Bailout: House Republicans Dig in Heels, Ask Paulson for Receipt

The Wall Street Journal's Real Time Economics blog has the roundup, the headline was my contribution to the Onionization of America. From Real Time Economics:

Secondary Sources: Bailout, Bailout and More Bailout

What’s Next: Writing for the Financial Times, Larry Summers looks at the budgetary implications of the bailout plan, echoing the point that the proposal won’t substantially effect the deficit if enacted correctly. “The worst possible actions in the current context would be steps that have relatively modest budget impacts in the short run but that cut taxes or increase spending by growing amounts over time. Examples would include new entitlement programs or exploding tax measures. The best measures would be those that represent short-run investments that will pay back to the government over time or those that are packaged with longer-term actions to improve the budget. Examples would include investments in healthcare restructuring or steps to enable states and localities to accelerate, or at least not slow down, their investments.”

Nothing New: Robert Shiller in the Washington Post says that a government hand in the markets is nothing new....MORE

Also at RTE:

• Paulson Statement on the Sale of Wachovia Bank
• Bernanke Statement on Bailout
• FDIC: Citi to Buy Wachovia’s Banking Operations
• Never Again, Exchange Stabilization Fund Dept.
• Bailout Bill Offers Assistance to Fed
• Securitization, an Ironic Solution
• Economy in Trouble, No Matter Bailout Outcome
• Believe It or Not, Bailout Won’t Substantially Expand the Deficit

Now for Something Completely Different: Intrade Betting is Suspicious

It's happened again. We see a link on another site, open it in a new tab and forget where we were tipped to what turns out to be a great post. Sorry. If it was your site, email us for linkage, tippage, and professions of lovage (not to be confused with lavage. Seriously)
From 538.com:

There's something funny going on over at Intrade with respect to the pricing of the Obama and McCain contracts.

Right now, Obama is trading at 52.3 points. That is, Intrade implies that he has a 52.3 percent chance to become the next President.

Now, I happen to think that is a patently absurd price. But you don't have to take my word for it. Over at BetFair, another large UK-based gambling and futures site, you can also buy an Obama contract. But the price there is 1.62, which implies a 61.7 percent chance that Obama will become the next President.

That is a huge spread, 51.5 points versus 61.7 points. This is the equivalent of the Giants being 3-point favorites at the Bellagio Sportsbook, and 7-point favorites at the Mirage down the block. Those things just don't happen in efficient, sufficiently liquid markets, because they create arbitrage opportunities: you'd lay $10,000 on the Giants at the Bellagio and $10,000 on their opponents at the Mirage. Any time the Giants win by fewer than 3 points or more than 7 points, you lose nothing, since your two bets cancel out. But any time they win by fewer than 7 points but more than 3, you win both bets, and take home $20,000 (less the casino's vigorish) for absolutely no risk. Pretty good deal, right? That's exactly what's happening with these futures contracts....MUCH MORE (everything for the political junkie or for those who want to take financial advantage of one)

Here's Lovage "Book of the Month"
(don't adjust your set, we are in control here):

SunPower Announces Triggering Event for Convertibility of $200M Senior Convertible Debentures Due 2027 (SPWR)

From the press release via EarthTimes:

SunPower Corporation
(Nasdaq: SPWR), a Silicon Valley-based manufacturer of high-efficiency solar
cells, solar panels and solar systems, today announced that the last reported
sale price of its class A common stock on at least 20 of the last 30 trading
days during the fiscal quarter ending September 28, 2008 has equaled or
exceeded $70.94, which represents 125% of the conversion price for one series
of its outstanding senior convertible debentures.  Accordingly, pursuant to
the terms of the indenture governing its $200 million aggregate principal
amount of 1.25% senior convertible debentures due 2027, the market price
conversion trigger has been satisfied and the debentures may be converted at
the holders' option during SunPower's fourth fiscal quarter ending
December 28, 2008.


Although the market value of the debentures relative to the value holders
would receive upon conversion has declined during the third fiscal quarter,
the current market value of the debentures remains in excess of the conversion
value.  Accordingly, if the market value of the debentures remains at these
levels, holders might not have an economic incentive to convert their
debentures.  The current capital market conditions, credit environment, and
the recent prohibition on "naked" short selling announced by the U.S.
Securities and Exchange Commission could, however, create incentives for
holders to convert their debentures that did not exist in prior quarters.


