Changing The Animal Spirits With Drunken Sailor Money
Readers suggested a topic on housing policy. “I hope everyone enjoyed the debate last night. I wanted to differentiate between D or R while making a vote next month as regards to following topics and would make a decision accordingly. I think one is Pepsi and other is Coke, both same but different flavors but I still wanted to see the differences: Who will Outsource more or keep jobs in US? Who will give more visas and Greencards? Who will control spending? Who will control the fiscal deficit? Who will be good for Medicare/SS? Who will bring jobs back and get the economy going? Who will keep a lid on Wall Street? Who will not promote principal reduction on mortgages? Who will bring shadow inventory out? Etc..etc..”
Another asked, “While we’re on the subject, what policies, laws, etc. would put an end to this miserable housing bubble debacle? Not that any of the weasels on Capitol Hill would actually implement any of them. With a few exceptions, of course.”
A reply, “That is an easy question. Get government OUT OF THE MORTGAGE industry. Make banks keep their loans and EAT their losses. Require 20% down-payment. No loans above 30% of take home pay. Proof on income/job for a loan. Or - how the housing/mortgage industry used to be pre-1990 BEFORE GOVERNMENT got involved AND DESTROYED IT.”
To which was said, “So…massive government regulation of banks. Will you also forbid non-bank loan origination and mortgage backed securities? Your plan involves forbidding the banks (and presumably all other possible lenders) from continuing in business in the way that they choose. Securitizing loans was an old business when I worked on those deals (mostly cars, industrial equipment and just starting to be credit card receivables) in the 90’s. I didn’t do the mortgages, but other teams did.”
“Forbidding a business practice that has been standard in an industry for over 20 years is a lot of government regulation. I’d say a reasonable analog would be making SUVs illegal.”
The Guardian. “Poinciana sits in the heart of the vote-rich Interstate-4 corridor where the battle for Florida – and quite possibly the White House itself – will soon be fought. This is the ultimate swing region, in the ultimate swing state, with Latino voters holding their fingers on the scale. For now, the economy is the top issue on the minds of residents, whether it be concerns over decreased home values or an unemployment rate above the national average.”
“‘In 2006 we were the fastest-growing development community in the nation with waiting lists for houses and unbelievable growth. But during the 2008 recession Poinciana literally became the poster child for the financial crisis,’ resident Keith Laytham said.”
“The growth was spurred on by a boom in the tourism industry around Orlando in the early 2000s. But people stopped taking expensive vacations when the economy deflated, leaving many of these new Latino arrivals without a job. Many are also under water on their housing, having bought homes at inflated prices that can now not be recouped.”
“Poinciana has some of the highest rates of housing strife in the country – a quarter of its 24,000 homes have fallen into foreclosure in the last four years. ‘You had people buying $250,000 homes at the height of the boom even though the median income in the county was $28,000,’ said Osceola County Commissioner Brandon Arrington.”
“Poinciana resident Roberto Sanchez, whose parents are from Puerto Rico, moved to the community eight years ago after losing his job in New Jersey. He was laid off from another construction job at the height of the unemployment crisis but has managed to find work as a quality control technician for an asphalt company. He is frustrated with the stalled economy. ‘We don’t think the government represents us. I have issues with both sides – the Democrats because of the unfulfilled promises and the Republicans because it seems they only care about rich, white people.’”
From CNBC. “Thanks to the Federal Reserve, JPMorgan Chase CEO Jamie Dimon, and the Obama administration, the U.S. economy is ‘bleeding,’ John McCain, the Republican Senator from Arizona and former presidential candidate, told CNBC. McCain told CNBC that Wall Street had taken precedence over Main Street during much of the financial crisis and he hit back at Dimon, head of JPMorgan Chase (JPM), who said on Wednesday that the acquisition of Bear Stearns during the 2008 collapse had done the Federal Reserve a ‘favor.’”
“‘I don’t owe Mr. Dimon anything,’ McCain said. ‘Mr. Dimon has done very well as have major financial institutions, and the American people are very unhappy and dissatisfied with it, as they should be.’”
“McCain also said he was not sure he’d support Fed chief Ben Bernanke for another term and he criticized the central bank’s decision to buy $40 billion in mortgage debt a month, as part of its next round of quantitative easing. ‘I’d have to think about it. … But I’m very unhappy with his performance and what’s happened to the economy when he’s announced all these measures and all the easy money. Who gets the benefit of the easy money? The big businesses on Wall Street.’”
