Category: regulation

Release of Federal Reserve Sh&%pile for Cash Purchases Stayed

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Federal Judge Loretta Preska has stayed her order for the Federal Reserve to release information on the emergency loans that it made:

The U.S. Federal Reserve won a delay of a federal judge’s order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received.

Chief Judge Loretta Preska of the U.S. District Court in Manhattan stayed her August 24 order in favor of Bloomberg News, which had sought the information under the federal Freedom of Information Act, so that the central bank could appeal.

The Fed asked for the stay claiming that releasing the information would cause grave damage to the financial system, but that was also their argument for not complying with Bloomberg News’ Freedom of Information Act (FOIA) request in the 1st place, so what is really going on here is a pretty standard stay pending appeal.

I fully expect this to go all the way to the Supreme Court, and if this information gets released, I fully expect it to reveal that the Federal Reserve has been lying, as their standard behavior has been to assume that you can’t handle the truth, so the truth must be suppressed.

As I have said before, this is why central banks powers need to be limited: While the interest rate/inflation fighting function must be thoroughly insulated from politics, because the act of taking away the proverbial punch bowl is inherently politically suicidal, any other function that does not require that level of political isolation must be vested in a more accountable institution.

Background here.

Economics Update

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Consumer confidence is at a 4 month low for August, Reuters/University of Michigan Surveys of Consumers, which compares with the Conference Board’s reading, which was up a few days back.

Both results are consistent in that they beat expectations, but this confuses the hell out of me. I think that future sentiment has a bigger role in the Conference Board’s survey, which may explain the difference.

We saw consumer spending rise by 0.2% in July, though income was flat, but this should be taken with a grain of salt, as the increase was entirely a consequence of the “Cash for Clunkers” program.

Meanwhile, in banking, the Federal Reserve is reducing the size of its Term Auction Facility (TAF) cash for sh$#pile auctions to banks, largely on the basis of reduced demand for them:

Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007.

……

“I am surprised by how quickly the market has become receptive to leverage again,” said Bob Franz, the co-head of syndicated loans in New York at Credit Suisse. The Swiss bank has seen increasing investor demand for financing to buy loans in the past two months, he said.

I’m not surprised. Modern investment banking is about making big bucks by scamming rubes like the one pictured on the right.

Unfortunately, said rube has the power to make every American taxpayer pay for his decisions.

Meanwhile, on the other side of both ponds, we have record unemployment and record deflation, while businesses in the UK cut investment spending at a record rate, so there is not much in the way of green shoots there.

In currency, the dollar fell, and more significantly, the “cost of borrowing dollars for three months slipped below the rate on similar loans in yen for the first time since 1993,” which implies that in the event of a flight to safety, that money will go toward Japan, where returns are now marginally higher.

In energy, oil rose slightly.

While I Would Not Trust Ron Paul with My Lunch Box,

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When Barney Frank says that he supports an audit of the Federal Reserve, and that the bill will pass the House in October, and I believe that his assesment is an honest one.

That being said, I think that the Senate is more receptive to Bernanke’s protestations as to the need for opacity independence, and have been more thoroughly bribed by Wall Street are more concerned about market repercussions, while Obama’s economic advisors are Wall Street stooges and influence peddlers very supportive of the current regime at the Fed, which makes his signing a bill dubious.

As to Representative Paul, it’s a case of a stopped clock being right twice a day.

Holy Crap. The Fed is Going 1937 on Us

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It’s the Recession all over again, with the Fed tightening money as something resembling a recovery begins:

Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy — it now appears to be in the process of making a sizable withdrawal.

A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis.

For example, the monetary base — the raw material for the money supply — has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.

I’m a pessimist, and I do not believe that the current recovery is “real”. I think that it is largely being driven by the Fed laundering money and pushing it into the equities markets (stocks), which has pushed up the indices, and that the rising stock market is creating the perception* of a recovery.

But even if I’m wrong, and the recovery is real, if very anemic, this is absolutely the wrong time to put your foot on the break.

*Yes, I know, perception is a BIG percentage of what constitutes a recession, but it is not everything.

Judge Orders Federal Reserve to Release Documents under FOIA.

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District Judge Loretta Preska has ordered the Federal Reserve to turn over loan and collateral data for their emergency loans under the Freedom of Information Act.

