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some times i sit and wonder and soemtimes i just sit
First?
Damn: Second.
Welcome to the 21st century
A merger wouldnt undo the mess that these two companies have made, nor does it erase the billions of dollars in potentially toxic loans they own or have guaranteed. Nor would it address the question of whether these companies deserve the implicit backing of the government in the future...
Did I just read that correctly? There's no benefit to this thing whatsoever.
The notion has actually been quietly floating around a small corner of Wall Street for weeks and has even been tossed around internally at Fannie and Freddie, according to people close to both companies.
I had heard talking heads suggesting that a while back - can't remember where. I laughed... at least they have the shit all in one sack.
Tanta - what about the opposite? Break them each up into baby GSEs and try to get them to compete? I mean as it is now they would be penny stocks but is that so bad?
I would think a GSE half or quarter the size of Freddy or Fanny would still have large enough economies of scale to work, no? And not be too big to fail.
By merging them, they would really become too big to fail.
this is the funniest line ever. As though they're not already big enough to fail.
I've got a better idea:
merge Fannie and Freddie and Ford and GM and all the national banks and Investment banks and Yahoo! together.
now THAT would be too big to fail. if not, I'm sure we can find other large struggling firms to merge.
oops:
should have said "as though they're not already too big to fail"
duh
Umm... what was the perceived need for Freddie in the first place? Has that reason for it's existence gone away somehow?
Dry,
We already have baby GSEs, they are called the Federal Home Loan banks. When they are smaller, flexible and independent they go off and do things like take $57b of Countrywide collateral onto their balance sheets: the Federal Home Loan Bank of Atlanta evidently does not believe in risk management via counterparty vitality or diversification. Meh....
so did this come from the same f$$king genius who though combining kmart and sears would kick walmart's a$$????????????
I love wall street's well take two losers and merge them and they will dominate. If they don't we'll just spin them back apart agai
actually: I'd argue the need for them is stronger today than it has been for some time.
they were created to be lenders of last resort, to add liquidity to the mortgage market in times of stress.
time of stress? check
illiquidity of the mortgage market? check.
so it would seem that they are doing what they were meant to do.
the philosophical debate of course always is
1) should they add liquidity to the mortgage market in times of stress?
and
2) should they be private or public or a hybrid?
Tanta - what about the opposite? Break them each up into baby GSEs and try to get them to compete?
Well then you do get the opposite side of this argument. How much duplication of labor, tech, bricks & mortar, etc. do we want to have? Zero economy of scale in the name of "competition"?
Personally, I can't see why the GSEs are our first candidates for breakup. It seems to me that the mortgage servicing industry--labor intensive, customer-oriented, profoundly influenced by differing regional and local economies--would benefit much more from breakup than the GSEs.
Furthermore, we just went through a giant, terrible race to the bottom in an entire industry. I confess to being a bit hesitant about letting "competition" be the Solution du Jour.
Then again, I think if the GSEs made one big mistake during the boom it was not holding the line in the sand on loan homogeneity in their pools. They'd have been much better off not competing with the private sector on certain kinds of "innovations." What would stop a Baby GSE from deciding to become the new Alt or subprime "specialist"? If they're competing with each other instead of just duplicating each other, why wouldn't that kind of thing happen? And how would a Baby GSE with such a concentrated portfolio of risk manage it?
Am I the only one who thinks our creditor nations (like China) look at this kind of stuff and lick their chops while our colleagues in Europe just shake their heads? Nero's got nothing on us. Heck with fiddling while Rome burns, we've tossed the fiddle into the fire and started singing "Burning Down the House"...
Tanta, you are using operational arguments, and operations is one thing Wall Street has no truck with. In B-School they were all told operations was "low-level" and kind of dirty, because a black-box financial manager could run anything. Wall Street is essentially a very elaborate sales organization and doan no nuthin bout birfing no babies.
I used to get the Wall Street Journal, and yeah the GSEs did make the editorial board foam at the mouth. I don't really get the hatred now though. F & F haven't acquitted themselves really well or anything, but compared with the private sector they look pretty good.
Clyde writes:
Dry,
We already have baby GSEs, they are called the Federal Home Loan banks. When they are smaller, flexible and independent they go off and do things like take $57b of Countrywide collateral onto their balance sheets: the Federal Home Loan Bank of Atlanta evidently does not believe in risk management via counterparty vitality or diversification. Meh....
Clyde | 09.02.08 - 9:30 am | #
Aren't the FHLBs more 'G' than 'E' as far as a GSE goes?
I'm thinking recap Freddy & Fanny - break them up into a number of smaller entities [say six] and then reduce & clarify the terms of the gov't back stop.
If one did a country fried - let there be five. Lesson learned yet whole system doesn't fail.
Wall Street is essentially a very elaborate sales organization and doan no nuthin bout birfing no babies.
That's about the size of it.
I'm sure Sorkin thinks you can just hire a outsourcing firm to birf the babies.
I don't really get the hatred now though.
Wall Street needs to Change the Subject. The perception that the sacred "private sector" blew up faster and bigger than the GSEs must be erased.
Fannie Mae appointed David Hisey as chief financial officer and Peter Niculescu to the chief business officer post. A couple of ex Goldman Suks boys, all is well with the world.
We have two giant holes in the hull of the USA ship. If we could just push those holes together, forming one really huge hole, then . . . uh . . . we'd still sink.
P.S. Kudlow is co-hosting with Erin on CNBC. That guy has to be the dumbest free-enterprise fanatic in the world.
Personally, I can't see why the GSEs are our first candidates for breakup. It seems to me that the mortgage servicing industry--labor intensive, customer-oriented, profoundly influenced by differing regional and local economies--would benefit much more from breakup than the GSEs.
Sign me up for that too. Throw in some big IBs to break up and I get real excited.
But then I've been saying all along that the most important regulator in all of Washington - and the most defanged right now - has been DOJ Antitrust.
BTW - the 'economies of scale' stuff they throw at us is a crap argument for the most part. Every operational study I've ever seen shows there is very little advantage to greater & greater size. There is a threshold above which little advantage accrues. If there was the Soviets would have been ruling the world by now.
Once an organization reaches a certain mass [public or private - and it isn't that huge] the benefits are usually to those doing the deal not to those receiving the services [customers] or the doing the actual work [line workers].
