May 11, 2012

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Comment by Professor Bear
2012-05-11 07:46:47

J.P. Morgan posts a $2 bn loss, and the Wall Street headline stock market indexes rocket up in response. Is this a sign that Wall Street traders believe another bailout, or at least a QE3 announcement, is in the works?

At any rate, America owes J.P. Morgan a debt of gratitude for the timing of this high-risk gambling loss announcement, as it is a great reminder of why the Volcker Rule needs to have strong enough teeth to protect the taxpayer from future Wall Street bailout insurance liability for self-inflicted gunshot wounds.

Bulletin » U.S. stocks wave off opening-hour losses; Dow industrials up 25 points

May 11, 2012, 10:14 a.m. EDT
U.S. stocks mostly lower on J.P. Morgan hit
J.P. Morgan says it suffered a $2 billion trading loss; shares slump
By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — U.S. stocks opened lower Friday, with large banks leading the losses after J.P. Morgan Chase & Co. reported a $2 billion trading loss. The damage was contained in part by Nvidia Corp.’s upbeat outlook, which helped lift the technology sector.

J.P Morgan Chase’s (JPM -8.08%) CEO, Jamie Dimon, called the losses “self inflicted” in revealing them late Thursday. Read more about the bank’s loss.

The revelation by the country’s largest bank “raises a new round of questions about bank proprietary trading designed to extend yield on its investment portfolio among banks that continue to conduct that type of activity, including a handful of global banks,” emailed Fred Dickson, chief investment strategist at Davidson Companies.

J.P. Morgan’s $2 billion loss comes at a time when the U.S. is finalizing the Volcker rule. As the WSJ’s Ken Brown tells Deborah Kan, the bad trade could lead to more regulation.

It also puts “a handful of banks in the penalty box until the next round of quarter results hit the tape in two months,” Dickson added.

Comment by Professor Bear
2012-05-11 08:22:22

Banks
JPMorgan’s Big Loss: Volcker’s Not So Dumb After All
By Peter Coy on May 11, 2012

JPMorgan Chase & Co
$37.51 USD
-3.23
-8.62%

JPMorgan Chase’s (JPM)$2 billion loss on a derivatives bet gone bad says one thing clearly: Paul Volcker isn’t so dumb after all.

JPMorgan Chief Executive Officer Jamie Dimon went out on a limb in saying that he knew more about financial markets than Volcker, the former Federal Reserve chairman who championed the rule restricting banks’ trading risks.

“Paul Volcker by his own admission has said he doesn’t understand capital markets,” Dimon told Fox Business earlier this year. “He has proven that to me.”

Now it’s Dimon who looks like he doesn’t understand capital markets. Bloomberg News is reporting today that the loss occurred after traders in the London-based chief investment office changed a key betting strategy. “Dimon wasn’t immediately told about their shift in strategy and didn’t know the magnitude of the losses until after the company reported earnings April 13,” an executive told Bloomberg.

 
Comment by Diogenes (Tampa, Fl)
2012-05-11 09:34:23

I think with Fisher’s recent comments about the overall resentment of the general population about “bailouts” of the banks at the expense of the American Public, a general discussion should be in order about:
TOO BIG TO BAIL. I.e. Anti-trust legislation.
The basic failed concept of “banks” as Investment Houses, i.e. speculators with depositor’s money. Think MF Global and the Big Banksters. Note also that Corzine is a Democrat. The idea that Republicans are the supporters of the rich is a fable that needs to die.
Rockefeller? A republican?
But I digress. The BANKS need to be broken up and returned back to Commercial Banks. The investment houses need to be removed from the FED window. You gamble and loose………………bankruptcy. Fast and swift. Take all the CEO’s personal assets as collateral. These simple changes will return the banking system to stability and allow the commercial investments to go to profitable operations, rather than political payoffs.
Let’s see where this latest GAMBLING addiction goes. WE know for sure that Ben Bernanke will protect and defend anything the banker’s do and will say it is helping to provide economic healing. Naturally, if you give your banker buddies Billions in cash (”free” from the FED), then those people selling to the Banksters the luxuries (lamborghini, masserati, lear jet, mansion builders, resort hotels) they enjoy will receive some benefit, but the “trickle down” is just a yellow stream.
Thank the FED if you feel you’ve been piss*d on.

Comment by Happy2bHeard
2012-05-11 13:07:03

“The idea that Republicans are the supporters of the rich is a fable that needs to die.”

Who does the Republican party support?

Comment by butters
2012-05-11 17:13:47

Republican party doesn’t support anyone neither does the Democratic party. You see, parties are run by people. What do these people support? Just like any other human being, they support themselves first and they align themselves with powerful interests that are going to benefit them the most. That’s just a human nature. What these people say in public is not worth discussing.

(Comments wont nest below this level)
Comment by oxide
2012-05-11 20:13:41

Do you mean the “corporation” type of people, my friend?

 
 
 
Comment by BetterRenter
2012-05-11 22:24:57

Diogenes, breaking banks up isn’t going to fix anything, welllll, not much of anything anyway. The problem is that the auditing and risk-control system is totally defunct. It acts totally backward now. If you lose money, then the auditing process is all over you. But if you make money, the executives threaten the risk officers with termination if they dare stick their noses into the game. But making money is really only done with funny accounting, which is my gentle way of saying “fraudulently”. Making money is only a prelude to losing money, therefore.

I’m reading too many of these g-damn books about how this happens time after time. I’m reading “All the Devils are Here” by Bethany Maclean now. She’s quoting people and trends from earlier books, like “Liar’s Poker”. I’ve read them all. The system keeps making the SAME mistakes, all committed in the SAME ways: Nobody dares to actually control risk or audit appropriately, since you’d have to tackle the big profiteers, and those guys are loved by the executives, who promptly tell the investigators to either get lost in their offices or start looking for a new job. Most auditors are merely re-assigned; some willingly retreat back into their well-paid position of holding down an office chair. Some balk and fight, and are soon enough terminated.

I now believe the auditing and risk-control process will never be fixed. That’s why making banks smaller will make the crashes smaller, perhaps less apt to tap the taxpayers. But largely this system will always generate huge losses per unit company, since there are no practical means of investigating successful fraud.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 09:48:14

How big of a deal is JPMorgan’s loss?
Chris Hondros/Getty Images
People use ATMs at a Chase branch bank in New York City.
Interview by Jeremy Hobson
Marketplace Morning Report for Friday, May 11, 2012

Jeremy Hobson: Bank stocks are down. JPMorgan’s down several percent right now. The reason: a surprise admission after the markets closed yesterday of a $2 billion loss at the bank. The result, apparently, of bad bets on corporate debt by a London trader. JPMorgan CEO Jamie Dimon, who’s known as the “King of Wall Street,” said his bank has egg on its face.

Jamie Dimon: These were egregious mistakes. They were self-inflicted. We’re accountable. What happened violates our own standards and principles by how we want to operate the company.

For analysis, let’s bring in Chris Low. He’s chief economist at FTN Financial and he’s with us live, as always, from New York. Good morning.

Chris Low: Good morning.

Hobson: So Chris, how big of a deal is this?

Comment by WT Economist
2012-05-11 12:17:56

Is it the only one?

And what share of the firm’s paper profits in the post-2009 recovery were just the flip side of losses like these?

 
Comment by BetterRenter
2012-05-11 22:27:33

“Jamie Dimon: These were egregious mistakes. They were self-inflicted. We’re accountable. What happened violates our own standards and principles by how we want to operate the company.”

Hey, it’s easy to say things like that when there are no legal consequences following up whatsoever. I hate hearing people talk about accountability when there’s no calling to account.

 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 15:38:43

Those financial weapons of mass destruction can pack quite a wallop!

May 11, 2012, 6:32 p.m. EDT
S&P cuts outlook on J.P. Morgan to negative
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J.P. Morgan falls after hours; bank downgraded

SAN FRANCISCO (MarketWatch) — Standard & Poor’s said late Friday it lowered its ratings outlook on J.P. Morgan Chase & Co. (JPM -9.28%) to negative from stable because of the bank’s unexpected $2 billion loss on derivatives.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 15:41:59

Megabank, Inc keeps biggering and biggering and biggering and biggering.

The Lesson of JP Morgan’s $2 Billion Loss: Break Up the Big Banks
By David Rohde

May 11 2012, 9:00 AM ET 62

The news is astonishing. And yet, it changes nothing. The most important banks are still too big to fail, and still, they fall short with astonishing regularity.