This is very important news for a number of reasons:

  • It means that the public will get to review what was actually in this part of the Fed’s “sh$%pile for cash” program.
  • It will spawn other FOIA suits.

And most importantly:

  • Is an unequivocal ruling by the courts that the Federal Reserve is a federal agency and has to abide by federal rules how they do business.

I’m fairly certain that the Fed will take this all the way to the Supreme Court if it can, because those folks really believe that seeing the man behind the curtain would destroy the United States of America.

They are wrong, of course, but it is clear that this is what they believe.

Economics Update

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The Big Picture looks at the sales numbers

Seeing as how I did not post on Friday, there was a tornado watch, and my kids were freaking, I’ll start with the big story from last week, which was that existing home sales rose to a 2 year high.

Of course, the 1st thing that comes to mind is that the National Association of Realtors (NAR) are supplying this data, and it’s suspect.

The 2nd thing that comes to mind is that a remarkably large portion of these sales are distressed.

The Big Picture runs the numbers more fully (chart pr0n is from this link, click to see full size), and while mentioning these two points, notes some other interesting bits of information:

  • “If not for a surprise and suspect 16k increase in Northeast condo sales, Existing Home Sales would have been lower month-over-month and only up 12k units from July 2008, which was the worst year on record for housing.”
  • Non-seasonally adjusted data actually shows a decrease, and given the high proportion of foreclosures and short sales, seasonal adjustment is actually not going to be accurate right now; the market is just too fracked right now.
  • Prices are still falling.
  • Sales less foreclosure activity (bottom pic) is way down.

Furthermore, we are also seeing the effect of the housing cash for clunkers tax credit, which allows a 10% tax credit (max $8K) on purchases for “New” (not owned a house in 3 years) buyers, but the home has to close before November 30, which really means having the sale done in the next 8 weeks or so, so it’s another blip, unless, as CR notes, the NAR and NAHB manage to successfully bribe lobby for an extension.

Note that the tax credit can be used for a down-payment, which further distorts the market.

He have a housing market that is really still heading down, albeit more slowly, despite massive federal subsidies.

If there were really a return to health in the housing market, then Taylor Bean, the 12th largest mortgage company in the US, would not be filing for bankruptcy.

As to housing news for the rest of us, the rate at which mortgage holders who have fallen behind catch up on their payments, the so-called “cure rate”, for holders of prime mortgages, has fallen to 6.6%, down from 45% in the years 2000-2006, and very close to the rate for Alt-A (4.3%) and sub-prime (5.3%).

Meanwhile, treasuries have risen again, driving yields down, though it is unclear how much is risk aversion increasing, and how much is the Federal Reserve buying more of the securities.

It does mean that investors believe that the Fed won’t be raising rates for a while yet, though the Bank of Israel just raised its benchmark rate, which indicates optimism on their part.

My guess is that they are wrong, simply because they are the 1st central bank to do so, and my money is on any first mover jumping the gun.

Then again, they could be right. The Chicago Fed July National Activity Index rose sharply in July, increasing to -0.74 in July from -1.82.

Even though the numbers still show contraction, the delta is impressive.

Meanwhile, in energy, crude oil is at a 10-month high on “green shoots” in the economy, and retail gasoline prices have remained basically unchanged, despite falls at the wholesale level.

The dollar was up slightly, largely in a holding pattern as traders wait for new consumer spending and housing data.

Economics Update

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Graph Pr0n, courtesy of Calculated Risk

Lets lead with some good news, the New York Bank of the Federal Reserve’s Empire State Manufacturing Index hit its highest level since November, 2007, and it’s actually positive, as opposed to the “falling less slowly,” good news we frequently see from hack economic reporters. (See top pic)

We also have home builder confidence, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, rising to its highest level in more than a year.

<Paul Harvey>And now, the rest of the story:</Paul Harvey>

We have the delinquency rates at commercial banks rising sharply in Q2, and the banks responded by tightening credit significantly.

This is pushing up the price of treasuries, and thus lowering their yields, as investors flee to quality.

As a result, the Fed has extended its TALF facility for commercial real estate, because they (correctly) see an impending crash.

Meanwhile, on the other side of the pond, where our other partner in corrupt “Anglo-Saxon Capitalism” goes to work, asking prices of UK homes fell by 2.2% this month, (that’s for the month, not annualized) with lack of credit to home buyers being a large factor in this move.

