Friday, May 28, 2010

Another Debt Crisis Is Brewing, This One in Student Loans -

Max Keiser: Big Banks Allocate Losing Trades to Clients, Keep Winning Trades for Themselves

Voltron says: Read the comments for the linked article. I had no idea this sh!t goes on!

David Einhorn: Easy Money, Hard Truths

Excerpt: "The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other 'risky assets.' This speculation drives stock prices higher"

Thursday, May 27, 2010

Hugh Henry: "I recommend you panic" . . .

Voltron says: Hugh, you had me at "panic".

Video and partial transcript:

Saturday, May 22, 2010

FHA-HAMP Helped 171 Homeowners Nationwide in April

"171 nationwide in April. So, very well done there. Crackerjack work, I would have to say."

Here's why:
The traditional compensation model for servicers is based on a flat percentage of a loans outstanding in the portfolio. On conventional loans, servicers are generally paid between 0.25 and 375% of total unpaid loan principle in their portfolio. Every incremental dollar spent counseling borrowers and mitigating the losses of the end investor (not their own losses) is cutting into the servicers margin.

Tuesday, May 18, 2010

Suddenly, Everyone's In the CRASH Camp, Not Just The Bear Camp

Read more:

Meredith Whitney is getting fired up again

Meredith Whitney Sees Bleak Second Half in Stock Market, Small Business Credit Crunch, Double Dip in Housing, Says European Banks in Worse Shape

Germany bans short selling of some stocks and bonds

Voltron says: This takes effect at midnight at is in force until 31 March 2011. The US enacted a similar ban, just as hastily, during September 2008, with disastrous results. Short sellers are the only buyers in a crashing market when they close out their positions, so when you ban short selling, you create a vacuum under the market.

See my previous blog posts from Sept 08:

Nassim Taleb: Robustness and Fragility

Voltron says: The second edition paperback of Nassim Taleb's instant classic book "The Black Swan" has been released with new chapters on "Robustness and Fragility" here two excerpts:
Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.”

Let us move voluntarily into a robust economy by helping what needs to be broken break on its own, converting debt into equity, marginalizing the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here (by claiming restitution of the funds paid to, say, Robert Rubin or banksters whose wealth has been subsidized by taxpaying schoolteachers), and teaching people to navigate a world with fewer certainties. Then we will see an economic life closer to our biological environment: smaller firms, a richer ecology, no speculative leverage—a world in which entrepreneurs, not bankers, take the risks, and in which companies are born and die every day without making the news.

Voltron says: Nassim's hedge fund, "Universa", was at one point accused of causing the 1,000 point "Flash Crash" of 2:45 on May 6th. Here is a video of Nassim (briefly) addressing that and other matters:

Monday, May 17, 2010

‘There’s No Money Left,’ U.K. Minister Learns From Predecessor

May 17 (Bloomberg) -- Arriving for work at the U.K. Treasury last week, the incoming chief secretary, David Laws, found a note from his predecessor, Liam Byrne, offering advice on the job.

According to Laws, it read: "Dear Chief Secretary, I'm afraid to tell you there's no money left."

"Which was honest," Laws, whose position is the No. 2 in the Treasury after the chancellor of the exchequer, told a press conference in London today. "But slightly less than I was expecting."

James Galbraith On Economic Theory As A Disgraced Profession

Reindexing The Unemployment Rate

Reindexing The Unemployment Rate By America's Population Growth Yields Some Ugly Results

GM Wants More Subprime Lending

Voltron says: GM wants to sell more cars before it issues new stock
but it sold it's finance arm in 2006 and no one is the the mood to
make subprime car loans.

Saturday, May 15, 2010

Daily Show: The banks can't lose (video)

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Daily Show Full EpisodesPolitical HumorTea Party

Financial Crisis

Last week, we had a "financial crisis" which Nouriel Roubini defines as:
"an event that forces policy officials to spend a long weekend trying desperately to announce a new bailout package in order to avoid national and global panic before the markets open on Monday."

