MortgageBailoutScam.com

April 18, 2008

Let it burst…

Filed under: Uncategorized — labordaytheses @ 10:38 pm

From the Financial Times:

via Naked Capitalism:

http://www.ft.com/cms/s/0/68636996-0cad-11dd-86df-0000779fd2ac.html?nclick_check=1

What has happened to British phlegm? Instead of greeting news of falling house prices and tightening lending with aplomb, people shriek that the sky is falling. Steven Crawshaw, chairman of the Council of Mortgage Lenders, warns that it is “a real possibility . . . that net lending in 2008 could reach only half last year’s level unless additional funds become available”. Smaller mortgage lenders, dependent on their ability to sell mortage-backed securities, could even be forced out of the market. In sum, the time has come for a bail-out.

I have three answers to this cacophony of special pleading: first, anybody who thinks it is a duty of the state to help keep housing expensive is crazy; second, policymakers should respond only to clear market failures; and, third, with a floating exchange rate and an independent central bank, the UK can weather the storm if it keeps its head.

It is high time the British realised a people cannot become rich by selling ever more expensive houses to one another. According to the International Monetary Fund’s latest World Economic Outlook UK house prices are more overvalued, relative to economic fundamentals, than those of almost any other high-income country. At long last, investors in mortgage-backed securities, all too aware of what has happened in the US, have realised the dangers in the UK.

They must understand that it becomes extraordinarily difficult to know what such securities are worth as soon as house prices start to fall. They must also be aware that UK house prices have risen by a good 150 per cent since 1996, in real terms. Indeed, It would take a 25 per cent fall in real prices to put them on to the 1971-2007 trend line, last hit in January 2002. Such a decline is conceivable. Prices might overshoot downwards, but they are nowhere near that position now.

Peter Spencer, chief economist of the Ernst & Young Item club, argues that the government should step in, by borrowing to fund the mortgage market. With great respect, I think this notion is mad. It is wrong for the government to fund people to purchase houses at what may well prove the beginning of a long slide in prices. It is tantamount to the financial debauching of minors. As important, if you believe, as I do, that house prices probably must fall, it is better for this adjustment to be swift than be dragged out over many years.

So should the government do nothing at all? No. Since mid-March, spreads between rates on interbank and official three-month and six-month lending have been some 20 to 25 basis points higher in the UK than in the US or eurozone. This, it is argued, reflects the illiquidity of mortgage-backed securities. Lenders, argues Mr Crawshaw, hoard cash because they are not sure whether they will be able to borrow in future.

Whatever the source of the problem, a case exists for further action by the Bank of England in its role as lender of last resort. At present, it is working, in conjunction with the Treasury, on a scheme to swap high-grade mortgage-backed securities for government debt for terms of one to three years, after a sensible “haircut”. But credit risk would still remain with the banks.

This facility would be available at all times, but would be limited to securities created up to the end of last year. All that is now needed is for the Treasury to agree to create the needed gilts. The aim of this would be to remove liquidity constraints, not provide a bail-out or reopen the market in mortage-backed securities. The latter may well be gone forever, as can happen to markets in lemons.

In all, this looks sensible. If it succeeds, net mortgage lending may remain lower than before. Yet even if it were to halve, as some fear, the nominal stock of outstanding mortgage debt would grow by a bit over 4 per cent this year, or much the same rate as nominal gross domestic product. The idea that the stock should grow faster than GDP forever is nonsense.

After house prices peak, I would expect the ratio to fall, not just cease rising. Those arguing for still higher growth in net mortgage lending are arguing that the government must subsidise even more house-price inflation and the lenders who have fuelled it. This is demented.

Yet, some will protest, this is a recipe for a recession. This is false. Even the IMF argues that the economy will continue to grow this year and next, at about 1.6 per cent. After 62 quarters of sustained growth, would that be a tragedy? Moreover, the real reason for slower growth is the need to hit the inflation target. The country needs lower inflation, whereupon the Bank will have room to cut interest rates.

The adjustment of the economy towards exports and away from domestic spending is now, at last, under way. Fortunately, the exchange rate is taking much of the strain. In eight months, competitiveness has improved by 16 per cent against the UK’s eurozone partners, something Spain or Italy will only achieve painfully, after years of disinflation.

A combination of close attention to the liquidity logjam and flexible monetary policy is all that is needed. It is not the government’s job to reflate house-price bubbles. It would have been a good idea if it had done more to prevent them, instead. Now it must let events undo that mistake, rather than try to compound it.

