Some economists are starting to point at the dragging recovery and current business cycle expansion as getting a bit long in the tooth. “Although the current expansion is roughly the same age as that of the post-war average, it is young when compared against the expansions of the Great Moderation period.” Some believe that “recoveries following housing-bust-driven contractions…tend to be long-lived,” suggesting that “economic growth in the US and the UK has room to accelerate.” The flip side to that argument is this: “the latest financial crisis and recession happened in the middle of already-weird (i.e. stagnant) times for the economies of the developed world.” Furthermore, “given these trends, the danger is that with the recovery proceeding at such a painfully shallow slope, some of the damage to the economy’s productive potential becomes permanent or semi-permanent.” Speaking of permanent (psychological) damage, hedge funds are now our saviors: “lenders are selling pools of soured mortgages as they face new regulations that make bad debt more expensive to hold. Banks sold $34.7 billion in nonperforming loans last year, up from $13.1 billion in 2012.” The nonperforming loans are sold at a significant discount to hedge funds and other smaller private firms, because A) Jamie Dimon is done with the pain, and B) “They’re a lot more flexible than a bank…and they can basically set their own rules,” said one man who friends presumably would describe as being “optimistic.” Meanwhile, there’s been a lot of activity on Capitol Hill (alt) recently re: Fannie and Freddie. While unlikely to gain much support in the Republican-led House, Representative Maxine Waters (D-CA) believes “Fannie Mae and Freddie Mac’s return to profitability and repayment of taxpayer dollars has led some to rightly speculate whether (they) need any reform at all.”
Citigroup And Bank Of America: Maybe Experiencing Jamie Dimon-Level Headaches
The Federal Reserve announced yesterday they have “rejected the capital plans of five of the 30 large banks (alt), including Citi, as well as the US units of HSBC, Royal Bank of Scotland and Santander. Among the 25 that had their capital plans approved, Goldman Sachs and Bank of America lowered their initial capital requests after last week’s first-round stress tests in order to secure the Fed’s backing.” Despite having passed the Fed’s “quantitative” stress tests last week, the Fed’s objections to capital plans were based on “‘qualitative’ measures, which include banks appropriately addressing potential risks, the strength of their capital planning process such as risk management practices, and corporate governance issues.” What they’re talking about here is “the challenge of finding solid lending clients in a country where the line between big business and political cronyism can become blurred.” Meanwhile, Bank of America has settled a mortgage backed securities dispute with the Federal Housing Finance Agency for a mere $9.3bn (says Jamie Dimon): “Bank of America said that it will make cash payments of roughly $6.3 billion and also purchase securities from Fannie and Freddie worth more than $3 billion.”
IMF Bails Out Ukraine; EU Says “Securitize It”; Bertrand Badré Says “Criticize It”
The IMF has pledged a $14bn-$18bn rescue package for Ukraine (alt): “[Ukrainian] foreign exchange reserves have fallen to barely two months’ import cover, and the finance ministry warned this week it expected the economy to contract by at least 3 per cent this year…total international support [is] set to amount to about $27bn over the next two years…the IMF package comes with significant strings attached. They include Ukraine moving to a flexible exchange rate and away from a currency peg that long kept the national currency, the hryvnia, pegged to the dollar at an artificially high level. A second condition is fiscal tightening, with a target of reducing the budget deficit by about 2.5 percentage points of gross domestic product by 2016…Kiev announced on Wednesday that household gas prices would rise by 50 percent from May 1. Also, “the European Union will look for ways other than the region’s banks to finance infrastructure projects and invest in start-up companies, according to plans the EU published on Thursday…some EU laws will be changed to ease curbs on what pension funds, which total 2.5 trillion euros in the EU, can invest in. The plan will also try to nurture new forms of finance, such as crowdfunding or online peer-to-peer lending. The EU plans will start to rehabilitate securitization, the process of bundling loans into a bond.” All of this “to help provide the trillion euros needed for new telecom, transport and energy networks by 2020.” Meanwhile, Bertrand Badré, Director and CFO of the World Bank Group, says “infrastructure investment requires more than money…governments should pay more attention to the selection, quality, and management of infrastructure projects, as well as to the quality of the underlying investment climate.” Meanwhile, here’s a Q&A with the former head of the IMF, explaining why the dollar remains the reserve currency and he doesn’t see that changing anytime soon.
“For a new breed of ‘activist’ investors, tipping other investors is part of the playbook…in doing so, they build alliances for their planned campaigns at the target companies.” One corporate lawyer/activist destroyer sees it like this “They are building a constituency…[they] are using, in effect, the pop in the stock price to help pay these people for being on their side in a coming battle against the target company.” One activist investor/corporate raider see it like this: “I’m happy to give people my thoughts on things I own and I’m happy to learn about how other people think.” Also, he’d like to add that he only pursues “conversations that are permissible under the rules.”
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