The reports are startlingly familiar. Late Thursday, JPMorgan CEO Jamie Dimon announced a surprise $2 billion trading loss and stocks swooned. Diamond insisted, though, that there was no need for a Volcker Rule that would ban big banks from risky trading.

Last week, a Reuters investigation revealed that HSBC, the world’s fifth-largest bank, failed to review thousands of internal anti-money-laundering alerts. The bank did not file legally required “suspicious activity reports” to U.S. law enforcement officials. It hired “gullible, poorly trained, and otherwise incompetent personnel” to run its anti-money-laundering effort. Each year, hundreds of billions of dollars flowed through the bank without being properly monitored.

Last month, U.S. regulators accused Citigroup of having major lapses in its anti-money-laundering systems as well. Under an agreement with the Comptroller of the Currency, the agency that regulates national U.S. banks, Citigroup agreed to improve its monitoring operations, but did not pay a monetary penalty or admit any wrongdoing.

For critics of mega-banks, the reports are the latest sign of big banks’ ability to defy regulation, engage in dubious business practices and face few consequences.

In a British court last month, a former Nigerian governor pleaded guilty to pilfering $79 million from state coffers, funneling it offshore and buying six properties in the U.S. and UK. The banks he used to move the illicit money? HSBC, Citibank, Barclays and Schroders.

“Banks get hauled up by the regulators for failing to follow the law, promise to reform, and yet a few years down the line they’re caught doing the same thing,” said Robert Palmer of the anti-corruption group Global Witness. “I think for this to change we need strong penalties for when the banks get things wrong, and in the worst cases, jail time for individual bankers.”

Four current Federal Reserve presidents, meanwhile, are arguing that the Dodd-Frank reforms have not eliminated the “too big to fail” banks, according to a Bloomberg Businessweek article published last month. Despite measures in the legislation banning further bailouts, traders, analysts and bankers simply don’t buy it.

“Markets have come to believe that what the government did in 2008 and 2009 isn’t a one-time deal,” Kevin Warsh, a former member of the Federal Reserve Bank’s Board of Governors, said in a March television interview with Charlie Rose. They think “that the government will somehow come to the rescue of these big financial firms.”

The result is a half-dozen massive banks that remain so large that their collapse would cripple the U.S. economy and force another government bailout. As a result, the behemoths function as a de facto oligopoly. The sheer size of the banks - and the theoretical government backing that they enjoy - make it impossible for the country’s roughly 20 regional banks and 7,000 community banks to challenge them.

BIGGER AND BIGGER

The country’s biggest banks are getting bigger.
..

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:21:49

Would this be a good time for dips to buy JPMorgan shares?

JPMorgan Sought Loophole on Risky Trading
Jim Young/Reuters

JPMorgan’s trading mistakes “were self-inflicted, and this is not how we want to run a business,” said Jamie Dimon, above, the bank’s chief executive. The bank’s shares tumbled 9.3 percent on Friday.
By EDWARD WYATT
Published: May 12, 2012

WASHINGTON — Soon after lawmakers finished work on the nation’s new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank.

Several visits over months by the bank’s well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking.

Even after the official draft of the Volcker Rule regulations was released last October, JPMorgan and other banks continued their full-court press to avoid limits.

In early February, a group of JPMorgan executives met with Federal Reserve officials and warned that anything but a loose interpretation of the trading ban would hurt the bank’s hedging activities, according to a person with knowledge of the meeting. In the past, the bank argued that it needed to hedge risk stemming from its large retail banking business, but it has also said that it supported portions of the Volcker Rule.

In the February meeting was Ina Drew, the head of JPMorgan’s chief investment office, the unit that suffered the $2 billion loss.

JPMorgan officials declined to comment for this article. But in the company’s annual report, Mr. Dimon wrote: “If the intent of the Volcker Rule was to eliminate pure proprietary trading and to ensure that market making is done in a way that won’t jeopardize a financial institution, we agree.”

He added: “We, however, do disagree with some of the proposed specifics because we think they could have huge negative unintended consequences for American competitiveness and economic growth.”

JPMorgan wasn’t the only large institution making a special plea, but it stood out because of Mr. Dimon’s prominence as a skilled Washington operator and because of his bank’s nearly unblemished record during the financial crisis.

“JPMorgan was the one that made the strongest arguments to allow hedging, and specifically to allow this type of portfolio hedging,” said a former Treasury official who was present during the Dodd-Frank debates.

Those efforts produced “a big enough loophole that a Mack truck could drive right through it,” Senator Carl Levin, the Michigan Democrat who co-wrote the legislation that led to the Volcker Rule, said Friday after the disclosure of the JPMorgan loss.

The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.

Portfolio hedging “is a license to do pretty much anything,” Mr. Levin said. He and Senator Jeff Merkley, an Oregon Democrat who worked on the law with Mr. Levin, sent a letter to regulators in February, making clear that hedging on that scale was not their intention.

“There is no statutory basis to support the proposed portfolio hedging language,” they wrote, “nor is there anything in the legislative history to suggest that it should be allowed.”

While the banks lobbied furiously, they were in some ways pushing on an open door. Officials at the Treasury Department and the Federal Reserve, the main overseer of the banks, as well as the Comptroller of the Currency, also wanted a loose set of restrictions, according to people who took part in the drafting of the Volcker Rule who spoke on the condition of anonymity because no regulatory agencies would officially talk about the rule on Friday.

The Fed and the Treasury’s views prevailed in the face of opposition from both the Securities and Exchange Commission and the Commodity Futures Trading Commission, which regulate markets and companies’ reporting of their financial positions. Both commissions and the Federal Deposit Insurance Corporation, which insures bank deposits, pushed for tighter restrictions, the people said.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:26:18

The Associated Press May 11, 2012, 7:14PM ET
Fitch downgrades JPMorgan Chase & Co.
NEW YORK

Fitch Ratings and Standard & Poor’s Ratings Services each downgraded their assessment of America’s biggest bank, JPMorgan Chase & Co., on Friday.

The rating agencies’ move comes a day after JPMorgan disclosed a surprise $2 billion trading loss in a portfolio designed to hedge against risks the company takes with its own money.

Fitch said the size of the loss is manageable but the risk it brings is not. The magnitude of the loss and JPMorgan’s hedging position imply a lack of liquidity. The loss also raises questions about its practices, oversights and other key issues, according to the rating agency.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:35:34

Bloomberg News
German Stocks Decline as Banks Retreat on JPMorgan Loss
By Peter Levring on May 11, 2012

German stocks declined, with the benchmark DAX (DAX) Index heading for its second weekly drop, as Deutsche Bank AG (DBK) led shares of lenders lower after JPMorgan Chase & Co. (JPM) posted a $2 billion trading loss.

Fresenius SE retreated 1.5 percent after announcing a capital increase to fund a planned acquisition. Bayerische Motoren Werke AG (BMW) rose after saying it will open more used-cars outlets in China.

The DAX slid 0.5 percent to 6,486.01 at 3:46 p.m. in Frankfurt. The gauge has lost 1 percent this week as Greek politician struggled to form a government after inconclusive elections. The broader HDAX Index slipped 0.5 percent today.

“JPMorgan’s loss is pushing the market and particularly financial stocks lower today,” said Henrik Henriksen, the chief investment strategist at PFA Pension A/S in Copenhagen, where he helps manage $45 billion. “Greece has become less of a factor as the real contagion risk seems limited.”

JPMorgan Chief Executive Officer Jamie Dimon said the firm suffered the loss after an “egregious” failure in a unit managing risks. The firm’s chief investment office, run by Ina Drew, 55, took positions on synthetic credit securities that may cost an additional $1 billion this quarter or next, Dimon said.

U.S. lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan’s errors bolster their case.
Greek Political Impasse

Greece’s politicians continued their attempt to form a unity government after Evangelos Venizelos, the socialist Pasok leader, received a mandate from the nation’s president.

The impasse has renewed concerns that Greece may fail to comply with the terms of its two bailouts negotiated since May 2010 and leave the euro.

Meanwhile, Antonis Samaras, leader of Greece’s New Democracy party, said he supports a unity government under the sole condition that it guarantees the nation’s membership of the euro area.

Gross domestic product in the 17-nation euro area will drop 0.3 percent, the European Commission said today, reiterating a February forecast. Greece will have the deepest contraction, with GDP declining 4.7 percent this year.

