Opening Bell: One Miillioon Doollllars

Do auction-rate probes rate? Disney's surprise; blaming mom, etc.

I wonder sometimes about our priorities over here in the business space.

Authorities and their chroniclers in the business press are going after Wall Street like Eliot Ness for deceptive practices in the sale of auction-rate securities, sold as cash-like instruments but backed, we find, by subprime loans—like everything else.

New York and the federal government have probes going. Now we see Massachusetts Attorney General Martha Coakley has settled with UBS, Phil Gramm’s bank, for a sum that recalls a scene from Austin Powers: One miiillllioon dooolllaars.

UBS is paying $750,000 to the state to cover fees and expenses and $250,000 to provide support to cities and towns affected by the breakdown of the auction-rate markets.

That million will go to all the Homer Simpsons running investments for Massachusetts and its cities and towns, or as the Journal puts it,

…to the state for fees and to educate government officials about appropriate investments for their money.

Okay, UBS pays an additional $3.4 million to redeem the junk. But still, the whole thing seems hardly worth the bother.

Auction-rate securities are sold mainly to institutions—and, yes, cities, towns—and the wealthy.

And while crooked sales practices are not to be countenanced - a UBS executive, according to The New York Times, called the $300 billion market a “complete loser,” even as the bank pitched the product as short-term, liquid, and safe - I’m anxious to hear much more about deceptive sales practices in the trillions-of-dollars mortgage market, particularly in the subprime space, which cranked out $600 billion worth of toxins in 2006 alone, one fifth of all mortgages. This is the stuff underneath the auction-rate problems, and every other problem in the financial sector.

Who remembers Ameriquest?

Still, The Wall Street Journal has a very nice story about an auction-rate salesman at Credit Suisse - those cagey Swiss bankers again—gone missing, authorities believe in Bulgaria.

Here’s the best line, about the missing salesman, Julian Tzolov:

In his early days in the U.S., he struggled financially. In 1994 Mr. Tzolov filed for personal-bankruptcy protection over $7,000 in credit-card debt due to “financial difficulties and lack of support from my parents.”

Blame it on your mom. Nice.

In economic news…

Indicators are basically pointing down; no news there. There is no joy in Mudville, as Starbucks continues its struggles. The Los Angeles Times says the bankruptcy of department-store chain Mervyn’s (pronounced ‘MOYvins” here in Brooklyn) is hurting malls. Housing continues to get crushed in California, Britain, even Northern Ireland.

And now hotels are heading for a fall.

Disney, though, mystifies tea-leaf readers with a strong quarter, buoyed, according to The Journal, by revenue and profit growth at its theme parks, which, as anybody who’s been to one of them knows, can suck dollars from a tourist with Oreck-like force.

The Financial Times emphasizes, however, that the company’s cable performance was the real driver of Disney’s good quarter.

Much ado

The Journal makes a big deal of two stories that probably don’t merit it:

A deal by an American sports marketing company in China is treated like V-E Day.

As is a probe of the community group, Acorn, over concerns that it is mixing housing and voter registration work, which helps Democrats:

Democrats on Capitol Hill have helped to steer millions of dollars in housing and other grants from the federal government toward Acorn and groups like it. The groups must qualify and compete for the money, which is typically doled out from the federal government to states and municipalities. The housing package includes a new, permanent source of affordable-housing money that congressional Democrats and grass-roots groups have sought for years. The Affordable Housing Trust Fund and the Capital Magnet Fund will be funded by a tax on mortgages backed by Fannie Mae and Freddie Mac, the government-sponsored mortgage titans.

But in the scheme of things we are not talking about a lot of money.

That tax eventually will channel upwards of $600 million annually in grants for developing and restoring housing, mostly as low-income rentals, available to Acorn and other groups.

And here are the kind of numbers were talking about for Acorn:

Last year, as the housing crisis worsened, Acorn Housing raised $7.7 million, of which $2.8 million, or 36%, was from the government, according to a return supplied by the housing group.

It’s about journalistic priorities, is all.

And finally…

Bloomberg is helpfully keeping track of subprime write-downs and gives us the latest in this morning’s story about Deutsche Bank’s latest:

The collapse of the U.S. subprime mortgage market has led to $476 billion of credit losses and writedowns at financial institutions globally, data compiled by Bloomberg show.

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Dean Starkman Dean Starkman runs The Audit, CJR's business section, and is the author of The Watchdog That Didn't Bark: The Financial Crisis and the Disappearance of Investigative Journalism (Columbia University Press, January 2014). Follow Dean on Twitter: @deanstarkman.