Category: regulation

SEC Proposes Changes in Ratings, Asset Backed Debt

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Bloomberg wrings its hands over this, and calls the proposed regulation that would give asset backed debt a different ratings scale a “scarlet letter” for these instruments.

This letter is well deserved. What is clear is that these byzantine products cannot be rated reliably, and as such people need to be warned off of them.

They are also calling for more transparency in the ratings process, with the ratings companies making public the data that they used.

It’s a good start, but only that, a start.

SEC Looks to Ban Ratings Agencies from Consulting on How to Get Good Ratings

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It boggles my mind that this is allowed:

The U.S. Securities and Exchange Commission may recommend this week that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings be prohibited from advising investment banks on how to earn top rankings for asset- backed securities, according to people familiar with the matter.

This just buggers the mind. These companies were advising investment banks on how to game themselves.

This is not the only change proposed, the SEC is going more generally for transparency in rating:

SEC staff may also propose at a June 11 meeting in Washington that the companies disclose all the data that goes into a rating so competitors can grade bonds even if they weren’t compensated by the underwriter, said the people, who declined to be identified because the rules aren’t final. Moody’s, S&P and Fitch help design securities backed by a stream of payments, making it impossible for them to be impartial raters, a May 2007 academic study by Joseph Mason and Joshua Rosner concluded.

This is Alan “Bubbles” Greenspan’s Randroid utopia of an unregulated market, inside players conspiring to defraud the average investor.

Good Government Policy from The Last Place You Would Expect

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Specifically, the Washington, D.C. City Council, which has voted to double the property tax on vacant properties, to $10/$100 evaluation (that’s right 10%, it had been 5%, as compared to $1.85/$100 for commercial properties, and $0.85/$100 for residential properties).

Additionally, the Council has made it more difficult to get an exemption, cutting back on the numbers of exemptions granted, though there is still a 3 month exemption for a property for lease, a 1 year exemption for residential property for sale, and a 2 year exemption for commercial property for sale.

In many inner cities, vacant properties blight the landscape, and this is a very good way of dealing with it.

UBS Under Pressure to Turn Over US Client Data, and Phil Gramm’s Name Pops Up

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It appears that about 20,000 wealthy Americans have accounts at the Swiss Bank UBS, and US regulators are now turning the screws to get this information out of them.

Under pressure from the authorities, UBS is considering whether to divulge the names of 20,000 of its well-heeled U.S. clients, according to people close to the probe, a step that would have once been unthinkable to Swiss bankers, whose practice of secrecy dates back to the Middle Ages.

U.S. investigators believe some of these clients may have used offshore accounts at UBS to illegally hide as much as $20 billion from the Internal Revenue Service. Doing so may have enabled these people to dodge $300 million or more in U.S. taxes, according to a government official connected with the investigation.

….

New revelations are likely to come Monday, when a former UBS banker is expected to testify in a Florida court about how he helped Olenicoff and other clients evade taxes. …..

The case could turn into an embarrassment for Marcel Rohner, the chief executive at UBS and the former head of its private bank, as well as for Phil Gramm, the former Republican senator from Texas who is now the vice chairman of UBS Securities, the Swiss bank’s investment-banking arm. It also comes at a difficult time for UBS, which is reeling from $37 billion in soured investments, many of them linked to risky U.S. subprime mortgages.

…

As the authorities zeroed in on UBS last January, the bank abruptly shut its three Swiss offices that sold undeclared offshore banking services to U.S. clients. Those offices catered to thousands of wealthy Americans, some of whom may now have their tax secrets put on public display.

(emphasis mine)

They are guilty as hell, and 90% of Americans know what it means to have a, “Swiss Bank Account”, and if Obama’s people don’t use this for Phil “Offshore Account” Gramm, John McCain’s economic guru, they are idiots.

Federal Accounting Standards Board to Invalidate Off Books Qualified Special-Purpose Entities

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The qualified special-purpose entities (QSPE) is an off the books accounting structure similar to the ones that Enron used to conceal its losses, and now it looks like the FASB will be instituting a revised rule, FAS 140, to eliminate them.

Basically, this means that billions, and perhaps trillions of dollars of exotic financial instruments would have to move to the balance sheet, which would show many banks to be undercapitalized or even insolvent.

CSPI Calls For Banning 8 Foos Dyes

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The dyes that the Center for Science in the Public Interest wants banned are, “Yellow 5, Red 40, Blue 1, Blue 2, Green 3, Orange B, Red 3, and Yellow 6.”

The CSPI is claiming that they have a link to ADHD and behavioral problems in children, though I think the science is pretty thin.

Normally, this is something I wouldn’t notice, but Yellow 5 is an asthma trigger for a lot of people, including Sharon,*, so I’m constantly looking for it when shopping.

*Love of my life, light of the cosmos, she who must be obeyed, my wife.

Texas Observer Takes Down Phill Gramm

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It’s a very good article, which places Gramm foursquare at the center of every major financial meltdown of the past decade.

My favorite quote:

Says Greenberger, “I am quite confident Phil Gramm didn’t understand what his legislation did. It was written by the banks and hedge funds.”

Note that Gramm was originally an economics professor.

It’s a good, and frightening, read on McCain’s economics guru.

Fed Vice Chairman Donald Kohn Suggests Permanent Access for Wall Street

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This seems to be a day for very stupid ideas.

Kohn is suggesting that the cash for the big sh&^ pile program be continued, “as long as regulators tighten oversight of the companies.”

A better ideal would be to apply anti-trust to make the investment banks small enough to be small enough to fail.

Constant bailouts would be norm under the system proposed, because financial experts have an unlimited capability to delude themselves that, “This time is different“.

We do not want the Fed, and thus the taxpayer, to be supporting the gut instincts of a Harvard MBA whiz kid.

Commodity Regulator to Scrutinize Markets

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It appears taht the Commodities Futures Trading Commission (CFTC) is looking toward an investigation to see if market arbitrage has artificially inflated prices, while this is not regulation, the results of the study may result in new regulations.

In particular, they are looking at the role of commodities index funds on this process.

Interestingly enough, this was not brought on by the oil price run up, but by spikes in cotton prices, which have increased despite events which ordinarily would have lowered prices.

As a part of moving toward greater regulation of the commodities market, Senators Levin and Feinstein are moving toward granting the CFTC explicit regulatory authority on trades on the London Oil Bourse executed from the US, on the basis of the fact that the exchange has physical terminals here.

Brazil Also Lodges OOXML Complaint

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I think that the Bum’s rush on OOXML pushed by the US and Microflaccid may end up backfiring:

Now Brazil has become the latest country to put the boot in by objecting to what it claimed was a flawed BRM that saw processes rushed through in favour of Microsoft gaining approval for its document format.

….

Marcia Cristina de Oliveira, manager of the standardisation process at the ABNT claims in a letter to the ISO (a copy of which is provided by Andy Updegrove here) that “the Brazilian delegation was not allowed to present an important proposal regarding the legacy binary mapping.

“Brazil had tried to present this proposal, during the debates, on the first day of the meeting… On Friday, when USA ended their part of presentation and asked for Brazil to present its part of it, the convenor denied this opportunity to Brazilian delegation.”

According to Updegrove, that’s quite a serious allegation. “While this latest appeal overlaps the South African objections in part, it also raises new concerns, some of which are particular to the interests of Brazil, rather than applying to the process as a whole. “As a result, it raises not only additional issues, but also ones that present a categorically different basis for appeal as well,” he said.

Interestingly enough, OOXML is already out of compliance, as the standard, DIS 29500, is supposed to be published no more than one month after approval.