“We simply cannot accept a system in which hedge funds and private equity firms insider banks can place huge risky bets that are subsidized by taxpayers,’’ Obama said at the news conference this week announcing his proposal.
Bank of America-Merrill Lynch, the private-equity firm of the nation's largest commercial bank, owns 25% of the health care company, HCA.
Merrill made the investment when HCA was taken private in a $33 billion leveraged buy out in 2006. Since then, HCA has reduced its debt load, boosted revenue and, as Deal Journal wrote about earlier, is paying a fat $1.75 billion cash fourth quarter dividend to its investors.
White House officials have said the Volcker rule would likely allow commercial banks to make investments on behalf of clients, but not with the bank’s own money. Whether a Volcker rule would affect BofA’s HCA investment remains unclear.
Obama said in his State of the Union address that he would veto any reform legislation that fails to reduce systematic risk.
Systematic risk is essentially the correlation of losses of market participants. There are two main ways to measure systemic risk: Too big To fail (TBTF) and Too interconnected to fail (TICTF).
TBTF compares an institution's size relative to
the national and international marketplace, market share concentration, and competitive barriers to entry or how easily a product can be substituted.
The national insurance marketplace, for example, simply requires capital input to become a player and therefore one homeowner's insurance policy can easily be replaced by another.
a state residual market provider, with limits on the underwriting fluidity primarily stemming from state-by-state regulatory impediments, such as limits on pricing and capital mobility. There are arguably either no or extremely few insurers that are TBTF in the U.S. marketplace.
TICTF, on the other hand, measures the impact and likelihood medium-term impact of the larger economy if the institution were to fail.
The impact is measured not just on the institution's products and activities, but also the economic multiplier of all other commercial activities dependent specifically on that institution. It is also dependent on how correlated an institution's business is with other systemic risk.
Regulation, such as the bank regulation that Obama is proposing, cannot be the means to an end of systematic risk. Other sectors, such as insurance companies & private equity, would be in a position to take over the former risks of banks and the systematic risk would be maintained.
Saturday, January 30, 2010
Thursday, January 28, 2010
A Green Battle
"The world has absolutely no hope of making any substantial impact on global warming without major scientific breakthroughs, almost all which will come from United States' innovation," said Robert Nelsen, co-founder and managing director of Arch Venture Partners.
An estimated $150 billion invested globally last year was only about half what is required annually by 2015 to avoid dangerous climate change, the International Energy Agency estimates.
The question comes down to this: will China's highly capitalized command-and-control economy trump laissez-faire in a low-carbon shift that is widely portrayed as the next industrial revolution?
The failure in Copenhagen to agree to replace the Kyoto Protocol with a new global climate treaty when it expires in 2012 has thrown the focus on national measures. And by almost all accounts, the Chinese are coming on strong.
Beijing's top leaders have made clear their intention to have their nation dominate this new industry, up and down the value ladder. And in their quest for the prize, they are not burdened by concerns facing their Western counterparts -- such as the impact of wind turbines on landscapes, higher energy prices for consumers, or investor returns.
China is leapfrogging global wind power rankings with a combination of aggressive growth targets and domestic support. It has doubled its entire installed capacity each year since 2005, according to the Global Wind Energy Council (GWEC).
As he and other investors see it, British policymakers have to make a choice: either create bigger incentives for investors to underwrite offshore wind power or impose additional taxes on fossil fuels, which would make carbon-based energy less profitable.
Very, very interesting. Since Copenhagen failed, the focus has split from a global effort to a national effort, and the war has begun. China's top-down approach will combat Europe's 2020 20% goal. The business incentives also appear to line up nicely for China. Another note is that shareholder rights need to be a part of the process. If preferred shares are utilized to direct conventional oil companies to invest in greener technologies, investors can come to the rescue.
Furthermore, Western businesses are worried China is freezing them out of this lucrative market, preferring to nurture its own nascent industries without subjecting them to competition.
"The state-owned energy company sets up its development arm and they then go to a state-owned bank to get the funding, and they go to a state-owned grid company to make sure they can get a grid connection, and then lo and behold! If there's a bidding process, the state-owned turbine manufacturers happen to win the contracts," said McNamara.
This may have its downsides, as some Western analysts say that ultimately, a free-market approach will provide the competitive means for innovation in contrast to China's state-controlled, efficient financing approach. Also at stake is a grid to support the added electricity.
An estimated $150 billion invested globally last year was only about half what is required annually by 2015 to avoid dangerous climate change, the International Energy Agency estimates.
