Financial News

[NorthSideSox72]

http://www.businessinsider.com/found-the-m...-morgan-2011-11

How does a speedy liquidation process result in $700M ending up in a custodial account at another bank? And who had customer control of that account? Seems bizarre to me. MF Global is a self-clearing entity, they have no need to have large monies held in custody by another self-clearing entity.

 

 

[southsider2k5]

How does a speedy liquidation process result in $700M ending up in a custodial account at another bank? And who had customer control of that account? Seems bizarre to me. MF Global is a self-clearing entity, they have no need to have large monies held in custody by another self-clearing entity.

 

I asked a couple of people I know who have worked in Compliance a lot longer than I have, and there were a couple of theories, but none of them really convincing or good.

[Balta1701]

http://www.businessinsider.com/found-the-m...-morgan-2011-11

Apparently that's another random $600 million that appeared out of no where.

On Friday, funds from the bankrupt brokerage firm suddenly surfaced at JPMorgan Chase. Washington and Wall Street, for a moment, were hopeful it was the money they had been searching for all week.

 

But then, just as quickly, nearly everyone agreed it was not the missing money, and the hunt was on again.

 

While MF Global has more than $2 billion in accounts at JPMorgan, regulators had previously accounted for those funds, according to people briefed on the matter who were not authorized to speak publicly. Federal officials estimate that roughly $600 million has been misplaced or misused or has disappeared altogether, two of the people said.

 

The revelation — and the sharp reversal — is the latest debacle in the bankruptcy of MF Global.

 

Adding to the drama, the firm’s chief executive, Jon S. Corzine, the former Democratic governor of New Jersey and head of Goldman Sachs, resigned early Friday. In a more surprising development, Gary Gensler, head of the Commodity Futures Trading Commission, will no longer participate in the investigation due to his long acquaintance with Mr. Corzine, according to a person with direct knowledge of the matter.

 

It is just the beginning. Regulators are still camped out at the brokerage firm’s Midtown Manhattan headquarters, poring over the books. Exchange officials are transferring customer accounts to other brokerage firms. And company executives are helping to close the firm.

[Balta1701]

Creative uses of the postal service.

With the mystery of the missing $600 million in customer funds at MF Global Financial still unresolved, a lot of customers of the failed futures firm are starting to complain about getting bounced checks.

 

It appears that 10 days ago, with speculation swirling that the Jon Corzine-led firm would soon file for bankruptcy, a good number of customers started to put in requests to pull their money from the New York-based outfit. But instead of simply wiring that money back to their customers, it seems MF Global tried to buy some time for itself by sending that money back via snail mail in the form of an old-fashioned check.

 

Those checks cut by the folks at MF Global began arriving in customer mailboxes this week, several days after the firm filed for bankruptcy on Oct. 31 in New York federal court. And by the time customers started depositing those checks, they were rejected as having insufficient funds.

 

It’s not surprising the MF Global checks were rejected after the bankruptcy filing. It’s pretty customary for all expenses to require court approval once a bankruptcy judge gets involved.

 

But the move by MF Global to send back customer money by check has left a lot of customers in a bad predicament. I’ve been talking to one futures trader who says he and some of his associates have well over $1 million in bad checks issued by MF Global. Those checks were issued on Oct. 28–three days before the bankruptcy filing. The trader is considering producing a copy of the check as evidence of what he sees as MF Global’s bad faith in dealing with it customers and Wall Street’s broken system for dealing with customer money.

 

Says my source: “I am totally disgusted with the way the industry has not responded.”

 

It’s not clear how many MF Global customers got checks that have bounced. But online message boards are filling up with complaints about the situation.

Seriously, USPS, stop running ads telling me how nice it is to give customers a printed receipt, start running ads saying that it's a way to delay bankruptcy and criminal charges. That's how you sell the postal service in this economy.

[southsider2k5]

This could be the beginning of the collapse of China

 

http://www.forbes.com/sites/gordonchang/20...s-this-a-crash/

 

Property Prices Collapse in China. Is This a Crash?

 

Image by AFP/Getty Images via @daylife

 

Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

 

What started slowly in September turned into a rout by the middle of last month—normally a good period for sales—when Shanghai developers started to slash asking prices. Analysts then expected falling property values to move Premier Wen Jiabao to relax tightening measures, such as increases in mortgage rates and prohibitions on second-home purchases, intended to cool the market.

