Yearly Archives: 2011
Hubris Watch: US Bank CEO Sniffs About Breaking Rules When His Bank Has Huge Trustee Liability
One of the benefits of the Occupy movement is that it is flushing out some particularly egregious behavior among the top 1%.
A writer for the Minneapolis CityPages managed to worm his way into a presentation to the annual meeting of the Minnesota Chamber of Commerce by US Bank’s CEO, Richard Davis. Even though Occupy Minnesota was protesting outside, Davis chose to ignore them. His speech made clear that the business community does not care about long-term self interest, let alone social responsibility. Housing and the foreclosure crisis were absent from the 2012 legislative priorities. But tax reform, which is code for shifting even more of the cost of government on to the small fry? Yeah, that’s a big deal.
Davis’ apparent lone comment on the public ire against the banks was dismissive:
Read more...Greece: The Debtor that Roared
Greek Prime Minister George Papandreou has managed to put the European crisis game of financial fakery into turmoil. Pretty much no informed commentator expected the latest gimmick-larded rescue package to work; there were simply too many points of failure. And even if this program had miraculously come to fruition, a later train wreck was still inevitable, since Germany was persisting in wanting two contradictory outcomes: running trade surpluses in Europe, and not lending more to its trade parters.
But no one anticipated that a long suffering debtor would revolt, which is what Papandreou’s announcement of a referendum on the punitive bailout amounts to.
Read more...Europe’s Plan To End the Debt Crisis – Putting The “Con” in “Confidence” Part 2
Yves here. Das’ understated comment on the latest Eurorescue scheme, “Implementation of the plan faces significant risks,” has been proven true by the events of the day, namely, the proposal by Greek prime minister George Papandreou for a referendum on the proposed rescue plan. Even though he secured unanimous approval of his cabinet, two members of his coalition, which has a thin hold on government, defected, and he faces a vote of no confidence on Friday. Mr. Market was not happy with this news. While the fall in equity markets was what got the headline, the enthusiasm there had been considerably overdone. Far more serious was the action in the debt markets. The spread between German bunds and Italian government debt hit 450 basis points. That put Italian borrowing rates at over 6%, which is an intolerable level relative to the country’s growth prospects.
We have more detail in a related post.
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)
Without Wings, Sans Prayers…
The initial market response to the EU proposal was positive, with major stock markets and bank shares rising sharply. Unlike equity markets, debt traders were cautious. On Friday 29 October, an Italian debt auction met with lack lustre demand falling short of the full amount offered for sale. The debt markets registered their doubts by pushing up 10 year interest rates on the bonds of both Italy (up 0.14% per annum to 6.01% per annum) and Spain (up 0.18% per cent to 5.49%). Greek rates remained high at 22.35% for 10 years while comparable Portuguese rates were 11.48% and Irish rates were 7.98%.
Implementation of the plan faces significant risks.
Read more...Links 11/1/11
Matt Stoller: Why a Foreclosure Fraud Settlement is a RIDICULOUS Idea
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.
Gretchen Morgenson is ringing alarm bells that a 50 state settlement on the foreclosure fraud issue is on deck, and is spelling out some of the details. There would be some principal write-downs, random cash payouts for those who were foreclosed, and money to buy off nonprofits in the states that work on housing issues (a classic Fannie/Freddie Dem friendly tactic Morgenson and Rosner exposed nicely in their book Reckless Endangerment). The settlement looks vague and stupid, and will probably be executed with the care and competence of HAMP. But let’s put that aside.
Read more...Follow Up to Reader Query
Three weeks ago, I asked for some input about the blog, and the possibility of a fundraiser. Many of you were so kind as to say “attagirl”, give me lots of good advice, as well as offers of assistance, both in comments and privately. I feel guilty that I have not been able to thank you all, since I continue to be chronically time stressed (my inbox is a war zone, and I do hope to get back to those of you I have not yet responded to by the weekend).
