The latest report by Shahien Nasirpour at Huffington Post confirms two things you’ve heard here and on some other sites following this sorry affair: first, that Tom MIller, Iowa attorney general who is leading the 50 state attorneys general negotiations on mortgage abuses, is a liar, and second, that any settlement will be a whitewash.
Read more...When a moderate (meaning anachronistic) Republican proves to be a more tough minded regulator than Democrats, it serves as yet another proof of how far the county has moved to the right. Bair, in a long “exit interview” with Joe Nocera, says a number of things that would have been regarded as commonsensical and obvious in the 1980s, yet have a whiff of radicalism about them in our era of finance uber alles. For instance: Bear should have been allowed to fail, TBTF banks are a menace (well, she doesn’t say that, but makes it clear she regards them as repugnant), bank bondholders should take their lumps.
Bair was alert to the dangers of subprime, having recognized how dangerous it could be in the early 2000s (when a smaller version of the market blew up, taking homeowners along with it), and was not a believer of the Paulson/Bernanke party line that subprime would be “contained”. She long championed mortgage mods as better for lenders, borrowers, and the economy, and has fought an uphill battle with the Administration on that front. With the IndyMac failure, which put the subprime lender/servicer in the FDIC’s lap, she pushed hard to develop a template for how to do them, which then was ignored by the Administration (they did HAMP instead, an embarrassment which she refused from the outset to endorse).
The piece serves as an indictment of the banking industry toadies in the officialdom, namely the Treasury, Fed, and OCC. One priceless quote:
Read more...By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (Forthcoming September 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)
The proposal to extend the maturity of Greek bonds emanating from the Élysée Palace reflects French strengths first identified by Napoleon III: “We do not make reforms in France; we make revolution.” Structured to meet a German requirement that private creditors contribute to the Greek bailout, the proposal falls short of what is actually required.
Read more...Via Richard Smith and Tom Adams. FT Alphaville is also on the case and informs us that this is really not a hack but a URL script trick. Click to enlarge.
Read more...I hate to seem to be beating up on Brad DeLong. Seriously.
As I’ve said before, he is one of the few economists willing to admit error and not try later to minimize or recant his admission (unlike, say, Greenspan). And he seems genuinely perplexed and remorseful. This puts his heads and shoulders above a lot of his colleagues, at least the sort whose opinion carries weight in policy circles.
Even with DeLong making an earnest effort to figure out why he went wrong, his latest musings, via a Bloomberg op-ed, “Sorrow and Pity of Another Liquidity Trap,” show how hard it is for economist to unlearn what they think they know. And as the great philosopher Will Rogers warned us, “It’s not what you know that gets you in trouble. It’s what you know that ain’t so.”
So it’s important to regard DeLong as an unusually candid mainstream economist, and treat his exposition as reasonably representative if you could somehow get his peers to take a hard, jaundiced look at how wrong they have been of late.
DeLong’s mea culpa is about how he and his colleagues refused to take the idea that the US could fall into a liquidity trap seriously. As an aside, this is already a troubling admission, since many observers, including yours truly, though the Fed was in danger of creating precisely that sort of problem if if dropped the Fed funds rate below 2%. It would leave itself no wriggle room if the crisis continued and it had to lower rates further into the territory where further reductions would not motivate changes in behavior. That’s assuming we were in a “normal” environment. But the big abnormality is that we are in what Richard Koo calls a balance sheet recession. And as we will discuss below, Keynes (and Minsky) had a very keen appreciation of the resulting behavior changes, but those ideas were abandoned by Keynesians (it is key to remember that Keynesianism contains significant distortions and omissions from Keynes’ thinking.
But notice how he starts his piece:
Read more...Bloomberg has a new story on its continuing efforts to pry more information out of the Fed on who borrowed what when in the runup to the financial crisis. The central bank had refused to provide details of what various needy financial firms had gotten under its single tranche open markets operations program, which was launched in March 2008. Lehman received a peak amount of $18 billion out of a total program size of $80 billion.
Now why does all this matter?
Read more...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.
Read more...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:
Read more...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?
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.
Read more...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.
Read more...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.
Read more...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:
Read more...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:
Read more...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:
Read more...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.
Read more...