Malkiel

Proposals for a Depreciating Housing Environment

I think it's a fair proposition that the government should only buy mortgages where speculative excess has been wrung out of the price--which in this case means the bank rather than the seller has blinked first and taken a loss. Whether the loss is taken by the mortgage issuing bank or the seller is not as important as making sure that speculative excess is wrung out of the pricing so that we can return to a normally functioning housing market where prices bear a viable relation to the income levels of the buyer...

Stock Trader's Alamanac: Uh-Oh

I have not CFC holdings, but I find it disgusting that traders would openly admit under their own names when interviewed in the press that they were responding to rumors. This isn't the first time in the last year that a company's shareholders have suffered massive losses on rumors--The SEC should be investigating this immediately, forcing each trader under threat of sanction to reveal where they "heard" the rumor until the source is found and punished; or else determine that CFC is lying in their denial, which should also be punished. Traders who take information from any source other than public media while on the trading floor should be made to live in fear of doing that.

And while I'm on that soapbox, I noticed while watching CNBC during the last 2 FED meeting announcements that about 40 seconds before the reading of the announcement began there were huge spikes of trading activity. There was no transmission delay because at one point the CNBC anchors at their desk were paused waiting for the words to come from the reader and the trading floor went into a noisy uproar behind them.

It's totally unfair for the FED to allow the market professionals to front-run these announcements: the markets should enforce a 5-minute pre-and post-FED announcement trading recess to put retail traders and investors back on an even footing with the insiders...

Proposal to Correct Resource Misallocation in the Housing/Lending Sector

You're way long on options trading gibberish and way short on practical knowledge of home mortgage lending. If there was humor in this it's lost on 99% of us...

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...

Is the Normalization of Housing Prices a Realistic Expectation?

Actually, housing prices must, by mathematical constraints, bear some relationship the the range of incomes in a given market. People can only afford so much mortgage at a given income level, even if they're willing to adopt unsafe levels of debt to sacrifice for a better home/investment. Someone needs to do the studies showing whether the creation of a richer upper-middle class is a statistical reality, what percentage of the population in a given market that is, and hence what to expect the range of housing prices in a given market to do. It's kind of surprising to me that so much expensive housing is built on speculation without any market studies of whether an area can actually support the expected asking prices--maybe there's a new profitable line of consulting work out there for anyone who can do this kind of number-crunching and provide it to builders, banks, realtors, and mortgage originators...

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...