About Me 0115: January 2011

Monday, January 24, 2011

foreclosure report

Two years ago today, Barack Obama was inaugurated as president of the United States. Are you better off today than you were two years ago?

Numbers don't lie, and here are the data on the impact he has had on the lives of Americans:

Foreclosures Increase As Mortgage Modification Programs Lose Steam

Even with the foreclosure moratoriums that a few of the nation’s biggest banks instituted following the robo-signing scandal, foreclosures for this year will likely top one million. According to a report released yesterday by the Office of the Comptroller of the Currency and the Office of Thrift Supervision — two of the federal bank regulators — foreclosure activities were up significantly in the last quarter:

The number of new foreclosures increased to more than 382,000 — 31.2 percent more than in the previous quarter and 3.7 percent more than a year earlier. The number of foreclosures in process increased to 1.2 million — 4.5 percent more than in the previous quarter and 10.1 percent more than a year earlier. The number of completed foreclosures also increased to nearly 187,000 — 14.7 percent more than in the previous quarter and 57.5 percent more than a year earlier.

A large reason for the jump, according to the report, is that mortgage modifications under the Home Affordable Modification Program (HAMP) — the Obama administration’s signature foreclosure prevention effort — have dropped significantly. Mark Zandi, chief economist of Moody’s Analytics, said that a main problem driving the foreclosure machine is the “inadequacy of loan modification programs”.

For months, it’s been apparent that HAMP and the administration’s other programs designed to keep borrowers in their homes are going to fall woefully short of their goals. HAMP has processed only about 500,000 permanent loan modifications, out of 1.4 million trial modifications that have been initiated. The redefault rate (the number of borrowers who again fall behind on their mortgages, post-modification) for the program is an ugly 21 percent.

The Congressional Budget Office estimates that just $12 billion of the $50 billion dedicated to foreclosure prevention will be spent. The Congressional Oversight Panel for TARP, which also oversees HAMP, estimates that at the current rate HAMP will only benefit 700,000 homeowners, far less than the 3-4 million that the Obama administration said would receive aid. “Absent a dramatic and unexpected increase in HAMP enrollment, many billions of dollars set aside for foreclosure mitigation may well be left unused. As a result, an untold number of borrowers may go without help,” the panel said in a report.

There are still plenty of things that can be done to fix HAMP and ensure that the full resources dedicated to foreclosure prevention actually wind up in the hands of homeowners. Here are some recommendations.

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

Phase One unveils IQ series digital backs: Phase One has released the IQ180, IQ160 and IQ140 medium format digital camera backs with 80, 60.5 and 40 megapixel CCD sensors respectively. All three backs feature 3.2" multi-touch rear ...

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

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Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

bench craft company reviews bench craft company reviews

Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

bench craft company reviews bench craft company reviews

Mideast Peace As Seen on TV « Liveshots

The Palestinian/ Israeli conflict and the fragile Peace Process is now back on the priority list of.

Transfer news Football Spy video: Latest on Liverpool's chase for ...

Darren Lewis is back with the best round-up of transfer news and gossip on the web.

Phase One unveils IQ series digital backs: Digital Photography Review

Tuesday, January 18, 2011

Wotlk Making Money

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Casting News: Anne Hathaway to Guest on 'Glee,' Marissa Jaret ...

Anne Hathaway must've made a good impression on 'Glee' creator Ryan Murphy at the Golden Globes this weekend, because he's already confirmed she will.

Shelf Life: Broadcast News - The Moviefone Blog

Although almost no one saw it, James L. Brooks released a film in December. Its name was 'How Do You Know,' and it disappeared after just a week or two.

Fit to Post – Yahoo! Philippines News » Blog Archive CCTV camera ...

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Friday, January 14, 2011

Free rental agreement forms medication

Similarly, if part of the argument was over a bank account, Legal Aid will want repaying if there is a successful outcome with a value over £5,000. Let me give you a scenario. A couple are getting divorced and they are arguing over who owns the £50,000 in a bank account. The funded party claims that 50% of the money is theirs and the non-funded party is claiming that all the money belongs to them. The matter goes to court and the court decides that the money should be split 50/50 and awards £25,000 to the funded person. The bill for arguing litigation was £10,000.

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The board would want £10,000 of the £25,000.00 that was awarded leaving the legal aided person with only £15,000 out of the £25,000. Ouch! With regards to the exemption, if the amount that was being argued over was £10,000 and the award was 50/50 then half of £10,000.00 being argued over (assuming 50/50) is £5,000.00. There is a £5,000.00 exemption ring fenced and therefore the board would get nothing.

