naked capitalism

Bob_in_MA says:

From the NYT article: Depfa underwrote a package of municipal bonds which were subsequently downgraded by ratings agencies. That step obliged Depfa to buy the bonds back…

I wonder what that’s all about. In what cases does the underwriter have to buy back bonds that are later downgraded? How could anyone afford to underwrite an issue with that kind of stipulation?

Tiger Woods says:

Covered bonds are simply financings of receivables/loans/securities that are on balance sheet and intend to stay on balance sheet. They are akin to “balance sheet CLOs” that we used to see in the late nineties, issued by the large commercial banks such as Chase (LANCE) and JP Morgan (SEQUILS/MINCS).

I’m not surprised to see that bondholders have negotiated rating-driven puts whereby the financings are unwound when ratings drop below some pre-specified threshold.

Covered bonds are another cockamame financing scheme at one point supported by Hank Paulson as a panacea for financing our mortgage markets here at home.

How in the world did he ever become Chairman of GS?

Owe Jessen says:

Another question: Now that the banking sector has a major part in the rescue package i wonder if this is really stabilizing? Now a number of German banks have more questionable assets on their balance sheet, making themselves more shaky than before.

In other words: If the aim was to stabilize the system, shouldnt it have been the aim to nationalise HRE and then liquidate it in an orderly fashion?

Anonymous says:

Interesting to see how the HRE problem resolved itself – the banks/insurers end up guaranteeing an extra 15 billion euros after having said ‘no deal’ the day before. In exchange, to an extent, depositors are now supposed to feel that their money is secure due to an explicit government assurance that no savings will be lost in a bank.

Those wacky Germans politicians – instead of giving in, they simply demonstrated who is truly in charge, and it isn’t the financial industry. This is much easier to do in a society which actually manufactures things without financial engineering, and one where the tolerance of voters for ‘locusts’ (the affectionate name for Wall Street types) is much lower than one might imagine if your only source of news is something like Bloomberg – a news empire owned by a billionaire who just coincidentally happens to be the mayor of the city where Wall Street sits.

Germany is simply not following the playbook which Treasury Secretary Paulson is so busily creating. Which is why this story is likely to be left to wither quickly while more important issues spring up – like how far 700 billion dollars doesn’t go anymore.

And after this rescue, where is the talk about the end of the EU or the euro? The subject seems to have magically disappeared also.

The entire world financial system is under extreme pressure, and is likely to suffer major failures, within eurozone countzries as well as outside them.

But to the extent that the cure for the problem is to allow failed institutions to die, Germany is at least staking out a position which is totally at odds with conventional American wisdom.

However, in the case of HRE, this wasn’t so hard, as the main problem rested on the fault line between liquidity and solvency – municipal bonds which are bought back are likely to retain much more value than toxic trash based on American mortgages.

Which is the other unstated part of this mess – HRE pursued a stupid strategy to its demise, but at least the assets it owns aren’t imaginary. And at least the incompetent managers that caused the problem won’t be allowed to continue to try to fix it.

The problem of imaginary assets will be the problem when a lot of the American alphabet soup of hallucinated wealth begins its crash on the other side of Mt. Ponzi. And German banks are holding as much as this garbage as anyone, of course.

Deutsche Bank is still at risk – but much of that risk rests in its Americans originated ‘assets.’ Unfortunately, much of the remainder rests in Spain. But then, Ackermann earns no sympathy in Germany. He was almost convicted, paying 3.2 million euros as fine to avoid the ‘convicted’ title his actions would have earned, for something that can be translated as self-enrichment as part of the Mannesman buy-out. At the start of the trial, he said that only in Germany are the successful and productive members of society placed in front of a court to answer for their actions. He also basically stated that American style capitalism was impossible in Germany after his almost conviction.

This means that Ackermann’s best hope is the U.S., because there, people such as himself are still running things, spreading their success and values to anyone in reach of their grasping hands.

Though these days, it is hard to tell if the grasping is from greed, or the desperation of a drowning man. At least in Ackermann’s case, if he ends up in court again (possible, very possible), the grasping will be that of a drowning man. And this time, he probably won’t be flashing a V for victory symbol at the press at the start of the trial.

Anonymous says:

Good day,
this morning I heard an interview with the secretary of finance, Steinbrück and he announced that the Bundesbank would now accept low rated securities for lending. It sounded pretty much like the TSLF reform by the FED several days ago. The banks were somewhat like crowded when I passed by.

Thanks for this great website by the way.