Despite a trillion dollar bailout and pledge to defend the Euro, the Euro has crashed to an 18 month low. That's it . . . Europe fired it's bailout bullet . . . and missed. Paul Krugman is panicing.

German Chancellor, Angela Merkel said the bailout may not work.

Former Fed Chairman Paul Volker said the Euro may brake up.

California Governor, Arnold Schwarzenegger compared California to Greece while announcing crushing budget cuts.

Monday, May 10, 2010

Wells Fargo is rotten

Voltron says: E-mail evidence in a stock lending lawsuit reveals the rotten culture at Wells Fargo

"I think it is a bad idea to answer these questions right now,"

"We never admit to 'having problems.'"

"Is there a likelihood of a rush to the exits [by clients]?"

"Admitting to losses ... is a big deal for all future business."

"We haven't communicated about this at all. It feels like a ticking time bomb without telling our clients."

CBS 60 Minutes: "Strategic Default: Walking Away from Mortgages"

Intro: (CBS) Despite some indications that the economy is recovering, the housing market remains a disaster area. Currently, about seven million homeowners are behind on their mortgages and that number is only getting worse.

Banks, with the help of the government, are offering some relief to homeowners who've lost jobs and just can't meet their payments.

But there's a growing number who can pay but are simply walking away from houses that are now worth as little as half of what they paid for them.

It's called "strategic default." People have done the math and decided making those monthly payments is just throwing money away, leaving the mortgage holders - the banks - as zookeepers of an ever-growing parade of white elephants.

In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away.

Video and Transcript:

Is that all you got?

Voltron says

The "Euro TARP" announced after an all-nighter on Sunday right before the asian markets opened (<sarcasm on> like all carefully thought out plans <sarcasm off>) is a 700 Billion Euro (about 1,000 Billion Dollars) package of loans and loan guarantees for Greece. The 2008 US TARP was for the same nominal 700 Billion amount (in dollars). How did the US come up with 700 Billion? "It's not based on any particular data point . . . We just wanted to choose a really large number." No Kidding. If this package is a good bailout, why didn't they do it last week, last month, last year, 10 years ago and why don't they do another trillion tomorrow and the day after that? By the way, it's a preview of the coming US bailout of California. All the European nations and the IMF (mainly the US) are going to contribute. Does it make sense for Spain to borrow money at 8% to loan to Greece at 5%? Why is the solution to debt always more debt? None of this will solve anything because the Greek citizens will not adopt austerity measures or pay their taxes and none of the money is "stimulus".

I feel exactly the way I did after the TARP bailout in 2008. "Is that all you got?" A Trillion dollars of debt thrown into hole and all they get is a modest pop in the Euro and 400 point pop in the DOW pre-market. The DOW usually goes up on Monday's when the 401k purchases come through and most of the increase in the DOW since March have been pre-market.

The Europeans are trying to hurt the speculators, but they can't. If they cushion market volatility to clam the markets, that makes options cheaper and carry trades more attractive. If they increase volatility to shake out short sellers, it will spook the markets. No matter what they do, Goldman Sachs will figure out a way to rape them. Goldman just announced that they made money EVERY TRADING DAY LAST QUARTER and make over $100 million on half of the days.

Despite all this Moody's just put Greece, Ireland and Portugal on negative ratings watch.

By the way, after the money is used to bailout the politically connected, Greece will default anyway.

Sunday, May 9, 2010

Yanking on the Leash?

Voltron says: On April 18th, I said that Wall Street would start "yanking the leash" by crashing the market whenever the government threatened to regulate. I'm not saying that happened on Thursday, but it clearly demonstrates that it would not be difficult to do so.

