Ladies and Gentlemen, it's time to play...

[Little Raven]

2 BIG 2 FAIL

The game where you pick the winners and losers of Uncle Sam's generosity.

We've had an exciting season so far - previous winners Bear Sterns, Fannie Mae, and Freddie Mac are now joined by our latest champion, AIG. Only Lehman Brothers has walked away from the table with nothing - which goes to show it's more than size that matters. You have have to have skill.

So, who's your pick for 2 Big 2 Fail? Popular contenders include Washington Mutual, Morgan Stanley, and Goldman Sachs, but feel free to nominate your own favorites.

[Isgrimnur]

I'm going to take the dark horse out of San Francisco, Wells Fargo.

Wells Fargo & Co. will take a another write-down in the third quarter because of its security holdings of Lehman Bros. Holdings Inc., which filed bankruptcy Monday.
That follows a Sept. 8 announcement that Wells would take a non-cash charge in the quarter related to its $336 million investment in the preferred shares of Fannie Mae and Freddie Mac, which were placed under government conservatorship Sept. 7. In a filing with the Securities and Exchange Commission, San Francisco-based Wells said it would record an "other-than-temporary" impairment and take a non-cash charge against third-quarter earnings for investments in senior secured notes and perpetual preferred securities issued by Lehman Bros. Wells' investments are on the bank's balance sheet as "securities available for sale" at a cost of approximately $90 million and $109 million, respectively. The notes currently trade at 25 cents to 30 cents on the dollar, according to Wells, while the preferred securities currently trade at less than 1 percent of face value.

[Grundbegriff]

The biggest winners are the attorneys who will oversee the motion of every molecule.

[Little Raven]

I'm going to take the dark horse out of San Francisco, Wells Fargo.

Wow, that IS a dark horse pick. Everything I've read has said that Wells Fargo is one of the good guys.

[LawBeefaroni]

Goldman is 2 PAULSON 2 FAIL.





I'm holding out to see if Citi is tested. Remember when we didn't have the government doing the bailing?
Guess who rode to the rescue:

The muthafucking MAN.

[Isgrimnur]

I'm going to take the dark horse out of San Francisco, Wells Fargo.

Wow, that IS a dark horse pick. Everything I've read has said that Wells Fargo is one of the good guys.

I'm hoping it leads to a way out of my student loans. Maybe I can get another bank to fund me purchasing my own debt for pennies on the dollar. If I can daisy chain enough of them together, I can fund my education for the price of a happy meal.

[Isgrimnur]

Goldman is 2 PAULSON 2 FAIL.





I'm holding out to see if Citi is tested. Remember when we didn't have the government doing the bailing?
Guess who rode to the rescue:
The muthafucking MAN.

The Arabian Dracula?

[Mr. Fed]

2 BIG 2 FAIL

The game where you pick the winners and losers of Uncle Sam's generosity.

We've had an exciting season so far - previous winners Bear Sterns, Fannie Mae, and Freddie Mac are now joined by our latest champion, AIG. Only Lehman Brothers has walked away from the table with nothing - which goes to show it's more than size that matters. You have have to have skill.

So, who's your pick for 2 Big 2 Fail? Popular contenders include Washington Mutual, Morgan Stanley, and Goldman Sachs, but feel free to nominate your own favorites.

The American Taxpayer?

BZZZZZZZZZZZZZZZTTTTTTTTTTTTTTT


Shit.

[LawBeefaroni]

I'm going to take the dark horse out of San Francisco, Wells Fargo.

Wow, that IS a dark horse pick. Everything I've read has said that Wells Fargo is one of the good guys.

I'm hoping it leads to a way out of my student loans. Maybe I can get another bank to fund me purchasing my own debt for pennies on the dollar. If I can daisy chain enough of them together, I can fund my education for the price of a happy meal.

Sallie Mae? Fat chance. Those are federally guaranteed so there is no incentive to sell them at a deep discount.

[LawBeefaroni]

Goldman is 2 PAULSON 2 FAIL.





I'm holding out to see if Citi is tested. Remember when we didn't have the government doing the bailing?
Guess who rode to the rescue:
The muthafucking MAN.

The Arabian Dracula?

Shit, my bad. I used the un-PC photo.

Safe for US Ports:

[Isgrimnur]

Goldman is 2 PAULSON 2 FAIL.





I'm holding out to see if Citi is tested. Remember when we didn't have the government doing the bailing?
Guess who rode to the rescue:
The muthafucking MAN.

