Category Archives: Credit markets

Deutsche Bank Didn’t “Ignore” Losses of LSS Trade, It Went Through the Mother of All Canadian Restructurings

A default position among what passes for finance cognoscenti in the blogosphere is to argue that media stories pointing up bank improprieties are making a mountain out of a molehill. The form of the argument is usually, “If you only understood XYZ technical issue, this is not such a big deal.” Now that isn’t to say that position is wrong; we’ve more than occasionally made just that type of argument. But if you are going to go that route, it’s incumbent on you to take account of the relevant background; otherwise, whether you intend to or not, your argument can wind up being the equivalent of “Look, over there!”

We’ve seen this type of diversion-as-argumentation take place on the brewing Deutsche Bank scandal over losses that three separate whistleblowers allege that that bank hid from investors during the crisis. Matt Levine and Felix Salmon say, to use Levine’s turn of phrase, that all the German bank did was ignore the losses until they went away. That is a misrepresentation of what actually happened.

Khuzami Deathwatch: SEC Ignores Tips About $12 Billion of Hidden Losses at Deutsche Bank

Two days ago, we said it was time to fire the SEC’s chief of enforcement Robert Khuzami, who has not provided the tough policing warranted by the biggest financial crisis in the agency’s history. We didn’t anticipate that the story of Khuzami’s negligence would blow so big so quickly. Today, the Financial Times reported that three separate whistleblowers charged that Deutsche Bank had mismarked up to $12 billion in exposures to make it look healthier in 2008 and 2009 than it was, yet the agency had not acted on these allegations. And had Deutsche carried its positions at the levels these former employees suggest was more accurate, Germany’s biggest bank may well have needed a bailout.

Econ4 Video on the Housing and Foreclosure Crisis (With Your Humble Blogger in a Supporting Role)

Econ4, which is a group of reform minded economists (that may sound like an oxymoron but it isn’t) is presenting a series of videos on major topics where it believes our policies are seriously out of whack. Their latest release is on housing and foreclosures. Your humble blogger is a participant.

Abigail Field: HousingWire Propaganda Part II – The Irresponsible Borrower Myth, Harry & Louise Style

By Abigail Field, a lawyer and writer. Cross posted from Reality Check

Showalter pushes the ‘it’s not the mod terms, it’s the bad borrower’ idea with far more than just a “Living Large” headline. He invents two couples, pitched as archetypes of good and evil, probably hoping to copy the policy-killing success of Harry and Louise. But this invocation of the irresponsible borrower myth is particularly egregious–both borrowers are trying to be responsible in the face of insolvency.

Abigail Field: HousingWire Propaganda Not to Be Believed, Part I – Reanalyzing the Data

By Abigail Field, an attorney and writer. Cross posted from Reality Check

Friday HousingWire ran a six-and-a-half page big bank/mortgage servicer propaganda piece called “Living Large“, by Tom Showalter. The article, subtitled “A person’s lifestyle plays into whether they will pay their mortgage after a loan modification”, purports to explain why people default on loan modifications. Instead, it spins a bank-exonerating morality play not justified by the data supposedly being interpreted.

Wolf Richter: New Rules For Life Insurers – “Future Generations Have To Deal With The Financial Carnage”

During the off-hours on Sunday, when few people were willing to ruin whatever remained of their weekend and when even astute observers weren’t supposed to pay attention, the National Association of Insurance Commissioners approved new rules that would allow life insurance companies to lower their reserves for future claims—at the worst possible time—having already forgotten all about the financial crisis.

Can Open Source Ratings Break the Ratings Agency Oligopoly?

By Professor Krassimir Petrov, who has taught economics and finance in the U.S., Ireland, Bulgaria, Saudi Arabia, Bahrain, Taiwan, and Macau

The current credit-ratings system is a complete farce that has caused damage in the trillions. It needs to be completely reformed into a more transparent, competitive system. An open-source approach presents a perfect solution.

Why Robert Khuzami Would Be a Terrible Choice to Head the SEC

Given that the Obama Administration appears to think that missing-in-action Attorney General Eric Holder has been doing a fine job, it probably isn’t surprising to see the SEC’s head of enforcement, Robert Khuzami, included on a short list of names rumored to be under consideration to head of the agency.

But if the object is to prove that regulators can’t regulate and it’s too hard to enforce securities laws, then Khuzami’s your man.

Escalating Delinquency Rates Make Student Loans Look Like the New Subprime

ow that student loans are undeniably in bubble territory, the officialdom is starting to wake up and take notice.

Mirabile Dictu! Regulators Using Trading Scandals to Push for Tougher Capital Requirements

Most news reports on financial regulatory reform hew to a few storylines: banks pushing back in private and winning on diluting regulatory reform; banks attributing lousy profits to new regulations (with a notable lack of proof of this convenient blame-shifting); bank regulators demonstrating capture, corruption and incompetence (which even though true to a fair degree is played up by industry incumbents to support the notion that regulation is futile).

So it’s refreshing to see a contrasting storyline….

Yes, Virginia, the IRS Does Not Treat the Connected Like the Rest of Us (REMIC Edition)

We’ve written at some length about the failure of the IRS to go after what look like slam-dunk violations of the rules governing the tax treatment of mortgage-backed securities. Apparently the noise has been made about the failure to pursue REMIC violations, the latest by two law professors in a journal article, has roused the IRS from its official somnolence.

Justice in America: Systematic Document Forgery and Fabrication Yield One Criminal Plea Bargain

This admission of guilt by Lorraine Brown of Lender Processing Services subsidiary DocX for wire and mail fraud on the federal level and fraudulent and forged document filings in Missouri now allows the Obama Administration to claim it has sent another “executive” to jail.

Parking Basel: A Case Study of How Banks Stymie Regulatory Reform

Basel III’s getting nowhere in the US.

Greenspan’s Switch to Debt Scaremongering

Stephanie Kelton provides two video clips to underscore the point that until quite recently, Greenspan made the point that MMT types do: that the US as a currency issuer, can always pay its debts.