Saturday, June 22, 2013

Remembering the housing bust

Financial advice from a home flipper.

Friday, February 5, 2010

Recovery Imminent?

Probably not. If drywallers and roofers were heading back into the field, don't you think gasoline usage would be up? It's not.

I continue to be convinced that Food Stamps and unemployment insurance are the mechanisms used in the 21st century to hide what would otherwise be lines at soup kitchens.

Wednesday, January 27, 2010

New SEC rules for Money Market funds

Happily, I don't see anything here about limiting or halting redemptions.


US SEC Adopts New Money Mkt Fund Rules; More To Come This Yr
Wednesday, January 27, 2010 - 13:49

WASHINGTON (MNI) - The Securities and Exchange Commission Wednesday adopted a new set of rules governing money market funds, but with some key differences from the initial proposals, such as abandoning the differentiation between retail and institutional funds for liquidity requirements.

The vote was 4 to 1, with SEC Commissioner Kathleen Casey disagreeing on the basis that the reforms do not address the fundamental issues, particularly as money market funds remain susceptible to runs.

Unless such funds are regulated like banks, she said, floating net asset values might be the way to go.

SEC Chairman Mary Schapiro said the Commission will actively consider that path in looking at a new set of rules expected this year.

Like the initial proposals, the amendments adopted at Wednesday's open meeting aim at reducing risks associated with investing in money market funds through tighter credit quality and liquidity requirements, shorter maturity limits and the disclosure -- albeit on a delayed basis

Going forward, a set of important additional reforms is expected this year, Schapiro said, although the discussions during the meeting did not indicate a date.

Among the key changes under consideration is a switch to a floating NAV, rather than the current stable regime under which an investor expects $1 in to be $1 out.

"At my request, the Commission's staff is actively engaged in evaluating and preparing recommendations that will more fundamentally transform money market funds -- with a particular focus on evaluating the merits of a floating NAV," Schapiro said.

"We will continue to oppose strongly any move that would directly or indirectly require money market funds to abandon the $1.00 fixed net asset value that has been a defining feature of these funds," the Investment Company Institute reacted Wednesday, sticking to its longstanding position.

Other aspects of the money market fund regulation are also under consideration, including mandatory redemptions-in-kind for large redemptions (such as by institutional investors), real time disclosure of shadow NAV rather than on the delayed basis as the Commission approved Wednesday.

The commission is also considering a private liquidity facility to provide liquidity to money market funds in times of stress, a two-tiered system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements.

"Several other options (are) being discussed with the President's Working Group," Schapiro added, without specifying.

In seeking to further reform the regulation of money market funds, Commissioner Luis Aguilar warned how important it is to avoid a flight on the investors' part to "unregistered vehicles."

One way to avoid that, he said, is to also look at those investment vehicles in the context of a second ruling.

For now, the rules introduce few but key changes from the initial proposals made last summer.

On the liquidity front, the SEC had initially proposed to require retail money market funds to maintain at least 5% of their assets in cash or cash equivalents, while 15% of the assets should be convertible to cash within one week. For institutional money market funds, the corresponding figures would be 10% and 30%.

The amended proposal no longer differentiates between the categories of funds, with all taxable money market funds required to hold at least 10% in cash or cash equivalent on a daily basis. All money market funds must maintain at least 30% in cash or equivalent on a weekly basis.

The structure of the industry is such that funds are organized in share class or master fund/feeder fund type of structure, a staff member noted.

As a result, the initial proposal would have forced restructuring in the industry, which is very "uninterested" in such a change.

Should the industry express interest in reinstating the differentiation, however, the staff would consider it, he said.

Other proposals aimed at improving liquidity restrict funds from holding more than 5% of their portfolio in illiquid assets, defined as assets "that cannot be sold or disposed of within 7 days at carrying value."

The amended rules are also more accommodative regarding the quality of securities money market funds can invest in relative to the initial proposal, responding to opposition against banning such investments.

The initial proposal wanted "to allow money market funds to invest only in first tier securities."

"Under the proposed amendments, money market funds could 'acquire' only 'eligible securities,' which would be re-defined to include securities receiving only the highest (rather than the highest two) short-term debt ratings from the 'requisite NRSROs,'" the latter referring to nationally recognized statistical rating organizations.

Under the amended rule adopted Wednesday, however, investments in such lower quality securities would only be lowered to 3% of the portfolio from 5%.

A fund cannot own more than 0.5% of its assets in a single second-tier security, and those securities must mature in less than 45 days, rather than the current limit of 397 days.

Shorter maturities are not only imposed on second-tier securities, as the rules adopted by the Commission shorten the funds' portfolios' maturities in general, without any key change from the original proposal.

The rule reduces the funds' average maturity to 60 days from 90 days, while introducing a 120-day cap on the portfolio's maximum weighted average life maturity "to limit the ability of the fund to invest in long-term floating rate securities."

