Break the IBs up into smaller bits and then regulate derivatives. Then, take away the discount window and force these scum suckers to survive or die with realistic GAAP which is audited, enforced and connected to real jail time for fraud and misleading accounting. Out with SEC and The Fed and let DOJ, IRS & FTC take over total control of security exchanges...and free f--king donuts and coffee for women and children and, why not have any bank that used the discount window re-state earnings.... then, then, yah got a system!
Big deal. If I'm an investment bank I'd say no way to oversight, but pledge that I won't use the discount window. Then I'll go ahead with massive counterparty risk anyway and the Fed will bail me out just the same.
Doesn't this assume that the regulator is actually willing to use it's regulatory authority? The Fed hasn't exactly shown a lot of interest in doing so for two spectacular bubbles now. Third time lucky?
JS: "Big deal. If I'm an investment bank I'd say no way to oversight, but pledge that I won't use the discount window. Then I'll go ahead with massive counterparty risk anyway and the Fed will bail me out just the same."
Yeah, I've got to agree. I'd state it thus: we have now learned that an IB like Bear Stearns can take down the entire financial system if it fails. Therefore, IB's will now be regulated.
This call for additional Fed regulation of investment banks is just barmy. If ANYONE who might wind up needing a bail-out needs to be regulated then we would have to include every single pension, mutual, or hedge fund of consequence as well. The reality is that ANY large financial institution will be bailed out since the fear of causing a stampede is too great.
But it is clearly silly to suggest that the Fed begin regulating EVERY single financial institution and fund with over 20 billion in assets.
Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.
For refi's, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available.
This is happening on a vast amount the $417k conforming loans as well..
For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which is low to moderate in most areas in CA. Surely not the first-pick neighborhood of some earning $175k per year. That same person could have purchase a $1.5 million home with little to no down payment nine short months ago..
In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. That wipes out the vast majority of the buyers in CA. All while inventories of home for sale and foreclosures soar. Slowly over time, home values will gravitate towards the most readily available financing, which is Agency conforming $417k. This is just another example of how far CA Real Estate has yet to fall. -Best, Mr Mortgage
Well, I guess if the Fed props up all the banks and buys up all their drek before laundering the ill-gotten Level-3 nonsense into new money, that could be considered a form of "regulation." As in - they are "keeping track of things" as they blow new Bubbles and keep the party rolling.
Or, we could, you know, enforce the actual laws and start putting crooks in prison. Nah... never happen!
One thing that deserves to be brought back in this time of everything retro.
Banks....are supposed to be BANKS. PERIOD. Keep separate the wheat from the chaff and all will be well. If it feels like we've been here before....it's because we have. Thanks to Rubin, Weil, and co....here we are again.
This is silly. The Fed already regulates banks and they are in worse shape than the broker-dealers. In retrospect everyone's a genius, but I can't imagine how anyone can imagine a regulator being on top of this.
I like Yves Smith's from Naked Capitalism take on this regulation thingie:
"1. Force as much OTC activity as has reasonable trading volume onto exchanges. That means at a minimum interest rate swaps, currency swaps, and credit default swaps. Yes, this will require standardization and some buyers will lose access to variants they might have liked. Too bad. Protecting the economy and the taxpayer is more important than indulging every investor's pet need.
This of course will also considerably lower the profitability of the industry. Again, too bad. They screwed up and cost the populace a ton of dough. There are consequences for mistakes of that magnitude. They should consider themselves lucky not to have been subject to public beheadings.
Lower profits for banks has positive consequences. It means less talent and other resources are sucked into the FIRE economy (and remember, the FI in that equation are at best service providers to the real economy, and worse, when they become too large, parasites).
Prohibit off balance sheet vehicles.
Prohibit Level 3 assets; allow only Level 1 and strictly defined and audited Level 2 assets. This means regulators will not have anything overly arcane to assess; they ought to be able to get a clear picture of risks, processes, and exposures if they are dogged.
Prohibit these regulated institutions from lending, providing other funding, or investing in concerns that have Level 3 assets.
