Archive for the ‘Wall Street’ Category
Posted by Larry Doyle on June 23rd, 2009 11:07 AM |
How would you like to bring a case in which the counterparty is not only defendant, but judge and jury as well? Probably not, right?
Welcome to the world of Wall Street arbitration.
Investors, when opening an account with a bank or broker, are compelled to sign an agreement stating that any dispute will be adjudicated via an arbitration process. On its surface, arbitration is not a bad process. It is utilized in many industries. That said, for arbitration to be uniformly fair the arbitrators must be disinterested parties. Does that happen on Wall Street? Come on, be serious!! The deck is stacked against investors in arbitration. Why?
Arbitrators obviously need to have a thorough knowledge of the financial industry in order to pass judgment. Beyond that, though, Wall Street arbitrators and arbitration have lots of issues and embedded conflicts.
Let’s take a harder look at the arbitration process. The Wall Street Journal provides a brief overview, Securities Arbitration Is Faulted:
Attorneys who represent investors have asked the Securities and Exchange Commission to drop a requirement that a securities-industry representative sit on arbitration panels.
Yes, that statement right there highlights the embedded conflict in the arbitration process. Let me simplify. Say, for example, an investor brings a complaint against his Morgan Stanley broker. On the arbitration board will sit a representative from Goldman Sachs. Simultaneously, right down the hall an investor brings a complaint against his Goldman Sachs broker. On the arbitration board sits a representative from Morgan Stanley. Level playing field? Come on.
Investors who open a brokerage account generally sign away their rights to sue the broker or the firm for bad advice. They have to settle disputes through arbitration run by the Financial Industry Regulatory Authority, which is funded by the industry.
What do we learn here? The case obviously will not be arbitrated in your lawyer’s office and similarly not in the offices of the broker’s attorney. Who holds court? The Financial Industry Regulatory Authority, FINRA, which is funded by Wall Street. Conflict of interest? At least on the surface it would appear as such. For those unfamiliar with FINRA, this is the organization which has yet to issue their 2008 Annual Report and dumped $647 million in Auction Rate Securities either shortly before or as the ARS market was failing. Feeling confident yet? Me neither. (more…)
Tags: are Wall Street arbitrators disinterested, are Wall street arbitrators unbiased, deck stacked against investors, disputes with my broker, how are Wall Street disputes settled, how does Finra fund itself, how does Wall Street arbitration work, investors must sign arbitration agreement, is Wall Street arbitration fair, issues with my broker, problems with my broker, Public Investors Arbitration Bar Association, rules changes proposed by PIABA, Securities Arbitration Is Faulted, SIFMA and PIABA, Wall Street arbitration, Wall Street arbitration process, what is Finra, who is Finra, who sits on Wall street arbitration panels
Posted in General, Wall Street | 1 Comment »
Posted by Larry Doyle on June 19th, 2009 7:28 AM |
“That’s the way we’ve always done it!!”
How often have you heard a person answer in that fashion when asked why something is done a certain way? A lot, I’m sure. Why? Change is stressful. Adjusting to change is perhaps even more stressful.
As we are forced to adjust to the Brave New World of the Uncle Sam Economy, we will certainly witness many individuals, business units, and industries resist change. I’m seeing them all around me. Let me share a few with you:
1. FINRA: at a time when our economy is screaming for increased transparency and accountability, this Wall Street self-regulatory organization has not yet released its 2008 Annual Report. Why? I view it as unacceptable.
The facts, figures, and transactions for 2008 are in the books. A mere accounting should be simple and straightforward. With the exception of Bloomberg, do you even hear of FINRA from major media outlets?
Rest assured, I will review the FINRA Annual Report thoroughly, with particular focus on their investment activities, and question them as need be. At some point, perhaps, the mainstream media may want to engage them as well.
2. Wall Street: why do banks so badly want to pay back TARP funds? The primary reason is compensation. In fact, in recently speaking with a number of colleagues on the street, banks are again paying “guaranteed” contracts to recruit personnel. Certain of these banks remain flush with government funds.
