Felix Salmon


Felix Salmon
Sep 27, 2010 07:25 UTC

Buckyball wars — BoingBoing

New Home Sales: Lowest Median Price since 2003 — CR

Chinese iPhone 4 comes with a crippled Maps app — Ogle Earth

FBI Reportedly Looking Into Angelgate — BizJournals, PEHub

If Ron Conway really cared about entrepreneurs, you’d think he’d be able to spell the word — TechCrunch

Judge orders lesbian Air Force nurse reinstated — Reuters

Now Look Who’s Blocking Bike Lanes! — Gothamist

Ally’s mortgage documentation problems could extend beyond 23 states — WaPo


this is only for test.

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Why Ireland is bailing out foreign banks

Felix Salmon
Sep 27, 2010 07:20 UTC

Robert Peston has a theory for why Ireland can’t bail in the sophisticated institutions which lent untold billions to the country’s beleaguered banks:

Take a look at the latest figures from the central bankers’ bank, the Bank for International Settlements, on just the exposure of overseas banks to Ireland (in other words, credit provided by pension funds, hedge funds and wealthy individuals would be on top of this).

Total foreign bank exposure to Ireland’s economy is $844bn, or five times the value of Ireland’s GDP or economic output. Of that, German and UK banks are Ireland’s biggest creditors, with €206bn and €224bn of exposure respectively.

To put it another way, German and British banks on their own have each extended credit to Ireland greater than Irish GDP. Which doesn’t sound altogether prudent, does it?

As for direct bank-to-bank lending, overseas banks have provided Ireland’s banks with €169bn of loans, which is also greater than Irish GDP.

Here’s the point: an economy as open and as dependent on foreign finance as Ireland’s cannot afford to alienate its creditors. If those overseas lenders asked for their money back now, Ireland’s recent fall back into a modest economic contraction could spiral into dark deep prolonged recession or even depression.

The implicit assumption here is that if the Irish government took away its backstop of Irish banks’ debts, there would be a mad dash for the exits, all of the banks’ creditors would refuse, overnight, to roll over any of their debts and the resultant liquidity crisis would make the Lehman collapse look positively modest.

It’s like there’s a whole new level to the famous adage: if you owe the bank $10 million, then you have a problem. If you owe the bank $10 billion, then the bank has a problem. But if you owe the banks $844 billion, then now the problem is back on you again, since at any time the banks can turn you into Iceland overnight.

I think the fear here is a very realistic one. In an ideal world, of course, the banks would understand the need for burdens to be shared and would also understand that staying invested in a healthy Ireland, even with a modest haircut on their original investment, is a much better outcome for all concerned than a mad panic and sovereign default with the debt of Irish banks falling in value to pennies on the dollar.

But we don’t live in an ideal world and the collective-action problems here are all but insurmountable: at the first whiff of a haircut, everybody’s going to want to be the first to bail out entirely. Ireland’s technocratic elite seems to understand that and so it’s unhappily bailing out its foreign lenders at 100 cents on the euro, even the government continues to slash spending domestically. It’s not fair, everybody knows that. But it might be unavoidable.


An old joke, with a new ending.

Q. What’s the richest country in the world?
A. Ireland.
Q. Why?
A. Because its capital is dublin’ every day!
Q. So’s its debt.

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Nick Denton’s next move

Felix Salmon
Sep 27, 2010 07:01 UTC

The Michael Idov profile of Nick Denton is interesting, if you’re interested in Nick Denton. I’m more interested in Gawker Media than in Denton personally, so for me the best part comes at the end:

If you look at the beta versions of Gawker and Gizmodo’s upcoming redesigns (set to go live early next year), you’ll be struck by how conventional they look: big headlines, big pictures, a clearly defined lead story occupying a generous video-ready rectangle at the center of the screen. Most of the network’s greatest hits center on pictures and video, not text—and so it follows that Denton’s vision of a blog has also been gravitating from the diary metaphor to the TV metaphor, where his various properties will represent various “channels.”…

All who know him personally concur that it’s practically impossible to imagine Denton idly watching someone else run Gawker. He doesn’t need the money: apart from his Spring Street dream pad, his lifestyle is relatively modest. For his part, Denton insists, Gawker is “embryonic. This is at most a midsize media group that might, in twenty years, be something a bit more.”

You can count me in with the “all who know him”: I don’t think that Nick is going to give up control of Gawker Media. (Which is why I didn’t take his bet.) But remember his previous musing about how blogs are like cable-TV channels: if Gawker Media is going to be “something a bit more” than its current incarnation as a “midsize media group”, I think that Idov is probably very close to what Denton’s thinking.

