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I am on NPR radio discussing the Fannie/Freddie bailout, as well as the Housing market and economy.
The bailout does not save the Housing market, which remains distressed — but it stops an immediate further damage from the mortgage giants to the real estate market.
Housing still has 4 problems:
1. There is still way too much inventory for sale; (not counting the "Shadow Inventory")
2. Houses remain too expensive, by either Median Income to Median Home Price, or by Rental prices to purchase expenses;
3. Millions of home owners who cannot afford their homes have yet to short sell/walk away/foreclose;
4. The Economy is entering a recession;
Which show are they taping it for? I listen to All Things Considered every day on the way home from work.
In the most recent issue of Forbes, Lisa Hess did a mea culpa for recommending Fannie/Freddie to investors at hugely higher levels. As if that weren’t awkward enough, HESS GOES ON TO TELL INVESTORS THAT THEY SHOULD DOUBLE DOWN!!!! (By the way, was there anything more constant in the punditry business than Dreman’s Forbes column? A brief shtick about low P/Es followed by a recommendation of Altria and Fannie. With Fannie gone, he’ll need to put something else in there. Phillip Morris International?)
It’s too bad that our government is a bitch to our oil pumping and communist overlords. Bondholders really should have taken a haircut. Now that the FRE/FNM bonds are explicitly backed by the government, they should not be allowed to pay interest at ANY spread above treasuries. Otherwise you get your cake (government backing) and get to eat it too (spread above treasury). And WE f—ing have to pay for it. I really don’t like seeing a billionaire like Bill Gross with his porn-stache coming onto CNBC one day to say the government must step in to save the GSEs and then coming in the next week to say, basically, I’m rich, be-yatch! They took the risk of being up to their eyeballs in agency paper and we hold the bag?!!
Socialism for the rich will eventually lead to widespread revolt.
Ok, end of rant…
HCF
I could have sworn all of those negative things were going to be swept under the rug, just like the 50% exposure to a $12 trillion market.
Thank god for the USSA (United Socialist States of America).
So glad to hear/see other people on the same page and frustrated with the bull shit we keep getting served.
Keep up the good work my friend. Your site is a pleasure to read everyday.
Skål!
BR for president, Treas. Sec. Barry and the Feds,
Dictator for life
Throw those scmucks in the klink.
BR for president, Treas. Sec. Barry and the Feds,
Dictator for life
Throw those scmucks in the klink.
U.S. Takes Over Ailing Mortgage Lenders
The Bush administration, acting to avert the potential for major financial turmoil, says the federal
“Bondholders really should have taken a haircut.”
And the consequences of that would be? The reality is that their paper has always been de facto backed by the US govt. Nor is cutting interest an option for similar reasons. Who do you think would be paying for the increased cost of govt borrowing if either of these things happened. Bill Gross cleaning up over this is a sideshow, he backed his judgement and he was right. And surely you know as Galbraith told us that the only acceptable form of socialism in America is Socialism for the rich. I’m bound to say we all throw these emotive terms around like socialism which seems to be on about the same level as paedophilia in the American mind. The reality is they had to do what they did, and the way they did it makes reasonable sense although I think they are avoiding the logical end game which is NATIONALIZATION. ooooohhh, shock horror, appearance of crazy Jack Nicholson, another dirty word.
Barry,
Agree with all of the above that the relief is temporary, and does little to help the economy.
I am perplexed by $ strength and gold weakness today? This bailout is surely a recipe for issuance of more debt, so it’s hard to square that with buying of Treasuries today. Perhaps we will see yields rise slowly as this event is processed during the week. Any thoughts?
Why isn’t the dollar weaker, if the bailout was designed to keep foreign creditors whole? This surely will not be the last time that our chain is yanked, thus insuring dollar weakness in the future in my opinion.
John(2): I’ve yet to see a reasonable argument put forth by anyone that this “had to be done!” So F/F go under? Would the very market for “mortgages” go away? No. Would someone else step in if there is money to be made? Yes. Would there be a reset on how risk is defined and managed by the ones that step in to make money off the new mortgage system? You can bet your A$$! This whole bailout is pathetic and the only thing “shallow” about this recession is the Ethics of our leaders! Why don’t we just have the XYZ office step in and say you can NOT sell your stock for anything less than you paid for it! Nothing but upside then!
This is bailout demonstrates the failings of our leadership – Republicans and Democrats.
About two weeks ago there was an article in the NYTimes that implied we could produce 50% of our electricity needs with windmills in North and South Dakota if we invested up to $60 billion in a new electric grid.
