turbo-1 said:One huge difference, though. '57 Chevies are pretty low-tech. I can tear down and rebuild a carb with no problem. I cannot tear down and rebuild an entire fuel system in a modern vehicle - injectors, pumps, computers and sensors controlling aspiration, ignition timing, excess oxygen, etc, etc.
turbo-1 said:OEM computers might not be reproducible, though - the manufacturers don't even give out the diagnostic codes to independent mechanics. Small businesses (and around here that can mean a shop with 2-10 bays) can scan the diagnostics, but then you have to go to a factory dealership with error codes to get interpretation/service. Been there, done that.
edward said:What is it that they have that is so vital to the world economy??
Proton Soup said:confidence?
This had nothing to do with the Community Reinvestment Act (CRA) or the democrats in congress. This was all about greed and bad management on Wall Street.“We’ve got the right people in place as well as good risk management and controls.” — E. Stanley O’Neal, 2005
THERE were high-fives all around Merrill Lynch headquarters in Lower Manhattan as 2006 drew to a close. The firm’s performance was breathtaking; revenue and earnings had soared, and its shares were up 40 percent for the year.
And Merrill’s decision to invest heavily in the mortgage industry was paying off handsomely. So handsomely, in fact, that on Dec. 30 that year, it essentially doubled down by paying $1.3 billion for First Franklin, a lender specializing in risky mortgages.
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To make matters worse, Merrill sped up its hunt for mortgage riches by embracing and trafficking in complex and lightly regulated contracts tied to mortgages and other debt. And Merrill’s often inscrutable financial dance was emblematic of the outsize hazards that Wall Street courted.
While questionable mortgages made to risky borrowers prompted the credit crisis, regulators and investors who continue to pick through the wreckage are finding that exotic products known as derivatives — like those that Merrill used — transformed a financial brush fire into a conflagration.
As subprime lenders began toppling after record waves of homeowners defaulted on their mortgages, Merrill was left with $71 billion of eroding mortgage exotica on its books and billions in losses.
On Sept. 15 this year — less than two years after posting a record-breaking performance for 2006 and following a weekend that saw the collapse of a storied investment bank, Lehman Brothers, and a huge federal bailout of the insurance giant American International Group — Merrill was forced into a merger with Bank of America.
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“The mortgage business at Merrill Lynch was an afterthought — they didn’t really have a strategy,” said William Dallas, the founder of Ownit Mortgage Solutions, a lending business in which Merrill bought a stake a few years ago. “They had found this huge profit potential, and everybody wanted a piece of it. But they were pigs about it.”
. . . .
The fire that Merrill was playing with was an arcane instrument known as a synthetic collateralized debt obligation. The product was an amalgam of collateralized debt obligations (the pools of loans that it bundled for investors) and credit-default swaps (which essentially are insurance that bondholders buy to protect themselves against possible defaults).
Synthetic C.D.O.’s, in other words, are exemplars of a type of modern financial engineering known as derivatives. Essentially, derivatives are financial instruments that can be used to limit risk; their value is “derived” from underlying assets like mortgages, stocks, bonds or commodities. Stock futures, for example, are a common and relatively simple derivative.
Among the more complex derivatives, however, are the mortgage-related variety. They involve a cornucopia of exotic, jumbo-size contracts ultimately linked to real-world loans and debts. So as the housing market went sour, and borrowers defaulted on their mortgages, these contracts collapsed, too, amplifying the meltdown.
The synthetic C.D.O. grew out of a structure that an elite team of J. P. Morgan bankers invented in 1997. Their goal was to reduce the risk that Morgan would lose money when it made loans to top-tier corporate borrowers like I.B.M., General Electric and Procter & Gamble.
Regular C.D.O.’s contain hundreds or thousands of actual loans or bonds. Synthetics, on the other hand, replace those physical bonds with a computer-generated group of credit-default swaps. Synthetics could be slapped together faster, and they generated fatter fees than regular C.D.O.’s, making them especially attractive to Wall Street.
Michael A. J. Farrell is chief executive of Annaly Capital Management, a real estate investment trust that manages mortgage assets. A unit of his company has liquidated billions of dollars in collateralized debt obligations for clients, and he believes that derivatives have magnified the pain of the financial collapse.
“We have auctioned billions in credit-default swap positions in our C.D.O. liquidation business,” Mr. Farrell said, “and what we have learned is that the carnage we are witnessing now would have been much more contained, to use that overworked word, without credit-default swaps.”
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Wow!The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.
But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.
"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."
The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.
The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.
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Year 2009 2010 2011
Jobs, millions 3.0 2.5 1.8
Personal income, $billions 151 138 109
Tax receipts, $billions 60 54 42NYTimes said:Mr. Bush indicated at the meeting that he might support some aid and a broader economic stimulus package if Mr. Obama and Congressional Democrats dropped their opposition to a free-trade agreement with Colombia, a measure for which Mr. Bush has long fought, people familiar with the discussion said.
