Mind Over Market

Neil Barofsky, in his 224-page quarterly report to Congress as the Special Inspector General for TARP, argues that the extraordinary efforts taken to rescue banks in the 2008 financial meltdown, have inadvertently created a situation where a future crisis will be even worse. Read the entire report, released January 30, 2010, at this link: http://www.sigtarp.gov/reports/congress/2010/January2010_Quarterly_Report_to_Congress.pdf Read FoxNews.com story on the report at this link: http://www.foxnews.com/politics/2010/01/31/watchdog-bailouts-created-risk/ Below is a section of the Executive Summary that is particularly insightful: It is hard to see how any of the fundamental problems in the system have been addressed to date. • To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs. • To the extent that institutions were...

AIG in a filing with the Securities and Exchage Commission has finally released a detailed list of the derivatives contracts covered by bailout funds provided in the fall of 2008 to AIG by the federal governement. The payouts went through AIG to holders of credift default swaps against underlying Collateralized Debt Obligations (CDOs) worth $62 billion. By Robert Stowe England January 30, 2010 American International Group, Inc. (AIG) released Friday a schedule of Collaterized Debt Obligation (CDO's) that were made public two days earlier by a release of the same information by Rep. Darrell Issa (R-CA). The list includes all the derivatives contracts in a federal bailout of AIG to make whole $62 billion in CDOs at big Wall Street firms and large banks around the globe who had purchased Credit Default Swaps from AIG as insurance against the CDO's. Many of the CDO's were loaded with mortgage-backed securities written on pools of mostly subprime loans. Under an agreement broker...

In a story titled "Paperwork Woes Plague Mortgage Plan," in the weekend (January 16-17, 2010) edition of the Wall Street Journal, the accompanying chart appears. It is based on data provided by the Treasury Department. The chart is intended to capture the extent to which banks have move to modify loans that are eligible for loan modifications under the Obama Administration's loan modification program, which subsidizes lower interest rates on existing loans eligible for the program. From a quick look at the chart, it would appear that the lenders with the fewest number of loans eligible for the program have made the most permanent modifications. Permanent modifications occur after a trial period when homeowners who qualify for the program make regular payments on time for their new modified loans. For example, GMAC Mortgage has the highest rate of permanent modifications on the fewest number of eligible loans. Bank of America has one of the lower rates of permanent modific...

News anchor Erin Burnett's throw-away line that the Fed had purchased 80% of new Treasuries goes unchallenged in this discussion on January 8. I'm not sure on what basis that claim is made. Can anyone explain? The Fed's target for Treasury purchases was $200 billion. Treasury issues are far, far higher than that.

In emails from the New York Fed obtained by California Republican Darrell Issa's office, the New York Fed told AIG not to disclose the payments AIG was making to counterparties when the Fed was bailing out AIG. By Robert Stowe England January 7, 2010 Officials from the New York Fed in emails in December 2008 pressured AIG not to disclose how much was paid to counterparties in the federal government bailout of AIG earlier that year. Normally, such information would be disclosed in an 8-K filing by AIG. The emails were obtain by Representative Darrell Issa, California Republican, and released to the press yesterday. Under a bailout deal overseen by then New York Fed Chairman Timothy Geithner, the government agreed to provide 100 cents on the dollar for credit default swaps that were worth considerably less. Through the bailout, full payment on the notional value of the credit default swaps were made by AIG to Goldman Sachs, Societe Generale and other counterparties. The actual emails...

It’s a tough time for community banks to raise capital – and the regulators aren’t making it any easier. By Robert Stowe England Banking Strategies Magazine January 1, 2010 For community banks scrambling to raise capital, the propensity of federal regulators to raise the goal posts in the middle of the game makes the task increasingly onerous. Case in point is Normal-based Bank of Illinois, a two-branch community bank with $235 million in assets which, back in May 2009, possessed a risk-based capital ratio of just over 10%, just above the regulatory requirement for a well-capitalized bank. This ratio, established in guidelines from the Federal Reserve, is the ratio of total risk-adjusted capital (tier one and tier two) to risk-adjusted assets. Then, in May, a joint visit by the Illinois state bank regulatory agency and the Federal Reserve came with a demand that the Bank of Illinois increase its loan-loss reserve to cover potential losses on commercial real estate, which dropped the ri...

The Federal Housing Administration is making tough choices to help shore up the government program from weaker loans made in years past. A mortgage industry veteran is at the helm shaping the policy changes. By Robert Stowe England Mortgage Banking January 2010 David H. Stevens was sworn in as assistant secretary for housing at the Department of Housing and Urban Development (HUD) and commissioner of the Federal Housing Administration (FHA) on July 15, 2009, and is responsible for overseeing the $600 billion FHA mortgage insurance portfolio and HUD’s multifamily subsidized housing program. The commissioner also oversees HUD’s regulatory responsibilities under the Real Estate Settlement Procedures Act (RESPA). Prior to his appointment, Stevens was president and chief executive officer of the Long & Foster Companies, Inc., in Chantilly, Virginia. Further, he has an extensive background in mortgage finance. He served as executive vice president and national wholesale manager at Wells ...