Nightly No-Business Report

Barry Ritholtz, as he often does, straightens us out on the Fannie/Freddie SEC litigation:

Yes, we know: The usual liars and assclowns have latched onto the SEC litigation against the F&F execs for their the own biased reasons, as if lying executives somehow vindicates their own lies about the causes of the crisis. The suit is about statements made after housing peaked in both price and sales volume and was already heading south.

Let’s take a look at the SEC suit, and note what is being litigated, and what it might mean for other banking and mortgage execs.

This is a relatively straightforward case of securities fraud. The defendants knowingly misled investors about the volumes of risky mortgages that their companies were purchasing as the housing boom turned to bust. The complaint names former Freddie Mac execs CEO Richard Syron and former Fannie Mae CEO Daniel Mudd as defendants. Four other high-ranking former GSE execs are also named.*

Proving these charges is a simple matter of comparing the actual holdings against what the execs said to investors in public statements.

 Paul Krugman lays it out clear as a bell on the Ron Wyden fiasco:

What Wyden did was to give cover to the fundamental fallacy of right-wing attempts to dismantle Medicare: the claim that market competition is the key to reducing health care costs. We have overwhelming evidence on this — and it just isn’t true. Looking both within the United States and across countries, if you ask which systems are best at cost control, the ranking looks like this:

Government provision as well as financing (socialized medicine) > single payer > market competition

Why doesn’t the market work here? Ken Arrow explained it all half a century ago. Patients by and large don’t have the information to evaluate medical treatments; in any case, they mainly buy insurance rather than medical care directly; and insurers profit not by providing the most cost-effective care, but by trying to insure people who won’t need care.

And it’s not as if market competition hasn’t been given a try; in this country it has been tried over and over, by politicians who won’t take no for an answer.

  Here's news reportage about the eurozone crisis and how it's not being addressed:

A comprehensive solution to the euro zone debt crisis is beyond the region's reach, rating agency Fitch said, warning that six of its economies including Italy and Spain could be hit with credit downgrades in the near future.

The warning late Friday, the second time in two weeks that the bloc has been threatened with multiple ratings markdowns, heightened pressure on leaders to get to grips with the turmoil.

Fitch also said it might also cut AAA-rated France within two years and urged the European Central Bank to take a more active firefighting role.

One ECB policymaker said Saturday that time was running out to come up with solutions to a crisis that could spark a global slump. Another said the bank would not expand the bond buying program it launched to keep a lid on vulnerable states' debt costs. [boldface mine and is a huge eurofail, IMHO]

If the ECB can't face up to the fact that it's got to take the heat off the rising interest rates on Irish, Portugese, Spanish, Greek, and Italian debt, the whole eurozone could go up in smoke, as in bye-bye euro (taking the global economy down with it). The solution I hope for -- as do economists of note -- is for the ECB to issue eurobonds. As Alexander Mercouris says of eurobonds, "It is in fact nothing more nor less than yet another device to get Germany to guarantee the whole of the eurozone’s sovereign debt." Makes sense to me. As Atrios would say, na ga na happen. Hope that sentiment is wrong. Otherwise, we're circling the drain.


To end on an unhappy note, Calculated Risk determines there are 974 problem banks the FDIC may or may not have to move on in 2012:

After a four week hiatus, the FDIC got back to closings. Also, the OCC got back to releasing its enforcement activities on the first Friday after the 15th of the month. As a result, there were several changes to the Unofficial Problem Bank List this week. In all, there were five removals and two additions, which leave the list standing at 974 institutions with assets of $398.3 billion. A year ago, the list held 920 institutions with assets of $411.4 billion.

The removals include one cure, two unassisted mergers, and two failures. The OCC terminated an action against BNC National Bank, Glendale, AZ ($667 million Ticker: BNCC). Viking Bank, Seattle, WA ($387 million) and AmericaUnited Bank and Trust Company USA, Schaumburg, IL found merger partners. The two failures were Western National Bank, Phoenix, AZ ($163 million) and Premier Community Bank of the Emerald Coast, Crestview, FL ($126 million).

Given the calendar, the FDIC is likely [finished] with closings in 2011. If so, the year will end with 92 failures at an initial estimated cost of $7.2 billion for liquidating assets of $35.9 billion, which translates into a resolution cost of about 20% of failed bank assets. Buyers were willing to pay a deposit premium in only 22 of the resolutions and loss share agreements were done in 57 resolutions covering $17.9 billion of failed assets acquired.

The additions include First Federal Savings and Loan Association of McMinnville, McMinnville, OR ($346 million) and SouthernTrust Bank, Goreville, IL ($52 million).

The OCC converted a few Formal Agreements or previously OTS issued Supervisory Agreements to Consent Orders. Next Friday, we anticipate the FDIC will release its enforcement action activity for the month of November.

 Maybe something grand will happen to fix all this stuff. And maybe Ben Bernanke with fill bazookas full of money and shoot them at the proletariat. I'm not holding my breath.