]

Re: FDIC R.I.P - Eric Janszen

I believe 30% gold now.... what thread is the oil to treasuries allocation?

We are working on a new analysis not yet published.

[opps]

Re: FDIC R.I.P - Eric Janszen

I believe 30% gold now.... what thread is the oil to treasuries allocation?

[metalman]

Re: FDIC R.I.P - Eric Janszen

My financial goals are not going to be met with 2% rate return in a money market fund. I don't want to lose money for sure, but I want to retire some day too.

I suppose the best case is we sit out a couple years and readjust our expectations. I have time to wait, but this must be a disaster for the boomers.

Is this fact being incorporated into any analysis? If millions of boomers are not able to retire and have to work 5-10 years longer than expected, what does that do to the economy?

as an old timer itulip follower... out of djia 1998... out of nasdaq mar. 2000 and into 10 yr treas... 15% out of treas into gold 2001... warnings to the peeps to get the f--- out of stocks in dec. 2007... now... n% treas to oil?

results... better than 2%... 7.2% annual since 1998.

[CanuckinTX]

Re: FDIC R.I.P - Eric Janszen

My financial goals are not going to be met with 2% rate return in a money market fund. I don't want to lose money for sure, but I want to retire some day too.

I suppose the best case is we sit out a couple years and readjust our expectations. I have time to wait, but this must be a disaster for the boomers.

Is this fact being incorporated into any analysis? If millions of boomers are not able to retire and have to work 5-10 years longer than expected, what does that do to the economy?

With all due respect, the market doesn't give a hoot about your financial goals. If the markets trend down or flat for the 2 or 3 years what can you do about it except keep your captial preserved? I'm with you that it's hard to watch your money just sit and not grow at the 'promised' 8-10% rate that stocks are supposed to deliver but I comfort myself in the fact that the cost of all big ticket assets are deflating faster than my pool of retirement funds so in effect I am gaining ground.

I totally agree about the disaster ahead for boomers. My dad is probably one of those people holding too much equities just as he's about to retire and now with interest rates so low it's not like he can switch it all to bonds and live off of that. Add the specter of inflation to the mix with declining asset prices and it's not a pretty picture. He's already worked a year longer than he wanted and might go for more. (and he always refuses my request to get some gold - price is too high he says)

The golden years - yeah right!

[we_are_toast]

Re: FDIC R.I.P - Eric Janszen

Here's one idea that an acquaintance suggested today that could allow banks to use this lovely program to offload a majority of their future credit losses onto the public:

- Several banks would form a consortium to qualify as an investor for the public / private partnership program

- Bank consortium agrees to pay a premium for loans on the banks' balance sheets (e.g., bid 90% of par for Florida construction loans when the actual cash flows will be, say, 50% of par)

- FDIC offers 4:1 leverage and Treasury puts up 50% equity stake (banks' maximum loss share is 10% of the purchase price, or 1/2 of the 20% equity contribution)

- Capital structure for investment therefore allocated as follows: 72% of par in FDIC debt, 9% Treasury equity stake, 9% bank consortium equity stake

- Maximum loss for the banks reduced from 50% of par to 19% (10% loss on sale + 10% of the 90% bid value)

- Loss for taxpayers of 31% of par (9% Treasury equity position wiped out and 22% loss on FDIC-guaranteed debt)

The FDIC would theoretically offer lower amounts of leverage for riskier pools of assets, but as long as the Treasury is willing to offer a dollar for dollar coinvestment, the banks can reduce their expected losses through this structure by at least the amount of that coinvestment (relative to holding the loans on balance sheet). This would also have the side benefit of establishing an inflated value for their remaining loans and related types of securities.

I'm sure there are hundreds (or thousands?) of far brighter minds than my own working on other ways to profit from this program at our collective expense.

On a different site I've been collecting the different ways to game the Geithner Put.

The number one way is for the entity to buy it's own trash. Second is for the bank to find a proxy to buy it's trash. Then there are those who are heavily invested in the banks bonds, the Geithner plan would be an insurance plan for them to buy those bonds. There's also variations where hedge funds buy the trash and then buy CDS' on those bonds.

Speaking of CDS', doesn't this plan simply make the FDIC a CDS writer?

This plan may have planned failure built in, but I'm not sure where the failure is planned. If the Gov can prevent all the ways to scam the system, I'm not sure why anyone would come to the auction. My guess is the spread between what the trash is actually worth and what the banks need to claim solvency is so large that nobody is going to hit the bank reserve price. If the auction fails, price discovery will have been accomplished and the Gov can claim they've tried everything and then proceed to nationalize the entire mess.

[Penguin]

Re: FDIC R.I.P - Eric Janszen

What is the status of the Chris Dodd bill to allow the FDIC to borrow $500B from the treasury? Does anyone know. I tried to find out if the bill had progressed in congress but could not find anything.

Apparently this plan has been discussed in private for some time.

Thanks,
Will

[Scott4139]

Re: FDIC R.I.P - Eric Janszen

My financial goals are not going to be met with 2% rate return in a money market fund. I don't want to lose money for sure, but I want to retire some day too.

