Lunchtime Links 5-19

May 19, 2010

Consumer prices unexpectedly fall (Mutikani, Reuters) The Fed will view this as support for its low rate policy. But while consumer prices are falling, asset prices have been on a tear, taking a breather only after the Greek crisis erupted. The re-inflation of asset prices is investors’ response to low rates: they’re chasing risk. That encourages more bubbly lending, sowing the seeds of more violent debt deflation later.

Italy suspends mark-to-market rules on banks’ government bond holdings (Cohen, Dow Jones) Dirty little secret folks: Basel capital rules allow banks to treat government bonds as “riskless,” meaning they are assets against which they needn’t hold any capital. Bottom line, banks have literally zero cushion to absorb losses on government securities. Italian banks’ exposure to Greek loans is small compared to France/Germany, but they could have significant holdings of bonds of peripheral European countries that may be at risk of default, a problem which their regulator appears willing to paper over…

CHART — Mortgage purchase applications “plummet” (Culp, Reuters) “Plummet” is the lobbyist’s word. Demand was pulled forward thanks to the homebuyers tax credit and is now crashing. You can see how a similar dynamic played out last fall, when it was believed the credit would be allowed to expire on schedule. This time around it will expire. It’s chief Senate proponent, Georgia’s Johnny Isakson, has said it’s not going to be re-upped.

Clients worried about Goldman’s dueling roles (Morgenson/Story, NYT) Great story. Yves has some good thoughts too.

Roubini says U.S. bond market may face “vigilantes” (Ryan, Bloomberg) Just give it time. Honestly, referring to sellers with pejoratives like “vigilante” and “wolfpack” gives pols the political capital to blame “speculators” rather than actually deal with their debts.

Fiduciary amendment attacked as loophole ridden (Kearney, Reuters)

A new clue to explain existence (Overbye, NYT)

No trespassing (reddit)

Lifelock CEO’s identity stolen 13 times (Zetter, Wired)

Kevin Costner wants to help clean up the oil spill (Youtube) Call it penitence for Water World.

One comment

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While the BASEL based Risk based ratio does allow for a 0% weighting of gov’t debt, at least in the US the other ratios are based only on total assets, regardless of type.

Thus meaning that a bank can not lever up ad infinitum to buy more and more gov’t securities.

Posted by Beezlebufo | Report as abusive