Feb 08 2012


6 pm tomorrow.

Oh, so not the haircut you thought I was talking about.

How about this-

Banks Paying Homeowners to Avoid Foreclosures

By Prashant Gopal, Bloomberg News

Feb 7, 2012 12:00 AM ET

As lenders shift their focus to sales, they are finding that some borrowers would rather risk repossession while they wait for a loan modification, according to Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. In a loan modification, the monthly payment, and sometimes principal, is reduced to help prevent seizure. Homeowners facing foreclosure may live rent-free for years before they are forced out.

“That’s why the banks have got to pay the big bucks,” Cecala said. “The real question is why is the bribe so big? Is that what it takes to get somebody out of their home?”

Cecala of Inside Mortgage Finance said he wonders whether lenders are making big payments on properties with underlying title problems. Evan Berlin, managing partner of Berlin Patten, a real estate law firm in Sarasota, Florida, said representatives of a large bank told him the incentives are primarily given to borrowers when it doesn’t have the proper paperwork needed to win its foreclosure case.

Because that’s where the money is-

Greece, Troika Work on Final Rescue Draft

By Marcus Bensasson, Maria Petrakis and Natalie Weeks, Bloomberg News

Feb 7, 2012 9:45 AM ET

Adding to pressure on Papademos and political leaders jostling ahead of the elections, the biggest public-sector and private-sector union groups, ADEDY and GSEE, held a 24-hour general strike today, shutting down government services, courts, schools and ferry services. Dockworkers and bank employees also walked off the job while a walkout by culture ministry workers forced the closure of museums and other tourist attractions.

“What is taking place isn’t a negotiation,” GSEE president Yannis Panagopoulos said in an e-mailed statement. “It’s raw, cynical blackmail against a whole people.”

The troika argues that lower wage costs is among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.

Antonis Samaras, the head of the second-biggest party, New Democracy, has indicated he will oppose measures that will deepen the country’s downturn.

Guarantees from Greek political leaders such as Samaras, who leads in opinion polls, are key to securing the funds from the EU and IMF. International lenders want assurances that whoever wins the next election will stick to pledges made now to receive financing.

The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange that will slice 100 billion euros off 200 billion euros of privately-held Greek debt and loans that will probably exceed the 130 billion euros now on the table. A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due.

Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.

The End of Wall Street As They Knew It

By Gabriel Sherman, New York Magazine

Published Feb 5, 2012

To understand how radically Wall Street is changing, you have to first understand how modern Wall Street made its money. In the quaint old days, Wall Street tended to earn its profits rather boringly by loaning money, advising mergers, and supervising bond issues and IPOs. The leveraging of the American economy-and the supercharging of the financial industry-began in earnest in the early eighties. And banks have profited from a successive series of financial bubbles, each bigger and more violent than the one preceding it. “Wall Street did a really good job convincing people it was really complicated and they were the only ones who could do it and it justified paying them millions of dollars,” a former Lehman trader explained. Credit was the engine that powered the explosion in bank profits. From junk bonds in the eighties to the emerging-markets crisis in the nineties to the subprime mania of the aughts, Wall Street developed new ways to produce, package, and sell debt to willing investors. The alphabet soup of complex vehicles that defined the 2008 crash-CLO, CDO, CDS-had all been developed to sell more credit. “If you look at the past 25 years, the world economy was going through a process of leveraging,” a senior Citigroup executive said. “Debt has grown faster than economic growth. The banking industry was at the epicenter of facilitating the growth of credit creation. It drove every business.”

After the big investment banks went public, the sense of restraint that sometimes could hold back private partnerships from taking on too much risk-it was their own money-was removed. Bank earnings and ever-rising asset values allowed them to borrow ever-larger amounts of money, which in turn juiced ever-greater profits. Banks, which had previously made their money advising corporations and underwriting securities, essentially became giant hedge funds (in 2007, Morgan Stanley held $1.05 trillion in assets supported by just $30 billion in equity). The triumph of the Wall Street system was the exploitation of the real-estate boom: Real estate enabled the biggest credit bubble ever conceived-and a bust of similar magnitude, which some shrewd traders also took advantage of. “The mortgage mess is the biggest financial mess we’ll see in our lifetime,” Jamie Dimon told me.

And without real estate to fuel growth, many on Wall Street know it’ll be a long time before there is ever a profit center like it again. “The number of houses being sold is 25 percent of what it was,” a former Lehman trader says. “You don’t have the mortgages behind it. Essentially the pump has stopped working. All the IPOs, the mergers-everything is slowing down. And the number of new homes will never jump back to what it was. If you look at history, the past 50 years have been incredible. Never has there been a period of time of so little disease and so few wars and such growth of such absurd wealth.”

(R)ecently, hedge funds have fared just as poorly as the banks. The bad economy plays a role in this, of course. But just as important is the fact the hedge-fund industry is almost as overbuilt as the housing and credit markets that drove its profits. In 1990, there were 610 hedge funds in the world. In 2000, there were 3,873; in 2011, there were 9,553, according to a report by Hedge Fund Research. All these funds are chasing fewer surefire trades. “When markets are panicked and there’s global risk fear, the markets move in the same direction,” one analyst at a Manhattan hedge fund says. “It’s just a lot harder to make money.” The easy, obvious plays are oversubscribed, which shrinks margins.

“We used to rely on the public making dumb investing decisions,” one well-known Manhattan hedge-fund manager told me. “but with the advent of the public leaving the market, it’s just hedge funds trading against hedge funds. At the end of the day, it’s a zero-sum game.” Based on these numbers-too many funds with fewer dollars chasing too few trades-many have predicted a hedge-fund shakeout, and it seems to have started. Over 1,000 funds have closed in the past year and a half.

On Wall Street, the misery index is as high as it’s been since brokers were on window ledges back in 1929. But sentiments like that, accompanied by a full orchestra of the world’s tiniest violins, are only part of the conversation in Wall Street offices and trading desks. Along with the complaint is something that might be called soul-searching-which is, in itself, a surprising development. Since the crash, and especially since the occupation of Zuccotti Park last September (which does appear to have rattled a lot of nerves), there has been a growing recognition on Wall Street that the system that had provided those million-dollar bonuses was built on a highly unstable foundation. Disagreeable as it may be, goes this thinking, bankers have to go back to first principles, assess their value in the economy, and take their part in its rebuilding. No one on Wall Street liked to be scapegoated either by the Obama administration or by the Occupiers. But many acknowledge that the bubbleĀ­-bust-bubble seesaw of the past decades isn’t the natural order of capitalism-and that the compensation arrangements just may have been a bit out of whack. “There’s no other industry where you could get paid so much for doing so little,” a former Lehman trader said. Paul Volcker, whose eponymous rule is at the core of the changes, echoes an idea that more bankers than you’d think would agree with. “Finance became a self-justification,” he told me recently. “They made a lot of money trading with each other with doubtful public benefit.”

Pobrecitos.  Que lastima.

1 comment

  1. ek hornbeck

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