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Return to Normalcy: The False Argument of "Austerity" vs. Growth
by Team of Institutional Risk Analyst,
To rescue Europe, to reinvigorate the United States, and to set the global economy on a sustainable path toward expansion, the current debate offers a so-called "choice": either slash government spending or spend your way to growth. In Europe, German Chancellor Angela Merkel is one of the most prominent proponents of fiscal restraint -- in part because Germany is picking up the tab for the continent's debt crisis. And in the United States, economist and New York Times columnist Paul Krugman is the fullest-throated supporter of more government spending.
It's All About the Fraud: Madoff, MF Global & Antonin Scalia
by Team of Institutional Risk Analyst,
In this issue, we return to the Lehman Brothers, Madoff and MF Global bankruptcies to talk about how the largest banks have wired US bankruptcy laws to their own advantage. Specifically, the 2005 changes to the bankruptcy code, combined with the traditional American caution regarding pre-judgement restraint on the parties surrounding a bankruptcy, has provided American banks with a free pass to facilitate fraud with no accountability. But first, Ally Financial has received the blessing of the US Treasury to file a bankruptcy for the ResCap real estate unit. This is a profoundly bad idea.
Illinois: The Land of Lincoln is Leaking
The State of Illinois, often a microcosm of the country, is now at the back of the pack as far as the fifty states of the US are concerned. With its general-obligation rating lowered to A2 from A1 in January, it is now the lowest-rated by Moodys of all the states. Its A+ rating by Standard and Poors is the fifth highest in that firms ratings of the states, but it is on negative outlook and could be downgraded.
Economic Recovery Starts with Bank of America
by Team of Institutional Risk Analyst,
In this issue we provide a "how to" roadmap for the restructuring of Bank of America (BAC), this in response to a number of yowls of protest, spurts of indignation and outright do-not-knows. For those who've not done so, please read "A not so fictional FSOC memo for Bank of America" where we introduced the home audience to the concept of a parent-only view of BAC and other bank holding companies ("BHCs"). The restructuring of BAC creates a huge positive for credit creation in the US housing sector, the necessary condition for an economic recovery.
Pondering 2H 2011 Bank Earnings
by Team of Institutional Risk Analyst,
This week, we do a short rant on the 2H 2011 outlook for financials and ask whether further deflation does not mean a mixed road ahead for some banks. To review, let's look at the Bank Stress Index for the past several years in the box below. You can look up the rating for your bank on our retail web site, www.irabankratings.com. The major factors affecting bank performance are largely economic as always, but the market value of the liquid, large-cap financials will be buffeted by the macro see-saw between the US and EU. We just hope that our BSI is not rising again by the close of 2011.
Fear and loathing at Bank of New York Mellon
by Team of Institutional Risk Analyst,
In our last issue, we presented the case for the insolvency of the parent of Bank of America Corp, even though the subsidiary banks remain profitable and well-capitalized. This week, we ponder the situation at Bank of New York Mellon, where like BAC the operational performance of the depositories does not tell the whole story. Despite the high profile thrashing meted out to BAC and BK both by the NY AG in the Countrywide put-back settlement, markets may not fully appreciate just how deep is the rising kimchee swirling around BK.
Q2 2011 Bank Ratings; FSOC Memo on Bank America
by Team of Institutional Risk Analyst,
We present our view on Bank of America (BAC Q2 2011 Bank Stress Rating: B) from the perspective of a fictional analyst named Herbert Gold working at the Fed. He has been asked to write the briefing for the Financial Stability Oversight Council, the vehicle created by the Dodd-Frank confidence in bureaucracy legislation to liquidate insolvent financial firms. But before we delve into a fanciful exposition on the importance of a parent-only analysis of a bank holding company, let's check on developments at IRA and the new Q2 2011 bank stress index (BSI) ratings for the US banking industry.