Hedge funds would continue to be unregulated. I might also prohibit any unregulated entity from going public. Speculators playing with investors' money is tempting enough; having them have even less skin in the game via a public flotation makes it easier for them to get so large as to pose a danger. Yes, this can create problems of succession, but Wall Street dealt with it for a hundred years or so. These guys ought to be smart enough to figure it out.
I'd also have pretty draconian penalties for breaking the rules, the sort that can have individuals involved and their supervisors forfeit a lot of dough and go to jail."
The Fed regulate the investment banks? You mean just like they regulated the commercial banks who now have over 130 trillion in unregulated derivatives? A market with no counterparty asset requirements, no rules for determinations of ownership and no rules for contract uniformity. You mean that kind of regulation?
It is time to fire the private bankers money making machine, The Federal Reserve , and install a public central bank to create our money at no interest and regulate these Ponzi scheme artists so they won't destroy our economy.
Why does anybody pay any attention to what McCulley says?
This is what he wrote in Nov. 03.
"The Feds secular war against inflation, commenced by Paul Volcker on October 6, 1979, is over. Im not sure I can pinpoint the day the war ended, but I can pinpoint the process of the Fed declaring victory. The armistice dance started November 13, 2002. The FOMC had just cut the Fed funds rate a surprisingly large (to consensus) 50 basis points on November 6, and Chairman Greenspan was testifying before Congress on the whys and wherefores. In question period, he explicitly addressed the risk of deflation and the Feds power to prevent/arrest it, declaring:
There is an implication in the notion (of fighting deflation risks) that we are restricted to overnight funds. But our history as an institution indicates that there have been innumerable occasions when we have moved out from short-term issues and invested in long-term Treasuries. We do have the capability, if required to do so, to go well beyond activities related to short-term rates.
That, my friends, marked the beginning of the official end of the war against inflation, and the beginning of a new campaign to win the peace of price stability. "
In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. borkafatty | 04.18.08 - 3:48 pm | #
That is GREAT news. The less Fat Fannies out there the better. More of the available resources of the GSE's going where they are suposed to go, to support low and moderate priced housing. Also reduces (not eliminate, but reduces) the chances that we will have to do a massive bailout of the GSE's.
IF LEVERAGE WAS REGULATED TO APPROPRIATE LEVELS AND THE FED STOPPED TRYING TO INFLATE BUBBLES (FIRED GUYS LIKE GREENSPAN) WE WOULD NOT BE WORRIED ABOUT MINSKY MOMENTS.
THE SYSTEM DOES NOT HAVE TO BE SKEWED TO PROMOTE BUBBLES, WE CONTROL THE SYSTEM AND WE GET WHAT WE CHOOSE.
IF WE EVER START LETTING REASON GET AHEAD OF WALL STREET BANKERS INPUT THINGS WILL BE BETTER FOR THE REST OF US.
The critical, overlooked point is that McCulley clearly has no idea what a "public good" is because the discount window is clearly NOT a public good (the benefit is clearly discreet and excludable, etc. Public good) - Wikipedia, the free encyclopedia.
America's major problem is that most government action now provides PRIVATE goods for rent seeking.
Mr McCulley has something backwards. The worst performers by far were the banks, regulated by the Fed. Bear Stearns demonstrates little on this point since Citi would have had a bank run 6 months before Bear had it not been 2-big-2-fail as well as encrusted with implied government guarantees. Fed regulation has been a disaster.
The connection between access to the Fed window and Fed regulation is a confusion. There can be a division of labor. Central banks intervene in currencies yet treasuries decide when and how much. The Dept of Energy manages nuclear weapons labs but the Dod uses the product and so on. There's nothing wrong with having all operation of Basel and so on centralized in one agency, which should probably be the Fed. But the idea that it's somehow the Fed's money (as opposed to the Treasury's) so the Fed must watch it follows from nowhere.
thirst!
disaster for who???
certainly not any of the banks.....
talking book that's all....
