Posts filed under “Legal”

Geithner Addresses Mortgage Fraud

Live! From Washington D.C.: Treasury Secretary Timothy Geithner Opens Up News Conference

Bloomberg News

Category: Credit, Legal, Real Estate, Video

SEC Examining Oversight of Credit Rating Agencies

Looks like an interesting panel — anyone near D.C. on April 15 should consider going . . .

10:10 a.m. — Panel One: Current NRSRO Perspectives: What Went Wrong and What Corrective Steps Is the Industry Taking?

  • Daniel Curry, DBRS
  • Sean Egan, Egan-Jones Ratings
  • Stephen Joynt, Fitch Ratings
  • Raymond McDaniel, Moody’s Investor Service
  • Deven Sharma, Standard & Poor’s

11:30 a.m. — Panel Two: Competition Issues: What are Current Barriers to Entering the Credit Rating Agency Industry?

  • Ethan Berman, RiskMetrics Group
  • James H. Gellert, RapidRatings
  • George Miller, American Securitization Forum
  • Frank Partnoy, University of San Diego
  • Alex Pollock, American Enterprise Institute
  • Damon Silvers, AFL-CIO
  • Lawrence J. White, New York University

12:30 p.m. — Lunch Break

1:15 p.m. — Panel Three: Users’ Perspectives

  • Deborah A. Cunningham, Securities Industry and Financial Markets Association
  • Alan J. Fohrer, Southern California Edison
  • Christopher Gootkind, Wellington Management
  • James Kaitz, Association of Financial Professionals
  • Kurt N. Schacht, CFA Institute
  • Bruce Stern, Association of Financial Guaranty Insurers
  • Paul Schott Stevens, Investment Company Institute

2:45 p.m. — Panel Four: Approaches to Improve Credit Rating Agency Oversight

  • Richard Baker, Managed Funds Association
  • Jörgen Holmquist, European Commission
  • Mayree C. Clark, Aetos Capital
  • Joseph A. Grundfest, Stanford Law School
  • Glenn Reynolds, CreditSights
  • Stephen Thieke, Group of Thirty

The roundtable is expected to end at approximately 4:15 p.m. with concluding remarks by Erik R. Sirri, Director of the SEC’s Division of Trading & Markets.

In the fall of 2006, Congress passed the Credit Rating Agency Reform Act, providing the SEC for the first time with authority to supervise credit rating agencies. Using this authority that became effective in June 2007, the Commission has adopted two major rulemakings, has conducted an extensive 10-month examination of three major credit rating agencies, and has several pending proposals to further the Act’s purpose of promoting accountability, transparency, and competition in the rating industry.

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Category: Bailouts, Credit, Legal, Regulation

The Cult of Finance

I mentioned the “cult of equities” earlier this morning; An article in the Atlantic on the Cult of Finance is making the rounds:  The Quiet Coup. I found it very similar to Bailout Nation. If this sort of stuff floats your boat, then you will love the book — it gets much more granular than…Read More

Category: Credit, Derivatives, Legal, Markets, Politics, Regulation

Paul Krugman is Wrong About Securitization

Since the credit crisis began, I have frequently found myself in agreement with Paul Krugman. Not everything, but for the most part, especially on many major points, we are sympatico: He has been correct about Moral Hazard, about the folly of these many bailouts, about the advantages of nationalizing the banks. And, I suspect he…Read More

Category: Bailouts, Credit, Derivatives, Federal Reserve, Legal, Regulation

Hybrid of Risky Mortgages and a Ponzi Scheme

Dilbert, 2 days in a row: >

Category: Bailouts, Credit, Humor, Legal

Quick Note on the AIG Bonus Sideshow

The AIG bonus hearings on executive compensation the current “bonus bill” is a sideshow that avoids addressing the lack of enforcement of existing law.

To the layman it appears, had the law (below) been enforced, we would get to the root of the problem. Of course Congress has no interest in reducing the lobbying dollars they can collect from firms that rely on those TARP dollars. They would rather pretend to be ineffective populists than effective legislators and responsible public servants.

Doesn’t anyone feel that we could get more accomplished if we enforced the following law?

§ 1352. Limitation on use of appropriated funds to influence certain Federal contracting and financial transactions

continued below

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Category: Bailouts, BP Cafe, Legal

Suspending Mark to Market Remains Unlikely

Dan Greenhaus is at the Equity Strategy Group at Miller Tabak + Co. where he covers markets and portfolio theory. He has contributed several chapters to Investing From the Top Down: A Macro Approach to Capital Markets (by Anthony Crescenzi).

This is his most recent commentary:


Suspending Mark to Market Remains Unlikely
Decreasing transparency has never, and will never, be the answer
MARCH 18, 2009

I will reserve comment about the proposed changes/amendments/guidance regarding FAS 157 until such adjustments are implemented, but I wanted to make a few quick observations regarding FAS 157 and related topics:

To begin with, FAS 157 does not establish the concept of fair value accounting. Companies have been
reporting assets at fair value for years. What FAS 157 did was establish an outline for how companies
should value assets through the Level 1, 2, 3 system with Level 1 assets being the most accurately valued and Level 3 being the least accurate, the so called “mark to model” assets. Suspending that system would, in my mind, unquestionably increase market uncertainty by increasing management input with respect to the valuing of assets. How in the world anyone thinks reducing transparency, which is absolutely what would occur, is a good idea is beyond my understanding. I do not subscribe to the belief that the perceived lack of transparency now, the effect of distressed markets, excuses further reductions in transparency by removing the guidelines, outlines and disclosure requirements as laid out in FAS 157.

Secondly, I also do not subscribe to the belief that somehow these assets are not being priced to their “true” value. While there is certainly some temporary impairment due to market volatility and perhaps some underpricing relative to hold-to-maturity value as we believe it to be today, the fact remains that an asset trading at a significant discount to its true value would attract buyers in larger numbers than we’re seeing. The truth is that these assets are not seeing the interest they otherwise might be for a variety of reasons, not the least of which is that the “true” value of these assets are in contention right now. Could the value be higher than, say, 30 or 40 or 50 cents on the dollar? Sure. But I don’t know that and with high levels of macroeconomic uncertainty hanging over our heads, I believe that many market participants are staying away for fear of incurring losses on these positions.

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Category: BP Cafe, Legal, Markets

Time for Wall Street Insurance?

Why does the US taxpayer have to guarantee every single transaction done on Wall Street? Since when is that our obligation? If the taxpayer is on the hook to bailout systemic risk, then don’t they have the right to prevent that systemic risk? Or alternatively, reserve for/insure it? I keep hearing that Wall Street must…Read More

Category: Bailouts, Credit, Derivatives, Legal

What is the Intent of Fair Value Accounting?

It looks like the FASB is in full retreat on fair value accounting.  Below is an artifact from the period we published today in The IRA.  Author is a very well respected analyst who worked for the Fed in the 2007 period and tried to sound a warning about the supervisory implications of a FVA regime.  I am going to do a victory lap at AEI today when we convene the latest “Deflating Bubble” session. – Chris

The Institutional Risk Analyst

March 17, 2009

The following article on fair value accounting (“FVA”) was authored in May 2007 by a researcher who at the time worked for the Federal Reserve System. The paper, which was not approved for publication by the Fed Board’s bank supervisory staff, outlines some of the issues in a transition to FVA, issues that have turned out to be critical. Many of these issues now may be obvious to students of financial institutions and the general public thanks to the financial crisis, yet two years ago the paper was dismissed by the Fed’s staff in Washington. To us, the story around this article provides yet another example of how the intellectual closed-mindedness of the Fed’s Washington staff results in bad public policy.

Some background for context. The Fed and other bank regulators historically did not push back on supervised firm accounting “choices” or otherwise second guess the external auditor on valuation issues for financial firms. That is, if a financial firm could get its paid accountant to sign off on a choice of valuation methodology — choices which in many cases are based purely on “stated intent” at the time to hold an asset for sale or to maturity, then the paid regulator at the OCC (figure roughly 50 examiners for each too-big-to fail bank) and its more poorly staffed step-brother, the Fed (roughly 7 examiners per TBTF bank), would simply accept the decision without question or review.

During the bubble years, the author and other members of the federal bank supervisory community fought internally and with the banks against apparent inconsistencies in accounting choices — for example, the same large bank would put a big chunk of liquid exchange traded equites that turned over frequently into AFS, while putting illiquid slow-to-turn distressed debt in trading. Most regulatory accountants, though knowledgeable and well meaning, were in some sense lazy, as they felt it much more important to maintain GAAP and regulatory accounting parity, then it was to have more correct reporting based on actual facts and behavior.

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Category: Legal

Sesame Street explains the Madoff Scandal

1:18 JimmyKimmelLive March 12, 2009

Category: Humor, Legal