Robert Rubin, Bank America and the fate of the dollar
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we take a look at the latest week of inaction and indecision on the part of the leaders of the G-20 nations. Never has doing absolutely nothing taken so much time and garnered so much market and media attention. If the nothing doing dance by Barack Obama, Nicholas Sarkozy and Angela Merkel reaches a much higher frequency, life as we know if is definitely going to change big time. And that change may include altering the international role of the dollar, a change regarding which neither Congress nor the American people have been consulted.
Is the US a "BBB" credit? David Woolley on the MERS land title chain fiasco
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a summary of a paper by David E. Woolley, a California Licensed Land Surveyor and Certified Fraud Examiner, who is a principal of Harbinger Analytics Group in Tustin, CA. Thanks to David and Lisa Herzog, who edited the study and performed research, for summarizing the paper. But first a rant on the furious inaction of the past week.
Are the Housing GSEs and TBTF Banks Blocking the Economic Recovery?
by Team of Institutional Risk Analyst,
The housing GSEs and the largest banks are blocking the economic recovery by denying Americans from refinancing their home mortgages. If the Obama Administration wants to see the US economy recover, then we must start the real process of restructuring that Washington & Wall Street have been avoiding since 2007. Obama may not be able to turn things around before the 2012 election, but he will be remembered more kindly in the history books if he has the courage to do the right thing. As always, we are available to help in this process.
Ben Bernanke channels Genworth Financial; Chris Laursen on bank trading under the Volcker rule
by Team of Institutional Risk Analyst,
This week we republish an important article by Christopher Laursen, NERA Vice President, on bank trading under the Volcker rule. And we ask whether Fed Chairman Ben Bernanke knew he was saying about the conforming loan limit yesterday before the House Financial Services Committee.
Exit Interview: FDIC Chairman Sheila Bair
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we feature a conversation with FDIC Chairman Sheila Bair as she nears the end of her term. Bair has been in and out of public service for three decades, including working for Congress, the Treasury and lastly the FDIC. She spoke to IRA co-founder Chris Whalen before the July 4th break.
The World Held Hostage by Credit Default Swaps? Alford on the FOMC: Watch what they say
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a comment from Richard Alford on the state of thinking inside the Federal Open Market Committee regarding monetary policy -- at least based on what folks at the Fed say in public. We also comment on the latest financial bailout, in this case the apparent salvation of the European and US banks in the CDS market from taking a hit in the restructuring of Greece.
David Kotok on Central Bank Credibility; Bob Eisenbeis: Did the Fed Print Money with QE?
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we republish a comment by Robert Eisenbeis, Chief Monetary Economist of Cumberland Advisers, "Did the Fed Print Money in QE1 and QE2?" Eisenbeis, who was Executive Vice President and Director of Research at the Federal Reserve Bank of Atlanta prior to joining Cumberland, corrects a puzzling comment on the Fed published last week in the Wall Street Journall by George Melloan. We assumed that Melloan and the Wall Street Journal editorial staff were aware of the rules of monetary quantum mechanics, but maybe not.
Next Big Thing: "Rent to Own?" Recreating the Ear of the Markets
by Team of Institutional Risk Analyst,
We feature a comment by Damien IslamFrenoy and David Cox, of Microsoft Banking and Capital Markets, about the need to restore context to information to better identify and manage risk. But first we make a few observations about the trends in the political economy. The first quarter of 2011 is now the best quarter since 2007 but does this mean that the future is assured? With an ROA<1% and ROE measured in single digits, the results are less than stellar. But the retrenchment of Americans away from housing assets and toward cash savings raises questions about the future of the banking industry.
Is Deflation in the US Housing Sector Accelerating?
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we offer our view on the housing sector as we travel to Philadelphia on Tuesday to participate in the 29th Annual Monetary and Trade Conference sponsored by the Global Interdependence Center and Drexel University. John Burns walked the participants through the current situation in the US housing sector and the outlook for a recovery in prices. The bottom line: Even though affordability has returned, new home sales are likely to remain depressed for years due to massive inventories of unsold homes, dwindling finance and weak employment markets.