 

They were wrong. After a State Council meeting on October 29, Mr. Wen affirmed his policy, stating that local authorities should continue to “strictly implement the central government’s real estate policies in the coming months to let citizens see the results of the curbs.” Then, the selling began in earnest as “desperate” developers competed among themselves to unload inventory. One builder—Excellence Group—even said it would sell flats in Huizhou at its development cost.

 

Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.

 

When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse. In any event, the markets are bracing for trouble. Investors are dumping both the bonds and the shares of Chinese developers, and legendary bear Jim Chanos, citing the property market, late last month said he is still not covering his short positions on China.

 

One does not have to agree that China will be “Dubai times 1,000—or worse”—Chanos’s memorable phrase—to understand that the unwinding of “the biggest housing bubble ever created” will be especially painful. Analysts have great confidence in Beijing’s technocrats because they managed to continue to manufacture growth through the global downturn, but most of us seem to forget that the Chinese, through massive stimulus, created even bigger challenges for themselves. At the moment, Beijing has yet to resolve two intractable problems: persistent inflation and artificially high property prices.

 

The dominant narrative at the moment is that China’s economic managers will skillfully deflate the property bubble and land the economy softly. As Time observes, “Many observers say a sharp economic decline won’t be permitted to happen before the change of leadership in 2012.”

 

Won’t be permitted? It is true that Beijing’s technocrats have had the advantage of working in a semi-closed system that has allowed them to use the considerable resources of the state to achieve outcomes not possible in freer economies. Nonetheless, they can continue to do so—in other words, defy economic principles—only as long as market participants—in this case builders, local officials, and homeowners—cooperate.

 

The last four weeks, however, must have been a sobering period for Premier Wen, and not only because developers began to lose their nerve. For one thing, recent purchasers have taken to the streets because they had suffered losses even before taking possession of their homes. A crowd of about 300 people in Shanghai smashed windows at the sales office of Longfor Properties on October 22, two days after the builder had ended a sales promotion on a project. The protestors had bought properties in earlier phases of the same project at prices as much as 30% higher than the discounted ones.

 

And then, on the 23rd, a smaller crowd—on the same street—demonstrated against another developer, Greenland Group. Protesters were injured in Shanghai at another demonstration, this time against a unit of China Overseas Holdings. There were also protests against builders in Beijing and in other cities, Hangzhou and Nanjing.

 

The cities of Hangzhou and Hefei have reportedly told developers to limit discounts to 20% to avoid unrest, but the attempt to establish fiat prices will not work for long because many builders face insolvency.

 

Moreover, Premier Wen has to be concerned that sometimes he cannot control his own cities, which have flouted his decrees by removing curbs on property ownership. Nanjing defied Beijing and relaxed mortgage rules, as did Anhui province. At least in Foshan, a city in Guangdong, central authorities apparently convinced local leaders to rescind their earlier decision to scrap centrally mandated curbs.

 

The overriding reality is that, because of Beijing’s stimulus spending, there are too many properties and not enough buyers at this time. The market will have to arrive at equilibrium at some point, but what is surprising is the rapidity at which this is now happening. In common parlance, it’s called a crash.

 

 

[southsider2k5]

#occupyoldpeople

 

http://www.cnbc.com/id/45188794/

 

Wealth Gap Between Young and Old Highest Ever

Published: Monday, 7 Nov 2011 | 8:29 AM ET

 

The wealth gap between younger and older Americans has stretched to the widest on record, worsened by a prolonged economic downturn that has wiped out job opportunities for young adults and saddled them with housing and college debt.

 

elderly woman with financial advisor

Rolf Sjogren | The Image Bank | Getty Images

 

The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday.

 

While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.

 

The analysis reflects the impact of the economic downturn, which has hit young adults particularly hard. More are pursuing college or advanced degrees, taking on debt as they wait for the job market to recover. Others are struggling to pay mortgage costs on homes now worth less than when they were bought in the housing boom.

 

The report, coming out before the Nov. 23 deadline for a special congressional committee to propose $1.2 trillion in budget cuts over 10 years, casts a spotlight on a government safety net that has buoyed older Americans on Social Security and Medicare amid wider cuts to education and other programs, including cash assistance for poor families.

