Yeah, and that can’t be a good thing (although it’s also not clear how bad it is). It’s usually said that what defuses some of the risk surrounding derivatives, e.g. CDS, is that there are so many players. But with the (apparent) demise of Bear, JPM has taken on another heaping helping. Even Bernanke would not be reckless enough to accept any of that exposure…would he?

I have not heard anything about this bailout for a while, and I am curious if anyone is still watching it.

Imho, this inducing is doable.

The full story is online at http://www.loveatmadisonandwall.com.

The short story:

* The introduction of particular online markets, starting with a new kind of market for the ad spaces on blogs, will provide people with new and improved ways to develop, showcase and profit from their abilities.
* Owning popular markets of the aforesaid kinds is an ideal way to increase profits for an American media conglomerate that owns a broadcast TV network.
* The more meritocratic America is, the more profit these markets and associated media will generate for owners.

Why am I sharing the details at the aforesaid website, rather than launching a startup markets-maker?

Because I am a comedy writer, not an entrepreneur.

The business plan that is the basis of the site took shape because I want to develop a sitcom that showcases the best ways to leverage the Internet to expand educational and economic opportunity, and it turns out that producing this sitcom — now titled Love at Madison and Wall — is inseparable from launching the markets-maker described in the plan, not least because:

1. launching a markets-maker costs money
2. raising money from investors is easier if the marketing plan is good
3. a sitcom is an ideal centerpiece of a marketing plan (e.g., a plan for operating marketing as a profit center)

Please feel free to contact me with any questions, etc.

Beyond the above, I have been reading your blog for some time now. Great stuff.

Best,

Frank Ruscica

They must have gotten the 5 x 7 glossies on Lockhart. He had stood up to the pressure to expand FF’s balance sheets, but lately has caved.

If I’m not mistaken, in December 2007 OFHEO published in the Federal Register proposed regulations to increase the regulatory capital of FF because they had determined that the severity rate estimates in the FF models were incorrect, sometimes producing silly results to the extent of negative severity estimates.

I have the link if you need it.

The proposed regs estimated about a $10B increase in regulatory capital would be needed as of year-end 2006, but commented that this was slightly less than the 30% extra requirement which has just been reduced.

Why am I the only one sitting here wondering how this can be?

Doesn’t it matter that a regulatory body is on record as saying that never mind temporary increases due to accounting scandals, there need to be permanent increases, and this is ignored now?

By definition relative to these proposed regs, aren’t FF now undercapitalized?

Tell me I’m not insane…

Why “has”? There’s no necessity in the Fed’s measures. It’s a choice, and IMHO the wrong choice.

“Yet the Treasury’s authority to buy $2.25 billion in each of the companies’ securities has created investor expectations that the firms hold an implicit federal guarantee against losses.”

So duh investors can be wrong. The U.S. government has been very clear there is no guarantee. If investors want to be wrong and think there is one, then they need to learn the hard way.

“I thought the lowering of capital requirements for (the already very troubled) FNM and FRE was a pretty clear signal that the ‘implicit’ guarantee behind them was being made explicit.”

Not at all. The lowering of requirements just rescinds higher requirements put in a few years back. Everyone’s looking for a guarantee; it’s just not there.

>> At the end of 2007, J.P. Morgan’s exposure totaled $77.2 trillion in notional value, exceeding that of any other commercial bank, while Bear Stearns had $13.4 trillion in notional value.

Granted, the combined total exposure if the acquisition goes through could amount to less than that, since derivatives involving the two banks themselves would be cancelled. And with over-the-counter derivatives totalling a notional $516 trillion at the end of June 2007, according to the Bank for International Settlements.

In a research report it published last week, Bear said its more than 5,000 derivative counterparties and more than 1,000 futures counterparties were among the reasons the Federal Reserve and Treasury Secretary Henry Paulson felt compelled to find a buyer for the bank rather than see it go belly-up. Counterparties to these contracts are mostly banks, but also include hedge funds and insurance companies.

BEAR CHURNS
Bear Stearns deal boosts J.P. Morgan’s derivatives exposure

http://www.financialweek.com/app…92/1016/ ECONOMY