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It can be very hard when you are applying for a bad credit mortgage, and it feels like all the odds are stacked against you. The feeling of going in to see a loan officer just hoping that they will be favorable toward you and that you might just have a chance of buying a home. The situation may be grim and you're feeling completely overwhelmed anyway, but know that millions before you have been in your same shoes. There is light at the end of the tunnel no matter how dark it may seem. Here are three simple steps that you can use to help you apply and possibly get a bad credit mortgage.

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Breaking news: EPA vetoes Spruce Mine permit « Coal Tattoo

This news is devastating to the Southern Coal Fields and our entire state. The Spruce Number One permit was issued years ago after undergoing a comprehensive permitting process. It is hard to understand how the EPA at this late hour ...

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

Turns out you'll have to wait a bit longer to see The Daily, Rupert Murdoch's long-awaited iPad news service. Apple and News Corp. have made a joint decision to push back next week's planned launch. The delay is supposed to give Apple ...

Bad News, About Virgin Mi-Fi and Verizon Upgrades - NYTimes.com

Two announcements this week. Two big bummers. Two good things gone.

Thursday, January 13, 2011

Making Money Advertising

Job description? I make videos on YouTube, full time.

If there’s one thing I’m hearing over and over again here at CES it’s content, content, content . Weather it’s Apple, Google or Yahoo, TV is going to be social; a mix of traditional and user generated content where viewers interact in real-time. And now users’ who generate content are becoming just as influential as corporate media providers and the money is their to prove it.

Making videos on YouTube is increasing becoming a viable career choice for videobloggers who not only get paid a percentage of the advertising revenue through Google’s Partner Program, but also make money from sponsorship and advertising. Brands are now jumping on the band wagon and paying a fraction of the costs partnering with YouTubers who are getting the same amounts of hits as a cable network.

I bumped into a couple of YouTube’s most popular videobloggers who told me how making YouTube videos is a full time career.

I have never been a gambler.

I pay attention to horse racing twice most years, and three times at most. I find out the winner of the Kentucky Derby (though usually not by watching the actual race) and then, when the Preakness rolls around, I check to see if the same horse has won both races.

If so, I pay just enough attention to learn if that horse also wins the Belmont Stakes, taking racing’s prestigious Triple Crown. The last time a horse actually won all three races was in 1978, so since then my excitement over the Belmont Stakes has been pretty limited.

In spite of all that, I thought I knew at least one thing about the gambling world: The house always wins. But it turns out that’s not the case when New York City or New York State takes the bets.

In early December, after about 40 years in business, New York City’s Off-Track Betting Corporation (OTB) closed its doors when it failed to receive a hoped-for legislative reprieve. In its last full fiscal year, ending March 31, the state-controlled corporation operated at a loss of $37.2 million after handing over the money it was required to give to the state, local governments, and race tracks. At the time of its closing, OTB had also racked up a pension bill that, together with health benefits promised to retirees, could be greater than $600 million.

This is a pretty astonishing feat considering that OTB’s business consisted of taking money from people and then giving some of it back to them. This is a business which was previously handled by neighborhood bookies, who never seemed to have a problem making money at it. To be fair, the bookies probably had a less generous pension plan.

Yet both New York City and New York State managed to fail to make money in the business of taking money for nothing. The city finally gave up in 2008, when it handed its mess over to the state.

Officials have tried to blame OTB’s collapse on decreased interest in horse racing. Speaking with The New York Times, John D. Sabini, chairman of the State Racing and Wagering Board, referred to off-track betting as “an industry that’s having a tough time…in a tough economy.” But while decreased demand is a fine excuse for not making much money, a gambling outfit should still be able to avoid losing money. All you have to do is reduce expenses to match revenues.

OTB could have easily closed down many or all of its betting parlors and relied on a small staff to manage Internet and phone traffic. For some businesses, atmosphere is everything, but OTB considered it a major upgrade in “customer amenities” when it installed restrooms and seating in 1993. It seems safe to say then that, while some may have enjoyed a sense of camaraderie in the storefront parlors, most people didn’t turn to off-track betting for the luxurious environment. With the cost savings from closing physical locations, OTB could have done some advertising to try to boost demand. That is what any rational manager would have done.

Unfortunately, instead of having rational managers, OTB had New York City and then New York State.

