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Larry Doyle’s Central Station

By Larry Doyle on February 21, 2009 at 8:45 AM in American Consumers, Bank Nationalization, Banking Institutions, Bernie Madoff, Congress (House & Senate), Credit Card Companies, Current Affairs, Earmarks, Economic Stimulus, Economy, Tax stimulus package, Wall Street, Workers

monte-carlo_train_station-fWith the market making new lows for the year, global economies showing increasing signs of distress, and new programs emanating from Washington, where does one find some sanity around here??

We’ll be departing from “LD’s Central Station” on Saturday at 9:00 am EST until 12 noon to attempt to put some clarity into this madness!!

We thought the month of January was challenging but it seems we were just getting going. With the turns on the track getting ever more challenging, we will do our best to keep you informed and ahead of the curve.

Our train was packed last week so we will make sure to keep those extra cars. Make sure you board promptly, get settled, grab a coffee, and settle down for an engaging online Q/A chat as we “navigate the economic landscape.” Bring a friend along as well.

For our newer riders, your conductor is not a professional financial planner but merely a Wall Street veteran who welcomes sharing his instincts and experience.

webnew2ldlogo_edited-3While we board, let me preannounce that we will have a very special show Sunday evening on LD’s Dollars and Sense on No Quarter Radio from 8-9pm.

We have two very interesting guests joining us. Lynn Marshall has one of the most unique backgrounds in the world of finance today. How does one develop a background that includes senior level experience in investment banking, agriculture, and community banking? Think Lynn has some amazing perspectives on the economy and markets? Don’t miss him.

Additionally in light of the developments at Stanford Financial, we are very happy to have John Moynihan return to our show to discuss the dynamics in the world of offshore banking. Find out more than you could ever imagine by talking to these enlightened experts on LD’s Dollars and Sense on No Quarter Radio this Sunday evening from 8-9pm.

Aaaaaaaaaaaall Aboard!!

  • LD

    While our riders are boarding, I will propose topics for discussion:

    1. Where does the market go from here?

    2. What about global markets?

    3. What did we learn from economic data released this week?

    4. Nationalization?

    5. What do riders think about Obama’s housing proposal?

    6. What are your financial planners and brokers telling you? Do you feel you are being well served?

    7. What is going on in your states and budget debates? Cutting services? Raising taxes? Who is providing inspiration and leadership out there?

    8. Rick Santelli’s rant on CNBC about Obama’s housing plans. What do you think?

    9. Whatever else is on your mind.

    Aaaaaaaaaall Aboard!!

  • Doc99

    The Market is Shorting Obama’s Stimulus.

    Dow 6000, Here We Come!

  • sunup

    The uncertainty seems to be paralyzing people.
    None of us have been through times like these.

    In California any tax benefits from the stimulus have been wiped by the newly passed state budget. Vehicle license fee nearly doubles,sales tax rises 1%,income tax .25%,and dependent tax credit is reduced by $210.
    Schools, colleges and programs for the poor and disabled take the biggest hit in cuts.

    If ,as they say ,”as California goes so goes the nation.”we all in for a long and hard time.

    • LD

      Sunup…thanks for sharing these insights. One hand giveth and the other hand taketh away.

  • fiscalliberal

    Rick Santelli’s rant on CNBC was a bit overdone by the media, however I know he expresses a lot of frustration out there by the 92% of the people who play the game by the rules.

    LD – I think the last insolvent sub prime loans were written late 2006 and early 2007. So – if most of them were 2 year teaser rates, they whould be done reseting to the higher rate by the end of 2009. Would agree with that premise?

    If the uncertainty in the banks can be cleared up by the end of 2009, business should be able to look forward and start investing.

    The Democrats will want to do that to get jobs boing by the next election.

