And Next Up, A Good Game of RISK
Posted: September 6, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, Surreality, The Bonus Class | Tags: death derivatives, life insurance policies, securitization Comments Off on And Next Up, A Good Game of RISK
If you still need motivation to get on my bandwagon for new bank regulation, go read “Back to Business: Wall Street Pursues Profit in Bundles of Life Insurance.” While the nation is having a good scream over communists in the White House and Bolshevik health care reform, the bankers are playing Risk with your tax dollars.
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.The bankers plan to buy “life settlements,” policies for life insurance for elderly parents which allow the ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.
The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.
“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.
Oh, that’s just great! The same folks left unregulated and un-rebuked from the mortgage meltdown (and rewarded with subsidies) get to misprice yet another set of iffy securities. If this isn’t a more “exotic” investment than credit default swaps and harder to price, I’ll turn in all my Phd class credits (including the one specifically geared to Risk Theory) for an electrician’s license. Investment bankers seem to be on hyperdrive to find the next big thing before congress even realizes the horses are back out of the barn again.
It’s just a Ball of Infusion
Posted: September 5, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, U.S. Economy | Tags: bank profitability, credit card lending, discount window, mortgage deliquencies, prime mortgages, Subprime mortgages Comments Off on It’s just a Ball of Infusion
I’m having a difficult time reconciling the new found bank profitability driving more executive bonuses to this article at the WSJ. It’s called “Troubles for ‘Prime Borrowers Intensify” and it has some startling data. First there’s these numbers on prime mortgages which are undoubtedly creating some of the problems at the FHA that’s fueling rumors of the need for yet another bailout.
The mortgage-delinquency rate among so-called subprime borrowers reached 25% in the first quarter but appears to be leveling off, rising only slightly in the second quarter. The pace of delinquencies for prime borrowers is accelerating. Since prime loans account for 80% of U.S. bank exposure to mortgages and credit cards, these losses could ultimately exceed those from weaker borrowers.
Losses are also mounting in that group for credit card debt. This is because of the increased duration of unemployment for many folks. They basically are tapped out and don’t even have their home equity as a source of potential liquidity. Since unemployment, and especially duration is not really on the mend, how long can this go on before bank capital takes a hit again?
In addition to cutting back on spending, strapped prime borrowers often can keep up with their bills longer than subprime borrowers by draining savings accounts, reducing contributions to retirement plans and turning to family members for money. They also are typically slower than subprime customers to seek help for financial problems because they are concerned about the stigma associated with such assistance, credit counselors say.
About 40% of the strapped consumers seeking help from the OnTrack Financial Education & Counseling center in Asheville, N.C., are prime borrowers, up from 15% last year, says Tom Luzon, director of counseling services at the United Way agency. Many of these clients already scaled back their lifestyles after losing their jobs or seeing their salaries slashed. Some are small-business owners whose companies foundered as a result of the recession.
“They have made adjustments and made adjustments, but then you get to a point where you can’t adjust anymore,” says Mr. Luzon, who is a former banker.
“People who are middle-class wage earners initially may have severance pay and think they have plenty of time to find a job, but then they start using credit cards to support living expenses,” he says.
So, my question is this. If some of the original bank profitability recently has been due the availability of cheap funds through the FED, TARP, and other government sources, if prime borrowers are now having increased difficulty paying their obligations, what happens to bank profitability if the government funds dry up? How long do we have to keep propping the banks up while they merrily repeat the same portfolio decisions that can’t work once the market rates are back at market levels? Also, how are they going to absorb these increasing level of loan losses?
I frankly can’t see the end to banks requiring cheap sources of funds like the Fed window. I can’t believe the economy is going to recover fast enough for this to change. How long will we have to infuse the banks with tax payer dollars and on-the-cheap loans through the discount window? I don’t think most of these institutions could function without it.
Labor Day Blues
Posted: September 4, 2009 Filed under: U.S. Economy | Tags: FHA, payrolls, total hours worked, unemployment statistics Comments Off on Labor Day Blues
The release of the new unemployment data and labor market data was pretty much in keeping with expectations. MarketWatch reports that the unemployment rate is now at an 26 year high coming in at 9.7%. The drop in payroll numbers wasn’t as severe as it has been recently, but there are still troubling underlying factors.
Payrolls fell in most sectors of the economy except for health care. Total hours worked in the economy dropped by 0.3%, long-term unemployment worsened, and the number of people working just part time who wanted full-time work reached 9.1 million, up 278,000.
