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 | 1362.1 | -9.8 | -0.71% |
| Eurostoxx Index | 2258.5 | -44.0 | -1.91% |
| Oil (WTI) | 90.8 | -1.9 | -2.01% |
| LIBOR | 0.452 | -0.001 | -0.22% |
| US Dollar Index (DXY) | 83.29 | 0.408 | 0.49% |
| 10 Year Govt Bond Yield | 1.46% | -0.05% | |
| RPX Composite Real Estate Index | 184.8 | 0.0 |
Equity markets are weaker this morning in spite of a deal to rescue the Spanish banks and decent earnings reports out of Google and GE. There is no economic data to speak of. Bonds are up a point and MBS are up as well.
Bloomberg has a good article discussing the state of the mortgage industry and how much capacity has been drained from it. “Efforts by Obama and Bernake to help homeowners get cheaper loans and spur the economy have been slowed by lack of staff at lenders and less competition.” Fears of buyback risk are also making lenders more cautious.
SIFMA (which oversees the To-Be-Announced mortgage securities) weighs in on the eminent domain issue. They are instituting a policy that would exclude municipalities that institute eminent domain claims on mortgages from the TBA market. Without getting into the gory details, the TBA market is the way newly originated mortgages get packaged into Fannie / Freddie / Ginnie mortgage backed securities. Punch line: It will be very difficult to get a mortgage in San Bernardino because the lender will have a tougher time disposing of the loan. I am surprised at how little interest the press has shown regarding this issue.
No MR for the next week – I will be on vacation.
Filed under: Morning Report |
All Things in Moderation 
Have a nice vacation Brent, we’ll miss your reports. Maybe someone can fill in for you so we have at least one new thread up per day. Volunteers?
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Good piece by David Brooks on President Obama’s overall foreign policy.
“Where Obama Shines
By DAVID BROOKS
Published: July 19, 2012
It won’t help him win many votes this year, but it should be noted that Barack Obama has been a good foreign policy president. He, Vice President Joseph Biden, Secretary of State Hillary Clinton and the rest of his team have created a style of policy making that is flexible, incremental and well adapted to the specific circumstances of this moment. Following a foreign policy hedgehog, Obama’s been a pretty effective fox.”
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Frogive me if you alrerady saw this from last night:
“Under Romney, Massachusetts outsourced jobs in child support enforcement, food stamps, and unemployment insurance overseas. [GAO report, “Offshoring In Six Human Services Programs,” 3/2006]”
As outrageous lies go this one is at least Romney-esque maybe more so. The only time the whole report mentions Massachusetts is in a table of the 50 states.
The report actually notes that 43 of the 50 states and DC outsource at least some of those services. It also says that none of them do so directly however. The states contract with US companies who then sub out the work either in software development or in the operation of call centers in support of the food stamp program when people either want to report a lost or stolen card and or need to speak to someone in Spanish.
Click to access d06342.pdf
We have some very smart posters out there who nevertheless will believe and repeat anything they read without checking the source like a 16 year old on a used car lot.
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wow, that didn’t work out at all
some people can cut and paste, some can’t apparently mea culpa
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Looks like it’s going to be another hot weekend.
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LOL John. I once made a two line comment with about four pages of white space under it over at the PL. That fostered a good chuckle from everyone. Want me to delete it for you and you can start over? If you’d let me help you become an author you’d be able to fix it yourself.
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yes! thank you
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Krauthammer makes the same point I was about infrastructure as an argument for the current size of government:
http://www.washingtonpost.com/opinions/charles-krauthammer-did-the-state-make-you-great/2012/07/19/gJQAbZOiwW_story.html?hpid=z2
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John
Is the above which I edited what you wanted up? If not let me know and I’ll delete the entire comment.
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jnc
I agree that’s where the debate should be, especially between the candidates. The problem is the ads they run mislead the public. We can have that debate here a hundred times but no one reads it except us………………so what’s the point really if the candidates are using out of context quotes to make a point that wasn’t actually made. Last time I checked Krauthammer wasn’t running for President.
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Sheila Bair goes rogue:
“Geithner-Led Fed Didn’t Do Enough in Libor Scandal: Bair”
http://www.cnbc.com/id/48255543
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lms
as always thank you!
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Sheila Bair goes rogue
Well, it wouldn’t be the first time. I’ll go read that as I’m a fan of hers.
