Aug. 6 (Bloomberg) -- The Massachusetts state pension fund pulled $2 billion in assets from Legg Mason Inc.'s Bill Miller and four other firms as part of a plan to shift all U.S. equity assets from active money managers.
The board of the pension fund, which has $50.6 billion in assets, approved the switch at a meeting today, citing ``inconsistent performance,'' said Francy Ronayne, a spokeswoman for Massachusetts Treasurer Timothy Cahill in Boston. The money was reassigned to index funds run by State Street Corp. and three hedge funds.
``We've determined that active managers add no value over long periods of time,'' Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
"shareholders act as first line of defense for taxpayer" Great...
The order of losses should be as follows:
Shareholders, bondholders, taxpayers.
Instead it's:
Shareholders, taxpayers, bondholders.
The taxpayers are being robbed by the interests that hold these bonds.
There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers.
Honest housing assistance might involve providing some guarantee for newly issued bonds.
Apparently, however, the bondholders have the rest of us held hostage.
Let's see: From the table, loans that were LTV > 80% for fixed 30 year
05: 8%
06: 10%
07: 19%
With a 20% national drop, you can zero those puppies right out. In fact, I wouldn't wait for the xmas rush, zero them out now.
That won't cause a big problem, will it?
If the Fannie/Freddie funded closings I've been lately doing are any indication, "subprime" could be substituted for "conforming" and you'd about get the picture.
There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers.
AC not only is that a bad idea but how can they cover the trillion dollars in housing bonds when the market is falling off the cliff. At this point people should question the ability of them to do this.
"There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers."
That's mostly right, but keep in mind that high RE values also helps destroy global competitiveness by driving up the cost of living.
That's mostly right, but keep in mind that high RE values also helps destroy global competitiveness by driving up the cost of living.
What do real estate prices have to do with loans that have already been made? It seems to me like the concern, whatever it is, should be with loans that will be made in the future - that's what will allow people to refinance or purchase houses (if that's the objective of the GSE bailout).
How does bailing out Asia and Bill Gross affect US real estate values?
How does a housing bailout translate into "bailout people who made bad loans at" instead of "bailout struggling homeowners".
This has to be one of the most perverse things ever done in US history.
The whole point of the GSE's, I remember being told in my youth, was that by specialzing in mortgages they would build expertise and we could be assured that the housing debt sector would be safe. So much for that fairy tale!
"We've determined that active managers add no value over long periods of time," Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
That's just wrong. It's piling on. How the hell is this country ever going to turn around the employment numbers if we start demanding that people add value when they're employed? Somebody needs to call Hank and get this added to the list.
"Our saviors are here, our saviors are here! Our houses are SAVED!!! Well they are very, very close by anyway, they maxed out there gas card about 800 miles back but they wanted me to run up ahead and see if I couldn't get one of you guys to loan them your gas card so they could come save us ASAP?" - Uncle Sam
What irks me most is the success of the financial manipulators in completely burying the very question of whether we as a people have empowered the Federal Government to have an active role in the financial markets. I know we have a representative form of government but does anyone think this scheme would pass a public vote?
Is there some website where the "Texas ratio" of important banks is listed. I presume this would have to be as of March 31st since it seems that the second quarter statistics are not available yet.
"but does anyone think this scheme would pass a public vote?" - Rob Dawg
Dawg, you're going to have to be way more specific as to which Government backed [ponzi] scheme you're referring to as we have many to choose from. Ever play whacka-mole?
``We've determined that active managers add no value over long periods of time,'' Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
energyecon - it is certainly reflective of a trend, though not necessarily the one you might think. The managers PRIM fired were all "unconstrained/high alpha" long equity managers, which is part of pension funds' long march of desperation in search of ways to close their funding deficits without having to pony up contributions. Apparently it's better to pay a lot of money to hedge fund managers for the hope of future returns than it is to make contributions to ensure that you meet your fiduciary liability to your plan participants.
The progression has gone something like this:
1990s: Let your equities ride and add more - they always go up! Fund managers only too happy to sell closet index performance at active prices. Everybody wins!
2000-2002: Shell shocked from the losses, pension funds start looking for other ways to make back the funding deficit. Managers start telling trustees how glorious absolute returns are ("We love LIBOR!!), but they will cost so, so much more.
