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Kroll's Whalen Says It's Hard To Get Bid For Ginnie Maes(Audio) · Bloomberg Intelligence

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  Speaker 1: after it failed to buy all of the government bonds
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  Speaker 1: I think this is a you know, a big bet
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  Speaker 1: one point four percent. Ralph Laurens surging today after an
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  Speaker 1: SMP down nine to seventy two. A dropped there of
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  Speaker 1: four tenths of one percent. It is to thirty two
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  Speaker 1: I'm Ramy in essentio. Delta Airline says it hopes to
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  Speaker 1: In Venezuela, the National Election Council has derailed opposition hopes
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  Speaker 1: period that would push a reference him into the coming year.
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  Speaker 1: And the jury is deliberating the fate of a Yale
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  Speaker 1: educated investment banker who insists he never told his father
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  Speaker 1: This is Bloomberg, Charlie, and we thank you and again
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  Speaker 1: recapping stocks are trading law SMP five. How did it
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  Speaker 1: index down? Nine? A drop there of four tenths of
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  Speaker 1: one percent. I'm Charlie Palett and that's a Bloomberg business
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  Speaker 1: flash Bloomber j Stock. Fed in Focus. There's certainly a
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  Speaker 1: lot of discussion about whether or not the Fed is
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  Speaker 1: going to try to hike race again this year. We
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  Speaker 1: think the Fed by December will be ready to do
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  Speaker 1: another hike. That sounds like a big difference from the markets,
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  Speaker 1: but it's not that big a difference. Think at this
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  Speaker 1: point the Fed is going to remain on the sideline
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  Speaker 1: through and most likely that better part of because they
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  Speaker 1: have a huge communication problem with the public about what's
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  Speaker 1: driving their policy decision. They basically have no strategy. The
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  Speaker 1: Fed in focus on gloom Word Radio, The Fed in Focus,
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  Speaker 1: Central Banks in Focus. What happens if you throw a
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  Speaker 1: party and nobody comes well. Chris Whalen, Senior Managing Director,
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  Speaker 1: Crow Bond Rating Agencies here to tell us more. Chris Whalen.
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  Speaker 1: That party at the Bank of England was inviting all
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  Speaker 1: of those bondholders too. It seems as though not all
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  Speaker 1: of them were willing to relinquish their bonds to the
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  Speaker 1: Central Bank. What do you make of this? Definitely not
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  Speaker 1: there's a shortage of yield out there, Keim. There's a
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  Speaker 1: shortage of cash flow. That's what we're fighting about here. No,
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  Speaker 1: they didn't want to sell the bond, so you know,
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  Speaker 1: to me, that's such a big deal. But the bigger
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  Speaker 1: issue is why are we doing this in the first place. Well,
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  Speaker 1: that's what I was gonna get to is that you know,
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  Speaker 1: whenever you you know, you throw a party, or whenever
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  Speaker 1: you look to buy something, you do a lot of
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  Speaker 1: work to figure out whether they are ready sellers. Did
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  Speaker 1: they not really canvass the market? Do they not recognize
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  Speaker 1: that people are yield starved? Their yield starved? Him? And also,
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  Speaker 1: I think the bigger issue that no one wants to
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  Speaker 1: focus on is that the dealer community in government securities
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  Speaker 1: and agency securities has been decimated. JP Morgan is going
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  Speaker 1: to stop clearing treasuries at the end of the year,
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  Speaker 1: and the street has just said no, we can't continue
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  Speaker 1: to lose money to tight spreads, no carry on the
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  Speaker 1: book right because rates are zero, so you know, the
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  Speaker 1: street has had to essentially get out of that business.
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  Speaker 1: There's literally a handful of dealers now who will handle
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  Speaker 1: this business. So in a way there's a liquidity issue too,
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  Speaker 1: because and nobody facing the Fed has any inventory. Nobody
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  Speaker 1: facing the Bank of England has any inventory, so of
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  Speaker 1: course they can't fill the auction. You see what I'm saying.
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  Speaker 1: They want what I want you to You just hang on, Chris,
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  Speaker 1: because I want you to just explain and perhaps in
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  Speaker 1: a little more detail, or maybe even give an example
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  Speaker 1: for those that are not familiar with the way that
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  Speaker 1: government bonds are traded and the role of the central banks.
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  Speaker 1: You talk for just a second there about the bond
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  Speaker 1: clearing operations and how JP Morgan was getting out of
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  Speaker 1: the Treasury bond clearing operation. Tell us about that. How
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  Speaker 1: does that work? The process? Well, it's it's a back
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  Speaker 1: office sort of process. You're confirming orders, You're you know,
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  Speaker 1: sending a variety of different electronic communications. You're trusted third party.
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  Speaker 1: Essentially you're the clearing agent for both sides in many cases,
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  Speaker 1: so it's a very important function. But the more interesting
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  Speaker 1: issues in the front of JP Morgan, the dealer doesn't
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  Speaker 1: keep a lot of inventory. They don't trade their own
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  Speaker 1: book anymore. They can't since the whale, remember the vocal
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  Speaker 1: rule and all of this. So there's there's no inventory
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  Speaker 1: for the central banks to take because they have to
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  Speaker 1: go to the dealers. They're not going to go directly
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  Speaker 1: to call and these other owners of paper and say hey,
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  Speaker 1: sell me the paper. They could, I suppose they typically
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  Speaker 1: deal with the dealer. So that's traditionally how they buy papers.
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  Speaker 1: So they do an auction, and the dealers didn't fill
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  Speaker 1: in this case. That's you know, they didn't They didn't
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  Speaker 1: respond to fill the order. And I think, to me,
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  Speaker 1: I worry about the liquidity aspect. I was just at
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  Speaker 1: a mortgage conference left two days. I'm worried about the
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  Speaker 1: market for Jenny Mays. For God's sake, you know, that's
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  Speaker 1: that's a problem. And that G in Jenny May means
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  Speaker 1: government yep. And there's no liquidity. There's no liquidity in
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  Speaker 1: the in the back of that market for for mortgage
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  Speaker 1: servicing rights. And it's a real issue because that whole
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  Speaker 1: market is now non banks. All the banks are getting out,
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  Speaker 1: there's no liquidity, there's no balance sheets that market anymore.
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  Speaker 1: So again, you know, all of these regulations and the
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  Speaker 1: QI and the low rates and the asset purchases I
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  Speaker 1: think have combined to actually constrict liquidity PIM and that's,
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  Speaker 1: to me, is very worrisome. We've written about this a lot.
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  Speaker 1: If you go, we did a piece of mortgage servicing
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  Speaker 1: rights last week. Is this a case of unintended consequences? Yeah?
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  Speaker 1: And I think also just over reaction. This is what
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  Speaker 1: we do in democracies. You know, Glass Steagle was very harsh.
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  Speaker 1: It was passed in the dead of night with no debate. Um,
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  Speaker 1: and I think similarly the reaction after two th eight
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  Speaker 1: was quite harsh. Um. But I wonder if we're not
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  Speaker 1: I guess I would like to see people get together
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  Speaker 1: in a room in Washington and say, Okay, what do
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  Speaker 1: we want, and then work together to make sure that
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  Speaker 1: the different things that they do. You know, for example,
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  Speaker 1: the Consumer Protection Agency that was created after Dodd Frank
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  Speaker 1: has been very harsh. They've trebled the cost of servicing
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  Speaker 1: a mortgage loan. UH and a lot of firms are
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  Speaker 1: going to get out of business. Tim. I mean, I'm
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  Speaker 1: telling you. The head of Jinnymate, Ted tos Er, is
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  Speaker 1: a very dear friend or wonderful colleague. She's been there
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  Speaker 1: for seven years. He knows what he's doing, and he's
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  Speaker 1: gonna leave soon. And he's leaving the market with less
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  Speaker 1: liquidity and with a lot of global investors who owned
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  Speaker 1: Jenny May paper all over the world, central banks who
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  Speaker 1: are worried about the quality of that market going forward
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  Speaker 1: because they can't get a bit if they want to sell,
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  Speaker 1: even a reasonable size blockage any mays it's hard to
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  Speaker 1: get a bid today, and that's the result of regulation.
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  Speaker 1: Give you ten seconds. What's the worst case scenario, doorst
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  Speaker 1: case scenarios. We keep doing what we're doing and expecting
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  Speaker 1: a different outcome of science. Stein said, right, Um, I
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  Speaker 1: think we need to stop chewey. Let rates go up
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  Speaker 1: in the US. We can we can take the lead
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  Speaker 1: on this, Thanks very much. Chris Whalen is the senior
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  Speaker 1: Managing director for Crow Bond Rating Agency giving us his
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  Speaker 1: views of quantitative easing and the lack of liquidity in
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  Speaker 1: the government bond market. This is taking Stockheim, pim Fox,
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