Around the markets: Finally, alleged energy manipulation; the sure cure for housing; and a look at Downey's loan mods

Some late-night (or early morning) reading from around the markets:

---Like we said, nobody is manipulating energy prices . . . if you don't count the Dutch: The Commodity Futures Trading Commission on Thursday alleged that Dutch trading firm Optiver Holding manipulated trading in New York futures contracts for oil, gasoline and heating oil in March 2007 -- and turned a profit doing so. The case comes a day after a CFTC task force issued its preliminary report on high oil prices and found no basis for blaming speculators. Read the CFTC's allegations against Optiver here.  Read Bloomberg's story on the case here.

---The sure cure for a debt addiction: Pimco bond guru Bill Gross is out with his August commentary (a bit early, Bill!) and the first half is a very lucid explainer of the post-war debt boom that got us here and the inevitably painful ramifications of the new delevering phase. As he writes:

U.S. homes are market valued at over 20 trillion dollars with nearly half of the value supported by mortgage finance of one sort or another. At first blush that appears to be reasonably levered, but at the margin, homes purchased in 2004 and beyond are now at risk of turning upside down –- negative equity –- and there are some 25 million or so of those.

So if too much cheap debt is the root cause of the housing debacle, what's the solution? More cheap debt: Gross says the only way to stop home prices from falling is to push mortgage rates lower, in turn saving many current homeowners and luring new buyers. To that end, he supports the housing-rescue bill now moving through Congress. And of course, a housing rescue also would be good for Gross' Pimco Total Return bond mutual fund, because the bulk of the fund's assets are high-quality mortgage-backed bonds.

---All non-performing loans aren't created equal. Or are they? Newport Beach-based Downey Financial Corp. got into a tiff with its auditors early this year after the thrift did pre-emptive modifications of some adjustable-rate mortgages. The auditors said Downey had to classify those as "troubled debt restructurings" and include them in the total of non-performing assets. Veteran blogger Tanta, at Calculated Risk, takes a closer look at what's going on with those restructured loans based on Downey's second-quarter loss report on Thursday.

 

Comments

[RB]

I guess I was mistaken, I thought the so-called housing bubble was CAUSED by inflated home prices. Apparently not, since legislators and the industry in set on maintaining astronomical home prices. Yes, keeping responsible, sane people priced out of the housing market is the solution. And keeping people that could never afford homes at current prices buying is good for the economy and good for business. Go figure.

[jb]

Our elected officials are in bed with Fannie and Freddie. The system is corrupt and will keep many of us from ever owning a home. I am a lifelong democrat who is swiching to republican - they at least do not want to rescue these crooked bankers.

[Duh]

"they at least do not want to rescue these crooked bankers"

Are you dense?

[pinoysaaremica]

the only way to stop speculating on everything is to make it costly. america has been on a debt binge because of the low cost of credit. people borrow and invest in stocks and real estate thinking that they can leverage everything. and the bankers forgot their finance 101. that the first prerequsite of lending is that, can the borrowers pay? and not what is the value of your collateral..

now every tom dick and harry who religiously watched their finances now have to suffer the consequences of this subprime crisis. the govt should just let the borrowers and creditors bear their own loss. thats the only way to clean up this mess.

[Jack Reagan]

How can we fix a problem unless we first define the problem? For more than a year, this country has been trying to resolve the energy crisis. But no one has determined, with any authority, what has caused this crisis. Many would have us believe that it is a simple matter of supply and demand, but how could the world demand have risen so sharply, in such a short period of time? Some blame speculators, others blame the oil companies, while others blame the oil suppliers (OPEC, etc.). With all of the resources available, why is there no consensus conclusion as to the real source(s) of this problem?