Fierce Regulation Debate Expected

Source: Associated Press


"WASHINGTON (AP) -- In proposing the broadest overhaul of financial oversight since the Great Depression, the Bush administration has kicked off a fierce debate. It pits those eager to revamp an antiquated system against an industry opposed to excessive regulation."

What is the "fierce" debate expected? The answer is simple, no tax payer liability to be created. If the government has some funds lying somewhere that needs to be put to good use, I'm sure there are several initiatives that are going to fail such as social security and medicare. It makes absolutely no sense to bail out any of the wall street firms that decided to speculate in real-estate. Getting the people out of the debt burden should be the natural flow (the wall street firms can go and report to the investors where the money is gone and that they can come back when they some more money to invest).

It's now time for the financial companies to gulp the bitter medicine to account for the "lax lending". They made tons of money as commissions in putting those deals together and ignoring the risk to the investment and it's just time for them to go back to the investors and explain how and where all the money went. Regulation has to come in to protect the consumer and not wall-street (they'll have their money supply cut from investors).

JPMorgan Memo Shows Mortgage 'Cheats & Tricks'

Source : Reuters

"Originally obtained by reporters at The Oregonian newspaper, the memo outlines step-by-step instructions on how to beef up mortgage applicants' stated incomes in order to help them qualify for home loans.

They read as follows:

"1. Make sure you input all income in base income. DO NOT break it down by overtime, commissions or bonus.

2. If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds.

3. If you do not get (the desired results), try resubmitting with slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same for assets."

JPMorgan argues these were the wayward actions of a rogue employee who has since been fired, and by no means represent company policy."

What about the loans the person helped push through into the system... JPMorgan? Will you be calling those back because your organization was responsible for generating toxic waste and polluting the financial world and also expanding this firing net. This whole mess is not a "one-person" job. It's something that was generated by the financial companies and much like I'd like to believe that one person that was fired has fixed this, the losses point to something different and a systemic failure in the face of greed.

Taxpayers May Be Liable From Bear, Mortgage Rescue

Source: Bloomberg

"March 26 (Bloomberg) -- Even as the Bush administration insists it won't risk public funds in a bailout, American taxpayers may already be liable for billions of dollars stemming from Federal Reserve and Treasury efforts to quell a financial crisis.

History suggests the Fed may not recover some of the almost $30 billion investment in illiquid mortgage securities it received from Bear Stearns Cos., said Joe Mason, a Drexel University professor who has written on banking crises. Treasury's push to have Fannie Mae and Freddie Mac buy more mortgage bonds reduces the capital the government-chartered companies hold in reserve at a time when foreclosures and defaults are surging. Senators are promising to investigate.

Officials ``are playing with fire,'' said Allan Meltzer, a Fed historian and economics professor at Carnegie Mellon University in Pittsburgh. ``With good luck, none of these liabilities will come due. We can't expect that good luck, and we haven't had it.''"

It's a classic case of throwing good money over bad. Is there any benefit to the tax payer? - Higher asset prices and higher property taxes?

Protesters enter Bear Stearns headquarters

Source : Reuters

"NEW YORK (Reuters) - About 60 protesters opposed to the U.S. Federal Reserve's help in bailing out Bear Stearns (NYSE:BSC - News) entered the lobby of the investment bank's Manhattan headquarters on Wednesday, demanding assistance for struggling homeowners.

Demonstrators organized by the Neighborhood Assistance Corporation of America chanted "Help Main Street, not Wall Street" and entered the lobby without an invitation for around half an hour before being escorted out by police.

"There are no provisions for homeowners in this deal. There are people out there struggling who need help," said Detria Austin, an organizer at NACA, an advocacy group for home ownership."

I'm not sure if the "struggling" homeowners understand that they were the reason why Bear Stearns collapsed. Bear got them into trouble, got the investors they represent into deeper trouble while the people that took on loans without understanding their responsibility just simply defaulted. They need to take a step back and see who the real victim is?

Poor home owner that took out a home equity loan to buy a fancy new car and defaulted the payment or the tax payer that is now going to pay for the riches of those that did not live with-in their means.

Hey, Bernanke: Just say no to banks!

Source: CNN-Money

NEW YORK (CNNMoney.com) -- It looks like the Federal Reserve has opened up a can of worms.

The Fed, by agreeing to take part in JPMorgan Chase's bailout/buyout of Bear Stearns (BSC, Fortune 500), sent the signal that it might be willing to step in and help other firms take over struggling banks.

The central bank said it will back $29 billion of potential losses by Bear Stearns. JPMorgan Chase (JPM, Fortune 500) is only on the hook for a $1 billion hit.

