Tuesday, March 18, 2008

Current Crisis Explained

NY Times has "Can’t Grasp Credit Crisis? Join the Club" and does a good job of summarizing the current mess in the financial system. And here's the money quote:
As Mr. Bernanke himself has suggested, the only thing that will end the crisis is the end of the housing bust.
And as far as I can tell, until housing prices come down to income x 3, we are far from correcting the bubble prices....

Copyright 2008, DannyHSDad, All Rights Reserved.

Saturday, January 26, 2008

Closure: Douglass National Bank

"FDIC Approves the Assumption of all the Deposits of Douglass National Bank, Kansas City, Missouri" Jan 25. And the closure begins.

As home owners get foreclosed or walkway from their mortgages, NPL will escalate in rather small scale (each home in the US average 200K or so -- California is around 400K). As commercial debts go NPL (especially commercial real estate or CRE, like building and apartment owners), things will go bad real quick since these loans are multi-million or billions of dollars and most banks don't have that kind of cash lying around. Small banks which bet the farm on real estate (especially developers and large building owners) will fail first but don't count out the large ones since they have other loan problems (like pier loans).

Copyright 2008, DannyHSDad, All Rights Reserved.

Thursday, January 17, 2008

Panic selling shuts $4bn fund

It seems that more "fund run" are going on world wide: "Panic selling shuts US$4bn fund: Scottish Equitable acts after slump." With 129K investors, that works out to be an average of $31K per person.

Copyright 2008, DannyHSDad, All Rights Reserved.

Wednesday, January 9, 2008

Recession for 2008

Happy new year, 2008, and great to see the market down so much this year (was about 8% this morning but now 6.7% year to date for NASDAQ Composite index, due to late day rally today).

Unfortunately, with my portfolio, I was too early in buying my QID stocks, so I'm barely in the black today. (DXD and SH are solidly in the black, but most of my shares are QID so the returns aren't impressive, so far.)

However, I believe as the debt problem exasperates over the next few months and years. That's right, I'm predicting that we'll have problems for many dozen months ahead, just like in Japan post 1990: things will be shorter than Japan but worse since we, US, are not a nation of savers and we do not export like Japan did in the 90's and 00's.

We won't be having a mild recession as some pundents and economists have been predicting but it'll be a bad one: serious recession or depression (if not worse). I'm not sure how bad things will get since the national debt level by the government, corporations and individuals (see Fed's
report "U.S. Consumer Debt Rose $15.4 Billion in November" via Bloomberg) has been very high.

We haven't had so much leverage (borrowing) since the 1920's -- and we all know how that ended: the Great Depression of the 30's.

Personally, I believe that the downturn of the economy is just getting started. As less home gets sold, more people will continue to lose jobs: realtors, construction workers, loan officers, bank employees, apprasiers, furniture sellers, appliance sellers, even handyman repair folks. Which means even less cars, pickups, RV's, motorcyles, ATV's, and snowmobiles will get sold. And construction related tools and materials (think Home Depot).

Then the government employees: lower home prices will mean lower appraisals which means lower taxes. People facing foreclosures and bankruptcies won't even bother paying local taxes: which will all combine to mean lower tax intake which means government workers will be fired, too.

And due to credit crunch (including failing bond insuring companies), borrowing costs are increasing for the local governments which means less tax money to spend which means even more firing of government workers.

And with the market not doing well (bonds and stocks), retirees will be getting less money from various pension plans (private and government pensions). Even those dependent on their own savings (i.e., no pension), lower market returns means less money to spend, as well.

So, with all those reduction in spending (home related businesses, government employees and all kinds of retirees), other jobs won't be immune: people will drop cable, internet, cellphones and other costly contracts (ATT is reporting softer consumer spending with lower landline and internet customers).

People will stop buying unnecessary junk like 3 or 4 digit gadgets like ipods and computers. (4,5,6 digit toys like RVs and ATVs are already down noticeably.) Which means more layoffs and spending cuts all around.

Just as in bubble where all things go up, post-bubble, all things will start to come down. The question is how bad and how long? My personal belief is that things will get much worse before we reach the end of the tunnel (playing chicken with few trains along the way, I'm afraid).

It helps that more and more analysts and economists are predicting recession, like Goldman Sachs today: "Goldman predicts light recession."

Copyright 2007, DannyHSDad, All Rights Reserved.

Monday, January 7, 2008

Recession has started

Some economists are saying "Economists say 2008 will be a year to forget: Analysts at American Economic Association now see recession as a given", so we are or will be in recession. The question is how long will it take to be officially acknowledged and then how long and how bad will it be?

My estimation, things will get worse and worse for some time. (Things may improve for one quarter or two but that will be temporary not a bottoming, I think.)

Copyright 2008, DannyHSDad, All Rights Reserved.

Wednesday, January 2, 2008

Bank Run: Virtual Reality

It seems that even virtual reality bank can go bust, too: "The Fleecing of the Avatars: Recent fraud allegations are ominous for those who see virtual worlds as future centers of e-commerce."

Granted, it was based on greed and scams but to see a virtual bank go bust is sad: the so called "perfect" man-made world cannot escape the pain of sin (greed, mainly). Sigh.

Copyright 2008, DannyHSDad, All Rights Reserved.

