In the 21st century asset securitization undergoes a change of phase. It broadens out and unifies. It ceases to be a tangle and becomes plainly one story. There is a complete confluence of corporate destinies. A vision of previously unsuspected possibilities brings an immense readjustment of ideas.

After H.G. Wells, The Shape of Things To Come, 1933.

The California and Florida housing markets are as different as black and white.

That’s the view of real estate consultant John Burns, who notes that California housing markets have “less than 10 months supply” of homes for sale, while Florida is “still hugely oversupplied, with most markets currently maintaining more than 16 months of supply.”

After Roy Lichtenstein, TIME June 21, 1968.

I wish I could take full credit for my heist of Lichtenstein’s TIME ™ cover – but I can’t.

I have a modest proposal. I believe it will rein in the banks, and compel them to behave properly. Here it is.

• If any bank fails to comply in the future with federal capital or lending guidelines, then the US Treasury receives an option to acquire warrants in the common stock of that bank or its parent company.
• This option will be granted to the US Treasury for each reporting period (either year or quarter, to be determined) that the bank is NOT in compliance.
• The tenor, or term, of the warrants will be ten years. The warrants’ strike price will be the average stock price for any 20 consecutive trading days selected by the Treasury.

• The twenty-day period must fall within a two-year window that begins one year before the Treasury announces that the bank is not in compliance; and ends one year after the Treasury’s non-compliance announcement.

• The number of warrants will be set as a percentage of the average number of outstanding common shares of the non-compliant bank or parent company, for the 20 consecutive trading days used to establish the “strike.”

• The actual percentage will be a small but not insignificant positive percentage that is fixed for all companies, by statute. The specific percentage will be determined by a bill originating in the US House.

• The Treasury will have the ability to hold the warrants until their expiration. It does not have to exercise the warrants that it holds on behalf of US taxpayers.

• The Treasury may also elect to sell the warrants that it holds - in whole or in part, at any time - to private parties in a public competitive auction.

• The Federal Reserve and a private company will jointly administer the auction. The private company would presumably be BlackRock, unless BlackRock warrants are being offered, in which case Goldman Sachs would be the private auction co-administrator.

• The Secretary of the Treasury will report to the US House and Senate, twice a year, on the status of its warrant holdings. This report will include a full accounting of the warrants held, acquired, auctioned, or lapsed. The Secretary will report on the gains – or profit – if any, that the Treasury earns on the warrants.

If portions of the above sound familiar, that would be because the terms resemble those of warrants granted to the US Treasury under the 2008 TARP Capital Purchase Program [“CPP”], as I described in The Real Options Monster.

Would someone please put the SEC out of its post-Madoff misery?

It would save the more than $900 million that it costs to annually fund an agency that missed the self-confessed (that’s English for “the SEC had no idea”) $50+ billion Ponzi scheme.

Last week, Professor Gary Gorton (of Yale and the NBER) took Fed officials on a whirlwind tour of US bank panics (.pdf). He focused on two periods:

1. 1864 – 1913, in which newly established and lightly regulated commercial banks spread across the country, and suffered from frequent panics and failures; and
2. 1934 – 2007, the “Quiet Period” following the introduction of deposit insurance, in which few banks (distinct from special-purpose savings and loans) failed.

He did this because he believes that:

On April 27^th the Administration buzzed Manhattan with an F-16 and a Boeing 747. On May 5th, it cracked down on General Mills (GIS), the maker of Cheerios, an illegal drug found in many schools, playgrounds, and lunchboxes.

So you may have missed the May 12^th critique suggesting that inept government policies threaten to disrupt more than tall buildings or your breakfast morn.

Two widely respected investment firms – Research Affiliates and Deutsche Bank (DB) – recently reviewed the relative performance of diverse asset classes over decades (Research Affiliates) and months (Deutsche Bank).

Each provides justification – even in tough times like these – that portfolio diversification rules!

If Chairman Bernanke’s best efforts have greened (i.e., to make or become green) the shoots of economic recovery, what would cause him to cede his current position, stand up, and leave?

It would be unusual for a successful sitting Fed Chair to leave after one term (about as rare as a standing panda). But let’s take a look at history and “determine” what would be needed to make Chairman Bernanke a one-term Chairman of the Board.

The upper limit for Fed Funds has been stuck at 0.25% since Dec 2008. What does the Fed do when the Fed Funds rate is zero, or close enough to zero for government work?

Charles Addams’ Drawn and Quartered, June 1946.

Source: Michael Maslin.

If you follow housing, you may think you have a fairly good understanding of the magnitude of:

© 2009 AP Photo/Noah Berger, Boston Globe, Scenes From The Recession - #30, 18 Mar 2009.

© 2007 Denise Gibbs/Typecast Pictures’ Zombies of Mass Destruction

THE ZOMBIES ARE COMING

The Independent: Oldest Jawbone Found In Spain

Jawbone: To urge voluntary compliance with official wishes or guidelines (dictionary.com).

Detail from Antique Pipe Rack, kelvinko.com

For US home prices, there was greed, then fear, and now … the loathing.

I’m NOT talking about the brouhaha (i.e., “loud confused noise from many sources”) over AIG’s bonuses. This is NOT the place to discuss the Captain Renault-like shock that rained from the clouds when US companies obey laws passed by Congress and signed by the President.

I’m referring to British displeasure with gifts presented by the First Lady to the children of their Prime Minister Gordon Brown, during a recent White House visit:

“… So, boys and girls, I hope everyone enjoyed the story of AIG and The Hole That Could Not Be Filled. You all should learn an important lesson from that story. Can anyone tell me what the lesson was? … How about you Melissa?”

How many steps are there to hell - seven, nine, ten, perhaps twelve? How about - at least six?

FAQ: Who’s on first? And what's a second?

The folks in the Executive Branch of the US government run the:

I will be brief – in my discussion of foreclosures, and the extent to which they can be “explained” by either:

• Falling home prices, and/or
• Rising unemployment.

For data, I will use: