Category: Finance

Not Enough Bullets

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The high frequency trading firms are ramping up their lobbying efforts to keep their front-running of markets legal:

The high-frequency trading industry is stepping out of the shadows in Washington.

Closely held companies with undisclosed profits and obscure names like Getco LLC, Hard Eight Futures LLC and Quantlab Financial LLC, are beginning to act more like Wall Street banks, cutting checks to politicians, forming trade groups and hiring lobbyists and ex-regulators. They’re looking to fend off tighter rules and appease lawmakers who say the firms disadvantage small investors and contribute to wild swings in stock prices.

While the companies, which use high-powered computers to execute thousands of trades in milliseconds, aren’t approaching the big banks in Washington spending, they have more than quadrupled their political giving over the last four years, a Bloomberg News analysis shows. The top recipients include Eric Cantor, set to become House majority leader, and several incoming senators who won in last week’s Republican rout.

Among other things, they are worried that the SEC will limit their ability to manipulate stocks by doing things like submitting large number of orders and then canceling them.

Economics Update

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We have two different data points, first mortgage delinquencies were up in the 3rd quarter, but we also saw that U.S. household debt shrunk by 0.9% over the same period.

So, are people paying down their debts, or are they having their debts written down by banks that realize that they will never get the money?

Coupled with this, crude oil is getting close to $90/bbl again, which may put another crimp in the economy.

Finally, the other shoe has dropped for monoliner bond insurer Ambac, and it has filed for bankruptcy, chapter 11 reorg, not chapter 7 liquidation.

Excuse Me While My Head Explodes

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So, someone in the Obama administration is floating the idea that it would be a good to make (likely soon to be former her election is still to close to call) Congress woman Melissa Bean head of the Consumer Financial Protection Bureau? (CFPB)

Yes, the Democrat most hostile to both to banking regulations in general and to the CFPB in general, is being mooted by some idiot in the Obama administration economic team *cough* Timothy “Eddie Haskell” Geithner *cough* being the first official head of a bureau dedicated to protecting consumers from predatory lenders.

If Elizabeth Warren played the role of Martin Luther, protesting the corruption in the system by nailing her 95 theses to the door of the church, then Melissa Bean is the Church of Wall Street’s Temple Prostitute, selling indulgences.*

And someone in the Obama white house wants her to head the CFPB.

Never heard of Melissa Bean? Well Jane Hamshire has the bill of particulars: (quoting)

Seriously, if Barack Obama nominates her for this post, it will show that he is completely in the pocket of the banking industry.

To be fair, this could be an administration official, *cough* Timothy “Eddie Haskell” Geithner *cough*, free lancing, but I am inclined to see this as deliberate and calculated. This administration revels in message control.

*Yes, I know, this is a badly mixed metaphor.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. K Bank, Randallstown, MD
  2. Western Commercial Bank, Woodland Hills, CA
  3. Pierce Commercial Bank, Tacoma, WA
  4. First Vietnamese American Bank, Westminster, CA

A ordinary run, so far we have averaged 3¼ bank failures a week, though K Bank is very local. My chiropractor is in Randallstown.

Also, I neglected to mention that 2010 passed 2009’s total of 134 on 22 October.

Full FDIC list

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Economics Update

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The lede here is that the Federal Reserved has announced another round of quantitative easing (printing money), $600 billion over the next 9 months, more than the the widely forecast $½ trillion, which pushed the US dollar down in currency markets.

Accompanying the statement was a mild, to my mind too mild, statement about how the recovery is not progressing as rapidly as planned.

With the Michigan Consumer Sentiment Index falling, and US GDP growing at a truly anemic 2% rate, I think that they are being too timid, though there is good news with the Chicago Purchasing Managers Index, the Institute for Supply Management’s manufacturing index and non-manufacturing index, and ADP’s private employment survey: all show an increase.

Even more significantly, it appears that retail sales are beating expectations, which may bode well for the all-important holiday shopping season.

Still, real estate looks dead, with mortgage applications remaining flat despite historically low rates.

BTW, here is a blast from the past, monoliner bond insurer Ambac is warning that it might go bankrupt this year.

