Friday, January 9, 2009

TARP Terror!

Boom! Booom! Boom! Boom!

Yup, there I go again, banging my head against a wall.

I wanna talk TARP today folks. Barney Rubble oops! I mean Frank came out with a new proposal that calls for stricter rules on the second half of the $350 billion TARP that is about to be released:

" WASHINGTON (Reuters) - A senior Democrat proposed legislation on Friday to tighten the rules of the government's $700-billion financial bailout program and channel a large portion of it to home foreclosure prevention.

With Congress growing increasingly concerned about fixing the bailout program and stabilizing the financial system, House Financial Services Committee Chairman Barney Frank said he will hold a hearing on Tuesday on the bill he is proposing, with a House floor vote possible on Wednesday or Thursday.

Known as the Troubled Asset Relief Program, or TARP, the Treasury Department's bailout has so far devoted about $350 billion to capital injections into major banks and smaller amounts to aiding automakers and a major insurer.

Approved in October, the program's focus has shifted repeatedly under the direction of Treasury Secretary Henry Paulson, raising concerns among lawmakers about its future.
Under the original TARP legislation, the White House must ask Congress for the next $350 billion of program funding. Frank's bill would set conditions for release of that money, which would impose tougher standards for the bailout.

Under his bill, Treasury would have to devote at least $40 billion to reducing home foreclosures via a plan that it must develop by March 15 and start funding by April 1.
Treasury would also have to give small banks more access to the TARP and require quarterly disclosure by TARP participants about their use of TARP funding.
Other provisions of the draft bill would constrain the use of TARP funds in bank buyouts. TARP fund recipients could not buy other depository institutions without a Treasury finding that a deal "reduces the risk to taxpayers or ... could have been accomplished without funds provided under the TARP."

The bill would standardize limits on the pay of executives employed by TARP recipients, regardless of what sort of aid received under the program. It would also make wider pay provisions retroactive to existing program participants.
"If they don't like it, they can give the money back," Frank said, referring to the retroactive limits on pay.

In an attempt to encourage more modification of troubled mortgages to help distressed homeowners, the bill would give a legal safe harbor to mortgage servicing companies seeking to modify loans under their supervision.

The Frank bill would require Treasury to develop a program outside the TARP to stimulate home buyer demand and urges this be done by ensuring affordable mortgage rates.

Finally, the bill would clarify that Treasury can use the TARP to support consumer, student, vehicle and commercial real estate loans, as well as markets for mortgage-backed securities, municipal bonds and auction-rate securities."

My Take:

Great idea Barney! This is just what the market needs. More intervention and a continued changing of the rules. Folks, the one thing the market hates more than anything else is uncertainty. Unfortunately, our politicians appear to specialize in creating it!

We have a major problem with confidence in the markets right now. The government is making things much WORSE by coming out literally everyday and announcing a new plan on how they plan on fixing the economy.

They all need to shut the hell up. The market is totally confused because the government's "solution" changes on a daily basis. Is it just me or is the TARP becoming a total cluster F**K! This may go down as the worst economic solution in the history.

Whats it going to be Barney? Cramdowns or 3% mortgage rates? Are we going to quantatatively ease or throw more money into the "black hole" that we like to call our banking system? Its quite obvious to me that the government is in a total panic and has no idea what to do.

Whats even more of a joke is they act like $350 billion will fix this mess. What a joke! We have thrown $300 billion to AIG and Citigroup alone! When are they going to realize that they don't have the resources to stop this debt bubble from bursting?

They need 10,000 TARPS in order to fix this mess.

The only solution to this crisis is to put the TARP's away and allow the bad debt to default. If there are massive failures throughout the financial system as a result than so be it. Next time the banks will realize they shouldn't be giving $500,000 liar loans to people who make $10 an hour.

Enough of the press conferences! I believe the confusion and inconsistency coming out of Washington was just as responsible for the selloff in the markets today as the jobs number was.

Congress: You are forcing America to hide in a corner with this constant mixed message. No one wants to buy a home when the rules constantly change. No one wants to buy a TV if they think their job might be gone in a month. Your actions are forcing the public to do the exact opposite of what you are looking for.

The public is spooked by all of the hysteria! Obama is on TV on a daily basis warning of 11% unemployment and pleading that we need to act before this turns into a horrible financial crisis. Hell I am spooked after listening to this guy. Joe6pack is going to continue to stuff cash in his mattress and not spend as long as this crap continues.

There is no need to use fear in order to get your stimulus Obama! Stop the politics now. Congress will be more than happy to give you your stimulus package so that you can throw money out of helicopters. Its pretty obvious they don't know what in the hell to do. However, the one thing they do well is spend money so don't worry, your pockets will be filled with soon to be worthless US dollars.

