12/16/2011 archive

Recently some people of my acquaintance have had traffic accidents that damaged their cars (fortunately there were no injuries).

They had insurance which, over the lifetime of the vehicle, amounted to much more than its replacement cost.  So an adjuster came out and examined the damage, determined whether or not repair exceeded replacement cost and issued a check for the lower of the two values.

In the mean time the insurance company had the use of the payment money which they invested and collected the profits of that investment.

At least that’s the way insurance is supposed to work.

Accountancy is boring.  I want to be a Lion Tamer!

What If Lehman Happened Today?

By Michael Hirsh and Stacy Kaper, National Journal

Updated: December 1, 2011 5:19 p.m.

And now Gensler-a former Goldman Sachs executive whose stand against his erstwhile Wall Street comrades has won praise from progressives-is facing down the biggest Goliath of all. Europe’s raging financial crisis may not leave Gensler the time he needs to get a handle on the vast global market in derivatives, the arcane instruments used to bet on everything from interest rates to currencies to credit default swaps on the Continent. At $708 trillion (yes, trillion), the derivatives trade is already much larger than it was during the 2008 crisis. Just as last time, this opaque market may hold the key to whether the evolving eurozone disaster causes another market meltdown worldwide. With a staff of only 712 (roughly unchanged from the 1990s, when financial products where much less complex), the CFTC must regulate markets seven times the size of the futures market it used to oversee. Mostly, it supervises America’s $300 trillion portion of the global derivatives trade. “Until we complete this task, the American people remain at risk,” Gensler warned in an interview with National Journal at his office in downtown Washington. “We are midstream” in rule-writing and in requiring firms to report their trading positions, he admits. “The only thing that we would have right now is the data that banks and others are voluntarily reporting.” Even after the rules are written, Gensler says, “we won’t necessarily have the cops on the beat to oversee the market.”

…

The most frightening (but still very plausible) scenario is that some of the CDS dealers won’t have capital to pay off the swaps as they are “triggered” by the plummeting value of European bonds. That shortfall could lead to defaults on trillions of dollars in other types of derivatives. Something similar occurred when Lehman Brothers collapsed in September 2008; it failed to make good on nearly 10,000 contracts for swaps and derivatives. Lehman was severely over-leveraged, relied too heavily on short-term funding, and ultimately succumbed to a liquidity run. “That’s exactly what’s going to bring the system down,” says Michael Greenberger, a derivatives expert at the University of Maryland who once served as a senior CFTC official. “Here you’ve got people holding on to potentially valueless government debt.”

…

A panic may be just around the corner. The International Swaps and Derivatives Association appears to be trying to tighten its standards for paying out credit default swaps on euro debt, making it more difficult to collect on them, the Financial Times reported this week. That decision has angered the firms holding the CDS insurance. The situation also has similarities to 2008 and the failure of American International Group, the world’s biggest dealer of credit default swaps, which required a $150 billion bailout by the U.S. government. AIG imploded because it couldn’t keep up with the triggers that required it to post more collateral. “The real problem is that CDS moves the financial consequences of a default much further up the line,” says Dennis Kelleher, the head of Better Markets, a D.C.-based activist group. “So, long before someone defaults, be it an institution or a country, anyone who has written insurance-ie, credit default swaps-has to start posting massive amounts of collateral.”

…

“We still don’t have transparency in the swaps market,” Gensler says. “There is $20 of swaps for every dollar in our economy.”

Or so it would have been, if certain modern theories about the shape of the world had not proved to be disastrously wrong.  

Some encouraging news in the on going call for an investigation into foreclosure fraud, Sen Maria Cantwell (D-WA) called for Attorney General Eric Holder to investigate the fraud before letting the bank off with a pitiful settlement $20 billion and a “get out of jail” card for criminal charges, She also demanded a full investigation into robo-signing scandal and ‘pump and dump’ mortgage bubble scheme:

I am concerned that recently reported settlement proposals will effectively absolve these financial institutions of substantial civil and criminal liability in one of the largest alleged fraud schemes during the financial crisis. Specifically, I am concerned that the proposed settlement includes a release from liability that may be far too sweeping, does not adequately compensate victims, does not require enough of banks to reform the system that led to the crisis in the first place, and is being made before all the facts are known and without the backing of a full inquiry into the size and scope of the alleged fraud.

