by Calculated Risk on 10/20/2008 12:38:00 PM

The yield on 3 month treasuries: 0.93% up from up from 0.72% (BETTER)

The TED spread: 3.04 down from 3.59 yesterday (BETTER)

The two year swap spread from Bloomberg: 111.5 down from 122.2 (BETTER)

Activity in the Treasury's Supplementary Financing Program (SFP). This is the Treasury program to raise cash for the Fed's liquidity initiatives. If this program slows down borrowing, I think that would be a good sign.

Here is a list of SFP sales. Another $40 billion announced today/ No Progress.

The A2P2 spread is 4.36 for Friday from 4.49 for Thursday. slightly better.

Industry contacts. I'm tracking some financing deals there are being held up right now. If these deals complete that would be a good sign (I'll post something when this happens). No improvement yet.

I'll add a couple more indicators, but this is progress.

Note: I'm returning from Zion and Bryce today. I'll be home tonight. Sorry for not responding to all the emails.

by Calculated Risk on 10/20/2008 10:14:00 AM

From the WSJ: Bernanke Signals Support For Second Stimulus

U.S. Federal Reserve Chairman Ben Bernanke on Monday threw his support behind a second round of fiscal stimulus by the government to limit the risk of a "protracted" slowdown in the economy.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Mr. Bernanke said in prepared remarks to the House Budget Committee.

Mr. Bernanke offered many caveats, however. Any stimulus should be "well-targeted," he said, and focused on ways to "help improve access to credit by consumers, homebuyers, businesses, and other borrowers."

Meanwhile, "any program should be designed, to the extent possible, to limit longer-term effects on the federal government's structural budget deficit," Mr. Bernanke said.

Although there are some signs of a thaw in the credit markets, most indicators suggest the economy is already in free fall.

by Calculated Risk on 10/20/2008 08:44:00 AM

From MarketWatch: More signs of thaw apparent as money-market tensions ease

The London interbank offered rate, or Libor, for three-month dollar loans fell to 4.05875%, down sharply from 4.41875% on Friday.
...
The rate remains abnormally high, but it's climbed down from peaks set earlier this month as financial institutions all but halted loans to each other amid fears of further bank failures.

The TED spread is now down to 3.2. Still very high, but showing progress.

by Calculated Risk on 10/19/2008 09:56:00 PM

From Bloomberg: ING Gets $13.4 Billion Injection From the Netherlands

ING Groep NV, the biggest Dutch financial-services firm, will get 10 billion euros ($13.4 billion) from the Netherlands after warning Oct. 17 of its first quarterly loss ...

ING will scrap this year's final dividend and sell the government non-voting preferred securities that won't dilute existing shareholders and will lift the bank's core Tier 1 capital to about 8 percent ... The securities pay 8.5 percent annual interest, Dutch Finance Minister Wouter Bos told reporters today.

The bailout continues ...

by Calculated Risk on 10/19/2008 11:46:00 AM

From the NY Times: F.B.I. Struggles to Handle Wave of Financial Fraud Cases

Since 2004, F.B.I. officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policy makers focused on counterterrorism.

According to previously undisclosed internal F.B.I. data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels.
...
In 2004, one senior F.B.I. official, Chris Swecker, warned publicly that a flood of fraudulent mortgage deals had the potential to become “an epidemic.” Yet the next year, as public warnings about fraud in the subprime lending markets began to approach their height, the F.B.I. had the equivalent of only 15 full-time agents devoted to mortgage fraud out of a total of some 13,000 agents in the bureau.

That number has grown to 177 agents, who have opened 1,522 cases. But the staffing level is still hundreds of agents below the levels seen in the 1980s during the savings and loan crisis.

People having been sounding the alarm on mortgage fraud for several years - and the FBI still only has 177 agents devoted to mortgage fraud. Amazing.

by Calculated Risk on 10/19/2008 09:33:00 AM

From the WaPo: U.S. Bank Plan Hits Snag in Rules (hat tip Mark)

The Treasury Department is pressing federal banking regulators to change longstanding rules that are in the way of its plan to invest $250 billion in American banks, raising questions about the independence of the regulatory agencies.

Treasury's plan, announced Tuesday, rests on the ability of banks to use the government's money to buttress their core capital, the financial foundation that supports a bank's operations. Those foundations have been eroded by recent losses, limiting lending to customers and damaging the broader economy.

But under federal banking regulations at the time of the announcement, investments with the conditions attached by Treasury cannot be counted as core capital because that category is reserved for only the most stable kinds of funding.

Now, federal regulators are rushing to clear the road for the rescue plan. The Federal Reserve issued new rules Thursday evening creating a special exception for Treasury's investment. Other agencies are considering following suit.

