a fat panda

More signs of housing confidence, as lenders are easing down-payment standards for some applicants, who can borrow 95% of a home's value instead of 90%. Changes are happening on a market-by-market basis, but indicate some companies think the worst is over for price declines.

Ditto to both of you.

Americans borrowers can leverage 20 to 1 with a non-recourse loan, such that if the house values fall they can walk leaving the lender with a loss. The lender has probably sold the loan to the only person willing to buy such sketchy loans - the Fed which has an implied put on the taxpayer if the loans fail. So if the loan is paid the Fed makes money which is paid as dividends to the banks. If it loses money, well it just prints more money.

I generally don't believe in borrowing but on those terms who wouldn't.

Weakening Derivatives' Super-Priority

Derivatives have many different forms. The ones that I am most acquainted with would be that of senior uncollateralized bank debt. These aren't options at all, nor should they be treated like options. They aren't equity, and should get a preference over equity in a BK.

At no time should deriviatives come behind equity. This would incent managers to write riskier deals by insulating them from the consequences of their stupidity.


On Dec 18 10:55 AM Graham and Dodd Investor wrote:

> Derivatives should not receive priority because it is not "original"
> paper. The normal priority is debt first, then equity, then options,
> including derivatives. As it should be.

You Say Fossil Fuels, I Say Future Fuels

"Anything beats sending $25-35 Bilion a month to countries that are not our friends"

You realize that our largest trading partner for oil is Canada?


On Dec 18 09:18 AM The Greatest Rip Off of our Time wrote:

> Anything beats sending $25-35 Bilion a month to countries that are
> not our friends. Go NG, more then enough for decades here in the
> US and even EXxon has taken notice. Support the Pickins Plan!

America Plays Shell Game with Bailout Money

" What he meant was that money would be showing up on the Fed's books. He didn't claim that the taxpayers would be receiving those gains."

It is actually worse than that. Because if the investments make money the banks win. If these investments lose money, the taxpayer loses because the Fed will just print more money to cover the loses.

Is the Treasury’s Monetary Policy Effective?

Where is the inflation?

Inflation is caused not solely by too much money. It is too much money chasing too few goods. Pricing power is held in check by excess capacity. Once it is gone, you will get your inflation unless we have significant progress in productivity.


On Dec 18 06:30 AM Andrew Butter wrote:

> Excellent Excellent Article, you have finally explained something
> that has been nagging me your almost a year, and very lucidly, thank
> you.
>
> I must have asked a twenty economists of all denominations, "but
> isn't a "liquid" security just the same as money?" And they all say...all
> the way from the Austrians to Anarchists..."No, no - you don't understand
> a thing - you moron".
>
> So consider this then, MBS and all the other variants were, two years
> ago considered "liquid".
>
> And they more or less were thanks to the house of cards constructed
> by Goldman et.al....such as the quaint "exchanges" where hardly any
> business was done (and what was done was likely rigged) except they
> were used as a convenient "benchmark" for valuation.
>
> Then suddenly all those liquid assets became illiquid, all $23 trillion
> of them.
>
> So what did that do to the supply of "money".?
>
> So the Fed pumped in $3 trillion, $5 trillion....who knows?
>
> Yet still no inflation.....I wonder why?

Is the Treasury’s Monetary Policy Effective?

1) I suspect that globalization is changing this discussion point, because we are drawing in wealth from other countries

2) If you think the issue of how the debt is finance is ignored, you should consider the size of the discussion around how it is spent. There are people who think all government spending is equal. Just spend money, and by magical multplier the wealth is created. If you want a truely blank stare ask a politician what the ROI of these investments is.

According to a Chinese central bank official, it's becoming increasingly difficult for foreign governments to buy U.S. Treasurys, because the shrinking current-account gap is reducing supply of dollars overseas.

The ony thing shrinking related to the demand for Treasuries is the shrinking faith that the US will pay back its debts in real terms.

Obama Draws a Blank on How Banks Really Work

Wooly, I would give you 2 thumbs-up but the system only allows one. "The more that Hoover and the Fed tried to inflate, the more worried the market and the public became about the dollar,"

Interesting quote if you apply it to today. Bernanke says that he saved the economy, and I suspect that he did more damage than anyone. He goes to Congress and says that the financial world is going to end unless we spend 700 billion on bad loans. He is surprised that at-risk capital fled the market. He is surprised that people stopped spending, and businesses stopped investing.

Keep in mind that the market fell more than 50% after Bernanke 'saved' it.