2002-2007
While greasing the skids for the glories of hedge funds, investment managers sell, and pension funds buy, story that the managers would have performed better if it wasn't for those pesky benchmarks and constraints. Take 'em off! Oh, by the way, it will cost extra, but there is extra return to be had! Everybody wins! Well, actually...
2005-now
...Unconstrained managers tend to do even more poorly than traditional managers, leading large pension funds (a la PRIM) to fire their unconstrained managers and take the next step on the continuum of expense into "portable alpha" strategies based on funds of hedge funds and (of course) their additional layers of fees
2009 -
Half of these strategies work, half will likely suck wind, at which point all hope will be lost, and the real pension pain starts.
Many have attacked Bill Gross and PIMCO. My company 401k has Pimco Total Return as it's only 'safe' bond fund investment choice. I work for a medium-large company and the provider is a big name provider that starts with F. I suspect many people have the same limited choices. I'm forced to buy fannie/freddie bonds by the limited 401k system thats tied to employers. We need to decouple the 401k from the employers, and make them more like roths.
"We need to decouple the 401k from the employers, and make them more like roths."
To which I said: "add that to the demand list for next month's "million broke-man's march" on D.C.! Last month's rally of 3 million angry American's really shook the establishment to the bone and now that we've got our Government's ear we press them"...then I woke up from my dream and remembered no protests, no demands, apathy everywhere.
Aug 6 (Reuters) - U.S. auto-finance company AmeriCredit Corp (ACF.N: Quote, Profile, Research, Stock Buzz) posted a fourth-quarter loss, hurt by impairment and restructuring charges.
The Fort Worth, Texas-based company reported a net loss of $150 million, or $1.30 a share, compared with a profit $87 million, or 66 cents, a year earlier. Revenue fell 4 percent to $598.4 million.
The loss included an impairment charge of $1.17 a share, related to the write-off of goodwill related to the acquisitions of Long Beach Acceptance Corp and Bay View Acceptance Corp.
The results also included a charge of 6 cents a share related to changes in the company's lending programs and organizational structure.
Analysts expected the company to earn 23 cents a share, excluding special items, on revenue of $599.8 million, according to Reuters Estimates.
OT-
5:30 p.m.
[AIG] AIG Q2 adjusted net loss $1.32 bln vs $4.63 bln profit
5:30 p.m.[AIG] AIG Q2 net realized capital loss $4.02 bln vs $17 mln loss
5:29 p.m.[AIG] AIG Q2 operating loss $8.76B vs operating profit of $6.33B
5:28 p.m.[AIG] AIG: Q2 unrealized depreciation of investments $3.68 bl
We are currently experiencing Dehydration and Risk cholera Epidemic!
The Fed is pushing water and more liquidity, but the main problem is a lack of salt to retain the fluid loss, thus The Fed is lost in a feedback loop that suggests more water, more water, like more cowbell (see Water intoxication). Unfortunately, the patient is at risk of depleting electrolytes and suffering cholera-like symptoms. If The fed maintains this course, we will have an epidemic.
Drinking fluids that are hypertonic or hypotonic with respect to perspiration may have grave consequences (hyponatremia or hypernatremia, principally) as the total volume of water turnover increases. Dehydration - Wikipedia, the free encyclopedia
See Also: Resistant Starches:
Resistant Starch Starch that resists digestion is found in foods such as legumes, bananas (especially under-ripe, slightly green bananas), and unprocessed whole grains. Natural resistant starch is insoluble, is fermented in the large intestine and is a prebiotic fiber. Other types of resistant starch may be soluble or insoluble, and may or may not have prebiotic properties.
It contributes to oral rehydration solutions for the treatment of diarrhea
Amylase-resistant starch plus oral rehydration solution for cholera. The New England Journal of Medicine
"Sorry for this OT response, but I wouldn't rely on the sanity of "public" too much. They might yet elect Obama!"
Either way's a crapshoot. I'd rather have a beer with Obama. He might snark at me from a high level, but McCain would find out exactly what I want to hear, and tell it to me.
To Brian: Thanks for the chart. Now THAT is terrifying. 18% to 47% LTV>80% !! Ow! Mostly in one 1/2 year - late 2007. We're going to see some scary losses as that particular pig works through the python.