Thursday, November 29, 2007

Fund Run: Montana and Florida

"Montana fund sees $247 mln of withdrawals: Florida's investment woes spark subprime fears in other states"


And update on Florida's (LGIP) fund: "Florida Halts Withdrawals From Local Investment Fund (Update3)"

So, will this turn into fund run across US (and other countries)? The mind boggles...

Copyright 2007, DannyHSDad, All Rights Reserved.

Wednesday, November 28, 2007

Broken Down Under

"12th New Zealand non-bank finance company collapses"
Capital + Merchant Finance, New Zealand nonbank financier, on Thursday became the nation's 12th finance company to collapse in less than two years. U.S.-based creditor Fortress Credit Corp., owed around 70 million New Zealand dollars (US$54 million), called in receivers after Capital + Merchant had breached agreements with the Australian branch of Fortress, which has a prior charge over assets.
US problems pulling down companies in Southern Hemisphere, too.

Copyright 2007, DannyHSDad, All Rights Reserved

Fund Run: Municipals losing money and pulling out of funds

It seems that runs are starting on funds at least at the state level:
  1. Florida School Fund Rocked by $8 Billion Pullout -- turns out some State funds were invested in SIV's which have lost money in the last few months. So local governments pulled out and those who are still in it may not get back their principle!
  2. Maine Treasurer Criticizes Merrill for Subprime Bet -- seems that ML lead them astray and made Maine lose money.
  3. Caisse de Depot Has C$13.2 Billion Invested in Commercial Paper -- Canada's biggest pension fund manager also has C$1 Billion in subprime loans.
  4. As towns go broke, subprime crisis hits Arctic Circle -- "A Norwegian brokerage that lost its license over its role in turning four remote towns around the Arctic Circle into victims of the U.S. subprime crisis said Wednesday that it would file for bankruptcy."
What a nice bunch: all blaming the US subprime "problem."

Copyright 2007, DannyHSDad, All Rights Reserved

Thursday, November 15, 2007

Run on the Funds

CR has been covering the fund issues, like "GE Bond Fund Breaks the Buck" which isn't about a money market fund (MMF) but is supposed to be similar to a MMF. Unfortunately, with the higher returns, you have to take higher risk and in this case, the risk resulted in a slight loss.

In similar vein, MarkeWatch has "Is your MMF safe? (Mounting concern about money-market funds: Investments seen as safe and secure face threat from bad debt holdings)." Some funds are suffering and companies have had to provide some support to prevent the funds from "breaking the buck." For example, Bank of America announced that it will pour in $600 million to prop up some funds.

Copyright 2007, DannyHSDad, All Rights Reserved.

Wednesday, November 14, 2007

FDIC Closures: 2

FDIC bank failure list has few updates:
  1. NetBank September 28.
  2. Miami Valley Bank October 4.
Copyright 2007, DannyHSDad, All Rights Reserved.

NCUA closures: 5

Here are 5 which were closed since I last posted:
  1. Cal State 9 Credit Union in Conservatorship since November 2.
  2. Green Tree Federal Credit Union closed November 2.
  3. Peoples First Choice Federal Credit Union in Conservatorship June 12.
  4. Sharebuilders Federal Credit Union closes April 25.
  5. Obelisk Federal Credit Union Placed in Conservatorship April 17.
Copyright 2007, DannyHSDad, All Rights Reserved.

Thursday, March 29, 2007

Non-bank shut down: Federal Savings

"Unlicensed agency sold high-interest securities" has a very sobering news:
But Seattle-based Federal Savings had all the appearances of a bank. Its Web site carried what looked to her like a Federal Deposit Insurance Corp. logo, and she assumed that meant deposits were insured by the government agency.[...]

Federal Savings is not registered in the state of Washington or with any federal agency to sell certificates of deposits or any securities, said Martin Cordell, chief of enforcement with the state Department of Financial Institutions' securities division.

Two weeks ago, after investigating complaints about the company, DFI issued a cease-and-desist order against Federal Savings, First Bancshares Inc., JMA Northwest Investments and Jeremy M. Stamper, a Seattle businessman.
Ironically, their web site claims that they are "the unbank" -- and turns out they were not a real bank afterall. So, you don't have to be a real bank to collect money! How many other "unbanks" are out there?

Copyright 2007, DannyHSDad, All Rights Reserved.

Thursday, March 1, 2007

Meaning of NCUA and FDIC

"Learning the Finer Meaning of 'Insured': Banks and other institutions offer various guarantees on their investment products."

A good intro on who insures what for how much.

Copyright 2007, DannyHSDad, All Rights Reserved.

Bank 2: Huron River Area Credit Union, Ann Arbor, MI

"Feds take over credit union: Problem at Huron River Area Credit Union not disclosed" [Feb 20, 2007] NCUA takes over a bank in MI.

Copyright 2007, DannyHSDad, All Rights Reserved.

Bank 1: Metropolitan Savings Bank, Pittsburgh, PA

"Customers saw 'no rumblings of trouble' at bank" [Feb 11, 2007]. FDIC takes over a bank in PA.

Copyright 2007, DannyHSDad, All Rights Reserved.

Bank Run Tally: Start

I want to keep a running tally on banks going under. This includes regular banks and credit unions.

Copyright 2007, DannyHSDad, All Rights Reserved.