Here's something for Bernanke to consider on this. JP Morgan will take the first $1 billion hit and then the federal reserve (tax payer the next $29 billion). Considering how smart of banker Jamie Dimon really is, say there is a loss of $15 billion from Bear. Would you think he'd show $15 billion - he'd actually get his accountant on the line and show $16 billion on the books :)

Why save those that plundered with money from hard working tax payers? The justification that this is for greater good seems to be one that just doesn't make much sense to say the least.

Former Countrywide Exec Heads Firm Targeting Troubled Mortgages

Source: Associated Press

"LOS ANGELES (AP) -- Stanford Kurland spent nearly three decades helping build Countrywide Financial Corp. into the nation's largest mortgage lender.

Now, the former president of the troubled company and several key colleagues hope to cash in as the housing market collapses. Kurland, 55, will serve as chairman and chief executive officer of a new company unveiled Monday that will acquire and restructure distressed mortgages.

Private National Mortgage Acceptance Co. LLC, also known as PennyMac, intends to help borrowers restructure loans so they can avoid foreclosure and maintain payments.

"We'll look to restructure mortgages, and as soon as the loans are reperforming, and if there's the capability and the market liquidity, we'll look to sell," Kurland told The Associated Press. "Other properties that may take longer, we're prepared to hold five to seven years."

I wonder how the high-flying executives of Countrywide are able to get away with such acts and it just shows that we don't live in a perfect world. It's all about opportunity, risk and reward. They saw an opportunity to relax lending rules, draw on the entire line of credit at Countrywide and get borrowers deep into debt (beyond what they could afford to repay) and made a personal fortune doing so. Now there is opportunity to get the same borrower out of trouble and probably pass on the buck to the tax payer while doing so. I have always supported getting the over extended borrower out of the debt trap (they should not have been there in the first place) and those that put them there deserve punishment but if the very same people want to get rewarded for doing so, may be it ends well for the over extended borrower as well and in today's business environment, they won't be a non-profit trying to get a struggling borrower out of the very same trouble they put the person in. Question for all of them to ask is.. look back and see whether any of their actions in the past, present and future is/was/will be with the borrower in mind- answer is a simple "no".

Wall Street Firms Cut 34,000 Jobs, Most Since 2001 Dot-Com Bust

Source : Bloomberg


The title says it all. Thanks to the efforts of the countless mortgage brokers, realtors and appraisers that made the commissions in between for helping the financial institutions.

Fed May Buy Mortgages Next, Treasury Investors Bet

Source: Bloomberg

"March 24 (Bloomberg) -- Forget lower interest rates. For the Federal Reserve to keep the financial markets from imploding it needs to buy troubled mortgage bonds from banks and securities firms, say the world's biggest Treasury investors.

Even after cutting rates by 3 percentage points since September, expanding the range of securities it accepts as collateral for loans and giving dealers access to its discount window, the Fed has been unable to promote confidence. The difference between what the government and banks pay for three- month loans doubled in the past month to 1.92 percentage points.

The only tool left may be for the Fed to help facilitate a Resolution Trust Corp.-type agency that would buy bonds backed by home loans, said Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co. While purchasing some of the $6 trillion mortgage securities outstanding would take problem debt off the balance sheets of banks and alleviate the cause of the credit crunch, it would put taxpayers at risk."

The issue of moral hazard is something for the fed to definitely consider. The bigger problem is that investors such as Bill Gross is primarily the reason why we had subprime lending in the first place. Now Bill Gross wants to trade in the securities bought at cheap prices for a full dollar paid by the tax payer - the difference would help make Mr. Gross richer by that much. I'd say if anything the fed should buy the subprime mortgage backed securities dirt cheap from these investors (may be 1 cent on the dollar) to help prevent them from going bankrupt if at all. Does that fly well for you Mr. Gross? I'm sure if they agree the true value of these bad debts to be complete write offs, even 1 cent is definitely going to be a good deal. It's time for the cash at the federal reserve to be king and not slave!

Bank of America may face $6.5 bln loan loss

Source : Reuters

"NEW YORK (Reuters) - Bank of America Corp (NYSE:BAC - News), the largest U.S. retail bank, may set aside a record $6.5 billion in the first quarter to cover possible future loan losses, including in its mortgage and home equity portfolios, according to a banking analyst."

We'll have to wait and see but Countrywide is supposed to bring much more than this number onto Bank Of America's books. Countrywide as we all know was the powerhouse for the most lousy loans "Made In USA". As I prefer to call it "Subprime - Made In The USA" and Angelo Mozillo definitely amassed a personal fortune doing it.

