That would mean that a private investor gets one-third of its principal back immediately, while the taxpayers get the right to collect one-third of a payment that isn't being made or one-third of foreclosure recoveries.
Sounds good to me, where do I sign up? Oh yeah, I don't have to sign up the government has me on an automatic payment plan. C'est la vie.
One of many Pot-to-Kettle moments in here is where, about 2:30, Ms. Bahr indicates that only eeeevil shorts who are talking their book would oppose restructuring.
Then, when Ross comes on, it goes without comment that he bought American Home Mortgage, one of the largest servicers.
This tells me that Bahr and Ross are still in the denial phase - you know, the 5 phases of grief? - with this idea that some financial whitewash will just let us slide right by these problems.
I expect to see billionaires and public figureheads transition quickly to Anger, Bargaining, Despair, then finally, Acceptance.
Yeah, acceptance of the 90 cents on the dollar they likely get from socializing their losses via govt bailout rather than the 40 cents on the dollar the market would likely give them.
I guess the FDIC wants the GSE's to assume the downside risks rather then the banks, these loan modifications will have a high failure rate which she never discusses nor what might occur if the higher foreclosure rates continue for several years as more homeowners become upside down and walk away.
She is part of the bucket brigade on a sinking ship hopping to keep it afloat until the rescue ship arrives, good luck!
I started to quote this story in an earlier thread. Ross's comment - after all the government encouraged the ARM's! WTF??? How many 100% financed, 2/28 4% start rate or option ARM's with a below fully amortizing payment or IO loans were made in the GSE or FHA area?
There was that comment by go-go Al a while back on how consumers had made out in the previous decade or two with ARM's but that is a little different than the toxic creative stuff no?
I think Bair held her own pretty well in that clip. I like how Ross kept putting up excuses for why he couldn't modify loans and Bair kept shooting them down:
1) Ross: the interests of the different tranche holders are conflicting with regards to loan modifications, so we can't do them
Bair: as the servicer, you're legally obligated to serve the interests of the pool as a whole, not consider the tranches separately
2) Ross: we have contractual limits on the percentage of loans that can be modified in a pool
Bair: those limits exist only in a small minority of pools, you're not modifying even the small percentage of loans that's allowable, and you can always go back to the investors and get permission to modify more, which in this market many investors seem willing to allow.
Anyway, I think Ross was outclassed. Wonder what the private sector gets by paying hundreds of millions of dollars to these CEOs so they can get schooled by bureaucrats on government scale wages
Umm ... wasn't the whole point of the securitization boom to facilitate the transfer of mortgage loans from banks (including smaller mom-and-pops) to investors?
You know - people who are supposed to consider the profit potential, liquidity, and risk associated with a given investment before plunking their cash down on the table?
So taxpayers should stump up a few hundred billion ... why? Because people like you, with virtually unlimited resources and flotillas of experienced advisors at your disposal - things, I might add, that the average wholesale investor doesn't have, never mind the average John Doe - got caught leaning the wrong way?
I guess you don't get to be worth billions in this business by showing a lack of chutzpah!
Ross has just joined Paulson in the "formerly thought of as smart" club. Everyone should take pause at the number of people now in this club. It does not bode well for working our way out of this mess.
CDO Ratings to Fall as Losses Trigger Fitch Overhaul (Update3)
By John Glover
Feb. 5 (Bloomberg) -- Fitch Ratings may downgrade $220 billion of collateralized debt obligations as mortgage-related losses increase.
The New York-based company may lower the securities by as much as five levels after failing to accurately assess the risk of debt that packages other assets. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions, according to guidelines proposed by Fitch today.
Ratings firms are responding to criticism that they failed to react quickly enough as rising defaults on subprime mortgages in the U.S. caused a plunge in the value of CDOs. Fitch, a unit of Fimalac SA in Paris, lowered $67 billion of mortgage-linked CDOs in November, slashing some AAA debt to speculative grade, or junk.
``Fitch is acknowledging that it was overly optimistic in its default rate and other assumptions in its original CDO methodology,'' said Christian Stracke, an analyst at bond research firm CreditSights Inc. in London.
Moody's Investors Service last year downgraded $76 billion of CDOs and began this year with $185 billion of deals under review. The New York-based company said yesterday that it may overhaul its system for evaluating structured-finance securities, proposing options including a numerical scale and a designation of ``.sf'' to differentiate a structured-finance ranking from a corporate credit grade.
Remember, food stamps for poor black people are an communist attack on America! Save those billions for welfare for crooked mortgage repackagers! It's the American Way!
In the depression the banks had to take a big cramdown to sell their mortgages to the government. That would be fair. This is not.
The system of the Crooks, by the Crooks, and for the Crooks. No?
The US govt has only one primary task -- keeping American People in line while the banking and finance Crooks do their thing. Fed is there specifically to help these Crooks during tough times for the Crooks.
