Danish Central Bank Averages Down

Last Friday a bank in Kansas was the ninth bank to fail this year in the U.S.. We know a couple German banks and a U.K. bank failed early in the crisis. We also know a couple bigger Swedish banks are on the rocks…

Watch the failures spread…

Danish Central Bank to Take Control of Roskilde Bank (Update3): “The Danish Central Bank will take control of Roskilde Bank A/S to avert a financial “contagion” after mounting loan losses drove the lender into insolvency and a private purchaser couldn't be found.

The central bank and a group of Danish financial companies will provide Roskilde 4.5 billion kroner ($890 million) in cash and assume 37.3 billion kroner of debt, Roskilde said in a statement yesterday. The bank was suspended in Copenhagen trading today, after falling 88 percent from a peak in April 2007.

“We wanted to secure financial stability in Denmark,” central bank Governor Nils Bernstein said at a press conference in Copenhagen today. “The alternative would have been that Roskilde went bankrupt and that would have resulted in a considerable contagion throughout the financial sector.””

Central banks all over the world seem to operate out of the same damn play book. In trading, we call this averaging down into a LOSER. This is the fastest and most efficient way to blow your account.

This nervous whining about systemic risk and ‘financial contagion’ is insane. Absolutely insane. By bailing out retarded banks you guarantee an immediate increase in systemic risk and the longer run, permanent increase in systemic risk.

Anybody out there want to start a bank with me? The plan would be to act really really recklessly. When our bets pay off, we can give ourselves the kind of bonuses that would make even gods blush. When our bets blow up we can just claim ‘market failure’ and ‘regulatory failure’. We then threaten the world with financial Armageddon and demand an immediate bailout, preferably the kind that doesn’t wipe out the value of our common shares…

Fed Pushes Treasury To Socialize The Losses

As Fannie Mae (FNM) and Freddie Mac (FRE) hurtle towards oblivion, the only play being considered can be summed up as: SOCIALIZING THE LOSSES.

Man am I ever glad I'm not a U.S. taxpayer...
Poor bastards...

Fed Pressures Treasury Not To Wipe Out Fannie Mae Preferreds: "The Federal Reserve has been quietly pressuring the Treasury Department not to adopt a rescue plan for Fannie Mae and Freddie Mac that would wipe out the value of their preferred shares, according to a source familiar with the matter. The Fed fears that any move that hurt the preferred could worsen the crisis in regional banks that is already under way.

At issue is $36 billion of preferred stock issued by Fannie and Freddie. Under several versions of widely discussed rescue plans for the mortgage giants, the US government would take a new preferred stake in the companies, subordinating or perhaps wholly eliminating the existing preferred. Critics of Fannie and Freddie believe such a move would be necessary to punish excessive risk taking by the companies and avoid creating additional 'moral hazard.'

The situation is complicated, however, by the large share of preferred stock held by regional banks, many of which are viewed as possible candidates for failure in these credit crunched times. As the Financial Times reported over the weakened regional banks and US insurers hold the majority of Fannie and Freddie's outstanding preferred stock. The Fed has begun advocating against wiping out these shares, saying the threat to stability of the banks is greater than the 'moral hazard' argument, a source familiar with the matter says.

"The fear is that this bailout, if done in a punitive manner, could be costly, resulting in even more bailouts," the source said.

Last week Moody's cut Fannie and Freddie's preferred stock ratings from A to Baa3 on based on the uncertainty of how they would be treated in a rescue plan from the Treasury. That move could add to the need for the Treasury to take action soon, before banks are forced to report write-downs on the value of these lower-rated preferred shares. At the same time, the new pressure from the Fed to avoid wiping out the shares may stall an agreement on what form the intervention should take."

Uh Oh: Even The Chinese Are Contemplating a Stimulus Package

Uh oh. No es bueno. (I don’t know how to say, “This is really really bad” in Chinese)

You don’t want to hear that China is considering a stimulus package… Not at all. That definitely means things are much worse than expected both in China and global scale.

This should be a giant warning sign that even the most stubborn Bulltard can’t ignore…

China considering 370 bln yuan economic stimulus package – report: “China is considering a 370 bln yuan package of fiscal expenditures and tax cuts to stimulate the economy, the Economic Observer reported, citing a source close to the matter.

The report said said the plan includes 220 bln yuan in government spending and 150 bln worth of tax cuts.

The plan received initial approval from the Central Leading Group on Economic and Financial Affairs, a body under the State Council, but further details will be finalized by the finance ministry and other government departments.

Last week, JP Morgan said in a note to clients that the Chinese government is considering a stimulus package of 200-400 bln yuan in tax cuts and capital and housing market stabilization measures.

As a result, the benchmark Shanghai Composite Index closed up 178.81 points or 7.63 pct at 2,523.28 on Wednesday.”

Fannie and Freddie Failure, China Says, "BOHICA!"

Freddie, Fannie Failure Could Be World `Catastrophe,' Yu Says: "A failure of U.S. mortgage finance companies Fannie Mae and Freddie Mac could be a catastrophe for the global financial system, said Yu Yongding, a former adviser to China's central bank.

"If the U.S. government allows Fannie and Freddie to fail and international investors are not compensated adequately, the consequences will be catastrophic,'' Yu said in e-mailed answers to questions yesterday. "If it is not the end of the world, it is the end of the current international financial system.""

The Chinese are getting a little feisty as their losses continue to mount.

"China's $376 billion of long-term U.S. agency debt is mostly in Fannie and Freddie assets, according to James McCormack, head of Asian sovereign ratings at Fitch Ratings Ltd. in Hong Kong. The Chinese government probably holds the bulk of that amount, according to McCormack."

Well, sitting on a $376 billion time bomb just ticking away would make just about anybody more than a little nervous.

I bet Hank Paulson and Ben Bernanke are staring at a Chinese dictionary surprised to be translating certain choice curse words and threats...

""The seriousness of such failures could be beyond the stretch of people's imagination,'' said Yu, a professor at the Institute of World Economics & Politics at the Chinese Academy of Social Sciences in Beijing. He didn't explain why he held that view."

I know why he held that view. You see, that is the view of the Chinese government, and the command came from up high to make crystal clear that the powers that be would not tolerate any loses...

Translation: China says BOHICA* U.S. taxapayers!

*Bend Over Here It Comes Again

Take a Load Off Fannie...

via The Market Ticker
(Hattip to Yakelov)