Animals left the barn last year and that is the best you can come up with???
Effe him
Ciao
MS
DAMN RIGHT!!!
You took the devil's money.
Prepare to dance with the devil.
Pale moon light optional.
OT but if anyone had seen anything written on the demand for homeownership as more and more buyers foreclose.
If a million people foreclose that will be a million people who wont be in the market for a house in the next five years...
anyone?
ignore $117 Oil, does'nt matter. Focus on GE's forward multiple of 29
Break the IBs up into smaller bits and then regulate derivatives. Then, take away the discount window and force these scum suckers to survive or die with realistic GAAP which is audited, enforced and connected to real jail time for fraud and misleading accounting. Out with SEC and The Fed and let DOJ, IRS & FTC take over total control of security exchanges...and free f--king donuts and coffee for women and children and, why not have any bank that used the discount window re-state earnings.... then, then, yah got a system!
If you are going to let the Thugees into the temple, you must disarm them.
pari passu
That's a great use of the English language. Way to write down something good and then soil it by using such silly words.
Sigma hola canis hablis to you.
Big deal. If I'm an investment bank I'd say no way to oversight, but pledge that I won't use the discount window. Then I'll go ahead with massive counterparty risk anyway and the Fed will bail me out just the same.
Max Keiser's take.
Max Keiser: The Gulag Wealth Fund and Toll Booths in Outer Space
ades: "OT but if anyone had seen anything written on the demand for homeownership as more and more buyers foreclose.
If a million people foreclose that will be a million people who wont be in the market for a house in the next five years..."
Maybe a 2nd or 3rd wave of people who crave to climb the property ladder but couldn't afford to during the previous bubble?
If you dance with the devil, the devil don't change, the devil changes you!
"pari passu
That's a great use of the English language. Way to write down something good and then soil it by using such silly words.
Sigma hola canis hablis to you."
Gotta admit I need a translation for both of these. . .
He can say any damn thing he wants. Tough Titty.
Doesn't this assume that the regulator is actually willing to use it's regulatory authority? The Fed hasn't exactly shown a lot of interest in doing so for two spectacular bubbles now. Third time lucky?
As long as people have jobs everything will be ok.
California unemployment hits 6.2%; worse than Ohio, Pennsylvania
Ahh crap.
JS: "Big deal. If I'm an investment bank I'd say no way to oversight, but pledge that I won't use the discount window. Then I'll go ahead with massive counterparty risk anyway and the Fed will bail me out just the same."
Yeah, I've got to agree. I'd state it thus: we have now learned that an IB like Bear Stearns can take down the entire financial system if it fails. Therefore, IB's will now be regulated.
GS leaning on spu's into close.
What's the point of more regulation when it seems to have failed thus far?
Anyone else think that there's an inherent conflict of interest with the Fed's regulating its constituency?
This call for additional Fed regulation of investment banks is just barmy. If ANYONE who might wind up needing a bail-out needs to be regulated then we would have to include every single pension, mutual, or hedge fund of consequence as well. The reality is that ANY large financial institution will be bailed out since the fear of causing a stampede is too great.
But it is clearly silly to suggest that the Fed begin regulating EVERY single financial institution and fund with over 20 billion in assets.
Nationalize everyone of these bastards and use any profits after expenses to pay the national debt. The clowns have done enough damage. Screw 'em
Yeah...more regs....then the IBanks figure out new and improved ways to circumvent the law.
How about throwing some people in jail. That'd be a deterrent.
Well, several already accessed the window. The choice doesn't have to be about going forward. It's already been made.
OE,
That had my eyes popping - $117/bbl - prepare for the MSM calling all is well when we 'collapse' to $100/bbl at some point...
CR will like this post
Mr Mortgage's Guide to the TRUTH!: NEW FANNIE/FREDDIE 'CON'-JUMBOS ALREADY A BUST
YouTube -
Just got off the phone with three of my top contacts at three of the nations leading mortgage lenders/banks. These programs are not selling at all. The volumes are very low. Banks are highly disappointed. The difference between a standard Fannie/Freddie (Agency) is roughly 75 to 100bps depending on the lender. Agency 30-yr fixed are roughly 6.25% with no points and Agency Jumbos are roughly 7 to 7.25%. Mortgage rates have gone up about .375% in the past few days.