 

"It makes us wonder whether the extraordinary amount of resources we spend on retirees and their health care should be at least partially reallocated to those who are hurting worse than them," said Harry Holzer, a labor economist and public policy professor at Georgetown University who called the magnitude of the wealth gap "striking."

 

The median net worth of households headed by someone 65 or older was $170,494. That is 42 percent more than in 1984, when the Census Bureau first began measuring wealth broken down by age. The median net worth for the younger-age households was $3,662, down by 68 percent from a quarter-century ago, according to the analysis by the Pew Research Center.

 

Net worth includes the value of a person's home, possessions and savings accumulated over the years, including stocks, bank accounts, real estate, cars, boats or other property, minus any debt such as mortgages, college loans and credit card bills. Older Americans tend to hold more net worth because they are more likely to have paid off their mortgages and built up more savings from salary, stocks and other investments over time. The median is the midpoint, and thus refers to a typical household.

 

The 47-to-1 wealth gap between old and young is believed by demographers to be the highest ever, even predating government records.

 

In all, 37 percent of younger-age households have a net worth of zero or less, nearly double the share in 1984. But among households headed by a person 65 or older, the percentage in that category has been largely unchanged at 8 percent.

 

While the wealth gap has been widening gradually due to delayed marriage and increases in single parenting among young adults, the housing bust and recession have made it significantly worse.

 

For young adults, the main asset is their home. Their housing wealth dropped 31 percent from 1984, the result of increased debt and falling home values. In contrast, Americans 65 or older were more likely to have bought homes long before the housing boom and thus saw a 57 percent gain in housing wealth even after the bust.

 

Older Americans are staying in jobs longer, while young adults now face the highest unemployment since World War II. As a result, the median income of older-age households since 1967 has grown at four times the rate of those headed by the under-35 age group.

 

Social Security benefits account for 55 percent of the annual income for older-age households, unchanged since 1984. The retirement benefits, which are indexed for inflation, have been a consistent source of income even as safety-net benefits for other groups such as low-income students have failed to keep up with rising costs or begun to fray. The congressional supercommittee that is proposing budget cuts has been reviewing whether to trim college aid programs, such as by restricting eligibility or charging students interest on loans while they are still in school.

 

Sheldon Danziger, a University of Michigan public policy professor who specializes in poverty, noted skyrocketing college tuition costs, which come as many strapped state governments cut support for public universities. Federal spending on Pell Grants to low-income students has risen somewhat, but covers a diminishing share of the actual cost of attending college.

 

"The elderly have a comprehensive safety net that most adults, especially young adults, lack," Danziger said.

 

Paul Taylor, director of Pew Social & Demographic Trends and co-author of the analysis, said the report shows that today's young adults are starting out in life in a very tough economic position. "If this pattern continues, it will call into question one of the most basic tenets of the American Dream — the idea that each generation does better than the one that came before," he said.

 

Other findings:

 

Households headed by someone under age 35 had their median net worth reduced by 27 percent in 2009 as a result of unsecured liabilities, mostly a combination of credit card debt and student loans. No other age group had anywhere near that level of unsecured liability acting as a drag on net worth; the next closest was the 35-44 age group, at 10 percent.

Wealth inequality is increasing within all age groups. Among the younger-age households, those living in debt have grown the fastest while the share of households with net worth of at least $250,000 edged up slightly to 2 percent. Among the older-age households, the share of households worth at least $250,000 rose to 20 percent from 8 percent in 1984; those living in debt were largely unchanged at 8 percent.

 

On Monday, the Census Bureau planned to release new 2010 figures that will show a big increase in poverty for Americans 65 or older due to rising out-of-pocket medical expenses. Currently, about 9 percent of older Americans fall below the poverty line, based on the official definition put out in September, but that number did not factor in everyday costs such as health care and commuting.

 

The new supplemental figures will show poverty to be higher than previously known for several groups, although they may not fully reflect longer-term changes. For instance, a recent working paper by the National Bureau of Economic Research found that U.S. spending on the safety net from 1984 to 2004 shifted notably toward programs benefiting the near-poor rather than the extreme poor and to the elderly rather than younger adults. That trend, which has continued since 2004, has led to faster increases in poverty over time for some of the underserved groups.

