Hedge fund managers are fuming at new political rhetoric against them and their huge paydays.» Read More
While the leaked diplomatic cables published this week by Wikileaks have been roiling the global political scene, bank executives should be on guard. Wikileaks founder Julian Assange just announced that he has a trove of documents revealing unethical behavior at one of the largest banks in the US.
In an interview with Forbes, Assange declined to name the bank. But he hinted at its identity. It is one of the biggest banks in the country. It still exists—ruling out Bear Stearns, Merrill Lynch or Lehman Brothers.
That leaves us with a handful of candidates: Citigroup, JP Morgan Chase, Wells Fargo, Bank of America, Morgan Stanley, and Goldman Sachs.
Assange says he has tens of thousands of documents showing an "ecosystem of corruption." The publication will prompt investigations and reforms, according to Assange.
Is the new European Stability Mechanism behind the price plunge of Spanish sovereign debt?
The Financial Times blog Alphaville, which has been covering the mechanics of the European debt crisis in great detail has raised just that question . And they have provided a link to a very ugly looking curve that shows the yield of Spanish sovereign debt spiking.
Alphaville cites Harvinder Singh of Royal Bank of Scotland:
"We expected a relief rally—even if the only relatively safe place was seen as the short end of rescued countries such as Ireland—but in the event the market has moved very quickly to the title of the research note: European periphery crisis: no turning point in sight yet. The spread widening after the initial tightening should frighten policymakers. Make no mistake this is a crisis of EMU."
One important estimate of what mortgage put-backs will cost banks just leaped by more than 20 percent.
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.
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.
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.
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.
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.
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.