The Banking Mess: It's Not Over Until It's Over [View article]
<< The way that credit inflation works is through the rate of increase in asset prices >>
rising asset prices would be nice to have, but more immediate concern is to stop prices from falling further. theyre already very low (esp R/E related), which is what's driving bank failures (again largely R/E related). Any shift toward higher rates will make prices fall further (npv), so maybe before credit inflation Fed would want simply a bottom to credit contraction. cant tell if we have that yet
The Fed Dissenters: Examining Supply-Side Logic [View article]
good point Tack. but letting rates rise will have immed and harsh impact on $trillion+ in real estate related loans/securities held by US banks/ insurance co's/ pensions. cant afford the drop in portfolio values because it hurts capital ratio, and risks insolvency. Higher rates would force lots of smaller banks into FDIC receivorship, while FDIC is already overwhelmed and out of funds. also consider a US homeowner who's been sitting on an underwater mortgage that he cant refinance, and house he cant sell because he cant write check big enough to make his lender whole at closing. higher rates would make neg equity problem worse. Fed's had plenty reason to keep rates low.
i agree w you, esp on mr demarco. seems he's been told his job depends on returning Fannie/Frddie to profitability, in name of the taxpayer. but there's a massive amt of unrealized loss in housing system, still. FHFA needs to be a "bad bank" and start absorbing some of that. stop suing american banks too, not a good time. the "american taxpayer" demarco thinks he "protects" is same guy that has negative net worth, needs a job, can't re-fi his underwater mortgagw, etc. taxpayers most desperately need a recovery
US Banks remain much worse off still than they take time to mention in 10K... so the Fed/FDIC has always known this, but tried hard not to act "worried"...(Fed plays in the land of "confidence")... low rates is one way for Fed to offer quiet support, but author's point on 3% expense ratios reminds me that hurdle rates r still sizeable, and w too many banks chasing fewer eligible borrowers...doesnt take long before loan coupons drop down accordingly...maybe too far down (again) where even 3% exp hurdle isnt covered
The Fed Dissenters: Examining Supply-Side Logic [View article]
Forceful points from both sides, remarkably self-assured... kind of like the self-assured carrousel horse who keeps shouting to another carrousel horse ("180deg" away?) how clear it is that he's faster... gotta get the carrousel turning. deep dives on whether its all aboit demand or supply might not matter. the guys who want an answer on that are typically government officials, who want to craft the next elegant policy idea to solve all our problems. but government isnt where the solution will come from, so I'll just stick with "Wyatt's" orig point about how government needs to just get out of the way.
The Fed Dissenters: Examining Supply-Side Logic [View article]
Is your point that 3 dissenters should acknowledge demand issue too, which would give rise to their support for action? (assume "action" is fed's verbal promise of long period of low rates?) if dry powder for lower rates and/or bond buying is used up, it'd need to be something like that. But as a meaningful policy tool, seems very weak. Especially if compared with the massive size of unemployment problem. I dont buy the corporate line that the "uncertainty about fiscal or monetary policy" is to blame for all this nervous "non-hiring" among companies. So fed policy to provide certainty specifically by simply saying theyll keep rates low fnot long time isn't solving the right problem. Rather, I agree with above point on weak demand, and its role in all this. A Company can't hire if revenues keep dropping ea qtr. In contrast, I imagine steady increasing sales has way of conveying a "certainty" a CEO can rely on. Add to that how rising sales/deliveries inject new discomfort into an organization. (new clients, longer working hours, more demands on existing staff) and it'd be natural to think eventually staff is uncomfortable enough to desperately look for new people to manage.
