FDIC R.I.P - Eric Janszen

[Slimprofits]

Re: FDIC R.I.P - Eric Janszen

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

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

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

[Scott4139]

Re: FDIC R.I.P - Eric Janszen

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

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

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

[Penguin]

Re: FDIC R.I.P - Eric Janszen

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

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

Thanks,
Will

[we_are_toast]

Re: FDIC R.I.P - Eric Janszen

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

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

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

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

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

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

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

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

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

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

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

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

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

[CanuckinTX]

Re: FDIC R.I.P - Eric Janszen

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

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

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

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

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

The golden years - yeah right!

[metalman]

Re: FDIC R.I.P - Eric Janszen

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

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

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

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

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

[opps]

Re: FDIC R.I.P - Eric Janszen

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

[FRED]

Re: FDIC R.I.P - Eric Janszen

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

We are working on a new analysis not yet published.

[Supercilious]

Re: FDIC R.I.P - Eric Janszen

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

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

[Guest]

Re: FDIC R.I.P - Eric Janszen

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

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

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

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

[Quincy K]

Re: FDIC R.I.P - Eric Janszen

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

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

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

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

[strittmatter]

Re: FDIC R.I.P - Eric Janszen

After a brief rally in stocks, the next shoe to drop will be in the corporate debt market. Remember the LBO bubble? While the de-leveraging may be over on a corporate credit market wide basis, the pricing in of business fundamentals – sans the miracle of debt securitization and leverage, and teetering atop a still over-priced mortgage debt market -- has just begun, and the stock market is lagging. An additional 30% to 40% drop from here is coming.

just when they thought it was safe to re-board the ship.

"Titanic: A Night To Remember"

"............this kept the boat afloat, but the water continued to rise first to the men's ankles and then to their knees, and several men, exhausted and freezing, slid off into the sea. The others on board were powerless to help them.

In the other lifeboats the struggle for survival was less desperate, and their occupants could hear their frantic cries for help comming from the 1500 people rapidly freezing to death in the water...........nine year old Franky Goldsmith later moved to Detroit, where he lived near Tiger Stadium. Every time a home run was hit in a baseball game there, the roar of the crowd reminded him of that terrible night................."

how loud is the roar going to get?

[Master Shake]

Re: FDIC R.I.P - Eric Janszen

Coming tomorrow. That's what the recently debated subscription area is for.

It's tomorrow.

[EDN]

Re: FDIC R.I.P - Eric Janszen

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

I'm pretty comfortable with 100% gold right now...

It's starting to get ugly.

[Willette]

Re: AIG Perps to Jail?

Heh! They covered that base. The Commodity Futures Modernization Act of 2000 made it that credit default swaps (AIGFP's major product) were neither fish nor fowl nor good red meat, and hence not regulated by anybody in particular. But definitely NOT securities, definitely NOT gambling. Certainly not insurance. Being OTC instruments, they grew in the dark with nobody watching, like mushrooms. Which is exactly why the CDS market was so HOT!

Well maybe not COMPLETELY unregulated: don't laugh, but it seems AIG bought a little S&L in Delaware and thereby got itself classified as a thrift, so as to place itself under the eye of the feared and mighty Office of Thrift Supervision.

The Big Takeover