KeNo's Housing and Economic Portal: Thursday October 6 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

The 2 Billion UBS Incident: 'Rogue Trader' My Arse - (www.rollingstone.com) The news that a "rogue trader" (I hate that term – more on that in a moment) has soaked the Swiss banking giant UBS for $2 billion has rocked the international financial community and threatened to drive a stake through any chance Europe had of averting economic disaster. There is much hand-wringing in the financial press today as the UBS incident has reminded the whole world that all of the banks were almost certainly lying their asses off over the last three years, when they all pledged to pull back from risky prop trading. Here’s how the WSJ put it: The Swiss banking giant has been struggling to rebuild trust after running up vast losses in the original financial crisis. Under Chief Executive Oswald Grubel, the bank claimed to have put in place new risk management practices, pulled back from proprietary trading and focused on a low-risk client-driven model.

What The Fed Announcement Means: Here Comes The MEGA REFI For Homeowners - (www.businessinsider.com) I wrote about the possibility of a mega mortgage ReFi by Fannie and Freddie (here and here). I (and many readers) pointed to an obvious flaw in the ReFi story. If a Trillion or so of mortgages were rapidly prepaid, then who would buy all of the new (much lower coupon) mortgage paper? Now we have the answer. The Fed will put the new MBS paper back on its Balance Sheet, $ for $. There will still be many bondholders outside of the Fed who will get prepaid much faster than they had assumed. Most of that is in pension/bond funds. No one cares about them. I think that Treasury will announce the plans for a Mega Refi in the not too distant future. It could come this weekend or next week. Obama will wait just enough time after the complex Fed decision so that 99% of all people don’t connect these two dots.

Greek Lawmakers Urged to Back Deeper Budget Cuts to Ensure Emergency Aid - (www.bloomberg.com) Greek Finance Minister Evangelos Venizelos prodded lawmakers to endorse deeper budget cuts to keep emergency loans flowing and avoid default. “The risk is that the system, the financial sector and the real economy stop functioning,” Venizelos told Parliament in Athens today before Prime Minister George Papandreou convenes his Cabinet to press for accelerating austerity measures. The finance minister yesterday completed two rounds of discussions with representatives from the European Union and the International Monetary Fund, which made “good progress,” the EU said. The talks were intended to damp concerns that Greece may miss deficit-reduction targets required to receive rescue loans. The EU comments suggest the next payment for Greece is likely to be released next month as Papandreou counters investor doubts that he can avoid default. Greek unions today are considering a 24-hour strike on Oct. 5. European leaders are squabbling over the terms of a July 21 agreement for a second Greek rescue and the prospect that they will be forced to channel more money to keep Greece in the currency union.

Europe Banks Have $410 Billion Credit Risk:IMF - (www.bloomberg.com) The European debt crisis has generated as much as 300 billion euros ($410 billion) in credit risk for European banks, the International Monetary Fund said, calling for capital injections to reassure investors and support lending. Political squabbling in Europe over ways to fight contagion and delays in implementing agreed measures are raising concern about the risk of government defaults, the IMF said. Banks, in turn face “funding challenges” because investors are concerned financial institutions will potentially show losses on government bonds holdings, and reliance by some on the European Central Bank for liquidity, it said. “A number of banks must raise capital to help ensure the confidence of their creditors and depositors,” the IMF wrote in its Global Financial Stability Report released today. “Without additional capital buffers, problems in accessing funding are likely to create deleveraging pressures at banks, which will force them to cut credit to the real economy.”

Banks Shun Financing of Riskier Buyouts - (online.wsj.com) Wall Street banks are turning cautious about the normally lucrative business of financing buyouts and mergers, as less-hospitable credit markets are making deals harder to pull off. Bank of America Corp., for example, has decided not to provide financing to potential private-equity suitors for Regions Financial Corp.'s Morgan Keegan & Co. brokerage and investment-banking operations, which bankers say could fetch around $1.5 billion. Part of the worry is over Morgan Keegan's liabilities, people familiar with the matter said. The changing stance by lenders is one of several factors clouding the prospects for deals. Others include volatile stock prices that make it harder for two sides to agree on value, as well as a decline in optimism among some chief executives, bankers say. Some investment banks are worried they will get caught holding the bag if market conditions worsen and yields on corporate bonds and loans rise sharply. Banks arranging deal financing typically commit to come through with funds if companies are unable to sell bonds or loans to investors at rates the banks promised.