Why Mortgage Servicing Won't Get Fixed [View article]
one reason a servicer might step up and provide quality and energetic "servicing" is their desire to generate new revenues/income, or preserve those they already enjoy. Competition over future business makes companies do uncomfortable things sometimes. But here nobody really cares. seems there are at least 3 troubles now: 1. like Mr Salmon writes, sometimes servicing rights are already "sold", which means the servicer knows precisely the price it has already been paid for continued responsibilities...and that revenue won't go up; (2) they're not too worried about repeat business...the market is so shrunken for new mortgage servicing so that there's hardly a 'competitive struggle' to be best-in-class and hungrily win new portfolio business; (3) servicing market feels sort of like an oligopoly, where economies of scale have rendered the biggest ones the cheapest, and that's helped them garner the majority of legacy portfolios. all of this implies that there's no up-side to these guys to step-up and work hard to maintain reputation and win business.... which might make their pace seem quite "lazy". so if author's right that none of these guys is gonna hustle to do their best on foreclosures and pro-active modifications, only some big hammer will make it happen. this will fall to govt/regulators, and in turn needs to be a government/regulator adequately divorced from powerful influence of financial sector so that it forces banks/servicers to do painful and un-profitable things... i'd expect them never to bring that pain on themselves...so there's no waiting around for people to finally do the right thing on this. (although they might tell us otherwise)
How The FHFA Lawsuits Could Imperil Mortgage-Settlement Talks [View article]
Killing the banks will take us all down, even the amorphous "taxpayer" so valiantly being defended. That guy maybe wins battle but loses war. Call off fhfA asap, they need to play "bad bank" full stop, and thats in best interest of the "taxpayers" FHFA seems to know so well.
QE3 Watch: What Happens When All Hope Is Gone? [View article]
Very good points. tells more about the vacuum of reasons to get excited about future stock prices. This could be Fed's last chance with a QE. It's always worrisome when it gets to "one last try" time, because too much is at stake if it fails (author's point). Probably risky to be seen celebrating a QE3 anyway, cuz people might judge you for overlooking why (the hell) Bernanke chose this idea as best choice among his deep and luxurious suite of policy options. There's no such suite, and with rates at zero, there's risk of Fed running out of mojo with QE3. Bernanke knows that too, and makes a decision to do it harrowing
<< One reason for keeping interest rates so low is that the Fed will continue to provide the banking system with substantial liquidity so that banks can work themselves out of their bad loan situation and that failing banks can be removed from the banking system with the least disruption possible. >> But that last piece of this urgent strategy -- that banks will work thru their unrealized and UNREPORTED write-downs is not happening. Cant rely on a bank to suddenly get honest and drop all its marks down to what the universe of free-thinking buyerswould offer to buy. First it'll highlight how theyve been lying on this, would give merit to investor lawsuits, etc. And might well force that a CEO resign in shame... Why ruin a nice day by doing the right thing? This has to be a regulatory mandate, because this buy-time idea only works if banks deploy new cash cushions. The govt regulatora need to force this last part to happen, which is precisely what regulators are supposed to do-- to give investors better odds that they are being told the truth about where they invest money.
Struggling With A Great Contraction [View article]
<< to give banks, consumers, businesses, and governments time to work out their bad debts.... time for banks and others to fail, consolidate, and/or raise capital without causing major disruptions to the whole financial system. >> Very true, most notably need for low rates. US banking almost died in this crisis, and for those that realize bank toxic assets are still not marked down to market, the existential threat has never gone away. Only option the Fed has ever had was to allow banks to report asset values artificially high, otherwise they would be forcing banks into bankruptcy. Keeping rates low during "time" "bought" is paramount, first to juice bank asset valuations (NPV) second to juice net interest margins and Bank profits. Three years of "time" and still not much to show. Lots of hoarded cash at banks, but i think they know that cash is already accounted for in unrealized write-downs. Theyre just not sure when that day comes, til then sit on it. Also, this isnt about lack of strong leader, because that assumes these are problems a person can tackle through force of personality. This is about the truth, and how we havent been in position "to handle the truth" and expect current banking system to survive.
Revisiting the Legacy of HAMP in a Great Contraction World [View article]
Imagine some sr Mgr at "Servicer X" hovering over a cubicle..."hey Smithers, hope your not planning to surprise me w another monster writedown figure this time...i got killed in committee on our gross loss last month. So be smart....remember the msg from our internal strategy retreat...<<barring a material risk of negative press, and/or a well-documented risk of embrrassing lawsuit, we can never lose sight of responsibility to our shareholders..>>... It would kill me to let you go over this stuff, esp knowing about your family and even your own massively underwater mortgage...still feel bad we had to pass on that..." Nudges dont show up in their daily profit spreadsheets (see "Capitalism") HAMP needs a hammer.
