Is capital adequacy really the answer to the question?
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.
Putin Is No Mad Man to Russians as Power Play Trumps Economy (BBG)
Alibaba picks U.S. for IPO; in talks with six banks for lead roles (Reuters)
Russia hearts selling German energy: Billionaire Fridman’s L1 Buys RWE Unit for $7.1 Billion (Bloomberg)
Malaysia plane search straddles continent as police focus on crew (Reuters)
Saudi Crown Prince’s visit to China set to bolster investment (Al-Awsat)
Bugatti-Driving 26-Year-Old Tied to Penny-Stock Website (BBG)
Vodafone agrees $10 billion deal to buy Spain's Ono (Reuters)
The Hidden Rot in the Jobs Numbers (WSJ)
SocGen Ex-Trader Kerviel Walks to Forget Loss as Judgment Looms (BBG)
U.S. Banks’ $75 Billion Payout at Stake in Fed Tests (BBG)
Simply ending the corporate lives of Fannie Mae and Freddie Mac as the Johnson-Crapo proposal envisions is not sufficient
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David Stockman blasted the GSE-profiteers just last week but the manic run-up in the stocks of Fannie Mae and Freddie Mac has abruptly come to an end as the FT reports, the US Senate banking committee on Tuesday released a highly anticipated plan that would maintain government backing of mortgages but wind down the GSEs. Not a great day for Mr. Ackman - who owned 10% at last filing.
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So you want to be a mortgage banker? then listen now to what i say Just get liability insurance... and get ready to pay and pay...
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When Arthur Levitt's SEC adopted Rule 2a-7 in 1998, it handed the TBTF banks and GSEs a mortgage monopoly on a silver platter.
Is the Treasury's rescue of Fannie Mae and Freddie Mac unfair to private shareholders? Yup. And they deserve it.
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So far in 2013, Bank of America lost money on 9 trading days out of a total 188. Statistically, this result is absolutely ridiculous when one considers that the bulk of bank trading revenues are still in the form of prop positions disguised as "flow" trading to evade Volcker which means the only way a bank could make money with near uniform perfection is if it either i) consistently has inside information that it trades on or ii) it consistently front-runs its clients (the latter incidentally was a topic we covered back in 2009 relating to Goldman Sachs, and which the bank sternly rejected). We now know that when it comes to Bank of America at least one of the two happened.
The housing recovery is ultimately a story of the "real" employment situation. With roughly a quarter of the home buying cohort unemployed and living at home with their parents the option to buy simply is not available. The rest of that group are employed but at the lower end of the pay scale which pushes them to rent due to budgetary considerations and an inability to qualify for a mortgage. The optimism over the housing recovery has gotten well ahead of the underlying fundamentals. While the belief was that the Government, and Fed's, interventions would ignite the housing market creating a self-perpetuating recovery in the economy - it did not turn out that way. Instead, it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2014 - the lack of recovery in the home ownership data suggests otherwise.
It would appear that the government, via its mortgage-financing subs Fannie Mae and Freddie Mac, is providing yet another $50 to $100 million fillip to banks - but this time at the expense of their ignorance. As Reuters reports, the FBI is investigating "unsophisticated tradecraft," such as hand signals and special telephone ring tones, that some traders are conspiring to rig rates on large orders submitted by the GSEs - front running them in the interest rate swaps market. Of course, no one is surprised at yet another manipulation or malfeasance but the 'high-level-employee' whistleblower's exposure is perhaps not surprising since the size of 'hedging' orders from the mortgage-managers provides an incentive for front-running ahead of the trades - "GSEs frequently submit large interest-rate swap trades, making them easy targets for front running and lucrative targets for market manipulation."