Category Archives: Credit markets

More on $8.5 Billion BofA Settlement Conflicts: 2/3 of Trustee’s RMBS Business is From BofA

No wonder Bank of New York was so eager to roll the investors to whom it is nominally responsible and sign up for a settlement deal in which it effectively sold their interests out (and didn’t bother even going through the motions of advance notice, much the less consultation). Bank of America not only used the carrot of a very juicy indemnification, it had the stick of the amount of RMBS trustee business it has directed to Bank of New York and presumably could send elsewhere on future deals if it became displeased.

Randy Wray: A PROGRESSIVE APPROACH TO FEDERAL BUDGETING – Or, Can One Take Billionaire Pete Peterson’s Money and Remain Progressive?

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

Yves Smith set off a firestorm in her criticism of several progressive groups that have joined forces with Pete Peterson to whip up deficit hysteria. There are three issues that need to be addressed:

1. Can a progressive take tainted money and remain progressive?
2. Did the Roosevelt Institute (in particular) take tainted money and remain progressive?
3. What would a progressive approach to federal budgeting look like?

Are Self-Dealing Parties Settling $242 Billion of Bank of America Liabilities for Way Too Little?

A petition filed by some unhappy investors on Tuesday raises some serious challenges to the so-called Bank of America mortgage settlement. The embattled bank hopes to shed liability for alleged misrepresentations made by Countrywide on loans sold in 530 mortgage trusts with $424 billion in par value. We said it was a bad deal for investors because, among other things, it included a very broad waiver of a very valuable right, that of being able to sue over so-called chain of title issues (in very crude terms, whether the parties to the deal did all the things they promised to do to convey the loans properly to the mortgage trust).

This action raises three sets of different issues: the conflicts of interest among the parties trying to push this deal through, the process used to finalize the deal, which this pleading contends were devised to give the other investors short shrift; and the inadequate amount of the settlement, not only for parties that have tried to move their own putback litigation forward, but arguably for all parties.

Ron Paul Suggests Using Fed to End Run Debt Ceiling Impasse

The only reason to think Republicans are serious about their threat to have the Federal government default rather than raise the debt ceiling is that they have an undue fondness for apocalyptic outcomes. I suppose I should actually favor this sort of thing; I’ve long thought the only hope for getting the US freed from rule by financiers was another financial crisis, provided it came soon enough and it was big enough. This one might fit the bill on those scores.

However, with the immediate trigger being pigheaded Congressmen, the banks might look like innocent victims, when the ballooning of public debt around the world was the direct result of their recklessness and the resultant global economy near-death experience. So a debt-ceiling-row-induced great big financial dislocation would probably not produce the opportunity to break the power of banks that yours truly and many others are looking for.

As the hour of reckoning approaches, more and more creative ideas to disarm the Republican weapon are being put forward, and an intriguing one comes from, of all places, a Republican, Ron Paul.

Partying on the Edge of the Eurozone Volcano

The Financial Times has two heated articles (relative to the each writer’s normal emotional register) on the continuing Greece neverending bailout saga, one from Wolfgang Munchau, the other from John Dizard. Munchau and Dizard reach the same conclusion from different fact sets: the latest Greek patch-up exercise is only going to make matters worse, politically and economically.

Look What You Can Buy in the Greek Liquidation Sale!

Sorry if you were looking for listing of the various Greek assets on offer. You need to be a really heavyweight investor (and have been verified as such) to get a real viewing. And you are late if you are taking interest only now. The Guardian last week visited a road show of sorts in London (note that the properties were being hawked BEFORE the Greek parliament had approved the sale). The potential bidders were very cool:

Government: The Dominant Player in US Credit Markets?

The latest column by Gillian Tett provides further support for our pet thesis: that the role of the state in banking is so great and the subsidies so wideranging that they cannot properly be considered private companies and should be regulated as utilities.

