Underwater Home-Owers: Demand Principal Reductions

The FDIC is proposing a test program of principle reduction for negative equity homeowners.   

But why is the FDIC required? An intriguing private sector solution would be a negotiated principle reduction between borrower and lender — no government intervention is needed.

The High Road Procurement Policy

We hear about Wall Street and Main Street, but not as much about the streets where people live, at least not much beyond all the foreclosed houses. And with unemployment as high as it is, and Congress doing little more than than tossing a few bones at the problem now and again, it’s no wonder those streets are feeling overlooked and neglected. Maybe that’s part of the problem Tim Geithner describes:  

The president says somehow we’ve managed to create a situation where there’s a large portion of Americans that think we are running a pro-business, pro-Wall Street policy. But the business community and Wall Street think we are like a bunch of socialists.

Exit Strategy Has begun in Brazil, Inflation Surprised to the Downside in Mexico


The central bank increased reserve requirements (RR) on bank time deposits by BRL 34 billions, to be effective on April 9, and on additional requirements on time deposits and on demand deposits by BRL 37 billions, to be effective on March 22.   The actions will withdraw a total BRL 71 billion in liquidity from the system.  The RRs were lowered by Q4 2008 in order to provide liquidity to the financial system (BRL 100 billion) during the crisis; however, the central bank considers that the financial system is very liquid and that those measures are no longer necessary. 

Where Did Employees from Collapsed Banks Go?

Where did all the people go from the collapsed financial institutions?  Via Linked In, we get the semblance of an answer: One hypothesis is that many of the employees left the financial industry. According to the LinkedIn data set, that just isn’t true. There are a handful of people that did transition to other industries […]

New Home Sales Hit a Record Low

The Commerce Department said sales dropped 11.2 percent to a 309,000 unit annual rate, the lowest level since records started in January 1963, from an upwardly revised 348,000 in December.

It was the third straight month that new home sales fell and the percentage decline in January was the largest in a year. Analysts polled by Reuters had expected new home sales to increase to a 360,000 unit annual pace from December’s previously reported 342,000 units.

Compared to January last year, sales fell 6.1 percent.

“It’s awful. This is with the home buyer tax credit. I don’t understand people who say the housing market is turning,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

Bust Up the Health Insurance Trusts

Years ago I worked at an agency in Washington called the Federal Trade Commission. The FTC predates the New Deal. It was set up in 1914 during the administration of Woodrow Wilson, at a time when many of America’s industries had combined into giant trusts that had enormous market and political power. The FTC was designed to root out such unfair practices. It ought to take on the health insurance trusts. 

Corporate Political Speech Is Bad for Shareholders

The United States Supreme court recently struck down limits on the freedom of companies to spend money on political elections. Large, publicly traded companies in other countries also often face lax limits on their use of corporate resources to influence political outcomes, fueling fears that the interests of shareholders will trump those of other groups, such as consumers and employees. But corporate spending on politics can also hurt the interests of shareholders.

Interview with Chris Whalen of Institutional Risk Analytics

From “Financial Economics, Deregulation and OTC Derivatives: Interview with Yves Smith of Naked Capitalism,” The Institutional Risk Analyst, February 22, 2010

“Wall Street once ran from a graveyard to a river. It now runs from an ocean to an ocean, and beyond. It has become, in Dr. Charles A. Beard’s measured words, a new Appian Way of the world. As the Street has changed, the men who rule it have changed, too. Giants of a new breed are in control today, as different from the Vanderbilts and Harrimans and Morgans of the past as the Street is different from the railroad right of way and the bankers’ byway it was formerly.”

Mystery Men of Wall Street, Earl Sparling, Blue Ribbon Books, NY (1930)

In this issue of The Institutional Risk Analyst, we feature a conversation with Yves Smith, the nom de plume of the creator of Naked Capitalism and one of the most savvy and respected members of the blogosphere. In professional life Yves is known as Susan Webber and is the founder of Aurora Advisors in New York. She is a graduate of Harvard College and a Baker Scholar and Loeb Fellow graduate of Harvard Business School.

Crisis Lessons to Remember for Europe’s Policymakers

Let’s think now about some of the lessons from the global economic crisis for Europe’s policymakers. In my previous five blogs, I’ve discussed the challenges faced by both advanced and emerging European economies as we emerge from the acute phase of  the crisis. The questions I attempted to answer have included: In what shape and form will European integration survive the crisis? Will eastern Europe be able to sustain its remarkable catching up with living standards in western Europe?

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