KeNo's Housing and Economic Portal: Wednesday March 28 Housing and Economic stories

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MBIA and an Industry’s Failure to Trust, but Verify - (www.nytimes.com) As the financial crisis intensified in mid-2008, the largest of the monoline insurance companies that had guaranteed payments on complicated securities retained an investment bank to evaluate the risks it had taken on in a small part of its portfolio — a group of 15 collateralized debt obligations. The report commissioned by MBIA came back days before that investment bank, Lehman Brothers, itself failed in September 2008. Lehman concluded that MBIA stood to lose more than $7.7 billion on those 15 securities. That was about three times the loss reserves the company had established for all of its policies. If accurate, it raised serious questions about the company’s solvency. About 10 weeks later, on Dec. 5, MBIA asked the New York Insurance Department, now part of New York’s Department of Financial Services, for permission to split into two units. One would have just the dubious business — known as structured finance — including securities backed by home mortgages and the even riskier C.D.O.’s that are backed by securities that in turn are backed by mortgages. The other unit would be responsible for MBIA’s traditional business of insuring municipal bonds. It presented to the department financial projections showing both companies would be well capitalized.

Tainted Libor Rate Guessing Games Face Replacement by Verified Bank Trades - (www.bloomberg.com) The London interbank offered rate, the benchmark for $360 trillion of securities, may not survive allegations of being corrupted unless it’s based on transactions among banks rather than guesswork about the cost of money. “The methodology used to formulate Libor is totally unsuitable for the modern world,” said Daniel Sheard, chief investment officer of asset manager GAM U.K. Ltd., which manages about $60 billion. “The British Bankers’ Association needs to come out on the front foot and say ‘this is a system that was appropriate 20 years ago but is no longer appropriate and we are going to change it.’” The BBA, the lobby group that has overseen Libor for 26 years, is under pressure to find an alternative way to calculate the benchmark, or cede control of it. Regulators from Canada toJapan are probing whether banks lied to hide their true cost of borrowing and traders colluded to rig the benchmark, the basis for interest rates on securities from mortgages to derivatives.

Bank of Japan Rejects Lawmakers’ Calls to Expand Asset Buys - (www.bloomberg.com) Japan’s central bank chief sought to distance monetary policy from political pressure after stimulus implemented last month stoked speculation the government’s sway is increasing. Governor Masaaki Shirakawa and his board yesterday rejected one member’s suggestion to build on the 10 trillion yen ($121 billion) of additional government-bond purchases announced Feb. 14. Officials instead expanded loans designed to boost long-term growth. Shirakawa told reporters after the meeting that bending to politicians would be “suicide.” The unprecedented size of last month’s move proved a success in diminishing risks for Japan’s exporters, by sending the yen tumbling further from the postwar high against the dollar reached in October. At the same time, boosting government-debt purchases risks fueling concern that the BOJ is moving closer to financing the nation’s deficit spending, according to JPMorgan Chase & Co. (JPM)

Hackers Discover US Government Employees Using Work Emails On Porn Websites – (www.businessinsider.com) A group of hackers calling themselves Th3 Consortium and claiming to be affiliated with Anonymous and LulzSec broke into yet DigitalPlaground.com, the third porn site it's hacked in as many weeks, stealing 72,000 passwords and 40,000 credit card numbers. All three porn sites Th3 Consortium has targeted are owned by Luxembourg-based Manwin: Brazzers got hit in mid-February -- 350,000 usernames and passwords were stolen -- and then came a major hack at YouPorn -- a million usernames and passwords were compromised. But the porn network does not seem to be the real target of the attack: the hackers seem most interested in embarrassing government employees who used their official email addresses (for some reason?) to register for a porn site. Foolish government employees beware.

Student loans seen as potential ‘next debt bomb'for U.S. economy - (www.washingtonpost.com) Bankruptcy lawyers have a frightening message for America: They’re seeing the telltale signs of a student loan debt bubble that is placing increased financial pressure on families struggling with their children’s mounting debt. According to a recent survey by the National Association of Consumer Bankruptcy Attorneys, more than 80 percent of bankruptcy lawyers have seen a substantial increase in the number of clients seeking relief from student loans in recent years. In most cases, those clients could not meet the federal hardship standards that are necessary to discharge a student loan through bankruptcy proceedings. Instead, many of these parents or guardians who co-signed the student loans face the prospect of losing their life savings, cars or homes to collection agencies for aggressive private lenders.