After telling readers that the Eurozone leadership looks to be suffering from “dulled reaction times…so out of line with market events that even if they were to snap our of their stupor now, it would be too late,” news reports suggest that they have finally roused themselves.
Or have they?
Read more...Things are only going from bad to worse in Europe.
Read more...This Real News Network interview with economist Bob Pollin of the Political Economy Research Institute in Amherst, Massachusetts focuses on the deficit cutting impasse in Washington and what is needed to create jobs.
Read more...As our overly-long headline tells you, Wednesday was a really bad day in credit land. Not only has the reality of the severity and seeming intractability of the Eurozone mess started sinking in, but US investors seem finally to be facing up to the fact that a full blown crisis would not be contained and will engulf American banks. If you thought September-October 2008 events were nasty, they could look like a mere trial run for what may be in the offing.
The Financial Times coverage on the failure of the Bund auction is suitably grim:
Read more...Our headline at odds with the media reports on the newest confidence-bolstering ploy by the Federal Reserve, that of new, improved stress tests for the six banks at the apex of the US financial services industry looting operation: Bank of America, Citi, Goldman, J.P. Morgan, Morgan Stanley and Wells.
There’s a noteworthy gap between the scenarios employed in the 1.0 version, which took place in early 2009, when the banks were told to get more capital or else, and the ones about to be implemented.
Read more...Yves here. I’m putting myself in the rather peculiar position of taking exception to a guest post. One might argue as to why I’m featuring it. Das gives an articulate but nevertheless fairly conventional reading of views of market professionals about the US debt levels. For instance as you’ll see, it conflates state government deficits (which do need to be funded in now skeptical markets) with the Federal deficit. And this sort of thinking, due to fear of the Bond Gods, is driving policy right now.
In addition, he posits that depreciation of the US dollar continues apace. I’m always leery of what amount to trend projections. Complex systems often have unexpected feedback loops. There is an interesting question of whether markets have over-anticipated QE3. In addition, the dollar has fallen to the point where it is becoming attractive for manufacturers to repatriate activities. But given the loss of managerial “talent” (and here I mean people who know how to run operations, not executives) and infrastructure, there will be a marked lag before the weakened dollar produces the next leg up of domestic production.
By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
Extortionate Privilege…
Given the magnitude of the US debt problem and the lack of political will, the most likely policy is FMD – “fudging”, “monetisation” and “devaluation”.
Read more...Hubris knows no bounds. AIG’s former CEO Hank Greenberg, who was a significant shareholder of AIG stock via C.W. Starr (which was basically an executive enrichment vehicle) is suing the Treasury and Fed over its rescue of AIG. He has hired litigation heavyweight David Boies, who famously made Microsoft CEO Bill Gates squirm when he put him on the stand in the Microsoft antitrust case.
While the public might similarly enjoy the spectacle of Timothy Geithner, Hank Paulson, and Ben Bernanke through the wringer, based on the report from Gretchen Morgenson, this case reads like a stretch
Read more...The Financial Times gives prominent play to a story that I suspect will go largely unnoticed in the US, that of the way that the Switzerland’s bank regulator, the Swiss National Bank, has forced its two biggest banks, UBS and Credit Suisse, to shed risk in a serious way and shrink.
Read more...By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.
Learn the name Catherine Cortez Masto, because she just took a big leap in front of every public servant in the country in terms of restoring faith in government. As Nevada AG, she actually indicted someone for blowing up our housing system. Specifically, she handed down 606 counts of felony or gross misdemeanor indictments on robo-signing against two employees of big bank subcontractor Lender Processing Services.
It’s pretty clear from the indictment that these are mid-level employees, one level up supervisors of fraud rather than top CEOs. And yet, even if this were as far as it goes, it would still be a big deal. These would be the only charges served involving the housing crisis and its link with the structurally corrupt securitization chain so far. By itself, these indictments signify that the fraudulent foreclosure game is over for the big mortgage servicers in Nevada, which is the center of the foreclosure epidemic. It says the rule of law matters, in at least one corner of the country.
Read more...By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)
The Mortgage Bankers Association (MBA) boasts that its members have modified over five million mortgages over the past few years. As a data analyst focused on patterns of foreclosure fraud, I’ve analyzed tens of millions of pieces of information. I was willing to take the MBA’s claims at face value but, years ago, came to the conclusion that the MBA and their members have a severe credibility gap.