    • LD

      I found it interesting that WH Press Secretary Gibbs responded to Santelli’s comments and effectively said that he (Santelli) really does not know what he is talking about. he invited him to come to the WH to discuss. I viewed Gibbs’ response as somewhat arrogant and dismissive. I do hope that CNBC allows Santelli to go to the WH and discuss. He clearly hit a nerve. I would be surprised if CNBC pursues it but we will see.

      I concur with you on the sub-prime issue but like the last people at a party the chances for problems with these loans are the greatest (“nothing good happens after midnight”). Actually these loans would be resetting right about now. Given that short term rates have come down from when the loans were originated it is likely that a lot of these loans would reset lower. However given that plenty utilized negative amortization (principal increases) and were originated at or near the top of the housing market the chances for default are very high. I am concerned that even with the housing plans that we will continue to experience heightened levels of defaults even after committing all that money.

      • TexasMirth

        I viewed Gibbs’ response as somewhat arrogant and dismissive.

        It trickles down.

  • Doc99

    Jawa Report: President Obama = President Ponzi.

    Who will bail out the government?

    Taxpayers….

  • lizzy

    I have lost confidence in our government’s ability to influence our economic situation in a positive way. I haven’t heard too much about the international siuation aside from the exposure of European banks in emerging markets. Should we be watching for anything internationally? Didn’t Citibank have some problems with loans to emerging markets a few years ago? I have really appreciated the sources you give us; they are a big help. Last week you mentioned a book on lobbying, “So Damn Much Money,” Bill Moyers had a great interview with the author Robert G. Kaiser last night. Sorry I don’t know how to do the exact link.

    • Doc99

      Bill Moyers has his own issues.

    • Larry Doyle

      Lizzy,

      The international concerns are primarily if we have a domino effect of governments defaulting or failing due to the economy. We saw this occur in Latvia overnight.

      http://online.wsj.com/article/SB123514459666133921.html

      I hope I linked that properly as it is a WSJ article addressing Latvia.

      Citibank did in fact have major international exposures in the late 80s and then again in the late 90s. By its very nature it will have exposure to a lot of international markets (developed and emerging) but Citi’s major problems lie within its CDO holdings that were in off balance sheet SIVs (structured investment vehicles).

      Thanks for the plug.

  • Sassy

    Good morning LD!
    We have lost another 2200 jobs locally.
    Regarding the stimulus, so far the only mention I have seen is the preservation of 2500 state jobs.
    Additionally, there are four or five upcoming job fairs…unfortunately, they are for summer jobs in the tourism industry.

    • Larry Doyle

      Sassy…thanks for the color. Can you share what state or region you live in? I always get concerned as to the amount of political patronage from both sides of the aisle when it comes to state jobs.

  • HARP
  • Doc99
    • Larry Doyle

      VERY interesting link to see what Soros said just yesterday. I believe he spoke at a conference at Columbia university. THANKS for sharing. Strongly recommended.

      I did hear Soros say a few weeks back that he is short the Euro.

      • Andy

        LD:

        I did hear Soros say a few weeks back that he is short the Euro.

        What does this mean? Thanks.

        • Andy

          I meant what does it mean as the real/potential consequences of his doing this. Thanks again.

          • Larry Doyle

            Andy,

            Soros is entitled to take any financial positions he wants but he is in a position where he can then influence the markets as well by broadly discussing his reasons. Again, freedom of speech allows him that right as well, but I do think his motivations are not purely financial but social as well. I think he would look to create some social changes. He clearly wanted to see that here in our country and was aggressive in making that happen given his support of Moveon.org.

            • Andy

              LD: thanks! How about then what I just ask below? Seems he has enough power to engineer things…

          • Andy

            After all Soros made a fortune of out of the Bank of England (92?) by short selling the pound … SO maybe my question should be: when does a short sell of Soros magnitude becomes a self-fulfilling prophecy? Has the Euro been dropping in part b/c of Soros?

            Can he do to the EU what he did to Bank of England? And f so to what consequences?