Spain and Italy will shrink 1.8 percent and 1.4 percent, respectively, the commission said. In 2013, the euro-region economy may expand 1 percent.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:17:54

JPMorgan heavily criticized
Dimon claims its strategy backfired, faces ridicule
May 12, 2012

Jamie Dimon, president and CEO of JPMorgan Chase, listens as President Barack Obama speaks on jobs and the economy during a discussion in March. JPMorgan shares plunged nearly 10% Friday on opening as the bank’s $2 billion in derivatives losses rocked markets.
Jamie Dimon, president and CEO of JPMorgan Chase, listens as President Barack Obama speaks on jobs and the economy during a discussion in March. JPMorgan shares plunged nearly 10% Friday on opening as the bank’s $2 billion in derivatives losses rocked markets. / SAUL LOEB/Agence France-Presse/Getty Images
By Daniel Wagner

WASHINGTON — JPMorgan Chase faced intense criticism Friday for claiming that a surprise $2-billion loss by one of its trading groups was the result of a sloppy but well-intentioned strategy to manage financial risk.

More than three years after the financial industry almost collapsed, the colossal misfire was cited as proof that big banks still do not understand the threats posed by their own speculation.

“It just shows they can’t manage risk — and if JPMorgan can’t, no one can,” said Simon Johnson, the former chief economist for the International Monetary Fund.

JPMorgan is the largest bank in the U.S. and was the only major bank to remain profitable during the 2008 financial crisis. That lent credibility to its tough-talking CEO, Jamie Dimon, as he opposed stricter regulation in the aftermath.

But Dimon’s contention that the $2-billion loss came from a hedging strategy that backfired, not an opportunistic bet with the bank’s own money, faced doubt on Friday, if not outright ridicule.

“This is not a hedge,” said Sen. Carl Levin, D-Mich., chair of a subcommittee that investigated the crisis. He said the trades were instead a “major bet” on the direction of the economy, as published reports suggested.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:21:42

Loss shows need for oversight, Romney camp contends
May 12, 2012

JPMorgan Chase’s trading loss of about $2 billion shows “the importance of oversight and transparency in the derivatives market,” said Andrea Saul, a spokeswoman for presumed Republican presidential nominee Mitt Romney.

If elected president, Romney would push for “common-sense regulation that gives regulators tools to do their jobs and that gives investors more clarity,” Saul said in an e-mailed statement Friday.

Saul didn’t immediately respond to a request for specifics on the regulations Romney supports.

Romney, who helped establish the private-equity firm Bain Capital, didn’t respond to a question from a reporter about the JPMorgan loss at a campaign rally in Charlotte, N.C., Friday afternoon.

Romney has vowed to overturn the Dodd-Frank law that tightened regulation of banks if he wins the White House.

Hearing sought

Criticism of the bank did not stop with its traditional chorus of detractors. It also came from Sen. Bob Corker, R-Tenn., a prominent member of the Senate Banking Committee who has received $10,000 since January 2011 from JPMorgan’s political action committee, the most any candidate has received.

Corker, a leader of a failed effort last year to block a Federal Reserve rule that slashed bank profits from debit cards, called for a hearing “as expeditiously as possible” into the events surrounding JPMorgan’s loss.

“Clearly the losses posted by JPMorgan are significant, and as policy makers we should understand in detail what transpired.”

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:25:12

JPMorgan is big donor to presidential campaigns
Commuters are reflected in stone as they walk past the JP Morgan headquarters in New York (EDUARDO MUNOZ, REUTERS / May 11, 2012)
3:59 p.m. CDT, May 11, 2012

WASHINGTON (Reuters) - JPMorgan Chase & Co made big donations to U.S. presidential campaigns, particularly Mitt Romney’s, as it lobbied against financial regulations, according to a Reuters analysis of campaign financial reports on Friday.

JPMorgan Chairman and Chief Executive Jamie Dimon, who has been an ally of President Barack Obama, parlayed his bank’s reputation as a white knight during the financial crisis into the position of champion of a beleaguered industry fighting against what it decries as excessive regulation.

But a $2 billion trading loss has diminished his credibility and has already provoked calls to get tougher on big banks. Dimon has been particularly critical of the so-called Volcker rule that proposes to ban proprietary trading by such institutions.

Romney’s campaign raised $358,219 from employees of JPMorgan and its affiliates through the end of March and the Republican National Committee raised an additional $39,758 from JPMorgan employees and the company’s Political Action Committee.

Romney Victory, a joint fundraising committee that splits its receipts between the Romney campaign and the RNC, has yet to report contributions.

Through March, the Obama campaign and the Democratic National Committee together had raised $156,769 from employees of JPMorgan and its affiliates, including $64,997 raised by the Obama Victory Fund, a joint fundraising committee that splits receipts between the Obama campaign and the DNC.

Once on the short list of Obama’s candidates to be Treasury Secretary, Dimon has for more than a year been fighting the administration publicly and privately over the Dodd-Frank financial regulation bill.

A lifelong Democrat from Chicago, Dimon said during a forum in Ohio this week that he was now just “barely” a Democrat, the Columbus Dispatch reported on Thursday.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:28:17

Given that both presidential candidates are in bed with Wall Street, it is hard to say whose camp is most weakened by J.P. Morgan’s loss.

Posted at 02:23 PM ET, 05/11/2012
Massive J.P. Morgan loss weakens Mitt Romney’s argument
By Greg Sargent

The Wall Street reform bill that Obama signed into law after the worst financial crisis in decades has had a relatively low profile in the presidential race. Obama frequently argues that Mitt Romney would deregulate Wall Street and leave it to its own devices, but Dodd Frank hasn’t been as central a topic as, say, Obamacare has been.

The news of J.P. Morgan’s $2 billion trading loss could change that very quickly.

It’s already been widely pointed out that the J.P. Morgan debacle badly weakens the position of people who want to limit further oversight of Wall Street or roll back the 2010 financial reform law and its attempt to limit risk taking by banks with guarantees from government. What’s noted less often is that one of those people is the Republican candidate for president, who has pledged to repeal Dodd Frank entirely if elected.

It’s true that the J.P. Morgan loss raises tough questions for the Obama administration and the effectiveness of his Wall Street reforms. But on a conference call with reporters today, two Democratic Senators — Carl Levin and Jeff Merkley — also sought to hang the J.P. Morgan loss directly around Romney’s neck.

“He favors repeal of Dodd Frank,” Senator Levin said of Romney. “He doesn’t want derivatives regulated. He doesn’t want banks like J.P. Morgan to be regulated at all.”

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:41:24

Are megabanks too big to manage?
By Jennifer Liberto @CNNMoney May 11, 2012: 2:44 PM ET

JPMorgan Chase’s blunder raises questions about whether the big banks are just too big.

WASHINGTON (CNNMoney) — JPMorgan Chase’s $2 billion hedging blunder is adding fuel to those who think the megabanks are just too big.

JPMorgan Chase (JPM, Fortune 500) is in no danger of failing, thanks to much larger capital cushions mandated by the Dodd-Frank Act. But its mistake could have outsized repercussions in the global financial system, due to the sheer size of megabanks and the inter-connectedness of the global financial system.

On Friday, stocks of all the big banks — including Morgan Stanley (MS, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) — were lower, as the JPMorgan Chase news undermined investor confidence in other Wall Street firms. U.K. regulators are reportedly looking into trades that transpired at the bank’s London office.

“It does make you wonder — this is one of the best managed banks in the country. What’s going on at these other institutions?” said Sheila Bair, former chief of the Federal Deposit Insurance Corp., in an interview with CNN’s Your Money to air Saturday. “Are they just too big to manage, even with very good managers?”

Economist Simon Johnson said the JPMorgan Chase episode highlights why U.S. regulators need to shrink big banks. He said the banks are so big and their trades are so complicated that even the Federal Reserve had no idea when it completed recent stress tests that JPMorgan could be facing these kinds of losses.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:44:44

May 11, 2012, 6:05 PM

Bair: Fed Should Tighten Volcker Rule To Avoid Whale-Like Mischief
By Kristina Peterson and Alan Zibel

Notable critics of big banks, including Sheila Bair and Thomas Hoenig could have some new ammunition due to the $2 billion trading loss announced by J.P. Morgan Chase & Co. Thursday night.

In an interview Friday, Bair said the Federal Reserve should consider whether it needs to more narrowly define what kind of hedging will be allowed under the so-called Volcker rule, which restricts banks’ trading activites.

“There is a risk that a loosely defined hedging exception can open the door to a lot of mischief,” she said. “The Fed should look at tightening the definition of hedging as a result of this situation.”

Regulators have yet to finalize the regulation spelling out exactly what is and isn’t permitted under the Volcker rule, which seeks to limit risky trading by commercial banks that enjoy government backing.

Two Democratic senators said Friday that the language of the Dodd-Frank overhaul of the financial system was intended to allow only hedges that were designed to reduce risks tied to specific assets or positions held by a company, not broader bets, as in the case of J.P. Morgan.

