Understanding Today's Treasury/Federal Reserve Moves in the Lending and Mortgage Markets

Lots of fancy names out there today in press releases: credit facility, asset backed securities, etc.... The New York Times' Jeff Zeleny and Jack Healy have a good write that will keep you on the straight and narrow as to what the government did today.

Here's why you care: For a change we'd like to say ignore the fancy terms because here is the essence of what is going on...

1) The Treasury gave the Federal Reserve some money today so that the Fed could basically lend money to companies that lend to small businesses, provide credit cards and do auto and student loans. Those companies need access to more cash so they can turn around and lend to others - that's the theory behind the move.

2) The Federal Reserve separately said, hey, we know that banks need to sell mortgages to Freddie Mac and Fannie Mae in order to have cash to lend to others. In other words, the system has ground to halt. So, we - the Fed - will buy those bundled mortgages from Freddie Mac and Fannie Mae so they can more easily get back to doing business.

Both moves work on the theory that this will lubricate the gears of lending. That's the take away.

Why You Care wanted to make that really straightforward because with the press conferences, releases, etc. we saw a new acronym - TALF ("Term Asset-Backed Securities Loan Facility"). We thought that you probably just got used to TARP, and now you have TALF. Not easy. (FYI - TALF is item #1 above - keep it simple).

Got questions? Emailwhyyoucare.com.

The Citi Deal in Context of Broader Rescue Efforts

The details of the Citi deal are interesting, but of course the most important part of this is inside the business pages.

Here's why you care: Here's what most folks are wondering, is the third time the charm for the government's effort to stabilize Wall Street? The New York Times' Louise Story has that story today. What's particularly good about this piece is that it is forward thinking. Her report notes that market is looking for signals from the next administration (something we've pointed out in Next Week's News Today) - and getting them. Read this story and stay ahead of the curve.

Next Week's News Today (Cabinet News, Christmas Shopping - Retail Woes, New Homes Sales and Unemployment Numbers)

If it's Thursday (so it is Friday, and we're really late), then it's time for Next Week's News Today where we publish our own futures calendar of earnings, reports, hearings and political events which will either drive the news, or deserve more attention. Last week, once again, we were right on earnings (retail in particular) and ink spent on the next cabinet.

Last week we suggested someone would break the name for Treasury Secretary. Voila - as we type that name has surfaced: Timothy Geithner, president of the New York Federal Reserve Bank.

Here's why you care: Our suggestion that the administration go farther and name the team that will make the key decisions on financial recovery (the assistant secretaries) did not happen. We still think THAT STORY remains a big deal. Who breaks it will drive the markets. You can see how the markets responded at the end of today to Geithner's name. We think journalists will be looking to nail down the team itself. Will the administration help them? We'll guess yes... At least floated names.

We note that the FDIC this week really did something remarkable - they posted the entire model for their IndyMac loan modification plan. What's that mean? When the FDIC took over IndyMac it created a model for how it would deal with people up the creek on their mortgage payments. They think they've got a good working model, and now they are sharing it with everyone. Why You Care spoke with the FDIC, and we can report they are incredibly user friendly - check out their model, it deserves more attention.

Here's why you care: What's really going on here is the FDIC model showcased this week is voluntary. But, the FDIC has a different plan, that's currently a proposal where it helps homeowners the same way it basically does in the IndyMac model - PLUS - an enticement for those institutions who service the mortgages. What that means is money, and the FDIC would like some to get mortgage servicers in a better position to work out loans. Congress is watching - and this will get more attention next week.

Meanwhile, here's why you care about next week's trends in coverage:

Christmas Shopping Begins: Look for lots of stories through out the week on retail woes. American Eagle also reports (11/25).

Other Big Name to watch: Hewlett-Packard (11/24).

Interesting self explanatory news pegs: Zale (11/25) and Tiffany & Co. (11/26).

Reports: Existing Home Sales (11/24); New Home Sales and Unemployment Claims (11/26).

As always earnings, events, reports by day are below:

MONDAY 11/24
Earnings: Allied Healthcare; Campbell Soup; Hewlett-Packard

Reports: Existing Homes Sales (for October)


TUESDAY 11/25
Earnings: American Eagle; Daktronics; Dollar Tree; Genesco; Hormel Foods; Talbots, TiVo; Warner Music Group; Zale

Reports: Consumer Confidence (for November); Third Quarter GDP


WEDNESDAY 11/26
Earnings: Deere; Fred's; Tiffany & Co.

