Housing Doom

This one cannot pass unremarked, and I see over at HuffyPo Hugh McGuire has already remarked: "It's hard to swallow an article made up almost exclusively of quotes from various other thinkers, about how dangerous mash-ups are."

With your indulgence I'm going to shift into Dvorak DSK and just vent until the old blood pressure returns to something resembling normal.

Obviously the following is a preliminary response, and I'll need to reflect further before mounting a more definitive defence.  Meanwhile, Doomers would do well to read the Crown's complete set of accusations here …

NYT "Texts Without Context"

… these authors’ books are nuanced ruminations on some of the unreckoned consequences of technological change — books that stand as insightful counterweights to early techno-utopian works like Esther Dyson’s “Release 2.0” and Nicholas Negroponte’s “Being Digital,” which took an almost Pollyannaish view of the Web and its capacity to empower users.

So first of all, Mr. Sulzberger, here's a hearty greeting from one of those amateur empowered users who's been busy turning your old business model into custard these last few years.  Frankly, there would have been no need for us to have invaded your turf if you'd continued to cover the ground as you did from your founding.  Your minions can pour scorn on us all day long, but until you start getting down and dirty with ground truth again without fear that you will offend a corporate or government source you'll continue to have difficulties in the area of credibility.

Now Kakutani's article isn't all that outstanding, it's just the usual extended series of disjointed appeals to emotion supporting established authority against low-wattage challenge that constitutes most of the editorial (and now "blogging") content in the MSM.  It just stands out more in a long casual pre-review piece for several books she may or may not dig into later.  And I happen to be having a bad hair day up here.

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"The bill clamps down on conflicts of interest at the Federal Reserve, making the head of the New York Fed, for example, a position appointed by the president of the United States and not hand-picked by the very bankers the New York Fed is responsible for regulating," the Connecticut Democrat told reporters as he unveiled his bill. // Critics said the proposed governance change could weaken the central bank's independence. – Reuters¹

Well duh.  As we noted in, among other places, Doom's introduction to our recent Jesse / Ives Smith re-post, the NY Fed is actually pretty independent from the Fed Board itself, and within its present configuration with the great banks of Wall Street has about as much independence from Washington as Florence did from the papacy during the 16th Century.

IMHO even granting the Fed supervision over the Second District would be an improvement

LATER: Obama's FDR moment seems to be turning into his Andrew Jackson moment,⁶ if he's got the will.  Just the prospect of the first real regulation of Wall Street's IBs in decades will inevitably turn Dodd's proposal into a Superbowl of financial lobbyists.  Meanwhile, the Daily Bell has an article² on the Joseph Stiglitz Fed criticisms which has some nice things to say about the web.

The Fed is in such bad odor because the Internet has exposed its conflicted inner workings to people throughout the United States for years. Viewers, however, likely did not take the Internet's presentations seriously for a long time. But the advent of the financial crisis has changed this perception. By now, even, many may have found the Internet-based free-market interpretations of the Fed's mechanisms more compelling than the dry-as-dust socialist perspectives offered in manifold university textbooks or distributed plentifully by the Federal government and the Fed itself.

The WSJ actually asserts³ that "[t]he biggest winner in Mr. Dodd's bill appears to be the central bank." Murdoch's gang is ignoring the US appointment of the NY Fed Pres under the proposal so hard they might as well be staring straight at it.  The story's first paragraph is pretty ironic since up to now those same big banks were hardly being overseen at all.

WASHINGTON—U.S. Senate legislation aimed at overhauling regulation of finance would cost large banks billions of dollars, prevent them from taking certain risks and create a new regulatory infrastructure to oversee their activities.

Financial blogger Jr Deputy Accountant (JDA — great handle ) doesn't appear to agree with me.⁴ And Igor points out that I wasn't even the first up on this story with the "D" word.  Don't miss JDA's just-released post "Chris Dodd Taps the Fed's Secret Backdoor."

Notice you didn't hear a peep out of the NY Fed when a handful of clever Fed Presidents were campaigning to keep the Fed "independent" and free from political interference. JDA will ignore the fact that they gave that up about 18 months ago when they pledged whatever it takes to prop up everyone except Lehman Brothers as this is not about arguing over whether or not they are actually independent but criminalizing the NY Fed. Duh.

