Thursday, October 16, 2008

Notable News for Today

The Nikkii 225 (Japanese stocks) fell last night 11.41% to 8,458, and this is more than 50% from it 52 week high.  It is now fairly close to its multi-decade low achieved in 2003 at slightly under 8000, and this average is down from its all time high of around 39,000 in December 1989.  The Chinese composite index fell only 4.25% to 1909, down from its 52 week high of 6055.
Citigroup (C) posted its fourth consecutive quarterly loss, losing 2.8 billion, and announced that it was shedding another 11,000 jobs.  This bank continues to write down the value of mortgages and has taken 50 billion in charges for writing down the value of mortgages and other loans during the past year.  Yahoo! Finance
Nokia (NOK), which had warned of poor results back in early September, announced a 30% drop in profits and a 5% decline in revenue MarketWatch
 
UnitedHealth (UNH), the large HMO, reported a 28% drop in profits on an 8% increase in revenue.Yahoo! Finance
Merrill Lynch (MER), who is being acquired in a shotgun marriage by Bank of America,  posted a worse than expected 7.5 billion loss connected to the toxic assets.Reuters
Switzerland is taking 60 billion of the crap off UBS's balance sheet in return for a 9% stake in that large bank.  UBS had already written down 42 billion in mortgage related securities.  Credit Suisse is going to raise yet more money from investors by selling almost 9 billion in shares to the Qatari Investment authority.  WSJ.comMarketWatch

McCain blamed Fannie and Freddie last night for the crisis.  The preceding earnings reports from the investment banks have nothing to do with the GSCs and the GSCs did not start the subprime lending crisis.  The investment banks loaned money to non-bank lenders to originate subprime loans and then syndicated them to investors around the world.  The first investment bank to start this process was Prudential when it started to fund Aames in the late 1990s,  who previously had to rely on funding for subprime loans from doctors. See, Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis, at pp. 40 to 42. This started other investment banks to get into the subprime game by creating warehouse loans for the non-bank subprime lenders to expand their operations.  Toward the end of the crisis, Merrill would actually pay top dollar for subprime lenders to cut out the middleman. Merrill bought a company called First Franklin for 1.3 billion, doing what other investment firms had already done.  These firms would also receive underwriting fees for bringing these lenders to market in IPOs.  The Wall Street Journal recently ran an article on October 16th by James Hagerty that debunked McCain's claims about Fannie and Freddie.  Fannie, Freddie Share Spotlight in Mortgage Mess - WSJ.com 

The worst part of the problem was the mortgages packaged by these non-banks funded by Wall Street and then packaged by the investment banks in impossible to understand or value securities sold by them to investors worldwide.  As I pointed out previously, ALT-A loans, not subprime, accounted for 50% of their losses last quarter. McCain's claim last night in the debate is just a form of political gibberish and revisionist history and demonstrates a complete lack of understanding of how this crisis actually developed, as I have already discussed in prior blogs and emails.  This is his statement from last night:The catalyst for this housing crisis was the Fannie and Freddie Mae that caused subprime lending situation that now caused the housing market in America to collapse.CNN.com 

This is just patently absurd.  Fannie and Freddie did not start subprime mortgage lending and most of that lending was done by firms funded by Wall Street that no longer exist, having gone bankrupt one by one over the past two years, including New Century Financial Company, Ameriquest, Argent Mortgage, Home Capital, and over 200 others.The Mortgage Lender Implode-O-Meter - tracking the housing finance breakdown, related to Alt-A and subprime mortgages, lending fraud, predatory lending, housing bubble, mortgage banking, foreclosures, debt, consolidation, lawyers, class-action lawsuits

On the bright side, industrial conglomerate United Technologies (UTX) posted a 6% profit gain.
UTX closed at 49.25 yesterday down from its 52 week high of 80.73.
 
The stock futures are pointing to small gains early this morning  after the government released the September CPI which showed no inflation for that month, mostly due to falling energy prices which should have not been a surprise.MarketWatch

There was a slight down tick of 16,000 in new weekly claims for unemployment benefits but the total is still high at 461,000.MarketWatch

Yesterday, the 3 month treasury bill approached zero per cent yesterday, closing at .12%.  The 3 month LIBOR rate is staying stubbornly high at 4.55%, falling slowly from its recent high of around 4.8%.  This is a huge spread between 3 month treasury bills and the Libor rate.  The banks still do not trust each others balance sheets even when the U.S. is guaranteeing bank debt for three years. WSJ.com

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