Author Archives: Yves Smith

Another County Seeking to Collect Unpaid Recording Fees From MERS

I must confess I get a perverse sense of satisfaction from watching MERS suffering pushback on a variety of fronts. The latest, as we mentioned a few weeks ago, is the prospect of litigation by various local governments asserting the right to the recording fees that the MERS system bypassed.

The press release below is from the Guifford County Register of Deeds in North Carolina. As you can see, he is exploring the county’s options for recouping recording fees he believes that MERS owe to Guifford County, to the tune of $1.3 million (hat tip Lisa Epstein via ForeclosureFraud).

Guest Post: Half a century of large currency appreciations – Did they reduce imbalances and output?

By Marcus Kappler, Helmut Reisen, Moritz Schularick, and Edouard Turkisch. Cross posted from VoxEU.

If China only allowed its currency to appreciate, the global economy would rebalance and stabilise – or so the argument goes. This column studies the historical record of large exchange-rate revaluations. It supports the idea that currency appreciations have an impact on the current account but argues that this can come at a cost – the reduction in exports risks putting the brakes on global growth.

Links 3/2/11

Starving bald eagles so weak they fall from sky Victoria Times Colonist (hat tip reader furzy mouse) :-(

Thoughtcrime? The ethics of neuroscience and criminality ArsTechica (hat tip reader Chris M)

Electric Vehicles: Myths vs. Reality Sierra Club (hat tip reader furzy mouse)

Digital Mammography Saps Medicare Dollars Maggie Mahar (hat tip Francois T). A success story for GE’s lobbying efforts.

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A Straightforward Criminal Case Against Wall Street CEOs and Senior Executives

Various people who ought to know better, such as the New York Times’ Joe Nocera, haven taken to playing up the party line of the banking industry and I am told, the SEC, that we should resign ourselves to letting senior financial services industry members get away with having looted their firms and leaving the rest of us with a very large bill.

It is one thing to point out a sorry reality, that the rich and powerful often get away with abuses while ordinary citizens seldom do. It’s quite another to present it as inevitable. It would be far more productive to isolate what are the key failings in our legal, prosecutorial, and regulatory regime are and demand changes.

The fact that financial fraud cases are often difficult does not mean they are unwinnable. And a prosecutor does not need to prevail in all, or even most, to serve as an effective cop on the beat.

Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operations.

Satyajit Das: Potemkin Villages – The Truth about Emerging Markets

By Satyajit Das, the author of “Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives”

Martin Gilman (2010) No Precedent, No Plan: Inside Russia’ 1998 Default; MIT Press, Cambridge, Massachusetts

Victor C. Shih (2008) Factions and Finance in China; Cambridge University Press, Cambridge, Massachusetts

Carl E Walter and Fraser J. T. Howie (2010) Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise; John Wiley, Singapore

According to myth, Russian minister Grigory Potyomkin ordered the erection of fake settlements, consisting of hollow facades of villages along the Dnieper River, to impress Empress Catherine II, about the value of her new conquests during her visit to Crimea in 1787. More than two centuries later, emerging market nations have borrowed the strategy. These three books provide insights into the Potemkin-village-like structure of emerging economies.

Megan McArdle Uses Straw Men to Argue Against Principal Mods

Megan McArdle has a post up discussing why she thinks the benefits of principal mods would be “at best small and mixed”.

The problem with her lengthy discussion is that it is rife with straw men.

Before we get to the nitty gritty, I want address two bits of framing at the top which I found troubling. The first was the title, “Principal Write-Downs Still Popular With Wonks”. The “still” suggests that wonks like it even though some, presumably most, yet to be named others don’t. And singling out “wonks” further implies that (aside from homeowners) they may be its only fans.

That is very misleading. Who is in favor of mods? The only people who under normal circumstances ought to have a vote on this matter, namely, the borrowers and the lenders. First mortgage lenders overwhelmingly favor mods to borrowers with who still have a viable income. Why? Do the math:

Ian Fraser: Lloyds – Enron Redux?

By Ian Fraser, a financial journalist who blogs at his web site and at qfinance.

Call me naïve but, back in 2002, I genuinely believed that Enron-esque accounting would become a thing of the past. Having turned “aggressive” accounting and (off) balance-sheet manipulation into an art form, the Texas-based energy giant got caught with its pants down — and was forced into bankruptcy. The auditors who cooked the books may have evaded justice, but their firm did implode.