It is the latest in a string of ad hoc measures to address the financial crisis, highlighting the haste of Treasury's massive and historic interventions and, critics say, a breakdown of the traditional separation between policymakers and banking regulators.
...
In what amounted to a partial nationalization of the banking system, Treasury announced that it would invest $125 billion in nine of the nation's largest banks and an additional $125 billion in the rest of the industry. In exchange, the banks would give the government an unusual kind of stock called senior preferred shares. Holders of these shares are excluded from shareholder votes on company business, but they receive annual interest payments and their shares have priority in the event of a bankruptcy.

"The senior preferred shares will qualify as Tier 1 [core] capital," Treasury said in a release announcing the program.

Treasury officials said yesterday that they knew that the rules on core capital needed to be changed to make that true.

Just another interesting twist.

Note: I'll be back home sometime tomorrow - sorry I haven't responded to all the emails.

by Calculated Risk on 10/19/2008 12:33:00 AM

From The Times: Negative equity ‘to reach 2 million’

Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash.

At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.
...
Economists believe house prices will fall by up to 35% from their peak by 2010. This compares with a drop of only 20% in the early 1990s.
...
Capital Economics, the City consultancy, expects up to 2m properties will be in negative equity by 2010 — more than in the recession of the early 1990s.

The population of the UK is about 20% of the U.S., so using a ratio of population, this would compare to about 10 million homeowners in the U.S. with negative equity. Moody's estimates there are already 12 million homeowners in the U.S. with negative equity in the U.S. - so the problem appears to be worse in the U.S. than in the U.K.

by Calculated Risk on 10/18/2008 11:30:00 AM

From Gail Collins at the NY Times: Is Anybody Happy?

George W. Bush showed up on TV Friday morning to reassure the nation. What could possibly be worse?

Everybody knows that anything our president says is very likely wrong, and certainly won’t happen. If he announced: “I’m sending government agents to Spokane to arrest the looters,” we would expect that the officials would get lost, nobody would be arrested, and the looters probably never existed in the first place.

So hearts sunk throughout the nation when Bush appeared at a Chamber of Commerce gathering to say that the economy would recover.

“America is the most attractive destination for investors around the globe. America is the home of the most talented and enterprising and creative workers in the world,” said the president, who also insisted that “democratic capitalism remains the greatest system ever devised.”

Which translates into: all the money is going to Asia, nobody will ever get a job again and Karl Marx was right after all.

Bummer.

Yes - many Americans feel they have been living in Bizarro world.

by Calculated Risk on 10/18/2008 09:22:00 AM

Form the WSJ: Amid Pressing Problems, Threat of Deflation Looms

[T]he financial shock and a faltering economy can set the stage for a deflationary environment.

Federal Reserve officials view broad-based deflation as unlikely but possible. Federal Reserve Bank of San Francisco President Janet Yellen said in a speech this week that the plunge in oil prices along with slackening demand for labor and goods should "push inflation down to, and possibly even below, rates that I consider consistent with price stability."
,,,
With the unemployment rate rising rapidly and capital markets in turmoil, "pretty much everything points toward deflation," said Paul Ashworth, chief U.S. economist at Capital Economics. "The only thing you can hope is that the prompt action of policy makers can maybe head this off first."
...
Federal Reserve Chairman Ben Bernanke, in a speech as a Fed governor in 2002, said deflation in the U.S. is "highly unlikely" but added, "I would be imprudent to rule out the possibility altogether." The reason, he said at the time, was the Fed "has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief."
...
Deflation concerns in 2002 and 2003 led Fed officials to consider alternative measures to stimulate the economy. Their initial option came from the Fed's 1940s playbook: buying Treasuries to force down long-term yields, leading consumers and businesses to spend instead of save. In normal circumstances, effectively pumping money into the economy would support growth and spur inflation over time. Today's credit crisis has pushed Treasury yields lower already as investors seek less-risky assets.

The debate returns. Some people are concerned about hyperinflation. Others about deflation. The article suggests policy makers think deflation is unlikely.

by Calculated Risk on 10/17/2008 09:00:00 PM

I saw Lahde's updates for the last couple of years, but I could never get him to allow me to excerpt from them. Bloomberg has excerpts from his farewell email.

From Bloomberg: Lahde Quits Hedge Funds, Thanks `Idiots' for Success

Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana.

Lahde, head of Santa Monica, California-based Lahde Capital Management LLC, told investors last month he was returning their cash because the risk of using credit derivatives -- his means of betting on the falling value of bonds and loans, including subprime mortgages -- was too risky given the weakness of the banks he was trading with.

``I was in this game for money,'' Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. ``The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

``All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.''

Pretty amusing stuff. Best to all.