TGIF ???

I can say that but Hank the Tank gets to work another long weekend.

So you thought I was joking when I said that the assets of investment banking units went up and down the elevator every day. WSJ: “TOKYO -- Nomura Holdings Inc. paid a nominal sum of $2 for the rump of bankrupt Lehman Brothers Holdings Inc. in Europe and the Middle East, a person familiar with the situation said. Earlier this week, Nomura said it had acquired Lehman's equities and investment banking franchises in Europe, which employs about 2,500 bankers, for a nominal sum that it didn't disclose. "

$2 for the entire operations. Seems fair to me. After all, they have to pay the employees and they are paid in arrears, not in advance.

JPMorgan buys assets of WM. Oh well, thank goodness I did take counsel of my fears last week when I sold my WM speculation for near breakeven. That is something I should have done in May with WB. Live & learn. In bull markets I had learned to not take counsel of fears in very successful investments in oils and miners. But I guess in bear markets one needs to consider them. And in this case, when I realized that buyers were probably waiting to buy the bank clean as an asset purchase, I realized the stock might go to zero and got out. Fear is still ruling the day.

JPM gets a huge branch network and hundreds of billions in deposits for a song. The strong are getting stronger and the weak are being bled. Morgan Stanley reveals it has suffered a loss of many, many customers in its profitable prime brokerage business. I wonder if JPM will buy Morgan Stanley and unify the Morgan name worldwide ? A purchase of MS for its book value with stock would be a good one for JPM, in my verily humble opinion.

Congress appears to be mucking the “Invest in America” plan of Hank the Tank Paulson. Paraphrasing what I wrote to a non-posting friend last evening, “… never underestimate the stupidity or greed or lust for power of an American Congressman.” These knaves are completely without experience in the private sector and mostly know only how to act as mafia bosses in doling out favors and grabbing power. Tammany Hall exists in the 21st century and it is located in the US Capitol building.

In my “gut”, I really did not like the “plan” as it emerged from Congress yesterday afternoon. The force was diluted through the staging of the loans and the need for a vote by Congress for the last ½.

If the Democrats add the power for judges to modify mortgages in bankruptcy, that would destroy the entire mortgage market. Who would ever lend money in a mortgage market - and particularly who would be mortgage securities in the capital markets - knowing a judge can write the loan down with impunity ?

The plan of Hank the Tank would make a huge profit for the government as they could buy assets for 15% yields with funding costs of 3%. At $700 billion of assets with 12% profit margin, the first year profits would be $84 billion. And the prices paid would be below that expected even with conservative – too conservative – default and loss severity assumptions. Remember that about ½ of the nation is seeing stable house prices. Most losses are now in CA, FL, AZ, and NV. But most mortgage CDOs are geographically diversified. So the panic in the markets is pricing these at ludicrous levels. Bill Gross of PIMCO wrote about this a few days ago in the WSJ and also spoke about this on Babblevision.

Honestly, I wish these were available in retail sized amounts. But these securities are typically sold in $1 million blocks.

By the way, this analysis does not apply to CDO squared securities, which are pools of subordinated classes of other CDOs. The loss on subordinated classes can easily be 100%. The government could stick to buying super-senior and senior classes.

The alternative of the "conservative" GOP is stupid and will not work - insuring the mortgage securities does not make a market in them. They still must be sold to liquify the bank balance sheets. And who can buy them in the hundreds of billions to hold to maturity?

The possibility that the Paulson plan will collapse is not zero. See above. “Protect yourself at all times”. If you have some cash available next week, you “might” see some prices of a lifetime for quality companies. Do not go “all in” on the “certainty” of a plan emerging and passing.

PS: How can the market miss-price so many billions of assets ? Disintermediation. This is what happened in the late 1970s to the S&L industry. Funding of long dated assets like CDO classes with short term deposits is a recipe for disaster and many banks, investment banks and hedge funds did that. And then the short term funding dries up. The institutions have to sell the long dated assets to someone at any price. But there are not enough patient buyers who can hold to maturity to realize the underlying value.

PS: When the rich panic, small mammals can be trampled in the stampede.

PPS: I have not and do not plan to sell my stocks. They are either 2 or the 3 the strongest banks or oils and miners with superlative cash flow.

P^3S: By the way, swaps - whether interest rate or credit - do not protect against disintermediation.

P^4S: And for these pundits talking about "guarantees" being a solution, how does that solve disintermediation ? I guess they are blinded by ideology.

Word of the Day

"Abreaction" - noun [$10]; "abreact" - verb, transitive [$10]
Abreaction mens (Psychology) the free expression and consequent release of a previously repressed emotion.
Abreact means release (an emotion) by abreaction.
Sentence: If the Paulson plan collapses or is fatally corrupted by the knaves in Congress, the screeches of fear and panic as the market abreacts will be lifetime memories of the survivors. Bunkerman's memories of the crash on Black Monday in 1987 were seared into his brain and emotions. He survived then and will survive now. "Protect Yourself at All Times" is the watchword.