Smaller organizations but still sufficiently large to have some economy of scale forced to fight it out in competitive markets will have a harder time being able to funnel all the cream to the senior exec's. Companies skimming would be unable to capture business if three or four others were fighting them for it... there would be less cream to skim.
Let there be no mistake - in every business the driver behind most of these mergers is to produce less competition & friendlier margins NOT by economy of scale but by reducing price pressure. I can't believe financials are any different.
I guess I don't understand how Fannie and Freddie truly compete with each other.
If they don't truly compete, why not merge them?
P.S. Kudlow is co-hosting with Erin on CNBC. That guy has to be the dumbest free-enterprise fanatic in the world.
Milkman | 09.02.08 - 9:54 am | #
That's kinda like Tanta's dumbest comment ever... as soon as you say that some one comes alone and is dumber yet.
But if there was an Olympics for dumb... Kudlow could be counted on to stand at the podium... just not sure it would be gold.
The dumbest thing I've ever heard of:
Beverly Hills Chihuahua.
YouTube - BEVERLY HILLS CHIHUAHUA (OFFICIAL TRAILER)
Being a hybrid of a private corporation and a government agency, they will always be ideologically intolerable to purists on one or the other side of any of the more annoying political arguments of our time.
As such "hybrids", they have an implicit taxpayer subsidy worth $150 billion or so (source: The Economist). They have spent that taxpayer subsidy on dividends for their shareholders, enormous salaries and bonuses for their executives, and lobbying Congress to avoid oversight.
If I should find this "intolerable", does that make me a "purist"? Just wondering.
Anonymous writes:
Fannie Mae appointed David Hisey as chief financial officer and Peter Niculescu to the chief business officer post. A couple of ex Goldman Suks boys, all is well with the world.
Anonymous | 09.02.08 - 9:54 am | #
I wonder if Hank had anything to do with that... ya think?
Nah - never.
If one did a country fried - let there be five. Lesson learned ...
Ay, there's the rub. Do you have any evidence that leads you to think like that?
Conjure Bag tells me there is a very real possibility that a McCain administration would merge the GSEs and put Sarah Palin's future son-in-law in charge because he used to live near a mortgage broker.
Ay, there's the rub. Do you have any evidence that leads you to think like that?
ratefink | 09.02.08 - 10:03 am | #
If they are small enough to fail without taking down the whole system then they WILL be allowed to fail. See recent FDIC actions vs BS-JPM bailout.
I don't know who said it - but if a bank, GS, trust, corporation gets too big to fail then its time to bust them up via Antitrust into units small enough to be allowed to fail.
Either that or regulate the crap out of them like public utilities USED to be regulated.
A or B... no Frankenstein Financial hybrid worst of all worlds.
Dry,
One of the reasons the GSEs took off in the 80s & 90s was because they could "interest-rate hedge" their book much more cost-effectively & efficiently than the community banks and S&Ls could ever do. The efficiency is there with respect to default modeling as well. As the Street does on a perpetual basis, there is a lot of money to be made merging and then unmerging operations in every industry.
From a capital standpoint, the GSEs were never designed to withstand the stresses we have today. No surprise there. Just have the Treasury raise $25b per year for each of them for a decade and you got your national financing backstop forever. If we don't, we get frozen private markets as we have had since last August. Take your pick.
I really don't care what Fannie or Freddie do, as long as they don't use taxpayer money to do it.
"put Sarah Palin's future son-in-law in charge because he used to live near a mortgage broker."
I thought it was because he once knocked up a mortgage broker.
Yeah Nemo, it makes you a purist, but we need more purists and less relativists. Being a purist will not make you popular, but since when is doing the right thing ever been popular.
"I thought it was because he once knocked up a mortgage broker."
We don't talk about that because, according to Dobson, "that's life."
From a capital standpoint, the GSEs were never designed to withstand the stresses we have today. No surprise there.
Ya house prices never go down - whocoodanode - we all know that by heart by now.
Just have the Treasury raise $25b per year for each of them for a decade and you got your national financing backstop forever. If we don't, we get frozen private markets as we have had since last August. Take your pick.
Clyde | 09.02.08 - 10:10 am | #
I'd agree - recapping is gonna happen - society won't tolerate the financial gridlock... I'm sayin' "Okay after that, BESIDES just throwing more money at them... lets try to change the structure in a realistic fashion."
Merger is the exact OPPOSITE direction we should go.
I think Palin's daughter, when she was 14 and 15, was a mortgage broker for Countrywide.
Are we learning nothing from the subprime financial system? Haven't we begun to realize that we need to have more skeptical bankers on the job, more small banks that know their borrowers and regulations to restrain the concentrated market forces from totally destablizing the financial system everyone depends on? There might be fewer profits for Wall Street, but fewer losses for tax payers (and working people subject to cyclical job losses and inflation). Except for the intervention of the government and the Federal Reserve time and again we would have been back in the great depression so many times in the past 40 years. But for some reason this is always conveniently forgotten when the discussion turns to reforms.
From the article: But with few practical solutions, this one is as good as any.
He has just moved the dumb bar to a new world-record level. I don't see how this gets surpassed by anything dumber, honestly.
I wonder how Sorkin missed why Freddie came to exist in the first place? You know, back in '68? Oh, that's right - The Sork himself didn't exist prior to 1977. Talk about your short institutional memories. What a dipshit.
tanta, can't you post something a little soothing or sympathetic the those poor victims of today's stock manipulation scheme ?
I am getting scalped.
Bearly
Just hang in there for a coupla hours.
Elvis, Palin has something important to say about this.
YouTube -
change of subject but i just saw a bloomberg headline stating that the euro central bank is suddenly alarmed at rising wages in the face of slower growth..bernanke often makes the claim that the present times differ from the 70's in that we have no wage inflation..what is so awful about wage inflation? the clear lack of wage inflation (thanks to outsourced, 3rd world labor) of the past decade is the number 1 reason why the subprime crisis exists. its simple math but the mere mention of wage inflation is tantamount to economic disaster in the eyes of central bankers. i dont understand why no one publicly has attacked this issue to date. i think i might know why: its the talk of social upheaval...i guess we aint ready for it yet...
You go girl! You're opinionated and often right.
