Category Archives: Banking industry

AIG Does It Again: Sale of Maiden Lane II Assets Tanking Credit Markets

Readers may recall that AIG had approached the Fed about buying the entirely of its Maiden Lane II portfolio, the off balance sheet vehicle established to hold the non-CDO assets removed from the otherwise bankrupt insurer. The logic appeared to be that the insurer would be able to liquify its equity in the vehicle. It seemed pretty obvious at the time that the Fed could not justify selling the whole book to AIG; if there were any gains in the actual book, it would be a subsidy to AIG. The bid was also thus a strategy to force the vehicle to be unwound and any gains to be realized (which would lead AIG showing a profit on its position).

The problem is the “profit” appears to have been based on optimistic accounting, something we found to be the case in the Fed off balance sheet we’ve analyzed at length, Maiden Lane III. As Jim Chanos noted by e-mail, “Real transaction prices are not good for some of the ‘marks’ in many portfolios!” Needless to say, this also calls into question the use of Blackrock as asset manager, since the valuations were based on its marks.

Goldman Sycophants of the World Unite! You Have Nothing to Lose but Your Virtually Non-Existent Reputations!

The Goldman defense against the Levin report is so late and so pathetic that it looks increasingly evident that the bank is simply hoping to cause confusion and muddy the waters rather than mount a frontal, fact-based rebuttal. Mind you, sniping and innuendo can prove reasonably effective if done persistently and loudly enough. The book Agnotology describes how Big Tobacco managed to sow doubt over decades of the link between smoking and lung cancer well after the medical evidence had gone from suggestive to compelling.

The first Goldman salvo was an Andrew Ross Sorkin piece on Monday which we deemed as unpersuasive. While it did point to an error in the Senate report, it failed to make a real dent the report’s findings, and most important, the notion that Goldman staffers, in particular Lloyd Blankfein, were pretty loose with the truth.

The most contested statement is the Blankfein denial that the firm had a “massive short” position; as Matt Taibbi points out today, the only way out on that one is to get into Clintonesque parsings of the word “massive”. Given the overwhelming evidence that Goldman intended to get out of its mortgage risk in late 2006 and its staff DID get the firm short in February 2007, then reversed that position in March to correctly catch a short term bounce (the market recovered from March to May, when it went into its free fall). And in the March-May period, it was still getting as much crap product out the door and lying to clients about its position in the deals, claiming its incentives were aligned when its effective short position in the deals meant the reverse, that it would profit if they tanked, which they did.

But focusing on the “massive short” issue is misdirection pure and simple.

Adulterous Failed Banker Fred Goodwin’s New Human Shield

Back in March, and courtesy of Naked Capitalism’s US locale, we arbed away Fred Goodwin’s superinjunction, which banned UK reporting of his affair with a junior director at RBS. After more challenges by the UK newspapers, the superinjunction has now been amended: it’s OK to identify Fred Goodwin as the failed banker with the wandering body part; but still not OK to identify his partner, who is referred to in the official documents by the code letters “VBN”.

Michigan Court Relies on New York Trust Theory, Rules Loan Never Made it to Trust

A June 6 trial court decision in Michigan, Hendricks v. US Bank, has not gotten the attention it warrants because to the extent it has been noticed, it has been depicted as invalidating an effort to effect a note (the borrower IOU) transfer via MERS. While that was one of the grounds for a ruling favorable to the borrower, the court also considered and gave a thumbs’ up to what we call the New York trust theory. That has far more significance, as readers will see shortly (hat tip to Foreclosure Fraud for this sighting).

Treasury Waves Wet Noodle at Big Banks Over HAMP Mortgage Mod Abuses

This latest move by the Treasury Department to appear to Do Something about Big Bad Banks is so off the charts pathetic that I am straining to find an adequate description. It isn’t merely ineffectual; it looks instead like a deliberate thumbing of the nose at the financier-afflicted public, with the Treasury and the mortgage industrial complex elbowing each other in the ribs and laughing uncontrollably at how they’ve made their point, that the public be damned, while observing proper bureaucratic forms in the process.

Obama Still Desperately Seeking Anybody But Warren to Head New Consumer Agency

The Administration is playing true to its craven form. And it isn’t hiding that sorry fact terribly well either.

The latest public-be-damned ploy by the Obama Administration is the floating the name of Raj Date, a former McKinsey consultant and financial services industry executive currently ensconced in the nascent Consumer Financial Protection, as the possible new head of the agency.

Remember the state of play on the nomination of the head of the Consumer Financial Protection Bureau. That individual is to be in place as of July 21. Even assuming everyone plays nicely, the timetable is now too short to go through the conventional approval process, meaning a recess appointment is the only way to get a permanent leader in place.

