levin70

Richmond Fed: GSEs Encourage Mortgage Defaults

Given this, why would anyone be willing to lend in California?

The real issue isn't with availability of mortgage funds for california vs another recourse state, say the state where I live, Illinois. The issue is why is a california borrower able to get as low a rate, given all other details being the same, with the rate that I can get in Illinois?

The intervention in the market place that causes the mis-pricing of these risks is what a large portion of the problem is.

Regards

Why Airline Mergers Don't Work: Scale Is Not a Blessing

The problem isn't the mergers themselves and I understand the economics behind why they try to grow bigger. If you have ever tried to run a full boat union shop you would understand why they try mergers even when they seem uneconomic from hindsight. Obviously it would appear that you (the author of this article) haven't and thus don't understand the dynamic.

Regards

Time for the Feds to Finally Get Tough with Troubled Bank Giants

I don't think balance sheet shrinkage is necessarily the answer - i think a breakup is the better option as others above have also suggested. Split citi into into core components and let the corresponding assets go along. The gov't then forces the individual components to enter into agreements not to acquire other businesses that would increase the size of the operations/balance sheet by more than 5% in any given year for the next 10 years.

Social Security: Here's How to Extend the Fund's Life

Cut the benefits. They failed to earn what the benefits are paying out. Its that simple. Move to a defined contribution system and the problem solves itself. You get to take out what you put in.

The accountants let us down, writes Floyd Norris. Sure, we know that banks were hiding assets and taking risks with inadequate capital - now. But how could we have known then?

For all those above ranting about the accountants, shut up. You have absolutely no idea what goes into the accounting, how it works and what it means. Not only that but floyd norris has no idea either. Go look at the definition of "fair value" and you understand that he has no clue about what he's writing about. Willing buyer and seller, not just willing buyer defines fair value. There is a reason "distressed sales" are not included in fair value calculations - because they are specifically excluded by definition.

And if you think you can do better, please go at it and let barney frank and friends who brought you this mess via FNM and FRE write the accounting rules

David Merkel on Life Settlements

On the flip side there would have been no liquidity to the CDS market and what it said would never have been available to those savy investors in 2007/2008. The CDS's themselves were not the problem, the problem were the children at AIG who believed they were writing pure profit insurance policies that would never pay out. Houses never go down in value, right? AIG should have been let to go under, problem solved as the children would have been out on the street as a result of their not acting like the adults that they are.

Regards

How Is China's Export Driven Economy Booming?

John

And wht happends when all those non-performing loans come due in china? What recognition is there then? Will the central planners allow the Peoples banc to fail? Is it too big to fail in China? And where did all that loan money go? Into real estate? Into the shanghai market? Reminiscint of Japan isn't in 1988 isn't it. What happends when those markets tank and the collateral behind those loans disappears?

And how exactly is china growing at 8% when exports which account for 60% are down 23% yoy? No, china doesn't cook their books, of course not

Please try harder

How Did Vermont Avoid the Mortgage Meltdown?

Certainly, there are millions of Americans that probably wish someone had been around to tell them, no you can’t afford the house you just agreed to buy.

A number of years ago the banks in Illinois tried to put through a program where based on your income and financial wherewithal, it would require that you particpate in a series of classes on helping understand the basic finance principles behind purchasing a house with a mortgage if the mortgage product was anything other than a 30 yr fixed 80 LTV product. The banks used zip codes to target where to push the program. Of course the liberal chicago establishment couldn't have that as using zip codes to try to "educate" low income families was in their words code for racist discrimination against those borrowers.

Anyone wanna guess that maybe by doing this illinois and especially chicago areas could have saved themselves a whole lot of heartache?

I of course prefer this solution to outright banning of products. Properly educate people and let them decide. If they try and fail, so be it, but to completely ban those products is something I cannot ascribe to. And this is really important. When they fail, they fail. No bailouts. No matter how much you think its in everyones interest. They made an educated decision and it did not work out. Failure is the option.

Regards

Who Really Understands Housing?

Jeff

Those who are motivated sellers are well aware of current trends. They are much better with their opinions about home values than they are on macro-economic issues.