What propels banks to do this? Because they can, meaning there is no transparency or accountability. Additionally, they do not want to “cede turf” to startup firms which can offer opportunity but no guarantees. In layman’s terms, the large banks are flexing their muscles to impede smaller organizations from gaining a foothold in their ‘hood.’ Fair and open competition is one thing, but using taxpayer funds to pay guaranteed contracts is an entirely different issue.
3. Banking: why do banking industry execs feel compelled to maintain the perks of prior years? Ego. The Wall Street Journal highlights CEOs of Bailed-Out Banks Flew to Resorts on Firm’s Jets.
Business is business and executives, whether working at firms flush with government aid or not, need to compete. That said, if the executives are at firms still in receipt of government assistance . . . “back of the bus, pal.”
LD
Tags: back of the bus, Bankers on corporate jets, bankers using corporate jets, banks with government assistance, business as usual, business as usual on wall street, compensation on Wall Street, FINRA, FINRA 2008 Annual Report, lack of accountability on Wall Street, lack of transparency at Finra, lack of transparency on Wall Street, mr. banker, Uncle Sam economy, Wall street guaranteed bonuses, Wall Street guaranteed contracts, Wall Street guarantees, where is finra's 2008 annual report
Posted in Banking Institutions, FINRA, General, Wall Street | 1 Comment »
Posted by Larry Doyle on May 8th, 2009 1:15 PM |
Will the wizards in Washington be able to recreate the Goldilocks economy, in which we can generate moderate growth with limited inflation and near full employment? Well, that economic dream is still off in the distance, but the Goldilocks analogy is appropriate. How’s that? Much like the cherished tale, the wizards are faced with three choices in virtually every situation: too much, too little, just right.
Fiscal policy
– too much spending and/or improperly targeted spending will drive interest rates higher via massive deficits and potential hyperinflation.
– too little spending and/or improperly targeted will not properly stimulate the economy and may lead to a bout of deflation.
– just the right amount of spending and properly targeted will support the economy and stabilize prices.
Monetary Policy
– too much gas on this fire will massively grow the money supply and lead to hyperinflation.
– not enough gas or a slow delivery (the concern in Europe) will not stop the economy from sliding into a deeper recession.
– just right will lead to support for the economy. However, our wizards must be prescient and know exactly when to turn the gas line down and then off. If this procedure is not executed with precision, our house may go up in the flames of hyperinflation. Many wise and elderly wizards, including none other than Paul Volcker, have this concern.
Regulatory
– overly restrictive regulations will inhibit an entrepreneurial spirit and drive business overseas.
– ineffective, inappropriate, or insufficient regulations will lead to further moral hazards and an economic foundation akin to a pile of sand. Dare I say, our house is suffering from this problem currently.
– just right would compel new regulators with real teeth to redraft the rules by which we play. Paul Krugman wrote “Stressing The Positive” in yesterday’s New York Time and addressed this topic. Krugman offers:
. . . what worries me most about the way policy is going isn’t any of these things. It’s my sense that the prospects for fundamental financial reform are fading.
Does anyone remember the case of H. Rodgin Cohen, a prominent New York lawyer whom The Times has described as a “Wall Street éminence grise”? He briefly made the news in March when he reportedly withdrew his name after being considered a top pick for deputy Treasury secretary.
Well, earlier this week, Mr. Cohen told an audience that the future of Wall Street won’t be very different from its recent past, declaring, “I am far from convinced there was something inherently wrong with the system.” Hey, that little thing about causing the worst global slump since the Great Depression? Never mind.
Those are frightening words. They suggest that while the Federal Reserve and the Obama administration continue to insist that they’re committed to tighter financial regulation and greater oversight, Wall Street insiders are taking the mildness of bank policy so far as a sign that they’ll soon be able to go back to playing the same games as before.
Uncle Sam’s intervention
– too much involvement means private enterprise will either not play in our markets or charge a higher price in the form of higher interest rates (this is VERY likely to happen given the disregard for property rights and the validity of contracts).
– too little and the economy may take another leg down in the form of a triple dip.
