Thursday, October 23, 2014

Today's Links

Today's quote:  Melvin Udall:  Sell crazy someplace else, we're all stocked up here." (Jack Nicholson, "As Good As It Gets")




Quote: “What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.” Nick Hanauer




1--The Fraud "Recipe" That Shaped the Crisis, William Black, op ed news



The Three Epidemics
The first epidemic was appraisal fraud. The second was "liar's" loans. These were the two epidemics of loan origination fraud led by the officers that controlled the home lenders. Because there is no fraud exorcist, once loans are fraudulently originated they can only be sold to the secondary market through fraudulent "representations and warranties." The officers that controlled the lenders that originated massive numbers of fraudulent loans made these fraudulent "reps and warranties."...


The Appraisal Fraud Epidemic
The Financial Crisis Inquiry Commission (FCIC) report should be read closely.
From 2000 to 2007, a coalition of appraisal organizations " delivered to Washington officials a public petition; signed by 11,000 appraisers". [I]t charged that lenders were pressuring appraisers to place artificially high prices on properties [and] "blacklisting honest appraisers" and instead assigning business only to appraisers who would hit the desired price targets (FCIC 2011:18)....
  1. Grow extremely rapidly by
  2. Making (buying) massive amounts of bad loans at premium nominal yield, while
  3. Employing extreme leverage, and
  4. Providing only trivial allowances for loan and lease losses (ALLL)
The Recipe Guarantees Three "Sure Things"
  1. The lender (buyer) will promptly report record (albeit fictional) profits
  2. The senior officers will promptly be made wealthy by modern executive compensation
  3. The firm will eventually suffer catastrophic losses
The title of George Akerlof and Paul Romer's 1993 explains the resulting "agency" problem -- "Looting: The Economic Underworld of Bankruptcy for Profit." The firm will suffer terrible losses, but the controlling officers can walk away wealthy.
The recipe is well known to bankers. Jamie Dimon, JPMorgan's CEO, almost stated the fraud recipe correctly in his March 30, 2012 letter to shareholders:
"Low-quality revenue is easy to produce, particularly in financial services. Poorly underwritten loans represent income today and losses tomorrow."...
The Second Loan Origination Fraud Epidemic: "Liar's" Loans


2--- How Quantitative Easing Contributed to the Nation’s Inequality Problem, NYT


Ms. Yellen’s speech seemed heartfelt. Yet, she has endorsed the Fed’s policies, started by her two immediate predecessors, Alan Greenspan and Ben S. Bernanke, that drove down interest rates to historically low levels – policies that have actually exacerbated the problem that she says she wants to correct.


She is failing to appreciate how Mr. Bernanke’s extraordinary quantitative easing program, started in the wake of the financial crisis, has only widened the gulf between the haves and have-nots. If she does understand, she certainly made no mention of it in her speech in Boston. Indeed, there was no mention whatsoever of the Fed’s easy monetary policies at all, let alone how they have helped to cause income inequality.


3--Big finance wins again: -U.S. Regulators Approve Eased Mortgage Lending Rules, NYT


Comments line:

gmshedd

Backwoods, PA Yesterday
So, now that we've eliminated all of the tighter mortgage lending and securitizing requirements that were imposed after the last bust, exactly how are we safer from the next bust?


ebmem

Memphis, TN Yesterday
It is wonderful that the government, unable to learn from its mistakes, decides to repeat them. The real estate and banking industry have clearly made some really big contributions to the Democrats.

It is no favor to people without a down payment to let them buy a house they can't afford. A small glitch in their income stream causes them to lose their home.

jla

usa Yesterday
"regulators identified a solid down payment as something that significantly reduced the likelihood of default on a mortgage."

Here we go again...another 7-year economic cycle comes to an end in an orgy of financial shenanigans. NINJA (no income, no job) mortgages are just around the corner. Why must we endure this financial spectacle time and time again? It's because a corrupt and entrenched lobbying infrastructure demands it, that's why

article:
Soon after the housing bust, federal regulators working on repairing the mortgage market thought it was sound policy to have borrowers make sizable down payments on their new homes.
On Tuesday, the regulators completed that overhaul, but they left out any requirement for borrowers to make a down payment. The new regulations aim to strengthen the vast market for bonds that are backed with mortgages and other loans. The market is not back on its feet, despite low interest rates. But the regulators said that the new rules could set the stage for more lending.

“Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector,” said Melvin L. Watt, director of the Federal Housing Finance Agency, one of the regulators that adopted the rule. “Lenders have wanted and needed to know what the new rules of the road are and this rule defines them.”

The regulators left out the down payment requirement after a firestorm of criticism from bankers and consumer advocates. They asserted that such a measure could restrain the flow of housing credit, particularly to borrowers who would have to save for many years to afford a down payment.
But some financial experts are disappointed with the new rules. They contend that, over time, the exclusion of a down payment requirement could once again allow banks to stoke dangerous risks in the financial system — and then evade the pain when the losses pile up.....

The overhaul has its roots in the years leading up to the financial crisis of 2008. Banks and Wall Street firms packaged billions of dollars of shoddy mortgages and sold them to bond investors, who later suffered huge losses when the loans went bad. To guard against that happening again, the Dodd-Frank Act of 2010 required banks to hold on to a slice of the loans they sold. As a starting point, the new rules require banks to hold onto 5 percent of the loans they sell. But there are exemptions in the so-called risk retention rule that may enable the banks to hold less or nothing.....

In the first draft of the rule, issued in 2011, regulators identified a solid down payment as something that significantly reduced the likelihood of default on a mortgage. Citing data to support their case, the regulators proposed that the exempt mortgages needed to have a down payment of at least 20 percent of the purchase price of the house.
In the following months, however, housing advocacy groups, mortgage bankers and even some bond investors called upon the regulators to get rid of the 20 percent down payment feature. Instead, they wanted the overhaul to simply apply another new set of home loan requirements — called “qualified mortgage” rules — that do not demand any down payments.


4---Bond funds stock up on Treasuries in prep for market shock, NYT


Corporate bond funds typically invest in a range of debt that includes mortgage-backed securities, U.S. Treasuries and bonds backed by student loans, credit cards and auto loans. Some corporate junk bond funds have guidelines that allow them to buy individual stocks. The move to buy Treasuries, which are more easily traded than most corporate bonds, show that managers anticipate market turmoil that could lead to redemption demands from investors.....


Michael Salm, co-head of about $60 billion in fixed-income assets at Putnam Investments, said slumping energy prices could also increase the rate of corporate defaults among junk-rated energy companies. He also said he sees subtle deterioration on the balance sheets of corporations outside the financial sector.  ....


Some corporations have been issuing new debt to repurchase more of their own stock, which is viewed as a negative for bondholders....


One trouble is that it's become harder than ever to buy and sell corporate bonds in the secondary market as new regulations and capital requirements since the financial crisis forced Wall Street banks to slash their inventories. That has left a vacuum in matching buyers and sellers, and bond managers say they don't want to get caught holding too much of it in a rout.
"Everyone sees the lack of liquidity as a potential risk in the corporate bond market," said Sumit Desai, the lead analyst for corporate credit funds at research firm Morningstar Inc. "But there hasn't been a major event to test the market."


The value of corporate bonds held by U.S. mutual funds has more than doubled since 2007 to about $1.7 trillion. Corporate bond issuance during the first nine months of 2014, driven by rock bottom interest rates, was $954 billion, compared with $1.08 trillion in the year-ago period, according to the Financial Industry Regulatory Authority.


5---The Signals From the High-Yield Bond Market, NYT
The benchmark BofA Merrill Lynch U.S. High Yield Master II index


“High yield is the first sign you have that something could be wrong,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies, an investment consultant. “It doesn’t have to give rise to a 2008 type of collapse, but it tells you there is excess liquidity in the system.”
Credit has been cheap and easy to obtain, he said, “but at some point a switch goes off, and people say it can’t go on forever.” He acknowledged that “it’s difficult to say what causes the turning point” but cautioned that the recent rise in yields could signal its arrival.

Tad Rivelle, fixed-income chief investment officer at the fund management company TCW, noted that there was more at stake than just the direction of bond prices.
“The credit cycle is actually the driver of the overall business cycle,” he said. “The durability of the economic expansion, such as it is, is largely dependent on the capital markets and the willingness of the junk bond market to continue to finance more marginal borrowers and more marginal deals. For clues for how late we are in the cycle, look no further than the high-yield market.”
If yields continue to rise, corporate activity is expected to feel the impact. Rising rates reflect a reduced supply of credit

6--Debate rages on quantitative easing’s effect on inequality, FT

These criticisms were fuelled by Bank of England research showing that QE boosted asset prices and household financial wealth, which is “heavily skewed with the top 5 per cent of households holding 40 per cent of these assets”.
When the study was published in 2012, the leftwing website “Left Foot Forward” wrote that QE had “made the rich richer [and] widened inequalities that already existed.”


7---Has the junk bond bubble deflated?, cnbc


8---Don't look toot close: This Is How Caterpillar Just Blew Away Q3 Earnings, zero hedge


in the new normal, if you can't grow, you just buy your way to growth. On margin.


...a stretch of declining global retail sales




... and since the start of 2013:



Unbelievable.


9---The Berlin Wall: Another Cold War Myth, counterpunch


A Response to Economic Sabotage...


It should be noted that in 1999, USA Today reported: “When the Berlin Wall crumbled [1989], East Germans imagined a life of freedom where consumer goods were abundant and hardships would fade. Ten years later, a remarkable 51% say they were happier with communism.”  


10---To keep markets afloat, however, as Bloomberg notes, $200 billion a quarter in QE from the central bankers is needed. The Fed is almost out, China has mostly withdrawn, Japan has too many domestic problems to look out the window, and the ECB can do just $15 billion a month. Confused? You won’t be .. after next week’s episode of .. the Eurosoap....NC


11---QE Timeline, Cal risk
With QE3 expected to end next week, by request, here is an updated timeline of QE (and Twist operations):

November 25, 2008: Press Release: $100 Billion GSE direct obligations, $500 billion in MBS

December 16, 2008 FOMC Statement: Evaluating benefits of purchasing longer-term Treasury Securities

January 28, 2009: FOMC Statement: FOMC Stands Ready to expand program.

March 18, 2009: FOMC Statement: Expand MBS program to $1.25 trillion, buy up to $300 billion of longer-term Treasury securities

March 31, 2010: QE1 purchases were completed at the end of Q1 2010.

August 27, 2010: Fed Chairman Ben Bernanke hints at QE2: Analysis: Bernanke paves the way for QE2

November 3, 2010: FOMC Statement: $600 Billion QE2 announced.

June 30, 2011: QE2 purchases were completed at the end of Q2 2011.
September 21, 2011: "Operation Twist" announced. "The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less."

June 20, 2012: "Operation Twist" extended. "The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities."

August 31, 2012: Fed Chairman Ben Bernanke hints at QE3: Analysis: Bernanke Clears the way for QE3 in September

September 13, 2012: FOMC Statement: $40 Billion per month QE3 announced.

December 12, 2012: FOMC Statement: Announced completion of "Operation Twist", expanded QE3 to $85 Billion per month.

May 22, 2013: In Testimony to Congress, The Economic Outlook, Fed Chairman Ben Bernanke said “If we see continued improvement and we have confidence that that is going to be sustained, then in the next few meetings, we could take a step down in our pace of purchases.” (aka "Taper Tantrum").

June 19, 2013: In Chairman Bernanke’s Press Conference, Bernanke said "If the incoming data are broadly consistent with this forecast, the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year."

December 18, 2013: FOMC Statement: Announced "tapering" of QE3. Note: QE3 tapered $10 billion per month at each meeting of 2014.

October 29, 2013: FOMC expected to complete QE3 (next week).


12---Will the big banks ever clean up their act?, by Mark Thoma: Federal Reserve Bank of New York President William Dudley delivered a stern warning to the largest banks in a speech earlier this week. Either clean up your illegal and unethical behavior through "cultural change" from within, he said, or be broken into smaller, more manageable pieces.In his conclusion, the warning was direct and explicit:
"...if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively. It is up to you to address this cultural and ethical challenge


13---Low Down Payments Are Coming Back, WSJ


14--Wall Street execs, "Neither honest or moral", WSOP


Wall Street banking executives, who elect two-thirds of the Board of Directors of the New York Fed and have frequently served on its Board, have structured the institution to be its sycophant. Consider the fact that Jamie Dimon, CEO of JPMorgan Chase, sat on the Board of the New York Fed from 2007 through 2012 as the regulator failed to follow through on three separate staff recommendations that JPMorgan’s Chief Investment Office undergo a thorough investigation, as reported this week by the Federal Reserve System’s Inspector General.
JPMorgan’s Chief Investment Office in 2012 finally owned up to losing $6.2 billion of bank depositors’ money in wild bets on exotic derivatives in London.


A Wall Street regulator, like the New York Fed, which has staff positions called “relationship managers” that are considered senior to, and can bully and intimidate, their bank examiner colleagues, is in no position to be lecturing Wall Street on its culture. Indeed, the culture on Wall Street of “it’s legal if you can get away with it,” grew out of its cozy, crony relationships with its regulators like the New York Fed, an enshrined revolving door at the SEC, self-regulatory bodies delivering hand slaps and its own private justice system to keep its secrets shielded from the public’s view...


“Since 2008, fines imposed on the nation’s largest banks have far exceeded $100 billion. The pattern of bad behavior did not end with the financial crisis, but continued despite the considerable public sector intervention that was necessary to stabilize the financial system. As a consequence, the financial industry has largely lost the public trust. To illustrate, a 2012 Harris poll found that 42 percent of people responded either ‘somewhat’ or ‘a lot’ to the statement that Wall Street ‘harms the country’; furthermore, 68 percent disagreed with the statement: ‘In general, people on Wall Street are as honest and moral as other people.