Otherwise, have a nice day everyone. I’ll try to be around a little this weekend if anyone else is.
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The LIBOR scandal, which should now be called the “everybody knew about it but Dodd and Frank scandal”, is proof positive that regulation in the face of dishonesty by principal players does not work. That’s why you need to go back to the compete separation of investment and commercial banking because you can never successfuly regulate them.
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banned:
The LIBOR scandal, which should now be called the “everybody knew about it but Dodd and Frank scandal”, is proof positive that regulation in the face of dishonesty by principal players does not work. That’s why you need to go back to the compete separation of investment and commercial banking because you can never successfuly regulate them.
Separating investment and commercial banking is, er, regulation.
Besides which, the LIBOR issue is entirely unrelated to whether or not investment and commercial banking activities occur in the same entity.
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On Spain:
“How Spain went from quiet to crisis in two days
Posted by Brad Plumer on July 20, 2012 at 12:27 pm”
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/20/how-spain-went-from-quiet-to-crisis-in-two-days/
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“The Philosophy of ‘You didn’t build that’
Posted by Dylan Matthews on July 20, 2012 at 10:16 am”
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/20/the-philosophy-of-you-didnt-build-that/
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jnc
did you see the comment section on that and if so what do you think of my posts? I don’t want to cut and paste the whole discussion..
no WAPO commneting right now, or is it just me?
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I’ve always been skeptical of the Glass-Steagall remedy. Nobody else in the world separates commercial or investment banking, or even draws a distinction between the two.
The original rationale for Glass-Steagall was because investment banks were dumping soured bond issues onto the balance sheet of their captive commercial banks. It had nothing to do with proprietary trading.
There were no instances (from what I can tell) of Citi dumping bad bond issues on Travelers or JP Morgan dumping crap issues on the balance sheet of Chase. The LIBOR scandal has nothing to do with investment banking, either.
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scott and brent;
I was not implying that that LIBOR had any cause and effect relatinship to Glass Steagall. What I meant was that the government has a very strong interest in protecting the FDIC system that is in opposition to the invement banks’ interest in exploiting the connection.
Rather than attempt to decide what is or is not prop trading and write a thousand pages on that matter, the wall between the two is an equalizer between the regulators and the regulated like a property line.
As for Europe and the rest of the world, I would say that everywhere else but England the banking system is a much more quasi-governmnetal function than it is here. Wouldnt’ you agree?
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banned:
Rather than attempt to decide what is or is not prop trading and write a thousand pages on that matter, the wall between the two is an equalizer between the regulators and the regulated like a property line.
Glass-Stegall wouldn’t do what you want it to do. The swaps market was formed back in the early 1980s. Glass-Steagall was repealed in 1999. During that time, while G/S was still in force, lots of commercial banks had derivative desks and made markets in swaps. First National Bank of Chicago, Manufacturers Hanover, Chemical Bank, Chase Bank…the list is huge. Glass-Steagall did not then, and would not now, prevent banks from executing swaps and running swap risk. That commercial banks were instrumental in the formation of the swaps market is true for a simple and obvious reasons: it is a service that the customers of commercial banks both desire and need. If you want to stop commercial banks from running derivatives books, you’ll have to outlaw the provision of that particular service. Which of course would be lunacy, and which is why D/F has embarked on this fool’s errand of trying to distinguish between a swap for one purpose which is allowable as opposed to another which is not.
I’ve said it before and I will say it again: If you don’t want the government to backstop the risks that banks take to make money, then you should oppose the government’s involvement in guaranteeing deposits, plain and simple. If you want the government to guarantee deposits, then you are necessarily agreeing that the government will backstop risks taken by banks. You may want to then go on to haggle over which risks you want backstopped and which you don’t, but it is no longer an argument in principle, and has becomes simply a matter of personal taste. You like residential mortgage risk, but not fixed income swap risk. How did that work out 4 years ago?
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weird I have compeltely lost my ability to post at WAPO today, even though I see others like jnc still can.
I might have to switch names again.
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“bannedagain5446, on July 20, 2012 at 11:01 am said: Edit Comment
jnc
did you see the comment section on that and if so what do you think of my posts? I don’t want to cut and paste the whole discussion..
no WAPO commneting right now, or is it just me?”
