Kraven

This all makes me chuckle. For some reason the line that keeps popping in my head after reading this is Richard Vernon, the assistant principal in the Breakfast Club: "Don't mess with the bull, young man. You'll get the horns."

This is good advice that people should follow. During volatile times one thing I like to do is take a look around when I am out and about. People are still going out to eat. There are lines at Starbucks. The mall is packed by us and all the restaurants full on the weekend. The roads are jammed during rush hour. Life goes on and isn't dependent on the vicissitudes of the market. As Sanjeev says, this is the prelude to whatever comes next. At the end of the day, if this is the end of the world, or the banking/financial industry is going to tank or what have you, it really doesn't matter what stocks do. We will all be hoarding guns, ammo and canned goods anyway. At various times in his life Ben Graham spoke to the "what next?" issue in the context of volatile times. He often spoke and wrote about it during the cold war and the fear of nuclear attack. I'm paraphrasing, but he essentially said that it is impossible to plan for something like a nuclear attack and the stock market will be the least of our worries, so we might as well assume it won't happen and hope for the best. So you buy cheap and hope Mr. Market takes care of you like he has in the past. That's all you can really do.

Sears still publishes a physical paper catalog? Seriously, I had no idea. I haven't seen one of those since I was a kid in the early to mid 80's probably. I was born in 1972 and wouldn't think to shop at Sears either online or off for anything. One exception is that my wife will go there to look at the Land's End clothes sometimes, but that is about it. I agree that it is a dying brand. To me Kenmore just means some other company's appliances re-badged to say Kenmore. Why not just buy the Whirlpool or whoever really makes it? --Eric Yup! I've been getting the old Sears Christmas Catalog every year for the last 20 years! And before that my parents used to get it. I only occasionally order anything from the catalogs, but they probably cost a pretty penny to publish, as they are pretty thick. They also send out smaller 50-60 page seasonal catalogs. This should really all be eliminated now and moved online. They should just send out a reminder with the weekly flyers that the new catalog is online or something. Stuff like this should have been done a long time ago. I'm sure there are tens of millions in other annual costs savings they could easily find. Cheers! I can't believe the catalog still comes out either. I remember anxiously awaiting it to see what we kids could ask for at the holidays. They used to have every toy made and all the cool things. It was better than going to Toys R Us in terms of browsing. Now the only time we go to Sears is to look at an appliance or if my wife needs to return something to Lands End.

I thought Moynihan and crew did a very good job on the call with Berkowitz yesterday. He hit pretty much all the major points and didn't seem to be dodging anything. I think they did themselves a favor by having the call. Even though there was no immediate impact (stock moved up during the call, fell back after), I think that in general it was good for them to get the message out there. My only complaint was that Moynihan was speaking too fast and over the internet connection sometimes some of words were blurred together. Someone in marketing, etc. who no doubt was sitting there in the conference room with him should have slowed him down a little. But all in all, very nice. He's a good man and the right person for the job. p.s. Good to "see" everyone again. Glad the site is back up. Thanks Sanjeev for working on it.

Nice. I loved the Smiths back in the day.

I always picture Mr. Market as Graham describes him as a scholarly fellow who is a nervous kind of guy. Perhaps small, with glasses, you can picture him in the library reading up on some topic and shushing people. Today's Mr. Market has been transformed like pre-1998 Barry Bonds and post-1998 Barry Bonds into some raging maniac fueled by steroids. But he still likes to read on occasion when he's in his down cycle and not so manic.

Of course there is recourse via a lawsuit. If you're saying that when they can't pay the bill they have nothing, then I guess yeah, a lawsuit is going to be worthless. But assuming that not every unsecured borrower will both default and have nothing to their names, then there is recourse. As Cwericb I think it was mentioned, presumably this was priced into the loan. So if you are modelling the draconian and unrealistic situation where all unsecured loans both default and have a zero percent recovery rate, then I guess I agree with you. But in that situation I suppose we are all gathering up our guns, ammo and canned goods anyway. Do you really think that the banks are going to be in this situation both all other companies are twirling around singing Walking on Sunshine?

This is absolutely correct. I suppose contractual rights are worth nothing. I guess there isn't any point in documenting anything and those long contracts can just be tossed in the trash! It's all "air" anyway. We can go back to the days where a loan was secured by some pigs or cattle that were brought from the borrower to a pen held by the lender, or just a hand shake even since a man's word is his bond.

This conversation is going nowhere. Shareholders equity may be in some respects an accounting plug, and it certainly doesn't mean that there is that amount of money sitting in a bank account; however, it does represent the amount that is available once liabilities are paid in full. And that is the amount that would be available to pay creditors, etc. Tier 1 simply means it's capital that can't be taken away if you will - it doesn't need to be paid back. That's why certain amounts of say trust preferred securities can be counted as Tier 1. Because it needs to be paid back in 30 years, but regulators assume that 30 years essentially is such a long time it's "permanent". I am not sure why these concepts are appearing so foreign. How is it any different than looking at an industrial and saying they are selling below book? Or people saying FFH or BRK are right around book at any time? Do any of these companies have a bank account with that amount of money sitting in it? Of course not. If you don't trust the bank's assets, that's fine, don't invest, but shareholders equity is shareholders equity. Munger, if this doesn't answer your question, you are probably too much a genius for me and I will never get it.

