John McLeod

Fannie's Tax Credit Sale to Goldman: No Deal

Fannie (under a nightmare "conservatorship" until it inevitably blinks out sometime down the road) is in effect back to its pre-1968 persona as a government department. It can no more legally sell its tax credits than we could have sold our DND-earned Air Miles on eBay. This is all about laundering public funds in such a way that Agency Debt can stay junior to treasuries. They're defending the ambiguity of the "effective guarantee." A side effect would have been Goldman and Buffett siphoning off something like a billion dollars risk free for their intermediation services. Thus the thief-in-the-night timing. It nearly worked this time, and next time it will.

The Fed and Fannie Mae: Throwing Money Down a Black Hole

I'd like to draw your attention to this SIFMA press release from January 7th, in the very last days of the Bush administration, and just before the Fed started buying up MBS. It's the guidance that started the Re-Remic recycling of old stuff back into the TBA market.
www.sifma.org/capital_...

From the information you're reviewing in the above post, how in blazes can the OMB still be in denial that agencies **don't** enjoy an explicit US guarantee?

Goldman, Buffett Deal with Fannie Mae Inked a Month Ago

I blogged on this overnight, but this additional information sure adds to the picture. Thanks!

New Housing Initiative Insures Freddie and Fannie's Survival

No need for confusion on this. If F&F die, the effective guarantee has to be clarified -- door #1) haircuts to bondholders large enough to sink the entire world financial system; door #2) nominal value of US National Debt doubles and economists go nuts changing their computer models to prevent their showing that America is in a state of collapse. Long live the obfuscation!

S&P Downgrades Four-Month-Old Repackaged Mortgage-Backed Securities

"... how in the world are the investment bankers finding buyers for these issues?"

That one's easy, they found a buyer who prints his own money. SIFMA blessed Re-Remics into the TBA market in January, and the very next day the Fed started its 8-month-long buying spree of residential RE debt, presently sitting on a Freddie Mac sized $693.6 billion pile of mortgage-backed securities.

Who did you *think* was buying this stuff? It shoor weren't nobody named Bill or Mohamed!

Risk from High Frequency and Algorithmic Trading Not as Big as Many Think

I read your paragraph #4 and thought ... "front-running with a chainsaw"

Goldman Quant Case Continues

Serge has the signature of an eminently innocent fast-comms guy. The problem for such a person is that he has to ***maintain*** the the public Open Source libraries that his own proprietary software needs to work.

Say he finds a critical (for GS's purposes) bug in a public package. Theoretically, he downloads the public package to GS and adds the fix within GS' walls and maintains it there ever after. But then the public package diverges from GS' over time and everyone goes insane, because Serge's got to integrate any new public fixes of the public package into his version, or forego *those* new patches. He can't maintain the public stuff from his public persona at home, because the NY -> NJ -> NY cycle is too slow, and he hasn't got his GS stuff available for integration testing at home.

So it's absolutely essential for the proprietary programmers in, say, the fast-comms sector to upload fixes to the Open Source component from work. It's a case of the competitors cooperating to keep the piste in good shape. Otherwise you can't advance the state of the art in general.

This isn't rocket science. It was perfectly obvious from the fact that Serge waived Miranda on 7/3 that the above scenario is what we're dealing with. Eventually the FBI is going to figure this out, and they will not be happy campers.

The New Bull Market Fallacy

"... so they could sell equity into the rally before the next huge wave down." -- that's the punchline of this joke, no?

Technical quibble: "She states: // Flash orders are also called ..." I think you forgot to "blockquote" that para.

Yikes! My head hurts. We've been following the NY Fed's numbers on foreign central bank holdings of Treasury and Agency debt (a key support for all those US stimulus programs):

a) since start '09 the agencies number has not been credible

b) (related to a) since start '09 Fed has bought for its own account over 1/2 $trillion of agencies -- never previously owned any -- and every last MBS has maturity beyond 10 years. This in an era when long treasuries investors have taken a 25% haircut.

c) foreign central banks' reported buys of treasuries have gyrated repeatedly from near-record amounts one week to virtually nothing the next

d) the definition of "indirect buyer" changed in June, so reported record participation by cenbanks in ongoing treasuries auctions has become suspect

... bottom line, the debt markets are looking as weird as the equity markets. But at least they will get some relief when this idiotic bear rally collapses ;-)

Helloooo Moral Hazard

You might like to read "Moral Hazard" (2002), by the 60s radical Australian feminist poet Kate Jennings.
www.complete-review.co...

