UBS has settled with the states of Massachusetts and New York, and agreed to buy $19.4 billion in auction rate securities at face value, and pay $150 million in fines.
Meanwhile, Bank of America has received subpoenas from the SEC and other agencies on its ARS activities.
Financial “innovation”, the gift that keeps on giving.
Given the record of the NRC toward disclosure, the idea that this is a major break with the past.
Steven Aftergood take on it is that Congress is breathing down their necks because, they were not notified of a major safety event:
According to David Lochbaum, a nuclear safety engineer with the Union of Concerned Scientists, the triggering event in this case was congressional outrage at the NRC’s concealment of a major “nuclear safety event” in 2006 at the Nuclear Fuel Services plant in Erwin, Tennessee.
In that case, approximately 35 liters of highly enriched uranium solution leaked and spilled, creating the possibility of a criticality accident, i.e. an uncontrolled chain reaction. Yet “NRC failed to notify the public or Congress for 13 months regarding this serious incident,” complained Rep. John Dingell in a July 3, 2007 letter (pdf) to NRC Chairman Dale E. Klein.
If I were a member of Congress, that would piss me off.
If I lived near Erwin, Tennessee, I’d consider putting my house up for sale.
They have settled with NY State AG Andrew Cuoma by agreeing to buy back $7 billion in auction rate securities and paying a $100 million fine, and to, “Use its ‘best efforts’ to liquidate” an additional $12 billion in ARS by the end of 2009.
This is about the fact that Citi, and most of the other banks involved in the auction rate securities, sold these as being just as liquid as a money market account, and the market then froze up, locking up $300+ billion.
I would expect increased pressure for other bankers to settle too.
By most definitions, this is insolvent.
If this is indeed the case, the federal government should take it over, and kick management and share holders to the curb.
Tanta has noted that, “some of the bigger economic illiterates in Congress,” have sponsored a bill to restore the Downpayment Assistance Program (DAP). (previous posts here)
Basically, it allows a seller to supply the down payment to the buyer in exchange for a higher sales price, allowing people who won’t make a down payment to get an FHA approved loan, which require a down payment.
They funnel the money through a DAP company, and all is forgiven.
The default rate on DAP loans is at least three times those with down payments.
This is something that, “builders, real estate lobbies, and DAP companies,” are lobbying for, big time.
The Congresscritters in question also do not understand insurance apparently, details at link.
Specifically the news from the FDIC, which almost always chooses to act after the close of business on Friday.
Well, this Friday, they seized First Priority Bank. Sun Trust will be taking over the deposits.
Additionally, they warned four banks that they did not have enough liquidity. They were ordered to, “raise more capital, expand their loss allowances and better oversee and diversify their loan portfolios.”
House committee moves to ban in-flight cell phone use.
Please let this be true.
The FCC took a vote to order Comcast to stop throttling internet applications.
What is interesting is the pressure that Republicans put on FCC chairman Kevin Martin to vote for Comcast having the right to throttle applications.
Here is a question for you, “Are the Republicans f%$#ing insane?!?!?”
Seriously, I can think of no entity in American life more universally loathed than the cable companies, and the Republicans were going on record supporting these folks?
The Financial Accounting Standards Board (FASB) just postponed a rule that would require that off balance sheet entities* onto their books for one year.
They were getting a lot of pressure from banks and their allies on Congress about this.
The question is: what are they hiding, and at least part of the answer is:
Many lenders made profits in the run-up to the subprime- mortgage crisis by selling pools of loans to off-balance-sheet trusts known as qualified special purpose entities, or QSPEs, which repackaged the pools into mortgage-backed securities. Some banks then sold those securities to other off-balance-sheet vehicles they sponsored, such as so-called asset-backed commercial paper conduits.
*Things like “mortgages and credit-card receivables.”
A bill allowing the FDA to regulate tobacco just passed the House.
It wouldn’t allow a ban, but it would regulate things like adulterants added to the tobacco and the manipulation of nicotine levels.
Bush and the Republicans are opposed, no surprise, though no veto is (yet) promised.
I don’t think they need to threaten a veto, it will never make it through the Senate.
They are suing over their giving lower ratings to government bonds than equivalent corporate bonds, which they actually call, “a secret Wall Street tax on Main Street”.
The disparities in ratings means either higher interest rates, or carrying monoliner insurance, both of which accrue to the benefit of Wall Street.
This sad tail of corruption as a feature, not a bug, in arbitration courtesy of Jane Bryant Quinn.
Short story, people screwed over in auction rate security deals will likely have to be heard by arbitrators whose own companies are the subjects of actions by people screwed over in auction rate security deals.
This will be an issue that I will start dunning candidates on, because binding arbitration is a racket.
As I wrote earlier, Treasury Secretary Hank Paulson is pushing a new (for the US, at least) sort of bond, the covered bond, to unfreeze the mortgage credit markets.
Well, it looks like the FDIC just put up a road block, saying that it is considering limiting these new bonds to 4% of bank liabilities.
It has expressed concern about the instruments might place additional risk on them:
“The FDIC is concerned that unrestricted growth, while the FDIC is evaluating the potential benefits and risks of covered bonds, could excessively increase the proportion of secured liabilities to unsecured liabilities,” the agency said. In other words, Back off my insurance fund. The agency did say it would consider revising its guidance after it has a chance to evaluate the effect of covered bonds on banks.
The FDIC could refuse to cover these bonds in the event of a bank failure, and as such, if they institute this policy, it may very well put a stake through the proposal’s heart.
Of course, these days, all real estate loans are risky instruments.
This time, it’s “Covered Bond”, and Sec Treasury Paulson is clarifying regulation to make them more attractive in the United States. (They are more common in Europe, particularly, according to the Wiki, Germany)
The difference between this and more common mortgage backed securities is that the banks have to keep the mortgages on their books, and the bonds are specifically secured with these bonds.
I don’t think that this will make much of a difference.
Until house prices bottom out in absolute dollar terms, which means that inflation might save us, the housing market will remain sluggish to frozen.
He is suggesting that if the GSEs do actually need a bailout, that the government should operate them for some period of years:
We need the GSEs to be highly active in support of the housing market and financial system in the months ahead. If authorities can see a path to their being able to play such a role in a framework where their borrowing is based on confidence in their financial position, rather than primarily on federal guarantees, then this is obviously the preferred alternative. But after what we have seen, such a judgment cannot be based on the GSEs’ own claims, the understandable desire of government officials to maintain confidence and attract private capital, or the fact that the GSEs are able to borrow — which only reflects the strength of federally provided credit assurances.
If this preferred alternative is, as I fear, not realistic given the state of GSE finances, the government should use its new receivership power to protect taxpayers and the financial system. In the process, payments to stockholders, holders of preferred stock and probably subordinated debtholders would be wiped out, conserving cash for the benefit of taxpayers. The GSEs’ borrowing costs would fall considerably, helping prospective homeowners.
In this scenario, the government would operate the GSEs as public corporations for several years. They would then be in a position to extend credit where appropriate to support resolution of the housing crisis. Once the crisis has passed, the federal government would divide their functions into government and private components, the latter of which would be sold off in multiple pieces. The proceeds could be used to fund the low-income housing support activity that was previously mandated to the GSEs.
It should be noted that Fannie Mae was a federal agency from the late 1930s to the late 1960s.
Wekk, retail gasoline has finally dropped below $4.00 per gallon, the first time in almost two months, oil moved very little, depending on grade, somewhere between ±$0.15/bbl.
Meanwhile, Nouriel Roubini is arguing that foreign central banks and sovereign wealth funds are increasingly less willing to take huge losses in order to bail the USA’s financial system out, and that this will lead to a systemic collapse, with, “ensuing fall of the U.S. will make this fire sale of the best U.S. private asset a true bargain basement deal: with the dollar price of these assets now imploding and with the U.S. dollar now in free fall non-residents will be able to buy most of U.S. Inc. for the cheapest bargain.”
One final note, and some information that shocked me, is the amount which short sales decreased in financial stocks as a result of the new SEC rules banning “naked” short selling: 98%.
S3 Matching Technologies is reporting that short sales in the newly regulated stocks fell by a factor of 50, which is far more than I would have expected.
Even if some of the decline in short sales was investors who were spooked by the new rules, it’s clear that the overwhelming number of short sellers are engaging in “naked” shorting.
The FDIC and the Comptroller of the Currency seized First National Bank of Nevada and First Heritage Bank NA of California, and sold them to Mutual of Omaha.
There have been 7 banks closed in just under the first 7 months of the year, but three of those were seized in the last two weeks.
I expect bank failures for 2008 to exceed 30.
Matt Stoller Reports that every major Senate Democratic challenger supports network neutrality:
| Candidate | State | Contributions fromTelecom/Cable | Position | |
| Allen | ME | $2500 | Favors | |
| Begich | AK | $0 | Favors | |
| Franken | MN | $62,650 | Favors | |
| Hagan | NC | $0 | Favors | |
| Kleeb | NE | $0 | Favors | |
| LaRocco | ID | $4,600 | Favors | |
| Lunsford | KY | $0 | Favors | |
| Merkley | OR | $0 | Favors | |
| Musgrove | MS (B) | $0 | Favors | |
| Noriega | TX | $0 | Favors | |
| Rice | OK | $0 | Favors | |
| Shaheen | NH | $0 | Favors | |
| Slattery | KS | $2,800 | Favors | |
| Udall | CO | $54,450 | Favors | |
| Udall | NM | $0 | Favors | |
| Warner | VA | $45,050 | Favors |
Cool.
If the PCAOB is ruled unconstitutional, because there is no severability clause, all of Sarbanes-Oxley would be ruled unconstitutional, and it would mean a return to mythology based accounting practices.
It’s before the DC Circuit Court of Appeals, and there is a fairly good chance of it losing, which is not a good thing.
By a company called Optiver Holdings. Only it appears not to have had much of an effect:
The alleged manipulation was attempted 19 times on 11 days in March 2007, the agency said. In at least five of those 19 times, traders succeeded in driving prices higher twice and lower three times, according to the CFTC.
Five out of Nineteen, about 26%…not so effective.