The question comes down to this: will China's highly capitalized command-and-control economy trump laissez-faire in a low-carbon shift that is widely portrayed as the next industrial revolution?
The failure in Copenhagen to agree to replace the Kyoto Protocol with a new global climate treaty when it expires in 2012 has thrown the focus on national measures. And by almost all accounts, the Chinese are coming on strong.
Beijing's top leaders have made clear their intention to have their nation dominate this new industry, up and down the value ladder. And in their quest for the prize, they are not burdened by concerns facing their Western counterparts -- such as the impact of wind turbines on landscapes, higher energy prices for consumers, or investor returns.
China is leapfrogging global wind power rankings with a combination of aggressive growth targets and domestic support. It has doubled its entire installed capacity each year since 2005, according to the Global Wind Energy Council (GWEC).
As he and other investors see it, British policymakers have to make a choice: either create bigger incentives for investors to underwrite offshore wind power or impose additional taxes on fossil fuels, which would make carbon-based energy less profitable.
Very, very interesting. Since Copenhagen failed, the focus has split from a global effort to a national effort, and the war has begun. China's top-down approach will combat Europe's 2020 20% goal. The business incentives also appear to line up nicely for China. Another note is that shareholder rights need to be a part of the process. If preferred shares are utilized to direct conventional oil companies to invest in greener technologies, investors can come to the rescue.
Furthermore, Western businesses are worried China is freezing them out of this lucrative market, preferring to nurture its own nascent industries without subjecting them to competition.
"The state-owned energy company sets up its development arm and they then go to a state-owned bank to get the funding, and they go to a state-owned grid company to make sure they can get a grid connection, and then lo and behold! If there's a bidding process, the state-owned turbine manufacturers happen to win the contracts," said McNamara.
This may have its downsides, as some Western analysts say that ultimately, a free-market approach will provide the competitive means for innovation in contrast to China's state-controlled, efficient financing approach. Also at stake is a grid to support the added electricity.
Awaiting US trade negotiations with Colombia, Panama, and South Korea
From Reuters
Democrats complain Colombia has not done enough to stop violence against trade unionist and they want changes in Panama's tax haven laws and labor regime.
Midwestern lawmakers, including some Republicans, are unhappy with auto provisions of the Korean agreement they say fail to tear down barriers that keep American cars out.
U.S. trade officials also met recently with Ford Motor Co (F.N) President Alan Mulally, whose company is the loudest industry opponent of the Korean pact.
U.S. Wheat farmers -- reliant on exports for half their sales -- said they were anxious for the Colombia pact to pass, noting Canada will soon ratify a similar deal, which would give it a leg up in that market.
Obama said in his State of the Union Address that he wants to double U.S. exports in 5 years, supposedly supporting some 2 million jobs within the U.S. Trade pacts with Colombia, Panama, and South Korea have historically been blocked by Democratic party opposition. Obama's remarks are meant to real in Republican interests to help support other Obama initiatives such as health care reform.
But Daniel Price, a lawyer at Sidley Austin and former White House adviser to George W. Bush, said many would be "puzzled" by Obama's failure to explicitly urge approval of the deals and instead only call for stronger trade ties.
If Obama were to actually push these deals through Congress, he would risk dividing the Democratic party, many of whom have been against such negotiations since they began during the Bush administration. These Democrats blame the North American Free Trade Agreement (NAFTA) of the early 1990s and China's entry into the World Trade Organization in 2001 for the loss of millions of US manufacturing jobs.
Democrats complain Colombia has not done enough to stop violence against trade unionist and they want changes in Panama's tax haven laws and labor regime.
Midwestern lawmakers, including some Republicans, are unhappy with auto provisions of the Korean agreement they say fail to tear down barriers that keep American cars out.
U.S. trade officials also met recently with Ford Motor Co (F.N) President Alan Mulally, whose company is the loudest industry opponent of the Korean pact.
U.S. Wheat farmers -- reliant on exports for half their sales -- said they were anxious for the Colombia pact to pass, noting Canada will soon ratify a similar deal, which would give it a leg up in that market.
Obama said in his State of the Union Address that he wants to double U.S. exports in 5 years, supposedly supporting some 2 million jobs within the U.S. Trade pacts with Colombia, Panama, and South Korea have historically been blocked by Democratic party opposition. Obama's remarks are meant to real in Republican interests to help support other Obama initiatives such as health care reform.
But Daniel Price, a lawyer at Sidley Austin and former White House adviser to George W. Bush, said many would be "puzzled" by Obama's failure to explicitly urge approval of the deals and instead only call for stronger trade ties.