            I heard yesterday that Germany is prepared to defend the currency.
            I wonder now what’s going on …

            • LD

              Soros is not bigger than the market itself but he has significant influence through multiple connections. I don’t think it becomes self fulfilling but again I don’t trust him.

              • Andy

                Thanks LD !

                I don’t trust Soros either….

      • lark

        That’s what I have been saying. The damage has been done. It’s time pay.

        Soros is right that the turbulence is more severe than the GD because ‘prayer in school is no longer there to help build moral character.’ So one can predict only complete collapse under immorality and no until the fear of God is put in the heart of people will the problems find solutions.

      • TeakwoodKite

        From the link Doc99 sited

        “I don’t remember any time, maybe even in the Great Depression, when things went down quite so fast, quite so uniformly around the world,” Volcker said.

        .

        What a sand box we are in. Will fiscal conservatism ever return?

        • lark

          Maybe when people loose all their money, don’t you think? All of it.

        • cynic

          Will fiscal conservatism ever return?

          When was the last time we actually had it? Not just as the stuff of campaign speeches, but in actual practice?

          You’d probably call me a liberal, but I’ve been a practitioner of personal financial conservativism my entire life.

          • lark

            I get it cynic.

            • TeakwoodKite

              True, cynic.

  • bart

    LD,

    I’m seeing both people worried about deflation (seems more of the big guns here) and some predicting hyperinflation in the next year.

    Which is more likely, do you think? And while we would just try to get rid of all debt and hang on to work in a deflationary period, I don’t quite know how to deal with serious inflation. You can’t save and yet you can’t spend.

    And yet I understand inflation is still better than deflation. . .

    • Larry Doyle

      Bart…quite a dilemma. While we may have a period of “disinflation” (a lessened rate of inflation) I do not expect that we will have outright deflation (broad based overall drop in prices). I do think that given the massive amount of currency that is being printed and will continue to be printed that once the economy stabilizes (and it will over time) that inflation will be a real issue.

      • Mary

        FYI: Brookings is estimating deficits over $1 trillion every year for the next 10 years.

        Just the interest alone on all the trillion-dollar bailouts will cripple our children’s future; after a short rise in GDP, that debt will lower GDP long term.

        Feds predicting no real recovery for 5-6 years.

        Inflation a huge problem, down the road, and high interest rates as in the Carter years.

        • Mary

          Not to mention, of course, the dollar being devalued.

          And international investment $$ moving away from the United States.

  • Sassy

    LD, I’m in TN.
    Governor Bredesen, Dem., but Republican Senators Corker and Alexander, and new Representative Dr. Phil Roe.

    • Larry Doyle

      thx…good luck out there…

  • Andy

    LD:

    How deep are BoA’s troubles? Are they really as bad as Citibank?
    What does it mean for their clients if they are nationalized ? (BoA has all my savings..).

    I was talking to the manager of my local branch yesterday and she said that BoA never did subprime mortgages but that they were hanged with them when they purchased Countrywide Financial.
    Is this really the root of their problems?

    • Larry Doyle

      Andy,

      First things first, as long as your savings are beneath the FDIC insured limit you should be fine.

      In my opinion, BofA’s problems are the due to the following:
      1. much more of a consumer driven bank and the largest credit card issuer in the country. They had purchased a number of other credit card companies along the way. Will credit cards be their death knell? No way, but the chargeoffs are significant. The same goes for their mortgage origination biz. Not a death knell but eats up a lot of capital.

      2. exposures to Countrywide which was involved in virtually all of the aggressive mortgage products written. While JPM got government backing to absorb a large percentage of losses from loans underwritten by Washington Mutual,I am fairly certain that BofA did not exact that same standard in its purchase of C-Wide.

      3. Exposures to Merrill Lynch both in sub-prime (Merrill had grown its sub-prime exposure significantly from 2003 on) and other CDOs.
      BofA did get some government backing after the fact on some of this Merrill exposure.

