Fed govt takes Indymac over

[baggerchris]

I agree that the "sky ain't falling",

 

but

 

this ain't good news.

[Redbrick]

Indymac?.......Please excuse my lack of knowledge , but what/who is Indymac?

 

 

[Bob Palin]

I had to look it up too - here's the piece that explains all you really need to know...

 

"The Pasadena, California-based lender specialized in so- called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes."

[Redbrick]

I had to look it up too - here's the piece that explains all you really need to know...

 

"The Pasadena, California-based lender specialized in so- called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes."

 

Thanks Bob......I'm more concerned about Freddie Mac and Fannie Mae........

 

 

[John Ranalletta]

I had to look it up too - here's the piece that explains all you really need to know...

 

"The Pasadena, California-based lender specialized in so- called Alt-A mortgages, which didn't require borrowers to provide documentation on their incomes."

 

Thanks Bob......I'm more concerned about Freddie Mac and Fannie Mae........

 

Check at bankrate.com and you'll find Indymac offering the highest interest rate CDs in the country. I'd guess they'll disappear from the list by Monday as the government starts refunding money (principal only) to current CD holders. A bond desk guy at Schwab said that after the most recent default of an Arkansas bank, direct depositors got their money in about a week and holders of brokered CDs got theirs in 2-3 weeks. I asked him if Schwab vetted the banks whose CDs they brokered or if they vouched for or checked the credit quality of the issuers. He said they did not.

 

As lenders of last resort, Fannie and Freddie are the last hopes for a leveling off of the housing crash within the next 18-36 months; however, they've been so poorly managed that very likely their portfolios are worse than Countrywide's.

 

If the government "rescues" them and even if it doesn't, the interest bearing instruments they've issued that back up money market and cash fund deposits could be undercut. Simply put, we might see money market funds "break the buck", i.e. be worth less than $1/share. That would be a very interesting development since virtually every mutual fund family including Vanguard offers money market funds with GSE paper, to wit:

 

followed by the warning:

 

*** both citations above taken from Vanguard's prospectus which is available here

 

[upflying]

Don't know nothing about Indymac. But if they offer "sounds too good to be true" returns on CD's and lends money without income verification then I say good riddance. What were they thinking?

[smiller]

What were they thinking?

That their executives could make huge bonuses for a while, and when it comes crashing down they can retire.

[upflying]

Oh yeah, something about Enron I reckon.

[Bob Palin]

Don't know nothing about Indymac. But if they offer "sounds too good to be true" returns on CD's and lends money without income verification then I say good riddance. What were they thinking?

Unfortunately (maybe) you are not permitted to say good riddance, you get to pay out on all the deposits that were federally insured.

[Deadboy]

I agree that the "sky ain't falling"

 

Check again, it is....2nd largest failure in US history....with more to follow soon....WAMU can't be far behind....

[Deadboy]

Right on cue: http://online.wsj.com/article_email/SB121605305718551305-lMyQjAxMDI4MTE2NDAxNTQzWj.html

 

This also says IndyMac was #3 in terms of failures (I have seen it called #2 and #3)...good times!!

 

Analyst Reports Slam WaMu Stock

 

Shares of beleaguered thrift Washington Mutual Inc. were pummeled to a fresh 17-year low as Lehman Brothers said the company could see $26 billion in total losses from items on its balance sheet.

 

Lehman also projected the company will record $4 billion in loan-loss provisions and not return to profitability until the second half of 2009.

 

Shares of Washington Mutual were recently down 29% at $3.51 and helped pushed shares of other banking institutions lower, notably fellow mortgage-impacted firm National City Corp., which said it is not seeing "unusual depositor or creditor activity."

 

Banks are loath to have to publicly assert their creditworthiness, which shows the pressures facing struggling banks, especially in the midst of IndyMac Bancorp Inc., which was seized late Friday by federal regulators.

 

National City shares were down 30% to an all-time low of $3.10.

 

WaMu has been rocked by the meltdown in the housing market and announced last month it would cut 1,200 jobs as the company works to cut $500 million to $600 million in expenses.

 

Lehman said Monday that while WaMu's losses could total $26 billion, the company should have enough money to avoid having to raise more capital. The firm took in $7 billion in April.

 

Still, Lehman predicts a second-quarter loss of $1.48 a share as it expects WaMu to record a $4 billion loan-loss provision, on top of the first quarter's $3.5 billion. Analysts' mean estimate, as surveyed by Thomson Reuters, is for a second-quarter loss of 93 cents.