I suppose the best case is we sit out a couple years and readjust our expectations. I have time to wait, but this must be a disaster for the boomers.

Is this fact being incorporated into any analysis? If millions of boomers are not able to retire and have to work 5-10 years longer than expected, what does that do to the economy?

[Slimprofits]

Re: FDIC R.I.P - Eric Janszen

I am fairly certain that the parable Heidi's Bar originated in Germany...Good luck with finding the author.

There are 26,000 google search results for the German version and only 2200 for the English version.

It looks as if it was translated into English and hit the U.S. via e-mail about six weeks ago.

[nero3]

Re: FDIC R.I.P - Eric Janszen

On Monday's big rise, all of the financial commentators remarked that 1938 was the last time that the markets saw such a high one day increase! I'm amazed at how no one seemed to notice that this market turn was 9 years after the initial drop in 1929 and that there was a lot of volatility and pain experienced in between!!

If you look at the period between 1929 and 1932, there were numerous periods where the market rose and fell by 40%+. I have little doubt that we will see S&P 500 at 600 or lower. That doesn't mean though that it couldn't get up to the 900-1000 range before then! This leads me to the two phrases that all investors should remember...

1) The path is just as important as the destination, and
2) In investing, being early is the same as being wrong.

It's totally improbable that it will go any lower than the earlier low, with the dollar at these levels. I think it's more year 2000 that was like 1929, then deflate the dow by the rise in healthcare costs, or energy, and I think you get in the ballpark of how expensive the dow is now. Inflation have been almost 300 % since 2000.

[Rajiv]

Re: FDIC R.I.P - Eric Janszen

It appears that James Galbraith is agreeing with EJ on this

Part I: Geithner's Plan "Extremely Dangerous," Economist Galbraith Says

Why?

In short, because the plan is yet another massive, ineffective gift to banks and Wall Street. Taxpayers, of course, will take the hit Why does Tim Geithner keep repackaging the same trash-asset-removal plan that he has been trying to get approved since last fall? In our opinion, because Tim Geithner formed his view of this crisis last fall, while sitting across the table from his constituents at the New York Fed: The CEOs of the big Wall Street firms. He views the crisis the same way Wall Street does--as a temporary liquidity problem--and his plans to fix it are designed with the best interests of Wall Street in mind.

If Geithner's plan to fix the banks would also fix the economy, this would be tolerable. But no smart economist we know of thinks that it will.
We think Geithner is suffering from five fundamental misconceptions about what is wrong with the economy. Here they are:

The trouble with the economy is that the banks aren't lending. The reality: The economy is in trouble because American consumers and businesses took on way too much debt and are now collapsing under the weight of it. As consumers retrench, companies that sell to them are retrenching, thus exacerbating the problem. The banks, meanwhile, are lending. They just aren't lending as much as they used to. Also the shadow banking system (securitization markets), which actually provided more funding to the economy than the banks, has collapsed.

The banks aren't lending because their balance sheets are loaded with "bad assets" that the market has temporarily mispriced. The reality: The banks aren't lending (much) because they have decided to stop making loans to people and companies who can't pay them back. And because the banks are scared that future writedowns on their old loans will lead to future losses that will wipe out their equity.
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[jimmygu3]

Re: FDIC R.I.P - Eric Janszen

Here's one idea that an acquaintance suggested today that could allow banks to use this lovely program to offload a majority of their future credit losses onto the public:

- Several banks would form a consortium to qualify as an investor for the public / private partnership program

- Bank consortium agrees to pay a premium for loans on the banks' balance sheets (e.g., bid 90% of par for Florida construction loans when the actual cash flows will be, say, 50% of par)

- FDIC offers 4:1 leverage and Treasury puts up 50% equity stake (banks' maximum loss share is 10% of the purchase price, or 1/2 of the 20% equity contribution)

- Capital structure for investment therefore allocated as follows: 72% of par in FDIC debt, 9% Treasury equity stake, 9% bank consortium equity stake

- Maximum loss for the banks reduced from 50% of par to 19% (10% loss on sale + 10% of the 90% bid value)

- Loss for taxpayers of 31% of par (9% Treasury equity position wiped out and 22% loss on FDIC-guaranteed debt)

The FDIC would theoretically offer lower amounts of leverage for riskier pools of assets, but as long as the Treasury is willing to offer a dollar for dollar coinvestment, the banks can reduce their expected losses through this structure by at least the amount of that coinvestment (relative to holding the loans on balance sheet). This would also have the side benefit of establishing an inflated value for their remaining loans and related types of securities.

I'm sure there are hundreds (or thousands?) of far brighter minds than my own working on other ways to profit from this program at our collective expense.

Better yet, sell stock in said consortium to J6P and unload that 19% loss on him. Light fuse and get away.

[Basil]

Re: FDIC R.I.P - Eric Janszen

We have our first major allocation change in many years coming.

Is this the trade out of treasuries and into oil to which you referred in another thread?