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Bernanke & Paulson Need to Create a Mortgage Specialist Fund

I just emailed Bernake this morning requesting they consider a cap on Mortgage rates as part of the bailout plan for any institution that participates. This action would serve several purposes.

As a baseline, controlling the spreads for credit worthy individuals would in a sense, limit those that have been responsible in their endeavors participation in the bailout of reckless/inept/unscrup... individuals, by affording them cash flows at a reasonable rate and not allow the institutions a means of inflating the spreads to profit inordinately on the backs those of us who have been responsible in our financial dealings.

We certainly have a historical spread that can be referenced to set the cap. This should also serve to make rates more competitive in favor of the consumer as those institutions that don't participate in the bailout will not be getting any new business unless they are competitive in the market.

In the face of a comprehensive bailout plan, realizing that I, like everyone else is on the hook, would appreciate knowing that the spreads are required to be reasonable and these institutions are committed to normalized spreads.

Without suggesting collusion on the part of these institutions, I can easily see where they will push the limits on the spreads as this draws out. Eventually responsible consumers and businesses will need to address cash flows. Without these measures, I can easily see institutions holding out longer than the masses to the point that what is currently an excessive spread over the 10 year Treasury note becomes the norm.

Remedial Finance: Illiquidity vs. Insolvency

I am curious to understand the run up in Freddie and Fannie over the past couple of days. I agree, completely insolvent! Is this just some strange behavior of let the buyer beware of the house of cards from individuals trading to make a buck? I am not a day trader, this seems to be a high stakes gamble as far as I can tell.

3-Month Treasuries Will Now Get You $4 on $10,000 Per Year

I keep watch of the Treasury yields, and have been trying to understand exactly what is going on over the last several days. Would I be correct in assuming the dollar is going to follow the Treasury yield. In other words will we see a weaker dollar, and is that why there are renewed calls for investing in the oil and gas sector at a time when the price for a barrel of oil has reached a 7 month low?

Monday, September 15: Week in Review

Well you may be surprised to know that Bush was a strong proponent of separating the government from Freddie and Fannie back in 2003 recognizing the inherent risk associated with the quasi backing of the US Gov't for these institutions. (Truly free markets would have required better oversight of risk management without the backing of the US Gov't.) In fact he is the 1st president not to assign members to the board of directors for these organizations since Fannie and Freddie were created in an effort to separate the two. (Gov’t assigned board members were had a fiduciary duty to act in the best interest of shareholders, just as the regular board, rather than as a Gov’t oversight, however lending credence to Gov’t backing.)

Had his insightful plan to create a true separation been successful, we may not be in the mess with our financial institutions that we are now. As it worked out, the situation was far too entrenched to turn around.

The Untold Story of the Auction-Rate Securities

If I understand this, the assets backing many of the illquid ARS are preforming well, with an exception to the high risk securities that the issuers of, simply have too good a thing going to consider refinancing. Yet the illquidity in the auction market is in essence resulting in failures of the market, and much like a small business that may not be able to meet current obligations because funds are tied up in inventories that are not moving, the holders are concerned for getting inventories of ARS off their books, compounding the failure of auctions.

Would the institutions being required to buy back these preforming instruments back relax the pressure on the auctions to preform, helping to stabilize the market for ARS and be the beginning of an end to the current credit crunch in other markets as well?

Something's Not Right About This Rally

I agree with your point, only I would add that until the bottom fishing in the institutional side of the equation has worked itself out the credit markets will maintain their unusual spreads. Valuations continue to be worked through as financials are having to meet regulatory requirements. This presents opportunity for financials in relatively good condition to use to their advantage in consolidating the market. Until this occurs, consumer and commercial credit will remain tight. Lets face it, BOA should make more on their utilization of 2.8 Billion to purchase Countrywide than they could hope to make investing 2.8 Billion in consumer loans. And besides, the regulatory requirements are going to expose the weaker financial institutions and opportunities for significant ROI, in the meantime Joe Blow consumer/commercial customer has more time to expose their inability to remain solvent, further limiting credit markets exposure to risky loans when they do tighten the spreads.