This should dampen some of the volitility, if just because money is expensive right now, and if you have to put more up front, you can’t trade as much.
My guess is that with all the allegations of market manipulation, NYMEX wants investors to have more skin in the game.
Kudos to Governor Patterson for directing state agencies to, “all state agencies to begin to revise their policies and regulations to recognize same-sex marriages performed in other jurisdictions, like Massachusetts, California and Canada.”
That sound you hear is wingnut heads exploding, as they just got outmanouevered.
This will doubtless be statute in 2009, when the NY State Senate goes Democratic.
This development is in no way surprising. Evidence of inflation, even if the CPI data has been massaged to meaninglessness, is everywhere, and the seasonal adjustment in July will yield some truly awful numbers.
The SEC is looking at how the ratings agencies do business:
The U.S. Securities & Exchange Commission (SEC) is looking into the workings of the three main credit rating agencies, prompted by their handling of the subprime crisis and a report of computer errors at Moody’s
. “We sent letters to Moody’s, Standard & Poor’s and Fitch asking for them to get back to us on aspects of their methodology,” said Erik Sirri, director of the SEC’s trading and markets division.
The basic problem, however, is that they are paid by the people that they rate, creating an inherent conflict of interest.
This is at the core of many of the problems that we are seeing now. The felons are running the prison.
South Africa has filed a formal objection, based, it appears, on the balloting procedure, which it calls “flawed”, and on the technical issues, which it felt were not properly resolved.
It turns out that the private food labs that we depend on to test imports may be colluding with the importers who pay them to do the test in order to allow suspect food into the US.
Imagine that. You outsource food safety to private companies who are paid by the people that they are supposed to test, and they bend over backwards to please their real customers, as opposed to the American people.
Case in point, the housing bailout bill that just passed the Senate creates national fingerprint registry:
Buried in the text of the revised legislation, approved by the Senate Banking Committee by a 19-2 vote this week, is a plan to create a new national fingerprint registry. It covers just about everyone involved in the mortgage business, including lenders, “loan originators,” and some real estate agents.
Lovely.
It appears that the UN’s clean development mechanism is being gamed by energy companies top the tune of billions of pounds.
Leading academics and watchdog groups allege that the UN’s main offset fund is being routinely abused by chemical, wind, gas and hydro companies who are claiming emission reduction credits for projects that should not qualify. The result is that no genuine pollution cuts are being made, undermining assurances by the UK government and others that carbon markets are dramatically reducing greenhouse gases, the researchers say.
The criticism centres on the UN’s clean development mechanism (CDM), an international system established by the Kyoto process that allows rich countries to meet emissions targets by funding clean energy projects in developing nations.
People love market based solutions on emissions because they claim that it forces money back into more energy saving technology.
It doesn’t. It pushes the actors toward cheating and market manipulation, both of which are cheaper. Taxes are easier to administer, and harder to cheat on.
The real reason that all these people favor carbon trading is because they people who drew up the regulations went to Harvard or Oxford or some other elite school, and a trading scheme allows people like them, who went to the same schools, to make money.
Really and truly, when you look at these schools, it raises a question, which is how much are they about education, and how much are they, as Maynard Handley says, “That the primary value of a Harvard undergrad education is perceived by most of the people involved to be networking — it’s how you get to meet the future great and good, and thus substantially increase your chances of being hired by Bill Gates when he starts his new company, or by some future president.”
It’s all about insiders dealing to insiders.
In the Washington Independent, Jonathan Macey asks a very important question, one that I missed completely: If Bear Stearns was too big to allow it to fail, why was it not broken up under antitrust laws?
In fact, there are plenty of tools at the regulators’ disposal to deal with systemic risk and other catastrophes before a cataclysmic event occurs. In particular, the purpose of the antitrust laws is to promote and protect competition and make sure that no single firm grows so large that it threatens the entire economy.
I’m kind of embarrassed to have missed this.
I would also note that if regulators want to be proactive, the best solution for everyone right now is to break up the large investment banks so that they aren’t too big to fail.
Go read.
Seeing as how the FHA is a big part of the Congressional mortgage bailout bill, the fact that the FHA is making major changes to how it approves loans could be very significant.
Basically, it comes down to their using FICO scores to determine premium rates for their mortgage insurance, which is a major change.
Over the past few years, an obscure legal concept called the preemption doctrine, has gained increasing currency in the Federal courts.
