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Good Captain

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  • Stellar May for UNG: Proof of a U.S. Recovery? [View article]
    One other relevant point not yet made is that the rising "strength" of the $, albeit for reasons other than innate fundamentals, may begin to impinge the country's string of monthly increases in manufacturing activity as other customers in other nations are confronted w/ increased expenses for US goods.
    Jun 2 11:33 AM | Likes Like |Link to Comment
  • Investors are hoping a strong jobs report on Friday will provide reason for optimism on the economy and give the markets a boost. But May is the peak month for census hiring, so it will be important to properly adjust the result in trying to determine the underlying trend.  [View news story]
    There may be a problem w/ the Census adds according to a recent article I've read (from the NY Post) suggesting that their adds maybe unnaturally inflated due to the practice of very odd employment practices. For example, one of the stories indicated that one individual had been hired in excess of 4 times over a short period of time because as the individual met an objective (i.e., canvassing of a particular geographic footprint), he/she was terminated only to be immediately rehired for the next task.

    If the numbers break out the Census numbers from the other jobs added, you may gain clarity on focusing on the non-Census adds.
    Jun 1 05:45 PM | 2 Likes Like |Link to Comment
  • The Root Cause of the U.S. Housing Bubble Has Yet to Be Addressed [View article]
    I've copied material (see below) off the wikipedia website citing some of Fannie Mae's (FM) History which began in 1938. As I alluded to earlier on w/ my initial comment on this thread, FM, I believe, deserves most of the credit or blame depending on your views for the change in the home ownership rates equilibrium post-1940. Read the excerpt below and come to your own conclusion.

    Fannie Mae was established in 1938 [4] as a mechanism to make mortgages more available to low-income families. It was added to the Federal Home Mortgage association, a government agency in the wake of the Great Depression in 1938, as part of Franklin Delano Roosevelt's New Deal in order to facilitate liquidity within the mortgage market. In 1968, the government converted Fannie Mae into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[5] Consequently, Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae). In 1970, the government created the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, to compete with Fannie Mae and, thus, facilitate a more robust and efficient secondary mortgage market. Since the creation of the GSEs, there has been debate surrounding their role in the mortgage market, their relationship with the government, and whether or not they are indeed necessary. This debate gained relevance due to the collapse of the U.S. housing market and subprime mortgage crisis that began in 2007. Despite this debate, Fannie Mae, as well as Ginnie Mae and later Freddie Mac, have played an integral role in increasing home ownership rates in the U.S. to among the highest in the world.[citation needed]

    In 1977, the Carter Administration and the United States Congress passed and signed the Community Reinvestment Act of 1977, or CRA. The CRA provided that federally insured banks, as a quid pro quo for being covered in the FDIC agreed to “help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.” Essentially what the CRA was intended to do was to end the practice of redlining, where banks were willing to take deposits in certain areas but refuse lending in those same communities. That is to require banks to provide the same services to all who are equally situated and equally qualified in the communities in which they operate. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.

    The Act requires that all loans be made with “safe and sound lending practices” and does not require a lowering of underwriting standards in making community based loans. The regulators for the CRA are the four federal bank-regulating agencies, FDIC, Federal Reserve Bank, Office of the Comptroller of Currency, and the Office of Thrift Supervision. The Act required participating banks to keep records and subjects them to periodic CRA examinations. That examination results in a performance rating for the bank or thrift, which must then be disclosed to the public. The enforcement mechanism is extremely light for a federal statute. Basically, if an institution fails to maintain a satisfactory rating, that rating comes into consideration when regulating authorities review applications for new deposit facilities or mergers. The act does not provide for administrative penalties, such as fines and cease and desist orders, or grant authority for the U.S. Department of Justice to sue under the Act. Community Reinvestment Act of 1977 ("CRA"), 12 U.S.C. § 2901.

    In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.[6] Because of the increased ratio requirements, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans. Shareholders also pressured Fannie Mae to maintain its record profits.[6]

    In 2000, because of a re-assessment of the housing market by HUD, anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals.[7]

    The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd, then President and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: "We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.

    "Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates, interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. "[8]

    In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."[9]"
    Jun 1 01:51 PM | 1 Like Like |Link to Comment
  • The Root Cause of the U.S. Housing Bubble Has Yet to Be Addressed [View article]
    A smaller (via a break-up or otherwise) and fully privatized and totally non-governmentally Fannie would appear to go a long ways towards optimizing the situation. The "too big to fail" concept MUST EXIT policy decision making for two reasons:

    1) It's simply bad policy; and,
    2) It assumes the correcting agent possesses the ability to somehow escape the ill effects created or resulting from the failure of those "too big to fail".
    Jun 1 01:36 PM | Likes Like |Link to Comment
  • The Root Cause of the U.S. Housing Bubble Has Yet to Be Addressed [View article]
    The article is one of the better takes I've read of late as it views the situation as a whole, highlighting particular issues and the pernicious effects different factors have had. The only contention I do have, however, is the article's contention that the traditional role Fannie Mae (et. al.) has played is counter-productive.

    I agree the more recent exploits of Fannie have proved disastrous but Fannie has been around now for many, many years w/out a grotesque housing implosion of the current magnitude. While the 1940's shift upwards in homeownership easily surpassed the historical norms of that time (aided in part by Fannie et. al.), the housing market, despite enduring numerous boom and bust cycles, otherwise appeared to have successfully established a "new" and substantially higher equilibrium of home ownership through 1990.

    After 1994 or so, homeownership levels again move substantially higher. I believe this lies at the core of today's problem. While post-WWII changes in policies and economic opportunities apparently paved the way for a sustainable increase in home ownership, I question whether any similar change(s) occurred w/in the national economy w/in the 1990's - early 2000's to properly sustain the sudden and marked increase in home ownership beginning in 1994. While the US enjoyed a "peace" dividend by virtue of the end of the "Cold War", other key structural factors necessary for yet another sustainable rise in the rate of home ownership appear largely absent (at least to me).

    Unfortunately and in their place, "well intentioned" legislative and regulatory factors to discourage the "redlining" of loans to economically depressed areas were promulgated which if it didn't serve as the genesis of the sub-prime loan problem, it certainly intensified it. New rules combined w/ the explosion of financial services (see Bob comment above) and the financial sector's "ability to reduce overall risk via securitization" helped propel new entrants into w/out sufficient (if any) regard to the entrants' abilities to make god on their loans. Clearly these new factors did not form the basis fo a successful increase in the equilibrium of home ownership necessary.
    May 27 05:42 PM | 7 Likes Like |Link to Comment
  • A Caution on a Broken Market [View article]
    Earlier today I read an article from one of the UK's papers indicating the M3 supply has decreased at rates last seen during the 1930's. I am curious if there are reasonable causes behind the rate decrease other than an upcoming double dip?
    May 27 12:43 PM | 7 Likes Like |Link to Comment
  • Push / Pull: Where Do You Bet? [View article]
    Thanks Karl! For a moment I thought you were going to say this could ge serious!
    May 27 12:37 PM | 1 Like Like |Link to Comment
  • The Senate's 'Faux' Financial Reform Bill [View article]
    Interesting article to be read opposite of Felix Salmon's post. Among other things, this article claims the Volcker rule is not included in the Senate bill while Mr. Salmon's not only claims it is, but further forecasts that the House won't even think to strip it out in reconciliation. Has anyone really had the chance to read and digest the entire bill? I wonder.

    If Washington here is right about the on-going bail out fund that is not to be called or referred to as a bail out fund, however, this will constitute yet another bit of clean-up that the next Congress and President will need to undo.
    May 21 04:12 PM | 2 Likes Like |Link to Comment
  • Australian Crisis Brewing [View article]
    What are Australian immigration rules like? :>)

    On a more serious note, Australian common sense will hopefully lead the rest of the Western world back from oblivion (or at least the salvageable parts).
    May 21 01:30 PM | 2 Likes Like |Link to Comment
  • Australian Crisis Brewing [View article]
    Now we know what the President meant when, referring to the Aussie PM, he remarked that he saw eye to eye w/ him.
    May 20 07:50 PM | 6 Likes Like |Link to Comment
  • Euro Bailout Bought Time, Nothing More [View article]
    The problem in the US is not limited to the private sector. For better or worse (in this case worse), many of the entities you've listed are not guilty of fraud IMO but aggressively played w/in the existing rules of the game. Where rules ended, I believe most players acted forcefully along interpretations and/or extrapolations they believed were not against the law. The bigger problem many of us would agree on however, is that this extreme behavior, which may not have been illegal, does appear at least (in many cases) too have exceeded standards of good sound judgment as well as general notions of propriety.

    Furthermore, neither the federal government or its agencies tasked w/ regulating the core activities cited here should properly escape attention. The problem that appears to have initiated the collapse, the default of a rather large body of subprime debt was in fact enabled (if not outright encouraged) due to poorly designed government policies promoting increased ownership of homes w/out regard to the new homeowners' ability to carry the assumed mortgages. Fannie and Freddie MAC did their level best to accelerate the situation w/out any regard to the consequences of their actions.
    May 18 06:22 PM | Likes Like |Link to Comment
  • Euro Bailout Bought Time, Nothing More [View article]
    ECB's Trichet is, as the author points out, correct. A desirable analog might be that of a US corporation entering chapter 11 bankruptcy. Voluntarily entering bankruptcy is often suicidal for corporate officials' futures at a bankrupt company but this risk is counter-balanced by the fact that taking no action is certain death for the company and its officials. That said, I am unaware of anything either w/in the facility's or the EU rules establishing any negative consequences for nation's utilizing the trough. W/out available remedies, this trillion euro facility only represents a strong legged kicking of the can to be solved at some later point in time.

    I surmise this is the core reason why the market(s) remain so jittery over this huge bailout. If a more informed reader knows otherwise, I (and I suppose most of the readership) would appreciate the information as I haven't heard of any specifics as of yet.
    May 17 06:41 PM | Likes Like |Link to Comment
  • The EU Bailout: Too Much, Too Late [View article]
    To your question, the highly probable answer is no. I have not seen any stick that even might be implied much less used if Greece does not change its ways.
    May 11 06:27 PM | 1 Like Like |Link to Comment
  • Why Not Just Eject Greece? [View article]
    If memory serves me correct, the governance rules w/in the EU require a unanimous vote for actions such as these. Under these conditions, Greece will clearly not go along w/ that.
    Apr 9 11:36 AM | Likes Like |Link to Comment
  • High Conviction: An Essential Fertilizer Producer Making Smart Strategic Moves [View article]
    Interesting article but MJJP's point does appear valid depending on the author's anticpated high water mark over the next couple of years.
    Apr 1 02:07 PM | Likes Like |Link to Comment