Category Archives: Banking industry

Delaware Attorney General Sues MERS Over Deceptive Practices, Asks for Halt of Foreclosures Relying on MERS (Updated)

The mortgage securitization industry has just had a new major front open on its battle with those who are less than happy with the way it has run roughshod over the law. While there are a significant number of court rulings questioning foreclosures in the name of MERS or other practices commonly associated with the use of MERS (for instance, in Oregon, its violation of recording requirements mandated at the state level), no major regulator or public official (beyond county registers of deeds) has gone after MERS in a serious way (New York’s AG has opened an investigation, but it has not led to any litigation).

This has changed with the Delaware attorney general Beau Biden’s filing.

Eurozone Leaders Agree a Few Rescue Details, Like 50% Haircut on Greek Bonds; Plan to Develop a Plan Gooses Markets

When failure is too painful to contemplate, any halting motion in something resembling the right direction will be hailed as success.

Eurozone leaders had a session well into the night and announced a sketchy deal that dealt with one major stumbling block, which was getting a deep enough “voluntary” haircut on Greek debt. Government officials regarded it as key that any debt restructuring be voluntary, since no one wanted to trigger payouts on credit default swaps written on Greek debt (a default or forced restructuring would be deemed a credit event and allow CDS holders to cash in their insurance policies, and that could trigger a bigger rout). The banks were unwilling to accept the 60% haircut sought by the Eurocrats, but agreed to a 50% reduction.

Helicopter Geithner’s NY Fed $40 Billion Iraq Money Drop

Reader 1SK sent me a story which I felt I had to call to the attention of Naked Capitalism readers. It strikes me as devious public relations ploy, in which an episode that sounds at best poorly executed and at worst a scandal is reframed by focusing on an account of alleged exceptional individual performance that also provides an unverifiable answer to a key question in an ongoing investigation.

The incident in question is the air shipping of a claimed $40 billion in cold hard cash airlifted from the New York Fed to Iraq from 2003 to 2008.

New York Attorney General Eric Schneiderman Discusses Mortgage Mess on Rachel Maddow

Since we’ve been big fans of New York Attorney General Eric Schneiderman’s investigation of mortgage abuses, we thought readers might like to see this interview on the Rachel Maddow.

On the Administration’s Latest Potemkin Help Struggling Homeowners Plan

I’d heard about a week ago that the Administration was readying the Mother of All Homeowner Rescues, to be administered via Fannie and Freddie. Given that Team Obama has never done shock and awe on the financial front, and the Bush Administration engaged in it only on behalf of banks, I was plenty skeptical.

The program revealed on Monday is true to form: greatly underpowered and more likely to benefit banks than homeowners.

Occupy Sydney Day 8 – Steve Keen on Economists and Debt Crises

A quick tutorial from Steve Keen at OccupySydney, via @Ian_Fraser

Europe Readies Its Rescue Bazooka

It’s one thing to fail to recall relevant events that are genuinely historical, quite another to refuse to learn from recent failed experiments.

Remember Hank Paulson’s bazooka? The Treasury secretary, in pitching Congress to give him authority to lend and provide equity to Fannie and Freddie, argued, “If you have a bazooka in your pocket and people know it, you probably won’t have to use it.”

but the Treasury’s new powers did not do the trick. Less than two months later, Treasury and OFHEO put the GSEs into conservatorship.

If the latest rumors prove to be accurate, the latest Eurozone machinations make Paulson look good.

Satyajit Das: Central Counter Party Politics

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 looks at the design of the CCP.

The key element of derivative market reform is a central clearinghouse, the central counter party (“CCP”). Under the proposal, standardised derivative transactions must be cleared through the CCP that will guarantee performance.

The design of the CCP provides an insight into the complex interests of different groups affected and the lobbying process shaping the regulations.

