Felix Salmon

Gothamist blogs my bike-lane episode today so I don’t have to — Gothamist

Felix Salmon smackdown watch — IPE@UNC

House approves $30 billion small business lending fund — Reuters

Richard Holbrooke, with well-oiled access to top NYT brass, can get it to admit mistakes it didn’t make — NYTpick

The Tax Plight of the $250,000 to $500,000 crowd — HBR

What a princess goes for today — Black Von

Actual copy from the FT: “The Lasy sunbed is designed to take the effort out of sunbathing” — CJR

iPad design tropes moving onto the web — Nieman

Carrick Mollenkamp writes today about Talcott Franklin, a lawyer in Dallas who has taken it upon himself to wage war against trustees — those impossible-to-find people buried deep within big banks who technically work on behalf of bondholders but who in practice do absolutely nothing.

Last year, I wrote about US Bancorp as being one of the worst of these trustees, and it’s no surprise to see them on Mollenkamp’s list. Here’s what they’re meant to do:

If a trustee, for example, discovers that a borrower lied when getting a loan, the trustee or loan servicer is responsible for forcing the originating bank to repurchase the loan on behalf of mortgage investors. Trustees enforce warranties made by loan originators when they sell loans to a trust, and oversee loan-servicing firms.

In practice, you won’t be surprised to hear, the trustees ended up doing little or nothing, despite their obligation to protect the rights of bondholders:

In the past, complaints by mortgage-security investors went unheeded. But because Mr. Franklin now represents enough investors to meet certain legal thresholds—he, for example, represents 50% or more of the voting rights of 900 mortgage securities—his clients could fire a trustee, demand changes in the way a mortgage bond is managed or ultimately file a suit on behalf of a huge group of bondholders.

In the letter, Mr. Franklin said that in some trusts where the lender and servicer sit inside the same bank, the number of recent repurchases by the lender is zero, even though the default rate for the loan pool is 25%.

Things have come to a pretty pass when bondholders need to group together to sue their own trustee. But it’s been clear for a while that almost nobody has been looking out for bondholders’ rights; certainly the government has been much more interested in keeping the banks solvent. Good for Mr Franklin for fighting this fight; I hope he gets results.

Rachel Brown has a fantastic little 5-minute film about biking up First Avenue to work:

I love the way that she’s caught on camera all of the annoyances which drive bike commuters mad: the cars cutting across the bike lane to make left turns; the pedestrians blithely stepping out into the lane in front of you; the trucks using the lane as a parking spot; the taxis driving up it. And, of course, the Evil Bike Salmon.

At the same time, there’s more than a hint of tension, in this film, between relatively serious bike commuters, on the one hand, and slow hobbyists, on the other. And this tension, I think, is likely to get worse rather than better, even as the other problems might alleviate themselves somewhat as the number of cyclists in New York grows.

There’s safety in numbers, when it comes to cycling, and a similar phenomenon is likely to happen with regard to pedestrians and car drivers being increasingly conscious of bicyclists in their midst. Already, the First Avenue bike lane has reportedly cut injuries to all street users by 50%. But as the number of cyclists rises, the average speed of cyclists necessarily falls. Everybody thinks of northern European cities like Copenhagen as bicycling paradises — and they are. But if you’re biking around Copenhagen, you’re going to go a lot more slowly than if you’re biking the same distance in NYC.

A slow cyclist can cope with most of the dangers and obstructions that Brown complains about much more easily than a fast cyclist — and the fast cyclists, as Brown’s film shows, are now shunning the lane entirely, moving over to the right-hand side of the street, where they’re much less likely to get cut off by a car. (Cars often turn left off First Avenue, which runs up the east side of Manhattan, but much more rarely turn right.)

It’s going to be very interesting to see how fast cyclists cope with an influx of slower cyclists in Manhattan, as bike lanes continue to get built and average bike speeds continue to decline. I love to zoom down avenues at high speed, but I also love being safe. Maybe that means I’m just going to have to start going a little slower.