April 17, 2008

Risk & Reward (Technology Entrepreneurship vs. Hedge fund management)

Filed under: Uncategorized — labordaytheses @ 8:11 am

The below is the text of a comment reply I posted over at The Big Picture.  I wanted to keep a copy for reference as it relates to a topic I’ve been giving a lot of thought recently, so I’m  pasting it below…

===================

BR: Plenty of rewards have flowed to entrepreneurs: Steve Jobs, the Google boys, the Facebook kid, etc.

Not in proportion to relative value created or personal risk taken.

I’m a huge fan of yours, Barry, but this comparison is way off base. Rewards for technology entrepreneurs are demonstrably lower than the rewards being raked in by hedgies, the competition is greater, and the personal risks are an order of magnitude larger.

I think it’s this last item which really bugs most of us. Reward is supposed to be proportional to risk. If hedge fund managers were genuinely at risk in proportion to their rewards, I doubt many here would begrudge them their paydays.

Contrast their downside, however, with the downside for technology entrepreneurs. An example from just this week: a very well known mobile technology expert had to fold his startup this year because he just wasn’t able to get traction. He blogged about the personal consequences:

…I’m *thousands* of dollars in debt to my family and friends, maxed out on every credit card (all of which are in collections), on my last chance for my apartment (if I bounce one more check…), had my car repossessed *twice*, electricity turned off, cellphones switched off, landline canceled outright, and on more than one occasion (this weekend in particular) eaten little more than buttered macaroni as I waited for an overdue PayPal deposit to arrive…

And this wasn’t some random schmuck – Russell is very well known and respected in the industry. What’s more, even though he failed, he has in the process created a product of demonstrable value (he has users, just not enough to sustain the business.) How many failed hedge fund managers can say that?

Even the mega-successful tech entrepreneurs (Google/Facebook/etc.) have most or all of their personal net worth tied up in their endeavors. If they face-plant and destroy their investors’ value, most of their net worth will go with it. Until hedge fund managers can say the same, the comparison is inappropriate.

BTW, can you tell me how you would construct an economy that somehow prevents “the greatest rewards flow to traders and not entrepreneurs?” I can’t figure that out . . .

Sure you can. It would arguably be socialist, of course, but socialism appears to be quite fashionable on Wall Street these days…

December 17, 2007

Alan Greenspan: mendacious or merely senile?

Filed under: Affordable Housing,Alan Greenspan,Bailout,Fed,Financial Responsibility,Rant — labordaytheses @ 7:32 am

Excerpt (at length) via Economist’s View:Greenspan Says He Favors a Government Bailout for Homeowners, by Steve Matthews, Bloomberg: Former Federal Reserve Chairman Alan Greenspan said he favors spending U.S. government money to bail out mortgage borrowers who risk losing their homes because they can’t make payments.

Greenspan, speaking on ABC’s ”This Week” program aired today, said cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest-rates on mortgages.

”Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said. ”It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”

Greenspan’s suggested approach differs from that of Treasury Secretary Henry Paulson, who negotiated a freeze on the interest rates of some subprime mortgages without pledging any government money to help homeowners or banks.

The WSJ Economics blog has more. Greenspan is asked next if there needs to be a bias toward activism right now:

It depends what you mean by activism. If you mean doing something that works, absolutely. If you mean doing something just for the sake of perceptions, that’s very costly. I don’t know if [infusing cash] would work, but it would certainly help people — it would help their incomes; it would help their personal state, without affecting the structure of the way markets are behaving and the way adjustment process is going on. It’s very critical that this thing reach a selling climax — if I may put it in other words, exhaust itself. It’s only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.

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Cross-posting the comment I posted there as I so rarely have time to update this blog these days

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Seriously? We’re expected to take advice on how to fix the mortgage mess from one of its principal architects?

I have just 3 questions for Alan:

1) Exactly whose “cash is available” please? I have a sneaking suspicion Alan is offering to let me and the rest of the little people who pay taxes pick up the tab for his mortgage mess. I, however, am a little strapped and need to use my savings to pay my expenses which have more than doubled since 2000 (weird, I know, since inflation is so benign)

2) Can someone please explain how handing out cash to the weak hands in the market will help us get the “selling climax” correction that even AG acknowledges is necessary over with faster? I admit to not being an economist, but it sounds like a surefire recipe for *prolonging* the correction to me.

3) Where, in all of this, is the concern for prudent, hard-working families who can no longer afford homes because institutional bubble blowers have allowed property prices to get so wildly out of touch with reality?

