By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives.
Just when you think that things can get no worse in Spain, they do. Take a look at this chart, courtesy of Credit Suisse via FT’s Alphaville
Read more...Commentators and analysts have been starting to estimate what the costs to banks for their Libor manipulation might be. We’ve pointed to an estimate by the Economist that says the damages for municipal/transit authority swaps due to Libor suppression (during the crisis and afterwards) could be as high as $40 billion. Cut that down by 75% and you still have a pretty hefty number. Other observers (CFO Magazine) have argued that the losers were mainly other banks, and since banks are pretty much certain not to sue each other, the implication is the consternation is overdone. But these markets were so huge ($564 trillion was the 2011 trading volume in one contract, the CME Eurodollar contract, which uses dollar Libor as its reference rate) that even a little leakage to end customers still adds up to a lot of exposure.
Read more...By Ed Harrison, the founder of Credit Writedowns. Cross posted from Alternet.
The awful experience of the Great Depression made clear to many economists and laymen alike that credit is at the heart of a functioning capitalist system. Without access to credit, many businesses die and many individuals and households run out of money and go bankrupt.
Yet in popular media accounts from the Great Depression, the focus is almost always on the stock market and the Great Crash of 1929. You hardly ever hear that it was the contraction of credit and the seizing up of credit markets that made the Great Depression so traumatic.
Read more...A good report by Shahien Nasiripour recounts that the OCC has woken up to what a hot potato the Libor scandal has become, and has identified the mortgages that might (stress might) have been hurt by the rate diddling.
To start with, the universe that might have been affected is not that large. Per the Financial Times account:
Read more...Beware of financiers bearing gifts.
A scheme proposed by a group called Mortgage Resolution Partners, which is being considered by San Bernardino, CA, to use the traditional power of eminent domain to condemn mortgages, was pretty certain to be a non-starter, so I’ve ignored it. But it’s gotten enough attention to have roused the ire of a whole host of financial services industry lobbying groups, as well as endorsements from Bob Shiller and Joe Nocera, and a thumb’s down from Felix Salmon, so it looked to be in need of serious analysis.
Read more...Municipal finance has long been a cesspool. States, towns, hospitals, transit authorities, all have long been ripe for the picking. Sometimes local officials are paid off (anything from cold hard cash to gifts to skybox tickets), but much of the time, there’s no need to go to such lengths, since preying on their ignorance will do. As we’ve pointed out, even though these bodies often hire consultants, those advisors are often either not up to the task (how can people who don’t know finance vet an expert?) and/or have bad incentives (more complicated deals, which are generally more breakage prone, tend to produce higher consulting fees).
Dave Dayen highlighted one example yesterday: the city of Oakland has decided rather than pay $15 million in termination fees to get out of an interest rate swap deal gone bad:
Read more...As markets quickly shrugged off the news including that of further central bank rate cuts. Spanish bond yields rose over 7%, as Mr. Market clearly wanted a resumption of bond buying or some other decisive action, rather than a mere reduction of its benchmark rate to 0.75%.
Some commentators, such as Edward Hugh, are a bit flummoxed, since the supposed clarification of key points of the deal, most importantly, how and when Spanish banks will get money, has not answered these basic questions. Wolfgang Munchau argues in his current column, “Eurozone crisis will last for 20 years” that the Europatchup of last week wasn’t simply underwhelming, but was a major step backwards.
Read more...By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Cross posted from VoxEU
The EZ crisis – born as a debt crisis (Greece) – has grown up into a banking crisis (Ireland, Cyprus, Spain, …). This column argues that Spain is symptomatic of larger banking problems, so the EU Summit decisions on banking union are welcome and critical to any long-term solution. Yet someone must pay for Spanish bank losses. Spanish politics is shielding Spanish creditors, European politics is shielding EZ taxpayers, so the Spanish government will pay – and in doing so may go the way of Ireland. This crisis is far from over.
Read more...It’s hardly surprising to think that Barclay’s CEO Bob Diamond shaded the truth more than a tad in his Parliamentary testimony earlier this week. Recall that he said the manipulation was the doing of 14 traders, and in context, he was clearly saying only those 14, their immediate supervisors, and the lax compliance types were at fault out of all of Barclays. The FSA’s letter to Barclays shows that to be untrue. It clearly says “at least” 14 traders were involved, as well as various “submitters” which were in a completely different unit operationally.
The Independent has posted an interview with a former senior executive who calls out Diamond for his biggest howler, that he had no idea that anything untoward was happening until about two weeks ago.
Read more...Normally I try to avoid dumping on the same person twice in a short period of time, no matter how much they deserve it, but a post by masaccio at Firedoglake on the PR exercise known as the Financial Fraud Task Force deserves amplification.
Read more...As the Libor scandal has given an outlet for long-simmering anger against wanker bankers in the UK, there have been some efforts in the media to puzzle out who might have won or lost from the manipulations, as well as arguments that they were as “victimless” or helped people (as in reporting an artificially low Libor during the crisis led to lower interest rate resets on adjustable rate loans pegged to Libor; what’s not to like about that?)
What we have so far is a lot of drunk under the streetlight behavior…
Read more...Readers may remember that one of the outcomes of the robosigning scandal was that mortgage servicers entered into consent decrees with the OCC and other regulators in early 2011.
One component of the OCC program was “independent” foreclosure reviews that would be offered to borrowers to determine if they had been harmed by a foreclosure and provide restitution. The servicers were required to do “outreach” to borrowers who might have suffered to give them the opportunity to request a review. You have to understand that this was never a good faith effort, even though HUD secretary Donovan trumpeted these assessments as an important part of “social justice.”
Read more...By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives
We’ve always been a fan of Professor Paul De Grauwe from University of Leuven, who has consistently pointed out the structural flaws inherent in the original structures of the EU. Recently, Professor de Grauwe wrote an excellent analysis explaining why the latest “rescue plan” cobbled together by the Eurozone authorities is destined to fail.
Read more...As much as I would have liked to have seen the Bob Diamond testimony before Parliament yesterday (a previously booked flight ruled that out), I should probably consider myself lucky. Comments by readers and tooth-gnashing reports from the British press indicate that Diamond is an apt student of the well honed CEO practice of shirking responsibility and shameless denials. Those strategies go a long way in stymieing efforts to get insight, at least in the setting of a legislative grilling. Some of it is the time constraints on each interviewer: they can only go so long before they have to turn the mike over to a colleague. I’d love to see a real prosecutor, with the luxury of time and the ability to do serious discovery before deposing executives, go after some of these fearless leaders.
The most theatrical moment of the day appears to have been when MP John Mann went full bore into Diamond.
Read more...The ongoing, still unresolved issue of the mortgage mess is that irresponsible, unaccountable, self-serving “agents” called servicers manage foreclosures and mortgage modifications. Pretty much anyone who has looked at the problem argues that mortgage modifications to viable borrowers would lead to lower losses to investors and less damage to the housing markets than the Mellonite “Liquidate real estate” program in place now.
The reason we seem unable to get off this destructive path is servicers are paid to foreclose, and not to modify, hence they have set themselves up pretty much only to foreclose.
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