The Arabian Dracula?

Shit, my bad. I used the un-PC photo.

Safe for US Ports:

Serpico?

[The Preacher]

2 BIG 2 FAIL

The game where you pick the winners and losers of Uncle Sam's generosity.

We've had an exciting season so far - previous winners Bear Sterns, Fannie Mae, and Freddie Mac are now joined by our latest champion, AIG. Only Lehman Brothers has walked away from the table with nothing - which goes to show it's more than size that matters. You have have to have skill.

So, who's your pick for 2 Big 2 Fail? Popular contenders include Washington Mutual, Morgan Stanley, and Goldman Sachs, but feel free to nominate your own favorites.

It's only partially about size, in my rudimentary estimation. If Lehman came before Bear, you'd have seen the Fed bail out Lehman and let Bear die. The IB's have been on notice since Bear's failure and I'm gathering that they have been told that none are too big to fail and should thus find their own solutions (thus why Merrill sprinted to the port of BoA). AIG is interesting, however. They are a core element of the financial spider web, insuring all of these securities that are owned by everyone and his brother. If they go under, the dreaded counter-party risk rears its ugly head and they potentially take down the international finance marketplace.

So, back to the game, what you need to find is not just big banks, but highly connected banks. I think WAMU fails that latter criteria and the IB's, as I think, are already on notice that they are "failable." The list of unfailable banks is likely small. JPM, BOA, Citi are the main ones. But those are all obvious. What I'd look for to win the game is the next Long Term Capital Management, i.e. a highly leveraged, publicly low profile private fund. I'd have to dig really deep to figure out who they are, but my answer for the game is: some hedge fund we've never heard of.

[Zarathud]

What I'd look for to win the game is the next Long Term Capital Management, i.e. a highly leveraged, publicly low profile private fund. I'd have to dig really deep to figure out who they are, but my answer for the game is: some hedge fund we've never heard of.

Exactly.

[noxiousdog]

I can't figure out if Wamu got bailed out or not.

[Little Raven]

Everyone, please welcome our next contestant! From the farthest corner of the Wild WIld West, she's big, she's broke, and she desperately needs some lovin' from her dear old Uncle Sam.

Ladies and Gentlemen, I give you....CALIFORNIA!!!

Preliminary returns on Tuesday night show that voters soundly rejected ballot measures calling for higher taxes, meaning that the not-so-Golden State's politicians are likely to take hat in hand and head to Washington begging for a bailout.

Republican Gov. Arnold Schwarzenegger floated that idea months ago, as did Assembly Speaker Karen Bass, a Democrat. Schwarzenegger's visit to the White House on Tuesday surely didn't harm its prospects.

California does have enough cash to survive through June 30, but the state controller estimated in March that another $10.6 billion would be necessary to last the summer.

...

Last week, Treasurer Bill Lockyer asked U.S. Treasury Secretary Timothy Geithner for a bailout through the TARP program, which was created to help ailing banks. "I am writing today to ask that you authorize extending TARP assistance to the State of California and other financially strapped states and local governments which face a severe cash flow crunch in the near term due to eroding tax revenues resulting from the current economic downturn," Lockyer wrote in his letter.

Other options include federal guarantees for loans that California takes out - the equivalent of having a co-signer - or a commitment from the U.S. Treasury to buy those loans. A third choice would be funneling stimulus funds to the state faster than scheduled.

So, does a bankrupt California pose a 'systemic' risk to the economy?

I'm going to guess the answer to that question is 'Yes...and how.'

[LawBeefaroni]

So voters voted against rasing taxes, which would possibly stave off BK, and now the state is going to request TARP funds? California, suck my nutz.

If they do get TARP money, does the Federal government get to say which Californians can fly in private planes? Can they cap salaries for residents? Bonuses? Does the FedGov get to weigh in on prop 8? Can they slash the state's marketing budget and finally get rid of that annoying Come to California/Southwest ad? You know, the one where they show how awesome it is that Californians don't work.

[RunningMn9]

So voters voted against rasing taxes, which would possibly stave off BK, and now the state is going to request TARP funds? California, suck my nutz.

Awesome.

[gbasden]

My poor state is so dysfunctional. Sigh.

The 2/3rds rule to pass budgets combined with the initialive process leads to gridlock and cowardice. It's going to be really interesting to see what comes out of this. And I mean interesting in a Mongol Horde Invasion kind of way.

[Mr Bubbles]

My poor state is so dysfunctional. Sigh.