The Republicans have taken the stance that they are not prepared to be bound by the law, meaning Dodd Frank, despite the fact that most of what is promised to do was kicked over to studies and rulemaking, which assured it will be watered down to nothingness. 44 Republican Senators wrote a letter saying they won’t approve of any nominee from either party unless the CFPB is ~~gutted~~ reformed. And they are trying to block a recess appointment through the use of a “pro forma” sessions, as they did over the Memorial Day break and presumably will over the July 4 holiday.

But the Republican intransigence works to Obama’s advantage, were he not fundamentally opposed to elevating Warren.

Chinese Real Estate Bubble Finally Imploding?

The warnings of successful shorts like Jim Chanos, old Asia hands like Frank Verneroso, and economists like Victor Shih and Michael Pettis have failed to curb enthusiasm for the belief that the rise of China is inevitable and unstoppable. As someone who was deeply involved with Japan when it was seen as destined to replace the sclerotic US, I’ve learned to regard more or less straight line growth projections with considerable skepticism.

China has accomplished the impressive feat of bringing literally hundreds of millions out of poverty in a comparatively short time frame. It has also studied the Japanese playbook and managed to avoid some of its pitfalls (of course, it has the advantage of not being a military protectorate of the US), in particular refusing to liberalize its financial markets (some accounts of the Japanese bubble and burst give considerable weight to overly rapid deregulation and the growth of what was then called zaitech, or financial speculation). is also hostile to neoclassical economists.

China escaped much of the impact of the global financial crisis by ramping up investment even higher than its pre-crisis level. It now has investment approaching 50% of GDP, an unheard of level on a sustained basis. A big chunk of that is housing related (housing is an estimated 13.5% of GDP), and prices have long been considerably out of line with incomes, a telltale sign of a bubble. In Beijing, admittedly one of the hottest markets, an average priced new apartment was equal to 57 years of average worker savings (and if you tried to pay for it with a super-long dated mortgage, you’d be in hock even longer, since you would also need to cover the interest charges).

Another warning sign is inventory overhang; the Wall Street Journal reports tonight that Standard Chartered forecasts that level of unsold apartments in secondary cities will amounts to roughly 20 months of sales by year end (and that’s before considering that many of the apartments are being acquired as investments rather than for use).

The Journal story tonight provides evidence that the Chinese housing market is going into reverse

Call Your Senators Over Sneak Attack On the Consumer Financial Protection Bureau

The Republicans have threatened to kill the CFPB and they look to have finally pulled out their gun and taken aim. I received this message from Mary Bottari:

In a last minute development, opponents of financial reform are pushing for votes TODAY on amendments to gut the new Consumer Financial Protection Bureau (CFPB) (AMENDMENT NUMBER #391 – Moran), and to repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act entirely (AMENDMENT NUMBER #394 – DeMint) . A vote to delay and try to derail curbs on fees banks charge merchants – and thus the consumer – on debit cards is already scheduled (AMENDMENT NUMBER #392 – Tester).

Call your Senators now and tell them to oppose these proposals to gut the CFPB!

Embarrassingly Lame Federal/”50″ State Attorneys General Mortgage Negotiations Continue

I’m having trouble understanding why anyone is still treating the Federal/state attorney general mortgage “settlement” negotiations as anything other that a fiasco. The more news reports come out, the more the parties aligned against the banks look like fools.

The latest confirmation comes in an article by Shahien Nasiripour in the Huffington Post that a member of the Department of Justice briefed state attorneys general and reported that the biggest banks in the servicing business had resigned themselves to paying $20 billion:

The nation’s largest mortgage companies are operating on the assumption that they will have to pay as much as $20 billion to resolve claims of widespread foreclosure abuse, an amount four times what they had originally proposed, the top federal official overseeing the discussions told state officials Monday, according to people who participated in the conversation.

Associate U.S. Attorney General Tom Perrelli told a bipartisan group of state attorneys general during a conference call that he believes the banks have accepted the realization that a wide-ranging settlement to the months-long probes will cost them much more than the $5 billion offer they floated last month, according to officials with direct knowledge of the call. Perrelli said he’s basing his belief on his recent conversations with representatives of the five targeted firms: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Sounds impressive, right? It’s not.

Kevin O’Rourke on the Irish/Eurozone Mess

This INET video focuses on how Ireland got into its mess as well as the domestic and international political dynamics as to how it is being resolved. There is an interesting tension between the cool talking head style and some of the coded descriptions of the stresses and the stark choices at hand.

Alexander Gloy: Merkel to Sinn: “In my office. NOW.”

Yves here. Outbreaks of candor and foresight among the political classes are so rare that they bear watching. As Gloy’s sighting suggests, they have to be arrested quickly lest they prove to be contagious.

