Monday, March 17, 2008

100th Post! Just In Time For The Implosion Of Our Financial System! YEAH!

600+ 400+ 200+ comments.. you know what to do... triple down

Agent Smith
: You hear that Mr. Anderson?... That is the sound of inevitability... It is the sound of your death... Goodbye, Mr. Anderson...

Son: "Hey Dad, what's that scary noise?"

Dad: "Oh, that's nothing Son. That's just the sound of America's Collapsing Financial System."

Son: "It sounds like that earthquake in the Bering Sea that killed all those black Antarcticans in 2005."

Dad: "It was the Indian Ocean & Indonesians mainly, but this will be much, much worse than that. But, we had a good run"

Wow. Where to start? I guess we'll start with the Macro-Big Stuff, and work back to the Little Stuff.

Bear bailout sparks concern about other brokers
Crisis of confidence hits ahead of results from Goldman, Morgan, Lehman

SAN FRANCISCO (MarketWatch) - The emergency bailout of Bear Stearns Cos. dented confidence in other securities firms ahead of results next week from some of Wall Street's giants including Goldman Sachs, Morgan Stanley and Lehman Brothers, analysts said on Friday.

The Bear Stearns Companies Inc. was forced to borrow money for 28 days from the Federal Reserve, with help from J.P. Morgan Chase JPMorgan Chase & Co, after clients and counterparties deserted the 85-year-old firm.

Triggering a sell-off throughout the financial sector, Bear shares slumped 47% to $30, their biggest one-day drop in at least two decades.

Bear said the rescue consists of getting short-term financing from the Fed, through J.P. Morgan, after its liquidity "deteriorated significantly" during the past 24 hours.

Bear said the financial support is a bridge to a more permanent solution. Several analysts predicted the firm will likely be acquired quickly by a stronger bank or broker to stop its troubles triggering broader problems in the financial system.

"The financial system supervisors are attempting to prevent this company's problems and the perception of problems from rippling through the system to other financial players," David Hendler, an analyst at CreditSights, wrote in a note to investors. "Given Bear Stearns' huge impact in the mortgage, derivatives and funding markets, we sense that a salvation acquisition is the most likely possibility."

Only days earlier, Bear Chief Executive Alan Schwartz reassured investors that the broker had no liquidity problems and was meeting demands for cash. But concerns grew in the market anyway and on Thursday counterparties withdrew crucial financial support and the firm was hit by a wave of client withdrawals. That pushed the firm into the arms of the Fed.

"If a firm as large and liquid as Bear can be taken down on what appears to us as exaggerated claims about liquidity and counterparty risk which then snow-ball into a market reality as investors, counterparties and lenders shoot first and ask questions later, then what's to stop the same thing happening to other firms facing similar issues," Michael Hecht, an analyst at Banc of America Securities, wrote in a note to clients on Friday.

First-quarter earnings per share for these four firms will likely drop by more than half versus a year earlier, according to analyst estimates compiled by FactSet.

Bear's crisis is the latest sign that the U.S. financial system is cracking under the weight of a global credit crunch that was sparked by last year's subprime mortgage meltdown. As lenders have become more wary of mortgage securities used to back loans, they've pulled back, sparking widespread de-leveraging.

Brokerage firms get the money they need by borrowing it in the market, while big banks like J.P. Morgan get a big chunk of their funding from customers who deposit cash in bank accounts.

That means brokerage firms are more vulnerable to swings of risk appetite and aversion in capital markets. As the credit crunch has spread, creditors have become less willing to lend to these firms, increasing their borrowing costs.

"Financial markets are pretty frozen up. It's a stunner," said Hal Ritch, co-chief executive of investment bank Sagent Advisors and a former Citigroup Inc. banker. "There was so much liquidity just a few months ago, but now there's so little. There's a lot of fear out there."

As leverage, or borrowing, in the financial system is wound down, some market participants arehaving to sell assets to meet their obligations. That's causing prices to fall further.

Falling prices is a problem for brokerage firms because they still hold illiquid assets and will probably have to record the lower market value of these exposures as part of their first-quarter results.

Brokerage firms have already taken billions of dollars in such write-downs, but continuing turmoil in credit markets may mean a few more quarters of valuation hits.

"The problem that Bear Stearns and other financials face is a great unwind of leverage," Meredith Whitney, an analyst at Oppenheimer & Co., wrote in a note to investors on Friday. "When a company that is leveraged over 30-to-1 faces a crisis of liquidity and confidence of creditworthiness, that company will be unable to leverage its collateral and its leverage will be forced down to 1-to-1."

The global financial-services sector may end up writing down the fair value of subprime exposures by $285 billion, mainly from residential mortgage-backed securities and more complex vehicles known as collateralized debt obligations (CDOs), Standard & Poor's estimated on Thursday.

The rating agency gave investors hope when it said the end of such write-downs was in sight. However, it also gave an ominous warning.

The agency said that the broader credit crunch has dented the market prices of many other types of securities in recent weeks. If this continues, banks and brokers could be hit by another round of write-downs, S&P said.

"A major re-pricing of credit risk is taking place across the debt markets," S&P wrote. "If the wider spreads hold to the end of the first quarter or half of this year, financial institutions will suffer further market value write-downs of a broad range of exposures, including leveraged loans." End of Story

The notable sections are highlighted.

THIS is how close Armaggedon is. 24 HOURS.

24 hours before Bear Stearns went completely BROKE (don't believe anything else), the CEO made statements that ALL IS WELL; Zero liquidity problems, Don't Worry, We Are Fine.

Uh huh. Bear Stearns will be sold later this week, if not before I finish this post.

How unusual is this? Well, let's see. From Bloomberg:

Fed Invokes Little-Used Authority to Aid Bear Stearns

By Scott Lanman

March 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke invoked a law last used four decades ago to keep Bear Stearns Cos. from collapsing after the securities firm sought emergency funding from the central bank.

The loan to Bear Stearns required a vote today by the Fed's Board of Governors because the company isn't a bank, Fed staff officials said. The central bank is taking on the credit risk from Bear Stearns collateral, lending the funds through JPMorgan Chase & Co. because it's operationally simpler to accomplish than a direct loan, the staff said on condition of anonymity.

Bernanke took advantage of little-used parts of Fed law, added in the 1930s and last utilized in the 1960s, that allow it to lend to corporations and private partnerships with a special board vote. The Fed chief probably sought to stave off a deeper blow to the financial system from a Bear Stearns collapse, former Fed researcher Keith Hembre said.

``The Fed really doesn't have any obligation to help a non- bank aside from its role or responsibility to keep the financial markets functioning,'' said Hembre, who helps oversee $107 billion as chief economist at FAF Advisors Inc. in Minneapolis. ``They made a judgment, probably an accurate one, that they're not going to function very well if you've got a full-blown crisis with a major Wall Street firm.''

Unanimous Vote

The Fed said in a statement that it will ``continue to provide liquidity as necessary to promote the orderly functioning of the financial system,'' repeating reassurances the central bank has made often since credit strains arrived in August. The statement said the Fed Board unanimously approved the arrangement with JPMorgan and Bear Stearns.

The Fed Board, which met today at 9:15 a.m. Washington time, typically delegates such discount-window lending authority to its regional reserve banks when it comes to loans to banks.

``There's a clear realization among people both in the official sector and the financial markets that some of the institutions we have built over the last 100 years are not well adapted to the modern 21st century financial system,'' said former New York Fed research director Stephen Cecchetti. ``A lot of what we've been seeing have been creative innovations to deal with problems that the institutions were not built to handle.''

The senior staffers declined to describe how large the loan to Bear Stearns is, and whether a private-sector bailout was attempted first before the Fed extended credit through JPMorgan. The staff officials said the Fed used its authorization under the law several times in the 1960s though didn't immediately have further details.

Paulson's Support

Such votes require approval from five Fed governors. The seven-member Fed board currently has two vacancies, and one governor, Randall Kroszner, is serving past the Jan. 31 expiration of his term.

Treasury Secretary Henry Paulson, in a separate statement, said ``there are challenges in our financial markets, and we continue to address them.'' Treasury is ``working closely'' with the Fed and the Securities and Exchange Commission.

``I appreciate the leadership of the Federal Reserve in enhancing the stability and orderliness of our markets,'' Paulson said. ``Our financial system is flexible and resilient and I am confident that the efforts of regulators and market participants will minimize disruption to the system.''

Robert Rubin, the former Treasury secretary who is now chairman of Citigroup Inc.'s executive committee, said at a conference today that the ``risks have reached a point that the right thing is to act and act in a very serious way.''

47% Plunge

Bear Stearns shares plummeted a record 47 percent on news of the bailout. The announcement, coupled with a report showing U.S. consumer prices were unchanged in February, led traders to place 56 percent odds that Fed policy makers will lower their benchmark interest rate by a full percentage point at their March 18 meeting, to 2 percent.

Yesterday, the odds of such a move were 0 percent.

A reduction of that size would be unprecedented since the overnight lending rate became the Fed's main policy tool around 1990, trumping the Jan. 22 emergency cut of 0.75 percentage point.

It's the first time since the financial turmoil intensified in August that Bernanke, 54, has publicly announced Fed assistance to a specific company instead of measures open to broader sets of banks or other financial institutions.

Most recently, the Fed on March 11 announced plans to lend $200 billion in Treasuries to primary dealers in exchange for debt that includes mortgage-backed securities. Last week, the Fed increased funds available through its so-called Term Auction Facility, set up in December to lend funds to banks in exchange for a wide variety of collateral, including mortgage debt.

`All the Problems'

``What they're doing now is going to help, but I don't know that it will solve all the problems out there,'' said Thomas Garcia, managing director of Thornburg Investment Management in Santa Fe, New Mexico, which oversees $50 billion.

Bear Stearns's liquidity problem ``definitely gives some doubt as to whether other firms are releasing all available information, and whether this credit crunch is really over,'' Garcia said.

Bear Stearns isn't alone among financial institutions stung by the credit squeeze to be bailed out. The U.K. government was forced to nationalize Northern Rock Plc last month after the first run on a British bank in more than a century and take on 100 billion pounds ($203 billion) in liabilities. Two German banks have also received emergency aid.

While U.S. authorities have been faster than their U.K. counterparts in announcing the rescue package for Bear Stearns, former Bank of England policy maker Willem Buiter says that doesn't make their course of action was the correct one.

``This creates the same moral hazard issues that we saw with Northern Rock,'' said Buiter, now a professor at the London School of Economics. ``This bank is being given access to public money, and we don't know what the terms are.''

I think it's clear the path we are on. With gold at $1,000/oz, it seems to be a thesis whose time has come. I wrote a bit about how I thought this would unfold in a post wayyyy back when:

Ah yes, good old Zimbabwe. A place where you look to see how disastrous insular governmental corruption can decimate an economy. See any parallels to Bend?
  • Robert Mugabe = Bend City Council
  • Mugabe's Supposed Economic Sabotage = Let's Hire A PR Marketing Firm Cuz We F'd Up Juniper Ridge
  • 120,000,000 Zimbabwe dollars = Bend Median Home Price
  • Economic Meltdown & Refugees = Bends Future
Of course, like Mugabe, Bend City Council feels they have carte blanche to wreck this town just as long as they can continue to peddle economic influence to a microscopic portion of the population, the Bend RE juggernaut. Outcome? Bends Popeil Pocket Fisherman sellers have so far succeeded in bilking some real idiots out of their life savings, but that market is by definition small & shrinking away to ZERO. I have no doubt that like Mugabe, Bend City Council will continue to bang this little fiefdom up the corn chute for all it's worth, and the end result will be economic disaster & a massive flight of REFUGEES out of Bend when the true "hot air" nature of it's primary product is revealed.

I took some heat for even speaking about hyperinflation in a post last July. Well, let's say some people questioned the idea:


Could you please explain exactly what might trigger your hyper-inflation model? What bellwether's might there be?

The last serious inflation the US saw was late 70's.

While we're experiencing inflation right now, my feeling is that its because the US dollar is dropping like a rock. That said for most people fixing that simple problem is just a point of buying Euro's.

What in particular to you think will cause hyper-inflation? Your example in Germany happened after a failed war.

Hmmm... failed war? Nope, none in sight.

No, what we have is failed monetary restraint & out of control consumerism & credit issuance.

Coincidentally, I found an article mentioning the "Z" word:

The Fed May Run Low on Unconventional Ammo

Back in 2003, when the Federal Reserve cut interest rates to 1%, the world worried that the Fed was running out of ammunition and would soon have to turn to unconventional tools.

Now, in 2008, it’s worth asking if the Fed could run out of unconventional ammunition. Tuesday’s offer to lend $200 billion of its Treasury holdings to primary dealers in return for mortgage-backed securities both guaranteed by the government-sponsored enterprises (Fannie Mae and Freddie Mac) and not (private-label MBS) means it will have eventually sold or pledged half of its Treasurys, limiting how many more of these tricks it can pull off.

Since August the Fed has announced a series of steps designed to target those pockets of the financial markets facing the most stress rather than rely solely on the blunt instrument of lower short-term interest rates. These steps have primarily involved taking onto its balance sheet something a bit risky — a loan to a bank or a securities dealer, collateralized with paper ranging from corporate loans to private-label mortgage backed securities (i.e. MBS not backed by the federally sponsored agencies Fannie Mae or Freddie Mac).

Left alone, these operations would result in an increase in cash supplied to the banks, boosting excess reserves and pushing down the federal-funds rate. Since the Fed does not want that to happen, it “sterilizes” the operation by getting rid of an equivalent amount of something else on its balance sheet. That something is usually Treasurys. Last December, it announced the creation of the term auction facility under which it auctions off loans to banks against a wide variety of collateral. To keep its balance sheet constant, it decided to let a roughly equivalent amount of its Treasurys mature. Since then, its Treasury portfolio has fallen from $779 billion to $713 billion.

Last Friday, it announced two additional steps: It would expand the size of the Term Auction Facility loans to a total of $100 billion from $60 billion (and the original $40 billion) and lend up to $100 billion to primary dealers in lengthened, 28-day repo operations. To sterilize those operations, Wrightson Associates estimates the Fed will have to shed $100 billion in Treasurys. Friday, it sold $10 billion of Treasury bills, its first outright sale since 1991. It will have to sell or redeem a lot more to keep its balance sheet from ballooning. One of the beauties of the securities lending facility is that it is self-sterilizing: The addition of MBS to its balance sheet is exactly offset by the loan of Treasurys.

From the point of view of normalizing market conditions, it makes sense to replace Treasurys with other stuff because the federal government is having no trouble borrowing right now. Quite the contrary: The flight to safety has driven Treasury yields to unnaturally low levels. In the securities-lending (or repo) market, someone with Treasurys to offer as collateral can borrow at a rock-bottom interest rate. But it does raise the prospect that with a few more similar-sized steps, the Fed will have run out of Treasurys to sell or pledge.

As Michael Feroli of J.P. Morgan Chase notes: “in a short period of time the Fed could have up to $400 billion of mortgage assets on its balance sheet.” Of course, that would still leave it with $400 billion in other assets to sell or pledge. And the Fed doesn’t have to simply sell Treasurys: It can allow some of its $52 billion in shorter-term repo loans to dealers to expire. It could conduct reverse repos, i.e. start borrowing from primary dealers instead of lending to them (although that would tie up Treasurys as collateral for the reverse repos). Fed officials say they have many other ways of increasing their lending capacity though they were not specific.

And, as David Greenlaw of Morgan Stanley notes: “If the situation were to become sufficiently dire, the Fed has unlimited power to monetize the economy’s debt … . They could finance the entire $10 trillion US mortgage market — and then some — via some combination of outright purchases (of the GSE-backed securities) and repo transactions (for the private debt).” Of course, that would quickly send the federal-funds rate to zero and, with a lag, inflation to the moon. Hello, Zimbabwe (inflation: 100,500%).

There doesn’t seem much risk of that now judging from the Fed’s response to Wall Street dealer suggestions that the Fed purchase GSE MBS and bonds. The Fed has the clear legal authority to do so, unlike with private-label MBS, and indeed held some agency debt as recently as 2003. But Fed staffers told reporters Tuesday that such purchases would inevitably influence the prices of such securities and they don’t want their operations distorting relative valuations. Another philosophical barrier is the Fed’s long standing efforts to strip the GSEs of their implied government guarantee, one reason it has let its holdings of GSE debt fall to zero. A more prosaic obstacle: the Fed’s operations are not well equipped to hold MBS with their unpredictable prepayment patterns.

For a similar reason, the Fed does not, at least for now, want to lengthen any of its lending operations to 90 days, as the European Central Bank and the Bank of England regularly do and as dealers would like. The Fed, staffers say, would become the dominant influence on interest rates at that maturity and it would rather that be a market-determined rate.

Many key aspects of the latest plan remain unanswered, reflecting how quickly it was put together. Money market dealers want to know what kind of private label MBS they can pledge: jumbos? Subprime? Alt-A? (The Fed has nixed commercial MBS). They also want to know what haircuts the Fed will apply. Fed officials decline to be specific except to say they will seem conservative for ordinary times and liberal for tumultuous times. (One starting point may be the haircuts imposed on MBS collateral at the discount window: They range from 2% to 15% depending on the maturity and the availability of market pricing.) Those details will be worked out in coming weeks. – Greg Ip

This is from a WSJ blog entry. Sorry no link, it was a 1 day freebie :-)

But we are starting to hear even the most respected financial minds say how dire the situation really is. To wit, Buffett:

Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen

ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.

"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.

Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system.

How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs.

Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002.
Derivatives bubble explodes five times bigger in five years

Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:
  1. Sarbanes-Oxley increased corporate disclosures and government oversight
  2. Federal Reserve's cheap money policies created the subprime-housing boom
  3. War budgets burdened the U.S. Treasury and future entitlements programs
  4. Trade deficits with China and others destroyed the value of the U.S. dollar
  5. Oil and commodity rich nations demanding equity payments rather than debt
In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.

To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:
  • U.S. annual gross domestic product is about $15 trillion
  • U.S. money supply is also about $15 trillion
  • Current proposed U.S. federal budget is $3 trillion
  • U.S. government's maximum legal debt is $9 trillion
  • U.S. mutual fund companies manage about $12 trillion
  • World's GDPs for all nations is approximately $50 trillion
  • Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
  • Total value of the world's real estate is estimated at about $75 trillion
  • Total value of world's stock and bond markets is more than $100 trillion
  • BIS valuation of world's derivatives back in 2002 was about $100 trillion
  • BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.

Also, keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets."

Bubbles, domino effects and the 'bad 2%'

However, while that may be true as far as the parties to an individual deal, there are broader risks to the world's economies. Remember back in 1998 when LTCM's little $5 billion loss nearly brought down the world's banking system. That "domino effect" is now repeating many times over, straining the world's monetary, economic and political system as the subprime housing mess metastasizes, taking the U.S. stock market and the world economy down with it.

This cascading "domino effect" was brilliantly described in "The $300 Trillion Time Bomb: If Buffett can't figure out derivatives, can anybody?" published early last year in Portfolio magazine, a couple months before the subprime meltdown. Columnist Jesse Eisinger's $300 trillion figure came from an earlier study of the derivatives market as it was growing from $100 trillion to $516 trillion over five years. Eisinger concluded:

"There's nothing intrinsically scary about derivatives, except when the bad 2% blow up." Unfortunately, that "bad 2%" did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was "contained."

Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a "bad 2% deal" to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It's only a matter of time.
World's newest and biggest 'black market'
The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business.

Recently Pimco's bond fund king Bill Gross said "What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." In short, not only Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't "figure out" the world's $516 trillion derivatives.

Why? Gross says we are creating a new "shadow banking system." Derivatives are now not just risk management tools. As Gross and others see it, the real problem is that derivatives are now a new way of creating money outside the normal central bank liquidity rules. How? Because they're private contracts between two companies or institutions.

BIS is primarily a records-keeper, a toothless tiger that merely collects data giving a legitimacy and false sense of security to this chaotic "shadow banking system" that has become the world's biggest "black market."

That's crucial, folks. Why? Because central banks require reserves like stock brokers require margins, something backing up the transaction. Derivatives don't. They're not "real money." They're paper promises closer to "Monopoly" money than real U.S. dollars.

And it takes place outside normal business channels, out there in the "free market." That's the wonderful world of derivatives, and it's creating a massive bubble that could soon implode.

Comments? Yes, we want to hear your thoughts. Tell us what you think about derivatives: as "financial weapons of mass destruction;" as a "shadow banking system;" as a "black market;" as the next big bubble dangerously exposing us to that unpredictable "bad 2%." End of Story

Here's a guy who graduated from Paul-doh's Community College of Talking Down A Market With Talk Of Armageddon:

'Doom and Gloom' has just begun
Bearish newsletter editor finds little cheer in most assets
By Barbara Kollmeyer, MarketWatch
Last update: 10:51 p.m. EST March 7, 2008
LOS ANGELES (MarketWatch) -- "Dr. Doom" sure is living up to his name these days.

Speaking to a packed room of financial planners here on Friday, the famed money manager and newsletter editor Mark Faber literally brought down the house with talk of a worthless dollar, a helpless U.S. central bank and a dire situation in which investors have just a few avenues left to turn to.
"We may now have a hostile environment for all asset classes, with the exception of some real estate and commodities," said the editor of The Gloom, Doom and Boom Report, pointing out that since 2002 all asset classes have been rising -- a phenomenon that hasn't been seen for 200 years.

"The current synchronized global economic boom and universal all-encompassing asset bubble will lead to a colossal bust," he said.

Financial markets, currently in the grips of a credit bubble that worsens by the day, will see a protracted period of high volatility, in which 20% movements either up or down become common and the chances of making a lot of money become very difficult, he said.

He heaps much of the blame for global troubles on years of expansionary U.S. monetary policy that had a flawed fixation on U.S. consumption rather than boosting capital infrastructure and spending. Federal Reserve Chairman Ben Bernanke and his colleagues are clearly backed into a corner now as they cannot tighten money policy without causing a collapse of the entire financial system, he said.

"Easy money and debt growth has had a diminishing aspect on U.S. economic growth -- 'zero hour' may have already arrived," Faber said, adding that he thinks the U.S. is in the throes of recession and has been there for the past four to five months.

Indeed gloomy nonfarm payroll data for February further routed U.S. financial markets Friday, convincing many that recession had arrived.

From bearish to deep in the woods

Faber was spouting his gloomy philosophy a year ago when in an interview with Time magazine he predicted all assets were in danger owing to easy monetary policy in the U.S. and elsewhere, with investors getting too used to constantly rising asset prices across the board. "I believe we're in the midst of the greatest asset bubble ever," said Faber in the January 2007 article.

Fast-forward to the present and you can't blame some of that "I told you so" from Faber.

Indeed, credit markets have been routed and financial markets have seesawed since late October, with some notable bubbles in Asia and elsewhere last year. And he said he's not seeing enough bears out there, with investors still too optimistic.

"Before October, everyone was bullish -- rushing into assets and out of cash. Then...over the last three to six months, people went to buy the rallies. Sentiment is not that bearish. The mood has stayed optimistic and asset markets are still vulnerable," he said.

Nowhere was he bleaker than when addressing the beaten-down dollar, another victim of Fed policy which he said has ensured cash returns below the rate of inflation. "In the long term, the dollar is a doomed currency. It will go to zero," he said, which produced some nervous laughter from the audience.

Bright spots in emerging markets, commodities

Where he does see some options for investors is in some corners of emerging markets, noting that he believes the Chinese yuan could double in value in the next five years or so, which will raise the value of many emerging Asian currencies at the same time.

The Asian property market is also favorable in the long run, given low levels of urbanization and low levels of mortgage debt. He said fears that a Chinese property bubble are on the horizon are overblown given that home prices have gone down as a percentage of gross domestic product and as a percentage of household income.

Among his other emerging Asian investment themes: real estate; health care, such as pharmaceuticals and hospital management; local brands, which could replace international brands; and commodities such as sugar and cotton. Tourism is another big theme that he likes for the Asian markets, including hotels, casinos and airports, along with financial services such as banks, insurances companies and brokers. Infrastructure is also a key theme, with "bottlenecks everywhere," he said.

He is also keen on Cambodia, which he describes as having a relatively open economy, with a regulatory framework and government commitment to attract foreign direct investment. He said the country's young population, strategic location, abundant natural resources and exceptional access to trade privileges make it an attractive investment locale for light industry and agricultural businesses.

With the world population growing, especially in emerging markets, arable farmland will become an increasingly pricey commodity. He highlights First Farms, a Danish company founded by a group of farmers whose land was bought up by developers; Ukraine-based Landkom International and Astarta; and Black Earth Farming, a Swedish-run company that invests in Russian farmland and has an initial public offering forthcoming.

Other commodities worth a look: sugar cane in Brazil, palm oil in Indonesia or vegetables in China. End of Story

Finally, I can't resist this Business Week piece, mainly because of the awesome last line:

Recession Time

As the economy teeters between bad and worse, one question looms: What's the best course of action? Here's what can be done. And what can't

Kevin Van Aeist

Wall Street got its hopes up on Mar. 11. Elated by a Federal Reserve move to stop the credit crunch, the U.S. stock market posted its biggest one-day gain in five years, with the Dow Jones industrial average rising more than 400 points. Look out, though. Fed officials are the first to acknowledge that their initiative attacks only one problem, the liquidity squeeze at big banks. It does nothing about the central risk to the U.S. economy: an unprecedented crash in home values that is sapping households' wealth and confidence while putting an enormous strain on the banking system.

How bad will this downturn get? No one can know because we've never experienced such a headlong slide in the housing market—and this comes at a time when its current value of $20 trillion accounts for the vast majority of most families' wealth. Right now most economists expect the U.S. to experience a mild, short recession in 2008. But there is at least a possibility of a steeper decline that the traditional recession remedies—interest-rate cuts here, deficit spending there—won't be able to handle.

What should be done? For policymakers in Washington—Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and congressional leaders—the sensible course is to insure against the small but scary possibility that things could go very wrong. The potential "insurance policies" are government actions that have a real cost but lessen the risk that a mild recession turns into something worse. The International Monetary Fund endorsed that approach on Mar. 12 as First Deputy Managing Director John Lipsky urged policymakers globally to "think the unthinkable and guard against a downward credit spiral."

Broadly speaking, policymakers have three options for putting a safety net under the economy. Each has its pros and cons, and the cons become most apparent when the measures are taken to an extreme. That's why a three-pronged approach that uses each option in moderation may be the best way to go.

The first option is to depend mainly on aggressive measures by the Fed to flood the economy with liquidity. That's already under way. On Mar. 11, the central bank announced an innovative program to lend $200 billion in high-grade Treasury securities to big commercial and investment banks. It will allow them to use, as collateral for the loans, valuable but harder-to-trade assets such as AAA-rated mortgage-backed securities. The measure could enable them to start lending and borrowing again. The cons: no direct help for distressed homeowners who don't qualify for refinancing.

A second option would be some sort of a government-led bailout of homeowners, which reduces the burden of looming debt and high interest rates, and limits foreclosures. The third option would be assistance to the lenders and holders of mortgage-backed securities in an effort to thaw the credit markets. The trouble is, both of these options are seen as unfair by those who don't require bailouts. And it's up in the air who would have to bear the biggest share of the housing-related losses: homeowners, investors, or taxpayers.

It's indisputable, though, what policy changes cannot accomplish. There's no way to stop home prices from falling; they got way too high, and the current crisis won't end until they get back to what the market concludes is a sustainable level. It's not reasonable to try to avoid a recession, either. When a sector as huge as housing goes into a deep dive, it's pretty much inevitable that the rest of the economy will be affected. "We saw a once-in-a-hundred-years runup in housing prices, and now we're seeing a once-in-a-hundred-years collapse," says Harvard University economist Kenneth S. Rogoff. "It's very, very difficult to do much about it."


The airwaves and blogosphere are alive with people who say nothing should be done. They argue that intervening now would only delay the inevitable liquidation of credit-fueled excesses. "Under proposed bailouts, responsible people lose and have to give their money to gamblers, liars, and sleazy lenders,"

And finally, journalists (not in Bend) are actually trying to grope for a bottom:

Mind the Gap: Home-Price Downside

March 13, 2008

The economic balance hangs in large part on how much further home prices will fall. A look at one important measure -- the relationship between home prices and household income -- suggests we might not even be halfway there.

Over the long run, home prices and income should march along the same path. As households earn more, they can afford to pay for more expensive homes.

But the two can get out of whack. During much of the 1990s, incomes grew faster than home prices. The landscape shifted around 2000. From the start of the decade through the mid-2006 peak, home prices nearly doubled, thanks in part to falling interest rates. Over the same period, income per household rose just 26%, according to Moody's

In certain states, the disparity was extreme. Seven states, including California, Florida and Arizona, saw annualized growth in home prices outpace income growth by 10 percentage points from 2002 through 2006, according to housing expert Thomas Lawler.

The difference between income growth and home prices has started to narrow. Home prices were down 10% through the fourth quarter from their peak in mid-2006, according to the S&P/Case-Shiller national home-price index. But to bring prices in line with incomes, they will need to fall further. If incomes continue to grow in the next year as they have in the past decade -- probably an optimistic assumption -- it would take a 9% to 12% drop in home prices to bring the two measures in line with each other.

In states that saw bigger housing bubbles, the correction will be more severe, says Mr. Lawler.

It is also possible that home prices will overshoot on the downside, just as they did on the upside. Goldman Sachs economists say prices could fall another 15%. Merrill Lynch economists say they could drop another 20% to 30%. Both banks have been more bearish than others on the economy -- and so far look correct to have been so pessimistic.

Retailing Likely Checks In With More Glum Numbers

Consumer spending is one potential casualty of falling home prices. When home values fall, households have less home equity to tap when they want to buy a new flat-screen television.

Today's February retail-sales report from the Commerce Department could provide evidence of that. Sales were up 3.9% in January from a year earlier. That paled in comparison with year-over-year gains of more than 6% that prevailed from 2004 to 2006. It was also less than the 4.3% increase in consumer-price inflation registered in January from a year earlier.

Economists don't expect strong numbers for February. On average, they see an increase of 0.1% from the month before. Auto makers and retailers reported a slow February -- with the exception of Wal-Mart Stores and other discounters, which benefited as shoppers tightened their purse strings. The Federal Reserve's latest "beige book" compilation of economic anecdotes described retail sales as "below plan, downbeat, weak, or having softened" in most of the country since mid-January.

Tax rebates might temporarily boost spending again later this year. But consumers are walking into pretty stiff headwinds.

Funny how a bubble ends so much worse than anyone thinks possible, even supposed "Smart People":

Bear Stearns Co, Inc., 10 year chart

I don't want to repeat any old advice, it's too late. Just look at the BSC chart, and realize that WE are about 18 months behind. And at least 5X more volatile than the rest of the country.

But All Is Well In Bend, right?

No pot of gold: Bend's red ink soars to $20 million

Posted: March 14, 2008 10:50 PM

City's first 2-year budget taking major hit from downturn

By Barney Lerten, KTVZ.COM

When Bend city councilors get their latest update on the city's distressed budget Monday evening, they'll have to look hard for a St. Patrick's Day rainbow. And even if they find it, there surely won't be a pot of gold at the end of it - not with a projected shortfall nearing $20 million for the city's first two-year budget.

A "summary of revenue shortfalls for the 2007-09 biennium," distributed to the public and councilors Friday, shows the current fiscal year's revenue is $7.6 million below projections - and for 2008-09, the current best guess is for a gap of more than $12 million between expectations and reality.

The biggest hits in the update provided by Finance Director Sonia Andrews are of little surprise: planning, building and engineering fees, along with franchise fees and ambulance and FireMed revenue. Planning fees are expected to be down 50 percent from expectations, or $2.1 million for 2007-08, rising to 59 percent, or off almost $3 million in the year starting July 1.

"With the radical drop in residential housing starts, we have to revise our development revenue estimates downwards," Andrews wrote. "Although commercial building activity continued, the decline in residential activity has simply been too great."

"The shortfalls are in revenues that we depend on for operations," she continued. "For the size of these shortfalls, every department will need to make some reductions for FY 2008-09, and certain budget reductions will affect service levels."

The city already has laid off 10 workers this year and not filled 25 vacancies, along with other cuts in materials and services, and vehicle and equipment purchases.

City departments are scheduled to meet with Interim City Manager Eric King over the next two weeks to finalize budget reduction proposals for the coming budget year, to be presented to the city council and budget committee in April.

On Wednesday night, the council's work session will focus largely on councilors' stated 2008 goals, which include financial stability, community relations, the Urban Growth Boundary expansion, Juniper Ridge and transit.

Well, wait a minute. That sounds like Bad News! That sounds like our Benevolent Leaders don't know what they're doing! I thought in Bend we hold certain truths to be self-evident, and such, right? What happened to That Stuff Only Happens To Other Guys, Much Stupider Than Us? What happened to stuff like this Blast From The Past from Life Is Good:

"Look to CACB-Short... if he's right, we'll look back and say, "Hmmmph.". If he's wrong, well....." He bought his short position in October @ 30.4 and it closed yesterday @ 30.91. When he bought the position the prediction was that if a major stockholder sold a large number of "thinly traded" stocks, CABC would be crushed. On November 29, 3 million shares were sold (11% of the outstanding shares). The stock price barely moved in this huge sale that tripled the previous volume record. It doesn't seem to me there is any question that CABC shorter is under water on his investment, and that he totally missed his bet on how a major sale would affect the stock. Thaks to BEM for resetting the page with a more interesting tone. Life is Good

What has happened to:

We Are Bend Oregon, And We Are Different.
We are smarter than the rest, we are better than the rest.
What Happened?

Finally, here are some mid-month sales stats. If you're afraid the Bust will Never Come, this should put your fears to rest.

Here are the mid March stats: As of 3/14/08

36 Sold @ 261k med.

07 95 Sold @ 358k med.

05 118 Sold @250k med.

1997 42 Sold @123k med.

So we are seeing 1997 volume and 2005 medians....SO FAR

Just somthing to chew on. The pending sale volume is going it does this time of year.

And a final word from Jon Markman at

Although it seems like the debt crisis has been with us for a long time, true panic has been kept at bay because the size of the potential losses has been underestimated at the same time that the redemptive power of government entities like the Federal Reserve has been overestimated.

It's only in the past couple of weeks that investors have been able to determine the potential scope of damage to companies outside banks and brokerages, and those estimates frighten even jaded players.

One leading hedge fund reported in an internal memo this week that "the threat of a death spiral hangs over us" and added, "There is insufficient time for those with the wrong positions to reposition and there is even insufficient time for those with reasonable positions to just get out of the way."

I don't have to really be "negative" anymore. I think it's covered.
$261K medians? Dang it, I could have used that burrito!


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IHateToBurstYourBubble said...

I finally wanted to do a post where others are the frothing-at-the-mouth lunatics, raving on with their clapboards about the End Of The World.

I guess it took the collapse of one major Wall Streeter.

IHateToBurstYourBubble said...

And I don't know about anyone else, but I'm getting tired of Bulletin pieces about The Ever Expanding Redmond Airport.

It's the only Good News story around, so they cover the expansion about 5X/week.

IHateToBurstYourBubble said...

I've also noticed that The Best ButtBangers Market In 20 Years bullshit has all but collapsed.

I hear people having conversations about how stupid that is. Even Realtors are ridiculing how ass-backwards and condescending it is.

Anonymous said...

Financial markets are pretty frozen up. It's a stunner," said Hal Ritch, co-chief executive of investment bank Sagent Advisors and a former Citigroup Inc. banker. "There was so much liquidity just a few months ago, but now there's so little. There's a lot of fear out there."


Buster has been saying forever here, so fucking what if prices drop -50%, you'll NOT be able to BUY, if you didn't buy early, ... Now its almost too late to buy, we have been in RE-PARALYSIS for a long time, soon prices will collapse, and ONLY cash buyers will be able to buy.

If any of you fucking 'renters' are serious about buying, and have good credit, and a safe 'government job', then you ought pick up a deal soon.

Freddie Mac, and Fannie Mae are now the only operating in the USA, but the house has to be below $400k, and you must have over 20% down, and perfect job, ... perfect credit.

Once everyone rushes FMac/Fmae, then even they'll need to be rescued, and a whole new outfit will have to be created to keep the housing industry moving.

IHateToBurstYourBubble said...

Yeah, you might want to hold onto your ass this week. If Bear Stearns can unwind in 24 hrs, there is no end to the horror that could happen in the blink of an eye.

The Fed would be forced to liquify our economy, and unlike the 400pt bear-crush we had last week, people would realize that YOU ONLY LIQUIFY YOUR ECONOMY DURING ARMAGEDDON, and sell.

Major, MAJOR SELLOFF's are quite possible.... SOON.

IHateToBurstYourBubble said...

And I included that "Mind the Gap: Home-Price Downside" piece just as a reminder that if you draw that home price appreciation for Bend, it goes about 3X as high, and the income line is pretty much the same.

If WE fall back towards parity on income?

END OF STORY. That's it. We're over & done.

Anonymous said...

``This creates the same moral hazard issues that we saw with Northern Rock,'' said Buiter, now a professor at the London School of Economics. ``This bank is being given access to public money, and we don't know what the terms are.''


Sounds like our OWN city-hall, nobody in this town knows that OUR city treasury just blew $12 MILLION dollars to 'shovel ready' Les Schwab a CAMPussy at Juniper-Ridge. The term's of ALL city-hall deals are secret, but they might as well be because neither the BULL or SORE report what our city-hall has done with our money.

Like the KTVZ story about $12-20 MILL missing, not really clearly on where it went? We know exactly where it went.

Anonymous said...

I included that "Mind the Gap: Home-Price Downside" piece just as a reminder that if you draw that home price appreciation for Bend, it goes about 3X as high, and the income line is pretty much the same.


What's the problem? I have said 4X ( $160k ) in bend, right now a STD crap-shack can be had new for under $100k.