From Breakout. “Mega-bank JP Morgan (JPM) reported record profit of $5.7 billion in the third quarter, up 34% year-over-year . With the size of JPM and the diversity of its business lines, the company can report almost whatever it wants on any given quarter. The most salient takeaway for investors as a whole was something CEO Jamie Dimon said in the management discussion portion of the press release: ‘Importantly, we believe the housing market has turned the corner. In our Mortgage Banking business, we were encouraged that credit trends continued to modestly improve… Despite this improvement, the absolute level of charge-offs remains elevated. We also expect to see high default-related expense for a while longer.’”
“Dimon didn’t exactly issue the all-clear but a steady improvement in housing would be exactly what the doctor ordered for the country.”
The Associated Press. “A former bank executive working to hasten a resolution to hundreds of foreclosure disputes in Rhode Island’s federal courts calls the mortgage crisis a ‘Gordian knot’ and says debt forgiveness needs to be part of the solution. Former Bank Rhode Island CEO Merrill Sherman said in her special master’s report to U.S. District Judge John McConnell last week that the best approach to fixing the mortgage crisis is reducing struggling homeowners’ loan amounts — an approach that has garnered significant resistance from mortgage giants Fannie Mae and Freddie Mac despite pressure from the Obama administration.”
“Sherman called it ‘economic folly’ for defaulting homeowners to stay in homes that are underwater by means of other loan modifications, including stretching out payments over a longer period of time and reducing interest rates. Sherman said ‘nothing could be worse’ for Fannie Mae and Freddie Mac than if homeowners stopped fighting their foreclosures and handed over the deeds to the homes. In that case, she wrote, Fannie and Freddie ‘would be TOAST.’ ‘All they would have is the present (reduced) value of the property, marketing and maintenance expenses and a worthless claim against the borrower(s),’ she wrote. ‘That would mean immediate and worse losses.’”
“Sherman said Fannie Mae and Freddie Mac have already cost taxpayers billions of dollars in part because their lawyers ‘have the capacity to litigate indefinitely.’ ‘So our taxpayer dollars are being utilized to fund a significant amount of lawyering that may not be productive from a business standpoint,’ she wrote.”
“The financially troubled mortgage agencies were taken over in 2008 by the U.S. government. Edward DeMarco, head of the agency that oversees them, has insisted that writing down mortgage amounts isn’t in taxpayers’ best interests. He said some homeowners could abuse the process and fall delinquent to reap the benefits of principal forgiveness.”
The Statesman Journal. ” Tracey Weedman works for Gorilla Capital, a Eugene-based company that’s one of the nation’s largest purchasers of homes sold at foreclosure auction. Weedman pulls up in front of a newer house on track for foreclosure. This one is also a tough sell. On a tiny lot, the home is wedged between two other houses. The property has no off-street parking or garage. The front yard is a narrow strip of turf.”
“‘Any place they could get a cheap piece of dirt, they were cramming in a house, and people were buying them,’ Weedman said.”
“In fall 2006, housing developments with more than 5,000 lots were under review by Salem’s planning and public works department. Then, the frenetic pace of building stopped. ‘There are countless examples of lots in town that banks have unloaded at fire-sale prices,’ said Mike Erdmann, CEO of the Home Builders Association of Marion and Polk Counties. Housing lots that once sold for as much as $150,000 have sold for as little as $30,000 to $40,000, Erdmann said.”
“Dean Kaufman, a 38-year veteran of the home building industry, sensed the market was overheated and began changing the company’s strategy. ‘I saw people building spec houses who really weren’t builders,’ Kaufman said.”
“Some made the mistake of treating their home purchase as an investment strategy. As Weedman puts it, consumers were paying ‘drunken sailor money’ under the assumption that real estate prices would continue to soar. On Dewpoint Street SE, the Lay family is concerned about real estate prices in their neighborhood. The Lay family bought their home in 2005, just a year or so before the housing bubble burst, for $270,000. One nearby home, recently placed on the market, is priced at $189,900.”
“‘When I see that number, it scares me,’ Greg Lay said.”
“Floyd Bennett works for foreclosure trustees, a go-between for the bank and the mortgage holder. He read his scripts, a legal requirement in the foreclosure process. ‘Two weeks ago, I sold three houses in a row, but a lot of times it goes back to the bank,’ Bennett said.”
“Recently, two women stood by and watched Bennett sell their foreclosed home. Bennett admits times like that hurt, even though the women had no animosity toward him. ‘Some of them are happy to see it go,’ he said of those losing their homes. ‘It’s so underwater.’”
“The Federal Reserve can’t spark a recovery in the housing market by itself because mortgage rates don’t predict where home prices are going, economist Robert Shiller told CNBC. The Fed’s latest stimulus plan involves buying up mortgage-backed securities to keep rates low and help spur home buying, which the central bank sees as key to an economic recovery. But Shiller said Fed Chairman Ben Bernanke only has one policy tool and ‘doesn’t have a way of changing the ‘animal spirits’ that a full-fledged housing recovery will depend on.”
