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 | 1645.9 | 14.6 | 0.89% |
| Eurostoxx Index | 2766.1 | -8.0 | -0.29% |
| Oil (WTI) | 107.2 | -0.4 | -0.38% |
| LIBOR | 0.26 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 82.34 | 0.256 | 0.31% |
| 10 Year Govt Bond Yield | 2.84% | 0.05% | |
| Current Coupon Ginnie Mae TBA | 104.1 | 0.0 | |
| Current Coupon Fannie Mae TBA | 102.8 | -0.4 | |
| RPX Composite Real Estate Index | 200.7 | -0.2 | |
| BankRate 30 Year Fixed Rate Mortgage | 4.47 |
Markets are stronger after a return from the long Labor Day weekend. While a short week, we will have all sorts of important data, with Friday’s jobs report the most important. Risk-on feel, as stock index futures are rallying and bonds / MBS are getting hit.
Friday’s jobs report will probably answer the September vs December question. If it is strong, the next questions will concern the actual amount and distribution of the cuts. The consensus seems to be that the Fed will reduce purchases by $10 billion a month. Will that be all Treasures, a mix of Treasuries and MBS, or all MBS? While I don’t think there is any chance the Fed will choose to do all MBS, there is a chance they could do all Treasuries. And that would be mortgage-rate positive.
Is the Syrian situation market-moving? It has the potential to be market-moving if it spreads to other countries in the Middle East, but on its own, probably not. Any sort of strike by the US will be limited and no one envisions sending troops in. The only real worry is if it drives oil higher, and that will affect Asia more than us.
The MBA Independent Mortgage Banker Report showed average profit per loan decreased to $1,528 (75 bp) in the second quarter from $1,772 (86 bp) in the first quarter. While overall volume was flat, per-loan production costs continue to rise, and we are seeing pricing pressures.
The jumbo market so far seems to be immune to rising rates.
Filed under: Morning Report |
All Things in Moderation 
Mark – Did I read a comment you made on PL correctly that you expect the result of breaching the debt ceiling to be martial law? I couldn’t tell if you were being sarcastic.
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martial law
JNC, I don’t believe we are going to have a government shut down. If we did, and it was prolonged, there is revenue to meet all bonded and constitutionally mandated indebtedness.
There is not a priority of obligations after meeting the mandated indebtedness. The POTUS would have to choose what to pay for without current authorization. I am suggesting that something akin to martial law would be the result as the executive chooses what not to pay, and who takes scrip.
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If busting the debt ceiling leads to more expensive borrowing (hopefully prohibitively so) and it makes it harder to borrow, then what’s the downside? Either cuts in spending or increased taxes. What’s not to like? Voters always reward tax raisers!
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BTW, this whole Syria thing, where Democrats are insisting on killing more brown people, is pathetic.
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Troll, you’re behind on the talking points. this whole thing is somehow the fault of Republicans for being obstructionists.
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The nations Paper of Record earns its title.
http://t.co/Px9z8g4XjK
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Nova,
True, it’s weird how united the D’s are on this. Who’d a thunk the ONLY thing standing between the bombing of brown people is Racist Obstructionist Republicans.
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This whole Miley thing is ridiculous. particularly that people are shocked. want to shock me and my generation? she should have walked out on stage and announced she was joining a convent.
but this performance? it was shocking. 30 years ago.
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nova:
This whole Miley thing is ridiculous. particularly that people are shocked. want to shock me and my generation? she should have walked out on stage and announced she was joining a convent.
Lol…good one. I didn’t find it shocking in a “OMG, I can’t believe she did that” way, but I did find it shockingly bad, in a “OMG, I can’t believe someone thought this would be entertaining” way.
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The NYT piece reads like the Onion:
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Michgoose: For you – Chemical weapons is one thing, but I’m pretty sure the use of weaponized bears qualifies as a WMD.
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but are they drop bears?
http://en.wikipedia.org/wiki/Drop_bear
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that too, scott. but I guess we are not their target demographic.
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It did what it was supposed to. She eclipsed Lady Ga Ga’s performance and got the attention she sought.
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jnc:
It did what it was supposed to. She eclipsed Lady Ga Ga’s performance and got the attention she sought.
That is probably right. The purpose was not to entertain, but to get attention. She certainly got that.
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JNC — you mentioned a history on WWI that you enjoyed .. but i don’t recall the title. do you remember?
