The next bull market is in FDIC hires?

This story seems to pretty much back up what you are saying.

“WaMu depositors are safe, shareholders not so lucky: Markets are not rational, so it’s impossible to know what the price drop of financial shares is really telling us; sometimes markets anticipate real trouble, sometimes they simply react to fear”, by Jon Talton, Seattle Times, July 15, 2008.

Let’s get this out of the way right now: Your money — up to $100,000 per institution — is safe if it’s in a bank account insured by the FDIC. The Federal Deposit Insurance Corp. may even provide additional coverage for IRAs in those banks.

So don’t head for the mattress store.

That said, it’s an ominous sign that I can buy a share of Washington Mutual for about the same price as my morning tall, nonfat, no-whip, stirred mocha at Starbucks.

I don’t blame you for your concern, WaMu isn’t looking too good these days.

I am no expert on banking, so I’m not qualified to speak on the balance sheet of any of them. I will tell you I wouldn’t keep my assets in just one bank, and I keep more cash on hand than I used to. [With luck, if your funds are at an institution that goes down, your accounts are guaranteed by the FDIC. However, it can take several days to several months to have access to your funds, so cash can be useful.]

After reading your articles about these fannie, indy mac and freddie mess, I just started to get really concern about my bank, Washington Mutual. I know they are in deep troubles. I am thinking of moving our money out of that bank to another bank. Which bank do you recommend? I am thinking of either Wells Fargo or Chase.

Any recommendation is highly appreciated. I am located in Tempe, AZ and thanks to you guys we did not buy a home in 2005/2006, instead we save some money, and now have 20% for a down payment and want to keep it protected just in case WaMu go under.

You may not have long to wait

“Regional Banks Face Rumors, Mass Investor Defections”, by Marshall Eckblad, Dow Jones / CNN Money, July 14, 2008.

After federal regulators on Friday seized the Pasadena, Calif., bank company, the shares of regional banks plunged Monday and, in one case, that of National City Corp. (NCC), even halted in mid-day trading. Investors fled the sector amid rampant fear that the mortgage crisis has more regional-bank failures lying in store, and that problems at mortgage giants Fannie Mae (FNM) and Freddie Mac ( FRE) could bode ill for regional lenders.

By the way, I heartily recommend you and other Doomers read (or reread) my post ” Subprime Spillover Discussion – and a Bit of Business” (April 7, 2007). This is my transcript of the final moments of the Q&A session that followed AEI’s important March 28, 2007 seminar on the emerging subprime crisis. FDIC’s chief economist Richard Brown engages the panelists, including Chris Whalen (never did fix the typo on his name), on prospects that subprime would go on to infect Alt-A and prime. I would especially draw your attention to the very end, when the transcript catches Brown bantering with UBS’ Tom Zimmerman on the possibility of getting a rough estimate on the final damage the FDIC should be preparing for. A fascinating little moment in history.

I am starting to come around to the idea that the FNM/FRE bailout is a snowball compared to the avalanche of the undercapitalization of the FDIC reserve. It wouldn’t surprise me if there is a bank run by the end of the month. In fact, I think it’s likely.

Igor says “untrue” but we’ll see….

“Freddie, Fannie Debt Demand Rises, Shares Decline”, by Dawn Kopecki and Jody Shenn, Bloomberg, July 14, 2008.

There is an excellent video interview with Whalen and another analyst in the upper right sidebar of the above story site under “Whalen Says Fannie, Freddie Need Backing of Government.” Part of what he said got picked up in this Google Comment.

What we all need to understand about Fannie and Freddie is that they are already bailed out. If Treasury Secretary Paulson had a clue about American financial history, not to mention the business models of the GSEs, then he would know that the privatizations [around 1972!] were a farce and that the GSE depend upon support from the US government for their existence. To solve this crisis, we need a 5 minute press conference where Secretary Paulson announces the nationalization of the GSEs and then takes questions. Crisis over. We then have the luxury to consider long-term changes to the GSEs to reduce systemic risk, particularly eliminating the retained portfolios of Fannie and Freddie.

I could google it, but in all honesty I don’t know anything about Nabokov except he was a Russian writer. And a key lyrical element to a catchy tune by The Police. While my contemporaries were reading philosophy and hitting their bongs in college, I had to work to pay the rent and tuition.

I will acknowledge that purported artistic and philosophic geniuses had to do all kinds of crazy stuff to get by (Mozart, Picasso, Kahlo, Burroughs, Guthrie, etc.)

I may want to give my Glock a blowjob after entering into this debate with you, but at least you didn’t ask me to buy your book for the umpteenth time, so here goes.

I *have* an individually enforceable right to housing: as long as there is a shred of acknowledgment of property rights, I am not going to be asked to leave any property I own free and clear except through some socialist/ communist 1917-like conversion/redistribution movement. You may favor such a movement (ostensibly to punish the smart guys), and I respect that opinion, even though I think the smart guys should be rewarded.

At present, I rent. I have a variety of reserves (savings) that I won’t bore you with, both tangible and financial assets in the U.S. and abroad.

I acknowledge there are people (“mortgagers”) who may get evicted because they can no longer make the payments they agreed to. As has been discussed on this board ad nauseum, they will likely not be homeless. I don’t know if you are in favor of a severely socialist government (at present I would say we have a mildly socialist government), but you are apparently clearly in favor of a waiver of contract rights.

The fact is, it is not the mortgager who has been damaged in this debacle, it is the lender. Again, as has been discussed ad nauseum, the mortgagers got into their houses with a minimum of money down and creative financing. How are they damaged if they had no principal at risk? And yet you seem to think they have a right to stay in those homes, even though the purchase principal was not paid. If you believe that the primary foundation of the U.S. is the basic economic principal of property rights and the rule of law, your position is a total contradiction.