– just right . . . how do we compel Uncle Sam to be a benevolent Old Man and not encroach on the principles of capitalism, free markets, and private enterprise as he tries to push forward with a massive social agenda and enormous spending plans?
The trail on which we are proceeding will be LONG. Will we be able to find that warm home in the woods? Do we have the fortitude and courage to sacrifice as need be or do we have leaders who are blinded by ambition and agendas which will cause us to lose our way?
Bring extra supplies.
LD
Tags: banking regulations, deflation, Economy, entrepreneurial spirit, financial regulation, fiscal stimulus, goldilocks economy, government intervention, government spending, hyperinflation, Inflation, intervention in economy, monetary stimulus, new economy, prospects for inflation, regulation, U.S. economy
Posted in Economic Stimulus, Economy, Employment, General, Wall Street | No Comments »
Posted by Larry Doyle on May 6th, 2009 8:09 PM |
I came across the Center for Public Integrity in my travels today. I commend them and those supporting this initiative.
They produced a very interesting piece today: Who’s Behind The Financial Meltdown?
WASHINGTON, D.C., May 6, 2009 — The top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money, according to Who’s Behind the Financial Meltdown?, a new investigation by the Center for Public Integrity.
“The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” said Center Executive Director Bill Buzenberg. “These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system.”
These are among the findings that emerged from the Center’s computer analysis of government data on nearly 7.2 million “high-interest” or subprime loans made from 2005 through 2007, a period that marks the peak and collapse of the subprime boom. The analysis also revealed “The Subprime 25“ — the top 25 originators of the high-interest loans, accounting for nearly $1 trillion and about 72 percent of industry — who reported subprime loans during that period.
The Center found that U.S. and European banks poured huge sums into the subprime lending market due to unceasing demand for high-yield, high-risk bonds backed by home mortgages. The banks — including household names like Lehman Brothers, Merrill Lynch, Citigroup, Credit Suisse/First Boston, and Goldman Sachs & Co — made huge profits while their executives collected handsome bonuses until the bottom fell out of the real estate market.
According to the analysis:
• At least 21 of the top 25 subprime lenders were financed by banks that received bailout money — through direct ownership, credit agreements, or huge purchases of loans for securitization.
• Nine of the top 10 lenders were based in California, including all of the top 5 — Countrywide Financial Corp., Ameriquest Mortgage Co., New Century Financial Corp., First Franklin Corp. and, Long Beach Mortgage Co.
• Twenty of the top 25 subprime lenders have closed, stopped lending, or been sold to avoid bankruptcy. Most were non-bank lenders.
• Eleven of the lenders on the list, including four recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses.
A second story in the package, “Predatory Lending: A Decade of Warnings,” details the troubling history of congressional oversight involving abusive lending practices. The story traces how obscure laws passed by Congress in the 1980s paved the way for creation of the subprime lending industry, and documents how lawmakers essentially ignored repeated warnings that high-cost loans represented a systemic risk to the American economy.
Included in the Center’s online package are extensive maps and tables detailing the extent of the companies’ subprime lending nationwide, the banking industry’s backing of subprime lenders, and political contributions and lobbying expenditures by the real estate and financial industries.
Although this particular piece does not present any new information, I always appreciate a venture dedicated to bringing increased integrity and transparency into our business and political worlds. I am adding this site to my favorites.
LD
Tags: banks that profited from sub-prime lending, Center For Public Integrity, sub-prime lending, sub-prime originators receiving government bailouts, top sub-prime lenders, Who's Behind The Financial Meltdown?
Posted in General, Wall Street | 3 Comments »
Posted by Larry Doyle on May 6th, 2009 11:37 AM |
Can Barack Obama’s horses and men in the persons of Ben Bernanke, Tim Geithner, Larry Summers, Paul Volcker, Rham Emanuel, Sheila Bair, and their minions put Wall Street together again? The glue and putty in the form of trillions of dollars of taxpayer funds and commitments is still wet. Mr. “Humpty Dumpty” Wall Street is still on the ground.