I’ve said it before, and I will say it one more time here: this crisis is, at its root, an affordability crisis. People with good jobs and good savings can no longer afford to buy a home for their family in many parts of this country. Absent socialism, we have exactly two options for fixing this – – incomes can rise a *lot* or prices can drop a *lot.* That’s it – there are no other real solutions.

I think it’s high time the geniuses who got us into this mess step out of the way and let the free-market they ostensibly worship do what it’s designed to do — determine appropriate prices.

September 30, 2007

NetBank (Bank failures then-and-now, Part II)

Filed under: Uncategorized — labordaytheses @ 8:14 pm

NetBank homepage (September 2007) 

 

 

American Banker Magazine (November 1981)

 

Netbank – Failed Bank Information (FDIC)

NetBank Files for Bankruptcy After Regulators Take Over Unit

September 27, 2007

Federal bailout for vacation spending and dining out. Sweet!

Filed under: Uncategorized — labordaytheses @ 10:36 am

From Bloomberg

Robert Murray of Middletown, New Jersey, said he didn’t pay enough attention when he took out a five-year adjustable-rate mortgage in 2002. This month, his payments ballooned to $1,800 from $1,300. Because he makes about $90,000 a year at his Newark Liberty International Airport maintenance job and hasn’t missed a payment, he said he hoped he might be a good candidate to refinance…

…For now, Murray will struggle to make his monthly payments, foregoing vacations, restaurants and perhaps parochial school for his 5-year-old daughter. He yearns for help from the government.

The Federal Reserve Bank pumped $62 billion into the banking system on Aug. 9 and Aug. 10 in an effort to soothe a credit crisis. Murray said the Fed should do the same for borrowers.

“If they gave us that money, we’d be able to be out of this predicament,” he said.

So let’s review.  Murray wants me to pay his mortgage for him because “he didn’t pay enough attention” and the cost of that inattention now means that he has to forgo vacations, restaurants, and expensive private schools.

Wow.

I was unaware that that level of hardship qualified one for a federal bailout.  Here I’ve been eating Ramen and forgoing vacations for years trying to save to buy a house my family could afford while the idiot speculators of the world who “weren’t paying attention” bid them up to heights I could not possibly afford.

Can someone please advise how I sign up for this bailout money?  I appear to be a prime candidate.

September 20, 2007

Thanks Ben

Filed under: Uncategorized — labordaytheses @ 6:11 am

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

-The Telegraph

September 19, 2007

Headlines

Filed under: Uncategorized — labordaytheses @ 3:00 am

The bailout train rolls on…

WASHINGTON — The House passed a bill on Tuesday that lowers down payments for borrowers, raises loan limits and boosts funds for housing counseling. Passed by a vote of 348 to 72, the bill reforms the Federal Housing Administration and is the latest lifeline thrown to borrowers from Washington as the fallout in the subprime-mortgage market continues. It also directs up to $300 million a year into an affordable housing fund. The Senate Banking Committee is scheduled to begin work on its version of the bill on Wednesday

SAN FRANCISCO — The dollar dropped Tuesday after the Federal Reserve cut its key fed funds rate by 50 basis points, instead of the 25-basis point cut expected by many investors. The euro rose to $1.3953, compared to $1.3885 before the Fed decision, and the trade-weighted dollar index fell to 79.375, compared to 79.645. The dollar was trading at 115.77 yen, compared to 115.80 yen.

September 16, 2007

2007 Mortgage Crisis – The Coffee Table Photo Book (Page 2)

Filed under: Bailout,Mortgage Bailout — labordaytheses @ 12:34 am

How could it all have gone so terribly wrong?

< /sarcasm >

 

History may not repeat, but it rhymes

Filed under: Mortgages,Photos — labordaytheses @ 12:27 am

September 15, 2007

Bank Runs then-and-now (Photos)

Filed under: Photos,Politics — labordaytheses @ 10:10 pm

Note to readers: I thought I had a copy of a photo of a line outside a Countrywide branch that accompanies a story in the print edition of the LA Times a few weeks ago, but I am unable to find it. If anyone can point me to a copy, I would really appreciate it. Thanks!

-Ant

Customers outside a Northern Rock branch in Kingston Upon Thames

2007: Depositors at failing Northern Rock branch in Kingston Upon Thames (via the Telegraph)

1914: Depositors at failed bank L.W. Schwenk, 7th St. & Ave. A, New York City. (via Wikipedia)

Poster for the “War of Wealth” by Charles Turner Dazey, a play that opened February 10, 1896. (via Wikimedia)

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