zero hedge Mon 2010-05-24 16:38 EDT

Presenting What Could Be The Oddest Capital Flow Observation In History

It is no secret that the last few weeks saw massive liquidations along all asset classes. The result was a huge outflow across almost all products: Loans, HY Bonds, Municipals, Commodities... all a typical reaction to broad based liquidations. However, note we said "almost" - one class that actually posted a $6.2 billion inflow was equities. Yet not is all as it seems: peeking underneath the hood indicates that the bulk of this inflow, or $10.3 billion, had to do with inflow into ETFs... or rather, just one ETF - the SPY, accounting for $10.1 billion. Did someone prop up the entire equity market last week by massively pushing capital into the most liquid equity proxy available?...

History; Oddest Capital Flow Observation; presenter; Zero Hedge.

Mon 2010-05-24 10:11 EDT

Hussman Funds - Weekly Market Comment: Don't Mess with Aunt Minnie - May 24, 2010

John P. Hussman

...Last week, we observed an Aunt Minnie featuring a collapse in market internals that has historically been associated with sharply negative market implications....Treasury Secretary Eddie Haskell/Timothy Geithner has scheduled a trip to Europe this week to urge European leaders "to pay better attention to potential market reactions to policy moves, and to accelerate the European rescue program." This promises to be a fiasco. What could European leaders possibly find more arrogant than to be lectured on bailout policy - not simply by the U.S., but specifically by a one-trick pony bureaucrat whose chief trick is the ability to smoothly talk the language of prudence while simultaneously pillaging the fiscal stability of an entire nation for the benefit of bondholders who made bad loans?...Providing Greece (and possibly some of its neighbors) a graceful exit from the Euro requires greater courage but lower ultimate cost - particularly to the citizens of Greece itself - than a policy of forcing heavy austerity, dislocations, and internal deflation within Greece. The effect of austerity policies will be to damage the revenue side of the Grecian economy enough to leave the deficits little changed in any event. One would like to go back a decade in time and choose different policies that would have allowed Greece to maintain the Maastricht deficit limitations, but it is far too late to push a full-grown genie back into an itty-bitty bottle...

2010; 24; Aunt Minnie; Hussman Funds; Mess; weekly market comments.

Sat 2010-05-22 20:00 EDT

"Drop Dead Economics": The Financial Crisis in Greece and the European Union

Michael Hudson

Financial lobbyists are using the Greek crisis as an object lesson to warn about the need to cut back public spending on Social Security and Medicare. This is the opposite of what the Greek demonstrators are demanding: to reverse the global tax shift off property and finance onto labor, and to give labor's financial claims for retirement pensions priority over claims by the banks to get fully paid on hundreds of billions of dollars of recklessly bad loans recently reduced to junk status. The Greek bailout should be thought of as a TARP for German and other European bankers and global currency speculators. Almost $1 trillion is being provided by governments (mainly Germany, at the cost of its own domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks. They will make a killing, as will buyers of hundreds of billions of dollars of credit-default swaps on the Greek government bonds, speculators in euro-swaps and other casino-capitalist gamblers. (Parties on the losing side of these swaps now will need to be bailed out as well, and so on ad infinitum.) This windfall is to be paid by taxpayers -- ultimately those of Greece (in effect labor, because the wealthy have been untaxed) -- to reimburse Euro-governments, the IMF and even the U.S. Treasury for its commitment to predatory finance. The ³sanctity of debt -- sacrificing the economy to pay bondholders -- is to be used as an excuse to slash Greek public services, pensions and other government spending...

Drop Dead Economics; European Union; Financial Crisis; Greece.

Thu 2010-05-13 13:39 EDT

The People v. the Bankers

Michael Hudson

Financial lobbyists here in the U.S. are using the Greek crisis as an object lesson to warn about the need to cut back public spending on Social Security and Medicare. This is the opposite of what the Greek demonstrators are demanding: to reverse the global tax shift off property and finance onto labor, and to give labor's financial claims for retirement pensions priority over claims by the banks to get fully paid on hundreds of billions of dollars of recklessly bad loans recently reduced to junk status. Let's call the ``Greek bailout'' what it is: a TARP for German and other European bankers and global currency speculators. The money is being provided by other governments (mainly the German Treasury, cutting back its domestic spending) into a kind of escrow account for the Greek government to pay foreign bondholders who bought up these securities at plunging prices over the past few weeks...This windfall is to be paid by taxpayers -- ultimately those of Greece (in effect labor, because the wealthy have been untaxed) -- to reimburse Euro-governments, the IMF and even the U.S. Treasury for its commitment to predatory finance. The payment to bondholders is to be used as an excuse to slash Greek public services, pensions and other government spending. It will be a model for other countries to impose similar economic austerity...

bankers; people.

Calculated Risk Thu 2010-05-06 13:59 EDT

96.5% of Mortgages Backed by Government entities in Q1

CalculatedRisk

...Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance...The government-sponsored enterprises--Fannie Mae, Freddie Mac, and Ginnie Mae--now own or guarantee an overwhelming share of originations. At the same time, non-agency mortgage securitization and loans retained in lender portfolios have largely dried up...Without the government backed entities there would be almost no mortgage market.

5; 96; Calculated Risk; government entity; Mortgage Backed; Q1.

zero hedge Tue 2010-04-27 07:50 EDT

Janet Tavakoli: "President Obama - Bring Back Black"

William K. Black, a regulator during the dark days of the Savings & Loan Crisis, gave the most sensible testimony about the financial crisis heard in Washington so far.* Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honesty out of the market...It's time to bring back Black and resolute regulators like him. Our proposed "financial reform" bill is a sham, and the health of our society and our economy is at stake...

Black; bringing; Janet Tavakoli; President Obama; Zero Hedge.

Fri 2010-04-23 19:59 EDT

New York Fed Warehousing Junk Loans On Its Books: Examiner's Report

Ryan Grim

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas. The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds...

books; examinations s reported; new York Fed Warehousing Junk Loans.

Mish's Global Economic Trend Analysis Wed 2010-04-21 12:11 EDT

Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman's Bad Assets by Senior Regulator During the S&L Crisis

Michael Shedlock

Inquiring minds are digging into a 27 page statement made by William Black before the Financial Services committee. Black is an Associate Professor of Economics and Law, at the University of Missouri...[According to Black,] Lehman's underlying problem that doomed it was that it was insolvent because it made so many bad loans and investments. It hid its insolvency through the traditional means -- it refused to recognize its losses honestly...The FRBNY knew that Lehman was engaged in fraud designed to overstate its liquidity and, therefore, was unwilling to loan as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of the fraud...The relevant issue was never: can Lehman be saved? The relevant issue, one that the SEC and the Fed appear never to have even asked, was: how can we stop Lehman from serving as a vector spreading the epidemic of liar's loans? They should have asked themselves that question -- and acted -- no later than 2001.

Cover; Geithner; L Crisis; Lehman's Bad Assets; Mish's Global Economic Trend Analysis; NY Fed Accused; s; senior regulators; Willfully Ignoring Fraud.

naked capitalism Tue 2010-04-20 09:18 EDT

Three ways to keep NPLs down, recapitalize banks, and socialize losses all at the same time

Edward Harrison

Michael Pettis is out with another great piece on the likelihood that non-performing loans (NPLs) will rise in China when the present spate of malinvestment comes a-cropper. What caught my eye were his statements about the hidden ways in which government pays for bank recapitalization...

keep NPLs; naked capitalism; Recapitalize Banks; socializing losses; Time; way.

China Financial Markets Tue 2010-04-20 09:17 EDT

Who will pay for China's bad loans?

Michael Pettis

...pessimists are starting to worry about excessive debt levels in China, about which they are very right to worry, and many are predicting a banking or financial collapse, which I think is much less likely. Optimists, on the other hand, are blithely discounting the problem of rising NPLs and insisting that they create little risk to Chinese growth. Their proof? A decade ago China had a huge surge in NPLs, the cleaning up of which was to cost China 40% of GDP and a possible banking collapse, and yet, they claim, nothing bad happened. The doomsayers were wrong, the last banking crisis was easily managed, and Chinese growth surged. But although I think the pessimists are wrong to expect a banking collapse, the optimists are nonetheless very mistaken, largely because they implicitly assumed away the cost of the bank recapitalization. In fact China paid a very high price for its banking crisis. The cost didn't come in the form of a banking collapse but rather in the form of a collapse in consumption growth as households were forced to pay for the enormous cleanup bill...

China Financial Markets; China's bad loans; pay.

naked capitalism Mon 2010-04-19 18:46 EDT

Soros, Galbraith and Stiglitz on resisting inevitability in Greece

However, for now, it is Greece which is on everyone's mind...Kevin de Bruxelles says: ...I have to give credit to Angela Merkel. She is holding a pretty strong hand and it is now clear we are down to two choices for the endgame. The bailout solution will be international, in other words not limited to the Eurozone, and the amounts donated will be proportional to the risk each country holds. Or Greece simply defaults, probably first on their Anglo-Saxon debt (in return for low interest loans from Germany and France!), and each country then just bails out their respective banking system.

Galbraith; Greece; naked capitalism; resisting inevitability; Soros; Stiglitz.

