Desiderata

We Loaned Money to WHOM?!? – It came to light recently that the Fed loaned money, not just a little, but tens of billions, to foreign banks in 2008 during the “bleakest” days of the financial meltdown. Barclays (England) and USB (Switzerland) both got billions of dollars from the Fed. In the meantime, why don’t you go down to the local bank and try to get a line of credit for a well capitalized small business. Yeah, right.

More Lies From Goldman – During those same dark nights of financial crisis there was one bright shining light of security: Goldman Sachs. They told us repeatedly that they were fine, didn’t need the money and were well capitalized. And, if you looked at their quarterly filings in 2008 and 2009 you may have been misled into believing just that. Turns out they too got a couple ($30+) billion from the Fed. Please, please, please; the next time Goldman comes up won’t someone laugh or cough or blow their nose? All they can do is lie.

End of the World…or Best of Times – I can’t swing a dead cat without hitting a politician (in both parties) who says our economy is going to disappear SOON if we don’t stop borrowing so damn much money from China, and running up all these crazy debts. The private sector is being pushed out of the way by the government and the government is as reckless as a drunken sailor on shore leave. Or so the story goes…and goes…and goes. So why does the dollar continue to hold its value relative to foreign currencies? Why did consumer spending increase over the prior year? And most importantly, why hasn’t China stopped buying US Treasuries? Hell, we’ve all but told them we’re a dangerous investment. There are a lot of reasons for these phenomena. But the point is that every single politician is completely full of shit when it comes to these matters.

I Had to Laugh – Some guy named Frank Aquila writes a column for Business Week. Those poor souls are so desperate for content they’re getting it from lawyers. But Frank is no ordinary lawyer, he’s a mergers and acquisitions partner for Sullivan & Cromwell; possibly the world’s most expensive law firm. Frank’s worried that America won’t be competitive enough to hang with the big boys in the world economy. Meanwhile, just about every serious study has shown that mergers rarely if ever achieve their stated goals or benefit shareholders. So we’ve got some clown who’s laboring at the very heart and soul of inefficiency writing a column warning us of the dangers of not being competitive.

Insider Trading Probe – This has gone quiet for the moment. The most recent development is that it has extended to some large mutual funds, most prominently Janus. Let’s wait and see just how rigged the system may be against small investors.

Desiderata

The Value of the Dollar

– It’s nice to see something on this topic that clearly highlights the relevance of this issue. A piece in the NYTimes contrasts two companies with different outlooks on the value of the dollar versus the remnimbi. PS Brands, an importer of socks from China, wants the dollar to stay high so they can continue to import socks cheaply. Staco Systems, a manufacturer of aerospace electronics, wants the dollar to go lower so their products are more attractive to Chinese buyers. What’s better: an artificially low remnimbi which helps import cheap socks for people without jobs or a higher dollar that supports exports and high-value manufacturing jobs? Hmmmmmm.

Champerty

– That’s a strange old word from the common law. It is the act of an attorney footing the bill for the cost of a lawsuit and taking part of the settlement in return. Champerty was forbidden because – you guessed it – it encouraged lawsuits. There’s a place in the world for contingency agreements (the modern word for legalized champerty), but surely things have gone too far when hedge funds are investing in lawsuits. There’s actually a company called Ardec Funding whose business is to fund lawsuits for a cut of the award. Ardec, in turn, is bankrolled by a hedge fund. God only knows which one. I’m sure they’ve funded some cases with wonderful plaintiffs, but this has got to be the ultimate example of bottom feeding lawyers.

QE2

– This is the cheeky nickname given by the business press to the Fed’s second round of quantitative easing. For the most part the business press said QE2 would lead to the END OF THE FUCKING WORLD in the form of rampant inflation and a swoon in the value of the dollar. So far: “QE2 was supposed to send the dollar down. Instead it’s going up. Interest rates were supposed to go down. Instead they’ve gone up.”

Another example of the business press pushing its own agenda thinly disguised as analysis. But this is an even better example of the fact that economists are making well informed guesses. Keep that in mind the next time you hear an economist saying this or that policy is terrible and will have horrible results, or is great an will have terrific results. They’re just guessing (see our earlier post where they admit that they’re just guest).

Foreclosure Update

– Maybe champerty ain’t so bad after all! Banks are being hit with class action suits targeting their foreclosure processing: you know, robo-signing, bad documents, botched evictions, the usual. The icing on the cake is the RICO suits. Yes, RICO suits against the banks. Couldn’t happen to a better group of people. RICO is a statute that was designed to go after the mob, but was twisted into a way to go after everyone. Why? Because it lets the plaintiff ask for treble (TRIPLED) damages. RICO stands for Racketeering Influenced and Corrupt Organizations, so using it against banks in this instance probably isn’t too much of a stretch.

Remember, the business press is there to support big business so don’t be afraid to question it!

Banks and Foreclosures

This is the first of what will undoubtedly be several posts on this topic.

If you’ve ever been to a closing for a home loan, you know that every single document is scrutinized, signed and verified to be accurate. As it should be. And if you’ve ever been to a closing where a document was out of order, you almost certainly didn’t consummate the loan.

The idea that a bank would take it on faith that the documents you supplied to them were ok is absurd. No bank would take your word on how much you make without a W-2 form, or agree that you would own the property free and clear without a title search. And they shouldn’t.

So the idea that any bank anywhere should be allowed to foreclose on a property without a complete and accurate set of documents is equally absurd. If the banks can’t process a particular foreclosure due to bad documents – or if the banking industry takes losses because of a systemic lack of proper documentation – that is too bad for the bank and/or the banking industry.

In her ridiculous article in the Atlantic (http://tinyurl.com/33gzjth), Megan McCardle says that since the end result would be the same, just let the banks ignore the requirements of proper documentation and run roughshod over homeowners. The industry won’t be able to sell all the homes that come out of foreclosure, she says. No one’s buying homes if you haven’t noticed. The title insurance industry will break down, she says. This is a multi-billion dollar segment of the insurance industry that runs single digit loss ratios year after year. It won’t go away, trust me.

Here’s an even more preposterous quote from the NYTimes:

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

So why not be obligated to repay it in full immediately? Where do you draw the line on this kind of thinking? I’ll tell you. Right at the closing table. No documents, no foreclosure. Period.