Monday, 29 Nov 2010 | 4:22 PM ET

Uh-Oh: Put-Back Exposure Estimates are Rising

Posted By: John Carney

One important estimate of what mortgage put-backs will cost banks just leaped by more than 20 percent.

Tom Grill | Photographer's Choice RF | Getty Images

Paul Miller of FBR Capital now estimates that banks will face between $54 billion and $106 billion . That’s up from his September estimate of $44 billion to $91 billion.

The banks that have the greatest loss exposure, according to Miller, are Bank of America, Citigroup, JP Morgan Chase and Wells Fargo.

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  Monday, 29 Nov 2010 | 3:50 PM ET

A Salem Trial for MERS?

Posted By: John Carney

The register for deeds in Southern part of Essex County, Massachusetts has asked the state’s attorney general to investigate whether the Mortgage Electronic Registration system has failed to pay recording fees required when mortgages are transferred.

MERS, an electronic mortgage database that touches 3 out of 5 mortgages in the United States, has come under fire from an array of critics. Some say it encourages sloppy record keeping and contributed to the robo-signing scandals that led Bank of America and others to suspend foreclosures last month. Others say the system is an attempt to privatize public land records. And some say the system is so flawed it could result in a great unwinding of the mortgage backed securities whose assets passed through it.

John O’Brien, the Salem based register for deeds in Southern Essex County, said in the letter to Coakley that it had come to his attention that a number of states have alleged in court filings that MERS intentionally failed to pay recording fees, and failed to disclose the transfer and assignments of interest in property, solely to avoid and decrease the recordation fees owed to the counties and the state.

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  Monday, 29 Nov 2010 | 3:29 PM ET

Liquidity Versus Solvency—Deconstructed for Twentysomethings

Posted By: Ash Bennington

Yesterday morning, the economist Nouriel Roubini sent out the following tweet: "Greece & Ireland are solvency not liquidity."

Professor Roubini of course was referring to the European debt crisis.

And his meaning was perfectly clear: The financial situation in Greece and Ireland isn't the result of a short-term cash crunch—rather, its causes are deep and profound economic failures that can't simply be fixed through short-term monetary policy.

But what exactly is the difference between a liquidity crisis and a solvency crisis? Like many other concepts in economics, the terminology can be challenging, and best described metaphorically. So I began searching for a way to adequately capture the bad planning, ludicrous assumptions, and occasional inexcusable behavior that led to the crisis in the first place. After twenty minutes of skimming through the Financial Times, the obvious allegory presented itself to me: My own life during my twenties.

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  Monday, 29 Nov 2010 | 1:48 PM ET

Why Rising Rents is Not Necessarily Good News for Home Prices

Posted By: John Carney

For most of the past decade, renting a home has been a smarter move than buying one in most areas of the United States. The cost of renting a similar home has been far less than owning one, even after things like mortgage interest tax deductions are taken into account.

Home For Rent
Home For Rent
Home For Rent

Many believed that falling home prices would change this reality. As home prices fell, buying a home would seem more attractive. What’s more, foreclosures would push former owners into rental apartments—driving up rental rates and making home-buying even more attractive.

The end result—at least according to the conventional wisdom—was that rising rents would provide a floor to falling home prices. Eventually—fingers crossed—rising rents could even lead home prices to rise if the balance between renting and buying swung too far in the opposite direction.

As it turned out, this was way too rosy of a scenario. Even after the housing bubble deflated, the Rent Ratio—the purchase price of a house divided by the annual cost of renting a similar one—remained elevated in much of the country. It was still better to rent than to buy in most places.

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  Monday, 29 Nov 2010 | 1:13 PM ET

Europe: Fragmenting on Multiple Axes?

Posted By: Ash Bennington

A few weeks ago, I wrote about the possibility of a political breakup of the European Union. Just before Thanksgiving, I wrote— not ironically — about whether a crypto-breakup of Europe might already be underway in the sovereign debt markets.

Demonstrators block a police car on the parking lot of the Madrid transport bus company during the general strike held in whole Spain in Madrid as unions launched a 24-hour general strike all around Spain to protest tough government labor reforms and austerity measures.
Josep Lago | AFP | Getty Images
Demonstrators block a police car on the parking lot of the Madrid transport bus company during the general strike held in whole Spain in Madrid as unions launched a 24-hour general strike all around Spain to protest tough government labor reforms and austerity measures.

Today, a new idea that is at least as unsettling: Fragmentation in Europe, not just along national lines, but along class and economic lines as well.

