Links 8/29/08

BBC

Mies Economics Blog

Wired

Times Online

Floyd Norris, New York Times

Financial Times

Susan Antilla, Bloomberg

David Merkel. Gives a reasoned thumbs down to SEC proposal to adopt international accounting standards. The post is worth reading, and he plans to provide a link so you can complain to the SEC.

MarketWatch (hat tip reader dh). Any reader intelligence on this one appreciated. This doesn’t look so good for such a new market and such a recent issue.

Antidote du jour. A reader kindly sent me this photo, and I cannot locate the e-mail to give a proper hat tip, so e-mail me again and I’ll amend this post. The legend came with the photo and is not a personal view of mine.

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12 comments

  1. doc holiday

    This is how I look after staying up too late looking at crap. I'd like to go for covered bonds, but I'm burned out; however, Bank Of America is the only other US bank to play with these highly questionable derivatives currently being hyped by Paulson, bernanke, FDIC, SEC, and all the other cats that have helped destroy America!

    See SIFMA: Paulson and his buddy are keynote speakers at the next meeting and you can bet a truckload of cats that covered bonds and repackaging toxic garbage into fresh AAA rated securities will help make all those bad bets disappear ( at taxpayer expense)….

    Well, ok, I can take 40 seconds.. this is just the same stuff from the link I think??

    Fitch Downgrades WM Covered Bonds Program to 'AA'
    The drivers behind today's rating action are the current rating of WMB and the risk posed to the continuity of payments on the covered bonds in the event of a default by WMB. In Fitch's analysis this combination limits the rating to 'AA'. Furthermore the new rating is supported by the committed OC between the cover pool and the covered bonds.

    Because WMB's mortgage loans do not meet the new criteria, a 90 day stay period is required in the event WMB becomes insolvent which could delay access to the pledged collateral if a sale were required to repay the covered bonds before the end of their maturity extension period.

    Approximately 79.9% of the cover pool consists of hybrid adjustable-rate mortgages (ARMs), with the remainder option ARM loans. The portfolio has a weighted average (WA) original loan to value ratio of 63.5%, a WA FICO score of 750, an average 37-month seasoning and a weighted average remaining maturity of 27.2 years. The pool is highly concentrated in California (48.9%), with the top five states, accounting for 68.6% of the portfolio.

  2. Independent Accountant

    If interested in Truman’s bomb decision, read “The Decision to Use the Atomic Bomb”, Gar Alperovitz, 1995. An excellent read. I do not agree with all Alperovitz concludes, but he’s got his facts straight. My opinion: We dropped the bombs to scare Stalin into not advancing in Europe. While the American public was told we would suffer 750,000 casualties from invading Japan, you cannot make a credible case we had to. The Japs tried to surrender as early as February 1945. FDR kept them in the war for his own reasons. The Japanese Navy was defeated, it could import no oil. Modern war floats on a sea of oil.
    If you want to see why we did it, look at the bombing of Dresden in March 1945. Why did we do that? Dresden had no military targets of signficance. My answer: to scare the Russians. When we bombed Dresden the Russians were 60 kilometers away. They entered Dresden a few days after we burned the town to a crisp. We wanted to send a message to Moscow: go too far and this could be your fate. We firebombed Tokyo in March 1945. Why did we do that? Same reason. In March 1945 we did not know if the A-bomb would work.

    While I’m at it, I have a post coming on the SEC and International Accounting Standards. I oppose their adoption.

  3. Richard Kline

    To IA re: Truman and the Bomb. I’m also a fan of Aperlowitz’s text, and in line with you, I believe that the decision to use the atomic bomb had very little to do with the military and political resistance still posed by Japan, and much to do with the Russian’s intervention in the East Asia. My perspective is a bit different from that usually advanced though. To me, the real problem was the potential that Japan would surrender to the wrong side, specifically to the Russians. I have yet to hear that potential analzyed in detail, and I’m far from certain that the Japanese had even seriously discussed this possibility. After the Russians advanced in Mancuhuria, the potential was very real. Yes, I’m convinced that the Russians were ‘warned off,’ but more specifically the Japanese were directect who the arbiter of the existence and so their immediate fate was to be. They got the message and haven’t budged an inch in sixty years.

  4. David Merkel

    From the Fitch report:

    The drivers behind today’s rating action are the current rating of WMB and the risk posed to the continuity of payments on the covered bonds in the event of a default by WMB. In Fitch’s analysis this combination limits the rating to ‘AA’. Furthermore the new rating is supported by the committed OC between the cover pool and the covered bonds.
    Recently, the Federal Deposit Insurance Corporation (FDIC) issued a policy statement outlining criteria for U.S. covered bonds. The criteria were designed to ensure that the highest quality mortgage loans would be used in new covered bond transactions. Covered bonds meeting the criteria would benefit from a reduced automatic stay period of 10 days in the event an issuer was to become insolvent. Because WMB’s mortgage loans do not meet the new criteria, a 90 day stay period is required in the event WMB becomes insolvent which could delay access to the pledged collateral if a sale were required to repay the covered bonds before the end of their maturity extension period.

    The idea is that this deal was done prior to the new regulations. The quality of the collateral is not adequate to allow the covered bondholders to gain access to the collateral in 10 days after in insolvency, but instead, 90 days. During that period of time, the value of the collateral could decline below the par value of the bonds, leaving the bondholders with a loss, which they would be senior unsecured creditors for the difference.