But if there was an Olympics for dumb... Kudlow could be counted on to stand at the podium... just not sure it would be gold.
I used to think Cramer was dumb then I saw a couple of youtube videos of him saying smart things.
Then I just realized he was running a clever scam through this bubblevision thing.
I wonder if the same applies to Kudlow.
There's a big difference between the popular misquote, "Too big to fail" and the true quote, "Too big to BE ALLOWED to fail"
Making this simple error could cost the tax payer an awful lot of money.
Let there be no mistake - in every business the driver behind most of these mergers is to produce less competition & friendlier margins NOT by economy of scale but by reducing price pressure. I can't believe financials are any different.
...
I don't know who said it - but if a bank, GS, trust, corporation gets too big to fail then its time to bust them up via Antitrust into units small enough to be allowed to fail.
That's so rational. Been reading Adam Smith or something?
dryfly for president '08...
--
Dumbest thing ever in a country of born-and-bred dopes ruled over by Crooks? No way, no how, not now.
There is nothing to curb the power of financial Crooks (all the housing mess was pre-planned by the Crooks) and nothing to check the doping process (propaganda machine run by Crooks).
Get prepared for America becoming a slightly worse country every day that the Sun comes out until the system collapses. America is in the grips of a BAD ECONO-POLITICAL SYSTEM
Jas
FT.com / Financials - Retail investors in US equities hits low
Retail left he market a year ago....
IF you didn't get the memo in late '07
DRR...people....DRR
Ciao
MS
remember this: the dollar rallies, the world breathes a sigh of relief. food drops, oil drops, gold drops, equities tend to rally, etc...the dollar declines, cmmdties rally, food soars, oil rises, equities get hurt. this simple relationship between the dollar and cmmdties tells me one thing: that the world is LONG the us dollar. sure the hedge funds recently got caught short with some massive positions gone bad. sure, the british pound, the thai baht and korean won are presently crashing, giving the dollar a safe haven bid. but the world's long position in the usdollar dwarfs these other positions..the middle east countries, china, japan, russia, singapore etc sit on close to $5 trillion us dollars. just about every commodity on the planet is priced and traded in usdollars. in fact, close to 70% of the world's currency holdings are in usdollars. the world is long us dollars, remember that. and the position is so massive and one-sided and obvious that i gotta think the dollars decline remains inevitable. look for the day when cmmdties/precious metals rally when the dollar rallies..
"The synergy, dude."
working for one of GE's satellite companies made me giggle at that one...rampant black belted morons thinking they can solve anything by merging responsibilities, streamlining necessarily complicated workflows and creating "centers of excellence"...
Here in Germany happens s.th. that can be compared with:
RGE - Commerzbank gobbles up Dresdner
In the biggest German banking merger in history, Commerzbank, the third largest in Germany, has reached an agreement with Allianz to buy its banking subsidiary Dresdner Bank, Germany's second largest, beating out an alleged better bid from state-owned China Development Bank (CDB).
Bearly,
Very small note of encouragement. I doubled up on the SDS this morning and took a new position in the DXD. However, I'm choking on my TWMs.
I don't know who said it - but if a bank, GS, trust, corporation gets too big to fail then its time to bust them up via Antitrust into units small enough to be allowed to fail.
I think that was me, dryfly.
If it wasn't me, (my memory is shoddy,) it certainly should have been.
From the moment I started reading, alarm bells went off. "Oh no, another too big to fail?"
Complete failure of Antitrust systems is a large part of why we're having all these problems. M&A cuts out all the "deadwood" (you know, the grunts doing the work,) and pats itself on the back for streamlining. Imagine the shenanigans possible if 11,500 experienced people were not around to ask ugly questions.
Having been on the dirty side most of my life, I can also attest to the inefficiencies of (large) size; mid-level managers contradicting each other to the point of collapse.
The central point is those pink slips.
Sometimes I think M&A types have canalized their Freudian imperatives. Not food, not sex, just mergers.
Jas, what countries/peoples would you say have their acts together the best? Thanks
Construction spending fell 0.6 percent in July
By MARTIN CRUTSINGER (AP Economics Writer)
From Associated Press
September 02, 2008 9:06 AM EDT
WASHINGTON - Construction spending took a bigger-than-expected tumble in July as housing activity dropped to the lowest level in seven years and nonresidential activity fell for the first time in seven months.
OT:
Does everyone think the market will continue to fall over, say, the next year? If so, why? If not, why not?
goose,
You can also take your well stated argument and turn it on it's head. Given the massive world wide holding of dollars, "they" can only allow the dollar to fall so far.
I've done business analyses on companies from $1 million to $4 billion. Most of what is credited as economies of scale is actually buying power (leverage over suppliers).
Tanya,
My yearly crystal ball has been on the fritz for 25 years. Sorry, I don't make the market, I just trade in it.
It seems to me that one of the clearest problems we've had in the financial markets is that there are simply too many companies that have become "too big to fail." There's no such thing without government backing and government backing means that it's taxpayers who pay the consequence when they do fail.
Which is better for the health of the market place? Having 3 or 4 giant banks competing for business that are so huge that they can never be allowed to fail? Or having a few hundred smaller banks competing where some will fail and some will succeed in an evolutionary process?
Just think of it this way: Bear Stearns was a merger of how many other companies? Had those mergers been stopped somewhere along the way, then the result would not have been too big to fail. Instead the bad business models would fail independently of the whole system and we wouldn't have to bail them out.
I recognize that there's value in economies of scale but it seems like you reach a critical point where the benefits from that scale are marginal and the risks become substantial. Perhaps, going forward, rather than merely considering the anti-trust implications of mergers, regulators should consider the risk to the economy by players in the market becoming too big to be allowed to fail.
Tanya,
Tanta gets wicked pissed when her posts are derailed by market talk. Keep your mouth zipped and your eyes open, and you'll probably learn answers to a lot of the questions you have.
The "good" news is: We will all be FHA in the near future.
The bad news is: We will all be paying for Fannie South Sea and Freddie Tulip for the rest of our lifes.
mp, funny vid but true
yeah every sperm is sacred and every egg, but children, once their born the far right doesnt want to be bothered
Steve,
That's a well thought out argument, but suffers from a flaw in your underlying assumption. Viz, this is not a planned economy - it is profit driven. The concentration into the size we have today was driven by the short term profits that were taken along the way.
