Pat Leahy has introduced a bill to eliminate the insurance companies antitrust exemption, and the entire Sentate Democratic leadership is cosponsoring it.
Here is Chuck Schumer explaining the basics:
Category: regulation
Federal Reserve Will Continue to Pump More Money Into the Equity Bubble
According to accounts of the minutes, not only are they not looking at winging down their sh$%pile for cash program, but there are a number of members who want the program expanded. (See also here and here)
Unfortunately, boosting stock prices by giving money to banks for worthless assets does not get people back to work, and it could be argued that it creates the illusion of a recovery that makes banking reform that much more difficult.
Economics Update
Well, if you are a small business that relies on CIT for your credit, you have a problem, because the company’s CEO is resigning as a likely prelude to bankruptcy.
There are over a million small and medium sized businesses that rely on CIT for their credit.
Additionally, the meltdown among the monoliners continues apace, with Fitch downgrading Assured Guaranty from AA+ to AA, which, given the fact that their business is basically renting out their credit rating, they are pretty close to “toast” status.
Meanwhile, on the other side of the pond, investor confidence in Germany has fallen for the first time in 3 months, down to 56 September’s 57.7 and well below the forecast of 58.8.
Meanwhile, we are seeing increased demand for Treasuries because foreign investors think that they have become cheap with the falling dollar, and investors are expecting a rebound in the dollar when the Federal Reserve finally does tighten monetary policy.
It appears that this optimism also pushed the price of oil to $74.15/bbl.
Whiskey Tango Foxtrot?
So, let me get this straight, the latest foreclosure prevention program from the Treasury involves evicting people from their homes:
HAFA already holds the support of Fannie, according to a VP at the agency, Eric Schuppenhauer, who believes the new program allows borrowers in imminent default to “make a graceful exit” from their home. HAFA will keep the stigma associated with foreclosure away from the borrowers, he added, and help keep communities intact.
Maggiano adds that HAFA will offer financial incentives to both servicers and borrowers, and associated secondary investors, in order to facilitate a short sale or deed in lieu of the property.
So, this is sensible policy, while giving bankruptcy judges the power to cram down mortgages, like the do for almost every other sort of debt is evil socialism, or maybe a bad hair day, or something bad.
Huh?
H/t Atrios
Economics Update (a Day Late)
Click for full size
Foreclosures hitting high end homes
Hotel Pulse Index
Baltic Dry Index, a Measure of Shipping Demand, Courtesy Barry Ritholtz
You know, there are very few guaranteed money makers, but one is owning baseball club, and the Chicago Cubs have just filed for bankruptcy, which says something about the state of the economy.
I know that this is really an artifact of Sam Zell’s completely idiotic business model, which seemed to be:
- Collect Underpants
- ?
- Profit
Except, of course, Zell was collecting short term loans, rather than underpants.
Of course, it’s not only big debtors like Zell who are getting into trouble. You are seeing foreclosures increasing among more expensive homes, which gives the lie to the constant refrain from many in the right wing that it’s all the fault of those n*gg*rs irresponsible borrowers.
It’s going to get worse, and it’s likely to create another crisis if Wells-Fargo’s numbers on Option ARMs carry across the industry, which are unbelievably grim:
“Several of our investors have questioned the current loss severity in light of negative amortization and home price decline,” researchers wrote in the report. “Our analysis suggests that option ARM loss severity will likely range between 60% and 70% provided home prices have stabilized.”
So 60+% of the option ARM are expected to go bad, even if house prices are not falling any further.
We are also seeing a continued drop in hotel activity, which implies that both consumer and corporate travel remain moribund.
The bottom piece of chart pr0n is the Baltic Dry Index, basically an index of shipping costs, though it is also a very good proxy for shipping demand, and this appears to indicate that the need for shipping, and hence the level of international trade, is still well off.
We are some seeing some interesting activity in US Treasuries now, with bonds rising, and their yields thus falling, on the expectation that the Fed will print more money and that inflation will remain low, but Treasury Inflation Protected Securities (TIPS) are also showing signs of expanded demand, which implies that at least part of the bond market is betting on increased inflation in the relatively near term.
We have some good news, in that the recession appears to be well and truly over…..In New Zealand, with retail sales jumping there.
This would explain why both the $NZ and the $Aus rose significantly yesterday….Well, that and the fact Australia’s central bank raised rates last week.
The US dollar was otherwise mixed, weaker vs. the Euro, but up vs. the Pound Sterling and Yen.