All in all, most of the signs are not good, which is why both crude oil and natural gas fell significantly today, and the US dollar and the Japanese Yen both rose.

Yeah, Deregulation Works…..

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The most deregulated telecommunications in the market is in the United States, and so is the most expensive cell phone market, and Finland, Netherlands and Sweden have the lowest rates. (OECD report here)

Surprise, surprise, surprise, when you deregulate companies that profit from making it difficult for consumers to switch services, and use the leverage to keep prices high, use this as their business model.

The problem in many areas of our economy is not too much regulation, but too little.

What’s the Word For This???? Oh….Right….Regulation

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Put this down to “Elections can mean something.”

It looks like the case of Goldman Sachs’s allegedly purloined high speed trading software, aka “Flash Trading”, which a number of observers, myself included, have noted sounds a lot like front-running the entire stock market, now appears to be creating some regulatory push-back.

Basically, this allowed high speed servers co-located with the markets to execute trades in the milliseconds between when other trades are initiated, and when they are completed.

First, as a result of questions raised by Senator Charles Schumer, both Nasdaq and Bats Global Markets have decided to stop allowing brokerages to execute trades in this manner on their exchanges.

The Financial Times notes that this sort of automated trading currently accounts for over ½ of all US stock trades.

Additionally, it appears that the S.E.C. is looking at restricting the process.

Here is a simple solution: Require that any trading done by computers be delayed by at least 15 minutes from initiation to execution.

It also looks like the S.E.C will crack down on “naked” short sales, where an investor sells shares he does not have, as opposed to borrowing shares to sell, which they would purchase and return at a later date.

On the commodities side of the equation, the FTC is issuing new rules to restrict the ability of traders to manipulate the markets.

I’m wondering when the Giethner/Summers shoe will drop, and they will push for elimination of these regulations, because it makes US markets “less competitive.”

It’s Bank Failure Friday!

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

  1. Dwelling House Savings and Loan Association, Pittsburgh, PA
  2. Colonial Bank, Montgomery, AL
  3. Union Bank, National Association, Gilbert, AZ
  4. Community Bank of Arizona, Phoenix, AZ
  5. Community Bank of Nevada, Los Vegas, NV

So, Colonial Bank, the largest failure this year, failed. I mentioned it earlier:

All deposit accounts have been transferred to Branch Banking and Trust Company, (BB&T), Winston-Salem, NC (“assuming institution”) and will be available immediately. The former Colonial Bank locations will reopen as branches of BB&T. Each location will operate by the same schedule it did prior to this transaction.

Full FDIC list

Goldman Says Curbing Speculators May Disrupt Markets

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Well, isn’t that special, Goldman Sachs thinks that we as a society owe them the right to rape us:

Goldman Sachs Group Inc., the bank that makes the most money from commodities, fixed-income and currency trading, said attempts to curb speculation may be “disruptive” to energy markets.

“The role that is played by non-traditional participants such as index investors and other financial participants often has been mischaracterized,” Don Casturo, a Goldman Sachs managing director, said today at a Commodity Futures Trading Commission hearing in Washington.

Somehow, I think that your being hung from a lamp post when the revolution comes would be more disruptive.

Unfortunately, it appears that Timothy “Eddie Haskell” Geithner and Lawrence “Never Right in the Real World” Summers largely agree.

Will This Bank Make Tonight’s List

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There are reports that Colonial BancGroup is near collapse, and desperately attempting to sell itself off to BB&T.

If it fails, it would be the largest failure so far this year, and the 6th largest bank failure ever.

Of note is the fact that if the bank fails, then about 25% of all “warehouse lending” goes away.

Warehouse lending is a form of short term lending used most often by folks like independent mortgage brokers.

There would be some real repercussions here in the housing market, even with independent brokers having a much smaller piece of the pie than they did 3 years ago.

Something Smells Very Fishy Here

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Remember that guy who allegedly stole Goldman Sach’s proprietary high speed trading software? You know, the stuff that ran on their co-located servers in the exchanges, and so as to engage in front-running the entire market?

Well, it looks like there is a no jail time deal for Sergey Aleynikov in the offing about this.

Goldman Sachs has apparently folded like a bunch of overcooked broccoli, after the defense got a ruling saying that said that they were to be given access to all relevant personnel records.

