By Chris Carey, Bailout Sleuth
Fannie Mae and Freddie Mac are unlikely to repay the $85 billion in government assistance they received as part of the bailout program, the agencies’ top regulator said Thursday.
“Their book is so large,” James Lockhart, director of the Federal Housing Finance Agency, told the National Press Club. “It’s hard for me to see that they will be able to repay all of that.”
Lockhart said that, contrary to the behavior of financial firms that have eagerly sought to repay bailout money, Fannie Mae and Freddie Mac were likely to need further financial assistance in the future.
Lockhart’s comments were reported by numerous news outlets.
The two agencies, which are regulated by the federal government but expected to meet expenses without taxpayer assistance, guarantee home loans. Both suffered major losses connected to the collapse of the real estate market, and some critics have criticized them for loose lending practices that inflated prices.
When the government offered to bail out the agencies, some argued that the transactions – which paid 10 percent interest — could be profitable for taxpayers. Lockhart’s remarks, however, cast serious doubt on whether the agencies will be able to repay the initial capital investment at all.
“Unfortunately, I guess we have to look at it as an investment by the taxpayer to stabilize the mortgage market,” Lockhart later told Bloomberg Television.
Fannie Mae and Freddie Mac together have posted losses of $150 billion since the third quarter of 2007. Lockhart said he expects they will continue to lose money
“for at least the next year or so” and are unlikely to book “strong profits” for another two to three years. In the meantime, the government will likely have to provide additional financial assistance, he said.
By Chris Carey, Bailout Sleuth
In early December, Illinois-based Midwest Banc Holdings, Inc. got $84.8
million from the Treasury Department’s Troubled Asset Relief Program in
exchange for preferred stock and warrants.
When the government rolled out its $700 billion
program to shore up capital levels at healthy banks, one point that many
bankers grumbled about were the restrictions on executive compensation. They
argued that compensation limits might cause talented employees to flee for more
lucrative jobs (although clearly those jobs wouldn’t be at competitor banks
that also took TARP money, since they would be subject to the same
But some interesting changes were disclosed in an 8-K
that Midwest Banc Holdings filed yesterday with the Securities and Exchange
Commission. First, we learned that three members of the board of
directors resigned, reducing its size from 11 members to
eight. No explanation was given for those resignations.
In the very next paragraph, we learned that on Tuesday
of this week, the Company implemented a “cost reduction initiative.” The
salaries for named executive officers will be reduced by 7 to 10 percent,
effective August 3. Of course, even after the reductions, they’ll all
still make between $205,046 and $450,000. But the largest cut – the 10
percent reduction to President Robert Herencia’s salary – was accepted by a man
who just joined the company two months ago.
Midwest Banc Holdings is the parent of Midwest Bank
and Trust Co., which operates 26 full-service community banks in the Chicago
area and has $3.6 billion in assets.
In addition to reducing costs, the company is also
trying to raise more capital. This press release spells
out some of those efforts, which include (among other things) restructuring
debt, converting preferred stock into common stock, and – last but not least –
seeking $138 million from the Treasury’s Capital Assistance Program (CAP) that
would be used to redeem the preferred shares given to the government in
exchange for the original TARP aid.
The money in December came from another Treasury
initiative called the Capital Purchase Program (CPP).
Midwest Banc Holdings reported a
second-quarter loss of $76.5 million on Tuesday, an amount that was
exacerbated by two “legacy issues”; one pertained to losses from
investments in Fannie Mae and Freddie Mac, and the other related to a 2007
decision to finance an acquisition with debt and preferred securities (a
decision the company said, in hindsight, “at the time seemed
the results from the company’s new plans will be seen in due time, the
executives’ decision to cut their own salaries signals that they’re willing to
sacrifice to improve the bank’s financial condition.
I think President Hoover ran on a slogan “A chicken in every pot and a car in every garage.” So with the new car rebate program in full force, it’s just a case of which comes first the car or the chicken. We have an old 1995 Dodge Caravan that qualifies. I can’t sell it for $2,000 because no one has two grand lying around. Now the government wants to give me $4,500 for the Caravan so I can buy a new car.
The odd thing, this program is to replace clunkers that get bad gas mileage. The damn thing is, the Caravan gets 25 miles to the gallon which is 3 better than my newer fuel efficient Mazda 626. I guess this is where the chickens come in. If you are stealing them, you want to make as little noise as possible. I wonder if Volkswagen is on the clunker list?
Then we have the meeting of the big three; The President, a Harvard Professor, and a police officer. The Harvard Professor was instructing Obama how to kick in the door if he gets locked out of the White House. And the cop was suggesting what not to add to the word “mother” when greeting a police officer, answering a burglary call. Going to the White house for one can of beer has to be some sort of punishment.
It could be just my imagination, but have you noticed that Obama is always standing in front of one or more American flags? It kind of reminds me of a little man who wrote Mein Kampf, he always had a flag behind him. Plus the President’s face is popping up on every magazine I subscribe too, why?? Let the girl he married enjoy his face; give me and my magazines a break.
If we travel back to the Hoover administration and also to FDR; Government did not get us out of the depression. They made it last longer. They raised the taxes of every worker with the promise of Social Security retirement. There was no income tax back then for the masses.
When the government calculates who pays taxes it always comes out to be the rich, Social Security isn’t even considered, that’s a “retirement plan.” They have been spending this non tax for regular government and handing IOU’s to the Social Security Fund. This new health care will be the same sort of tax. Most people from the age of 20 to the age of 60 will end up paying $5,000 a year into it and maybe have a boil lanced or a cut stitched up. Free medical will raise about 1.5 trillion a year for the government to spend if everyone is working.
With this new clunker rebate program, it looks like we will all be working for a car company.I don’t think that the guy managing the rebate plan for clunkers could get a ride on the short bus, they might be dumb but they’re not stupid. We are financing more debt unless the purchaser can pay cash for the balance. This plan works for all the wrong reasons. It’s a little like mixing Viagra and Ex-lax while your wife is visiting her mom. You’ll be coming and going for all the wrong reasons.
The stock markets close July with many widely tracked indices experiencing their best performance for the month of July for more than 20 years. Many commentators are writing "where are the investors?", as few have ridden the rally, which is the whole point of a stocks stealth bull market as most investors smarting from the bear market remain paralysed by fear of the preceding bear market that either miss or in fact consistently bet against, convinced by a stream of statistics as to why this rally should imminently terminate, no matter that the so called ‘bear market rally" has risen some 40% and for asian markets more than 100% since the March lows.
Japan has allowed import of grains produced from Smarstax the corn trait of Dow AgroSciences and Monsanto that provides comprehensive weed and insect control. The breakthrough is significant as Japan is world’s leading cor importing country and the approval provides full market access
4 down as of 6:30 pm
- Integrity Bank, Jupiter, Florida
- First BankAmericano, Elizabeth, New Jersey
- First State Bank of Altus, Altus, Oklahoma
- Peoples Community Bank, West Chester, Ohio
Must read from The Boeckh Investment Letter:
hat tip SunSurfer
|The Great Reflation Experiment.pdf||340.8 KB|
July 31, 2009
A Level Playing Field For Investors
By Sen. Edward Kaufman
Efficient and free capital markets are essential to all that makes America great: investment in private enterprise, the availability of capital to expand and grow our economy through innovation, and the ability to save for retirement in hope our investments will support us in later years.
Regrettably, we now have an unfair playing field for investors. This leaves us with, in effect, two financial markets: one for powerful insiders, who use high-speed computers and privileged access to information to exploit loopholes for profit, and another for the average investor, who must play by the rules and whose orders are filled almost as an afterthought. This situation simply cannot continue. It is the financial equivalent of “separate and unequal.”
Every day we learn more about the features of this two-tier system. Dark pools, collocation of high-speed computers at the exchanges, flash orders. Abusive short selling, the loophole of choice in 2008, was only the first sign of how the powerful on Wall Street make profits unhindered by the rules the rest of us must follow.
Here are just four areas where the SEC needs to act urgently to protect investors and restore market integrity.
First, the SEC should restore the substance of the uptick rule. This rule, a mainstay of investor protection for 70 years until it was repealed in June 2007, required investors simply to pause and to wait for an uptick in price before continuing to short sell. Without such a rule in place, investors who own stocks are more vulnerable to organized “bear raids” – abusive short selling combined with coordinated “misinformation” campaigns – which many believe contributed to the demise of Lehman Brothers and Bear Stearns, key elements in the collapse of our financial markets last year.
Second, the SEC should implement tougher rules that will stop naked short selling through an enforceable system. Naked short selling is the practice of selling stocks without first locating or borrowing the actual shares needed for timely delivery at settlement, sometimes in a concerted action to manipulate a stock price downward. This week, the SEC made permanent a temporary rule they had enacted last fall, proposed some new transparency measures, and announced plans for a Roundtable discussion on September 30.
That is some progress, but not enough. Two months from now, the Commission will finally begin to discuss publicly the potential solutions that I and a bipartisan group of Senators have been urging: either a pre-borrow requirement or a centralized “hard locate” system, which would prohibit short selling unless the executing broker first obtains evidence of a unique identifier number associated with specified shares set aside for timely delivery. The Depository Trust & Clearing Corporation tells us that it has the capacity and the willingness to implement that system – but only if the SEC requires it through a rule.
Third, the SEC should ban the use of so-called “flash orders” by high-frequency traders. Flash orders allow exchange members who pay a fee to get a first look at share order flows before the general public. By viewing this buy and sell order information for just milliseconds before it goes to the wider market, these investors gain an unfair advantage over the rest.
As the New York Stock Exchange complained to the SEC on May 28, selling flash orders for a fee provides “non-public order information to a select class of market participants at the expense of a free and open market system.” To use a baseball metaphor, flash orders allow some batters to pay to see the catcher’s signals to the pitcher, while the rest of us don’t see them. Markets that permit a privileged few to have special access to information cannot maintain their credibility.
Amazingly, it is a loophole in current regulations that allows this unfair practice. This can and should be fixed immediately.
Finally, the SEC should establish disclosure and transparency equality: the disclosure requirements that apply to pooled funds worth greater than $100 million should apply uniformly to all, including hedge funds, for both long and short positions. And the level of transparency for order flows should be the same for all.
When millions of Americans have lost so much money in the stock market, how can we expect them to reinvest their savings when Wall Street players continue to make record trading profits by exploiting loopholes using high-speed computers? William Donaldson, former Chairman of the SEC and the New York Stock Exchange, has said “This is where all the money is getting made . . . If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”
America was founded on the principle of equal opportunity. While we should keep encouraging the kind of commercial ingenuity that fuels the prosperity of our financial markets, we must ensure that technology is not employed to advantage one small group over the rest. The SEC must deliver on investor protection to restore the integrity and credibility of America’s financial markets.
Mr. Kaufman is a Democratic senator from Delaware.
As expected, dark pool operators have responded, getting concerned that after the recent escalation in the Flash trade scandal, they are the next natural target. And what surprise that their only retort, as per this WSJ article, is that they provide liquidity, and make stock trading cheaper. Right down to the generic script. At least they haven’t used the mutual assured destruction defense clause quite yet.
Geoffrey Rogow at the Wall Street Journal reports:
Several dark-pool executives told Dow Jones Newswires that Mr.
Greifeld’s far-reaching proposal would have calamitous effects for
retail and institutional traders.
“Undisplayed liquidity adds to execution quality,” said Bob Gasser, chief executive of Investment Technology Group
Inc., which is credited with creating the first of the modern-day dark
pools roughly 20 years ago. “You can come up with all kinds of
anecdotes, but the simple fact is, on behalf of all investors, dark
liquidity adds to execution.”
Other alternative-trading system executives called Mr. Greifeld’s
stance on the issue opportunistic given lawmakers’ recent focus on
related issues, and suggested that Nasdaq OMX is acting defensively
after losing market share to non-displayed trading venues.
And here is where the prisoner’s dilemma gets interesting:
Several dark pool officials also noted that both Nasdaq OMX and NYSE Euronext, which has also been losing market share, maintain non-displayed liquidity pools.
But as the NYSE has publicly disclosed, the SLP – that most questionable of recent NYSE liquidity programs has no advance look characteristics. So Zero Hedge assumes that the dark pool operators, in a preamble to full out exchange war are referring to some else. Zero Hedge would be quite curious to understand what that is, especially since the NYSE has been a vocal opponent of non-displayed liquidity.
Furthermore, as Ray Pellecchia disclosed to Zero Hedge recently, “we’re not aware of a way to re-route flash data from another market to the NYSE. To the extent that anyone sees flash data it would be in the context of their being a member of another (non-NYSE) market, and any resulting trades would take place there.“
And some more tidbits from the WSJ:
As dark pools have grown — accounting for more than 7% of all trades in June, according to Rosenblatt Securities — the SEC has made it clear it is evaluating these alternative trading systems, indicating more regulation is likely.
In interviews with nearly a dozen dark-pool executives, none objected to the SEC’s initiative. Dark-pool administrators are willing to provide more transparency and standardize volume reporting, with most even demanding it.
But Mr. Greifeld’s letter this week went a step further, calling for the elimination of “market structure policies that do not contribute to public price formation and market transparency.” The Nasdaq OMX chief tied dark pools to the issue of flash order types, a trading practice in which stock trades, after being checked against an exchange’s order book, are sent to a select group of participants before being routed to other exchanges for filling.
“I understand when there’s a duopoly, you want to maintain that, because it’s a good business model,” said Seth Merrin, founder and CEO of Liquidnet, among the largest independent dark pools. “But it’s really detrimental to all the people who invest in pension funds or mutual funds, and people who manage institutional order flow.”
As Zero Hedge has demonstrated, there is much confusion over what really occurs within the confines of dark pools. However, as even CEOs of various ECNs are beginning to acknowledge there is a two-tier model within exchanges (either currently or in progression). One can take the argument further by simple arithmetic and realize that within this duopoly system, Goldman is an explicit monopolist. And whether or not it is to the benefit or investors to maintain a monopoly (or even a duopoly) is really an anti-trust question.
Thus, Zero Hedge yet again implores Christine Varney to seriously analyze the implications of a firm such as Goldman Sachs monopolizing order flow not only on open exchanges such as the NYSE but in dark liquidity pools via SIGMA X.