Daily Archives: February 27, 2016

Why A Hedge Fund Manager Who Made A Killing From Subprime Is Buying Bitcoin


Long before “The Big Short’s” Michael Burry was a household name for his insight into the upcoming subprime crisis of 2006-2007, there were many others among them John Paulson, Kyle Bass, and Corriente Advisors’ Mark Hart. Just like Bass, Mark is another Texas-based hedge fund manager who correctly predicted, and profited from, the subprime crisis. He is also an expert on China, and in fact, just last month in the aftermath of the recent Chinese devaluation which roiled markets, he said that “China should weaken its currency by more than 50 percent this year.”

In fact, it was Hart who (alongside ex-PBOC advisor Yi Yongding) first proposed the idea of the one-off devaluation that promptly afterwards become the conventional expectation for this weekend’s G-20 summit in Shangai. To wit:

Hart believes that the Chinese crawling devaluation is an error as it carries with its the latent threat of much more devaluation in the future, thus encouraging even more outflows, which in turn forces China to sell even more reserves, which destabilizes the economy even further, forcing even more devaluation and so on.


Instead, a one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. He adds that China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength.

According to Hart, while a devaluation this year would be “jarring” and may initially accelerate capital outflows, it would ultimately put China in a stronger position. He said the country could explain the move by saying it would put the yuan at a level more reflective of market forces and allow the currency to catch up with declines in international peers.

As we said one month ago, “Hart is correct, and China will have to pick one option: either a sharp devaluation, or failing that, debt defaults: the current course of gradual CNY debasement will only results in an acceleration in capital outflows until ultimately China’s $3 trillion rainy day fund is whittled away to nothing (and as a reminder, according to some estimate just a little over $1 trillion in it is actually liquid assets).”

And while we explained that Hart’s “devaluation” trade consists of buying Yuan puts, according to a recent interview he gave to Raoul Pal RealVision, he has also put another trade on alongside his FX deval: buying bitcoin.

Citigroup Receives Subpoena From U.S. Attorney in FIFA Probe

Citigroup Inc. said it received a subpoena from the U.S. Attorney for the Eastern District of New York regarding the bank’s possible role in bribes paid to international soccer officials.

The government is seeking information on banking relationships and transactions tied to FIFA, global soccer’s governing body, New York-based Citigroup said Friday in its annual regulatory filing with the Securities and Exchange Commission.

FIFA is under investigation by U.S. and Swiss authorities for alleged bribery and corruption in the awarding of the 2018 and 2022 World Cups to Russia and Qatar. Almost 40 people, including a dozen FIFA officials, have been arrested in connection with corruption in soccer.

Read on.

Germany ends audits against Deutsche Bank over price fixing

Germany’s financial regulator has said it won’t take further action against the country’s largest bank over alleged interest rate rigging and precious metals price fixing. The moves takes the spotlight off a former boss.

The watchdog, known as Bafin, announced on Thursday it had ended several major special audits against Deutsche Bank.

“Bafin does not see the need to take further action against the bank or former and current members of the management board with respect to the closed special audits,” the bank said. “We have taken many steps to improve our controls and processes and to strengthen the Bank’s governance,” CEO John Cryan said on Thursday.

Deutsche Bank paid $2.5 billion (2.26 billion euros) in fines in April last year after investigations on manipulating interest rates. The bank was also probed for its role in rigging prices of gold, silver, platinum and palladium. It also recorded a multibillion-euro loss for 2015.

Bafin officials also closed a special audit into a derivatives trade that Deutsche Bank made with Italian bank Banca Monte dei Paschi di Siena.

Read on.

Butler & Hosch law firm collapse stalls foreclosure sales

The founder of Orlando-based Butler & Hosch law firm, Robert Hosch Jr., will surrender his Florida law license.

Hosch’s proposed agreement with the Florida Bar comes almost a year after his firm collapsed over night, leaving hundreds of people suddenly unemployed and 60,000 foreclosure cases in limbo.

The firm was one of the biggest foreclosure law firms in the nation when it closed suddenly on May 14, 2015. It represented banks and lenders who were foreclosing on people’s homes.

Hosch, 54, also had a large office in Texas and lived there. He has filed a petition with the Florida Supreme Court to surrender his license in a revocation agreement.

The revocation would resolve any possible complaints against him by the Bar, which were only just being written up at a staff level, according to Florida Bar spokeswoman. Hosch also agreed to reimburse The Florida Bar for its costs in his disciplinary case.

Citigroup Faces Fraud Lawsuit Seeking at Least $1.1 Billion

Citigroup Inc. was sued for fraud by investors and creditors in a Mexican oil services firm over claims they were harmed by a loan scheme that led the bank to cut 2013 profit by $235 million and fire at least a dozen people.

The bank’s actions caused Rabobank Groep and other investors and creditors of the Mexican firm to lose at least $1.1 billion, according to a complaint Friday in Miami federal court. Rabobank and other investors also filed a separate negligence lawsuit in state court in Delaware against auditor KPMG LLP. The law firm Quinn Emanuel Urguhart & Sullivan LLP provided copies of the complaints, which couldn’t be independently confirmed with the courts.

Read on.

GE Says Justice Department Sent Subpoenas to GE Capital, WMC in Subprime Probe

The Justice Department has subpoenaed records concerning subprime mortgages from General Electric Co.’s financial services business, the company said in a securities filing, the latest indication of the long shadow the subprime boom has cast over lenders.

GE disclosed in its annual report, filed Friday, that its lending unit, GE Capital, and a former subsidiary that made subprime loans, WMC, received the subpoenas in January.

The records were sought in an industrywide Justice Department investigation of subprime mortgages, which is seeking to determine if federal laws were broken in the “origination, purchase or sale of residential mortgages” from 2005 through 2007, the company said. GE said it is cooperating with the investigation.

The Justice Department didn’t immediately respond to a call for comment.

Read on.

CFPB lays out 9-point plan to reshape financial industry

Cordray shares 9 goals CFPB hopes to achieve within 2 years

The five-year anniversary of the Consumer Financial Protection Bureau is coming up this summer – July 21, to be exact – and few can argue the impact the CFPB had on the financial industry in these four-plus years.

From the recent implementation of the CFPB’s TILA-RESPA Integrated Disclosuresrule, to the national mortgage servicing rules, the Ability-to-Repay rule and theQualified Mortgage rule, just to name a few, the CFPB seismically changed the face of mortgage lending, with rules and enforcement actions as well.

It’s not just mortgage lending that’s changed. The financial industry as a whole has undergone significant changes since the CFPB began operating in 2011.

And the CFPB is far from being done with reshaping the financial industry.

In a speech this week at a meeting of the Consumer Advisory Board, a group of “external experts, industry representatives, consumers, community leaders and advocates” that the CFPB meets with to discuss financial issues facing consumers, CFPB Director Richard Cordray laid out a series of goals for how the CFPB wants the financial industry to operate.

In his speech, Cordray said that the CFPB was founded with two “strategic objectives” that it would use to guide its work, and said that CFPB is using those two strategic objectives as the basis for setting nine goals for reshaping the financial industry within the next two years.

Read on.