I beg to disagree significantly with this statement. Many sellers who are not in the market at the lowest price points are clearly delusional about where the market is. Go to zillow and do a search for the number of listings with DOM above 180. It's a telling statistic. Even more so is to have an REA do it where they back into the true original DOM, where small changes in the listing are not recorded as refreshes or where the REA removes the listing for 1 week to get a new DOM.

I would also disagree with the statement that shadow inventory works both ways. If there really was more demand why aren't sales higher than they were in 2005? Prices are 20-40% lower - any shadow buyers would have jumped already and did and are hurting because they jumped already. With homeownership still above 68% there isn't alot of pent up demand. The only real demand is at the $125k and below mark and people looking to trade down but can't because they can't move their McMansion for anywhere near what they are on the hook for on the first, second and sometimes third mortgages

Regards

Social Security: Time to Uncap FICA

Hey Brad

How about this. Reduce benefits before increasing taxes. People didn't pay enough for their benefits so reduce them. None of this would have been a problem if the system would have been defined as a "defined contribution" system instead of using a "defined benefit".

And there is no reason to tax people who don't get the benefits to pay for people who did not earn their benefits. We have plenty of that already.

Or how about this - make it voluntary. If you want higher taxes to pay for benefits other people didn't earn, please give the treasury your money. I however would prefer to keep that which I earn.

Regards

The next bursting bubble is inflated bank loan values, says Jonathan Weil. Without them, many more banks would be worth much closer to or less than zero, according to their own footnotes.

The carry value of the loan isn't necessarily overstated. Especially in a market where attempting to sell any residential mortgage backed loan is "tough" to say the least.

An example would be a prime CA borrower who has never missed a payment that bought in 2006, and is still gainfully employed. Fair value of that loan today would encompasse the fact that more than likely the homeowner is underwater, that CA real estate is in the tank and everything else putting a value around 70 cents on the dollar. Not the same under traditional loan reserve accounting.

But here's the question. Let's say you get your wish and banks have to mark held to maturity loans to market and thus on June 30 write down the loan to 70 cents and take the hit. They are still cash flowing 100% on that loan and 2 years later, when the recession effects have worn off to some extent and that same loan now has a fair value of 95% of par - are you going to whine like a little girl that banks are unfairly massaging their earnings?

My guess is that you will totally forget that they had to write the loan down to 70 cents because you whined about it then. Like a little girl.

Regards

Incompetent Bank Regulation Hits Customers Hard

Karl

If you don't like it raise some capital and start your own bank and don't do any of these nasty things that other banks do. Nothing is stopping anyone from doing this.

Don't be surprised if no one wants to invest along with you though.

Huron Consulting's Spectacular Blow Up

Its a Staff Accounting Bulletin 5T Issue, in which the Company should have recorded an expense for principal shareholders paying expenses on behalf of the Company. In this case, using some of the stock received and giving it to its employees to boost their comp based on results. So the stock issued as contigent earnouts was recorded as a purchase price adjustment (balance sheet) instead of as compensation expense. Somehow the CEO and CFO knew, were consulted, etc and they did nothing or they actively participated is what I am guessing, but not really sure.

In regards to PWC - they aren't clairvoyant. To expect them to find out about private transactions between the selling stockholders and certain employees is beyond the scope of any typical FS audit.

Regards

Has Housing Bottomed Yet?

Has housing bottomed?

Depends on the market segment you are talking about. For houses within 2x and 3x median income, generally between $100K and $150K, there is some solidity to the concept that prices and sales have firmed to the point where the bottom, if not here already is definately forming. Go anywhere near $500K and up, and the answer is definately NO. Whereas inventory (outside of pending foreclosures) is trending down nicely at the $100K to $150K level, its still ballooning at $500K and up.

Hope this helps

Huron Consulting Group (HURN -68%) gets hit with a slew of downgrades following Friday's disclosure that it will need to restate its 2006-2008 earnings due to accounting errors, leading to an SEC probe and the resignation of its CEO/CFO. It's a mess for sure, but Notable Calls thinks it falls short of fraud.

Straight out of SEC Staff Accounting Bulletin 5T. If the CEO/CFO decided on a policy of don't ask don't tell then it sort of skirts the fraud issue, but it would then lead to issues of not doing their jobs. Why they decided to quit first I would assume.

Regards