a fat panda

Fannie Mae and Freddie Mac Go Junk

Some idiot is running amok....

Superb presentation on the credit crisis by Headwaters CEO Phil Seefried. (via)

I have a hard time listening to people who blame this mess on sub-prime. Sub-prime was a fairly small segment of the lending space. Problems appeared there first because the borrowers had the least amount of resource to preserve the loans. It was the canary in the coal mine. Another cliche, it was the tip of the iceberg. It was a small part of a very large problem. Bankers had made bad loans across the board. It was only a matter of time until the excess was exposed.

TARP: Good News, Bad News

Note, that he is only talking about the TARP and not the other hundreds of billions in welfare that has gone into the system.

Make a comparison between the idiot bankers screaming for more money, and the 85 year-old who had to give up her telephone because Ben drove interest rates into the ground. Her paycheck was cut by 90%, and these idiot bankers are crying over lost bonuses. It is outrageous that the people who had the absolute least to do with this mess are the ones to suffer most.

The bankers - whose paychecks haven't been cut - seem to forget that the reason that they are making money is because people like the 85 year-old above have all but had their life taken away. So they can have their bonuses back when all of the TARP, TAF, Fed Discount Window, Toxic Asset purchases, and the rest of mommy-welfare system is closed. I say let's give the 85 year-old her paycheck back first.

Joseph Gagnon of the Peterson Institute reckons that what the world needs is a whole lot more QE (.pdf). He recommends the Fed buy another $2T in long-term debt; the ECB drop rates to 0.5%; BoJ should commit to 1% inflation and buy another ¥100T in debt; and BoE should pick up another £200B in long-term sterling. (via)

I have to guess this fool has missed the last year. Debt is the problem not the solution. Most of the debt that we have issued thus far has gone to people who are deleveraging. So the gov't takes on debt to get people to pay down debt. It looks to me like we are simply transferring private debt onto the public balance sheet.

The Real Reason So Many Home Loan Modifications Fail

" The problem is they don't have any money. "

How many trillions of dollars are sitting in cash? The market cap of the stock market is what? People have plenty of money, but they have disincentives to put in the housing market.

I have told you about the couple here who is over-leveraged. They have plenty of money, but they pay the exact minimum on their mortgage. They will tell you that they "ARE NOT RENTERS, we are option owners." Understand what they are saying, the mortgage payment is an option service payment. So if the house goes up they make money on their 'option' if it goes down they walk.

If that attitude bothers you, it gets worse. These programs are a disincentive to sensible borrowing. The real reason that they are not making any effort to make their mortgage good : They are waiting for principal forgiveness.


On Dec 07 06:51 AM Moto wrote:

> The problem is they don't have any money. But we can't actually say
> any of these loans are worthless or dead. Sort of like Weekend at
> Bernie's.

The Real Reason So Many Home Loan Modifications Fail

The problem is that people can get a loan modification without putting up a cent in additional capital. People have capital, particularly in the prime mortgage sector. They have zero reason to put it into their homes.

Positive Financial Innovation: Small Business Equity Investing

"Small business financing may be hard to find but it is out there for the good businesses that have potential in the form of Venture Capital funding"

There are asset based lenders who will lend against receivables and the like as well. But none of them operate for a bit of upside.

"Suppose businesses sold numbered dollars. Dollar number 420,167 has just been rung in. How much would you pay for dollar number 600,000?"

That is half of the equation. How much would you sell dollar 600,000 for? It may be a better question, and it is apt to be answered by someone whose understanding of finance may not be very strong. I look back at the financial innovations in housing finance, and how people now say that they didn't understand the terms of the loan. The broker of these things better invest in teachers and lawyers.

Why Did Housing Go into a Bubble?

If the CRA was a problem, why did the mortgage crisis center in the condo markets of Miami, Las Vegas, and Phoenix. If the CRA was the problem why didn't the regulated banks participate. The vast majority of sub-prime loans were written by mortgage companies and brokers who weren't covered by the CRA. Did the CRA encourage builders to overbuild the McMansion class of homes?

The CRA needs to be retired, but it didn't cause or even play much of a factor in the housing crisis.




