James Saft

UK unleashes the dogs of subprime: James Saft

Mar 20, 2013 19:26 UTC

March 20 (Reuters) – Cry ‘Bubble!’ and let slip the dogs of

Britain on Wednesday unveiled a new budget including 130
billion pounds of mortgage guarantees which will enable patsies,
er, hardworking home-buyers, to buy properties worth as much as
600,000 pounds ($900,000) with as little as 5 percent down.

And no, thank you for asking, Chancellor of the Exchequer
George Osborne did not just wake up after six years in a
medically induced coma.

A smaller 3.5 billion pound program features a direct loan
of 20 percent of the purchase prices for newly built houses, so
long as the borrower has (a massive) 5 percent to put down.

These are truly terrible policies; they risk re-inflating a
housing bubble, will allow banks to transfer risk to the public
finances and will lure people into buying more house than they
have any business owning.

Cyprus gets on with it: James Saft

Mar 19, 2013 04:00 UTC

March 19 (Reuters) – Unfair and a bungle it may be, but the
plan to levy bank deposits in Cyprus does have its virtues.

This is especially true if the proposed 5.8-billion-euro
levy is re-worked to shelter smaller depositors, allowing more
of the burden to fall on the huge number of large offshore
depositors, many of them from Russia.

The levy is a good thing for Cyprus in two ways: it helps to
protect future taxpayers; and it will tend to shrink the
island’s grossly distended financial services industry. It will
drive a stake through the heart of the idea that it is sensible
for an economy within the euro area to have a banking system
seven times the size of its GDP and will hopefully lead to the
withering away of its offshore banking industry.

SAFT ON WEALTH: The asset management shakeout

Mar 14, 2013 20:41 UTC

March 14 (Reuters) – The gusher of new money that has fed
the growth of the global asset management industry for a
generation has slowed to a trickle, making the next few years
make-or-break for many firms.

Growth in new money flows will slow to less than 1 percent
annually for each of the next five years, according to a study
by industry consultants Casey Quirk, as against 6 or 7 percent
in the good old days before the crisis.

That is sure to put pressure on many existing firms, many of
which owe their institutional framework to a time when a simple
focus on traditional products aimed at baby boomer savers was
enough to ensure success.

The 27-year-olds are taking us down (again): James Saft

Mar 13, 2013 19:40 UTC

March 13 (Reuters) – The 27-year-olds making the mistakes
change but the flaws in the incentives and risk models at the
heart of the global financial system remain basically unchanged.

Calling them ‘mistakes’ is charitable, as they are actually
systematic and predictable exploitation of loopholes by
employees without sufficient skin in the very risky game they
are playing.

Here is the game, as it was played in 2008 and as it is
being played now: work for a financial firm, sell insurance
against an event the probability of which, while rare, is
underestimated by your firms’ models. Sit back, collect the
premiums, appear to be “beating the market”, and be paid
accordingly. If the rare event does happen, and it likely will
before your firm has been fully compensated, off you go with
your pay, leaving investors and regulators to clean up the mess.

Stocks see fading help from QE, profits: James Saft

Mar 12, 2013 04:06 UTC

By James Saft

(Reuters) – Equity markets, especially in the U.S., are being held aloft by two historical anomalies – quantitative easing and high corporate profits – either of which could start to go away in 2013.

Friday’s surprisingly good update on the state of the U.S. job market raised the chances that soon the Federal Reserve will be more actively – and publicly – mulling how and when it will slow or end its purchases of assets.

At the same time, U.S. corporate profits are at vertiginous levels and climbing, arguing at the very least for caution about their future path.

How you are paying for “too-big-to-jail”

Mar 8, 2013 16:40 UTC

(The writer is a Reuters columnist. The opinions expressed are his own.)

By James Saft

(Reuters) – Now that it is official that the U.S. Justice Department pulls its punches when it comes to prosecuting the largest banks, it is time for investors to understand why they, too, are the losers.

Attorney General Eric Holder came right out this week and told the Senate Judiciary Committee what many observers have long suspected – that his department has refrained from more aggressive criminal prosecutions of the so-called too-big-to-fail banks, exactly because of their special status.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that … if we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” Holder said on Tuesday. “I think that is a function of the fact that some of these institutions have become too large.”

What if they held a bull market and no one came?: James Saft

Mar 6, 2013 20:35 UTC

March 6 (Reuters) – The remarkable thing about the Dow Jones
Industrial Average’s new all-time record is how few people give
a damn.

There are good reasons for this – the Dow is the doddering
uncle of stock market indicators and it, along with the rest of
the stock market, is being held aloft by the magic fingers of
Federal Reserve policy.

More importantly, there are important consequences of the
record’s lack of consequence: with no feel-good factor people
won’t be piling into stocks like the lemmings they usually are,
nor will they be as likely to go out and spend the (paper)

China’s debt and investment slow down: James Saft

Mar 5, 2013 05:13 UTC

By James Saft

(Reuters) – What can’t go on forever may be starting to stop in China.

China on Monday unveiled steps to curb runaway housing price inflation, including measures to make speculation less profitable and loans more expensive.

That sent stock markets down around the world but may prove less significant than new controls, reported in the Financial Times, which may be in the works to limit shadow banking, the taking of deposits and lending of money outside regulated channels.

Great Rotation a myth but stocks still a top pick

Feb 28, 2013 21:39 UTC

Feb 28 (Reuters) – Don’t hold your breath waiting for that
Great Rotation out of global bonds and into stocks. Even so, go
into stocks anyway if you are big enough and tough enough to
survive the inevitable volatility.

The idea that investors will soon start to move much of the
cash they’ve plunged into very low-yielding but safe government
bonds into stocks is intuitively appealing. After all rates have
to rise some time and the 30-year-plus bond bull market is
looking long in the tooth. It also makes intuitive sense given
the likelihood of lousy inflation-adjusted returns, even losses,
in bonds.

The only problem is the world is brimming with old people,
rickety banks and foreign central banks, all of whom want and
need safe assets almost without regard to the price.

Why Jamie Dimon is richer than you: James Saft

Feb 27, 2013 19:50 UTC

(James Saft is a Reuters columnist. The opinions expressed are his own.)

By James Saft

(Reuters) – In case you were wondering, Jamie Dimon has thoughtfully explained why he’s richer than you and all the analysts covering J.P Morgan.

It isn’t, as I thought, our inability to pick lottery numbers.

Hint: it is because he is chairman and CEO of a bank.

Actually, that’s not entirely fair. Dimon is richer than we because he runs a bank and understands the relationships between capital levels, regulation, profits and human nature.

At a J.P. Morgan investor event this week Mike Mayo, an analyst at CLSA, who has been a critic of large banks and, at times, Dimon, asked if J.P. Morgan wasn’t at a competitive disadvantage compared to more highly capitalized peers. (Here is a playback via Business Insider: here)