The thing is BEND incomes are going to plummet, and along with that the over-correction of the ratio of housing to income. That ratio is 8 right now, using the MLS $320k median, and the reality wiki median income for two in Bend of $40k. A $30k at a ratio of 3, means $90k median, hell yes we're already there now.

MLS medians are out of sync, they're all based on unsaleable crap-shacks in Shevlin, BT, ... What matters is the new stuff going up out in Siberia, eventually that will be parity. Why buy a used home for over $300k, when you can buy new for under $100k.

It's all going to come together in Time, 1-2 more years.

For now you 'renters' if your going to buy, there's a lot of deals out there, and the window is going to get shut hard very soon.

Stage TWO Real Estate Paralysis is upon us.

IHateToBurstYourBubble said...

Man, I wish I could stick my finger in that dike.

Bear Stearns Bailout Was `Finger in the Dike,' Historians Say

By Elliot Blair Smith

March 16 (Bloomberg) -- With Bear Stearns Cos.' temporary rescue in place, the $200 billion subprime crisis joins the history of government bailouts to preserve jobs, homes and savings when economic disaster looms.

Ever since Treasury Secretary William Gibbs McAdoo shut the New York Stock Exchange for four months in 1914, to prevent foreign investors from cashing out and throwing the U.S. into financial chaos at the outset of World War I, American policy makers routinely have suspended their support for free markets when confronted by economic peril.

``I think the systemic risks dominate right now, which means you've got to put your finger in the dike,'' says William Silber, a finance professor at New York University's Stern School of Business. He is the author of ``When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy'' (Princeton University Press, 232 pages, $27.95).

Bailouts can buy time while policy makers try to defuse panic. Last week, the Federal Reserve Bank of New York provided financial support for Bear Stearns, the fifth-largest U.S. securities firm. It faced eroding investor confidence in the fallout from losses related to securities based on mortgages to the least creditworthy borrowers.

JPMorgan Chase & Co. and the Fed said they would back New York-based Bear Stearns with emergency funding for an initial period of up to 28 days in the largest U.S. bailout of a securities firm. The deal is part of an agreement that enables the investment bank to borrow from the New York Fed's discount window while all three seek permanent financing or alternatives.

Panic of 1907

Bear Stearns needed the support in response to ``a multitude of market rumors regarding our liquidity,'' said Chief Executive Officer Alan Schwartz.

Just over 100 years ago, John Pierpont Morgan himself, the namesake of what was then known as the House of Morgan, came to the rescue when panic selling in October 1907 convulsed the New York Stock Exchange and threatened several banks and trusts.

Morgan, 70 and semi-retired, obtained an emergency pledge of $25 million from the U.S. Treasury. He persuaded New York's leading bankers and trust executives to put up another $25 million, after locking them in his library all night, according to ``The House of Morgan: An American Banking Dynasty and The Rise of Modern Finance,'' by Ron Chernow (Atlantic Monthly Press, 812 pages, $45.95).

Roosevelt and Central Bank

By the force of his personality, Morgan restored order to the market. His intervention also convinced Congress and President Theodore Roosevelt of the need for a central bank.

Booms and busts define economic cycles, forming a familiar pattern to historians while surprising investors, policy makers and financiers.

Congress authorized $250 million in loan guarantees to rescue Lockheed Aircraft Corp. in August 1971, over the objections of the late Democratic Senator William Proxmire of Wisconsin. By today's standard, the stakes were small: about $1 billion in potential losses and 60,000 jobs.

The costs have risen steadily since, from the $1.2 billion in loan guarantees Congress provided Chrysler Corp. in 1979 to the $116.5 billion taxpayers spent to resolve the savings-and- loan industry's collapse by 1995.

Long Term Capital

The New York Fed averted a subsequent threat in September 1998 by persuading 14 banks to lend $3.65 billion to help unwind the leveraged trades of the Greenwich, Connecticut, hedge fund Long Term Capital Management. That was roughly equivalent to the $3.6 billion that the New York Fed loaned Chicago-based Continental Illinois National Bank & Trust Co. in 1984, in the largest rescue in U.S. banking history.

Yet the Treasury's shutdown of the New York Stock Exchange in 1914, a year after Morgan's death, remains one of the bluntest interventions by U.S. officials to head off a crisis. It is also one of the largest departures in American history from the capitalist creed of letting free markets sort out problems.

European investors held much of New York City's public debt. As foreigners cashed out, converting their securities to gold, the Treasury realized that its ability to maintain the dollar's link to bullion was being undermined, Silber wrote.

``Treasury Secretary McAdoo succeeded in August 1914 because he did not hesitate to bludgeon the crisis with a sledgehammer,'' Silber said in an interview March 14.

The decision served as a precedent for Franklin Delano Roosevelt, who closed the banks for a week on his first day as president in March 1933. When lenders reopened, Silber says, depositors who had stood in line to withdraw their money queued up to put it back in.

Exports, Loan Guarantees

On both occasions, Silber says, government policy makers offered more-lasting solutions to ease market fears. In 1914, McAdoo moved to increase agricultural exports, bringing foreign capital into the country. In 1933, Roosevelt offered federal loan guarantees during the bank holiday to stimulate credit.

Founded in 1923, Bear Stearns has 14,153 employees at 34 offices in the U.S. and 14 abroad. It was providing trade execution and clearing services for $288.5 billion in client accounts as of Nov. 30, 2007. Last July, the failure of two of its hedge funds that invested in subprime-related securities initiated a broader selloff that continues.

Representative Ron Paul, a Texas Republican who ran for president this year, told the House Financial Services Committee in February that financial services bailouts would reward bad behavior. Paul doubts the Bear Stearns rescue will prop up the economy, he said March 14.

``It won't work,'' Paul said. ``It's like drug addiction. You feel withdrawal pains, but you save the patient.''

IHateToBurstYourBubble said...

They argue that intervening now would only delay the inevitable liquidation of credit-fueled excesses. "Under proposed bailouts, responsible people lose and have to give their money to gamblers, liars, and sleazy lenders..."

This is an extremely interesting aspect of this collapse. We are essentially rewarding irresponsible financial acts and throwing accountability to the wind.

It's one thing to simply allow people to go broke. Let them lose everything.

But bailing them out? That's a reward for doing the wrong thing. If you want to know where the seeds of The Next Bubble are, it's there. It's in a reward system for creating, participating in, and finally being crushed in a financial debacle... BUT then getting bailed out.

It depends on how this one ends. In utter & complete destruction? Then maybe we'll stop this insane cycle of rewarding sleaze-balls. If it comes to an innocuous ending, I GUARANTEE you that bubble-mania will fire up again, right on key.

What's funny is you look at fed funds, and you can see them trying to save Bubble-Burst-Mania v2.0 right now. Bernanke & Co will push rates to near 0% soon. Tuesday they'll be in panic mode.

That'll be $2,000/oz gold & $200/bbl oil. Loaf of bread? $5. Gallon of milk? $8. Gas at $5+ gallon.

IHateToBurstYourBubble said...

Duncan: Arguing politics or religion is a completely useless activity.


IHateToBurstYourBubble said...

In case you think YOU are fucked up:

Boyfriend: Phobia caused woman's 2-year bathroom stay

WICHITA, Kansas (AP) -- A 35-year-old woman who sat on her boyfriend's toilet for so long that her body was stuck to the seat had a phobia about leaving the bathroom, the boyfriend said.

"She is an adult; she made her own decision," said her boyfriend, Kory McFarren. "I should have gotten help for her sooner; I admit that. But after a while, you kind of get used to it."

The case drew nationwide attention after Ness County Sheriff Bryan Whipple said it appeared the Ness City woman's skin had grown around the seat in the two years she apparently was in the bathroom.

"We pried the toilet seat off with a pry bar and the seat went with her to the hospital," Whipple said. "The hospital removed it."

McFarren, 36, said he can't be certain how long Pam Babcock stayed in the bathroom because "time just went by so quick I can't pinpoint how long." He said beatings she received in her childhood caused her phobia. Video Watch neighbors describe what they saw at McFarren's home »

"It just kind of happened one day; she went in and had been in there a little while, the next time it was a little longer. Then she got it in her head she was going to stay -- like it was a safe place for her," McFarren said.

But McFarren said she moved around in the bathroom during that time, bathed and changed into the clothes he brought her. He brought food and water to her. They had conversations and had an otherwise normal relationship -- except it all happened in the bathroom.

McFarren said he finally called police February 27 after he became worried because Babcock was acting groggy -- like she didn't know what was going on, except she was awake.

What emergency responders found when they went into bathroom has left residents of this small western Kansas town buzzing, and law enforcement officials incredulous.

Police found the clothed woman sitting on the toilet, her sweat pants down to mid-thigh. She was "somewhat disoriented," and her legs looked like they had atrophied, Whipple said.

"She was not glued. She was not tied. She was just physically stuck by her body," Whipple said. "It is hard to imagine. ... I still have a hard time imagining it myself."

She initially refused emergency medical services, but was finally convinced by responders and her boyfriend that she needed to be checked out at a hospital.

"She said that she didn't need any help, that she was OK and did not want to leave," he said.

Whipple said the county attorney will determine whether any charges should be filed against McFarren.

McFarren, who works at an antique store, said he has been taking care of Babcock for the 16 years they have lived together. He insisted that he tried to coax her out of the bathroom every day.

"And her reply would be, `Maybe tomorrow,"' Whipple said. "According to him, she did not want to leave the bathroom."

She was reported in fair condition Wednesday at a hospital in Wichita, about 150 miles southeast of Ness City. Whipple said she has refused to cooperate with medical providers or law enforcement investigators.

Babcock has an infection in her legs that has damaged her nerves, and there is a possibility she may wind up in a wheelchair, McFarren said.

James Ellis, a neighbor, said he had known the woman since she was a child, but that he had not seen her for at least six years.

"I don't think anybody can make any sense out of it," Ellis said.
Babcock had a tough childhood after her mother died at a young age and apparently was usually kept inside the house as she grew up, he said.

"It really doesn't surprise me," Ellis said. "What surprises me is somebody wasn't called in a bit earlier."

IHateToBurstYourBubble said...

Local blogger tired of Bend Media BS?

Thursday, March 13, 2008

The Local Media Is Going to Shits

If I knew what was good for me, I would just shut up, shrug and move on with my day. Alas - sometimes I (i.e. my opinionated brain) get the better of me.

So then here it goes: When I read an article (titled "Housing forecast: It'll only get better") in The Bulletin a couple of weeks ago about a real estate breakfast at the Riverhouse and how their keynote speaker touted the local real estate market as "being on the brink of a turn-around", I quietly sat for a minute, astonished at the cheery and uncritical tone of the article, and then thought to myself "BULLSHIT".

Shortly thereafter, an article in The Source about COBA (Central Oregon Building Association - for all your out-of-town readers), trying to get its members to cheerlead to the local media and asking them to put out press releases with good news about how strong the local building industry was, got me pondering too, and I came up with the same result - "BULLSHIT".

Now, that is just my opinion. Although I have to mention that it is based on three minor facts:
A) as an architectural photographer, I work with a lot of local building industry folks and have a pretty good sense of the overall mood in the housing market.
B) I have a business degree, and therefore pay attention to economic trends as they relate to the nation and world as a whole (and that trend says the housing market, along with the overall economy, is in the shitter).
C) I'm married to a finish carpenter who has had to travel all over the West Coast for the past 6 months for work.

But I only put two and two together today, when I read in The Source online about the very reporter who wrote the Riverhouse article losing his job "after complaining the paper was sugar-coating its coverage of the local real estate market".


Is anybody living in Central Oregon (or in the rest of the US, for that matter) - and blessed with a brain - seriously buying that the local real estate market is just fine or on the verge of a turn-around? What's the point of sugar-coating? Why risk your credibility and dignity as a newspaper by putting out tweaked stories, and then hoping people will not notice the excrement all over it, or worse, actually believe you? It's insulting - that's what it is.

Yeah, yeah, I know - preservation of advertising revenue to keep the paper on the press, and all that jazz. Throw the local housing market a bone to keep the ad money flowing. But I don't know. I always thought that the responsibility of a newspaper and its editors - and as such the media as a whole - is to truth and honesty in reporting and disseminating a story. Independent of what the economy, and therefore your advertisers, experience as a whole.

Is that too idealistic? Is it really too much to ask of your local media to adhere to some basic standards in reporting? I think not.

So, dear Bulletin - please pull your heads out of your asses, and stop insulting the intelligence of your readers.

Or I will cancel my subscription.

And I'm sure your advertisers won't appreciate that.

IHateToBurstYourBubble said...

Realtors becoming FURIOUS with other Realtors who lead sellers down a primrose path:

Were You Priced Right Last Year? Let’s Get It Right This Year
March 16th, 2008 Posted in Central Oregon

It seems like every couple of days I get a call from a potential seller. With the marketing trends we have seen over the last two years it is more a buyer’s or investor’s market than we have seen in a while. Seller’s that succeed in selling are motivated, they are willing to listen to their agent and price their home correctly, and make their home standout above the competition.

Many of the sellers calling me at this time had their home on the market with other agents last year. They are frustrated that their home did not sell, that the listing agent never showed their home and they tend to blame the other agent.

While researching the past history of the home, the old listings and county records the handwriting is on the wall and very easy to see why their home did not sell. It all comes down to pricing.

Today this was really driven home when a family called me to list their home. They had their home listed last year with a “local agent.” Even if we were in seller’s market the home had been listed about $75,000 higher than it would have sold for.

Now that another year has gone by we are looking at a price almost $100,000 lower than the price it was listed for. These sellers felt they had lost money since “the other agent” had over priced the home the sellers felt their home was worth the higher amount. This was never the case; the home actually has not lost any value, even with this buyer’s market we are currently in.

Will they list the home for the true value of the home and what it stands a chance for selling? I hope so, today after meeting with them I did not take the listing, I gave them the cold hard facts of what a 20 year old frame built home without a master and a small bedroom will truly sell.

I explained my marketing plan, told them what buyers are looking for and what their competition has that they do not and what they have that the competition does not.

I agreed to list the property for a price that shocked them but nothing more, asked them to take my listing presentation, marketing plan and paperwork home, to think about it and let me know tomorrow.

After I left them, I just wanted to drive to the other agent’s office and tell him exactly what I thought of what he had done to these wonderful people.

The truly thought they had a chance of selling for a much higher price, they believed him, trusted him and were taken back with the truth.

If you plan to sell this year, please take a good look at your competing properties what more do you have to offer, price your home accordingly.

Many agents will price the home where you set the price, knowing full well you do not stand a chance of receiving an offer and even if you did that the home will never appraise which will kill the deal. Competition is steep, but home are selling, allow your agent to give you the cold hard facts and price the home below your closest competitor.

This SAME DELUDED LUNATIC recently posted this on Jan 31:

Best Buyer’s Market in 20 Years!

Are you tired of the doom and gloom so many real estate professionals and professions that are real estate related are putting out there?

Don't have to be a raging bear to appreciate the cruel irony.... :-)

Anonymous said...

Duncan: Arguing politics or religion is a completely useless activity.



Buster could partially agree, but POLITICS & RELIGION are OUR, 500 LB Gorilla. Soon EVERY fucking jeebus freak SLASH POL, will be claiming that they could/would have prevented the BEND-BUBBLE.

Thus we MUST pay close attention to the CHARLATANS that come out of the woodwork to replace OUR Friedman & Johnson, ... All politics are LOCAL, and in Eastern-OREGON, all politics are TIED to MORON church.

Thus its easy for bible thumping Ned Flanders to suggest we should pay no attention to the man behind the curtain, but folks perhaps we don't have to kill the dead horse, but NEVER ignore the GORILLA, because he's there.

The GORILLA could easily replace our HOLLERN-VILLE, once the BOSS-HOGGS go down, and they will, the VACUUM will create all kinds of OPPORTUNITY for people that make BRUCE-PUSSY look credible.

IHateToBurstYourBubble said...

Thesa... tell them to stop drinking the fuckin Kool-Aid.

Apologize for BEGGING them to drink it from 2004-2007.

Tell them you were wrong. Tell them you don't deserve 6% for lying to them.


As I thought... kick them outta the Escalade & pee in their face then.

Anonymous said...

Realtors want listings, sellers are have a price they want, the realtor will list that price. There will be NO offers, unless its a very low price. Thus most listings just sit.

It's an old story. Trouble is the realtor that tells the truth gets no listing(s), thus real-estate paralysis, everything just sits & sits, and sits.

I think like all sales 90% of what a realtor does is KISS-ASS, and tell people what they want to hear, on the BUBBLE rise this game works well, on the decline the racket is a complete failure.

Welcome to BEND, basically an economic black-hole.

IHateToBurstYourBubble said...

I agreed to list the property for a price that shocked them but nothing more...

Someone's hungry...

After I left them, I just wanted to drive to the other agent’s office and tell him exactly what I thought of what he had done to these wonderful people.

These "wonderful people" have just smoked the fuckin cracker that you & your ilk gave them. Blame yourself. Stop posting "Best Buyers Market In 20 Years" bullshit. YOU are to blame.

The truly thought they had a chance of selling for a much higher price, they believed him, trusted him and were taken back with the truth.

Give NAR a call and ask that Larry Yun have his ass tarred & feathered, and have David Lereah shot. YOU FUCKERS fanned the flames of this thing harder than anyone, and Central OR Realtors have banded together to "keep it alive" even if it means coercing local media financially to put Best Buttbanging Market in 20 Years on The Front Page.




Yea... I know. You didn't engage in a single ethically questionable, bubble-boosting transaction, saying, "NO! I refuse to take 6% of your homes value, because it will lead to catastrophe later. NEVER!"

Uh huh.

timothy said...

Holy cow! Is that a builder going under. Looks like a deluge!

Anonymous said...

Unless the general public reads blogs, they will never be informed, until the MSM can't keep from reporting the crashes of every major market that supports the US economy. That is now beginning to happen. Of course Bend will be 18 months behind. I predict on April 25th 2009, the Bull will finally report that Bend is NOT special and RE had affected everything in the town, from Wal Mart (more homeless in their parking lots) to the Bull becoming a one section paper. It will have one frontpage for the bad news of the state of Bend, page 2 and 3 will be devoted to the list of NOD's , lawsuits, bankruptcies and police reports, pages 5 and 6 will be classified ads. There will be no $60,000 a year contract from Coldwell Banker for color pages of homes. I figure by then all RE advertising will be in the classifieds, without, little color banners on every ad. If you take the RE ad budget away from the Bull they will lose 500k a year in contracts.
All aspects of life will be changed April 25, 2009.
Anyone that bought a house after 2000 will be underwater. As the median will be sharply down. 90k medians will prevail. The credit crunch will worsen and at 90k med. there will only be cash buyers. Guess my home will lose 300k in value and I will be back to the price I bought at. With our current RE inventory 400% higher, than a few years back and only 30% of the number of homes selling now, it will not be a bath it will be a tsunami ,as most homes are leveraged beyond what the value will be when they hit bottom.

IHateToBurstYourBubble said...

Aspen Rim-job...

That looks like our homo-erotic, crossed-arm metro-sexual, Randy Sebastian.

timothy said...

>>The credit crunch will worsen and at 90k med. there will only be cash buyers.

Marge, I want to party with you!

IHateToBurstYourBubble said...

$339000 ****SW Bend Property is Pending********************

Folks, this Realtor just posted a PENDING property to craigslist! HURRY! It's PENDING!

There's so much demand that she was forced to start listing it on craigslist, and IT WENT PENDING WHILE SHE WAS POSTING! Oh no! She couldn't stop from submitting it to craigslist under the "real estate for sale" section!

Things are Going Great In Bend!

Anonymous said...


Wow - that's along list. What's the historical numbers for foreclosures in Bend? Anyone know?

IHateToBurstYourBubble said...

Marge, I want to party with you!

I have a funny feeling about "this" Marge... I feel it's all "she" can do to stop from calling me a Smelly Cunt.

Anonymous said...

That looks like our homo-erotic, crossed-arm metro-sexual, Randy Sebastian.


Sounds Hot. Got any pics?

Anonymous said...

I have a funny feeling about "this" Marge... I feel it's all "she" can do to stop from calling me a Smelly Cunt.


PD -- you are right! I also thought this doesn't sound like the regular Marge -- unless she'd been mind-warped with a certain other poster. I was thinking: Wow, she's got the BB2 ethos down pat now. You got you some tricky, tricky regulars on this here blog.

IHateToBurstYourBubble said...

Sounds Hot. Got any pics?

Bend Bulletin real estate section, 2005-2007. Archives in the public library.

Anonymous said...
This comment has been removed by a blog administrator.
IHateToBurstYourBubble said...

I also thought this doesn't sound like the regular Marge

Yeah, New Marge set off my Sally Heatherton Alarm early on.

Anonymous said...
This comment has been removed by a blog administrator.
IHateToBurstYourBubble said...

I think it may be closer to a reference to the state of you balls and jock strap of lack there of.

Buster, You So Crazy!

No one else posts with so many forbidding diction & spelling errors!

No Timmy, I won't let it go... :-)

IHateToBurstYourBubble said...

News from The Real Marge:

Here are the mid March stats: As of 3/14/08

36 Sold @ 261k med.

07 95 Sold @ 358k med.

05 118 Sold @250k med.

1997 42 Sold @123k med.

So we are seeing 1997 volume and 2005 medians....SO FAR

Just somthing to chew on. The pending sale volume is going it does this time of year.

$261,000 MEDIANS!

Shit! Jan + Feb medians were $314,500 sccording to David Foster.


Tell me that shit ain't scary!

Anonymous said...
This comment has been removed by a blog administrator.
IHateToBurstYourBubble said...

C'mon Margey!

Leave 'em up there!

Anonymous said...

I have a funny feeling about "this" Marge... I feel it's all "she" can do to stop from calling me a Smelly Cunt.

I think it may be closer to a reference of the state of your balls and jock strap or lack there of.

Diction and SP errors removed the the author..I hope :)

timothy said...

>>Shit! Jan + Feb medians were $314,500 according to David Foster.

People always say that the really rich don't stop buying during tough times. But I wonder how many of our "really rich" weren't. I wonder how many of our "really" rich weren't "really rich" at all, but were just posers getting rich on real estate.

So, sure, the really rich don't stop buying. Maybe they are buying at the same pace they always did. Maybe it's just the posers we thought were rich that stopped buying.

Anonymous said...

Pending listings since Jan 1.
All residential units included.
# 157 at a median price of $329k.

Contingent listings (mostly Short sales)
# 61 at a median of $290k.

Today the solds stand at 40 at a median of $272.

Anonymous said...

Active listings over 1 Mil..147
Contigent = 2
Pending = 7
Sold = 1
This is for March to date 08

The posers are gone.

IHateToBurstYourBubble said...

Now THAT is the marge I know & love...

I HATE it when she is a 57 year old pervert. Well... I don't "like" it. Much.

Well, I suppose it's OK.

IHateToBurstYourBubble said...

I HATE it when she is a 57 year old pervert.

"57 year old MALE pervert...."

Anonymous said...

IHateToBurstYourBubble said...

I HATE it when she is a 57 year old pervert.

"57 year old MALE pervert...."

Correction...55 years old :) and the Best in 20 years.

IHateToBurstYourBubble said...

Contingent listings (mostly Short sales)
# 61 at a median of $290k.

Today the solds stand at 40 at a median of $272.

This sounds like sub $300K medians for March.


IHateToBurstYourBubble said...

Correction...55 years old :) and the Best in 20 years.

Dear... I would never talk about you in those terms.... :-)

IHateToBurstYourBubble said...

I HATE it when she is a 57 year old pervert.

THOSE terms.... We all know full well you're a goddess.

Anonymous said...

Time to get out from behind the computer and go cut some wood. Need to start storing it for the good times to come.

Anonymous said...

Maybe it's just the posers we thought were rich that stopped buying.


Hence the long list of foreclosures!

Anonymous said...

Marge said...
Time to get out from behind the computer and go cut some wood. Need to start storing it for the good times to come.

Oh God love Buster. That crazy ass drunk. The imagery is just nightmarish. This is going to be fun.

Anonymous said...

Correction...55 years old :) and the Best in 20 years.


why is it that men always think they are all that and a puff of a cig?

Will Mrs. Buster please stand up and confirm -- or deny?

Anonymous said...

No Mrs. Buster here..just me..Marge the 55 year old FEmale. I'll take that puff though.

Husky-varna is calling me.

IHateToBurstYourBubble said...

No Mrs. Buster here..just me..Marge the 55 year old FEmale. I'll take that puff though.

Husky-varna is calling me.

Really? I pictured you as confined to bed, on a strict diet of lard & deep fried butter, using a poker-stick to change the channels, taken to the hospital by cutting a hole in the side of your singlewide, using a crane to get you on a flatbed.

It's more a reflection on Mr Buster than anything....

bruce said...

Re: Holy cow! Is that a builder going under. Looks like a deluge!

Yep, that was the biggest NOD I've seen so far this year. From earlier this week, when I noted a couple biggees: Desert Sun Holdings, LLC for over $1 million, NOD filed yesterday, and Aspen Landing, LLC, for over $3.5 million, filed 3/7/08.

Aspen Landing had a second NOD filed against them on the 7th as well, on a $9+ million land dev loan. KeyBank is the lender on both loans, over $12M.

I'm not sure if it is Sebastian, as the LLC is based in Eugene, with a Thomas Connor listed as manager. It's right down Brookswood a little ways from me so maybe I'll go take a little look around with my camera.

BTW, want to see something really cool, check this out:

It's cockpit video from an F16 making a steep entry and landing into the Aspen Airport at night, using Forward Looking Infrared Radar to "see". They make it look easy.

bruce said...

Correction: It IS Renaissance.

According to the larger of the two NODs, they failed to !) pay down the principal to less than $9,119,528; 2) maintain their Debt-to-Worth ratio below 7 to 1; and 3) "...failed to maintain its consolidated Tangible Net Worth of $18,000,000".

Doesn't look good for them. Wonder if they have any NODs in Portland.

timothy said...

Here's the satellite view of that neighborhood. I know people near there. That's not a bad neighborhood park.

timothy said...


That doesn't sound recoverable in this economy. It's "throw in the towel" time.

Anonymous said...

It's right down Brookswood a little ways from me so maybe I'll go take a little look around with my camera.

*** Yes please!

timothy said...

Bear Sterns might for for $15-$20. It closed at $30 Friday. It was $70 a week ago. One WEEK ago. 52 week high? 159.36.

This is a marker. A big bear strolled over from Wall Street last night and pissed all over your door.

Anonymous said...

That's not a bad neighborhood park.


It looks like an awful lot of land razed for building -- that can't be pleasant to live near!

Damn I recognize that are -- it used to be all trees and wild meadows: we rode our horse there free as could be back in the 60s. I'm going to cry now.

timothy said...

>>I'm going to cry now.

Meh. It's still better than what it'll be in 40 more years--all astroturf.

bruce said...

Re: satellite view

I was out there last week, checking out the house that has come down almost 60% on Gorge View. There must be 15 or 20 spec homes in the $600K and up range. I took a couple of pics, as it look like shit was really going to hit the fan there.

timothy said...

It's just a few blocks from my favorite little bubble street--Brass Drive.

Anonymous said...

Big IF, here, IF MORGAN-CHASE hasn't bought this PIG by MONDAY AM.

*** PST 1PM 3/16/08

from The Wall Street Journal

March 16, 2008

Bear Stearns is closing in on a deal to sell itself to J.P. Morgan Chase, as worries deepened that the financial crisis of confidence could spread if Bear fails to find a buyer by Monday morning.

People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. While terms of the deal were still being hammered out Sunday afternoon, Bear Stearns could fetch roughly $2.2 billion, or slightly less than $20 a share, said people familiar with the talks.

Anonymous said...

Active listings over 1 Mil..147
Sold = 1
This is for March to date 08

The posers are gone


Given that anything over say $500k is JUMBO, thus GONE, Its safe to say your looking at HIGH-END cash money.

It was easy to pose when they would loan $1M to a cook at super-burrito, stated-income to boot.

Now that the BIG homes are CASH-ONLY, ...

Remember the bigger the home the harder it fell, cuz nobody could afford to maintain them during the depression.

Now its only the little stuff that is going to be loved.

Anonymous said...

Its been awhile, but it seems to be that 'desert holdings' is related to that 'walmart friendly' outfit that bought the building across the street from dunc, that just recently went back to the seller.

I think these folks are seeing a complete implosion, and this doesn't just effect the outer rim mongolian siberia crapshack, this effects downtown, a lot of these boyz made money on raw worthless desert land, and doubled their bets by paying top dollar downtown.

Now its ALL coming down, and quick. Nothing is going to be safe, except stuff that was bought near Drake Park pre 2000.

Yes, I really enjoyed 'fake marge', it was right on, I felt it was something I might have written, it had to be BEM or TIM to be honest, it could have been the real Sally, but that person HAS NEVER hung out here, so I doubt its him.

The comment about $90k was right on, but again I don't see that coming to Drake-Park good old homes, they'll hold $160k, but ALL siberian, no problem, below $100k.

Good to see someone here focus on the truth.

Real Marge usually calls things as they are, and every other word is an abbreviation, with mis-spelling.

Sad to say, that yes over 50% of buster posts are inebriated. Hell this is BEND, and I'll bet in the next year substance abuse and posting will go up, until the comcast bill quits getting paid.

Homers fucking blog would be a killer on POTS or DSL, and most people in a year in this town, will have long killed their cable modem.

timothy said...

'One UK economist warned that the world is now close to a 1930s-like Great Depression, while New York traders said they had never experienced such fear. The Fed's emergency funding procedure was first used in the Depression and has rarely been used since.

A Goldman Sachs trader in New York said: "Everyone is in a total state of shock, aghast at what is happening. No one wants to talk, let alone deal; we're just standing by waiting. Everyone is nervous about what is going to emerge when trading starts tomorrow."'

I think I'll go get a beer and get inebriated myself.

bruce said...

Interesting take on the financial crisis by Jerome a Paris:
The financial crash has a simple cause and a simple solution

The U.S. is at the receiving end of a massive margin call: Across the economy, wary lenders are demanding that borrowers put up more collateral or sell assets to reduce debts.

The unfolding financial crisis -- one that began with bad bets on securities backed by subprime mortgages, then sparked a tightening of credit between big banks -- appears to be broadening further. For years, the U.S. economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.
But we had an underlying solvency crisis from the start, given the unrealistic lending that had taken place - such as the "ninja" loans (no income, no jobs or assets) that were provided in the heat of the mania and which could only ever be repaid if house prices kept on going up.
And yet, the fact remains that the problem is not who provided the credit, but the fact that it was provided in such large amounts.

Because that sea of debt had one real purpose: hide the fact that income for most are stagnating.

I never tire of posting this graph of the "W economy", because it summarizes in a nutshell what happened: growth happened, but did not trickle down to the middle classes, let alone the poor. Thanks to wage stagnation, made possible by the threats of outsourcing and offshorisation, and by the demonisation, emasculation or dismantlement of regulations and institutions (like unions) protecting workers, the fruits of growth have been captured by a very few - and this has been hidden because consumption was propped up by readily available debt and the apparently growing virtual wealth of homeowners.
Too much debt and not enough income was the problem.

And the solution is simple: stop debt (this is happening on its own anyway). and boost income.

How do you do that when there isn't enough money around?

By creating real activity rather than the money-shuffling kind.

And, as it were, there is a sector that is "real" and has an urgent need for action: infrastructure, and in particular energy-related infrastructure.
Because the problem is the most of America's population is living, by design, above its means. It is kept dependent, fearful and distracted while the happy few gorge. Call it what it is: class war. Time to fight back.

Anonymous said...

Sorry my spell check doesn't work. Nor does my DICtion check.
I heard there is a smelly westside neighborhood...some guy seems to be airing his laundry on a rope..outside in his yard. Heard it was unwashed jock straps :)

timothy said...

Jerome a Paris? That's kind of a sissy name, ain't it?

Anyway, tl;dr

Anonymous said...

A nice summary of what's happened, by Brad DeLong:

During much of the 2000s, the housing boom was generated by six factors:

1. Interest rates artificially pushed down by the Federal Reserve to try to rotate from high-tech to construction as a leading sector, and so avoid a recession.

2. Closely related, interest rates artificially pushed down by the Federal Reserve to try to stem incipient deflation, and so avoid a depression.

3. Lower spreads than in the past on long-term mortgages out of confidence that the Fed does have and will keep inflation licked.

4. The filling-up of America so that you can no longer build a detached single-family house within half-an-hour's driving time of the interesting places people want to be, and the consequent rise both in current location premia and expected future location premia.

5. Interest rates artificially pushed down by foreigners seeking political risk insurance--both private (i.e., get your money into a Citigroup account certain to be safe) and public (i.e., keeping the renminbi low and U.S. imports high in order to avoid unemployment in the streets of Shanghai.

6. A speculative housing bubble leading to a crash.

Of these six factors, (1) through (4) seemed at the time and still seem to me perfectly appropriate at the time--we should have had house price rises and a housing construction boom in the 2000s; it was macroeconomically appropriate for us to do so.

(5) and (6) were much more worrisome, and many people (including me) did worry about them at the time. But what we worriers mostly worried about was (5), "global imbalances".

It seemed to be the dog, and (6) seemed to be the tail--we could see how a collapse of the dollar driven by the end of what is called the Bretton Woods II configuration of the global economy could bring about a housing crash and a large-scale financial crisis.

The chain of events that has actually taken place--a housing crash and a large-scale financial crisis without a dollar collapse--seemed to me ex ante and still seems to me a low-probability leaf on the outcomes tree.

As I asked last August, "who had imagined that the people most naked to subprime mortgage risk were the analytically and quantitatively-sophisticated hedge funds of America?"

timothy said...

>>The chain of events that has actually taken place--a housing crash and a large-scale financial crisis without a dollar collapse--seemed to me ex ante and still seems to me a low-probability leaf on the outcomes tree.

The speaks to the interesting fact that a couple years ago, when a few people started saying "this is unsustainable," they were quickly dismissed because ALL the mechanisms into catastrophe anyone could think of seemed highly unlikely.

I think there's a reason we ended up getting to where we had to go via a "low probability event." It's because we've learned enough from previous crises to stop-up all the high-likelihood bad outcomes.

This time around is yet another in an endless series of proofs that you just can't exert perfect control over the economy when there are positive feedback mechanisms pushing any asset further and further beyond reason.

Something has to give. Sure, you may have just 1000 different things that might happen, all of which seem highly unlikely. But somethings going to give, and that's guaranteed. So, we get there via some crazy low-probability path, but we do get there.

Anonymous said...



Remember Ron Garzini setup all these blocks grants.

They keep a team of consultants perpetually busy applying for new Federal Grants.

Free money for ever, full employment for those who know the right people.

Most small towns could never afford corruption on this scale.

Ron Garzini says "Run Bend like a business", today all businesses in the Bend are going bankrupt. Bend will go bankrupt. You spend what you don't have, and you waste all your treasure on fraud, and eventually the game is over.

A diligent press might have caught. Note its NOT the BULL, its every single media in this town, virtually everyone in this town feeds at the pig trough.

I have always likened it to the town that puts everyones daughter into prostitution, then wakes up one day to realize that every child in town has Aides. It was a good ride so long as everyone was enjoying someone else's child and/or money. Eventually you have nothing except a large bill, because even the Johns will no longer come. Such as Bend today.

Dunc, will say this is a cheap analogy, but it a true analogy.

Anonymous said...

Summary of the DOWNFALL of BEND, OREGON.

1.) Hollern has the city defer forever all SDC costs, so he made billions, and 1,000's of builder/developers like Sebastian came to Bend.

2.) Twisted-Little Shrub dropped interest rates to win second term, per Karl Rove. Cheap money so any developer could borrow any amount for any project.

3.) Easy Money to anyone with a breath, again a Karl Rove gift to America's Oprah Watchers. Zero-Down, equity-only, 5/1 Arms, Teasers, ... Easy money so any TV watcher could borrow any amount of money for a mansion, even without a job. Every American is a king.


2&3 were equal across the country, all things being equal, but here in Bend #1 made Bend a special place. Today we face the biggest collapse in the country, we're #1 70% over-valued.

Shit its 4pm, and I already have beer in front of me, I can't believe you can still buy xmas beer, this Snow-Cap ( Pryamid ) is damn good.

I just posted the above, because its essential to remember that Bend is special, and that nationally so fucking what. All politics are local.

Anonymous said...

from The Wall Street Journal

March 16, 2008

J.P. Morgan Chase to buy Bear Stearns for $2 a share in stock.


There you go, just came off my wire, Hey Homer, I have a full subscription for online WSJ, so if there's something we need to post just say, but it look like the deal is done at $2, shit I was hoping for the end of the world tomorrow.

timothy said...

WHAT? $2?


timothy said...

Holy shit. It's true!

timothy said...

Forget what I said about the bear pissing on your door. It bent over and disgraced your door with projectile diarrhea, or it tried to--turns out you forgot to close your door.

Anonymous said...

A financial crisis by Jerome a Paris:
The financial crash has a simple cause and a simple solution

The U.S. is at the receiving end of a massive margin call:


This story was published here yesterday, and a few days ago, perhaps the French translated the story back into English? Brucey, do you read anything here, or just what you post? I'm just curious?

On this subject, old crazy ass La Rouche was beating his chest on derivatives +30 years ago, nothing new here. Hell the USA is running a margin at least 10,000 to ONE, so yes its only takes a little dive, and you get called, I guess they thought the 'complexity' of the derivatives could keep them high&dry forever, but all the party's outside of DEM&REPUB have long predicted that our ONE-PARTY system would implode because of their financial bullshit.

When Garzini says "RUN BEND LIKE A BUSINESS", what he means is leverage, aka 'derivatives', trouble is margin calls.

The USA is a Sub-Prime nation, but is this fucking new? Hell no.

The USA is a third world country with Nukes. Just read the CIA factbook and rank the USA by literacy, and you can see we're right up there with Zimbabwe, its just that Zimbabwe don't have Nukes.

Anonymous said...

BS $2 SHARE, SHIT that is a hundred times more than CACB is worth.