Tanta: Wall Street needs to Change the Subject. The perception that the sacred "private sector" blew up faster and bigger than the GSEs must be erased.
Too true, but that's not the subject they have to change. This is the subject, and it's not going to change while house prices continue to go down.
"Freddie Mac sees weaker demand for bills, rates mixed", Reuters, September 2, 2008.
Steve,
Further, it's difficult to say what regulators should or shouldn't have done as that move toward greater concentration took place, because their budgets were consistently cut, their enforcement staffs were cut, and their experienced core of leadership was replaced by appointees taken directly from the brokerage community. If you want regulators who are in a position to make intelligent decisions, then you have to give them the necessary power and resources for that kind of decision making. If you can remember what has been happening for the past 10-15 years, we have been deregulating our economy.
"This is the subject, and it's not going to change while house prices continue to go down."
Well, that's the rub isn't it?
This isn't going to end well.
If one did a country fried - let there be five. Lesson learned ...
Ay, there's the rub. Do you have any evidence that leads you to think like that?
ratefink | 09.02.08 - 10:03 am | #
If they are small enough to fail without taking down the whole system then they WILL be allowed to fail. See recent FDIC actions vs BS-JPM bailout.
Sorry about the confusion. That's the part I was wondering about....
Take them both out they are a huge part of the problem!!!
Offer a tax incentive for real owner occupied housing (you know the homes where the owner on the deed actually lives there). If the tax incentive makes the cost of the home not attractive to investors then we have solved the problem the GSEs were set out to do.
In a similar vein, there was a discussion of GM-Ford merger in Detroit this spring. Nobody bought into it, but it has been discussed...
After too many of days spent on 12-hour-a-day meetings and thousands power-point slides, desperation drives otherwise sane men into insane ideas.
What problem does it solve?
Two drunks propping each other up?
Generates fee income for the advising bank?
Organizes a single point of failure - er, 'bailure'...
"After too many of days spent on 12-hour-a-day meetings and thousands power-point slides, desperation drives otherwise sane men into insane ideas."
It's more than a little sad. The patrimony has been pissed away and now we are reduced to scheming and dreaming.
Dream On, Oh Ship of State!
How about US merging with China? That should solve a lot of financing problems. And think about the synergies!
This proposal makes as much sense as pension funds and retail speculators piling into commodities recently. See what they've gotten themselves into.
O-Joe
--
Feddie (Fannie and Freddie) say a lot about the American econo-political system -- corrupt and morally bankrupt (schemes to Push Debt on households).
Any doubts about the fact that the system is controlled by an organized gang of financial Crooks with their seat of power in NYC? And there isnt a thing that born-and-bred dopes can do about it. Elections as a vehicle of change? LOL!
Feddie top the list of my biggest gainers for the year. BAC and MER are next. Most Fraudentials are heading towards zero (BAC and MER towards single digits).
Jas
I became addicted to this blog when I read the discussion about pension funds.
Tanta, to make a distinction between private and public enterprise in the mortgage industry is to draw a sharp line where none exists. Maybe this is a bit of an indulgence on your part.
If the industry were private in some pure and theoretical sense it would not have gotten into the trouble. But it did get into trouble.
What happened (as Im sure you know better than I) is that some decades ago government saw fit to intervene into the business of banking. Our politicians thought they saw a sin -- called red-lining -- and passed laws telling bankers to whom money had to be lent.
The long term consequence of this intervention by government into the business of banking was change. Banking stopped being about lending money to people living in a banker's community, and known to him. Rather, instead, banking was enlisted in a crusade against discrimination (not of course because politicians gave a damn about discrimination, but because it enhanced their power, while decreasing the power of competing sources of authority outside the Beltway).
The culture of banking, rooted in a particular community, focused by prudent interest upon character, got destroyed, and was replaced. Call the replacement: Tan Man Culture. It led not just to bankers becoming brokers, but worse, it gave the most reward to those of lowest integrity.
To make of this complex process an issue of public enterprise versus private enterprise is to miss the point, and not have a clue about solutions.
Feddie top the list of my biggest gainers for the year. BAC and MER are next. Most Fraudentials are heading towards zero (BAC and MER towards single digits).
Jas
Jas Jain
Jas: I agree about BAC possibly going to single digits, but first to $30 IMO.
O-Joe
Ragnarock,
If I weren't on probation, I would express serious concerns about that argument.
i have been in a dream...what's usps.gov trading at?
there's a model of efficiency...but wait, could this be the new promise for the bigger is better theory? F&F will go quasi with a sweet cashout option...then, at just the right moment...bring in the automation...robots that can read...that's it!
the layoffs are now because of new machinery that can't make a bad loan...they can call back the F&F furloughed one by one and be our elected heros agin by re-tooling and ending the self regulated debackle...quite the ending. and, where do you buy that usps stock?
Oh, wake up dude...we may find that the cause was due to lack of numbered forms. you must have forms!
In B-School they were all told operations was "low-level" and kind of dirty, because a black-box financial manager could run anything.
I wouldn't blame b-school that much. I think it's more the fault of the I-banks themselves. Their incentives are set up so that closing a deal is more important than closing a good deal. There seems to be a mindset that volume == success.
Merging the GSEs reminds me of one of the airline mergers: "Now they can lose money twice as fast."
I think we should merge together all the IBs. You could save some serious money by firing a lot of bankers and the combined entity would do less and so lose less money.
Perhaps, our yet to be disclosed "world class regulator" will solve all these GSE problems in a single sweep; but given the market prejudices of the folks setting it up, I'm not betting on it.
Yes, alot of meat to rip off those bones. Those workers don't need those kind of benefits. Heck, they don't even need a job. Worthless parasites. Fannie, I believe, already had a nice sized chunk of their IT "outsourced" to India a year or so ago.
We don't have communities. We have labor pools. We don't have citizens. We have consumers. I think there is even a consumer bill of rights somewhere. If they are really good at there jobs they will find work.
All social engineering begins with verbal engineering.
Amen, Markel
I believe that Freddie and Fannie should merge. They could name the merged company the Frankenstein Mortgage Co and move their offices to that US billion dollar complex in BadBag Iraq.
MLB
Hell, Merge 'Em All. Let God Sort 'Em Out!
Then we can all live under the beneficent aegis of The Bank Corp., The Food Corp., The House Corp., The Work House Corp.
The Insurance Corp. will cease to exist; no longer necessary.
The Cop Corp. will see to all unpleasant/unprofitable irregularities. There's plenty of room for growth in the Criminal Justice Industry.
The synergy dude...
OMG - the tears are rolling down my cheeks...you are on a tear! This was fabulous. Thank you!
Anonymous Bosch writes:
Hell, Merge 'Em All. Let God Sort 'Em Out!
Then we can all live under the beneficent aegis of The Bank Corp., The Food Corp., The House Corp., The Work House Corp.
Popeye asks, where do you think we live now ??
They need to merge Fred & Fan with CR make Tanta and CR redundant and use the windfall profits from CR to straighten everything out
When you are not allowed to fail, you can only compound the issue, merge away.
This rally in equities in spite of all the economic news is truly shocking.
Just wondering what would happen when crude moves up again.
All of MSM are starting to parade analysts who profess adding to their (losing)positions already.
I've been re-reading 'The Vigorish of OTC: Interview with Martin Mayer' this morning.
The Institutional Risk Analyst: The Vigorish of OTC: Interview with Martin Mayer
A good review of the IB mentality along the way.
John Mauldin's recent comments on the GSE's and those entwined with them make illuminating reading too (towards the end, beginning with "More Thoughts on Fannie and Freddie":
Thoughts from the Frontline
(PDF version:
http://www.2000wave.com/pdf/mwo082908.pdf )
Most hillarious part of the Mayer interview:
The IRA: Going back to your point about market structure, how do you explain to people outside the world of finance how we got it so badly wrong? You have a very wide circle of friends outside the markets. What do you tell them? How did Americans forget the lessons of the 1920s and 1930s to arrive at this sad circumstance?
Mayer: In part, it is theory, namely the strange conjunction of Susan Phillips, Wendy Graham and Alan Greenspan over a decade ago. Bill Seidman too, for that matter, when he was at FDIC. In an odd way, we became technologically backward regarding market structure because the people in charge of supervising financial institutions namely the Fed -- did not know anything about it. Look at the Fed's employment roster. There were people who were obsessed by monetary theory. And there were people whose chief responsibility was performing tasks like handling checks, namely operations. There were various models of equilibrium in circulation at the time which provided overall comfort. And Alan Greenspan really believed with religious fervor that markets cure their own ills. Remember Barry Bosworth's warning that diversification devalues knowledge. So the notion that the technology made it possible to drive risk beyond any reasonable limit wasn't in anybody's head. As I said before, there are a certain number of tested Wall Street scams that have been forbidden by regulation. If you can find a way to use technology to revive one of these scams, then you are an innovator and you get paid extremely well for the five years these techniques work, and then you go away.
The IRA: How can other nations around the world take the US seriously when we show such a capacity for collective self-delusion?
Mayer: Yup. In addition to using technical innovation to evade regulatory limits, there was also a confusion of purpose at the Fed. The Fed really never wanted to exam banks. And it really didn't want to be in a admonitory position vis-a-vis the banks. The commercial banks are the mechanism by which monetary policy is conveyed to the world. And the Fed needed them very badly. But beyond just monetary policy, what got forgotten was the reason why we separated commercial banking and investment banking in the 1930s. Obviously it got more and more difficult to enforce that separation as the technology changed. But that didn't mean that there were not good reasons for the continued separation. The way I like to put it is that the commercial banker wants to know how am I going to be repaid, the investment banker asks how am I going to sell the paper. These two attitudes really do not coexist well together.
The IRA: Banks globally have been miserable failures when it comes to combining investment and commercial banking.
Mayer: Correct. It is a very different mindset. And historically, in terms of public policy, we have relied upon the commercial banks to keep the markets and the economy on an even keel. Greenspan's observation was that, after all, the banks are going to protect us because they are lending their own money
The IRA: Yes, but in a market dominated by investment bankers, no such discipline prevails. The investment bankers rarely create value and, judging by their recent behavior, care nothing about the long-term health of the global markets or the economy.
Mayer: Well, of course that was inaccurate because commercial bankers lend other peoples money. But beyond that, the notion that people who gamble with their own money are more responsible gamblers than those who gamble with their Uncle Joe's money was always very strange to me. People who are gamblers are gamblers and they will run through anybody's money. The difference between their own money and other people's money usually does not mean much to a gambler.
The Institutional Risk Analyst: The Vigorish of OTC: Interview with Martin Mayer
Popeye asks, where do you think we live now ??
It'll get worse, Popeye. The whole point of M&A is to create not an entity, but the entity; be it one sector or another. No competition means no regard for consequences.
The present course set is similar to the French Revolution. Our pain isn't visceral enough to launch the consequent The Reign of Terror, but that time approaches.
In Loom of the Fannie/Freddy Bailout, why doesnt anyone in big media bring up the the fact that most loan officers were instructed to use websites like http://www.FAKEPAYCHECKSTUBS.com
(creating documentation that never existed) to help the loan qualify through every step of the pipeline, to collect the 6 percent commission they make on EVERY deal - is it any wonder why the economy and the worlds banking system is where it is at today?
Thanks for the links, Blueridgeguy...the key there I think is that Glass Steagall never should have been repealed. Also, the interviewee made the point that some financial "innovation" was just bringing back old scams.
When US Reign of Terror comes.We will have a HUGE sale!
Yes, BlueRidge, thanks for the links!
BTW - I'm a Blue Ridge guy in Central Va.
So Tanta, what exactly is the rationale and proper structure for a hybrid public/private guarantor?
Back in the days before securitization you had a bunch of banks who knew their communities and their borrowers, but didn't have the capital or ability to take the kind of interest rate risk that the housing market needed. They couldn't individually directly tap the capital markets, but they could via Fannie, due to the GSE's scale, standardization, geographic diversification, not to mention the government guarantee.
Fast forward to start of the 21st century: Availability of capital and ability to slice up and distribute the risk became so sophisticated that the even dodgy institutions tapped capital markets, and the problem became far too great an appetite for risk.
If all these subprime markets thrived without a 'hybrid' guarantor then you certainly don't need one for single-family prime mortgages. And the GSEs spectacularly abused the public part of the 'hybrid' by borrowing at an implied government guaranteed rate and levering themselves up.