“Shiller also said it’s too soon to call a reversal in the housing market. Home prices could also remain stagnant for while still, the economist said. ‘If you look at the last housing cycle, it peaked in the 1990s and took a decade to turnaround,’ Shiller noted. This housing downturn is in only its sixth year.”
“But Shiller said Fed Chairman Ben Bernanke only has one policy tool and it ‘doesn’t have a way of changing the ‘animal spirits’ that a full-fledged housing recover will depend on.’”
animal spirits = greed?
Bring back the greed? Bring back greed with the same intensity that it had before the bubble popped?
Lots of luck with that. You gotta get rid of the fear first.
(Is now a good time to bring up the subject of trillions of dollars of underfunded promises?)
Animals = dumb
‘Bring back greed with the same intensity that it had before the bubble popped’
I’ll try to avoid name calling and address these policies at face value. The White House says a lot about ‘keeping people in their homes.’ So can we assume they have no interest in higher house prices? Because true loan modifications will result in lower comps and even lower prices, more defaults.
But how do we square this position with insider accounts like this?
‘DeMarco’s refusal was based on his concern that granting such relief would encourage other borrowers to “strategically default” by not making payments on their loan to take advantage of the promise of a reduction in their debt. This is a version of the moral hazard argument we heard about so often in the early days of the financial crisis. Secretary Geithner, in response, argued in a public letter that notwithstanding such concerns, and for the greater good of the overall economy, such relief should be granted whenever it would result in a better economic outcome than foreclosure.’
‘no one should be fooled that the administration’s entreaties to DeMarco are anything but political posturing. As I recount in my recently released book, Bailout, during my time as the special inspector general in charge of oversight of the TARP bailouts, Treasury Secretary Timothy Geithner, using the same justifications now offered by DeMarco, consistently blocked efforts to use TARP funds already designated for homeowner relief through a principal reduction program that could have a meaningful impact on the overall economy.’
‘Hundreds of billions more were still available and could have been used by the White House and the Treasury Department to help support a massive reduction in mortgage debt. But Geithner avoided this path to a housing recovery, explaining that he believed it would be ‘dramatically more expensive for the American taxpayer, harder to justify, [and] create much greater risk of unfairness.’
‘In response to our criticism that the conflicts of interest baked into the program would render it ineffective unless principal reduction was made mandatory (when in the best interests of the holder of the loan), Treasury reinforced Geithner’s early statements, refusing to do so primarily because of fears of a lurking danger: the ”moral hazard of strategic default.” The message was clear: No way, no how would Treasury require principal reduction, even when Treasury’s analysis indicated it would be in the best interest of the owner, investor or guarantor of the mortgage.’
‘In one meeting I attended, after Secretary Geithner was pressed about the flaws in the HAMP program, he justified Treasury’s actions by explaining that the program would “foam the runway” for the banks by extending out the foreclosure crisis over time. In other words, Treasury was far more concerned with using HAMP to soften the blow of the housing crisis for the banks.’
http://blogs.reuters.com/great-debate/2012/08/06/tim-geithner%E2%80%99s-principal-hypocrisy/
One of the problems with politics and real problems is these people say or do something to get re-elected and their goals are another thing entirely. It makes it pretty hard to discuss the matter.
Let me try and ask a couple of straight-forward questions:
‘You had people buying $250,000 homes at the height of the boom even though the median income in the county was $28,000′
What would the positive outcome be for this area if these houses returned to $250,000?
‘On a tiny lot, the home is wedged between two other houses. The property has no off-street parking or garage. The front yard is a narrow strip of turf. ‘Any place they could get a cheap piece of dirt, they were cramming in a house, and people were buying them,’ Weedman said’
The housing mania produced possibly millions of really bad judgements regarding location, quality, type of housing. Are we to believe this can be made right by coaxing some buyer to pay more for this folly?
How about the fraud? Where straw buyers, flippers, bad appraisers and mortgage brokers simply manufactured ‘values’ as a way to steal money. How is it possible or desirable to reinforce these prices?
“Secretary Geithner, in response, argued in a public letter that notwithstanding such concerns, and for the greater good of
the overall economyhis future Wall Street employer, such relief should be granted whenever it would result in a better economic outcome than foreclosure.”“How is it possible or desirable to reinforce these prices?”
It’s not. Wages will simply not support them.
Now is a good time to bring up dismal housing fundamentals, such as the demographic time bomb of retiring Baby Boomers trying offload unneeded, unwanted McMansion tract homes. The following generation is plagued with a heavy student debt burden and high rates of unemployment and underemployment, factors which help to explain their dismally low rates of household formation and procreation. The paltry housing demand generated by the younger generation will ensure that McMansion tract home pricing will be on a downhill slope of desperation for a couple of decades to come, once the Fed’s phony stimulus-based housing demand crumbles in the face of fundamental economic reality.
