by Calculated Risk on 3/03/2009 09:12:00 AM

James Baker writes in the Financial Times: How Washington can prevent ‘zombie banks’

[T]he US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.

But if their assumption is wrong, we risk perpetuating US zombie banks and suffering a lost American decade.
...
First, we need to understand the scope of the problem. The Treasury department – working with the Federal Reserve – must swiftly analyse the solvency of big US banks. Treasury secretary Timothy Geithner’s proposed “stress tests” may work. Any analyses, however, should include worst-case scenarios. We can hope for the best but should be prepared for the worst.

Next, we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds. It is time for triage.

There are calls across the political spectrum to avoid zombie banks. No one wants to nationalize the banks, just preprivatize the "hopeless".

This is similar to my suggestion (and others) a few weeks ago:

The banks will probably fall into one of three categories:

1) No additional assistance required. ...

2) The banks in between that will need additional capital. This is where the Capital Assistance Program comes in: ...

3) Banks that will need to be nationalized or sold.
...
The sooner the better, although March 12th works for me (30 days from Geithner's speech)! ...

BTW the banks have been told to submit their stress test results to the Treasury by Wednesday March 11th. Although the stress test appears inadequate, and the 3rd option - "closing the hopeless" - is apparently off the table.

by Calculated Risk on 3/02/2009 10:19:00 PM

For market discussion and graphs of the Grizzly Bear, see: Market: More Cliff Diving
Note: For the grim economic news in graphs, please see my post yesterday: February Economic Summary in Graphs

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Here is another Deal of the Week from Zach Fox at the San Diego North County Times: Turning back the clock in Vista

The featured 1,600 square feet, three-bedroom, two-bath house in Vista, CA was built in 1982.

Sold in August 1989: $165,000

Sold in August 2005: $520,000

Sold in December 2008: $100,000

Zach doesn't say, but I bet the house was trashed by the most recent owner. In general Vista is a decent area, and this is quite a round trip.

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For those interested, here are few sources for futures and the foreign markets.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets. (ht Jeffrey)

Best to all.

by Calculated Risk on 3/02/2009 08:40:00 PM

From the WSJ: Funding for 'Bad Banks' Starts to Get Fleshed Out

The Obama administration ... is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis ...

The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. ...

... one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss.

These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

... the government wants to encourage private investors to buy up the assets in a way that would come closer to setting a market price where no market currently exists.

By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they've tried to recycle the same bad idea.

by Calculated Risk on 3/02/2009 06:15:00 PM

The Haloscan comment system crash on Friday. Ken has suggested the following:

With this recent haloscan failure, I’ve been investigating JS-Kit and its alternatives (disqus, intensedebate, sezwho). I’ve been frustrated by how ill suited they are to a community like CalculatedRisk, which is really more a real time salon than a blog with semi-static comments.

I’ve also had an evolving interest in enhancing the commenting experience for Calculated Risk users, first through CR Companion, and more recently in building a prototype for a searchable index. Lately I’ve been bubbling with ideas on what could be done to improve things specifically for this blog. But I’ve also been somewhat wary of taking the project on, as this truly is a 24/7 community, and I’ve witnessed how harshly judgment can come over the tubz (the recent Louis CK Everything’s Amazing, Nobody’s Happy bit comes to mind). I may be a CR addict, but I do have a family and personal life, and would like to keep them.

It occurred to me today that there is an alternative. There are clearly a great many talented IT people on this blog, several of whom have already demonstrated both their interest and mojo quite effectively. Perhaps some of you might be interested in joining into the process of building and maintaining an alternative system that is written specifically for us? One that could satisfy the various nits many of you have?

What I’m envisioning is building a site that runs in parallel to JS-Kit for awhile, posting back and forth, much like CRBot’s iRC channel, for safety’s sake.

To get the ball rolling, here are some of the features I’ve been picturing, grouped by Must Haves and Would Be Cool. I imagine you have some of your own ...

Must Haves

Fast

Simple

Generic browser support, including mobile devices

Registration (simple, relatively anonymous, with openID support)

Multiple moderators (for CR’s sanity)

Permalinks per comment

Homepage links

Threading with a better UI for real time (before you say “yuck!” or “huh?”, let me put together a prototype so you can see what I mean)

Choice of a decent editor, with preview and edits within a 5 minute window

Keyword searchable archives, with slices by user, CR Post, date, tag (see below)

Multiple handles, single user

Personal profiles (member since, homepage, deep thoughts, etc.)

Visitor count

Would Be Cool

Autorefresh (like CR Companion, only more efficient)

CRVIX and other stats

Tags per comment/thread (e.g. news, well-said, funny, youtube, thread-music, thread-of-the-day)

Word clouds per CR post, or per user to give a quick sense of what’s being discussed (or constantly ranted about)

Private ratings and filters, ala CR Companion (I’ve taken to heart the desire to avoid a public popularity contest)

Top Ten Threads of the Day

New post notification (CRBot/The Pig), maybe even from multiple sites like CRBot does (with tags, so people can ignore if desired)

A financial dashboard mashup

An easy way to paste in references to previous comments

Anyone interested? There’ll be need for client and server developers, sysadmin types, graphic designers, testers, lawyers, nay-sayers, etc. This might take awhile, but it’ll be worth it.

by Calculated Risk on 3/02/2009 03:48:00 PM

The S&P 500 closed just above 700. We are back to 1996 prices ...

The low in 1997 was 737.01.

The low in 1996 was 598.48.

Click on graph for larger image in new window.

DOW off about 4.3%

S&P 500 off about 4.7%

NASDAQ off 4.0%

The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". (If not updated right way, Doug should update in a few minutes)



Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.