November 16, 2010
It's deja vu all over again
Yogi Berra
REO is already owned by the banks. They need to decide whether to take their loss know by selling or speculate on higher prices and carry it and argue with the regulators about it. On foreclosures, need to speed up, not slow down the process. Resolution requires that the winners and losers be identified, prices set and markets allowed to clear no matter what it takes. Politicians in particular seem to think that they can somehow prevent "losses", or at least make sure the losers are savers. That includes banks in their minds. Nice thing about dot com is that the assets were easily moved and winners and losers quickly declared. But we can't move the houses, they just hang around and make it difficult to resolve the demand/supply imbalance. Real estate is not a big national clearing market. It is a bunch of little geographic markets being meddled with by politicians and banks that don't want to acknowledge losses.
William Dunkelberg
Chairman, Liberty Bell Bank
November 15, 2010
This week in The Institutional Risk Analyst, we return to the financial travails of Ambac Financial Group ("AFG"), which recently filed bankruptcy after several years of twisting in the wind due to questions about solvency related to RMBS exposures. AFG, as it turns out, is the latest project of Treasury Secretary Tim Geithner, who wants to again protect the largest bank dealers and the market in over-the-counter derivatives from legal discipline. But before we wade into that swamp full of terrapins, first let's take a look at the Q3 2010 preliminary ratings for all U.S. banks from the professional version of The IRA Bank Monitor
...Speaking of outliers, it is no secret that we view the situation involving Bank of America ("BAC"/Q2 2010 Stress Rating: "C") and the corporation formerly known as Countrywide Financial as being problematic -- a legacy of the evil duet of Hank Paulson and Timothy Geithner at the U.S. Treasury. Some of you may have noticed that BAC just sold its securitization trust business to US Bancorp (USB/Q2 2010 Stress Rating: "A") and that no price was disclosed. Maybe there was no price. Want to buy an insurance company?
Last week in The IRA Advisory Service, of note, we examined the possible scenarios for resolving the BAC situation. Suffice to say that while the possibility of a bankruptcy for the non-BHC affiliate of BAC known as Countrywide Financial is still unthinkable, it is no longer seen as impossible by the lawyers we contacted. If the credit environment continues to fester into 2011, says one former senior regulatory counsel, strategy of BAC management saying "foxtrot oscar" to the Treasury on the way to the Bankruptcy Court may have a certain utility.
And speaking of brazen maneuvers, make sure you read Gretchen Morgenson's column on the unfolding AFG bankruptcy inThe New York Times this past Sunday. "At Ambac, Haves and Have-Nots," tells the story of yet another stunning accomplishment for Secretary Timothy Geithner. It seems that the holders of credit default swaps (CDS) and municipal obligations of the underwriter subsidiary of AFGc are being given preference by the State of Wisconsin Insurance Commissioner over the holders of guarantees on RMBS.
Wisconsin insurance boss Sean Dilweg is clearly toeing the "team player" line set down by Geithner in their collapse of American International Group (AIG), namely always pay the banks and screw the bond holders and the taxpayer. In this case the taxpayers are the good people of Wisconsin. Will AFG's insurance business really survive under this allegedly "optimal" rehabilitation plan proposed by Mr. Dilweg? It looks to us like he and Geithner are cherry picking the remains of AFG's assets to pay the bank CDS counterparties and leave the sinking ship for the WI state insurance fund to clean up a couple of years hence.
Indeed, it appears that Geithner is once again raiding the public trust on behalf of the banksters, in this case the Wisconsin State insurance fund, to pay out CDS contracts to Citigroup and a whole slew of large foreign banks while holders of RMBS are being "segregated." We recall that at first the Irish government made payments to the German, French and UK banks who owned Irish bank debt, but now the whole country is insolvent. Now let's think: What deal was reached at the G-20 two years ago?Chris Whalen's Institutional Risk Analytics
...just one damn thing over and over again
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