Quoting the Crisis

06/07/2009

“ In truth, historians will mark the 20 years since 1989 as the short period of American triumphalism. With the collapse of great banks and financial houses, and the ensuing economic turmoil and chaotic attempts at rescue, that period is over. So, too, is the debate over “market fundamentalism,” the notion that unfettered markets, all by themselves, can ensure economic prosperity and growth. Today only the deluded would argue that markets are self-correcting or that we can rely on the self-interested behavior of market participants to guarantee that everything works honestly and properly. „

Joseph E. Stiglitz in Wall Street and the Third World | vanityfair.com

Quote posted at 18:20

“ The estimated $65 billion involved in Madoff’s flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear. „

Frank Rich in Op-Ed Columnist - Bernie Madoff Is No John Dillinger - NYTimes.com

Quote posted at 17:20

“ Regarding the real estate sector, UBS says that in late 2007, Spain was the country with the more overvalued house prices in Europe. It amounted to 55%, followed by Ireland, with about 30%. For the bank, the situation has not changed much since the prices of homes have only fallen by 6.5% from the peak. „

A. Marco in a Finanzas article, translated by Edward Harrison in UBS: ‘The disaster in Spain will continue’ - Credit Writedowns

Quote posted at 15:57

chart-o-doom:

moorewr:

“YOU ARE HERE”

(via Hullaballoo)

Photo posted at 14:15

“ The worst of the recession may be yet to come and world leaders are in danger of hampering the recovery. „

Gordon Brown, quoted by Sam Coates and David Charter in Recession may get worse, Gordon Brown warns world leaders - Times Online

Quote posted at 13:04

“ As nobody can seriously dispute, the only alternative to an immediate sale is liquidation – a disastrous result for GM’s creditors, its employees, the suppliers who depend on GM for their own existence, and the communities in which GM operates,. In the event of a liquidation, creditors now trying to increase their incremental recoveries would get nothing. „

Judge Robert Gerber of the US bankruptcy court in Manahattan, quoted in FT.com / Companies / Automobiles - Judge approves plan to sell GM assets

Quote posted at 12:04

“ Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist. „

Kenneth Boulding, Economist (via poortaste) (via financegeek) (via nonolet)

Quote posted at 09:59

05/07/2009

“ Owners of insolvent or barely solvent banks have strong incentives to favor risky behavior because losses are passed on to the insurer, whereas profits accrue to the owners. „

George Hanc in 1999, quoted in Calculated Risk: Failed Banks and Brokered Deposits

Quote posted at 09:00

04/07/2009

“

I propose a combination of mandatory recapitalisation of the banks and a debt Jubilee for the household sector to remove the two key obstacles to an economic revival. The mandatory recapitalisation would be first through new equity issuance in the market, then though mandatory debt-to-equity conversion and similar haircuts for unsecured bank creditors, and last through increased government equity stakes. All these capital injections should take the form of tangible common equity. Anything else would be cosmetic.

Subsequent regulation of the banking sector (broadly defined to include all highly-leveraged entities with serious maturity and/or liquidity mismatch on their balance sheets) will then be necessary to prevent a recurrence of the disaster we are now struggling through.

„

Willem Buiter in FT.com | Willem Buiter’s Maverecon | Quantitative easing, credit easing and enhanced credit support aren’t working; here’s why.

Quote posted at 23:41

“ The financial crisis affects both component of productivity – capital accumulation through lower investment rates, and total factor productivity through the credit crunch – and this is likely to have a lasting negative long-term impact on potential output. In the short run, the effect on potential output growth is a fall of 1.6% in 2007 to 0.7% in 2010. After the crisis, the potential output growth should grow again, but it may never reach its pre-crisis level again. „

European Commission sees permanent decline in euro area’s potential output

Quote posted at 22:40

“ In the last cycle in the US, 20 years ago, private capital made massive profits from the savings and loans crisis partly because the government took on the losses and partly because the buyers were able to ride the powerful upward momentum of a recovering economy. „

Henny Sender in FT.com / Markets / On Wall Street - On Wall Street: Banks no longer so lucrative

Quote posted at 21:40

“ the best strategies to improve, or at least not to diminish, the efficiency of an organization, when one ignores the actual way of competence transmission, are those of promoting an agent at random or of randomly alternating the promotion of the best and the worst members. „

Alessandro Pluchino, Andrea Rapisarda, Cesare Garofalo , quoted by Paul Kedrosky in Solving the Peter Principle? One Word: “Darts”

Quote posted at 20:40

“ Much of the oast decades growth int he United States was fueled by credit, leverage, and borrowed money. The Asians growth has been powered by manufacturing, production and exports. And we are lecturing them to spend more and save less — you know, behave like us – more irresponsibly. WTF is THAT about? This is end of empire type stupidity … „

Barry Ritholtz in Asian Officials Push Back Against Savings Glut Theory | The Big Picture

Quote posted at 19:28

“ In the stock market, it happens every day. Brokers lend investor property to short sellers, often at annual yields in excess of 10 per cent, without notice to investors. After lending investor property, brokers have the gall to keep 100 per cent of the proceeds. […] Even though the shares have been lent and the retail investor is not legally entitled to vote, brokers allow the investor to vote anyway. As a result, shareholder voting has become a farce. That is evident, in part, by rampant over-voting. „

FT.com / Wealth - Arne Alsin: The story brokers don’t want you to read (via nonolet)

Quote posted at 13:22

03/07/2009

Bank Failure Thurdsay Extravaganza

financegeek:

crazynutjob:

The FDIC took advantage of the long weekend. Seven banks were added to the FDIC Failed Bank List:

Founders Bank, Worth, IL — Total deposits of $848.9 million and an estimated hit to the FDIC fund of $188.5 million.

Millennium State Bank of Texas, Dallas, TX — Total deposits of $115 million and an estimated hit to the FDIC fund of $47 million.

The First National Bank of Danville, Danville, IL — Total deposits of $147 million and an estimated hit to the FDIC fund of $24 million.

The Elizabeth State Bank, Elizabeth, IL — Total deposits of $50.4 million and an estimated hit to the FDIC fund of $11.2 million.

Rock River Bank, Oregon, IL — Total deposits of $75.8 million and an estimated hit to the FDIC fund of $27.6 million.

The First State Bank of Winchester, Winchester, IL — Total deposits of $34 million and an estimated hit to the FDIC fund of $6 million.

John Warner Bank, Clinton, IL — Total deposits of $64 million and an estimated hit to the FDIC fund of $10 million.

From the press releases:

The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution. The failure of these banks resulted primarily from losses related to the banks’ investment in collateralized debt obligations and other loan losses.

That explains quite a bit. Illinois just hit 12 closures for the year. Congratulations, Illinois. Also, it looks like the FDIC did a reasonable job this time around.

There is a chance of more closures today, but I’m heading out for the evening. Happy Thursday.

The FDIC might just be the most efficient part of the Federal government. I get surprised every time I have to say that thought out loud.

Text posted at 10:33