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Finance | Banking | Monetary Policy

TARP’s Illusory Profits
e21 Team | 2012-04-26

The Troubled Asset Relief Program (TARP) was recently claimed by the Treasury department to be likely to recoup the money it spent trying to prop up the economy. While that would be wonderful news, judging the impact of a huge financial program like TARP on the federal budget is much more complex that simply totaling dollars in and dollars out.Daniel Indiviglio of Reuters applied some basic financial accounting techniques to determine that TARP is actually likely to cost the taxpayers hundreds of billions of dollars.

Too Big to Succeed? Central Bank Balance Sheets Continue to Balloon
e21 Team | 2012-04-20

Since 2006 the balance sheets of the eight largest central banks around the globe have nearly tripled--now totaling almost $15 trillion. Much of this explosion, seen in the chart below from Ritzholtz.com, can be attributed to asset purchases by the Fed, ECB, and BOJ, each of whom has sought new means of monetary easing with their benchmark rates near zero. A perspective on the sheer size of these balance sheets can be obtained by comparing their sum to the entire market capitalization of global equity markets. The $15 trillion held by major central banks is approximately 33% of the global equity market capitalization. In 2007 it was a mere 10%.

Large Banks Begin to Recognize Reality of Second Liens
e21 Staff Editorial | 2012-04-19

On Monday, Citigroup announced first quarter earnings that beat consensus expectations thanks to cost cutting and better credit performance. Citigroup’s $1.2 billion net release of credit reserves during the quarter boosted earnings, as a decline in reserves translates to a dollar-for-dollar increase in the accounting value of the loans the bank owns. Despite the overall good news on credit conditions, Citi did report a large increase in nonperforming second lien loans – such as a home equity loan or home equity line of credit (HELOC). According to the earnings release, Citi classified $800 million in second liens as nonperforming, including $700 million that were actually current but subordinate to a first mortgage that was seriously delinquent.

Obama Administration's New Plan to "Re-Gift" TARP Funds: Fan and Fred Take Center Stage (Again)
e21 Staff Editorial | 2012-03-26

Thus far, the Federal Housing Finance Administration (FHFA), the conservator for Fannie Mae and Freddie Mac, has been reluctant to forgive the outstanding principal balances on mortgages owned by Fannie and Freddie. In the view of the FHFA, the reductions in principal would come at a net cost to taxpayers and would therefore be inconsistent with the agency’s mandate to limit taxpayer losses in conservatorship.

Fed Set to Sell CDOs From AIG Bailout: Why Policymakers Should Care
e21 Staff Editorial | 2012-03-19

Last Friday, the Wall Street Journal reported that large banks are interested in buying the “toxic assets” the Federal Reserve Bank of New York (FRBNY) acquired as part of the AIG bailout. Specifically, Goldman Sachs, Barclays, and Credit Suisse have all expressed interest in buying the FRBNY’s $47 billion portfolio of collateralized debt obligations (CDOs). The demand for these assets is partly a reflection of the current monetary policy environment, which has flooded the market with liquidity and substantially reduced expected returns across virtually all asset categories.

Easy Money? Weighing the Odds of QE3
e21 Team | 2012-03-08

It seems like only yesterday, Chairman Bernanke said the Fed was ”prepared to provide further monetary accommodation” after the January 25th FOMC meeting. At that time, most questions regarding QE3 focused on when, not if. However, since then a run up in U.S. equities to four-year highs and strong employment data have brought the very need of QE3 back into headlines. With February’s Employment Situation due out Friday morning and expecting a third straight monthly gain of at least 200k jobs, the argument over the need for another round of security purchases by the Fed is ramping up.

A Dangerous Combination: Financial Innovation & the Suppression of Market Forces
e21 Staff Editorial | 2012-02-24

One of the most fundamental problems with the Dodd-Frank Act is its unreasonable degree of confidence in regulators’ ability to balance the competing societal goals of innovation and stability. The law itself was over 2,300 pages, but this was just the tip of the iceberg. Since the law does not specify new regulations so much as authorizes regulators to promulgate new rules, the law has actually spurred thousands of additional pages in the form of regulatory proposals. The most recent example is the “Volcker Rule,” which spurred hundreds of pages of additional regulations and is in the final stages of public comment and implementation.

Obama Doubles Down on Housing
Christopher Papagianis | 2012-02-06

Last week, President Obama gave a speech highlighting his administration’s response to the ongoing crisis in the housing market. The speech material can be broken down into two broad categories: 1) a review of existing government programs (including some modest programmatic tweaks) to boost mortgage modification and refinancing opportunities; and 2) a new refinancing proposal meant to help more struggling, or at-risk, families not currently eligible for the government’s signature programs.

Is Too Much Homeownership a Good Thing?
e21 Team | 2012-01-24

For generations the assumption among market participants, policymakers, and the general population has been that increased homeownership is a positive for the U.S. economy. An essay out of the Richmond Fed questions this assumption and expands on the risks of subsidizing homeownership. Against the backdrop of the SOTU and the likely inclusion of some new housing policy, the analysis from this essay should be a helpful reminder that there is a lot that we still don’t know about the effects of homeownership and its relationship to the health of the aggregate economy.

The Fed’s Pyrrhic Victory
e21 Staff Editorial | 2012-01-18

Increased consumption by households accounted for 70% of GDP growth in the second half of 2011. This increase in outlays was almost entirely due to the fall in consumer savings. The boost in the economy, therefore, is coming from a rise in the proportion of household income that is being spent, not an increase in household income. Is this sustainable?


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