In my example, they did sell the stock. Read it again.

That would presumably mean they were bankrupt, no? You are saying the common has no value at all? Either way, all else being equal the price of the common has no bearing on their capital ratios. If BAC issued and sold 100 shares of stock to someone for $6, they would have $600 in capital added to their ratios. It doesn't matter if tomorrow the stock is $5 or $50.

If it's possible at all, his response is worse than his original assertion. I won't respond to his points one by one since that would be a waste of time. As Cayale said, he is clearly no authority on banks. This is a "feelings" or emotional argument. Stock markets go down, people are mad at banks, thus banks are bad.

Sorry. Thought you were talking to me.

Well, looks like my last personal bastion of Fox News-free zones (this board) has been breached. Weeeee. Huh? I agreed with you. And I don't give a shit about Fox News.

The more I think about the fact that Denninger, whoever he is, posted this (the original argument, not the post I am quoting which I agree with), the angrier it makes me. Isn't this what this board is always getting pissed at the shorts for? That is, bad info put out there to cause a drop in a stock's price? Well, let's see the same outrage here. This is not only bad info, it's stupid info. It couldn't be more wrong and the fact that people are acting on it is worse. Then to say that even if true it doesn't make any difference? Nice way of thinking.

Yeah, I remember this. That was a bad day.

This isn't right at all. A bank's core capital consists of, among other things, it's shareholders' equity (i.e. book value) LESS intangibles, etc. So basically tangible book value (I'm simplifying of course). This is the amount from the balance sheet. Has nothing to do with stock market value. This is got to be one of the stupidest things I've read. So a bank's capital ratios change on a second to second basis with the changes in the stock market?

Interesting piece. I've often thought of it in a similar, but a bit different way. I have thought it isn't quite a single moment that is required, but something transformational in the economy which is required to get us out of the "malaise" (said with a Jimmy Carter accent). Something like the internet in the mid to late 90s or real estate in the early to mid Aughts. Before that we had big business/M&A in the 1980s, big business/technology in the 1960s, etc. Of course most of these things lead to bubbles, but that's a secondary question. But in all these times something took over the psyche of the population and caused them to feel better about life and it's possibilities. People dreamed again and felt that those dreams could be reached. If only someone could figure out how to do that and not have it be built on a house of cards . . . .

I guess that's why they call you "Harry" :P Ok, tasteless joke time is over. I just about spit out some coffee on that one. Well done.

This is absolutely right. He vacillates between telling people to run for the hills and to jump in with both feet. I've learned not to pay much attention to him. He does have a "name" in the area though and he can move things both positively and negatively. Used to be that his words could cause major moves, but now they seem to be smaller and more temporary, if at all.

In the corporate world, when there is a split rating typically one would look to the lower rating. Unless the lower rating is from Fitch in which case you can just go with the higher one from S&P and/or Moody's. But as this is uncharted waters, who knows. I suspect that people will fudge it somehow. I do wonder what will happen to those who are required to hold AAA debt. Hopefully their governing instruments were drafted properly and say something to the effect of "AAA debt AND the debt of the US".

I don't know what people are worried about. The jobs report just came out and it was fantastic! Looks like a few extra people got jobs at fast food joints or something. The futures have shot up so all is well with the world. This was just what people were looking for to turn those frowns upside down.

While at first blush it seems strange, it makes sense when you think about it. They are charged 0.10% of deposits for the FDIC guarantee and they have been flooded with cash which they can't put to use. At least as of now, it is only on those with the largest deposits, this isn't something that the average joe is paying although of course that could change. While we all tend to think that the bank should be thrilled with extra cash, there are administrative headaches as well. As of now, this doesn't bother me in the least. If it starts spreading to smaller accounts, etc. that would be a different story. The big boys who are paying this now are certainly capable of moving their funds around with a click of the mouse if they don't like it. They can invest in LinkedIn or Pandora or something instead.

Thanks for posting this. Interesting.

I think that people need to remember the golden rule on chat boards. Don't feed the trolls! Look, at the end of the day, as far as I'm concerned anyone can say anything they want. But this is supposed to be an investing board and it is a bit irritating for someone to come on and post solely about non-investment topics. I am not sure how that furthers the purpose of the board. But that's just me. The definition of a troll is someone who posts solely to get a rise out of people and not with an intent to further the discussion. Note that I am not commenting on the substance or lack thereof of the posts. I would simply say to people to stop feeding.