Humpty’s most severe injury is the breakdown of the securitization process in which Wall Street promoted a pure “originate to distribute” model. Obama himself offered in the May 3rd Sunday New York Times Magazine:
. . . we’re going to have to figure out what we do with the nonbanking sector that was providing almost half of our credit out there. And we’re going to have to determine whether or not as a consequence of some of the steps that the Fed has been taking, the Treasury has been taking, that we see the market for securitized products restored.
I’m optimistic that ultimately we’re going to be able to get that part of the financial sector going again, but it could take some time to regain confidence and trust.
Time for the cement to harden and for Humpty to get back on his feet. Why will it take so much time? Very simply, Humpty was not an honest broker in the process of originating, securitizing, and distributing poorly written – if not fraudulently written – loans over the last 5 to 7 years. The Financial Times highlights this fact this morning in “Securitization Is Crucial for Revitalizing Lending.” The FT reports:
Securitisation is a way to raise money by repackaging securities based upon underlying assets such as mortgages.
The US government is seeking to restart this market with up to $1,000bn of funding for purchases of securitised debt. But the complexity and risks involved mean it remains difficult to replicate the scale of the market that collapsed under the weight of losses and the departure of leveraged investors.
Meredith Whitney, of Meredith Whitney Advisory Group, says about $2,200bn less in funds has been raised by means of the US capital markets since the start of the credit crunch in July 2007, with $2,700bn less money raised globally.
She said: “With debt issuance to date seeing year-on-year gains, it is suggestive to say that things aren’t getting much worse. They just aren’t getting any better.”
The US government’s programme to revive securitisation – the Term asset-backed securities loan facility (Talf) – has made some funds available and it has also led spreads on some asset classes to narrow, reducing the potential funding costs. The programme works by lending money to hedge funds, which can increase the returns on triple A rated securities by means of the cheap loans.
In a sign of a big pick-up in demand, the Federal Reserve said late yesterday that investors requested $10.6bn worth of loans in its most recent round of the programme. This included $2.2bn worth of requests for auto loan bonds and $5.5bn for bonds backed by credit card loans.
If we review those statistics, the government’s TALF (Term Asset-Backed Lending Facility) has facilitated $18.5 billion in sales since its launch in March. While the Fed views the demand as picking up, be mindful that the $18.5 billion figure represents approximately .008 of the total credit that has evaporated from the economy via the shadow banking system. In layman’s terms, we just gave Humpty a swab with a warm cloth while his limb is holding on by a thread.
My concern with the TALF is that the buyers will cherry pick bank assets and simply purchase those which have the most rigorous underwriting. The dregs will be left for the banks and taxpayers to absorb.
If Uncle Sam does get Humpty somewhat propped back up against the wall (note that I’m not even hinting at Humpty getting “on the wall”), how do we make sure Humpty does not once again fall down and take us all with him?
We need to make sure Humpty plays by strict rules and regulations, both in terms of underwriting and business engagement. The FT addresses proposed underwriting rules in “Watchdog Proposes Strict Rules.” The FT reports,
Yesterday’s Iosco (International Organization of Securities Commissions) report called for minimum levels of due diligence by the originators and suggested mandating far greater disclosure to investors of what checks had been carried out. It also called for ongoing disclosure to investors of the performance of the underlying assets and for originators to be forced to hold on to some tranches of each deal.
Other proposals included imposing standards forcing originators to check that products were suitable for each investor and looking into developing alternative measures of assessing risk other than the credit ratings agencies that were relied on by investors previously.
Wow, you mean Humpty actually has to display a measure of integrity in his operations? What a novel idea! Who may be keeping an eye on Humpty to make sure he plays by the rules going forward? The SEC and FINRA (Financial Industry Regulatory Authority).
Hey, wait a second. When Humpty fell off the wall, we have very credible evidence that FINRA was actually one of his playmates. None other than Harry Markopolos said that FINRA was on the wall (“in bed”) with Humpty. I have highlighted issues within FINRA that still need to be addressed: FINRA Is Supposed To Police The Market.
