Tuesday, September 30, 2008
Sunday, September 28, 2008
Indeed, below the GDP figures, lifted by net exports, "Gross domestic purchases contracted during the second quarter. Gross domestic purchases also contracted during the fourth quarter of 2007, and only rose by 0.1% at an annual rate during the first quarter."
Furthermore: "Real retail sales growth has been negative on a year-to-year basis for nine consecutive months, the longest streak of declines since 1991. This data, and the tremendous spike in both jobless claims and the unemployment rate, are telltale signs of an economy that is in reverse gear.""
Friday, September 26, 2008
James Dimon, J.P. Morgan's chairman and chief executive, has proven the power of holding back and managing your hand carefully. Build your capital when times are good and run a large universal bank like the commercial bankers are in charge. Then pounce when you can acquire franchises cheaply that augment your strategy. That has proven to be the winning end game strategy.
The Journal notes his building a "fortress balance sheet:"
"Since taking the reins of J.P. Morgan nearly three years ago, Mr. Dimon has transformed the bank. Much of those efforts came during a period of prosperity for the banking industry, giving him time to upend the bank's culture and computer systems. Along the way, he has emphasized the need to create a 'fortress balance sheet' that can withstand a weak economy."
So much for the strategy of growth at any cost and fatten yourself on fees. Dimon's power house has bought the fattened calf's dessicated bones.
J.P. Morgan paid a steep price for a rather shaky bank which found itself subject to an old fashioned run: It contributed $1.8 billion to the FDIC fund and plans to take a $31 billion write off. It now plans to raise another $8 billion in capital. Why? J.P. Morgan bank emerges as the #1 bank in the U.S. It takes over a large network of mortgage banking and acquires a big retail footprint in two huge markets it has long coveted: Florida (New York South) and California.
Glass Steagal and McFadden are dead, long live J.P. Morgan!
That rumble you hear is Senator Glass rolling over in his grave!
Thursday, September 25, 2008
Among other things he agrees on a plan proposed by Professor Calomiris: "If, as seems plausible, a scheme that imposes such pain on the financial sector would be rejected out of hand, the next best alternative would be injection of preference shares by the government into decapitalised institutions, on the lines proposed by Charles Calomiris of Columbia University. This would be a bail-out, but one that constrained the behaviour of beneficiaries, not least on payment of dividends. That would make it far better than dropping benefits on the unworthy, via mass purchases of overpriced toxic paper."
Wednesday, September 17, 2008
"The drama of the past days – the collapse of Lehman Brothers, the rapid purchase of Merrill Lynch, the weakness of AIG, the threats to other institutions – all have no real historical precedent."
Is this an issue of liquidity or solvency?
1) The Federal Reserve (not the federal government) lent AIG $85 billion.
2) AIG pays LIBOR plus 8.5% (The Financial Times described it as: "The Fed’s rescue is on punishing terms: AIG must repay the $85bn loan at a storecard-like 8.5 percentage points over Libor, liquidating perfectly fine assets to do so.")
3) The federal government gets 79.9% of AIG's equity.
4) AIG's CEO steps down (involuntarily.)
5) The Treasury is supplying the Fed with extra funds.
6) Why Do It? Too many banks had bonds insured by AIG that would have had their capital impaired if AIG was downgraded
7) Why the draconian measures? To avoid moral hazard.
Earlier Bank of America bought Merrill Lynch.