The UK’s FSA has conducted an investigation into the way that big M&A transactions can get leaked before they are formally announced. Its conclusion might shock you, so make sure you’re sitting down for this:

Our enquiries revealed that media reports containing leaks were often closely preceded by telephone conversations between insiders occupying senior roles on a corporate transaction, and the journalists who published those media reports. Due to their position as insiders, these senior individuals held detailed knowledge of the transaction. The calls between the insiders and journalists lasted up to 20 minutes in length and in some cases took place with journalists the afternoon or evening before the leak was first published.

The FSA is unhappy about this: “leaks ahead of announcements pose a threat to market integrity”, they write. But never fear, they’ve worked out how firms should deal with this problem:

Regulated firms should have a robust and detailed media policy…

Internal policies should require all initial media enquiries received by a regulated firm’s staff to be immediately directed to the firm’s media relations team…

Internal policies should also require that once an initial media enquiry has been passed to a regulated firm’s media relations team, the media relations personnel should review the enquiry to decide if it potentially relates to inside information…

If the enquiry potentially relates to inside information, [and] if it is necessary to involve non-media relations personnel, the media relations team must only grant authorisation to other staff members to communicate with the media… where the conversation between the other staff member and the journalist is held on a recorded telephone line.

There, that should do the trick. I’m sure that from here on in, there will be no more M&A leaks in UK newspapers. I only wonder why the SEC hasn’t figured this out yet.

(HT: PTL)

I’m generally plugged-in enough to various news streams that if there’s a big story one day, I’ll notice it before it gets splashed across the front pages of the newspapers the following morning. So I was surprised to see today’s WSJ, with its huge headline running across the top of the front page: “SEC Blasted on Goldman“. The story itself is a long one, and is the work of no fewer than four reporters, with a fifth writing an associated blog entry.

The story is about David Kotz, the SEC’s inspector general, who appeared in front of the Senate Banking Committee yesterday. Kotz was the author of a 159-page report into the SEC’s handling of the Allen Stanford Ponzi scheme, which was released on the same day that the SEC filed its explosive charges against Goldman Sachs. Unsurprisingly, the Goldman charges dominated the business-news cycle, and the Stanford report, which was highly critical of the agency, was, in the words of Reuters, “largely unnoticed”.

So when Senators asked Kotz about the timing of the Goldman lawsuit, his answer can hardly have come as much of a surprise. “It would strain credulity to think it was coincidental,” he said, adding: “I can’t give you a conclusion right now, but it was suspicious.”

Yet somehow, atop this non-commital non-news, the WSJ has managed to construct a damning indictment of the SEC and its entire case against Goldman. Ashby Jones even went so far as to say that Kotz “basically hinted that there may have been more politics than law factoring into the commission’s decision to sue Goldman Sachs”.

Er, no, he didn’t. Kotz might not have like the timing of the Goldman suit. But he said nothing about the substance of it, and he did not hint that the decision to sue Goldman was a political one. It makes sense that once the SEC decided to sue Goldman, it then decided to do so on the day that Kotz’s report was released, in order to deflect attention from the report. That’s what Kotz was implying yesterday. It does not make sense that the SEC decided to sue Goldman just so that it could have something with which to deflect attention from Kotz’s Stanford report. That’s what the WSJ is implying — and what it says that Kotz is implying.

After all, the dark arts of burying bad news hardly constitute a front-page-worthy news story with four different reporters. And I don’t in any case think that Kotz’s answers yesterday really justify an “SEC Blasted” headline, no matter where it’s placed.

But maybe the WSJ is just going back to its roots in terms of reflexively defending big banks whenever they’re attacked by the government. Back in 1933, the Pecora Commission interrogated Charles Mitchell, the chairman of National City Bank, revealing that he had paid himself astonishing sums, and furthermore had avoided paying taxes on any of it. Here’s how Michael Perino describes the reaction of the press, in his new book about Pecora:

If Pecora’s goal was to create outrage, he succeeded magnificently. The only thing dividing most newspapers was which part of the testimony was more outrageous. The Washington Post went with the bonuses (the paper ran the line “Huge Pay Told” over Mitchell’s picture). For the New York Times, it was the taxes — “Mitchell Avoided Income Tax in 1929 by ‘$2,800,000 loss,’” its headline read… The Wall Street Journal’s coverage was, perhaps not surprisingly, notably different. It thought the most significant aspect of Mitchell’s testimony was his huge purchases of City Bank stock during the crash. The Journal gave only cursory treatment to the bonuses and, as for taxes, merely buried near the end of the article that there had been “temporary transactions in connection with taxation.”