This summer, venture capitalist, Nick Hanauer, worried aloud to his fellow plutocrats in Politico Magazine about when public anger might spill over into pitchforks. Hanauer writes:
“What everyone wants to believe is that when things reach a tipping point and go from being merely crappy for the masses to dangerous and socially destabilizing, that we’re somehow going to know about that shift ahead of time. Any student of history knows that’s not the way it happens. Revolutions, like bankruptcies, come gradually, and then suddenly. One day, somebody sets himself on fire, then thousands of people are in the streets, and before you know it, the country is burning. And then there’s no time for us to get to the airport and jump on our Gulfstream Vs and fly to New Zealand. That’s the way it always happens. If inequality keeps rising as it has been, eventually it will happen. We will not be able to predict when, and it will be terrible—for everybody. But especially for us.”



The Saudi business tycoon, who is a member of the Saudi royal family, told CNN on Monday that “some extremists in Saudi Arabia” provided financial support for the terrorists


18--The US-led coalition has reportedly launched four airstrikes on an oil field in eastern Syria.
19--Survey: US war on Isil "not working" press tv


The new national survey by the Pew Research Center, conducted Oct. 15-20, has found that nearly 6 in 10 Americans, 59 percent, say the US-led campaign against ISIL is not working.
Moreover, only 30 percent of Americans believe the US and its allies have a “clear goal” in launching military action in Iraq and Syria.


20--Obama administration considers sending more “advisers” to Iraq, wsws


21---Blackwater mercenaries convicted for role in 2007 Iraq massacre, wsws


Former Blackwater sniper Nicholas Slatten was convicted of first degree murder. Evan Liberty, Paul Slough and Dustin Heard were all found guilty of voluntary manslaughter and using a machine gun to carry out a violent crime. The convictions carry minimum sentences of 30 years in prison for Liberty, Slough and Heard and a potential life sentence for Slatten.
The decision is subject to appeal, which could take a year or more, and the verdicts could be overturned in the process.


After 28 days of deliberation following an 11-week trial, the jury in a federal district court in Washington decisively rejected the defense team’s arguments that the mercenaries had fired on the crowd in self-defense. This story had already been thoroughly debunked by an Iraqi government study and independent investigations by reporters at the New York Times and Washington Post .
On September 16, 2007, the security contractors opened up with machine guns and grenade launchers into stopped traffic, before turning their sights on crowds of civilians seeking to flee the scene. The Blackwater forces suffered virtually no damage during the incident...


Meanwhile, Blackwater, since renamed Xi and now Academi, remains a favored instrument of US foreign policy, with hundreds of its private gunmen serving as shock troops for the US-backed regime in Kiev in its terror war against the civilian population of east Ukraine. Supported by US intelligence, Blackwater operators have played a leadership role in the operations of neo-Nazi Right Sector militias and fascistic forces responsible for ongoing atrocities


22--Israeli Defense Minister Predicts The End Of Artificial ME States, moon of alabama
Moshe Ya'alon predicts the end of his country:
Israel's Defense Minister Moshe Ya'alon is known for his blunt manner, and in an interview with NPR, he says that a future map of the Middle East will look very different that the one that exists today.
...
"We have to distinguish between countries like Egypt, with their history. Egypt will stay Egypt," Ya'alon, who is on a visit to Washington, tells Morning Edition's Steve Inskeep. In contrast, Ya'alon says, "Libya was a new creation, a Western creation as a result of World War I. Syria, Iraq, the same — artificial nation-states — and what we see now is a collapse of this Western idea."
Which country in the Middle East is the most artificial? Which one was created as the result of a World War and is solely a "western" idea?
It seems to me that Ya'alon lacks the self awareness to detect the irony in what he said.


23---Saudi Arabia steps up beheadings; some see political message, Reuters


Saudi Arabia beheaded 26 people in August, more than in the first seven months of the year combined. The total for the year now stands at 59, compared to 69 for all of last year, according to Human Rights Watch. ...


In the most extreme version of the Saudi death penalty, known by the Arabic word for "crucifixion" and reserved for crimes that outrage Saudi society, the corpse is publicly hanged in a harness from a metal gibbet as a warning to others.
An online film dated April 2012 on the LiveLeaks website shows a man being executed and then "crucified" in this manner, reportedly for robbing a house and killing its occupants. A group of five men suffered this fate in May last year in the southern province of Jizan for a series of robberies.
 

Wednesday, October 22, 2014

Today's Links

        
 "When profits rise it’s growth, when wages rise it’s inflation." The Fed's motto




1---U.S. Stocks Surge; Nasdaq Up 2.4%, WSJ


U.S. stocks rallied Tuesday, with gains in technology stocks propelling the Nasdaq Composite to its biggest one-day percentage jump since January 2013.
The Dow Jones Industrial Average rose 215.14 points, or 1.3%, to 16614.81. The S&P 500 gained 37.27 points, or 2%, to 1941.28, marking its biggest one-day percentage gain in a year.
The Nasdaq Composite rose 103.40 points, or 2.4%, to 4419.48. Stocks closed near the highs of the session.


2---The Most 'Distrusted' News Sources In America, zero hedge


3--Fed's "put" still in place, Bloomberg


By estimating that zero stimulus would be consistent with a 10 percent quarterly drop in equities, they calculate it takes around $200 billion from central banks each quarter to keep markets from selling off.


With the Fed and counterparts peeling back their net liquidity injections from almost $1 trillion in 2012 toward that magic marker, King’s team said “a negative reaction in markets was long overdue.”
“We think the markets’ weakness owes more to an almost belated reaction to a temporary lull in central bank stimulus than it does to any reduction in the effect of that stimulus in propping up asset prices,” they said in an Oct. 17 report to clients.


Bank of America Merrill Lynch strategists said in a report today that another 10 percent decline in U.S. stocks might spark speculation of a fourth round of quantitative easing from the Fed. That would mimic how the Fed acted following equity declines of 11 percent in 2010 and 16 percent in 2011


4--Regulator Tells Banks to Clean Up Bad Behavior or Face Downsizing, NYT


5--Has the junk bond bubble deflated?, cnbc


6---America's housing policy: The definition of insanity, yahoo


7--The Truth Hidden by IBM’s Buybacks, NYT


8--Germans Clear Russia in MH-17 Case, SChimp


9--Government Debt Isn't the Problem—Private Debt Is, atlantic


10--The Signals From the High-Yield Bond Market, NYT


11--Riyadh using oil as a weapon , alakhbar

Tuesday, October 21, 2014

Today's Links

1--GOLDMAN: We're Blaming The Stock Market Sell-Off On A Pullback In Buybacks, BI


2--Goldman Makes It Official That the Stock Market is Manipulated, Buybacks Drive Valuations
NC