 

Meanwhile, well-followed bank analyst Dick Bove at Ladenburg Thalman said WaMu "is on the edge" of the danger zone, meaning losses are approaching levels seen during the savings-and-loan collapse of nearly 20 years ago. Not far behind WaMu is National City; their 90-day delinquency rates were 3.89% and 3.38%, respectively. In the early 1990s, industrywide rates reached 5.5%.

 

WaMu has been the subject of repeated questions about its capital cushion and potential further losses. Since its core lines of business remain concentrated in home-mortgage lending and the credit market, investors have been especially hard on the company amid spreading signs of weakness in the economy.

 

The Seattle-based bank has been slammed by the collapse in housing prices, which has led to severe losses and a reshuffling of leadership in response to shareholder pressure.

 

The latest selloff in WaMu shares comes as IndyMac, a prolific mortgage specialist that helped fuel the housing boom, was seized by federal regulators in the third-largest bank failure in U.S. history. IndyMac is the biggest mortgage lender to go under since the housing downturn began.

 

 

[Deadboy]

http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/mortgage_giants_crisis

 

[smiller]

Well at least you don't have to feel too bad about the Freddie and Fannie CEOs losing their jobs (if they do) as they have their last year's compensation of $19.8 million and $12.2 million to tide them over for a while.

 

 

[John Ranalletta]

We're in the early innings. Kinda' like watching the water run out of a bathtub. At first, it hardly seems to be emptying but turns into a torrent. The biggest problem is nobody can value the collateral as the value of commodities, real estate, cars and, ummm, motorcycles plummet in a mad rush to de-lever. There are going to be some terrific buying opportunities, but not just yet. Cash, as always, is king.

 

Coming soon to a bank near you...

 

FDIC Bank Foreclosure Streak: Batting .667 on Fridays

 

Is your bank on this list?

 

 

Foreigners who have loads of US$ haven't made very good investments:

 

[Deadboy]

No End Yet to the Capital Punishment

By PETER EAVIS and DAVID REILLY

September 8, 2008; Page C10

 

It's not over.

 

Investors may be tempted to see the government's takeover of Fannie Mae and Freddie Mac as the kind of cathartic action that marks a decisive turning point for the U.S. banking system and the wider stock market.

 

But the chief problem at Fannie and Freddie -- an inadequate capital cushion against losses -- also bedevils large banks in the U.S and Europe more than 12 months into the credit crunch.

 

While the capital shortage may not be as dire as at Fannie and Freddie, private banks can't count on a government rescue. Some will fail. Others will have to issue massive amounts of capital to shore up their shaky balance sheets.

 

Make no mistake, the government's move to shore up Fannie and Freddie will likely give markets a short-term boost, especially if investors believe this can help underpin house prices in the U.S. But this move by the Treasury comes just as a new, more general threat looms: On top of U.S. economic problems, underlined by Friday's jump in the unemployment rate, the rest of the world is slowing.

 

The broader strains now facing the markets are not as easily relieved by central banks or governments as the company specific crises at Fannie and Freddie or Bear Stearns earlier this year.

 

Of course, central banks could cut interest rates in the face of this threat. Even the Federal Reserve has some room to cut the Fed Funds rate from 2%. That may be one reason bank stocks rallied Friday in the U.S. despite the dismal unemployment figure.

 

Rate cuts would theoretically allow banks to harvest easy profits by borrowing more cheaply and lending to high-quality borrowers at attractive rates. The trouble is, banks are being extra cautious, justifiably, about lending as the economy slows.

 

The shakeout of the past year has done almost nothing to improve the average U.S. household balance sheet. So while a government commitment to buy mortgage-backed securities, also announced Sunday, may cause mortgage rates to fall, banks may not want to lend at lower rates because they don't feel they're being compensated for the risks in this uncertain economy.

 

And while banks are reluctant to lend, many are having problems borrowing to fund themselves. That is because the market's assessment of their creditworthiness is darkening.

 

A closely followed yardstick that measures the gap between interbank lending rates and the expected federal-funds rate has widened beyond July's distressed levels. When this gap widens, banks are perceived to be riskier.

 

Also, the cost of insuring against default by large banks is rising.

 

The takeover of Fannie and Freddie could even worsen that sentiment, as investors grow even more cynical of regulatory measures of capital.

 

For months, Fannie, Freddie, their regulator and other government officials have assured investors that measures of regulatory capital showed the mortgage firms weren't financially hobbled.

 

The government's takeover shows this wasn't the case. Given that, investors are going to want concrete actions from banks, not continued pronouncements that losses on mortgage-related securities are only temporary and will one day bounce back.

 

That will translate into highly dilutive issues of common stock, which will be necessary if banks are to raise capital to the levels required to reassure anxious funding sources.

