Dollars And Nonsense

President Obama hailed the financial bill that House-Senate negotiators finally vouchsafed at 5:40 a.m. Friday, and no wonder. The bill represents the triumph of the very regulators and Congressmen who did so much to foment the financial panic, giving them vast new discretion over every corner of American financial markets.

Chris Dodd and Barney Frank, those Fannie Mae cheerleaders, played the largest role in writing the bill. Congressman Paul Kanjorski even offered a motion to memorialize it as the Dodd-Frank Act. It’s as if Tony Hayward of BP were allowed to write new rules on deep water drilling.

The Federal Reserve, which promoted the housing mania and failed utterly in its core mission of monitoring Citigroup, will now have more power to regulate more financial institutions and more ability to dictate the allocation of credit.

Associated Press

Barney Frank (l.) and Chris Dodd

The Treasury, which bailed out institutions willy-nilly without consistent rules, will now lead the Financial Stability Oversight Council that will have the arbitrary power to define which financial companies pose a “systemic risk” and which can be shut down without recourse to bankruptcy. Willy-nilly will now be the law.

And the SEC, which created the credit-ratings oligopoly and missed Bernie Madoff, will get new powers to decide how easy it should be for union pension funds to get their candidates on corporate proxy ballots.

Oh, and Fannie Mae and Freddie Mac? They aren’t touched at all, even as they continue to lose billions of taxpayer dollars each quarter.

In other words, our Washington rulers have taken 2,000 or so pages to double and triple down on the old system that failed.

Perhaps the most striking irony is that even in 2,000 pages Congress isn’t precisely defining new bank powers. that task will be left to the regulators in the coming weeks and months, a reality that some in the media are finally figuring out. They are now reporting, with notable alarm, that this means bank lobbyists will be able to influence those rules behind the scenes. what did reporters think would happen in a system built not around clear parameters of what institutions can and cannot do, but instead entirely on regulator discretion?

Take the Volcker Rule, which proscribes banks that accept insured deposits from engaging in the riskiest kinds of trading. this makes sense in theory but the rule’s execution will depend on how regulators define and enforce it. It’s hardly reassuring when the Davis Polk & Wardwell law firm has to write a seven-page memo, as it did on Friday, explaining how this rule-making will proceed. The Volcker Rule may work in restraining excessive risk-taking. Or it may merely drive that risk-taking into other institutions that will attract the best and brightest drawn to the higher profits such trading can gain.

Consider as well the doctrine of “too big to fail,” which FDIC Chair Sheila Bair says this bill will end. it is true that, thanks mainly to Ms. Bair and Alabama Republican Richard Shelby, Dodd-Frank puts more constraints on bailouts than Treasury Secretary Tim Geithner or Fed Chairman Ben Bernanke wanted.

But the Fed (with the consent of the Treasury Secretary) can still use its emergency lending authority to rescue a firm as long as it also provides loans to similar institutions at the same time. The bill also gives access to the Fed discount window to the new clearinghouses that are supposed to handle most derivatives trades. so the same exchanges that are supposed to reduce the riskiness of derivatives trades will know the feds will bail them out if they get into trouble.

Meanwhile, the FDIC Chairman will be free to choose which creditors to rescue and which to punish when a company goes into “resolution,” even discriminating among creditors who bought the same bond issue. Expect union pension funds to fare better than other creditors when the feds roll up a bank in the future.

In the same way, Congress also added a last-minute, dead-of-night $19 billion tax on some financial institutions to pay for the implementation of these vast new regulatory powers. Who will pay this tax? whoever the council of regulators decides should pay. The tax can hit any financial firm with more than $50 billion in assets (excluding banks that have deposit insurance, and Fannie and Freddie or any government-sponsored enterprise) and hedge funds that manage more than $10 billion.

This will take $19 billion out of financial firms that supply capital to growing companies, and it will punish precisely the firms that have attracted the most capital because of their better-than-average performance. this is only one of many new ways that Dodd-Frank will reduce the supply and raise the cost of credit across the economy. Think of how last year’s limits on credit card fees have already reduced the supply of consumer credit and are leading to the end of free checking for all but wealthy bank customers.