The number of people who’ve been out of work longer than six months nudged up to 5 million, representing about one-third of the unemployed.
An alternative measure of unemployment that includes discouraged workers and those forced to resort to part-time work rose to 16.8% from 16.3%, marking the highest on record dating back to 1995.
Average hourly earnings on the month rose 6 cents, or 0.3%, to $18.65 an hour. In the past year, average hourly earnings are up 2.6%.
Of the 271 industries as tracked by the Labor Department, 35% were adding workers in August, according to a survey of hundreds of thousands of business establishments.
Private-sector employment fell by 198,000 in August. Employment in the private-sector is now lower than it was 10 years ago
The duration of employment is some of the worst we’ve seen in a long time. That’s represented by the number of 
people that have been out of work longer than six months. Also, the level of discouraged workers and people involuntarily working part time is incredibly high. This is reflected in the last fact which shows that the economy has taken back all of the jobs created over the last 10 years and then some. There is simply no where to go.
One of the other interesting details in the numbers was the loss of government jobs by 18,000. Only food, beverage, and petroleum industries increased along with health care. The loss of government job is a reflection of the softening in state economies that will no longer be able to plug funding gaps with federal stimulus checks. Shortly, the slash of state budgets around the country will begin to drive the unemployment rate higher.
You can tell that it will be awhile before this all turns around because the average workweek was unchanged at 33.1 hours. If employers aren’t fully utilizing their current staff, they certainly aren’t going to hire any more.
The bad job market has undoubtedly led to this bit of news too. Loan losses at the Federal Housing Administration (FHA) are so bad that there’s question of solvency. The WSJ reports we may be in for yet another bailout. This creates a double whammy because the agency insures loans for buyers with small downpayments and has be instrumental in a lot of the first time buy loans coming out of the stimulus plan.
In the past two years, the number of loans insured by the FHA has soared and its market share reached 23% in the second quarter, up from 2.7% in 2006, according to Inside Mortgage Finance. FHA-backed loans outstanding totaled $429 billion in fiscal 2008, a number projected to hit $627 billion this year.
Rising defaults have eaten through the FHA’s cushion. Some 7.8% of FHA loans at the end of the second quarter were 90 days late or more, or in foreclosure, according to the Mortgage Bankers Association, a figure roughly equal to the national average for all loans. That is up from 5.4% a year ago.
Resulting FHA losses are offset by premiums paid by borrowers. Federal law says the FHA must maintain, after expected losses, reserves equal to at least 2% of the loans insured by the agency. The ratio last year was around 3%, down from 6.4% in 2007.
If its reserves fall short, the agency is obliged to notify Congress, which could spark a commotion over the extent to which the government is funding losses in the housing market. Some housing analysts have said losses might lead the FHA to pull back lending, which has helped boost flagging housing demand.
It appears that more and more federal programs geared to help ordinary Americans are on the ropes. This is especially tough since so many folks have lost their jobs, the number of hours they work, or are experiencing cuts in benefits and salary. There’s still a long way to go before this recession is over and we show any signs of a real recovery. Consider that we’ve lost all gains on assets and now all jobs created in the last 10 years. We’ve already got one lost decade under our belt. What’s in store to stop the next one?
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Some Things are too Important to be left to the Market
Posted: September 2, 2009 Filed under: Diplomacy Nightmares, Surreality | Tags: Afghanistan, ArmorGroup, Blackwater Security Firm, Mercenaries, Pentagon jobbers Comments Off on Some Things are too Important to be left to the Market
Guys GONE WILD!!!! http://www.mahalo.com/armorgroup-hazing (Your tax dollars at work).
I always have to give this lecture near the beginning of my class when we talk about why some markets work well without government interference, and others, well, they require government interference. How would you feel, as an example, about letting our uranium supplies go to the highest bidder in a completely unregulated market? Does that strike you as a good idea? I can’t imagine any responsible American citizen arguing for that position. That’s a pretty unsubtle example but there are more. I’ve found any story that talks about farming out other stuff related to national security (rampant in the Rumsfeld Doctrine) usually puts me in a no-way frame of mine. Really, some things are just too important to be left to the profit motive.
So, here’s the three headlines and they all belong to stories concerning the State Department and the Pentagon. ABC news reports in a exclusive story that the Controversial Blackwater Security Firm Gets Iraq Contract Extended by State Dept;Company Banned From Operating by Iraqi Government Earlier This Year. I read that story right after I read this one in Politico entitled ‘Lord of the Flies’ in Kabul. I then went to the LA Times to skim U.S. to boost combat force in Afghanistan where I found the following lead paragraph.