It seems to me that you can nationalize them, which will happen now, since they can't fund themselves economically. Or you can privatize them, and if they need a lender of last resort, then you regulate them in exchange for that privilege, just like we regulate banks.
Doesn't public/private 'hybrid' mean the profits are private and the losses are public? What kind of 'hybrid' structure do you envision where that's not the case?
mp writes:
Conjure Bag tells me there is a very real possibility that a McCain administration would merge the GSEs and put Sarah Palin's future son-in-law in charge because he used to live near a mortgage broker.
riddler wants to know whether Conjure Bag has seen the following picture.
http://www.latimes.com/media/photo/2008-08/41999285.jpg
Then he would like to ask "Is that your final answer?"
--
"Jas, what countries/peoples would you say have their acts together the best? Thanks"
Chinese! Next, Japanese and Koreans!! Next, Nordic (Germanic) countries of Europe!!!
India tops (or bottoms!) the list of the worst. The whole of South Asia and Africa are in the worst list.
BTW, born-and-bred American dopes are in 15 percentile among predominantly white countries in Olympics medals in the last 4 Olympics. In recent decades, Americans have been culturally BRED to be lazy and undisciplined dopes! (In increasing percentage, that is; a fewer and fewer Americans are bred to be competitive and smart about economics and politics).
Prosperity is the best breeder of indolence I know. Mark Twain
Unearned prosperity breeds irremediable dopes.
Jas
--
Blue Ridge guy,
Greenspan is the greatest evildoer in American history (presiding over the biggest financial rape of the public in all of history). As far as Americans are concerned he is hundred times worse than bin Laden and Saddam Hussein. We need to clean house and not look to clean other countries with the lives of decent Americans, while financial Crooks are as safe as they can be.
Jas
--
15 percentile among predominantly white countries
I meant per capita Olympics medals. BTW, Australia is the most competitive white nation in sports.
India is the worst by a long mile. 2B brown-skinned people (the largest group in the world) are the least competitive in sports. It is part genetics, part climate, and mostly being raised as undisciplined and lazy. Americans are slowly heading in the latter direction.
Americans ARE in a decline, intellectually, morally and physically. The process is anything but easy to stop let alone reverse.
Jas
Jas, that the hell is your perspective, anyway?
Last time I checked, Alan Greenspan hadn't orchestrated any acts of terror which sent thousands of innocent people to their gruesome deaths. Nor had he subjected thousands to torture, execution, chemical weapon use or engaged in any ethnic cleansing.
He did let rates fall too low under his watch, but I suppose you and I have a different idea of what 'evil' is.
Riddler- "Then he would like to ask "Is that your final answer?""
Conjure Bag says that, after seeing Levi Johnston's photo, the boy is the next head of the soon-to-be "Fannie Mac."
From his MySpace page, a self-proclaimed "redneck" and "asskicker."
http://www.nationalledger.com/artman/uploads/levi_johnston.jpg
Yeah, just because these companies are losing money hand over fist doesn't mean they should be reducing jobs. In fact, they should be hiring even more people! Makes perfect sense to me.
Darn. Michael beat me to the punch on calling it "Franniekenstein."
energyecon writes: Organizes a single point of failure - er, 'bailure'...
"Single point of bailure"... brilliant!
In the NYTimes article, Sorkin writes "The notion has actually been quietly floating around a small corner of Wall Street for weeks."
You know whose floating that notion? The M&A lawyers who would get paid to do it.
My experience is that the people who see "synergies" everywhere are never around when it turns out there were no synergies. Or if they are, the lack of synergy is because management failed.
I'm sorry, but if you put together an airplane with chewing gum and duct tape, don't blame the pilot when it crashes.
P.S., my vote is for "FrankenFrannie."
--
Shnaps,
Americans are bred to not take financial crimes and schemes too seriously. Financial crimes would lead to a global mayhem that would result in minimum of 600,000,000 people dead during 2010-2030.
Evildoer Greenspan presided over the construction of Debt Concentration Camps for 30,000,000 American households (I said so in 2003 while they were being built) and he helped them getting filled. The financial poison gas will kill, financially, of course, most of the 30,000,000 American households in these camps.
Evil occurs in many forms and in America it took the financial form thanks to the de facto rule of BFNYC.
Be prepared for a massive violence during the coming Greater Depression, fully baked in the cake, in the US. The evil consequences lie in the future but the dirty deed was done years ago under Greenspan. Greenspan IS the face to modern evil.
Jas
continuing from the Lear financial article above
"The move shocked sellers and collectors of the coins, which are the most widely traded in the U.S. Suppliers became angry as they turned away customers. Theories about the decision's underlying cause ran rampant -- from investors in gold futures to Russia's invasion of Georgia.
"This whole thing started about the time the Ruskies made their move," a collector noted in an Internet chat room called goldismoney.info. "It may very well be that the USGovt is preparing for the real financial meltdown by hoarding all remaining gold flows."
The Mint says it simply was wiped out. It has sold 311,000 ounces of the coins this year -- about 50% more than in all of 2007. In the first few weeks of August alone, buyers snapped up 63,500 ounces.
"We are working diligently to build up our inventory and hope to resume sales shortly," the Mint wrote in a memo to dealers."
Every time CR goes on vacation we see increased posts by Jas, which IMHO, implies that CR is playing devils advo
like many who post here i detest what greenspan did flooding the system and blowing bubbles.
but Jas, really
do you have evidence of your comment that
"Evildoer Greenspan presided over the construction of Debt Concentration Camps for 30,000,000 American households"
are you not damaging the portions of your argument that are correct by then making outrageous accusations?
Asians are bred like Americans and Russians, Italians, Irish, Mexicans, Africans, Egyptians, Indians, thus why are Americans bred in a different way... Jas? How were you bred?
Jas,
I'm very curious to know what methodology you employ to arrive at "600,000,000 people dead during 2010-2030." That's a remarkable estimation, assuming you are not counting natural deaths.
Druce's post I think really nails the crux of the situation. Is a public/private structure appropriate? If so, how is it structured to equally divide the upside and downside risks?
mock,
the biggest problem right now is the mint and most dealers are seriously underwater right now.
The bought gold at much higher prices, and now to sell it at today's price is to take a large loss.
How many people bought those nice shiny 2008 buffalo proofs?
A total of less than 8 thousand have been sold.
Talk about small demand with the high premium when gold was $1050, now with the premium of %50 nobody is buying and the mint will have to reprice, making those hardcore collectors even more pissed off.
Or not, making an instant rarity.
The mint is really funny that way.
All I can say is sometimes recognizing a loss is too painful and withdrawing from the market is the choice made by folks.
So you end up with a huge divergence between buyers and sellers, and until the persons holding decide to sell and take the loss, or enough forced selling reliquifies the market and enough new product at lower prices is made, you have a serious structural imbalance.
Once again, it will be an extremely strange market until either gold and silver recover, or dealers liquidate and take the losses to keep their turnover moving.
They only make money on the turnover, but getting caught with inventory is the way they get losses.
Someday this war's gonna end...
Im for a merger and then a merged BK, which would save taxpayers cash!
Yeah, just because these companies are losing money hand over fist doesn't mean they should be reducing jobs.
They issue securities backed by 30-year mortgages. Is what they do. They are not a chain of hotdog stands, in which you can just cut back hours or close a few locations. They make long-term financial commitments.
What do you think they should do? Quit accounting for investor remittances? Quit monitoring the loans? Quit managing the FC/REO process? Quit managing their servicers? Just fold up the securities and tell the investors nobody can afford to send them checks any more? That would really help limit the losses, sure.
Ragnarock writes:
" Our politicians thought they saw a sin -- called red-lining -- "
Thought they saw? In Dorchester and Roxbury (in Boston), it wasn't all that long ago that bankers were caught out redhanded basically handing out explicit instructions that "no [black person] is going to get a loan from this bank."
i didn't know there was an olympics for economics and politics
--
"but Jas, really... do you have evidence of your comment that "Evildoer Greenspan presided over the construction of Debt Concentration Camps for 30,000,000 American households""
YES! Look at the increase in the Total Household Debt, as % of incomes, under Evildoer Greenspan. Most of this increase is concentrated among 25-35M American households, thanks to the Housing Bubble.
Go and check the data yourself. I cant post all the data and graphs. I can only share the conclusions from the data.
Evildoer Greenspan provided the justification and he let it go on. The Evildoer said to his family and friends (in 1970s, I believe): Debt is bad; pay as quickly as you can. The Fed is full of evildoers that engaged in Pushing Debt on households. That, in my book, is an evil.
Son of a moneylender who knew that lot of evil can come from debt (he NEVER foreclosed on any farm (livelihood) and NEVER gave debt on a residence (extremely uncommon there); he was part of the community),
Jas
--
"Margin Call of Cthulhu writes: Jas, I'm very curious to know what methodology you employ to arrive at "600,000,000 people dead during 2010-2030." That's a remarkable estimation, assuming you are not counting natural deaths."
I see great parallels between Germany of early 1900s and the US of the past 15 years. The US would cause global mayhem by financial means (Scams, aka stocks, and debt) that would lead to collapse of many govts, including India, and massive violence all over the world. The death count due to wars during 1913-1945 is estimated at 80M. My guess is that the same, or higher %, of people would die as a result of economic collapse engineered by the evildoers in the US led by BFNYC.
Let us all hope that I am wrong.
Jas
...Then we can all live under the beneficent aegis of The Bank Corp., The Food Corp., The House Corp., The Work House Corp.
The Insurance Corp. will cease to exist; no longer necessary.
The Cop Corp. will see to all unpleasant/unprofitable irregularities. There's plenty of room for growth in the Criminal Justice Industry. -Anonymous Bosch
LOL, Kurt Vonnegut coined the term "The Punishment Industry" in one of his novels.
I guess it is time for the WalMarting of the Financial Industry now that the WalMarting of the infotainment industry is nearly complete.
Guaranteed profits, "reasonable" prices, low quality, disposable, homogenous, empty...75 channels and nothing is on...
"Jas, that the hell is your perspective, anyway?
Last time I checked, Alan Greenspan hadn't orchestrated any acts of terror which sent thousands of innocent people to their gruesome deaths. Nor had he subjected thousands to torture, execution, chemical weapon use or engaged in any ethnic cleansing.
He did let rates fall too low under his watch, but I suppose you and I have a different idea of what 'evil' is."
Without a Federal Reserve to print fiat currency for the Treasury Dept., it is almost impossible to engage in any war without the support the people in a democractic republic.
"They issue securities backed by 30-year mortgages. Is what they do. They are not a chain of hotdog stands, in which you can just cut back hours or close a few locations. They make long-term financial commitments.
What do you think they should do? Quit accounting for investor remittances? Quit monitoring the loans? Quit managing the FC/REO process? Quit managing their servicers? Just fold up the securities and tell the investors nobody can afford to send them checks any more? That would really help limit the losses, sure."
If there is a profitable market for this service, it will be fulfilled.
--
"Without a Federal Reserve to print fiat currency for the Treasury Dept., it is almost impossible to engage in any war without the support the people in a democractic republic."
awgee,
Born-and-bred American dopes don't know the role that moneybags of London and NYC played in a many a wars.
Who financed the Russian Revolution? Hell, some foreigners financed the American Revolution!
America's dopes need to wake up to the abuse of money power, especially, the evildoers led by BFNYC.
Sadly, America is the seat of evil (agents of Money Monster) in the modern world. And the evil has been spread to most nations.
Jas
If there is a profitable market for this service, it will be fulfilled.
Of course! By the Fulfillment Fairies Outsourcing Inc. that Wall Street always calls!
Thought they saw? In Dorchester and Roxbury (in Boston), it wasn't all that long ago that bankers were caught out redhanded
Moofeus, please don't mistake a Talking Point for an actual argument.
This particular Talking Point, hatched in the wingnut masturbatorium somewhere deep underneath Fox News Headquarters, blames the entire mortgage crisis on the ClenisTM.
It goes, Bill stuck the Clenis into Janet Reno and out popped the Community Reinvestment Act, which terrorized the poor helpless innocent bankers into cooking up a cockamamie tranche scheme at Goldman. Or something. I don't know, just blame the Clenis.
--
"If there is a profitable market for this service, it will be fulfilled."
Including the service of BREEDING DOPES, WHOLESALE!!!!!!!!!!!