OTB was designed to function as a public benefit corporation, an entity that operates like a private business but turns over its profits to the state. However, everyone knew that OTB, being affiliated with New York City, was almost certain to become a bastion of patronage, if not corruption, and probably would never admit to having any profits to give back to the government. So lawmakers decided to have the corporation pay the city, and later also the state, a portion of its gross revenue, rather than its net profits. As Assemblyman J. Gary Pretlow of Mount Vernon succinctly explained: “If they’re allowed to pay on the net there would be nothing left over.”

This structure meant that the state was sure of getting some money, but it also meant the government had little reason to encourage OTB to cut costs. Meanwhile OTB had no assurance that it would have enough money after paying the state and the city to actually cover its operating costs, let alone reinvest in its business. The result was inevitable. Now that inevitability has come to pass.

It may take some skill to lose money collecting bets, but it’s the kind of skill New York has in spades. When it comes to the sport of mismanagement, there’s no doubt about it: The people who run the Empire State are thoroughbreds.

For more articles on financial, business, and other topics, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

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After slashing 47% of its staff earlier this week, News Corp is considering selling the struggling MySpace, among other strategic options, Bloomberg reports. MySpace relaunched as an entertainment hub in October, ...

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

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News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

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Some Good News! | PerezHilton.com

The economy seems to be finally be rebounding, with stocks climbing to a two year high yesterday!

Apple, News Corp. Delay "Daily" iPad Newspaper | Peter Kafka ...

News Corp considers MySpace sale, what happened? - Lost Remote

Monday, January 10, 2011

Making Free Money Online

You are going to make money when you lure people in with free gameplay, then they find out to be competitive, they need to spend money on items.

There is the Russian MMO, Allods. Someone figured out if you were to buy every single thing off the store, to actually play the game at it's full potential, and be competitive, you would be spending thousands a month.

They didn't sell you content. They rented it. That armor you got from their store? You have to pay for it again each month.

And the stuff they sold was ridiculous. Like upon dying, you were cursed, and you basically couldn't do anything but wait hours (or was it days?) for it to go away, or buy the cure off the store. People hated it, so they reduced it to a "chance" to happen when you die, But you still can buy a cure for it off their store.

Editor’s note: Guest author Ted Sorom is the CEO of Rixty, a virtual currency platform.

The global virtual goods industry put up some very impressive numbers this year. From special Easter eggs to virtual ad campaigns, virtual goods sales have grabbed their share of headlines over the past twelve months. Now with social gaming on the rise and everyone from your teenage nephew to your grandma to your old rugby teammate buying a “little something” to sweeten their online game, here is a look a back at the year in virtual goods sales.

$7,300,000,000: expected global revenue generated by the virtual goods industry in 2010. This is huge, considering the $60 billion generated in 2009 by the video game industry as a whole, and clearly shows that browser-based gaming is making great strides.

$2,100,000,000: The projected size of the US virtual goods market in 2011.

80,000,000: the all-time high number of Farmville players. The ubiquitous title for social gaming the world over, FarmVille surpassed its 2009 high mark of 50 million monthly active users, hitting this new peak in early 2010. You can now stop pretending you’re not addicted to your precious online farm. It’s ok… you’re among friends. Oh, and now CityVille is larger than FarmVille and approaching FarmVille’s all-time high with 75 million monthly active users.

20: percentage of Electronic Art’s overall revenue generated by digital sales. These aren’t just avatar items and XP boosts; the figure also refers to full-game downloads and downloadable content (DLC) to enhance console games. EA’s CFO Eric Brown notes that their “digital sales usually start with the sale of a physical disc, especially on the current generation of consoles.” But the upcoming Star Wars MMO is guaranteed to boost DLC consumption; want a blue double-ended light saber? It can be yours, if the price is right.

90,000,000: number of Pet Society virtual goods sold every single day. According to developer EA/Playfish, their most popular title has 20 million users, double that of World of Warcraft. It’s no wonder that EA was willing to pay $400 million to acquire the hot social developer in 2009.

$635,000: New world record for the single largest purchase in an online game, in this case a virtual intergalactic resort in Planet Calypso. A few years ago the same seller, Jon ‘Neverdie’ Jacobs, sold $335,000 worth of virtual real estate in Entropia Universe. While the majority of microtransactions cost just a few dollars, there are rare occasions where individuals spend serious money on virtual goods. Clearly, the virtual “Club Neverdie superdome” was a sound investment for Jacobs; the new owner (Yan Panasjuk) anticipates that the property will continue to grow in value. He is now dedicating 40 to 60 hours a week to the game, and has been playing MMOs for over a decade. Both parties are serious about their virtual worlds. Mr. Jacobs, also a career gamer, has already made over half a million dollars in online real estate.

