Comments on: I’m not a CPA but I did stay at a Holiday Inn Express last night

By: dad29

dad29 — Fri, 04 Apr 2008 14:46:05 +0000

We read the same guy on the situation.

Clearly, there are two camps: the “sky is falling” bunch, and the somewhat more long-view types who grant that there are serious problems, but nothing calling for a Fed takeover of everything mortgage-related.

OTOH, there will be more bank-casualties, and soon.

Reported discount window borrowing last WEEK was over $10B–an unusually large number.

By: Shoebox

Shoebox — Thu, 03 Apr 2008 16:03:32 +0000

Dad29, I agree with the underlying concern you have. However, I think the situation is a bit more nuanced/complex/name your favorite adjective, than what has been in most press accounts. From JP’s side, I think the issue may have been that they didn’t want to saddle them selves with assets that could put them right back into the same spot as B/S was i.e. the $30B asset, because of continuing “fire sales” and the Mark to market requirement, suddenly gets “written down” to 1/2 that. That could have serious reprecusions on their equity and ability to do business. JP was one of the few investment banks that saw the subprime issue early and got out of the business so with the Fed basically asking them “for a favor”, they were in a pretty good position to negotiate. Everyone I’ve read who looks at this practically rather than from a political agenda believes that JP got an amazing deal…this further convinces me that the Fed felt they HAD to do something and did what the needed to.

I can’t read the Fed’s mind but I suspect the issue was that they “needed” to get the B/S deal done. Because they felt it was so significant, they were willing to do extraordinary things. I guess the “proof will be in the pudding.”

The guy I’ve been reading who has the best insight on the topic is here: http://www.redstate.com/stories/economy/more_on_the_federal_reserves_st_patricks_day_massacre

He’s been pretty accurate on his read of the B/S situation and appears to have contacts with some direct knowledge of the deal. His evolving assessment is that the NYFed believes that there is far more upside opportunity with minimal downside risk to the “assets” they bought.

Net is, I haven’t “drunk the kool-aid” but I think the constant “gotcha” from folks who either have an agenda or just don’t want to understand 1. how close we came to a serious meltdown or 2. the fact that the entire financial system is in uncharted waters and the “answers” or “soltutions” are fluid, are disingenuous and should be called on it.

Thanks for reading and posting…I appreciate your pushing the thought process.

By: dad29

dad29 — Thu, 03 Apr 2008 15:36:49 +0000

Well, yah, but:

The other side of that argument is as follows:

IF the $30Bn in securities is “market-priced” and IF the bundle includes ‘a large amount of Gov’t-Agency-Backed’ packages, and the Fed does NOT expect them to deteriorate in value….

Then WHY the Fed’s intervention? Why didn’t JPMorganChase simply take that package as part of the deal, IF it’s got all those positive attributes?

After all, in 10 years (the term of the deal) the package’s payments will be fine and dandy, no?

The Fed can massage the text as much as they want. Fact is, JPM/Chase did NOT buy the $30Bn in securities for a reason. Maybe “market,” no matter WHEN it was valued, was not the same as “real” value.