 

And that is why bank investors who place too much hope in the bailout of Fannie and Freddie could get burned.

 

 

[motoguy128]

So in simple terms, everyone was having a big party the last decade or more, and now we're waking up the next morning and the house is trashed, you've got a heck of a hangover, but everyone wants to do it all over again.

 

Or in otherword, a lot of rich people made a lot of money at the expanse of wreckless spending, poor asset management and complete lack of sound long term financial planning by consumers who were either stupid, ignorrant, or greedy.... real estate was easy money.

 

 

[Patallaire]

"Buy at the point of Maxium pessimism" Sir John Templeton

 

"Buy when the blood is running in the streets," Nathan Rothschild

 

Sounds like a plan!

 

[yabadabapal]

Killinger from wamu was dismissed I believe as of yesterday evening.

He gets a 26 million settlement for early retirement.

I am expecting to see the largest volume of lawsuits ever filed withing a certain period of time.

This is in fact a national Ponzi Scheme.

 

[Deadboy]

Killinger from wamu was dismissed I believe as of yesterday evening.

He gets a 26 million settlement for early retirement.

I am expecting to see the largest volume of lawsuits ever filed withing a certain period of time.

This is in fact a national Ponzi Scheme.

 

Thank god my wife got away from WAMU when she did....from $44 a share to $4 in just over a year....

[John Ranalletta]

Investment guru Jim Rogers has this to say about America today:

 

“America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it’s just bailing out financial institutions,” Rogers said. “This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I’m not quite sure why I or anybody else should be paying for this,” he added.

[Deadboy]

http://www.forbes.com/2008/09/08/ual-tribune-bankruptcy-biz-media-cz_ja_0908ualstory2.html?partner=email

 

Yet another interesting story....

[yabadabapal]

http://www.forbes.com/2008/09/08/ual-tribune-bankruptcy-biz-media-cz_ja_0908ualstory2.html?partner=email

 

Yet another interesting story....

 

Wow! What a story. I cant stop laughing, its so unbelievable.

This is such an incredible time period in this country.

The elections, the economy, and the issues.

The only thing we're missing is the truth.

 

 

[Lawman]

I'm gonna start me one of them there companies where I can privatize the profits and socialize the losses..You guys want in ?

[yabadabapal]

I'm gonna start me one of them there companies where I can privatize the profits and socialize the losses..You guys want in ?

 

That sir, is the truth. Its so absolutely right on the money, Im laughing because Its so perfectly said.

[motoguy128]

I'm gonna start me one of them there companies where I can privatize the profits and socialize the losses..You guys want in ?

 

Only if nepotism is strictly practiced by HR. All fair hiring practices must be prohibited.

[marcopolo]

I'm gonna start me one of them there companies where I can privatize the profits and socialize the losses..You guys want in ?

 

And we up here get called a nanny state by some down there whenever health care comes up for discussion. Gotta love it (the irony, that is).

[Deadboy]

http://news.yahoo.com/s/ap/greenspan

 

WAMU should be gone by Friday.....

 

And yes, the sky is falling.

[Ken H.]

Yeah, and if it wasn't for the fact (or maybe anyway) that the financial markets in Japan, Hong Kong, China, and South Korea are closed for holiday, tomorrow's openings could be really, really ugly.

[FlyingFinn]

With the trouble Lehman and AIG now are in, it's going to be ugly tomorrow. Asian markets closed or not.

 

--

Mikko

[smiller]

Ya, gonna be bad. But the sooner we get this out of the system the better.

 

 

[John Ranalletta]

Ya, gonna be bad. But the sooner we get this out of the system the better.

 

 

Good bet.

 

 

btw, Shilling called the cratering of the commodity markets in January.

 

[John Ranalletta]

This weekend's developments are very interesting and give one some sense of deja vu.

 

BA bought Schwab and spit them out. Now they're buying another broker? Go figure.

 

Jack "Ain't I great" Welch wrote that GE's purchase of Kidder, Peabody was a disaster because it's a personality business. A Merrill advisor told me, "if I leave Merrill, I take my book of business with me". That tells me the retail accounts BA wants could be lost they bring the hide-bound rules from the banking business to the brokerages and the brokers flee. Brokerage customers tend to be loyal to their reps, not the company.

 

It might work out well, but financial reps (brokers) are used to unlimited income opportunities and freedom. Banks don't have that history.

[motoguy128]

Soooo Lehman's done... who's next up in the Que? AIG? WaMu?

 

[David]

This is all driven by debt, both personal and corporate. The truth is that things aren't as bad now as the news would make us think. But just as important, things weren't as good as people thought, either, back when they were doing incredibly stupid things with money.