… and the plot thickens; this⁵ just in from Salon.

The Financial Times' Tom Braithwaite dropped this intriguing bomb:

The new proposal would bar appointments of Wall Street bankers as directors at the New York Fed.

I hadn't seen this news elsewhere, and it took a little digging to find the relevant text in the bill. And having done so, it's unclear that the bill specifies exactly what the FT is reporting.
…

Under the Dodd bill all class A and B directors will be appointed by the Board of Governors of the Federal Reserve System. …

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This is one heck of a way to encourage flight-to-safety buys of Treasury Debt

From the first abuses of QSPEs to the latest headlines about 105 repo, the whole lesson of this financial crisis is that the economy is more fragile than we had previously thought and the system just can't stand any more adventures like this.

Doom is pleased to re-post this important article from the mysterious Jesse's café under his generous Creative Commons license.

"US Making Preparations for a Pre-Emptive Strike on Iran (or Some Other Eastern Destination)"

by Jesse

Key pieces of this puzzle are presently coming thick and fast from US government sources, the MSM and various parts of the blogosphere.  The fuzzy outlines of a picture are even beginning to emerge, but these appear at first glance to be much weirder than anything our conspiracy-soaked imaginations had previously envisioned, so it may take a while to get used to it.

Just in the last couple of days it's become possible to think about the Second District as a self-governing sovereign entity.  The approximate model would be a high Renaissance  Italian mercantile city state like Florence.  Indeed it's even possible that if, as Susan Bies proposed around 2005, the US Congress were to put the Fed Board in charge of the great Wall Street banks, it would profoundly alter the state of the financial (and real) world.

NY Fed Implicated in the Accounting Fraud at Lehman

by Jesse

Quite a bombshell from Yves Smith of Naked Capitalism tonight. [this was posted late Thursday evening - JM]

I wonder if the US mainstream media will ignore and dismiss it as they did the exclusion of the Wall Street banks from European debt sales in response to their fraudulent CDO sales. Is there a 'reverse gear' on the Voice of America?

In response, let's see if Chris Dodd puts the Consumer Protection section of the financial reform legislation under the control of a private organization,the Fed, which is owned by the institutions it is supposed to be regulating, and which is now implicated in the failure and fraud that helped to trigger the recent financial crisis.

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While debt from Fannie and Freddie does not carry an explicit government guarantee, the Treasury has taken numerous steps to reassure investors that the government will keep the companies running. Late last year, the Obama administration pledged to cover unlimited losses through 2012 for Freddie and Fannie. So far, the companies have needed $126 billion in taxpayer aid. – AP¹

Today's comedy has had the side effect of smoking out one of Treasury's key contingencies.  By steadfastly avoiding any mention of support for Agency Debt itself and only stressing their time-limited support for the Enterprises, Geithner's crew is signaling that they have created an option to GSE-ize agencies down the road.

Timmy is anticipating the action of just walking away from this whole mess exactly 6 weeks after the next presidential election.  You have been warned (further to that one — 3/8 — it just struck me what week that is; Doom should probably send Igor off to the H. W. Armstrong gang at The Trumpet or something ).

LATER: BI had this CNBC video embedded in a post titled: "Barney Frank Has No Clue What He's Talking About When It Comes To Fannie Mae And Freddie Mac." Don't miss the moment towards the end when interviewer Maria Bartiromo nearly drives her own eyebrows into her brain as Barney asserts that there are different levels of Agency Debt guarantee depending on when the stuff was bought.

UPDATE 3/8: CNBC transcript of the above now available here.

Blogger Bruce Krasting² has some choice comments on the "when bought" question.

At several points in the interview Frank makes clear his view that securities issued by either Fannie and Freddie prior to the August 2008 (conservatorship) were tainted and there was no certainty that these would be paid in full.
…

These comments prove that Congressman Frank has no clue of what he is talking about. There is no basis for a different treatment of Agency securities based on issue date. There has been no bankruptcy that would establish seniority on new issues of debt.