The 2/3rds rule to pass budgets combined with the initialive process leads to gridlock and cowardice. It's going to be really interesting to see what comes out of this. And I mean interesting in a Mongol Horde Invasion kind of way.

Working in the educational field I will thank all of California voters for making us the bottom dwellers in education. Good bye 49th ranking. 50th here we come! 19% voter turn out and rejection of these props. We are dysfunctional from the top to the bottom. We can't just blame the politicians for this one. First we spend like drunken sailors and now its time to face the music. The cuts will be nothing less than frightening for education. I seriously fear for our future.

[Isgrimnur]

The demand for teachers in Texas is expected to grow. We may only have 2/3rds of California's population, but the weather is just as good. Wildfire season is shorter, no earthquakes, and riots are generally contained to college football season.

[Little Raven]

Does anyone seriously think that California would be allowed to go bankrupt? I don't think a state has ever gone bankrupt before...I seriously doubt we're going to let it start happening now. Wouldn't that be the equivalent of nuking the bond market from orbit? How could the Fed let that happen?

California is the very definition of too big to fail.

[The Preacher]

Does anyone seriously think that California would be allowed to go bankrupt? I don't think a state has ever gone bankrupt before...I seriously doubt we're going to let it start happening now. Wouldn't that be the equivalent of nuking the bond market from orbit? How could the Fed let that happen?

California is the very definition of too big to fail.

I come back to a standard question: is California failing due to structural reasons or because of a temporary issue? The banks, by and large, were the latter, the Big 3 the former. If California is suffering a temporary setback, I'm all about helping them with few strings attached. If it is more structural, then you need to require the appropriate structural fixes in order to get the money.

My fear is that California has a fundamentally structural issue that is being brought to a head today because of the economy. That would imply to me that we need to right the ship while we support them.

[LawBeefaroni]

Does anyone seriously think that California would be allowed to go bankrupt? I don't think a state has ever gone bankrupt before...I seriously doubt we're going to let it start happening now. Wouldn't that be the equivalent of nuking the bond market from orbit? How could the Fed let that happen?

California is the very definition of too big to fail.

For us, at about 14% of the US GDP it may be too big to fail, but apparently not for Californian voters.


As for bonds, munis have been shit lately and many have bk'd/defaulted. Following their little explosions, California would be more like a B52 carpet-bombing run than an nuke. Still not pretty but nothing that will detroy US Treasury bonds. IMO.

[Little Raven]

My fear is that California has a fundamentally structural issue that is being brought to a head today because of the economy. That would imply to me that we need to right the ship while we support them.

I don't disagree with your analysis, but your proposed solution seems like it would be unconstitutional at best. Many of the issues that have bogged down California stem from how it's government is structured. I don't see how Washington can constitutionally force California to rewrite those just because they lead to budget problems. It seems to me that the only thing the Feds could do would be to refuse to help unless California got it's act together, but that's an empty threat. It's not like the Feds can actually let the state go under, and everyone knows it. California will have the nation's taxpayers over the same barrel that AIG did...either give us all the money we want, or rocks fall and everybody dies.

Sure, we might be able to get back at them after the fact by limiting air travel in and out of the state or somesuch, but they'll still get the cash. And at least AIG will die eventually. California? Not so much.

[pr0ner]

Geez, California is an epic clusterfuck.

[Little Raven]

Still not pretty but nothing that will detroy US Treasury bonds. IMO.

Hmm, well, maybe there is hope then. I was under the impression that California defaulting would be Lehman Brothers all over again, but for the bond market this time.

[LawBeefaroni]

Still not pretty but nothing that will detroy US Treasury bonds. IMO.

Hmm, well, maybe there is hope then. I was under the impression that California defaulting would be Lehman Brothers all over again, but for the bond market this time.

I'm no bond expert but muni and state bonds a quite diffferent from UST. But California's situation will make it even more difficult for other states to raise cash.




This is funny:

California's bond ratings don't reflect reality
George Skelton, Capitol Journal
March 26, 2009
From Sacramento -- Message from state bond investors to Wall Street credit raters: Your ratings aren't credible.

"The quality of their ratings is below junk status," says state Treasurer Bill Lockyer.

Lockyer, for the past year, has been on a crusade against what he calls the "rip-offs" and "conflicts of interest" of all three major bond-raters: Standard & Poor's, Moody's and Fitch.

"Ratings should have something to do with risk -- with the likelihood of losing your money," Lockyer says. "Otherwise, what's the point?