Marshall Auerback and Rob Parenteau: The Myth of Greek Profligacy & the Faith Based Economics of the ‘Troika’

By Marshall Auerback, a portfolio strategist and hedge fund manager, and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge and a research associate of The Levy Economics Institute

Historically, Greeks have been very good at constructing myths. The rest of the world? Not so great, if the current burst of commentary on the country is anything to go by. Reading the press, one gets the impression of a bunch of lazy Mediterranean scroungers, enjoying one of the highest standards of living in Europe while making the frugal Germans pick up the tab. This is a nonsensical propaganda. As if Greece is the only country ever to cook its books in the European Union! Rather, the heart of the problem is in the antiquated revenue system that supports that state, which results in a budget shortfall consistently about 10% of GDP. The top 20% of the income distribution in Greece pay virtually no taxes at all, the product of a corrupt bargain reached during the days of the junta between the military and Greece’s wealthiest plutocrats. No wonder there is a fiscal crisis!

So it’s not a problem of Greek profligates, or an overly generous welfare state, both of which suggest that the standard IMF style remedies being proposed here are bound to fail, as they are doing right now. In fact, given the non-stop austerity being imposed on Athens (which simply has the effect of deflating the economy further and thereby reducing the ability of the Greeks to hit the fiscal targets imposed on them), the Greeks really are getting close to the point where they may well default and shift the problem back to those imposing the austerity.

The Eurobanks’ Latest Scheme to Escape the Pain of Recapitalization: Pull More Financial Firms into the TBTF Complex

As much as I like to think I have a reasonably active imagination, it never ceases to amaze me how a bad situation can easily become worse.

Readers probably know the European authorities have been stunningly late to wake up to the fact that EU banks are undercapitalized, apparently being the only ones to believe their PR exercise known as a stress test. The banks’ options would seem to be limited. One is to raise more equity, which is kinda difficult now since no one is terribly keen about banks in general, and the ones in most need of more capital are the least attractive. Second is to let existing loans roll off. The authorities don’t like that idea, since less lending will increase downward economic pressures. And since bank CEO pay is correlated with size of institution, the banksters aren’t too keen about that either. Third is to cut pay to help accelerate earning their way out. You can guess how likely that is to happen. Last is to suffer state-assisted recapitalization, which under EU rules, would be a draconian exercise.

But never fear, the financiers have an “innovative” way around this problem. And this innovation is a remarkably destructive idea. From the Financial Times:

Satyajit Das: Will a Central Counter Party Tame Derivatives Market Risks?

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 looks at the idea behind central clearing of OTC Derivatives.

The key element of derivative market reform is a central clearinghouse, the central counter party (“CCP”). Under the proposal, standardised derivative transactions must be cleared through the CCP that will guarantee performance.

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.

The Verboten Story of Argentina’s Post-Default Economic Success

Even notice nothing is ever said in the mainstream media about Argentina’s economy, save that it had a big default? You’d never know the following about Argentina:

Bill Black: The Anti-Regulators Are the Job Killers

By Bill Black, Associate Professor of Economics and Law at the University of Missouri-Kansas City, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives.

The new mantra of the Republican Party is the old mantra – regulation is a “job killer.” It is certainly possible to have regulations kill jobs, and when I was a financial regulator I was a leader in cutting away many dumb requirements. We have just experienced the epic ability of the anti-regulators to kill well over ten million jobs. Why then is there not a single word from the new House leadership about investigations to determine how the anti-regulators did their damage? Why is there no plan to investigate the fields in which inadequate regulation most endangers jobs?

Eurozone Rescue Going Off the Rails

In the runup to the crisis, it was striking to read the undertone of worry in quite a few of the articles in the Financial Times, and I don’t mean only Gillian Tett’s fixation on collateralized debt obligations. It was palpable that a lot of writers were uncomfortable with how frothy the markets were, yet couldn’t say anything too much at odds with what their largely cheerleading sources were telling them.

Even though the overall mood at this juncture is far more downbeat, there is again a reporting gap between the pink paper and the two major US print business outlets, the Wall Street Journal and the New York Times on the expected crisis nexus, the Eurozone.

Marx Versus Capitalism Versus You

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

It is a measure of how un-self critical modern economics has been, that the Marxists are starting to appear to be making the most sense of the current crises. The supine acceptance that “the market is always right” — a truism only to traders and vested interests — means that there has been precious little understanding developed about how markets can go wrong. Or what is wrong, as well as right, with markets and the modern practices of capitalism. An article in the London Review of Books came to my attention recently by Benjamin Kunkel that shows how Marxist analysis is actually looking quite pertinent to the current mess.