Those of us who love the printed word might not be very happy about it, but the fact is that pictures and video have an immediacy and popularity that text will never be able to match. Denton is fully aware of this and knows that any big future growth is going to come through a huge increase in the amount of photo and video content on his sites.

Look at the editorial budgets for photography-driven magazines, compared to text-driven blogs. And then look at the editorial budgets for any kind of television station or cable channel, compared to even the most profligate magazine. Gawker Media throws off lots of cash right now, as a relatively lean operation. Idov says, somewhat unfairly, that “Gawker Media content is produced by caffeine-blitzed youngsters at a frantic churn, spurred on by page-view bonuses, barely supported by a base salary, and often fired (and rehired) on a second’s notice”; in fact that’s much less true now than it was in the past and it certainly doesn’t describe someone like John Cook.

But right now, Gawker’s editorial staffers get those big photo or video scoops only sporadically and unpredictably, while the company’s in-house photo and video capacities are still pretty thin. None of the group’s sites can reliably put a strong video post atop their new front page on a daily basis, let alone support such a post with many other videos which are also fresh that day.

The good news is that none of Gawker’s web-based competitors can do that either, although TMZ.com is getting close. And Denton, having handily won the blogosphere, is now going on the record as looking past the likes of HuffPo and nytimes.com: next up, in terms of competitors, are the big — and hugely profitable — cable-TV channels.

A web-based competitor could be hugely disruptive to the cable channels’ business model, which is based on preventing the public from viewing their content unless you pay big bucks every month to a hated cable company. The cable channels also have to shell out for hours and hours of extremely expensive video content every day.

If Denton somehow managed to find a way to produce just a few minutes of great video content for each of his blogs every day, that could mark the beginning of a game-changing move out of the world where the New York Times is a huge and awesome institution and into the world where it’s a media minnow.

So far, no one has cracked the question of how to succeed by producing video-based content which is designed for web consumption rather than for TV. There have been a few promising hopefuls, but they all fizzled out, even as video has become an ever-growing part of our online diet. It’s pretty clear that if Gawker is going to successfully navigate the transition from writing blog posts to producing video, its budget is going to have to grow a lot. And that’s why I think that Denton might be thinking about bringing in some strategic investors: people with video-production expertise, a real nose for what works online and lots of money.

Would they take control of the company? No. But they would be buying some measure of insurance against Denton succeeding in the video world and upending their current business model.

From Denton’s point of view, such a move would carry risks, to be sure. It would probably make his business cashflow negative, for starters. And he would be entering a battlefield littered with many corpses, rather than his preferred uncharted territory. So if he doesn’t find the perfect partner, he’ll probably be happy to move slowly and organically into the world of video-based content: adding a few staffers here and there across his network of sites, as his cashflow allows it and as he finds the right people to hire. But I’m sure he worries about a day when he looks ruefully upon annual revenues in the hundreds of millions of dollars somewhere like TMZ.com and wonders whether, with a bit more ambition, he could have created something like that himself.

Idov is right that Denton is “having too much fun not to stay with” Gawker Media. But the big question now is about the relaunch of the websites, which will literally sideline their reverse-chronological DNA when they go live next year. My suspicion is that far from being the end point of an incredibly long and over-iterated redesign process, the relaunch is actually going to be only the beginning of a determined move into a new world of photo- and video-based online journalism. That move might well be expensive, at least by Gawker standards. But I doubt Denton’s going to let that stop him.

Update: “Online needs to turn itself into TV, said Gawker Media head Nick Denton” today. Also, intriguingly: “a Facebook edition could be Gawker’s future, where stories are personalized and the reading experience is more intimate.”

Parsing Volcker

Felix Salmon
Sep 27, 2010 05:04 UTC

Paul Volcker should carry Damian Paletta around with him wherever he goes. Volcker’s speech to the Chicago Fed on Thursday, delivered, as Yves Smith says, “in a moderate, occasionally perplexed tone” was not exactly gripping stuff. But Paletta saw something blistering there and well done to him for doing so. Paletta’s Volcker might be a bit more forthright than the real-world Tall Paul (I’m reminded, once again, of Kripke’s Wittgenstein), but that just means that we’ve now created the best critic yet of the national and international financial architecture: the natural authority of Volcker, distilled by Paletta into its purest and most powerful form of critique. By which I mean, a numbered list!

So, to take the items in order. This list, it turns out, goes to 13:

1) Macroprudential regulation. I love the way that Volcker dismisses macroprudential regulation, just by waving at the prefix it uses: if macroeconomists can’t agree on anything, he reasonably asks, why on earth should we believe that macroprudential regulators will ever have enough certainty about anything to actually do something? It’s a very good question.

For instance, macroprudential regulators are almost certainly going to do nothing about the enormous pool of credit default swaps that has appeared out of nowhere over the past decade or so, despite their central role in the downfall of AIG. If I was a macroprudential regulator, I’d do the same thing — nothing. But clearly it would have been a good idea to prevent enormous contingent CDS liabilities from building up on the balance sheets of AIG and other too-big-to-fail institutions. Is there any reason to believe that tomorrow’s macroprudential regulators will be able to see such dangers and head them off? No.

2) Banking. Investment banks became trading machines. This is a slightly odd critique: haven’t a lot of broker-dealers always been investment banks? If anything, we saw the rise of a new genus of trading machines (think Citadel) which weren’t banks at all. And so long as there are markets, someone is going to have to play the role of trading machine and liquidity provider. And those firms are always going to be systemically important, whether they’re investment banks, commercial banks, hedge funds or some new animal entirely.

3) Financial system. “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately.” This can be read as a fundamental critique of Dodd-Frank and Basel III as not going far enough — although it could also be a simple statement of fact, reflecting the severity of the 2008 crisis and the amount of time it will necessarily take to adjust to a new normal. Yes, the mortgage market is broken today, far too reliant on government finance, but there’s no simple reform which can fix it overnight. You want a world where banks will happily lend against houses and hold those loans on their balance sheet? We’re not going to get there for years yet, no matter what legislation is passed in Washington.

4) Business schools. Duh. The latest news on that front seems to indicate that they’re places you go to ensure you don’t learn anything at all.

5) Central banks and the Fed. The Great Moderation was a huge headfake for central bankers globally: it was a warning sign they took as an indication that they were doing everything right. And tomorrow’s central bankers aren’t going to be any smarter. As for what Volcker calls “a certain neglect of supervisory responsibilities” — well, that’s one way of putting it. Another is to say that the Greenspan Fed was actively hostile, on an ideological basis, to the concept of bank supervision. And those ideologues haven’t entirely gone away.

6) The recession. Is not over, the NBER notwithstanding. The real recession is seen in the unemployment rate. Which is something Volcker intuitively understands. Because we need to get unemployment down fast, lest it become structural.

7) Council of regulators. “Potentially cumbersome”, says Volcker, and he’s quite right. It can, theoretically, be very effective. But the base-case scenario is that it won’t be. The new architecture put in place by Dodd-Frank is necessary but it’s not remotely sufficient.

8) On judgment. Regulators can’t be expected to have excellent judgment. But if they don’t, they can end up causing more harm than good.

9) On procyclicality. This is a subset of the judgment issue. Taking away that punchbowl is never easy and Dodd-Frank hasn’t made it visibly easier.

10) Risk management. Is something every big firm says they’re very good at — which is a statement it’s almost impossible to test. Of course they know that tails are fat. But what do they do about it? And how can regulators judge risk managers? Ultimately, they probably can’t.

11) Derivatives. “The creation of derivatives has far exceeded any pressing need for hedging”, says Volcker. Which is true, although nobody really knows what that means. The creation of stocks would far exceed any pressing need for equity investing too, if anybody could simply create them out of thin air in a zero-sum game, the same way they can with derivatives. If financial instruments are free to create, then a lot of them will be created. Is that harmful? Well, it could certainly use some regulatory scrutiny and probably a lot more exchange trading.

12) Money market funds. This is a really good point: they’re essentially checking accounts, but they’re run by entities which aren’t regulated as banks. Every one of these funds would be devastated by a “run on the bank”. And no one seems to be worried about that. Certainly there’s nothing in Dodd-Frank to address it.

13) The Fed and Dodd-Frank. Volcker is right that the Fed hardly covered itself in glory the last time around, but it’s still the best bet, in terms of regulatory authorities, to prevent a crisis next time. I wouldn’t go nearly so far as to say that it will probably succeed. But its chances of success are higher than any alternative, just because of all the information it gathers on a daily basis, especially in New York. Can the New York Fed ask the right questions and send the answers to Washington, where they will be acted on? I wouldn’t bet on it. But it’s the best chance we’ve got.


Re: 2) Banking – part of the problem is that the investment banks became banks too! LEH had large, chunky, mismarked commercial real estate positions.