3--This is the 'doomsday' bond market scenario, cnbc


4--IMF warns of low interest rate threat, guardian


5--Values of Homes Owned by African Americans Take Outsized Hit Compared to Those Owned by Whites, A Prospect


6-Rebirth Of The Toxic Twins , Mel Watt, Subprime Redux, IBD


7--Corps reduce stock buybacks, WSJ


8---The Buyback Party Is Indeed Over: Stock Repurchases Tumble In The Second Quarter, zero hedge


9--Party's coming to a close for high-debt companies, cnbc


10--Lonely Bond Buyers Feel Deserted When Junk-Market Rout Heats Up , Bloomberg


11--Next worry—surging corporate debt levels, cnbc


12---New Dodd-Frank fix runs risk of Lehman-esque meltdown, the Hill


13---Market gyrations and the need for socialism, wsws


14---US boosts support for Kurdish militia in Syria, wsws


15---FHFA Director Watt Wants to Expand Credit Availability, Manage Risk to GSEs, DS News


16---http://ochousingnews.com/blog/gses-returning-subprime-lending/#comments
http://rt.com/usa/197552-obama-torture-geneva-treaty/


http://www.pressherald.com/2014/10/21/agency-chief-outlines-plans-for-ease-up-on-mortgages/
http://www.bloomberg.com/news/2014-10-20/value-investors-hoarding-cash-see-few-bargains-after-rout.html
http://online.wsj.com/articles/housing-regulator-pact-with-lenders-could-expand-mortgage-access-1413831794
http://online.wsj.com/articles/fannie-freddie-close-to-agreement-that-could-reduce-lender-penalties-1413561203

Monday, October 20, 2014

Today's Links

1---Heavy borrowing to buy equities adds investors’ anxieties to skittish market, FT

Margin debt collated by the New York Stock Exchange peaked in February at $466bn and stood at $463bn in August. The peak in 2007 was $381bn. It hit a low of $173bn in early 2009.


Investors borrowed a record amount of money to buy US equities during the bull run, a risky strategy now casting a shadow over the S&P 500 amid market turbulence


Peaks in margin trading have been a precursor to bear runs in the past, notably in March 2000 and July 2007.


2---The Chart That Explains Why Fed's Bullard Wants To Restart The QE Flow, zero hedge
Tapering is Tightening.... as the flow of Fed free money slows... so equity performance suffers.




3---Rosengren: End QE? Maybe not., Reuters


The recent volatility in financial markets reinforces the need for the Federal Reserve to be patient with its policy stimulus and to clearly tie an eventual interest-rate rise to improving economic conditions, a top Fed policymaker told Reuters.....


Patient monetary policy probably makes sense," Rosengren, a dovish Fed official, said in an interview over the weekend. "Certainly the events of the last couple of weeks probably give some credence to thinking about being patient as well as trying to process some of the movements we're seeing."


4---Banks are lending again, but mostly to rich people, cnbc


Bank of America reported consumer loans down 3.5 percent from the same period a year ago. ...."
Meanwhile, Bank of America's Merrill Lynch Wealth Management reported loan growth up 8 percent.


5---“Liquidity is not what it used to be.” --- Leveraged Money Spurs Selloff as Record Treasuries Trade, Bloomberg


Risk aversion is growing at pension funds and insurance companies that have piled into less-liquid assets as the Federal Reserve maintained unprecedented stimulus for a sixth year. Investors owned $100 trillion of debt globally in the middle of 2013, up from $70 trillion six years earlier, according to the Bank for International Settlements.
The proportion of corporate-debt securities held by mutual funds has doubled since 2007 and now amounts to 27 percent of global high-yield debt, according to an October report by the International Monetary Fund. Investors placed a record $62.9 billion last year into mutual funds that buy leveraged loans, which are mostly speculative-grade, aren’t regulated as securities and trade by appointment only, Lipper data show.

Higher Risks

The mountain of assets held by investors has “raised market and liquidity risks in ways that could compromise financial stability if left unaddressed,” according to the IMF report. “The increased sensitivity of credit markets could make the exit process more volatile, potentially undermining the ability of the financial system to support the recovery.”
.....
Measured by the value of stock trading, a figure increased by the 179 percent rally in the Standard & Poor’s 500 Index (SPX) during the last 5 1/2 years, volume was the highest since 2008.
Equity owners were blindsided by swings that erased the Dow Jones Industrial Average’s 2014 gain and wiped out $672 billion of global market value. The 30-stock gauge swung in a 458-point range on Oct. 15, the widest since 2011. Its 263-point rally on Oct. 17 trimmed the weekly decline to 1 percent, the fourth consecutive drop....


Leverage among hedge funds that speculate on rising and falling security prices is near the highest in the past five years, data compiled by Credit Suisse Group AG (CSGN) show....
The 22 dealers that do business with the Fed reduced their net holdings of high-yield bonds by $1.7 billion in the two weeks ended Oct. 8 to a net $6.3 billion, Fed data show. They were joining the crowd in selling, with high-yield bond mutual funds receiving $7.4 billion of withdrawals since mid-September, according to data compiled by Wells Fargo & Co. (WFC)


6--Death by CIA  Press TV reporter in Turkey killed in suspicious car accident, Press TV


7---Leaked documents expose secret contracts between NSA and tech companies, wsws


8---Pleas to major powers from Ebola-stricken countries, health professionals fall on deaf ears, wsws


The World Health Organization (WHO) reported Thursday that it has received only $100,000 in donations from world governments out of $20 million pledged...


The American ruling elite and the American media have whipped up an atmosphere of panic about the handful of US cases while virtually ignoring the massive crisis in West Africa....


Washington’s response to the Ebola crisis has followed that template. Last month, Obama ordered 3,000 US troops into Liberia, ostensibly to build Ebola treatment facilities. Last week another 1,000 troops were added to the deployment, which is intended to pave the way for a permanent base for the Pentagon’s Africa Command (AFRICOM) in the region.
The Pentagon is also using the crisis to flex its muscles at home, albeit on a small scale initially. Defense Secretary Chuck Hagel announced Sunday that he had tasked the US Northern Command, established by George W. Bush after the 9/11 attacks as the first-ever combat headquarters on US soil, to create a rapid response team for the Ebola crisis. This will consist initially of only 30 military personnel, mostly doctors and nurses, but it is a further step in conditioning the American population to the use of the military at home


9---Germany’s intel agency says MH17 downed by Ukraine militia – report, RT


10---Obscuring the Past: Intelligence Agency Destroyed Files on Former SS Members
By Klaus Wiegrefe, Der Speigel
Historians conducting an internal study of ties between employees of the German foreign intelligence agency and the Third Reich have made a shocking discovery. In 2007, the BND destroyed personnel files of employees who had once been members of the SS and the Gestapo.

