Archive for January, 2010
I miss Heath Ledger.
When he transformed into The Joker for the motion picture The Dark Knight, he recreated an old character in a most compelling way. For my money, he’s the only reason to see that film. But you should see it, if for no other reason than to think about the U.S. financial services industry when he delivers the line: “This town deserves a better class of criminal.”
And we do. I know this because that’s the bait the government is now using to distract us from the woes of everyday life. They’re offering us front row seats in the search for financial services evil-doers. To get your ticket, surf over to the new website for the Financial Crisis Inquiry Commission (FCIC).
That’s right. We have a bipartisan commission that has been given “a critical non-partisan mission — to examine the causes of the financial crisis that has gripped the country and to report our findings to the Congress, the President, and the American people.” Critical – it says so on the website.
The FCIC has begun its hunt in earnest, starting with its first public hearing on January 13. It’s already heard from the usual suspects, including representatives from most of the major banks and Wall Street firms. In fact, the only major players that haven’t appeared yet are anyone connected with the U.S. Treasury Department or the Federal Reserve.
That could be because Fed Chairman Bernanke spoke to the American Economic Association on Jan. 3, assuring us that easy monetary policy during 2002-2005 wasn’t part of the problem. Okay, then.
My feeling is—and without appearing to be an apologist, I hope—that the vast majority of people working in the financial services industry during that time were doing their jobs, fulfilling a government mandate to get people into homes they owned. We’ll have to see what the witch hunters conclude.
The FCIC has this to say about its mission: “Hopefully, the Commission's work can help rebuild the American people's belief in a financial system that puts Americans to work, fulfills their goals and provides the foundation for a new era of broadly shared prosperity.”
And maybe that’s all we really need. Maybe knowing who played a part in the meltdown really will instill faith in our financial system…but probably not. Last I heard, we were responsible for fulfilling our own goals. And wouldn’t it be better for our government to take a break from all the finger-pointing just until we actually put some more Americans to work so we can tax them and start sharing their prosperity?
Of one thing I’m fairly certain. When it all comes to light, we’ll all be very disappointed. We’ll be sorry that common greed, a government driven by special interests and a total failure to uphold a mandate for responsible oversight led us to this point.
A fiasco like this really does cry out for a better class of criminal.
So how have the first two weeks of the reforms been going? Not exactly as planned. Many loan officers and lending institutions are sidestepping the new, price-bound GFE by giving shoppers "work sheets" and "loan scenario" forms that come with no legal requirements for accuracy, and were not even contemplated under the reforms.
In effect they are substitutes for the new GFEs but, in the wrong hands, they are open to lowballing and bait-and-switch games.
The work sheets purport to contain much of the information provided by a GFE. Typically they are issued only when shoppers do not provide — or are asked not to provide — key information that constitutes an "application" under HUD's definition in the rules.
Some kinds of consumer-loan-backed securities will be at more of a disadvantage than others when the Federal Reserve in March winds down a program it has used to prop up the market.
Stronger issuers and the higher-quality bonds won't be affected, industry participants say. But weaker issuers, with deals backed by loans more likely to underperform, will lose out.
Michael Wade of Barclays Capital in New York said the end of the central bank's Term Asset-Backed Securities Loan Facility, or TALF, will have little effect on some asset classes like prime auto and credit cards.
Goldman Sachs Group Inc., whose record earnings in the first nine months of last year fueled public outrage, will probably hit a profit plateau in 2010, just as Morgan Stanley rebounds from its worst year ever.
The diverging outlooks for earnings growth have started showing in the stock prices, with Morgan Stanley gaining 2.6 percent this year and Goldman Sachs dropping 2.2 percent. Analysts at Credit Suisse Group AG, UBS AG and Macquarie Group Ltd. began recommending investors buy Morgan Stanley this month.
But raising the credit bar could have a dangerous side effect. In many of the nation's hardest-hit housing markets, the FHA backs around half of all new home loans. If the agency pulls back too quickly, the nascent housing recovery could fizzle, endangering the economy.
The dilemma puts the 52-year-old former mortgage banker squarely in the middle of the debate over how much the government should do to prop up the housing market, and how much risk taxpayers should take on to do it.
"How big a role do we need to play to keep the housing system functioning?" says Mr. Stevens, referring to the FHA. "Overcorrecting in either direction would be a terrible thing to do right now."
In the high-yield credit markets, it is time to party like it's 2006.
Companies left for dead a year ago are now finding that investors are clamoring for their high-yield debt. Private equity-backed businesses are paying their owners dividends out of new bond issues. In all, companies raised $11.7 billion last week in the high-yield bond market, the biggest in history, according to Thomson Reuters.
The previous record: $11.4 billion, set at the apex of the mid-decade credit boom in November 2006.