Within days, Mitchell had resigned from National City. But it seems the WSJ has no regrets about spinning stories about big banks in very favorable ways.

I’m with Henry Blodget on this one: whatever the timing-related motivations behind it, Mark Zuckerberg’s decision to donate $100 million to Newark’s public schools is wholly admirable — the best possible way to celebrate the news that you’re now richer than Steve Jobs. Silicon Valley is full of billionaires like Jobs or Larry Ellison who have been dynastically wealthy for a very long time and who have evinced little if any interest in philanthropy. So it’s fantastic news that Zuckerberg is starting out so young.

It’s also easy to see the influence of Zuckerberg’s girlfriend, Priscilla Chan. Remember the New Yorker’s profile of Zuckerberg?

Terry Semel, the former C.E.O. of Yahoo!, who sought to buy Facebook for a billion dollars in 2006, told me, “I’d never met anyone—forget his age, twenty-two then or twenty-six now—I’d never met anyone who would walk away from a billion dollars. But he said, ‘It’s not about the price. This is my baby, and I want to keep running it, I want to keep growing it.’ I couldn’t believe it.”

Looking back, Chan said she thought that the time of the Yahoo! proposal was the most stressful of Zuckerberg’s life. “I remember we had a huge conversation over the Yahoo! deal,” she said. “We try to stick pretty close to what our goals are and what we believe and what we enjoy doing in life—just simple things,” she said.

I’m sure that Zuckerberg has already sold enough Facebook stock to be able to live comfortably on for the rest of his life. So everything else is just gravy, and certainly Newark’s kids need it more than he does.

The move is also significant in terms of the continuing development of the secondary market for Facebook stock:

Mr. Zuckerberg is setting up a foundation with $100 million of Facebook’s closely held stock to be used to improve education in America, with the primary goal of helping Newark…

The timing of the announcement was driven by Mr. Christie and Mr. Booker, over the objections of Facebook executives…

Mr. Zuckerberg will fund for the foundation with his private stock in Facebook, and will arrange for a transaction on the secondary market for the foundation to turn the shares into cash as needed, said the person familiar with the discussions.

Back in June, Alexei Oreskovic was already saying that “a vibrant market for shares of privately held Facebook has developed in the past year”; this move is going to make the market significantly more liquid — and give Facebook executives less control over exactly who holds how much stock in the company. Once the foundation is set up, the question of going public just becomes a matter of when rather than whether: it’s a tactical decision, now, rather than a strategic one.

It’s also important, I think, not to overstate the effect that this gift is likely to have on Newark. The WSJ falls down here:

The donation has the potential to be matched by another $100 million that Mr. Booker has been working on raising from private foundations and others. The $200 million that could be raised would amount to more than 20% of Newark’s budget of $940 million.

This confuses stock and flow. Zuckerberg’s gift isn’t going to be spent in one year; it’ll be dribbled out over time. Even if the total amount donated does reach $200 million, the annual amount spent is very unlikely to exceed 2% of the city’s budget. The donations are important. But private philanthropy is always going to be marginal when it comes to primary and secondary education, even when it’s confined to a single school district.