Good points on how sticky the existing rating regime is. Dodd/frank might make somebody wonder about some massive mixup in congress over what they do/donot control. The result they want (eliminating s&p/moodys/fitch triopoly?) requires taking look at who cares about ratings. Everybody does. Still. But congress has no privilege of control there. For private market players (ie not reading dodd/frank), theyre still gonna matter, Not clear that dodd/frank drafters were worried about plucking the "common "language" of trading out of the system.
Like them or not, ratings from the top 3 (s&p, moodys, fitch) reduce costs (transparency costs, assymetric unfo costs, time, etc). If that's true, then assume that doing away them will insert new costs. Not a good time for it. Hard to know that they didnt miss other unintended consequences that we dont yet know about.
The Difference Between S&P and Moody's [View article]
Great article, and hard to see how it's not point worth making? What Felix does here is what many dont: dig in to what precisely S&P means to say..and the conclusion(s) behind the downgrade. To get that right, you'd do well to know stuff like S&P's PD obsession, and right-size the weighting of their msg. Maybe look at what inputs are used and assumptions used to project cashflows too. Good news is they tell us.
Getting to the heart of S&P's underlying method/conclusions might quiet the indignation over some clandestine political motive, and focus attention on things like whether we like (or not) the way they get there. (Pls provide dominant alternative in attachments..)) Sent via BlackBerry from T-Mobile
Thanks Felix, re: S&P lot's of S&P bashing going on. Many wielding like a bazooka their unique command of how S&P may have failed on MBS/CDO calls recently. I'm inclined to presume that the biggest failure in S&P's 150 year history has come up in a committee mtg over there since 2007/08, that they've reacted to the problem. anything lucky enough to survive their new quality-control gauntlet of vetting, scrutiny, fact-checking, etc. is worth having a look at. Add to that the fact that this USG downgrade is the highest profile, most impactful call they've ever made, and it's almost irresponsible not to have a look.
consider also that they're still alive at all -- after such huge vocal support to do away with the top 3. (congress even tried to write them away (see how that went w/ ABS)
<< In an ideal world people would not privilege S&P’s opinions — but in an ideal world, everybody would do their own due diligence on issuers’ creditworthiness before buying bonds. And that doesn’t happen. >> that's right, and why I feel like there's too much agency bashing. ratings were never about being right, no one gets to predict the future. Rather, their ratings are an opinion, based on (largely) transparent assumptions, and data -- largely replicable btw. they've played the role of 'organizing principle', for markets, the language of trading.
The Banking Mess: It's Not Over Until It's Over [View article]
rising asset prices would be nice to have, but more immediate concern is to stop prices from falling further. theyre already very low (esp R/E related), which is what's driving bank failures (again largely R/E related). Any shift toward higher rates will make prices fall further (npv), so maybe before credit inflation Fed would want simply a bottom to credit contraction. cant tell if we have that yet
The Fed Dissenters: Examining Supply-Side Logic [View article]
Why Banks Aren't Lending [View article]
but there's a massive amt of unrealized loss in housing system, still. FHFA needs to be a "bad bank" and start absorbing some of that. stop suing american banks too, not a good time. the "american taxpayer" demarco thinks he "protects" is same guy that has negative net worth, needs a job, can't re-fi his underwater mortgagw, etc. taxpayers most desperately need a recovery
Why Banks Aren't Lending [View article]
The Fed Dissenters: Examining Supply-Side Logic [View article]
gotta get the carrousel turning. deep dives on whether its all aboit demand or supply might not matter. the guys who want an answer on that are typically government officials, who want to craft the next elegant policy idea to solve all our problems. but government isnt where the solution will come from, so I'll just stick with "Wyatt's" orig point about how government needs to just get out of the way.
