by Calculated Risk on 9/19/2008 01:58:00 AM

Here is the press release: SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets

Here is the order from the SEC:

IT IS ORDERED that, pursuant to our Section 12(k)(2) powers, all persons are prohibited from short selling3 any publicly traded securities of any Included Financial Firm.
...
This Order shall be effective immediately and shall terminate at 11:59 p.m. EDT on October 2, 2008, unless further extended by the Commission.

The list is long - 799 financial companies - here is the first page:

AAME ATLANTIC AMERICAN CORP
AANB ABIGAIL ADAMS NATL BANCORP INC
ABBC ABINGTON BANCORP INC PA
ABCB AMERIS BANCORP
ABCW ANCHOR BANCORP WISCONSIN INC
ABK AMBAC FINANCIAL GROUP INC
ABNJ AMERICAN BANCORP OF NJ INC
ABVA ALLIANCE BANKSHARES CORP
ACAP AMERICAN PHYSICIANS CAPITAL INC
ACBA AMERICAN COMMUNITY BNCSHRS INC
ACE ACE LTD
ACFC ATLANTIC COAST FED CORP
ACGL ARCH CAPITAL GROUP LTD NEW
ADVNA ADVANTA CORP
ADVNB ADVANTA CORP
AEG AEGON N V
AEL AMERICAN EQUITY INVT LIFE HLDG C
AET AETNA INC NEW
AF ASTORIA FINANCIAL CORP
AFFM AFFIRMATIVE INSURANCE HLDGS INC
AFG AMERICAN FINANCIAL GROUP INC NEW
AFL A F L A C INC
AGII ARGO GROUP INTL HLDGS LTD
AGO ASSURED GUARANTY LTD
AGP AMERIGROUP CORP
AGX ARGAN INC
AHD ATLAS PIPELINE HOLDINGS L P
AHL ASPEN INSURANCE HOLDINGS LTD
AIB ALLIED IRISH BANKS PLC
AIG AMERICAN INTERNATIONAL GROUP

by Calculated Risk on 9/19/2008 01:14:00 AM

“When you are ready to participate in the loss, feel free to call me."
Citi loss mitigation specialist to homeowner requesting short sale.

From David Streitfeld at the NY Times: The Pain of Selling a Home for Less Than the Loan

Reluctantly, banks are agreeing to let some short sales go through. But instead of writing off the unpaid portion of the debt, they want homeowners to sign a note promising to pay some or all of the balance due.

This was the situation confronting Mike and Linda Kelly, who needed to sell their house in the foreclosure-plagued Central Valley of California when Mr. Kelly got a new job 75 miles away.

The Kellys owe $300,000 on their house ... But the best offer they could get gave the bank $220,000.

CitiMortgage said it would approve a sale at that price, but at the last minute told the Kellys they needed to pay $166 a month for the next 20 years, a total of $40,000.

“When you are ready to participate in the loss, feel free to call me,” a Citi loss mitigation specialist ... wrote to them in an e-mail message.

The payments might total $40,000 over 20 years, but the present value of the payments is probably close to $20,000. Is avoiding foreclosure worth $20,000?

by Calculated Risk on 9/18/2008 09:24:00 PM

It appears Paulson and Bernanke are promising to work through the weekend on a comprehensive crisis plan. And the NY Times reports that lawmakers hope to complete the legislation by the end of next week.

But what will the plan look like?

First, the goal of the plan is to help recapitalize the banks and keep them lending. Once again the credit markets are frozen, and all indicators of stress are at or near record levels (like the TED spread). It appears even credit worthy borrowers are having difficulties obtaining loans.

A number of observers have been comparing the new entity to the Resolution Trust Corporation (RTC). As an example, from the CNBC story that broke the news:

Such a facility would be similar to the Resolution Trust Corporation, which was set up in 1989 to take on all the failed thrift assets during the savings and loan crisis, sources told CNBC.

And Volcker, et. al, titled their opinion piece yesterday in the WSJ: Resurrect the Resolution Trust Corp.

However this new entity would be very different from the RTC in a number of ways. The RTC was created to dispose of assets accumulated from failed Savings & Loans.

The new entity, according to the WSJ, would purchase illiquid assets "at a steep discount from solvent financial institutions and then eventually sell them back into the market".

With the RTC, the government already had direct responsibility for the assets since they acquired them from insured S&Ls that had failed. The role of the RTC was to liquidate certain of these assets.

In the current situation, the government has no financial responsibility for the assets, except for a few exceptions like the assets of Fannie and Freddie, and the NY Fed's assets acquired in the JPMorgan / Bear Stearns deal. The new entity will both buy assets "at a steep discount" and eventually sell the assets. So unlike the RTC, this new entity puts the taxpayers at risk.

Details of how this will work aren't available yet. But one of the key problems - in addition to the risk to the taxpayer - is that this program will actually reduce regulatory capital as losses are realized. The opposite of the goal!