Great insight into MH, and another takeaway was that not only are the IBs joined at the hip to Washington but, if possible, even more so to Langley. Conspiracies? The powers that be aren't even bothering to hid their conspiracies any more.

WSJ 8/10: online.wsj.com/article...
"Direct Edge began life as Attain ECN, a struggling electronic platform that was sold to Knight Capital Group Inc. (NITE) in 2005; after a rebranding, Goldman Sachs (GS) and Citadel Investment Group joined as stakeholders. / / The company’s adoption of flash orders - cribbed from a similar practice in options markets - helped Direct Edge gain a foothold in U.S. cash equities."

The Future of Flashed Options

doubleguns, last week's showdown between Melissa Hathaway and Larry Summers strongly supports your assertion about the PPT.

Tyler, it's "Isaac Asimov," and I still cherish the D+ I got in the '60s for handing in a 10 page character sketch of the Mule to my High School English teacher.

Monetizing Debt: Disinformation in the Blogosphere

PCScipio,

That wasn't esoterica, it was an Important Error of Fact. We correct those for each other in the course of converging on a target solution.

Doesn't stop us making *fun* of each other over things like that, though. A week and a half ago HuffyPo came up with "Genuine investors should get favored fax treatment." -- as in Foxtrot Alfa Tango in connection with HFT. Delightfully silly (and diabolically hard to copy edit in a paragraph about taxation), but not cause to cast aspersions.

Monetizing Debt: Disinformation in the Blogosphere

dieuwer,

I'd like to respectfully disagree if I could. Bias doesn't discredit a text, although knowing what the bias is can be useful data.

Our blog has entertained folks with biases quite different from ours and they've provided us with much useful information, sometimes deliberately. It's a delight when a biased person has integrity, but when an author combines bias and deceit that's truly the royal road to learning neat stuff. Our sector had its own "Baghdad Bob" for years and we even gave him his own web site!

My blogging partner (who's a pretty hot statistician) and one of our more astute readers put me onto this story arc. I'm just getting my toes wet, but anyone who's ever participated in a team debugging session will immediately spot that "egregiously incorrect statement" thingie above as a gross mischaracterization. Yep, I expect there's going to be some substance to this, and early rounds missing shouldn't deter the idly curious. Sign me up for this swarm ;-)

Monetizing Debt: Disinformation in the Blogosphere

OK, so if you're on a roll in the skeptic's department today, I'd invite you to comment on my assertion earlier today that the Fed is likely juicing up the foreign central banks' agencies holdings number with their own MBS.
housingdoom.com/2009/0.../

Goldman Sachs' 97% Win Percentage Possible but Not Probable

Greetings from Conspiracy Theory Central ;-)

I mean, yesterday the WSJ posted the target solution, for $#%*'s sake: "Larry Summers argued forcefully that his team should have a say in the work of the new cyber official."

So ... one lousy independent COMSEC audit at the NYSE and this whole thing turns into custard. Melissa's free the rest of the summer, just turn *her* loose on the file. Too easy.

And now NYSE's new secret CoLo quarry in Mahwah NJ sounds like John Henry meets "Tom Swift and his Atomic Earth Blaster". Are these people completely out of their minds? What's even more remarkable is that Scott Reynolds Nelson, the W&M prof who actually figured out what just hit us did it through being a JH legend specialist, of all things. I can hardly wait for the FOB in AF where they get to replay Rorke's Drift. Nietzsche's eternal recurrence is starting to get on my nerves.

Turncoat?? GS themselves delivered Serge to the FBI on a silver platter over the holiday weekend. It's just like V.V. Nabokov said, the one thing that stops a totalitarian regime is that the guys running it are as dumb as a bag of hammers.

Who Are Regulators Working to Protect?

All well and good; however, ...

If I understand the history of the last 3 or 4 years, Calpers, the insurance industry, Harvard's endowment and a host of other institutional investors and mutual funds have had to get a little bit speculative to hit their yield goals (e.g. the actuaries would have been seeing a lot of retired teachers coming down the pipe). So these big long-term guys are like a lot of zebras and rhinos forced by tough times to drink at the waterholes where the more dangerous predators lurk.

So if they're getting picked off it may be a natural process, but not necessarily a good thing if we're in a regime where there's going to be a taxpayer bailout for the institutions who get eaten alive.

And let's not forget that busting Serge for uploading his open source updates to a subversion host is going to chill all the OSS work going on at private firms, and society can ill afford to lose that.

Last and probably least, it wouldn't hurt to do a COMSEC audit around those CoLo facilities. I mean, if the insider's are lining up a meter down the track at the 100m finals, it probably doesn't matter if the guys are full of steroids, but it can't help to check ;-)