4,000,000: total number of items in IMVU’s virtual goods catalog, making it the world’s largest. Based in Silicon Valley, the company runs a hybrid chat, gaming and avatar site. There are over 5,000 new items added every day, primarily created and uploaded by IMVU’s own user community.

10% (and growing): percentage of overall item sales in OurWorld generated by the resale market. The multiplayer gaming destination aggregates hundreds of third-party games into a virtual world with over 16,000 virtual items. OurWorld’s CEO, Derrick Morton, states, “In the last half year, we’ve seen our resale market explode. We think that a healthy secondary market is key to running a good virtual economy. If the players can’t trade amongst themselves, the virtual goods really have no value.” Think of it as virtual Craigslist.

220,000: number of “Summertime avatar baseball caps sold in Roblox, a blocky MMO playground. These hats were available for tickets, a free currency that all players get for logging in and which can be traded for Robux or vice versa. Rest, Relaxation and Roblox: gotta keep those virtual “rays” out of your eyes!

15,000,000: number of virtual hot dogs eaten by non-playable characters in LOLapps’ Ravenwood Fair (nom nom). The Facebook game saw huge growth last year to over 100 million monthly active users (MAU), and recently released an interesting info-graphic detailing their rise. For instance, 2 billion quizzes have been taken and 8 billion gifts have been sent!

Two: the factors that drive players to buy upper-tier items in online games, as opposed to just spending $0.99 here and there. The first is Value: Net Dragon’s value packs deliver the same bulk discount that players might find in a real-world big box store. The other big factor is Rarity; limited supply drives up demand. This often comes in the form of a “box” (such as the VIP Box in GameCampus’ Shot Online golf) which contains a wide range of items plus a chance to uncover the game’s rarest and most valuable equipment.

And with that, we wish everyone a Happy New Year. By this time next year, these numbers will look small.

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TaxProf Blog provides resources, news, and information for law school tax professors. It is not affiliated with Auto Didactix LLC's TaxProf, a software-based tutorial for law students in the federal income tax course. ...

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Joseph and Vlad, the victims in the violent home invasion earlier this week, spoke to the Mercury News on Friday on the condition that their last names not be used. They told publicly for the first time their terrified, ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

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Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

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Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

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Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

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Transfer news: Chelsea boss Carlo Ancelotti targets AC Milan ...

Chelsea boss targets AC Milan striker, Aston Villa plot player swap for Newcastle star and Real Madrid warn Man United, Man City and Chelsea off defender.

TaxProf Blog: 2011 Tax News

Carolyn McCarthy readies gun control bill - Shira Toeplitz ...

Friday, January 7, 2011

Making Money System

By Richard Smith

Readers of ECONned will be very familiar with the name of Gary Gorton, author of ‘Slapped in The Face by the Invisible Hand’, which explores the relation of the so-called shadow banking system to the financial crisis. His work is pretty fundamental to understanding some of the mechanisms which made the crisis so acute. Now he’s done an interview, which I would like to have a growl at; but first, he has some basic points about shadow banking, useful later in this rather long post. Gorton explains repo thus:

You take your $200 million to the bank, to Lehman Brothers, say. You deposit it, so to speak, overnight so you can have access to it the next morning if you want to. They pay you 3 percent. And you want it to be safe, so they give you a bond as collateral. But Lehman earns the interest on the bond, say, 6 percent.

..and then “haircuts” (an extra margin of security in case that bond isn’t so safe after all):

There may be a haircut. If you deposit $100 million and they give you bonds worth $100 million, there’s no haircut. If you deposit $90 million and they give you bonds worth $100 million, then there’s a 10 percent haircut.

…and then “rehypothecation”:

If you put a dollar in your checking account and the bank has to keep 10 percent of it on reserve, they lend out 90 cents. Somebody deposits that 90 cents, the bank can lend out 81 cents (because of the 10 percent reserve requirement) and so on. So you end up creating $10 of checking accounts for $1 of demand deposits, assuming there’s a demand for loans…And that can happen in repo as well because if you’re Lehman and I’m the depositor, and you give me a bond as collateral, I can use that bond somewhere else. So there is a similar money multiplier process.

…and finally the link to regulated banking:

And shadow banking very importantly is not a separate system from traditional banking. These are all one banking system.

So much for the preamble. The other point you need to know: we are talking about an unregulated banking system that at its height was just as big as the regulated banking system, yet coupled to it, and apparently more profitable, though, as we now know, much riskier. Now we get to the part of Gorton’s interview that I’m not so happy with:

In summary, I would describe shadow banking as the rise to a significant extent of a very old form of bank money called repo, which largely uses securitized product as collateral and meets the needs of institutional investors, states and municipalities, nonfinancial firms for a short-term, safe banking product.…It’s a valuable innovation.

