Posted by Larry Doyle on August 17th, 2009 11:53 AM |
The temperature is rising in the FINRA kitchen!!
Major high five to ARS investor ED for pointing out a breaking Bloomberg story that strikes right at the heart of our financial regulatory failings over the last number of years. Bloomberg reports Iraq Vet Asks Why Securities Overseers Can’t See.
This complaint encompasses a number of questions Sense on Cents has been asking over the last several months. As Bloomberg reports:
Amerivet Securities Inc. v. Financial Industry Regulatory Authority, a complaint filed in the District of Columbia Superior Court on Aug. 10 against Finra, the regulator whose Web site boasts of “proactively addressing emerging regulatory issues before they harm investors or the markets.”
If you can stifle your chortling over Finra’s psychotic break of a self-description and pay attention, the Amerivet complaint is example of regulators and those they regulate at their farcical finest.
Plaintiff Amerivet is run by Lieutenant Colonel Elton Johnson Jr., a one-time Special Forces soldier who served two tours of duty in Iraq in the U.S. Army Reserve, earning a bronze star and other decorations. Johnson has a long history with Finra — previously NASD — whose enforcement arm first went after him in 1997, censuring and fining him for violations of minimum capital requirements and for failing to file municipal securities offerings on a timely basis.
Complaining to Bush
Most recently, Finra suspended him as a supervisor from December 2006 to June 2008 because he didn’t properly manage an employee. Johnson says in his stockbroker records that the case was retaliation by Finra, which didn’t like it when he wrote to President George W. Bush to complain about how Finra was treating him.
While it does seem more than a little weird that Finra would bring a case in 2006 based on actions that happened a decade earlier, it’s hard not to wonder whether Johnson — with Army obligations, a real estate license, a firearms business and a private-detective operation — is a guy who might be a tad too busy to keep up with the details that a well-run brokerage firm should attend to.
His lawsuit against Finra, though, provides a funhouse window into what’s wrong with securities regulation. (more…)
Posted by Larry Doyle on August 17th, 2009 8:26 AM |
What investor does not want to allocate some portion of his portfolio to safe, liquid investments? Who hasn’t said to his broker or financial planner exactly what The Wall Street Journal reports this morning,‘I Just Wanted to Play It Safe,’ in regard to the Wall Street Ponzi scheme designated as auction-rate securities?
The WSJ provides these conversations as evidence collected by New York Attorney General Andrew Cuomo in his case against Charles Schwab. As you read these conversations, I am sure it is easy to picture yourself as one of these customers:
Customer from Massapequa, New York
Customer: “You know, I’m not trying to make a ton of money. I just want to play it safe.”
Broker: “Understood.”
…
Broker: “When you go to get out of this, even though you tell the rep sell it that means you want to stop the auction. The hardest part of this auction is getting into it. That is the tough part. Getting out of it is easy as just selling.” (more…)
Posted by Larry Doyle on August 15th, 2009 5:04 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can forward or rewind to any portion of the show by clicking at any point along the play bar. My interview with Ronnie Sue Ambrosino was extremely interesting, touching upon elements of investor protection that concern us all. For your reference, I’d like to provide two important websites that my guest mentioned: Bernie Madoff Victims Coalition and an online petition to show a unified support for investors to receive fair and legal treatment by the Securities Investor Protection Corp (SIPC).
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Has our government ever failed us to the extent involved in the regulatory oversight connected to the Bernard Madoff Ponzi scheme? How could these failures have perpetuated for such an extended period? How are these failures and their impact on the victims being handled? Is insult being added to injury?
Can the victims possibly receive real justice in terms of restitution and retribution? Where did the system falter? How are the victims of this travesty being treated by the powers that be on Wall Street, Washington, and in the media?
I am thrilled to address all these issues on my weekly program, No Quarter Radio’s Sense on Cents with Larry Doyle, this Sunday evening August 16th from 8-9pm as I welcome Ronnie Sue Ambrosino, head of the Bernard Madoff Victims Coalition.
As a sneak preview, Ms. Ambrosino was interviewed by Charlie Rose on June 29th, the day Bernard Madoff was sentenced to 150 years in prison. Ms. Ambrosino appears in the video clip at the 3 minute, 5 second mark.
The issues I will address with Ms. Ambrosino run well beyond the immediate concerns of the Madoff victims. The integrity and transparency of our financial regulatory system and legal process remain very much in question.
Don’t miss this important discussion Sunday evening on NQR’s Sense on Cents with Larry Doyle.
Posted by Larry Doyle on August 15th, 2009 9:33 AM |
“Sure looks good on the outside, but my lips are sealed.”
The things a 15-year old kid remembers. I distinctly recall a number of graduating students at Boston Latin School in the mid- 1970s utilizing this phrase to describe their high school experience.
In so many words, those graduates were saying their Boston Latin School experience was not as it may have appeared.
Could the same be said for some of the games being played in Washington and on Wall Street? In an attempt to ‘unseal the lips and get people talking,’ I submit the following recommended reading.
P.S. If you like my work here at Sense on Cents, please subscribe via e-mail (upper right sidebar) so you never miss any posts. Otherwise, follow Sense on Cents on Twitter, become a fan on Facebook or subscribe via an RSS feed. Thanks in advance.
Posted by Larry Doyle on August 14th, 2009 3:33 PM |
I am an eternal optimist. I would also like to think I understand the fundamentals of the economy, and that I present a balanced approach here at Sense on Cents. So let’s pursue the truth.
The market is being hit 1-1.5% today on a retracement in the Consumer Confidence report this morning. While the equity markets have had an enormous rebound over the last few months, there is little doubt that the divide between Wall Street and Main Street has never been wider.
What impacts the consumer? In my opinion, the noise on Wall Street does not impact most Americans. What does? Job status, home value, and access to credit. How are Americans feeling on these fronts?
1. Jobs: the underemployment rate of 16.3% is forecasted to move higher and stay high. A little disconcerting, you think?
2. Home Value: foreclosures are continuing to surge, home prices are continuing to trend lower, and no reason for slowing on either front. Not generating lots of confidence here.
3. Credit: hat tip to MC from Investor Rebellion for sharing a story put out the other day by The Wall Street Journal which highlights how consumers’ credit cards are being discontinued indiscriminately without notice. This report, Cardholders Get Rude Surprise at the Register, is a true sign of the times.
Think about this scenario for a second. How humiliating and unsettling would it be to experience having your card rejected without notice. Do you think these people are going to rush out to do more shopping? Do you think their confidence may take a hit just a little?
Why is Wall Street, which is making all this “supposed” money and handing out enormous guarantees to certain employees, cutting credit lines? What do these banks see on the economic landscape?
Wall Street economists and analysts may be confident about future prospects, but I have yet to see one of them effectively address any of these three concerns which most impact Main Street.
Posted by Larry Doyle on August 14th, 2009 8:23 AM |
Treasury Secretary Geithner has adapted to Washington very quickly. How so? His willingness and ability to distort and conceal the truth is consistent with much of what emanates from our nation’s capital. I literally gagged upon reading the extremely superficial commentary in today’s Wall Street Journal, Geithner Sees Good Vital Signs:
U.S. Treasury Secretary Timothy Geithner said the Obama administration wouldn’t allow Wall Street to return to such old habits as taking on excessive risk, and that plans to overhaul financial-market regulation were on track.
Does Secretary Geithner think that people do not monitor these issues? His statements in this article are the equivalent of a Wall Street bond salesman’s assertion “trust me on this,” while jamming an overpriced security down his client’s throat. My response, “challenge!!” Let’s navigate.
Geithner asserts:
“I don’t think the financial system is reverting to past practice, and we won’t let that happen,” Mr. Geithner said. “The big banks are running with much less leverage now, much more conservative liquidity cushions, there’s been a significant shrinking of their balance sheets, getting rid of bad assets (LD’s highlight) and cleaning up. And the weakest parts of the system don’t exist anymore.”
Sense on Cents challenge: the system is chock full of toxic assets. The new-issue securitization market for consumer assets remains largely dormant and the TALF and PPIP programs are largely a joke. I submit “PPIP: A Virtual Odd Lot” (July 7, 2009).
Posted by Larry Doyle on August 13th, 2009 3:23 PM |
I just reviewed the complaint filed by the SEC as plaintiff against Madoff CFO Frank DiPascali Jr. as defendant. For anybody interested in the dynamics of our markets and regulatory system, this 31 page document is a must read:
Many highlights, but to me the following jump out:
1. DiPascali was a college dropout who rose to become CFO of a supposed major financial money manager. Come on. Any legitimate feeder fund and any legitimate regulator should have immediately questioned the credibility and qualifications of this individual rising to that position.
2. Madoff did not officially become a registered investment adviser until 2006. To that point, his entire business would have been regulated by the SEC and NASD. Why does the regulatory arm of NASD, the parent organization of FINRA, seem to get a pass in this scandal? (more…)
Posted by Larry Doyle on August 13th, 2009 11:33 AM |
Should we add a little spice for flavoring to the low simmering stew represented by a number of banks’ books and records?
In the spirit of continuing our focus on increasingly delinquent and defaulted loans, I again reference leading Wall Street representatives as sources of information on this topic. Let’s take a whiff of the aroma coming off the stove.
Check out the footnotes to Regions Financial Corp’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.
So, if it weren’t for the inflated loan values, Regions’ equity would be less than zero. Meanwhile, the government continues to classify Regions as “well capitalized.”
What other banks are preparing this meal? Weil does yeoman work in highlighting the following:
>> Bank of America Corp. said its loans as of June 30 were worth $64.4 billion less than its balance sheet said. The difference represented 58 percent of the company’s Tier 1 common equity
>>Wells Fargo & Co. said the fair value of its loans was $34.3 billion less than their book value as of June 30. The bank’s Tier 1 common equity, by comparison, was $47.1 billion.
>>Suntrust Banks Inc. showed a $13.6 billion gap as of June 30, which exceeded its $11.1 billion of Tier 1 common equity.
>>Key Corp said its loans were worth $8.6 billion less than their book value; its Tier 1 common was just $7.1 billion.
In the spirit of full disclosure, not all banks are cooking their books; some have finished the cooking, dined, and washed the dishes under Uncle Sam’s guidance. Weil asserts:
The trend in banks’ loan values is not uniform. Twelve of the 24 companies in the KBW Bank Index, including Citigroup Inc., said their loans’ fair values were within 1 percent of their carrying amounts, more or less. Citigroup said the fair value of its loans was $601.3 billion, just $1.3 billion less than their book value. The gap had been $18.2 billion at the end of 2008.
2. High five once again to 12th Street Capital for pointing out the state of the simmering undertaken by the Federal Home Loan Bank system. KD references an article from The American Banker: (more…)
Posted by Larry Doyle on August 13th, 2009 8:22 AM |
Can we truly expect our economy to return to LONG-TERM health if the housing market remains under severe pressure? I think not. While Wall Street rebounds, Main Street continues to lose value. How so? Home foreclosures continue to run at breakneck speed.
Foreclosure filings in the U.S. climbed to a record for the third time in five months in July as falling home prices and the recession left more homeowners unable to keep up payments or refinance.
A total of 360,149 properties received a default or auction notice or were seized last month, according to data seller RealtyTrac Inc. One in 355 households got a filing, the highest monthly rate in RealtyTrac records dating to January 2005, the Irvine, California-based company said in a statement.
“We’re in a deep hole,” Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc., said in an interview. “There is a whole new wave of foreclosures tied to the cyclical dynamics of the economy.”
What is this ongoing foreclosure activity doing to home prices? It’s not good.
The median price of an existing single-family house dropped 15.6 percent to $174,100 in the second quarter, the most in records dating to 1979, the National Association of Realtors said yesterday. Almost one-quarter of U.S. mortgage holders are underwater, property data firm Zillow.com said Aug. 11.
