Commentaries

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from Rolfe Winkler:

Lunchtime Links 2-2

Homeownership rate falls to 2000 level (CR) At 67.2% it's still way overstated. Home "ownership" is a misnomer in cases when the owner has withdrawn mortgage equity or when the price of the home has fallen below the principal value of the mortgage. A better measure of homeownership, I think, is just to look at total owner's equity as a % of household real estate. The most recent Fed Flow of Funds report (page 104, line 50) puts the figure at just 37.6%...

U.S. could extend bank fee beyond 10 years, Geithner says (Di Leo/Crittenden, WSJ) The proposed tax on non-deposit liabilities should be permanent, and should target ALL liabilities, including repos. Deposits are guaranteed via FDIC. While that insurance is dramatically underpriced (witness the cash-strapped state of the DIF) at least banks pay something for it. Non-deposit liabilities are also effectively guaranteed, for the biggest banks anyway, via the promise that none which is too big will be allowed to fail. To counter moral hazard, this implicit guarantee must be taxed in order to offset any benefit derived from lower funding costs.

Must-Read: What's a college degree really worth? (Pilon, WSJ) A lot less than you think, as argued here before. This piece is well-written with lots of good data!

AIG derivatives staff said to forgo $20 million in retention bonuses (Katz/Son, Bloomberg) They're still well-paid, but this is better than nothing I suppose.

from Rolfe Winkler:

Lunchtime Links 2-1

President's budget (gpoaccess.gov)

Barney Frank: The poor should rent, not own (Indiviglio, Atlantic)

Citigroup said to plan sale of private equity unit (Keoun/Keehner, Bloomberg) Citi cites raising cash to pay down debt as the reason to sell this unit. Of course this would also get Pandit some brownie points with Paul Volcker, who wants commercial banks out of private equity, hedge funds and proprietary trading...

HCA owners get $1.75 billion payout (Lattam, WSJ) Speaking of private equity...a nice payout for investors in one of the biggest LBOs in history.

from Rolfe Winkler:

Geithner’s faulty apologia

Tim Geithner's appearance in front of Congress today was another embarrassment, perhaps more for the people's representatives than the Treasury Secretary. Still, Geithner offered a clumsy defense for paying out 100¢ on the dollar to AIG's counterparties, which included more than Goldman Sachs.

What they lacked in knowledge and nuance, Congress made up for in volume and OUTRAGE. The worst moment I saw was the utterly bogus comparison by Rep. Stephen Lynch between AIG's payout to Goldman (100¢ on the dollar!) and the bailout offer for Bear Stearns shareholders (only $2 per share). 100 is a bigger number than 2, you see.

Goldman Sachs says sorry

Wall Street’s response to public criticism has mainly been exercises in “never apologize, never explain.”

Which makes today’s mea culpa by Lloyd Blankfein all the more extraordinary. Bloomberg News reports:

from Rolfe Winkler:

Meredith Whitney asks the tough questions

----Not to beat a dead-horse here, but I thought I'd blog one last interesting thing on Goldman. This from today's conference call. (Transcript via Thomson Street Events, no link)----

Guarantees for certain liabilities aren't the only way Goldman has benefited from government largesse. They've also made money handling trading volume that is driven by the Fed...

Commercial real estate death watch – Capmark

What do you get when you put a U.S. automaker, a leveraged buyout and commercial real estate together – a soon-to-be bankrupt company. Caroline Humer of Reuters reports that that Capmark – formerly the commercial real estate business of GM financing arm GMAC – is teetering on the brink of bankruptcy, with the final blow coming possibly by the end of next week?

The company, which owns a bank that will continue to operate while it is in court, is in negotiations with lenders, bondholders and the Federal Deposit Insurance Company that will result in a filing by the end of October at the latest, the source said.

Coming soon on ITV…

Who needs a chief executive officer? Well, Lazard perhaps, when it’s Bruce Wasserstein (which is why his serious illness is also serious for the shareholders) but not ITV, it seems. On Monday, when its leadership saga had a better plotline than Corrie, the shares went up.

Perhaps it was the thought of all the money saved from that empty c-suite, or perhaps it was renewed hope for the end of Michael Grade’s disastrous tenure as executive chairman, or perhaps it was the upGrade (sorry) from Goldman Sachs, but the shares joined in the general stock market fun and rose to their best for three weeks.

HFT and big dollars

There’s more evidence today about the big profitability of computer-driven high-frequency trading.

The Wall Street Journal says Ken Griffin’s Citadel Investment Group hedge fund empire made $1 billion from proprietary trading with HFT last year. The profitability number came out during testimony in an ongoing lawsuit Citadel has filed against a group of former HFT employees who left to start their own firm.

Derivatives moolah

The nation’s top commercial banks are poised to generate record revenue from trading derivatives this year. And that’s as good a reason as any why no one should expect the nation’s bank to go along peacefully with a plan to regulate the trading of these sophisticated instruments.

In the first half of the year, the 25 biggest commercial banks took in $15 billion from trading derivatives, with JPMorgan Chase and Goldman Sachs being two of the biggest beneficiaries. And as things stand now, the nation’s banks will easily surpass the record $18.8 billion in derivatives trading revenue taken in during 2006.

Is Goldman’s Chinese convertible really a taxi?

Photo

BRITAIN/The number of London’s trademark black taxis booked and waiting outside the European headquarters of Goldman Sachs — meters running — was once used by some as a barometer of the health of London’s investment banking business.

When times were good, the queue was long and it was impossible for anyone else in the vicinity to hail a cab. But when the fees dried up, or markets turned, the cabbies who’d been at Goldman’s beck and call suddenly had to find new customers.

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