We could go on, but perhaps the best summary is to hail Dodd-Frank as the crowning achievement of the Obama “reform” method. in the name of responding to a crisis, the bill greatly increases the power of politicians and regulators without addressing the real causes of that crisis. it makes credit more expensive and punishes business without reducing the chances of a future panic or bailouts.

The only certain result is that when the next mania and panic arrive, and they will, Congress and the regulators will claim they were all someone else’s fault.

Triumph of the Regulators

Wall Street turned crummy mortgage loans into a pot of gold. how did that happen? Fraud charges against Goldman Sachs, filed by the Securities and Exchange Commission, gave the public its first peek at the game. So did Michael Lewis’s must-read new book, “The big Short,” about a handful of the clever people who bet against the bubble.

Their secret? First, they figured out how to short the market — that is, bet big on the likelihood that large numbers of subprime mortgage holders were going to default. second, even when they were wrong they got to keep the money. Here’s a pocket guide to what was going on, and how other financial markets could fall unless Congress stops the game:

The chain began with real mortgage loans, made to borrowers with mediocre credit. Groups of mortgages were packaged into high-yield securities by the big banks. the banks split the securities (now called Collateralized Debt Obligations or CDOs) into several pieces (called tranches), each one designed to carry a different level of risk.

At the top were pieces considered “safe.” the investors who bought them were paid first when borrowers made their monthly payments on the loans. the rating agencies — Moody’s, Standard & Poor’s, and Fitch — shut their eyes, held their noses, and blessed this type of paper with quality ratings of AAA and AA. in the world of corporate and municipal bonds, ratings like that amount to a virtual sure thing.

The lower quality pieces of these mortgage-backed securities took the first losses when borrowers didn’t pay. nevertheless, they got BBB ratings, still an investment grade. the raters figured that the interest rates were high enough to cover the number of loans expected to default.

In the real world, every piece of these securities — from AAA to BBB — was backed by crummy mortgages, all of them equally likely to default. There was nothing Triple A about any them. the rating organizations charged fat fees for saying otherwise (even when warned by internal memos that the ratings were wrong).

Try as they might, however, the lenders couldn’t make enough stupid mortgage loans to meet the raging, global demand for American real estate. So they bundled the bundles into new securities, sliced them into new pieces, and sold them again.

These are the derivatives you keep reading about. the original securities were backed by real mortgages, even though they were flaky ones. the new “synthetic” securities were bets on what various pieces of the original mortgage securities might be worth. Because they were only bets — like gaming table bets — the supply was infinite. Speculators hedged their bets by buying insurance against the risk that the mortgages would default (the insurance is called a credit default swap).

As the credit bubble bulged, a few players started to sniff the brimstone. Instead of buying mortgage CDOs and collecting monthly payments, they wanted to bet that the subprime mortgage pools would fail. Synthetic securities let them do it. they could buy insurance that paid off if certain mortgages went into default.

That’s what’s behind the SEC’s case against Goldman Sachs. A hedge fund, Paulson & co., helped create a CDO security, based on terrible mortgages that were almost sure to fail. Paulson bet on its failure. Goldman sold the security to a German bank, among others, without disclosing Paulson’s strategy.

The CDO lost most of its value within months. the investors lost $1 billion and Paulson gained about the same amount. the SEC called the transaction fraud (you can read the complaint here). Goldman says that the bank had a list of all the securities in the pool and was able to look after itself. Read its response here.

Whatever the outcome of the case, it’s clear that derivatives sparked the 2008 financial collapse. the funny thing is that, except for the homeowners, everyone else got rich on the deal. the shorts made money, and so did the traders who sold and bought derivatives. some of their companies collapsed (e.g., Lehman Brothers and AIG), but the perps kept their tens of millions and walked away.

The Goldman transaction, and those like it, have no social benefit, says financier George Soros. Their primary purpose, he says, is “to generate fees and commissions.” he thinks that the current Senate bill, forcing derivatives to be traded on a public exchange, isn’t nearly good enough. Derivatives should be registered with the SEC or the Commodities Futures Trading Commission, he says, like any other security.

Soros calls credit default swaps a “license to kill.” If a House-Senate conference waters down even the current half-measure on derivatives, you can bet that the fat cats will kill again.

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The response to the NYT’s latest David Paterson bombshell is unanimous: This one buried him.

Whatever political decisions he makes at this point seem to be irrelevent.