Economic Reports: Durable Orders (for October); Initial Unemployment Claims (for 11/22); New Home Sales; Personal Income (for October); Personal Spending (for October)

THURSDAY 11/27 - Holiday

FRIDAY 11/28 - Look for TV news stories on retail shopping numbers

The Next Mortgage Tsunami Is Not What You Think

There's another wave about to hit the financial institutions that are already hit hard enough to go to the Treasury for taxpayer dollars. The Wall Street Journal's Lingling Wei and Prabha Natarajan have a story today about a thing called the CMBS market (commercial mortgage backed securities). Remember how you've read about mortgaged backed securities where banks bundle mortgages and sell them off (ie - securitization)? The same thing happens with commercial loans - and these are the loans for shopping centers, office building, malls - place you work in or count on in some way. That market is having a tough time. And the tough time will impact the same financial institutions that you're already keeping an eye on. You need to understand how this piece relates to the rest of the economy.

Here's why you care: Last week in our installment of Next Week's News Today we pointed out that there will be a growing pressure for a stimulus package. Today you see that piece from CNNMoney.com's Jeanne Sahadi. Her reporting points out delaying a stimulus package could mean drawing out the pain. Then on Friday we pointed out that a plan to help residential mortgages from FDIC head, Sheila Bair, was about to get a lot more attention from Congress because Capitol Hill wants something done for homeowners. That's what happened yesterday, and the Wall Street Journal's Michael Crittenden has a great report on the Congressional hearing in today's paper. You'll note that Fed Chairman Ben Bernanke voiced encouragement for Ms. Bair's suggested game plan.

If you take all these stories together you care greatly because at the exact moment that the commercial mortgage market is having problems, you see both the possibility of a stimulus package being delayed and and direct help for homeowners still debated. We've given you a great deal of information here - but the idea that's important is to see how all of these events will play in concert with each other. Understanding that will help you understand what's going to not just happen next week, but for at least the first part of 2009.

Understanding Bank Lending and the Financial Crisis

Here's why you care: One of the premises we often here is that everything will be fine if banks start lending again. But, what if they really have been, and can only do so much. What then? That's the topic of the Wall Street Journal's Jon Hilsenrath's story today. He reports that two Harvard B-School economists (David Scharstein and Victoria Ivashina) took a close look at what banks are up to and concluded that in fact they are lending. Just not in the way you'd expect.

The upshot is this - back when times were REALLY GOOD money was flowing and companies were able to negotiate deals for essentially what are rainy day loans. Now it is a rainy day and the banks are contractually obligated to lend. The problem? Some of the companies would not be able to get loans today because they are not healthy, but because of the contracts were done a couple years ago the banks have to lend to them instead of the healthy companies looking for a loan now.

Read this story, it is well written and reported and Mr. Hilsenrath even gives layman explanations for the financial lingo not easily accessible to the non-MBA set. You can bet Capitol Hill, Wall Street and K Street are reading this piece today.

Why You Need to Understand the Latest Mortgage Solution Plan.

The Federal Deposit Insurance Corporation (the FDIC) came out with a plan to modify mortgages that deserves your attention because you'll be hearing more about it. As we've pointed out here and here, FDIC head Sheila Bair has been consistent in raising red flags over bank failures and the need to raise the amount the federal government backs your bank account (which was pumped up from $100K to $250K).

Here's why you care: The FDIC's new plan is going to get a lot more attention. If you watched Interim Asst. Treasury Secy. Neel Kashkari get grilled today by Congress, then you know Capitol Hill is frustrated. In fact you should read the Wall Street Journal's Michael Crittenden to understand the depth of Mr. Kashkari's grilling. But, what's important in this is that Capitol Hill is looking for a solution. Enter the FDIC. You can go to the FDIC's website and read the details for yourself, or read the Washington Post's Binyamin Appelbaum's report explaining what the proposal does. Most importantly, the FDIC is willing to share some of the loss if the loan defaults again after being modified - BUT, only if mortgage managers (ie the "servicer") come into their program.

