Fri 2010-09-17 19:26 EDT

Memo to Obama: time to break the refinance strike by the big banks

Christopher Whalen

...The Obama Administration and the Fed have taken the position that the crisis affecting the U.S. economy and the financial sector is slowly ending. In fact, the largest banks remain profoundly troubled by bad assets on their books as well as claims against these same banks for assets sold to investors. By allowing banks to ``muddle along'' and heal these wounds using low interest rates provided by the Fed, the Obama Administration is embracing a policy of deflation that has horrible consequences for U.S. workers and households...the Obama Administration has been providing political cover for the Fed to conduct a massive, reverse Robin Hood scheme, moving trillions of dollars in resources from savers and consumers to the big banks and their share and bond holders...the Obama Administration should use the power provided in the Dodd-Frank legislation to force an accelerated cleanup of bad assets and to mandate refinancing and principal reductions for performing loans with viable borrowers...President Obama also needs to focus on the growing competitive problem in the U.S. mortgage sector...now dominated by a cozy oligopoly of Too Big To Fail banks (TBTF)...Why is there no antitrust investigation of the top banks by the Department of Justice?...

big banks; break; memo; Obama; refinance strike; Time.

naked capitalism Thu 2010-09-16 17:05 EDT

Elizabeth Warren on Way to Being Sidelined as Head of Consumer Protection Agency, Relegated to ``Advisor'' Role

The body language of the Administration has been clear from the outset on the question of whether Elizabeth Warren would get its nomination to head of the new financial services consumer protection agency. Despite the occasional public remark regarding her undeniable competence, which really amounted to damning her with faint praise, Team Obama has never been on board with the idea...The reality is that the Administration was never going to appoint her; the only question is whether she can be kept in their orbit and not be a net negative as far as their dubious priorities are concerned...the Warren marginalization isn't about personalities, although the powers that be love to pigeonhole thorns in their side that way. The clashes reflect fundamental differences in philosophy. Geithner, the Administration that stands behind him, and Dodd all are staunch defenders of our rapacious financial services industry, even though they make occasional moves to disguise that fact. Warren, by contrast, is clearly a skeptic, and a dangerous one to boot, because she understands the abuses well and is able to communicate effectively with the public. Expect Warren to be pushed further to the sidelines, just as Paul Volcker has been (oh, and pulled out of mothballs when the Administration desperately needed to create the appearance it really might be tough on banks)...

advisors; consumers protection Agency; Elizabeth Warren; Head; naked capitalism; relegation; role; sidelined; way.

Fabius Maximus Wed 2010-08-25 09:31 EDT

The face of America's decline

Fabius Maximus

...Mark Hurd, until recently CEO of HP. See the face of America's economic decline...from ``The Real Reason for Ousting H.P.'s Chief``, Joe Nocera, New York Times: [according to] Charles House, a former longtime H.P. engineer: The way H.P. made its numbers...was not just cutting any old costs, but by ``chopping R.&D.,'' which had always been sacred at H.P. The research and development budget used to be 9% of revenue, Mr. House told me; now it was closer to 2%. ``In the personal computer group, it is 0.7%''...Here we see America's formula for decline... 1. Fantastic pay for leaders 2. Stagnant pay for employees 3. Cutting jobs (efficiencies, forcing harder work, moving off-shore) 4. Slash investments in the future (capex, training, R&D)...

America s decline; Fabius Maximus; Faces.

naked capitalism Sun 2010-08-22 09:32 EDT

Auerback: News Flash-- China Reduces US Treasury Holdings, World Does Not Come To an End

Marshall Auerback

In a post titled ``China Cuts US Treasury Holdings By Record Amount,'' Mike Norman makes the excellent observation that while China is moving its money out of Treasuries, interest rates are hitting record lows. In other words, the sky still isn't falling. So, Mike wonders, ``Where is the Debt/Doomsday crowd?'' He rightly concludes: ``They're nowhere to be found because they can't explain this. This is a `gut punch' to them. Their whole theory is out the window. They just don't understand or don't want to understand, that interest rates are set by the Fed...PERIOD!!!''...Also of note today: Tokyo's Nikkei QUICK News reports that the #309 10-year Japanese benchmark government bond, the current benchmark, traded to a yield of 0.920% Tuesday morning, down 2.5 basis points from yesterday's close. This is the lowest yield since August 13, 2003. This, from a country with a public debt-to-GDP ratio of 210%!...These are facts. Inconvenient for those who like to perpetuate the lie that the US or Japan faces imminent national insolvency as a means of justifying their almost daily attacks on proactive fiscal policy...

