All Content

The U.S. financial system is effectively insolvent

I have said before that a systemic response is necessary to deal with the present banking crisis in the United States. This crisis has nothing to do with subprime assets and little to do with things like predatory lending. Those are issues that populists will use to prosecute the scapegoats we are likely to see down the line. The crisis has everything to do with low interest rates, zero regulation and a credit bubble of monumental proportions.

The banking system of the United States is effectively insolvent. Buying up $700 billion in assets is not going to solve this basic fact. A systemic response is needed. If we do not address these issues, we may see significant dead-weight loss as many institutions fail.

Read more ›

Financial shares now diving

I am listening to C-Span where the House of Representatives is debating whether to pass the deeply flawed bailout bill that has been crafted on the heels of major disturbances in financial services. Unfortunately, this bill is not going to prevent further share price falls. The House is moving to final vote now. As we speak, many shares are falling […]

Read more ›

Subprime, Alt-A Delinquencies Rise

Connecticut-based Clayton Homes, now owned by Berkshire Hathaway and called Clayton Holdings, (not to be confused with Clayton Homes, a subsidiary of Berkshire Hathaway)*, has warned that Subprime and Alt-A delinquencies in the U.S. are still rising. This suggests that the fundamental problem underlying the banking crisis has not been addressed. At its core, the credit crisis is the result […]

Read more ›

Citigroup grabs Wachovia on the cheap

Wachovia Corporation has agreed to be bought out by Citigroup in a deal supported by the U.S. government. Exact terms of the deal are still forthcoming, but this could be seen as a best case scenario for a bank which was increasingly under stress due to the global credit crisis. In 2006 Wachovia’s shares changed hands for nearly $60. On […]

Read more ›

Stephen Roach has a bone to pick with Congress

Echoing my sentiments in the last post, “The U.S. banking crisis: where are we?,” Stephen Roach, the head of Morgan Stanley Asia has made a blistering attack on the U.S. Congress. He has labeled Congress’s response to crisis over-regulation and sees many more losses to come from real economy effects of the global credit crisis. Roach went on to say […]

Read more ›
The U.S. banking crisis: where are we?

The U.S. banking crisis: where are we?

This morning Chris Whalen made some comments on CNBC that hit the nail on the head regarding the U.S. banking crisis: there is a huge wave of old-fashioned loan losses coming down the pike. The writedowns we have seen to date are largely confined to tradeable securities that must be marked to market. There are much bigger unrealized losses sitting […]

Read more ›

European banking collapse including nationalisation of three banks

UPDATE: 9:30 AM ET: This post has been updated to reflect the events surrounding Fortis. On Friday, I warned that European government officials like Peer Steinbrück of Germany should refrain from chastising the U.S. and the U.K. over problems in banking. After all, Europe is next. At the weekend, the fireworks in Europe began in earnest. Yesterday, top German finance […]

Read more ›

U.S. Bailout: the mother of all carry trades?

There are some great ideas out there about what the U.S. bailout is all about. Earlier, I mentioned my belief that it had everything to do with marking to market. Just a while ago, I caught a post that has a very intriguing angle on the plan: it’s the mother of all carry trades (hat tip Brad DeLong). For those […]

Read more ›

Bradford & Bingley may suffer Northern Rock’s fate

Earlier today I highlighted a number of banks that were under severe selling pressure in their respective home markets. This list included Fortis, Macquarie, NCC, Wachovia and CIT. The UK’s Bradford & Bingley is certainly on that list as well. In fact, the British daily “The Telegraph” is openly speculating whether B&B will be nationalized. Given the drop in confidence […]

Read more ›

Fortis to speed asset sales

The Dutch-Belgian bank Fortis has come under pressure in the aftermath of the WaMu bankruptcy. With the credit markets seized up globally, weaker banks are being attacked regardless of nationality – Wachovia, NCC and CIT Group in the US, Bradford & Bingley in the UK, Macquarie in Australia, and Fortis in Benelux. These are truly trying times for financial institutions. […]

Read more ›

How the Bailout deal unraveled yesterday

The NY Times has a story on how yesterday’s bailout deal failed. This is an insider’s tale with blow by blow detail. It is a fascinating view into how the U.S. conducts government policy. Below is a snippet from the post and a link to the full story. One interesting facet in the matter was the contention by Democrats that […]

Read more ›

$700 Billion? Try $5 Trilion – So says Marc Faber

Faber thinks that the U.S. needs a lot more money than the Paulson Economic Patriot Act suggests. I agree 100%. His figure is $5 trillion! That’s a lot of dosh. Here is how he is quoted on Bloomberg: “The $700 billion is really nothing,” Faber said in a television interview. “The treasury is just giving out this figure when the […]

Read more ›