Will that be enough to attract those that manage mortgages? Time will tell. But, you're going to be hearing lots more about the program, so better to understand it now.

Here's a thumbnail sketch that will help you get through the FDIC's proposal:

Who can apply? Home owners in trouble with a mortgage for a property that they live in (ie - owner-occupied).

What type of modification are we talking about? For the home owner, a modification as low as 31% of their monthly income.

What's in it for the mortgage manager/servicer? If they take part in the FDIC program, they'd get $1,000 per modified mortgage. Plus, the FDIC could share up to 50% of the loss should the loan default after being modified.

You can bet the details (and there are more details on both the FDIC website, and the Post report) are getting lots of looks tonight on Wall Street and Capitol Hill.

Next Week's News Today (Paulson Talks Recovery, Capitol Hill Calls the Big 3 Auto Makers, and the Big Financial Guns to Testify)

If it's Thursday, then it's time for Next Week's News Today where we publish our own futures calendar of earnings, reports, hearings and political events which will either drive the news, or deserve more attention. Last week we were right on earnings, reports, and ink spent on the next cabinet.

However, our suggestion that because the markets crave stability means the next administration should detail not just who will take up Treasury, but the deputies as well who are implementing the myriad recovery programs did not come to fruition. THAT STORY remains a big deal. Who breaks it will drive the markets.

Here's why you care: Congress is back next week for a lame duck session. We know an auto maker rescue package will be debated. We know the rescue package for the economy will be scrutinized. These are going to drive the market for not only what gets done, but what doesn't. There's a lot of talk about another stimulus package. Passing it before the holidays certainly doesn't mean more money in consumers pockets for the holidays, but it might mean a psychological boost - perhaps at least for the market. Alternatively, letting it languish might mean just the opposite.

Proof in concept? Watch the Big 3 Auto Makers on Capitol Hill for scrutiny of the their needs, and the rescue bill over all. And watch Secy. Paulson on Monday, and then if reports are right, along with Fed Chairman Ben Bernanke and FDIC Chair Sheila Bair testify later in the week on the recovery.

As journalists and news consumers worried about your 401(k)s and home prices, be on the look out for how the stimulus gets defined. Why You Care thinks the stimulus will included infrastructure rebuilding, and not just a check for tax payers. That will be an interesting story - and labor intensive for journalists. Really labor intensive to detail - but well worth it.

Keep in mind that next week's retail earnings are likely to be bad, and so too unemployment reports. Hard for a new administration, and a lame duck Congress that wants to set a tone for 2009 to not be busy working on stimulus and other financial issues. We're not saying you'll see a bill pass next week. We're saying maybe some trial balloons in solid reporting.

Here's why you care about next week's trends:

Big Names/Retail: Retail woes heading into the holidays will be a big theme. Here are some of the selected names noted below you'll see - Lowe's and Target (11/17); HomeDepot and Saks (11/18); Ross Stores (11/19); and Barnes & Noble, Cost Plus, Foot Looker, Gap, and J.Crew (11/20).

Other Big Name to watch: Dell (11/20).

Interesting self explanatory news pegs: Jack in the Box (11/19); Freddie Mac (11/20)

Reports: Housing Starts and Building Permits (11/19), Unemployment (11/20)

As always earnings, events, reports by day are below:

MONDAY 11/17
Earnings: Imclone; Lowe's; Target

Paulson event: Treasury Secy. Henry Paulson discusses the economy and financial markets at a meeting of the Wall Street Journal CEO Council - Four Seasons Hotel, Washington, DC.

Events: American Banker's Association Annual Convention (in San Francisco) - Speakers: Edward Yingling, Pres. ABA; Weekly Standard's William Kristol & Fmr. WH Press Secy., Mike McCurry; FDIC Chairperson Sheila Bair; Fmr. Hewlett-Packard/McCain Advisor Carly Fiorina


TUESDAY 11/18
Earnings: Home Depot;La-Z-Boy; Pacific Sunwear; Phillips-Van Heusen; Saks

Reports: Producer Price Index and Core PPI (for Oct.)

Events-Political: House Maj. Leader, Rep. Steny Hoyer on Congressional Agenda, at National Press Club, 10a ET.

Events-Financial: SEC's Director of the Division of Corporation Finance attends Current Financial Reporting Issues Conference (New York City).