…

Without a thorough investigation, it is impossible to truly estimate just how pervasive the defects in the foreclosure and securitization process are. Continued reports of wrongful foreclosures, forged documents, and an inability of servicers and banks to prove chain of title and the legal right to foreclosure, raises the very alarming possibility that these defects were endemic to the mortgage servicing industry across the country. The sheer magnitude of the potential fallout from these defects demands that we undertake a full investigation to uncover the true scope of wrongdoing before providing blanket immunity to the perpetrators.

I am also concerned that reports of a settlement in the range of $20 billion, as recently reported, may not adequately compensate the victims of the foreclosure crisis. As a result of the pump-and-dump scheme perpetrated by the nation’s largest banks that inflated – and burst – the housing bubble, an estimated 14 million Americans are underwater, owing $700 billion more on their homes than those homes are worth. A $20 billion settlement is woefully inadequate to compensate the wrongfully evicted or homeowners struggling to stay in their homes. Much more should be required of banks to provide meaningful help underwater homeowners and compensate foreclosure fraud victims.

And some good news for homeowners facing foreclosure in Florida:

WEST PALM BEACH – Home­owners in foreclosure may have a better chance of getting a true trial, instead of a quickie judgment, following a 4th District Court of Appeal decision that requires banks to prove ownership of the note at the time they file for repossession.

The ruling Wednesday in Palm Beach County was heralded by foreclosure defense attorneys who said it may even force banks to dismiss some cases and start over with new paperwork.[..]

Wednesday’s ruling was on the case of Robert McLean vs. JPMorgan Chase, and involved a 2009 Broward County foreclosure.

According to the decision, which reversed a lower court’s verdict in favor of the bank, Chase originally filed the foreclosure claiming the note – basically the IOU from the borrower – was “lost, stolen or destroyed.”

The claim has been made thousands of times as lenders rushed without the proper documentation to take back homes tangled up in the real estate boom’s securitization frenzy.

Although most notes are found before a final foreclosure judgment is entered, the 4th DCA said the note also must be correctly dated and endorsed to show ownership before the foreclosure was initially filed – something that Chase didn’t have, according to the ruling. The court also questioned a mortgage assignment made to Chase that was dated three days after the foreclosure was initially filed.

If there is substantial doubt about the note, the bank should dismiss and refile the case or the home­owner should be entitled to an evidentiary hearing instead of a more hasty “summary judgment,” the ruling said.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Paul Krugman: G.O.P. Monetary Madness

When it comes to views on economics, Republicans have been consistent, clear and wrong.When it comes to views on economics, Republicans have been consistent, clear and wrong.

Apparently the desperate search of Republicans for someone they can nominate not named Willard M. Romney continues. New polls suggest that in Iowa, at least, we have already passed peak Gingrich. Next up: Representative Ron Paul.

In a way, that makes sense. Mr. Romney isn’t trusted because he’s seen as someone who cynically takes whatever positions he thinks will advance his career – a charge that sticks because it’s true. Mr. Paul, by contrast, has been highly consistent. I bet you won’t find video clips from a few years back in which he says the opposite of what he’s saying now.

Unfortunately, Mr. Paul has maintained his consistency by ignoring reality, clinging to his ideology even as the facts have demonstrated that ideology’s wrongness. And, even more unfortunately, Paulist ideology now dominates a Republican Party that used to know better.

New York Times Editorial: Politics Over Principle

President Obama has caved in to political pressure and will sign a dangerous bill that will make indefinite detention and military trials part of American law.

The trauma of Sept. 11, 2001, gave rise to a dangerous myth that, to be safe, America had to give up basic rights and restructure its legal system. The United States was now in a perpetual state of war, the argument went, and the criminal approach to fighting terrorism – and the due process that goes along with it – wasn’t tough enough.

President George W. Bush used this insidious formula to claim that his office had the inherent power to detain anyone he chose, for as long as he chose, without a trial; to authorize the torture of prisoners; and to spy on Americans without a warrant. President Obama came into office pledging his dedication to the rule of law and to reversing the Bush-era policies. He has fallen far short.

Fallen short? He has embraced and strengthened the worst of the Bush agenda.