Auerback; China reducing; comes; ending; naked capitalism; News Flash; Treasury holds; world.

billy blog Sat 2010-08-07 20:01 EDT

The government is the last borrower left standing

Remember back last year when the predictions were coming in daily that Japan was heading for insolvency and the thirst for Japanese government bonds would soon disappear as the public debt to GDP ratio headed towards 200 per cent? Remember the likes of David Einhorn...who was predicting that Japan was about to collapse -- having probably gone past the point of no return. This has been a common theme wheeled out by the deficit terrorists intent on bullying governments into cutting net spending in the name of fiscal responsibility. Well once again the empirical world is moving against the deficit terrorists as it does with every macroeconomic data release that comes out each day...On July 22, 2010, Richard Koo appeared before the Committee and presented his testimony...his views have resonance with the main perspectives offered by MMT although he does get some things wrong. His recent testimony is one of the better commentaries on the current economic problems but probably fell on deaf (or dumb) ears at the hearing. Koo told the hearing that there are recessions and then there are depressions. The correct policy response must differentiate correctly between these two economic episodes...

Billy Blog; borrower left standing; government.

Wed 2010-08-04 20:58 EDT

Knives Out for Elizabeth Warren >> naked capitalism

Yves Smith

It should come as no surprise that a financial services industry powerful enough to water down meaningful reform in the US and internationally (Basel III rules were weakened to allow, for instance, that mortgage servicing rights be included in regulatory capital calculations) would probably have its way in blocking the nomination of Elizabeth Warren as head of the new consumer finance protection agency. Let's face it: the plan to deep six the consumer watchdog was set when it was changed from being an independent body as originally proposed and instead moved into the Fed, the most bank friendly and arguably the least industry expert of the US bank regulators. It might have had a hope of being effective had it been housed at the FDIC, which does not like cleaning up bank messes and therefore is less prone to swallow industry BS than the other Federal bank overseers, but it is now clearly meant to be a mere election time talking point...

Elizabeth Warren; knives; naked capitalism.

Tue 2010-08-03 15:02 EDT

Economics of Contempt: Anatomy of Lehman's Failure, and the Importance of Liquidity Requirements

Remember the Lehman Examiner's Report? The 4000+ page report by the court-appointed examiner was lauded for a couple of weeks after it was released, and then largely forgotten. The media and blogosphere quickly moved on to the next outrage-du-jour...Well, I did not forget about it, and thanks to the uptick in flights -- and thus reading time -- in the last few months, I can now credibly claim to have read....well, not every single word in the Examiner's Report (some appendices are just pages of CUSIPs), but all of the substantive sections...Anton Valukas and the lawyers at Jenner & Block who wrote the Examiner's Report did a masterful job. I was, and continue to be, in awe of the quality and comprehensiveness of the report...think I have a pretty good handle on what went wrong at Lehman, and why it failed...they were misrepresenting their liquidity pool. In a huge way...the brazenness of their misrepresentation was shocking...Including the clearing-bank collateral in its liquidity pool was not only inappropriate, but also aggressively deceptive...Lehman was also including in its liquidity pool non-central bank eligible CLOs and CDOs. And they had the audacity to mark these CLOs and CDOs at 100 (par) for purposes of the liquidity pool, even though JPMorgan's third-party pricing vendor marked them at 50--60...

