Tilting at Windmills; The Point of a House; JPM Gets Served

Receiving Wide Coverage ...

No Habla Espanol: What’s it like to feel unwanted, the tuberculosis-ridden street urchin of the monetarily civilized world?

With some 30 billion euros of deposits leaving its banks monthly, government borrowing costs unsustainably high, and unemployment at ridiculous levels, Spain is finding out. Luckily for it, at least some family cares about its fate (selfish motives aside). A stern yet kindly uncle, Mario Draghi, leader of the somewhat defanged European Central Bank, would like to help Spain, but given his prescription, submitting to a centralized European banking regulator, the country may well prefer the streets.

Draghi on Thursday used Spain’s mishandling of Bankia, its third biggest bank, to make the point that regulators there don’t seem to know what they’re doing. The Spanish keep upping the price on the bank’s rescue. “There is a first assessment, then a second, a third, a fourth,” Mr. Draghi told the European Parliament. “This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost.”

Draghi certainly has a case. And it’s a question of fairness; if Europe is called on to rescue the country’s contagious banks, shouldn’t it get to supervise their care, ostensibly to prevent this from happening again?

If it were only that simple. This is Europe, nothing that crosses borders is simple/einfach/semplice/simpel. Both the Financial Times and Wall Street Journal note the political problems. “Less than two years old, the [European Banking Authority] has a small staff and its efforts to run tough stress tests and force recapitalisation of weak banks have drawn public criticism and private resistance from a number of national regulators,” the FT says. The Journal condemns the idea of a European banking union on similar grounds: “It’s not obvious that Brussels has the expertise to serve as a regulator and inspector for financial institutions throughout the Continent.”

Not to mention, the people who run the orphanage can be pretty tough. Ask the Greeks. New York Times

Wall Street Journal

If you bought a house in 1971 and sold it in 1987, you made a killing. If you bought a house in 1987 and sold it in 1997, you broke even if you were lucky. So what makes everyone think the latest cycle is over? It may not have even hit bottom yet. As the Journal notes, a delay in new federal rules to establish standards for mortgage lenders isn’t going to help get the housing market moving again. The government’s intentions are pure: save what’s left of the housing market while protecting consumers from loans of ill repute (and themselves). But, you know, if people hadn’t taken out risky loans, would there have been a housing boom to go bust in the first place? Maybe it comes down to the point of a house: is it somewhere to live, or a profit center?

We almost went a day without mention JPMorgan Chase’s trading losses. We just couldn’t do it. Enforcers from the Commodity Futures Trading Commission are issuing subpoenas for emails and other internal company documents, the Journal reports. Fraud is a possibility if bank underlings lied to their superiors. The CFTC is able to probe JPMorgan in this regard, by the way, thanks to the Dodd-Frank Act.

New York Times

Now, speaking of fraud, how is it that no one from a big, subprime-loan-peddling bank has to worry about jail time, yet in New York’s Chinese community, 19 former employees of Abacus Federal Savings Bank did the perp walk Thursday? The bank and the staffers have been charged with good old-fashioned mortgage fraud. The risks of the mortgages are said to have been disguised, and the mortgages, having been guaranteed by Fannie Mae, eventually were passed on to investors. Thing is, nearly all of the mortgages are still being successfully repaid. For Cyrus Vance, the Manhattan D.A., that’s irrelevant. “If we’ve learned anything from the recent mortgage crisis it’s that at some point, these schemes will unravel and taxpayers could be left holding the bag,” Mr. Vance said. If they weren’t being repaid, perhaps Abacus would be allowed to walk. That’s precedent, after all.