Support units will be replaced by up to 14,000 ‘trigger-pullers,’ and noncombat posts will be contracted out, Defense officials say. The swap will allow the U.S. to keep its troop level unchanged.
Didn’t we replace Rumsfeld, Cheney and Bush or did I miss something? What is going to get contracted out to the lowest
bidder looking for high profits? What costs are they going to cut to provide something resembling “service”? What service will that be?
Let me just backtrack to that Lord of the Files article a moment.
About 10 percent of the 150 English-speaking guards employed at the embassy by ArmorGroup, a private security company headquartered in Britain and Florida, approached the Project on Government Oversight and described “a pervasive breakdown in the chain of command and guard force discipline and morale,” according a letter sent to Clinton by executive director Danielle Brian.
An e-mail from one of the guards described parties on days off, during which guards and their supervisors urinated on themselves and others and ate potato chips and drank vodka from the cracks of buttocks.
“You will see that they have a group of sexual predators, deviants, running rampant over there,” one guard, whose name was withheld, said in an e-mail to POGO, adding, “They are showing poor judgment.”
Pictures accompanying POGO’s letter corroborate at least some of the allegations. The e-mail and photographs were given to reporters by POGO.
Losing Ground
Posted: September 1, 2009 Filed under: president teleprompter jesus, Team Obama, Voter Ignorance | Tags: polls, Presidential Job Approval, Rasmussen Comments Off on Losing Ground
Whatever AxelRahm and POTUS are doing, it’s not working. CNN reports that the majority of registered independents in the country now disapprove of how President Obama is doing his job.
A majority of independent voters disapprove of how Barack Obama’s handling his job as president, according to a new national poll.
Fifty-three percent of independents questioned in a CNN/Opinion Research Corporation survey released Tuesday say they disapprove of how Obama’s handling his duties in the White House, with 43 percent in approval. That result marks the first time in a CNN poll that a majority of independents give the president’s performance a thumbs-down.
The issues that appear to be responsible for the downward momentum include health care, the economy, the budget deficit, and taxes. Majority support is still holding for national security (terrorism) and foreign affairs which are being managed by the still popular SOS Hillary Clinton. It would seem the most obvious downer numbers should come from the health care fight, but other issues also weigh in.
Is the fight over health care responsible for the downturn in Obama’s numbers?
“Yes, in part, but his standing on some other issues has taken an even bigger tumble,” adds Holland. “Among all Americans, his rating on health care has dropped 13 points since March. Compare that to his 16 point drop on the deficit and 17 point dip on taxes and it looks like there is growing discontent with Obama’s overall domestic agenda — not just his health care policy.”
According to the poll, Obama’s approval rating on how he is handling the war in Afghanistan also fell 18 points since March.
Another interesting poll was released by Rasmussen today where Republican Voters Say their GOP Reps in Congress are still out of touch. However, it appears out of touch means too liberal for their tastes.
Seventy-four percent (74%) of Republican voters say their party’s representatives in Congress have lost touch with GOP voters nationwide over the past several years. The latest Rasmussen Reports national telephone survey finds that just 18% of GOP voters believe their elected officials have done a good job representing the base.
Most Republican voters (55%) say that the average Republican in Congress is more liberal than the average Republican voter. Twenty-four percent (24%) say the average Republican in Congress holds views about the same as the average Republican voter while just 17% think the Congressional Republicans are more conservative than GOP voters.
The Administration shouldn’t expect Republican voters to cooperate much as eighty-four percent (84%) of them believe it is more important to stand for what their party believes in rather than trying to work with President Barack Obama. Only 14% favor bipartisan cooperation with the President.
Overall, 45% of voters say they at least somewhat approve of the President’s performance. That’s down a point from yesterday and the lowest level of total approval yet measured for Obama. Fifty-three percent (53%) now disapprove. See recent demographic highlights from the tracking polls.
In addition to our daily tracking, Rasmussen Reports has released a month-by-month review of the President’s Approval ratings. This allows a longer-term look at trends. In August, President Obama’s full-month ratings fell below 50% for the first time.
I wouldn’t want to be an incumbent in this atmosphere. These are some ugly, ugly numbers. I’m guessing the Dems are on their way to losing the senate and possibly the house if this keeps up.
You can talk about this or consider this an open thread. Have a good evening!
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