Ally Financial + ING Bank? Richard Alford on Lessons Forgotten at the Greenspan/Bernanke Fed
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst we feature a comment from Dick Alford on the lessons forgotten by the Fed when it comes to financial regulation. Showing his considerate nature, Dick even uses the official histories of past crises prepared by the FDIC as the timeline to make it easier for some of our former colleagues at the Fed to follow along. But first, let's have some fun with one of the toys developed for The IRA Bank Monitor, namely our pro forma M&A analysis tool.
UK Country Risk: Is Lloyd's of London Too Big to Sue?
by Team of Institutional Risk Analyst,
Last month an American investor named Richard Tropp filed a writ of certiorari with the US Supreme Court to review a decision by the Second Circuit in New York regarding an epic litigation against the Lloyds of London insurance market. To us, the case of Tropp v. the Corporation of Lloyds is troubling not only because it implies that thousands of investors in the Lloyd's insurance market have no contractual rights enforceable at law in the courts of England and Wales, but also because of what it says more broadly about the state of the law in Britain.
Entropy and the Mechanics of Reflation
by Team of Institutional Risk Analyst,
All we can say with some degree of certainty is that the real economy seems to be slowing rapidly from our perspective. The problem is not so much a dearth of credit as a lack of demand for credit and goods of all descriptions. Have you noticed your retailers and service providers trying harder recently? Even the major airlines are treating passengers with a degree of deference that is almost unnerving -- but the planes are mostly full.
Are You Watching Your Brokered Deposits? Bob Eisenbeis: What's a Central Bank to Do?
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst, we feature a comment from Bob Eisenbeis, Chief Monetary Economist of Cumberland Advisors. Bob clearly states the obvious in his excellent analysis of the choices facing the Federal Open Market Committee, namely that the Fed continues to steer monetary policy based upon largely domestic factors, this even as the global role of the dollar creates dangers for the US and other nations as they flee the perils of deflation.
Is Europe at the Tipping Point? Sol Sanders & Bill Alpert on Keynes, Keynesianism -- and Keynesianit
by Team of Institutional Risk Analyst,
With the world preparing for the collapse of the post-WWII, post-Bretton Woods economic order, we thought it might be useful to look at what Keynes actually said. We depart from our optimism due to the situation in Europe. Forget the threat of a ratings downgrade by S&P, Washington on debt ceilings or our part-time POTUS, the final collapse of the southern states of Europe is accelerating. Most banks in the EU are insolvent and the states supposedly backing them cannot access the global markets. The collapse of the EU bank bailout effort could be the next catalyst for global contagion.
Private Mortgage Insurance Endgame
by Team of Institutional Risk Analyst,
In this issue of The Institutional Risk Analyst we feature a comment on the XBRL pilot program at the Securities and Exchange Commission by Daniel Roberts CEO of raas-XBRL. First let's focus briefly on some related technical developments at the IRA HQ in Torrance, CA. Both of these data points directly impact investors, regulators and other consumers of financial data. And we feature a reader comment on the endgame of the private mortgage insurers at Fannie Mae and Freddie Mac, namely stuff the taxpayer.
The Revolving Door at the Fed of New York; Dick Alford on False Dichotomies in Monetary Policy
by Team of Institutional Risk Analyst,
This week in The Institutional Risk Analyst, we feature a comment by Richard Alford on the false dicotomy between discretionary and rules-based regimes when it comes to monetary policy. But first we want to do a little review of the latest disgorgement of documents by the Fed. Listening to the debate between the "borrow and spend" camp led by Paul Krugman et al and the cut the deficit camp led by the Tea Partiers in Congress and around the nation, we are reminded again of the film "The Matrix" and its predecessors.
Wanted: Private Investors Seeking First Loss Exposure on RMBS
In a market where volatility is this high,even with the Fed removing trillions of dollars in duration from the markets via QE, just how are private obligors going to price trillions of dollars in first loss RMBS exposure in this imaginary private market that pro-reform elements in Congress have in mind? Fact is, when the Fed ends QE. market dependence upon the GSEs for liquidity support will grow. Like we said, raise the G fees and the conforming loan limit in the name of market forces, Congress needs to find some ways to increase the volume of mortgage loan refinancing and modifications.