I do think overall that it backs up my interpretation that the GSEs were trying to be the white knight (who was going to be richly rewarded for saving the kingdom) and didn't anticipate the garbage that would get shoved through their automated underwriting (remember all the old posts here on automated underwriting?)
Has anybody gone over the Freddie conference call estimates to see if they're fairly estimating for the future effects of this garbage?
I think they were leaned on big time by the folks in Washington to step up and "play their vital role" or some BS like that (remember also at the time they were trying to get their capital requirements relaxed so there was a regulatory quid pro quo).
They should have anticipated adverse selection (with regard to the quality of the loans) what with the rest of the mortgage world madly tightening requirements at that point and the securitization markets shutting down, they should have been extra vigilant for crappy paper showing up on their door. Whether their systems could be gamed, and how much fraud was involved, I'll leave for Tanta to answer.
To my earlier point, I don't think you would have seen a private mortgage entity without the taxpayer back stop behaving in this fashion (I can't think of one that did during this time). And these numbers help explain the loss curve in the earlier post. I stand by my assertion that the curve is a great visual depiction of moral hazard in action.
ShortCourage writes:
"If taxpayers contribute a penny to save the GSEs, before the common shareholders are wiped out, I will stage my own personal tax protest."
Million person strong marches notwithstanding, waste and corruption by the 435 will continue right up to the final financial accident that triggers the debt collapse and civil unrest.
In my dreams I envision a protest of illegal congressional use of taxpayer money, wherein taxpayers withhold, say, up to 10% of the tax due each year, in an escrow account of some kind, payable to the IRS over 10 years. I see a million person protest that would get the attention of the 435, and tax courts as backed up as bank foreclosure divisions.
And lots of blog posts on who is withholding what per cent for which illegal congressional/agency expenditure, grant and guarantee.
AIG is dying by 1000000000 cuts. There really is no bottom until housing and the FCs stop. Can the PPT hold this contraption of an equities market together until options expiry or will the Fed have to chip another 50bpts off the old block.
So. Correct me if I'm missing something. Is this an accurate summary of where we are?
In 2007, when it became obvious that the housing market was in trouble thanks to all the bad mortgage loans, the private mortgage issuers/securitizers began collapsing. To keep the housing market rolling for a few more months, somebody thought it would be a good idea for the GSEs to take on more risk, behaving more like the private companies that were collapsing.
Now, the inevitable consequences of that are becoming too obvious to ignore. The GSEs' implicit guarantee is being changed into a real guarantee by the same people who brought all this to pass.
You got that right, and now we are about to repeat the same mistake with the FHA. The bottom line is that there a number of homeowners who had no business signing up for a mortgage. Rather than being honest about it and transitioning them back to the rental market, the government is throwing a lot of tax dollars at the problem of keeping them in houses they cannot afford.
"Apparently, the bond holders have the rest of us held hostage".
See: PIMCO
Didn't you just know when Bill Gross went all in on Fan and Fred a month or two ago, when everyone with half a brain knew they were absolute sh*t, that some kind of grand government/Treasury fix was coming down the pike? And soon?
Actually, every last one of those >80LTV loans needs to have credit enhancement on it in order for the GSE to guarantee it. Almost all the credit enhancement comes from private mortgage insurance.
The problem that developed is that the GSEs were more than willing to take on >80LTV risk, because they had severity protection from the MIs. The MIs were desperate for business, so did whatever the GSEs asked them to do. On top of that, there are only 2 GSEs, and there were 7 MIs, so power was not balanced.
End result - a lot of renters turning into temporary buyers.
Is there also any corresponding table showing dollar amounts per period? or % dollar amount for each of the values and total dollar amount for that period?
Just a clarification: These percentages on the table are % of loans for that period no % of total dollar amount.. right?
I am just trying to wrap my mind around the numbers a bit.. and trying to figure out likely scenarios based on the amounts involved and the age of mortgage.
fist?
Today was a GREAT DAY to BUY STOCKS!
Still a lot of junk in that trunk.
When will we understand that Finacial engineeering does not add value?
We expect the delinquencies to rise considerably further, given the deterioration of the GSE book of business in 2007.