The bit in bold is where I raised my eyebrows. The truth of the bolded claims depends on the yet-to-be-discovered solutions to repo’s core problem, formulated thus by Gorton:

Of course, the problem with repo and shadow banking is that they have the same vulnerability that other forms of bank money have. We can talk at great length about what that vulnerability is, but loosely speaking, it’s prone to panic. Looking back at history, think about how long it took to devise a solution to the first banking panic, related mostly to demand deposits. That was in 1857. It wasn’t until 1934 that deposit insurance was enacted. That’s 77 years where we’re trying to understand demand deposits and figure out what to do.

The situation that we’re in now, seriously, is one where we are back in about 1860: We’ve just had a big crisis, and we’re trying to figure out what to do. We can only hope that it doesn’t take 77 years to figure it out this time.

That doesn’t sound like a safe banking product to me. Next comes some irritating pussyfooting:

Nobody wants to be given collateral that they have to worry about. And the mechanics of how repo works is exactly consistent with this. Firms that trade repo work in the following way: The repo traders come in in the morning, they have some coffee, they go to their desks, they start making calls, and in a large firm they’ve rolled $40 to $50 billion of repo in an hour and a half. Now, you can only do that if the depositors believe that the collateral has the feature that nobody has any private information about it. We can all just believe that it’s all AAA.

Gorton is polite, and that can mislead. Impolitely: for “private information”, read “knowledge that the collateral is wildly overvalued”, or ”aware that the collateral is backed by assets with massive gearing to fraudulent loans”. The system’s gatekeepers (originators, ratings agencies and credit insurers) had an “agency problem”, (impolitely: issued cows, or rated cows, or insured cows, for money), so the fraud-backed collateral got past them.

Gorton is vague about how this “information insensitive” collateral is to be created. Presumably the options are to have reliable ratings agencies, or some other gatekeeper on the collateral, or a very deep-pocketed credit guarantor (that’s you, dear reader), or all three. But he doesn’t quite spell it out; perhaps that’s just the interview format. What we get instead is this:

We want all securitized product to be sold through this new category of banks: narrow-funding banks. The NFBs can only do one thing: just buy securitized products and issue liabilities. The goal is to bring that part of the banking system under the regulatory umbrella and to have these guys be collateral creators.

Well, I don’t immediately see why a narrow funding bank, thus described, is a more reliable generator of quality collateral than a narrow rating agency, or a narrow monoline insurer, or for that matter, Gorton’s old client, AIG. Why would an NFB be any better than any of those organizations in filtering out low quality collateral, given the demand for collateral? The NFB has exactly the same agency problem.

And are we really sure we know what ‘good collateral’ is? Gorton’s formulation of the problem isn’t quite accurate: it’s the stability of the haircuts that matters, not the reliability of the ratings. In truth, the ’08 crisis in repo was ended by explicit and implicit government backstops. By that time: haircuts on pristine US treasuries had gone from ¼% pre crisis to 3% mid crisis; on investment grade bonds, from 1.5% or so to 10% plus. As we will see later, when there is lots of rehypothecation, those moves would matter just as much as the annihilation of triple-A CDOs. More on this later: identifying a different problem with repo is the meat of this post.

Also missing from Gorton’s picture: how much of the need for repo collateral is simply driven by the increase in OTC derivatives. According to another of Gorton’s papers, there was $2Trillion of derivatives collateral in 2007; $4Trillion in 2008. So is that why Gorton simply assumes that repo “has” to grow: to provide collateral for the OTC derivatives market? So why, then, does the OTC derivatives market have to grow? One would like to see the connection between ETFs and repo worked out by someone, somewhere, too.

Despite my whining, do have a read of the interview: here it is again. There’s plenty more, and plenty of it is good – why Dodd-Frank is a big miss, how few data are available on the enormous shadow banking system. That’s what happens when you don’t supervise financial innovations: you don’t know what they do, you don’t know how they work, and you don’t know what went wrong. If you are in full geek mode, you can download the papers that underlie the interview here and here (I must get round to that). Metrick and Gorton write about haircuts here. That lot should keep you going…

Now I’m going to double back to something that Gorton skirts: the interaction of repo haircuts, rehypothecation and the credit multiplier. Recall his interview:

If you put a dollar in your checking account and the bank has to keep 10 percent of it on reserve, they lend out 90 cents. Somebody deposits that 90 cents, the bank can lend out 81 cents (because of the 10 percent reserve requirement) and so on. So you end up creating $10 of checking accounts for $1 of demand deposits, assuming there’s a demand for loans. Now, that money multiplier process is very important because it means that the amount of endogenously created private bank money in checking accounts is 10 times the size of the collateral, so to speak, of $1 of government money. So, in a traditional banking panic, if everybody wants their $10 back, there’s only $1. And that’s the problem.

