Such a stupid move would only accelerate the downfall of our current stupid system. It would put 'capital flight' at top of mind for many well-heeled folks with liquid assets. The well-heeled are smart enough to realize that a step not too far down the road would be nationalization of investment accounts to balance the nationalized liabilities.
if they buy it at a significant enough discount and then aggressively pursue contacting these borrowers to keep people in their homes then I think this could work. On top of that we need a drastic increase in regulation on mortgage brokers, realtors, and the securitization pipeline for MBS, etc. to keep this crap from happening again.
This kind of central bank action assumes that the problem is lack of a market for MBS, right?
But isn't the real problem the rising default rates in the mortgages that make those MBS worth more than ordinary slips of paper?
If the feds of the world buy up a lot of this paper, will the sellers of that paper put enough of their capital back into home mortgages to stop the slide in home prices and the mortgage defaults that are resulting? Who thinks they will? Would you?
The one good thing about the Great Depression is that people were frightened into prudent financial behavior FOR THE REST OF THEIR LIVES! This will not happen if there is a bailout. It will have to be followed by strict regulation that forces good behavior on everyone. They will then chafe against the restrictions.
I'm assmuing this is a bail out for the borrow short crowd who can't roll over their debt.
All right, so we bail them out, then who do they lend to? Does this mean hedge funds still have unlimited access for buyouts and speculation.
Including J6Ps home when it drops 30%.
The one good thing about the Great Depression is that people were frightened into prudent financial behavior FOR THE REST OF THEIR LIVES!
If there was a good thing about the Great Depression, I suppose that was it. I do think that many of the lessons of frugality were learned during World War II, thanks to the rationing and general hardship caused by the overseas departure of so much of the labor force.
To me, World War II is the best argument for doing whatever needs to be done to prevent a great depression. Let's teach moral lessons by tracking down and jailing as many lawbreakers as possible, and by holding others civilly liable for losses caused by negligence in high places. I don't want to see "banks" or "corporations" punished a la Arthur Anderson. I want to see individuals held to account. As many as necessary to make the point.
My fear is that we're past the point where any kind of bailout is going to stave off something really bad. The good news is that I'm a pessimist who often overestimates the chances of worst-case scenario.
I wonder what would happen in California if they made sure nobody got foreclosed on and tried to keep people in the homes. It would seem the market would freeze even more than it has now.
that's it.. going up to Broadway in SF and taking that phat $15MILLION prop next to ellison's...
Let Rubin, Paulson et al, pay for it... nice sunset's for me forever.
The government should just pass a law to make all mortgages recourse loans at this point. Only way out would be bankruptcy and homes would be the new debtor prisions.
The government should just pass a law to make all mortgages recourse loans at this point. Only way out would be bankruptcy and homes would be the new debtor prisions.
Standard & Poor's analysts tested the tree-falling-in-an-empty-forest scenario, as it lowered the outlooks for Goldman Sachs and Lehman Brothers to negative while markets were closed.
Wow. The Central Banks really have the Public coming and going, don't they?
First, they blow a property bubble so enormous that people end up being squeezed to death in debt just to put a roof over their heads....
Then, when the loans for over-priced property start going bad, they ask for these same people they strapped into these loans to pay for the mess that THEY made!
What is criminal is that a majority of people either rent or own their home outright, and most people are paying their mortgages just fine. Yet these responsible masses will foot the bill for Wall Street and the housing deadbeats.
Otherwise the great unwashed simply won't accept it. Elementary understandings of statecraft or a study of history - whether Roman, Mughal, the English Reformation shows that this is the only way.
In the modern era, its all figurative of course - Bernanke has to go, Paulson has to go before any of this is accepted by the peasants. How many more heads are needed ? Who knows..
they ask for these same people they strapped into these loans to pay for the mess that THEY made!
More outrageous is that people who don't even own a home yet will pay for the mess and pay an artificially inflated price for a home. Maybe everyone under 30 should just boycott the housing market for a decade or so.
Interestingly, yesterday on Kudlow, there was a debate about whether or not to just get rid of the Federal Reserve.
Between Ron Paul and somebody I never heard of.
Even more interesting, the interviewer (not Larry, some sit-in) was kind of siding with Ron Paul. And we all know which side of the debate he was on.
In other words, the Fed is looking so bad now that Paul is being portrayed not as the ultimate whacko crackpot, but, as someone who just might have a point.
As long as they can keep convincing people that paper is wealth even when they can't use that paper to put their kids through college, everything should go just fine for them.
What is the economic output of the Federal Reserve again?
We're going to need to transfer all of that wealth creation capacity to the general public if we're going to have any kind of meaningful bailout.
Does anyone here understand Treasury lingo? For example, when The treasury says it is refunding private notes and then when they speak of "cash management bills", what's up with that? I looked around a little to find out what this means, but no dice. Anyone here know the skinny poop?
This is from The Autobahn thread this morning:
To refund $51.5bn of privately held notes and bonds maturing on October 15, 2007 the Committee recommended a $13bn 10-year note due October 15, 2017 and a $5bn re-opening of the 30-year bond due May 15, 2037. For the remainder of the quarter, the Committee recommended $20bn 2-year notes in November and December, a $13bn 5-year in November, and an $8bn re-opening of the 10-year note December. The Committee also recommended a $10bn 8-day cash-management bill maturing November 23, 2007, a $15bn 17-day cash management bill maturing December 17, 2007 and a $15bn 4-day cash management bill maturing December 17, 2007.
scotty at the wheel | 03.21.08 - 2:41 pm
It looks like TPTB are going to dump all the risk on the sheeple and make them eat all the loses. I'd say the sheeple probably deserve it because they are too stupid and lazy to figure out that the people they elect do not intend to look out for their best interest. Don't blame me, I voted for Ron Paul.
Fannie Megas (Megas) are pass-through securities in which the underlying collateral are groups of existing Fannie Mae MBS or other Fannie Mae-backed Megas. These Mega pools are similar to Fannie Mae MBS pools, except that the latter pools represent groups of mortgage loans. The cash flows from the underlying Fannie Mae MBS provide the cash flows for the Mega pool.
Additional Settlement Dates Now Available for Megas
Effectively immediately, thirty-year SIFMA settlement day for Fannie Mae securities and the last business day of the month are eligible for the settlement of Fannie Mae Mega securities.