The Fed Dissenters: Examining Supply-Side Logic [View article]
I dont buy the corporate line that the "uncertainty about fiscal or monetary policy" is to blame for all this nervous "non-hiring" among companies. So fed policy to provide certainty specifically by simply saying theyll keep rates low fnot long time isn't solving the right problem. Rather, I agree with above point on weak demand, and its role in all this. A Company can't hire if revenues keep dropping ea qtr. In contrast, I imagine steady increasing sales has way of conveying a "certainty" a CEO can rely on. Add to that how rising sales/deliveries inject new discomfort into an organization. (new clients, longer working hours, more demands on existing staff) and it'd be natural to think eventually staff is uncomfortable enough to desperately look for new people to manage.
Why Mortgage Servicing Won't Get Fixed [View article]
How The FHFA Lawsuits Could Imperil Mortgage-Settlement Talks [View article]
QE3 Watch: What Happens When All Hope Is Gone? [View article]
Just How Bad Off Are The Banks? [View article]
But that last piece of this urgent strategy -- that banks will work thru their unrealized and UNREPORTED write-downs is not happening. Cant rely on a bank to suddenly get honest and drop all its marks down to what the universe of free-thinking buyerswould offer to buy. First it'll highlight how theyve been lying on this, would give merit to investor lawsuits, etc. And might well force that a CEO resign in shame... Why ruin a nice day by doing the right thing? This has to be a regulatory mandate, because this buy-time idea only works if banks deploy new cash cushions. The govt regulatora need to force this last part to happen, which is precisely what regulators are supposed to do-- to give investors better odds that they are being told the truth about where they invest money.
Struggling With A Great Contraction [View article]
Very true, most notably need for low rates. US banking almost died in this crisis, and for those that realize bank toxic assets are still not marked down to market, the existential threat has never gone away. Only option the Fed has ever had was to allow banks to report asset values artificially high, otherwise they would be forcing banks into bankruptcy. Keeping rates low during "time" "bought" is paramount, first to juice bank asset valuations (NPV) second to juice net interest margins and Bank profits. Three years of "time" and still not much to show. Lots of hoarded cash at banks, but i think they know that cash is already accounted for in unrealized write-downs. Theyre just not sure when that day comes, til then sit on it.
Also, this isnt about lack of strong leader, because that assumes these are problems a person can tackle through force of personality. This is about the truth, and how we havent been in position "to handle the truth" and expect current banking system to survive.
Revisiting the Legacy of HAMP in a Great Contraction World [View article]
Nudges dont show up in their daily profit spreadsheets (see "Capitalism") HAMP needs a hammer.
Regulating the Raters [View article]
Like them or not, ratings from the top 3 (s&p, moodys, fitch) reduce costs (transparency costs, assymetric unfo costs, time, etc). If that's true, then assume that doing away them will insert new costs. Not a good time for it. Hard to know that they didnt miss other unintended consequences that we dont yet know about.
Sent from my iPad
The Difference Between S&P and Moody's [View article]
Getting to the heart of S&P's underlying method/conclusions might quiet the indignation over some clandestine political motive, and focus attention on things like whether we like (or not) the way they get there. (Pls provide dominant alternative in attachments..))
Sent via BlackBerry from T-Mobile
The Downgrade FAQ [View article]
re: S&P lot's of S&P bashing going on. Many wielding like a bazooka their unique command of how S&P may have failed on MBS/CDO calls recently. I'm inclined to presume that the biggest failure in S&P's 150 year history has come up in a committee mtg over there since 2007/08, that they've reacted to the problem. anything lucky enough to survive their new quality-control gauntlet of vetting, scrutiny, fact-checking, etc. is worth having a look at. Add to that the fact that this USG downgrade is the highest profile, most impactful call they've ever made, and it's almost irresponsible not to have a look.
consider also that they're still alive at all -- after such huge vocal support to do away with the top 3. (congress even tried to write them away (see how that went w/ ABS)
<< In an ideal world people would not privilege S&P’s opinions — but in an ideal world, everybody would do their own due diligence on issuers’ creditworthiness before buying bonds. And that doesn’t happen. >>
that's right, and why I feel like there's too much agency bashing. ratings were never about being right, no one gets to predict the future. Rather, their ratings are an opinion, based on (largely) transparent assumptions, and data -- largely replicable btw. they've played the role of 'organizing principle', for markets, the language of trading.