Category Archives: Regulations and regulators

New Treasury Mortgage Borrower Salvage Program: More Smoke and Mirrors?

We didn’t think much of the New Hope Alliance, the program brokered by the Treasury Department to rescue subprime borrowers facing resets. The program’s criteria targeted those who were already paying fairly high initial interest rates with very little to no equity in their house at the time of closing. In other words, this group […]

Spanish Banks’ Dependence on ECB Increases

We had commented before on the fact that Spanish banks have been going to the ECB for funding because their domestic mortgage securitization market is virtually shut. In December, Spanish banks borrowed €44 billion, more than double the average of the previous 15 months. The Financial Times story notes two troubling elements: first, that the […]

SEC Proposes Cosmetic Regulations for Rating Agencies

The Wall Street Journal and Bloomberg report that the SEC is mulling regulations for rating agencies. Note that rating agencies have benefited from being a protected class, since the SEC determines who can be a Nationally Recognized Statistical Ratings Organization, yet heretofore has imposed no obligations on them. In the 1970s, the SEC set regulatory […]

Deutsche Bank CEO: Bond Insurer Downgrade Will Create Debt " Tsunami"

Deutsche Bank’s CEO Josef Ackermann issued a stark warning today: bond insurer downgrades would have catastrophic consequences, on par with the subprime crisis. Note tha this view is in contrast with teh comparatively sanguine readings that have been coming from some US analysts and the US media, which now appears to regard teh increasing possibility […]

Ambac, FGIC May Be Put in Runoff Mode

The Wall Street Journal today says that even if the efforts to raise new funding for the troubled bond insurers are successful, they are unlikely to stave off a ratings downgrade. This story, based in part on reports coming from the rescue discussions led by New York state insurance superintendent Eric Dinallo, indicates that the […]

Rating Agencies May Face Restrictions in Structured Finance

Although it’s merely talk at this point, international regulators are considering how to reform rating agencies’ role in structured finance, which in hindsight contributed to many parties buying paper that was considerably riskier than they realized, One notion is to limit their their role in advising issuers on the design of structured finance products, which […]

Martin Wolf: Can We Corral the Financiers?

Readers may note we have a fair number of posts from the Financial Times today. The pink paper is having a good day, and conversely, in the US, Super Tuesday has taken pride of place in the news. Martin Wolf in today’s Financial Times argues that more aggressive reform of the financial sector is needed, […]

Evidence Wachovia Knew of and Profited from Theft

This story is so heinous that I couldn’t let it go by. Court filings indicate Wachovia not only permitted telemarketers to steal from individuals, but they were aware of the practice and turned a blind eye because it was profitable to them. And the targets of the fraud were typically elderly. The suit was filed […]

Nouriel Roubini’s Doomsday Scenario

In today’s post, “The Rising Risk of a Systemic Financial Meltdown: The Twelve Steps to Financial Disaster,” the bearish and prescient professor Nouriel Roubini sets forth how a systemic financial crisis could play out. The most troubling thing about this piece is that it is quite plausible. Of Roubini’s twelve steps, the first eight are […]

Monoline Updates: S&P Says Downgrade Will Hurt Banks; Fitch Downgrade of MBIA More Likely; XL Capital Takes Hit

Standard & Poor’s issued a research report today that stresses that bond insurer downgrades would hurt banks and in some cases could lead to reductions of their debt ratings. This report is in contrast to the comparatively cheery view of Morgan Stanley yesterday, that bond guarantor downgrades (presumably to AA; note further downgrades are possible) […]

Have Ethics Come to Wall Street? Firms Impose Standards on Coal Projects

Perhaps my memory is failing me, but the insistence by three major Wall Street firms, that utilities prove that their new coal-fired plants are economically viable, is at a minimum highly unusual (I’d say unprecedented). Normal Wall Street practice is simply “disclose and sell.” Under securities laws, if the issuer presents its financial situation and […]

"Bernanke Makes Bulls From Dollar Bears"

Long term, the dollar is not a good bet unless the US increases its savings rate and reduces its current account deficit considerably. Monetary easing and fiscal stimulus only exacerbate the problem. But never forget the Wall Street saying, “Don’t fight the tape.” From Bloomberg: Ben S. Bernanke’s decision to lower interest rates 1.25 percentage […]

Stiglitz: On the Fallen Standing of the US High Finance

This article from Project Syndicate (hat tip Mark Thoma) is a report from Davos by Nobel Prize winner Joesph Stiglitz on the considerable skepticism abroad toward US financial and business practice, particularly our faith in deregulation. It is a telling indicator of how rapidly the world is changing, yet many in the US are still […]

Will Foreign Exchange Losses of China’s Central Bank Matter?

Brad Setser has been concerned of late about the implications of China’s (and other central banks) exchange losses on their large and ever-growing holdings of US Treasuries which they buy to fund our current account deficit. Setser, a keen watcher of official data, has also noted that private foreign demand for US securities has virtually […]

Under-the-Radar Rescue of Spanish Mortgage Banks

Spain has been in the throes of a housing bubble that is arguably worse than ours, since housing (narrowly defined) accounts for 5% of US GDP versus 18% of Spain’s. And like the US, Spain’s mortgage banks have entered a financial crisis and are making heavy use of the ECB’s discount window. But oddly, this […]