Hearings: House Financial Services Committee hearing on oversight and implementation of the Emergency Economic Stabilization Act. The Wall Street Journal reported that Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and Federal Deposit Insurance Corp. Chairman Sheila Bair are all testifying this week - this looks like the most plausible day.


WEDNESDAY 11/19
Earnings: BJ's Wholesale; Dress Barn; Jack in the Box; Limited Brands; Men's Wearhouse; PETSmart; Ross Stores

Economic Reports: Building Permits (for Oct.); Consumer Price Index and Core CPI (for Oct.); FOMC Minutes (10/29); Housing Starts (for Oct.)

Events: Steve Preston, Secretary U.S. Department of Housing and Urban Development, National Press Club, 12:30p ET.

Hearings: House Financial Services Committee has posted it will hold a hearing on extending the Troubled Asset Relief Program (TARP) to auto makers. The Wall Street Journal reports that Chairman Frank plans to have the CEO of the Big Three auto makers along with the United Auto Workers union head.


THURSDAY 11/20
Earnings: Barnes & Noble; Cost Plus; Dell; Dick's Sporting Goods; Ditech; Foot Locker; Freddie Mac; Gap; J.Crew; Pilgrim's Pride; Wet Seal

Economic Reports: Initial Unemployment Claims (for 11/15); Leading Indicators (for Oct.)


FRIDAY 11/21 - TBD

Understanding Treasury's Shift in Focus for the $700 Billion Economic Rescue Package

The Treasury Department says it is going to focus on injecting taxpayer funds into financial institutions (which is called the Capital Purchase Program in the business pages) instead of buying and selling "troubled assets" (which means mortgages and other related securities).

Here's why you care: The Wall Street Journal's Deborah Solomon had the first write on this from what we could tell, and you should read her updates. You care because originally the economic rescue package (aka - TARP) was going to mean the government buying and selling stuff that the financial institutions had a hard time unloading. Today's statement in some ways is Treasury Secretary Paulson saying what most of K Street, Wall Street and Capitol Hill concluded that Treasury was thinking: Problems in the market place necessitated swift action. Swiftest of the swift is a cash injection (that's what the business pages mean by liquidity. Liquidity means cash.). So, as a taxpayer you want to understand the direction Treasury is taking because the $700 billion is quickly drying up.

So what's going to happen next? Treasury says it may expand the Capital Purchase Program (remember that's for those that can get the cash injection) to more than banks or bank holding companies (recall yesterday American Express qualified as a bank holding company, and today the Wall Street Journal's Robin Sidel reports that it would like $3.5 billion from the Capital Purchase Program). But, in expanding the applicant field it may say to the newcomers - you have to raise matching funds. In other words, you have to privately go raise the same amount of taxpayer dollars we inject into you.

Significant. Significant if you are a smaller firm wanting to play. Significant if you are a consumer needing a loan, or just wanting your 401(k) to stabilize.

And guess what? Deborah Solomon also has interesting reporting in her piece indicating Capitol Hill is asking questions about the original intent.

All you have to do is read her piece, one piece, and you'll understand what the financial world is focused on right now.

The Front Page Story You Likely Ignored - Treasury, Congress and Bank Mergers

It was on the front page of the Washington Post print addition, and we bet you ignored it. Alternatively, if you went on WashingtonPost.com you likely didn't realize the editors thought it was front page material - you have to hunt for it a bit online.

Here's why you care: Amit R. Paley's Washington Post article would be everywhere from the Drudge Report to TV if the story was about political intrigue. Instead it is about money. That means K Street is talking about, Congress is talking about and Wall Street is talking about it. But, you are not. You should. The story in its essence is whether Treasury needed to tell Congress it was making a move with tax implications for financial institutions. And, whether that move helped hasten some mergers during the stock market's shock and awe of the past few months.

Paley does a good job of explaining it for the non-MBA set without overburdening the reader with tax law jargon. Take a few minutes and see what the government and financial institutions that impact your life are reading and thinking about today.

Next Week's News Today (Politics and Economics Collide to Drive the Markets - Who Drives Treasury's Rescue Engine for Obama?)