Sadly however the lessons were not learnt. As we saw with Lehman Brother’s abuse of Repo 105, accounting ruses bearing uncanny resemblance to those favoured by the ex-Enron CEO Andrew Fastow were widely used across the financial sector during the “age of moderation” — and remain so today.

In the City of London, Enron-style accounting remains prevalent.

Links 3/1/11

Life origins clue from meteorite BBC

First Probe To Orbit Mercury Will Answer Big Questions

Refugee crisis on Libya’s west border BBC

Democrats call for an investigation of law firm, 3 tech companies Washington Post (hat tip reader furzy mouse). Whoddathunkit?

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Dylan Ratigan: Will Washington wake up to Wall Street greed?

It’s good to see more MSM outlets taking up the “why the lack of cases against the big Wall Street firms” theme. Perhaps my cynicism is showing, but Phil Angelides seems to be talking a tougher line than he did when the Financial Crisis Inquiry Commission report was released. Is this simply his response to […]

Michael Lewis: Will Defamation Charges by His “Big Short” Villain Stick?

One of the dangers of framing stories as Manichean tales is the purported bad guys can take offense and try to get even. And if you do it in a book, the threshold for liability is low enough that they might indeed be able to inflict some real pain.

Michael Lewis, author of the bestseller The Big Short, along with his publisher, W.W. Norton and his source Steve Eisman, were sued today in Federal court for defamation by one Wing Chau. In case you are one of the five people in America who is interested in finance but has managed not to read The Big Short, there is a scene in the book in which FrontPoint’s Eisman, who is Lewis’ main subprime short hero, has asked to meet someone who is on the other side of his trade. That “someone” is a CDO which in practical terms means a CDO manager. Eisman and two of his employees have dinner with Wing Chau, who is the head of the CDO manager Harding. Needless to say, Lewis’ account makes it clear that he regards Chau as very much part of the problem.

Now we’ve written a LOT about CDOs; in fact, our book ECONNED broke the story of Magnetar and demonstrated how its CDO program, which it used to establish a risk-free short position, drove the demand for a large portion of the subprime market in the toxic phase. And we have taken issue with Lewis’ characterization of the shorts as heros.; Knowingly or not, the strategy that reaped them billions also distorted normal market pricing signals on a massive scale, not only allowing the subprime mania to continue well beyond its sell-by date but also by actively promoting the creation of the “spreadiest” or very worst mortgages.

Our reading of Lewis’ plight is that Chau’s claims seem to be a stretch, given that the facts are less on his side than a reading of his suit might suggest. But as we will discuss later on, litigation on books is so plaintiff friendly that even a weak claim can succeed in court.

Links 2/28/11

Amur tigers in population crisis BBC ;-(

After a Record Haul in Maine, Try the Lobster Mac and Cheese New York Times

Two planets found sharing one orbit New Scientist

‘Anonymous’ targets the brothers Koch, claiming attempts ‘to usurp American Democracy’ Raw Story. OK, if they are really smart, they will wipe the records of their derivatives positions and cause them to implode financially. MIght even be a systemic event, so embarrassing the officialdom about their “Mission Accomplished” posturing and getting another go at the banks would be an added bennie.

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Geithner (and Economics of Contempt): Caught in Haldane’s Pincers

By Richard Smith, a recovering capital markets IT specialist Economics of Contempt took issue with a post I had written about a Financial Times op-ed by the Bank of England’s Andrew Haldane (and Robert May). He also attributed it to Yves…I really must get the byline habit. To be candid, I find his piece a […]

Big Drop in New Foreclosures?

There has been evidence here and there of a marked fall in new foreclosure filings. Lender Processing Services, which handles more than half of the loans serviced in the US, said its revenues in its Default Services Group were down in the final quarter of the year. Why? Its revenues are tied to initial foreclosure filings, and its were off 33%, no doubt in large measure due to the robo signing scandal. Recall that it led many banks to halt foreclosures (some all over the US, others in judicial foreclosure states only) while they inspected the state of play and scrambled to revamp procedures. Banks piously claimed that they found no problems in the correctness of foreclosure actions and that ex making the changes needed to assure affidavits were proper, they were going to be back to business as usual post haste.

Now we already know that that isn’t the case. Since the robosigning scandal broke, foreclosure activity has been down. RealtyTrac reported that foreclosures in January were up only 1% over December levels, which was down 17% from the year prior.

But RealtyTrac captures every foreclosure filing in that particular report, so it is a mix of new foreclosure filings plus additional filings for foreclosures already underway….