KeNo's Housing and Economic Portal: Thursday September 22 Housing and Economic stories

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Why $200bn in US trades are failing each day - (www.ft.com) $200bn is a big number. Yet it is also the number of trades failing to settle on average per day in the US market. The equivalent figure for Europe is unknown – highlighting what some say is a worrying hole in the back office of the world’s financial system. Such so-called settlement fails – where one market party fails to deliver the security or cash it had promised to send to another entity within a specific time frame – rarely garner much attention outside of the back offices of banks and investment firms. But a gradual spike in failures over recent months in crucial liquidity markets such as “repo” is raising concerns among some market participants. This persistence of settlement fails, despite US government actions to deter them, has led some commentators to conclude that banks might be purposefully failing the trades as a way of dealing with financial stress. The concern is that continued high failures could cause instability in the plumbing of the world’s financial system, and sow confusion over who really owns which assets. “Trade settlement is what converts market liquidity into actual cash liquidity for firms and capital markets,” says Fred Sommers, a back office specialist at consulting firm Basis Point Group. “You wouldn’t buy a house and show up on closing day, take title, rent out the house and collect the rent, all before paying. Yet that’s what’s happening every day in the financial system.”

New York prosecutors widen Goldman probe: report - (www.reuters.com) New York prosecutors are widening their investigation into the manner in which Goldman Sachs (GS.N) marketed certain mortgage-linked securities before the financial crisis, the Wall Street Journal reported, citing people familiar with the matter. The Manhattan district attorney's office began its probe into Goldman following the release in April of a U.S. Senate subcommittee report into the causes of the financial crisis, the paper said. The district attorney's office has issued subpoenas to Morgan Stanley (MS.N) and other investors in the deals. The prosecutor's requests to investors, including some hedge funds, concern how Goldman sold the deals, the Journal said. Subpoenas do not indicate wrongdoing. They are formal requests for information and do not necessarily mean charges are forthcoming or likely. A spokeswoman for Manhattan district attorney's office declined to comment on the Journal report to Reuters. A Goldman spokesman declined to comment to the Journal. The bank could not immediately be reached for comment by Reuters outside regular U.S. business hours.

Finland May Abandon Greek Bailout If Collateral Not Granted, Katainen Says - (www.bloomberg.com) Finnish Prime Minister Jyrki Katainen said his country may not contribute to a second Greek bailout package if demands for collateral in exchange for new loans aren’t met. Such an outcome “remains a possibility,” Katainen told reporters after delivering a speech in Helsinki today. “It depends on the collateral issue.” Finland is at the center of a collateral dispute that threatens to stall Greece’s second rescue package and exacerbate Europe’s debt crisis. Katainen had earlier this month pledged to find a model that satisfies the AAA rated nation’s insistence on extra assurances its bailout funds be repaid without putting other euro members or creditors at a disadvantage. “The collateral issue is a small detail in a larger package,” Katainen told reporters. “We’re looking for a solution. But we can’t wait forever, as the issue must be resolved in the next few days.”

U.S. Company Risk Measure Jumps as Europe Evokes ‘08 Comparison - (www.bloomberg.com) A benchmark gauge of U.S. corporate credit risk climbed on concern that Europe’s fiscal imbalances will hurt U.S. debt markets, as bankers cite parallels to the 2008 financial crisis. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 5.4 basis points from Sept. 2 to a mid-price of 126.4 as of 4:52 p.m. in New York, according to index administrator Markit Group Ltd. The measure is at the highest closing price since reaching a more than one-year high of 126.8 on Aug. 22. The index has increased from 95.8 basis points on Aug. 1 as investor concerns have mounted about the faltering U.S. economic recovery and upheaval in Europe’s government bond markets. The gauge typically rises as investor confidence deteriorates and falls as it improves. Deutsche Bank AG Chief Executive Officer Josef Ackermann said yesterday at a conference in Frankfurtorganized by Euroforum that conditions in the stock and bond markets are reminiscent of three years ago. “It’s a very gloomy market environment right now,” said Rizwan Hussain, a credit strategist at Morgan Stanley in New York. “An ‘08 type of comparison clearly does not bode well.’’

Analysis: Baby boomer fears cast another pall over markets - (www.reuters.com) Even as anxiety over policy inertia, banking and sovereign debt crises dominate the headlines, a long-festering concern over the impact of aging Western populations on stock markets is returning to add even greater gloom. Hopes are dimming for a resolution of the worst ravages of the 2007-2009 credit shock before the mass retirement later this decade of the "baby boom" generation - the outsized population cohort born shortly after World War Two. For many convinced of the long-term power of demographic trends on financial markets, the fuel for ever-rising stock markets is already evaporating fast and a 10-year equity bear market at least is in the offing. These long-held concerns are now critical in a decade where the 79 million U.S. people born between 1946 and 1964 start retiring as soon as this year and larger boomer retirement waves build to peak around 2020-2022.