Tuesday, October 14, 2008

Winners Picked

Here are the winners of the Too Big To Fail Sweepstakes:

  • Bank of America
  • Merrill Lynch
  • Bank of New York Mellon
  • Citigroup
  • Goldman Sachs
  • J.P. Morgan Chase
  • Morgan Stanley
  • State Street
  • Wells Fargo

If you have uninsured money anywhere else, or own stocks in any other bank, you're a fool.


Patient Renter said...

Hey, there's nothing wrong with the government picking winners and losers. Nothing bad could possible come from it. There is no such thing as financial corruption. Nobody takes advantage of government interventions. Conflict of interest does not exist.

BTW Max, you should consider turning anonymous commenting off.

Deflationary Jane said...

I wonder if that RICO lawsuit between Russia and the BoNY was taken into consideration?

I agree with PR on the whole anon posting thing.

Darth Toll said...

Hey what do you guys mean by turning anon posting off?!?! Then I would have to log in and all of that hassle!

Anyway, Max you are right on with that list. I like to call it the "circle of trust" and you are either in the circle or outside of it. The TARP was a clear implosion-oriented hedge fund to suck in wounded animals so that those inside the circle could feed on them. Not so sure how that's going to work now, but Paulson and the rest of the crony-capitalism pigmen gang would still like to pull an "Alexander Hamilton" and feed on the carcasses of the less fortunate (or connected), wiping out large swaths of bondholders and shareholders in the process (Wamu-style.)

Now it's turned into more of a real panic so Paulson may not get all of his fantasies fulfilled. I got the sense that he thought he would just game the system some more with his TARP fund and didn't really appreciate how far along in the meltdown we were. Maybe the pigmen in the UK and Europe were able to convince him that the time for looting operations (BSC, FNM, FRE, AIG, CFC, WM, WB) was over and he better get serious about actually addressing the problem before there was nothing but ashes left.

Max said...

Now it's turned into more of a real panic so Paulson may not get all of his fantasies fulfilled

I think it's simpler than that. These guys are ultimately control freaks with gigantic egos, and they honestly believed the market would listen and obey when they spoke. When it didn't, they themselves panicked, and they realized they needed an actual plan. Bluff, bluster, and "positive thinking" weren't enough.

The world leaders have no idea if these plans will work. That's why we don't get a definition of success. "Success" is a moving target these days.

What I do believe is what hit me with full force on Friday after the big jump back from 7800: the psychology of recovery isn't here yet. The economy is now polarized like a magnet toward the government hoping for a bailout; and everybody wants a piece. What we saw today (although the market doesn't realize it yet) was triage. Here are the institutions we can save. The rest are on their own, sink or swim. The next leg down will happen when the markets expectations shift away from the hope of government rescue, and toward self preservation.

And there aren't enough life rafts for everyone.

Max said...

I agree with PR on the whole anon posting thing.

Well, I'm not quite ready to ban anons yet. There are a few who are anon for a good reason, and I don't mind being taunted by anonymous 30-year-old millionaires once in a while. :)

FYI: most of the deleted comments are spam from people with google accounts anyway.

Darth Toll said...

"And there aren't enough life rafts for everyone."

True. You may think this is tinfoil hat thinking here, but I honestly believe we are mere days away from total meltdown and collapse. The gubbermint better hope that this fire-break holds, because if it doesn't...

Well, let's just say the 3 days of food on store shelves might not even last that long. This just-in-time inventory system requires the credit grease (and also endless cheap oil imports) to function properly. And when it works, it seems like a great system, but it's all an illusion. Any disruption can result in near pandemonium and chaos in very short order. Best to stock up cash, food, and other essentials now before the panic starts.

What's that old saying? "He who panics first, panics best."

Max said...

You may think this is tinfoil hat thinking here, but I honestly believe we are mere days away from total meltdown and collapse.

Hope for the best; plan for the worst. :)

Put another way: I think you're wrong, but I don't think it's tinfoil hat thinking.

Bryan said...

I'm going to pretend that Alexander Hamilton was not just slandered on this site. It never happened.