Another previous entity mentioned today was the Reconstruction Finance Corporation (RFC) that was created in 1932 by Hoover. A key purpose of the RFC was to purchase preferred stock in banks to increase their capital positions and expand their landing capacity. This might also be part of Paulson and Bernanke's "comprehensive plan".

A new RFC might help certain FDIC insured banks, especially banks with significant losses associated with Freddie and Fannie preferred shares.

But since the first part of the plan - buying impaired assets at a steep discount - appears to reduce regulatory capital, a RFC preferred investment might be included to help boost regulatory capital. We will know more soon.

by Calculated Risk on 9/18/2008 08:05:00 PM

Form the WSJ: SEC Plans to Temporarily Ban Short-Selling

The Securities and Exchange Commission took its most aggressive assault against bearish stock bets by stating its intention to issue a temporary ban on short-selling.

SEC Chairman Christopher Cox briefed Congress late Thursday ... It's unclear if the SEC's intention has been approved by the commissioners ... which stocks are covered or for how long it will be in effect.

This follows the FSA in the UK banning short selling of financial stocks: FSA halts short-selling of financial stocks

Traders will be banned from betting against financial companies on the London Stock Exchange by selling shares short, the country’s financial regulator said today.
...
The FSA said the new rule would take effect at midnight and remain in force until January 16, 2009. It added the ban would be reviewed after 30 days and could be extended to other sectors “if (the FSA) judges it to be necessary.”

This focus on short sellers is misguided and counterproductive.

by Calculated Risk on 9/18/2008 06:57:00 PM

The Financial Times has updated their story: Five banks exploring WaMu records

Five banks have come forward to evaluate Washington Mutual’s financial records as part of an auction process run by WaMu’s adviser ... The five banks ... include JPMorgan Chase, Wells Fargo, Citigroup, HSBC and Banco Santander

by Calculated Risk on 9/18/2008 06:19:00 PM

Update: added potential to title.

From Bloomberg: WaMu Said to Attract Multiple Potential Bidders.

Washington Mutual Inc., the savings and loan that put itself up for sale this week after the stock tumbled, has attracted several potential bidders for all or part of the bank, a person familiar with the matter said.

The Finanical Times reported earlier there were no bidders.

by Calculated Risk on 9/18/2008 05:12:00 PM

Here is the story that apparently sparked the stock market rally today.

From CNBC: US Weighing Plan to Set Up Facility to Hold Bad Debts

Treasury Secretary Henry Paulson is working on a plan that would set up a government facility to take on bad debts from financial institutions, preventing a worsening of the global credit crisis, Wall Street sources have told CNBC.

The facility would be similar to the Resolution Trust Corporation, which was set up in 1989 to take on all the failed thrift assets during the savings and loan crisis, these sources said.

Paulson is consulting with Congress on the proposal and will brief House Speaker Nancy Pelosi this afternoon, CNBC has learned.

A number of people have been pushing this plan, including Paul Volcker and others in a WSJ opinion piece yesterday: Resurrect the Resolution Trust Corp.

We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.

This seemed like something that would be considered after the electon in November, but the Wall Street crisis - and WaMu attracting no bids - might push the Government to act sooner.

UPDATE: Here is a Bloomberg story: Paulson, Bernanke Weighing New Plan, Schumer Says. Schumer is calling for someting different than RTC II.

Note: the joke in Washington is that the most dangerous place to stand is between Schumer and a microphone.

by Calculated Risk on 9/18/2008 05:01:00 PM

From the Financial Times: No bidders come for Washington Mutual

Hopes of finding a buyer for Washington Mutual dimmed on Thursday as an auction for the beleaguered US bank had yet to attract any bids. ... Goldman Sachs is conducting the auction for Seattle-based WaMu ... The lack of interest means that Goldman may soon have to evaluate other options for the bank.

What if you held an auction and no one came? Maybe they can put WaMu on eBay.

by Calculated Risk on 9/18/2008 04:42:00 PM

From ABC: Top Broker: NYC Real Estate Already in Steep Decline

Manhattan's finest co-op apartments may have already lost a fourth of their value as a result of the financial crisis, and the worst is yet to come, says leading New York estate broker Kathy Sloane, of Brown Harris Stevens.

Remember when New York city was considered immune?

Kudos to NY agent Noah Rosenblatt of UrbanDigs. When I spoke with Noah at the Inman conference in late July, he told me there were clear signs of a slowdown in New York city, and he thought the RE market would get much worse.

by Calculated Risk on 9/18/2008 03:59:00 PM

From Bloomberg: Moody's Raises Loss Forecast on Subprime, Jumbo Loans (no link yet). Moody's increased their loss forecasts for certain securitized subprime and Jumbo-prime mortgages, and cautioned about related downgrades of securities and financial firms.

Losses will reach an average of 22 percent on subprime loans underlying bonds created in 2006 ... That's up from an estimate of 14 percent to 18 percent made in January.

Losses on jumbo loans in 2006 bonds will rise to 1.6 percent to 2.1 percent, versus initial estimates of 0.35 percent and 0.60 percent.

Notice the sharp increase in losses for prime jumbo loans in 2006 bonds.