The Bush administration, which has presided over a major intervention in the financial industry, has balked at allowing the automakers to tap into the $700 billion bailout fund, despite warnings last week that General Motors might not survive the year.
"The overall market remains strongly focused on the continuing flow of bad news coming from the U.S. economy in particular," said Sebastien Barbe, an analyst at Calyon.
Analysts blamed the latest bout of selling on fears that the economic recession in the U.S. will be deeper than anticipated and could lead to some high-profile casualties. Electronics retailer Circuit City Stores Inc. was the latest company in the U.S. to report mounting difficulties as it filed for bankruptcy protection.
NEW YORK (Reuters) - Merrill Lynch & Co (MER.N) Chief Executive John Thain said the global economy is in a deep slowdown and will not recover quickly, and the environment recalls 1929, the advent of the Great Depression.
Speaking Tuesday at his bank's annual financial services conference, Thain said he was "cautiously optimistic" about the outlook for the industry. But he said credit remains constricted and asset prices generally are still falling.
"The U.S. economy is contracting very rapidly," creating uncertainty "at least over the next few quarters," Thain said. "We are going to be in a very difficult economic environment for a significant period of time."
Conditions deteriorated as the U.S. housing market collapse mushroomed into a more general crisis of confidence.
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Just remember, there will be an end to this tunnel - eventually.NEW YORK (Reuters) - For most of the past century, Goldman Sachs was top of the heap among Wall Street's investment banking firms, but its prospects as a heavily regulated bank are not so bright.
After months of fretting about capital and liquidity levels at banks, the market has turned its focus from Goldman's survival prospects to its earnings potential. Investors clearly do not like what they see.
"The days of getting 35 percent (returns) on equity are over -- much of that was achieved with leverage," Mendon Capital President and Chief Investment Officer Anton Schutz told Reuters on Monday.
Brokers and banks, he said, must change their ways. "There is no doubt their balance sheets are seen as weaker. They're trying to get leverage ratios down," Schutz said.
Investors may get some answers when Goldman Chief Executive Lloyd Blankfein speaks at a Merrill Lynch investor conference after the closing bell on Tuesday.
Goldman Sachs Group Inc shares on Monday fell to their lowest levels since 2003 as a growing chorus of analysts forecast plunging markets will produce a fourth-quarter loss -- the firm's first quarterly loss since it went public in 1999.
The stock has plunged 71 percent since reaching a record high last October and is down nearly two-thirds since the end of July. It stood at $72.04 in Tuesday morning trade.
. . .
U.S. regulators responsible for supervising American International Group now acknowledge that they failed to grasp the impact of provisions in the complex derivative contracts that pushed the world's largest insurance company to the brink of collapse.
Terms of the insurance-like contracts, called credit-default swaps, required AIG to post billions of dollars in collateral in the event of a market slide or credit downgrade.
"We missed the impact" of the collateral triggers, said C.K. Lee, who ran a little-known team in the U.S. Office of Thrift Supervision, or OTS, which oversaw AIG's finance unit. He said the swaps were viewed as "fairly benign products" until they overwhelmed the trillion-dollar company.
Because AIG bought a small savings and loan nine years ago, the OTS became responsible for supervising AIG's parent company. Its duties expanded when European regulators in January 2007 conferred on the OTS the authority to supervise the company's overseas operations. A report by the U.S. Government Accountability Office last year said the OTS lacked the needed expertise
The money is changing hands because AIG provided $441 billion in backing for Wall Street trades involving credit- default swaps, or transactions in which one party agrees to pay another to accept the risk of default. Those bets are packaged into larger securities called synthetic collateralized debt obligations. AIG's business was to insure the top-rated, safest part of those CDOs, also known as super-senior, from default.
Overall, the most considerable level of exposure was held by the Wall Street banks,'' said S&P's Clark in an interview. ``However, it was very diversified and contained some European banks.''
AIG spokesman Nicholas Ashooh said the company would not disclose its counterparties or the contents of the CDO portfolio. He declined further comment.
The CRA applies to mortgage originators which ML clearly never was.Astronuc said:...
The Reckoning
How the Thundering Herd Faltered and Fell
http://www.nytimes.com/2008/11/09/business/09magic.html
This had nothing to do with the Community Reinvestment Act (CRA) or the democrats in congress.
Astronuc said:Goldman CEO speaks as firm's future in doubt
http://www.reuters.com/article/ousiv/idUSTRE4AA4WA20081111
By Joseph A. Giannone - Analysis
Just remember, there will be an end to this tunnel - eventually.
