Edward Harrison

Crony Capitalism: On Obama's Economic Policies

What planet are you on? The title says it all. Talking about crony capitalism is not a defense, it is a repudiation despite the claimed success. This is not a defense of Obama in the least. Your comments are misguided.

If I thought the Obama Administration has been successful I would have said so. I would have said:

“You may not like his results. You may not like him. But, President Obama has actually been quite successful.”

That’s not what I am saying at all. What I am saying is the Obama Administration has been ‘productive’ – they have produced outcomes – ones which they are now trying to argue are ’successful’ due to a technical recovery (what I have called the fake recovery).

Productivity is normally seen as almost synonymous with success from an economic policy perspective. In this case, this is not so. Their solutions have made very plain the looting which crony capitalism has engendered in a way that the bubble economy and increases in debt over the past decade masked. This explains the divergence between productivity and ’success.’

Read what Geithner is saying. He is saying: “we have been successful and history will judge us as such – more so because we took an unpopular route to success.” He can make this argument right now because GDP has increased – not that the argument resonates with prospective voters. The Fannie/Freddie manoeuvre is indication that the Obama team are attempting to insure these policies stick.

However, when these policies prove ineffective because the inherent problem is private-sector debt not asset prices, this argument will ring hollow.

On Dec 28 10:12 AM Tony Petroski wrote:

> Another long defense of Obama by Mr. Harrison.
>
> "You may not like him. But, President Obama has actually been quite
> productive – far more productive in his first year than Bush, Clinton
> or Bush II."
>
> Huh? Productive at what? Scaring to death all market participants?
> Is this the American Way? Presidents who are productive? Isn't
> it up to the American people to be productive? Is expanding the
> public sector at the expense of the private sector productive? Check
> out Robert Mugabe's 1st year in office or for that matter Castro's--both
> extremely productive years.
>
> Why dance around the obvious? Obama is a politician, a personality
> who can't go even one day without public adulation. Why do we expect
> a man who never ran anything bigger than a bake sale in college to
> be able to take over major businesses, appoint Tsars, and run entire
> industries?
>
> The word is "dilettante," not ingenue.

Why Mortgages Aren’t Modified and What a Ruling Stopping Foreclosures Means

One thing I should note is that the Appeals court decision specifically said this is NOT a ruling on whether MERS can represent the mortgagee:

"We do not attempt to comprehensively determine all of the rights or duties of MERS as a nominee mortgagee."

That means the decision had a more narrow focus as to whether MERS was a 'necessary party' in this particular case. The finding is that it was not. The Kanas Supreme court agreed that MERS was not 'contingently necessary.' They went further in concluding that the fact that MERS neither possessed the promissory note or had authority to assign it means it cannot file suit.

"indirect monetary benefits do not establish protection under the Fourteenth Amendment"

However, because this is NOT a comprehensive judgment as to MERS' role as nominee, clarification is needed. That's why I think this is going to the Supreme Court.

Why Mortgages Aren’t Modified and What a Ruling Stopping Foreclosures Means

The question this now brings up is what is MERS' legal right to act on behalf of mortgage holders to enforce foreclosure. If MERS is limited, as this verdict suggests it is, then any homeowner could contest a filing. This gives them the right to continue in the foreclosed property until other means to force foreclosure are found by some interested party.

Ultimately that is good for the homeowner and bad for the investors/banks holding the securities linked to these assets.

I would expect this case to be contested.

Fannie Mae and Freddie Mac Go Junk

Bruce, I am with you on this one. Mortgage debtors are going from a non-recourse loan to a recourse refinancing at a significant premium of up to 25% more than the value of their house.

In effect, one becomes shackled to the house in a way that one was not previously. This is being touted as a way to help people stay in their houses. In reality, it is a way to help banks keep from writing down assets while they earn enough money to increase their capital base.

If we really wanted people to stay in their hoses, we would allow them to go into foreclosure and help them find alternative housing. Moving them into a 125% LTV recourse loan is setting them up for disaster and setting taxpayers up to take on more losses.

And, of course, this is predatory because most people will not know that they are going from non-recourse to recourse.

Nationalization of the U.S. Mortgage Problem

Silver Leaf and User 260928, I appreciate your kind words. When it comes to the financial meltdown, I am very conflicted. A close friend was let go at Bear after they were rescued. He also lost a shed load of money on the stock fall. Another friend just got the axe at Lehman. My mother-in-law was heavily invested in one of the regionals that is down 70 some percent and my sister just took a bath on Fannie and Freddie.

Long story, short: some people very close to me are affected. I see the human cost every day and its heart breaking. While we may talk about these things rationally and objectively, we must always remember that people's lives are at stake here.

That said, I have seen this train wreck coming for sometime. Others, even some close family members, have not understood the magnitude of the problem even though I have counseled them. I will continue to report on this as the story develops. My hope is that industry consolidation and bankruptcy will force a sharp and painful correction and then we can get on with business. My worry is that politics will rule the day and we will be in for a Japan-like scenario or worse.

Silver Leaf, as for seeing this way ahead of time, the problem in the 1980s and early 1990s were not as acute. Only in the last 10-15 years have FNM and FRE really spiraled out of control. Here is a list of Washington Post stories on the two dating back to 2005.

www.creditwritedowns.c...

Thanks again for your comments and feel free to visit my website or subscribe to my blog feed.

All the best.

Edward