Holding Securitizers Liable for Dubious Loans
Can Securitizers be held responsible for the bad deeds of the mortgage lenders they worked with?
That is the not-so-subtle question journalist Gretchen Morgenson looks at in the Sunday NYT. The legal theory behind the claim is that these firms were far less independent than originally claimed. They worked with each other on a less than at arm’s length distance. The Wall Street firms provided the cash, but also the business practices of the lend-to-securitize non-bank mortgage originators, actually shaping the practices of the lenders.
In some cases, the Wall Street securitizers had already written prospectuses for pools of loans before the loan was closed.
That is rather astounding, and reveals that these firms were working in a much closer, more coordinated fashion than the legal defense claims of independence implies.
Excerpt:
“What of the giant institutions that helped finance these monumentally toxic loans, or arranged the securitizations that bundled the loans and sold them to investors? So far, they have argued, fairly successfully, that they operated independently of the original lenders. Therefore, they are not responsible for any questionable loans that were made.
But this argument is growing tougher to defend. Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.
This is a development worth watching.
>
Source:
Looking for the Lenders’ Little Helpers
Gretchen Morgenson
NYT, July 11, 2009
http://www.nytimes.com/2009/07/12/business/12gret.html
July 12th, 2009 at 9:05 am
would seem reasonable to hold them accountable and responsible if they were working together
and some thing different. a bank sues itself
http://www.calculatedriskblog.com/2009/07/wells-fargo-sues-wells-fargo-wells.html
July 12th, 2009 at 9:07 am
BR-
nice writeup of you @ NC-
‘Guest Post: Review of Barry Ritholtz’s “Bailout Nation”‘ by Richard Smith
“The indefatigable Barry Ritholtz is a fund manager and TV talking head: one of the few CNBC regulars who made sense during the 06/07/08/09 financial crisis. As if that wasn’t enough day jobs, he also is also the author of the blog “The Big Picture”, one of the top finance/economics blogs”
never really thought of you as a talking head and a “regular” at CNBC- I’d post the link but posts w/ links have been disappearing- so you’ll have to check it out yourself-
as far as the current topic- a nice wide net is in order
July 12th, 2009 at 9:09 am
I’m telling you, forget plastics, the growth industry of the next decade: law.
July 12th, 2009 at 9:16 am
I doubt if this will get anywhere (there really are 2 America’s, John Edwards, but not the ones you think.) This will play out like so many other stories covered on this site — the well-connected and TBTF will get bonuses, free passes and govt appointments; meanwhile, some Joe Schmoe little guy will be offered up as a sacrificial lamb.
July 12th, 2009 at 9:32 am
About two sentences in, I immediately started to think “joint (ad)venture” as a legal theory. Now if only we could get to the legal theory of piercing the corporate veil we might get some real reform.
I doubt that it will ever happen, as then you could go after the people really responsible on an individual civil basis. (Which is why it will probably never happen.) But one can always dream.
July 12th, 2009 at 9:55 am
Why would the Jordan’s refinance the home they’ve been in for 25 years? Were they serial refinancers, taking out equity every few years as the house price appreciated?
But whatever. They claim they wanted to refinance into a fixed rate mortgage but the lender pulled a fast one and put them in an ARM instead.
Can the Jordan’s read? Didn’t they have legal representation?
They were irresponsible. They did a bad deal. The deal didn’t work out. So now they want someone else to pay because they now claim they didn’t understand the terms of the deal.
Sounds about right.
July 12th, 2009 at 10:16 am
ahab – You said in the thread yesterday that I can wax poetic, but that I am “definitely not a republican- more of a progressive”. I won’t argue the progressive part, but yes I most definitely am a Republican, and this post brings a reminder why. First of all, the article seems to me a bit of a stretch; the legal basis is based on a comment – not a particularly confident comment BTW – by a Cleveland State professor (no offense to Cleveland State) and a consumer advocacy group. Anything can happen in a court of law, and as OkieLawyer writes, there is the legal theory of piercing the corporate veil, and granted I don’t know the details of the specific Jordan case, but are we really looking to hold JPM and BNY Mellon liable for situations in which people agreed to loans without reading or understanding the terms or getting into the fine print? I understand Ritholtz’s riff that Wall Street firms as securitizers may have influenced business practices that led to dubious loans being made, but it seems to me that even with easy target Wall Street being involved, caveat emptor should still apply unless there was a proven effort to deceive the debtor. Or does proving a linkage to emotionally despised Wall Street strengthen a weak legal case?
I have always said let bad banks fail without a dollar of subsidy, but that doesn’t mean I condemn failure in personal responsibility any less than failure in corporate responsibility. I know that seems heartless, but I keep telling you that I am a Republican.
July 12th, 2009 at 10:27 am
you know it might hold water if the companies continued to do business, as opposed to say doing only a few times. if you have done business with a company for years, i can’t see how you wouldn’t know how they operated, especially if you have been giving them money all that time. if you didn’t that would border on incompetency, or willful ignorance
July 12th, 2009 at 10:33 am
Gretchen Morgenson has been Intelligent enough to pick up this ‘Franchise’ of explaining, even ex post, that which, actually, happened (or, closer to it) during the ‘Housing Bubble/Financial Crisis’.
For that, alone, she achieves distinction from her compatriots in the MSM.
July 12th, 2009 at 10:43 am
Fairness is what crybabies ask for when they can’t get everything they want. Face it, some, probably most, criminals will get away with what they did. Only the worst of the worst may have legal issues to deal with in the future. If iBanks can front load using actual data (I know, this is only speculation), then some fast loan packaging will certainly fall through the cracks.
Also, I went to a high end regional mall yesterday. The weather was perfect. The parking lots were practically empty. Employees in the stores were probably the majority of those parked in the lots. Lots of sales advertised in the windows. Items still seemed too high, in my opinion. No desperation pricing and no customers. The July reports will be dismal, I suspect.
As I’ve written many times, to fix the economy you first have to fix oil prices so they become stable. To do this you remove the excess speculation so the commodity markets return to a traditional environment of sellers and normal speculators. Remove the long only index funds and other poison from these markets. Once oil prices go stable then people can start plannning their budgets again and feel safe to start spending again.
Next, the SEC must take back the stock market and eliminate the high frequency trading. It has been said that all that is necessary to remove most of the stench is to require a 1 second minimum order existence time and renew a version of the uptick rule. Perhaps a revuew and elimination of the liquidity premiums big traders earn for placong orders may help … I’m not too sure of this detail but I think a lot of profits are earned simply by earning a penny or so per share on billions of shares per week, partially as a commission from the exchanges for trading there. This type of low quality liquidity just manipulates markets and steals from genuine investors.
Clean up commodities and stock markets and people will gradually return to normal, and so will the economy. Nothing will happen until then.
July 12th, 2009 at 10:45 am
cncb-
dude- the best thing for the homeowners to do is stop the charade trying to do the “right thing”- they need to assess their situation honestly-and understand that if they are underwater and unable to keep up or not inclined to keep up- then stop making payments-let the banks foreclose- or do a deed in lieu of foreclosure- and find a new place to live-
it is the way it is supposed to work- so I am with you regarding personal resposibility- but the USG with all their ridiculous ideas will slop up what should be a pretty straight forward solution- borrower’s are foreclosed-
banks resell the distressed asset they now are in possession of, take a loss, home prices decline- so everyone takes the hit- and we push on
July 12th, 2009 at 10:57 am
@ ahab – Agreed on all points, although we should make it clear we are not advocating that people foreclose on their homes unless they need to
@ dead hobo – I think our economic problems are much more structural than that, but I find your prescriptions for asset markets interesting. I am not a big fan of unnecessary speculative market noise myself. But what I really love are these anecdotal reports on what is happening around the country. My question: Is your gravatar Ed Begley from 12 Angry Men?
July 12th, 2009 at 11:04 am
Re my suggestions above:
I’m not holding my breath about seeing any fixes soon. The world economy is devolving into one of subsistence where excess funds are funneled into items with inelastic demand … such as commodity based items. Thus, the world economy is slowly but relentlessly changing into one where financial mega-companies will soak up all excess funds beyond the minimum required to live … and even that living standard will devolve over time. Only world governments acting in a coordinated manner can take back the world economy from these parasites. I don’t expect much more than hot air, followed by corrupt government officials making half fixes at most, and probably not even that.