Re 10) Risk Management, I commend to your readers two papers by the Senior Supervisors Group that detail their findings on Risk Management.

Observations on Risk Management Practices during the Recent Market Turbulence
http://www.newyorkfed.org/newsevents/new s/banking/2008/rp080306.html

Risk Management Lessons from the Global Banking Crisis of 2008
http://www.newyorkfed.org/newsevents/new s/banking/2009/ma091021.html

Tail risks are generated not by ex-ante observed high risk exposures (banks have an incentive to keep those positions small and watch them closely) but rather by ex-ante observed high quality exposures (which may be large in size and “presumed” safe – witness “super-senior” exposures, which were supposedly better than Aaa, or Enron as a fallen angel).

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When secret meetings are boring and useless

Felix Salmon
Sep 27, 2010 00:01 UTC

The WSJ has a great little story proving once and for all that just because something is secret doesn’t mean it’s interesting. Apparently, for a year or so, a “secret task force” met at ungodly hours on the sidelines of various euro-events in cities like Brussels and Luxembourg. Its members were hand-picked, its task momentous: to come up with a plan should a eurozone country enter a crisis and threaten the currency union.

But it achieved, to a first approximation, exactly nothing, beyond simply keeping its own existence a secret. (If the markets had found out that the committee existed, they would probably have taken it as a sign of weakness and worry on the part of the Europeans, and increased pressure on the likes of Greece.) By the time that the Greek crisis flowered, there was no plan at all, and ultimately the European bailout had to be hammered out at summit level, mainly between Nicolas Sarkozy and Angela Merkel.

Technocrats love secrecy, especially when they work in or around the finance ministry or the central bank. But it’s impossible to negotiate something as politically momentous as a sovereign bailout in secret, or even to construct a mechanism which might help smooth the course a little. If the Europeans want to minimize the chances of a country leaving the eurozone, they’re going to have to put together something robust in public. Secret meetings at 6am might feel terribly thrilling at the time, but they’re never going to have any lasting effect.

So what’s the point of secret meetings? In the public sector they achieve nothing, and in the private sector they risk causing scandal and legal investigations. I suspect that most people who take part in them probably ultimately regret doing so.

Forbes blogs for sale

Felix Salmon
Sep 26, 2010 23:04 UTC

Lewis D’Vorkin has got off to a rocky start as the guy in charge of editorial at both Forbes magazine and its website: the controversy over the magazine’s execrable cover story by Dinesh D’Souza continues to reverberate. Now, to make matters worse, D’Vorkin seems to be hell-bent on stirring up a Scienceblogs-style uproar over the website’s blogging platform. (Which is basically D’Vorkin’s True/Slant, rebranded.) Michael Learmonth reports:

There’s a business side to Mr. DVorkin’s big idea, and that’s what’s taken him on sales calls to Detroit along with chief revenue officer Kevin Gentzel. The pitch is this: We’ll sell you a blog, and your content will live alongside that of Forbes’ journalists and bloggers. This isn’t the “sponsored post” of yore; rather, it is giving advocacy groups or corporations such as Ford or Pfizer the same voice and same distribution tools as Forbes staffers, not to mention the Forbes brand.

“In this case the marketer or advertiser is part of the Forbes environment, the news environment,” Mr. DVorkin said…

“For the last however many decades of traditional media, you’re a reader so your stuff can only go here,” Mr. DVorkin said, starting to get animated. “You’re an advertiser so stuff can only go here. And our stuff? It goes right here. But there’s a flow of content that’s contextual. Anything can appear in any place as long as it’s contextual — that’s the web and we are bringing that sensibility to the magazine.”

When Scienceblogs tried something along these lines with Pepsi, Newsweek summed things up by saying that “it’s pretty clear that a line was crossed with the Pepsi blog and that the line should never be approached again”. But what D’Vorkin seems to be selling here seems actually to be several steps over the Pepsi/Scienceblogs line.

If you put advertisers on the same distribution platform as your editors and writers, and if you say that there are no lines separating what’s editorial content and what’s advertising, then at that point you don’t need Dinesh D’Souza to destroy your editorial integrity: you’ve managed to do it all by yourself.

In a way, this all makes a certain amount of sense. Forbes editors are by necessity a craven bunch: the magazine side has to do whatever Steve Forbes (who’s the publisher, as well as the editor in chief) tells them to do, no matter how bonkers or wingnut it might be. Meanwhile, the web site has long been an abject lesson in creating enormous quantities of worthless material, largely in the form of SEO-optimized slideshows and the like, on the grounds that the only number that matters is the number of pageviews and ad impressions. The advertisers pretty much run the show already, so why not just give them the keys to the publishing platform and tell them to have at it.

I suspect, though, that Forbes’s bloggers — who hated the D’Souza article — might fight back on this one, just as the denizens of Scienceblogs did. Forbes itself might not have much in the way of editorial integrity, but that doesn’t mean its bloggers don’t have some pride left in them. And if D’Vorkin wants the new Forbes to be built around his stable of bloggers, he might soon learn that they’re much more vocal on such matters than the kind of Forbes staffers who know they have to simply shut up whenever Steve Forbes has another bright idea.

(HT: Roush)


I helped build True/Slant and am currently working with Lewis D’Vorkin at Forbes.

All news – print, broadcast, online – is sponsored by or underwritten by someone. Advertisers have *always* been “on the same distribution platform” as the editorial their dollars support.

At least as far back as David Brinkley, news editorial was being vocally underwritten, e.g., by Arthur Daniels Midland.

You can claim there’ve been effective Walls and hermetic seals between advertisers and editorial. That doesn’t make your claim true. In my experience, the claim is false. (And this is in addition to and regardless of right/left editorial slants you refer to in your post.)

Understood and agreed it’s an area to be treaded carefully from everyone’s perspective:

- Publishers weaving advertising and marketing with editorial need to take care to be transparent and not to mix messages

- Advertisers and Marketers need to create messages that have some value and interest for people reading and interacting with it – if they don’t, no one will read and interact with it

- Journalists should take care, as ever, to be transparent, too

- Participants / Consumers / The People Formerly Known as The Audience should take care they understand that with which they’re interacting

We’ve been working toward new, sustainable – profitable! – models of news and opinion. We don’t expect a single silver bullet. We do expect to continue iterating until we have a workable, successful and profitable solution.

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The Goldman headquarters default

Felix Salmon
Sep 26, 2010 18:42 UTC

There’s all manner of delicious irony here: a company called Antedon bought the European headquarters of Goldman Sachs for £355 million ($562 million) in 2007, complete with a lease to the bank which runs until 2026. Yet somehow Antedon has contrived to default on the loan, and the buildings have now been seized by Antedon’s lenders, a group led by Landesbank Berlin.

The details are unclear, not least because the original story is behind the notorious Sunday Times paywall. But on the face of it, it seems that Landesbank Berlin agreed to a deal whereby Antedon would have to pay them more money than it was receiving, in rent, from Goldman Sachs. And what’s more, since the lease runs until 2026, there was no way for Antedon to increase Goldman’s rent payments. (And yes, Goldman Sachs has rented out all of the two buildings in question, except for a tiny slice of retail.)

I can’t see any other explanation of what’s happened here. Even if Antedon was in deep negative-equity territory on its investment, it wouldn’t gain anything from defaulting on its loan so long as Goldman’s rent payments covered its mortgage obligations. After all, Antedon has now lost all of Goldman’s rent payments, and title to the buildings.

Did Antedon really commit to pay its lenders more money than Goldman was contractually obliged to pay in rent? Did it think that it could make up the difference by jacking up rents sharply in 2026? And what were the lenders thinking? It’s all very odd, to say the least. But this might be a great opportunity for Goldman to buy Peterborough Court and Daniel House outright. They’re very beautiful buildings, although Goldman might have outgrown them at this point: the two buildings have only 318,439 square feet of office space between them, compared to 2.1 million square feet in Goldman’s new NYC headquarters.

Which makes me wonder: if it’s impossible to implement size caps when it comes to banks’ balance sheets, can we maybe at least cap their square footage? It’s surely a more sensible idea than Antedon’s 2007 real-estate deal.


I would be surprised if there was any expectation of significant upward lease revision if it had a 20 year lease, even in a 2007 deal. My guess would be that there are covenants, most likely an LTV covenant, that would have been tripped upon a reappraisal of the property. The other possibility is some kind of problematic derivatives deal, but the only times those have been an issue is the cost associated with breaking them, which prevents enforcement, not causes it.

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How can we get banks to lend to green tech?

Felix Salmon
Sep 26, 2010 16:22 UTC

William Wild has an intriguing idea which could be applied not only to new stimulus funds but even to energy-infrastructure funds left over from the first stimulus which haven’t yet been spent. His premises are simple; here’s how I understand them.

