To mark the degenerating political discourse in this country, I've instituted a new blog feature today: the Pig Lips Prize. (Pickled pig lips image above from the estimable Roadfood.com blog) I'm still working on just what qualifies a person or institution for the prize, but for now it'll be awarded for the demonstrated ability to amaze me with awfulness.
The first Pig Lips Prizes go to two of our finest financial institutions, who continue to find ever more creative ways to ruin things for the rest of us as they destroy themselves before our very eyes. I speak, of course, of Lehman Brothers and Washington Mutual.
In the wake of the government's intrusion into the capital markets in the form of bailouts for failing Fannie Mae and failing Freddie Mac and the government underwritten purchase of failing Bear Sterns by JP Morgan, we have new calls from beleaguered bankers to shore up Lehman, an investment bank which has managed to fall from $55.18 a share to $4.50 a share in twelve months. The New York Times reports:
With each passing day, the pressure is growing for Lehman to secure a financial lifeline. While Lehman has few options, it has some advantages that Bear Stearns did not have before its collapse, mainly the special loan program subsequently created by the federal government for Wall Street banks. The risk for Lehman is that employees and money might quickly drain away if confidence in the bank continues to erode.While special loans are not the same as the takeover of Fannie and Freddie the Feds came up with earlier, it does expose taxpayer money to risks the regular financial market is apparently unwilling to accept. Lenders' hesitation may be tied to the bank's anticipated loss of $3.9 billion in the third quarter of this year, a bit more than their $2.8 billion loss in the second quarter, but that's just a guess. Okay, $1.1 billion is a bit more than a bit more. Meanwhile their assets keep declining. The LA Times reports that Lehman wrote down its real estate holdings by $7.8 billion, including $5.3 billion in "investments tied to residential mortgages." Can you say derivatives?
And who wants to take a bet that a more direct Fed bailout pops up as a topic of discussion by the weekend?
The NYT story says the plans are afoot to sell a bunch of the business and to divide Lehman into what the Times is calling a "good" bank and a "bad" bank. That way Lehman can put all its turds in one foul punch bowl and wait out the shit storm of a mortgage debacle in one entity while its less disastrous assets are protected from the septic stench. Pigs like shit.
Over at WaMu, the decline in market value is even worse. On Sept. 11, 2007, WaMu was worth $34.92 a share. Last I looked it's trading at $2.11 today. Yahoo/AP report that "losses in its mortgage portfolio [are] expected to peak at $19 billion." This is because of the company's exposure to subprime loans, but also because a big portion of its loans are in the California market, where the burst real estate bubble is messiest. Also going sour are the thrift's credit card shenanigans. WaMu has lost 94% of its value in 12 months. That takes creativity.
And it gets even better! Again from the NY Times:
Yeah, that's why I pay taxes. I want to support a predatory lending institution that -- through no fault of its own, mind you -- falls on hard times.
As a result, some in the industry have started to wonder whether the government might have to step in. One option, similar to the approach taken with Fannie Mae and Freddie Mac, might be for the government to agree to buy shares issued by Washington Mutual. Some analysts said that would provide the capital to allow the bank to get through the current problems.
Another might be for the government to provide assistance with a sale, similar to the Federal Reserve Bank of New York’s approach in the JPMorgan-Bear Stearns merger. Such a move would help reduce the blow to the acquiring bank’s capital caused by a sale, and allow it to start benefiting from such a deal.
So in honor of John "You owe us an apology for that nasty thing I'm saying you said even though you obviously didn't say it" McCain's frivolous and embarrassing campaign tactics, I hereby present the first two Pig Lips Prize winners!
The lipstick is in the mail. Right next to your dividend check, sucker.
Coming soon: AIG!