July 12th, 2009 at 11:07 am
CNBC Sucks Says:
July 12th, 2009 at 10:57 am
I think our economic problems are much more structural than that
reply:
————-
What I described are basic foundational blocks. The structural details come from these basics, substantially. You can’t have higher mathematics without basic numbers. What I’m describing are the numbers. What you are describing involve the applications.
July 12th, 2009 at 11:09 am
CNBC Sucks Says:
July 12th, 2009 at 10:57 am
Is your gravatar Ed Begley from 12 Angry Men?
reply:
————-
No, it is just me flaunting my handsomeness and expressing my personal vanity.
July 12th, 2009 at 11:15 am
hobo, your handsomeness is so nice, you had to flaunt it thrice.
I am out of here. It’s a Sunday in summer. Everyone try not to spend too much time on the Ritholtz.
July 12th, 2009 at 11:38 am
Here in Mass. some state trial judges have found fraud in mortgages and blocked foreclosures without looking at securitization. Judicial activism IMO.
I keep coming back to Harry Truman nationalizing steel mills in the late 40s when the steel workers, who had done the patriotic thing and deferred increased wages until after the war, mobilized with a vengeance. What Truman did was completely illegal, but by the time the case got to SCOTUS for legal hand-slapping the crisis had passed.
Anybody ever refer to Truman as an iron-fisted tyrant today? No.
You can’t bailout the lenders without providing relief for borrowers. By backstopping the banks Treasury removed a big incentive for them to renegotiate a lot of bad contracts. So now the die is cast. More dumb-ass relief plans to follow.
July 12th, 2009 at 11:45 am
As I’ve written many times, to fix the economy you first have to fix oil prices so they become stable
———–
It’s easy to say when you are NET IMPORTERS of this black gold. That’s something easier done when you can actually close your borders.
First of all what’s the long term price for oil? Last year everyone here was saying $200+…
Or do you buy it at market prices and have government pay the difference between market price and the fixed one?
July 12th, 2009 at 11:45 am
Isn’t this “not-doing-the-crime-but-pulling-the-strings-and-profiting” issue the reason for the RICO laws? If the businesses were involved in propagating fraud, then RICO could be applied, and we would have these “ganstas” where they belong – in criminal court rather than civil court.
July 12th, 2009 at 11:53 am
“The exposure of New York State Governor Eliot Spitzer’s tryst with a luxury call girl had little to do with the Bush administration’s high moral standards for public servants. Author F. William Engdahl advises that, “in evaluating spectacular scandals around prominent public figures, it is important to ask what and who might want to eliminate that person.” Timing suggests that Spitzer was likely a target of a White House and Wall Street operation to silence one of its most dangerous and vocal critics of their handling of the current financial market crisis.
Spitzer had become increasingly public in blaming the Bush administration for the subprime crisis. He testified in mid-February before the US House of Representatives Financial Services subcommittee and later that day, in a national CNBC interview, laid blame squarely on the administration for creating an environment ripe for predatory lenders.
On February 14, the Washington Post published an editorial by Spitzer titled, “Predatory Lenders’ Partner in Crime: How the Bush Administration Stopped the States From Stepping In to Help Consumers,” which charged, “Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.”
In this editorial, Spitzer explained: …”
http://www.projectcensored.org/top-stories/articles/25-bushs-real-problem-with-eliot-spitzer/
http://www.projectcensored.org/top-stories/category/y-2009/
July 12th, 2009 at 11:56 am
In Quebec, where hydroelectricity is plentiful, government has put a ceiling on prices forever and all this has done is created a huge problem.
Of course the price is set under market (maybe it was set at market price initially but it’s hard politically to increase prices when you have a fixing policy) . Now Quebeckers are probably the most wasteful people evergetically speaking in the world. They have had no reason to curb their consumption.
On top of that, Hydro Quebec could be selling its power to the US for MUCH better prices so it is keeping the state contolled firm undervalued.
The deficit in that province is swelling and they will certainly look to increase energy prices in order to increase state revenues but just imagine the shock to the Quebec infrastrucre which was built based on underpriced energy.
That’s what price fixing does.
July 12th, 2009 at 12:01 pm
On top of that, Hydro Quebec could be selling its power to the US for MUCH better prices so it is keeping the state contolled firm undervalued
——
Many are heating their pools in October when HQ could be selling it to the US at 2 to 3X the price.
July 12th, 2009 at 12:02 pm
Contributory negligence (the laws of each state differing on the recognition of the concept) would seem to play a part in any litigation involved in these types of lawsuits at a state level.
However, while the individual borrowers have a fiduciary duty to themselves (as a mater of basic logic and self-preservation), and while the economic benefit (if any) they derived from leveraging their assets should, rightly, place them at risk of losing the assets they gambled (and criminal penalties if there was fraud involved), the role of the institutional players, in providing the environment in which such one-sided risk could be taken, calls for more investigation on the Federal level. The lenders, securitizers and ratings agencies are, after all, companies engaged in interstate, and many times, international commerce.
If there was a coordinated effort to institutionalize the criminal aspects of the loan/securitization process, it would seem that RICO statutes would apply to the prosecution of those involved. If I’m not mistaken, the RICO act was designed to effectively pierce the “corporate veil” that OkieLawyer mentions — allowing for the prosecutions of both the corporate entities as well as individuals who participated and/or benefitted from the scheme.
Unfortunately, in our fascist/corporatist hybrid system of government/criminal fuckery, the chances that this very effective tool will be used for its intended purpose is next to none.
July 12th, 2009 at 12:04 pm
Winston, you beat me to it. Great minds . . .
July 12th, 2009 at 12:08 pm
MEH:
Spitzer’s fault is not that he engaged in sexual peccadillos, it’s that he prosecuted others for the same behavior. While I wish it weren’t so, that fact alone makes him unfit to prosecute anyone for anything.
July 12th, 2009 at 12:25 pm
MA:
I’m not defending Spitzer, that’s on him. Though, the convienent Story of how/why he was ’singled out’, when he was, isn’t, as per usual, the Whole of it..
He needed, it was thought, to be Impugned, for, past your point, He, still, had ‘Traction’/'Public Credibility’..
http://www.thefreedictionary.com/impugn
~~
Past that, Winnie, and yourself, have it Correct — RICO fits, and it should be used to Convict.
July 12th, 2009 at 12:55 pm
dead hobo @10:43
“…you first have to fix oil prices so they become stable. To do this you remove the excess speculation … Remove the long only index funds and other poison from these markets…”
You disappoint me with that remark. Do you seriously believe that by imposing regulations on the futures markets, the U.S. government can keep oil prices from rising significantly above $75/barrel…? First, in the futures market, there’s a short for every long. At any given moment, there is as much money betting on a decline in oil prices (in the futures market) as there is betting on a price rise. Second, there’s a “swaps market” for oil, and there’s no good way for the U.S.G. to control this. And third, there are futures markets outside the U.S. Fourth, the oil producers themselves are free to “speculate” all they want by withholding supply.
Absent more drilling (which won’t happen under Obama), or a huge energy tax on oil or gasoline, oil prices are going higher over the next few years, no matter what regulations are imposed in the futures market.
July 12th, 2009 at 1:12 pm
@DL
“Absent more drilling (which won’t happen under Obama), or a huge energy tax on oil or gasoline, oil prices are going higher over the next few years, no matter what regulations are imposed in the futures market.”
Agreed – although in the next 6 months or so, it appears that the holders who are paying for containment are going to start letting that stuff go…
I think the “China demand” scenario was overblown towards the beginning of ‘09…I’m leaning towards a minor unwind (some has already happened)…then business as usual…
Do you (or anyone else on TBP) have any anecdotes on China’s efforts to create a SPR? My logic tells me that they are the biggest bidders right now, so they’re fools to be bidding the price higher here (as they’re likely competing against themselves)…JMO
July 12th, 2009 at 1:13 pm
Other than being somewhat elderly, and he disabled, the Jordans do seem to be less than the best choice for a plaintiff to test this in court. As someone else here questioned, how is it that they still have such a large mortgage outstanding after being in the house for 20 years? Being in Atlanta (or at least that region) their house is not likely to have been very expensive, relatively speaking. They bought it 25 years ago, so is it very unlikely that they still owed about 100K after 20 years without having taken large amounts of equity out of it; likely since 2000, given that that’s when the HEW party really got rolling. We don’t know the details of their previous mortgage or the entire mortgage history, but it’s not likely very flattering.
That doesn’t make their case necessarily any less valid in the strictest sense of the law (but I’m no lawyer). But it does make them a less sympathetic party in the real world in which people’s perceptions, etc. do count. It would certainly be better to get a more straight forward case with a plaintiff that doesn’t appear to have been foolish and possibly greedy.
July 12th, 2009 at 1:36 pm
A “quick and dirty” search on oil stockpiling in China produced some hits such as the following:
http://seekingalpha.com/article/124998-why-is-china-stockpiling-oil
. . . . . . . .
As for oil prices near-term, I think they’ll correlate with the SPX to a significant degree;
as for the SPX itself, it does look like we’re finally going to get a partial retracement of the recent (670 to 950) rally.
July 12th, 2009 at 1:47 pm
When I see these issues about housing and oil and price controls, I have one thought. We are constantly thinking about price discovery when we should be exploring ‘price construction’. How did X come be to X and why isn’t Y?
July 12th, 2009 at 1:58 pm
not sure what to take make of so many wanting to believe that drilling is the solution. that will be oil for the next decade, not this one. if its even there. and it will cost a lot to get it
but how is that different than that limit on the price of oil? or the HQ example.
aren’t we just trying (or hoping) to control the price of oil, just so we can be wasteful in the use of it?
and most of last years oil spike had nothing to do supply and demand, it was driven by one thing, the wall streeters and banksters need for profits to prop up their businesses. which finally came down to earth when they had to take their bitter medicine when demand collapsed (as it had been since they started their speculative run)
July 12th, 2009 at 2:09 pm
Other than being somewhat elderly, and he disabled, the Jordans do seem to be less than the best choice for a plaintiff to test this in court. As someone else here questioned, how is it that they still have such a large mortgage outstanding after being in the house for 20 years?
———
I find it interesting how little empathy people have when this bubble hit so many people.
I’d love to know how many people here are well prepared in case of disability or disease. Because from my personal experience I know that a huge percentage still have their ex-wife on their insurance policy!
Folks, we’re fighting human nature here.
I don’t know what the Jordan’s entire situation is but I can understand how easy it is to get into their dire straits.
Mid 60s couple buys a house 25 years ago. They have a few kids (the last one just moved out). They bought what they thought they could afford at the time but with tuition and all, they remortgaged to pay for the kids college. Then sickness hit. Income was lost and they end up stuck in a life they can’t afford at the worst of times. Because of the disability, it is easier to refi again than toe move. And they are postive that things will get better.
Yes. Yes. Yes. I know, they should have downsized into a shithole the day they had to pay for their kids college. Live within their means, yada, yada, yada.
Wake up America. What has happened is a tragedy of epic proportions. You are asking that they did everything against what was asked of being American in the last few decades.
From this Canadian’s point of view, a patriotic American has been shaped into being a deluded optimist and you are now blaming them for being so ?
Honestly, the writing was on the wall, the Berlin wall that is… Americans truly thought they were on top of the world and would stay there forever. How could you blame them?
July 12th, 2009 at 2:20 pm
willid3 @ 1:58
I don’t believe that developing more supplies of domestic oil and nat gas is “the solution”. At the same time, there’s no doubt that such increased supplies will lead to lower prices. One can argue that a lower price for crude oil and nat gas is a bad thing. But a lower price is still a lower price.
July 12th, 2009 at 2:25 pm
@DL
“as for the SPX itself, it does look like we’re finally going to get a partial retracement of the recent (670 to 950) rally”
Agreed as well…(yet I’m taking it a step further than partial)…Take a look at SPX vs. CRUDE vs. FXI vs. YEN from 3 different time perspectives…
1. Since January 1st, 09
2. Since the March lows
3. Since June 11th
I interpret this all to be a YEN CARRY TRADE maneuver…The borrowed yen in March flowed into high beta (oil & China – with a little in US financials)…
The unwind (apparent in the parabolic move in the Yen recently) shows which indices bailed first…Crude first, China 2nd with a tiny recovery, SPX as the middleman…
Right now the FXI is still up 20% on the year…I think it FOLDS…Some of these indices may play around and catch up with each other over the next few weeks or so, but I see a massivice unwinding…
I see a snowball coming…
July 12th, 2009 at 2:28 pm
with all of the idle flap about ‘domestic’ Oil production, and its relative merits..
y’all should understand the Macro-phenomenon that, truly, drives the scene..
see: http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=History+of+the+Petro+Dollar
for starters..
and: http://scholar.google.com/scholar?q=History+of+the+Petro+Dollar&hl=en&btnG=Search
for further..
July 12th, 2009 at 2:46 pm
DL Says:
July 12th, 2009 at 12:55 pm
You disappoint me with that remark. Do you seriously believe that by imposing regulations on the futures markets, the U.S. government can keep oil prices from rising significantly above $75/barrel…? First, in the futures market, there’s a short for every long.
reply:
———–
Oil markets used to work that way and that’s how I want to see them work in the future. The prevalence of long only index funds bias the price upwards. Also, the CFTC allows speculators with no legitimate hedging interest in and allows excessive cash to chase finite oil quantities. The net effect is to bias prices upwards. By limiting the amount of speculation and methods of speculation, oil will drop in price and become less volatile. Don’t worry, there will still be enough room for lots of normal speculation. This will chase the pigs and parasites out. The textbook descriptions you offer no longer exist at this time in real life … only with lobbyists who want to see the status quo remain.
July 12th, 2009 at 2:47 pm
danm
OK, their story may be more sympathetic than presented and play out the way you portray it. But somehow I’m inclined to think that if that were so that we would have been presented with all the sympathy-evoking details. Maybe I’m wrong.
I do understand your point of view to a limited extent. But the fact is that not everybody went all in on this thing. And that portion of the population isn’t just going to be so sanguine about it, no matter how much you think it should be so. That too is human nature.
I struggle with the whole fatalist vs. free will philosophical debate myself. But I still come down on the side of people making their choices and living with the consequences.
That doesn’t mean there was no malfeasance on the lender’s part in this case. But really, if you’re borrowing that sum of money your really need to know the basics of the loan construction. These were no spring chickens here. But I don’t know their level of intelligence either. So who knows. But the payment amount at the beginning was 45% of their small income. How did they figure that would work out, even if it was fixed?
Of course it goes back to irresponsible lending. If that hadn’t gotten out of control then people like this couldn’t have committed economic suicide. And round and round we go.
July 12th, 2009 at 2:48 pm
DL, what I want them to fix is plain old asset inflation. Nothing more. It’s a parasite’s market now and we are all victimized by them.
July 12th, 2009 at 3:00 pm
It is easy to cast blame. I think the same “shaping” you refer to makes that easier, just as it made it easier for these folks to mortgage their home repeatedly.
I grew up in a household where “moral hazard” was part of the daily lesson plan.
Decisions have consequences. Bad decisions lead to bad consequences.
Assuming the mortgage wasn’t misrepresented or falsely originated…..if they can’t afford the house as a result of their decisions, then they should lose the house. The bank takes the loss and the Jordans downsize. Yep….it sucks. Hopefully the Jordan kids will watch and learn.
I doubt you’ll see the Securitizers losing too much sleep over this. Hubris is bliss.
July 12th, 2009 at 3:13 pm
@dead hobo
“DL, what I want them to fix is plain old asset inflation. Nothing more. It’s a parasite’s market now and we are all victimized by them.”
Well…Clearly they’re as worried as YOU about ASSET INFLATION (with regards to oil prices)…
Therefore…
They have decided to try and implement a CAP & TRADE system…So now, instead of bidding up those oil prices, they can bid up CARBON CREDITS…
“Responsible fucks (sorry, I mean “folks”), will buy ‘em like shares in dot.coms I’m sure!
July 12th, 2009 at 3:14 pm
dead hobo @ 2:46
I just don’t think that the U.S.G. can stop speculation. And you’ve got to look at this from a global perspective, not just a U.S. perspective.
As for index funds, I made a lot of money last summer trading in and out of USO. (Not all of my other trades have worked out so well, however). The point is, the “little guy” should have a chance to get in on the coming commodity inflation (or at least the commodity inflation that I believe is coming).
July 12th, 2009 at 3:17 pm
cvienne @ 3:13
“Well…Clearly they’re as worried as YOU about ASSET INFLATION (with regards to oil prices)”
I don’t think that’s Obama’s main motivation. His #1 objective, by far, is simply to increase the size and scope of the Federal government. Cap and trade will go a long way towards that goal. Also, he wants to appease the environmentalists. I think that the price of oil per se is the lowest priority item on his list.
July 12th, 2009 at 3:19 pm
DL Says:
July 12th, 2009 at 3:14 pm
As for index funds, I made a lot of money last summer trading in and out of USO. (Not all of my other trades have worked out so well, however). The point is, the “little guy” should have a chance to get in on the coming commodity inflation (or at least the commodity inflation that I believe is coming).
reply:
———–
I don’t have any interest in paying higher gas prices or paying more for other things due to second round effects just to help out with your portfolio. Sorry, sir, but you are one of those parasites I mentioned. I will happily reconsider my opinion if you choose to move to normal commodity speculation by going long or short with actual contracts, just as people used to do in days gone by.
July 12th, 2009 at 3:22 pm
@DL
“Also, he [Obama] wants to appease the environmentalists. I think that the price of oil per se is the lowest priority item on his list”
—
If that is true, it would display a clear lack of judgement considering its the most precious economic resource on the planet…(Save for water, which isn’t YET an “economic” resource as thought of by investment & infrastructure, but fast becoming one)…
July 12th, 2009 at 3:26 pm
@dead hobo
“Sorry, sir, but you are one of those parasites I mentioned. I will happily reconsider my opinion if you choose to move to normal commodity speculation by going long or short with actual contracts, just as people used to do in days gone by.”
—
Good intentions, but it’s simply a non starter…
As far as “speculation” is concerned, there are always going to be loopholes with which to profiteer…
The world will always play “catch me if you can”…
July 12th, 2009 at 3:26 pm
dead hobo @ 3:19
So I’m a parasite?
Coming from you, I’ll take that as a compliment.
July 12th, 2009 at 3:28 pm
@dead hobo
…and as for oil prices…
If you don’t like higher gasoline prices, do what I did & convert your vehicle to run on nat gas (which is something we have in abundance here in the US…
There’s always a solution…
July 12th, 2009 at 3:29 pm
cvienne @ 3:22
FWIW, I’m actually in favor of a hefty tax on gasoline (and diesel and jet fuel), PROVIDED that it’s accompanied by an offsetting reduction in income taxes (or in payroll taxes).
July 12th, 2009 at 3:33 pm
@DL (3:29)
I’m not against that…after all FWIW…It basically doesn’t affect me…
Mark my words…the next REAL SHIFT in what we might call “mobile energy” (fuel used for transportation), will be vehicles fitted to run on natural gas…
I SIMPLY CAN’T BELIEVE that Americans are so slow to catch onto something that’s so blatantly obvious…
July 12th, 2009 at 3:33 pm
cvienne,
In a political sense, domestic crude oil and nat gas are intimately connected. Those who oppose more drilling for oil also tend to oppose more drilling for (or extraction of) nat gas.
July 12th, 2009 at 3:34 pm
@DL
I’m not so worried about the anti “drilling” lobbyists or activists…
It’s going to come down to a COST & SUPPLY issue in the end…NOT a philosophical debate…
July 12th, 2009 at 3:34 pm
cvienne Says:
July 12th, 2009 at 3:26 pm
As far as “speculation” is concerned, there are always going to be loopholes with which to profiteer…
The world will always play “catch me if you can”…
reply:
——————
Agreed, but at least a world wide coordinated effort to stop the parasitic asset inflation in oil today will slow things up for a while. Someone will have to come up with a new system. Yes, you are right, someone will. But it will take a while.
If I have to pay higher oil prices, I want it to be due to real peak oil and conservation, not due to a man made wealth transfer to oil thieves and commodity parasites. Once a real picture of oil supply and demand emerges, only then will real efforts be made to look for alternatives. Right now, the oil parasites are distorting the entire picture so nobody with a brain would consider investing in anything of substance.