There is nothing more profitable for BFNYC and Corporate Crooks of America than to breed Americans to be dopes (consumers!) and to keep them dopes.
Americans relationship to their economic masters is no different than that of the farm animals to the farm owner.
American economy IS an Animal Farm!
And watching it would be hilarious if it weren't so sad and lead to tragedy in the future.
Jas
Of course! By the Fulfillment Fairies Outsourcing Inc. that Wall Street always calls!
Don't question Faith, Tanta.
I do not know of the things of which you speak, so they do not exist. Plus, mortgage operations and servicing is just a Theory, and kids should be able to make up their own minds.
"If there is a profitable market for this service, it will be fulfilled.
Of course! By the Fulfillment Fairies Outsourcing Inc. that Wall Street always calls!"
If you don't have a valid argument, pound on the table. If you don't have a table, call names.
Of course! By the Fulfillment Fairies Outsourcing Inc. that Wall Street always calls!
Tanta | Homepage | 09.02.08 - 3:29 pm | #
I want one of their coffee mugs... or a tote bag... you got any?
If you don't have a valid argument, pound on the table. If you don't have a table, call names.
awgee | 09.02.08 - 3:47 pm | #
She's right awgee - I live as an outsourcer in the mfg sector... there are good targets to outsource & terrible ones... strategic mission critical core competency stuff should never be outsourced - it is the reason the firm exists.
That advice was ignored far too often by 'financuials' on the road to bailout city.
Popeye,
Actually I'm not speaking to companies that organically grow to a certain size, but rather the side effects of major M&A activity. In the end, having several companies provide services is healthier for competition and the economy than having only a handful.
If a company grows to a certain size on totally organic factors, great for them. But if they then go to buy up the 2nd and 3rd largest competitors in their market, it's worth asking what the value of that is to the economy. Does making that one company that much bigger risk them becoming too big to fail?
If you do allow companies to become that big, then it seems to me you have to compensate with more intrusive regulation to insure that those that are too big to fail don't fail.
Jas,
Why did you not go a long time ago to your super-duper #1 country, China? And why are there still so many more Chinese moving to the US than vice-versa? Something must give you pause to think about the nonsense you are writing here.
O-Joe
Jas,
You read the Protocols. Right? Supposed to be forged but that's where the Farm Animal stuff you cite comes from. Right? Either that or selected excerpts from the Talmud. Right?
@Shnaps who said:
'Last time I checked, Alan Greenspan hadn't orchestrated any acts of terror which sent thousands of innocent people to their gruesome deaths.'
Who did then based on the physical evidence available?
@Margin call of Cthulha
600,000,000 might die from starvation in a global Depression which will actually depopulate the Earth to the delight of the Global Warming activists.
Who did then based on the physical evidence available?
Dunno. But the oddsmakers favor Bin Laden over both Greenspan and Bernanke.
Shnaps,
Not to take this OT because I'll get slammed but bin Laden is apparently NOT even WANTED by the FBI for the crimes of 911 plus this Shiek Mohammad who probably was tortured at Gitmo(military prison) 'confessed' to being the Mastermind of 911 plus an assortment of other 'terror attacks'.
So it's Shiek now who did it which means the intelligence about WHO DID IT may have made some mistakes. The only physical evidence left because everything else is missing, sealed, sent to China, evaporated, pulverized, etc. is the 911 dust which has been analyzed and raises more questions.
I think one blogger mentioned that without large amounts of debt-based money from central bank currency, costly wars could not be carried out by the U.S. Central banking can produce a large flow of currency that has to be repaid someday but the costs of Wars add up over time.
Isn't the real issue 'why have them at all'? Other countries don't have GSE's. These are a leftover from the Roosevelt Administration for crying out loud.
There is no reason why the purchase and securitizing of mortgages made to middleclass homebuyers cannot be done in the private sector. In fact that is what the GSE's are supposed to be- private companies.
The whole friggin housing mess is a result of too much government interference in the housing market.
Then again, I think if the GSEs made one big mistake during the boom it was not holding the line in the sand on loan homogeneity in their pools. They'd have been much better off not competing with the private sector on certain kinds of "innovations."
The problem is the aforementioned "race to the bottom." The GSEs were rapidly losing share to the private label security market and eroded the quality of their own credit standards to compete.
We are the best housed country in the world despite the fact that the homebuying process is very broken. There are too many intermediaires, transactions are opaque and no one (borrowers or investors) really knows what they are buying. In short, few of the prerequisites for an efficient market are present.
Sensible regulation increases transparency and levels the playing field. If anything the failure was too little regulation, not too much.
The whole friggin housing mess is a result of too much government interference in the housing market.
Really, reading the comments here is not a social services volunteer opportunity. Deal with it in Group.
It was the policies at the very top-easy money and high price houses, that created the mess at Fan and Fred. Anyway I thought Fan and Fred had the backing of the federal government, except the shareholders were not going to bailed out-that free capitalism thing you know. Cannot get much bigger than that.
I have to agree with Dryfly. We should not let any company get so big that the taxpayers would need to bail it out should it fail. Any marginal economies of scale for companies in that size range are small compared to the potential negative externalities (e.g. "financial meltdown").
I can't see why mortgage financing needs to have a public component. More, smaller, private companies can do a good job with less system-wide risk than a couple mega-public-private companies.
Tanta,
Why is that you can't understand the reasons the GSEs are in the position they are now is exactly because they are not made up of the kinds of professionals you self proclaim them to be because if they were, the laws of market forces would make their positions one of strength, not weakness.
The reality is that anyone who knows anything about government entities understands that their top management is made up of people more like Alphanso Jackson and less like the self proclaimed highly competent professional. Your argument that somehow middle management is not reflective of this fact is again ignorning the issues.
If you want a direct comparison in marketplace to public vs private, try a comparison of defense lawyers. People who have the ability to pay a lawyer 99.9% of the time choose to pay for one rather than use a public defender. Why? Most importantly, because they are, in all probability, significantly more competent.
I know, you are probably too jaded in your politically liberal views to understand that comparison, but give it some thought.
Now, we can have a discussion about what our world would be like if we didn't give the Alphanso Jacksons' of government high paying jobs and preferencial treatment in higher education...but that is more a social issue and less an economic one.