President Obama, what do you prescribe for Humpty given his relationship with FINRA? Obama told the Times,
. . . the fact that we had such poor regulation means — in some of these markets, particularly around the securitized mortgages — means that the pain has been democratized as well. And that’s a problem. But I think that overall there are ways in which people have been able to participate in our stock markets and our financial markets that are potentially healthy. Again, what you have to have, though, is an updating of the regulatory regimes comparable to what we did in the 1930s, when there were rules that were put in place that gave investors a little more assurance that they knew what they were buying.
Putting Humpty back together is going to be very challenging. Sense on Cents will be monitoring the operation very closely.
LD
For newer readers who may want to more fully understand how Humpty “had a great fall,” I strongly recommend The Wall Street Model Is Broken….and Won’t Soon Be Fixed.
Tags: can Wall Street be rebuilt?, FINRA's relationship with Wall Street, International Organization of Securities Commissions recommendations, Meredith Whitney comments on capital markets, Obama interview in Sunday New York Times, originate to distribute, originate to distribute model, progress of TALF, protecting investors, rebuilding the nonbanking sector, rebuilding Wall Street model, rebuilding Wall Street's business, reconstructing Wall Street, repackaging loans, restarting the securitization processm, restoring the nonbanking sector, what's up with FINRA, will TALF work?, will Wall Street recover
Posted in FINRA, General, Mary Schapiro, SEC, Sheila Bair, TALF, Tim Geithner, U.S. Treasury, Wall Street | 8 Comments »
Posted by Larry Doyle on April 28th, 2009 12:15 PM |
The intrigue involved in Bank of America’s takeover of Merrill Lynch goes well beyond standard Wall Street negotiations. Did Fed chair Ben Bernanke and then Treasury Secretary Hank Paulson break the law in the process of pressuring BofA CEO Ken Lewis to complete this bank merger? Bloomberg’s Jonathan Weil has easily distinguished himself amongst all journalists in aggressively addressing this topic. Weil pulls no punches in writing One Nation, Under Banks With Justice For No One.
Lewis, as CEO of Bank of America, possessed material non-public information about Merrill Lynch and was obligated by law to release that information to his shareholders. Lewis unequivocally maintains Bernanke and Paulson pressured him not to release that information which would have potentially derailed the merger. Why didn’t Lewis get Bernanke’s and Paulson’s position in writing? Did Lewis ask for it in writing? Did Paulson and Bernanke knowingly avoid a legal quagmire by not contractually committing in writing to increased government support for Lewis’ acquiescence?
Weil provides a clear expose of this situation. I commend him! He writes:
The spectacle of Ben Bernanke and Henry Paulson running roughshod over Kenneth Lewis and his minions at Bank of America Corp. raises a pivotal question for all Americans: Is the U.S. a nation of laws, or a nation of banks?
Let’s start by examining the facts disclosed last week in a letter by New York Attorney General Andrew Cuomo while taking pains to present the actions of each player in this drama in the fairest possible light. (more…)
Tags: Andrew Cuomo's investigation of Bank of America's takeover of Merrill Lynch, Bank of America takeover of Merrill Lynch, Barney Frank, Ben Bernanke, Christopher Dodd, Hank Paulson and Ben Bernanke pressure Ken Lewis, jonathan Weil, Mary Schapiro, Merrill lynch taleover by Bank of America, New York AG Andrew Cuomo, SEC
Posted in Bank of America, Banking Institutions, Barney Frank, Ben Bernanke, Christopher Dodd, Economy, General, Henry Paulson, Moral Hazard, Wall Street | 5 Comments »
Posted by Larry Doyle on April 26th, 2009 9:25 PM |
UPDATE: The show has concluded, but you can listen to it in its entirety by clicking on the Play button on the audio player below. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
********************************************
Please join me Sunday evening from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. 
I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and what does that mean for the weeks and months ahead? We will address a wide range of issues, including: Hank Paulson blindsiding Ken Lewis, 1st quarter earnings (their transparency and quality), market performance this week, month, and year to date, the outlook for our financial regulatory structure, and upcoming bank stress test results.
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.
Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
LD
Tags: Economy, No Quarter Radio, Sense on Cents
Posted in Economy, General, Wall Street | 3 Comments »
Posted by Larry Doyle on April 23rd, 2009 2:06 PM |
Our Economic All-Star Laszlo Birinyi has recently had some very good calls on the market. His funds are outperforming the major stock market averages by 10-15%. Birinyi is an excellent stock picker but also has an experienced professional’s “feel” for the market.
His weekly Blogger Sentiment Poll provides us an easy snapshot as to current investor attitudes. Recall that when a bullish reading approaches 30%, it is an indication of the market being oversold. Similarly, if a bullish reading approaches 70% it is an indication of the market being overbought.
The market overall has done somewhat better over the last few weeks but has given some of that improvement back in this week’s trading. In investment terms, this price action is known as “running in place,” “range trading,” or “moving sideways.”
Not surprisingly, the readings in Birinyi’s polls indicate a very balanced short term sentiment.
LD
Tags: Laszlo Birinyi sentiment poll, market moving sideways, market running in place, market sentiment, trading range
Posted in Equity Markets, General, Laszlo Birinyi, Wall Street | No Comments »
Posted by Larry Doyle on April 22nd, 2009 5:45 PM |
As we work our way through the 1st quarter earnings reports, what have we learned?
1. Earnings for certain tech companies (Google, E-Bay, Apple, Qualcomm) have beat expectations. The fact that these companies have large cash positions and are not overly burdened with debt has benefitted them.
2. Major money center bank (Citi, BofA, JP Morgan, Wells Fargo) earnings looked good on the surface but there remain real questions about the quality and transparency of the numbers. The Bank Stress Tests hang over this sector. Independent analysis indicates that banks in general are lending less as credit writedowns continue to increase. The earnings in these banks are focused more on trading activities and mortgage refinancing while core consumer banking is quite weak. The strength in trading and refinancing is directly linked to government supported actions (related to AIG, Fed purchases of mortgage and government securities). Many analysts question whether the earnings from trading are repeatable while core banking activity is a drag.
3. Earnings for regional banks (KeyCorp, First Horizon, Bank of New York, Suntrust, Regions) and banks without sizable trading businesses are weak across the board. Credit chargeoffs on existing loans (credit cards, residential, commercial mortgages, corporate loans) continue to move higher and limited demand for new credit are hurting these institutions. (more…)
Tags: 1st quarter earnings review, bank earnings, Bank Stress Tests, consumer banking, consumer company earnings, credit chargeoffs, earnings from trading with AIG, equity earnings, industrial company earnings, regional bank earnings, review of 1st quarter earnings, shadow banking system
Posted in Economy, Equity Markets, Wall Street | 3 Comments »
Posted by Larry Doyle on April 21st, 2009 1:14 PM |
How does our economy and country move forward after having experienced rampant abuses throughout our financial industry? It is disheartening that we have not already seen an aggressive pursuit and prosecution of many involved in these financial improprieties. Bloomberg releases a story today indicating House Speaker Pelosi Wall Street Probe Modeled on Pecora After Wall Street Crash.
While a thorough investigation is critically important to improve the health and well being of our markets and economy, I would propose we employ an independent investigation. Why?
Our financial industry is intertwined with the regulatory and political oversight which is supposed to monitor it. If we employ a currently sitting legislative body to investigate Wall Street, can or will we receive a truly unbiased analysis? Do we recall Franklin Raines of Fannie Mae being questioned by members of Congress who had received significant campaign contributions from Fannie? The “investigation” of Freddie and Fannie was certainly more theatre than true investigation. Will we get the same with Ms. Pelosi’s probe? Bloomberg offers:
House Speaker Nancy Pelosi plans to push for a comprehensive inquiry, saying that three-quarters of Americans want to know what led to the bankruptcy of Lehman Brothers Holdings Inc. and the collapse of Bear Stearns Cos. and Merrill Lynch & Co. She favors one patterned after Senate Banking Committee hearings led by Ferdinand Pecora starting in 1933, according to her spokesman, Nadeam Elshami.
The Pecora review “was probably the single most important congressional investigation in the history of our country, except perhaps the Watergate hearings,” Donald Ritchie, associate historian for the U.S. Senate, said in an interview. (more…)
Tags: Auction Rate Securities, bankruptcy of Lehman, Barney Frank, campaign contributions by Wall Street, Center for Responsive Politics, Charles Geisst, Chris Dodd, Chuck Hagel, collapse of Bear Stearns, Donald Ritchie, Fannie Mae, FINRA, FINRA's investment portfolio, Franklin Raines, Freddie Mac, historian of U.S. Senate, independent investigation of Wall Street, Legalized Bribery, Leon Panetta, Mary Schapiro, Pecora investigation, SEC, SRO, Wall Street, Wall Street oversight, William Black
Posted in Banking Institutions, Barney Frank, Congress, FINRA, Franklin Raines, Freddie Mac, General, Government funds, Wall Street | 5 Comments »
RSS Feed
Twitter
Facebook
Email
Home
All The King’s Horses and All The King’s Men . . .
Posted by Larry Doyle on May 6th, 2009 11:37 AM |
Humpty’s most severe injury is the breakdown of the securitization process in which Wall Street promoted a pure “originate to distribute” model. Obama himself offered in the May 3rd Sunday New York Times Magazine:
Time for the cement to harden and for Humpty to get back on his feet. Why will it take so much time? Very simply, Humpty was not an honest broker in the process of originating, securitizing, and distributing poorly written – if not fraudulently written – loans over the last 5 to 7 years. The Financial Times highlights this fact this morning in “Securitization Is Crucial for Revitalizing Lending.” The FT reports:
If we review those statistics, the government’s TALF (Term Asset-Backed Lending Facility) has facilitated $18.5 billion in sales since its launch in March. While the Fed views the demand as picking up, be mindful that the $18.5 billion figure represents approximately .008 of the total credit that has evaporated from the economy via the shadow banking system. In layman’s terms, we just gave Humpty a swab with a warm cloth while his limb is holding on by a thread.
My concern with the TALF is that the buyers will cherry pick bank assets and simply purchase those which have the most rigorous underwriting. The dregs will be left for the banks and taxpayers to absorb.
If Uncle Sam does get Humpty somewhat propped back up against the wall (note that I’m not even hinting at Humpty getting “on the wall”), how do we make sure Humpty does not once again fall down and take us all with him?
We need to make sure Humpty plays by strict rules and regulations, both in terms of underwriting and business engagement. The FT addresses proposed underwriting rules in “Watchdog Proposes Strict Rules.” The FT reports,
Wow, you mean Humpty actually has to display a measure of integrity in his operations? What a novel idea! Who may be keeping an eye on Humpty to make sure he plays by the rules going forward? The SEC and FINRA (Financial Industry Regulatory Authority).
Hey, wait a second. When Humpty fell off the wall, we have very credible evidence that FINRA was actually one of his playmates. None other than Harry Markopolos said that FINRA was on the wall (“in bed”) with Humpty. I have highlighted issues within FINRA that still need to be addressed: FINRA Is Supposed To Police The Market.
President Obama, what do you prescribe for Humpty given his relationship with FINRA? Obama told the Times,
Putting Humpty back together is going to be very challenging. Sense on Cents will be monitoring the operation very closely.
LD
For newer readers who may want to more fully understand how Humpty “had a great fall,” I strongly recommend The Wall Street Model Is Broken….and Won’t Soon Be Fixed.
Tags: can Wall Street be rebuilt?, FINRA's relationship with Wall Street, International Organization of Securities Commissions recommendations, Meredith Whitney comments on capital markets, Obama interview in Sunday New York Times, originate to distribute, originate to distribute model, progress of TALF, protecting investors, rebuilding the nonbanking sector, rebuilding Wall Street model, rebuilding Wall Street's business, reconstructing Wall Street, repackaging loans, restarting the securitization processm, restoring the nonbanking sector, what's up with FINRA, will TALF work?, will Wall Street recover
Posted in FINRA, General, Mary Schapiro, SEC, Sheila Bair, TALF, Tim Geithner, U.S. Treasury, Wall Street | 8 Comments »