Granted that’s not chump change, but the way we throw around $20 billion here and $100 billion there rescuing Bear or FNM, an infrastruture spend like improving our electric grid or enhancing our high speed access would be a welcome sign of change beyond being a convenient campaign slogan.
which program are you on? can’t find it!
any analysis of credit default swaps for fnm and fre? what stress might this unwind put on credit markets?
Gold, Oil?? Reason these are going the wrong way is possibly due to government intervention in the currency markets. We all know there’s an election coming up. (Remember, when Paulson and crew rebalanced GS natural resource portfolio right before the ’04 election, and gas dropped like a rock?). I love conspiracy theories, so I suspect something similar may happen this time through the currency markets, forcing a short term bounce in the buck and a drop in gold and oil until after the election.
leftback: “I am perplexed by $ strength…”
larster: “Why isn’t the dollar weaker..”
Stephen Jen of Morgan Stanley would likely chalk up the recent dollar strength to his Dollar Smile Hypothesis, which suggests that when the US economy is in a recession, that will drag down other economies as well, and funds flow back to the US, thus supporting the dollar. (Explanation of that theory provided by the Financial Times at http://snipurl.com/ft_dollar_smile)
The commodity sell-off — particularly oil — and USD’s recent strength began with Bernanke’s Humphrey-Hawkins testimony to Congress in mid-July, during which he painted a gloomy picture of US growth moving forward. The USD move accelerated following Trichet’s admission in early August of risks to euro zone growth “materializing.” Money fund assets surpass $3.5 trillion for the first time in August.
I’m certainly open to a different explanation, but it currently seems to me that the recent dollar strength has been driven primarily by a combination of selling over-valued currencies (EUR comes to mind), plus some repatriation of funds formerly invested overseas.
The news blurb at the top and bottom of the hour that NPR has been running today is a disgrace. They mention the F/F bailout and then give the Bush White House a nice long propaganda blurb blaming the Congress for all the troubles. There was no retort, no alteranative viewpoint given that maybe, just maybe, the Bush regulators and the Fed MIGHT have something to do with the F/F failure. It is really amazing that the media can’t seem to tell the simple story that F/F collapsing is a SYMPTOM of a larger crisis and that F/F, while not the most responsible, simply had the misfortune of being in the wrong place at the wrong time. They were far more responsible than everyone else, but if your entire business revolves around home mortgages today, you are going to drown no matter how careful you were (just ask lots of honest, respectable mortgage brokers, agents and building contractors).
The news blurb at the top and bottom of the hour that NPR has been running today is a disgrace. They mention the F/F bailout and then give the Bush White House a nice long propaganda blurb blaming the Congress for all the troubles. There was no retort, no alteranative viewpoint given that maybe, just maybe, the Bush regulators and the Fed MIGHT have something to do with the F/F failure. It is really amazing that the media can’t seem to tell the simple story that F/F collapsing is a SYMPTOM of a larger crisis and that F/F, while not the most responsible, simply had the misfortune of being in the wrong place at the wrong time. They were far more responsible than everyone else, but if your entire business revolves around home mortgages today, you are going to drown no matter how careful you were (just ask lots of honest, respectable mortgage brokers, agents and building contractors).
The news blurb at the top and bottom of the hour that NPR has been running today is a disgrace. They mention the F/F bailout and then give the Bush White House a nice long propaganda blurb blaming the Congress for all the troubles. There was no retort, no alteranative viewpoint given that maybe, just maybe, the Bush regulators and the Fed MIGHT have something to do with the F/F failure. It is really amazing that the media can’t seem to tell the simple story that F/F collapsing is a SYMPTOM of a larger crisis and that F/F, while not the most responsible, simply had the misfortune of being in the wrong place at the wrong time. They were far more responsible than everyone else, but if your entire business revolves around home mortgages today, you are going to drown no matter how careful you were (just ask lots of honest, respectable mortgage brokers, agents and building contractors).
It’s worse than that:
5. Home ownership is now more expensive due to energy costs (including commuting expense)
6. Home ownership will become even more expensive as property taxes pick up the slack from pinched Federal and State budgets and baby-boomer municipal pensions kick in.
7. Effective mortgage rates will be higher in a deflationary environment (or conversely, home equity will grow more slowly and real home prices stagnate).
8. Willingness to spend (on big houses and everything else) will decline further than ability to spend. Kondratieff Winter or some such crap.
Have a nice day!