Pursuant to the terms of the indenture, the principal amount of any
debentures surrendered for conversion must be settled in cash.  To the extent
that the conversion obligation exceeds the principal amount of any debentures
converted, SunPower must satisfy the remaining conversion obligation of the
1.25% senior convertible debentures due 2027 in shares of its class A common
stock....

Dept. of Futile Gestures: House Passes Energy Tax Credits, To No Avail

Sweet headline from Environmental Capital. Here's their take on the state of the subsidies:

Put away the champagne, and park those plans to buy new solar panels for the roof.

The House passed its version of the energy and tax package, which is different from the Senate version and which isn’t to the White House’s liking.

That means, for all intents and purposes, that the long-awaited renewal of tax credits for renewable energy are on hold again—unless the House and Senate can somehow reconcile their different versions over the weekend and avoid a White House veto. The other alternative is that Congress comes back for a tenth time in a lame-duck session after the election to try to tackle energy tax policy again....MORE

In another part of the Dow Jones empire, Eric Savitz posts, without the picture of the Veuve Clicquot brut (that yellow label is recognizable at 100 paces):

Solar Stocks Slide; House May Derail Tax Credit Extension

...If no compromise is reached, there is a risk that the credits will expire; that would be troublesome for both the industry and for solar investors.

In today’s trading:

• First Solar (FSLR) is down $18.92, or 8.6%, to $202.46.
• SunPower (SPWR) is down $6.74, or 7.1%, to $88.10.
• Suntech (STP) is down $4.57, or 10.6%, to $38.61.
• Canadian Solar (CSIQ) is down $2.33, or 9.4%, to $22.52.
• Solarfun (SOLF) is down 90 cents, or 6.9%, to $12.15.
• MEMC Electronic Materials (WFR) is down $2.65, or 8.5%, to $28.47.
• Evergreen Solar (ESLR) is down 22 cents, or 3.5%, to $6.03.
• LDK Solar (LDK) is down $2.72, or 7.2%, to $35.08.
• China Sunergy (CSUN) is down 80 cents, or 9.1%, to $8.01.

• 
  

Mr. Savitz works out of Palo Alto, so his picture might be of something locally grown.

JPMorgan House Price Projections (JPM; WM)

Lifted from Calculated Risk:

First, here is the investor presentation material from the JPMorgan conference call last night.

Click on chart for larger image in new window.

Here are the House Price Appreciation (HPA) numbers JPM is working with.

JPMorgan presented three scenarios: a base case (with national prices falling 25% peak to trough), a deeper recession (28% decline), and a severe recession (37% decline)....MORE

Marc Faber: US Needs as Much as $5 Trillion Financial Rescue

We've seen estimates that the bailout is a minimum $500 Billion light. This is the first time for $5 Trillion.
From Naked Capitalism:

Swiss investor Marc Faber, known for a long track record of good calls (he was a commodities bull until late this spring, for instance, when he reversed his view) and a fine grasp of financial markets history, confirms the estimate earlier in the week by Ken Ohmae that the US needs a salvage operation much bigger than the one envisaged by the Treasury plan, and the damage may come to $5 trillion:
Marc Faber, managing director of Marc Faber Ltd. in Hong Kong, said the U.S. government's rescue package for the financial system may require as much as $5 trillion, seven times the amount Treasury Secretary Henry Paulson has requested....

``The $700 billion is really nothing,'' Faber said in a television interview. ``The treasury is just giving out this figure when the end figure may be $5 trillion.''...MORE, including a link to the video.

House oks extending renewable energy tax credits

It's not the same bill passed by the Senate so the next step is a conference committee. Not that it will matter to the equities, right now the market's attention seems focused elsewhere.
From Reuters:

The House of Representatives approved legislation on Friday to extend billions of dollars in tax credits for wind, solar and other renewable energy sources.

The House measure is similar to energy legislation cleared earlier this week in the Senate, except that the House bill leaves out tax incentives to develop oil from shale and tar sands and for projects to turn coal into liquid fuels....MORE

WaMu Bondholders are `Stranded' in Thrift Seizure, Hendler Says

From Bloomberg:

Washington Mutual Inc. bondholders are likely to lose most of their money after the thrift was seized in the largest U.S. bank failure in history, according to CreditSights Inc.