      IMO, I think Citi will likely be nationalized while my gut tells me that BofA will not. Why? I firmly believe that the Merrill/BofA marriage was a shotgun affair that was STRONGLY encouraged by Paulson and team. While Lewis and Thain have made this shotgun marriage a public relations disaster along with a financial calamity, ultimately I think the government will feel a strong sense of obligation to support BofA.

      I could be wrong but this is my gut instinct.

      • Andy

        Yes, my savings are in regulars CD’s so are FDIC. Thanks.
        Talking about FDIC; their limits have gone up only for 5 years is that right?

        Thanks a lot for your very thoughtful reply re. BoA exposure problems; I much appreciate it LD !!

    • fiscalliberal

      They also have Merrill Lynch now which the government nudged on them.Merrill Wrote a lot of Credit Default stuff and had sub prime exposure.

      I never understood why BOA picked up Country Wide. My bank person at BOA claimed it was their software that they wanted. I think that was about automated loan risk and qualification in future loans. My view is they would have to modify the software such that the risk hisory goes back and updates for current fiasco.

      In a Brad Sester blog, a reader commented that BOA had a big position with Country Wide in terms of Credit Defaults that they had written.

      Credit Defaults are really the big unknown at this time: who wrote credit defaults and what are their capital reserve positons. This was all done over the counter and only the counterparties know their positions. That is all of what AIG is about.

      • Andy

        Thanks fiscalliberal; very interesting indeed. And quite complex… I tell you this must be one of the hardest combinatorial problems ever, in terms of
        who owes what, who has what, and so on…

  • Andy

    LD:

    How deep are BoA’s troubles? Are they really as bad as Citibank? What does it mean for their clients if they are nationalized ? (BoA has all my savings..).

    I was talking to the manager of my local branch yesterday and she said that BoA never did subprime mortgages but that they were hanged with them when they purchased Countrywide Financial.
    Is this really the root of their problems?

    • Andy

      This is a repeated comment—ignore here. LD you answered this above for me already. Thanks!

  • lark

    5. What do riders think about Obama’s housing proposal?

    That it is 100 percent wrong. Totally.

    • fiscalliberal

      Lark – some how I get the understanding that you have experience in real estate. Am I right?

      My initial reaction is that his program will work on the margins. The big problem that I hear about is the private market securites sericers are not paid to negotiate modified loans. Servicers do not want to staff up for a short term business. Also for some reason, the private equity servicers are afraid of getting sued by the investors. Additionally with the high default rate (40%+) on loan modifications, it is realy matter of full requalification.

      Fannie, Freddie and FHA have it built into thier fee structure.

      My understanding with the FDIC Indy Mac loan modifications the orrowers ae asked to certify their original stated income, ie tax returns. That tends to stop a few people.

      • lark

        I have experience in RE but like Pontious Pilate my hands are innocent of this blood shed. I can speak because I did not profit from immorality.

        Obama is ‘classically’ having the just pay for the sins of the unjust. That arises chaos in ‘the’ heavens.

        The problem can be solved without spending money if the ‘reporting of the credit bureaus’ are modified to reflect a)the sins of the system, b)the sins of the takers.

        Besides who gave the right to the ‘credit bureaus’ to advise on credit worthiness by just computing statistical inputs. Crap. We can take away that right and it will cost not a penny, right? Right? Right?

        If that was the case then one could explain in writing as a way of repenting why one is a victim of ARMs and balloons and other onerous practices of home builders.

        If that was the case, then loosing would be gaining, no? You loose a house, but get the right to buy a house you can afford. Right?

        Down with credit ratings and up with people. I mean repented people that require ‘three’ or more character references to borrow for a mortgage. Character should trump statistical points. It is a case where one wrong would make a right. One fails but one takes up the cross and begins walking in newness of life, in honesty, affording what one purchases. No biggy.

        We just need to throw the analyst out the door.

        • fiscalliberal

          So – what church are you recommending???

          :-)

  • Doc99

    Economist’s Alternative to Stimulus: Rebel With A Cause.

    • lark

      I have several alternatives myself, some that are fantastic and do not cost one penny; but do cost people to actually scramble to build a good moral character to back up their purchases. Moral character in order to get credit? What a novel idea, no? Does not cost a penny but it cost some time in character building.

      Other alternatives cost very little, since they focus on investment real estate and are not only 1/500 of the present bailouts but they pay for themselves since real estate investment pays a higher tax than homeowners real estate. Tax to the Federal gov. that is. And no it does not mean higher taxes for investors. It means that it pays for itself within the current tax structure.

      Oh forget about it. Who cares? Is just our country we are loosing, no?

  • fiscalliberal

    LD – do you have some sense of who wrote Credit Defaults?

    I am gettig the feeling that the Investment Banks set up the SIV’s and then the bank wrote the Credit Defaults for a small revenue stream. t was the short term borrowing and high leveraging that got them into trouble

    It is all so confusing and the lax regulation of Greenspan and Chris Cox created this web which Geitner has to quantify. I suspect he knows where things were, but it is the quantificaiton of them that is the problem.

    • Larry Doyle

      Fiscal…CDS was and is a product that all of Wall street embraced. It remains a hugely profitable source of activity because the spread between the bid and asked (the “market) is not tight/narrow.

      Everybody is involved in this business.

      Certain entities, such as AIG, had so much exposure that they created massive systemic risk.

      CDS in and of themselves are not bad. in fact, if used properly are a great way for hedging risk. However, like prescription drugs, when abused, they can be fatal.

  • Larry Doyle

    have to get my son at driving school..be back in 30 minutes…

    • TeakwoodKite

      My daughter just passed her driving test.
      I told her now she will be learning to drive for the rest of her life.

      She said that many people mind thier driving with an intructor in the car, but then drive like fools when on thier own.

      Somewhat like the economy I think.

  • lizzy

    Great interchange today LD Just wanted to say thanks for the link to the WSJ article on Latvia. It seem that both Estonia and Lithuania are closely related to the situation in Latvia so problems there could lead to trouble in the two neighboring countries. Do these financial problems indicate coming political instability? These countries were defacto parts of Russia until the breakup of the Soviet Union. If Putin wants to expand his influence, they along with much of Eastern Europe, could be vulnerable.

    • Larry Doyle

      yes…political instability may very well be a serious problem…we do not want to return to a Cold War mentality…HRC has her work cut out for her…I was encouraged to see her embracing the need for U.S. and China to develop closer ties…

  • fiscalliberal

    When we talk about political and economic instability, it is interesting to google GDP by country. Interestingly, the CIA has a pretty good site on that.

    Probably, it might be said the dollar, euro and chineese RMB countries might be the most relevant to the stability.

    However when we have sovereign funds and hedge funds like Soros playing games with shorting, that is just as big a factor.

    A whole lot of factors there that need undestanding when one talks about stability

  • lark

    So as you can see in many of my posts above, there are ways of correcting the housing market, first without spending a single nickle, second in a way that would benefits everyone, everyone.

    But no, we prefer to pass the bill to the unborn and to dream of socialism.

  • lark

    What about global markets?

    U.S. and China to develop closer ties

    At who’s expense?

    Who benefits from closer ties between U.S. and China?

    Maybe those in government that admire the Chinese political system.

    Everything has a price. It seems okay that Americans should pay for everything.

    • lizzy

      U. S. companies who benefit from subpoverty wages and no expenses to protect the environment must be high on the list of those who benefit. As are those who buy much cheaper products produced in China.

  • Gary McGowan

    We must break the power of the banks and their lobbies. How do we do that?

    http://www.truthout.org/021609J

    http://www.larouchepac.com/news/2009/02/21/lpactv-fascists-vs-fdr-then-and-now.html