The Hedge Fund Transparency Act would force hedge funds to register with regulators, file annual disclosures, and cooperate with SEC investigators.
It’s a start.
The most worrisome thing, Madoff not withstanding, is not how hedge funds can break the law, but how much of what they do is legal, since a lot of it appears to be market manipulation and insider trading to my untrained eye.
You know that when you go to a new city, you find a different alternative weekly.
What you may not know is that most of them are owned by one company, Village Voice Medis, and VVM has decided to drop all the comics that it is currently running from these publications.
So consolidation gets us a stupid and self-destructive decision, because the conglomerate has to hit “the numbers” for Wall Street, and then it immediately propagates throughout most of the media markets in the US.
Well, the jobless numbers are out, and they are not pretty with initial claims running at 588,000,continuing claims rising 159,000 to 4.776 million, which is the highest number recorded since the 1967, when they started collecting the data, and the 4 week moving average rose by 24,250 to 542,500.
Additionally durable goods orders fell by 3.7% in 2008.
And if you are wondering if there is a segment of the banking industry that won’t need a bailout, stop wondering.
There isn’t a segment of the banking industry that is not in trouble, as regulators are not moving to inject capital into credit unions, which are traditionally the most conservative, and the safest of the bank like institutions.
The fact that new home sales have fallen to the lowest level ever recorded (recording started in 1963) probably has a lot to do with this.
Also, freight truck tonnage is cliff diving. (H/T Calculated Risk)
Meanwhile, the most healthy of the Big 3 (Big 2½) auto makers, Ford, just reported a larger-than-expected $5.9 billion loss in the last quarter.
In international finance New Zealand is aggressively dropping its benchmark interest rates too, with their central bank 150 basis points (1½%) to the record low of 3.5%.
About the only good news is that it appears that deflationary expectations are easing, as the spread between 10 year Treasury Inflation Protected Securities (TIPS)and 10 year nominal securities has risen about 1% for the first time since November 10.
Meanwhile, the dollar was mixed today, and oil fell on the housing news.
Itulip.com has this 4 minute video:
Well, I’m not sure if it is a trap, per se, since they announced its creation with a press release, but it certainly is a shot across the bow directed primarily at Comcast.
Google Inc on Wednesday unveiled a plan aimed at eventually letting computer users determine whether providers like Comcast Corp are inappropriately blocking or slowing their work online.
….
Google will provide academic researchers with 36 servers in 12 locations in the United States and Europe to analyze data, said its chief Internet guru, Vint Cerf, known as the “father of the Internet.”
Google Inc on Wednesday unveiled a plan aimed at eventually letting computer users determine whether providers like Comcast Corp are inappropriately blocking or slowing their work online.
The scheme is the latest bid in the debate over network neutrality, which pits content companies like Google against some Internet service providers.
The ISPs say they need to take reasonable steps to manage ever-growing traffic on their networks for the good of all users. Content and applications companies fear the providers have the power to discriminate, favoring some traffic over others.
Google will provide academic researchers with 36 servers in 12 locations in the United States and Europe to analyze data, said its chief Internet guru, Vint Cerf, known as the “father of the Internet.”
My guess is the first thing that they will discover is that Comcast is crippling competing VOIP applications, I’ve already heard reports of this anecdotally.
Bringing in Cerf was a masterstroke of publicity.
Well, the FOMC meeting ended, and they relased statement saying that they will stay at zero interest rates for some time.
Additionally, they are looking at, “Unconventional Measures,” which appear to include buying longer term Treasuries.
It appears that one of those steps is that they will write down a significant of the mortgage backed securities that they picked up in the Bear and AIG bailouts, a sort of voluntary “cram down”.
Europe seems to have stabilized, at least for now, with consumer sentiment steadying.
Meanwhile, mortgage applications fell sharply, as interest rates have risen, from 4.88% at the beginning of the year to 5.22% now, in anticipation of ballooning deficits.
Of course, if reports that Moody’s is considering cutting GE’s triple-A credit rating, are true, we’re in for another big shock.
Most notably, the bill , which puts us in a rinse, lather, repeat situation.
As the late Tanta (I miss her) said, “Just Say Yes To Cram Downs“:
In fact, I have some sympathy with the view that mortgage lenders “perform a valuable social service through their loans.” That’s why, when they stop doing that and become predators, equity strippers, and bubble-blowers instead of valuable social service providers, I like seeing BK judges slap them around. Everybody talks a lot about moral hazard, and the reality is that you’re a lot less likely to put a borrower with a weak credit history, whose income you did not verify and whose debt ratios are absurd, into a 100% financed home purchase loan on terms that are “affordable” only for a year or two, if you face having that loan restructured in Chapter 13. If you are aware that your mortgage loan can be crammed down, I’m here to tell you that you will certainly not “forget” to model negative HPA in your ratings models, and will probably pay more than a few seconds’ attention to your appraisals. You might even decide that, if a loan does get into trouble, you’re better off working it out yourself, via forbearance or modification or short sale, rather than hanging tough and letting the BK judge tell you what you’ll accept. That would be a major bummer, right?
