| Category List Back |
| Major: ECONOMICS Is WALL STREET HEADED for another problem ? |
| Sub: (Click below) |
| No Subcategories found! |
|
| ECONOMICS Is WALL STREET HEADED for another problem ? |
skip to main | skip to sidebar
Better World News
Wednesday, September 30, 2009
Kucinich: Gaming The Financial Crisis - ‘Is Wall Street Headed for Collapse?’
(Ignore the previous email - this one has additional information.)
The net result is financial firms' books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction.
+++
Kucinich: ‘Is Wall Street Headed for Collapse?’
Questions Repackaging of Complex Financial Instruments, Calls for Additional Hearings
http://www.commondreams.org/newswire/2009/09/30-29
WASHINGTON - September 30 - Congressman Dennis Kucinich (D-OH) today questioned whether the U.S. would be headed for another financial crisis if Wall Street continues to sell the same old products, with new names, that got us into trouble in the first place. The former Managing Director of Moody's Investor Service, Mr. Ilya Eric Kolchinsky, agreed there is a danger. The admission came during an Oversight and Government Reform Committee hearing examining the role of credit rating agencies in the financial crisis. Following the admission, Kucinich called for further Committee hearings to examine the renamed investment instruments.
"I have been extremely troubled by the increasing popularity of the Resecuritization of Real Estate Mortgage Investment Conduits (Re-Remics). It basically amounts to repackaging original investment instruments that no investor will touch, into a more complex investment vehicle.
"The total resecuritization market right now is approximately $664 billion. Of that total, only $60 million is considered registered transactions. That means that the Securities and Exchange Commission has looked at only $60 million. The vast majority of the transactions are exempt from registration with the SEC," said Kucinich.
"...seeing as that Re-Remics are more complex, more opaque than the Collateralized Debt Obligations (CDOs) that came before them, what is to stop Re-Remics from bringing the whole system to the brink once again? What does the SEC have to do to protect against a new disaster in the securities market?" asked Kucinich.
Mr. Kolchinsky answered, "I agree that these Re-Remics ... are potentially dangerous. Some have a purpose. That purpose may be a gaming of capital requirements, accounting requirements or what have you... I recently saw a (Re-Remic) proposed that had, to my view, no discernable economic value. Substantial costs would be incurred, but to my knowledge, there would be no value you added. To me, that is a sign that somebody is playing a game with some regulation somewhere."
Kucinich: "So, You agree there is a game here?"
Kolchinsky: "Yes, Sir."
Congressman Kucinich has previously brought the potential threat of Re-Remics to Ms. Mary Shapiro, Chairman of the SEC, in an August 26, 2009. Discussions resulting from the letter are ongoing.
===
Wall Street Wizardry Reworks Mortgages
Repackaged Investments Are Good for Bankers and Ratings Firms, but the Regulators Scoff
By LESLIE SCISM and RANDALL SMITH
A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don't have enough substance and stand to benefit bankers and ratings firms.
The deals come as Wall Street firms, buoyed by surging markets, are seeking to profit from the unwinding of the complicated securities that helped fuel the credit crisis. Regulators, meanwhile, are struggling to prevent a recurrence of the crisis.
The popular deals are known as "re-remic," which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings.
[re-remic]
The net result is financial firms' books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction.
Some state insurance regulators worry that current ratings are flawed -- perhaps even too harsh -- for determining the capital that should back up residential-mortgage securities. But they are chafing at the re-remic strategy. That's partly because of the fees and partly because re-remics rely on ratings firms -- faulted for failing early on to identify problems with mortgage-backed bonds -- to rate the new securities.
At hearings Wednesday on Capitol Hill focused on the ratings firms, U.S. Rep. Dennis Kucinich (D-Ohio) raised concerns about the mounting number of re-remics, saying, "The credit-rating agencies could be setting us up for problems all over again."
New York and some other key regulators are considering an alternative to re-remics that doesn't entail insurers paying millions in fees to investment banks and the ratings firms; they also have debated possibly unfavorable accounting treatment for the re-remic deals.
Regulators would like "a lot fewer dollars" paid to Wall Street, as well as "less reliance on the ratings agencies," said Kermitt Brooks, first deputy insurance superintendent in New York. The state is an important voice on financial matters at the National Association of Insurance Commissioners, or NAIC.
The alternative solution, proposed by trade group American Council of Life Insurers, calls for hiring an analytical firm with expertise in residential mortgage-backed securities to help regulators determine the value of deteriorated holdings on insurers' books, bypassing the ratings providers. This firm would help size up potential losses and how much capital the insurers need to hold.
The re-remic accounting treatment, meanwhile, is expected to be taken up at a meeting of NAIC regulators in December.
It is unclear how big a concern this is for banking regulators. Alabama Deputy Banking Superintendent Trabo Reed said he has seen only a few examples of re-remics. His concern is that banks engaging in this practice account for it correctly.