Sun 2010-02-28 13:27 EST

Janet Tavakoli: Washington Abandons Greece: Beware of Geeks Bearing Grifts

Janet Tavakoli

The European Union (EU) is shocked--shocked I tell you!--that Greece used financial engineering to qualify for admission. Exactly how did they think that weaker countries managed to meet the requirements?...A few years ago, Greece engaged in derivatives transactions which essentially gave it a disguised loan, a gift from geeks. Greece may or may not have had plans to invest the money to create national wealth instead of say, blowing it all on national bling. Either way, Greece used its national credit card in a futile attempt to keep up with the EU Joneses...Today, rumors are that crony capitalists are using derivatives to profit from Greece's misery. There are allegations that investment banks and hedge funds used their knowledge of Greece's hidden debt to drive up its borrowing cost and drive down the Euro. Then these speculators reversed their positions, when they had advance information of a potential bailout for Greece. Other rumors suggest customized trades on the sovereign credit derivatives index also exploited Greece's problems. Still other rumors point to a campaign to manipulate Greek debt prices and knock down the Euro.

Beware; Geeks Bearing Grifts; Janet Tavakoli; Washington Abandons Greece.

naked capitalism Sun 2010-02-28 13:13 EST

Das: Mark to Make Believe -- Still Toxic After All These Years!

Satyajit Das

n 2007, as the credit crisis commenced, paradoxically, nobody actually defaulted. Outside of sub-prime delinquencies, corporate defaults were at a record low. Instead, investors in high quality (AAA or AA) rated securities, that are unlikely to suffer real losses if held to maturity, faced paper -- mark-to-market (``MtM'') -- losses. In modern financial markets, market values drive asset values, profits and losses, risk calculations and the value of collateral supporting loans. Accounting standards, both in the U.S.A. and internationally, are now based on theoretically sound market values that are problematic in practice. The standards emerged from the past financial crisis where the use of ``historic cost'' accounting meant that losses on loans remained undisclosed because they continued to be carried at face value. The standards also reflect the fact that many modern financial instruments (such as derivatives) can only be accounted for in MtM framework. MtM accounting itself is flawed. There are difficulties in establishing real values of many instruments. It creates volatility in earnings attributable to inefficiencies in markets rather than real changes in financial position...

Das; Make-Believe; marked; naked capitalism; toxic; years.

New Deal 2.0 Sat 2010-02-27 22:55 EST

GSE Losses As Shadow Bailout

Roosevelt Institute Fellow Mike Konczal

...As the private sector started to dump housing and housing bonds quickly in 2007 and 2008, government officials made sure that the GSEs would be capable of absorbing these bad loans...This constitutes one part of many ``shadow bailouts'' according to Roosevelt Institute senior fellows Rob Johnson and Tom Ferguson; this argument, and the graph above, is from their Too Big to Bail: The `Paulson Put,' Presidential Politics, and the Global Financial Meltdown Part II paper. (In Part I, they argue that the Federal Home Loan Bank System was also used in a similar manner.) Astute readers will notice that the action of government officials using public funding sources to provide makeshift backstops for losses of the banking sector to clear the balance sheets of toxic assets to ``unlock the frozen credit market'', without having to go to Congress for funding, was also a central feature of Geithner's PPIP plan, with FDIC stepping up to the plate once the GSEs went bust...

0; GSE losses; new dealing 2; Shadow Bailout.

zero hedge Tue 2010-02-16 16:33 EST

The LBO Refi Wave Approaches: $800 Billion In Junk Debt Maturing By 2014, Adds To Multi Trillion Fixed Income Refi Cliff

After a mere $100 billion in projected debt maturities in the 2010-2011 period, the LBO wave of 2005-2007, largely financed with 5-7 year tenor bonds and loans, will set the refi scene on fire in the 2012-2014 period, when $700 billion of debt is set to mature. Should Fed Fund rates, and the yield curve begin to shift higher, the incremental cost of debt capital will destroy tens if not hundreds of billions of equity value over the next 5 years...

2014; 800; adds; Junk Debt Maturing; LBO Refi Wave Approaches; Multi Trillion Fixed Income Refi Cliff; Zero Hedge.

THE PRAGMATIC CAPITALIST Wed 2010-02-10 11:22 EST

AN INSIDER'S VIEW OF THE REAL ESTATE TRAIN WRECK

TPC

The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit...what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top...he remains deeply concerned about the outlook for real estate...the United States home mortgage market has been nationalized without anybody noticing...If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe...eventually the bond market is going to gag on the government-sponsored paper...commercial properties are not performing and that values have gone down, although I've got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios...The current volume of defaults is already alarming. And the volume of commercial real estate defaults is growing every month...When you hit that breaking point, unless there's some alternative in place, it's going to be a very hideous picture for the bond market and the banking system...second quarter 2010 is a guess...the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they'll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that's horribly destructive...it's exactly a Japanese-style solution...The entire U.S. residential mortgage market has in effect been nationalized, but there wasn't any act of Congress, no screaming and shouting, no headlines in the Wall Street Journal or the New York Times...That's a template for what they could do with the commercial loan market.

insider's view; pragmatic capitalists; Real Estate Train Wreck.