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Triple Crunch Log                                                                                                            

Google searches for offbeat tech investments. FT: “Driverless cars, wind turbines, lunar robots, genetic profiling and human-powered monorails. Few would immediately connect these fields of research with an internet search engine. Yet Google has put hundreds of millions of dollars behind companies working on these areas and many more as part of an ambitious long-range investment programme. Many technology companies have vast cash reserves that some shareholders would like to see put to greater use. IBM, Microsoft and Intel all invest substantial sums in early-stage start-ups and pioneering research, but Google – with more than $30bn in cash on its balance sheet – is prepared to push the boundaries further.”928

Oil chiefs rail against Washington while hoping to carry on as usual. FT: “Unsurprisingly here at the first Oil & Money annual conference since the BP oil spill, the talk in the corridors and meeting rooms, not to mention the main stage, has been dominated by that tragedy. In general, the tone has been one of a stoic determination on the part of executives to carry on as normal, although coupled with an acceptance that much of the fallout is as yet unknown. … the consensus I have found around this conference is that big oil will find a way to carry on as normal. But to do that, they may need to drop the hostility towards the policy makers who will decide their fate.929

Securitization flaws may lead investors to fight mortgage deals. Is this the next big panic? Bloomberg: “Potential paperwork errors on some of the $1.34 trillion of securitized home mortgages may give investors an opening to challenge the legality of deals, threatening to unnerve financial markets, according to Joshua Rosner, managing director at Graham Fisher & Co. Some loans to borrowers with poor credit before 2007 may not have been transferred to mortgage trusts in the manner required by their pooling and servicing agreements. That raises questions about the ownership of the loans and may allow investors to force lenders to buy back the securities, Rosner wrote yesterday in a note to clients. The failure to include MBS trust names on documents and to properly assign loans to the trust may encourage MBS holders to challenge the entire securitization, rather than press lenders to take back individual loans that were fraudulently issued, according to Rosner, whose firm advises investors and regulators. That could set off legal fights over almost all subprime MBS sold to investors. … Bank of America Corp, the largest U.S. lender, has halted foreclosures in all 50 states amid allegations that home seizures are being based on faulty documents. JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit have stopped repossessions in the 23 states with judicial supervision over foreclosures. … Lawsuits over the assignment of the mortgages have ”that Armageddon possibility,” said Katherine Porter, a visiting professor at Harvard Law School who has studied banks’ foreclosure practices. “I think if you press hard, the transfers from the depositor to the sponsor and that sort of stuff were often flubbed.”930

“Foreclosure fraud is one domino, and if it falls others will follow.” Richard Eskow on the Huffington Post: “The result could be an end to the "invisible bailout" -- the one you never hear about, the one that forces millions of people to subsidize bad lending practices in order to prop up Wall Street. The invisible bailout is the reason why the government isn't pushing to freeze foreclosures. If the foreclosure process is halted and lending practices are thoroughly investigated, it might eventually force bankers to own up to their own lawlessness -- and write down billions of dollars in artificially inflated assets. How are they going to pay themselves record bonuses if that happens? How much could that cost? One in four US homes is underwater, which means that proper accounting would require a writedown of enormous proportions. And, as the AP reported, "forecasters at John Burns Real Estate Consulting predicted that 41 percent of residential sales this year would be on distressed properties." The banks have been counting on that revenue. …. Investors hate banks right now, and no wonder. Non-interest revenue has fallen by more than $10 billion since 2007, while this kind of problem will cause their expenses to rise. Banks are trading below book value on the open market, which should be (but won't be) celebrated by the right as an instance of an informed market making a wise decision. (Only 8% of banks traded below their book value in 2001, and by 2008 that was up to 60%.) As the IMF says, bankers are running a "very fragile" business. Even with a license to break the law, profits are down and they can't dig their way out of the hole they made. That suggests they're not very good at their jobs. What's the right set of incentives for that kind of record? Record bonuses, of course -- even if it means taking a bigger percentage of their reduced profits to do it. But what they must do at all cost to protect those bonuses is pretend everything's fine. They're not even writing down second liens on homes, which are notoriously over-borrowed. (Did I mention that these guys are giving themselves record bonuses?) Foreclosure fraud is the first domino. If it's tipped over, the "invisible bailout" would end. Banks would no longer be subsidized by American homeowners. Know what that means? Bye-bye, bonuses. Hello, increase in discretionary spending for American consumers. And hello there, new jobs.”931

13.10.10. Securitization flaws may lead investors to fight mortgage deals. Is this the next big panic? Bloomberg: “Potential paperwork errors on some of the $1.34 trillion of securitized home mortgages may give investors an opening to challenge the legality of deals, threatening to unnerve financial markets, according to Joshua Rosner, managing director at Graham Fisher & Co. Some loans to borrowers with poor credit before 2007 may not have been transferred to mortgage trusts in the manner required by their pooling and servicing agreements. That raises questions about the ownership of the loans and may allow investors to force lenders to buy back the securities, Rosner wrote yesterday in a note to clients. The failure to include MBS trust names on documents and to properly assign loans to the trust may encourage MBS holders to challenge the entire securitization, rather than press lenders to take back individual loans that were fraudulently issued, according to Rosner, whose firm advises investors and regulators. That could set off legal fights over almost all subprime MBS sold to investors. … Bank of America Corp, the largest U.S. lender, has halted foreclosures in all 50 states amid allegations that home seizures are being based on faulty documents. JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit have stopped repossessions in the 23 states with judicial supervision over foreclosures. … Lawsuits over the assignment of the mortgages have ”that Armageddon possibility,” said Katherine Porter, a visiting professor at Harvard Law School who has studied banks’ foreclosure practices. “I think if you press hard, the transfers from the depositor to the sponsor and that sort of stuff were often flubbed.”932

After peak oil, could we face peak steel? FT: “You will if you listen to Eiji Hayashida, chief executive of JFE Steel of Japan. The head of the world’s fifth biggest steelmaker told the FT that from around 2015 world steel output will reach a plateau for at least 5-10 years, driven both by resource constraints and a weakening in demand.”933

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