Wow, am I sour faced in this one!
I had gotten to the studio ahead of time (standard protocol) and was miked up earlier than usual. So I listed to probably 12 minutes of unbelievable cheerleading, which is not the sort of thing I expected on BNN, which usually does not sell the CNBC Kool-Aid. I think I was braced for a fight which never came.
Hope you enjoy it regardless.
Read more...Cross-posted from Credit Writedowns Today, the Federal Reserve told us that interest rates will remain at zero percent for two more years, making official the policy I have dubbed permanent zero. In response we saw a massive rally in treasuries starting at about 225PM ET and equities starting at about 240PM ET as interest rate […]
Read more...Wow, this is pretty remarkable.
Read more...The Administration and its allies have gone after Standard and Poor’s for its downgrade of the US bond rating to AA+. They have attacked S&P’s general competence, its failure to reexamine its decision in the light of a $2 trillion math error (a Wall Street Journal story does not reflect well on S&P’s haste) and the subjective and political basis for its judgment. Even if these attacks have merit, however, they come off as being less than convincing by virtue of sounding like sour grapes.
There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating.
Read more...Wellie, nothing like a lack of leadership to turn an ugly market day into an utter rout. But in another sense, the fake leadership in lieu of real leadership (as in taking a tough stand now and again and bringing the public around) is what set up conditions for a spectacular market unwind in the first place.
It’s one thing to do the equivalent of put the financial system on life support to deal with a crisis, quite another to leave the patient on life support and pretend you’ve returned to status quo ante.
The downdraft continues.
Read more...We are one of several guest bloggers at Salon while Glenn Greenwald is on vacation and we have a post up that discusses why big banks are getting away with murder, um, probable fraud. It begins:
For most citizens, one of the mysteries of life after the crisis is why such a massive act of looting has gone unpunished. We’ve had hearings, investigations, and numerous journalistic and academic post mortems. We’ve also had promises to put people in jail by prosecutors like Iowa’s attorney general Tom Miller walked back virtually as soon as they were made.
Yet there is undeniable evidence of institutionalized fraud
Read more...Obama created an unnecessary financial crisis. Not that we would have escaped eventually having one, but he played like a fool into the Republican desire to use the debt ceiling to push for budget cuts, and he tried outsmarting them to get his long standing desire of entitlements cuts through. Having the S&P downgrade hit when the Eurozone crisis was in an acute phase was like rolling a car full of explosives into a burning house. “Obama victory” may come to be the modern version of “Pyrrhic victory”.
And the man touted as a silver tongued orator can’t even talk up the markets. He actually managed to talk them down. Big time.
Read more...Wow, this couldn’t be happening to a nicer bank (well take that back, JPM and Goldman are tough competitors).
As you may recall, in the previous quarter, Bank of America announced its $8.5 billion mortgage settlement, which is now looking pretty wobbly, since a variety of unhappy parties, the latest being New York attorney general Eric Schneiderman, have taken aim at it. And Delaware attorney general Beau Biden is reported to be joining the pile on this week. This means either no deal, or a very different deal (almost certainly with bigger numbers attached) after a long slugfest, um, negotiations. The Charlotte bank had said it would increase loss reserves in the second quarter by $20 billion (which included this $8.5 billion) and claimed this would put its mortgage woes behind them. Yours truly was skeptical, and the market reacted badly when it saw the revelation in their 10-Q filing just released, that the bank was going to take more losses on Fannie and Freddie putbacks than previously expected.
The latest revelation, that AIG is expected to file a suit that will seek more than $10 billion in damages against Bank of America on Monday, comes from Louise Story and Gretchen Morgenson of the New York Times:
Read more...By Marshall Auerback, a hedge fund manager and portfolio strategist
So the ratings agencies have reared their ugly heads again. David Beers, head of S&P’s government debt rating unit, announced Friday night that S&P has downgraded the U.S. credit rating for the first time, from AAA to AA+. It’s a sham: S&P’s whole analytical framework reflects ignorance about modern money. If the US government, Treasury, and the Federal Reserve, capitulate to this outrageous act of economic extortion, it will effectively be sanctioning a beer hall putsch by the rentier class.
Read more...Even thought the US media has been fixated on the downgrade of Treasuries to AA+ by Standard and Poor’s, the real risk to the markets is continuing decay in Eurozone sovereign debt. The BBC’s Robert Peston said today that the failure of the ECB to buy Italian bonds would be a Lehman moment. As our Ed Harrison stresses, while some countries like Greece have a solvency crisis and need to have their obligations restructures (as in written down), the stress on Spanish and Italian bonds looks like a classic liquidity crisis. And the concern has spread to the core, as French sovereign debt (remember, rated AAA) was trading at a 90 basis point premium to German bunds. As Ed noted:
Read more...By Matt Stoller, a fellow at the Roosevelt Institute. He is a former financial services staffer to Rep. Alan Grayson.(on Twitter at @matthewstoller)
While it’s useful to think of the ratings agencies as incompetent, or as greedy, it’s important to remember that they have an actual policy agenda. They weren’t just wrong in rating subprime tranches of toxic dreck AAA. They were also pivotal in actively creating the policies that led to the financial crisis.
Read more...Yves here. Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.
Similarly, Galbraith refers to an incident at the most recent Institute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud. The stunning part was how utterly unreceptive the panel and the audience were to his observation. You’d think he’d had the bad taste to say the host had syphilis.
I strongly urge you to read the entire piece; non-economists may want to skim the first third and focus on the crisis material and what follows. This is the key paragraph:
Read more...This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.
Remember Y2K? The world was gonna end because there was tons of legacy code that couldn’t accommodate the rollover to the new century. I know people in who went into survivalist mode, stocking up months of supplies, and others who took less extreme precautions, like having lots of cash on hand in case ATMs were disrupted.
As we now know, January 1, 2000 came in without major incident, since the widespread publication of this software threat to End the World as We Know It led to lots of preventive action. Perversely, the big effect of the Y2K scare was that it accelerated tech spending, since many firms bought new systems and upgraded hardware as part of their overhaul. That increased the severity of the post-bubble economic downturn. Remember, Greenspan dropped Fed fund rates to negative real interest rate levels and held them there for an unprecedented amount of time, which many argue helped stoke the housing bubble. So while Y2K’s direct effects were greatly overestimated, its indirect impact (on how long the former Maestro kept rates down) may not have been fully acknowledged.
It isn’t yet clear what the impact of the S&P downgrade of the US to AA+ will have. There are good reasons to believe, despite the media hyperventilating, that it won’t add up to much, and may perversely hit wobbly stock markets more than Treasury yields.
But there is a much bigger issue, namely S&P’s highly questionable conduct, the lack of any analytical process behind this ratings action, and the political implications.
Read more...After a very bad day in the US, Asian markets swooned and European markets fell again, but their declines are less gut wrenching. 2-3% falls in most Euromarkets at the opening (2.5% for the FTSE, 2% for the Dax, and 3.5%.for the Milan’s FTSE-MIB) but for the most part, they have come back somewhat as of this hour. The FTSE is now down 2.2%, the CAC 40 a mere 1.2%, the DAX 2.7%, and the FTSE-MIB has is in positive territory, up 0.25%. This follows plunges of 3.7% for the Nikkei and 4.5% for the Hang Seng indexes.
Read more...This blog is starting a Bank of America death watch.
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