On Dec 06 03:37 PM Steve in Greensboro wrote:

> Why did we get a bubble in housing in the first decade of the new
> century? The necessary condition was the massive monetary inflation
> (money printing) by Greenspan and his assistant Bernanke. You can't
> have a bubble without loose money. Why did then money go into real
> estate? The money was channelled into real estate by the abusive
> expansion of the Community Reinvestment Act. You can thank Greenspan,
> Bernanke, Barney Frank, Maxine Waters et al for the real estate bubble
> which just burst.
>
> You can thank Bernanke for the bubble he is currently inflating in
> U.S. equities. Try not to get hurt when that one bursts.

Bernanke Is Not the Problem

What I find troubling is how little our senate is looking into his confirmation hearing. I called both of my Senators just to see what they were thinking. And it is nothing. The staff acted as though I was talking about some low level appointment to the forestry service. It bothers me because whether Bernanke is or is not the problem is immaterial - he is not the solution.

The Costs of Not Fixing a Broken Financial System

The problem that the author omitted is that we have too many banks. We have massive overcapacity in lending.

The governments solution is to prop-up ailing large banks at the expense of worthwhile small ones. The government solution was so effective that we had companies which were not banks line up to become banks. So the government's solution was to make the original problem bigger.

The financial services income as a percent of GDP has doubled over the past 30 years, while producing byproducts of risk and debt. Maybe the solution is to have fewer banks and fewer subsidizes.

Yes, It Is Possible to Cut Deficits

Are you factoring in unfunded liabilities in your debt as a % of GDP? What is the real debt as a % of GDP?

Amazingly, the government's mortgage modification scheme fails to consider whether a property is underwater - likely the driving force in delinquency. It also refuses to address second liens - the ones owned by the same banks the Treasury is urging to modify loans they service.

@ enigmaman

That is good idea. I wrote a similar idea last year when the banks were in need of capital. You may problems in your CDOs where people don't own the loan but it is at least a choice between bail-out idiots by bailing-out other idiots.

But the government doesn't like your choice because it is too sensible. It prefers the one between what it wants to do and stuffing your fingers in a pencil sharpener.

Why Bank of America Paid Back the Money

If I have a problem with the TARP, it is that it is the highest cost of government support that you can get, and brings on the worst public relations. It should have been paid back.

Issuing stock is probably the least appealing option. But these people may be looking down the road, knowing that they will have to raise capital in what may be a much less favorable market. The market is up 60% in the last 9 months, and they know if housing continues to erode and commercial real estate starts to break, they will need to raise equity on less favorable terms. Raising this capital now will give them an option to go back to TARP money in the future. (I don't know that Cit has that option)

My guts says it is less forward looking. Having sat in meetings with bankers, and I suspect that there was a lot of talk about ways to get out of the TARP restraints. After hours of babble, someone said, look how much is this going to cost in stock, and whatever the answer was : It was less painful than sitting in the meeting and everyone said Aye.

Why Bernanke Should Be Fired

You have to remember that Bernanke was a member of the FRB of Governors as authored by Greenspan. It isn't like he was beamed in from the Enterprise.

"If the answer is that they should not have interfered with the action
of the free market, what do Avery Goodman and the others commenting on his article believe would have happened and why do they thing that outcome would have been better that what the stimulus policies"

Your question is unsound. It assumes that there is a single outcome of NOT doing something. You question should be why do you think one of your outcome(S) would have been better. My solution would have been better because we wouldn't have bailed-out Bear because we wouldn't have bailed-out Long-term Capital.


On Dec 04 08:57 PM bob adamson wrote:

> Accepting the argument that the Federal Reserve Board of Governors
> as chaired by Alan Greenspan was author of much of the economic mismanagement
> that laid the foundation for the crisis of September/October of 2008,
> what should the Federal reserve and US government have done in the
> face of that crisis during the October of 2008 to March of 2009 period?
> If the answer is that they should not have interfered with the action
> of the free market, what do Avery Goodman and the others commenting
> on his article believe would have happened and why do they thing
> that outcome would have been better that what the stimulus policies
> have achieved?

Bunning vs. Bernanke

Powerful words Kenny. Have you thought about hiring a comment-writer. One might help you sound as articulate as the Bunning.


On Dec 04 12:32 PM kennypowers09 wrote:

> Bunning is a moron.
>
> A real class act in allowing Bernanke to respond...which he didn't.
> Glad to see the rest of the Senators completely disown the fool.