On Dec 16 09:54 PM woollyB wrote:

> To demonstrate how history may not repeat but does rhyme, the following
> is an excerpt from Murray Rothbard, History of Money and Banking
> in the United States. (For current application, replace "Hoover"
> with "Bush/Obama".)
> ----------------------...
>
> By early September 1931 ... all agreed that America required a massive
> infusion of more money and credit, under the direction of the federal
> government.
>
> The [TARP] could make loans to banks and financial institutions of
> all types. The theory was that, ensured of freedom from failing,
> the timid banks would be emboldened to lend massively to business
> and industry, the money supply would dramatically rise, and prosperity
> would return.
> ...
> The [TARP] certainly paid off for these favored business groups.
> The excuse for the secrecy was that public confidence would be weakened
> if the identity of the shaky business or bank receiving [TARP] loans
> became widely known. But of course these institutions, precisely
> because they were weak and in unsound shape, deserved to lose public
> confidence, and the sooner the better both for the public and for
> the health of the economy, which required the rapid liquidation of
> unsound investments and institutions.
> ...
> The more that Hoover and the Fed tried to inflate, the more worried
> the market and the public became about the dollar, the more [money]
> flowed out of the banks, and the more deposits were redeemed for
> cash.
> ...
> Hoover, of course ... blamed the banks and the public. The banks
> were to blame by piling up excess reserves instead of making dangerous
> loans. By late May, Hoover was 'disturbed at the apparent lack of
> cooperation of the commercial banks of the country in the credit
> expansion drive.'

Bernanke's Busy Week

"More Data Confirm that Bernanke Is Wrong - CNBC" A better story might be about a time that Bernanke was right. He was wrong about derivatives. He was wrong about housing. He was wrong about sub-prime. He was not only wrong, but wrong on a scale that would get a weatherman fired. If you put money to market based on the accumulated wealth of his forecasts you were killed.

The politicans are keeping him around not because they think he is part of the solution, but rather if they fire him people might ask why it took so long.

Whose Fault Is It? Paul Krugman's Bizarro Universe

It wasn't just Wall Street or DC. It was just about everyone. While DC enabled Wall Street, and Wall Street financed it, we were the ones who bought the houses. We had realtors who told us that real estate never goes down. We were the ones who decided to fill the houses with things bought on credit.

A true bubble isn't just one person. It is an economic condition which draws more people into the game until there was no one left to bring into the game.

Merrill Lynch is bullish on 2010: "We believe the global economy will gather momentum in 2010. We think that the unprecedented mix of near-zero interest rates and high budget deficits will engineer an economic recovery that is real and sustainable... We believe that the world economy will perform far better than the economic consensus would indicate."

Apparently that meeting with at White House gave them confidence in the economy... "Please lend, support regulation, and hype the damn economy."

Germans Don't Trust the American Economy

" I must say, I admire Germany in this situation even with its high costs. In some ways, I think the labor cost is higher in Germany than it is in the United States but you can somehow maintain that export edge. "

There is a lesson to be learned here. Cost of labor isn't the driver. It is productivity. We can have high cost of labor provided that our productivity justifies those costs. If you are 10 times as productive as the competitor you will get 10 times the wage.

Pondering the Statistical Recovery

You are missing the point. The money that is given to government employee X to spend is money that is taken from person Y who isn't spending. The same is said of lowering interest rates. While person X borrows and spends the lender is getting less in interest and isn't spending. There is only stimulus to the extent that person X spends better than person Y. Keyesians believe in the multiplier because they assume that the money comes from the sky. It doesn't regardless of the political affliations of the president.

Unless the government hires better and uses the resources more wisely than the private sector, government jobs are a problem not the solution.

Pondering the Statistical Recovery

Great the government is hiring!

And we are going to pay for government workers with .... Income taxes that will be applied to those who still have jobs. This will make our businesses less competitive in the world market. As we become less competitive we will lose the jobs that create the income taxes that pay for the government jobs. Government jobs are the problem not the solution.

Others have said it, but the problem is that the bubble reallocated resources to service jobs that can only be sustained when we are at or near full employment. Service jobs opened because people were too busy at the day job to mow the lawn, make dinner, and teach their kid to hit a fastball. Those jobs are dying fast, as people have more time on their hands.


On Dec 13 07:32 PM Tomcat101 wrote:

> I can tell you for sure that the state of NC is hiring again after
> about a year long hiring freeze. Real jobs, real money, for real
> people to go shopping with. Not just govt. lies.
>
> If other states are doing the same you'll be seeing it in the numbers
> soon.

Confessions of an Underwater Homeowner: One real-estate columnist proves that not all underwater homeowners are flippers, and makes the case for sticking it out: sentimental equity.

If it is a non-recourse loan, it is as much an option service payment as anything. If inflation drives-up housing values 10%, you have equity. If not, you can go the route of your strategic default. In the meantime, invest nothing in the house, and this house is like a cheap apartment. It is a win-win situation, well not for the taxpayer of course. The taxpayer basically eats the risk.