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Annaly Capital Management, Inc. Message Board

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  • ridinycurve ridinycurve Dec 30, 2002 1:38 PM Flag

    HEY BD, see the MBAA data today?

    <<Because Fidelity makes up for the loss with fees from other kinds of funds.>>

    I would not dismiss that possibility out-of-hand, but it seems unreasonable to me. If true, it would certainly affect my thinking. Do you have a verifiable source of information?

    <<Sure, lots of S&Ls failed. But depositors (larger than the insured limit) were paid off as the institutions were folded into one another with "magic Government pixie-dust" call "forebearance." The Gov't wrote checks in the 100's of Billions. Ask the Bush family.>>

    You understand the history of those times much better than most. I would emphasize something that you probably understand but many others don�t: it was not the banks and S&L�s that were bailed out, but the depositors. As you pointed out, the FDIC payments were well in excess of what was required by its mandate.

    Actually, most S&L�s were not merged out in the later stages on the debacle. Some were in the early stages (essentially taking the burden off the FSLIC). This is perhaps the forbearance to which you refer. If so, you will also recall that the Federal Government tried to renege on its commitments, but eventually lost that battle in court.

    In the later stages, when FIRRA was legislated and the RTC was formed, most of the failing institutions were put into conservatorship with the RTC. The RTC�s mandate was to dispose of the assets as quickly as possible of those institutions that could not be salvaged as going concerns. With so many real assets dumped on the market at one time, the MV of those assets were depressed further, and that in turn lowered the MV and NPV of real assets in solvent S&L�s and banks.

    I personally know of only one S&L that was purchased as a whole institution from the RTC. Will not go into the details, but they ended up with about $5 million of �negative� goodwill on the books. The FDIC performed a subsequent examination joint with the OTS; and, being total inept in the concept of negative goodwill, cried: �hey, you can�t carry that negative goodwill; you must charge it off�. A very smart OTS examiner also very familiar with negative goodwill whispered in the ear of the CEO: �They�ve thrown you a bone without realizing it. If you charge it off, you can take the whole amount into capital at once, rather than amortizing it in over time.� The FDIC realized too late that it had set its own trap. But this was very competent management, and no harm was done.

    The forbearance that my memory conjures up was that invented by the FHLBB/Congress that allowed S&L�s to sell their underwater loans at losses and replace them with loans at market rates. The losses realized on the sales were booked as �Regulatory Capital�. A concept that would make Arthur Anderson�s auditors blush. Note that the FSLIC had nowhere near the resources to take out the insolvent S&L�s, which only caused the losses to mount. Subsequent legislation granting broad lending powers to the S&L�s only compounded the problem, as did the Tax Act of 1986.

    None of this changes my belief that the Fed will have absolutely any sympathy for MM�s that carry excessive expense ratios. (I�ve been a long time getting here haven�t I?) There

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