WaMu was taken over after customers withdrew $16.7 billion from accounts since Sept. 16, leaving the Seattle-based bank ``unsound,'' the Office of Thrift Supervision said yesterday. New York-based JPMorgan Chase & Co. then bought WaMu's branch network for $1.9 billion to become the biggest U.S. bank by deposits. JPMorgan won't acquire WaMu's liabilities, including claims by senior and subordinated debt holders, according to the Federal Deposit Insurance Corp.

``It seems that WaMu's major debt holders have been stranded by regulatory intervention,'' David Hendler, an analyst at bond research firm CreditSights in New York wrote in a report today. ``The deal structure seems to be unprecedented in that it excludes bondholders at the holdco and bank levels from the major assets and liabilities of the operating bank.''>>>MORE

Fitch: Recovery Prospects Dim for WaMu Debtholders; IDR Downgraded to 'C' (WM)

UPDATE II: HERE
From MarketWatch:

With most of Washington Mutual Bank's assets now owned by JP Morgan Chase (JPM), how much available cash remaining at WaMu's holding company to fund potential recoveries for the senior debt holders remains to be seen, according to Fitch Ratings, which downgraded WaMu's Issuer Default Rating (IDR) to 'C' from 'B-', reflecting the likelihood of default. The ratings are also placed on Rating Watch Negative.

A complete list of affected ratings follows the end of the press release.

Last night, the Office of Thrift Supervision closed Washington Mutual Bank (WMB), citing significant deposit outflows since Sept. 15, 2008. The FDIC was named receiver. Most of the bank's assets, including its loans, all of its deposits and select other liabilities were purchased from the FDIC by JPMorgan Chase Bank, NA last night>>>MUCH MORE

German DWS issues retail carbon fund with Aquila

I'm not sure that having speculators and financial intermediaries romping about in the carbon markets is a societal good but what the hell, I'm tired of watching politicians and bankers deal with the last mess, on to the next one!
Plus, we can liberate the hausfrau's pin money for higher purposes like reliquifying banker's and broker's balance sheets. Win, win (well, except for the hausfrau)
From Reuters:

DWS, the mutual fund unit of Deutsche Bank AG (DBKGn.DE: Quote), on Tuesday unveiled a fund for private investors in carbon dioxide (CO2) emission rights and related products.

The fund is managed by investment firm Acquila Capital of Hamburg, which will use the research and market expertise of First Climate, a carbon asset management firm and consultant to international organisations, based near Frankfurt.

"The CO2 market is in an early development phase. As an investment house and pioneer for alternative investments, we know that opportunities and possible uncertainties can be very high. This makes professional management all the more important," said Dieter Rentsch, managing partner at Aquila, in a statement.

A spokeswoman for Aquila said the fund would invest directly in European emissions allowances (EUAs), where it was taking a long position....MORE

Wipeout: Washington Mutual Bondholders

UPDATE: HERE
FT Alphaville quotes Royal Bank of Scotland as expecting very little recovery:

...Either way, recovery values are going to be pretty grim and low to mid-single digit looks to be likely.

There is now a precedent set which is taxpayer friendly and 100% risk asset hostile.

There’s confusion as to which WaMu debtholders may have been saved by the JPM deal. There may be none - there may be some. It all depends on which part of WaMu the debt was issued from and whether JPM has bought that part. It isn’t really clear where WaMu’s $11bn covered bond programme falls, either

As of yesterday, there was around $28bn of WaMu bonds in issuance, from a range of different companies and subsidiaries under the WaMu parent company.

Here is a list of the top WaMu debt holders, and the sizes of their holdings. Lots of insurance companies.