I’m wondering if this will put a whole raft of municipal bonds in technical default, since if Ambac goes BK, then it no longer has an obligation to fulfill its insurance contracts.

I really don’t know. Does anyone else know?

Full Fed Statement after break:

Press Release

Release Date: November 3, 2010

For immediate release

Information received since the Federal Open Market Committee met in September confirms that the pace of recovery in output and employment continues to be slow. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak. Employers remain reluctant to add to payrolls. Housing starts continue to be depressed. Longer-term inflation expectations have remained stable, but measures of underlying inflation have trended lower in recent quarters.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Sandra Pianalto; Sarah Bloom Raskin; Eric S. Rosengren; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Voting against the policy was Thomas M. Hoenig. Mr. Hoenig believed the risks of additional securities purchases outweighed the benefits. Mr. Hoenig also was concerned that this continued high level of monetary accommodation increased the risks of future financial imbalances and, over time, would cause an increase in long-term inflation expectations that could destabilize the economy.

Statement from Federal Reserve Bank of New York Leaving the Board

So After Months of Evidence That Their Lawyers Were Corrupt Bastards…

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The GSEs, Fannie Mae and Freddie Mac, have finally fired the foreclosure mill and forged document factory that is the law offices of David J. Stern:

Fannie Mae and Freddie Mac terminated their relationships with a top Florida foreclosure attorney on Tuesday, one day after the companies began taking back loan files from the firm that has processed thousands of evictions on behalf of the mortgage-finance giants.

Fannie and Freddie dispatched employees on Monday afternoon to begin removing loan files from the law offices of David J. Stern in Plantation, Fla. Those files are needed to process foreclosures, which must be done through courts in Florida.

………

The Stern law firm has been at the center of allegations by the Florida attorney general’s office of improper foreclosure practices and is one of four firms under state investigation. The office has released depositions of former law-firm employees who have alleged that the firm forged notarized documents and that employees signed files without reviewing them in an effort to speed through foreclosure filings.

In those depositions, former employees testified that the firms would go to great lengths to conceal improper practices during regular audits by Fannie and Freddie. A lawyer for Mr. Stern has dismissed the allegations as falsehoods made by disgruntled employees.

Well, it’s a start, though even the most tepid investigation of foreclosure fraud, which is all what Barack Obama would do, is sure to be sabotaged by the new Republican majority in the house, because:

  1. They will favor the banks even when they break the law because laws are for little people.
  2. They favor the Andrew Mellon school of dealing with the economy, foreclosure, and the financial crisis. As Hoover’s Treasury secretary, he suggested, “Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.”

So all that Daniel J. Stern, Esq. will see is a few bucks less profit, as opposed to disciplinary action from the bar or a criminal investigation.

Nothing to see, move along.

Prosecution Doing Back-Flips For Goldman Sachs in High Frequency Trading Trial

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If there was any doubt that the federal prosecutors in New York prosecuting Sergey Aleynikov for theft of trade secrets weren’t in Goldman Sach’s Pocket, those doubts have been allayed:

Goldman Sachs Group Inc. has always closely guarded the secrets of its lucrative high-speed trading system. Now the securities firm is getting a help from an unusual source: federal prosecutors.

Federal prosecutors in Manhattan this week asked a federal district judge to seal the courtroom at the forthcoming trial of a former Goldman computer programmer accused of stealing the firm’s computer code. The move was a formal request to empty the courtroom of the general public when details of Goldman’s trade secrets are being discussed. The trial is set to start to late November.

Prosecutors also asked that any documents related to Goldman’s trading strategies remain under seal.

Such requests are common when proprietary corporate information could be exposed in a trial, lawyers say. This case is unusual in that it involves secrets about a potentially lucrative trading system, rather than, say, ingredients in a soda formula.

What is also unusual is that this code is almost certainly obsolete, and almost certainly has no value to a competitor.

The software almost certainly has to be updated regularly, probably monthly, possibly weekly, which means that the algorithms and code are almost certainly obsolete, but still they want the court sealed.