Without the cramdown provision going forward, you have created moral hazard, and the lenders will do the same stupid things, over, and over, and over again.
George Soros has come out against the “Bad Bank” rescue scheme. He thinks that it will not save banks, but instead create “Zombie Banks”, the walking dead which will not be able to offer meaningful credit, so he proposes a “Nationalization Lite”.
I prefer the real nationalization, but I agree that the “Bad Bank” concept won’t fix anything.
By way of background, the current version of this is that the FDIC will buy toxic assets, at maturity value from banks, as opposed to current market value.
So, at its core it means overpaying the banks for their assets, so that $750K mortgage on a Miami condo currently worth $150K is purchased as if the underlying assets are still valued at $750K.
You can’t buy at market value, because the banks would then be insolvent, which is why more and more people are suggesting that the banks be taken over, and then the government would handle disposal of those assets.
It’s what the FDIC has done for years, and the RTC did with the S&L crisis, and what the Swedes did in the 1990s, and the government turned a profit in about 4 years.
It’s welfare for the rich.
It appears that Mssrs. Geithner and Summers are concerned about the increasing calls for bank nationalization:
Explicit nationalization of financial companies has little support among key Obama officials, sources said. Treasury Secretary Timothy F. Geithner and top White House economic adviser Lawrence Summers think governments make poor bank managers and cannot efficiently manage a vast number of institutions, according to some of their associates.
Because, as Atrios notes, “Has it occurred to no one that bank managers also make poor bank managers?“
Another danger is that by taking over a substantial portion of a bank’s stock and wiping out the investment of the firm’s other shareholders, the government could also precipitate a sell-off across the banking system as investors flee, fearing they could be next.
No, investors will flee because they believe the banks to be insolvent, because the US government won’t seize solvent banks. Even the Swedes didn’t do that during their banking meltdown in the 1990s.
The real problem is that the regulators, Geithner, Rubin, and their mentor Robert “Soon to be Indicted” Rubin, have gone native.
The FDIC Proposes is suggesting interest rate caps on banks that are not “Well Capitalized” under accounting rules:
The FDIC recommended banks be limited in tapping higher- cost sources of funds, such as brokered deposits, and be barred from paying rates that exceed a national average plus 75 basis points. The agency also said premiums paid to insure deposits should be based on risks faced by the banks that fail to meet regulatory requirements.
The bank industry lobbyists are screaming, “Nationalization,” of course, but that’s what they do whenever there is an attempt to regulate.
It really is amazing just how much every rollback of New Deal regulations has resulted in disaster.
*That’s when statutory limits on interest rates for deposit accounts were repealed.†
†That was when Jimmy Carter was President. The regulatory origins of this crisis, as well as the Savings and Loan debacle, start with him‡
‡Yet another reason I hate “Saint Jimmy.”
The New York Times looks at increasing calls for nationalizing the banks, and wonders how you could find qualified people to run the banks, since pay would obviously be less:
Some of Mr. Obama’s advisers have asked who the government would get to run the banks. Many of the most experienced executives are tainted by the decisions they made during the age of excess. And how would the government attract the best talent if it demanded that they take minimal pay — a political reality in the current environment?
There are two answers to to this:
Seriously, I’ve yet to see a good argument against replacing senior management at the banks with first year liberal arts majors.
This is actually a potentially big deal for the net.
Gatehouse, which publishes community newspapers, sued the New York Times, because the Boston Globe, which it owns, was generating “Google News” style links, which show the hed and the first sentence or so.
Basically, the Times agreed not to link, but maintains its right to do so.
Complicating the issue was that the Globe tech folk went out of their way to avoid technical measures that Gatehouse put up to prevent this.
Consumer confidence just fell again, and hit an all time low, 37.7, the lowest number since the Conference Board started keeping records in 1967.
What with the Case-Shiller index showing a November home price drop of 18.2% year over year, and California home prices falling a staggering 42% year over year along with word of that there have been 519,895 job cuts announced since election day.
It’s all a major bummer.
We do have a report that Obama will direct his TARP funds toward consumers, as opposed to the corruption orgy under Bush and His Evil Minions™, which is good news, but it looks like Fannie Mae will need another $16 billion of that.
