Now raising intellectual capital

from Rolfe Winkler:

Afternoon links 9-1

One quarter century penance just starting (Evans Pritchard) I agree with his view of the pain to come, though not with his prescription of quantitative easing. I don't see that as a solution, merely a delaying tactic. Until the banks are recapitalized, nothing will have been solved. QE is just another way to prop them up.

US commodities rattled by China derivatives stance (Reuters) This was weird: "China's regulator of state owned enterprises, the Assets Supervision and Administration Commission (SASAC), has told six foreign banks that [state-owned enterprises] reserved the right to default on contracts..." Reserving the right to back out of a contract?  WTF?

Florida lost $250 million on NY's Stuyvesant apartments (Bloomberg) Ouch.

Sheila Bair op-ed (NYT) The FDIC Chairman (not Chairwoman, according to her placard at meetings) is not a fan of establishing a single regulator for the banking system. A big reason is that FDIC might lose much of its power to protect depositors by forcing banks to take corrective action. Hopefully policy-makers are paying attention.

What underwear says about the economy (WaPo) A cute article, though I have my doubts about any economic metrics that measure activity, inflated as they are by easy credit.

from Rolfe Winkler:

Lunchtime Links 8-31

Raft of failed banks put U.S. on hook for billions (WSJ) This article notes that loss-share agreements FDIC has signed with healthy banks that acquire failing banks put it on the hook for $80 billion. I think that's the total figure FDIC could conceivably lose if the loss rate on the assets in question was 100%. That's fairly unlikely. In any case, bank failure press releases include estimates for losses FDIC expects from each deal, so they're reserving for them. Of course many bank failures have ended up costing significantly more than FDIC's initial estimate...

As big banks repay bailout money, U.S. sees profit (NYT) Eegads! I'm linking to this as an example of really unfortunate financial reporting. The U.S. is making a profit on the bank bailout because of a few deals for TARP warrants? Really? Take Goldman. Yeah, our return on the TARP portion of the bailout was positive, but that doesn't mean the government "made money." What about the $13 billion the Fed spent to make good on Goldman's insurance policies with AIG? What about all of the debt FDIC has guaranteed for Goldman? On a risk-adjusted basis, we're way in the hole. The long-term costs/consequences of explicit government guarantees against failure --which is what these banks now have -- is many, many times larger than any profits earned on TARP warrants. Yves has more.

from Rolfe Winkler:

Sunday links 8-30

(Sorry for the scarcity of posts the last couple days. I was moving and didn't have internet access.)

Fiduciary duty hits the street, sort of (WSJ) As a CFA charterholder, this issue is near and dear to me. Those selling financial products (brokers, lenders, etc) should absolutely be held to higher ethical standards. If this harms their business, then they shouldn't be in business in the first place. The article notes that there's a risk here that existing fiduciary rules for investment advisers may actually get watered down because Wall Street and the SEC want a uniform standard. A uniform standard would be great, but instead of applying the tried and true one, Wall Street wants to find a middle solution that won't impact its business model, which is inherently conflicted, combining advisory work and principal investing. So in the end, financial consumers could really suffer. [While expanding fiduciary duty is something I support, I'd rather see anti-trust rules that cut Wall Street firms in half, forcing them to spin off all principal investing functions. If these guys want to be hedge-funders, that's fine. But for so many reasons, the conflict of interest with clients being just one, they shouldn't be doing it inside of a bank!]

from Rolfe Winkler:

Evening Links

Fed says disclosing loans will hurt banks (Bloomberg) That's sorta the point...

Emergencies inspire crowd cooperation, not panic (BPS Research Digest) I suspect society might also handle financial emergencies better than policy-makers expect.

Bankrupt suppliers seek exec bonuses (Detroit News, ht Mish) "A growing number of bankrupt auto suppliers are seeking court approval to pay tens of millions of dollars in bonuses to key executives, as they shed employees and cut costs."

from Rolfe Winkler:

Daily linkage

(Reader note: it occurs to me that referring to my links as "lunchtime" links probably discriminates against readers on the West Coast and in Europe who aren't operating on EST. I'm trying to think of another name. Would love to hear ideas from readers. Send me an e-mail or leave a comment) (ht Steve Keen) "a daily summary based upon my reading of the Wall Street Journal from the corresponding day in 1930." Note that on August 24th 1930, the Dow made a new high for the year...

from Rolfe Winkler:

Lunchtime Links 8-25

The boy who heard too much (Rolling Stone) "He was a 14-year-old blind kid, angry and alone. Then he discovered that he possessed a strange and fearsome superpower — one that put him in the cross hairs of the FBI."