A Crime Called Private Mortgage Insurance; Alex Pollock on the Political Finance of Covered Bonds
by Team of Institutional Risk Analyst,
This week in The IRA Advisory Service, we review the Fed's latest stress test exercise and discuss what it means for the banking industry and the US economy. While the US central bank did not provide results for specific institutions, the assumptions in the Comprehensive Capital Analysis and Review (CCAR) are more instructive than the Big Media seems to notice. Indeed, a close reading of the CCAR document provides a compelling argument for why the Fed should not be supervising financial institutions.
Covered Bonds and Zombie Banks
"Toryism, Socialism and Housing Reform" a topic inspired by the good works of the members of both major parties in Congress. Rep. Scott Garrett, is a conservative Republican, but has become the latest agent of statism and zombie banks. Why this harsh appraisal? Because he comes from NJ, a state that is at least nominally pro-business but has always carried the water for Wall Street. NJ, has always produced protectors for the political interests of the big banks. And the covered bond proposal being so constantly advanced by Garrett and others is the latest triumph for financial innovation.
Toryism, Socialism and Housing Reform: Real and Imagined
This commentary is background for the presentation entitled "GSEs: The Future Role of Government Sponsored Enterprises in the US," at the Global Association of Risk Professionals event on Tuesday, March 8, 2011, in New York. The Obama Administration recently advanced some proposals to reform several government agencies that control the market for housing. Treasury/HUD plan is really a menu of possible options, eliminating what would not work and making it clear that change will happen slowly, if at all.
Bank Stress Index Up in Fourth Quarter; Can China Slow Down Bank Lending?
The Q4 2010 results from the latest IRA bank stress index ("BSI") survey are in and the US banking industry saw slightly higher stress than in the previous quarter. At the start of 2010, we wrote in The IRA Advisory Service that Q1 was likely to be the best quarter of the full year 2010. As it turns out, Q1 2010 was the lowest BSI score for the full year and since the start of 2009. Operational stress as measured by the BSI has been rising in the US banking industry steadily since Q1 2010.
Inflation or Deflation? Or is it Global Weimar?
As we've noted in recent missives for The IRA Advisory Service, the visible volume of business flowing through the bank consumer channel seems to be receding or maintaining low levels. The commercial channel at most banks we hear from is still running at 1/3 to 1/2 of pre-2008 levels in terms of new originations and demand for credit. This is why when clients ask us about whether we worry more about inflation or deflation, our answer is "both." The chief worry bead remains revenue flowing through banks, housing and the US economy.
Ignorance is Confidence: Fedtalk or Newspeak? Andrew Jackson on Repealing a Central Bank
In this issue Richard Alford, Christopher Whalen and members of the Herbert Gold Society opine on the Fed's attitude toward veracity and transparency in an age when confidence is the paramount policy concern. In the process of seeking to restore and maintain confidence, in the financial system and in the Fed as an institution, the Board of Governors in Washington led by Chairman Ben Bernanke seem to follow the last of the three slogans of the Ministry of Truth in George Orwell's book, 1984: "Ignorance is Strength."
Conflict of Visions: Housing Market Reform and Recovery
With last week?s release of Q4 Housing Vacancy Survey by the Census Bureau and prior week?s release of the November S&P Case Shiller Index data, two things are clear: (i) the housing market is in the midst of what will be at least a several quarters? long, double-dip in home prices as the final act in the five-year tragedy of residential real estate price re-rationalization and (ii) it is time to look beyond this final stage, to the future of housing demand as excess inventories are slowly absorbed.
Investors, Zombie Banks and the Valuation Gap
Until the US government summons the courage to impose the same discipline on Bank of America, JPM and the other zombie money center banks as was applied to Western United and First Community banks, there will be no recovery in the US economy or in the housing sector -- nor in the political currency of Washington politicians. Credibility is ultimately the biggest valuation gap of all. Barack Obama's shortfall when it comes to public policy regarding the economy and financial institutions is a mile wide.
Zombie IPO: Is American International Group the 'Blood Doll' of Wall Street?
