Dogfish,

You've hit the nail on the head here in many ways. The amount of negative exposure existing within the CDS market would make one's head spin. The initial $180 billion AIG bailout to cover counterparties (not one of which was forced to take a haircut BTW) was a mere drop in the bucket compared to existing face value on the CDS contracts. There are many figures out there, but to the best of my knowledge current face value on the contracts stands somewhere around 70-90 trillion,......with a T. It's hard to speculate the amount of capital invested in these premiums since there is no listed exchange and I haven't been paying attention for awhile but in late 2008 CDS contracts on Berkshire were going for 858bps. If you just used 900bps as a running average you could conclude that around 9 trillion has been paid into this system, probably much more. Add that to the fact the contracts can be sold, borrowed against, traded, and packaged. The web tangles even further. Assessing and attributing risk has become impossible with no clear chain of title and no real knowledge of who's on the hook for who.

Option ARM's are a whole other story indeed. At first they were primarily used in areas of California. They quickly spread to other states like Nevada, Florida, Arizona, and Washington. One of the last companies I worked for packaged and sold around 4 billion of Option ARM's in 2007 and we were a small wholesaler selling during the draw down. The MBS and CDO packages on these things were sold to unknowing pension funds, foreign governments and banks (in the know), and many large US banks (also in the know). They were all sold with the predication that home values in the US would never go down, ha! Many had LTV limits before recast of much higher than 110%. Most of the ones I packaged had limits of 125%. Most started out as 90-95% LTV loans, but many were also in the 80-85% range as UW criteria tightened in 2007. The damage now is two fold. The packages that are already worthless have been picked up by the Fed dollar for dollar from the big banks and now reside on the Fed's balance sheet with you know who on the hook. The other side of this is that the majority of the Option ARM's were written from 2005-2008 with 5yr neg am periods. This means that this year 2010 is the first year we will see any major recasts of these ARM's and will see recasts all the way into 2013. Don't quote me on this but I think that there is somewhere in the neighborhood of $200-$300 billion worth of these still out there. Thought we were throught the foreclosure mess? Think again. I personally won't be buying another home until 2013 or 2014. Renting is just fine by me until then.

You brought up some things about leverage ratios I was unaware of. Particularly the 8:1 rule for small banks. I knew smaller banks were disadvantaged but I didn't know by how much. Considering that, as an example, CITI was leveraged 33:1 prior September 2008. Also was uaware of the rule change for leverage concerning NOO properties. When did that change?

Good post and good discussion here. Salmo g,.......yes there is intelligent life on Earth. Now we just have to educate the masses to kill their television.

KK good on you for switching banks. I've been meaning to get away from my mega bank for some time now. No more delay from me. I think I'll do that today.

[quote=Kanektok Kid]You talkin' bout my Momma........... ............ ?

Are you insinuating that I would deliberately and repeatedly buffalo my debating opponents with off topic subject matter simply to rattle them and disrupt their train of thought ?


Or..........are you suggesting the talent pool here is somewhat lacking on both the theoretical and practical levels ?




I'm suggesting both

The NOO issue was a guideline before, and technically the same rule exists today, but during exams, regulators (FDIC and OCC) are saying that "You will not go over that guideline amount." The same goes with the 10% requipment to be a well capitalized bank. 10% is still the official measure, but "12% is the new 10%" when banks are sitting down with regulators during their exams. It depends on which capital measurement you use to arrive at the overall ration. Not sure which one you were using for CITI's

Going against the regulators can lead to bad juju on your safety & soundness exams. Nobody wins when they get a memorandum of understanding or a cease and desist order.

I'll address this one since I disagree. Specualtion on your part as to whether or not I-960 would pass today is a mute point. The point is that it is law. Passed by the will of the people. If you don't like it, offer a counter initiative this November and we'll see whether or not it would pass. Until then, the legislature should respect the law if they expect their constituents to do the same thing.

Why is it that those who favor budget increases always fall back to scaring the crap out of voters by linking budget cuts to throwing the poor and weak out onto the street? Are social services the only expendtiture of the state? The state budget has more than doubled under the wicked witches watch. Were we not taking care of our destitute in 2000? Administrative costs in nearly every state department are due for a haircut. Is it really neccessary for state departments like DSHS to buy brand new hybrids when their old ones hit 60k miles? The state has no property they could sell to private hands? I could go on and on.

8 billion is a lot yes. Small cuts here and there will not make 8 billion. But small drops do eventually fill a bucket. For the state gov't to not be taking proactive measures to reduce cost now is imature and intellectually lazy. Every penny matters and until frivilous costs are addressed the problem will only become worse. Raising taxes would be a disaterous policy to implement. Now, or anytime in the future. If you want to see unemplyment skyrocket in this state, raise taxes on businesses and implement a state income tax.

Cuts don't have to mean throwing single mother's and their children out in the cold. I'm tired of hearing that excuse every time cuts are brought up. It's a straw man.

