Category Archives: Investment banks

David Dayen: FHFA Will Secure Up to $28 Billion From Banks in Its MBS Lawsuit

An analysis at Bloomberg Law puts some numbers down that I hadn’t seen all in one place previously. The headline effort is to pin down what other banks being sued by the FHFA over mortgage-backed securities passed to Fannie and Freddie with poor underwriting will have to pay, given the standard set by the JPMorgan Chase settlement for $4 billion. The report, by Nela Richardson, actually botches that job by adding the $1.1 billion that FHFA simultaneously received from JPMorgan through reps and warranties on raw mortgages, and doing the calculations based on a $5.1 billion award. Only the $4 billion has anything to do with the lawsuit, which was about $33 billion in Fannie and Freddie purchases of MBS. In other words, FHFA netted about 12 cents on the dollar from JPMorgan. Redoing Richardson’s work, you can calculate how much that means other banks would be expected to pay FHFA in any settlement if they paid 12 cents on the dollar:

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Wolf Richter: Bubble Trouble: Record Junk Bond Issuance, A Barrage Of IPOs, “Out Of Whack” Valuations, And Grim Earnings Growth

When Blackstone’s global head of private equity, Joseph Baratta, said Thursday night that “we” were “in the middle of an epic credit bubble,” the likes of which he hadn’t seen in his career, he knew whereof he spoke.

Junk bond issuance hit an all-time record of $47.6 billion in September, edging out the prior record, set in September last year, of $46.8 billion, according to S&P Capital IQ/LCD. Year to date, issuance amounted to $255 billion, blowing away last year’s volume for this period of $243 billion. The year 2012, already in a bubble, set an all-time record with $346 billion. This year, if the Fed keeps the money flowing and forgets about that taper business, junk bond issuance will beat that record handily.

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Has the Shale Bubble Already Burst?

Just like the famous Gold Rushes of the 19th century, US shale gas development is turning out to be a limited and regional market opportunity. Across the Atlantic, the high financial and human costs to fracking also mean that Europe should forget any fantasies about repeating the US shale boom.

Many US shale companies that have been beating the drums of shale “revolution” are now facing oil and gas well depletion. In February 2013 the US Energy Information Administration (EIA) warned that “diminishing returns to scale and the depletion of high productivity sweet spots are expected to eventually slow the rate of growth in tight oil production”. It was a cautious but intriguing statement.

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House Republican GSE Bill Would Codify MERS, Pre-Empt Private Property Rights

The top Republican on the House Financial Services Committee has tucked a provision into his mortgage finance reform bill that would create a privately held “National Mortgage Data Repository.” The repository would basically look like MERS, the bank-owned electronic database tracking mortgage transfer. The difference is that, while MERS’ activities have drawn legal challenges across the country, the National Mortgage Data Repository would have the force of statute to carry out the exact same behavior. According to the bill text, any document arising from this repository would be seen as presumptively legal, pre-empting state and federal laws on demonstrating the right to foreclose.

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David Dayen: SEC Convenes Foot-Dragging Roundtable on Rating Agency Reform, While Securities Issuers Return to Familiar Rating-Shopping Tricks

A few months ago, I wrote a story for The American Prospect about the credit rating agencies, and their thus-far successful effort to ward off any change to their business model, despite their wretched performance during the crisis. This is true even though Dodd-Frank contained a measure, written by Al Franken, to alter the issuer-pays model that incentivizes higher ratings in the pursuit of future profits. The Franken-Wicker rule (the “Wicker” is Republican Senator Roger Wicker) would create a self-regulating organization to randomly assign securities to accredited rating agencies, with more securities over time going to the agencies that rated the most accurately.

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Cathy O’Neil: Black Scholes and the normal distribution

By Cathy O’Neil, a data scientist. Cross posted from mathbabe

There have been lots of comments and confusion, especially in this post, over what people in finance do or do not assume about how the markets work. I wanted to dispel some myths (at the risk of creating more).

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Occupy the SEC Weighs in on Nomination of Mary Jo White to Head the SEC

Occupy the SEC has released one of its characteristically well-though-out and documented letters, in the form of questions it would like to see raised during the Senate hearings on the nomination of Mary Jo White to head the SEC.

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The Most Dangerous Choice for SEC Chairman

In a new column in the New York Times, Simon Johnson points out that Obama is likely to be appointing a new SEC chairman soon. He describes two alternatives: choosing a friend of the industry versus someone who might actually be willing and able to regulate it. Johnson believes that a tough-minded chairman should not only enforce the rules but “actively seek to change the conventional wisdom around finance.”

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Bob Diamond Performs “Je Ne Regrette Rien”

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.

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Mirabile Dictu! Goldman CEO Lloyd Blankfein Makes Case for Breaking Up Big Banks

Goldman seems to be making a renewed effort at PR in the wake of the letter by derivatives staffer Greg Smith accusing the firm of caring only about profits and treating customers as stuffees (“muppets” was revealed to be the new term of art). That observation probably came as no surprise to anyone save Goldman staffers, most of whom probably thought they had conned their clients into believing otherwise, and a few like Smith who believed the party line.

The Goldman CEO, Lloyd Blankfein, had an interview today with a very friendly outlet, Bloomberg News. The chat served to remind viewers of how inward looking and self referential the financial services industry has become.

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Debunking the Myth That an SEC Capital Rule Change Helped Cause the Crisis

There is a great post by Bethany McLean at Reuters debunking a major “what caused the crisis” urban legend. Many, including Joe Stiglitz and Alan Blinder, have claimed that an SEC 2004 rule change regarding the leverage of securities firm holding companies allowed the leverage of major investment banks to skyrocket, helping to trigger the crisis. McLean’s article demolishes this idea.

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Quelle Surprise! SEC Fails to Sanction Big Banks for Fraud

Ed Wyatt of the New York Times has released an important story tonight on how the SEC goes easy on big banks by giving them exemptions to laws meant to stop securities fraud. This report stands in stark contrast to a Reuters story which repeats the favorite Administration mantra: it’s really hard to prosecute financial-related cases. It sure is when you don’t chose to use the powers you have.

The gist of the Times piece is that the SEC gives the biggest banks like JP Morgan and Goldman waivers so that they can continue to have ready access to the financial markets without a lot of hassle. The overview:

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