The idea of a free-for-all situation may seem far-fetched given the increased education investors have about investing, but Mr. Bhatia says “in our view, customers may withdraw assets first, and ask questions later.” No kidding — shares were already down 61% on the year coming into today, so this additional selloff doesn’t help the portfolio much.






 




 


They may do so just based on the tidbits contained in the company’s 10-Q report, which Mr. Bhatia (who was unavailable for an interview) quotes at great length. Basically, E*Trade, which has garnered a solid reputation as a discount brokerage, may have become the poster child for getting into a marginal business much later than it should have, and as a result it’s now embroiled in the subprime and collateralized debt mess in a big way.



In its 10-Q the firm notes that almost 90% of the home-equity loans it holds were purchased, rather than originated, and the declining value of those homes means “our ability to recover our investment by foreclosing on underlying properties has diminished.” The firm also said continued deterioration in loans underlying its asset-backed investments “could result in a significant deterioration” of those investments.



Citi estimates that trying to liquidate E*Trade’s “loan and ABS portfolio would result in over $5b of losses.” Several other analysts lowered estimates today, dropping fiscal 2007 earnings-per-share estimates to 72 cents from a consensus of 85 cents a month ago (Citi expects 31 cents in earnings). The stock is the most actively traded with more than 55 million shares changing hands in the first half-hour.



Of course, according to Russel Wasendorf, Sr., more money for the Commodity Futures Trading Commission for additional regulation of our Derivatives markets is simply a bad idea. That is, of course, if the investing public has to "pay for it" leaving, of course, the participating firms, or the govenment left to pay for more resources--which, ironically, is why they had the hearing in the first place. The government and New York and Chicago Financial frims are NOT paying more money for more resources for the CFTC for more regulation of the Derivatives Markets.



Silly me! What was I thinking? As an honest investor why in the world would the Foxes contribute to somebody watching the proverbial Henhouse? DUH!



Not that, of course, that money has to come from somewhere.



One has to laugh at the irony:



From today's Wall Street Journal, more blowing of the "Trumpets of Doom:"



Who's Watching the Big Banks? - [Ed.Note] Gee, I thought that the government was! Wow, was I ever wrong.



An excerpt, read the whole thing:



On the global stage, major central banks in Europe have served up a huge new volume of reserves to mitigate stresses in their banking systems. Even the Bank of Japan, which had hinted it would raise money rates, seems to have pitched in by abstaining from rate hikes.



Yet in spite of these efforts on the part of monetary officials in the U.S. and world-wide, market confidence remains shaky. The volume of transactions in the subprime mortgage market is tepid at best. Stock prices of financial institutions have fallen sharply. In most markets, volatility is high. Key commodities prices have risen sharply. The U.S. dollar is under attack.



The problem is that the Federal Reserve and Treasury have failed to come forth with solutions that will limit future financial excesses. They've also failed to keep pace with a series of fundamental structural changes that have transformed markets in recent decades. As a result, in an age when "transparency" is the business watchword, financial markets have become increasingly opaque. This in turn has fostered doubts and fears about the underlying strength of markets and their institutions. Compared with a generation or even a decade ago, financial markets today are much more complex, an order of magnitude larger, and filigreed with new and often arcane credit instruments. Risk taking -- driven by the mystique of quantitative risk modeling -- has become more aggressive. And these structural changes, many of which were initiated in the U.S., are rapidly gaining acceptance in other major financial centers around the globe.



This new, highly securitized financial regime can work well only if securities are priced accurately. Stated differently, weaknesses and failures in securities pricing are wreaking havoc in financial markets. Traders and investors are learning the hard way that not all assets are the same when it comes to pricing. There is a sharp difference between marking-to-market U.S. government securities or large high-quality private-sector issues versus lower quality issues for which pricing is done off a model or matrix.



This brings to mind Fed Chairman Ben Bernanke's response when I asked him at last month's Economic Club dinner in New York what information he would like that is not currently available to him. Pointing immediately to the problem of pricing subprime instruments, Mr. Bernanke said frankly, "I would like to know what those damn things are worth." Then added, "This episode has revealed a weakness in structured credit products."



Giant financial conglomerates contribute to the opaqueness in our financial markets. Their activities span across many sectors -- from consumers to business, from trading to investing, from securities underwriting to lending and proprietary trading, from insurance underwriting to real-estate brokerage, from managing billions of dollars of other people's money to consulting and advising. Their global presence has been growing briskly, with some now garnering more than half their profits from foreign operations. Their size, scope, and embeddedness in financial markets are impossible to decipher from their published balance sheets. Because their reach is so vast and deep, these financial behemoths are deemed too big to fail.



In the wake of these profound structural changes in our financial system, who or what can provide oversight and supervision? Today's regulatory system -- though system is too strong a word -- is largely a historical artifact left over from the era when financial markets and institutions were much more fragmented and insulated from one another. In the U.S., state and federal regulators of various kinds continue to oversee specific activities in the financial markets and institutions. But the destruction of financial silos that once separated brokerage, commercial banking, investment banking, insurance, mutual funds, and other financial businesses has made fragmented state and federal regulation obsolete.



The Federal Reserve System comes closest to performing the role of financial system guardian. Its central mission is to implement policy that will encourage sustained economic growth. But its monetary tactics are asymmetrical. Leading Fed officials periodically acknowledge that the central bank knows what to do when a financial bubble bursts (ease monetary policy), yet it lacks the analytical capacity to identify a credit bubble in the making. How, then, can the Federal Reserve hold inflation in check in order to encourage economic growth while at the same time restraining financial markets within prudent limits?



What is urgently needed is a new kind of institution that I will provisionally call the Federal Financial Oversight Authority. This regulatory body would oversee only the largest U.S.-based financial institutions -- the giant conglomerates engaged in a broad range of on- and off-balance-sheet activities that I noted above. The new authority would monitor and supervise these huge financial conglomerates -- assessing the adequacy of their capital, the soundness of their trading practices, their vulnerability to conflicts of interest, and other measures of their stability and competitiveness.



I am not proposing comprehensive supervision of most or all financial institutions. Oversight of the 10 to 20 largest financial conglomerates would fill the much-needed regulatory void, given the vast reach of those dominant players. The 15 largest institutions in the U.S., for example, have combined assets of $13 trillion. They dominate many key areas of trading, underwriting, and investment management. Many command an overwhelming position in derivatives and in many of the esoteric financial instruments that have grown so rapidly in the past decade."



Guess what, NONE OF THESE THINGS ARE ACTUALLY TAKING PLACE to fix any of these structural, accounting, legal, political, and other problems.



They are all, in the end, continuting more of the attempted "dumbing down" of all of us here in America.



What they are really saying, is "Be happy-Don't Worry" everything is going to be studied, groups will be formed to come up with potential solutions, and those potential solutions will, indeed, be implemented.



WRONG.



Don't feed us this b.s. anymore. We will go broke before we can see another "change," unless of course, that change is for the worse.