[p2p-research] Fwd: Responsible Lending

[Dante-Gabryell Monson]

Interesting links to a report from "Build a better Bank" ( BUBEBA
)<http://BUBEBA - BUild a BEtter BAnk>
 ,
and also a musing from  Karl
Denninger<http://market-ticker.denninger.net/authors/2-Karl-Denninger>
 ,
following Alain <http://alainhemelinckx.typepad.com/about.html>'s (
http://www.thebankblog.org/ ) postings on fb.
Thanks to Carolyn for forwarding it to me !

Links :

http://alainhemelinckx.typepad.com/files/responsible
-lending-consultation-v4.doc

<http://alainhemelinckx.typepad.com/files/responsible-lending-consultation-v4.doc>
http://market-ticker.denninger.net/archives/1539-Possible-Credit-Dislocation-Be-Warned.html

also copy/pasted Karl Denninger's post in English below,
starting with Alain's facebook comments in French...




---------- Forwarded message ----------
From: Carolyn
Date: Mon, Oct 26, 2009 at 5:55 PM
Subject: Responsible Lending
To:


Through my connections on facebook... I came across this today... thought it
might interest you...

Regards,

Carolyn

I have reason to suspect that the "monetary transmission mechanism" is full
of rocks (again), and we are about to have another instance of what could
colloquially be called "fun." (Yes, that's sarcasm.)
 2 hours ago<http://www.facebook.com/posted.php?id=613016733&share_id=161755159620&comments=1#s161755159620>
 · Comment · Like <http://www.facebook.com/home.php?#> ·
Share<http://www.facebook.com/ajax/share_dialog.php?s=99&appid=2309869772&p[]=686898131&p[]=161755159620>

 [image: Alain Hemelinckx] <http://www.facebook.com/hemelinckx>
Alain Hemelinckx <http://www.facebook.com/hemelinckx>
Bonjour Pascal. l'explication des bénéfices plantureux est la suivante. Tu
es une banque et tu prends quelques milliards de dettes de credit subprimes
à ton passif. Que fais tu ? tu coupes ta banque en deux. Dans l'une tu
places (ou plutôt tu entereeses) tous les milliards de produits toxiques. Et
avec l'autre, expurgée de tous le sproduits toxiques, tu communiques sur tes
resultats de revenus redevenus plantureux. ( cfr citigroup et citi holdings,
fortis et fortis holiding ). Après (et c'est là que c'est malheureux voire
criminel ) la banque oublie qu'elle n'a du son salut qu'à ce tour de passe
passe et continue ses activités "toxiques"...c'est la raison pour laquelle
j'interviens , ici mon intervention à la Commission européenne sur la
directive finance responsablehttp://alainhemelinckx.typ
epad.com/files/responsible-lending-consultation-v4.doc (mon introduction
explique le contexte)
17 minutes ago


http://market-ticker.denninger.net/archives/1539-Possible-Credit-Dislocation-Be-Warned.html


Friday, October 23. 2009
Posted by Karl Denninger<http://market-ticker.denninger.net/authors/2-Karl-Denninger>
 in Musings <http://market-ticker.denninger.net/categories/3-Musings>

I have reason to suspect that the "monetary transmission mechanism" is full
of rocks (again), and we are about to have another instance of what could
colloquially be called "fun." (Yes, that's sarcasm.)

Here's what we know and what I can deduce from it:

   - JP Morgan's "cash
position"<http://market-ticker.denninger.net/archives/1522-JP-Morgan-Earnings-Mirage.html>
was
   analyzed by a writer who published on SCRIBD, which showed that *actual
   cash held* has deteriorated radically.  By more than half in the last
   year.  The deterioration is continuing, not slowing.

   - I am hearing *repeated* anecdotes from multiple areas that foreclosed
   property held by banks with multiple full-price offers *that include a
   financing requirement* are being sold instead to people with *actual cash
   * at radical reductions from that price.  *This implies that these
   financing contingencies are regarded as not only potentially no good but
   factually no good, as if the banks know for a fact that the credit
   pipeline will (not might), within weeks or months (in the time required
   to close), disappear.  There is no other rational explanation for this
   behavior.

   *
   - Citibank's credit-card terms change implies a willingness to accept and
   even provoke *a complete and intentional destruction of their credit card
   business* as a very high probability outcome, given that nobody in their
   right mind will accept a 30% interest rate who has an alternative.  The
   obvious implication is that only those who can't transfer balances out will
   remain and if your credit is *that* impaired there's a good chance you
   will default - either intentionally or otherwise.  *This too implies
   foreknowledge of a near-complete impending freeze in the credit markets.

   *
   - *The change in terms on credit accounts is NOT confined to Citibank.*
   I have received a fax from a customer of Infibank *with substantially
   identical terms*, in which both the standard *and penalty rate* was
   adjusted to 29.99%.  This strongly implies that whatever Citibank smells
   *the problem is not confined to them.

   *
   - Both of these credit card "adjustment" letters are of course *marginal
   rate* changes.  That is, they are both based off the PRIME rate.  The
   importance of that is missed by many.  Don't be one of them (more on that
   below.)

   - I recently received a back channel communication indicating that *The
   Fed is aware that this has been and still is a solvency problem and has
   so briefed certain members of Congress*.  This from a source believed
   reliable, but which cannot be independently confirmed.

This data is *not* conclusive.  But - if you are dependent on credit access
and these anecdotes are in fact indicative of *actual knowledge* of an
impending lock-up *you are at grave financial risk.*

Note that "margin" type rates that are based on the PRIME rate could hurt
you far worse than you believe.  With PRIME at historic lows should any such
dislocation spike the prime rate your interest rate could go *much* higher
with little or no notice or ability to do anything about it.

*IF* this is going to manifest as a dislocation of some sort it will
probably occur within the normal closing window for real estate
transactions, since the anecdotes related to that have the best-defined
"reach", and the discounts being accepted to avoid this risk are massive to
the point of denoting near-certainty of this event in the minds of the
market participants who are electing to accept these cash-discounted offers.

Therefore, *if you are dependent on such credit access* I would
take immediate action to do whatever is necessary to mitigate, to the extent
you are able, the consequences of such a dislocation.

*Consider how you survive returning to what essentially amounts to a cash
economic posture in your business and personal life.*

Note that the indications above are *far stronger* than what we saw going
into last fall before the wheels came off.  As a consequence if these
actions are those of people with real knowledge (and this is not a guess on
their part) I would expect the outcome to be *worse* than what we saw last
fall in terms of economic impact.

Those who are short dollars (synthetically or in the actual market) need to
beware - if I am reading this correctly you're about to get a really ugly
surprise.

If you want to *speculate* on this outcome levered bets on radical dollar
appreciation look like one of the best choices out there, followed closely
by bearish levered bets on commodities.  *I would not consider such a
speculative play that is not characterized by defined risk*, as this
analysis is based on nothing more than observation of behavior by market
participants that all point toward *their* foreknowledge of an event that
might happen in the reasonably-near future and is not, at present, backed up
with actual significant credit-spread widening or other objective criteria.

*Disclosure: Initiated a small speculative, defined-risk play LONG the US
Dollar (UUP CALL options for March 2010)*
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