His biographies bear out that he was neither corrupt nor profited very much if at all from the Treasury's inception of the American bond market. When slandered in the 1790s he demanded a full investigation by the House (after they threatened it in the first place). All investigations cleared his name, as they knew they would. But Democratic-Republican slanders--carefully passed on by its grand patriarchs (Jefferson, Madison, et al), and without Hamilton to defend himself after 1804--have remained.

Yes. I am a Federalist. I'm the last one.

Darth Toll said...


What say you to the following, and other linked articles contained therein?


BTW, not saying you're wrong but would like to read a counter-argument article on the subject. Could it be that Jefferson and Madison concocted the very same looting operation and attributed to Hamilton? It is curious that he's the one that died.

Regardless, SOMEONE performed the 1790 Continentals looting scam!

Anonymous said...

$250,000,000,000 is more than enough to solve the problems of these banks. Definately. This will do it.

I don't know about you guys, but I'm all for "Investing" $250,000,000,000 of "We the People's Money" in the insolvent banking system. If I had $250b, I would invest it the exact same way, wouldn't you?

I mean, with Citibank (as stated on the Aug 08 10-Q) only having $594b of securitizations held off balance sheet in SIV's. Don't worry though, by their own statement they have a maximum loss exposure of only $141b. That's only 20% of the total $700b bailout package.

Good news is we have "Safe" banks that "didn't get into the same problems as the rest of them" like Wells Fargo. They only have $448b of securitizations held off balance sheet. Because they were smart.

What could possibly go wrong?


Darth Toll said...

Mish has a different take on the $250B and basically considers it a waste of taxpayers' money. He said this won't cause the banks to lend, and if the government forces lending, it will just result in more defaults. His logic is that the consumer is pulling back, and the only people that want to be borrowing a lot in this environment are the very same folks the banks SHOULDN'T be lending to:


Max said...

Mish has a different take on the $250B and basically considers it a waste of taxpayers' money.

I've been saying all along that there's nothing in the plan that forces banks to lend. I'm reminded of the old Slashdot meme:

1. Give banks a lot of money
2. ...
3. Lending resumes

Liquidity has dried up for a reason: trust is completely gone. How do you rebuild trust when governmental actions are arbitrary and insolvency is hidden? I don't know.

Patient Renter said...

To add to what Darth and Max are saying, even if you can get banks to lend, you can't force consumers or businesses to want to take on debt. Always remember Japan.

Max was right on:

1. Give banks a lot of money
2. ...

Bryan said...


An interesting article. The first one. The subsequent linked one starts out with falsehood and then keeps on going with it. Spy for the British king? WTF. No legitmate scholarship will back that up. This reads like a copy of the Aurora from the 1790s, brimming with nonsense and invective.

Not that it much matters these days, but I think it's interesting that the conceptual jump from "complicated" to "must be evil" being made by this article is the same made by Hamilton's opponents in his own day. Jefferson pretty much admitted to Madison (very privately) "I don't get it." His beef was basically that to the extent that it was making Northerners rich at the expense of the more agricultural-based slave-made South (which wasn't realizing as quickly that investment in financial instruments was the future), that it must be bad. South = idyllic farms (ignore slaves...) = peaceful republic prozac happy. North = evil merchants and bankers = monarchy oppression torture death, etc etc. It was a horse they beat to do death.

Hamilton was absurdly scrupulous about not making money off any of the Treasury's machinations. I wish I could say the same for all of his lieutenants. William Duer in particularly schemed over-much and died in debtors prison. Hamilton felt sorry for him, but figured it was just dessert for that sort of shenanigans.

And the selling of scrips and bonds was as democratic a process as any in our republic. The public in general went wild over it. It wasn't some backroom cronies-only deal. The country was aflame, which itself was one of Jefferson's chief complaints. Hamilton was corrupting the people with the spirit of speculation! That sort of thing. No, Hamilton was bringing the revenues which the government sorely needed in an age without income taxation and where tariffs were only starting to bring in a modest sum.

I recommend Alexander Hamilton by Ron Chernow (the best bio out so far) for both a resolution of this subject and deep study of the man himself, warts and all. Absolutely fascinating. When I first started reading about Hamilton, I had been infected with this idea that he was corrupt and nasty, etc. I already didn't like him. I forced myself to read it because I wanted to cover all the Founding Fathers and give them all an equal chance (having read all the Jefferson-Madison slanders). This blew me away. I had read plenty of Jefferson-Madison stuff before and plent since, but in the light of this colossal work, I've never really sided with them again on most points. In any case, I'd realized that the reason that I had misgivings about Hamilton in the first place was that the dark stories industriously circulated by his poltical opponents (who were just downright pissed that he was just a bit smarter and one step ahead and usually Washington's favorite) had been passed down the centuries to me (and you). Whatever their failings the Jefferson-Madison crowd had better PR. As the decades rolled on, self-congratulating Democratic-Republicans then continued to tell their fireside stories of the great darklord who fell years before and the world was saved thereby. History is never so clear-cut or one-sided. But history is written by the winners and the survivors.

Read the book. It gets into how the whole continentals things worked out (which wasn't Hamilton's sinister plot, and profitted him nothing whatever). When some in Congress and government argued that the payments should go to the original holders, Hamilton argued (and I completely agree) that they'd sold their instruments years before (to the "Aunt Millies") for the value they thought they were worth (which was looking more and more bleak at the time) and given them to others who were banking on the future of the U.S. government. To Hamilton giving the original holders a double payment and the new holders nothing was a simple injustice in any kind of a system of property making a claim to legitimacy. Congress was appealing to the populist sentiments of their constituents, but flying in the face of fairness, financial stability (liquidity be damned. who the hell is going to buy a financial instrument that they know they can never collect on?) and simple morality.

But I go on at excessive length. Read the book, and read more books. And then read the notes on the parts that intrigue you most, and then tell me that this article is anything more than recycled trash from the political rags of the 1790s. If I survive the heart attack and stroke, I'll write again.

Darth Toll said...

KD has a pretty good rant on why the credit markets are locked:


Followed by an exact recipe for how we REALLY get trust to be restored:


The short version of The Genesis Plan is:

1. Everyone must expose their balance sheet; all Level 2 and 3 assets must be declared and all models disclosed in full immediately and every quarter hereafter.
2. The CDS monster must be caged by forcing it onto an exchange where O/I and margin supervision can be maintained. This is already in process and must be completed.
3. Leverage must be returned to no more than 12:1 across the system - no exceptions.

The problem, of course, is that the medicine tastes REALLY, REALLY bad and may in fact kill the patient. In other words, how do we return to 12:1 when it means many banks will fail? How do we disclose all L2 and L3 when it means many banks are insolvent? How can the CDS monster be contained when it means at least another 40T in losses (based on LEH auction)?!

If we don't take the medicine, will we die?

Bryan said...

Well I'm pretty sure I'm slated to die at some point one way or the other. Medicine or no.

Darth Toll said...

bryan, thanks for the fascinating info, I will definitely check that out.

Sometimes Winter develops these concepts that are essentially right on, and he will try to bring in a historical reference to put the operation in context so folks can understand it. It's possible that in this case he used an invalid or mythical reference, but I'm interested in what you think of the concept? (tar-pit looting operation vs. "bailout")

You can tell from the date on the post that this was well before the recent bank-capitalization plan and he was one of the few that I saw calling the TARP "bailout" a non-bailout and more of a looting operation for favored pigmen. It still strikes me that Paulson and friends would much rather have pursued the TARP plan as Hank had originally designed, but their hand was forced to a more realistic and effective approach. It remains to be seen whether Hank will be able to suck more wounded animals in at this late stage, but if Dimon is the Obama pick as the rumors suggest, then likely the same basic mentality of favored Wall St. pigmen and foreigners looting wounded animals will continue as long as conditions permit.

Anonymous said...

Please keep the Anon option.

I appreciate the freedom.

Thank you....