Malkiel

Housing Market Tracker - Subprime is 'Collective Bankruptcy" - OECD Head

Can we be a little more careful here about how we use the term "subprime"? We've known for months now that the lending problems weren't confined to just subprime borrowers, that substantial elements of the crisis, like bubble pricing, were caused by prime borrowers overreaching due to risky products. Those features change the nature of the problem and make it a general lending problem not confined to just high-risk borrowers...

The Fed: On the Cusp of Moral Hazard

Notice how "moral hazard" only seems to apply to behavior that might hurt the interests of the fat cats? Insulating CEO's from the effects of their actions by granting bonuses out of merit and golden parachutes hurts the interests of shareholders and is a classic example of "moral hazard" but it never gets called that. Calling for the crucifixion of homeowners and shareholders while upholding the privilege of capitalists is the hypocrisy built into our present economic order...

Bear's Creditors Were the Ones Bailed Out

Another Wall Street guy who doesn't get it about the Fed--the Fed is a political entity that belongs to Washington, not a financial entity that belongs to Wall Street. The Fed may be chartered as independent, but in practice they bow to the political will of Congress and the President, and the political consensus in Washington was that action was needed, so there was going to be action. You Wall Street pure-market conservatives waste your breath every time when you recommend inaction because politics is driven by calls for action from main street, and Washington can't ignore that, and the Fed ultimately can't ignore that.

Analyzing Fed Critic Paul Kedrosky

Many commentators from the financial industries are clueless about the nature of the FED and Treasury as political entities because they are trained and educated in an environment where simple-minded anti-government rhetoric reigns supreme. Everyone around them will toss off pejorative phrases like "government regulation" and "government gone wild" as unexamined truths, so everyone is excused from having to put any serious thought into what is more rightly called the "public sector" and is an integral and indelible part of the economy, even a capitalist economy.

Though the FED is quasi-independent of the Executive branch it must unfailingly consider the sentiments of Congress and the Executive when deliberating its moves. Treasury is not independent of the Executive Branch, and we saw how quickly Paulson had to snap his "no bailout" rhetoric to line up with Bushes' 180-degree turn on that subject a couple of weeks ago. Understanding the deference the FED feels it must pay to Congresses' preferences would go a long way toward understanding what priorities they will mark off in the future. This is why the commentators who talked in the Fall about holding the line with no interest rate drops were doomed to be wrong; Congress and the President were under pressure to act, so inaction was not an option, regardless of objective discussion of the effect of the action. Bernanke got it about the political nature of the FED long before any of you guys did, academic though he may be...

Miracle: Bush To Part The Bankrupt Sea

Every public promise or commitment ever made by this president has turned out to be rhetoric for effect with no follow-through. Expect the White House to take no concrete administrative or legislative action to actually effect the proposals. We will probably not be able to trace the inaction until the first ARMS rollover foreclosure waves begin in a couple of months, by which time people will have forgotten that Bush even said anything. This president is the most relentlessly incompetent chief executive imaginable and Wall Streeters should know that by now...

The Fed Prepares the Bailout Bucket

Agreed, it was a placebo, and I find it worrisome that so many experienced business players aren't making the right calls on what the real medicine should be.

The place where everyone is on the same page is about tightening retail mortgage underwriting standards, so the remaining problem areas are foreclosures and commercial paper. I don't have any suggestions on the latter, but it isn't going to fly on foreclosures to take a simple-minded market ideologue's "let 'em fail" approach. Families that lose their homes become our collective burden in messy and unpredictable ways, such as crime or social problems. It's pretty obvious that the political sector will do something to head that off, so business should work with them to perform a triage that allows the viable ARMS holders to move into some other mortgages which they can carry. The lending industry and Congress need to iron out their respective problems in order to re-establish mortgage products needed for rollovers. Freddie/Fannie need to hurry up with their internal auditing so that they can expand their operations and the industry needs to re-establish confidence so that investors will be willing to pick up products like low- and no-down payment mortgages which some rollovers will need. The goal is to bail out the viable mortgage holders, not the companies, whose relief will instead consist of reforming the underlying product...