MBS- FNMA 4.5 price: 100-24
10-yr Treasury Yield: 3.73%
Deterioration on both today.
Mar 092010
Mar 082010
Mar 052010
Because it continues to bug me so much here is the full article From the New York Times:
As Greece has tottered on the brink of fiscal chaos, threatening to drag much of Europe down with it, Wall Street’s role in the fiasco has drawn well-deserved scorn.
First came the news that Greece had entered into derivatives transactions with Goldman Sachs and other banks to hide its public debt. Then came reports that some of those same banks and various hedge funds were using credit default swaps — the type of derivative that kneecapped the American International Group — to bet on the likelihood of a Greek default and using derivatives to wager on a drop in the euro.
European leaders have called for an inquiry into the Greek crisis. Ben Bernanke, the Federal Reserve chairman, has told Congress that the Fed is “looking into” Wall Street’s deals with Greece, and the Justice Department is investigating the euro bets. That is better than turning a blind eye, but it is not nearly enough.
The bigger problem is in America, where markets are supposed to be fair and transparent. These particular — and particularly complicated — instruments are traded privately among banks, their clients and other investors with virtually no regulation or oversight.
The Obama administration and Congress have been talking for a year about fixing the derivatives market. Big banks have been lobbying to block change. And the longer it takes, the weaker the proposed new rules become.
Here are some of the problems that must be fixed:
NO TRANSPARENCY Derivatives are supposed to reduce and spread risk. In a credit default swap, for instance, a bond investor pays a fee to a counterparty, usually a bank, that agrees to pay the investor if the bond defaults. But because the markets in which they trade are largely unregulated, derivatives can too easily become tools for dangerous risk-taking, vast speculation and dodgy accounting.
A big part of the problem is that derivatives are traded as private one-on-one contracts. That means big profits for banks since clients can’t compare offerings. Private markets also lack the rules that prevail in regulated markets — like capital requirements, record keeping and disclosure — that are essential for regulators and investors to monitor and control risk.
That is why it is so essential to move derivative trades onto fully transparent exchanges. The administration originally embraced that idea, with exceptions only for occasional, unique contracts. But when the Treasury proposed legislation in August, it included huge loopholes, and a derivative reform bill that passed the House in December has many of the same problems. (The Senate has yet to introduce a reform bill.)
Both the administration and the House would exclude from exchange trading the estimated $50 trillion market in foreign exchange swaps — similar to the derivatives Greece used to hide its debt. The rationale for the exclusion never has been clearly explained.
The Treasury proposal and House bill also would exclude transactions that occur between big banks and many of their corporate clients from the exchange trading requirement, ostensibly because those deals are only for minimizing business risks, not for speculation or for window-dressing the books. That’s debatable. But even if true, other derivatives users would almost inevitably find ways to exploit such a broad exemption.
What is clear about the exemptions is that they would help to preserve banks’ profits. What is also clear is that they would defeat the goals of reform: to lower risk, increase transparency and foster efficiency.
LIMITED POWER TO STOP ABUSES When the House put out a draft of new rules in October, it sensibly gave regulators the power to ban abusive derivatives — ones that are not necessarily fraudulent, but potentially damaging to the system. Derivatives investors who stand to make huge profits if a company or country defaults, for example, might try to provoke default — a situation that regulators should be able to prevent. In the final House bill, however, the ban was replaced with a requirement that regulators simply report to Congress if they believe abuses are occurring.
NO STATE REGULATION, EITHER Current law also exempts unregulated derivatives from state antigambling laws. That means that states have no power to police their use for excessive speculation. Treasury and House reform proposals have called for maintaining the federal pre-emption of state antigambling laws. Pre-emption could be tolerable if derivatives were traded on fully regulated exchanges. But as long as many derivative products and transactions are exempted from fully regulated exchange trading, pre-emption of state antigambling laws is a license for, well, gambling.
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The big banks claim that derivatives are used to hedge risk, not for excessive speculation. The best way to monitor that claim is to execute the transactions on fully regulated exchanges, pass rules and laws to ensure stability, and appoint and empower regulators with independence and good judgment to enforce compliance.
Without effective reform, the derivative-driven financial crisis in the United States that exploded in 2008, and the Greek debt crisis, circa 2010, will be mere way stations on the road to greater calamities.
Mar 052010
Mar 042010
Week 1, March 2010
Over the course of this week I have seen some stories in the world of economics and finance that I would usually consider worthy of highlighting in this Thursday Edition— such as this one regarding the extension for one year of the Home Affordable Refinance Program (HARP) enabling refinances of Fannie or Freddie owned loans up to 105% and sometimes up to 125% of the property value— but I find myself far more invested in seeking stories about solutions being embraced for a legitimately sustainable economy going forward. And frankly, that quest has far less to do with BORROWING money than it does with good old-fashioned American ingenuity innovating and producing and selling to the world new, legitimately useful products. And the one that, at least for me, rises immediately to the top of that list is energy— sustainable and non-polluting energy in particular. I can only imagine how historians hundreds of years from now will describe our era of history, filled with international conflicts as it’s been, where oil and coal have fueled our enterprises and where the great United States of America is measured as the largest per-capita polluter in the world. What this says to me is that in the United States today, our focus must be to champion sustainable energy as a PRIMARY industrial priority for the foreseeable future so that we, indeed, develop and produce the commodity most needed by all the world: clean, sustainable energy. These are the jobs that have grown in spite of the recession, but these also are the industries that are far more deserving of the billions of dollars worth of government investment money which we’ve so sanctimoniously funneled to our fat-cat, ungrateful banking and insurance industries. My opinion is that business needs a GREAT PRODUCT far more than it needs an ability to borrow. And perhaps the greatest product of all is energy. See below how our nation just allocated $100 million to developing green energy. Bravo. Bailing out AIG alone cost the U.S. $182 BILLION.
