By Lynn Parramore, a contributing editor at Alternet. Cross posted from Alternet
If the ghost of Ayn Rand were to suddenly manifest in your local bookstore, the Dominatrix of Capitalism would certainly get a thrill thumbing through the pages of E.L. James’ blockbuster Fifty Shades of Grey.
Read more...Commentators and analysts have been starting to estimate what the costs to banks for their Libor manipulation might be. We’ve pointed to an estimate by the Economist that says the damages for municipal/transit authority swaps due to Libor suppression (during the crisis and afterwards) could be as high as $40 billion. Cut that down by 75% and you still have a pretty hefty number. Other observers (CFO Magazine) have argued that the losers were mainly other banks, and since banks are pretty much certain not to sue each other, the implication is the consternation is overdone. But these markets were so huge ($564 trillion was the 2011 trading volume in one contract, the CME Eurodollar contract, which uses dollar Libor as its reference rate) that even a little leakage to end customers still adds up to a lot of exposure.
Read more...In the “great minds work alike” category, both some readers (Hugh and LaMarchaNegra) and some of my investor e-mail correspondents (Scott, Ed Harrison, Marshall Auerback) took notice of how things are looking bad on the way to worse. Despite an unemployment rate of 25% and rising social unrest, the government just increased sales taxes to 21%. Ed Harrison sent a note to his Credit Writedowns Pro customers describing how Spain’s problem isn’t its government debt levels per se, but its deficits and the way it is soon to be saddled by regional debts and bank bailout costs. And because some of the creditor nations are dead set against debt mutualization, Spain will need to find a way to deal with its banking system losses.
Read more...A good report by Shahien Nasiripour recounts that the OCC has woken up to what a hot potato the Libor scandal has become, and has identified the mortgages that might (stress might) have been hurt by the rate diddling.
To start with, the universe that might have been affected is not that large. Per the Financial Times account:
Read more...Beware of financiers bearing gifts.
A scheme proposed by a group called Mortgage Resolution Partners, which is being considered by San Bernardino, CA, to use the traditional power of eminent domain to condemn mortgages, was pretty certain to be a non-starter, so I’ve ignored it. But it’s gotten enough attention to have roused the ire of a whole host of financial services industry lobbying groups, as well as endorsements from Bob Shiller and Joe Nocera, and a thumb’s down from Felix Salmon, so it looked to be in need of serious analysis.
Read more...Yves here. Delusional Economics discussed earlier how hapless Spanish depositors, who’d been sold bank equity products as deposit equivalents, were at risk of being crammed down en masse. That move appears to be proceeding as planned. NC readers confirmed his earlier take, that this abuse of unsophisticated savers was likely to have serious social and political repercussions.
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.
A draft Memorandum of understanding for the Spanish bank bailout became available overnight (available below).
Read more...Municipal finance has long been a cesspool. States, towns, hospitals, transit authorities, all have long been ripe for the picking. Sometimes local officials are paid off (anything from cold hard cash to gifts to skybox tickets), but much of the time, there’s no need to go to such lengths, since preying on their ignorance will do. As we’ve pointed out, even though these bodies often hire consultants, those advisors are often either not up to the task (how can people who don’t know finance vet an expert?) and/or have bad incentives (more complicated deals, which are generally more breakage prone, tend to produce higher consulting fees).
Dave Dayen highlighted one example yesterday: the city of Oakland has decided rather than pay $15 million in termination fees to get out of an interest rate swap deal gone bad:
Read more...As markets quickly shrugged off the news including that of further central bank rate cuts. Spanish bond yields rose over 7%, as Mr. Market clearly wanted a resumption of bond buying or some other decisive action, rather than a mere reduction of its benchmark rate to 0.75%.
Some commentators, such as Edward Hugh, are a bit flummoxed, since the supposed clarification of key points of the deal, most importantly, how and when Spanish banks will get money, has not answered these basic questions. Wolfgang Munchau argues in his current column, “Eurozone crisis will last for 20 years” that the Europatchup of last week wasn’t simply underwhelming, but was a major step backwards.
Read more...Last week, the British press was in full-throated cry on the Libor scandal , both as a political story (the connections to the Conservative party; the questions over the Bank of England’s role) and for its economic repercussions (who else was involved, who wound up on the losing side). Many commentators took note of the Economist’s cover:
But despite the dramatic image and the use of the pejorative “banksters,” the article combined some helpful analysis with a call not to act against banks in haste
Read more...By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
Barclays Bank’s admission that they “fixed” money markets rates and JP Morgan’s admission that so called hedges were “incorrect” are merely symptoms of a deeply compromised global financial system. Significantly, even The Economist, sympathetic to capitalism and finance generally, resorted to the word “banksters”. Something is rotten it the state of global finance.
Read more...By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Cross posted from VoxEU
The EZ crisis – born as a debt crisis (Greece) – has grown up into a banking crisis (Ireland, Cyprus, Spain, …). This column argues that Spain is symptomatic of larger banking problems, so the EU Summit decisions on banking union are welcome and critical to any long-term solution. Yet someone must pay for Spanish bank losses. Spanish politics is shielding Spanish creditors, European politics is shielding EZ taxpayers, so the Spanish government will pay – and in doing so may go the way of Ireland. This crisis is far from over.
Read more...It’s hardly surprising to think that Barclay’s CEO Bob Diamond shaded the truth more than a tad in his Parliamentary testimony earlier this week. Recall that he said the manipulation was the doing of 14 traders, and in context, he was clearly saying only those 14, their immediate supervisors, and the lax compliance types were at fault out of all of Barclays. The FSA’s letter to Barclays shows that to be untrue. It clearly says “at least” 14 traders were involved, as well as various “submitters” which were in a completely different unit operationally.
The Independent has posted an interview with a former senior executive who calls out Diamond for his biggest howler, that he had no idea that anything untoward was happening until about two weeks ago.
Read more...Normally I try to avoid dumping on the same person twice in a short period of time, no matter how much they deserve it, but a post by masaccio at Firedoglake on the PR exercise known as the Financial Fraud Task Force deserves amplification.
Read more...As the Libor scandal has given an outlet for long-simmering anger against wanker bankers in the UK, there have been some efforts in the media to puzzle out who might have won or lost from the manipulations, as well as arguments that they were as “victimless” or helped people (as in reporting an artificially low Libor during the crisis led to lower interest rate resets on adjustable rate loans pegged to Libor; what’s not to like about that?)
What we have so far is a lot of drunk under the streetlight behavior…
Read more...Readers may remember that one of the outcomes of the robosigning scandal was that mortgage servicers entered into consent decrees with the OCC and other regulators in early 2011.
One component of the OCC program was “independent” foreclosure reviews that would be offered to borrowers to determine if they had been harmed by a foreclosure and provide restitution. The servicers were required to do “outreach” to borrowers who might have suffered to give them the opportunity to request a review. You have to understand that this was never a good faith effort, even though HUD secretary Donovan trumpeted these assessments as an important part of “social justice.”
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