Not to mention the fact that we have a culture which punishes those who meet their obligations and rewards those who do not.
Would it be petty to question: Woocoodanode?
DICK Syron on CNBC
He kind of sounds like a Kennedy to be honest...
"shareholders act as first line of defense for taxpayer" Great...
OFEO="FNM/FRE won't survive"...
preferred stock will probably "pay a double digit rate"
"no immediate need to raise capital"
"Half capital raise will come from common stock"
Love how meek these CEO's look when they know they screwed up and lied about their performance... Reminds me of those kids in the principals office.
Not to mention the fact that we have a culture which punishes those who meet their obligations and rewards those who do not.
Thanks once again to ac for summing this whole mess up for us in one sentence.
These factual posts about just how shity FRE is are priceless - this is what is great about this blog. thank you CR.
SR
Look how the bad loans peaked in Aug 07. When these guys party they party till dawn...
Will this be trend setting?
Legg Mason Dumped as Massachusetts Plans End to Active Managers
By Christopher Condon
Aug. 6 (Bloomberg) -- The Massachusetts state pension fund pulled $2 billion in assets from Legg Mason Inc.'s Bill Miller and four other firms as part of a plan to shift all U.S. equity assets from active money managers.
The board of the pension fund, which has $50.6 billion in assets, approved the switch at a meeting today, citing ``inconsistent performance,'' said Francy Ronayne, a spokeswoman for Massachusetts Treasurer Timothy Cahill in Boston. The money was reassigned to index funds run by State Street Corp. and three hedge funds.
``We've determined that active managers add no value over long periods of time,'' Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
[snip]
"shareholders act as first line of defense for taxpayer" Great...
The order of losses should be as follows:
Shareholders, bondholders, taxpayers.
Instead it's:
Shareholders, taxpayers, bondholders.
The taxpayers are being robbed by the interests that hold these bonds.
There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers.
Honest housing assistance might involve providing some guarantee for newly issued bonds.
Apparently, however, the bondholders have the rest of us held hostage.
Let's see: From the table, loans that were LTV > 80% for fixed 30 year
05: 8%
06: 10%
07: 19%
With a 20% national drop, you can zero those puppies right out. In fact, I wouldn't wait for the xmas rush, zero them out now.
That won't cause a big problem, will it?
Syron: we have seen a "10% national decline in home prices" expects to trough at 20%.
This guy is about 8 months behind
Syron on Bill Gross comments doesn't believe Treasury will have to put money in FRE.
Thanks Maria for the softballs. end...
If the Fannie/Freddie funded closings I've been lately doing are any indication, "subprime" could be substituted for "conforming" and you'd about get the picture.
There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers.
AC not only is that a bad idea but how can they cover the trillion dollars in housing bonds when the market is falling off the cliff. At this point people should question the ability of them to do this.
"There's no reason the government needs to guarantee existing bonds to help housing. All that does is help the bondholders at the expense of the taxpayers."
That's mostly right, but keep in mind that high RE values also helps destroy global competitiveness by driving up the cost of living.
That's mostly right, but keep in mind that high RE values also helps destroy global competitiveness by driving up the cost of living.
What do real estate prices have to do with loans that have already been made? It seems to me like the concern, whatever it is, should be with loans that will be made in the future - that's what will allow people to refinance or purchase houses (if that's the objective of the GSE bailout).
How does bailing out Asia and Bill Gross affect US real estate values?
How does a housing bailout translate into "bailout people who made bad loans at" instead of "bailout struggling homeowners".
This has to be one of the most perverse things ever done in US history.
The whole point of the GSE's, I remember being told in my youth, was that by specialzing in mortgages they would build expertise and we could be assured that the housing debt sector would be safe. So much for that fairy tale!
All, Brian sent me the most recent table (updated in post) showing that lending standards have tightened again.
Best to all
"We've determined that active managers add no value over long periods of time," Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
That's just wrong. It's piling on. How the hell is this country ever going to turn around the employment numbers if we start demanding that people add value when they're employed? Somebody needs to call Hank and get this added to the list.