11--Ebola: Made in the USA?, Info clearinghouse

12--The plot against higher education, politico

13---In April, 100% of economists thought rates would rise over next 6 months (sign of economic improvement), FT

No fewer than 97 per cent of economists surveyed by Bloomberg in January expected interest rates as set by the bond market to rise over the next six months. By April, this figure rose to 100 per cent. Instead, the yields fell steadily all year – until this week, when the fall turned into a rout. Many investors were caught betting the wrong way and had to abandon bets that had already lost them a lot of money.

14--What is global market turbulence telling us? (more on rising 10 year yields), FT

15---Housing affordability is hovering near post crisis lows, according to analysts at Bank of America Merrill Lynch in a note to clients. 
“Even though mortgage rates declined modestly this week, we believe they are still 50-100 basis points too high, and are creating low affordability conditions in the housing market. In order for housing affordability to move up from post-crisis lows, and allow for a sustainable and meaningful increase in housing activity, we think 30-year mortgage rates need to drop from the current reading of 3.93% down to the 3.0%-3.5% range,” they write.
“If that does not happen, and rates move higher on a sustained basis, we see further declines in both mortgage production and associated housing activity from the already anemic levels of 2014. The higher rate scenario remains a riddle for us, as we fail to see how an acceptable growth scenario happens without housing's participation.”
The widely held consensus that Federal Housing Finance Agency Director Mel Watt will announce loosening of GSE credit standards, in a speech at this week's Mortgage Bankers Association annual conference and expo, does not materially change the analysts’ view on persistent weakness in mortgage production.


16--PE funds fall behind index funds, Baker


Appel-pe

As the chart shows, the median PE fund in each vintage since 2005 has failed to beat the stock market. Even this is not entirely accurate since it doesn’t take into account the much larger capital commitments by private equity partners during boom periods than during recessions. But the message is clear. Pension funds and other limited partners would have been better off investing in a passive stock market index fund.


.

Sunday, October 19, 2014

Today's Links

1---TBTF Bond Funds pose risk to financial system; Who decides their capital requirements to accommodate redemptions, NYT


global regulators are warning that the positions being taken on by the big asset management firms pose a broad danger to the financial system."

PIMCO has now *officially* joined the exclusive "Too Big To Fail" financial services country club. What's next, a new "chief surveillance officer" (ala Point72) with ties to the CIA(comments)


The term of art for this scenario is a liquidity mismatch, with some going so far as to call it a systemic liquidity mismatch. If, for example, there is a sustained emerging-market crisis and a fund wants to liquidate these bonds to meet redemption demands, the manager will be required to provide cash immediately even though it may take several days to sell the securities in question.
Traders calculate that less than 1 percent of corporate bonds trade more than $5 million a day.
“People are worried about massive liquidations in a market that is not as liquid as it used to be,” said Amy Koch, a senior trader at Standish, a Boston-based bond manager.
...
That asset management companies have emerged as the main providers of riskier types of credit to companies around the world is a little-appreciated consequence of increased regulation of banks following the financial crisis.
With banks shying away from these types of loans, bond-oriented mutual funds — which have benefited from an asset boom in the last five years — have stepped up.
For the first time ever, according to I.M.F. data, mutual funds have surpassed banks as the largest holders of corporate and foreign bonds, holding 13 percent of these securities
.......
The latest to sound the alarm was the International Monetary Fund, which recently released a report warning about large bond investors like Pimco that have built up dominating stakes in high-risk, hard-to-sell bonds all over the world.
“Credit-focused mutual funds have seen massive inflows and have become the largest holders of corporate and foreign bonds,” José Viñals, the head of the I.M.F.’s financial-markets division, said at a news conference in Washington last week. “These inflows have created a liquidity illusion, which can amplify shocks and lead to sharper falls in the market.”

The issue has also drawn the attention of the Federal Reserve Bank of New York.
In its paper, the I.M.F. highlighted high-yield bonds issued by Ally Financial, SLM and the insurance giant American International Group. Pimco owns at least 25 percent of the outstanding debt of each of those three companies.
Outside the United States, the numbers were even starker: Pimco owned close to 50 percent of a number of foreign bonds. And it controlled over 40 percent of the debt issued by the Bank of China, just under 40 percent of the State Bank of India and close to 30 percent of the Spanish bank BBVA....

over the last 10 months, investors have pulled $65 billion out of Pimco — $42.8 billion from Total Return and the rest from other bond funds, according to Morningstar.
If redemptions persist and bond trading conditions worsen, Pimco would be forced to unload some of its larger positions. But selling more than 40 percent of the outstanding bonds in Qatar National Bank or over 20 percent of the debt of the Hong Kong gambling company Melco Crown Entertainment could be a difficult proposition, given how little these bonds trade.

(Comments from company prospectus: You can't exit) Redemptions of all Classes of Fund shares may be made on any day the New York Stock Exchange (“NYSE”) is open, but may be suspended when trading on the NYSE is restricted or during an emergency which makes it impracticable for the Funds to dispose of their securities or to determine fairly the value of their net assets, or during any other period as permitted by the SEC for the protection of investors. Under these and other unusual
circumstances, the Trust may suspend redemptions or postpone payment for more than seven days, as permitted by law.

If they want they can redeem your shares in kind not cash. You are over your head here.

2---Why Abenomics Failed: There Was A "Blind Spot From The Outset", Goldman Apologizes, zero hedge

Misconception Number 1: Export prices do not fluctuate as much as forex
Misconception Number 2: The key determinant of export volumes is global demand not prices

3---“We cannot lose Ukraine, because it is not just a group of people who toppled the government and seized power…, but a close, fraternal nation that shares historical, cultural, existential and civilizational origins with us,” the foreign minister said., ria novosti

EU decision-making was always shaped by Washington's global interests: "many years ago, we offered to negotiate and adopt a treaty on European security, which would codify proclaimed at the political level principle of indivisibility of security, when no state has the right to ensure its security at the expense of others. This treaty was rejected. It turns out to be that the NATO countries, which refused to even discuss [the treaty], are a collective "Mister No" Lavrov said in a show on Russia’s NTV channel.

"I am convinced that if the agreement on European security was at that time agreed and a single economic and humanitarian space from Lisbon to Vladivostok began to form, there would not have been the problems that we are having now which led to a profound crisis of statehood in Ukraine," he said.
The minister recalled that Russian President Vladimir Putin proposed to start a serious discussion with the European Union on the formation of a common economic and humanitarian space from the Atlantic to the Pacific. "A few years ago, we were said: let's wait - it meant "no." Now, after several years the leadership of the EU says that it is needed to think and begin to talk about it in practical terms," Lavrov added

Washington “goes out of its way to teach all countries how to set their record straight, establish the rule of law and respect democratic principles.” “But they lose enthusiasm as soon as these very principles – respecting international laws and democratic decision-making – are applied to international relations,” the Russian foreign minister emphasised.
Lavrov believes that “the recipe for success is to combine responsibility for making the world a fairer place with a non-confrontational but persistent promotion of our interests, and also readiness to make reasonable compromises based on the balance of interests, rather than on one-way concessions.”


4---Goldilocks Economy? What Are They Smoking at the Wall Street Journal? , WSOP


5---The International Monetary Fund (IMF) finally realized what should have been obvious years ago: Zero percent borrowing costs has encouraged speculation rather than investment.
Now, the IMF warns that ultra-low interest rates pose a new financial crisis threat.
Then why did the IMF and all its central banking buddies promote these zero percent interest rates in the first place?, McClure's


6---Deadlock around South Stream needs to be resolved to avoid cold winter – Putin, RT


7--US dusted off old USSR-break-up strategy for use in Ukraine - former FSB chief, RT


8--Andrew Huszar: Confessions of a Quantitative Easer, wsj


9--Another Wall Street Inside Job?: Stock Buybacks Carried Out in Dark Pools , WSOP


10--Credit nation? HELOCs up 20.6% year-over-year, HW
Highest level of home equity loans since June 2009


11--Hedge Funds Get Pummeled: Shades of Long-Term Capital Management L.P. , WSOP


12---Not all lenders think HELOCs are the next bubble, HW
Rates set to reset, HELOC demand on the rise


13--Peak Buybacks?, Mish


14--Bubble Bubble Toil & Trouble , MA
also --http://www.marketanthropology.com/2014/03/goldilocks-three-bears.html
http://www.marketanthropology.com/2014/03/the-46-parallel_5.html

Another major parallel, which dovetails into our third point is the fact that the only other period in which the Fed actively intervened and bought the Treasury market in support of the broader system was in the 1940's. Similar with the current lackluster fundamental backdrop that has diverged over recent years from the stoic strength of the equity markets, the massive bond buying program in the 1940's had a much stronger correlation to the capital markets it directly affected than the macro climate that most economists appraise....


In an effort to keep interest rates low during and directly following WWII and avoid another chapter of the near-view Great Depression, the Fed purchased all available short-term US Treasuries and virtually all long-term US Treasuries from the market starting in April of 1942. When all was said and done, the US had a debt to GDP ratio that was almost 20% larger than where it currently resides today.

In Milton Friedman and Anna Schwartz's A Monetary History of the United States 1867-1960, the market climate in the 40's is described as being so sensitive and suspect of the Fed and Treasury's very visible hand, that the entire equity market rally (150+%) from the April 1942 low through the cyclical high in 1946 was viewed with great skepticism and likely to end with another pronounced economic contraction. The fresh scars of the Great Depression provided abundant fear for market participants of a possible revival of kindred economic instabilities, despite the countervailing strength of the equity markets that continued to rally more than 20% even through the recession in 1945. 


What happened in 1946 when the Fed and Treasury stepped away from their extraordinary support of the Treasury markets? Similar to the air pockets experienced with the Fed pauses in QE I and QE II, the equity markets swiftly revalued expectations. From our perspective a similar fate awaits the current equity market rally, which in turn should continue to support the Treasury market - despite rising inflation expectations and the calls by many that the Fed will begin raising rates as early as next year. 



15--Why I Am Leaving Goldman Sachs, NYT


These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.


16--Loan modifications destroyed the move-up market for a generation, , oc housing


17---Why Half Of America Thinks We're Still In A Recession, gongloff


18---Subprime Lending Drives Spending, House of Debt
A concern that we highlighted in yesterday’s post is that the only way the U.S. economy can generate significant consumer spending is through aggressive lending to borrowers with low credit scores. Here is more evidence supporting that view.
In the chart below, we plot retail spending on appliances, furniture, and home improvement, or “home-related spending” (blue line) and spending on new autos (red line) from 1998 through 2014. We have highlighted the two major subprime lending booms we’ve seen in that period — the subprime mortgage lending boom from 2003 to 2006, and the subprime auto loan boom from 2010 to 2014. In order to be able to include 2014, we focus only on the first four months of each year.

houseofdebt_20140613_1

When subprime mortgage lending was booming from 2003 to 2006, so were purchases of home-related goods. As soon as the subprime mortgage lending market crashed, so did home-related spending. In fact, in 2014, home-related spending is still below its 2006 level in nominal terms. It’s a pretty incredible boom and bust.
For auto spending, growth was positive prior to the Great Recession, but unspectacular. But as soon as subprime auto lending heated up in 2011 and afterward, so did purchases of new auto vehicles. The growth in new auto sales from 2011 to 2014 has been really impressive. So once again, spending in a particular market is strongest when subprime lending in that market is strongest.
It appears that the key to boosting spending in the U.S. economy is subprime lending. The financial system was lending against homes before the Great Recession, and now it has moved to lending against cars. But the basic message is the same.


19---America's Lost Decade: Typical Household Wealth Has Plunged 36% Since 2003, zero hedge


20---Junk-Bond Turmoil just Preliminary, “The Real Panic Will Come With…”, wolf street


21------In a Subprime Bubble for Used Cars, Borrowers Pay Sky-High Rates, Dealbook

22---GM unit gets subpoena over subprime auto loans, reuters

23---Focusing on G.M. Unit, U.S. Starts Civil Inquiry of Subprime Car Lending, Dealbook


24--Inequality? You decide, zero hedge

Chart: @ptcherneva




25--Vicious circle: ‘Economy not growing as companies sit on billions and don’t invest‘, RT


26--18 Sobering Facts About The Unprecedented Student Loan Debt Crisis In The US, zero hedge


27--Washington Wields the Oil Weapon, SC


28--Top LBO Fund Investors Pile on Leverage to Boost Returns, Bloomberg


29--STILL 1.4 Million Fewer Full-Time Jobs Than in 2008, NC


30--Why You Have Every Right To Demand A Raise, In 1 Chart, Gongloff


31-  The collapse of household income in the US, wsws


32--Consumers decide to hoard money
http://finance.yahoo.com/news/fed-us-consumers-decided-hoard-191919676.html, yahoo


33--Subprime Blows up on Retailer, CEO Warns on ALL Subprime, Hits Auto Sales, wolf street


34--Used Car Loans at All-Time High, Average Monthly Payment Now $355, NBC


35--This is why it feels like the recession never ended, WA Post
blargh3

36--QE and the Investor Class, jack rasmus, cp
Central Bankers in a Deep Hole


37--On the Precipice of Another Global Recession?, cp


38---What Bubble? Record $924 Billion In 65 Million Auto Loans: 31% Of All New Loans Are Subprime, zero hedge


39--Labor Participation Rate Drops To 36 Year Low; Record 92.6 Million Americans Not In Labor Force, zero hedge


40---Smart Money’ Unloads, Sits on Cash, Waits for Stocks to Swoon, wolf street


This year, public-to-private LBO volume plunged to $3 billion, the lowest level since crisis year 2009, when deal volume dropped to zero.
Last year, there were still $80 billion in public-to-private LBOs, including four deals of over $5 billion each:  H.J. Heinz, Dell, BMC Software, and Neiman Marcus. Between 2004 and 2013, the average was $75 billion in these deals per year. The record? LBO bubble year 2007, just before the house of cards came crashing down: $275 billion in deals.