"They know there's no risk in a California bond. We've never defaulted and we're never going to. Not once has a bond investor failed to get what's owed in full and on time."

I'm pretty sure that the time bond ratings work best is when they're not paid for by the companies that are being rated. They got California right.

[Isgrimnur]

While driving home the other day, I noticed that the sign had been taken off our local AIG building.



How would you have liked that job?

Too bad they're just moving downtown...

[Little Raven]

Huh. Maybe I was wrong.

California needs to solve its financial crisis by itself and should not expect an emergency bailout from the White House, an array of Obama administration officials said Thursday, making clear they had no appetite to step in and provide financial assistance or loan guarantees.

"Look, we're going to examine what we can do. What we need to do, however, is to treat states fairly and that means uniformly," David Axelrod, senior advisor to the president, said in an interview. "Whatever we do for one state, there will be other states who also will want to do that. And there's a limit to what the government can do."

...

Even if the president were to make an exception for California, the aid would need to come on unattractive terms so as not to send a message that distressed states can expect Washington to engineer a painless rescue.

Although the $700-billion federal bailout fund potentially could be tapped to help California, Treasury Secretary Timothy Geithner expressed doubt Thursday that he had the authority, without new congressional legislation, to aid California under the program originally set up by Congress to rescue financial institutions.

Yay! I can root for Obama again!

[Freezer-TPF-]

The line must be drawn here! This far. No further!

[Kraken]

A coalition of California marijuana growers and dealers has offered Governor Arnold Schwarzenegger one billion dollars to solve the current state budget crisis. The group, calling itself Let Us Pay Taxes makes the offer through its web site LetUsPayTaxes.com.

Put up or shut up. Why not let California experiment with drugs?

[Moliere]

Put up or shut up. Why not let California experiment with drugs?

It's not like the Governor or President ever smoked weed. Oh. Wait.

[Little Raven]

Joe Mathews argues that Cali NEEDS a bailout.

What to do? Bankruptcy would appear to be out. Federal law authorizes only local governments, not states, to seek bankruptcy protection. Yet in California, irresponsible voices on the right (and a few on the left) have suggested testing the limits of the law and forcing the state to begin to delay or default on its obligations.

That would be a disaster, not only for California, but also for the country. Financial analysts fear that the failure of California’s government could further damage the state’s economy (and by extension, the nation’s) and shake confidence in the bond markets, making it difficult for cities and counties to borrow and perhaps sending some local governments into real bankruptcy.

Others in Sacramento — including the Assembly speaker, Karen Bass, and the state treasurer, Bill Lockyer — are investigating the possibility of federal assistance. This could take several forms. The Treasury could offer guarantees on any short-term bonds that California sells to raise cash. Or money from the Troubled Asset Relief Program could be used to backstop such notes. Or Washington could speed up some of the stimulus money earmarked for the state.

Each of those ideas, or a combination of the three, offers hope. However, as a condition of any assistance, the federal government should charge the state a fee that includes penalties if it fails to make major changes in its budgeting process. At a minimum, California should be required to submit for federal approval a multiyear plan to meet its obligations and to eliminate its structural deficit. Washington might also require the establishment of a board to oversee state finances. (Federal loan guarantees to New York City in the 1970s provide one model.)

...

Federal officials may resist intervening at first, out of misplaced caution. But the combination of the state’s size and its dysfunction means that Washington will probably have to intervene sooner or later. There can be no American recovery if California collapses.

Same old song. It's not a bailout for them, it's an economic recovery for us...

Fuck it. Not again. As we've seen, it's almost impossible to get off the bailout train once we're on it. Let's not start with states.

[Isgrimnur]

It's really hard to make convincing arguments for limiting federal power when the states can't even keep their crap together.

[Kraken]

Can we nationalize it?

[Pyperkub]

California needs an intervention more than a bailout, though if CA can get it's fundamental structures fixed, then loan guarantees and other bailout items might be warranted. Until such time, who knows? What happens when a State goes bankrupt? I for one really don't want to find out, but I think I might.

[Rip]

Fuck em. I can think of a way to let them help themselves. Fully open the offshore drilling and the revenue and jobs created should take care of it. We may have to advance them a loan while it gets rolling but in the long run there is substantial money that could be made drilling for oil and gas.

[Anonymous Bosch]

My poor state is so dysfunctional. Sigh.

The 2/3rds rule to pass budgets combined with the initialive process leads to gridlock and cowardice.

