The Congressional oversight panel (COP) of the TARP program is just out with its August report (http://cop.senate.gov/documents/cop-081109-report.pdf). In it, it warns: "Treasury‘s choice to pursue direct capital purchases resulted in a notable stabilization of the financial system, and it allowed the write-down of billions of dollars of troubled assets and reserve building. But, it is likely that an overwhelming portion of the troubled assets from last October remain on bank balance sheets today. "If the troubled assets held by banks prove to be worth less than their balance sheets currently indicate, the banks may be required to raise more capital. If the losses are severe enough, some financial institutions may be forced to cease operations. This means that the future performance of the economy and the performance of the underlying loans, as well as the method of valuation of the assets, are critical to the continued ...

According to one of the world’s biggest banks, 48% of U.S. mortgages will be underwater by 2011. Man… and the critics call us “doom and gloom”?

But that’s the word from Deutsche Bank (NYSE:DB) this week, which claims the number of U.S. mortgages worth more than the actual value of homes is going to double in the next couple of years. In line with our forecast yesterday, the bank is especially worried for prime and jumbo borrowers. 41% of prime borrowers will be underwater by 2011, says the DB forecast, up from 16% at the start of this year. Jumbos will be even worse, with a 46% underwater rate.

“The impact of this is significant given that these markets have the largest share of the total mortgage market outstanding,” said the bank’s report.

How significant? They’re expecting home prices to fall another 14% by 2011, for a total crash of 41%.

(By the

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While most of the attention yesterday was focused on Ben Bernanke's testimony before the House Financial Services Committee (not much new came out in that one, Ben says the recovery will be anemic, inflation will not be a problem and the Fed has a plan to drain the liquidity before it causes problems), the same committee held another hearing in the afternoon focused on the reform of the financial regulatory structure. Among the witnesses were Alice Rivlin, the former #2 at the Fed in the 1990's, Mark Zandi of Moody's Economics and Simon Johnson, the former chief economist at the IMF. Among the key points that came out of it were that there were 2 basic approaches to preventing the need for future bailouts. One focused on better regulation particularly of those who are too big to fail, and the other is to make sure that institutions don't ...

In addition to testifying before Congress, Federal Reserve Chair Ben Bernanke today tried to explain the Fed's plans and options directly to the public through an op-ed in the Wall Street Journal. Here I provide some background on what Bernanke's talking about in terms of an "exit strategy" for the Fed, and offer some thoughts on his remarks.

The basic power of the Fed derives from its ability to create money, which it can use to buy assets or extend loans. We can summarize the Fed's actions in terms of either the asset side of its balance sheet (the assets and loans it holds), or the liabilities side (the money or other obligations it has created). Let's start with the asset side. Up until January of 2008, by far the most important assets held by the Fed were short-term Treasury bills. As last year wore

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After the crash of 1929, the market had a nice recovery. By April 1930, the market was up 41% from its lows of Nov. 13, 1929. Many believed the worst was over. One of those who did was Benjamin Graham, the father of security analysis, Warren Buffett’s teacher and a great investor in his own right.

In 1930, Graham was 36 years old, a near millionaire who had already enjoyed a lot of success in markets up to that point. So when he met with a successful, retired 93-year-old businessman named John Dix, Graham was full of “smug self-confidence,” as he would admit in his memoir. Graham found Dix “surprisingly alert” as Dix peppered him with all kinds of questions. Then Dix asked him how much money Graham owed to banks. Dix didn’t like what he heard.

That’s because Graham used a lot of debt in his investment fund

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Euphoria managed to out-run swine flu last week as the epidemic-du-jour, with “consumer” confidence jumping and the big bank stocks nudging up. The H1N1 virus fizzled for now, at least in terms of kill ratio, though we’re warned it might boomerang in the fall with a vengeance. No one was surprised to see Chrysler roll over like a possum on a county highway, but the memory of their muscle cars will linger on like a California surfing song. Here in the northeast, where Sundays are not spent at the NASCAR oval, the spring foliage reached the tenderly explosive stage and it was hard to feel bad about anything.

For now, the “bottom” is in — that is, the bottom of this society’s ability to process reality. It may continue for a month of so, even after the “stress test” for banks is finally let out of the massage parlor with a

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Highlights include American International Group, Inc. (AIG), Citigroup, Inc. (C), JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC).This morning, Fed Chairman Ben Bernanke gave a speech on the topic of financial regulation and the lessons learned from the recent disaster. Here is a key section of the speech, with my thoughts interspersed: 

"Looking forward, I believe a more macroprudential approach to supervision--one that supplements the supervision of individual institutions to address risks to the financial system as a whole--could help to enhance overall financial stability. Our regulatory system must include the capacity to monitor, assess, and, if necessary, address potential systemic risks within the financial system. Elements of a macroprudential agenda include:   

"monitoring large or rapidly increasing exposures--such as to subprime mortgages--across firms and markets, rather than only at the level of individual firms ...

When it comes to the U.S. stock market right now, the story continues to be about earnings. And this week will be no exception.

Bank of America Corp. (BAC), which reports today (Monday), remains among the last financials of note that has yet to announce its first-quarter performance, and the big bank figures to get a lot of attention as investors look to see how well Merrill Lynch & Co. Inc. (formerly known as “The Bull”) and Countrywide Financial Corp. have fit into the BofA family fold.

International Business Machines Corp. (IBM) (today) and Apple Inc. (AAPL) (Wednesday) will give investors a better idea of just how well the tech sector – which up to now has been quite hot – is really doing. Amazon.com Inc. (AMZN) (Thursday) will give investors an inside look at the

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There's been plenty of speculation on the sale of iShares. Finally, here's the truth.

We've got Matt Hougan and John Spence and Chuck Jaffe and the Wall Street Journal—and now even Murray Coleman all jumping in and speculating on what's going to happen with iShares. The truth is that none of them know—and even the people over at BGI probably don't know. But I do.

I just don't see it happening. Or rather, I do think that an eventual separation has become exponentially more likely ... I just don't think it happens immediately. 

First of all, let me point you to the best blog on the topic yet. It's Paul Amery's blog from over on the http://www.indexuniverse.eu/ site. Here are the Cliff's NotesTM of what Paul covered in his blog that few others have hit upon:

1. Barclays needs to tell

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pa href="http://feedads.googleadservices.com/~a/O-tZmZdhmyXoelNcUEPFbFLjCmo/a"img src="http://feedads.googleadservices.com/~a/O-tZmZdhmyXoelNcUEPFbFLjCmo/i" border="0" ismap="true"/img/a/pYesterday you read one scenario for a style="color: rgb(51, 51, 255);" href="http://mast-economy.blogspot.com/2009/03/how-toxic-assets-turn-to-gold.html"toxic asset appreciation/a over time. That would spell good news for big bank liquidity in the short term and good news for private investors and taxpayer equity gains in the long run.br /br /You may have heard that not all economists agree on the efficacy of the plan. But there were surprisingly many positive comments on the the government's new roadmap:br /br /From Mark Thoma in the Economist's View's article a style="font-style: italic;" href="http://economistsview.typepad.com/economistsview/2009/03/which-bailout-plan-is-best.html"Which Bailout Plan is Best?/a, "I am willing to get behind this plan and to try to make it work. It wasn't my first choice... but like it or not this is the plan we are going with and the important thing now is to do the best that we can to try and make it work."br /br /Scott Anderson, ...