However, a draft regulation put out in October by the Fed, the Securities and Exchange Commission and other regulators did permit so-called portfolio hedging, though it added an extra layer of compliance above what banks must do for other types of hedging.

“That proposed regulation is full of ambiguities and loopholes,” Bair said. “There should be some tightening of making sure that any event that’s hedged is clearly correlated with an underlying economic risk.”

And Jaret Seiberg, an analyst with Guggenheim Securities said the J.P. Morgan episode could lend credence to big-bank critics like Thomas Hoenig, a new member of the FDIC’s board and a former president of the Federal Reserve Bank of Kansas City.

The odds are still in favor of the status quo, but a break-up-the-bank outcome has now moved from the improbable to the possible,” Seiberg wrote in a note to clients.

Hoenig has advocated for banks to be barred from the securities, derivatives and hedge fund business — a step that’s far more dramatic than the Volcker rule restrictions on bank trading.

Dealing and market making, brokerage and proprietary trading extend the safety net’s coverage and yet do not have much in common with core banking services,” Hoenig said in Senate testimony this week.

 
 
Comment by Professor Bear
2012-05-11 07:52:55

Too many shoes to count them all dropped on the global economy this week, from Greece, to Spain, to China to Wall Street, and yet the U.S. stock market has shrugged it all off, and is currently rallying on news of improved U.S. consumer sentiment.

Which brings me to my proposed weekend topic: Has the Main Street U.S. economy finally decoupled from the rest of the world, and even Wall Street?

MarketWatch dot com
Sentiment best since 2008
Consumers in best mood since recession’s dawn

FINANCIALS: J.P. MORGAN’S STUMBLE

CEO Jamie Dimon had described the developing issue at J.P. Morgan as a tempest in a teacup mere weeks ago.

J.P. Morgan shares slump after $2 billion trading loss
Shares slide as much as 10% after shock revelation of roughly $2 billion trading loss.
• J.P. Morgan in talks with U.K. regulators: report
• Dimon on big trading loss | Call transcript
• Timing may be clincher for more regulation

Even the smartest can get hit by Wall Street chaos
David Weidner says system’s really out of control when a savvy player like Dimon is humiliated.
• Poster child for the Volcker Rule (First Take)
• J.P. Morgan didn’t read its own book (The Tell)
• Morgan Stanley bailed on hedge fund: WSJ
• U.S. banks are healing, Fed’s Bernanke says
• Goldman had one bad day in first quarter
• What would Bank of America founder think?

Sentiment rises as declining gasoline prices appear to have offset slowing job-markets growth.
• One less thing to worry about: gasoline prices

Comment by scdave
2012-05-11 08:55:45

Maybe we are the cleanest underwear in the dirty laundry…

Comment by Diogenes (Tampa, Fl)
2012-05-11 09:39:22

More probably, the BIG investment houses are driving up the prices, getting ready to short the market as they cash out.
And now, with Goldman’s computers linked directly to the Street’s mainframe, they can front-run all the trades. Goldman is, after all, nothing but a giant money-skimming operation masquerading as an “investment house”. Hahahaha.
Volatility is good.
Especially since they charge us to trade. They do it for free.
They skim our accounts every time we try to get in or out.

 
 
Comment by Happy2bHeard
2012-05-11 13:11:17

“Sentiment rises as declining gasoline prices appear to have offset slowing job-markets growth.
• One less thing to worry about: gasoline prices”

I think consumer sentiment has been tied to Wall Street only insofar as it directly affects consumer pocketbooks.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:29:18

Bloomberg News
Rand Slumps to 4-Month Low on Europe Debt, JPMorgan Loss
By Robert Brand on May 11, 2012

The rand slumped to its lowest level in almost four months, set for its worst weekly decline this year, as political turmoil in Greece and a $2 billion trading loss at JPMorgan Chase & Co. roiled financial markets.

South Africa’s currency fell as much as 1.4 percent to 8.1272 per dollar, the weakest since Jan. 16. It traded 1.1 percent down at 8.1071 as of 3:34 p.m. in Johannesburg, bringing its retreat this week to 3.6 percent. The yield on the nation’s 6.75 percent bonds due 2021 rose three basis points, or 0.03 percentage points, to 7.73 percent.

Greek political leaders enter a fifth day of talks to form a government as the European Commission said the euro-region economy will likely contract 0.3 percent this year. The 17- nation group buys 22 percent of South Africa’s exports. Stocks and commodities tumbled after JPMorgan said “grievous mistakes” and “sloppiness” caused the surprise loss on synthetic credit securities, underscoring risks to global financial markets.

“With risk aversion in the air, the traditional rush to safe havens has lifted the dollar and seen the rand weaken to more than 8 per dollar,” Nomvuyo Guma, a currency strategist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The prevailing uncertainty will continue to weigh on the euro and other risky assets, while continuing to lend support to the dollar. Therefore, the rand’s weakening bias will persist into the weekend.”

The Standard & Poor’s GSCI Index of raw materials fell for an eighth day and the MSCI index of emerging-market stocks dropped to the lowest level since January 18.

South Africa’s benchmark stock index declined as commodity producers including Anglo American Plc and BHP Billiton Ltd. slumped. Metals and other raw materials account for 45 percent of South Africa’s exports.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:41:01

How long is the political fuse on the Greek debt crisis? And how large an explosion will result if the fuse burns all the way down to the flash point?

May 12, 2012
Greek Political Leaders Fail to Form Government
Voice of America News

Socialist PASOK party leader Evangelos Venizelos (R) and Greece’s Left Coalition party head Alexis Tsipras shake hands during their meeting at the parliament in Athens, May 11, 2012.
Photo: Reuters

Greek political leaders have failed to form a coalition that would resolve a political impasse and avert the need for new elections.

Socialist leader Evangelos Venizelos made the announcement Friday after the Radical Left Coalition, or Syriza, refused to join the Socialists and conservatives due to a disagreement on the country’s economic austerity program.

The Socialist and conservative New Democracy parties have proposed a gradual phasing out of the tough measures imposed by the European Union and IMF in exchange for a bailout loan. The leftists want them canceled immediately. If there is no lasting agreement by May 17, new elections will be called.

“Arrogance and petty party politics with a view toward elections are not suitable at this critical moment. Even if elections are repeated, what is going to change from this attitude? Nothing. The moment of truth is here for everyone. I will inform the president tomorrow afternoon. I hope everybody shows maturity and responsibility in consultations with the president,” said Venizelos.

Syriza leader Alexis Tsipras said the Greek people voted against the austerity measures imposed by the European Union and IMF, and that their will cannot be ignored.

“It is not the Left Coalition that has refused this proposal, but the Greek people who did so with their vote on Sunday.”

Greek voters punished both the Socialists [PASOK] and New Democracy for having pushed through the tough economic austerity measures in return for huge international loans to avert bankruptcy.

Venizelos is the third Greek leader who tried and failed to form a government after Sunday’s inconclusive election.

 
 
Comment by Professor Bear
2012-05-11 08:00:45

Which systemically-important Wall Street bank is most likely to be the first one taken down under the new FDIC Megabank resolution procedure?

May 10, 2012, 2:19 p.m. EDT
FDIC chief sets plan for handling big bank failure
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Fund managers fear Volcker Rule impact on bonds

By Steve Goldstein, MarketWatch

WASHINGTON (MarketWatch) — The head of the Federal Deposit Insurance Corp. on Thursday outlined his plan on how the government would respond when a large bank goes under, saying it would keep alive many of the lender’s divisions while wiping out shareholders.

The speech represents an important step in clarifying just how the government would respond to another financial crisis, similar to what brought the U.S. economy to the brink in 2008. The landmark Dodd-Frank bank-reform law ostensibly bars any new rescue of a failing firm, but the government still has powers to try to prevent contagion in the financial system.

Martin Gruenberg, acting chairman of the FDIC, told a Chicago Fed conference that the regulator would have to act quickly in a way it doesn’t typically do with smaller banks whose loans are souring.

“The most promising resolution strategy from our point of view will be to place the parent company into receivership and to pass its assets, principally investments in its subsidiaries, to a newly created bridge-holding company,” he said of so-called systemically important financial institutions.

“We believe that this resolution strategy will preserve the franchise value of the firm and mitigate systemic consequences,” he added. “This responds to the goal of financial stability.”

Comment by Rental Watch
2012-05-11 21:32:21

I don’t think we will see such a megabank failure in the US until the next credit crisis. It’s obviously too early to say which one it will be–lots can happen between now and then.