 

Debt has a whiplash effect, magnifying the impact of decisions.

[Deadboy]

I think things are actually far worse than most folks want to believe or realize, and are going to really get bad before they start to get better. Unless you think things like AIG being bailed out are just minor market corrections....

 

http://www.nytimes.com/2008/09/15/business/15aig.html?_r=2&hp&oref=slogin&oref=slogin

 

We are still very early into this crisis....

 

[Ken H.]

"Gov. David A. Paterson of New York said on Monday that the state would allow the American International Group, a big insurance company, to lend itself $20 billion to bolster its capital as it faces potentially disastrous credit downgrades."

 

Well I'm no high financier, but the next time I need some money to buy something, I think I'll try lending it to myself. Seems like it should work, right?

 

I was reading something a bit ago about how now many banks are borrowing in the hour to finance their operations for the next couple of hours.

 

My sister last week went to her bank to withdraw $27,000 for a cash car purchase. Was told they didn't have it on hand. She would have to put in the request and wait 48 hours. A bank that doesn't have a lousy $27,000 available!?! WTF?

 

What's wrong with this picture?

 

[smiller]

S&P down 4.7% today... ouch... where is the freakin' bottom..?

 

 

[TyTass]

My sister last week went to her bank to withdraw $27,000 for a cash car purchase. Was told they didn't have it on hand. She would have to put in the request and wait 48 hours. A bank that doesn't have a lousy $27,000 available!?! WTF?

 

What's wrong with this picture?

Come on, Ken ... Nothing's wrong! The money's actually available. This is just the bank's excuse to allow time for the government to ensure she's not a terrorist or a drug dealer. But come to think of it, she probably is one because who else would need to have a transaction over $10K but terrorists and drug dealers. Oh ... Wait a moment. The CEOs of companies like Bear Stearns, AIG, etc., that's who.

[Ken H.]

Soooo Lehman's done... who's next up in the Que? AIG? WaMu?

Well WaMu has certainly got it's nuts in a vice, and A.I.G. wants to tap $40B from the feds overnight tonight in a bid to stay alive another day or two, and Merrill Lynch is history, swallowed by Bank America, who has barely digested CountryWide. But for my bet, I'd say we'll see Morgan Stanley 'in the news' soon.

 

Isn't it amazing how such a little thing like lending money to a few million people to buy a house they can't afford anyway in _ell, can lead to such a mess for these poor, innocent, victimized banks? I really do feel bad for them. Especially poor John Thain having to survive on $50M a year. Makes Grasso look like a bargain at $35M a year for having created the WBS's that now threaten to tank the global economy.

 

Not that I’m bitter or anything!

 

[Ken H.]

Come on, Ken ... Nothing's wrong! The money's actually available. This is just the bank's excuse to allow time for the government to ensure she's not a terrorist or a drug dealer.

Oh I know about the $10K cash transaction rule, but I don’t think that has to do with funds availability does it? Only the reporting of the transaction to the feds after the fact, correct?

[Ken H.]

S&P down 4.7% today... ouch... where is the freakin' bottom..?

Greenspan (yes he’s still alive!) said yesterday he thought it was 3rd qtr 2008. (Or was it 2nd qtr 2009? Or did he say first qtr 2010? Maybe it was that a 4th qtr 2010 recovery is a sure thing...)

[FlyingFinn]

"Gov. David A. Paterson of New York said on Monday that the state would allow the American International Group, a big insurance company, to lend itself $20 billion to bolster its capital as it faces potentially disastrous credit downgrades."

 

Well I'm no high financier, but the next time I need some money to buy something, I think I'll try lending it to myself. Seems like it should work, right?

 

That is quite creative, I have to admit. I'm with you Ken, that will be my first choice too when in a year or so from now this housing (among other things) correction starts to bottom out and I will try to buy a house. I'll just lend the money to myself.

 

Then my left hand can write off the interest payments while my right hand collects nice income from that loan. And all of me can rake in the returns of the appreciating home value! It will be sweet...

 

--

Mikko

[russell_bynum]

My sister last week went to her bank to withdraw $27,000 for a cash car purchase. Was told they didn't have it on hand. She would have to put in the request and wait 48 hours. A bank that doesn't have a lousy $27,000 available!?! WTF?

 

What's wrong with this picture?

 

I see nothing necessarily wrong with that picture. If I'm a bank, I wouldn't want to keep any more cash on hand in each of my branch offices than I need to function. A single request for $27,000 is probably way above the norm for them.

