More Green Shoots?

[bill]

Re: More Green Shoots?

Thanks bill, great posts as always.

So, extrapolating for possible scenarios, do you think it is likely that huge banking institutions, like, say, Bank of America, will be liquidated by the Fed? What happens then, does the Fed expand its balance sheet and keep all the toxic assets, and sell off the "good" stuff?

Think “Nations” not just banks. Look at what EFSF is doing.
http://www.bloomberg.com/news/2010-1...ling-says.html

Nov 17, 2010 3:11 AM PT
Asian investors are “particularly” interested in buying bonds from the euro-area’s financial backstop, which could raise funds “very quickly” for any country in need, the head of the organization said.
Klaus Regling, chief executive officer of the European Financial Stability Facility, said he has spoken to central banks, sovereign wealth funds, pension funds, insurance companies and other institutional investors around the world about buying any EFSF debt.

Our problem banks will see liquidation in one form or another.
And yes Mr. Dodd himself says.
http://blogs.wsj.com/developments/20...crisis-needed/

November 16, 2010
Sen. Christopher Dodd (D., Conn.), the outgoing head of the U.S. Senate Banking Committee, said Tuesday a financial stability board should examine whether problems with foreclosure documents threaten the financial system.
Dodd said during the committee’s hearing on problems in mortgage servicing that the new Financial Stability Oversight Council “needs to really drill down and find out the scope of the problem and determine the steps that may need to be taken to prevent systemic problems.”

[jk]

Re: More Green Shoots?

chris whalen has said he thinks both bac and wfc can't survive because of the amounts of toxic paper they hold.

[Chomsky]

Re: More Green Shoots?

chris whalen has said he thinks both bac and wfc can't survive because of the amounts of toxic paper they hold.

Yep. And I wouldn't fade Whalen, either.

[GRG55]

Re: More Green Shoots?

chris whalen has said he thinks both bac and wfc can't survive because of the amounts of toxic paper they hold.

I suppose that will depend on how much of that toxic paper they will be required to continue to hold...

[jk]

Re: More Green Shoots?

I suppose that will depend on how much of that toxic paper they will be required to continue to hold...

even if they can offload the bad mortgages on the fed, they're still going to be stuck servicing them, and part of whalen's point is that the defective paper trail means that the banks are going to have to spend a lot of money to try to get them in order.

[GRG55]

Re: More Green Shoots?

even if they can offload the bad mortgages on the fed, they're still going to be stuck servicing them, and part of whalen's point is that the defective paper trail means that the banks are going to have to spend a lot of money to try to get them in order.

Unless, of course, they all receive a "get out of jail free" card courtesy of those "public servants" that inhabit Capital Hill...

[ThePythonicCow]

Re: More Green Shoots?

The right hand scale only applies to the 3 mo Treasury secondary market rate line [the gray line on the chart], all the other curves are related to the left hand scale. The key in the lower right shows which is which.

Ok - left and right. I missed that clue (even though I usually see such readily, oh well.)

However ... does this mean that all the curves whose scale is on the left are the total $Dollar amounts of Treasuries outstanding at various maturities?

If so, does that mean that the $Dollar amount of Treasuries outstanding collapsed in early 2008 (except 5-10 year, which held steady)? That doesn't sound right to me.

[metalman]

Re: More Green Shoots?

Ok - left and right. I missed that clue (even though I usually see such readily, oh well.)

However ... does this mean that all the curves whose scale is on the left are the total $Dollar amounts of Treasuries outstanding at various maturities?

If so, does that mean that the $Dollar amount of Treasuries outstanding collapsed in early 2008 (except 5-10 year, which held steady)? That doesn't sound right to me.

chart's of fed treas holdings...

10 yr treas fell from $240b to $160b... flat until early 2008... up $200b from there today.

tbills $160b to $20b now.

tbill rates go from 1% to 5% 2004 - 2007 then collapse to near 0 in 2009 as the fed sold $140b worth.

isn't that the fed buying the treas bonds that the market doesn't want... to 'shape' the yield curve?

[GRG55]

Re: More Green Shoots?

...does that mean that the $Dollar amount of Treasuries outstanding collapsed in early 2008 (except 5-10 year, which held steady)? That doesn't sound right to me.

No that is not what appears to have happened. For what its worth my read is that as the Fed dropped the Fed funds target rate almost to zero [ZIRP] and increased open market operations to bring the effective rate down towards the target rate, Treasury investors reacted as one might expect. They bought fewer short term Treasury bills and bonds and expanded duration [bought longer term Treasuries] as they "stretched for yield".

All of that helped to steepen the yield curve, which is exactly what the Fed desired as that allowed the banking system to earn risk-free profits [playing the yield spread] to help rebuild their cratered up balance sheets.

[ThePythonicCow]

Re: More Green Shoots?

chart's of fed treas holdings

...

isn't that the fed buying the treas bonds that the market doesn't want... to 'shape' the yield curve?

Aha - that makes sense. The metalman comes through again, channeling EJ better than EJ himself somedays. Thanks.

[metalman]

Re: More Green Shoots?

Unless, of course, they all receive a "get out of jail free" card courtesy of those "public servants" that inhabit Capital Hill...

waht... did whalen sleep through the last 3 yrs? no bank's too big to bail. the bigger the bank the bigger the bail... & now we have gm ipo to prove the wisdom of the bailout.

[metalman]

Re: More Green Shoots?

Aha - that makes sense. The metalman comes through again, channeling EJ better than EJ himself somedays. Thanks.

channeling? reading... listening... & hoping he doesn't bail on itulip before he delivers his 'sell gold' punchline to the 12 yr old 'buy gold & treasuries' joke that is itulip.com.

[Chomsky]

Re: More Green Shoots?

Top banks face $100 billion Basel shortfall: report


LONDON (Reuters) - The new Basel III banking rules will leave the biggest U.S. banks short of between $100 billion and $150 billion in equity capital, with 90 per cent of the shortfall concentrated in the top six banks, the Financial Times said, citing research from Barclays Capital.

The newspaper said the study by the investment banking arm of Barclays Plc (LSE:BARC.L - News) assumes the banks will need to hold top quality capital equal to 8 percent of their total assets -- a one point cushion against falling below the effective global minimum of 7 percent set in September by the Basel Committee on Banking Supervision.

The regulations mean banks may need to increase their capital through retained earnings or issuing equity or they can cut their risk-weighted assets by selling off assets and cutting back riskier business.

"These shortfalls are entirely manageable ... The more difficult question is what affect the new rules will have on the cost and availability of credit and bank profitability," the FT quoted Tom McGuire, head of the Capital Advisory Group at BarCap, as saying.

McGuire estimates that U.S. banks can cut their equity needs by $10 billion with each $125 billion reduction in risk-weighted assets, the FT said.

Barclays Capital could not be reached for comment.

So, will the banks dump these assets on the Fed in order to conform with Basel III?

[c1ue]

Re: More Green Shoots?

waht... did whalen sleep through the last 3 yrs? no bank's too big to bail. the bigger the bank the bigger the bail... & now we have gm ipo to prove the wisdom of the bailout.

Yes, I second this notion.

So long as Mark to Fantasy still exists - why then would any bank have to 'fess up their sins?

Historically there is a precedent: the large Japanese banks in the '90s also were literally insolvent; the Japanese government saved them much the same way - but flooding them with government liquidity.

Today the only reason there are fewer is that they've all merged into a smaller set of ... TBTF