 
 
Comment by goon squad
2012-05-11 08:02:48

Posted in another HBB thread:

“The Canadian Press Harris-Decima survey suggests 82 per cent of Canadians believe (the Canadian) system is better than U.S. health care….”I think there’s a growing sense that going fully private, or having some version of an almost fully private model like the American one, doesn’t necessarily serve the broader interest the way Canadians would want it to be served.” The Canadian Press, Date: Friday Jul. 10, 2009

According to the World Happiness Report….Canada is the fifth-happiest country in the world, according to a global study on the social and economic well-being of nations….The happiest countries are all in Northern Europe – Denmark, Norway, Finland and the Netherlands……It finds the world has, broadly speaking, become a “little happier” in the past three decades, as living standards have risen. (One exception is the United States, where life satisfaction has not improved). Globe and Mail 4/2/12

“Americans enjoy less economic mobility than their peers in Canada and much of Western Europe. The mobility gap has been widely discussed in academic circles, but a sour season of mass unemployment and street protests has moved the discussion toward center stage.” NYT 1/4/12

 
Comment by oxide
2012-05-11 08:16:37

I’d like to repeat a VERY good comment from Polly:

———
Q: Where do people who are now leaving the Sunbelt go?

Comment by polly
2012-05-10 07:59:34
In the case of retirees? Back to wherever their kids have jobs so they can see their grandkids and be gently supervised/assisted until they can no longer take care of themselves. There is a whole subset of older women in my building who seem to be widows who have been moved into apartments by their successful kids…
I presume there is a similar, if less independent, version of this happening with grandma or grandpa taking over the den on the ground floor as her or his bedroom all over the country. Older people need help and they can’t get it easily from kids living a thousand miles away. And my understanding is that medical care in Florida is terrible.

——

I think the idea of Florida/Arizona as retirement states is done for. Why bother to move to a low tax state if you’re just going to spend saved tax money on plane trips to see the kids (or vice versa), waiting in wheelchairs at the airport? I think this is going to be the fate of McMansions. I could easily see a developer come in and retrofit a few princess suites as group homes and/or assisted living. It’s not a bad idea either.

This is for Robin: I said that when I renovate parts of my house, I’m may as well do “universal design.” Universal Design is making accomodations for aging people or people with disabilities. 3-foot+ doorways, spacious bathroom floor for wheelchair turnaround space, hallways with wheelchair turn space, lever door handles instead of knobs, built-in ramps up to doorways, grab bars, kitchen counters which are short and have chair space underneath, no-threshold showers with seats, and chair lifts up the staircase. If you’ve ever seen a house with a wooden ramp up to the door, you can be sure that “grandma or grandpa is taking over the den,” as Polly said.

The trick is to incorporate this during the design process, which is much cheaper and better-looking than retrofitting. I suspect that all of the 55+ developments are universally designed. For my (eventual) renovation, I don’t think I have enough sq footage for a wheelchair, but I can design for someone with a walker.

In recent years Universal Design has been expanded for other accomodations like raising the dryer for someone with a bad back, or lowering the microwave for a short person, or moving oven controls so a kid can’t get at them.

Comment by polly
2012-05-11 09:16:57

My parents currently live in a 55+ development. They have finished the basement, so they aren’t actually living on one floor, but the kitchen, dining area, living room area, master bedroom and a large bathroom (with a shower with built in seating and no tub so there is nothing to step over) and small laundry room (off the bathroom) are all on one floor. My dad has a small office and media room downstairs (the rest is open). The guest room and a storage closet are upstairs. There is a small step up to the front door, but it could be easily ramped. The one issue I see is they have a one car garage and it is not close to wide enough to deal with a wheel chair, but there is street parking, so that could be dealt with as well. It would require rearranging the furniture (and getting rid of some of it), but they could manage in place with one of them using a walker or even a chair. All set up with grab bars and whatever.

Yes, these places are designed with the idea that you can stay in place with at least one person using a walker or a chair. I think they tend to assume that person has another at least slightly more mobile person to help, but there are other things you could do to make it workable for a person without help. Raising the wall plugs so they can be reached by a person in a chair is one of them.

Comment by Robin
2012-05-11 17:37:23

Thanks so much, Polly

Kind of another form of equality. Making homes that accommodate more than one generation of tenants or owners with different needs.

Not in a wheelchair yet, but very challenged by our 1916 cast iron clawfoot tub in our 1918 Craftsman.

Researching walk-in tubs; they seem absurdly expensive . Any experiences would be very welcome. Pipes under the house are assumed to be from 1918. Some walk-ins have a fast-drain (assumed pump-assist). Don’t know if the pipes can handle it.

How does the install affect resale value?

We are currently all on one level and don’t want to change. Reccomendations?

Comment by oxide
2012-05-11 20:39:14

Polly, now that I think about it, a 55+ house many not need to full complment of universal design, especially if it’s a multi-level community. If the occupants are so immobile that the 55+ house can’t handle it, maybe it’s time to move one level further, into the assisted living portion of the community? Gosh that sounds crass.

Robin, do you like to take soaking baths, or can you make do with just a shower?

If you like showers, your best bet is either a low-threshold shower stall (about a 3 inch step up), or a no-threshold shower. No-threshold is where there’s no tub at all — the floor slopes to the drain, like in a gym locker room. Here’s a pic of a high-end no-threshold shower (this one doesn’t come with seats, but that’s easy to do.)

http://blog.mjninteriors.com/2012/03/23/what-are-universal-design-and-aging-in-place/

If you need a soak.. well, I’m still spry and even I would be challenged by a claw-foot tub! If you really need a soaking tub, and you have the money, I suppose you could install a spa tub with two steps going up to it. Here’s a simple example: It’s the bottom picture in the first batch. http://jonathanmcgrathconstruction.com/remodeling-blog/

Unfortunately, the old Craftsmans, while beautiful, were never meant for disabled people. (heck, ever see Frank Lloyd Wright’s Usonian houses? Today’s overweight population couldn’t even fit in the hallways.) Fortunately, Craftmans tend to have larger bathrooms, so you may be able to fit something in.

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Comment by Robin
2012-05-12 18:57:36

Oxy,

Shower is fine, and we would likely get a pool and/or hot tub outside.

May have to turn the clawfoot into an expensive planter, but it truly has become a quality-of-life issue.

Thanks!

 
 
Comment by oxide
2012-05-11 20:50:01

And another thing: Any renovation will increase resell value. The question is, how much of the renovation cost do you get back during resell.

In most cases, a walk-in shower is seen as very high end and would only increase resell value. But it’s different for Craftsman bungalows. Craftsmans enthusiasts really like to keep the old-style furnishings. Craftsman magazines like to feature people who rip the “modern” stuff out!

What you MIGHT be able to do is keep the clawfoot tub, but have a carpenter/plumber build a tile surround around the tub with steps to make it easy to get in an out of. In other words, make it look like the spa tub with steps, but keep the clawfeet underneath. A future owner (or you) could simply remove the surround if they want to restore the old look.

If you decide to build a walk-in shower, I guess you could use Craftsman-style subway and/or hexangonal white tile in the shower. It would still look sort of Craftsman. But don’t throw out the tub. Keep in in the basement in case a future homeowner wants to put it back in.

As for the piping, you’ll probably have to accomodate what you have, or replace it.

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Comment by Diogenes (Tampa, Fl)
2012-05-11 09:23:44

“I think the idea of Florida/Arizona as retirement states is done for.”

I could only hope to be so lucky. Please stay home and spare us the congestion and the ideologies about how you “do it up north”.
Yankee go home. Yea. I don’t believe it will happen and can only HOPE for this Change.

Comment by whyoung
2012-05-11 12:08:24

“I think the idea of Florida/Arizona as retirement states is done for.”

Partly depends on the age of the caregiver and cared for…

Have a 62 year old friend that took “early” retirement and moved to Florida to care for aging parents.

Bought a $60,000 short sale house in Tampa to be near-ish the beach and 1/2 hour away from the folks. Moving the parents back north seemed impractical as they are now “rooted” in a place they’ve been for 25+ years, have cronies in their neighborhood, and have difficulty coping with winter weather.

 
 
Comment by nickpapageorgio
2012-05-11 18:32:55

“I think the idea of Florida/Arizona as retirement states is done for.”

They are still coming to Arizona by the truckload and sucking up all of the affordable small homes that someone like me may consider buying if I had more that 30 seconds to look at it before these fargin cork soakers overbid the $hit out of it.

