Text of Lawmakers’ Agreement on Principles

Congressional Republicans and Democrats came to an agreement on principles for the Treasury’s Troubled Asset Relief Program that they will take into final negotiations with the White House. It includes sections on taxpayer protections, oversight and transparency, homeownership preservation and funding authority.

Agreement on Principles

1. Taxpayer Protection
1. Requires Treasury Secretary to set standards to prevent excessive or inappropriate executive compensation for participating companies
2. To minimize risk to the American taxpayer, requires that any transaction include equity sharing
3. Requires most profits to be used to reduce the national debt
2. Oversight and Transparency
1. Treasury Secretary is prohibited from acting in an arbitrary or capricious manner or in any way that is inconsistent with existing law
2. Establishes strong oversight board with cease and desist authority
3. Requires program transparency and public accountability through regular, detailed reports to Congress disclosing exercise of the Treasury Secretary’s authority
4. Establishes an independent Inspector General to monitor the use of the Treasury Secretary’s authority
5. Requires GAO audits to ensure proper use of funds, appropriate internal controls, and to prevent waste, fraud, and abuse
3. Homeownership Preservation
1. Maximize and coordinate efforts to modify mortgages for homeowners at risk of foreclosure
2. Requires loan modifications for mortgages owned or controlled by the Federal Government
3. Directs a percentage of future profits to the Affordable Housing Fund and the Capital Magnet Fund to meet America’s housing needs
4. Funding Authority
1. Treasury Secretary’s request for $700 billion is authorized, with $250 billion available immediately and an additional $100 billion released upon his or her certification that funds are needed
2. final $350 billion is subject to a Congressional joint resolution of disapproval

So now it’s a matter of codifying these principles into the Paulson Plan, putting it to a vote, and submitting to the White House for signature.

I still want more details.

Bear Stearns to Get Backing From J.P. Morgan, N.Y. Fed - WSJ.com
Firm’s Shares Sink Amid Liquidity Fears
By KEVIN KINGSBURY, ANDREW DOWELL and SERENA NG
March 14, 2008 1:22 p.m.

NEW YORK — In a dramatic move Friday, JPMorgan Chase Co. and the Federal Reserve Bank of New York stepped in with emergency funds to keep beleaguered investment bank Bear Stearns Cos. afloat.

The move, during a week of worry about whether Bear could continue to meet its obligations, took the credit crisis to a new, more serious stage and was a reminder of how quickly an erosion of confidence can undermine even leading financial institutions.

The involvement of the Fed — coordinating with the Treasury Department and the Securities and Exchange Commission — made clear authorities were concerned about the risks to the broader financial system. Bear is the smallest of Wall Street’s big five investment banks, but it is a significant player in markets for debt, particularly for securities backed by mortgages.

My reaction?

It’s just a start, and I hope to flesh it out further as the day goes on.

To the tune of “The Bare Necessities” from Disney’s The Jungle Book:

Look for the Bear Stearns equity,
The simple Bear liquidity,
I’m talking ’bout debt instruments and cash.
I mean the bare necessities,
Like J.P. Morgan’s sympathy,
‘Cause the Fed ain’t always gonna save your ass.

Whenever they go long, whenever they short,
The hedgies are wond’ring if they should abort.
Investors are running on the bank,
To make some money before Bear tanks.
When you see all the traders retreat,
It’s time to examine the balance sheet,
Then maybe sell some more.

The Bear’s liquidity and strife will affect you,
They’ll affect you.

Look for the Bear Stearns equity,
The simple Bear liquidity,
I’m talking ’bout debt instruments and cash.
I mean the bare necessities,
That’s why Bear Stearns can’t rest at ease
‘Cause the Fed ain’t always gonna save your ass.

Copyright © 2008, Steven L. Sheffield. All Rights Reserved.

Mounting Liquidation Fears Squeeze U.S. Stock Market
March 6, 2008 5:40 p.m.

Worry about the health of the credit markets made a noisy comeback Thursday, leveling financial stocks and sending many investors scampering for the safety of government debt.

Revelations that two large investors had missed recent margin calls raised fears that more investors could be forced to liquidate assets to meet their obligations to lenders, possibly setting off a nasty spiral in which assets are unloaded into a declining market, placing even more downward pressure on values and leading more lenders to call in loans.

“The uncertainty in the market is rising,” especially in light of the margin calls, said Jim Russell, senior portfolio strategist at U.S. Bank. “Once those things get triggered you can have forced selling by leveraged players. That just adds fuel to the fire.”