J.P. Morgan to Buy Bear Stearns
March 16, 2008 7:11 p.m.

J.P. Morgan Chase agreed to buy Bear Stearns for $2 a share in a stock-swap transaction, people familiar with the matter say. J.P. Morgan will exchange 0.05473 shares of its common stock per one share of Bear Stearns stock. Both boards have approved the transaction.

People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

One stumbling point appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan is eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter.

Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking against the 85-year-old company. Regulators, bankers and investors are concerned that the firm could plummet even further when markets open Monday. A continued exodus by parties that Bear trades with could even cause the investment bank to collapse.

Federal regulators also are trying to prevent Bear's crisis from mushrooming into a systemic threat to the stability of financial markets and other securities firm, for which confidence is essential to their ongoing operations. Unwinding Bear also would be a nightmare because it trades with nearly every firm on Wall Street.

In an interview with George Stephanopoulos on ABC's "This Week," Treasury Secretary Henry Paulson said he has been following the negotiations closely but couldn't predict if Bear Stearns would find a buyer. "I've been on the phone for a couple of days straight, throughout the weekend," he said. "But people are going to need to look and see what -- and I'm not going to project right now what that outcome of that situation is."

On several occasions over the weekend, Mr. Paulson spoke about the Bear negotiations with Federal Reserve Board Chairman Ben Bernanke and New York Fed Bank President Timothy Geithner.

A price substantially below Friday's close could value Bear at just a tiny fraction of the market cap reached at its all-time peak in early 2007. Terms likely will factor in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That could make Bear's banking franchise worth roughly $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade.

Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear's senior people. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

People briefed on the talks describe them as very fragile, meaning that they could culminate in a deal or very well fall apart. The final price paid could also be in flux.

Bear also has been preparing for the possibility of a bankruptcy filing, with that as the likeliest scenario if an acquisition by J.P. Morgan falls apart, according to a person familiar with the situation. Such a filing might even occur before financial markets in Asia open for Monday trading.

A takeover agreement, which still would require formal approval by the Federal Reserve, also would signal a stunning, crushing end for Bear Stearns. It has been one of Wall Street's best-known firms, surviving swoons that rivals could not. But Bear was savaged the mortgage meltdown.

Whatever the outcome of the ongoing discussions, there is likely to be a tense market opening in the U.S. on Monday, as investors worry that the run-on-the-bank-type retreat by worried Bear customers last week could spread to other firms. On Sunday, Mr. Paulson, the Treasury secretary, said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

Any deal would all but wipe out Bear Stearns shareholders, whose shares have not traded below $20 since 1995. The pain would be most acute for Bear's own employees, who were seeped in a culture of firm ownership -- and own about a third of the outstanding shares.

Over the weekend, some Bear employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than by a domestic buyer. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire Bear.

Over time, Bear's misfortune could bear fruit for J.P. Morgan. Bear's investment-banking unit -- which underwrites stocks and bonds and advises on mergers -- and its fixed-income and capital-markets trading businesses, have been badly bruised by the credit crunch but still have some value.

Likely even more valuable are Bear's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to customers having a high net worth. Both of those operations have suffered from withdrawals in recent days.

The likely sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of CEOs and an epidemic of worry that the financial system faces even more turmoil.

On Friday, Bear sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat following a severe cash crunch as investors moved to pull assets from the firm.

In stepping in, the Fed was trying to move aggressively to prevent Bear's crisis from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to stop it from going under.

The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear would wreak havoc on the markets in which Bear is an intermediary, particularly the huge and important repo market.

Bear risked defaulting on extensive "repo" loans, in which it pledges securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would see access to repo loans become more restrictive. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

As a result, a priority for regulators in any deal for Bear or its parts is to minimize the risk to the financial system. That suggests that regulators want those counterparties furthest removed from Bear itself, for those parties to know immediately where they stand in any deal, and that a buyer have sufficient financial strength to reassure those counterparties.

The Fed's loan facility is for up to 28 days. Other terms haven't been disclosed. The Fed's leverage is unclear, though it does have the power of moral suasion -- or trying to convince many individual parties that acting for the greater good is in their own collective self-interest.

timothy said...

On the heels of $2 bearout, more news out...

Federal Reserve Announces Discount Rate Cut to 3.25% From 3.5%.

Anonymous said...

Whatever the outcome of the ongoing discussions, there is likely to be a tense market opening in the U.S. on Monday, as investors worry that the run-on-the-bank-type retreat by worried Bear customers last week could spread to other firms.

[ This is what is GOOD about this forum, if YOU can read, you would have known this was coming. If you read the BULL or SORE, your fucked ]

On Sunday, Mr. Paulson, the Treasury secretary, said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

[ Paulson will do what it takes to protect Stock Brokerage firms, that are worth NOTHING. The FED only is required to take care of banks.

If you have MONEY in a stock brokerage account, your fucked, ... In the depression they called it a bank-holiday, now its going to be a Brokerage-Firm Holiday.

Note, Chase/Morgan, ain't in that could of shape themselves, Chase is sitting on a ton of subprime, losers buying losers, this would have been impressive has BofA bought BS, but Chase, we're doomed.

Read the WSJ story, and yes, you should have withdrawn all your money last year.

foz said...

I think you are wrong about the fed dropping 1%. Smart money is going with 1/2% and in reality they should probably only do 1/4 to calm the markets. Bernake knows that the biggest problem facing the whole system right now isn't inflation it is deflation. Our monetary system is based on debt, all money is created by debt. As defaults build and demand for debt falls, or becomes harder to obtain, or through de-leveraging, the money supply dries up extremely fast. The fed can open the window wide but if no one borrows money ceases to be created. That causes huge problems for a country like ours where not only the government, but most citizens and business are highly leveraged. This de-leveraging hasn't happened too many times, but when it does it is very painful. Right now we are dealing with a serious bubble, not in housing, but in the underpricing of risk. No one knows if that correction will spiral out of control. Two rules...if inflation breaks out (which I believe is doubtful) move to debt, if the money supply starts shrinking rapidly, get to cash as fast as you can and sit it out.
This is a great little video on how our monetary system is now structured. It always amazes me how many people have no idea how money is created.
I make all my new traders watch it. Strategically Monday morning at the open I'm shorting the USO (oil etf) and going long GS. The government has to step in and prop up the dollar this week and oil is so far away from fundamentals now that the upside risk is minimal.
Good luck to you all.


timothy said...

Good point about how confused a Bulletin reader must be at the inexplicable events. Blog readers understand even these large events.


Fed Approves Cut to Its Lending Rate to Financial Institutions to 3.25 Percent

WASHINGTON (AP) -- The Federal Reserve announced a series of new steps Sunday to help provide relief to a spreading credit crisis that threatens to plunge the economy into recession.

The central bank approved a cut to its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans.

The steps are "designed to bolster market liquidity and promote orderly market functioning," the Fed said in a statement. "Liquid well-functioning markets are essential for the promotion of economic growth."

The new lending facility will be available to financial institutions on Monday.

It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral will be accepted to back the loans.

The Fed also approved the financing arrangement announced Sunday by JPMorgan Chase & Co. and the Bear Stearns Cos.

Anonymous said...

OK OK OK...We have to stop the City Dealers from making the wrong budget decisions. We need all the cops + 10-15 more. We need all the fire personnel + 20-30 more and the money to keep ALL safety personnel at their stations. First, layoff all but one planner, then all folks that just answer the phone, then all consultants. There is no need to consult anyone about the state of Bend. We know that we don't need any more parks, as the new folks, aren't coming.
Those idiots always pull our chains and say the safety personnel are going first, unless you give us more money to play with. The Sheriff's dept. is the same. Although Les didn't and Larry isn't. It was that criminal that did all that.
So, all you brilliant boyz, how do we keep the safety online and get rid of the grunge we don't need? I don't really care is the roads have holes or they don't have a historian or if the dog patrol doesn't catch loose dogs. We need cops and fire folks #1. Leave them alone and fire all the rest.
Where do we start?

timothy said...

>>Smart money is going with 1/2% and in reality they should probably only do 1/4 to calm the markets.

"Smart money" with regard to interest rate changes is the bond market, and you would have been right a week ago, but things are moving fast. The bond market is now pricing in a 3/4 cut.

So that's the smart money, or what usually passes for it. The trend is certainly toward a whole point. We still have tomorrow's reaction to Bear to see where the smart money goes by the FMOC meeting.

Anonymous said...

Leave them alone and fire all the rest.
Where do we start


Bruce-Pussy, he must spread his legs, and envelop all of city-hall, and city-staff, then he closes his legs, and suffocate them, nothing else, nothing else will help Bend.

It's always this way with city government, punish the people where they feel it cops, fire, ... but god forbid you fire the Ron Garzini, or the consultants, or the VCB/DVA 24/7 PR&Marketing, ...

No, Bend is fucked, but if we could lure them all into bruce-pussy's chasm, ...

foz said...

I feel bad for the guy that bought a ton of bear stock at 100+, I know he was down 700M on Friday. That is a serious hit. Just goes to show that it really tough to call a bottom or a top. But what the hell we keep trying.

timothy said...


You're a week behind in your Fed commentary, but at least half a year behind in your money-as-debt thoughts.

I posted the link to that video on this very site at least six months ago. I was immediately called a twat for watching a video instead of reading (despite the fact that I had read just about everything buster wanted me to read, and more--most of it extremely unlikely to be read by a person glad to pick up reading material at random, as Dunc is), and buster came up with a very nice old gov't publication explaining exactly how the fractional reserve system works to smack me with.

I applaud your lessons but am extremely disappointed in your tardiness. This will affect your grades.

foz said...

Tim normally I would agree with what you say but right now the dollar is more important. The Fed has to keep some powder dry. The Bond market is wrong a lot of times when it comes to predicting the fed moves. And me too! The last thing the fed wants right now is to do what Japan did and basically have a negative interest rate and still have deflation. It would be better to surprise the markets and pop the dollar. Then a phone call from what is left of this pathetic administration to Saudi Arabia to get oil prices declining and you would see some stabilization. Rumors are already out there that there may be a margin increase on commodities. Just like when silver got out of control, fed increased margin requirments and killed the silver bubble in a heartbeat.

foz said...

Tim, Sorry on the late post of that video, I have to admit I just skim the comments. I glad to hear someone else likes that video! Now if I could just get my kids to watch it and throw away their credit cards!

timothy said...

We'll see, Foz, we'll see. You have your opinion and that's fine. But you violated the understood meaning of "smart money" to try to bolster your claim.

"Smart money" is the bond market. The spread calls the odds of the cuts. if you disagree, it's more lucrative to go place your bets in the market than to come onto a blog and place an imaginary wager.

I'm not saying they are always right. No one is. But they are the accepted smart money.

Yes, inflation is a looming threat, but this Fed has already shown VERY clearly how they weigh recessions against inflation.

timothy said...

>>Tim, Sorry on the late post of that video, I have to admit I just skim the comments. I glad to hear someone else likes that video! Now if I could just get my kids to watch it and throw away their credit cards!

It's a great video. I think it's solid for the first 4/5. The last 1/5 is interesting but just opinion.

The whole country is about to get a lesson on the difference between money first, purchase second and purchase first, money second.

If you get your kids to learn to cut the card teat NOW, before they have to, it'll make a big difference in their lives.

Good luck.

IHateToBurstYourBubble said...

Ever seen a weekend relief rally (from down 2,000 to just down 1,000) because a major investment bank gets bought out at a 95% discount?

Tomorrow's gonna be fun.

foz said...

Thanks tim, the kids (three daughters) all somehow picked up some financial sense. The one thing I worry about is that they all think things continually get better and that real estate is the best investment in the world. Anyway for me and my firm our decision is set, we are shorting oil and going long GS at the open tomorrow. The balance except for a small position in AAPL is staying in cash.

IHateToBurstYourBubble said...

A Wise Man Once Say:

THIS is how close Armaggedon is. 24 HOURS.

24 hours before Bear Stearns went completely BROKE (don't believe anything else), the CEO made statements that ALL IS WELL; Zero liquidity problems, Don't Worry, We Are Fine.

Uh huh. Bear Stearns will be sold later this week, if not before I finish this post.

IHateToBurstYourBubble said...

Can you help me Timmy?

I think I've strained something patting myself on the back.

foz said...
This comment has been removed by the author.
timothy said...

>>I think I've strained something patting myself on the back.

I'm starting ro believe maybe you ARE butter.

foz said...

""Ever seen a weekend relief rally (from down 2,000 to just down 1,000) because a major investment bank gets bought out at a 95% discount?""

Yes all the time. In the short term markets are incredibly manipulated. I'll be amazed if tomorrow isn't an up day.

timothy said...

The details are amazing.

In a shock announcement, JPMorgan Chase JPMorgan Chase & Co said it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal valuing the fifth largest investment bank at about $236 million, a fraction of its value last week. Under the deal, the Federal Reserve will provide special financing and has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.

So it's not really $2 to buy Bear. It's $2 to buy the good bits.

IHateToBurstYourBubble said...

Yes all the time. In the short term markets are incredibly manipulated. I'll be amazed if tomorrow isn't an up day.

Shouldn't you be at a Hillary Rally?

timothy said...

Asia taking a hit. I think I'll watch the Indian hotties on India's CNBC free streaming coverage tonight. I like it when they get breathless in their sweet colonial accents. I think the stock market opens around 9 or 9:30 our time.

IHateToBurstYourBubble said...

Asia taking a hit. I think I'll watch the Indian hotties on India's CNBC free streaming coverage tonight. I like it when they get breathless in their sweet colonial accents.

Online? Where? WHERE!

I'll only watch for the "articles".

How breathless?

It sounds like they've been naughty, naughty girls....

timothy said...

They are much more restrained than our overt sexpots.

But still hot.

There are a bunch of streams free.

Google CNBC 18 India streaming. I stumble around until I find one that doesn't pause.

Be careful to not accidentally tune in to a cricket channel.

IHateToBurstYourBubble said...

I think the Bear Bailout relief rally ended...

SYDNEY (Reuters) - Asian stock markets fell on Monday and gold prices hit a record high as a surprise rate cut by the U.S. Federal Reserve failed to calm investors panicked by the demise of Bear Stearns (BSC.N).

U.S. stock index futures briefly gained but later extended losses, falling sharply despite news the Fed unexpectedly cut its discount rate by 25 basis points and JPMorgan Chase (JPM.N) will buy U.S. investment bank Bear Sterns for just $2 a share in scrip.

Investors said the acquisition of Bear Stearns only highlighted the depths of the problems plaguing U.S. financial markets. The fall of one of the largest investment banks added to concern credit market turmoil was yet to run its full course and ongoing turbulence could drag the U.S. economy into a recession.

"The credit crunch has still some way to go and I think there will be a few more months of strife ahead," said Stephen Roberts, Chief Economist at Lehman Brothers in Sydney.

JPMorgan acquired Bear on Sunday after having provided emergency funding to Bear on Friday via the Federal Reserve.

The Fed cut its discount rate on Sunday and launched a new discount window facility for primary dealers.

"It's a short-term measure. They are using all the tools they can and I don't expect any market rebound," said Kumar Palghat, managing director of Australian fixed income manager Kapstream Capital.

Japanese stocks fell, with the benchmark Nikkei (.N225) down 3.1 percent at 11,855.90 and the broader TOPIX (.TOPX) down 3.3 percent at 1,153.67 at 8:35 EDT.

Australian shares fell 2.4 percent (.AXJO), dragged down by financials. The market had trimmed losses to just 0.4 percent at one point.

S&P 500 futures fell 20 points and Dow Jones industrial average futures sank 142 points. Nasdaq 100 futures tumbled 32.75 points.

The U.S. dollar briefly trimmed losses on the news but then started tumbling anew, falling over 2 percent on the day against the Japanese yen to below 97 yen.

The euro meanwhile vaulted to a record peak over $1.58, up nearly 1 percent on the day.

U.S. Treasury futures rebounded from early losses, with June T-note futures hitting the highest since mid-2003.

Gold struck a record peak of $1,015.10.

IHateToBurstYourBubble said...

Might see my favorite Buy Signal soon!

Watch the VIX spike thru 40, and buy into the teeth of a shrieking decline.

IHateToBurstYourBubble said...

Riveting post on Bend's craigslist:

Get Ready for the Crash!
Reply to:
Date: 2008-03-16, 4:56PM PDT

The real estate market is crumbling and the bust will be long and painful.

Yup, that's all there is. Under "Real Estate For Sale".

Buster... are you out trying to spook people?

IHateToBurstYourBubble said...

The Bear scare
Commentary: Nobody makes money in a true bear market

By Todd Harrison
Last update: 9:42 p.m. EDT March 16, 2008

"Man looks in the abyss, there's nothing staring back at him. At that moment, man finds his character. And that is what keeps him out of the abyss." -- Lou Manheim, Wall Street

NEW YORK (MarketWatch) -- Following a freaky week that rocked the roots of capitalism, Wall Street is bracing for what promises to be a hectic four-session set.

By now, you're familiar with the sordid sequence of events that set the current stage. Sub-prime credit concerns -- the same issues that Ben Bernanke and Hank Paulson assured us were contained a year ago -- have manifested into a full-fledged financial crisis. In the process, the academic debate about whether or not we're in a recession has shifted to concerns regarding the ability of our capital system to operate at all.

I attended an idea dinner in the Bear Stearns executive boardroom Thursday night with several prominent hedge fund managers and senior executives from Bear Stearns credit division. We spoke about the world at large, risks in the system, potential opportunities and the correlation of hedge fund strategies. There seemed to be a general consensus that the massive move we've been waiting for in Minyanville as a function of the disconnect between credit and equity is edging ever closer.

When a senior member of the Bear Stearns corporate credit team offered his view that we were in the fifth inning of the credit crunch, I found myself interjecting with a question. "What do you make of the long bond action yesterday," I began before realizing I was speaking out loud, "Following the $200 billion liquidity injection by the Federal Reserve, the two-handle rally screamed to me that another shoe is about to fall. What are you hearing?"
The candor of his response was refreshingly surprising. "The story on the street is that there are major problems at Bear Stearns." When someone asked if the rumors were true, there was some nervous laughter before he shifted the course of the conversation. I've been hearing that chatter for some time.

Obviously, it had now found its way into the inner sanctum of Bear itself.

I offered further food for thought that large hedge funds, many of which have healthier balance sheets than the bulge-bracket banks, would eventually buy some of the battered brokers. Those thoughts were met with raised eyebrows and incredulous stares. Ironically, The Wall Street Journal reported over the weekend that Citadel Investment Group was eyeing Bear Stearns before J.P. Morgan Chase scooped it up for two bucks a share.

The speed at which the confidence in and credibility of Bear Stearns deteriorated is astounding. CEO Alan Schwartz said on Tuesday that the balance sheet, liquidity and solvency weren't issues for the venerable institution. Three days later, in his words, the "rumors became reality." We often talk about social mood and risk appetites being key elements of our financial fate. The Bear Stearns saga speaks to this point.

There are two potential scenarios battling for my mindshare as I digest the demise of Bear Stearns, Northern Rock, Carlyle Capital, Thornburg Mortgage and a multitude of smaller yet inextricably linked players.

