Worth a Look
Federal Home Loan Bank sues Wall Street claiming Goldman, others failed to disclose liars’ loans mainly used by liars. Sure, liars’ loans were bank fraud and everybody involved should go to jail.
But the way the securitization process worked, it was the folks at the top of the food chain, in this case the Federal Home Loan Bank of Seattle, who were the ultimate sources of the capital that sustained the fraud, and thus the most guilty of all. For the FHLBS to be suing the (equally guilty) investment banks is like Fannie and Freddie pleading they were victims too (as they did in one hearing) because it was those nasty mortgage brokers who sold them the loans. As if the mortgage brokers were ever anything but local sales offices for the twins and the big banks.
Beware of Greeks bearing gifts, or at least government bonds. This is just the sort of thing that would have to be disclosed under our proposed rule for transparent tradingGasparino has good stuff on the bankers turning against Obama. But it can’t be as bad for OBto lose the bankers’s support as it will be for the GOP to gain it.
Is a buy signal for Democrat futures?
If we were Henry Paulson we would be too embarrassed to write op-eds in the NYT explaining how the crisis proves we need to give regulators more discretionary power.
It’s almost enough make us regret our nuke the whales t-shirts. NYT Reports Obama is guaranteeing loans to build nuke plants
Some people never learn: bubbles don’t un-pop.
The return of the bond Vigilantes?
Bloomberg notes that the cost of insurance against a default by the United States is rising and predicts that buyers of Treasury bonds are going to start saying “no sale”, putting pressure on the government to rein in fiscal excesses.
It’s a reasonable argument, but here’s a second thought. Real risk of federal default implies catastrophic events. And no matter how badly the government abuses its own credit, in a real crisis, even a crisis created by government, investors will flee to Treasuries. As we say in Panic, this is exactly what happened in the fall of 2008. By steering money away from commercial credit markets and into the big banks and other favored institutions, the government made commercial lending so dangerous that otherwise sound and productive companies were suddenly at risk of bankruptcy. Even offered commercial bond yields in the fifteen to twenty percent range, and even though the government was massively adding to its own debt, investors still preferred to hold Treasuries with yields approaching zero. Government tried to revive commercial lending by reducing rates, but the spread would not close, because investors saw the choice as not between richer and poorer but between dead or alive.
A U.S. government default is about as devastating an economic event as can be imagined. But on the day before that default, whose bonds would you prefer to own? As for buying credit default swaps against Treasuries, who insures against the end of the world?
Tags: Andrew Redleaf, banking deregulation, capitalism, NYTimes, Richard Vigilante, Whitebox, WSJ