Remember, the reason for advocating mods is that, properly structured, they are a win-win: investors take a lower loss than they would in a foreclosure, the borrower stays in his house, and another real-estate-price-depressing sale is averted.
But this “everyone comes out ahead” is not what I’ve seen. I’ve been able to check modifications, since they are recorded in public records. It quickly became apparent that while theses modifications are, at best, worthless, and more often than not border on an extension of the same predatory practices that resulted in the original mortgages.
These modifications are to mortgages as vultures are to predators, another opportunity to take one last bite out of people trying to keep their homes. Banks are “modifying” lots of loans, but to terms even more favorable to banks.
Read more...By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
In this two part paper, the issues regarding settlement of complex derivatives arrangement revealed by the failure of Lehman Brothers is outlined. Many of the failures affect new regulatory proposals such as the rapid resolution regimes under consideration. The First Part dealt with terminating and settling derivative contracts. The Second Part deals with effects of the bankruptcy on structured products and collateral.
Read more...One of the reasons I’m not a big fan of Twitter is that I don’t see it as being useful save for communicating short updates (Raid on Zuccotti Park! Come help fast!) or a terse assessment with a tiny URL. Even more can be misconstrued (or can pretend to be misconstrued by a nay-sayer) than in longer forms of communication.
Nevertheless, I think we can safely make some conclusions re the following tweet from Economics of Contempt on the over $4 trillion notional of US bank exposure to Eurozone risks. A Reuters story recounts how the Financial Stability Oversight Council is trying to get a grip on the positions. Even the bank lobbying group the International Institute of Finance is cautious:
“As such, the potential for contagion to the U.S. financial system is not small,” the Institute of International Finance, the lobby group for major international banks, said last week.
Nevertheless, there is not much room for misinterpretation of this exchange:
Read more...By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
In this two part paper, the issues regarding settlement of complex derivatives arrangement revealed by the failure of Lehman Brothers is outlined. Many of the failures affect new regulatory proposals such as the rapid resolution regimes under consideration. The First Part deals with terminating and settling derivative contracts.
A generation was once measured by where they were when an American President was assassinated in Dallas. A newer financial generation measure themselves by where they were when Lehman Brothers filed for bankruptcy protection on 15 September 2008.
The controversial failure of Lehman has become a pivotal point in ideological debates about markets, finance and the role of government. At a more mundane level, Lehman’s bankruptcy points to deeper problems in the “plumbing” of the financial system. The policy debate so far has largely ignored these unfashionable issues.
Read more...By David Apgar, who just launched GoalScreen, a web app still in trials that lets investors test alternative price drivers of specific securities (free though the end of the year at www.goalscreen.com. He has been a manager at the Corporate Executive Board, McKinsey, the Office of the Comptroller of the Currency, and Lehman, and writes at www.goalscreen.com/blog.
So now we can all breathe easily again. After all, the bond markets have rid the world of a dynasty of prevaricating Greek prime ministers and a modern-day Il Duce reincarnated as a trousers-around-the-ankles buffoon. There is just one fly in the ointment. Investors may start serially mugging healthy countries. Sovereign borrowers have a defense, fortunately, if only they dare use it.
Read more...This is the last day of Naked Capitalism fundraising week. Don’t miss the chance to participate. So far, over 840 donors have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar, another credit card portal or by check (see here for details). Read about why we’re doing this fundraiser and our current target.
By Olafur Arnarson, an author and columnist at Pressan.is, Michael Hudson, a Professor of Economics at University of Missouri- Kansas City, and Gunnar Tomasson, a retired IMF advisor
The problem of bank loans gone bad, especially those with government-guarantees such as U.S. student loans and Fannie Mae mortgages, has thrown into question just what should be a “fair value” for these debt obligations. Should “fair value” reflect what debtors can pay – that is, pay without going bankrupt? Or is it fair for banks and even vulture funds to get whatever they can squeeze out of debtors?
The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and other financial agencies into a conflict pitting banks, vulture funds and debt-strapped populations against each other.
This polarizing issue has now broken out especially in Iceland.
Read more...