Senate backs one time audit of Fed’s bailout role (Herszenhorn, NYT) Good piece. Describes the differences between the tougher Paul/Grayson Audit-The-Fed proposal that passed the House and the measure that just passed the Senate. A shame there can’t be an audit of all actions the Fed takes under emergency powers granted in Section 13(3) of the Federal Reserve Act.
by Rolfe Winkler and Rob Cyran
Is the Federal Reserve pushing the limits of its authority? In re-opening swap lines to other central banks, the U.S. central bank has made another open-ended commitment to grease the wheels of banking, particularly in Europe. Containing debt contagion is a worthy goal, but such interventions have downsides — including potential inflation and moral hazard.
The weekly news magazine doesn’t break any new ground, but publicity like this may encourage many more to walk away. If this becomes common behavior among underwater borrowers, it could lead to a deflationary spiral. That would be very bad news for banks and, ultimately, the paper wealthy.
Tales of an MBA nothing (Blogspot) “Current market value of an MBA from a top tier school: $0 … Business school tuition: $140,000 … Opportunity cost of foregone wages: $375,000 … Desperately hoping that your pre-business school employer will take you back: priceless.”
—Failed bank: The Bank of Bonifay, Bonifay FL
—Regulator: Florida Office of Financial Regulation
—Acquiring bank: First Federal Bank of Florida, Lake City FL
—Vitals: assets of $242.9 million, deposits of $230.2 million
—Estimated DIF damage: $78.7 million
On the sudden 998 point drop in the Dow, CNBC says:
One trader, on the condition of anonymity, said he heard fixed-income desks in Europe shut down early because there was no liquidity — basically European banks are halting lending right now.”This is similar to what took place pre-Lehman Brothers,” the trader said.
Freddie asks for another $10.6 billion (AP) The total taxpayer rescue package for Fannie and Freddie is up to $136 billion. To put that in perspective, the proposed Greece rescue package is about $143 billion. And there’s no end in sight: Freddie has $115 billion of “non-performing assets” as of March; Fannie has $215 billion of “nonperforming loans” as of December.
In this great episode of Frontline, there’s a telling quote from Rep. George Miller, in which he compares for-profit educators to purveyors of liar loans. Too true. Both amount to finding a warm body willing to borrow money to pay for an inflated asset.
Sheila Bair opposed to Dems’ derivatives legislation (Younglai, Reuters) The FDIC Chairman says it would be bad to force banks to spin off their derivatives units because they’d be outside the purview of regulators. Actually, the legislation is very sensible. There’s no good reason that the federal bank safety net should protect firms that trade derivatives. If spinning them off means they go into the shadows, then create a solid regulatory regime to keep an eye on it. Sheila is not set up to do that.
By Rolfe Winkler
The Pritzkers appear to be cashing out in unusually amicable fashion. The sale of a majority stake in credit reporting firm TransUnion is the latest step by the Chicago clan to unwind its $15 billion empire. Earlier squabbles over the spoils looked ominous for the plan. But it seems to have gone relatively well compared to the trouble many rich families face.
Schadenfreude Alert — Goldman shares off 9% on criminal probe (Yahoo Finance/NYT) To be sure, the SEC’s case looks far from a slam dunk, and the burden of proof is higher in criminal probes (beyond a reasonable doubt) than civil ones (preponderance of evidence). So my uneducated guess is this doesn’t go anywhere.
Asset bubble watch: Junk bonds back at par (Detrixhe, Bloomberg) “High-yield bonds rose to 99.67 cents on the dollar, up from a low of 54.78 cents in December 2008, according to Bank of America Merrill Lynch index data. The debt last reached par on June 11, 2007, just before credit markets began to seize up as losses on subprime mortgages spread.” How quickly we forget...
In poker, if you don’t know who the patsy is at the table, it’s probably you. In the first session of questioning at yesterday’s Senate hearings on Goldman, an exchange between Fabulous Fabrice Tourre and Maine Senator Susan Collins laid bare that Goldman’s game is to find patsies.