Fundamentals trump animal spirits any year of the century.
Uh, I forgot to mention a few other fundamental impediments to a near-term housing recovery in my post:
1. The lingering shadow inventory left in the wake of the foreclosure crisis’
2. The unresolved Eurozone debt crisis, which hangs over the global economy like the Sword of Damocles;
3. The Fiscal Cliff game of political chicken, which hangs over the U.S. economy like the Sword of Damocles;
4. Soon-to-pop housing bubbles in China, Australia and Canada, which will most likely sap a lot of strength from the all-cash international equity locust component of U.S. housing demand;
5. Unresolved state and municipal debt crises in U.S. governmental units from Stockton to Scranton;
6. High likelihood of another near-term global recession…
If only I had all morning to post, I’m sure I could come up with at least twenty more fundamental impediments to a lasting housing recovery…
Mere flesh wounds.
Now is a good time to bring up dismal housing fundamentals, such as the demographic time bomb of retiring Baby Boomers trying offload unneeded, unwanted McMansion tract homes.
36 million boomer couples with an estimated 45million houses of all different types need new owners. Yet population growth is the lowest in US history, immigration is flat, household formation is at pre-WW2 levels.
Now combine all those first, second, “vacation” and “investments” houses that will be emptying over the coming decade and half with the estimated 20-30 million excess empty houses…..
Now combine that with the fact that housing demand is at early-to-mid 1990’s levels.
Now WTF do you all think is going to happen?
Eventually houses will be given away. But what will have to happen between now and then to get to that point?
Today’s debt cat bounce gives way to tomorrow’s renewed panic…
“Now WTF do you all think is going to happen?”
If I were a dumb, if spirited, talking animal, I might answer that a housing bottom is about to happen.
Only if each step in a filght of stairs is a landing.
My bearish animal spirits suggest housing has another very long leg down after this current wave of irrational exuberance dies a quick, painful death.
Scenario: Those houses will be offloaded directly from the baby boomer parents to their student-debt laden underemployed kids, possibly by some type of assumed mortgage. By the time the kid gets the house, the old mortgage payment will be affordable on a lower income via inflation. In the meantime the kids will continue to pay off the student debt, merely substituting one type of debt for another. Isn’t that already happening now? Meanwhile, houses without convenient kids will either be rented out or allowed to fall in, given the quality. Net result: little change in inventory.
“By the time the kid gets the house, the old mortgage payment will be affordable on a lower income via inflation.”
We’re battling deflation right now. Methinks those hoping and expecting inflation to bail out homeowners will be sorely disappointed.
Net result: You’re flailing.
“Those houses will be offloaded directly from the baby boomer parents to their student-debt laden underemployed kids, possibly by some type of assumed mortgage.”
I’d guess that will never happen in more than one out of one hundred cases. How many adults do you know who live in their parents’ former home?
I know none whatsoever.
I know several in PV and Malibu. Of course the “kids” are on the verge of retirement now themselves. And to a person, single.
The houses will be subject to Medicaid liens when the boomers have to go into nursing homes. Once both die, the state gets the houses and sells them to try to get back some of the cost of paying for the nursing home at $200 a day.
“I know several in PV and Malibu.”
I’d guess the very high end is an exception to the rule. For example, I cannot fathom me or any of my siblings moving back into the modest home in which we grew up. But if your parents were loaded and you are not so blessed, then it makes sense to consider the option to enjoy living large in the house your parents built.
The houses will be subject to Medicaid liens when the boomers have to go into nursing homes. Once both die, the state gets the houses and sells them to try to get back some of the cost of paying for the nursing home at $200 a day.
This is happening locally in multiple instances that I’m aware of.
The Fed-engineered housing recovery is gathering strength by the day, and it’s working out great for Megabank, Inc’s bottom line.
How is it working out for you, personally?
Serial bottom caller’s modus operandi: Keep declaring a housing bottom is in ever six months or so until it finally happens, no matter how many years it takes…
Banks see a housing rebound
JPMorgan, Wells Fargo post big profit gains as home lending booms
By E. Scott Reckard and Andrew Tangel, Los Angeles Times
October 12, 2012, 5:59 p.m.
America’s long-suffering housing market may be on the mend, two major banks said as they reported big jumps in profits.
JPMorgan Chase & Co. and Wells Fargo & Co., the nation’s largest home lenders, each reported double-digit quarterly earnings growth Friday. The big jump in profit was thanks largely to a surge in their mortgage businesses, fueled by low interest rates and waves of refinancing.