In this issue of The Institutional Risk Analyst, we return to the zombie dance party to check in on the queen of the prom, American International Group ("AIG"). First a question: Vampires are all the rage now in popular culture, so allow us to offer a macabre metaphor for AIG. Do you know what a "blood doll" is? A girl who craves to be the regular victim of or willing donor to a vampire. But hold that thought.
Is Bank America the Most Sued Company in America? Sol Sanders on Charting the Arab Dark
With more than half of Tunisia's population under 30, increasing unemployed youth want more. It remains to be seen who will come out on top in Tunis. But across North Africa - from Egypt to Morocco - underground religious Muslim opposition festers. Alas! in Tunisia, as elsewhere, the Iranian mullahs' total corruption and Saudi Arabian hypocritical lifestyle notwithstanding, the Islamicists' appeal is growing.
A Brady Plan for the Mortgage Mess? Bob Feinberg on Layers of Players
In this issue of The Institutional Risk Analyst, we propose a Brady Plan for the mortgage sector and feature a comment by Robert Feinberg on the state of too big to fail in Washington. Given that the equity market value of the zombies has been climbing since the end of Q3 2010, the Street clearly believes that the proverbial fix is in and that the Treasury will subsidize the losses of BAC et al. Bob confirms that view and that "too big to fail" is alive and well in Washington.
Will Devaluation and Default be the Themes for 2011?
In a free society, when a problem grows to a certain size, the political force behind the good of the many becomes irresistible and the good of the few or the one can often overlooked. As new political tendencies join governments in Ireland and the U.S. in January 2011, we look for macro economic and financial factors to start driving events in some ways that will be very unpleasant for creditors and consumers like. Just remember that sovereign states like Ireland, California and New York don't file bankruptcy, they merely default a la Iceland and Argentina.
Apple, Google, NewsCorp and the Future of Content: Interview with Michael Whalen
In this issue of The Institutional Risk Analyst, we speak to Michael Whalen, award winning composer and new media observer about the outlook for the business of creating and delivering content. Since graduating from Berklee College of Music, Michael has taught a business for music class than has saved thousands of young atists from making terrible mistakes with content and other contractual rights. Think Frank Zappa and Warner Brothers. And yes, Michael is IRA co-founder Chris Whalen's younger brother.
Q3 2010 Bank Ratings: Little Banks Improve, TBTF Zombies Rot
The key thing to take away from the Q3 2010 FDIC results is the continued volatility in bank financial statements as evidenced by the movement among the different ratings strata. This type of volatility in performance is normal among banks and non-banks alike, but the current period of credit and operational stress is making these distinctions even more pronounced. When you see this type of instability in bank financial disclosure, it suggests very strongly that these depositories are under severe operational stress.
Conflicted Agents: Credit Ratings, Risk Management and Dodd-Frank
Implementing Dodd-Frank levels the playing field for all of the producers of ratings. Banks and funds should start to create, aggregate and share two metrics - probability of default and loss given default - for all of the exposures which they touch. In creating these metrics, these institutions must both do their own work and will be able to reference any one of hundreds of external ratings and valuation sources.
Ambac, CDS, and Geithner: It's AIG All Over Again
This week The Institutional Risk Analyst returns to the financial travails of Ambac Financial Group, which recently filed bankruptcy after several years of twisting in the wind due to questions about solvency related to RMBS exposures. AFG, as it turns out, is the latest project of the Treasury Secretary, who wants to again protect the largest bank dealers and the market in over-the-counter derivatives from legal discipline.
The FDIC ambushes the Fed, and gains a beachhead in Basel
This week The Institutional Risk Analyst is on the road. We were in Merriville, IN last night to give a talk entitled "A New Deal for the American Economy." The well-attended event was sponsored by the School of Business at Indiana State University and City Securities in Indianapolis.