This is not about protecting trade secrets, this is about concerns by the vampire squid* that if the details on how they conducted business came out, they would have people calling for their scalps for front-running the markets.

Basically, Goldman, and the prosecutors, are trying to conceal activity by Goldman that is either illegal, or would lead to changes in regulations that would make it so if the details came out.

My earlier posts on this are here.

*Alas, I cannot claim credit for the bon mot describing Goldman Sachs as a, “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.

It’s Bank Failure Friday!!!!

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No FDIC closures, so the count for this year remains at 139, see the full FDIC list, but there was a credit union failure:

  1. Phil-Pet Federal Credit Union, Pampa, TX

Full NCUA list

It does seem like the trend is slowing, but it’s still pretty awful.

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Economics Update

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Click for full size

H/t Calculated Risk for the September Philly Fed chart Pr0n

Since the tech bubble burst, the economy has been running on the consumer and on home sales, and both consumer confidence and home prices continue to disappoint.

Additionally, new home sales remain at pathetic levels, and mortgage applications increased, largely in response to lower rates.

Also, we did see the Philadelphia Bank of the Federal Released its State Coincident Indexes for September, and more states were up than down, though those advances were, once again, anemic.

The Definitive Word on Hamp

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David Dayen summarizes it in a paragraph:

This is just a truism based on the Treasury Department’s own design for HAMP. Every trial modification payment reads as a default to the credit reporting companies. The Treasury Department could have set it up so that didn’t happen; they chose not to intervene in that reality. All of the money between the trial modification and the original payment that borrowers don’t pay during their trial period gets tacked on as part of the unpaid principal balance at the end. The servicers also tack on late fees. Treasury could have banned that. They chose not to intervene. The servicers can proceed with foreclosure operations during the trial period, arguing that the borrower is in default. They can’t actually foreclose (also in some cases they have). But they can go through the legal process. Treasury could have put a stop to that. They didn’t. Borrowers keep getting told they have to miss a payment to be eligible for HAMP. Treasury actually didn’t put that into the design. But they haven’t sanctioned a single servicer for this or any other violation of the program guidelines. They could have done something. They didn’t.

(emphasis mine, though inspired by Big Tent Democrat‘s similar exercise.)

I think that Mr. Dayen is far more forgiving than I am. He implies that it was combination of incompetence and timidity.

I think that it was actual malice. I think that the Treasury Department deliberately chose to deceive homeowners, because they thought that it would give the banks some breathing space.

Pass the Popcorn

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The Federal Reserve has decided not to appeal the decision of the Federal Courts to turn over information on its sh%$pile for cash loans to Bloomberg News:

The Federal Reserve won’t join a group of the largest commercial banks in asking the U.S. Supreme Court to let the government withhold details of emergency loans made to financial firms in 2008.

The central bank’s decision not to appeal makes it less likely the high court will hear the case, said Tom Goldstein, a Washington lawyer who has argued 22 cases before the high court since 1999 and whose Scotusblog website tracks the panel.

The Clearing House Association LLC, a group of the biggest commercial banks, filed the appeal today. Under federal rules for appeals, a lower court’s order requiring disclosure remains on hold until the Supreme Court acts. Kit Wheatley, an attorney for the Fed, confirmed that the central bank won’t join the appeal. David Skidmore, a spokesman for the central bank, did not immediately respond to requests for additional comment.

The bank group is appealing a federal judge’s August 2009 ruling requiring the Fed to disclose records of its emergency lending. Bloomberg LP, the parent company of Bloomberg News, sued for the release of the documents under the Freedom of Information Act.

Obviously, the Supreme Court could still decide to hear the case, but the Fed pulling out indicates that they no longer see this sort of disclosure as a systemic threat, which in turn makes it less likely that SCOTUS will take up the case.

I think that it is now a question of “when” not “if” the data gets released, and I think that it should prove to be very interesting.

Background here.

If They Are Looking Into it, It’s Only Because They Need to Figure Out the Coverup

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I am referring to the fact that the Federal Reserve has announced that it will investigate the foreclosure problems:

Raising pressure on banks, the Federal Reserve is wading into the investigation of whether mortgage lenders cut corners and used flawed documents to foreclose on homes.