Hedge funds say a busier market creates a healthier economy. But the lesson of the last two years is that this isn’t true — Bloomberg

Permanent HAMP mods fall 26% in August — Housingwire

NYC runs a $40k art competition with 150 winners. So far, it’s received 20 entries — NYT

Missing $1.4 Million Painting Found Hanging in Some Dude’s Bathroom — NYMag

Banker gaffe: “Give us a set of rules and then we’ll figure out how to work round them. I mean, work with them.” — Euromoney

Profile of Jack Shafer, who joyfully rips apart trend stories — Poynter

The Fed, Translated Into English — NPR

Be afraid: 32% of the 2010 class of Harvard Business School graduates have found work on Wall Street — Crain’s

Todd Henderson quits the blogosphere — TotM

Agassi:Sampras::Lennon:McCartney? Really? — Kottke

A couple of weeks ago, I wondered whether it was possible to see what a stock graph would look like if it split up the x-axis according to volume rather than according to the time of day. After all, when trading is concentrated at the beginning and end of the day, those are the areas worth concentrating on, right?

Wonderfully, Omer Uzun of Proteus Financial rose to the challenge. And here’s the result:

The chart splits the 390-minute trading day between 9:30am and 4:00pm into ten chunks. On the normal stock-market chart, seen in blue, each chunk is 40 minutes long. But on the volume-based chart, in red, the first 10% of trading is already over after 17 minutes, while at lunchtime it takes over an hour to see 10% of the daily volume change hands.

I’ve only seen one of these charts so far, but at first glance it does seem as though the volume-based chart seems less volatile — smoother, somehow — than the time-based chart. I wonder what the equivalent chart for May 6 would look like.

Mike Arrington loves nothing more than throwing bombs, so you could be forgiven for dismissing his latest exercise in conspiracy-theorizing as little more than self-promotion. But you’d be wrong. It’s an important story, and it’s one which Arrington almost uniquely is able to write. Henry Blodget makes some good points:

It’s this sort of work that makes this new form of journalism so valuable and fun. It’s also the type of work that would make the tech industry barely notice if the mainstream media just rolled over and died.

As Mike observes, many of the folks he calls out for this meeting are friends and sources, some of whom will undoubtedly be furious at him for exposing their little game.

It takes balls to lob a grenade at your friends like that. It also takes finesse and skill (and power) to do it and still have many of those folks rushing to call you after the meeting to preserve their relationships with you.

The only other person who pulls off stunts like this one is Nikki Finke: there’s something fundamentally bloggy about this type of journalism, and it’s very hard to see how bigger, older publications will ever be able to produce anything like it.

As for the substance of the story, nothing backs it up more than Dave McClure’s desperate attempt to knock it down. McClure was one of the investors at the meeting which Arrington crashed, and his description of a meeting where “the agenda was drinks, good food, & shooting the shit” is very telling:

at the dinner, there was a fair amount of kvetching about convertible notes, capped or not, hi/lo valuation, optimal structure of term sheets, where the industry was headed, who was innovating and who wasn’t, and 10 million other things of which 3 were kind of interesting and 9,999,997 weren’t unless you like arguing about 409a stock option pricing.

It seems to me that Arrington is right, and that this dinner was an attempt by some very powerful angel investors, led by Ron Conway, to collude with each other on a number of different fronts. Quite possibly including 409a stock option pricing. Arrington’s a lawyer by training, and if he says this is illegal, then it’s worth investigating the accusation seriously, rather than trying to dismiss it in a blog entry featuring lots of swearing along with multiple font colors and sizes.

Importantly, it doesn’t matter whether the collusion is working or not. Here’s Fred Wilson:

The angel/seed market is really competitive these days, particularly in silicon valley. Valuations have risen and terms are weakening, as I’ve blogged about here recently. This is not a market suffering from collusion. It is a market where the investors wish they could inject some collusion. But they can’t and they won’t. Market dynamics, at least as they exist today and for some time to come, will not allow it.

I daresay he’s right about all of this. But if investors “wish they could inject some collusion”, and meet at Bin38 with the intention of doing just that, then what they’re doing is probably illegal even if it doesn’t work.

Similarly, it’s no defense against accusations of collusion to say that you were “extremely uncomfortable with the direction the conversation was going,0″ in Arrington’s words. Yes, it can be uncomfortable to break the law. Discomfort is a sign you’re doing something wrong, but squirming a little isn’t the right response. Leaving the meeting, and speaking up about it, is the right response.

I think Ryan Tate has got it right here:

Oh, San Francisco. You do not wear dark, evil plots well.