It led JPMorgan Chief Executive Jamie Dimon, considered one of Wall Street’s most high-profile bankers, to declare: “We believe the housing market has turned the corner.”
Home lending is booming. The banks said profits on the sale of home loans were twice as high as traditional levels as the Federal Reserve kept interest rates at historical lows to help stimulate the economy.
JPMorgan and Wells Fargo, which emerged from the financial crisis as two of the strongest U.S. banks, control nearly half of the nation’s mortgage volume. They reported a surge in revenue from mortgage origination and servicing during the last three months.
Wells said it issued $139 billion in mortgages from July through September, compared with $89 billion in the same period last year. JPMorgan wrote $47 billion in mortgages, compared with $37 billion last year.
“Both companies clearly expressed a view of signs of recovery, if not stabilization” in the housing market, Sterne Agee banking analyst Todd Hagerman said. “These guys should continue to report very healthy [mortgage] numbers for at least the next several quarters, if not through 2013.”
…
Me personally? Well for one thing the threats on my life are beginning to fall off.
I certainly hope the “kill the messenger” effect didn’t literally play out in David Lereah’s personal life. He was notoriously wrong about housing, but I believe he acted in good, if deluded, faith, just like almost all the other nationally-recognized housing “experts” did before the bubble popped.
Thank you. Pass this on to everyone who wants to kill me.
Pass it on for me as well.
You can always go under cover like Salmon Rushdie did.
Comment by David Lereah
You need a bodyguard you lying bastard.
Maybe I should run for President. Your term “lying bastard” accurately sums up my qualifications.
And as for needing a bodyguard: If I win the election the Secret Service will become my bodyguard - a service I won’t have to pay for (but you, the taxpayer, will).
(snort)
(but you, the taxpayer, will)
Taxpayer? What is a taxpayer?
H.L. Mencken prophetically predicted an NAR economist’s candidacy many years before David Lereah’s time:
Maybe I should run for President. Your term “lying bastard” accurately sums up my qualifications.
David Pinocchio Lereah,
If you’ve ever been truthful, this is it. You would be a perfect fit.
The OC Register newspaper cites RE pries in OC up 6.7% over September 2011.
pries=prices
Gomen Nasai!
“I think one is Pepsi and other is Coke,…”
Most insightful political comment, ever?
“That is an easy question. Get government OUT OF THE MORTGAGE industry. Make banks keep their loans and EAT their losses. Require 20% down-payment. No loans above 30% of take home pay. Proof on income/job for a loan. Or - how the housing/mortgage industry used to be pre-1990 BEFORE GOVERNMENT got involved AND DESTROYED IT.”
Say it loudly and frequently.
“‘In 2006 we were the fastest-growing development community in the nation with waiting lists for houses and unbelievable growth. But during the 2008 recession Poinciana literally became the poster child for the financial crisis,’ resident Keith Laytham said.”
That makes no sense at all, Keith. How could the fastest growing development community in the nation possibly fall so far? Shouldn’t they be doing better than all those slower growing places where the
losersloosers lived?‘We don’t think the government represents us. I have issues with both sides – the Democrats because of the unfulfilled promises and the Republicans because it seems they only care about rich, white people.’
Is he trying to blame his own foolishness on the rich white banksters who loaned him the money?
So far as I know, loan officers never put a gun to anybody’s head to force them to take out unaffordable loans.
Nobody forces people to join the army either. But somehow forces seem to conspire to make it happen.
Recruiters for the armed forces make commission for each recruit, and
each loan officer gets commission for each borrower duly fleeced.
What’s the difference?
The severity of enforcement.
“McCain told CNBC that Wall Street had taken precedence over Main Street during much of the financial crisis and he hit back at Dimon, head of JPMorgan Chase (JPM), who said on Wednesday that the acquisition of Bear Stearns during the 2008 collapse had done the Federal Reserve a ‘favor.’”
I’m missing the dichotomy to which Mr. Dimon alludes. Aren’t Megabanks that do Uncle Sam special favors in exchange for free too-big-to-fail insurance basically part of the government?
“Mega-bank JP Morgan (JPM) reported record profit of $5.7 billion in the third quarter, up 34% year-over-year . With the size of JPM and the diversity of its business lines, the company can report almost whatever it wants on any given quarter.”
Sounds like accounting fraud.
How soon they forget J.P. Morgan’s whale hunt
MarketWatch First Take
Commentary: Profit gain, housing push risk concerns off the stage
October 12, 2012|MarketWatch
SAN FRANCISCO (MarketWatch) — What whale?
A quarter after delivering one of the biggest trading losses in the history of Wall Street, J.P. Morgan Chase & Co. delivered third-quarter profit that will make amnesiacs of most investors.
