Mortgage Backed Securities

Central Banks, Bank CEOs, politicians… all of these people are focused primarily on maintaining CONFIDENCE in the system, NOT on fixing the system’s problems. Indeed, they cannot even openly discuss the system’s problems because it would quickly reveal that they are a primary cause of them.

• EU to weigh extensive sanctions on Russia (FT)
• U.S. lifts flight ban to Israel (Reuters)
• Russia says will cooperate with MH17 probe led by Netherlands (Reuters)
• Norway faces ‘concrete and credible’ terrorist threat (FT)
• Don’t Tell Anybody About This Story on HFT Power Jump Trading (BBG)
• But... but... PMI: Unilever Sales Growth Misses Estimates on Asian Slowdown (BBG)
• World’s Biggest Wealth Fund Reviews $8 Billion Russian Stake (BBG)
• Qualcomm latest US tech company to reverse in China (FT)
• Hamptons Home Sales Rise as Buyers Find More Inventory (BBG)

The Fed spends an inordinate amount of time focusing on increasing Lending with the idea that loan growth increases economic activity. Is it possible that it is Interest Income derived from Savings that is more important to economic growth?

As the cost of living increases around the globe, wage protests and strikes have become commonplace, particularly in the emerging market space:

On Sunday, Senate lawmakers unveiled the 442-page plan that will eliminate the mortgage-finance giants; replacing them with a new system in which the government would continue to play a potentially significant role insuring U.S. home loans. The Johnson-Crapo bill would, as WSJ reports, construct an elaborate new platform by which a number of private-sector entities, together with a privately held but federally regulated utility, would replace key roles long played by Fannie and Freddie.

“Guidance” is the new organizing credo of US financial life with Janet Yellen officially installed as the new Wizard of Oz at the Federal Reserve. Guidance refers to periodic cryptic utterances made by the Wizard in staged appearances before congress or in the “minutes” (i.e. transcribed notes) from meetings of the Fed’s Open Market Committee. The cryptic utterances don’t necessarily have any bearing on reality, but are issued with the hope that they will be mistaken for it, especially by managers in the financial markets where assets are priced and traded. 

While Janet Yellen's testimony will be uneventful, with her toeing the party line, and the fluff Q&A largely priced in - although everyone is eagerly looking forward to the Maxine Waters grilling -  far more interesting in today's Monetary Policy and State of the Economy hearing, will be the Part 2, where various experts (full list here), mostly hawks as it would appear, will provide their rebuttals to Yellen's views. None of them is more anticipated than John Taylor - the Stanford economist whose "rule" the Fed uses, even though Taylor himself has largely disavowed the implications of the Taylor rule under current "extraordinary" conditions and has become one of the most vocal opponents of the Fed's unconventional policy. The punchline from his prepared remarks: "there is little evidence that the policy has helped economic growth or job growth. Growth has been less with the unconventional policies than the Fed originally forecast." Or precisely what we have been saying for about 5 years.

If a third of all US homes cannot trade due to being underwater or not sufficiently above water to clear closing costs, then the US economy is going to suffer

The Central Bank rig of the last five years appears to finally be ending.

Nearly a year ago, we predicted that the party for bond traders was over. The reason: MBS bond trader Jesse Litvak, formerly of mid-tier, perpetual aspirational bulge bracket, and the place where every fired UBS banker has a safety cubicle, Jefferies, got not only too greedy (that's ok, everyone on Wall Street is), but what's worse, got caught, and as we said at the time, ended the party for Wall Street's bond trading cash bonanza. Little did we know how correct we would be, because not only did the former MBS trader, who "proceeded to rip virtually all of his clients on seemingly every single trade he executed for the three years he was employed at Jefferies, lying to everyone in the process: both clients and in house colleagues, generating some $2.7 million in additional revenue for Jefferies for the duration of his tenure, and who knows how much in personal bonuses", end the party, but it appears he unleashed the next big regulatory crack down on Wall Street. And one which may just cost perennial Department of Justice favorite JPMorgan another several billion in "litigation reserves."

Are current underwriting practices overly stringent? Yes and no. With the exception of the sub-prime era, underwriting has never been easier. At the same time, it has never been more difficult for many qualified borrowers to get a loan. This strange phenomenon is among the unintended consequences of ill-guided public policies. 

The Future of Money: The Dumb Dollar vs Smart, Programmable Currencies!

First hint of what happens when the heavily subsidized industry is being encouraged to try to stand on its own wobbly feet.

End America’s central bank because it caused the crashes of 2008, 1987, and 1929 and will blunder again. That’s what many critics are saying about the Federal Reserve System (the Fed), which turns 100 on December 23. They note that on the Fed’s watch America has endured numerous bubbles, crashes, and inflationary cycles that have greatly devalued the dollar. The Fed, they say, has caused or aggravated several crashes. “If you say the goal of the Fed was to prevent calamities, then you have to say that it has been a failure,” says William A. Fleckenstein. “History and current experience,” Joe Salerno adds, “reveal to us that groups endowed with a legal monopoly over any area of the economy are prone to use it to the hilt to enrich themselves, their friends and allies.”