My paranoid, cynical take on this whole thing?
The power brokers of the world couldn’t care less about the swarming masses of common folk. They are able to attenuate the damage to their portfolios do to frannie, Bear Stearns, and other past “rescues” such as Chrysler because they have the political cover to do so, not because they feel our pain. It’s an easy sell to the public – their jobs, homes, bank accounts are “in danger”. If such easily digested factoids were not available to keep the public on board, they would have to let these companies fail. And if the political consequences weren’t real, then they would just do as they damn well please.
On the dollar, Marc Faber, Dr. Doom, is quoted on the FT Alphaville blog as expecting a short term bounce in the Euro which he describes as extremely oversold. He expects the dollar to be strong simply from that fact that we ain’t buying much so our trade deficit will shrink. He expects gold to do better when everyone turns on the printing presses, but this could take awhile.See the alphaville blog for details.
I agree that there may be some quiet market manipulation going on with the dollar. Could be the Japanese or Chinese for all we know.
It would seem counterproductive for the Treasury to be pushing the dollar up. That would hurt the export boomlet which has been the only bright spot for the economy. And driving oil lower would hurt the effectiveness of the “Drill! Drill! Drill!” campaign slogan
OTOH, I suspect Bernanke will be forced to lower interest rates some time in the next few months when more stuff starts hitting the fan.
One more Housing dropper not mentioned yet, state budget cuts.
CA still doesn’t have a budget. Prison Guards Union, biggest gubanitorial contributor wants to recall Arnold.
Jerry Brown who is supposedly running wants 20% across the board cuts or something like that. I love Jerry but that might be crazy. And a lot say that’s what has to happen.
Take all those state jobs gone soon and add it to the housing mess.
Good grief, you can’t flip the channel without seeing some fool claim this will result in an upturn in the housing market. Nevermind there are more than a MILLION excess homes than normal on the market (that we know of).
Idiots.
.
Eric: “About two weeks ago there was an article in the NYTimes that implied we could produce 50% of our electricity needs with windmills in North and South Dakota if we invested up to $60 billion in a new electric grid.
Granted that’s not chump change, but the way we throw around $20 billion here and $100 billion there rescuing Bear or FNM, an infrastruture spend like improving our electric grid or enhancing our high speed access would be a welcome sign of change beyond being a convenient campaign slogan.”
All that money that went into building the houses that are now the overhanging inventory and that generated the toxic paper, that money should have done into building things like that 21st century electric grid. Or the increased electrical generating capacity all the plug-in hybrids will need.
http://www.amazon.com/Shock-Doctrine-Rise-Disaster-Capitalism/dp/0312427999/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1220939501&sr=1-1
Shock Doctrine
It can’t happen here
It can’t happen here
I’m telling you, my dear
That it can’t happen here
Because I been checkin’ it out, baby
I checked it out a couple a times, hmmmmmmmm
http://www.metrolyrics.com/it-cant-happen-here-lyrics-frank-zappa.html
The law of unintended consequences:
From FT Alphaville
US move triggers CDS default
One of the largest defaults in the history of the $62,000bn credit derivatives market has been triggered by the US government’s seizure of Fannie Mae and Freddie Mac, raising questions about how dealers will unwind billions of dollars worth of contracts. Although the $1,600bn of debt issued by the troubled mortgage groups is regarded as safe after the US government’s move to take control, their move into “conservatorship” counts as the equivalent of a bankruptcy in the credit derivatives market. This triggers a default on credit default swaps. Dealers in the market are now working to settle these contracts. The exact amount of Fannie and Freddie CDS is not known, reflecting the private nature of the market, but they are part of widely traded indices and the amounts are likely to be significant.
Would be ironic if this triggers a domino effect.
Hey Barry
this was a better turn for you on “To The Point” than last time imo but i was a bit surprised to find you in the “FF bailout was a necessary evil” camp.
What in the name of god would be wrong with
splitting off F&F’s current book of business and just letting it slowly run down? What about F&F debtholders, shareholders and FCB’s? Thrown to the FREE MARKET wolves of course! (Ya pays ya nickel ya takes yer chances. Yes? YES?!?) Fannie/Freddie the 2nd could then underwrite NEW loans at 30 years fixed, 36% DTI and 20% cash down payments. Guarantee these new MBS with the full faith and credit of the government. (unlike the face page from the current Fannie Mae prospectus which says, in the biggest typeface on that page,”…CERTIFICATES NOT GUARANTEED BY THE UNITED STATES…)
yer thoughts please?