 

My bank has some of it's branches offices in local grocery stores. I was behind some guy a couple of years ago and he was irate because he was trying to pull 30K in cash to go buy a car and they were going to make him wait 48 hours. Imagine that...the BofA branch in the Albertsons in Podunkville, CA doesn't have 30K sitting around! The horrors!!!!!!

[motoguy128]

Personally the thought of walking the streets with 30k in cash completely unsecured kind of scares me. Is there a cash limit to checking accounts? I wonder why you couldn't use a VISA check card for such a large transaction. Or better yet a wire transfer of some kind.

 

Myself, if I had that kind of cash on hand and ever planned otspend it... I would use a Visa or mastercard to purchase it (that way you have other protections as well. Then use a electronic transfer to pay off the card the next day or before the grace period.

 

Almost every bank I've been too usually have a 10k withdrawl limit or something similar. I must admit, slapping down a couple stacks of 100's would be pretty cool. Or a small briefcase full of 20's.

[John Ranalletta]

Well I'm no high financier, but the next time I need some money to buy something, I think I'll try lending it to myself. Seems like it should work, right?

Not so unusual. Not very smart, but again, not unusual. AIG have assets that back insurance and annuity contracts. That money is usually invested outside the house to cover future risk. In effect, they "lend" it out. As I understand this case, NY has given them permission to lend it to themselves, but there is no source of liquidity other than the fed.

 

It's kinda' like borrowing from one's IRA which is always the lender of last resort.

[russell_bynum]

Well I'm no high financier, but the next time I need some money to buy something, I think I'll try lending it to myself. Seems like it should work, right?

Not so unusual. Not very smart, but again, not unusual. AIG have assets that back insurance and annuity contracts. That money is usually invested outside the house to cover future risk. In effect, they "lend" it out. As I understand this case, NY has given them permission to lend it to themselves, but there is no source of liquidity other than the fed.

 

It's kinda' like borrowing from one's IRA which is always the lender of last resort.

 

Excatly.

 

This isn't hunky dory, but it's not Enron accounting or anything like that.

[John Ranalletta]

The bottom isn't visible because the de-leveraging process is pernicious. The first guy to de-lever (throw his assets on the curb for sale) gets the best deal. When every homeowner follows suit, the last person to place their assets on the curb is just wasting time as values fall to zero.

 

Pity the fools who are buying long Treasuries to be safe when interest rates skyrocket and the value of their safe government bonds takes a nosedive.

 

To DCB's point, anybody who's in enough debt that it's causing them to lose sleep, should be hauling stuff to the curb.

[russell_bynum]

Personally the thought of walking the streets with 30k in cash completely unsecured kind of scares me. Is there a cash limit to checking accounts? I wonder why you couldn't use a VISA check card for such a large transaction. Or better yet a wire transfer of some kind.

 

Myself, if I had that kind of cash on hand and ever planned otspend it... I would use a Visa or mastercard to purchase it (that way you have other protections as well. Then use a electronic transfer to pay off the card the next day or before the grace period.

 

Almost every bank I've been too usually have a 10k withdrawl limit or something similar. I must admit, slapping down a couple stacks of 100's would be pretty cool. Or a small briefcase full of 20's.

 

There's tremendous power in greenbacks. My Dad used to buy cars, motorcycles, etc with cash for that reason.

 

He'd count out all the $100 bills on the salesman's desk and say "You get this, and I get that (pointing at the car/bike/etc." After considerable squirming on the salesman's part, it almost always worked. You don't have that same power with a cashier's check or a credit card.

[Ken H.]

My sister last week went to her bank to withdraw $27,000 for a cash car purchase. Was told they didn't have it on hand. She would have to put in the request and wait 48 hours. A bank that doesn't have a lousy $27,000 available!?! WTF?

Sorry, I didn't really make myself clear when I said "cash." She wasn't expecting them to count it out in $100 bills or anything. She was just trying to get the funds in a cashier's check or similar to go buy the car for cash (vs. financing it). They said 48 hours for any withdraw of that size.

[russell_bynum]

My sister last week went to her bank to withdraw $27,000 for a cash car purchase. Was told they didn't have it on hand. She would have to put in the request and wait 48 hours. A bank that doesn't have a lousy $27,000 available!?! WTF?

Sorry, I didn't really make myself clear when I said "cash." She wasn't expecting them to count it out in $100 bills or anything. She was just trying to get the funds in a cashier's check or similar to go buy the car for cash (vs. financing it). They said 48 hours for any withdraw of that size.

 

That seems a little strange, but I don't know what the rules are with that sort of thing. Maybe they have to complete a transfer from the central office to that branch before they can acutally give that money out. (Seems like that sort of thing should be instantaneous, but what do I know?)