See here for how the U.S. is investing $100M in sustainable energy.
To contact me about financing your dream-home click here.
Weekend Wanderer’s Events
…finding the treasures in your town and beyond.
Two for This Weekend:
Think California Exhibition in SF: From their website: The California Historical Society presents Think California, an exhibition highlighting the colorful history of California through the institution’s remarkable collection of artwork, artifacts, and ephemera. This ambitious exhibition asks the question “What do you think about when you think of California?” Here you see both common and little known facts of the Golden State’s fascinating history, as well as the myths and realities that are the lore of California.
Greening Oakland Homes Fair in Oakland: From the Chronicle: This educational fair will feature exhibitors with solutions to help you save energy, water, and natural resources. It will include presentations on the benefits provided by various types of retrofits and also offer information on financial aid and programs that will save you money.
Help Your Fellow Living Beings:
Plaza Adelante Grand Opening and Street Fair: For over 34 years MEDA has worked to improve economic and social conditions in the neighborhood by stimulating investment, enhancing the business environment, and creating jobs for area residents. MEDA is committed to maintaining the cultural identity and resources of the Mission District.
Two Weekends from Now:
Experience Hendrix Tribute show at the Warfield in SF: From their website: Inspired by Jimi Hendrix’s unparalleled creative and musical influence, Experience Hendrix, L.L.C.–the company formed by the late guitarist’s father, James “Al” Hendrix to oversee his legendary son’s legacy–has continued that innovative spirit with its ongoing series of all-star tribute concerts held in honor of the late great musician. This is a Wednesday night show, so be aware of that part.
Pic of the Week… from my phone camera:
A little blurred, but from the Top of the Mark at sunset
Mar 032010
From CNNMoney:
Added incentives for banks to make Small Business Administration-backed loans will continue through the end of March, thanks to a fresh funding infusion authorized by Congress as part of Tuesday’s bill extending unemployment benefits.
The unemployment benefits extension bill — passed by the Senate and signed by President Obama late Tuesday after Sen. Jim Bunning, R-Ky., dropped his objection — allocates $60 million to fund the program’s subsidies for another month. Link to article…
Mar 032010
MBS- FNMA 4.5 price: 101-05
10-yr Treasury Yield: 3.63%
Seeing some improvement in the MBS market. Could possibly move rates lower today.
Mar 022010
Mar 012010
From The Wall Street Journal:
Millions of Americans are now deeply underwater on their mortgage. If you’re among them, you need to stop living in a dream world and give serious thought to walking away from the debt.
No, you shouldn’t feel bad about it, and you shouldn’t feel guilty. The lenders would do the same to you—in a heartbeat. You need to put yourself and your family’s finances first.
How widespread is this? More than 11 million families are in “negative equity”—that is, they owe more on their home than it is worth—according to a report out this week by FirstAmerican Core Logic, a real-estate data firm. That’s a quarter of all families with mortgages. And for more than five million of those borrowers, the crisis is extreme: They are more than 25% underwater—the equivalent of having a $100,000 loan on a property now worth just $75,000 or less. That’s true for a fifth of mortgage holders in California, nearly a third in Florida and an incredible 50% in Nevada.
Are you in this situation? Are you still battling to pay the bills each month, even when it may make little financial sense to do so?
It’s time for some tough talk.
Stop trying to chase your lost equity. That money is gone. Don’t think like the gambler who blows more and more cash trying to win back his losses. That’s how a lot of people turn a small loss into a big one. Link to article…
Mar 012010
From The Huffington Post:
Fannie Mae needs another $15 billion in federal assistance, bringing its total to more than $75 billion. And worse, the mortgage finance company warned its losses will continue this year.The rescue of Fannie Mae and sister company Freddie Mac is turning out to be one of the most expensive aftereffects of the financial meltdown. The new request means the total bill for the duo will top $126 billion. Link to article…
Mar 012010
From Reuters:
Goldman Sachs Group Inc’s (GS.N) board has rejected demands from shareholders that the firm investigate recent compensation awards, recoup excessive compensation and reform pay practices.Wall Street’s dominant bank, criticized for paying billions of dollars in bonuses soon after the taxpayer bailout of the banking industry, reported the board’s decision in a regulatory filing on Monday.
Goldman reported the shareholder demands last year and said at the time that its board was considering them. The firm did not name the shareholders who made the demands.
Goldman could not be immediately reached for comment. Link to article…
Mar 012010
Feb 262010
MBS- FNMA 4.5 price: 101-10
10-yr Treasury Yield: 3.57%
After some upward pressure earlier in the week the pendulum is swinging back in favor of rates dropping.