Congratulations, You Idiots, You Broke the Bond Market
by ilene - July 21st, 2010 5:10 pm
Congratulations, You Idiots, You Broke the Bond Market
Courtesy of Jr. Deputy Accountant
h/t WC Varones who beat me to it
It smells like Sarbanes-Oxley: a poorly thought-out, bureaucracy-heavy piece of garbage that inconveniences everyone but the legislators who want to get reelected by making it appear as though they are effectively doing their jobs. I’m waiting patiently for someone to say there is a PCAOB of rating agencies buried in this financial reform beast (I still have yet to read the entire thing but hey, I’m probably through more of it than the asshats who voted for it ever got) and not at all surprised to hear that it’s already creating unintended drama.
WSJ:
The nation’s three dominant credit-ratings providers have made an urgent new request of their clients: Please don’t use our credit ratings.
The odd plea is emerging as the first consequence of the financial overhaul that is to be signed into law by President Obama on Wednesday. And it already is creating havoc in the bond markets, parts of which are shutting down in response to the request.
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law.
The new law will make ratings firms liable for the quality of their ratings decisions, effective immediately. The companies say that, until they get a better understanding of their legal exposure, they are refusing to let bond issuers use their ratings.
I remind dear reader that Congress may appear absolutely clueless but actually knows more than we give them credit for. I’m fairly certain the jackasses who wrote the thing knew exactly what can of worms they were opening at the time.
WSJ continues:
That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.
There have been no new asset-backed bonds put on sale this week, in stark contrast to last week, when
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Obama’s Financial System Overhaul Would Give the Fed Broad Powers Over Wall Street
by ilene - June 18th, 2009 1:23 pm
Obama’s Financial System Overhaul Would Give the Fed Broad Powers Over Wall Street
Courtesy of Don Miller, Associate Editor, Money Morning
U.S. President Barack Obama took a swipe at Wall Street yesterday (Wednesday) as he unveiled a sweeping 85-page proposal to reinvigorate government regulation of the U.S. financial markets by giving the Federal Reserve new powers to supervise the economy.
The proposal is part of an effort by the Obama administration to restore confidence in the nation’s financial system after last year’s collapses of The Bear Stearns Cos. and Lehman Brothers Holdings Inc. (OTC: LEHMQ). The failures of those two institutions caused a credit-market seizure that froze bank lending and paralyzed consumer spending – resulting in a near collapse of the U.S. economy. Those economic woes subsequently infected other economies throughout the world, forcing central governments from Washington to Beijing to rollout out hundreds of billions of dollars of stimulus packages.
President Obama’s comprehensive plan contains reforms aimed at almost every facet of the financial system, including the asset-backed securities and credit derivatives that are widely blamed for nearly bringing down the banking sector. Prior to releasing the proposals, President Obama singled out Wall Street for overreacting to government intervention in the financial markets. One of the administration’s most-heavily criticized moves was the limits it placed on executive compensation.
"Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected," President Obama told Bloomberg News in an interview before the plan was released.
"When I hear some of the commentary that’s been creeping up about, ‘You know, it’s time for government to get out of the economy. And what’s the Obama administration doing?’ I have to try to remind them – all we’re doing is cleaning up after the mess that was made [by Wall Street]," Obama said.
Derivatives and Hedge Funds Under the Microscope
Obama pledged to bring more transparency to the murky derivatives market, which he called a system of "enormous risk." The proposal also promises further regulation of mortgage-backed securities, which fueled the housing bubble and ignited last fall’s credit crisis.
"Derivatives are a huge potential risk to the system," President Obama said. "We are going to make sure that they have to register, that they are regulated, that you have clearinghouses." Derivatives are defined as "contracts whose values are tied to assets…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site