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 | 1464.7 | 8.9 | 0.61% |
| Eurostoxx Index | 2712.4 | 6.0 | 0.22% |
| Oil (WTI) | 94.4 | 1.3 | 1.40% |
| LIBOR | 0.305 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 80.35 | -0.206 | -0.26% |
| 10 Year Govt Bond Yield | 1.90% | 0.04% | |
| RPX Composite Real Estate Index | 191.7 | -0.3 |
Markets are higher this morning after positive news out of Ford and Nokia. Initial Jobless Claims increased 4k to 371k, higher than the 365k estimate. The ECB left rates steady and predicted a gradual recovery for the Eurozone this year. Bonds and MBS are down.
WaPo has a write-up of the new QM rules expected to be released today by Richard Cordray in Baltimore. You can watch the speech here. Expected changes: Upfront fees will be capped at 3%, though exceptions will be made for loans under 100k, and IO mortgages will be banned. Ability to repay will be based not on the teaser rate, but on the expected rate later on. DTI ratios must be below 43%. The rules will be phased in over the next 7 years. The CFPB estimates that 75% of the mortgages issued in 2011 would have met the standards. If the banks follow these rules, they will be protected from many homeowner lawsuits, but not necessarily buy-back risk. Jumbos will probably the area most affected by the new rules. MND has the gory details here.
What does the appointment of Jack Lew as Treasury Secretary mean? That the Administration will be focusing its energy on budget battles going forward. He is not considered (at least by the Left) to be the sort of guy that will be addressing unemployment, or pushing for Keynsian stimulus. As such, he probably isn’t going to be tremendously dollar-negative, although in an era of competitive devaluations, it is hard to be a dollar bear anyway. The tight relationship between the Fed and Treasury will end. He is probably going to be a tough negotiator for the WH’s budget priorities – higher taxes on the rich no no non-defense spending cuts. He also has an unusual signature, (OoooooO) which will be gracing your dollar bills soon enough.
Acccording to NAR, 2012 will go down as a record year for housing affordability. The index came in at 198.2, which means the median borrower had 198% of the minimum income required to purchase the median price existing family home, assuming 20% down and 25% of income going to P&I payments. Tight credit standards remain the sticking point.
Thinking outside the box: Instead of paying the unemployed, pay their employers to keep them on. Through the work-sharing plan, employees get a shortened work week, with unemployment benefits partially compensating them for lost wages.
The hits keep coming: Morgan Stanley is laying off 1,600 workers.
Battle Royale: Ackman vs Loeb in Herbalife.
Filed under: Morning Report |
All Things in Moderation 
It finally quit raining in Houston.
MiA adds: Really? I must move there at my next opportunity. Houston: the New Orleans of the west or the Seattle of the south? If it isn’t raining the air is super saturated.
I know: Houston averages about 50″ a year, but my freshman year at Rice it was 60″ and it rained 28 days in September, 1960.
There are many reasons to love Houston, the first being the invention of air conditioning.
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More “national conversation about guns” information.
http://reason.com/blog/2013/01/09/django-unchained-and-the-latest-liberal
Or does this distract from the “conversation?”
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An interesting interactive graph from the IOM’s “U.S. Health in International Perspective: Shorter Lives, Poorer Health” report that has gotten some media attention today.
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“Instead of paying the unemployed, pay their employers to keep them on.”
A take from Germany’s 2009 playbook. It worked for them.
I commented on Ackman and Loeb to your previous report this morning and guessed what might be going on, but wondered if you could explain.
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Rick Rubin is a genius.
http://m.youtube.com/#/watch?v=IwsgXvKQih4&desktop_uri=%2Fwatch%3Fv%3DIwsgXvKQih4
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Brent,
Are the new QM rules a good thing, a bad thing, or meh? I can’t really tell from the WaPo piece.
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I think at this point Brent is just happy to have actual written rules at all.
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Anyone with WSJ access feel like reposting their editorial on AIG?
“That AIG Lawsuit “
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jnc:
From the WSJ:
“AIG’s board of directors decided Wednesday not to join former CEO Hank Greenberg’s lawsuit against the federal government, but that’s no reason not to take the case seriously.
Every taxpayer and shareholder should be rooting for this case to go to trial. It addresses an important Constitutional question: When does the federal government have the authority to take over a private business? The question looms larger since the 2010 passage of the Dodd-Frank law, which gave the feds new powers to seize companies they believe pose risks to the financial system.
That vague concept of “systemic risk” was the justification for the AIG intervention in September 2008. In the midst of the financial crisis, the federal government seized the faltering insurance giant and poured taxpayer money into it. The government then used AIG as a vehicle to bail out other financial institutions.
But the government never received the approval of AIG’s owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.
In 2011 Mr. Greenberg’s Starr International, a major AIG shareholder, filed a class-action suit in the U.S. Court of Federal Claims in Washington alleging a violation of its Constitutional rights. Specifically, Starr cites the Fifth Amendment, which holds that private property shall not “be taken for public use, without just compensation.” The original rescue loans from the government required AIG to pay a 14.5% interest rate and were fully secured by AIG assets. So when the government also demanded control of 79.9% of AIG’s equity, where was the compensation?
Ignoring the legal questions involved, much of the media and political class are dismissing the lawsuit by pointing out that without the intervention AIG would have gone bankrupt. This is true, and so is the fact that in bankruptcies common shareholders are typically wiped out. But not always. In cases where a liquidity crisis leads to the failure of a solvent company, shareholders can sometimes recover a portion of their investment.