The first is the frightening implications for our finance-based, debt-dependent globalized economy that is woven together by trillions of dollars of complex derivatives. We've spoken about this repeatedly -- from how we got here to the risks of moral hazard to our current crossroad -- and the proverbial rubber must now choose a road. Read related column.

If the debt unwind is more pervasive than the tech bubble and real estate mania that preceded it -- as I believe it is -- the painful and prolonged comeuppance has a long way to go. It's not a pretty scenario nor is it one that I would like to see come to pass. We must draw lines of distinction between optimism, faith and hope, however, as the latter has never been a viable investment vehicle.

The second scenario is one that would seemingly surprise most people. Given how crowded the short side currently is in the credit space -- and it's that way for good reason -- the potential for a massive trading rally remains viable. If credit players turn and try to cover at the same time, we could conceivably see a melt up in the equity space.

Throughout my career, "bid wanted" situations have always proven to be an excellent entry point on the long side. We've yet to see that in stocks -- nor have we seen the type of volatility spike that typically accompanies such conditions -- but we have seen it in the credit markets. This past Friday, according to the Wall Street Journal, there were times when major dealers were unable to sell Treasurys.

The other potential upside catalyst, albeit one that is impossible to game and will take time to unfold, is the possibility that FASB 157, the accounting rule designed to force banks to move Level III assets back on their balance sheets, caused financial institutions to over-compensate when they marked to market. That's likely a back half of the year story but the perception thereof could dramatically shift sentiment if and when that occurs.

Finally, perhaps the most ironic reason to be on the lookout for a rally is the doom and gloom around the street. When Minyanville began monitoring the roadmap to ruin last spring, the markets were at all-time highs and we were branded Cassandras. Now, you can't pick up a paper or turn on the tube without someone calling for the end of the world.

Without doubt, the level at which Bear Stearns was sold will create a process of price discovery as traders attempt to wrap their arms around what financial firms are worth. That will clearly create near-term volatility and with it, tremendous two-sided risk. If you were to ask me last year what it would take to become more constructive in this sector, however, I would have pointed to four primary points.

The first is time and price, both of which have come to pass. The second is analyst recommendations, which have flipped from table-pounding buys to a litany of "sells" and "holds." The third is sentiment, which is now the mirror image of where we were. Finally, I would have said that a high profile bankruptcy would be needed and Bear Stearns qualifies as such.

It's important to remember that the Depression was an era rather than an event. During that period, equities enjoyed rallies that littered hope amongst the despair. I believe we're in for a similarly sullen stretch, one that lasts a lot longer than most people think. But that doesn't mean we can't rally along the way.

Remember, nobody makes money in true bear markets. Not even the bears.

bruce said...

Re: Bruce-Pussy, he must spread his legs, and envelop all of city-hall, and city-staff, then he closes his legs, and suffocate them, nothing else, nothing else will help Bend.

Ah, Chris T....

Linda seems to just be a hanger on, not much enthusiasm.

We need this discussion (actually, the one about our economics, not our councilors sexual proclivities) and this is a good one.

Be back soon as I get a chance.

Anonymous said...

The sky is falling..the sky is falling. This week will be very interestingly scarey in the markets.

Hoard whatever you can!

Husky and I stashed another 1/2 cord today.

Tomorrow, a 3' hole for the Euros.

My back is killing me.
Any volunteers?

foz said...
This comment has been removed by the author.
Anonymous said...

Every American is a king.

Ahhh the elusive American Dream realized at last -- and like the effemeral nature of all dreams it was gone in a flash -- "poof," as Verbal Kint would say.

King for a Day. King for a Day. Thank God Almighty I was King for a Day!

They delivered as promised -- but they just didn't say HOW LONG every American could own a house. Tricky buggers.

IHateToBurstYourBubble said...

Tomorrow, a 3' hole for the Euros.

Marge! Such naughty language!

Anything else?

Anonymous said...

I meant a 3' hole in the backyard to stash the Euros.
Besides, you or anyone else, has never found a 3' hole of the sort you dream of.
On top of that it would take all ya all to fill it.
Happy Sunday, before the bad news.

Anonymous said...

My back is killing me.
Any volunteers?

Chop off those heaving man boobs and you should be good to go.

IHateToBurstYourBubble said...

On top of that it would take all ya all to fill it.

That's absolutely FILTHY!

Anything else?

Anonymous said...

no...unless you want help dig the underground shelter.

IHateToBurstYourBubble said...

no...unless you want help dig the underground shelter.

If that means what I think it means, it's gonna hurt... you more than me.

IHateToBurstYourBubble said...

Now stop Marge! Stop!

All this sex talk is luring me off-topic.

" dig the underground shelter."

You naughty vixen.

Anonymous said...

Man what's up with you. I am talking about the Bend Bubble and surviving the aftermath. Stay on topic. One will need some place to hide. A friend named Husky will come in handy, especially if you have land to cut 100 cords down(which I do) for firewood to heat and cook with. Smelly jock straps won't heat your house.
Now ga night. Be prepared for tomorrow.

Anonymous said...

If you want to make a difference in gas prices read this.

timothy said...

>>If you want to make a difference in gas prices read this.

Cool name for a chain letter. If I get that one, I'm going to forward it on for sure. Steve Fossett broke the chain letter and look what happened to him.

Anonymous said...

Lighten up Timmy, all I am trying to do is screw Exxon/Mobil and maybe lower gas prices. It has to come out of the CEO pockets.

IHateToBurstYourBubble said...


Any word from the panting Indians hotties?

timothy said...

I like Tanvir Gill. Dude she's on with, Udayan Mukherjee, always seems to have a cold. Sneezing, coughing. Maybe he's allergic to her perfume.

timothy said...

Nifty50 and Sensex are down a couple percent. They don't seem too excited. They are talking about some large blocks trading that they think might have something to do with the unwinding of Bear positions.

It's not as exciting as when the market dropped early last year. Looks like they are used to the volatility by now.

We might have that here tomorrow. "Oh yeah, down a couple hundred points. Like usual. No biggie."

timothy said...

The Sensex broke under 15000. They are sorely disappointed.

Anonymous said...

IHateToBurstYourBubble said...
A Wise Man Once Say:

THIS is how close Armaggedon is. 24 HOURS.


How did I ever get attracted to you damn doom and gloomers? I curse you and your funny, raw, and intelligent banter and insights!

bruce said...

Bloomberg Doom and Gloom this morning:

* Stocks Drop Worldwide on Bear Stearns Collapse; Bonds Climb, Dollar Falls

* Lehman's Fuld Says Fed Action Reduces Liquidity Concerns as Shares Plummet

* Fed Cuts Discount Rate at Emergency Meeting, Lends More to Primary Dealers

* JPMorgan Agrees to Buy Bear Stearns for $240 Million; Fed to Fund Takeover

* Money-Market Rates Soar as Fed Emergency Rate Cut Signals Depth of Crisis

* Bush Says Administration Is `On Top' of Economic Issues as Markets Tumble

* Tibet Protests Spread to Neighboring Provinces as China Defends Crackdown

* Buy Signals Abound in U.S. Stocks, Shadowed by Bear Markets of '70s, '30s

* Bernanke, Fed Play `Whac-A-Mole' With Turmoil in Housing, Credit Markets

* Housing Starts in U.S. Probably Slid to 17-Year Low, Factory Output Fell

* Dollar Doomsayers Draw Growing Evidence From Bernanke Drive to Lower Rates

* Moribund Housing Enables Mortgage Debt to Diminish Treasuries as Laggards

bruce said...

JPMorgan Agrees to Buy Bear Stearns for $240 Million(Update2)

March 17 (Bloomberg) -- JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for $240 million, about 90 percent less than its value last week, after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm.

Shareholders of Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the New York-based companies said in a statement late yesterday. The Federal Reserve is providing financial backing to JPMorgan, the second-biggest U.S. bank, and also cut the rate on direct loans to banks in its first emergency weekend action in almost three decades to stave off a broader market panic.

JPMorgan Chief Executive Officer Jamie Dimon bought Bear Stearns, once the biggest underwriter of U.S. mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days. Faced with the prospect of bankruptcy, Bear Stearns CEO Alan Schwartz was forced to accept the deal less than five days after he assured investors that the company's ``liquidity cushion'' was sufficient to weather credit-market losses.

``Bear Stearns shareholders are at the short end of the stick,'' said David Hendler, an analyst at New York-based CreditSights Inc. ``This was done in the market's best interests. They had to get this done or they would risk runs on other companies.''

Stock Swap

JPMorgan will give investors 0.05473 shares of its common stock for every share of Bear Stearns they own. Including shares in an employee-incentive plan, the purchase price may reach $270 million. JPMorgan, whose shares closed at $36.54 in New York trading on March 14, will get funding for the transaction from the Fed, including support for as much as $30 billion of Bear Stearns's ``less-liquid assets.'' Bear Stearns plunged 87 percent to $3.97 in Frankfurt trading today.

``Jamie Dimon's done a great deal because the Federal Reserve is paying for it,'' said investor Jim Rogers, who co- founded the Quantum Hedge Fund with George Soros in the 1970s, during an interview with Bloomberg Television.

JPMorgan ``stands behind Bear Stearns,'' Dimon, 52, said in the statement. ``Bear Stearns's clients and counterparties should feel secure that JPMorgan is guaranteeing Bear Stearns's counterparty risk,'' he said.

Without a resolution this weekend, Bear Stearns's situation would have continued to deteriorate when markets resumed trading, according to analysts and investors. Yet the value placed on the company, whose shares closed as high as $158.39 last April, raised questions about share prices for the rest of Wall Street.

`Serious Crisis'

``This is a serious crisis,'' said David Goldman, portfolio strategist at Asteri Capital in New York and former head of debt research at Bank of America Corp., the biggest U.S. bank by market value.

``For Bear's stock price to go to effectively zero, contrary to market expectations, even at the close on Friday, tells us that something is systemically very wrong and we're at a very dangerous moment,'' Goldman said. If a sale hadn't been announced, Bear Stearns, which employs about 14,000 people, probably couldn't open its doors for trading, he said.

Founded in 1923, Bear Stearns survived the Great Depression and first sold shares to the public in 1985, under then-CEO Alan ``Ace'' Greenberg. Today's fire-sale to JPMorgan caps an eight- month slide in the company's fortunes that began last July with the collapse of two of its hedge funds, which invested in securities linked to subprime mortgages. Those failures caused investors to doubt the value of any asset linked to the mortgage market, Bear Stearns's biggest business. The collapse of Bear Stearns ranks along with Drexel Burnham Lambert Inc. as the biggest in Wall Street history.

Reduced Fortunes

``The past week has been an incredibly difficult time,'' Schwartz, 58, said in the statement. ``This transaction represents the best outcome for all of our constituencies based upon the current circumstances.''

Schwartz, an executive with more than 30 years of experience at Bear Stearns, became CEO less than three months ago, as the hand-picked choice of his predecessor, James ``Jimmy'' Cayne, 74.

Cayne, who remains non-executive chairman, stepped down after reporting an $854 million fourth-quarter loss, the first in the company's history. He was at a bridge tournament in Detroit last week as speculation about the firm's cash position pummeled the stock.

Cayne ranked as Wall Street's richest CEO, with $1.3 billion of assets, according to Forbes magazine's 2007 billionaire survey. His stake in the firm approached $1 billion last year when the shares reached their peak price of $170. Under terms of the JPMorgan takeover, his holdings are now worth about $12 million.

Citic Scraps Deal

Joseph Lewis, Bear Stearns's second-largest shareholder, has spent more than $1 billion on the firm's stock since September, paying as much as $150 a share. Lewis, a 71-year-old billionaire, wasn't planning to reduce his stake, a person close to him said March 11. He's now entitled to $22 million of JPMorgan shares.

Beijing-based Citic Securities Co. canceled a proposed $1 billion investment in Bear Stearns, said Kong Dan, chairman of Citic Group, the company's parent, in an interview today. Citic had agreed in October to buy a stake in Bear Stearns when the company's stock was trading at more than $117.

``To see a situation involving a bailout lead to shareholders getting pretty much wiped out is a pretty significant event for the market,'' said Ben Wallace, who helps manage $800 million, including stock in JPMorgan, for Grimes & Co. in Westborough, Massachusetts. ``It's going to raise concerns'' about the value of financial stocks, he said.

45-Story Building

The Fed's attempt to rescue Bear Stearns last week with a cash infusion failed to avert a crisis of confidence among the company's customers and shareholders, who drove the stock down a record 47 percent on March 14, when the emergency funding was announced.

Bear Stearns's profit exceeded $2 billion in 2006, yet the price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per-square- foot that comparable office space in the city is currently fetching.

JPMorgan Chief Financial Officer Mike Cavanagh said on a conference call after the sale was announced that the bank was comfortable with the values Bear Stearns had assigned to the mortgage-related assets on its books. Asked to explain why JPMorgan was paying about $2 a share for a company with a book value -- assets minus liabilities -- of $84 a share, Cavanagh said the price reflected the risk the firm was taking.

It ``gives us the flexibility and margin of error that's appropriate given the speed at which the transaction came together,'' he said. JPMorgan said it was confident Bear Stearns shareholders would approve the sale.

Counterparty Risk

``If you're buying equity for free and the liabilities are pretty well capped, it sounds like it's good for JPMorgan shareholders,'' Wallace said. ``The thing that everybody's been worried about has been the counterparty risk, and if this gives people more confidence, that will be good for the markets.''

Minutes after the deal was announced, the Fed cut the so- called discount rate by a quarter of a percentage point to 3.25 percent. The Fed also will lend to the 20 firms that buy Treasury securities directly from it.

Bear Stearns's prime brokerage unit, which provides loans and processes trades for hedge funds, generated $1.2 billion in revenue last year. That business is probably the only piece left of the company with value after the mortgage market collapsed last year, analysts said.

`A Lot of Value'

The prime brokerage was the third-largest behind Goldman Sachs Group Inc. and Morgan Stanley as of April 2007, according to Sanford C. Bernstein & Co. About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July during the biggest housing slump in a quarter century.

``As bad as things are at Bear Stearns, this is still a franchise with a lot of value, particularly the prime brokerage business, which is what JPMorgan is after,'' said William Fitzpatrick, who helps oversee $1.6 billion at Racine, Wisconsin- based Optique Capital Management, including JPMorgan shares. ``That's the crown jewel, and that would fit into JPMorgan's business extremely well.''

Dimon's New York-based company has suffered fewer losses than rivals during the credit-market contraction, which has prompted $195 billion of writedowns and losses by Wall Street's biggest banks and securities firms.

JPMorgan has posted $3.7 billion of writedowns, a fraction of the $22.4 billion reported by New York-based Citigroup Inc., the third-biggest U.S. bank by market value.

Paulson Involved

Treasury Secretary Henry Paulson defended the Fed's bailout yesterday, saying policy makers will do whatever is needed to prevent disruptions in financial markets from hurting the economy. Paulson said he was involved with the discussions on Bear Stearns's future this weekend, without elaborating.

``There's always a decision to be made to say what's best for the stability of the marketplace, the orderliness of the marketplace,'' Paulson said. ``I think we made the right decision.''

When Bear Stearns invited potential buyers for detailed presentations by department chiefs, only JPMorgan and private equity firm J.C. Flowers & Co. showed up, according to people familiar with the talks.

Other potential buyers, such as Royal Bank of Scotland Group Plc and HSBC Holdings Plc, which had expressed interest in the past, didn't send representatives.

Amaranth Takeover

Bear Stearns has offices in cities including London, Tokyo, Hong Kong, Beijing, Shanghai, Singapore, Milan and Sao Paulo, according to its Web site.

JPMorgan's participation in the bailout follows a long tradition at the bank of stepping in to rescue financial markets from crisis, according to Charles Geisst, the author of ``100 Years on Wall Street.''

The bank has also profited from its intervention. JPMorgan got at least $725 million of revenue for taking on half the energy trades from collapsed hedge fund Amaranth Advisors LLC in 2006.

The first signs of the deterioration in the U.S. mortgage market emerged in February 2007 when HSBC Holdings Plc, Europe's biggest bank, boosted the amount of money it sets aside to cover loan losses as a mix of rising interest rates and falling house prices made it harder for Americans to repay their home loans.

UBS to Northern Rock

Three months later, UBS AG closed John Costas's Dillon Read Capital Management unit after losses in the U.S. mortgage market. Bear Stearns followed in June, when it led a $3.2 billion bailout of one of its hedge funds after creditors started seizing assets and investors demanded their money back. BNP Paribas SA, France's biggest bank, halted withdrawals from three funds in August.

Northern Rock Plc sought emergency funding from the Bank of England in September in the biggest bailout of a British lender in 30 years. Federal Reserve Chairman Ben S. Bernanke stepped up efforts to keep the strains in financial markets from spiraling into a full-blown meltdown by cutting interest rates five times and pumping cash into the banking system.

Still, banks' losses continued to mount. Citigroup Chief Executive Officer Charles Prince and Merrill Lynch & Co. CEO Stan O'Neal both quit after the two banks posted record writedowns. In Europe, Societe Generale SA of Paris and Zurich-based UBS wrote down $16 billion of assets between them. In all, 45 banks reported $195 billion of asset writedowns and losses linked to the mortgage meltdown.

Wall Street responded by raising borrowing rates and demanding extra collateral for loans of hedge fund clients, themselves already nursing losses on the same mortgage securities. Carlyle Group's mortgage bond fund collapsed this month after lenders boosted margin calls. London-based Peloton Partners LLP liquidated its ABS hedge fund after ``severe'' losses on mortgage-backed debt.

Who's next?

IHateToBurstYourBubble said...

Looks like Lehman might be next....

Actually, this is pretty strong action, I figured anything above a -300pt open on the Dow was Good News. Might be good for a few hundred up...

But hope springs eternal... it was clear on Fri that Bear was broke, and they only knocked it for 50%. Had to wait till Sunday to find out it was officially not worth nut'n.

IHateToBurstYourBubble said...

Use these rallies to SELL!

timothy said...

>>Had to wait till Sunday to find out it was officially not worth nut'n.

Nut'n is right. It sold for the price of paying a couple Wharton graduates their salaries and bonuses. It was essentially given away, and the Fed is paying to hold up the crap debt.


National City Bank lost 32% of its value this morning. That'll learn 'em for talking shit about Bend.

timothy said...

>>* Bernanke, Fed Play `Whac-A-Mole' With Turmoil in Housing, Credit Markets

Yep. You close up all the obvious leaks. But that's all you can do.

It's like the emergency room closes up your slashed artery, but then you bleed to death through your pores.

timothy said...

"Investors, as measured by the Fed futures market, have fully priced in a 1% rate cut."

And there we are. Going to a rate of 2% tomorrow.

bruce said...

Lehman's Fuld Says Liquidity Concern `Off the Table' (Update2)

March 17 (Bloomberg) -- Lehman Brothers Holdings Inc. Chief Executive Officer Richard Fuld said the Federal Reserve's move to provide funding to brokers should alleviate investor concern that Wall Street firms may face cash shortages.