What industry do you work in, Astronuc? It seems to me that every white collar job has a clear career path toward an upper-level management position*. It's just that engineers who want to stay engineers don't make the jump from engineer to engineering manager. But that doesn't mean the track isn't there.Astronuc said:There are also positions in major league baseball, basketball, football, . . . . , that pay $1+ million/yr. But seriously, how many positions are there for top white collar engineers making $500 K?
Russ, I agree with you. In theory there is clear path toward an upper-level management position - and there is one position for the hundreds of engineers at the bottom. As one ascends the corporate ladder, there are fewer jobs, just like for all kids in athletics/sports in high school and college, there few positions in the major leagues.russ_watters said:What industry do you work in, Astronuc? It seems to me that every white collar job has a clear career path toward an upper-level management position*. It's just that engineers who want to stay engineers don't make the jump from engineer to engineering manager. But that doesn't mean the track isn't there.
Per salary.com, "top engineering executives" in San Jose CA are paid $171K to $242K (2nd and 3rd quartiles), (see http://swz.salary.com/salarywizard/...AjaxDisplaySection1=1&hdAjaxDisplaySection2=0).Astronuc said:But seriously, how many positions are there for top white collar engineers making $500 K?
No I don't think those numbers are just for the big three; rather that is for all US auto jobs both direct and indirect (OEMS + suppliers), including Toyota - US, etc. Also, where is it suggested that a) if they default on debt they would necessarily 'shut down operations', and that b) all three of them would necessarily fail, versus three becoming two, etc.?Astronuc said:What's at stake if the automakers fail.
Obama Asks Bush to Provide Help for Automakers
http://www.nytimes.com/2008/11/11/us/politics/11auto.html
If GM, Chrysler and Ford shut down operations,
Center for Automotive Research estimates loss of:
Code:Year 2009 2010 2011 Jobs, millions 3.0 2.5 1.8 Personal income, $billions 151 138 109 Tax receipts, $billions 60 54 42
“Unfortunately, I don’t have a lot of good news for them individually,” said Jeb Mason, who as the Treasury’s liaison to the business community is the first port-of-call for lobbyists. “The government shouldn’t be in the business of picking winners and losers among industries.”
Mr. Mason, 32, a lanky Texan in black cowboy boots who once worked in the White House for Karl Rove, shook his head over the dozens of phone calls and e-mail messages he gets every week. “I was telling a friend, ‘this must have been how the Politburo felt,’ ” he said.
The job numbers cited include the Big 3 Automakers + all the companies in their respective supply chains, e.g. parts companies, as well as dealerships, etc. Those are rough/gross estimates as far as I can tell.mheslep said:No I don't think those numbers are just for the big three; rather that is for all US auto jobs both direct and indirect (OEMS + suppliers), including Toyota - US, etc. Also, where is it suggested that a) if they default on debt they would necessarily 'shut down operations', and that b) all three of them would necessarily fail, versus three becoming two, etc.?
This is just unbelieveable.edward said:A lot of companies are now wanting a share of the bail out. First they must go through Treasury's liaison to business Jeb Mason.
http://www.nytimes.com/2008/11/12/b...38800&en=f24a9509e53ce37f&ei=5087&oref=slogin
WASHINGTON – The government has abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets.
Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.
Paulson said 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.
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Yes, and the numbers also include jobs from Honda-US, Toyota-US, Nissan-US, BMW-US, etc, which are mostly not at stake pending a taxpayer bailout.Astronuc said:The job numbers cited include the Big 3 Automakers + all the companies in their respective supply chains, e.g. parts companies, as well as dealerships, etc.
Somebody please explain why a moratorium on foreclosures will not lead to a moratorium on making timely payments.Astronuc said:... Meanwhile some mortgage lenders and service companies, Citigroup, have imposed a moratorium of foreclosures ...
mheslep said:Somebody please explain why a moratorium on foreclosures will not lead to a moratorium on making timely payments.
Yes of course its desirable on both sides of troubled loans to stay out of foreclosure. The problem is avoiding creating a giant moral hazard for everyone else.mgb_phys said:If you are the bank- which would you rather have right now;
Some customers not making payments for a year, or an empty house that is unsellable which you have to insure, maintain and possibly pay property taxes on?
Remember these are the sub-prime customers that you have been charging higher rates to and who are likely to come back to you for loans in the future, not those nasty 'well behaved' customers that pay off early and never pay interest on their credit cards.
The tricky bit is going to be to stop smart home owners not paying and simply sticking the mortgage payments in a savings account to make some money.
Under the program announced Tuesday, a homeowner who lives in the home in question and misses at least three loan payments could qualify for a streamlined workout designed to reduce the monthly payment to 38% of the borrower's gross income.