For refi's, nobody wants out of their 5/1 ARM, ALT-A interest only or Pay Option ARM into a 30-yr fixed at 7.25% where their payments increase substantially. Also, in over 50% of cases appraisal are not coming in at value. For example, the loan application is taken with an estimate of $600k and the loan is an 80% loan-to-value (LTV). When appraisal comes in, the value is actually $500k making the loan a 100% LTV and there are no programs available.
This is happening on a vast amount the $417k conforming loans as well..
For the purchase money folk, rates are also too high for current property values. Plus, a down payment required is 10%+. Debt to income ratios have tightened, further reducing buying power. A household wanting to take advantage of a $700k Agency loan at 7.25% must earn about $175k per year at current rates. And that only buys a $770k home, which is low to moderate in most areas in CA. Surely not the first-pick neighborhood of some earning $175k per year. That same person could have purchase a $1.5 million home with little to no down payment nine short months ago..
In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. That wipes out the vast majority of the buyers in CA. All while inventories of home for sale and foreclosures soar. Slowly over time, home values will gravitate towards the most readily available financing, which is Agency conforming $417k. This is just another example of how far CA Real Estate has yet to fall. -Best, Mr Mortgage
My my my...this lovely party in the market today and it looks like TNX is leaving early...
Funny, how the PIMCO guys never call for free markets. Why don't we abolish the federal reserve and allow free markets to work.
Everyone is a communist as long as you are handing out the bread.
WOW!
Now if I only knew what that major move in the 10 year meant energycon!
3 years too late, probably $30 million banked. Good job McCulley, we're all indebted to you for your public interest in our economic well-being.
Fed should regulate PIMCO! Crooks... one and all
Well, I guess if the Fed props up all the banks and buys up all their drek before laundering the ill-gotten Level-3 nonsense into new money, that could be considered a form of "regulation." As in - they are "keeping track of things" as they blow new Bubbles and keep the party rolling.
Or, we could, you know, enforce the actual laws and start putting crooks in prison. Nah... never happen!
Glass....Steagall...
One thing that deserves to be brought back in this time of everything retro.
Banks....are supposed to be BANKS. PERIOD. Keep separate the wheat from the chaff and all will be well. If it feels like we've been here before....it's because we have. Thanks to Rubin, Weil, and co....here we are again.
This is silly. The Fed already regulates banks and they are in worse shape than the broker-dealers. In retrospect everyone's a genius, but I can't imagine how anyone can imagine a regulator being on top of this.
I like Yves Smith's from Naked Capitalism take on this regulation thingie:
"1. Force as much OTC activity as has reasonable trading volume onto exchanges. That means at a minimum interest rate swaps, currency swaps, and credit default swaps. Yes, this will require standardization and some buyers will lose access to variants they might have liked. Too bad. Protecting the economy and the taxpayer is more important than indulging every investor's pet need.
This of course will also considerably lower the profitability of the industry. Again, too bad. They screwed up and cost the populace a ton of dough. There are consequences for mistakes of that magnitude. They should consider themselves lucky not to have been subject to public beheadings.
Lower profits for banks has positive consequences. It means less talent and other resources are sucked into the FIRE economy (and remember, the FI in that equation are at best service providers to the real economy, and worse, when they become too large, parasites).
Hedge funds would continue to be unregulated. I might also prohibit any unregulated entity from going public. Speculators playing with investors' money is tempting enough; having them have even less skin in the game via a public flotation makes it easier for them to get so large as to pose a danger. Yes, this can create problems of succession, but Wall Street dealt with it for a hundred years or so. These guys ought to be smart enough to figure it out.
I'd also have pretty draconian penalties for breaking the rules, the sort that can have individuals involved and their supervisors forfeit a lot of dough and go to jail."