Comments are screwed up currently. It’s not just you. I haven’t read the comments on the article, but I’ll go ahead and do so.
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John,
Your comments on the history of toll roads is interesting, but as I have noted in the past, I find the arguments advanced by President Obama and others such as Elizabeth Warren about the role of government spending on infrastructure, education, etc in creating/enabling private business success to be little more than a distracting ruse, given how small these costs are in comparison to the overall spending in the Federal budget.
I reject the attempts to conflate true public goods with entitlements to justify the proposed taxation rates and redistributist policies in general. I find it telling that those who are advocating for them are unwilling to make the redistribution case for entitlements straight up on the merits and instead rely on this conflation as an argument.
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I’ve been reading the comments from various politicians on the Aurora theater shooting and thought both Obama and Romney struck a respectful tone but Joe Biden really uncovered the truth of the matter.
Joe Biden
“Jill and I were shocked to learn of the tragedy in Aurora, Colorado this morning,” Vice President Joe Biden said in a statement Friday. “The reason this is so deeply felt by all Americans is that, but for the grace of God, the victims could have been any one of our children, in any one of our towns. It is every parent’s worst nightmare to receive ‘that phone call’ and to sit by their child’s bedside, praying. We know what it’s like to wait and wonder and the helplessness a parent feels at this moment. Our hearts go out to each and every person who is suffering right now as a result of this terrible event. The prayers of an entire nation are with the victims and their families. We stand with the city of Aurora and the state of Colorado in mourning.”
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I had the same reaction, lms.
My wife and I were planning to see the movie next weekend. Why them and not me? Dumb luck I guess.
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Nova
Yes, it’s always shocking how just a difference of time or place puts us in or out of harms way. It’s also hard to fathom how some people become so unbalanced without others noticing or doing something about it. Very sad day, my niece and nephew were living in Aurora before they came to live with us………………I’ve been there many times.
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I FEEL like JB. But I think the facts are that these terrible events are so rare in our nation of 320 million souls that I THINK we are very safe, despite the butforthegraceofGod fear these events arouse.
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i get what you’re saying mark. we’re worried about gun violence today. but then we’ll shut down our computers and get behind the wheel of car.
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I don’t know the statistics on gun violence Mark or mass murders here or elsewhere but I have heard that violence overall is down. I’m not a fan of guns and have never even seen one up close but I gave up years ago hoping for stricter rules regarding gun ownership.
I think events like this and even natural disasters that cause death and mayhem are more of a reminder to all of us how precious life is and how connected we are in times of mourning. That’s why I liked what Biden had to say. I highly doubt anything will be done regarding gun ownership because of this. I think it’s actually more important to understand how another young man with questionable mental health slipped through unnoticed.
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At the risk of injecting inappropriate levity into the days events, every time I see the over the top media reaction to one of these shooting events, I’m reminded of an old SNL parody of Nightline with Ted Koppel:
http://www.hulu.com/watch/10400/
http://snltranscripts.jt.org/82/82pstutts.phtml
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scott
you are essentially writing that the government had cease to enforce Glass Steagall which is true and the arguemtn that was made to Bill Clinton at the time of repeal. that it was legislation that events had already made moot.
Legislation without enforcement is not only worthless, but dangerous to all other legislation on the “broken window” theory of law enforcement.
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banned:
you are essentially writing that the government had cease to enforce Glass Steagall
I don’t think so. Glass-Steagall was not a catch-all that disallowed any activity which might someday be deemed objectionable by politicians.
Which provision(s) of Glass-Steagall do you think, had they been enforced, would have prevent commercial banks from entering derivatives contracts?
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We cannot say what we know statitiscally is true. This involved a suburban or relatively upscale/quiet community so it is a national tragedy.
I have personally worked an evening back in the day in Washington DC is which there were 7 murders in one night and 2 or 3 per night on a weekend was not unusual. The victims however were faceless as they still are today. No one interviewed their neighbors, or reconstructed their life stories.
Every media organziation has it’s own cold blooded calculus it performs over the newsworthy value of victims versus the amount of space/time given to the story.
The people killed by the drug war are legion. The people killed by the psychotic are comparatively tiny. One continues the story almost mundanely and one changes it dramatically.
You will not know the names of tomorow’s victims.
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banned:
This involved a suburban or relatively upscale/quiet community so it is a national tragedy
I don’t believe that for one second. Had a deranged gunman gunned down 60+ people in a downmarket urban community it would be equally national news.
