" /> Coruscation: December 2010 Archives

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December 28, 2010

Credit risk lurking inside Fannie and Freddie

In addition to shielding taxpayers from having to backstop an ever-expanding financial safety net for errant bankers, we also need protection from ballooning losses at Fannie and Freddie. This will require the F.H.F.A. to take other crucial steps.

Janet Tavakoli, president of Tavakoli Structured Finance, a consulting firm in Chicago, has provided a to-do list for officials at F.H.F.A.

In a presentation to the agency's supervision summit meeting last Wednesday in Washington, Ms. Tavakoli said that if the agency hoped to determine the credit risk lurking inside Fannie and Freddie, it needed to ascertain two things: the probability of default on those loans and the loss rates when probable defaults actually occur.

"They have to do their own statistical sampling of their portfolios to get a realistic idea of what those numbers are," Ms. Tavakoli said in an interview. "And it has to be rigorous because we don't know what kinds of impairments to expect from risky new mortgage products combined with a damaged economy and housing market."

The F.H.F.A. cannot rely on estimates from the credit ratings agencies about the extent of those losses, Ms. Tavakoli said. "The whole idea of relying on third parties has not worked," she said. "Once you feel better about the quality of your information, you'll feel more confident about making your next decision."

The Nerve to Say No
Published: December 11, 2010
Joseph A. Smith Jr., the nominee to lead the Federal Housing Finance Agency, faces the huge job of figuring how to protect Fannie Mae and Freddie Mac, as well as taxpayers

December 27, 2010

Intellectual capture of regulators

What one might call intellectual capture. While I would strongly argue that the FSA in my day did not favor firms unduly, it is perhaps true that we--and in this we were exactly like our American counterparts--were inclined to believe that markets were generally efficient. If willing buyers and willing sellers were trading claims happily, then, as long as they were "professional" investors, there was no legitimate reason to interfere in their markets. These people were "consenting adults in private," and the state should avert its gaze.
We now know that some of these market emperors had no clothes--and that their activities were far from benign: They could result in severe financial instability and generate serious losses for taxpayers, not to mention precipitate a global recession. That has been a grave lesson for regulators and central banks.

-- Howard Davies, former chairman of Britain's Financial Services Authority and a former deputy governor of the Bank of England, is director of the London School of Economics. His latest book is Banking on the Future: The Fall and Rise of Central Banking.

December 26, 2010

100 pushups

hundredpushups is epimonous.

December 25, 2010

AMT ( alternative minimum tax ) haunts middle class

the alternative minimum tax started out as a way to ensure that the wealthiest Americans paid their fair share of taxes. But as many families know all too well, it now ensnares people much closer to the middle class, and it hits more upper-middle income taxpayers than those at the very top, according to a recent study by the Urban Institute. No wonder it's often referred to as the "stealth tax."

There may not be much you can do to avoid the A.M.T., especially if you have children and live in a high-income state like New York or California (the A.M.T. rules disallow deductions for dependents and state income taxes as well as several others).

December 22, 2010, 3:57 PM
Minimizing A.M.T. Through Charitable Donations

December 24, 2010

Angelo Mozilo and Countrywide's legacy

The problem facing Bank of America is stunning, both on an economic and on a human scale. Among its 14 million mortgage customers, nearly 1 in 10 is past due. Another 190,000 have not been able to make a payment in at least two years, and one-third of the homes facing foreclosure are vacant, making them harder to maintain and sell.

Batting Cleanup at Bank of America
Published: December 11, 2010
Since taking over as C.E.O., Brian Moynihan has stabilized Bank of America, but he is still grappling with his predecessors' acquisitions, like Countrywide.

December 23, 2010

Veracity of financial statements in China

SEC's Smart Step at Fighting China Fraud
By Eric Jackson, Senior Contributor12/22/10 - 08:12 AM EST

NEW YORK (TheStreet) -- The Securities and Exchange Commission took a step in the right direction this week by punishing a small U.S. audit firm for work it had done for a Chinese company.

The SEC's settlement with Moore Stephens Wurth Frazer & Torbet LLP of Orange County is related to overstatements of financial results that China Energy Savings Technology made in 2004 and 2005.

Last month, I wrote in RealMoney that there were many small U.S. auditors operating in China that are basically a joke. They are not performing audits in the manner an average person would expect them to be done. In many cases -- not just a few -- I believe that these audit firms are simply signing off on numbers given to them by management to bank their auditing fees (which can be up to $300,000 for one year from one client) and in the hopes of winning new clients from that company's pre-IPO investors.