What you have here, in the equivalent language of repo, is a 10 per cent haircut, with unlimited rehypothecation (so that you can just keep reusing the collateral to raise more and more liquidity, haircutting away until the amount you can still pledge isn’t worth bothering with), and a credit multiplier of 10. To get a general picture of how the credit multiplier, haircuts and rehypothecations tie together, we now need a tiny spot of mathematics.

An aside: one of the peculiarities of mathematical economics, as opposed to mathematics, is the relative frequency of “theorems”. In mathematics, theorems are as rare as unicorn droppings, things of near-holy awesomeness; in mathematical economics, by contrast, they occur horribly frequently, like depictions of unappealing sexual acts in the oeuvre of the Marquis de Sade.

So I should probably try to get people to give this shoddily presented and deeply unoriginal formula,

some kind of grand title: Smith’s Unrestricted Rehypothecation Theorem, perhaps. What does it mean? It describes the relation between the credit multiplier under unrestricted rehypothecation, Cm¥, and h, the haircut, which is a value between 0% and 100%; k keeps count of the number of rehypothecations. Any charges levied for the rehypothecation are assumed to be negligible (I won’t keep saying this, but bear it in mind – it means that the credit multiplier is never quite as big as I say it is, though pretty close, because the charge for a rehypothecation is not huge). As you see, with unrestricted rehypothecation, you just invert the haircut to get the credit multiplier. That is the big picture.

So, as with Gorton’s deposit example above, if the repo haircut is 10%, the ultimate credit multiplier is 10. Which is to say: if you could rehypothecate for ever, liquidity amounting to 10 times the amount of underlying collateral would be created, if the haircut was 10%. Once again his polite example might be a bit misleading. Consider instead the effect of a haircut of just 1% – then the ultimate credit multiplier is 100. With zero haircuts and no rehypothecation charge, the credit multiplier would be infinite…

For anticlimactic comparison, Singh and Aitken estimate that the credit multiplier in force at the height of the bubble was about 4: there were $1Trillion of rehypothecable hedge fund assets, transmuted by the magic of rehypothecation into $4Trillion of pledgable collateral at banks. No cause for concern then? Well, that depends how much you enjoyed the ’08 liquidity crisis; and unfortunately, much higher levels of rehypothecation may be just around the corner, which is a worry.

To show why, we need another theorem, Smith’s Restricted Rehypothecation Theorem this time, I suppose. It’s just as banal as the other one:

This gives you the total credit multiplier Cmr, when you have a finite number of rehypothecations. The number of rehypothecations is given by r; h is the haircut again. As r tends to infinity, the first term on the right hand side of the equation tends to zero, giving you, in the limit, the Unrestricted Rehypothecation Theorem.

Now we can work out, for a range of haircuts, what number of rehypothecations it takes to give a credit multiplier. I’ll use the example of the IMF haircut table that Yves exhibits in ECONned (figure 9.4 there), assume an initial credit multiplier around 4 per Singh and Aitken, and use the rehypothecation formula to show the impact of the increased haircuts. The table is a bit rough and ready, but it gives an idea. The collateral has been rehypo’d on average just over three times, giving a credit multiplier of 4. Given the assumed proportion of each collateral type, the loss of liquidity amounts to $750 Billion for every $1Trillion of collateral (this is August ‘08, is before the crisis got really acute).

The estimate of the amount of each collateral type involved is pretty much a guess. If only we knew! But I hope it doesn’t matter much: the table does illustrate the point that haircuts increasing from a single digit number to 10 or more, on widely held collateral (in this example, investment grade bonds, or Prime MBS), can have just as big an effect on liquidity as total wipeouts on CDOs, or big haircuts on ABS (rightmost column, in bold).

With lots of rehypothecation, it gets worse. To get a better idea of how haircuts, rehypothecation and the credit multiplier work together, it’s time for a picture of Dragon Country.

This is my two equations, graphed. Some more explanation:

Haircut: the 1.0 (bottom right hand corner) is of course 100% , in other words, there is no repo, and the credit multiplier is 1, so there is no effect on credit. I’ve assumed the charge for rehypothecation is negligible.