"The all-stock transaction values Countrywide at $7.63 per share, which is 32 percent above Countrywide's Thursday closing price of $5.78. The gap reflects some investors' expectations that Bank of America might at least try to renegotiate the merger terms because the housing market has weakened."

Compare this purchase with that of Bear Stearns by JP Morgan, it definitely looks like Bank Of America got a very bad deal so it's definitely worth re-negotiating especially when absolutely no one is interested in buying Countrywide at this time and they were facing bankruptcy and a run as well. May be these mergers will all fall apart and never take place and were just attempts by the federal reserve to stabilize jittery markets.

Did The Fed Push Bear Into a Bad Deal?

Source : WSJ

"The Fed did not learn how bad Bear’s condition was until Bear and the SEC told the Fed late Thursday March 13, and at that point, the firm said it saw little option other than to file for bankruptcy by Friday morning. The Fed pushed Bear to find a private sector buyer before markets opened Friday, but Bear couldn’t. At 7 a.m. Friday the Fed, for the first time in its 95 year history, approved a direct loan to Bear, a step so extraordinary it required the use of two special loopholes in the Federal Reserve Act. The Fed’s priority wasn’t to minimize losses for Bear shareholders but to prevent uncertainty over Bear’s fate from causing the derivative and repo markets to dry up, which meant finding a buyer if at all possible before Monday."

" “We thought they gave us 28 days. Then they gave us 24 hours,” one person familiar with Bear told the Journal last week. J.P. Morgan’s deal for Bear Stearns has several unusual features that make the deal particularly favorable to J.P. Morgan and comes at the expense of the shareholders of Bear Stearns, who are losing billions on the $2.40 a share offer."

Wasn't Bear looking for private solutions for several months leading up to the day they intended to just implode? If the management was so out of touch, there is nothing much to say to the share holders besides that they were misled by the Bear Stearns Management Team on the health of the organization.

As regards Fed action, policy and the deal. By changing the name of the problem, it does not make the monetary problem go away. Currently the Bear share holders are bag-holders while some of the instruments that are transferred to JP Morgan Chase are still the underlying cause for the demise of the bear and those investors will need to be communicated at some point that bear made bad investment choices with their capital and that there are losses that cannot be replenished by JP Morgan Chase.

Big Investment Firms Tapped Fed for $13.4 Billion a Day

Source : http://www.cnbc.com/id/23730205

"Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.The lending is part of a major effort by the Fed to help a financial system in danger of freezing.Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers."
... "On Wednesday alone, lending reached $28.8 billion, according to the Fed report."

Reminds me of the legendary Atlas from Greek Mythology and the encounter with Heracles.

"Encounter with Heracles
One of the hero Heracles' Twelve Labors involved the acquisition of some of the golden apples which grow in Hera's garden, tended by the Hesperides and guarded by the dragon Ladon. Heracles went to Atlas, the father of the Hesperides,and offered to hold the heavens for a little while in exchange for the apples, to which Atlas agreed. This would be an easy task for Atlas since he is related to the Hesperides who tend the apples in Hera's garden. Upon his return with the apples, however, Atlas attempted to trick Heracles into carrying the sky permanently by offering to deliver the apples himself. Heracles, suspecting Atlas didn't intend to return again, pretended to agree to Atlas' offer, asking only that Atlas take the sky again for a few minutes so Heracles could rearrange his cloak as padding on his shoulders. When Atlas set down the apples and took the heavens upon his shoulders again, Heracles took the apples and ran away."

In today's context, Bernanke and the federal reserve is trying to shoulder the mortgage backed securities for a few minutes so that the investment banks can adjust themselves and it remains to be seen whether they'll be running away with the real money leaving Bernanke behind with all the funny paper they have generated in the past few years and let the tax payers shoulder the burden.

Washington Split Over Regulating Wall Street

http://www.cnbc.com/id/23759122

"Democratic lawmakers in Congress and the Bush administration agree that the meltdown in credit markets exposed weaknesses in the nation’s tangled web of federal and state regulators, which failed to anticipate the effect of so many new players in the industry."

Back in mid-2005 just outside of Washington DC, a builders sign read $99 down for a $1.2 million home and no payments for 6 months. Troubling signs such as those never caused the federal regulators or the federal reserve to realize that there were serious problems with lending. It would be difficult for a person with the ability to afford a down payment of $99 to get into a car that would cost $30k.

Will a new regulator be able to achieve anything at this point? The crunch is not a psychological event as described by many. It's a result of having a lot of investors losing real money (to the tune of billions and no they don't have a printing press like the federal reserve) as the wall-street firms promised big returns and created bad debts instead purely to increase the commissions they could make in between.