I think I will start a movement to have young sunbelt professionals move back to the upper mid west and overbid the $hit out of homes to keep their kids and grand kids from have the chance at affordable housing. I should probably include some busloads of starry eyed “rich dad” investors to create a real frenzy.

Had to release a little bitterness and hostility before my weekend :)

 
 
Comment by oxide
2012-05-11 08:26:01

From yesterday:

As Bill in LA often points out here, in the long run, stocks kill housing as an investment.

That’s quite the blanket statement there. There are million scenarios here.

Comment by goon squad
2012-05-11 08:34:20

“For them that must obey authority
That they do not respect in any degree
Who despise their jobs, their destinies
Speak jealously of them that are free
Do what they do just to be
Nothing more than something they invest in”

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 08:39:58

You can rationalize all you want.

But I suggest you educate yourself a little before we waste HBB bandwidth on a discussion that lots of big thinkers have already covered at great length.

Here are a couple of suggested titles; after you read what these big thinkers compilations of decades’ worth of research and data show about the relative returns on housing, stocks and other investment classes, why don’t you report back to us?

A Random Walk Down Wall Street: Completely Revised and Updated Edition [Paperback]
Burton G. Malkiel (Author)
4.2 out of 5 stars See all reviews (188 customer reviews) | Like (3)
List Price: $17.95
Price: $11.54 & eligible for FREE Super Saver Shipping on orders over $25. Details
You Save: $6.41 (36%)

Irrational Exuberance [Paperback]
Robert J. Shiller (Author)
3.8 out of 5 stars See all reviews (97 customer reviews) | Like (58)
List Price: $16.00
Price: $10.88 & eligible for FREE Super Saver Shipping on orders over $25. Details
You Save: $5.12 (32%)

Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 08:41:50

I note these classics are both available for under $12 a pop. Ain’t deflation grand?

Comment by oxide
2012-05-11 08:53:11

Yes goon, renting works if you think you’re going to move every five years. Renting does not work if you’re not going to move, OR if you live in an area with high rent, or both.

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Comment by goon squad
2012-05-11 09:04:59

“Do what they do just to be
Nothing more than something they invest in”

That was directed at another HBB poster, who regularly reminds us how rich he is because of all his perfect investment decisions and how perfectly balanced his portfolio is between stocks, treasuries, and gold. And who seems to live the most boring, predictable life. No fun…

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 09:54:31

“Renting does not work if you’re not going to move,…”

I don’t get this. I suppose we should start by talking about objectives: If your goal is to affordably house your family, and it is, say, 30% cheaper to rent comparable housing versus own it, before even taking the risk of ‘loosing’ lots of money in housing market wealth destruction effects, why would it be better to own than to rent?

 
Comment by goon squad
2012-05-11 10:19:32

When discussing financial loss, the correct spelling is losing. It is only spelled looser when used as an online insult.

 
Comment by whyoung
2012-05-11 12:24:50

“Renting does not work if you’re not going to move”

Part of the problem, as I see it, is that it is hard to find a place that you can truly be sure will be a “toe tag home”.

Circumstances change - jobs can require moves, neighborhoods can go down hill, health issues happen - and not taking a the possibility of needing to move as a contingency seems unwise to me.

I’m old enough to remember when “white flight” devastated many nice middle and working class neighborhoods. As some of those problems move out to the suburbs, or attempts at gentrifying some inner city areas stumble, things may not turn out as well as was hoped.

It’s not just a matter of arithmetic… but of happiness and security (both financial and physical). I’m all for home ownership under the right circumstances, but for such a big commitment alternate scenarios should be considered as part of the decision making process.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 16:47:53

“I’m all for home ownership under the right circumstances, but for such a big commitment alternate scenarios should be considered as part of the decision making process.”

Once buyer desperation is in the purchase decision driver’s seat, rational considerations like the ones you raise go out the window.

 
Comment by oxide
2012-05-11 21:04:21

My “rental” comment was directed at the Squad. The Squad is single, is in an uncertain job situation where he may have to move, enjoys the freedom of not having a house to take care of, and renting is cheap compared to owning. Rent is definitely better.

If the Professor lives where renting is 30% cheaper than owning, then renting is probably the better option. But I’m not sure what you’re going to do when you’re 68 and retired with lowered income, and yet you still have to pay rent which is like to rise faster than your retirement income can handle. Move in with the kids? What if THEY decide to rent? Move to Oil City? It’s viable, but you need a pile of starting cash.

Whyoung, I live in an area where I am likely stuck. Twice I tried to leave the area, and twice the jobs didn’t work out and I had to come back. I now have a very stable job in the government in a very stable area with a job base. Because of the stable job base and government cheese, rents are very high and housing is snapped up for rentals. Buying works out better.

It’s not one-size-fits-all, folks.

 
Comment by Robin
2012-05-12 19:38:36

Buying has worked best for us because we have no kids.

 
 
 
 
Comment by Robin
2012-05-11 17:40:05

I’d love to see a dollar-cost-averaging comparison between stocks and housing over different timelines.

Last 5 years real estate loses, definitely, but what about longer timelines?

A narrower and more pragmatic analysis is needed, or the argument will never be settled.

Comment by oxide
2012-05-11 21:20:00

Here is an excellent buy vs. rent calculator. It takes a lot of variables into consideration like closing costs and % return on money saved by renting.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

On the other hand, I’m not sure it’s a “long-term” calculator. Does that long-term include the mortgage period, where someone can age in place in the house for upwards of 15-20 years without a mortgage?

 
Comment by oxide
2012-05-11 21:34:35

For the record, I just plugged in my numbers. Using my old townhouse rent, a 5% annual increase in rent, and house prices staying the same, buying would pay off after three years. If I moved to a 1-bed apartment, buying would pay off after 14 years.

Hell, even if my house price dropped 10% a year, buying would still make sense after 10 years. That’s roughly the crossing point where I would have paid enough rent to buy the house outright.

 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 22:31:34

The argument is already settled. You just haven’t done enough reading to realize how settled it is.

Comment by Robin
2012-05-12 19:41:15

CIBT:

At what point in time?

Is it simply instructive, or actually predictive?

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Comment by Diogenes (Tampa, Fl)
2012-05-11 09:44:27

How about a discussion on the accomplishment’s of the Obama Administration as we head into the election, vs. all the campaign promises, like reducing the debt by half in his first term?
Has spent his whole effort since elected to restore the economy?
I mean, really, we could write a list that fills the blog of pure platitudes and pandering, accomplishing nothing.
I’m sure we could max out the number of comments. It seems that Obama’s supporters will not be detracted by facts and his opponents, like myself, have seen enough of this to be unchanged by “new revelations” about his “evolving” ideologies.

Comment by goon squad
2012-05-11 10:22:28

Ending the George Bush criminal invasion war in Iraq.

 
Comment by WT Economist
2012-05-11 12:28:29

He passed a health care reform bill, which almost every President had tried and none had accomplished. It wasn’t as fundamental a reform as required, which is perhaps why it passed, but it’s better than what we’ve got and can evolve if implemented.

Dodd-Frank is similarly wimpy, but an improvment — as shown by Wall Street’s opposition to its implementation. Would allowing a collapse, nationalizing the biggest banks and breaking them up have been better? Yes. But Obama allowed losses to socialized after profits were privitized and STILL the call him a socialist. I think they just object to “say on pay.”

His team implemented the Bush Bailouts and saved the financial system from collapse. Now it may be we’d have been better off with a collapse and Great Depression than what we have now, because it would have di-vested all the vested interests, but at least he did what he set out to do.

He successfully refocused from Iraq to Al Qaeda and navigated the upheaval in the Arab World about as well as Bush I navigated the end of the cold war.

He doesn’t get the credit, because he didn’t have the guts to say consistently higher oil prices are needed for the U.S. to end its addition to imported oil, but higher prices happened anyway and it did lead to reduced foreign oil dependence on his watch, due to more conservation, alternatives and domestic drilling. At least he didn’t pander on the issue like the rest of them.

And nobody starved despite the collapse of the biggest credit bubble since the 1920s.

There has been little progress in balancing the budget and ensuring old age benefits for younger generations. I blame Congress more than Obama, but he hasn’t shown the leadership. Second term, perhaps.

Finally, this hurts the country but probably helps the Democrats — under his leadership we ended up with only one sane political party.

Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 12:56:51

“And nobody starved despite the collapse of the biggest credit bubble since the 1920s.”

At least nobody you know. But I assume you are not cognizant of all the homeless people living under freeway overpasses around San Diego. I am personally aware of these folks, but have no idea about how many of them go hungry or starve. Like housing market’s shadow inventory, they are under the radar screen of the scope of MSM reporting.

