Category Archives: Credit markets

Eurozone Rescue Going Off the Rails

In the runup to the crisis, it was striking to read the undertone of worry in quite a few of the articles in the Financial Times, and I don’t mean only Gillian Tett’s fixation on collateralized debt obligations. It was palpable that a lot of writers were uncomfortable with how frothy the markets were, yet couldn’t say anything too much at odds with what their largely cheerleading sources were telling them.

Even though the overall mood at this juncture is far more downbeat, there is again a reporting gap between the pink paper and the two major US print business outlets, the Wall Street Journal and the New York Times on the expected crisis nexus, the Eurozone.

Eurozone Leaders Ready €80 Billion Band-Aid for Banking Industry Gunshot Wound

I must confess I don’t stay on top of the blow by blow of the ever-devolving Eurozone mess. The broad lines of the trajectory look all too predictable. The officialdom could patch up things for quite a while if the powers that be let the ECB monetize the debt (eventually, you could have an inflation problem, but with the EU and global economy so slack, “eventually” will take quite a while to show up).

However,everyone in positions of authority seems to believe in certain-to-fail-much-faster austerity instead. So the permissible short-to-medium term fixes involves lots of complicated programs, multi-party negotiations, and in some cases, political approvals. The timeline for the governmental maneuvering seems badly out of line with what Mr. Market requires. And to make matters worse, an earlier deal on a Greek funding, which involved bondholders taking a 21% haircut, is now deemed not to be punitive enough to banks. While that is narrowly true, having this deal come unglued could be the detonator that sets off a crisis chain reaction.

And from a wider vantage, none of these remedies address the real issue

Bank of America Setback: $8.5 Billion Mortgage Settlement Successfully Removed to Federal Court (Updated)

Bank of America can’t win for losing.

Latest Attorney General Bailout Plan: Give Banks “Get Out of Jail Free” Card for a Few Refis

Attorney General Tom Miller of Iowa, who is leading the whitewash once known as the 50 state attorney mortgage settlement negotiations (7 have defected), reliably, every few weeks, has gotten word to the media that a deal is weeks away. This has been going on so long that it is easy to ignore it, particularly since the absence of key states is going to reduce the importance of any settlement being reached.

Note we’ve been skeptics of a deal happening unless the AGs capitulated on a release of liability. And that is the latest plan.

We have a combo plate of stories, one in the Wall Street Journal yesterday morning and a further critical tidbit from Reuters this evening that together give an overview of Miller’s latest effort to push a deal over the goal line. The latest idea is as bad as we feared.

Attorney General Beau Biden on Investigating the Mortgage Mess

The Dylan Ratigan show is on a roll this week. The program today included a segment with one of our heros, Delaware attorney general Beau Biden, who was early to join New York’s Eric Schneiderman in questioning the now less than 50 state attorney general mortgage settlement. He also joined the FDIC, Schneiderman and a large number of investors in objecting to a proposed $8.5 billion mortgage settlement by Bank of America.

Biden makes a clear and concise statement of the major issues:

Bank of America Deathwatch: Moves Risky Derivatives from Holding Company to Taxpayer-Backstopped Depository

If you have any doubt that Bank of America is going down, this development should settle it. I’m late to this important story broken this morning by Bob Ivry of Bloomberg, but both Bill Black (who I interviewed just now) and I see this as a desperate move by Bank of America’s management, a de facto admission that they know the bank is in serious trouble.

The Data That the Economy is Not So Hot is Getting Harder to Ignore

The propagandistic exhortation that we all need to need to learn to love or at least accept the crappy economy known as “the new normal” is starting to wear a bit thin. One of the things that has allowed the punditocracy to pretend that “the new normal” really isn’t all that bad are various myths that they get investors and sometimes the broader public to believe in succession or better yet simultaneously:

From QE to Communism

By Zarathustra, who is the founder of Hong Kong blog Also sprach Analyst. He was educated at the London School of Economics and the Chinese University of Hong Kong and was once a Hong Kong-based equity research analyst focusing on Hong Kong real estate (which he did not really like), with a secondary coverage on China real estate sector (which he actually hated). Cross posted from MacroBusiness

Zero interest rate policy and quantitative easing is not working to stimulate the real economy. No country has succeeded. The pioneer of quantitative easing, the Bank of Japan, failed (and Japanese yen is uber-strong). The Federal Reserve has failed, and the Bank of England has failed.

Fitch Installs Its Own Glass-Steagall

Yves here. Fitch tries to position itself as the “we try harder” ratings agency, taking more aggressive ratings actions relative to Standard and Poor’s and Moody’s. For instance, it started issuing warnings about and then downgrading CMBS before its two larger competitors pre-crisis. The open question here is whether other bond graders will follow its lead.

By David Llewellyn-Smith, the founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Cross posted from MacroBusiness.

There have been times in the last couple of years when the GFC-chastened ratings agencies appeared to be racing one another back to some position of credibility faster than the world could bear. Well, that race is surely over now, with Fitch announcing after US trading the mother of all downgrade watches on, well, everybody.

More Proof of Federal Coverup of Mortgage Fraud: Robosigner-Equivalents Hired to Review Foreclosure Files in Required Audits

Georgetown law professor and securitization expert Adam Levitin has come upon a real doozy in terms of how banking regulators aren’t even bothering to mount a serious pretense that their much-touted efforts to rein in mortgage abuses are anything more than a coverup for the banks. And he is suitable irate.

Satyajit Das: Economic Dystopia – The “Stick Shaker Moment”

Yves here. Note I beg to differ with Das in his comments on government debt levels for countries that control their own currency. As we’ve noted, a country can always repay debts in its own currency, and the funding of federal deficits by borrowing is a political constraint and a holdover from the gold standard era. Moreover, there is a great deal of evidence that the solution implicit in that view, of cutting government spending in the aftermath of a demand-depressing, private balance sheet wrecking global financial crisis only makes matters worse. This is a case where you need to steer into the skid to get the car back on course. But this section is not core to Das’s discussion.

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk

Powered flight requires air to flow smoothly over the wing at a certain speed. Erratic or slow air flow can cause a plane to stall. Most modern aircraft are fitted with a “stick shaker” – a mechanical device that rapidly and noisily vibrates the control yoke or “stick” of an aircraft to warn the pilot of an imminent stall.

The global economy too needs air flow -smooth, steady and strong growth. Unfortunately, the global economy’s stick shaker is vibrating violently.