The corporate-owned media are all over the too-long-in-coming demise of right-wing extremist and liar Christopher Hitchens, whose cheerleading for the invasion and occupation of Iraq contributed nothing of value whatsoever to society.  And since we’re being forced to read and watch utter drivel instead of noting another reduction in the number of U.S. soldiers occupying Iraq (though we’re still maintaining the super-sized fortress embassy as well as thousands of mercenaries), I thought I’d kick you all while you’re down and embed the Star Wars Holiday Special.

Wail, and gnash your teeth.  Moohoohaha!

You can’t a fool a me.  There ain’t no Sanity Clause.

Barry Ritholtz made a not so bold prediction at the beginning of December that I highlighted on the 5th (Pepper Spray Saves Santa).  Even way back in the dim dark mists of History that those born yesterday don’t remember and I was working retail shipping and receiving we knew holiday sales reports were thin tissues of lies put together by buyers to save their asses from the piles of remainders we’d get stuck inventorying in February after marking it down to nothing.

Rithholtz followed up with this-

Retail Sales Disappoint on False Black Friday Reports

Author: Barry Ritholtz, EconoMonitor

December 13th, 2011

Today, we learn that many breathless forecasts from NRF to ShopperTrak were so much hot air and empty hype: Sales were flat to up only modestly. Total U.S. retail sales in November gained only 0.2%, following a 0.6% October. Even that month was revised downwards.

Retailers themselves may pay the price for their massive discounting: Not only might their quarterly earnings be affected by the margin pressure, but they continually train investors shoppers to hunt for discounts. Retail therapy and sport shopping are being replaced by extreme couponing and sites like Living Social and Groupon.

We are left to ponder what those folks who were lining up late at night at Wal-Mart and Best Buy for bargains were doing. No, it was not a sign of “shopping enthusiasm,” it was a sign of extreme economic distress. No one who can afford otherwise goes out Thanksgiving night to stand in the cold with a crowd, to fight the stampeding, pepper-spraying mob for a discounted X Box.

Here is your simple formula:

Thanksgiving Thursday night shopping + record food stamps = Bad Economy

I almost pointed that out because I’m greedy for any affirmation of sanity, but today, like a Red Nosed Rudolph, we have The New York Times reporting-

As Sales Lag, Stores Shuffle the Calendar

By STEPHANIE CLIFFORD, The New York Times

Published: December 15, 2011

A sharp drop in shopping since Thanksgiving weekend has prompted worried retailers to slash prices, extend specials, stay open later – and rewrite the calendar.

Usually one of the most heavily discounted shopping days of the year, the Saturday before Christmas – it falls on Dec. 24 this year – is too crucial to retailers’ holiday sales to be left in the hands of procrastinating Christmas Eve shoppers. Instead, many of the promotions pegged to “Super Saturday,” as the day is known in the retail industry, are now scheduled for this Saturday – a full eight days before Christmas.

…

The dueling Saturdays might seem like a lot of consternation about nothing to consumers weary of faux shopping events: Black Friday, Sofa Sunday, Cyber Monday, Red Tuesday, Mobile Sunday, Green Monday and Free Shipping Day (Friday this year, for those keeping track).

But the worries are real for retailers who are seeing the season slip away from them, and the potential effects on the economy are considerable.

After a Thanksgiving weekend that set records in terms of sales, in-store shopping has dropped significantly in the two weeks that followed. The cumulative drop from Thanksgiving-week sales in those weeks, of 2.4 percent, was the biggest since 2000, according to the International Council of Shopping Centers. The Commerce Department said this week that retail sales in November, including online sales, came in lower than analysts had expected, rising just 0.2 percent to $399.3 billion, the smallest increase in five months.

“That suggests we may not get quite as much momentum in the holiday-sales season as people were expecting,” said Peter Buchanan, an economist at CIBC World Markets. Given that consumer spending makes up the majority of the gross domestic product, he said, “the chances of having a really decent recovery are rather limited if consumers continue to hold back.”Almost 40 percent of Americans said they were done with their holiday shopping as of last week, according to a survey from America’s Research Group and UBS, suggesting there may not be too much spending left to do.

Merry eksmas suckers.

He may look like an idiot and talk like an idiot, but don’t let that fool you. He really is an idiot.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

December 16 is the 350th day of the year (351st in leap years) in the Gregorian calendar. There are 15 days remaining until the end of the year.

On this day in 1773, a group of Massachusetts colonists disguised as Mohawk Indians board three British tea ships moored in Boston Harbor and dump 342 chests of tea into the water.

The Boston Tea Party was a direct action by colonists in Boston, a town in the British colony of Massachusetts, against the British government and the monopolistic East India Company that controlled all the tea coming into the colonies. On December 16, 1773, after officials in Boston refused to return three shiploads of taxed tea to Britain, a group of colonists boarded the ships and destroyed the tea by throwing it into Boston Harbor. The incident remains an iconic event of American history, and other political protests often refer to it.

The Tea Party was the culmination of a resistance movement throughout British America against the Tea Act, which had been passed by the British Parliament in 1773. Colonists objected to the Tea Act for a variety of reasons, especially because they believed that it violated their right to be taxed only by their own elected representatives. Protesters had successfully prevented the unloading of taxed tea in three other colonies, but in Boston, embattled Royal Governor Thomas Hutchinson refused to allow the tea to be returned to Britain. He apparently did not expect that the protestors would choose to destroy the tea rather than concede the authority of a legislature in which they were not directly represented.

The Boston Tea Party was a key event in the growth of the American Revolution. Parliament responded in 1774 with the Coercive Acts, which, among other provisions, closed Boston’s commerce until the British East India Company had been repaid for the destroyed tea. Colonists in turn responded to the Coercive Acts with additional acts of protest, and by convening the First Continental Congress, which petitioned the British monarch for repeal of the acts and coordinated colonial resistance to them. The crisis escalated, and the American Revolutionary War began near Boston in 1775.

Hello,

My name is ??? and I manage the ???.com affiliate program. We’re a growing affiliate network in the political fundraising market.

??? is recognized as a global pioneer in political technology.  Every occupant of the White House, both Democrat and Republican for more than 25 years, has been an ??? customer, as are many U.S. Senators, members of the U.S. House of Representatives, and Democratic and Republican state party organizations. Year round, thousands of Americans involved in the political process, from grassroots organizers to Washington insiders rely on ???..

Since your website at docudharma.com seems to cater to the traffic that is also immediately relevant to ???.com, I wanted to take a moment to reach out regarding an opportunity for us to partner together, whereby you’d be earning commission on all leads (donations and/or email signups) that you refer. Our payouts range from %25-%35 per donation, but we want to offer you a private commission rate right off the bat.

To learn more about our program visit http://www.???.com/. If you’re not ready to join the affiliate program right away, I would still love to hear back from you to see how/if we can still work together.

I’m looking forward to your reply.

Now I have no doubt ??? is a sincere, legitimate, and reputable firm (or not, it’s not really relevant) but one of the things I like about our sites is we’re not constant mendicants.  Like anyone else it’s a monthly expense to keep the power on.  Do we accept donations?  Yes, yes we do.

We’re also open for advertising.  $10 per site (The Stars Hollow Gazette and DocuDharma), per week- $15 for both.  5100+ unique visits as measured by Sitemeter.  Like most publications we don’t screen our ads (when we have them) because to do so implies endorsement of the ones we choose to run (Good Housekeeping Seal of Approval anyone?  Bueller?).

Can you whore your own commercial endeavors?  Sure you can, but you might want to discuss it first because there is a class of spammers who make superficially benign contributions that link to decidedly malicious sites.  If you have a business proposition to make then make it, we don’t have a necessary objection to your including a link to your tie dyed T-shirts or heirloom, handcrafted quilts but transparency is a sign of good faith.

And speaking of transparency, 35% is a damn good rate.  In my club a 35% return on a commercial telemarketing donation campaign for a Children’s Theater, Magic Show, or Semi-Pro Sports Exhibition compares favorably to a $2 Hot Dog at the Town Fair and is much less work for the members.  That said I’m unlikely to approve harvesting your registration email for spam.

$30 a month is less than my cable TV bill and I get far more satisfaction out of providing you a forum.  My wildest financial desire would be to create a trust to pay for servicing in perpetuity.  We do have PayPal links.

I hope I’ve been sufficiently crass and unsympathetic enough that you’re not tempted to open your wallet at a time when things are tough economically and there are plenty of worthier causes.  If you feel a debt of any kind it’s not your money that I’d ask for, it’s your eyeballs and content in the form of pieces, comments, recommendations, and tips.