Michael Pettis, a Professor of Finance at Peking University and a frequent writer on international economics wrote in a recent blog post , in reference to Europe's most economically troubled nations:

"Political radicalism in these countries will rise inexorably as a consequence of rising class conflict. As Keynes pointed out as far back as 1922, the process of adjusting the currency and debt will primarily be one of assigning the costs to different economic groups, and this is never an easy or conflict-free exercise."

This is indeed a frightening scenario. If, as Milton Friedman suggested in 1965 "We are all Keynesians now," perhaps it is time to think through some of the darker ramifications for Europe.

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  Monday, 29 Nov 2010 | 12:09 PM ET

A Nightmare Scenario of Legalized Insider Trading: Time to Wake Up?

Posted By: John Carney

The idea of decriminalizing insider trading—and perhaps even removing some of the securities regulation rules that impose civil sanctions on insider trading—is finally becoming respectable.

Digital Vision | Photodisc | Getty Images

For a long time, legalization of insider trading was a cause restricted to a few libertarians, some hardcore efficient market types, and a handful of academics. But in recent years, the idea has gone mainstream—in part, I suspect, because the government’s costly and legally extravagant attempts to enforce the rules seem to have so little effect at deterring insider trading.

The backlash against legalized insider trading has already begun. One forcible critique comes from Bruce Carton, a former senior counsel in the enforcement division of the Securities and Exchange Commission who now runs Securities Docket —an online publication monitoring securities enforcement.

Writing at Compliance Week , Carton imagines what would happen if we let our ban against insider trading fall by the wayside:

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  Monday, 29 Nov 2010 | 11:44 AM ET

The Explosive Growth of Middle Market M&A

Posted By: John Carney
Jupiterimages | Brand X Pictures | Getty Images

Although deal volume is still running at less than half of the 2007 peak of nearly $1 trillion, M&A is making a comeback this year. A good portion of the growth has come not from the headline grabbing mega-mergers but from middle market deals ranging from $50 to $500 million, according to the independent research firm Accordion Partners.

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  Monday, 29 Nov 2010 | 11:30 AM ET

Mary Meeker—“Queen of the Net”—Leaving Morgan Stanley

Posted By: Ash Bennington
mary meeker
Source: wikipedia.com
mary meeker

Meeker became known as “Queen of the Net” during the Internet mania of the late 1990s. Her Net Queen title was first intended to lionize her as a visionary. The phrase then came to symbolize something else entirely: The excesses of the dotcom bubble—and possibly the conflicts of interest inherent at investment banks during the same period. Meeker survived the waves of allegations that eventually forced analysts Jack Grubman and Henry Blodget out of the securities industry. In fact, in a fascinating and redemptive third act, the term “Queen of the Net” largely returned to its original usage — which is to say un-ironical.

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  Monday, 29 Nov 2010 | 10:56 AM ET

Going Postal: The Cyber Monday STAMP-ede

Posted By: Stephanie Landsman

It's the festive color of the holidays. It’s also what the U.S. Postal Service is seeing. Lots of red, without a bailout in sight.

Postal worker
Getty Images
Postal worker

Even though Cyber Monday, one of the busiest shopping days for online retailers, is expected to bring in more sales than last year, the Postal Service is not in much of a position to benefit.

"The problems are much bigger than one holiday season… The postal service needs to work on its cost structure," said Morgan Keegan Transportation Analyst Arthur Hatfield.

The Postal Service is trying to stamp out a multi-billion dollar budget shortfall. Its net loss in its fiscal year ending September 30 was $8.5 billion. Operating revenue came in at $67.1 billion - down one billion from 2009 due mainly to lower volume.

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  Monday, 29 Nov 2010 | 10:17 AM ET

John Taylor: Foreclosures Are the Mortal Enemy to Economic Recovery

Posted By: Lori Ann LaRocco

The foreclosure crisis still divides us into two camps. There are those who believe that foreclosing rapidly on homes subject to defaulted mortgages is vital to clearing the market. Others believe we should do everything we can to keep people in their homes, urging loan modifications to forestall foreclosures.

John Taylor, President and CEO of the National Community Reinvestment Coalition, falls solidly in the latter camp. Taylor would like to see widespread mortgage modifications that would allow homeowners in danger of defaulting to keep their homes. Taylor is on the board of directors of the Rainbow/PUSH Coalition and the Leadership Conference for Civil Rights. He has also served on the Consumer Advisory Council of the Federal Reserve Bank Board, The Fannie Mae Housing Impact Division as well as The Freddie Mac Housing Advisory Board. He is extremely passionate on why his idea is the right choice to help turn around the real estate market.

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