The results — net income of $5.71 billion, or $1.40 a share — were dazzling enough, but CEO Jamie Dimon obfuscated the issue even more by pronouncing housing had “turned the corner.” Read live blog of J.P. Morgan’s earnings call.
Investors wondering about that crick in their necks might want to get checked for whiplash. A bank (US:JPM) that appeared to be on the ropes in May suddenly appears to have regained its footing as a profit machine.
The tarnish of the “London whale” and the $6 billion in trading losses are now overshadowed by questions about how fast the bank can increase its investment banking revenue, how quickly it will unleash reserves ($900 million this quarter) and how soon trading revenue will revive.
Some analysts seemed anxious for the bank to lower its credit standards on mortgages.
The whale? The trading position is effectively closed, with only $449 million in additional costs booked during the quarter.
Dimon almost seemed cocky when he told an analyst that the bank’s $700 million litigation fund would remain high. He then finished the call by joking about the appearance of Doug Braunstein, the bank’s investment banking guru who’s stepping down as CFO.
Coming after Dimon’s provocative comments at the Council of Foreign Relations this week, it’s clear the chief executive and the bank are far along in getting their mojo back. Whether the bank has earned its ability to speak freely is another question.
…
When you get bailed out on loans or dump the junk loans on the Government ,and you settle on major crimes for peanuts , and FED
Policies float your casinos ,you tend to come out ahead of the game . This is where I say they should give the money back to the taxpayers because JP MORGAN isn’t entitled to profits for what they did .
“But Shiller said Fed Chairman Ben Bernanke only has one policy tool and ‘doesn’t have a way of changing the ‘animal spirits’ that a full-fledged housing recovery will depend on.”
Don’t tell me Shiller never heard about the infamous white paper?
And on what evidence does he presume the Fed has nothing to do with the mass withholding of inventory, which also serves to artificially inflate housing prices?
How are the efforts to end too-big-to-fail coming along?
When Did Sandy Weill Change His Mind About Too Big To Fail? And Why?
POSTED: August 3, 11:30 AM ET
There were a great many fascinating moments in the now-legendary Squawk Box interview of former Citigroup chairman Sandy Weill, in which the creator of the Too-Big-To-Fail model told an astonished Andrew Ross Sorkin that it was time to break up the Too-Big-To-Fail banks. But one moment in particular flew under the radar:
For the moment we can ignore the fact that Weill throughout the interview kept patting himself on the back for his “good thing” of an idea. (Although, if close attention is paid, one does get the impression that Weill sincerely believes he came up with the “break up the banks” idea on his own, and it’s almost like he’s preparing to take credit for it if it happens; this is just one of the many layers of delicious comedy that can be peeled back through careful re-examination of this interview). We can just call all that background noise for now.
…
What makes banksters feel entitled to always go around screwing people?
Sex Life Was ‘Out of Step,’ Strauss-Kahn Says, but Not Illegal
By DOREEN CARVAJAL and MAÏA de la BAUME
Published: October 13, 2012
PARIS — More than a year after resigning in disgrace as the managing director of the International Monetary Fund, Dominique Strauss-Kahn is seeking redemption with a new consulting company, the lecture circuit and a uniquely French legal defense to settle a criminal inquiry that exposed his hidden life as a libertine.
An economist, Dominique Strauss-Kahn has started consulting and traveling the lecture circuit.
Mr. Strauss-Kahn, 63, a silver-haired economist, is seeking to throw out criminal charges in an inquiry into ties to a prostitution ring in northern France with the legal argument that the authorities are unfairly trying to “criminalize lust.”
That defense and the investigation, which is facing a critical judicial hearing in late November, have offered a keyhole view into a clandestine practice in certain powerful circles of French society: secret soirees with lawyers, judges, police officials, journalists and musicians that start with a fine meal and end with naked guests and public sex with multiple partners.
In France, “Libertinage” has a long history in the culture, dating from a 16th-century religious sect of libertines. But the most perplexing question in the Strauss-Kahn affair is how a career politician with ambition to lead one of Europe’s most powerful nations was blinded to the possibility that his zest for sex parties could present a liability, or risk blackmail.
The exclusive orgies called “parties fines” — lavish Champagne affairs costing around $13,000 each — were organized as a roving international circuit from Paris to Washington by businessmen seeking to ingratiate themselves with Mr. Strauss-Kahn. Some of that money, according to a lawyer for the main host, ultimately paid for prostitutes because of a shortage of women at the mixed soirees orchestrated largely for the benefit of Mr. Strauss-Kahn, who sometimes sought sex with three or four women.