Deutsche Bank plans Tier 1 issue (Reuters) If my reading here is correct, then the pollution of the capital structure continues. For a long time I've argued tangible common equity is the best cushion protecting bank balance sheets. Being in the first loss position, it's the buffer preventing capital structures from collapse. But bank regulators focus on so-called Tier 1 capital, not TCE, which can include preferred securities that sit above the first loss position. Banks prefer to issue preferred stock because issuing more common dilutes shareholders. As Paul Miller at FBR has written in his research, bank capital structures disintegrated last fall because so much of the capital they'd raised in '07 and early '08 was preferred as opposed to common.

from Rolfe Winkler:

Lunchtime Links 8-24

The man who sells America's IOUs (NYT)  An interesting profile of Van Zeck, the commissioner of the public debt.

Tyler Durden's insider trading settlement (FINRA, ht Felix)  The NY Post article that "outed" Tyler Durden as Daniel Ivandjiiski excluded key details about his banning from the securities industry. The ill-gotten profit in question?  $780. Not that I condone insider trading, I don't. Familiar as they are with details of what happens on Wall St. trading desks, I think Tyler and his team are net contributors to the blogosphere. Like Frank Abagnale, it takes one to know one. The bigger problem is that their style -- shoot first, aim later -- costs ZeroHedge some credibility. All journalists do this to some degree. We have to file columns/stories by a certain deadline and go with the best information we've got. Sometimes it's incomplete. On occasion it's wrong. It's a balancing act that should always tilt in favor of quality of information over quantity.

from Rolfe Winkler:

Afternoon Links 8-21

Japan turns to taxis for help in selling government bonds (Bloomberg) A peak into our own future?

Why the Austrian, Keynesian, Marxist, Monetarist, and Neo-liberal economists are all wrong (Jesse's Cafe) A very good piece questioning various economic schools of thought. I'm a fan of the Berliner school, as in philosopher Isaiah Berlin. His pluralist approach -- it's better to know many small things than one big thing -- is a better way to think, IMHO. I highly recommend his essay The Hedgehog and the Fox.

from Rolfe Winkler:

Lunchtime Links 8-20

Ouch.  Colonial left a mark (CalculatedRisk)  CR pulls a very helpful chart from BB&T's investor presentation regarding the Colonial deal. It shows that BB&T marked down Colonial's loans 37%.  It also shows the marks taken on similar transactions over the past year.  While Colonial's loans appear particularly toxic, this gives you a sense for losses that may be embedded in the loan books of other banks.

California to get $1.5 billion loan from JP Morgan (Reuters)

Average Home Price in Detroit falls to $11,596 (Carpe Diem)

TLGP shrinks (FDIC)  Debt outstanding under FDIC's debt guarantee program fell to $320 billion this month from $339 billion last month as the shortest-term paper matures. My colleague Agnes notes that TLGP is likely to end on schedule this fall.  It won't go to zero for some time, however, as debt previously issued remains outstanding.

from Rolfe Winkler:

Afternoon Links 8-19

Why we need to regulate the banks sooner, not later (FT)  This op-ed is notable because of its author, Ken Rogoff, and because of a great lead.  Overall, he rambles a lot, commenting on the problems festering inside the financial system without really offering a prescription to fix them.  But there are some good lines.  For instance: "The fact is that banks, especially large systemically important ones, are currently able to obtain cash at a near zero interest rate and engage in risky arbitrage activities, knowing that the invisible wallet of the taxpayer stands behind them. In essence, while authorities are saying that they intend to raise capital requirements on banks later, in the short run they are looking the other way while banks gamble under the umbrella of taxpayer guarantees."

One person's boondoggle, another's necessity (NYT)  The most interesting part of this article is the origin of the word "boondoggle."