July 12th, 2009 at 3:40 pm
@dhobo (3:34)
Philosophically I’m not opposed to your argument…
But look…There is no way in hell that India, China, Russia, or the Middle Eastern region countries are going to grow a conscience overnight…
They’re looking out for their own economic interests, and since the resource is traded globally, there is no way there won’t be speculation going forward…
So going forward…America will need to wall itself off by tapping into the resource it can produce domestically IN ABUNDANCE…
That is nat gas…
July 12th, 2009 at 3:45 pm
cvienne Says:
July 12th, 2009 at 3:40 pm
But look…There is no way in hell that India, China, Russia, or the Middle Eastern region countries are going to grow a conscience overnight…
reply:
————
I’m not opposed to prices rising from real demand. Right now, prices are erratic and biased upwards due to creative oil speculation via parasites who try to look like legitimate liquidity providers. Once they are expelled from oil markets, prices will reflect a more natural process, if OPEC can be considered ‘natural’.
July 12th, 2009 at 3:49 pm
We’ve been talking about this issue for months. The party is just getting started. Kudos to Gretchen for translating it into English.
‘Back to Basis for Securitization and Structured Credit: Interview With Ann Rutledge’, June 22, 2009
http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=367
July 12th, 2009 at 3:49 pm
If all else fails, we can always capture methane from farting cows.
July 12th, 2009 at 3:52 pm
@dh
” Right now, prices are erratic and biased upwards due to creative oil speculation via parasites who try to look like legitimate liquidity providers. Once they are expelled from oil markets”
—
I’d wager to guess the following…
1. The “erratic – upwards bias” you refer to (since February) is SQUARELY due to GS & Morgan Stanley bidding up prices based using the TARP money that the US Government so generously donated on the taxpayer behalf…
2. The recent unwind (almost 20% decline in just 10 or so trading days), reflects a reversion to reality…I suspect there is FURTHER unwind to go…I think even the ‘geniuses’ at GS & MS are going to have to eat some of their own feces in the next 6 months…They were TOO clever this time…
3. Once the next round is unwound, and everyone starts crying “woe is me” again, the issue will be forgotten (as gas prices come down again to $1.80)…We’ll create other bogeymen…
4. Next May-July (2010), we’ll be back to talking about what we’re talking about now…
It’s a YAWNER…But I’m with DL…Might as well PROFIT from it…Hey – I’ll pay taxes off those profits…
July 12th, 2009 at 3:54 pm
@DL (3:49)
I once typed that EXACT reply in a post…
It got eaten, and I never used that F word again…
July 12th, 2009 at 3:55 pm
@DL
Problem is…In farmland USA, they’re culling dairy cow herds (because of a recent milk price glut)…Ostensibly reducing methane output…
Oh the complications!
July 12th, 2009 at 3:57 pm
Chris Whalen Says: (by reference)
July 12th, 2009 at 3:49 pm
The IRA: So you do not object to a derivative so long as it tracks the cash basis. After all, if and when such a deal diverges from the cash market basis, that would put the risk back to the derivative’s sponsor, who would be sued by the investors for fraud!
Rutledge: That’s the way markets should work.
comment:
————-
Exactly. Right now, the tail wags the dog. Derivatives cause oil prices to rise and fall. It should be the other way around. I suspect nobody would be very interested in them if they really did track oil prices, rather than substantially control them.
July 12th, 2009 at 4:06 pm
cvienne Says:
July 12th, 2009 at 3:52 pm
4. Next May-July (2010), we’ll be back to talking about what we’re talking about now…
It’s a YAWNER…But I’m with DL…Might as well PROFIT from it…Hey – I’ll pay taxes off those profits…
reply:
————
I think the unwind of late is influenced by the possibility of real change this time. People are walking briskly towards the door.
If your point 4 about happens, then this means the crooks still run the markets. I’ll probably feast off it too and donate a little off the top to a food bank.
July 12th, 2009 at 4:25 pm
@dh (4:06)
FWIW – Market wise…
It appears from my humble perch that the UNWIND in speculation has hit the crude oil market first (it’s down almost 20% from ‘09 highs)…whereas the EM play (vis-a-vis China) is only down 7%…
This…to me…is a dna helix…
Meaning…Crude may settle here, China sells off next, as it does, BOTH take out the 20% threshhold…When they do, the SPX will follow…
750 here we come…(bounce?)…and then some…
buy dollars & treasuries for the balance of ‘09…
Unless you want to play Doug Kass & sell CALL PREMIUMS…
I suppose his book is different than mine in terms of tax exposure…