October 24, 2007

"The level of terror that must exist in the boardrooms of the banks and regulators that peered into Pandora's box this summer must be extreme."


Great rant from Fleckenstein on the Paulson/Banker "Super SIV" house of cards

No need to beat around the bush. The banks (and US Treasury) are trying to create this SIV super-fund in order to avoid or delay a significant "mark to market" of the mortgage cancer they have on their books. Period. The losses are real, the cancer is spreading, and they're doing all they can to keep the truth from their shareholders and the financial community.


Even Alan Greenspan and Warren Buffet think this whole thing stinks. And it does. To high heaven.

Here's Fleck. And get ready for the crash when this whole deceptive plan caves in, and even the bankers rush to the exits.

This week I have another entity of entitlement to add to the list: "SIV Mae" (SIV = structured investment vehicle). That seems a fitting description of the super-duper bailout put together by the Goldman Sachs (GS, news, msgs) subsidiary known as the U.S. Treasury Department. (Goldman itself doesn't appear to be participating in the bailout, which is interesting.)

When I first heard about this, I was outraged, disgusted and slightly depressed. I thought, here we go, another bailout.

Barney Frank and friends are trying to bail out the homeowners. Wall Street, the Treasury Department and the Bank of England appear determined to do whatever it takes so that we have absolutely no price discovery on any mortgage-related assets that may have gone bad -- thereby giving a pass to the folks who've made obscene amounts of money conceiving and marketing them.

To quote a knowledgeable friend of a friend: "How anyone can look at the creation of this fund as anything other than a cynical way of moving an existing pile of crap from one place to another is beyond me. The fact that no one seems to think there is anything wrong with it (and I include the regulators) tells you just how 'fixed' the markets' problems are.

"The level of terror that must exist in the boardrooms of the banks and regulators that peered into Pandora's box this summer must be extreme."

11 comments:

Anonymous said...

And the truth shall set you free.

Anonymous said...

I think you misunderstand the purpose of the MLEC. It is not to hide the bad loan products, but to sell at top-dollar the "good" Alt-A paper in order to raise cash to cover the bad loans and keep them off the bank balance sheet (and meet reserve requrements). The alternative is to sell the "good" loans on the open market which will not buy anything above a deep deep discount, regardless of the quality. Being a free marketeer I am amused at the banks attempts to jump start or prime the liquidity pump. I don't think it will do much in the medium to long term, but it will give them breathing room in the short term. The bailout talk is a bit of a stretch. Federal money would only be at risk in an extreme circumstance. The most likely risk transference is to the FDIC in the unlikely event that one of these banks actually fails.

Anonymous said...

I remember back in the 80's in the Oil Patch RE crash (in Texas,Lousy-ana, Miss & Alabama).

A Bank in Baton Rouge (Louisiana National Bank?) actually created another Bank to transfer all their bad Mortgages to, in order to write them off.

New twist on an old problem!

Anonymous said...

WOW, this whole financial crash is of Biblical proportions!

Oh, wait - the Bible DOES mention this - 2k years ago!

borkafatty said...

OT:

So you think your precious Metals you crave as an Inflation Hedge is actually there...you might wont to look twice..

Thank Christ I hold Physical, If i can not touch it...it does not exist.

http://www.24hgold.com/24hpmdata/articles/241020070190169.htm

Anonymous said...

I remember back in the 80's in the Oil Patch RE crash (in Texas,Lousy-ana, Miss & Alabama).

A Bank in Baton Rouge (Louisiana National Bank?) actually created another Bank to transfer all their bad Mortgages to, in order to write them off.

New twist on an old problem!

October 24, 2007 5:39 PM


Youre not supposed to remember this stuff, let alone squeel on us in public. This is all very high finance stuff created by Nobel winning economists and wall street bankers.

Anonymous said...

I think Keith is Right. These banks are trying to cover their mistakes.

It's like an old kid comedy sitcom. the whole episode the kid is trying to keep the parents from finding out the truth. But in the end the cover up never works. The funny part is trying to see what skeem the kid can come with.

But this aint no comedy and it ain't funny anymore

Anonymous said...

Buy SKF - ultra short financials fund! Financial go down - SKF goes up x2 !!

Anonymous said...

It's obvious they're going the Japanese route of a slow deflation instead of a quick crash. The bad debt will be on the books for another 10 years. Each year, they will write off a piece of it against earnings. I personally think it is better than the collapse of the financial system where people won't be able to get food, water or medicine.

Anonymous said...

It's all a sign from above. Fire, floods, disaster from all angles. We are living in the end times my friends.

Anonymous said...

Had a long boozy conversation on Sunday with a mid-level investment bank trader. He echoed ALL the bear points - CDOs, SIVs, Paulson, Bernanke, housing bubbles, crazy credit, and on and on and on - and reckons a twenty year long party is coming to an end. There's a phrase doing the rounds relating to the credit crunch - "a tzunami wrapped in an earthquake, with a sprinkling of bubonic plague". And some very nasty news is about to be announced by an organization that recently swore it had fessed up to all its MBS related losses. It's only just begun.