Category Archives: Credit markets

Federal Home Loan Banks Challenge BofA Settlement, Say They May Be Owed a Lot More

This is getting interesting. I had heard that a lot of investors were unhappy with the proposed Bank of America settlement of liability for selling investors a garbage barge when they’d been promised something a tad better. But being unhappy is one thing, actually taking concrete steps to oppose the $8.5 billion deal (which heinously also included a broad release for chain of title liability) is quite another. While a group of investors who had pursued their own objections were quick to file a petition objecting to the settlement, they are small fry and their protest in isolation would probably be rejected by the judge.

The equation changed today with several Federal Home Loan Banks effectively saying they had been kept out of the loop and have reason to think the settlement is inadequate

Is Bank of America At Risk of a Death Spiral?

Bloomberg’s Jonathan Weil took a look at Bank of America’s stock price, which is trading at less than half of the Charlotte bank’s book value, and discussed whether the bank is at risk of a serious crisis. If a levered financial firm’s stock trades at a severe discount from book value, it is not attractive to raise equity via selling shares (the dilutive impact on existing shareholders is punitive). Yet the steep discount is a sign that the market doubts the strength of the concern’s equity base. If those worries persist, and the company is not able to shore up its balance sheet via earnings (ie, either its profits are impaired or they are offset by writeoffs), first long term and eventually short-term lenders will start to demand higher interest rates. Once that happens, it is easy for confidence to vanish and a death spiral to start.

Satyajit Das: Europe’s Debt Crisis Refuses to Die

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
overwhelm attempts to contain and solve the European sovereign debt crisis.

Recent frantic efforts that secured release of Euro 12 billion to Greece avoided immediate default but have not solved the fundamental problems. Greece is unlikely to meet targets for tax revenues, spending cuts and sales of public assets.

Quelle Surprise! The Banks Lied and Robosigning Lives!

We’ve heard numerous bank executives swear piously before Congressional hearings that those “paperwork problems” that led major servicers to halt or slow foreclosures on a widespread basis last year were “mistakes”. That was already a really big lies, since “mistake” means the practice was not deliberate and was presumably isolated, when in fact robosigning was a widespread, institutionalized practice.

14 major servicers then swore in consent orders earlier this year that they’d stop doing all that bad stuff. But with compliance weak (the banks get to hire the overseers!), they appear to have decided they don’t need to change their ways all that much.

Marshall Auerback: There is No Progressive Case for Deficit Cutting – The Myth of the “Virtuous” Clinton Surpluses

By Marshall Auerback, a portfolio strategist and hedge fund manager

For once, President Obama has sought to address his progressive critics, without caricaturing them as a bunch of out of touch, irresponsible radicals. At his press conference on Friday, the President made the following argument:

Soliciting Nominations for the FEMA Awards for Exceptional Financial Crisis Management

We are in the process of seeking recommendations for our inaugural FEMA Awards for Exceptional Financial Crisis Management. We must thank our reader Swedish Lex for providing the inspiration for establishing these prizes.

We are looking for nominees in each category. We have provided some illustrative candidates for specific prizes. Readers are also encouraged to suggest additional categories if they feel we have overlooked noteworthy types of crisis behavior that are worthy of recognition.

Our initial categories:

Felix Salmon Misreads AAA Bond Demand to Say “Overcaution” Caused Crisis

Lordie, I can’t believe someone who professes to understand markets has written, at length, that caution, no, “excess of overcaution,” was a major contributor to the criss. Or has Felix Salmon been spending too much time with lobbyists from ISDA and SIFMA?

I hate seeming rude, but Felix has a habit of tearing into Gretchen Morgenson for errors much less significant than the one he made in a post today. He wrote, apropos this chart, which comes from FT Alphaville:

Shades of 2007: Funding Stresses Hit European Banks

Can you smell the napalm?

The tone of the market is beginning to feel like 2007: serious signs of danger, like interbank funding stresses, combined complacency and denial.

California AG Considering Joining New York, Delaware in Broad Probe of Mortgage Abuses

We’d said the 50 state attorneys general settlement was wobblier than the press cheerleading would lead you to believe. We’ve also said the California AG, Kamala Harris, was likely to be among the defectors. The odds of that increased today as she met with New York AG Eric Schneiderman to discuss joining the probe that he and Delaware AG Beau Biden have launched, which is the most extensive investigation undertaken to date.

It isn’t hard to see why the settlement talks are fracturing.

Tom Ferguson on How Banks’ Refusal to Take Haircuts Stokes the Euro Crisis

Tom Ferguson gives a crisp overview of some of the recent events in Eurozone crisis and how the desire to save banks from losses is making matters worse.

Mirabile Dictu! SEC Prods Banks Over Mortgage Litigation Reserves

When the SEC wakes up and starts acting like a regulator, you know something serious is afoot.

The Wall Street Journal reports that the securities agency, spooked by Bank of America setting aside over $20 billion for mortgage-related liability, has sent letters to “a number of banks” asking them to do a better job of disclosing what their legal liability is (the elephant in the room is of course the mortgage mess) and making adequate reserves. Per their story:

Satyajit Das: European Debt – Wrong Diagnosis, Wrong Treatment!

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Executed with Northern European creativity, charm, flexibility and humility and Mediterranean organisation, leadership diligence and appetite for hard work, the European rescue plan – “the grand compact” – is failing.

Bank of America $8.5 Billion Mortgage “Settlement” Under Fire

We took an immediate dislike to the so called Bank of America mortgage settlement, in which the trustee for 530 mortgage trusts, Bank of New York, has entered into deal in which the bank will pay $8.5 billion to settle not only putback liability (having to compensate investors by buying back loans that never should have been put in the trusts in the first place) but also chain of title liability to investors (otherwise known as “my dog ate your mortgage”; note this would NOT impair the ability of homeowners to raise that issue in foreclosure).

We criticized the deal as being bad for homeowners (as in likely to accelerate foreclosures, rather than alleviate them, as claimed), bad for investors (due to the amount being too low for putbacks and an outrageous sellout based on the waiver for chain of title problems) and rife with conflicts of interest. Indeed, almost immediately after the settlement was announced, a group of investors who had been pursuing their own claims on three of the trusts in the settlement filed a petition as a means of objecting to the deal and its failure to provide a means for investors like them to opt out.

Two public officials, Eric Schneiderman, the New York attorney general, and Representative Brad MIller, who is a member of the House Financial Services Committee, apparently also suspect the pact does not pass the smell test and are asking some tough questions.

Satyajit Das: “Progress” of the European Debt Crisis

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (forthcoming August 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In Oscar Wilde’s Importance of Being Earnest, Lady Bracknell memorably remarks that: “To lose one parent… may be regarded as a misfortune; to lose both looks like carelessness.” The Euro-zone’s need to rescue three of its members (Greece, Ireland and Portugal) with three others increasingly eyed with varying degrees of concern (Spain, Belgium and Italy) smacks of institutionalised incompetence.

Eurozone Leaders Fiddling as Rome Starts to Burn? (Updated)

Worries about the Eurozone have heretofore been depicted as afflicting the periphery. But even though Italy is geographically on the margin, if the crisis engulfs it, it irreparably damages the core. And that time seems to be upon us.