Right, because if only the California legislature had more power to overspend, everything would be peachy.

FWIW, here's a somewhat sobering write-up of California's fiscal fuckwittery (that was actually written back in February) titled 'Should We Let California Go Bankrupt?':

While many states are grappling with budget problems, none are nearly as large as California’s relative to its size--$41 billion in a state of 37 million, or $1,108 per resident. Even New York, the next most fiscally pressed state, clocks in with a mere $13 billion for 19 million residents, or $685 per capita.

There’s good reason why most states won’t fall down the fiscal black hole where California now dwells. This is a state whose politicians, public sector unions and advocacy groups have been living in a fantasy world of overspending, investment-deadening taxation and job-killing regulation. Looking out over the state’s prospects and examining the budget deal that legislators have put together (jerry-rigged as it is with revenue gimmicks and unrealistic projections), the only question is who will be begging Washington for more money sooner, the banks, the auto companies or the Terminator?

The similarities between California and the auto companies are especially striking. Neither can afford their workforce. California schools pay their employees 35 percent more on average in wages and benefits than the national average (17 percent more when adjusted for the state’s higher standard of living), a significant bite because the state funds much of local education (to the tune of $42 billion last year). Benefits are a big part of these costs. A public employee in California with 30 years of service can already retire at 55 with more than half of his salary as pension, and public-safety workers can get 90 percent of their salary at age 50.

Another budget buster is California’s spending on social services, clocking in at about 70 percent more per capita than the national average. Leading the way is state spending on cash assistance programs (that is, welfare), where the state expends nearly three times more per resident than other states. There’s a good reason for this rich budget. California’s legislature has only reluctantly embraced federal welfare reform, and for years the state has had one of the worst records in moving people from welfare to work because state law limits the ability of welfare administrators to sanction those who refuse to participate in work programs.

The rich program of social service benefits is also burdensome because of the state’s large low-wage immigrant population. As Milton Friedman observed in the mid-1990s, you can’t have porous borders and a welfare state. The incentives are all wrong. California has become a case-study in that notion. A report by economists working for the National Academy of Sciences in the mid-1990s concluded that the average native-born California household paid about $1,100 in additional taxes because of government services used by immigrants whose own taxes don’t come close to covering their cost to society. It would be very interesting to see what the numbers are today.

…

California politicians have been expert at avoiding dealing with these problems. In 2003, enraged citizens recalled Gov. Gray Davis after he announced an impending $38 billion budget deficit. Arnold Schwarzenegger promised reform but delivered only a year of it. When tax revenues spiked in the national economic recovery that started in 2004, California politicians went on another spending spree, increasing expenditures by $34 billion, or 32 percent, in just four years before revenues slumped again.

Then the California legislature wrangled for eight months over the current budget mess, forcing the government to shut down road projects and delay tax refunds because the state needed the extra cash to service its debt. While California technically can’t file for bankruptcy, a default on its debt would have shut down financing options for Sacramento and its municipalities until the state agreed to lenders’ demands that it get its fiscal house in order. At least one of the state’s municipalities, Vallejo, has already filed for bankruptcy and other cities and towns were on the brink before the budget compromise.

California’s budget problems aren’t going away this time. There is no housing boom (or bubble) about to inflate, as it did in 2004, to help burnish the state’s economy, where the unemployment rate is now 9.3 percent, or two full percentage points above the national average. The current budget is only precariously balanced with revenue projections that the state probably won’t meet, and with fiscal gimmicks. And much of the federal stimulus money is geared to spending that increases the size of programs rather than fills in current deficits.

In other words, expect the Golden State to be in desperate need of a bailout soon, one that will certainly gain a receptive ear in the White House because Washington can’t conceive of our largest state defaulting on its debt, even though the prospect has now sunk California’s bond rating lower even than Louisiana’s.

[Little Raven]

And CIT walks away with nothing.

Cash-starved small business lender CIT Group said Wednesday evening that it has been told it won't be getting a government bailout anytime soon.

There is "no appreciable likelihood of additional government support being provided over the near term," the company said in statement. The CIT board and executives are evaluating alternatives.

Trading of CIT's shares was halted late Wednesday afternoon.

Bailout fatigue or no systemic risk?

[LawBeefaroni]

Just to be clear (since someone at work made this mistake, "OMG my credit card is Citi!!!") CIT Group is not the same as Citigroup and is not related.

CIT is a financing and financial services company that became a bank holding company in late 2008 to qualify for TARP funds.