The Other Market Crisis; More evidence of IPO flight from the U.S.

The subprime mess is grabbing all the headlines these days, but allow us to focus on another problem for American financial markets: their growing lack of global competitiveness...

That's the judgment of the latest report of the Committee on Capital Markets Regulation, which started a debate last year with its initial study on how and why American public stock markets are losing global market share...

First, the delisting of foreign companies from U.S. markets leapt this year -- to 56 so far, up from 30 in 2006 and 12 a decade ago. Those 56 represented 12.4% of all listed foreign companies...

A second trend is the increasing number of U.S. companies going public outside the U.S. Between 1996 and 2001, a mere three American companies went public by listing only on a foreign exchange. In the first three quarters of this year, 15 firms made the same choice. That's 9.2% of all U.S. initial public offerings in that period...

It's also alarming to the extent it reflects more serious underlying problems. And as the report notes, regulatory burdens -- especially post-Sarbanes-Oxley -- and litigation costs are driving companies out of our publicly traded markets. This matters because the strength of financial markets is an important source of national prosperity...

This isn't a partisan issue, or at least it shouldn't be. Democrats ought to appreciate that hollowing out our publicly traded markets in favor of foreign markets, or private markets open only to the rich, does not serve the small investor...

Whta do you mean by off balance sheet ?

Here is the Citigroup SIV

The following story is an example of a possible deflationary 'event' and why the Fed needs to inflate away these huge debts.

MORTGAGE MELTDOWN

Interest rate 'freeze' - the real story is fraud Bankers pay lip service to families while scurrying to avert suits, prison

Sean Olender

Sunday, December 9, 2007

New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie's existing loan losses shot up more than expected.

Now, just unveiled Thursday, comes the "freeze," the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of "teaser" subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.

But unfortunately, the "freeze" is just another fraud - and like the other bailout proposals, it has nothing to do with U.S. house prices, with "working families," keeping people in their homes or any of that nonsense.

The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

And, to be sure, fraud is everywhere. It's in the loan application documents, and it's in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.

I can hear the hum of shredders working overtime, and maybe that is the new "hot" industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer "he can't refuse."

Despite Thursday's ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?

The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.

The problem isn't just subprime loans. It is the entire mortgage market. As home prices fall, defaults will rise sharply - period. And so will the patience of mortgage bondholders. Different classes of mortgage bonds from various risk pools are owned by different central banks, funds, pensions and investors all over the world. Even your pension or 401(k) might have some of these bonds in it.

Perhaps some U.S. government department can make veiled threats to foreign countries to suggest they will suffer unpleasant consequences if their largest holders (central banks and investment funds) don't go along with the plan, but how could it be possible to strong-arm everyone?

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