Read more...Satyajit Das – Europe’s Plan To End the Debt Crisis – Putting The “Con” in “Confidence” Part 1
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)
The most recent summit failed to meet even the lowest expectations.
Read more...Were Customer Accounts Pilfered at Jon Corzine’s MF Global? (Updated)
Truth be told, I hadn’t paid much attention to the implosion of MF Global, because so many hedge funds went under during the crisis that yet another levered trading firm death seems less than newsworthy unless it is big enough to constitute a possible systemic event. The collapse of MF Global didn’t seem all that unusual, save for the titilating angle that the firm was headed by former Goldman CEO and New Jersey state governor Jon Corzine (I’d treated the failure of hedge funds by other storied names, such as Jon Meriwether and Myron Scholes as comment-in-passing incidents).
But the picture changes considerably with the report that hundreds of millions of customer assets may be “missing”.
Read more...Links Halloween
Europe’s Economy is Falling Apart
Yves here. Note the comment at the end, that Sarkozy’s sales pitch to China on the levered up EFSF did not go so well. If the Chinese don’t relent, this greatly reduces of this scheme working, even in the short term. And further note that the flagging European growth is the result of the austerity hairshirt being imposed on highly indebted economies. Ambrose Evans-Pritchard has a pointed article on the consequences of the beggar-thy-neighbor German stance.
By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness
Angela Merkel has been warning for quite some time that Europe’s economic woes will take up to a decade to fix and that it is time for Europe to rethink its economic strategy after years of living “beyond its means”. It seems fairly obvious from those statements that the rest of the world is going to have to get use to Europe moving into a slow growth phase while it attempts to adjust away from what it considers to be unsustainable debt.
In an attempt support the transition while keeping Europe together the European leaders have put together 3 part package to save Greece, re-capitalise the banks and provide a stability mechanism for countries that run into trouble. The problem is that once you understand the technicalities behind what they have come up with you come to realise that real economic growth is the only thing that actually matters. The latest news out of Europe for many of the 17 member nations is not good at all in that regard.
Read more...German Finance Minister Schäuble Calls for a Eurozone Tobin Tax
A key German finance leader is talking tough about financial reform. But will his peers follow?
Read more...Gene Frieda: Europe’s Dying Bank Model
Yves here. Frieda makes a very important point in this Project Syndicate column, that of the role of the banking system in the European debt crisis. On one level, it may seem trivial to say that the sovereign debt crisis is the result of financial crisis. But the Eurozone leadership has not drilled into the next layer: how did this come about? The superficial explanation, that they all ate too much US subprime debt and got really sick, is superficial and shifts attention away from the real issues. European banks have huge balance sheets with a lot of low-return investments. I did some consulting work for some European banks over a decade ago (one of the remarkable things about banking is how little things change over time) and they tended to target commodity areas of banking in the US, not simply because that was where they could break in, but also because the returns were tolerable (although they did hope to move up the food chain into more lucrative business).
Frieda argues that merely having banks raise capital ratios to the 9% level stipulated in the current version of the Eurozone rescue is inadequate. Absent more aggressive measures, “no amount of capital will restore investors’ faith in eurozone banks.”
By Gene Frieda, a global strategist for Moore Europe Capital Management. Cross posted with author permission from Project Syndicate.
Read more...Satyajit Das: Central Counter Party Risk Taming
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)
This four part paper deals with a key element of derivative market reform – the CCP (Central Counter Party). The first part looked at the idea behind the CCP. This second part looked at the design of the CCP. The third part looks at the risk of the CCP itself and how that is managed.
The key element of derivative market reform is a central clearinghouse, the central counter party (“CCP”). The CCP is designed to reduce and help manage credit risk in derivative transactions – the risk that each participant takes on the other side to perform their obligations (known as “counterparty risk”). The CCP also simplifies and reduces the complex chains of risk that link market participants in derivative markets. However, the proposal relies on the ability of the CCP itself to manage risk.
Read more...