I also get chapped when the WDFW gives grants to non-profits to buy land and keep it unavailable for access. How many millions here? Why help someone else buy land?

I've never understood that either, but there has been a pratice going on for decades the involves conservation groups and state/federal governments.

Often times money is granted to a conservation group by either a consortium of large banking institutions or state governments themselves. Zoning laws for particular properties of interest are changed in the name of "conservation". Unable to develop the land and having it severly devalued the owner is forced to sell to one of these "conservation" groups. Many of whom share board members with many of the large banks providing tax free grants to purchase the property in the first place. See where this is going here? After some time zoning laws are changed back to allow development in the area. Land developed and sold to highest bidder. The cycle has been washed, rinsed, and repeated all over the country.

I don't think there's a conspiracy with WDFW giving grants to non-profits. It's simple, really. Which Route will leave people bitching less?: for WDFW to buy and keep the land, resulting in allegations of overspending, lack of fiscal responsible, general debauchery, etc., or for WDFW to give the money to conservation groups for them to manage, maintain and worry about. I think it's pretty simple.

i think the part dogfish is getting at is that if these groups get public money to buy land, it should be kept accessible to the public.

Exactly.

Agreed.

Public money to purchase = public access.

Sorry, I didn't see the part about making the lands unavailable. My props go out to WA sportsmen for hanging tough, who, from an Idaho guy's perspective seems like your state is blatantly trying to stop all forms of recreational fishing and hunting. WDFW has just got no balls.

I emailed a bunch of legislators about this and got this response from Senator Kline of the 37th District:


Thanks for your regarding the suspension of I-960. Although I disagree with your stance on this issue, I appreciate hearing your opinion. I’d like to tell you why I voted for the suspension.



I’ve heard from hundreds of folks from my district, the 37th, about our recent decision to temporarily suspend Initiative 960. More than 90% of the calls and e-mails I’ve received from constituents support the suspension.



As you may remember, I-960 was enacted in 2007 with a mere 51% of the statewide vote. (Note that this is far less than the supermajority vote that the initiative requires to be made in the Legislature for any tax increase. Almost 69% of the good folks in the 37th voted against I-960.) Along with requiring that any tax increase to pass each house of the Legislature by a two-thirds vote, I-960 also allows tax increases be sent to a vote of the people. Tax increases may also be referred to voters for their approval or rejection. The initiative also mandated that any fee increase, regardless of whether in excess of the fiscal growth factor, must have prior legislative approval. In addition, the Office of Financial Management must publish cost information and information regarding legislators’ voting records on bills imposing or increasing taxes or fees. (Prior to implementation of this expensive process, this information was already available to the public.)



Given the fact that less than 22% of the people in my district supported I-960, I was happy to co-sponsor the original legislation calling for the suspension. After all, these are the people who elected me to represent them in the Senate. As you may have heard, we ran into a snag during the passage of this legislation. We passed the original bill, SB 6843, on February 9 after a very long debate during which many opponents of the legislation talked about how suspending the initiative would violate the will of the people. For many of the opponents, this was a disingenuous argument, since they had previously supported changing other initiatives that they don’t like, such as the initiatives limiting class size in K-12 schools or requiring Cost-of-Living raises for teachers. Another prime example of an initiative that many legislators have tried to amend over the years is the 1998 initiative that set our state’s minimum wage, and required that it be adjusted yearly based on the federal Consumer Price Index. This initiative passed with over 65% of the vote, but Republicans have prime-sponsored more than 20 bills since it passed to suspend, amend or do away with the initiative. (Some Democrats signed onto these bills.)



Although the opponents often mentioned that our constitution enables The People to pass laws via initiative, they failed to mention that the same document also gives the Legislature the right to amend these statutes after two years.



Due to a complicated misunderstanding and paperwork error, we had to revisit I-960 once again on the Senate Floor on the following day. The new bill, SB 6130, was passed out of the Senate and is now scheduled for a hearing in the House Committee on Finance. It would suspend all of the provisions of I-960 until July 2011.



The provision calling for a supermajority to vote Yes on any tax increases has no place in our democracy. In our representative democracy, legislators are elected by people to legislate according to the will of the people in our district, and our constitution makes it clear that a majority vote is the method we are supposed to use for this purpose. By imposing a requirement for a “Yes” vote by a supermajority, I-960 gives a small minority of legislators the ability to hold up the majority’s work. It also has problems with regards to the definition of taxing, and requires costly extraneous notice and fiscal determination provisions of information that is already available to the public.



Tim Eyman, the initiative salesman who makes a good living passing initiatives like I-960, testified at the hearing of the original bill. At the hearing, I asked Tim the question I’ve been asking forcefully for many years: what programs do you want us to cut if we can’t raise the revenue to pay for them? He has never given me a substantial answer to this question. I’ve asked this question of him in legislative hearings, in newspaper articles, at press conferences, and via e-mail. He always cavalierly shrugs it off and says that creating a budget is the job of legislators, and that his job is to cut taxes.



The purpose behind amending I-960 is to give the legislature more flexibility in addressing the current economic crisis. Last year's state budget cut K-12 and higher education, social services, and healthcare, making it more difficult for struggling families to educate their children, stay healthy, and survive the current recession. The magnitude of cuts that will be required this year if revenues are not increased will seriously threaten the wellbeing of the children, elderly and other vulnerable populations in our state



Faced with a $2.67 billion shortfall, we are pursuing a comprehensive solution to re-balance the state budget and fund vital services. Already this year, the House and Senate have approved new cuts that, when agreed upon, will save close to $100 million through June 30, 2011. These include cuts to the state payroll, an extended salary freeze for many state workers and the curtailing of equipment purchases, out-of-state travel and the filling of open positions. Further actions will most likely include a mix of steep budget cuts and a series of elements that under I-960 would require a two-thirds vote of both chambers — new taxes, clarifications of legislative intent following a court ruling, certain fund shifts and the closure of corporate tax loopholes. These include tax breaks for banks making foreclosure sales, some out-of-state businesses doing business in Washington and transportation companies shipping goods across our borders.



None of those solutions could be implemented without suspending I-960, because it would be subject to the two-thirds vote requirement.



No new taxes have been voted on yet. Instead, the Legislature has focused on enacting cuts as legislative leaders promised to do. But temporarily suspending I-960 allows us to address our revenue deficit with an array of sustainable solutions. This will help ensure classrooms aren’t overcrowded, the gates aren’t closed to a college education, the needy and disabled won’t go without care, and the working poor won’t lose their health insurance.


Thanks again for your e-mail.


Yours truly,


Adam

----------------------------------------------------
Anyone else get the same response?

I find it really hard to believe he has 90% support on his decision to support this.


.....and the beat rolls on. No Introspection evident by any legislator on how their spending habits continue to add to the problem.

I didn't vote for I-960, but it was made into law. If the house and legislature decides to put aside the will of the people, then I think is need to ask them to set aside the bear/cougar hound/bait initiative.

Please don't continue to vote for ass clowns people.

The recent passage of virtually every school levy this week shows me that the folks aren't against paying taxes or funding things/programs that are vital. However, I also think that the good folks down in Olympia have lost their way and the purpose of I-960 was to send them a message that they needed to reign in their spending, not wait two years and suspend it. I have a really hard time thinking they have a clue when they float ideas such as a tax based on the engine displacement of your vehicle as was proposed a year or two ago.

I think the motivation for agencies assisting non-profits like Audubon to buy up land is to provide habitat areas that won't end up like Capitol Forest.

Filled with trash, poached clean, and crawling with squatting tweekers.

I used to camp in some 'all access' WDFW lands and after a few short years the places were mudpits from 4x4'ers and ATV'ers, the signs were swiss-cheesed with bullet holes, and what trees weren't hacked down for firewood looked like the day after Halloween on a college campus with all the poopy toilet paper and Busch Light cans strewn around them.

Those places are all now gated.

Sky Guy:

The response you received appears to be canned, which would be very typical of a response from a legislator (or rather from his/her aide) regarding a hot, current issue. If he actually did sit down and write out that whole reply for your individual benefit, however, I would commend him on his regard for his constituents.

Like you, I have a very hard time believing the numbers provided for constituent opinion on the initiative. A slight majority in favor of suspending the initiative would be more believable, but I would doubt even that, given the average citizen's tendency (no matter what district you live in) to support anything that keeps more money in his/her pocket now, regardless of potential future ramifications.


All:

This is a great thread. Like Sg, I have been duly impressed by the wealth of knowledge (or well-substantiated opinions) on these matters to be found in this user group. It has been highly refreshing to read first-hand accounts of how the mortgage crisis has played out in financial institutions, and somewhat satisfying to learn that my estimations have not been far off base. As hard as it is to get confirmation of many of my darkest fears (as well as a few new concerns as well), it is great to see people discussing these issues so passionately and with such intelligence. It gives me hope that the apathetic stupor to which our government has driven the masses may be giving way to a more enlightened and appropriately angry mentality. In my opinion, that may be our best hope for a restored government by the people, for the people, and yes, a reason to vote.

Now they are talking about an across the board "temporary" Sales Tax increase of 1%.

Apparantly they are going to attempt to tax "our" way out of the economic disaster that this state is in.......

Reminds me of the saying .....trying to get blood from a turnip......

When was the last time a tax increase was "temporary"?

In this State...... never.

Our politicians in Olympia just don't get it.

Depressed economy and high unemployment rate....make sense..RAISE TAXES.... that should fix everything..........NOT.

Not quite...... + a billion DOLLARS....or two.....or three