Like dudette,no need to be so,like negative.I mean REALLY,you need to like get in touch with some,you know, POSITIVE ENERGY!?!.LIke being so ,UMMM ,reality based just sucks.So like have some Kool-Aid to wash down these xanax and chill out....REALLY,like,you know,you should reach out for some FAITH,cause like,you know this IS the WALL STREET JOURNAL!!!! Not some Fuzzy thinking liberal rag that publishes the likes of Paul Krugman.So I'm sure it will make sense if you just drink a little more.Here,let me put a little everclear in your Kool-Aid,you look pale.
I'm just doing some back-of-the-envelope calculations here, but I'm thinking that for zero servicing fee on an average loan size of $40,000 compared to the current cost of small-caliber ammo, a medium-to-large portfolio servicer could probably turn a larger profit executing the borrowers rather than the documents.
But I'm not a trained economist and I went to some pedestrian state university.
Each one of these proposals that is totally unworkable, and which few sane "home owners" would participate in helps reduce the oxygen in DC that might otherwise go towards a non-disguised (and plausibly) gov bailout.
So, I applaud this and other ideas... they will put off the real day of reckoning for the dollar a bit longer.
Another unintended consequence of having the Federal government in a lien holder postion on a property is that The Federal Government, pursuant to Federal Statute, has a one year post foreclosure sale right of redemption(Federal Tax liens have 'only' a 120 day post sale redemption right). This prevents the new owner (usually the foreclosing lender) from getting clear, marketable title until the year is up. This only happens currently on SBA loans and Federal Attorney liens, two rare situations. There is a procedure in place to allow the Feds to release the lien, but they usually want $$ in return for the release. And said release takes about a month.
iceman - Nationalization of Fannie Mae would be fiscal suicide.
At a time when looming entitlement costs (social sec, medicare) are about to blow up, it would just guarantee that our children and grandchildren get stuck with the bill for the baby boomers profligacy. They're already going to be paying through the nose as it is. Anyone who still works for a living or starts a business would be a sucker if this goes through.
Hopefully Bush & co. will fight this off long enough for the collapse in housing values to render it moot. I would not put it past them, though.
The good news is that we're working on a solution. Any plan needs to recognize two critical points -
Housing valuations need to come down to normal valuation metrics. This topic never seems to come up. "Mr. Prince, Mr. Mozilo, Didn't it dawn on you during the last few years that writing mortgages on overvalued homes using horrific lending standards would end badly?"
The money is gone! The loss sharing / potential gain sharing arrangements offer the best opportunity. Bernanke is on target here.
BTW Tanta - keep on the 'incompetence' bandwagon, we need more attention placed on this topic. I read your earlier posting while on the road last week & very much appreciated them - couldn't reply much 'cause the internet access at Boondocks Truckstop on I35 is a tad slow (yes there really is one by that name).
Anywayz - I've come to the opinion we are seeing the mother of all peter-principle events right now. We've had approximately 25 years of unabated bull market (since Ronnie still had half a brain)... with only a few years of 'dot com distress' & 'S&L' to break the monotony.
A whole lot of financial services people have gone through their whole careers without ever really having seen much of a down draft. They have been promoted & moved laterally and promoted again without ever having to 'play defense' or been part of an 'tactical retreat'. Now these folks are the generals and are facing a rout like they haven't ever seen before.
Sure a few folks went through the 90-91 RE declines in Cali and the S&L/Farm & Oil Patch Bust of the 80s as well as dot.com... but not that many. They weren't as systemic as this event... good thing its still 'contained' or they'd (we'd) be in big trouble.
It is a career deer meet mr. headlights moment for most... even those (like the WSJ staff writers) who are old enough to know better.
Oh well, as my father used to say... "Some grow old and wise, some just grow old"...
Keep it up teacher - might have to add a 'lessons learned' summary page to your uber nerd section.
From the article on the FBI investigation into Countrywide this morning:
"Another potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide's losses may be several times greater than it has disclosed"
I work for a large bank in Canada, doing mostly real estate secured lending and found CR a few weeks back. It is a blast to see where all the hard work goes.
Thanks to all the contributors here, it's always fun!
iceman - Nationalization of Fannie Mae would be fiscal suicide.
Pffft... its only money, what you worried about?
My guess is its gonna happen but not 'overtly'... it will be a 'covert' nationalization via some sort of RTC II.
And over all that might be the best thing to do IF we can clear & write off the debt fast. But that won't happen until folks fully fathom just how much of this is liquidity vs. how much is solvency.
We are still in the early phase of that discovery... we won't even get serious about it until after the election. Then there will be a big collective 'Oh my, look at this' moment.
I don't comment here much, but thanks for the analysis of this type of thing Tanta. Makes it easier for me to keep up with some of the complex stuff going on lately.
Keep it up teacher - might have to add a 'lessons learned' summary page to your uber nerd section.
Thanks, dear.
You know, I was thinking about adding item one to "lessons learned," namely that it's a cruddy idea to take an ARM when the underlying index value is at historical lows and fixed rate money is very reasonably priced.
Then I discovered that we've already forgotten that one.
One more item to add to "lessons learned" . . .
Never, ever read the WSJ editorial pages unless you are intentionally seeking to raise your blood pressure or lower your intelligence.
Lessons learned? I keep harping on the point that the real source of the problem here are the idiots that purchased the loans in the first place. They should all be tending the drive-up window at the local fast food joint. The balance is typical American greed.
I know! Why not just skip the step where the nuisance borrower is involved at all? Give the 20% straight to the lender(s) and call it a fancy name, "Patriotic homeowner act"?
Tanta - could you switch font colors when you're being sarcastic? Or maybe just boldface?
What's the matter, you think the WSJ editorial page editors will show up to the blog and miss the point? I don't think there is a font color that would jolt those dudes out of their fantasy world. Maybe flashing lights? I'll look into it.
How is the quality of lending in Canadian banks? Much of their losses have been due to write downs of American mortgage debt. Is there trouble ahead in Canada also? This isn't something I have been able to find information about. I have assumed that the lending standards have been much better but really don't know.
Based on how fast things are deteriorating, the mortgage market will be nationalized one way or another. Citi is already pulling back because of capital hits. Lowering capital requirements on the GSEs gives them some extra loans to make, but further losses will pull all that back in a year at most. There's just not going to be enough capital for mortgage loans by next year at the latest and the feds will have to step in.
Here's my bailout idea. Let us mortgage holders borrow at the TAF window. We can put up collateral at least as good as the subprime CDOs the banks have. If our financial situation doesn't turn around, then the FDIC can take over our checking account. What's wrong with that?
I dunno how it works in blogspot, but in Microsoft Word you select your text - like let's say you typed "Feldman STFU you n00b" - select that, and then go format>font>[Text Effects]>"Las Vegas Lights"
Tanta, you must take a position with the new administration, whoever it is. Not only do you have great judgement, you'd have the most entertaining press conferences in the history of Washington.
Never, ever read the WSJ editorial pages unless you are intentionally seeking to raise your blood pressure or lower your intelligence.
The WSJ doesn't have a comics section. Instead, they have a two page prose comedy section. Personally, I think the writing is kind of weak, but I can see the attempt at a sort of black humor. Swift wannabees, if you will.
Clearly the intent of all this is to move money from responsible people to irresponsible home buyers. Once we admit to the true goal all kinds of straightforward solutions appear. I suggest removing AMT and doubling the deductibility of mortgage interest made revenue neutral by raising the income tax brackets. Still evil but transparently evil.
Thanks for the post Tanta. I always relax after these kind of articles. It's good to know that it's not even possible for these bailouts to work and that no one in their right mind ( I use that term advisedly) would ever actually PATICIPATE in these hokum ideas.
As long as they keep throwing out such nonsense, we're fairly safe from anyone ever coming through.
It's the concept of 'having solutions' that is being promoted, not that any of them could ever work. Nothing will work until the Great Unwind, unwinds...and then they won't be needed.
It's like some huge contest. As if this whole problem is some complicated riddle with a final solution out there, and we're taking submissions from Americans to see who has the secret solution.
Perhaps Oprah could sponsor a telethon, or you could text in your housing crisis/credit crunch solution to Ryan Seacrest.."if you like plan 1 text 1800SAVEUS1...if you like plan 2 text....."
Perhaps the winner will win an entire neighborhood (ready to move in now) in Riverside, or Stocton, or Las Vegas, or Pheonix.....
One obvious rule however...whatever the solution..it must include the involvement of the government...since we all know that when it comes to preventing these problems the government is just some meddlesome anti-capitalist inefficient beheamoth that will hurt the little guy through ineffeciency and higher taxes..."Do you want the mortgage broker office to be like the DMV?!!!", but when it comes to solutions after the fact, the government is a well-oiled machine that will reduce risk, increase efficiency, and decrease the cost to all involved.
I have a solution which I am eager to submit. It does involve the DMV, but that's all I am saying....don't want to give away too many clues...I really want to win. I don't need a whole neighborhood..but I have a cool plan to sell it back the government for their low-income housing program.
approach to fighting spam. Your idea will not work. Here is why it won't work. (One or more of the following may apply to your particular idea, and it may have other flaws which used to vary from state to state before a bad federal law was passed.)
( ) Spammers can easily use it to harvest email addresses
( ) Mailing lists and other legitimate email uses would be affected
( ) No one will be able to find the guy or collect the money
( ) It is defenseless against brute force attacks
( ) It will stop spam for two weeks and then we'll be stuck with it
( ) Users of email will not put up with it
( ) Microsoft will not put up with it
( ) The police will not put up with it
( ) Requires too much cooperation from spammers
( ) Requires immediate total cooperation from everybody at once
( ) Many email users cannot afford to lose business or alienate potential employers
( ) Spammers don't care about invalid addresses in their lists
( ) Anyone could anonymously destroy anyone else's career or business
Specifically, your plan fails to account for
( ) Laws expressly prohibiting it
( ) Lack of centrally controlling authority for email
( ) Open relays in foreign countries
( ) Ease of searching tiny alphanumeric address space of all email addresses
( ) Asshats
( ) Jurisdictional problems
( ) Unpopularity of weird new taxes
( ) Public reluctance to accept weird new forms of money
( ) Huge existing software investment in SMTP
( ) Susceptibility of protocols other than SMTP to attack
( ) Willingness of users to install OS patches received by email
( ) Armies of worm riddled broadband-connected Windows boxes
( ) Eternal arms race involved in all filtering approaches
( ) Extreme profitability of spam
( ) Joe jobs and/or identity theft
( ) Technically illiterate politicians
( ) Extreme stupidity on the part of people who do business with spammers
( ) Dishonesty on the part of spammers themselves
( ) Bandwidth costs that are unaffected by client filtering
( ) Outlook
and the following philosophical objections may also apply:
( ) Ideas similar to yours are easy to come up with, yet none have ever
been shown practical
( ) Any scheme based on opt-out is unacceptable
( ) SMTP headers should not be the subject of legislation
( ) Blacklists suck
( ) Whitelists suck
( ) We should be able to talk about Viagra without being censored
( ) Countermeasures should not involve wire fraud or credit card fraud
( ) Countermeasures should not involve sabotage of public networks
( ) Countermeasures must work if phased in gradually
( ) Sending email should be free
( ) Why should we have to trust you and your servers?
( ) Incompatiblity with open source or open source licenses
( ) Feel-good measures do nothing to solve the problem
( ) Temporary/one-time email addresses are cumbersome
( ) I don't want the government reading my email
( ) Killing them that way is not slow and painful enough
Furthermore, this is what I think about you:
( ) Sorry dude, but I don't think it would work.
( ) This is a stupid idea, and you're a stupid person for suggesting it.
( ) Nice try, assh0le! I'm going to find out where you live and burn your
house down!
Based on how fast things are deteriorating, the mortgage market will be nationalized one way or another.
That was true before 'containment'... Now you have to change 'mortgage' to 'debt' and I think the statement is pretty much right on...
How this 'nationalization' looks is still debatable - whether we have McCain or Obama in the WH and McConnel or Reid running the Senate - but the effect will be the same: some kind of socialization of loss while attempting to protect privatization of gain.
Like water running down hill - you know where it is headed just don't know the path it will take to get there. The proposal Tanta just picked over probably won't be the dumbest by a long shot.
"All I can say is that if I could do that in Excel, Mortgage Pig would glow in the dark."
To make the contents of a cell flash, or blink on and off. For such a feat, you are left to your own devices and the miracle of macros. By utilizing these tools, you can make cells blink by first designing a special style for the blinking cells, and then running a simple macro.
To create the special style, follow these steps:
Select the cell that you want to flash on and off.
Choose Style from the Format menu. Excel displays the Style dialog box. (Click here to see a related figure.)
In the Style Name box, enter a new style name, such as Flashing.
Using the controls in the dialog box, modify any attributes for the style, as you desire.
Click on OK.
You can now apply the style to any other cells you desire in your workbook. Now create the macros (there are two of them), as follows:
Dim NextTime As Date
Sub StartFlash()
NextTime = Now + TimeValue("00:00:01")
With ActiveWorkbook.Styles("Flashing").Font
If .ColorIndex = xlAutomatic Then .ColorIndex = 3
.ColorIndex = 5 - .ColorIndex
End With
Application.OnTime NextTime, "StartFlash"
End Sub
Sub StopFlash()
Application.OnTime NextTime, "StartFlash", schedule:=False
ActiveWorkbook.Styles("Flashing").Font.ColorIndex = xlAutomatic
End Sub
To start the items flashing, simply run StartFlash. The cells formatted with the Flashing style will alternate between red and white text approximately once a second. When you want to turn the flashing off, simply run the StopFlash macro.
There is one important thing to note about this macro: the variable NextTime is declared outside of the actual procedure in which it is used. This is done so that NextTime maintains its value from one invocation of StartFlash to the next.
Generally, Barron articles have tended to be more upbeat but the editorial "Up and Down Wallstreet" has been consistently and highly bearish.
iceman
Yeah, Abelson is great. Even if you don't agree with him (of course, being a bubblehead, I do), he's definitely one of the few business writers who can actually write. Kind of like William F. Buckley, 75-90% of the time I disagreed with him, but he was one of a handful of columnists who actually wrote well.
One thing about Barron's, it does move stock. I've seen shares of companies being lauded in there jump 3% on Monday. I wonder if this will have a contrary effect?
Cote
"Clearly the intent of all this is to move money from responsible people to irresponsible home buyers"
Wide of the mark. The intent is to move the money to irresponsible lenders and hedgies . . . any benefit to the irresponsible homebuyers is merely incidental.
Gary writes:
Dawg
"Clearly the intent of all this is to move money from responsible people to irresponsible home buyers"
Wide of the mark. The intent is to move the money to irresponsible lenders and hedgies . . . any benefit to the irresponsible homebuyers is merely incidental.
Hardly. Haven't you been reading the Ubernerds? Lenders count performing debt on their books as assets. The next to last thing they want is the principal back.
Very different here in Canada. Income confirmation standards are actually in place, regular audits (internal or FCAC imposed) keep us neat. We do offer an ALT-A style of lending (for the self employed), but it is bound to 65% loan to value and priced accordingly. 100% homebuyer mortgages are offered in Canada, but anything above 80% loan to value MUST be insured by the CMHC.
What U.S. lenders have accomplished is nothing short of a miracle to me. The profits they realized were massive and now that D day is here they will flop down and wait for your government to bail them out. Imagine that, the debt on your house will still be owed, but you will also be paying for it through taxes for the next 50 years.
I'm in my mid 20's and this is my first credit crunch. First slowdown while in the business too. I've been reading as much as possible and in turn have become disappointed with the media as a whole. I thought all they lied about was war, or events in other countries. Sadly, mistruths are told even when they affect us here at home.
What teh hell is wrong with Feldstein? Oh former economic advisor and current professor at Harvard - nevermind...
Its stunning how amazingly naive and yes stupid most college professors are particularly those who are oft quoted on their supposed subject matter expertise.
I'm in my mid 20's and this is my first credit crunch.
I envy you. Back when I went through my first credit crunch we didn't have the internet. We didn't even have cell phones or fax machines. We had to huddle around the portfolio manager's office, warming our hands over a Telerate and reading the print version of the WSJ. Of course, with all our information coming from the WSJ, we weren't nervous . . . .
Its stunning how amazingly naive and yes stupid most college professors are particularly those who are oft quoted on their supposed subject matter expertise.
Wait a sec,... I can make this work. But instead of the government we use a private corporation, we'll allow them access to the FED discount window, we'll take off that arbitrary 20% cap, maybe they can increase their capital base by taking in deposits and issuing credit cards, we can call it a Big And New Korporation (B.A.N.K.),.. hey, Average Joe, I think I have an entry in the contest!
When this is over, the Fed is going to end up holding hundreds of billions of dollars of worthless mortgage backed securities.
I wouldn't feel so bad about that if they actually take ownership of the mortgages and resultant collateral (homes).
Then maybe they can knock some down and turn it into 'National Forests' like what happened with abandoned farms in the Great Depression... then we'll all have a place to ride our ponies.
Envy away. I have a pretty good feeling of what is headed our way. And, for that matter, the way of my clients. I still have aggressive sales goals and numbers to meet to ensure I have a long and happy career ahead. I would KILL for some ignorance right now.
Perhaps this online subscription to WSJ is worth the money...?
To each his sufferings: all are men,
Condemned alike to groan;
The tender for another's pain,
The unfeeling for his own.
Yet ah! why should they know their fate?
Since sorrow never comes too late,
And happiness too swiftly flies.
Thought would destroy their paradise.
No more; where ignorance is bliss,
'Tis folly to be wise.
"And that has stopped them from wading in deeper before?"
The reality is we're already in serious deficit. Given declining tax receipts, we really don't have a lot of room for a big bailout. If they try and push a big bailout, long rates will rise negating the impact of the bailout! If the long end of the yield curve rises dramatically, it's over for certain. The Fed best be paying close attention to that notion. We need you Paul Volcker...
What struck me, but that no one else seems to have mentioned, was that "The legislation would also provide that the government must be repaid before any creditor other than the mortgage lenders."
I guess the theory is that the people who would be expected to make use of this proposal have no auto loans or credit card debt. Because otherwise, I'm not sure what they expect to happen when borrowers are required to stop making payments on their other debts for 15 years.
Envy away. I have a pretty good feeling of what is headed our way. And, for that matter, the way of my clients. I still have aggressive sales goals and numbers to meet to ensure I have a long and happy career ahead. I would KILL for some ignorance right now.
I had a smaller dot-com from 1994-2004. I saw the absurdity of the bubble, I knew things were going to fall apart. I had a big cash buffer and maintained huge profit margin. I expected my ad revenue to fall 30-40%, maybe 50%.
It fell 90% in less than six months. Not only did the dot-coms buying ads die out, the big traditional companies slashed their ad budgets. I was on the verge of closing down, more than once.
Just a word to the wise, it can get way worse, way faster than seems possible, even for those who see it coming.
Ok, I don't amortize. BUT even I know that by halving or nearly-halving the term on a 30-year loan (since most mortgages are recent due to refis) you are pretty much going to lose any interest savings. But hey! I could hold onto my savings for a few months and buy my kid a Webkinz.
I have a theory that when Junk Bond King Michael Milken got a "bonus" of $550 million in 1986 (he went to jail for securities fraud; his current net worth $2.1 billion), executives and Wall Street drooled over the possibility of making that kind of money without going to jail. Reagan's firing of striking air traffic controllers (I am not saying the strike was valid) gave those executives and Wall Street tools to orchestrate their dream into today's reality. No wonder eighties was shaped by people such as "Former economic adviser to President Reagan and current Harvard professor Martin Feldstein"
“But delay and the constant introduction and consideration of new and unsound measures has kept the country in a state of uncertainty and fear, and offset much of the good otherwise accomplished.”
Tanta, OT, but can we expect your estimates of purchase and sales transactions for the LFKAJs soon now that the info is available? it's not very comfortable sitting on the edge of my seat like this...
What struck me, but that no one else seems to have mentioned, was that "The legislation would also provide that the government must be repaid before any creditor other than the mortgage lenders."
That's not such a biggie... just hand it off to Sallie Mae & treat like student loans. I mean there are no problems in that sector right?
Ok, I don't amortize. BUT even I know that by halving or nearly-halving the term on a 30-year loan (since most mortgages are recent due to refis) you are pretty much going to lose any interest savings.
Well, reducing the amortization does really save you a ton on interest charges over the life of the loan.
It simply does that because it increases your rate of principal repayment. And that increases the monthly installment.
If you don't have to worry about what your monthly payment is, you should just refinance your loan into a 15-year fixed. Today you could get 5.50 on that. Over the life of the loan, that would save you many thousands of dollars.
My point was simply that people won't do this, because either 1) they need a lower payment now to keep out of FC, or 2) they'll do it, and it will increase their monthly payment, which will push them into FC.
I read to the second paragraph and knew it was bullshit.
Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots.
Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots.
Marcus Aurelius | 03.08.08 - 12:49 pm | #
So ummm, Marcus... how long have you been campaigning to be treasury sec'ty in the new administration?
Tanta, OT, but can we expect your estimates of purchase and sales transactions for the LFKAJs soon now that the info is available?
You know, the problem there is that I got totally gobsmacked both ways: the guidelines/LLPA were much more conservative than I thought, on the one hand, and the number of MSAs affected was much larger than I thought (having misunderestimated HUD's ability to play with price numbers).
So it'll take me a while to work through it.
Tanta | 03.08.08 - 12:52 pm | #
That was probably part of the plan... make it sufficiently obtuse & opaque so no one really knows for sure the impact until say... mid Nov 2008 at the soonest.
Remember the monkey from the Simpsons that went to space and came back super intelligent??
I wonder what he would offer as a solution??
I agree with the posts that say the gov is going to wind up with all this garbage in the end. The good financials out there will find a way to make a buck at it. Fast.
Wells Fargo has told mortgage brokers that Wells will issue pricing for "conforming-jumbo" loans on March 17. I assume they'll start accepting rate locks, and start underwriting, then.
Ah! I was waiting for the Tanta post on this. I was too lazy to dig out a calculator, but assumed that higher principal payments on 15 year amortization would significantly reduce the lower interest rate's impact on monthly payments. It's even worse in that regard than I suspected. Second thought was how long will Treasury rates stay at 1.6%? Since the loan is an ARM even the interest saving is at some risk. Third question, was who pays for the servicing? Fourth, which I see Professor Thoma is asking, is how the government handle would defaults since this is unsecured debt.
And of course, we can just go on from there, but why bother when Number One makes the whole thing moot. Unless of course we just feel like making fun of Dr. Feldstein, which has some appeal on rainy Saturday.
quartz, I think we're supposed to believe that speeding up the amortization will somehow keep up with house price depreciation, or at least meaningfully offset it.
It is true that if everyone just starting making an additional $1,000 per month in extra principal payments, not only would they save jillions in interest costs over time, but they'd get right-side up eventually!
However, if I went with a plan like that, some smartass blogger would try to claim that people don't have another grand a month to pay down debt with.
mp, please tell me you are a woman, because, as a spittle-flecked right wing conservative nutter, I would have issues resolving my feelings towards you if you weren't.
supporting what Iceman said at 11:14 above, i had the following, conversation, yesterday, with "friend" who is a local manager at a bank that has branches nation-wide.
we were discussing perter byrnes thesis that broker-dealers use FTDs as long term IOUs masking of stock security inflation and allowing naked short puts.
then this bank manager said to me, off the record, that the losses revealed so far in the mortgage industry have been grossly understated AND, as has been discussed here, the entire loan-debt industry is riddled with "subprime" type losses. He voiced the opinion that "the system" is in his opinion likely to "fail".
Ummm, it was my fault. The guys were saying bad things about Hillary on my blog and you know who invented the internet and all.
Maybe it was my suggestion that the HMID be double deductible. Seeing as my kid is trying to get into Harvard maybe we can combine the two ideas. A $400,000 mortgage at 6% costs $2400/mo. Same as a $230k at 12% or $160k at 18%. Banks take a one time hit but enjoy substantially higher income and borrowers get substantial tax benefits.
"Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots."
Marcus Aurelius | 03.08.08 - 12:49 pm
I can't remember if this helps me or not. Several families pay me each month for the mortgages I hold on their homes. If we move the decimal point to the right on the payments they make I get rich and if we move it to the left on the money they owe me they get rich too. I think I like the idea.
Then I remember that the payments I make to the bank for financing the project is income to them so I have to move the decimal point to the right(?) on the check I write to them but I move it to the left on the balance owed. Now I'm really getting somewhere!
The bank incereases its reserves faster because everyone is paying more, my debt is evaporating and my income has skyrocketed. This is truly a win - win - win idea!
Now, who should we tell? A right wing politico or a left winger?
Maybe we should just find a left handed guy with no income and no debts - he'll be absolutely impartial. Elect him Pres. and let him announce the plan.
Crispy&Cole,
Unfortunately I don't have to falsify my returns to fall into that category. The funny thing is in that regardless Harvard would cost less than attending the University of California system with the State's much vaunted no tuition policy written into the Constitution. Like so many other forms of government the State has abandoned all pretense of being held to a rule of law constrained by enumerable powers.
mp "When this is over, the Fed is going to end up holding hundreds of billions of dollars of worthless mortgage backed securities."
As was pointed out by a commenter a few weeks ago, it's going to be interesting when the US government is in a position to foreclose on citizens homes. I believe if you check the schedule that comes up around late January of next year
Consider that some or many of the "solutions" being proposed are NOT really aiming to prevent FCs or to help borrowers, but rather to Persuade Voters.
Depending on the allegiance / source of the "solution",
A) If it's coming from in or someone sympathetic to the currently reigning party, it's purpose is to persuade voters that Something Is Being Done, so Vote 4 Us.
B) If it's coming from someone sympathetic to a different party, it's purpose is to purpose is to persuade voters that Something Will Be Done, Vote 4 Us.
If possible, proposers of try to accomplish A) or B) and simultaneously help their buddies nearest the top of the pyramid (all parties?), preferably in ways that are not too glaringly obvious. That includes "solutions" that they think might help "confidence" (=more votes and $upport) from the business community.
It's nasty before the now certain reduction in receipts...
Excerpt from Prudent Bear -
March 4 – Bloomberg (Brian Faler): “The U.S. budget deficit will widen this year to at least $357 billion, the most since 2004, as the economic stimulus package drains tax revenue from the Treasury, according to the Congressional Budget Office. The shortfall will prove even larger if lawmakers approve President… Bush’s pending request for an additional $100 billion this year for the wars in Iraq and Afghanistan… The CBO estimate is 63% higher than the one it issued in January…”
NEW YORK (Reuters) - Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.
JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."
Chris writes:
You will not get any proposal passed in an election year or the year after that and by then events will make any proposal irrelevant.
Chris | 03.08.08 - 2:16 pm | #
Only if the problem stays contained to sub-prime & RE... if not then these problems will be hanging around well into 2009 & beyond.
Given that I agree with your point #1 (nothing this year) but would not assume point #2 (nothing after the election)... that will depend on how tight the election & will the same party hold both houses & the white house. My guess is they will be divided but not sure.
Don't worry prat, most conservative right-wing nutters have that same problem.
Just get yourself a beard, vocally denounce the gays, and get comfortable in the closet! hell, you could be elected Senator from ID or Congressman from FL, or even pastor of a megachurch
mt - [then this bank manager said to me, off the record, that the losses revealed so far in the mortgage industry have been grossly understated AND, as has been discussed here, the entire loan-debt industry is riddled with "subprime" type losses. He voiced the opinion that "the system" is in his opinion likely to "fail".]
Here's where I feel a little uneasy. I find myself unable to put the current state and inevitable near term future of this calamity into any sort of context. Seriously, is there any prior economic situation that might be comparable in any way? I remember the '70s stagflation and fuel crisis but in many ways, given the globalization that we are supposed to be immensely thankful for and the irreversible twin deficits , this situation could easily be far far worse and more difficult to claw our way out of.
I know this is stupid but don't these guys even read thier own words?
3rd par "Although individuals who accept the loan would not be lowering their total debt, they would pay less in total interest"
5th par "average level of house prices has further to fall"
6th par "The loan-substitution program would decrease the number of homeowners who would come to have negative equity "
The FB still has the same debt, housing prices are still going to fall but by some slight of hand the number of FB who would be underwater is lower?? Not unless they think this is somehow going to stop housing prices from falling, but that may be part of the fantasy too, or maybe some more of that new math I don't get.
One would hope The Fed is able to come to terms with accounting in regard to FASB 157 and 158, both of which were delayed last year. These FASB accounting issues are related to mark-to-market disclosure and valuation.
The collateral transfers in question here are simile-like, i.e, we have corporations dumping toxic waste into our drinking water, while The Fed lowers the parts per billion accountability levels.
The Level 3 mark-to-market accounting is to help us plain farm folks understand more about the derivatives and behind the scenes illusions, e.g, Level 3 speaks of unobservable assets, which need to be valued at current market rates. Why then, as citizens of America are we being placed in a position where accounting rules are not being used, not being implemented or used to help strengthen our economy. It seems to me, this is a matter of National Security, and if we allow a bunch of crooks to keep dumping toxic junk into our system, we will all be impacted by the insidious nature of this cancer!! Get real, these crooks need to go to jail and we need to see people in this government resign for contributing to false and misleading information and fraudulent accounting practices!!
I also wrote about the topic of 'sovereign immunity' at the current end of the Hume Bank thread. It is best for a govt agency to handle these and other matters because it can invoke 'sovereign immunity' case law to fend off nit picky lawsuits and almost always win. The FDIC often turns to this well established case law to defend itself against all manner of suits. Where is lawyerliz?
Unless the gov't's budget is balanced or less, it doesn't matter what you do with taxes. And frankly, if taxes were raised to the point of 0 to less than 0 deficit, foreclosures and economic chaos would commence forthwith.
I wouldn't feel so bad about that if they actually take ownership of the mortgages and resultant collateral (homes).
Several months back I commented about what happened in Florida during the early 1930's. It could happen again, although on a national scale is frightening.
Its what we were discussing weeks ago regarding TAF & reserve balances & when is a loan not really a loan... finally other folks are starting to 'get it' too.
Finally a believable explanation for all the looting and pillaging of the last few years:
From the NYTIMES:
“The whole point of acquiring a good reputation is to deplete it for gain,” said Frank Partnoy, a professor of finance at the University of San Diego Law School and a former investment banker at Morgan Stanley. “You expand your investor base and find the less sophisticated investor. But you can rebuild your reputation, too. Now is bad, but the memory of financial markets can be measured in days.”
The FB still has the same debt, housing prices are still going to fall but by some slight of hand the number of FB who would be underwater is lower??
Sure. See, if you take 20% of your debt and convert it to a 15-year amortization, at a lower interest rate, you will begin paying principal back faster. Why, in my second example (the 6% loan), the borrower who did the conversion would be $146.90 less underwater after one month than if he had not done the conversion! He could be nearly $2,000 less underwater in a year! So if prices fall 10% in his market, he only goes 9% underwater!
If we could just make people understand that volunteering to pay back the principal faster would help them, I'm sure they'd start doing it.
The question I have about all these plans is shouldn't the precepts be explained up front before going into details? I know that makes for easy dismisals, but how else do you justify any train of thought.
In theory, shouldn't any plan hurt/help every party equally?
Save the banks now, but get your pond of flesh for the next decadee. Homeowners? Hope you like those granite counters because you'll be lookin at em for the next decade, min.
Mortgage brokers better brush up on their landscaping skills
If you watch Get Smart, maybe you could speculate for us whether Hank Paulson really works for Chaos or Control.
If he says "Missed it by that much!" when everything goes into the shitter, we'll know for sure.
Every few weeks they come up with some unworkable plan.
Meet the other side of "too big to fail", it's called "too big to save".
Keep all the whining leeches occupied trying to game the bailout options long enough and then pull the rug when even the most radical left winger can no longer bail it out.
They lose a percentage of their paper profit. Big deal. If they already blew it on crack and hookers or granite, stainless steel and fancy German cars it is their personal problem.
You're right. Nothing their we haven't thought of before, but nicely stated.
I'm entirely convinced that several large banks are insolvent. That Abu Dabi is unwiling to give Shiti any more money is an indication that the big boys know this
A run on the banks should require at minimum a pitch fork and a torch.
Since his car was taken away, Chilcot has started walking to work at his new job - as a car salesman at a dealership in Plymouth.
When asked whether he tries to caution people against buying a car they can't afford based on his recent experience, Chilcot chuckled: "Not really. You become pretty shameless pretty quick when the paycheck comes."
Bystander, at the risk of being pedantic it's KAOS, not Chaos. (When I was in grade school our entire class put the wrong spelling on a test, except for one rather bright student who was not allowed to watch TV.)
My bunyon growths are telling me that these plans are all leading to the mother of all plans, which is that the govt. just assumes ownership of most of the housing in this country, and we the plebes will be renting from them. Maybe I'm just too conspiratorial for this group...
"Have they promised, explicitly or implicitly, that the US taxpayer will take an essentially subordinate position to SWF equity investments?"
Does it matter? I mean where is the dividing line between their junta and ours? Its like separate subsidiaries of one giant MNC - some are profit centers others are cost centers but they all cycle money around to each other so the principals can gain.
Trying very hard not to be TOO cynical but given the lack of transparency I am losing the battle...
My bunyon growths are telling me that these plans are all leading to the mother of all plans, which is that the govt. just assumes ownership of most of the housing in this country, and we the plebes will be renting from them. Maybe I'm just too conspiratorial for this group...
Almost right. They won't call it 'renting' it will be called 'ownership'...
You too conspiratorial? Probably, but only by half.
If we could just make people understand that volunteering to pay back the principal faster would help them, I'm sure they'd start doing it./i>
The problem seems to me to be that those who are underwater but can afford their payment are only going to be tempted to "walk away" if they are (a) so much underwater that this won't help in the foreseeable future, like $100,000 underwater; or (b) are underwater and need to move but can't arrange a short sale. I don't see how this plan helps either kind of person.
There was a protest of the construction of a new highway in front of my office building yesterday, and a co-worker mentioned (with what appeared to be longing) that if your house was eminent-domained away, you'd probably do better than the open market at this point.
Its what we were discussing weeks ago regarding TAF & reserve balances & when is a loan not really a loan... finally other folks are starting to 'get it' too.
Actually, Steve Randy Waldman 'got it' in this post on Dec 16th, 2007.
(hope haloscan doesn't fry that link)
Judging from recent events, it's a race between the Fed and the cascading cross defaults. Namely, can the Fed buy out enough of the bad debt before it implodes the system? The debt is going to be nationalized one way or the other, there is no way the private system can eat this pig. The python just ain't big enough. Look at the numbers, the SWF buys are a drop in the bucket compared to what the Fed is going to pour in before the end of the month! I have no clue what this will do to the economy or the markets, but it is getting real interesting.
me writes:
If you haven't already, visit Naked Capitalism naked capitalism
today and read "Covert Nationalization of the Banking system."
I would love to see an in depth discussion of this. I admit I don't fully understand it (I am an engineering nerd) but my gut says it is very very important. A lot of distortions that are frightening people seem to originate in this FED action. Also, the secrecy makes me think people in the know think "we can't handle the truth!"
KAOS, not chaos. Thanks for the correction, Zero! Not the first time I've gotten something wrong on this blog.
I find the discussion on the Covert Nationalization thread on nakedcapitalism to be pretty interesting. The three zillion dollars Hedge Fund book is outside the banking system, but connected to it. Makes me dizzy trying to imagine how the market will will be anything besides a smoking pile of rubble when this is over.
I think that this government is ready to sacrifice all savings to try to monetize bank losses.
I had a dream several months ago that I was increasing the value of my trading account with short plays I was very proud of myself for doing so, but in the dream, I read a notice on the logon page of my brokerage account saying that trading was halted all withdrawals were indefinitely suspended. I woke up in a sweat.
I have not yet liquidated all of my positions. We are all players in the game of brinkmanship.
This plan does nothing to diminish the attractiveness of a "walk-away" where the equity held by the borrower is now negative.
Although I haven't seen a report on this happening yet, for a well-heeled borrower with negative equity, the soundest approach from an economic viewpoint might be to walk away from his mortgage and then repurchase the property at the foreclosure sale.
I see nothing in any of the plans that makes this less attractive.
Negative Equity? It's like anti-matter, and negative energy. We just need to re-configure the containment field for the dilithium crystals. Get those financial engineering boys back to work on economic quantum black holes and throw all the debt into them. Problem solved.
I just realized if Ms. Cote goes to Harvard and comes out spouting stuff like this, we'll be able to generate a few megaWatts of electricity from the steam escaping from Daddy's ears!
"Of course it doesn't. Because as Tanta pointed out...it's STUPID!"
I think you miss a more subtle aspect of this situation--making lemonade from lemons.
The walkaways are going to happen, no matter what we do. Generally, the people walking away are not destitute; they're just not stupid. Generally speaking, they have jobs and assets and, on the face of things, are not bad credit risks.
One of the banks needs to break ranks and offer these people full-recourse loans to purchase foreclosed properties at auction. What a boost to the bottom line!
But, but--that would be "moral hazard" and we couldn't tolerate that sort of heresy in the national religion, could we?
Well, sometimes ya gotta do what ya gotta do. The vacant homes are lost causes anyway--why not stimulate the economy a bit with some easy financing?
Must be great to be able to write economic proposals in the WSJ op-ed without ever having to fire up a spreadsheet to see if the numbers make sense.
The only reason I like the proposal is that is has the appearance of a government bailout (so congress can claim they have done something), but no one would ever take them up on the proposal once they see the numbers for their own situation. So we get 'bailout' headlines without the bailout costs! A great result all around I should say.
Does anybody here (except for O-Joe)believe that the real estate market will be higher in 4 to 5 years than it is today?
My guess (based on the comments)is that most here will bet on it being lower than today. Maybe much lower, perhaps already rebounding from the low. But in any case, probably lower than today.
Then why should a homeowner who has negative equity today take ANY deal. WALK AWAY!!!
But remember to walk away only AFTER they foreclose on you. Live in the house mortgage free for as long as you can. And with the backlog of foreclosures it could be a while. Save your money, fix your credit and repurchase your home in 4 to 5 years FOR LESS. Financially that is the better plan.
The scary thing about this market is that people are starting to get it. They are figuring out that this is the best plan of action.
Wait till next year and the following when the option arms start tripling. Oh what fun!
Judging from recent events, it's a race between the Fed and the cascading cross defaults. Namely, can the Fed buy out enough of the bad debt before it implodes the system? The debt is going to be nationalized one way or the other, there is no way the private system can eat this pig. The python just ain't big enough.
We need a Department of Financial Security'... that ought to fix everything. Put everything not in the Dept. of Defense or Dept. of Homeland Security into it...
With only three cabinet appointments it would be 'streamlining' gov't too. Everybody is in favor of that, right?
sdtfs writes:
I just realized if Ms. Cote goes to Harvard and comes out spouting stuff like this, we'll be able to generate a few megaWatts of electricity from the steam escaping from Daddy's ears!
Just as likely 'vard starts talking sense by the time she's through setting them straight.
I'm increasingly of the opinion that the reason we hear so many crazy ideas is that some people cannot admit to their goals while more and more are subconsciously coming to the realization that there are limits to all useful mathematical models. The error stems from "financial engineers" thinking they were real engineers.
Does anybody here (except for O-Joe)believe that the real estate market will be higher in 4 to 5 years than it is today?
In nominal or real dollars? Or say ounces of gold or barrels of oil or bushels of wheat?
My guess is in five years RE is higher than today in 'nominal terms' because the fed won't rest until that happens... but I have no idea how many bushels of corn or ounces of gold that will be.
Misean, if everyone cross defaults are they still really defaults?
I mean if it is done all at once. Maybe they all just go away in a giant debit-credit implosion like matter antimatter.
Can we power cities from this - like financial nuclear power? And if so is it 'clean' and 'safe' or will there be residuals left we will need to bury at Yucca?
I think I need to purge my brain by eating some Chinese food and watching some hockey - hockey makes way more sense than what I'm thinking now.
The commodities bit is a real crapshoot. Bio-engineering blue-green algae to take up gold from seawater and then gold makes a decent industrial metal and nothing more. Kinda like what would happen to diamonds were lab processes allowed to be commercialized. Never forget the capstone to the Washington Monument.
Same for corn, wheat, etc. US could probably triple tonnage in 5-6 years because for decades we've been abandoning adequate acreage due to economics.
Then there's solar. We are right on the cusp now. Another 15% increase in yield or 30% decrease in price and all those sun belt McMansions not only get free electricity but may actually produce something useful. That happens and NatGas demand plummets and energy fungibility does the rest.
barely wrote (| 03.08.08 - 2:42 pm | #) in response to my sharing what a bank manager said
"...is there any prior economic situation that might be comparable in any way..."
Barely...i don't know, but i guess this crisis will be much different in several respects because:
the debt is dollar denominated, this aint like argentina...so there is every incentive to monetize the debt.
plus unfunded benefits, (forget social security), medicare part D (perscription drugs) and other parts dwarfs SS...incentive to monetize the debt
corporations have underfunded pension plans...incentive, monetize the debt..
housing, "subprime" ( or securitization as it is said over at naked capitalism) credit cards secured by heloc...incentive to lower interest rates, roll the presses and monetize the debt.
in other words... the over arching fact that screams in my face is that DOLLARS WILL CONTINUE TO BECOME WORTH LESS AND LESS.
but i don't know what else to think. what scares me is that when i ask "experts" or read what those who know much more than i (just about everybody) have to say...they all indicate this is unchartered territory.
"Strain out solids using cheesecloth, add simple syrup to double volume and sit for 40 days.
bottle and store in bunker next to tuna and away from ammo."
Sounds like some of the likker my grandma used to make. I still have the recipe:
2 cups water
2 cups sugar
4 lemons
rind of 1/2 lemon
1 pint grain alcohol
Soak the rind in 1/2c alcohol for 24 hours. Wash and quarter unpeeled lemons, add water, sugar and rind with alcohol. Boil carefully for 15 minutes. Cool. Strain. Add the pint of alcohol. Bottle. (translated from her Lithuanian).
She has a similar recipe for a milk liqueur (1 qt. milk + 1 qt. grain alcohol).
"There aren't many days like yesterday. Or let's hope there won't be. Let me refresh all of the things that went wrong so we have the context of how treacherous this market really is."
The Treasury and the President saw fit not to endorse the "implicit" guarantee for Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take) paper. For those of us who have bought and sold this paper for most of our lives, this was the signal that almost everything could be worthless. Their refusal to acknowledge the problems was so in the Hoover playbook that it was shameful.
--snip--
Folks rag on Cramer for his stock picks but I have always felt that he has served as a barometer for how Wall Street thinks and feels at any given moment...at times, reactively, at best, sometimes ahead.
Particularly interesting is how he views the reduced leverage against agency debt--and what he doesn't say about leverage in general.
If you think that this crowd is cynical, nervous, and right on; then check out the comments on Ambrose Pierece's last column in the London Daily Telegraph. Comments from all over Europe and the United Kingdom in the same vein as ours. They have better schools so lots more historical background. Who here could write about the panic of 1907?
Strangely enough...this "plan" would work for me. I'm currently 2.5 years into a 15-year-fixed mortgage, on which I've been prepaying. Of course, I'd have to increase my prepayments to the total pot to get the house paid off on the same schedule since the MartyNote term is 15 year, directing all the extra towards the mortgage until it's paid to zero then directing everything towards the MartyNotes.
Not sure how this helps the "underwater" thing...the only reason it would work for me is because my balance is fairly low, having originally bought in 1995 with none of the refis being cash-out. It'd be completely silly if I weren't already far along in paying off the house.
Somehow I doubt I'm the type of borrower who currently needs help. However, if Marty really wants to pay me a premium for re-capitalizing the banks I could donate a share of the savings to MoveOn, and other groups dedicated to ensuring Marty never works in Washington again.
What if The Fed just opens a subsidiary in Cayman Islands and then gets one of those tax evasion accounts like all the other banks (they) have, and then hide this Fed banking debt problem in various offshore entities that issue CDOs special purpose subsidiaries -- which will remain off balance sheets and then these funds can be used as conduits for reinsurance collateral which can then be registered in Bermuda or Vegas and then Buffett can give a CDO from these packages AAA ratings with his new highly touted government-backed bond enhancement company?
If we take the money off the table, then no one is accountable; simple!
F.B.I. investigating Countrywide? You get an announcement like this usually when the investigation is in the final stages. Next will be Grand Jury an Indictment.
Suprised since I would not expect anything so quickly. If they are then they won't be alone. It will be a multi-agency thing. The discovery on this will be huge. Probably terrabytes of data.
I wonder what District Court will end up with this?
A friend called a couple days ago to say he'd just got a job with ION TV. First thing I said to him was: Get "Get Smart" reruns back on the air. LOL. If this blog is any indication of how popular that show is in general, I just might get my request!
You mentioned you've been on the road. How is the real economy doing on your end. In Guam, things are starting to slow own. Japanese and Korean tourism is down (so much for decoupling), and there are signs that the vaunted military buildup (moving the Marines from Okinawa to Guam might be hitting some snags). During my recent trip stateside, my friends (mostly engineering/IT) reported mixed results.
Tanta, not to fault your math which I am sure is right, but I think your assumption of a 28 year mortgage is where the problem lies. If you assume a 13 year mortgage instead, I think it comes out to be a more attractive deal.
To put it in oversimplified terms, you've framed it so that the government-provided portion is getting paid off twice as fast as the Countrywide-provided portion. A simple gendanken experiment is to imagine transubstantiating 20% of the mortgage into a low-rate mortgage. Then, if the high rate is 8.5% and the low rate is 1.5%, the effective rate is .88.5+.21.5, or 7.1%. On a 15-year, that drops the monthly payments from $1,969 to $1,809 exclusive of mortgage insurance. It's not a huge difference, but it's a couple grand a year. Maybe enough to keep someone in their home. Even if the government portion rises to 5%, as long as it occurs over 2 years, inflation (or, rather, pay rises to compensate for inflation) should compensate.
Your example is closer to the real world, I'm sure. But I don't think the proposal qualifies as the stupidest ever. Human history is long, and the contestants numerous.
Howz about the mortgage interest deduction is change to a credit? Instead of a below line deduction, mortgage interest becomes a one for one refucdable credit. For all you non tax nerds, refundable mean you get the money whether you have incurred tax liabiity or not; like EIC.
Charles II wrote: "On a 15-year, that drops the monthly payments from $1,969 to $1,809 exclusive of mortgage insurance. It's not a huge difference, but it's a couple grand a year. Maybe enough to keep someone in their home."
I'm guessing that most people with 15-year mortgages, like myself, don't really need the extra help to stay in our homes. That's why I mentioned above, that the plan would work for me. We're the ones with either inexpensive homes or, in my case, significant positive equity even with the current meltdown. I might like the extra money in my pocket, and I'll take it if it's offered, but I can't see a sensible public policy reason for the proposal.
If Marty's plan is to use the public treasury to recapitalize banks then it does seem to have that likely effect. If that is his goal, though, then he might stop talking about underwater mortgages and helping distressed borrowers, because his plan seems to do neither.
You mentioned you've been on the road. How is the real economy doing on your end.
Depends on where you are & who you speak to... Early in the week I was in Ohio looking at a company to sell for (a bombed out wreck of an ex-automotive supplier just now exiting BK - looks to me like it will be BK rinse & repeat)...
Later in the week I was in Eastern Iowa at ag equipment manufacturers and they are so busy they don't know what to do - up 30% over forecast which in itself was unrealistically aggressive to start with. But hen what would you expect with $5 corn going out as far as the eye can see?
In short anything tied to MEW & easy credit is dead (automotive & housing & consumer goods) anything tied to fed efforts to re-inflate the economy especially commodities is hotter than hell - too hot to touch.
And the communities each was in is just as different - the town with the automotive plant looked like it was in a depression... the town with the ag plant was booming brand new CRE additions packed with new suv's & shoppers.
Why not use the AMBAC Solution for the entire housing market? For those who don't know, Ambac is bankrupt and was about to lose its AAA rating, which would have led to an immediate meltdown of a large part of the financial world. To save the ratings and the World AS We Know It, the banks whose lives depend on Ambac's ratings bought shares in Ambac.
Bear in mind that the banks which performed this financial highwire act recently went cap in hand to the world investment community and begged, borrowed or stole hundreds of billions in new money at interest rates usually reserved for loan-sharking. The banks remain bankrupt despite themselves despite this cash infusion. So now they own a bit of the bankrupt company whose survival is key to their own survival. It remains to be seen if there will even be a real transfer of capital.
To move the analogy back into the mortgage world, why not have the banks simply lend the money interest free to homeowners. If the house has lost $50k in value, the bank can simply lend $50k more to the borrower. No cash is moved, though, just a change in the balance sheet is noted. The loan will, of course, be guaranteed by the government (that's us, by the way, for all of you who forget these simple things). Since it will never be paid back by the owner (borrower), it is in reality simply a free transfer from taxpayers to banks and borrowers.
Wheee! Isn't America great! Those stinking socialists in Europe could never come up with such an obviously communist idea. Ha! American capitalism triumphs again by cleverly using the tools of the enemy!
Tanta, not to fault your math which I am sure is right, but I think your assumption of a 28 year mortgage is where the problem lies. If you assume a 13 year mortgage instead, I think it comes out to be a more attractive deal.
But not only do few people have mortgages with a remaining term of 13 years, many people who bought two years ago used a 40-year term originally, and of course overwhelming numbers of those were IOs. Not to mention the neg am loans.
Of course anyone already amortizing on a 15-year schedule gets a deal, although not much of one at 5%. But there is no more affluent group of mortgage borrowers, on the whole, than the 15-year group. They are pretty much by definition payment-insensitive.
So if you're saying that the Marty Plan manages to recapitalize banks by also funnelling perks to the wealthiest among us . . . yeah, I'd say that's right.
It was when we got to the claim that no government "bureaucracy" would be needed here that we elevated to the level of Teh Dumbest. I have written too much lately about operations and servicers being insufficiently staffed to cope with reality to accept some drivel in a plan supposed to be responding to the current environment that imagines the operational side basically being handled by the fairies.
It's so simple. To provide mortgage relief in a fair and equitable way all you have to do is DOUBLE THE INTEREST DEDUCTION FOR 2007 & 2008. This would provide immediate relief, stimulate the economy, and KEEP PEOPLE IN THEIR HOUSES.
Tom and Tanta, if the plan is modified so that the term of the government loan matches that of the original, I think your objections are answered. It's also possible to eliminate government bureaucracy by having the mortgage services distribute the payments. There's not much complexity added if the payment is divided 80/20 to two different accounts. The government could sweeten the deal by coughing up for some additional service people.
Yes, I know, I'm pettifogging. But someone needs to.
That does sound more Marty "veteran funnyman" Feldman than Marty "veteran econ hack" Feldstein.
I got all set-up for a Tanta post and barely got to have a few sips of coffee. Nice post, short and sweet like a roasted maggot.
When you say "execute them all", you mean the documents right?
Harvard? The guy teaches at HARVARD?
When you say "execute them all", you mean the documents right?
Depends on which servicer we're talking about, I suspect.
Ms. T:
Minor typo in the first line.
Other than that. WOW! Pass the decaf.
Can I mail a copy to Marty?
As always nice going. (Snarkus maximus)
-- Hiding Out
Tanta do you remember Tom Lehrer?
Hooray for new math,
New-hoo-hoo-math,
It won't do you a bit of good to review math.
It's so simple,
So very simple,
That only a child can do it!
Like dudette,no need to be so,like negative.I mean REALLY,you need to like get in touch with some,you know, POSITIVE ENERGY!?!.LIke being so ,UMMM ,reality based just sucks.So like have some Kool-Aid to wash down these xanax and chill out....REALLY,like,you know,you should reach out for some FAITH,cause like,you know this IS the WALL STREET JOURNAL!!!! Not some Fuzzy thinking liberal rag that publishes the likes of Paul Krugman.So I'm sure it will make sense if you just drink a little more.Here,let me put a little everclear in your Kool-Aid,you look pale.
I'm just doing some back-of-the-envelope calculations here, but I'm thinking that for zero servicing fee on an average loan size of $40,000 compared to the current cost of small-caliber ammo, a medium-to-large portfolio servicer could probably turn a larger profit executing the borrowers rather than the documents.
But I'm not a trained economist and I went to some pedestrian state university.
This kind of thing makes me worry that when government intervention comes that it will just make things much worse.
Here Tanta goes screwing things up again!
Each one of these proposals that is totally unworkable, and which few sane "home owners" would participate in helps reduce the oxygen in DC that might otherwise go towards a non-disguised (and plausibly) gov bailout.
So, I applaud this and other ideas... they will put off the real day of reckoning for the dollar a bit longer.
That is, unless Tanta keeps it up.
Tanta,big five has some good Ammo sales 550 rounds of Federal .22 for $13 out the door.And of course he is at HARVARD,where GW got his MBA.
Barron's cover article this morning is speculating on an impending nationalization of Fannie Mae.
The hits just keep on rolling.
But I like latte's...
Another unintended consequence of having the Federal government in a lien holder postion on a property is that The Federal Government, pursuant to Federal Statute, has a one year post foreclosure sale right of redemption(Federal Tax liens have 'only' a 120 day post sale redemption right). This prevents the new owner (usually the foreclosing lender) from getting clear, marketable title until the year is up. This only happens currently on SBA loans and Federal Attorney liens, two rare situations. There is a procedure in place to allow the Feds to release the lien, but they usually want $$ in return for the release. And said release takes about a month.
iceman - Nationalization of Fannie Mae would be fiscal suicide.
At a time when looming entitlement costs (social sec, medicare) are about to blow up, it would just guarantee that our children and grandchildren get stuck with the bill for the baby boomers profligacy. They're already going to be paying through the nose as it is. Anyone who still works for a living or starts a business would be a sucker if this goes through.
Hopefully Bush & co. will fight this off long enough for the collapse in housing values to render it moot. I would not put it past them, though.
so the sample loan numbers indicate a 67 dollar savings and the borrower is trapped for life.
once again the government is nibbling (fiddling) around the edges while rome burns.
we can see the edge of the waterfall from our canoe and we are closer to it than to shore...hope you can swim.
What is to be done? - Paul Krugman Blog - NYTimes.com
The good news is that we're working on a solution. Any plan needs to recognize two critical points -
Housing valuations need to come down to normal valuation metrics. This topic never seems to come up. "Mr. Prince, Mr. Mozilo, Didn't it dawn on you during the last few years that writing mortgages on overvalued homes using horrific lending standards would end badly?"
The money is gone! The loss sharing / potential gain sharing arrangements offer the best opportunity. Bernanke is on target here.
BTW Tanta - keep on the 'incompetence' bandwagon, we need more attention placed on this topic. I read your earlier posting while on the road last week & very much appreciated them - couldn't reply much 'cause the internet access at Boondocks Truckstop on I35 is a tad slow (yes there really is one by that name).
Anywayz - I've come to the opinion we are seeing the mother of all peter-principle events right now. We've had approximately 25 years of unabated bull market (since Ronnie still had half a brain)... with only a few years of 'dot com distress' & 'S&L' to break the monotony.
A whole lot of financial services people have gone through their whole careers without ever really having seen much of a down draft. They have been promoted & moved laterally and promoted again without ever having to 'play defense' or been part of an 'tactical retreat'. Now these folks are the generals and are facing a rout like they haven't ever seen before.
Sure a few folks went through the 90-91 RE declines in Cali and the S&L/Farm & Oil Patch Bust of the 80s as well as dot.com... but not that many. They weren't as systemic as this event... good thing its still 'contained' or they'd (we'd) be in big trouble.
It is a career deer meet mr. headlights moment for most... even those (like the WSJ staff writers) who are old enough to know better.
Oh well, as my father used to say... "Some grow old and wise, some just grow old"...
Keep it up teacher - might have to add a 'lessons learned' summary page to your uber nerd section.
From the article on the FBI investigation into Countrywide this morning:
"Another potential issue facing the company is whether it has been candid in its accounting for losses. People familiar with the matter said that Countrywide's losses may be several times greater than it has disclosed"
The hits just keep on coming...
Sorry, above quote is from the FBI investigation article on wsj.com.
The FBI Investigates CFC...That could make even a young guy sweat.
FBI Investigates Countrywide - WSJ.com
I work for a large bank in Canada, doing mostly real estate secured lending and found CR a few weeks back. It is a blast to see where all the hard work goes.
Thanks to all the contributors here, it's always fun!
iceman - Nationalization of Fannie Mae would be fiscal suicide.
Pffft... its only money, what you worried about?
My guess is its gonna happen but not 'overtly'... it will be a 'covert' nationalization via some sort of RTC II.
And over all that might be the best thing to do IF we can clear & write off the debt fast. But that won't happen until folks fully fathom just how much of this is liquidity vs. how much is solvency.
We are still in the early phase of that discovery... we won't even get serious about it until after the election. Then there will be a big collective 'Oh my, look at this' moment.
I don't comment here much, but thanks for the analysis of this type of thing Tanta. Makes it easier for me to keep up with some of the complex stuff going on lately.
Keep it up teacher - might have to add a 'lessons learned' summary page to your uber nerd section.
Thanks, dear.
You know, I was thinking about adding item one to "lessons learned," namely that it's a cruddy idea to take an ARM when the underlying index value is at historical lows and fixed rate money is very reasonably priced.
Then I discovered that we've already forgotten that one.
Tanta - could you switch font colors when you're being sarcastic? Or maybe just boldface? Coz it's so hard to pick up on it sometimes.
One more item to add to "lessons learned" . . .
Never, ever read the WSJ editorial pages unless you are intentionally seeking to raise your blood pressure or lower your intelligence.
Lessons learned? I keep harping on the point that the real source of the problem here are the idiots that purchased the loans in the first place. They should all be tending the drive-up window at the local fast food joint. The balance is typical American greed.
I know! Why not just skip the step where the nuisance borrower is involved at all? Give the 20% straight to the lender(s) and call it a fancy name, "Patriotic homeowner act"?
Tanta,
Nice post. It does seem pretty amazing the plan is tripped up by a spreadsheet function and no one thought to check.
iceman writes:
Barron's cover article this morning is speculating on an impending nationalization of Fannie Mae.
That was a pretty alarmist piece for Barron's cover story, I was surprised to see it there. They've generally been fairly sanguine about prospects.
Tanta - could you switch font colors when you're being sarcastic? Or maybe just boldface?
What's the matter, you think the WSJ editorial page editors will show up to the blog and miss the point? I don't think there is a font color that would jolt those dudes out of their fantasy world. Maybe flashing lights? I'll look into it.
so the sample loan numbers indicate a 67 dollar savings and the borrower is trapped for life.
I'm willing to bet that's a feature, not a bug.
Matt,
How is the quality of lending in Canadian banks? Much of their losses have been due to write downs of American mortgage debt. Is there trouble ahead in Canada also? This isn't something I have been able to find information about. I have assumed that the lending standards have been much better but really don't know.
Free lunch!
it's not an all-you-can-eat fruitcake buffet, is it?
Allen, a fair number of people here and elsewhere have always been willing to borrow more than they should. It's not new and it's not American.
I don't say that's a good thing, I just observe that it is true.
What failed in this case was lending standards.
Couple that with abuse of securitization and leverage and here we are.
Tanta sez:
Maybe flashing lights? I'll look into it.
There is always the <blink> tag. But I think that has been banned by the Geneva convention.
We have reached the "zero hour"
everything the govmt proposes is insane, and will have no effect. they are grasping at straws.
Ha, never noticed the "You must be kidding" tag before.
Based on how fast things are deteriorating, the mortgage market will be nationalized one way or another. Citi is already pulling back because of capital hits. Lowering capital requirements on the GSEs gives them some extra loans to make, but further losses will pull all that back in a year at most. There's just not going to be enough capital for mortgage loans by next year at the latest and the feds will have to step in.
Here's my bailout idea. Let us mortgage holders borrow at the TAF window. We can put up collateral at least as good as the subprime CDOs the banks have. If our financial situation doesn't turn around, then the FDIC can take over our checking account. What's wrong with that?
I dunno how it works in blogspot, but in Microsoft Word you select your text - like let's say you typed "Feldman STFU you n00b" - select that, and then go format>font>[Text Effects]>"Las Vegas Lights"
Hmmm...
So people who put a down payment and didn't get a second will use this.
Sure.
I think it would be easier if people like me took out a second and mailed the proceeds to the treasury.
I can haz equity destrucshion loanz.
Cheers,
Tanta, you must take a position with the new administration, whoever it is. Not only do you have great judgement, you'd have the most entertaining press conferences in the history of Washington.
Never, ever read the WSJ editorial pages unless you are intentionally seeking to raise your blood pressure or lower your intelligence.
The WSJ doesn't have a comics section. Instead, they have a two page prose comedy section. Personally, I think the writing is kind of weak, but I can see the attempt at a sort of black humor. Swift wannabees, if you will.
I think it would be easier if people like me took out a second and mailed the proceeds to the treasury.
Don't you do that already?
but in Microsoft Word
All I can say is that if I could do that in Excel, Mortgage Pig would glow in the dark.
Clearly the intent of all this is to move money from responsible people to irresponsible home buyers. Once we admit to the true goal all kinds of straightforward solutions appear. I suggest removing AMT and doubling the deductibility of mortgage interest made revenue neutral by raising the income tax brackets. Still evil but transparently evil.
Thanks for the post Tanta. I always relax after these kind of articles. It's good to know that it's not even possible for these bailouts to work and that no one in their right mind ( I use that term advisedly) would ever actually PATICIPATE in these hokum ideas.
As long as they keep throwing out such nonsense, we're fairly safe from anyone ever coming through.
It's the concept of 'having solutions' that is being promoted, not that any of them could ever work. Nothing will work until the Great Unwind, unwinds...and then they won't be needed.
Long ago,when I worked at a bank,they gave me a free subscription to the WSJ.It was worth every penny.
Bob_in_MA writes:
That was a pretty alarmist piece for Barron's cover story, I was surprised to see it there. They've generally been fairly sanguine about prospects.
Generally, Barron articles have tended to be more upbeat but the editorial "Up and Down Wallstreet" has been consistently and highly bearish.
Tanta, awesome job at ripping this idiocy apart.
This is all getting a little crazy.
It's like some huge contest. As if this whole problem is some complicated riddle with a final solution out there, and we're taking submissions from Americans to see who has the secret solution.
Perhaps Oprah could sponsor a telethon, or you could text in your housing crisis/credit crunch solution to Ryan Seacrest.."if you like plan 1 text 1800SAVEUS1...if you like plan 2 text....."
Perhaps the winner will win an entire neighborhood (ready to move in now) in Riverside, or Stocton, or Las Vegas, or Pheonix.....
One obvious rule however...whatever the solution..it must include the involvement of the government...since we all know that when it comes to preventing these problems the government is just some meddlesome anti-capitalist inefficient beheamoth that will hurt the little guy through ineffeciency and higher taxes..."Do you want the mortgage broker office to be like the DMV?!!!", but when it comes to solutions after the fact, the government is a well-oiled machine that will reduce risk, increase efficiency, and decrease the cost to all involved.
I have a solution which I am eager to submit. It does involve the DMV, but that's all I am saying....don't want to give away too many clues...I really want to win. I don't need a whole neighborhood..but I have a cool plan to sell it back the government for their low-income housing program.
Tanta, maybe you can make one of the below forms for mortgage crisis bailout plans instead of spam:
Your post advocates a
( ) technical ( ) legislative ( ) market-based ( ) vigilante
approach to fighting spam. Your idea will not work. Here is why it won't work. (One or more of the following may apply to your particular idea, and it may have other flaws which used to vary from state to state before a bad federal law was passed.)
( ) Spammers can easily use it to harvest email addresses
( ) Mailing lists and other legitimate email uses would be affected
( ) No one will be able to find the guy or collect the money
( ) It is defenseless against brute force attacks
( ) It will stop spam for two weeks and then we'll be stuck with it
( ) Users of email will not put up with it
( ) Microsoft will not put up with it
( ) The police will not put up with it
( ) Requires too much cooperation from spammers
( ) Requires immediate total cooperation from everybody at once
( ) Many email users cannot afford to lose business or alienate potential employers
( ) Spammers don't care about invalid addresses in their lists
( ) Anyone could anonymously destroy anyone else's career or business
Specifically, your plan fails to account for
( ) Laws expressly prohibiting it
( ) Lack of centrally controlling authority for email
( ) Open relays in foreign countries
( ) Ease of searching tiny alphanumeric address space of all email addresses
( ) Asshats
( ) Jurisdictional problems
( ) Unpopularity of weird new taxes
( ) Public reluctance to accept weird new forms of money
( ) Huge existing software investment in SMTP
( ) Susceptibility of protocols other than SMTP to attack
( ) Willingness of users to install OS patches received by email
( ) Armies of worm riddled broadband-connected Windows boxes
( ) Eternal arms race involved in all filtering approaches
( ) Extreme profitability of spam
( ) Joe jobs and/or identity theft
( ) Technically illiterate politicians
( ) Extreme stupidity on the part of people who do business with spammers
( ) Dishonesty on the part of spammers themselves
( ) Bandwidth costs that are unaffected by client filtering
( ) Outlook
(continued)
and the following philosophical objections may also apply:
( ) Ideas similar to yours are easy to come up with, yet none have ever
been shown practical
( ) Any scheme based on opt-out is unacceptable
( ) SMTP headers should not be the subject of legislation
( ) Blacklists suck
( ) Whitelists suck
( ) We should be able to talk about Viagra without being censored
( ) Countermeasures should not involve wire fraud or credit card fraud
( ) Countermeasures should not involve sabotage of public networks
( ) Countermeasures must work if phased in gradually
( ) Sending email should be free
( ) Why should we have to trust you and your servers?
( ) Incompatiblity with open source or open source licenses
( ) Feel-good measures do nothing to solve the problem
( ) Temporary/one-time email addresses are cumbersome
( ) I don't want the government reading my email
( ) Killing them that way is not slow and painful enough
Furthermore, this is what I think about you:
( ) Sorry dude, but I don't think it would work.
( ) This is a stupid idea, and you're a stupid person for suggesting it.
( ) Nice try, assh0le! I'm going to find out where you live and burn your
house down!
Based on how fast things are deteriorating, the mortgage market will be nationalized one way or another.
That was true before 'containment'... Now you have to change 'mortgage' to 'debt' and I think the statement is pretty much right on...
How this 'nationalization' looks is still debatable - whether we have McCain or Obama in the WH and McConnel or Reid running the Senate - but the effect will be the same: some kind of socialization of loss while attempting to protect privatization of gain.
Like water running down hill - you know where it is headed just don't know the path it will take to get there. The proposal Tanta just picked over probably won't be the dumbest by a long shot.
"All I can say is that if I could do that in Excel, Mortgage Pig would glow in the dark."
To make the contents of a cell flash, or blink on and off. For such a feat, you are left to your own devices and the miracle of macros. By utilizing these tools, you can make cells blink by first designing a special style for the blinking cells, and then running a simple macro.
To create the special style, follow these steps:
Select the cell that you want to flash on and off.
Choose Style from the Format menu. Excel displays the Style dialog box. (Click here to see a related figure.)
In the Style Name box, enter a new style name, such as Flashing.
Using the controls in the dialog box, modify any attributes for the style, as you desire.
Click on OK.
You can now apply the style to any other cells you desire in your workbook. Now create the macros (there are two of them), as follows:
Dim NextTime As Date
Sub StartFlash()
NextTime = Now + TimeValue("00:00:01")
With ActiveWorkbook.Styles("Flashing").Font
If .ColorIndex = xlAutomatic Then .ColorIndex = 3
.ColorIndex = 5 - .ColorIndex
End With
Application.OnTime NextTime, "StartFlash"
End Sub
Sub StopFlash()
Application.OnTime NextTime, "StartFlash", schedule:=False
ActiveWorkbook.Styles("Flashing").Font.ColorIndex = xlAutomatic
End Sub
To start the items flashing, simply run StartFlash. The cells formatted with the Flashing style will alternate between red and white text approximately once a second. When you want to turn the flashing off, simply run the StopFlash macro.
There is one important thing to note about this macro: the variable NextTime is declared outside of the actual procedure in which it is used. This is done so that NextTime maintains its value from one invocation of StartFlash to the next.
Hooray for new math,
New-hoo-hoo-math,
It won't do you a bit of good to review math.
It's so simple,
So very simple,
That only a child can do it!
That was fun in 4-5th grade. Screwed me up for years.
Generally, Barron articles have tended to be more upbeat but the editorial "Up and Down Wallstreet" has been consistently and highly bearish.
iceman
Yeah, Abelson is great. Even if you don't agree with him (of course, being a bubblehead, I do), he's definitely one of the few business writers who can actually write. Kind of like William F. Buckley, 75-90% of the time I disagreed with him, but he was one of a handful of columnists who actually wrote well.
One thing about Barron's, it does move stock. I've seen shares of companies being lauded in there jump 3% on Monday. I wonder if this will have a contrary effect?
Tom Stone, heh.
Cote
"Clearly the intent of all this is to move money from responsible people to irresponsible home buyers"
Wide of the mark. The intent is to move the money to irresponsible lenders and hedgies . . . any benefit to the irresponsible homebuyers is merely incidental.
running a simple macro.
If that were any more complicated, it would be the solution to the mortgage crisis.
Maybe you can write some VB code to accomplish that?
Gary writes:
Dawg
"Clearly the intent of all this is to move money from responsible people to irresponsible home buyers"
Wide of the mark. The intent is to move the money to irresponsible lenders and hedgies . . . any benefit to the irresponsible homebuyers is merely incidental.
Hardly. Haven't you been reading the Ubernerds? Lenders count performing debt on their books as assets. The next to last thing they want is the principal back.
If that were any more complicated, it would be the solution to the mortgage crisis.
snerk
I was just about to observe that I think I'll just stick to =PMT.
Kiron:
Very different here in Canada. Income confirmation standards are actually in place, regular audits (internal or FCAC imposed) keep us neat. We do offer an ALT-A style of lending (for the self employed), but it is bound to 65% loan to value and priced accordingly. 100% homebuyer mortgages are offered in Canada, but anything above 80% loan to value MUST be insured by the CMHC.
What U.S. lenders have accomplished is nothing short of a miracle to me. The profits they realized were massive and now that D day is here they will flop down and wait for your government to bail them out. Imagine that, the debt on your house will still be owed, but you will also be paying for it through taxes for the next 50 years.
I'm in my mid 20's and this is my first credit crunch. First slowdown while in the business too. I've been reading as much as possible and in turn have become disappointed with the media as a whole. I thought all they lied about was war, or events in other countries. Sadly, mistruths are told even when they affect us here at home.
I thought all they lied about was war, or events in other countries.
Ahhh, to be young and trusting again,...
What teh hell is wrong with Feldstein? Oh former economic advisor and current professor at Harvard - nevermind...
Its stunning how amazingly naive and yes stupid most college professors are particularly those who are oft quoted on their supposed subject matter expertise.
They should stick to oogling interns and STFU
He's the same right-wing hack who predicted that Clinton's increase in marginal income tax rates would put the economy into recession.
Not that, in the current crisis, right-wingers have any monopoly on stupidity (cf Democrats in Congress).
I'm in my mid 20's and this is my first credit crunch.
I envy you. Back when I went through my first credit crunch we didn't have the internet. We didn't even have cell phones or fax machines. We had to huddle around the portfolio manager's office, warming our hands over a Telerate and reading the print version of the WSJ. Of course, with all our information coming from the WSJ, we weren't nervous . . . .
Its stunning how amazingly naive and yes stupid most college professors are particularly those who are oft quoted on their supposed subject matter expertise.
Another college professor weighs in...
Dr. Thoma's Take.
You think this comment section is 'aggressive'... check their out.
Reading the Fannie article in Barrons leads me to conclude that the government already has their hands and arms full with the GSEs and FHA.
I dearly hope our servants in Washington realize that it must absolutely maintain our REAL AAA rating.
trippy | 03.08.08 - 10:46 am wrote, Harvard? The guy teaches at HARVARD?
Much, much worse is that he's president and CEO of NBER.
Let's just face it, shall we?
When this is over, the Fed is going to end up holding hundreds of billions of dollars of worthless mortgage backed securities.
End of story.
Reading the Fannie article in Barrons leads me to conclude that the government already has their hands and arms full with the GSEs and FHA.
And that has stopped them from wading in deeper before?
Look for the 'Mortgage Surge' circa Jan 2009...
The proposal's author, Martin Feldstein (not Feldman) is considered one of the top economists of our era...
Just saying.
Wait a sec,... I can make this work. But instead of the government we use a private corporation, we'll allow them access to the FED discount window, we'll take off that arbitrary 20% cap, maybe they can increase their capital base by taking in deposits and issuing credit cards, we can call it a Big And New Korporation (B.A.N.K.),.. hey, Average Joe, I think I have an entry in the contest!
When this is over, the Fed is going to end up holding hundreds of billions of dollars of worthless mortgage backed securities.
I wouldn't feel so bad about that if they actually take ownership of the mortgages and resultant collateral (homes).
Then maybe they can knock some down and turn it into 'National Forests' like what happened with abandoned farms in the Great Depression... then we'll all have a place to ride our ponies.
Tanta:
Envy away. I have a pretty good feeling of what is headed our way. And, for that matter, the way of my clients. I still have aggressive sales goals and numbers to meet to ensure I have a long and happy career ahead. I would KILL for some ignorance right now.
Perhaps this online subscription to WSJ is worth the money...?
dryfly- "...we'll all have a place to ride our ponies."
I'm going to eat mine.
Small correction: Its Martin Feldstein not Feldman who was published in the WSJ.
I would KILL for some ignorance right now.
To each his sufferings: all are men,
Condemned alike to groan;
The tender for another's pain,
The unfeeling for his own.
Yet ah! why should they know their fate?
Since sorrow never comes too late,
And happiness too swiftly flies.
Thought would destroy their paradise.
No more; where ignorance is bliss,
'Tis folly to be wise.
"And that has stopped them from wading in deeper before?"
The reality is we're already in serious deficit. Given declining tax receipts, we really don't have a lot of room for a big bailout. If they try and push a big bailout, long rates will rise negating the impact of the bailout! If the long end of the yield curve rises dramatically, it's over for certain. The Fed best be paying close attention to that notion. We need you Paul Volcker...
What struck me, but that no one else seems to have mentioned, was that "The legislation would also provide that the government must be repaid before any creditor other than the mortgage lenders."
I guess the theory is that the people who would be expected to make use of this proposal have no auto loans or credit card debt. Because otherwise, I'm not sure what they expect to happen when borrowers are required to stop making payments on their other debts for 15 years.
Small correction: Its Martin Feldstein not Feldman who was published in the WSJ.
Not only am I a complete idiot about that, but I've just spent ten minutes trying to fix it and Blogger won't republish the post.
So it'll be like that until whatever the hell is wrong with Blogger goes unwrong. Just my luck.
Do you think Dr. Feldstein will be upset that I made it harder to trace this proposal back to him?
Allen C- "...we really don't have a lot of room for a big bailout."
Evidently, you didn't get the memo. The largest bailout in the history of the planet is going on right now.
Matt writes:
Tanta:
Envy away. I have a pretty good feeling of what is headed our way. And, for that matter, the way of my clients. I still have aggressive sales goals and numbers to meet to ensure I have a long and happy career ahead. I would KILL for some ignorance right now.
I had a smaller dot-com from 1994-2004. I saw the absurdity of the bubble, I knew things were going to fall apart. I had a big cash buffer and maintained huge profit margin. I expected my ad revenue to fall 30-40%, maybe 50%.
It fell 90% in less than six months. Not only did the dot-coms buying ads die out, the big traditional companies slashed their ad budgets. I was on the verge of closing down, more than once.
Just a word to the wise, it can get way worse, way faster than seems possible, even for those who see it coming.
Ok, I don't amortize. BUT even I know that by halving or nearly-halving the term on a 30-year loan (since most mortgages are recent due to refis) you are pretty much going to lose any interest savings. But hey! I could hold onto my savings for a few months and buy my kid a Webkinz.
I have a theory that when Junk Bond King Michael Milken got a "bonus" of $550 million in 1986 (he went to jail for securities fraud; his current net worth $2.1 billion), executives and Wall Street drooled over the possibility of making that kind of money without going to jail. Reagan's firing of striking air traffic controllers (I am not saying the strike was valid) gave those executives and Wall Street tools to orchestrate their dream into today's reality. No wonder eighties was shaped by people such as "Former economic adviser to President Reagan and current Harvard professor Martin Feldstein"
“But delay and the constant introduction and consideration of new and unsound measures has kept the country in a state of uncertainty and fear, and offset much of the good otherwise accomplished.”
From the 1932 Republican Presidential Platform.
Republican Party Platforms: Republican Party Platform of 1932
And from the DemocratÂ’s 1932 Presidential Platform.
“We condemn action and utterances of high public officials designed to influence stock exchange prices.”
Democratic Party Platforms: Democratic Party Platform of 1932
Small correction: Its Martin Feldstein not Feldman who was published in the WSJ.
Oh go burst by balloon...
Tanta, OT, but can we expect your estimates of purchase and sales transactions for the LFKAJs soon now that the info is available? it's not very comfortable sitting on the edge of my seat like this...
What struck me, but that no one else seems to have mentioned, was that "The legislation would also provide that the government must be repaid before any creditor other than the mortgage lenders."
That's not such a biggie... just hand it off to Sallie Mae & treat like student loans. I mean there are no problems in that sector right?
Ok, I don't amortize. BUT even I know that by halving or nearly-halving the term on a 30-year loan (since most mortgages are recent due to refis) you are pretty much going to lose any interest savings.
Well, reducing the amortization does really save you a ton on interest charges over the life of the loan.
It simply does that because it increases your rate of principal repayment. And that increases the monthly installment.
If you don't have to worry about what your monthly payment is, you should just refinance your loan into a 15-year fixed. Today you could get 5.50 on that. Over the life of the loan, that would save you many thousands of dollars.
My point was simply that people won't do this, because either 1) they need a lower payment now to keep out of FC, or 2) they'll do it, and it will increase their monthly payment, which will push them into FC.
I read to the second paragraph and knew it was bullshit.
Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots.
Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots.
Marcus Aurelius | 03.08.08 - 12:49 pm | #
So ummm, Marcus... how long have you been campaigning to be treasury sec'ty in the new administration?
Tanta, OT, but can we expect your estimates of purchase and sales transactions for the LFKAJs soon now that the info is available?
You know, the problem there is that I got totally gobsmacked both ways: the guidelines/LLPA were much more conservative than I thought, on the one hand, and the number of MSAs affected was much larger than I thought (having misunderestimated HUD's ability to play with price numbers).
So it'll take me a while to work through it.
Oh go burst by balloon...
I thought "Feldman" was funny, but I'd rather "fix" it than let the correction requests pile up.
So it'll take me a while to work through it.
Tanta | 03.08.08 - 12:52 pm | #
That was probably part of the plan... make it sufficiently obtuse & opaque so no one really knows for sure the impact until say... mid Nov 2008 at the soonest.
Can you beat that deadline?
Remember the monkey from the Simpsons that went to space and came back super intelligent??
I wonder what he would offer as a solution??
I agree with the posts that say the gov is going to wind up with all this garbage in the end. The good financials out there will find a way to make a buck at it. Fast.
Wells Fargo has told mortgage brokers that Wells will issue pricing for "conforming-jumbo" loans on March 17. I assume they'll start accepting rate locks, and start underwriting, then.
Ah! I was waiting for the Tanta post on this. I was too lazy to dig out a calculator, but assumed that higher principal payments on 15 year amortization would significantly reduce the lower interest rate's impact on monthly payments. It's even worse in that regard than I suspected. Second thought was how long will Treasury rates stay at 1.6%? Since the loan is an ARM even the interest saving is at some risk. Third question, was who pays for the servicing? Fourth, which I see Professor Thoma is asking, is how the government handle would defaults since this is unsecured debt.
And of course, we can just go on from there, but why bother when Number One makes the whole thing moot. Unless of course we just feel like making fun of Dr. Feldstein, which has some appeal on rainy Saturday.
quartz, I think we're supposed to believe that speeding up the amortization will somehow keep up with house price depreciation, or at least meaningfully offset it.
It is true that if everyone just starting making an additional $1,000 per month in extra principal payments, not only would they save jillions in interest costs over time, but they'd get right-side up eventually!
However, if I went with a plan like that, some smartass blogger would try to claim that people don't have another grand a month to pay down debt with.
What happened to blogger? I cant get to any of the websites, did the Bush admin try to silence the critcs of these bailout plans.
I don't know, but Blogger is well and truly Bloggered at the moment.
You have really pissed them off now Tanta. Better watch what you say(type).
I'm going to eat mine.
mp, please tell me you are a woman, because, as a spittle-flecked right wing conservative nutter, I would have issues resolving my feelings towards you if you weren't.
Cheers,
prat
supporting what Iceman said at 11:14 above, i had the following, conversation, yesterday, with "friend" who is a local manager at a bank that has branches nation-wide.
we were discussing perter byrnes thesis that broker-dealers use FTDs as long term IOUs masking of stock security inflation and allowing naked short puts.
then this bank manager said to me, off the record, that the losses revealed so far in the mortgage industry have been grossly understated AND, as has been discussed here, the entire loan-debt industry is riddled with "subprime" type losses. He voiced the opinion that "the system" is in his opinion likely to "fail".
i apologize for not giving attributio
Ummm, it was my fault. The guys were saying bad things about Hillary on my blog and you know who invented the internet and all.
Maybe it was my suggestion that the HMID be double deductible. Seeing as my kid is trying to get into Harvard maybe we can combine the two ideas. A $400,000 mortgage at 6% costs $2400/mo. Same as a $230k at 12% or $160k at 18%. Banks take a one time hit but enjoy substantially higher income and borrowers get substantial tax benefits.
"Seeing as my kid is trying to get into Harvard"
Congratulatinons! Just falsify your tax returns and you have to pay a dime.
Did you say Hell??
*won't have to pay a dime
"Here's my solution. Move the decimal point for all debt one space to the left. Move the decimal point for all income one space to the right. Fixed! And all we have to do is move two silly dots."
Marcus Aurelius | 03.08.08 - 12:49 pm
I can't remember if this helps me or not. Several families pay me each month for the mortgages I hold on their homes. If we move the decimal point to the right on the payments they make I get rich and if we move it to the left on the money they owe me they get rich too. I think I like the idea.
Then I remember that the payments I make to the bank for financing the project is income to them so I have to move the decimal point to the right(?) on the check I write to them but I move it to the left on the balance owed. Now I'm really getting somewhere!
The bank incereases its reserves faster because everyone is paying more, my debt is evaporating and my income has skyrocketed. This is truly a win - win - win idea!
Now, who should we tell? A right wing politico or a left winger?
Maybe we should just find a left handed guy with no income and no debts - he'll be absolutely impartial. Elect him Pres. and let him announce the plan.
Crispy&Cole,
Unfortunately I don't have to falsify my returns to fall into that category. The funny thing is in that regardless Harvard would cost less than attending the University of California system with the State's much vaunted no tuition policy written into the Constitution. Like so many other forms of government the State has abandoned all pretense of being held to a rule of law constrained by enumerable powers.
mp "When this is over, the Fed is going to end up holding hundreds of billions of dollars of worthless mortgage backed securities."
As was pointed out by a commenter a few weeks ago, it's going to be interesting when the US government is in a position to foreclose on citizens homes. I believe if you check the schedule that comes up around late January of next year
Brilliant, Tanta.
BTW, when are people gonna stop this nonsense about saving homeowners and call a spade a spade? This is about bailing out banks.
Consider that some or many of the "solutions" being proposed are NOT really aiming to prevent FCs or to help borrowers, but rather to Persuade Voters.
Depending on the allegiance / source of the "solution",
A) If it's coming from in or someone sympathetic to the currently reigning party, it's purpose is to persuade voters that Something Is Being Done, so Vote 4 Us.
B) If it's coming from someone sympathetic to a different party, it's purpose is to purpose is to persuade voters that Something Will Be Done, Vote 4 Us.
If possible, proposers of try to accomplish A) or B) and simultaneously help their buddies nearest the top of the pyramid (all parties?), preferably in ways that are not too glaringly obvious. That includes "solutions" that they think might help "confidence" (=more votes and $upport) from the business community.
It's nasty before the now certain reduction in receipts...
Excerpt from Prudent Bear -
March 4 – Bloomberg (Brian Faler): “The U.S. budget deficit will widen this year to at least $357 billion, the most since 2004, as the economic stimulus package drains tax revenue from the Treasury, according to the Congressional Budget Office. The shortfall will prove even larger if lawmakers approve President… Bush’s pending request for an additional $100 billion this year for the wars in Iraq and Afghanistan… The CBO estimate is 63% higher than the one it issued in January…”
Banks face "systemic margin call," $325 billion hit: JPM
By Walden Siew
NEW YORK (Reuters) - Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co (JPM.N: Quote, Profile, Research), said in a report late on Friday.
JPMorgan, which sent a default notice to Thornburg Mortgage Inc. (TMA.N: Quote, Profile, Research) after the lender missed a $28 million margin call, said more default notices and margin calls were likely. The Carlyle Group's mortgage fund also failed to meet $37 million in margin calls this week.
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages," according to the report co-authored by analyst Christopher Flanagan. "We would characterize this situation as a systemic margin call."
[snip]
You will not get any proposal passed in an election year or the year after that and by then events will make any proposal irrelevant.
I've been keeping track of undeveloped land offer prices in Sonoma County for couple years. No real drop in listing prices yet. Interesting!
Increasing delinquencies and foreclosures on homes but raw land is still being listed at bubble prices! What gives?
Do you see this pattern in other areas?
Chris writes:
You will not get any proposal passed in an election year or the year after that and by then events will make any proposal irrelevant.
Chris | 03.08.08 - 2:16 pm | #
Only if the problem stays contained to sub-prime & RE... if not then these problems will be hanging around well into 2009 & beyond.
Given that I agree with your point #1 (nothing this year) but would not assume point #2 (nothing after the election)... that will depend on how tight the election & will the same party hold both houses & the white house. My guess is they will be divided but not sure.
Cheers,
prat
praetorian | 03.08.08 - 1:22 pm | #
Don't worry prat, most conservative right-wing nutters have that same problem.
Just get yourself a beard, vocally denounce the gays, and get comfortable in the closet! hell, you could be elected Senator from ID or Congressman from FL, or even pastor of a megachurch
By the way, is blogger gone all hinky for everyone else or is it just me?
Bush claims the US is NOT in a recession. This of course proves that it is. Iraq was full of WMD too, remember?
BBC NEWS | Business | Bush insists US not in recession
Increasing delinquencies and foreclosures on homes but raw land is still being listed at bubble prices! What gives?
Do you see this pattern in other areas?
Yes IF the land has agricultural potential... then land prices are holding up very well. Commodity bubble meets housing bubble.
mt - [then this bank manager said to me, off the record, that the losses revealed so far in the mortgage industry have been grossly understated AND, as has been discussed here, the entire loan-debt industry is riddled with "subprime" type losses. He voiced the opinion that "the system" is in his opinion likely to "fail".]
Here's where I feel a little uneasy. I find myself unable to put the current state and inevitable near term future of this calamity into any sort of context. Seriously, is there any prior economic situation that might be comparable in any way? I remember the '70s stagflation and fuel crisis but in many ways, given the globalization that we are supposed to be immensely thankful for and the irreversible twin deficits , this situation could easily be far far worse and more difficult to claw our way out of.
I wasn't around in 1929.
I know this is stupid but don't these guys even read thier own words?
3rd par "Although individuals who accept the loan would not be lowering their total debt, they would pay less in total interest"
5th par "average level of house prices has further to fall"
6th par "The loan-substitution program would decrease the number of homeowners who would come to have negative equity "
The FB still has the same debt, housing prices are still going to fall but by some slight of hand the number of FB who would be underwater is lower?? Not unless they think this is somehow going to stop housing prices from falling, but that may be part of the fantasy too, or maybe some more of that new math I don't get.
Only if the problem stays confined to subprime & RE ....
Oh well: Defaults soar on auto loans in pattern likened to mortgage crisis - The Boston Globe
One would hope The Fed is able to come to terms with accounting in regard to FASB 157 and 158, both of which were delayed last year. These FASB accounting issues are related to mark-to-market disclosure and valuation.
The collateral transfers in question here are simile-like, i.e, we have corporations dumping toxic waste into our drinking water, while The Fed lowers the parts per billion accountability levels.
The Level 3 mark-to-market accounting is to help us plain farm folks understand more about the derivatives and behind the scenes illusions, e.g, Level 3 speaks of unobservable assets, which need to be valued at current market rates. Why then, as citizens of America are we being placed in a position where accounting rules are not being used, not being implemented or used to help strengthen our economy. It seems to me, this is a matter of National Security, and if we allow a bunch of crooks to keep dumping toxic junk into our system, we will all be impacted by the insidious nature of this cancer!! Get real, these crooks need to go to jail and we need to see people in this government resign for contributing to false and misleading information and fraudulent accounting practices!!
Anyone seen Warsh?
energyecon,
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages,"
Thanks for that. I was thinking of having a beer with lunch. I think I'll make it a double 'tini.
I have a solution. Let the whole stinking gov't oligopolized pile of crap that is the FRB and War Shriek collapse.
I'm well provisioned. I'm also in a bad mood. Bring it.
Cheers,
I also wrote about the topic of 'sovereign immunity' at the current end of the Hume Bank thread. It is best for a govt agency to handle these and other matters because it can invoke 'sovereign immunity' case law to fend off nit picky lawsuits and almost always win. The FDIC often turns to this well established case law to defend itself against all manner of suits. Where is lawyerliz?
Definition of Sovereign Immunity:
Sovereign immunity - Wikipedia, the free encyclopedia
Nationalization of Fannie Mae would be fiscal suicide.
You mean like cutting taxes while increasing spending?
Sounds like this would be right up their alley.
"A systemic credit crunch is underway, driven primarily by bank writedowns for subprime mortgages,"
I've been predicting it, but not hoping for it.
Perhaps Seb could post some happy model data from his Wright Brother's model BS Flying Pig thingy. Clear up my gloom a bit.
Cheers,
FFDIC,
Ah sovereign immunity. Isn't it great. You can't sue me for committing a crime because I rule you.
Lovely stuff.
Cheers,
I'm well provisioned. I'm also in a bad mood. Bring it.
Reminds me ... let's see:
White tuna packed in water - check.
Stoly (the one with the handle) - check.
First season of 'Get Smart' - check.
Now they can bring it.
ac,
Unless the gov't's budget is balanced or less, it doesn't matter what you do with taxes. And frankly, if taxes were raised to the point of 0 to less than 0 deficit, foreclosures and economic chaos would commence forthwith.
Hell at this point I'm OK with that as well.
Cheers,
First season of 'Get Smart' - check.
Damn! You are well provisioned. I need to go to Amazon and add that item.
Cheers,
I wouldn't feel so bad about that if they actually take ownership of the mortgages and resultant collateral (homes).
Several months back I commented about what happened in Florida during the early 1930's. It could happen again, although on a national scale is frightening.
Misean - digest this:
Covert Nationalism
Its what we were discussing weeks ago regarding TAF & reserve balances & when is a loan not really a loan... finally other folks are starting to 'get it' too.
So is it too early for 'tinis? Big ones at that?
Finally a believable explanation for all the looting and pillaging of the last few years:
From the NYTIMES:
“The whole point of acquiring a good reputation is to deplete it for gain,” said Frank Partnoy, a professor of finance at the University of San Diego Law School and a former investment banker at Morgan Stanley. “You expand your investor base and find the less sophisticated investor. But you can rebuild your reputation, too. Now is bad, but the memory of financial markets can be measured in days.”
- NY Times? ref=business
What ever happened to fiduciary duty?
Blogenfreude,
If you watch Get Smart, maybe you could speculate for us whether Hank Paulson really works for Chaos or Control.
If you haven't already, visit Naked Capitalism naked capitalism
today and read "Covert Nationalization of the Banking system."
OT--the following post, linking to Hamilton and Econbrowser, is also required reading for commodities bulls.
blogenfreude,
consider the oil packed - more calories and fewer issues if things get a bit chilly...
The FB still has the same debt, housing prices are still going to fall but by some slight of hand the number of FB who would be underwater is lower??
Sure. See, if you take 20% of your debt and convert it to a 15-year amortization, at a lower interest rate, you will begin paying principal back faster. Why, in my second example (the 6% loan), the borrower who did the conversion would be $146.90 less underwater after one month than if he had not done the conversion! He could be nearly $2,000 less underwater in a year! So if prices fall 10% in his market, he only goes 9% underwater!
If we could just make people understand that volunteering to pay back the principal faster would help them, I'm sure they'd start doing it.
Damn! You are well provisioned.
And if Ben cuts rates again I'm ordering Hogan's Heroes. You can't be too careful.
dryfly,
Brilliant pull...in process of reading it now. Back in a few.
More TAFfy more repukes...er...repos.
Yep it's centered on the Fed, because the law says so...and the thing is imploding down to its base.
Holy horse puckey. Can I have my pony now. I need to get it to the butcher, whilst he's still in business. (hat tip mp).
Cheers,
The question I have about all these plans is shouldn't the precepts be explained up front before going into details? I know that makes for easy dismisals, but how else do you justify any train of thought.
In theory, shouldn't any plan hurt/help every party equally?
Save the banks now, but get your pond of flesh for the next decadee. Homeowners? Hope you like those granite counters because you'll be lookin at em for the next decade, min.
Mortgage brokers better brush up on their landscaping skills
blogenfreude,
I'm getting Bewitched if that happens.
Samantha...Ahhhllll.
Cheers,
Bank failure may be a given... but let's hope we won't see any heart failures:
http://www.admin.cam.ac.uk/news/dp/2008022601
"Former economic adviser to President Reagan and current Harvard professor Martin Feldstein"
Consider the source - one of the purveyors of voo-doo, always-fail "supply side" economics.
He couldn't do arithmetic then and can't do it now.
If you watch Get Smart, maybe you could speculate for us whether Hank Paulson really works for Chaos or Control.
If he says "Missed it by that much!" when everything goes into the shitter, we'll know for sure.
Every few weeks they come up with some unworkable plan.
Meet the other side of "too big to fail", it's called "too big to save".
Keep all the whining leeches occupied trying to game the bailout options long enough and then pull the rug when even the most radical left winger can no longer bail it out.
They lose a percentage of their paper profit. Big deal. If they already blew it on crack and hookers or granite, stainless steel and fancy German cars it is their personal problem.
dryfly,
You're right. Nothing their we haven't thought of before, but nicely stated.
I'm entirely convinced that several large banks are insolvent. That Abu Dabi is unwiling to give Shiti any more money is an indication that the big boys know this
A run on the banks should require at minimum a pitch fork and a torch.
Cheers,
My thought, on a first reading of the plan, is that it needs steam power and an egg-beater involved to get to its full Rube Goldberg potential.
Here is the question: has the Bush administration promised these SWFs that the Fed will take the hit through TAF?
Have they promised, explicitly or implicitly, that the US taxpayer will take an essentially subordinate position to SWF equity investments?
Sadly, I can't rule it out.
Excerpt from Entering the Repossession Lane posted upthread.
Since his car was taken away, Chilcot has started walking to work at his new job - as a car salesman at a dealership in Plymouth.
When asked whether he tries to caution people against buying a car they can't afford based on his recent experience, Chilcot chuckled: "Not really. You become pretty shameless pretty quick when the paycheck comes."
Get Smart.
YouTube - Get Smart 1965 - Stakeout on Blue Mist Mountain
Cheers,
Don, I looked at your blog. FYI, Marriner Eccles was FDR's Fed Chairman, probably the best in a long line.
The Fed building in DC is named after him.
Bystander, at the risk of being pedantic it's KAOS, not Chaos. (When I was in grade school our entire class put the wrong spelling on a test, except for one rather bright student who was not allowed to watch TV.)
Gary,
"Have they promised, explicitly or implicitly, that the US taxpayer will take an essentially subordinate position to SWF equity investments?"
I should doubt it. I think they're playing the greater sucker rule now. As in:
Buy my sh&^ or eat it.
However, I'm not ruling that out down the road.
Cheers,
My bunyon growths are telling me that these plans are all leading to the mother of all plans, which is that the govt. just assumes ownership of most of the housing in this country, and we the plebes will be renting from them. Maybe I'm just too conspiratorial for this group...
Don,
Oh just let Wile E. Coyote give it a shot.
YouTube - Wile E. Coyote vs Road Runner
Cheers,
Outsider,
How does a bankrupt gov't assume ownership of $6T of debt?
I think they'll try it. Got PM?
Cheers,
"Have they promised, explicitly or implicitly, that the US taxpayer will take an essentially subordinate position to SWF equity investments?"
Does it matter? I mean where is the dividing line between their junta and ours? Its like separate subsidiaries of one giant MNC - some are profit centers others are cost centers but they all cycle money around to each other so the principals can gain.
Trying very hard not to be TOO cynical but given the lack of transparency I am losing the battle...
dryfly,
"I mean where is the dividing line between their junta and ours? Its like separate subsidiaries of one giant MNC"
I think I like your analysis better.
Cheers,
My bunyon growths are telling me that these plans are all leading to the mother of all plans, which is that the govt. just assumes ownership of most of the housing in this country, and we the plebes will be renting from them. Maybe I'm just too conspiratorial for this group...
Almost right. They won't call it 'renting' it will be called 'ownership'...
You too conspiratorial? Probably, but only by half.
If we could just make people understand that volunteering to pay back the principal faster would help them, I'm sure they'd start doing it./i>
The problem seems to me to be that those who are underwater but can afford their payment are only going to be tempted to "walk away" if they are (a) so much underwater that this won't help in the foreseeable future, like $100,000 underwater; or (b) are underwater and need to move but can't arrange a short sale. I don't see how this plan helps either kind of person.
There was a protest of the construction of a new highway in front of my office building yesterday, and a co-worker mentioned (with what appeared to be longing) that if your house was eminent-domained away, you'd probably do better than the open market at this point.
Mea culpa for the bad italic tag. Bad tag! Bad! Bad!
dryfly writes:
Misean - digest this:
Covert Nationalism
Its what we were discussing weeks ago regarding TAF & reserve balances & when is a loan not really a loan... finally other folks are starting to 'get it' too.
Actually, Steve Randy Waldman 'got it' in this post on Dec 16th, 2007.
Interfluidity"
(hope haloscan doesn't fry that link)
Judging from recent events, it's a race between the Fed and the cascading cross defaults. Namely, can the Fed buy out enough of the bad debt before it implodes the system? The debt is going to be nationalized one way or the other, there is no way the private system can eat this pig. The python just ain't big enough. Look at the numbers, the SWF buys are a drop in the bucket compared to what the Fed is going to pour in before the end of the month! I have no clue what this will do to the economy or the markets, but it is getting real interesting.
Cheers,
My bunyon growths are telling me that these plans are all leading to the mother of all plans,
Maybe that's your shoe phone ringing. Go to the Cone of Silence and answer it.
me writes:
If you haven't already, visit Naked Capitalism naked capitalism
today and read "Covert Nationalization of the Banking system."
I would love to see an in depth discussion of this. I admit I don't fully understand it (I am an engineering nerd) but my gut says it is very very important. A lot of distortions that are frightening people seem to originate in this FED action. Also, the secrecy makes me think people in the know think "we can't handle the truth!"
Carl Somers,
So what's your point?
And by weeks, we old farts could mean months. But it's good to see mainstream analysts recognizing this.
I need another double 'tini methinks.
Cheers,
KAOS, not chaos. Thanks for the correction, Zero! Not the first time I've gotten something wrong on this blog.
I find the discussion on the Covert Nationalization thread on nakedcapitalism to be pretty interesting. The three zillion dollars Hedge Fund book is outside the banking system, but connected to it. Makes me dizzy trying to imagine how the market will will be anything besides a smoking pile of rubble when this is over.
I think that this government is ready to sacrifice all savings to try to monetize bank losses.
I had a dream several months ago that I was increasing the value of my trading account with short plays I was very proud of myself for doing so, but in the dream, I read a notice on the logon page of my brokerage account saying that trading was halted all withdrawals were indefinitely suspended. I woke up in a sweat.
I have not yet liquidated all of my positions. We are all players in the game of brinkmanship.
This plan does nothing to diminish the attractiveness of a "walk-away" where the equity held by the borrower is now negative.
Although I haven't seen a report on this happening yet, for a well-heeled borrower with negative equity, the soundest approach from an economic viewpoint might be to walk away from his mortgage and then repurchase the property at the foreclosure sale.
I see nothing in any of the plans that makes this less attractive.
Mykingdomforanos,
"This plan does nothing to diminish the attractiveness of a "walk-away""
Of course it doesn't. Because as Tanta pointed out...it's STUPID!
Now I've found a great thread of Wile E. Coyote shite on youtube. So make some requests...I'm primed for bear.
Cheers,
Negative Equity? It's like anti-matter, and negative energy. We just need to re-configure the containment field for the dilithium crystals. Get those financial engineering boys back to work on economic quantum black holes and throw all the debt into them. Problem solved.
I just realized if Ms. Cote goes to Harvard and comes out spouting stuff like this, we'll be able to generate a few megaWatts of electricity from the steam escaping from Daddy's ears!
Misean,
"Of course it doesn't. Because as Tanta pointed out...it's STUPID!"
I think you miss a more subtle aspect of this situation--making lemonade from lemons.
The walkaways are going to happen, no matter what we do. Generally, the people walking away are not destitute; they're just not stupid. Generally speaking, they have jobs and assets and, on the face of things, are not bad credit risks.
One of the banks needs to break ranks and offer these people full-recourse loans to purchase foreclosed properties at auction. What a boost to the bottom line!
But, but--that would be "moral hazard" and we couldn't tolerate that sort of heresy in the national religion, could we?
Well, sometimes ya gotta do what ya gotta do. The vacant homes are lost causes anyway--why not stimulate the economy a bit with some easy financing?
Must be great to be able to write economic proposals in the WSJ op-ed without ever having to fire up a spreadsheet to see if the numbers make sense.
The only reason I like the proposal is that is has the appearance of a government bailout (so congress can claim they have done something), but no one would ever take them up on the proposal once they see the numbers for their own situation. So we get 'bailout' headlines without the bailout costs! A great result all around I should say.
Negative Equity? if i remember correctly
isnt that something like the negative non borrowed reserves
Does anybody here (except for O-Joe)believe that the real estate market will be higher in 4 to 5 years than it is today?
My guess (based on the comments)is that most here will bet on it being lower than today. Maybe much lower, perhaps already rebounding from the low. But in any case, probably lower than today.
Then why should a homeowner who has negative equity today take ANY deal. WALK AWAY!!!
But remember to walk away only AFTER they foreclose on you. Live in the house mortgage free for as long as you can. And with the backlog of foreclosures it could be a while. Save your money, fix your credit and repurchase your home in 4 to 5 years FOR LESS. Financially that is the better plan.
The scary thing about this market is that people are starting to get it. They are figuring out that this is the best plan of action.
Wait till next year and the following when the option arms start tripling. Oh what fun!
Judging from recent events, it's a race between the Fed and the cascading cross defaults. Namely, can the Fed buy out enough of the bad debt before it implodes the system? The debt is going to be nationalized one way or the other, there is no way the private system can eat this pig. The python just ain't big enough.
We need a Department of Financial Security'... that ought to fix everything. Put everything not in the Dept. of Defense or Dept. of Homeland Security into it...
With only three cabinet appointments it would be 'streamlining' gov't too. Everybody is in favor of that, right?
sdtfs writes:
I just realized if Ms. Cote goes to Harvard and comes out spouting stuff like this, we'll be able to generate a few megaWatts of electricity from the steam escaping from Daddy's ears!
Just as likely 'vard starts talking sense by the time she's through setting them straight.
I'm increasingly of the opinion that the reason we hear so many crazy ideas is that some people cannot admit to their goals while more and more are subconsciously coming to the realization that there are limits to all useful mathematical models. The error stems from "financial engineers" thinking they were real engineers.
Does anybody here (except for O-Joe)believe that the real estate market will be higher in 4 to 5 years than it is today?
In nominal or real dollars? Or say ounces of gold or barrels of oil or bushels of wheat?
My guess is in five years RE is higher than today in 'nominal terms' because the fed won't rest until that happens... but I have no idea how many bushels of corn or ounces of gold that will be.
Cascading cross default them from orbit. It's the only way.
Cheers,
Misean, if everyone cross defaults are they still really defaults?
I mean if it is done all at once. Maybe they all just go away in a giant debit-credit implosion like matter antimatter.
Can we power cities from this - like financial nuclear power? And if so is it 'clean' and 'safe' or will there be residuals left we will need to bury at Yucca?
I think I need to purge my brain by eating some Chinese food and watching some hockey - hockey makes way more sense than what I'm thinking now.
The commodities bit is a real crapshoot. Bio-engineering blue-green algae to take up gold from seawater and then gold makes a decent industrial metal and nothing more. Kinda like what would happen to diamonds were lab processes allowed to be commercialized. Never forget the capstone to the Washington Monument.
Same for corn, wheat, etc. US could probably triple tonnage in 5-6 years because for decades we've been abandoning adequate acreage due to economics.
Then there's solar. We are right on the cusp now. Another 15% increase in yield or 30% decrease in price and all those sun belt McMansions not only get free electricity but may actually produce something useful. That happens and NatGas demand plummets and energy fungibility does the rest.
higher in terms of income? no way
dryfly,
If it's all done at once, you can see it by flushing the toilet.
Hockey's good. Dr. Who is up next on BBC I think. That'll be my Sat habitat.
Tomorrow the Lakers.
So I might be insane, but I got my priorities.
A man's gotta know his limitions.
I gots to know:
YouTube - Dirty Harry
Cheers,
Misean ... best Wile E. Coyote ever = Operation Rabbit: YouTube
- Broadcast Yourself.
Lemonade??
To drink this pig pretty you'd have to make 100 proof lemoncello.
Halve a bunch of lemons, stick in a gallon summer tea jar and fill with grain alcohol, let steep or 40 days in a dark place next to Helicopter Ben.
Strain out solids using cheesecloth, add simple syrup to double volume and sit for 40 days.
bottle and store in bunker next to tuna and away from ammo.
blogenfreude,
Thanks man.
Wile E. Coyote...Super Genius.
ROFL..
Cheers,
sdtfs
the shoe phone response was hilarious
great timing!
I think I need to purge my brain by eating some Chinese food and watching some hockey - hockey makes way more sense than what I'm thinking now.
Gopher baseball at the Dome, then home to watch the DVRed hockey game.
Harvard? The guy teaches at HARVARD?
And you find that surprising because ... ?
barely wrote (| 03.08.08 - 2:42 pm | #) in response to my sharing what a bank manager said
"...is there any prior economic situation that might be comparable in any way..."
Barely...i don't know, but i guess this crisis will be much different in several respects because:
the debt is dollar denominated, this aint like argentina...so there is every incentive to monetize the debt.
plus unfunded benefits, (forget social security), medicare part D (perscription drugs) and other parts dwarfs SS...incentive to monetize the debt
corporations have underfunded pension plans...incentive, monetize the debt..
housing, "subprime" ( or securitization as it is said over at naked capitalism) credit cards secured by heloc...incentive to lower interest rates, roll the presses and monetize the debt.
in other words... the over arching fact that screams in my face is that DOLLARS WILL CONTINUE TO BECOME WORTH LESS AND LESS.
but i don't know what else to think. what scares me is that when i ask "experts" or read what those who know much more than i (just about everybody) have to say...they all indicate this is unchartered territory.
Gopher baseball at the Dome, then home to watch the DVRed hockey game.
Look for me behind the bench with the 'I can't believe its already over' look... what am I gonna do between now and next October?
"Strain out solids using cheesecloth, add simple syrup to double volume and sit for 40 days.
bottle and store in bunker next to tuna and away from ammo."
Sounds like some of the likker my grandma used to make. I still have the recipe:
2 cups water
2 cups sugar
4 lemons
rind of 1/2 lemon
1 pint grain alcohol
Soak the rind in 1/2c alcohol for 24 hours. Wash and quarter unpeeled lemons, add water, sugar and rind with alcohol. Boil carefully for 15 minutes. Cool. Strain. Add the pint of alcohol. Bottle. (translated from her Lithuanian).
She has a similar recipe for a milk liqueur (1 qt. milk + 1 qt. grain alcohol).
lemoncello
Mmmm lemoncello.
Maybe a little grappa if things get real bad.
Cramer publishes a near daily post on bloggingstocks.com
Cramer on BloggingStocks: Fannie and Freddie top the list of woes - BloggingStocks
The "You Arrogant Ass, You Killed Us!" excerpt:
"There aren't many days like yesterday. Or let's hope there won't be. Let me refresh all of the things that went wrong so we have the context of how treacherous this market really is."
--snip--
Folks rag on Cramer for his stock picks but I have always felt that he has served as a barometer for how Wall Street thinks and feels at any given moment...at times, reactively, at best, sometimes ahead.
Particularly interesting is how he views the reduced leverage against agency debt--and what he doesn't say about leverage in general.
If you think that this crowd is cynical, nervous, and right on; then check out the comments on Ambrose Pierece's last column in the London Daily Telegraph. Comments from all over Europe and the United Kingdom in the same vein as ours. They have better schools so lots more historical background. Who here could write about the panic of 1907?
Strangely enough...this "plan" would work for me. I'm currently 2.5 years into a 15-year-fixed mortgage, on which I've been prepaying. Of course, I'd have to increase my prepayments to the total pot to get the house paid off on the same schedule since the MartyNote term is 15 year, directing all the extra towards the mortgage until it's paid to zero then directing everything towards the MartyNotes.
Not sure how this helps the "underwater" thing...the only reason it would work for me is because my balance is fairly low, having originally bought in 1995 with none of the refis being cash-out. It'd be completely silly if I weren't already far along in paying off the house.
Somehow I doubt I'm the type of borrower who currently needs help. However, if Marty really wants to pay me a premium for re-capitalizing the banks I could donate a share of the savings to MoveOn, and other groups dedicated to ensuring Marty never works in Washington again.
I meant Ambrose Evans Pritchard column in Telegraph. My brain is fried by all of this.
What if The Fed just opens a subsidiary in Cayman Islands and then gets one of those tax evasion accounts like all the other banks (they) have, and then hide this Fed banking debt problem in various offshore entities that issue CDOs special purpose subsidiaries -- which will remain off balance sheets and then these funds can be used as conduits for reinsurance collateral which can then be registered in Bermuda or Vegas and then Buffett can give a CDO from these packages AAA ratings with his new highly touted government-backed bond enhancement company?
If we take the money off the table, then no one is accountable; simple!
ma & pa kettle math
Ma & Pa Kettle Math
F.B.I. investigating Countrywide? You get an announcement like this usually when the investigation is in the final stages. Next will be Grand Jury an Indictment.
Suprised since I would not expect anything so quickly. If they are then they won't be alone. It will be a multi-agency thing. The discovery on this will be huge. Probably terrabytes of data.
I wonder what District Court will end up with this?
I'd bet southern NY
re: Get Smart...
A friend called a couple days ago to say he'd just got a job with ION TV. First thing I said to him was: Get "Get Smart" reruns back on the air. LOL. If this blog is any indication of how popular that show is in general, I just might get my request!
Good idea about Ma and Pa Kettle too, Wimpy.
As to all the bailout ideas...I'm of the opinion that the whole thing is too Big to Bail.
Dryfly:
You mentioned you've been on the road. How is the real economy doing on your end. In Guam, things are starting to slow own. Japanese and Korean tourism is down (so much for decoupling), and there are signs that the vaunted military buildup (moving the Marines from Okinawa to Guam might be hitting some snags). During my recent trip stateside, my friends (mostly engineering/IT) reported mixed results.
Tanta, Walker and Snapshser(??)
Waterboarding combined with electroshock might do the trick but I don't know how to do that in html.
Tanta, not to fault your math which I am sure is right, but I think your assumption of a 28 year mortgage is where the problem lies. If you assume a 13 year mortgage instead, I think it comes out to be a more attractive deal.
To put it in oversimplified terms, you've framed it so that the government-provided portion is getting paid off twice as fast as the Countrywide-provided portion. A simple gendanken experiment is to imagine transubstantiating 20% of the mortgage into a low-rate mortgage. Then, if the high rate is 8.5% and the low rate is 1.5%, the effective rate is .88.5+.21.5, or 7.1%. On a 15-year, that drops the monthly payments from $1,969 to $1,809 exclusive of mortgage insurance. It's not a huge difference, but it's a couple grand a year. Maybe enough to keep someone in their home. Even if the government portion rises to 5%, as long as it occurs over 2 years, inflation (or, rather, pay rises to compensate for inflation) should compensate.
Your example is closer to the real world, I'm sure. But I don't think the proposal qualifies as the stupidest ever. Human history is long, and the contestants numerous.
Howz about the mortgage interest deduction is change to a credit? Instead of a below line deduction, mortgage interest becomes a one for one refucdable credit. For all you non tax nerds, refundable mean you get the money whether you have incurred tax liabiity or not; like EIC.
Charles II wrote: "On a 15-year, that drops the monthly payments from $1,969 to $1,809 exclusive of mortgage insurance. It's not a huge difference, but it's a couple grand a year. Maybe enough to keep someone in their home."
I'm guessing that most people with 15-year mortgages, like myself, don't really need the extra help to stay in our homes. That's why I mentioned above, that the plan would work for me. We're the ones with either inexpensive homes or, in my case, significant positive equity even with the current meltdown. I might like the extra money in my pocket, and I'll take it if it's offered, but I can't see a sensible public policy reason for the proposal.
If Marty's plan is to use the public treasury to recapitalize banks then it does seem to have that likely effect. If that is his goal, though, then he might stop talking about underwater mortgages and helping distressed borrowers, because his plan seems to do neither.
You mentioned you've been on the road. How is the real economy doing on your end.
Depends on where you are & who you speak to... Early in the week I was in Ohio looking at a company to sell for (a bombed out wreck of an ex-automotive supplier just now exiting BK - looks to me like it will be BK rinse & repeat)...
Later in the week I was in Eastern Iowa at ag equipment manufacturers and they are so busy they don't know what to do - up 30% over forecast which in itself was unrealistically aggressive to start with. But hen what would you expect with $5 corn going out as far as the eye can see?
In short anything tied to MEW & easy credit is dead (automotive & housing & consumer goods) anything tied to fed efforts to re-inflate the economy especially commodities is hotter than hell - too hot to touch.
And the communities each was in is just as different - the town with the automotive plant looked like it was in a depression... the town with the ag plant was booming brand new CRE additions packed with new suv's & shoppers.
More frozen microwaved burrito.
Dryfly:
Thanks. Is the weak dollar having any effect, or is it just noise?
Why not use the AMBAC Solution for the entire housing market? For those who don't know, Ambac is bankrupt and was about to lose its AAA rating, which would have led to an immediate meltdown of a large part of the financial world. To save the ratings and the World AS We Know It, the banks whose lives depend on Ambac's ratings bought shares in Ambac.
Bear in mind that the banks which performed this financial highwire act recently went cap in hand to the world investment community and begged, borrowed or stole hundreds of billions in new money at interest rates usually reserved for loan-sharking. The banks remain bankrupt despite themselves despite this cash infusion. So now they own a bit of the bankrupt company whose survival is key to their own survival. It remains to be seen if there will even be a real transfer of capital.
To move the analogy back into the mortgage world, why not have the banks simply lend the money interest free to homeowners. If the house has lost $50k in value, the bank can simply lend $50k more to the borrower. No cash is moved, though, just a change in the balance sheet is noted. The loan will, of course, be guaranteed by the government (that's us, by the way, for all of you who forget these simple things). Since it will never be paid back by the owner (borrower), it is in reality simply a free transfer from taxpayers to banks and borrowers.
Wheee! Isn't America great! Those stinking socialists in Europe could never come up with such an obviously communist idea. Ha! American capitalism triumphs again by cleverly using the tools of the enemy!
Tanta, not to fault your math which I am sure is right, but I think your assumption of a 28 year mortgage is where the problem lies. If you assume a 13 year mortgage instead, I think it comes out to be a more attractive deal.
But not only do few people have mortgages with a remaining term of 13 years, many people who bought two years ago used a 40-year term originally, and of course overwhelming numbers of those were IOs. Not to mention the neg am loans.
Of course anyone already amortizing on a 15-year schedule gets a deal, although not much of one at 5%. But there is no more affluent group of mortgage borrowers, on the whole, than the 15-year group. They are pretty much by definition payment-insensitive.
So if you're saying that the Marty Plan manages to recapitalize banks by also funnelling perks to the wealthiest among us . . . yeah, I'd say that's right.
It was when we got to the claim that no government "bureaucracy" would be needed here that we elevated to the level of Teh Dumbest. I have written too much lately about operations and servicers being insufficiently staffed to cope with reality to accept some drivel in a plan supposed to be responding to the current environment that imagines the operational side basically being handled by the fairies.
It's so simple. To provide mortgage relief in a fair and equitable way all you have to do is DOUBLE THE INTEREST DEDUCTION FOR 2007 & 2008. This would provide immediate relief, stimulate the economy, and KEEP PEOPLE IN THEIR HOUSES.
WTF? What's "fair and equitable" about using taxpayer money to artificially support bubble prices by tax-advantaging them even more? That's ludicrous.
Oh, wait. Per your URL, you work for a home builder. Now I get it. You just want a government handout.
Tom and Tanta, if the plan is modified so that the term of the government loan matches that of the original, I think your objections are answered. It's also possible to eliminate government bureaucracy by having the mortgage services distribute the payments. There's not much complexity added if the payment is divided 80/20 to two different accounts. The government could sweeten the deal by coughing up for some additional service people.
Yes, I know, I'm pettifogging. But someone needs to.
OMG I laughed for about 5 minutes when I read the last sentence of this post.
Bravo, Tanta.