Moody's under SEC investigation, tugs on leash

SEC May Order Ratings Agency To "Cease And Desist"

Read more:

Voltron says: The investigation is with respect to some 2008 constant-proportion debt obligations (CPDOs) that Moody's knew were overrated due to a "computer bug" but knowingly did not correct the error. The US may revoke Moody's charter to rate securities (NRSRO). Coincidently Moody's is now saying the the US may lose it's triple-A credit rating as soon as 2013. Unlike bond issuers, the US does not pay Moody's for ratings.

Feds probing JPMorgan Chase's silver market trades -

Feds probing JPMorgan Chase's silver market trades -

Saturday, May 8, 2010

"The dirty little secret is: The world has no money, and the Emperor has no clothes."

Voltron says: It doesn't get more main stream than Brian Williams

Thursday, May 6, 2010

Dude, Where's my gold?


Voltron says: word on the street is that some bonehead at Citigroup fat fingered a "B" instead of an "M" and caused a cascade of automatic trades that sent the DOW down about 7% in about 15 minutes. Ironically the high frequency traders panicked and shut off their systems, removing needed liquidity. The market subsequently recovered almost all of the loss from the dip, but not 3% it had been down before the dip. It's odd that the dip happened right after 2:30 when it would not have triggered a market closure unless it fell 20%

Voltron says: A trillion dollars was transferred during the dip. Many people had stop loss orders triggered. Was it a last desperate money grab by Citigroup or Goldman?

Just sold out of DKA, DBN, DBU

Voltron says: Dow plunged almost 1,000 points in a few minutes

Way to go Freddie!

"FREDDIE MAC has now lost 82 BILLION DOLLARS over 10 of the last 11 quarters more than TWICE what it EARNED over the previous THIRTY YEARS."

Wednesday, May 5, 2010

Banks still playing with numbers

Whitney: Banks Under-reserved for 'Double-dip' in House Prices

Banks continue to suffer from losses on non-performing loans, and U.S. home prices will fall again amid increasing supply and sluggish demand, according to [banking analyst Meredith Whitney].

“I’m steadfast in my belief there’s going to be a double- dip in housing,” she said. “You will see clearly that the banks are under-reserved when housing dips again.”

story and video:

hat-tip: calculated risk

Tuesday, May 4, 2010

Strategic Default Update

  • $100,000 negative equity is the tipping point.
  • 12 percent of all U.S. defaults in February were strategic.
  • 30,000 people a month are able to pay their mortgage but are deciding not to.

Monday, May 3, 2010

Fed knew of housing bubble in 2004

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices."

Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

Voltron says: I have been a connoisseur of arrogance all my life and I must say that this is truly magnifique. Absolutely breathtaking. The current Fed Chairman and Treasury Secretary are also implicated in this cover up. "it is possible to lose control of a process that only we fully understand" WTF is that supposed to mean? Fiat currency collapse?

Fannie Mae tightens lending standards

WASHINGTON (AP) -- Battered by a tidal wave of loan defaults, mortgage finance company Fannie Mae is tightening standards for the adjustable-rate and interest-only loans that fed the housing boom and contributed to the bust.

The company said Friday it will require mortgage lenders to consider how high a borrower's mortgage payments might rise after teaser rates expire.

Fannie Mae also will enact tighter standards for "interest only" loans that allow borrowers to avoid making principal payments for several years. To get those loans, borrowers taking out new mortgages must have a down payment of at least 30 percent and enough assets for two months of living expenses.

Washington-based Fannie and sibling company Freddie Mac buy mortgages from lenders and sell them to investors with a guarantee against default. They have effectively been owned by the government since they nearly collapsed in September 2008.

Voltron says: No rush though . . . the new rules take effect in September 2010.

Huge FDIC Losses from 7 Bank Failures Friday

From rss feed:

In all, the Federal Deposit Insurance Corporation projected $7.3 billion in losses from seven bank failures [last] Friday.

The toll is higher than the $6 billion in losses projected for IndyMac Bank FSB's failure.

No losses to the Deposit Insurance fund occurred from the failure of Washington Mutual Bank -- the biggest bank failure in U.S. history.