POLITICO’s Ben Smith captures the mood among New York Democrats, who are set to make AG Andrew Cuomo their next candidate:

“If these allegations are true that he directly intervened in a criminal investigation, I don’t think there’s any way he can recover from this,” said a New York Democratic political consultant, Scott Levenson. “There’s going to be an increasingly loud drumbeat within the Democratic Party for David Paterson not to seek re-election.”

“This is a lethal combination,” said another New York Democratic consultant, Hank Sheinkopf, noting that allegations of out-of-control aides and a politicized police force had also played a role in Spitzer’s fall.

“This creates the potential for a clarion call for Andrew to effectively be drafted by the Democratic Party Establishment,” he said.

Wall Street may appreciate Cuomo’s move from a role where his job is to go after industry, to one where his job requires him to be mindful of state tax revenues. Of course, that was some of the thinking when Eliot Spitzer made the jump, and so the message to the next AG will be the same: go after the moneymen; it’s the route to the Governor’s mansion.

Join the conversation about this story »

See Also:

• Another Paterson Bombshell: Sex, Violence, and Secret Police
• The New York Times Buried The Bombshell Of Paterson Hiring His Ex-Girlfriend for Key Policy Spot then Lying About It
• HOLD EVERYTHING! The New York Times Hammers Governor Paterson, Portraying Him as a lazy, Out-Of-Touch, Party Boy

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Relative Strength Index (RSI) is a well known and much used momentum indicator. It was invented by J. Welles Wilder Jr., a great technical analyst.

RSI compares the magnitude of a stock or index’s recent gains to the magnitude of it’s recent losses and that information is turned into a number that ranges from 0 to 100. A single parameter is used, the number of time periods for the calculation. 14 periods is recommended by Wilder.

Common practical use of RSI in stock market timing is to measure the underlying strength of the market and to determine if it’s getting overbought or oversold. Wilder’s own recommendation was to use 70 and 30 levels, to indicate an overbought and oversold market, respectively. if RSI rises above 30 it’s considered bullish for the stock or index. if the RSI falls below 70, it’s a bearish sign.

Bullish & Bearish DivergencesStronger buy and sell signals can also be generated by looking for positive and negative divergences between the RSI and underlying prices. for example, a falling market index whose RSI instead rises from a low point of 10 and back up to above 50. The underlying index will often reverse it’s direction soon after such a divergence. Divergences that occur after an overbought or oversold reading, usually gives more reliable signals.

Center Line Break

A bullish or bearish indication is given with readings above and below the 50 level. A reading above this center line indicates that average gains are higher than average losses. A reading below 50 indicates that bears are winning the fight. for confirmation of bullish and bearish signals, some traders look for moves above and below 50, respectively.

Below is the author’s special indicator combination and settings,for short & medium term stock market timing.

Daily Chart:

- 200 ema (exponential moving average)

- 89 ema (closing prices used for both ema calculations)

- RSI set at 25 periods with horizontal lines at 60 and 40

Weekly Chart:

- Walter Bressert’s Cycle10 plotted with horizontal lines set at 70 and 40

- MACD plotted with Signal Time Periods set at 5

Later in 2005 and so far in 2006, three RSI moves above 60 all alerted about important OEX peaks, in November, January and March.

Below is how i use this as an alert system in my own technical analysis:

Long (Bullish) Entry Parameters:

Weekly MACD must be in bearish mode (closing prices).when Daily RSI closing readings falls below 40, (for a bullish entry consideration) weekly Cycle10 must be in it’s buy zone (below 40) and make a positive reversal on a weekly closing basis, before entry. It’s important to separate between the daily and weekly charts usedfor each indicator.

A less aggressive approach is then to wait for the high of the weekly bar that caused the Cycle10 reversal, to be broken by a few points. Depending on the risk tolerance, a protective stop can be placed a few points below the swing low or below the low of the bar which caused the weekly Cycle10 reversal. when weekly MACD’s signal line crosses it’s moving average, a bullish trend reversal confirmation is given.

Taking Profits

Deciding when to take profits is often viewed as the most difficult part of trading. I would consider taking profits, when the 38.2%, 50% or the key 61.8% Fibonacci retracement levels (of the previous bearish trend) are reached. It depends on how overbought the market has become, when those Fibonacci retracement levels are touched. Another, usually slower approach, is to simply take profits when MACD turns bearish again (MA crossover).

The odds for a successful trade would increase if weekly MACD has just been through a bullish divergence pattern formation first, before entering bullish mode (MA crossover).

Other profit taking suggestions are when weekly Cycle10 makes a bearish reversal up in it’s sell zone (closing basis). A drawback with this method, is that Cycle10 doesn’t always reach it’s sell zone, before making a bearish reversal.

Another good point to take profits, is those times when the key 61.8% Fibonacci price level is reached and Cycle10 at the same time is in it’s sell zone. In this case a bearish Cycle10 reversal is not waited for. any market wants to reach it’s key 61.8% Fibonacci zone, 60-70% of the time, before making a new trend reversal.

Short (Bearish) Entry Parameters:

Weekly MACD must be in bullish mode (closing prices).when daily RSI rises above 60, weekly Cycle10 must be in it’s sell zone (above 70) and make a bearish reversal on a weekly closing basis, before entry. again, a less aggressive entry, is then to wait for the low of the bar which caused the Cycle10 reversal, to be broken by a few points. A protective stop can be placed a few points above the swing high or the high of the weekly Cycle10 reversal bar. when MACD’s signal line crosses it’s moving average, a bearish trend reversal confirmation is given.

Taking ProfitsThe same suggestions as for the Long entries, it depends on how long you are willing to stay in the trade.

A Stock Market Timing Secret Revealed

By Ambrose Evans-Pritchard, International Business Editor
Published: 8:00PM GMT 03 Dec 2008

The central bank has shifted the central peg of its dollar band twice this week in a calculated move that suggests Beijing aims to offset the precipitous slide in Chinese manufacturing by trying to gain further export share abroad.

The futures markets are pricing in a 6pc devaluation over the next year. “This is clearly a big shift in policy and we are now on alert,” said Simon Derrick, currency chief at the Bank of new York Mellon.

The move follows a Politburo speech by President Hu Jintao warning that China is “losing competitive edge in the world market”.

China has allowed a crawling 20pc revaluation over the past three years. any reversal risks setting off conflict with the incoming team of President-Elect Barack Obama in Washington. mr Obama called China a “currency manipulator” during the campaign, a term that carries penalties under US trade law.

Outgoing US Treasury Secretary Hank Paulson is viewed as a “friend of China”. He called for a stronger yuan this week before embarking on a visit to Beijing, but the plea was couched in friendly terms. This soft-peddling may soon change.

Hans Redeker, currency head at BNP Paribas, said China’s policy switch could set off a dangerous chain of events. “If they play this beggar-thy-neighbour game, it will cause a deflationary shock for the whole world,” he said.

It makes sense for countries with current account deficits such as the UK, US or Turkey to let their currencies fall, but China has the world’s biggest trade surplus.

Michael Pettis, a professor at Beijing University, said it was “very worrying” that a pro-devalulation bloc seemed to be gaining the upper hand in the Communist Party. “I really do believe that we are on the brink of a very ugly period for trade relations,” he said.

China has relied on exports to North America and Europe as its growth engine, making it acutely vulnerable to the contraction in global demand. mr Pettis said this recalls the role played by the US in the 1920s, a parallel fraught with danger. “In the 1930s the US foolishly tried to dump capacity abroad, but the furious reaction of trading partners caused the strategy to misfire. China already seems to be in the process of engineering its own Smoot-Hawley,” he said, referring to the infamous US Tariff Act in 1930.

China showed restraint during the Asian crisis in 1998, holding the line against domino devaluations across the region. It may yet hold the line this time.

However, this crisis is more serious. the manufacturing sector has seen the steepest decline since the records began, with devastation sweeping the textile, furniture and toy sectors. Civil unrest has begun to rock the Guangdong and Longnan regions.

Beijing has slashed rates and unveiled a fiscal stimulus of 14pc of GDP, but most of the spending comes in the form of instructions to local governments to spend more – but without giving them the money. Does China really intend to step in to prop up global demand? the jury is out.

Most Important Economic News You'll Never Hear About In U.S.

Have you ever heard about fixed second mortgage? most of the people who know about it are those who complain about the rising payments from their home equity lines of credit that are attached to every borrow you make.

Whether you have a bad credit card or not then you will still be able to qualify to borrow. the only difference is that if you have a bad credit card then you will only get a lesser percentage compare to the one who has a good credit card.

It would be a hundred percent and a hundred and twenty five percent respectively.

The one thing about fixed second mortgage is that it acts as a lien to the first mortgage.

It is mostly done when one is in dire need of instant cash. the thing that leads to people borrowing a second mortgage loan is that the first mortgage loan has low interests.

In that one does not really benefit. it is there fore a big step that one would take and would need one to be wise.

This is because it would take home equity loans and would result to one being lent to the money at a hundred percent cost of the property. this is there fore a great risk and should be taken after one has thought carefully about it.

For one to take a fixed second mortgage it means that may be they were unable to pay their bills or an outstanding debt.

When choosing what type of second mortgage one would take there are three options: a traditional second mortgage, a home equity loan and a home equity line of credit.

Among the best companies that would be best to deal with your fixed second mortgage is Nationwide Mortgages. They are considered to be the best as their interests are at a fair level.

They are never application fees for or any obligation for researching rates. it is the best when it comes to refinancing and debt consolidation.

If you may know any one who is in search of a company to solve their finances then a turn to Nationwide Mortgages would be the first step to solving their problem.

But the best and wise thing to do when it comes to getting a second mortgage is to shop around first. it can even be compared to loans with about fifteen to thirty years fixed rate. and the thing is it could be variable or just interest only.

Fixed Second Mortgage Rates

• Geithner Said to be Seeking TARP Extension until Next October
• Greece Finance Minister says no Risk of Default
• Jackson’s (W)Hole
• Morgan Stanley reshuffles to take on Goldman
• Morgan Stanley Ousts Petrick as Trading Chief, Promotes Porat
• Nomura to wind down Lehman fixed bonuses
• Apollo Investment plans to sell 10 million shares
• Barclays says Lehman Brokerage Sale Gave It no ‘Secret’ Gain
• AIG General Counsel Kelly may Depart After Protesting Pay Limit
• Judge Approves CIT Group’s Restructuring
• Job Openings and New Hires Fall
• GM nears hiring new CFO, repaying some of its U.S. loans
• Tiger Woods as Pitchman Slips from View

Geithner Said to be Seeking TARP Extension until Next October – Bloomberg

Treasury Secretary Timothy Geithner plans to tell Congress that the Obama administration will extend the $700 billion financial-rescue program until next October, according to people familiar with the matter.

While the Troubled Asset Relief Program expires on Dec. 31, Geithner can extend it by notifying Congress. ….

Greece Finance Minister says no Risk of Default – Bloomberg

Greek Finance Minister George Papaconstantinou said there is “absolutely” no risk the country will default on its debt or seek a European Union bailout after a credit rating cut caused its bonds to plunge.

“We do have a credibility issue,” Papaconstantinou said today in an interview with Bloomberg Television. “As it becomes clear the deficit is coming down, that spending is reined in and that taxation receipts are going up, then confidence will return and there won’t be any problem borrowing in the markets.”…

Jackson’s (W)Hole – NY Post

The foundation under the house that Istithmar CEO David Jackson built for the Dubai-owned investment company showed its first major crack yesterday after he lost a last-minute bid to keep control of the W Hotel in Union Square.

The humbling setback for both Jackson and Dubai came after Istithmar paid a whopping $285 million for the property in 2006 but wound up defaulting on the debt payments.

The default culminated in the auction in which a Philadelphia private-equity firm, LEM Mezzanine, paid a paltry $2 million for control of the 270-room hotel on Park Avenue South……

Morgan Stanley reshuffles to take on Goldman – Financial Times

James Gorman, who will succeed John Mack as chief executive of Morgan Stanley next month, has unveiled a series of management changes that reflect the bank’s push to close the gap between its flagship securities business and that of its arch-rival, Goldman Sachs.

Mr Gorman yesterday confirmed plans to reshuffle a number of the bank’s top management positions. with few exceptions, mr Mack’s most senior loyalists will remain in vital, and in some cases bigger, roles……

Morgan Stanley Ousts Petrick as Trading Chief, Promotes Porat – Bloomberg

Morgan Stanley ousted sales and trading chief Mitch Petrick after his division’s revenue fell short of rivals and promoted Ruth Porat, head of the financial institutions group, to become chief financial officer.