If it's Thursday, then it's time for Next Week's News Today where we publish our own futures calendar of earnings, reports, hearings and political events which will either drive the news, or deserve more attention. Last week we were correct to point out that economic reports would drive the market along with selected earnings (in addition to the election, but we all knew that). We were also right to point out there would be a rush to cover the next administration's cabinet.

This coming week it is a no-brainer to say that naming of President-elect Obama's Treasury Secretary will drive the markets. However, what may be less obvious to non-financial reporters is the importance of what happens to the five assistant Treasury Secretaries which the New York Times' Mark Lander profiled this week as being the folks making the call between winners and losers of the $700 billion rescue package.

Here's why you care: The market craves stability and forward thinking. There's a lot of institutional money sitting on the sidelines waiting to see how things shake out. So, along with a new financial team, we are hoping the Obama transition team makes a point of explaining whether they keep the gang of five in place, or who replaces them, and if they are replaced does that mean the new folks will start shadowing the gang of five immediately?

Today we read Anne Kornblut's and David Cho's Washington Post transition team piece with great interest along with the rest of America. But, the folks that have the ability to REALLY move the markets are looking for the story about who is going to be quarterbacking the rescue package in a hands on way (meaning assistants/deputies), and if they are not the same folks presently making the calls, then what's the plan to not reinvent the wheel. The news outlet that nails that story will likely drive the market in a more profound way than any other story next week.

Here's why you care about next week's trends:

Big Names: Wal-Mart (11/13) is not just retail but an easy metaphor for "Main Street" America during good times and bad. You've already seen a few stories in the papers this week, but expect more this Sunday and next week as the earnings report nears.

Retail: The October numbers for Retail Sales are out 11/14, meanwhile American Apparel (11/10); Liz Claiborne (11/11); Macy's (11/12); Kohl's, Nordstrom, Urban Outfitters and Wal-Mart (11/13); Abercrombie and JC Penny (11/15) provide a good snapshot for retail woes going into the the holiday season.

Media: DISH Network and Sirius XM Radio (11/10)

Money: Fortress Investment (11/11) has already recently gotten press coverage for their efforts to pool investors and try to make lemonade out of the market's bottomless lemon barrel. They are likely to get more attention.

Press: Thomson Reuters (11/12) offers a look at the health of this journalistic business model.

Interesting self explanatory news pegs: Starbucks (11/10); Las Vegas Sands (11/12);

MONDAY 11/10
Earnings: Allied Capital; American Apparel; American Capital; American Casinos; American International Group; Clear Channel Outdoor Holdings; DISH Network; Focus Media; GLG Partners; Integra; Integra Bank; Nortel; Orbitz; Oriental Financial Group; Pike Electric; Regency Centers; Sempra Energy; Sirius XM Radio; Starbucks; Sterling Construction; Tyson Foods; Virgin Mobile USA; Warner Chilcott

Events: Booking Alert - The Kennedy Center will posthumously awards the Mark Twain Prize to George Carlin. Those performing: Richard Belzer, Lewis Black, Margaret Cho, Ben E. King, Denis Leary, Bill Maher, Joan Rivers, Garry Shandling, Jon Stewart, Lily Tomlin, Ben Stiller. Hard to envision comedians moving markets - however, we included this because we thought it might offer a creative way to book a regular news cast and get into political and economic issues in a way that might broaden an audience.


TUESDAY 11/11
Earnings: Bob Evans; Fortress Investment; Liz Claiborne; NGP Capital Resources; TJX Cos; Tyco;


WEDNESDAY 11/12
Earnings: Computer Sciences; Dr. Pepper Snapple; Green Mountain Coffee; Las Vegas Sands; Macy's; Meridian Bioscience; Network Appliance; Thomson Reuters; Targa Resources


THURSDAY 11/13
Earnings: Kohl's; Microsemi Corp; NG Resources; Nordstrom; Siemens AG; Urban Outfitters; Wal-Mart

Economic Reports: Initial Unemployment Claims; Trade Balance (for Sept.)

Events: Treasury's Director of the Division of Corporation Finance, John White, attends the Institute on Securities Regulation Conference in New York.


FRIDAY 11/14
Earnings: Abercrombie; General Steel; Hewitt Associates; JC Penny

Economic Reports: Business Inventories (for Sept.); Export Prices (for Oct.); Import Prices (for Oct.); Retail Sales (for Oct.)