Basically, the concept is that if a medical product gets FDA approval, that this strips the consumer of any right to sue should it prove defective, even if deliberate wrong doing or a cover-up can be shown (think Viiox).
There has been a big push for this by Bush and His Evil Minions™, because they believe that poor people should not be able to inconvenience large companies.
In fact, the FDA supported consumer lawsuits as a way to help keep medical companies on their toes until 2002.
It now appears that Henry Waxman, chairman of the House Committee on Oversight and Government Reform, is looking at eliminating this argument legislatively. He has started to hold hearings.
Point man for the Republicans is Connecticut’s 2nd most prominent prostitute*, Christopher Shays, who vehemently argued the administration’s position, “juries of laymen shouldn’t be usurping the rigorous decision-making process of federal scientists.”
Seeing as how politically appointed laymen are, “usurping the rigorous decision-making process of federal scientists”, throughout the Bush administration, this seems to me to be awfully weak tea.
In any case, I would expect legislation some time in 2009.
*Number 1 is Joe Lieberman….Come on, get with the program.
This time, it’s Pacific Investment Management Co.’s Bill Gross, who has been called, ” Called “the nation’s most prominent bond investor” by the New York Times.”
You can read his essay here:
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.
Me, I’d argue that he’s conservative in his estimates, and place the error closer to 3% than to 1%.
Note that as a bond trader, he is in a segment of the market most effected by these aberrations, and by virtue of being Bill Gross, the financial press will cover this.
Joe Lieberman is saying that he is, “considering legislation to place limits on large institutional investors in commodities markets“.
Even if he weren’t a complete asshat, nothing would come of this, because he is from Connecticut, and with New York City being the world’s capital for such activities, and with many of the people who make a living on the trade living in Southern Connecticut, there is no way that he would really press this.
While I believe that one of the problems with any market today is excessive speculative capital in and out flows, Lieberman’s proposal is rather limited, directed at limiting pension funds and closing a few loopholes, and won’t do much good, because there is already an industry full of people who find ways of ignoring such restrictions.
Instead, I suggest a transaction trading tax on financial instruments. It’s easily implemented, hard to avoid, and penalizes those who trade the most.
I think that this OP/Ed is a pretty good indication that this discussion has entered the mainstream, which is good, and the fact that the “Paper of Record” has come out in favor of network neutrality is better.
It’s pretty clear that if Bank of America does not go through with the purchase, Countrywide is insolvent, and it gets shut down, because it is, by any standard, insolvent without a white knight of some kind.
Nouriel Roubini considers this to be a distinct possibility:
The views of Whalen are – based on a survey I made of banking experts – shared by most bank analysts. On May 2nd S&P cut Countrywide’s rating to junk; while on May 5th a number of analysts recommended that BAC walk away from this lousy deal. BAC is already sitting on a potential loss of about $1.3bn from its initial $2bn stake in CFC but as one analyst put it: “I hope Bank of America isn’t throwing good money after bad”.
Thus he raises the question as to what exactly such a collapse might mean, given that Countrywide has originated nearly 1/5 of the mortgages in the US in recent years.
He takes a look at the bigger picture:
Of course the bust of CFC is only a symptom of a much bigger systemic banking problem in the US: with 47% of the assets of all large US banks being related to real estate (residential, commercial, etc.) and with 67% of assets of smaller banks being related to real estate hundreds of smaller community banks and dozens of regional banks and a few national banks will be bankrupt in the likely scenario that home prices fall at least 20% (they are already down 14.7% from peak based on the Case and Shiller/S&P Index) and possibly as much as 30% by the time they bottom out in 2009-2010.
That’s hundreds of banks, some of them of a fairly significant size, that end up liquidated and under FDIC stewardship.
If he is 10% right, then we aren’t even half way through the down slope on this thing.
That commie pinko rag the Financial Times discovered that Moody’s improperly rated a complex entity called a constant proportion debt obligations (CDPO) giving them the much desired AAA rating, when it should have been 4 levels lower, Baa.
Moody’s was the second rater, in addition to S&P, which also rated them as AAA, though a number of other ratings agencies, Fitch Ratings and DBRS, disputed rating these securities so highly. (There is a graphic at the link that is rather byzantine, which is a sign to run the other way):
The results showed that early CPDOs might lose between 1.5 and 3.5 notches in the Moody’s Metric, an internal measure, which equals up to four ratings notches.