The thick black curving line shows the theoretical maximum credit multiplier when there is an infinite number of rehypothecations. On the basis that a 1000x credit multiplier is absurd enough, I stopped at 0.1% haircuts, though 0% haircuts have supposedly been used in repo.

The unimaginable top left hand corner won’t fit on the graph: a haircut of zero and an infinite credit multiplier.

The thin green line shows the credit multiplier for various haircuts when there are just 4 rehypothecations. You can see from the graph that this gives to a credit multiplier of around 4, for a range of haircuts from 0-20% or so.

The just about detectable blue curve, above the green one, shows the credit multiplier when there are 20 rehypothecations: already enough to move the credit multiplier to worrying levels when the haircut is less than 20%, and when there is only a 0.25% haircut, to an absurd 17x.

I’ve assumed that Q4 ‘08 is nasty enough for all of us, and that therefore an overall credit multiplier of 4 is as much as we want; so that’s where I’ve put the horizontal red line.

The red area is Dragon Country, where low haircuts and lots of rehypothecation result in huge credit multipliers, and very great (exponential-like) sensitivity to increases in haircuts.

I’ve used a logarithmic scale on the y-axis to cram the whole thing in. Dragon country would be impressively vast on a linear scale.

The graph shows you something else Gorton doesn’t really emphasize: the only reason to like a small haircut is to maximize the amount of liquidity you create via repeated rehypothecation.

Have I just put forward one of those daft theoretical constructs beloved of economists and technocrats? I think not, for a couple of reasons.

First, “infinite” rehypothecation just sets out a limiting case that exhibits some unfortunate but representative dynamics. It doesn’t have to be that bad to be bad. In particular, the graph highlights the critical relevance to banking stability of very small repo haircuts (and by extension, collateral ratings) and the concomitant large credit multipliers. If those ratings are volatile, haircuts are volatile, and your banking system is unstable. That combination of small haircuts and large credit multipliers may be exactly what we saw in the run-up to the crisis of Q4 ’08. It did seem to be the sudden doubts about the value of “AAA” rated CDOs that caused the initial spasm of funding difficulties before March ’08 and the Bear implosion. But even unimpeachable collateral was tainted somehow. How did that happen? What’s to stop it happening again? Now add some counterparty doubts, courtesy of Lehman, with hedge funds deleveraging and then pulling their assets from Prime Brokers, which stops rehypothecation in its tracks, and by Q4 ’08 you are in a proper crisis. Even if the UK has better bankruptcy processes next time, they will get their first proper test live, in a crisis. There is no particular reason to expect a hedge fund to feel more confident about its UK Prime Broker next time we get a Q4 ‘08.

Second, the doubts that have inhibited rehypothecation have been more about rights in bankruptcy than about the very idea of rehypothecation; but it’s rehypothecation that is the bogey. That’s not necessarily how the US lawmakers saw it back in 1934, when they capped rehypothecation in the US, as described by John Hempton, but the 1934 law helped a lot, anyway. Banks operated in London to get around the US restriction; then rehypothecation was a massive factor in the complexity of the Lehman bankruptcy, which dragged lots ($15-$45Bn, depending on how the bankruptcy plays out) of hedge funds’ rehypothecated assets into the mess; surviving hedge funds toned down their agreements to London rehypo, in a rush. But I suspect John is jumping the gun when he announces the end of the City of London; the availability of unrestricted rehypothecation is just too darned convenient, if you can get someone to do it. One notes that two years on, there is no UK reform of rehypo; yet there is consultation on reform of UK bankruptcy processes for investment banks, which might encourage hedge funds to agree again to unrestricted rehypothecation.

It also happens that JP Morgan, originators of those not unmixed blessings, Value-At-Risk and Credit Default Swaps, are thinking hard about how to get rehypothecation going in the grand style. They know a volume business with a cheap government backstop when they see one; they are on a marketing push, and presumably they have the systems and processes that go with it.

JPM is very keen to assure us and potential clients that the right business model (they think they have it) will be bankruptcy proof. So – unrestricted rehypo might breathe again, if enough London hedge funds can be reassured by the UK treasury and by JP Morgan.

The JPM technologists are still at work, too. Rehypothecation is getting slicker, at least for banks whose custody and treasury systems aren’t a hopeless Augean mess of underinvestment, rubbish outsourcing deals, and unmaintainability. Again, see this JP Morgan offering, for an example of what they think they can do. Presumably they think that with an implicit Government backstop, it’s OK to rehypo to the max; they have a derivatives business to support, too.

