Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1245 | 9 | 0.73% |
| Eurostoxx Index | 2311.2 | 23.120 | 1.01% |
| Oil (WTI) | 98.24 | -0.100 | -0.10% |
| US Dollar Index (DXY) | 78.865 | 0.037 | 0.05% |
| 10 Year Govt Bond Yield | 1.98% | 0.01% |
Stocks are up this morning on the perception of progress in Europe. Here is the document. In typical European fashion, it is short on specifics, but the markets seem to like what they see.
Jon Corzine “never intended” to authorize the transfer of segregates loans. He had mentioned that it is possible that someone below him misinterpreted his directive to “fix this.” In separate news, it looks like George Soros took some of Corzine’s position off of his hands.
The University of Michigan Consumer Sentiment index was released this morning. It shows that the sentiment numbers have picked up from late summer / fall, but are still pretty depressed.
Chart: University of Michigan Consumer Sentiment Index:
Filed under: Uncategorized |
All Things in Moderation 
Sheila Bair discusses MF Global in this brief piece as well as the Volker Rule.So here is an idea. Regulators should scrap the mind-boggling complexity in the proposed rule and focus instead on the underlying economics of a transaction. If the transaction makes money the old-fashioned way — the customer paying the institution for a service through interest, fees, and commissions — then it passes the test. If profitability (or loss) is driven by the direction of markets, then it fails. Inevitable gray areas, such as marketmaking, need to be done outside of the insured bank and be supported by a truckload of capital. Securities firms should be allowed to maintain adequate inventory to make liquid markets.Most important, regulators should tell executives and boards that they will be held personally accountable for monitoring and compliance. Bank leadership must make clear to employees that they are supposed to make money by offering good customer service, not by speculating with the firm's funds.Complex rules are easy to game and hard to enforce. If regulators can't make this work, then maybe we should return to Glass-Steagall in all of its 32-page simplicity.
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Sheila Bair for SecTreas.
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lms:If profitability (or loss) is driven by the direction of markets, then it fails.Then banks ought not be allowed to engage in real estate lending since, as we have all learned to our chagrin, profit and loss on such lending is to a large extent driven by the direction of the housing market.
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Watch this:http://video.cnbc.com/gallery/?video=3000061298Whether or not I agree with all her conclusions, this woman is extermely sharp. She would make Yglesias sound like a 6th grader.
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Last time I checked banks are still allowed to engage in real estate lending.BTW, I have a little more free time than I thought I would for the next couple of weeks, I managed to finally convince my sister to get on a plane to come here for the Holidays so I don't have to go there, thank God.
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More good numbers today. Scott, maybe we're not at the center of the storm, at least not here in the US. I want to wait until next week or so of course, but it may be time to go long the banks and short Treasuries. It's not being discussed much except in the link I posted above, but if the euro zone DOES pass a financial transactions tax, you wanna be in the financials for sure.
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Also, if I may treat this as an open thread for a minute we have had a bit of what nurses and doctors at our local hospital are calling a "miracle".About six weeks ago the gentleman, age 72, who lives in our rental property and lives there with his daughter had an ear infection of some sort that unexpectedly resulted in meningitis. He was at home and his daughter found him unconscious on the floor and immediately called 911 of course. He wasn't given much of a chance of survival as apparently his brain was starved of oxygen for an unknown amount of time and they didn't see much brain activity. She was unemployed at the time, with no access to his money, and so we've been working with her to encourage her to move on while at the same time giving her some breathing room on the rent, we essentially let her live rent free for about five weeks. She has been cleaning out the house and was close to being ready to move out as she has also found a job finally. Last night she called us and said she was bringing over about 1/2 of December's rent as her father is now communicating and it looks like he will be able to come home after some rehab and live a functioning life again. They took him off life support about two weeks ago and he has gradually made improvement each day rather than slip away.
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lms:Last time I checked banks are still allowed to engage in real estate lending.Bair's article and the principle she espoused was not about what they are allowed to do, but what they ought to be allowed to do.
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john:Scott, maybe we're not at the center of the storm, at least not here in the US.Maybe not, but I wouldn't unbatten the hatches just yet.What's your thinking on the FT tax relative to financials?
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If the transaction makes money the old-fashioned way — the customer paying the institution for a service through interest, fees, and commissions — then it passes the test.Scott, her statement above sounds like a real estate market to me, at least in the traditional sense.
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scott and lms:Yes, when I heard that tax was part of the EU agreement, I knew that the British would never agree. Financial leadership is all they have left of the superpower status. Should be a boon for ours, but it seems like everything the euro leaders agree to today, they deny doing so tomorrow.
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john:So the thinking is that if the tax is implemented, it will drive more business to US banks? Perhaps, but seems equally likely to drive foreign financials to simply use their own US-based subs to execute.
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lms:Scott, her statement above sounds like a real estate market to me, at least in the traditional sense.Yes, and the latter part of her statement that I quoted also sounds like a real estate market, particularly the current one.My point was that the distinction she is strying to draw is not as simple as she is portraying it. Banking involves, necessarily, investment. Investment, in turn, involves directional risk on markets.
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"lms:Scott, her statement above sounds like a real estate market to me, at least in the traditional sense.Yes, and the latter part of her statement that I quoted also sounds like a real estate market, particularly the current one.My point was that the distinction she is strying to draw is not as simple as she is portraying it. Banking involves, necessarily, investment. Investment, in turn, involves directional risk on markets. "I believe her argument is over what kind of transactions should be backstopped by taxpayer guarantees, i.e. FDIC and the Fed lending window.