Comment by Happy2bHeard
2012-05-11 13:41:41

I heard this story on NPR this week. One of the stats toward the end was that we throw out about 50% of the food we produce.

http://hereandnow.wbur.org/2011/09/27/dumpster-diving-waste

“How much food do you throw out? As a country, we waste 96 billion pounds a year and according to filmmaker Jeremy Seifert, you’d need a train long enough to go from Los Angeles to New York City and back again to hold it all.

Seifert learned about food waste when he started scavenging in dumpsters behind grocery stores and found what he thought was perfectly edible food– everything from fresh, organic blueberries, to imported German cheese. He started eating the food and feeding his family with it– even his pregnant wife.”

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Comment by Rental Watch
2012-05-11 22:24:23

Dodd Frank is awful. It is weak where it needed to be strong, and strong where it didn’t need to be at all.

Until you speak with some securities attorneys and accountants related to the effect of Dodd Frank on non-bank entities (additional regulatory burden on small enterprise), you have no idea how bad it is.

We aren’t a lender, aren’t a public entity, aren’t leveraged, and are teeny-tiny (<0.01% of Lehman)…Dodd Frank is causing us massive regulatory headaches–and isn’t changing our business activities one bit, just added regulatory burden that we need to pay attorneys and accountants to advise on, since there is no way we could do so on our own.

The lack of leadership on deficit by Obama is appalling, especially since he was handed the blueprint for a solution (Simpson/Bowles). What makes you think he will be any more effective in his second term than his first on this issue? He’s proven that he can only get things done if he has a majority in both houses. He won’t get anything done on deficit if he doesn’t have complete control. Insanity is doing the same thing over and over again and expecting a different result.

 
 
Comment by WT Economist
2012-05-11 15:29:32

What people here should be smart enough to do, and what most Americans are not smart enough to do, is separate the performance of the President from:

1) The Congress.
2) Other levels of government.
3) The economic situation he inherited.
4) The subsequent economic decisions of millions of other more or less people around the world.
5) Political events elsewhere.
6) How things are going in their personal life.

My view: Obama has been very competent, and done just about everything within his power correctly, if the correct goal is to preserve as much of the current system as possible. He is a conservative, which is not surprising when you consider his life story and its apparent lesson — that the U.S. is a place where anyone can make good and do good.

But we may not be that country of equal opportunities anymore. And we may need more transformative leadership than he (or Romney) are prepared to or capable of providing.

Comment by Rental Watch
2012-05-11 21:48:00

I agree with you generally, that people misplace blame. However, Obama, in my opinion failed on two important items–Obama did not:

Veto Dodd-Frank, which is a friggin’ abomination. Instead of solving the problems that got us into this mess, they piled massive regulation onto small businesses that had nothing to do with the financial calamity. Net result? TBTF gets even bigger and harder to let fail, in part because it just became harder to be a smaller institution and compete in financial markets. Much of Dodd Frank should have never been.

Do anything with his own deficit reduction commission’s recommendations. They gave him a detailed plan, and as long a runway as possible between elections (report was ready prior to November 2010, they released it purposefully after the election to keep it from being politicized). He can’t pass the law on his own, but he could have been a leader on the issue, presenting the plan as a solution, rather than ignore the plan, and watch congress destroy the world view of US credit. Net result? Fed needs to print like mad to keep rates low. With a credible deficit reduction plan, there would have been far more non-Fed buyers of US Treasuries. If massive inflation is the result, you can’t just point the finger at the Fed. Not addressing the deficits early enough is also to blame–and for that I primarily blame congress, but also Obama, for not publicly pushing for the plan that his own commission created, and is generally regarded as a well-balanced solution.

If Obama would have come out vocally supporting his deficit plan, and it was shot down by congress, he would have earned my vote again. By not leading on this issue, he showed to me that he isn’t the guy to solve the deficit, and we can’t wait four more years before we give someone else a chance to lead on this issue.

Comment by WT Economist
2012-05-12 05:13:59

Unfortunately, Romney isn’t that guy either. He’s already endorsed more debt to lighten the burden on Generation Greed, followed by all the pain for the generations coming after.

Now that may be better than nothing, which is what you got from Obama (who mentioned long term problems that needed to be addressed in his first inaugeration speech), or it might not.

These guys are playing politics. They know Americans believe it is their birthright to take more out than the put in, and whichever party says otherwise is screwed (Carter, Mondale) unless they are not elected (Volker).

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Comment by Rental Watch
2012-05-13 02:05:10

Romney was relatively effective as a Republican governor in a state dominated by Democrats.

Obama has proven that he can’t work with Republicans.

 
 
Comment by alpha-sloth
2012-05-12 12:48:57

Dodd-Frank, which is a friggin’ abomination

Why?

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Comment by Rental Watch
2012-05-13 02:02:48

We all wanted Dodd Frank to reign in abusive practices at ALL financial institutions.

We also wanted to stop this idea of TBTF so that in the future taxpayers aren’t on the hook for bad bets gone arwy at financial institutions.

We all wanted Dodd Frank to reduce risk in the markets.

That’s just fine.

Congress though took the opportunity to pile on massive regulation where it wasn’t before, and that had nothing to do with the points above.

The law caused the creation of huge numbers of new SEC rules, creating a huge web of new hoops to jump through.

We all understand that there are significant benefits from the investment of capital in this country (ie. avoiding massive use of leverage).

We also understand that benefits of small enterprise in this country.

If you ran an investment company that was investing equity in private businesses, not trading stocks (not making loans, but investing capital), and manage $150 million or more, Dodd Frank now requires registration with the SEC, a chief compliance officer to be appointed for the firm, Fair Value GAAP audits (difficult and expensive to perform for many private entities), the appointment of a custodian (even in the case of investments in non-public entities…making the idea itself absurd).

Big deal, right? Who cares?

The costs of implementing Dodd Frank are not insignificant for these small firms…making the creation of new such small firms more difficult…concentrating more of the power in the hands of larger firms, who can pay for the legal and accounting costs.

I’ll emphasize one point again…these are enterprises focused on investing equity into small enterprise in this country, not enterprises lending money to consumers.

To get a sense for the scope of the law, just scroll through the headings on the linked page below, the magnitude of changes, and ask yourself who is going to be best suited to navigate this mess?

http://www.mofo.com/resources/regulatory-reform/

Answer: It ain’t the little guy, and all this stuff applies to the small firms, not just the big ones that f’d us all.

TBTF gets even bigger. Bang up job Congress.

Speak to a securities attorney, speak to a CPA, and ask them how Dodd Frank is effecting their smaller clients. Don’t be surprised to hear phrases like “complete game changer” and “creates a new line of business for us”. Yay, more attorneys and CPAs.

 
Comment by alpha-sloth
2012-05-13 03:49:08

I read the summary of the law, and found nothing egregious in it, and the problems you bring up don’t sound that bad either. I’m sure very similar arguments to yours were made when Glass-Steagall was introduced.

 
 
 
 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-11 12:52:27

I definitely welcome lower gasoline prices, as will the rest of America’s commuters, and couldn’t care less about gold, as I don’t own any. And the corrections will give dip buyers an opening to buy at a discount.

So this news is good all around!

Upside to oil, gold selloffs

May declines offer drivers a reprieve from high gas prices and a cheaper entry point for investors as the bull market in gold and oil remain largely intact.
• One less thing to worry about: gasoline prices
• Cheaper gas won’t do the trick (First Take)
• Looking to play gold or silver? (Globe and Mail)

 
Comment by sleepless_near_seattle
2012-05-11 13:04:00

How about a thread on what HBBers platforms would be if they were nominated for Prez, perhaps combining this idea with Diogenes’? With election season about to heat up, I’m sure the rhetoric is soon to reach an even greater fever pitch than it already has.

So, what I always ask the complainers is, what would you do?

Here’s mine:
Cut EVERYTHING back to 1998 spending levels. Not inflation-adjusted. The actual NOMINAL amount. Marginal tax rates back to 1998 levels. Interest rates back to 1998 levels. Leave SS alone and QUIT BORROWING FROM IT. Audit the Fed. Repeal the *cough* Patriot Act. Repeal NDAA. No more Citizens United. Repeal anything ending in –AFTA. Repeal Gramm-Leach-Bliley. Reinstate Glass-Steagall in full. End Afghanistan. Pull troops from Germany, Japan, UK, and Italy. Put returning troops on the border. Try or release Guantanamo occupants.