"Our saviors are here, our saviors are here! Our houses are SAVED!!! Well they are very, very close by anyway, they maxed out there gas card about 800 miles back but they wanted me to run up ahead and see if I couldn't get one of you guys to loan them your gas card so they could come save us ASAP?" - Uncle Sam
Value Subtracted Employees?
friardaddy,
I think that is Wally in Dilbert...
What irks me most is the success of the financial manipulators in completely burying the very question of whether we as a people have empowered the Federal Government to have an active role in the financial markets. I know we have a representative form of government but does anyone think this scheme would pass a public vote?
Government spending is the economy. Get use to it.
Is there some website where the "Texas ratio" of important banks is listed. I presume this would have to be as of March 31st since it seems that the second quarter statistics are not available yet.
March 07 was a great vintage!
"but does anyone think this scheme would pass a public vote?" - Rob Dawg
Dawg, you're going to have to be way more specific as to which Government backed [ponzi] scheme you're referring to as we have many to choose from. Ever play whacka-mole?
FNM and FRE stock price is levitating as if investors expect a bailout to salvage their investment in common stock.
Anybody care to comment on the likelihood of that being so?
``We've determined that active managers add no value over long periods of time,'' Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.
energyecon - it is certainly reflective of a trend, though not necessarily the one you might think. The managers PRIM fired were all "unconstrained/high alpha" long equity managers, which is part of pension funds' long march of desperation in search of ways to close their funding deficits without having to pony up contributions. Apparently it's better to pay a lot of money to hedge fund managers for the hope of future returns than it is to make contributions to ensure that you meet your fiduciary liability to your plan participants.
The progression has gone something like this:
1990s: Let your equities ride and add more - they always go up! Fund managers only too happy to sell closet index performance at active prices. Everybody wins!
2000-2002: Shell shocked from the losses, pension funds start looking for other ways to make back the funding deficit. Managers start telling trustees how glorious absolute returns are ("We love LIBOR!!), but they will cost so, so much more.
2002-2007
While greasing the skids for the glories of hedge funds, investment managers sell, and pension funds buy, story that the managers would have performed better if it wasn't for those pesky benchmarks and constraints. Take 'em off! Oh, by the way, it will cost extra, but there is extra return to be had! Everybody wins! Well, actually...
2005-now
...Unconstrained managers tend to do even more poorly than traditional managers, leading large pension funds (a la PRIM) to fire their unconstrained managers and take the next step on the continuum of expense into "portable alpha" strategies based on funds of hedge funds and (of course) their additional layers of fees
2009 -
Half of these strategies work, half will likely suck wind, at which point all hope will be lost, and the real pension pain starts.
Geez, no more afternoon coffee for me.
Rob Dawg writes:
... I know we have a representative form of government but does anyone think this scheme would pass a public vote?
Sorry for this OT response, but I wouldn't rely on the sanity of "public" too much. They might yet elect McCain!
"FNM and FRE stock price is levitating as if investors expect a bailout to salvage their investment in common stock."
I guess the Chinese have gotten many assurances from Chairman Paulso
Many have attacked Bill Gross and PIMCO. My company 401k has Pimco Total Return as it's only 'safe' bond fund investment choice. I work for a medium-large company and the provider is a big name provider that starts with F. I suspect many people have the same limited choices. I'm forced to buy fannie/freddie bonds by the limited 401k system thats tied to employers. We need to decouple the 401k from the employers, and make them more like roths.
Rob Dawg writes:
... I know we have a representative form of government but does anyone think this scheme would pass a public vote?
Sorry for this OT response, but I wouldn't rely on the sanity of "public" too much. They might yet elect Obama!
If taxpayers contribute a penny to save the GSEs, before the common shareholders are wiped out, I will stage my own personal tax protest.
"We need to decouple the 401k from the employers, and make them more like roths."
To which I said: "add that to the demand list for next month's "million broke-man's march" on D.C.! Last month's rally of 3 million angry American's really shook the establishment to the bone and now that we've got our Government's ear we press them"...then I woke up from my dream and remembered no protests, no demands, apathy everywhere.
Bit of a miss for AmeriCredit, guess they won't be filling the auto lending void...
UPDATE 1-AmeriCredit swings to Q4 loss on charges
Aug 6 (Reuters) - U.S. auto-finance company AmeriCredit Corp (ACF.N: Quote, Profile, Research, Stock Buzz) posted a fourth-quarter loss, hurt by impairment and restructuring charges.