What about the mortgage modification programs which were designed to stem this tide of foreclosures? In speaking with our friends at 12th Street Capital, who have canvassed a number of the large mortgage servicing operations, we have learned that successful mortgage modifications are typically only occurring with mortgages that are delinquent 30 days or less. After that, homeowners are increasingly inclined to ‘walk away’ from homes which are further underwater (mortgage balance exceeds home value). In fact, Bloomberg highlights:
“It has been more profitable to put a home in foreclosure than restructure the loan,” Swonk said. “The only thing that helps is forgiveness of principal, and there is little willingness to do that.”
The greatest surge in foreclosure activity remains in those states which have already experienced enormous problems. The top 5 being Nevada, California, Arizona, Florida, and Utah. That said, our entire economy is intricately linked and these markets (especially California) cover a large percentage of our population.
What are the implications for this ongoing foreclosure activity? (more…)
Posted by Larry Doyle on August 12th, 2009 4:53 PM |
High five to Always Learning for pointing out that not unlike the disparity in the housing and mortgage markets, the banking industry is truly a tale of two systems. Those systems being institutions deemed ‘too big to fail’ and everybody else. I am increasingly concerned about this very prospect. Why?
The largest institutions are now married to Uncle Sam, whether either partner likes it or not. Certain of these marriages (Citi and BofA) are more formal while the balance are more ‘friends with benefits.’
What about the small fry banks struggling with loan books that continue to bleed money but without the capital market activities to generate the gift-like earnings supported by the totally accomodative Federal Reserve? What does the future hold for these institutions?
First and foremost, a significant number of these banks are burdened by rising delinquencies and defaults in their commercial, construction, corporate, and residential loan books. As Bloomberg highlights in writing, TARP Panel Says Smaller Banks May Need Fresh Capital:
Regional and some smaller U.S. banks may need $12 billion to $14 billion in additional capital to cope with troubled loans still on their books, the Congressional Oversight Panel said today in a monthly report.
The panel, which reports to lawmakers and was created to monitor the $700 billion Troubled Asset Relief Program, said the biggest U.S. banks appear prepared to handle more loan losses, particularly the 19 banks that regulators put through stress tests earlier this year. Banks with assets of $600 million to $100 billion may face bigger challenges, the panel said.
My gut instinct tells me that the $12-14 billion figure for banks beyond the top 19 is likely low. That said, where may these institutions raise this capital? One of three places: (more…)
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The temperature is rising in the FINRA kitchen!!
Has our government ever failed us to the extent involved in the regulatory oversight connected to the Bernard Madoff Ponzi scheme? How could these failures have perpetuated for such an extended period? How are these failures and their impact on the victims being handled? Is insult being added to injury?
High five to Always Learning for pointing out that not unlike the disparity in the housing and mortgage markets, the banking industry is truly a tale of two systems. Those systems being institutions deemed ‘too big to fail’ and everybody else. I am increasingly concerned about this very prospect. Why?
Home Foreclosures Continue to Surge. What Does It All Mean?
Posted by Larry Doyle on August 13th, 2009 8:22 AM |
Bloomberg reports, U.S. Foreclosure Filings Set Third Record-High in Five Months:
What is this ongoing foreclosure activity doing to home prices? It’s not good.
What about the mortgage modification programs which were designed to stem this tide of foreclosures? In speaking with our friends at 12th Street Capital, who have canvassed a number of the large mortgage servicing operations, we have learned that successful mortgage modifications are typically only occurring with mortgages that are delinquent 30 days or less. After that, homeowners are increasingly inclined to ‘walk away’ from homes which are further underwater (mortgage balance exceeds home value). In fact, Bloomberg highlights:
The greatest surge in foreclosure activity remains in those states which have already experienced enormous problems. The top 5 being Nevada, California, Arizona, Florida, and Utah. That said, our entire economy is intricately linked and these markets (especially California) cover a large percentage of our population.
What are the implications for this ongoing foreclosure activity? (more…)
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Posted in foreclosures, General, Housing Crisis | 6 Comments »