So, Goldman Sachs, that great vampire squid wrapped around the face of humanity,* the folks who think, probably correctly, that they own the United States of America, acted like a prison bitch when confronted with the possibility of his reviewing his own personnel file???

Something is very wrong here.

What on earth are they hiding?

FWIW, any tips received will be kept in strictest confidence.

*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.

Economics Update

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Trade Deficit Graphs Courtesy of Calculated Risk

The lede today is that the Federal Reserve Open Market Committee (FOMC) med and has issued its report.

Rates are staying where they are, but they are winding down their bond purchase program, and they seem to be seeing a light at the end of the recession tunnel.

You can read their full statement here.

Unsurprisingly, their upbeat attitude pushed the prices down, and hence the yields up, on 10 year US treasuries.

Me, I’m not the optimistic type, and with home prices declining 15.6% year over year, as foreclosures push down prices, and there is also tremendous amount of Shadow inventory out there, where banks are not listing houses on the MLS in order to support prices.

In any case, mortgage rates are on the rise again, which has depressed mortgage applications, particularly those for ReFis.

In addition, further indicators of what is going on in the real economy, specifically back to school sales and pay raises are both trending in the direction of awful.

On the trade deficit, there has been an increase in the US trade deficit, (see graphs) but this is not an artifact of increased demand for goods and services, but of rising oil prices, which, by the way, were up today.

We are also seeing a deflationary spiral in Japan, where wholesale prices fell by 8½% year over year in July.

Still, it appears that the Fed’s optimism has driven the dollar up today.

Economics Update (Yesterdays)

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Temporary Help Numbers, H/T The Big Picture

I was going to post, but thunder storms came through, and even with a surge protector, I shut down.

It was a big day for central bank news, with reports that the Federal Reserve sending signals that it will stop purchasing Treasuries, which means that while rate hikes are not on the horizon, that quantitative easing (printing money) will be ended over the next few months.

Meanwhile, the granddaddy of zero interest rate central banks, the Bank of Japan, has decided to keep its rate at 0.1% (basically 0%), as the Bank Governor, Masaaki Shirakawa, says that he does not see a strong recovery once stimulus measures fade, “I can’t be confident about the strength of final demand after inventory adjustments and policy measures run their course.”

The Bank of Korea is of the same mind, with it keeping its benchmark rate at 2%, an all time low for the institution.

In employment, the decline in temporary workers seems to be moderating a bit (see graph).

In real estate, it looks like commercial real estate (CRE)is on a path to crash more catastrophically than residential real estate, Fitch Ratings predicting that delinquencies could exceed 5% by year’s end.

Basically, CRE is in a worse place than residential, because they typically take out 5 year mortgages that they have to refinance at the end of the term. If real estate prices go down, they cannot refinance, while in residential real estate, once you have a mortgage, you have one until the loan is paid off.

In China, exports have declined for the 9th straight month, and new loans fell, indicating that they are not out of the woods yet.

Meanwhile, in currency, there has been a flight to safety, driving up the US dollar, and to an even larger degree, the Japanese Yen.

In energy, oil fell, though it is still above $70/bbl, and gasoline prices have spiked, up 15¢ in the past two weeks.

Krugman is Wrong on Bernanke

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He has come out in favor of Ben Bernanke being reappointed as Chairman of the Federal Reserve.

Krugman’s argument is that Bernanke has been largely successful and effective in his efforts in battling the recession.

There are a number of other notables, such as Nouriel Roubini and Mark Thoma, who agree with Krugman, while Joseph Stiglitz and Calculated Risk suggests that his replacement be seriously considered, and Anna Jacobson Schwartz unequivocally calls for his removal.

Fundamentally, they base this decision on his performance, and it is reasonable to say that each of them have a better grasps of the details of this performance, but it misses the bigger picture: That both as an economy and as a democracy, the United States cannot afford to have another “Rock Star” Fed Chair.

The time of Alan “Bubbles” Greenspan has conclusively demonstrated that.

Ex-performance, the main argument for keeping Bernanke is that not doing so would be too disruptive, and it is the one most frequently made.

This fact demands his replacement at the end of his term.

The issue is not economics, nor his performance, but that a world in which an almost completely unaccountable figure is deemed crucial is simply not acceptable.