Friday, September 18, 2009

Financial Headlines 9/18/2009

A bunch of non-news news in the headlines today:
  • The FHA's reserves are set to drop below the minimum level of 2% set by Congress. Is this really news? Default rates on FHA-backed mortgage loans have been sky-rocketing. It's what happens when you allow borrowers with only 3.5% of a downpayment to purchase homes, not all of these folks will be reliable credits. But fear not, the FHA will get its bailout, just like every other housing-related agency.
  • Officials are warning that option ARM mortgages are set to explode. Option ARMs were designed to explode. So why are we reporting this as news? The first time I read about an option ARM in 2005, I thought "Geez, these things will explode in a few years when borrowers have to repay principal plus all of that extra interest that's been accruing." I guess the news here is officials have finally taken notice, which means its going to happen tomorrow and it's too late to do anything about it.
  • The WSJ reports that bankers are facing "sweeping curbs on pay." The article follows up with a very vague description of how the Fed is going to be able to reject any compensation policies it believes encourages bank employees to take excessive risk. Mind you, the Fed's recent ridiculously easy money policies were designed so that a monkey could make money this past year if it worked at a bank, at the expense of our entire nation, so you can imagine they're really going to crack down on comp. The article should've been entitled "Bankers facing yet more bonuses, and nobody is going to do anything about it."
  • Vikram Pandit thinks $100 million might be a bit much to pay to any one employee. But he's probably just bitter because he's only working for $1 this year.
  • Speaking of comp, the WSJ has a very interesting article about how the nation's really smart graduates, engineers from MIT and the like, are steering away from finance to find more fulfilling work. The article shows how much the pay incentives on Wall Street led to a misallocation of our nation's smartest minds away from lower paying jobs like engineering and medicine, into careers trading and selling derivatives. The trend is apparently moving in the opposite direction now.