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Well, Lady Gaga was on ten here, all the way up, all the way up. Where could Miley go from there? Nowhere. She needed that extra push over the cliff, so you know what she did? Eleven.
Miley’s act was eleven.
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great, Brent. now I need to find 2 hours this week to watch that again.
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St. Hubbins, the patron saint of orthopedic footwear.
BTW, Best in Show ain’t bad, just a bit longish.
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jnc:
weaponized bears
You saw what they did there? They got dyslexic on the Second Amendment.
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And, yes, I’d say they qualify as WMD!
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“novahockey, on September 3, 2013 at 11:37 am said:
JNC — you mentioned a history on WWI that you enjoyed .. but i don’t recall the title. do you remember?”
I recommend four books on the period:
My favorite is Robert K Massie: Dreadnought
Also his sequel: Castles of Steel: Britain, Germany, and the Winning of the Great War at Sea
Guns of August of course
and
Paris 1919: Six Months That Changed the World
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thanks — all of those looks good. and all are available on the kindle. so i can start tonight.
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I think the phrase “martial law” is a poor term to describe the executive unilaterally determining creditor priority in the event of a debt ceiling breach. There’s no reason to expect tanks in the street.
There’s also no reason to expect scrip to be issued. Payments would simply not occur.
Also:
“The POTUS would have to choose what to pay for without current authorization.”
Absent a separate government shutdown due to failure to pass a continuing resolution or appropriation bills, this isn’t the case. Instead, the executive is having to deal with conflicting authorizations, not the lack thereof. I.e. he’s authorized (& mandated) to spend money on both SS and Defense, but there’s not enough to go around.
I still find this the most useful piece written on what would actually happen.
http://www.economist.com/blogs/freeexchange/2011/01/americas_debt
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Absent a separate government shutdown due to failure to pass a continuing resolution or appropriation bills
No CR is what I was responding to at the time.
Good link. Thanks.
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“novahockey, on September 3, 2013 at 12:47 pm said:
thanks — all of those looks good. and all are available on the kindle. so i can start tonight.”
I’m an anachronism. I have them all in hardback.
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Heh.
@seanmdav: Having dinner w/ Assad. RT @RichardGrenell All these liberals now saying that Assad must be stopped. Where were they for the past 2 years?
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George, you will enjoy this, from Ezra Klein.
Privately, Hill aides joke that everything is going exactly to President Obama’s plan. It’s just that that plan is to stay far, far away from Syria.
This is the (tongue-in-cheek) 12-dimensional chess interpretation of the Obama administration’s Syria strategy. Boxed in by red-line rhetoric and the Sunday show warriors, the Obama administration needed to somehow mobilize the opposition to war in Syria. It did that by “fumbling” the roll-out terribly.
The arguments were lengthy and unclear. The White House expressly admitted that their strikes wouldn’t save Syrian lives or topple Assad or making anything better in any way, and they were instead asking Americans to bomb Syria in order to enforce abstract international norms of warfare. It would be the first military action in American history that wasn’t meant to save lives or win a war but to slightly change the mix of arms a dictator was using to slaughter his population.
All this was helpful in creating opposition. But then Obama turned on a dime and decided to go to Congress at the last minute, making his administration look indecisive and fearful of shouldering the blame for this unpopular intervention, putting the decision in the hands of a body famous for being unable to make decisions, giving the argument for strikes more time to lose support, and giving an American public that opposes intervention in Syria more time and venues to be heard.
And then, after all that, Obama goes to Congress with an absurdly broad force authorization — so broad that it doesn’t specify when it ends, or even really limit which countries can be hit. The force authorization offended even Obama’s allies in Congress, left many questioning his motives, and has now been thrown out by the Senate. Members of Congress and their aides I’ve spoken to remain shocked that Obama chose to come to Congress and then handed them that document.
And on Tuesday, of course, Secretary of State John Kerry stepped before the Senate and, asked, to forswear ground troops, said, “I don’t want to take off the table an option that might or might not be on the table.” He later walked the comments back as “a hypothetical,” but they led the nightly news, and pushed the possibility of escalation further into the discussion.
The Obama administration’s strategy to cool the country on this war without expressly backing away from the president’s red lines has been brilliant, Hill aides say (just look at the polls showing overwhelming opposition!). If they are going to go to war, their efforts to goad Congress into writing a punitively narrow authorization of force that sharply limits any potential for escalation have worked beautifully.
Believing anything else — like this is how the administration is actually leading the United States into conflict — is too unsettling.
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Mark (from Ezra):
But then Obama turned on a dime and decided to go to Congress at the last minute
I liked Taranto’s take on this:
Which makes the president’s request for congressional authorization difficult to understand as anything but a political ploy, at best an exercise in buck-passing, at worst–and this has been suggested approvingly by some of his admirers–a strategic effort to inflict political damage on congressional Republicans. In support of the latter hypothesis one may note that Obama maintained the element of surprise with his Capitol Hill adversaries while going to ridiculous lengths to spare Bashar Assad of it.
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Well, in defense of Obama, name one thing he’sanaged well.
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He did a pretty good job of managing to fool a lot of voters into thinking he was a competent manager.
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name one thing he’sanaged well.
1] the structured bkcy of GM and Chrysler
2] the withdrawal from Iraq
3] the logistic support of NATO in Lybia [leading from behind, as some would have it]
4] taking down OBL
5] his reelection campaign after the first WMR debate.
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Mark:
1] the structured bkcy of GM and Chrysler
Really? See also this.
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Really?
Really.
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Mark:
Really.
Your thinking on this is crystal clear, now. Thanks.
What Libya did by squandering the opportunity is their problem.
And Obama squandered lots of our resources to no good purpose. Outstanding management.
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More on the not-so-well-managed bankruptcies of GM and Chrysler:
After the bailouts came the arranged bankruptcies. At first, when the government announced that Chrysler and General Motors would be filing for Chapter 11, the news was received with relief by the market, the companies’ creditors, and everyone concerned for the rule of law. The mess created by the bailout could finally begin to move from the political arena to the legal arena, and so regain some semblance of legitimacy and order.
But it wasn’t long before these hopes were dashed by the government’s management of the process. Instead of a regular bankruptcy proceeding, the Obama administration, working with the automakers, patched together a process without precedent — a bankruptcy combined with a bailout, incorporating the worst elements of both.
Of the two proceedings, Chrysler’s was clearly the more egregious. In the years leading up to the economic crisis, Chrysler had been unable to acquire routine financing and so had been forced to turn to so-called secured debt in order to fund its operations. Secured debt takes first priority in payment; it is also typically preserved during bankruptcy under what is referred to as the “absolute priority” rule — since the lender of secured debt offers a loan to a troubled borrower only because he is guaranteed first repayment when the loan is up. In the Chrysler case, however, creditors who held the company’s secured bonds were steamrolled into accepting 29 cents on the dollar for their loans. Meanwhile, the underfunded pension plans of the United Auto Workers — unsecured creditors, but possessed of better political connections — received more than 40 cents on the dollar.
Moreover, in a typical bankruptcy case in which a secured creditor is not paid in full, he is entitled to a “deficiency claim” — the terms of which keep the bankrupt company liable for a portion of the unpaid debt. In both the Chrysler and GM bankruptcies, however, no deficiency claims were awarded to the wronged creditors. Were bankruptcy experts to comb through American history, they would be hard-pressed to identify any bankruptcy case with similar terms.
To make matters worse, both bankruptcies were orchestrated as so-called “section 363” sales. This meant that essentially all the assets of “old Chrysler” were sold to “new Chrysler” (and “old GM” to “new GM”), and were pushed through in a rush. These sales violated the longstanding bankruptcy principle that an asset sale should not be functionally equivalent to a plan of re-organization for an entire company — what bankruptcy lawyers call a “sub rosa plan.” The reason is that the re-organization process offers all creditors the right to vote on the proposed plan as well as a chance to offer competing re-organization plans, while an asset sale can be carried out without such a vote.
In the cases of GM and Chrysler, however, the government essentially pushed through a re-organization disguised as a sale, and so denied the creditors their rights. As the University of Pennsylvania’s David Skeel observed last year, “selling” an entire company of GM or Chrysler’s size and complexity in this manner was unprecedented. Even on a smaller scale, it would have been highly irregular: While rush bankruptcy sales of much smaller companies were once common, the bankruptcy laws were overhauled in 1978 precisely to eliminate this practice.
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Mark:
3] the logistic support of NATO in Lybia [leading from behind, as some would have it]
Libya descends into lawlessness and ruin.
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Libya descends into lawlessness and ruin
Not doing nation building is a good thing. What Libya did by squandering the opportunity is their problem.
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Didn’t that idiot Bush create and sign the Iraq Status of Forces agreement that established the time table for withdrawl? Is it fair to credit Obama with managing not to interfere with it?
Also, his key advisors, Jarret and Biden (OMFG) argued against taking out OBL. He appointed these two lunatics. I’m pretty sure he eventually agreed to the raid because he knew that if he did not, word would leak out and it would hurt him politically.
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Is it fair to credit Obama with managing not to interfere with it?
Sure. Small credit, but credit.
The reality is that was Gates’ doing through two Admins and BHO seems adrift without Gates.
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“The reality is that was Gates’ doing through two Admins and BHO seems adrift without Gates.”
That is an astute observation.
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Re:Libya. Ambassador Stevens was not available for comment.
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Helluva list of “we’ll managed” Obama ‘s racked up.
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jnc: BTW, you’ve hit the nail on the head IRT Syria, the Geneva Conventions, and its use of CW in the civil war. Thanks for clarifying the muddle that was bugging me.
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Shrink made the observation first a few days ago and quoted the relevant text.
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What text did shrink quote re: CWC?
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“In the cases of GM and Chrysler, however, the government essentially pushed through a re-organization disguised as a sale, and so denied the creditors their rights.”
No they didn’t. At the end of the day the creditors got their day in court and an independent judge ruled on the merits of the case, and that’s ultimately what matters for due process and rights.
The creditors were free to submit an alternate proposal for reorganization. Trying to secure an extra bit of cash from the government via a larger bailout isn’t quite the same thing as the public interest.
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jnc:
The creditors were free to submit an alternate proposal for reorganization.
The author’s point is that they weren’t, because the reorganization was disguised as a “sale”.
Trying to secure an extra bit of cash from the government via a larger bailout isn’t quite the same thing as the public interest.
I don’t know what you are referring to here. The objection, from what I can tell, was to the relative distribution of funds between secured creditors and the UAW, not the amount of funds distributed.
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No, the 1920’s Geneva protocols on gas warfare.
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“Trying to secure an extra bit of cash from the government via a larger bailout isn’t quite the same thing as the public interest.
I don’t know what you are referring to here. The objection, from what I can tell, was to the relative distribution of funds between secured creditors and the UAW, not the amount of funds distributed.”
It was both. And the creditors could file an appeal, which they did all the way to the Supreme Court.
This should be read in addition to the piece you linked:
http://money.cnn.com/2009/10/21/autos/auto_bailout_rattner.fortune/
See also:
Edit: Scott, also always keep in mind that in the United States, Federal Bankruptcy courts are courts of equity. They are empowered to make these sort of subjective determinations.
http://en.wikipedia.org/wiki/Court_of_equity
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jnc (from your link):
The fact was, Chrysler had to have workers, suppliers, and customers to succeed and therefore needed to give them more than called for by their rank in the capital structure.
This is his only explanation in the whole article for favoring the UAW as he did. And it makes no sense. Do you believe that auto workers facing the prospect of unemployment and lost pensions would have refused to work for the new company if not for the preferential treatment that UAW got? I certainly don’t. I also don’t believe that Obama’s/D’s political ties to unions had nothing to do with it.
He also says this:
Every stakeholder did better under our plan than they would have in the alternative: a liquidation, in which the lenders would have gotten far less than the $2 billion they wound up with.
He presents a false choice, his plan or liquidation. He ignores that other plans were possible, including one in which every stakeholder did better, but the distribution of “betterness” would be different.
What he conveniently ignores is that the president’s plan was litigated throughout the federal court system — all the way to the Supreme Court, in the case of Chrysler — without so much as a nod to the opponents from a single judge.
An explanation of section 363 sales, and why they are a bad idea (emphasis added):
These 363 sales are, in essence, total cram downs without a vote. The danger? Managers sell the company cheap to reward themselves and their go along creditor buddies (read, the UAW and the government as debt holder here). Bankruptcy judges, eager to avoid a year of hearings and decisions, and eager to “save” jobs of employees by keeping the company doors open, have a strong incentive to go along.
BTW, the above was written in 2009, before any litigation, so he basically called it right.
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JNC and Scott – remember that GM’s UAW assumed responsibility for the pensions as part of the deal. That took it out of the yawning unfunded liability facing the taxpayers through the PBGT.
At least, that is how I recall it.
