Finance Matters

Archive for July 22nd, 2010

Ken Feinberg is set to announce tomorrow at 10 am that 17 TARP-receiving banks made “ill-advised” payments to execs with taxpayer funds, according to CNBC.

JPMorgan and Goldman Sachs are included in the 17.

This will be a big announcement, especially if Feinberg names the individuals who received the “ill-advised” bonuses.

Otherwise, it will just be embarrassing for the firms that made those payouts. To be fair, they were obliged to – as long as they are standing, the banks’ compensation contracts with employees should be upheld. But the conundrum is that these banks, which received TARP funds, would not be standing were it not for taxpayer funds.

There are 25 execs within these 17 banks who Feinberg believes were paid unwisely during the financial crisis.

So get ready for 10 am tomorrow – this could get ugly!

Read more about what’s going to happen here >>

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Wall Streeters who have wondered about the suspicious timing of the SEC’s case against Goldman ever since it was announced within moments of Obama’s big Fin Reg push will soon have an answer.

The SEC is going to investigate the timing of the SEC’s announcement of its case against Goldman.

First, on April 16, the SEC announced its Goldman case at a market top, just a few hours before President Obama gave a speech kicking off his financial regulation push.

This is insanely coincidental and therefore, suspicious.

Financial regulation had just become the main topic for Congress to focus on at the exact same time that the SEC announces a Goldman case that destroys any chance Wall Street had to limit regulation.

So a bunch of people noticed that was weird.

And on top of that, by announcing their case on Friday that day, the flux of SEC headlines on the Goldman case squelched the attention drawn to the SEC’s botched investigation of Allen R Stanford.

Then, last Thursday, Goldman announced it would settle with the SEC for $550 million.

Almost at exactly the same time, Congress announced that it signed the new FinReg bill at 3 pm.

At a minimum, there’s a lot of coincidental timing here, so investigators will look into emails that lead up to the timing/decisions.

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It’s no secret that China has a housing bubble and that Peking policy makers are attempting to deflate it. A typical Peking apartment now costs approximately 22 times average incomes in the city and with savings rates low and the stock market in the doldrums….what’s a Chinese investor to do?.  Absent a social safety net like we have here in the US, real estate continues to be the only option for flush Chinese investors and we have heard reports of some buying 5 to 6 apartments to help them “save” for their retirement future.  This creates a problem for policy makers who, in the middle of a housing boom, are trying to provide affordable housing to the massive number of people who are moving from rural communities seeking a better life in the cities. This unfortunately has lead to unhealthy economic policy that moves in fits and starts

What are government policy makers to do?  Well…why not recommend to investors that they buy real estate in the US?….it is cheap relatively speaking and deals can be had for the shrewd Chinese investor. And in fact, the Chinese government is recommending doing just that. Earlier this week, in a newspaper considered a voice of the Ministry of Commerce, the “International Business Daily”, there were a series of reports discussing whether it’s a good time to buy US real estate and what cities to focus on. As well, the US National Association of Realtors reported recently that China was the fourth largest source of foreign home buying in the US after Canada, Mexico and Great Britain.

Clearly, astute Chinese investors have already seen the opportunity and are looking for a way to diversify their investments and take advantage of the drop in US property and the huge number of foreclosed properties here…California naturally is a beneficiary of this trend thanks to the stronger Yuan and the Chinese government’s attempts to achieve a soft landing for their economy.

One problem has surfaced though and policy makers here in the US should take note as they rethink tax policy. Currently the US taxes capital gains at a rate of 23% for foreigners who own US real estate whereas in London there are no capital gains taxes levied.

Think of the opportunity to bail our real estate market out…in a best case scenario…in a quid pro quo bilateral arrangement between the US and China…China liberalizes their capital account, allows the Yuan to free float and approves the free flow of capital across their borders and in return we allow freer access to our economy and capital markets (including real estate) via broader free trade agreements and  tax reform…..that would go a long way toward solving many of the worrisome Sino American economic imbalances that still exist….including providing an even bigger bid to our ailing real estate market and by extension providing much needed economic growth.

Unfortunately…the probability of this scenario occurring is low because A) The Chinese leadership is too shortsighted and wedded to their “Capitalism with Chinese Characteristics” which includes their confining command and control methods; and B) our parochial political leadership here in the US, on both sides of the aisle, who lack the bravery and foresight to think out of the box…pity!  So for now  China investment here in all asset classes will remain a trickle…when with the right mutually beneficial policy mix it could be a flood!!

Don’t miss: 14 Charts That Show China’s Dangerous Housing Bubble Is Far From Over

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There’s some news on the political/regulatory front worth noting this evening.

• The SEC is temporarily (for six months) suspending the rule that had created a standoff between debt issuers and the ratings agencies. Remember, this morning it was reported that the raters refused to have their ratings included in a Ford prospectus for fear of liability. (AP)

• Representative Charlie Rangel has been slapped with an ethics charge by a House panel (NYT)

• The Senate has given up on cap and trade. Energy re-regulation is basically dead for now. (WSJ)

• The House officially passed the jobless benefits extension. (POLITICO)

• The SEC is investigating the timing of its Goldman dealings. (Clusterstock)

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European equities markets were higher Thursday as both the manufacturing and services sectors expanded unexpected in June, while retail sales advanced more than expected in the UK and several US-based companies in various sectors issued higher profits forecasts.
The FSTE 100 added 1.9 percent to 5,313..81 in London, while the FTSE 250 was up 1.59 percent [...]