Oil rose yesterday too, as a result of a combination of cold weather in the US and optimism about the economy.
Update on Fed/Bloomberg Case
The case, which the Federal Reserve appealed, is about whether or not the central bank should release the names of non-banks that have borrowed from it.
The Fed wants the names kept secret, and lost in the lower court, and now Bloomberg wants the names released pending appeal:
Details about the borrowers and their collateral are “central to understanding and assessing the government’s response to the most cataclysmic financial crisis in America since the Great Depression,” attorneys for Bloomberg said in the suit.
The Freedom of Information Act obliges federal agencies to make government documents available to the public. The Bloomberg suit didn’t seek money damages.
The interesting bit here is that the Fed is appealing on the basis of damage, which means that they appear to be ceding their prior claim that they aren’t really a part of the government, and hence are subject to FOIA requests.
Odd….
No bank failures this Friday.
Given that lately the pace has been about 3 a week, and bank takeovers are easier on 3-day (Columbus Day) weekend, one wonders if something big in the way of government intervention is not in the offing.
Odd….
No bank failures this Friday.
Given that lately the pace has been about 3 a week, and bank takeovers are easier on 3-day (Columbus Day) weekend, one wonders if something big in the way of government intervention is not in the offing.
Economics Update (Catching Up)
Click for full size
Unemployment Claims, Courtesy Calculated Risk
Consumer Credit, Courtesy of EconomPic
Office Vacancies, Courtesy Calculated Risk
Office Investment, Courtesy Calculated Risk
Strip Mall Vacancies, Courtesy Calculated Risk
So, we have some news on the unemployment front, with new unemployment claims falling to 521,000, a 33,000 drop, with the 4 week moving average falling 9K to 539,750, and continuing claims falling by 72K to 6.04 million.
We also have some good news from Australia has become the first G-20 central bank to raise its benchmark rate, by 25 basis points (¼%) to 3.25%.
My guess is that the Reserve Bank of Australia’s (RBA) is premature in this action, as is generally the case with first movers coming out of a recession, but it means that the next central bank will likely be correct, or at least less wrong, as the second movers, such as the European Central Bank and the Bank of England, who both kept their rates unchanged, generally are in such things.
Still, 3¼% is pretty damn low by historical standards.
It could be that Australia’s rate hike may force other central banks’ hands though, as their rate increase appears to have pushed prices down, and yields up, on US Treasuries.
We also saw retail sales rising for the first time in over a year in September, and the Institute for Supply Management has released its Non Manufacturing Index, which rose to 40.9, up from 48.4 in August, and the first time that it has been above 50, meaning expansion, as opposed to that whole 2nd derivative is positive thing, for the first time in 11 months.
So, it appears that there is some sort of recovery in the works, assuming that something else bad does not happen, like US apartment vacancy rates hitting a 23-year high and rents falling, consumer credit continuing to contract, CRE taking a hit as office vacancies go up as rents go down, along with strip mall vacancies hitting a 17 year high, and wholesale inventories falling in August.
Much of what worries me is real estate, though it has to be said that mortgage applications have risen as the rate for a 30 year fixed mortgage has fallen to 4.87%(!).
It does appear that the good economic news, along with the Australian rate hike, has had an impact on currencies and energy, with oil rising above $71/bbl, and the dollar falling on both an increased risk appetite, and downward pressure from the Aussie rate hike.
As to how much is optimism, and how much is the rate hike, the fact that gold hit a new high, and gold is typically seen as a hedge against uncertainty leaves me inclined to lean toward the pessimistic view, but then again I always lean toward the pessimistic view.
Be Afraid, Be Very Very Afraid
Something that it tossed off rather blithely in this article is the fact that under a tax and trade system*, will generate a market of more than $2 trillion, “within five years of trading (starting)”.
When you look at what trading has done to the price of oil, i.e. created increased transaction costs and increased price volatility, and you realize that the US Gross Domestic Product (GDP) is just $13 trillion a year, this looks like another Wall Street “Masters of the Universe” engineered disaster in the making.
I’m waiting for the CDS (Carbon Default Swap) market to blow up the markets, and I wonder how I hedge myself to profit from it when it happens.
*That is what it really is, after all. It’s taxes which are bought and sold to allow Goldman Sachs to generate fees for trading these permits. Cap and trade is used in order to make it sound like it isn’t a tax, but it’s a tax, only a lot of the proceeds go to Ivy League classmates of Ivy League politicians as sales commissions.
Where is My Damn Schwag?!?!?!
So, the FCC has decided that bloggers must reveal any free stuff that they get when they do a product review under threat of a $10,000.00 fine:
The F.T.C. said that beginning on Dec. 1, bloggers who review products must disclose any connection with advertisers, including, in most cases, the receipt of free products and whether or not they were paid in any way by advertisers, as occurs frequently. The new rules also take aim at celebrities, who will now need to disclose any ties to companies, should they promote products on a talk show or on Twitter. A second major change, which was not aimed specifically at bloggers or social media, was to eliminate the ability of advertisers to gush about results that differ from what is typical — for instance, from a weight loss supplement.
I actually think that this is a reasonable requirement, but that it should be applied to all forms of media, such as magazines and newspapers too.
In any case, I now have a disclaimer in place, down the right column, which reads:
Commercial Disclosures
Please, send me free stuff, and I will consider doing a review.I am a complete whore, so assume that any review is the result of free stuff, and/or under the table payments.
About the only such schwag that I have gotten is a copy of My Liary (blogged about here), which I revealed that I received for free.
If I get a freebie, I will disclose, and beg for more.
This Won’t Criminalize Anyone
The recent moves to curb secrecy in private banking does not make any a criminal, it simply makes catching the crooks easier:
European leaders should give up the attack on Swiss banking secrecy and accept a withholding tax on foreigners to avoid criminalizing wealthy taxpayers, said Konrad Hummler, managing partner of Switzerland’s oldest private bank.
“If there is really a desire to criminalize part of the elite in European countries, then it would be a bigger problem for these countries than for Switzerland,” Konrad Hummler said in an interview at the offices of Wegelin & Co. in Zurich. The “majority of European clients were not criminals but just diversifying away from their home country
There is nothing illegal about using a private banker, but people are using private bankers to conceal income from tax authorities and to conceal income, and assets from spouses in divorce cases, and these are explicitly criminal acts, tax evasion and fraud.
Under the current world banking regime, people can put money in almost any institution that they want in almost any country, including Switzerland.
What is a crime, and has always been a crime, is putting money some where to hide it from tax authorities and opposing counsel.
Maybe we should go Chinese, and have a roving execution van, and put bullets in the heads of tax evaders, and their co-conspirator bankers, like Konrad Hummler.
Mr. Hummler, if you didn’t want to go to jail, you shouldn’t have been a criminal
It’s Bank Failure Friday!!!!
And here they are, ordered, and numbered for the year so far.
- Warren Bank, Warren, MI
- Jennings State Bank, Spring Grove, MN
- Southern Colorado National Bank, Pueblo, CO
How to Tell When Finance is Doing a Very Bad Thing
When the Wall Street Journal Describes Finance With Cartoons, it Means that Someone will Get Boned, and it ain’t the “Bankers, Lawyers, and Other Advisers.”When the Wall Street Journal talks about a new financial wonder weapon, like the resecuritization of real-estate mortgage investment conduits (re-remics), and they feel the need to use a cartoon to explain how it works.
Does that cartoon look complex to you? There are a couple of reasons for this:
- The bankers, lawyers, and other advisers are picking your pocket.
- In a perverse way, needless complexity is good for business, because it makes people feel like they are paying for meaningful services.
- It justifies the enormous fees collected by Wall Street, not just for brokerages, but also for the now discredited ratings agencies..
But the bottom line is this:
The net result is financial firms’ books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction.
(emphasis mine)
This business will get out of control. It will get out of control and we’ll be lucky to live through it. It’s time to cue Freddie Dalton Thompson from The Hunt for Red October.
So, you have the same amount of risk, but by slicing and dicing securities into new “pools” (a year ago the word was “tranches”, but well, we know how that went.
This is not about managing risk, or understanding risk. This is about concealing risk from the unsophisticated investor and unsophisticated regulators.
This is a perfect example of why investments should be treated like drugs: Forbidden until proven safe and effective.
Financial innovation, my ass.
Hopefully, His Next Stop is Jail….
Where he will spill his guts on the coercion by Hank Paulson and Ben Bernanke on the Merrill Lynch deal, but for now the news that Ken Lewis is stepping down as CEO of Bank of America is, as the punchline about lawyers* says, “A good start.”
*Q: What do you call 5000 dead lawyers at the bottom of the ocean?
A: A good start!
Why to Hate Iceland*
If you have cable, or satellite, or FIOS, you have doubtless seen Whale Wars, a show about the (almost completely lily white) members of the Sea Shepherd Conservation Society pursuing the Japanese whaling fleet down around Antarctica.
