In The City this weekend…
Consumer Financial Protection Bureau releases new mortgage rules in bid to reduce risky lending | The Washington Post (WaPo)
CFPB proposes government standards defining a “qualified mortgage,” including debt service/income under 43%, capping underwriting/sales fees & eliminating exotic products (e.g. IO or NINJA). 75% of mortgages issued in 2011 exceed these standards.
Comment period will last until 1/2014, succeeded by 7 year phase in.
Warren Buffett says banks cleared of excess risk, pose no threat to US | Bloomberg
“The banks will not get this country in trouble, I guarantee it… The capital ratios are huge, the excesses on the asset side have been largely cleared out.”
Chart: How Clinton’s surplus became a $6T federal budget deficit | Congressional Budget Office (CBO)
After President Bill Clinton left office with a +$281B surplus in 2000, the balance fell to a -$6T deficit in 2011 vs. CBO projected +$5.9T. They chart the unexpected budgetary costs:
29% due to ecnomic factors; 59% due to policies between 2001-09 ($3T Bush tax cuts, $1.7T annual appropriations & $1.4B Iraq/Afghanistan wars); 12% due to post-2009 policies ($800B ARRA & $250B Payroll tax cuts).
[Again, attributable to Bush administration, not Obama.]
Who owns the US equity market? (1990-2012) | Global Macro Monitor
Ownership of $25.8T in US stocks & foreign ADRs by entity (households, mutual funds, ETFs, pensions, insurance cos, closed end funds, government, etc.).
Shows decline in household’s share, which includes 401ks & hedge funds, with their reallocation into ETFs.
Putting to rest the debate about the legality of the $1T platinum coin | Philip Diehl (Former Head of the US Mint)
Mr. Diehl wrote Title 31, Section 5112 of the United States Code, which he says unequivocably gives the Treasury Secretary authority to mint a platinum coin in whatever [arbitrary] denomination he pleases.
[The MMTers, Beowulf & Cullen Roche (Pragmatic Capitalism) have proposed that the Treasury deposit a $1T platinum coin at the Fed were Congress not to raise the debt ceiling.]
Chart: S&P 500 priced in Gold (1886-2012) | Tobias Levkovich (Citi)
SPX/Gold ratio has recovered from 8/2011’s dip below 1 standard deviation, its long term trendline support, back up from a 0.67 low to 0.89.
Proving that the Fed has used banks to indirectly intervene in stock market | Zero Hedge
Banks traditionally controlled money creation via lending deposits (the extension of credit), but after Lehman collapsed, the Fed took de facto control when it pursued extraordinary monetary policy measures (QE). Banks have not lent deposits since Lehman, as illustrated by the sudden divergence between deposits (surging) & loans (foundering) that began in 2008. That “excess deposits” gap is now $2T, matching the Fed’s cumulative asset purchases, and since its not helping credit creation, the Fed is indirectly propping up risk assets like the stock market, using banks as a medium.
Deposits are fungible money, so banks have rehypothecated excess deposits for use in their proprietary & flow operations, instead of lending. JP Morgan’s London Whale blunder can attest, whence the majority of the bank’s excess deposit liabilities were explicitly invested by the CIO in risk-based securities “Assets For Sale.”
The conclusion is that the Fed may never end QE, because of the capital’s exposure/support of the stock market.
[Includes a video of CNBC’s Steve Liesman, who shows how little mainstream media/economists understand about how the monetary system works. The rest is just a penetrating glimpse of the obvious.]
Government announces student loan bailout: “Pay As You Earn Repayment Plan” | The Wall Street Journal (WSJ)
A new federal program launched 12/21/12 limits student debt monthly payments to 10% of discretionary income, and unpaid balances for current loans can be forgiven after 20 years. Monthly payments are now subject to means testing, with zero P&I payment required of low income borrowers, whose loans will remain current (and eligible for forgiveness after aforementioned 20 years). Loans originated after 9/2007 are grandfathered-in.