It is certainly true that a murder in an upscale neighborhood where none ever occurs will be more likely to make the national news than a murder in a poor neighborhood where murders are a regular occurrence. But this is not an example of such a case. This has made news because of the scale of the event, not because of the community.
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Do you find that interest rate swaps were at the heart of the financial crisis? I personally would have said that mortgage backed securities issued by the investment arms were the problem. do you find them one and the same or different?
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banned:
Do you find that interest rate swaps were at the heart of the financial crisis?
Not in the slightest. But of course swaps are the focal point of Dodd-Frank and its effort to prohibit proprietary trading.
I personally would have said that mortgage backed securities issued by the investment arms were the problem. do you find them one and the same or different?
The problem was the creation of a real estate bubble through far too-easy credit and far too much lending. It is true that MBS contributed to the problem by introducing more investor lending into the the real estate market, but neither G/S nor D/F would have prevented it from happening.
(corked by Brent)
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scott:
Thank God gun murders are down, but for instance in the first month of this year in Philadelphia there were 31 murders and last year new Orleans had a murder rate that was ten times the national average.
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A real estate bubble was at the heart of the financial crisis. Whether banks held the exposure through MBS or held the loans directly on their balance sheet they still would have been toast and you still would have had a crisis.
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In DC they have something called the Adams Morgan Festival which has a theoretical closing time, but we used to say that it didn’t officially end until the gunfire erupted.
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Brent
this is a fascinanting though heavily wonky piece from 2004 which if I undertand it correctly is warning about the dangers of the ratio of Tier One capital to GSE securitization.
correct me if I’m wrong but isn’t the presence of the commercial banks tier one capital and invitation to extend larger and larger sums to institutions like the sub prime lenders on what was essentially a pass through basis?
http://www.fdic.gov/bank/analytical/fyi/2004/030104fyi.html
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Sort of funny but over at the PL Shrink and I are discussing the mental health aspect of the shooting while Nova and jnc are discussing the various guns involved and Kevin is being Kevin……………….”how would that work?”
Update: and someone just called Nova an asswhole (his spelling), gosh that’s unusual for the PL.
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brent and scoot
so do you find my thought then that the not only the money supply was over exteneded but that capital reserves were effectively expanded to enable much larger bets to be made invalid?
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“Brent Nyitray, on July 20, 2012 at 2:19 pm said:
A real estate bubble was at the heart of the financial crisis. Whether banks held the exposure through MBS or held the loans directly on their balance sheet they still would have been toast and you still would have had a crisis.”
I’d argue that the mess would be easier to clean up if the loans were held directly on their balance sheets rather than sliced up via MBS. It would be easier to modify or otherwise write down the loans if the servicer was also the loan holder.
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Worth noting:
“Arctic drilling close for Shell, but still elusive
By Juliet Eilperin and Steven Mufson, Updated: Friday, July 20, 2:59 PM
ANCHORAGE — Seven years and $4.5 billion after it bought leases to explore for oil off Alaska’s Arctic coast, Royal Dutch Shell is finally close to drilling a well in the pristine Chukchi Sea, confident that it will discover a vast oil reservoir buried thousands of feet below the seafloor.
“This is kind of like Christmas Eve,” said Lt. Gov. Mead Treadwell (R). “We can’t wait to see if Santa comes.””
http://www.washingtonpost.com/national/health-science/arctic-drilling-close-for-shell-but-still-elusive/2012/07/20/gJQATHdRyW_story.html?hpid=z3
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John,
I read the FDIC paper (though not carefully). I think the thrust of it was more to do with GSE MBS being treated as Tier 1 capital – as if they are sovereign debt. GSE paper at that point (in 2004) did not contain an explicit government guarantee. Of course during the crisis, Treasury floated a trial balloon regarding GSE paper not being government guaranteed and Bill Gross shot that down immediately.
They then focus on their stress test where GSE paper goes from AAA to A or AA based on no explicit guarantee.
Anyway, the point is moot since GSE paper is now explicitly guaranteed by the government.
As far as risk taking, it did allow the banks to earn a higher duration-adjusted return than they would otherwise get in Treasuries, although that is simply compensation for convexity risk. I don’t think it made any difference in their risk taking overall with respect to securitization.
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thanks brent
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