Japan, is, of course a bad guy in all of this, classifying commercial whaling as “research”, and bribing countries to join the IWC to overturn the moratorium on commercial whaling.
But, as Needlenose notes, Iceland pulled completely out of the IWC, and is butchering whales as quickly as possible and shipping the meat to Japan.
So, we have two bad players, one is gaming the system, and the other is operating completely outside the law.
Also note that Iceland, which has told the world to go pound sand, is also begging for money from the IMF, World Bank, EU, and pretty much any other acronym with two cents together, which means that they are in a position where world opinion is crucial to them.
So, which one are all the anti-whaling forces going after?
Why, the ones who aren’t alabaster white, of course.
In all fairness, the Icelandic catch is limited to about 250, as versus the about 600 for Japan, but I do think that there is a bit of bigotry behind not going after the low hanging fruit.
*Besides Bjork, of course.
Economics Update
Well, notwithstanding the “green shoots” that every fool (Ben Bernanke) is crowing about Consumer Confidence fell to 53.1 in September, down from 54.5 (revised) in August, and well below the predicted 57.0.
While this may not effect spending for the Christmas holiday, it does look like it’s putting a crimp in Halloween spending, with consumers planning to spend about 20% less this year.
Of course, we are still seeing some good news, such as the Case-Shiller home price index rising for the 3rd straight month, but, as Barry Ritholtz notes, it’s still down 13.3% for the year.
I would also add, that these are seasonally adjusted numbers, which really make no sense when a market is as out of whack as this one is, it’s YoY that gives meaningful data.
We also have the Chicago Fed’s National Activity index falling in September, to -.90, from August’s -0.54, indicating further contraction.
Overseas, we are seeing more good news though, with consumer confidence in Germany increasing to a 16 month high, and the Brazilian central bank being confident enough that it is starting to clamp back down on credit, which means that they are worried about inflation.
One hopes that the Brazilian bankers are not jumping the gun here.
In insurance, we have a bit of nostalgia, with the monoliner insurers popping up their head again, as S&P cut both MBIA, Inc. and MBIA Insurance credit ratings, to BB-minus and BB-Plus respectively.
Both ratings are below investment grade. (i.e. junk)
In energy, it looks like the consumer confidence numbers have driven oil prices down, to $66.71/bbl, and it looks like natural gas prices are about to fall off a cliff, because the salt domes, depleted oil fields, and aquifers used to story the fuel have reached capacity, meaning that anything pumped has to be sold, and delivered as soon as it leaves the ground.
Gasoline prices are continuing their fall too.
Meanwhile, the dollar is up, largely on increased worries about the economy, though the rate cut by Russia’s central bank has also made the USD more attractive to investors.
FDIC Goes Wimpy
I’d gladly pay you Tuesday for a hamburger todayI don’t mean that Blair and company have become shrinking violets, I am instead referring to the comic book character from Popeye.
The FDIC is asking banks to prepay their insurance fees through 2012, in order to handle the depletion of their insurance funds.
It is the Wimpy theory of funding, and its success is contingent on the idea that the recession is over, and so we will see a fairly robust recovery.
If they are wrong, and given the impending implosion in CRE which threatens small and regional banks, I think that they are, it won’t do much.
In fact, I can see creditors going after the prepaid insurance premiums, which will create a big mess.
Adventures in Ass Covering
It looks like any number of financial institutions are realizing that Congress is going to do them like a College Republican does a drunk sorority girl if they don’t get their act together, so they are now taking actions that they should have taken years ago. (See Barn door, cows missing)
First, the Federal Reserve has finally concluded that it should regulate some more of the non-bank lenders out there:
Tuesday that it will extend its regulatory umbrella to cover a group of lenders that includes several major originators of subprime loans, policing whether they follow federal laws that protect consumers of mortgages, credit cards and other financial products.
Federal banking regulators already oversee companies that own banks, known as holding companies, along with the banks themselves. Under the new policy, the Fed will extend the same oversight to other businesses owned by those holding companies, such as units that make home-equity loans.
The policy places subprime lenders such as CitiFinancial, an arm of Citigroup, and Wells Fargo Financial, an arm of Wells Fargo, under Fed oversight for the first time. The same laws protect all borrowers, but until now, no federal agency watched to make sure non-bank subsidiaries followed the law.
And we also have the FED suddenly requiring the financial institutions submit their pay policies to them for review.