On Thursday, Mr. Strauss-Kahn broke a long silence to acknowledge that perhaps his double life as an unrestrained libertine was a little outré.
…
What makes banksters feel entitled to always go around screwing people?
You knew they were a banker when you invited them in?
http://en.wikipedia.org/wiki/The_Scorpion_and_the_Frog
Looks like poor “Dom” finally got called out on his unpleasant propensities.
Set up or not, it wasn’t the first time he’d been named in a formal complaint.
It’s quite a fantastic story by this provincial reader’s standards; I had no idea upper-class French society ’socialized’ in such a lascivious manner.
“Get government OUT OF THE MORTGAGE industry. Make banks keep their loans and EAT their losses. Require 20% down-payment. No loans above 30% of take home pay. Proof on income/job for a loan. Or - how the housing/mortgage industry used to be pre-1990 BEFORE GOVERNMENT got involved AND DESTROYED IT.”
I bought my first house in 1996 and these standards were in place.
And what happens to interest rates if the banks are forced to write down masses of mortgages? If a bank loans $200K and has to write it down because the FB isn’t happy about the direction of house prices, who would lend for a 15/20/30-year mortgage?
If rates spike, housing is still DOA.
We bought in 1996 as well. 20% down, plus virtually had our underwear examined to make sure we were credit worthy.
With the recent memory of that ordeal in mind, I was pretty shocked to see lenders handing out crazy loans like candy circa 2006.
20% down, plus virtually had our underwear examined
But weren’t there still RE bubbles (at least local ones) even under those borrowing conditions?
I recall house flipping in SoCal in those days.
My personal impressions of the NorCal (East Bay) market from a week of house hunting, assisted by a local Realtor™, in Summer 1996:
1) There were no decent rentals available for what we were willing to pay.
2) There were very few decent homes available at the low-end, which all we could afford at the time.
We ended up buying a foreclosure condo that had sat vacant for a long period of time before the owner finally got around to rehabbing it into salable condition. It was reasonably livable, but there was visible damage inside, presumably due to the neglect or perhaps deliberate action by the former owner to damage it.
But weren’t there RE bubbles back in those stricter lending days?
Ya know….. just what is your motivation here?
Truth.
Yet you seem to apologize for inflated housing prices.
Why is that?
Pointing out that we had RE bubbles even when lending was stricter is hardly “apologizing for inflated housing prices”. It’s exploring the issue, without wearing the blinders of self-interest. Something you should look into.
Conflating slight deviations in prices with a massive global mania is a liars game.
If you want to play, expect to be exposed.
expect to be exposed
Back atcha.
You better get to work Bubble Pimp.
Beware the Ben Bernanke put
October 11, 2012 by Chris Rees
This market walks on the dubious crutches of the good Doctor Ben Shalom Bernanke. Our dollar bills should read ‘In Ben we trust’. The Bernanke Put will protect us all. This new invincible Atlas can carry the world on his shoulders. His medicine will cure all ills. Fear not. Buy the dips. Invest with abandon. Ben has your back.
This market wide reliance on the Federal Reserve Bank’s chairman’s belief system makes us nervous. We truly have arrived at a faith-based economy. But is it smart to buy the Bernanke ‘wealth effect’ doctrine lock, stock and barrel or is some caution warranted? We’ve been thinking about this and when we do two words keep pushing their way to the front of the thought process. Those two words are ‘event risk’.
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What happens when the helicopter has to leave for more fuel. Will we survive the wait until he gets back? Or is it a perpetual motion machine that requires no fuel?
“What happens when the helicopter has to leave for more fuel.”
Endless jawboning to keep alive the QE cargo cult’s hopes for further easing.
Banksters are lobbying for laxer mortgage lending regulations — so long as the 99% are stuck with the tab for resulting losses.
Blaming Regulation, Again, for Restricting Mortgage Lending
By PETER EAVIS
4:03 p.m.
It’s the government’s fault — or so the bankers say.
Despite the multiyear federal stimulus that is still being thrown at the mortgage market, some banking executives are saying that Washington is acting in ways that are holding back a housing recovery.
The latest person to pile on was Jamie Dimon, chief executive of JPMorgan Chase, who said Friday: “I would hope for America’s sake we start to fix the things that make the mortgage underwriting too tight.” The inference was that new regulation is getting in the way, especially the lack of clarity on proposed rules that aim to make mortgages fair and affordable for borrowers.
Regulatory uncertainty does of course weigh on banks’ ability and desire to make loans. But here are some counterweights to such complaints.
First, government support to the housing market far outweighs any negative impact for banks. The mortgage market is benefiting from three huge sources of stimulus and subsidy. The Federal Reserve has purchased hundreds of billions of dollars of mortgage-backed bonds since the crisis, an initiative that lowers interest rates and ignites demand for new loans among borrowers. Government-owned entities like Fannie Mae currently guarantee repayment on nearly all mortgages. And the Treasury Department’s homeowner relief programs have generated refinancing income for banks.