From a Trickle to Flood
Wall Street analysts said activity in re-remics has ramped up this year, from a trickle in January to several billion dollars from March to June, with a big increase in volume in July, partly thanks to reviving credit markets.
Estimates of volume this year range from $30 billion to more than $90 billion. The transactions are typically done as private placements and aren't disclosed publicly.
A hypothetical example cited in research by Barclays Capital said that a $100 million asset that required $2 million in capital at a triple-A rating may require $35 million if downgraded to double-B-minus. At triple-C, the capital requirement might rise to 100%, or $100 million.
In a re-remic, three-fourths of the same asset may regain a triple-A rating, requiring just $1.5 million in capital, Barclays said. The remaining one-quarter may require 100% capital, but the total capital requirement would fall to $26.5 million.
Wall Street bankers and analysts said a minority of re-remics, perhaps as little as 10% to 30%, are aimed at helping firms like insurers manage capital requirements. The general goal, as one banker put it, is to help "create buyers for orphan securities that otherwise would have languished."
"There is $350 billion to $400 billion in market value of securities with no natural buyer due to their rating," Barclays said in a June report. "The re-remic market provides a way out of this gridlock by creating new AAA securities, which are likely to be viewed as attractively priced."
Wall Street firms that have acted as middlemen in re-remics include J.P. Morgan Chase & Co., Credit Suisse Group, Jefferies & Co., Royal Bank of Scotland Group PLC, as well as Barclays PLC, according to a Barclays tally.
Citigroup Inc., meanwhile, is pursuing its own re-remic strategy, to repackage some toxic real-estate securities on its balance sheet, according to people familiar with the bank.
'Not Cheap'
Insurance executives estimate that insurers pay 0.35% or so of a deal's size in investment banking, ratings firm, legal and other costs.
American Equity Investment Life Holding Co. has told analysts that it is considering a re-remic. Recent downgrades of its mortgage bonds overstate their risk by a wide margin, its executives said.
Still, a re-remic is "not cheap," John Matovina, the company's finance chief, said in an interview.
On Sept. 15, an executive at American Financial Group Inc. noted to investors that re-remic transactions there involving about $1.2 billion of mortgage bonds provide "flexibility." And Protective Life Corp. said in August that its re-remics, totaling about $1.4 billion, improve the company's capital standing "in the ballpark" of $75 million.
At an NAIC hearing last week, ratings firms described changes over the past year to improve their analytical, compliance and corporate-governance processes. But they also generally agreed that their ratings weren't ideal as a sole basis for determining insurers' capital levels.
—Dan Fitzpatrick contributed to this article.
Write to Leslie Scism at leslie.scism@wsj.com and Randall Smith at randall.smith@wsj.com
Labels:
--
Subscribe to emails from :
- Better World News: http://at7l.us/mailman/listinfo/bwn_at7l.us
- Learning News - children learning, how mind works: http://at7l.us/mailman/listinfo/learn_at7l.us
- Health News - better ways of healthy living: http://at7l.us/mailman/listinfo/health_at7l.us
- Good Morning World - Robert & Barbara Muller's daily idea-dream for a better world: http://www.goodmorningworld.org/emaillist/#subscribe
or send a request a subscription to any of the three lists here.
View these blogs:
- Better World News
- Learning News
- Health News
- Good Morning World
Posted by AT7 Lists at 8:14 PM
0 comments:
Post a Comment
Newer Post Older Post Home
Subscribe to: Post Comments (Atom)
Subscribe to emails from :
- Better World News
- Learning News: children learning, how mind works:
- Health News
- Good Morning World - Robert & Barbara Muller's daily idea-dream for a better world:
or send a request for a subscription to any of the three lists here.
View these blogs:
- Better World News
- Learning News
- Health News
- Good Morning World
761 views since 9 August 2007
Labels
* Health (4)
* Torture (3)
* War Crimes (3)
* Crimes Against Humanity (2)
* Interrogation (2)
* Parks (2)
* Peace (2)
* Psychologists (2)
* Toxic (2)
* Toxic Products (2)
* Abolition of Nuclear Weapons (1)
* Abolition of War (1)
* Altruism (1)
* Art (1)
* Atrocities (1)
* Baghdad (1)
* Beauty (1)
* Better World Global Movement (1)
* Biodiversity (1)
* Caring (1)
* Chavez (1)
* China (1)
* Climate Change (1)
* Collective Future (1)
* Commons (1)
* Compassion (1)
* Conservation (1)
* Conservative (1)
* Crime (1)
* DLC (1)
* Depression (1)
* Doctors (1)
* Drough (1)
* Economic Bubble (1)
* Economic Meltdown (1)
* Economics (1)
* Election 2008 (1)
* Empowering (1)
* Environment (1)
* Financial Markets (1)
* Generous (1)
* Geneva Conventions (1)
* Giving (1)
* Global Movement (1)
* Good People (1)
* Hamaas (1)
* Happiness (1)
* Helping (1)
* Hiroshima (1)
* Hope (1)
* Humanity (1)
* ICC - International Criminal Court (1)
* Iraq (1)
* Kucinich (1)
* Law (1)
* Living Lighter (1)
* Longer Life (1)
* Mayors (1)
* Medicine (1)
* Murals (1)
* Nagasaki (1)
* Nature (1)
* Nuclear Weapon-Free World (1)
* Palestine (1)
* Parks - Pudacua National Park - China (1)
* Parks -China National Parks (1)
* Passion (1)
* Plastic (1)
* Poll (1)
* Products To Avoid (1)
* Progress (1)
* Progressive (1)
* Rebuilding (1)
* Recession (1)
* Red Cross (1)
* Sculptures (1)
* Self Esteem (1)
* Social Transformation (1)
* Spirituality (1)
* Torture Act Of USA (1)
* Tourism - EcoTourism (1)
* Trails (1)
* Uganda (1)
* Values (1)
* Venezuela (1)
* Victim (1)
* Vision (1)
* Volunteer (1)
* War Criminals (1)
* Weather (1)
* Well Being (1)
Blog Archive
* ▼ 2009 (184)
o ► October (21)
+ BWN - Health - Learn v2
+ Good Nutrition & No Vaccination Best Way To Fight ...