These cases appear to be isolated to the smaller-capitalization Chinese companies who initially go public in a reverse takeover (RTO) of an existing shell company on the over-the-counter (OTC) exchange with the intention of later uplisting to the Nasdaq or New York Stock Exchange.

The SEC's action on Monday likely is the tip of the iceberg of its investigations into this area.

-- breakoutperformance.

December 22, 2010

Employment elasticity of demand for auto insurance

In addition to the growing number of older cars on the road, the percentage of uninsured drivers rose to 18.1 percent in 2009, from 17.4 percent a year earlier, according to CNW Research. The economy is a big reason: a percentage point increase in the unemployment rate leads to a rise of 0.75 percentage point in the number of uninsured drivers, said Michael McShane, a risk management professor at Old Dominion University.

Insurance Rate Forecast: Cloudy, Chance of Rises
Published: December 24, 2010
For many drivers, trying to figure out where auto insurance premiums are headed is like trying to catch butterflies: just when you get close, they fly off in another direction.

December 21, 2010

Homeshopping NYC

Coming soon:
Smackdown between national sites
Zillow, Trulia, Redfin, Roost; and local experts
Curbed and PropertyShark and StreetEasy.
And NYT Realty.

December 18, 2010

Stop order on foreclosure and loan modification package to arrive the next day ?

Catherine Cortez Masto, the attorney general of Nevada said her office's findings were confirmed by interviews with consumers, former employees, third parties and documents. Former employees said that Bank of America's modification staff was "chaotic, understaffed and not oriented to customers," according to a news release. One former employee said, "The main purpose of the training is to teach us how to get customers off the phone in less than 10 minutes."

Another employee said, "When checking on a borrower's status, I often found that the modification request had not been dealt with or was so old that the request had become inactive. Yet, I was instructed to inform borrowers that they were 'active and in status.' One time I complained to a supervisor that I felt I always was lying to borrowers."

The Arizona complaint cites the case of an Apache Junction couple who faced foreclosure. When the wife called the bank, a representative told her 'not to worry,' there was a stop order on the foreclosure and the couple's loan modification package would arrive the next day. The next day the homeowner learned that her house had already been sold, the suit says.

Terry Goddard, attorney general of Arizona, said the lawsuit was filed in part because the bank had violated the terms of a 2009 consent decree that Countrywide Home Loans -- which Bank of America purchased in 2008 -- had engaged in "widespread consumer fraud" in originating and marketing mortgages. As part of the judgment, Countrywide had agreed to create a loan modification program for some Arizona homeowners.

Two States Sue Bank of America Over Mortgages
Published: December 17, 2010
The two states contend the bank misled customers about their eligibility for modifications on their home mortgages.

December 17, 2010

Canadian mortgage bubble ?

Finance Minister Jim Flaherty of Canada had proclaimed that "there does not appear to be a bubble in the country's housing market and that the level of consumer defaults has not increased in any significant way."

via whispersfromtheedgeoftherainforest, Canada Bubble, and Mish.

What will happen to the typical mortgage when rates adjust up ?

December 12, 2010

Middle class under $250k, Democrat messaging gone wrong

Yes, Democrats are fools to tear their hair out over this deal, which gives them most of what they wanted: the middle-class tax rates, unemployment benefit extension, payroll-tax cut, and so on. They compound the idiocy by advertising higher taxes on the rich as their core objective. Forget relieving poverty, widening access to health care, improving opportunities for the disadvantaged. What matters more than any of that is sticking it to "millionaires and billionaires" (two-earner households making more than $250,000). You bet, the Democrats are acting like fools.

-- Clive Crook

December 10, 2010


Cliches: example, Tis the season.
Copydesk reads words and language.

December 5, 2010

refudiation ? Not Crass, Class

As Politico's editor in chief, John F. Harris, and its executive editor, Jim VandeHei, very candidly expressed in August: "More traffic comes from an item on Sarah Palin's 'refudiation' faux pas than from our hundreds of stories on the complexities of health care reform or Wall Street regulation."

She Who Must Not Be Named
Published: December 3, 2010
The left talks about Sarah Palin more than the right does. Why feed the machine?

December 3, 2010

(upper) middle class: assets of $2 million to $15 million, a bracket Ms. Napp described as "the lower end of the high end".

Michelle Pont moved out in the spring of 2009 and filed for divorce. The estranged couple has since spent several hundred thousand dollars on lawyers, accountants and investigators. The judge overseeing the case has warned that the total could exceed $1 million if the two sides cannot reach a compromise.

Ms. Pont said the money from Balance Point would allow her to sustain the case for as long as necessary. Balance Point does not charge interest; instead, clients pay the company a percentage of their winnings.

Lawyers who finance other civil cases generally keep at least a third of the winnings. Ms. Napp said Balance Point required a "substantially smaller" share from clients, though she declined to be more specific.

The company wants to focus on people with marital assets between $2 million and $15 million, a bracket Ms. Napp described as "the lower end of the high end." She said that investing in smaller disputes was not worthwhile. Wealthier people, she said, seemed to resolve divorces more easily -- perhaps because they still felt wealthy in the aftermath. "Anything south of $15 million, when you divide that in half and take out the legal fees, you're not in the same house, you're not taking the same trips -- your life is different," she said. "You can't maintain that same quality of life that you're used to."

Taking Sides in a Divorce, Chasing Profit
Published: December 4, 2010
A small number of companies are seeing profit in the often contentious and emotional process of ending a marriage.

December 2, 2010

tax breaks for income over $250,000 for a family to expire ? Middle class could suffer

House Democrats said they could press ahead as early as Thursday with a vote to allow the tax breaks for income over $250,000 for a family to expire even though such a plan appears unlikely to be able to clear a Senate filibuster, given solid Republican opposition and resistance from several Democrats. Democrats said they could use the votes to make their position for middle class tax cuts clear and also illustrate that they do not have the votes to block extension of the lowered tax rates for the wealthy, clearing the way for concessions.

Two Senators Endorse Debt Panel Plan
Published: December 1, 2010
Senators Judd Gregg and Kent Conrad became the first elected members of President Obama's deficit commission to publicly endorse the package.

December 1, 2010

Atlas Café in Williamsburg, Brooklyn features laptop users

JUST after 4 o'clock on a Wednesday afternoon, as a dozen people clicked away on their laptops at the Atlas Café in Williamsburg, Brooklyn.

ET on the corner of Havemeyer and Grand Streets, and flooded with light from two walls of windows, Atlas Café, which opened in 2003, looks like a combination of worn trattoria and late 1990s Seattle coffeehouse. The name reflects its wall-sized map of the world (there are also a mobile of hanging globes, and flourishes of décor inspired by someone's travel to the Far East). The soundtrack is a mix of old country and folk (Dylan, Willy, Cohen and Cash), classical, bebop and French ballads.

A makeshift milk station sits in the center of the 750-square-foot room. To the left is a long bar of dark stained rustic wood, where people order food and drink (proper espressos for $1.50, excellent panini, salads and deadly little chocolate-filled Italian doughnuts, $3), as well as the windowless, orange washroom. There are three stools at the bar, and beside them a table of reclaimed timber pressed against a cozy window bench. According to two signs, this little corner, perhaps one-sixth of the cafe, is designated a laptop-free zone.

Everything beyond is Laptopistan: two rows of old church pews formed into an elongated L, each fronted by small wooden tables and chairs. Scattered along the pews are tattered blue tubular pillows, for lumbar support. Windows run along the walls, flooding the computer zone with natural light during the day, creating a fishbowl effect for those inside looking out, and for passers-by, who frequently stop and stare at the tableau.

Entering Laptopistan is a task in itself. The floor presents an obstacle course of power cables snaking their way around coffee cups, over chairs, and around table legs, eventually finding a home in one of two power strips that look as though they came from a Soviet coal refinery. Whenever a plug is inserted, the outlet sparks, and certain movements can cause all the plugs on a given strip to simultaneously eject.

A quick glance around shows I have brought my laptop, a month-old MacBook Pro, to its nesting ground. Diversity here means the odd white MacBook or old black PowerBook scattered amid the silver MacBook Pros. Throughout the week I will see only a handful of PCs, each looking sadly out of place, like they have arrived at a black-tie affair in a corduroy blazer.

I worked for a few hours, and quickly learned the principal laws of Laptopistan:

Silence Is Golden. There is no prohibition on talking, of course, but, as one Atlas regular of several years, Joelle Hann, explained, "there's almost a code that people aren't going to talk loud." When people's phones ring, they run outside as fast as possible to take the call.

"If someone's on Skype or having a conversation, people make an effort to chill out their conversations with looks," said Ms. Hann, a yoga teacher and a freelance journalist and textbook editor. "When they don't stop, you can feel the tension." Shushing conversations is equally verboten. "No one wants to be the librarian," Ms. Hann added.

Respect Personal Space. While any open seat is technically available, it is forbidden to set up your computer on a table with a computer already on it; doubling up is allowed only when all tables are taken. At the same time, people bounce from table to table throughout the day, chasing the sun, the shade or their own feng shui.

Mind Your Neighborhood. When you get up to take a call, get coffee or use the washroom, you need only to look at a neighbor, make eye contact, look back at your computer and nod. The deal is sealed without a word: You watch my MacBook and I'll watch yours.

MOST Laptopistanis -- Laptopistanites? Laptopistanians? -- at Atlas are in their 20s, 30s or early 40s, split evenly between men and women. The dress is casual, with both sexes wearing T-shirts, sweaters and jeans, though a few women seem dressed for "work" with button-down blouses, blazers, even a dress or two. Most Laptopistanis work alone, though occasionally I spotted a group collaborating at a corner table. Socially, Laptopistan is a conservative society; outward displays of emotion are frowned upon. Most people hide behind their screens.

Aaron Tugendhaft is the exception. He appears at Atlas every morning for a few hours, tie askew, black coffee at his side, some heady-looking book in front of him. Mr. Tugendhaft, who is an adjunct professor of religion at New York University and the editor of a small custom press, is one of the only Atlas regulars I observed sans laptop.

"I've made friends with people because I'm the only guy without a computer," he told me, quietly, one morning. "A book can be a conversation starter."

Mr. Tugendhaft has been coming to Atlas nearly every day for three and a half years, but there are many Laptopistanis he has never spoken to. ("Some of them are in the room right now," he confided in a low voice, eyeing a woman in a jean jacket two tables over.) He has dated fellow Laptopistanis, but not anymore, preferring to keep romance out of the workplace. People tend to keep to themselves, he said, until something breaks the routine: an argument between lovers, news of a subway breakdown, or, most often, some sort of interaction around the power strips.

"Power is power," Mr. Tugendhaft said.

Mallory Roberts, a longhaired freelance astrophysicist, said that he had met two girlfriends (now exes), and his current roommate, via power-strip negotiations. "Three months ago Courtney was looking for a plug and we got to talking," he said of the roommate, with whom he is now working on a documentary about a giant telescope in Puerto Rico. "It turns out we went to the same university, and she needed a place to stay.

"There's a recognition here," he added, "that people come to a cafe to not be alone."

THE cost of living in Laptopistan, at least for my personal intake of tea, bagels, sandwiches and salad, averaged $12 a day. Other cafes popular with freelancers charge for wireless Internet access and even table time, but the owners of the Atlas, Enrico Lorenzetti and Luca Tesconi, refuse to. Observing the gross daily consumption in Laptopistan, where people seem to nurse a cup of coffee and a cookie for hours, I could not imagine how the two managed to stay in business. But they said the laptops were a stealth economic engine.

While the people behind the screens spent a paltry $6 to $10 per day, their true value is as a draw for more profitable takeout customers, Mr. Lorenzetti said. From the moment the door opens at 7 a.m. until it closes at 9 p.m., the place is buzzing, a productive society, visible from the street through wraparound windows. "People come in to buy food and coffee to go, because they see a full crowd," he said. "They think 'Hey, this place must be good if I can't even get a table.' "

My long-held notion that Laptopistan's citizens were just sitting around e-mailing other writers in other cafes around the world dissipated as I got to know the MacBook Pro owners around me. Sure, there were aspiring screenwriters, novelists and people updating Twitter, but there was also Gauri Nanda, a product designer from Detroit who created Clocky, the alarm clock on wheels that's featured at the MoMA store and sold worldwide. There was Billy Schultz, a corporate human resources consultant crunching numbers for spreadsheets in PowerPoint and Excel (on a Lenovo PC, no less), and Meredith Sadin, working on her doctorate in American politics at Princeton.

Laptopistan's is an entrepreneurial economy, driven by solitary thinkers. Aszure Barton, a choreographer from Alberta, was working with colleagues to prepare for her contemporary dance show called BUSK, which will debut Dec. 17 at the Jerome Robbins Theater. Robert Olinger runs a biotech startup that is getting silkworms to make spider silk at commercial scale, designs online education programs for the New York City Department of Education, and directs theater projects with Russian artists. In just a few days I met architects and event planners, database designers, classical musicians, film editors and app developers, every facet of the creative economy working under one roof, not so much together as in tandem.

"Here, people have large ambitions," Mr. Olinger said. "Some have resources, some don't. They don't have career plans mapped out, but they have a career in mind. They're not looking at a particular ladder to climb, they're looking at a mountain to conquer."

Destination: LAPTOPISTAN
Published: December 3, 2010
The cafe is a place to go when working at home no longer works, where entrepreneurs and creative types can toil in solitude, together.