All this aid has made it possible for banks like JPMorgan to carry out one of the most profitable, low-risk “trades” that has ever existed in modern capital markets. They simply make mortgages and flip them to bond investors, after attaching the federal guarantee. In the third quarter, JPMorgan booked $1.78 billion in revenue from that type of transaction, a 36 percent increase from the year-earlier period.
Second, bankers may be overstating the amount of regulatory uncertainty that hangs over the mortgage market.
Mr. Dimon said that mortgage underwriting was “too tight.” It is true that nearly all mortgages made these days have to be underwritten very safely – lots of money down, and much verifying information, for example – to qualify for the federal guarantee.
Still, banks are absolutely free to make mortgages with looser standards and then hold them on their balance sheet instead of selling them in the bond market. Banks, however, say they are reluctant to do that, in part because of regulatory uncertainty. For one, they say new capital rules could make it more expensive to hold certain types of mortgages, though the details here are getting much clearer.
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Possible next bailout: Mortgage relief for veterans with underwater federally-guaranteed, zero-percent down payment mortgages in amounts up to $1,094,000.
Mortgages
V.A. Loans Surge in Fiscal Year
The New York Times
By LISA PREVOST
Published: October 11, 2012
MORTGAGES guaranteed by the Department of Veterans Affairs surged by 50 percent in the fiscal year ended Sept. 30, as tighter credit standards on conventional financing made these programs all the more attractive to current and former military members.
The department guaranteed almost 540,000 loans in fiscal year 2012, the most since 1994, according to Mike Frueh, the director of loan guarantee service. Compared with five years ago, volume is up some 300 percent.
Low interest rates were part of the draw — about 338,000 of the V.A. loans were for the purpose of refinancing.
Borrowers who already have a V.A.-backed mortgage can get an interest-rate reduction relatively easily. The department’s streamlined refinance program doesn’t require these borrowers to “re-prove” that they qualify, said Nathan Long, the chief executive of Veterans United Home Loans, an online broker of V.A. loans.
“It’s a great benefit not to have to go through all the hoops that you would otherwise have to,” Mr. Long said.
V.A. loans for purchases were up almost 10 percent over the previous fiscal year. For military members who qualify, these home loans offer a financing option that has largely disappeared since the subprime meltdown: no down payment.
“Regardless of where home prices are,” Mr. Long said, “100 percent financing can be a great option for people. We’ve seen 9 in 10 of our borrowers use the full 100 percent.”
Borrowers also benefit in that they don’t have to pay for mortgage insurance. The department does place limits on loan amounts it will guarantee. These range from $417,000 to $1.094 million, depending on the property’s location. In the New York metropolitan area, the limit is $777,500.
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What would ANY soldier, airman, marine or sailor (active duty or retired) at ANY rank need or could afford a $1 million mortgage????
Simple government insanity…
That was my thought, too. Glad we finally found a point of agreement.
Fed’s Asset Purchases Are `Charade,’ Roach Says
Sept. 14 (Bloomberg) — Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, talks about the decision by Federal Reserve policy makers to proceed with a third round of large-scale asset purchases, inflation in the U.S. and the Chinese economy. He speaks with Trish Regan and Adam Johnson on Bloomberg Television’s “Street Smart.” Gordon Chang, author of “The Coming Collapse of China,” also speaks. (Source: Bloomberg)
Ron Paul: ‘The Fed is saying that we have lost control’
Published: 14 September, 2012, 23:43
The US Federal Reserve announced Thursday that they’ll be implementing a third-round of quantitative easing in an attempt to salvage the faltering economy. Right on cue, one of the Fed’s biggest critics readily objected.
Reacting to the announcement to Bloomberg News, presidential candidate Rep. Ron Paul (R-Texas) said he expected that the Fed would reveal plans for more quantitative easing, or QE3, but opposed it nonetheless.
“It should not surprise anybody, but it is still astounding. To me, it is so astounding that it does not collapse the markets,” the congressman told Bloomberg.
Federal Reserve Chairman Ben Bernanke confirmed after this week’s Federal Open Market Committee that the US central bank will begin spending $40 billion a month on bond purchases in an effort to kick-start the economy. Rep. Paul, who has long called for an audit of the Fed, suggested that Mr. Bernanke’s plan may in fact do little if any to aid America’s financial woes.
“I think the country should have panicked over what the Fed is saying that we have lost control and the only thing we have left is massively creating new money out of thin air, which has not worked before, and is not going to work this time,” Rep. Paul said.
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