The Fort Worth, Texas-based company reported a net loss of $150 million, or $1.30 a share, compared with a profit $87 million, or 66 cents, a year earlier. Revenue fell 4 percent to $598.4 million.
The loss included an impairment charge of $1.17 a share, related to the write-off of goodwill related to the acquisitions of Long Beach Acceptance Corp and Bay View Acceptance Corp.
The results also included a charge of 6 cents a share related to changes in the company's lending programs and organizational structure.
Analysts expected the company to earn 23 cents a share, excluding special items, on revenue of $599.8 million, according to Reuters Estimates.
[snip]
OT-
5:30 p.m.
[AIG] AIG Q2 adjusted net loss $1.32 bln vs $4.63 bln profit
5:30 p.m.[AIG] AIG Q2 net realized capital loss $4.02 bln vs $17 mln loss
5:29 p.m.[AIG] AIG Q2 operating loss $8.76B vs operating profit of $6.33B
5:28 p.m.[AIG] AIG: Q2 unrealized depreciation of investments $3.68 bl
We are currently experiencing Dehydration and Risk cholera Epidemic!
The Fed is pushing water and more liquidity, but the main problem is a lack of salt to retain the fluid loss, thus The Fed is lost in a feedback loop that suggests more water, more water, like more cowbell (see Water intoxication). Unfortunately, the patient is at risk of depleting electrolytes and suffering cholera-like symptoms. If The fed maintains this course, we will have an epidemic.
Drinking fluids that are hypertonic or hypotonic with respect to perspiration may have grave consequences (hyponatremia or hypernatremia, principally) as the total volume of water turnover increases.
Dehydration - Wikipedia, the free encyclopedia
See Also: Resistant Starches:
Resistant Starch Starch that resists digestion is found in foods such as legumes, bananas (especially under-ripe, slightly green bananas), and unprocessed whole grains. Natural resistant starch is insoluble, is fermented in the large intestine and is a prebiotic fiber. Other types of resistant starch may be soluble or insoluble, and may or may not have prebiotic properties.
It contributes to oral rehydration solutions for the treatment of diarrhea
Amylase-resistant starch plus oral rehydration solution for cholera. The New England Journal of Medicine
"Sorry for this OT response, but I wouldn't rely on the sanity of "public" too much. They might yet elect Obama!"
Either way's a crapshoot. I'd rather have a beer with Obama. He might snark at me from a high level, but McCain would find out exactly what I want to hear, and tell it to me.
To Brian: Thanks for the chart. Now THAT is terrifying. 18% to 47% LTV>80% !! Ow! Mostly in one 1/2 year - late 2007. We're going to see some scary losses as that particular pig works through the python.
I do think overall that it backs up my interpretation that the GSEs were trying to be the white knight (who was going to be richly rewarded for saving the kingdom) and didn't anticipate the garbage that would get shoved through their automated underwriting (remember all the old posts here on automated underwriting?)
Has anybody gone over the Freddie conference call estimates to see if they're fairly estimating for the future effects of this garbage?
Not sure exactly why the juxtaposition of Rob Dawg's:
... I know we have a representative form of government but does anyone think this scheme would pass a public vote?
and Mike Morgan's copy of FDR's gold confiscation (oops, sorry Sheila, I meant anti-hoarding) executive order:
Blogger: Blog not found
suddenly made that catch phrase "born and bred American dopes" pop into my pea-sized brain. But it did.
cd,
Yeah been watching for that one - may leave a mark, no?
Yeah been watching for that one - may leave a mark, no?
Yes, but the mark's sign will be determined by a coin flip tomorrow morning.
curious-er, ain't dat da troot!
Well, with all those AIG writedowns the bottom would certainly be in. No?
"shareholders act as first line of defense for taxpayer"
"Half capital raise will come from common stock"
That's a great sales pitch for your common, Dickyboy.
preferred stock will probably "pay a double digit rate"
Oh, no doubt. If not upon issuance, within a day or so thereof.
Fair Economist,
I think they were leaned on big time by the folks in Washington to step up and "play their vital role" or some BS like that (remember also at the time they were trying to get their capital requirements relaxed so there was a regulatory quid pro quo).