41--The Buyback Party Is Indeed Over: Stock Repurchases Tumble In The Second Quarter, zero hedge


42--JPMorgan Seems Less And Less Interested In Lending Money, HP


jp morgan deposits to loans




43---Food Stamp Recipients Top 46 Million for 35th Straight Month, CBS


44---Thirty-Five Largest U.S. Cities Saw Increase in Child Poverty Rate Between 2005 and 2013


45--30 Facts That Prove The American Middle-Class Is Being Destroyed, zero hedge


According to a study recently discussed in the New York Times, the "typical American household" is now worth 36 percent less than it was worth a decade ago.
... One out of every seven Americans rely on food banks at this point.
... One out of every three adults in the United States has an unpaid debt that is "in collections".


 ... Only 48 percent of all Americans can immediately come up with $400 in emergency cash without borrowing it or selling something.
 The overall homeownership rate has fallen to the lowest level since 1995.



46--Dows biggest gains and losses




47-Return to Subprime: -Mortgage Giants Set to Loosen Lending, wsj
Fannie, Freddie Near Deal to Lift Limits; Concerns Persist


Fannie Mae , Freddie Mac and mortgage lenders are nearing an agreement that could lower barriers and restrictions on borrowers with weak credit, a move that would expand access to home loans amid the sluggish housing recovery.
The move by the mortgage-finance giants and their regulator, the Federal Housing Finance Agency, would help lenders protect themselves from claims of making bad loans, according to people familiar with the matter.


Fannie and Freddie are also considering programs that would make it easier for lenders to offer mortgages with down payments of as little as 3% for some borrowers, the people said. That would be a reversal for the loan giants. The moves could be announced as soon as this coming week.
Regulators and White House officials have struggled to expand access to mortgages, which have been hard for some borrowers to get since the financial crisis despite a sharp rise in home prices. But the likely moves by Fannie and Freddie could provide kindling for critics who worry about repeating some of the mistakes that led to the housing boom and bust....


The latest moves underscore just how much the government is relying on Fannie and Freddie to help increase the supply of credit. Steps to reduce down-payment standards would further signal a turn away from previous efforts to shrink the influence of the two mortgage giants.


48---New Dodd-Frank fix runs risk of Lehman-esque meltdown, The Hill


The situation has gotten completely out of hand. According to PitchBook, which compiles data on private equity, median debt in LBOs by private equity funds was 8.2 times earnings (EBITDA) in the first half of 2014, up from 6.9 times in 2013 and the 5.7 times earnings that prevailed at the last peak in 2007 and 2008. This is far above the six times earnings suggested as the limit for debt in the guidelines on leverage issued by bank regulators.


The danger that highly leveraged loans may not perform well is very real, as creditors who loaned money in the last boom to such prominent private equity-owned companies as Hilton Hotels & Resorts, Caesars Entertainment, and Texas utility company Energy Futures Holdings (EFH) learned. According to FitchRatings, there were 10 LBO-related bond defaults in the first half of 2014, more than double the nine that occurred in all of 2013. While the default rate is relatively low, this can change quickly if the economy falters.


Regulators are worried. They remember what happened in 2008 when complex securitized debt instruments like mortgage-backed securities imploded. In its semiannual report reviewing 2013 trends, the Office of the Comptroller of the Currency (OCC), one of the banks' regulatory agencies, expressed its concerns about the high issuance of CLOs: "The combination of higher leverage, lower yields, tighter credit spreads, and weaker covenant protections (for lenders) provides ample evidence of increasing credit risk in the leverage loan market."


49---Auto Loans: A Subprime Market Grows in the Shadows, Bussinessweek


50---Idiot Monetary Fund finally notices "too much risk taking": IMF warns period of ultra-low interest rates poses fresh financial crisis threat, Guardian


Almost zero borrowing costs has encouraged speculation rather than hoped-for pick up in investment, says Fund


“Accommodative policies aimed at supporting the recovery and promoting economic risk taking have facilitated greater financial risk taking,” the IMF said. As evidence it pointed to rising asset prices, smaller premiums on riskier investments and the lack of volatility in financial markets. In many cases, the IMF said the behaviour of investors was at odds with the state of the global economy.
“What is unusual about these developments is their synchronicity: they have occurred simultaneously across broad asset classes and across countries in a way that is unprecedented.”


The IMF said there was a trade-off between the upside economic benefits of low interest rates and the money creation process known as quantitative easing and the downside financial stability risks. While its report found that in some countries, including the UK and the US, economic benefits were becoming more evident, it warned that “market and liquidity risks have increased to levels that could compromise financial stability if left unaddressed


51--Shadow banking system a growing risk to financial stability – IMF, Guardian


Fund report says tightening of bank regulations may be driving shift to lending by hedge funds and private equity










Saturday, October 18, 2014

Today's Links

Today's Quote: "All the participants, on all sides, are very suspect, if not criminally insane. It may be the end of the world. To which I say … Good riddance. Nice try, humans; in fact, GREAT TRY … but good riddance. ISIS … Ebola … Climate Change … nuclear radiation … The Empire … Which one will do us in first? … Have a nice day." Bill Blum, Empire Report


 “Everyone has a plan until they get punched in the  face.” – Mike Tyson

“If you can't dazzle them with brilliance, baffle them with bullshit.” W.C. Fields. 




1---Countering Tech’s Damaging Effect on Jobs, WSJ


It is well known that median household incomes are lower today than they were 15 years ago. But declining labor-force participation explains only a portion of this drop. Since 2000, corrected for inflation, the weekly earnings of full-time wage and salary workers at the median have declined slightly. And remarkably, average hourly wages adjusted for inflation are lower than they were 40 years ago.
To be sure, workers get benefits as well as wages, and employers must pay for both. The cost of benefits—especially health care—has been rising faster than wages. It is easy to conclude that total compensation has been rising briskly even if wages have stalled. But the facts don’t bear out this conjecture.


Between 1981 and 2014, according to calculations based on the Bureau of Labor Statistics, wages corrected for inflation rose at the anemic rate of 0.3% a year. (At that pace, it would take 230 years for wages to double.) But total compensation—wages plus benefits—hasn’t done much better, rising at only 0.6% a year. Workers feel stuck because they are stuck. When they look at an economy that has expanded much faster than their wages and benefits in recent decades and even since 2009, they have a right to ask: Where’s our share and why haven’t we gotten it?


2---The American oligarchy, wsws


Late last month, Forbes magazine reported that the 400 richest people in the United States saw their wealth grow 14 percent over the past year. The following week, the Organization for Economic Cooperation and Development reported that global social inequality has eclipsed the pre-Great Depression highs of the 1920s.
This week, Credit Suisse reported that the top one percent of the world’s population control nearly half of all wealth, with the ultra-rich concentrated in the United States.