  • It’s a good idea for the government to subsidize renewable-energy projects, but we want those projects to be viable, post-subsidy.
  • There’s lots of equity capital floating around the green-tech space, but precious little debt.
  • Increasing the amount of debt in renewable-energy projects won’t meaningfully decrease the amount of equity capital available. If anything, the opposite is true.
  • We need to get banks lending again, and it would be great if government subsidies could be leveraged with bank debt.

Wild’s proposal addresses all of these ideas, quite simply:

At least 70% of any project’s commercial capital (excluding the subsidy) should be in the form of non-recourse commercial bank debt.

It’s an intriguing idea. At some point, there’s enough government subsidy in the project that banks will be willing to lend into it. (The subsidy can be in any combination of debt, equity, or even outright grants: the only thing that matters from the banks’ point of view is that they’re senior to the government.) Since banks aren’t doing much lending into renewable-energy projects right now, this could help jumpstart a whole new set of renewable-energy groups within commercial banks, who would rapidly become expert on the economics of the sector, and help it to grow.

The big potential problem is that such a rule would delay green-tech projects unnecessarily, and even prevent certain interesting projects from happening at all. Banks are by their nature very conservative when it comes to things like this, and Wild’s rule would essentially give them veto power over any and all new projects seeking government subsidy. I’m not sure we want that. But I do like the idea of dragging them into the sector. It’s surely a much better use of their funds, from both a financial and a societal perspective, than subprime housing loans were.


Many, if not most, large-scale renewable energy project financing is now done with 30% government grant money and 70% nonrecourse commercial debt secured by the assets and cash flow of the project. What he is asking for is already occurring, but is set to expire this year.

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When credit unions fail

Felix Salmon
Sep 24, 2010 22:08 UTC

There are lots of great credit unions in America, all of which are owned by their members. And then there are the corporate credit unions, which are atrocious and expensive failures. Today, the final nail was placed in their coffin when the last three big corporates were officially taken over by the government.

Trying to explain what’s going on here isn’t easy, but essentially corporate credit unions are credit unions’ credit unions. While you or I might belong to a friendly local credit union with human members, that credit union, in turn, is itself one of the members of a corporate credit union. I’m a member of (and on the board of) Lower East Side People’s Federal Credit Union, for instance; LESPFCU is one of the 2,076 members of Members United Corporate Federal Credit Union, which got taken over today. Since we’re part owner of Members United, we’re going to lose money now that it has failed. In total, the NCUA (that’s the credit union equivalent of the FDIC) reckons that credit unions are going to lose somewhere between $8.3 billion and $10.5 billion on their investments in the corporates.

We’ve already written down a large chunk of our equity in Members United, so this latest blow will be manageable. But the fact is that pretty much everybody in the country who’s a member of a credit union will be affected in some way by the implosion of the five big corporate credit unions. They got away with things that most credit unions could never dream of — things like investing billions of dollars in subprime securities, for no obvious reason. When that trade blew up, thousands of responsible small credit unions ended up being socked with enormous losses.

So when the chair of the NCUA, Debbie Matz, says that all of this is being done at no cost to taxpayers, that’s only partially true — there are millions of taxpayers who belong to credit unions, and all of them will be affected in some way, because collectively they own the institutions which are going to end up losing billions of dollars. And nobody along the chain could reasonably have avoided these losses: you suffer no matter which credit union you’re a member of, because the credit unions themselves had to belong to a corporate, and pretty much all of the corporates have failed.

The fact that all of the big five corporate credit unions have now failed is — or should be — a massive embarrassment to the NCUA, which was meant to be their regulator. What incentives were in place such that all of these entities ended up neck-deep in toxic assets, and such that their regulator didn’t stop them? Indeed, how on earth, in the wake of this fiasco, has the NCUA survived as an independent agency at all? It has failed the very credit unions it was meant to be protecting: its lax oversight of the corporates means that all of them have suffered substantial losses. Other lax regulators, like the Office of Thrift Supervision, were closed down by the Dodd-Frank bill. But the NCUA lives on, to dream up multi-billion-dollar good-bank/bad-bank securitization schemes. I wish it were a bit more accountable for its failures.


The FHLB system, beneficiaries (among many, actually) of the very direct $100 billion+ in TARP/government capital “invested” into Fannie Mae, and Freddie Mac. An investment unlikely to yield any true return, either.

Some banks in the FHLB system were better than others in managing the MBS portfolios, but still: owning a FNMA / FHLMC-issued, Agency MBS pass-through magically means your MBS bonds are not trading at $40-60 like the private label MBS kindred. Poof, make it so and it was.

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