Category Archives: Banking industry

SEC Shows Abject Incompetence in Toxic CDO Case Against Citi Staffer

The verdict is in: nearly 20 years of keeping the SEC budget starved and cowed have rendered a once competent and feared agency incapable of doing more than winning cases on illegal parking, um, insider trading.

The SEC’s performance in the case at issue, SEC v. Stoker, was such a total fail that the odds are high that any motivated member of the top half of the NC readership would have done a better job of arguing this case pro se than the SEC did.

Why “Firing Ed DeMarco” is No Solution to FHFA Refusal to Engage in Principal Modifications (Updated)

Today, Acting FHFA Director Ed DeMarco wrote to Congress, after due consideration, reaffirming his position that he will not permit Fannie and Freddie to lower principal balances of mortgages of borrowers that are delinquent. This is despite the fact that the top analyst in this space, Laurie Goodman, has determined that principal modifications are the most effective form of mortgage modification, resulting in much lower refault rates than interest rate mods or capitalization mods. And that makes sense. Why should a borrower struggle to hang on to a home when even if they make all the payments, when they sell they they are stuck with a big tax bill? And as we’ve stressed, private label investors are overwhelmingly in favor of deep principal mods for viable borrowers, and that’s because foreclosure is costly and leaves them worse off.

As much as this blogger is firmly of the view that this is a poor economic decision (deep principal mods are a sound idea, as long as you have a decent approach for vetting borrower income and other debt payments to see if they are viable with a mod), I have to hand it to DeMarco as a bureaucratic infighter.

More on Draghi’s “The ECB is All In” Bluff

The more news comes out, the more it looks like Mario Draghi’s pledge that the ECB would do all it would take to save the Euro was a bluff.

Mirabile Dictu! ECB Chief Draghi Being Investigated for Membership in the Group of Thirty

It’s easy for Americans to labor under the delusion that other parts of the the world have less obvious forms of corruption or its milder form, conflict of interest, than our revolving door system (one of my favorites was when the NY Fed staffer tasked to overseeing AIG left….to AIG).

And ex banking, that actually is true in most advanced economies. But as a reminder of how backs get scratched in Europe, we have Mario Draghi.

Yet Another Barmy Obama Administration Excuse for Preserving the Banking Status Quo

The Administration, meaning the Treasury Department, is never wanting for a defense of the big financial services incumbents.

Germans Getting Even More Opposed to Being in the Eurozone

Over the weekend, the newspaper Bild released the results of a new poll on German sentiment on the Euro. It found that 51% thought Germany would do better by leaving the Eurozone with 29% saying Germany would fare worse. In addition, 71% of the respondents said Greece should be expelled from the Eurozone if it could not live up to its austerity commitments.

These results aren’t particularly novel; a large cohort of Germans have been vocally opposed to Eurorescues for some time. What is new about this poll is how low the percentage is that sees being in the Euro as good for Germany.

Is the ECB Ready and Able to Cross the Rubicon?

The big news of the day on Thursday was Mario Draghi’s pronouncement that the ECB would do “whatever it takes” to shore up the Euro. He also used the same phrases about the need to keep the monetary channel open prior to preceded previous interventions. Two-year Spanish bond yields, which had risen to unprecedented levels, came in by over 150 basis points and global stock markets rallied.

But how seriously should we take this talk?

The Real Significance of Sandy Weill’s “Break Up Big Banks” Recommendation

The two finance personality stories of the day were Timothy Geithner’s appearance before the House Financial Services Committee for a periodic Financial Stability Oversight Council Report, and former Citigroup CEO Sandy Weill’s unexpected conversion to the “smaller banking is better” faith. As Adam Levitin and Dave Dayen recount, Geithner reverted predictably to a combination of memory lapses and a “nothing to see here” stance on Libor (oh yeah, with the added wrinkle that if there was anything to see, it wasn’t his job to look anyhow). If any other grownup said he didn’t remember things as often as Geithner does, he’d be a candidate for an Alzheimer’s ward.

NYT’s Jackie Calmes’ “Grossly Inaccurate” Hit Piece on Neil Barofsky

It isn’t surprising that the knives are out. Former Special Inspector General of the TARP Neil Barofsky’s new book Bailout depicts the Treasury, where his effort was housed, as completely, hopelessly in thrall to the banks. While Hank Paulson at least seemed genuinely to appreciate the need for procedures and checks to protect taxpayers’ interests, Geithner chafed at any interference in catering to every whim of the financial services industry and used every bureaucratic trick at his disposal to undermine Barofsky.

Although Barofsky’s book has generally gotten very positive reviews, including one from the New York Times’ Gretchen Morgenson last weekend, a rearguard action by Friends of the Administration was inevitable. And it has come in the form of a book review by a Washington reporter for the Grey Lady, one Jackie Calmes.

Josh Rosner: Eurozone Crisis – No More Safe Havens

Josh Rosner of Graham Fisher published a report last week urging subscribers to short bunds, beating the Moody’s negative watch for Germany and the Netherlands by a full week.

The article provides a data-rich analysis of how a banking crisis has morphed into a sovereign debt crisis as the authorities have refused to impose losses on investors in banks in the so-called core Eurozone countries. And as Rosner argues, the current path of denial and delay has increased the eventual costs to Germany and the global economy, with the tab to Germany already €500 billion higher than it would otherwise have been.

Satyjit Das: The LIBOR Fix – Part II

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk and Traders Guns and Money. Jointly posted with roubini.com

The scandal surrounding the manipulation of LIBOR sets raises a number of issues. The first part of this two part piece set out the known facts. In the second part, we discuss the broader implications of the episode.

Randy Wray: Why We’re Screwed

By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City. Cross posted from Economonitor

As the Global Financial Crisis rumbles along in its fifth year, we read the latest revelations of bankster fraud, the LIBOR scandal. This follows the muni bond fixing scam detailed a couple of weeks ago, as well as the J.P. Morgan trading fiasco and the Corzine-MF Global collapse and any number of other scandals in recent months. In every case it was traders run amuck, fixing “markets” to make an easy buck at someone’s expense. In times like these, I always recall Robert Sherrill’s 1990 statement about the S&L crisis that “thievery is what unregulated capitalism is all about.”

EuroCrisis Intensifies as Spain Spirals Downward, Greek Impasse Nigh

It is increasingly difficult to find metaphors adequate to describe the pathological dysfunction among European leaders as their rigidities and biases make a full blown crisis look inevitable.

Satyajit Das: The LIBOR Fix – Part 1

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)

The scandal surrounding the manipulation of LIBOR sets raises a number of issues. In the first part of the two part piece, the known facts are outlined. In the second part, the broader implications of the episode are discussed.