1) Capital Research and Management - $1.5bn
2) Vanguard Group Incorporated - $336m
3) American Life Insurance - $166m
4) Teachers Insurance and Annuity Co - $159m
5) Jackson National Life Insurance - $148m
6) Nuveen Advisory Corp - $124m
7) Genworth Life Insurance - $113m
8) Principal Life Insurance - $97m
9) AIG Annuity Insurance Co - $93m
10) Hartford Life Insurance Co - $91m
11) Metropolitan Life Insurance Co - $88m
12) AXA Equitable Life Insurance - $85m
13) Sun Life Assure Co of Canada - $82m
14) Thrivent Financial for Lutheran - $80m
15) Western Asset Management - $77m
16) Principal Asset Management - $69m
17) Allianz Life Insurance Co of North America - $59m
18) Riversource Life insurance co - $58m
19) Northwestern Mutual Life Insurance - $57m
20) Lincoln National Life Insurance - $56m

Then of course, there’s CDS on WaMu. All of which will have been triggered since most reference the parent company that JPM has left behind....MORE

The Ventures:

Speculator? Oil Firm? Theories on Crude Spike

From the Wall Street Journal:

As theories swirl around Monday's unprecedented jump in oil futures, U.S. government officials suggested that a financial trader was responsible, though market participants suspect an oil producer might have been caught in dire need of extra barrels.

Before the contract expired at the close of trade Monday, crude for October delivery surged more than $25 to $130 a barrel on the New York Mercantile Exchange, stunning traders and prompting an inquiry from the Commodity Futures Trading Commission, which has subpoenaed traders.

The contract settled $16.37 higher at $120.92 a barrel. (Wednesday, Nymex crude for November delivery fell 88 cents a barrel, or 0.8% to $105.73.)

But who powered the surge, or was burned by it, remains a mystery....MORE

HT: Environmental Capital

On banking crises c. 1908

From Division of Labor:

More from the "there are no new problems, only our problems" drawer, the Sept. 23, 1908 NYT reports:

"Europeans believe that the world panic of last Autumn was caused by our banking system; that there is no assurance against a recurrence of the trouble until the banking system is reformed. And I agree with Europeans," remarked Jame B. Forgan, President of the First National Bank, upon his return from a trip abroad today. He continued:

"Over there in Europe, when a monetary scare occurs and spreads, there is at once a unanimity of action among bankers. Money begins to flow to the country's financial centre. The Bank of England, for instance, raises its discount rate; it gets gold from everywhere; the monetary resources of the country are laid under contribution for the benefit of the big bank or banks. The people are then shown the strong position of the large institution or institutions, and are calmed thereby.

"Here in the United States we are the victims of a process the direct reverse of that obtaining abroad. when apprehension seizes the Nation our one or two big piles of cash are pounced upon by a myriad of little bankers throughout the country, who make hundreds of piles of them, and who, after getting the money, do nothing but stare at it, having really no use for it....MORE

Why Washington Mutual (WM) Does Not Matter

From 24/7 Wall Street:

Washington Mutual (WM) failed yesterday and most of its assets where sold to JP Morgan (JPM). The price was $1.8 billion. JPM will have to write down $31 billion in badloans, but, since Jamie Dimon is now the king of the banking world, he should be able to raise the capital to cover that. In the meantime, he has picked up $307 billion in assets.

According to The Wall Street Journal, "The deal will vault J.P. Morgan into first place in nationwide deposits and greatly expand its franchise." The people who get drawn-and-quartered in the process are the WaMu bondholders and those who own the common stock. Washington Mutual shares were at over $36 a year ago. Now, they are worth nothing. About $50 billion in market cap has been destroyed....MORE

Asian Stocks Fall, US Futures Down; Bailout Plan Worries

From Dow Jones via FX Street:

Asian share markets are mostly lower Friday with U.S. stock futures falling as uncertainty grows again on whether Congress will agree on a deal for authorities to buy toxic debt from U.S. financial firms.

U.S. stock futures are now down more than 1% in screen trade and Japan's Nikkei 225 has erased its early modest gains, and was last down 0.5%.

Deal or no deal is the main question being asked by markets. Only hours after it seemed that something would be in the bag soon, lawmakers are again squabbling over the details and indeed the overall merit of the plan.

Federal Reserve chief Ben Bernanke and Treasury Secretary Henry Paulson have headed back to Capitol Hill to try and shore up a deal, but senior Democrats and House Republicans are both making noises of concern about the cost involved, the impact on taxpayers and the detail of how the plan would actually work.

Any deal, if it eventuates, may be a pared-down version of the original plan, with strings attached to ensure oversight and transparency....MORE

FDIC on Washington Mutual (JPM; WM)

From the FDIC:
...JPMorgan Chase acquired the banking operations of Washington Mutual Bank in a transaction facilitated by the Federal Deposit Insurance Corporation. All depositors are fully protected and there will be no cost to the Deposit Insurance Fund.

"For all depositors and other customers of Washington Mutual Bank, this is simply a combination of two banks," said FDIC Chairman Sheila C. Bair. "For bank customers, it will be a seamless transition. There will be no interruption in services and bank customers should expect business as usual come Friday morning."

FDIC: Bank Acquisition Information (Washington Mutual)

UPDATE-From the FDIC press release:

...Thursday evening, Washington Mutual was closed by the Office of Thrift Supervision and the FDIC named receiver. WaMu customers with questions should call their normal banking representative, service center, 1-800-788-7000 or visit www.WaMU.com. The FDIC's consumer hotline is 1-877-ASK-FDIC (1-877-275-3342) or visit www.fdic.gov.

From the FDIC:

Information for Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT

Introduction Press Release Acquiring Financial Institutions Question and Answer Guide Banking Services Loan Customers

I. Introduction

On September 25, 2008, the banking operations of Washington Mutual, Inc - Washington Mutual Bank, Henderson, NV and Washington Mutual Bank, FSB, Park City, UT (Washington Mutual Bank) were sold in a transaction facilitated by the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC). The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a car loan, a business checking account, a commercial loan, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled the following information which should answer many of your questions.

Back to top

II. Press Release

The FDIC has issued a press release (PR-85-2008) about this transaction....MORE

Replay of JP Morgan/ Washington Mutual Conference Call Available (JPM; WM)

From JPM Investor Relations:

New York, September 25, 2008 - JPMorgan Chase & Co. (NYSE: JPM) will host a conference call at 9:15 p.m. (Eastern Time) tonight, September 25, 2008. You may access the conference call by dialing 1-877-238-4671 (U.S. and Canada) / 1-719-785-5594 (International) - access code: 814030 or via live audio webcast at www.jpmorganchase.com under Investor Relations/Investor Presentations. Materials and further communication will be available on this website at the time of the call.

A replay of the conference call will be available beginning at approximately 1:00 a.m. on September 26 through midnight, Thursday, October 9 by telephone at (888) 348-4629 (U.S. and Canada); access code: 942856 or (719) 884-8882 (International). The replay will also be available via webcast on www.jpmorganchase.com under Investor Relations, Investor Presentations.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $1.8 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management, and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and government clients under its JPMorgan and Chase brands. Information about the firm is available at www.jpmorganchase.com.

Progress unravels on mortgage-relief plan

Three from MarketWatch:

Republicans bring new language; Democrats cry foul; Paulson urges calm

A contentious White House meeting unraveled some progress on a financial-rescue plan, sending Republicans and Democrats back to their corners to regroup and decide how to proceed.

Earlier Thursday, financial markets cheered when congressional leaders said they struck an agreement in principle on a massive, unprecedented package to rescue the staggering U.S. financial system.

But the tentative deal never received the blessing of the larger party caucuses...MORE

Dodd says White House meeting was a disaster

Quick rate cut on the table in wake of rescue deal

A quick rate cut in coming days is definitely on the table, several Fed watchers said Thursday.

"If they cut rates 50 basis points Monday morning before the open it wouldn't surprise me," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi...

Rescue Plan Talks Set Back by Republican Alternative (Update4)

From Bloomberg:

Negotiations on a $700 billion proposal to inject new capital into the paralyzed credit markets stalled after House Republicans offered a different solution to the financial crisis.

Senate Banking Committee Chairman Christopher Dodd said the agreement in principle he had reached earlier in the day with some Republicans was later undermined by a proposal offered by House Republicans led by Representative Eric Cantor.

Dodd said that if Treasury Secretary Henry Paulson backs Cantor's plan, then negotiations would ``have to start all over again.'' Talks are to resume tonight, Dodd said at a press conference.

The proposal that Dodd, Paulson and Federal Reserve Chairman Ben S. Bernanke had been pursuing would have the federal government buy troubled assets from financial companies.

The plan circulated by Cantor calls for a mortgage-backed security insurance fund, rather than taxpayer-funded purchases of those securities. The plan calls on the Treasury to design a system to charge premiums to MBS holders to finance the insurance, according to a fact sheet....MORE