MORNING YAPS

Commentary: Government holds back real economic growth
Andy Kessler, a former manager of a hedge fund, argues that all the U.S. government's efforts to bolster the economy and stabilize the financial sector have been a bust with the exception of the Federal Reserve's flooding the market with money. While the Fed's efforts have helped some areas of the financial sector, it allowed other issues to remain. "By not restructuring banks, by not getting bad loans off bank balance sheets, by not standing up to the massive increases in government debt crowding out private capital, the Fed and Treasury are holding back real economic growth," Kessler wrote. The Wall Street Journal (7/15)

Mortgage business lucrative once again
Housing has been at the root of the problems in the banking industry for the past two years, but it is returning as one of the sector's most lucrative areas, at least for a quarter. "It's the mother of all mortgage quarters," said banking analyst Meredith Whitney. Sustainability, however, is in question. "You might believe that the environment has stabilized, but looks are sometimes misleading," she said. The New York Times (7/14)

CalPERS sues over "wildly inaccurate" ratings for SIVs
The California Public Employees Retirement System, which lost $1 billion from investments in structured-investment vehicles, filed a lawsuit saying the three main credit rating agencies "made negligent misrepresentation" about the products by giving them AAA ratings. The ratings "proved to be wildly inaccurate and unreasonably high," according to the lawsuit. The New York Times (14 Jul.)

Bonds fall after S&P downgrades several CMBS
A change in Standard & Poor's rating methodology and other issues has prompted the agency to downgrade a number of commercial mortgage-backed securities. The downgrades caused bonds backed by commercial mortgages to fall. A Dwight Asset Management senior portfolio manager said the CMBX Series 5 dropped 3 cents on the dollar after the downgrades. More downgrades are likely. The Wall Street Journal (7/15)

China's foreign exchange holdings balloon to $2.1 trillion
Foreign exchange reserves held by the Chinese government topped $2 trillion by the end of June and most recently grew to $2.132 trillion, the People's Bank of China said. The accumulation reflects speculation that China might be close to revaluing its currency, as well as the eagerness of foreign investors to participate in the country's rapid growth, economists said. Financial Times (tiered subscription model) (15 Jul.)

Germany's slow response to crisis results in struggle for borrowers
The German government, which will hold elections in two months, has been slow to respond to the financial crisis. Corporate borrowers are struggling, the economy is expected to contract by 6% or more this year, and recovery is expected to be slower than nations that reacted more quickly. "The problem is going to come when we want to get out of the crisis," said Klaus Zimmermann, head of the German Institute for Economic Research. "The banking sector has to be there and be healthy. And the banks won't be able to participate in the process." The New York Times (14 Jul.)