 

Robert Moffitt, a professor of economics at Johns Hopkins University and co-author the paper, cited a series of cuts in government programs since 1984 for the neediest, including welfare payments to single parents and the unemployed under the Temporary Assistance for Needy Families program, while Social Security and Medicare have either been expanded or remained constant.

 

"Over time, even under a revised poverty measure, the elderly have done better," he said.

© 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

[Balta1701]

So, the real trick behind the numbers in the previous article are that defined-benefit pension plans seemingly aren't being counted as assets, while 401k or employer-sponsored private investment accounts are. Thus, as time has passed since the mid-80's and defined benefit pension plans have gone away, the "Net worth" of people with some sort of retirement plan has gone up substantially, but this would have zero impact on most young people. As a consequence, every average group in that survey has shown growth in their net worth since the 1980's except for the youth group, because something that was previously not counted as an asset is now being counted.

[southsider2k5]

So, the real trick behind the numbers in the previous article are that defined-benefit pension plans seemingly aren't being counted as assets, while 401k or employer-sponsored private investment accounts are. Thus, as time has passed since the mid-80's and defined benefit pension plans have gone away, the "Net worth" of people with some sort of retirement plan has gone up substantially, but this would have zero impact on most young people. As a consequence, every average group in that survey has shown growth in their net worth since the 1980's except for the youth group, because something that was previously not counted as an asset is now being counted.

 

It isn't a trick, you don't "own" your pension plan. The others are things that are yours, in some relative level.

[Balta1701]

It isn't a trick, you don't "own" your pension plan. The others are things that are yours, in some relative level.

It's not a "Trick" per se, perhaps the wrong word, but that's the underlying thing being shown by the data.

[southsider2k5]

It's not a "Trick" per se, perhaps the wrong word, but that's the underlying thing being shown by the data.

 

And if anything that helps the older generations, because pensions are mostly gone today.

[Cknolls]

Italian bonds have traded with an 86 handle today. and the spread against German Bunds has reached =493bps. Anything over +500bps would trigger margin calls. Also, any spreads of +450bps over the European soveriegn AAA 10-yr benchmark would trigger a 15% margin haircut. However, margin rates currently remain unchanged.

[StrangeSox]

Another take on the causes of the financial meltdown, via Sullivan, that pushes the blame away from the banks a little bit:

 

I have been involved in the mortgage-backed securities market for about 20 years. Your conclusion that the government did not force the banks to make bad loans is absolutely correct. Mayor Bloomberg's remarks, for whatever reason, are absolutely false. However, the analysis and blame are much more complex. By making this an argument of Banks v. Government, as the Tea Party and Occupy Wall Street seem to make, and which the media perpetuates, is too simplistic.

 

While "the banks" share some of the blame and some banks misled some investors on some deals, I believe those cases were generally isolated and may have slightly exacerbated the problem, but did not cause the problem. It was a breakdown of the system that caused the problem. If a bank tells investors that they are investing in a pile of s*** (subprime mortgages) and the investors buy them, why should the banks get the blame?

 

Even if the bank knows it is selling a pile of s*** and separately bets against it, as long as it adequately discloses that it is selling a pile of s***, that is how our market works. As a capitalist, you can't blame the banks. If they fail to disclose that they are peddling a pile of s***, they are liable civilly and criminally. So far, surprisingly, there have only been isolated (though well publicized) cases brought against the banks for misleading investors.

 

Why did the banks sell piles of s***? Because of the Wall Street compensation system that pays annual bonuses upon closed deal, regardless of whether those deals go bad. They made a lot of money doing so. The bankers who were more responsible and did not peddle piles of s*** were fired for not making as much as their competitors. So there was a race to the bottom to sell the most piles of s***.

 

Did the banks believe those deals were bad? Yes and no. To a certain degree, the banks knew that there would be some amount of decline in value of bonds they sold, but not to the degree that actually occurred. One of your comments is a bit off - that the deals were designed to work in a market that never faltered. That is not quite right. They were designed for some level of decline, but not the catastrophic level that occurred. It is an open question as to how stinky the bankers thought their piles of s*** were.