There’s certainly something pretty amateur-hour about this whole meeting. But that doesn’t mean it’s not a genuine conspiracy.

As Arrington says, “I had a quick call with an attorney this morning, and he confirmed that these types of meetings are exactly what these laws were designed to prevent.” If these men worked for public companies, you can be sure the SEC would be setting up meetings with all of them right now. Since they’re private investors, it’s not so obvious whose bailiwick this falls into, and whether anybody really has any incentive to prosecute. Maybe Arrington himself is our best hope for keeping these people at least a little bit accountable.

*Update: Ron Conway denies being at the dinner or even knowing about it. Which now makes it seem less malign. If Conway wasn’t there, then it wasn’t quite the everybody-who’s-anybody meeting that Arrington was making out to be.

Joe Toms of Lending Club emails me the data for this chart:

Joe comments:

Consumer credit has been the one area that has dropped the least. Said in a nice way, this points to the structural inefficiency. A more blunt assessment is that banks have been taking advantage of consumers.

The picture is certainly striking: consumer credit rates, as measured by the Federal Reserve, fell by just 3.74 points over the period in question, while Treasuries and corporate debt dropped in yield by over 10 points. Even munis saw a much more striking fall in rates, despite the fact that their tax advantages were seriously eroded as tax rates fell.

Part of what’s going on here, of course, is that the consumer-credit universe became much less creditworthy as banks started giving out credit cards to anybody and everybody. But that’s not the whole story. We’re also seeing a move from relatively low-interest-rate personal loans to relatively high-interest-rate credit cards. And, of course, we’re seeing huge profit margins, at the banks, on consumer credit: the banks in general have done a very good job of competing on everything except lending rates.

The result is a gap in the market for innovative new online companies like Lending Club and BankSimple, all of whom in one way or another are looking to profit from those high consumer-lending rates. Given that they’ve stayed stubbornly high for the past 30 years, it’s probably fair to assume they’ll stay high for the foreseeable future.

Update: There was an error in the original chart: I’d labeled the Mortgages as Aaa bonds. Fixed now. Why were mortgages more expensive than consumer credit in 1981? I’m not sure, but it’s probably something to do with negative convexity and prepayment risk, as well as the fact that they’re much further out the yield curve.

The CFR’s geographics blog notes that in some European countries, whole sectors of the economy are trading at lower spreads than the government’s debt:

In Greece, Ireland, and Portugal, a number of sectors have negative corporate spreads, suggesting that firms are either less likely to default than their governments or will have higher recovery rates if they do default.

I suspect that we’re seeing a number of things here, but primarily a recognition of the fact that European integration is further along economically than it is politically. The kind of companies which are big enough to issue publicly-traded bonds are also the kind of companies which tend to have operations in a lot of different European countries. As a result, they’re diversified from their home base.

It’s also the case that many individual firms have modest levels of debt, and might be able to keep on servicing it even in the event of a full-blown economic crisis. If, that is, the government allows them to do so. If Greece devalues, for instance, the sovereign will find it impossible to service all its euro-denominated debt. But some corporates might be able to stay afloat.

That said, sovereign defaults are devastating things for any country’s bond markets, and a lot of the hopefulness that the CFR is seeing is likely to vanish should a crisis arise. Those companies might be trading through the sovereign now. But don’t count on that to continue to be the case even in the chaos of a default.

It seems that David Warsh nailed it, back in May: Larry Summers is going to quit his White House position in November, according to Hans Nichols. He’ll probably go back to what he was doing before: a day a week for a hedge fund, a position as University Professor at Harvard, maybe even return to writing his column for the FT. And who will replace him?

Administration officials are weighing whether to put a prominent corporate executive in the NEC director’s job to counter criticism that the administration is anti-business, one person familiar with White House discussions said. White House aides are also eager to name a woman to serve in a high-level position, two people said. They also are concerned finding someone with Summers’ experience and stature, one person said.

The corporate-executive idea is a bit weird: of all the positions in the White House economic team, one would expect the NEC director to actually be an economist. And there aren’t many economists who are also prominent corporate executives. (Actually, I can’t think of any. Readers, help me out here!)