America's dopes will go to polls to do their slave duty to give consent to one of the agents of the Crooks. These born-and-bred dopes really believe that their vote counts!
AND besides that half a billion there is $200 million more in notes that are not even trying to be restructured! Lender forebearance would seem to be sorely tested soon....
Builder's Capital and half a dozen other local hard-money lenders, sometimes called private lenders, are servicing the loans that Ritter wants to restructure. Ritter said he owes $200 million more that he is not seeking to restructure now.
I fully expect by the time we're done bailing people out we will have taxpayer funded housing via the government to keep people in houses they can't afford AND prevent people from being able to buy houses in the future without government help. What better way to control a population but to prevent them being able to buy shelter without Big Brother's "help" thanks to permanently inflated prices?
The Focus problem is exactly what is going to crush the small and mid-sized lenders who lent way too much money to land developers. Now that those 3 year loans are coming due and the homebuilders are not buying, these small and mid-sized banks are completely exposed. Compound that with the falling commercial RE market, and you've got the S&L all over again.
We live in a small town, and everybody looks at your clothes and what you drive and where you have your hair done, said Ms. Gamble, who earns about $2,600 a month as a grievance counselor at a local prison.
Now, she and her husband a prison guard who brings home $2,000 a month are grappling with $10,000 in high-interest debt. They no longer go to the movies or out to eat, except occasionally to McDonalds. They quit their Internet service. Their car was repossessed. What we say now is, If we cant afford it, we cant buy it, Ms. Gamble said.
And when she looks across the street at that Cadillac, her envy has been replaced by pity for the neighbor on the hook.
I say, Oh my, youre living here, and driving that? Theres got to be something wrong, Ms. Gamble said. Youre in debt, and youre in trouble.
This is it. The worm has turned. When Americans start looking right through luxury and seeing debt instead, that's it. How can you continue with the business model? The jig's up. Game over, man.
And what comes after this realization? Class consciousness can only reassert itself. No, not in some radical Jas Jain way (that would probably take decades more of obliviousness on the part of the financial world), but it's coming.
As long as Ms. Gamble looked at a Cadillac and saw a "Cadillac!", the whole illusory system could be maintained. Those days appear to be over.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, which insures bank deposits, told a Senate banking committee hearing last week that, given falling house prices and the sheer volume of unaffordable resets of subprime mortgages, foreclosures would probably rise. Mortgage servicers and lenders must aggressively pick up the pace on subprime loan modifications soon or invite regulatory and legislative action she said.
Mr Dodd has proposed creating a home ownership preservation corporation. This would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower balance loans.
Ms Bair warned of a new wave of payment resets starting in 2009 affecting Alt-A loans loans to borrowers with better credit histories than subprime borrowers.
Hey everybody who wants a house is entitled to have one, courtesy of the government.
Funny, when I see a Cadillac, I shake my head in pity for the fool who bought an American car.
Well, that goes without saying... but no doubt this is also playing out in other parts of the country with Lexuses and expensive super-SUVs.
And big homes out in the exurbs.
And widescreen TV's.
The spell is being broken, and people are now ASSUMING when they see their neighbors with luxury items: "They must be secretly in debt. Glad I'm not them."
The whole economy has been predicated on consumers NOT having these thoughts.
The long collapse in the United States savings rate is over, said Ethan S. Harris, chief United States economist for Lehman Brothers. People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.
Wouldn't it just be less expensive for the federal government to give money to home owners so they can make their payments? Forget all the bs, just go at the problem straight on.
Dale- Agree. That's exactly why the increase in GSE/FHA loan limits will fail to sell overpriced houses and will actually backfire the NAR, since no one trusts anyone regarding real estate pricing any more either.
"Mr Dodd has proposed creating a home ownership preservation corporation. This would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower balance loans."
Go ahead. I hope you and your private investors get rich with your corporation.
Bair should really focus on staffing and training a new FDIC army to handle upcoming bank failures or the nation's depositors may be be waiting in very long lines for their hard earned FDIC insured money.
"Bair should really focus on staffing and training a new FDIC army to handle upcoming bank failures or the nation's depositors may be be waiting in very long lines for their hard earned FDIC insured money."
Yeah, that's why Ross has lost his mind. I've been trying to figure out which of the big boys is already fried. Gotta be one.
REBear writes:
I'm glad we will have a recession during an election year. Politicians will be forced to pull out the facade and come out with long term solutions.
REBear | 02.05.08 - 12:28 pm |
I only wish. Right now we are having a contest to see who promise the pain free solution to everything. I just wish one would say: "we all need to sacrifice" or "the goverment can't solve all our problems"
Edwin Kellner (chief economist) at MarketWatch has a similar proposal. He suggests that we could clear the excess home inventory if the Federal Gov would subsidize (i.e., give money to) both home sellers and home buyers. He presented this as a serious proposal, but I suspect that he just wanted to made some people angry.