SAN FRANCISCO (AP) -- Intel Corp. whacked more than $1 billion from its fourth-quarter revenue forecast and ratcheted down its profit expectations because a clampdown on spending is reducing demand for its chips.
Intel's announcement Wednesday illuminates how the economic crisis is rippling across industries. As consumers and businesses cut back on buying all kinds of things, their reduced purchases of PCs are harming computer makers and their suppliers. Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80 percent of the global market.
. . . .
Intel blamed "significantly weaker than expected demand in all geographies and market segments" and PC makers buying fewer new chips as they burn through existing inventory to save money.
Intel's profit is being hurt badly. The company's closely watched gross profit margin will now come in around 55 percent of revenue, plus or minus a couple of percentage points. The previous guidance was for roughly 59 percent.
Gross margin measures profit on each dollar of revenue once manufacturing costs are stripped out. It's an especially important measurement for chip makers because upgrading and maintaining their factories is hugely expensive.
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Already in NY, the state government is freezing programs, cutting spending and raising tuition to the state/public universities.NEW YORK (AP) -- Morgan Stanley on Wednesday outlined plans to cut 10 percent of staff in its biggest business, which covers everything from investment banking to stock trading.
The nation's No. 2 securities firm, which converted into a bank holding company in September, plans to scale back its most capital-intensive businesses before the end of the year. The layoffs inside the institutional securities group follow a 10 percent cut made earlier this year to the same group.
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http://www.bloomberg.com/apps/news?pid=20601087&sid=azZGwY05SZ9M&refer=homeThe California congressman did however signal concern over “special tax breaks” that allow managers to treat the vast majority of their earnings as capital gains, meaning some portion of their earnings are taxed at a rate as low as 15 per cent.
“That’s a lower tax rate than many school teachers, firefighters, or even plumbers pay,” Mr Waxman said in a wry reference to “Joe the Plumber”, who became a fixture of the 2008 presidential campaign after he challenged president-elect Barack Obama on his tax plan.
Paulson, 52, runs a New York-based fund that manages about $36 billion. His Credit Opportunities Fund soared almost sixfold in 2007, primarily on wagers that subprime mortgages would tumble. Paulson's Advantage Plus fund has climbed 29 percent this year through October while many managers are enduring the worst year of their careers.
Falcone also profited from a drop in subprime mortgages last year, when his fund, now about $20 billion, doubled. This year the fund was up 42 percent at the end of June and has since tumbled to a loss of about 13 percent. He told the panel that his father, a utility superintendent, never made more than $14,000 a year, and his mother worked in a local shirt factory.
Simons, 70, runs his $29 billion fund out of East Setauket, New York. The former academic makes money by using computer models to trade. His Medallion Fund, made up of his own money and that of his employees, is up more than 50 percent this year.
Griffin, 40, runs the $16 billion Citadel Investment Group LLC in Chicago, and has faced the toughest year out of the five billionaire managers. His funds dropped 38 percent this year through Nov. 4.
It’s easy to call it a flip-flop.
Two months ago, Henry M. Paulson Jr., the Treasury Secretary, was lobbying hard to pass his $700 billion bailout plan, called the Troubled Asset Relief Program. He heralded the idea of buying subprime mortgages and other distressed assets from banks as a way to shore them up and get them lending again.
But on Wednesday, Mr. Paulson announced that the Treasury had effectively abandoned that plan in favor of making direct investments — something he had previously said he wanted to avoid — in all sorts of different companies, possibly including credit card firms and companies that make auto loans.
John Paulson made billions betting that you could lose your home.
The Queens-born hedge fund titan scored big by making complex investments that would reap huge profits if housing prices drop and mortgage foreclosures rise.
As the housing market tanked, Paulson made $2.7 billion in the first nine months of 2007 to lead all hedge fund bosses.
Things are looking even better for him in '08 as real estate prices crumble and millions of Americans struggle to stay in their homes.
"I've never been involved in a trade with such unlimited upside," Paulson, 52, boasted to The Wall Street Journal.
Purge your mind for a moment about everything you've heard and read in the last decade about investing on Wall Street and think about the following business model:
I wonder if economists are like weatherpersons - they're right about half the time.WASHINGTON – Retail sales plunged by the largest amount on record in October as the financial crisis and the slumping economy caused consumers to sharply cut back on their spending.
The Commerce Department said Friday that retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.
The decline in sales was led by a huge drop in auto purchases, but sales of all types of products from furniture to clothing fell as consumers retrenched.
The 2.8 percent drop marked the fourth consecutive monthly decline in retail sales, the longest stretch of weakness on record, and was much bigger than the 2 percent fall economists expected.
In a second report showing weakness, the government said businesses cut back on their inventories by 0.2 percent in September, the first decline since March 2007 and the biggest setback in more than three years.
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