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My, my. In the space of five days (or so) I’ve been called a Weapons Nerd, a tool and a thug, and a dip shit on PL.
I think that’s getting close to putting me in the same category as a conservative. Care to get together for a beer, guys? 🙂
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Welcome to the club. You know you’ve hit rock bottom when they accuse you of being a libertarian.
The ironic (or clueless) thing is, they believe they are building a majority that way.
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“and a dip shit on PL”
I couldn’t believe the “I knew Obama was just a regular politician” line of crap.
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THANK YOU, NoVA. I just about spit out tea all over the screen at that.
I dunno, they’re revving up my contrarian side. Maybe I will go for Libertarian and see if I can run the board.
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“Every stakeholder did better under our plan than they would have in the alternative: a liquidation, in which the lenders would have gotten far less than the $2 billion they wound up with.
He presents a false choice, his plan or liquidation. He ignores that other plans were possible, including one in which every stakeholder did better, but the distribution of “betterness” would be different.”
You are presenting the false choice with the premise that “other plans were possible”.
Yes they were, but were any credible ones actually offered? The creditors didn’t want to run the companies. They wanted the money and this was a negotiating tactic.
From your original piece:
Rattner’s key point still holds:
That’s one of the key distinctions about being a court of equity. Your piece notes this, but tries to call it something different:
Actually expediency, or rather maintaining the enterprises as viable, ongoing businesses is a justifiable rationale and part of that involves resolving the financing issues expeditiously rather than dragging them out.
At the end of the day, the administration made a judgement call on how to prioritize the stakeholders and how to finance the reorganizations. The creditors either went along with it, or appealed and were rejected. You can disagree with the political and policy choices that the administration made, but I don’t view this as either illegal, or an overreach of their authority, above and beyond the original decision to enact TARP in the first place.
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jnc:
You are presenting the false choice…
Huh? Suggesting that they could have had a different plan than they one they used, specifically one in which secured creditors were treated at least equally to the unsecured UAW, is a false choice? I don’t think so.
Yes they were, but were any credible ones actually offered?
If I understand the article correctly, none could have been offered because rather than a typical reorganization in which the reorg plan is voted on, the government executed a 363 sale, which doesn’t allow for a vote or the presentation of other plans. The author wrote:
These sales violated the longstanding bankruptcy principle that an asset sale should not be functionally equivalent to a plan of re-organization for an entire company — what bankruptcy lawyers call a “sub rosa plan.” The reason is that the re-organization process offers all creditors the right to vote on the proposed plan as well as a chance to offer competing re-organization plans, while an asset sale can be carried out without such a vote.
Is this incorrect?
At the end of the day, the administration made a judgement call on how to prioritize the stakeholders and how to finance the reorganizations.
Yes, and just how it determined the priority remains an unexplained mystery. Except, I suppose, to cynics like me who note the political relationship between Obama and the union along with the inexplicably good deal the union got relative to other, secured creditors, and draw the (to me) obvious conclusion.
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I’m not arguing that politics wasn’t involved, but the creditors could have objected to the government’s motion and offered their own plan. They didn’t because they didn’t actually want to run the company. It’s a false choice because they weren’t able to round up an alternate source of financing. The real choice was the administration’s plan or liquidation.
In these sorts of proceedings, it’s important not to assign a moral value to creditors vs debtors. They are two sides of a business transaction. The creditors were ably represented by counsel and had their day in court. There are a fair amount of other TARP decisions that were worse and with less due process.
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jnc:
I’m not arguing politics wasn’t involved…
But that is precisely the problem. In a normal situation, a private investor gets to dictate the terms of the deal because, after all, it is his money and he can walk if he wants to. I have no problem with that. But in this case the investor was the US government, which means the investor was you, and me, and even the secured creditors who Obama fucked over to benefit the UAW. The fact that the investor was not private is precisely why objective, pre-established bankruptcy standards should have been followed in determining who got how much. If it was Obama’s money, then he has every right to dictate winners and losers. But it wasn’t his money, and so he had an ethical responsibility, even if not a legal one, to pay off creditors in an objectively even-handed way. By doing it in a manifestly political manner to favor a particular political constituency, in a way completely contrary to established bankruptcy priorities, he went well beyond his ethical authority, whether or not it was beyond his legal authority.
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I’d have to read the transcript on the various arguments on the sub rosa plan. I suspect that as it wasn’t intended to benefit the current equity holders, it passed muster.
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