This was followed by the release of a paper by economists Emmanuel Saez and Gabriel Zucman showing that wealth in the US is increasingly monopolized not merely by the wealthiest 10 percent or even the top 1 percent, but by the top 0.1 percent. They concluded, “Virtually all the increase in the top 10 percent and top 1 percent shares over the last three decades is due to the rise in the top 0.1 percent share, from 7 percent in the late 1970s to 22 percent in 2012.”


Even US Federal Reserve Chair Janet Yellen, who is overseeing the continued handout of oceans of cash to the financial markets, felt compelled to warn of the “extent of and continuing increase in inequality in the United States.” She noted in remarks Friday, “By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then....


Money buys elections. The 2012 election, the most expensive election cycle in history, was decided by some $6.3 billion in campaign cash. An analysis of elections to the House of Representatives found that 93 percent were decided by which candidate raised the most money. In the 2004 elections, a stunning 98 percent of victorious candidates out-spent their opponents.


3---FHFA Head Mel Watt Pushes Banks To Make Extreme Risk Home Loans, zero hedge


Watt's speech on Oct 20


Fannie Mae (FNMA), Freddie Mac and their regulator are nearing agreement with mortgage issuers on efforts to boost lending and ease banks’ concerns that they will get stuck with bad loans when borrowers default.
The initiatives include a consensus on when defaulted loans are so flawed that lenders must buy them back from the two mortgage-finance companies, a key sticking point in efforts to unlock credit, according to three people familiar with the discussions. The steps are part of a broader push to increase lending after banks had to repurchase billions of dollars of mortgages that were issued during the housing bubble.


Melvin L. Watt, the director of the Federal Housing Finance Agency, will clarify in a Oct. 20 speech at the Mortgage Bankers Association conference in Las Vegas how some loans can be permanently exempted from the threat of buybacks, said the people, who asked not to be identified because the plans aren’t public. Watt will also discuss an effort that would allow borrowers to put down as little as three percent of the purchase price on loans backed by Fannie Mae and Freddie Mac (FMCC), enabling borrowers with lower incomes to access the mortgage market, the people said. The two companies currently require a five percent down payment on most loans.


4---'Zombie' homes haunt Florida neighborhoods, center for public integrity
Aborted foreclosures leave thousands of properties in legal limbo


5---Low Down Payment Mortgages Have Much Higher Default Rates, Dean Baker


That is a fact that would have been worth mentioning in a Washington Post article on plans by Fannie Mae and Freddie Mac to lower the down payment requirements on the mortgages they purchase. The delinquency rate, which closely follows the default rate, is several times higher for people who put 5 percent or less down on a house than for people who put 20 percent or more down.
Contrary to what some folks seem to believe, getting moderate income people into a home that they subsequently lose to foreclosure or a distressed sale is not an effective way for them to build wealth, even if it does help build the wealth of the banks.


6---Roll Out the Fire Hoses (Here Comes QE4) , Daily Reckoning


Yes, dear reader. Things are setting up pretty much as expected. That is to say in a way that seems logically coherent, but is nevertheless incomprehensible. Liquidity is drying up. Volatility is returning. The leaves are falling. Investors are getting nervous. And Fed officials are promising more cash and credit, neither of which they actually possess.
You’ll recall that stocks fell when QE1 and QE2 ended. Why shouldn’t they fall now that QE3 is ending too? No doubt, they will. And that will set little feet running in predictable, but preposterous, directions.


7---More QE? These Charts Show the Pauperization of Workers in the UK and America since 2008 , wolf street


8---German journo: European media writing pro-US stories under CIA pressure (VIDEO), RT


German journalist and editor Udo Ulfkotte says he was forced to publish the works of intelligence agents under his own name, adding that noncompliance ran the risk of being fired. Ulfkotte made the revelations during interviews with RT and Russia Insider.
“I ended up publishing articles under my own name written by agents of the CIA and other intelligence services, especially the German secret service,” Ulfkotte told Russia Insider. He made similar comments to RT in an exclusive interview at the beginning of October.
“One day the BND (German foreign intelligence agency) came to my office at the Frankfurter Allgemeine in Frankfurt. They wanted me to write an article about Libya and Colonel Muammar Gaddafi...They gave me all this secret information and they just wanted me to sign the article with my name,” Ulfkotte told RT.
“That article was how Gaddafi tried to secretly build a poison gas factory. It was a story that was printed worldwide two days later.”


9--Putin press conference, RT


Russian President Vladimir Putin has said that the current low oil prices are “no tragedy” for the Russian budget, stressing that they may soon see an upward correction


10--‘Oversupply and weakening demand growth behind oil price fall’, RT


11--"Geopoliticians discuss the Russian response to America's 'declaration of war' ", Saker
must see Q&A


12--US attack on Russia  is based on Zbigniew Brzezinski’s “strategy of weak spots RT




13---Israel Is Cautiously Arming Syria's Rebels -- And Has A Fragile Unspoken Truce With An Al Qaeda Affiliate BI
"Some rebel groups maintain constant contact with the IDF, including frequent secret meetings reportedly held in Tiberias, but only a modest amount of weapons have been provided to them, mainly rocket-propelled grenade launchers.
Within the next few months, however, a wider scope of military aid may prove necessary as these non-Islamist battalions — composed mainly of local youths — fight to defend their supremacy in the south against JN and ISIS. An upgraded support program could also help draw many fighters away from JN, particularly those who hail from local towns and do not necessarily share al-Qaeda's ideology."

14--War on Terror?
"Only 4 Percent Of Drone Victims In Pakistan Identified As Al Qaeda Members



This situation stems back to the increased demand for second mortgages during the financial crisis. Homeowners sought to take cash out of appreciating homes or finance purchases without private mortgage insurance, pushing demand to historic levels.   Right now the debate revolves around if the market, and better yet borrowers, can handle this looming increase in payments.
According to a recent panel discussion held by the Urban Institute's Housing Finance Policy Center, “The volume of outstanding second mortgages peaked in 2007, at the height of the housing boom, at just over $1.1 trillion. Piggyback loans--second liens that accompany a first lien at signing, also known as “simultaneous seconds” — were a staple of the time, with as many as 45% of purchasers in coastal and bubble areas using a piggyback loan to subsidize the down payment on a first mortgage, hoping to eliminate the need for mortgage insurance.”...


“This recent rise in HELOC originations indicates that an increasing number of homeowners are gaining confidence in the strength of the housing recovery and, more importantly, have regained much of their home equity lost during the housing crisis,” said Daren Blomquist.
But not everyone agrees that this surge in demand is a good thing.
Lynn Effinger, executive vice president of business development for ZVN Properties, wrote an exclusive blog for HousingWire in response to the RealtyTrac report, saying that the number of homeowners getting HELOCs signals that many who have seen some return of equity to their home may be tapping into it to offset higher costs and stagnant wages, or even loss of income


17---Credit nation? HELOCs up 20.6% year-over-year, HW

Highest level of home equity loans since June 2009