To me, and I think to the creators of this board, the simple fact is that the free market will take care of home prices. If that means that homes that sold at the peak for $300,000 now go for $30,000 because there is a lack of capital because of economic backlash, so be it. Pools of foreigners may come in and buy vacation properties for the equivalent of a month’s wages. People who sold at the peak and currently rent (me) may go in and buy entire blocks of homes and have some economies of scale when it comes to renting them out. If I bought a house for $30,000, I might think of renting it out for $250 a month. Could those people who got evicted be able to afford $250 a month in rent. I expect that they could.

Do people have a right to shelter? In this country they do. There are several homeless shelters and government-subsidized rentals in Phoenix, so I have never understood your rant about people needing a right to housing. They have it now.

So here’s the emerging trope on #3.

The Bastille fell today, but it’s really no big deal …

“A decent burial for Fannie Mae”, Editorial comment, Financial Times, July 14, 2008.

The current structure for Fannie and Freddie is unsustainable. The GSEs are poorly regulated. They have given successive US governments an incentive to keep the housing market inflated. They socialise their risks and privatise their profits. Having saved the GSEs this weekend, policymakers should aim to bring about a decent burial for Freddie and Fannie.

They could be broken up into small pieces and privatised. A rump could be retained by the Treasury as a small counter-cyclical mortgage liquidity vehicle. The process might involve a period of nationalisation. This could mean the GSEs’ vast debts would be moved on to the public balance sheet. However, this is unimportant. It would be a cosmetic change; the government is already backing them; it is absurd that they are not now on the books.

Something like your first has been my No. 1 for a long time. Some of the rest I would disagree with.

Ignorance of the mating habits of butterflies could well come back to bite us. And I don’t say that only because it is close to twist’s day job. I don’t suppose you know what Nabokov was doing to put food on the table at the time he was writing Bend Sinister.

A combination of massively reduced spending on the military, tax hikes for the wealthy, means testing for Social Security and Medicare payouts, a national sales tax, elimination of pork projects such as the mating habits of butterflies, government acknowledgement that a weaker dollar is better, restoration of the gold standard, a fixed-rate monetary policy, an automatic death sentence for certain crimes, and tariffs on goods from countries that have a fixed exchange rate. Did I forget anything?

In view of #3 I think that the intersection between the feasible solution space and the legal solution space has now (officially) become empty.

Indeed the feasible scenarios seem few. There’s the “black helicopter” try of confiscating / reassigning all the residences in America and paying down the agency debt through taxes, and there’s raw sovereign default.

Anyone got a better plan?

As I have said on MANY occasions, the economy is over. Stop looking at economic and financial data.

The action now is entirely in social conditions. They have to be maintained. That is all there is.

There is no moral hazard.

There is no property or property rights.

There are no houses.

At this point, there are only important facts: housing, maintenance, liberty, medical care and education. They must be maintained. They can only be maintained if there are individually enforceable rights in them.

In order to see how far the power structure is from recognizing this, read Lindsey v. Normet (1972). You will read there that housing enjoys only minimum scrutiny.

The highest level of scrutiny on the scrutiny continuum is strict scrutiny.

Want to know what I am monitoring? I am monitoring the willingness of the political system to raise the level of scrutiny for housing AT ALL.

Not even to intermediate scrutiny (which is the level of scrutiny enjoyed by gender equality).

Not even minimum scrutiny-plus (the latest scrutiny category introduced by the Supreme Court).

YOU NEED TO KNOW that the political system will currently not tolerate even the SLIGHTEST elevation of housing above minimum scrutiny–not even a scintilla of increase in the level of scrutiny for housing.

What does this mean? It means that the political system realizes that to even SLIGHTLY raise the level of scrutiny for housing would be a change in Constitutional regimes.

You’re big and bold on this site. Are you ready for a Constitutional regime change? or do you insist on retaining your shrinking police state advantages under the current scrutiny regime? If you continue to support the scrutiny regime, you won’t survive.

Unless you personally demand an increase in the level of scrutiny for housing (and by the way, the other facts I mentioned above, also enjoy only minimum scrutiny), you are going to lose everything you have and starve to death.

I strongly urge you to get your Constitutional bearings, and to come to grips realistically with the facts and law. Nothing else will save you.

People MUST have expanded individually enforceable rights. And they must have them NOW.

Wake up and demand a ban on housing evictions. That is how we will save the country.

John, you got any cabins up there with wood stoves and good fishing? Maybe some berries in the summer? Ah, f*** it, I’m just going to Costa Rica.

“Freddie Mac Sells $3 Billion of Three-Month, Six-Month Bills”, by Dawn Kopecki and Jody Shenn, Bloomberg, July 14, 2008.

Paulson’s statement yesterday effectively turned an implicit guarantee into explicit backing, said Christopher Whalen, co- founder of independent research firm Institutional Risk Analytics in Torrance, California.

“Obviously re-nationalization is imminent,” Whalen said. “It’s a begrudging acceptance of the inevitable.”

Paulson said yesterday he is seeking congressional approval for a “temporary” increase of the companies’ lines of credit with the Treasury from the current $2.25 billion each, and the right to buy equity “if needed,” according to a statement released by the Treasury in Washington. Paulson is seeking unlimited authority for 18 months to buy as much stock as he deems necessary.

“Shocked!” says Igor. (thanks for that buddy …)

My guess is a successor agency in about nine months (meanwhile lets keep the kids away from Reuters )

“Fannie, Freddie bond, MBS yield spreads narrow”, Reuters, July 14, 2008.