    That loss is likely to be small-ish if it occurs, thus a AA rating, rather than the BBB (neg outlook) senior unsecured rating for WaMu holding company debt.

  5. Anonymous

    Lets hope that the United States will be the only country the drops the A or now H bomb..probably very unrealistic but at least its a hope.

    Also trying to scare Stalin then the Soviet Union seems a bit over the top. One has to recall that FDR had tried to coax America into another world war without sucess and he was a very popular President. Truman was not FDR’s choice for VP he was pushed on FDR and maybe the bomb drop is a good indication of the forces behind the change in political mood that was considered necessary to move the country into a constant war footing. Those forces are still in charge today no matter what political party wins in November.

  6. doc holiday

    Yields on agency mortgage securities fell to the lowest in a month relative to U.S. Treasuries after buyers took advantage of some of the widest spreads since 1986.

    The difference between yields on Fannie Mae's current-coupon 30-year fixed-rate bonds and 10-year government notes narrowed 10 basis points this week to 197 basis points, data compiled by Bloomberg show, reducing the cost of new home loans. The spread fell from 215 basis points on Aug. 18, the widest since March, when the gap set a 22-year high of 238 basis point.

    “Mortgages had gotten extremely cheap, so even if Fannie and Freddie are capital-constrained and might not be as aggressive, other leveraged accounts can put on the same trade that they might have,'' said Gary Cloud, who oversees $500 million in fixed-income securities at Financial Counselors Inc. in Kansas City, Missouri.

    “If I'm Paulson, I'm looking at spreads,'' Gary Gordon, an analyst at New York-based Portales Partners LLC, said in an interview. The Treasury may decide to buy the securities itself or take other actions to lower mortgage rates rather than make capital injections to Fannie and Freddie if officials believed spreads were too wide, he said.

    Bank of China Ltd., the nation's third-largest bank, said in earnings report that it pared its holdings of mortgage bonds guaranteed by Fannie and Freddie by 22 percent to $5.17 billion between June 30 and Aug. 25.

  7. dh

    The other story fits as well:

    Purchases rose 0.2 percent, one-third the pace in June, the Commerce Department said today in Washington, while prices surged the most in 17 years. The Reuters/University of Michigan final index of consumer sentiment was at 63 this month, from 61.2 in July.

  8. dh

    Those stupid bonds!

    What about something fun????

    For many years I have been tormented by the certainty that the most extraor-
    dinary discoveries await us in the sphere of Time. We know less about time than
    about anything else.
    —Tarkovsky.2

  9. Independent Accountant

    RK:
    We are closer than you think. Hiroshima: 6 August 1945.
    USSR declares war on Japan, 8 August 1945.
    Nagasaki, 9 August 1945.
    Coincidence? I don’t think so. The “Rooskies” declared war on Japan as if they were jackals looking for some spoils.
    We dropped the Nagasaki bomb to ensure Japan would surrender to us. Remember the “unpleasantness” between Russia and Japan in 1904-05? I don’t think Japan wanted to surrender to Russia under any circumstances!

  10. Richard Kline

    So IA, not only do I recall 04-05, but moreover the Manchurian clashes in, was it 36? But the key issue is that after the latter, the Russians and Japanese _kept their armistice_, which was true with regard to very few other parties with longstanding hostilities. Sure, Japan didn’t want to surrender to the Russians, but in their position it might have looked better than to the US. US terror bombing of Japan in the Summer of 45 was extremely severe, the Japanese had waged—and lost—a no holds barred defensive war in the Pacific, had begun that conflict with treachery US provocations nothwithstanding, and could in principle have expected an occupation equal in severity to that they had imposed on China rather than the comparatively mild outcome that in fact occurred. There was a significant Socialist faction in Japan throughout much of this century which we hear little of in the US, suppressed severely by the Japanese military before the US occupation but in principle a ‘latent force’ such as the German Communists of the time.

    This is speculation, sure. But what is most important is that during the Summer of 45 US policy makers came to understand how completely Russia was taking control of occupied areas in E Europe: Arguably this was the main policy preoccupation of Truman’s first six months, even ahead of the still continuing US-Japanese war. The Japanese army in Manchuria, supposedly one of the best units in their military, put up negligible resistance to the Russians, and the idea that the military in Japan would cut a deal with and put themselves ‘in an armistice under Russian protection,’ the terms of which could be discussed later, seems to me very real. They were not give time even to think about it, just as the dates you show. Day 1, Russian invasion; Day 2, mushroom cloud in Nippon. The short time frame, and the extreme sensitivity of this issue means that very little of any top level discussions in the US Admin would have been committed to paper, or discussed afterward. I mean, who wants their name on a meeting minute authorizing the exemplary execution of 110K civilians for raisons d’etat, especially when it is clear that top level US officials had already received surrender overtures from the Japanese and hence knew of a certainty that the bombing was unnecessary?

    We’ll never really know. But I wonder whether the American public is ready for the day when others treat us the same way? That will be after my time, I think, but that day will come. Most Americans are blind to the harm we do and our spendthrift way with the lives of others, but the rest of the world keeps a ledger in these things.

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