Key extracts:

What Sexual Favors Were Exchanged So That Clinton (and Bloomberg) Pimped for the $8.5 Billion BofA Mortgage Settlement?

Bill Clinton’s favorite attack dog, James Carville, once said of Paula Jones: “Drag $100 bills through trailer parks, there’s no telling what you’ll find.”

Add a few zeros, and you can get the cooperation of much bigger players.

The noted financial services industry analyst Bill Clinton weighed in on the proposed $8.5 billion Bank of America mortgage settlement. Per Bloomberg:

BofA “Settlement”: Not a Done Deal, and Not a Good Deal for Investors

The so called Bank of America settlement, in which the Charlotte bank is set to pay $8.5 billion to settle representation and warranty liability on 530 mortgage trusts representing $424 billion of par value, is being hailed as a possible template for other mortgage issuers and servicers.

I sure hope not, because some of the things I see in this deal look plenty troubling.

Marshall Auerback: “Extend and Pretend” Continues in the Euro Zone

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

Markets are celebrating the triumph of an anti-labor, pro-capital agenda. But is social unrest the consequence?

The Europeans genuinely must genuinely believe that they can get blood out of a stone. Or perhaps resort to a modern day equivalent of turning lead into gold. There’s no other reason to explain the euphoria now prevalent in the markets, in light of the approval by Greece’s lawmakers to pass a key austerity bill, thereby paving the way for the country to get its next bailout loans that will prevent it from defaulting next month.

Andrew Sheng Says Sustainability Means Caging Godzillas

Andrew Sheng, Chief Adviser to the China Banking Regulatory Commission, is wonderfully straightforward and realistic for an economist. He is willing to say, as he does in this video, things that are obvious yet somehow unacceptable to ‘fess up to in policy circles, like the planet simply cannot support 3 billion people in Asia living European lifestyles. He warns of the danger of creating the mother of all crises if governments cannot stem the tide of leveraged capital flows, and also discusses the role of China on the global stage.

Bank of America Likely to Settle Case with NY Fed, Pimco, Blackrock for $8.5 Billion

I must confess I am surprised that Bank of America is close to settling a litigation threat by a group of investors headed by the New York Fed, Pimco, and Blackrock, which was discussed in the media quite a bit last fall for a reported $8.5 billion.

While most threatened litigation is settled out of court, this case in theory had to overcome procedural hurdles for any suit to be filed, and no group of investors had ever surmounted this impediment. Chris Whalen similarly noted that BofA could simply tell the investors to “pound sand.” However, we had noted that if it moved forward, that this type of case, a representation and warranties case, is always settled because they are too expensive to fight in court.

Capital and liquidity: whose problem?

Jon Daniellsson of the LSE has spotted something odd about the Basel III debate on capital levels…

Comments on the Second Greek Bailout

Cross-posted from Credit Writedowns Edward here. Yves is away so I have a few guest posts up the next few days. Here’s one on Greece. I will be on CNBC at 1:30ET to talk about Greece. The situation has evolved since I last talked about the sovereign debt crisis on CNBC in May. Greece is […]

Tom Adams: How Treasury’s “Kick the Can” Strategy Exacerbates Mortgage Market Woes (Mortgage Insurer Edition)

By Tom Adams, an attorney and former monoline executive

Barron’s published a detailed take down of the mortgage insurance industry weekend that highlights how Treasury’s approach to the mortgage mess will ultimately make matters worse. As the article points out, in the fairly likely scenario that mortgage claims exceed the amount of capital the insurers have available to pay them, the parties taking the biggest hit will be Fannie Mae and Freddie Mac. That means taxpayers are probably on the hook for more bailouts.

Despite having questionable capital reserves for the future claims they face, mortgage insurers are still continuing to write significant insurance business. Why would anybody want to continue to buy insurance from such shaky companies?

The continuing business of the mortgage insurers help shed light on the fact that virtually the entire mortgage industry is run through zombie companies that ought to have expired years ago.