Anatomy; contempt; economic; important; Lehman's failure; liquidity requirements.

naked capitalism Mon 2010-07-19 17:02 EDT

Elizabeth Warren in Treasury Crosshairs Again, Geithner Opposes Her as Head of Consumer Financial Services Protection Agency

To say there is no love lost between Treasury and Elizabeth Warren is probably putting it mildly. Treasury was gunning for her ouster in early 2009...During the period when the COP was openly and effectively critical of the TARP, there was also a full court press in the media against Warren. Warren is the obvious choice to head the otherwise-guaranteed-to-be-a-joke consumer financial services agency due to set up its shingle at the Fed. She has been a tireless consumer advocate, is trusted and well liked by the public at large, an effective communicator and a respected legal scholar, and is willing to stare down political opponents. All those qualities make her hugely threatening. Banksters and their lobbyist allies have been saying loudly and clearly that they are firmly opposed to having Warren head the new consumer agency. So, predictably, Geithner acts as their water-carrier...this Administration...may actually see loss of the Democrat majority in the House as a win (as in is finding creative ways to rationalize its fallen standing as a possible longer-term advantage). First, it allows Team Obama to blame whatever happens (or fails to happen) on the Republicans. Second, it gives the Administration plenty of air cover to become more openly corporatist (recall Clinton's famed move to the right after the 1994 mid term debacle).

Consumer Financial Services Protection Agency; Elizabeth Warren; Geithner opposes; Head; naked capitalism; Treasury Crosshairs.

naked capitalism Fri 2010-07-16 16:31 EDT

Debunking Michael Lewis' Subprime Short Hagiography

Lewis' tale is neat, plausible to a mass market audience fed a steady diet of subprime markets stupidity and greed, and incomplete in critical ways that render his account fundamentally misleading...The Big Short focuses on four clusters of subprime short sellers, all early to figure out this ``greatest trade ever'' and thus supposedly deserving of star treatment...The anchor is Steve Eisman...Lewis completely ignores the most vital player, the one who was on the other side of the subprime short bets...Who really was on the other side of the shorts' trades is the important question... ...these are the international equivalent of widows and orphans...Eisman is no noble outsider. He is a willing, knowing co-conspirator. Even worse, he and the other shorts Lewis lionizes didn't simply set off the global debt conflagration, they made the severity of the crisis vastly worse. So it wasn't just that these speculators were harmful, and Lewis gave them a free pass. He failed to clue in his readers that the actions of his chosen heroes drove the demand for the worst sort of mortgages and turned what would otherwise have been a ``contained'' problem into a systemic crisis. The subprime market would have died a much earlier, much less costly death absent the actions of the men Lewis celebrates. They didn't simply keep the market going well past its sell-by date, they were the moving force behind otherwise inexplicable, superheated demand for the very worst sort of mortgages...

Debunking Michael Lewis; naked capitalism; Subprime Short Hagiography.

zero hedge - on a long enough timeline, the survival rate for everyone drops to zero Fri 2010-07-16 14:41 EDT

Guest Post: Why Goldman Could Pull It Off

David Fiderer

The weaknesses in the S.E.C.'s case against Goldman were always obvious. At the end of the day, an investor who bought Abacus 2007 AC-1 was buying a static portfolio of risks....If you were a sophisticated investor who had done his due diligence, you didn't need to be told that the deal was designed to fail...If you actually reviewed the performance of mortgage backed securities held by the CDO, and understood how cash flow waterfalls and delinquency triggers worked, then you could see that subordinate tranches being insured for the benefit of Goldman were already worthless when the CDO closed. You could also figure out that the rating agencies had deliberately delayed announcing downgrades of the RMBS within the CDO, in order to keep the markets and the deal flow moving...The risk to Goldman was that more of its dirty laundry would be exposed...[but] the S.E.C. shows little appetite for digging deeper, especially since its new COO of the Enforcement Division is a 30-year-old kid from Goldman.

dropped; Goldman; Guest Post; long; pull; survival rate; Timeline; zero; 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.