Bush deserves a recession on his watch. Of course, the Republicans will try to blame it on: 1) mistakes made during the Clinton terms and/or 2) declining confidence due to the prospect of electing a Democratic president later this year.
I read that Dugan article, and it doesn't sound so bad to me. Sure, the situation should have been averted years ago, but it wasn't. The bankers made stupid, risky loans, and there will be a price to be paid. Might as well accelerate the fixing process rather than let it fester.
Now that those 3 year loans are coming due and the homebuilders are not buying, these small and mid-sized banks are completely exposed. Compound that with the falling commercial RE market, and you've got the S&L all over again.
Funny you say that, because I've been consistently reminded lately of P.J. O'Rourke's analysis of the S&L crisis in Parliament of Whores.
I'm paraphrasing here, but his take was: Apparently, as the S&L fiasco unwound, the goal of everyone involved - bank CEOs, legislative heads, watchdog agencies, even Congress - seemed to be to purposely let things get so bad, and the consequences so expensive, that a taxpayer bailout would eventually become the only possible course of action.
Damned if we aren't seeing history repeat itself, note-for-note, two decades later. And anyone who doesn't think the outcome is going to be the same is fooling himself.
Every actor on the set of this tragedy has a vested interest in making Joe Q. Public foot the bill. The $1 trillion question has already been asked and answered, my friends.
The long collapse in the United States savings rate is over, said Ethan S. Harris, chief United States economist for Lehman Brothers. People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.
quoteth M-F
So, as stocks collapse and homes accrue negative value, does the savings rate increase along the lines of "the more you spend, the more you save?
It's not a slice - its a tranche. Get the terms right.
Actually, it's not a tranche.
Reporters have been driving me crazy for years by referring to securitization as "chopping up" or "slicing and dicing" mortgage loans. That is not what these securities do: they put the whole unchopped loan in a pool, and then "slice and dice" the total cash-flow of the whole pool. The "tranche" you buy is a prioritized interest in those aggregated cash flows.
Yeah, yeah, Tanta, who cares? Well, what Ross is suggesting--I have to assume he is using the words he means--is a participation interest in defaulted loans (not pools). That is, actually, more like chopping up a loan. You have multiple investors each with an undivided pro rata interest in an individual loan. Hence, an investor with a 1/3 participation does, actually, get 1/3 of the payment. If the thing is foreclosed, the investor does get 1/3 of the recovery.
That's different from the way these deals were originally tranched (where, say, a senior note holder gets 100% of payments until he is paid off or the subordinate notes take complete losses). In a participation, the government wouldn't get the first third or the last third, but 33.3 cents on every dollar collected.
But it would mean that the government dollars being used to create participations in the defaulted loans (not the whole pool of loans) would be applied to senior noteholders to pay them off. Also, presumably, this would magically reset a bunch of "triggers," since it would reduce the unpaid principal balance of defaulted loans (by one-third), and thus possibly speed up cash flow to the mezzanine bonds.
What Ross was telling Bair was that some noteholders have a real interest in getting principal back fast (wanting FCs). Those would be the senior notes. His proposal, not coincidentally, doesn't just bail out securities, it bails out senior noteholders specifically.
Lacker gets his data from this economist at Wachovia. This was from the MarketWatch website this morning after the ISM number came out. Still in the denial stage it appears.
"While we agree service sector activity has been slowing, we doubt it is as dire as this number suggests," said Sam Ballard, an economist at Wachovia.
Bill writes:
Bush deserves a recession on his watch. Of course, the Republicans will try to blame it on: 1) mistakes made during the Clinton terms and/or 2) declining confidence due to the prospect of electing a Democratic president later this year.
Bill | 02.05.08 - 12:41 pm | #
Sure, why not. Marlin Fitzwater, Bush's press secretary in 1992, blamed the LA riots (can't we all get along?)on LBJ...who had been dead for 20 years.
Why not just give all the illegal mexicans 3 months in the USA where they will be paid much greater wages to build our homes--then send them back (no labor stats, no OSHA, no unemployment, no workers comp). These American homes would of course be a mono-design by the government.
We could pay for them with money we don't have, and later default. The government could assume servicing the debt with taxes they haven't collected. And we could offer bond interest rates to foreigners more competetive than solvent nations that we have no intention to pay. We could then deflate our currency that is circulating in hypervelocity mode to nothing, have the FED drop to 0%, criminalize possession of precious metals, bulldoze the entire country and start anew. The criminals that brought this upon us would have "escaped" to another rich country where they might enjoy their ill-gotten wealth and start draining another population.
Wait, that is entirely too sephardic! The genteels must be given some crumbs to feel that they are yet a people of self-determination and liberty!
If it's as bad as some of y'all have been saying, banks will fail. The real estate they own through loan defaults will then become public property at the end of the FDIC process, no? Help me if I'm wrong here.
