In retrospect, this OFHEO-directed capital requirement, coupled with their large preferred stock offerings means that they are in a much better capital position to deal with todays difficult and volatile market conditions and their significant losses.
At a time when they are announcing continual deterioration in their portfolio performance? Is this really reasonable and simply counter-intuitive, or is it just BS?
am I missing something, or is the bigger issue for Fannie and Freddie raising captial to offset increasing losses in their portfolio, rather than expanding their portfolios?
Well, that's good since it's not like Fannie Mae is suffering any financial problems... wait... oops... nevermind... Well, I am sure they've never had a problem filing accurate financials in the past, right? Oh... nevermind!
Ah, this will be "temporary" much like the "temporary" income tax, and countless other "temporary" government programs.
No doubt the reduction in qualification standards (which I promise are coming soon!) will also be "temporary."
Can we just cut to the chase already: 0-down, 0% interest, option-ARM, negative amortization "liar-loans" backed up by the full faith of the US government (namely, the shmucks like myself who actually earn money and save for the future)? Yeesh... we wouldn't want housing prices to fall to affordable levels, now would we?
At a time when they are announcing continual deterioration in their portfolio performance?
My reading of that part is: "We kept some of their powder dry for you during the boom when they were under Consent Decree. So now they can start lockin' and loadin' during the bust to fulfill their mission."
will also include consideration of the financial condition of the company, its overall risk profile,
That's encouraging, they think they will know what the risks are going forward. Personally, I'd be terrified by most of the loans out there, let alone any of the LFKAJ stuff.
My reading of that part is: "We kept some of their powder dry for you during the boom when they were under Consent Decree. So now they can start lockin' and loadin' during the bust to fulfill their mission."
Tanta
But that is BS. They stopped them from from getting in an even worse situation then they might have otherwise, but their powder was clearly very damp or they wouldn't have had to float new debt, etc.
This definitely was a directive from the White House and Paulson.
Between this and Bernanke's latest pledge to print money and damn the torpedoes, I think I'm moving firmly into the Jim Rogers/Marc Farber camp.
The U.S. is going to squander whatever fiscal/monetary standing it has left in the world to avoid losses to Wall Street.
I don't have kids, but if I did I would absolutely be considering emigration. In 20 years, were liable to have the tax rates of France and the social services of Zaire.
I'm watching congress ask Bernanke questions. So far, no questions as to why income gains are trailing inflation or why income gains continue to be concentrated in the top one percent.
As usual, too much discussion of the symptoms and not the cause.
I'm deeply troubled about this; please remind me again why it is that the increased conforming loan limits and the lifting of the portfolio caps won't result in an attempt to socialize the bubble costs, ala RTC?
I know a couple of realtors who are absolutely salivating over this - they believe the GSEs are the return ticket to boom times.
MAB:
Why should they? Most of the people in Congress are rich. Hell, I bet Feingold (bless his heart) might just be the poorest member of Congress(until Donna Edwards takes over for the corrupt Al Wynn in January). They are all out of touch with the "little people" they claim to represent.
"why income gains continue to be concentrated in the top one percent."
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization. There does not seem to be any natural cap to this process, though I would expect the political process at some point to legislate wealth redistribution rather than income redistribution.
I forgot to add, isn't it funny that Ron Paul was the only one who seemed worried about retirees and savers last time "B-52" Ben testified in front of Congress? He took Ben to the woodshed.
My apologies Re: "Lost Note Affidavits & Skeletons in the Closet"
and LNAs. I've been researching too much and sleeping too little lately and things are blurring together. My brain was incorrectly associating Lost Assignments of Mortgage with LNAs of which I know the diffrence but I was not processing correctly for some reason.
It's been a long 7 years now...
Again, my apologies.
Do tell, who did the audit? This is a total 100% sham and scam and these results are 100% crap, just like the recent ratings given away in the bond insurance lotto!
"In retrospect, this OFHEO-directed capital requirement, coupled with their large preferred stock offerings means that they are in a much better capital position to deal with todays difficult and volatile market conditions and their significant losses."
If the more onerous capital requirements ended up being a good thing during the boom as it went bust, why would you lower them when OFHEO themselves released a depressing report on housing just this week? Do they not read their own research?
There is a reason why banks aren't lending: they want to hoard capital for what they see as tough times ahead.
And here comes OFHEO to release the spigots in the Agencies at a point in time when:
1) The Agencies are taking huge losses;
2) The housing market declines are accelerating.
"Better capital position" my ass. Their stock (the currency of most companies) has been cut in half in six months. FNM used to have a $70B market cap; now it's down below $30B. Those are "better" conditions?
Their leverage as a guarantor is also fearful. That now is going to increase. Again, let's have them assume more risk as we get confirmation that the housing market is in free-fall.
How many of their shareholders labor under the asssumption that their holdings are backed by a US Government guarantee? I would wager that an awful lot of retirees have a good chunk of change in them (nice div. yield these days) and are oblivious to the risk.
The making of "Socializing the Cost and Bailing Out the Greatest Capitalist System" is, step by step, in full swing! There are 5 steps indicating the psychology of the bursting of market mania. There are also 5 steps in the psychology of revitalizing the financial bubbles -- Watch in awe, get pissed, vent-it-out on bloggosphere, feel resigned, and accept.
First the monolines get to keep their AAA ratings, and now the GSEs are so healthy and vibrant that OFHEO lowers their capital requirement, temp them into the deep end of the cesspool (jumbo), and put all the new risk on their balance sheet. More leverage, more risk...shoot me. Don't even get me started on the timing of the announcement right after a $3.5 loss (3x what they forecasted.)
Pardon two analogies: 1) I don't think the short bus is supposed to be driven at these speeds (I stole that one), and 2) I think the horseshoe up Fannie and Freddie's butt is going to give them dysentery...
At least in China they know they're being spoon fed bogus info.
Tanta, you're quite the optimist. My translation is:
"If we maintained current capital standards the GSEs would have to stop making loans very soon. Since that's not acceptable in an election year we'll let them make as many loans as they want until the election. After the election political scrutiny will decrease and we should be able to squeeze in something for the GSE shareholders in the inevitable bailout."
Someone needs to write a book of fairy tales for modern times, with modern morals.
Like: "Always put all your eggs in one basket. Then have Congress bail out the basket."
Or: "Always count your chickens before they hatch. Then bundle them into tranches, convince Moody's to rate them AAA, and sell them for billions to a Norweigan pension fund."
Or: "Did you hear the story about the boy who cried 'recession'? At the first hint of trouble, he would slash interest rates and taxes, and when the real crisis finally came he had no room to maneuver."
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
david_in_ct.
I disagree. Today's ideas are no better or more valuable than the ideas of any other time.
To me, its the absurd ability to generate credit based on unsound ideas that is at the root of the matter. This is only possible due to our policies that demand/encourage credit growth beyond underlying demand. Hence the bubbles and extreme growth of government. Growth at any price (aka inflation).
Fannie is The New Enron -- supported, subsidiazed and growing more and more out of control! The audit alluded to here today is as bogus as the audits done at Enron and Fannie, and Worldcom and Tyco and countless examples of window-dressed retardation!
FYI: In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.
OFHEO levied a record $125 million fine in 2003 against Freddie Mac, Fannie Maes smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings mostly underreporting them by $5 billion for 2000-2002.
On Friday, Fannie Mae said it was replacing the chairman of its boards audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal.
Tanta, you're quite the optimist. My translation is
Optimist?
I'm trying to read the press release, not make shit up.
Look, Lockhart went on record over and over again telling Congress not to pass that loan limit increase without passing the GSE reform bill, which would among other things make the kinds of controls OFHEO exercised under the consent decree permanent.
They didn't do it.
OFHEO has no authority to continue with these limitations if the terms of the original agreements were met.
What do you all expect OFHEO to do? Make the GSEs "hoard capital"? That ain't what they have a federal charter to do.
They have an explicit mission to put capital into circulation in the form of providing liquidity to the residential mortgage market. OFHEO's job is to make sure they don't get under minimum levels of capitalization, not to make them hoard it. And OFHEO's mission is not to protect GSE shareholders from the delusion that their shares are obligations of the government.
Just amazing how fast America is falling apart, and just think, we are not even a recession yet! Global market participants will obviously be looking at new benchmarks and new ways to evaluate valuation metrics related to stocks, bonds, oil, currencies, gold, wheat.......there is going to be a new paradigm as America runs itself into the toilete...thanks Bush, Ben, Paulson, Cheney, Hillary, Obama, McCain, just keeps getting better!!
The dollar fell below $1.51 per euro for the first time on mounting speculation a slumping economy will force Federal Reserve Chairman Ben S. Bernanke to cut interest rates through mid-year.
You go Ron Paul! He just raked BB with a broadside on "the Fed's debasement of the currency". Cited commodities, PPI, true price stability, inflation as a war on savers and capital.
All BB could come back with is "well we just look at CPI".
Why on earth would anyone own shares of the GSEs? If a private concern were to buy them out, they would instantly become worthless. The only reason to own the shares is for the dividend, and that's hardly competitive these days.
My take on this is, higher oil will add to inflation, just as higher prices of wheat will add to inflation and inflaton will require great cashflow, but as the dollar decreases in value, as yields head lower, as home values head lower, there be less cash flow to offset inflation; however, these two contradictive problems will probably result in more unemployment which will decrease home values, decrease cash flows but ironically reduce demand for oil, wheat and homes, thus the remaining 1% of population that has cash flow, will be better off as prices drop -- making gas cheaper for SUVs and eating tasty snacks in McMansions backed by Fed backed Jumbos! Nice!!
Goldbugs. Not of the "I like gold"-sort, of the "Banish the Illegal Fed"-sort.
On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber.
Mark,
GSE's have been trending down big time. There has been lots of unloadings of Fannie and Freddie going on, even with talks of increasing loan limits, etc. Ongoing risks at GSE's are just too much for lots of smart money. Goldman just downgraded them few days ago.
Re: You are pasting the text of news reports from 2006. Without attribution. Why shouldn't I just delete comments like that? I ask you.
What type of attribution would you like with that? I attribute that post to my belief that the Fannie audit in question is as bogus as previous audits that were fraudulent!
"I disagree. Today's ideas are no better or more valuable than the ideas of any other time."
I agree that today's ideas might be no better on a relative basis than those of times past. However, the transmission of those ideas in the form of commerce are orders of magnitude faster and with greater effect.
Think about the invention of the wheel, vs. the some marginal genetic change to corn seed which might increase yields 5%.
While the wheel by any measure would be considered a fantastically greater invention, the amount of time it took for the technology to spread and become adapted and have an influence on production was incredibly slow. No doubt measured in centuries. Now think about what happens when some scientist at Monsanto make some slight change to plant genetics. The very next planting season the invention is in use all over the world. We have never seen anything like this before and it is an extraordinary force.
MBAs Chief Economist Jumps to Fannie Mae
By Paul Jackson February 27, 2008
Doug Duncan, the often-colorful chief economist that rose to industry prominence with the Mortgage Bankers Association, is moving to a similar role at Fannie Mae. The GSE on Tuesday named Duncan vice president and chief economist after 15 years at the MBA, where Duncan often served as the organizations most visible spokesperson.
His counsel and scholarship will be important assets for the company as we strive to bring stability, liquidity and affordability to the turbulent housing and mortgage markets, said Fannie Mae CEO Daniel Mudd. I also hope that, given Dougs role at the MBA, he will provide us with critical insights so that we can better serve our partners and customers in the years ahead.
If the stock market and corporate profits are going up from interest rate cuts and dollar weakness, shouldn't the perfect shorting opportunity be when rates approach zero? Or does this assume that they will raise rates, but in fact we may become Japan?
in 2007, fnm average fees were slightly less then 25 bp. Didn't they just add an additional 25bp, toss in some additional requirements for high risk areas and tighten underwriting standards?
Shouldn't this essentially double their income?
And aren't the nar and homebuilders whining about an increase in fees?
Unfortunately these companies are undercapitalized but they either have to be making money now or else.
you are all wrong...the GSEs are ready to expand.. (snark) those who know see the silver lining.
just look how that liberal press, a la cnbc are finally finding religion and giving a true economic prophet the air time he deserves...and dam those democrats...so says Zell:
"The US economy will avoid recession as the housing market begins to recover this spring, according to billionaire investor Sam Zell."
Speaking on "Squawk Box" this morning, Zell attributed much of the current economic troubles to fear-mongering and politicking by Democratic presidential contenders Hillary Rodham Clinton and Barack Obama.
"Obviously what we have going on is an attempt to create a self-fulfilling prophecy," said Zell, chairman of Equity Investments Group and owner of the Chicago Cubs, Chicago Tribune, Los Angeles Times and other companies. "We have two Democratic candidates who are vying with each other to describe the economic situation worse.
....
all that glitters is not gold
go palladium
and hi yo silver...away!
and row row row your rhodium gently down the stream.
euro 1.50 to the dollar..it's morning (mourning ?) in Amercia
Anyone know how much excess capital the GSEs have right now, that was 'hoarded' because of the consent order? Is it any? I am wondering if this will make a difference to their appetite to lend.
Well he made his money is trailer parks and that sector probably looks good now. Just convert some of those FEMA trailer collectives into permanent trailer parks...
Inequality resulting from information value in the present world?
I disagree. This is due to the fact the world gets more and more monopolized. The ideas gets monopolized (life+70 copyright, patent extortion), the corporations get stronger and receive the larger fraction of the GDP through political lobbing and through squashing the competition. On the other hand, the labor workers got disorganized and weaker.
If Fannie and Freddie can continue to lose money forever then borrowers can continue to borrow money at below risk rates. Don't expect any other private lenders to be able to reappear and survive in this environment as long as house prices are falling or even rising at or below inflation rates.
We are on the verge of a nationalization of the lending industry that will keep housing prices artificially high for a very very long time.
We are trading short term severe pain for long term misery, like the druggy who avoids 3 days of horrendous withdrawl for a life on methadone.
Tanta , regarding your post from 12:13 , Lockhart didn't have to announce the decision to lift the caps this morning during the trading day... that announcement could have been made after the close , tomorrrow or next week. By making the announcement today , Lockhart had to understand the impact that would have and deflect scrutiny from truly horrible Q4 / full year results for 07 and a horrible prognosis for 08.... that's the issue I have , it's the question of the timing of Lockhart's announcement.
Don't forget that NAR stopped giving donations to both political parties this year. Apparently they were pissed about not getting help fast enough. I wonder how long until they start giving again.
I forgot to add, isn't it funny that Ron Paul was the only one who seemed worried about retirees and savers last time "B-52" Ben testified in front of Congress? He took Ben to the woodshed.
And Youtube took the video down due to This video has been removed due to terms of use violation WTF?
Perpetual Motion appears more fantasy then reality at this point. There remains uncertainty about where we are at and where we are going. I am positive on protons and negative on electrons. I am down on gravity and expect friction to remain a drag. Magnetism appears attractive and Im looking for heat to continue moving upward. Also, I expect conservation to continue in mass, momentum and energy.
There is something that has been bothering me here lately (yes I know how many of you care! lol)...
The discussion of nominal price declines in housing and the effects of inflation. The embedded assumption seems to be that the experienced housing price declines will be reduced by inflation nominally increasing house prices...
But there are two very big problems that appear to exist - first, with inflation over some longer time period comes higher interest rates (lenders will protect the value of the capital they lend), and second and perhaps more importantly, the inflation must be reflected in wages which would be a big change in how things have been going lately for working Americans in the era of global labor arbitrage.
Technology/speed of info is disruptive and should much more quickly eliminate excess profits. Yet this is not happening.
In support of my arguement, look at the growth in financial profits as a % of total S&P 500 profits. Clearly its not technology or ideas, but financial shenanigans. Financials have provided an inflation neutral way of creating/absorbing excess credit creation. Not big idea there.
Suppose when the Nasdaq hit 5000, that through various efforts to protect the equity of those who owned stocks, that we slowly went down to the current level of 2362 in an essentially straight constant descending line. How would this have helped stock holders? More importantly how would those who dollar cost averaged in the Nasdaq over the last 8 years being doing now. Essentially there would be 8 years of every single owner and BUYER of stocks in the NASDAQ would be a loser. How would 8 years where absolutely NO ONE was better off for buying the NASDAQ affect the reputation of the NASDAQ as an investment vehicle?
The ONLY reason anyone has made money in the NASDAQ over the last 7-8 years was that the price of stocks dropped rapidly and then rose for years to the current level.
Price drops in assets to the level or below of fundamentals is itself fundamental to the health of that market. An artificial prop to the value of houses is a deathnell for the housing market in general for a generation or more. We are entering an long era where absolutely NO ONE will be FINANCIALLY better off for buying over renting.
Why is the fact that since GWB took office the US$ has lost 27% relative to our trade partners not news? Would have been a lot worse except for China's reluctance to revalue the yuan.
And if you'd like to visit Europe this summer, I hope you've got your euros. The UD$ is down 15% in the last year.
This whole OFHEO capitualation reminds me of the movie "Night of the Living Dead", with Lockhart starring as Ben. The flesh eating monsters (Congress,REIC, Wall St.)are breaking down the the last walls/barriers to get to Ben(Lockhart) and turn him into a flesh eating ghoul like them. They succeed. The last man standing, has now gone to the darkside.
Why is the fact that since GWB took office the US$ has lost 27% relative to our trade partners not news? Would have been a lot worse except for China's reluctance to revalue the yuan.
The Plunge Protection Team and a subsidized US Wall Street stock market will result in further valuation distortions resulting in more efficient benchmarking valuations -- which on a global basis will exclude US stocks and the current synthetic substitutions. In a nutshell equities will plunge in proportion to the amount of synthetic subsidiaztion. Think in terms of Enron needing to make more and more bets to make up for losses in entities that were bad bets. The US casino made so many bad bets that the only solution they have now, is to make more bad bets and toss diluted money into a deeper hole that is getting wider and wider. No wonder The FDIC is planning on 100+ banks to go under this year, and in 2009, double that number!
CR/Tanta -- you might want to start a post about this:
A growing number of money managers, from BlackRock Inc. to Och-Ziff Capital Management Group LLC, are looking to profit from buying whole residential mortgages, mainly ones where borrowers have stopped making payments. (Investment Firms Buy Mortgage Loans - MarketWatch
Angry:
My speed argument is in relation to wealth distribution, not so much with regard to overall profitability. I agree that new technology is disruptive and has the potential to crush lagging competitors. Look at AMD, on top of the world one year, getting destroyed the next and who knows what 6 months will bring.
Yes, much of the 'profits' of wall street were simply tolling charges on the movement of capital. Had they stuck to refining and not hording inventory they probably would have been ok.
I am still very much of the opinion that a good idea today faces far fewer hurdles to implementation than at any other time in history and the potential for outsized financial reward because of it is better than ever.
Think in terms of Enron needing to make more and more bets to make up for losses in entities that were bad bets. The US casino made so many bad bets that the only solution they have now, is to make more bad bets and toss diluted money into a deeper hole that is getting wider and wider. - Lee
Ummm, that didn't work out so well for Gerome Kerviel did it?
If Bernanke would spend as much time on the economy as he spends manucuring his appearance, ie, the well trimmed beard, the well shined bald head, the expensive suits, perhaps another de facto rate cut would strike him as being as out of place as a scarf around his neck, or a rope?
The Fed has about $55B sloshing on top of $60B in TAFs.
I suspect the Fed may increase the TAFs for March.
Separately, the Ron Paul comments regarding the value of the Dollar were most welcome. On top of losing purchasing power, savers have to pay taxes on the inflation. What a deal...
"We do have the capability both through the size of the portfolio now, as well as through he modifications that OFHEO granted... to have some growth, so it's not an issue today," he said after speaking at the US Chamber of Commerce.
In addition, Mudd seemed to leave open the possibility that Fannie might wait for legislation strengthening the regulatory authority of the Office of Federal Housing Enterprise Oversight (OFHEO) before insisting on expanded portfolio caps.
Under consent agreements struck between Fannie and OFHEO, Fannie can expand its mortgage holdings once it meets a series of conditions centering on its internal accounting and financial reporting procedures. But late last year, OFHEO Director James Lockhart said OFHEO strongly prefers having new legislation in place before the portfolios are expanded, and Mudd today indicated that at least for now, his company and the regulator may be talking it over.
From this article, James Lockhard (OFHEO regulator) did not want to remove the portfolio caps until congress passes a new bill, but had a sudden change of mind and lifts it a day after bad earnings. To me, this seems like political pressure from the administration and congress.
To me the numbers argue otherwise. If good ideas today do indeed have lower hurdles to implementation, the wealth should be spread more quickly and evenly. We have a scarcity of ideas when compared to the 6% growth mandate. Hence, many poor are showered with gobs of money.
Gaming the system for big pieces of inflation is now our most profitable endeavor. What was the last good idea that moved the market? A stimulus plan (aka helicopter drop). This does not support the view of an "ideas" economy. We are now a net importer of technology.
"Thoughts, observations, flames? Anyone? Buehler?"
energyecon | 02.27.08 - 1:06 pm
I think your question's spot on target.
Please post if you come up with an answer, I read your comments when I see them.
Sorry I've got no answers for you . . . but what do you expect from somebody who's still looking for bacon's curtsey?
Thanks Raja for the on topic post. As far as I can see, with the increased fees plus the tighter underwriting, the GSE's are going to be charging an effective price that is over 2x what they charged last year.
The fact that Mudd is't interested in jumping into jumbos is an indication that he has an idea of how underwater they are and wants to dig out while he still has a competitive advantage. That is, use his capacity on the most profitable loans.
The increased fee income could offset the inevitable calendar year losses and keep the pressure off regarding the fee increases.
Of course it would be better if the GSE's accurately accrued for losses, but if they can make money on current loans that could keep them whole.
For what its worth, the gre's are already taking s*** for fee increases. They may have raised them as much as they can without drawing too much political pressure. They can raise the effective price through underwriting.
"In this economic climate, Fannie and Freddie should be taking steps to help borrowers, not to burden them. This just underscores the need for Congress to act quickly to enact comprehensive reform of the housing government sponsored enterprises so that their mission responsibility can take precedence over their business interests."
energyecon stated: But there are two very big problems that appear to exist - first, with inflation over some longer time period comes higher interest rates (lenders will protect the value of the capital they lend),
not necessarily. We have central banks that can artificially hold interest rates low (think of 1% FFR). Thus, even with risk premiums added, the Fed and central banks could continue negative-real interest rates for some time.
and second and perhaps more importantly, the inflation must be reflected in wages which would be a big change in how things have been going lately for working Americans in the era of global labor arbitrage.
I agree. this is the rub. currently global wage arbitrage is stopping the wage spiral that happened in the late 70's. However, there could be some concerted plan to attempt SLIGHT allowance of wage arbitrage... IMO this will fail.
This isn't the 70s. now with the internet information can be disseminated far too quickly for the CBs to keep a handle on it. Speculators are taking the free money and running amok. (with tech stocks in the 90's, then RE in the early 00's, and now it looks like commodities this time)
thus, so far we're seeing depreciation in the things we don't need, and price inflation of the things we do...
I've been wondering what it would be, but now i'm prettys sure:
commodities... the next bubble.
"I'm deeply troubled about this; please remind me again why it is that the increased conforming loan limits and the lifting of the portfolio caps won't result in an attempt to socialize the bubble costs, ala RTC?
I know a couple of realtors who are absolutely salivating over this - they believe the GSEs are the return ticket to boom times." - Scott
Scott,
In order to save the RE market, the GSEs (Fannie and Freddie) would have to come in guns a blazing in the new jumbo conforming segment, buying up high LTV loans, low doc, etc etc.
Are they going to do this? NO. NO. NO.
Look at their recent financial results. They just LOST almost $4Billion in one quarter! What is their market cap again? Their first responsibility is to their shareholders. If they do what is needed to support the RE market (make dumb loans), they will just incur further future losses. They have learned that house prices do not go up forever. This fundamentally changes their business model, and they are going to make smart(er) loans so they do not go BK.
Basically, the government has allowed the GSEs to increase loan limits, and allowed them to expand their balance sheet. This does not mean that the GSEs will expand...at at least to the extent required to loosen credit to the market overall.
Angry:
"If good ideas today do indeed have lower hurdles to implementation, the wealth should be spread more quickly and evenly"
This would only be true if good ideas were equally distributed about the populace. However this is not the case.
The easiest way to see this is to look at any compilation of scientific publications and look at the distribution of publications to authors. In this, as in just about any human endeavor, there are very few people who are responsible for most of the work. Works that way in the arts , sports or just about any venue you care to examine. The distribution of wealth has generally been a reflection of this absent a social process which redistributes wealth.
Tanta
"What do you all expect OFHEO to do? Make the GSEs "hoard capital"? That ain't what they have a federal charter to do."
Doesn't the regulator judge what a "sound" level of capital is for the GSEs?
Even if the regulator had no choice, expanding balance sheet sounds like it might be a good thing for now. If market is frozen, they are probably getting relatively good assets on the cheap because of lessened competition (I could be wrong of course). Once market recovers, then Ofheo should "lean against the wind" if they can and force higher GSEs to hold higher capital in reserve to prevent a blow up in several years time (this would also reduce privatisation of gains).
Thanks for the response; I pretty well recall Tanta's extensive posting on the Conforming Loan limit increase, and the reasons it wouldn't, by itself, be enough to rescue the bubble. IIRC, the argument basically said that the GSE standards were such that there was no way they could gin up an operation to process Jumbos quickly enough to prevent the collapse in prices.
Now that the GSEs are, for the moment, the only real game in town for originations, loses or not, it seems to me that REIC folks expect for a lot of people to actually qualify for a "conforming Jumbo" - I'm very skeptical of that.
I hope Lockhart is able to hold the line on the standards.
Free and open markets do not continually concentrate wealth. Wealth concentration flies in the face of open markets and the profit motive. Kings and queens of yore had concentrated wealth. So did the trusts prior to Teddy Roosevelt. The continuing concentration of wealth today in America defies the rules of capitalism.
America's real gdp growth has changed very litle over the last 100 years. However, the distribution of wealth has varied significantly at times. The two greatest periods of wealth concentration have been 1929 and 2007. Both periods also share an extreme increase in debt to income ratios. No way is this massive increase in debt based on good ideas. Nor is this concentration of wealth.
some marginal genetic change to corn seed which might increase yields 5%.
.... Now think about what happens when some scientist at Monsanto make some slight change to plant genetics. The very next planting season the invention is in use all over the world. We have never seen anything like this before and it is an extraordinary force.
It is an extraordinary danger to the world. The genetic engineering underway by Monsanto and others will, sooner rather than later, be a complete and irreversible disaster.
2 of their "production enhancements" are 1) adding the genes from a bacteria that produce a toxin (against some pest) to the genes for corn and 2) adding genes into corn so that it will be resistant to pesticides so that more pesticides can be applied to the crops.
The problem with the first is that genes don't just stay put. Bits of genetic material are actually exchanged by organisms in the human gut. So if the toxin producing gene is incorporated into the e. coli in your gut, you get a perpetual source of new toxins in your body.
The problems with the second should be obvious since nobody has made us more resistant to pesticides.
Monsanto's own tests on lab animals of the first product showed it harmful - but those tests were well-buried until leaked.
IMHO, we really are playing with stuff we don't adequately understand here.
Doesn't the regulator judge what a "sound" level of capital is for the GSEs?
Well, yes. And the way this went down was that back when the shit hit the fan with the restatements and the GSEs being unable to get out current reports and so on, OFHEO made them agree to a higher capital requirement than is in the statutes. That was not a permanent change to their statutory capital requirements. It was for the term of the consent order, and conditioned on them meeting the 81 items or whatever it is in the order.
They did that. So now they are no longer subject to the 30% rule.
They are now going to be subject to some other capital standard that OHFEO will work out based on what they have managed to report.
This document does not say that effective immediately they go back to no other requirments than the minimum statutory capital. It does, however, imply that OFHEO is not going to force them to hoard capital; there will be some easing.
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
Which ideas are these? CDOs? CDOs squared? Synthetic CDOs? VIEs? SIVs? SPVs? CDS? REMICs rated according to "real estate always goes up"?
Option Payment ARMs? Liar's Loans? FICO scores instead of due diligence?
Yeah, lots of great ideas the top 1% have given us in exchange for their enormous wealth.
Where is Stan O'Neals' contribution to society? Chuck Prince's? Bill Gross's? Hank Paulson's? These contributions all have to be measured in negative numbers.
If the whole top 1% disappeared tomorrow, the world would be better off. There isn't one of them worth the cost of the chemicals he's made of.
Goldbugs. Not of the "I like gold"-sort, of the "Banish the Illegal Fed"-sort.
"On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber."
Oh and dont forget my friends at the Bohemian Grove BG (e.g. Nixon and Henry dancing in Pink Tutus to Perry Como) , the soverign debt fund I followed Cheney into has provided solid returns.
Actually, i think david_in_ct is quite right with his observations, it's just the consequences that are a little harder to predict.
The introduction of the Internet ushered in a massive latency drop across all human organisations - latency being the time it takes to send and process messages within networks. It's not quite correct to say it was unprecedented, this kind of effect has been seen before - viz. the introduction of printing, canals and railroads, the re-introduction of organised postal services, the telegraph and the telephone.
What happens to a networked system if you introduce a large change of latency? (Note to network engineers, don't try this with your systems, they'll crash.)
Well a lot of things, but essentially a previously stable system will become unstable as the changes get absorbed. Information flows faster, and then piles up at the end nodes which can no longer process it quickly enough. The system tries to route around the blockage, traffic shifts to other nodes, and then overloads them. You start getting bursts of traffic - which can introduce wave effects, Then the network itself may start producing more messages as it tries to resolve the issues being created - which is not good, since deep in the math governing systems like this is a proof that says that large distributed systems can produce far more messages than they are capable of transmitting.
Think of money as a source of information and substitute it in that paragraph, and hopefully you get an idea of the problem - although i don't think that it's a completely correct mapping in information theoretic terms.
This isn't even a problem of the content the messages are carrying. Take the time it takes to order equipment, used to be weeks or months to go through the procurement process, just in terms of finding what you wanted to buy and getting quotes. Introduce faxes, email, and then full colour videos and the world wide web, that time just collapses. So does the time of any other process that depends on it, so suddenly building things becomes a lot quicker, very shortly after that there's a lot more stuff - houses say, the sales/demand curve is now completely out of whack, and money is busy looking over its shoulder trying to figure out what its value should be.
"why income gains continue to be concentrated in the top one percent."
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
If that is the case, why does Warren Buffet (third wealthiest man in the world) question why Congress treats him preferentially over the people that work for him?
"On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber."
I'm still waiting for my invitation to join the International Jewish Conspiracy (tm) - I would much rather help rule the world (sure can't do any worse) than just work for a living.
uts, i was hoping for a curtsey.
In retrospect, this OFHEO-directed capital requirement, coupled with their large preferred stock offerings means that they are in a much better capital position to deal with todays difficult and volatile market conditions and their significant losses.
At a time when they are announcing continual deterioration in their portfolio performance? Is this really reasonable and simply counter-intuitive, or is it just BS?
am I missing something, or is the bigger issue for Fannie and Freddie raising captial to offset increasing losses in their portfolio, rather than expanding their portfolios?
Well, that's good since it's not like Fannie Mae is suffering any financial problems... wait... oops... nevermind... Well, I am sure they've never had a problem filing accurate financials in the past, right? Oh... nevermind!
Ah, this will be "temporary" much like the "temporary" income tax, and countless other "temporary" government programs.
No doubt the reduction in qualification standards (which I promise are coming soon!) will also be "temporary."
Can we just cut to the chase already: 0-down, 0% interest, option-ARM, negative amortization "liar-loans" backed up by the full faith of the US government (namely, the shmucks like myself who actually earn money and save for the future)? Yeesh... we wouldn't want housing prices to fall to affordable levels, now would we?
At a time when they are announcing continual deterioration in their portfolio performance?
My reading of that part is: "We kept some of their powder dry for you during the boom when they were under Consent Decree. So now they can start lockin' and loadin' during the bust to fulfill their mission."
will also include consideration of the financial condition of the company, its overall risk profile,
That's encouraging, they think they will know what the risks are going forward. Personally, I'd be terrified by most of the loans out there, let alone any of the LFKAJ stuff.
Didn't OFHEO say they didn't want to see this a while back.
My reading of that part is: "We kept some of their powder dry for you during the boom when they were under Consent Decree. So now they can start lockin' and loadin' during the bust to fulfill their mission."
Tanta
But that is BS. They stopped them from from getting in an even worse situation then they might have otherwise, but their powder was clearly very damp or they wouldn't have had to float new debt, etc.
This definitely was a directive from the White House and Paulson.
Between this and Bernanke's latest pledge to print money and damn the torpedoes, I think I'm moving firmly into the Jim Rogers/Marc Farber camp.
The U.S. is going to squander whatever fiscal/monetary standing it has left in the world to avoid losses to Wall Street.
I don't have kids, but if I did I would absolutely be considering emigration. In 20 years, were liable to have the tax rates of France and the social services of Zaire.
I'm watching congress ask Bernanke questions. So far, no questions as to why income gains are trailing inflation or why income gains continue to be concentrated in the top one percent.
As usual, too much discussion of the symptoms and not the cause.
Bernanke just stated that there is a coming "tidal wave" of forclosures.
Everything is re-active, not pro-active. Faith in the fed? Fed-up is more like it for me.
I'm deeply troubled about this; please remind me again why it is that the increased conforming loan limits and the lifting of the portfolio caps won't result in an attempt to socialize the bubble costs, ala RTC?
I know a couple of realtors who are absolutely salivating over this - they believe the GSEs are the return ticket to boom times.
MAB:
Why should they? Most of the people in Congress are rich. Hell, I bet Feingold (bless his heart) might just be the poorest member of Congress(until Donna Edwards takes over for the corrupt Al Wynn in January). They are all out of touch with the "little people" they claim to represent.
"why income gains continue to be concentrated in the top one percent."
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization. There does not seem to be any natural cap to this process, though I would expect the political process at some point to legislate wealth redistribution rather than income redistribution.
I forgot to add, isn't it funny that Ron Paul was the only one who seemed worried about retirees and savers last time "B-52" Ben testified in front of Congress? He took Ben to the woodshed.
I think Bernanke needs to STFU. Dollar making new lows today.
Tanta,
My apologies Re: "Lost Note Affidavits & Skeletons in the Closet"
and LNAs. I've been researching too much and sleeping too little lately and things are blurring together. My brain was incorrectly associating Lost Assignments of Mortgage with LNAs of which I know the diffrence but I was not processing correctly for some reason.
It's been a long 7 years now...
Again, my apologies.
Strike 1: Raise conforming limits.
Strike 2: Raise portfolio limits, lower reserve requirements
Strike 3: Relax lending standards???
If they do advance to #3, we have definitely struck out. Sure sounds like the playbook, though, doesn't it.
Yeah, but this still isn't going to help Jacko keep Neverland.
The fire's in their eyes and their words are really clear -
JUST BEAT IT, just beat it.
Mar 19th.
whoo!
The single biggest question is whether fnm and fre are making money on current business at current rates with current underwriting guidelines.
If they can't get healthy in this environment, then when will they ever get their balance sheet in order? They need to be making excess profits now.
I would also be more concerned with the mortgage insurers then the bond insurers.
Do tell, who did the audit? This is a total 100% sham and scam and these results are 100% crap, just like the recent ratings given away in the bond insurance lotto!
"In retrospect, this OFHEO-directed capital requirement, coupled with their large preferred stock offerings means that they are in a much better capital position to deal with todays difficult and volatile market conditions and their significant losses."
If the more onerous capital requirements ended up being a good thing during the boom as it went bust, why would you lower them when OFHEO themselves released a depressing report on housing just this week? Do they not read their own research?
There is a reason why banks aren't lending: they want to hoard capital for what they see as tough times ahead.
And here comes OFHEO to release the spigots in the Agencies at a point in time when:
1) The Agencies are taking huge losses;
2) The housing market declines are accelerating.
"Better capital position" my ass. Their stock (the currency of most companies) has been cut in half in six months. FNM used to have a $70B market cap; now it's down below $30B. Those are "better" conditions?
Their leverage as a guarantor is also fearful. That now is going to increase. Again, let's have them assume more risk as we get confirmation that the housing market is in free-fall.
How many of their shareholders labor under the asssumption that their holdings are backed by a US Government guarantee? I would wager that an awful lot of retirees have a good chunk of change in them (nice div. yield these days) and are oblivious to the risk.
Playing with fire.
Bob,
Why you 'dissing Zaire. What's it done to you to deserve that insult?
Welcome to the perpetual motion housing bubble machine. Wheeee!
Sure am glad I didn't gamble in the housing market. I'd have to bail my self out. Now I get to bail out other people I don't even know. Whoopeee!
I'm so happy I think I'll drink Campagne tonight.
Cheers,
The making of "Socializing the Cost and Bailing Out the Greatest Capitalist System" is, step by step, in full swing! There are 5 steps indicating the psychology of the bursting of market mania. There are also 5 steps in the psychology of revitalizing the financial bubbles -- Watch in awe, get pissed, vent-it-out on bloggosphere, feel resigned, and accept.
First the monolines get to keep their AAA ratings, and now the GSEs are so healthy and vibrant that OFHEO lowers their capital requirement, temp them into the deep end of the cesspool (jumbo), and put all the new risk on their balance sheet. More leverage, more risk...shoot me. Don't even get me started on the timing of the announcement right after a $3.5 loss (3x what they forecasted.)
Pardon two analogies: 1) I don't think the short bus is supposed to be driven at these speeds (I stole that one), and 2) I think the horseshoe up Fannie and Freddie's butt is going to give them dysentery...
At least in China they know they're being spoon fed bogus info.
Tanta, you're quite the optimist. My translation is:
"If we maintained current capital standards the GSEs would have to stop making loans very soon. Since that's not acceptable in an election year we'll let them make as many loans as they want until the election. After the election political scrutiny will decrease and we should be able to squeeze in something for the GSE shareholders in the inevitable bailout."
Someone needs to write a book of fairy tales for modern times, with modern morals.
Like: "Always put all your eggs in one basket. Then have Congress bail out the basket."
Or: "Always count your chickens before they hatch. Then bundle them into tranches, convince Moody's to rate them AAA, and sell them for billions to a Norweigan pension fund."
Or: "Did you hear the story about the boy who cried 'recession'? At the first hint of trouble, he would slash interest rates and taxes, and when the real crisis finally came he had no room to maneuver."
david,
There does not seem to be any natural cap to this process
That statement always sets off my BS alarm...
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
david_in_ct.
I disagree. Today's ideas are no better or more valuable than the ideas of any other time.
To me, its the absurd ability to generate credit based on unsound ideas that is at the root of the matter. This is only possible due to our policies that demand/encourage credit growth beyond underlying demand. Hence the bubbles and extreme growth of government. Growth at any price (aka inflation).
Fannie is The New Enron -- supported, subsidiazed and growing more and more out of control! The audit alluded to here today is as bogus as the audits done at Enron and Fannie, and Worldcom and Tyco and countless examples of window-dressed retardation!
FYI: In December 2004, the SEC ordered Fannie Mae to restate its earnings back to 2001 a correction expected to reach an estimated $11 billion. The Justice Department has been pursuing a criminal investigation.
OFHEO levied a record $125 million fine in 2003 against Freddie Mac, Fannie Maes smaller rival in the multitrillion-dollar home mortgage market, for misstating earnings mostly underreporting them by $5 billion for 2000-2002.
On Friday, Fannie Mae said it was replacing the chairman of its boards audit committee, a key position as the second-largest U.S. financial institution reworks its accounting and struggles to emerge from the scandal.
Tanta, you're quite the optimist. My translation is
Optimist?
I'm trying to read the press release, not make shit up.
Look, Lockhart went on record over and over again telling Congress not to pass that loan limit increase without passing the GSE reform bill, which would among other things make the kinds of controls OFHEO exercised under the consent decree permanent.
They didn't do it.
OFHEO has no authority to continue with these limitations if the terms of the original agreements were met.
What do you all expect OFHEO to do? Make the GSEs "hoard capital"? That ain't what they have a federal charter to do.
They have an explicit mission to put capital into circulation in the form of providing liquidity to the residential mortgage market. OFHEO's job is to make sure they don't get under minimum levels of capitalization, not to make them hoard it. And OFHEO's mission is not to protect GSE shareholders from the delusion that their shares are obligations of the government.
Just amazing how fast America is falling apart, and just think, we are not even a recession yet! Global market participants will obviously be looking at new benchmarks and new ways to evaluate valuation metrics related to stocks, bonds, oil, currencies, gold, wheat.......there is going to be a new paradigm as America runs itself into the toilete...thanks Bush, Ben, Paulson, Cheney, Hillary, Obama, McCain, just keeps getting better!!
The dollar fell below $1.51 per euro for the first time on mounting speculation a slumping economy will force Federal Reserve Chairman Ben S. Bernanke to cut interest rates through mid-year.
MAB - ask any independent consultant or self employeed professional if ideas are more valuable than labor.
On Friday, Fannie Mae said it was replacing the chairman of its boards audit committee,
You are pasting the text of news reports from 2006. Without attribution. Why shouldn't I just delete comments like that? I ask you.
Are you trying to make people think this happened last Friday?
and the beauty of all of this is that Franklin Raines is STILL collecting over 1m in payouts.......
You'd think they would have stopped that if they were truly serious about all this.
Nahhh......
MS
Perhaps the government should cut a check to everybody for say...a million bucks.
Then we could all pay our mortgages and bills off and take early retirement.
You go Ron Paul! He just raked BB with a broadside on "the Fed's debasement of the currency". Cited commodities, PPI, true price stability, inflation as a war on savers and capital.
All BB could come back with is "well we just look at CPI".
A deer in the headlights moment.
Why on earth would anyone own shares of the GSEs? If a private concern were to buy them out, they would instantly become worthless. The only reason to own the shares is for the dividend, and that's hardly competitive these days.
Wow, posting on the GSEs sure brings out the fruitcakes.
My take on this is, higher oil will add to inflation, just as higher prices of wheat will add to inflation and inflaton will require great cashflow, but as the dollar decreases in value, as yields head lower, as home values head lower, there be less cash flow to offset inflation; however, these two contradictive problems will probably result in more unemployment which will decrease home values, decrease cash flows but ironically reduce demand for oil, wheat and homes, thus the remaining 1% of population that has cash flow, will be better off as prices drop -- making gas cheaper for SUVs and eating tasty snacks in McMansions backed by Fed backed Jumbos! Nice!!
Goldbugs. Not of the "I like gold"-sort, of the "Banish the Illegal Fed"-sort.
On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber.
Mark,
GSE's have been trending down big time. There has been lots of unloadings of Fannie and Freddie going on, even with talks of increasing loan limits, etc. Ongoing risks at GSE's are just too much for lots of smart money. Goldman just downgraded them few days ago.
Don't forget the Council on Foreign Relations.
Re: You are pasting the text of news reports from 2006. Without attribution. Why shouldn't I just delete comments like that? I ask you.
Delete away and be free to feel accountable
"I disagree. Today's ideas are no better or more valuable than the ideas of any other time."
I agree that today's ideas might be no better on a relative basis than those of times past. However, the transmission of those ideas in the form of commerce are orders of magnitude faster and with greater effect.
Think about the invention of the wheel, vs. the some marginal genetic change to corn seed which might increase yields 5%.
While the wheel by any measure would be considered a fantastically greater invention, the amount of time it took for the technology to spread and become adapted and have an influence on production was incredibly slow. No doubt measured in centuries. Now think about what happens when some scientist at Monsanto make some slight change to plant genetics. The very next planting season the invention is in use all over the world. We have never seen anything like this before and it is an extraordinary force.
your fruitcakes are clearly of a higher caliber
I feel like I just got the consolation prize.
"That statement always sets off my BS alarm..."
Sorry, didn't mean to disturb your nap.
I thought that was earwax... but when I tasted it, it was obviously some candied pineapple.
The circus is moving ..
From HousingWire
MBAs Chief Economist Jumps to Fannie Mae
By Paul Jackson February 27, 2008
Doug Duncan, the often-colorful chief economist that rose to industry prominence with the Mortgage Bankers Association, is moving to a similar role at Fannie Mae. The GSE on Tuesday named Duncan vice president and chief economist after 15 years at the MBA, where Duncan often served as the organizations most visible spokesperson.
His counsel and scholarship will be important assets for the company as we strive to bring stability, liquidity and affordability to the turbulent housing and mortgage markets, said Fannie Mae CEO Daniel Mudd. I also hope that, given Dougs role at the MBA, he will provide us with critical insights so that we can better serve our partners and customers in the years ahead.
Listening to Bernanke, I am struck by how he is trying to dance around too many problems that he is now tripping.
Tax code interrogations.
2010? Um, repeal of AMT? Uh, oh.
Not gonna happen now. Expiration of tax cuts. Oh yeah, budget deficits.
Now he is in a real pickle.
Wall street is taking this as an excuse to party. time to move more money offshore in my retirement account.
Given the fools in congress, this will only have bad outcomes.
Metals are flying- hey silver has gone up 2.8% today- in one day! 30% in three months!
Stagflation. If you have fixed debt covered by sufficient income you are a winner!!!
Someday this war's gonna end...
Anonymous writes:
Perhaps the government should cut a check to everybody for say...a million bucks.
Just give everyone title to the home they live in and cancel debt. Much cleaner.
Apparently, our national economic strategy can now be summarized as "hair of the dog that bit you."
your fruitcakes are clearly of a higher caliber
Thank you, it's nice to be recognized.
David_in_ct,
If the stock market and corporate profits are going up from interest rate cuts and dollar weakness, shouldn't the perfect shorting opportunity be when rates approach zero? Or does this assume that they will raise rates, but in fact we may become Japan?
in 2007, fnm average fees were slightly less then 25 bp. Didn't they just add an additional 25bp, toss in some additional requirements for high risk areas and tighten underwriting standards?
Shouldn't this essentially double their income?
And aren't the nar and homebuilders whining about an increase in fees?
Unfortunately these companies are undercapitalized but they either have to be making money now or else.
you are all wrong...the GSEs are ready to expand.. (snark) those who know see the silver lining.
just look how that liberal press, a la cnbc are finally finding religion and giving a true economic prophet the air time he deserves...and dam those democrats...so says Zell:
"The US economy will avoid recession as the housing market begins to recover this spring, according to billionaire investor Sam Zell."
Speaking on "Squawk Box" this morning, Zell attributed much of the current economic troubles to fear-mongering and politicking by Democratic presidential contenders Hillary Rodham Clinton and Barack Obama.
"Obviously what we have going on is an attempt to create a self-fulfilling prophecy," said Zell, chairman of Equity Investments Group and owner of the Chicago Cubs, Chicago Tribune, Los Angeles Times and other companies. "We have two Democratic candidates who are vying with each other to describe the economic situation worse.
....
all that glitters is not gold
go palladium
and hi yo silver...away!
and row row row your rhodium gently down the stream.
euro 1.50 to the dollar..it's morning (mourning ?) in Amercia
Anyone know how much excess capital the GSEs have right now, that was 'hoarded' because of the consent order? Is it any? I am wondering if this will make a difference to their appetite to lend.
...so says Zell
Well he made his money is trailer parks and that sector probably looks good now. Just convert some of those FEMA trailer collectives into permanent trailer parks...
Inequality resulting from information value in the present world?
I disagree. This is due to the fact the world gets more and more monopolized. The ideas gets monopolized (life+70 copyright, patent extortion), the corporations get stronger and receive the larger fraction of the GDP through political lobbing and through squashing the competition. On the other hand, the labor workers got disorganized and weaker.
Who cares if the GSEs are losing money. They can make it up in volume.
...through political lobbying
I thinks that's called supply meeting demand.
If Fannie and Freddie can continue to lose money forever then borrowers can continue to borrow money at below risk rates. Don't expect any other private lenders to be able to reappear and survive in this environment as long as house prices are falling or even rising at or below inflation rates.
We are on the verge of a nationalization of the lending industry that will keep housing prices artificially high for a very very long time.
We are trading short term severe pain for long term misery, like the druggy who avoids 3 days of horrendous withdrawl for a life on methadone.
Tanta , regarding your post from 12:13 , Lockhart didn't have to announce the decision to lift the caps this morning during the trading day... that announcement could have been made after the close , tomorrrow or next week. By making the announcement today , Lockhart had to understand the impact that would have and deflect scrutiny from truly horrible Q4 / full year results for 07 and a horrible prognosis for 08.... that's the issue I have , it's the question of the timing of Lockhart's announcement.
Don't forget that NAR stopped giving donations to both political parties this year. Apparently they were pissed about not getting help fast enough. I wonder how long until they start giving again.
I forgot to add, isn't it funny that Ron Paul was the only one who seemed worried about retirees and savers last time "B-52" Ben testified in front of Congress? He took Ben to the woodshed.
And Youtube took the video down due to This video has been removed due to terms of use violation WTF?
Perpetual Motion??
Perpetual Motion appears more fantasy then reality at this point. There remains uncertainty about where we are at and where we are going. I am positive on protons and negative on electrons. I am down on gravity and expect friction to remain a drag. Magnetism appears attractive and Im looking for heat to continue moving upward. Also, I expect conservation to continue in mass, momentum and energy.
Interesting PDF
Wells Fargo Names Most of California Severely Distressed
http://blownmortgage.com/wp-content/uploads/2008/02/w08-024.pdf
There is something that has been bothering me here lately (yes I know how many of you care! lol)...
The discussion of nominal price declines in housing and the effects of inflation. The embedded assumption seems to be that the experienced housing price declines will be reduced by inflation nominally increasing house prices...
But there are two very big problems that appear to exist - first, with inflation over some longer time period comes higher interest rates (lenders will protect the value of the capital they lend), and second and perhaps more importantly, the inflation must be reflected in wages which would be a big change in how things have been going lately for working Americans in the era of global labor arbitrage.
Thoughts, observations, flames? Anyone? Buehler?
david_in_ct,
Regarding speed:
I would take the other side of your arguement.
Technology/speed of info is disruptive and should much more quickly eliminate excess profits. Yet this is not happening.
In support of my arguement, look at the growth in financial profits as a % of total S&P 500 profits. Clearly its not technology or ideas, but financial shenanigans. Financials have provided an inflation neutral way of creating/absorbing excess credit creation. Not big idea there.
Prices in open markets should move down.
Again,
Imagine this for a moment:
Suppose when the Nasdaq hit 5000, that through various efforts to protect the equity of those who owned stocks, that we slowly went down to the current level of 2362 in an essentially straight constant descending line. How would this have helped stock holders? More importantly how would those who dollar cost averaged in the Nasdaq over the last 8 years being doing now. Essentially there would be 8 years of every single owner and BUYER of stocks in the NASDAQ would be a loser. How would 8 years where absolutely NO ONE was better off for buying the NASDAQ affect the reputation of the NASDAQ as an investment vehicle?
The ONLY reason anyone has made money in the NASDAQ over the last 7-8 years was that the price of stocks dropped rapidly and then rose for years to the current level.
Price drops in assets to the level or below of fundamentals is itself fundamental to the health of that market. An artificial prop to the value of houses is a deathnell for the housing market in general for a generation or more. We are entering an long era where absolutely NO ONE will be FINANCIALLY better off for buying over renting.
OT...but I can't hold it back any longer.
Why is the fact that since GWB took office the US$ has lost 27% relative to our trade partners not news? Would have been a lot worse except for China's reluctance to revalue the yuan.
And if you'd like to visit Europe this summer, I hope you've got your euros. The UD$ is down 15% in the last year.
Hey, want fruitcakes and drama queens? Check out these guys.
Global systemic crisis / September 2008 - Phase of collapse of US real economy
This whole OFHEO capitualation reminds me of the movie "Night of the Living Dead", with Lockhart starring as Ben. The flesh eating monsters (Congress,REIC, Wall St.)are breaking down the the last walls/barriers to get to Ben(Lockhart) and turn him into a flesh eating ghoul like them. They succeed. The last man standing, has now gone to the darkside.
Why is the fact that since GWB took office the US$ has lost 27% relative to our trade partners not news? Would have been a lot worse except for China's reluctance to revalue the yuan.
Oh don't worry, it's good for exports.
Average Joe,
Fantastic Point.
The Plunge Protection Team and a subsidized US Wall Street stock market will result in further valuation distortions resulting in more efficient benchmarking valuations -- which on a global basis will exclude US stocks and the current synthetic substitutions. In a nutshell equities will plunge in proportion to the amount of synthetic subsidiaztion. Think in terms of Enron needing to make more and more bets to make up for losses in entities that were bad bets. The US casino made so many bad bets that the only solution they have now, is to make more bad bets and toss diluted money into a deeper hole that is getting wider and wider. No wonder The FDIC is planning on 100+ banks to go under this year, and in 2009, double that number!
CR/Tanta -- you might want to start a post about this:
A growing number of money managers, from BlackRock Inc. to Och-Ziff Capital Management Group LLC, are looking to profit from buying whole residential mortgages, mainly ones where borrowers have stopped making payments. (Investment Firms Buy Mortgage Loans - MarketWatch
Angry:
My speed argument is in relation to wealth distribution, not so much with regard to overall profitability. I agree that new technology is disruptive and has the potential to crush lagging competitors. Look at AMD, on top of the world one year, getting destroyed the next and who knows what 6 months will bring.
Yes, much of the 'profits' of wall street were simply tolling charges on the movement of capital. Had they stuck to refining and not hording inventory they probably would have been ok.
I am still very much of the opinion that a good idea today faces far fewer hurdles to implementation than at any other time in history and the potential for outsized financial reward because of it is better than ever.
picosec, just pack a whole lot of Levi's and sell them when you get there. I see 501s selling for 55 Pounds.
Think in terms of Enron needing to make more and more bets to make up for losses in entities that were bad bets. The US casino made so many bad bets that the only solution they have now, is to make more bad bets and toss diluted money into a deeper hole that is getting wider and wider. - Lee
Ummm, that didn't work out so well for Gerome Kerviel did it?
tj & the bear writes:
Strike 1: Raise conforming limits.
Strike 2: Raise portfolio limits, lower reserve requirements
Strike 3: Relax lending standards???
Strike 4: Taxpayers assuming/liquidating the portfolios of the soon-to-be bankrupt GSEs.
If Bernanke would spend as much time on the economy as he spends manucuring his appearance, ie, the well trimmed beard, the well shined bald head, the expensive suits, perhaps another de facto rate cut would strike him as being as out of place as a scarf around his neck, or a rope?
OT
The Fed has about $55B sloshing on top of $60B in TAFs.
I suspect the Fed may increase the TAFs for March.
Separately, the Ron Paul comments regarding the value of the Dollar were most welcome. On top of losing purchasing power, savers have to pay taxes on the inflation. What a deal...
Wells Fargo Names Most of California Severely Distressed | Blown Mortgage
Fannie Mae CEO says no current need to expand portfolio caps: http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=714c905f-2035-47d8-b7dd-a99029d7e3f8
"We do have the capability both through the size of the portfolio now, as well as through he modifications that OFHEO granted... to have some growth, so it's not an issue today," he said after speaking at the US Chamber of Commerce.
In addition, Mudd seemed to leave open the possibility that Fannie might wait for legislation strengthening the regulatory authority of the Office of Federal Housing Enterprise Oversight (OFHEO) before insisting on expanded portfolio caps.
Under consent agreements struck between Fannie and OFHEO, Fannie can expand its mortgage holdings once it meets a series of conditions centering on its internal accounting and financial reporting procedures. But late last year, OFHEO Director James Lockhart said OFHEO strongly prefers having new legislation in place before the portfolios are expanded, and Mudd today indicated that at least for now, his company and the regulator may be talking it over.
From this article, James Lockhard (OFHEO regulator) did not want to remove the portfolio caps until congress passes a new bill, but had a sudden change of mind and lifts it a day after bad earnings. To me, this seems like political pressure from the administration and congress.
david_in_ct,
To me the numbers argue otherwise. If good ideas today do indeed have lower hurdles to implementation, the wealth should be spread more quickly and evenly. We have a scarcity of ideas when compared to the 6% growth mandate. Hence, many poor are showered with gobs of money.
Gaming the system for big pieces of inflation is now our most profitable endeavor. What was the last good idea that moved the market? A stimulus plan (aka helicopter drop). This does not support the view of an "ideas" economy. We are now a net importer of technology.
Like I said, growth at any cost.
So why didn't Lockhart resign?
"Thoughts, observations, flames? Anyone? Buehler?"
energyecon | 02.27.08 - 1:06 pm
I think your question's spot on target.
Please post if you come up with an answer, I read your comments when I see them.
Sorry I've got no answers for you . . . but what do you expect from somebody who's still looking for bacon's curtsey?
Thanks Raja for the on topic post. As far as I can see, with the increased fees plus the tighter underwriting, the GSE's are going to be charging an effective price that is over 2x what they charged last year.
The fact that Mudd is't interested in jumping into jumbos is an indication that he has an idea of how underwater they are and wants to dig out while he still has a competitive advantage. That is, use his capacity on the most profitable loans.
The increased fee income could offset the inevitable calendar year losses and keep the pressure off regarding the fee increases.
Of course it would be better if the GSE's accurately accrued for losses, but if they can make money on current loans that could keep them whole.
So shoot me for not being totally bearish.
For what its worth, the gre's are already taking s*** for fee increases. They may have raised them as much as they can without drawing too much political pressure. They can raise the effective price through underwriting.
National Association of Home Builders
"In this economic climate, Fannie and Freddie should be taking steps to help borrowers, not to burden them. This just underscores the need for Congress to act quickly to enact comprehensive reform of the housing government sponsored enterprises so that their mission responsibility can take precedence over their business interests."
energyecon stated: But there are two very big problems that appear to exist - first, with inflation over some longer time period comes higher interest rates (lenders will protect the value of the capital they lend),
not necessarily. We have central banks that can artificially hold interest rates low (think of 1% FFR). Thus, even with risk premiums added, the Fed and central banks could continue negative-real interest rates for some time.
and second and perhaps more importantly, the inflation must be reflected in wages which would be a big change in how things have been going lately for working Americans in the era of global labor arbitrage.
I agree. this is the rub. currently global wage arbitrage is stopping the wage spiral that happened in the late 70's. However, there could be some concerted plan to attempt SLIGHT allowance of wage arbitrage... IMO this will fail.
This isn't the 70s. now with the internet information can be disseminated far too quickly for the CBs to keep a handle on it. Speculators are taking the free money and running amok. (with tech stocks in the 90's, then RE in the early 00's, and now it looks like commodities this time)
thus, so far we're seeing depreciation in the things we don't need, and price inflation of the things we do...
I've been wondering what it would be, but now i'm prettys sure:
commodities... the next bubble.
"I'm deeply troubled about this; please remind me again why it is that the increased conforming loan limits and the lifting of the portfolio caps won't result in an attempt to socialize the bubble costs, ala RTC?
I know a couple of realtors who are absolutely salivating over this - they believe the GSEs are the return ticket to boom times." - Scott
Scott,
In order to save the RE market, the GSEs (Fannie and Freddie) would have to come in guns a blazing in the new jumbo conforming segment, buying up high LTV loans, low doc, etc etc.
Are they going to do this? NO. NO. NO.
Look at their recent financial results. They just LOST almost $4Billion in one quarter! What is their market cap again? Their first responsibility is to their shareholders. If they do what is needed to support the RE market (make dumb loans), they will just incur further future losses. They have learned that house prices do not go up forever. This fundamentally changes their business model, and they are going to make smart(er) loans so they do not go BK.
Basically, the government has allowed the GSEs to increase loan limits, and allowed them to expand their balance sheet. This does not mean that the GSEs will expand...at at least to the extent required to loosen credit to the market overall.
Angry:
"If good ideas today do indeed have lower hurdles to implementation, the wealth should be spread more quickly and evenly"
This would only be true if good ideas were equally distributed about the populace. However this is not the case.
The easiest way to see this is to look at any compilation of scientific publications and look at the distribution of publications to authors. In this, as in just about any human endeavor, there are very few people who are responsible for most of the work. Works that way in the arts , sports or just about any venue you care to examine. The distribution of wealth has generally been a reflection of this absent a social process which redistributes wealth.
Tanta
"What do you all expect OFHEO to do? Make the GSEs "hoard capital"? That ain't what they have a federal charter to do."
Doesn't the regulator judge what a "sound" level of capital is for the GSEs?
Even if the regulator had no choice, expanding balance sheet sounds like it might be a good thing for now. If market is frozen, they are probably getting relatively good assets on the cheap because of lessened competition (I could be wrong of course). Once market recovers, then Ofheo should "lean against the wind" if they can and force higher GSEs to hold higher capital in reserve to prevent a blow up in several years time (this would also reduce privatisation of gains).
In 20 years, were liable to have the tax rates of France and the social services of Zaire.
Don't forget the inflation rate of Zimbabwe
your fruitcakes are clearly of a higher caliber
Hey, wait a minute,... that wasn't a compliment.
BrantW -
Thanks for the response; I pretty well recall Tanta's extensive posting on the Conforming Loan limit increase, and the reasons it wouldn't, by itself, be enough to rescue the bubble. IIRC, the argument basically said that the GSE standards were such that there was no way they could gin up an operation to process Jumbos quickly enough to prevent the collapse in prices.
Now that the GSEs are, for the moment, the only real game in town for originations, loses or not, it seems to me that REIC folks expect for a lot of people to actually qualify for a "conforming Jumbo" - I'm very skeptical of that.
I hope Lockhart is able to hold the line on the standards.
david_in_ct.
Free and open markets do not continually concentrate wealth. Wealth concentration flies in the face of open markets and the profit motive. Kings and queens of yore had concentrated wealth. So did the trusts prior to Teddy Roosevelt. The continuing concentration of wealth today in America defies the rules of capitalism.
America's real gdp growth has changed very litle over the last 100 years. However, the distribution of wealth has varied significantly at times. The two greatest periods of wealth concentration have been 1929 and 2007. Both periods also share an extreme increase in debt to income ratios. No way is this massive increase in debt based on good ideas. Nor is this concentration of wealth.
Way off topic:
some marginal genetic change to corn seed which might increase yields 5%.
.... Now think about what happens when some scientist at Monsanto make some slight change to plant genetics. The very next planting season the invention is in use all over the world. We have never seen anything like this before and it is an extraordinary force.
It is an extraordinary danger to the world. The genetic engineering underway by Monsanto and others will, sooner rather than later, be a complete and irreversible disaster.
2 of their "production enhancements" are 1) adding the genes from a bacteria that produce a toxin (against some pest) to the genes for corn and 2) adding genes into corn so that it will be resistant to pesticides so that more pesticides can be applied to the crops.
The problem with the first is that genes don't just stay put. Bits of genetic material are actually exchanged by organisms in the human gut. So if the toxin producing gene is incorporated into the e. coli in your gut, you get a perpetual source of new toxins in your body.
The problems with the second should be obvious since nobody has made us more resistant to pesticides.
Monsanto's own tests on lab animals of the first product showed it harmful - but those tests were well-buried until leaked.
IMHO, we really are playing with stuff we don't adequately understand here.
Doesn't the regulator judge what a "sound" level of capital is for the GSEs?
Well, yes. And the way this went down was that back when the shit hit the fan with the restatements and the GSEs being unable to get out current reports and so on, OFHEO made them agree to a higher capital requirement than is in the statutes. That was not a permanent change to their statutory capital requirements. It was for the term of the consent order, and conditioned on them meeting the 81 items or whatever it is in the order.
They did that. So now they are no longer subject to the 30% rule.
They are now going to be subject to some other capital standard that OHFEO will work out based on what they have managed to report.
This document does not say that effective immediately they go back to no other requirments than the minimum statutory capital. It does, however, imply that OFHEO is not going to force them to hoard capital; there will be some easing.
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
Which ideas are these? CDOs? CDOs squared? Synthetic CDOs? VIEs? SIVs? SPVs? CDS? REMICs rated according to "real estate always goes up"?
Option Payment ARMs? Liar's Loans? FICO scores instead of due diligence?
Yeah, lots of great ideas the top 1% have given us in exchange for their enormous wealth.
Where is Stan O'Neals' contribution to society? Chuck Prince's? Bill Gross's? Hank Paulson's? These contributions all have to be measured in negative numbers.
If the whole top 1% disappeared tomorrow, the world would be better off. There isn't one of them worth the cost of the chemicals he's made of.
Goldbugs. Not of the "I like gold"-sort, of the "Banish the Illegal Fed"-sort.
"On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber."
Oh and dont forget my friends at the Bohemian Grove BG (e.g. Nixon and Henry dancing in Pink Tutus to Perry Como) , the soverign debt fund I followed Cheney into has provided solid returns.
wow - congress is eager to set up a shaky program for even more trouble. the responsible taxpayer will be on the hook
instead, congress should be investigating whether these entities' existence should even continue.
Actually, i think david_in_ct is quite right with his observations, it's just the consequences that are a little harder to predict.
The introduction of the Internet ushered in a massive latency drop across all human organisations - latency being the time it takes to send and process messages within networks. It's not quite correct to say it was unprecedented, this kind of effect has been seen before - viz. the introduction of printing, canals and railroads, the re-introduction of organised postal services, the telegraph and the telephone.
What happens to a networked system if you introduce a large change of latency? (Note to network engineers, don't try this with your systems, they'll crash.)
Well a lot of things, but essentially a previously stable system will become unstable as the changes get absorbed. Information flows faster, and then piles up at the end nodes which can no longer process it quickly enough. The system tries to route around the blockage, traffic shifts to other nodes, and then overloads them. You start getting bursts of traffic - which can introduce wave effects, Then the network itself may start producing more messages as it tries to resolve the issues being created - which is not good, since deep in the math governing systems like this is a proof that says that large distributed systems can produce far more messages than they are capable of transmitting.
Think of money as a source of information and substitute it in that paragraph, and hopefully you get an idea of the problem - although i don't think that it's a completely correct mapping in information theoretic terms.
This isn't even a problem of the content the messages are carrying. Take the time it takes to order equipment, used to be weeks or months to go through the procurement process, just in terms of finding what you wanted to buy and getting quotes. Introduce faxes, email, and then full colour videos and the world wide web, that time just collapses. So does the time of any other process that depends on it, so suddenly building things becomes a lot quicker, very shortly after that there's a lot more stuff - houses say, the sales/demand curve is now completely out of whack, and money is busy looking over its shoulder trying to figure out what its value should be.
interesting times, and all that.
-- w
"why income gains continue to be concentrated in the top one percent."
In one word, technology. This is causing the value of ideas to far outpace the value of repetitive labor, irrespective of its specialization.
If that is the case, why does Warren Buffet (third wealthiest man in the world) question why Congress treats him preferentially over the people that work for him?
"On the bright side, I've never seen anybody commenting on CR mention the Bilderbergs or the Trilateral Commission, so your fruitcakes are clearly of a higher caliber."
I'm still waiting for my invitation to join the International Jewish Conspiracy (tm) - I would much rather help rule the world (sure can't do any worse) than just work for a living.
Martin Cohe