Unlike the federal government, which has offered shifting explanations for why AIG had to be kept out of bankruptcy—and for whom—Mr. Greenberg has consistently argued that the company would have been better off in Chapter 11. He argues that since AIG’s assets were greater than its liabilities, there was an opportunity to preserve some shareholder value. To be sure this is a tough argument to make given how difficult it would be to maintain the reputation of a financial firm operating in bankruptcy. But let him make it.
The feds are taking this case seriously enough that on Wednesday they asked the AIG board for help in defending against it. We’re told that government lawyers asked the company to intervene to derail part of the Greenberg case: a claim filed on behalf of injured shareholders other than Mr. Greenberg’s own Starr International.
The government recently celebrated a $22.7 billion profit on its AIG investment, but perhaps it was a little too early to break out the Beltway bubbly. Though the politicians may dismiss this case, last year federal claims court Judge Thomas Wheeler denied the government’s motion to dismiss.
He also partially addressed the question of how the government could be at fault when AIG’s directors agreed to the government’s terms. If the government is demanding something it has no right to demand, it can still be an “illegal exaction” even if the government persuades private parties to go along.
Judge Wheeler’s court may be the perfect venue to explore questions about federal authority that Washington hardly considered during either the crisis of 2008 or the legislative reaction to it in 2010.”
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Just listened to the speech by Cordray. Quick observations:
Cordray is as interested in increasing access to credit as he is in protecting consumers. He believes credit is too tight.
Cordray believes that these “ability ot repay” rules would have prevented the financial crisis. Really.
QM is defined by a “traditional mortgage (no IO, negative amortizing, balloon, 30year +)” and DTI < 43%. Period. No FICO, assets, down payment, etc. There will be additional ways to allow a 43% + DTI mortgage to be made, at least temporarily.
Credit unions, community banks, and low-income lenders will get some relaxed guidelines for a qualified mortgage that banks and other lenders will not.
Up front points will be capped at 3%. Does that mean a homeowner cannot elect to pay upfront points to lower their mortgage rate, even if they want to? Or will the mortgage become non-QM? Some of the panelists want to include broker comp into the 3%. Which means rates are going up because those fees will be pushed into the borrowing rate.
Protects only against homeowner lawsuits under QM. Offers no other protection from other consumer laws, FHA suits, etc.
Unless the GSEs and HUD come through with some sort of protection against buy-back risk (which is what the lenders really fear), I don't see this increasing lending, which is what Cordray hopes this will achieve. Of course CFPB doesn't have the power to insulate lenders from GSE / Ginnie buyback risk, so there is only so much he can do.
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jnc:
Anyone with WSJ access feel like reposting their editorial on AIG?
Check your gmail account.
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I think that picking David Boies as counsel was a very smart move on Greenberg’s part.
“”[The government] can demand an interest rate, and it got a very high interest rate here. It can demand full security and it got full security,” Boies said. “What [the government] cannot demand, as a court in Washington, D.C., has already ruled, is that the company give up its equity.” He said the government in this case effectively took over AIG as part of the loan.
“There is a sense in which this is an easy case to litigate,” said Boies, adding that it’s unfortunate that while Starr would be able to move forward for its investors, AIG shareholders wouldn’t benefit from any damages recovered.”
http://www.cnbc.com/id/100369044
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jnc:
The WSJ editorial says:
But the government never received the approval of AIG’s owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.
Do you know what they are referring to?
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Mark, I don’t think Ackman is trying to drive down the stock price to take it over (it wouldn’t work anyway – you can’t take over a company without shareholder vote or a tender offer, and everything (from the day he started trading the stock) will have to be disclosed in the proxy statement. The stock would trade at a premium to the offer price and no one would tender or vote for the stock)
Loeb and Ackman are two very public investors that are not afraid to publicly talk their positions. Loeb’s 13-D filings are legendary for their incendiary language (he once accused a CFO of being “priapic” in a filing). Ackman is more of the cerebral, number crunching type of guy, but he was right as rain with the mortgage insurers during the financial crisis, so he gets a lot of followers. His record on retailers is more mixed.
Anyway, it isn’t anything more than two very vocal guys having two completely differing opinions of a stock that has been a battleground between the longs and shorts.
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“ScottC, on January 10, 2013 at 1:43 pm said:
jnc:
The WSJ editorial says:
But the government never received the approval of AIG’s owners. The government first delayed a shareholder vote, then held one and lost it in 2009, and then ignored the results and allowed itself to vote as if the common shareholders had approved the deal.
Do you know what they are referring to?”
See these:
http://dealbreaker.com/2012/01/hank-greenberg-should-maybe-get-his-25bn-back-but-not-for-the-reasons-he-thinks/
http://dealbook.nytimes.com/2009/07/01/aig-offers-shareholders-little-hope-for-recovery/
Click to access Rosemeyer.pdf
I think Greenberg has a real case. Discovery should prove interesting.
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jnc- If your first link is correct, then the Complaint is particularly puzzling. Not that it would be the first time that a party mistated the facts in a complaint, but I wouldn’t expect such a mistatement in such a sophisticated case or when a plausible alternative theory appears to exist.
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If jnc’s first link is correct, some BSF associate isn’t going to get his bonus check this year …
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Note that the first link was from January of 2012. Clearly the case has progressed since then.
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