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scott, I'm fairly certain that if anyone understands the complexities is would be Sheila Bair. I think she speaks to the speculative nature of what the banks engaged in in the recent real estate collapse. They weren't really treating the real estate market as a traditional investment.
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"I believe her argument is over what kind of transactions should be backstopped by taxpayer guarantees, i.e. FDIC and the Fed lending window."How about only insuring non-interest savings accounts only and let everything else fail? Whats wrong with that scenario? Or, remove all Federal insurance and go strictly with Caveat Emptor?
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"Or, remove all Federal insurance and go strictly with Caveat Emptor? "pay no attention to the crazy ramblings of this nutjob.
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pay no attention to the crazy ramblings of this nutjob.Okay. Although he is a nice nutjob. Wasn't it the FDIC thread of Scotts that chased all the overly sensitive liberals away? 🙂
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lms:Wasn't it the FDIC thread of Scotts that chased all the overly sensitive liberals away?It's never been clear whether it was the thread or my mere presence on it that did so. If I had to bet I would say the latter. (Oh…and qb too. We can't forget his malevolent presence either!)
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"I think she speaks to the speculative nature of what the banks engaged in in the recent real estate collapse. They weren't really treating the real estate market as a traditional investment. "I don't know. I have analyzed a lot of smallish banks that did plain vanilla mortgage origination for their own balance sheet and had nothing to do with derivatives and they got slugged just the same as the big money center banks.
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More seriously…McWing:Or, remove all Federal insurance and go strictly with Caveat Emptor?If people who wanted to stick it to banks were smart, this is precisely what they would advocate. It would certainly decrease the banks' deposit base, and hence their ability to do business/make money, significantly.Of course, give that this a free market solution to the problem, it is generally anathema to those who do indeed want to stick it to banks.
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Poor McWing he never gets any credit.
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Brent, but was it because of their vanilla mortgage origination or because of the collapse of the housing market? Once the liar and subprime loans fell apart, it took the rest of us down with it, banks, homeowners, employees, employers, all of us.Scott and McWing, do you think it's wise to bring back bank runs?
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lms:He gets the benefit of being the resident conservative nut job. qb and I are evil, McWing can't be evil because he really believes this stuff. He's crazy!!!111!!!
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lms:do you think it's wise to bring back bank runs?No. One reasonable argument in defense of FDIC is that its mere presence makes it less likely to be needed.
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"Once the liar and subprime loans fell apart, it took the rest of us down with it, banks, homeowners, employees, employers, all of us."Were the liar and subprime loans a cause of the housing bubble or a symptom? I believe they were a symptom. The historical relationship between income growth and house price growth broke down in the year 2000 or so. Long before NINJA loans ever appeared.
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"Scott and McWing, do you think it's wise to bring back bank runs?Perhaps the risk of a bank run would force depositors to make sure they know exactly the mounds of risks their banks are taking. Plus, I don't see how the existence of FDIC has removed the effects of business cycles and protected average Americans.
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Brent, I don't know, you're the economist, I'm just a layman homeowner and investor. It seemed to us at the time that low interest rates, easy credit and strange financing structures artificially inflated the value of the real estate market. That, and ignored warnings that a collapse was inevitable. McWing, how exactly would depositors "know" the amount of risk their banks are taking?
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"McWing, how exactly would depositors "know" the amount of risk their banks are taking?"One way is by reading their financials, the information private companies are required to put out now. Another alternative is to put your money in a non-interest account with an institution that will not put your deposit at risk.
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I think the biggest reason for the housing bubble was the Fed. They kept rates too low for too long. Plus, the subprime NINJA loans would never have been made in a period of normal price appreciation. Lenders needed the history of large increases in the value of the underlying collateral to be able to ignore the lousy credit of the borrower. In this case, the chicken did come before the egg.
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scott:They've been selling their US based subs like Walmart on Black friday. That's likely to continue because the euro banks have another round of capital raising by spring.
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OMG, I leave you guys alone for a couple of hours, and you've gone and destroyed the FDICLooks like I'm going to have to send for that Russian au pair after all.
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"Lenders needed the history of large increases in the value of the underlying collateral to be able to ignore the lousy credit of the borrower."I'm not sure this is true Brent. Many people miss the misalignment of incentives between the originators of the loans, and their ultimate holders as part of MBS packages. The New Centurys of the world, had every incentive to get names on the loans, and then push them out the door. they never cared at all whether the homes appreciated in value, because they weren't holding on to them. That's why the role of the ratings agencies was so crucial to the fraud. The ultimate investors had no connection to the US mortgage market, and relied on the ratings.
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Umm, I love end of the day "melt-ups". They're so filling!
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My point was that liar loans didn't cause the bubble – they showed up after the bubble was already inflated and was pretty long in the tooth.It is like blaming the 90s tech bubble on EToys. The equity bubble was in full swing long before the vapor-ware IPOs of 1999 and 2000
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"profit and loss on [real estate] lending is to a large extent driven by the direction of the housing market."—Well, no. There have been plenty of ups and downs in the housing market. With a provision of a healthy down payment, home equity is affected by overall movement, but loans will stay in the black. One might argue that a 50% drop in value would wipe out any reasonable equity, but such run-ups were made possible by the issuance of poor quality loans. BB
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John,I think a big driver of the problem(s)are pensions trying to arrive at a promised rate of return. If the Fed rate is low, then it increases the risk that pensions are willing to take in reaching a rate of return of at least 5 or 6 percent. I "blame" pensions simply because, well, because I can and because there is a LOT of money tied up in them looking for a rate of return that will provide them the increase they need.What do you think?
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TMW:No question that "abnormally low" interest rates have driven pension funds to seek foolish investments (foolish for them I mean)
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