It’s often said that regulators are always solving the last problem while the next one creeps up on the markets unaware. That notion was certainly tempting yesterday as everyone who’s anyone in market regulation gathered at that conference near Washington, DC. But we couldn’t help thinking that despite speeches from the Fed’s Ben Bernanke, Treasury’s Hank Paulson and JP Morgan’s Jamie Dimon, the folks there didn’t even get as far as addressing what led us to the current financial crisis.
Let’s take Paulson’s proposal that covered bonds could restart the mortgage market. Ensuring that mortgage originators and those securitizing the problems have ongoing skin in the game may in fact improve the quality of those bonds. But Paulson made his proposal in the context of talking about reviving loans for subprime market. Will covered bonds restart interest there?
Not very likely.
subprime
There’s mucho dinero to be made in this mortgage meltdown situation, but instead of jumping in your time machine, traveling back to last summer and shorting subprime, why not get creative about it? According to the Journal, anyone interested in getting rich should dive into the fish fucking business, stat. Michael Corkery reports that the Gambusia affinis, i.e. the “mosquito fish,” is making a name for itself in California, Arizona, Florida and anywhere else you might find a ton of foreclosed homes con swimming pools. Apparently the abandoned estate’s water-based recreational facilities are becoming infested by mosquitoes, and causing worry about the spread of diseases like West Nile. Instead of using humans to spray pesticides, the fish are increasingly being deployed to the areas of concern, where they eat up to 500 larvae a day. “They are the real heroes,” said Josefa Cabadad, a technician with the Contra Costa Mosquito & Vector Control District. “I’ve never seen a mosquito in a pool with mosquito fish.” Start breeding.
For Mortgages Underwater, Help Swims In [WSJ]
You could be forgiven for missing the news that the Fed is now accepting as collateral securities backed by credit card debt and auto loans. It doesn’t look like a very good sign. It also makes me wonder:
What if the ratings on collateral the Fed has accepted slip below their minimum standard? Is there a covenant violation? Will the Fed liquidate? Force counterparties to buy them back?
I’m willing to bet the answer here is: “Nothing will happen.”
Is the Fed doing anything at all to scrutinize the “quality” of the ratings? What if a AAA rating is based on insurance via an (insolvent?) monoline? Is the Fed even looking at this? Do they have the ability to even if they want to?
Again, I’m willing to bet the answer here is: “No, and no.”
Dangerous times.
Fed Expands Auction, Accepts Wider Collateral [MarketWatch]
Subprime Has An Upside (If You Want To Have Wasserstein For A Neighbor. Don’t Mess With The Hedges Though).
By Equity PrivateHome prices in the Hamptons, where rich and famous New Yorkers spend summers by the sea, fell in the first quarter as Wall Street job cuts and an economic slowdown took a toll on buyers.
The median price declined 7.1 percent to $882,500 and the number of sales dipped 29 percent from the last three months of 2007, according to a survey by appraisal firm Miller Samuel Inc. for New York-based Prudential Douglas Elliman Real Estate. Part- time Hamptons residents include Lazard Ltd. Chief Executive Officer Bruce Wasserstein and comedian Jerry Seinfeld.
Or you could take the advice of a sub-prime guru I know. Just wait until next year and buy it cheaper still.
Hamptons Home Prices Decline on Wall Street Job Cuts, Economy [Bloomberg]
When the Swiss are worried, you really need to watch it.
No lesser financial news giant than Forbes reports (via Thomson Financial News) that former Credit Suisse CEO Oswald Gruebel (a likelier name for the antagonist in a spy novel with a plotline involving stolen gold you have probably never encountered) quipped “We’ve narrowly escaped a system collapse. This has never happened before.” One is tempted immediately to think of World War II, the Great Depression, the Cuban Missile crisis, but this ignores the “system collapsiness” of these events from the Swiss View. To the Swiss these are but small tremors. Trifles.
So the next time someone tells you the sub-prime mess is overblown, or that Bear Stearns should have been allowed to fail, just point them to Oswald Gruebel, and remind them that the primary Swiss concern with World War II was that it increased shipping costs.
International Financial System Was Close To The Brink [Forbes]
When rated in terms of importance, the report from UBS on $37 billion in write downs probably bears no small resemblance in Zurich to the Warren Commission report in Washington, D.C. The Warren Commission was, of course, put together by Kennedy’s successor. Ironic, then, that the UBS report would be assembled by Peter Kurer, UBS’ legal counsel and the man tapped to succeed now disgraced UBS Chairman Marcel “Thank you, Herr Trump” Ospel. In this case, however, Oliver Stone will be pleased to know that the damage was done by a three-unit, classic, triangle ambush which, according to the Wall Street Journal, was composed of “in-house hedge fund Dillon Read Capital Management, which was closed last year after racking up losses; the collateralized debt obligation, or CDO, desk; and the asset-backed trading book.”
Of course, Oliver Stone wouldn’t be happy with us if we didn’t find a patsy. UBS is happy to comply and offer up Huw Jenkins, who, in as close to a “he acted alone” conclusion as we are likely to read, was faulted for “…keeping bank management and Chairman Marcel Ospel in the dark about the losses until August, several months after Dillon Read had been shut down.”
Peter Kurer is expected to be sworn in as President during a hurried ceremonywin shareholder approval for the Chairman’s slot on Wednesday.
UBS Issues Excerpt of Report On How Losses Came About [WSJ]
Over on D-Squared Digest, Daniel Davies challenges all comers to a round of “moron poker,” wherein the participants “on-up” each other with links to the bottom stories of the day- the more daft, the better. We think it should be called “Moron Hearts” instead, technically, but, ok, we’re game. We are certainly (and proudly) the Street’s clearing house for all things moronic.
His lead is with this piece by Alice Miles on subprime. Following the rules, we’ll cite this piece over on The Consumerist, previously seen in our very own “write-offs,” insisting that the repeal of Glass-Steagall is responsible for all our subprime woes.
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