``The Federal Reserve's decision to create a lending facility for primary dealers and permit a broad range of investment grade securities to serve as collateral improves the liquidity picture and, from my perspective, takes the liquidity issue for the entire industry off the table,'' Fuld, 61, said in a statement today.

Fuld, who presides over the fourth-largest U.S. securities firm, made the statement as his company's shares declined more than 10 percent in New York trading. Smaller rival Bear Stearns Cos. yesterday agreed to be acquired by JPMorgan Chase & Co. for $2 a share, 90 percent below the company's market value last week, after customers withdrawals raised the prospect of bankruptcy. The Fed is helping to finance the deal.

The central bank, aiming to prevent a meltdown in financial markets, yesterday cut the rate on direct loans to banks and became lender of last resort to the biggest dealers in U.S. government bonds.

``In light of what happened with Bear everything else is under pressure and everyone's looking to make sure they have the funding and liquidity,'' said Tim Smalls, head of U.S. trading at Execution LLC in Greenwich, Connecticut. ``We're seeing a classic case of selling first and asking questions later. Every global financial stock is getting whacked.''

Liquidity Pool

Lehman fell $4.96, or 12.6 percent, to $34.30 at 11:00 a.m. in New York Stock Exchange composite trading, after dropping as low as $24.50 earlier today. The stock has lost about 48 percent of its value this year.

In its first weekend emergency action in almost three decades, the central bank lowered the so-called discount rate by a quarter of a percentage point to 3.25 percent. The Fed also will lend to the 20 firms that buy Treasury securities directly from it. In a further step, the Fed will provide up to $30 billion to JPMorgan Chase to help it finance the purchase of Bear Stearns.

Lehman's so-called liquidity pool -- consisting of cash, money market instruments, corporate bonds and stocks that can be sold quickly -- is the strongest among the five largest brokers, according to Sanford C. Bernstein & Co.

`Navigate Through'

Lehman's $98 billion liquidity pool compares with $61 billion at Goldman Sachs Group Inc., the largest and most profitable securities firm, according to Bernstein analyst Brad Hintz. Bear Stearns had $17 billion at the end of the fourth quarter.

Lehman's liquid assets are more than five times greater than its shareholders' equity. At Merrill Lynch & Co., the world's largest broker, and Morgan Stanley, the second-biggest U.S. securities firm, the ratio is three times equity. Goldman's liquid assets are double its equity.

``Over the last 20 years, the U.S. securities industry has learned through experience how to navigate through financially stressful events that can damage confidence,'' Hintz, a former Lehman finance chief, said in a report today.

According to Lehman's annual report, the firm had $35 billion of cash at the end of November and an additional $159 billion of ``unencumbered assets'' that aren't financed by borrowing or tied to other financial commitments.

Credit Rating

Mortgage-related assets amount to 29 percent of the financial instruments on Lehman's books, compared with 33 percent at Bear Stearns. An additional 13 percent of Lehman's financial instruments are U.S. government bonds that are easy to sell, according to Bank of America Corp. analyst Jeffrey Rosenberg. Government securities make up 9.8 percent of Bear Stearns's holdings.

``Lehman's prior experience suffering a liquidity crisis could mean it is better prepared to weather the current storm,'' Rosenberg wrote in a report today. Under Fuld, Lehman survived the credit contraction that followed the collapse of hedge fund Long-Term Capital Management LP and Russia's default on its debt in 1998. Lehman shares dropped 63 percent at the time on speculation about a cash shortage.

Lehman had its long-term credit rating affirmed at A1 by Moody's Investors Service earlier today. The rating company lowered its outlook on the company to stable from positive.

``Lehman has navigated quite well to date through persistently volatile and challenging financial markets,'' Moody's said in the statement. The outlook is no longer positive because the value of the firm's assets is declining and global liquidity is drying up, Moody's said.

It's still sunny in the Lehman board room, at least if you are looking in from the outside.

But then the market has some issues with them: down over 20% on four times average volume, and it's not even noon.

bruce said...

And WAMU is down almost another 15% after Moody's cut it's rating last week, about a 25% haircut in less than two days:

SEATTLE (AP) - Moody's Investors Service cut Washington Mutual Inc.'s credit rating Friday and said the country's largest savings and loan will need at least $4 billion more than it expected to cover bad mortgages in 2008.

Investors sent WaMu's (NYSE:WM) shares down $1.54, or 12.7 percent, to close at $10.59 Friday.

Moody's said its action reflects a 'rapid deterioration' of the housing market in the first few months of the year, echoing the rationale behind another rate cut by Standard & Poor's (NYSE:MHP) a week ago.

WaMu has estimated it will sock away up to $8 billion this year to account for borrowers who can't afford mortgage payments. Moodys' upped its own estimate for loan-loss provisioning to more than $12 billion Friday.

Resulting fiscal-year losses could eliminate the cash cushion that keeps WaMu in compliance with regulations, Moody's said in a news release.

The credit rating agency downgraded Washington Mutual Inc.'s senior unsecured rating to 'Baa3' from 'Baa2.' It also cut Washington Mutual Bank's long-term deposit rating to 'Baa2' from 'Baa1.' The new ratings are still considered investment grade, but reflect moderate credit risk...

Could WAMU be the next one to go? Don't think the feds would be concerned enough to bail out a little $8B bank.

bruce said...

Interesting...WAMU's total capitalization as valued by the market it only 2/3s of what Moody's estimates it needs to have for loan-loss provisions. That isn't pretty.

bruce said...

Riverview another NW bank getting hammered, down from a high of 11.26 on Friday to as low as 8.90 today. Thinly traded, only $100M in cap, may be an interesting opportunity.

Anonymous said...

"Investors, as measured by the Fed futures market, have fully priced in a 1% rate cut."

And there we are. Going to a rate of 2% tomorrow.


Soon we'll be to 1%, then zero-%, then negative, the FED tools to triage the stock market are about run dry.

The good times will be here soon. The dollar will collapse to shit.

The reaction to the reaction will be incredible.

Most interesting to me is this trend of the FED to drive its self to insolvency, which means our dollar ( Federal Reserve Note ) will be worthless.

The SURGE is working those with gold, silver, and/or bullets & guns, will be able to buy anything for nothing.

timothy said...

NEW YORK, March 17 (Reuters) - The yield on U.S. 3-month Treasury bills fell below 1 percent on Monday to levels not seen in 50 years prompted by intense safety bids for cash spurred by the ongoing global credit crunch.

Man, we're going back in time.

"This sucker's electrical, but I need a nuclear reaction to generate the 1.21 gigawatts of electricity I need."

Anonymous said...

Dollar is going down, and US business is going down, for the past twenty years the US Corporate model has been debt. Many companys while having a nice asset sheet, and even now arguing that their book-value exceeds capitalization, ... The trouble is many companys owe many times what they're worth. Covering up this off book debt is getting harder and harder, and of course being addicted to debt to pay the bills, is over, now that money isn't available.

Brokerage firms will go down, companys that are in massive debt will go down, and banks that hold worthless assets ( WAMU, CACB, ... ) will go down.

The FED's lever only has about 2-3 more months of fulcrum, and the balance sheet of the FED means that there will be fewer banks it can now rescue having squandered its balance sheet on Brokerage Houses.

I think we bloggers had better start discussing 'safe places' to park liquidity, all else here is BULLSHIT.

Anonymous said...

Bruce-Pussy, why do you post all the headlines of 'bloomberg', and then go ahead individually post them?? Why not go to the next step and post all the articles ever written by each author??

Brucey just try to tell us what you think, if I wanted all of 'bloombergs' news, I would be at their site, we're smart enough to do that here.

Anonymous said...

A good comment today from the BULL on the Cessna hiring 100 more people story Homer-et-al check it out, what struck me was a quote from Cessna, ..

"They haven't seen the recession, there sales are strong", ...

They strikes me as odd, because personal civilian aircraft has been taking a hit for the past year, and there have been many cancellations.

The fact that 300/400 class Cessna's are selling like hot-cakes are recession/depression proof, sounds to me more like an attempt of pump&dump.

Lastly, there's a tag about how the city is getting $600k from the fed in order to study ( pay consultants ) to think about a tower at the bend airport.

foz said...

Didn't get the best fills because of the volatility but for what it's worth I'm in GS average 145.87 and short the OSU average 84.81 both with around a 10% stop. There is some serious unwinding going on in oil right now.

bruce said...

Re: I think we bloggers had better start discussing 'safe places' to park liquidity, all else here is BULLSHIT.

Marge has a good idea: Euros in a hole in the backyard.

Anonymous said...

Shorting oil stocks is NOT a safe place to park your cash.

Shorting is never a safe place to park cash.

All paper stock, and for that matter even GLD, e.g. paper gold is worthless.

We're in a time when safety means NOT losing your money, people are soon going to be selling their gold to get money to eat. That means gold will go down. People soon will be driving less because they don't have money to burn fuel, that means oil will go down.

Shorting has mathematically been proven over&over to be a loser game, hell even LTCM with the nobel laureates lost their ass playing the spread short-term game.

A safe investment is something you don't have to watch everyday, that long term you know will rise.

For instance I think EUROS and YUAN ( chinese ) will continue to appreciate relative to the dollar. For years, and years to come.

The stock market is NOT going to be safe in any form.

I have heard good things about Perth Gold Certificates, supposedly nobody has ever lost their money from them over 100 years, you can't say that about the USA or England.

I don't think its wise to have a lot of gold, but a little in a safe place, can be a good rainy day insurance.

The smartest economists that I read say we're heading into de-inflation.

The commodity play, has pretty much already been played out over the last year or more.

De-Inflation is the thing to watch, and the historic companys that do well in that environment.

bruce said...

Another parking idea, which I like, from BEM's board:

perhaps put your cash into cash equivalents (money markets, CDs) at a brokerage firm and not at a bank. brokerage firms must keep your account segregated--they cannot lend out your money like a bank can. any major discount brokerage will do. they don't have federal insurance on your account because they don't need it--no one can touch your money except for you. if your brokerage firm goes under then your account will be transfered intact to some other brokerage that takes over the accounts. (brokerages also have $500k SIPC insurance in case some crooked brokerage firm steals your money.) In an account denominated in Euro's, preferably.

Anonymous said...

Marge has a good idea: Euros in a hole in the backyard.


Bruce-Pussy your such a fucking MORON, someday I'm going to your wifes bike-shop and beg her to quit feeding you so you just die of starvation.

The best way to play EUROS is open an account while your in EUROPE on vacation. Then time to time when you need the money, you can have them wire by air-mail letter to your US account.

Good banks in EU are Germany, SWISS, ... don't worry about 2%/yr interest, when your making +20%/yr on the dollar collapse.

The YUAN is even better, but I don't go to mainland China anymore post 911. You really need to go to these places to open accounts.

That how I setup all mine up +30 years ago.

Most branches in the USA are still in dollar, I like Switzerland in Switzerland because then you can have numbered accounts, the whole point of doing this is so your friendly government doesn't know you have the money ( so I can't take your money ), the Swiss have always had stuff setup for foreigners.

The only change, I note last year that for INTL rules on homeland security, these banks now want your passport on file, and other ID, but those are INTERPOL rules,

I think if your going to be out of dollars, you don't want uncle sam to know, because when the shit hits the fan, they'll be looking for people to fuck.

My next trip to China, I'll be setting up some accounts there, and NOTE china, not taiwan, or Hong-Kong, they're just USA colonys.

The dollar is going down, and hard, and given our leverage, and corporate debt, I see the USA staying down, game-over, like Rome we had our day, Britain's empire is over, and the USA has fucked their empire. IRAQ, and soon IRAN are just attempts to grab resources, but at $4Billion dollars a week, the US war-machine is going to grind to a halt, ... which gets back to grabbing peoples money.

The USA in the future is going to be doing what ever it takes to fund the prison/military complex.

Anonymous said...

brokerage firms must keep your account segregated--they cannot lend out your money like a bank can.


Fuck that SHIT, all CASH is co-mingled, with SIV's MOST money-market money is worthless,

DO your homework, E-Trade is fucking sitting on the MOST SIV's of any money market in the USA, once upon a time early 1980's money-market meant something, it mean t-bills, good paper, today most BROKERAGE money is used to fund MARGIN's and ALL that money is going to evaporate, and whats NOT loaned on margin in TOXIC SIV's.

There is NO safe paper other than t-bills, t-bonds, which be got without a FUCKING BROKER, via

I think homer, bem, and all these guys are really fucking BROKERS, and they're ALL going down.

Yeh, give your money to a broker, or a house like bear-stearns, and then watch how many decades it takes to get your money back at ten cents on the dollar, after they close their doors.


Anonymous said...

'safe places' to park liquidity


well if the dollar has no value -- then what? even in your pillow case, a hole, or a brokerage firm – no value, means no value.

Anonymous said...

brokerage firms must keep your account segregated--they cannot lend out your money like a bank can. any major discount brokerage will do. they don't have federal insurance on your account because they don't need it--no one can touch your money except for you.


Bruce-Pussy is a fucking LOSER RENTER, he's got his wife working in a bike shop to pay for food.

He doesn't have a fucking job.

Then he says "Give your money to a BROKER".

Then they ask, why do we call him "Bruce Pussy".

He ain't got no money to lose, and doesn't have a fucking clue.

Hangs out on a housing-blog, but has never owned a fucking home.

Doesn't have a dime to his name, but talks shit about investing.

Bend Bubble-2 is fucked.

Bruce-Pussy will be a Bend councilor in 2 years, guaranteed, this is the kind of person that Hollern loves have running city-hall, you can lead these cunts around without a fucking leash.

Anonymous said...

'safe places' to park liquidity


well if the dollar has no value -- then what? even in your pillow case, a hole, or a brokerage firm – no value, means no value.


We're NOT talking fucking DOLLARS here, its anything BUT dollars.

Shit its hard to discuss real work economics with renters and morons.

Anonymous said...

well if the dollar has no value -- then what? even in your pillow case, a hole, or a brokerage firm – no value, means no value.


That's why you have to have your account setup outside of the USA, so you have a fucking tie to the USA.

If things get real bad here, its nice to have an account in Italy, where you can go hang out. While the dust settles. A lot of people that could afford to do so, went to Paris early on during the depression, then when the Nazis got going came back to the USA. By then times in the USA were better.

There really is not point in this conversation with renters, YOUR stuck in Bend, and if you had money, you wouldn't be here.

You talk about Homes & Money, the same way people talk about movie-stars. What's the fucking point?

I'm here for people to share, and teach me something, but all I hear is moronic statements? I'm sure 'marge' would bury her paper-money in a whole, but we already know marge ain't that smart, remember she's a 57 yr-old realtor, enough said,

Then theres bruce-pussy a 51 yr-old video-game player, who has a wife, who thinks he's her son.

Then there's homer, ... and duncan struggling to sell comic-books,

I really think we're getting to the point in Bend, where the only people left in this town, are those who don't have money.

I have a 'rich' buddy the other day that bought a TON of the VISA-IPO, I think its bullshit, does anyone here have an opinion? Just because it was a closed racket, personally I think that plastic is the next big thing to become hard to get, which is why they're selling.

foz said...

what the heck is a "wire by air mail letter"? If you need your money you can just write a check or wire or if it is a bank that has a presence in the US you can just transfer.
Any american can open an offshore account anywhere that allows non-citizens to open one. You don't need to go on vacation to do that. Numbered accounts don't exist anymore. You can easily play currency swings using ETF's and get the spic insurance at the same time. Best place right now for offshore accounts is a swiss bank in Singapore
Maybe I'm out of the loop but what is de-inflation?

Anonymous said...


Simmer down geezers -- after all you're so smart that you'll be set when the world implodes. Right? Enjoy your victory -- and France, or wherever the fuck it is your moving to.

Anonymous said...

"Shit its hard to discuss real work economics with renters and morons."

BilboBust -- You are our teacher, our pundit. Please do not take offensive at our naivety. We are here to learn from you.

Anonymous said...

Privatizing BEND profits and socializing BEND losses is no way to run an economy. I wonder whether Ron Garzini learned that in grad school.

*** "Run Bend Like a Business" 1998

*** "Run Bend into the Ground" 2008

Econ 101, anyone?

But it was all too predictable. Bear ranked in the top echelon of Wall Street banks that packaged mortgages into complex securities and sold them to other investors, who often chopped them into even more complex, more highly leveraged securities, and sold them to yet another crop of investors.

Investors? Make that "suckers."

By now, we know just how risky these securities were. They didn't eliminate risk. They obscured it, and it infected the entire banking system. They were based on models that assumed that home prices would continue to rise -- thus freeing lenders from the pesky job of having to decide whether borrowers actually had the cash flow to make their payments. That hasn't panned out.

As overstretched borrowers began to realize there was no way to refinance out of their mortgages, they have stopped paying -- and not just on subprime loans. As default rates accelerate -- and we're seeing only the beginning -- these securities have become increasingly worthless, even as parts of them were pitched as triple-A by complacent rating agencies such as Moody's (NYSE: MCO) and McGraw-Hill's (NYSE: MHP) S&P.

When pyramid schemes crumble
The ensuing devaluation of these debt securities has caused a ripple effect through banks as they have to shore up their capital structure and find themselves unable to offload the opaque monsters they created. Few are willing to buy the pig in the proverbial poke -- except, of course, Federal Reserve Chairman Ben Bernanke.

And that's why JPMorgan bought Bear Stearns. Bernanke -- who can print as much money as he wants and stick taxpayers with the bill -- had to sweeten the deal by guaranteeing $30 billion in Bear's lousy assets. Which ones? No one knows. According to The Wall Street Journal, the Fed won't say. So not only does JPMorgan get Bear's potentially valuable brokerage business, building, and other goodies, but it also has a nice big comfy cushion against loss, all provided by you and me.

Won't someone please think of the children!
Defenders of this decision will argue that Bear was "too big to fail" and that an ensuing panic would have taken down all of Wall Street. There might be something to that story. Or it might just be a great way to scare the masses into giving grudging support to a program of Wall Street welfare. "It's for your own good!" How else can the defenders spin a plan that will require billions of taxpayer dollars to pay for the egregious errors of Wall Street's best-paid "capitalists"?

Of course, this isn't helping investor confidence. Take a look at the market today, and late last week. We're already in panic mode. Lehman Brothers (NYSE: LEH) is on the ropes now, and even invincible Goldman Sachs (NYSE: GS) is rumored to be preparing a $3 billion writedown. How much is the Fed going to offer them, or their white knights, if the going gets even tougher?

If Bernanke, Hank Paulson, and the rest of our government's Wall Street Super Friends really believe in free markets, they'll make sure that companies are allowed to fail, especially when they richly deserve it, as Bear did. And if they need to step in and prop up certain, select businesses to shore up the system, they should make sure that the people doing the bailout -- we taxpayers -- get a potential payoff for their largesse. Why should JPMorgan get such a sweet deal with the rest of us holding the bag on the risk?

Privatizing profits and socializing losses is no way to run an economy. I wonder whether Bernanke learned that in grad school.

Anonymous said...

BilboBust -- You are our teacher, our pundit. Please do not take offensive at our naivety. We are here to learn from you.