Later reader MattJ at Krasting's blog added this to which all I can say is, like he said …

The dangerous thing is that people in and out of the government allowed the belief that the GSEs were backed by the full faith and credit to persist, despite the clear statement that they were not on every issuance. The Treasury still has not guaranteed them, simply because they do not have any legal ability to do so; and Congress will never give it to them. Of course GSE bonds do not have the same guarantee as Treasuries; if they did, there would be no justification for them to have a higher yield.

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In future, Dr Butt envisages, the egg-sorting operation of a large hatchery might look like this: a conveyor belt moves the eggs along, gently jostling them until their allantoic sacs point upright. They then pass beneath an array of needles, which draw fluid from each. That done, they are sorted into bar-coded trays. Two hours later, once the samples have been analysed and the sex of each egg determined, they are returned to a sorter and divided by sex. The unfortunate male embryos then end up as pet food while the females go on to become egg-mothers. – Economist¹

The magazine clearly had wide latitude in timing for a cover story that's essentially a comment on world demographic trends, but they must have rushed the process in view of their leaving in that above jaunty piece on chicken sexing from their Tech quarterly.  Heck, the off-putting combination was right in the publisher's email letter.

One explanation I can think of is that the publishers feel it necessary to feed us with high emotion this week, perhaps in view of some emerging issue from which they want to deflect our attention — the Q-Bomb? … H.4.1? … something we're completely missing? [on reflection: simple is best? the Dow bounce off of 10k a month ago has been looking pretty flat the last two weeks; maybe they're just worried that retail investors are going to see leg-#-3 of the W coming if someone doesn't release a stink bomb]

If they want to change the subject by getting people outraged they're certainly trying hard.  Columnist Lexington is quoting racist language strong enough to set hair on fire.  If their purpose is indeed to distract us, something out there must have scared them witless.

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The commission also said it hopes to approve the switch of American companies to international accounting standards by the end of 2011, but it set a series of conditions that made eventual adoption of the standards appear less than certain. – NYT¹

There's definitely a whiff of marsh gas about the above.  Why would a story about the ambiguous outcome of the new up-tick rule spend over half its column inches discussing these cross-jurisdictional accounting issues without providing any details?

The inmates at Doom Castle are a pretty timid bunch, but just this once we decided we needed to penetrate into some of the scarier financial corners.  Luckily Igor was able to pick up a trace² of what Tyler was writing about late last fall:

As lobbying attempts to eliminate or at least delay the implementation of FAS 166 and FAS 167 (as a reminder, these are the accounting rules that will force banks to onboard a lot of off-balance sheet assets) seem to have stalled, the next question becomes what the cost to banks will be as a result of this new change starting January 1. …

In the three months since that was written I think we can guess the answer to that one: a lot.  Indeed I sense that these are the rules alluded to here,³ and never mentioned again.  166/167, the numbers that dare not speak their names.

Feb. 24 (Bloomberg) — Freddie Mac, the mortgage-finance company that tapped $50.7 billion in federal aid, said it may resume draws from a taxpayer-funded bailout package this quarter as new accounting rules reduce its net worth.

So let me propose a fevered scenario linking the two stories.  I think the SEC has concluded that the system just can't stand the shock of rules 166 and 167 this year.  So  they have determined to sacrifice their own child, FASB, on the alter of international co-operation, hoping that QSPE reform gets lost in the resulting bureaucratic chaos.

Alas, the balance sheet consolidation monster and its spawn still lurks in the night.  Perhaps Ms Shapiro will consider this humble training video as she prepares to prevent those rogue vehicles from swallowing the financial services industry.

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ZeroHedge is all excited about "Indirect Hit Ratio At 100% In Just Completed 4 Week Bill Auction" which is, if you'll pardon the expression, all Greek to me.  A commenter contributes the slightly enlightening thought: "It basically means we are buying all of our own trash."

So we have a followup "Charting The Indrect Bidder Hit Ratio After Today's 100% Result, And Anticipating A Surge In Brand New SFP Issuance," which title is still less than clear, but here's one bit that I think I do get:

… This means that indirects are not price fishing, trying to jigger the auction with low ball bids: they are simply reducing their absolute nominal exposure to the Bill space, further confirming the TIC data which showed China is now happy to let its Bills expire without rolling. …

Hello!  So perhaps we can draw a line between Tyler's ravings and Doom's own observations that foreign central bank holdings of treasuries have been pancake flat since mid-December.  Thoughts?

