Who Knows What is Next -Certainly Not Me

Let me begin by saying that for now I am continuing to report negative news. I do it because the stats I think are important are not yet pointing to a bottom. I think they will perhaps late this year or early next look better, but they are not close yet. And so, for now, get used to me being a bit of doom and gloom. I hope to be cheery soon.

Everything Is Fine

Here's some news, if this article is correct on the reason for Asian markets rising a fourth day in a row, then someone is actually believing what Bernanke has to say. You know, the guy who - along with everyone else - touted how strong our economy is and how we have reached bottom throughout 2008.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5_oBMkb87S8&refer=home

And Geithner, another person whose every word I hold on to like life itself, has noted that he will oust CEOs from institutions that need "exceptional" aid. In my book that means there are already dozens that should be looking for jobs right now. Seriously, define "exceptional." To me it is pretty much anything over a billion bucks. To me, a billion is indeed exceptional and a fine case could be made for a much lower figure. We have all gotten too used to big numbers, especially when it comes to bailouts. Talk to any of the millions who lost their job over the past year and they can tell you that $100 would be pretty exceptional to them at the moment.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aMWnzAPdYvl8&refer=home

Let the Foreclosures Begin

I noted yesterday that prime mortgages are now outpacing subprime in terms of the number of delinquencies. Translation - more dollars are going to hit the books from prime defaults than ever hit the books from subprime and subprime defaults started this ball rolling. Don't believe me, believe Bloomberg, which also reports that loan modifications are also not succeeding in the least.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2t62x0yDW84

Well now, we have another wave of foreclosures about to flood the already over-stocked real estate inventory: Fannie and Freddie are lifting their ban on foreclosure sales and evictions. Talk about the flood gates opening - get your foreclosure surfboards ready. Seriously, these flood waters have been building up for months and Freddie and Fannie are the largest lenders, by far, in the country. We will see.

As these foreclosures hit the market, there will be another pressure point on real estate prices, another impact on real estate inventories and another hit on builders who cannot compete against foreclosure/REO prices.

http://washingtonindependent.com/37160/fannie-freddie-quietly-lift-moratorium-on-foreclosures

I truly like the start of the next link. It truly tells the story. The rest of the article, which I attach, goes down a narrower trail of the beginning story, but I think the beginning requires more time. At bottom, the story is that financial innovation is simply a way of getting around regulation, of recreating old toxic (illegal) assets with new fancy names and of making profits out of nothing. In other words, financial "innovation" is pretty much always about someone gaming the system to pick the long straw. Eventually, the taxpayers get the short straw and we all look around to see why. Paul Volker is a hero of mine and he needs a greater voice in this Administration.

"There are two schools of thought on financial innovation. One is the mainstream view, repeated faithfully by a compliant media, that financial innovation is really really important and under no circumstances must be threatened. Then we have the Old Fart view, best represented by two men who by any standards ought to have retired by now: Paul Volcker and Martin Mayer. Volcker deems the ATM to be the most important financial innovation of the last 30 years. Martin Mayer tartly noted,

'Innovation allows you to go back to some scam that was prohibited under the old regime. How can you oppose innovation? The fact that the whole purpose of the innovation is to get around the existing regulation never seems to occur to regulators or members of Congress.'

And the moderate view comes from a dead man, John Maynard Keynes:
'When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.'"

http://www.nakedcapitalism.com/2009/04/some-musings-on-financial-innovation.html

How Stressful is the Stress Test?

A good argument can be made for the government stress tests - to be completed by the end of this month - triggering some legal mandates. First, if they show a material impact on the capital of the examined bank, then you have SEC reporting requirements. Second, if the bank turns out to be insolvent, then Sheila and the FDIC have some hard choices. I for one think they, as in the FDIC, have been looking the other way on certain "key" financial institutions already. You know, those to-big-to-fail thingies. Many should already be down and would be absent the taxpayer largess.

http://www.calculatedriskblog.com/2009/04/stress-test-update-regulator-meeting.html

And Now the Good News

HSBC was able to raise over $17 billion in a rights offering. This was at a 41% discount to the share price close April 3, which undoubtedly was already at or close to a multi-year low. I truly respect that HSBC did not want to go to the government for support and instead stuck it to their stockholders. Do you think they stuck it to the stockholders so the government would have no say on officer pay and compensation? Yes, I am a cynic.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXOm2cmMzocE&refer=home

Disclosures: None