I also very much doubt that the presence of a corporate executive in the White House would have any success at all in countering criticism that the administration is anti-business.

If Obama wants a woman with experience and stature, maybe he can persuade Laura Tyson to come back for another tour of duty? But high-profile economists are hard to find, as is evidenced by the fact that so few of them become corporate executives. Filling the position won’t be hard, but I don’t expect Obama to fill it with someone the public has heard of.

Update: Thanks, readers! Gary Loveman, the CEO of Harrah’s, has a PhD in economics. As does Mohamed El-Erian, the CEO of Pimco.

I’ve been pondering the disconnect between stock and bond prices of late. It reminds me a bit of late 2007, only the other way around: back then there was a credit crunch, but the stock market continued to hit new highs. Today, stocks are largely sitting out the bond bubble.

Exhibit A in these matters always seems to be Johnson & Johnson, which has a dividend yield significantly higher than its 10-year bond yield of about 3%. Whitney Tilson went on TV yesterday and put the thesis in its starkest terms:

We don’t understand what any long-term investor could possibly be thinking when Johnson & Johnson, a month ago, issued all-time record low 10-year corporate debt at 2.95% and the stock yielding 3.8%.

Clearly the two markets are telling you that what investors rationally might be thinking is that we’re in for ten years of Japanese-style deflationary horrific environment, and I think the odds of that are less than 5%. I think it is 95% likely, for example, in the case of Johnson & Johnson, that if you’re going to own something for ten years, you will do massively better owning the stock, both from the appreciation of the stock and the dividend yield you get over those 10 years, than a mere 2.95% owning that 10-year bond they just issued.

There are two problems with this argument, as I see it. The first is that we’re not faced with a simple binary outcome, where either we have Japanese-style deflation, or else the stock will outperform the debt. It’s entirely possible — there’s a nonzero possibility — that J&J stock will fall over the next ten years, rather than rise: that Whitney’s stock appreciation will be negative rather than positive.

J&J is an extremely creditworthy company, and you can be pretty sure that if you paid $62 for that bond at a 2.95% yield, then over the next ten years the company will pay you a total of $80.29 in nominal dollars. (You’ll see why I chose $62 in a minute.)

Meanwhile, the cashflow associated with buying $62 of J&J stock is much less certain. You might well get a 3.8% dividend next year — that’s $2.36 — but you don’t know what you’ll make in subsequent years. Let’s assume the dividend stays constant at its current level: then over ten years, you’ll get $23.56 in dividend payments.

In order for the stock to outperform the bond, then, it has to be worth more than $56.73 in ten years’ time. (I chose $62 because that’s the price that the stock is trading at today.) That’s hardly unthinkable: in fact, it’s pretty much where the stock was trading just three weeks ago.

Of course, you can tweak your assumptions. You can start reinvesting dividends — but then you’d need to make assumptions about reinvesting the bond coupons, too. You can say that some kind of dividend growth is likely — but then you’d also need to price in the probability of the dividend being cut. And so on and so forth. What’s more, there’s something safe and attractive about just getting $80.29 in cash, compared to getting $23.56 in cash and a stock certificate which you could theoretically sell for something over $56.73.

More generally, if you buy J&J stock, you’re making a bet on the future prospects of a particular U.S.-based consumer-goods company. Those prospects might be good, but there’s still a lot of idiosyncratic risk there. The bonds, meanwhile, are almost certain to be paid back in full whatever happens to the company. (Unless of course J&J takes Tilson’s advice and runs with it, levering up enormously in order to buy back its stock. But it seems unlikely it’ll do that.)

It’s entirely rational for investors to be risk-averse, and to prefer a certain $80.29 over ten years to a very uncertain future direction for J&J’s stock price and dividends. After all, J&J stock could perform wonderfully well for the next nine years, increasing its dividend and generally being very healthy, only to suddenly plunge in 2020. Stranger things have happened, in this volatile market.