+ Vitamin D May Save Your Life From Swine Flue - And...
+ The 2009 Right Livelihood Awards - Alternative Nob...
+ The Right Livelihood Award - An Alternative To The...
+ Bill Moyers: The 4 Big Banks Take Over Congress & ...
+ Stopping Mandated Vaccines
+ Let There Be Free, Green Light, Electricity, Refri...
+ Let There Be Free, Green Light, Electricity, Refri...
+ Gamed Stock Market & More Set To Collapse - The Bi...
+ Red Meat Linked To Early Death & Increased Risk Of...
+ Soy Isoflavones Could Play Role in Life Extension
+ Herbs and Natural Foods Maintain Optimum Brain Fun...
+ Common Spices, Essential Oils Kill Sickness Causin...
+ 8 Reasons You Should Stop Drinking Milk Now
+ Congresses Aleternative To Single Payer - Just Don...
+ Beyond Bombarment Of Sensory Overload
+ It is Not Just Obesity: The Inflammation may be Ki...
+ More Science On Reducing Digestive Issues With Hea...
+ The false promises of vaccination’s efficacy and s...
+ Higher Education -12 Things You Might Not Have Lea...
o ▼ September (10)
+ Kucinich: Gaming The Financial Crisis - ‘Is Wall S...
+ Kucinich: Gaming The Financial Crisis - ‘Is Wall S...
+ Kucinich to Obama: ‘We Need a Federal Jobs Program...
+ Vandana Shiva - Seed Saving, Local Food In India &...
+ "There is a Crack, a Crack in Everything/That's Ho...
+ Costa Rica Creates Department of Peace
+ Grace Lee Boggs Redefining Democracy
+ Early Morning Bounding Across the Wheat Fields - S...
+ Public Option Health Care Can Be Available For Eve...
+ The Virtues of Deglobalization
o ► August (18)
+ Vaccine Facts - Charts-Ineffective-Harmful-...
+ Cities Can Improve The Quality Of Life In The Abse...
+ Local Food Is Better - Achieving Food Independence...
+ "Charity in Truth.": Pope Benedict XVI on Economic...
+ The Global Economic Melt Down & What To Do About I...
+ America Is Seething - Big Government Continues To ...
+ Become a Google Earth Explorer! Explore The World ...
+ Selfless Service -- You See Everybody As Yourself ...
+ 2009 Swine Flue & 1919 Flu Epidemic Cured With Hom...
+ Boycott Whole Food - CEO Mackey Campaigns To Defea...
+ This Is Not Helpful: Imposed Unity To Purify Commu...
+ Making Single Payer Health Insurance The Only Cost...
+ Using Regular Health Tips, Health Reminders, And A...
+ Stop Stealth 'Food' Legislation - S425 - Framework...
+ Diseased African Monkeys Used to Make Swine Flu Va...
+ Half of All the Non-Organic Fruit & Veg Is Contami...
+ Nissan Release All Electric Car For Next Year - 10...
+ Major Grocery Store Actively Cutting Product Packa...
o ► July (27)
+ Congress Don't Harm Our Food - Stop HR2749 Monsant...
o ► June (17)
o ► May (20)
o ► April (16)
o ► March (12)
o ► February (22)
o ► January (21)
* ► 2008 (227)
o ► December (40)
o ► November (14)
o ► October (12)
o ► September (35)
o ► August (20)
o ► July (14)
o ► June (12)
o ► May (17)
o ► April (11)
o ► March (11)
o ► February (23)
o ► January (18)
* ► 2007 (192)
o ► December (28)
o ► November (48)
o ► October (43)
o ► September (29)
o ► August (41)
o ► July (3) |
|
|
National Geographic Image Collection/Annie Griffiths Belt |
|