Effective January 1, 2006, Fannie Mae will no longer issue Megas backed by Ginnie Mae securities.
Fannie Mae MBS Offering Documents Fannie Maes MBS offering documents, including MBS Prospectuses, MBS Prospectus Supplements, MBS TrustDocuments, and Schedules of Loan and Pool Information for multifamily pools, are available on the Mortgage-Backed Securities portion of the Fannie Mae Web site. For information governing all MBS, Fannie Maes MBS Prospectus and MBS Master Trust Agreements are available under the Prospectuses &Related Documents portion of the Web site. Documents relating to single-family and multifamily MBS, Megas, Real Estate Mortgage Investment Conduits (REMICs), and Stripped Mortgage-Backed Securities(SMBS) are all available on this page.
The Prospectus Supplement Retrieval System (eProSupp) can be used to search for prospectus supplementsfor all single-family MBS and Megas by entering any combination of up to 20pool numbers and/or CUSIP numbers.
If the CB's do buy the MBS then the only way to stabilize the foreclosure situation that will be politically acceptable is to follow through on Dr. Bernanke's suggestion that the principal amounts on those mortgages be written down and the loans restructured. The investors and their agents the IB's have been totally unwilling and probably contractually unable to do this.
Ownership of these MBS by the central banks will almost certainly result in huge political pressures to adjust these defaulting mortgages no matter the cost to investors or the economy.
I can already hear all the objections to how this just can't be done without scrapping centuries of contract law, disrupting the world economy and breaking every investment bank, but let me assure you all, the government will do this.
The investment banks have made the biggest mistake in history, leaving the rest of us holding the bag. As a bag holder I am not pleased and I second the suggestion made above that serious punishments are in order for those who decided to circumvent the regulations that did exist by shoving these things into offshore conduits (out of our regulators control) and buying up the Congress, for example the blatant attack on the upper middle class that goes by the acronym BAPCA passed in 2005.
I haven't even started on the regulatory capture issue, but have vented enough for a Good Friday. Sorry for the rant.
So what's the solution? Heads are not going to roll, unfortunately... our politicians are just as much "sheeple" as the collective "we" are.
We're going to BOHICA and no one's voting for Ron Paul, and 95% of the incumbents in Congress will be re-elected. There will be no bloodshed, and if there is whoever causes it will be labeled a crazy schizophrenic... it's already too late.
"Carl Somers writes:
If the CB's do buy the MBS then the only way to stabilize the foreclosure situation that will be politically acceptable is to follow through on Dr. Bernanke's suggestion that the principal amounts on those mortgages be written down and the loans restructured. The investors and their agents the IB's have been totally unwilling and probably contractually unable to do this."
Precisely. The acquisition of the mortgages is only the first act. To be followed almost immediately by principal foregiveness.
What pisses me off the most is the celebratory slaps on the back heralding the risk spreading that securitization model brought. Bullshit. Now the US taxpayer will be buying up the crap the GSEs wouldn't purchase in the first place and bailing out all that spread out risk so all the investors get made whole. It'll get marked down and probably placed on the GSE's books.
"Any move to buy mortgage-backed securities would require government involvement BECAUSE THE TAXPAYERS WOULD BE ASSUMING THE CREDIT RISK."
I didn't think anything could be worse than a government buyout of the bad debt, but guaranteeing the Central banks purchases of the debt is even worse...no downside risk, but if there is upside, they keep the money....a no loss proposition...sweet gig, if you can get it.
This is the last straw. There appears to be no backbone for accountability, so just spread the pain, globally at that. Stealing from our future to maintain the comfort today. This is why American people believe things will be fine next year, but do know now what is coming. The CEO of Autozone should be the president. He told it like it was to the public and the shareholders. Bush and Paulson are out of touch and Cheyne is lining up his next gig with the Saudis.
Gold will rally. Last week was a shakeout of futures margi
Robert Gentzel, a spokesman for the Pennsylvania State Employees Retirement System, told the AP news agency: Some of the securities that have dropped in value were really very solid securities.
Solid like the turd your dog pooped out this morning? Because you can't possibly be talking about solid like a strong foundation solid.
Reading the article it sounds like there are some barriers to this idea:
a) Our Fed isn't keen on this (Bank of England is the most keen).
b) Done in the Eurozone it would require agreement from 15 separate governments.
So does this mean all parties would have to agree? ie. US Congress plus British Parliament and Houses plus the 15 other Eurozone governments (not sure if that includes England). Or could each government do this on their own?
I would assume this has to get voted into law. Dubya has pretty much been sticking to the no bailout theme.
I wonder if he might be able to veto any such bill and string it along far enough that a good chunk of the pain will already be over and some other priority trumps a mortgage bailout?
"Robert Gentzel, a spokesman for the Pennsylvania State Employees Retirement System, told the AP news agency: Some of the securities that have dropped in value were really very solid securities.
Pension funds own this stuff?!?!? I'm shocked! SHOCKED!
Here comes the deluge. Hoocoodanode? I've been grumbling about it for like a year. But then, I'm not some super smart playa.
Not only are responsible homeowners and renters of every age paying for the mistakes and greed of everybody else from Central Bankers to idiots who overpaid for a home, to top it off, you're/we're also paying taxes for ...wait for it.... "Affordable Housing", brought to you by the Bubble Loving politicians and NAR who would rather have citizens pay taxes to subsidize housing than allow prices to fall to a level where people could afford to buy their own damn house.
And BTW, has anybody ever told you "thanks for the help"? didn't think so...
Why is it that American politicians and American public have no problem with subsidizing high home prices through taxes but throw hissy fits over health care? I mean, I can see not doing either, but if we're going to choose between the two, why choose housing?
It would seem that this is already underway. Wont the Fed own the junk collateral that it has now invited everybody to leave in its hands, when the borrowers go belly up?
Without even bothering to read the many comments prior and at the risk of repetition, I just think its a flagrant abuse of power for central banks to absorb the toxic crap to bail out institutions and management(s) of such establishments that have been derelict in their duties to run a shop within acceptable risk boundaries. This is taxpayers money we are talking about - thats joe blogs, jane does and me....whilst the classical Nero's were up in holiday resorts playing bridge or enjoying their gurantees and bonuses.
UNACCEPTABLE - thats one word that sums it up.
Perhaps the ultimate free market response to ALL of this is just to cash out and buy physical gold and silver and wait somewhere off and away from the twilight zone we are all living in.
Been doing that for years and with the current correction in the price of gold am now stepping up and adding more to the pot.
My grandmother is 91 and lived through the depression with 5 sisters. Talk about changing behavior...Today she struggles to remember the last conversation she had, or who stopped in to see her yesterday. BUT she remembers the price of everything she pays for, and what she paid for it last time - to the penny. She can't remember what state her sister lives in, but can recount stories from her childhood about the suffering - better than any written history of the depression.
OK what would you do? You bought a second home/condo for $300k in FLA. It is now selling for $125k with increases coming for improvements and cover expenses for those who have already foreclosed......!!??!!??
there may be a difference to an economist - but the bill falls due to general the population, one way or another. Whether it falls due to future taxpayers directly or current taxpayers through increased prices or devaluation, or some other mechanism, someone has to pay up! and if the securities are getting bailed out and institutions responsible for them are not going bankrupt, then it is a taxpayer bailout simple as that.
"taxpayers assuming credit risk"? That's like saying ingesting poison is taking a mild health risk.
I can't decide who I'm more p-ed off at: the government agencies bailing out all their insider cronies with taxpayer dollars, or the news reporting agencies that (through gross incompetence or intentional fraud) represent such actions as having a mild downside for everyone else. For f sake, report it like it is: a bailout at taxpayer expense which will justify the bubble and encourage larger bubble-fueled crashes in the future.
"there may be a difference to an economist - but the bill falls due to general the population, one way or another."
was about my Fed post.
No, it does not. The Fed is not regulated by FASB. The Fed can state whatever they want for assets on their books. They do their own audits.
Now, if it were in the interest of other FCBs to sell their dollar holdings due to this, then we would have a problem. But since it looks like all the playas who own the FCBs are in cohoots, are trying the same thing, that would make little sense.
They're all playing the same game. Hide the shitpile.
Brad deLong has previously claimed that Alan Greenspan never made a decision or took an action that Brad would also not have taken as well, and fully supported.
Brad is an elitist, and a statist, and we can only hope that the damage which he can do will be isolated to the history of economics he teaches to the young minds at Berkley which will no doubt shake off his indoctrination after a few years of exposure to the real world.
And if I were Ben Bernanke and Tim Geithner, I would be spending this weekend thinking about how to first thing Monday morning punish bear speculators on Bear Stearns, Lehman, and others by pushing their CDS spreads back to more normal levels
Sure, no dispute there. The lenders that took the risk pay. Any other response is socialism.
The costs may get passed along through higher rates or maybe not. Lenders that elected to sit out the recent binge for risk concerns might have an edge. A risk I think the country should take.
Did any reporters bother to ask... "What's wrong with a 'free market' correction?".
The fact that this type of action would require Congressional bail-out means... the Fed is trying to spend more money than it can use... so basically the taxpayers end up "lending" money to the Fed or something like that?
Again, and like I said... we are all going to bohica because no heads are going to roll, and Congress will ge re-elected at the same rate they have in the past... and either Obama/Hillary or McCain will be the President (even if Ron Paul or someone else labeled a "cook" is the best rational solution). It's not like this isn't how the country has worked for the past 20 years or anything, no?
We're all Jas Jain now! (Okay, well at least I'm sounding like him... somewhat).
What will distinguish this era, in historical perspective, is the arrogance of men to believe their tiny actions could alter huge economic waves spreading across continents. Ultimately, it will be shown that these misguided, arrogant men just made things worse and made the pain last longer, much like the Bush administration has done in Iraq.
They are steadily destroying the belief of the masses in the ability of policymakers, economist and politicians to do anything that matters or helps. This will be the ultimate downfall of global financial systems. And it's not as far off as you think.
Not enough qualified butts to occupy the glut of housing now. Can't go back to the easy credit days of fast moving RMBS securitization. No fast price ramp-up to trap in speculators.
No, little demand. Massive oversupply. Gov't doesn't have enough means to fund its present obligations. This far exceeds last straw/camel's back.
If they buy, will they create a subsection of homeland security to provide landscaping, security, maintenance, insurance, utilities? Kinda spendy to maintain an empty box with no demand even at 50% price slice. But Unc' Sam, in view of his past actions, isn't a smart man.
Diseases grown desperate are by desperate means allieved, or not at all. GAME RESET!
Did any reporters bother to ask... "What's wrong with a 'free market' correction?".
Imagine the top 50 financial institutions in the country TU due to cascading cross defaulting Ebola. That's door number one. Door number two is inflating the crap out of everything in sight.
I'd change my name to "We're All Screwed", but it's already taken...
"the Fed is trying to spend more money than it can use... so basically the taxpayers end up "lending" money to the Fed or something like that?"
No not quite. Remember the TSLF free lunch is swapping treasuries for toxic waste. The Fed has $800B of treasuries.
When all swapped out, the Fed can monetize purchases of treasuries, increasing its balance sheet. This will allow the Fed to swap more treasuries for toxic crap. This is highly inflationary, which means J6P has to pay more for food etc. on a stagnant nominal income. This is obviously a nuclear scenario, and one the Fed under B.S. Bernutty is trying to avoid. But that is the mechanism of the post...IMHO.
"Imagine the top 50 financial institutions in the country TU due to cascading cross defaulting Ebola. That's door number one. Door number two is inflating the crap out of everything in sight."
Problem is, if you choose door number two, you get door number one as a bonus a few months down the road.
i want to buy them for myself,..specifically subprime and commercial mortgage bonds. been looking for a while but its like finding a needle in a haystack
let me know if you know any brokers who specialize in these sectors.
"The Fed does not believe that the point has yet been reached when such drastic action is necessary and considers the discussions it has had with its counterparts to represent blue-sky thinking rather than the formulation of a definitive policy proposal."
Total BS. These doomsday scenarios are not blue sky thinking, but rather preparations for last ditch efforts to save the Titanic. Every investor should be off the ship and in a lifeboat.
"Misean: "if you choose door number two, you get door number one as a bonus a few months down the road."
Explain please, for us slowpokes."
If Fed fiat becomes worth the same as used toilet paper, some other medium of exchange will arise. And prices will fall as that commodity will be in short supply.
I am sorry CR and Tanta but I read this article and felt like puking to be honest. The whole premise is that the FED can determine a price and set a floor to stabilise everything. However, it is incorrect because:
1) Who is going to trust the FED's floor? I am sure that the foreign investors will pony up their money for the FED's pricing.
2) It assumes that everyone was playing truthfully and that everything did not contain fraud. As it has been shown, the fraud in some areas has been amazing.
3) It assumes that the individuals will continue to pay their rent. As the economy sours, it will be less likely that the mortages will hold their values as they fall into foreclosures.
I just don't see this arguement working in a global environment where money will go where it's treated best and where global forces keep wages in check.
Mmmm... I studied the charts and pondered the notions and all I can say is 'no friggin way'. The way I understand the premise is that a to be determined government agency will buy distressed montages at some price above current market prices thus establishing a 'mark to market price'. Then they will 'push the economy back to the good equilibrium' - not sure how they go about that...
This will help reinflate housing prices. OK - what seems obvious to me is that the plan is to stabilize housing prices somewhere near where they are today. Right? So how does this help folks afford over priced housing - especially so in light of tightened lending standards? I'm baffled...
Misean, thanks for that explanation. I understand, but tell me what's wrong with this alternative analysis: Inflation will be good for net dollar borrowers, and for financial institutions that borrowed money from others and loaned the money against assets that are now worth less than the loans. Inflation enables the loans to be repaid. It will be bad for conservative savers who invested in dollar-donominated deposits/bonds, and who borrowed little.
More commentary, background from the Economist's View on the mother of all moral hazard: Economist's View . Wall Street is laughing its ass off at fly-over country. What are we going to do about it?
Misean I don't see the distinction you are making makes any difference to the bottom line: In your own post you say that J6P pays via higher prices.
"This is highly inflationary, which means J6P has to pay more for food etc. on a stagnant nominal income."
Since J6P is a taxpayer, any moves by the fed to backstop MBS are a taxpayer bailout. Therefore there is little point explaining that:
"As long as the Fed is sterilizing (and they are), then it is NOT taxpayer money. It is the Fed's. And, yes, there is a difference."
From the perspective of the average citizen it is their money going to bail out the MBS.
And I think this is already happening despite the denial of the fed that they are discussing it. What else are the loans to primary brokers for parts of the shit pile but making good their depreciated face values? yeah they are short-term loans, but they will be rolled over indefinitely until a long term bailout is figured out.
John Stark's comments at 7:55, I think, point in the best direction.
The current system is broken and we are all headed for a big time crash. How do we avoid that?
I think a couple of basic steps are to stabilize housing prices and to reduce foreclosure rates.
How??
Have the justice department move a significant number of their resources to reviewing the crimes that have been taking place in this market. Rate them by the amount of money that can be extracted. As in the BSC drama, they can be taken down in a week. The trials and such will go on for years, doesn't matter. Once they have been taken over by new management (JPM over BSC) you extract their every last cent and use it to stabilize housing prices and ownership.
I think in short order all of the existing IBs would be gone/replaced. Most of the largest banks and mortgage companies would be replaced. A significant number of billionaires would be looking for a small home on your block.
Moral hazard would at least be muted by the large number of old white men in prison, investors of banks being on the streets and the shutdown of 100's of institutions.
The trotting out of the talking heads of Wall Street to plead the case for justifying a Wall Street bailout is almost identical to the trotting out of neocons to justify an invasion of Iraq. Nonsense then, nonsense now.
B-A-I-L-O-U-T!!!
Told ya.
No unintended consequences with this one.
.
After Web 2.0, here is the new trend word:
Japan 2.0
I'll vote against anyone who favors this silly idea.
A good Good Friday to all.
Please, go ahead and do such, Fed and Congress.
Such a stupid move would only accelerate the downfall of our current stupid system. It would put 'capital flight' at top of mind for many well-heeled folks with liquid assets. The well-heeled are smart enough to realize that a step not too far down the road would be nationalization of investment accounts to balance the nationalized liabilities.
The warm fuzzies I got from the last post are completely crushed by this one.
if they buy it at a significant enough discount and then aggressively pursue contacting these borrowers to keep people in their homes then I think this could work. On top of that we need a drastic increase in regulation on mortgage brokers, realtors, and the securitization pipeline for MBS, etc. to keep this crap from happening again.
All I have are questions.
This kind of central bank action assumes that the problem is lack of a market for MBS, right?
But isn't the real problem the rising default rates in the mortgages that make those MBS worth more than ordinary slips of paper?
If the feds of the world buy up a lot of this paper, will the sellers of that paper put enough of their capital back into home mortgages to stop the slide in home prices and the mortgage defaults that are resulting? Who thinks they will? Would you?
If there's a way to do this and get rich off tax payers, why wouldn't they?
The one good thing about the Great Depression is that people were frightened into prudent financial behavior FOR THE REST OF THEIR LIVES! This will not happen if there is a bailout. It will have to be followed by strict regulation that forces good behavior on everyone. They will then chafe against the restrictions.
Central Banks are panicking.....
I'll vote against anyone who favors this silly idea.
Absolutely. I do not care what damn party they are in.
Oh dear. We're all ratings watch negative now!
The housing market save is bait right?
I'm assmuing this is a bail out for the borrow short crowd who can't roll over their debt.
All right, so we bail them out, then who do they lend to? Does this mean hedge funds still have unlimited access for buyouts and speculation.
Including J6Ps home when it drops 30%.
It's the RTC all over again.
Build a shopping center, default on the loan.
Borrow to buy the shopping center back at 2 cents on the dollar.
The one good thing about the Great Depression is that people were frightened into prudent financial behavior FOR THE REST OF THEIR LIVES!
If there was a good thing about the Great Depression, I suppose that was it. I do think that many of the lessons of frugality were learned during World War II, thanks to the rationing and general hardship caused by the overseas departure of so much of the labor force.
To me, World War II is the best argument for doing whatever needs to be done to prevent a great depression. Let's teach moral lessons by tracking down and jailing as many lawbreakers as possible, and by holding others civilly liable for losses caused by negligence in high places. I don't want to see "banks" or "corporations" punished a la Arthur Anderson. I want to see individuals held to account. As many as necessary to make the point.
My fear is that we're past the point where any kind of bailout is going to stave off something really bad. The good news is that I'm a pessimist who often overestimates the chances of worst-case scenario.
I wonder what would happen in California if they made sure nobody got foreclosed on and tried to keep people in the homes. It would seem the market would freeze even more than it has now.
The good news is that I'm a pessimist who often overestimates the chances of worst-case scenario.
I think author Sarah Vowell once said that the only thing that surprised her was that her own deep pessimism turned out to be too rosy for reality.
So how much are we going to have to shell out?
I'm guessing at least a trillion.
that's it.. going up to Broadway in SF and taking that phat $15MILLION prop next to ellison's...
Let Rubin, Paulson et al, pay for it... nice sunset's for me forever.
The government should just pass a law to make all mortgages recourse loans at this point. Only way out would be bankruptcy and homes would be the new debtor prisions.
The government should just pass a law to make all mortgages recourse loans at this point. Only way out would be bankruptcy and homes would be the new debtor prisions.
u said that already
OT but
Not So Good Friday For Goldman and Lehman - Forbes.com
Standard & Poor's analysts tested the tree-falling-in-an-empty-forest scenario, as it lowered the outlooks for Goldman Sachs and Lehman Brothers to negative while markets were closed.
After Web 2.0, here is the new trend word: Japan 2.0
No, Argentina 2.0. We should be so lucky to expect an outcome as pleasant as Japan's lost decade. The U.S. will be more like Mad Max in Buenos Aires.
Does this mean I get to have my equity line back? How about a nice cash out refi..agai
Wow. The Central Banks really have the Public coming and going, don't they?
First, they blow a property bubble so enormous that people end up being squeezed to death in debt just to put a roof over their heads....
Then, when the loans for over-priced property start going bad, they ask for these same people they strapped into these loans to pay for the mess that THEY made!
Unbelievable!
Why didn't they support the bloated equity prices after the .com meltdown?
The very institutions crying for help call the little people irresponsible and effectively tell them to suck it up when they screw up.
Even if they buy them at a discount, it's still a bailout. There's trillions on the sidelines! We'll buy at the right price!
Privatize the gains, socialize the losses.
The Fed Can Put Out These Fires
The Fed Can Put Out These Fires
For the most part, this is a stupid article.
But it's worth reading if you want additional evidence that deflation has begun.
Inflation in food and gas is high, but there is deflation at the top, in the financial sector.
What is criminal is that a majority of people either rent or own their home outright, and most people are paying their mortgages just fine. Yet these responsible masses will foot the bill for Wall Street and the housing deadbeats.
This is now politics and now:
"HEADS MUST ROLL".
Otherwise the great unwashed simply won't accept it. Elementary understandings of statecraft or a study of history - whether Roman, Mughal, the English Reformation shows that this is the only way.
In the modern era, its all figurative of course - Bernanke has to go, Paulson has to go before any of this is accepted by the peasants. How many more heads are needed ? Who knows..
-K
More outrageous is that people who don't even own a home yet will pay for the mess and pay an artificially inflated price for a home. Maybe everyone under 30 should just boycott the housing market for a decade or so.
It is a good idea if it will preserve the status quo.
Interestingly, yesterday on Kudlow, there was a debate about whether or not to just get rid of the Federal Reserve.
Between Ron Paul and somebody I never heard of.
Even more interesting, the interviewer (not Larry, some sit-in) was kind of siding with Ron Paul. And we all know which side of the debate he was on.
In other words, the Fed is looking so bad now that Paul is being portrayed not as the ultimate whacko crackpot, but, as someone who just might have a point.
Things are changing very quickly.
They forgot the "O" between the "S" and the "L"
So, they've just announced hyper-inflation.
Can't sterilize the purchase of this sewage.
I'm looking for a better power source for the Super Colander Tin Foil Hat.
Cheers,
The Fed Can Put Out These Fires
As long as they can keep convincing people that paper is wealth even when they can't use that paper to put their kids through college, everything should go just fine for them.
What is the economic output of the Federal Reserve again?
We're going to need to transfer all of that wealth creation capacity to the general public if we're going to have any kind of meaningful bailout.
Anything else is just another parlour trick.
Max,
Sattelite Of Love? Are they bringing back MST3K.
Cheers,
Does anyone here understand Treasury lingo? For example, when The treasury says it is refunding private notes and then when they speak of "cash management bills", what's up with that? I looked around a little to find out what this means, but no dice. Anyone here know the skinny poop?
This is from The Autobahn thread this morning:
To refund $51.5bn of privately held notes and bonds maturing on October 15, 2007 the Committee recommended a $13bn 10-year note due October 15, 2017 and a $5bn re-opening of the 30-year bond due May 15, 2037. For the remainder of the quarter, the Committee recommended $20bn 2-year notes in November and December, a $13bn 5-year in November, and an $8bn re-opening of the 10-year note December. The Committee also recommended a $10bn 8-day cash-management bill maturing November 23, 2007, a $15bn 17-day cash management bill maturing December 17, 2007 and a $15bn 4-day cash management bill maturing December 17, 2007.
scotty at the wheel | 03.21.08 - 2:41 pm
The one good thing about the Great Depression is that people were frightened into prudent financial behavior FOR THE REST OF THEIR LIVES!
Just think when we apply the lack of self-control shown in the financial sector to technologies that have the ability to do real physical harm.
Ok I read the argument DeLong presented.
Then I noticed he used complicated models and economic theories.
I think I will never again in my life trust anyone who uses complicated financial theories.
Then I noticed he came to a conclusion that govt. buying MBS will make money for the taxpayer and I knew that I was right - this is bullshit.
Maybe it's time we discarded the theories and started to use common sense?
M-So true! dont forget the 30, 40 and 50 year olds who too didn't punch the easy ticket because for some reason they saw the bubble.
The most talked about, most written, most observed and broadcasted spectulative bubble in the history of mankind!
Government protects profit not people.
The military protects people. God bless em!
My wish for Easter-All the military brought home to guard the borders, double thier pay, save billions!
Take back all banker bonuses and prosecute...
It looks like TPTB are going to dump all the risk on the sheeple and make them eat all the loses. I'd say the sheeple probably deserve it because they are too stupid and lazy to figure out that the people they elect do not intend to look out for their best interest. Don't blame me, I voted for Ron Paul.
what about this?
Fannie Megas (Megas) are pass-through securities in which the underlying collateral are groups of existing Fannie Mae MBS or other Fannie Mae-backed Megas. These Mega pools are similar to Fannie Mae MBS pools, except that the latter pools represent groups of mortgage loans. The cash flows from the underlying Fannie Mae MBS provide the cash flows for the Mega pool.
Additional Settlement Dates Now Available for Megas
Effectively immediately, thirty-year SIFMA settlement day for Fannie Mae securities and the last business day of the month are eligible for the settlement of Fannie Mae Mega securities.
Effective January 1, 2006, Fannie Mae will no longer issue Megas backed by Ginnie Mae securities.
Bankrupt banks ask bankrupt government to force bankrupt taxpayers to bail them out. No problems with this scenario are there ?
Bonus easter Eggs from Peter Cottontail Fr.
Fannie Mae MBS Offering Documents Fannie Maes MBS offering documents, including MBS Prospectuses, MBS Prospectus Supplements, MBS TrustDocuments, and Schedules of Loan and Pool Information for multifamily pools, are available on the Mortgage-Backed Securities portion of the Fannie Mae Web site. For information governing all MBS, Fannie Maes MBS Prospectus and MBS Master Trust Agreements are available under the Prospectuses &Related Documents portion of the Web site. Documents relating to single-family and multifamily MBS, Megas, Real Estate Mortgage Investment Conduits (REMICs), and Stripped Mortgage-Backed Securities(SMBS) are all available on this page.
The Prospectus Supplement Retrieval System (eProSupp) can be used to search for prospectus supplementsfor all single-family MBS and Megas by entering any combination of up to 20pool numbers and/or CUSIP numbers.
If the CB's do buy the MBS then the only way to stabilize the foreclosure situation that will be politically acceptable is to follow through on Dr. Bernanke's suggestion that the principal amounts on those mortgages be written down and the loans restructured. The investors and their agents the IB's have been totally unwilling and probably contractually unable to do this.
Ownership of these MBS by the central banks will almost certainly result in huge political pressures to adjust these defaulting mortgages no matter the cost to investors or the economy.
I can already hear all the objections to how this just can't be done without scrapping centuries of contract law, disrupting the world economy and breaking every investment bank, but let me assure you all, the government will do this.
The investment banks have made the biggest mistake in history, leaving the rest of us holding the bag. As a bag holder I am not pleased and I second the suggestion made above that serious punishments are in order for those who decided to circumvent the regulations that did exist by shoving these things into offshore conduits (out of our regulators control) and buying up the Congress, for example the blatant attack on the upper middle class that goes by the acronym BAPCA passed in 2005.
I haven't even started on the regulatory capture issue, but have vented enough for a Good Friday. Sorry for the rant.
Ok, twist by ARM:
SIFMAs Revised Guidelines for Delivery of Offering Materials for GSE Securities
http://www.fanniemae.com/markets/debt/pdf/fundingnotes_01_08.pdf;jsessionid=3FA2YHAMHM2TXJ2FECISFGQ
SIFMAs Revised Guidelines for Delivery of Offering Materials for GSE Securities
Help your clients start building equity now! Don't let them throw another dime away on rent!!!
So what's the solution? Heads are not going to roll, unfortunately... our politicians are just as much "sheeple" as the collective "we" are.
We're going to BOHICA and no one's voting for Ron Paul, and 95% of the incumbents in Congress will be re-elected. There will be no bloodshed, and if there is whoever causes it will be labeled a crazy schizophrenic... it's already too late.
"Carl Somers writes:
If the CB's do buy the MBS then the only way to stabilize the foreclosure situation that will be politically acceptable is to follow through on Dr. Bernanke's suggestion that the principal amounts on those mortgages be written down and the loans restructured. The investors and their agents the IB's have been totally unwilling and probably contractually unable to do this."
Precisely. The acquisition of the mortgages is only the first act. To be followed almost immediately by principal foregiveness.
What pisses me off the most is the celebratory slaps on the back heralding the risk spreading that securitization model brought. Bullshit. Now the US taxpayer will be buying up the crap the GSEs wouldn't purchase in the first place and bailing out all that spread out risk so all the investors get made whole. It'll get marked down and probably placed on the GSE's books.
"Any move to buy mortgage-backed securities would require government involvement BECAUSE THE TAXPAYERS WOULD BE ASSUMING THE CREDIT RISK."
I didn't think anything could be worse than a government buyout of the bad debt, but guaranteeing the Central banks purchases of the debt is even worse...no downside risk, but if there is upside, they keep the money....a no loss proposition...sweet gig, if you can get it.
I didn't think anything could be worse than a government buyout of the bad debt
Maybe that's because you're not a career politician.
This is the last straw. There appears to be no backbone for accountability, so just spread the pain, globally at that. Stealing from our future to maintain the comfort today. This is why American people believe things will be fine next year, but do know now what is coming. The CEO of Autozone should be the president. He told it like it was to the public and the shareholders. Bush and Paulson are out of touch and Cheyne is lining up his next gig with the Saudis.
Gold will rally. Last week was a shakeout of futures margi
I love the last paragraph and quote.
Robert Gentzel, a spokesman for the Pennsylvania State Employees Retirement System, told the AP news agency: Some of the securities that have dropped in value were really very solid securities.
Solid like the turd your dog pooped out this morning? Because you can't possibly be talking about solid like a strong foundation solid.
We're all negative equity now.
this is why I have been telling you folks:
we are all collateral now!
we ar all sunprime collateral
Reading the article it sounds like there are some barriers to this idea:
a) Our Fed isn't keen on this (Bank of England is the most keen).
b) Done in the Eurozone it would require agreement from 15 separate governments.
So does this mean all parties would have to agree? ie. US Congress plus British Parliament and Houses plus the 15 other Eurozone governments (not sure if that includes England). Or could each government do this on their own?
I would assume this has to get voted into law. Dubya has pretty much been sticking to the no bailout theme.
I wonder if he might be able to veto any such bill and string it along far enough that a good chunk of the pain will already be over and some other priority trumps a mortgage bailout?
YLSP,
"Robert Gentzel, a spokesman for the Pennsylvania State Employees Retirement System, told the AP news agency: Some of the securities that have dropped in value were really very solid securities.
Pension funds own this stuff?!?!? I'm shocked! SHOCKED!
Here comes the deluge. Hoocoodanode? I've been grumbling about it for like a year. But then, I'm not some super smart playa.
Cheers,
barely,
You mean like nuking Iran?
Cheers,
The Fed is taking over the management of the Bear Stearns portfolio as part of the deal. How is that going to work.
Not only are responsible homeowners and renters of every age paying for the mistakes and greed of everybody else from Central Bankers to idiots who overpaid for a home, to top it off, you're/we're also paying taxes for ...wait for it.... "Affordable Housing", brought to you by the Bubble Loving politicians and NAR who would rather have citizens pay taxes to subsidize housing than allow prices to fall to a level where people could afford to buy their own damn house.
And BTW, has anybody ever told you "thanks for the help"? didn't think so...
Why is it that American politicians and American public have no problem with subsidizing high home prices through taxes but throw hissy fits over health care? I mean, I can see not doing either, but if we're going to choose between the two, why choose housing?
It would seem that this is already underway. Wont the Fed own the junk collateral that it has now invited everybody to leave in its hands, when the borrowers go belly up?
why choose housing?
Because it's less likely to actually benefit the poor. Sorry. But that's the truth.
Without even bothering to read the many comments prior and at the risk of repetition, I just think its a flagrant abuse of power for central banks to absorb the toxic crap to bail out institutions and management(s) of such establishments that have been derelict in their duties to run a shop within acceptable risk boundaries. This is taxpayers money we are talking about - thats joe blogs, jane does and me....whilst the classical Nero's were up in holiday resorts playing bridge or enjoying their gurantees and bonuses.
UNACCEPTABLE - thats one word that sums it up.
The question these CBs really should ask:
What if the MBS/CDO market is, in fact, rational?
Perhaps the ultimate free market response to ALL of this is just to cash out and buy physical gold and silver and wait somewhere off and away from the twilight zone we are all living in.
Been doing that for years and with the current correction in the price of gold am now stepping up and adding more to the pot.
Tarun,
"This is taxpayers money we are talking about"
As long as the Fed is sterilizing (and they are), then it is NOT taxpayer money. It is the Fed's. And, yes, there is a difference.
Cheers,
My grandmother is 91 and lived through the depression with 5 sisters. Talk about changing behavior...Today she struggles to remember the last conversation she had, or who stopped in to see her yesterday. BUT she remembers the price of everything she pays for, and what she paid for it last time - to the penny. She can't remember what state her sister lives in, but can recount stories from her childhood about the suffering - better than any written history of the depression.
Changed her for a lifetime.
dd
OK what would you do? You bought a second home/condo for $300k in FLA. It is now selling for $125k with increases coming for improvements and cover expenses for those who have already foreclosed......!!??!!??
there may be a difference to an economist - but the bill falls due to general the population, one way or another. Whether it falls due to future taxpayers directly or current taxpayers through increased prices or devaluation, or some other mechanism, someone has to pay up! and if the securities are getting bailed out and institutions responsible for them are not going bankrupt, then it is a taxpayer bailout simple as that.
"taxpayers assuming credit risk"? That's like saying ingesting poison is taking a mild health risk.
I can't decide who I'm more p-ed off at: the government agencies bailing out all their insider cronies with taxpayer dollars, or the news reporting agencies that (through gross incompetence or intentional fraud) represent such actions as having a mild downside for everyone else. For f sake, report it like it is: a bailout at taxpayer expense which will justify the bubble and encourage larger bubble-fueled crashes in the future.
Justin,
I'll assume that your post:
"there may be a difference to an economist - but the bill falls due to general the population, one way or another."
was about my Fed post.
No, it does not. The Fed is not regulated by FASB. The Fed can state whatever they want for assets on their books. They do their own audits.
Now, if it were in the interest of other FCBs to sell their dollar holdings due to this, then we would have a problem. But since it looks like all the playas who own the FCBs are in cohoots, are trying the same thing, that would make little sense.
They're all playing the same game. Hide the shitpile.
Cheers,
Brad deLong has previously claimed that Alan Greenspan never made a decision or took an action that Brad would also not have taken as well, and fully supported.
Brad is an elitist, and a statist, and we can only hope that the damage which he can do will be isolated to the history of economics he teaches to the young minds at Berkley which will no doubt shake off his indoctrination after a few years of exposure to the real world.
What if the MBS/CDO market is, in fact, rational?
Read DeLong's blog entry and you can see that this is one question he hasn't really asked himself.
delong sounds wacked...
And if I were Ben Bernanke and Tim Geithner, I would be spending this weekend thinking about how to first thing Monday morning punish bear speculators on Bear Stearns, Lehman, and others by pushing their CDS spreads back to more normal levels
wtf...Punish?
cds is liar's poker.
"someone has to pay up"
Sure, no dispute there. The lenders that took the risk pay. Any other response is socialism.
The costs may get passed along through higher rates or maybe not. Lenders that elected to sit out the recent binge for risk concerns might have an edge. A risk I think the country should take.
Did any reporters bother to ask... "What's wrong with a 'free market' correction?".
The fact that this type of action would require Congressional bail-out means... the Fed is trying to spend more money than it can use... so basically the taxpayers end up "lending" money to the Fed or something like that?
Again, and like I said... we are all going to bohica because no heads are going to roll, and Congress will ge re-elected at the same rate they have in the past... and either Obama/Hillary or McCain will be the President (even if Ron Paul or someone else labeled a "cook" is the best rational solution). It's not like this isn't how the country has worked for the past 20 years or anything, no?
We're all Jas Jain now! (Okay, well at least I'm sounding like him... somewhat).
What will distinguish this era, in historical perspective, is the arrogance of men to believe their tiny actions could alter huge economic waves spreading across continents. Ultimately, it will be shown that these misguided, arrogant men just made things worse and made the pain last longer, much like the Bush administration has done in Iraq.
They are steadily destroying the belief of the masses in the ability of policymakers, economist and politicians to do anything that matters or helps. This will be the ultimate downfall of global financial systems. And it's not as far off as you think.
And assuming this doesn't get approved immediately, this type of bailout is sure to become a political issue as more and more homes get foreclosed.
Who of the three candidates is most likely to go for such a thing?
And who is least likely to go for this government intervention?
Curious.
Not enough qualified butts to occupy the glut of housing now. Can't go back to the easy credit days of fast moving RMBS securitization. No fast price ramp-up to trap in speculators.
No, little demand. Massive oversupply. Gov't doesn't have enough means to fund its present obligations. This far exceeds last straw/camel's back.
If they buy, will they create a subsection of homeland security to provide landscaping, security, maintenance, insurance, utilities? Kinda spendy to maintain an empty box with no demand even at 50% price slice. But Unc' Sam, in view of his past actions, isn't a smart man.
Diseases grown desperate are by desperate means allieved, or not at all. GAME RESET!
Whoops! Patient is dead, stop organ transplant.
Did any reporters bother to ask... "What's wrong with a 'free market' correction?".
Imagine the top 50 financial institutions in the country TU due to cascading cross defaulting Ebola. That's door number one. Door number two is inflating the crap out of everything in sight.
I'd change my name to "We're All Screwed", but it's already taken...
YLSP,
"the Fed is trying to spend more money than it can use... so basically the taxpayers end up "lending" money to the Fed or something like that?"
No not quite. Remember the TSLF free lunch is swapping treasuries for toxic waste. The Fed has $800B of treasuries.
When all swapped out, the Fed can monetize purchases of treasuries, increasing its balance sheet. This will allow the Fed to swap more treasuries for toxic crap. This is highly inflationary, which means J6P has to pay more for food etc. on a stagnant nominal income. This is obviously a nuclear scenario, and one the Fed under B.S. Bernutty is trying to avoid. But that is the mechanism of the post...IMHO.
Cheers,
MLM,
"Imagine the top 50 financial institutions in the country TU due to cascading cross defaulting Ebola. That's door number one. Door number two is inflating the crap out of everything in sight."
Problem is, if you choose door number two, you get door number one as a bonus a few months down the road.
Cheers,
i want to buy them for myself,..specifically subprime and commercial mortgage bonds. been looking for a while but its like finding a needle in a haystack
let me know if you know any brokers who specialize in these sectors.
thanks
Yes, we are all "We're All Screwed" now!
Misean: "if you choose door number two, you get door number one as a bonus a few months down the road."
Explain please, for us slowpokes.
"The Fed does not believe that the point has yet been reached when such drastic action is necessary and considers the discussions it has had with its counterparts to represent blue-sky thinking rather than the formulation of a definitive policy proposal."
Total BS. These doomsday scenarios are not blue sky thinking, but rather preparations for last ditch efforts to save the Titanic. Every investor should be off the ship and in a lifeboat.
patientrenter,
"Misean: "if you choose door number two, you get door number one as a bonus a few months down the road."
Explain please, for us slowpokes."
If Fed fiat becomes worth the same as used toilet paper, some other medium of exchange will arise. And prices will fall as that commodity will be in short supply.
Cheers,
I am sorry CR and Tanta but I read this article and felt like puking to be honest. The whole premise is that the FED can determine a price and set a floor to stabilise everything. However, it is incorrect because:
1) Who is going to trust the FED's floor? I am sure that the foreign investors will pony up their money for the FED's pricing.
2) It assumes that everyone was playing truthfully and that everything did not contain fraud. As it has been shown, the fraud in some areas has been amazing.
3) It assumes that the individuals will continue to pay their rent. As the economy sours, it will be less likely that the mortages will hold their values as they fall into foreclosures.
I just don't see this arguement working in a global environment where money will go where it's treated best and where global forces keep wages in check.
Mmmm... I studied the charts and pondered the notions and all I can say is 'no friggin way'. The way I understand the premise is that a to be determined government agency will buy distressed montages at some price above current market prices thus establishing a 'mark to market price'. Then they will 'push the economy back to the good equilibrium' - not sure how they go about that...
This will help reinflate housing prices. OK - what seems obvious to me is that the plan is to stabilize housing prices somewhere near where they are today. Right? So how does this help folks afford over priced housing - especially so in light of tightened lending standards? I'm baffled...
Misean, thanks for that explanation. I understand, but tell me what's wrong with this alternative analysis: Inflation will be good for net dollar borrowers, and for financial institutions that borrowed money from others and loaned the money against assets that are now worth less than the loans. Inflation enables the loans to be repaid. It will be bad for conservative savers who invested in dollar-donominated deposits/bonds, and who borrowed little.
More commentary, background from the Economist's View on the mother of all moral hazard:
. Wall Street is laughing its ass off at fly-over country. What are we going to do about it?
Economist's View
Misean I don't see the distinction you are making makes any difference to the bottom line: In your own post you say that J6P pays via higher prices.
"This is highly inflationary, which means J6P has to pay more for food etc. on a stagnant nominal income."
Since J6P is a taxpayer, any moves by the fed to backstop MBS are a taxpayer bailout. Therefore there is little point explaining that:
"As long as the Fed is sterilizing (and they are), then it is NOT taxpayer money. It is the Fed's. And, yes, there is a difference."
From the perspective of the average citizen it is their money going to bail out the MBS.
And I think this is already happening despite the denial of the fed that they are discussing it. What else are the loans to primary brokers for parts of the shit pile but making good their depreciated face values? yeah they are short-term loans, but they will be rolled over indefinitely until a long term bailout is figured out.
John Stark's comments at 7:55, I think, point in the best direction.
The current system is broken and we are all headed for a big time crash. How do we avoid that?
I think a couple of basic steps are to stabilize housing prices and to reduce foreclosure rates.
How??
Have the justice department move a significant number of their resources to reviewing the crimes that have been taking place in this market. Rate them by the amount of money that can be extracted. As in the BSC drama, they can be taken down in a week. The trials and such will go on for years, doesn't matter. Once they have been taken over by new management (JPM over BSC) you extract their every last cent and use it to stabilize housing prices and ownership.
I think in short order all of the existing IBs would be gone/replaced. Most of the largest banks and mortgage companies would be replaced. A significant number of billionaires would be looking for a small home on your block.
Moral hazard would at least be muted by the large number of old white men in prison, investors of banks being on the streets and the shutdown of 100's of institutions.
Simian...
When tyrants tremble, sick with fear,
And hear their death-knell ringing,
When friends rejoice both far and near,
How can I keep from singing?
The trotting out of the talking heads of Wall Street to plead the case for justifying a Wall Street bailout is almost identical to the trotting out of neocons to justify an invasion of Iraq. Nonsense then, nonsense now.