End tax breaks for corporations who outsource jobs. End tax deductions for marriage and kids. No more mortgage interest deduction. Put Freddie and Fannie out of their misery (and/or set minimum 25% down payment). Make lobbying of Congress illegal (double time for those found to be lobbying for the NAR). You want to cut? Let’s get it on. 20-25% (reported) unemployment would be my guess. Once spending is under control, there’s still $15T in outstanding debt to pay off. We should probably go back to 1983 spending levels. (Was it FPSS who suggested 1983? I now know why.)

Comment by polly
2012-05-11 15:24:03

Bring back the asset requirements (not having much) for SNAP.

The entire corpus of any trust benefiting you must be spent to zero before you can use Medicaid for maintenance nursing home care (basically eliminating the Medicaid trust). Your money is there to take care of you, not leave a pile to your kids with the taxpayers paying for your care.

Bring back the estate tax, also eliminating the trust based work arounds.

Federally recognize gay marriages granted by the states.

Single payer health care - if that is too far, at least let Medicare/Medicaid negotiate prices with drug companies and make the numbers public so others can see the price the companies are willing to take. (I picked up a new supply of my one prescription this week. I was paying just under $40 a month and that seemed high, so I asked what I would pay if it wasn’t going through my insurance as a way to find out if they were charging me full price. Without insurance, it would have been over $200 a month. Outrageous.)

I could go on for about a week on comprenhensive tax reform, but I’m going to be out and about most of the weekend so it seems a little unfair to put out too much without being able to discuss it.

 
Comment by Diogenes (Tampa, Florida)
2012-05-11 20:13:22

you have my vote. those are great ideas, unlike the list of crap we were given of Obama’s “accomplishments”. Aside from leaving Iraq, which we haven’t, everything else I consider BAD for the country and a ridiculous socialist dream. It will lead to more economic collapse, but who cares as long as “healthcare” is free.

 
Comment by oxide
2012-05-11 21:24:22

Or, you could balance the budget by 2019 by doing nothing. This is not a joke:

http://www.slate.com/articles/business/moneybox/2011/04/the_donothing_plan.html

 
Comment by ahansen
2012-05-11 22:21:27

I would cut 1 cent from every dollar disbursed by the US Treasury. EVERY dollar. Tax Refunds? 1%. Federal allotments to States? 1%. Social Security checks? 1%. DoD contractors? 1%. State Department “aid” to foreign suppliers? 1% Military paychecks? 1%. Foodstamps and Disability? 1%.

One penny per dollar across-the-board for EVERYONE. That’s for the first year. The next year I’d cut 1% from each of THOSE treasury checks, etc., for as long as necessary until the deficit was reversed.

Unless the responsibility is equally shared, nothing will get done.

I’d also champion the Tobin Transaction Tax (.0001 cent per share traded on any open exchange or bourse) which would not affect the average Joe, but would certainly discourage high-frequency trading by banks and brokerages.

 
Comment by Rental Watch
2012-05-11 22:52:58

“End tax breaks for corporations who outsource jobs.”

I’m just curious…what are these tax breaks, specifically? I keep hearing about them generally, but don’t understand what benefit companies gain from moving overseas (other than cheap labor and less regulation).

Are they talking about the write off of capital assets? Something else?

 
 
Comment by cactus
2012-05-11 13:08:07

Mortgage reduction what do you think ? I already know what will happen a little relief and then borrowers will go right back at it , selling and buying a bigger house, 2nd mortgage to buy toys, etc.
Sorry but thats the way it works in the real world. I need to look no farther than the short sale I’m trying to buy, guy got mortgage relief 2% for 40 years plus principal writdown and he used the respite to save up and buy a better house, and then he bailed trying the short sale only because its less risky later on if he gets sued.

“The moral hazard of principal reductions. This leads us to the “moral hazard” issue. Aside from contemplating the actual cost of “retaining homeownership at any cost” (which could run into the tens of billions of dollars), creating a new “reward” for homeowners who have failed to live up to their commitments may lead others to consider abandoning their commitments, too.

A marginal borrower struggling to make payments might see a neighbor in similar straits get tens of thousands of dollars chopped off their loan and a reduced monthly payment and start to think, “Why should I struggle when I could have that…and all I need to do is stop making payments?”

Comment by Get Stucco
2012-05-11 14:45:07

That’s what I don’t get; how will they limit the definition of “worthy borrowers” who qualify for principal reduction without encouraging millions and millions of other “equally-worthy” underwater FBs from trying to qualify by, say, stopping their payments?

Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 00:55:02

One possible qualification: Extend mortgage relief to all 11 million underwater borrowers.

Obama trumpets mortgage assistance
President calls on Congress to expand program
May 11, 2012 11:15 PM
Washington Post

RENO - President Barack Obama rolled into a modest hilltop neighborhood here to champion his efforts to help underwater homeowners get back on their feet — and to urge Congress to do more.

Standing outside the house of Val and Paul Keller, who have watched the value of their home plummet well below the amount they owe on their mortgage, Obama announced a more than 50 percent increase in the number of Americans, including the Kellers, who are taking advantage of federal programs that let them refinance their loans.

The programs, Obama said, allow homeowners to reduce their monthly payments because of historically low interest rates, which in turn stabilizes the housing market by reducing the risk of foreclosure.

“That means more money in the economy, and businesses do better, and slowly home prices start rising again,” Obama said as he stood with the Kellers on their driveway.

The Kellers took advantage of a program Obama announced last fall designed to remove barriers to refinancing for underwater homeowners. Obama was able to launch the program administratively because it applies only to federally backed mortgages. Now, he is calling on Congress to enact legislation that would extend the program to all underwater homeowners.

 
 
 
Comment by Cantankerous Intellectual Bomb Thrower©
2012-05-12 01:34:30

Could anyone who thinks they known the distinction between Treasury “financial incentives” and taxpayer funding please explain?

I also don’t begin to fathom the cost estimates. Now they are talking about extending principal reduction eligibility to all 11 million underwater borrowers. If the estimate of around $50,000 in average principle reduction per underwater homeowner is roughly correct, then we could be talking on the order of $550 bn (11,000,000 X $50,000) in additional costs to taxpayers for the principle reductions.

Obama official defends mortgage write-down plan

U.S. President Barack Obama waves as he walks out from the Oval Office of the White House in Washington May 10, 2012, before his departure to attend campaign events in Seattle and Los Angeles. REUTERS/Yuri Gripas

By Jonathan Spicer

PHILADELPHIA | Thu May 10, 2012 4:02pm EDT

(Reuters) - The vast majority of distressed homeowners should not be punished for the behavior of the few who might try to take advantage of a government program to reduce the principal on their mortgages, a top Obama administration official said on Thursday.

U.S. Secretary of Housing and Urban Development Shaun Donovan said a principal-reduction program could at any rate be designed to thwart those tempted to default strategically on mortgages financed by government-run agencies Fannie Mae and Freddie Mac.

“What we shouldn’t do is punish the 95 percent for the behavior of a small group,” Donovan said in an interview. “The answer isn’t ‘Don’t do principle reduction at all.’ The answer is ‘Design it in a way to avoid that strategic default.’”

The White House has argued that principal write-downs could reduce delinquencies, help some of the 11 million “underwater” borrowers nationwide who owe more on their properties than they are worth, and get the struggling housing market back on track.

But the prospect of helping home buyers who some see as irresponsible has been sharply criticized as risking “moral hazard,” or the abuse of largesse, an issue that helped spawn the Tea Party.

Edward DeMarco, acting director of the Federal Housing Finance Agency, has blocked the administration’s plan because he says writing down loan balances would create a “moral hazard” in which many more borrowers might default in order to seek better mortgage terms.

The FHFA regulates Fannie and Freddie, which finances $5 trillion in mortgages, the bulk of those in the United States. The agencies were taken over by the government in September 2008 as mortgage losses mounted, and DeMarco says write-downs would drive up the cost of the $150 billion taxpayer bailout.

In April, the administration laid out the case for a program that would have safeguards against strategic defaults, in an effort to convince the FHFA to provide more mortgage aid.

Donovan said principle reductions are not only good for families and neighborhoods, but good for those who hold the loans. He argued that only “a small share of homeowners,” particularly singles who have not lived in the home long, might choose to default strategically.

“It’s not that moral hazard is something we shouldn’t even think about or worry about at all. It’s that the vast evidence shows that the vast majority of families don’t operate that way,” he said on the sidelines of conference on urban renewal, where he gave a speech.

The FHFA’s DeMarco is considering whether financial incentives offered by the U.S. Treasury would soften concerns that principal write-downs would increase the losses at Fannie and Freddie, and in turn require the two to draw more taxpayer funding.

 
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