By Alexander Gloy, CIO of Lighthouse Investment Management

Hans-Werner Sinn, head of German research institute Ifo, has just put his life into peril. He had to pick a Swiss magazine (“Bilanz”) to express what nobody else is allowed to mention in Germany: “Greece is a bottomless barrel”.

Goldman Uses Wall Street’s Favorite Reporter to Make Unpersuasive Defense Against Levin Report

Last night, the Wall Street Journal reported that Goldman was going on the offensive against the Levin report:

Goldman Sachs Group Inc., trying to counter a Senate subcommittee report that is fueling investigations and suspicion of the firm, plans to accuse the subcommittee of drastically overstating Goldman’s bets against the housing market in 2007….

The subcommittee’s 639-page report in April denounced Goldman as an unusually strong example of wrongdoing by financial firms during the crisis. According to the report, Goldman systematically sought to profit from a “big short” against the housing market and betrayed clients by putting the firm’s own interests ahead of theirs.

Goldman initially said it disagreed “with many of the conclusions of the report,” though the company added that it takes “seriously the issues explored by the subcommittee.”

Tonight, Andrew Ross Sorkin of the New York Times offers what appears to be a preview of the Goldman defense. If this is the sort of thing Goldman plans to provide, it is not terribly convincing.

“Lifting the Veil”

Mark Ames referred me to the documentary “Lifting the Veil.” I’m only about 40 minutes into it and am confident it will appeal to NC readers, provided you can keep gagging in the sections that contain truly offensive archival footage (in particular, numerous clips of Obama campaign promises).

Ames’ mini-review:

It begins with John Stauber, one of the great anti-PR writers, and historian Sharon Smith laying out the flat rancid truth: That the Democratic Party of today is the Big Co-apter. The Republicans have always been the party of corporate interests; and the Democrats portray themselves as agents of social change and progressive/populist opposition to corporate power, but the Democratic Party’s job is to co-apt these anti-corporate movements and subvert them to the same (or a different faction of) corporate interests.

To complete our two-corporate-party farce, we have an alleged third choice, a so-called opposition “Third Party,” the largest “neither left nor right”/”neither Democrat nor Republican” third party for the past three decades. And that party is…ta-dum!…Libertarianism. Which was nothing but a corporate PR project designed to co-apt the whole realm of Third Party opposition and subvert it to the most radical corporate agenda of all. In other words, even our Third Party/outside-the-system party is nothing but the most purified, most extreme pro-corporate party of all!

At this point you have to assume that the oligarchy is just laughing at us. “Hey, here’s an idea–let’s make the opposition to our fake-two-party system nothing but our corporate wish-list we send to Santa every year, and package that as the radical opposition.” “No way Mr Koch, there’s no way they’ll buy it–everyone today who’s against the two-party system is on the radical Left.” “Just give me a couple of decades, and a few billion dollars, you’ll see…” CUT TO TODAY: “Holy shit, you were right, Chuck! Ah-hah-hah-hah! The suckers have nowhere to go but right into our mouths–doors one, two and three our ours! Mwah-hah-hah!”

As black activist Leonard Pinkney says, “The Democrats are the foxes, and the Republicans are the wolves–and they both want to devour you.” So what does that make Libertarians? Avian flu viruses?

Quelle Surprise! Banks are Concerned About Mortgage Slowdown

An old Yankee saying: “Fool me once, shame on thee. Fool me twice, shame on me.”

It seems not to have occurred to the banking industry that relying people to be fools on an ongoing, large scale basis is not a viable business model. Investors have come to realize a bit late in the game that private label securitizations were structured so as to be far too favorable to the originators and servicers: too little disclosure, too many abuses, too little accountability, combined with impediments to seeking redress in court. Borrowers feel every bit as stung between deteriorating housing markets, foreclosure malfeasance, and doubts over chain of title.

It isn’t simply that banks have been slow to ‘fess up and clean up; instead, they’ve kicked and screamed at every possible reform measure, from pro investor reforms such as a very good FDIC proposal that got watered down to nothingness and a weak 5% risk retention rule (which Dean Baker estimates will add all of 0.13% to the yield on a mortgage) to pretty much anything that would help borrowers. And that’s before we get to widespread evidence of incompetence (continuing stories of foreclosing on people who don’t have mortgages is the tip of the iceberg) and fraud.

It’s yet another sign of Banker Derangement Sydrome that the industry can think anyone outside of cash buyers in markets that have arguably bottomed would be keen about buying a house. But this American Banker reports reveals how they appear unable to recognize their role in creating this mess. They seem simply puzzled and a tad depressed that super low interest rates are producing only refis as opposed to home sales: