When I first glanced at this, I thought the man was wearing a giant white bow tie. Usually I am impervious to fashion blunders but I confess this one had me mesmerized.
I'm not sure what my "calmer answers" should be here, John. It makes no sense to me at all that the proposed QSPE change to FAS 140 should make the GSEs have to raise $75 billion in capital. I still don't exactly understand what yesterday's big dustup was all about.
Nor do I fully understand what these CNBC types thought they were going to get Lockhart to say about it anyway.
What bothers me is who are the counterparties to all these QSPE deals and are they actually capitalized to the tune of $10s of billions to manage the risk they (presumably) bought?
What bothers me is who are the counterparties to all these QSPE deals and are they actually capitalized to the tune of $10s of billions to manage the risk they (presumably) bought?
What "risk" did who buy?
We are presumably talking about GSE-guaranteed MBS. As Housing Wire pointed out yesterday, the vast majority of those are pass-throughs that would probably not lose their Q status anyway even under the FAS 140 change. (The smaller number of structured securities they issue would be affected, as would most private-issue (non-GSE) securities.)
But moving a security onto the GSE's balance sheet doesn't increase anybody's credit risk. Why would it?
These guys crack me up. They all dance around the issues and go on with the doublespeak.
Those off balance items are the real problem, and if you ignore them, yes, Fannie's losses look minimal compared to their new capital raising.
But that's not the point. FASB 140 tells you that an accounting change could force a realistic view of what those off balance items are, but no one wants to. So they can continue to sweep them under the rug, pretend they have value, and pretend the capitalization is adequate.
Just how long can you keep pretending? If housing has been sinking further, continually, you have to know that the value (whatever it is) of that off balance junk is declining in tandem. Yet that goes ignored for a full on two years plus now. And it gets worse each day. Do they really think they can play this stall game until housing recovers, even if FASB 140 is ignored? Or do they just stall until the taxpayers are forced in the end to pick up the tab?
It's funny how he talks about reducing risk in the system. Is my recollection incorrect or did the Great Depression follow about a decade after the creation of the US central bank supposedly to help stave off financial crises?
I see no evidence that any of this is about creating stability or helping people out.
More and more the Fed is turning into a poster child for laissez-faire economics.
Um, mortgages off the balance sheet aren't the problem. If Fannie and Freddie have massive portfolios of worthless securities off their balance sheets, that's fine. Bringing them back on isn't a problem.
To my understanding, the GSE's, unlike Bear Stearns or Lehman, weren't creating SIV's for the purpose of hiding -risk- because they actually pass the risk on, unlike the Ibanks who get paid to take it on. I don't know that FASB 140 should affect their net balance sheet position at all.
To his credit, the much discredited Mr. Greenspan used to express public concern for the 'systemic risk' posed by Freddie and Fannie. From the perspective of the equity owners of Freddie and Fannie, I think yesterday's dustup was an expression of just how unclear it is at this as to how that issue will play out and whether the government sponsorship will salvage a bad situation. From the perspective of Fannie and Freddie's other stakeholders (debt owners, capital markets counter parties, mortgage originators, etc.), I think the government sponsorship is more meaningful.
Two trivial comments--I didn't think the guy's tie was so bad, but, hey, back in the day, well, at least he wasn't wearing visible suspenders, and my wife bought our son a tee shirt that said "I dressed myself" when he was in preschool. Also, odd those CNBC types appear to think a customer can get a mortgage from Freddie and Fannie (too much nose candy? sloppy thinking? terminal stupidity?)
He looked silly, but the people on CNBC asking the questions came across worse. Do they do any research before asking questions? Most of their questions were vague or didn't make sense.
Oh my. Wow. I mean, lord knows I've seen my share of bad outfits (i shudder to think what this footware selection was for this), but this one makes him look as though he rumaged though the box at the homeless shelter before they let him out for the day. Perhaps they put that collar on him so he wouldn't chew out the stiches he must have in his backside.
That explains his calm demeanor too. It's the medication.
he said it best when he said: I don't see why we should mark to market when we have the capacity to hold to maturity
so there! make me.
That's exactly what he said. Does he 'know' something? Should we care? Is the 'fix' in? Will they get all the help they need from the one true source of all things financial?
pick a bottom, I dare you
Just some thoughts from the edge we're teetering on.
On April 24, 2008, we received a letter from the Director of the Office of Supervision of the Finance Board (OS Director) denying our request to redeem capital stock totaling $8 million in connection with seven membership withdrawals or other terminations.
It's funny how he talks about reducing risk in the system. Is my recollection incorrect or did the Great Depression follow about a decade after the creation of the US central bank supposedly to help stave off financial crises?
To be accurate - almost two decades, not exactly 'coincidental'. Plus we had panics & depressions before 1913 too - plenty of them, big time, all through the 1800s & before. It isn't the problem, isn't the solution.
he said it best when he said: I don't see why we should mark to market when we have the capacity to hold to maturity
I hate to say this but he is technically correct. Why should they if they never plan on selling the securities but hold to maturity? So what are they worth? And why would you value them on what the market says if you plan on holding them to the end?
It's sort of like my saying my house is worth X when I plan on dying in it and never selling it. So what's it worth then?
To be accurate - almost two decades, not exactly 'coincidental'. Plus we had panics & depressions before 1913 too - plenty of them, big time, all through the 1800s & before. It isn't the problem, isn't the solution.
Well you know my argument by now: They made the situation was made worse in 1927 by cutting rates to ease the problems with European currencies and the US economy and inadvertently made things worse by turning a mild speculative bubble in the markets in to a massive one.
It still looks to me like they repeated the same mistake in 1998.
I just think the economy and peoples motives are too complex to apply this sort of shotgun stimulus and get good results.
I'm not necessarily arguing that everything will be wonderful and happy if we just let free markets decide. Only that I don't see the evidence that the Fed is a constructive force in its current configuration.
BTW it's not necessary just to point the finger at the US Fed. I think the central bankers in emerging economies right now are creating huge bubbles and crack-up booms with grossly negative real interest rates.
It just seems that whenever you have negative real interest rates you eventually have horror stories.
I'm trying hard to think of a basis on which they can be defended.
I guess the hysterical questions will really come when these GSE's collapse.
When I say collapse, I mean for the shareholders.
The GSE's will still be around to lose money on every loan.
Perhaps if they were forced to raise capital, they would charge more to lend money. Rates would reflect risk. Realestate prices would drop due to higher rates. Fannie and Freddie would then be profitable, the housing market would be at the bottom working up, and we could get back to a healthy market with rising values and falling risk/rates.
Tanta: But moving a security onto the GSE's balance sheet doesn't increase anybody's credit risk. Why would it?
Paul worked for DSNews and thus is a professional journalist covering default servicing, while you are a servicer. That makes you two about the only folks in the room who understand an important aspect of this story. I would suggest you two have some rapid and heavy education to perform (me, I'm a poet)
So if GMAC had to value their loans this way, the day I drive the $60K Caddie off the lot, they would have to take a $20K loss on their 60K loan as the damn thing looses value on day 2.
The tie would match the shirt with the right coat. He isn't helped by the white collar/color shirt thing. That style should be banished to the Ninth Circle of Fashion Hell, where it can keep Regis Philbin's tone-on-same-tone shirt and tie from getting lonely. If they ever try fashion crimes in the Hague, that's going to be the first in the dock.
But look, people, he complies with the only dress code this Administration has: the flag lapel pin. He may be a fashion victim, but he's a patriotic fashion victim, and that's what counts.
Lockhart (OFHEO) was the only voice in Treasury trying to defend FHA risk in Aug 2007. About the same time Bush, Bernanke, and Paulson bum-rushed EO privilges to boost the Fannie underwriting to accommodate jumbo (CA, NV, AZ, NY, hell coastal) re-insurance. Look it up, not that it matters now that Congress is going to conference on "HOPE for Homeowners Act" (Dodd-Frank) a/k/a "FHA Housing and Homeowner Retention Act" (Dodd-Shelby-ABA). These assets will default no doubt, with or without climate "disasters".
Treasuries are so junk by Q4 2008. Hello, mo' betta inflation.
my conclusion is that mark to market does not matter if you intend holding to maturity and you dont personally have skin in the game so if it goes TU its somebody elses problem. The OPM syndrome or whatever it is called. The very thinking that created this mess surely?
I'm trying hard to think of a basis on which they can be defended.
ac | 07.08.08 - 1:58 pm | #
Don't get me wrong - I don't think they can be defended... but its like when cops screw up. You don't end the police force or abolish laws & just let people take the law into their own hands because the folks doing the policing are imperfect with some more imperfect than others... you write better laws & hire better cops... then provide civilian gov't oversight.
There is no workable alternative to placing good competent people in positions of authority then holding them accountable for results.
That hasn't happened - it needs to happen regardless of who gets elected. It sometimes takes a real disaster to get us off dead center wrt oversight... I'm sure there will be some over reaching & over reacting in the process but a review & reform is in order. Abolishment of all oversight & regulation is wingnuttery of the highest order.
OFHEO, Fanny, Freddie, FHA & FDIC need it too... a lot of agencies & departments need reform. Not necessarily made bigger or more powerful - but more focused & with more congressional oversight. If the buck stops anywhere it stops there & at the other end of Penn Ave.
Not so many years ago, Rubin and the other policy wonks were in Japan calling for the banks there to mark-to-market, write off the bad paper and be done with it. We know what happened. They sat on it and their economy went to hell in a handbasket for over a decade.
Now, everybody in the US is claiming "we're special," FASB 140 shouldn't apply to us.
Well, Mr. Lockhart, if you have the capacity to hold it until maturity, you surely won't object if we put that into the by-laws and make sure that they do.
Lockhart is right that mark-to-market is too extreme for thinly traded assets in a panic. Hold to maturity is too optimistic, though, because there will be defaults. Much as the locals will hate this, the best approach is mark-to-model. The problems, of course, are developing a good model and getting the GSEs to use it. It's possible neither problem is solvable.
Well, Mr. Lockhart, if you have the capacity to hold it until maturity, you surely won't object if we put that into the by-laws and make sure that they do.
mp | 07.08.08 - 2:15 pm | #
Amen. Plus have the financial resources [read this as 'capitalization'] to take a few hits over the course of holding that loan to maturity w/out puking.
Maybe they can show us the performance of their pool to prove they don't need the additional capital - reporting shouldn't be a big problem for them, right?
Much as the locals will hate this, the best approach is mark-to-model. The problems, of course, are developing a good model and getting the GSEs to use it. It's possible neither problem is solvable.
Fair Economist | 07.08.08 - 2:18 pm | #
I'd be fine with it IF they published the data & the model. Transparency would do a lot to silence critics ASSUMING the critics are wrong. Are they?
I must be a true geek -- barely noticed the outfit -- I was too busy watching the shifting easy and the nervous flutter in his voice that either says "i'm terrified of tv" or "I'm lying through my teeth and I just hope this CNBS stooge doesn't ask me anything that calls me out". Er. or both. And actually while the cork snortin stooges questions were lame, it sounded like he was trying to get up the gumption to ask a penetrating question that might expose the lies of mr. bow tie.
I'm not an accountant, but even in what I am expert in (dif eq, signal processing, quantum physics) I notice that lots of true experts get caught up debating subtleties in things that are obvious when looked at from a bigger frame.
So here's the thing: If 'making an accounting change shouldn't have any impact', then what the hell are these things doing off balance sheet in the first place? If these companies are 'going to survive' then how come an honest accounting of their assets and liabilities is problematic? Doesn't wash. If making accounting changes didn't matter to a companies health then there wouldn't be an accounting industry or any arguments about what to count and what not to count. So that first is complete hogwash, and throwing around the word 'should' is always a sign of a con job in my book. Yes I get from the other comments that there 'should be no effect', but in order for me to believe it, you'll have to explain why no one was saying 'hey lets not pay all those accountants to do all the extra work to move all this absolute junk off of our balance sheets, lets just report it after all 'an accounting change shouldn't matter'. hmmm, funny, I don't believe that conversation ever took place.
The issue, obviously, is whether the taxpayers are going to have to GIVE money to the corporations fanny and freddy (and by extension to the individual officers of those corporations) in order to have their 'survival' be an accomplished fact. And the further issue is how much money we are going to have to give, and what that will do to the balance sheet of the US of A. Sooner or later the actual value of assets is going to matter, and if we want to pretend it doesn't matter at the GSAs we better hope that our creditors like to pretend it doesn't matter when it goes 'on balance sheet' for the US. It seems extremely likely that the only scenario in which franny and freddy 'survive' is the one in which I take on the obligation to pay off their debts, and they get paid hefty salaries.
And somehow, I just tend to think that whether that turns out to be true or not, is going to depend on the actual assets, and the actual debts they have.
It's sort of like saying "I don't care how much my house is worth or how much I owe cuz mommy's paying for the house, and it's her house that's pledged as collateral. I can always find some place to rent with the money I save by not having to pay my own debts"
I'd be fine with it IF they published the data & the model. Transparency would do a lot to silence critics ASSUMING the critics are wrong. Are they?
Oh, agreed, a secret model is COMPLETELY unacceptable, especially in such a complex situation.
If I were proposing a model, I would say assume house prices fall to rent equivalence and that we have a moderate recession. Extrapolate the default statistics to predict a default rate, subtract the assets of mortgage insurers and the like, and you're left with a very reasonable capital requirement.
I suspect the GSEs would look very bad on this measure even though it's fairly generous (extrapolating defaults is going to underestimate them, possibly severely).
I'm not an accountant, but even in what I am expert in (dif eq, signal processing, quantum physics) I notice that lots of true experts get caught up debating subtleties in things that are obvious when looked at from a bigger frame.
So here's the thing: If 'making an accounting change shouldn't have any impact', then what the hell are these things doing off balance sheet in the first place?
OK, I think I see the disconnect here. Changing FAS 140 to eliminate QSPEs and bring MBS on-balance sheet doesn't necessarily have anything to do with mark-to-market accounting of held-to-maturity assets. Except that Lockhart was asked about both in this interview.
I haven't got it in me to do an ubernerd on this subject today. But in short, the FAS 140 change would mean that securitizations would no longer look like a sale of loans to a trust. They would look like "financings": instead of selling loans to the trust, the proceeds of selling bonds to investors are treated like a financing to offset the cost of the loans, ownership of which stays with the issuer.
In the particular case of the GSEs, remember, those MBS are already guaranteed against credit risk by the GSEs. It's not like they got out from under credit risk by securitizing those loans. They have their guarantee obligations whether the things are on the balance sheet or not.
There would be some effect to capital ratio calculations by bringing the things on balance sheet, but I don't understand where the Lehman analyst got the idea it would take another $75 billion. Again, it isn't even clear to me that most GSE MBS would be affected by the FAS 140 proposed changes. The guaranty obligations are already on the GSEs' balance sheet for their pass-throughs, and owners of pass-through interests wouldn't have any more or less risk if the deals went on the GSE balance sheet or off.
It might be different in a private issue structured security with "internal credit enhancement." But that's not what we're mostly talking about with Fannie and Freddie.
It is a separate question whether an asset held to maturity should be marked or not. Yes, there's a connection here, but the uproar over M2M is about FAS 157, for the most part.
Sorry to get all nerdy on everyone, but I'm uncomfortable with conflating these two issues. That's why I couldn't quite figure out the dustup yesterday. FAS has only been talking about eliminating Q since at least the first of the year, if not before that. I guess I've been a bit out of the loop in the last few days but I still haven't figured out why the amended 140 proposal just sent everyone into Total Tizz yesterday afternoon.
Thanks for that. Housing Wire is reporting Frank's committee will hold hearings on systemic risk starting this Thursday. Hopefully some light will start to shine on the technicalities of GSE soundness.
There would be some effect to capital ratio calculations by bringing the things on balance sheet, but I don't understand where the Lehman analyst got the idea it would take another $75 billion.
there are ~$4T in off-balance sheet obligations. statutory minimum capital is calculated as:
statutory min cap = 2.5%on-balance sheet assets + 0.45%off-balance sheet obligations
of course, this isn't going to happen, but that would be the worst case scenario if everything came on-BS.
Well, if 140 drives the MBS's onto balance sheets, then they've got to be valued. At present the shell games result in MBS being valued more-or-less as hold to maturity, since that's what they were sold at. 140 doesn't directly affect valuation chosen, but it does force choices of valuation methodology.
To pursue the Emperor's New Clothes analogy, the emperor has been riding in a sedan with the curtains drawn. 140 is drawing the curtains back and forcing the spectators to look at the emperor's, um, assets. And they really don't know what to say.
Thanks for bringing light to this matter, my dearest Tanta. Now I am convinced Fannie and Freddie have a bright future.
I will not short them till next week. So help me God!
Tanta- "I still haven't figured out why the amended 140 proposal just sent everyone into Total Tizz yesterday afternoon."
Well, we're all trying to figure it out, and that's why it would be nice to see some leadership on this issue, but we probably won't get any.
Tanta, I think everyone is freaked out by the lack of transparency, which FASB 140 is allegedly intended to encourage. Talk about avoiding 140 makes Mr. Market very unhappy.
So, with the apparent lack of transparency, the NYSE is starting to look like a third world market, rumors and all. They brought it upon themselves.
Well, if 140 drives the MBS's onto balance sheets, then they've got to be valued.
i don't know what you're trying to say there. the guarantee obligations are already valued. how exactly does bringing $4T of loans and debt onto their balance sheets bring any additional clarity to their estimates of credit losses on those loans (which will not change)?
how exactly does bringing $4T of loans and debt onto their balance sheets bring any additional clarity to their estimates of credit losses on those loans (which will not change)?
First, the GSEs have a lot of other assets - what they sold the MBS's for. Second, part of the problem is that the losses on the mortgages are, at present, considerably underestimated. If fake securitizations are unrolled, then those mortgages will probably be subject to more scrutiny than at present. Third, rolling back MBS's onto other companies balance sheets may encourage the creation of more valuation models, which some crazy blogger might apply to the GSE guarantees.
I think we're still having an asset/liability problem here.
Bringing a securitization on-balance sheet is not a "redemption" of the bonds. If, say, the GSEs had to bring $4T in assets onto their books (the assets being the loans that used to be off the GSE's balance sheet because they were "sold" to the MBS trust), they also bring the liabilities onto their books (the obligation to pay principal and interest to the investors in the MBS). The things don't stop being securities; it's not that the GSEs have to "buy out" the investors.
The liability to the investors is obviously "to maturity"; that's the deal with the bondholders. They get P&I payments as long as the underlying loan assets exist, and they only get money out of the GSEs' pockets if the loans default, forcing the GSEs to buy the defaulted loans from the pools at par.
I suppose you could make the GSEs mark those assets to market every damn quarter. But the liability for passing through collected P&I would still be "to maturity." The fair value of that passed-through interest to the bondholder might change, but that's another matter. The GSEs would only be obligated to pass through your 5.5% coupon on invested principal, not to make it worth your while to be paid 5.5%.
Again, I think you have to think of an "on balance sheet securitization" as a "financing." Instead of the GSEs selling loan pools outright to a trust, the GSEs retain ownership of the loans and just borrow money from investors in order to return capital. The investors then have a claim not on a trust that owns the loans, but on the GSEs, for their P&I payments. If you really forced all those pass-throughs on-BS, you'd turn them into secured loans to the GSE instead of ownership interests in a pool of loans. The GSEs couldn't hold the loan assets "for sale"; they couldn't just sell off the loan assets and redeem those securities by sending all the investors their outstanding principal back. There'd be major uproar in the fixed-income markets if MBS could prepay on investors like that. Loan-level prepayments are bad enough for MBS investors. You couldn't just force them to accept an open-ended call option where the issuer can dump the assets backing the security whenever it wants to. Not to mention the likelihood that there's anybody other than the GSEs with $4T looking to buy those loans today. The parties with $4T to invest in loans already did: they bought MBS. There has to be a market in order to mark to it, and as a practical matter the GSEs are the market for the loans we are talking about.
So I'm struggling to understand the concept of M2M in the case of debt-financed pass-throughs. The assets have to be "held to maturity" just like the liabilities have to be "held to maturity." They're "pass-throughs." What would ultimately be the point of having the GSE mark the assets to market, if in fact they really cannot be sold today, whatever the damned bid price is?
Again, the GSEs already carry the credit guarantee obligations and assets on their balance sheets. The likelihood of default of the underlying loans isn't going to change by eliminating the Q.
If fake securitizations are unrolled, then those mortgages will probably be subject to more scrutiny than at present.
That's just a total misunderstanding of the issue here.
Nobody is saying that these were somehow "fake securitizations." To the contrary, the reason why Housing Wire and bacon dreamz and I do not believe for a moment that standard pass-through MBS would be subject to being brought onto the balance sheet is that, well, it doesn't make any sense to do that.
You have the right to the opinion that the GSEs have not correctly estimated their potential credit exposure. But you could force them to worsen their estimates today, without changing the Q status. That worsening estimate would impact the GSEs' balance sheets immediately, because credit guarantees are already on their balance sheets. If a loan defaults today, the GSEs have to buy it out of the MBS trust at par, meaning the bondholder gets principal returned. If you change the Q rules, when a loan defaults, the GSEs would have to pay the bondholder par. The Q election doesn't change the effect of loan default. Nor does it change the probability of loan default.
What it does change is the GSEs' ability to control those loans. The uproar over modifications has a lot to do with the problem that in a "true sale" of loans to a trust, the party who sold those loans is no longer supposed to exercise any control over them. This would certainly be an interesting issue for a private-issue security that isn't credit-guaranteed. But for the GSEs, there would be no less motivation to work out or not work out loans on the balance sheet than there was off the balance sheet, because they always owned the credit risk.
I guess it's OK to make fun of Lockhart's clothes, but listening to the interview I was impressed with his clear, no nonsense answers. I think he says what he believes and does not bullshit. He seems like a down to earth guy who is doing his best in a very difficult position.
Charlie, I thought Lockhart did a pretty good job of giving clear answers to what were increasingly stupid questions. No doubt about that. I don't think he said anything I much disagree with.
I mean the man no harm, and frankly I'd never win any fashion contests myself. Perhaps it's refreshing that Lockhart is not surrounded by "handlers" who would say, OH NO YOU'RE NOT GOING ON TV IN THAT SHIRT.
My theory is that either Mrs. Lockhart was out of town today or Mrs. Lockhart bought that outfit or Mrs. Lockhart sent him out in a plain white shirt but he spilled coffee all over it just before going on air and this was the only other shirt he could find in the dry-cleaning bag trunk of his car.
My theory is that either Mrs. Lockhart was out of town today or Mrs. Lockhart bought that outfit or Mrs. Lockhart sent him out in a plain white shirt but he spilled coffee all over it just before going on air and this was the only other shirt he could find in the dry-cleaning bag trunk of his car.
Tanta | Homepage | 07.08.08 - 6:20 pm | #
My experience is the Mrs. Lockharts of the world are a lot like the Mr. Lockharts... she would probably wonder what the fuss is all about. At least he didn't have stuff in his teeth when he was on air (that we can tell).
I mean Mrs. Dryfly would send Mr. Dryfly out into the world like that and not have a second thought - as long as my fly is zipped, pants pockets are in (and not doing 'the rabbit') and I don't have my shirt pockets stuffed full of biz cards or pencils... those are her only fashion faux pas that I know.
Dryfly--well, you can just run those ole presses until they scream for mercy, but what you will have then
is hyperinflation. Which is quite possible of course. So what is meant, not enuf money in the world if you don't want to have Zimbabwe type hyperinflation.
But you could force them to worsen their estimates today, without changing the Q status. That worsening estimate would impact the GSEs' balance sheets immediately, because credit guarantees are already on their balance sheets.
Hypothetically. But in practice, accounting for mortgage assets is more conservative than accounting for liabilities. There's been a lot of discussion, and some action by auditors, requiring mark to market for MBS securities and mortgage portfolios. I've yet to even see a serious suggestion by an authority or pundit (I don't count) that the GSE's liabilities should be marked to market. By moving the accounting from GSE guarantees covering losses to GSEs having promised certain payments and hoping to make it back from mortgage payments and foreclosure proceedings, those mortgages will move from light scrutiny (M2M not under consideration) to moderate scrutiny( M2M under consideration), based on current practices. Although the practices could hypothetically be different, in the current environment you'd expect a substantial difference.
If I were a current shareholder, the only question I'd ask is:
If we can't/ won't sell the paper, how long can we continue to fund the residential market at current rates (of dollar volume/velocity)?
If we have to hang onto everything, total dollar volume (and velocity) will fall and with it...profits.
With all due respect, I think we're getting confused in this discussion between actuarial (as it relates to the accounting) and business model issues.
Quick take on M2Market: There's always an available bid...on everything. If one doesn't like the bids, make a case for why they're worth more. Not working? Then you've either lost all credibility or the bids are accurate. Or both.
Thanks for your reply to my comment. Sometimes people get carried away and the tone becomes cruel and cynical; not you, by the way, but others on this and other blogs.
Everytime I see Lockhart speak, I am impressed by his candor. He did a great job today, I think, in allaying concerns in the market that FRE and FNM might be taken over by the government, which, of course, would be a disaster. Imagine, for example, if the Fed took over the GSEs! What a disaster that would be!
I guess the confusion is not whether it's on or off but whether the value of underlying asset is truly reflected in the liability. Bringing it OBS requires(?) mark to market. From there, and only then, will the total liability account for the reduction in value of the asset.
certainly he is colorblind.
At OFHEO, we celebrate Saint Patrick's everyday!
At first, I thought that was Herb Tarlek...
Is this jawboning or will we see real actions, ala taking more trash for cash at new windows.
When I first glanced at this, I thought the man was wearing a giant white bow tie. Usually I am impervious to fashion blunders but I confess this one had me mesmerized.
Great to have you on the case and looking forward to your calm(er) answers.
He seems to be looking down and right most of the time, but when asked about the need to raise capital (2:07), he started looking down and left.
Why does every host on CNBC look like they were doing coke the night before?
@Why does every host on CNBC look like they were doing coke the night before?
Padawan, because they were.
I'm not sure what my "calmer answers" should be here, John. It makes no sense to me at all that the proposed QSPE change to FAS 140 should make the GSEs have to raise $75 billion in capital. I still don't exactly understand what yesterday's big dustup was all about.
Nor do I fully understand what these CNBC types thought they were going to get Lockhart to say about it anyway.
"We're All Homeowners: Nationalization of Fannie, Freddie Unavoidable", Yahoo Finance.
Tanta -
What bothers me is who are the counterparties to all these QSPE deals and are they actually capitalized to the tune of $10s of billions to manage the risk they (presumably) bought?
What bothers me is who are the counterparties to all these QSPE deals and are they actually capitalized to the tune of $10s of billions to manage the risk they (presumably) bought?
What "risk" did who buy?
We are presumably talking about GSE-guaranteed MBS. As Housing Wire pointed out yesterday, the vast majority of those are pass-throughs that would probably not lose their Q status anyway even under the FAS 140 change. (The smaller number of structured securities they issue would be affected, as would most private-issue (non-GSE) securities.)
But moving a security onto the GSE's balance sheet doesn't increase anybody's credit risk. Why would it?
These guys crack me up. They all dance around the issues and go on with the doublespeak.
Those off balance items are the real problem, and if you ignore them, yes, Fannie's losses look minimal compared to their new capital raising.
But that's not the point. FASB 140 tells you that an accounting change could force a realistic view of what those off balance items are, but no one wants to. So they can continue to sweep them under the rug, pretend they have value, and pretend the capitalization is adequate.
Just how long can you keep pretending? If housing has been sinking further, continually, you have to know that the value (whatever it is) of that off balance junk is declining in tandem. Yet that goes ignored for a full on two years plus now. And it gets worse each day. Do they really think they can play this stall game until housing recovers, even if FASB 140 is ignored? Or do they just stall until the taxpayers are forced in the end to pick up the tab?
This just sickens me.
It's funny how he talks about reducing risk in the system. Is my recollection incorrect or did the Great Depression follow about a decade after the creation of the US central bank supposedly to help stave off financial crises?
I see no evidence that any of this is about creating stability or helping people out.
More and more the Fed is turning into a poster child for laissez-faire economics.
BTW to give credit where credit is due: That shirt/tie combo is HOT.
Um, mortgages off the balance sheet aren't the problem. If Fannie and Freddie have massive portfolios of worthless securities off their balance sheets, that's fine. Bringing them back on isn't a problem.
To my understanding, the GSE's, unlike Bear Stearns or Lehman, weren't creating SIV's for the purpose of hiding -risk- because they actually pass the risk on, unlike the Ibanks who get paid to take it on. I don't know that FASB 140 should affect their net balance sheet position at all.
He dresses so poorly, I think I can trust him (like the scientist on "Independence Day")
Forgot about FASB 140 - good point I agree with him. Marking to market is killing everybody. It should only hurt if you have to sell it now.
Are we supposed to reward them also when the market turns their water into wine?
@BTW to give credit where credit is due: That shirt/tie combo is HOT.
What I wear everyday, man. With white shoes.
IndyMac Bancorp shares dip; analyst sets $0 target.
He dresses so poorly, I think I can trust him (like the scientist on "Independence Day")
It's a ruse.
You're supposed to think "I can take advice from this guy. He's not socially adept or crafty enough to screw me out of a fortune."
That's how the best of them play the game.
That's how they get you.
To his credit, the much discredited Mr. Greenspan used to express public concern for the 'systemic risk' posed by Freddie and Fannie. From the perspective of the equity owners of Freddie and Fannie, I think yesterday's dustup was an expression of just how unclear it is at this as to how that issue will play out and whether the government sponsorship will salvage a bad situation. From the perspective of Fannie and Freddie's other stakeholders (debt owners, capital markets counter parties, mortgage originators, etc.), I think the government sponsorship is more meaningful.
Two trivial comments--I didn't think the guy's tie was so bad, but, hey, back in the day, well, at least he wasn't wearing visible suspenders, and my wife bought our son a tee shirt that said "I dressed myself" when he was in preschool. Also, odd those CNBC types appear to think a customer can get a mortgage from Freddie and Fannie (too much nose candy? sloppy thinking? terminal stupidity?)
He looked silly, but the people on CNBC asking the questions came across worse. Do they do any research before asking questions? Most of their questions were vague or didn't make sense.
Oh my. Wow. I mean, lord knows I've seen my share of bad outfits (i shudder to think what this footware selection was for this), but this one makes him look as though he rumaged though the box at the homeless shelter before they let him out for the day. Perhaps they put that collar on him so he wouldn't chew out the stiches he must have in his backside.
That explains his calm demeanor too. It's the medication.
c'mon people, lay off
he said it best when he said: I don't see why we should mark to market when we have the capacity to hold to maturity
so there! make me.
That's exactly what he said. Does he 'know' something? Should we care? Is the 'fix' in? Will they get all the help they need from the one true source of all things financial?
pick a bottom, I dare you
Just some thoughts from the edge we're teetering on.
Lockhart and these folks need to be on the same page?
Federal Home Loan Bank of Chicago · 10-Q · For 3/31/08
SEC Info - Federal Home Loan Bank of Chicago - 10-Q - For 3/31/08
On April 24, 2008, we received a letter from the Director of the Office of Supervision of the Finance Board (OS Director) denying our request to redeem capital stock totaling $8 million in connection with seven membership withdrawals or other terminations.
LOL. Forecast calls for scattered Tanta snark as indignation front approaches from the West. Jas rants likely overnight.
Charlie? they usually brush up the MBA skills between shots and make up.
It's funny how he talks about reducing risk in the system. Is my recollection incorrect or did the Great Depression follow about a decade after the creation of the US central bank supposedly to help stave off financial crises?
To be accurate - almost two decades, not exactly 'coincidental'. Plus we had panics & depressions before 1913 too - plenty of them, big time, all through the 1800s & before. It isn't the problem, isn't the solution.
Direction.... This market has none.
he said it best when he said: I don't see why we should mark to market when we have the capacity to hold to maturity
I hate to say this but he is technically correct. Why should they if they never plan on selling the securities but hold to maturity? So what are they worth? And why would you value them on what the market says if you plan on holding them to the end?
It's sort of like my saying my house is worth X when I plan on dying in it and never selling it. So what's it worth then?
To be accurate - almost two decades, not exactly 'coincidental'. Plus we had panics & depressions before 1913 too - plenty of them, big time, all through the 1800s & before. It isn't the problem, isn't the solution.
Well you know my argument by now: They made the situation was made worse in 1927 by cutting rates to ease the problems with European currencies and the US economy and inadvertently made things worse by turning a mild speculative bubble in the markets in to a massive one.
It still looks to me like they repeated the same mistake in 1998.
I just think the economy and peoples motives are too complex to apply this sort of shotgun stimulus and get good results.
I'm not necessarily arguing that everything will be wonderful and happy if we just let free markets decide. Only that I don't see the evidence that the Fed is a constructive force in its current configuration.
BTW it's not necessary just to point the finger at the US Fed. I think the central bankers in emerging economies right now are creating huge bubbles and crack-up booms with grossly negative real interest rates.
It just seems that whenever you have negative real interest rates you eventually have horror stories.
I'm trying hard to think of a basis on which they can be defended.
I guess the hysterical questions will really come when these GSE's collapse.
When I say collapse, I mean for the shareholders.
The GSE's will still be around to lose money on every loan.
Perhaps if they were forced to raise capital, they would charge more to lend money. Rates would reflect risk. Realestate prices would drop due to higher rates. Fannie and Freddie would then be profitable, the housing market would be at the bottom working up, and we could get back to a healthy market with rising values and falling risk/rates.
Tanta: But moving a security onto the GSE's balance sheet doesn't increase anybody's credit risk. Why would it?
Paul worked for DSNews and thus is a professional journalist covering default servicing, while you are a servicer. That makes you two about the only folks in the room who understand an important aspect of this story. I would suggest you two have some rapid and heavy education to perform (me, I'm a poet)
Mark to market or value if held to maturity, whichever is greater?
No systemic risk there nosiree.
So if GMAC had to value their loans this way, the day I drive the $60K Caddie off the lot, they would have to take a $20K loss on their 60K loan as the damn thing looses value on day 2.
Right? mark to market.
The tie would match the shirt with the right coat. He isn't helped by the white collar/color shirt thing. That style should be banished to the Ninth Circle of Fashion Hell, where it can keep Regis Philbin's tone-on-same-tone shirt and tie from getting lonely. If they ever try fashion crimes in the Hague, that's going to be the first in the dock.
But look, people, he complies with the only dress code this Administration has: the flag lapel pin. He may be a fashion victim, but he's a patriotic fashion victim, and that's what counts.
I haven't seen that type of shirts since, since,... Lee Iacocca
Lockhart (OFHEO) was the only voice in Treasury trying to defend FHA risk in Aug 2007. About the same time Bush, Bernanke, and Paulson bum-rushed EO privilges to boost the Fannie underwriting to accommodate jumbo (CA, NV, AZ, NY, hell coastal) re-insurance. Look it up, not that it matters now that Congress is going to conference on "HOPE for Homeowners Act" (Dodd-Frank) a/k/a "FHA Housing and Homeowner Retention Act" (Dodd-Shelby-ABA). These assets will default no doubt, with or without climate "disasters".
Treasuries are so junk by Q4 2008. Hello, mo' betta inflation.
my conclusion is that mark to market does not matter if you intend holding to maturity and you dont personally have skin in the game so if it goes TU its somebody elses problem. The OPM syndrome or whatever it is called. The very thinking that created this mess surely?
He looks like a pimp for Bozo the clown.
I'm trying hard to think of a basis on which they can be defended.
ac | 07.08.08 - 1:58 pm | #
Don't get me wrong - I don't think they can be defended... but its like when cops screw up. You don't end the police force or abolish laws & just let people take the law into their own hands because the folks doing the policing are imperfect with some more imperfect than others... you write better laws & hire better cops... then provide civilian gov't oversight.
There is no workable alternative to placing good competent people in positions of authority then holding them accountable for results.
That hasn't happened - it needs to happen regardless of who gets elected. It sometimes takes a real disaster to get us off dead center wrt oversight... I'm sure there will be some over reaching & over reacting in the process but a review & reform is in order. Abolishment of all oversight & regulation is wingnuttery of the highest order.
OFHEO, Fanny, Freddie, FHA & FDIC need it too... a lot of agencies & departments need reform. Not necessarily made bigger or more powerful - but more focused & with more congressional oversight. If the buck stops anywhere it stops there & at the other end of Penn Ave.
I find all of this hypocritical and hilarious.
Not so many years ago, Rubin and the other policy wonks were in Japan calling for the banks there to mark-to-market, write off the bad paper and be done with it. We know what happened. They sat on it and their economy went to hell in a handbasket for over a decade.
Now, everybody in the US is claiming "we're special," FASB 140 shouldn't apply to us.
Well, Mr. Lockhart, if you have the capacity to hold it until maturity, you surely won't object if we put that into the by-laws and make sure that they do.
"If the buck stops anywhere it stops there & at the other end of Penn Ave."
We're screwed!
Lockhart is right that mark-to-market is too extreme for thinly traded assets in a panic. Hold to maturity is too optimistic, though, because there will be defaults. Much as the locals will hate this, the best approach is mark-to-model. The problems, of course, are developing a good model and getting the GSEs to use it. It's possible neither problem is solvable.
Well, Mr. Lockhart, if you have the capacity to hold it until maturity, you surely won't object if we put that into the by-laws and make sure that they do.
mp | 07.08.08 - 2:15 pm | #
Amen. Plus have the financial resources [read this as 'capitalization'] to take a few hits over the course of holding that loan to maturity w/out puking.
Maybe they can show us the performance of their pool to prove they don't need the additional capital - reporting shouldn't be a big problem for them, right?
Fair Economist, I agree with you, but what led us into all of this was a lack of standards and accountability.
Some of both would be nice.
Much as the locals will hate this, the best approach is mark-to-model. The problems, of course, are developing a good model and getting the GSEs to use it. It's possible neither problem is solvable.
Fair Economist | 07.08.08 - 2:18 pm | #
I'd be fine with it IF they published the data & the model. Transparency would do a lot to silence critics ASSUMING the critics are wrong. Are they?
I must be a true geek -- barely noticed the outfit -- I was too busy watching the shifting easy and the nervous flutter in his voice that either says "i'm terrified of tv" or "I'm lying through my teeth and I just hope this CNBS stooge doesn't ask me anything that calls me out". Er. or both. And actually while the cork snortin stooges questions were lame, it sounded like he was trying to get up the gumption to ask a penetrating question that might expose the lies of mr. bow tie.
I'm not an accountant, but even in what I am expert in (dif eq, signal processing, quantum physics) I notice that lots of true experts get caught up debating subtleties in things that are obvious when looked at from a bigger frame.
So here's the thing: If 'making an accounting change shouldn't have any impact', then what the hell are these things doing off balance sheet in the first place? If these companies are 'going to survive' then how come an honest accounting of their assets and liabilities is problematic? Doesn't wash. If making accounting changes didn't matter to a companies health then there wouldn't be an accounting industry or any arguments about what to count and what not to count. So that first is complete hogwash, and throwing around the word 'should' is always a sign of a con job in my book. Yes I get from the other comments that there 'should be no effect', but in order for me to believe it, you'll have to explain why no one was saying 'hey lets not pay all those accountants to do all the extra work to move all this absolute junk off of our balance sheets, lets just report it after all 'an accounting change shouldn't matter'. hmmm, funny, I don't believe that conversation ever took place.
The issue, obviously, is whether the taxpayers are going to have to GIVE money to the corporations fanny and freddy (and by extension to the individual officers of those corporations) in order to have their 'survival' be an accomplished fact. And the further issue is how much money we are going to have to give, and what that will do to the balance sheet of the US of A. Sooner or later the actual value of assets is going to matter, and if we want to pretend it doesn't matter at the GSAs we better hope that our creditors like to pretend it doesn't matter when it goes 'on balance sheet' for the US. It seems extremely likely that the only scenario in which franny and freddy 'survive' is the one in which I take on the obligation to pay off their debts, and they get paid hefty salaries.
And somehow, I just tend to think that whether that turns out to be true or not, is going to depend on the actual assets, and the actual debts they have.
It's sort of like saying "I don't care how much my house is worth or how much I owe cuz mommy's paying for the house, and it's her house that's pledged as collateral. I can always find some place to rent with the money I save by not having to pay my own debts"
I'd be fine with it IF they published the data & the model. Transparency would do a lot to silence critics ASSUMING the critics are wrong. Are they?
Oh, agreed, a secret model is COMPLETELY unacceptable, especially in such a complex situation.
If I were proposing a model, I would say assume house prices fall to rent equivalence and that we have a moderate recession. Extrapolate the default statistics to predict a default rate, subtract the assets of mortgage insurers and the like, and you're left with a very reasonable capital requirement.
I suspect the GSEs would look very bad on this measure even though it's fairly generous (extrapolating defaults is going to underestimate them, possibly severely).
I'm not an accountant, but even in what I am expert in (dif eq, signal processing, quantum physics) I notice that lots of true experts get caught up debating subtleties in things that are obvious when looked at from a bigger frame.
So here's the thing: If 'making an accounting change shouldn't have any impact', then what the hell are these things doing off balance sheet in the first place?
LOL. Yes, the emperor has no clothes.
I think he looks awesome. Of course, that could be the large LSD dose I took earlier.
More acid, do some more acid.
RE: nationalization of FRE and FNM.
Don't you guys understand, there isn't enough money----anywhere.
Not enough money means bankruptcy is the only option. Sorry, bondholders.
OK, I think I see the disconnect here. Changing FAS 140 to eliminate QSPEs and bring MBS on-balance sheet doesn't necessarily have anything to do with mark-to-market accounting of held-to-maturity assets. Except that Lockhart was asked about both in this interview.
I haven't got it in me to do an ubernerd on this subject today. But in short, the FAS 140 change would mean that securitizations would no longer look like a sale of loans to a trust. They would look like "financings": instead of selling loans to the trust, the proceeds of selling bonds to investors are treated like a financing to offset the cost of the loans, ownership of which stays with the issuer.
In the particular case of the GSEs, remember, those MBS are already guaranteed against credit risk by the GSEs. It's not like they got out from under credit risk by securitizing those loans. They have their guarantee obligations whether the things are on the balance sheet or not.
There would be some effect to capital ratio calculations by bringing the things on balance sheet, but I don't understand where the Lehman analyst got the idea it would take another $75 billion. Again, it isn't even clear to me that most GSE MBS would be affected by the FAS 140 proposed changes. The guaranty obligations are already on the GSEs' balance sheet for their pass-throughs, and owners of pass-through interests wouldn't have any more or less risk if the deals went on the GSE balance sheet or off.
It might be different in a private issue structured security with "internal credit enhancement." But that's not what we're mostly talking about with Fannie and Freddie.
It is a separate question whether an asset held to maturity should be marked or not. Yes, there's a connection here, but the uproar over M2M is about FAS 157, for the most part.
Sorry to get all nerdy on everyone, but I'm uncomfortable with conflating these two issues. That's why I couldn't quite figure out the dustup yesterday. FAS has only been talking about eliminating Q since at least the first of the year, if not before that. I guess I've been a bit out of the loop in the last few days but I still haven't figured out why the amended 140 proposal just sent everyone into Total Tizz yesterday afternoon.
Interesting take on Fannie/Freddie at Across the Curve.
Across the Curve » Blog Archive » Thoughts on FNMA and Freddie Mac
Tanta,
Thanks for that. Housing Wire is reporting Frank's committee will hold hearings on systemic risk starting this Thursday. Hopefully some light will start to shine on the technicalities of GSE soundness.
There would be some effect to capital ratio calculations by bringing the things on balance sheet, but I don't understand where the Lehman analyst got the idea it would take another $75 billion.
there are ~$4T in off-balance sheet obligations. statutory minimum capital is calculated as:
statutory min cap = 2.5%on-balance sheet assets + 0.45%off-balance sheet obligations
of course, this isn't going to happen, but that would be the worst case scenario if everything came on-BS.
Well, if 140 drives the MBS's onto balance sheets, then they've got to be valued. At present the shell games result in MBS being valued more-or-less as hold to maturity, since that's what they were sold at. 140 doesn't directly affect valuation chosen, but it does force choices of valuation methodology.
To pursue the Emperor's New Clothes analogy, the emperor has been riding in a sedan with the curtains drawn. 140 is drawing the curtains back and forcing the spectators to look at the emperor's, um, assets. And they really don't know what to say.
Thanks for bringing light to this matter, my dearest Tanta. Now I am convinced Fannie and Freddie have a bright future.
I will not short them till next week. So help me God!
Tanta- "I still haven't figured out why the amended 140 proposal just sent everyone into Total Tizz yesterday afternoon."
Well, we're all trying to figure it out, and that's why it would be nice to see some leadership on this issue, but we probably won't get any.
Tanta, I think everyone is freaked out by the lack of transparency, which FASB 140 is allegedly intended to encourage. Talk about avoiding 140 makes Mr. Market very unhappy.
So, with the apparent lack of transparency, the NYSE is starting to look like a third world market, rumors and all. They brought it upon themselves.
Well, if 140 drives the MBS's onto balance sheets, then they've got to be valued.
i don't know what you're trying to say there. the guarantee obligations are already valued. how exactly does bringing $4T of loans and debt onto their balance sheets bring any additional clarity to their estimates of credit losses on those loans (which will not change)?
I call BS on this one by Lockhart....
If it were a Suburban, GMAC would mark a 30K loss to market for day 2.
how exactly does bringing $4T of loans and debt onto their balance sheets bring any additional clarity to their estimates of credit losses on those loans (which will not change)?
First, the GSEs have a lot of other assets - what they sold the MBS's for. Second, part of the problem is that the losses on the mortgages are, at present, considerably underestimated. If fake securitizations are unrolled, then those mortgages will probably be subject to more scrutiny than at present. Third, rolling back MBS's onto other companies balance sheets may encourage the creation of more valuation models, which some crazy blogger might apply to the GSE guarantees.
I think we're still having an asset/liability problem here.
Bringing a securitization on-balance sheet is not a "redemption" of the bonds. If, say, the GSEs had to bring $4T in assets onto their books (the assets being the loans that used to be off the GSE's balance sheet because they were "sold" to the MBS trust), they also bring the liabilities onto their books (the obligation to pay principal and interest to the investors in the MBS). The things don't stop being securities; it's not that the GSEs have to "buy out" the investors.
The liability to the investors is obviously "to maturity"; that's the deal with the bondholders. They get P&I payments as long as the underlying loan assets exist, and they only get money out of the GSEs' pockets if the loans default, forcing the GSEs to buy the defaulted loans from the pools at par.
I suppose you could make the GSEs mark those assets to market every damn quarter. But the liability for passing through collected P&I would still be "to maturity." The fair value of that passed-through interest to the bondholder might change, but that's another matter. The GSEs would only be obligated to pass through your 5.5% coupon on invested principal, not to make it worth your while to be paid 5.5%.
Again, I think you have to think of an "on balance sheet securitization" as a "financing." Instead of the GSEs selling loan pools outright to a trust, the GSEs retain ownership of the loans and just borrow money from investors in order to return capital. The investors then have a claim not on a trust that owns the loans, but on the GSEs, for their P&I payments. If you really forced all those pass-throughs on-BS, you'd turn them into secured loans to the GSE instead of ownership interests in a pool of loans. The GSEs couldn't hold the loan assets "for sale"; they couldn't just sell off the loan assets and redeem those securities by sending all the investors their outstanding principal back. There'd be major uproar in the fixed-income markets if MBS could prepay on investors like that. Loan-level prepayments are bad enough for MBS investors. You couldn't just force them to accept an open-ended call option where the issuer can dump the assets backing the security whenever it wants to. Not to mention the likelihood that there's anybody other than the GSEs with $4T looking to buy those loans today. The parties with $4T to invest in loans already did: they bought MBS. There has to be a market in order to mark to it, and as a practical matter the GSEs are the market for the loans we are talking about.
So I'm struggling to understand the concept of M2M in the case of debt-financed pass-throughs. The assets have to be "held to maturity" just like the liabilities have to be "held to maturity." They're "pass-throughs." What would ultimately be the point of having the GSE mark the assets to market, if in fact they really cannot be sold today, whatever the damned bid price is?
Again, the GSEs already carry the credit guarantee obligations and assets on their balance sheets. The likelihood of default of the underlying loans isn't going to change by eliminating the Q.
If fake securitizations are unrolled, then those mortgages will probably be subject to more scrutiny than at present.
That's just a total misunderstanding of the issue here.
Nobody is saying that these were somehow "fake securitizations." To the contrary, the reason why Housing Wire and bacon dreamz and I do not believe for a moment that standard pass-through MBS would be subject to being brought onto the balance sheet is that, well, it doesn't make any sense to do that.
You have the right to the opinion that the GSEs have not correctly estimated their potential credit exposure. But you could force them to worsen their estimates today, without changing the Q status. That worsening estimate would impact the GSEs' balance sheets immediately, because credit guarantees are already on their balance sheets. If a loan defaults today, the GSEs have to buy it out of the MBS trust at par, meaning the bondholder gets principal returned. If you change the Q rules, when a loan defaults, the GSEs would have to pay the bondholder par. The Q election doesn't change the effect of loan default. Nor does it change the probability of loan default.
What it does change is the GSEs' ability to control those loans. The uproar over modifications has a lot to do with the problem that in a "true sale" of loans to a trust, the party who sold those loans is no longer supposed to exercise any control over them. This would certainly be an interesting issue for a private-issue security that isn't credit-guaranteed. But for the GSEs, there would be no less motivation to work out or not work out loans on the balance sheet than there was off the balance sheet, because they always owned the credit risk.
thank you, Tanta.
I guess it's OK to make fun of Lockhart's clothes, but listening to the interview I was impressed with his clear, no nonsense answers. I think he says what he believes and does not bullshit. He seems like a down to earth guy who is doing his best in a very difficult position.
Don't you guys understand, there isn't enough money----anywhere.
Not enough money means bankruptcy is the only option. Sorry, bondholders.
Anonymous | 07.08.08 - 2:42 pm | #
You really don't get this thing they call 'fiat' do you? There is plenty of 'money' - maybe not enough 'wealth' - but plenty of money.
Charlie, I thought Lockhart did a pretty good job of giving clear answers to what were increasingly stupid questions. No doubt about that. I don't think he said anything I much disagree with.
I mean the man no harm, and frankly I'd never win any fashion contests myself. Perhaps it's refreshing that Lockhart is not surrounded by "handlers" who would say, OH NO YOU'RE NOT GOING ON TV IN THAT SHIRT.
My theory is that either Mrs. Lockhart was out of town today or Mrs. Lockhart bought that outfit or Mrs. Lockhart sent him out in a plain white shirt but he spilled coffee all over it just before going on air and this was the only other shirt he could find in the dry-cleaning bag trunk of his car.
My theory is that either Mrs. Lockhart was out of town today or Mrs. Lockhart bought that outfit or Mrs. Lockhart sent him out in a plain white shirt but he spilled coffee all over it just before going on air and this was the only other shirt he could find in the dry-cleaning bag trunk of his car.
Tanta | Homepage | 07.08.08 - 6:20 pm | #
My experience is the Mrs. Lockharts of the world are a lot like the Mr. Lockharts... she would probably wonder what the fuss is all about. At least he didn't have stuff in his teeth when he was on air (that we can tell).
I mean Mrs. Dryfly would send Mr. Dryfly out into the world like that and not have a second thought - as long as my fly is zipped, pants pockets are in (and not doing 'the rabbit') and I don't have my shirt pockets stuffed full of biz cards or pencils... those are her only fashion faux pas that I know.
Dryfly--well, you can just run those ole presses until they scream for mercy, but what you will have then
is hyperinflation. Which is quite possible of course. So what is meant, not enuf money in the world if you don't want to have Zimbabwe type hyperinflation.
(i feel like Matthew or possibly Luke)
TANTA IS AMONGST US!
HALLELUJAH!
But you could force them to worsen their estimates today, without changing the Q status. That worsening estimate would impact the GSEs' balance sheets immediately, because credit guarantees are already on their balance sheets.
Hypothetically. But in practice, accounting for mortgage assets is more conservative than accounting for liabilities. There's been a lot of discussion, and some action by auditors, requiring mark to market for MBS securities and mortgage portfolios. I've yet to even see a serious suggestion by an authority or pundit (I don't count) that the GSE's liabilities should be marked to market. By moving the accounting from GSE guarantees covering losses to GSEs having promised certain payments and hoping to make it back from mortgage payments and foreclosure proceedings, those mortgages will move from light scrutiny (M2M not under consideration) to moderate scrutiny( M2M under consideration), based on current practices. Although the practices could hypothetically be different, in the current environment you'd expect a substantial difference.
If I were a current shareholder, the only question I'd ask is:
If we can't/ won't sell the paper, how long can we continue to fund the residential market at current rates (of dollar volume/velocity)?
If we have to hang onto everything, total dollar volume (and velocity) will fall and with it...profits.
With all due respect, I think we're getting confused in this discussion between actuarial (as it relates to the accounting) and business model issues.
Quick take on M2Market: There's always an available bid...on everything. If one doesn't like the bids, make a case for why they're worth more. Not working? Then you've either lost all credibility or the bids are accurate. Or both.
Tanta
Thanks for your reply to my comment. Sometimes people get carried away and the tone becomes cruel and cynical; not you, by the way, but others on this and other blogs.
Everytime I see Lockhart speak, I am impressed by his candor. He did a great job today, I think, in allaying concerns in the market that FRE and FNM might be taken over by the government, which, of course, would be a disaster. Imagine, for example, if the Fed took over the GSEs! What a disaster that would be!
I guess the confusion is not whether it's on or off but whether the value of underlying asset is truly reflected in the liability. Bringing it OBS requires(?) mark to market. From there, and only then, will the total liability account for the reduction in value of the asset.