Some Moody’s analysts had concerns. With so many transactions from other banks in the rating pipeline, the code could not be left as it was. The bug was corrected.
At the same time, the documents record that Moody’s staff looked at how they could amend the methodology to help the rating.
Some of the most senior managing directors in Moody’s European structured finance division were involved in meetings to discuss the updating of the methodology for rating CPDO-like transactions in February.
The staff also looked at reducing assumptions about the future volatility of the credit markets so that Moody’s model only anticipated minor moves in credit indices over the next 10 years.
This had the effect of reducing the negative impact on the ratings of correcting the code error.
So, they goofed on a rating, but S&P thought that everything was just ducky, and their reaponse was how do we cover this up.
It’s no wonder then that the agencies are vehemently opposed to the idea of guaranteeing the quality of their ratings. Because it’s a fundamentally dishonest mindset in a business that appears increasingly dodgy.
As Tanta of calculated risk notes, it’s the last two paragraphs of the story (first link)that are scary:
The world’s other major credit agency, Standard and Poor’s, was the first to award triple A status to CPDOs but many investors require ratings from two agencies before they invest so the Moody’s involvement supplied that crucial second rating.
S&P stood by its ratings, saying: “Our model for rating CPDOs was developed independently and, like our other ratings models, was made widely available to the market. We continue to closely monitor the performance of these securities in light of the extreme volatility in CDS prices and may make further adjustments to our assumptions and rating opinions if we think that is appropriate.”
This implies a sort of mutual back scratching to generate fees that makes all of the ratings suspect.
Care of Harold Feld’s Tales of the Sausage Factory.
One of the things I like about Harold Feld’s writings on the FCC regulatory process is that, in addition to being relatively easily understood, it’s also a fun read:
But the ultimate bitch slap to Comcast and its bully boys and useful idiots comes on page 11 n.2:
The briefs filed by Comcast, the intervenors, and the amici make assertions bordering on accusations of the Commission’s bad faith. We must presume an agency acts in good faith, Thomas v. Baker, 925 F.2d 1523, 1525 (D.C. Cir. 1991), but in any case we see no substance to these assertions. (emphasis added)
Or, to translate from the legalese: “Comcast, you and the rest of the cable industry need to get over yourselves and get a clue. The FCC requiring you to obey the law is not a ‘vendetta,’ even if previous FCC
Heh.
In this case, the Federal Court slapped down Comcast hard over its insistence that it needed an exemption from set top box interoperability rules.
Basically, there are no tactile differences between the bills, and U.S. Court of Appeals for the District of Columbia Circuit has ruled that this is in violation of the law.
Among other things, they said that the government did not shot that fixing this would be an undue burden.
When you consider the stuff that they’ve done lately, putting a bit of texture on the bills has got to be cheaper than the holographic inks, etc. that they are using/
The case is American Council of the Blind v. Paulson.
In the middle of a housing crash, with prices still falling, Fannie Mae has reduced down-payment requirements to as low as 3% on some loans.
The only thing that I can think of is that they hope that this sort of gesture will keep Congress from looking too closely at tighter restrictions.
Bad move, because it opens them up to even more risks.
The always thoughtful Nouriel Roubini wonders, “How will financial institutions make money now that the securitization food chain is broken?”
In the good old days, you made money by originating a loan, and then collecting revenue from it, but today you make money by originating and then reselling the loan.
The resale, and the fees involved in what Roubini calls it “originate & distribute”, model generate your profit.
The kicker is that but the new model appears to have broken down:
This food chain of fees on top of fees is now broken: securitization of mortgages, that was running at the annual rate of $1,000 billion in January of 2007, was down 95% to an annual rate of $50 billion by January of 2008. So the process of generating fees and commissions is broken.
It’s really scary, because these companies, by which I mean investment banks and a lot in the way of commercial banks, increasingly look to have no business model at all. The model until mid 2007 was “make income out of securitization fees rather than by holding the credit risk”, but no one trusts securitized debts any more.
What’s more, it’s clear that the flight from these instruments is a rational act by the market. What’s more, it is reasonable to expect, even in the absense of regulatory reform, that these instruments will not be accepted by the market for the next decade, the time that lessons stay learned in Wall Street.
So, somewhere north of 20% of our financial industry has no reason to exist any more.