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posted by jamesykwak vote downundo vote up flag

baselinescenario.com - 3/6/2009

A Quick Note on Bank Liabilities

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I want to pick up on a theme Simon discussed in his last two posts : the recent panic over bank debt, particularly subordinated bank debt. I’ll probably repeat some of what he said, but with a little more background. Remember back to last September. What was the lesson of Lehman ...

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online.wsj.com - 3/10/2009

U.S. Weighs Further Steps for Citi

— online.wsj.com — DAMIAN PALETTA , JON HILSENRATH and DAVID ENRICH Barely a week after the third rescue of Citigroup... Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount, according to people familiar ... (more) U.S. Weighs Further Steps for Citi

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Comments vote downundo vote up naked capitalism found this 3/10/2009found this

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nakedcapitalism.com - 3/10/2009

Citi and Federal Government in New Non-Rescue Rescue Talks

— nakedcapitalism.com — The double-speak in this Wall Street Journal piece, " U.S. Weighs Further Steps for Citi ." is... so thick that parsing it is like wading through mud. And I do mean to stress the attempts to obfuscate what is going on. Recall that the last retrade of ... (more) Citi and Federal Government in New Non-Rescue Rescue Talks

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Citigroup

Comments vote downundo vote up IEHI Feed: The Hedge Fund Implode-o-Meter found this 3/10/2009found this

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bloomberg.com - 2/28/2009

Citigroup’s Third U.S. Rescue May Not Be Its Last, Analysts Say

— bloomberg.com — Feb. 28 (Bloomberg) -- The U.S. government’s third attempt to help rescue Citigroup Inc. won’t stanch the... company’s losses , which will continue to swell and may lead the bank to require more money in coming months, analysts said. Yesterday’s action ... (more) Citigroup’s Third U.S. Rescue May Not Be Its Last, ...

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What would happen if bank bondholders were left to rot?
Marginal Revolution — Explained here.  Excerpt: Let’s say that Citigroup were restructured - via bankruptcy, or via government conservatorship - in such a way that creditors did not get all their money back. (None of this applies to FDIC-insured deposits or to recently-issued senior debt that is explicitly guaranteed by the government.) They might be forced to convert debt for equity, or they might be stiffed altogether. The first-order concern is that this would have ripple effects that could take down other financial institutions. According to Martin Wolf, bank bonds comprise ...

Systemic Risk, Seen and Unseen
EconLog: Library of Economics and Liberty — James Kwak writes , Once investors figure out that bank debt is not safe, they will refuse to lend to any banks, and we are back in September all over again. Nonetheless, I think that zombie banks are create more unseen systemic risk and the systemic risk that you can see by allowing bank creditors to lose money. The zombie banks compete with the healthy banks. ...

Anti-nationalization arguments
Paul Krugman — ... must be reached on bank liabilities. Sweden guaranteed all of them. If forced to say, I would go the Swedish route; but of course we can’t do that unless we’re prepared to put all troubled banks in receivership. And I’m ready to be persuaded that some debts should not be honored — this is a deeply technical question. What’s clear, however, is that the current system, of implicit maybe-kinda guarantees on bank liabilities — call it wink-wink-nudge-nudge-say-no-more banking policy — is failing badly .

Sunday links: no risk premium
Abnormal Returns — ... Will the markets eventually run out of confidence in the Feds?  (Baseline Scenario also ...

Links 3/9/09
naked capitalism — ... Team Obama's policies (although he is more measured than a lot of other critics). Why You Need Devaluation - An Open Letter To The People Of Estonia Edward Hugh (hat tip reader Tim) Too Big Has Failed Thomas Hoenig (president of the KC Fed, hat tip reader Hubert). Short and a must read. Backs nationalization (as in taking over, cleaning up, breaking up when needed, and reprivatizing banks, according to clear principles). A short and important read. A Quick Note on Bank Liabilities Baseline Scenario (hat tip reader Richard) ...

credit takes a turn for the worse
Decline and Fall of Western Civilization — such was the commentary of warren buffett on CNBC, via calculated risk. but i think the more important insight as to why might be better seen from the perspective from james kwak at baseline scenario. ... for the last five months, the government has been doing everything it can to imply that bank creditors (at least for “systemically important” banks) will be protected, without saying so explicitly, because that would suddenly increase the potential liabilities of the government by trillions of dollars. So what changed this week? ...

Waiting on the Government to Act
Robert Salomon's Blog — ... to say, I would go the Swedish route; but of course we can’t do that unless we’re prepared to put all troubled banks in receivership. And I’m ready to be persuaded that some debts should not be honored — this is a deeply technical question. What’s clear, however, is that the current system, of implicit maybe-kinda guarantees on bank liabilities — call it wink-wink-nudge-nudge-say-no-more banking policy — is failing badly. From The Baseline Scenario (see Quick Note on Liabilities): …the government has ...