They should have anticipated adverse selection (with regard to the quality of the loans) what with the rest of the mortgage world madly tightening requirements at that point and the securitization markets shutting down, they should have been extra vigilant for crappy paper showing up on their door. Whether their systems could be gamed, and how much fraud was involved, I'll leave for Tanta to answer.
To my earlier point, I don't think you would have seen a private mortgage entity without the taxpayer back stop behaving in this fashion (I can't think of one that did during this time). And these numbers help explain the loss curve in the earlier post. I stand by my assertion that the curve is a great visual depiction of moral hazard in action.
ShortCourage writes:
"If taxpayers contribute a penny to save the GSEs, before the common shareholders are wiped out, I will stage my own personal tax protest."
Million person strong marches notwithstanding, waste and corruption by the 435 will continue right up to the final financial accident that triggers the debt collapse and civil unrest.
In my dreams I envision a protest of illegal congressional use of taxpayer money, wherein taxpayers withhold, say, up to 10% of the tax due each year, in an escrow account of some kind, payable to the IRS over 10 years. I see a million person protest that would get the attention of the 435, and tax courts as backed up as bank foreclosure divisions.
And lots of blog posts on who is withholding what per cent for which illegal congressional/agency expenditure, grant and guarantee.
I love Syron's "shareholder's are the first line of defense". Well that is a pretty thin line.
As a taxpayer, kind of makes you feel like you're in Paris circa 1940 knowing that the French Army is your first line of defense.
AIG is dying by 1000000000 cuts. There really is no bottom until housing and the FCs stop. Can the PPT hold this contraption of an equities market together until options expiry or will the Fed have to chip another 50bpts off the old block.
Interesting table...a lot less activity in the >90 LTV than I expected.
So. Correct me if I'm missing something. Is this an accurate summary of where we are?
In 2007, when it became obvious that the housing market was in trouble thanks to all the bad mortgage loans, the private mortgage issuers/securitizers began collapsing. To keep the housing market rolling for a few more months, somebody thought it would be a good idea for the GSEs to take on more risk, behaving more like the private companies that were collapsing.
Now, the inevitable consequences of that are becoming too obvious to ignore. The GSEs' implicit guarantee is being changed into a real guarantee by the same people who brought all this to pass.
This can't be as crazy and stupid as it sounds.
John,
You got that right, and now we are about to repeat the same mistake with the FHA. The bottom line is that there a number of homeowners who had no business signing up for a mortgage. Rather than being honest about it and transitioning them back to the rental market, the government is throwing a lot of tax dollars at the problem of keeping them in houses they cannot afford.
"Apparently, the bond holders have the rest of us held hostage".
See: PIMCO
Didn't you just know when Bill Gross went all in on Fan and Fred a month or two ago, when everyone with half a brain knew they were absolute sh*t, that some kind of grand government/Treasury fix was coming down the pike? And soon?
Yep. That's what happened John. The government stepped in, led by our illustrious Congress, to pick up where the failed lenders left off.
Only, to really be efffective at that, they had to lift the upper limit from 417K to 725K, in a falling market.
Actually, every last one of those >80LTV loans needs to have credit enhancement on it in order for the GSE to guarantee it. Almost all the credit enhancement comes from private mortgage insurance.
The problem that developed is that the GSEs were more than willing to take on >80LTV risk, because they had severity protection from the MIs. The MIs were desperate for business, so did whatever the GSEs asked them to do. On top of that, there are only 2 GSEs, and there were 7 MIs, so power was not balanced.
End result - a lot of renters turning into temporary buyers.
Does anyone see this debacle as leading us towards nationalizing the mortgage industry altogether? I apologize if that is a naive question.
Is there also any corresponding table showing dollar amounts per period? or % dollar amount for each of the values and total dollar amount for that period?
Just a clarification: These percentages on the table are % of loans for that period no % of total dollar amount.. right?
I am just trying to wrap my mind around the numbers a bit.. and trying to figure out likely scenarios based on the amounts involved and the age of mortgage.
Ghostface,
They hope they have credit enhancement from the MI's. We'll see if there capital base holds up against the losses they will incur. The jury is out.