But banks and brokers that sold these loans get to keep their commissions and fees. Deadbeats get to keep good and services bought with MEWs. Stockholders get the equity drawups preserved as the smart ones pulled out summer last year.
Who get's hurt? The prudent, hardworking who produce and resisted the unconscionable temptation to accept easy money without the intention of repayment, and who could not accept money for deeply unethical, nation busting "economic" activity.
Their money is devalued in the robin hood inflation game making deadbeat debt good. Their taxes are used, instead of providing healthy social service and building infrastructure, to service banks and debtors. Their savings and 401k's are destroyed by inflation, speculation, market manipulation.
Now for the future, WHO wants to be the wise and prudent? Where is the benefit of following age-old wisdom?
TALK ABOUT MORAL HAZARD. WE HAVE MET THE ENEMY AND IT IS WITHIN OUR OWN CAMP. LEPROSY EVERYWHERE.
When the sleeping American giant arises from its stupor, and (hopefully) comes to recognize that ages-worn ethics, religiousity, rule-making is what kept our civilization together and prosperous. And then decides to re-embark upon that course, we may look for a further prosperity.
If it fails that test, it will arise, look around in seething anger, tear itself to shreds in a violence of justice-seeking, and cannibalize itself into the third-world status it may richly deserve.
Is CNBC still on the air?
That would mean that a private investor gets one-third of its principal back immediately, while the taxpayers get the right to collect one-third of a payment that isn't being made or one-third of foreclosure recoveries.
Sounds good to me, where do I sign up? Oh yeah, I don't have to sign up the government has me on an automatic payment plan. C'est la vie.
Joe Taxpayer
One of many Pot-to-Kettle moments in here is where, about 2:30, Ms. Bahr indicates that only eeeevil shorts who are talking their book would oppose restructuring.
Then, when Ross comes on, it goes without comment that he bought American Home Mortgage, one of the largest servicers.
What's best for billionaire investors? How about a disguise and a fake ID?
While not an eeeevil short, I could play one on TV - but only if the package comes with a 'mini-me'!
Wow, my own slice of the Big Shitpile? Just what I wanted!
This tells me that Bahr and Ross are still in the denial phase - you know, the 5 phases of grief? - with this idea that some financial whitewash will just let us slide right by these problems.
I expect to see billionaires and public figureheads transition quickly to Anger, Bargaining, Despair, then finally, Acceptance.
Yeah, acceptance of the 90 cents on the dollar they likely get from socializing their losses via govt bailout rather than the 40 cents on the dollar the market would likely give them.
When do people repeatedly talk about a 'minority' holding without specifing a percentage?
There is a spectre haunting America, the spectre of socialism for Billionaires.
There is a spectre haunting America, the spectre of socialism for Billionaires.
I thought it was called the "Bush Administration".
Moin,
here is another funny clip
"Absolutely Optimistic...." Colbert Translating Bush
I hope it´s ok to link to my blog. The link from comedy central is working very slowly right now
direct link
Shouldn't the automated emergency rate cut have kicked in by now?
I guess the FDIC wants the GSE's to assume the downside risks rather then the banks, these loan modifications will have a high failure rate which she never discusses nor what might occur if the higher foreclosure rates continue for several years as more homeowners become upside down and walk away.
She is part of the bucket brigade on a sinking ship hopping to keep it afloat until the rescue ship arrives, good luck!
Shouldn't we just subsidize mortgages and fund it with a tax on renters?
Yeah, ac, the rate-bot should have already lowered the rate by at least 25 bps.
Somebody forgot to put the quarter in it again at the Fed. Superbowl-flu and all that yesterday.
David Pearson writes:
Shouldn't we just subsidize mortgages and fund it with a tax on renters?
You mean more than we do already?
I started to quote this story in an earlier thread. Ross's comment - after all the government encouraged the ARM's! WTF??? How many 100% financed, 2/28 4% start rate or option ARM's with a below fully amortizing payment or IO loans were made in the GSE or FHA area?
There was that comment by go-go Al a while back on how consumers had made out in the previous decade or two with ARM's but that is a little different than the toxic creative stuff no?
I think Bair held her own pretty well in that clip. I like how Ross kept putting up excuses for why he couldn't modify loans and Bair kept shooting them down:
1) Ross: the interests of the different tranche holders are conflicting with regards to loan modifications, so we can't do them
Bair: as the servicer, you're legally obligated to serve the interests of the pool as a whole, not consider the tranches separately
2) Ross: we have contractual limits on the percentage of loans that can be modified in a pool
Bair: those limits exist only in a small minority of pools, you're not modifying even the small percentage of loans that's allowable, and you can always go back to the investors and get permission to modify more, which in this market many investors seem willing to allow.
Anyway, I think Ross was outclassed. Wonder what the private sector gets by paying hundreds of millions of dollars to these CEOs so they can get schooled by bureaucrats on government scale wages
Yeah, ac, the rate-bot should have already lowered the rate by at least 25 bps.
If they're just going to sit there and let stocks go down what the hell is the point in having a federal reserve anyhow?
Lune, I'm pretty sure Bair isn't living off his GS wage pension. Just a hunch. No poor men in this game.
Alright, ac and D-P-, enough biting humor and back to serious analysis, please.
Could I use my one third to get a 2/28 balloon mortgage on an investment property?
Now thats a rescue I can get behind!
Hey, mp/CB, I'm disappointed: I asked for a one week reprieve until I got my margin account in order, to load up on more SDS.
Thanks, guys!
Umm ... wasn't the whole point of the securitization boom to facilitate the transfer of mortgage loans from banks (including smaller mom-and-pops) to investors?
You know - people who are supposed to consider the profit potential, liquidity, and risk associated with a given investment before plunking their cash down on the table?
So taxpayers should stump up a few hundred billion ... why? Because people like you, with virtually unlimited resources and flotillas of experienced advisors at your disposal - things, I might add, that the average wholesale investor doesn't have, never mind the average John Doe - got caught leaning the wrong way?
I guess you don't get to be worth billions in this business by showing a lack of chutzpah!
When does Michael Moore present his documentary on this topic?
Dontcha just love all these free-marketeers that turn into Stalin socialists when their money is on the line.
I'm pretty sure Bair isn't living off his GS wage pension
?
Well, I can't say I know for a fact, but I'm pretty sure Bair isn't a dude.
GS Pension? Are you thinking of Paulson, maybe?
Gareth G:
"There is a spectre haunting America, the spectre of socialism for Billionaires."
But hey, that kind of socialism is ok.
It's that other kind of socialism that's not.
Meanwhile, back at the Capital Preservation Panic: palladium has broken out.
Apparently, the invisible hand works a lot better when it's holding half a trillion of taxpayer's money.
Ross has just joined Paulson in the "formerly thought of as smart" club. Everyone should take pause at the number of people now in this club. It does not bode well for working our way out of this mess.
Developer stops making interest payments on $500 million in land-backed loans
REAL ESTATE: Another sign of crisis - Business - ReviewJournal.com
Fitch to downgrade another $200 billion worth?
CDO Ratings to Fall as Losses Trigger Fitch Overhaul (Update3)
By John Glover
Feb. 5 (Bloomberg) -- Fitch Ratings may downgrade $220 billion of collateralized debt obligations as mortgage-related losses increase.
The New York-based company may lower the securities by as much as five levels after failing to accurately assess the risk of debt that packages other assets. CDOs with AAA grades that are based on credit-default swaps and aren't actively managed may face the steepest reductions, according to guidelines proposed by Fitch today.
Ratings firms are responding to criticism that they failed to react quickly enough as rising defaults on subprime mortgages in the U.S. caused a plunge in the value of CDOs. Fitch, a unit of Fimalac SA in Paris, lowered $67 billion of mortgage-linked CDOs in November, slashing some AAA debt to speculative grade, or junk.
``Fitch is acknowledging that it was overly optimistic in its default rate and other assumptions in its original CDO methodology,'' said Christian Stracke, an analyst at bond research firm CreditSights Inc. in London.
Moody's Investors Service last year downgraded $76 billion of CDOs and began this year with $185 billion of deals under review. The New York-based company said yesterday that it may overhaul its system for evaluating structured-finance securities, proposing options including a numerical scale and a designation of ``.sf'' to differentiate a structured-finance ranking from a corporate credit grade.
giacutter
Remember, food stamps for poor black people are an communist attack on America! Save those billions for welfare for crooked mortgage repackagers! It's the American Way!
In the depression the banks had to take a big cramdown to sell their mortgages to the government. That would be fair. This is not.
Doug Watts --
Apparently, the invisible hand works a lot better when it's holding half a trillion of taxpayer's money.
Awesome comment.
A big question is...what real estate collateral has value and what doesn't?
Raw land in Vegas is way down the value chain.
But half-built high-rise condos are even further down.
To turn a half-built condo into value, you have to finish it.
In this environment, why spend the money to finish it?
Don't you think developers are coming to that conclusion right now?
Why throw good money after bad?
Goodbye, Corus.
--
It is all consistent with...
The system of the Crooks, by the Crooks, and for the Crooks. No?
The US govt has only one primary task -- keeping American People in line while the banking and finance Crooks do their thing. Fed is there specifically to help these Crooks during tough times for the Crooks.
America's dopes will go to polls to do their slave duty to give consent to one of the agents of the Crooks. These born-and-bred dopes really believe that their vote counts!
In reality, the dopes are politically impotent.
Jas
crispy,
Ugh - man the vig at 11% on $500 million - lots!
AND besides that half a billion there is $200 million more in notes that are not even trying to be restructured! Lender forebearance would seem to be sorely tested soon....
Builder's Capital and half a dozen other local hard-money lenders, sometimes called private lenders, are servicing the loans that Ritter wants to restructure. Ritter said he owes $200 million more that he is not seeking to restructure now.
Blackstone was hired to help on this default, What the hell are they going to do? Make LV land prices go up. What a waste of fees, just BK..
I fully expect by the time we're done bailing people out we will have taxpayer funded housing via the government to keep people in houses they can't afford AND prevent people from being able to buy houses in the future without government help. What better way to control a population but to prevent them being able to buy shelter without Big Brother's "help" thanks to permanently inflated prices?
From the LV article:
"We haven't sold a piece of single-family residential (land) since early 2005," Focus Chief Operating Officer Tom DeVore said.
Who could have seen this coming???
The Focus problem is exactly what is going to crush the small and mid-sized lenders who lent way too much money to land developers. Now that those 3 year loans are coming due and the homebuilders are not buying, these small and mid-sized banks are completely exposed. Compound that with the falling commercial RE market, and you've got the S&L all over again.
From the quoted Bloomberg article (anonymous: 11:47): "...proposing options including a numerical scale and a designation of ``.sf''"
Science Fiction?
Economy Fitful, Americans Start To Pay as They Go - NY Times
We live in a small town, and everybody looks at your clothes and what you drive and where you have your hair done, said Ms. Gamble, who earns about $2,600 a month as a grievance counselor at a local prison.
Now, she and her husband a prison guard who brings home $2,000 a month are grappling with $10,000 in high-interest debt. They no longer go to the movies or out to eat, except occasionally to McDonalds. They quit their Internet service. Their car was repossessed. What we say now is, If we cant afford it, we cant buy it, Ms. Gamble said.
And when she looks across the street at that Cadillac, her envy has been replaced by pity for the neighbor on the hook.
I say, Oh my, youre living here, and driving that? Theres got to be something wrong, Ms. Gamble said. Youre in debt, and youre in trouble.
This is it. The worm has turned. When Americans start looking right through luxury and seeing debt instead, that's it. How can you continue with the business model? The jig's up. Game over, man.
And what comes after this realization? Class consciousness can only reassert itself. No, not in some radical Jas Jain way (that would probably take decades more of obliviousness on the part of the financial world), but it's coming.
As long as Ms. Gamble looked at a Cadillac and saw a "Cadillac!", the whole illusory system could be maintained. Those days appear to be over.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, which insures bank deposits, told a Senate banking committee hearing last week that, given falling house prices and the sheer volume of unaffordable resets of subprime mortgages, foreclosures would probably rise. Mortgage servicers and lenders must aggressively pick up the pace on subprime loan modifications soon or invite regulatory and legislative action she said.
Mr Dodd has proposed creating a home ownership preservation corporation. This would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower balance loans.
Ms Bair warned of a new wave of payment resets starting in 2009 affecting Alt-A loans loans to borrowers with better credit histories than subprime borrowers.
Hey everybody who wants a house is entitled to have one, courtesy of the government.
Funny, when I see a Cadillac, I shake my head in pity for the fool who bought an American car.
If I buy a house today on a crazy mortgage, can I still get relief?
Or is this only for people smart enough to buy at the top?
The quote that struck me from that NYT story, much along the lines of emerging slanguage like "it is what it is":
" "What we have is what we have," "
what? did they say "ponies" or "pony up?"
Funny, when I see a Cadillac, I shake my head in pity for the fool who bought an American car.
Well, that goes without saying... but no doubt this is also playing out in other parts of the country with Lexuses and expensive super-SUVs.
And big homes out in the exurbs.
And widescreen TV's.
The spell is being broken, and people are now ASSUMING when they see their neighbors with luxury items: "They must be secretly in debt. Glad I'm not them."
The whole economy has been predicated on consumers NOT having these thoughts.
US Airways Jan. traffic down 0.9%, capacity falls 2.7%
The US savings rate just went positive
From a New York Times article:
Economy Fitful, Americans Start to Pay as They Go
Economy Fitful, Americans Start To Pay as They Go - NY Times
The long collapse in the United States savings rate is over, said Ethan S. Harris, chief United States economist for Lehman Brothers. People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.
Wouldn't it just be less expensive for the federal government to give money to home owners so they can make their payments? Forget all the bs, just go at the problem straight on.
I am sure glad I bought my house with AMEX Blue, now I can file for a price adjustment.
Dale- Agree. That's exactly why the increase in GSE/FHA loan limits will fail to sell overpriced houses and will actually backfire the NAR, since no one trusts anyone regarding real estate pricing any more either.
"Mr Dodd has proposed creating a home ownership preservation corporation. This would buy outstanding, near-delinquent mortgages at steep discounts and transfer the discount to homeowners through new, lower balance loans."
Go ahead. I hope you and your private investors get rich with your corporation.
Wow, my own slice of the Big Shitpile? Just what I wanted!
It's not a slice - its a tranche. Get the terms right.
Countrywide was RACIST!!!!! (Mozilo's tan was just for decoration)
Leaks: Countrywide Made Racist Sub-Prime Loans?
MOT,
Those are big words to be throwing around based on questionable evidence. Even at Countrywide...
Bair should really focus on staffing and training a new FDIC army to handle upcoming bank failures or the nation's depositors may be be waiting in very long lines for their hard earned FDIC insured money.
I'm glad we will have a recession during an election year. Politicians will be forced to pull out the facade and come out with long term solutions.
Fed's Lacker says economy slowing and inflation picking up
FFDIC,
"Bair should really focus on staffing and training a new FDIC army to handle upcoming bank failures or the nation's depositors may be be waiting in very long lines for their hard earned FDIC insured money."
Yeah, that's why Ross has lost his mind. I've been trying to figure out which of the big boys is already fried. Gotta be one.
Cheers,
jg- Hey, mp/CB, I'm disappointed: I asked for a one week reprieve until I got my margin account in order, to load up on more SDS.
We said the fun would start on Monday. It's a bear market rally.
Conjure Bag delivers.
REBear writes:
I'm glad we will have a recession during an election year. Politicians will be forced to pull out the facade and come out with long term solutions.
REBear | 02.05.08 - 12:28 pm |
I only wish. Right now we are having a contest to see who promise the pain free solution to everything. I just wish one would say: "we all need to sacrifice" or "the goverment can't solve all our problems"
"Not with a bang, but with a whimper." That's what keeps going through my mind as I read your last set of posts, Tanta.
This is lunacy squared.
OCC Head Dugan Prepares to Exacerbate a Bad Situation in Banking
OCC Head Dugan Prepares to Exacerbate a Bad Situation -- Seeking Alpha
Edwin Kellner (chief economist) at MarketWatch has a similar proposal. He suggests that we could clear the excess home inventory if the Federal Gov would subsidize (i.e., give money to) both home sellers and home buyers. He presented this as a serious proposal, but I suspect that he just wanted to made some people angry.
"we all need to sacrifice"
ermmmm urrrggh... Americans have heard too much of that rhetoric when times get tough.
What we need to hear is the rustle of tweed being pulled down and the resounding slap of a birch rod on banker buttocks.
Bush deserves a recession on his watch. Of course, the Republicans will try to blame it on: 1) mistakes made during the Clinton terms and/or 2) declining confidence due to the prospect of electing a Democratic president later this year.
I read that Dugan article, and it doesn't sound so bad to me. Sure, the situation should have been averted years ago, but it wasn't. The bankers made stupid, risky loans, and there will be a price to be paid. Might as well accelerate the fixing process rather than let it fester.
FFDIC,
Nice article. Screw the horse, at least the barn door's closed now.
Cheers,
mp,
Props to Conjure on his precise call - what is the current Macanudo index?
--
Rotten system got us here and the same rotten system, which can only get worse after the elections, cannot get us out.
Evil Debt Pushers have had total control of the econo-political system and they ain't going to relinquish that control easily.
It Is the Bad System, Stupid!
Jas
Now that those 3 year loans are coming due and the homebuilders are not buying, these small and mid-sized banks are completely exposed. Compound that with the falling commercial RE market, and you've got the S&L all over again.
Funny you say that, because I've been consistently reminded lately of P.J. O'Rourke's analysis of the S&L crisis in Parliament of Whores.
I'm paraphrasing here, but his take was: Apparently, as the S&L fiasco unwound, the goal of everyone involved - bank CEOs, legislative heads, watchdog agencies, even Congress - seemed to be to purposely let things get so bad, and the consequences so expensive, that a taxpayer bailout would eventually become the only possible course of action.
Damned if we aren't seeing history repeat itself, note-for-note, two decades later. And anyone who doesn't think the outcome is going to be the same is fooling himself.
Every actor on the set of this tragedy has a vested interest in making Joe Q. Public foot the bill. The $1 trillion question has already been asked and answered, my friends.
energyecon, we don't keep track of the number of cigars we smoke.
Today, Conjure Bag is sitting at his desk screaming "Torpedos los!" and punching the "easy" button.
The long collapse in the United States savings rate is over, said Ethan S. Harris, chief United States economist for Lehman Brothers. People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.
quoteth M-F
So, as stocks collapse and homes accrue negative value, does the savings rate increase along the lines of "the more you spend, the more you save?
[I wish holoscan had the strike through tag.]
It's not a slice - its a tranche. Get the terms right.
Actually, it's not a tranche.
Reporters have been driving me crazy for years by referring to securitization as "chopping up" or "slicing and dicing" mortgage loans. That is not what these securities do: they put the whole unchopped loan in a pool, and then "slice and dice" the total cash-flow of the whole pool. The "tranche" you buy is a prioritized interest in those aggregated cash flows.
Yeah, yeah, Tanta, who cares? Well, what Ross is suggesting--I have to assume he is using the words he means--is a participation interest in defaulted loans (not pools). That is, actually, more like chopping up a loan. You have multiple investors each with an undivided pro rata interest in an individual loan. Hence, an investor with a 1/3 participation does, actually, get 1/3 of the payment. If the thing is foreclosed, the investor does get 1/3 of the recovery.
That's different from the way these deals were originally tranched (where, say, a senior note holder gets 100% of payments until he is paid off or the subordinate notes take complete losses). In a participation, the government wouldn't get the first third or the last third, but 33.3 cents on every dollar collected.
But it would mean that the government dollars being used to create participations in the defaulted loans (not the whole pool of loans) would be applied to senior noteholders to pay them off. Also, presumably, this would magically reset a bunch of "triggers," since it would reduce the unpaid principal balance of defaulted loans (by one-third), and thus possibly speed up cash flow to the mezzanine bonds.
What Ross was telling Bair was that some noteholders have a real interest in getting principal back fast (wanting FCs). Those would be the senior notes. His proposal, not coincidentally, doesn't just bail out securities, it bails out senior noteholders specifically.
Today, Conjure Bag is sitting at his desk screaming "Torpedos los!" and punching the "easy" button.
ROFL!
Participations, if you care to know, have a long history. Much longer than tranched securities.
In fact, the tranched securities were the "innovations" intended to overcome the drawbacks of participations.
I therefore find it extra delicious that Ross is dusting out old participation as the "rescue" plan.
Yer killin' me, mp
cd
Lacker gets his data from this economist at Wachovia. This was from the MarketWatch website this morning after the ISM number came out. Still in the denial stage it appears.
"While we agree service sector activity has been slowing, we doubt it is as dire as this number suggests," said Sam Ballard, an economist at Wachovia.
Bill writes:
Bush deserves a recession on his watch. Of course, the Republicans will try to blame it on: 1) mistakes made during the Clinton terms and/or 2) declining confidence due to the prospect of electing a Democratic president later this year.
Bill | 02.05.08 - 12:41 pm | #
Sure, why not. Marlin Fitzwater, Bush's press secretary in 1992, blamed the LA riots (can't we all get along?)on LBJ...who had been dead for 20 years.
Why not just give all the illegal mexicans 3 months in the USA where they will be paid much greater wages to build our homes--then send them back (no labor stats, no OSHA, no unemployment, no workers comp). These American homes would of course be a mono-design by the government.
We could pay for them with money we don't have, and later default. The government could assume servicing the debt with taxes they haven't collected. And we could offer bond interest rates to foreigners more competetive than solvent nations that we have no intention to pay. We could then deflate our currency that is circulating in hypervelocity mode to nothing, have the FED drop to 0%, criminalize possession of precious metals, bulldoze the entire country and start anew. The criminals that brought this upon us would have "escaped" to another rich country where they might enjoy their ill-gotten wealth and start draining another population.
Wait, that is entirely too sephardic! The genteels must be given some crumbs to feel that they are yet a people of self-determination and liberty!
If it's as bad as some of y'all have been saying, banks will fail. The real estate they own through loan defaults will then become public property at the end of the FDIC process, no? Help me if I'm wrong here.
Bingo, John
But banks and brokers that sold these loans get to keep their commissions and fees. Deadbeats get to keep good and services bought with MEWs. Stockholders get the equity drawups preserved as the smart ones pulled out summer last year.
Who get's hurt? The prudent, hardworking who produce and resisted the unconscionable temptation to accept easy money without the intention of repayment, and who could not accept money for deeply unethical, nation busting "economic" activity.
Their money is devalued in the robin hood inflation game making deadbeat debt good. Their taxes are used, instead of providing healthy social service and building infrastructure, to service banks and debtors. Their savings and 401k's are destroyed by inflation, speculation, market manipulation.
Now for the future, WHO wants to be the wise and prudent? Where is the benefit of following age-old wisdom?
TALK ABOUT MORAL HAZARD. WE HAVE MET THE ENEMY AND IT IS WITHIN OUR OWN CAMP. LEPROSY EVERYWHERE.
Privatized gains, socialized losses.
When the sleeping American giant arises from its stupor, and (hopefully) comes to recognize that ages-worn ethics, religiousity, rule-making is what kept our civilization together and prosperous. And then decides to re-embark upon that course, we may look for a further prosperity.
If it fails that test, it will arise, look around in seething anger, tear itself to shreds in a violence of justice-seeking, and cannibalize itself into the third-world status it may richly deserve.
The worm has turned. When Americans start looking right through luxury and seeing debt instead, that's it.
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