The Dow Jones Industrial Average plunged by 214.60 points, or 1.8%, to end at 12040.39, hammered by sharp declines in all three of its banking components. Bank of America dropped 2.7%, Citigroup fell by 4.4%, and J.P. Morgan Chase shed 3.5%. The Dow industrials have slipped in five of the last six sessions and are now down 9.2% for the year to date.

The Standard & Poor’s 500 fell 2.2%, or 29.36 points, to end trade at 1304.34, the lowest close for the broad market measure since Sept. 22, 2006. It is down 11% this year and is 17% below the record close that it marked in October. The index’s financial sector was its worst performer Thursday, falling 4.2%.

It’s one thing when an individual investor misses a margin call, and has part of their portfolio sold out to cover. But when a hedge fund that is leveraged to 32 times its capital under management misses margin calls, life is going to get painful for a lot of people.

Carlyle Capital Receives Additional Default Notices
By PETER LATTMAN
March 7, 2008 7:05 a.m.

Carlyle Capital Corp. Friday said lenders were liquidating some of its mortgage securities, painting an even bleaker picture of its already perilous situation.

In a short news release issued early Friday, the fund, which is managed by a unit of Washington, D.C., private-equity firm Carlyle Group, said it received “substantial additional margin calls and additional default notices from its lenders” and that “these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital.”

On Thursday Carlyle Capital roiled the financial markets when it said it failed to meet margin calls on its $21.7 billion portfolio. The fund said it had received a notice of default from one of its lenders that helps finance its portfolio of highly rated mortgage securities. Shares in the fund, which is listed in Amsterdam, slid about 60% Thursday.

And then I read this:

Housing, Bank Troubles Deepen
Foreclosures Reach A New Record; Home Equity Falls
By SUDEEP REDDY and SARA MURRAY
March 7, 2008; Page A1

Two crucial barometers of the nation’s housing market have worsened markedly in recent months, ratcheting up pressure on policy makers in Washington for action to stem the growing housing crisis and its widening impact on the nation’s financial system.

Among the latest trouble signals, the number of American homes entering foreclosure rose to the highest level on record in the fourth quarter of 2007. Meanwhile, homeowners’ share of the equity in their homes fell to a post-World War II low.

The unwelcome contrast provides stark evidence of how falling home prices are weighing on consumers. And it could add urgency to efforts by Federal Reserve officials to avert a larger wave of foreclosures by prodding lenders to reducing the principal — or total amount owed — on troubled mortgages.

Now, granted, a lot of people took on a lot of really stupid mortgages over the past few years, and some of them deserve what they get … but what doesn’t make sense to me is how many people are letting themselves get into this situation. Face it … banks don’t want to foreclose on their loans. They would much rather work with the borrowers to set new payment terms … but most borrowers won’t go to their lendors and say “I’m in trouble and need help” until it’s far too late.

Housing should be among the top-three items that get paid for when you get paid. Make sure you have a place to live, make sure you have food to eat, and make sure you have some way to get to/from work. Anything else can wait. If you don’t pay your credit cards, your credit score may suffer (albeit not nearly as much as it will if you default on a mortgage), but you’ll still have a place to live.

Sell your big stupid SUV and downgrade to a sensible little 4-banger (or even, shock & horror, ride a bicycle!). Get rid of cable/satellite … sell the plasma-screen if need be. Take on a tenant in your McMansion, to help cover the mortgage payment. Stop buying steaks and fast food, and make do with veggies and pasta and less meat; you really only need 3-4 oz of protein a day, and there are lots of sources from whence you can get it.

But don’t put yourself in a situation where you might lose your place to live when you still have other options. That is sheer idiocy.

I’m tired of watching my portfolio value continuing to drop … even after receiving my company matches for the past two years in my 401(k), it’s value is less than it was at the beginning of 2007 (prior to actually receiving the match for 2006), and it’s certainly less than it was at the beginning of 2008. I think I’m actually getting close to having a negative average-annual ROI (return-on-investment) overall from when I started at Morgan Stanley in 1999, but it hurts too much to look right now.

My only consolation is knowing that I’m buying in at lower prices now, and that when the market finally does recover, I will own more shares … but the short-term pain is still extremely painful. It’s the financial equivalent of a kidney stone … you know you’ll survive it, but in the midst of the pain, you’re not quite sure how.

There’s an old saying that the easiest way to make a million dollars in the bicycle industry is to start with two million dollars … the implication being that associating with cycling is a money-losing business; and it’s easy to see how that saying comes to pass when you look at how many bike shops fail every year, and the financial woes of some of the major bicycle manufacturers, like Schwinn, which went bankrupt twice in 10 years, and Cannondale, which had its own bankruptcy woes until being rescued by a private equity fund.

Unfortunately, it seems like the association of losing money and cycling extends further than just within the bicycle industry, but also to the murky world of hedge funds.

From the lastest issue of The Economist:

Peloton runs out of road
A hedge fund is unsaddled by subprime troubles. It may not be the last.

AFTER hubris comes nemesis. On January 24th more than 1,000 leading figures in the European hedge-fund industry gathered for a dinner at the swanky Grosvenor House hotel on London’s Park Lane to witness the EuroHedge awards for 2007. Out of the 20 awards, two—credit fund of the year and new fund of the year (for non-equity strategies)—were awarded to Peloton Partners, a credit manager set up by ex-Goldman Sachs employees in 2005.

But Peloton (the word is related to platoon and refers to the pack of riders in a cycle race) had already hit a sizeable pothole. On Thursday, just five weeks after being honoured with the awards, the fund’s founders, Ron Beller and Geoffrey Grant, were forced to send letters (see link) to investors explaining that they were suspending redemptions from the fund.

Read more at Economist.com.

It will be interesting to see how this plays out. At this point, no one is predicting a Long-Term Capital Management type implosion, but it would certainly be wise to keep your eyes and ears open.

And if you are interested in what happened at LTCM, I highly recommend Roger Lowenstein’s When Genius Failed: The Rise and Fall of Long-Term Capital Management (ISBN #0375758259) … it’s an excellent read on what many people would consider to be a dry subject.

Looks like I might get lucky and get some instant equity in the condo … the final report won’t be ready until Wednesday morning, but the word I’ve got is that the appraiser did 9 comps of other similar units in Holladay, and of those only one sold/appraised below my offer …

This means it shouldn’t be a problem getting my place appraised for the amount of the loan at the very least, and possibly a little more. And my broker is indicating that the program he’s got me in is actually a prime program, not sub-prime or even alt-A, which surprised me.

Obviously, I’m hoping for the “more” on the appraisal … and of course still worrying about the loan going through, but thus far all the news I’m getting is good …

Could it be? Could something finally be going my way this year?

This policy is valid from 23 February 2008

This blog is a personal blog written and edited by me. For questions about this blog, please contact flahute at veloworks dot com.

This blog accepts forms of cash advertising, sponsorship, paid insertions or other forms of compensation.

The compensation received will never influence the content, topics or posts made in this blog. All advertising is in the form of advertisements generated by a third party ad network. Those advertisements will be identified as paid advertisements.

The owner(s) of this blog is not compensated to provide opinion on products, services, websites and various other topics. The views and opinions expressed on this blog are purely the blog owners. If we claim or appear to be experts on a certain topic or product or service area, we will only endorse products or services that we believe, based on our expertise, are worthy of such endorsement. Any product claim, statistic, quote or other representation about a product or service should be verified with the manufacturer or provider.

This blog does not contain any content which might present a conflict of interest.

To get your own policy, go to http://www.disclosurepolicy.org

IMPORTANT NOTICE AND DISCLAIMER:

The website www.flahute.com does not purport to provide an analysis of any company’s financial position or prospects and this is not to be construed as a recommendation by flahute.com and is not in any way to be construed as an offer or solicitation to buy or sell any security.

Further, specific financial information, filings and disclosures as well as general investor information about publicly listed companies and other investor resources can be found at the Securities and Exchange Commission website at www.sec.gov.

Many states have established rules requiring the approval of a security by a state security administrator. Check with www.nasaa.org or call your state security administrator to determine whether a particular security is licensed for sale in your state. Investing in securities is highly speculative and carries a great deal of risk. It is recommended that readers perform their own due-diligence before investing in any security including consulting with your qualified investment advisor or analyst.

Flahute.com presents information believed to be reliable, but the accuracy of statements contained herein that look forward in time cannot be guaranteed. Past performance does not guarantee future results.

The information contained herein contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding expected continual growth of the featured company.

In accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the statements contained herein that look forward in time, which include everything other than historical information, involve risks and uncertainties that may affect actual results of operations.

Reference made in particular to the description of any company’s plans and objectives for future operations, assumptions underlying such plans and objectives and other forward-looking statements included in the information provided. Such statements, which contain terms such as “expect”, “believe”, “anticipate”, “suggest”, “plan”, “indicate” and similar terms of uncertainty, are based on management’s current expectations and beliefs are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.

Factors which could cause such results to differ materially from those described in the forward-looking statements include the size and growth of the market for any company’s operations, regulatory approvals, the ability to fund its capital requirements in the near term and the long term, development by competitors which could impact said company’s operations; armed conflicts and or terrorist activities which could effect the economy and or the public equity markets, effects of naked short selling and other market pressures; and similar related issues. This report is not intended for readers in any jurisdiction where not permissible under local regulations and investors in those jurisdictions should disregard it.