FUCK-YOU, I'm here to share, we all have parts of the elephant that only we can see, we integrate the reports to get the big picture.

Yes, dismiss the geezer, just like dot-com, dismiss the geezer's, new economy, ... All your dot-com stocks went to zero, ... Now all your BEND RE will go damn near to zero, ... dismiss the geezer.

I'm NOT here to be a fucking teacher, I'm not here to teach MORONS how to douche their bruce-pussy.

I'm here to share reports on the demise and collapse of Bend, Oregon.

Anonymous said...

what the heck is a "wire by air mail letter"? If you need your money you can just write a check or wire or if it is a bank that has a presence in the US you can just transfer.


Good for you 'foz', when I want MONEY transferred FROM MY foreign accounts, they want a letter, with original signature, and will NOT accept fax, or email. Good for you if your account can be swiped clean by fraud.

Your either saying one of two things, you can talk about foreign accounts, but don't have one, or your account is setup for electronic withdrawal. I only use traditional foreign accounts, and most are locked up on quarters. I always open my accounts in person, I want to know my banker.

Anonymous said...

"I'm here to share reports on the demise and collapse of Bend, Oregon."

The relevant question to me is what is going to happen to all this housing stock.

I get tired of hearing them called 'crapshacks' because I know that there's a lot of nice ones out there. Take NW Crossing, for example, which everyone here seems to despise, but in reality has some beautifully designed and built homes. What is going to happen to these? Who is going to live in them? How long can they sit empty?

Anonymous said...

Numbered accounts don't exist anymore.

[ I'm going to have to tell that to my numbered accounts ]

You can easily play currency swings using ETF's and get the spic insurance at the same time.

[ we're talking risk free capital preservation broker-cunt ]

Best place right now for offshore accounts is a swiss bank in Singapore

[ why, you make an assertion like that you back it up with back, singapore is one step away from a fucking mil-coop, I wouldn't touch singa, and if you want swiss do the real thing ]

Maybe I'm out of the loop but what is de-inflation?

[ learn to use fucking 'wiki', we're NOT your fucking teacher ]

Anonymous said...

Pleeeeeze somebody track this fuciking 'fraud' down and SHOOT HIM, yesteday this cunt was impersonating MARGE, and today they're baiting us WITH RE rhetoric on the biggest crap-shack STD of them all.


Take NW Crossing, for example, which everyone here seems to despise, but in reality has some beautifully designed and built homes. What is going to happen to these?

[ a large mexican ghetto, read this months atlantic-monthly ]

Who is going to live in them?

[ mexicans and white trash from la-pine ]

How long can they sit empty?

[ until post repo, when they can be rented at rates affordable to mexicans ]

bruce said...

Re: Then he says "Give your money to a BROKER".

No, I said park it in a segregated account in Euros through a brokerage.

Even though one of my two majors was finance and I was programming computerized 3D models of Black-Scholes option pricing models 25 years ago, to say nothing of having several patents and multiple licensees, I am just a stupid, broke renter. You are waaay fucking smarter than I am, and I hereby bow to your obvious superiority.

And now I have to go to work, so talk to you later.

foz said...

I have 3 offshore accounts, all legitmate and reported. The two swiss ones (one in switzerland and one in singapore) they give you a little electronic thing that looks like a calculator that generates a number that you use to log on. That number changes every 10 seconds or so. From there it is already setup to do a wire from there to my local bank (and nowhere else). On the Australian Account that I have I just write a check and it takes about 5 days to clear.
Sorry to offend you but I did use Wiki and nothing came up about de-inflation. I've never heard the term used. Just curious what the definition is.
You are right all accounts are numbered, even my wamu account. But the old true anonymous numbered account in Switzerland don't exist anymore. The information required to open a numbered an account is no different from that of an ordinary account; completely anonymous accounts are prohibited by law. Should a criminal investigation take place, law enforcement has access to information related to a numbered account in the same way it has access to information about any other account." (that's from Wiki)

Anonymous said...

dismiss the geezer's,

*** no not dismissing, just saying your delivery style leaves something to be desired


I'm here to share, we all have parts of the elephant that only we can see,

*** it would help not to call everyone else a horse's ass

Take NW Crossing,...

*** just igore the provocateers -- they're trying to get your goat.

Anonymous said...

I have 3 offshore accounts, all legitmate and reported.


But buster wants us to break the law, so he'll have company in his Mexican prison.

Anonymous said...

But buster wants us to break the law


We don't have to worry about this, everyone on this blog is a renter, that never participated in the BEND RE fraud.

This has been well established.

Yes, everybody go jump off a cliff, cuz buster says so.

Now back to the issue of safe places for capital-preservation during the bend-bubble bust, nobody ever answered the question.

Anonymous said...

I was programming computerized 3D models of Black-Scholes option pricing models 25 years ago,


Skip for 25 years, and I'm living off my wife, who works at a bike-shop. BS is BS whether its Bear-Stears, or Black-Scholes, both these will separate you from your money rather quickly. ( Black-Scholes is a very trivial mathematical model for predicting spreads on options, a sure way for morons to lose money )

I think as we enjoy the ride downhill on the bend-bubble, we should all have these losers tell their story of how they ended up getting stuck in Bend, Oregon.

Rags to riches storys, of how folks used to be KING of their castle, and ended up in Bend, Oregon eating chip-munks and dog shit.

Anonymous said...

The relevant question to me is what is going to happen to all this housing stock.


All across the country, it is being purchased, and demolished, this is the highest and best use.

Just like dumping milk during the depression, or dump jeeps into the ocean, post WWII.

The Bend inventory problem will not be solved, until we start demolishing 1,000's of crap-shacks.

foz said...

"Now back to the issue of safe places for capital-preservation during the bend-bubble bust, nobody ever answered the question."

It's too late for gold or oil and most of the dollar damage is done. So to preserve capital this late in the game I guess I would do muni's. To try and make some money I would short the remaining bubbles. As de-leveraging accelerates you can short most commodities, India, Russia and China. All high risk moves but potential huge gains. I keep looking at the ultra shorts on china but keep passing because of the volatility. That was a mistake I keep kicking myself on.

Duncan McGeary said...

So Bilbo says,

Eastside is paradise, hell yes, lets all drink to that.

Some of the cheapest, and downright awful crap-shacks in Bend, are on the east side, east of SE27th avenue,

Call a moratorium on comic sales, hell, call a moratorium on condo sales,

Hell while your at it, call a Moratorium on building big box stores out at HWY-20, and SE27th, yes the Eastside, the only thing better in Bend, is I-97&Cooley.

Duncan said...

Somebody's got to vouch for the east side.

There are crap shacks on both sides.

Moratorium...if everyone is going to agree the economy is going to hell, I may just have to get contrary.

Best time to buy in 20 years! Buy those foreclosed pieces of crap. Wait ten years and make real money.

Open a store at the bottom! Best time to take your lumps!

See you over at the other housing blogs, buster, I'm not done talking about it.

Just not on my blog.

I actually think this town will be strong in about 10 years or so. It is a great place to live, all the things the bubble guys were saying -- they just overdid it, by magnitudes.

But in the long run?

The buying opportunities will be there in a couple more years -- IF you have cash, and IF you have credit, and IF you have faith.

So most people will miss it.

Commercially, we are also at least two years out, maybe three, and by that time, I'd be buying a buiiding only to become a landlord in a few more years, which I don't want to be.

Anyway, it's going down, and now is the time to start thinking about getting ready to begin cogitating upon the possibility of maybe someday soon really getting going on perhaps start looking.

Anonymous said...

Buttster is swinging for the fences today folks. Too bad he never connects with a rational thought.

bruce said...

Re: BS is BS whether its Bear-Stears, or Black-Scholes...(Black-Scholes is a very trivial mathematical model...

Yeah, I guess that's why they were awarded a Nobel Prize in Economics.

And we are actually doing pretty nicely. Trudy likes working in a bike shop, and I just keep working on building more recurring revenue streams. Royalties, online software sales where I just get a notice from Paypal without doing anything, maybe even a few CPST buttplugs producing energy from waste. With the interest rates so low the state's energy loan program is going to make them pencil out better than ever. You know, really stupid shit like that.

Sorry that since I wasn't stupid enough to buy Bend RE in 2005 when I moved here, I am such an idiot BSer to you. But back then I was told by a lot of people how stupid it was not to buy in those days of easy money.

When I find a nice little piece of land that we can have a nice garden on nearby, and it's at a fire sale price, I'll buy. I have a plan and the patience to execute.

Either way, I don't really give a shit. I've always done what I've wanted, not what someone thinks what I should do.

While, someone other than my wife, anyway ;)

Back to you Anonymouse. You are sounding particularly bitter today.

bruce said...

BTW, did anybody else catch this tidbit from a Journal article on Bear?

...DBS Group Holdings, Southeast Asia's biggest bank by market capitalization, has asked several traders not to enter new transactions with Lehman Brothers.

"DBS has sent an internal e-mail saying it would not deal with Lehman Brothers from now on. It said DBS shouldn't enter into new dealings with Lehman or Bear Stearns," one person said. Another person said that the email didn't mention anything about closing existing positions with Lehman, which appear to remain in place for now.

I don't have the link to the article, but saw in on Bonddad's Blog and on a post he made to DKos.

Lehman ain't out of the frying pan yet. It got as low as $21.69 today and then recovered to close $31.02. It closed at $39.58 on Friday, after opening at $46.16. They have to be shitting their pants at this point.

There is definitely some opportunity these days if you comfortable with risk.

timothy said...

Black Scholes is trivial after the fact, but before it was discovered it was not, although some people were pretty much already there empirically.

IIRC, they were coming at it from at least two angles before they got there. I think the solution was illuminated by a heat transfer differential equation.

It's not bad, although it assumes a Guassian. We've known real markets are not like that ever since Mandelbrot showed the long tail in commodities. There were very quickly fudge factors thrown in, and modifications to BS to account for the long tails are common now.

By the way, I think the best economics (most elegant, anyway) ever written is Black's huge "Exploring General Equilibrium." But no one wants to read that because no one reads. Copy of that at the Bookmark, Dunc?

timothy said...

Bruce, you didn't program that visualization in APL, did you? I know some of the the investment banks were APL houses, which I always thought was crazy. Seems unlikely. I know there was some surface stuff done in APL, but I doubt animation in APL back then unless it was done frame by frame for a movie.

bruce said...

Anyone else note that CACB got as low as $9.01 today? Might break another downside barrier tomorrow.

Tim, I wrote a BASIC program on the first IBM PC our uni got to downloaded the necessary data from Compuserve (this was back in 1983), and then we networked it over to the mainframe, where I think we used Fortran. I formed and led a team of five for our senior class project on it. Another six months and we would have had it working really good, but I ended up starting a PC software company in SLC. If I would have gone to LA and hit Milken up for a job, my life would have been ver different :)

timothy said...

Ah, good story. Thanks for the background.

Anonymous said...

Trudy likes working in a bike shop, and I just keep working on building more recurring revenue streams.

[ Can't you give us some real information?? ]

Royalties, online software sales where I just get a notice from Paypal without doing anything, maybe even a few CPST buttplugs producing energy from waste.

[ This part we know is true. ]


Bend where every man is king, and un-employed.

We used to say, "The check is the mail", now we say "Your paypal is in the email".

Anonymous said...


I do agree that its silly for you to have a public blog, that beats the shit out of Bend, and talks it down. Not GOOD for Biz, "NEVER MIX BIZ & POLITICS".

The nasty times are coming, and its safest for you to do the Ned Flanders thing, and stick with comics.

I have long wanted to flip contrarian, trouble of course Bend is far behind the curve, all our 'Best in 20' has done is postpone the inevitable.

I have long thought it was a stupid thing to mix business and politics, good to hear that your no longer going to bash Bend publicly. It's NOT a safe thing to do, never know who your going to piss off. Especially given that many-many people are going to be living on the street in front of your biz, very soon.

bruce said...

Re: Bend where every man is king, and un-employed.

My paychecks get direct deposited, since Liberty Bank gives us something like 5.5% on our checking account if we have one direct deposit and three online payments per month.

No, my paychecks aren't much. It's working for the school system, after all. Troubled kids, special needs, etc.

The contract and license projects are what I'm mostly doing, plus pissing you off, of course.

Right now I'm headed over to hear Sonia's city finance presentation. I presume you will be there as well Feel free to say hi. I'm the balding guy with glasses...

Anonymous said...

I don't care if the world explodes
You can save the whales,
You can save the toads,
but I don't care if the world explodes.

Anonymous said...

Since most people don't have any money anyway why should we care if these markets are crashing or if dollars are worthless? Freedom's just another word for nothin' left to lose...

Anonymous said...

Freedom's just another word for nothin' left to lose...


A true Bend Renter.

"Poverty without the View", I can almost smell the old air, blowing back in.

Anonymous said...


Get a pic of sonia's underwear, or get something to share.

Anonymous said...

Several multi-million dollar crapshacks for sale on Craigs today. I must say that other than that there's not much change in prices there since the fall. Still homes that are the least bit desireable want 350000 to 500000. Crazy. The junk might be dropping, but I wouldn't take most of the crappy shacks if they were giving them away. Must be all the dreamers still posting on craigs are hoping to scam a few clueless rubes -- or rich foreigners.

It ain't over till the home owners finally bend over and take it like a man.

bruce said...

Re: Can't you give us some real information??

Not personal info.

Re: Still homes that are the least bit desirable want 350000 to 500000. Crazy.

Yes, we are going to see a serious meltdown. We are just a tiny piece of overpriced RE.

bruce said...

Re: Thanks for the background.

Sorry for the dyslexic typing.

That first startup was a source of true business BS aka lesson. Got screwed by the Mo's.

But a corner booth at COMDEX in '85 with a popular product was pretty damned interesting.

Anonymous said...

"Yeh, give your money to a broker, or a house like bear-stearns, and then watch how many decades it takes to get your money back at ten cents on the dollar, after they close their doors."

Incorrect. Customer accounts at brokerage firms are segregated for real. The worst thing that can happen to your account at a failed broker is that it gets transferred to another brokerage firm intact.

Broker/dealers are not chartered as banks and cannot lend your money to others--that is why they don't have FDIC insurance (they have SIPC). The government insures bank deposits in return for allowing banks to lend out your money--that is a part of how the government controls the money supply.

foz said...

"Yeh, give your money to a broker, or a house like bear-stearns, and then watch how many decades it takes to get your money back at ten cents on the dollar, after they close their doors."

Don't be silly. The only losers are the stockholders. And unfortunately the employees, (all who were stockholders)and of which several are good friends. Bear has alway taken big risks and those big bets have always worked out. This time they rolled the dice big and lost. It doesn't mean the sky is falling. I've now had funds at 4 brokers that have gone under or been taken over. Life goes on.

Anonymous said...


stock, mtg, realtors


Time to become like BENDBB & BRUCE, just toxic holes that tramps can rent by the hour.

Anonymous said...



To foz and other new guys: The jerk who posts as bendbust/buster makes up all his "facts" and doesn't take kindly to anyone who corrects him.

To buster: We're not laughing with you, we're laughing at you.

FOZ said...

This is a great little video on how our monetary system is now structured. It always amazes me how many people have no idea how money is created.

I make all my new traders watch it.
Good luck to you all.


FOZ said...

It ain't over till the home owners finally bend over and take it like a man.

foz said...

To foz and other new guys: The jerk who posts as bendbust/buster makes up all his "facts" and doesn't take kindly to anyone who corrects him.

Haven't a clue what you are talking about, and I'm certainly not a new guy, been here since the before this blog started. Just don't post much.

St. Paddy said...

We have our new cunt. It calls itself The Foz, and was here before the blog started.

You know this blog is fucked. When newbies start saying they were here before homer.

Bruce-Pussy is starting to look like a diamond in the rough.

Our Foz is supposed to be a Manager-Broker ( stocks ) who forces his trainees to watch Brazilian gay porn.

Bend Bernanke said...

Anybody that opens up an Brokerage account in Bend, Oregon, and gives any money to a firm. Is a fucking loser.

If you must park your cash then use,

Never give a dime to a stock broker or his/her firm in a depression, they'll just turn good money into tax losses.

Anonymous said...

from the Wall Street Journal (excerpts):

Amid Brokers' Woes,
Investor Accounts
Are Mostly Protected
March 18, 2008; Page D1

Investors with brokerage accounts are asking themselves a simple question: Is my account in jeopardy?

The good news is that account holders at Bear Stearns Cos., Lehman Brothers Holdings Inc. or, for that matter, any of the other brokerages that are under assault can rest assured that their money should -- with a few exceptions -- be safe.

Bear Stearns averted filing for bankruptcy by agreeing to sell itself to J.P. Morgan Chase & Co., which will assume the firm's trading obligations. As a result, clients with brokerage accounts at Bear, which is mainly an institutional firm but oversees some individual assets, will eventually see their accounts and assets transferred to J.P. Morgan.

But Bear's situation raises concerns about what could happen to individual investors if a major brokerage firm goes under. Fortunately, the system of regulatory rules in place should protect most investors.

"I really don't think it's that big a deal for retail customers," says Adam Honore, a senior analyst at Aite Group LLC, a financial-services research and advisory firm. "Crisis and liquidity have nothing to do with whether you've got an IRA with Bear Stearns."

For one, brokerage firms are required to have enough assets on hand to repay any customer obligations in the event of a bankruptcy. Moreover, under the Securities and Exchange Commission's so-called customer-protection rule, broker dealers are required to hold client assets in "segregated accounts," which means the firm cannot use those assets for their own business purposes.

To the extent that the firm doesn't have the funds and securities to cover those claims -- either because of misappropriation or negligence -- the Securities Investor Protection Corp. will step in to cover losses up to $500,000 per account, including $100,000 for claims for cash. Beyond the SIPC coverage, some brokerage firms may offer additional insurance.

In general, any securities that a customer holds at a brokerage firm are legally the investor's property -- and aren't exposed to the claims of the firm's creditors. But while investors still own those underlying holdings, they may have trouble trading them in the event of a bankruptcy because of a disruption in service, says Rob Hegarty, managing director at TowerGroup in Needham, Mass. Investors also aren't protected against a decline in market value of the securities they own, he adds.

When major brokerage firms collapse, as did Drexel Burnham Lambert Inc. in 1990, the firms often sell their customer accounts to other firms before they are liquidated. "In Drexel's situation, the only customers who were not made whole were the customers that Drexel literally could not find," says Stephen Harbeck, president and chief executive of the SIPC. "Because Drexel had properly segregated all of its customer assets, it was not necessary for SIPC to become involved."

Anonymous said...

If you must park your cash then use


That's another Brazilian gay porno site.

Agent Smith: You hear that Mr. Buster?... That is the sound of inevitability... It is the sound of your death... Goodbye, Mr. Buster...

foz said...

>>>Investors with brokerage accounts are asking themselves a simple question: Is my account in jeopardy?<<<
Bear didn't have much retail accounts. Their minimum for a prime account was 5M. So it's not even an issue on the retail accounts. The bigger question is where did all the big money go to. Did it go to Morgan, GS, UBS or BOA. Their prime brokerage operation was the jewel. Where that money moved to is where you want to buy into. I'm betting on GS

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