The Wall Street Journal reports that banks have become much less active participants in the repo market, which is a critical source of short-term liquidity for big investors. Is this due to a Fed accident or is it by design?
Read more...Unless you just returned from holiday in some ultra-remote region lacking newspapers, television or internet access (is there such a place?), you are aware that the government of Argentina defaulted on its external debt on Wednesday. A New York federal court provided the immediate cause of the default with a ruling that rendered illegal an agreement reached between the Argentine government and creditors holding over 90% of the country’s external debt.
Read more...The spectacle of banks wring their hands about how low volatility is leading them as well as investors to take on too much risk bears an awfully strong resemblance to a child who has killed his parents asking for sympathy for being an orphan.
Read more...With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.
Read more...Mirabile dictu, it looks like Elizabeth Warren’s grilling of Janet Yellen on the Fed’s failure to make progress on Dodd Frank resolutions, also known as living wills, has had some impact. From the Wall Street Journal:
Read more...Today is technically the drop-dead date for Argentina to work out an agreement to pay off vulture funds that long ago purchased their distressed debt, or else the country will go into default for the second time in thirteen years. 11th-hour negotiations with a mediator have yielded no results thus far. WSJ divines momentum from the length of the mediation session, which is pretty weak tea.
The default would actually be to the exchange bondholders who already hold agreements with Argentina for restructured debt payments going back to the 2001 default. Judge Thomas Griesa prevented the country from making a scheduled interest payment to the exchange bondholders without the vulture funds getting their $1.5 billion first (the vultures paid roughly $48 million for the distressed debt, so it’s a huge payday).
Read more...At one level, a crackdown on foreclosure rescue scams and not the overarching mortgage and foreclosure fraud is like letting the arsonist who set fire to the house go while busting the guy who took five bucks off the dresser before the house started to burn. Nevertheless, these scams do represent some of the worst elements of our society, featuring the kind of people who see suffering and vulnerability and think about dollar signs. One of my first entrees into this world of foreclosure nightmares was through a friend who had fallen behind on his payments, and then paid somebody up-front money to help him secure a loan modification. That person did nothing to help and then skipped town with the cash.
So it’s good to see CFPB finally take a crack at this, in conjunction with the Federal Trade Commission and 15 states.
Read more...Yesterday when I published my post on Krugman and the vulgar Keynesians not understanding the meaning to the term ‘liquidity trap’ I came to realise that many readers — both sympathetic and hostile — do not really understand the Keynesian theory of financial markets. I then realised that this was actually quite understandable given that it is not much discussed today (with some notable exceptions such as Jan Kregel and Minskyians like Randall Wray).
Read more...Michael Hudson and James Henry discuss the legal and practical issues surrounding the battle between vulture fund NML and Argentina.
Read more...Almost everyone now knows that the world of international finance is not a particularly robust one, nor is it particularly just or fair. But it has just got even weirder and more fragile, if this can be imagined. A recent ruling of the U.S. Supreme Court, refusing to hear an appeal by the government of Argentine against a decision of a lower court on a case relating to its debt restructuring agreement with creditors over a decade ago, is not just a blow against the state and people of Argentina. It has the potential to undermine the entire system of cross-border debt that underlies global capitalism today.
Read more...Yves here. I’m serving an extra heaping of contempt on the latest giveaway bank settlement, this one with Citigroup for a headline figure of $7 billion which is really $4.5 billion in cash and the rest in various chits. We’re turning the mike over to Bill Black, who excoriates Attorney General Eric Holder.
Read more...Yves here. This post looks at how little has been done in the wake of the global financial crisis is instructive because it takes an international view. The Australian writer, Catherine Cashmore, is particularly anxious about the failure to address the usually lucky country’s ginormous property bubble, and its not alone in having this problem (cue the UK, China, and Canada). It the US, although we’ve had a housing “recovery” and some markets are looking frothy, the bigger issues are the squeeze on renters as former homeowners are now leasing and the stock of rentals is tight in some markets (in part due to destruction of homes that would have been rentable in the foreclosure process due to servicer mismanagement and in some markets, due to properties being held off the market, both by servicers and by landlords who are either in the process of rehabbing them or have otherwise not leased them up). And it focuses on the elephant in the room: lousy worker wage growth.
Read more...One the markets that has been least easy to predict this year has been US bonds. The long term US bond bears, that are often monetarists at heart and believe QE will bring inflation, have been queuing up to short. Likewise, post-Keynesian’s have pointed at Japan and laughed about secular deleveraging and widow-maker trades.
The fact is, the bears have been wrong all year, and even with recent inflationary rumblings are still wrong.
Read more...A Florida appeals court nixed clearly bogus foreclosure documents in a short, gratifying ruling.
Read more...Despite unimpressive and often mixed economic data, market prices in a wide range of financial assets have continued to grind higher. And the results that cheered pundits are hard to square. For instance, Floyd Norris in the New York Times today scratches his head over how inconsistent recent employment gains are with the first quarter GDP contraction at an annualized 2/9% rate. It’s also hard to reconcile with reports of weak retail sales and falling in-store traffic. Similarly, China has become concerned enough about growth that it’s started pump priming again. Even so, car sales dropped by 3.4% in June. And in Japan, machinery orders plunged by 19% in May. And despite the recent discussion of Eurozone recovery, recent reports have put a dent in cheery forecasts.
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