The Money Game Sat 2010-05-22 21:47 EDT

The Root Cause Of Recurring Global Financial Crises

Henry Liu

Severe global financial crises have been recurring every decade: the 1987 crash, the 1997 Asian financial crisis and the 2007 Credit Crisis. This recurring pattern had been generated by wholesale financial deregulation around the world. But the root causes have been dollar hegemony and the Washington Consensus. -- The Case of Greece --Following misguided neo-liberal market fundamentalist advice, Greece abandoned its national currency, the drachma, in favor of the euro in 2002. This critically consequential move enabled the Greek government to benefit from the strength of the euro, albeit not derived exclusively from the strength of the Greek economy, but from the strength of the economies of the stronger Eurozone member states, to borrow at lower interest rates collateralized by Greek assets denominated in euros. With newly available credit, Greece then went on a debt-funded spending spree, including high-profile projects such as the 2004 Athens Olympics that left the Greek nation with high sovereign debts not denominated in its national currency...

Money game; Recurring Global Financial Crises; root cause.

The Wall Street Examiner Sat 2010-05-22 19:50 EDT

Merkel Does Mahathir and Martin Luther: Tilting the Market Table

...I'm very interested in Germany's policy shift because it's the first time in decades a mature industrialized nation has protested the allocation of profits decreed by financial orthodoxy. At core, German bans of "naked" (held by those who don't own the securities) shorts, paraphrasing Ms. Merkel- perhaps unsurprisingly the daughter of a Lutheran Minister- stops people profiting from the destruction of their neighbor's house at cost of less liquidity in the restricted markets...500 years ago, the Germans defied orthodoxy and ushered in a revolution which moved the center of Europe from South to North. They are defying orthodoxy again, and I can't wait to see what happens next.

Mahathir; Market Table; Martin Luther; Merkel; tilting; Wall Street Examiner.

Tue 2010-04-20 10:58 EDT

Get the Yuan Right, Prove Pundits Wrong: Hype over an 'imminent' increase in yuan value ignores China's greater need for higher interest rates and fewer bubbles

Andy Xie

Unless China exits its economic stimulus quickly, the nation's inflation rate could rise to double digit levels sooner than many expect. The right sequence of events for a proper response to inflation would be to raise interest rates and then, if necessary, move the yuan exchange rate. But acting on the currency first, especially in small steps, would further inflate China's property bubble and inflation, potentially leading to a major economic crisis in two years. A small increase in the yuan's value would fail to resolve two pressing problems: inflationary pressure at home, and political pressure from the United States. Moreover, a small appreciation would attract hot money, stoking inflationary pressure...

bubble; higher interest rate; hype; imminent; increased; proving pundits wrong; Yuan right; yuan value ignores China's greater need.

Sat 2010-04-17 14:12 EDT

Truthdig - Journalism's Parasites

David Sirota

... New York Times financial reporter Stephen Labaton] just announced he is taking a job with Goldman Sachs--a move that makes you wonder if Labaton watered down his Times coverage in order to get his new gig...Labaton knew Goldman probably wouldn't hire a muckraker who had been aggressively exposing bank transgressions. Then again, maybe Labaton did nothing wrong...

Journalism's Parasites; Truthdig.

Fri 2010-04-09 08:08 EDT

charles hugh smith-The Contrarian Trade of the Decade: the U.S. Dollar

charles hugh smith

The majority of economic observers seem convinced that the dollar is doomed, and not in some distant future...But perhaps this thinking is wrong on virtually every important count...While the Federal Reserve successfully goosed money supply in their massive "quantitative easing" campaign, money supply is no longer expanding at a fast clip...It seems the money "created" by the Federal Reserve and lent to private banks at near-zero interest rates is simply sitting in the banks as reserves to offset their continuing horrendous losses. As a result, it is not flowing into the economy, and thus it cannot trigger inflation...Indeed, as has often been noted by Mish and others, this is what has happened in Japan for the past two decades: the central bank shovels money into private banks, who either engage in "carry trade" activities (borrowing at near-zero interest and then moving the money overseas to earn a decent yield elsewhere for easy profits) or they stash the funds to offset their ongoing losses in defaulted/impaired portfolios...

Charles Hugh Smith; Contrarian Trade; decades; U.S. dollar.