All Articles Finance Modern Money While You Were Working - April 27

While You Were Working – April 27

Synthetically securing my palm to my forehead, Achtung Deutsche Bank, Mark and Mario to the rescue, and Jeff Bezos steers clear of politics.

4 min read

Modern Money

Jeff Bezos Amazon

Jeff Bezos skips the chance to score political points. (Getty Images)

Programming note: WYWW is headed to lovely Beverly Hills, Calif., to cover the Milken Institute Global Conference next week. I will be posting later in the day in order to cover the afternoon sessions.

Palm to forehead

The Risk piece is an excellent dissection of a synthetic securitization BBVA concocted to save itself more than half a billion in risk-weighted assets courtesy of the European Investment Bank and the European Investment Fund.

In the post-crisis era, I will never understand why synthetic securitizations were allowed to live. The whole concept of securitization came out of the crisis with wearing a giant scarlet “S”. But the practice was revived and has since enjoyed quite the renaissance. But synthetic securitizations … how in the world can the folks at the EIB and EIF be so stupid?

The Risk piece ends with this gem of a question:

“…is there moral hazard risk associated with allowing lenders to extend credit to risky prospects knowing that someone else will swallow the losses?”

Ummm … yes! In fact, it is hard to think of a situation more ripe for moral hazard.

Lending to the poor

The notion that banks should adhere to the Community Reinvestment Act and lend in the neighborhoods where they have branches makes sense, but the truth is the world of finance is changing in ways that might make such regulations moot. More and more borrowers are going to online lenders to seek funding. And the idea that banks are actually granting total control over lending decisions to local branch managers is quaint, but false.

So if the OCC wants to revamp how banks are graded on their CRA compliance, that doesn’t bother me too much. My only hope is that any new formula will track the performance of loans based on the geographic proximity of the lender to the borrower. Me thinks more lending decisions should be made by local bank managers who know their own neighborhoods. I think it leads to better underwriting decisions. If banks can prove me wrong and show that they can be just as successful making underwriting decisions from afar, that would be cool with me. But I’d want to see the data.

Mark and Mario to the rescue

Now Brexit talks about financial services are getting serious.

Jeff Bezos proved he is NOT very political

Amazon is raising the price for Prime. Another $20 per year isn’t going to kill most Amazon customers, but that isn’t going to stop them from complaining about it.

What I find interesting about the announcement is how Jeff Bezos opted to not play politics. He could have blamed the price increase on the threat from President Trump that Amazon’s deal with the US Postal Service might get ripped apart, thereby re-directing customer outrage in the direction of the White House. Whether the threat from Trump is real or just talk, Bezos could have tagged the president with the price increase, but he didn’t.


I missed this story yesterday, but it is such a whopper I just had to include it today.

The idea that Deutsche Bank would reveal that is was sitting on a $60 billion portfolio of toxic trades … and then never talk about the portfolio again in hopes that people would forget about it would be funny if it weren’t so alarming.

On a side note, Deutsche Bank better be careful because it is slowly entering Wells Fargo territory – the territory where virtually every news story about the bank is a bad news story. Achtung!

WYWW Appetizers

  • No, Wells Fargo would not be alone in pushing rip-off products.
  • Andres Iniesta announced he is leaving FC Barcelona.
  • Nasdaq wants small companies to be allowed to pick one exchange to trade their shares.