What’s more, Tilson’s numbers aren’t the only numbers you could use to perform this calculation. J&J’s average bond yield, for instance, is 3.2%, and some of its debt yields as much as 4.6%. Meanwhile, Reuters’s numbers put its dividend yield at 3.48%, rather than 3.8%. And in any case J&J is something of a special case, because its bonds are so very safe. It’s up there in the top four companies in terms of the difference between their dividend yield and their bond yield: the other three are Exxon Mobil, Nestle, and Procter & Gamble.

All that said, I do suspect that a long-term investor putting money into stocks right now is making a more sensible bet than someone putting the same money into low-yielding bonds. Stocks have unlimited upside, and tend to keep pace with inflation over the long term: they’re real assets, not nominal assets. And bonds have a lot of downside, as a quick look at the extent of the recent bond rally will demonstrate.

It’s impossible to invest these days without taking risk; I just feel that the risks in the stock market are more known and more priced in than the risks in the bond market. Interest rates will surely rise at some point. And when they do, you don’t want to be invested in bonds. Buy-and-hold investors, pretty much by definition, don’t have a strategy for selling the bonds that they’re buying right now. But are they prepared for possible future price declines? I don’t think so.

Yves Smith has been doing a fabulous job covering the latest fiasco at Ally Financial, the state-owned bank which used to be called GMAC. But to get a quick idea of how dysfunctional the situation is, all you need to do first is read the official GMAC memo to its agents in 23 states around the country, and then read the official GMAC press release on the subject.

The memo could hardly be any clearer. “Do not proceed with evictions, cash for keys transactions, or lockouts,” it says. “All files should be placed on hold, regardless of occupant type. Do not proceed with REO sale closings.”

Yet here’s how the press release begins:

Recent reports have stated that GMAC Mortgage instituted a moratorium on all residential foreclosures in 23 states. This is not true. In fact, all new residential foreclosures are continuing in the ordinary course of business with no interruption in our usual practice.

There’s no good reason for this kind of misdirection and mendacity. Ally is meant to be the friendly, transparent bank; instead, at the first sign of trouble, it retreats into Clintonian language (didja spot that “new” in the press release?) which only serves to reinforce the impression that no banks, including Ally, can ever be trusted.

The substantive problem here seems to be a series of affidavits — tens of thousands of them — signed by Jeffrey Stephan of GMAC Mortgage/Homecomings Financial. The states where GMAC has put its evictions on hold are the ones where you need to go to court to get an eviction. And when you go to court, you need to provide an affidavit signed by someone with personal knowledge of the case in question. Stephan, it seems, had no such personal knowledge: rather, he was something of a “robo-signer”, who would put his name to affidavits without even reading them.

As Smith details, this problem is just as likely to get much bigger as it is to quietly get sorted out in the coming weeks. GMAC was not the only mortgage lender using robo-signers. And during the housing boom, all manner of legal corners were cut when mortgages were written, which can make them very hard to legally enforce.

And although the GMAC moratorium is so far only in 23 states (including Florida, but excluding California), the legal issues are surely substantively the same in the 27 other states as well. Just because you don’t need to go to court to get an eviction doesn’t mean you can toss someone out of their home without your legal i’s dotted and t’s crossed.

All of this is complicated, too, by the fact that the US Treasury owns 56.3% of Ally. At most banks, it’s generally assumed that the shareholders just want to see the maximum possible returns, over the long run. That’s not a safe assumption, however, when your shareholder is Treasury, which has been ploughing billions of dollars into schemes designed to prevent evictions.

It would be wonderful if GMAC could take the high road here, and act with full transparency in a manner consistent with the best possible practices that Treasury would like to see in the mortgage market. Judging by its press release, there’s not much indication that’s happening yet. But maybe a couple of phone calls from Washington might change its mind. I wonder how Elizabeth Warren is settling in to her new job.

CNN email: “Stocks rally to 4-month highs after economists report recession ended in June.” Yes, that’s June 2009 — HuffPo

Correlations are high at the open and close, lower mid trading day — Zero Hedge

Looks like Hempton’s still short UTA, which is recovering impressively from his blog-hit — Bronte Capital

WSJ screengrab of the day — EWT