What is going on here is that there is significant push-back in Congress against the Obama proposal that the Federal Reserve be the primary systemic risk regulator, and the desire of the Fed to be the “financial consumer protection agency”, as Bernanke is aggressive lobbying for this role shows.
When this is juxtaposed with increasing support in Congress for the Paul/Grayson proposal to audit the central bank, and we are having a gallows conversion, where they attempt to show that they are really concerned about regulation and protecting ordinary people.
Hopefully, this won’t work, and we will see a Federal Reserve with a smaller, and not a larger, role than it has today.
I think that the only two people who want the Fed’s role to expand are current chairman Ben Bernanke, and White House Economic Advisor Lawrence Summers, who is hoping to be Fed chair one day.
We are also seeing the same things with banks and overdraft fees, where proposals in Congress to regulate fees, as well as “automatic overdraft protection” and check clearing orders, are creating an orgy of heretofore non-existent concern for consumer among the big banks, with Bank of America, Wells Fargo, and J.P. Morgan Chase announcing that they will be rolling back their fees.
There is no big surprise here, the banks know that if they can always raise fees again.
The argument is the same: “We’ll be good, there is no need for legislative restrictions.”
What goes unspoken is the idea that once people are looking the other way, the rates will go back up again.
It’s the same thing with the Conference Board, an organization created for, and funded by, business executives, who are now saying that they will be issuing a report suggesting fixes in how executive compensation is determined:
The report to be released today urges companies to avoid paying for personal travel, hefty severance packages or above-market returns on deferred compensation. The recommendations were endorsed by the California State Teachers’ Retirement System, AT&T Inc. and others.
“In order to restore trust in the ability of boards of directors to oversee executive compensation, immediate and credible action must be taken,” the report from the New York research group said.
This is not about fixing things, this is simply an effort to create the appearance that things might fix themselves, in order to forestall any potential laws or regulations that would prevent excessive compensation from returning in the future.
I suppose that there is a silver lining to all this, which is that the people involved are clearly worried, which perhaps real changes can be initiated.
Carbon Tax Update
Well, it’s beginning to look like France will impose its own carbon tax €17 ($24.90) per ton of CO2.
French President Nicolas Sarkozy wants to move France toward greater reductions in carbon emissions, but it is also a reflection of just how big a failure that Europe’s cap and trade regime has been, with the creation of false offsets overseas, construction of hydroelectric plants without transmission lines in China, and paying farmers not to grow food.
In addition to that, there is the detail that the markets simply do not work, creating a “pollution fire sale,”* which makes this system a joke.
In any case, I ran the numbers,† and got about $0.2212/gallon, which in the scheme of things is not a huge chunk of change, particularly in France, where the price of a gallon of gas is about $6.00 including tax, but it is likely to make coal powered electricity much less competitive, particularly if the tax goes up over time.
France is emulating Finland and Sweden, who implemented carbon taxes over a decade ago, and got reductions in emissions, as opposed to the EU cap and trade, which hasn’t ever worked.
On a related note, both Caterpillar and Federal Express are lobbying for a carbon tax instead of a cap and trade too.
They mention a number of reasons, not the least of which is the giveaways to big coal, but the big reason is buried a few paragraphs down here:
A predictable, graduated tax would have an impact on the role of the military overseas, improve the environment and be good for the economy, [FedEx CEO] Smith argued.
(emphasis mine)
Simply put, they don’t want to live in a world where the cost of carbon credits will fluctuate day to day because of the machinations of that great vampire squid wrapped around the face of humanity,‡ Goldman Sachs.
FedEx and Caterpillar, and pretty much everyone but the coal burning utilities can live with a carbon tax, it effects them all equally.
If you make carbon permits a trade able market commodity, and suddenly you have where the difference between survival and bankruptcy are choices in an opaque and volatile market.
You end up diverting enormous resources from upgrading equipment and doing research on more efficient ways to do things, and drive it into the blood funnel of the vampire squid.
*Original author’s pun, not mine.
†I assume that the tax is actually per tonne (metric ton), so that is 1000 kg of CO2, which is 273 kg of carbon. This means that the actual tax for a kg of carbon is about €0.0623 per kilo of carbon.
A good approximation of the formula for gasoline is C8H18 (It’s actually a witches brew of different hydrocarbons), and the weight of a liter of gasoline 0.76, so the weight of carbon in a liter is about 0.64 kg.
This gives a tax of about €0.03989/liter, or about $0.2212/gallon
‡Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.