If Obama were to actually push these deals through Congress, he would risk dividing the Democratic party, many of whom have been against such negotiations since they began during the Bush administration. These Democrats blame the North American Free Trade Agreement (NAFTA) of the early 1990s and China's entry into the World Trade Organization in 2001 for the loss of millions of US manufacturing jobs.
Monday, January 25, 2010
Housing Update
"We have shamelessly borrowed from our children. And we used it, we didn't invest it. That's the picture we're in," said Ben Verwaayen, Chief Executive of Alcatel-Lucent.
FT.com reports
The Obama administration agreed just before Christmas to offer an unlimited credit extension to Fannie Mae (FNM) and Freddie Mac (FRE) for the next three years, lifting a cap that was at $200 billion for each company.
The $8,000 credit tax reward for purchases of new homes will end in April, after it was already set to expire in November.
The argument for the extension of government stimulus in the housing sector is the growing pressures of defaults on mortgages due to the 10% unemployment rate. There are concerns that foreclosures could top the 2009 level of 2.8 million. The 2009 levels were 21% greater than 2008. These figures would have been worse without the aid of Obama's Home Affordable Modification Program.
Repossessed homes, however, were up only 1.1% from 2008, driven primarily by short-term factors such as trial loan modifications, state legislation extending the foreclosure process, and an overwhelming inventory volume, reports James Saccacio CEO of RealtyTrac.
It is unclear whether these modifications have only forestalled the inevitable foreclosures to come while filings peaked in July of 2009 and declined the following 4 months.
The Fed has been buying up mortgage-backed securities, which reduces mortgage rates by 25 to 75 basis points. 30-year mortgages are at 4.98% for the week ended Jan. 28, the lowest rate in decades. Mortgage rates are also linked to yields on Treasuries and MBOs.
Most of the loan modifications are temporary which leaves economists pessimistic about the future of the housing market.
The four states with the most foreclosure filings -- California, Florida, Arizona and Illinois -- accounted for a full 50% of the nation's properties receiving notices.
Most forecasts predict price declines in 2010, from 3% up.
Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
The stabilization of home prices, which started in October 2009, can be attributed to the low mortgage interest rates and the first-time homebuyers tax credit.
The three primary reasons why home prices are expected to fall once again are:
1. The second wave of home foreclosures
2. Rising interest rates
3. The end of the tax credits
Strategic defaults are also expected to rise as the value of home prices fall and people will walk away realizing that the value of the home dips below the value they owe.
Peter Schiff, president of Euro Pacific Capital, says that home prices (now down 29% from their peak) are only half way to the bottom.
FT.com reports
The Obama administration agreed just before Christmas to offer an unlimited credit extension to Fannie Mae (FNM) and Freddie Mac (FRE) for the next three years, lifting a cap that was at $200 billion for each company.
The $8,000 credit tax reward for purchases of new homes will end in April, after it was already set to expire in November.
The argument for the extension of government stimulus in the housing sector is the growing pressures of defaults on mortgages due to the 10% unemployment rate. There are concerns that foreclosures could top the 2009 level of 2.8 million. The 2009 levels were 21% greater than 2008. These figures would have been worse without the aid of Obama's Home Affordable Modification Program.
Repossessed homes, however, were up only 1.1% from 2008, driven primarily by short-term factors such as trial loan modifications, state legislation extending the foreclosure process, and an overwhelming inventory volume, reports James Saccacio CEO of RealtyTrac.
It is unclear whether these modifications have only forestalled the inevitable foreclosures to come while filings peaked in July of 2009 and declined the following 4 months.
The Fed has been buying up mortgage-backed securities, which reduces mortgage rates by 25 to 75 basis points. 30-year mortgages are at 4.98% for the week ended Jan. 28, the lowest rate in decades. Mortgage rates are also linked to yields on Treasuries and MBOs.
Most of the loan modifications are temporary which leaves economists pessimistic about the future of the housing market.
The four states with the most foreclosure filings -- California, Florida, Arizona and Illinois -- accounted for a full 50% of the nation's properties receiving notices.
Most forecasts predict price declines in 2010, from 3% up.
Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
The stabilization of home prices, which started in October 2009, can be attributed to the low mortgage interest rates and the first-time homebuyers tax credit.
The three primary reasons why home prices are expected to fall once again are:
1. The second wave of home foreclosures
2. Rising interest rates
3. The end of the tax credits
Strategic defaults are also expected to rise as the value of home prices fall and people will walk away realizing that the value of the home dips below the value they owe.
Peter Schiff, president of Euro Pacific Capital, says that home prices (now down 29% from their peak) are only half way to the bottom.
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