Other rules include so-called "Know Your Investor Procedures" to identify investors' redemption requests that may pose risks for the fund, as well as periodic stress tests, as was initially proposed last summer.

The SEC also maintained the requirements relative to credit rating agencies, which should help "screen" securities' credit quality rather than replace credit analysis from the portfolio managers.

In particular, the rule requests "funds to designate each year at least four NRSROs whose ratings the fund's board considers to be reliable" and "eliminate the current requirement that funds invest only in those asset-backed securities that have been rated by an NRSRO."

That change, according to Commissioner Casey, does not help reducing reliance on credit rating agencies, a "concern" somewhat shared by Schapiro, who stressed that money managers should not use credit rating agencies as a "shortcut" for determining whether it is adequate to own a security.

The SEC's rules are also enhancing disclosure of portfolio securities, by requiring money market funds to post their holdings on their website on a monthly basis.

They must also disclose the shadow NAV on a 60-day delay basis, a requirement that could be changed later this year if the Commission switches to real time disclosure as some commissioners are asking.

The rules on repurchase agreements are also the same as the initial proposals.

In a typical repurchase agreement, a fund purchases securities from a broker-dealer or a bank, agreeing that the counterparty will repurchase the same securities at a specified price, at a later date. The securities purchased serve as the collateral for the agreement, hence for the money market funds.

The Commission's rule limits money market funds to investing in repurchase agreements collateralized by cash items or Government securities.

They must also evaluate the "creditworthiness of the counterparty, regardless of whether the repurchase agreement is collateralized fully."

** Market News International Washington Bureau: 202-371-2121 **

Friday, January 8, 2010

Almost missed this one...

Looks like Bako lost one of its Credit Unions this evening.

From the Californian:

An excerpt:

Kern Central Credit Union was closed and liquidated by state regulators Friday due to inadequate capital, but members will be able to carry on business as usual, its former chief executive says, and accounts are safe.

Loans and deposits at the nearly $35 million-asset Bakersfield institution were taken over by the $75 million-asset Self-Help Federal Credit Union headquartered in North Carolina. Kern Central will operate under the business name Community Trust Credit Union, a division of Self-Help. Self-Help already operates six branches in California

Heh. I like the name of the new branch. "Community Trust Credit Union". Just remember what Ronald Reagan said about the Soviet nuclear missile agreement: "Trust, but verify."

Like I said in an earlier post, check the health of a financial institution before depositing your money. The FDIC is effectively insolvent, and the government has shown itself far more willing to bail out large well-connected institutions than small businesses or individuals.

Caveat Emptor when depositing your money...

Better late than never, I suppose

Without comment:

Plea Agreements

Thursday, January 7, 2010


The toxic substance that sickened the TSA workers at Meadows Field, causing them to be transported in an ambulance to the hospital? None other than that lethal liquid, honey.

Story HERE.

I have a scoop that the Californian does not have, however. I have a picture of the TSA workers. The link to their photo is HERE.

OK, that wasn't very nice. What would be nice is for all of the passengers who were inconvenienced by this to get apologies from the TSA workers and the authorities who "did not over-react". ;)

Tuesday, January 5, 2010

Money Market Funds - Heads-up!!!

Here is some spooky stuff you won't learn from watching TV, even the financial network channels:

The government is about to change the rules on Money Market fund withdrawals. THIS is a rather long article over at Zero Hedge explaining the proposed new rules. ZH was kind enough to highlight the important parts in bold.

Here is the most important part:

Rule 22e-3

From the SEC:

Proposed rule 22e–3(a) would permit a money market fund to suspend redemptions if:

(i) The fund’s current price per share, calculated pursuant to rule 2a–7(c), is less than the fund’s stable net asset value per share;

(ii) its board of directors, including a majority of directors who are not interested persons, approves the liquidation of the fund; and

(iii) the fund, prior to suspending redemptions, notifies the Commission of its decision to liquidate and suspend redemptions, by electronic mail directed to the attention of our Director of the Division of Investment Management or the Director’s designee.

The bottom line is that the proposed rule change will allow institutions to halt redemptions from money market funds under certain conditions.

I have two views on this:

Yes, a panic is bad, and yes massive withdrawals from funds are profoundly destabilizing for the overall financial system. Because money market funds are not FDIC-insured, they are certainly likely to be prone to runs. It happened in November of 2008 after Lehman failed.

On the other side of the argument:

i)The money in question is MY money, not theirs.

ii) Since it is in a "liquid" account, I should be able to access all of MY money at any time.

iii) The last guy who needed to halt fund redemptions was Bernie Madoff.

I am still trying to decide whether or not this is a feature or a bug in the plan. The effect will be to coerce Americans to put their cash into the stock/bond markets, if only to guarantee access to their money. Of course a by-product of this rule will be that the financial industry benefits, and the stock market goes up. However forced purchase of stocks is not organic stock market behavior. It's manipulation.