Obama, its over bud. The Ponzi debt scheme has peaked. It was a nice 25 year run. I am sorry this was thrown into your lap. However, please do the right thing and get out of the way. If you plan to stand in the way, be consistent with their thoughts and ask Congress to do the same. DC is slowly scaring us all into a depression. If you stand for change then follow through with your promise but be consistant. "Change" can't happen everyday with a different idea.

Bottom Line:

I didn't cover the jobs report because I figured it was old news by now. Unemployment now stands at 7.2%. We lost another 525k jobs. The markets really sold off at the end of the day today. The financials look very sick and acted terribly.

So is it time to head into the abyss? Was the 20+% retrace we saw last week the peak before the crash? Good question. From a confidence standpoint I think we are close. Santelli said the bond market was filled with fear today. No one has found a way out of this. Thats because there is no way out! The debt bubble must pop and prices must tumble. They will never be able to stabilize housing until prices fall another 30% or so.

Its simple math folks. Why the government doesn't understand this is beyond me: The cost of paying off our debts leaves us with nothing left to spend. When housing prices drop by 50% and get back in line with incomes, we will be able to consume again and the economy can begin to recover. This is the only answer PERIOD.

Cheaper financing and attempting to blow the bubble back up is not the answer. The longer we try to fight this the more painful this crisis will be. Washington is filled with a bunch of buffoons as far as I am concerned. Their stupidity is beyond belief.

Once the market realizes this we are going to plunge to new lows. I am guessing 4-5k on the DOW if the bailouts and interventions continue.

If this selloff gets legs we may be on our way to new lows. Lets get real: The $350 billion in the TARP should be good for a few more bailouts. Obama's stimulus will be next. I am sure we will burn right through that money in a matter of months and they will come back for more.

Meanwhile back in the world of reality, the public will continue to not consume as they come to terms with losing $8 trillion in wealth in the past year.

We are inching closer to a climax here folks. Its just a matter of time. Today was a prelude of things to come.

Stay Tuned.


Avl Guy said...

Yesterday's discussion on cram downs was very productive. Here's more: as long as we stay wedded to the goal of keeping a GDP of our size ($14.5 T) driven 70% by consumer spending, the debtor status of the consumer will remain paramount. Private sector bailouts get more lip-service, but our GDP model hints that the consumers’ debt levels are the key log. So...we can accelerate the inevitable debt destruction, by focusing on the consumer, and free em up (to sadly repeat the same 25-yr 'Debt Build-Up via Living-Larger-Than-Ones-Means' cycle).
How? By allowing consumers entering bankruptcy to have not just mortgage principal reduced by the judge, but all forms of consumer debts, as well as all students loans.
The big plus with this dangerously powerful medicine is that we have so much data on the details of these debts that we can model how debt write-offs will affect, say, the Top 1000 banks and Top 300 real estate markets. This will filter thru stock market valuations, etc, and illuminate the downward path to a bottom in bank failures, house valuations, even the related job losses. Picture it as a ‘controlled’ ‘pre-pathed’ avalanche.

It will not lift us off the crater floor once it delivers us there. But it removes much of the uncertainty of which banks & housing markets (and thus retail & CRE markets too) will take the biggest hits, etc. Statistical/probability modeling will tell us this. The reduction in uncertainty will be a plus. And for u super-gloomer-doomers, I guess it will identify locales most likely to pick-up pitchforks...LOL.

Jeff said...



I totally agree. I can't wait to be a bull! IF the consumer resets the economy can recover.

This may take stocks to 4,000 on the DOW but so be it.

At some point this blog will be about opportunity versus doom and gloom.

I look forward to posting as a bull!

Avl Guy said...

@ Jeff: I look forward to posting as a bull.

We'll just call you 'Fleckie Jr.' when that happens (hat tip to Bill Fleckenstein)

ZMonet said...

I'm wondering what pulls the market lower next week. It seems like Obama, per usual, is doing the hard sell regarding the number of jobs that economic stimulus will create (now up over 4 million), the unemployment numbers are now behind us (as least as news) and the inauguration looms large. The MS/Citi transaction may eventually viewed as a positive too. Finally, the market doesn't seem to be too fazed by earnings data right now either. In the short-term (next week) do you see the market on the whole going up or down?

Jeff said...


I think we head lower on Monday. We broke through a kep level Friday if you look at TA.

The next support level is 850 on the S&P. If we break that, we could be heading back to the lows.

That being said I think its going to get very volatile. Its options expiration week. Expect some wild swings.

I wouldn't be surpised if we saw some follow through on yeterdays selloff Monday.

After hours was also red meaning there was further selling presseure after the blee.

Jeff said...

Keep in mind also that 4th quarter earnings start coming out all through the week. AA is on Monday I believe.

This will add to the volatility. The fact that the TARP was requested could also rattle the markets. That tells me someone is in trouble. That wasn't supposed to be touched until after Obama got in.

One warning

If earnings aren't a complete disaster as expected, the market could move higher. Be nimble!