 

I don't find the banks totally blameless, but there are many others to blame:

 

The investors. These are not your mom and pop investors, but very sophisticated pension funds and others. Astoundingly, I would hear at conferences that they were "chasing yield," which meant that they were seeking higher returns, which meant that they were looking to buy, in my view, risky s***. Which is why the bankers could sell them a pile of s***. Further, many of the investors also suffered from the generational issues. The younger ones did not think that real estate would go down because they never lived through a market crisis and the older ones did not understand the complexity of the new-fangled deals that were being done. So these sophisticated investors, while thinking they were taking on some risk, took on more risk than they thought. In their defense, partially, they were buying rated securities.

 

The rating agencies, along with the complicit investors, also deserve a lot of the blame. From the early 1990s to the mid 2000s, the deals were getting riskier and more complex, yet the agencies were giving these deals higher ratings. It was the rating agency imprimatur that allowed the banks to turn a pile of s*** into golden nuggets. Once again, the blame was due to compensation. The banks would shop around to the various agencies to get the best ratings, creating a race to the bottom. If the ratings were too low, the agencies would not get paid or would not get future deals. The "false" ratings colored the market and left the regulators asleep.

 

But the blame goes further. The deals could not get done without inflated appraisals on properties. Once again, appraisers felt the need to give inflated appraisals in order to get future business from the mortgage companies, making them co-conspirators. As someone who refinanced his house several times, I always found it interesting that the appraisal always came out to an amount which allowed the bank to lend me the amount requested.

 

Then there is the public. Although there is some percentage of homeowners who needed the money for medical emergencies or other legitimate reasons, for about a decade, the American public treated their homes as ATMs. Nobody forced anyone to take out a loan. Yes, there were some folks who were duped and took out adjustable rate loans that they did not understand, but who gets the blame for public ignorance? Many of these same people then took some of the proceeds and were further ripped off by unscrupulous auto salesmen or timeshare companies. Are we also blaming them? And the people ripping off the public were not the Wall Street banks necessarily, but rather the local mortgage companies and local banks.

 

Then there was the government to the degree you noted, but in my view the government was more asleep than complicit.

[NorthSideSox72]

Another take on the causes of the financial meltdown, via Sullivan, that pushes the blame away from the banks a little bit:

Solid article.

 

[StrangeSox]

Solid article.

 

His "fact check" of basically laying Bloomberg's assertions out there and soliciting readers' input has produced some good letters. If you follow the link, you'll see several more.

[southsider2k5]

Italian bonds are back to crisis pricing. Stocks are down 2%, and all anyone on CNBC can say is they are surprised the stocks are down so little. Could be an interesting day.

[Balta1701]

Italian bonds are back to crisis pricing. Stocks are down 2%, and all anyone on CNBC can say is they are surprised the stocks are down so little. Could be an interesting day.

They hit the "Magic 7%" number today I see.

 

Does that mean Silvio changed his mind on resigning after I signed off last night?

[southsider2k5]

It means no one believes him.

[Balta1701]

Question -

 

What's the US exposure for this? I'm sure we have our hands tied with the EU, so a drop of a country or two would hurt investors and banks here....but how much? Wouldn't the dollar have a really solid period of growth so that long-term it would be a benefit for the US? Or is that totally wrong?

Reuters has a ridiculously well done graphic allowing you to check how exposed banks and the public sector are to the debt of each of these European countries, and an additional sub-graphic that allows you to break down public/privately held debt exposure for the PIIGS countries.

[StrangeSox]

[southsider2k5]

 

Imaginary? LMFAO. Krugman is a con artist if he is going to completely ignore that the Fed is spending trillions to jam rates down.

[StrangeSox]

BOND VIGILANTES!

[southsider2k5]

BOND VIGILANTES!

 

Operation Twist ring a bell?

[StrangeSox]

Operation Twist ring a bell?

 

Sure, but that was relatively recent and the WSJ has been harping that crushing inflation is just around the corner for years.

[southsider2k5]

Sure, but that was relatively recent and the WSJ has been harping that crushing inflation is just around the corner for years.

 

And once you take into account how manipulative the inflation figures are, you could understand why.

[StrangeSox]

I'd rather take into account ridiculously low interest and inflation rates and how wrong the WSJ editorial pages have been for the better part of a decade now.