That would be a Doomsday Machine: iterated rehypothecation, huge credit multiples multiples, low haircuts, and then – sudden increases in haircuts, due to some credit shock or other. Then add some derivatives margin calls arising from the same shock…

If JPM pull it off, there will be a big credit multiplier and a big area of Dragon Country for us all to visit. Replaying the ’08 repo crash with 20 rehypothecations rather than 4 gives a system that has $17 trillion of liquidity in it, pre-crash, for every $1 trillion of collateral. Apply the crisis haircuts and $8 trillion of liquidity vanishes. That is Doomsday. All it takes is some solvency doubts; the quality of the collateral makes no difference. Indeed, because of the small starting haircuts, the US Treasuries make a larger contribution to the liquidity loss, if the number of rehypothecations is larger.

Still, the rehypo graph above, and the availability of new rehypothecation systems, and JPM’s business model, charging some fraction of a bp for each rehypothecation, do suggest ways to make sure the Doomsday Machine doesn’t blow us all up, as long as regulators get a grip.

So how does one wall off Dragon Country? The ultimate objective must be a UK version of the 1934 Securities Law, which capped rehypothecation quite effectively in the US. Pending that, or as well as, some or all of the following:

The number of times a given piece of collateral can be rehypothecated is critical. Regulators might consider restricting it.

Haircuts also matter, especially when they are very small. Regulators might consider increasing the minimum haircut on rehypo’d assets. If haircuts of less than 10% were not permitted, then the credit multiplier could not exceed 10 for any repo collateral, no matter how much rehypothecation there was. If it was 20%, the credit multiplier could not exceed 5.

Regulators might consider eating some of, or a lot of, JPM’s lunch, by taxing each rehypothecation. The proceeds would build up a fund that provides the liquid assets needed in a crisis…something like an FDIC for repo liquidity.

But I wouldn’t hold your breath; the UK authorities’ response so far suggests that they, like JP Morgan, think unrestricted rehypothecation is a thoroughly good thing. I disagree.

UPDATE 7-Jan: Oops. I think this post overcomplicates things and has a big red herring (”rehypothecation steps”). From a leverage point of view, it’s the haircuts that matter. The ‘run on repo’ comes in two stages a) widening haircuts b) hedge funds pulling their assets from the PB. The effect of the run is magnified if the (London-style) Prime Brokerage agreement allows the PB to rehypothecate all the hedge fund’s assets.

Today, an SEC filing revealed that Solar Power Technologies raised $6.08 million for technology that helps wirelessly measure, manage and optimize the performance of large, solar power generating systems. Investors included Austin Ventures and Oxantium Ventures, the filing said.

The company claims its technology enables commercial solar arrays to harvest 15 to 20 per cent more total power over a 20 year lifespan than they would otherwise.

The system works, Burgess explained, by alleviating something called the “christmas tree light problem,” where panels in a solar array only harvest and output as much power as the weakest one in the chain.

SPT’s Clarity system includes the installation of small controllers behind panels within the array. The controllers identify a weakened panel or any other constraint or restriction in the system, then boost up the outputs of capable panels around it.

As Todd Woody noted today in a piece for Sustainable Industries: one large solar power plant can cost more than $2 billion to build in the U.S. making productivity-spiking technology (like SPT promises) sound at the very least attractive for companies that laid out so much cash to go solar, and want to get every last watt of renewable power that they can for their money.

The company’s chief executive, Ray Burgess, reported Monday that SPT will advance to a commercial launch by mid-year. The startup is currently working on field trials of its Clarity-brand monitoring and optimizing system with potential customers, namely utilities based in the southwestern United States.

Burgess said:

“We have the ability to give [customers] insight into how [their] large-scale solar arrays perform, and help them harvest and put out more power under all conditions.

There are some estimated 200 million solar photovoltaic panels installed around the world right now. Probably 20-30% of the power they could be generating now is lost before it ever gets to the grid. Maintenance of all that equipment is a challenge.

These are huge financial matters if nothing else for utilities and for commercial renewable energy.”

SPT plans to use its new-found capital to: complete its field tests; attain various safety and environmental certifications; ramp up its production; hire personnel to expand its sales footprint to Europe and Asia by the end of 2011; and to develop technology that works beyond crystalline solar panel arrays with CIGS, thin-film and concentrated photovoltaics.

Utilities may use each of these technologies in the field, SPT anticipates, depending on everything from costs to improvements in efficiency conversion rates.

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