The Fed regulate the investment banks? You mean just like they regulated the commercial banks who now have over 130 trillion in unregulated derivatives? A market with no counterparty asset requirements, no rules for determinations of ownership and no rules for contract uniformity. You mean that kind of regulation?
It is time to fire the private bankers money making machine, The Federal Reserve , and install a public central bank to create our money at no interest and regulate these Ponzi scheme artists so they won't destroy our economy.
Kp:
"Banks....are supposed to be BANKS. PERIOD."
Excellent point: after all, since when a mere service provider to the real economy is suppose to run it?
Does DOW Chemicals tell Pfizer how to develop drugs?
Does Corning run Comcast or Verizon?
Time to deflate the egos and power of these asshats.
Why does anybody pay any attention to what McCulley says?
This is what he wrote in Nov. 03.
"The Feds secular war against inflation, commenced by Paul Volcker on October 6, 1979, is over. Im not sure I can pinpoint the day the war ended, but I can pinpoint the process of the Fed declaring victory. The armistice dance started November 13, 2002. The FOMC had just cut the Fed funds rate a surprisingly large (to consensus) 50 basis points on November 6, and Chairman Greenspan was testifying before Congress on the whys and wherefores. In question period, he explicitly addressed the risk of deflation and the Feds power to prevent/arrest it, declaring:
There is an implication in the notion (of fighting deflation risks) that we are restricted to overnight funds. But our history as an institution indicates that there have been innumerable occasions when we have moved out from short-term issues and invested in long-term Treasuries. We do have the capability, if required to do so, to go well beyond activities related to short-term rates.
That, my friends, marked the beginning of the official end of the war against inflation, and the beginning of a new campaign to win the peace of price stability. "
He also talks to his pet rabbit! I rest my case!
In a nutshell, the new Fannie/Freddie jumbo programs are already a bust. They offer nothing to most people other than the few with perfect credit, who have a large down payment and make tons of money. borkafatty | 04.18.08 - 3:48 pm | #
That is GREAT news. The less Fat Fannies out there the better. More of the available resources of the GSE's going where they are suposed to go, to support low and moderate priced housing. Also reduces (not eliminate, but reduces) the chances that we will have to do a massive bailout of the GSE's.
No Liquidification without Regulation!!!
IF LEVERAGE WAS REGULATED TO APPROPRIATE LEVELS AND THE FED STOPPED TRYING TO INFLATE BUBBLES (FIRED GUYS LIKE GREENSPAN) WE WOULD NOT BE WORRIED ABOUT MINSKY MOMENTS.
THE SYSTEM DOES NOT HAVE TO BE SKEWED TO PROMOTE BUBBLES, WE CONTROL THE SYSTEM AND WE GET WHAT WE CHOOSE.
IF WE EVER START LETTING REASON GET AHEAD OF WALL STREET BANKERS INPUT THINGS WILL BE BETTER FOR THE REST OF US.
Sorry for screaming
The critical, overlooked point is that McCulley clearly has no idea what a "public good" is because the discount window is clearly NOT a public good (the benefit is clearly discreet and excludable, etc. Public good) - Wikipedia, the free encyclopedia.
America's major problem is that most government action now provides PRIVATE goods for rent seeking.
Its not the Fed's money though, Paul.
Mr McCulley has something backwards. The worst performers by far were the banks, regulated by the Fed. Bear Stearns demonstrates little on this point since Citi would have had a bank run 6 months before Bear had it not been 2-big-2-fail as well as encrusted with implied government guarantees. Fed regulation has been a disaster.
The connection between access to the Fed window and Fed regulation is a confusion. There can be a division of labor. Central banks intervene in currencies yet treasuries decide when and how much. The Dept of Energy manages nuclear weapons labs but the Dod uses the product and so on. There's nothing wrong with having all operation of Basel and so on centralized in one agency, which should probably be the Fed. But the idea that it's somehow the Fed's money (as opposed to the Treasury's) so the Fed must watch it follows from nowhere.