Blog on the Run: Reloaded

Tuesday, August 31, 2010 9:55 pm

Dead banks walking

Filed under: We're so screwed — Lex @ 9:55 pm
Tags: ,

I’ve had some things to say in the past about zombie banks and how bad they are for the economy. But, hey, what do I know? I’m just the guy who called Howard Coble out for failing to vote for the LaFalce Amendment, as a result of which the S&L bailout of the early 1990s ended up costing about four times what it would have if Coble and others had supported his fellow Republican’s put-the-S&Ls-out-of-their-misery measure and Coble himself admitted he’d screwed up.

But you know who’s saying bad things about zombie banks now? Those silly liberals at American Banker:

… no stage of the [foreclosure] process has returned to pre-September 2008 levels. That is when the Treasury unveiled the Troubled Asset Relief Program and promised to help financial institutions avoid liquidating assets at panic-driven prices. The Financial Accounting Standards Board and other authorities followed suit with fair-value dispensations.

These changes made it easier to avoid fire-sale marks — and less attractive to foreclose on bad assets and unload them at market clearing prices. In California, ForeclosureRadar data shows, the volume of foreclosure filings has never returned to the levels they had reached before government intervention gave servicers breathing room.

Some servicing executives acknowledged that stalling on foreclosures will cause worse pain in the future — and that the reckoning may be almost here.

“The industry as a whole got into a panic mode and was worried about all these loans going into foreclosure and driving prices down, so they got all these programs, started Hamp and internal mods and short sales,” said John Marecki, vice president of East Coast foreclosure operations for Prommis Solutions, an Atlanta company that provides foreclosure processing services. Until recently, he was senior vice president of default administration at Flagstar Bank in Troy, Mich. “Now they’re looking at this, how they held off and they’re getting to the point where maybe they made a mistake in that realm.”

Duh. Ya think?

And, honestly, if it were just banksters getting hurt, that would be one thing. But you know who’s going to pay for this: homeowners, and you and I whether we own homes or not.

Delayed foreclosures might be good news for delinquent borrowers, but it comes at a high price.

Stagnant foreclosures likely contributed to the abysmal July home sales, since banks are putting fewer homes for sale at market-clearing prices.

Moreover, Freddie says a good 14% of homes that are seriously delinquent are vacant. In such circumstances, eventual recovery values rapidly deteriorate.

Ayep.

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Saturday, November 7, 2009 11:56 pm

How bad? This bad.

How bad an idea is the banking industry’s proposal to make it easier for banks to hide how insolvent they are? Before you answer, know that it ain’t that hard now: Citi and Bank of America are called “zombie banks” for a reason.

Well, I’ll tell you how bad an idea it is: Even the U.S. Chamber of Commerce thinks it’s a bad idea:

Amid the ongoing financial regulation overhaul, the banking industry is hoping to pull off a quiet power grab that has eluded its grasp since the Great Depression, by stripping the independence of the board that sets financial accounting standards.

The move could effectively let banks set their own accounting standards in rough economic times.

Astonishingly, at a time when the public is crying out for greater regulation to limit excessive risk-taking by financial institutions, the banks are trying to get Congress to agree that the next time there’s a big downturn, they should have the ability to alter their accounting standards — essentially, fudge the numbers — so that the public and investors won’t be able to tell how insolvent they really are. By ignoring their declining asset values, they can avoid the standard requirement of raising more capital.

The mechanism is contained in an amendment set to be introduced in mid-November by Rep. Ed Perlmutter (D-Colo.) that would move final authority over the Financial Accounting Standards Board (FASB) from the Securities and Exchange Commission to a new body, a so-called “oversight” board, that would include the officials charged with managing systemic risks to the financial markets.

These regulators would have the authority to override FASB’s accounting guidelines by taking into account economic conditions.

The move is so radical that it has split corporate America. The bankers and members of Congress who support it have earned themselves an unlikely enemy: the U.S. Chamber of Commerce.

A typical business or investor, after all, prefers honest, independent accounting, because they buy and sell real things based on real value.

Well, of course the typical business or investor prefers honest, independent accounting. But in case you hadn’t noticed, that isn’t who our financial system is run by or for.

Digby, commenting for the win: “Back in the day when we all jabbered on about the Reality Based Community, I used to joke about this very thing. I said we should apply these same lies we use in foreign policy to the economy and see what would happen. By God, it looks like they are actually trying to do that.”

Thursday, August 27, 2009 8:16 pm

Not just a fine. Time.

Tyler Durden of Zero Hedge on Bank of America’s legal problems — and, possibly, BofA’s lawyers’ legal problems — regarding what it told (or didn’t tell) its shareholders about the Merrill Lynch takeover:

The bottom line is that either Bank of America’s executive committee, or as the [Securities and Exchange Commission] claims, the lawyers advising it

… whom Durden identifies as the firm of Wachtell Lipton in general and partner Ed Herlihy in particular …

were responsible for one of the most blatant public filing misrepresentations in history. A $33 million slap on the wrist which comes out of BAC’s troubled investors and, by [extension], taxpayers, is a ludicrous way to “punish” those responsible. The Attorney General must see through the smoke and mirrors of this scam and has to seek criminal punishment for whoever ends up being the responsible party in this “hot potato” blame game.

Word. If we’re going to have long-term economic stability, we need to unrig the rigged game that investing has become, particularly when taxpayer dollars are involved. And the best way to do that is by packing the riggers off to prison, rather than looking the other way, as the SEC usually does, when huge crimes are committed.

Karl Denninger identifies another likely case (h/t: baum):

I [ran a search for] the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)

Well gee, let’s add this up!

That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they’re worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of “back door support” that Citibank (C) has is closer to a cool trillion dollars, although I’ve never been able to get anyone to speak on the record in that regard.)

But I digress.

Here is the NYSE Volume for Tuesday – for all shares, right off NYSE Euronext’s page:

So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.

These four stocks represented thirty seven percent of all shares traded Tuesday. …

If there was ever an argument to be made for the NYSE having turned into a gigantic “hot potato” parlor game, this is it – in your face in an impossible-to-explain-away fashion.

NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.

Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called “regulators” turning a willful blind eye while supposed “improvements” in liquidity and “customer access” are put in place by those who have one singular purpose in mind – find a way to steal a fraction of a penny at a time by playing “hot potato” with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.

I certainly hope the companies that manage my (now significantly depleted) retirement and college savings know what the hell’s going on and are acting accordingly.

And this, too, has to be a crime, yet the government does nothing about it.

And on a philosophical level, how can anyone possibly call this anything approaching a free market?

And if no one can, then why aren’t the advocates of free markets screaming bloody murder about this? Is it because they don’t get it? Is it because they’re hypocrites? Or is it because they think they’ve got an edge in this rigged game, that when the music stops they won’t be “the bagholder upon whom they can unload”?

They need to stop kidding themselves. There is nowhere near enough room to keep every free-market advocate in this country, myself included, safe from exposure.

Friday, April 10, 2009 4:49 pm

Simple answers to simple questions (special zombie edition)

Q: What kind of bank can pass the feds’ “stress test” yet still need more taxpayer money?

A: Zombie banks that should be nationalized.

Q: What kind of stress test is a test that all 19 of the nation’s biggest banks can pass even though some of them obviously are in a world of hurt?

A: A zombie test.

This has been another edition of Simple Answers to Simple Questions.

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