SATURDAY 11/15
Events: President Bush convenes a 20 nation global economic summit in Washington, DC

Understanding How Wall Street Tried to Calculate Risk - And Missed the Human Factor. Will a New Congress and an Obama Administration?

The day after the election means a new playing field for Capitol Hill and Wall Street. While most of the country is contemplating what the new administration means for them, there are a number of folks from Capitol Hill to K Street contemplating what the new administration means for congressional races in 2010. Normally the party in the White House loses seats in an off year election, and 2010 promises to be an interesting economic time in the country.

Here's why you care: The Wall Street Journal's Maura Webber Sadovi reports that the worst is yet to come in the Los Angeles real estate market. It matters to you because this isn't just about housing, it is about commercial real estate prices that are impacted by - yes, that's right - the softening economy. As Americans tighten their purse strings, so too does corporate America. The interconnectivity in this article is the important part, because Los Angeles is not going through this as an island. If the worst is yet to come in some areas, that means 2010 is not likely to be rosey.

So, if you are Congress and need to find a way out of economic peril, but you also know that what you do is about to be graded in two years (really less because the campaign cycle will be full throated in one year) what's the balance between helping Main Street and Wall Street? What's the balance in enabling risk taking and guarding against it? If your brain hurts with these questions, especially the day after election day, it is supposed to - these are not easy things.

That's why you really need to read Steve Lohr's article in the New York Times today. It walks you through how Wall Street tries to mathematically calculate risk. He will show you that those credit default swaps were really conceived as a hedge against risk. And the punch line is that no matter how much fancy math or fancy laws are used often times human behavior becomes the x factor. This is thoughtful reporting that everyone should read - you can bet those with offices on Wall Street, K Street and Capitol Hill will be digesting it. You should too, it is the crux over the debate about "regulation".

Two BIG DEAL Stories: Who is Making Treasury's Financial Rescue Calls and Expanding the Rescue Beyond Banks

It is election day and most of the country is rightly focused on voting. However, there are two stories out there that have a major impact on how long a recovery will take and what it would look like.

Here's why you care: First the New York Time's Mark Lander profiles the key players at the Treasury Department quarterbacking the $700 billion economic rescue package. You care because they are making the calls as to which financial institutions the Treasury Department will injected your money into. And, they are making the rules by which Wall Street is going to play as it claws out of the downturn. The key part to this story is that until now we haven't really known who these folks are, but the Times even has a bio breakdown for you.

That brings us to the second must read story by the Wall Street Journal's Deborah Solomon who reports that the very same $700 billion rescue package run by the folks profiled in the Times may be broadening beyond financial institutions (like Bank of America, etc. - the Journal has a list of those that have already received tax payer dollars) to now include specialty finance firms and bond insurers. What's that mean?

Here's why you care: That means a unit of GE may get the same type of cash infusion in exchange for the Treasury receiving the right to some of the company's stock. Don't shrug. This matters - you are already an investor in a bunch of banks. You now may be an investor in things like GE's finance unit.

We're not saying that's good or bad, rather enlightening because it is a significant change. That's why you need to read these two stories. Yes, read the polls on election day, but remember whoever is the next president (regardless of party affiliation) has to deal with the economic issues in order deal with every issue from war to healthcare. Understanding these two pieces will put you ahead of the curve for the coverage over the next few months.

Understanding the Limits of Your 401(k)

Perched on this election eve it is easy to think about what the next President will have to deal with: How to lift the economy, try to find balance between policing Wall Street and encouraging creativity, baby boomer retirement costs, entitlement costs, Iraq, Afghanistan, decaying roads and bridges, pollution, and healthcare. That's a lot to take stock in. We also know that everyone who reads this space has looked at their 401(k) and said, "oh man". That's why right now is a good time to closely examine the ins and outs of your 401(k).

Here's why you care: The Wall Street Journal's Eleanor Laise has a great write on some of the pitfalls of your 401(k). Namely, things like too much company stock, not taking into account if retirement is around the corner or decades off, things like that... Notably, she also points out the issue of how much are you saving? That's why we think you should read her piece and consider your own plan for your next administration. Her piece is very utilitarian, and when you consider that your 401(k) is chalk full of companies we spotlight in pieces everyday we think you'll come to realize you care even more about the business pages.