there are few potential buyers for this dump. the fdic will have to write a large check to plug the hole after the asset mark when a transfer is made to a buyer. also, they will look to keep as many assets in the hands of the buyer, but the fdic will retain a very large first loss position. the buyer will receive incentives to maximize value during the workout (think of the ncnb deal with the fdic for first republic).

while the fdic will try to limit the cash flow hit; there still is a signifcant accounting issue with the loss estimate. the loss estimate will have to be deducted from the $52b fund. as reader steve says, this loss estimate could take out 20% or more of the fund.

there are other similar thrifts that are next in the cue — bankunited, downey, and first federal. combine these with indymac and there goes more than half of the fund. then there will be all kind of games to keep wamu standing as they would exhaust anything left in the insurance fund. just think, this is without a major commercial bank failure (up to $100b in assets — anybody above is TBTF).

the insurance fund already stands at $1.19 for every $100 of deposits. the minimum is $1.15; so the industry is going to have pony up some major dollars to recapitalize the fund.

the games on indymac are interesting. notice how the ots issued the less than well capitalized letter after quarter-end. hence, indymac will not be in the problem bank statistics for 2008q2 and the higher deposit insurance assessment is delayed. seriously, what did the ots learn in teh past week that it did not already know at the end of the second quarter? also, all of senator schumer haters, especially teh director of the ots, need to crawl back in their holes.

So, obviously, the FDIC itself is undercapitalized.

Since 1994, when Magoo essentially abolished reserve requirements by allowing overnight sweeps, the overall thrust of policy has been to centralize risk in government institutions.

Centralizing risk is bad enough. But having inadequate capital levels at the central guarantors (FDIC, Federal Reserve; not to mention Fannie and Freddie) is inexcusable.

The gods are not insane; but they throw dice like fools. Oh, no — NIGHTMARE ROLL!

I read that number on Fannie and Freddie in the NYT, and my reaction was exactly the same: _$75M_?? Where is that coming from, and more to the point are there that many fools with sufficient doug left in the Oblong Enclosure? Again, Big Gubmint is going to have to pay for the wedding, here. Which is all the more reason why harebrained and futile financial pity parties for mortgage holders just aren’t affordable: we need what scratch we’ve got to save the institutions which make mortgage lending and depository banking work for the country as a whole.

Equity holders have been in denial for a YEAR. If they _weren’t_ in denial, they wouldn’t still be equity holders, so their standing is diagnostic of their thinking. And they are going to stay in denial until something other than H2O comes out of the showerheads. Along about the back end of November . . . . It is indeed a pity that the probable next President of the USA ‘believes in markets’ so he’ll waste his first two years in office doing more of all the wrong things, most likely. Leaders: Where are they when you really need them?

Wasn’t it just a few weeks ago that we had a massive rally on the basis Fannie and Freddie would be freed from their loan caps? I remember this rally vividly…15 minutes after the close, and Maria’s on CNBC in one of her post-coital rally recaps. Her hair has a reconstituted look, as if Maria’s make-up artist had to play humpty dumpty and “put it back together again”. She looks into the camera, and her eyes twinkle with blissful satisfaction, and she says, “Fannie and Freddie lead the charge on Wall Street today. Their shares surge 20%!”
I swear, she couldn’t even wait for the camera to cut away before she takes a contented drag from a cigarette.

So let’s see….

The government has a real interest in Fan and Fred.

Fan and Fred have had questionable books for years.

In the midst of this conflagration, Fan and Fred, with their sketchy books aren’t held in check as part of the problem. Rather, they are given a firehose connected to The Petroleum Reserve in the form of “No Loan Caps!”. This development is cheered with an unprecedented rally in their share prices.

A few weeks later, in a state of befuddled confusion, a major investment bank states that the housing crisis “continues”. This “continuation”—something so patently obvious—is met with surprise…because…”housing troubles are bad for Fan and Fred”.

Shares plummet.

I realize much of the initial rally was short covering. I realize that it was foolish to buy Fan and Fred on the basis of the No Caps announcement.

Nevertheless, this stinks. The WSJ, etc., who are confused about the disconnect between debt and equity markets need only look to the price action of these companies. Equity holders, aka Main Street, are in Denial…until they’re not…and then they get slaughtered.

It just isn’t right….

Of course, in this twisted environment, if Milberg Weiss was to get involved, it would bribe the governemnt to hire Milberg as the government attorney in a major tort action against investors who were foolish enough to pump up Fan and Freds’ stock and the “gall” not hold onto it in the face of 100% dilution.

Basically, Senator Schumer did the depositors a service by blowing the cover off of this one early and his critics should probably be barred from public service,tarred, feathered, and run out of town on a rail.