Meanwhile, Sweden, which handled its early 1990s banking crisis about as well as anyone, it was able to wrap up its intervention years ahead of schedule and with a profit, is looking at injecting cash into its banking system again.
Russia is looking at doing the same for its banks.
In any case, the lousy consumer confidence numbers have had the effect of driving oil down, and scaring people into fleeing to the safety of the dollar, which drove the buck up.
Another Friday, another failed, and seized, bank: 1st Centennial Bank of Redlands, CA
And the press is beginning to cover just how well it worked, and it worked very well….A lot better than what the current free market mousketeers are trying here.
George Soros is pushing for something that it kind of halfway in between the two approaches, and I disagree. Solomon’s division of the baby gets one a dead baby:
The hard choice facing the Obama administration is between partially nationalising the banks, or leaving them in private hands but nationalising their toxic assets. Choosing the first course would inflict great pain on a broad segment of the population – not only on bank shareholders but also on the beneficiaries of pension funds. However, it would clear the air and restart the economy.
That being said, George Soros is right about an awful lot.
Well, it’s official now for the British, they are in recession too.
Not surprisingly, the Pound has tanked and the dollar is generally up on this news.
The Ruble further weakened too.
We also now have ING warning that France’s AAA sovereign debt rating is at risk.
Meanwhile, on this side of the pond, the New York Stock Exchange has lowered its market capitalization requirement for companies on the exchange.
They delisted a record 53 companies last year, and my guess is that they are worried about breaking 100 this year, so they changed the requirement to account for a tanking market.
A more general indicator of economic activity, the rail freight traffic, has fallen sharply.
Generally, the high energy prices of 2008 favored the industry, but when total economic activity falls, so does rail traffic, even as it grows relative to trucking. (H/T Calculated Risk: Rail Freight Traffic Off Sharply in 2009)
In the intersection of banking and real estate, it appears that the regulators of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (FHLB) are seriously tightening up regulations because they are still engaging in risky activity.
I just want to note that I suggested that this might be an issue in March of last year.
Also, it appears that the inventory and foreclosure numbers are worse than you think.
Banks are not wanting to flood the market, so they are holding back on placing some of their foreclosures on the MLS and delaying foreclosures on properties in default, so there is a “ghost inventory” out there that is not showing up in the numbers.
In energy, oil was up today.
Floyd Norris notes that the recent collapse of Wall Street may lead to a reduction in pay for bankers of all stripes.
I would further add that this is a very good thing.
He cites a National Bureau of Economic Research working paper, Wages and Human Capital in the U.S. Financial Industry, 1909-2006, which notes that wages in the financial industry are at an all time high.
One of the authors the recent runup in wages to, “A new era of financial innovation,” and so the “The financial sector became once again a high-skill, high-wage industry.”
Talk about not getting the point. The stock brokers and bankers in 1929 were not highly skilled or intelligent, they had just figured out a scam that allowed them to get paid for putting the rest of the poor house, and the same applies to the investment bankers in 2007.
Banking and investment exploded as a portion of the economy in the late 1920s and 2001-2005 because it became an easy way to take people’s money. There was no real innovation, there was a simply pursuit of personal gain at the expense of the real economy.
Simply put, if you made robbing banks legal, the activity formerly known as robbing banks would explode.
Certainly, there was some additional talent attracted by this money, but the real attraction was that this was easy money for stupid people to make.
And anyone with half a brain, as Andrew Lahde so eloquently stated in his resignation letter could take them to the cleaners:
….. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America. …..
But the important thing to remember here is that the, “low hanging fruit,” continued to make excellent wages, and obscene bonuses anyway.
Too many people have been failing upward for years because who their daddy and mommy were, and a disproportionate number of them seem to be Harvard MBAs, like this guy.
People on wing pic courtesy of The Big Picture.
Therw were some minor changes, so the law allowing a greater statute of limitations on ongoing pay discrimination has to go back through the house, but it appears headed to Obama’s desk in a matter of days.
As Kevin Drum notes, “All 56 voting Democrats supported the bill, and five Republicans joined in. Which ones? Arlen Specter plus all four of the women in the GOP caucus. Imagine that.“
New executive orders from President Barack Obama, directing that the Guantánamo Bay dentition facility and the CIA’s Gulag Archipelago of secret prisons be closed within a year.
He also ordered, “ll federal agencies and departments on Tuesday to stop any pending regulations until they can be reviewed by incoming staff.”
It’s nice to have people in the White House who aren’t, you know, irredeemably evil.
But I still want war crimes prosecutions.