Major banks are already under investigation by state officials with subpoena power, who could force them to detail how they handled hundreds of thousands of foreclosure cases.

Federal Reserve Chairman Ben Bernanke added weight to those efforts Monday by saying the central bank would look “intensively” at policies and procedures that might have allowed banks to seize homes improperly.

“We take violation of proper procedures very seriously,” Bernanke said in remarks to a housing-finance conference in Arlington, Va.

Call me a cynic, but I think that this is all about creating the appearance of investigating foreclosure fraud without actually finding any wrong doing, because they are the Federal Reserve, and that’s how they roll.

Holy Sh%$

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Treasury has sold its inflation protected securities with a negative yield for the first time ever:

Inflation-protected securities sold at negative yields for the first time ever on Monday as traders anticipate that the Federal Reserve will start a new round of asset purchases.

Analysts said that asset purchases by the Fed would lead to a higher inflation rate and a positive return on the bonds.

The $10 billion auction of the five-year bonds sold at a negative yield of 0.550 percent, according to the Treasury Department. The results of the auction of the securities, known as TIPS, came as indexes on Wall Street edged higher, buoyed by recent strong corporate earnings and a rise in housing sales. The previous lowest yield for the TIPS was in the auction on April 26, when the yield was 0.550 percent.

“It is saying that there is a true demand for inflation securities, because people perceive the quantitative easing program is enabling a higher inflation rate in the future,” said Tom di Galoma, head of fixed-income rates trading at Guggenheim Partners.

Basically, this means that “the market,” a nebulous thing whose predictive powers I think are overrated, is nonetheless predicting deflation.

Time to break out those helicopters, Ben.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. First Bank of Jacksonville, Jacksonville, FL
  2. Progress Bank of Florida, Tampa, FL
  3. The Gordon Bank, Gordon, GA
  4. The First National Bank of Barnesville, Barnsville, GA
  5. First Suburban National Bank, Haywood, IL
  6. Hillcrest Bank, Overland Park, KS
  7. First Arizona Savings, A FSB, Scottsdale, AZ

So, after a lull of a few weeks, things appear to be ramping up again.

6 7 banks, there have been 10 6 weeks with 6 7 or more closures so far this year, and it’s week 42.

Not pretty

Full FDIC list

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Just Read This

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Yves Smith again:

The Obama Administration is entirely predictable. It ever and always sides with large corporate interests, while trying to create the impression that it is actually concerned for the welfare of the average citizen. Admittedly, the occasionally tough talk with little follow through feeds a perverse spectacle of plutocrats sulking, pouting, and claiming that they are really, really badly treated.

……

There are so many people on the internet who write, and think, gooder than I do.

My only addition on this is her there are limits to looting without productive activity, and when we run down that string, things will get very ugly very quickly.

The Mortgage Fraud Goes Max Bialystock*

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It turns out that some of the banksters have simultaneously sold mortgages to multiple people (see also here for the court fiuling):

In a complaint filed this month in Washington, D.C. federal court, Bank of America said the FDIC has wrongly denied claims by Ocala noteholders to recover from Colonial Bank and an Illinois lender also in receivership, Platinum Community Bank.

Bank of America accused executives at Taylor Bean, Colonial and Platinum of having fraudulently schemed to “double- and triple-pledge mortgages and steal assets” to hide their faltering conditions as the housing market declined.

So these banks, and a number of others, probably repeatedly sold the same mortgage to different trusts.

This is Max Bialystock level fraud. There is no gray area here, but predictably, the Obama administration is maintaining that somehow or other the problems are not systemic at the same time that they have convened a task force to see if laws were broken.

We have a system where banks simply ignored the law over what amounts to about a $30 dollar cost per loan transfer, MERS, we have banks destroying the chain of custody of the loans, and the solution of the Obama administration is to wave a wand and grant absolution.

That’s the message of these conflicting messages: There is a task force, but that is just politics, and all will be forgiven on November 3rd.

Un-dirtyword-believable.

*Just F%$#ing Google it.