The Servicer of the First Part; Dick Alford on the Fiscal Illusion
This week the Institutional Risk Analyst features a comment by the FRBNY's Richard Alford. Alford provides a very revealing look into the brave new world of macroeconomics and how the members of the priesthood of imprecision see the 'multiplier' associated with fiscal spending. When you realize just how poor the methodology is behind these economic debates, both in terms of the mathematical assumptions and the understanding of human action, the fact that these distinctions underpin fiscal policy is truly frightening.
Triple Down: Fannie, Freddie, and the Triumph of the Corporate State
What we need from the Federal Reserve is some leadership on the issue of making the White House take responsibility for restructuring the economy. The Fed should be telling the healthy banks to start taking a bit of risk, making some loans instead of buying Treasury bonds and agency mortgage-backed securities. A bit of increased competition in the origination channel so that performing borrowers can get a refinancing closed will unblock the economy and also do wonders for the efficacy of Fed policy.
The Metastasis of Residential Mortgage Backed Securities: Interview with Joe Mason
This week the Institutional Risk Analyst talks to Louisiana State University finance professor Joseph Mason. While the media is printing stories about foreclosures, Mason says, the more fundamental problem facing the U.S. economy is the approaching currency crisis.
The Fed's Zero Rate Policy is Destroying America
If the Federal Open Market Committee does not soon allow interest rates to rise and thereby rebalance the policy equation between American savers and borrowers, then gold prices will climb further. Federal Reserve Chairman Ben Bernanke and the FOMC will hand the detractors of the central bank led by U.S. Representative Ron Paul the political issue they need to eliminate the Fed once and for all. And President Barack Obama will be wearing the concrete booties that once belonged to President Herbert Hoover. Unlike your worthless greenbacks, you can take that to the bank.
Refinancing, Not Foreclosures, is the Issue; Richard Alford on Bill Dudley and QEII
The failure on the part of the largest banks to perfect guidelines for security interest agreements on the homes, office buildings or other real properties that underlie securitizations is turning out to be not merely a legal headache, but also the operational catalyst for the next crisis in financials. This commentary also features a piece by contributor Dick Alford on the recent speech by New York Federal Reserve President William Dudley regarding the resumption of quantitative easing. According to Dudley, the speech suggests that the Fed has not yet learned from past mistakes.
Exposure at Default: Does Bank American Have Any Alternatives for Countrywide?
The erosion of the profitability of the U.S. banking industry over the past two years under the Summers-Geithner-Bernanke rescue scheme is the proverbial fly in the ointment for both major political parties. Democrats and Republicans alike are going to be fed into the meat grinder over the next several years as the banking sector deals with literally hundreds of billions of dollars in direct and indirect expenses from the deflation of the mortgage bubble. The slow process championed by Summers and Geithner will ensure that Barack Obama becomes the Herbert Hoover of the Democratic Party.
Basel III Gets the Headlines, but EU Article 122a is the Story
This issue features a comment by Richard Field of TYI LLC about a new European Union rule for the asset-backed and structured securities markets in the European Union called Article 122a. This rule is a direct challenge to the U.S. regulatory community. Implementation will very quickly divide those financial institutions which are compliant and those which are not. Banks which are not in compliance with the EU rule will be obliged to offer investors significantly higher yields on debt than those banks which are compliant.
Double-Dip Economy: Does Quantitative Easing Really Matter?
While the financial markets await the latest pronouncement from Fed Chairman Ben Bernanke, the Institutional Risk Analyst features a comment from friend and former colleague at the FRBNY Richard Alford. He asks whether any of the policy options being considered by the U.S. central bank are meaningful to the American economy. As Paul Krugman wrote in the New York Times on Friday, 'policy makers are in denial.'
Zombie Love: Do Fannie and Freddie Provide Any Benefit to the U.S. Economy?
This commentary features a piece from Achim Duebel at Finpol Consult in Berlin criticizing U.S. fiscal intervention in the housing market. Duebel's comment was first written in 2003, when its publication in a housing finance journal was blocked by government-sponsored enterprise lobbyists. The striking thing about it is that almost nothing about the structure of the housing market has changed since it was first written. Christopher Whalen also comments on the current status of the housing sector, and double-dips both real and imagined.
Results 1–50
of 145 found.