I think I am turning Japanese.


While I am skiing with my family in the canyons, I have followed with morbid interest the demise of Bear Stern.

From $17B in cash to bankrupt in 3 days. The price paid of $2 per share, down from 70, is merely symbolic, reflecting the "$2 dollar broker" pejorative moniker used on Wall Street to describe the "lowest of the low" in the banking cast. What it really says is that Bear was completely insolvent.

Lehman and Goldman post good numbers but the combined exposure of the banks is still unknown and the combined equity of the top 5 is $150B. It is puny compared to the $500B loss to be reckoned with in the market. A 30% share of the exposure would wipe them out. The orders of magnitude are in the same league.

Contemplating the insolvency of the banking system, as hinted by the sudden Bear demise, even if temporary and forced by mark to market accounting, is a scary proposition and I read this morning that the banks are shunning the discount window where they could get temporary liquidity for fear of rumors about their insolvency and suffering the same fate. Hmm cuts both ways, as I read this as denial and tacit acknowledgment that the insolvency is here.

Meanwhile the FED is throwing meat to the bears to appease them. In a highly original move they have opened the windows to a wider audience. This way banks can post collateral from their clients (hedgies etc) and this is the FED way of extending liquidity to those fringes of the financial system. The markets have responded well to the moves.

The award for "the dummest professional blog I have read this week" has got to go to "MarketWatch" where some 2 dime analyst writes that "the market has given us a double 9 to 1 signal" which on the surface of it sounds deep but in reality refers to "2 days of trading where 9 stocks go up for each 1 that goes down" which historically is a signal of a STRONG bull market. What the article forgets to correlate is that the FED have taken dramatic action on both days and this is purely FED driven not "standalone market action".

A better analysis I have read by Roubini at RGE made the point that monetary easing and the FED action lately helped the speculators more than it helped address the underlying problem, namely the potential insolvency of our banking system due to the subprime and credit crisis. I still believe that when the main facilities go on on March 27, there could be easing.

Roubini, a bear amongst bears, is now talking about the "bank run on the shadow financial system" a step in his prescient and now infamous "12 steps to the mother of all meltdowns". Again the hedgies are being clobbered by the banks and their own investors who are rushing to get their equity or debt out of the frail vehicles. Train spotting may become my favorite pass-time.

But really I am waiting for one more shoe to fall. The main trigger was El-Erian of PIMCO publicly calling for the FED to buy stricken securities to prop up the markets and asset values. Here is a gentleman that was successful in investing while at Harvard and is now calling for bail-out of the financial industry at large, by putting a floor on the losses, at the expense of tax-payers and at the benefit... of guys like him. Yikes! Is it that bad? Also moral hazard? what moral hazard?

A great article was written recently on Bloomberg explaining why "mark to market" was not the culprit. Basically the argument goes that 1/ FAS157, does not require you to mark to market, only to disclose what you marked to market and market to model, but you can choose apparently. 2/ accounting is not responsible for the losses in the first place (subprime) it just accounts for it.

Argument 2/ is debatable, while it is true that the losses are real, they are still unrealized and unknown, those who do mark to market may be putting more strain on the system by triggering systemic constraints and forcing margin calls on hedgies for example, which in turn dump at fire-sale prices all of it fueling the "run on the shadow financial system" and the real system. On the other hand, not accounting for losses and staying is lala-land just delays the day of reckoning and financial history seems to indicate that the quicker you deal with the problem, the better it is, if you don't die in the process.

But really, the lost decade of Japan looms large at the moment. 10 years of stagnation and deflation triggered by a banking collapse following losses in housing and credit... the main problem was the inability of the society to deal with losses or losing face. A similar aversion to "failure/loser" is palpable at the moment and kind of pathetic. The calls by Pimco, the FAS157 criticism feel like a desperate aversion of losses.

It is one thing for the FED to stop-gap a spiraling crashing system, it is quite another to set the floor. If humpty dumpty is falling from his fence, the FED is just putting steps under it so that it orderly falls to the floor, gently stumbling from step to step rather that crashing all at once. But humpty will get to the floor and the quickly he gets on the floor, the better.

A commentator (fintag) points out that with the FED cut to 2.5, the USD is starting to look like a cary-trade currency just like the yen is, he/she says that at 1% the USA will officially be the new Japan. I prefer comparisons to Japan as opposed to drawing parallels to Banana Republics as the FT did yesterday. More dignified this way.

And with that I am going back to the slopes. Today is a beautiful day, the markets may be convulsing but the snow is sweet and the weather nice. See ya.

Comments

Anonymous said…
Interesting parallel to Japan. I wonder if the banks are going to come up with the 40 year mortgage product that is common in Japan to combat this sub-prime monkeywork. That could provide lower rates and a much stabler economy built for longevity vs undercutting ARMs that accelerate to pay for the initial break and cripple the customer on the backend. I forget when they started that in Japan, but it would make sense to do so in response to this market situation.
adt43wt342 said…
40 years of debt, that is one instant gratification itch. Obviously in the case of housing it kind of makes sense.

Interestingly enough, in Mr Greenspan's book he talks about a meeting with the minister of finance of Japan and he goes on about how to solve the problem which principally involves "not hiding the losses any longer". The minister responds that while he is absolutely right, this is not "the Japanese way" as it involved too much losing face. I would love to be a fly on the wall the next time Ben Be meets with the head of finance and he has to listen to all the solutions the japanese developed. Humble pie anyone?
Anonymous said…
85cc免費影城85cc免費影片免費 a 片台灣論壇免費影片線上免費a片觀看85cc免費影片線上觀賞a片免費看免費A片A片-sex52085cc免費影片免費卡通影片線上觀看小魔女免費影城免費看 aa的滿18歲影片免費a片卡通sex888影片分享區520sex貼片區aaaa彩虹頻道免費影片sex520免費影片後宮0204movie免費影片免費色咪咪影片網成人a影片論壇免費影片下載aaaaaa片俱樂部sex520免費影片sex888免費看影片馬子免費影片免費線上a片gogo2sexaaa片免費看短片免費 a 片aaa片免費看短片免費線上avdvd成人圖片區18成人avoooaaa的滿18歲卡通影片免費線上歐美A片觀看sexdiy影城plus論壇dudu sex免費影片85cc成人影城臺灣情色網線上免費a長片免費卡通影片線上觀看彩虹頻道免費影片洪爺影城浪漫月光論壇bbs x693 com sex888 sex383線上娛樂場85cc免費影片sex888 freebbs hksogo 成人論壇sex999日本美女寫真集日本 avdvd 介紹免費觀賞微風成人av論壇aaaa 片俱樂部免費影片下載a亞洲免費影片線上直播卡通美女a片免費試看免費成人視訊視訊情色遊戲援交av080影片sexdiy影城sex520免費影片sex888movie影城情色小說 杜蕾斯成人一本道 a片 東京熱情色影片本土辣妹34c影片直播吉澤明步sex888免費看影片論壇a 免費影片觀賞aa的滿18歲影片av080免費試看sex888 freebbs hk免費aa片試看免費影片觀賞av博物館aaa免費看影片亞洲禁果影城免費a片aaaaa片俱樂部影片5278論壇金瓶影片交流區383movie成人影城aio性愛dvd辣妹影片直播免費a片線上觀看,sex520貼片ut13077視訊聊天avdvd無碼情色電影日本 avdvd 介紹免費觀賞台南援交友留言hi5 tv免費影片1314視訊成人論壇成人免費視訊 完美女人hilive tv 免費電影34c蒼井空影片下載avdvdsex383線上娛樂場aio交友愛情館sex383線上娛樂場JP成人網免費視訊聊天室微風成人

Popular posts from this blog

$6.66B for BEA: Larry goes Shopping

Thug vs Thug: Porsche 1, Hedge Funds: 0

Quickies #3, protecting IP in OSS