UPDATE (2/26): Twist passed along this¹ from Nasdaq on Wednesday.  It's a pretty deep analysis of this event and well worth reading.  Here's part of the summary:

February 23 2010 (yesterday)

100%

This means that the Treasury took up EVERY single cent of competitive bids coming from indirect buyers. Remember, indirect buyers are usually assumed to be foreign governments (even the Treasury website admits this).

If this was the case yesterday, then foreign governments barely bought much of anything in yesterday's auction (only 19% of total debt issued). Moreover, it implies that Primary Dealers (those having to buy) had to gorge on the auction to make up for the fact that few if any foreign governments are interested in buying our debt anymore (including even short-term debt).

Or…

One could potentially argue that this indirect buying came from the Fed covertly buying under the guise of an indirect bidder (the Treasury recently changed the definition of what qualifies for an indirect bidder to make it more vague). It IS rather odd that every single cent of competitive bidding coming from indirect buyers was filled. It's almost as if the indirect buyers knew precisely WHAT yield to accept… OR were simply trying to take up the slack in what was already a VERY weak auction.

I cannot tell you which of the above is true. Heck, neither of them could be and something completely different could be happening. But regardless, something very, VERY strange is going on in US debt auctions.

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The reason given out for keeping the meeting venue a secret is security concerns. Even with the participation of US Federal Reserve and European Central Bank, the Asian central banks are expected to steal the thunder at the meeting. The Asian bankers are uniting under the leadership of the governor of the Central Bank of Malaysia, Zeti Akhtar Aziz. – Blog of India¹

How about that Tracy Porter Guy!  Oh well, while everyone was being distracted over the weekend, the big story in the world was happening at a secret location near Sydney, Australia with almost no media coverage.  Thanks to the Herald Sun and the above blogger in India a few hints are emerging, though.

UPDATE: I see Tyler weighed on on this yesterday …

It is surprising that two critical concurrent meetings as a G7 event in the Arctic circle would take place while half a world away, both in latitude and longitude, those very countries' central bankers were meeting at the same time. Of course, that events in Europe, the end of QE in England, the imminent end of QE in the US, and the sudden and much hated by central bankers resurgence of the dollar are happening at the same time is merely a coincidence.

Meanwhile, the folks at MW² inadvertently added a further piece to the puzzle through yet another one  of those 'Oh, must be OK then,' says son as cardiologist cuts short golfing vacation to rush to mother's side stories the financial press likes to perpetrate:

LONDON (MarketWatch) — Jean-Claude Trichet may not be flying to the rescue of Greece and other debt-troubled southern European nations, but news Tuesday that the European Central Bank president will leave Sydney earlier than initially planned to attend a meeting of European Union leaders in Brussels was enough to provide the euro and financial markets with a lift.

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Representatives from 24 central banks and monetary authorities, including the US Federal Reserve and European Central Bank, landed in Sydney [Australia] to meet tomorrow [Feb 7th] at an undisclosed location. – Herald Sun¹ — UPDATE: here's a re-post of the story with an embedded video

The heavy stuff always happens under cover of something like Super-Weekend, eh?  But the blogosphere never sleeps   Thanks for pointing me at this one, twist, I'd completely missed it with my own focus on Iqualoit.

It isn't every day the BIS sends up a flare like this.  So the spectacle of G7 finance ministers contemplating the prospect of raw whale blubber on the frozen shores of Frobisher Bay was, after all, only theatre.

Turns out the real story was unfolding quietly on the other side of the world.  Perhaps the MSM finally starting to cover the Agency Debt problem a few days ago was the last straw, but it's safe to go along with the Herald Sun's narrative, which is basically that the "World" crisis (which we'd all half forgotten by now) was in truth a lot more serious than we thought at the time.

"This does feel like '08 and '07 all over again whereby we had these sorts of little fires pop up and they are supposedly contained but in reality they are not quite contained," said H3 Global Advisers chief executive Andrew Kaleel.

"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain."

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