Porat, 52, is taking a role held by Colm Kelleher, who will become co-president of Morgan Stanley’s institutional securities business with Paul Taubman, the 48-year-old chief of investment banking. Kelleher, 52, will focus on sales and trading, while Taubman will manage investment banking, with both overseeing capital markets. the changes take effect on Jan. 1, the New York-based firm said in a statement…..

Nomura to wind down Lehman fixed bonuses – Financial Times

Nomura has no plans to renew controversial guaranteed bonuses for former Lehman Brothers staff who joined the Japanese bank last year, according to a senior executive.

Minoru Shinohara, chief executive of Nomura’s non-Japanese Asian operations, also said the bank intended to expand significantly in China and India next year, in addition to stepping up its recruitment drive in the US……

Apollo Investment plans to sell 10 million shares – AP

….Including the overallotments, the new shares would be equal to 7 percent of the current number of shares, which the company put at 164.2 million in a recent regulatory filing. the price of the shares was not immediately set.

Apollo said it would use the net proceeds to pay down debt, fund investments in portfolio companies and for general purposes…..

Barclays says Lehman Brokerage Sale Gave It no ‘Secret’ Gain – Bloomberg

Barclays Plc, sued three times last month over an alleged “secret” $5 billion windfall profit from its purchase of Lehman Brothers Holdings Inc.’s North American brokerage, said the gain was publicly disclosed before the sale closed 15 months ago.

Britain’s second-largest bank was accused by Lehman, its unsecured creditors and the brokerage trustee, James Giddens, of arranging the deal to give itself a quick profit and of concealing that from the court. Lehman’s Nov. 16 lawsuit demanded Barclays return $5 billion…..

AIG General Counsel Kelly may Depart After Protesting Pay Limit – Bloomberg

American International Group Inc. general counsel Anastasia Kelly, who threatened to quit over government-imposed pay limits, may depart as early as this month, said three people familiar with the matter.

Kelly, 60, said in a Dec. 1 letter she was prepared to leave AIG by yearend because of impending compensation restrictions, and the insurer hasn’t sought to keep her, said the people, who declined to be identified because an announcement hasn’t been made. Michael Leahy, a lawyer who works at AIG’s New York headquarters, is among candidates being considered to succeed Kelly, said one of the people…..

Judge Approves CIT Group’s Restructuring – Wall Street Journal

CIT Group Inc. wrapped up its swift bankruptcy case Tuesday after a judge approved a restructuring plan that slashes about $11 billion in debt from its books.

The ruling comes a little more than a month after CIT, a major lender to small and midsize businesses, filed for bankruptcy protection on Nov. 1 hoping to move out of court quickly and avoid a drawn-out fight with creditors…..

Job Openings and New Hires Fall – Wall Street Journal

The labor market is showing tentative signs of improvement, but reports released Tuesday suggest competition for jobs remains fierce as companies large and small are wary of adding positions.

The level of layoffs and discharges in the U.S. improved to a seasonally adjusted 2.12 million in October from 2.13 million the prior month, the Labor Department said Tuesday. But job openings and hirings both contracted, leaving fewer prospects for the nation’s unemployed….

GM nears hiring new CFO, repaying some of its U.S. loans – USA Today

Just a few months after emerging from bankruptcy, General Motors executives are under pressure to make sure the privately held automaker can repay its government loans as quickly as possible.

Ed Whitacre, chairman and interim CEO of GM, says the automaker is considering making that move, and he says turning a profit and having an initial public stock offering of GM’s shares are among his top priorities….

In a Web chat with reporters, Whitacre said the company is close to naming a replacement for current Chief Financial Officer Ray Young. the company has been searching for a new CFO for several months…..

Tiger Woods as Pitchman Slips from View – NY Times

Even as Tiger Woods remained hidden from public view on Tuesday in his home, or somewhere else, he has also begun to fade from view in his role as ubiquitous corporate pitchman for an array of products…..

Tags: AIG, Apollo, Barclays, CIT, Dubai, GM, Lehman Brothers, Morgan Stanley, Nomura, Politics, Sovereign wealth funds, TARP, Tiger Woods, Tim Geithner, U.S. Treasury

Looks like TARP program gonna be extended; Greek finance minister …